REG - Manolete Partners - Half Year Results
11/11/2021 07:00
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RNS Number : 0176S Manolete Partners PLC 11 November 2021
11 November 2021
MANOLETE PARTNERS PLC
("Manolete" or the "Company")
Half-year results for the six months ended 30 September 2021
Manolete (AIM:MANO), the leading UK-listed insolvency litigation financing
company, today announces its unaudited results for the six months ended 30
September 2021.
Steven Cooklin, Chief Executive Officer, commented:
"These are resilient results, produced against a back-drop of an extraordinary
market, and they demonstrate the strength of the Manolete business.
"Throughout the interim period to 30th September 2021 the UK insolvency market
was artificially suppressed by unparalleled UK Temporary Government Measures.
Despite the effect of the Government actions the business has continued to
perform strongly, particularly in terms of case completions which were 23%
higher than the comparable period last year and in line with management
expectations.
"With the extraordinary Temporary Government Measures ended from 1 October the
market is beginning to recover to pre-pandemic levels and we are seeing a
sharp increase in both case enquires and signed cases. Manolete grew strongly
up to the imposition of the Temporary Government Measures and with these
measures now retired we expect that strong growth momentum to return."
The Interim Results (H1 FY22) are compared to the two most recent 6 month
periods, H2 FY21 (31 March 2021) and H1 FY21 (30 September 2020) to enable the
trend in performance to be understood.
Financial highlights:
· Total revenues increased by 15% to £10.2m from H2 FY21 (£8.9m)
and were 46% below H1 FY21 (£19.0m). H1 FY21 benefitted from an exceptionally
large single case settlement of £9.3m (discounted gross revenue value) and
was impacted to a much lower degree by the Covid-19 related Government
Temporary Measures;
· 76% of revenues were from realised completed cases (H1 FY21: 71%)
· Gross Profit increased by 38% to £5.4m from H2 FY21 (£3.9m) and
was 43% below H1 FY21 (£9.5m). The decline compared to H1 FY21 was mainly due
to reduced unrealised profits reflecting the decline in the number of new case
investments which was suppressed due to the Covid-19 related Government
Temporary Measures;
· EBIT increased 273% to £3.2m from H2 FY21 and was 52% below H1
FY21 (£6.6m);
· Cash generated from completed cases increased 3% to £4.3m (H1
FY21: £4.2m);
· Despite the temporarily challenging environment, cash generated
from previously completed cases exceeded the cash costs of operating the
business (before investment in new cases);
· Investment in cases has grown by 5% to £41.4m (30 September
2020: £39.3m);
· Net assets of £41.2m. Net Debt was £10.3m consisting of a drawn
down loan of £11.0m, offset by cash balances of £0.7m as at 30 September
2021;
· £14m of HSBC Revolving Credit Facility remains available for
utilisation, as at 30 September 2021;
· Basic earnings per share declined 59% to 4.8 pence (H1 FY21: 11.8
pence); and
· Interim dividend proposed of 0.39 pence per share (H1 FY21:
1.17p). The interim dividend to Ordinary Shareholders will be payable on 6
January 2022 to those shareholders who are on the register of members at 17
December 2021.
Operational and market highlights:
· The interim results for the six months ended 30 September 2021
reflect the operations of the Company when the UK insolvency market was
artificially suppressed by the unparalleled UK Government action to support
business enacted in June 2020.
· These Temporary Measures were largely ended, effective from 1
October 2021, as did a number of other business support schemes, including
furlough.
· Ongoing delivery of realised returns: 64 case realisations in H1
FY22 representing a 23% increase (52 case realisations in H1 FY21), generating
gross proceeds of £7.9m, over an average duration of 11.5 months
· Average money multiple of 2.6 times for the 64 cases completed in
H1 FY22;
· Average case duration across the full portfolio of 434 completed
cases at 11.3 months;
· New case investments declined by 39% to 78 (H1 FY21: 110) as a
result of unprecedented Government support to the economy during the Covid-19
pandemic;
· 10% increase in live cases: 240 in process as at 30 September
2021 (238 as at 30 September 2020) (all excluding Cartel cases);
· 71% of live cases have been signed in the last 18 months. Only
one case remains ongoing from the FY17 vintage and only two cases are
outstanding from the FY18 vintage. 100% of earlier case vintages have been
completed;
· Our KPIs for September and October 2021 show strong signs of
recovery:
· The number of new case enquiries were 50 and 55 for those two
months respectively, compared to a low of 31 for the month of March 2021 while
the Temporary Measures were in force.
