REG - Manolete Partners - Audited results for the year ended 31 March 2023
22/06/2023 07:00
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RNS Number : 5053D Manolete Partners PLC 22 June 2023
22 June 2023
MANOLETE PARTNERS PLC
("Manolete" or the "Company")
Audited results for the year ended 31 March 2023
Manolete (AIM:MANO), the leading UK-listed insolvency litigation financing
company, today announces its audited results for the year ended 31 March 2023.
Steven Cooklin, Chief Executive Officer, commented:
"The annual results for FY23 mask a picture of two very different six-month
periods for the Company: the first half of the trading year was subdued, as
the Company had only just begun to emerge from the ending, in April 2022, of
the temporary suspension of certain important insolvency laws that the UK
Government had instigated in June 2020 in response to the COVID-19 pandemic.
While normal insolvency laws resumed at the start of the financial year, there
is always a natural time lag between insolvencies commencing and the
associated litigation claims being referred to Manolete, as Liquidators and
Administrators need time to conduct their regulatory investigations before
they can assemble cases for consideration by us. The second half saw a strong
resumption of the growth that the Company had exhibited prior to the pandemic,
as the UK Insolvency Market returned to normal operations with a strong
recovery in cases being referred to us.
Given the fact that we enjoyed only the latter six months of more "normal"
trading, the results are highly commendable given the loss made in H1 and
recovery in H2. We had a record number of 798 new case enquiries and a record
number of 263 new case investments; gross cash receipts from completed cases
were at a record level of £26.7m and a new record was also set with 193 cases
being legally completed in the 12-month period. We ended the year with another
record number of 351 live cases in progress and the Company returning to
profitability in the second half.
These positive KPIs have continued into the current FY24 - with signed cases
for the first two months of FY24 being 154% higher than the first two trading
months of the FY23. Consequently, we have added, and continue to add, to our
expert in-house legal and financial analyst teams to address the increased
level of demand for our insolvency litigation solutions. With prevalent
headwinds of inflation and significantly higher interest rates facing the UK
economy, the Company is well set for continued growth over the foreseeable
future".
Financial (statutory and non-statutory) highlights:
· Realised revenues on completed cases were £26.8m, an increase of
76% (FY22: £15.2m) although FY23 contained an exceptionally large funded case
completion of which £4.9m was recorded in realised revenue (total settlement
£9.5m).
· 129% of total revenues represented by realised revenues on fully
completed cases (FY22: 77%) offset by negative unrealised revenues.
· Increase in the valuation of the cartel cases contributed £1.2m
to gross profit in FY23 (FY22: £5.1m).
· EBIT reduced by 159% to a loss of £(3.1)m (FY22: £5.3m) a
result of pressure on valuations in H1 FY23 on existing cases and a single
rare larger case loss at trial.
· The Company made a loss before tax of £(4.0)m (FY22: £4.5m
profit).
· Gross cash receipts from completed cases were £26.7m, an
increase of 72% (FY22: £15.5m).
· The Company's retained share of gross cash receipts from
completed cases (after all legal costs and payments to Insolvent Estates) was
£13.1m, an increase of 47% (FY22: £8.9m).
· Cash generated from operations (after all completed case costs
and all overheads but before new case investments and taxation) was £8.0m
(FY22: £4.4m).
· Gross cash of £0.6m and borrowings of £10.5m (FY22: £2.2m and
£13.5m) as at 31 March 2023 and £14.5m unutilised funds available on the
Revolving Credit Facility with HSBC.
· Final dividend of nil per share.
Operational highlights:
· New case investments in UK insolvency cases, an increase of 65%:
263 in FY23 (FY22: 159).
· Based on unaudited internal management information: ROI of 125%
and Money Multiple of 2.2x from 689 completed cases since inception
· Based on unaudited internal management information: 193 cases
were completed in FY23 (FY22: 139 cases), with an average duration per case of
15.5 months (FY22: 13.2 months), generating a Money Multiple of 1.9x (FY22:
1.87) and an IRR of 131% (FY22: 132%)
· Average case duration across the full portfolio of 689 completed
cases is 12.8 months
· 29% increase in live cases: 351 in process as at 31 March 2023
(272 as at 31 March 2022)
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
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 second report as your Chairman.
Overview
I am pleased to report the Company has delivered a performance that generated
growth in the second half of the year, following a first half of the year
which remained subdued. Despite this second half performance, the business
recorded a loss for the year as a whole.
In terms of new business generated, 263 new case investments were signed in
the year to 31 March 2023 which represents a new record number (FY22:159).
Financial results
Revenues for the year to 31 March 2023 increased by 2% to £20.8m (FY22:
£20.4m) and Loss before Tax was (£4.0m) compared to a Profit before Tax of
£4.5m in the prior year. The loss was largely the result of fair value write
downs in H1 FY23, including a large case loss at trial.
There were 193 case completions (FY22: 139) which is a record for the company.
Completed cases generated gross cash receipts of £26.7m (FY22: £15.5m) and
contributed to a growth in receivables balances to £24.4m (FY22: £20.3m).
Gross profit of £3.7m (FY22: £10.4m) was generated by profits on realised
cases of £9.7m (FY22: £5.2m) and unrealised gross loss of (£6.0m) (FY22:
gross profit of £5.2m).
We have drawn down a total of £10.5m (FY22: £13.5m) of our £25m Banking
Facility with HSBC to support the growth of the business. This Revolving
Credit Facility is until 1 July 2025 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
Insolvency and Governance Act 2020 ("temporary measures") to protect
employment and businesses which led to a fall in corporate insolvencies.
Whilst the pandemic is now behind us, the tail of these measures continued to
impact the business in H1 FY23. In H2 FY23, we have expanded the business to
take advantage of the increasing number of corporate insolvencies, now that
the pandemic-era Government support measures have come to an end.
Dividend
The Board has reviewed the dividend policy and no final dividend is
recommended.
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 on pages 33 to 37.
The Audit Committee report on pages 39 to 40 and the Remuneration Committee
report on pages 41 to 43 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, which
is comprised of highly dedicated, extremely knowledgeable and focused staff,
for their commitment and hard work during a very demanding year. My particular
thanks to Steven Cooklin for providing strong leadership to the team.
Board
The Board represents a balanced mix of individuals who have now had a year
together in the current Board structure and are working effectively for the
benefit of the Company. I was pleased to welcome Mena Halton onto the Board
earlier in the year, as Managing Director, to provide greater legal expertise
from the executive team.
I note that following the disappointing trial result of a single large case in
H1 FY23, the Board now reviews all cases that could potentially go forward to
trial, in order to provide guidance in this area.
Outlook
Following a strong H2 FY23, we look forward to a period of growth in FY24
reflecting the increasing number of corporate insolvencies in the UK. The
Company is preparing for growth with the recruitment of additional legal staff
and support staff to allow this opportunity to be seized.
I also note the exciting opportunity with respect to the Bounce Back Loans
(BBLs) pilot with Barclays Bank plc which will evolve during the coming year.
Lord Leigh
Non-Executive Chairman
21 June 2023
CEO's Statement
FY23 painted a picture of two highly contrasting half years. The first half of
the trading year was, as expected, subdued. Following a temporary material
suppression of UK insolvency laws during the Covid-19 pandemic, the UK
Government returned the laws substantially back to their pre-pandemic status
on 1 April 2023 (coincidentally, the start of the Company's FY23 trading
year). As can be seen from the graph below, insolvency activity rose in
anticipation of a return to normal insolvency laws and then increased above
pre-pandemic levels. However, as the Board has explained, there is always a
time-lag (of approximately seven months) between insolvency numbers and cases
being referred to the Company: this is because Liquidators and Administrators
require this period to properly investigate claims, before being able to
present claims to the Company.
