1.   Company information

 

Manolete Partners PLC (the "Company") is a public company limited by shares incorporated in England and Wales. The Company is domiciled in England and its registered office is 2-4 Packhorse Road, Gerrards Cross, Buckinghamshire, SL9 7QE. The Company's ordinary shares are traded on the AIM Market.

 

The principal activity of the Company is that of acquiring and funding insolvency litigation cases.

 

2.   Summary of significant accounting policies

 

The principal accounting policies applied in the preparation of these financial statements are set out below. The policies have been consistently applied to all the years presented, unless otherwise stated.

 

2.1       Basis of preparation

 

The above audited financial information does not constitute statutory financial statements as defined in section 434 of the Companies Act 2006. The above figures for the period ended 31 March 2020 have been extracted from the Company's financial statements which have been reported on by the Company's auditors and received an audit opinion which was unqualified. The Company's statutory financial statements for the year ended 31 March 2019 have been lodged with the Registrar of Companies. These financial statements received an audit report which was unqualified and did not include any reference to matters to which the auditors drew attention by way of emphasis without qualifying their report or a statement under section 498(2) or section 498(3) of the Companies Act 2006. The financial statements for the year ended 31 March 2020 will be dispatched to the shareholders and filed with the Registrar of Companies. The preliminary announcement was approved by the Board and authorised for issue on 2 July 2020.

 

Cash flow presentation and restatement of 2019 Statement of Financial Position

 

Following discussion with our auditors and with the FRC, we have presented both our Investment in cases and a purchase for resale of a property as operating cash flows rather than cashflows from investing activities as disclosed in 2019. This adjustment is a re-classification between the operating and investing cash flow categories within the cash flow statement in both the current and prior year to better reflect the nature of the cashflows and has no impact on the (decrease)/increase in cash and cash equivalents during the year or the amount held at the year end. Furthermore, we have restated the 2019 Statement of Financial Position to reflect the long-term nature of the cartel case investments.  

 

Measurement bases

 

The financial statements have been prepared under the historical cost convention. Historical cost is generally based on the fair value of the consideration given in exchange for assets.

 

The preparation of the financial statements in compliance with adopted IFRS requires the use of certain critical accounting estimates and management judgements in applying the accounting policies. The significant estimates and judgements that have been made and their effect is disclosed in note 3.

 

2.2       Going concern

 

After making appropriate enquires, the Directors of the Company have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future and for at least one year from the date of the signed financial statements. 

 

Furthermore, the Board has discussed the impact of Covid-19 on the business and its market in both late March and May. It continues 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.  On an operational basis, the business has been able to fully function remotely with our in-house lawyers meeting online with IPs and external lawyers and continuing to progress cases. The Courts continue to function at first remotely but increasingly in person.

 

As evidence of this market view there has been an increase in the number of new case referrals in April and May 2020 and we continue to complete on cases in April, May and June. Based on this assessment, the Directors are of the opinion that the Company has adequate financial resources to continue in operation and meet its liabilities as they fall due, for the foreseeable future. Hence, the Directors believe it is appropriate to adopt the going concern basis in preparing the financial statements.

 

For these reasons, they continue to adopt the going concern basis in preparing the Company's financial statements.

 

2.3       Functional and presentation currency

 

The financial information is presented in the functional currency, pounds sterling ("£") except where otherwise indicated.

 

2.4       New standards, amendments and interpretations

 

New IFRS 16 'Leases' implementation

Manolete has adopted IFRS16 - Leases for the financial year ending 31 March 2020 and it has chosen to use the modified retrospective approach to adoption which means there are no restatements to the prior year figures.

IFRS 16 introduces a single lease accounting model, whereby the Company will recognise a lease liability and a right to use asset at 1 April 2019 for leases previously classified as operating and finance leases. Within the income statement rent expense is replaced by depreciation and interest expense.

The adoption of IFRS16 has resulted in a right to use asset of £221k with a corresponding lease liability of £221k, being recognised at 31 March 2020.

Instead of recognising an operating expense for its operating lease payments, the Company has instead recognised interest on its lease liabilities of £64k and amortisation on its right-of-use assets of £124k in FY20. As these expenses are deducted below EBITDA, this has increased reported EBITDA by the amount of its current operating lease cost, which for the year ended 31 March 2020 was approximately £189,000. Hence the adoption of IFRS16 has increased the EBITDA growth in the current period but not the comparator which is not restated.

