REG - Manolete Partners - Half Year Results
10/11/2022 07:00
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RNS Number : 9043F Manolete Partners PLC 10 November 2022
10 November 2022
MANOLETE PARTNERS PLC
("Manolete" or the "Company")
Half-year results for the six months ended 30 September 2022
Manolete (AIM:MANO), the leading UK-listed insolvency litigation financing
company, today announces its unaudited results for the six months ended 30
September 2022.
Steven Cooklin, Chief Executive Officer, commented:
"As previously reported, these results have been impacted by an initial
adverse judgment on one of our larger cases (though we are pleased that the
Court of Appeal has agreed to review that decision) and a diligent review of
our portfolio of 264 ongoing cases in the light of the deteriorating UK
economic environment over the last six-month trading period. Both of those
elements are non-cash movements in our financial statements. In contrast, we
have reported a tremendous six months for gross cash receipts from our
completed cases of £15.7m, (which included cash collection from one of our
larger case completion of £9.5m) which is 269% higher than the comparable
period last year (H1 FY22: £4.3m).
"Cash generation from completed cases continued its strong trend into the
first month of H2 FY23 with a further £2.4m of gross cash received from
previously completed cases (£2.1m October 2021). Furthermore, over £2.5m of
new case settlements were recorded in October 2022, with generally very short
payment periods, which will fuel further excellent cash returns.
"Realised revenues from completed cases grew 77% to £13.6m (H1 FY22: £7.7m)
from 95 completed cases. On average, Manolete was completing almost 4 cases
every week of this six-month interim trading period.
"New cases enquiries for the six months reported a strong increase of 34% over
the comparable period for the previous year as the UK insolvency regime
started to return to normal operations after the temporary legislation to
suppress insolvencies was fully lifted by the UK Government from 1 April 2022.
"We have commenced a pilot with Barclays Bank aimed at recovering
misappropriated loans under the UK Government's COVID-19 related Bounce Back
Loan ("BBL") scheme. The initial recoveries on the pilot are very encouraging
and we are hopeful that this will lead to wider adoption of our solution
across the UK banking sector. We are in active but early discussions with the
leading BBL providers."
Financial highlights:
· Gross cash generated from completed cases increased 269% to
£15.7m (H1 FY22: £4.3m);
· Cash generated from completed cases exceeded the cash costs of
operating the business and was sufficient to fund investment in new cases, net
cash generated in operations totalled £1.9m in H1 FY23 (£2.9m cash used in
operations, H1 FY22). ;
· Total revenues decreased by 46% to £5.5m from H2 FY22 (£10.3m)
and were 46% below H1 FY22 (£10.2m).
o H1 FY23 is affected by a write down of a large investment in unrealised
revenue due to an adverse judgement which the Company has recently been given
permission to appeal;
o Realised revenue increased from £7.7m to £13.6m in H1 FY23, an increase
of 77%.
· Gross loss reported of £2.2m (H1 FY22: gross profit of £5.4m)
o The decline compared to H1 FY22 was entirely due to reduced unrealised
profits reflecting the adverse decision as mentioned in the Company's recent
trading statement as well as a more cautious approach on our current portfolio
of live cases reflecting the deterioration in the UK economy since the last
year end;
o Realised gross profit increased to £5.9m H1 FY23 (H1 FY22: £2.9m), an
increase of 101% driven by 95 case completions.
· An EBIT loss of £5.3m was recorded in comparison to a profit of
£3.2m for H1 FY22;
· Loss after tax was £4.4m compared to a profit after tax of
£2.1m for H1 FY22;
· Net assets of £37.8m (H1 FY22: £41.2m). Net Debt was £9.4m
consisting of borrowings of £9.8m, offset by cash balances of £0.4m as at 30
September 2022 (H1 FY22: £10.3m consisting of a drawn down loan of £11.0m,
offset by cash balances of £0.7m);
· £15m of the £25m HSBC Revolving Credit Facility remains
available for utilisation, as at 30 September 2022;
· Basic earnings per share declined to negative 10.2 pence (H1
FY22: positive 4.8 pence); and
· No Interim dividend is proposed (H1 FY22: 0.39p).