The following graph issued by the Insolvency Service on 28 April 2023, clearly
illustrates the impact of these measures on the UK insolvency industry.
This time lag can be seen clearly feeding into the Company's Key Performance
Indicators:
(i) Manolete New Case Enquiries
The graph below shows a slowly recovering level of new case enquiries in H1
FY23 as UK insolvency numbers rose. Then, having got past the seven-month time
lag for claim investigations to occur, H2 showed a strong increase in the
level of new enquiries, giving the Company a record level of new case
enquiries for that latter six-month period.
(ii) New Case Investments
The time lag between new case enquiries coming into the Company and those
qualifying cases being signed up as new case investments is very much shorter.
Our Net Worth Reporting team are able to analyse the financial assessment of
the proposed defendants on a claim within a few days. If the Net Worth Report
is positive, our in-house legal team are then usually able to report to the
Company's Investment Committee within 7-10 days, with offers being sent to
office holders (Liquidators or Administrators) the next day. Office holders
are usually in a position to decide on our offer within a week or so.
Therefore, the new case investments graph below, quickly starts to mirror the
shape of the new case enquiries:
This shows the stark contrast in trading between H1 FY23 and H2 FY23. As all
cases have to be given a value the impact on the financial performance of the
Company is clear: a challenging first half, followed by a sharply improved
second half of FY23.
Despite the Company operating under subdued trading conditions for the first
half and the loss for the full year, the Company performed well over the year
as a whole in many key areas compared to FY22. Thanks to the strong second
half trading:
· Invested in record number of 263 new UK insolvency claims, an
increase of 65% (FY22: 159).
· A record number of 193 cases were completed, an increase of 39%
(FY22: 139).
· Realised revenues on completed cases were £26.8m, an increase of
76% (FY22: £15.2m) although FY23 contained an exceptionally large funded case
completion of which £4.9m was recorded in realised revenue (total settlement
£9.5m) - our second largest ever completed case and one where all the cash
was received within just a few weeks of completing the case.
· Gross cash receipts from completed cases were £26.7m, an
increase of 72% (FY22: £15.5m).
· The Company's retained share of gross cash receipts from
completed cases (after all legal costs and payments to Insolvent Estates) was
£13.1m, an increase of 47% (FY22: £8.9m).
· Cash generated from operations (after all completed case costs
and all overheads but before new case investments and taxation) was £8.0m
(FY22: £4.4m).
· EBIT reduced by 159% to a loss of (£3.1m) (FY22: profit of
£5.3m) a result of the H1 loss caused by the subdued H1 trading environment,
a review of case valuations on existing cases precipitated by the worsening UK
economic environment and a rare adverse opinion on a large case.
· Increase in the valuation of the cartel cases contributed £1.2m
to gross profit in FY23 (FY22: £5.1m).
The Company had net debt of £9.7m as at 31 March 2023 in comparison to
£11.1m in FY22. 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, which was extended by 1 year to 1 July 2025
in July 2022. 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 3.7% over SONIA. During the period, management has
amended the existing loan facility with HSBC to provide more lenient
covenants.
Overall, for FY23, 129% of total revenues (FY22: 75%) of £20.7m (FY22:
£20.4m) and 264% of total gross profit (FY22: 50%) of £3.7m (FY22: £10.4m)
were from realised completed cases. 74% of total revenues derived from
purchased cases (FY22: 93%) and 26% from funded cases (FY22: 7%) - the large
£9.5m case (£4.9m of which was Manolete's share) referred to earlier was a
rare funded case. 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 263 new cases signed in FY23, 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
Cash generation was very strong throughout FY23. Overall gross cash receipts
rose 72% to a record £26.7m for FY23. It should be noted that 83% of those
cash receipts came from cases completed in FY23 whereas 11% derived from cases
that completed in FY22 and the balance of 6% coming from earlier case
investment vintages. The £26.7m of cash generated derived from 235 separate
cases (FY22: £15.5m from 183 historic cases), which highlights the wide
diversity and granularity of the Company's cash income.
For the first time in our history the Company generated positive net cash
income after all operating, investment, taxation and interest costs but
excluding net borrowing movements: FY23: £1.4m (FY22: net cash outflow
(£3.2m)).
Cartel Cases
There have been material developments relating to the Company's cartel cases
in recent months. Early in this calendar year 2023, the judgments for the
large truck cartel cases relating to British Telecom Plc and Royal Mail Plc
(the "first wave") were handed down with significant damages and interest
being awarded to the Claimants. The two key important aspects of the judgments
were that the overcharge was assessed at 5% and the discount for pass on was
rejected. Interest was awarded on a simple basis at base rate plus 2%. Our
external expert cartel case valuation advisers, Fideres, accordingly updated
their valuations of the Company's 22 similar truck cartel claims and this
supported the net book carrying value of those cases as at 31 March 2023.
The "second wave" of truck cartel cases settled soon after the judgments on
the first wave. Terms were not made public but the fact that the defendants
are clearly willing to engage in settlement discussions on some significant
claims is a further encouragement. The third wave of trials is awaited, and we
are currently reviewing the litigation strategy on our group of 22 truck
cartel cases, which are currently stayed, with our expert legal advisers.
UK Bounce Back Loans ("BBLs")
As previously reported, we have been working closely with Barclays Bank Plc
and also assisted in the reporting to the British Business Bank, in designing
an effective way to recover loans made under the UK Government's Bounce Back
Loan initiative. This initiative provided around £47bn of Government
guaranteed loans to c. 1.6 million UK businesses in the early months of the
Covid-19 pandemic in 2020. Most loans were for £50k to UK SMEs. While the
majority of these loans were used for proper business purposes, a significant
minority of loans were misappropriated by the owner-managers of those
businesses ("misappropriated BBLs"). Those misappropriated BBLs have not been
repaid, at a potentially significant cost to the UK taxpayer.
Having recovered minimal amounts using other traditional debt recovery
methods, towards the end of 2022, Barclays initiated a pilot scheme of 119
misappropriated BBLs, putting those companies into a Compulsory Liquidation
process. Some Directors of those target companies did settle directly with
Barclays at the start of this process but the large majority were put into
compulsory liquidation. In FY23, 48 of these cases were assigned to Manolete
(starting in January 2023) and a further 20 have been assigned to the Company
in FY24 as at 31 May 2023. The returns from the Manolete cases have been
outstanding and often achieved within a matter of a few weeks, with almost all
settlements (8 cases have closed at 31 May 2023) with Directors at the full
value of the BBL.
The Company has commenced discussions with a number of other financial
institutions with the possibility that they may follow with their own pilot
schemes. Others are likely to wait until the full, or a larger number of,
outcomes can be seen from the Barclays pilot. Manolete has retained the
services of Lord Agnew, Minister of State at the Cabinet Office and Her
Majesty's Treasury from 2020 to 2022 with responsibility for counter fraud, to
advise the Company on its strategy in this area.