In order to allow users of the accounts to see how the impact of IFRS16 has affected adjusted EBITDA, we present a reconciliation below:

Reconciliation of lease costs	2020		2019	Increase
	£000s		£000s
Consistent with 2019 presentation and accounting policy	10,324		7,212	43%
Changes due to IFRS16 adoption	189		-
Consistent with 2020 presentation and accounting policy	10,513		7,212	46%

 

The adoption of IFRS16 has increased the percentage growth in EBITDA from 43% to 46% in FY20.

IFRIC 23 'Uncertainty over Income Tax Positions'

IFRIC 23, "Uncertainty over Income Tax Positions", clarifies how to recognise and measure current and deferred income tax assets and liabilities when there is uncertainty over income tax treatments. There is no impact on the accounts.  

 

The Company does not expect any other standards issued by the IASB, but not yet effective, to have a material impact on the Company.

The following is a list of other new and amended standards which, at the time of writing, had been issued by the IASB but which are effective in future periods. The amount of quantitative and qualitative detail to be given about each of the standards will, much like the amount of detail given about IFRS 16, depend on each entity's own circumstances.

·      Amendments to IFRS 9 Prepayment Features with Negative Compensation (effective 1 January 2019)

·      Amendments to IAS 28: Long-term Interests in Associates and Joint Ventures (effective 1 January 2019)

·      Annual Improvements to IFRSs 2015-2017 Cycle (IFRS 3 Business Combinations and IFRS

joint Arrangements, IAS 12 Income Taxes, and IAS 23 Borrowing Costs) (effective 1 January 2019)

·      IFRS 17 Insurance Contracts (effective 1 January 2021).

 

 

 

2.5       Revenue recognition

 

Revenue comprises two elements: the movement in fair value of investments and realised consideration. Realised consideration occurs when a case is settled, or a Court judgement received. This is an agreed upon and documented figure. The movement in the fair value of investments is recognised as Unrealised gains within Revenue. This is management's assessment of the increase or decrease in valuation of an open case. 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 Note3. Significant Judgements and Estimates). Hence, unrealised revenue is the movement in the fair value of the investments in open cases over a period of time.

 

When a case is completed the carrying value is a deduction to Unrealised income and the actual settlement value is recorded as Realised revenue.

 

Revenue recognition differs between a purchased case, where full recognition of the settlement is recognised as revenue (including the insolvent estate's share) and a funded case where only the company's share of a settlement is recognised as revenue. This differing treatment arises because the Company owns the rights to the purchased case.

 

As revenue relates entirely to financing arrangements, revenue is recognised under the classification and measurement provisions of IFRS 9.

 

 

2.6       Finance expense and income

 

Finance expense

 

Finance expense comprises interest on bank loans and other interest payable. Interest on bank loans and other interest is charged to the statement of comprehensive income over the term of the debt using the effective interest rate method so that the amount charged is at a constant rate on the carrying amount. Issue costs are initially recognised as a reduction in the proceeds of the associated capital instrument.

 

Finance income

Finance income comprises interest receivable on funds invested and other interest receivable. Interest income is recognised in profit or loss as it accrues using the effective interest method.

 

2.7       Employee benefits: Pension obligations

 

The Company operates a defined contribution plan. A defined contribution plan is a pension plan under which the Company pays fixed contributions into a separate entity. The Company has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods.

 

The Company has no further payment obligations once the contributions have been paid. The contributions are recognised as employee benefit expense when they are due. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in the future payments is available.

 

2.8  Intangible assets

 

Intangible assets are measured at cost and are amortised on a straight-line basis over their estimated useful lives. Amortisation is charged within administrative expenses in the statement of comprehensive income so as to write off the cost of assets over their estimated useful lives, on the following basis:

 

Website development costs: 33.3% of cost, once the website development is complete

 

2.9  Stock

 

Stock is held at the lower of cost or net realisable value.

 

 

2.10      Financial assets

 

Classification

 

The Company classifies its financial assets at amortised cost or fair value through profit or loss. Financial assets do not comprise prepayments. Management determines the classification of its financial assets at initial recognition.

                               

Financial assets at amortised cost

 

The Company's financial assets held at amortised cost comprise trade and other receivables and cash and cash equivalents in the statement of financial position.

