Annual Report 2021 Omni Bridgeway is the global leader in financing and managing legal risks We have significant expertise in civil and common law legal and recovery systems and offer dispute finance from case inception through to post-judgment enforcement and recovery. We are the world’s largest dispute finance team and have operations around the globe. Since 1986, Omni Bridgeway has established a record of financing disputes and enforcement proceedings, and in 2021 our company marks numerous anniversaries that reflect decades of delivering results for clients. All figures are in Australian Dollars (AUD, A$) unless otherwise stated. Omni Bridgeway | Annual Report 2021 Contents Highlights ....................................................................................2 C. CAPITAL STRUCTURE 80 Chairman’s and Managing Director’s Report ........................4 Note 15: Financial risk management ................................. 80 The Omni Bridgeway advantage .......................................... 14 Note 16: Cash and cash equivalents ................................. 87 Directors’ Report ..................................................................... 17 Note 17: Debt securities ...................................................... 87 Auditor’s Independence Declaration ................................... 49 Note 18: Contributed equity ............................................... 89 Consolidated Statement of Comprehensive Income ........ 50 Consolidated Statement of Financial Position ................... 51 Consolidated Statement of Cash Flows ............................... 52 Consolidated Statement of Changes in Equity ................... 53 Notes to the Financial Statements ....................................... 55 About this Report .................................................................... 55 Note 19: Retained earnings/(accumulated losses) and reserves .......................................................... 90 D. WORKING CAPITAL, OTHER ASSETS AND OTHER LIABILITIES 91 Note 20: Receivables from litigation contracts and other ............................................................... 91 Note 21: Contract costs ....................................................... 92 A. RESULTS FOR THE YEAR 59 Note 22: Other assets .......................................................... 92 Note 1: Segment information ........................................... 59 Note 23: Plant and equipment ........................................... 93 Note 2: Revenue from contracts with customers ......... 63 Note 24: Trade and other payables ................................... 95 Note 3: Interest revenue .................................................. 65 Note 25: Provisions .............................................................. 95 Note 4: Net gain on derecognition of intangibles Note 26: Lease liabilities ...................................................... 97 assets ..................................................................... 65 Note 5: Other income ....................................................... 66 Note 6: Expenses ................................................................ 66 Note 7: Income tax ............................................................. 68 Note 27: Other financial liabilities ..................................... 99 Note 28: Commitments and contingencies .................... 101 E. THE GROUP, MANAGEMENT AND RELATED PARTIES 102 Note 8: Loss per share ....................................................... 72 Note 29: Key management personnel ............................ 102 Note 9: Dividends paid and proposed by Omni Bridgeway Limited (the parent entity) ... 73 Note 10: Statement of cash flows reconciliation .............74 Note 30: Share-based payment plan............................... 102 Note 31: Business combination ....................................... 104 Note 32: Parent entity information ................................. 109 B. INVESTMENTS AND INTANGIBLE ASSETS 75 Note 33: Material partly-owned subsidiaries ............... 112 Note 11: Claims portfolio .................................................... 75 Note 12: Purchased claims ................................................. 75 Note 13: Intangible assets – litigation contracts in progress ............................................................. 76 Note 34: Investment in associates and joint ventures . 114 Note 35: Related party disclosure ................................... 116 Note 36: Auditor’s remuneration ..................................... 116 Note 37: Events after the reporting date ....................... 116 Note 14: Goodwill ................................................................. 79 Directors’ Declaration .......................................................... 117 Independent Auditor’s Report ............................................ 118 Shareholder Information ..................................................... 123 Corporate Information ......................................................... 126 Glossary of Terms ................................................................. 128 i H g h l i g h t s 1 Financial Report Shareholder Information OverviewDirectors’ Report Highlights EPV $20.1bn . 5 9 9 5 . 1 4 . . 1 0 2 . 8 5 1 Gross investment proceeds $276.0m 0.6 . 3 0 9 2 135.0 9.8 . 0 6 7 2 . 2 1 7 . 1 5 3 . 3 3 1 1 2017 2018 2019 2020 2021 2017 2018 2019 2020 2021 CAGR > 42% over 5 years CAGR > 33% over 5 years Fund 5 component that is not consolidated within the group Income yet to be recognised from substantially completed investments Supporting clients from case inception through to post-judgment enforcement and recovery for 30+ years NOV 2019 Merger IMF Bentham / 2001 Omni Bridgeway Public listing (ASX) A$2.2 billion FUM2 (7 Funds) Perth Sydney 2019 2003 Fund 5 Melbourne US$500m 2018 Fund 4 US$500m Hong Kong 2007 Montreal London Brisbane 2017 Fund 1 US$172m Funds 2 & 3 A$180m 2009 Houston Singapore Adelaide 2021 Auckland Madrid 2016 2011 Toronto New York 2015 San Francisco 2013 Los Angeles 2013 2015 San Francisco Los Angeles 2016 2011 Toronto New York 2018 Fund 4 Funds 2 & 3 US$500m 2017 Fund 1 US$172m A$180m Houston 2009 Singapore Adelaide NOV 2019 Merger IMF Bentham / 2001 Public listing Omni Bridgeway (ASX) A$2.2 billion FUM2 Hong Kong Montreal 2007 Brisbane London 2019 2003 Fund 5 Melbourne US$500m Perth (7 Funds) Sydney 2021 Auckland Madrid 1990 Distressed asset recovery & restructuring 2021 35 years in business 1986 Founded as Omni Finance – distressed debt trading, Amsterdam 20 years Germany, public listing, asset tracing 2001 Asset tracing & enforcement intelligence 2019 Fund 7 US$100m (DARP1) 2018 Dubai 2009 2017 Cologne Geneva (ROLAND ProzessFinanz) 2016 Fund 6 €150m 2015 Singapore 2015 Singapore 2016 Fund 6 €150m 2017 2009 Cologne Geneva (ROLAND ProzessFinanz) 2018 Dubai 2019 2001 1990 2021 1986 Fund 7 Asset tracing US$100m & enforcement Distressed 35 years Founded as asset recovery in business Omni Finance (DARP1) intelligence & restructuring 10 years US 5 years Asia and Canada 1 | Distressed Asset Recovery Program 2 | Funds under management 1 | Distressed Asset Recovery Program 2 | Funds under management m a h t n e B F M I y a w e g d i r B i n m O 20 years – distressed Germany, public debt trading, listing, asset tracing Amsterdam 10 years US 5 years Asia and Canada m a h t n e B F M I y a w e g d i r B i n m O 2 Omni Bridgeway | Annual Report 2021 Annual investment commitment $412.6m Investments $524.8m . 6 2 1 4 . 2 2 1 3 . 0 3 2 2 . 0 7 4 1 . 0 6 0 1 19.9 . 9 7 2 6 112.9 40.5 . 8 4 2 5 . 0 7 2 4 . 3 1 2 3 . 9 0 9 1 2017 2018 2019 2020 2021 2017 2018 2019 2020 2021 CAGR > 38% over 5 years CAGR > 35% over 5 years Fund 5 component that is not consolidated within the group Westgem & Fund 4 IFRS impaired investment 2013 Los Angeles 2013 Los Angeles 2013 Los Angeles 2011 2015 New York San Francisco 2011 New York 2016 Toronto 2009 Adelaide 2009 Adelaide 2017 Fund 1 US$172m Funds 2 & 3 A$180m 2007 Houston Singapore Brisbane 2007 Brisbane 2018 Fund 4 US$500m Hong Kong 2003 2003 Montreal London Melbourne Melbourne 2001 2001 Public listing Public listing (ASX) (ASX) 2019 Perth Perth Fund 5 Sydney Sydney US$500m NOV 2019 Merger IMF Bentham / Omni Bridgeway A$2.2 billion FUM2 (7 Funds) m a h 2021 t n e Auckland B Madrid F M I m a h t n e B F M I 1990 Distressed 2001 2019 2019 Fund 7 Asset tracing Fund 7 2018 2018 Dubai Dubai 2017 2017 2009 2016 2016 2015 2015 Cologne Cologne Geneva Fund 6 Fund 6 Singapore Singapore 2015 Singapore asset recovery US$100m & enforcement US$100m & restructuring (DARP1) intelligence (DARP1) (ROLAND (ROLAND €150m €150m ProzessFinanz) ProzessFinanz) 2009 Geneva 2016 Fund 6 €150m 2009 Geneva 2017 Cologne (ROLAND ProzessFinanz) 2018 Dubai 2001 2001 2019 Fund 7 Asset tracing Asset tracing US$100m & enforcement & enforcement (DARP1) intelligence intelligence 1990 1990 Distressed Distressed asset recovery asset recovery & restructuring & restructuring y a w e g d i r B y a w e g d i r B 2021 1986 1986 35 years Founded as Founded as in business Omni Finance Omni Finance n – distressed – distressed 20 years m debt trading, debt trading, Germany, public O Amsterdam Amsterdam listing, asset tracing n m O i i 1 | Distressed Asset Recovery Program 1 | Distressed Asset Recovery Program 2 | Funds under management 2 | Funds under management 1 | Distressed Asset Recovery Program 2 | Funds under management 10 years US 5 years Asia and Canada 3 NOV 2019 NOV 2019 Merger Merger IMF Bentham / IMF Bentham / Omni Bridgeway Omni Bridgeway A$2.2 billion FUM2 A$2.2 billion FUM2 (7 Funds) (7 Funds) 2018 2018 Fund 4 Fund 4 2017 2017 Fund 1 Fund 1 US$172m US$172m Public listing US$500m US$500m Funds 2 & 3 Funds 2 & 3 Hong Kong Hong Kong A$180m A$180m 2001 (ASX) 2019 2019 Fund 5 Perth Fund 5 US$500m Sydney US$500m t n 2021 2021 Auckland Auckland B F Madrid Madrid Montreal 2003 Montreal 2007 Houston Houston 2009 2016 2016 2011 2015 2015 Melbourne London London Singapore Brisbane Singapore Adelaide Toronto Toronto San Francisco New York San Francisco m a h e M I y a w e g d i r B i n m 2021 1986 2021 35 years 35 years Founded as in business in business Omni Finance 20 years – distressed 20 years Germany, public Germany, public debt trading, O listing, asset tracing listing, asset tracing Amsterdam 10 years 10 years US US 5 years 5 years Asia and Canada Asia and Canada HighlightsFinancial Report Shareholder Information OverviewDirectors’ Report Chairman’s and Managing Director’s Report Introduction As is the nature of our business and sector, where completions are driven by court availability and counterparties’ willingness to settle, revenues within short timeframes (such as half-year financial reporting) will inevitably be episodic. Performance should be assessed over a longer period, reflecting the duration of the underlying investment class. Our second half results reflect an increase in the number of completions, revenue generated and profitability. Our annual results based on IFRS, after provisions for impairments, reflects an overall loss. Notwithstanding this IFRS result, this year reflects the overwhelming benefits of our diversification strategy, with a: – record number of investment applications – record amount of capital committed for new investments, up 32% from last year – record growth in EPV to $20.1 billion, up 27% from last year We now manage over 300 investments around the world, with exposure to common and civil law jurisdictions, geographies within those jurisdictions, types of cases, sources of opportunities and service providers, and with a growing exposure to the northern hemisphere. In addition, we completed some of the most significant investments in our portfolio, including the partial settlement of the long- standing Wivenhoe case. Income of $95.3 million was recognised during the year from the Wivenhoe investment and we estimate potential future income from the remainder of the investment to be in the range of $103 to $238 million (subject to the commentary and assumptions detailed in our ASX announcement dated 10 May 2021). Wivenhoe is one of our remaining, historical balance sheet investments and its partial completion transitions us closer to our strategic objective of Fund manager and co-investor model. Our portfolio increasingly reflects the use of dispute finance as a capital and risk management tool, with companies representing a large proportion of our funded clients. We now operate seven Funds, providing the capacity to invest in a broader range of opportunities, generate a return in management fees and performance fees as a manager of those Funds, thereby diversifying risk, expanding our income generation capacity and providing the opportunity to stabilise our earnings. Our first-generation Funds are now fully committed (including conditional commitments) with over $387 million in current investments and $5 million remaining for deployment. Investment commitments in our second- generation Funds are in the middle of their investment period. Like most enterprises, the COVID-19 pandemic has had some impact on our operations. In some jurisdictions, notably the US, COVID-19 related court delays slowed completions and extended our investment lifecycle. In the US this was compounded by political and social unrest, along with strong competitor activity as existing participants and new contenders attempted to gain market share through financing investments at margins below our risk-return threshold. These factors affected our capital commitments in our largest market this year. The pandemic forced some fly-in, fly-out dispute finance participants to retreat from some markets while Omni Bridgeway continued to expand its operations with recruitment in APAC, EMEA and North America. These hires, with more to come in FY22, reinforce Omni Bridgeway’s growth strategy. We found that across our global footprint, the presence of our local teams with local knowledge and extensive networks allowed Omni Bridgeway to remain highly competitive during the pandemic, when fly-in, fly-out providers found it challenging to source and service investments on-the-ground. Although we adapted our business development initiatives for an on-line world, our origination activities were also challenged by COVID-19 restrictions. As vaccinations approach a critical mass in the community, the legal industry is resuming court trials and clearing court backlogs in the US. Fortunately, our business model is one that allowed a smooth transition to work-from-home, and our return to office or hybrid working arrangements in 2021 are proving equally seamless where restrictions are easing in some jurisdictions. Some of our markets are already witnessing a resumption of conventional business development methods including in-person meetings, relationship and networking activities, conferences and events. Our Chief Executive Officer, Mr Andrew Saker, was also able to relocate from Australia to New York City in April 2021 to lead our strategic expansion in the world’s largest legal market. Since our 2019 merger, we have successfully integrated our legacy businesses and we experience the benefits of the alliance every day. Our global team collaborates on sourcing and winning funding mandates across jurisdictions and we have exceeded our new business generation targets by collaborating on cross-border pitches and co-investing in over $550 million of new mandates since the merger. We now offer comprehensive solutions from case inception to recovery and regularly supplement merits-funding with enforcement services where clients seek help to recover from evasive debtors. Our strong geographic footprint and origination network provide a significant comparative advantage and our market knowledge, marketing intensity, speed of response and personal relationships are all levers to generating a high quality and quantity of funding opportunities world-wide. 4 Omni Bridgeway | Annual Report 2021 This year we expanded our geographic footprint with remote servicing, offices, agencies and other arrangements, to service Japan, India, Latin America, New Zealand and Spain and are already funding matters in those countries and successfully onboarded many new colleagues remotely during COVID-19 restrictions. We are now the largest funding team in the world, with 180+ legal and finance professionals including civil and common law litigators, enforcement lawyers and recovery specialists from premier international law firms, along with economists, financial experts, business intelligence and asset tracing professionals, educated at the world’s leading institutions. We are preparing for the departure of one of our company founders, Executive Director Mr Hugh McLernon who will retire in FY22. Mr McLernon’s entrepreneurialism and foresight not only contributed to the formation of our company, but also to the development of the contemporary dispute finance industry. On the back of his determination and effort, many litigants have gained the access to justice they could not have otherwise afforded, and many stakeholders (including shareholders and employees) have been rewarded through the growth of a billion-dollar business from inception. We express our gratitude for his contribution, guidance, and wisdom throughout the years. He leaves a wonderful legacy for us and we will miss his invaluable input. We will also farewell Director Mr Michael Bowen who retires from our Board in FY22. Mr Bowen has been a Director of our company since our 2001 public listing and a valuable member and chair of numerous Committees during that time. His expertise, insights, and camaraderie will be missed. We also say thank you to Dr Arndt Eversberg who retired from Omni Bridgeway on 30 June after developing our German business for almost 10 years. Having achieved, and exceeded, our last five-year Business Plan, we launched our 2020-25 Business Plan this year and are advancing in its execution. The pandemic has reminded everyone that the landscape is always dynamic, and success requires a strong foundation and dedication, coupled with agility. Our Plan involves continuing to grow and diversify our portfolio, expand our team and geographic footprint and extend our product offering, while remaining adaptable to an ever- changing world stage. We look forward to navigating the future together with our stakeholders. Goal Strategy Status Geographical expansion Americas APAC EMEA • US team growth, office expansions underway, exploring new office locations • Canada team growth, exploring Calgary • Latin America market assessment, strategy and remote servicing • Auckland, New Zealand resources in situ • Exploring India • Madrid, Spain resources in situ • North Africa exploring debt servicing operation Expanded service offerings • Acquiring claims, judgments awards • Funding law firm receivables • Downside risk management • 14 purchased claims in the portfolio • Assessing M&A opportunities Capital Structure • • Launch new fund • Increase commitments via Funds • EPV up 27% on FY20 to $20.1 billion • FY21 capital commitments $413m, up 32% on FY20 Funds • Scale and diversification • Exploring secondary market opportunities for accelerating recoveries in Funds 5 HighlightsFinancial Report Shareholder Information OverviewDirectors’ Report Chairman’s and Managing Director’s Report continued FY21 Results Income and cash generation This year we saw the completion of a number of our investments being converted into cash or debtors. 10% of our 30 June 2020 EPV has completed during the year. The total income generated from investments was $276.0 million, second only to our record FY20 result. $139.6 million from balance sheet investments and $136.4 million for our Funds. $81.2 million arose from US Funds investments, $55.2 million from Rest of World Funds investments. This generated cash and receivables of $192.7 million. Additionally, several investments completed with an estimated $135.0 million of future income to be accounted for in FY22 and beyond (assuming court approvals, satisfaction of other conditions and qualifications in ASX announcements). A number of investments also advanced towards completion during the year, with favourable judgments and awards. In some cases, we are now funding the enforcement and recovery of those awards (an example of our service offering that assists clients from case inception through to ultimate recovery). Profit Whilst our full year 2021 result is a loss of $18.4 million, we generated a profit of $92.4 million in the second half of the year. Additionally, within that result is provision for a non-cash investment impairment allowance of $120.7 million relating to investments that experienced negative judgments. Two of the material underlying cases are being appealed (with our funding) based upon legal advice on the grounds and prospects of overturning the first instance judgment. The aggregate impairment and adverse cost provision relating to those two investments is $121.6 million. The level of each investment’s impairment will be continually assessed and may be reversed as appropriate depending upon developments in the future. If the investment is ultimately successful it may generate proceeds to the Group in excess of its carrying value. The possible completion period of these investments may occur in FY23 or later. Balance sheet Our overall portfolio continues to grow. Group net assets are consistent with prior year, even with large investment completions occurring, and but for two significant impairments would have reflected a 14.1% increase. Our direct balance sheet investments continue to run-off and are substantially wound down following the partial completion of Wivenhoe in May 2021. Sources and applications of cash and receivables - non-IFRS (unaudited) $m Cash generation Proceeds: from litigation funding Proceeds: from claims portfolio investments Proceeds: from disposal of a financial asset Net interest Other income Movement in receivables balance Cash burn Net operational cash expenditure Income tax paid Net cash generation1 Cash and receivables balance Cash: direct balance sheet Cash: consolidated funds Receivables balance: direct balance sheet Receivables balance: consolidated funds Total cash and receivables balance FY21 FY20 183.5 11.0 – (6.8) 0.4 73.1 261.2 (60.7) (7.8) (68.5) 192.7 100.0 42.7 117.2 80.4 340.3 171.0 15.0 9.7 (4.6) 0.8 110.3 302.2 (67.2) (3.9) (71.1) 231.1 133.2 61.2 70.0 54.4 318.8 1 Net cash generation is categorised as non-IFRS information. This information has not been audited or reviewed. 6 Omni Bridgeway | Annual Report 2021 Non-controlling interest (NCI) Throughout the year we have continued to utilise Fund capital and drawn down capital to meet our investment commitments. FY21 saw aggregate drawdowns in excess of $100 million, the highest in Omni Bridgeway’s history. A large component of these drawdowns is from external capital and reflects an increase in NCI. We would expect this dynamic to continue during the investment period of the Funds. Expenses increased during the year reflecting our strategy to diversify, establish new offices in jurisdictions and address competition. Investment portfolio Portfolio overview We continue to grow and diversify our global investment portfolio year on year to mitigate risk. As at 30 June 2021 our diversified portfolio comprised over 300 investments, not counting underlying portfolio investments separately, with the majority within Fund structures. Our annual investments on a conditional and unconditional basis total $412.6 million in capital commitments. We achieved 95% of our FY21 target to commit $436.6 million (a 58% increase on last year’s target) even with the challenges of COVID-19. We are experiencing demand for increasingly larger investments and expect that trend to continue. North America represents 39% of the EPV with EMEA representing 29% and Australian investments sitting at 21%. We expect the US proportion will increase in future. Funding applications This year we reached 1,727 funding applications (nearly 160% increase since the beginning of FY16). Our leading market reputation and business development activities are generating opportunities and these are amplified by the collaboration of our post-merger team. Our competitor landscape has changed with a favourable impact on Omni Bridgeway’s market share. An increasing awareness of dispute finance is also growing the total market. Our average realised investment gestation has increased from 2.7 to 2.8 years in no small part due to COVID-19. Cash and receivables $340.3m 19.5 . 3 0 4 3 6.0 . 8 8 1 3 . 4 3 4 2 . 7 1 9 1 . 9 5 8 1 2017 2018 2019 2020 2021 Fund 5 component that is not consolidated within the group Number of funding applications 1800 1,800 1600 1,600 1400 1,400 1200 1,200 1000 1,000 800 800 600 600 400 400 200 200 0 0 827 866 449 378 483 357 26 974 570 285 119 1,726 1,727 786 603 337 750 662 315 FY17 FY18 FY19 FY20 FY21 Consolidated North America APAC EMEA 7 HighlightsFinancial Report Shareholder Information OverviewDirectors’ Report Chairman’s and Managing Director’s Report continued Investment portfolio profile CURRENT INVESTMENTS COMPLETED INVESTMENTS EPV possible completion (million) Success rate ROIC IRR Legal outcome Financial outcome Avg. age (yrs.) # Total FY22 FY23 FY24 FY25+ # Avg. age (yrs.) EPV million Income / EPV conversion # # $ weighted avg. (excl. overheads) Balance sheet Fund 1 13 6.2 $838.2 $437.0 $400.3 $0.9 – 91 3.0 $3,570.4 21% 85% 76% 75% 146% 82% 22 4.5 $2,065.4 $227.4 $1,310.9 $186.3 $340.8 26 2.9 $1,287.7 13% 88% 69% 74% 54% 22% Funds 2 & 3 29 2.1 $4,131.6 $1,003.6 $2,068.7 $332.3 $727.0 13 1.4 $395.2 18% 77% 77% 45% 91% 113% Fund 4 Fund 5 Fund 6 Fund 7 16 0.9 $4,581.0 $189.8 $1,005.5 $2,425.7 $959.9 2 0.4 $198.7 15% 100% 100% 100% 22% 201% 31 0.7 $3,777.6 $341.9 $1,245.0 $1,197.5 $993.2 3 0.8 $96.0 29%B 67% 67% 99% 49%B 30%B 187 5.0 $3,178.8 $399.3 $844.9 $606.8 $1,327.8 172 3.3 n/a n/a – n/a n/a – – – – n/a n/a n/a n/a n/a n/a 68% 72% 298% 160% n/a n/a n/a n/a Data covers the period from 1 July 2011 for the balance sheet investments and each of the funds from their dates of inception. * A successful legal outcome is one where the client wins a return through settlement or judgment; a successful financial outcome requires the Group’s income to exceed investment costs. B Audit adjustments to constrain income recognised at this point in time. Funds management In total, we have close to $2.4 billion in funds under management which have been invested or are available to invest in dispute resolution and recovery. The majority of our investments sit within seven Funds. Funds 1, 2 and 3 are committed. The commitment periods for those Funds are complete and they are now in their ‘harvest phase’. New investments are made from Funds 4, 5, 6 and 7, with each Fund at a different stage of maturity. Fund 6 is rapidly approaching its capacity. The establishment of new Funds is under consideration. Less than 5% of our investments (by number) remain on our balance sheet. Our Fund investors have been selected in part because of their low credit risk, their commitment to the Fund arrangements and because their capital is non-discretionary. Our strategy is to remain a meaningful minority investor in each of our Funds, to harness investment returns as an equity participant, with management and performance fee revenue from returns on third party capital. Estimated portfolio value During FY21 we committed, or agreed to commit, $412.6 million, translating to a compound annual growth rate (CAGR) of over 40% since FY15. Our increased portfolio produced an EPV of $20.1 billion in FY21 (including IC approved and conditionally funded investments), representing a CAGR of more than 45% over six years. EPV growth ($m) 20,000 16,000 12,000 8,000 4,000 0 2017 2018 2019 2020 2021 Balance sheet Fund 4 Fund 7 Fund 1 Fund 5 Funds 2&3 Fund 6 8 Omni Bridgeway | Annual Report 2021 Funds summary (unaudited) Fund 1 100% committed US$ million Capital called Total Investor 166.7 Distributions Total US$ $ equivalent 125.0 (82.7) 42.3 56.3 Funds 2&3 98% committed $ million Capital called Total Investors 118.5 Distributions Total $ 94.8 (41.6) 53.2 Fund 4 34% committed US$ million Capital called Total Investors 121.2 Distributions Total US$ 97.1 n/a – 97.1 Omni 41.7 – 41.7 55.5 Omni 23.7 . 3 2 2 1 – 23.7 Omni 24.1 n/a – 24.1 Uncalled capital Accumulated preferred return Accumulated special distribution Accumulated management fee Total Investor Omni Investor Investor Omni 3.8 n/a 3.8 5.0 1.2 n/a 1.2 1.6 46.1 (8.3) 37.8 50.4 1.8 – 1.8 2.3 5.5 – 5.5 7.3 Uncalled capital Accumulated preferred return Accumulated special distribution Accumulated management fee Investors Omni Investors Investors Omni 5.0 n/a 5.0 6.6 Total 70.5 n/a 70.5 56.4 n/a 56.4 Uncalled capital Total Investors 378.8 302.9 n/a n/a n/a n/a 378.8 302.9 14.1 n/a 14.1 Omni 75.9 n/a n/a 75.9 24.0 – 24.0 5.0 – 5.0 3.0 – 3.0 Recycled proceeds Total Investors Omni – 19.7 – 19.7 31.2 – 15.8 – 15.8 25.0 – 3.9 – 3.9 6.2 Recycled proceeds Total Investors Omni – 15.2 – 15.2 – 12.2 – 12.2 – 3.0 – 3.0 4.0 $ equivalent 129.3 32.1 504.2 403.2 101.0 Fund 5 35% committed US$ million Capital called Total Investors 57.0 Distributions Total US$ 45.6 n/a – 45.6 Omni 11.4 n/a – 11.4 Uncalled capital Total Investors 443.0 354.4 n/a n/a n/a n/a 443.0 354.4 Omni 88.6 n/a n/a 88.6 $ equivalent 60.7 15.2 589.7 471.7 117.9 20.2 16.2 Fund 6 92% committed EUR million Fund 7 4% called US$ million Capital called Uncalled capital Recycled proceeds Total Investors Omni Total Investors Omni Total Investors Omni 70.0 Distributions Total EUR 66.5 n/a – 66.5 $ equivalent 105.3 3.5 n/a – 3.5 5.5 80.0 n/a n/a 80.0 76.0 n/a n/a 76.0 126.7 120.4 4.0 n/a n/a 4.0 6.3 – 30.7 – 30.7 48.6 – 29.2 – 29.2 46.2 – 1.5 – 1.5 2.4 Capital called Uncalled capital Recycled proceeds Total Investors Fund 6 Total Investors Fund 6 Total Investors Fund 6 3.5 Distributions Total US$ $ equivalent 1.0 – 1.0 1.3 2.5 – 2.5 3.3 96.5 n/a 96.5 128.5 49.0 n/a 49.0 65.2 47.5 n/a 47.5 63.2 – – – – – – – – – – – – 9 HighlightsFinancial Report Shareholder Information OverviewDirectors’ Report Chairman’s and Managing Director’s Report continued Addressable market The world-wide legal services market continues to grow, and the dispute finance sector is expanding concurrently as various jurisdictions deregulate, more capital becomes available and market participants become more familiar with the offering. The overall annual legal spend for the global legal services market is estimated at A$868.8 billion6. This does not include disputes or other legal matters that are managed in-house or not progressed, nor does it capture all enforcement-related services. Omni Bridgeway estimates only a small proportion of the addressable market currently uses dispute finance, representing a substantial opportunity for the continued growth of our business and our sector. UNITED KINGDOM8 CONTINENTAL EUROPE (excl UK)5 CANADA4 $64.7b $15.1b $7.5b $160.5b $37.8b $18.9b $15.3b $5.1b $2.5b UNITED STATES9, 10 GLOBAL6 $868.8b $421.3b $164.3b $82.2b ASIA1 $104.1b $31.2b $15.6b AUSTRALIA2, 3 $23.0b $4.8b $2.4b NEW ZEALAND7 $3.0b $0.3b $0.2b Total market legal spend AU$ Estimated litigation portion of total legal spend AU$ Estimated total addressable market as % of total legal spend AU$ Figures may be rounded All figures converted to AU$ as at 30 June 2021 The ability to finance defences as well as claims could increase the potential addressable market % 1. MarketLine Industry Profile, “Legal Services in Asia-Pacific”, November 2020, page 2. 2. Baikie, Victoria, AU Industry (ANSIC) Report M6931, “Legal Services in Australia” IBISWorld, February 2021, page 10. 3. Thomson Reuters, 2020 ‘Australia: State of the Legal Market’, Thomson Reuters & Peer Monitor, page 6. 4. Koronios, Eva, CA Industry (NAICS) Report 54111CA, “Law Firms in Canada”, IBISWorld, September 2020, page 7. 5. MarketLine Industry Profile, “Legal Services in Europe”, November 2020, page 2. 6. MarketLine Industry Profile, Reference 0199-0423, “Global Legal Services”, MarketLine, November 2020, pp 8-13. 7. Kyriakopoulos, Arthur, NZ Industry (ANZSIC) Report M6931 NZ, “Legal Services in New Zealand”, IBISWorld, August 2020, pp 7-9. 8. Dinev, Krasimir, UK Industry (UK SIC) Report M69.100, “Legal Activities in the UK”, IBISWorld, February 2021, page 7-8. 9. Thomson Reuters Institute & Georgetown Law Center on Ethics and the Legal Profession, “2021 Report on the State of the Market”, page 4. 10. Schulman, Gabriel, US Industry (NAICS) Report 54111, “Law Firms in the US”, IBISWorld, January 2021, page 7. 10 Omni Bridgeway | Annual Report 2021 Updates from around the world Asia-Pacific Our team provides end-to-end dispute finance solutions to Asia-Pacific and global clients, across common and civil law matters. Our operations in Singapore have expanded with a new hire to meet the ever-growing market demand. We also grew the Australian team and in FY22 will open our first office in New Zealand. As the number of class action claims return to pre-pandemic levels, Omni Bridgeway is anticipating some increased competition from contingency law firms in markets such as Australia, where the State of Victoria has introduced legislation supportive of contingency fees. However, increased regulation is likely to deter other competitors. Europe Middle East Africa (EMEA) We expanded our EMEA operations with key hires in Germany, Spain, the UK and the Netherlands, with more to come in FY22. Omni Bridgeway also continued to build its pan-EMEA group claims capability as harmonised collective redress legislation begins to roll out across Europe, as well as its arbitration capability. While we have observed the emergence of the first dedicated Continental European funders, as well as Anglo-Saxon origin contingency-fee law firms setting up representative offices in (Continental) Europe, our local presence, global network and expanding capabilities will enable us to take advantage of expansion opportunities across the region. North America The North American team faced a particularly challenging operating environment in the past financial year. COVID-19 caused significant closures and delays to the court systems, some of which are only now clearing thanks to the vaccination programs. Despite these challenges, our US and Canadian teams maintained a leading position in our respective markets. The US team successfully onboarded two new members and has launched a robust recruitment program for FY22 to catch up with growth plans put on hold due to the restrictions in place during the past year; the team continues to explore opportunities to expand its specialist expertise and diversify its talent, with insurance, insolvency and restructuring specialists proving in high demand given the challenging economic conditions. The Canadian team was also strengthened with the addition of a dedicated corporate counsel. Omni Bridgeway is considering expanding its footprint to open an office in Calgary in FY22. The success of the merger is evidenced by strong client interest in our enhanced skills and capabilities for the funding of enforcement mandates. Omni Bridgeway is servicing Latin America remotely from the North American teams and across our organisation. The LatAm team has extensive contacts and work experience in the region and is exploring opportunities to expand our operations there. Fundedi,ii and/or managed (litigation, arbitration and/or enforcement and recovery) Assessedii Omni Bridgeway offices & resources on-the-ground i ii Non-recourse financing of domestic or international arbitration, litigation (individual claimant or group litigation) and enforcement and recovery actions. Reflects locations of parties, disputes, proceedings, enforcement actions. 11 HighlightsFinancial Report Shareholder Information OverviewDirectors’ Report Chairman’s and Managing Director’s Report continued Global risk, compliance and governance Regulatory environment We have seen a number of initiatives for regulatory reform in several jurisdictions. Globally, a working group of the United Nations Commission on International Trade Law (UNCITRAL) is proposing some changes to Investor-State Dispute Settlement (ISDS) arbitrations that involve litigation funding. In Australia the Government has implemented rules requiring licensing for litigation funders and for class actions to be conducted as managed investment schemes. This has reduced the number of funders operating class actions in Australia, leading to an increase in activity for Omni Bridgeway. Additional regulatory reform is currently before Parliament in relation to changes to disclosure rules will not have a material effect on our business. There is also consideration for imposing a minimum return requirement to group members. Whether this proceeds, and in what form, is unclear at the time of finalising this Report. In Europe, some preliminary regulatory proposals have been initiated but it remains to be seen if there is any real prospect of these being progressed. In the US, we have seen a new rule in New Jersey that now requires litigation funders to disclose their involvement in proceedings in that State. Risk management With growth and diversification at the heart of our strategic direction over recent years, we have continued to evolve our risk management focus to respond to new and emerging risks whilst remaining focused on the quality of our investment management processes. Over the last five years, we took some key strategic steps to develop the business, each of these had a risk management driver. We: – raised non-recourse third party funds for investments which reduced our balance sheet exposure to any single litigation outcome and simultaneously delivered an additional revenue line via management and performance fees. This leveraged the skills of our investment teams whilst dialling back our capital exposure to idiosyncratic litigation risks; – increased the number of markets in which we operate and worked hard to develop and evolve the global market for legal risk asset management. This reduced our exposure and dependency on any one market and limited the risks associated with a sole or dual market focus; – invested ahead of our revenue growth in front and back office resources required to grow the portfolio and build a bridge to more stabilised and consistent earnings; and – acquired the complementary business of Omni Bridgeway and merged global market leaders in the pre-judgment financing and post judgment enforcement arenas. This further diversified the operations and revenue sources of the business and created a combined capability to finance and manage the most complex of disputes and recoveries. 