ANNUAL REPORT AND FINANCIAL STATEMENTS 2024 LITIGATION CAPITAL MANAGEMENT LIMITED // ACN 608 667 509 WWW.LCMFINANCE.COM LITIGATION CAPITAL MANAGEMENT LIMITED ANNUAL REPORT AND FINANCIAL STATEMENTS 2024 1 ANNUAL REPORT AND FINANCIAL STATEMENTS 2024 1 C O N T E N TS 0 1// ST RAT EGIC R E PO RT OUR BUSINESS AT A GLANCE 6 CHAIRMAN’S STATEMENT 8 CEO’S REPORT 12 OUR PRINCIPLES 16 OUR BUSINESS MODEL 19 KEY PERFORMANCE INDICATORS 24 0 2// FINANCI AL R E VI E W RISK MANAGEMENT AND INTERNAL CONTROLS 35 SUSTAINABILITY REPORT 42 0 3// GOV ERN AN CE BOARD OF DIRECTORS 46 THE QCA CORPORATE GOVERNANCE CODE 48 CORPORATE GOVERNANCE STATEMENT 52 REMUNERATION REPORT 55 DIRECTORS’ REPORT 61 AUDITOR’S INDEPENDENCE DECLARATION 66 04 / / FI N A N C I A L S TAT E M E N T S CONSOLIDATED STATEMENT OF PROFIT OR LOSS 69 AND OTHER COMPREHENSIVE INCOME CONSOLIDATED STATEMENT OF 70 FINANCIAL POSITION CONSOLIDATED STATEMENT OF 71 CHANGES IN EQUITY CONSOLIDATED STATEMENT OF CASH FLOWS 72 NOTES TO THE FINANCIAL STATEMENTS 73 CONSOLIDATED ENTITY DISCLOSURE STATEMENT 109 DIRECTORS’ DECLARATION 110 INDEPENDENT AUDITOR’S REPORT 111 CORPORATE DIRECTORY 115 LITIGATION CAPITAL MANAGEMENT LIMITED 2 LITIGATION CAPITAL MANAGEMENT LIMITED 2 FY24 HIGHLIGHTS We are pleased to have extended our industry- leading track record with successful case outcomes over the past 12 months driving our 13-year investment performance to an impressive 2.9x multiple of invested capital. PAT R IC K M O LO N E Y // C E O US$441M F U N D S U N D E R M A N A G E M E N T FY21 FY22 FY23 FY24 441 441 340 150 2.9x 1 3 - Y E A R T R A C K R E C O R D ( M O I C ) FY21 FY22 FY23 FY24 2.9 2.8 2.6 2.5 ANNUAL REPORT AND FINANCIAL STATEMENTS 2024 3 ANNUAL REPORT AND FINANCIAL STATEMENTS 2024 3 FY24 HIGHLIGHTS A$279M N E W C O M M I T M E N T S FY21 FY22 FY23 FY24 279 176 104 109 A$724M C O M M I T T E D C A P I T A L FY21 FY22 FY23 FY24 484 414 336 724 A$281M C U M U L A T I V E I N V E S T E D C A P I T A L ( I N O N G O I N G C A S E S ) FY21 FY22 FY23 FY24 227 184 135 281 A$102M I N V E S T E D C A P I T A L ( I N P E R I O D ) FY21 FY22 FY23 FY24 102 95 66 88 LITIGATION CAPITAL MANAGEMENT LIMITED 4 LITIGATION CAPITAL MANAGEMENT LIMITED 4 ANNUAL REPORT AND FINANCIAL STATEMENTS 2024 5 ANNUAL REPORT AND FINANCIAL STATEMENTS 2024 5 STRATEGIC REPORT 1 STRATEGIC REPORT STRATEGIC REPORT LITIGATION CAPITAL MANAGEMENT LIMITED 6 STRATEGIC REPORT OUR BUSINESS AT A GLANCE OUR STRATEGIC OBJECTIVES BALANCED PORTFOLIO Maintain diversity of cases across industry type, sector and jurisdiction and maintain a healthy split between single cases and portfolios both by value and volume. DISCIPLINED UNDERWRITING Consistent and disciplined due diligence and risk management. SUSTAINABLE LONG-TERM GROWTH Strong and innovative origination of investment opportunities and continually evolving by responding to market trends and demands within the disputes finance market. ABOUT LCM Litigation Capital Management (LCM) is an alternative asset manager specialising in disputes financing solutions internationally. Through our two business models, direct balance sheet and funds management, we create value through our three primary investment strategies. These include single-case, portfolios and acquisition of insolvency claims. LCM has an unparalleled track record, driven by effective project selection, and robust risk and project management. Headquartered in Sydney, with offices in London, Singapore, Brisbane and Melbourne, LCM listed on AIM in December 2018, trading under the ticker ‘LIT’. Through our two business models we create value via our three primary investment strategies. ANNUAL REPORT AND FINANCIAL STATEMENTS 2024 7 STRATEGIC REPORT OUR VALUES TRANSPARENCY We will always act transparently in the best interests of clients, shareholders and staff. OPPORTUNITY We are an employer that empowers staff to succeed at every level. DISCIPLINE Our investment approach demonstrates the highest levels of ongoing governance and procedural oversight to achieve optimal portfolio outcomes. INNOVATION We continually drive market evolution through flexible, innovative and competitive client solutions. INTEGRITY We choose to operate to a standard that exceeds regulatory obligations placed upon industry participants in the countries where we operate. INTEGRITY • Development of skill and discipline of investment selection • Building experience over time • Creation of systems and methodologies for effective due diligence and underwriting risk • The disciplined application of those methodologies has generated a benchmark investment track record CAPITAL • Effective investment disputes is capital intensive • Ability to attract quality investment capital to support investment strategy • Capital is no longer flowing into litigation finance other than that to the most experienced managers with strong track records of past performance ORIGINATION • Sourcing and originating the best dispute investments globally • Building scale so that meaningful capital can be put to work • An effective origination platform can only be built once sufficient and long-standing capital is available PRINCIPLE BUSINESS 1. Strong and innovative origination of investment opportunities 2. Consistent and disciplined due diligence and risk management 3. Sufficient and alternate capital to facilitate growth DELIVERING SUSTAINABLE GROWTH AND SHAREHOLDER VALUE THROUGH LITIGATION CAPITAL MANAGEMENT LIMITED 8 STRATEGIC REPORT Dear Shareholder, As I reflect on another year of strategic progress, I am pleased to report that Litigation Capital Management (LCM) has continued to execute its long-term vision with resilience and agility, despite the challenges presented by the broader macroeconomic environment. Our ability to navigate these challenges while continuing to deliver solid results underscores the strength of our diversified approach and the commitment of our team. One of our core objectives over the past few years has been our transition towards an asset management model. I am pleased to report that we continue to make significant strides in this direction. To date, we have raised over US$440 million of third party capital from a number of high quality limited partners across two funds. As we approach the end of this calendar year, we will begin marketing for Fund III and with all investors from Fund I participating in Fund II, we hope to secure a high level of investor continuity once again. We are partnering with some of the highest quality limited partners (LPs) and those investors view our relationship as being for the long-term potentially across multiple funds. If we are able to continue delivering strong performance and they continue to support us in future fund raises then I believe the long-term benefits for shareholders could be substantial. In line with our growth strategy, we are now preparing to expand into the United States, by far the largest legal finance market in the world. This represents a major step for LCM and presents a significant growth opportunity. The US legal finance market, which is still in a relatively early phase of development, offers us the potential to tap into a market estimated to be worth billions of dollars. Our expansion into the US will be conducted with the same disciplined approach that has served us so well in our existing markets. Indeed, with our London office now well established and on a firm footing, we feel that the time is now right to enter the US. As we have done in our existing territories, we will seek to establish strategic partnerships with leading law firms and attorneys and we will continue to focus on high-quality cases that align with our risk management and return expectations. As we look to the future, we are also making investments in cutting-edge technologies as we believe that legal finance is perfectly suited for the application of Big Data and artificial intelligence (AI) strategies. We have recently acquired the intellectual property of one of the pioneering platforms in this space in legal finance and we are working with the founder who built the business over a five year period. We aim to be an early mover in this space and see a number of opportunities including enhancing our origination capabilities, better assessing risk, improving case selection, and bolstering the efficiency of our operations. These investments are not just a step toward modernisation – they represent a strategic edge in a competitive asset class. This year also saw an important transition in our leadership team. Mary Gangemi has stepped down from her role as Chief Financial Officer and from the Board of Directors. On behalf of the Board, I would like to thank Mary for her contributions to LCM during her tenure and we wish her every success in her future endeavours. In line with our commitment to ensuring continuity in leadership and strengthening our executive team, we announced the appointment of David Collins as our new Chief Financial Officer. David brings a wealth of experience in both finance and capital markets, and we are confident that his experience will be invaluable as we continue to execute our strategic plans. David’s appointment marks an important step in ensuring LCM is well-prepared for the next phase of its development, including our expansion into new markets and our ongoing technological advancements. CHAIRMAN’S STATEMENT ANNUAL REPORT AND FINANCIAL STATEMENTS 2024 9 STRATEGIC REPORT LITIGATION CAPITAL MANAGEMENT LIMITED 10 STRATEGIC REPORT ANNUAL REPORT AND FINANCIAL STATEMENTS 2024 11 STRATEGIC REPORT As we head into the next financial year, I am confident that LCM is well-positioned to continue its growth trajectory. Our focus on becoming a leading asset manager in the litigation finance space, our expansion into the US market, and our investments in advanced technology will drive sustainable growth and enhance shareholder value. The Board is pleased to declare a final dividend to shareholders for the financial year ending 30 June 2024 of 1.25p per share. The dividend will be paid on 25 October 2024 to shareholders on the register on 4 October 2024, being the record date. The ordinary shares will be marked ex-dividend on 3 October 2024. I would like to take this opportunity to thank our dedicated team, whose expertise and commitment continue to drive our success. I would also like to extend my gratitude to our shareholders for their continued support and trust in our vision. We look forward to updating you on our progress throughout the coming year. Jonathan Moulds Non-Executive Chairman LITIGATION CAPITAL MANAGEMENT LIMITED 12 STRATEGIC REPORT CEO’S REPORT Over the past year, we have made significant strides in our strategic transformation from a capital-intensive balance sheet litigation funder to a capital-light asset manager. Our disciplined investment approach continues to deliver strong results, with cases concluding during the period generating a 2.4x multiple of invested capital (MOIC), closely aligned with our long-term average of 2.9x. Additionally, we have delivered record levels of new commitments in the period, and our two flagship investment funds have delivered robust performance to date for our fund investors. Looking ahead, the long-term potential of our strategy to create meaningful shareholder value is clear. Investment management businesses that generate high returns on investment and earn significant performance fees rank among some of the most profitable businesses globally. We are attracting the same sophisticated LPs who have fuelled the huge successes of private equity, venture capital, and other alternative asset classes. Our performance thus far for LPs has been outstanding, with Fund I investors realising a net internal rate of return (IRR) of 60% to date after all costs and performance fees paid to LCM (US$29 million to date, including those relating to the recent case conclusion post period end). This level of performance aligns with our long-term track record and firmly positions us in the top tier of alternative investment managers, where a net IRR exceeding 20% is typically considered exceptional. I am confident that if we continue to scale effectively and consistently meet or surpass the expectations of our LPs, the potential value creation for our shareholders could be significant. Our management team is fully aligned with this vision with substantial personal shareholdings in the company. I hold a 9% stake, our Chairman, Jonathan Moulds, who joined in 2019, has independently acquired a 4.5% stake, and collectively, our small team of 25 owns approximately 17% of the company. This level of ownership underscores our confidence in LCM’s future and aligns our interests closely with those of our shareholders. As we move forward, I am focused on three strategic priorities: 1. Successfully completing our transition to asset management; 2. Entering the US market in a disciplined manner; 3. Implementing Big Data / AI strategies to enhance our origination and underwriting capabilities. TRANSITION TO ASSET MANAGEMENT Since March 2020, we have raised over US$440 million of external capital across two funds: US$150 million in the LCM Global Alternative Returns Fund (Fund I); and US$290 million in the LCM Global Alternative Returns Fund II (Fund II). For Fund I, we have successfully committed US$150 million across 26 cases, co-investing alongside our balance sheet on a 75:25 basis. As at the end of June 2024, six of these cases have concluded, all with positive outcomes, generating a 2.5x net MOIC for our investors and a net IRR of 60% after costs and fees. This strong performance enabled us to return around 70% of investors’ capital as at 30 June 2024 while approximately three quarters of their investments remain active. Fund II was launched in the second half of 2022 with all Fund I investors participating alongside new investors. To date, Fund II has committed capital to 33 matters, continuing our 75:25 co-investment model. As at the end of June 2024, the fund was 58% committed and 7% deployed with no cases concluded to date. We plan to commence marketing for Fund III towards the end of this calendar year, and we aim to move towards evolving our fee structure to include a management fee, or similar equivalent, within our fee structure. This will transition us towards the well-known “2 and 20” model widely used across alternative asset managers. Introducing a management fee, or similar equivalent, on third party capital that will grow and ultimately cover our operating expenses is a pivotal step in our evolution to an asset management business. As our business has scaled, operating expenses as a percentage of committed capital have declined from 7.8% five years ago to 2.6% in the current period, a trajectory we expect to continue, ultimately falling to around 2%. This transition demonstrates our shift to a sustainable asset management model, where management fees, or similar equivalents, from future funds are expected to ultimately cover the operating expenses of the business over time. ANNUAL REPORT AND FINANCIAL STATEMENTS 2024 13 STRATEGIC REPORT LITIGATION CAPITAL MANAGEMENT LIMITED 14 STRATEGIC REPORT ENTERING THE US MARKET Since moving to London three years ago, my focus has been on establishing our presence in the UK market in a disciplined manner. Drawing on our extensive experience in Australia – the world’s oldest litigation funding market – we have successfully demonstrated that our model can be effectively applied in other common law jurisdictions. The performance of our London office has been particularly encouraging, with over £100 million (cAUD200 million)in proceeds realised for LCM at a MOIC of over 3x inclusive of losses. Additionally, we have made good progress in Singapore with one of our larger wins in the period being originated in that office. While there is still much work to be done, both our UK and Singapore operations are now firmly established in their respective markets. Our expansion beyond Australia has enabled us to scale, positioning the business to capitalise on the long-term potential offered by our transition to an asset management model. With this growth trajectory in mind, I believe the time is right to enter the US market - by far the largest disputes market in the world, exceeding the size of the next largest market (the UK) by more than tenfold. We have already made a few opportunistic investments in the US from our London office and we have similarly explored and made investments in the Canadian market. The US market is highly attractive for several reasons. Firstly, its sheer scale. US law firms generate over US$700 billion in revenues, with 20 to 30 per cent of those revenues estimated to come from disputes (litigation and arbitration). Secondly, US lawyers are accustomed to managing risk, with contingency fees – where lawyers forego part of their fees in exchange for a share of the proceeds from successful outcomes – being a widespread practice. This creates significant opportunities for litigation funders to establish long-term financing relationships with US law firms, enabling meaningful capital deployment on attractive terms. Lastly, the US is a data-rich environment, providing fertile ground for the application of Big Data and AI strategies in a legal market ripe for such innovation. There is a small number of legal finance businesses that have been successful in the US and we believe that a market of this magnitude has room for several more successful players. As one of the oldest and most respected litigation funders globally, LCM is well-positioned to establish itself as a leading name in this dynamic market. IMPLEMENTING BIG DATA AND AI STRATEGIES In line with our strategic objectives, we have recently completed the acquisition of the intellectual property of a leading technology platform specialising in legal analytics. This acquisition, secured for a modest investment, provides us with a powerful tool to leverage Big Data and AI strategies to significantly enhance both our origination and underwriting processes. By integrating this technology into our operations, we aim to sharpen our ability to assess legal disputes more accurately and efficiently, thereby improving our decision‑making and risk assessment capabilities. This technology will allow us to better identify promising investment opportunities and streamline the underwriting process, ensuring that we can scale our business in a more data-driven and systematic manner. This acquisition also aligns perfectly with our broader strategy to differentiate ourselves in the US market – a highly data-rich environment. By deploying cutting- edge AI and data analytics, we aim to position LCM in a differentiated way, setting ourselves apart from ANNUAL REPORT AND FINANCIAL STATEMENTS 2024 15 STRATEGIC REPORT traditional peers. Our ability to harness these technological advancements will not only enhance our core operations but also establish us as a forward-thinking player in the evolving landscape of legal finance. Looking ahead, we plan to integrate this technology across our global operations, ensuring that our expansion is supported by the most sophisticated tools available. By doing so, we are positioning ourselves at the intersection of legal finance and technology, which we believe will be key to our long-term growth and success. WELL-FINANCED FOR LONG TERM GROWTH We are close to finalising a new debt facility that will be of increased size and lower cost compared to our existing facility. We will provide a full update to the market when this refinancing has completed. As communicated with our interim results, we had been exploring the retail eligible bond market in London as a potential source of debt financing. We believe that the retail bond market will be attractive to LCM in the longer term but the prevailing market conditions earlier in our financial year would have required LCM to lock in long-term debt at high interest rates. Having already seen a number of central banks begin to cut interest rates we think the decision to pursue an alternative refinancing was the right thing to do. MARKET DEVELOPMENTS Litigation finance gained mainstream attention over the past year, particularly in light of the scandal involving the sub-postmasters of the Post Office in the UK. This case highlighted the critical role that litigation finance plays in providing access to justice for plaintiffs who might otherwise lack the resources to pursue their claims. Although we did not fund the Post Office case, we have numerous examples, both historical and current, where we have stood up for individuals and smaller entities in their pursuit of justice. The main trend that we have seen in the UK over the last twelve months is the rising number of collective actions being filed in the Competition Appeal Tribunal (CAT). We have invested in a small number of these cases which carry large budgets and seek extensive damages. The market for group claims in the UK is still in its infancy but we expect our experience from the well-developed Australian market positions us well to understand how procedures in the CAT may play out over time. In Australia, the market for class actions remains healthy and competitive. LCM’s close relationships with key law firms as well as its own ability to originate claims means that the strong pipeline of claims for funding is likely to continue. As well as class actions, in Australia LCM is financing insolvency claims and commercial claims. The insolvency claims we have funded continue to be smaller but generate healthy returns and we expect that with tightened economic conditions we will see some larger insolvency claims in the coming years. We are also seeing increasing interest for the funding of insolvency claims both in Singapore and Hong Kong and have positioned our team in Singapore to take advantage of this opportunity. LCM funds a broad range of commercial claims across the APAC region and there are no restrictions on the types of claim we are able to fund. A particular trend we have noticed in recent times is claims on trade credit insurance made by trade credit providers whose finance facilities were defaulted on by commodities traders following the disruption to supply chains during and following the pandemic. LCM is currently funding four of these claims in the Australian courts and considering the financing of others in Singapore. OUTLOOK Looking ahead, we see a significant long-term growth opportunity in the vast and still underpenetrated global legal finance market. As we continue to expand our presence, we remain focused on three key strategic priorities: 1. Transitioning to an Asset Management Model: This shift will enable us to scale our operations and diversify revenue streams, providing a stable foundation for future growth. 2. Entering the US Market: The US legal disputes market, being the largest globally, offers tremendous potential. We are confident that our unique positioning and established expertise will allow us to capitalise on this opportunity. 3. Leveraging Data and AI to Enhance Origination and Underwriting: By integrating cutting-edge technology into our processes, we aim to sharpen our competitive edge, enabling more efficient identification and evaluation of investment opportunities. With these priorities in place, we are confident in our ability to drive sustainable long-term value creation for our shareholders, ensuring that we remain at the forefront of the legal finance industry. Patrick Moloney Chief Executive Officer LITIGATION CAPITAL MANAGEMENT LIMITED 16 STRATEGIC REPORT OUR PRINCIPLES With an unparalleled track record and stand-out performance, we continue to strengthen our position as a market leading funder. DELIVERING SUSTAINABLE GROWTH AND SHAREHOLDER VALUE THROUGH: STRONG AND INNOVATIVE ORIGINATION OF INVESTMENT OPPORTUNITIES // CONSISTENT AND DISCIPLINED DUE DILIGENCE AND RISK MANAGEMENT // SUFFICIENT AND ALTERNATE CAPITAL TO FACILITATE GROWTH INVESTMENT SELECTION CRITERIA: CLEAR LEGAL PRINCIPLES WRITTEN EVIDENCE RECOVERABILITY PROPORTIONALITY EXPERIENCED LEGAL TEAM ANNUAL REPORT AND FINANCIAL STATEMENTS 2024 17 STRATEGIC REPORT INVESTMENT SELECTION PROCESS: OPPORTUNITIES Opportunities come from reactive sources such as solicitors, barristers, insolvency practitioners, experts and brokers as well as proactive sources through business development, leveraging firm-wide relationships, participation in key industry events or sectoral focus. PRELIMINARY DUE DILIGENCE Investment Manager considers applications for financing against LCM’s five key criteria and considers the prospects of successful recovery, budget for the litigation project and relevant documents. PEER REVIEW Review by a committee of Investment Managers. Preparation of a formal litigation project analysis document. Recommendation may be made to progress a litigation project to Investment Committee, or suggestions made as to further enquiries that need to be made in relation to it. EXECUTIVE REVIEW AND INVESTMENT COMMITTEE Review by CEO, the Investment Manager reviewing the project and two additional Investment Managers. May require independent opinion from King’s Counsel/Senior Counsel (KC/SC). Investment Committee considers the project against LCM’s five criteria, as well as relevant investment restrictions and projects fit for diversification of risk at portfolio level. May approve entry into conditional financing agreement and any due diligence required to confirm that all funding criteria are met. CONDITIONAL FINANCING Common conditions may include: • Independent KC/SC opinion that the litigation project has good prospects • Independent opinion on quantum formulation • Further investigation of defendant’s asset position • Detailed budget and solicitors’ retainer and/or deed of priorities • Proceedings to commence or claim prepared to be filed ADDITIONAL DUE DILIGENCE LCM meets costs of further due diligence but, if it elects to proceed to unconditional financing, these costs are recoverable from the outcome of the project. UNCONDITIONAL FINANCING The project is again considered by the Investment Committee, which may approve entry into unconditional financing agreement, which will result in LCM being required to pay all costs and on some occasions being required to provide an indemnity and/or security for any adverse cost order that may be made against LCM’s client(s) in respect of the litigation project. LCM reserves the contractual right to terminate the financing arrangement at any time in the instance of a deterioration in prospects or a change to the economic viability of the claim. INVESTMENT SELECTION PROCESS Funded opportunity Opportunities Preliminary due diligence Investment committee Executive review Additional due diligence Final due diligence binding LFA Conditional financing Direct Business Development Referrals Others LITIGATION CAPITAL MANAGEMENT LIMITED 18 STRATEGIC REPORT ANNUAL REPORT AND FINANCIAL STATEMENTS 2024 19 STRATEGIC REPORT OUR BUSINESS MODEL FUND INVESTORS Returning capital and profits through disciplined and successful performance of funds under management REINVESTMENT SHAREHOLDERS Returning value through share price and dividend appreciation REINVESTMENT BUSINESS GROWTH THROUGH PROFITS PERFORMANCE FEES AND PROFIT SHARE EARNED ON DELIVERING VALUE DIRECT BALANCE SHEET INVESTMENTS Continuation of existing portfolio THIRD PARTY ASSET MANAGEMENT Facilitating scalability and accelerated growth SINGLE CASE INVESTMENT Investment in a single dispute globally PORTFOLIO INVESTMENT Funding a bundle of single disputes in which LCM’s capital investment is collaterally secured against the proceeds of the entire portfolio of disputes ACQUISITION OF CLAIMS Investment in smaller disputes (typically insolvency based) through the acquisition or assignment of the underlying cause of action CLIENT Successful and efficient resolution of disputes while managing risk This year has demonstrated our ability to deliver enhanced market-leading returns which positions us well for accelerated growth. A LEADING ALTERNATIVE ASSET MANAGER IN DISPUTES FUNDING. Investment discipline Setting strategy Strong management LITIGATION CAPITAL MANAGEMENT LIMITED 20 LITIGATION CAPITAL MANAGEMENT LIMITED 20 STRATEGIC REPORT WHO WE SERVE We are an alternative asset manager specialising in disputes financing. That involves the provision of financing and risk management services to claimants in disputes globally. Our financing products are widely used from claimants that rely upon our capital as a means to justice through to large corporates who use our capital as a corporate finance product through choice. PEOPLE Our people are our business and the key to long-term sustainability. The size of our business enables us to remain highly engaged with our employees. We aim to provide a culture and environment to support and facilitate performance and have aligned employee incentives with those of our shareholders. HOW WE ENGAGE We have long-standing and deep relationships with referral sources, insolvency practitioners and law firms. Our proven track record ensures we continue to attract recurring business through our strong network, which we continue to expand; and realise new opportunities. WE CREATE VALUE By providing our customers with financing solutions to pursue matters which would otherwise be costly, therefore taking on their risk and preserving their capital to pursue their own business opportunities. On successful completion of litigation cases we recover our investment and earn revenue through a multiple on capital invested, shared proceeds, performance and management fees MARKET EXPERTISE We have extensive experience in complex disputes financing with a proven track record. We are industry pioneers in financing portfolio transactions and continue to explore and develop strategies which allow us to grow and penetrate new markets. ANNUAL REPORT AND FINANCIAL STATEMENTS 2024 21 STRATEGIC REPORT THIRD PARTY FUND 75% investment contribution LCM CO-INVESTMENT 25% investment contribution MULTIPLE ON INVESTED CAPITAL (‘MOIC’) = 100% return of capital + Return on Invested Capital (‘ROIC’) RETURN TO FUND: 75% investment contribution + ROIC Performance fees: 25% LCM/75% Fund (IRR<=20%) Outperformance fees: 35% LCM/65% Fund (IRR>20%) INVESTMENT OPPORTUNITY LCM sourced RETURN TO LCM: 25% investment contribution + ROIC Our investment selection capability has enabled us to deliver market-leading returns. This positions us well amongst our industry peers and provides us with a gateway to new opportunities as we expand on our existing network. DIRECT INVESTMENTS These investments are made directly by LCM through its balance sheet. These investments comprise: • investments made by LCM where 100% of the capital commitment is made from balance sheet capital; and • direct investment where LCM co-funds together with third party funds under management (see further detail below under Asset Management Business). Upon maturity, LCM receives 100% of the profits derived from the direct investment and in respect of co-funded investments a percentage of profits referable to the co- funding contribution. ASSET MANAGEMENT BUSINESS Our second and larger fund has further enhanced our position as an alternative asset management business specialising in disputes financing. All qualifying investment opportunities generated by LCM are offered to the Fund and to LCM’s balance sheet on a co-funding basis. The investment is generally structured as 75% to the Fund and 25% to LCM