· New signed cases for September and October were 15 and 18
respectively, compared to 10 in August 2021;
· Cartel cases remain ongoing. In line with our strategy there has
been little progress in the six months to 30 September 2021, however, we
expect there will be considerable progress in the next six to twelve months.
Management will reassess the investment fair value again at the year end.
For further information please contact:
Manolete Partners: via Instinctif Partners
Steven Cooklin (Chief Executive Officer)
Peel Hunt (NOMAD and Joint Broker) +44 (0)20 7418 8900
James Britton
Rishi Shah
Instinctif Partners (Financial PR) +44 (0)7837 674600
Tim Linacre
George Peele
Chief Executive Officer's Statement
Introduction
I am pleased to present our unaudited statements for the half year to 30
September 2021.
Manolete is the leading UK quoted company in the insolvency litigation finance
market, a market which plays an important role in returning funds to
creditors, particularly HMRC.
Performance
As announced in our Trading Update last month, the interim results for the six
months ended 30 September 2021 reflect the operations of the Company during a
period of time when the UK insolvency market was artificially suppressed by
the extraordinary UK Government action initiated in June 2020.
The UK Government reacted to the Covid-19 pandemic by announcing a series of
"Temporary Measures" contained in the Corporate Insolvency and Governance Act
2020 designed to suppress insolvencies and protect jobs. These measures
largely ended, effective from 1 October 2021 as did a number of other business
support schemes, including furlough.
Despite these unprecedented restrictions, the Company has performed well,
particularly in terms of case completions which were 23% higher than the
comparable period, and in line with the Board's expectations. The UK
insolvency market continues to return to pre-pandemic levels of activity,
particularly in the important Creditors Voluntary Liquidations segment of the
market. There is always a time-lag between the appointment of an Office Holder
and that Office Holder referring claims to Manolete, but our KPIs for
September and October 2021 show strong signs of recovery. The number of new
case enquiries were at 50 and 55 for those two months respectively, compared
to a low of 31 for the month of March 2021. New signed cases for September and
October were 15 and 18 respectively, compared to 10 in August 2021.
Vintages Table
This table highlights some of the key features of Manolete's model:
1. Consistently high IRRs across 434 completed cases;
2. Fast case completions, at an average of 11.3 months per case from
the date of signing the investment agreement to the date that the case is
legally completed. Cash tends to be collected, on average, over the following
12 months excluding the large case completion.
3. Only one case remains open from the FY17 vintage and two cases from
the FY18 vintage. All earlier cases are fully completed.
Case Vintages as at 30 September 2021
Vintage No. of investments No. completed % No. outstanding Open case investments Closed case investments Total invested Total recovered Total IP Manolete gain Duration of completed cases ROI MoM IRR
Completed gain share
Year No No % No £'000 £'000 £'000 £'000 £'000 £'000 £'000 Months % X %
2010 3 3 100% 0 0 52 52 28 (24) 10 (35) 7.0m (67%) .3x 0%
2011 0 0 - 0 0 0 0 0 0 0 0 0.0m 0% .0x 0%
2012 8 8 100% 0 0 763 763 2,524 1,761 580 1,181 18.0m 155% 2.5x 236%
2013 10 10 100% 0 0 174 174 780 606 316 290 7.1m 166% 2.7x 281%
2014 42 42 100% 0 0 594 594 3,884 3,290 2,427 863 10.0m 145% 2.5x 424%
2015 39 39 100% 0 0 1,404 1,404 7,029 5,625 3,290 2,336 12.8m 166% 2.7x 526%
2016 36 36 100% 0 0 1,930 1,930 9,279 7,349 4,116 3,233 15.0m 167% 2.7x 181%
2017 31 30 97% 1 286 1,101 1,387 4,269 3,167 1,905 1,263 12.2m 115% 2.1x 554%
2018 29 27 93% 2 1,547 1,545 3,092 14,036 12,491 8,734 3,757 14.0m 243% 3.4x 484%
2019 59 52 88% 7 464 1,939 2,404 13,182 11,243 6,302 4,941 14.4m 255% 3.5x 108%
2020 141 96 68% 45 1,860 3,725 5,584 12,681 8,957 5,197 3,759 11.4m 101% 2.0x 160%
2021 198 85 43% 113 2,762 1,748 4,510 8,288 6,540 3,254 3,286 6.6m 188% 2.9x 421%
2022 78 6 8% 72 622 96 717 516 421 188 233 3.0m 244% 3.4x 73,228%
Total 674 434 64.4% 240 7,541 15,071 22,612 76,495 61,426 36,318 25,106 11.3m 167% 2.7x 132%
(i) The vintages table excludes 22
cartel cases and is net of deductions for bad debt provisions (excluding ECL
provisions).
