Capital Markets Day Transcript - BUR 2025-05-20

Christopher Bogart, CEO

Thanks very much and good evening everybody. It's nice to see so many of you here tonight and some number of friendly faces. Those are our disclaimer slides if you'd like to read them as Bruce smiles at me. I'm going to, I know that I often get a fair number of questions from this crowd and so I'm going to try to go through the presentation at a reasonably rapid clip and I'll come back and talk to any particular point that all of you are interested in discussing. But let me just start, for those of you who are not familiar with Burford, with a quick summary of what we're about. So Burford is the world's largest provider of capital into the legal sector. We basically take legal claims, arbitration matters, disputes, litigation, whatever falls into that bucket of legal claims, and we treat them as financeable assets, and we provide capital against them. And the reason that that market particularly exists is because of the difficulty that most law firms have with their own capital structures. So if you had a world where law firms were, you know, avid users of the capital markets and had risk-based balance sheets themselves, they could really do on their own whatever kind of risk-based product that their clients were interested in having. So if you're an operating company and you're interested in something other than traditional hourly fee payments for litigation, you would be able to do a risk-based deal with your law firm. However, the reality is that in most jurisdictions, that's illegal. And even in jurisdictions like the UK where it's not, law firms do not widely and regularly access the capital markets. And as a result, there is a need for financial intermediaries to sit in between the clients and the law firms, and we are the world's largest version of that intermediary. In doing that, we do a number of things. At a very basic level, we provide capital to pay those legal fees. An operating company would prefer to use whatever cash it has available to it on its own business. businesses that generate returns that you as shareholders would like to pay a stock market multiple on, as opposed to collateral activities like engaging in litigation, where even if the company does a good job, you're not likely to view that as an operating matter and something on which you're going to pay a multiple. And so it's a financially efficient thing for these businesses to do. We've been doing this for 15 years. We have a substantial track record. We have a very large existing portfolio of these legal assets that I'll talk a little bit about and I'd emphasize as well that our cash flows are entirely uncorrelated. Our cash flows come out of the operation of the legal system. So if you think about the legal system as a giant conveyor belt, you file a lawsuit and on that conveyor belt moves. It may move more slowly than you would like, it may twist and turn at various times, but it does move forward inexorably and it comes to an end. And that end is our investment result. We don't need the stock market to be up to get that investment result. We're not a private equity firm where we need to find a secondary buyer for the investments that we make. The legal process delivers that exit to us as it goes. And as a result, when you have turbulent market environments like you do right now, you see a particularly high level of interest in uncorrelated cash flow solutions like the kind that we provide. So we have, for example, recently been added to CNBC's All Weather Index as well as some other kinds of research that suggests that that lack of correlation is of interest in a world of some degree of market turbulence. And of course, we don't buy anything other than professional services, so we're entirely unaffected by things like tariffs. We just had an Investor Day at the beginning of April. We'd invite you to go and look at those slides and listen to that presentation, all of which are available online. And I'll be echoing some of the themes here tonight from that Investor Day, but fundamentally what we said there was that we're poised for growth, that we see continuing significant demand for the kind of capital solutions that we provide in the market. We projected an ability to try to double the basic business over the next half a dozen years. And as well, we'll come on and talk about YPF, which I know many of you are interested in. That's a particularly large and interesting investment that we have. So just by way of background, this is what history looks like. So we have by now invested billions of dollars in these cases. Right now, the portfolio today sits at somewhere between $7 and $8 billion, but this just represents things that have completely concluded. And so in that world, we have brought back $3.5 billion of cash, and on that cash, we've generated the returns that you see here, a 26% IRR on investments and 83% return on invested capital, and that's spread between the three possible outcomes in any piece of litigation. You can win, you can lose, those are the obvious ones that come to mind, and we win much more than we lose happily. But the most important and frequent outcome of litigation is that litigation settles, that people start off suing each other, but then along the way they figure out that they can come to an economic understanding with each other. And so as you can see here, we settle about 78% of