REG - Manolete Partners - Audited results for the year ended 31 March 2022
23/06/2022 07:01
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RNS Number : 8635P Manolete Partners PLC 23 June 2022
23 June 2022
MANOLETE PARTNERS PLC
("Manolete" or the "Company")
Audited results for the year ended 31 March 2022
Manolete (AIM:MANO), the leading UK-listed insolvency litigation financing
company, today announces its audited results for the year ended 31 March 2022.
Steven Cooklin, Chief Executive Officer, commented:
"In what was a very challenging year, the Company has delivered a resilient
performance demonstrating the robustness of our business model. As we return
to more usual trading conditions, I am pleased to report that we are seeing
strong growth in new case enquiries.
"The UK Government's response to the Covid-19 pandemic, which included
widespread but temporary restrictions on the UK Insolvency and Restructuring
Industry, created very challenging trading conditions for the Company. The
temporary measures contained in the Corporate Insolvency and Governance Act
2020 (the "Temporary Measures") were enacted in June 2020 and were ended
partly on 30 September 2021 and fully by 31 March 2022.
"The emergence of the Omicron variant towards the end of 2021 also had a
material, but now steadily passing, impact on the ability of IPs and their
lawyers to refer cases onto us. The UK insolvency industry is returning to
more normal operating levels.
"The monthly number of UK company insolvencies, particularly CVLs, has now
consistently returned to pre-pandemic levels for an extended period. I am
pleased to report that this is starting to reflect in the numbers of our
monthly new case enquiries. Following a sharp decline in the second half of
our financial year ended 31 March 2021, new case enquiries have been rising at
an increasingly faster pace. In the latest full month of May 2022, we received
61 new case enquiries, the highest monthly level since July 2020.
"I was delighted that we were able to complete a significant case for £9.5m
shortly after the year end. We have received all of our costs and profit share
in cash. That has materially enhanced the balance sheet strength of the
Company, which helps position us well for the significant opportunities that
lie ahead.
"In navigating the difficulties caused by the Temporary Measures, I am pleased
with the way the business performed. We have continued to invest in the
business and are well placed as we see the return of more usual trading
conditions."
Financial (statutory and non-statutory) highlights:
· Realised revenues on completed cases were £15.2m, a decline of
38% (FY21: £24.4m) although FY21 contained an exceptionally large case
completion of £9.3m
· 75% of total revenues represented by realised revenues on fully
completed cases (FY21: 88%)
· 50% of total gross profit generated from realised, completed
cases (FY21: 75%)
· Increase in the valuation of the cartel cases contributed £5.1m
to gross profit in FY22 (FY21: £nil).
· EBIT reduced by 28% to £5.3m (FY21: £7.4m) a result of a lower
level of new case additions in FY22 and pressure on valuations on existing
cases.
· Profit before tax down 36% to £4.5m (FY21: £7.0m)
· Diluted earnings per share down 38% to 8 pence (FY21: 13 pence)
· Gross cash receipts from completed cases were £15.5m, an
increase of 28% (FY21: £12.2m).
· The Company's retained share of gross cash receipts from
completed cases (after all legal costs and payments to Insolvent Estates) was
£8.9m, an increase of 31% (FY21: £6.8m).
· Cash generated from operations (after all completed case costs
and all overheads but before new case investments and taxation) was £4.4m
(FY21: £2.8m).
· Gross cash of £2.2m and borrowings of £13.5m (FY21: £1.1m and
£8.0m) as at 31 March 2022 and £11.5m unutilised funds available on the
Revolving Credit Facility with HSBC.
· Proposed final dividend of 0.5 pence per share
Operational highlights:
· New case investments in UK insolvency cases, a decline of 20%:
159 in FY22 (FY21: 198)
· Ongoing delivery of realised returns: 139 case realisations in
FY22 (on average 2.7 case realisations per week) with an average duration on
those 139 cases of 13 months (135 case completions in prior year)
· ROI of 153% and Money Multiple of 2.5x from 505 completed cases
since inception
· Average case duration across the full portfolio of 505 completed
cases is 12.1 months
· 11% increase in live cases: 272 in process as at 31 March 2022
(245 as at 31 March 2021)
A copy of the annual report and accounts will be available on the Company's
website shortly and will be posted to shareholders in due course.
For further information please contact:
Manolete Partners via Instinctif Partners
Steven Cooklin (Chief Executive Officer)
Peel Hunt (NOMAD and Broker) +44 (0)20 7418 8900
James Britton
Rishi Shah
Paul Shackleton
Instinctif Partners +44 (0)78 3767 4600
Tim Linacre manolete@instinctif.com (mailto:manolete@instinctif.com)
Victoria Hayns
Chairman's Statement
I am delighted to present my first report as your Chairman. I have long
admired the Company and its team and so I was very pleased to join the Board
and then be invited to serve as your Chairman.
Introduction
I would first like to pay tribute and thanks to my predecessor Peter Bertram
for his wise guidance and counsel as the Company listed and then grew on AIM.
I would also like to thank Lee Manning for his years of service on the Board
bringing an extensive knowledge of insolvency and business experience. I am
also grateful for the welcome afforded me by the Executive Directors and in
particular by Stephen Baister whose intricate knowledge of the workings of
insolvency has been of invaluable help to me and the rest of the Board. I look
forward to welcoming Mena Halton to the Board who will provide an invaluable
operational legal insight.
Overview
I am pleased to report that the Company has delivered a resilient performance
in an unprecedented year with 159 new case investments in the year to 31 March
2022 (FY21: 198).
The Company's results reflect the strength, resilience and capabilities of the
business through its expanding network of Insolvency Practitioners and
insolvency lawyers throughout the UK, despite very difficult market
circumstances in relation to Government support measures during the covid
pandemic, as explained below.
Financial results
Revenues for the year to 31 March 2022 decreased by 27% to £20.4m (FY21:
£27.8m) and Profit before Tax was £4.5m compared to £7.0m in the prior
year.
There were 139 case completions (FY21: 135) which is a record for the company
and these generated gross cash receipts of £15.5m (FY21: £12.2m) and also
contributed to a growth in receivables balances to £20.3m (FY21: £18.3m).
Gross profit of £10.4m (FY21: £13.4m) was generated by realised cases £5.2m
and unrealised gross profit of £5.2m (of which uplift in cartel case
valuation, £5.1m).
We have drawn down a total of £13.5m (FY21: £8.0m) of our £25m Banking
Facility with HSBC to support the growth of the business. This Revolving
Credit Facility is for a further two years to 1 July 2024 and has the option
to extend for another year together with a £10m accordion. Details are set
out in the CFO's report.
Strategy
We remain focused on strengthening the profile of Manolete, and an important
component to our strategy is to continue to build upon our network of
established Insolvency Practitioner and insolvency lawyer contacts throughout
the UK.
The Covid pandemic resulted in the UK Government enacting the Corporate
Governance and Insolvency Act 2020 ("temporary measures") to protect
employment and businesses which has led to a fall corporate insolvencies.
These temporary measures have now ended but naturally this impacted our
business particularly in respect of new case generation. However I am
confident that with this period behind us the Company is well placed to grow.
Dividend
The Board has reviewed the dividend policy and is recommending a final
dividend of 0.5p per share giving a total dividend for the year of 0.89p per
share. Subject to the approval of shareholders at the Annual General Meeting
on 20 September 2022, the dividend to Ordinary Shareholders will be payable on
6 October 2022 to those shareholders who are on the register of members at 9
September 2022.
Corporate Governance
The Board of Directors is committed to good corporate governance. The Company
has adopted the ten principles of the 2018 Version of the Corporate Governance
Code as set out by the Quoted Companies Alliance. Our arrangements are further
described in our Corporate Governance Statement.
The Audit Committee report and the Remuneration Committee report describe the
remits and approaches of those committees to fulfilling their governance
responsibilities. A statement on corporate governance is also provided on
our website
(https://investors.manolete-partners.com/company-information/corporate-governance
(https://investors.manolete-partners.com/company-information/corporate-governance)
).
People
On behalf of the Board and shareholders I would like to thank our team
comprised of highly dedicated, extremely knowledgeable and focused staff for
their commitment and hard work during a very demanding year.
Board
I am very pleased to welcome Annie Devoy to the Board. As a former PwC
partner, she has invaluable experience in the Financial Services sector and
with public companies. Her energy and enthusiasm have already made an impact.
Our CEO has shown real leadership as we adapted to the temporary covid related
legislation, in addition to all the other pressures that every other business
faced in the pandemic and I pay tribute to him and Mark Tavener our CFO as we
have come through those demanding times in a very strong position.
Outlook
Shortly after the year end we achieved the successful resolution of a case
which yielded significant cash receipts therefore substantially strengthening
our cash position. Overall, the business is very well-positioned in the
insolvency litigation financing market for long-term profitable growth.
Lord Leigh
Non-Executive Chairman
CEO's Statement
FY22 presented very challenging trading conditions for the Company. This was
largely due to the UK Government's response to the Covid-19 pandemic, which
included widespread but temporary restrictions on the UK Insolvency and
Restructuring Industry. The temporary measures contained in the Corporate
Governance and Insolvency Act 2020 (the "Temporary Measures") were enacted in
June 2020 and were ended partly on 30 September 2021 and fully by 31 March
2022 (coincidentally the final day of the Company's FY22 trading period). The
emergence of the Omicron variant towards the end of 2021 also had a material,
but now steadily passing, impact on the resumption to normality of the UK
insolvency industry.
The following graph issued by the Insolvency Service on 22 April 2022, clearly
illustrates the impact of these measures on the UK insolvency industry.
Registered Company insolvencies, England and Wales (1 January 2019 to 31 May
2022)
Click or paste the following link into your web browser to view the PDF
document. Refer to page 5 for the relevant chart.
http://www.rns-pdf.londonstockexchange.com/rns/8635P_1-2022-6-22.pdf
(http://www.rns-pdf.londonstockexchange.com/rns/8635P_1-2022-6-22.pdf)
Against this extraordinary trading background, the Company delivered a
resilient performance for its shareholders for the financial year ended 31
March 2022:
· Invested in 159 new UK insolvency claims, a decrease of 20%
(FY21: 198).
· A record number of 139 cases were completed, an increase of 3%
(FY21: 135).
· Realised revenues on completed cases were £15.2m, a decline of
38% (FY21: £24.4m) although FY21 contained an exceptionally large case
completion of £9.3m.
· Gross cash receipts from completed cases were £15.5m, an
increase of 28% (FY21: £12.2m).
· The Company's retained share of gross cash receipts from
completed cases (after all legal costs and payments to Insolvent Estates) was
£8.9m, an increase of 31% (FY21: £6.8m).
· Cash generated from operations (after all completed case costs
and all overheads but before new case investments and taxation) was £4.4m
(FY21: £2.8m).
· EBIT reduced by 28% to £5.3m (FY21, £7.4m) a result of a lower
level of new case additions in FY22 and pressure on valuations on existing
cases.
· Increase in the valuation of the cartel cases contributed £5.1m
to gross profit in FY22 (FY21: £nil ).
The Company had net debt of £11.1m as at 31 March 2022 which has been reduced
to £7.3m on 16th May 2022 following the receipt of cash relating to a large
case completion shortly after the year end. This is significantly lower than
the £10.3m Net Debt reported in our latest interim results at 30 September
2021 (FY21: £6.9m). The Company has a £35m funding package with HSBC on
attractive terms: a Revolving Credit Facility ("RCF") of £25m over an initial
three-year period to 1 July 2024, with an option to extend by a further year.
The RCF also offers the Company an additional approved but uncommitted £10m
accordion, if ever required. Management would require approval from HSBC
before gaining access to these additional funds. The interest rate is a
maximum 2.9% over SONIA.
New cases signed by quarter
Click or paste the following link into your web browser to view the PDF
document. Refer to page 6 for the relevant chart.
http://www.rns-pdf.londonstockexchange.com/rns/8635P_1-2022-6-22.pdf
(http://www.rns-pdf.londonstockexchange.com/rns/8635P_1-2022-6-22.pdf)
The entire UK insolvency market was artificially suppressed by the UK
Government's Temporary Measures, this resulted in a lower level of case
enquiries (see my final graph below) and a lower level of new case investments
(chart above). As a consequence, the Company experienced continuing muted
levels of unrealised revenues (as these occur as new cases are taken on and
developed). Despite this our portfolio has marginally increased by a net 27
cases as we still experienced overall growth in cases just at a slower rate of
growth.