Investment Returns
Our investment track record, by vintage, continues to demonstrate outstanding
results. All vintages, up to and including FY19, have been completed. FY20
cases are now 91% complete, FY21 80% complete and well over half of the FY22
cases are legally completed. Manolete's model is characterised by short case
durations, high ROIs (Return on Investment), exceptional Money Multiples and
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 12.8 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 (34) 7.0m (65%) .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 2,335 12.8m 166% 2.7x 502%
2016 36 36 100% 0 0 1,936 1,936 9,393 7,457 4,164 3,293 15.0m 170% 2.7x 180%
2017 31 31 100% 0 0 1,446 1,446 4,469 3,023 1,905 1,118 14.1m 77% 1.8x 462%
2018 29 29 100% 0 0 3,960 3,960 23,714 19,754 12,972 6,782 16.9m 171% 2.7x 70%
2019 59 59 100% 0 0 2,737 2,737 14,855 12,118 7,530 4,588 17.4m 168% 2.7x 99%
2020 141 129 91% 12 1,010 6,279 7,289 16,737 10,458 6,599 3,859 16.1m 61% 1.6x 98%
2021 198 158 80% 40 1,470 6,900 8,370 22,540 15,640 8,367 7,273 12.9m 105% 2.1x 142%
2022 159 101 64% 58 1,523 1,793 3,316 6,788 4,995 2,356 2,639 9.0m 147% 2.5x 321%
2023 263 44 17% 219 1,556 555 2,111 3,366 2,810 1,397 1,413 4.1m 254% 3.5x 6288%
Total (exc. Cartel cases) 1,018 689 67.7% 329 5,560 28,593 34,151 116,106 87,513 51,913 35,600 12.8m 125% 2.2x 131%
(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.
(iv) IRR's are presented for vintages where there are 12 or more months of
historical cashflow information.
Note: Vintage table above is unaudited
The more mature vintages of FY18, FY19, FY20 and FY21 all have total case
recoveries of well over £10m per year and IRRs ranging from 70% to 142%.
Recoveries for cases that commenced in FY22 total £6.8m with an IRR of 321%.
Industry Recognition
During the year, the Company was named, for the second time, 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.
Current Trading
FY24 has started very well, in the same vein as H2 FY23. It is noticeable that
the headline claim values of new case enquiries coming into the Company are
starting to increase, as the challenges in the UK economy spread from SMEs to
larger enterprises. We have recently added to both our in-house legal team and
our Net Worth Report team, to address the increased demand we are seeing
across all regions.
People and Stakeholders
I am hugely indebted to our outstanding staff. The multiple awards we have
received in the Insolvency, Legal and Financial sectors are a direct
reflection of their excellence. The in-house Legal and Net Worth teams have
been skilfully built-out by Mena Halton. Reflecting her important role in
running these teams day-to-day, which constitute the core engine of the
Company, Mena was appointed to the Board as Managing Director in June 2022.
Our professional relationships, built over the last 13 years, with hundreds of
Insolvency Practitioners, expert external insolvency solicitors and
barristers, R3, the Insolvency Practitioners Association, the ICAEW, the
Insolvency Service and HMRC are fundamental to the success and growth of the
Company. These were pivotal to us achieving the tremendous milestone of 1,000
lifetime signed UK insolvency cases in February of this year. Although there
is still much to do.
Steven Cooklin
Chief Executive Officer
21 June 2023
CFO's Statement
I am pleased to give my review of the Company's audited results for the year to 31 March 2023..
Financial overview: 31 March 2023 31 March 2022 YoY
Financial KPIs £000s £000s %
Revenue 20,753 20,443 2%
Gross profit 3,672 10,381 (65%)
Gross margin % 17.7% 50.8%
EBIT (3,121) 5,304 (159%)
EBIT % (15%) 26%
(Loss)/Profit after tax (3,124) 3,678 (185%)
Investment valuation 36,462 45,718 (20%)
Non-financial KPIs
New cases 263 159
Completed cases* 193 139
Live cases at year end** 351 272
*including 9 partially completed cases (7 partial completions FY22)
**including 22 cartel cases and 42 BBL cases in FY23 (22 cartel cases and zero
BBL cases in FY22)
Revenue 31 March 2023 31 March 2022
£000s % £000s %
Realised revenue 26,790 129 15,243 75
Unrealised revenue (6,037) (29) 5,200 25
Revenue 20,753 20,443
31 March 2023 31 March 2022 YOY
£000s £000s %
Realised Gross Profit 9,798 5,182 89
Realised Gross Margin 36.2% 34.0%
Revenues can be classified into realised revenue (actual completions) of
£26.8m in FY23 (FY22: £15.2m) and unrealised revenue (valuations of new and
live cases) £(6.0)m FY23 (FY22: £5.2m).
Realised revenue increased by 76% to £26.8m (FY22: £15.2m) mainly driven by
the significant increase in the number of case completions in FY23 which
included a single significant case completion contributing revenue of £4.9m
itself. The Company recorded a record number of case completions in FY23 of
193 (FY22: 139).
Unrealised revenue of £(6.0)m FY23 (FY22: £5.2m) was partly a result of
write down of fair values of live cases during the first half of the year, as
reported at our Interim Results for September 2022 as well as the high level
of completions which are removed from unrealised and recorded as realised
revenue. The write down in fair value of cases was a one-off exercise that
reflected the harsher economic climate and resulting likely outcomes of cases.
For comparison purposes, it should be noted that the prior year, unrealised
revenue included a £5.1m uplift in the cartel valuation whilst in FY23 there
was only an uplift of £1.2m.
Gross profit H1 v H2
30 September 2022 - H1 31 March 2023 - H2
Total FY23
£000s £000s £000s
Realised revenue 13,596 13,194 26,790
Unrealised revenue (8,082) 2,045 (6,037)
Total revenue 5,514 15,239 20,753
Other costs, including office costs (7,701) (9,380) (17,081)
Gross profit (2,187) 5,859 3.672
Non-financial KPIs
New cases 83 180 263
Completed cases* 95 98 193
Live cases at end of period** 264 351 351
*including 9 partially completed cases (7 partial completions FY22)
**including 22 cartel cases and 42 BBL cases in FY23 (22 cartel cases and zero
BBL cases in FY22)
Revenue of £20.8m FY23 represented growth of 2% year on year whilst gross
profit decreased by 65% to £3.7m (FY22 £10.4m). To understand the FY23
results, it is necessary both to review the difference in H2 v H1 performance,
as growth in case numbers increased in H2 FY23 and to acknowledge the impact
of a single large case, which was lost at trial.
There was a significant upturn in volumes and financial performance in H2 FY23
as compared to H1 FY23. A gross profit of £5.9m was recorded in H2 FY23
compared to a loss of (£2.2m) in H1 FY23.
In H1 FY23 lower volumes of new cases as a result of the drag effect of the
covid restrictions continued to impact the business. However this was no
longer the case in H2 FY23 when higher insolvencies across the economy
resulted in higher new case numbers reaching the business.
Impact of single large case lost at trial
Very few cases proceed to trial each year and in FY23, a large case was found
against us and our appeal was dismissed. This result had the following impact
on our trading results in FY23 (of which £2.3m was taken to the Statement of
comprehensive income in H1 and £0.5m in H2).
£000s
Initial consideration (75)
Legal costs (915)
Fair value write down (1,800)
Total (2,790)
Whilst from time to time, we will lose cases at trial, we do not expect such a
large case loss to be repeated. If we add back the large case lost at trial,
see below for proforma results.