the dollars we put out the door, for, and that's a particularly desirable and important thing, because settlements come with no litigation risk. You're taking the litigation risk off the table, and instead, you're having a world where you have reliable cash flow from the resolution of these cases. So that is effectively, if you think about it, that's the economic backbone of the business, because those settlements, which come fairly rapidly, pay for the business to continue to operate, pay for the debt service, pay for new investments, because they just keep on recurring. And that's a factor not only of our business, but of litigation in general. And that's why you see a chart, and these are all the investments that we've made to date that have concluded, that's why you see a chart that looks like this. And if you can think about this, the losses are the below-the-line things here on the left that are the gray and the black. And one of the features of the business, of course, is that you can't lose here more than you've invested. And as you can see from the numbers, we have about a 9.5% lifetime loss rate. Given the returns that you're able to generate on successful investments, that's quite a desirably low loss rate. But then when you look at the rest of the outcomes here, the positive outcomes, what you see is some real asymmetry. And so in the middle, you see those settlements. that are fine. You know, you're taking a discount to settle a case early. That makes sense, obviously. If I have a $100 claim against you, you're not going to pay me $100 to resolve it. You're going to force me to take something less to take the litigation risk off the table. And that's why those emerge in sort of the middle of the back there. But there is also the possibility here for outsized returns from asymmetric cases where we're investing the costs and we have the possibility for multiples of return on those costs because of how the trial results go and so this is a this is a fairly traditional this represents our actual results but it also is the kind of portfolio that you would frankly expect if you were looking at a broader pool of litigation outcomes and that really provides if you will the juice that takes these returns from interesting to very interesting. As I said before we're sitting with more than seven billion dollars in the portfolio in the first quarter of 2025 and while I hasten to add that this is not a business that you can do a very good job at projecting on a quarter by quarter basis because things happen on that conveyor belt at varying speeds and at varying times so you have to have a longer-term view about this business we'll we have lumpy cash flows but Nevertheless, we had a very nice first quarter, a strong amount of new business written, lots of cash coming in. And as some of you know, the one thing that the business is correlated to evidently, which I never thought about before, was pandemics. And pandemics closed the courts. And as a result, we had slow cash generation during and after COVID. That has reversed itself now. and what you're seeing is that pent-up activity that didn't go forward on its usual pace, you're seeing that activity now really come through in the book. And so in the last 12 months, we've generated more than $800 million of cash. And we're sitting with a significant amount of cash liquidity today. And our revenues were up by a material amount year over year. In terms of the new business that we were writing, as you can see here, there is some degree of seasonality to this business. There's no good reason for that to occur. You'd almost think sometimes looking at the business that we're a retailer. And the only explanation for that seasonality is that lawyers are procrastinators by nature. And we end up doing a lot more business usually in the fourth quarter of every year and frankly in December and even on December the 31st of every year as lawyers just don't put their financial houses in order until the last possible moment but nevertheless you can see that that in terms of new business activity the first quarter of 25 significantly exceeded the kind of run rate that we've seen from the first quarter of 24 and 23 again you can't do very much predicting about this business on a quarter by quarter basis and so I'm not suggesting to you that that is a trend I'm not suggesting to you that you should therefore expect a barn burner of a second quarter just because the first quarter was great, we are dependent on the level of activity in the overall legal and litigation market. But nevertheless, it's very nice to see the ability of the business to do two things at the same time, produce a significant volume of new business activity while also generating a lot of cash from the existing portfolio. Speaking of the existing portfolio, this is exactly what the realization profile looks like on a quarter by quarter basis. And again, first quarters are often sleepy as you can see here. Just like lawyers, judges work to get things out before the end of the year and then the holidays are upon us and nobody comes back with great vigor on the first of January and starts writing new opinions. But nevertheless, you can see here that you saw quite a lot of activity, quite a lot of cash generation during the period. The other point that's worth making here is that as this business grows and evolves and matures, we do things with varying levels of risk