as a direct investment, applicable for both Fund I and II. In line with our strategic objectives, this provides both LCM and our underlying Investors with a valuable opportunity to diversify significantly the disputes into which investments are made as well as allowing access to a greater part of the disputes funding market through increased capital backing. In the event that LCM continues to generate returns consistent with its 13-year track record, we expect to continue to receive out-performance fees on the majority of investments. The fee structure was supported by investors in the Fund as providing a genuine alignment between LCM’s balance sheet direct investments and Fund investments. LITIGATION CAPITAL MANAGEMENT LIMITED 22 STRATEGIC REPORT ANNUAL REPORT AND FINANCIAL STATEMENTS 2024 23 ANNUAL REPORT AND FINANCIAL STATEMENTS 2024 23 STRATEGIC REPORT STRATEGIC OBJECTIVES BALANCED PORTFOLIO // DISCIPLINED UNDERWRITING // SUSTAINABLE LONG-TERM GROWTH THROUGH STRATEGIC INNOVATION AND EVOLUTION Our Funds management model has demonstrated our ability to deliver strong returns and we remain focused on delivering long-term growth in shareholder value. LITIGATION CAPITAL MANAGEMENT LIMITED 24 STRATEGIC REPORT KEY PERFORMANCE INDICATORS Our Key Performance Indicators are the metrics which provide the best reflection of growth and value creation for our business at this stage. While we place importance on measures such as revenue and operating profit, given the nature of our investments, in any one financial period, revenue and profit have not always reflected underlying growth in the value of our portfolio. This is primarily due to the timing of revenue recognition. It is equally important to understand the disparity between operating expenses incurred in one year as we manage our entire portfolio measured against revenue recorded in that same period, which is driven by the specific investments concluding in that particular period Management believe the following indicators are key measures of growth and shareholder value creation specifically relevant to LCM. These indicators should not be looked at in isolation, but rather considered together and with LCM’s financial reporting generally. FUNDS UNDER MANAGEMENT (A$m) FY21 FY22 FY23 FY24 441 441 340 150 • Fund I of US$150 million fully committed with material resolutions recognised • Final close of Fund II of US$291 million • Strong interest from new investors following a number of significant returns in Fund I OUTLOOK • Focus on growth of our asset management business • Increase portfolio of investments under management • Targeting commitment of Fund II • Fund III marketing to commence in late 2024 FY21 FY22 FY23 FY24 2.9 2.8 2.6 2.5 • Consistent performance reflected in 13 year portfolio MOIC, inclusive of losses of 2.9x • Performance is a reflection of LCMs disciplined investment selection OUTLOOK • Performance Metrics will fluctuate from period to period, but expectation is that they still exhibit similar characteristics to the running portfolio metrics • Aim to deliver performance metrics within an acceptable range of historical performance 13-YEAR TRACK RECORD (MOIC) ANNUAL REPORT AND FINANCIAL STATEMENTS 2024 25 STRATEGIC REPORT NEW COMMITMENTS (A$m) FY21 FY22 FY23 FY24 279 176 104 109 • New commitments in year was A$279 million compared to A$176 million in FY23 • Fund I fully committed across 26 investments of which 18 are still ongoing • 27 Investments now committed in Fund III OUTLOOK • Growth over time depending on quality of investment opportunities • Continue to maintain a balanced portfolio through Industry sector, geography, jurisdictions INVESTED CAPITAL (IN PERIOD) (A$m) FY21 FY22 FY23 FY24 102 95 66 88 • Investment of capital was A$102 million comprising of A$54 million direct balance sheet and Co-Investment funding vs A$48 million third party funding • Demonstrating our commitment in putting capital to work to maximise returns OUTLOOK • To follow growth in committed capital over time • The quantum of capital invested in a given period should increase over time • Increased capital investments will generate organic capital through the maturing of investments over time INVESTED CAPITAL (IN ONGOING CASES) (A$m) FY21 FY22 FY23 FY24 227 184 135 281 • Cumulative capital invested in on going cases was A$281 million comprising of $128 million from LCMs own balance sheet and A$153 million from external funds • LCM’s ultimate returns are primarily determined through a multiple of this invested capital on successful case outcomes OUTLOOK • Growth over time particularly as we scale the asset management business • To follow growth in committed capital over time • Represents the sun of all ongoing commitments (both LCM only and external funds) at the balance sheet date OUTLOOK • Growth over time particularly as we scale the asset management business • Increasing number of investments and diversification over time COMMITTED CAPITAL (A$m) FY21 FY22 FY23 FY24 484 414 336 724 LITIGATION CAPITAL MANAGEMENT LIMITED 26 LITIGATION CAPITAL MANAGEMENT LIMITED 26 STRATEGIC REPORT 2 ANNUAL REPORT AND FINANCIAL STATEMENTS 2024 27 Financial Review FINANCIAL REVIEW ANNUAL REPORT AND FINANCIAL STATEMENTS 2024 29 Financial Review Income Statement (A$m) – LCM only FY24 FY23 Concluded investments – Proceeds on LCM capital 43.3 59.6 Concluded investments – Performance fees on 3P capital 12.7 24.6 Concluded investments – LCM capital invested (‘Cost’) (23.8) (32.7) Net realised gains from concluded investments 32.2 51.5 Fair value movement: Fair value write-off on concluded investments (30.9) (37.4) Net fair value uplift to ongoing investments 43.4 53.6 Net fair value movement 12.5 16.2 Total income 44.7 67.7 Operating expenses (19.0) (15.7) FX gains/losses 0.5 (1.2) Operating profit 26.3 50.8 Finance costs (10.2) (8.1) Profit before tax 16.1 42.7 Tax (3.3) (11.3) Net income 12.7 31.4 Basic EPS (cents) 12.01 29.53 Diluted EPS (cents) 11.33 28.33 2024 FINANCIAL PERFORMANCE LCM extended its track record of successfully investing in uncorrelated litigation finance assets during the 2024 financial year. Our investments concluding in the period generated a 2.4x MOIC to LCM, consistent with our long‑term track record of 2.7x. These concluded investments generated net realised gains to LCM of A$32.2 million. These gains are composed of A$19.5 million of profits on investing our own capital (FY23: A$26.9 million) and A$12.7 million from performance fees (FY23: A$24.6 million) earned on third party capital. Our strategic shift towards an asset management model is beginning to yield significant benefits, as evidenced by the strong performance fees generated in both the current and prior year. We expect this trend to continue, with the majority of our current portfolio (45 out of a total of 58) now comprising cases funded through the asset management model. We have raised two funds to date with total external funds under management of US$441 million. Both funds feature performance fees of 25% of profits on third-party capital above an 8% hurdle rate, increasing to 35% of profits exceeding a 20% return. The net realised gains from concluded investments of A$32.2 million was primarily driven by four successful investments, offset by one loss at trial. The four successful investments generated a combined gross profit of A$42.7 million, reflecting an aggregate MOIC of 4.7x. The loss at trial resulted in a realised loss of A$8.4 million. Of the four successful investments, two were funded via our asset management model, contributing A$12.7 million in performance fees. The net IRR after performance fees to fund investors on these concluded cases was 46%. The case that lost at trial was fully funded by our balance sheet. Following a thorough review of our investment decision in relation to this case, we are confident that the original decision was sound. However, as with any investment business, not all investments will succeed. Our long-term track record underscores the robustness of our investment decision-making process, and we remain optimistic about our future successes. LITIGATION CAPITAL MANAGEMENT LIMITED 30 Financial Review The relatively small number of concluded cases driving our 2024 financial result is consistent with prior years. For instance, in both 2023 and 2022, three case conclusions in each period accounted for the vast majority of gross profit. As we continue to grow and fully transition to the asset management model, we expect the variability in our gross profitability to gradually diminish over time. Until then, year- on-year comparisons may be less meaningful, as outcomes will largely depend on the timing and size of case conclusions. Our primary focus remains on extending our long-term track record of successful investments. While our business operates on a cashflow basis, our financial statements are presented on a fair value basis, providing investors with insight into the potential value of our ongoing investments, which would otherwise be reported at the value of the cash invested. Given the unique nature of our investments and lack of a well-developed secondary market, they cannot be marked to market. We therefore fair value these assets using a bottom-up case-by-case approach that builds value based on observable milestones achieved, consistent with the approach taken by our sector peers. When a case investment concludes the realised gain in the P&L is calculated as the gross proceeds due from that investment (including performance fees) minus the cash that LCM invested. At the same time, the fair value asset related to that investment is removed from our balance sheet. For cases concluded in the 2024 financial year, the achieved MOIC of 2.4x capital invested closely matched the fair value of 2.3x held for those same assets prior to their conclusion. As a result, the fair value write-off of the concluded cases of A$30.9 million was similar to the total realised gain of A$32.2 million. In the prior period, a MOIC of 2.6x was achieved on concluded cases compared to a fair value of 2.1x, resulting in a realised gain that comfortably exceeded the fair value write-off. The net fair value uplift to ongoing cases during the period was A$43.4 million (FY23: A$53.6 million), with ongoing cases on our balance sheet valued at 1.9x the cumulative cash invested as of the end of the period (FY23: 1.8x). The combination of the fair value write-off on concluded investments and the fair value uplift to ongoing investments gives the net fair value impact on the P&L of A$12.5 million in FY24, which is comparable to the prior year (FY23: A$16.2 million). Total income for the period was A$44.7 million, a decrease from the previous period (FY23: A$67.7 million), primarily due to the larger size of case conclusions in the 2023 financial year, which was LCM’s most successful period to date. Operating expenses increased to A$19.0 million, up from A$15.7 million in the prior year. The increase is mainly attributable to the expansion of our team as we seek to enhance our origination capabilities across key markets. Operating profit for the period was A$26.3 million, down from A$50.8 million in the previous year, reflecting the lower gross profit on concluded case investments compared to the prior period, as outlined above. Finance costs rose to A$10.2 million (FY23: A$8.1 million), due to the higher interest rate environment. We are well advanced in negotiations to refinance our debt facility and are aiming to lower the interest rate from the 13.0% rate on the existing facility. Profit before tax for the period was A$16.1 million (FY23: A$42.7 million) with a tax charge of A$3.3 million (FY23: A$11.3 million). Going forward, we expect an effective tax rate of 27.5%, being the average of the UK (25%) and Australian (30%) corporation tax rates. The Board has declared a final dividend of 1.25p per share for the financial year ending 30 June 2024 (FY23: 2.25p). The Board will continue to balance the opportunities for reinvesting in growth alongside returning capital to shareholders. The dividend will be paid on 25 October 2024 to shareholders on the register on 4 October 2024, being the record date. The ordinary shares will be marked ex-dividend on 3 October 2024. ANNUAL REPORT AND FINANCIAL STATEMENTS 2024 31 Financial Review Balance Sheet (A$m) – LCM only FY24 FY23 Cash $53.0 $83.0 Debtors $15.0 $13.9 Investments at fair value $202.9 $165.8 Investments held at cost $42.1 $37.3 Other assets $1.5 $1.7 Total assets $314.4 $301.7 Borrowings ($61.9) ($67.0) Tax payable ($0.9) ($7.8) Deferred tax liability ($43.6) ($36.3) Other creditors ($19.1) ($5.2) Total liabilities ($125.5) ($118.2) Net assets $188.9 $183.5 NAV per share (pence) – Basic 94.4 90.3 NAV per share (pence) – Diluted 89.0 86.6 As of 30 June 2024, LCM was actively invested in 58 ongoing cases (FY23: 53) with a total balance sheet value of A$245.0 million (FY23: A$203.1 million). This valuation includes A$42.1 million related to three investments (FY23: A$37.3 million for four investments) that are held at cost for historic accounting reasons, and A$202.9 million (FY23: A$165.8 million) attributed to 55 investments (FY23: 49) that are held at fair value. As previously noted, at the period end our case investments are held at an aggregate value of 1.9x the cumulative LCM cash invested into those same cases, a modest increase from the 1.8x multiple at the end of the prior period. This represents a discount compared to our realised long-term track record of 2.7x, reflecting our conservative approach to fair value. It’s also worth noting that our long-term track record of 2.7x would translate to a MOIC over 4.0x for LCM under the asset management model. This reflects the model’s lower capital intensity and high potential for performance fees, further underscoring the conservative nature of our fair value methodology. Our cash balance at the period end stood at A$53.0 million (FY23: A$83.0 million), reflecting a robust liquidity position. When offset against borrowings of A$61.9 million (FY23: A$69.0 million) this results in a net debt position of A$8.9 million (FY23: net cash of A$14 million). Debtors, which comprises amounts receivable from successful investments stood at A$15.0 million (FY23: A$13.9 million). Since the period end, A$11.6 million of this balance has been collected in cash. Beyond our borrowings, deferred tax of A$43.6 million (FY23: A$36.3 million) is the largest liability on our balance sheet. A$29.6 million of this balance relates to deferred tax on the fair value of our investments and A$16.6 million relates to deductible funding on litigation assets. This tax is unrealised and will only become payable upon the successful conclusion of the related cases. Other assets primarily comprises prepayments and security deposits for leases. Net assets increased modestly over the 2024 financial year. The net income of A$14.7 million generated during the period was partially offset by the FY23 dividend payment of A$5.0 million and the cost of shares repurchased of A$5.4 million. The A$10 million share buyback program announced with our 2023 financial year results remains ongoing and is expected to complete during the 2025 financial year. Reflecting the reduced number of shares following the partial completion of the share buyback, net assets per share increased to 94.4p (FY23: 90.3p). LITIGATION CAPITAL MANAGEMENT LIMITED 32 Financial Review Cash Flow Statement (A$m) FY 2024 FY 2023 Opening cash balance 83.0 29.3 Cash generated from concluded investments 56.7 96.8 Cash invested into ongoing cases (case funding) (39.7) (36.3) Operating expenses (17) (12.1) Net finance costs paid (9) (6) Dividend and share buyback (10.4) – Debt repayment (8.1) 9.6 Other (2.5) 1.7 Closing cash balance 53.0 83.0 Net debt 8.9 (14.0) During the period, cash generated from concluded investments in the period amounted to A$56.7 million (FY23: A$96.8 million), inclusive of A$12.7 million in performance fees (FY23: A$24.6 million). The cash invested in case funding in the period totalled A$39.7 million (FY23: A$36.3 million), spread across 65 investments, of which 58 remained ongoing at the period end. Operating expenses increased to A$14.8 million (FY23: A$10.3 million) primarily due to the expansion of the origination team, as previously outlined. Net finance costs paid rose to A$9.0 million (FY23: A$6.0 million) driven by the higher interest rate environment. Tax paid was A$2.8 million (FY23: A$0.0 million) relating to UK tax paid on successful case conclusions in the prior financial year. In our 2024 financial year, we returned A$10.4 million of capital to shareholders with A$5.0 million distributed as dividends and A$5.4 million through the share buyback program. We repaid A$8.1 million of our borrowings during the year (FY23: A$9.6 million increase in borrowings) to reduce interest costs, reflecting our robust liquidity position. At the end of the financial period, we held A$53.0 million in cash (FY23: A$83.0 million) and had a net debt position of A$8.9 million (FY23: A$14.0 million net cash). NEW COMMITMENTS New commitments during the period rose significantly to A$279.0 million (FY23: A$176.3 million) reflecting our strategic focus on scaling the business. A substantial portion of this growth was driven by our London office, where we have invested in a select number of large group claims that are being pursued through the Competition Appeal Tribunal. ANNUAL REPORT AND FINANCIAL STATEMENTS 2024 33 Financial Review 147 98 110 New Commitments (A$m) 104 176 279 0 50 100 150 200 250 300 FY24 FY23 FY22 FY21 FY20 FY19 COMMITTED AND INVESTED CAPITAL As of the end of the period, LCM was actively invested in 58 ongoing case investments. Among these, 13 were cases fully funded by our balance sheet (of which 3 cases comprise the majority of the invested capital), while 45 were co-funded through our asset management model, where LCM typically funds 25% of the investment cost. Committed capital, which represent LCM’s share of total commitments across all active cases net of conclusions and terminations, increased to A$725.0 million at the period end (FY23: A$484.0 million). Of this amount, A$281.0 million has already been deployed. 130 Committed Capital (A$m) 0 100 200 300 400 500 600 700 800 FY24 FY23 FY22 FY21 FY20 FY19 130 106 250 144 156 337 181 227 414 187 301 484 183 413 725 312 ■ LCM ■ 3rd Party 27 Invested Capital (A$m) 0 50 100 150 200 250 300 FY24 FY23 FY22 FY21 FY20 FY19 27 11 71 60 46 134 88 83 181 98 124 228 104 153 281 128 ■ LCM ■ 3rd Party LITIGATION CAPITAL MANAGEMENT LIMITED 34 Financial Review ASSET MANAGEMENT Since 2020, we have been transitioning our business model from solely funding investments through our own balance sheet to operating as an asset manager. In this capacity, we raise third party capital and invest in new cases with the funding typically split 25% from our own balance sheet and 75% from our LPs invested in our funds. This model not only reduces capital demands on LCM but also provides the potential to earn substantial performance fees, ranging from 25% to 35% of the gross profits generated for our LPs above a minimum hurdle level. To date, we have successfully raised USD441 million in external funds across two funds: Fund 1 (USD150 million) and Fund II (USD291 million). Fund I has invested in 26 case investments and was fully committed and 71% deployed as of 30 June 2024. Six of these 26 cases had concluded by that date, all with successful outcomes, generating gross proceeds of USD101.9 million on LP capital of USD29.7 million. After accounting for performance fees of USD24.9 million paid to LCM, LP investors have achieved a 2.5x MOIC and a net IRR of 60%. Fund II has invested into 33 case investments to date, and as of 30 June 2024, it was 58% committed and 7% deployed. The investments in Fund II are performing in line with our expectations. None of these investments have yet concluded. We anticipate commencing marketing efforts for Fund III towards the end of this calendar year. POST PERIOD END Shortly after the period end, we had a successful conclusion in relation to a bilateral investment treaty claim that was funded 25% by LCM and 75% by Fund I investors. A total of A$5.9 million was invested in the case generating revenue of A$29.6 million, equivalent to a 5.0x MOIC on a global basis. LCM’s return was further amplified through performance fees of A$6.1 million, resulting in a total return of A$13.5 million from a A$1.5 million investment – a pleasing 9.5x MOIC for LCM shareholders. We are advanced on refinancing our debt facility with the objective of increasing the size and lowering the cost. We will provide an update to the market at the appropriate time. KEY PERFORMANCE INDICATORS We have changed our Key Performance Indicators this year to better reflect what management is focused on as we drive the business. The updated KPIs are chosen to reflect our focus on growing committed capital (new commitments in the period and cumulative committed capital at the period end); growing invested capital (invested capital in the period and cumulative invested capital at the period end); and delivering strong investment performance via our cumulative long-term MOIC. Furthermore, given the importance of our transition to the asset management model, external funds under management remains a KPI. ANNUAL REPORT AND FINANCIAL STATEMENTS 2024 35 Financial Review RISK MANAGEMENT AND INTERNAL CONTROLS RISK MANAGEMENT Understanding the risks our business faces is fundamental to our long term viability. We aim to continually and proactively monitor developments in the industry ahead of time to ensure we have in place the appropriate processes to manage them. Litigation funding as an industry is evolving each year with developments, particularly in England, gaining attention from the wider market. The recent Supreme Court ruling created uncertainty in the market as investors endeavoured to understand its wider implications on the litigation funding industry. This turn of events demonstrated the control systems we have in place as the potential risks associated with this potential decision were identified ahead of time allowing us to assess the impact on our business and mitigate accordingly. We continue to monitor all risks associated with our business and portfolio of disputes, including the changing landscape in each jurisdiction we operate in. We continue to enhance our approach to risk management each year. Our ability to identify, assess, manage and monitor risk is a key component to our success. We continually acquire new skills overtime which further develops our investment approach, enabling us to continue to make effective investment decisions which translate to returns, allowing us to reinvest and grow. The controls we have aim to manage and mitigate risk but does eliminate risk entirely nor does it provide an absolute assurance against loss. RISK MANAGEMENT FRAMEWORK The Board retains ultimate responsibility of risk management and sets the Group’s risk appetite. The Board delegates responsibilities to the Risk & Audit Committee and day to day oversight to the Executive Management team. The Executive Management team led by the Group CEO, monitor and manage the risks appropriate for the business within the boundaries set by the Board. The Board also recognises that effective risk management requires commitment of people throughout the business and encourages a culture of open communication. The Board continues to develop and implement a comprehensive conduct framework which focuses on mitigating the risk of poor performance or other conduct risks. Our proven risk management process involves applying our rigorous investment selection criteria to each and every investment not only at the outset but continuously throughout the life of each investment. This process has developed over our history and demonstrates a clear understanding of what is likely to constitute a successful and profitable dispute project. This process is central to the discipline LCM has shown when sourcing deals, which has been fundamental to our financial strength. Across all core legal claim sectors we operate in; commercial claims, class actions, insolvency, arbitration and corporate portfolios, LCM’s investment managers consider applications for financing against our five key criteria: 1. proportionality – there must be proportionality between the size of the claim and the funding commitment. Many applications for funding are instantly dismissed on the basis that it would not be commercially viable for LCM to fund them; 2. clear legal principles – the claim must be based on clear legal principles and not any novel or uncertain points of law; 3. written evidence – the claim should be supported by clear evidence that is documentary in nature, not oral; 4. recoverability – there must be a clear line to recovery for the claim and it must be demonstrated that the defendant or respondent has the capacity to meet a judgment or award of the size that will be sought; and 5. experienced legal team – there must be a highly competent and experienced legal team in place with the relevant expertise to pursue the claim. As a result of following these criteria, LCM only provides funding to a small proportion of applicants received. This process forces restraint when making investments and mitigates the risk of financial loss and the temptation of an unnecessary acceleration of growth. Our portfolio of investments are overseen by our investment managers who are responsible for ensuring that each disputes project continues to meet the five key criteria and is expected to achieve the funder’s return at the likely completion date. LITIGATION CAPITAL MANAGEMENT LIMITED 36 Financial Review FINANCIAL REPORTING PROCESSES We maintain policies and procedures to facilitate accurate and timely record keeping which provides a true and fair view of our business performance. We review these policies and procedures on an ongoing basis to ensure they remain appropriate as the business grows and evolves. Our strong Internal control and risk management framework ensures the integrity of our business and the quality of the information we produce. Finance members in our Sydney and London offices provide an additional layer of oversight across various finance functions and provide frequent reporting to help assess the businesses actual performance against anticipated performance. Finance work closely alongside the investment management teams to provide them with timely and relevant information with respect to their existing investments as well as their pipelineenabling the team to participate in the review of our portfolios performance on an ongoing basis. LCM has robust controls around payments that incorporate both internal and external systems and ensure accurate and timely maintenance of records. We have further enhanced our financial systems platform over the years to provide efficiencies and allow for scalability. These controls provide reasonable assurance that payments have been approved through the correct authorisation channels and we continue to look at ways to strengthen our existing controls to deal with the increasing threats of cyber security. Our internal policies and procedures also ensure that transactions are recorded in the necessary manner to enable compliance with International Financial Reporting Standards (IFRS) and the Australian Accounting Standards Board (AASB). LCM maintains its AML/KYC function through an online global onboarding and monitoring software system which streamlines our already robust function and allows us to better manage our global requirements. PRINCIPAL RISKS AND UNCERTAINTIES The table following outlines the principal risks and uncertainties facing LCM together with mitigation measures which are intended to provide a reasonable but not definite level of protection. This is not a complete list of all the risks as matters or events not currently known to the Board or management could emerge. ANNUAL REPORT AND FINANCIAL STATEMENTS 2024 37 Financial Review Risk Mitigation Movement Strategic risk Effects of competition The effects of competition could reduce margins if competition drives a reduction in pricing. During the past year, we have seen some compression in the market as smaller operators have failed due to the tightened availability of credit. The larger funders who LCM considers to be its direct competitors continue to compete with LCM for opportunities in the regions in which we operate. That said, we have not seen this competition have any downward pressure on pricing which may be the result of the increase in funding opportunities globally coupled with less funders operating in the market. In addition we differentiate ourselves from our competitors through our three primary strategies which allow us to diversify our offering. Continuous innovation allows us to operate across the entire spectrum and provide funding solutions to counterparties who use out of both choice and necessity. Each finance arrangement is bespoke and tailored to meet the specific needs of the funded party. Our experience which is reflected in our long standing track record, puts us in a good position against other peers in the market particularly as against newer players. The global addressable market for disputes financing is extremely large and remains hugely underpenetrated. ▼ Ability to raise third party capital Failure to raise third party capital could significantly impede growth opportunities potentially presenting competitors with an advantage to monetise on missed opportunities. Alongside our credit facility, we have, through the resolution of matters in our mature portfolio, adequate balance sheet capital to grow our investment portfolio. Additionally, we continue to look at innovative solutions and attractive investment options to expand our investor reach. We have fully committed Fund I and have started to realise significant returns within this portfolio of investments. Additionally, we closed our second Fund at US$291 million prior to the realisation of significant resolutions in Fund I. These attractive performance returns place us in a strong position for future growth and fund raises. ▼ Deployment of capital Failure to invest capital in a timely manner can have an adverse effect on the performance of our portfolio and the returns to our underlying investors. It could also be detrimental to our ability to raise further capital. Our robust investment process is fundamental to our success. We regularly monitor the performance of each of our investments to ensure delivery against our own internal expectations. In terms of capital commitment, we monitor all investments on a regular basis to ensure that the portfolio does not suffer from concentration risk in any one project. ▼ LITIGATION CAPITAL MANAGEMENT LIMITED 38 Financial Review Risk Mitigation Movement Investment risks Failure to originate investment opportunities and invest capital selectively and successfully can lead to reputational damage and may cause adverse financial losses. LCM invests in disputes funding but does not control how a claim in which it has invested is managed and, in particular, is not the client of the law firm representing the owner of the claim that is the subject of the relevant dispute. Therefore, there can be no assurance that a dispute will be managed in a way that is most beneficial to the interests of the Group. LCM continues to maintain a robust and