31 March 2023 31 March 2023
Impact on financials Reported Adjusted
£000s £000s
Revenue 20,753 22,553
Gross profit 3,672 6,462
Gross margin 17.7% 28.7%
EBIT (3,121) (331)
Administrative expenses
31 March 2023 31 March 2022 YoY
growth
£000s £000s %
Wages and salaries 3,737 3,519 6%
Bad debt expense 1,534 321 378%
Professional fees 512 479 7%
Marketing 344 222 55%
Other costs, including office costs 666 536 24%
Administrative costs 6,793 5,077 34%
Administrative expenses increased by 34% to £6.8m in FY23 (FY22: £5.0m). The
increase in administration expenses was primarily a result of an increase in
bad debt expense to £1.5m (FY22: £0.3m) following a thorough review of
receivables given the current economic environment. The bad debt expense
primarily relates to a small number of debtors who have either entered into
bankruptcy or whose assets have been hidden overseas as well as an increase in
the ECL provision.
Salaries increased by 6% per annum consistent with annual salary reviews.
Professional fee expenses of £0.5m (FY22: £0.5m) have been well managed and
consist of mostly recurring items such as audit, tax and PR services.
Marketing costs of £0.3m (FY22: £0.2m) have increased since FY22 as expected
following an increase in business development activities as Covid-19
restrictions have been removed. Other costs have increased due to a short-term
lease on our London offices which had previously been accounted for as a Right
of Use asset under IFRS 16.
Operating loss (Earnings Before Interest and Tax)
The Company reported an operating loss of £(3.1)m in comparison to an
operating profit of £5.3m in FY22, a decrease of 159%.
Finance costs
The Company extended the length of its debt facility with HSBC in July 2022
from 1 July 2024 to 1 July 2025 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 2023, £10.5m of the £25m HSBC facility
has been drawn down (FY22: £13.5m).
The Company also entered into an amended loan agreement in March 2023 with
more lenient covenant tests for the following three quarter ends, which would
allow the period of losses in H1 FY23 to be excluded from the leverage
covenant calculation (which includes a 12 months look-back in its EBTIDA
figure).
BBL pilot
As at 31(st) March 2023, the Company has signed 48 Bounce back loan cases
(BBLs), of which 6 have already completed. The 42 live BBL cases have had a
positive impact on the Profit and loss account via valuation of £495k and the
six completed BBL cases have contributed a realised gross profit to the
Company of £108k in FY23 (after deduction of initial purchase cost and
external cost and profit share) i.e. an average profit per BBL case for
Manolete of £18k.
Loss after tax
Loss after tax of (£3.1m) was recorded in FY23 (FY22: £3.7m profit). The
post-tax margin has decreased from 18% to (15)%.
Earnings per share
As disclosed in Note 12, earnings per share decreased by 188% from 8.0 pence
to (7.0) pence.
Balance sheet restatement
During the year we restated the contract asset / liability that related to the
large case settlement that completed in FY21. Following a review of the
contractual terms of the contract asset and liability, the directors concluded
that these balances should have been presented as long term. The adjustments
to the Statement of Financial Position as at 31 March 2021 and 31 March 2022
are shown in Note 30.
Balance sheet - Investment in Cases
The Company was managing 351 live case investments as at 31 March 2023,
compared to 272 live cases as at 31 March 2022, a net increase of 79 cases, or
29%. The total investment in cases amounted to £36.5m as at 31 March 2023 a
decrease of 20% (FY22: £45.7m). This reduction in Investment value of cases
was due to a one-off exercise in H1 FY23 to reduce the valuation of open cases
to reflect the economic realities of settlements being reached as well as a
number of larger cases settling during the year. The valuation includes the
investment in the cartel cases as at 31 March 2023 of £13.4m, an increase of
£1.2m from £12.2m in FY22. 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 2023 31 March 2022
£000s £000s
Gross cash receipts 26,708 15,549
IP share & legal costs on completed cases (13,608) (6,632)
Cashflows from completed cases 13,100 8,917
Overheads (5,092) (4,499)
Net cash generated from operations before investment in cases and corporation 8,008 4,418
tax
Corporation tax (354) (833)
Net cash generated from operations after corporation tax and before investment 7,654 3,585
in new cases
Investment in cases (5,806) (6,470)
Net cash generated from/(used in) operations 1,848 (2,885)
% growth in case cash investments (13%) 10%
Gross cash receipts
Gross cash receipts increased strongly year on year, to £26.7m in FY23 (FY22:
£15.5m) by 72% and importantly, cash generated from operations before
investment in cases and corporation tax has increased from a cash inflow of
£4.4m in FY22 to a cash inflow of £8.0m in FY23 which has been partly
reinvested in the portfolio and partly utilised for repayment of debt
balances. Furthermore, net cash generated prior to investment in cases (new
and existing) was £7.7m FY23 compared to £3.6m FY22. The increase in cash
generation at this level demonstrates the business has become self-funding in
case investments. 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 (including both IP
share and Manolete share of cash receipts) year on year. As the business
matures, its ability to generate cash and ultimately be self-funding is a key
characteristic.
Overheads & Corporation Tax
Excluding non-cash items (including bad debt expense), spending incurred on
overheads has increased from £4.5m FY22 to £5.1m FY23 principally as result
of an increase in headcount, annual salary increases and bonuses.
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
FY23, the Company generated unrealised losses of £(6.0)m (FY22: £5.2m) which
has helped contribute to the year end tax receivable position.
Investment in cases
We have continued to invest in existing and new cases with total capital of
£5.8m deployed during FY23 compared with £6.5m in FY22 which has been funded
through cash receipts from completed cases.
Working Capital
Absorption of £5.9m into working capital during FY23 is primarily due to
increased trade receivables, itself a factor of increased realised revenues.
This increase in net trade receivables will generate cash in FY24 and beyond.
Debtor days on a countback basis stayed static at 335 in FY23 (FY22: 335).
31 March 2023 31 March 2022
Net working capital £000s £000s
Net working capital 16,115 10,158
Change in net working capital (5,957) (1,950)
DSO (Days sales outstanding) basic 365 507
DSO countback 335 335
Debt Financing
The Company has drawn down £10.5m (FY22: £13.5m) of its £25m HSBC loan
facility and has continued to deploy loan capital during the year to finance
investment in cases. Hence a repayment of £3.0m in the HSBC loan compared to
31 March 2022. The Company held cash reserves of £0.6m as at 31 March 2023
which are available to deploy on new case investment.
The Company agreed a waiver with HSBC in respect of the leverage covenant for
the quarters ending 30 June 2022, 30 September 2022 and 31 December 2022 as
losses incurred in H1 FY23 were resulting in a breach of the leverage
covenant. Following this event, the Company has agreed an amendment to the
loan agreement with a revised leverage covenant for the three quarters ending
31 March 2023, 30 June 2023 and 30 September 2023 to avoid any short-term
breach of the leverage covenant due to the count back nature of the
calculation (calculation amended to exclude the period of EBIT losses in H1).
Mark Tavener
Chief Financial Officer
21 June 2023
Strategic Report
The Directors present their strategic report for the year ended 31 March 2023.
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.
On pages 25 to 26, we have set out the principal risks which may present
challenges in executing the business model and delivering the strategy.