 

These assets are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise principally through the provision of goods and services to customers (e.g. trade receivables), but also incorporate other types of contractual monetary asset. They are initially recognised at fair value plus transaction costs that are directly attributable to their acquisition or issue and are subsequently carried at amortised cost using the effective interest method, less provision for impairment.

 

Impairment of financial assets

 

Impairment provisions are recognised when there is objective evidence (such as significant financial difficulties on the part of the counterparty or default or significant delay in payment) that the Company will be unable to collect all of the amounts due under the terms receivable, the amount of such a provision being the difference between the net carrying amount and the present value of the future expected cash flows associated with the impaired asset.

 

Impairment provisions for trade receivables are recognised based on the simplified approach within IFRS 9 using lifetime expected credit losses. During this process the probability of the non-payment of the trade receivables is assessed. This probability is then multiplied by the amount of the expected loss arising from default to determine the lifetime expected credit loss for the trade receivables. For trade receivables which are reported net, such provisions are recorded in a separate provision account with the loss being recognised within administrative expenses in the statement of comprehensive income. On confirmation that the trade receivable will not be collectable, the gross carrying value of the asset is written off against the associated provision.

 

Investments

 

Investments in cases are categorised at fair value through profit or loss. Fair values are determined on the specifics of each investment and will typically change upon an investment progressing through a key stage in the litigation or arbitration process in a manner that, in the Directors' opinion, would result in a third party being prepared to pay an amount different to the original sum invested for the company's rights in connection with the investment. Positive material progression of an investment will give rise to an increase in fair value and an adverse progression a decrease. Management identifies and selects a number of material case valuations for external opinion. As such this year the valuation of a sample of material investments was underpinned by an external legal opinion, which confirms the Directors' valuation.

 

Valuation of investments

 

Determining the value of purchased and funded litigation requires an estimation of the value of such assets upon acquisition and at each reporting date. The future income generation of such litigation is estimated from known information and the opinion of external senior specialist counsel and solicitors. Valuations of each case, at the balance sheet date, are therefore arrived at by the Directors, considering counsel's, or external lawyer's, assessment of the chances of a successful outcome, the state of progress of the matter through the legal system and the Directors' assessment of all other risks specific to the case.

 

2.11      Financial Liabilities

 

The Company classifies its financial liabilities in the category of financial liabilities at amortised cost. All financial liabilities are recognised in the statement of financial position when the Company becomes a party to the contractual provision of the instrument. Trade and other payables and borrowings are included in this category.

 

 

Borrowings

 

Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently carried at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest method.

 

Borrowings are de-recognised from the balance sheet when the obligation specified in the contract is discharged, is cancelled or expires. The difference between the carrying amount of a financial liability that has been extinguished or transferred to another party and the consideration paid, including any non-cash assets transferred or liabilities assumed, is recognised in profit or loss as other operating income or finance costs.

 

Borrowings are classified as current liabilities unless the Company has an unconditional right to defer settlement of the liability for at least 12 months after the reporting period.

 

 

Trade and other payables

 

Trade and other payables are initially recognised at fair value and subsequently measured at amortised cost. Accounts payable are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities.

 

 

2.12 HSBC loan facilities

Arrangement fees in relation to a £10m loan facility originally set up with HSBC in January 2018 that was subsequently extended to a £20m facility with a term of four years from date of extension, in November 2018, are capitalised and amortised over the length of the loan facility, four years.

These capitalised costs of £473,939 as at 31 March 2020 have been netted off against borrowings in the Statement of Financial Position.

2.13 Provisions

 

A provision is recognised in the balance sheet when the Company has a present legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, when appropriate, the risks specific to the liability. The increase in the provision due to the passage of time is recognised in finance costs.

 

2.14 Share capital

 

Ordinary shares are classified as equity. There is one class of ordinary share in issue, as detailed in note 22. Incremental costs directly attributable to the issue of new shares are shown in share premium as a deduction from the proceeds, net of tax.

 

2.15 Income tax

 

Income tax for the years presented comprises current and deferred tax. Income tax is recognised in profit or loss except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity

 

Deferred income tax is recognised on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts.

 

Temporary differences are not recognised if they arise from a) the initial recognition of goodwill, and b) for the initial recognition of other assets or liabilities in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date.

 

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes assets and liabilities relate to income taxes levied by the same taxation authority on either the taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.

