Burford Capital(US:BUR)2023-05-15 16:00Capital Provision Assets - The company's capital provision assets are reported at fair value, with YPF-related assets accounting for 32%, 39%, and 45% of total capital provision assets at December 31, 2022, 2021, and 2020, respectively[460] - The carrying value of YPF-related assets was $1.2 billion with $1.1 billion of unrealized gains at December 31, 2022, 2021, and 2020[460] - Capital provision assets increased to $3.74 billion at the end of 2022, up from $3.12 billion in 2021, driven by deployments of $727.3 million and realizations of $426.7 million[231] - Unrealized fair value of capital provision assets reached $1.69 billion at the end of 2022, compared to $1.52 billion in 2021[231] - Legal finance assets involving claims against entities with Russian connections totaled $127.2 million (3% of total capital provision assets) at December 31, 2022, up from $102.6 million in 2021[482] - The company updated its valuation policy for capital provision assets in 2022, affecting the reported amounts of assets and liabilities[472] - Realized gains on capital provision assets were $161.7 million in 2022, compared to $153.6 million in 2021[232] - Total capital provision assets increased to $3,716,811 thousand in 2022, driven by deployments and income for the period[467] - The aggregate carrying value of capital provision assets on a consolidated basis was $3.7 billion at December 31, 2022, up from $3.1 billion in 2021[617] - Fair value adjustments on the portfolio of capital provision assets, excluding YPF-related assets, were $518.5 million (21% of carrying value) at December 31, 2022, compared to $350.0 million (19%) in 2021[617] - Total capital provision-direct assets on a consolidated basis were $4.12 billion in 2022, with a carrying value of $2.63 billion[613] - The carrying value of YPF-related assets (Petersen and Eton Park combined) was $1.2 billion at December 31, 2022, 2021, and 2020 on a consolidated basis[623] - On a Burford-only basis, the carrying value of YPF-related assets increased slightly to $823.0 million at December 31, 2022, compared to $820.8 million in 2021 and $813.2 million in 2020[623] - The estimated impact of the Ruling on the fair value of YPF-related capital provision assets at March 31, 2023, is an approximate increase of $285 million on a consolidated basis, with $100 million relating to third-party interests and $185 million on a Burford-only basis[623] - Realized gains on the capital provision-direct portfolio increased by 16% to $158.9 million for the year ended December 31, 2022, compared to $137.2 million in 2021[627] - On a Burford-only basis, realized gains on the capital provision-direct portfolio increased by 4% to $133.3 million for the year ended December 31, 2022, compared to $128.4 million in 2021[627] - Consolidated undrawn commitments were $1.9 billion at December 31, 2022, compared to $1.7 billion in 2021 and $1.6 billion in 2020[631] - Burford-only undrawn commitments were $1.3 billion at December 31, 2022, primarily attributable to the capital provision-direct portfolio, compared to $1.1 billion in 2021[631] - Fair value adjustments, net of previously recognized unrealized gains, increased to $167.2 million for the year ended December 31, 2022, compared to $53.5 million in 2021 on a consolidated basis[628] - On a Burford-only basis, fair value adjustments increased to $74.0 million for the year ended December 31, 2022, compared to $29.7 million in 2021[628] - Capital provision-direct income was $206.2 million for the year ended December 31, 2022, compared to $153.4 million in 2021 and $280.9 million in 2020 on a Burford-only basis[624] Debt and Financial Liabilities - The company's total debt was $1,147,083, $1,071,626, and $646,083 at December 31, 2022, 2021, and 2020, respectively[243] - Debt interest expense was $74,116, $56,454, $37,814, and $37,528 for the years ended December 31, 2022, 2021, 2020, and 2019, respectively[471] - Financial liabilities for third-party interests in capital provision assets increased slightly to $425,205 thousand in 2022[467] - Issued $360.0 million aggregate principal amount of the 2030 Notes in April 2022[575] - Weighted average maturity of outstanding debt securities was 4.9 years as of December 31, 2022, compared to 2.4 years for concluded capital provision-direct assets[575] - Consolidated net debt to consolidated tangible assets ratio was 25% at December 31, 2022, up from 19% in 2021 and 11% in 2020[575] - Total assets of $3.6 billion, third-party indebtedness of $1.3 billion, and total revenues of $245.4 million for the year ended December 31, 2022[575] - Finance costs rose 32% to $77.4 million in 2022 from $58.6 million in 2021, mainly due to higher outstanding debt from new bond issuances[537] - Finance costs increased 50% to $58.6 million in 2021 compared to $39.0 million in 2020, driven by higher outstanding indebtedness[550] Revenue and Income - Total revenues increased by 47% primarily driven by a 64% increase in capital