12 Quality of investment decisions While all of the above developments were important and significant for the business, the largest single risk remains the ongoing quality of investment decisions and resulting investment assets. Unlike many asset classes, whether traditional or alternative, a poor decision to invest into a dispute financing asset, will invariably see the investor not only lose 100 per cent of the capital deployed but can, in cost shifting jurisdictions, result in similar sized amounts being payable to reimburse the defendant for its costs. Whilst it is possible to take actions like those which we have to reduce the impact of any one individual poor investment decision, this dynamic ensures that Omni Bridgeway remains laser focused on all aspects of the investment process, from the first client engagement through to an investment’s conclusion. We continue to add resources to our investment committees where they are accretive to the quality of decision making. In FY21, Benjamin Hughes joined our US and RoW investment committees for arbitration investments and we consider that adding niche expertise for particular investment types complements the broad skills of the permanent members of these committees. We regularly review our internal and external operating environments to determine our key risks and whether any incremental mitigating actions are appropriate when considering the associated costs and the existing post mitigation rating attributed to that key risk. COVID-19 The impact on Omni Bridgeway’s business has been relatively contained. Court closures, most acutely in the US, increased average investment durations within Omni Bridgeway’s portfolio. Whilst this is a delay rather than a loss of income, it has a dilutive impact on fund performance returns, particularly in Omni Bridgeway’s first-generation funds due to the subordinated nature of all of the manager’s returns. As courts reopen, we see encouraging signs for the resolution of our investments, either by court determination or settlement. The global pandemic has spurned a significant volume of commercial disputes, not least in the business interruption insurance market. Our primary assets are our people and the restricted and remote working practices have placed a strain on our people and curtailed a number of business development opportunities. We are not alone in that regard and we have placed an emphasis in all our operating markets on maintaining the health and wellbeing of our people throughout this period. Notwithstanding the pressures of COVID, we have had a tremendous year developing business and have increased EPV 27% ($4.3 billion). Omni Bridgeway | Annual Report 2021 Governance Omni Bridgeway has issued a detailed Environmental, Social Governance statement containing full details of its corporate governance practices and a review of FY21 developments. Andrew Saker Managing Director and Chief Executive Officer Michael Kay Chairman Time and open-ended capital commitments Once an investment is made, the two biggest impacts on Omni Bridgeway’s return, outside of the amount the claim resolves for, or is otherwise monetised for, are the duration of the investment and the amount of capital deployed to the investment. Financing commissions are generally designed to mitigate the risk of delays by increasing over the life of the investment but such ratchets have a cut off which if exceeded, cause return dilution. Outside of the US, most of our capital commitments to investments are uncapped and based upon the budgeted costs at the outset. Predicting the path of dispute resolution is fraught with inaccuracy and budget overruns are a risk we have to manage. We do so invariably through risk sharing with the lawyers, but for some investments the impact of budget overruns can be highly dilutive to returns because there is generally no positive correlation between the amount expended in legal costs and the ultimate resolution amount. Cyber security We employ a variety of people-centric cybersecurity tactics, including regular training and simulated attack scenarios for our people in order to customise preventative measures. We enlist all our people throughout our global company as the first line of defence in protecting our data and commercially sensitive know-how. We invest in security hardware, software, systems and policies and regularly submit to external IT audits to prevent attacks and detect (and learn from) new attack tools, methodologies and targets. Cyber security risks are ever-present and we remain vigilant throughout our business at all times. Compliance The Group is regulated by the Securities and Exchange Commission in the US as a registered investment adviser and in Australia by both the Australian Securities and Investment Commission and the Australian Securities Exchange with regard to its Australian financial services licence and the listing of both Omni Bridgeway’s shares and bonds. The group has an evolved compliance framework which is continually enhanced and regular training is undertaken across our international network to instill best practice. 13 HighlightsFinancial Report Shareholder Information OverviewDirectors’ Report The Omni Bridgeway advantage Despite significant barriers to entry in our industry, the desire for non-correlated returns and the success of market leaders like Omni Bridgeway will always attract contenders. However, resilience and success over time in this industry requires a special formula that is not easily replicated. Omni Bridgeway has carefully honed its unique value proposition over 35 years. Global talent • 180+ specialists • 30+ languages • ‘On-the-ground’ throughout the world • Local knowledge and cultural awareness • Collaboration with professional advisers • Expansive networks • Tactical insights, project management capability and legal cost monitoring World-leading enforcement capabilities • 30+ years’ experience funding, devising strategies for and managing preventative measures and enforcements • Un-matched experience recovering in 100+ jurisdictions, no matter how challenging the jurisdiction • Asset tracing specialists who find, freeze and attach assets and navigate legal challenges Commercial acumen • Prompt assessment • Strategic insights • Creative, bespoke solutions from case inception to enforcement and recovery • Entrepreneurialism Capital and transparency • Significant funds world-wide • Resources to overcome strong opponents or evasive debtors • Public company with transparent financial position and corporate governance (ASX:OBL) Track record • Financing disputes and enforcement proceedings around the world since 1986 • Enviable success rate over hundreds of cases • Significant returns for clients • Formidable partner by your side • Premier brand to enhance your reputation with stakeholders and opponents • Trusted by courts and leading advisers around the world Regulatory compliance • Holder of Australian Financial Services Licence (AFSL) and authorised to operate Litigation Funding Schemes1 • Registered investment adviser with US Securities Exchange Commission (SEC)2 • Compliant with Hong Kong Department of Justice (DOJ) Code of Practice for Third Party Funding of Arbitration The global The global leader in financing leader in financing and managing and managing legal risks legal risks Downside cover • Security for costs and adverse costs cover in cost-shifting jurisdictions 1 Issued September 2020 to Omni Bridgeway’s wholly owned subsidiary Omni Bridgeway Investment Management Ltd. 2 Omni Bridgeway Management LLC. 14 Omni Bridgeway | Annual Report 2021 15 HighlightsFinancial Report Shareholder Information OverviewDirectors’ Report Contents Directors’ Report ..................................................................... 17 C. CAPITAL STRUCTURE 80 Auditor’s Independence Declaration ................................... 49 Note 15: Financial risk management ................................. 80 Consolidated Statement of Comprehensive Income ........ 50 Note 16: Cash and cash equivalents ................................. 87 Consolidated Statement of Financial Position ................... 51 Note 17: Debt securities ...................................................... 87 Consolidated Statement of Cash Flows ............................... 52 Note 18: Contributed equity ............................................... 89 Consolidated Statement of Changes in Equity ................... 53 Notes to the Financial Statements ....................................... 55 About this Report .................................................................... 55 A. RESULTS FOR THE YEAR 59 Note 19: Retained earnings/(accumulated losses) and reserves .......................................................... 90 D. WORKING CAPITAL, OTHER ASSETS AND OTHER LIABILITIES 91 Note 20: Receivables from litigation contracts Note 1: Segment information ........................................... 59 and other ............................................................... 91 Note 2: Revenue from contracts with customers ......... 63 Note 21: Contract costs ....................................................... 92 Note 3: Interest revenue .................................................. 65 Note 22: Other assets .......................................................... 92 Note 4: Net gain on derecognition of intangibles Note 23: Plant and equipment ........................................... 93 assets ..................................................................... 65 Note 5: Other income ....................................................... 66 Note 6: Expenses ................................................................ 66 Note 7: Income tax ............................................................. 68 Note 8: Loss per share ....................................................... 72 Note 9: Dividends paid and proposed by Omni Bridgeway Limited (the parent entity) ... 73 Note 10: Statement of cash flows reconciliation .............74 Note 24: Trade and other payables ................................... 95 Note 25: Provisions .............................................................. 95 Note 26: Lease liabilities ...................................................... 97 Note 27: Other financial liabilities ..................................... 99 Note 28: Commitments and contingencies .................... 101 E. THE GROUP, MANAGEMENT AND RELATED PARTIES 102 Note 29: Key management personnel ............................ 102 B. INVESTMENTS AND INTANGIBLE ASSETS 75 Note 30: Share-based payment plan............................... 102 Note 11: Claims portfolio .................................................... 75 Note 12: Purchased claims ................................................. 75 Note 13: Intangible assets – litigation contracts in progress ............................................................. 76 Note 31: Business combination ....................................... 104 Note 32: Parent entity information ................................. 109 Note 33: Material partly-owned subsidiaries ............... 112 Note 34: Investment in associates and joint ventures . 114 Note 14: Goodwill ................................................................. 79 Note 35: Related party disclosure ................................... 116 Note 36: Auditor’s remuneration ..................................... 116 Note 37: Events after the reporting date ....................... 116 Directors’ Declaration .......................................................... 117 Independent Auditor’s Report ............................................ 118 16 Omni Bridgeway | Annual Report 2021 Directors’ Report The directors of Omni Bridgeway Limited submit their report for the year ended 30 June 2021. Directors The names and details of the Company’s directors in office during the financial year and until the date of this report are noted below. Directors were in office for the entire period unless otherwise stated. Names, Qualifications, Experience and Special Responsibilities Michael Kay Non-Executive Chairman Michael Kay has been the Non-Executive Chairman since 1 July 2015. He brings a wealth of commercial experience, with a sound track-record of building successful businesses. Most recently he was Chief Executive Officer and Managing Director of salary packaging company McMillan Shakespeare Limited. He was previously Chief Executive Officer of national insurer AAMI and before that spent 12 years in private legal practice. Mr Kay is Chairman and Non-Executive Director of City Chic Collective Limited and Non-Executive Director of Pharmacy Guild Australia (appointed February 2021). Mr Kay is a member of the Audit and Risk Committee, Remuneration Committee, Corporate Governance Committee and is Chair of the Nomination Committee. During the past three years he has been a Director of Omni Bridgeway Limited (formerly IMF Bentham Limited), Lovisa Holdings Limited (retired October 2018), ApplyDirect Limited (retired March 2019), City Chic Collective Limited, Pharmacy Guild Australia and RAC Insurance Pty Limited (retired June 2021). Mr Kay holds a Bachelor of Laws from the University of Sydney, Australia. Andrew Saker Managing Director and CEO Andrew Saker was appointed Managing Director and Chief Executive Officer on 5 January 2015. Since then, he has led a transformational strategy of geographic expansion, product diversification, and migrating the company’s business model from capital management to fund management. In 2019 Mr Saker led the merger, and subsequent integration, of the IMF Bentham and Omni Bridgeway legacy businesses to form the global Omni Bridgeway Group. Omni Bridgeway is now the largest funding team in the world and the global leader in financing and managing legal risks. Mr Saker and the Board have now set Omni Bridgeway’s corporate strategy for the next five years to 2025, prioritising further geographic expansion, product extensions and team augmentation. Mr Saker is a member of the Nomination Committee. During the past three years he has not served as a Director of any listed company other than Omni Bridgeway Limited (formerly IMF Bentham Limited). Mr Saker has lived and worked in Australia, Asia and the United States. Mr Saker holds a Bachelor of Commerce in Accounting and Finance from the University of Western Australia. He is an Associate Member of Chartered Accountants Australia and New Zealand. Until his appointment as Managing Director and Chief Executive Officer, he was a Registered Company Liquidator of the Australian Securities & Investments Commission and an Official Liquidator of the Supreme and Federal Courts. 17 HighlightsFinancial Report Shareholder Information OverviewDirectors’ Report Directors’ Report continued Hugh McLernon Executive Director Hugh McLernon is one of the founders and pioneers of the contemporary dispute finance industry. He has been an Executive Director and member of the company’s Investment Committee since 2001. He also oversees Special Projects for the company. Mr McLernon is a lawyer by training. After graduation, he worked as a Crown Prosecutor for eight years and then as a barrister at the independent bar for a further nine years, before joining Clayton Utz for three years as a litigation partner. In 1988, he retired from legal practice and introduced the secondary life insurance market into Australia through the Capital Life Exchange. He also pioneered the funding of large-scale litigation in Australia through McLernon Group Limited in 1992. In 1997 Mr McLernon faced and overcame the first claim of champerty in the modern era made in the Federal Court before French J (as he then was) in Penale -v- McLernon Group Limited. From 1996 to 2001, he was the Managing Director of McLernon Group Limited, as well as the Hill Group of companies which operates in the finance, mining, property, insurance and general investment arenas of Australia. In 2001, Mr McLernon promoted the listing of Insolvency Management Fund Limited (now Omni Bridgeway Limited) onto the ASX. He was the inaugural Managing Director from 2001 to 2004, and again from 2009 to 2015. During the past three years Mr McLernon has not served as a Director of any listed company other than Omni Bridgeway Limited (formerly IMF Bentham Limited). Mr McLernon holds a Bachelor of Laws degree from the University of Western Australia. The American Lawyer included Mr McLernon in its list of the Top 50 innovators for Big Law in the US during the course of the previous half century. Raymond van Hulst Executive Director Raymond van Hulst was a Managing Director of the legacy Omni Bridgeway business that was acquired by Omni Bridgeway Limited (then IMF Bentham Limited) in November 2019. Mr van Hulst was appointed to the Board as an Executive Director in April 2020. Mr van Hulst is responsible for several special projects and for the company’s strategic initiatives, operations and investment activities across the EMEA region. He leads one of the largest teams of litigators, recovery, business intelligence and asset-tracing specialists in the industry. Mr van Hulst has 20 years experience in structuring and managing innovative solutions for complex and high value litigation funding and legal enforcement matters. Mr van Hulst has established two institutionally backed funds aimed at funding legal disputes and enforcement matters, including in joint venture with the International Finance Corporation, part of the World Bank for the Distressed Asset Recovery Program. He leads Omni Bridgeway’s Investment Committee for these funds. Mr van Hulst also led Omni Bridgeway’s acquisition of its German funding business, Roland ProzessFinanz, in 2017. Mr van Hulst was previously with ABN AMRO Bank Structured Finance, based out of India and Europe. During the past three years he has not served as a Director of any listed company other than Omni Bridgeway Limited. Mr van Hulst has lived and worked in The Netherlands, India, France and Switzerland. Mr van Hulst holds an MBA from INSEAD and a Master’s Degree in Management (University of Groningen, the Netherlands). Karen Phin Non-Executive Director Karen Phin has over 25 years’ experience advising Australian listed companies in the retail, banking, industrial and natural resources sectors on capital management, capital raisings and mergers and acquisitions. Until 2014, she was a Managing Director and Head of Capital Advisory at Citigroup in Australia and New Zealand. Prior to joining Citigroup, she spent 12 months at ASIC as a Senior Specialist in the Corporations group. From 1996 to 2009, Ms Phin was a Managing Director at UBS AG, where she established and led the Capital Management Group. Ms Phin was appointed to the Board as a Non-Executive Director in August 2017. Ms Phin is a member of Omni Bridgeway’s Audit and Risk Committee, Remuneration Committee, Nomination Committee and Chair of the Corporate Governance Committee. She is currently a Non-Executive Director of Magellan Financial Group Limited and ARB Corporation Limited and is a member of the Takeovers Panel. During the past three years, she has not served as a Director of any company other than Omni Bridgeway Limited (formerly IMF Bentham Limited), Magellan Financial Group Limited and ARB Corporation Limited. Ms Phin holds a Bachelor of Arts and Bachelor of Laws (Honours) from the University of Sydney, Australia and is a graduate of the Australian Institute of Company Directors. 18 Omni Bridgeway | Annual Report 2021 Michael Bowen Non-Executive Director Michael Bowen was a partner of global law firm DLA Piper and joined Thomson Geer in 2021. He practises primarily corporate, commercial and securities law with an emphasis on mergers, acquisitions, capital raisings and resources. Mr Bowen assists the Managing Director on matters concerning corporations law. Mr Bowen was appointed to the Board as a Non-Executive Director in December 2001. He is Chair of the Remuneration Committee, is a member of the Audit and Risk Committee (and was Chair until 4 April 2019) and is a member of the Corporate Governance Committee and Nomination Committee. Mr Bowen is also a Non-Executive Director of Lotus Resources Limited (appointed 22 February 2021). During the past three years he has not served as a Director of any listed company other than Omni Bridgeway Limited (formerly IMF Bentham Limited), Lotus Resources Limited and Trek Metals Limited (resigned 4 September 2020). Mr Bowen holds Bachelor of Laws, Jurisprudence and Commerce from the University of Western Australia. He has been admitted as a barrister and solicitor of the Supreme Court of Western Australia since 1979, and is also admitted as a solicitor of the High Court of Australia. He is a Certified Public Accountant and a member of the Australian Society of Accountants. Christine Feldmanis Non-Executive Director Christine Feldmanis is a qualified accountant, investment, governance and risk management specialist with over 30 years’ experience in the finance and investment industry. She was previously Managing Director of an ASX-listed boutique funds management incubator business and Chief Finance Officer of the NSW Treasury Corporation. As a professional Non-Executive Director and experienced Board Committee Chair, Ms Feldmanis’ current Non-Executive Director roles include FIIG Securities Limited, Bell Financial Group Ltd, Bell Asset Management Limited, Rabobank Australia Ltd and not- for-profit organisation, Foodbank NSW. Ms Feldmanis was appointed to the Board as a Non-Executive Director in November 2018. Ms Feldmanis is Chair of the Audit and Risk Committee and a member of the Remuneration Committee, Nomination Committee and Corporate Governance Committee. During the past three years she has not served as a Director of any listed company other than Omni Bridgeway Limited (formerly IMF Bentham Limited), Bell Financial Group Ltd and Perpetual Equity Investment Company Limited. Ms Feldmanis holds a Bachelor of Commerce from the University of Wollongong, Australia and Master of Applied Finance from Macquarie University, Australia. She is a Fellow of the Australian Institute of Company Directors, Trustee Fellow of the Association of Superannuation Funds of Australia, Senior Fellow of the Financial Services Institute of Australasia and a Certified Practising Accountant. 19 HighlightsFinancial Report Shareholder Information OverviewDirectors’ Report Directors’ Report continued Officers Jeremy Sambrook Group General Counsel and Company Secretary Jeremy Sambrook is an experienced corporate lawyer with a broad in-house legal and private practice background, having practised in the UK, Hong Kong, the Channel Islands and Australia. Immediately before joining the company Mr Sambrook was a Special Counsel in the Corporate team at DLA Piper Australia in Perth, Australia. Following seven years working at a leading London law firm, Mr Sambrook moved to one of Europe’s largest international hedge fund managers as Corporate Legal Counsel with responsibility for a wide variety of corporate group projects. He became a partner in 2010 and went on to manage the off-shore head office before moving with his family to Australia in 2013. Mr Sambrook was appointed as General Counsel and Company Secretary in 2016 and has built out the global legal, compliance and risk function, in line with the international growth of the business, to a team of legal and compliance specialists across APAC, North America and EMEA. He became Group General Counsel and Company Secretary in 2020 following the expansion of the Legal and Risk team. He leads the company’s in-house legal and secretariat functions and is responsible for all Group legal, risk, compliance and corporate governance. Mr Sambrook has lived in the United Kingdom, Channel Islands and Australia. Mr Sambrook holds a Bachelor of Laws from the University of Bristol, UK. Stuart Mitchell Group Chief Financial Officer Stuart Mitchell joined the company in November 2018. He was previously Chief Financial Officer, Legal Counsel and Company Secretary for Ironbridge Capital, an Australian- based investment and private equity firm, providing funding for domestic and international businesses. His role encompassed financial management, budgeting, modelling, reporting and disclosure, governance, compliance, risk assessment, accounting, taxation, licensing and control issues of the manager, funds and associated structures across Asia Pacific, the Caribbean and Europe. Mr Mitchell has over 20 years’ commercial experience in Australia and the UK in the financial services sector, including private equity, funds management and venture capital. He has held senior finance and legal roles, leading all aspects of corporate finance, administration, compliance, risk, accounting and tax. Mr Mitchell has worked in London in business analysis and finance, control and compliance and lending and derivatives. He has also worked in private legal practice, specialising in litigation and held accounting, audit and advisory positions in Australia. Mr Mitchell has lived in Australia, the United Kingdom and Italy. Mr Mitchell holds a Bachelor of Commerce from the University of New South Wales, Australia and a Diploma in Law from the New South Wales Legal Profession Admission Board and a Graduate Diploma in Legal Practice from the University of Technology Sydney, Australia. He was admitted to practise as a solicitor in New South Wales and is a qualified Chartered Company Secretary and Chartered Accountant. 20 Omni Bridgeway | Annual Report 2021 Interests in shares, bonds and performance rights of the Company As at the date of this report, the interests of the Directors in shares, Omni Bridgeway Bonds, Fixed Rate Notes and share performance rights of the Company were: Michael Kay Andrew Saker Hugh McLernon Raymond van Hulst Michael Bowen Karen Phin Christine Feldmanis Total Number of Omni Bridgeway Bonds Number of Fixed Rate Notes Number of performance rights Number of ordinary shares 470,000 182,068 4,185,982 2,153,551 1,114,620 27,266 45,656 – – 7,500 – 1,500 – – 8,179,143 9,000 – – – – – – 80 80 – 2,527,171 2,390,355 92,652 – – – 5,010,178 Further details of the interests of the Directors in the shares, bonds and options of the Company as at the date of this report are set out in the Remuneration Report included within the Directors’ Report. Dividends paid by Omni Bridgeway Limited Declared date Record date Payment date Cents $m Dividends paid in the year: Interim for the year On ordinary shares Final for 2020, as recommended in the 2020 financial report On ordinary shares n/a n/a n/a nil – 24/8/20 2/9/20 25/9/20 4.0 10,139 Where dividends are paid by Omni Bridgeway Limited, shareholders are able to elect to participate in the dividend reinvestment plan in relation to these dividends. The Directors have determined they will consider, and where appropriate, implement, a regular semi-annual dividend which reflects the cash position and performance of the Group at the time of the dividend and the likely demand for cash over the ensuing 12-month period. The Company has put in place a dividend reinvestment plan that shareholders may elect to participate in, and, on appropriate occasions, may arrange underwriting to reduce the impact a particular dividend might otherwise have on cash. The Directors have not declared a dividend for the period (2020: 4.0 cents per share totaling $9,995,000). 21 HighlightsFinancial Report Shareholder Information OverviewDirectors’ Report Operating and financial review Principal activities The principal activities of the entities within the consolidated Group during the financial year were (i) the investment into and the management of Funds (or Fund-like structures) that are focused on investing into litigation and dispute resolution and enforcement matters globally and (ii) the continued holding of direct investments into similar litigation and dispute resolution, and enforcement matters. The Group (either via the Funds or directly) invests by purchasing awards, claims or rights to action, non-performing loans and distressed debt or entering into funding agreements with claimants, liquidators, banks, creditors, or law firms to provide funding, recovery, enforcement, and associated services. The Group does not provide legal advice. The key business driver is to make investments which ultimately result in a successful completion. If the litigation, arbitration, recovery, or enforcement action is successful, the Group earns a return from the realised amount. The return may be structured as either a multiple of the amount invested or as a percentage of the realised amount; and may be in addition to or inclusive of the amount invested; or a combination thereof. Generally, the multiple or percentage increases as the duration of an investment increases. If the litigation, arbitration, recovery, or enforcement is ultimately unsuccessful the Group does not generate any return and will realise/derecognise its investment for a loss in the profit and loss account. Additionally, in certain jurisdictions, the investment may require the Group to pay any adverse costs that may arise in respect of the costs incurred by the defendant(s) to the funded litigation. The Group also receives fees for managing and servicing the Funds and depending on the Funds’ performance may also receive a performance fee. Operating results for the financial year Total gross investment proceeds and income of $276.0 million was generated for the year ended 30 June 2021 (2020: $290.3 million). The Group experienced a loss for the year of $18.4 million (2020: profit $17.6 million); primarily reflecting the impact of the impairment to two significant investments. Additionally, the result reflects the lumpiness of investment returns, with binary outcomes. The impact of portfolio theory adopted over recent years around asset management is yet to translate into smooth earnings. The first half saw the Group experience a loss of $110.9 million generated from gross investment proceeds and income of $45.3 million, and impairment cost of $107.0 million, whereas the second half saw a profit of $92.4 million from gross investment proceeds and income of $230.7 million, and impairment costs of $13.7 million. There are investments that had substantially completed prior to 30 June 2021 but did not fully satisfy the revenue recognition accounting standards and our policies. To the extent that delays impact an investment’s IRR or distribution from a Fund there may be an indirect decrease in the ultimate return to the Company. During the year there were 44 completions. The greatest area of delay related to US investments where COVID-19 disrupted the Jury-trial system. In assessing the carrying value and associated impairment of investments, the most up to date estimates of success and timing have been used. This has not led to significant impairments. The Group specifically considered the impact of COVID-19 in assessing the values of its assets (including intangibles, receivables/loans, investments, other financial assets, contract assets and deferred tax assets) and liabilities. No significant adjustments have been required. OBL does not consider that the pandemic has had a negative impact on its solvency or going concern. 22 continuedDirectors’ ReportOmni Bridgeway | Annual Report 2021 Operating and financial review (continued) Across the Group applications for funding are up on last year, although commitment to new Investments, particularly in relation to Fund 7 and US have been restricted. Delayed commitment to investments has not negatively impacted the Fund as it was in start-up phase with nominal drawn capital and no investments at the commencement of the pandemic. The investment opportunity is potentially even stronger today, with the potential investment universe remaining as it was, if not larger, and at possibly lower cost. COVID-19 related causes of action may result in more investment opportunities being available for consideration by the Group. Nature of operations In any given year the Group’s profitability is significantly dependent upon the outcome of funded investments that complete. The successful completion of an investment and the timing of that completion is not ultimately within the Group’s control. Legislative, regulatory, judicial and policy changes may have an impact on future profitability. The Group endeavours to have a mix of investments it is funding at any one time. These can broadly be categorised as law firm portfolios, patent and intellectual property claims, commercial, insolvency, corporate, arbitration claims, appeal, whistle-blower claims and multi-party actions. The global expansion also creates diversification across jurisdictions. 2 3 7 12 15 36 EPV by investment type (%) 25 Single party Arbitration Law firm Other* Multi party Fund 6 - merit Fund 6 - enforcement * Includes appeal, commercial, corporate funding, patent and other IP. 16 4 11 EPV by funding source (%) 21 26 29 32 EPV by geography (%) 23 39 Balance sheet Fund 4 Fund 1 Fund 5 Funds 2&3 Fund 6 APAC EMEA North America 23 HighlightsFinancial Report Shareholder Information OverviewDirectors’ Report Operating and financial review (continued) The Group invests across the globe with a physical operating presence in APAC, North America and EMEA. During the year we extended our resources into New Zealand and Spain. The Group undertakes new investing activities through its Funds (or Fund-like structures), with $412.6 million committed (2020: $313.2 million) to investments during the year. In 2017 the Group established its first-generation Funds (Fund 1, and Funds 2 & 3) with external investor capital commitments. During the 2019 financial year the Group established its second-generation Funds (Fund 4 (series I), and 5 (series I)). The acquisition of OBE in November 2019 included two more Funds (Fund 6 and Fund 7). No new investments are being made directly on-balance sheet. The investment periods of the first-generation Funds have expired and are in their “harvest” period. The second-generation and acquired Funds continue within their respective investment periods. Rest of the World At 30 June 2021 there are a total of 257 (2020: 235) non-US investments in the portfolio: 10 are direct on-balance sheet investments (2020: 13) and 247 are in Funds 2&3; Fund 5 and 6 (2020: 222). During the year a total of 62 new investments commenced (2020: 42) and 36 completed (2020: 33). The Estimated Portfolio Value was $11.8 billion (2020: $6.7 billion). US At 30 June 2021 there are 41 US investments in the portfolio (2020: 42): 3 are direct on-balance sheet investments (2020: 3) and 38 are in Funds 1 and 4. During the year a total of 9 new investments commenced (2020: 9) and 8 completed (2020: 7). The Estimated Portfolio Value was $6.8 billion (2020: $6.8 billion.) Investment Activity As at 30 June 2021, there were 298 investments in the Group’s funded portfolio (2020: 277). There were an additional 25 conditional investments. During the year 71 new investments commenced (2020: 51), and 44 investments completed (2020: 40). The total Estimated Portfolio Value was $20.1 billion (2020: $15.8 billion); for unconditional investment it was $18.6 billion (2020: $13.5 billion). 24 continuedDirectors’ ReportOmni Bridgeway | Annual Report 2021 Operating and financial review (continued) Fund 1 The Group and an external investor have committed up to US$171.7 million to this Fund to be deployed on US cases over a three-year investment period which has now expired. Funds 2 & 3 Funds 2 & 3 invested in litigation in jurisdictions outside the USA over a three-year investment period which has now expired. The external investor’s capital commitment was for 75% with OBL funding 25%. Under the Fund’s NCI waterfall, the external investor is entitled to a capped priority return on invested capital and a further preferred return on committed but undrawn capital, after which OBL is entitled to a manager return and its invested capital. The residual net cash flows received are distributed 85% to OBL and 15% to the external investor. In accordance with the waterfall, the total amount to be paid to the investor (net of receivables and cash) is US$50.6 million after which OBL receives its capital and fees. The external investors’ capital commitment is for 80% with OBL funding 20%. The Funds’ economics and NCI waterfall profile for investors and OBL is similar to Fund 1, except that i. ii. the preferred return is a slightly different rate and the residual net cash flows received on investments are distributed 80% to OBL and 20% to the external investors. USD 1.1m USD 7.6m AUD 3.7m AUD 14.9m Undeployed USD 11.8m Deployed USD 151.2m Undeployed AUD 72.9m Deployed AUD 97.5m Fund 1 100% Committed Start date – Feb 2017 Fund Size – USD 171.7m Funds 2&3 98% Committed Start date – Oct 2017 Fund Size – AUD 189m Committed (incl. funding approved, conditionally funded) Available capital Committed (incl. funding approved, conditionally funded) Available capital Other costs Other costs 25 HighlightsFinancial Report Shareholder Information OverviewDirectors’ Report Operating and financial review (continued) Fund 4 This US centric investment structure was established to follow on from the US investment activity of Fund 1 over a four-year investment period. It has capital commitments of US$500.0 million (series I), with the potential to increase to US$1.0 billion (with series II). Fund 5 This non-US-centric investment structure was established to follow the rest of world investment activity of Funds 2 & 3 over a four-year investment period. It has capital commitments of US$500.000 million (series I), with the potential to increase to US$1.000 billion (with series II). 20% of the capital is to be provided by OBL, 80% is from external investors. 20% of the capital is to be provided by OBL, and 80% is from external investors. OBL will periodically receive management, advisory, administration and performance fees in relation to the Fund from the external investors in the Fund. OBL receives its investor return on its committed capital pari passu with the external investors. OBL will periodically receive management, advisory, administration and performance fees in relation to the Fund. OBL will receive its investor return on its committed capital pari passu with the external investors. (USD 2.1m) USD 4.3m Deployed USD 104.0m Undeployed USD 64.6m Fund 4 34% Committed Start date – Apr 2019 Fund Size – USD 500m USD 329.2m (USD 2.5m) USD 325.1m USD 19.4m Deployed USD 27.9m Undeployed USD 130.1m Fund 5 35% Committed Start date – Sep 2019 Fund Size – USD 500m Committed (incl. funding approved, conditionally funded) Available capital Recycled receipts Committed (incl. funding approved, conditionally funded) Available capital Recycled receipts Other costs Other costs 26 continuedDirectors’ ReportOmni Bridgeway | Annual Report 2021 Operating and financial review (continued) Fund 6 Fund 6 was acquired by the Group as part of the November 2019 acquisition of OBE. This is an EMEA focused investment structure established to invest in litigation, arbitration and enforcement proceedings, and for the work- out and monetisation of claims. It has capital commitments of EUR $150.0 million, 5% of the capital is to be provided by OBL, and 95% is from external investors. OBL will periodically receive management, advisory, administration and performance fees in relation to the Fund. OBL will receive its investor return on its committed capital pari passu with the external investors. Under the Funds’ economics and NCI waterfall profile returns are attributed between OBL and investors based on the category of underlying case. Fund 7 This joint initiative with the International Finance Corporation (part of the World Bank) was acquired by the Group as part of the November 2019 acquisition of OBE. This is a Middle East North Africa (MENA) focused investment structure established to focus on Bank non-performing loans in the Middle East and North Africa. It has capital commitments of USD $100.0 million, 50% of the capital is to be provided by Fund 6, and 50% (comprising 20% of capital and 30% by way of a loan) from International Finance Corporation as an external investor. OBL will periodically receive management, advisory, administration and performance fees in relation to the Fund. Under the distribution waterfall, funds will be applied firstly to repay the IFC debt, after which Fund 6 is entitled to its investor return on its committed capital pari passu with the external investor. (EUR 30.7m) EUR 37.8m USD 3.5m EUR 14.2m DARP remaining EUR 44.0m Fund 6 92% Committed Start date – Jan 2017 Fund Size – EUR 150m Deployed EUR 62.3m Undeployed EUR 59.9m Fund 7 3.5% Capital called Start date – Jul 2019 Fund Size – USD 100m USD 96.5m Committed (incl. funding approved, conditionally funded) Available capital Recycled receipts Other costs Capital called Undrawn capital 27 HighlightsFinancial Report Shareholder Information OverviewDirectors’ Report Fund 4 investment impairment In January 2021 summary judgment was granted against a Fund 4 funded client. The investment is for USD 40.0 million regarding an anti-trust claim in the US. Following legal advice on the grounds and prospects of overturning the summary judgment the funded client has lodged an appeal. This appeal is supported by the Group. The client does not require funding from the Group to pursue the appeal. In accordance with our IFRS compliant accounting policy the summary judgment is considered to be an impairment trigger. Accordingly, notwithstanding management’s continued support of the appeal process, the Group has fully impaired this investment. The investment has not been derecognised and the Group intends to pursue the investment to achieve a positive outcome. The level of impairment will be continually assessed and may be reversed as appropriate pending developments in the future. If the investment is ultimately successful it may generate proceeds to the Group in excess of its carrying value. Completion is anticipated to occur in FY24. Investment Returns Metrics The Group in total has completed 271 (2020: 227) investments since listing, excluding withdrawals, with an average investment period of 2.8 years (2020: 2.7 years). The Group has generated a ROIC of 1.27 times (excluding overheads) (2020: 1.32 times). Employees At 30 June 2021, the Group employed 180 permanent staff (2020: 159). Operating and financial review (continued) Wivenhoe The Wivenhoe Dam class action (a direct balance sheet investment) involves people who suffered loss in the Brisbane floods of 2011, who alleged the increased flooding was caused by the negligence of the dam operators. There is a participation agreement between OBL and a co- funder to share the costs (including any adverse costs) and any return from this claim. A positive judgment for OBL’s funded client was received on 29 November 2019. OBL’s funded client has settled with The State of Queensland and Sunwater for their collective 50% share of the $440 million. OBL has derecognised the related 50% of its intangible and recognised $95.3 million from the Settlement, representing costs reimbursement, project management fee and funding commission. Seqwater’s appeal against the judgment was heard in May 2021. A decision has not been received yet. Westgem The Westgem balance sheet investment concerns a property developer alleging improper conduct in relation to loans for a property development by a bank. The trial commenced in March 2018 and concluded in July 2018. First instance Judgment was received in favour of the defendant in August 2020. Following legal advice on the grounds and prospects of overturning the first instance judgment the funded client lodged an appeal by September 2020. The decision to appeal was supported by senior counsel’s advice that the merits of the appeal are positive. The appeal is supported and will be funded by Omni. In accordance with our IFRS compliant accounting policy the first instance judgment is considered to be an impairment trigger. Accordingly, notwithstanding management’s continued support of the appeal process, the Group has fully impaired this investment. The investment has not been derecognised and the Group intends to pursue the investment to achieve a positive outcome. The level of impairment will be continually assessed and may be reversed as appropriate depending upon developments in the future. If the investment is ultimately successful it may generate proceeds to the Group in excess of its carrying value. The investment has a possible completion period of FY23. 