(ii) Ongoing cases includes partial
realisations.
(iii) The large case completion in FY21 is
presented net of discounting.
Strategy, Team and Outlook
Effective 1 October 2021, the UK Government ended its temporary extraordinary
suppression of the UK insolvency market. We now expect the market to grow over
the foreseeable period, as the economy realigns across many industry segments.
The turnaround, restructuring and insolvency profession plays a critical role
in resource reallocation following major economic turmoil events, such as
Covid-19. Our KPIs in September and October, in terms of new case enquiries
and new case investments, are already showing a strong recovery in activity
levels, driven by the rise in Creditor Voluntary Liquidations recovering to
pre-pandemic levels over each of the last four months. In the expectation of
sustained higher operational activity, we are therefore increasing the number
of new in-house lawyers, which is the key factor in increasing the business
capacity of the Company. Two new experienced insolvency litigators are due to
commence work in the new year. Further decisions will be made as the KPI data
develops.
Dividend
An interim dividend of 0.39p per share is proposed for the six months to 30
September 2021 (H1 FY21: 1.17p per share)
Steven Cooklin
Chief Executive Officer
Chief Financial Officer's Review
I am pleased to give my review of the Company's unaudited results for the half
year to 30 September 2021.
Trading summary
6 months 6 months 6 months
ended 30 September ended 30 ended 31
2021 September March
2020 2021
Unaudited Unaudited Unaudited
£'000s £'000s £'000s
Revenue 10,184 18,964 8,868
Cost of sales (4,763) (9,483) (4,937)
Gross profit 5,421 9,481 3,931
Administrative expenses (2,262) (2,930) (3,084)
Operating profit 3,159 6,551 847
KPI's
Gross profit margin % 53% 50% 44%
Operating profit margin % 31% 35% 10%
New cases (#) 78 110 88
Completed cases (#) 64 52 83
Live cases at period end (#) 262 237 245
The financial results for the 6 months to 30 September 2021 (H1 FY22)
represent a decline from the same period last year (H1 FY21) at which point
the business remained largely unaffected by the Temporary Measures introduced
through the Corporate Insolvency and Governance Act 2020. However, the results
to 30 September 2021 demonstrate a strong recovery from the six months to 31
March 2021 (H2 FY21) with gross profit increasing 38% from £3.9m to £5.4m
and operating profit rebounding from £0.9m to £3.2m, an increase of 273%.
Revenue
6 months 6 months 6 months
ended 30 September ended 30 ended 31
2021 September March
2020 2021
Unaudited Unaudited Unaudited
£'000s £'000s £'000s
Realised revenue 7,693 13,523 10,903
Unrealised revenue 2,491 5,441 (2,036)
Revenue 10,184 18,964 8,868
Mix %
Realised revenue 76% 71% 123%
Unrealised revenue 24% 29% (23)%
Revenue decreased from £19.0m in H1 FY21 to £10.2m in the six months to 30
September 2021 (H1 FY22) which was primarily driven by the decrease in
realised revenue.
The decline in realised revenue from £13.5m to £7.7m in H1 FY22 was as a
result of the prior period benefiting from a large case completion with
discounted proceeds of £9.3m. During H1 FY22 there have been no such
significant one-off case completions, however, case completions grew by 23% to
64 in H1 FY22 (H1 FY21: 52) and on an adjusted basis excluding the large case
completion, realised revenue increased from £4.2m to £7.7m, an increase of
67%.
Unrealised revenue declined to £2.5m compared with £5.4m in H1 FY21 due to
the lower level of new cases signed during H1 FY22: 78 (H1 FY21: 110), this
decline in new cases has previously been signalled by Management and has been
caused by the Government's unprecedented support to the economy significantly
reducing the number of corporate insolvencies. However, unrealised income has
grown by 223% compared with the 6 months to 31 March 2021 (H2 FY21).