139 cases were completed during FY22 (FY21: 135) which was a record for the
Company - an impressive result by the in-house legal team given the multiple
operational challenges presented by Covid-19.
Unrealised revenue (on more recently signed cases) were inevitably adversely
impacted by the Temporary Measures as the number of newly signed cases slowed
compared to previous years (159 new case additions FY22, 198 new case
additions FY21). As at 31 March 2022, the Board has also carefully and
diligently reviewed the carrying value of all live cases in the light of the
prevalent general UK economic conditions. The combined effect of these two
factors resulted in relatively low levels of unrealised revenues compared to
the pre-pandemic period. While unrealised revenues increased from £3.4m in
FY21 to £5.2m in FY22 this was mainly driven by the valuation of the cartel
cases (see below for further detail). The impact of the cartel cases on
profitability for the year is discussed in further detail in the CFO's report.
Overall, for FY22, 75% of total revenues (FY21: 88%) of £20.4m (FY21:
£27.8m) and 50% of total gross profit (FY21: 75%) of £10.4m (FY21: £13.4m)
were from realised completed cases. 93% of total revenues derived from
purchased cases (FY21: 88%) and only 7% from Funded Cases (FY21: 12%). It is
the Company's ability to purchase (and therefore fully control) its legal
claims that fundamentally distinguishes it from almost all other litigation
funding companies. Of the 159 new cases signed in FY22, 93% were purchased
cases and 7% were funded cases. This is in line with the Company's
expectations of a continuing greater acceptance of the Company's core business
model in the insolvency industry.
Cash generation was very strong throughout FY22, particularly in the second
half of FY22 which accounted for 73% of the total gross cash receipts for the
year from completed cases. Overall gross cash receipts rose 28% to a record
£15.5m for FY22. It should be noted that 47% of those cash receipts came from
cases completed in FY22 whereas 41% derived from cases that completed in FY21
the balance of 12% coming from earlier case investment vintages. This
highlights the cash latency in the Company's financial results: the large
majority of the cash benefit of FY22's realised revenues of £15.2m is yet to
be reflected in the Company's cash reserves. The £15.5m of cash generated
derived from 183 separate cases (FY21: £12.2m from 141 historic cases), which
highlights the wide diversity and granularity of the Company's cash income.
Shortly after the FY22 year ended, the Company completed one of its larger
cases for £9.5m. At 31 March 2022 the case was held in investments at a gross
profit of £2.9m however this actually equated to £2.4m when realised in
FY23. The Company's cash receipt was £5.6m. All cash from this case was
received in full during May 2022, resulting in a material reduction of the
Company's net debt to just £7.3m.
Cartel Cases
There have been material developments relating to the Company's cartel cases
in recent months. These continue to progress well and we are now at an
important juncture for these cases. The trials of two large truck cartel cases
(relating to British Telecom Plc and Royal Mail Plc) have now commenced and
there is likely to be significant 'read across' to the Company's 22 cartel
cases. The Company has been advised that there is a high likelihood that the
judgments on those two leading test cases will be issued during FY23. The
Company is due to issue its own claims this summer. While the development of
these Cartel Cases had been previously delayed due to the Court's issues
relating to Covid-19, the Company made no change to its carrying values of
these cases. However, with these important test cases having now commenced and
on strong advice from Queens Counsel on the merits of the Company's 22 claims,
the Company has now materially increased the carrying value of the cartel
cases from £7.1m to £12.2m as at 31 March 2022.
Investment Returns
Our investment track record, by vintage, continues to deliver outstanding
results. All vintages, up to and including FY16, have been completed and FY17
has only one case remaining as does FY18. FY19 cases are now 95% complete,
FY20 77% complete and well over half of the FY21 cases are legally completed.
Manolete's model is characterised by short case durations, high ROIs (Return
on Investment), exceptional Money Multiples and very high IRRs. The Company
calculates case duration from the date we sign the investment agreement to the
date the case is legally concluded. On average, cash collection takes around
12 months after legal completion.
Case No. of No. % No Open case investments Closed case investments Total Total Total IP Manolete Duration completed cases ROI MoM IRR
investments
completed
completion
outstanding
invested
recovered
gain
share
gain
Vintage No No % total No £'000 £'000 £'000 £'000 £'000 £'000 £'000 Months % % %
2010 3 3 100% 0 0 52 52 28 (24) 10 (35) 7.0m (67%) .3x 0%
2011 0 0 - 0 0 0 0 0 0 0 0 0.0m 0% .0x 0%
2012 8 8 100% 0 0 763 763 2,524 1,761 580 1,181 18.0m 155% 2.5x 258%
2013 10 10 100% 0 0 174 174 780 606 316 290 7.1m 166% 2.7x 147%
2014 42 42 100% 0 0 594 594 3,884 3,290 2,427 863 10.0m 145% 2.5x 455%
2015 39 39 100% 0 0 1,404 1,404 7,029 5,625 3,290 2,336 12.8m 166% 2.7x 502%
2016 36 36 100% 0 0 1,936 1,936 9,393 7,458 4,164 3,293 15.0m 170% 2.7x 180%
2017 31 30 97% 1 339 1,101 1,440 4,269 3,167 1,905 1,263 12.2m 115% 2.1x 554%
2018 29 28 97% 1 2,153 1,808 3,962 14,808 13,000 9,117 3,883 15.4m 215% 3.1x 483%
2019 59 56 95% 3 203 2,418 2,621 13,987 11,569 6,572 4,997 15.9m 207% 3.1x 122%
2020 141 111 79% 30 1,901 4,402 6,303 14,015 9,613 5,573 4,041 12.9m 92% 1.9x 148%
2021 198 112 57% 86 3,222 2,631 5,854 11,354 8,723 4,573 4,150 8.5m 158% 2.6x 292%
2022 159 30 19% 129 1,244 490 496 2,017 1,552 705 877 5.2m 179% 2.8x 1603%
Total (exc. Cartel cases) 755 505 66.9% 250 9,063 17,774 25,598 84,087 66,338 39,230 27,137 12.1m 153% 2.5x 132%
(i) The vintages table excludes 22 cartel cases and is net of deductions for
bad debt provisions (excluding ECL provisions).
(ii) Ongoing cases includes partial realisations.
(iii) The large case completion in FY21 is presented net of discounting.
The more mature later vintages of FY18, FY19 and FY20 all have total case
recoveries of well over £10m per year and IRRs ranging from 122% to 483%.
Recoveries for cases that commenced in FY21 total £11.3m with an IRR of 292%.
Industry Recognition
In December 2021, Manolete was voted Insolvency Litigation Funder of the Year
for the fifth time in the last six years at the industry's Turnaround Recovery
and Insolvency Awards. During the year, the Company was named as the only
company in the insolvency litigation funding section to be ranked in Band 1 of
the legal industry's prestigious Chambers Guide. The Band 1 ranking is a great
testament to the tremendous work of all the Company's employees.
COVID-19 Impact and Current Trading
The Board remains focused on the health, safety and well-being of all
colleagues. Throughout the Covid-19 pandemic period, we operated without
interruption and none of our people were placed on furlough. Colleagues
adapted well to remote working during lockdown periods and previous
investments in our IT and operating infrastructure have proven to be
invaluable.
At the time of writing, the UK continues to emerge well from the Covid-19
pandemic. As many commentators have noted, now that the Temporary Measures and
the wider UK Government economic support measures have ended, there is likely
to be a material increase in the number of UK insolvencies over an extended
period of time, due to the backlog that has built up while those measures were
in force. This is likely to be exacerbated in a period of sustained inflation
and the likely commensurate increase in interest rates and supply chain
pressures.
After a sharp decline caused by the Temporary Measures, new case enquiries
have recovered strongly. The last few weeks of FY22 were particularly robust
and that increase has persisted into FY23, with May 2022 recording our highest
level of new case enquiries since July 2020 (the month following the start of
the Government's restrictions on the UK insolvency market).
New cases enquiries per half year
Click or paste the following link into your web browser to view the PDF
document. Refer to page 8 for the relevant chart.
http://www.rns-pdf.londonstockexchange.com/rns/8635P_1-2022-6-22.pdf
(http://www.rns-pdf.londonstockexchange.com/rns/8635P_1-2022-6-22.pdf)
Board appointment, People and Stakeholders
I am delighted to announce that, effective 24(rd) June 2022, Mena Halton will
be joining the Manolete Board of Directors, in an executive capacity, as our
Managing Director, continuing to report to myself as CEO. Mena has been with
the Company since 2014 and has been our 'Head of Legal' for many years. She
has reviewed, managed and completed literally hundreds of cases for the
Company, delivering outstanding returns for our shareholders.
Since Manolete's IPO in December 2018, she has built out our outstanding
specialist in-house insolvency litigation financing team that has attracted
many of the best-of breed-lawyers from the UK insolvency legal market. Mena
manages that team on a daily basis and ensures us deep coverage of every
important insolvency market in England, Wales and Scotland.
Alongside Manolete's recognition as the only top ranked Insolvency Litigation
Funder by the Chambers Guide, Mena has also been recognised for litigation
funding in the Chambers Litigation Support Guide for 2019, 2020 and 2021. Mena
was recently included in The Lawyer Hot 100 and also in Who's Who Legal:
Thought Leaders - Third Party Funding for 2020 and 2021.
We warmly welcome Mena to the Board of Directors, she will continue to be a
tremendous asset to this Company.
I am very grateful to our in-house legal team and the finance and Net Worth
Support teams. Against a very challenging operating environment, they have
performed extremely well for the Company. Anticipating an imminent and
sustained material increased level of business activity, two more expert UK
insolvency litigators were added to the in-house legal team at the start of
this calendar year. Others are likely to be added as the level of insolvencies
increase but the Company already has substantial capacity to materially
increase the numbers of cases it manages.
The Company is in excellent shape and well positioned to benefit from a likely
strongly elevated level of increased activity as the year progresses.
Steven Cooklin
Chief Executive Officer
23 June 2022
CFO's Statement
I am pleased to give my review of the Company's audited results for the year to 31 March 2022.
Financial overview: 31 March 2022 31 March 2021 YoY
Financial KPIs £000s £000s %
Revenue 20,443 27,832 (27%)
Gross profit 10,381 13,412 (23%)
Gross margin % 50.8% 48.2%
EBIT 5,304 7,398 (28%)
EBIT % 26% 27%
Profit after tax 3,678 5,700 (35%)
Investment valuation 45,718 37,508 22%
Non-financial KPIs
New cases 159 198
Completed cases* 139 135
Live cases at year end* 272 245
*including partially 7 completed cases & 22 cartel cases in FY22 (7
partial completions and 22 cartel cases in FY21).
This financial year, FY22, has taken place against a difficult trading
environment with the UK Government restrictions on the insolvency industry and
widespread UK Government support across the UK economy, resulting in
significantly fewer insolvencies in the market and therefore resulting in
fewer new cases for Manolete to sign. The Company has signed 159 new cases in
FY22 (FY21: 198). This had a direct impact on our financial results resulting
in revenue of £20.4m (27% below prior year) and EBIT of £5.3m (28% below
prior year).
Despite the lower level of new cases, the Company continued to complete a high
level of existing cases. A record 139 cases were completed (FY21: 135 cases)
converting historical unrealised gains into realised revenue and profit.
In making comparisons to FY21 results, we note that FY21 included the
completion of a single large case which accounted for revenue of £9.3m and
gross profit of £2.8m alone. If you exclude the large case from prior year,
the comparison to FY22 is similar (see table overleaf).
Revenue 31 March 2022 31 March 2021
£000s % £000s %
Realised revenue 15,243 75 24,427 88
Unrealised revenue 5,200 25 3,405 12
Revenue 20,443 27,832
Due to the effect of the UK Government's Covid-19 business support measures
causing a short-term drag on new cases, the Company's total revenues have
decreased by 27% to £20.4m (FY21: £27.8m). These revenues can be classified
into realised revenue £15.2m (FY21: £24.4m) and unrealised revenue £5.2m
(FY21: £3.4m).