Operational and market highlights:
· Ongoing delivery of realised returns: 95 case realisations in H1
FY23 representing a 48% increase (64 case realisations in H1 FY22), generating
gross settlement proceeds of £18.3m (H1 FY22: £7.9m), over an average
duration of 14.9 months
· Average money multiple (gross proceeds less the Insolvent
Estate's share of the net returns, divided by the sum of the upfront payment
to the Insolvent Estate and total legal costs and other expenses of the claim)
of 2.2 times for the 95 cases completed in H1 FY23 (H1 FY22 2.7 times);
· Average case duration across the full lifetime portfolio of 596
completed cases at 13.1 months;
· New case investments increased by 6% to 83 (H1 FY22: 78) as the
effects of the withdrawal of Government support to the UK economy during the
Covid-19 pandemic started to have a positive impact on the insolvency market;
· 1% increase in live cases: 264 in process as at 30 September 2022
(262 as at 30 September 2021), which is mainly due to the high case completion
rate;
· 66% of the Company's 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 FY19 vintage (excluding cartel cases). 100% of all
other case vintages have been completed;
o New case enquiries of 341 were 34% higher in H1 FY23 (H1 FY22: 255) and
were 20% higher than the 285 received in H2 FY22.
· The Cartel cases continue to progress, a £1.0m uplift to their
fair value has been recorded in this interim period following ongoing work
including the issuance of these claims. The carrying value will be re-assessed
at year end.
· Commenced BBL pilot with Barclays Bank covering 102 potentially
unlawful BBL cases. Early results are impressive, and we are engaging with the
other main BBL lenders. While there can be no guarantee of further cases from
these sources, we believe that the recovery data from the pilot will be
instructive as to how the Banks and the UK Government can maximise recoveries
from the minority of companies that abused the various Covid financial support
schemes.
For further information, please contact:
Manolete Partners via Instinctif Partners
Steven Cooklin (Chief Executive Officer)
Peel Hunt (NOMAD and Sole Broker) +44 (0)20 7418 8900
Paul Shackleton
Instinctif Partners (Financial PR) +44 (0)207 457 2020
Tim Linacre
Victoria Hayns
Chief Executive Officer's Statement
Introduction
I am pleased to present our unaudited statements for the half year to 30
September 2022.
Manolete is the leading UK quoted company in the high growth 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 2022 reflect the operations of the Company during a
period of time when the UK insolvency market is recovering from being
artificially suppressed by the extraordinary UK Government action initiated in
June 2020 as well as a generally challenging economic environment.
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
finally ended, effective from 1 April 2022 as did a number of other business
support schemes, including furlough.
Despite these unprecedented restrictions, Management are satisfied with the
performance of the Company, particularly in terms of case completions, which
were 48% higher than the comparable period, and in line with the Board's
expectations. Gross cash generation from completed cases was also very strong
with £15.7m received, this is 269% higher than the comparable period last
year.
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
new case enquiries are now showing strong signs of recovery: 34% higher for
the first six months of this year compared to the first six months of the
previous year and 20% higher than the immediately preceding six months.
Vintages Table
This table highlights some of the key features of Manolete's model:
1. Consistently high IRRs across 596 completed cases.
2. Fast case completions, at an average of 13.1 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.
3. Only one case remains open from the FY17 vintage, none from the
FY18 vintage and two cases from the FY19 vintage. All earlier cases are fully
completed.