Gross profit
6 months 6 months 6 months
ended 30 September ended 30 ended 31
2021 September March
2020 2021
Unaudited Unaudited Unaudited
£'000s £'000s £'000s
Realised gross profit 2,930 4,040 5,967
Unrealised gross profit 2,491 5,441 (2,036)
Gross profit 5,421 9,481 3,931
Margin %
Realised gross profit 38% 30% 55%
Unrealised gross profit 100% 100% 100%
Gross profit margin % 53% 50% 44%
Gross profit declined from £9.5m in H1 FY21 to £5.4m in H1 FY22 due the fall
in new case volumes and a fall in change in fair value on existing cases.
New case additions fell from 110 in H1 FY21 to 78 in H1 FY22 whilst the
average unrealised revenue recognised on new cases during the period remained
broadly stable at c.£70k which has driven a fall in new case additions from
£8.2m to £5.6m, a 31% decline. This decline is largely due to the Temporary
Measures introduced by the Government which has artificially suppressed the
volume of insolvencies during the last 12 months.
Change in fair value on existing cases declined from a net £1.2m fair value
uplift in H1 FY21 to a net fair value reduction of £0.4m in H1 FY22. We have
continued to carefully monitor case valuations during the period and in
reference to the wider economic conditions have adjusted case valuations where
appropriate.
Gross margin increased to 53% which reflects an increase in realised gross
profit margin to 38% (H1 FY21: 30%). The prior year comparative includes a
significant case completion which was settled with a realised gross margin of
30% during H1 FY21.
Administrative expenses
Administrative expenses decreased by 23% to £2.3m in the six months to 30
September 2021 (H1 FY21: £2.9m) which is principally attributable to the
decrease in bad debt charge.
The decrease in bad debt charge from £0.8m in H1 FY21 to £(36)k in H1 FY22
is due to the cautious approach adopted to provisioning by Management during
FY21 as a result of the wider economic conditions. During H1 FY21 Management
increased specific provisions against a small number of cases and reviewed and
increased the expected credit loss provision. As a result of the approach
adopted during FY21 there have been no significant write-off's during H1 FY22
combined with the writeback of a previously impaired receivable which settled
in full during H1 FY22.
There were also savings in Professional fees and Marketing expenses in H1 FY22
compared to prior periods.
Operating profit (Earnings Before Interest and Tax)
Operating profit before non-recurring items decreased by 52% to £3.2m in the
first half (H1 FY21: £6.5m) with an operating profit margin of 31% (H1 FY21:
35%).
Finance costs
Finance costs increased to £554k in H1 FY22 (H1 FY21: £269k) due to the
write off of the HSBC setup costs totalling £259k associated with the
original HSBC loan facility agreed in 2018. Loan arrangement costs of £287k
were incurred in respect of the new facility agreed and announced in June 2021
which have been capitalised in the balance sheet and will be amortised over
the three year term of the facility.
Profit after tax
Profit after tax decreased by 59% from £5.2m to £2.1m. The post-tax margin
is 21% in H1 FY22 (H1 FY21: 27%)
Dividend
An interim dividend of 0.39p per share is proposed for the six months to 30
September 2021 (H1 FY21: 1.17p per share)
Investment in cases
The Company was managing 262 live case investments (including Cartel cases) as
at 30 September 2021, compared to 237 live cases (including Cartel cases) as
at 30 September 2020, an 11% increase. The total investment in cases amounted
to £41.4m at 30 September 2021, a growth of 5% from the value as at 30
September 2020 of £39.3m (31 March 2021 value of £37.5m).
Investments in cases are shown at fair value, based on the Company's estimate
of the likely future realised gross profit. Management, following discussion
with the in-house legal team, on a case by case basis, amend the valuations of
cases each month to accurately reflect management's view of fair value. In
addition, at the interim and year end 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, these are fully
expensed to the Statement of Comprehensive income.
Trade & other receivables.
Trade and other receivables have increased by 47% to £22.0m at 30 September
2021 compared with £15.0m at 30 September 2020. As of the 1(st) October 2021,
the government restrictions have now largely been relaxed, which has allowed
the business to begin enforcing sale and possession orders obtained during the
pandemic to recover receivables on a number of our cases.
Operational cashflows
6 months 6 months 6 months
ended 30 September ended 30 ended 31
2021 September March
2020 2021
Unaudited Unaudited Unaudited
£'000s £'000s £'000s
Gross cash receipts 4,263 4,157 8,046
IP share & legal costs on completed cases (1,507) (2,327) (3,049)
Cashflows from completed cases 2,756 1,830 4,997
Overheads (2,399) (1,858) (2,182)
Net cash generated / (used) in operations before investment in cases and 357 (28) 2,815
corporation tax
Corporation tax (395) (966) (957)
Investment in cases (2,850) (3,343) (2,544)
Net cash used in operations (2,888) (4,337) (686)
We continue to utilise our cash resources to invest in new and existing cases,
with a cash investment of £2.9m in the six-month period, hence generating a
cash outflow at the operating level. However, before investment in cases and
corporation tax the Company was cash generative in the six months to 30
September 2021.