Realised revenue decreased by 38% to £15.2m (FY21: £24.4m) mainly driven by
a single significant case completed in FY21 included within realised revenue
at a discounted rate at £9.3m. If we 'normalise' the prior year realised
revenue by removing the large case completion, this results in a prior year
realised revenue of £15.1m against FY22 of £15.2m. This is a more
understandable comparison and is consistent with the number of case
completions in FY22 of 139 (FY21: 135).
31 March 2021 as stated Impact of large case 31 March 2021 excluding large case FY22 Variance
£000s £000s £000s £000s %
Realised revenue 24,421 9,315 15,106 15,244 0.9
Gross profit 13,412 2,819 10,593 10,381 (2.0)
The increase in unrealised revenue to £5.2m FY22 (FY21: £3.4m) is almost
entirely due to the increase in valuation of the cartel cases which have now
reached the stage in the legal process that they are due to be served in the
coming months (see CEO Report). Prior year unrealised revenue of £3.4m
related solely to non-cartel cases. The remainder of the portfolio was
impacted by the temporary slow-down in the insolvency market which reduced new
case additions to 159 (FY21: 198) and the Board's fair value estimate
reflecting difficult market conditions caused by the pandemic across ongoing
live cases. Note 13 of the accounts provides a breakdown on the fair value
movement.
We note in the table below the impact that the increase in cartel valuations
has had on our gross profit for the year.
Gross profit
A key driver of our profitability in FY22 was the revaluation of the cartel
cases by £5.1m, which have now reached a stage of being 'ready to serve'. The
key reason for this increase is the expansion of the valuation to include all
22 cartel cases that are held. We classified our 22 cartel cases into three
tiers and attributed a different discount risk factor against the valuation of
each tier, with the lowest risk cases being attributed with the highest
value. I have set out the components of gross profit in the table below.
Without the uplift in cartel cases, it should be noted that performance would
have resulted in only a marginally positive EBIT profit.
£'m
Realised gross profit 5.2
Unrealised gross profit - cartel cases 5.1
Unrealised gross profit - other 0.1
Gross profit 10.4
Administrative expenses
31 March 2022 31 March 2021 YoY
growth
£000s £000s %
Salaries and wages 3,519 3,486 1%
Bad debt expense 321 1,366 (76%)
Professional fees 479 533 (10%)
Marketing 222 168 32%
Other costs, including office costs 536 461 16%
Administrative costs 5,077 6,014 (16%)
Administrative expenses decreased by 16% to £5.0m (FY21: £6.0m) but
increased as a proportion of gross revenue from 22% FY21 to 25% FY22. The
decrease in administration expenses was primarily a result of a decrease in
bad debt expense to £0.3m (FY21: £1.4m). In the prior year, we significantly
increased provisioning and wrote off a number of older balances, there have
been no such equivalent items this year. Professional fee expenses of £0.5m
(FY21: £0.5m) have been well managed and consist of mostly recurring items
such as audit, tax, PR services. Marketing costs at £0.2m (FY21: £0.2m)
remain low while it is expected these costs will increase in the coming months
as marketing activity is increased.
Operating profit (Earnings Before Interest and Tax)
Operating profit decreased by 28% to £5.3m (FY21: £7.4m) with the operating
margin staying fairly consistent at 26% (FY21: 27%). There were no exceptional
items in FY22 or in FY21.
Finance costs
The Company extended its debt facility with HSBC in June 2021 to £25m
(previously £20m) to facilitate the expected growth of its case load in the
future. The Company pays a 0.7% commitment fee on any unused facility with
HSBC. As at 31 March 2022, £13.5m of the £25m HSBC facility has been drawn
down (FY21: £8.0m).
Profit before tax
Profit before tax has decreased by 34% to £4.5m (FY21: £7.0m). The Company's
pre-tax profit margin has decreased from 25% to 23% in FY22.
Taxation
The Company's effective tax rate is 19%. The Company will discharge its
corporation tax liabilities over the next few months.
Profit after tax
Profit after tax has decreased by 35% to £3.7m (FY21: £5.7m). The post-tax
margin has decreased marginally from 20% to 18%.
Earnings per share
As disclosed in Note 12, earnings per share decreased by 31% from 13.0 pence
to 8.0 pence.
Balance sheet - Investment in Cases
The Company was managing 272 live case investments as at 31 March 2022,
compared to 245 live cases as at 31 March 2021, a net increase of 27 cases, or
11%. The total investment in cases amounted to £45.7m as at 31 March 2022 an
increase of 22% (FY21: £37.5m). This includes the investment in the cartel
cases as at 31 March 2022 of £12.2m, an increase from £7.1m FY21, 72%.
Investment in cases is shown at fair value, based on the Company's estimate of
the likely future realised gross profit, plus costs incurred.
Management, following discussion on a case by case basis with the in-house
legal team, amend valuations of cases each month end to accurately reflect
management's view of fair value. In addition, at the interim and final
reporting periods, a sample of material valuations are corroborated with the
external lawyers working on the case, who provide updated legal opinions as to
the current status of the case. The Company does not capitalise any of its
internal costs, such as salaries, these are fully expensed to the Statement of
Comprehensive Income as incurred.
Cashflow 31 March 2022 31 March 2021
£000s £000s
Gross cash receipts 15,549 12,203
IP share & legal costs on completed cases (6,632) (5,376)
Cashflows from completed cases 8,917 6,827
Overheads (4,499) (4,040)
Net cash generated from operations before investment in cases and corporation 4,418 2,787
tax
Corporation tax (833) (1,923)
Net cash generated from operations after corporation tax and before investment 3,585 864
in new cases
Investment in cases (6,470) (5,887)
Net cash used in operations (2,885) (5,023)
% growth in case cash investments 10% 44%
Gross cash receipts
Gross cash receipts continue to increase year on year, to £15.5m in FY22
(FY21: £12.2m) by 28% and importantly, cash generated from operations before
investment in cases and corporation tax has increased from a cash inflow of
£2.8m in FY21 to a cash inflow of £4.4m in FY22 which has been reinvested in
the portfolio. Furthermore, net cash generated prior to investment in cases
(new and existing) was £3.6m FY22 compared to £0.9m FY21. The increase in
cash generation at this level demonstrates further progress towards becoming
self-funding in case investment. Cash receipts are being generated both from
payment schedules of prior year completions as well as from current year case
completions.
The graph below shows the growth in gross cash generation (included both IP
share and Manolete share of cash receipts) year on year. As the business
matures its ability to generate cash and ultimately become self-funding is a
key characteristic.
Gross cash receipts (£'000) - 5 Year CAGR: 27.1%
Click or paste the following link into your web browser to view the PDF
document. Refer to page 12 for the relevant chart.
http://www.rns-pdf.londonstockexchange.com/rns/8635P_1-2022-6-22.pdf
(http://www.rns-pdf.londonstockexchange.com/rns/8635P_1-2022-6-22.pdf)
Overheads & Corporation Tax
Excluding non-cash items (including bad debt expense), cash incurred on
overheads has increased from £4.0m FY21 to £4.5m FY22 principally as result
of payment of last year's bonus to staff.
As corporation tax is paid on unrealised as well as realised profits, the
Company effectively pre-pays an element of its corporation tax liability. In
FY22, the Company generated unrealised profits of £5.2m (FY21: £3.4m) of
which corporation tax is payable at 19% totalling £1.0m (FY21: £0.6m).
Investment in cases
We have continued to invest in existing and new cases with total capital of
£6.5m deployed during FY22 compared with £5.9m in FY21 which has been funded
through cash receipts from completed cases and our HSBC loan facility.
Working Capital
Absorption of £1.9m into working capital during FY22 is primarily due to
increased trade receivables. This increase in net trade receivables will
generate cash in FY23. Debtor days on a countback basis increased from 202 in
FY21 to 335 in FY22 due to longer repayment schedules being agreed with
defendants in order to recover cash settlements in a more challenging economic
environment while avoiding bankruptcy of defendants.
31 March 2022 31 March 2021
Net working capital £000s £000s
Net working capital 10,158 8,208
Change in net working capital (1,950) (6,262)
DSO (Days sales outstanding) basic 507 265
DSO countback 335 202
Post year-end large case completion
Furthermore, we are able to report the completion in April 2022 (post
year-end) of a large individual case which generated gross profit of £2.4m.
Cash proceeds (includes reimbursement of our costs) of £5.6m was collected in
May 2022 and will greatly decrease Net debt.
Debt Financing
The Company has drawn down £13.5m of its £25m HSBC loan facility and has
continued to deploy loan capital to finance investment in cases. The Company
held cash reserves of £2.3m as at 31 March 2022 which are available to both
respond to any uncertainty over the Covid-19 pandemic and to deploy on new
case investment. The Company has complied with its financial covenants during
the year. The Company has agreed an amendment of the leverage covenant for two
quarters to avoid any short-term breach prior to receipt of the cash funds
from the large case completion in April 2022.
Mark Tavener
Chief Financial Officer
23 June 2022
Strategic Report
The Directors present their strategic report for the year ended 31 March 2022.
Strategy and Business Model
The Company's strategy for growth and its business model are described in
detail on the Company's website, www.manolete-partners.com
(http://www.manolete-partners.com) and at the start of this report.
In the FY22 Annual Report, we have set out the principal risks which may
present challenges in executing the business model and delivering the
strategy.
Given the UK Government's extraordinary temporary measures to materially
reduce the number of insolvencies and bankruptcies during the Covid-19
pandemic, the financial statements for the year ended 31 March 2022 represent
a very satisfactory out-turn for the business. Year-on-year revenues decreased
by 27%, driven by a 38% decrease in realised revenues (FY21 benefitted from an
exceptionally high single case realisation of £9.3m), Operating Profit
declined by 28% to £5.3m and net assets grew 8% to £42.2m.
The number of employees was 22 at the end of the financial year.
The business has grown marginally despite the difficult trading conditions, at
the financial year-end the cumulative number of signed litigation investments
has grown to 777 cases, with a record 272 live, in-progress cases at as 31
March 2022.
Year Ended Year Ended % change
31 March 2022 31 March 2021
Financial KPIs £000s £000s
Revenue 20,443 27,832 (27%)
Gross profit 10,381 13,412 (23%)
Operating profit 5,304 7,398 (28%)
Profit after tax 3,678 5,668 (35%)
Value of investments 45,718 37,508 22%
Non-financial KPIs
Number of signed litigation investments 777 618 26%
Live cases at end of reporting period 272 245 11%
New cases 159 198 (20%)
Completed cases 139 135 3%
The movements in key performance indicators is analysed in the Report of the
Chief Executive Officer and the Report of the Chief Financial Officer.
Outlook and Current Trading
We are confident we have invested in a portfolio of cases that will produce
attractive returns for the Company. The Government measures to suppress UK
insolvencies have now ended as have the wider UK economic support measures,
which give us confidence in our future prospects. Many respected market
commentators are predicting a sustained period of elevated insolvency figures
in the UK.
The Board has considered the Going Concern status of the business both in
relation to Covid-19 and in general and has concluded that it is appropriate
for the accounts to be prepared on a going concern basis. The newly increased
£25m RCF plus £10m accordion on attractive terms with HSBC provides the
Company with substantial finance going forward.
We believe the business is very well-positioned to consolidate its leadership
position in the insolvency litigation financing market. Since the start of the
2022 calendar year, the Company has added two additional members to its
in-house legal team, in anticipation of an increased level of new case
enquiries.
The Company has made a good start to FY23 and we look forward to a promising
future.
On behalf of the Board:
Steven Cooklin
Chief Executive Officer
23 June 2022
Statement of Comprehensive Income
31 March 31 March
2022 2021
Note £'000s £'000s
Revenue 4 20,443 27,832
Cost of sales (10,062) (14,420)
Gross profit 10,381 13,412
Administrative expenses 8 (5,077) (6,014)
Operating profit 6 5,304 7,398
Finance income 9 - 50
Finance expense 9 (796) (457)
Profit before tax 4,508 6,991
Taxation 11 (830) (1,291)
Profit and total comprehensive income for the year attributable to the equity 3,678 5,700
owners of the company
Earnings per share
Basic (pence per share) 12 £0.08 £0.13
Diluted (pence per share) 12 £0.08 £0.13
The above results were derived from continuing operations.