As the UK Government's extraordinary temporary measures to materially reduce
the number of insolvencies and bankruptcies during the Covid-19 pandemic were
concluded at the end of the prior financial year, elements of the financial
statements for the year ended 31 March 2023 represent a satisfactory out-turn
for the business. Year-on-year revenues increased by 2%, driven by an increase
in realised revenues offset by a decrease in unrealised revenue (see table
below). Operating profits declined by 159% to an operating loss of (£3.1m)
and net assets decreased 8% to £39.2m. The loss is largely attributable to
the first half of FY23 (EBIT loss of £5,3m for H1 FY23), whereas the business
rebounded strongly in H2 FY23 with a positive EBIT contribution of £2.2m.
The number of employees was 25 (FY22: 22) at the end of the financial year. As
demand has increased significantly for our UK insolvency litigation financing
products over the last six months and is likely to remain so, we are
selectively adding to our expert in-house legal and Net Worth Report teams.
Despite recruitment challenges in some areas of the UK, the Company is not
experiencing any problems attracting new recruits.
The business has grown significantly following the difficult trading
conditions of the previous two years. At the financial year-end the cumulative
number of signed litigation investments has grown to 1,040 cases, with a
record 351 live, in-progress cases at as 31 March 2023.
Year Ended Year Ended % change
31 March 2023 31 March 2022
Financial KPIs £000s £000s
Realised revenue 26,790 15,243 76%
Unrealised revenue (6,037) 5,200 (216%)
Total revenue 20,753 20,443 2%
Gross profit 3,672 10,381 (65%)
Operating (loss)/profit (3,121) 5,304 (159%)
(Loss)/profit after tax (3,124) 3,678 (185%)
Value of investments 36,462 45,718 (20%)
Non-financial KPIs
Number of lifetime signed litigation investments 1,040 777 34%
Live cases at end of reporting period 351 272 29%
New cases 263 159 65%
Completed cases 193 139 39%
The movements in key performance indicators is analysed in the Report of the
Chief Executive Officer on pages 12 to 16 and the Report of the Chief
Financial Officer on pages 17 to 22.
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 the general wider economic environment and has
concluded that it is appropriate for the accounts to be prepared on a going
concern basis. The £25m RCF plus £10m accordion on attractive terms with
HSBC provides the Company with substantial finance going forward. Further
detail on the board's consideration of going concern is included on page 53.
We believe the business is very well-positioned to consolidate its leading
position in the insolvency litigation financing market. Since the start of the
2023 calendar year, the Company has added additional members to its in-house
legal team, in anticipation of continuing increase in the level of new case
enquiries.
The Company has made a good start to FY24 and we look forward to a promising
future.
On behalf of the Board:
Steven Cooklin
Chief Executive Officer
21 June 2023
Statement of Comprehensive Income
31 March 31 March
2023 2022
Note £'000s £'000s
Revenue 4 20,753 20,443
Cost of sales (17,081) (10,062)
Gross profit 3,672 10,381
Administrative expenses 8 (6,793) (5,077)
Operating (loss)/profit 6 (3,121) 5,304
Finance income 9 7 -
Finance expense 9 (839) (796)
(Loss)/Profit before tax (3,953) 4,508
Taxation 11 829 (830)
(Loss)/Profit and total comprehensive income for the year attributable to the (3,124) 3,678
equity owners of the company
Earnings per share
Basic (pence per share) 12 (£0.07) £0.08
Diluted (pence per share) 12 (£0.07) £0.08
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
Company Number: 07660874 31 March 31 March
2023 2022 - restated
Note £'000s £'000s
Non-current assets
Investments 13 13,389 12,198
Intangible assets 14 - 13
Trade and other receivables 16 12,315 12,331
Deferred tax asset 19 267 95
Right-of-use asset 15 - 86
Total non-current assets 25,971 24,723
Current assets
Investments 13 23,073 33,520
Trade and other receivables 16 12,063 7,944
Corporation tax receivable 11 735 -
Cash and cash equivalents 17 636 2,256
Total current assets 36,507 43,720
Total assets 62,478 68,443
EQUITY AND LIABILITIES
Equity
Share capital 21 175 175
Share premium 22 157 142
Share based payment reserve 22 699 429
Special reserve 22 - 5
Retained earnings 22 38,130 41,468
Total equity attributable to the equity owners of the company 39,161 42,219
Non-current liabilities
Trade and other payables 18 7,393 7,699
Borrowings 20 10,381 13,285
Total non-current liabilities 17,774 20,984
Current liabilities
Trade and other payables 18 5,543 4,748
Current tax liabilities 11 - 396
Lease liability 15/20 - 96
Total current liabilities 5,543 5,240
Total liabilities 23,317 26,224
Total equity and liabilities 62,478 68,443
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 21 June 2023.
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 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 options 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
Comprehensive income
Loss for the year - - - - (3,124) (3,124)
Transactions with owners
Dividends - - - - (219) (219)
Transfer in relation to creditors paid - - - (5) 5 -
Share based payment expense - - 150 - - 150
Share options exercised - 15 - - - 15
Deferred tax on share-based payments - - 120 - - 120
As at 31 March 2023 175 157 699 - 38,130 39,161
*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
2023 2022
Note £'000s £'000s
(Loss)/profit before tax (3,953) 4,508
Adjustments for other operating items:
Adjustments for non-cash items: 26 15,554 (444)
Operating cashflows before movements in working capital 11,601 4,064
Changes in working capital:
Net increase in trade and other receivables (4,105) (1,926)
Net increase in trade and other payables 512 2,280
Net cash generated from operations before corporation tax and investments 8,008 4,418
Corporation tax paid (353) (833)
Investment in cases 13 (5,806) (6,470)
Net cash generated from/(used in) operating activities 1,849 (2,885)
Cash flows from investing activities
Finance income received 9 7 -
Net cash generated from investing activities 7 -
Cash flows from financing activities
(Repayments)/Proceeds from borrowings 20 (3,000) 5,500
Dividends paid 10 (219) (606)
Interest paid (160) (703)
Repayment of lease liabilities 15 (97) (194)
Net cash (used in)/generated from financing activities (3,476) 3,997
Net (decrease)/increase in cash and cash equivalents (1,620) 1,112
Cash and cash equivalents at the beginning of the year 2,256 1,144
Cash and cash equivalents at the end of the year 636 2,256
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 financial statements have been properly prepared in accordance with UK
adopted International Accounting Standards and in conformity with the
requirements of the Companies Act 2006. Under company law the directors must
not approve the financial statements unless they are satisfied that they give
a true and fair view of the state of affairs the Company and of the profit or
loss of the Company for that period.
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
Given current trading levels, in particular new cases volumes being signed
with a steady flow of completions along with the general level of insolvencies
in the economy as a whole, 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.
Management has updated its forecasts for the business with particular focus on
the next 12 - 18 months and based on current trading levels and the existing
HSBC debt financing, 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. In addition, more lenient
covenants have been agreed with HSBC for the three quarters, 31 March 2023, 30
June 2023 and 30 September 2023. 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:
· 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
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 12 Clarification of accounting for deferred tax
on transactions
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.
2.4 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.
2.5 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.
2.6 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.
2.7 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.
2.8 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 at any year-end, 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 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.
Whilst the original arrangement fees in relation to a £25m loan facility with
HSBC set up in June 2021 were capitalised and amortised over the length of the
agreement, initially 3 years. Fees in relation to an amendment of the loan
agreement in March 2023 were expensed to the Statement of Comprehensive Income
in FY23.