Debt financing
The Company has drawn down £11.0m of its £25.0m HSBC loan facility as at 30
September 2021 and continues to deploy loan capital to finance investment in
cases. The Company held cash reserves of £0.7m as at 30(th) September 2021
and had £14.0m available of the £25.0m HSBC facility. This facility and cash
reserves will be used to fund the expected growth in case volumes following
the relaxation of the Temporary Measures on 1 October 2021. The Company has
complied with all of its financial covenants during the period. The Company
drew down £3.0m of the available facility during H1 FY22 and a further
£1.25m subsequent to the period end.
Mark Tavener
Chief Financial Officer
Unaudited Statement of Comprehensive Income for the period ended 30 September
2021
6 months ended 30 September 2021 6 months ended 30 September 2020 Year
ended 31 March
2021
Unaudited Unaudited Audited
Note £'000s £'000s £'000s
Revenue 3 10,184 18,964 27,832
Cost of sales (4,763) (9,483) (14,420)
Gross profit 5,421 9,481 13,412
Administrative expenses 4 (2,262) (2,930) (6,014)
Operating profit 4 3,159 6,551 7,398
Finance income 5 - 76 50
Finance expense 6 (554) (269) (457)
Profit before tax 2,605 6,358 6,991
Taxation (497) (1,208) (1,291)
Profit and total comprehensive income for the year attributable to the equity 2,108 5,150 5,700
owners of the Company
Earnings per share attributable to equity owners of the Company
Basic (£ per share) 12 £0.05 £0.12 £0.13
Diluted (£ per share) 12 £0.05 £0.12 £0.13
The above results were derived from continuing operations.
Unaudited Statement of Financial Position at 30 September 2021
6 months ended 30 September 2021 6 months ended 30 September 2020 Year ended 31 March 2021
Unaudited Unaudited Audited
Note £'000s £'000s £'000s
Non-current assets
Investments 7 7,136 7,136 7,136
Intangible assets 25 46 35
Trade and other receivables 10 12,246 9,871 10,660
Deferred tax asset 205 118 121
Right-of-use asset - - 257
Total non-current assets 19,612 17,171 18,209
Current assets
Investments 7 34,299 32,169 30,372
Trade and other receivables 10 9,756 5,123 7,688
Right-of-use asset 172 161 -
Cash and cash equivalents 717 2,593 1,144
Total current assets 44,944 40,046 39,204
Total assets 64,556 57,217 57,413
EQUITY AND LIABILITIES
Equity
Share capital 174 174 174
Share premium 4 4 4
Share based payment reserve 487 207 349
Special reserve 179 905 178
Retained earnings 40,330 37,456 38,223
Total equity attributable to the equity owners of the company 41,174 38,746 38,928
Non-current liabilities
Trade and other payables 11 8,836 6,520 6,602
Borrowings 10,737 7,612 7,698
Lease liability - - 96
Total non-current liabilities 19,573 14.132 14,396
Current liabilities
Trade and other payables 11 3,169 2,920 3,565
Current tax liabilities 449 1,265 335
Lease liability 191 154 189
Total current liabilities 3,809 4,339 4,089
Total liabilities 23,382 18,471 18,485
Total equity and liabilities 64,556 57,217 57,413
The interim statements were approved by the Board of Directors and authorised
for issue on 11 November 2021.