The notes at the end of this announcement form part of these financial
statements.
Statement of Financial Position
31 March 31 March
Company Number: 07660874 2022 2021
Note £'000s £'000s
Non-current assets
Investments 13 12,198 7,136
Intangible assets 14 13 35
Trade and other receivables 16 11,086 10,660
Deferred tax asset 19 95 121
Right-of-use asset 15 86 257
Total non-current assets 23,478 18,209
Current assets
Investments 13 33,520 30,372
Trade and other receivables 16 9,189 7,688
Cash and cash equivalents 17 2,256 1,144
Total current assets 44,965 39,204
Total assets 68,443 57,413
EQUITY AND LIABILITIES
Equity
Share capital 21 175 174
Share premium 22 142 4
Share based payment reserve 22 429 349
Special reserve 22 5 178
Retained earnings 22 41,468 38,223
Total equity attributable to the equity owners of the company 42,219 38,928
Non-current liabilities
Trade and other payables 18 6,853 6,602
Borrowings 20 13,285 7,698
Lease liability 15/20 - 96
Total non-current liabilities 20,138 14,396
Current liabilities
Trade and other payables 18 5,594 3,565
Current tax liabilities 11 396 335
Lease liability 15/20 96 189
Total current liabilities 6,086 4,089
Total liabilities 26,224 18,485
Total equity and liabilities 68,443 57,413
The notes at the end of this announcement form part of these financial
statements.
The financial statements were approved by the Board of Directors and
authorised for issue on 23 June 2022.
Steven Cooklin
Chief Executive Officer
Statement of Changes in Equity
Share Capital Share Premium Share based reserve Special reserve Retained Earnings Total Equity*
£'000s £'000s £'000s £'000s £'000s £'000s
As at 1 April 2020 174 4 226 905 33,613 34,922
Comprehensive income
Profit for the year - - - - 5,700 5,700
Transactions with owners
Dividends - - - - (1,817) (1,817)
Transfer in relation to creditors paid - - - (727) 727 -
Share based payment expense - - 122 - - 122
Deferred tax on share-based payments - - 1 - - 1
As at 31 March 2021 174 4 349 178 38,223 38,928
Comprehensive income
Profit for the year - - - - 3,678 3,678
Transactions with owners
Dividends - - - - (606) (606)
Transfer in relation to creditors paid - - - (173) 173 -
Share based payment expense - - 169 - - 169
Share based payment exercised 1 138 (138) - - 1
Deferred tax on share-based payments - - 49 - - 49
As at 31 March 2022 175 142 429 5 41,468 42,219
*attributable to the equity owners of the Company.
The notes at the end of this announcement form part of these financial
statements.
Statement of Cash Flows
31 March 31 March
2022 2021
Note £'000s £'000s
Profit before tax 4,508 6,991
Adjustments for other operating items:
Repayment of borrowings 16 - 581
Adjustments for non-cash items: 26 (444) 1,477
Operating cashflows before movements in working capital 4,064 9,049
Changes in working capital:
Net increase in trade and other receivables (1,926) (12,952)
Net increase in trade and other payables 2,280 6,690
Net cash generated from operations before corporation tax and investments 4,418 2,787
Corporation tax paid (833) (1,923)
Investment in cases 13 (6,470) (5,887)
Net cash used in operating activities (2,885) (5,023)
Cash flows from investing activities
Finance income received 9 - 6
Net cash generated from investing activities - 6
Cash flows from financing activities
Proceeds from borrowings 20 5,500 -
Dividends paid 10 (606) (1,817)
Interest paid (703) (240)
Payment of finance leases 15 (194) (153)
Net cash generated from/ (used) in financing activities 3,997 (2,210)
Net increase/(decrease) in cash and cash equivalents 1,112 (7,227)
Cash and cash equivalents at the beginning of the year 1,144 8,371
Cash and cash equivalents at the end of the year 2,256 1,144
The notes at the end of this announcement form part of these financial
statements.
Notes forming part of the Financial Statements
1. Company information
Manolete Partners PLC (the "Company") is a public company limited by shares
incorporated in England and Wales. The Company is domiciled in England and its
registered office is 2-4 Packhorse Road, Gerrards Cross, Buckinghamshire, SL9
7QE. The Company's ordinary shares are traded on the AIM Market.
The principal activity of the Company is that of acquiring and funding
insolvency litigation cases.
2. Summary of significant accounting policies
The principal accounting policies applied in the preparation of these
financial statements are set out below. The policies have been consistently
applied to all the years presented, unless otherwise stated.
2.1 Basis of preparation
The preliminary announcement does not constitute statutory financial
statements for the years ended 31 March 2022 and 31 March 2021.
The financial information for the year ended 31 March 2022 has been extracted
from the Company's audited financial statements which were approved by the
Board of Directors on 22 June 2022 and, which will be dispatched to the
shareholders and delivered to the Registrar of Companies for England and
Wales. The report of the auditor on the 31 March 2022 received an audit report
which was unqualified and did not include any reference to matters to which
the auditors drew attention by way of emphasis without qualifying their report
or a statement under section 498(2) or section 498(3) of the Companies Act
2006.
Statutory accounts for the year ended 31 March 2021 have been delivered to the
Registrar of Companies. The Auditor has reported on those accounts; their
report was unqualified and did not contain a statement under Section 498 (2)
or Section 498(3) of the Companies Act 2006.
Measurement bases
The financial statements have been prepared under the historical cost
convention. Historical cost is generally based on the fair value of the
consideration given in exchange for assets.
The preparation of the financial statements in compliance with UK adopted
International Accounting Standards requires the use of certain critical
accounting estimates and management judgements in applying the accounting
policies. The significant estimates and judgements that have been made and
their effect is disclosed in note 3.
2.2 Going concern
After making appropriate enquires, the Directors of the Company have a
reasonable expectation that the Company has adequate resources to continue in
operational existence for the foreseeable future and for at least one year
from the date of the signed financial statements.
Furthermore, the Board has discussed the impact of Covid-19 on the business
throughout the year. A reduced level of activity in the Insolvency market
over the last 12 months, itself driven by unprecedented levels of Government
support to failing businesses, has resulted in a lower level of new cases
signed than would otherwise have been the case. The Directors observe that
following the removal of Government support in recent months, the number of
insolvencies and related litigation cases has started to increase.
On an operational basis, the business was able to fully function remotely with
our in-house lawyers meeting online with insolvency practitioners and external
lawyers and continuing to progress cases. The Courts continued to function at
first remotely but now increasingly in person.
Based on this assessment, the Directors are of the opinion that the Company
has adequate financial resources to continue in operation and meet its
liabilities as they fall due, for the foreseeable future. Hence, the Directors
believe it is appropriate to adopt the going concern basis in preparing the
financial statements.
For these reasons, they continue to adopt the going concern basis in preparing
the Company's financial statements.
2.3 Functional and presentation currency
The financial information is presented in the functional currency, pounds
sterling ("£") except where otherwise indicated.
2.4 New standards, amendments and interpretations
New and amended IFRS Standards that are effective for the current year:
· Amendment to IFRS 16, 'Leases' - Covid-19 related rent
concessions
· Amendments to IAS 1, Presentation of financial statements' on
classification of liabilities
New and revised IFRS Standards in issue but not yet effective:
At the date of authorisation of these financial statements, the Group has not
applied the following new and revised IFRS Standards that have been issued but
are not yet effective:
· Amendments to IAS 1 Classification of Liabilities as Current or
Non-current
· Amendments to IFRS 3 Reference to the Conceptual Framework
Amendments to IAS 16 Property, Plant and Equipment-Proceeds before Intended
Use
· Amendments to IAS 37 Onerous Contracts - Cost of Fulfilling a
Contract Annual Improvements to IFRS Standards 2018-2020 Cycle
· Amendments to IFRS 1 First-time Adoption of International
Financial Reporting Standards, IFRS 9 Financial Instruments, IFRS 16 Leases,
and IAS 41 Agriculture
The directors do not expect that the adoption of the Standards listed above
will have a material impact on the financial statements of the Group in future
periods.
2.5 Revenue recognition
Revenue comprises two elements: the movement in fair value of investments and
realised consideration.
Realised consideration occurs when a case is settled or a Court judgement
received. This is an agreed upon and documented figure.
The movement in the fair value of investments is recognised as unrealised
gains within revenue. This is Management's assessment of the increase or
decrease in valuation of an open case, the inclusion of value for a new case
and the removal of the fair value of a completed case. These valuations are
estimated following the progress of a case towards completion and also reflect
the judgement of the legal team working on the case (see Note 3. Significant
Judgements and Estimates). Hence, unrealised revenue is the movement in the
fair value of the investments in open cases over a period of time.
When a case is completed the carrying value is a deduction to unrealised
income and the actual settlement value is recorded as realised revenue.
Revenue recognition differs between a purchased case, where full recognition
of the settlement is recognised as revenue (including the insolvent estate's
share) and a funded case where only the company's share of a settlement is
recognised as revenue. This differing treatment arises because the Company
owns the rights to the purchased case.
As revenue relates entirely to financing arrangements, revenue is recognised
under the classification and measurement provisions of IFRS 9.
2.6 Finance expense and income
Finance expense
Finance expense comprises interest on bank loans and other interest payable.
Interest on bank loans and other interest is charged to the Statement of
Comprehensive Income over the term of the debt using the effective interest
rate method so that the amount charged is at a constant rate on the carrying
amount. Issue costs are initially recognised as a reduction in the proceeds of
the associated capital instrument.
Finance income
Finance income comprises interest receivable on funds invested and other
interest receivable. Interest income is recognised in profit or loss as it
accrues using the effective interest method.
2.7 Employee benefits: Pension obligations
The Company operates a defined contribution plan. A defined contribution plan
is a pension plan under which the Company pays fixed contributions into a
separate entity. The Company has no legal or constructive obligations to pay
further contributions if the fund does not hold sufficient assets to pay all
employees the benefits relating to employee service in the current and prior
periods.
The Company has no further payment obligations once the contributions have
been paid. The contributions are recognised as employee benefit expense when
they are due. Prepaid contributions are recognised as an asset to the extent
that a cash refund or a reduction in the future payments is available.
2.8 Intangible assets
Intangible assets are measured at cost and are amortised on a straight-line
basis over their estimated finite useful lives. Amortisation is charged within
administrative expenses in the Statement of Comprehensive Income so as to
write off the cost of assets over their estimated useful lives, on the
following basis:
Website development costs: 33.3% of cost.
2.9 Financial assets
Classification
The Company classifies its financial assets at amortised cost or fair value
through profit or loss. Financial assets do not comprise prepayments.
Management determines the classification of its financial assets at initial
recognition.
Financial assets at amortised cost
The Company's financial assets held at amortised cost comprise trade and other
receivables and cash in the Statement of Financial Position.
These assets are non-derivative financial assets with fixed or determinable
payments that are not quoted in an active market. They arise principally
through the provision of goods and services to customers (e.g. trade
receivables), but also incorporate other types of contractual monetary assets.
They are initially recognised at fair value plus transaction costs that are
directly attributable to their acquisition or issue and are subsequently
carried at amortised cost using the effective interest method, less provision
for impairment.
Impairment of financial assets
Impairment provisions are recognised when there is objective evidence (such as
significant financial difficulties on the part of the counterparty or default
or significant delay in payment) that the Company will be unable to collect
all of the amounts due under the terms receivable, the amount of such a
provision being the difference between the net carrying amount and the present
value of the future expected cash flows associated with the impaired asset.
Impairment provisions for trade receivables are recognised specifically
against receivables where Management have identified default or delays to
payment in addition to the simplified approach within IFRS 9 using lifetime
expected credit losses. The Company applies the simplified approach in
providing for expected credit losses under IFRS 9 which allows the use of the
lifetime expected credit loss provision for all trade receivables. In
measuring the expected credit losses, trade receivables have been stratified
by settlement type and days past due. Expected lifetime credit loss rates are
based on payment profiles of completed cases from January 2019 (post IPO). For
trade receivables which are reported net, such provisions are recorded in a
separate provision account with the loss being recognised within
administrative expenses in the Statement of Comprehensive Income. On
confirmation that the trade receivables will not be collectable, the gross
carrying value of the asset is written off against the associated provision.
