Burford Capital Limited — FY 2021 Form 20-F
Reporting period: Year ended December 31, 2021; this is an annual report, not a standalone fourth-quarter filing. Financial statements are in U.S. dollars and prepared under U.S. GAAP. Burford provides legal finance, asset management, litigation insurance and related services. Comparatives were also presented under U.S. GAAP following the company’s change from IFRS.
Financial and operating performance
| Metric | FY 2021 | FY 2020 | Change / context |
|---|---|---|---|
| Total income | $152.2 million | $359.1 million | Down 58% |
| Capital provision income | $127.5 million | $340.1 million | Down 62%; fewer realizations and substantially lower fair-value gains |
| Income from operations | $6.3 million | $238.5 million | Operating margin approximately 4.2%, versus 66.4% in 2020 |
| Net income (loss) attributable to ordinary shares | $(72.1) million | $165.1 million | Basic and diluted loss per share: $0.33 |
| Operating expenses | $145.8 million | $120.6 million | Includes $36.4 million legacy asset-recovery incentive compensation accrual |
| Finance costs | $58.6 million | $39.0 million | Higher following the 2021 notes issuance |
| Operating cash flow | $(585.4) million | $53.8 million | Driven primarily by $672.9 million of new capital-asset funding and lower cash realizations |
| Cash and marketable securities, consolidated | $355.6 million | $338.7 million | $180.3 million cash and $175.3 million marketable securities |
| Cash and marketable securities, Burford-only | $315.0 million | $336.2 million | Management’s non-GAAP measure |
| Debt payable, balance-sheet carrying amount | $1.023 billion | $668 million | Includes $400 million of 6.25% senior notes due 2028 issued in April 2021 |
Portfolio, cash generation and liquidity
- Consolidated capital provision assets were $2.90 billion at year-end, up 13% from $2.56 billion. Burford-only capital provision assets were $2.16 billion, also up 13%.
- Group-wide new commitments were $1.12 billion, including $1.02 billion in capital provision-direct commitments. Group-wide deployments were $841 million. Group-wide realizations were $526 million, compared with $999 million in 2020; capital provision-direct realizations were $337 million versus $608 million.
- Cash receipts, a non-GAAP measure, were $532 million Group-wide and $281 million Burford-only. Burford-only cash receipts fell 46% from 2020, while cash available for redeployment after general operating expenses and finance costs was $118 million versus $382 million.
- Consolidated undrawn commitments were $1.49 billion; $703 million were definitive. Burford-only undrawn commitments were approximately $1.05 billion for capital provision-direct assets, including $523 million definitive and $527 million discretionary, plus $82 million for legal-risk arrangements.
- Management reported a 21% net-debt-to-tangible-assets covenant ratio and compliance with debt covenants at year-end. The company repurchased approximately $34 million face amount of notes due in August 2022.
- Year-end AUM was $2.8 billion, compared with $2.7 billion in 2020. The proposed final dividend was 6.25 cents per share, bringing the 2021 annual dividend to 12.5 cents, subject to shareholder approval.
Material changes versus the prior year
- The company moved from $165.1 million of attributable net income in 2020 to a $72.1 million attributable net loss in 2021. Management attributed the change principally to reduced capital provision income, pandemic-related litigation delays, higher operating expenses and higher financing costs.
- Capital provision income included $153.6 million of realized gains relative to cost, offset by $54.0 million of prior unrealized gains transferred to realized and $32.2 million of current-period fair-value gains. In 2020, the corresponding current fair-value adjustment was $148.1 million.
- Burford-only realized gains on capital provision-direct assets were $128 million, down 29%; realized losses on concluded cases were $9 million versus $20 million in 2020. Burford-only cash receipts decreased despite increased deployments and portfolio growth.
- Burford issued $400 million of 6.25% notes due 2028. Total debt payable rose from $668 million to $1.023 billion, and finance costs increased by approximately $19.6 million.
- Burford disclosed restatements of historical financial statements for 2018–2020 and interim periods in 2021, relating to accounting for carry-pool compensation accruals and consolidation of certain subsidiaries. It also reported material weaknesses in financial reporting controls.
Outlook, commentary and principal risks
- Management outlook: The filing gives no quantified earnings or revenue guidance. Management expected pandemic-related court delays to defer cash realizations and discussed a possible future increase in pent-up litigation and bankruptcy filings. It characterized timing volatility as intrinsic to the business and stated that delays may increase returns on assets with time-based terms, while recognizing that delays constrain cash recycling.
- Funding and returns: Management said available cash, operating receipts and potential debt issuance were expected to support operations, but also described a growth strategy in which deployments may exceed realizations. Commitments exceed immediately available funds; failure to meet definitive commitments could result in loss of capital or contractual claims.
- Valuation and concentration: Legal finance assets are illiquid and largely valued using significant judgment. A 10% change in the estimated values of capital provision assets and related settlement receivables would change consolidated pre-tax income and net assets by approximately $290 million. YPF-related assets represented about 40% of consolidated capital provision assets; their consolidated carrying value was $1.16 billion, including $1.10 billion of unrealized gains. These gains are not equivalent to cash realizations.
- Other key risks: Litigation losses, uncertain case timing and recoveries, counterparty credit risk, correlated exposures, cybersecurity and privileged-information protection, changing legal-finance regulation, foreign-exchange movements, access to capital and refinancing, and competition. The filing says Burford does not currently hedge currency risk.
- Controls and audit: Ernst & Young issued an unqualified opinion on the financial statements but an adverse opinion on internal control over financial reporting. The reported weaknesses concern completeness and accuracy of company-produced information and the precision and documentation of management review controls. Management described remediation work as underway.
- Contingencies and unusual items: Management reported no material pending legal proceedings believed likely to significantly harm the business and no significant subsequent events. The 2021 legacy asset-recovery incentive compensation charge and historical financial-statement restatements are notable items.
Important facts for investors to verify
- Review the restated comparative financial statements and the accounting changes for carry-pool accruals and subsidiary consolidation; confirm whether the disclosed control weaknesses have been remediated.
- Assess the assumptions, evidence and realizability of fair values, especially the YPF-related valuation and the sensitivity disclosed for the broader portfolio.
- Track actual litigation resolutions, cash collections and settlement-receivable conversion against the reported portfolio carrying values and management’s timing commentary.
- Reconcile definitive and discretionary undrawn commitments, expected funding schedules, fund capital availability and liquidity after debt service and dividends.
- Monitor refinancing and covenant headroom, particularly the August 2022 notes maturity, interest costs and any additional borrowing or repurchases.
- Distinguish consolidated results from Burford-only and Group-wide non-GAAP measures when assessing earnings, assets, cash receipts, commitments and realizations.