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).

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;

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)

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;

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;

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
investments

No.
completed

%
completion

No
outstanding

Open case investments

Closed case investments

Total
invested

Total
recovered

Total
gain

IP
share

Manolete
gain

Duration completed cases

ROI

MoM

IRR

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

ended 30 September

2022

6 months

ended 30

 September

2021

6 months

ended 31

March

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

ended 30 September

2022

6 months

ended 30

 September

2021

6 months

ended 31

March

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 9th 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

ended 30 September

2022

6 months

ended 30

 September

2021

6 months

ended 31

March

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

ended 30 September

2022

6 months

ended 30

 September

2021

6 months

ended 31

March

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 tax

5,048

357

4,061





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 30th 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 equity owners of the Company


(4,441)

 

2,108

3,678

 


 

 

 

 

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 cases


5,048


357

4,418







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

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 costs                                                                                         

1,827

 

1,754

3,519

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 expenses                                                            

3,071

 

2,262

5,077

 

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 receivables                                   

11,310


11,544

11,086






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 receivables                                   

9,156


9,456

7,767






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 equity owners of the Company

(4,441)


2,108

3,678






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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