These capitalised costs of £119,426 as at 31 March 2023 (31 March 2022:
£215,959) have been netted off against borrowings in the Statement of
Financial Position. Amendment fees of £62,500 were expensed to the Statement
of Comprehensive Income in March 2023.
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.
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. Due to the nature of Manolete's business
model, an unrealised fair value gain will be recognised on initial investment
in a case. Thereafter, 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 reviews then
take place on a monthly basis to review progress on all live cases, on a
case-by-case basis.
• 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 351 open cases, of these 300 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 51 cases make up £23.9m 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 facts 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 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 assess whether 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
£36.5m of investments disclosed in the balance sheet (Note 13). 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 +/- £1.9m.
Approach to cartel case valuation:
Following publication of the ruling in respect of an EU Competition test case
(the "BT / Royal Mail" case) we requested that our independent expert
valuation firm apply the assumptions contained within the test case ruling to
the valuation of Manolete's 22 cartel cases. Following the ruling and the
receipt of further case data, the directors consider that additional
discounting, or the use of a "tier based" system is no longer required and the
year-end valuation therefore represents Manolete's percentage ownership of the
overall case valuation. The cartel case carrying valuation of £13.4m, an
increase of £1.2m from the prior year, is set out in Note 13 to the accounts.
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.12.8 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 and
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.
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 £7.8m which relates to a large case completion in FY21.
Repayments to date have been made according to the agreed schedule. Based on
Management's 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
where possible. The receivables' ageing analysis is also evaluated on a
regular basis for potential doubtful debts. Where potential doubtful debts are
identified specific bad debt provisions are held against these. It is the
Directors' opinion that no further provision for doubtful debts is required.
Please see note 16 of the accounts.
4. Segmental reporting
During the year ended 31 March 2023, 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 2023 31 March 2022
£000s £000s
Net realised gains on investments in cases 26,790 15,243
Fair value movements (net of transfers to realisations) - Note 13 (6,037) 5,200
20,753 20,443
31 March 2023 31 March 2022
£000s £000s
Arising from:
Purchased cases 15,321 18,955
Funded cases 5,432 1,488
20,753 20,443
5. Directors and employees
Staff costs for the Company during the year:
31 March 2023 31 March 2022
Staff costs (including directors): £000s £000s
Wages and salaries 3,031 2,814
Social security costs 429 390
Other pension costs and benefits 277 314
Total staff costs 3,737 3,518
The average monthly number of employees (including executive and non-executive
directors) employed by activity was:
31 March 31 March
2023 2022
No. No.
Directors (executive and non-executive) 6 5
Management and administration 18 17
Average headcount 24 22
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 2022
Directors' emoluments: 2023
£000s £000s
Salaries and fees 1,404 1,042
Other pension costs and benefits 16 16
1,420 1,058
Directors remuneration is detailed in the Remuneration report.
31 March 31 March 2022
2023
£000s £000s
Highest paid director:
Salaries and fees 529 514
Other pension costs and benefits 6 7
535 521
Management consider the directors to be the key management personnel.
6. Operating profit
Is stated after charging:
31 March 31 March
2023 2022
£000s £000s
Bad debt expenses 1,534 321
Share based payments 150 169
Depreciation of right of use asset 86 171
Amortisation of intangible assets 13 22
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 2023 31 March 2022
£000s £000s
Fee payable to Company's auditor and its associates for the statutory audit of 110 80
the Company's financial statements
Fees payable to Company's auditor and its associates for other services:
Interim agreed upon procedures 11 10
Total 121 90
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 2023 31 March 2022
£000s £000s
Staff costs, including pension and healthcare costs 3,737 3,519
Bad debts including expected credit losses 1,534 321
Professional fees 512 479
Marketing costs 344 222
Other costs, including office costs 666 536
Total administrative expenses 6,793 5,077
9. Finance income and finance expense
31 March 2023 31 March 2022
£000s £000s
Bank interest 7 -
Total finance income 7 -
31 March 2023 31 March 2022
£000s £000s
Lease liability interest 1 6
Other loan interest 251 142
Bank loan charges 587 648
Total finance expense 839 796
10. Dividends
Dividends paid during the financial year were as follows.
31 March 2023 31 March 2022
Declared during the year £000s £000s
Final dividend for the year ended 31 March 2022 of 0.5p per share, paid in 219 436
October 2022 (October 2021: 1.00p)
Interim dividend for the year ended 31 March 2023, of 0.0p per share (December - 170
2021: 0.39p)
Total dividends paid during FY23 219 606
Proposed after the end of year and not recognised as a liability
Final dividend for the year ended 31 March 2023: 0.0p per share (31 March - 219
2022: 0.5p per share)
11. Taxation
31 March 2023 31 March 2022
Analysis of (credit)/charge in year £000s £000s
Current tax (credit)/charge on losses/profits for the year (735) 850
Adjustments in respect of prior periods (42) 2
Income tax (credit)/charge (777) 852
Deferred tax (52) (22)
Total tax (credit)/charge (829) 830
The tax (credit)/charge for the year differs from the standard rate of
corporation tax in the UK of 19%. (2022: 19%). The differences are explained
below.
31 March 2023 31 March 2022
£000s £000s
(Loss)/Profit on ordinary activities before tax (3,953) 4,508
(Loss)/Profit on ordinary activities multiplied by the rate of corporation tax (751) 857
in the UK as above
Effects of:
Expenses not deductible 44 39
Other differences (28) (45)
Adjustments to current tax in respect of previous periods (42) 2
Deferred tax charged directly to equity 120 (49)
Temporary differences not recognised in the computation (108) 26
Remeasurement of deferred tax for change in tax rates (64) -
Total taxation (credit)/charge (829) 830
12. Earnings per share
The basic earnings per share is calculated by dividing the profit/(loss)
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/(loss) 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 2022
2023
£000s £000s
(Loss)/Profit for the period attributable to equity holders of the Company (3,255) 3,678
Weighted average number of ordinary shares 43,756,351 43,601,037
Earnings per share (0.07) 0.08
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 2022
2023
£000s £000s
(Loss)/Profit for the period attributable to equity holders of the Company (3,255) 3,678
Diluted weighted average number of ordinary shares 45,442,219 44,907,949
Diluted earnings per share (0.07) 0.08
Reconciliation of number of shares and diluted shares at year end:
31 March 31 March 2022
2023
£000s £000s
Weighted average number of shares for Basic Earnings Per Share 43,756,351 43,601,037
Adjustments for calculation of Diluted Earnings Per Share:
Options over ordinary shares 1,685,868 1,306,912
Weighted average number of shares for Diluted Earnings Per Share 45,442,219 44,907,949
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 2023 31 March 2022
£000s £000s
As at 1 April 2022 45,718 37,508
Prepaid cost additions 5,806 6,470
Realised prepaid costs (9,025) (3,460)
Fair value movement (net of transfers to realisations) (6,037) 5,200
As at 31 March 2023 36,462 45,718
31 March 2023 31 March 2022
£000s £000s
Current 23,073 33,520
Non-current 13,389 12,198
As at 31 March 2023 36,462 45,718
Analysis of fair value movements
31 March 2023 31 March 2022
£000s £000s
New case investments 9,659 7,370
Increase in existing case fair value (excl. cartel cases) 134 956
Decrease in existing case fair value (excl. cartel cases) (2,519) (3,693)
Case completions - transferred to realisations (14,503) (4,539)
Increase in fair value of cartel cases 1,192 5,106
Fair value movement (net of transfers to realisations) (6,037) 5,200
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 2023 31 March 2022
£000s £000s
As at 1 April 2022 13 35
Amortisation charge (13) (22)
As at 31 March 2023 - 13
15. Right of use asset
The Company held one lease, an office property lease for 21 Gloucester Place,
London which expired in September 2022. The new lease relating to this office
is short term and therefore not covered under IFRS 16.