disciplined investment selection process. LCM provides funding to only between 3–7% of the applications it receives. LCM places great significance on maintaining performance in line with our historical levels. Our rigorous investment process includes peer review by our team of highly experienced investment managers as well as external expert advice to ensure strict adherence to our investment criteria. This process demonstrates LCMs restraint from the temptation of unnecessary growth which may not create long term value for shareholders and investors. LCM is contractually able to cease funding to any dispute should it determine that the legal merits of a claim is no longer satisfactory or the claim is no longer economically viable. LCM measures all investment opportunities against its environmental, social and corporate governance statement. We also limit our investment risk by ensuring we maintain a balanced portfolio of investments by jurisdiction, industry sector and capital commitment. Current instability in global markets is likely to lead to increased insolvency and bankruptcy. This is a factor that continues to attracts attention. ▼ Operational risk Loss of key personnel Our employees are fundamental to our success. Failure to attract and retain highly skilled and experienced investment managers could have a negative impact on the success of our investments. Additionally, the loss of staff could cause disruptions to our ability to deliver to our strategic objectives. Executives remain focused on achieving high levels of staff satisfaction and regularly consider succession planning. Staff are encouraged to take relevant training or professional development throughout the year. We continue to invest in our workforce and look to hire talent that can contribute to the success of our business. We have a robust recruitment process in place and offer competitive remuneration alongside long-term incentive schemes which we monitor and develop to remain competitive. We continuously carry out peer reviews and appraise the due diligence and underwriting techniques as well as investment monitoring. In addition, LCM monitors the performance of all staff including investment managers to ensure the highest level of performance, integrity and diligence. ▼ Loss of key customer relationships The risk of financial loss as a result of losing key relationships. This could have an adverse effect on our ability to generate new business through our long standing relationships with law firms and insolvency practitioners. We continue to develop and cultivate relationships with existing clients and we place great value on their importance to LCM. We also continuously seek to develop new alliances. We serve clients fairly and always maintain a transparent relationship. Equally, the skill and experience of service providers and in particular, law firms providing legal services is fundamental to our successful performance and delivering on our objectives. LCM continues to monitor service provider risk through its investment managers and through its due diligence and underwriting policies. Additionally, we have observed that during times of market instability people tend to rely greater on existing relationships. ▼ ANNUAL REPORT AND FINANCIAL STATEMENTS 2024 39 Financial Review Risk Mitigation Movement Disruption to systems Disruptions to our systems could impact our ability to operate. It could also result in a reduced level of service to our clients. An attack on our system could jeopardise the security of the firms and/or client data which in turn could cause reputational damage. LCM operates on a cloud based system providing flexibility and operational resilience. Our business continuity and disaster recovery plan has been proven to deliver a stable platform for all staff globally, in light of the challenges faced over recent years and the shift towards providing flexibility to work from home. We monitor and test our continuity and disaster recovery plan to ensure it operates effectively and in line with our requirements. We have continued to invest in and upgrade our information technology systems to ensure that we continue to work efficiently with risk of minimal disruption or loss of data. ■ Cybercrime, fraud or security breaches This risk of failure to protect our Information Technology systems and confidential information related to our clients and litigation matters, which could lead to a breach in our data protection obligations or cause loss of data or financial loss. We continue to monitor and assess our compliance with requirements of the General Data Protection Regulation (GDPR) for privacy issues. Our servers are held externally with a major global cloud-based vendor to better align with our global expansion and comply with requirements of the GDPR for privacy issues. We continue to upgrade our defences for cyber security as the threat of cybercrime continues to challenge businesses globally. We adhere to all AML (Anti Money Laundering) and KYC (Know Your Customer) checks required and continue to monitor these with real time data and feedback on customers and investors. ■ Operational risk continued Regulatory risk Regulatory risk arises as a result of both the regulations specific to the jurisdictions in which we operate and the laws in those jurisdiction. Additionally, each country in which we operate may look to further regulating the industry in which we operate, which could lead to disruption of our business operations and have adverse impact on the potential to generate profits. In many jurisdictions, with the exception of Singapore and Hong Kong, litigation financing is almost entirely unregulated or regulation is light touch. In Singapore and Hong Kong, there is a light regulatory regime which is monitored for continued compliance. The previous regulation in Australia requiring funders to hold an Australian Financial Services Licence and class actions to be registered as managed investment schemes has been wholly reversed by the current federal government. Management continue to monitor the changing regulatory landscape to ensure it remains in a position to operate without hindrance. The UK Supreme Court Ruling in relation to Damage Based Awards will have some impact on the industry. We continue to monitor the evolving landscape in the UK market to ensure we are aware of risks before they emerge and develop appropriate mitigating factors. Management actively monitor changes in the law in various jurisdictions on an application by application basis and if there are legal issues which arise particular to a jurisdiction, external advice is obtained. ■ Adverse court rulings risk Adverse court rulings risk arises when changes in laws impacts the value of existing investments or the ability to source future investments. In addition to the risk of increased regulation described under “Risk of increased regulation” above, there is a risk that court rulings may have an adverse impact on the business of the Group and the industry in which it operates. Any changes in laws resulting from such court rulings could reduce or limit opportunities for the Group to make investments or could reduce the value of the Group’s current investment portfolio under its management in such jurisdictions. If the Group’s business is subject to other court rulings (either in the UK or in any other jurisdiction in which it operates) which have a negative impact on its business, this could have a material adverse impact on the Group’s ability to generate profits. Management continuously monitor court judgments, particularly in the areas of law that concern or intersect with our investments. ■ LITIGATION CAPITAL MANAGEMENT LIMITED 40 Financial Review Risk Mitigation Movement Financial risks Liquidity Liquidity risk is the risk the Company has a lack of sufficient resources, readily realisable assets or access to capital at commercially viable terms to continue to make investments or meet its current obligations. This could have an adverse effect on the value of investment assets. Finance closely monitor liquidity and cashflow to ensure the Company continues to operate within the risk appetite set by the Board. The Finance function actively monitor and manage working capital to enable the Company to meet its obligations as they fall due. The Company utilises its credit facility to supplement the balance sheet. Finance closely manage all financial covenant and reporting requirements with respect to the facility, to ensure compliance is maintained at all times. LCM maintains a strong balance sheet with organic cash generation from investments reaching maturity beginning to materialise and expected to continue in the short to mid-term. Additionally, LCM has significant control over its investments including the contractual right to cease funding where the prospects of the claim have changed or the economic viability of the investment has deteriorated. ▼ FX risk Foreign exchange risk is the risk that LCM will sustain losses due to adverse movements in currency exchange rates which may arise from transactions and investments denominated in foreign exchange currencies. Finance monitors the currency risk associated with respect to the timing for both the budget deployment for litigation projects and the expected return of those costs and our contractual return. Additionally, consequent to entering into a USD credit facility, Finance regularly reviews its overall FX exposure and assesses any hedging requirements needed to mitigate FX risk. We keep a proportion of our cash in the currencies in which we expect the majority of these expenses to occur, to best manage the impact of foreign exchange risk caused by rate movements. LCM does not hedge the expected return from litigation projects given the tenor of this exposure. ■ Credit risk Exposure to financial losses to LCM as a result of a client’s inability or unwillingness to pay LCM its contractual entitlement. As part of the initial stages of LCM’s investment process Investment managers ensure there is clear line to recovery for the claim and it must be demonstrated that the defendant has the capacity to meet a judgment of the size that will be brought. This is a detailed analysis which may involve obtaining an asset tracing report or considering the detailed terms of an insurance policy. In addition, all of LCM’s litigation funding contracts require that any recovery on the investment be paid into a solicitors trust account or escrow account. The funded client is not entitled to be paid any part of this recovery until LCM has been paid the amount it is owed on its investment. The solicitors directly contract with LCM to distribute the funds in accordance with these terms. ■ Adverse costs In certain jurisdictions in which LCM operates, it provides an indemnity as against an adverse costs result. That means that LCM underwrites the risk of an unsuccessful litigant being ordered to pay the successful litigant’s legal costs. On most occasions, in those jurisdictions where that service is offered, the risk is laid off through after the event insurance. This is an insurance policy taken out in the name of LCM which covers it for this adverse cost risk. Where there is no risk of a costs order being made for which LCM would be liable to pay, LCM expressly disclaims any liability for adverse costs in its litigation funding contract. ■ ANNUAL REPORT AND FINANCIAL STATEMENTS 2024 41 Financial Review Risk Mitigation Movement Financial risks continued Valuation risk We face the risk of errors arising from processes around the valuation of our portfolio of Litigation Assets which could compromise our financial reporting or expose the Group to unanticipated financial loss, or damage to our reputation. This could in turn reduce our profitability. We manage this risk through an established framework which has been developed, whereby key inputs into the valuation process go through various stages of review and are challenged and assessed as appropriate by the CEO, CFO, Head of Investments APAC and Head of Underwriting EMEA. Regular monitoring of the progress of the investment is reviewed on a quarterly basis by the CEO alongside senior Investment Managers. Where a significant change in expectations has been identified, it is reviewed and verified by the CEO. The Group operates within a system of internal controls that provides oversight of business processes. ▲ Duration risk Increased time taken for realisation of returns on Dispute Investments could affect the financial resources available to the Group which could have a material adverse effect on the Group’s business, results of operations, financial condition and prospects The timing of resolutions will depend on a variety of factors including the emergence of new facts or circumstances that were not known at the time of agreeing to fund the Dispute Investment, the anticipated costs to further progress the matter (i.e. to final determination or by way of appeal) and/or whether there have been any changes in law arising subsequent to the date of agreeing to finance a Dispute Investment. Furthermore, the settlement or resolution of Dispute Investments (including the timing of revenue recognition) can also be affected to a significant degree by factors outside the Group’s control such as delays in the court system, backlog of cases caused by, for example, the Covid-19 pandemic and any other events. While the Group monitors its Dispute Investments, there can be no assurance as to the time for completion of any particular Dispute Investment and accordingly when the Group will receive a return on its investment (if the relevant claim is successful). ▲ LITIGATION CAPITAL MANAGEMENT LIMITED 42 Financial Review SUSTAINABILITY REPORT ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG) Our commitment towards positively contributing towards social matters is supported by our recent success in matters achieving financial redress for those affected by unjust practices. PEOPLE We place great value on our staff who are fundamental to our success. We aim to attract and retain highly talented staff who generate value and create a sustainable business. We treat all our employees fairly and ethically and we aim to provide an environment in which all our employees feel valued, engaged, safe and can perform to the utmost of their abilities. We conduct appraisals and encourage an open dialogue with management at all times. The appraisal process is designed to improve performance by articulating individual goals and providing feedback on performance. Professional development is encouraged and ensures employees remain motivated, incentivised and working. DIVERSITY AND INCLUSION At LCM we ensure that everyone is treated equally and foster an equal opportunities approach to hiring. Our work environment is one that supports diversity and we aim to recruit the most suitable candidates with the right skill set for the role, regardless of their gender, nationality or ethnic background. CORPORATE GOVERNANCE LCM adopts the Quoted Companies Alliance Code (‘QCA Code’) which applies a principles based approach to good Corporate Governance. LCM has an independent Chairman and Board who are responsible for ensuring we operate ethically and transparently. LCMs business continues to evolve and we aim to strengthen and develop our governance framework to ensure it is relevant to the business as it grows. Strong corporate governance is crucial to the success of our business. COMMUNITY AND CHARITIES Our people are involved both at an individual and Company level in various charities supporting the broader communities in which we operate. REDFERN LEGAL CENTRE AND ABORIGINAL LEGAL SERVICE Following on from LCM’s provision of a Deed of Guarantee to cover any adverse costs incurred in a claim pursued by Redfern Legal Centre for a number of people who were incorrectly issued with fines for offences under the Public Health Act 2010 for failure to comply with restrictions imposed during COVID 19 in 2023, LCM provided a further Deed of Guarantee to cover any adverse costs of a further client of Redfern Legal Centre seeking to challenge the fine issued to her during COVID for being out of greater Sydney (she was homeless at the time). This claim resulted in the amount of the fine being refunded to the claimant in full. JUSTICE AND EQUITY CENTRE (FORMERLY PUBLIC INTEREST ADVOCACY CENTRE) The Justice and Equity Centre (JEC) is a leading social justice and policy centre. JEC works with people and communities who are marginalised and facing disadvantage to build a fairer, stronger society by helping to change laws, policies and practices that cause injustice and inequality. ANNUAL REPORT AND FINANCIAL STATEMENTS 2024 43 Financial Review Since 2018, LCM has been a contributor to the Adverse Costs Order (ACO) Fund of the Justice and Equity Centre (JEC), formerly the Public Interest Advocacy Centre (PIAC). The ACO Fund is comprised of commitments from litigation funders who have a dedication to social justice and advancing the public interest by supporting litigation that aligns with their values and goals. Contributions to the ACO Fund enable the JEC to offer some protection to potential public interest litigation plaintiffs, against the risk of an adverse costs order. The threat of an adverse costs order is a major barrier to public interest litigation going ahead, and the ACO Fund helps the JEC overcome that barrier. In the 2023/24 financial year, the ACO Fund provided support for two public interest litigation plaintiffs. The first, an asylum seeker who suffers from PTSD, sought to challenge the routine use of handcuffs on him when he needed to access medical care outside of an immigration detention centre. That case settled in November 2023 and while the terms of the settlement are confidential, the plaintiff Yasir was pleased with the outcome and felt there had been some accountability for his mistreatment. The second plaintiff, Ms Rachael Fullerton, commenced disability discrimination proceedings in the Federal Court of Australia in relation to the failure of Qantas to approve her to fly with her assistance dog Strike. This is despite her flying with no issue on Virgin and Rex, and she can travel with him on any train or bus in New South Wales, because Strike has a public transport card. The case is ongoing. These cases would likely not have been able to be commenced, without the support provided by the ACO Fund contributors. LCM also supports the JEC by buying a table at its annual fundraising event. CLIENTS AND STAKEHOLDERS We strive to develop and improve relationships with our clients and stakeholders. This is evident in the strong referral network we have built over the years with our law firms. We work hard to foster these relationships, which have contributed to our success over the years. We are proud that our clients and stakeholders have participated in the successful outcomes that they engage us to do and this is evident in our track record. We continue to work on improving the way we work in order to maintain high standards of risk management and compliance. We continue to monitor and develop our policies and procedures for data protection, anti-money laundering, and anti-bribery and corruption, as well as our regulatory obligations of being a listed entity and provide adequate training to our staff as these develop. This ensures the interests of our clients and shareholders are always at the centre of what we do. SHAREHOLDERS We place significant importance on our relationship with shareholders. We strive to maintain an open and transparent dialogue with our investors as often as practicable. Our shareholders are fundamental to the long-term success of our business. We aim to meet with Shareholders to develop an understanding of their concerns and allow them the opportunity to have an open dialogue with Management. We do this predominantly through one to one meetings and investor roadshows. OUR INVESTMENTS AND ESG The nature of our business facilitates claimants in achieving justice. As part of our investment criteria we ensure that we pursue cases that will be given a fair trial and don’t disadvantage the claimant as a result of receiving funding. Further, many of the cases which we fund promote wider ESG objectives. For example we provide finance for the following claims categories: 1. claims which strengthen corporate governance and hold officers accountable for breaches of directors duties; 2. claims brought by liquidators against former directors for insolvent trading and against casinos who have knowingly received company funds used by gambling addicted company directors causing the insolvency of the company; 3. derivative claims holding directors to account for regulatory failings causing losses to the company; 4. treaty arbitration cases seeking compensation from states who have acted illegally to expropriate assets of foreign investors. Specifically, in Australia we are currently financing the following class actions which have clear social and environmental benefits: 1. a class action in Australia asserting the illegality of “social casino games” the addictive nature of which has caused considerable losses for ordinary Australians which has a corresponding negative social impact; and 2. a class action brought on behalf of the QLD fishing industry for loss and damage resulting from environmental damage resulting from the dredging of the Gladstone port. LITIGATION CAPITAL MANAGEMENT LIMITED 44 LITIGATION CAPITAL MANAGEMENT LIMITED 44 ANNUAL REPORT AND FINANCIAL STATEMENTS 2024 45 Governance 3 G O V E R N A N C E LITIGATION CAPITAL MANAGEMENT LIMITED 46 Governance Jonathan Moulds Non-Executive Chairman Jonathan has extensive experience in financial services and has worked in the UK, US and Asia during his 25+ year executive career. He currently chairs Citi’s largest global subsidiary CGML and is the chair of the Financial Markets Standards Board. He is also the Senior Independent Director of IG, the listed global leveraged trading business. Jonathan spent the majority of his career at Bank of America where he became head of Bank of America’s International businesses and subsequently European President of Bank of America Merrill Lynch and the CEO of Merrill Lynch International following the merger of the two companies in 2009. He was most recently Group Chief Operating Officer at Barclays Plc. Jonathan has served on key industry associations, including the International Swaps and Derivatives Association (ISDA) as Chair, Association for Financial Markets in Europe (AFME) as Director, and Capital Markets Senior Practitioners of the UK Financial Services Authority and the Global Financial Markets Association as a member. He has a first-class honours in Mathematics from the University of Cambridge, and was awarded a CBE in the 2014 Honours List for services to philanthropy. Term of office Independent Committee membership External directorships and commitments Joined the Board December 2018 Yes Rem, Nom Chair of Citigroup Global Markets Limited (CGML) a subsidiary of Citi Group Inc. Non-Executive Director of IG Group Holdings Plc Member of AFME’s Advisory Board. Dr David King Non-Executive Director David has a doctorate in geophysics/seismology, and was a founder and Executive Director of Eastern Star Gas Ltd. He has substantial natural resource related experience, having previously served as Managing Director of North Flinders Mines Ltd and CEO/Director of Beach Petroleum and Claremont Petroleum. David is a Fellow of the Australasian Institute of Mining and Metallurgy, and a Fellow of the Australian Institute of Geoscientists. Term of office Independent Committee membership External directorships and commitments Joined the Board October 2015 Yes ARC (Chair), Nom Non-Executive Director Renergen Ltd. BOARD OF DIRECTORS ANNUAL REPORT AND FINANCIAL STATEMENTS 2024 47 Governance Gerhard Seebacher Non-Executive Director Gerhard brings to LCM’s Board a long career in financial services and fund management. He has worked extensively in Europe and the US, including a 20+ year career at Bank of America in a number of senior management roles within the global investment bank. Gerhard was more recently a partner at Brevan Howard Asset Management, a leading global macro hedge fund. Term of office Independent Committee membership External directorships and commitments Joined the Board August 2020 Yes Rem Com (Chair) ARC (Chair), Nom Chief Investment Officer and owner of Boulder Hill LLC Patrick Moloney Executive Director Patrick Moloney is a veteran of the disputes funding industry with 20 years’ experience in the space. Patrick has been a Director of LCM since 2003 and the Chief Executive Officer of the Group since December 2013. He is responsible for overseeing all litigation projects in which LCM has an investment and (as a Board member) for approving new litigation projects for funding. He has been involved in all aspects of the business including devising strategy for future growth, investor relations and corporate affairs. Patrick is one of the most experienced litigation financiers globally. Prior to joining LCM, he was the principal of Moloney Lawyers, which he established in 2003; and specialised in commercial litigation. Patrick was admitted to practise law in 1996 and has acted in more than 200 commercial litigation disputes for clients in the Australian superior Courts. Term of office Independent Committee membership External directorships and commitments Joined the Board 2003 No n/a n/a LITIGATION CAPITAL MANAGEMENT LIMITED 48 Governance THE QCA CORPORATE GOVERNANCE CODE The Board of LCM places great emphasis on the duty we have to our shareholders in ensuring we have a strong corporate governance framework in place. Corporate governance operates at all levels throughout the business to enable the business to operate efficiently. The Board is committed to delivering high standards of corporate governance and embedding the right practices and behaviour throughout the business. We are committed to enhancing and developing our practices to ensure they remain appropriate for our business at it evolves. The Quoted Companies Alliance has published a corporate governance code for small and mid-sized quoted companies, which includes a standard of minimum best practice for AIM companies, and recommendations for reporting corporate governance matters. From admission to the Alternative Investment Market (AIM), we have adopted the QCA Corporate Governance Code, having previously reported on our compliance with the ASX Corporate Governance Council’s Principles and Recommendations. A description of the Company’s corporate governance practices from admission are set out below. Governance principles Compliant Application of code Principle 1: Establish a strategy and business model which promotes long-term value for shareholders ✓ LCM’s Strategy focuses principally on growth and is built around four core principles: • Maintaining a balanced portfolio • Providing funding for new claim types • Focus on expansion • Ensuring access to capital and funding match LCM’s current and future pipeline LCM considers the most important aspect of its business to be its people, who implement its strategy through the identification and assessment of litigation projects for financing. Further reading Full disclosure of the Strategy is detailed in LCM’s Strategic Report on pages 6 to 25. Principle 2: Seek to understand and meet shareholder needs and expectations ✓ The Board acknowledges the importance of relationships with shareholders and seeks regular interaction with major shareholders to ensure their requirements and opinions are conveyed to the Board. Our shareholders are fundamental to the long-term success of our business and we place significant importance on our relationship with them. We strive to maintain an open and transparent dialogue with our investors as often as practicable, ensuring they understand our overall strategies and how we are delivering against them. We do this through one to one meetings, capital market days and investor roadshows. LCM intends to continue to use its annual general meeting (‘AGM’) as an opportunity to engage with its shareholders and seek their input on the management of LCM. LCM undertakes a number of steps to seek to maximise shareholders’ ability to participate in the AGM process. ANNUAL REPORT AND FINANCIAL STATEMENTS 2024 49 Governance Governance principles Compliant Application of code Principle 3: Take into account wider stakeholder and social responsibilities and their implications for long-term success ✓ LCM gives serious consideration to the impact our business activities may have, not only on our clients and employees, but also in the local communities in which we operate. It goes without saying that our people are our business and are fundamental to LCM’s long-term success and to delivering shareholder value. We treat all our employees fairly and ethically and we aim to provide an environment in which all our employees feel valued, engaged, safe and can perform to the utmost of their abilities. Staff retention is important at LCM and we continue to focus on the development of our employees and ensure that they remain motivated and incentivised. We ensure that everyone is treated equally and foster an equal opportunities approach to hiring. Our work environment is one that supports diversity and we aim to recruit the most suitable candidates with the right skill sets for the roles, regardless of their gender, nationality or ethnic background. There is no financial return to LCM from the ACO Fund and our involvement represents our commitment to supporting social justice and public interest litigation. The Board has a significant role to play in ensuring longevity of the business through sustainable long-term growth and development strategies. The Group’s strategy means that it will rely on the networking ability of executive and senior management as well as employees to maintain active contacts and communications with legal professionals, other professionals and business and financial parties in order to provide it with Litigation Projects. LCM takes feedback from its stakeholders into account when making decisions and taking actions. Further reading See further information on our involvement in PIAC on pages 42 to 43. Principle 4: Embed effective risk management, considering both opportunities and threats, throughout the organisation ✓ LCM has a proven and robust risk management process. When considering new Litigation Projects, LCM applies a rigorous selection criteria, referred to as LCM’s five pillars. Once a Litigation Project has passed these initial selection criteria, LCM then applies an established investment approval process to manage and mitigate the risks associated with its Litigation Projects. The Company has established an Audit and Risk Committee which provides advice and assistance to the Board in fulfilling its corporate governance and oversight responsibilities in relation to internal and external audit, risk management systems, financial and market reporting, internal accounting, financial control systems and other items as requested by the Board. The primary objective of the Audit and Risk Committee is to assist the Board in overseeing the systems of internal control and external financial reporting of the Group. It performs this role by ensuring that the external and internal audit arrangements are appropriate and effective; the compliance