and varying levels of financial performance. So if you went back a bunch of years, we had a fairly steady approach to this business in the sense that if we put a dollar of capital out in the market, we would average a pretty similar result on that dollar of capital. Today, the market has expanded sufficiently that the range of risk and return opportunities available to us is considerably broader. And what that means is that you will sometimes see high risk, high return outcomes, but you will also see low risk and low return outcomes, and we're delighted to do all of that business. And so this quarter, for example, you saw the early cessation of a large $100 million monetization transaction that generated only, and I say only, a 25% return on invested capital, but it generated a 40% IRR. And that is an important dynamic as the business goes forward that you can expect to see those kinds of variations in the portfolio that nevertheless all produce a desirable investment return, especially considering the risk associated with each one of them. It wouldn't be a presentation without spending a minute or two on YPF. So for those of you who don't know anything about YPF, YPF is Argentina's national oil company. The Argentine government under the prior administration re-nationalized YPF in 2012 after it had been previously privatized and IPO'd on the New York Stock Exchange. That renationalization came with an obligation on Argentina to tender for all of the shares held by all shareholders in YPF. And Argentina simply didn't do that. It decided that it would prefer not to spend that money today, and it instead seized 51% of the shares, but not all of them. That caused all sorts of financial distress. Of course, the market price for the shares collapsed, and that caused all sorts of financial distress for large holders of YPF stock. We were one of them, the second largest holder, the Peterson Group of Companies in Spain actually went bankrupt as a result of that, and we were appointed by the Spanish Bankruptcy Court to both provide financing for and to manage the ensuing litigation between those shareholders and their creditors, frankly, and YPF, and later the Eaton Park hedge fund, the third largest holder, also went into liquidation after suffering heavy losses, and we also have been appointed to provide financing for that claim. So these are large claims because the amount in issue is significant, and after a number of years of litigation, a September ago, in September 2023, we were successful finally in federal court litigation in New York in winning a $16 billion judgment for those clients. That judgment is on appeal, and we're in the middle of the appellate process right now. The appeal is fully briefed, but we are still waiting for an oral argument date. And we also have enforcement and recognition activities going on around the world. This gives you a sense of the economics here. To underline this, there is still litigation risk associated with this matter, as there is with any pending litigation matter, although as the matter goes through the process, the amount of litigation risk tends to fall as the process unfolds, but there's certainly still litigation risk here. That being said, in any positive outcome, any positive state of the world, you know, it's difficult not to see a world where Burford ultimately generates a very significant, you know, effectively a 10-figure recovery from the YPF case. And so just to sort of wrap up before I, and I even have a couple of extra minutes for questions, we're pretty excited with what we see in the market. You know, if you go back some years, this was largely an Anglo-American access business. Now it has expanded to be an entirely global business. There is demand for our capital around the world, and we have about 160 or 170 people around the world serving that demand for capital, close to half of whom are experienced lawyers. We think that the next five years, the next six years, will bring a continued expansion of the market and the opportunity for us to continue to grow the portfolio at the same kind of historical growth rates that we've experienced. And if you apply those kinds of growth rates, you get to effectively a doubling of the business by the end of 2030. That was the target that we set for ourselves at our investor day. You also see continued innovation in the world of legal services in a number of ways. Some of those are driven by technology. AI is absolutely disrupting the way that litigation operates. That is creating opportunities for us. Not only are we a heavy investor and have been for years in sophisticated data science to make our investment decisions better, sector, but the fact of that disruption opens new investment opportunities for us in the entire legal sector, which is, by the way, just an enormous sector. Globally, law firm revenues are somewhere around, it's hard to measure them even, somewhere around $900 billion to a trillion dollars a year. So this is a huge market with lots and lots and lots of capital opportunities. And we are the leading capital provider in that space with a significant management stake in this business. The management of the business are the larger shareholders. We have been buying stock recently in the business and we're excited to see what we can do over the next half a dozen years. And with that, with three extra minutes, I'd be delighted to take your questions.