28 continuedDirectors’ ReportOmni Bridgeway | Annual Report 2021 Operating and financial review (continued) Status of Omni Bridgeway Holding B.V purchase Since acquisition of Omni Bridgeway Holding B.V., it has funded 51 new investments (2020: 21), and 42 (2020: 15) investments have completed. Its investment completions have demonstrated a (i) 2.43 times ROIC on the purchased fair values (2020: 1.98) and (ii) 3.29 times ROIC on their invested cost (2020: 3.83). The new investments had an applicable value of 180% of the first annual new business growth target entitling the sellers to their full first year variable consideration payment. The excess will be carried towards next year’s hurdle. The annual variable consideration calculation for the each of the remaining four years is a dynamic calculation and factors in both new investments and any variation in the value of investments from prior years. The payment was satisfied by the issue of shares in the Company. Australian Financial Services License (AFSL)/MIS In September 2020 Omni became the first litigation funder in Australia to obtain an AFSL authorising it to fund class actions under the newly revised regulatory landscape. Since then, Omni Bridgeway has commenced 6 class action Managed Investment Schemes. Auditor In May 2021 Ernst and Young (EY) resigned as the auditor of Omni Bridgeway Limited (Omni Bridgeway) and was replaced by BDO. EY has provided audit services to the Company since 2001 and its resignation has been accepted by Omni Bridgeway following the consent of Australian Securities and Investments Commission. Shareholder Returns The following summary of operating results reflects the Group’s performance for the year ended 30 June 2021: Shareholder Returns Basic loss per share (cents per share) Diluted loss per share (cents per share) Return on assets (NPAT/average assets) Return on equity (NPAT/average equity) Net debt/equity ratio %* 2021 (9.86) (9.86) (1.7%) (2.4%) N/A 2020 (4.90) (4.90) 1.9% 2.7% N/A * Net debt (cash and short term deposits less total debt) is positive as cash and short term deposits are greater than total debt. 29 HighlightsFinancial Report Shareholder Information OverviewDirectors’ Report Operating and financial review (continued) A summary of the impact of investment completions and impairment on the profit and loss for the year is below: Number of completions Intangible derecognition Net gain/(loss) Attributed to Full Partial EPV million1 (crystallised) Proceeds incl. capitalised overhead excl. capitalised overhead incl. capitalised overhead excl. capitalised overhead OBL NCI 3 7 5 1 3 25 44 3 5 2 1 1 12 24 117.0 137,280 (32,654) (22,201) 104,626 115,079 104,626 – 437.7 73,751 (32,651) (28,658) 41,100 45,093 (3,993) 45,093 186.0 23,975 (24,348) (20,841) (373) 3,134 (373) 430.6 7,526 (7,399) (7,306) 96.0 1,256 (764) (591) 127 492 220 665 (49) 492 – 176 – 81.2 22,140 (8,000) (7,645) 14,140 14,495 (357) 14,497 1,349 265,928 (105,816) (87,242) 160,112 178,686 100,346 59,766 Amortisation of purchased claims Net gain/(loss) Attributed to Collection of proceeds incl. capitalised overhead excl. capitalised overhead incl. capitalised overhead excl. capitalised overhead OBL NCI $’000 INTANGIBLES Direct balance sheet investments Fund 1 investments Funds 2 & 3 investments Fund 4 investments Fund 5 investments Fund 6 investments TOTAL INTANGIBLES $’000 PURCHASED CLAIMS Fund 5 investments Fund 6 investments TOTAL PURCHASED CLAIMS 4,003 (2,721) (2,721) 1,282 1,282 1,282 3,958 (2,742) (2,742) 1,216 1,216 1,216 45 21 21 66 66 66 – – – $’000 CLAIMS PORTFOLIO Fund 6 investments TOTAL CLAIMS PORTFOLIO Amortisation of claims portfolio Net gain/(loss) Attributed to incl. capitalised overhead excl. capitalised overhead incl. capitalised overhead excl. capitalised overhead Revenue OBL NCI 1,696 (1,559) (1,474) 1,696 (1,559) (1,474) 137 137 222 222 44 44 93 93 30 continuedDirectors’ ReportOmni Bridgeway | Annual Report 2021 Operating and financial review (continued) $’000 IMPAIRMENT EXPENSE Direct balance sheet investments Fund 1 investments Funds 2 & 3 investments Fund 4 investments Fund 5 investments Fund 6 investments Expense Net gain/(loss) Attributed to incl. capitalised overhead excl. capitalised overhead incl. capitalised overhead excl. capitalised overhead Proceeds OBL NCI (57,830) (35,205) (57,830) (35,205) (57,830) – 2,952 2,504 2,952 2,504 448 2,504 (3,475) (2,918) (3,475) (2,918) (3,475) – (57,936) (56,850) (57,936) (56,850) (12,456) (45,480) – – – – – – (4,445) (4,425) (4,445) (4,425) (791) (3,654) TOTAL IMPAIRMENT EXPENSE (120,734) (96,894) (120,734) (96,894) (74,104) (46,630) TOTAL 271,627 (230,830) (188,331) 40,797 83,296 27,568 (13,229) 1 EPV is categorised as non-IFRS information prepared in accordance with ASIC Regulatory Guidance 230 - Disclosing non-IFRS financial information, issued in December 2011. This information has not been audited or reviewed. Refer to the Glossary for additional information. The EPV above relates only to full completions. 31 HighlightsFinancial Report Shareholder Information OverviewDirectors’ Report Operating and financial review (continued) OBL’s share price closed at $3.75 per share on 30 June 2021 (2020: $4.77). OBL entered the ASX top 200 companies on 22 June 2020. Since 1 July 2016, OBL has outperformed the major indices on an annualised basis up to 30 June 2021 as detailed below: ) % ( s n r u t e R d e s i l a u n n A 25 20 15 10 5 0 Annualised Return with Dividend Reinvestment OBL Share Price S&P/ASX 200 Accumulation Index ASX All Ordinaries Accumulation Index 22.6% 11.2% 11.5% Liquidity and capital resources The consolidated Statement of Cash Flows illustrates that there was a decrease in cash and cash equivalents for the year ended 30 June 2021 of $47.5 million (2020: $34.0 million). Operating activities used $97.9 million of net cash outflows (2020: $74.2 million), whilst cash inflows from investing activities were $46.8 million (2020: net cash outflow of $54.2 million), and financing activities raised $3.7 million (2020: $94.4 million). There was an increase in receivables from litigation contracts of $73.1 million (2020: $110.3 million). 32 continuedDirectors’ ReportOmni Bridgeway | Annual Report 2021 Operating and financial review (continued) Asset and capital structure Cash and short term deposits Total debt Net cash Total equity Working Capital Ratio 2021 $’000 142,648 (151,365) (8,717) 762,347 4.9:1 2020 $’000 Change % 194,384 (149,468) 44,916 767,201 3.7:1 (27%) 1% (119%) (1%) 32% There are 760,000 Bonds on issue with a face value of $100 each. The Omni Bridgeway Bonds have a variable rate of interest based on the Bank Bill rate plus a fixed margin of 4.20% per annum, paid quarterly. The maturity date is 22 December 2022, with a first issuer call date of 8 January 2022 and an increase in the margin of 1.0% applying from 1 January 2022 to the maturity date. On 20 December 2019, the Company refinanced its Fixed Rate Notes by early redemption of the existing notes by payment of 101% of the outstanding principle and accrued interest to the date of redemption. Of the notes on issue, 34,284 notes were redeemed and reissued to new noteholders and 37,716 notes were exchanged for new notes. The interest rate payable to new noteholders is 5.65% per annum payable quarterly. The Fixed Rate Notes are due to mature on 8 January 2026 and are secured by a security interest over all present and after-acquired property of OBL, with guarantees provided by certain wholly-owned subsidiaries. OBL has the discretion to redeem the Fixed Rate Notes prior to the maturity date on 8 January in each year between 2022 and 2024 (inclusive), and again on 8 July 2025. To the extent OBL exercise its early redemption right it will pay a redemption premium, of between zero and 2%. Profile of interest-bearing debt The profile of the Group’s interest-bearing debt finance is as follows: Current Leases Non-current Omni Bridgeway Bonds Fixed Rate Notes Leases Total interest-bearing debt1 2021 $’000 2020 $’000 Change % 2,449 2,449 75,290 70,232 3,394 148,916 151,365 2,870 2,870 73,942 69,842 2,814 146,598 149,468 (15%) (15%) 2% 1% 21% 2% 1% 1 Face value of the Bonds and Fixed Rate Notes is $148.0 million. $76.0 million relates to the Omni Bridgeway Bonds restructured in December 2018, while Fixed Rate Notes of $72.0 million were refinanced in December 2019. The carrying value of the debt is net of transaction costs and debt premium (See Note 17). 33 HighlightsFinancial Report Shareholder Information OverviewDirectors’ Report Directors’ Report continued Operating and financial review (continued) Shares issued during the year On 4 December 2020, the Company issued 8,120,290 shares to the Vendors of Omni Bridgeway Holding B.V., being 4,311,789 shares for the variable consideration, together with 3,808,501 shares for the first tranche of the deferred but unconditional consideration. Significant changes in the state of affairs There have been no significant changes in the Company’s state of affairs during this reporting period other than as is disclosed in this report. Significant events after reporting date There have been no significant events after the reporting date. Likely developments and expected results Based upon EPV, approximately 14% of the investment portfolio at 30 June 2021 is anticipated to complete in FY22 (FY20: 29%). The estimated completion period is OBL’s current estimate of the period in which the case may be finalised. The case may finalise earlier or later than the identified period for various reasons. Completion means finalisation of the litigation by either settlement, judgment or arbitrator determination, for or against the funded client. It may not follow that the financial result will be accounted for in the year of finalisation. Completion period estimates are prepared at case inception and reviewed and updated where necessary on a quarterly basis. The Group does not provide forecasts in light of the difficulty in estimating the finalisation of its investments but provides an indication of its view of the possible completion dates and EPV in the quarterly portfolio reports. OBL expects demand for its funding to continue in each of its markets. Competition is expected to increase in coming years with new entrants in each market. Litigation funding is considered non-cyclical or uncorrelated to underlying economic conditions. Environmental regulation and performance The consolidated entity’s operations are not presently subject to significant environmental regulation under the laws of the Commonwealth and the States. Risk management The Group’s major risk continues to be the choice of cases to be funded. The Company has an investment protocol in relation to case selection and a rigorous due diligence process which ensures that only cases with very good chances of success are accepted for funding. The Group also insures a portion of the adverse costs order exposure in relation to certain investments on its own balance sheet, and Fund 6, and Funds 2 & 3 and Fund 5 are covered by After- The-Event insurance policies. Another risk which requires constant management is liquidity. OBL’s strategic plan addresses this risk through the introduction of fund structures that reduce OBL’s direct capital exposure to potential investment losses. There were portfolio concentration risks associated with investments in the Wivenhoe and Westgem investments. However, the Company’s diversification strategy has reduced this risk for future periods. There are 298 investments in the current portfolio (2020: 277). The overall average investment size for the Group’s entire portfolio is $2.5 million. The OBE Group’s cases average $0.9 million. Excluding the new OBE Group portfolio, the average investment size is $3.9 million (2020: $5.1 million). OBL also constantly monitors proposed legislative, regulatory, judicial and policy changes that may affect litigation funding in the markets in which it operates. OBL, like all businesses, faces the risk of damage to its reputation, name or brand which could materialise from various sources. The Group aspires to maintain an excellent reputation for strong risk management discipline, a client- centric approach and an ability to be flexible and innovative. The Group recognises the serious consequences of any adverse publicity or damage to reputation, whatever the underlying cause. We have various policies and practices to mitigate reputational risk, including strong values that are regularly and proactively reinforced. Strategic and reputational risk is mitigated as much as possible through detailed processes and governance involving escalation procedures from investment managers to management and from management to the board, and from regular, clear communication with shareholders, clients and all stakeholders. Whilst seeking to clearly differentiate itself in the industry, OBL may suffer indirect reputational damage from the actions of other participants that draw criticism of the industry more broadly. 34 Omni Bridgeway | Annual Report 2021 Share options Unissued shares As at the date of this report there were 18,528,532 share performance rights on issue (2020: 17,302,007). Indemnification and insurance of directors and officers During the financial year the Company has paid premiums in respect of an insurance contract insuring all the directors and officers of the Group against any legal costs incurred in defending proceedings for conduct other than, amongst others: (a) wilful breach of duty; or (b) contravention of sections 182 or 183 of the Corporations Act 2001, as may be permitted by section 199B of the Corporations Act 2001. The total amount of premiums paid under the insurance contract referred to above was $2.4 million during the current financial year (2020: $1.3 million). Indemnification of auditors To the extent permitted by law, the Company has agreed to indemnify its auditors, as part of the terms of its audit engagement against claims by third parties arising from the audit (for an unspecified amount). No payment has been made to indemnify EY (ceased) or BDO (commenced) during or since the financial year. 35 HighlightsFinancial Report Shareholder Information OverviewDirectors’ Report Letter from the Chairman of the Remuneration Committee Dear Shareholder, I am pleased to present OBL’s 2021 Remuneration Report on behalf of the Board of directors (“Board”). The Group has a variable remuneration framework designed to align executive reward and shareholder value and to incentivise the achievement of our strategic vision over the longer term. The variable remuneration framework is designed to reflect industry standards and to ensure that Key Management Personnel (“KMP”) and executives are aligned to and rewarded for delivering sustained Group performance. As we proceed into our next 5- year strategic plan, we are in the process or reviewing the group’s remuneration structures. We have engaged Mercer Consulting (“Mercer”) to conduct a review of our current Short-Term Incentive (“STIP”) and Long-Term Incentive (“LTIP”) plans against best market practice. The Remuneration Committee will review Mercer’s report together with assessing whether the current performance milestones of the plans are optimally aligned with the new strategic business plan and shareholders’ interests. Any changes will be implemented with effect from FY22 and will, where relevant, be presented for consideration at our upcoming annual general meeting for shareholder consideration. The current levels of fixed remuneration of the Group’s senior employees are reflective of the private practice professional services market within which OBL competes for talent. Investment managers are invariably at or around the partner level of legal practices prior to joining OBL. Under the total remuneration arrangements, a material portion of staff remuneration is ‘at-risk’ and linked to both short-term and long-term performance. The Group’s current variable remuneration framework for KMP, senior executives and investment managers (collectively “Senior Staff”) consists of two components: – a Short-Term Incentive Plan (“STIP”) which provides for an annual cash payment, subject to the achievement of key financial and non-financial performance objectives; and – an equity-based Long-Term Incentive Plan (“LTIP”) that provides for an annual grant of performance rights. Vesting of performance rights is contingent on performance against two metrics, positive relative Total Shareholder Return (“TSR”) and Compound Annual Growth Rate (“CAGR”) of the intangible asset balance (“Funds Deployed”), both measured over a three-year performance period. For those employees participating in the STIP, the target STIP payment for the 2021 financial year is, consistent with prior years capped at 40% of an employee’s Total Fixed Remuneration (“TFR”). No STIP payments have been made or accrued for the period; this is the 3rd year out of the last four where no STIP payment has occurred. The LTIP for Senior Staff is designed to complement the STIP as a form of ‘at-risk’ remuneration tied to long-term performance for the key contributors to the business. The LTIP directly aligns shareholders’ and participants’ interests. The metrics assessed over the three-year vesting period, for the performance rights granted in FY2019, have allowed for a 95% vesting. On behalf of the Board, I invite you to review the full report and thank you for your continued interest. Yours faithfully Michael Bowen Chairman of the Remuneration Committee 36 continuedDirectors’ ReportOmni Bridgeway | Annual Report 2021 Remuneration Report (Audited) This Remuneration Report outlines the director and Key Management Personnel (KMP) remuneration arrangements of the Group in accordance with the requirements of the Corporations Act 2001 (Cth) and its Regulations. For the purposes of this report, KMP of the Group are defined as those persons having authority and responsibility for planning, directing and controlling the major activities of the Group, directly or indirectly, including any director (whether executive or otherwise) of Omni Bridgeway Limited (OBL). Key management personnel Details of OBL’s KMP for the 2021 financial year are: (i) Directors Michael Kay Andrew Saker Chairman and Non-Executive Director Managing Director and Chief Executive Officer Hugh McLernon Executive Director Raymond van Hulst Executive Director Michael Bowen Non-Executive Director Karen Phin Non-Executive Director Christine Feldmanis Non-Executive Director (ii) Executives Stuart Mitchell Group Chief Financial Officer Jeremy Sambrook Group General Counsel and Company Secretary There were no other changes to OBL’s KMP after the reporting date and before the financial report was authorised for issue. Remuneration Committee The Remuneration Committee of the Board of directors of the Company is responsible for determining and reviewing remuneration arrangements for the Board and KMP. The Remuneration Committee assesses the appropriateness of the nature and amount of the emoluments of the Board and KMP on a periodic basis by reference to relevant employment market conditions, with the overall objective of ensuring the best stakeholder benefit from the Board and KMP. During 2020 financial year, the Comparator Group used for the Long Term Incentive Program (LTIP) was assessed with involvement from PwC, who provided two alternative Comparator Groups that could be adopted by the Remuneration Committee. PwC were paid $37,000 for remuneration consulting services and no other services were provided by PwC during the 2020 financial year. The Board is satisfied that the recommendation provided was free from undue influence by eligible participants of the LTIP. During the FY21 year Mercer were engaged to review the STIP and LTIP plans against best market practice. Remuneration philosophy The performance of the Group is heavily dependent upon the quality of its directors and KMP. Accordingly, the Company must attract, motivate and retain highly skilled directors and executives. The Group embodies the following principles in its remuneration framework: – determination of appropriate market rates for the fixed remuneration component recognising that the majority of investment professionals are most comparable to partners in private practice professional services businesses; and – establishment of appropriate performance hurdles for the variable remuneration component. Remuneration structure In accordance with best practice corporate governance, the structure of non-executive director and KMP remuneration is separate and distinct. The Short Term Incentive Program (STIP) and LTIP are products of an external remuneration review and are reflective of industry standards. The Remuneration Committee will undertake a review of the STIP and LTIP structures as part of the implementation of the new FY2021 – FY2025 strategic business plan with the aim of ensuring continued alignment of remuneration outcomes with sustained Group performance. Non-executive director remuneration All non-executive directors enter into service agreements with the Company in the form of a letter of appointment. The letter summarises the Board policies and terms, including remuneration, relevant to the office of Director. Fees and payments to non-executive directors reflect the demands which are made on, and the responsibilities of, the non-executive directors. Non-executive directors’ fees and payments totalled $570,101 (including superannuation), as disclosed in the following tables in this report. At the 2015 Annual General Meeting, shareholders approved payments up to $700,000 to non-executive directors. There are no retirement allowances for non-executive directors save for ongoing indemnification and rights to insurance, nor do they participate in any incentive programs. Non-executive directors may, however, elect to have a portion of their remuneration paid into their personal superannuation plans. Executive remuneration Objective The Company aims to reward executives with a level and mix of compensation elements commensurate with their position and responsibilities, within the following framework: – reward executives for Company and individual performance against targets set to appropriate benchmarks; – align the interests of executives with those of shareholders; 37 HighlightsFinancial Report Shareholder Information OverviewDirectors’ Report Remuneration Report (Audited) (continued) – link rewards with the internal strategic goals of the Group; and – ensure total compensation is competitive by market standards. Structure It is the Remuneration Committee’s policy that employment contracts are entered into with all KMP. Details of these contracts are provided below (see Executive Employment Contracts). Compensation consists of the following key elements: – fixed remuneration consisting of base salary, superannuation and benefits; and – variable remuneration consisting of a cash component short term incentive plan (STIP) and performance right component long term incentive plan (LTIP). Fixed remuneration The levels of fixed remuneration of OBL’s senior employees are reflective of the private practice professional services market within which the Company competes for talent. Investment managers are invariably at or around the partner level of legal practices prior to joining OBL. Fixed compensation is reviewed annually by the Remuneration Committee. The process consists of a review of Group and individual performance, relevant comparative compensation in the market and internally and, where appropriate, external advice on policies and practices. Variable remuneration Objective The objective of the variable compensation incentive is to reward executives in a manner that aligns this element of their compensation with the objectives and internal key performance indicators of the Group. The total potential incentive available is set at a level so as to provide sufficient incentive to the executive to achieve the operational and strategic targets and such that the cost to the Group is reasonable in the circumstances. Structure Short Term Incentive Plan The purpose of STIP is to provide an annual ‘at-risk’ incentive to participants linked to the achievement of specific financial and non-financial performance objectives. The STIP performance measures were chosen as they reflect the core drivers of short - term performance and also provide a framework for delivering sustainable value to the Group, its shareholders and other stakeholders. Key features of the STIP include: – Applicable employees will be eligible to be considered by the Remuneration Committee to participate in the STIP, which will be delivered as an annual cash payment. – The STIP opportunity is expressed as a percentage of their total fixed remuneration. – At the beginning of the financial year, financial and non- financial performance objectives will be set with reference to an employee’s role and contribution to the Group. Key performance indicators are set for individuals aligned to the strategic and commercial objectives of the business incorporated in the approved business plan and budget, risk and compliance policies and procedures, and cultural, leadership and behavioural expectations. The KPIs are targeted to the individual roles and their ability to influence each of these pillars of performance, from an outcome perspective and in respect to how they go about achieving the results. – If elected prior to the start of the financial year, and with approval of the Remuneration Committee, senior executives have the option of foregoing their STIP allocation and electing to receive 100% of their at-risk remuneration in performance rights, under the same terms as the existing LTIP structure. – At the end of the financial year, actual performance will be assessed against the pre-set financial and non-financial performance objectives set at the beginning of the year. The maximum STIP incentive for participating employees is 40% of TFR. The STIP metrics set for the 2021 financial year were: i. Target 1 – Between 25% and 50% of the STIP opportunity (or 10% to 20% of the employees’ fixed salary) will be awarded to employees if the Group achieves growth in net profit before tax (before bonus) of between 5% and 15%; and ii. Target 2 – 50% of the STIP opportunity (or 20% of the employees’ fixed salary) will be awarded if employees achieve their non-financial objectives (which are set individually). In financial years where no net profit before tax (before bonus) is achieved, it is at the discretion of the Remuneration Committee as to whether to pay STIP. STIP is paid in cash at the end of the financial year, or performance rights’ after the Participant’s election. 38 continuedDirectors’ ReportOmni Bridgeway | Annual Report 2021 Remuneration Report (Audited) (continued) Long Term Incentive Plan The LTIP complements the STIP as a form of ‘at-risk’ remuneration tied to long-term performance. The LTIP encourages equity ownership and directly aligns shareholders’ and participants’ interests. Key features of the LTIP include: – Eligible participants include employees and contractors performing an investment role, senior employees or contractors in non-investment roles, directors and company secretaries. – Awards will be granted annually as performance rights over OBL ordinary shares. – The LTIP opportunity will be expressed as a percentage of TFR. – The value of the LTIP opportunity is set up to 60% (or 100%, if LTIP has been elected and approved to replace forgone STIP) of TFR calculated on face value by reference to Omni Bridgeway Limited’s volume weighted average share price (VWAP) at the start of the applicable period. – Two performance metrics have been set and the performance rights, or a portion thereof, will vest in three years if: i. Target 1 – TSR measurements will comprise 50% of the LTIP opportunity: – TSR must be positive overall between the issuance of the performance rights and the vesting date. – Each Performance Right is issued for no consideration and shall have no exercise price. – Performance rights issued pursuant to the Plan (“Performance Rights”) shall be issued at no cost to the recipient and are rights to receive fully paid ordinary shares in the Company in the future, if certain conditions are satisfied within the period specified. – The Company’s TSR will then be compared to a peer group, at 30 June, which will include listed entities in the ASX 300 Diversified Financials industry group with a market capitalisation below $10 billion. For the 2021 financial year, this group consists of the following companies: – Janus Henderson Group PLC – Eclipx Group Limited – IOOF Holdings Limited – Netwealth Group Limited – OFX Group Limited – Pinnacle Investment Management Limited – Australian Ethical Investment Limited – Money3 Corporation Limited – Hub24 Limited – Challenger Limited – Perpetual Limited – Credit Corp Group Limited – Navigator Global Investments Limited – Centuria Capital Group – Pendal Group Limited – ZIP Co Ltd – Platinum Asset Management Limited – Humm Group Limited – AMP Limited 39 HighlightsFinancial Report Shareholder Information OverviewDirectors’ Report Remuneration Report (Audited) (continued) – The TSR component will vest in accordance with the following vesting schedule: TSR Percentile Ranking Percentage Vesting Less than the 50th percentile Equal to the 50th percentile Nil vesting 50% vesting Between the 50th and 75th percentile Between 50% and 100%, determined on a straight-line basis Equal to the 75th percentile or above 100% vesting ii. ii. Target 2 – The Group will measure the compound annual growth rate of Funds Deployed which will comprise 50% of the LTIP opportunity: – CAGR of the Funds Deployed component will vest in accordance with the following schedule: Funds Deployed CAGR Percentage Vesting Below 5% CAGR At 5% CAGR Nil vesting 50% vesting Between 5% CAGR and 7% CAGR Between 50% and 100%, determined on a straight-line basis 7% CAGR and above 100% vesting These performance conditions have been chosen to ensure the remuneration of executives and KMP are aligned with the Group’s strategy to increase the OBL portfolio, invest in future income and potential earnings capacity, and creation of shareholder wealth. In addition to the above, shareholder approval was obtained at the General Meeting on 14 February 2020 to amend the LTIP for future issues as follows: – The number of Performance Rights issued to an Eligible Participant is determined by reference to their TFR and the Company VWAP to an applicable date of i. 30 June of the preceding Financial Year; or ii. 31 December of the preceding Half Financial Year, depending on when a participant became eligible to participate in the LTIP. – The definition of “Comparator Group” to mean i. such companies or entities, being not less than 6, selected by the Remuneration Committee with effect from the applicable Start Date, and each being in the diversified financial industry sector, listed on the ASX and having a market capitalisation of between 50% and 200% of the Company’s market capitalisation on the applicable date of invitation, save that the Remuneration Committee may at any time thereafter during the relevant Performance Period, add any other company or entity to such group which satisfies the above criteria (as at the date of such addition) and may remove any company or entity within the group which no longer satisfies such criteria (as at the date of such removal), save that where such removal results in the group comprising less than 6 companies and entities, the Remuneration Committee shall, to the extent such company or entity exists, add another company or entity to such group which satisfies the above criteria (as at the date of such addition) in order to maintain, so far as possible, that the group comprises a minimum of 6 companies or entities; or ii. such industry or market index selected by the Remuneration Committee, in its absolute discretion, with effect from the applicable Start Date. 40 continuedDirectors’ ReportOmni Bridgeway | Annual Report 2021 Remuneration Report (Audited) (continued) Group Statutory Performance Indicators The objectives and philosophy of the Remuneration Committee are based upon aligning the performance of the Group’s employees with increasing value to shareholders. The graph on page 32 shows the performance of the Group as measured by its share price and compared to other shares listed on the ASX. The following is a summary of the Group’s earnings per share (shown as cents per share) over the last five years: OBL share price at 30 June ($) Dividends paid per share (cents) Earnings / (loss) per share (cents) Diluted earnings / (loss) per share (cents) 2017 1.89 7.00 8.82 8.47 2018 3.00 3.00 (6.25) (6.25) 2019 2.92 – (24.40) (24.40) 2020 4.77 7.00 (4.90) (4.90) 2021 3.75 – (9.86) (9.86) Note, comparatives have been restated for the impact of issue of bonus shares. Comparatives have not been restated for the impact of adopting AASB9, AASB15 and AASB16. Executive Employment Contracts Andrew Saker, Managing Director and CEO: – contract commenced 5 January 2015; – gross salary package of $1,250,000 pa including superannuation; – a cost of living allowance for his relocation to the United States; – salary may be reviewed by the Board from time to time; – notice period by the employee is 12 months and 6 months’ notice by the Company; and – As approved by shareholders at the AGM held on 21 November 2018, upon termination on good terms, the following termination payment arrangements apply: i. the notice periods specified above; ii. 12 months’ salary; iii. statutory entitlements; and iv. any unvested LTIP will lapse. – As approved by shareholders at the AGM held on 21 November 2018, if termination occurs due to the provision of six months notice by OBL, or the provision of notice by Mr Saker in situations where either a material breach of his executive services agreement occurs, material diminution of Mr Saker’s role or if Mr Saker is unfit due to illness or injury then in addition to the above the following benefit is paid: i. A payment calculated by reference to the number of shares Mr Saker would have retained from any unvested performance rights multiplied by the 5-day VWAP calculated at the date such performance rights would have vested had they continued to be held. Hugh McLernon, Executive Director: – contract commenced 1 July 2007; – gross salary package of $1,200,000 pa including superannuation; – salary to be reviewed annually; – notice period by either the employee or the Company is 12 months; and – no other termination payment arrangements (excluding statutory entitlements) apply other than the notice period specified above and any unvested LTIP will lapse. 41 HighlightsFinancial Report Shareholder Information OverviewDirectors’ Report Remuneration Report (Audited) (continued) Raymond van Hulst, Executive Director: – contract commenced 21 April 2020; – gross salary package of CHF518,376 pa; – salary to be reviewed annually; – notice period by either the employee or the Company is 3 months; and – no other termination payment arrangements (excluding statutory entitlements) apply other than the notice period specified above and any unvested LTIP will lapse. Stuart Mitchell, Chief Financial Officer: – contract commenced 12 November 2018; – gross salary package of $450,000 pa including superannuation; – salary to be reviewed annually; – notice period by either the employee or the Company is 6 months; and – no other termination payment arrangements apply other than the notice periods specified above and any unvested LTIP will lapse. Jeremy Sambrook, General Counsel and Company Secretary: – contract commenced 18 January 2016; – gross salary package of $420,000 pa including superannuation; – salary to be reviewed annually; – notice period by either the employee or the Company is 6 months; and – no other termination payment arrangements apply other than the notice periods specified above and unvested LTIP will lapse. (a) Remuneration of Key Management Personnel Table 1: Remuneration for the year ended 30 June 2021 Short-term benefits Post- employment Long term benefits Share based payments Salary & fees1 $ Cash bonus accrued $ Super- annuation/ pension1 $ Employee entitlements1 $ Share performance rights2 $ Termination payments $ Total Remuneration $ Performance related % 2021 Directors Michael Kay Andrew Saker Hugh McLernon Raymond van Hulst Michael Bowen Karen Phin Christine Feldmanis 213,943 1,433,354 1,228,309 761,974 95,130 106,796 115,834 Executives Stuart Mitchell Jeremy Sambrook Total 447,057 415,807 4,818,204 – – – – – – – – – – 20,325 21,694 21,694 33,027 9,037 9,037 – – (14,182) 97,720 17,639 – – – – 1,294,755 1,233,321 106,235 – – – 21,694 21,694 23,569 32,120 262,141 258,019 158,202 156,866 3,154,471 1 Fixed remuneration ( Salary & Fees, Superannuation and employee entitlements) 2 Variable remuneration (share performance entitlements) – – – – – – – – – – 234,268 2,735,621 2,581,044 918,875 104,167 115,833 115,833 754,461 727,640 8,287,743 0% 47% 48% 12% 0% 0% 0% 35% 35% 42 continuedDirectors’ ReportOmni Bridgeway | Annual Report 2021 Remuneration Report (Audited) (continued) Table 2: Remuneration for the year ended 30 June 2020 Short-term benefits Post- employment Long term benefits Share based payments Salary & fees $ Cash bonus accrued1 $ Super- annuation /pension $ Employee entitlements $ Share performance rights $ Termination payments $ Total Remuneration $ Performance related % 2020 Directors Michael Kay 205,488 Andrew Saker 1,228,997 Hugh McLernon 1,178,997 – – – 19,512 21,003 – – 49,740 1,044,170 21,003 112,421 994,545 Raymond van Hulst2 512,313 97,179 25,209 29,340 26,391 Michael Bowen Karen Phin 91,324 91,324 Christine Feldmanis 91,324 – – – 8,676 8,676 8,676 – – – – – – Executives Stuart Mitchell 428,997 180,000 Jeremy Sambrook 398,997 168,000 21,003 21,003 37,592 19,708 168,798 224,490 Total 4,227,761 445,179 154,761 248,801 2,458,394 – – – – – – – 225,000 2,343,910 2,306,966 690,432 100,000 100,000 100,000 836,390 – – 832,198 – 7,534,896 0% 45% 43% 15% 0% 0% 0% 42% 47% 1 2 The 2020 bonus has been accrued and was paid in the 2021 year. Performance rights relating to the FY2020 issue were not granted to Mr van Hulst during the 2020 financial year as they were subject to shareholder approval. Shareholder approval was obtained in the 2021 financial year and Mr van Hulst received 31,946 performance rights (Tranche 1: 15,973 and Tranche 2: 15,973) on the same terms as the FY21 LTIP disclosed in Note 30 of the financial statements. The following table outlines the proportion of maximum STIP earned by KMP in the 2021 financial year. Andrew Saker1 Hugh McLernon1 Raymond van Hulst Stuart Mitchell Jeremy Sambrook Maximum STIP opportunity (% of TFR) Maximum STIP opportunity ($) % of maximum earned % of STIP forfeited 0% 0% 40% 40% 40% – – 185,000 180,000 168,000 0% 0% 0% 0% 0% 0% 0% 100% 100% 100% 1 Elected to receive 100% of variable remuneration as LTIP. In light of the financial performance of the Group, the Remuneration Committee has determined that no STIP is payable for the financial year. 43 HighlightsFinancial Report Shareholder Information OverviewDirectors’ Report Remuneration Report (Audited) (continued) (b) Share performance rights awarded, vested and lapsed during the year Tranche 1 performance rights awarded during the year Number Fair value of Tranche 1 performance rights at grant date1 $ Tranche 2 performance rights awarded during the year Number Fair value of Tranche 2 performance rights at grant date1 $ Total performance rights awarded during the financial year Number Grant date Vesting date Expiry Date Value of performance rights granted during the year $ Total performance rights vested during the year Number Value of performance rights remaining to be expensed to profit & loss $ – – – – – – – – – – – 131,949 2.53 131,949 4.47 263,898 1/07/2020 30/06/2023 1/07/2035 923,115 390,270 1,343,650 124,510 2.53 124,510 4.47 249,020 1/07/2020 30/06/2023 1/07/2035 871,072 367,717 1,279,824 46,326 2.23 46,326 4.11 92,652 27/11/2020 30/06/2023 1/07/2035 293,847 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 165,940 – – – 28,015 2.53 28,015 4.47 56,030 1/07/2020 30/06/2023 1/07/2035 195,993 52,816 287,962 26,147 2.53 26,147 4.47 52,294 1/07/2020 30/06/2023 1/07/2035 182,924 67,148 268,763 2021 Directors Michael Kay Andrew Saker Hugh McLernon Raymond van Hulst Michael Bowen Karen Phin Christine Feldmanis Executives Stuart Mitchell Jeremy Sambrook Total 356,947 356,947 713,894 2,466,951 877,951 3,346,139 Tranche 1 performance rights awarded during the year Number Fair value of Tranche 1 performance rights at grant date1 $ Tranche 2 performance rights awarded during the year Number Fair value of Tranche 2 performance rights at grant date1 $ Total performance rights awarded during the financial year Number Grant date Vesting date Expiry Date Value of performance rights granted during the year $ Total performance rights vested during the year Number Value of performance rights remaining to be expensed to profit & loss $ – – – – – – – – – – – 217,366 3.93 217,366 4.33 434,732 14/02/2020 30/06/2022 1/07/2034 1,795,661 420,104 1,455,917 208,671 3.93 208,671 4.33 417,342 14/02/2020 30/06/2022 1/07/2034 1,723,831 395,984 1,393,075 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 46,951 3.93 46,951 4.33 93,902 14/02/2020 30/06/2022 1/07/2034 387,862 – 298,085 43,821 3.93 43,821 4.33 87,642 14/02/2020 30/06/2022 1/07/2034 362,005 120,518 291,568 516,809 516,809 1,033,618 4,269,359 936,606 3,438,645 2020 Directors Michael Kay Andrew Saker Hugh McLernon Raymond van Hulst2 Michael Bowen Wendy McCarthy Karen Phin Christine Feldmanis Executives Stuart Mitchell Jeremy Sambrook Total 1 2 The fair value of performance rights is determined at the time of grant as prescribed in AASB 2. For details on the valuation of performance rights, including models and assumptions used, refer to Note 30. Performance rights relating to the FY20 issue have not been granted to Mr van Hulst during the 2020 financial year as they were subject to shareholder approval. 