arrangements are appropriate and effective fraud prevention and whistleblowing arrangements are established which minimise potential for fraud and financial impropriety; and the annual report and accounts, related internal control disclosures and any other publicly available financial information are reviewed and scrutinised. The Audit and Risk Committee Chairman shall report formally to the Board on its proceedings after each meeting on all matters within the Audit and Risk Committee’s duties and responsibilities and shall make whatever recommendations to the Board it deems appropriate on any area within its remit where action or improvement is needed. Further reading Read more about LCMs investment risk assessment on pages 35 to 41. LITIGATION CAPITAL MANAGEMENT LIMITED 50 Governance Governance principles Compliant Application of code Principle 5: Maintain the Board as a well-functioning, balanced team led by the Chair ✓ The Board is responsible for the overall management of the Group. The Board comprises five Directors; two Executive Directors and three Non-Executive Directors. The Company believes that it has an appropriate balance between Executive and Non-Executive Directors and meets the criteria for at least two Independent Non-Executive Directors. The board is led by the Chairman, Jonathan Moulds and the roles of Chairman and CEO are distinct. The Board has specific Audit and Risk, Remuneration and Nomination Committees covering three of the areas of the Group’s operation which the Board views as having key importance to the Group’s stakeholders. Each of these Committees have their own terms of reference which provide the necessary authorities for them to operate as they consider appropriate. Further reading Read more on our Board and Committees on pages 46 to 47. Principle 6: Ensure that between them the Directors have the necessary up-to-date experience, skills and capabilities ✓ The Board believes its members collectively possess the appropriate balance of skills to allow it to discharge its duties and responsibilities effectively. Further reading Read more about the skills and experience of the Board on pages 47 to 47. Principle 7: Evaluate Board performance based on clear and relevant objectives, seeking continuous improvement ✓ The Board will review the effectiveness of the Board and its composition to ensure it has the appropriate balance of skills, knowledge, experience, independence and diversity to enable it to discharge its duties and responsibilities effectively and to otherwise manage Board succession issues. The Company has established the Nomination Committee which is delegated the responsibility to lead the process for Board appointments and to ensure that the Board and its committees have an appropriate balance of skills, experience, availability, independence and knowledge of the Company to enable them to discharge their respective responsibilities effectively. The Nomination Committee has adopted formal terms of reference under which the Nomination Committee shall, amongst other matters: a. regularly review the structure, size and composition (including the skills, knowledge, experience and diversity) (including gender) of the Board and make recommendations to the Board with regard to any changes; b. give full consideration to succession planning for Directors and other senior managers in the course of its work, taking into account the challenges and opportunities facing the Group, and the skills and expertise needed on the Board in the future; c. be responsible for identifying and nominating for the approval of the Board, candidates to fill Board vacancies as and when they arise; d. be responsible for the induction of new appointments to the Board; e. make recommendations to the Board regarding membership of the Audit and Remuneration Committees, and any other Board Committees as appropriate, in consultation with the Chairmen of those Committees; and f. make recommendations to the Board regarding the re-appointment of any Non-Executive Director at the conclusion of their specified term of office (in particular, for any term beyond six years) having given due regard to their performance and ability to continue to contribute to the Board in the light of the knowledge, skills and experience required. The Nomination Committee Chairman shall report formally to the Board on its proceedings after each meeting on all matters within the Nomination Committee’s duties and responsibilities and shall make whatever recommendations to the Board it deems appropriate on any area within its remit where action or improvement is needed. Further reading Read more on our Board and Committees on pages 46 to 47. ANNUAL REPORT AND FINANCIAL STATEMENTS 2024 51 Governance Governance principles Compliant Application of code Principle 8: Promote a corporate culture that is based on ethical values and behaviours ✓ LCM has a very simple philosophy around ethical conduct that is entrenched within its culture. Ethical conduct is of paramount importance to every LCM employee and it is non-negotiable. We do not permit second chances, we do not allow anyone to exploit grey areas and there is zero tolerance towards anyone looking to bend the rules. LCM’s compliance regime has grown in tandem with our international expansion and it addresses the various legal and regulatory obligations LCM has across multiple jurisdictions. The Directors have zero tolerance towards bribery and corruption and the Board has adopted an anti-bribery and corruption policy. The policy applies to all personnel of the Group including Directors, officers and employees. The policy prohibits both ‘active bribery’ (such as offering or promising to a third party benefits such as gifts, donations or awards) and ‘passive bribery’ (such as requesting, soliciting or agreeing to receive a bribe from a third party). As part of implementing the policy, the Company has a system for recording hospitality and gifts (both received and made to others) and sets out in detail guidelines for providing and accepting hospitality. The policy condemns tax evasion, whether it involves evading UK taxes or foreign taxes; and expressly prohibits the Group’s employees, consultants and agents from facilitating tax evasion by any third party. Further reading Read more on Anti-Bribery and Corruption on page 60. Principle 9: Maintain governance structures and processes that are fit for purpose and support good decision-making by the Board ✓ The Board is responsible for the overall management of the Group. The Board has established a Remuneration Committee, a Nomination Committee and an Audit and Risk Committee and has adopted the Share Dealing Code. The Group also operates an Anti-Bribery and Corruption Policy. The Board and its Committees have an appropriate balance of skills, experience, availability, independence and knowledge of the Company to enable them to discharge their respective responsibilities effectively. Further reading Read more on our Board and committees on pages 46 to 47. Principle 10: Communicate how LCM is governed and is performing by maintaining a dialogue with shareholders and other relevant stakeholders ✓ The Board endeavours to keep all interested shareholders informed by regular announcements and update statements. The Directors intend to meet regularly with new and existing institutional shareholders to understand their needs and expectations. The Company invites shareholder feedback and will report it back to the Board. LCM uses its annual general meeting (AGM) as an opportunity to further engage with its shareholders. The Chairperson of the Board is ultimately responsible for shareholder communication. As soon as practicable following any general meeting has been concluded, the results of the meeting will be released through a regulatory news service and a copy of the announcements placed on the Company’s website. In the event that a significant proportion of votes was cast against any resolution at a general meeting, an explanation of the actions proposed to be taken in response would be outlined. LCM’s website is one of its key information tools and LCM endeavours to keep its website up to date, complete and accurate. Documents produced that communicate key information to shareholders will include the annual and interim financial statements, announcements released to the London Stock Exchange and investor presentations. Further reading Read more about LCM’s investment risk assessment on pages 35 to 41. LITIGATION CAPITAL MANAGEMENT LIMITED 52 Governance THE BOARD The Board is responsible for the overall management of the Group. The Board meets formally and aims to meet not less than four times per year, and meets informally on a more regular basis to discuss the Company’s business. In the 2024 reporting year, the Board held five meetings virtually through video conferencing and in person. Matters specifically reserved for the Board include matters relating to strategy, management structure and appointments, review of performance, corporate finance and approval of any major capital expenditure and the framework of internal controls. The Board has established a Remuneration Committee, a Nomination Committee and an Audit and Risk Committee and has adopted the Share Dealing Code. The Group also operates an Anti-Bribery and Corruption Policy, details of each are described further (see page 60). AUDIT AND RISK COMMITTEE The Company has established an Audit and Risk Committee which provides advice and assistance to the Board in fulfilling its corporate governance and oversight responsibilities in relation to internal and external audit, risk management systems, financial and market reporting, internal accounting, financial control systems and other items as requested by the Board. The Audit and Risk Committee Charter states that this Committee shall comprise at least three members. To the extent practicable given the size and composition of the Board from time to time the Committee will consist of two Directors. Currently the Audit and Risk Committee consists of two members who during the year were Gerhard Seebacher and Dr David King who chairs the Audit and Risk Committee. The composition of the Audit and Risk Committee will be reviewed and additional members appointed as considered necessary by the Board. The Audit and Risk Committee endeavours to meet at least three times a year. In the 2024 reporting year, the Audit and Risk Committee met three times. The Committee members (and Directors when considered appropriate) are in regular contact to discuss any relevant audit and risk matters. The primary objective of the Audit and Risk Committee is to assist the Board in overseeing the systems of internal control and external financial reporting of the Group. It performs this role by ensuring that the external and internal audit arrangements are appropriate and effective; the compliance arrangements are appropriate and effective fraud prevention and whistleblowing arrangements are established which minimise potential for fraud and financial impropriety; and the annual report and accounts, related internal control disclosures and any other publicly available financial information are reviewed and scrutinised. The Audit and Risk Committee has adopted formal terms of reference under which the Audit and Risk Committee shall, amongst other matters: a. monitor the integrity of the financial statements of the Group, including its annual and half-yearly reports, and any other formal announcement relating to its financial performance, reviewing and reporting to the Board on significant financial reporting issues and judgements which they contain having regard to the matters communicated to it by the Group’s external auditor; b. review the content of the annual report and accounts and advise the Board on whether, taken as a whole, it is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group’s performance, business model and strategy; c. monitor and keep under review the adequacy and effectiveness of the Group’s internal financial controls and internal control and risk management systems; d. review the adequacy and security of the Group’s arrangements for its employees and contractors to raise concerns, in confidence, about possible wrongdoing in financial reporting or other matters; e. review the Group’s procedures for detecting fraud; f. monitor and review the need for an internal audit function in the context of the Group’s overall risk management system; and g. oversee the relationship and matters with the external auditor and make recommendations to the Board regarding the same. CORPORATE GOVERNANCE STATEMENT ANNUAL REPORT AND FINANCIAL STATEMENTS 2024 53 Governance The Audit and Risk Committee Chairman shall report formally to the Board on its proceedings after each meeting on all matters within the Audit and Risk Committee’s duties and responsibilities and shall make whatever recommendations to the Board it deems appropriate on any area within its remit where action or improvement is needed. LCM’s Audit and Risk Committee plays a critical role in ensuring adequate controls are in place and the integrity of financial reporting is maintained. NOMINATION COMMITTEE The Company has established the Nomination Committee which is delegated the responsibility to lead the process for Board appointments and to ensure that the Board and its Committees have an appropriate balance of skills, experience, availability, independence and knowledge of the Company to enable them to discharge their respective responsibilities effectively. The Nomination Committee shall comprise at least two members; at present the nominations committee consists of three members being Jonathan Moulds, Dr David King and Gerhard Seebacher who will chair the Nomination Committee. The Nomination Committee aims to meet at least once a year. In the 2024 reporting year, the Nomination Committee did not meet. The Nomination Committee has adopted formal terms of reference under which the Nomination Committee shall, amongst other matters: a. regularly review the structure, size and composition (including the skills, knowledge, experience and diversity (including gender)) of the Board and make recommendations to the Board with regard to any changes; b. give full consideration to succession planning for Directors and other senior managers in the course of its work, taking into account the challenges and opportunities facing the Group, and the skills and expertise needed on the Board in the future; c. be responsible for identifying and nominating for the approval of the Board, candidates to fill Board vacancies as and when they arise; d. be responsible for the induction of new appointments to the Board; e. make recommendations to the Board regarding membership of the Audit and Remuneration Committees, and any other Board Committees as appropriate, in consultation with the Chairmen of those committees; and f. make recommendations to the Board on the re- appointment of any Non-Executive Director at the conclusion of their specified term of office (in particular, for any term beyond six years) having given due regard to their performance and ability to continue to contribute to the Board in the light of the knowledge, skills and experience required. The Nomination Committee Chairman shall report formally to the Board on its proceedings after each meeting on all matters within the Nomination Committee’s duties and responsibilities and shall make whatever recommendations to the Board it deems appropriate on any area within its remit where action or improvement is needed. LCM’s Remuneration Committee ensures alignment between achieving the Group’s objectives and incentivising high performance and maintaining staff retention through a balanced incentive scheme. REMUNERATION COMMITTEE The Board seeks to ensure that LCM adopts remuneration practices which will enable it to attract and retain high calibre and suitably qualified employees, Executives and Directors whose interests are aligned with those of shareholders. The Company has established a Remuneration Committee which is delegated the responsibility of advising the Board on developing an overall remuneration policy that is aligned with business strategy and objectives, risk appetite, values and long-term interests of the Company, recognising the interests of all stakeholders. The Remuneration Committee comprises two members who during the year were Jonathan Moulds and Gerhard Seebacher who chaired the Remuneration Committee. The Remuneration Committee aims to meet at least two times a year. In the 2024 reporting year the Remuneration Committee met once, which was held virtually. Committee members are in regular contact to discuss any remuneration matters. LITIGATION CAPITAL MANAGEMENT LIMITED 54 Governance The Remuneration Committee has adopted formal terms of reference under which the Remuneration Committee shall, amongst other matters: a. have responsibility for setting remuneration policy for all Executive Directors, the Chairman and such other members of the executive management as it is designated to consider, including pension rights and any compensation payments; b. recommend and monitor the level and structure of remuneration for senior management; c. review the on-going appropriateness and relevance of the remuneration policy; d. within the terms of the remuneration policy and in consultation with the Chairman of the Board and/or Chief Executive, as appropriate, determine the total individual remuneration package of each Executive Director of the Company, the Chairman of the Board and the designated members of executive management, including bonuses, incentive payments and share options or other share awards and in determining such packages and arrangements, give due regard to any relevant legal requirements; e. review the design of all share incentive plans for approval by the Board and shareholders; f. ensure that contractual terms on termination, and any payments made, are fair to the individual, and the Company, that failure is not rewarded and that the duty to mitigate loss is fully recognised; g. oversee any major changes in employee benefits structures throughout the Group; and h. agree the policy for authorising claims for expenses from the Company’s Chief Executive and Chairman of the Board. The Remuneration Committee Chairman shall report to the Board on its proceedings after each meeting on all matters within its duties and responsibilities and shall ensure appropriate disclosure of information, ensuring pensions are fulfilled, and produce a report of the Company’s remuneration policy and practices to be included in the Company’s annual report. ANNUAL REPORT AND FINANCIAL STATEMENTS 2024 55 Governance REMUNERATION REPORT The Directors present this Remuneration Report (Report) for Litigation Capital Management Limited (LCM and together with its controlled entities, the LCM Group) for the 12 months ended 30 June 2024, of which certain tables have been audited1 (as noted below), and outlines key aspects of our remuneration framework. It contains the following sections: 1. Remuneration framework 2. Remuneration details 3. Service agreement 4. Remuneration table (audited) 5. Directors’ interests (audited) 6. Other disclosures REMUNERATION FRAMEWORK OVERVIEW OF REMUNERATION FRAMEWORK The Board recognises that the performance of LCM depends on the quality and motivation of its people. The objective of LCM’s remuneration policy is to attract, motivate and retain the best available management and employees to operate and manage LCM. Non-Executive Director remuneration is designed in a way that supports the retention of their independence. Employee remuneration and incentive policies and practice are performance-based and aligned with LCM Group’s vision, values and overall business objectives, with five guiding principles in mind: • alignment of employee pay with shareholder interests and wealth outcomes; • alignment of employee pay with fund interests and wealth outcomes; • motivation of employee behaviour to execute LCM’s strategy through an appropriate mix of fixed and variable pay elements; • delivery of a competitive remuneration framework that assists with attracting and retaining high calibre Non-Executive and employee talent to ensure business success; and • provision of a simple and transparent framework that is clear to participants and external stakeholders. 1. Audited where referenced in this report means that the relevant tables have been extracted directly from the audited 2024 financial statements and notes. ROLE OF THE REMUNERATION COMMITTEE The Remuneration Committee ensures that the remuneration of Directors and senior employees is consistent with market practice and sufficient to ensure that the LCM Group can attract, develop and retain the best individuals and is designed to: • attract, develop and retain Board and executive talent; • create a high-performance culture by driving and rewarding employees for achieving the Group’s strategy and business objectives; and • link incentives to the creation of shareholder and fund value. The Remuneration Committee shall meet formally at such frequency as circumstances demands for the purposes referred to above. PRINCIPAL TERMS OF THE SHARE PLANS In prior years, the committee decided it was appropriate to move away from the legacy Loan Share Plan (LSP) and Company Share Option Plan (CSOP) to the current Deferred Bonus Share Plan (DBSP) and Executive Long Term Incentive Plan (‘LTIP’), in line with other listed peers. This ensures LCM remain competitive in retaining and attracting new talent. The principal terms of the current Share Plans, determined by the Remuneration Committee, are set out below. ELIGIBILITY Deferred Share Bonus Plan (DSBP) Awards may be made to Directors and employees of the Group and its subsidiaries, at the discretion of the Remuneration Committee. Executive Long Term Incentive Plan (LTIP) Awards may be made only to Senior Executives of the Group and its subsidiaries, at the discretion of the Remuneration Committee. TIMING Awards will normally only be granted after the end of a closed period (typically following the announcement of the Group’s results for any period). In exceptional circumstances, awards may be granted at other times provided that no awards may be granted during a closed period. LITIGATION CAPITAL MANAGEMENT LIMITED 56 Governance PERFORMANCE CONDITIONS The Group attaches considerable importance to the role of appropriate performance-based incentives to drive sustainable long-term growth and align Directors’ and employees’ interests with the interests of shareholders and Fund investors. Accordingly, awards to Directors and senior management will ordinarily be subject to the achievement of performance conditions set by the Remuneration Committee at the date of grant. PLAN LIMITS In any 10 year period, not more than 10% of the issued ordinary share capital of the Group may be issued or be issuable under the Share Plans. These limits do not include awards which have lapsed, which are satisfied by shares purchased in the market, or include shares which are used to pay dividend equivalents. As disclosed in the AIM Admission Document, shares granted under the existing Australian Loan Share Plan prior to listing on AIM will not form part of the limits for the Share Plans nor the shares granted under the Joint Share Ownership Plan post Admission. SATISFACTION OF AWARDS Options will be subject to the satisfaction of performance conditions. The Executive LTIP plan for senior executives are awarded with vesting conditions linked to fund performance over a three to five year period. HOLDING PERIOD Awards may be granted on the basis that some or all of the shares in respect of which the award vests will be held for a further period post-vesting. Awards granted under the Executive LTIP plan have a holding period up to the fifth anniversary of grant. MALUS AND CLAWBACK The Remuneration Committee will have the ability to reduce the number of shares subject to an unvested award (including to zero) in certain circumstances or impose additional conditions on the awards and/or require that the participant has to either return some or all of the shares acquired under the award or make a cash payment to the Company in respect of any shares delivered. The circumstances which may lead to a clawback are where the award is determined to have been granted or vested on the basis of materially inaccurate information or where the Remuneration Committee determines that the participant has committed a material breach of their contract of employment which would include, without limitation: where the participant has contributed to a material loss or reputational damage to the Group; the participant has materially breached any compromise agreement entered into in relation to their cessation of employment; or, where applicable, the participant has materially breached any of their fiduciary duties. LEAVING EMPLOYMENT If a participant leaves employment, unvested awards will normally lapse. If the participant leaves for one of the following reasons: disability, ill-health, injury, redundancy, or in other circumstances if the Remuneration Committee allows, their award will normally continue in effect and vest on the original vesting date or, if applicable, will be released at the end of the holding period. TAKEOVERS, REORGANISATIONS, ETC. Awards will generally vest early on a takeover, or other change of control event, or on a voluntary winding up of the Group. The applicable rules of the Share Plans may also contain provisions to allow for awards to be made to participants based in jurisdictions outside of Australia and the UK and to allow for the Remuneration Committee to agree special terms to allow for awards to be granted in those jurisdictions in order to comply with local practice or to avoid adverse tax, legal or regulatory consequences. Any shares issued following the vesting of awards will rank equally with shares of the same class in issue on the date of allotment except in respect of rights arising by reference to a prior record date. REMUNERATION DETAILS REMUNERATION PAYABLE TO NON-EXECUTIVE DIRECTORS Non-Executive Directors enter into service agreements through a letter of appointment which are not subject to a fixed term. Non-Executive Directors receive a fee for their contribution as Directors. Fees payable to Non-Executive Directors reflect the demands which are made on, and the responsibilities of, Directors. Directors’ fees are reviewed regularly by the Board. ANNUAL REPORT AND FINANCIAL STATEMENTS 2024 57 Governance LCM’s Constitution provides that LCM may remunerate each Director as the Directors decide, provided that the total amount paid to Non-Executive Directors’ may not exceed: i. the amount fixed by LCM in general meeting for that purpose; or ii. if no amount has been fixed by LCM in general meeting for that purpose, A$700,000 per annum. An amount has been fixed by LCM in the Annual General Meeting of 21 November 2019 for the aggregate fee pool limit to be A$700,000 per annum. The objective of LCM’s remuneration policies with regard to Non-Executive Directors is to ensure the Group is able to attract and retain Non-Executive Directors with the skills and experience to ensure the Board is able to discharge its oversight and governance responsibilities in an effective and diligent manner and supports the retention of their independence. LCM do not pay bonus payments or lump sum retirement benefits to Non-Executive Directors. Details of fees paid during the financial year to each Non- Executive Director are detailed below. REMUNERATION DETAILS FOR EMPLOYEES Employees of LCM are contracted under an employment agreement which incorporates a probation period generally of six months, a salary as well as an ability after 12 months of service for the employee to be eligible for a performance award discretionary bonus and participate in an incentive scheme (Eligible Employees). Each Eligible Employee will be entitled to participate in the LCM incentive scheme, the rules of which may be subject to change by LCM at any time. The award of an incentive will be discretionary and will be determined based on: 1. the financial performance of LCM as a whole; 2. the performance review of the Eligible Employee in each full financial year the Eligible Employee is employed by LCM; and 3. the financial performance of any fund managed by LCM. The performance review of each Eligible Employee will be undertaken at the end of each financial year and during that performance review each Eligible Employee will be assessed in accordance with the Eligible Employee’s Role Description (the Performance Conditions). The maximum amount of the incentive able to be earned by an Eligible Employee in any year is as follows: 1. a cash payment of up to 35% of the base salary of the Eligible Employee (Cash Incentive); and 2. an invitation to participate in the Share Plan up to a value of 65% of the base salary of the Eligible Employee. During periods of exceptional performance and at the discretion of the Remuneration Committee and Board, Eligible Employees can earn an additional award under the Share Plan. SERVICE AGREEMENT All Executive Directors have contracts of employment. Remuneration and other terms of employment are formalised in that agreement, including components of remuneration and base salary to which they are entitled, eligibility for incentives and other benefits including superannuation and pensions. Key terms of Patrick Moloney’s employment agreement is as follows: • term of five years (commencing December 2018) with an automatic extension for a further five years unless notice is given at least one year before the expiry of the initial term that the agreement will not be extended; • a fixed salary per annum plus superannuation and is entitled to six weeks paid annual leave per year, details of which are set out in the remuneration tables below; and • LCM can terminate the agreement at any time without cause by making payment of the total remuneration and benefits for the unexpired period of the term, unless the remaining term is less than 12 months, in which case the agreement may be terminated by 12 months’ notice in writing or payment in lieu of notice. On appointment, all Non-Executive Directors enter into an agreement which outlines obligations and minimum terms and conditions. LITIGATION CAPITAL MANAGEMENT LIMITED 58 Governance The table below provides the number of fully paid ordinary shares and unlisted partly paid shares in the company held by each Non-Executive Director and Executive KMP during the period ended 30 June 2024 and the previous period ended 30 June 2023: Name of the Director Description of shares 30 June 2024 Number 30 June 2023 Number Jonathan Moulds Fully paid ordinary shares 5,250,000 5,250,000 Dr David King Fully paid ordinary shares 1,951,484 1,951,484 Patrick Moloney Fully paid ordinary shares 4,204,813 4,204,813 Patrick Moloney Unlisted partly paid shares1 1,433,022 1,433,022 Mary Gangemi Fully paid ordinary shares 64,348 27,500 Gerhard Seebacher N/A – – 1. Unlisted partly paid shares in the Company were issued at a price of $0.17 per share, wholly unpaid and will convert to a share upon payment to the Company of $0.17 per share. Further details provided in note 15 to the financial statements. No changes took place in the interest of the Directors between 30 June 2024 and 17 September 2024. REMUNERATION TABLE REMUNERATION TABLE FOR YEAR ENDED 30 JUNE 2024 (AUDITED) The table below provides remuneration for KMPs for the 12 months ended 30 June 2024 and comparatives for the year ended 30 June 2023 (audited). Cash salaries and fees $ Bonus $ Benefits $ 2024 2023 2024 2023 2024 2023 Non-Executive Directors Dr David King 111,458 100,000 – – – – Jonathan Moulds 214,255 178,586 – – – – Gerhard Seebacher 127,377 111,356 – – – – 453,091 389,943 – – – – Executive directors and other executives Patrick Moloney 1,316,062) 1,071,517 183,783 118,249 114,754 5,709 David Collins1 22,921 – – – – – Mary Gangemi2 552,818 491,112 163,814 140,637 – – 1,891,800 1,562,629 347,597 258,886 114,754 5,709 Total 2,344,891 1,952,572 347,597 258,886 114,754 5,709 1. David Collins appointed as Chief Financial Officer on 18 June 2024 on a base salary of £350,000 (AUD equivalent $672,000). Refer note 25 for details on amounts paid to Greatham Advisors Limited, a related entity of David Collins, for Investor Relation services prior to David becoming an employee. 