Speaker 3

Christopher, thank you very much indeed. Thank you.

Speaker 4

Thank you for taking the time to present to us tonight. I am a shareholder, I wonder if you could discuss something about your move to the New York Stock Exchange listening and what effect that might have for UK shareholders please.

Christopher Bogart, CEO

So the market journey for Burford started in London only in 2009 when actually the first thing that we did was raise an investment fund. A few years later, we converted that fund into an operating business, and we remained just listed in London until 2020. In 2020, we added a New York Stock Exchange listing, which made a lot of sense because the U.S. is our largest market. It's easier, candidly, to talk to American investors about what we do because they intuitively understand risk-based litigation. You're sort of, as any of you who have driven down an American highway know, you're sort of bombarded by billboards and advertising about lawyers in a way that you just aren't And so it's been a very positive dynamic. It's significantly expanded the shareholder register. Right now, the shareholder register is about 60-odd percent American and about 40-odd percent English and European. Those are sort of the key holders of the stock. And so it's been, I think it has enhanced our liquidity and enhanced the trading volume. The other thing that it has done for us, which has been very important, is that it has opened for us the U.S. debt markets. And so that is our, today, our principal source of finance. And that is happening in a very efficient way at the lowest cost of capital we believe in the industry. And in fact, we were just a week or two ago upgraded by Moody's to be just a notch short of investment grade. So we're among the most highly rated specialty finance firms in the U.S. So it's been a net win, I think, for shareholders, sort of wherever you're located. But we obviously still have a U.K. listing here, and as you can see from the fact that both Rob Ballish and I are here tonight, our U.K. shareholders, many of whom have been with us for many years, remain an important part of the business for us.

Speaker 3

Next question here, please.

Speaker 6

Chris, I thank you for the presentation. Although Burford continues to make good progress operationally, it's yet to be reflected in the share price on a consistent basis, and just to give some brief figures, when you put your 2022 results out in May 23, the share price was just over £11. pounds when you did your 24 results in March this year the shares closed at 1147 which is up four percent yet between those two periods revenues were up 84 percent and net income was up 370 but profits but the share price only up four percent why do you think that is and what is you as a management team doing to if you like make the two more equitable well clearly all of

Christopher Bogart, CEO

you need to be doing a little bit more buying as the first answer to that question. No, look, I think that the reality of this business is that it requires some effort. We are, you know, the asset class that we're in is somewhat esoteric. We don't have any real public comps. And our earnings and our, you know, some of the other variables about the business that we discussed tonight are not smooth, they're lumpy. So we will have, it's very difficult if you're a research analyst to predict our earnings. Frankly, it's very difficult for me as the CEO to predict our earnings because I, sitting here today in the middle of May, I really don't have the faintest idea of what the second quarter looks like because I don't know what courts are going to do or not do in the next 45 days. Every day is a new adventure in that regard. And so I think that there is an extent to which the public markets punish companies even if they are producing, as your figures indicated, strong growth, strong levels of profitability and high returns. I think that we are, you know, I think that it is difficult to get the market to value us properly. That being said, you know, we keep on the effort and I think events like tonight are just part of the many things that we do to try to tell the story and I'd probably add a footnote to that as well, which is that while I absolutely love the YPF case and I think that, you know, in most potential outcomes, the YPF case is going to be excellent for the business and excellent for shareholders. At the same time, if you're a brand new shareholder, then all of a sudden we're saying to you, okay, well, let's start by telling you that you need to do some work to understand litigation finance, an asset class that you've probably never heard of before. Once you've surmounted that hurdle, oh, by the way, you also have to take a multi-billion dollar view about Argentina and its economic conditions and the value of its debt and there's no question in my mind that some potential new investors just look at that and say that's just too much for me to absorb all at one time and I think that's part of the answer to the question Thanks for the presentation.

Speaker 1

Just regarding the point you just made around YPF, are there any benefits of potentially separating the core business from YPF, spinning the case off into a separate vehicle, spinning it off to shareholders still being managed by the company? Have you thought about that at all?