44 continuedDirectors’ ReportOmni Bridgeway | Annual Report 2021 Remuneration Report (Audited) (continued) Share performance rights holdings of Key Management Personnel 2021 Directors Michael Kay Andrew Saker Hugh McLernon Raymond van Hulst Michael Bowen Karen Phin Christine Feldmanis Executives Stuart Mitchell Jeremy Sambrook Total 2020 Directors Michael Kay Andrew Saker Hugh McLernon Raymond van Hulst1 Michael Bowen Wendy McCarthy Karen Phin Christine Feldmanis Executives Stuart Mitchell Jeremy Sambrook Total Balance 1 July 2020 Number Granted as remuneration Number Performance rights exercised Number Performance rights lapsed Number Balance 30 June 2021 Number Vested Number Un-vested Number – 2,283,813 2,160,688 – – – – – 263,898 249,020 92,652 – – – 149,498 423,732 56,030 52,294 – – – – – – – - (265,408) – – – (20,540) 2,527,171 1,828,542 (19,353) 2,390,355 1,723,993 – – – – 92,652 – – – – – – – – 698,629 666,362 92,652 – – – (2,780) (3,534) 202,748 207,084 52,816 67,148 149,932 139,936 5,017,731 713,894 (265,408) (46,207) 5,420,010 3,672,499 1,747,511 Balance 1 July 2019 Number Granted as remuneration Number Performance rights exercised Number Performance rights lapsed Number Balance 30 June 2020 Number Vested Number Un-vested Number – 1,849,081 1,743,346 – 434,732 417,342 – – – – – – – – – – 55,596 336,090 93,902 87,642 3,984,113 1,033,618 – – – – – – – – – – – – – – – – – – – – – – – – 2,283,813 1,438,272 2,160,688 1,356,276 – 845,541 804,412 – – – – – 149,498 423,732 – – – – – – 265,408 – – – – – 149,498 158,324 5,017,731 3,059,956 1,957,775 1 Performance rights relating to the FY20 issue have not been granted to Mr van Hulst during the 2020 financial year as they were subject to shareholder approval. 45 HighlightsFinancial Report Shareholder Information OverviewDirectors’ Report Remuneration Report (Audited) (continued) (c) Shareholdings of Key Management Personnel 2021 Directors Michael Kay Andrew Saker Hugh McLernon Raymond van Hulst Michael Bowen Karen Phin Christine Feldmanis Executives Stuart Mitchell Jeremy Sambrook Total Balance 1 July 2020 Received as remuneration Share performance rights exercised Net change other1 Balance 30 June 2021 417,023 180,190 5,394,990 50,000 1,103,124 27,266 45,185 3,941 8,359 7,230,078 – – – – – – – – – – – – – – – – – – 265,408 265,408 52,977 1,878 (1,209,008) 2,103,551 11,496 – 471 470,000 182,068 4,185,982 2,153,551 1,114,620 27,266 45,656 131,000 (265,321) 827,044 134,941 8,446 8,322,530 1 Net change other relates to shares obtained or sold on market. Shares above are held nominally by the Directors or the other key management personnel. (d) Loans to Key Management Personnel There have been no loans provided to KMP in 2021 (2020: nil). (e) Transactions with Key Management Personnel During the year, the Group obtained legal advice from the following legal firms associated with Michael Bowen (i) DLA Piper - $708,710 (2020: $2,035,577) and (ii) Thomson Geer - $151,604 (2020: nil). Mr Bowen was an associate of DLA Piper for less than half of FY21. The legal advice was obtained at arm’s length. The Group engages a number of different law firms for its external legal advice and neither the relationship with Thomson Geer or DLA Piper is exclusive. Michael Bowen does not participate in any board decisions to appoint external counsel when Thomson Geer or DLA Piper is being considered for engagement. During the previous year, the Group obtained services from FIIG Securities, for which Christine Feldmanis is a mutual Director. This resulted in transaction costs totalling $1,776,243. The services were provided at arm’s length. Refer to Note 35 for details. – End of Remuneration Report – 46 continuedDirectors’ ReportOmni Bridgeway | Annual Report 2021 Directors’ Meetings The number of meetings of directors held during the period under review, and the number of meetings attended by each director, were as follows: Board Meetings Project Sub- Committee Meetings Audit and Risk Committee Remuneration Committee Nomination Committee Corporate Governance Committee 10 10 10 10 10 10 10 10 3 3 21 – – 1 2 2 5 5 51 11 – 5 5 5 4 4 41 – – 4 4 4 1 1 1 – – 1 1 1 2 2 11 – – 2 2 2 Total number of meetings held: Meetings Attended: M Kay A Saker H McLernon R van Hulst M Bowen K Phin C Feldmanis 1 Attended by invitation. Committee membership As at the date of this report, the Company had an Audit and Risk Committee, a Remuneration Committee, a Nomination Committee and a Corporate Governance Committee. Directors acting on committees of the board during the year were as follows: Audit and Risk Committee Remuneration Committee Nomination Committee Corporate Governance Committee C Feldmanis (Chair) M Bowen (Chair) M Kay K Phin M Bowen M Kay K Phin C Feldmanis M Kay (Chair) C Feldmanis M Bowen K Phin A Saker K Phin (Chair) M Kay M Bowen C Feldmanis 47 HighlightsFinancial Report Shareholder Information OverviewDirectors’ Report Rounding The amounts contained in the financial report have been rounded to the nearest $1,000 (where rounding is applicable) where noted ($000) under the option available to the Company under ASIC Corporations Instrument 2016/191. The Company is an entity to which this legislative instrument applies. Auditor’s Independence Declaration BDO, the Company’s auditors, have provided a written independence declaration to the directors in relation to its audit of the Financial Report for the year ended 30 June 2021. This Independence Declaration which forms part of this report, can be found at page 49. Non-audit services The directors are satisfied that the provision of non-audit services by BDO to the Group is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The nature and scope of each type of non-audit service provided means that auditor independence was not compromised. BDO received or are due the following amounts for the provision of non-audit services: 1. Tax compliance services and other non-audit services: $621,000. For further detail regarding auditors’ remuneration, refer to Note 36. Corporate Governance The Company has an extensive Corporate Governance Manual which enables the Company to interact with its clients and the public in a consistent and transparent manner. For further information on corporate governance policies and procedures adopted by the Company please refer to our website https://omnibridgeway.com/investors/corporate-governance. Signed in accordance with a resolution of the directors. Michael Kay Chairman Sydney 19 August 2021 Andrew Saker Managing Director 48 continuedDirectors’ ReportOmni Bridgeway | Annual Report 2021 Auditor’s Independence Declaration Tel: +61 8 6382 4600 Fax: +61 8 6382 4601 www.bdo.com.au 38 Station Street Subiaco, WA 6008 PO Box 700 West Perth WA 6872 Australia DECLARATION OF INDEPENDENCE BY GLYN O'BRIEN TO THE DIRECTORS OF OMNI BRIDGEWAY LIMITED As lead auditor of Omni Bridgeway Limited for the year ended 30 June 2021, 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 Omni Bridgeway Limited and the entities it controlled during the period. Glyn O'Brien Director BDO Audit (WA) Pty Ltd Perth, WA 19 August 2021 BDO Audit (WA) Pty Ltd ABN 79 112 284 787 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 (WA) 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. 49 HighlightsFinancial Report Shareholder Information OverviewDirectors’ Report Consolidated Statement of Comprehensive Income for the year ended 30 June 2021 Continuing Operations Revenue from contracts with customers Interest revenue Net gain on derecognition of intangible assets Net gain on disposal of financial assets Other income Total income Finance costs Amortisation of claims portfolio Depreciation expense Employee benefits expense Corporate and office expense Other expenses Impairment expense Share of loss in associates and joint ventures (Loss)/profit before tax and fair value adjustments Profit / (loss) on fair value adjustment of financial liabilities (Loss)/profit before tax Income tax (benefit)/expense (Loss)/profit for the year Attributable to: Equity holders of the parent Non-controlling interests Other comprehensive income Items that may be subsequently reclassified to profit and loss: Movement in foreign currency translation reserve Items that will not be subsequently reclassified to profit and loss: Movement in foreign currency translation reserve attributed to non-controlling interests Other comprehensive loss net of tax Total comprehensive (loss)/profit for the year Attributable to: Equity holders of the parent Non-controlling interests Consolidated Note 2021 $’000 2020 $’000 2 3 4 12 5 6(a) 6(b) 6(c) 6(d) 6(e) 6(f) 6(g) 27 7 8 33 6,084 9,854 23,128 3,579 160,112 110,627 1,282 524 177,856 1,472 1,559 3,119 57,458 17,245 24,361 120,734 664 (48,756) 16,290 (32,466) (14,035) (18,431) 3,848 20,419 161,601 1,336 14,520 2,912 50,336 20,043 7,981 17,229 158 47,086 (13,597) 33,489 15,890 17,599 (25,451) 7,020 (11,542) 29,141 (16,997) (10,981) (20,617) (37,614) (56,045) 4,091 (6,890) 10,709 (42,448) (13,597) (22,523) 33,232 Loss per share attributable to the equity holders of the Company (cents per share) Basic loss per share (cents per share) Diluted loss per share (cents per share) 8 8 (9.86) (9.86) (4.90) (4.90) The above Consolidated Statement of Comprehensive Income should be read in conjunction with the accompanying notes. 50 Omni Bridgeway | Annual Report 2021 Consolidated Statement of Financial Position as at 30 June 2021 ASSETS Current Assets Cash and cash equivalents Receivables from litigation contracts and other Contract costs Other assets Total Current Assets Non–Current Assets Receivables from litigation contracts and other Plant and equipment Claims portfolio Purchased claims Intangible assets - litigation contracts in progress Goodwill Investment in associates and Joint Ventures Contract costs Other assets Deferred tax assets Total Non-Current Assets TOTAL ASSETS LIABILITIES Current Liabilities Trade and other payables Income tax payable Provisions Lease liabilities Other financial liabilities Total Current Liabilities Non–Current Liabilities Provisions Lease liabilities Debt securities Deferred income tax liabilities Other financial liabilities Other liabilities Total Non-Current Liabilities TOTAL LIABILITIES NET ASSETS EQUITY Contributed equity Reserves Retained earnings / (accumulated losses) Equity attributable to equity holders of the parent Non-controlling interests TOTAL EQUITY Consolidated Note 2021 $’000 2020 $’000 16 20 21 22 20 23 11 12 13 14 34 21 22 7 24 25 26 27 25 26 17 7 27 142,648 209,389 939 5,009 357,985 21,916 5,905 95,059 38,754 391,034 99,645 4,453 3,522 17,769 30,490 708,547 194,384 128,987 939 5,024 329,334 5,743 6,922 93,680 17,019 517,230 103,072 4,596 4,461 12,409 26,004 791,136 1,066,532 1,120,470 21,009 6,083 24,414 2,449 19,717 73,672 855 3,394 145,522 19,620 60,975 147 230,513 304,185 24,044 9,557 14,923 2,870 38,336 89,730 677 2,814 143,784 30,747 85,364 153 263,539 353,269 762,347 767,201 389,501 (15,441) (42,187) 331,873 430,474 762,347 347,630 (5,032) (6,597) 336,001 431,200 767,201 18 19(b) 19(a) 33 The above Consolidated Statement of Financial Position should be read in conjunction with the accompanying notes. 51 HighlightsFinancial Report Shareholder Information OverviewDirectors’ Report Consolidated Statement of Cash Flows for the year ended 30 June 2021 Cash flows from operating activities Proceeds from claims portfolio investments Payments for claims portfolio investments - external costs1 Proceeds from deferred recognition of performance fee Payments to suppliers and employees Payments for transaction costs of acquiring a business Interest income Interest paid Income tax paid Net cash flows used in operating activities 10 Cash flows from investing activities Proceeds from litigation funding Payments for litigation funding - external costs Payments for litigation funding - capitalised overhead and employee costs Proceeds from disposal of financial asset Payments for plant and equipment Loans to related parties Loans to third parties Payments for investment in an associate Payments for acquisition of business Net cash acquired in a business combination Net cash flows used in / (from) investing activities Cash flows from financing activities Dividends paid Proceeds from raising capital Payments for costs of raising capital Proceeds from issue of debt Repayment of debt Payments for costs of issuing debt Payments of lease liabilities Contributions from non-controlling interests Distributions to non-controlling interests Payments for fund establishment costs Receipts for reimbursement of fund establishment costs Net cash flows from financing activities Net decrease in cash and cash equivalents held Net foreign exchange difference Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year Consolidated Note 2021 $’000 2020 $’000 11,008 (13,933) 383 15,004 (23,210) 817 (80,765) (53,374) – 592 (7,367) (7,843) (97,925) 183,510 (126,775) (6,868) – (220) (2,848) – – – – 46,799 (7,872) – – – – – (3,508) 80,540 (65,499) – – (4,838) 2,811 (7,460) (3,904) (74,154) 170,978 (183,611) (7,341) 9,675 (416) (938) (933) (1,743) (50,212) 10,345 (54,196) (41,051) 138,471 (6,276) 34,284 (34,284) (2,183) (1,515) 69,092 (62,254) (652) 736 3,661 94,368 (47,465) (33,982) (4,271) 1,906 194,384 226,460 16 142,648 194,384 1 In the Consolidated Statement of Cash Flows, the Payments for claims portfolio investments - external costs have been reclassified to better reflect the nature of the expenditure. The above Consolidated Statement of Cash Flows should be read in conjunction with the accompanying notes. 52 Omni Bridgeway | Annual Report 2021 Consolidated Statement of Changes in Equity for the year ended 30 June 2021 Consolidated Share based payments reserve $’000 Foreign currency translation reserve $’000 Issued capital $’000 Option premium reserve $’000 Convertible note reserve $’000 Fund equity reserve $’000 Retained earnings/ Accumulated losses $’000 Non- controlling interests $’000 Total $’000 Total equity $’000 At 1 July 2020 347,630 23,918 (11,408) 3,404 3,832 (24,778) (6,597) 336,001 431,200 767,201 Profit/(loss) for the year Other comprehensive income/(loss) Total comprehensive income/(loss) for the year Equity Transactions: Dividend paid / declared Shares issued Share based payments, net of tax Shares issued to settle deferred and variable deferred consideration Shares issued under dividend reinvestment plan Contributions from non-controlling interests Distributions to non- controlling interests Changes in the proportion of equity held by non- controlling interests – – – – – – – – 6,064 (6,064) – 10,473 33,537 2,270 – – – – – – – – – (16,997) (16,997) – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 2,179 (25,451) (25,451) 7,020 (18,431) – (16,997) (20,617) (37,614) (25,451) (42,448) (13,597) (56,045) (10,139) (10,139) – 10,473 33,537 2,270 – – – – – (10,139) – 10,473 33,537 2,270 – – 80,540 80,540 (65,499) (65,499) 2,179 (2,170) 9 – – – – – – – At 30 June 2021 389,501 28,327 (28,405) 3,404 3,832 (22,599) (42,187) 331,873 430,474 762,347 53 HighlightsFinancial Report Shareholder Information OverviewDirectors’ Report Consolidated Statement of Changes in Equity continued Share based payments reserve $’000 Foreign currency translation reserve $’000 Issued capital $’000 Option premium reserve $’000 Convertible note reserve $’000 Fund equity reserve $’000 Retained earnings/ Accumulated losses $’000 Non- controlling interests $’000 Total $’000 Total equity $’000 At 1 July 2019 205,558 17,749 (427) 3,404 3,832 (23,665) 12,427 218,878 296,552 515,430 Profit/(loss) for the year Other comprehensive income/(loss) Total comprehensive income/(loss) for the year Equity Transactions: Dividend paid / declared Proceeds from shares issued Transaction costs associated with share issue, net of tax – – – – 138,471 (4,259) – – – – – – Shares issued 6,021 (6,021) Share based payments, net of tax Shares issued under Dividend Reinvestment Plan Contributions from non-controlling interests Distributions to non- controlling interests Changes in the proportion of equity held by non-controlling interests Non-controlling interests arising on a business combination - 12,190 1,839 – – – – – – – – – – (10,981) (10,981) – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – (1,113) – (11,542) (11,542) 29,141 17,599 – (10,981) 4,091 (6,890) (11,542) (22,523) 33,232 10,709 (7,482) (7,482) – 138,471 (4,259) – 12,190 1,839 – – – – – (7,482) 138,471 (4,259) – 12,190 1,839 – – 69,092 69,092 (71,778) (71,778) (1,113) 1,993 880 – 102,109 102,109 – – – – – – – – At 30 June 2020 347,630 23,918 (11,408) 3,404 3,832 (24,778) (6,597) 336,001 431,200 767,201 The above Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying notes. 54 Omni Bridgeway | Annual Report 2021 Notes to the Financial Statements for the year ended 30 June 2021 About this Report The financial report of Omni Bridgeway Limited (“OBL”, “the Company” or “the Parent”) and its subsidiaries (“the Group” or “consolidated entity”) for the year ended 30 June 2021 was authorised for issue in accordance with a resolution of the directors on 19 August 2021. The principal activities of the entities within the consolidated group are: c. Basis of consolidation The consolidated financial statements comprise the financial statements of Omni Bridgeway Limited and its subsidiaries as at 30 June 2021. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. i. the investment into and management of Funds (or Fund-like structures) that are focused on investing into litigation and dispute resolution matters globally; and ii. the continued holding of direct investments into similar litigation and dispute resolution matters. The Group includes Fund collective investment vehicles over which Omni Bridgeway Limited has the right to direct the relevant activities of the Fund under contractual arrangements and has exposure to variable returns from the Fund collective investment vehicles. See Note 33. Omni Bridgeway Limited (ABN 45 067 298 088) is a for profit company incorporated and domiciled in Australia and limited by shares that are publicly traded on the Australian Securities Exchange (ASX code: OBL). This section sets out the basis upon which the Group’s Financial Statements are prepared. Specific accounting policies are described in the respective notes to the Financial Statements. This section also shows information on new or amended accounting standards and interpretations and their impact on the financial position and performance of the Group. a. Basis of preparation The financial report is a general purpose financial report, which has been prepared in accordance with the requirements of the Corporations Act 2001, Australian Accounting Standards and other authoritative pronouncements of the Australian Accounting Standards Board. The financial report has been prepared on a historical cost basis, except for deferred and variable deferred consideration that have been measured at fair value. The financial report is presented in Australian dollars, being the functional currency of the Parent. The amounts contained within this report have been rounded to the nearest $1,000 (where rounding is applicable) under the option available to the Company under ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191. b. Compliance with IFRS The financial report also complies with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board. The financial results of the subsidiaries are prepared for the same reporting period as the Company, using consistent accounting policies. A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. In preparing the consolidated financial statements, all intercompany balances and transactions, income and expenses and profits and losses resulting from intra-group transactions have been eliminated in full. Foreign currency The Group’s consolidated financial statements are presented in Australian dollars, which is also the Parent’s functional currency. The Group determines the functional currency of each entity in the Group. The Group uses the direct method of consolidation and on disposal of a foreign operation, the gain or loss that is reclassified to profit or loss reflects the amount that arises from using this method. Transactions and balances Transactions in foreign currencies are initially recorded by each entity in the Group at their respective functional currency spot rates at the date the transaction first qualifies for recognition. Monetary assets and liabilities denominated in foreign currencies are converted at the functional currency spot rates of exchange at the reporting date. Exchange differences arising on settlement or conversion of monetary items are recognised in profit or loss. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined. The gain or loss arising on translation of non-monetary items measured at fair value is treated in line with the recognition of gain or loss on change in fair value of the item (i.e. translation differences on items whose fair value gain or loss is recognised in other comprehensive income or profit or loss are also recognised in other comprehensive income or profit or loss, respectively). 55 HighlightsFinancial Report Shareholder Information OverviewDirectors’ Report About this Report (continued) Group companies On consolidation, the assets and liabilities of foreign operations are translated into Australian dollars at the rate of exchange prevailing at the reporting date and their statements of profit or loss are translated at exchange rates prevailing at the dates of the transactions. The exchange differences arising on translation for consolidation purposes are recognised in other comprehensive income. On disposal of a foreign operation, the component of other comprehensive income relating to that particular foreign operation is recognised in profit or loss. d. 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 2020. All new and amended accounting standards and interpretations effective from 1 July 2020 were adopted by the Group with no material impact. e. 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. The Group intends to adopt these new and amended standards and interpretations, if applicable, when they become effective. Of the other standards and interpretations that are issued, but not yet effective, as these are not expected to impact the Group, they have not been listed. Amendments to IAS 1: Classification of Liabilities as Current or Non-current In January 2020, the IASB issued amendments to paragraphs 69 to 76 of IAS 1 to specify the requirements for classifying liabilities as current or non-current. The amendments clarify: – What is meant by a right to defer settlement – That a right to defer must exist at the end of the reporting period – That classification is unaffected by the likelihood that an entity will exercise its deferral right. That only if an embedded derivative in a convertible liability is itself an equity instrument would the terms of a liability not impact its classification. The amendments are effective for annual reporting periods beginning on or after 1 January 2023 and must be applied retrospectively. The Group is currently assessing the impact the amendments will have on current practice and whether existing loan agreements may require renegotiation. Reference to the Conceptual Framework – Amendments to IFRS 3 In May 2020, the IASB issued Amendments to IFRS 3 Business Combinations - Reference to the Conceptual Framework. The amendments are intended to replace a reference to the Framework for the Preparation and Presentation of Financial Statements, issued in 1989, with a reference to the Conceptual Framework for Financial Reporting issued in March 2018 without significantly changing its requirements. The Board also added an exception to the recognition principle of IFRS 3 to avoid the issue of potential ‘day 2’ gains or losses arising for liabilities and contingent liabilities that would be within the scope of IAS 37 or IFRIC 21 Levies, if incurred separately. At the same time, the Board decided to clarify existing guidance in IFRS 3 for contingent assets that would not be affected by replacing the reference to the Framework for the Preparation and Presentation of Financial Statements. The amendments are effective for annual reporting periods beginning on or after 1 January 2022 and apply prospectively. Property, Plant and Equipment: Proceeds before Intended Use – Amendments to IAS 16 In May 2020, the IASB issued Property, Plant and Equipment — Proceeds before Intended Use, which prohibits entities deducting from the cost of an item of property, plant and equipment, any proceeds from selling items produced while bringing that asset to the location and condition necessary for it to be capable of operating in the manner intended by management. Instead, an entity recognises the proceeds from selling such items, and the costs of producing those items, in profit or loss. The amendment is effective for annual reporting periods beginning on or after 1 January 2022 and must be applied retrospectively to items of property, plant and equipment made available for use on or after the beginning of the earliest period presented when the entity first applies the amendment. The amendments are not expected to have a material impact on the Group. Onerous Contracts – Costs of Fulfilling a Contract – Amendments to IAS 37 In May 2020, the IASB issued amendments to IAS 37 to specify which costs an entity needs to include when assessing whether a contract is onerous or loss-making. The amendments apply a “directly related cost approach”. The costs that relate directly to a contract to provide goods or services include both incremental costs and an allocation of costs directly related to contract activities. General and administrative costs do not relate directly to a contract and are excluded unless they are explicitly chargeable to the counterparty under the contract. The amendments are effective for annual reporting periods beginning on or after 1 January 2022. The Group will apply these amendments to contracts for which it has not yet fulfilled all its obligations at the beginning of the annual reporting period in which it first applies the amendments. 56 Notes to the Financial StatementscontinuedOmni Bridgeway | Annual Report 2021 About this Report (continued) Interest Rate Benchmark Reform – Phase 2 – Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 On 27 August 2020, the IASB published Interest Rate Benchmark Reform – Phase 2, Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16. The amendments provide temporary reliefs which address the financial reporting effects when an interbank offered rate (IBOR) is replaced with an alternative nearly risk-free interest rate (RFR). The amendments include a practical expedient to require contractual changes, or changes to cash flows that are directly required by the reform, to be treated as changes to a floating interest rate, equivalent to a movement in a market rate of interest. Inherent in allowing the use of this practical expedient is the requirement that the transition from an IBOR benchmark rate to an RFR takes place on an economically equivalent basis with no value transfer having occurred. Any other changes made at the same time, such as a change in the credit spread or maturity date, are assessed. If they are substantial, the instrument is derecognised. If they are not substantial, the updated effective interest rate (EIR) is used to recalculate the carrying amount of the financial instrument, with any modification gain or loss recognised in profit or loss. The Group has limited exposure to benchmark interest rates and is finalising its assessment of the impact of these amendments. f. Significant accounting judgments, estimates and assumptions The preparation of the Group’s consolidated financial statements requires management to make judgments, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the accompanying disclosures, and the disclosure of contingent liabilities at the date of the consolidated financial statements. Key judgments In the process of applying the Group’s accounting policies, management has made the following judgments, which have the most significant effect on the amounts recognised in the consolidated financial statements: Consolidation of entities in which the Group holds less than a majority voting right (de facto control) 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. These entities are listed in Note 33. For those entities consolidated with an interest less than 51%, the Group uses judgment to determine that it has power to direct the relevant activities of the investee under contractual arrangements and sufficient exposure to variable returns. In reviewing whether the Group has power and sufficient exposure to variable returns the Group considers whether it is acting as a principal or as an agent of the entity. Taxation The Group’s accounting policy for taxation requires management’s judgment in assessing whether deferred tax assets and certain deferred tax liabilities are recognised on the Statement of Financial Position. Deferred tax assets, including those arising from tax losses, capital losses and temporary differences, are recognised only where it is considered more likely than not that they will be recovered, which is dependent on the generation of sufficient future taxable profits. Assumptions about the generation of future taxable profits depend on management’s estimates of future cash flows as contained in the Group’s yearly budget. These depend on estimates of future income, operating costs, capital expenditure, dividends and other capital management transactions. Judgments and assumptions are also required about the application of income tax legislation. These judgments and assumptions are subject to risk and uncertainty, hence there is a possibility that changes in circumstances will alter expectations, which may impact the amount of deferred tax assets and deferred tax liabilities recognised in the Statement of Financial Position and the amount of other tax losses and temporary differences not yet recognised. In such circumstances, some or all of the carrying amounts of recognised deferred tax assets and liabilities may require adjustment, resulting in a corresponding credit or charge to the Statement of Comprehensive Income. Intangible Assets - Litigation Contracts in Progress Classification of litigation investments as Intangible Assets The classification of Litigation Contracts in Progress requires judgment on the circumstances and contracts attached to the investment. Refer to Note 13 on the accounting policy on and significant judgments for Intangible Assets - Litigation Contracts in Progress. Significant estimates and assumptions The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below. The Group based its assumptions and estimates on parameters available when the consolidated financial statements were prepared. Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstances arising that are beyond the control of the Group. Such changes are reflected in the assumptions when they occur. 57 HighlightsFinancial Report Shareholder Information OverviewDirectors’ Report About this Report (continued) COVID-19 pandemic The COVID-19 pandemic has interrupted dispute resolution systems to different degrees in jurisdictions where the Group has investments. Whilst this has led to some delays in completions, or the expected completion date, this has not led to significant impairments. In assessing the carrying value and associated impairment of investments, the most up to date estimates of success and timing have been used. This has not led to significant impairments. Additionally, the Group has specifically considered the impact of COVID-19 in assessing the values of its other assets (including goodwill, receivables/loans, other financial assets and deferred tax assets) and liabilities. No significant adjustments have been required. 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 Impairment of financial and non-financial assets The Group assesses impairment of all required financial and non-financial assets at each reporting date by evaluating conditions specific to the Group and to the particular asset that may lead to impairment. Impairment exists when the carrying value of an asset or cash generating unit exceeds its recoverable amount, which is the higher of its fair value less costs of disposal and its value in use. The group primarily relies on value in use calculations based on Discounted Cash Flow (DCF) models. The cash flows are derived from either the Group’s budget or from estimates made by investment managers. The recoverable amount is sensitive to the discount rate used for the DCF model as well as the expected future cash-inflows and the growth rate used for extrapolation purposes. These estimates are most relevant to goodwill and other intangibles recognised by the Group. Refer to individual notes for further information around impairment of financial and non-financial assets. Fair value measurement of financial assets and net assets acquired in a business combination The Group measures net assets of an acquired Group in a business combination at fair value at acquisition date. Fair value is 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, regardless of whether that price is directly observable or estimated using another valuation technique. The principal or the most advantageous market must be accessible by the Group. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest. A fair value measurement of a non-financial asset takes into account a market participant’s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use. Fair value measurement of financial liabilities through profit and loss Deferred and variable deferred consideration, resulting from business combinations, is valued at fair value at the acquisition date as part of the business combination. When the deferred and variable deferred consideration meets the definition of a financial liability at fair value through profit and loss, it is subsequently remeasured to fair value at each reporting date. The determination of the fair value is based on option pricing methodology. The key inputs are detailed in the Notes 15, 27 and 31. Provision for adverse costs The Group raises a provision for adverse costs when the underlying litigation, arbitration, enforcement or recovery which was funded is lost and the jurisdiction requires adverse costs to be paid to the counter party. When an investment is lost and an appeal is lodged, the Group still raises a provision. The provision raised is the Group’s best estimate of the amount of adverse costs it will have to remit. Typically, this estimate is between 40% to 80% of the amount spent by the plaintiff, on the basis that there is only one defendant per case. Refer to Notes 25 and 28 for further details on adverse costs. Measurement of non-controlling interests (“NCI”) Profits and losses are attributed to non-controlling interests in line with the allocation of profit distributions under the terms of the respective agreements with non-controlling investors. Therefore, at the end of each reporting period, the non- controlling interests represents the non-controlling shareholders’ share of net assets, as would be distributed under the relevant shareholders or investors agreements at the balance date. 58 Notes to the Financial StatementscontinuedOmni Bridgeway | Annual Report 2021 About this Report (continued) Revenue recognition – estimating variable consideration on management and performance fees The Group estimates variable considerations to be included in the transaction price for management and performance fees charged. Management fees are based on the level of external investors net deployed capital per quarter and any uncertainty is resolved at the end of the same quarter. Therefore, management fee revenues are recognised quarterly in arrears, corresponding with the delivery of performance obligations. The calculation of performance fees is subject to some uncertainties. Accordingly, performance fee revenue is not recognised until it is highly probable that a significant reversal in the amount of cumulative revenue recognised will not occur. Net gain/loss on derecognition of intangible assets The Group recognises income on successful completion of litigation contracts. The income is recognised in accordance with the Litigation Funding Agreement (LFA) terms. In some instances, the income calculation requires certain estimates and assumptions to be made. Refer to Note 13 for further information. Expected credit losses of receivables The Group uses Investment Managers’ best estimate to calculate ECLs for receivables. The provision is based on assessment customer segments that have similar loss patterns. Refer to Note 20 for further information. A. RESULTS FOR THE YEAR Note 1: Segment information The Group only operates in one industry, being funding and provision of services in relation to dispute resolution. For management purposes, the Group is organised into operating segments comprising the OBL Group’s corporate operations and the Group’s fund structures. The OBL Group’s wholly owned subsidiaries own historical litigation in progress investments and provide investment management advisory and administration services to the Group’s fund structures in the following locations: – Australia – United States – Canada – Asia – EMEA – The Group’s Fund structures include: – Fund 1 – This comprises Omni Bridgeway (Fund 1) LLC, Security Finance (Fund 1) LLC and HC 1 LLC. The Fund invests in litigation investments in the United States. Fund 1 is consolidated into the Group. – Funds 2 & 3 – This comprises Omni Bridgeway (Fund 2) Pty Ltd, Omni Bridgeway (Fund 3) Pty Ltd, IMF Bentham ROW SPV 1 Limited and IMF Bentham ROW SPV 2 Limited. These entities jointly invest in litigation investments outside the United States. Funds 2&3 are consolidated into the Group. – Fund 4 – This Fund invests in litigation investments in the United States. It consists of a series of parallel investing entities comprising Omni Bridgeway (Fund 4) Invt 1 LP; Omni Bridgeway (Fund 4) Invt 2 LP; Omni Bridgeway (Fund 4) Invt 3 LP; Omni Bridgeway (Fund 4) Invt 4 LP; Omni Bridgeway (Fund 4) Invt 5 LP; Omni Bridgeway (Fund 4) Invt 6 LP; Omni Bridgeway (Fund 4) Invt 7 LP; Omni Bridgeway (Fund 4) Invt 8 LP; Omni Bridgeway (Fund 4) Invt 9 LP; Security Finance (Fund 4) LLC; JPV 1 LP and Bentham HPCR LP. Fund 4 entities except for Bentham HPCR LP are consolidated into the Group. – Fund 5 – Consists of a collective investment group comprising Omni Bridgeway (Fund 5) LP, Omni Bridgeway (Fund 5) Cayman Invt. Limited, Omni Bridgeway (Fund 5) Australian Invt Pty Ltd, Omni Bridgeway (Fund 5) Canada Investments Ltd, 2238319 Alberta Ltd as well as parallel joint investor, Omni Bridgeway (Fund 5) GPA Pty Ltd. This Fund invests in litigation investments outside the United States. Only the parallel joint investor is consolidated within the Group. The segment note includes the parallel joint investor as well as Omni Bridgeway (Cayman) Limited which is the investment advisor to Fund 5. – Fund 6 – This is an EMEA focused investment structure that was acquired in a business combination on 8 November 2019 and includes the entity responsible for providing the management of Fund 7. Fund 7 itself is not consolidated into Fund 6. It was established to invest in litigation, arbitration and enforcement proceedings, and for the work-out and monetisation of claims. Revenue is derived from enforcement and recovery services and other income is derived from litigation contracts in progress investments and purchased claims. OBL retains control and ownership of Fund 6 via its equity interests. Legal ownership of the investments are spread across the entire OBE Group. Fund 6 is consolidated into the Group. For Fund 1 and Funds 2 & 3, the non-controlling interest is comprised of an equity interests which carry an entitlement to receive a capped priority return on drawn capital and a further preferred return on committed but undrawn capital. OBL retains control and ownership of the Funds via its equity interests. Upon satisfaction of the non-controlling interests’ priority returns, OBL is entitled to a manager return. After satisfaction of the priority return and the manager returns, the residual net cash flows are to be distributed (i) for Fund 1: 85% to OBL and 15% to the non-controlling interests: (ii) for Funds 2 & 3, 80% to OBL and 20% to non-controlling interests. The Funds have an infinite life and all distributions are discretionary. For Fund 4 the non-controlling interest is comprised of an equity interest which, together with OBL’s interest, carries an entitlement to receive return of capital plus a hurdle return on invested capital; and a pro-rata share of any residual after OBL’s periodic management fee and transactional based performance fee. OBL retains control and ownership of the Funds via its equity interest. The Fund has an infinite life and all distributions are discretionary. 