provision income to $319.1 million in 2022 compared to $194.6 million in 2021[484] - Net income attributable to Burford Capital Limited shareholders was $30.5 million in 2022, compared to a loss of $28.8 million in 2021[484] - Asset management income decreased by 37% to $9.1 million in 2022 due to lower management fees as BAIF's investment period ended in April 2022[486] - Insurance income decreased to a loss of $1.4 million in 2022 compared to income of $5.1 million in 2021, reflecting a decline in legacy insurance business revenues[486] - Services income decreased by 42% to $0.7 million in 2022 as the company transitioned to a contingent risk model[486] - Marketable securities and bank interest decreased to a loss of $7.7 million in 2022 due to volatility in debt markets and unrealized losses of $9.7 million[486] - Total revenues increased by $101.9 million (47%) to $319.2 million in 2022 compared to $217.3 million in 2021, driven by a $124.6 million increase in capital provision income[514] - Operating income grew by $126.4 million (184%) to $195.0 million in 2022 from $68.6 million in 2021[514] - Net income attributable to shareholders improved by $59.3 million, from a loss of $28.8 million in 2021 to a profit of $30.5 million in 2022[514] - Capital provision income increased by $124.6 million (64%) to $319.1 million in 2022, with fair value adjustments contributing $169.1 million compared to $45.8 million in 2021[515] - Capital provision income decreased 38% to $194.6 million in 2021 compared to $314.9 million in 2020, primarily due to lower realized gains[541] - Insurance income increased 189% to $5.1 million in 2021 compared to $1.8 million in 2020, reflecting strong performance in the after the event business[544] - Marketable securities income and bank interest increased 391% to $1.9 million in 2021 compared to $0.4 million in 2020, driven by higher interest income[545] - Total revenues decreased by 38.7% to $327.9 million in 2020 compared to $534.5 million in 2019[554] - Capital provision income declined by 45.7% to $314.9 million in 2020 from $579.8 million in 2019[554] - Services income decreased 62% to $0.8 million in 2020 compared to $2.1 million in 2019[586] Operating Expenses - Operating expenses decreased by 16% to $124.3 million in 2022, primarily due to a 24% reduction in compensation and benefits to $86.3 million[486][487] - The company's total operating expenses decreased by $24.5 million (16%) to $124.3 million in 2022, primarily due to lower legacy asset recovery incentive compensation[514] - Operating expenses increased 25% to $148.7 million in 2021 compared to $119.1 million in 2020, primarily due to higher compensation and benefits[546] - Operating expenses decreased by 14% to $119.1 million in 2020 compared to $138.1 million in 2019[558] - Case-related expenditures ineligible for inclusion in asset cost increased 56% to $8.2 million in 2022 compared to $5.3 million in 2021[517] - Compensation and benefits increased 48% to $113.0 million in 2021 compared to $76.2 million in 2020, reflecting legacy asset recovery incentive compensation[547] - Compensation and benefits decreased 18% to $76.2 million for the year ended December 31, 2020, compared to $93.1 million in 2019[587] - Case-related expenditures ineligible for inclusion in asset cost decreased by 57% to $4.8 million in 2020 from $11.2 million in 2019[559] - Equity and listing related operating expenses increased by 351% to $7.9 million in 2020 from $1.8 million in 2019[559] Risks and Challenges - The company has commitments that exceed available funds, which could impact its ability to meet obligations and damage business relationships[455] - The company faces competition in the asset management business, which could affect its ability to raise funds and grow the business[436] - Negative publicity about the legal finance industry or the company could adversely affect its reputation and business[436] - The company's international operations are subject to risks such as political instability, economic conditions, and regulatory differences[465] - The SEC proposed new rules in 2022 that could significantly impact the company's asset management business if enacted[468] - COVID-19 pandemic caused delays in court operations, resulting in lower cash proceeds from litigation resolutions and extended litigation timelines[439] - Litigants facing financial difficulties or insolvency may delay or reduce expected realizations, impacting the company's ability to recycle capital[439] - ESG considerations and stakeholder scrutiny could lead to reputational harm, increased costs, and potential liabilities, impacting the company's financial position[439] - The company does not engage in currency hedging, exposing it to foreign exchange rate fluctuations, particularly with pound sterling-denominated securities[442] Cash Flow and Liquidity - Cash receipts increased 17% to $328.0 million in 2022 compared to $281.5 million in 2021, primarily due to increased proceeds from capital provision-direct