31 March 2023 31 March 2022
£000s £000s
As at 1 April 2022 86 257
Depreciation (86) (171)
As at 31 March 2023 - 86
- 86
Current
As at 31 March 2023 - 86
31 March 2023 31 March 2022
Lease liability £000s £000s
Current - 96
Non-current - -
As at 31 March 2023 - 96
The incremental borrowing rate used in the calculation of the lease liability
was 3% (FY22: 3%). The maturity analysis of the finance lease liability is
included in note 27.
Amounts recognised in the Statement of Comprehensive Income 31 March 2023 31 March 2022
£000s £000s
Total interest expense 1 6
Amounts recognised in the Statement of Cashflows 31 March 2023 31 March 2022
£000s £000s
Total cash outflow (97) (194)
16. Trade and other receivables
31 March 2023 31 March 2022 - restated
£000s £000s
Amounts falling due in excess of one year:
Trade receivables 10,270 11,086
Contract asset 2,045 1,245
Total trade and other receivables due in excess of one year 12,315 12,331
Amounts falling due within one year:
Gross trade receivables 16,505 10,096
Less:
Specific provisions (2,881) (1,464)
Allowance for expected credit losses (1,794) (865)
Trade receivables 11,830 7,767
Prepayments 233 177
Total trade and other receivables due within one year 12,063 7,944
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 27.
The contract asset relates to the unwinding of the discounting applied to the
present value of the settlement of a large case in FY21. See note 30 for more
information regarding the restatement of 31 March 2022.
No impairment provision has been recognised in respect of 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 2023 31 March 2022
ECL Provision £000s £000s
At 1 April 2022 865 560
Increase in provisions for impairment 929 305
As at 31 March 2023 1,794 865
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 2023 31 March 2022
£000s £000s
Cash at bank and in hand 636 2,256
All bank balances are denominated in pounds sterling.
18. Trade and other payables
31 March 2023 31 March
2022 - restated
£000s £000s
Amounts falling due in excess of one year:
Accruals - direct costs 5,982 6,853
Contract liability 1,411 846
Total trade and other payables due in excess of one year 7,393 7,699
Amounts falling due in one year:
Trade payables 802 734
Accruals - direct costs 3,984 3,273
Other creditors 645 622
Other taxation and social security 112 119
Total trade and other payables due within one year 5,543 4,748
18. Trade and other payables
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 £6.6m shown as non-current, £5.6m relates to the
amounts payable to the Insolvency Practitioner due in more than one year in
respect of the large case completion in FY21.
The contract liability relates to the unwinding of the discounting applied to
the present value of amounts payable to the insolvency practitioner following
the settlement of a large case in FY21. See note 30 for more information
regarding the restatement of 31 March 2022.
19. Deferred tax asset
31 March 2023 31 March
2022
£000s £000s
At 1 April 2022 95 121
Deferred tax charged in the income statement for the period 292 23
Deferred tax included directly in equity (120) (49)
At 31 March 2023 267 95
Deferred tax has been charged to equity reserve because these movements in
deferred tax assets relate to releases and creation of share options.
20. Borrowings
31 March 2023 31 March 2022
£000s £000s
Non-current
Bank loans 10,381 13,285
Total non-current borrowings 10,381 13,285
Current
Lease liability - 96
Total current borrowings - 96
Arrangement fees in relation to a £25m loan facility set up with HSBC in June
2021 are capitalised and amortised over the length of the loan facility,
period of three years. There is an option to extend for a further year.
Gross borrowings are £10.5m as at 31 March 2023 (FY22: £13.5m) but are
presented net of HSBC set-up amortised costs of £119k above which are being
amortised over 3 years. Maturity analysis of bank loans is included in note
27.
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.
In July 2022 the Company chose to take the extension to 1 July 2025. The new
RCF also offers the Company an additional approved but uncommitted £10m
accordion, if ever required. The interest rate is a maximum 3.7% 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.
The Company agreed a waiver with HSBC in respect of the leverage covenant for
the quarters ending 30th June 2022, 30th September 2022 and 31st December
2022. Following this event, the Company has agreed an amendment to the loan
agreement with a revised leverage covenant for the three quarters (ending 31st
March 2023, 30th June 2023 and 30th September 2023) to avoid any short-term
breach of the leverage covenant due to the count back nature of the
calculation (calculation amended to exclude the period of EBIT losses in H1).
A condition of this amendment is that no dividend should be paid in respect of
FY23 year end. This restriction is lifted in FY24 if the Company is trading
profitably.
Reconciliation of liabilities arising from financing activities:
1 April Cash flows Non-cash changes 31 March 2023
2022
£000s £000s £000s £000s
Bank borrowings 13,285 (3,000) 96 10,381
Lease liabilities 96 (97) 1 -
Total liabilities from financing activities 13,381 (3,097) 97 10,381
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
The Directors consider the carrying value of all financial liabilities to be
equivalent to their fair value.
Commitments in relation to leases are payable as follows:
31 March 2023 31 March 2022
£000s £000s
Within one year - 97
Total - 97
Future finance charges - (1)
Total lease liability - 96
21. Share capital
31 March 2023 31 March 2022
Allotted and issued No. No.
Ordinary shares of £0.004 each 43,761,305 43,694,740
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 was reduced to nil in FY23.
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 2023
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 1.12 384,038 - (13,232) - 370,806
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 - - (7,228) 14,456
16/11/2022 16/11/2025 2.58 - 34,950 - - 34,950
666,187 34,950 (13,232) (7,228) 680,677
Exercisable at the end of the year - - - - -
Weighted average exercise price 2.48 2.58 1.12 4.15 2.50
Year ended 31(st) March 2022
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 - (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
Options outstanding at 31 March 2023 are exercisable at prices ranging between
£1.12 and £4.65 (FY22 £1.12 and £4.65) and the weighted average
contractual life of the options outstanding at the reporting date is 17 months
(FY22: 7.6 months) as analysed in the table below:
Number of Weighted average remaining contractual life (months)
share options
Exercise price range FY23 FY22 FY23 FY22
£1.12 - £1.99 370,806 384,038 - -
£2.00 - £3.99 34,950 - 31 -
£4.00 - £4.65 274,921 282,149 3 7.6
680,677 666,187 17 7.6
Number of Average exercise price £
share options
FY23 FY22 FY23 FY22
CSOP Options 168,938 141,216 3.01 3.18
Unapproved Options 511,739 524,971 2.32 2.29
Total 680,677 666,187 2.50 2.48
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 2023 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
16/11/2022 2.52 2.58 32% 0% 1.87% 0.92
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. FY23 LTIP scheme is split evenly over
three performance conditions; EPS, Strategy performance and Share Price.