59 HighlightsFinancial Report Shareholder Information OverviewDirectors’ Report Note 1: Segment information (continued) For Fund 5, there is no non-controlling interest as only OBL’s 100% owned investment vehicle is consolidated. OBL is entitled to periodic management fees and transactional based performance fees. For Fund 6, the non-controlling interest is comprised of an equity interest which, together with OBL’s interest, carries a case by case entitlement to receive return of capital plus a return on invested capital after OBL’s transactional based performance fee. OBL retains control and ownership of the Funds via its equity interest. The Fund has an infinite life and all distributions are discretionary during the investment period. Intersegment revenue comprises interest revenue on intercompany loans and management fees. Intercompany interest revenue is recognised in accordance with AASB 9 using the effective interest rate method. The intercompany management fee revenue earned during the year was derived from management and advisory agreements between the group entities. The consideration received is determined by reference to costs plus a percentage mark-up. The revenue is recognised over the period in which costs are incurred as it is deemed that the Group transfers control of the management services over this period and, therefore, satisfies its performance obligations and recognises revenue over time. Adjustments and eliminations relate to certain finance and overheads costs that are not allocated to individual segments as the underlying expenses are incurred within wholly owned operations. These costs are capitalised into litigation funding contracts on consolidation of the Group. The associated tax effect accounting for these items are also managed on a Group basis and not allocated to the individual segments. Inter-segment revenues and expenses are eliminated on consolidation and reflected in the “adjustments and eliminations” column. Adjustments made in the balance sheet include adjustments to non-current assets to eliminate intercompany loans and investments in subsidiaries on consolidation. Segment result for the year ended 30 June 2021 Interest revenue on cash and deposits Interest revenue on receivables from litigation contracts Interest revenue on purchased claims Inter-segment Revenue from contracts with customers Segment revenue Group (excl Funds) Funds Consolidation Corporate $’000 1 $’000 2&3 $’000 4 $’000 5 $’000 6 $’000 Adjustments and eliminations $’000 Consolidated $’000 483 29 – 17,470 2,355 20,337 50 – – – – 8 130 – 9 1,574 (118) – – – – – – – – – 1,017 6,682 – (10) – – (17,470) 541 1,175 8,138 – 567 3,162 – 6,084 50 1,712 (109) 567 10,861 (17,480) 15,938 Net gain/(loss) on derecognition of intangible assets 104,649 45,093 1,397 220 663 14,143 (6,053) 160,112 Net gain on disposal of financial assets Other income Total Income Impairment expenses Amortisation of claims portfolio Other expenses – 165 – – – – – – 1,215 – 67 359 – – 1,282 524 125,151 45,143 3,109 111 2,445 25,430 (23,533) 177,856 57,830 (2,502) 3,218 56,850 – – – – – – 4,445 1,559 893 120,734 – 1,559 112,308 (17) 6,462 485 1,506 16,993 (34,082) 103,655 Share of loss in associates and joint ventures – – – – – 664 – 664 (Loss)/profit before tax and fair value adjustments on financial liabilities (44,987) 47,662 (6,571) (57,224) 939 1,769 9,656 (48,756) Profit / (loss) on fair value adjustment of financial liabilities 16,290 – – – (28,697) 47,662 (6,571) (57,224) (15,824) 63 (2,095) – (12,873) 47,599 (4,476) (57,224) – 939 134 805 – 1,769 2,006 (237) – 16,290 9,656 (32,466) 1,681 7,975 (14,035) (18,431) (12,873) – (4,476) (11,419) 805 (5,463) 7,975 (25,451) – 47,599 – (45,805) – 5,226 – 7,020 (Loss)/profit before tax Income tax (benefit)/expense Segment result Attributable to: Equity holders of the parent Non-controlling interests 60 Notes to the Financial StatementscontinuedOmni Bridgeway | Annual Report 2021 Note 1: Segment information (continued) Group (excl Funds) Funds Consolidation Segment assets and liabilities at 30 June 2021 Cash and cash equivalents1 Receivables from litigation contracts Other current assets Claims portfolio Purchased claims Corporate $’000 1 $’000 2&3 $’000 4 $’000 5 $’000 6 $’000 99,960 10,836 3,018 19,056 300 9,478 109,790 43,936 7,819 31,430 – – – – – 15,397 – – 549 – 7,414 8,214 – – – – 14,110 6,416 93,784 23,126 Adjustments and eliminations $’000 Consolidated $’000 – – 142,648 175,655 (14,110) 39,682 1,275 – 95,059 38,754 Intangible assets - litigation contracts in progress 108,327 150,283 59,022 121,389 8,021 54,867 30,424 532,333 Intangibles impairments Goodwill Investments in funds Other non-current assets Total segment assets Current liabilities Non-current liabilities Total segment liabilities Net assets Equity attributable to: Equity holders of the parent Contributed equity - NCI Earnings - NCI Total equity (65,860) (9,671) (5,031) (54,346) 99,645 267,870 157,797 – – – – – 32,633 – – – – – – (1,548) (4,843) (141,299) – – 99,645 4,453 (267,870) 4,360 11,267 (126,455) 4,453 79,602 808,959 195,384 120,272 94,862 12,681 215,953 (381,579) 1,066,532 44,095 433 22,106 599 12,522 27,317 (33,400) 73,672 140,526 184,621 – – – – 81,589 8,398 230,513 433 22,106 599 12,522 108,906 (25,002) 304,185 624,338 194,951 98,166 94,263 159 107,047 (356,577) 762,347 624,338 47,481 17,767 9,143 159 (10,438) (356,577) 331,873 – – 91,339 73,439 132,427 56,131 6,960 (47,307) – – 110,412 7,073 – – 407,617 22,857 624,338 194,951 98,166 94,263 159 107,047 (356,577) 762,347 1 Cash in Funds can only be used for litigation matters and expenses in the Funds. 61 HighlightsFinancial Report Shareholder Information OverviewDirectors’ Report Note 1: Segment information (continued) Segment result for year ended 30 June 2020 Interest revenue Purchased claims interest revenue Inter-segment Revenue from contracts with customers Segment revenue Group (excl Funds) Funds Consolidation Corporate $’000 1 $’000 2&3 $’000 4 $’000 5 $’000 6 $’000 Adjustments and eliminations $’000 Consolidated $’000 2,141 836 18,038 1,293 192 – – – 413 896 – – 22,308 192 1,309 – – – – – – – – 141 141 76 – – (975) 4,069 (22,107) 21,694 – 25,839 (23,082) 2,822 757 – 23,128 26,707 Net gain/(loss) on derecognition of intangible assets 55,667 16,831 34,866 4,029 (68) 1,466 (2,164) 110,627 Net gain/(loss) on disposal of financial assets Other income Total Income Impairment expenses Amortisation of claims portfolio Other expenses Share of loss in associates and joint ventures – 19,815 – – – (32) – (5) – 3,848 (736) 1,314 – 63 3,848 20,419 93,636 17,023 36,143 4,024 (663) 32,467 (25,183) 161,601 5,166 7,174 1,193 – 112,588 – – 47 – – 276 – (6) – 156 – – – 772 2,930 14,520 – 17,229 14,520 488 16,274 (47,221) 82,608 – 158 743 – – 158 19,108 47,086 – (13,597) (Loss)/profit before tax and fair value adjustments on financial liabilities (19,964) 9,802 34,674 3,874 (1,151) Profit / (loss) on fair value adjustment of financial liabilities (13,597) – – – – (Loss)/profit before tax Income tax (benefit)/expense Segment result Attributable to: Equity holders of the parent Non-controlling interests Segment assets and liabilities at 30 June 2020 Cash and cash equivalents1 Other current assets Claims portfolio Purchased claims (33,561) 9,802 34,674 3,874 (1,151) 743 19,108 33,489 1,056 143 10,213 – (34,617) 9,659 24,461 3,874 (342) (809) 3,704 1,116 15,890 (2,961) 17,992 17,599 (34,617) – 5,399 968 (809) (475) 17,992 (11,542) – 9,659 19,062 2,906 – (2,486) – 29,141 Group (excl Funds) Funds Consolidation Corporate $’000 1 $’000 2&3 $’000 4 $’000 5 $’000 6 $’000 Adjustments and eliminations $’000 Consolidated $’000 133,205 17,366 6,671 28,533 49 8,560 – 194,384 80,956 5,886 39,390 – – – – – 5,726 3 – 1 1,368 16,199 (8,852) 134,950 – 93,680 3,032 8,260 – – 93,680 17,019 Intangible assets - litigation contracts in progress 126,655 191,339 51,902 92,017 1,874 33,244 48,199 545,230 Intangibles impairments Goodwill Other Non-current assets Total segment assets Current liabilities Non-current liabilities Total segment liabilities Net assets Equity attributable to: Equity holders of the parent Contributed equity - NCI Earnings - NCI Total equity (8,086) (13,149) (1,813) 103,072 170,618 – (1) – 6,894 – – – – – (898) (4,054) (28,000) – – 103,072 (7,243) 173,791 (283,924) 60,135 606,420 201,441 108,770 120,554 (920) 332,836 (248,631) 1,120,470 31,741 1,181 11,721 3,311 (141) 51,725 (9,808) 89,730 198,824 – 5,018 – – 83,823 (24,126) 263,539 230,565 1,181 16,739 3,311 (141) 135,548 (33,934) 353,269 375,855 200,260 92,031 117,243 (779) 197,288 (214,697) 767,201 375,855 32,103 23,681 23,190 (779) 96,648 (214,697) 336,001 – – 127,511 54,871 94,479 40,646 13,479 (426) – – 98,609 2,031 – – 375,470 55,730 375,855 200,260 92,031 117,243 (779) 197,288 (214,697) 767,201 1 Cash in Funds can only be used for litigation matters and expenses in the Funds. 62 Notes to the Financial StatementscontinuedOmni Bridgeway | Annual Report 2021 Note 1: Segment information (continued) Non-current assets, excluding financial assets and deferred tax assets, can be represented geographically as follows: Australia United States Canada EMEA Asia Consolidated 2021 $’000 2020 $’000 162,552 234,241 17,374 61,587 20,830 238,041 295,443 17,844 58,512 15,627 496,584 625,467 Note 2: Revenue from contracts with customers Revenue from contracts with customers is recognised when control of the service is transferred to the customer at an amount that reflects the consideration to which the Group expects to be entitled in exchange for those services. (i) Enforcement and recovery services The nature of services Revenue is generated from enforcement and recovery services. The revenue generated from recovery services consists of revenue earned for the recovery services provided for various claims such as court judgments, non-performing loans and unpaid account receivables. Performance obligations At contract inception, the Group assesses the services promised in its contracts with customers and identifies performance obligations in each promise to transfer to the customer funds recovered from various claims such as court judgments, non- performing loans and unpaid account receivables. Performance obligations are satisfied at a point in time, upon the recovery of each dollar of a judgment. Transaction price Almost all revenues from enforcement and recovery services are based on a no success, no fee basis. The transaction price contains various components, with each component being either fixed or variable. The Group includes variable consideration (a portion or all) in the transaction price only when it is highly probable that the recognised revenue will not incur a significant revenue reversal. The revenue is based on a percentage of the funds recovered so the uncertainty is typically removed when the funds have been received or settlement agreement has been signed and where applicable, court approval obtained as then the revenue formula can be applied to the outcome. (ii) Management fees The management fee revenue earned during the year was derived from Investment Management Agreements with the investors in Fund 4 and Investment Advisory Agreements with each of Fund 5 and Fund 7. The services provided are for the administration of the investor accounts and fund structures. For Fund 4 and Fund 5 the consideration receivable is considered to be variable consideration and is determined with reference to the net invested capital attributable to the Investor’s accounts. The revenue is recognised over the period in which there is net invested capital in the fund as the Group transfers control of the services over this period and, therefore, satisfies its performance obligations over time. Variable consideration is recognised to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognised will not occur. As the net invested capital is known at the end of each quarter the management fees are able to be calculated and recognised as it is then highly probable that a significant reversal in the amount of cumulative revenue recognised will not occur. Fees for management of Fund 7 is based on the operational costs of the managing entity. 63 HighlightsFinancial Report Shareholder Information OverviewDirectors’ Report Note 2: Revenue from contracts with customers (continued) Corporate $’000 Fund 5 $’000 Fund 6 $’000 Total $’000 2021 Type of service Claims portfolio proceeds Management fees 2020 Type of service Claims portfolio proceeds Management fees 2021 Geographical markets Europe Australia United States Cayman Islands 2020 Geographical markets Europe Australia United States Cayman Islands 2021 Timing of revenue recognition Services transferred at a point in time Services transferred over time 2020 Timing of revenue recognition Services transferred at a point in time Services transferred over time – 2,355 2,355 – 1,293 1,293 – 360 1,995 – 2,355 – 109 1,184 – 1,293 – 2,355 2,355 – 1,293 1,293 – 567 567 – 141 141 – – – 567 567 – – – 141 141 – 567 567 – 141 141 1,696 1,466 3,162 1,696 4,388 6,084 21,694 – 21,694 21,694 1,434 23,128 3,162 – – – 3,162 3,162 360 1,995 567 6,084 21,694 21,694 – – – 109 1,184 141 21,694 23,128 1,696 1,466 3,162 21,694 – 21,694 1,696 4,388 6,084 21,694 1,434 23,128 Not included in revenue is $1.144 million (2020: $0.812 million) of performance fees that relate to the completion of investments in Fund 4 that have not satisfied the income recognition requirements yet. $1.144 million (2020: $0.812 million) is disclosed in other liabilities on the balance sheet. 64 Notes to the Financial StatementscontinuedOmni Bridgeway | Annual Report 2021 Interest revenue Note 3: Interest revenue is recognised using the effective interest rate method. The effective interest rate is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the net carrying amount of the financial asset. The Group earned 85% (2020: 91%) of its interest revenue on cash and deposits in Australia. Interest revenue on matter receivables relates to the EMEA region. The purchased claims revenue relates to the geographic markets of Europe, Canada and the United States. Interest revenue Interest revenue on cash and deposits Interest revenue on receivables from litigation contracts Interest revenue on purchased claims Consolidated 2021 $’000 2020 $’000 541 1,175 8,138 9,854 2,822 – 757 3,579 Note 4: Net gain on derecognition of intangibles assets Net gain on derecognition of intangibles assets is derived from the disposal of the Group’s Litigation Contracts in Progress. The accounting policy for Litigation Contracts in Progress is outlined in Note 13. Net gain on derecognition of intangible assets Litigation funding contracts - proceeds Litigation funding contracts - derecognition of intangible (successful investments)1 Litigation funding contracts - derecognition of intangible (unsuccessful investments)2, 3 Consolidated 2021 $’000 2020 $’000 265,928 (77,453) (28,363) 160,112 257,513 (134,393) (12,493) 110,627 1 2 3 This consists of costs related to the Group’s derecognition of litigation contracts intangibles on cases that have settled or been won. This consists of costs related to the Group’s derecognition of litigation contracts intangibles on cases lost by the Group and cases not pursued by the Group due to the cases not meeting the Group’s required rate of return. Adverse cost expenses are presented in other expenses instead of being part of the gain/loss on derecognition of intangible assets. The change in presentation has been made to better reflect the nature of the expenditure. Net gain on derecognition of intangible assets can be represented geographically as follows: Australia United States Canada EMEA Asia Consolidated 2021 $’000 98,819 40,473 7,663 21,015 (7,858) 2020 $’000 84,533 19,343 5,902 1,150 (301) 160,112 110,627 65 HighlightsFinancial Report Shareholder Information OverviewDirectors’ Report Note 5: Other income Other income Foreign exchange gain Other income Fair value gain on equity instruments at fair value through profit or loss Consolidated 2021 $’000 2020 $’000 – 524 – 524 17,843 2,221 355 20,419 Note 6: Expenses Finance costs Borrowing costs directly attributable to the acquisition and development of a qualifying asset (i.e. an asset that necessarily takes a substantial period of time to get ready for its intended use or sale) are capitalised as part of the cost of that asset. All other borrowing costs are expensed in the period they occur. Borrowing costs consist of interest and other costs that the Group incurs in connection with the borrowing of funds. Detailed information is provided in Note 17. Amortisation of claims portfolio Amortisation of claims portfolio represents the amortisation of the capitalised contract costs relating to the claims portfolio due to completion of the underlying enforcement or recovery claims. Detailed information is provided in Note 11. Depreciation The depreciation policy is disclosed in Note 23. Employee benefits Provision is made for employee benefits accumulated as a result of employees rendering services up to the end of the reporting period. These benefits include wages salaries, annual leave, long service leave and bonuses. Liabilities in respect of employees’ services rendered that are not expected to be wholly settled within one year after the end of the periods in which the employees render the related services are recognised as long-term employee benefits. These liabilities are measured at the present value of the estimated future cash outflow to be made to the employees using the projected unit credit method. Liabilities expected to be wholly settled within one year after the end of the period in which the employees render the related services are classified as short-term benefits and are measured at the amount due to be paid. Share based payments The policy for share based payments is disclosed in Note 30. Impairment of intangible assets The policy for intangible assets is disclosed in Note 13. 66 Notes to the Financial StatementscontinuedOmni Bridgeway | Annual Report 2021 Note 6: Expenses (continued) (a) Finance costs Interest on lease liabilities Other finance charges (b) Amortisation of claims portfolio Amortisation of claims portfolio (Note 11) (c) Depreciation expense Depreciation (d) Employee benefits expense Wages and salaries Superannuation expense Directors' fees Payroll tax Share based payments Long service leave (e) Corporate and office expense Insurance expense Network expense Marketing expense Occupancy expense Professional fees expense Recruitment expense Travel expense (f) Other expenses ASX fees General expenses Amortisation of contract costs Postage, printing and stationery Repairs and maintenance Share registry costs Staff training, development and conferences Adverse costs1 Foreign exchange loss Loss on disposal of fixed assets (g) Impairment expense Impairment2 Consolidated 2021 $’000 2020 $’000 750 722 1,472 263 1,073 1,336 1,559 14,520 3,119 2,912 38,512 39,307 1,723 501 2,686 13,755 281 57,458 2,929 1,414 1,179 677 10,489 390 167 17,245 206 888 939 1,035 14 17 53 15,280 5,868 61 24,361 1,524 496 1,682 7,313 14 50,336 2,711 1,544 1,708 538 11,416 557 1,569 20,043 267 1,438 939 788 41 111 243 4,154 – – 7,981 120,734 17,229 1 2 Adverse cost expenses from previous period of $4.154 million are presented in other expenses instead of being part of the gain/loss on derecognition of intangible assets. The change in presentation has been made to better reflect the nature of the expenditure. This includes impairment expense of $112.911 million in respect to Westgem and a Fund 4 investment. Whilst a provision for impairment was raised for accounting purposes, management continues to support the appeal process for these investments. Please refer to Note 13 section(a) for details. 67 HighlightsFinancial Report Shareholder Information OverviewDirectors’ Report Note 7: Income tax Income tax Current income tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities based on the current period’s taxable income. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the reporting date. Deferred income tax is provided for using the full liability balance sheet method. Deferred income tax liabilities are recognised for all taxable temporary differences except: – when the deferred income tax liability arises from the initial recognition of goodwill or of 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 profit nor taxable profit or loss; or – when the taxable temporary difference is associated with investments in subsidiaries, associates or interests in joint ventures, and the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of unused tax assets and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and the carry-forward of unused tax credits and unused tax losses can be utilised, except: – when the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; or – when the deductible temporary difference is associated with investments in subsidiaries, associates or interests in joint ventures, in which case a deferred tax asset is only recognised to the extent that it is probable that the temporary difference will reverse in the foreseeable future and taxable profit will be available against which the temporary difference can be utilised. The carrying amount of deferred income tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised. Unrecognised deferred income tax assets are reassessed at each reporting date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date. Income taxes relating to items recognised directly in other comprehensive income are recognised in equity and not in profit or loss. Deferred tax assets and deferred tax liabilities are offset only if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred tax assets and liabilities relate to the same taxable entity and the same taxation authority. Australian consolidated tax group The Parent Company and its Australian resident wholly owned subsidiaries have formed a tax consolidated group. The Parent Company has entered into tax funding arrangements with its Australian resident wholly owned subsidiaries, pursuant to which each subsidiary has agreed to pay or receive a tax equivalent amount based on the net taxable amount or loss of the subsidiary at the current tax rate. The tax consolidated group has applied the separate taxpayer approach in determining the appropriate amount of current taxes to allocate to each entity. 68 Notes to the Financial StatementscontinuedOmni Bridgeway | Annual Report 2021 Note 7: Income tax (continued) Other taxes Revenues, expenses and assets are recognised net of the amount of GST, except: – when the GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item, as applicable; and – receivables and payables, which are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the Statement of Financial Position. Cash flows are included in the Statement of Cash Flows on a gross basis and the GST component of cash flows arising from investing and financing activities, which is recoverable from, or payable to, the taxation authority is classified as part of cash flows from operating activities. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority. Statement of Comprehensive Income The major components of income tax expense/(benefit) are: Current income tax Current income tax charge Adjustment in respect of current income tax expense of previous year Refund of foreign state-based taxes Current year losses moved to deferred tax asset Current year utilisation of carried forward tax losses Other Deferred income tax: Relating to origination and reversal of temporary differences Current year losses moved to deferred tax asset Reduction in deferred tax asset for loss utilisation Adjustment in respect of deferred income tax of previous year Deferred tax assets derecognised Other Income tax (benefit)/expense reported in the Consolidated Statement of Comprehensive Income Deferred income tax related to items charged or credited directly to equity Deferred tax associated with share-based payments Deferred tax associated with transaction costs recognised in equity Income tax expense reported in equity Consolidated 2021 $’000 2020 $’000 15,178 61 – 8,383 (18,388) (944) (28,814) (8,383) 18,388 173 – 311 8,762 (14) 23 5,150 – (545) 3,649 (5,150) – 563 3,019 433 (14,035) 15,890 1,381 – 1,381 (7,240) (763) (8,003) 69 HighlightsFinancial Report Shareholder Information OverviewDirectors’ Report Note 7: Income tax (continued) Reconciliation between tax expense/(benefit) and the product of accounting profit/(loss) before income multiplied by the Group’s applicable income tax rate is as follows: Accounting profit/(loss) before income tax At the Group's statutory income tax rate of 30% (2020: 30%) Foreign tax rate adjustments Adjustment in respect of income and deferred tax of previous years Expenditure not allowable for income tax purposes Amounts deductible for income tax purposes (permanent) Non-assessable income State income tax Relating to deductible temporary differences not previously recognised Deferred tax assets derecognised Other Income tax (benefit)/expense reported in the Statement of Comprehensive Income Consolidated 2021 $’000 2020 $’000 (32,466) (9,740) 1,397 128 912 (3,326) (1,138) (1,106) 226 – (1,388) (14,035) 33,489 10,047 2,605 548 5,418 – (3,742) (1,363) (514) 3,019 (128) 15,890 Deferred income tax at 30 June relates to the following: CONSOLIDATED Deferred income tax liabilities Intangibles Accrued interest & unrealised foreign exchange differences Right-of-use assets Receivables Other Gross deferred income tax liabilities Deferred income tax assets Net operating losses Accruals and provisions / bonds raising costs Share based payments Leases Expenditure deductible for income tax over time Gross deferred income tax assets Net deferred income tax liabilities Statement of Financial Position Statement of Comprehensive Income 2021 $’000 2020 $’000 2021 $’000 2020 $’000 37,769 12 1,250 – – 59,220 22 1,425 – 72 21,451 10 175 – 72 39,031 60,739 21,708 6,214 6,856 4,405 71 1,865 19,411 19,620 19,330 (13,150) 1,980 6,409 71 2,202 29,992 30,747 4,709 (623) – (337) (9,401) 1,042 (19) (1,425) 38 (69) (433) 2,028 (2,277) (4,918) 71 (795) (5,891) 70 Notes to the Financial StatementscontinuedOmni Bridgeway | Annual Report 2021 Note 7: Income tax (continued) Foreign deferred tax assets Accruals and provisions Intercompany Expenditure deductible for income tax over time Leases Share based payments Deferred tax assets - Foreign net operating losses - federal and state Deferred tax assets Net deferred income tax Movements in foreign exchange Deferred tax expense Statement of Financial Position Statement of Comprehensive Income 2021 $’000 2020 $’000 2021 $’000 2020 $’000 766 (23) 971 3,474 1,359 1,369 55 1,500 1,215 4,537 23,943 30,490 17,328 26,004 (603) (78) (529) (1,063) 144 6,615 4,486 16,793 1,534 18,327 1,365 27 1,289 1,215 (2,524) 3,122 4,494 (1,830) (685) (2,515) Unrecognised temporary differences and tax losses At 30 June 2021, the Group had $2.604 million (2020: $3.019 million) of unrecognised deferred tax assets relating to temporary differences and tax losses in its Canadian subsidiaries. Deferred tax assets relating to USA operations The deferred tax assets balance includes $23,298 million (2020: $17.362 million) of assets relating to carried forward tax losses of Omni Bridgeway Holdings (USA) Inc. Under existing tax regulations, the losses incurred prior to financial year ended 30 June 2019 can be carried forward for 20 years and losses incurred thereafter can be carried forward indefinitely. The US business has a recent history of incurring tax losses. The losses have arisen primarily from the implementation of the expansion of the administrative base in the United States to support strategic growth initiatives that are, according to plan, yet to realise their full value. Fund 1’s NCI waterfall, by design, priorities the NCI investor’s return initially and then swings to favor Omni. Omni has considered the utilisation of these tax losses within the expanded US business and has determined that, based on approved budgets and existing case matters, it is probable that the US tax group will earn sufficient taxable income to utilise the losses. Further, in assessing the utilisation of the tax losses, Omni considers there to be convincing other evidence to support the recoverability of these tax losses including: (i) The US business has been in an expansion and infrastructure growth phase. Additional costs have been incurred in the business related to the expansion of activity and changes in operations to a Fund management structure. Investments in people, systems and infrastructure have been made ahead of the expected investment activity of the Funds. Fund 1 commenced in 2017 and Fund 4 in 2019. Whilst Fund 1 is fully invested; Fund 4 (with an approved portfolio size of US$500 million of which the US business has a 20% interest) is commencing its investment commitment activity. With an average investment life of circa 3 years, a significant portion of the expected income is in the future. This income generation will be by way of both investment returns and fee revenues. (ii) The US business has raised substantial external capital over the past three years via its Fund structures. Fund 1 raised US$171.7 million (75% external commitments) and Fund 4 raised US$500 million (80% external commitments). The external capital raised is the foundation of the investing activity that enables the US business to grow and generate returns to realise future taxable income. Omni has access to more investment capital that at any time in its history. (iii) There are 41 US investments. The carrying value of intangibles assets (investments) was $238.920 million at 30 June 2021. The US business historically has an 78% success rate, based on number of investments. The US business has historically had a return on invested capital (“ROIC”) (refer to Glossary) of 0.4x, including losses and excluding overheads. The growth in the Group’s investments together with the Group’s historical performance provides an indication of growth in future taxable income. (iv) The coronavirus pandemic and other political events in the US have temporarily delayed US investment completions, as the court process has been significantly disrupted during 2021. Once the normalcy in the US court system resumes, completion rates are expected to return to normal. 71 HighlightsFinancial Report Shareholder Information OverviewDirectors’ Report Note 7: Income tax (continued) Deferred tax assets relating to ROW funds Omni Bridgeway (Fund 2) Pty Limited and Omni Bridgeway (Fund 3) Pty Limited carried combined total deferred tax assets balances of $5.892 million as at 30 June 2021 (2020: $0.059 million), the deferred tax assets balances were predominantly related to the loss of Australian investments and Asian investments during this reporting period. The Funds are 98% committed with litigation investments that are expected to generate significant taxable income in the future. Note 8: Loss per share Basic (loss) per share is calculated as net profit/loss attributable to members of the Parent, adjusted to exclude any costs of servicing equity (other than dividends), divided by the weighted average number of ordinary shares outstanding during the financial year, adjusted for any bonus element. Diluted earnings per share is calculated as net profit/loss attributable to members of the Parent, adjusted for: – costs of servicing equity (other than dividends); – the after-tax effect of interest dividends associated with dilutive potential ordinary shares that have been recognised; and – other non-discretionary changes in revenue or expenses during the period that would result from dilution of potential ordinary shares; – divided by the weighted average number of shares and dilutive shares, adjusted for any bonus element. At 30 June 2021, 18,528,532 performance rights (2020: 17,302,007) were on issue as detailed in Note 30. Upon meeting certain performance conditions over the three-year performance period, the vesting of each right will result in the issue of 1 ordinary share. The performance shares are contingently issuable and are not considered dilutive. The following reflects the income and share data used in the basic loss per share computation: (a) Earnings used in calculating earnings per share Consolidated 2021 $’000 2020 $’000 For basic and diluted loss per share Total net loss attributable to equity holders of the Parent (25,451) (11,542) (b) Weighted average number of shares Weighted average number of ordinary shares outstanding Effect of dilution: Performance rights Weighted average number of ordinary shares 2021 $’000 2020 $’000 257,994 235,709 – – 257,994 235,709 Variable Deferred Consideration and Deferred Consideration are payable by the issue of fully paid ordinary shares in Omni Bridgeway Limited (OBL). Please refer to Note 27 for details. These shares have not been included for the following reasons: – Variable Deferred Consideration shares have not been included as their performance milestones for future tranches have yet to be met. Deferred Consideration shares have not been included as shareholder approval will be required for tranche 2. – In addition to the above, the inclusion of any of these shares would be considered antidilutive. 72 Notes to the Financial StatementscontinuedOmni Bridgeway | Annual Report 2021 Note 8: Loss per share (continued) The weighted average number of ordinary shares outstanding only includes performance rights granted under the Long Term Incentive Plan where the performance hurdles are met as at period end and they do not have an anti-dilutive effect. As at 30 June 2021, there were 18,528,532 (2020: 17,302,007) performance rights calculated as meeting the performance criteria for inclusion in diluted earnings per share, however these were not included due to their anti-dilutive effect. There have been no transactions involving ordinary shares or potential ordinary shares that would significantly change the number of ordinary shares outstanding between the reporting date and the date of completion of these financial statements. Note 9: Dividends paid and proposed by Omni Bridgeway Limited (the parent entity) (a) Cash dividends on ordinary shares declared and paid Final dividend for 2020: 4.00 cents per share (2019: nil cents per share) Interim dividend for 2021: nil cents per share ( 2020: 3.00 cents per share) Consolidated 2021 $’000 10,139 – 10,139 2020 $’000 – 7,482 7,482 The Directors have determined not to pay a final dividend for the year ended 30 June 2021. Omni Bridgeway Limited’s retained earnings are disclosed in Note 32. On 24 August 2020 the Directors declared a final fully franked dividend of 4.00 cents per share for the 2020 financial year, totalling $9,955,000. The record date for this dividend was 2 September 2020 and the payment date was 25 September 2020. Shareholders were able to elect to participate in the dividend reinvestment plan in relation to this dividend. The Directors have determined they will consider, and where appropriate, implement, a regular semi-annual dividend which reflects the cash position of the Company at the time of the dividend and the likely demand for cash over the ensuing 12 month period. The Company has put in place a dividend reinvestment plan and, on appropriate occasions, will arrange underwriting to reduce the impact a particular dividend might otherwise have on cash. (b) Franking credit balance The amount of franking credits for the subsequent financial year are: – Franking account balance at the end of previous financial year at 30% – Franking debits arising from the payment of last year's final dividend – Franking debits arising from the payment of last year's interim dividend – Franking debits arising from the income tax refund received during the financial year Balance at 30 June (c) Tax rates The tax rate at which paid dividends have been franked is 30% (2020: 30%). Omni Bridgeway Limited 2021 $’000 2020 $’000 10,250 (4,345) – – 5,905 14,766 – (3,207) (1,309) 10,250 73 HighlightsFinancial Report Shareholder Information OverviewDirectors’ Report Note 10: Statement of cash flows reconciliation Reconciliation of net profit / (loss) after tax to net cash flows used in operations: Net (loss)/profit after tax Adjustments for: Consolidated 2021 $’000 2020 $’000 (18,431) 17,599 Fair value adjustments to financial liabilities 16,290 (33,225) Net impact of the reclassification of litigation intangibles related cashflows to investing activities and claims portfolio Receipts of reimbursement of fund establishment costs Amortisation of claims portfolio Amortisation of contract costs Depreciation Share based payments Unrealised foreign exchange loss /(gain) Lease incentive adjustments Changes in assets and liabilities Increase in receivables Increase in other current assets (Decrease)/Increase in other liabilities Increase in lease liabilities Decrease /(Increase) in intangibles Increase in trade creditors and accruals Increase in provisions (Increase)/decrease in deferred tax assets and liabilities Increase in current income tax receivable/(payable) Increase in claims portfolio and purchased claims Net cash used in operating activities Disclosure of financing facilities Refer to Note 16 and Note 17. Changes in liabilities arising from financing activities Refer to Note 17 and Note 26. (70,704) – 1,559 939 3,119 16,642 5,868 – 13,364 (736) 14,520 939 2,912 9,084 (17,843) (289) (96,575) (117,864) (4,406) (43,014) 159 126,196 (3,035) 9,669 (15,613) (3,474) (23,114) (97,925) (3,123) 122,938 5,684 (90,253) 52 (24) 14,648 10,673 (23,210) (74,154) 74 Notes to the Financial StatementscontinuedOmni Bridgeway | Annual Report 2021 B. INVESTMENTS AND INTANGIBLE ASSETS Note 11: Claims portfolio The claims portfolio assets consist of the capitalised costs incurred to obtain or fulfill a contract with a customer. These contracts with customers comprise the litigation funding enforcement investment contracts and certain merits-based funding contracts. Costs incurred to obtain a contract are only capitalised to the investment when it is expected that a contract will be executed, and where those costs will be recoverable. The Group recognises an asset for costs incurred to fulfill a contract if those costs relate directly to the contract, the costs generate or enhance resources of the Group to satisfy performance obligations in the future and the costs are expected to be recovered. All capitalised contract costs are amortised to the profit and loss on a systematic basis that follows delivery of performance obligations to the customer. The satisfaction of performance obligations on the contracts are aligned with each individual dollar of recovery to the customer. The carrying value of the claims portfolio is measured at cost less amortisation and any impairment loss. At each reporting date an assessment is made on an individual investment by investment basis to determine if the carrying amount of a contract exceeds its recoverable amount. In order to determine the recoverable amount a cashflow model is used which includes forecast revenues and expenses, together with an estimate of directly attributable overheads to complete the contract. If the carrying value exceeds the recoverable amount the difference is recognised as an impairment expense in the profit or loss. Balance at 1 July Acquisition through business combination1 Additions – external funding deployment Amortisation of claims portfolio2 Claims portfolio impairment Foreign currency adjustment Consolidated 2021 $’000 93,680 – 9,618 (1,559) (3,565) (3,115) 95,059 2020 $’000 – 98,330 8,123 (14,520) – 1,747 93,680 1 2 Included in the acquisition through business combination was $nil (2020: $74.180 million) of PPA. Refer to Note 31 for further information. Represents the amortisation of the capitalised contract costs due to successful and unsuccessful completion of investments. It includes $nil (2020: $8.540 million) of PPA, the aggregate amortisation of value adjustments from business combination since the purchase of OBE in October 2019 is $8.540 million (2020: $8.540 million). Note 12: Purchased claims Purchased claims are litigation assets which have been acquired by the Group. They are classified as purchased credit-impaired financial assets which are initially recognised at fair value. The credit-adjusted effective interest rate on these financial assets is calculated taking into account the initial lifetime expected credit loss in the estimated cash flows. In determining the lifetime expected credit losses for these financial assets, the Group has taken into account the financial position of the counterparties, the legal environment in which the enforcement occurs, historical default experience and considering various external sources of actual and forecast information, as appropriate. Purchased claims are subsequently measured at amortised cost by applying the credit-adjusted effective interest rate. The Group recognises – i. ii. Interest income through the application of the credit-adjusted effective interest rate to the amortised cost of the purchased claims; and Impairment losses and gains, when material, due to the changes in estimated lifetime expected credit losses. At each reporting period the Group reviews the estimated cash flows from purchased claims on an investment by investment basis, estimating the expected recovery, its timing and any other cashflows that may be attributable to the counterparties. The net present value of the cashflows are then determined using the credit-adjusted effective interest rate and the value compared to the carrying value. Where there is a material gain, this gain is recognised by adjusting the gross carrying amount of the receivable. Where there is a material loss, it is recognised as a loss allowance account. 