Investments
Investments in cases are categorised at fair value through profit or loss.
Fair values are determined on the specifics of each investment and will
typically change upon an investment progressing through a key stage in the
litigation or arbitration process in a manner that, in the Directors' opinion,
would result in a third party being prepared to pay an amount different to the
original sum invested for the Company's rights in connection with the
investment. Positive material progression of an investment will give rise to
an increase in fair value and an adverse progression a decrease. Management
identifies and selects a number of material case valuations for external
opinion. As such this year the valuation of a sample of material investments
was underpinned by an external legal opinion, which supports the Directors'
valuation.
Valuation of investments
Determining the value of purchased and funded litigation requires an
estimation of the value of such assets upon acquisition and at each reporting
date. The future income generation of such litigation is estimated from known
information and the opinion of external senior specialist counsel and
solicitors. Valuations of each case, at the balance sheet date, are therefore
arrived at by the Directors, considering counsel's, or external lawyer's,
assessment of the chances of a successful outcome, the state of progress of
the matter through the legal system and the Directors' assessment of all other
risks specific to the case.
Contract assets are initially recognised in respect of earned interest revenue
earned interest revenue earned on completed cases but where the settlement
will be paid to the Company over a significant period of time (i.e there is a
significant financing component implicit in the transaction).
2.10 Financial liabilities
The Company classifies its financial liabilities in the category of financial
liabilities at amortised cost. All financial liabilities are recognised in the
statement of financial position when the Company becomes a party to the
contractual provision of the instrument. Trade and other payables and
borrowings are included in this category.
Borrowings
Borrowings are recognised initially at fair value, net of transaction costs
incurred. Borrowings are subsequently carried at amortised cost; any
difference between the proceeds (net of transaction costs) and the redemption
value is recognised in the income statement over the period of the borrowings
using the effective interest method.
Borrowings are de-recognised from the balance sheet when the obligation
specified in the contract is discharged, is cancelled or expires. The
difference between the carrying amount of a financial liability that has been
extinguished or transferred to another party and the consideration paid,
including any non-cash assets transferred or liabilities assumed, is
recognised in profit or loss as other operating income or finance costs.
Borrowings are classified as current liabilities unless the Company has an
unconditional right to defer settlement of the liability for at least 12
months after the reporting period.
Arrangement fees in relation to a £10m loan facility originally set up with
HSBC in January 2018 that was subsequently extended to a £20m facility with a
term of four years from date of extension, in November 2018, are capitalised
and amortised over the length of the loan facility, four years. In June 2021,
a new £25m loan facility was set up and related arrangement fees were
capitalised and amortised over the length of this new agreement, initially 3
years. All arrangement fees relating to the previous loan were fully written
off in FY21.
These capitalised costs of £215,959 as at 31 March 2022 (31 March 2021:
£301,598) have been netted off against borrowings in the Statement of
Financial Position.
Trade and other payables
Trade and other payables are initially recognised at fair value and
subsequently measured at amortised cost. Accounts payable are classified as
current liabilities if payment is due within one year or less. If not, they
are presented as non-current liabilities.
Lease liabilities
A lease liability is recognised at the commencement date of a lease. The lease
liability is initially recognised at the present value of the lease payments
to be made over the term of the lease, discounted using the interest rate
implicit in the lease or, if that rate cannot be readily determined, the
Company's incremental borrowing rate. Lease payments comprise of fixed
payments less any lease incentives received.
Lease liabilities are measured at amortised cost using the effective interest
method. The carrying amounts are remeasured if there is a change in the
following: future lease payments arising from a change in an index or a rate
used; residual guarantee; lease term; certainty of a purchase option and
termination penalties. When a lease liability is remeasured, an adjustment is
made to the corresponding right-of use asset, or to profit or loss if the
carrying amount of the right-of-use asset is fully written down.
Contract liabilities
Contract liabilities represent the Company's obligation to transfer goods or
services to a customer and are recognised when a customer pays consideration,
or when the Company recognises a receivable to reflect its unconditional right
to consideration (whichever is earlier) before the consolidated entity has
transferred the goods or services to the customer.
2.11 Provisions
A provision is recognised in the balance sheet when the Company has a present
legal or constructive obligation as a result of a past event, and it is
probable that an outflow of economic benefits will be required to settle the
obligation. If the effect is material, provisions are determined by
discounting the expected future cash flows at a pre-tax rate that reflects
current market assessments of the time value of money and, when appropriate,
the risks specific to the liability. The increase in the provision due to the
passage of time is recognised in finance costs.
2.12 Share capital
Ordinary shares are classified as equity. There is one class of ordinary share
in issue, as detailed in note 21. Incremental costs directly attributable to
the issue of new shares are shown in share premium as a deduction from the
proceeds, net of tax.
2.13 Income tax
Income tax for the years presented comprises current and deferred tax. Income
tax is recognised in profit or loss except to the extent that it relates to
items recognised directly in equity, in which case it is recognised in equity
Deferred income tax is recognised on temporary differences arising between the
tax bases of assets and liabilities and their carrying amounts.
Temporary differences are not recognised if they arise from a) the initial
recognition of goodwill, and b) for the initial recognition of other assets or
liabilities in a transaction other than a business combination that at the
time of the transaction affects neither accounting nor taxable profit or loss.
The amount of deferred tax provided is based on the expected manner of
realisation or settlement of the carrying amount of assets and liabilities,
using tax rates enacted or substantively enacted at the balance sheet date.
Deferred income tax assets and liabilities are offset when there is a legally
enforceable right to offset current tax assets against current tax liabilities
and when the deferred income taxes assets and liabilities relate to income
taxes levied by the same taxation authority on either the taxable entity or
different taxable entities where there is an intention to settle the balances
on a net basis.
2.14 Right-of-use-assets
A right-of-use asset is recognised at the commencement date of a lease. The
right-of-use asset is measured at cost, which comprises the initial amount of
the lease liability, adjusted for, as applicable, any lease payments made at
or before the commencement date, net of any lease incentives received, any
initial direct costs incurred, and, except where included in the cost of
inventories, an estimate of costs expected to be incurred for dismantling and
removing the underlying asset, and restoring the site or asset.
Right-of-use assets are depreciated on a straight-line basis over the
unexpired period of the lease or the estimated useful life of the asset,
whichever is the shorter. Right-of use assets are subject to impairment or
adjusted for any remeasurement of lease liabilities. Depreciation is charged
to administrative expenses in the Statement of Comprehensive Income.
2.15 Share-based payments
Equity-settled and cash-settled share-based compensation benefits are provided
to employees.
Equity-settled transactions are awards of shares, or options over shares, that
are provided to employees in exchange for the rendering of services.
The cost of equity-settled transactions are measured at fair value on grant
date. Fair value is independently determined using the Black-Scholes option
pricing model that takes into account the exercise price, the term of the
option, the impact of dilution, the share price at grant date and expected
price volatility of the underlying share, the expected dividend yield and the
risk free interest rate for the term of the option, together with non-vesting
conditions that do not determine whether the consolidated entity receives the
services that entitle the employees to receive payment. No account is taken of
any other vesting conditions.
The cost of equity-settled transactions are recognised as an expense with a
corresponding increase in equity over the vesting period. The cumulative
charge to profit or loss is calculated based on the grant date fair value of
the award, the best estimate of the number of awards that are likely to vest
and the expired portion of the vesting period. The amount recognised in profit
or loss for the period is the cumulative amount calculated at each reporting
date less amounts already recognised in previous periods.
2.16 Earnings per share
Basic earnings per share
Basic earnings per share is calculated by dividing the profit attributable to
the owners of the Company, excluding any costs of servicing equity other than
ordinary shares, by the weighted average number of ordinary shares outstanding
during the financial year.
Diluted earnings per share
Diluted earnings per share adjusts the figures used in the determination of
basic earnings per share to take into account the after income tax effect of
interest and other financing costs associated with dilutive potential ordinary
shares and the weighted average number of shares assumed to have been issued
for no consideration in relation to dilutive potential ordinary shares.
2.17 Dividends
Dividends are recognised when declared during the financial year and no longer
at the discretion of the Company.
3. Significant judgements and estimates
The preparation of the Company's financial statements under UK adopted
International Accounting Standards requires the directors to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the statement of financial position date, amounts reported for revenues and
expenses during the year, and the disclosure of contingent liabilities, at the
reporting date. However, uncertainty about these assumptions and estimates
could result in outcomes that could require a material adjustment to the
carrying amount of the assets or liability affected in the future.
Estimates and judgements are continually evaluated and are based on historical
experiences and other factors, including expectations of future events that
are believed to be reasonable under the circumstances.
The Company makes estimates and assumptions concerning the future. The
resulting accounting estimates will, by definition, seldom equal the related
actual results. The estimates and assumptions that have a significant risk of
causing a material adjustment to the carrying amounts of assets and
liabilities within the next financial year are detailed below.
Valuation of investments
Investments in cases are categorised as fair value through the Statement of
Comprehensive Income. Fair values are determined on the specifics of each
investment and will typically change upon an investment progressing through a
key stage in the litigation or arbitration process in a manner that, in the
directors' opinion, would result in a third party being prepared to pay an
amount different to the original sum invested for the company's rights in
connection with the investment. Positive material progression of an investment
will give rise to an increase in fair value and an adverse progression a
decrease.
The key stages that an individual case passes through typically includes:
initial review on whether to make a purchase or funding offer, correspondence
from the Company in-house lawyer, usually via externally retained solicitors,
to the opposing party notifying them of the Company's assignment or funding of
the claim, a fully particularised Letter Before Action and an invitation to
without prejudice settlement meetings or mediation, if the opposing party does
not respond then legal proceedings are issued. Further evidence may be
gathered to support the claim. Eventually a court process may be entered into.
The progress of a case feeds into the Director's valuation of that case each
month, as set out below.
In accordance with IFRS 9 and IFRS 13, the Company is required to recognise
live case investments at fair value at the half year and year end reporting
periods, at 30 September and 31 March each year.
The Company undertakes the following steps:
• On a weekly basis, the internal legal team report developments into the
Investment Committee on a case by case basis in writing. Full team meetings
then take place on a monthly basis to review progress on all live cases, on a
case-by-case basis over several hours.
• On a monthly basis, the directors adjust case fair values depending upon
objective case developments, for instance: an offer to settle, mediation
agreed, positive or negative legal advice. These adjustments to fair value may
be an increase or decrease in value or no change required;
• At reporting period ends, a sample of open case investments for which
written assessments are obtained from external solicitors or primary counsel
working on the case on behalf of the Company.
In all cases, a headline valuation is the starting point of a valuation from
which a discount is applied to reflect legal advice obtained, strength of
defendant's case, the likely amount a defendant might be able to pay to settle
the case, progress of the case through the legal process and settlement
offers.
Movements in fair value on investments in cases are included within revenue in
the Statement of Comprehensive Income. Fair value gains or losses are
unrealised until a final outcome or stage is reached. At the year-end there
were 274 open cases, of these 215 had a valuation of less than £100k. These
cases are not expected to have an individually material impact on the business
when they are settled. The remaining 59 cases make up £29.7m of the
Investments and are material to the business, the significant judgements and
estimates in their valuations at the balance sheet date were as follows:
1. Judgements:
1.1 The amount that cases are discounted to recognise cases being settled
before they are taken to Court, based on the fact of each case and
management's judgement of the likely outcome.
1.2 Litigation is inherently uncertain. The Company seeks to mitigate its risk
by: rejecting the majority of cases referred to it because the merits of the
claim are considered weak or the defendant is considered not to have
sufficient net worth and seeking to settle cases as early as possible.
Nevertheless, the risk and uncertainty can never be completely removed. The
key inputs are: the headline claim value, the likely settlement value, the
opposing party's ability to pay and the likely costs in achieving judgement.
These inputs are inter-related to an extent.
1.3 Excluding the large case completion in FY21, the Company does not consider
there to be any significant concentration risk within trade receivables.
1.4 The Company accrues for future legal costs on the basis that cases will be
settled before trial which is how the vast majority of the 505 cases completed
to date have been settled. When it becomes clear a case will progress all the
way to trial then the additional costs are accrued at this point on a
case-by-case basis.