Case Vintages as at 30 September 2022
31 Dec 2022
Case No. of No. % No Open case investments Closed case investments Total Total Total IP Manolete Duration completed cases ROI MoM IRR
investments
completed
completion
outstanding
invested
recovered
gain
share
gain
Vintage No No % total No £'000 £'000 £'000 £'000 £'000 £'000 £'000 Months % % %
2010 3 3 100% 0 0 52 52 28 (24) 10 (35) 7.0m (67%) .3x 0%
2011 0 0 - 0 0 0 0 0 0 0 0 0.0m 0% .0x 0%
2012 8 8 100% 0 0 763 763 2,524 1,761 580 1,181 18.0m 155% 2.5x 258%
2013 10 10 100% 0 0 174 174 780 606 316 290 7.1m 166% 2.7x 147%
2014 42 42 100% 0 0 594 594 3,884 3,290 2,427 863 10.0m 145% 2.5x 455%
2015 39 39 100% 0 0 1,404 1,404 7,029 5,625 3,290 2,335 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 186%
2017 31 30 97% 1 339 1,103 1,442 4,269 3,165 1,905 1,260 12.2m 114% 2.1x 554%
2018 29 29 100% 0 0 3,941 3,941 23,809 19,868 13,552 6,316 16.9m 160% 2.6x 71%
2019 59 57 97% 2 109 2,529 2,638 13,969 11,440 6,745 4,695 16.4m 186% 2.9x 105%
2020 141 121 86% 20 1,912 4,916 6,828 14,833 9,917 5,850 4,066 14.4m 83% 1.8x 134%
2021 198 138 70% 60 3,287 4,100 7,387 15,830 11,730 6,024 5,705 11.0m 139% 2.4x 203%
2022 159 73 46% 86 1,325 1,191 2,516 4,911 3,720 1,580 2,139 7.2m 180% 2.8x 394%
2023 83 10 12% 73 183 39 222 404 366 183 184 3.3m 477% 5.8x 712272%*
Total (exc. Cartel cases) 838 596 71.1% 242 7,154 22,742 29,896 101,663 78,920 46,625 32,292 13.1m 142% 2.4x 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.
*based on 10 completed cases up to 30th September
Check to pivot & MDB 838 596 71.1% 242 7,154 22,742 29,896 101,663 78,920 46,625 32,295
Difference - - - - - - - - - - 3
Check to MDB 183
Difference (32,055)
Strategy, Team and Outlook
From 1 April 2022, the UK Government ended its temporary extraordinary
suppression of the UK insolvency market. The number of UK insolvencies has now
exceeded the pre-pandemic levels for many months now. We expect the market to
grow over the coming months , 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 and exceptional rises in inflation and interest
rates. Working closely with key Government and major financial institutions we
continue to develop the Bounce Back Loan recovery opportunity. That is already
materially adding to new case opportunities in the second half of the current
financial year. In the expectation of sustained higher operational activity,
we have increased the number of new in-house lawyers, which is the key factor
in increasing the business capacity of the Company. Further decisions will be
made as the KPI data develops.
Dividend
No interim dividend is proposed for the six months to 30 September 2022 due to
the EBIT loss recorded in this 6-month period.
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 2022.
Trading summary
6 months 6 months 6 months
ended 30 September ended 30 ended 31
2022 September March
2021 2022
Unaudited Unaudited Unaudited
£'000s £'000s £'000s
Revenue 5,514 10,184 10,259
Cost of sales (7,701) (4,763) (5,299)
Gross (loss)/profit (2,187) 5,421 4,960
Administrative expenses (3,071) (2,262) (2,815)
Operating (loss)/profit (5,258) 3,159 2,145
KPI's
Gross profit margin % (40)% 53% 48%
Operating profit margin % (95)% 31% 21%
New cases (#) 83 78 81
Completed cases (#) 95 64 75
Live cases at period end (#) 264 262 272
The financial results for the 6 months to 30 September 2022 (H1 FY23) report
an Operating loss and represent a decline from the same period last year (H1
FY22). This is due to a negative movement in the 'fair values' of open cases
given the wider economic environment recorded in unrealised revenue, as well
as a significant single case adverse finding as mentioned in the Company
trading statement, rather than the performance of the underlying business. The
reduction in fair values reflects a difficult economic environment being
reported by the legal team which has required previous expectations of case
settlements to be cautiously downgraded.