75 HighlightsFinancial Report Shareholder Information OverviewDirectors’ Report Note 12: Purchased claims (continued) Balance at 1 July Acquisition through business combination1 Interest revenue Additions – external funding deployment Purchased claims expenses2 Purchased claims impairment Foreign currency adjustment Balance at 30 June Consolidated 2021 $’000 17,019 – 8,137 20,518 (2,721) (3,797) (402) 38,754 2020 $’000 – 12,028 757 9,830 (5,815) – 219 17,019 1 2 Purchased claims were acquired through the business combination. Refer to Note 31 for further information. Included in the purchase claim expense during the year ended 30 June 2021 was $nil (2020: $5.595 million) of fair value adjustments that originally arose from business combination. At 30 June 2021 the fair value of the purchased claims amounted to $38.754 million (2020: $17.019 million) and the gross contractual amount of $181.9 million (2020: $173.343 million). Net gain on disposal of Purchased claims Proceeds from purchased claims disposed Carrying value of purchased claims disposed1 Consolidated 2021 $’000 2020 $’000 4,003 (2,721) 1,282 9,663 (5,815) 3,848 1 Included in the purchased claims disposed of during the year ended 30 June 2021 was $nil (2020: $5.595 million) of fair value adjustments that originally arose from business combination. Note 13: Intangible assets – litigation contracts in progress (a) Recognition and measurement Litigation Contracts in Progress Litigation Contracts in Progress are recognised as an intangible asset in the financial statements of the Group, they represent future economic benefits controlled by the Group. The Group is able to control the expected future economic benefit as the Litigation Contracts in Progress may be exchanged or sold. The litigation funding contract does not give rise to an unconditional right to receive cash. Rather, it provides the Group with a right to a share of litigation proceeds which may be in the form of cash or other non-financial assets. The Group’s litigation contracts are not considered contracts with customers as they are collaborative arrangements and there is no vendor-customer relationship established in the contract. Litigation Contracts in Progress are measured at cost on initial recognition. Litigation Contracts in Progress are not amortised as the assets are not available for use until the determination of a successful judgment or settlement, at which point the assets are realised through disposal. Gains or losses arising from derecognition of Litigation Contracts in Progress are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in the profit or loss when the asset is derecognised. 76 Notes to the Financial StatementscontinuedOmni Bridgeway | Annual Report 2021 Note 13: Intangible assets – litigation contracts in progress (continued) The following specific asset recognition and derecognition rules have been applied to Litigation Contracts in Progress: (i) Actions still ongoing: When litigation is ongoing and pending a determination, Litigation Contracts in Progress are carried at cost (subject to any provision for impairment). Subsequent and ongoing expenditure is capitalised when it meets all the following criteria: (a) the Group is able to demonstrate its ability to complete the litigation so that the asset will be available for use and the benefits embodied in the asset will be realised; (b) the Group retains control of the asset; (c) the Group can demonstrate that it intends to complete the litigation; (d) the Group is able demonstrate the availability of adequate technical, financial and other resources to complete the litigation; and (e) the Group can measure reliably the expenditure attributable to the intangible asset during the life of the Litigation Contracts In Progress. Impairment is considered in line with policy described in (c) Impairment testing of intangible assets, below. (ii) Successful completion: Where the litigation has been finally determined in favour of the client or a positive settlement has been agreed, such that there is not considered to be a significant risk of reversal, this constitutes a disposal transaction and a gain or loss on disposal of the intangible asset is recognised in the Statement of Comprehensive income. Control of the intangible asset is considered to be transferred as follows: – For judgments, typically after a judgment has been determined and the relevant appeal periods have expired; and – For settlements, typically when settlement agreement is reached and if relevant, court approval is obtained. (iii) Unsuccessful completion: Where the litigation is unsuccessful, the cost of the intangible asset net of accumulated impairment is derecognised and a loss is recognised in the Statement of Comprehensive Income. If the claimant, having been unsuccessful at trial, appeals against the judgment, then the future costs incurred by the Group on the investment in relation to the appeal are expensed as incurred. (b) Reconciliation of carrying amounts Balance at 1 July Acquisitions through business combination Additions - external costs Additions - capitalised borrowing costs Additions - capitalised employee costs Additions - capitalised overheads Derecognitions - external expenditure (successful investment) Derecognitions - capitalised borrowing costs and overheads (successful investment) Derecognitions - external expenditure (unsuccessful investment) Derecognitions - capitalised borrowing costs and overheads (unsuccessful investment) Net derecognition of fair value adjustments Intangibles impairment Effect of movement in foreign currency Balance at 30 June Consolidated 2021 $’000 2020 $’000 517,230 – 107,762 8,961 9,723 522 (62,693) (14,152) (24,550) (4,222) (197) (113,373) (33,977) 391,034 426,977 53,435 177,578 10,385 10,424 465 (124,297) (10,096) (14,501) (2,146) – (17,229) 6,235 517,230 77 HighlightsFinancial Report Shareholder Information OverviewDirectors’ Report Note 13: Intangible assets – litigation contracts in progress (continued) The carrying value of Litigation Contracts In Progress includes external costs such as solicitors’ fees, counsels’ fees and experts’ fees funded by the Group, the capitalisation of certain directly attributable internal costs of managing the litigation funding investment, such as certain wages, occupancy costs, other out of pocket expenses and the capitalisation of borrowing costs as described below. The capitalised wages in 2021 equated to approximately 16.4% of the Group’s total salary costs (2020: 22.6%). The other internal capitalised expenses equated to approximately 43.6% of related overhead costs (2020: 46.3%). The Group has determined that Litigation Funding Contracts In Progress meet the definition of qualifying assets and that all borrowing costs are eligible for capitalisation. The weighted average cost of borrowing was 6.3% (2020: 7.9%). The carrying value of Litigation Contracts In Progress can be summarised as follows: External costs1 Capitalised internal costs Capitalised borrowing costs Gross carrying amount at cost Accumulated impairment Balance at 30 June Consolidated 2021 $’000 2020 $’000 459,371 473,170 38,262 34,700 39,000 33,060 532,333 545,230 (141,299) 391,034 (28,000) 517,230 1 Included in the carrying value was $21.527 million (2020: $53.435 million) of fair value adjustments from business combination. Refer to Note 31 for further information. (c) Impairment testing of intangible assets Except for specific Litigation Contracts in Progress subject to an unfavourable judgment, the recoverable amount of each of the Litigation Contracts in Progress is determined based on a value in use calculation using cash flow projections based on financial budgets approved by management for the expected length of each investment. Litigation Contracts in Progress that are subject to an unfavourable judgment are impaired down to their recoverable amount based on their estimated fair value less costs of disposal. The following describes each key assumption on which management has based its cash flow projections when determining the value in use of Litigation Contracts in Progress: – The estimated cost to complete a Litigation Contract in Progress is budgeted based on estimates provided by the external legal advisors handling the litigation. – The value to the Group of the Litigation Contracts in Progress, once completed, is estimated based on the successful conclusion and the resulting expected settlement or judgment amount of the litigation and the fees due to the Group under the litigation funding contract. – The discount rate applied to the cash flow projections is based on the Group’s weighted average cost of capital and other factors relevant to the particular Litigation Contracts in Progress including country risk. The discount rate applied ranged between 11.7% and 15.9% for this reporting period (30 June 2020: between 8.5% and 10%). At 30 June 2021, a provision for impairment has been recognised for $141.299 million (2020: $28.000 million). The impairment comprised – – $58.135 million relating to the Westgem investment. The provision raised is for the full carrying value of the investment, including internal overheads. During the year, the Supreme Court of Western Australia delivered judgment in the Westgem litigation and dismissed in full all of the claims of Omni Bridgeway’s funded clients. An appeal was lodged with the Supreme Court of Western Australia on 17 September 2020. The provision for impairment is in accordance with the Group’s accounting policy which reflects IFRS accounting standard requirements and reflects the first instance Supreme Court judgment in favour of the defendant being a trigger for impairment. The investment has not been derecognised and the Group intends to pursue the investment to achieve a positive outcome. The level of impairment will be continually assessed and may be reversed as appropriate pending developments in the future. – $54.776 million relating to a Fund 4 investment. The provision raised is for the full carrying value of the investment, including internal overheads. During the period, Summary Judgment against a funded claimant within Fund 4 was granted. The funded claimant has lodged a notice to appeal the decision. The provision for impairment is in accordance with the Group’s accounting policy which reflects IFRS accounting standard requirements and reflects the first instance summary judgment in favour of the defendant being a trigger for impairment. The investment has not been derecognised and the Group intends to pursue the investments to achieve a positive outcome. The level of impairment will be continually assessed and may be reversed as appropriate depending on developments in the future. 78 Notes to the Financial StatementscontinuedOmni Bridgeway | Annual Report 2021 Note 13: Intangible assets – litigation contracts in progress (continued) – The remainder of the impairment, $28.388 million at 30 June 2021 ($28.000 million at 30 June 2020) relates to forty-two investments (30 June 2020: twenty-six) across the remainder of the portfolio. The majority of which are not individually material. The $113.299 net million movement in the period reflects (i) $121.738 million of new impairments; (ii) the net impact of investment completions and the asset derecognised and (iii) foreign exchange variance. For new or increased impairments, during the impairment review, management have determined that either a successful outcome for the investment was no longer likely to occur or that the likely outcome would not recover the current carrying value of the investment. The discount rate used in the impairment assessment of these assets was 15%. After taking into account the impairment, at 30 June 2021, the forty-one investments have a combined carrying value of $26.709 million. This amount reflects the net recoverable amount expected to be received from the investments. (d) Additional information The Group has one Litigation Contract in Progress asset that is significantly complete. Wivenhoe partial settlement A positive NSW Supreme Court judgment for OBL’s funded client was received on 29 November 2019. Two of the defendants (with a court determined 50% portion of liability) have accepted that judgment and a settlement was approved by the Supreme Court on 26 February 2021; whilst the remaining defendant has appealed. The Group has recognised revenue from the partial settlement and has derecognised 50% of the investment. The Group continues to carry the remaining 50% investment as a Litigation contract in Progress at cost. Note 14: Goodwill Goodwill is initially measured at cost (being the excess of the aggregate of the consideration transferred and the amount recognised for non-controlling interests and any previous interest held over the fair value of the net identifiable assets acquired and liabilities assumed). Goodwill is subsequently measured at cost less any impairment. Goodwill arose on the acquisition of Omni Bridgeway Holding B.V. and its subsidiaries (collectively known as the OBE Group) accounted for as a business combination. For impairment purposes, goodwill has been solely allocated to the OBE Group. The Group performs its annual impairment test on the goodwill associated with the OBE Group at 30 June each year. The impairment test performed on the OBE Group goodwill is done via a value-in-use calculation using the following inputs – i. Cashflows generated over a 5 year period from the OBE Group’s annual budget. The annual budget includes an estimation for all cashflows from operations of the OBE Group, including returns from investments and payments of overheads. The budget cashflows are sensitive to the timing and amount of investment completions. The investment completions refer to income earned from claims portfolio, purchased claims and intangible assets – litigation contracts in progress. The timing of completion and amount of investment income are based on the relevant investment manager’s best estimates during the Group’s annual budget process and are reviewed internally by management. The cashflows from investment completions have a compound annual growth rate of 24.7% over the cash flow period. This is reflective of the management’s estimate of the OBE Group’s expected future growth in business activity. ii. Discount rate of 15% (2020:12%). The discount rate represents the current assessment of the risks specific to OBE Group CGU, taking into consideration the time value of money and individual risks of the underlying OBE Group investment that have not been incorporated in the cash flow estimates. The discount rate was arrived using the OBL’s weighted average cost of capital (“WACC”) as a starting base. iii. No reasonably possible change in key assumption would result in the carrying amount of the CGU exceeding its recoverable amount. Balance at 1 July Provisional goodwill recognised on acquisition Foreign currency adjustment Balance at 30 June Consolidated 2021 $’000 103,072 2020 $’000 – – 101,342 (3,427) 99,645 1,730 103,072 79 HighlightsFinancial Report Shareholder Information OverviewDirectors’ Report C. CAPITAL STRUCTURE Note 15: Financial risk management The Group’s principal financial instruments comprise cash and short-term deposits, purchased claims, receivables, payables, debt securities (bonds and fixed rate notes), lease liabilities, deferred consideration and variable deferred consideration. The Group manages its exposure to key financial risks, including interest rate risk and currency risk in accordance with the Group’s financial risk management policy. The objective of the policy is to support the delivery of the Group’s financial targets whilst protecting its future financial security. The main risks arising from the Group’s financial instruments are interest rate risk, foreign currency risk, credit risk and liquidity risk. The Group uses different methods to measure and manage different types of risks to which it is exposed. These include monitoring levels of exposure to interest rates and currencies and assessments of market forecasts for interest rates and foreign currencies. Aging analyses and monitoring of specific credit allowances are undertaken to manage credit risk. Liquidity risk is monitored through the development of future rolling cash flow forecasts. Risk exposures and responses Interest rate risk The Group’s exposure to the risk of changes in market interest rates relates primarily to: – the Group’s cash holdings with a floating interest rate; and – the Group has a $76,000,000 variable rate bond debt outstanding as at 30 June 2021. These Omni Bridgeway Bonds require that the Group make a quarterly coupon payment based on the Bank Bill Rate plus a fixed margin of 4.20% per annum. At reporting date the Group had the following financial instruments exposed mainly to Australian variable interest rate risk: Financial instruments Cash and cash equivalents Omni Bridgeway Bonds Net exposure Consolidated 2021 $’000 2020 $’000 142,648 (75,290) 67,358 194,384 (73,942) 120,442 The Group regularly analyses its interest rate exposure. Within this analysis, consideration is given to expected interest rate movements and the Group’s future cash requirements, potential renewals of existing positions, alternative financing available, and the mix of fixed and variable interest rates. The following sensitivity analysis is based on the interest rate risk exposures in existence at the reporting date. At 30 June 2021, if interest rates had moved with all other variables held constant, post-tax profit/(loss) and equity would have been affected as follows: +0.10% (10 basis points) (2020: +0.25%) -0.10% (10 basis points) (2020: +0.25%) Post Tax Profit Higher/(Lower) Equity Higher/(Lower) 2021 $’000 47 (47) 2020 $’000 211 (211) 2021 $’000 47 (47) 2020 $’000 211 (211) 80 Notes to the Financial StatementscontinuedOmni Bridgeway | Annual Report 2021 Note 15: Financial risk management (continued) Credit risk Credit risk arises from the financial assets of the Group, which comprises cash and cash equivalents, purchased claims and receivables from litigation contracts and other. The Group’s exposure to credit risk arises from potential default of the counterparty, with a maximum exposure equal to the carrying amount of these instruments. Exposure at reporting date is addressed in each applicable note. Apart from ratings on cash held and litigation contract receivables, as detailed below, the remainder of the Group’s receivables typically do not carry and credit risk rating from a ratings agency. To mitigate credit risk on litigation contract receivables the Group assesses the defendants in the investments funded by the Group prior to entering into any agreement to provide funding and continues this assessment during the course of funding. Wherever possible, the Group ensures that security for settlement sums is provided, usually with the settlement funds placed into solicitors’ trust accounts. As at 30 June 2021 there are no funds within solicitor’s trust accounts relating to receivables. The Group’s continual monitoring of the defendants’ financial capacity mitigates this risk. As at 30 June 2021 there were no litigation contract receivables that were due to be paid by the AAA rated government (2020: $78.204 million). To mitigate credit risk on purchased claims, the Group assesses the defendants in the investments funded by the Group prior to purchasing the claim. The Group’s continual monitoring of the defendants’ financial capacity mitigates this risk. To mitigate credit risk on cash and cash equivalents, the Group holds over 91% (2020: 95%) of its cash with Australian and American AA rated banks. Refer to each financial asset’s respective note for information on how impairment and credit loss is determined. Liquidity risk The liquidity position of the Group is managed to ensure sufficient liquid funds are available to meet the Group’s expected financial commitments in a timely and cost-effective manner. Management continually reviews the Group’s liquidity position, including the preparation of cash flow forecasts, to determine the forecast liquidity position and to maintain appropriate liquidity levels. All financial liabilities of the Group, except the Omni Bridgeway Bonds, Fixed Rate Notes, consideration liabilities and non-current lease liabilities, are current and payable within 30 days. The maturity profile of the Group’s financial liabilities based on contractual maturity on an undiscounted basis are: < 6 months $’000 6-12 months $’000 1-5 years $’000 >5 years $’000 Total $’000 2021 Financial Liabilities Trade and other payables Bonds and Fixed Rate Notes – principal Bonds and Fixed Rate Notes – interest Lease liabilities Deferred and variable deferred consideration 2020 Financial Liabilities Trade and other payables Bonds and Fixed Rate Notes – principal Bonds and Fixed Rate Notes – interest Lease liabilities Deferred and variable deferred consideration 21,009 – 3,645 1,437 14,647 40,738 24,044 – 3,668 1,356 42,786 71,854 – – 2,118 1,437 5,070 8,625 – – 3,668 1,356 – – 148,000 14,355 6,339 60,975 229,669 – 76,000 22,059 2,795 76,030 – – – – – – – 21,009 148,000 20,118 9,213 80,692 279,032 24,044 72,000 148,000 2,140 666 – 5,024 176,884 74,806 31,535 6,173 118,816 328,568 81 HighlightsFinancial Report Shareholder Information OverviewDirectors’ Report Note 15: Financial risk management (continued) Equity price risk The fair value of the deferred and variable deferred consideration for the acquisition of the OBE Group (refer to Note 27 and 31) are exposed to changes in the Company’s share price. There are no hedging or policies in place to mitigate the changes in share price. Refer to Fair Value section of Note 15 for sensitivity analysis of this risk. Fair value The methods for estimating fair value are outlined in the relevant notes to the financial statements. The carrying amounts of financial assets and liabilities of the Group carried at amortised cost approximate their fair values, except for the Omni Bridgeway Bonds and Fixed Rate Notes. The Omni Bridgeway Bonds fair value has been determined using the quoted market price at 30 June, and the Fixed Rate Notes fair value has been determined using the price from FIIG, a privately-owned corporate bonds and government bonds specialist. For the purposes of disclosure, the fair value measurements used for the Bonds are level 1 on the fair value hierarchy and the Notes level 3. Level 3 inputs were used for all other assets and liabilities below to determine that the carrying value approximates fair value. Carrying Value Fair Value 2021 $’000 2020 $’000 2021 $’000 2020 $’000 231,305 38,754 389 21,859 134,730 231,305 134,730 17,019 38,754 17,019 – 389 17,396 21,859 292,307 169,145 292,307 21,009 75,290 70,232 17,783 48,533 14,376 24,044 73,942 69,842 42,786 76,030 4,884 21,009 76,760 73,690 17,783 48,533 14,376 – 17,396 169,145 24,044 75,808 69,139 42,786 76,030 4,884 247,223 291,528 252,151 292,691 Financial assets Receivables from litigation contracts and other Purchased claims Financial investments Other assets/security deposits Financial liabilities Trade and other payables Omni Bridgeway bonds Fixed rate notes Deferred consideration Variable deferred consideration Variable consideration – Purchased claims 82 Notes to the Financial StatementscontinuedOmni Bridgeway | Annual Report 2021 Note 15: Financial risk management (continued) Description of significant inputs to valuation of deferred and variable deferred consideration The significant inputs used in the fair value measurements of deferred and variable deferred consideration, categorised within Level 3 of the fair value hierarchy, together with a quantitative sensitivity analysis as at 30 June are shown below: For the DC and VDC valuations, the basis of the selected valuation assumptions are as follows: Item Variable deferred consideration Valuation technique Black Scholes Option Pricing Model Significant unobservable inputs Exercise price Volatility Range (weighted average) Theoretical exercise price based on the floor price of $3.407 40% at 30 June 2021 and 45% at 30 June 2020 Underlying share price $3.75 at 30 June 2021 and $4.77 at 30 June 2020 Dividend yield Risk free rate As at 30 June 2021: 0% for 8-Nov-21 payment 2% for 8-Nov-22 payment 2% for 8-Nov-23 payment 2% for 8-Nov-24 payment (as at 30 June 2020: 4%) As at 30 June 2021: 0.01% for 8-Nov-21 payment 0.02% for 8-Nov-22 payment 0.09% for 8-Nov-23 payment 0.34% for 8-Nov-24 payment (as at 30 June 2020: 0.41%) Sensitivity of the input to fair value At 30 June 2021: An absolute 5% increase in the volatility would result in a $879,000 increase in the value of the liability. An absolute 5% decrease in the volatility would result in a $885,000 decrease in the value of the liability. At 30 June 2020: An absolute 5% increase in the volatility would result in a $1,293,000 increase in the value of the liability. An absolute 5% decrease in the volatility would result in a $1,285,000 decrease in the value of the liability. At 30 June 2021: A relative 5% increase in the share price would result in a $1,462,000 increase in the value of the liability. A relative 5% decrease in the share price would result in a $1,359,000 decrease in the value of the liability. At 30 June 2020: A relative 5% increase in the share price would result in a $2,755,000 increase in the value of the liability. A relative 5% decrease in the share price would result in a $2,699,000 decrease in the value of the liability. At 30 June 2021: An absolute 1% increase in dividend yield would result in a $312,000 decrease in the value of the liability. An absolute 1% decrease in dividend yield would result in a $332,000 increase in the value of the liability. 83 HighlightsFinancial Report Shareholder Information OverviewDirectors’ Report Note 15: Financial risk management (continued) Item Valuation technique Significant unobservable inputs FX forward rate (AUD/EUR) Deferred consideration Black Scholes Option Pricing Model Exercise price Volatility Range (weighted average) At 30 June 2021: 8-Nov-21: 1.58 8-Nov-22: 1.59 8-Nov-23: 1.60 8-Nov-24: 1.63 At 30 June 2020: 8-Nov-21: 1.648 8-Nov-22: 1.668 8-Nov-23: 1.689 8-Nov-24: 1.714 Theoretical exercise price based on the floor price of $3.407 40% at 30 June 2021 and 45% at 30 June 2020 Underlying share price $3.75 at 30 June 2021 and $4.77 at 30 June 2020 Dividend yield Risk free rate 2% at 30 June 2021 and 4% at 30 June 2020 0.02% at 30 June 2021 and 0.41% at 30 June 2020 84 Sensitivity of the input to fair value 30 June 2021: A relative 5% increase in the forward exchange rates would result in a $2,403,000 increase the value of the liability. A relative 5% decrease in the forward exchange rate would result in a $2,403,000 decrease in the value of the liability. At 30 June 2020: A relative 5% increase in the forward exchange rates would result in a $3,776,000 increase the value of the liability. A relative 5% decrease in the forward exchange rate would result in a $3,781,000 decrease in the value of the liability. At 30 June 2021: An absolute 5% increase in the volatility would result in a $334,000 increase in the value of the liability. An absolute 5% decrease in the volatility would result in a $334,000 decrease in the value of the liability. At 30 June 2020: An absolute 5% increase in the volatility would result in a $571,000 increase in the value of the liability. An absolute 5% decrease in the volatility would result in a $553,000 decrease in the value of the liability. At 30 June 2021: An absolute 5% increase in the share price would result in a $525,000 increase in the value of the liability. An absolute 5% decrease in the share price would result in a $491,000 decrease in the value of the liability. At 30 June 2020: A relative 5% increase in the share price would result in a $1,683,000 increase in the value of the liability. A relative 5% decrease in the share price would result in a $1,630,000 decrease in the value of the liability. Notes to the Financial StatementscontinuedOmni Bridgeway | Annual Report 2021 Note 15: Financial risk management (continued) Item Valuation technique Significant unobservable inputs FX forward rate (AUD/EUR) Range (weighted average) At 30 June 2021: 8-Nov-21: 1.58 8-Nov-22: 1.59 8-Nov-23: 1.60 8-Nov-24: 1.63 At 30 June 2020: 8-Nov-21: 1.648 8-Nov-22: 1.668 8-Nov-23: 1.689 8-Nov-24: 1.714 Sensitivity of the input to fair value At 30 June 2021: relative 5% increase in the forward exchange rates would result in a $889,000 increase the value of the liability. A relative 5% decrease in the forward exchange rate would result in a $889,000 decrease in the value of the liability At 30 June 2020: A relative 5% increase in the forward exchange rates would result in a $3,378,000 increase the value of the liability. A relative 5% decrease in the forward exchange rate would result in a $3,382,000 decrease in the value of the liability. Foreign currency risk The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the US dollar. Foreign exchange risk arises from commercial transactions and recognised assets and liabilities 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 is also exposed to foreign exchange translation risk arising from its foreign operations. The Group’s investments in its subsidiaries are not hedged as those currency positions are considered to be long term in nature. In addition, the parent entity has intercompany receivables from its subsidiaries denominated in Australian Dollars which are eliminated on consolidation. The gains or losses on re-measurement of these intercompany receivables from foreign currencies to Australian Dollars are not eliminated on consolidation as the loans are not considered to be part of the net investment in the subsidiary. The Group’s exposure to foreign currency risk at 30 June were as follows: 2021 AUD $’000 USD $’000 GBP $’000 EUR $’000 SGD $’000 CAD $’000 HKD $’000 CHF $’000 AED $’000 JPY $’000 – – – – 14,676 270 1,196 63 76 9,257 53 38 55 10,071 – 108 – 16,533 30,194 (644) – (1,661) – – – – – – – – – 54,941 (374) 1,304 (1,598) 16,609 9,257 53 38 55 Financial Assets Cash and cash equivalents Receivables from litigation contracts and other Intercompany loan receivable Total assets Financial Liabilities Trade Payables Deferred consideration liabilities 80 66,315 919 – 167 – 319 – Total liabilities 66,395 919 167 319 1 – 1 48 – 97 – 48 97 3 – 3 4 – 4 (34) – (34) 85 HighlightsFinancial Report Shareholder Information OverviewDirectors’ Report Note 15: Financial risk management (continued) 2020 AUD $’000 USD $’000 GBP $’000 EUR $’000 SGD $’000 CAD $’000 HKD $’000 CHF $’000 AED $’000 JPY $’000 Financial Assets Cash and cash equivalents Receivables from litigation contracts and other1 Financial Liabilities Trade Payables Deferred consideration liabilities – – – – 118,816 26,821 81 2,573 813 1,225 10,434 89 567 64 21,219 1,973 1,700 – – – – – – 48,040 2,054 4,273 813 1,225 10,434 89 567 64 18 – – – – 349 1,125 – – 349 1,125 (1) – (1) – – – 307 – 307 – – – – – – 118,816 18 1 The receivables from litigation contracts and other balance includes the intercompany loan receivable that Omni Bridgeway Limited has with Omni Bridgeway Holdings (USA) Inc (formerly Bentham Holdings Inc) (USD), Omni Bridgeway Capital (Canada) Limited (formerly Bentham IMF Capital Limited) (CAD) and Omni Bridgeway (Singapore) Pte Limited (formerly IMF Bentham Pte Limited) (SGD). The Group’s exposure to foreign currency risk on cash and cash equivalents primarily relates to foreign cash holdings within the parent entity. The USD foreign currency risk for receivables is predominately due to the Group’s Euro denominated subsidiaries which have USD receivables. The AUD foreign currency risk for deferred and variable deferred consideration is due to Omni Bridgeway (Storm) Holdings BV’s acquisition of the OBE Group and its requirement to deliver AUD denominated shares in the Company. Sensitivity The following table summarises the sensitivity of financial instruments held at balance date to movement in the exchange rate of the subsidiary’s functional currency to the listed currencies, with all other variables held constant. The sensitivity is based on management’s estimate of reasonably possible changes over the financial year. Impact on profit or loss before tax ($’000) AUD USD GBP EUR SGD CAD HKD CHF AED JPY 30 June 2021 +10% 6,584 (7,191) -10% (6,584) 7,191 100 (100) (156) 156 158 (1,779) (158) 1,779 (157) 157 (7) 7 30 June 2020 +10% 14,308 (7,006) -10% (14,326) 7,006 (368) 368 (700) 700 (85) 85 (131) 131 (196) 196 33 (33) (1) 1 (23) 23 – – – – 86 Notes to the Financial StatementscontinuedOmni Bridgeway | Annual Report 2021 Note 16: Cash and cash equivalents Cash and cash equivalents in the Statement of Financial Position and Statement of Cash Flows comprise cash at bank and on hand, and short-term deposits with an original maturity of three months or less that are readily convertible to known amounts of cash on hand and which are subject to an insignificant risk of changes in value. Cash and cash equivalents comprise the following at 30 June: Cash at bank Short-term deposits Consolidated 2021 $’000 88,107 54,541 2020 $’000 101,037 93,347 142,648 194,384 Cash at bank earns interest at floating rates based on daily bank deposit rates. The carrying amounts of cash and cash equivalents represent fair value. Of the cash at bank, $1,313,000 (2020: $1,089,000) is restricted as it is held within Stichting vehicles on behalf of customers. The Stichting vehicles were founded as a separate, independent foundation to ensure the cash flows related to the claims were secured. Short-term deposits are made for varying periods depending on the immediate cash requirements of the Group. As at 30 June 2021, all short-term deposits are due to mature in less than 90 days from inception and earn interest at the respective short-term deposit rates. Bank Guarantees Bank guarantees have been issued by the Group’s bankers as security for leases over premises, banking facilities and as security for adverse costs orders for investments funded under litigation contracts. As at 30 June 2021, guarantees of $1,163,000 were outstanding (2020: $1,204,000). The Group has a total guarantee facility limit of $1,432,000 (2020: $1,474,000) that is secured by an offset arrangement with deposits of $1,632,000 (2020: $1,674,000). Cash in Funds can only be used for litigation matters and expenses in the Funds. Note 17: Debt securities All loans and borrowings are initially recognised at fair value less directly attributable transaction costs. After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest rate method. The borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance date. Non-Current Omni Bridgeway Bonds Fixed Rate Notes Consolidated 2021 $’000 2020 $’000 75,290 70,232 73,942 69,842 145,522 143,784 87 HighlightsFinancial Report Shareholder Information OverviewDirectors’ Report Note 17: Debt securities (continued) Cash and non-cash movements in debt securities are shown below: Balance at 1 July Proceeds from issue of debt Repayment of debt Payments for costs of issuing debt Amortisation of costs of issuing debt Balance at 30 June Consolidated 2021 $’000 143,784 – – – 1,738 2020 $’000 143,972 34,284 (34,284) (2,183) 1,995 145,522 143,784 There are 760,000 Bonds on issue with a face value of $100 each. The Omni Bridgeway Bonds have a variable rate of interest based on the Bank Bill rate plus a fixed margin of 4.20% per annum, paid quarterly. The maturity date is 22 December 2022, with a first issuer call date of 8 January 2022 with an increase in the margin of 1.0% applying from 1 January 2022 to the maturity date. On 20 December 2019, the Company refinanced its Fixed Rate Notes by early redemption of the existing notes by payment of 101% of the outstanding principal and accrued interest to the date of redemption. Of the notes on issue, 34,284 notes were redeemed and new notes issued to new noteholders and 37,716 notes were exchanged for new notes. The interest rate payable to new Noteholders is 5.65% per annum payable quarterly. The Fixed Rate Notes are due to mature on 8 January 2026 and are secured by a security interest over all present and after-acquired property of the Group. The application of AASB 123 Borrowing Costs (revised 2007) has resulted in the capitalisation of $8.961 million (2020: $10.385 million) during the current financial year as part of the Litigation Contracts in Progress intangible assets which are deemed to be qualifying assets post the application date of AASB 123 (revised) on 1 July 2009 (refer to Note 13). In relation to the debt securities held by the Group, there were no material breaches in covenants. The following ratios are applicable to the Group for the financial year: Gearing ratio1 Working capital ratio2 Interest cover3 Consolidated 2021 40% 4.86 N/A 2020 46% 3.67 N/A 1 2 3 The gearing ratio is calculated as total liabilities over total equity in accordance with CO 14/1276. It is categorised as non-IFRS information prepared in accordance with ASIC Regulatory Guidance 230 – Disclosing non-IFRS financial information, issued in December 2011. The working capital ratio is calculated as current assets over current liabilities in accordance with CO 14/1276. It is categorised as non-IFRS information prepared in accordance with ASIC Regulatory Guidance 230 – Disclosing non-IFRS financial information, issued in December 2011. The interest cover ratio is calculated as EBITDA over net interest expense in accordance with CO 14/1276. It is not applicable as interest is capitalised on qualifying assets. 88 Notes to the Financial StatementscontinuedOmni Bridgeway | Annual Report 2021 Note 17: Debt securities (continued) In accordance with the Financial covenants required per OBL Bonds Trust Deed and OBL Note Trust Deed, the current resources of the Issuer Group as at 30 June 2021 was $233.002 million (2020: $203.857 million) which comprised: Cash at bank Deposits Financial instruments Receivables from litigation contracts & other Consolidated 2021 $’000 2020 $’000 98,664 132,463 – – – – 134,338 233,002 71,394 203,857 In accordance with clause 5.9(a)(ii) of the OTC Note terms and in accordance with clause 4.5(a)(ii) of Schedule 2 of the OBL Bond Trust Deed, OBL confirms that at all times during the previous six months no wholly owned subsidiary held cash on its balance sheet in an amount which at any time exceeds the subsidiary cash limit at that time for a period of more than 30 consecutive calendar days, unless the relevant wholly owned subsidiary has provided an unconditional guarantee of all amounts owing on the bonds then outstanding in favour of the Trustee. Note 18: Contributed equity Ordinary shares are classified as equity. Issued and paid up capital is recognised at the fair value of the consideration received by the Company. 