2. Estimates:
2.1 All cases will be subject to the internal key stages and regular fair
value review processes as described above. For the avoidance of doubt, the
fair value review requires an estimate to be made by senior management based
upon the facts and progress of the case and their experience. For a sample
selected by Management and confirmed by the external auditors, an external
opinion is requested from counsel or a solicitor who is working on the case
which provides an independent description of the merits of the case.
These assessments include various assumptions that could change over time and
lead to different assessments over the next 12 months.
2.2 Future legal costs have been estimated on the estimated time the case will
take to complete, ranging between 3 to 24 months (excluding the Cartel cases)
and whether it will go to Court. Future results could be materially impacted
if these original estimates change either positively or negatively.
2.3 Recovery of debts is based on the Company's ability to recover assets
owned by the counterparty. Prior to case acceptance, a net worth review of the
defendant is undertaken to ensure that they own sufficient assets to support
the claim value. Cases that are settled without going to Court typically
recover in full, whilst those that result in Court cases are less predictable
in terms of full recovery.
2.4 The valuations assume that there is no recovery for interest and costs. If
cases go to Court and result in a judgement in the Company's favour, it is
likely that the Company will be awarded interest and costs.
Sensitivity analysis has not been included in the financial statements, due to
the vast amount of inputs and number of variables which are inherently
specific to each case, making it impossible to provide meaningful data. Whilst
the Board considers the methodologies and assumptions adopted in the valuation
are supportable, reasonable and robust, because of the inherent uncertainty of
valuation, it is reasonably possible, on the basis of existing knowledge, that
outcomes within the next financial year that are different from the
assumptions could require a material adjustment to the carrying amount of the
£45.7m of investments disclosed in the balance sheet. However, as an
indication we note that a 10% increase/(decrease) in the fair value of our top
20 cases would result in an increase/(decrease) in the fair value investment
of +/- £2.31m."
Approach to cartel case valuation:
In reaching a valuation for our cartel cases, we undertook a specific and
detailed review process, as follows: we attributed each of our 22 cartel cases
into 3 tiers relating to the level of data and evidence held in respect of
these cases. In conjunction with an external valuation report from Collyer
Bristow and an external opinion of legal prospects from a QC, we applied a
discount to the valuation provided by Collyer Bristow, with the lower discount
for the tier 1 cases (those with the most data) and higher discount for the
tier 3 cases (those with the lower level of data).
Recoverability of trade receivables
The Company's business model involves the provision of services for credit.
The Company normally receives payment for services it has provided once a
claim has been pursued and settled or decided in Court. The average time from
taking on a case to settlement is c.12 months although this can vary
significantly from case to case. As part of the settlement agreement, the
timing of payment of the award by the defendant to the Company is agreed, this
is a legally binding document. Settlements can be received in full on the day
of settlement or (at Management's discretion) paid in instalments over a
defined settlement plan.
As such, Management applies a number of estimates and judgements in the
recording of trade receivables, for example: in relation to default judgements
Management assess the likely recoverability and do not necessarily recognise
the full judgement; Management also assessed recoverability of receivables in
light of the COIVD-19 pandemic and it's impact on certain debtors to manage
repayments; which further informed our expected credit loss.
The Company applies the simplified approach in providing for expected credit
losses under IFRS 9 which allows the use of the lifetime expected credit loss
provision for all trade receivables. In measuring the expected credit losses.
Trade receivables have been stratified by settlement type and days past due.
Expected lifetime expected credit loss rates are based on the payment profiles
of sales from January 2019 (post IPO). The Company attempts to assess the
probability of credit losses but seeks to mitigate its credit risk by
undertaking rigorous net worth checks before taking on a case. Occasionally
credit defaults do occur when counterparties default on an agreed settlement
payable by instalments.
There is a concentration risk in relation to the trade receivable of £8.0m
which relates to a large case completion in FY21. Repayments to date have been
made according to the agreed schedule. Based on Managements assessment of the
receivable no provision has been recognised against this balance.
Recovery of receivables is closely monitored by Management and action, where
appropriate, will be taken to pursue any overdue payments. The Company seeks
to obtain charging orders over the property of trade receivables as security.
The receivables' ageing analysis is also evaluated on a regular basis for
potential doubtful debts. It is the Directors' opinion that no further
provision for doubtful debts is required.
4. Segmental reporting
During the year ended 31 March 2022, revenue was derived from cases funded on
behalf of the insolvent estate and cases purchased from the insolvent estate,
which are wholly undertaken within the UK. Where cases are funded, upon
conclusion, the Company has the right to its share of revenue; whereas for
purchased cases, it has the right to receive all revenue, from which a payment
to the insolvent estate is made. Revenues arising from funded cases and
purchased cases are considered one business segment and are considered to be
the one principal activity of the Company. All revenues derive from continuing
operations and are not seasonal in nature.
Net realised gains on investments in cases represents realised revenue on
completed cases.
Fair value movements include the increase / (decrease) in fair value of open
cases, the removal of the carrying fair value of realised cases (in the period
when a case is completed and recognised as realised revenue) and the addition
of the fair value of new cases.
31 March 2022 31 March 2021
£000s £000s
Net realised gains on investments in cases 15,243 24,427
Fair value movements (net of transfers to realisations) 5,200 3,405
20,443 27,832
31 March 2022 31 March 2021
£000s £000s
Arising from:
Purchased cases 18,955 24,486
Funded cases 1,488 3,346
20,443 27,832
5. Directors and employees
Staff costs for the Company during the year:
31 March 2022 31 March 2021
Staff costs (including directors): £000s £000s
Wages and salaries 2,814 2,886
Social security costs 390 335
Other pension costs and benefits 314 265
Total staff costs 3,518 3,486
The average monthly number of employees (including executive and non-executive
directors) employed by activity was:
31 March 2022 31 March 2021
No. No.
Directors (executive and non-executive) 5 5
Management and administration 17 16
Average headcount 22 21
The aggregate amount charged in the accounts for key management personnel
(including employer's National Insurance contributions), being the directors
of the company, were as follows:
31 March 31 March 2021
Directors' emoluments: 2022
£000s £000s
Salaries and fees 1,042 865
Other pension costs and benefits 16 20
1,058 885
Director's remuneration is detailed in the Remuneration report.
31 March 2022 31 March 2021
£000s £000s
Highest paid director:
Salaries and fees 514 404
Other pension costs and benefits 7 10
521 414
Management consider the directors to be the key management personnel.
6. Operating profit
Is stated after charging/(crediting):
31 March 2022 31 March 2021
£000s £000s
Bad debt expenses 321 1,366
Share based payments 169 122
Depreciation of right of use asset 171 140
Amortisation of intangible assets 22 21
7. Auditor remuneration
Amounts payable to RSM UK Audit LLP and its related entities in respect of
both audit and non-audit services are set out below.
31 March 2022 31 March 2021
£000s £000s
Fee payable to Company's auditor and its associates for the statutory audit of 80 65
the Company's financial statements
Fees payable to Company's auditor and its associates for other services:
Interim agreed upon procedures 10 9
Total 90 74
8. Analysis of expenses by nature
Internal legal costs are included within administrative expenses whereas
external legal costs are either capitalised as Investments for open cases or
recognised as cost of sales on completed cases.
The breakdown by nature of administrative expenses is as follows:
31 March 2022 31 March 2021
£000s £000s
Staff Costs, including pension and healthcare 3,519 3,486
costs
Bad debts including expected credit losses 321 1,366
Professional fees 479 533
Marketing costs 222 168
Other costs, including office costs 536 461
Total administrative 5,077 6,014
expenses
9. Finance income and finance expense
31 March 2022 31 March 2021
£000s £000s
Bank interest - 6
Other loan interest - 44
Total finance income - 50
31 March 2022 31 March 2021
£000s £000s
Lease liability interest 6 48
Other loan interest 142 218
Bank loan charges 648 191
Total finance expense 796 457
10. Dividends
Dividends paid during the financial year were as follows.
31 March 2022 31 March 2021
Declared during the year £000s £000s
Final dividend for the year ended 31 March 2021 of 1.00p per share, paid in 436 1,307
October 2021 (September 2020: 3.00p)
Interim dividend for the year ended 31 March 2022, of 0.39p per share, paid in 170 510
January 2022 (December 2020: 1.17p)
Total dividends paid during FY22 606 1,817
Proposed after the end of year and not recognised as a liability
Final dividend for the year ended 31 March 2022: 0.5p per share (31 March 218 436
2021: 1.00p per share)
11. Taxation
31 March 2022 31 March 2021
Analysis of charge in year £000s £000s
Current tax charge on profits for the year 850 1,353
Adjustments in respect of prior periods 2 (99)
Income tax charge 852 1,254
Deferred tax (22) 37
Total tax charge 830 1,291
The tax charge for the year differs from the standard rate of corporation tax
in the UK of 19%. (2021: 19%). The differences are explained below.
31 March 2022 31 March 2021
£000s £000s
Profit on ordinary activities before tax 4,508 6,991
Profit on ordinary activities multiplied by the rate of corporation tax in the 857 1,328
UK as above
Effects of:
Expenses not deductible 39 24
Other differences (45) -
Adjustments to current tax in respect of previous periods 2 (99)
Deferred tax charged directly to equity (49) 1
Temporary differences not recognised in the computation 26 37
Total taxation charge 830 1,291
12. Earnings per share
The basic earnings per share is calculated by dividing the profit attributable
to ordinary equity holders by the weighted average number of ordinary shares
outstanding during the year. Diluted earnings per share is calculated by
dividing the profit after tax by the weighted average number of shares in
issue during the year, adjusted for potentially dilutive share options.
The following reflects the income and share data used in the earnings per
share calculation:
31 March 31 March 2021
2022
£000s £000s
Profit for the period attributable to equity holders of the Company 3,678 5,700
Weighted average number of ordinary shares 43,601,037 43,571,425
Earnings per share 0.08 0.13
Basic Earnings Per Share is based on the profit for the year attributable to
the equity holders of the Company dividend by the weighted average number of
ordinary shares during the period.
31 March 31 March 2021
2022
£000s £000s
Profit for the period attributable to equity holders of the Company 3,678 5,700
Diluted weighted average number of ordinary shares 44,907,949 44,544,718
Diluted earnings per share 0.08 0.13
Reconciliation of number of shares and diluted shares at year end:
31 March 31 March 2021
2022
£000s £000s
Weighted average number of shares for Basic Earnings Per Share 43,601,037 43,571,425
Adjustments for calculation of Diluted Earnings Per Share:
Options over ordinary shares 1,306,912 973,293
Weighted average number of shares for Diluted Earnings Per Share 44,907,949 44,544,718
The earnings per share is diluted by options over ordinary shares, as detailed
in note 23.
13. Investments
Non-current investments and current asset investments comprise the costs
incurred in bringing funded and purchased cases to the position that they have
reached at the balance sheet date. In addition, where an event has occurred
that causes the Directors to revalue the amount invested, a fair value
adjustment is made by the Directors based on Counsel's and the Directors'
opinion, which can either be positive or negative (see Note 3 on accounting
estimates).
31 March 2022 31 March 2021
£000s £000s
As at 1 April 2021 37,508 32,415
Prepaid cost additions 6,470 5,887
Realised prepaid costs (3,460) (4,199)
Fair value movement (net of transfers to realisations) 5,200 3,405
As at 31 March 2022 45,718 37,508
31 March 2022 31 March 2021
£000s £000s
Current 33,520 30,372
Non-current 12,198 7,136
As at 31 March 2022 45,718 37,508
Analysis of fair value movements
31 March 2022 31 March 2021
£000s £000s
New case investments 7,370 12,398
Increase in existing case fair value 956 1,865
Decrease in existing case fair value (3,693) (1,356)
Case completions (4,539) (9,502)
Increase in fair value of cartel cases 5,106 -
Fair value movement (net of transfers to realisations) 5,200 3,405
14. Intangible assets
Intangible assets comprised the costs of developing the Company's website. The
website developments costs are amortised over the useful life of the website,
which is estimated to be three years.
Website development costs 31 March 2022 31 March 2021
£000s £000s
As at 1 April 2021 35 56
Amortisation charge (22) (21)
As at 31 March 2022 13 35
15. Right of use asset
The Company holds one lease, an office property lease for 21 Gloucester Place,
London which expires in September 2022.