Operationally, the business performed strongly and completed 95 cases in the 6
month period to 30 September 2022 (64 cases, H1 FY22) and signed 83 new cases
(78 new cases, H1 FY22) and continues to realise increasing cash proceeds from
completed cases.
Revenue
6 months 6 months 6 months
ended 30 September ended 30 ended 31
2022 September March
2021 2022
Unaudited Unaudited Unaudited
£'000s £'000s £'000s
Realised revenue 13,598 7,693 7,550
Unrealised revenue (8,084) 2,491 2,709
Revenue 5,514 10,184 10,259
Mix %
Realised revenue 247% 76% 74%
Unrealised revenue (147%) 24% 26%
Revenue decreased from £10.2m in H1 FY22 to £5.5m in H1 FY23 which was
driven by the decrease in unrealised revenue. We look at each separately:
Realised revenue increased from £7.7m to £13.6m in H1 FY23, an increase of
76.8%. This was a result of a large case being settled early in the financial
year (Manolete share of revenue of £4.9m) as well as an increase in the
number and value of case completions in general. Case completions grew by 48%
to 95 cases in H1 FY23 (H1 FY22: 64 cases).
Unrealised revenue declined to £(8.1)m H1 FY23 compared with £2.5m in H1
FY22 due to several factors which can be summarised as follows:
· a high level of case completions which are removed from
Investments on the balance sheet via unrealised revenue, £(7.4)m (£(2.8)m H1
FY22);
· a lower level of new case additions in terms of value, +£3.2m
(+£5.6m H1 FY22); and
· an increased level of write-downs of existing live cases £(5.2)m
which includes a single case fair value write down of £(2.3)m following an
adverse decision at trial, as previously announced in the trading update of
9(th) September 2022; (£(1.2)m H1 FY22).
An adverse judgement at trial on a single large case resulted in a write down
in fair value of that case by £(2.3)m, as previously announced. This case
remains an open case (and hence valuation movements are booked via unrealised
revenue) as Manolete has been awarded permission to appeal. Unrealised revenue
is also impacted by the value of completions (which are a negative posting to
Unrealised revenue as they are removed from Investments in the balance sheet).
A breakdown of the movement in Unrealised revenue is shown in Note 7 to the
Interim report.
Gross (loss)/profit
6 months 6 months 6 months
ended 30 September ended 30 ended 31
2022 September March
2021 2022
Unaudited Unaudited Unaudited
£'000s £'000s £'000s
Realised gross profit 5,897 2,930 2,251
Unrealised gross profit (8,084) 2,491 2,709
Gross profit (2,187) 5,421 4,960
Margin %
Realised gross profit 43% 38% 30%
Unrealised gross profit 100% 100% 100%
Gross profit margin % (40)% 53% 48%
Gross profit declined from £5.4m in H1 FY22 to a gross loss of £(2.2)m in H1
FY23, primarily due to the reduction in the fair value of existing cases. Once
again, we should review realised and unrealised gross profit separately.
Realised gross profit increased to £5.9m H1 FY23 (£2.9m H1 FY22), an
increase of 101% driven by 95 case completions. Realised gross profit margin
increased to 43% from 38% H1 FY22.
Unrealised gross loss of £(8.1)m H1 FY23 is as previously discussed under
revenue above. The unrealised gross loss results from a high level of case
completions, a low value of new case additions, and a reduction in the fair
value of live cases.
Administrative expenses
Administrative expenses increased by 36% to £3.1m in the six months to 30
September 2022 (H1 FY22: £2.3m) which is principally attributable to an
increase in the bad debt charge and a resumption of marketing activities
following Covid-19 restrictions being lifted.