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. Contributed equity Issued and fully paid ordinary shares (a) Ordinary shares Fully paid ordinary shares carry one vote per share and the right to dividends. Movement in ordinary shares At 1 July 2019 Shares issued during the year (Entitlement offer and Placement) Shares issued upon exercise of performance rights Shares issued under the Dividend Reinvestment Plan At 30 June 2020 Shares issued during the year (Deferred and Variable Deferred Consideration) Shares issued upon exercise of performance rights Shares issued under the Dividend Reinvestment Plan At 30 June 2021 Consolidated 2021 $’000 2020 $’000 389,501 347,630 Number ’000 $’000 204,609 40,571 4,231 454 249,865 8,120 3,604 591 205,558 134,212 6,021 1,839 347,630 33,537 6,064 2,270 262,180 389,501 On 25 September 2020, the Company issued 590,734 shares at $3.84 per share under its Dividend Reinvestment Plan. 89 HighlightsFinancial Report Shareholder Information OverviewDirectors’ Report Note 18: Contributed equity (continued) (b) Performance rights As at 30 June 2021, there were 18,528,532 unissued ordinary shares in respect of which share performance rights were outstanding (2020: 17,302,007). (c) Capital management Capital includes bonds, notes, lease liabilities and equity attributable to the equity holders of the Parent. When managing capital, management’s objective is to ensure the Group continues as a going concern while maintaining optimal returns to shareholders and benefits for other stakeholders. Management also aims to maintain a capital structure that ensures the lowest cost of capital available to the Group. The Group’s earnings often vary dramatically, and this is expected to continue in future. Management’s policy is to pay dividends to shareholders from earnings where there is capital surplus to the needs of the business. The Group is not subject to any externally imposed capital requirements. Omni Bridgeway Limited’s accumulated losses/retained earnings are disclosed in Note 32. Note 19: Retained earnings/(accumulated losses) and reserves (a) Movements in retained earnings/(accumulated losses) were as follows: Balance at 1 July Effect of adoption of AASB 16 Leases Net loss for the year Dividend paid Balance at 30 June (b) Movements in reserves were as follows: Consolidated 2021 $’000 2020 $’000 (6,597) 12,494 – (25,451) (10,139) (42,187) (67) (11,542) (7,482) (6,597) Share based payment reserve $’000 Foreign currency translation reserve $’000 Option premium reserve $’000 Convertible note reserve $’000 Fund equity reserve $’000 17,749 6,169 23,918 4,409 (427) (10,981) (11,408) (16,997) 3,404 3,832 (23,665) – – (1,113) 3,404 3,832 (24,778) – – 2,179 Total reserves $’000 893 (5,925) (5,032) (10,409) Balance at 1 July 2019 Movements in reserves during the year Balance at 30 June 2020 Movements in reserves during the year Balance at 30 June 2021 28,327 (28,405) 3,404 3,832 (22,599) (15,441) 90 Notes to the Financial StatementscontinuedOmni Bridgeway | Annual Report 2021 Note 19: Retained earnings/(accumulated losses) and reserves (continued) (c) Nature and purpose of reserves i. Share-based payment reserve The share-based payments reserve is used to recognise the value of equity-settled share-based payments provided to employees, including key management personnel as part of their remuneration. Refer to Note 30 for further details of this plan. ii. Foreign currency translation reserve This reserve is used to record differences on the translation of the assets and liabilities of foreign operations. iii. Option premium reserve This reserve is used to record the value of equity benefits provided to employees and directors, including Key Management Personnel, as part of their remuneration. This reserve relates to the previous plan for options already vested. iv. Convertible note reserve This reserve was used to record the equity portion on the convertible notes (issued on 13 December 2010), which were fully redeemed by the Company during December 2013. v. Fund equity reserve This reserve is used to record changes in the proportion of equity held by non-controlling interests within the Group. D. WORKING CAPITAL, OTHER ASSETS AND OTHER LIABILITIES Note 20: Receivables from litigation contracts and other Receivables are recognised initially at fair value and subsequently remeasured at amortised cost using the effective interest rate method, less an allowance for any uncollectible amounts. Collectability of receivables from litigation contracts is reviewed on an ongoing basis. Collectability of receivables from litigation contracts is reviewed on an ongoing basis. The Group recognises an allowance for expected credit losses (ECLs) for all receivables based on the difference between the contractual cash flows due and all the cash flows that the Group expects to receive, discounted at an approximation of the original effective interest rate. The expected cash flows may include funds that are already held within a solicitor’s trust account. ECLs are recognised in two stages. For credit exposures for which there has not been a significant increase in credit risk since initial recognition, ECLs are provided for credit losses that result from default events that are possible within the next 12-months (a 12-month ECL). For those credit exposures for which there has been a significant increase in credit risk since initial recognition, a loss allowance is required for credit losses expected over the remaining life of the exposure, irrespective of the timing of the default (a lifetime ECL). As at 30 June 2021 the value of the ECL allowance is nil (2020: nil). Current Receivables from litigation contracts1 Other receivables2 Non-current Receivables from litigation contracts3 Consolidated 2021 $’000 2020 $’000 175,655 33,734 209,389 118,701 10,286 128,987 21,916 21,916 5,743 5,743 1 2 The gross value of current receivables before ECLs at 30 June 2021 is $221.332 million (2020: $118.701 million) Other receivables comprise interest receivable upon the maturity of the Group’s short-term deposits (between 30 and 90 days), receivables from co- funders of litigation contracts in progress, short term loans and deposits receivable. 3 The gross value of non-current receivables before ECLs at 30 June 2021 is $26,080 million (2020: $5,743 million) Fair value and credit risk Due to the nature of these receivables, the carrying value of the current receivables approximates its fair value. The maximum exposure to credit risk is the carrying value of receivables. Settlement funds may be held as security. It is not the Group’s policy to transfer (on-sell) receivables. 91 HighlightsFinancial Report Shareholder Information OverviewDirectors’ Report Note 21: Contract costs The Group holds management and advisory contracts in respect of Fund 4 and Fund 5. Incremental costs incurred in obtaining a contract are capitalised when the Group expects to recover the costs and are amortised on a systemic basis that is consistent with the Group’s transfer of related services to the customer. The amounts have been capitalised as shown below. The amounts are being amortised on a straight line basis over a period of seven years, being in reference to the initial four-year commitment period of the fund plus the estimated litigation funding contract life of three years. Balance at 1 July Amortisation of contract costs Balance at 30 June Current Non-current Note 22: Other assets Current Prepayments Deposits Non-current Prepayments Deposits Financial investments Other Consolidated 2021 $’000 5,400 (939) 4,461 939 3,522 4,461 2020 $’000 6,339 (939) 5,400 939 4,461 5,400 Consolidated 2021 $’000 2020 $’000 2,216 2,793 5,009 8,735 7,445 389 1,200 17,769 2,274 2,750 5,024 11,522 – – 887 12,409 Financial Investments Financial investments represent the Group’s investments made into Managed Investment Schemes (“MIS”) relating to Australian Class Action Lawsuits. The Group participates in these investments via its’ 20% participation in Fund 5 investments. As at 30 June 2021 there were six separate investments into MIS’s as follows – 1. The Prawn White Spot Litigation Funding Scheme (ARSN 647 887 027) 2. The Certain Underwriters at Lloyds Group Litigation Funding Scheme (ARSN 647 497 229) 3. Spring Farm Litigation Funding Scheme (ARSN 649 089 912) 4. Freedom Foods Group Litigation Funding Scheme (ARSN 646 754 378) 5. The Lloyds BII Claim Litigation Funding Scheme (ARSN 650 744 228) 6. The QBE BII Claim Litigation Funding Scheme (ARSN 650 744 415) 92 Notes to the Financial StatementscontinuedOmni Bridgeway | Annual Report 2021 Note 22: Other assets (continued) These investments are not consolidated into the Group and are classified as financial assets at fair value through the profit or loss. The investments are initially recognised at fair value plus any attributable transaction costs and are subsequently measured at fair value at each reporting date. Management judgement is required when calculating the fair value of the investments. Level 3 inputs are used in the fair value calculation and estimation of fair value is inherently uncertain. Typically the fair value of investments are equivalent to the Group’s deployed capital on the investment, being the Group’s share of funded costs of the litigation plus any associated other funded costs of the MIS, until there is some material objective positive or negative event in the underlying litigation that would cause a change in value. The responsible entity of the MIS’s is Omni Bridgeway Managed Investments Limited, which is part of the consolidated Group. Note 23: Plant and equipment Plant and Equipment Plant and equipment is stated at historical cost less accumulated depreciation and impairment. Such cost includes the cost of replacing parts that are eligible for capitalisation when the cost of replacing parts is incurred. All other repairs and maintenance are recognised in the profit or loss as incurred. Depreciation is calculated on a straight-line basis over the estimated useful lives of the assets. The major categories of property, plant and equipment are depreciated as follows: – Equipment – Furniture – Leasehold – Right-of-use 2 to 5 years; 2 to 6 years; 2 to 11 years; and 2 to 5 years. The assets’ residual values, useful lives and amortisation methods are reviewed, and adjusted if appropriate, at each financial year end. An item of plant and equipment is derecognised upon disposal or when no further future economic benefits are expected from its use or disposal. Right-of-use assets The Group recognises right-of-use assets at the commencement date of the lease (ie. the date the underlying asset is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognised (Refer to Note 26), initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. Unless the Group is reasonably certain to obtain ownership of the leased asset at the end of the lease term, the recognised right-of-use assets are depreciated on a straight-line basis over the shorter of its estimated useful life and the lease term. Right-of-use assets are subject to impairment. Gross carrying amount - at cost Accumulated depreciation Net carrying amount Consolidated 2021 $’000 14,181 (8,276) 5,905 2020 $’000 12,833 (5,911) 6,922 93 HighlightsFinancial Report Shareholder Information OverviewDirectors’ Report Note 23: Plant and equipment (continued) Reconciliation of carrying amounts at the beginning and end of the year Equipment $’000 Furniture, Fixtures and Fittings $’000 Leasehold Improvements $’000 Right-of-use assets $’000 Gross carrying amount Balance at 1 July 2019 Adjustment on adoption of AASB16 Additions recognised at acquisition Additions Disposals Effect of movement in foreign currency Balance at 30 June 2020 Additions Disposals Effect of movement in foreign currency Balance at 30 June 2021 Accumulated depreciation Balance at 1 July 2020 Depreciation charge recognised at acquisition Depreciation charge for the year Disposals Effect of movement in foreign currency Balance at 30 June 2020 Adjustment on adoption of AASB16 Depreciation charge for the year Disposals Effect of movement in foreign currency Balance at 30 June 2021 1,085 – 788 166 – 2 2,041 266 (154) (73) 2,080 760 379 221 – (19) 1,341 – 414 (91) (70) 1,594 482 – 442 103 – 10 1,037 42 – (111) 968 323 378 118 – (11) 808 – 3 – (35) 776 2,025 – – 138 (231) 6 1,938 5 – (12) 1,931 1,397 – 379 (183) (25) 1,568 – 249 – (3) 1,814 – 3,054 1,993 2,770 – – 7,817 1,778 – (393) 9,202 – – 2,194 – – 2,194 (363) 2,453 – (192) 4,092 Total $’000 3,592 3,054 3,223 3,177 (231) 18 12,833 2,091 (154) (589) 14,181 2,480 757 2,912 (183) (55) 5,911 (363) 3,119 (91) (300) 8,276 Plant and Equipment of the Company is subject to a fixed charge to secure the Company’s debt due to Bondholders. See Note 17 for further details. Refer to Note 26 for further information on Right-of-use assets and their associated leases. 94 Notes to the Financial StatementscontinuedOmni Bridgeway | Annual Report 2021 Note 24: Trade and other payables Trade payables, other payables and accruals are carried at amortised cost. Due to their short-term nature they are not discounted. They represent liabilities for goods and services provided to the Group or liabilities to provide funding in relation to an investment to the end of the financial year that are unpaid and arise when the Group becomes obliged to make future payments in respect of the purchase of these goods and services or deployment against investment commitments. The amounts are unsecured, non- interest bearing and are usually paid within 30 days of recognition. Trade payables Wage accruals Interest accruals Consolidated 2021 $’000 2020 $’000 18,688 20,333 501 1,820 1,833 1,878 21,009 24,044 Fair Value Due to the nature of trade and other payables, their carrying value approximates their fair value. Note 25: Provisions General provisions Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Provisions are measured at the present value of management’s best estimate of the expenditure required to settle the present obligation at the balance date. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects the time value of money and the risks specific to the liability. The increase in the provision resulting from the passage of time is recognised in finance costs. Employee benefits Provision is made for employee benefits accumulated as a result of employees rendering services up to the end of the reporting period. These benefits include wages, salaries, annual leave, long service leave and bonuses. Liabilities in respect of employees’ services rendered that are not expected to be wholly settled within one year after the end of the periods in which the employees render the related services are recognised as long-term employee benefits. These liabilities are measured at the present value of the estimated future cash outflow to be made to the employees using the projected unit credit method. Liabilities expected to be wholly settled within one year after the end of the period in which the employees render the related services are classified as short-term benefits and are measured at the amount due to be paid. Current Annual leave and vested long service leave Adverse costs Bonus Non-Current Premises lease make good Long service leave Consolidated 2021 $’000 2020 $’000 4,637 19,100 677 24,414 278 577 855 3,498 672 10,753 14,923 282 395 677 95 HighlightsFinancial Report Shareholder Information OverviewDirectors’ Report Note 25: Provisions (continued) (a) Movement in provisions Balance at 1 July 2020 Arising during the year Utilised Effect of movement in foreign currency Balance at 30 June 2021 Current 2021 Non-current 2021 Current 2020 Non-current 2020 Adverse costs $’000 672 18,428 – – 19,100 19,100 – 19,100 672 – 672 Annual leave $’000 Long service leave $’000 Premises lease make good $’000 2,693 2,001 (892) (69) 3,733 3,733 – 3,733 2,693 – 2,693 1,200 281 – – 1,481 904 577 1,481 805 395 1,200 282 – – (4) 278 – 278 278 – 282 282 Bonus $’000 10,753 999 (11,077) 2 677 677 – 677 10,753 – 10,753 Total $’000 15,600 21,709 (11,969) (71) 25,269 24,414 855 25,269 14,923 677 15,600 (b) Nature and timing of provisions Adverse costs The Group raises a provision for adverse costs when the underlying litigation, arbitration, enforcement or recovery which was funded is lost and the jurisdiction requires adverse costs to be paid to the counter party. When an investment is lost and an appeal is lodged, the Group still raises a provision. The provision raised is the Group’s best estimate of the amount of adverse costs it will have to remit. Typically, this estimate is between 40% to 80% of the amount spent by the plaintiff, on the basis that there is only one defendant per case. Refer to Note 28 for further details on adverse costs. As at 30 June 2021, adverse costs provision of $19.1 million (2020: $0.7 million) had been recognised for two on-balance sheet investments and one investment in the Funds that received an unfavourable judgment. Of that amount, $9.4 million will be recovered from insurance proceeds ($8.6 million) and as part of a co-funding agreement ($0.8 million) and this amount has been recognised as a receivable. As a result, $15.3 million has been expensed and is included in other expenses. Premises lease make good The make good provision relates to amounts recognised for make good requirements on leases of office space. Bonus The bonus provision relates to amounts accrued based on management’s best estimate to be paid to employees. 96 Notes to the Financial StatementscontinuedOmni Bridgeway | Annual Report 2021 Note 26: Lease liabilities The Group has lease contracts for rental property and motor vehicles. These leases generally have lease terms between 3 and 7 years. The Group’s obligations under its leases are secured by the lessor’s title to the leased assets. Generally, the Group is restricted from assigning and subleasing the leased assets. There are several lease contracts that include extension and termination options and variable lease payments, which are further discussed below. The Group assesses at contract inception whether a contract is, or contains, a lease. That is, if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Group as lessee Lease liabilities At the commencement date of the lease, the Group recognises lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including in-substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Group and payments of penalties for terminating a lease, if the lease term reflects the Group exercising the option to terminate. In calculating the present value of lease payments, the Group uses the incremental borrowing rate at the lease commencement date if the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the in-substance fixed lease payments or a change in the assessment to purchase the underlying asset. Short-term leases and leases of low-value assets The Group applies the short-term lease recognition exemption to its short-term leases of machinery and equipment (ie those leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option). It also applies the lease of low-value assets recognition exemption to leases of office equipment that are considered of low value. Lease payments on short-term leases and leases of low-value assets are recognised as expense on a straight-line basis over the lease term. Set out below are the carrying amounts of right-of-use assets recognised and the movements during the year: Balance at 1 July 2019 Additions Depreciation expense Balance at 30 June 2020 Additions Depreciation expense Effects of movement in foreign currency Balance at 30 June 2021 Rental property $’000 Other equipment $’000 3,001 4,763 (2,171) 5,593 2,141 (2,429) (201) 5,104 53 – (23) 30 – (24) – 6 Total $’000 3,054 4,763 (2,194) 5,623 2,141 (2,453) (201) 5,110 97 HighlightsFinancial Report Shareholder Information OverviewDirectors’ Report Note 26: Lease liabilities (continued) Set out below are the carrying amounts of lease liabilities and the movements during the year: Balance at 1 July Additions Accretion of interest Payments Effects of movement in foreign currency Balance at 30 June Current Non-current The following are the amounts recognised in profit or loss: Depreciation expense on right-of-use assets Interest expense on lease liabilities (included in finance costs) Expense relating to short-term leases Expenses relating to leases of low-value assets (included in corporate and office expense) Total amount recognised in profit and loss Consolidated 2021 $’000 5,684 2,657 750 (2,947) (301) 5,843 2,449 3,394 5,843 Consolidated 2021 $’000 2,453 750 352 209 3,764 2020 $’000 3,205 4,494 263 (2,278) – 5,684 2,870 2,814 5,684 2020 $’000 2,194 263 205 189 2,851 The Group had total cash outflows for leases of $3,508,000 in 2021 (2020: $1,515,000). The future cash outflows relating to leases that have not yet commenced are disclosed in Note 28. The Group has several lease contracts that include extension and termination options. These options are negotiated by management to provide flexibility in managing the leased-asset portfolio and align with the Group’s business needs. Management exercises significant judgment in determining whether these extension and termination options are reasonably certain to be exercised. Set out below are the undiscounted potential future rental payments relating to periods following the exercise date of extension and termination options that are not included in the lease term: Extension options not expected to be exercised Within five years $’000 More than five years $’000 531 – Total $’000 531 98 Notes to the Financial StatementscontinuedOmni Bridgeway | Annual Report 2021 Note 27: Other financial liabilities Variable consideration relating to purchased claims is initially measured at fair value and subsequently measured at amortised cost using the effective interest rate method. Deferred and variable deferred consideration is valued at fair value at the acquisition date as part of at FVPL business combination. The deferred and variable deferred consideration meets the definition of a financial liability, and it is subsequently remeasured at fair value at each reporting date. Current Deferred consideration Variable deferred consideration Variable consideration - Purchased claims Non-Current Deferred consideration Variable deferred consideration Variable consideration - Purchased claims Consolidated 2021 $’000 2020 $’000 – 14,647 5,070 19,717 17,783 33,886 9,306 60,975 20,681 17,655 – 38,336 22,105 58,375 4,884 85,364 Deferred and variable deferred consideration Deferred and variable deferred consideration relates to the acquisition of OBE Group. The determination of the fair value is designated as level 3 in the fair value hierarchy. Refer to Notes 15 and 31 for further information. 99 HighlightsFinancial Report Shareholder Information OverviewDirectors’ Report Note 27: Other financial liabilities (continued) The following table reconciles the movements in recurring fair value measurements categorised within level 3 of the fair value hierarchy: Current Balance at 1 July 2020 Fair value remeasurement recognised through profit and loss Issue of shares to satisfy the liability Reclassification from Non-Current Effect of movement in foreign currency Balance at 30 June 2021 Non-Current Balance at 1 July 2020 Fair value remeasurement recognised through profit and loss Reclassification to Current Effect of movement in foreign currency Balance at 30 June 2021 Current Balance at 1 July 2019 Additions recognised through business combination Fair value remeasurement recognised through profit and loss Effect of movement in foreign currency Balance at 30 June 2020 Non-Current Balance at 1 July 2019 Additions recognised through business combination Fair value remeasurement recognised through profit and loss Effect of movement in foreign currency Balance at 30 June 2020 Deferred consideration $’000 Variable Deferred consideration $’000 Total $’000 20,681 (2,793) 17,655 (3,403) 38,336 (6,196) (17,808) (15,729) (33,537) – (80) – 16,194 16,194 (70) (150) 14,647 14,647 22,105 (3,628) – (694) 17,783 – 17,565 2,816 300 20,681 – 19,452 2,321 332 22,105 58,375 (6,465) (16,194) (1,830) 33,886 – 14,997 2,402 256 17,655 – 51,440 6,058 877 58,375 80,480 (10,093) (16,194) (2,524) 51,669 – 32,562 5,218 556 38,336 – 70,892 8,379 1,209 80,480 100 Notes to the Financial StatementscontinuedOmni Bridgeway | Annual Report 2021 Note 28: Commitments and contingencies Capital commitments Omni Bridgeway Limited has $373.038 million in aggregate Investor Capital commitments to its Funds 1, 2 & 3, 4, 5, 6 and 7 collectively, of which $240.880 million is undrawn as at 30 June 2021. The Funds have made aggregate funding commitments to Investments totalling $1,096.550 million, of which $523.554 million is yet to be deployed as at 30 June 2021. Remuneration commitments Commitments for the payment of salaries and other remuneration under long-term employment contracts in existence at the reporting date but not recognised as liabilities payable: Within one year After one year but no more than five years Consolidated 2021 $’000 2020 $’000 5,461 – 5,461 4,383 – 4,383 Amounts disclosed as remuneration commitments also include commitments arising from the service contracts of, and bonuses payable to, directors and executives referred to in the Remuneration Report of the Directors’ Report that are not recognised as liabilities and are not included in the compensation of Key Management Personnel. Contingencies In certain jurisdictions litigation funding agreements contain an undertaking from the Group to the client 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. It is not possible to predict in which cases such an award might be made. In addition, the Group has insurance arrangements which, in some circumstances, will lessen the impact of such awards. The entire Funds 2 and 3 portfolio has an after the event (“ATE”) insurance policy that will respond to claims for adverse costs in aggregate in excess of $7.5m up to the policy indemnity limit. The entire Fund 5 portfolio has an after the event (“ATE”) insurance policy that will respond to claims for adverse costs in aggregate in excess of USD20 million up to the policy indemnity limit. Based on past experience, an award of adverse costs to a defendant will approximate 40% to 80% (depending on jurisdiction) of the amount paid by the plaintiff to pursue the litigation (although in some cases there may be more than one defendant). Accordingly, an estimate of the total potential adverse costs exposure of the Group which has accumulated from time to time may be made by assuming all cases are lost, that adverse costs equal 40% to 80% of the amount spent by the plaintiff and that there is only one defendant per case. At 30 June 2021, the total amount spent on currently funded investments by the Group where undertakings to pay adverse costs have been provided was $107.476 million (2020: $129.856 million). The potential adverse costs orders using the above methodology would amount to $45.315 million (2020: $75.735 million). Subject to impairment considerations, the Group does not currently expect that any of the investments will be unsuccessful. The Group maintains a large cash holding in the event that one or more investments are unsuccessful and an adverse costs order is made which is not covered by its insurance arrangements. Further to the contingent comment above, in respect to a number of investments where the Group has a potential exposure to adverse cost exposure OBL has provided a security deed poll. The group has invested $65,080,000 to these investments collectively. Where the investment is within a Fund OBL is indemnified by the respective Fund. A portion of the consideration relating to the acquisition of OBE Group is contingent upon the OBE Group meeting performance targets. This is outlined in Note 31. 101 HighlightsFinancial Report Shareholder Information OverviewDirectors’ Report E. THE GROUP, MANAGEMENT AND RELATED PARTIES Note 29: Key management personnel Details of Key Management Personnel There were no changes to Key Management Personnel after the reporting date and before the date the financial report was authorised for issue. Compensation of Key Management Personnel Short-term employee benefits Post-employment benefits Long term employee benefits Share based payments Note 30: Share-based payment plan Share-based payment transactions Consolidated 2021 $’000 4,818 158 157 3,154 8,287 2020 $’000 4,673 155 249 2,458 7,535 (i) Equity-settled transactions The Company’s LTIP awards share performance rights to key senior employees. The cost of equity-settled transactions with employees is measured by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined using a Monte Carlo or Black Scholes Model depending on the type of LTIP. In valuing equity-settled transactions, no account is taken of any vesting conditions, other than conditions linked to the price of the shares of OBL (i.e. market conditions) if applicable. The cost of equity-settled transactions is recognised, together with a corresponding increase in the share-based payment reserve, over the period in which the performance and/or service conditions are fulfilled (the vesting period), ending on the date on which the relevant employees become fully entitled to the award (the vesting date). The charge to the profit or loss for the period is the cumulative amount as calculated above less the amounts already charged in previous periods. There is a corresponding credit to equity. Equity-settled awards granted by OBL to employees of subsidiaries are recognised in the Parent’s separate financial statements as an additional investment in the subsidiary with a corresponding credit to equity. These amounts are eliminated through consolidation. As a result, the expenses recognised by the Company in relation to equity-settled awards only represents the expense associated with grants to employees of the Parent. The expense recognised by the Group is the total expense associated with all such awards. Until an award has vested, any amounts recorded are contingent and will be adjusted if more or fewer awards vest than were originally anticipated to do so. Any award subject to a market condition is considered to vest irrespective of whether or not that market condition is fulfilled, provided that all other conditions are satisfied. If the terms of an equity-settled award are modified, as a minimum an expense is recognised as if the terms had not been modified. An additional expense is recognised for any modification that increases the total fair value of the share-based payment arrangement, or is otherwise beneficial to the employee, as measured at the date of modification. If an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and an expense not yet recognised for the award is recognised immediately. However, if a new award is substituted for the cancelled award and designated as a replacement award on the date that it is granted, the cancelled and new award are treated as if they were a modification of the original award, as described in the previous paragraph. Where outstanding rights do not have an anti-dilutive effect and are currently meeting the performance criteria, the dilutive effect, if any, is added to share dilution in the computation of diluted earnings per share. 102 Notes to the Financial StatementscontinuedOmni Bridgeway | Annual Report 2021 Note 30: Share-Based Payment Plan (continued) (ii) Cash-settled transactions The Group does not provide cash-settled share-based benefits to employees or senior executives. Long Term Incentive Plan LTIP awards are delivered in the form of performance rights over shares which vest after a period of three years subject to meeting performance measures. The Group uses relative TSR and CAGR of Funds Deployed as the performance measures. For the portion of the LTIP subject to the relative TSR performance measure, the fair value of share performance rights granted is estimated at the date of grant using a Monte-Carlo simulation model, taking into account the terms and conditions upon which the share performance rights were granted. For the portion of the LTIP based on the achievement of CAGR of Funds Deployed, the Black-Scholes model is used. 4,528,546 share performance rights were issued during 2021 (2020: 5,431,814). Specific assessment for performance rights issued in the period is below: Grant Date Share price at grant date Exercise price Expected Volatility (%) Dividend yield (%) Risk-free rate (%) Performance period Models used Tranche 1 - relative TSR (value per right $) Tranche 2 - CAGR (value per right $) 1 July 2020 $4.670 Nil 40% 1.50% 0.27% 27 November 2020 $4.250 Nil 40% 1.50% 0.11% 3 years ending 30 June 2023 3 years ending 30 June 2023 Monte Carlo & Black Scholes Monte Carlo & Black Scholes $2.530 $4.466 $1.812 $4.089 The expense recognised for share based payments during the year is shown below: Share based payments expense Consolidated 2021 $’000 13,755 2020 $’000 7,313 The following table illustrates the number and weighted average exercise prices (WAEP) of, and movements in, share performance rights during the year: Movements during the year Outstanding at 1 July Granted Exercised Forfeited Outstanding at 30 June Exercisable at 30 June 30 June 2021 Number 30 June 2021 WAEP 30 June 2020 Number 30 June 2020 WAEP 17,302,007 4,528,546 (2,297,814) (1,004,207) 18,528,532 4,829,705 – – – – – – 15,601,589 5,431,814 (2,425,845) (1,305,551) 17,302,007 7,862,485 – – – – – – 103 HighlightsFinancial Report Shareholder Information OverviewDirectors’ Report Note 31: Business combination Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, which is measured at acquisition date fair value, and the amount of any non-controlling interests in the acquiree. For each business combination, the Group elects whether to measure the non-controlling interests in the acquiree at fair value or at the proportionate share of the acquiree’s identifiable net assets. Acquisition-related costs are expensed as incurred and included in administrative expenses. When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts by the acquiree. Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Contingent consideration classified as equity is not remeasured and its subsequent settlement is accounted for within equity. Contingent consideration classified as an asset or liability that is a financial instrument and within the scope of AASB 9 Financial Instruments, is measured at fair value with the changes in fair value recognised in profit or loss in accordance with AASB 9. Refer to Note 15 and 27 for further information Acquisition of Omni Bridgeway Holding BV On 15 October 2019, the Group agreed to acquire 100% of shares in Omni Bridgeway Holding B.V. (OBE Group), a non-listed company headquartered in the Netherlands, and its subsidiaries in exchange for cash and share capital consideration. The primary purpose for the acquisition was to expand the Group’s geographical footprint and also expand the types of litigation dispute resolution investments that it engages in. The transaction completed on 8 November 2019, for $122.737 million with a cash payment of EUR31.177 million ($51.003 million); a fair value of deferred consideration payable of EUR22.984 million ($37.017 million at acquisition) and a fair value of contingent variable deferred consideration amount payable of up to EUR41.251 million ($66.437 million at acquisition), subject to new business targets. Goodwill of $101.342 million was recognised and $103.065 million of fair value adjustment was required to individually identifiable assets. 104 Notes to the Financial StatementscontinuedOmni Bridgeway | Annual Report 2021 Note 31: Business combination (continued) (a) Assets acquired and liabilities assumed The fair values of the identifiable assets and liabilities of Omni Bridgeway as at the date of acquisition have been determined, as follows: Assets Cash and cash equivalents Other receivables Other financial assets Plant and equipment Right-of-use assets Claims portfolio Purchased claims Intangible assets - litigation contracts in progress Investment in associates and joint ventures Liabilities Trade and other payables Provisions Deferred income tax liabilities Lease liabilities Total identifiable net assets at fair value Non-controlling interests Goodwill arising on acquisition1 Purchase consideration Fair value recognised on acquisition $’000 10,345 39,914 4,923 473 1,993 98,330 12,785 53,435 19 222,217 44,174 1,490 20,127 1,993 67,784 154,433 (102,109) 101,342 153,666 1 Goodwill recognised is primarily attributable to the future investment performance of the OBE Group and expected synergies and other benefits from combining the assets and activities of the OBE Group with those of the Group. The goodwill is not deductible for tax purposes. For the current year the OBE Group was fully consolidated in the revenue and profit/(loss), refer to segment note. From the date of acquisition to 30 June 2020, the OB Group contributed revenue of $25.839 million and $1.299 million loss before tax. If the combination had taken place on 1 July 2019, revenue from continuing operations would have been $30.097 million and loss before tax from continuing operations for the Group would have been $9.670 million for the year ended 30 June 2020. 