Unaudited Statement of Changes in Equity for the period ended 30 September
2021
Attributable to equity owners of the Company
Share Capital Share Premium Share based payment reserve Special Non-distributable reserve Retained Earnings Total Equity
£000s £000s £000s £000s £000s £000s
As at 1 April 2020 (unaudited) 174 4 226 905 33,613 34,922
Comprehensive Income
Profit and total comprehensive income - - - - 5,150 5,150
Transactions with owners
Share based payment expense - - 37 - - 37
Deferred tax on share-based payments - - (56) - - (56)
Dividends - - - - (1,307) (1,307)
As at 30 September 2020 (unaudited) 174 4 207 905 37,456 38,746
As at 1 October 2020 (unaudited) 174 4 207 905 37,456 38,746
Comprehensive Income
Profit and total comprehensive income - - - - 550 550
Transactions with owners
Share based payment expense - - 86 - - 86
Deferred tax on share-based payments - - 56 - - 56
Transfer in relation to creditors paid - - - (727) 727 -
Dividends - - - - (510) (510)
As at 31 March 2021 (audited) 174 4 349 178 38,223 38,928
As at 1 April 2021 (unaudited) 174 4 349 178 38,223 38,928
Comprehensive Income
Profit and total comprehensive income - - - - 2,108 2,108
Transactions with owners
Share based payment expense - - 63 - - 63
Deferred tax on share-based payments - - 75 - - 75
Transfer in relation to creditors paid - - - 1 (1) -
Dividends - - - - - -
As at 30 September 2021 (unaudited) 174 4 487 179 40,330 41,174
Unaudited Statement of Cashflows for the period ended 30 September 2021
6 months ended 30 September 2021 6 months ended 30 September 2020 Year ended 31 March 2021
Unaudited Unaudited Audited
Note £'000s £'000s £'000s
Profit before tax 2,605 6,358 6,991
Adjustments for other operating items:
Other receivables - - 581
Adjustments for non-cash items 9 (364) (3,252) 1,477
Operating cashflows before movements in working capital 2,241 3,106 9,049
Changes in working capital:
Net increase in trade and other receivables (3,654) (8,997) (12,952)
Net increase in trade and other payables 1,770 5,863 6,690
Net cash generated / (used in) operations before corporation tax and 357 (28) 2,787
investment in cases
Corporation tax paid (395) (966) (1,923)
Investment in cases 7 (2,850) (3,343) (5,887)
Net cash used in operating activities (2,888) (4,337) (5,023)
Cash flows from investing activities
Purchase of intangible assets - - -
Finance income received - 6 6
Net cash generated / (used) in investing activities - 6 6
Cash flows from financing activities
Proceeds from borrowings 3,000 - -
Dividends paid - (1,307) (1,817)
Interest paid (192) (52) (240)
Loan arrangement fees (250) - -
Lease repayment (97) (88) (153)
Net cash generated/ (used) from financing activities 2,461 (1,447) (2,210)
Net decrease in cash and cash equivalents (427) (5,778) (7,227)
Cash and cash equivalents at the beginning of the year 1,144 8,371 8,371
Cash and cash equivalents at the end of the year 717 2,593 1,144
Unaudited notes to the financial statements for the period ended 30 September
2021
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 Accounting policies
(a) Basis of preparation
The half-yearly financial statements do not constitute statutory accounts
within the meaning of Section 434 of the Companies Act 2006.
The interim condensed financial statements for the six months ended 30
September 2021 have been prepared in accordance with IAS 34 Interim Financial
Reporting. The interim condensed consolidated financial statements do not
include all the information and disclosures required in the annual financial
statements, and should be read in conjunction with the Company's annual
financial statements as at 31 March 2021.
The statutory accounts for the year ended 31 March 2021 have been filed with
the Registrar of Companies at Companies House. The auditor's report on the
statutory accounts for the year ended 31 March 2021 was unqualified and did
not contain any statements under Section 498 (2) or (3) of the Companies Act
2006.
The published financial statements for the year ended 31 March 2021 were
prepared pursuant to Regulation (EC) No 1606/2002 as it applies in the
European Union.
(b) Going concern
After making appropriate enquires, the Directors of the Company have a
reasonable expectation that the Company has adequate resources to continue in
operational existence for the foreseeable future and for at least one year
from the date of the signed financial statements. For these reasons, they
continue to adopt the going concern basis in preparing the Company's interim
financial statements.
Furthermore, the Board has continued to monitor the impact of Covid-19 on the
business and the market and noted the withdrawal of temporary Government
support and we continue to keep this matter under review. As our business
operates in the insolvency market, any economic downturn is likely to lead to
further insolvencies and related litigation cases.
As evidence of this market view our trading for the six months to 30 September
2021 continues to be profitable. The Directors are of the opinion that the
Company has adequate financial resources to continue in operation and meet its
liabilities as they fall due, for the foreseeable future. Hence, the Directors
believe it is appropriate to adopt the going concern basis in preparing the
financial statements.
(c) 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.
Insolvency Voluntary Arrangement ("IVA") settlements, a formal debt solution
used to pay back debts over a period of time, are recognised on a cash
received basis due to the uncertainty of amounts recoverable from creditors.
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 2.d. 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.