Christopher Bogart, CEO

It's a really interesting question, and we have thought about it for the reasons that I just gave in my response to Bruce. I think the reality is that it's extremely difficult to do on several levels. It's not clear that a single piece of litigation that is not producing any cash at all until the final end can actually exist as a separate standalone publicly traded thing. So that's sort of problem number one. Problem number two is that the business has a level of leverage on it that runs across all of the assets and there's not really a mechanism available to separate the leverage and put sort of YPF's share of it with YPF. And that's sort of doubly problematic because even if we could achieve that, YPF doesn't have any money to pay the interest on the debt. And so I don't think you'd want a world in which you took our most valuable asset and put it over here and had the rest of the business over here that kept all of the debt and the debt service on it. And on top of all of that, as an accounting matter, if we were going to continue to have the level of influence and control over the asset that we probably need to have to monetize it, we would not succeed in getting it unconsolidated. And so there are just, unfortunately, there are just a number of obstacles to that, I think, very good suggestion, but it's difficult to implement.

Speaker 3

Christopher, I had a question. You said that you had the ambition to double the size of the business in the next half dozen years. Could you describe by what measure you wish to double the size of the business and the key strategic change, if there are any, to achieve that?

Christopher Bogart, CEO

Yeah, so when I talk about that, what I'm really talking about is doubling the size of the core portfolio, which we measure as the cash that we have put out the door and the cash that we have committed to put out the door in furtherance of those cases that we've invested in. So that number today sits somewhere around $2.4 billion, and so we're talking about trying trying to get, by the end of 2030, that number to be somewhere in the range of being twice We'll see if we're capable of doing that. You know, again, this is an aspiration as opposed to a financial projection. But that's where we're sort of gearing the business internally to try to head to. And we have an internal campaign, in fact, around it titled Burford 2030. In terms of strategic changes, no is the short answer. answer, but the somewhat longer answer to that is, how do you grow this business? Well, you grow this business basically in three fundamental ways. You do more business with existing customers, and we're historically successful at doing Something in the order of three quarters of the people of the law firms that we do business with come back and do more business with us. Part of this is just continuing that level of growth, continuing getting people coming back for more. The second thing that you do is you continue to increase adoption. And you do that, first of all, in markets that we're already in. So London and New York. The reality is, even though we've seen extraordinary growth in the 15 years that we've been doing this, and much as I share Bruce's frustration that the stock price doesn't rocket upward and continue to enhance the valuation, I'm still reminded of the fact that this is still up 10 or 11 times from IPO. So we've had a lot of growth in the business, and the question is just continuing to get operating companies to adopt this concept as something that is helpful for their earnings. So when all of you go and talk to other operating companies, you should be sure to tell the CFOs, hey, why are you paying for your own legal costs? And the third thing is continued expansion. As I said earlier in my presentation, this really started as just an Anglo-American axis of the business, and now it is global. We have people all around the world. We keep on opening new geographies. We have people on the ground in Asia. We're hiring somebody new to go into Seoul. We opened in Dubai not very long ago, so things like that just continue to enhance the ability Do we have any questions, Christopher?

Speaker 3

Otherwise, I have one more question here, please.

Speaker 5

I see your dividend has been stable for some years which if you take inflation into account means that it's actually going down. Could you comment on your thoughts on that fact and where you see the dividend strategy for the business going in the future please?

Christopher Bogart, CEO

So the dividend is possibly the issue about which there is the least shareholder consensus among Burford shareholders Ranging from people over here who think that we should have no dividend at all, that's actually a fairly significant portion of the shareholder base, especially American shareholders who would prefer just capital appreciation for a number of reasons, not the least of which is beneficial tax treatment, to people over here who would like as high a dividend as possible, either one that is predictable or one that varies with the cash flow of the And we have played with the dividend policy over the years with lots of input from shareholders. And where we've ended up at the moment is to have a predictable fixed dividend that we don't intend either to raise or lower in the foreseeable future while at the same time trying to create that kind of capital appreciation for shareholders. I'm aware that that doesn't satisfy everybody. I'm aware that there are people who would prefer a rising dividend. end, and that's particularly a view held among some number of English shareholders. But it is, I have to say, a considerable minority view. And so we're sort of sticking with this until we are, like any other public company, a creature of our shareholders, until there is a sense that shareholders would prefer, in aggregate, a different approach. So that's where we sit today.

Speaker 3

Thank you. Christopher, thank you very much indeed. Thank you for coming this evening. I'm afraid we're just on the time up there now.