2. Stepped down as Chief Financial Officer 18 June 2024 and resigned as Director 5 September 2024.. FULLY PAID ORDINARY SHARES AND UNLISTED PARTLY PAID SHARES ANNUAL REPORT AND FINANCIAL STATEMENTS 2024 59 Governance Accrued leave $ Superannuation -pension $ Long service leave $ Share-based payments $ Total $ 2024 2023 2024 2023 2024 2023 2024 2023 2024 2023 – – 12,302 10,500 – – – – 123,760 110,500 – – – – – – – – 214,255 178,586 – – – – – – – – 127,377 111,356 – – 12,302 10,500 – – – – 465,393 400,443 36,864 (29,023) – – 28,975 13,145 199,145 252,293 1,879,583 1,431,891 – – – – – – – – 22,921 – – – 55,282 49,111 – – 209,438 122,721 981,352 803,581 36,864 (29,023) 55,282 49,111 28,975 13,145 408,583 375,014 2,883,856 2,235,472 36,864 (29,023) 67,587 59,611 28,975 13,145 408,583 375,014 3,349,249 2,635,914 LITIGATION CAPITAL MANAGEMENT LIMITED 60 Governance SHARE OPTIONS The table below provides the number of options over ordinary shares in the Company held by each Non-Executive Director and Executive KMP during the financial year: Name of the Director Grant date Expiry date Exercise price Balance at the start of the year Granted Exercised Expired/ forfeited/ other Balance at the end of the year Patrick Moloney 19/11/2018 25/11/2028 $0.47 1,595,058 – – – 1,595,058 Patrick Moloney 04/12/2017 04/12/2027 $0.60 1,000,000 – – – 1,000,000 Patrick Moloney 04/12/2017 04/12/2027 $0.60 1,000,000 – – – 1,000,000 Patrick Moloney 01/11/2019 01/11/2029 £0.7394 1,166,400 – – (388,800) 777,600 Patrick Moloney 13/10/2020 13/10/2030 £0.6655 291,597 – – – 291,597 Patrick Moloney 27/10/2021 27/10/2031 £1.06 279,232 – – – 279,232 Patrick Moloney1 27/10/2021 27/10/2031 £1.06 900,000 – – – 900,000 Mary Gangemi 27/10/2021 27/10/2031 £1.06 93,585 – – – 93,585 Mary Gangemi 27/10/2021 27/10/2031 £1.14 26,315 – – – 26,315 Patrick Moloney 07/10/2022 07/10/2032 – 3,303,796 – – – 3,303,796 Patrick Moloney 07/10/2022 07/10/2032 – 169,276 – – – 169,276 Mary Gangemi 07/10/2022 07/10/2032 – 1,266,455 – – – 1,266,455 Mary Gangemi 07/10/2022 07/10/2032 – 201,325 – (67,108) – 134,217 Patrick Moloney 04/10/2023 04/10/2033 – – 167,043 – – 167,043 Mary Gangemi 04/10/2023 04/10/2033 – – 148,893 – – 148,893 11,293,039 315,936 (67,108) (388,800) 11,153,067 1. On 27 October 2021 Patrick Moloney, Chief Executive Officer of the Company exercised 900,000 options (the “Executive Options”) at an exercise price of A$1.00. The Company has agreed to issue and allot in total 900,000 new Ordinary Shares (“Ordinary Shares”) in the capital of the Company to Patrick Moloney which were granted under the Loan Share Plan for the sole purpose to fund the Aggregate Exercise Price of the 900,000 unlisted options. SHARE DEALING CODE The Share Dealing Code adopted by the Company from admission to AIM applies to any person discharging management responsibility, which will apply to all the Directors, any closely associated persons and applicable employees (as each is defined in the Code). The Share Dealing Code sets out their responsibilities under the AIM Rules, FSMA and MAR and other relevant legislation. The Share Dealing Code addresses the share dealing restrictions as required by the AIM Rules and where applicable MAR. The Share Dealing Code’s purpose is to ensure that Directors and other relevant persons do not abuse, or place themselves under suspicion of abusing, inside information that they may have or be thought to have, especially in periods leading up to an announcement of results. The Share Dealing Code sets out a notification procedure which is required to be followed prior to any dealing in the company’s securities. ANTI-BRIBERY AND CORRUPTION POLICY The Directors have zero tolerance towards bribery and corruption and the Board has adopted an anti-bribery and corruption policy. The policy applies to all personnel of the Group including Directors, officers and employees. The policy prohibits both ‘active bribery’ (such as offering or promising to a third party benefits such gifts, donations or awards) and ‘passive bribery’ (such as requesting, soliciting or agreeing to receive a bribe from a third party). As part of implementing the policy, the Company has a system for recording hospitality and gifts (both received and made to others) and sets out in detail guidelines for providing and accepting hospitality. The policy condemns tax evasion, whether it involves evading UK taxes or foreign taxes and expressly prohibits the Group’s employees, consultants and agents from facilitating tax evasion by any third party. ANNUAL REPORT AND FINANCIAL STATEMENTS 2024 61 Governance DIRECTORS’ REPORT The Directors of Litigation Capital Management Limited (LCM) present their report together with the annual financial report of the consolidated entity consisting of LCM and its subsidiaries (collectively LCM Group or the Group) for the period ended 30 June 2024 and the auditors’ report thereon. 1. DIRECTORS The Directors of LCM at any time during or since the end of the financial period are set out below: Jonathan Moulds Patrick Moloney Dr David King Gerhard Seebacher Mary Gangemi1 Further information on the current Directors in office are disclosed on pages 46 to 47 of the corporate governance section within the annual report. 2. COMPANY SECRETARY Anna Sandham was appointed Company Secretary of LCM in September 2016. Anna is an experienced company secretary and governance professional with over 20 years’ experience in various large and small, public and private, listed and unlisted companies. Anna has previously worked for companies including AMP Financial Services, Westpac Banking Corporation, BT Financial Group and NRMA Limited. Anna holds a Bachelor of Economics (University of Sydney), Graduate Diploma of Applied Corporate Governance (Governance Institute of Australia) and is a Chartered Secretary. 3. OFFICERS WHO WERE PREVIOUSLY PARTNERS OF THE AUDIT FIRM There were no officers of the Group during the financial year which were previously partners of the current audit firm, BDO Audit Pty Ltd. 4. MEETINGS OF DIRECTORS During the 2024 financial year, five Board meetings were held (not counting circular resolutions passed outside regular meetings). The following table sets out the number of Board and Committee meetings each Director attended and the number they were eligible to attend. Meetings Attended/Meetings Eligible to Attend Director Board Audit & Risk Committee Remuneration Nominations David King 5/5 3/3 * – Patrick Moloney 5/5 * * * Jonathan Moulds 5/5 * 1/1 – Gerhard Seebacher 5/5 3/3 1/1 – Mary Gangemi 5/5 * * * * Not a member of the committee. 1. Resigned 5 September 2024. LITIGATION CAPITAL MANAGEMENT LIMITED 62 Governance 5. PRINCIPAL ACTIVITIES LCM is a global provider of legal finance which operates two business models. The first is direct investments made from LCM’s permanent balance sheet capital and the second is fund and/or asset management. Under those two business models, LCM currently pursues three investment strategies: Single-case funding, Corporate portfolio funding and Acquisitions of claims. LCM generates its revenue from both its direct investments and also performance fees through asset management. LCM has a strong track record, driven by effective project selection, active project management and robust risk management. Currently headquartered in Sydney, with offices in London, Singapore, Brisbane and Melbourne, LCM listed on AIM in December 2018, trading under the ticker LIT. 6. OPERATING AND FINANCIAL REVIEW OVERVIEW OF THE LCM GROUP LCM is a company limited by shares and was incorporated on 9 October 2015. LCM was admitted to trade on the Alternative Investment Market (AIM) of the London Stock Exchange on 19 December 2018 under the ticker LIT. LCM was formerly listed on the Australian Securities Exchange (ASX) between 13 December 2016 and 21 December 2018. Its registered office and principal place of business is Level 12, The Chifley Tower, 2 Chifley Square, Sydney NSW 2000, Australia. OPERATIONS LCM operates its business through a series of wholly owned subsidiaries. The principal activity of those subsidiaries is the provision of litigation finance and risk management associated with individual and portfolios of litigation projects. Information on the Group’s operations are disclosed on pages 6 to 25 in the strategic report within the annual report. REVIEW OF FINANCIAL PERFORMANCE The statutory profit for the Group after providing for income tax amounted to $10,649,000 (30 June 2023: $31,485,000). Further commentary on the financial results are disclosed in the financial review by the chief financial officer on pages 29 to 43 in the strategic report within the annual report. CHANGE IN STATE OF AFFAIRS Mary Gangemi stepped down from her position as Chief Financial Officer (‘CFO’) on 18 June 2024 and resigned from her position as Director on 5 September 2024. David Collins joined LCM as the new CFO on the same date, 18 June 2024. David is not initially a member of the Board, however is considered a Person Discharging Managerial Responsibilities (‘PDMR’). David is expected to join the Board in due course. Other than the changes outlined above, there have been no other significant changes in the state of affairs during the financial year. 7. DIVIDENDS The Directors declare a dividend for the year ended 30 June 2024 of 1.25 pence per ordinary share, to be paid on 25 October 2024 to eligible shareholders on the register as at 4 October 2024. The ordinary shares will be marked ex-dividend on 3 October 2024. The financial effect of dividends declared after the reporting date is not reflected in the 30 June 2024 financial statements and will be recognised in subsequent financial reports. ANNUAL REPORT AND FINANCIAL STATEMENTS 2024 63 Governance 8. MATTERS SUBSEQUENT TO THE END OF THE FINANCIAL PERIOD On 17 July 2024, LCM announced the resolution of a single case investment which forms part of LCM’s managed Global Alternative Returns Fund (‘Fund I’) and was funded directly from LCM’s balance sheet (25%) and Fund I Investors (75%). As announced, the investment generated realisations for LCM of at least AUD$12.5 million, including performance fees, compared to LCM’s invested capital of AUD$1.5 million, representing a MOIC of 8.3x. Of the resolutions which concluded close to period end which were disclosed as outstanding receivables as at 30 June 2024, AUD$11.6 million was received throughout July 2024. 9. LIKELY DEVELOPMENTS AND EXPECTED RESULTS The Group is close to finalising a new debt facility that aims to increase the size and lower the cost compared to our existing facility. The Group does not issue forecasts due to the challenges in predicting the timing of its investment finalisations. However, it anticipates ongoing demand for its funding across all markets. Litigation funding is viewed as non-cyclical and largely unaffected by broader economic conditions. 10. ENVIRONMENTAL REGULATION The consolidated entity is not subject to any significant environmental regulation under Australian Commonwealth or State law. 11. DIRECTORS’ INTERESTS IN SHARES AND OPTIONS The relevant interests of each director in the shares and rights or options over shares issued by LCM at the date of this report is as follows: Director1 Ordinary shares1 Unlisted partly paid shares2 Loan Plan Shares3 & Loans Long Term Executive Plan3 Deferred Bonus Share Plan3 Dr. David King 1,951,484 – – – – Patrick Moloney 4,204,813 1,433,022 5,843,487 3,303,796 336,319 Jonathan Moulds 5,250,000 – – – – Gerhard Seebacher – – – – – Mary Gangemi 64,348 – 119,900 1,266,455 283,110 1. Directors, including associated parties, interests held directly and indirectly. 2. Unlisted partly paid shares in the Group were issued at a price of $0.17 per share, wholly unpaid and will convert to a share upon payment to the Group of $0.17 per share. 3. Plans exercisable at various prices and subject to vesting conditions. 12. SHARE OPTIONS LOAN FUNDED SHARE PLAN (‘LSP’) During the year the Group granted nil (2023: nil) shares under the LSP. As at the date of this report there were 7,501,608 LSP’s outstanding subject to various vesting and performance conditions. There were 7,201,260 LSP’s vested and exercisable as at 30 June 2024 (2023: 6,869,211). DEFERRED BONUS SHARE PLAN (‘DBSP’) During the year the Group granted 771,911 (2023: 1,132,692) options under the DBSP. As at the date of this report there were 1,649,346 DBSP’s outstanding subject to various vesting and performance conditions. There were 377,564 DBSP’s vested and of these 255,257 exercised as at 30 June 2024 (2023: nil). LITIGATION CAPITAL MANAGEMENT LIMITED 64 Governance EXECUTIVE LONG TERM INCENTIVE PLAN (‘LTIP’) During the year the Group granted nil (2023: 5,671,516) options under the LTIP. As at the date of this report there were 5,671,516 LTIP’s outstanding subject to various vesting and performance conditions. There were nil LTIP’s vested and exercisable as at 30 June 2024 (2023: nil). Further details on each Plan is provided in note 29 to the financial statements. 13. INDEMNITY AND INSURANCE OF OFFICERS AND AUDITORS INDEMNIFICATION Under the LCM Constitution, to the maximum extent permitted by the Corporations Act 2001 (‘the Act’), LCM must indemnify each person who is or has been an Officer against any liability incurred as an Officer and may pay a premium for a contract insuring an Officer against that liability. During the financial period, LCM has paid premiums in respect of contracts insuring the directors and officers of LCM against any liability of this nature. LCM has not, during or since the end of the financial period, indemnified or agreed to indemnify an officer or auditor of LCM or any related entity against a liability as such by an officer or auditor except to the extent permitted by law. INSURANCE PREMIUMS In accordance with normal commercial practices, under the terms of the insurance contracts, the nature of liabilities insured against and the amount of the premiums paid are confidential. 14. NON-AUDIT SERVICES Details of the amounts paid or payable to the auditor for non-audit services provided during the financial year by the auditor are outlined in note 24 to the financial statements. The Directors are satisfied that the provision of non-audit services during the financial period, by the auditor (or by another person or firm on the auditor’s behalf), is compatible with the general standard of independence for auditors imposed by the Act. The Directors are of the opinion that the services disclosed in note 24 to the financial statements do not compromise the external auditor’s independence requirements of the Act for the following reasons: • All non-audit services have been reviewed and approved to ensure that they do not impact the integrity and objectivity of the auditor; and • None of the services undermine the general principles relating to auditor independence as set out in the APES 110 Code of Ethics for Professional Accountants issued by the Accounting Professional and Ethical Standards Board, including reviewing or auditing the auditor’s own work, acting in a management or decision-making capacity for the Group, acting as an advocate for the company or jointly sharing economic risks and rewards. 15. PROCEEDINGS ON BEHALF OF LCM GROUP No person has applied for leave of court to bring proceedings on behalf of the company or intervene in any proceedings to which the company is a party for the purpose of taking responsibility on behalf of the company for all or any part of those proceedings. The company was not a party to any such proceedings during the year. ANNUAL REPORT AND FINANCIAL STATEMENTS 2024 65 Governance 16. LEAD AUDITOR’S INDEPENDENCE DECLARATION The Auditor’s independence declaration as required under section 307C of the Act is set out on page 66. 17. AUDITOR BDO Audit Pty Ltd continues in office in accordance with section 327 of the Act. 18. ROUNDING OF AMOUNTS LCM is of a kind referred to the Australian Securities and Investments Commission Corporations (Rounding in Financial/ Directors’ Reports) Instrument 2016/191, relating to ‘rounding-off’. Amounts in this report have been rounded off in accordance with that Instrument to the nearest thousand dollars, or in certain cases, the nearest dollar. 19. CORPORATE GOVERNANCE The corporate governance statement can be found here: www.lcmfinance.com/shareholders/corporate-governance/ 20. REMUNERATION REPORT The remuneration report can be found in the corporate governance section within the annual report. This report is made in accordance with a resolution of Directors, pursuant to section 298(2)(a) of the Act. On behalf of the Directors Mr Jonathan Moulds Chairman 17 September 2024 LITIGATION CAPITAL MANAGEMENT LIMITED 66 AUDITOR’S INDEPENDENCE DECLARATION Tel: +61 2 9251 4100 Fax: +61 2 9240 9821 www.bdo.com.au Level 11, 1 Margaret Street Sydney NSW 2000 Australia BDO Audit Pty Ltd ABN 33 134 022 870 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit Pty Ltd and BDO Australia Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation. DECLARATION OF INDEPENDENCE BY GEOFF ROONEY TO THE DIRECTORS OF LITIGATION CAPITAL MANAGEMENT LIMITED As lead auditor of Litigation Capital Management Limited for the year ended 30 June 2024, I declare that, to the best of my knowledge and belief, there have been: 1. No contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and 2. No contraventions of any applicable code of professional conduct in relation to the audit. This declaration is in respect of Litigation Capital Management Limited and the entities it controlled during the period. Geoff Rooney Director BDO Audit Pty Ltd Sydney 17 September 2024 ANNUAL REPORT AND FINANCIAL STATEMENTS 2024 67 Financial statements 4 F I N A N C I A L S TAT E M E N TS LITIGATION CAPITAL MANAGEMENT LIMITED 68 LITIGATION CAPITAL MANAGEMENT LIMITED 68 Financial statements C O N T E N TS CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME 70 CONSOLIDATED STATEMENT OF FINANCIAL POSITION 71 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 72 CONSOLIDATED STATEMENT OF CASH FLOWS 73 NOTES TO THE FINANCIAL STATEMENTS 74 CONSOLIDATED ENTITY DISCLOSURE STATEMENT 110 DIRECTORS’ DECLARATION 111 INDEPENDENT AUDITOR’S REPORT 112 ANNUAL REPORT AND FINANCIAL STATEMENTS 2024 69 Financial statements Consolidated Note 2024 $’000 2023 $’000 Income Gain on financial assets at fair value through profit or loss 5 86,926 184,735 Movement in financial liabilities related to third-party interests in consolidated entities 5 (48,382) (111,953) Litigation service revenue 5 12,443 – Total income 50,987 72,782 Litigation service expense (3,236) – Gross profit 47,752 72,782 Expenses Employee benefits expense 6 (11,471) (9,474) Depreciation expense 6 (145) (166) Corporate expenses (5,171) (4,220) Fund administration expense 6 (3,400) (3,010) Foreign currency gains/(losses) (1,432) (5,081) Total operating expenses (21,619) (21,951) Operating profit 26,133 50,831 Net finance costs 6 (10,083) (8,090) Profit before income tax expense 16,050 42,741 Income tax expense 7 (3,335) (11,256) Profit after income tax expense 12,715 31,485 Other comprehensive income Items that may be subsequently reclassified to profit and loss: Movement in foreign currency translation reserve 2,013 2,187 Total comprehensive income for the period 14,728 33,672 Profit for the period is attributable to: Owners of Litigation Capital Management Limited 12,715 31,485 12,715 31,485 Total comprehensive income for the period is attributable to: Owners of Litigation Capital Management Limited 14,728 33,672 14,728 33,672 Cents Cents Basic earnings per share 8 12.01 29.53 Diluted earnings per share 8 11.33 28.33 The above Consolidated Statement of Profit or Loss and Other Comprehensive Income should be read in conjunction with accompanying Notes to the Financial Statements. CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME for the period ended 30 June 2024 LITIGATION CAPITAL MANAGEMENT LIMITED 70 Financial statements Consolidated Note 2024 $’000 2023 $’000 Assets Cash and cash equivalents 10 68,113 104,457 Trade receivables 11 10,986 2,063 Due from resolution of financial assets 12 3,980 11,873 Contract costs 13 42,072 37,277 Financial assets at fair value through profit or loss 14 465,213 391,410 Property, plant and equipment 157 211 Intangible assets 305 356 Other assets 977 1,256 Total assets 591,803 548,903 Liabilities Trade and other payables 15 30,376 7,535 Tax payable 883 7,769 Employee benefits 1,112 906 Borrowings 16 61,917 68,976 Financial liabilities related to third-party interests in consolidated entities 17 264,950 243,990 Deferred tax liability 7 43,624 36,259 Total liabilities 402,862 365,435 Net assets 188,941 183,468 Equity Issued capital 18 69,674 69,674 Treasury shares 18 (5,396) – Reserves 4,171 1,042 Retained earnings 120,492 112,753 Parent interest 188,941 183,468 Total equity 188,941 183,468 The above Consolidated Statement of Financial Position should be read in conjunction with accompanying Notes to the Financial Statements. CONSOLIDATED STATEMENT OF FINANCIAL POSITION as at 30 June 2024 ANNUAL REPORT AND FINANCIAL STATEMENTS 2024 71 Financial statements CONSOLIDATED STATEMENT OF CHANGES IN EQUITY for the period ended 30 June 2024 Consolidated Issued capital $’000 Treasury shares $’000 Retained earnings $’000 Share- based payments reserve $’000 Foreign currency translation $’000 Total equity $’000 Balance at 1 July 2022 (restated) 69,674 – 81,268 1,573 (3,585) 148,930 Profit after income tax expense for the period – – 31,485 – – 31,485 Other comprehensive income for the period – – – – 2,187 2,187 Total comprehensive income for the period – – 31,485 – 2,187 33,672 Equity Transactions: Share-based payments (note 29) – – – 867 – 867 – – – 867 – 867 Balance at 30 June 2023 69,674 – 112,753 2,440 (1,398) 183,468 Consolidated Issued capital $’000 Treasury shares $’000 Retained earnings $’000 Share- based payments reserve $’000 Foreign currency translation $’000 Total equity $’000 Balance at 1 July 2023 69,674 – 112,753 2,440 (1,398) 183,469 Profit after income tax expense for the period – – 12,715 – – 12,715 Other comprehensive income for the period – – – – 2,013 2,013 Total comprehensive income for the period – – 12,715 – 2,013 14,728 Equity Transactions: Share-based payments (note 29) – – – 1,116 – 1,116 Dividends paid (note 20) – – (4,976) – – (4,976) Treasury shares acquired (note 18) – (5,396) – – – (5,396) – (5,396) (4,976) 1,116 – (9,256) Balance at 30 June 2024 69,674 (5,396) 120,492 3,556 615 188,941 The above Consolidated Statement of Changes in Equity should be read in conjunction with accompanying Notes to the Financial Statements. LITIGATION CAPITAL MANAGEMENT LIMITED 72 Financial statements CONSOLIDATED STATEMENT OF CASH FLOWS for the period ended 30 June 2024 Consolidated Note 2024 $’000 2023 $’000 Cash flows from operating activities Proceeds from litigation contracts 116,636 192,563 Payments for litigation contracts (78,265) (94,543) Payments to suppliers and employees (16,337) (13,434) Income tax paid (2,830) – Net cash from operating activities 9 19,203 84,587 Cash flows from investing activities Payments for property, plant and equipment (31) (90) Payments for intangibles (9) (57) Refund/(payment) of security deposits 8 (51) Net cash used in investing activities (31) (198) Cash flows from financing activities Payments for treasury shares 18 (5,396) – Dividends paid 20 (4,976) – Proceeds from borrowings 16 – 9,636 Repayments of borrowings 16 (8,139) (14,848) Payments of finance costs (8,960) (6,171) Payments of placement fees related to third-party interests (2,206) (1,832) Contributions from third-party interests in consolidated entities 17 30,505 74,980 Distributions to third-party interests in consolidated entities 17 (56,407) (94,373) Net cash (used in) financing activities (55,578) (32,608) Net increase/(decrease) in cash and cash equivalents (36,405) 51,781 Cash and cash equivalents at the beginning of the period 104,457 49,964 Effects of exchange rate changes on cash and cash equivalents 61 2,712 Cash and cash equivalents at the end of the period 10 68,113 104,457 1. The Group changed its cash flow presentation from indirect method to direct method to be in line with market practice and in accordance with how management from the Group reviews the cashflows of operations. The comparative information for the year ended 30 June 2023 has been restated to reflect the change in the cash flow presentation. The above Consolidated Statement of Cash Flows should be read in conjunction with accompanying Notes to the Financial Statements. ANNUAL REPORT AND FINANCIAL STATEMENTS 2024 73 Financial statements NOTES TO THE FINANCIAL STATEMENTS 30 June 2024 Note 1. GENERAL INFORMATION The financial statements cover Litigation Capital Management Limited (the ‘Company’) as a Group consisting of Litigation Capital Management Limited and the entities it controlled at the end of, or during, the year (referred to as the ‘Group’). The financial statements are presented in Australian dollars, which is Litigation Capital Management Limited’s functional and presentation currency. Litigation Capital Management Limited was admitted onto the Alternative Investment Market (‘AIM’) on 19 December 2018. Litigation Capital Management Limited is a listed public company limited by shares, incorporated and domiciled in Australia. Its registered office and principal place of business is: Level 12, The Chifley Tower 2 Chifley Square Sydney NSW 2000 A description of the nature of the Group’s operations and its principal activities are included in the Directors’ report, which is not part of the financial statements. The financial statements were authorised for issue, in accordance with a resolution of Directors, on 17 September 2024. The Directors have the power to amend and reissue the financial statements. BASIS OF PREPARATION The Financial Report: • has been prepared in accordance with the Australian Accounting Standards adopted by the Australian Accounting Standards Board (AASB) and International Financial Reporting Standards (IFRSs) as issued by the International Accounting Standards Board (IASB); • has been prepared in accordance with the requirements of the Corporations Act 2001 (Cth); • is presented in Australian dollars, which is the Group’s functional and presentation currency, with all values rounded to the nearest thousand dollars, or in certain cases to the nearest dollar, in accordance with ASIC Corporations Instrument 2016/191 unless otherwise indicated; • includes foreign currency transactions that are translated into the functional currency, using the exchange rates prevailing at the date of the Financial Report; • has been prepared on a going concern basis using a historical cost basis, except for certain assets and liabilities measured at fair value; • presents assets and liabilities on the face of the Balance Sheets in decreasing order of liquidity; • where required, presents restated comparative information for consistency with the current year’s presentation in the Financial Report; and • contains accounting policies that have been consistently applied to all periods presented, unless otherwise stated. PRINCIPLES OF CONSOLIDATION The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Litigation Capital Management Limited (‘Company’ or ‘parent entity’) as at 30 June 2024 and the results of all subsidiaries for the year then ended. Litigation Capital Management Limited and its subsidiaries together are referred to in these financial statements as the ‘Group’. LITIGATION CAPITAL MANAGEMENT LIMITED 74 Financial statements The Group includes fund investment vehicles over which the Group has the right to direct the relevant activities of the fund under contractual arrangements and has exposure to variable returns from the fund investment vehicles. See note 4. Subsidiaries are all those entities over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases. Intercompany transactions, balances and unrealised gains on transactions between entities in the Group are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. Note 2. MATERIAL ACCOUNTING POLICIES NEW AND AMENDED ACCOUNTING STANDARDS AND INTERPRETATIONS ADOPTED DURING THE YEAR The accounting policies adopted are consistent with those followed in the preparation of the Group’s annual consolidated financial statements for the year ended 30 June 2023. The Group has applied the Amendments to IAS 1, IFRS Practice Statement 2 – Disclosure of Accounting Policies for the first time for its annual reporting period commencing 1 July 2023. The amendment did not have any impact on the amounts recognised in prior periods and are not expected to significantly affect the current or future periods. NEW AND AMENDED ACCOUNTING STANDARDS AND INTERPRETATIONS ISSUED BUT NOT YET EFFECTIVE The new and amended standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Group’s financial statements that the Group reasonably expects will have an impact on its disclosures, financial position or performance when applied at a future date, are disclosed below. • Amendment to IFRS 9 and IFRS 7 – Classification and Measurement of Financial Instruments. • IFRS 18 Presentation and Disclosure in Financial Statements. • IFRS 19 Subsidiaries without Public Accountability: Disclosures. • IFRS S1, ‘General requirements for disclosure of sustainability-related financial information. The Group intends to adopt these new and amended standards and interpretations, if applicable, when they become effective. The Group has not listed other standards and interpretations which are issued but not yet effective, as they are not expected to impact the Group. OPERATING SEGMENTS Operating segments are presented using the ‘management approach’, where the information presented is on the same basis as the internal reports provided to the Chief Operating Decision Makers (‘CODM’). The CODM is responsible for the allocation of resources to operating segments and assessing their performance. FOREIGN CURRENCY TRANSLATION The financial statements are presented in Australian dollars, which is Litigation Capital Management Limited’s functional and presentation currency. Foreign currency transactions Foreign currency transactions are translated into the entity’s functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at financial year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss. ANNUAL REPORT AND FINANCIAL STATEMENTS 2024 75 Financial statements Foreign operations The assets and liabilities of foreign operations