31 March 2022 31 March 2021
£000s £000s
As at 1 April 2021 257 221
Additions - 176
Depreciation (171) (140)
As at 31 March 2022 86 257
86 -
Current
Non-current - 257
As at 31 March 2022 86 257
31 March 2022 31 March 2021
Lease liability £000s £000s
Current 96 189
Non-current - 96
As at 31 March 2022 96 285
The incremental borrowing rate used in the calculation of the lease liability
was 3% (FY21: 3%). The maturity analysis of the finance lease liability is
included in note 27.
Amounts recognised in the Statement of Comprehensive Income 31 March 2022 31 March 2021
£000s £000s
Total interest expense 6 48
Amounts recognised in the Statement of Cashflows 31 March 2022 31 March 2021
£000s £000s
Total cash outflow (194) (153)
16. Trade and other receivables
31 March 2022 31 March 2021
£000s £000s
Amounts falling due in excess of one year:
Trade receivables 11,086 10,660
Amounts falling due within one year:
Gross trade receivables 10,096 9,570
Less:
Specific provisions (1,464) (1,919)
Allowance for expected credit losses (865) (560)
Trade receivables 7,767 7,091
Contract asset 1,245 431
Prepayments 177 166
Total trade and other receivables due within 1 year 9,189 7,688
Trade receivables are amounts due from settled cases in the ordinary course of
business. Trade receivables are recognised initially at the amount of
consideration that is unconditional, unless they contain significant financing
components, when they are recognised at fair value. The Company holds the
trade receivables with the objective of collecting the contractual cash flows
and therefore measures them subsequently at amortised cost using the effective
interest method. Ageing of the expected credit loss allowance us included in
note 28.
Contract assets relate to accrued interest income due on a settlement of a
large case in FY21.
No impairment provision has been recognised in respect of other receivables or
contract assets as there is no past history of impairment losses and future
losses are not anticipated.
Movements in the allowance for expected credit losses (ECL) are as follows:
31 March 2022 31 March 2021
ECL Provision £000s £000s
At 1 April 2021 560 107
Provisions for impairment during the year 305 453
Unused amounts written back - -
As at 31 March 2022 865 560
The Company applies the simplified approach in providing for expected credit
losses under IFRS 9 which allows the use of the lifetime expected credit loss
provision for all trade receivables. In measuring the expected credit losses,
trade receivables have been stratified by settlement type and days past due.
Expected lifetime credit loss rates are based on the payment profiles of
completions from January 2019 (post IPO).
17. Cash and cash equivalents
31 March 2022 31 March 2021
£000s £000s
Cash at bank and in hand 2,256 1,144
All bank balances are denominated in pounds sterling.
18. Trade and other payables
31 March 2022 31 March 2021
£000s £000s
Amounts falling due in excess of one year:
Accruals - direct costs 6,853 6,602
Amounts falling due in one year:
Trade payables 734 713
Accruals - direct costs 3,273 1,719
Other creditors 622 753
Contract liability 846 291
Other taxation and social security 119 89
Total trade and other payables due within one year 5,594 3,565
Trade payables are unsecured and are usually paid within 30 days of
recognition. The carrying value of trade and other payables approximates their
fair value, as the impact of discounting is not significant.
Accruals - direct costs relate primarily to accrued amounts due to Insolvency
Practitioners on the Company's completed cases and accrued legal costs of
completed cases. Of the £6.8m shown as non-current, £5.7m relates to the
amounts payable to the Insolvency Practitioner due in more than one year in
respect of the large case completion in FY21.
Th contract liability relates to interest accruing on the significant
financing component in respect of amounts payable to the Insolvency
Practitioner on the large case completion during FY21.
19. Deferred tax asset
31 March 2022 31 March 2021
£000s £000s
At 1 April 2021 121 157
Deferred tax charged/(credited) in the income statement for the period 23 (35)
Deferred tax included directly in equity (49) (1)
At 31 March 2022 95 121
Deferred tax has been charged/(credited) to equity reserve because these
movements in deferred tax assets relate to releases and creation of share
options.
20. Borrowings
31 March 2022 31 March 2021
£000s £000s
Non-current
Bank loans 13,285 7,698
Lease liability - 96
Total non-current borrowings 13,285 7,794
Current
Lease liability 96 189
Total current borrowings 96 189
Arrangement fees in relation to a £10m loan facility originally set up with
HSBC in January 2018 that was subsequently extended to a £20m facility with
the term of four years from date of extension, in November 2018, are
capitalised and amortised over the length of the loan facility, four years.
This HSBC loan arrangement was further extended to £25m from 22 June 2021 for
an initial period of three years with an option to extend for a further year.
Gross borrowings are £13.5m as at 31 March 2022 (FY21: £8.0m) but are
presented net of HSBC set-up amortised costs of £215k above which are being
amortised over 3 years. HSBC set-up costs relating to the previous loan were
fully written off in FY21 (FY21: £302k). The maturity analysis of bank loans
is included in note 27.
The Company has complied with the financial covenants of its borrowing
facilities which are assessed on a quarterly basis, during the 2022 and 2021
reporting periods.
Reconciliation of liabilities arising from financing activities:
1 April Cash flows Non-cash changes 31 March 2022
2021
£000s £000s £000s £000s
Bank borrowings 7,698 5,500 87 13,285
Lease liabilities 285 (194) 5 96
Total liabilities from financing activities 7,983 5,306 92 13,381
1 April Cash flows Non-cash changes 31 March 2021
2020
£000s £000s £000s £000s
Bank borrowings 7,526 - 172 7,698
Lease liabilities 221 (154) 218 285
Total liabilities from financing activities 7,747 (154) 390 7,983
The Directors consider the carrying value of all financial liabilities to be
equivalent to their fair value.
The Company agreed on 22 June 2021, a new RCF for £25m over an initial
three-year period to 1 July 2024, with an option to extend by a further year.
The new RCF also offers the Company an additional approved but uncommitted
£10m accordion, if ever required. The interest rate is a maximum 2.9% over
SONIA. Under terms of the agreement, Steven Cooklin is required to maintain a
minimum shareholding of 5% of the issued share capital of the Company, and is
subject to a change in control clause such that no investor may hold more than
30 percent of the voting rights of the Company.
Commitments in relation to leases are payable as follows:
31 March 2022 31 March 2021
£000s £000s
Within one year 97 194
Less than one but not later than five years - 97
Over five years - -
Total 97 292
Future finance charges (1) (6)
Total lease liability 96 285
21. Share capital
31 March 2022 31 March 2021
Allotted and issued No. No.
Ordinary shares of £0.004 each 43,694,740 43,571,425
Voting rights
The holders of ordinary shares are entitled to one voting right per share.
Dividends
The holders of ordinary shares are entitled to dividends out of the profits of
the Company available for distribution.
22. Reserves
Share premium
Includes all current and prior year premiums received on issue of share
capital.
Share based payment reserve
Includes amounts recognised for the fair value of share options granted in
accordance with IFRS 2.
Special non-distributable reserve
A special non-distributable reserve was created in FY19 to ensure there was
sufficient reserves held within the Company to satisfy creditors at the time
of a conversion of share premium to distributable reserves to allow a dividend
to be paid in FY19. The balance on this reserve will decline to nil over time
as creditors are paid.
Retained earnings
Includes all current and prior periods retained profits and losses.
23. Share options
The Company operates a number of share-based payment schemes as follows:
CSOP Share Scheme
The Board has adopted the Manolete Partners Share Option Plan (CSOP) to enable
conditional share awards to be granted, which may be subject to achievement of
performance criteria and the awards are exercisable between three and ten
years following their grant. There are no cash-settlement alternatives and the
awards are therefore accounted for under IFRS 2 as equity settled share-base
payments.
Year ended 31(st) March 2022
Grant date Vesting Exercise price Balance brought forward Granted during the year Exercised during the year Lapsed/ forfeited Balance carried forward
Date
21/11/2019 21/11/2021 1.12 507,352 - (123,314) - 384,038
08/07/2019 08/07/2022 4.45 50,557 - - - 50,557
29/11/2019 29/11/2022 4.65 16,127 - - - 16,127
09/12/2019 09/12/2022 4.30 193,781 - - - 193,781
27/07/2020 27/07/2023 4.15 21,684 - - - 21,684
15/03/2021 15/03/2024 2.70 11,111 (11,111) -
800,612 - (123,314) (11,111) 666,187
Exercisable at the end of the year - - - - -
Weighted average exercise price 2.45 - 1.12 2.70 2.48
Year ended 31(st) March 2021
Grant date Vesting Exercise Balance brought forward Granted during the year Exercised during the year Lapsed/ forfeited Balance carried forward
Date price
21/11/2019 21/11/2021 1.12 507,352 - - - 507,352
08/07/2019 08/07/2022 4.45 50,557 - - - 50,557
29/11/2019 29/11/2022 4.65 16,127 - - - 16,127
09/12/2019 09/12/2022 4.30 193,781 - - - 193,781
27/07/2020 27/07/2023 4.15 - 28,912 - (7,228) 21,684
15/03/2021 15/03/2024 2.70 - 11,111 - - 11,111
767,817 40,023 - (7,228) 800,612
Exercisable at the end of the year - - - - -
Weighted average exercise price 2.22 3.75 - 4.15 2.28
No options were exercised or modified during the year ended 31 March 2021.
Options outstanding at 31 March 2022 are exercisable at prices ranging between
£1.12 and £4.65 (FY21 £1.12 and £4.65) and the weighted average
contractual life of the options outstanding at the reporting date is 7.6
months (FY21: 11.8 months) as analysed in the table below:
Number of Weighted average remaining contractual life (months)
share options
Exercise price range FY22 FY21 FY22 FY21
£1.12 - £1.99 384,038 507,352 - 7.0
£2.00 - £3.99 - 11,111 - 35.0
£4.00 - £4.65 282,149 282,149 7.6 19.6
666,187 800,612 7.6 11.8
Number of Exercise price £
share options
FY22 FY21 FY22 FY21
CSOP Options 141,216 187,559 3.18 2.77
Unapproved Options 524,971 613,053 2.29 2.13
Total 666,187 800,612 2.48 2.28
Fair value calculations
The fair value of the CSOP share options plans are calculated at the date of
the grant using the Black-Scholes option pricing model. Expected volatility
was determined by calculating the historical volatility of the Company's share
price over an appropriate period. The following table presents the inputs used
in the option pricing model for the share options granted in the year ended 31
March 2022 and 31 March 2021 based on information at the date of grant.
Grant date of award Share price at grant date Exercise price Expected volatility Dividend yield Risk-free interest rate Fair value at grant date
27/07/2020 4.11 4.15 20% 1.5% 1.0% 0.50
15/03/2021 2.73 2.70 61% 1.5% 0.2% 1.03
No performance conditions were included in the fair value calculations for
CSOP awards granted during the year.
Long-term incentive plan
In FY21 the Company introduced an equity-settled long-term incentive plan
(LTIP) scheme for the executive directors and other senior executives.
Performance is measured at the end of the three-year performance period. If
the required minimum Earnings Per Share (EPS) performance conditions have been
satisfied, 25% of the shares will vest, increasing to 100% of shares if the
maximum EPS target is achieved. Straight-line vesting will apply of
performance falls between two points. Options awarded will expire ten years
from the date of grant and are issued at the nominal value of the Company's
share capital pf £0.004p but the Company's remuneration committee may waive
the requirement at their discretion.
The following table summarises the movements in LTIP options during the year:
Year ended 31(st) March 2022
Grant date Expiry Date Exercise price Balance brought forward Granted during the year Exercised during the year Lapsed/ forfeited Balance carried forward
30/09/2020 30/03/2022 0.004 53,333 - - - 53,333
30/09/2020 30/09/2023 0.004 321,334 - - - 321,334
02/12/2021 02/12/2024 0.004 - 357,806* - - 357,806
02/12/2021 30/03/2022 0.004 - 53,333* - - 53,333
374,667 411,139 - - 785,806
Weighted average exercise price 0.004 0.004 - - 0.004
Year ended 31(st) March 2021
Grant date Expiry Date Exercise price Balance brought forward Granted during the year Exercised during the year Lapsed/ forfeited Balance carried forward
30/09/2020 30/03/2021 0.004 - 53,333* - (53,333) -
30/09/2020 30/03/2022 0.004 - 53,333* - - 53,333
30/09/2020 30/09/2023 0.004 - 321,334* - - 321,334
- 428,000 - (53,333) 374,667
Weighted average exercise price - 0.004 - 0.004 0.004
*The LTIP amounts above are the maximum potential conditional share awards
that may vest subject to the performance measures.