The increase in the bad debt charge from £36k credit in H1 FY22 to £576k
charge in H1 FY23 reflects a cautious approach adopted to provisioning by
Management as a result of the wider economic conditions. During H1 FY23
Management increased specific provisions against a small number of cases and
reviewed and increased the expected credit loss provision. H1 FY22 included a
writeback of a previously impaired receivable which settled in full, no such
instances have occurred during H1 FY23.
Statutory operating (loss)/profit (Earnings Before Interest and Tax)
Operating (loss)/profit decreased by 267% to £(5.3)m in H1 FY23 (H1 FY22:
£3.2m) with an operating (loss) / profit margin of (95)% (H1 FY22: 31%).
Finance costs
Finance costs decreased to £205k in H1 FY23 (H1 FY22: £554k). H1 FY22
included 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 on the balance sheet and are being
amortised over the three year term of the facility.
(Loss)/Profit after tax
(Loss)/profit after tax decreased by 211% from £2.1m to £(4.4)m. The
post-tax margin is (81)% in H1 FY23 (H1 FY22: 21%).
Dividend
No interim dividend is proposed for FY23 (FY22 interim 0.39p).
Investment in cases
The Company was managing 264 live case investments (including Cartel cases) as
at 30 September 2022, compared to 262 live cases (including Cartel cases) as
at 30 September 2021, a 1% increase. The total investment in cases amounted to
£36.2m at 30 September 2022, a decline of 13% from the value as at 30
September 2021 of £41.4m (31 March 2022 value of £45.7m).
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 remained stable at £22.3m at 30 September
2022 compared with £22.0m at 30 September 2021. This amount is net of
provision for bad debts.
Operational cashflows
6 months 6 months 6 months
ended 30 September ended 30 ended 31
2022 September March
2021 2022
Unaudited Unaudited Unaudited
£'000s £'000s £'000s
Gross cash receipts 15,716 4,263 11,286
IP share & legal costs on completed cases (8,084) (1,507) (5,125)
Cashflows from completed cases 7,632 2,756 6,161
Overheads (2,584) (2,399) (2,100)
Net cash generated from operations before investment in cases and corporation 5,048 357 4,061
tax
Corporation tax (354) (395) (438)
Investment in cases (2,803) (2,850) (3,620)
Net cash generated from / (used) in operations 1,891 (2,888) 3
Gross cash receipts of £15.7m in H1 FY23 (£4.3m H1 FY22) represents a
significant increase in cash generation of 269% in comparison with H1 FY22.
This is a reflection of the high number of case completions in the 6 month
period and also continued cash collection of cases completed in the prior
year.
Furthermore, cash generation was positive after payment of IP share and
external legal costs on those completed cases and after payment of overheads
of £(2.6)m.
We continue to utilise our cash resources to invest in new and existing cases,
with a cash investment of £2.8m in the six-month period entirely funded from
case cash receipts. Our significant cash receipts during H1 FY23 included an
exceptionally large receipt of £9.5m from a single case resulting in the
Company being cash generative from operations.
Debt financing
The Company has drawn down £10.0m of its £25.0m HSBC loan facility as at 30
September 2022 and continues to deploy loan capital to finance investment in
cases. During H1 FY23 the Company repaid a net £3.5m of its HSBC loan
facility. The Company held cash reserves of £0.4m as at 30(th) September 2022
and had £15.0m 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 full relaxation of the Temporary Measures on 1 April 2022.
As a consequence of the EBIT loss recorded in H1 FY23, there has been a
technical breach in one of the 30 June 2022 quarter leverage covenants for
which HSBC have signed a waiver. It is likely that a similar breach will occur
in respect of the 30 September 2022 quarter once the test date is reached and
Management are working with HSBC in order to put in place a long term
solution. Management has considered the covenant breach as part of its going
concern assessment. The Board are confident that a new covenant package will
be in place shortly and that the HSBC facility will run its full course.