105 HighlightsFinancial Report Shareholder Information OverviewDirectors’ Report Note 31: Business combination (continued) The value of non-controlling interests acquired has been calculated with reference to the non-controlling interests’ share of the fair value of net assets acquired. Purchase Consideration Cash consideration Deferred consideration Variable deferred consideration Total consideration Analysis of cash flows on acquisition Cash consideration (included in cash flows from investing activities) Transaction costs of the acquisition (included in cash flows from operating activities) Net cash acquired with the subsidiary (included in cash flows from investing activities) Net cash outflow on acquisition At acquisition $’000 50,212 37,017 66,437 153,666 (50,212) (4,838) 10,345 (44,705) Transaction costs of $4.838 million were expensed and are included in professional fees within corporate and office expenses on the Statement of Comprehensive Income for the year ended 30 June 2020. (b) Deferred consideration As part of the purchase agreement with the vendors, an amount of deferred consideration of EUR18.132 million ($29.202 million at acquisition) was agreed, payable in two equal instalments 12 months and 36 months after completion. The fair value of the deferred consideration at acquisition is determined using the Black Scholes option pricing model. The key assumptions are detailed above in Note 15. As at the acquisition date, the fair value of the deferred consideration payable was estimated to be $37.017 million. The issue of shares in relation to tranche 1 of the deferred consideration payment was approved on at the OBL general meeting held on the 27 November 2020. The remaining tranche 2 deferred consideration payment will be satisfied by the issue of shares in Omni Bridgeway subject to shareholder approval at an issue price of $3.407 per share. If the deferred consideration is satisfied by the issue of OBL shares and the market value of those shares is less than $3.407 per share at the time of issue, OBL shall be obliged to make a further payment by way of deferred consideration of the difference in value. If shareholder approval is not obtained for the deferred consideration to be satisfied by way of the issue of OBL shares, OBL will be obliged to make the payment in cash at the higher of EUR9.066 million or the value of the OBL shares which would have been issued had shareholder approval been obtained. Balance at 30 June 2019 Liability arising on business combination Fair value remeasurement recognised through profit and loss Effect of movement in foreign currency Balance at 30 June 2020 Fair value remeasurement recognised through profit and loss Issue of shares to satisfy the liability Effect of movement in foreign currency Balance at 30 June 2021 106 $’000 – 37,017 5,137 632 42,786 (6,421) (17,808) (774) 17,783 Notes to the Financial StatementscontinuedOmni Bridgeway | Annual Report 2021 Note 31: Business combination (continued) (c) Variable deferred consideration As part of the purchase agreement with the vendors, an amount of variable deferred consideration of up to EUR32.500 million ($52.343 million at acquisition) was agreed. This will be payable over a five year period subject to performance milestones. On 14 February 2020, the Company obtained shareholder approval for the issue of up to a maximum of 17,328,712 shares toward satisfaction of the variable deferred consideration liability that may become payable. The variable deferred consideration will (to the extent it becomes payable) be satisfied by the issue of shares in the Company at an issue price of $3.407 per share. If the market value of those shares is less than $3.407 at the time of issue, the Group shall be obliged to make a further payment by way of variable deferred consideration for the difference in value. The payment schedule for the variable deferred consideration is: i. EUR8.000 million per year, over the period of 1 to 3 years following acquisition date, if the entity meets stipulated performance milestones; and ii. EUR4.250 million per year, over the period of 4 to 5 years following acquisition date, if the entity meets stipulated performance milestones. The milestones are focussed on cumulative annual new business generation. As at the acquisition date, the fair value of the variable deferred consideration was estimated to be $66.437 million. The fair value of the variable deferred consideration has been determined using a probability weighted payout approach incorporating a Black Scholes option pricing model. The probabilities of meeting the business hurdles have been estimated by management and the valuation method is considered Level 3 in the fair value hierarchy. The key assumptions take into consideration the probability of meeting each target performance milestone % at both acquisition and balance sheet date. As at date of acquisition, the past key performance indicators of Omni Bridgeway show that it is highly probable that the target performance milestones will be achieved. The fair value of the variable deferred consideration determined at date of acquisition reflects this scenario. Balance at 30 June 2019 Liability arising on business combination Fair value remeasurement recognised through profit and loss Effect of movement in foreign currency Balance at 30 June 2020 Fair value remeasurement recognised through profit and loss Issue of shares to satisfy the liability Effect of movement in foreign currency Balance at 30 June 2021 $’000 – 66,437 8,460 1,133 76,030 (9,868) (15,729) (1,900) 48,533 107 HighlightsFinancial Report Shareholder Information OverviewDirectors’ Report Note 31: Business combination (continued) ASX has granted the Company a waiver from Listing Rule 7.3.4, to permit the Company to seek Shareholder approval for the issue of the Variable Deferred Consideration Shares in respect of the Variable Deferred Consideration later than 3 months from the date of the Meeting but no later than 60 months after the date of Completion (ASX Waiver). The ASX Waiver was granted subject to the following conditions: i. ii. the Annual Targets not being varied; the maximum number of Variable Deferred Consideration Shares to be issued is calculated based upon the Minimum Deemed Issue Price and is stated in the Notice, along with adequate details regarding potential dilution; iii. for any annual reporting during which any of the Variable Deferred Consideration Shares have been issued or any of them remain to be issued, the Company’s annual report sets out in detail the number of Variable Deferred Consideration Shares issued in that annual reporting period, the number of Variable Deferred Consideration Shares that remain to be issued and the basis on which the Variable Deferred Consideration Shares may be issued; iv. in any half year or quarterly report for a period during which any of the Variable Deferred Consideration Shares have been issued or remain to be issued, the Company must include a summary statement of the number of Variable Deferred Consideration Shares issued during the reporting period, the number of Variable Deferred Consideration Shares that remain to be issued and the basis on which the Variable Deferred Consideration Shares may be issued; and v. the notice of shareholder meeting contains the full terms and conditions of the Variable Deferred Consideration Shares and the conditions of the Waiver. Shares were issued in settlement of this obligation: Variable Deferred Consideration shares Maximum approved as permissible to issue Previously issued Issued during the year (Note 18) Total issued Remaining shares to be issued 2021 Number '000 17,329 – (8,120) (8,120) 2020 Number '000 17,329 – – – 9,209 17,329 The remaining balance may be issued per the payment schedule above if the cumulative annual business generation milestones are met. 108 Notes to the Financial StatementscontinuedOmni Bridgeway | Annual Report 2021 Note 32: Parent entity information Information relating to Omni Bridgeway Limited: Current assets Total assets Current liabilities Total liabilities Net assets Issued capital Retained earnings/Accumulated losses Reserves Total shareholders’ equity Loss of the Parent Total comprehensive loss of the Parent 2021 $’000 2020 $’000 217,248 593,376 201,473 564,818 (38,991) (21,524) (178,524) (165,826) 414,852 398,992 385,940 345,548 (5,603) 34,515 25,449 27,995 414,852 398,992 (20,867) (20,867) (13,315) (13,315) Details of the contractual commitments and contingent liabilities of the Parent are contained in Note 28. 109 HighlightsFinancial Report Shareholder Information OverviewDirectors’ Report Note 32: Parent entity information (continued) The consolidated financial statements include the financial statements of OBL and the subsidiaries listed in the following table: Name Fund 1 Omni Bridgeway (Fund 1) LLC HC 1 LLC Security Finance (Fund 1) LLC Funds 2 & 3 Omni Bridgeway (Fund 2) Pty Ltd Omni Bridgeway (Fund 3) Pty Ltd IMF Bentham ROW SPV 1 Limited IMF Bentham ROW SPV 2 Pty Ltd1 Fund 4 Omni Bridgeway (Fund 4) Invt 1 LP Omni Bridgeway (Fund 4) Invt 2 LP Omni Bridgeway (Fund 4) Invt 3 LP Omni Bridgeway (Fund 4) Invt 4 LP Omni Bridgeway (Fund 4) Invt 5 LP Omni Bridgeway (Fund 4) Invt 6 LP Omni Bridgeway (Fund 4) Invt 7 LP Omni Bridgeway (Fund 4) Invt 8 LP Omni Bridgeway (Fund 4) Invt 9 LP JPV I LP6 Fund 5 Omni Bridgeway (Fund 5) GPA Pty Ltd Fund 6 Omni Bridgeway BV2 Omni Bridgeway LegalTech BV2 Omni Bridgeway Emerging Markets BV2 Omni Bridgeway Collective Redress BV2 Omni Bridgeway Asia Pte Ltd2 Omni Bridgeway Holding (Switzerland) SA2 Omni Bridgeway SA2 Omni Bridgeway GmbH2 Minories Capital Ltd2 7 Omni Bridgeway Finance BV2 Stichting Client Accounts Omni Bridgeway2 3 Stichting Cartel Compensation2 3 Stichting Trucks Cartel Compensation2 3 Fund 7 Omni Bridgeway Advisory Ltd2 110 Percentage owned Country of Incorporation 2021 % 2020 % USA USA USA Australia Australia United Kingdom Australia USA USA USA USA USA USA USA USA USA USA 50 12 50 24 24 24 24 20 20 20 20 20 20 20 20 20 20 37 7 37 20 20 20 – 20 20 20 20 20 20 20 20 20 – Australia 100 100 Netherlands Netherlands Netherlands Netherlands Singapore Switzerland Switzerland Germany Guernsey Netherlands Netherlands Netherlands Netherlands United Arab Emirates 81 41 81 81 81 81 81 81 81 81 N/A N/A N/A 65 81 41 81 81 81 81 81 81 81 81 N/A N/A N/A 65 Notes to the Financial StatementscontinuedOmni Bridgeway | Annual Report 2021 Note 32: Parent entity information (continued) Name Group Subsidiaries Omni Bridgeway Holdings (Fund 1) LLC Omni Bridgeway Capital GP (Fund 4) LLC Omni Bridgeway (USA) LLC Omni Bridgeway Management (USA) LLC Omni Bridgeway Holdings (USA) Inc Security Finance LLC Omni Bridgeway Capital (Canada) Limited Lien Finance Canada Limited Omni Bridgeway (Singapore) Pte Limited Omni Bridgeway (UK) Limited Omni Bridgeway (Cayman) Limited Omni Bridgeway (Storm) Holdings Pty Ltd Omni Bridgeway (Storm) Holdings BV Omni Bridgeway Investment Management Ltd5 Omni Bridgeway Holding B.V.2 Omni Bridgeway Investment BV2 4 Percentage owned Country of Incorporation 2021 % 2020 % USA USA USA USA USA USA Canada Canada Singapore United Kingdom Cayman Islands Australia Netherlands Australia Netherlands Netherlands 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 1 2 3 4 5 6 7 This entity was incorporated 15 March 2021. Acquired through business combination with Omni Bridgeway Holding B.V. Group. The Stichting vehicles were founded as separate, independent foundations to ensure the cash flows related to the claims were secured. This holding this represents 100% of type A shares and voting rights. Type B shares, with no voting rights, represent 90% of share capital and receive 10% of yearly profits. Type A shares receive the remaining yearly profits. This entity was incorporated 26 June 2020. This entity was incorporated 7 July 2020. This entity is currently under liquidation. For all subsidiaries where there is less than 51% ownership interest, the Group has power to direct the relevant activities of the investee under contractual arrangements and exposure to variable returns the Group is considered to be acting as principal and thus has control. 111 HighlightsFinancial Report Shareholder Information OverviewDirectors’ Report Note 33: Material partly-owned subsidiaries Financial information of subsidiaries that have material non-controlling interests is provided below: Proportion of equity interest held by non-controlling interests: Percentage owned Country of Incorporation 2021 % 2020 % USA USA USA Australia Australia United Kingdom Australia USA USA USA USA USA USA USA USA USA USA USA Netherlands Netherlands Netherlands Netherlands Singapore Switzerland Switzerland Germany Guernsey Netherlands 50 88 50 76 76 76 76 80 80 80 80 80 80 80 80 80 80 100 19 59 19 19 19 19 19 19 19 19 63 93 63 80 80 80 – 80 80 80 80 80 80 80 80 80 – 80 19 59 19 19 19 19 19 19 19 19 Fund 1 Omni Bridgeway (Fund 1) LLC1 HC 1 LLC1 Security Finance (Fund 1) LLC1 Funds 2 & 3 Omni Bridgeway (Fund 2) Pty Ltd2 Omni Bridgeway (Fund 3) Pty Ltd2 IMF Bentham ROW SPV 1 Limited2 IMF Bentham ROW SPV 2 Pty Ltd2 Fund 4 Omni Bridgeway (Fund 4) Invt 1 LP3 Omni Bridgeway (Fund 4) Invt 2 LP3 Omni Bridgeway (Fund 4) Invt 3 LP3 Omni Bridgeway (Fund 4) Invt 4 LP3 Omni Bridgeway (Fund 4) Invt 5 LP3 Omni Bridgeway (Fund 4) Invt 6 LP3 Omni Bridgeway (Fund 4) Invt 7 LP3 Omni Bridgeway (Fund 4) Invt 8 LP3 Omni Bridgeway (Fund 4) Invt 9 LP3 JPV I LP Security Finance (Fund 4) LLC3 Fund 6 Omni Bridgeway BV4 Omni Bridgeway LegalTech BV4 Omni Bridgeway Emerging Markets BV4 Omni Bridgeway Collective Redress BV4 Omni Bridgeway Asia Pte Ltd4 Omni Bridgeway Holding (Switzerland) SA4 Omni Bridgeway SA4 Omni Bridgeway GmbH4 Minories Capital Ltd4 Omni Bridgeway Finance BV4 112 Notes to the Financial StatementscontinuedOmni Bridgeway | Annual Report 2021 Note 33: Material partly-owned subsidiaries (continued) Accumulated balances of material non-controlling interests: Omni Bridgeway (Fund 1) LLC1 HC 1 LLC1 Omni Bridgeway (Fund 2) Pty Ltd2 Omni Bridgeway (Fund 3) Pty Ltd2 Fund 43 Fund 64 Fund 7 Transaction costs, net of tax - disposal of non-controlling interest (Fund 1) Transaction costs, net of tax - disposal of non-controlling interest (Funds 2 & 3) Profit/(loss) allocated to material non-controlling interests: Omni Bridgeway (Fund 1) LLC1 Omni Bridgeway (Fund 2) Pty Ltd2 Omni Bridgeway (Fund 3) Pty Ltd2 Fund 4 Fund 6 Fund 7 2021 $'000 2020 $'000 106,266 47,138 62,481 20,827 85,120 117,485 – (5,934) (2,909) 430,474 47,599 – – (45,805) 5,226 – 7,020 126,987 47,104 53,455 17,804 94,053 100,640 – (5,934) (2,909) 431,200 9,659 14,325 4,737 2,906 (2,486) – 29,141 1 2 3 4 The results and non-controlling interests of these entities comprise the results of Fund 1, included in Note 1 Segment Information. The results and non-controlling interests of these entities comprise the results of Funds 2 & 3, included in Note 1 Segment Information. The results and non-controlling interests of these entities comprise the results of Fund 4, included in Note 1 Segment Information. The results and non-controlling interests of these entities comprise the results of Fund 6, included in Note 1 Segment Information. Movements in NCI’s during the year were as follows: Balance at 1 July 2019 Business combination Contributions Distributions Change in share of net assets attributable to NCI Profit/(loss) Other comprehensive income Balance at 30 June 2020 Contributions Distributions Change in share of net assets attributable to NCI Profit Other comprehensive loss Balance at 30 June 2021 Fund 1 Funds 2 & 3 $'000 $'000 Fund 4 $'000 Fund 5 $'000 Fund 6 $’000 Total $'000 202,529 68,573 25,450 – – – – (57,753) (10,561) 8,686 9,659 5,036 168,157 43 (8,724) 19,062 – 68,350 30,080 (36,213) (27,036) – 69,092 (3,464) (137) 2,906 206 94,053 38,614 (2,250) 73,630 (47,599) (10,548) 147,470 9,005 (81,840) – – 80,399 45,805 (9,262) 85,120 – – – – – – – – – – – – – – – 296,552 102,109 – – 2,168 (2,486) (1,151) 102,109 69,092 (71,778) 1,993 29,141 4,091 100,640 431,200 11,803 – (2,965) 8,814 (807) 80,540 (65,499) (2,170) 7,020 (20,617) 117,485 430,474 113 HighlightsFinancial Report Shareholder Information OverviewDirectors’ Report Note 33: Material partly-owned subsidiaries (continued) Funds 2 & 3 On 13 September 2017, the Group established Omni Bridgeway (Fund 2) Pty Ltd and Omni Bridgeway (Fund 3) Pty Ltd Pty Ltd) (collectively “Funds 2 & 3”). Fund 4 On 26 October 2018, the Group established Omni Bridgeway Capital GP (Fund 4) LLC On 29 November 2018, the Group established Security Finance (Fund 4) LLC. On 4 December 2018, the Group established Bentham Investments 1 – 10 LP (collectively “Fund 4”). On 7 July 2020, the Group established JPV 1 LP. Fund 5 On 20 June 2019, the Group established Fund 5, a non-US-centric investment structure. Fund 6 Fund 6 was created in 2016 and was acquired by the Group as part of the November 2019 acquisition of OBE. This is an EMEA focused investment structure. The summarised financial information of controlled entities with material non-controlling interests is provided below is based on amounts prior to intercompany eliminations: Fund 1 Funds 2 & 3 Fund 4 Fund 5 Fund 6 2021 $'000 2020 $'000 2021 $'000 2020 $'000 2021 $'000 2020 $'000 2021 $'000 2020 $'000 2021 $'000 2020 $'000 Summarised statement of cash flows Operating Investing Financing 12 (98) (7,510) 6,797 (3,255) (310) (5,060) 25,507 (6,707) (27,923) (50,517) (66,042) 41 (57,724) 10,564 (10,561) 45,825 91,965 Net increase in cash and cash equivalents (5,007) (32,315) (3,653) (31,687) (7,947) 25,613 Cash and cash equivalents at the beginning of the period 17,365 49,680 6,671 38,326 31,246 5,627 Foreign exchange (1,521) – – 32 (2,897) 6 Cash and cash equivalents at the end of the period 10,837 17,365 3,018 6,671 20,402 31,246 – – – – – – – – – – (17,047) (49,682) 7,182 58,143 11,803 – – 1,938 8,461 – – 8,556 (1,016) – 95 – 9,478 8,556 Note 34: Investment in associates and joint ventures An associate is an entity over which the Group has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee, but is not control or joint control over those policies. A joint venture is a type of joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint venture. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control. The considerations made in determining significant influence or joint control are similar to those necessary to determine control over subsidiaries. The Group’s investment in its associate and joint venture are accounted for using the equity method. Under the equity method, the investment in an associate or a joint venture is initially recognised at cost. The carrying amount of the investment is adjusted to recognise changes in the Group’s share of net assets of the associate or joint venture since the acquisition date. Goodwill relating to the associate or joint venture is included in the carrying amount of the investment and is not tested for impairment separately. 114 Notes to the Financial StatementscontinuedOmni Bridgeway | Annual Report 2021 Note 34: Investment in associates and joint ventures (continued) The statement of profit or loss reflects the Group’s share of the results of operations of the associate or joint venture. Any change in Other Comprehensive Income (OCI) of those investees is presented as part of the Group’s OCI. In addition, when there has been a change recognised directly in the equity of the associate or joint venture, the Group recognises its share of any changes, when applicable, in the statement of changes in equity. Unrealised gains and losses resulting from transactions between the Group and the associate or joint venture are eliminated to the extent of the interest in the associate or joint venture. The aggregate of the Group’s share of profit or loss of an associate and a joint venture is shown on the face of the statement of profit or loss outside operating profit and represents profit or loss after tax and non-controlling interests in the subsidiaries of the associate or joint venture. The financial statements of the associate or joint venture are prepared for the same reporting period as the Group. When necessary, adjustments are made to bring the accounting policies in line with those of the Group. After application of the equity method, the Group determines whether it is necessary to recognise an impairment loss on its investment in its associate or joint venture. At each reporting date, the Group determines whether there is objective evidence that the investment in the associate or joint venture is impaired. If there is such evidence, the Group calculates the amount of impairment as the difference between the recoverable amount of the associate or joint venture and its carrying value, and then recognises the loss within ‘Share of profit of an associate and a joint venture’ in the statement of profit or loss. Upon loss of significant influence over the associate or joint control over the joint venture, the Group measures and recognises any retained investment at its fair value. Any difference between the carrying amount of the associate or joint venture upon loss of significant influence or joint control and the fair value of the retained investment and proceeds from disposal is recognised in profit or loss. During the year, TCF a joint venture to the Group was wound down and deregistered. Also, during the year, Flight Refund Company Gmbh an associate to the Group was disposed-of. Both entities had immaterial balances to the Group at the time of disposal. Interest in associates and joint ventures for the relevant financial year is provided below: Income Total expenses Operating loss Equity accounted investment result Net profit/(loss) Share of profit/(loss) in associates and joint ventures1 Current assets Non-current assets Current liabilities Equity Group's share in equity - 5% (2020: 5%) Group's carrying amount of the investment 1 The balances do not include immaterial associates and joint ventures. 2021 $’000 – 121 (121) 7,390 7,269 363 2020 $’000 143 304 (161) (13,425) (13,587) (679) 322 696 86,942 101,245 309 86,955 4,453 4,453 (11,195) 90,746 4,596 4,596 115 HighlightsFinancial Report Shareholder Information OverviewDirectors’ Report Note 35: Related party disclosure Transactions with director related entities The following table provides the total amount of transactions that were entered into with related parties for the relevant financial year. Transactions with DLA Piper1 Transactions with FIIG Securities2 Transactions with Thomson Geer1 Consolidated 2021 $’000 709 – 152 861 2020 $’000 2,036 1,776 – 3,812 1 2 During the year, the Group obtained legal advice from the following legal firms associated with Michael Bowen (i) DLA Piper - $0.7 million and (ii) Thomson Geer - $0.2 million (2020: $2.0 million). Mr Bowen was an associate of DLA Piper for less than half of FY21. The legal advice was obtained at arm’s length. The Group engages a number of different law firms for its external legal advice and neither the relationship with Thomson Geer or DLA Piper is exclusive. Michael Bowen does not participate in any board decisions to appoint external counsel when Thomson Geer or DLA Piper is being considered for engagement. The Group obtained services from FIIG Securities during the year ended 30 June 2020, for which Christine Feldmanis is a mutual Director. The services were provided at arm’s length rates. Christine Feldmanis recuses herself from all discussions regarding the appointment of FIIG Securities and review of its service provision. Note 36: Auditor’s remuneration Ernst & Young resigned as Auditors during the financial year and BDO was appointed on 17 May 2021. The auditor of Omni Bridgeway Limited is BDO Audit (WA) Pty Ltd. Fees to BDO and Ernst & Young (Australia) Fees for auditing the statutory financial report of the parent covering the group and auditing the statutory financial reports of any controlled entities BDO Ernst & Young Fees for other assurance and agreed-upon procedures services under other legislation or contractual arrangements where there is discretion as to whether the service is provided by the auditor or another firm BDO Ernst & Young Fees for other services Due Diligence Report - Ernst & Young Taxation - BDO Consolidated 2021 $'000 2020 $'000 728 502 85 – – 536 1,851 – 500 – 85 354 – 939 Note 37: Events after the reporting date Apart from that disclosed in this report, no other circumstances have arisen since 30 June 2021 that have significantly affected, or may significantly affect the consolidated entities’ operations, the results of those operations, or the consolidated entities state of affairs in the future financial years. 116 Notes to the Financial StatementscontinuedOmni Bridgeway | Annual Report 2021 Directors’ Declaration In accordance with a resolution of the Directors of Omni Bridgeway Limited, we state that: In the opinion of the Directors: (a) the financial statements and notes of Omni Bridgeway Limited for the financial year ended 30 June 2021 are in accordance with the Corporations Act 2001, including: i. ii. giving a true and fair view of its financial position as at 30 June 2021 and performance for the year ended on that date; and complying with Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001; (b) the financial statements and notes also comply with International Financial Reporting Standards as disclosed in the notes to the financial statements; (c) 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 (d) this declaration has been made after receiving the declarations required to be made to the directors in accordance with section 295A of the Corporations Act 2001 for the financial year ended 30 June 2021. On behalf of the board Michael Kay Non-Executive Director Sydney, 19 August 2021 Andrew Saker Managing Director 117 HighlightsFinancial Report Shareholder Information OverviewDirectors’ Report Independent Auditor’s Report Tel: +61 8 6382 4600 Fax: +61 8 6382 4601 www.bdo.com.au 38 Station Street Subiaco, WA 6008 PO Box 700 West Perth WA 6872 Australia INDEPENDENT AUDITOR'S REPORT To the members of Omni Bridgeway Limited Report on the Audit of the Financial Report Opinion We have audited the financial report of Omni Bridgeway Limited (the Company) and its subsidiaries (the Group), which comprises the consolidated statement of financial position as at 30 June 2021, the consolidated statement of 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 a summary of significant accounting policies and the directors’ declaration. In our opinion the accompanying financial report of the Group, 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 2021 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 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. BDO Audit (WA) Pty Ltd ABN 79 112 284 787 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 (WA) 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. 118 Omni Bridgeway | Annual Report 2021 Impairment of litigation related assets Key audit matter How the matter was addressed in our audit As disclosed in Notes 11, 12 and 13 to the Financial Our procedures included, but were not limited to: Report, the Group recognises three different types of litigation assets, including: Claims portfolio; Purchased claims; and Litigation contracts in progress. Whilst the assets are different from an accounting perspective, they are considered for impairment by the Group on a similar basis, using discounted cash flow models. As a result, the carrying values are contingent on future cash flows and there is a risk that if these cash flows do not meet the Group’s expectations, or if significant estimates and judgements such as the estimated completion dates and/or discount rates change, the assets may be impaired. Furthermore, as disclosed in Note 13, significant impairment charges were recognised in the current year predominately relating to select Fund 1 and Fund 4 investments. This was a key audit matter because it requires a high level of estimate and judgement and changes in these assumptions might lead to a significant change in the carrying values of the litigation related assets. on a sample basis, assessing the effectiveness of the Group’s controls in relation to the review of carrying values for litigation related assets, including controls over the discounted cash flow models and assumptions applied; discussing significant investments with respective Case Investment Managers, in order to understand investment status and assess estimates and judgements made by the Group that impact the discounted cash flow models including litigation completion dates, litigation proceeds, budgeted costs to complete and intention to continue the litigation matter; assessing the reasonableness of key assumptions including cash flow forecasts and considering the reliability of previous forecasts; using our internal valuation specialists to assess the appropriateness of the discount rates applied; testing the mathematical accuracy of the discounted cash flow models; performing sensitivity analysis on key assumptions including cash flow forecasts and discount rates; reviewing Board minutes, ASX announcements and other publicly available information to ensure the Group has not decided to discontinue or has been unsuccessful in investments; and assessing the adequacy of the related disclosures in Notes 11, 12 and 13 to the Financial Report. 119 HighlightsFinancial Report Shareholder Information OverviewDirectors’ Report Independent Auditor’s Report Carrying value of goodwill Key audit matter How the matter was addressed in our audit As disclosed in Note 14 to the Financial Report, the Our procedures included, but were not limited to: Group recognises goodwill in respect to the Fund 6 (OBE Group, EMEA) cash generating unit (CGU). evaluating the Group’s CGU identification and the allocation of goodwill and other assets to the The Group is required under Australian Accounting carrying value of the CGU based on our Standard AASB 136 Impairment of Assets (“AASB understanding of the CGU’s business; 136”), to perform an annual impairment test of the carrying value of goodwill. assessing the reasonableness of key assumptions including cash flow forecasts, considering the As a result, the Group’s impairment assessment is reliability of previous forecasts and consistency undertaken using a value-in-use model. with discounted cash flow models for the CGU’s This was a key audit matter because it requires a high level estimate and judgement, in particular in estimating future growth rates, discount rates and the expected cash flows of the CGU to which the goodwill and other assets have been allocated. litigation related assets; comparing the CGU’s forecast cash flows to the board approved budget; using our internal valuation specialists to assess the appropriateness of the discount rate applied; performing sensitivity analysis on key assumptions including cash flow forecasts, growth and discount rates; testing the mathematical accuracy of the value- in-use model; and assessing the adequacy of the related disclosures in Note 14 to the Financial Report. 120 Omni Bridgeway | Annual Report 2021 Other matter The financial report of Omni Bridgeway Limited, for the year ended 30 June 2020 was audited by another auditor who expressed an unmodified opinion on that report on 24 August 2020. Other information The directors are responsible for the other information. The other information comprises the information in the Group’s annual report for the year ended 30 June 2021, but does not include the financial report and the auditor’s report thereon. Our opinion on the financial report does not cover the other information and 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, 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 the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material 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. 121 HighlightsFinancial Report Shareholder Information OverviewDirectors’ Report Independent Auditor’s 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: https://www.auasb.gov.au/admin/file/content102/c3/ar1_2020.pdf This description forms part of our auditor’s report. Report on the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included in pages 37 to 46 of the directors’ report for the year ended 30 June 2021. In our opinion, the Remuneration Report of Omni Bridgeway Limited, for the year ended 30 June 2021, complies with section 300A of the Corporations Act 2001. 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 (WA) Glyn O’Brien Director Perth, 19 August 2021 122 Omni Bridgeway | Annual Report 2021 Shareholder Information The information set out below is current as at 31 July 2021. (a) Distribution of Shareholders Ordinary Share Capital 262,180,473 fully paid ordinary shares are held by 4,712 individual shareholders. All issued ordinary shares carry one vote per share and carry the right to dividends. Omni Bridgeway Bonds There are 760,000 bonds issued held by 518 individual bond holders. The Omni Bridgeway Bonds do not carry the right to vote at any shareholders meeting. Options There are no options issued over ordinary shares. Performance Rights 18,528,532 performance rights were issued to 106 rights holders. Fixed Rate Notes There are 72,000 Fixed Rate Notes. Distribution of Securities The number of shareholders by size of holding, in each class are as at 31 July 2021: 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over Number 1,299 1,714 768 855 76 572,915 4,684,257 5,693,100 22,688,590 228,541,611 Non-marketable Parcels There were 331 holders of less than a marketable parcel of ordinary shares. 4,712 262,180,473 Fully paid ordinary shares % of issued capital Number Bonds 0.22 1.79 2.17 8.65 87.17 100.00 449 62 2 4 1 155,351 124,595 12,528 136,554 330,972 518 760,000 (b) Substantial Shareholders The names of the substantial shareholders listed in the Company’s register as at 31 July 2021 are: Shareholder Perpetual Limited Challenger Limited Greencape Capital Pty Ltd Amitell Capital Pte Ltd Number of ordinary Shares % of issued capital 20,586,061 19,762,368 19,762,368 15,798,137 7.85 7.54 7.54 6.03 75,908,934 28.96 123 HighlightsFinancial Report Shareholder Information OverviewDirectors’ Report Shareholder Information continued (c) 20 Largest Holders of Quoted Equity Securities as at 31 July 2021 Ordinary Shares 1. HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED 2. CITICORP NOMINEES PTY LIMITED 3. J P MORGAN NOMINEES AUSTRALIA PTY LIMITED 4. NATIONAL NOMINEES LIMITED 5. HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED 6. UBS NOMINEES PTY LTD 7. BNP PARIBAS NOMS PTY LTD 8. CPU SHARE PLANS PTY LTD 9. BNP PARIBAS NOMINEES PTY LTD 10. HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED 11. MCLERNON GROUP SUPERANNUATION PTY LTD 12. BNP PARIBAS NOMINEES PTY LTD SIX SIS LTD 13. CITICORP NOMINEES PTY LIMITED 14. HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED 15. CPU SHARE PLANS PTY LTD 16. MR PETER FREDERICK PHILLIPS + MRS ALICE SAU HAN PHILLIPS 17. RIVERDOOR CAPITAL B.V 18. MR DENNIS JOHN BANKS 19. BNP PARIBAS NOMINEES PTY LTD 20. MERRILL LYNCH (AUSTRALIA) NOMINEES PTY LIMITED (d) Options as at 31 July 2021 – unquoted There are no options issued. (e) Securities subject to escrow There are no securities subject to escrow. Number of ordinary Shares ‘000 61,280 41,228 40,947 18,172 8,212 7,640 7,085 4,830 4,035 3,717 3,136 2,839 1,972 1,766 1,278 1,274 1,209 1,097 1,075 1,057 % of issued capital 23.40 15.73 15.62 6.93 3.13 2.91 2.70 1.84 1.54 1.42 1.20 1.08 0.75 0.67 0.49 0.49 0.46 0.42 0.41 0.40 213,849 81.59 124 Omni Bridgeway | Annual Report 2021 (f) 20 Largest Holders of Quoted Omni Bridgeway Bonds as at 31 July 2021 Bond Holders 1 HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED 2 J P MORGAN NOMINEES AUSTRALIA PTY LIMITED 3 NATIONAL NOMINEES LIMITED 4 CITICORP NOMINEES PTY LIMITED 5 MUTUAL TRUST PTY LTD 6 MCLERNON GROUP SUPERANNUATION PTY LTD 7 NETWEALTH INVESTMENTS LIMITED 8 SANCTUARY GATE PTY LTD 9 CARRIER INTERNATIONAL PTY LIMITED 10 MELPEAT PTY LTD 11 MR CHIA-HO CHEN 12 PSTAR PTY LTD 13 CITER INVESTMENTS PTY LTD 14 BRIGHTON GRAMMAR SCHOOL FOUNDATION LTD 14 MS CAROLYN MARGARET EARL + MR JOHN WILLIAM NISSEN 14 MORBEN NOMINEES PTY LTD 14 ROBROZ PTY LTD 14 SINGAPORE INVESTMENTS PTY LTD 14 VOSBURG PTY LTD 20 JOWENE PTY LIMITED Number of Bonds % of units 330,972 43.55 60,845 39,841 23,608 12,260 7,500 5,028 5,000 4,580 3,500 3,435 3,269 3,002 3,000 3,000 3,000 3,000 3,000 3,000 2,585 8.01 5.24 3.11 1.61 0.99 0.66 0.66 0.60 0.46 0.45 0.43 0.40 0.39 0.39 0.39 0.39 0.39 0.39 0.34 523,425 68.85 125 HighlightsFinancial Report Shareholder Information OverviewDirectors’ Report Corporate Information This annual report covers both Omni Bridgeway Limited as an individual entity and the consolidated entity comprising Omni Bridgeway Limited and its subsidiaries. The Group’s functional and presentation currency is AUD ($). A description of the Group’s operations and of its principal activities is included in the review of operations and activities in the Directors’ Report. The Directors’ Report is not part of the financial report. Directors Non-Executive Chairman Michael Kay Managing Director Andrew Saker Executive Director Hugh McLernon Executive Director Raymond van Hulst Non-Executive Director Michael Bowen Karen Phin Non-Executive Director Christine Feldmanis Non-Executive Director Company Secretary Jeremy Sambrook Registered office and principal place of business in Australia Level 18, 68 Pitt Street Sydney NSW 2000 Phone: (02) 8223 3567 Fax: (02) 8223 3555 Solicitors DLA PIPER Level 9, 480 Queen Street Brisbane City QLD 4000 THOMSON GEER Level 27, Exchange Tower 2 The Esplanade Perth 6000 Share registry COMPUTERSHARE Level 3, 60 Carrington Street Sydney NSW 2000 Phone: (02) 8234 5000 Auditors BDO AUDIT (WA) PTY LTD 38 Station Street Subiaco WA 6008 Bankers NATIONAL AUSTRALIA BANK LIMITED 255 George Street Sydney NSW 2000 Internet address www.omnibridgeway.com The Company is listed on the Australian Securities Exchange with Sydney, Australia as its home exchange. Its ASX code is “OBL” and its shares were trading as at the date of report. 126 Omni Bridgeway | Annual Report 2021 The ordinary shares (Shares) of Omni Bridgeway Limited (OBL) are subject to ownership restrictions applying to residents of the United States. The Shares have not been registered under the US Securities Act of 1933 or the securities laws of any state or other jurisdiction of the United States. In addition, OBL has not been registered under the US Investment Company Act of 1940 in reliance on an exemption from registration. Accordingly, the Shares may not be offered or sold in the United States or to, or for the account or benefit of US Persons except in accordance with an available exemption from, or a transaction not subject to, the registration requirements of the US Securities Act, the US Investment Company Act and applicable US state securities laws. In order to qualify for an exemption under the US Investment Company Act, the constitution of OBL provides that where a holder is an Excluded US Person: – OBL may refuse to register a transfer of Shares to that Excluded US Person; and – the Excluded US Person may be requested to sell such person’s Shares and, if the Excluded US Person fails to do so within 30 business days, to be divested of such Shares and to receive the proceeds of sale (net of transaction costs, including any applicable brokerage) as soon as practicable after the sale. In addition, OBL’s constitution provides that a holder may be required to complete a statutory declaration in relation to whether they (or any person on whose account or benefit it holds Shares) are an Excluded US Person. Any holder who does not comply with such a request will be deemed to be an Excluded US Person. The Shares are issued on terms under which each holder who is or becomes an Excluded US Person agrees to the above terms and irrevocably appoints OBL as that holder’s agent and attorney to do all acts and things and execute all documents which OBL considers necessary, desirable or reasonably incidental to effect the above actions. Definitions An “Excluded US Person” means a holder of Shares (or a person who seeks to be registered as a holder of Shares) whom the directors of OBL have determined (i) is a US Person who is not a Qualified Purchaser or a Knowledgeable Employee or (ii) holds or will hold Shares for the account or benefit of any US Person who is not a Qualified Purchaser or a Knowledgeable Employee. The term “Qualified Purchaser” has the meaning given in Section 2(a)(51) of the US Investment Company Act of 1940 and the rules and regulations of the US Securities and Exchange Commission. The term “US Person” has the meaning given in Rule 902(k) of Regulation S under the US Securities Act of 1933. 127 HighlightsFinancial Report Shareholder Information OverviewDirectors’ Report Glossary of Terms AASB Australian Accounting Standards Board Addressable Market Is OBL’s estimate of the annual amount spent by plaintiff/applicants on external costs of litigation/ dispute resolution that could be addressed by OBL’s litigation funding service offering. CAGR EMEA EPS Compound Annual Growth Rate Europe, Middle East and Africa Earnings Per Share Estimated Portfolio Value (EPV) EPV for an investment where the funding entity earns: i. ii. iii. a percentage of the resolution proceeds as a funding commission, is OBL’s current estimate of the claim’s recoverable amount after considering the perceived capacity of the defendant to meet the claim and any other pertinent factors. Such amount is not necessarily the amount being claimed by the claimants, nor is it an estimate of the return to OBL if the investment is successful; a funding commission calculated as a multiple of capital invested shall be calculated by taking OBL’s estimate of the potential income return from the investment and grossing this up to an EPV using OBL’s Long-Term Conversion Rate; and a funding commission calculated on a combination of the above bases or on an alternative basis, may utilise one of the above methodologies, or a hybrid construct, or an alternative methodology depending upon the components of the funding commission. OBE Group’s EPV has been estimated on a conceptually consistent basis; enforcement case investments may have a multi-layered approach from a timing and value perspective. Where OBE Group have not yet been able to ascertain an EPV consistent with the disclosed methodology an EPV of zero has been used. However calculated, an EPV is an estimate and is subject to change over time for a number of reasons, including, but not limited to, changes in circumstances and knowledge relating to an investment or the defendant(s) perceived capacity to meet the claim, partial recovery and, where applicable, fluctuations in exchange rates between the applicable local currency and the Australian dollar. Possible EPV’s are reviewed and updated where necessary. The portfolio’s value is the aggregation of individual investments’ EPVs as determined above. IC ICC ICSID IFRS IRR LTIP MOIC NCI OCA ROIC SIAC STIP TFR TSR Investment Committee International Chamber of Commerce International Centre for Settlement of Investment Disputes International Financial Reporting Standards Internal Rate of Return Long Term Incentive Program Multiple on Invested Capital Non-Controlling Interest On-line Client Administration Proprietary Database Return on Invested Capital Singapore International Arbitration Centre Short Term Incentive Program Total Fixed Remuneration Total Shareholder Return Non-IFRS financial information included in this Report has been prepared in accordance with ASIC Regulatory Guidance 230 – Disclosing Non-IFRS financial information, issued December 2011. This information has not been audited or reviewed. Disclaimer None of the content in the Omni Bridgeway Limited (“OBL”) Annual Report is an offer to sell, or a solicitation of an offer to buy, any securities of OBL or any other company affiliated with OBL. In addition, nothing herein should be construed as an offer to buy or sell, nor a solicitation of an offer to buy or sell, any security or other financial instrument, or to invest assets in any account managed or advised by OBL or its affiliates. This Annual Report is for the use of OBL’s public shareholders and is not an offering of any OBL private fund. 128 Omni Bridgeway | Annual Report 2021 129 HighlightsFinancial Report Shareholder Information OverviewDirectors’ Report Asia Australia Canada United States Europe, Middle East & Africa Hong Kong +852 3978 2629 Level 27 World-Wide House 19 Des Voeux Road Central Central, Hong Kong Singapore +65 6813 2647 Level 13-03 6 Battery Road Singapore 049909 Adelaide +61 8 8122 1010 50 Gilbert Street Adelaide SA 5000 Brisbane +61 7 3108 1311 Level 54 111 Eagle Street Brisbane QLD 4000 Melbourne +61 3 9913 3301 Level 3 Bourke Place 600 Bourke Street Melbourne VIC 3000 Perth +61 8 9225 2300 Level 6 37 St Georges Terrace Perth WA 6000 Sydney +61 2 8223 3567 Level 18 68 Pitt Street Sydney NSW 2000 Montreal +1 514 257 6971 Houston +1 713 965 7919 Amsterdam +31 70 338 4343 60 Rue St Jacques Bureau 401 Montréal QC H2Y 1L5 Toronto +1 416 583 5720 250 The Esplanade Suite 127 Toronto ON M5A 1J2 LyondellBasell Tower 1221 McKinney Street Suite 2860 Houston TX 77010 Schiphol Boulevard 121 1118 BG Schiphol Amsterdam The Netherlands Los Angeles +1 213 550 2687 555 W. 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