are translated into Australian dollars using the exchange rates at the reporting date. The revenues and expenses of foreign operations are translated into Australian dollars using the average exchange rates, which approximate the rates at the dates of the transactions, for the period. All resulting foreign exchange differences are recognised in other comprehensive income through the foreign currency reserve in equity. The foreign currency reserve is recognised in profit or loss when the foreign operation or net investment is disposed of. FAIR VALUE MEASUREMENT The Group measures its financial instruments such as litigation funding agreements and financial liabilities related to third‑party interests at fair value at each balance sheet date. When an asset or liability, financial or non-financial, is measured at fair value for recognition or disclosure purposes, the fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date; and assumes that the transaction will take place either: in the principal market; or in the absence of a principal market, in the most advantageous market. Fair value is measured using the assumptions that market participants would use when pricing the asset or liability, assuming they act in their economic best interests. For non-financial assets, the fair value measurement is based on its highest and best use. Valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, are used, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data is available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole: • Level 1 – Quoted (unadjusted) market prices in active markets for identical assets or liabilities • Level 2 – Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable • Level 3 – Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable For assets and liabilities that are recognised in the financial statements at fair value on a recurring basis, the Group determines whether transfers have occurred between levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period. The Group’s Executive Leadership Committee determines the policies and procedures for fair value measurement, including the litigation funding agreements. The Committee is comprised of the Chief Executive Officer, Chief Financial Officer and Head of Investments or equivalent. The level of involvement of external valuers or specialist valuation experts is determined annually by the Committee after discussion with and approval by the Company’s Audit Committee. Selection criteria include market knowledge, reputation, independence and whether professional standards are maintained. At each reporting date, the Committee analyses the movements in the values of assets and liabilities which are required to be remeasured or re-assessed as per the Group’s accounting policies. For this analysis, the Committee verifies the major inputs applied in the latest valuation by agreeing the information in the valuation computation to contracts and other relevant documents. The Committee also compares the change in the fair value of each asset and liability with any relevant external sources to determine whether the change is reasonable. LITIGATION CAPITAL MANAGEMENT LIMITED 76 Financial statements Fair-value related disclosures for financial instruments and non-financial assets that are measured at fair value or where fair values are disclosed, are summarised in the following notes: • Disclosures for valuation methods, significant estimates and assumptions note 22 • Quantitative disclosures of fair value measurement hierarchy note 22 • Financial instruments note 21 REVENUE RECOGNITION The Group recognises revenue as follows: Revenue from contracts with customers Revenue is recognised at an amount that reflects the consideration to which the Group is expected to be entitled in exchange for transferring services to a customer. For each contract with a customer, the Group: identifies the contract with a customer; identifies the performance obligations in the contract; determines the transaction price which takes into account estimates of variable consideration and the time value of money; allocates the transaction price to the separate performance obligations on the basis of the relative stand-alone selling price of each distinct service to be delivered; and recognises revenue when or as each performance obligation is satisfied in a manner that depicts the transfer to the customer of the services promised. Variable consideration within the transaction price, if any, reflects the variability of potential outcomes in awards or settlements of the litigation and any other contingent events. Such estimates are determined using either the ‘expected value’ or ‘most likely amount’ method. The measurement of variable consideration is subject to a constraining principle whereby revenue will only be recognised to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognised will not occur. The measurement constraint continues until the uncertainty associated with the variable consideration is subsequently resolved. Amounts received that are subject to the constraining principle are recognised as a refund liability. Litigation service revenue The performance of a litigation service contract by the Group entails the management and progression of the litigation project during which costs are incurred by the Group over the life of the litigation project. As consideration for providing litigation management services and financing of litigation projects, the Group receives either a percentage of the gross proceeds of any award or settlement of the litigation, or a multiple of capital deployed, and is reimbursed for all invested capital. Revenue, which includes amounts in excess of costs incurred and the reimbursement for all invested capital, is not recognised as revenue until the successful completion of the litigation project ie, complete satisfaction of the performance obligation, which is generally at the point in time when a judgment has been awarded or on an agreed settlement between the parties to the litigation, and therefore when the outcome is considered highly probable. On this basis, revenue is not recognised over time and instead recognised at the point in time when the Group satisfies the performance obligation. Costs include only external costs of funding the litigation, such as solicitors’ fees, counsels’ fees and experts’ fees. The terms and duration of each settlement or judgment varies by litigation project. Payment terms are not defined by the Group’s litigation contracts however upon successful completion of a litigation project, being the satisfaction of the single performance obligation, funds are generally paid into trust within 28 days. The funds will remain in trust until the distribution amounts have been determined and agreed by the relevant parties, after which payment will be received by the Group. INCOME TAX The income tax expense or benefit for the period is the tax payable on that period’s taxable income based on the applicable income tax rate for each jurisdiction, adjusted by the changes in deferred tax assets and liabilities attributable to temporary differences, unused tax losses and the adjustment recognised for prior periods, where applicable. Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to be applied when the assets are recovered or liabilities are settled, based on those tax rates that are enacted or substantively enacted, except for: • When the deferred income tax asset or liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and that, at the time of the transaction, affects neither the accounting nor taxable profits; or ANNUAL REPORT AND FINANCIAL STATEMENTS 2024 77 Financial statements • When the taxable temporary difference is associated with interests in subsidiaries, associates or joint ventures, and the timing of the reversal can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. The carrying amount of recognised and unrecognised deferred tax assets are reviewed at each reporting date. Deferred tax assets recognised are reduced to the extent that it is no longer probable that future taxable profits will be available for the carrying amount to be recovered. Previously unrecognised deferred tax assets are recognised to the extent that it is probable that there are future taxable profits available to recover the asset. Deferred tax assets and liabilities are offset only where there is a legally enforceable right to offset current tax assets against current tax liabilities and deferred tax assets against deferred tax liabilities; and they relate to the same taxable authority on either the same taxable entity or different taxable entities which intend to settle simultaneously. Litigation Capital Management Limited (the ‘head entity’) and its wholly-owned Australian subsidiaries have formed an income tax consolidated group under the tax consolidation regime. The head entity and each subsidiary in the tax consolidated group continue to account for their own current and deferred tax amounts. The tax consolidated group has applied the ‘separate taxpayer within group’ approach in determining the appropriate amount of taxes to allocate to members of the tax consolidated group. In addition to its own current and deferred tax amounts, the head entity also recognises the current tax liabilities (or assets) and the deferred tax assets arising from unused tax losses and unused tax credits assumed from each subsidiary in the tax consolidated group. Assets or liabilities arising under tax funding agreements with the tax consolidated entities are recognised as amounts receivable from or payable to other entities in the tax consolidated group. The tax funding arrangement ensures that the intercompany charge equals the current tax liability or benefit of each tax consolidated group member, resulting in neither a contribution by the head entity to the subsidiaries nor a distribution by the subsidiaries to the head entity. CASH AND CASH EQUIVALENTS Cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. TRADE AND OTHER RECEIVABLES Trade receivables are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method, less any allowance for expected credit losses. Trade receivables generally do not have a specifically defined time frame for settlement, additionally, when the receivable is due from part of the portfolio of litigation projects, the settlement of the receivable is generally made upon an additional resolution of another litigation project within the portfolio which also may not be within a specifically defined time frame. The Group has applied the simplified approach to measuring expected credit losses for trade receivables and contract assets, which uses a lifetime expected loss allowance. To measure the expected credit losses, trade receivables have been grouped based on days overdue. DUE FROM RESOLUTION OF FINANCIAL ASSETS Amounts due from the settlement of financial assets relate to the realisation of litigation funding assets that have been successfully concluded and where there is no longer any litigation risk remaining and represent the expected cash flow to be received by the Group. The settlement terms and timing of realisations vary by litigation funding asset. The majority of settlement balances are received shortly after the period end in which the litigation funding asset has concluded, and all settlement balances are generally expected to be received within 12 months after completion. LITIGATION CAPITAL MANAGEMENT LIMITED 78 Financial statements CONTRACT COSTS Contract costs are recognised as an asset when the Group incurs costs in fulfilling a contract and when all the following are met: (i) the costs relate directly to the contract; (ii) the costs generate or enhance resources of the Group that will be used to satisfy future performance obligations; and (iii) the costs are expected to be recovered. Contract costs are financial assets for impairment purposes. Refer to the Group’s revenue recognition policy for further information. Financial assets at fair value through profit or loss Financial assets are recognised at fair value through profit or loss and are fair valued using an income approach. Financial assets at fair value through profit or loss are carried in the statement of financial position at fair value with net changes in fair value recognised in the statement of profit or loss. This category includes the Group’s litigation funding assets. The litigation funding assets are primarily derecognised when the underlying litigation resolves and transfers to Due from resolution of financial assets. Financial assets are derecognised when the contractual rights to the cash flows expire or when the asset, along with the associated risks and rewards of ownership, are substantially transferred to another entity. Financial liabilities related to third-party interests in consolidated entities Non-controlling interests where the Group does not own 100% of a consolidated entity are recorded as financial liabilities related to third-party interests in consolidated entities. Financial liabilities related to third-party interests in consolidated entities are initially recognised at the fair value. Gains or losses on liabilities held at fair value through profit or loss are recognised in the statement of profit or loss as ‘Movement in financial liabilities related to third-party interests in consolidated entities’. They are subsequently measured at fair value using an income approach. Amounts included in the consolidated statement of financial position represent the net asset value of the third-parties’ interests. These amounts have been elected to be measured at fair value to reduce the accounting mismatch between the related financial asset measured at fair value through profit or loss. Financial liabilities are derecognised when the obligation to settle through cash flows has expired or been transferred. IMPAIRMENT OF NON-FINANCIAL ASSETS Non-financial assets are reviewed for impairment at each reporting date and whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. Recoverable amount is the higher of an asset’s fair value less costs of disposal and value-in-use. The value-in-use is the present value of the estimated future cash flows relating to the asset using a pre-tax discount rate specific to the asset or cash-generating unit to which the asset belongs. Assets that do not have independent cash flows are grouped together to form a cash-generating unit. TRADE AND OTHER PAYABLES These amounts represent liabilities for goods and services provided to the Group prior to the end of the financial year and which are unpaid. Due to their short-term nature they are measured at amortised cost and are not discounted. The amounts are unsecured and are usually paid within 30 days of recognition. BORROWINGS Borrowings are initially recognised at fair value net of transaction costs incurred. Subsequent to initial recognition, borrowings are stated at amortised cost. NET FINANCE COSTS Net finance costs comprise interest income from the investment of excess funds in short-term, highly liquid investments, and interest expense and borrowing costs related to the borrowing of funds. ANNUAL REPORT AND FINANCIAL STATEMENTS 2024 79 Financial statements EMPLOYEE BENEFITS Short-term employee benefits Liabilities for wages and salaries, including non-monetary benefits, annual leave and long service leave expected to be settled wholly within 12 months of the reporting date are measured at the amounts expected to be paid when the liabilities are settled. Other long-term employee benefits The liability for annual leave and long service leave not expected to be settled within 12 months of the reporting date are measured at the present value of expected future payments to be made in respect of services provided by employees up to the reporting date. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the reporting date on high quality corporate bonds with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows. Defined contribution superannuation expense Contributions to defined contribution superannuation plans are expensed in the period in which they are incurred. Share-based payments Equity-settled share-based compensation benefits are provided to employees. Equity-settled transactions are awards of shares, or options over shares, that are provided to employees in exchange for the rendering of services. The cost of equity-settled transactions are measured at fair value on grant date. Fair value is determined using either the Monte Carlo or Black-Scholes option pricing model that takes into account the exercise price, the term of the option, the impact of dilution, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk free interest rate for the term of the option, together with non-vesting conditions that do not determine whether the Group receives the services that entitle the employees to receive payment. No account is taken of any other vesting conditions. The cost of equity-settled transactions are recognised as an expense with a corresponding increase in equity over the vesting period. The cumulative charge to profit or loss is calculated based on the grant date fair value of the award, the best estimate of the number of awards that are likely to vest and the expired portion of the vesting period. The amount recognised in profit or loss for the period is the cumulative amount calculated at each reporting date less amounts already recognised in previous periods. Market conditions are taken into consideration in determining fair value. Therefore any awards subject to market conditions are considered to vest irrespective of whether or not that market condition has been met, provided all other conditions are satisfied. If equity-settled awards are modified, as a minimum an expense is recognised as if the modification has not been made. An additional expense is recognised, over the remaining vesting period, for any modification that increases the total fair value of the share-based compensation benefit as at the date of modification. If the non-vesting condition is within the control of the Group or employee, the failure to satisfy the condition is treated as a cancellation. If the condition is not within the control of the Group or employee and is not satisfied during the vesting period, any remaining expense for the award is recognised over the remaining vesting period, unless the award is forfeited. If equity-settled awards are cancelled, it is treated as if it has vested on the date of cancellation, and any remaining expense is recognised immediately. If a new replacement award is substituted for the cancelled award, the cancelled and new award is treated as if they were a modification. LITIGATION CAPITAL MANAGEMENT LIMITED 80 Financial statements ISSUED CAPITAL Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. TREASURY SHARES Where Group purchase shares in the listed Company, the consideration paid is deducted from issued capital and the shares are treated as treasury shares until they are subsequently sold, reissued or cancelled. Where such shares are sold or reissued, any consideration received is included in shareholders’ equity. DIVIDENDS Dividends are recognised when declared during the financial year and no longer at the discretion of the Company. EARNINGS PER SHARE Basic earnings per share Basic earnings per share is calculated by dividing the profit attributable to the owners of Litigation Capital Management Limited, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the financial year. Diluted earnings per share Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares. Note 3. CRITICAL ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts in the financial statements. Management continually evaluates its judgements and estimates in relation to assets, liabilities, contingent liabilities, revenue and expenses. Management bases its judgements, estimates and assumptions on historical experience and on other various factors, including expectations of future events, management believes to be reasonable under the circumstances. The resulting accounting judgements and estimates will seldom equal the related actual results. The judgements, estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities (refer to the respective notes) within the next financial year are discussed below. KEY JUDGEMENTS Consolidation of entities in which the Group holds less than 100% of interests The Group has assessed the entities in which it has an interest to determine whether or not control exists and the entity is, therefore, consolidated into the Group (refer note 4). Where the Group does not own 100% of interests, the Group makes judgements to determine whether to consolidate the entity in question by applying the factors set forth in AASB 10, including but not limited to the Group’s equity and economic ownership interest, the economic structures in use in the entity, the level of control the Group has over the entity through the entity’s structure or any relevant contractual agreements, and the rights of other investors. ANNUAL REPORT AND FINANCIAL STATEMENTS 2024 81 Financial statements SIGNIFICANT ESTIMATES AND ASSUMPTIONS Net gains/(losses) on financial assets & liabilities at fair value through profit or loss The Group carries its financial assets and liabilities at fair value, with changes in fair value being recognised in the statement of profit or loss. A valuation methodology based on an income approach. The fair values of these financial assets and liabilities cannot be measured based on quoted prices in active markets, and as a result a fair value methodology is utilised. The measurement valuation technique includes a discounted cash flow (DCF) model based on the Group’s estimated, risk adjusted future cash flows. The adopted discount rate reflects the funding cost of deploying capital, and is intended to capture the time value of money and market factors such as interest rates and foreign exchange rates. The fair value framework incorporates assumptions, including the discount rate, the timing and amount of expected cash inflows and additional funding, and a risk-adjustment factor reflecting the inherent uncertainty in the cash flows due to litigation risk, which is dependent on observable case progression and milestones. The inputs to these models are taken from observable markets where possible, but where this is not feasible, a degree of judgement is required in establishing fair values. Judgements include considerations of inputs such as case progress, credit risk and volatility. Changes in assumptions relating to these factors could affect the reported fair value of financial instruments. The key assumptions used to determine the fair value of the litigation funding agreements, financial liabilities related to third‑party interests in consolidated entities and sensitivity analyses are provided in note 22. Note 4. SEGMENT INFORMATION For management purposes, the Group is organised into two operating segments comprising the operations of Litigation Capital Management Limited and its wholly owned subsidiaries (“LCM”) and the Group’s fund structures (“Fund”). LCM The LCM column includes the 25% co-investment in the Funds, Balance Sheet investments (ie, 100% investment by LCM) and corporate operations. FUND I & II This comprises LCM Global Alternative Returns Fund and LCM Global Alternative Returns Fund II and their entities as disclosed in note 25. AASB 10 Consolidated Financial Statements requires the Group to consolidate fund investment vehicles over which it has exposure to variable returns from the fund investment vehicles. As a result, third party interests in relation to the Funds have been consolidated in the financial statements. The Fund column includes the 75% co-investment in the litigation funding assets and costs of administering the funds. INTERSEGMENT REVENUE The third-party interests in the Funds carry an entitlement to receive an 8% soft return hurdle. Upon satisfaction of the third‑party interests soft return hurdle, LCM is entitled to performance fees as fund manager on the basis of a deal by deal waterfall. The net residual cash flows are to be distributed 25% to LCM and 75% to the third-party interests until a IRR of 20% is achieved by the third-party interests, thereafter the net residual cash flows are distributed 35% to LCM and 65% to the third‑party interests. The following tables reflect the impact of consolidating the results of the Funds with the results for LCM to arrive at the totals reported in the consolidated statement of profit or loss and other comprehensive income, consolidated statement of financial position and consolidated statement of cash flows. LITIGATION CAPITAL MANAGEMENT LIMITED 82 Financial statements Effective from 1 July 2023, the Group has revised its internal segment reporting structure, resulting in a change from one reportable segment to two reportable segments. This change aims to provide more relevant and transparent information to stakeholders. This change aligns with the way the Group’s chief operating decision maker reviews financial performance. The comparative information for the year ended 30 June 2023 has been restated to reflect the new segment reporting structure however was also presented in note 26 of the FY23 Annual Report. 2024 2023 Consolidated Statement of Comprehensive Income Consolidated $’000 Fund $’000 LCM $’000 Consolidated $’000 Fund $’000 LCM $’000 Income Gain on financial assets at fair value through profit or loss 86,926 51,416 35,511 184,735 117,051 67,684 Movement in financial liabilities related to third-party interests in consolidated entities (48,382) (48,382) – (111,953) (111,953) – Litigation service revenue 12,443 – 12,443 – – – Total income from litigation assets 50,987 3,033 47,954 72,782 5,098 67,684 Litigation service expense (3,236) – (3,236) – – – Gross profit 47,752 3,033 44,718 72,782 5,098 67,684 Expenses Employee benefits expense (11,471) – (11,471) (9,474) – (9,474) Depreciation expense (145) – (145) (166) – (166) Corporate expenses (5,171) – (5,171) (4,220) – (4,220) Fund administration expense (3,400) (1,220) (2,180) (3,010) (1,178) (1,832) Foreign currency gains/(losses) (1,432) (1,968) 537 (5,081) (3,905) (1,176) Total operating expenses (21,619) (3,189) (18,430) (21,951) (5,083) (16,868) Operating profit 26,133 (155) 26,288 50,831 15 50,816 Net finance costs (10,083) 155 (10,238) (8,090) (15) (8,075) Profit before income tax expense 16,050 (0) 16,050 42,741 – 42,741 Income tax expense (3,335) – (3,335) (11,256) – (11,256) Profit after income tax expense 12,715 (0) 12,715 31,485 – 31,485 Other comprehensive income for the period, net of tax 2,013 – 2,013 2,187 – 2,187 Total comprehensive income for the period 14,728 (0) 14,728 33,672 – 33,672 ANNUAL REPORT AND FINANCIAL STATEMENTS 2024 83 Financial statements 2024 2023 Consolidated statement of financial position Consolidated $’000 Fund $’000 LCM $’000 Consolidated $’000 Fund $’000 LCM $’000 Assets Cash and cash equivalents 68,113 15,089 53,024 104,457 21,484 82,973 Trade and other receivables 10,986 – 10,986 2,063 – 2,063 Due from resolution of financial assets 3,980 – 3,980 11,873 – 11,873 Contract costs 42,072 – 42,072 37,277 – 37,277 Financial assets at fair value through profit or loss 465,213 262,300 202,913 391,410 225,642 165,768 Property, plant and equipment 157 – 157 211 – 211 Intangible assets 305 – 305 356 – 356 Other assets 977 (22) 999 1,256 78 1,178 Total assets 591,803 277,367 314,436 548,903 247,204 301,699 Liabilities Trade and other payables 30,376 12,417 17,959 7,535 3,214 4,321 Tax payable 883 – 883 7,769 – 7,769 Employee benefits 1,112 – 1,112 906 – 906 Borrowings 61,917 – 61,917 68,976 – 68,976 Third-party interests in consolidated entities 264,950 264,950 – 243,990 243,990 – Deferred tax liability 43,624 – 43,624 36,259 – 36,259 Total liabilities 402,862 277,367 125,494 365,435 247,204 118,231 Net assets 188,941 – 188,941 183,468 – 183,468 A financial liability at fair value through the income statement is recognised in the parent entity in relation to the transactions entered into with certain Fund structures to support the financing of LFAs. These arrangements fail the derecognition principles in IFRS 9 and represents the net share of the overall LFA at fair value apportioned to the Funds. LITIGATION CAPITAL MANAGEMENT LIMITED 84 Financial statements 2024 2023 Consolidated statement of Cash Flows Consolidated $’000 Fund $’000 LCM $’000 Consolidated $’000 Fund $’000 LCM $’000 Proceeds from litigation contracts 116,636 59,864 56,771 192,563 95,807 96,756 Payments for litigation contracts (78,265) (38,572) (39,693) (94,543) (58,293) (36,251) Payments to suppliers and employees (16,337) (1,572) (14,765) (13,434) (3,049) (10,385) Income tax paid (2,830) – (2,830) – – – Net cash from/(used in) operating activities 19,203 19,720 (517) 84,587 34,465 50,121 Cash flows from investing activities Payments for property, plant and equipment (31) – (31) (90) – (90) Payments for intangibles (9) – (9) (57) – (57) Refund/(payment) of security deposits 8 – 8 (51) – (51) Net cash used in investing activities (31) – (31) (198) – (198) Cash flows from financing activities Payments for treasury shares (5,396) – (5,396) – – – Dividends paid (4,976) – (4,976) – – – Proceeds from borrowings – – – 9,636 – 9,636 Repayments of borrowings (8,139) – (8,139) (14,848) (14,848) – Payments of finance costs (8,960) – (8,960) (6,171) (132) (6,039) Payments of placement fees related to third-party interests (2,206) – (2,206) (1,832) – (1,832) Contributions from third‑party interests in consolidated entities 30,505 30,505 – 74,980 74,980 – Distributions to third-party interests in consolidated entities (56,407) (56,407) – (94,373) (94,373) – Net cash (used in)/from financing activities (55,578) (25,901) (29,677) (32,608) (34,372) 1,766 Net increase/(decrease) in cash and cash equivalents (36,405) (6,181) (30,224) 51,781 92 51,689 Cash and cash equivalents at the beginning of the period 104,457 21,484 82,973 49,964 20,711 29,253 Effects of exchange rate changes on cash and cash equivalents 61 (214) 275 2,712 681 2,031 Cash and cash equivalents at the end of the period 68,113 15,089 53,024 104,457 21,484 82,973 ANNUAL REPORT AND FINANCIAL STATEMENTS 2024 85 Financial statements Note 5. INCOME Consolidated 2024 $’000 2023 $’000 Fair value through profit and loss Realised gains on litigation assets 10,299 26,879 Realised performance fees 12,735 24,598 Fair value adjustment during the period, net of previously recognised unrealised gains transferred to realised gains 11,600 11,134 Foreign exchange gains 877 5,073 Total income from litigation assets attributable to LCM 35,511 67,684 Gain on financial assets related to third-party interests in consolidated entities 51,416 117,051 86,928 184,735 Loss on financial liabilities related to third-party interests in consolidated entities (48,382) (111,953) Total income from litigation assets 38,544 72,782 Total income from litigation assets attributable to LCM represents realised and unrealised gains that relate to LCM’s funded proportion of litigation contracts.The gain and loss related to third party interests in consolidated entities represents realised and unrealised gains and losses that relate to third party funded proportions from LCM controlled entities. Realised gains relate to amounts where litigation risk has concluded and amounts are expected to be received by LCM. Unrealised gains or losses relate to the fair value movement