Mark Tavener
Chief Financial Officer
Unaudited Statement of Comprehensive Income for the period ended 30 September
2022
6 months ended 30 September 2022 6 months ended 30 September 2021 Year
ended 31 March
2022
Unaudited Unaudited Audited
Note £'000s £'000s £'000s
Revenue 3 5,514 10,184 20,443
Cost of sales (7,701) (4,763) (10,062)
Gross (loss)/profit (2,187) 5,421 10,381
Administrative expenses 4 (3,071) (2,262) (5,077)
Operating (loss)/profit (5,258) 3,159 5,304
Finance income 2 - -
Finance expense 5 (205) (554) (796)
(Loss)/profit before tax (5,461) 2,605 4,508
Taxation 1,020 (497) (830)
(Loss)/profit and total comprehensive income for the year attributable to the (4,441) 2,108 3,678
equity owners of the Company
Earnings per share attributable to equity owners of the Company
Basic (£ per share) 11 £(0.10) £0.05 £0.08
Diluted (£ per share) 11 £(0.10) £0.05 £0.08
The above results were derived from continuing operations.
Unaudited Statement of Financial Position at 30 September 2022
Company Number: 07660874 6 months ended 30 September 2022 6 months ended 30 September 2021 Year ended 31 March 2022
Unaudited Unaudited Audited
Note £'000s £'000s £'000s
Non-current assets
Investments 6 13,198 7,136 12,198
Intangible assets 2 25 13
Trade and other receivables 9 11,310 11,544 11,086
Deferred tax asset 104 205 95
Right-of-use asset - 172 86
Total non-current assets 24,614 19,082 23,478
Current assets
Investments 6 22,964 34,299 33,520
Trade and other receivables 9 11,008 10,458 9,189
Corporation tax asset 979 - -
Cash and cash equivalents 359 717 2,256
Total current assets 35,310 45,474 44,965
Total assets 59,924 64,556 68,443
EQUITY AND LIABILITIES
Equity
Share capital 175 174 175
Share premium 157 4 142
Share based payment reserve 485 487 429
Special reserve 5 179 5
Retained earnings 37,027 40,330 41,468
Total equity attributable to the equity owners of the company 37,849 41,174 42,219
Non-current liabilities
Trade and other payables 10 6,624 8,326 6,853
Borrowings 9,833 10,737 13,285
Total non-current liabilities 16,457 19,063 20,138
Current liabilities
Trade and other payables 10 5,618 3,679 5,594
Current tax liabilities - 449 396
Lease liability - 191 96
Total current liabilities 5,618 4,319 6,086
Total liabilities 22,075 23,382 26,224
Total equity and liabilities 59,924 64,556 68,443
The interim statements were approved by the Board of Directors and authorised
for issue on 10 November 2022.
Unaudited Statement of Changes in Equity for the period ended 30 September
2022
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 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
Comprehensive Income
Profit and total comprehensive income - - - - 1,570 1,570
Transactions with owners
Share based payment expense - - 106 - - 106
Share based payments exercised 1 138 (138) - - 1
Deferred tax on share-based payments - - (26) - - (26)
Transfer in relation to creditors paid - - - (174) 174 -
Dividends - - - - (606) (606)
As at 31 March 2022 (audited) 175 142 429 5 41,468 42,219
Comprehensive Income
Profit and total comprehensive income - - - - (4,441) (4,441)
Transactions with owners
Share based payment expense - - 49 - - 49
Share based payments exercised - 15 - - - 15
Deferred tax on share-based payments - - 7 - - 7
Dividends - - - - - -
As at 30 September 2022 (unaudited) 175 157 485 5 37,027 37,849
Unaudited Statement of Cashflows for the period ended 30 September 2022
6 months ended 30 September 2022 6 months ended 30 September 2021 Year ended 31 March 2022
Unaudited Unaudited Audited
Note £'000s £'000s £'000s
(Loss)/profit before tax (5,461) 2,605 4,508
Adjustments for other operating items:
Adjustments for non-cash items 8 12,723 (364) (444)
Operating cashflows before movements in working capital 7,262 2,241 4,064
Changes in working capital:
Net increase in trade and other receivables (2,044) (3,654) (1,926)
Net (decrease) / increase in trade and other payables (170) 1,770 2,280