assets[580] - Cash and cash equivalents decreased to $180.3 million in 2021 from $322.1 million in 2020, while marketable securities increased to $175.3 million from $16.6 million[563] - Net cash used in operating activities was $466.1 million in 2022, compared to $585.4 million in 2021, reflecting lower deployments and higher net income[571] - Net cash provided by financing activities was $399.1 million in 2022, down from $444.8 million in 2021, due to lower debt issuance and higher third-party capital contributions[571] - Cash and cash equivalents were $107.7 million at December 31, 2022, down from $180.3 million at December 31, 2021[591] - Due from settlement of capital provision assets increased to $116.6 million at December 31, 2022, compared to $86.3 million at December 31, 2021[591] - Net cash used in operating activities decreased by $119.26 million to $466.10 million in 2022 compared to $585.36 million in 2021[601] - Cash and cash equivalents decreased to $107.66 million in 2022 from $180.26 million in 2021, while marketable securities decreased to $136.36 million from $175.34 million[606] - Cash receipts (non-GAAP financial measure) were $327.99 million in 2022, up from $281.47 million in 2021[642] Investments and Fair Value - BOF-C and a "sidecar" fund, both with a single sovereign wealth fund investor, represented approximately 25% and 28% of AUM at December 31, 2022 and 2021, respectively[436] - The Group's debt securities are classified as Level 1 within the fair value hierarchy, with outstanding indebtedness held at amortized cost in the consolidated financial statements[499] - The Group has elected the fair value option for certain equity method investments, marketable securities, and financial liabilities relating to third-party interests in capital provision assets[501] - Sensitivity analysis for Level 3 valuations includes a weighted average discount rate of 5.8% for single capital provision assets and 12.9% for portfolios with equity risk[503] - The Group provides revolving credit facilities to certain private funds for capital calls, which are entirely discretionary[504] - The company purchased 468,000 ordinary shares on the open market in May 2022 at an average price of £6.33 ($8.01) per share, resulting in a $3.7 million increase in the treasury balance[506] - LTIP awards granted during 2022 had a weighted average grant date fair value of $12.2 million, $16.6 million, and $7.1 million for 2022, 2021, and 2020 respectively[507] - The company's Unrestricted Subsidiaries had total assets of $506.4 million and $43.9 million in total revenues for the year ended December 31, 2021[607] Taxes and Provisions - Provision for income taxes increased 19% to $11.6 million in 2022 compared to $9.7 million in 2021, driven by higher taxable income in the United States[538] - Provision for income taxes decreased 26% to $23.5 million for the year ended December 31, 2020, compared to $31.9 million in 2019[591] - One adverse insurance claim was reported in 2022, with no outstanding loss reserves at the end of the year[237] Foreign Exchange and Currency - Foreign currency transaction losses increased 40% to $7.7 million in 2022 compared to $5.5 million in 2021, primarily due to US dollar strength against pound sterling[519] - Foreign currency transactions gains increased to $10.7 million for the year ended December 31, 2020, compared to $2.0 million in 2019[590] Goodwill and Intangible Assets - The Group's goodwill primarily relates to the acquisition of BCIM Holdings LLC in December 2016, with no evidence of goodwill impairment at December 31, 2022, 2021, and 2020[500] - Amortization expense for the intangible asset related to BCIM Holdings LLC was $8.7 million and $9.5 million for the years ended December 31, 2020, and 2019, respectively[500] Portfolio and Asset Management - The consolidated portfolio increased to $5.5 billion in 2022 from $4.6 billion in 2021, with the Group-wide portfolio reaching $6.1 billion in 2022[582] - Burford-only portfolio proceeds from capital provision-direct assets increased to $295.64 million in 2022 from $231.41 million in 2021[642] - Burford-only portfolio of capital provision assets increased by 15% to $3.9 billion at December 31, 2022, compared to $3.4 billion at December 31, 2021[584] - Capital provision segment generated income before income taxes of $57.8 million on a Burford-only basis[569] - Maximum exposure to loss decreased to $20,515 thousand in 2022 from $23,148 thousand in 2021[476] - Net income attributable to non-controlling interests increased 207% to $67.0 million for the year ended December 31, 2022, compared to $21.8 million for the year ended December 31, 2021[491] - Loss on debt extinguishment decreased 47% to $0.9 million for the year ended December 31, 2022, compared to $1.6 million for the year ended December 31, 2021[489] - Net income attributable to non-controlling interests increased 59% to $21.8 million in 2021 compared to $13.7 million in 2020, reflecting higher fair value of assets[553]