of assets and liabilities associated with litigation contracts. Consolidated Litigation service revenue 2024 $’000 2023 $’000 Major service lines Revenue attributable to LCM 12,443 – Attributable to third party interests – – 12,443 – Geographical regions Australia 12,443 – 12,443 – Litigation service revenue relates to an individual litigation asset which resolved during the period and had a contract duration of more than 4 years. LITIGATION CAPITAL MANAGEMENT LIMITED 86 Financial statements Note 6. PROFIT BEFORE TAX Consolidated 2024 $’000 2023 $’000 Profit before income tax expense includes the following specific expenses: Employee benefits expense Salaries and wages 8,513 7,337 Non-Executive directors’ fees 457 393 Superannuation and pension 311 287 Share based payments expense 1,116 867 Other employee benefits and costs 1,074 590 11,471 9,474 Depreciation Plant and equipment 84 63 Intangible assets 60 103 145 166 Net finance costs Net interest on borrowings 9,017 7,511 Net finance costs of third-party interests (155) 144 Other finance costs 1,221 435 10,083 8,090 Fund administration expense General administration expenses 1,220 970 Set-up expenses – 209 Placement fees 2,180 1,831 3,400 3,010 Leases Short-term lease payments 906 777 ANNUAL REPORT AND FINANCIAL STATEMENTS 2024 87 Financial statements Note 7. INCOME TAX EXPENSE Consolidated 2024 $’000 2023 $’000 Numerical reconciliation of income tax expense and tax at the statutory rate Profit before income tax expense 16,050 42,741 At the Group’s statutory income tax rate of 30% (2023: 25%) 4,815 10,685 Tax effect amounts which are not deductible/(taxable) in calculating taxable income: Foreign tax rate adjustments (2,385) (1,718) Share-based payments 335 217 Other assessable income 139 143 Other non-deductible expenses 215 – Change in tax rate – 1,929 Adjustment in respect of income and deferred tax of previous years 217 – Income tax expense/(benefit) 3,335 11,256 Consolidated 2024 $’000 2023 $’000 Current tax (4,030) 7,701 Deferred tax 7,365 3,555 Income tax expense/(benefit) 3,335 11,256 Consolidated 2024 $’000 2023 $’000 Deferred tax asset/(liability) Deferred tax asset/(liability) comprises temporary differences attributable to: Tax losses – 14,197 Employee benefits 302 273 Accrued expenses 172 929 Expenditure deductible for income tax over time 1,706 – Share based payments 464 – Deductible funding on contract costs and financial assets (16,634) (23,374) Fair value adjustments to financial assets (29,634) (28,284) Deferred tax asset/(liability) (43,624) (36,259) Movements: Opening balance (36,259) (32,704) Charged to profit or loss (7,365) (3,555) Closing balance (43,624) (36,259) LITIGATION CAPITAL MANAGEMENT LIMITED 88 Financial statements Note 8. EARNINGS PER SHARE Consolidated 2024 $’000 2023 $’000 Profit after income tax 12,715 31,485 Profit after income tax attributable to the owners of Litigation Capital Management Limited 12,715 31,485 Number Number Weighted average number of ordinary shares used in calculating basic earnings per share1 105,849,093 106,613,927 Adjustments for calculation of diluted earnings per share: Amounts uncalled on partly paid shares 1,301,770 1,252,018 Options over ordinary shares 5,103,344 3,257,392 Weighted average number of ordinary shares used in calculating diluted earnings per share 112,254,207 111,123,337 1. Weighted average number of ordinary shares on issue during the year, excludes treasury shares held. Cents Cents Basic earnings per share 12.01 29.53 Diluted earnings per share 11.33 28.33 Dilutive potential shares which are contingently issuable are only included in the calculation of diluted earnings per share where the conditions are met. Note 9. RECONCILIATION OF CASH FLOWS Reconciliation of profit after income tax to net cash from operating activities: Consolidated 2024 $’000 2023 $’000 Profit after income tax expense for the period 12,715 31,485 Adjustments for: Fair value adjustments to financial liabilities related to third party interests 48,382 111,953 Finance costs reclassified to financing activities 10,083 8,090 Fund costs reclassified to financing activities 2,180 1,851 Depreciation and amortisation of intangibles 145 166 Share-based payments 1,116 867 Other, including foreign exchange rate movements 407 11,527 Change in operating assets and liabilities: Decrease/(increase) in trade and other receivables (8,923) 89 Decrease/(increase) in due from resolution of financial assets 7,893 12,468 Decrease/(increase) in financial assets (73,803) (94,430) Decrease/(increase) in contract costs (4,795) (5,495) (Increase) in other assets 279 84 (Decrease)/Increase in trade and other payables 22,841 (5,307) (Decrease)/Increase in employee benefits 206 (21) Increase in deferred tax assets and liabilities 7,365 3,555 Increase in income tax payable (6,886) 7,704 Net cash from operating activities 19,203 84,587 ANNUAL REPORT AND FINANCIAL STATEMENTS 2024 89 Financial statements DISCLOSURE OF BORROWINGS Refer to note 16. CHANGES IN LIABILITIES RELATED TO THIRD PARTY INTERESTS IN CONSOLIDATED ENTITIES Refer to note 17. Note 10. CASH AND CASH EQUIVALENTS Consolidated 2024 $’000 2023 $’000 Cash at Bank 22,963 82,973 Investment securities held for liquidity purposes 30,061 – Cash of third-party interests in consolidated entities 15,089 21,484 68,113 104,457 Cash of third-party interests in consolidated entities is restricted as it is held within the fund investment vehicles on behalf of the third-party investors in these vehicles. The cash is restricted to use cashflows in the litigation funding assets made on their behalf and costs of administering the fund. Note 11. TRADE RECEIVABLES Consolidated 2024 $’000 2023 $’000 Due from litigation service 10,986 2,063 10,986 2,063 The significant increase in trade receivables in the period was mainly due to the resolution of one litigation asset which was received immediately after the period on 1 July 2024. As at 30 June 2024, trade receivables are expected to be settled within 12 months after the Balance Sheet date. ALLOWANCE FOR EXPECTED CREDIT LOSSES The Group has recognised a loss of $nil (2023: $nil) in profit or loss in respect of the expected credit losses for the year ended 30 June 2024. LITIGATION CAPITAL MANAGEMENT LIMITED 90 Financial statements Note 12. DUE FROM RESOLUTION OF FINANCIAL ASSETS Consolidated 2024 $’000 2023 $’000 At start of period (as restated as at 1 July 2022) 11,873 24,340 Transfer from realisation of litigation funding assets (including Foreign Exchange gain) 104,400 180,155 Proceeds from litigation funding assets (112,990) (192,623) Other income 697 – Balance as at end of period 3,980 11,873 From 1 July 2023, management has changed their analysis of the transfer from the realisation of litigation funding assets to account for realisation including foreign currency gains. This change has been reflected in the 30 June 2024 disclosure, and the 30 June 2023 comparative has been updated for consistency. This change is a disclosure change only and has not changed the total balance at the end of the period. As at 30 June 2024, amounts due from resolution of financial assets are expected to be settled within 12 months after the Balance Sheet date. Note 13. CONTRACT COSTS – LITIGATION CONTRACTS Consolidated 2024 $’000 2023 $’000 Contract costs – litigation contracts 42,072 37,277 There are a small number of legacy investments which are still being recorded under AASB 15 Revenue from Contracts with Customers due to the timing the contracts were entered into. These are expected to resolve in the short to medium term. RECONCILIATION OF LITIGATION CONTRACT COSTS Reconciliation of the contract costs at the beginning and end of the current period and previous financial year are set out below: Consolidated 2024 $’000 2023 $’000 Balance at 1 July 37,277 31,783 Additions during the period 8,030 5,495 Realisations of contract assets (3,236) – Balance as at end of period 42,072 37,277 The Group has recognised impairment losses of $nil (2023: $nil) in profit or loss on contract costs for the period ended 30 June 2024. ANNUAL REPORT AND FINANCIAL STATEMENTS 2024 91 Financial statements Note 14. LITIGATION FUNDING ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS Consolidated 2024 $’000 2023 $’000 At start of period (as restated as at 1 July 2022) 391,410 296,980 Deployments 45,301 30,756 Deployments – third-party interests 45,975 59,094 Realisations of litigation funding assets (including foreign exchange (losses)/gains) (104,400) (180,155) Income for the period 86,926 184,735 Balance as at end of period 465,213 391,410 Litigation funding assets at fair value through income statement 202,913 165,768 Litigation funding assets at fair value through income statement – third-party interests 262,300 225,642 Total litigation funding assets 465,213 391,410 Effective from 1 July 2023, management has adopted a new approach to the realisation of litigation funding assets and the recognition of foreign exchange gains. Consequently, the comparative note disclosure for the period ended 30 June 2023 has been restated to rectify the allocated amounts to certain line items. This restatement has affected the disclosure of certain line items from the prior year’s note, including income for the period. It is important to note that the overall balance at the end of the prior period remains unchanged. Litigation funding assets are financial instruments that relate to the provision of capital in connection with legal finance. The Group fund through both direct investments as well as using third party capital via a fund management model. The table above sets forth the changes in litigation funding assets at the beginning and end of the relevant reporting periods. Note 15. TRADE AND OTHER PAYABLES Consolidated 2024 $’000 2023 $’000 Trade payables 29,789 7,001 Other payables 587 534 30,376 7,535 Refer to note 21 for further information on financial instruments. LITIGATION CAPITAL MANAGEMENT LIMITED 92 Financial statements Note 16. BORROWINGS Consolidated 2024 $’000 2023 $’000 Borrowings 61,917 68,976 61,917 68,976 Reconciliation of borrowings of third-party interests in consolidated entities: Consolidated 2024 $’000 2023 $’000 Balance 1 July – 14,494 Repayment of borrowings – (14,848) Net accrued interest – (17) Amortisation of borrowing costs – 34 Other non-cash items – 336 Balance as at end of period – – Reconciliation of borrowings of LCM: Consolidated 2024 $’000 2023 $’000 Balance 1 July 68,976 54,915 Proceeds from borrowings – 9,636 Repayment of borrowings (8,139) – Payments for borrowing costs (819) (256) Net accrued interest 648 1,943 Amortisation 1,221 399 Other non-cash items 29 2,339 Balance as at end of period 61,917 68,976 On 22 February 2021, LCM entered into a credit facility with Northleaf Capital Partners for an aggregate amount of US$50,000,000, AUD equivalent of $74,704,9161 (the “Facility”). The Facility carries interest together with a profit participation, capped at 13% per annum. The Facility has an overall term of four years and is secured against LCM’s assets. As at 30 June 2024, LCM has nil outstanding utilisation. Borrowings have a maturity date of February 2025. LCM agreed to various debt covenants including a minimum effective net tangible worth, borrowings as a percentage of effective net tangible worth, minimum liquidity, a minimum consolidated EBIT and a minimum multiple of invested capital on concluded contract assets over a specified period. There have been no defaults or breaches related to the Facility during the year ended 30 June 2024. Should LCM not satisfy any of these covenants, the outstanding balance of the Facility may become due and payable. LCM incurred costs in relation to arranging the Facility of $1,649,000 which were reflected transactions costs and will be amortised over the 4 year term of the borrowings. As at 30 June 2024, $422,000 of these loan arrangement fees remained outstanding. 1. Converted at the functional currency spot rates of exchange at the reporting date. ANNUAL REPORT AND FINANCIAL STATEMENTS 2024 93 Financial statements Note 17. FINANCIAL LIABILITIES RELATED TO THIRD-PARTY INTERESTS IN CONSOLIDATED ENTITIES Consolidated 2024 $’000 2023 $’000 Balance 1 July 243,990 142,180 Proceeds – capital contributions from Limited Partners 30,505 74,980 Payments – distributions to Limited Partners (56,407) (94,373) Movement on financial liabilities related to third-party interests in consolidated entities (note 5) 48,382 111,953 Other non-cash items, including foreign exchange gain/loss (1,521) 9,250 Balance as at end of period 264,950 243,990 Note 18. EQUITY – ISSUED CAPITAL 2024 Shares 2023 Shares 2024 $’000 2023 $’000 Ordinary shares – fully paid 104,118,534 106,613,927 69,674 69,674 Ordinary shares – loan share plan and Employee Benefit Trust 12,331,148 12,586,405 – – 116,449,682 119,200,332 69,674 69,674 MOVEMENTS IN ORDINARY SHARE CAPITAL Date Shares $’000 Balance 30 June 2022 106,613,927 69,674 Balance 30 June 2023 106,613,927 69,674 Options exercised 31 October 2023 87,993 – Options exercised 23 November 2023 167,264 – Shares bought back during the period (treasury shares) Various (2,750,650) – 30 June 2024 104,118,534 69,674 As announced on 5 October 2023, the Group commenced a share buyback programme in respect of its ordinary shares up to a maximum consideration of A$10.0 million from the date of this announcement. Movements in ordinary shares issued under loan share plan (‘LSP’) and held by Employee Benefit Trust: Date Shares $’000 Balance 30 June 2022 12,586,405 – Balance 30 June 2023 12,586,405 – Options exercised 31 October 2023 (87,993) – Options exercised 23 November 2023 (167,264) – LSP expired 30 June 2024 (388,800) – LSP shares allocated to LCM 30 June 2024 388,800 – 30 June 2024 12,331,148 – LITIGATION CAPITAL MANAGEMENT LIMITED 94 Financial statements Reconciliation of ordinary shares issued under LSP: Consolidated 2024 2023 Total shares allocated under existing LSP arrangements with underlying LSP shares (note 29) 7,501,608 7,890,408 Less shares allocated under existing LSP arrangements without underlying LSP shares (note 29) (221,467) (221,467) Shares held by LCM Employee Benefit Trust for future allocation under employee share and option plans 4,917,464 4,917,464 Exercise of options during the period held by the LCM Employee Benefit Trust (255,257) – Shares held by LCM for future allocation under employee share and option plans 388,800 – 12,331,148 12,586,405 ORDINARY SHARES Ordinary shares entitle the holder to participate in dividends and the proceeds on the winding up of the Company in proportion to the number of and amounts paid on the shares held. The fully paid ordinary shares have no par value and the Company does not have a limited amount of authorised capital. On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll each share shall have one vote. ORDINARY SHARES – UNDER LOAN SHARE PLAN (‘LSP’) The Company has an equity scheme pursuant to which certain employees may access a LSP. The acquisition of shares under this LSP is fully funded by the Company through the granting of a limited recourse loan. The shares under LSP are restricted until the loan is repaid. The underlying options within the LSP have been accounted for as a share-based payment. Refer to note 29 for further details. When the loans are settled the shares are reclassified as fully paid ordinary shares and the equity will increase by the amount of the loan repaid. ORDINARY SHARES – HELD BY EMPLOYEE BENEFIT TRUST The Employee Benefit Trust (‘EBT’) holds performance related shareholdings awarded to former executive which did not vest. That benefit comprised 4,917,464 shares of which 4,662,207 remain unallocated as at 30 June 2024 (2023: 4,917,464). ORDINARY SHARES – PARTLY PAID As at 30 June 2024, there are currently 1,433,022 partly paid shares issued at an issue price of $0.17 per share. No amount has been paid up and the shares will become fully paid upon payment to the Company of $0.17 per share. As per the terms of issue, the partly paid shares have no maturity date and the amount is payable at the option of the holder. Partly paid shares entitle the holder to participate in dividends and the proceeds of the Company in proportion to the number of and amounts paid on the shares held. The partly paid shares do not carry the right to participate in new issues of securities. Partly paid shareholders are entitled to receive notice of any meetings of shareholders. The partly paid shareholders are entitled to vote in the same proportion as the amounts paid on the partly paid shares bears to the total amount paid and payable. TREASURY SHARES As at 30 June 2024, there were 2,750,650 treasury shares (2023: nil) which has resulted in $5,396,000 being deducted from equity (2023: nil). Treasury shares comprises shares bought back from shareholders which are held by Canaccord on behalf of LCM and classified as treasury shares. ANNUAL REPORT AND FINANCIAL STATEMENTS 2024 95 Financial statements CAPITAL RISK MANAGEMENT The Group’s objectives when managing capital is to safeguard its ability to continue as a going concern, so that it can provide returns for shareholders and benefits for other stakeholders and to maintain an optimum capital structure to reduce the cost of capital. Capital is regarded as total equity as recognised in the statement of financial position. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. The capital risk management policy remains unchanged from the 30 June 2023 Annual Report. Note 19. EQUITY – RESERVES MOVEMENTS IN RESERVES Movements in each class of reserve during the current and previous financial year are set out below: Consolidated Share- based payments reserve $’000 Foreign currency translation reserve $’000 Total reserves $’000 Balance at 1 July 2022 1,573 (3,585) (2,012) Movements in reserves during the period 867 2,187 3,054 Balance at 30 June 2023 2,440 (1,398) 1,042 Movements in reserves during the period 1,116 2,013 3,129 Balance at 30 June 2024 3,556 615 4,171 SHARE-BASED PAYMENTS RESERVE The reserve is used to recognise the value of equity benefits provided to employees and Directors as part of their remuneration, and other parties as part of their compensation for services. FOREIGN CURRENCY TRANSLATION RESERVE This reserve is used to record differences on the translation of the assets and liabilities of foreign operations. Note 20. EQUITY – DIVIDENDS Consolidated 2024 $’000 2023 $’000 Final unfranked ordinary dividend paid (2024: 2.25 cents, 2023: nil) 4,976 – The Directors declare a dividend for the year ended 30 June 2024 of 1.25 pence per ordinary share, to be paid on 25 October 2024 to eligible shareholders on the register as at 4 October 2024. The ordinary shares will be marked ex-dividend on 3 October 2024. The financial effect of dividends declared after the reporting date is not reflected in the 30 June 2024 financial statements and will be recognised in subsequent financial reports. FRANKING CREDITS The franking credits available to the Group as at 30 June 2024 are $338,000 (2023: $338,000). LITIGATION CAPITAL MANAGEMENT LIMITED 96 Financial statements Note 21. FINANCIAL INSTRUMENTS FINANCIAL RISK MANAGEMENT OBJECTIVES The Group’s activities expose it to a variety of financial risks: market risk (including foreign currency risk, price risk and interest rate risk), credit risk and liquidity risk. The Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Group. The Group uses different methods to measure different types of risk to which it is exposed. These methods include sensitivity analysis in the case of interest rate, foreign exchange and other price risks and ageing analysis for credit risk. Risk management is carried out by senior finance executives (‘finance’) under policies approved by the Board of Directors (‘the Board’). These policies include identification and analysis of the risk exposure of the Group and appropriate procedures, controls and risk limits. Finance identifies, evaluates and hedges financial risks within the Group’s operating units. Finance reports to the Board on a monthly basis. Financial instruments of the Group is comprised of litigation funding assets classified as financial assets at FVTPL and financial liabilities at FVTPL related to third party interests with the remaining financial instruments held at amortised cost. MARKET RISK Foreign currency risk The carrying amount of the Group’s foreign currency denominated financial assets and financial liabilities at the reporting date were as follows: Consolidated Assets 2024 $’000 Liabilities 2024 $’000 Assets 2023 $’000 Liabilities 2023 $’000 US dollars 178,625 (314,768) 203,912 (314,923) Pound Sterling 267,971 (16,500) 173,064 (2,542) Singapore Dollars 2,346 (16) – – United Arab Emirates Dirham 2 (4) 5,614 (744) Hong Kong dollars – – 28,087 – Other 4 – 490 (1) 448,947 (331,288) 411,167 (318,210) The Group had net assets denominated in foreign currencies of $117,659,000 (assets of $448,947,000 less liabilities of $331,288,000) as at 30 June 2024 (2023: net assets $92,956,000). Based on this exposure, had the Australian dollars weakened or strengthened by 10% against these foreign currencies with all other variables held constant, the Group’s profit before tax for the year would have increased and decreased respectively by $11,766,000 (2023: $9,296,000). The percentage change is the expected overall volatility of the significant currencies, which is based on management’s assessment of reasonable possible fluctuations taking into consideration movements over the last 12 months. The actual realised foreign exchange loss for the year ended 30 June 2024 was $2,934,000 (2023: loss of 2,892,000). The movement in the foreign currency translation reserve for the year ended 30 June 2024 was a gain of $2,013,000 (2023: gain $2,187,000). Foreign exchange risk arises mainly from litigation funding assets and borrowings which are denominated in a currency that is not the functional currency in which they are measured. The risk is monitored using sensitivity analysis and cash flow forecasting. The Group’s contract cost assets are not hedged as those currency positions are considered to be long term in nature. Interest rate risk Aside from the litigation funding agreements at fair value, the Group’s main interest rate risk arises from interest on cash at bank. An official increase/decrease in interest rates of 50 (2023: 50) basis points would have a favourable/adverse effect on profit before tax of $341,000 (2023: $522,000) per annum. The percentage change is based on the expected volatility of interest rates using market data and analysts forecasts. ANNUAL REPORT AND FINANCIAL STATEMENTS 2024 97 Financial statements CREDIT RISK Credit risk refers to the risk that on becoming contractually entitled to a settlement or award a defendant will default on its contractual obligation to pay resulting in financial loss to the Group. The Group assesses the defendants in the matters funded by the Group prior to entering into any agreement to provide funding and continues this assessment during the course of funding. Whenever possible the Group ensures that security for settlements sums is provided, or the settlements funds are placed into solicitors’ trust accounts. However, the Group’s continual monitoring of the defendants’ financial capacity mitigates this risk. The maximum credit risk exposure represented by cash, cash equivalents, trade and other receivables, due from resolution of financial assets and financial assets at fair value through profit or loss is specified in the consolidated statements of financial position. The exposure for financial assets held at amortised cost is the carrying amount, net of any provisions for impairment of those assets, which includes cash, cash equivalents and trade and other receivables. The Group does not hold any collateral. To mitigate credit risk on cash and cash equivalents, the Group holds cash with Australian and American financial institutions with at least an AA- credit rating. The Group applies the simplified approach to recognise impairment on settlement and receivable balances based on the lifetime expected credit loss at each reporting date. The Group reviews the lifetime expected credit loss rate based on historical collection performance, the specific provisions of any settlement agreement, assessments of recoverability during the due diligence process and a forward-looking assessment of macro-economic factors however note that the Group’s operations are generally uncorrelated to market conditions and therefore has little to no impact on the recoverability of the Group’s financial assets. For trade receivables and due from resolution of financial assets, at every reporting date, the Group evaluates whether the trade receivables and due from resolution of financial assets is considered to have low credit risk using all reasonable and supportable information that is available without undue cost or effort. In making that evaluation, the Group reassesses indicators of changes in credit quality of their counterparties. In addition, the Group considers that there has been a significant increase in credit risk when contractual payments are more than 90 days past due or if sufficient indicators exist that the debtor is unlikely to pay. Refer to note 11 and 12 for the respective notes on these items. Generally, trade receivables are written off when there is no reasonable expectation of recovery. Indicators of this include the failure of a debtor to engage in a repayment plan, no active enforcement activity and a failure to make contractual payments for a period greater than 1 year. In addition, the fair value of Litigation Funding Assets (LFA’s) is measured using valuation techniques including the discounted cash flow (DCF) model. The inputs to these models are taken from observable markets where possible, but where this is not feasible, a degree of judgement is required in establishing fair values. Judgements include considerations of inputs such as liquidity risk, credit risk and volatility. Changes in assumptions relating to these factors could affect the reported fair value of financial instruments, including credit risk, refer to note 22. LIQUIDITY RISK Vigilant liquidity risk management requires the Group to maintain sufficient liquid assets (mainly cash and cash equivalents) to be able to pay debts as and when they become due and payable. The Group manages liquidity risk by maintaining adequate cash reserves and by continuously monitoring actual and forecast cash flows and matching the maturity profiles of financial assets and liabilities. Remaining contractual maturities The maturity profile of the Group’s financial liabilities based on contractual maturity on an undiscounted basis are: Consolidated – 2024 Less than 1 year $’000 Between 1 and 5 years $’000 Over 5 years $’000 No contractual maturity date $’000 Total $’000 Trade payables 29,752 – – – 29,752 Other payables 624 – – – 624 Borrowings 68,200 – – – 68,200 Third-party interest in consolidated entities – – – 264,950 264,950 Total non-derivatives 98,576 – – 264,950 363,526 LITIGATION CAPITAL MANAGEMENT LIMITED 98 Financial statements Consolidated – 2023 Less than 1 year $’000 Between 1 and 5 years $’000 Over 5 years $’000 No contractual maturity date $’000 Total $’000 Trade payables 7,001 – – – 7,001 Other payables 241 – – – 241 Borrowings 9,320 75,988 – – 85,309 Third-party interest in consolidated entities – – – 243,990 243,990 Total non-derivatives 16,562 75,988 – 243,990 336,541 Note 22. FAIR VALUE MEASUREMENT The fair value measurements used for all assets and liabilities held by the Group listed below are level 3: Consolidated Assets 2024 $’000 2023 $’000 Litigation funding assets APAC 111,662 158,836 EMEA 353,551 232,574 Total Level 3 assets 465,213 391,410 Liabilities Financial liabilities related to third-party interests in consolidated entities 264,950 243,990 Total Level 3 liabilities 264,950 243,990 Refer note 14 for movements in level 3 assets and note 17 for movements in level 3 liabilities. There were no transfers into or out of level 3 during the period ended 30 June 2024. As at 30 June 2024, the financial liability due to third-party interests is $264,950,000 (2023: $243,990,000), recorded at fair value as represented in note 17. Amounts included in the consolidated statement of financial position represent the fair value of the third-party interests in the related financial assets and the amounts included in the consolidated statement of profit or loss and other comprehensive income represent the third-party share of any gain or loss during the period, see note 4. SENSITIVITY OF LEVEL 3 VALUATIONS The Group’s fair value policy provides for ranges of percentages to be applied against the risk adjustment factor to more than 159 discrete objective litigation events. The tables below set forth each of the key unobservable inputs used to value the Group’s LFA assets and the applicable ranges and weighted average by relative fair value for such inputs. The Group implemented a new valuation methodology for LFA assets during the year ended 30 June 2023. LFA assets are fair valued using an income approach which is the technique adopted for LFA Assets. Under the income approach, future cash flows associated with; cash out flows, including investments and deployments, and cash inflows such as settlements or resolutions, are converted to a single current (discounted) amount, reflecting current market expectations about those future amounts. That is, the amount that could reasonably be expected to be paid to acquire the asset at that point in time. In developing our framework we also looked to Industry peers for alignment in methodology, the benefit being that adopting a similar methodology provides a level of comparability. Similar to industry peers, the framework developed applied probabilities based on observable milestones for each investment within the portfolio as well as making informed assumptions around inputs such as discount rates, timing and risk factors, all of which are considered Level 3 inputs. In cases where cash flows are denominated in a foreign currency, forecasts are developed in the applicable foreign currency and translated to AUD dollars. A Discounted Cash Flow approach is then applied to each underlying investment on an individual basis to arrive at a net present value of the future expected cash flows. ANNUAL REPORT AND FINANCIAL STATEMENTS 2024 99 Financial statements The cash flow forecast is updated each reporting period, based on the best available information on progress of the underlying matter at the time. These objective events could include, among others: • Stage of the investment • ongoing developments • progress • recovery or sovereign risk • legal team expertise • other factors impacting the expected outcome Each reporting period, the updated risk-adjusted cash flow forecast is then discounted at the then current discount rate to measure fair value. The discount rate includes an applicable risk-free rate and credit spread to incorporate both market and idiosyncratic asset-class risk. The Group’s fair value policy provides for ranges of percentages to be applied against the risk adjustment factor to more than 159 discrete objective litigation events. The tables below set forth each of the key unobservable inputs used to value the Group’s LFA assets and the applicable ranges and weighted average by relative fair value for such inputs. 