Net cash generated from operations before corporation tax and investment in 5,048 357 4,418
cases
Corporation tax paid (354) (395) (833)
Investment in cases 6 (2,803) (2,850) (6,470)
Net cash generated from / (used in) operating activities 1,891 (2,888) (2,885)
Cash flows from investing activities
Finance income received 2 - -
Net cash generated from investing activities 2 - -
Cash flows from financing activities
Proceeds from borrowings 1,000 3,000 5,500
Repayments made on borrowings (4,500) - -
Dividends paid - - (606)
Interest paid (193) (192) (703)
Loan arrangement fees - (250) -
Lease repayment (97) (97) (194)
Net cash (used in) / generated from financing activities (3,790) 2,461 3,997
Net (decrease) / increase in cash and cash equivalents (1,897) (427) 1,112
Cash and cash equivalents at the beginning of the year 2,256 1,144 1,144
Cash and cash equivalents at the end of the period 359 717 2,256
Unaudited notes to the financial statements for the period ended 30 September
2022
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 2022 have been prepared in accordance with IAS 34 Interim Financial
Reporting. The interim condensed 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 2022.
The statutory accounts for the year ended 31 March 2022 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 2022 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 in accordance with international accounting standards in conformity
with the requirements of the Companies act 2006. The published financial
statements for the year ended 31 March 2022 have been prepared in accordance
with UK-adopted International Accounting Standards (IFRS) as adopted by the UK
Endorsement Board. This change in the basis of preparation is required by UK
company Law for the purpose of financial reporting as a result of the UK's
exit from the European Union on 31 January 2020. This change does not
constitute a change in accounting policy, rather a change in framework which
is required to group the use of IFRS into company law. There is no impact on
the recognition, measurement or disclosure between the two frameworks in the
year reported.
(b) Going concern
The interim financial statements relating to the Company has been prepared on
the going concern basis.
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 interim financial statements. In reaching this
conclusion, the Directors have considered the position with respect to
covenant compliance and ongoing discussion with HSBC respect to future
covenant tests. We refer you to the 'Debt financing' paragraph within the CFO
statement. 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.
Our trading for the six months to 30 September 2022 continues to be cash
generative and 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.
IVA settlements are recognised on a cash received basis.
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 in accordance
with 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 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 estimate the
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. A spreadsheet of each
team member's individual case valuations is provided to the internal lawyer
for confirmation. 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
result in an increase or decrease in value or no change required.
· At reporting period ends, written assessments 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.
3 Segmental reporting
During the six months ended 30 September 2022, revenue was derived from cases
funded on behalf of the insolvent estate and cases purchased from the
insolvent estate, which are wholly undertaken within the UK. Where cases are
funded, upon conclusion, the Company has the right to its share of revenue;
whereas for purchased cases, it has the right to receive all revenue, from
which a payment to the insolvent estate is made. 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 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.