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 2023
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) - -
29/07/2022 29/07/2025 0.004 - 349,800* - - 349,800
29/07/2022 29/07/2023 0.004 - 16,054* - - 16,054
785,806 365,854 (53,333) - 1,098,327
Weighted average exercise price 0.004 0.004 0.004 - 0.004
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
*The LTIP amounts above are the maximum potential conditional share awards
that may vest subject to the performance measures.
53,333 options were exercised during the period and no options were modified.
The weighted average remaining contractual life of these options is 20.6
months (FY22: 22.8 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 2023 and 31 March 2022 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
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
29/07/2022 2.78 0.004 52.3% 0% 1.87% 2.34
29/07/2022 2.78 0.004 31.7% 0% 1.87% 2.34
LTIP awards granted during the year ended 31 March 2023 are subject to the
Earnings Per Share performance, Strategy performance and share price
conditions.
24. Retirement benefits
The Company operates a defined contribution pension scheme for all qualifying
employees. During the year, the Company charged £82,774 (FY22: £78,824) as
employer's pension contributions. The outstanding pension creditor as at 31
March 2023 was £5,339 (FY22: £4,933).
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 2023 31 March 2022
£000s £000s
Trade receivables 22,100 18,853
Contract assets 2,045 1,245
Cash and cash equivalents 636 2,256
Total 24,781 22,354
Financial assets measured at fair value through profit or loss comprise of
investments;
31 March 2023 31 March 2022
£000s £000s
Investments 36,462 45,718
Total 36,462 45,718
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
2023 2022
£000s £000s
Trade and other payables 12,936 12,447
Bank loans 10,381 13,285
Lease liabilities - 96
Total 23,317 25,828
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 2023 Level 1 Level 2 Level 3
£000s £000s £000s
Investments - - 36,462
Total - - 36,462
31st March 2022 Level 1 Level 2 Level 3
£000s £000s £000s
Investments - - 45,718
Total - - 45,718
26. Cashflow information
(A) Non-cash adjustments to cashflows generated from operations
31 March 31 March
2023 2022
£000s £000s
Fair value movements 6,037 (5,200)
Legal costs on realised cases 9,024 3,460
Finance expense 236 796
Depreciation & amortisation 99 193
Share based payments 260 218
Deferred tax (95) 89
Finance income (7) -
Non-cash adjustments to cashflows generated from/(used in) operations 15,554 (444)
(B) Net debt reconciliation
31 March 31 March
2023 2022
£000s £000s
Cash and cash equivalents 636 2,256
Borrowings - repayable after one year (10,381) (13,285)
Net debt excluding leases (9,745) (11,029)
Current lease liability - (96)
Net debt including leases (9,745) (11,125)
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
2023 2022
Debt Interest Debt Interest
£000s Rate £000s Rate
Floating rate borrowings
Bank loans 10,500 SONIA and Margin of 3.7% 13,500 LIBOR and Margin of 2.9%
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
sufficient cash reserves to meet future working capital requirements and to
take advantage of business opportunities.
Unused borrowing facilities at the reporting date:
31 March 2023 31 March 2022
£000s £000s
Bank loans 14,500 11,500
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 2023 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 6,435 1,856 4,451 3,906 16,648 12,936
Bank borrowings - - 10,500 - 10,500 10,381
Lease liabilities - - - - - -
Total 6,435 1,856 14,951 3,906 27,148 23,317
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 4,925 1,382 4,289 5,223 15,819 12,447
Bank borrowings - - 13,500 - 13,500 13,285
Lease liabilities 97 - - - 97 96
Total 5,022 1,382 17,789 5,223 29,416 25,828
The contractual maturity classifications of trade and other payables have been
restated in respect of FY2022 following a review of the contractual terms of a
specific liability, as reported further in Note 30.
In addition, the classification of the bank borrowings figure of £13.5m has
been restated in respect of FY2022 to correctly reflect the terms of repayment
in place as at 31 March 2022
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 £10.5m of a HSBC loan
facility (FY22: £13.5m), 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 2023 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 2023 31 March 2022
£000s £000s
Trade and other receivables 24,378 20,275
Total 24,378 20,275
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 £7.8m in
relation to a single case which completed in FY21. Repayments to date have
been made according to the agreed schedule. Excluding this balance, 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 where possible. 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 2023 31 March 2022
£000s £000s
Settlement agreements 18,850 15,717
Judgements 5,044 4,001
Specific provisions 2,881 1,464
Gross carrying amount after specific provisions 26,775 21,182
Loss allowance (4,675) (2,329)
Trade receivables carrying amount 22,100 18,853
Analysis of trade receivables stratified by settlement type, is as follows:
Past due at 31 March 2023 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 17,578 55 716 593 138 552 19,632
Judgements 659 2 - 1,609 619 4,254 7,143
Total 18,237 57 716 2,202 757 4,806 26,775
Loss allowance
Settlement agreements - ECL (163) (5) (125) (276) (78) (180) (827)
Judgements - ECL (68) (1) - (352) (172) (374) (967)
Settlement agreements - Specific provisions (87) (2) (280) (7) (33) (373) (782)
Judgements - Specific provisions - - - (154) (100) (1,845) (2,099)
Total (318) (8) (405) (789) (383) (2,772) (4,675)
Expected loss rate %
Settlement agreements 2% 10% 29% 47% 75% 95% 4%
Judgements* 12% 28% 33% 34% 35% 64% 14%
Specific provisions 100% 100% 100% 100% 100% 100% 100%
Total 2% 14% 57% 36% 51% 58% 17%
*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 £36.5m of investments disclosed in the balance sheet. However, as an
indication we note that a 10% increase/(decrease) in the fair value or our top
20 cases (including Cartel cases) would result in an increase/(decrease) in
the fair value investment of +/- £1.9m.
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 £36,251 were paid to the directors during the year based on
their individual shareholdings disclosed in the Remuneration Committee report
as follows:
31 March 2023 31 March 2022
£000s £000s
Steven Cooklin 34 95
Mark Tavener - -
Lord Howard Leigh 1 1
Mena Halton 1 -
Stephen Baister - 0.5
Total dividends paid to the directors 36 97
29. Ultimate controlling party
The Company has no ultimate controlling party.
30. Restatement of Statement of Financial position
The contract asset and contract liability balances relate to the discount
unwinding on the present value of the receivable and accrued IP costs from the
large case that completed in FY21. Following a review of the contractual terms
of the contract balance and contract liability, the directors concluded that
these balances should have been presented as long term. The adjustments to the
Statement of Financial Position as at 31 March 2021 and 31 March 2022 are
shown below. This had no impact upon the Statement of Comprehensive Income,
Statement of Changes in Equity or Statement of Cash Flows in the current or
prior financial year.
Statement of Financial Position as at 31 March 2022
Previously reported at 31 March 2022 Adjustment As restated at 31 March 2022
£000s £000s £000s
Non-current assets
Trade and other receivables 11,086 1,245 12,331
Current assets
Trade and other receivables 9,189 (1,245) 7,944
Non-current liabilities
Trade and other payables 6,853 846 7,699
Current liabilities
Trade and other payables 5,594 (846) 4,748
Statement of Financial Position as at 31 March 2021
Previously reported at 31 March 2021 Adjustment As restated at 31 March 2021
£000s £000s £000s
Non-current assets
Trade and other receivables 10,660 431 11,091
Current assets
Trade and other receivables 7,688 (431) 7,257
Non-current liabilities
Trade and other payables 6,602 291 6,893
Current liabilities
Trade and other payables 3,565 (291) 3,274
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