30 June 2024 Item Valuation technique Unobservable Input Min Max Weighted average Litigation funding asset Discounted cash flow Discount rate 12.80% 12.80% 12.80% Duration 0.75 7.08 4.57 Adjusted risk premium 0% 85% 17% Adjusted risk premium – case milestone: Min1 Max1 Weighted average % of portfolio2 Pre-commencement & commenced 0% 20% 29% 48% Pleadings 5% 35% 20% 12% Discovery & evidence 20% 40% 25% 9% Significant ruling or other objective event prior to trial court judgment 25% 80% 47% 7% Settlement 70% 85% 80% 1% Trial court judgment or tribunal award 0% 85% 63% 9% Appeal judgment 0% 85% 3% 12% Enforcement 75% 85% 83% 3% 1. Minimum and maximum within each cohort represent the actual adjusted risk premiums applied in the period. 2. Percentage of portfolio represents the percentage of the book within the cohort. LITIGATION CAPITAL MANAGEMENT LIMITED 100 Financial statements 30 June 2023 Item Valuation technique Unobservable Input Min Max Weighted average Litigation funding asset Discounted cash flow Discount rate 12.80% 12.80% 12.80% Duration 0.67 5.83 4.10 Adjusted risk premium 0% 85% 18% Adjusted risk premium – case milestone: Min1 Max1 Weighted average % of portfolio2 Pre-commencement & commenced 0% 20% 0% 46% Pleadings 5% 35% 10% 3% Discovery & evidence 20% 40% 21% 15% Significant ruling or other objective event prior to trial court judgment 25% 80% 48% 21% Settlement 70% 85% 70% 3% Trial court judgment or tribunal award 0% 85% 80% 1% Appeal judgment 0% 85% 7% 9% Enforcement 75% 85% 76% 1% 1. Minimum and maximum within each cohort represent the actual adjusted risk premiums applied in the period 2. Percentage of portfolio represents the percentage of the book within the cohort. At each reporting period, the Group reviews the fair value of each litigation funding asset in connection with the preparation of the consolidated financial statements. A fair value of 10% higher or lower, while all other variables remain constant, in financial assets at fair value through profit or loss would have increased or decreased the Group’s income and net assets by $46,521,000 as at 30 June 2024 (30 June 2023: $39,141,000). Similarly, a fair value of 10% higher or lower, while all other variables remain constant, in financial liabilities at fair value through profit or loss would have increased or decreased the Group’s income and net assets by $26,495,000 as at 30 June 2024 (30 June 2023: $24,399,000). At 30 June 2024, should interest rates have been 50 bps or 100 bps higher or lower than the actual interest rates used in the fair value estimation, while all other variables remained constant, consolidated income and net assets would have increased and decreased by the following amounts: Consolidated 2024 $’000 2023 $’000 Hypothetical Change 100bps lower interest rates 5,441 2,182 50bps lower interest rates 2,743 1,084 100bps higher interest rates (5,440) (2,126) 50bps higher interest rates (2,736) (1,070) REASONABLY POSSIBLE ALTERNATIVE ASSUMPTIONS The determination of fair value for litigation funding assets involves significant judgements and estimates. While the potential range of outcomes for the assets is wide, the Group’s fair value estimation is its best assessment of the current fair value of each asset, as applicable. Such estimate is inherently subjective, being based largely on an assessment of how individual events have changed the possible outcomes of the asset, as applicable, and their relative probabilities and hence the extent to which the fair value has altered. The aggregate of the fair values selected falls within a wide range of reasonably possible estimates. In the Group’s opinion, there is no useful alternative valuation that would better quantify the market risk inherent in the portfolio and there are no inputs or variables to which the values of the assets are correlated other than interest rates which impact the discount rates applied. ANNUAL REPORT AND FINANCIAL STATEMENTS 2024 101 Financial statements Note 23. KEY MANAGEMENT PERSONNEL DISCLOSURES COMPENSATION The aggregate compensation made to Directors and other members of key management personnel of the Group is set out below: Consolidated 2024 $ 2023 $ Short-term employee benefits 2,844,106 2,188,144 Post-employment benefits 67,584 59,611 Long-term benefits 28,975 13,145 Share-based payments 408,583 375,014 3,349,249 2,635,914 Details of the remuneration of key management personnel of the Group are set out in the following tables. 2024 Cash salaries and fees $ Bonus $ Benefits $ Accrued leave $ Super- annuation- Pension $ Long service leave $ Share- based payments $ Total $ Non-executive Directors Dr David King 111,458 – – – 12,302 – – 123,760 Jonathan Moulds 214,255 – – – – – – 214,255 Gerhard Seebacher 127,377 – – – – – – 127,377 453,091 – – – 12,302 – – 465,393 Executive directors and other executives Patrick Moloney 1,316,062 183,783 114,754 36,864 – 28,975 199,145 1,879,583 David Collins1 22,921 – – – – – – 22,921 Mary Gangemi2 552,818 163,814 – – 55,282 – 209,438 981,352 1,891,800 347,597 114,754 36,864 55,282 28,975 408,583 2,883,856 2,344,891 347,597 114,754 36,864 67,584 28,975 408,583 3,349,249 1. David Collins appointed as Chief Financial Officer on 18 June 2024 on a base salary of £350,000 (AUD equivalent $672,000). Refer note 26 for details on amounts paid to Greatham Advisors Limited, a related entity of David Collins, for Investor Relation services prior to David becoming an employee. David Collins has not been appointed as a Director as at 30 June 2024. 2. Stepped down as Chief Financial Officer 18 June 2024 and resigned as Director 5 September 2024 LITIGATION CAPITAL MANAGEMENT LIMITED 102 Financial statements 2023 Cash salaries and fees $ Bonus $ Benefits $ Accrued leave $ Super- annuation /Pension $ Long service leave $ Share- based payments $ Total $ Non-executive Directors Dr David King 100,000 – – – 10,500 – – 110,500 Jonathan Moulds 178,586 – – – – – – 178,586 Gerhard Seebacher 111,356 – – – – – – 111,356 389,943 – – – 10,500 – – 400,443 Executive Directors Patrick Moloney 1,071,517 118,249 5,709 (29,023) – 13,145 252,293 1,431,891 Mary Gangemi 491,112 140,637 – – 49,111 – 122,721 803,581 1,562,629 258,886 5,709 (29,023) 49,111 13,145 375,014 2,235,472 1,952,572 258,886 5,709 (29,023) 59,611 13,145 375,014 2,635,914 DIRECTORS’ SHARE OPTIONS The details of options over ordinary shares in the Company held during the financial year by each Director is set out below: Name of the Director Grant date Expiry date Exercise price Balance at the start of the year Granted Exercised Expired/ forfeited/ other Balance at the end of the year Patrick Moloney2 19/11/2018 25/11/2028 $0.47 1,595,058 – – – 1,595,058 Patrick Moloney2 4/12/2017 4/12/2027 $0.60 1,000,000 – – – 1,000,000 Patrick Moloney2 4/12/2017 4/12/2027 $0.60 1,000,000 – – – 1,000,000 Patrick Moloney2 1/11/2019 1/11/2029 £0.7394 1,166,400 – – (388,800) 777,600 Patrick Moloney2 13/10/2020 13/10/2030 £0.6655 291,597 – – – 291,597 Patrick Moloney2 27/10/2021 27/10/2031 £1.06 279,232 – – – 279,232 Patrick Moloney1,2 27/10/2021 27/10/2031 £1.06 900,000 – – – 900,000 Mary Gangemi2 27/10/2021 27/10/2031 £1.06 93,585 – – – 93,585 Mary Gangemi2 27/10/2021 27/10/2031 £1.14 26,315 – – – 26,315 Patrick Moloney2 7/10/2022 7/10/2032 £0.00 169,276 – – – 169,276 Patrick Moloney2 7/10/2022 7/10/2032 £0.00 3,303,796 – – – 3,303,796 Mary Gangemi2 7/10/2022 7/10/2032 £0.00 201,325 – (67,108) – 134,217 Mary Gangemi2 7/10/2022 7/10/2032 £0.00 1,266,455 – – – 1,266,455 Patrick Moloney2 4/10/2023 4/10/2033 £0.00 – 167,043 – – 167,043 Mary Gangemi2 4/10/2023 4/10/2033 £0.00 – 148,893 – – 148,893 11,293,039 315,936 (67,108) (388,800) 11,153,067 1. On 27 October 2021, Patrick Moloney exercised 900,000 unlisted options at an exercise price of A$1.00 which were granted under the Employee share option scheme. Upon exercise, the Group issued 900,000 new ordinary shares in the capital of the Group to Patrick Moloney which have been granted under the Loan Share Plan with the sole purpose to fund the exercise price of the 900,000 unlisted options. 2. Outstanding share options as disclosed in note 29. ANNUAL REPORT AND FINANCIAL STATEMENTS 2024 103 Financial statements DIRECTORS’ INTERESTS The number of shares in the Company held at the end of the financial year by each Director is set out below: Consolidated Name of the Director Description of shares 30 June 2024 Number 30 June 2023 Number Jonathan Moulds Fully paid ordinary shares 5,250,000 5,250,000 Dr David King Fully paid ordinary shares 1,951,484 1,951,484 Patrick Moloney Fully paid ordinary shares 4,204,813 4,204,813 Patrick Moloney Unlisted partly paid shares 1,433,022 1,433,022 Gerhard Seebacher N/A – – Mary Gangemi Fully paid ordinary shares 64,348 27,500 1. Unlisted partly paid shares in the Company were issued at a price of $0.17 per share, wholly unpaid and will convert to a share upon payment to the Company of $0.17 per share. Further details provided in note 18 to the financial statements. No changes took place in the interest of the directors between 30 June 2024 and 17 September 2024. Note 24. REMUNERATION OF AUDITORS During the financial year the following fees were paid or payable for services provided by BDO Audit Pty Ltd, the auditor of the Company, and its network firms: Consolidated 2024 $ 2023 $ Audit Services – BDO Audit Pty Ltd Audit or review of financial report 253,727 149,700 253,727 149,700 Audit Services – Firms related to BDO Audit Pty Ltd Audit of statutory report of controlled entities 186,721 124,113 186,721 124,113 Audit Services – Unrelated Firms Audit of statutory report of controlled entities 64,625 27,904 64,625 27,904 Note 25. CONTINGENT LIABILITIES The majority of the Group’s funding agreements contain a contractual indemnity from the Group to the funded party that the Group will pay adverse costs awarded to the successful party in respect of costs incurred during the period of funding, should the client’s litigation be unsuccessful. The Group’s position is that for the majority of litigation projects which are subject to funding, the Group enters into insurance arrangements which lessen or eliminate the impact of such awards and therefore any adverse costs order exposure. LITIGATION CAPITAL MANAGEMENT LIMITED 104 Financial statements Note 26. RELATED PARTY TRANSACTIONS The following transactions occurred with related parties: Consolidated 2024 $’000 2023 $’000 Consulting fees paid to Greatham Advisors Limited – a related entity of David Collins 47,957 – 47,957 – David Collins is a shareholder and director of Greatham Advisors Limited, which carries out Investor Relation services. The services provided by Greatham Advisors Limited ceased once David Collins became an employee of the Group on 18 June 2024. As at 30 June 2024 there were no amounts owing to Greatham Advisors Limited (2023: $nil). Note 27. PARENT ENTITY INFORMATION Set out below is the supplementary information about the parent entity, Litigation Capital Management Limited. Consolidated 2024 $’000 2023 $’000 Statement of profit or loss and other comprehensive income Profit/(loss) after income tax 50,491 943 Total comprehensive income 50,491 943 Statement of financial position Total assets 103,055 70,274 Total liabilities (20,390) – Equity Issued capital 64,278 69,674 Share-based payments reserve 3,556 2,440 Retained earnings 14,831 (1,840) Total equity 82,665 70,274 GUARANTEES ENTERED INTO BY THE PARENT ENTITY IN RELATION TO THE DEBTS OF ITS SUBSIDIARIES Litigation Capital Management Limited (as holding entity), LCM Operations Pty Ltd, LCM Litigation Fund Pty Ltd, LCM Corporate Services Pty Ltd, LCM Recoveries Pty Ltd, LCM Funding Pty Ltd, LCM Singapore Pty Ltd, LCM Funding SG Pty Ltd and LCM Group Holdings Pty Ltd are parties to a deed of cross guarantee under which each company guarantees the debts of the others. The specified subsidiaries represent a ‘closed group’ for the purposes of the guarantee, and as there are no other parties to the Deed that are controlled by the Group, they also represent the ‘extended closed group’. CONTINGENT LIABILITIES The parent entity had no contingent liabilities as at 30 June 2024 and 30 June 2023. CAPITAL COMMITMENTS – PROPERTY, PLANT AND EQUIPMENT The parent entity had no capital commitments for property, plant and equipment as at 30 June 2024 and 30 June 2023. ANNUAL REPORT AND FINANCIAL STATEMENTS 2024 105 Financial statements MATERIAL ACCOUNTING POLICIES The accounting policies of the parent entity are consistent with those of the Group, as disclosed in note 2, except for the following: • Investments in subsidiaries are accounted for at cost, less any impairment, in the parent entity; • Dividends received from subsidiaries are recognised as other income by the parent entity and its receipt may be an indicator of an impairment of the investment. Note 28. INTERESTS IN SUBSIDIARIES The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in accordance with the accounting policy described in note 2: Ownership Interest Name Principal place of business/ Country of incorporation 2024 % 2023 % LCM Litigation Fund Pty Ltd Australia 100% 100% LCM Operations Pty Ltd Australia 100% 100% LCM Corporate Services Pty Ltd Australia 100% 100% LCM Singapore Pty Ltd Australia 100% 100% LCM Recoveries Pty Ltd Australia 100% 100% LCM Advisory Limited Australia 100% 100% LCM Funding Pty Ltd Australia 100% 100% LCM Funding SG Pty Ltd Australia 100% 100% LCM Corporate Services Pte. Ltd. Singapore 100% 100% LCM Operations UK Limited United Kingdom 100% 100% LCM Corporate Services UK Limited United Kingdom 100% 100% LCM Recoveries UK Limited United Kingdom 100% 100% LCM Funding UK Limited United Kingdom 100% 100% LCM Group Holdings Pty Ltd Australia 100% 100% LCM Global Alternative Returns Fund LCM Global Alternative Returns Fund GP Limited Jersey 100% 100% LCM Global Alternative Returns Fund (Special Partner) LP Jersey 100% 100% LCM Global Alternative Returns Fund II LCM Global Alternative Returns Fund II GP Limited Jersey 100% 100% LCM Global Alternative Returns Fund II (Special Partner) LP Jersey 100% 100% Note 29. SHARE-BASED PAYMENTS The share-based payment expense for the period was $1,116,000 (2023: $867,000). LOAN FUNDED SHARE PLANS (‘LSP’) As detailed in note 18, the Group has an equity scheme pursuant to which certain employees may access a LSP. The shares under LSP are issued at the exercise price by granting a limited recourse loan. The LSP shares are restricted until the loan is repaid. Options under this scheme can be granted without an underlying LSP share until they have been exercised and on this basis, do not form part of the Group’s issued share capital. The underlying options have been accounted for as a share- based payments. The options are issued over a 1-3 year vesting period. Vesting conditions include satisfaction of customary continuous employment with the Group and may include a share price hurdle. During the period the Group granted nil (2023: nil) shares under the LSP. LITIGATION CAPITAL MANAGEMENT LIMITED 106 Financial statements Set out below are summaries of shares/options granted under the LSP: 2024 Grant date Expiry date Exercise Price Balance at the start of the period Granted Exercised Expired/ forfeited/ other Balance at the end of the period 4/12/2017 4/12/2027 $0.60 2,000,000 2,000,000 31/8/2018 31/8/2028 $0.77 411,972 411,972 19/11/2018 25/11/2028 $0.47 1,595,058 1,595,058 3/12/2018 3/12/2028 $0.89 100,000 100,000 1/11/2019 1/11/2029 £0.7394 1,432,753 (388,800) 1,043,953 13/10/2020 13/10/2030 £0.6655 616,520 616,520 27/10/2021 27/10/2031 £1.06 1,512,638 1,512,638 27/10/2021 27/10/2031 £1.06 99,037 99,0371 27/10/2021 27/10/2031 £1.14 122,430 122,4301 7,890,408 – – (388,800) 7,501,608 Weighted average exercise price $1.049 $0.000 $0.000 $1.420 $1.089 1. Options granted without an underlying LSP share until exercised ie, do not form part of the Group’s issued share capital. 2023 Grant date Expiry date Exercise Price Balance at the start of the period Granted Exercised Expired/ forfeited/ other Balance at the end of the period 4/12/2017 4/12/2027 $0.60 2,000,000 2,000,000 31/8/2018 31/8/2028 $0.77 411,972 411,972 19/11/2018 25/11/2028 $0.47 1,595,058 1,595,058 3/12/2018 3/12/2028 $0.89 100,000 100,000 1/11/2019 1/11/2029 £0.7394 1,432,753 1,432,753 1/11/2019 1/11/2029 £0.7730 66,137 (66,137) – 13/10/2020 13/10/2030 £0.6655 616,520 616,520 27/10/2021 27/10/2031 £1.06 1,512,638 1,512,638 27/10/2021 27/10/2031 £1.06 269,044 (170,007) 99,0371 27/10/2021 27/10/2031 £1.14 130,807 (8,377) 122,4301 8,134,929 – – (244,521) 7,890,408 Weighted average exercise price $1.059 $0.000 $0.000 $1.386 $1.049 1. Options granted without an underlying LSP share until exercised ie, do not form part of the Group’s issued share capital. There were 7,201,260 options vested and exercisable as at 30 June 2024 (2023: 6,869,211). The weighted average remaining contractual life of options under LSP outstanding at the end of the financial year was 0.892 years (2023: 1.01 years). ANNUAL REPORT AND FINANCIAL STATEMENTS 2024 107 Financial statements DEFERRED BONUS SHARE PLAN (‘DBSP’) The Company has in place a DBSP. Options granted under the DBSP reflect past performance and are in the form of nil cost options and will vest in three equal tranches from the date of issue and are subject to continued employment over the three year period. In addition, the Options granted under the DBSP are subject to malus and clawback provisions. In the event of a change of control of the Company, unvested awards will vest to the extent determined by the Board, taking into account the proportion of the period of time between grant and the normal vesting date that has elapsed at the date of the relevant event. During the period the Group granted 771,911 (2023: 1,132,692) options under the DBSP. Set out below are summaries of options granted under the DBSP: 2024 Grant date Expiry date Exercise Price Balance at the start of the period Granted Exercised Expired/ forfeited/ other Balance at the end of the period 7/10/2022 7/10/2032 $0.00 1,132,692 – (255,257) – 877,435 4/10/2023 4/10/2033 $0.00 – 771,911 – – 771,911 1,132,692 771,911 (255,257) – 1,649,346 Weighted average exercise price $0.000 $0.000 $0.000 $0.000 $0.000 2023 Grant date Expiry date Exercise Price Balance at the start of the period Granted Exercised Expired/ forfeited/ other Balance at the end of the period 7/10/2022 7/10/2032 $1.1816 – 1,132,692 – – 1,132,692 – 1,132,692 – – 1,132,692 Weighted average exercise price $0.000 $0.000 $0.000 $0.000 $0.000 There were 377,564 options vested and of these 255,257 exercised as at 30 June 2024 (2023: nil). The weighted average remaining contractual life of options under DBSP outstanding at the end of the financial year was 0.814 years (2023: 1.265 years). EXECUTIVE LONG TERM INCENTIVE PLAN (‘LTIP’) The Company has in place an Executive LTIP. Options over ordinary shares in the capital of the Company (“Ordinary Shares”) are issued to recipients under the LTIP plan. The options set out above have been granted under the LTIP in the form of nil cost options and are subject to performance conditions which require the growth of Funds under Management (‘FuM’) over a five year performance period. The performance conditions associated with the options are set out below: 1. 50% vesting on reaching a minimum of FuM of US$750 million; and 2. 100% vesting on reaching FuM of US$1 billion. The vesting date of options granted is the later of: 1. the third anniversary of the Grant Date; 2. the satisfaction of the Performance Condition; or 3. the date of any adjustment under the Plan rules of the Plan at the Boards discretion. LITIGATION CAPITAL MANAGEMENT LIMITED 108 Financial statements Any awards made to the participants are subject to a five year holding period from the grant date. In the event of a change of control of the Company, unvested awards will vest to the extent determined by the Board, taking into account the proportion of the period of time between grant and the normal vesting date that has elapsed at the date of the relevant event and the extent to which any performance condition has been satisfied at the date of the relevant event. During the period the Group granted nil (2023: 5,671,516) options under the LTIP. Set out below are summaries of shares/options granted under the LTIP: 2024 Grant date Expiry date Exercise Price Balance at the start of the period Granted Exercised Expired/ forfeited/ other Balance at the end of the period 7/10/2022 7/10/2032 $0.0000 5,671,516 – – – 5,671,516 5,671,516 – – – 5,671,516 Weighted average exercise price $0.000 $0.000 $0.000 $0.000 $0.000 2023 Grant date Expiry date Exercise Price Balance at the start of the period Granted Exercised Expired/ forfeited/ other Balance at the end of the period 7/10/2022 7/10/2032 $0.0000 – 5,671,516 – – 5,671,516 – 5,671,516 – – 5,671,516 Weighted average exercise price $0.000 $0.000 $0.000 $0.000 $0.000 There were nil LTIP’s vested and exercisable as at 30 June 2024 (2023: nil). The weighted average remaining contractual life of options under DBSP outstanding at the end of the financial year was 1.263 years (2023: 2.266 years). For the options under LSP granted during the current period, the valuation model inputs used in the Black-Scholes pricing model to determine the fair value at the grant date, are as follows: Grant date Expiry date Share price at grant date Exercise price Expected volatility Dividend yield Risk-free interest rate Fair value at grant date1 4/10/2023 4/10/2033 £0.98 £0.00 35.00% 1.10% 3.79% $1.820 1. AUD amount. GBP equivalent £0.952. The expected volatility reflects the assumption that the historical volatility over a period similar to the life of the options is indicative of future trends, which may not necessarily be the actual outcome. Note 30. EVENTS AFTER THE REPORTING PERIOD On 17 July 2024, LCM announced the resolution of a single case investment which forms part of LCM’s managed Global Alternative Returns Fund (‘Fund I’) and was funded directly from LCM’s balance sheet (25%) and Fund I Investors (75%). As announced, the investment generated realisations for LCM of at least AUD$12.5 million, including performance fees, compared to LCM’s invested capital of AUD$1.5 million, representing a MOIC of 8.3x. Of the resolutions which concluded close to period end which were disclosed as outstanding receivables as at 30 June 2024, AUD$11.6 million was received throughout July 2024. ANNUAL REPORT AND FINANCIAL STATEMENTS 2024 109 Financial statements Name Type of entity Trustee, partner, or participant in joint venture % of share capital held Country of incorporation Australian resident or foreign resident (for tax purposes) Foreign tax jurisdiction of foreign residents Litigation Capital Management Limited Body corporate n/a n/a Australia Australia n/a LCM Litigation Fund Pty Ltd Body corporate n/a 100% Australia Australia n/a LCM Operations Pty Ltd Body corporate n/a 100% Australia Australia n/a LCM Corporate Services Pty Ltd Body corporate n/a 100% Australia Australia n/a LCM Singapore Pty Ltd Body corporate n/a 100% Australia Australia n/a LCM Recoveries Pty Ltd Body corporate n/a 100% Australia Australia n/a LCM Advisory Limited Body corporate n/a 100% Australia Australia n/a LCM Funding Pty Ltd Body corporate Trustee1 100% Australia Australia n/a LCM Funding SG Pty Ltd Body corporate Trustee1 100% Australia Australia n/a LCM Corporate Services Pte. Ltd. Body corporate n/a 100% Singapore Australia n/a LCM Group Holdings Pty Ltd Body corporate n/a 100% Australia Australia n/a LCM Operations UK Limited Body corporate n/a 100% United Kingdom Foreign United Kingdom LCM Corporate Services UK Limited Body corporate n/a 100% United Kingdom Foreign United Kingdom LCM Recoveries UK Limited Body corporate n/a 100% United Kingdom Foreign United Kingdom LCM Funding UK Limited Body corporate Trustee1 100% United Kingdom Foreign United Kingdom LCM Global Alternative Returns Fund LP Partnership n/a n/a Jersey Foreign n/a2 LCM Global Alternative Returns Feeder Fund LP Partnership n/a n/a Jersey Foreign n/a2 LCM Global Alternative Returns Fund GP Limited Body corporate Partner 100% Jersey Foreign Jersey LCM Global Alternative Returns Fund (Special Partner) LP Partnership Partner n/a Jersey Foreign Jersey LCM Global Alternative Returns Fund II LP Partnership n/a n/a Jersey Foreign n/a2 LCM Global Alternative Returns Feeder Fund II LP Partnership n/a n/a Jersey Foreign n/a2 LCM Global Alternative Returns Fund II Holding 1 LP Partnership n/a n/a Jersey Foreign n/a2 LCM Global Alternative Returns Fund II Holding 2 LP Partnership n/a n/a Jersey Foreign n/a2 LCM Global Alternative Returns Fund II GP Limited Body corporate Partner 100% Jersey Foreign Jersey LCM Global Alternative Returns Fund II (Special Partner) LP Partnership Partner n/a Jersey Foreign Jersey 1. A trustee relationship is established through a Nominee Agreement, where the entity (the nominee) and the relevant Fund agree that the nominee will hold the Fund’s investment on its behalf. 2. Limited Partners in the Funds are tax transparent and, as a result, are not considered tax residents of any particular jurisdiction. CONSOLIDATED ENTITY DISCLOSURE STATEMENT For the year ended 30 June 2024 LITIGATION CAPITAL MANAGEMENT LIMITED 110 Financial statements In the directors’ opinion: • the attached financial statements and notes comply with the Corporations Act 2001, Australian Accounting Standards and other mandatory professional reporting requirements; • the attached financial statements and notes comply with International Financial Reporting Standards as issued by the International Accounting Standards Board as described in note 2 to the financial statements; • the attached financial statements and notes give a true and fair view of the consolidated entity’s financial position as at 30 June 2024 and of its performance for the period ended on that date; • there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable; and • the consolidated entity disclosure statement is true and correct. Signed in accordance with a resolution of directors. On behalf of the directors Mr Jonathan Moulds Chairman Dated this 17 day of September 2024 DIRECTORS’ DECLARATION ANNUAL REPORT AND FINANCIAL STATEMENTS 2024 111 Financial statements INDEPENDENT AUDITOR’S REPORT Tel: +61 2 9251 4100 Fax: +61 2 9240 9821 www.bdo.com.au Level 11, 1 Margaret Street Sydney NSW 2000 Australia BDO Audit Pty Ltd ABN 33 134 022 870 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit Pty Ltd and BDO Australia Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation. INDEPENDENT AUDITOR'S REPORT To the members of Litigation Capital Management Limited Report on the Audit of the Financial Report Opinion We have audited the financial report of Litigation Capital Management Limited (the Company) and its subsidiaries (the Group), which comprises the consolidated statement of financial position as at 30 June 2024, the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and notes to the financial report, including material accounting policy information, the consolidated entity disclosure statement and the directors’ declaration. In our opinion the accompanying financial report of Litigation Capital Management Limited, is in accordance with the Corporations Act 2001, including: (i) Giving a true and fair view of the Group’s financial position as at 30 June 2024 and of its financial performance for the year ended on that date; and (ii) Complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the Financial Report section of our report. We are independent of the Group in accordance with the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of the Company, would be in the same terms if given to the directors as at the time of this auditor’s report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report of the current period. These matters were addressed in the context of LITIGATION CAPITAL MANAGEMENT LIMITED 112 Financial statements 2 our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Fair value measurement Key audit matter How the matter was addressed in our audit As disclosed in the Statement of Financial position, the Group has reported financial assets at fair value through profit or loss of $465.2m (2023: $391.4m) comprising of litigation funding assets which relates to financial instruments that relate to the provision of capital in connection with legal finance. The Group treats the litigation funding assets as financial instruments and classifies them as financial assets under fair value through profit or loss. Our procedures included, but were not limited to the following: • Obtaining and evaluating the valuation model including reperformance of the calculations; • Analysing and challenging the key assumptions applied within the valuation model for a sample of litigation funding assets; • Recalculating the fair value allocated for a sample of active cases; and • Evaluating the adequacy of disclosures in relation to fair value. Other information The directors are responsible for the other information. The other information comprises the information contained in director’s report for the year ended 30 June 2024, but does not include the financial report and our auditor’s report thereon, which we obtained prior to the date of this auditor’s report, and the Strategic report and Governance report, which is expected to be made available to us after that date. Our opinion on the financial report does not cover the other information and accordingly we do not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed on the other information obtained prior to the date of this auditor’s report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the directors for the Financial Report The directors of the Company are responsible for the preparation of: a) the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and ANNUAL REPORT AND FINANCIAL STATEMENTS 2024 113 Financial statements 3 b) the consolidated entity disclosure statement that is true and correct in accordance with the Corporations Act 2001, and for such internal control as the directors determine is necessary to enable the preparation of: i) the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error; and ii) the consolidated entity disclosure statement that is true and correct and is free of misstatement, whether due to fraud or error. In preparing the financial report, the directors are responsible for assessing the ability of the group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or has no realistic alternative but to do so. Auditor’s responsibilities for the audit of the Financial Report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. A further description of our responsibilities for the audit of the financial report is located at the Auditing and Assurance Standards Board website (http://www.auasb.gov.au/Home.aspx) at: http://www.auasb.gov.au/auditors_responsibilities/ar3.pdf This description forms part of our auditor’s report. Responsibilities The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. BDO Audit Pty Ltd Geoff Rooney Director Sydney 17 September 2024 LITIGATION CAPITAL MANAGEMENT LIMITED 114 Financial statements ANNUAL REPORT AND FINANCIAL STATEMENTS 2024 115 CORPORATE DIRECTORY SYDNEY Level 12, The Chifley Tower, 2 Chifley Square Sydney NSW 2000 T +61 2 8098 1390 LONDON Bridge House 181 Queen Victoria Street London EC4V 4EG T +44 203 955 5260 SINGAPORE 1 Marina Boulevard Level 20-43 Singapore 018989 T +65 9858 7493 BRISBANE Level 38 71 Eagle Street Brisbane QLD 4000 T +61 7 3218 7359