6 months ended 30 September 2022 6 months ended 30 September 2021 Year
ended 31 March
2022
Unaudited Unaudited Audited
£'000s £'000s £'000s
Net realised gains on investments in cases 13,598 7,693 15,243
Fair value movements (net of transfers to realisations) (8,084) 2,491 5,200
Revenue 5,514 10,184 20,443
Arising from:
Funded cases 115 827 1,488
Purchased cases 5,399 9,357 18,955
Revenue 5,514 10,184 20,443
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 2022 6 months ended 30 September 2021 Year
ended 31 March
2022
Unaudited Unaudited Audited
£'000s £'000s £'000s
Staff Costs, including pension and healthcare 1,827 1,754 3,519
costs
Bad debts including expected credit losses 576 (36) 321
Professional fees 211 198 479
Marketing costs 169 111 222
Other costs, including office costs 288 235 536
Total administrative 3,071 2,262 5,077
expenses
5 Finance expense
6 months ended 30 September 2022 6 months ended 30 September 2021 Year
ended 31 March
2022
Unaudited Unaudited Audited
£'000s £'000s £'000s
Lease liability interest 1 4 6
Other loan interest 103 71 142
Bank loan charges 101 479 648
Total finance costs 205 554 796
6 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 2022 6 months ended 30 September 2021 Year
ended 31 March
2022
Unaudited Unaudited Audited
£'000s £'000s £'000s
Investments brought forward 45,718 37,508 37,508
Additions 2,803 2,850 6,470
Realisations (4,275) (1,414) (3,460)
Fair value movement (net of transfers to realisations) (8,084) 2,491 5,200
Total investments 36,162 41,435 45,718
Current 22,964 34,299 33,520
Non-current 13,198 7,136 12,198
Total investments 36,162 41,435 45,718
7 Analysis of fair value movements
6 months ended 30 September 2022 6 months ended 30 September 2021 Year
ended 31 March
2022
Unaudited Unaudited Audited
£'000s £'000s £'000s
New case investments 3,207 5,622 7,370
Increase in existing case fair value 367 892 956
Decrease in existing case fair value (5,242) (1,244) (3,693)
Case completions (7,416) (2,779) (4,539)
Increase in fair value attributable to Cartel cases 1,000 - 5,106
Fair value movement (net of transfers to realisations) (8,084) 2,491 5,200
8 Non-cash adjustments to cashflows generated from operations
6 months ended 30 September 2022 6 months ended 30 September 2021 Year
ended 32 March
2022
Unaudited Unaudited Audited
£'000s £'000s £'000s
Fair value movements 8,084 (2,491) (5,200)
Legal costs on realised cases 4,275 1,414 3,460
Finance expense 205 554 796
Depreciation & amortisation 96 96 193
Share based payments 65 63 218
Deferred tax - - 89
Finance income (2) - -
Non-cash adjustments to cashflows generated from operations 12,723 (364) (444)
9 Trade and other receivables
6 months ended 30 September 2022 6 months ended 30 September 2021 Year
ended 31 March
2022
Unaudited Unaudited Audited
£'000s £'000s £'000s
Amounts falling due in more than one year:
Trade 11,310 11,544 11,086
receivables
Amounts falling due within one year:
Gross trade receivables 12,316 11,952 10,096
Less:
Specific provisions (1,961) (1,841) (1,464)
Allowance for expected credit loss (1,199) (655) (865)
Trade 9,156 9,456 7,767
receivables
Contract asset 1,642 836 1,245
Prepayments 210 166 177
Trade and other receivables 11,008 10,458 9,189
10 Trade and other payables
6 months ended 30 September 2022 6 months ended 30 September 2021 Year
ended 31 March
2022
Unaudited Unaudited Audited
£'000s £'000s £'000s
Amounts falling due in excess of one year:
Accruals - direct costs 6,624 8,326 6,853
Amounts falling due within one year:
Trade payables 736 981 734
Accruals - direct costs 3,280 1,561 3,273
Other creditors 371 471 622
Contract liability 1,125 566 846
Other taxation and social security 106 100 119
Total trade and other payables due in one year 5,618 3,629 5,594
11 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 period. Diluted Earnings Per Share is calculated by
dividing the profit after tax by the weighted average number of shares in
issue during the period, 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 2022 6 months ended 30 September 2021 Year
ended 31 March
2022
Unaudited Unaudited Audited
£'000s £'000s £'000s
Profit and total comprehensive income for the period attributable to the (4,441) 2,108 3,678
equity owners of the Company
Weighted average number of ordinary shares 43,746,459 43,571,425 43,601,037
Basic Earnings Per Share £(0.10) £0.05 £0.08
Diluted weighted average number of ordinary shares 45,218,368 44,666,322 44,907,949
Diluted Earnings Per Share £(0.10) £0.05 £0.08
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