No options were exercised during the period and no options were modified. The
weighted average remaining contractual life of these options is 22.8 months
(FY21: 21.3 months). No LTIP options were in issue prior to the 1 April 2020.
Fair value calculations
The fair value of the LTIP share options plans are calculated at the date of
the grant using the Black-Scholes option pricing model. Expected volatility
was determined by calculating the historical volatility of the Company's share
price over an appropriate period. The following table presents the inputs used
in the option pricing model for the share options granted in the years ended
31 March 2022 and 31 March 2021 based on the information at the date of grant:
Grant date of award Share price at grant date Exercise price Expected volatility Dividend yield Risk-free interest rate Fair value at grant date
30/09/2020 3.05 0.004 20% 1% 0.5% 3.00
30/09/2020 3.05 0.004 20% 1% 0.5% 2.97
30/09/2020 3.05 0.004 20% 1% 0.5% 2.94
02/12/2021 2.55 0.004 56.3% 0% 0.82% 2.55
02/12/2021 2.55 0.004 33.6% 0% 0.82% 2.55
LTIP awards granted during the year ended 31 March 2022 are subject to the
Earnings Per Share performance conditions.
24. Retirement benefits
The Company operates a defined contribution pension scheme for all qualifying
employees. During the year, the Company charged £78,824 (FY21: £73,953) as
employer's pension contributions. The outstanding pension creditor as at 31
March 2022 was £4,933 (FY21: £4,765).
25. Financial instruments - classification and measurement
Financial assets
Financial assets measured at amortised cost comprise trade receivables,
contract assets and cash, as follows:
31 March 2022 31 March 2021
£000s £000s
Trade receivables 18,853 17,751
Contract assets 1,245 431
Cash and cash equivalents 2,256 1,144
Total 22,354 19,326
Financial assets measured at fair value through profit or loss comprise of
investments;
31 March 2022 31 March 2021
£000s £000s
Investments 45,718 37,508
Total 45,718 37,508
Financial liabilities
Financial liabilities measured at amortised cost comprise of trade and other
payables, bank loans, and lease liabilities, as follows:
31 March 31 March
2022 2021
£000s £000s
Trade and other payables 12,447 10,167
Bank loans 13,285 7,698
Lease liabilities 96 285
Total 25,828 18,150
Fair value
The fair value of investments is determined as set out in the accounting
policies in Note 2. The fair value hierarchy of financial instruments measured
at fair value is provided below:
31st March 2022 Level 1 Level 2 Level 3
£000s £000s £000s
Investments - - 45,718
Total - - 45,718
31st March 2021 Level 1 Level 2 Level 3
£000s £000s £000s
Investments - - 37,508
Total - - 37,508
26. Cashflow information
(A) Non-cash adjustments to cashflows generated from operations
31 March 31 March
2022 2021
£000s £000s
Fair value movements (5,200) (3,405)
Legal costs on realised cases 3,460 4,199
Finance expense 796 457
Depreciation & amortisation 193 161
Share based payments 218 122
Deferred tax 89 -
Finance income - (50)
Non-cash change in lease liability - (7)
Non-cash adjustments to cashflows (used in)/generated from operations (444) 1,477
(B) Net debt reconciliation
31 March 31 March
2022 2021
£000s £000s
Cash and cash equivalents 2,256 1,144
Borrowings - repayable after one year (13,285) (7,698)
Net debt excluding leases (11,029) (6,554)
Current lease liability (96) (189)
Non-current lease liability - (96)
Net debt including leases (11,125) (6,839)
27. Financial instruments - risk management
The Company's activities expose it to a variety of financial risks: market
risk (including cash flow interest rate risk), investment risk, liquidity risk
and credit risk. Risk management is carried out by the Board of Directors. The
Company uses financial instruments to provide flexibility regarding its
working capital requirements and to enable it to manage specific financial
risks to which it is exposed.
The Company finances its operations through a mixture of equity finance, bank
debt, cash and liquid resources and various items such as trade receivables
and trade payables which arise directly from the Company's operations.
Interest rate risk
Interest rate risk is the risk that the fair value of future cash flows
associated with the instrument will fluctuate due to changes in market
interest rates. Interest bearing assets including cash and cash equivalents
are short-term liquid assets. It is the Company's policy to settle trade
payables within the credit terms allowed and the Company does therefore not
incur interest on overdue balances. No sensitivity analysis has been
prepared as the impact on the financial statements would not be significant.
The interest rate profile of the Company's borrowings is shown below:
31 March 31 March
2022 2021
Debt Interest Debt Interest
£000s Rate £000s Rate
Floating rate borrowings
Bank loans 13,500 SONIA and Margin of 2.9% 8,000 LIBOR and Margin of 2.25%
Liquidity risk
The Company seeks to maintain sufficient cash balances. Management reviews
cash flow forecasts on a regular basis to determine whether the Company has
enough cash reserves to meet future working capital requirements and to take
advantage of business opportunities.
Unused borrowing facilities at the reporting date:
31 March 2022 31 March 2021
£000s £000s
Bank loans 11,500 12,000
The following table details the Company's remaining contractual maturity for
the Company's non-derivative financial liabilities with agreed maturity
periods. The table is presented based on the undiscounted cashflows of the
financial liabilities based on the earliest date on which the Company can be
required to pay which may differ from the carrying liabilities at the
reporting date.
At 31 March 2022 Less than one year Between 1 and 2 years Between 2 and 5 years Greater than 5 years Total contractual cashflows Carrying amount of liabilities
£000s £000s £000s £000s £000s £000s
Trade and other payables 5,314 1,810 4,400 3,329 14,853 12,447
Bank borrowings - 13,500 - - 13,500 13,285
Lease liabilities 97 - - - 97 96
Total 5,411 15,310 4,400 3,329 28,450 25,828
At 31 March 2021 Less than one year Between 1 and 2 years Between 2 and 5 years Greater than 5 years Total contractual cashflows Carrying amount of liabilities
£000s £000s £000s £000s £000s £000s
Trade and other payables 3,298 618 3,411 6,616 13,943 10,167
Bank borrowings - 8,000 - - 8,000 7,698
Lease liabilities 194 97 - - 291 285
Total 3,492 8,715 3,411 6,616 22,234 18,150
Capital risk management
The Company is both equity and debt funded, and these two elements combine to
make up the capital structure of the business. Equity comprises share capital,
share premium and retained earnings and is equal to the amount shown as
'Equity' in the balance sheet. Debt comprises bank loans which are set out in
further detail above and in note 20. The Company initially raised funds
through an IPO in December 2018 and has drawn down £13.5m of a HSBC loan
facility (FY21: £8m), the total facility is a £25m revolving credit facility
with HSBC.
The Company's current objectives when maintaining capital are to:
· Safeguard the Company's ability to operate as a going concern so
that it can continue to pursue its growth plans.
· Provide a reasonable expectation of future returns to
shareholders.
· Maintain adequate financial flexibility to preserve its ability
to meet financial obligations, both current and long term.
The Company sets the amount of capital it requires in proportion to risk. The
Company manages its capital structure and adjusts it in the light of changes
in economic conditions and the risk characteristics of underlying assets. In
order to maintain or adjust the capital structure, the Company may issue new
shares or sell assets to reduce debt.
During the year ended 31 March 2022 the Company's strategy remained unchanged.
Credit risk and impairment
Credit risk refers to the risk that a counterparty will default on its
contractual obligations resulting in financial loss to the Company. The
maximum exposure to credit risk is the carrying value of its financial assets
recognised at the reporting date, as summarised below:
31 March 2022 31 March 2021
£000s £000s
Trade and other receivables 20,275 18,348
Total 20,275 18,348
The Company applies the simplified approach in providing for expected credit
losses under IFRS 9 which allows the use of the lifetime expected credit loss
provision for all trade receivables. In measuring the expected credit losses,
trade receivables have been stratified by settlement type and days past due.
Expected lifetime credit loss rates are based on the payment profiles of sales
from January 2019 (post IPO).
The Company attempts to assess the probability of credit losses but seeks to
mitigate its credit risk by undertaking rigorous net worth checks before
taking on a new case. Occasionally, credit defaults do occur when
counterparties default on an agreed settlement, payable by instalments.
There is a concentration risk in relation to the trade receivable of £8.0m in
relation to a single case which completed in FY21. Repayments to date have
been made according to the agreed schedule. The Company does not consider any
concentration of risk within either trade or other receivables to be
significant. The Company seeks to obtain charging orders over the property of
trade receivables as security. The receivables' ageing analysis is also
evaluated on a regular basis for potential doubtful debts. It is the
Directors' opinion that no further provision for doubtful debts is required.
The following table contains an analysis of our total gross trade receivables
segmented by settlement type.
31 March 2022 31 March 2021
£000s £000s
Settlement agreements 15,717 15,739
Judgements 4,001 2,572
Specific provisions 1,464 1,919
Gross carrying amount after specific provisions 21,182 20,230
Loss allowance (2,329) (2,479)
Trade receivables carrying amount 18,853 17,751
Analysis of trade receivables stratified by settlement type, is as follows:
Past due at 31 March 2022 Current 0-1 1-3 months 3-6 months 6-12 months >12 months Total
£000s months £000s £000s £000s £000s £000s
£000s
Gross receivables
Settlement agreements 14,770 218 382 270 255 469 16,364
Judgements 2,686 5 - 116 1,685 326 4,818
Total 17,456 223 382 386 1,940 795 21,182
Loss allowance
Settlement agreements - ECL (120) (18) (54) (136) (49) (42) (419)
Judgements - ECL (165) (2) (47) (20) (212) - (446)
Settlement agreements - Specific provisions (20) - - - (200) (427) (647)
Judgements - Specific provisions - - - (75) (550) (192) (817)
Total (305) (20) (101) (231) (1,011) (661) (2,329)
Expected loss rate %
Settlement agreements 2% 8% 29% 56% 90% 99% 3%
Judgements* 21% 39% 47% 49% 82% 100% 9%
Specific provisions 100% 100% 100% 100% 100% 100% 100%
Total 2% 9% 26% 60% 52% 83% 11%
*Expected judgement loss rates are shown net of deductions where the Company
has secured charging orders over properties owned by the debtors.
Credit risk on cash and cash equivalents is considered to be very low as the
counterparties are all substantial banks with high credit ratings.
Investment risk
Investment risk refers to the risk that the Company's case investments may
increase or decrease in value.
Sensitivity analysis has not been included in the financial statements, due to
the vast amount of inputs and number of variables which are inherently
specific to each case, making it impossible to provide meaningful data. Whilst
the Board considered the methodologies and assumptions adopted in the
valuation are supportable, reasonable and robust, because of the inherent
uncertainty of valuation, it is reasonably possible, on the basis of existing
knowledge that outcomes within the next financial year that are different from
the assumptions could require a material adjustment to the carrying amount of
the £45.7m of investments disclosed in the balance sheet. However, as an
indication we note that a 10% increase/(decrease) in the fair value or out top
20 cases (including Cartel cases) would result in an increase/(decrease) in
the fair value investment of +/- £2.31m.
Currency risk
The Company is not exposed to any currency risk at present.
28. Related party transactions
Director and key management remuneration is disclosed in Note 5.
Dividends of £97,031 were paid to the directors during the year based on
their individual shareholdings disclosed in the Remuneration Committee report
as follows:
31 March 2022 31 March 2021
£000s £000s
Steven Cooklin 95 327
Mark Tavener - -
Lord Howard Leigh 1 -
Peter Bertram - 0.5
Lee Manning - 0.6
Stephen Baister 0.5 0.9
Total dividends paid to the directors 97 329
29. Ultimate controlling party
The Company has no ultimate controlling party.
30. Post balance sheet events
In April 2022, a large case was completed for a gross settlement fee of £9.5m
and net profit to Manolete of £2.4m. Manolete's cash receipt of £5.6m which
includes the refund of costs incurred on the case was received in May 2022.
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