(d) Significant judgements and estimates
The preparation of the Company's interim financial statements under IFRS as
pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union
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 profit and 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.
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 Directors' valuation of that case each
month, as set out below.
In accordance with IFRS 9 and IFRS 13, the Company is required to fair value
open cases 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.
· On a monthly basis, full team meetings then take place to review
progress on a case-by-case basis over several hours 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, written assessment are obtained for a
sample of open case investments from external solicitors or primary counsel
working on the case on behalf of Manolete.
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 30 September 2021
there were 262 open cases, of these 202 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 60 cases make up £29.4m 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:
Judgements
(i) 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.
(ii) 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 the
judgement. These inputs are inter-related to an extent.
(iii) Excluding the large case completion in FY21, the Company does not
consider there to be any significant concentration of risk within either trade
or other receivables.
(iv) The Company accrues for future legal costs on the basis that cases will
be settled before trial which is how the vast majority of the cases completed
to date have been settled. When it becomes clear a case will progress all the
way to trial the additional costs are accrued at this point on a case-by-case
basis.
Estimates:
(i) 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 reviewed 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.
(ii) 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.
(iii) Recovery of debts is based on the Company's ability to recover assets
owned by the counterparty. Prior to case acceptance, a net worth review of the
defendant is undertaken to ensure that they own sufficient assets to support
the claim value. Cases that are settled without going to Court agree a
repayment schedule, whilst those that result in Court cases are less
predictable in terms of full recovery.
(iv) 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
£41.4m of investments disclosed in the balance sheet. However, as an
indication we note that a 10% increase/(decrease) in the fair value of our top
20 cases (including Cartel cases) would result in an increase/(decrease) in
the fair value investment of +/- £2.2m.
Recoverability of trade receivables
The Company's business model involves the provision of services for credit.
The Company normally receives payment for services it has provided once a
claim has been pursued and settled or decided in Court. The average time from
taking on a case to settlement is c.12 months although this can vary
significantly from case to case. As part of the settlement agreement, the
timing of payment of the award by the defendant to the Company is agreed, this
is a legally binding document. Settlements can be received in full on the day
of settlement or (at Management's discretion) paid in instalments over a
defined settlement plan.
As such, Management applies a number of estimates and judgements in the
recording of trade receivables, for example: in relation to default judgements
Management assess the likely recoverability and do not necessarily recognise
the full judgement; Management also assessed recoverability of receivables in
light of the Covid pandemic and its impact on certain debtors to manage
repayments; which further informed our expected credit loss.
The Company applies the simplified approach in providing for expected credit
losses under IFRS 9 which allows the use of the lifetime expected credit loss
provision for all trade receivables. In measuring the expected credit losses,
trade receivables have been stratified by settlement type and days past due.
Expected lifetime expected credit loss rates are based on the payment profiles
of sales from January 2019 (post IPO). The Company attempts to assess the
probability of credit losses but seeks to mitigate its credit risk by
undertaking rigorous net worth checks before taking on a case. Occasionally,
credit defaults do sometimes occur when counterparties default on an agreed
settlement, payable by instalments.
There is a concentration risk in relation to the trade receivable of £9.6m in
relation to the 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.
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 require
3 Segmental reporting
During the six months ended 30 September 2021, 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. Revenue 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 includes 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.
6 months ended 30 September 2021 6 months ended 30 September 2020 Year
ended 31 March
2021
Unaudited Unaudited Audited
£'000s £'000s £'000s
Net realised gains on investments in cases 7,693 13,523 24,427
Fair value movements (net of transfers to realisations) 2,491 5,441 3,405
Revenue 10,184 18,964 27,832
Arising from:
Funded cases 827 1,045 3,346
Purchased cases 9,357 17,919 24,486
Revenue 10,184 18,964 27,832
4 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:
6 months ended 30 September 2021 6 months ended 30 September 2020 Year
ended 31 March
2021
Unaudited Unaudited Audited
£'000s £'000s £'000s
Staff Costs, including pension and healthcare 1,754 1,544 3,486
costs
Bad debts including expected credit losses (36) 802 1,366
Professional fees 198 265 533
Marketing costs 111 120 168
Other costs, including office costs 235 199 461
Total administrative expenses 2,262 2,930 6,014
5 Finance income
6 months ended 30 September 2021 6 months ended 30 September 2020 Year
ended 31 March
2021
Unaudited Unaudited Audited
£'000s £'000s £'000s
Bank interest - 6 6
Other loan interest - 70 44
Total finance income - 76 50
6 Finance expense
6 months ended 30 September 2021 6 months ended 30 September 2020 Year
ended 31 March
2021
Unaudited Unaudited Audited
£'000s £'000s £'000s
Lease liability interest 4 33 48
Other loan interest 220 114 218
Loan arrangement fees - write off 259 - -
Bank loan charges 71 122 191
Total finance costs 554 269 457
7 Investments
Investments represent the expected gross profit generated on the Company's
ongoing portfolio of cases on settlement. This incorporates the expected
settlement less the costs incurred to initially purchase the claim, costs
incurred to date, expected future costs, and the share of net gain due to the
Insolvency Practitioner.
6 months ended 30 September 2021 6 months ended 30 September 2020 Year
ended 31 March
2021
Unaudited Unaudited Audited
£'000s £'000s £'000s
Investments brought forward 37,508 32,415 32,415
Additions 2,850 3,343 5,887
Realisations (1,414) (1,894) (4,199)
Fair value movement (net of transfers to realisations) 2,491 5,441 3,405
Total investments 41,435 39,305 37,508
Current 34,299 32,169 30,372
Non-current 7,136 7,136 7,136
Total investments 41,435 39,305 37,508
8 Analysis of fair value movements
6 months ended 30 September 2021 6 months ended 30 September 2020 Year
ended 31 March
2021
Unaudited Unaudited Audited
£'000s £'000s £'000s
New case investments 5,622 8,154 12,398
Increase in existing case fair value 892 2,158 1,865
Decrease in existing case fair value (1,244) (921) (1,356)
Case completions (2,779) (3,950) (9,502)
Cartel cases - - -
Fair value movement (net of transfers to realisations) 2,491 5,441 3,405
9 Non-cash adjustments to cashflows generated from operations
6 months ended 30 September 2021 6 months ended 30 September 2020 Year
ended 31 March
2021
Unaudited Unaudited Audited
£'000s £'000s £'000s
Fair value movements (2,491) (5,441) (3,405)
Legal costs on realised cases 1,414 1,894 4,199
Finance expense 554 269 457
Depreciation & amortisation 96 73 161
Share based payments 63 36 122
Finance income - (76) (50)
Non-cash change in lease liability - (7) (7)
Non-cash adjustments to cashflows generated from operations (364) (3,252) 1,477
10 Trade and other receivables
6 months ended 30 September 2021 6 months ended 30 September 2020 Year
ended 31 March
2021
Unaudited Unaudited Audited
£'000s £'000s £'000s
Amounts falling due in more than one year:
Trade 12,246 9,871 10,660
receivables
Amounts falling due within one year:
Gross trade receivables 12,086 6,245 10,001
Less:
Specific provisions (1,841) (1,245) (1,919)
Allowance for expected credit loss (655) (593) (560)
Trade 9,590 4,407 7,522
receivables
Other - 565 -
receivables
Prepayments 166 151 166
Trade and other receivables 9,756 5,123 7,688
11 Trade and other payables
6 months ended 30 September 2021 6 months ended 30 September 2020 Year
ended 31 March
2021
Unaudited Unaudited Audited
£'000s £'000s £'000s
Amounts falling due in excess of one year:
Accruals - direct costs 8,836 6,520 6,602
Amounts falling due within one year:
Trade payables 981 396 713
Accruals - direct costs 1,617 2,063 2,010
Other creditors 471 373 753
Other taxation and social security 100 88 89
Total trade and other payables due in one year 3,169 2,920 3,565
12 Earnings per share
The Basic Earnings Per Share is calculated by dividing the profit attributable
to ordinary equity holders by the weighted average number of ordinary shares
outstanding during the year. Diluted Earnings Per Share is calculated by
dividing the profit after tax by the weighted average number of shares in
issue during the year, adjusted for potentially dilutive share options. The
following reflects the income and share data used in the earnings per share
calculation:
6 months ended 30 September 2021 6 months ended 30 September 2020 Year
ended 31 March
2021
Unaudited Unaudited Audited
£'000s £'000s £'000s
Profit and total comprehensive income for the period attributable to the 2,108 5,150 5,700
equity owners of the Company
Weighted average number of ordinary shares 43,571,425 43,571,425 43,571,425
Basic Earnings Per Share £0.05 £0.12 £0.13
Diluted weighted average number of ordinary shares 44,666,322 44,341,581 44,543,718
Diluted Earnings Per Share £0.05 £0.12 £0.13
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