 

2.16Share-based payments

 

Where share options are awarded to directors or employees, the fair value of the options at the date of grant is charged to the statement of comprehensive income over the vesting period.  Non-market vesting conditions are considered by adjusting the number of equity instruments expected to vest at each balance sheet date so that, ultimately, the cumulative amount recognised over the vesting period is based on the number of options that eventually vest.  Market vesting conditions are factored into the fair value of the options granted.  The cumulative expense is not adjusted for failure to achieve a market vesting condition.

 

2.17 Exceptional items

 

Exceptional items are disclosed separately in the financial statements where it is necessary to do so to provide further understanding of the financial performance of the Company. They are items that are material, either because of their size or their nature, or that are non-recurring, and are presented within the line items to which they best relate.
 

3.   Significant judgements and estimates

 

The preparation of the Company's financial statements under IFRS as endorsed by the EU 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 Director's valuation of that case each month, as set out below. 

 

In accordance with IFRS 9 and IFRS 13, the Company is required to 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. Full team meetings then take place on a fortnightly basis to review progress on all live cases, on a case-by-case basis over several hours.

·      On a monthly basis, the Directors adjust case fair values depending upon objective case developments, for instance: an offer to settle, mediation agreed, positive or negative legal advice. These adjustments to fair value may be an increase or decrease in value or no change required;

·      At reporting period ends, a sample of open case investments for which written assessments are obtained from external solicitors or primary counsel working on the case on behalf of 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 the year-end there were 174 open cases, of these 145 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 29 cases make up £24.5m of the Investments and are material to the business, the significant judgements and estimates in their valuations at the balance sheet date were as follows:

1.     Judgements:

1.1 The amount that cases are discounted to recognise cases being settled before they are taken to Court, based on the fact of each case and management's judgment of the likely outcome

2.     Estimates:

2.1   All cases will be subject to the internal key stages and regular fair value review processes as described above. For the avoidance of doubt, the fair value review requires an estimate to be made by senior management based upon the facts and progress of the case and their experience. For a sample selected by the external auditors, an external opinion is requested from counsel or a solicitor who is working on the case which provides an independent description of the merits of the case. These assessments include various assumptions that could change over time and lead to different assessments over the next 12 months.

2.2   Future legal costs have been estimated on the likely time the case will take to complete, ranging between 6 to 18 months (excluding the Cartel cases) and whether it will go to Court. Future results could be materially impacted if these original estimates change either positively or negatively.

2.3   Recovery of debts is based on the Company's ability to recover assets owned by the counterparty. Prior to taking on a case, a net worth review is undertaken of the defendant to ensure that they own sufficient assets.  Cases that are settled without going to Court almost always recover in full, whilst those that result in Court cases are less predictable in terms of full recovery. 

2.4   The valuations assume that there is no recovery for interest and costs. If cases go to Court and result in a judgement in the Company's favour, it is likely that the Company will be awarded interest and costs.

 

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. It also adopts a conservative approach to valuing cases. 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 judgment. These inputs are inter-related to an extent.  

Sensitivity analysis has not been included, 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 £32.9m of investments disclosed in the balance sheet.

However, as an indication we note that a 10% increase / (decrease) in the fair value of our top 20 cases would result in an increase / (decrease) in the fair value investment of +/- £1.6m.

Recoverability of trade receivables

Manolete'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 case to case. As part of the settlement agreement, the timing of payment of the award by the defendant to Manolete is agreed, this is a legally binding document. Payments can be received in full on the day of settlement or in instalments over a period of time, as pre-agreed.

Recovery of these balances is closely reviewed by management and action, where appropriate, will be taken to pursue any late payments. A specific bad debt provision is raised over debtors where recoverability is a concern and an expected credit loss of 2% of the remaining debtor balances has also been raised to reflect possibly other unknown recoverability events.

 

 

4.   Segmental reporting

 

During the year ended 31 March 2020, the revenue was derived from cases funded on behalf of the insolvent estate and cases purchased from the insolvent estate, which are wholly undertaken within the UK. Where cases are funded, upon conclusion, the Company has the right to its share of revenue; whereas for purchased cases, it has the right to receive all revenue, from which a payment to the insolvent estate is made. Revenues arising from funded cases and purchased cases are considered one business segment and are considered to be the one principal activity of the Company. All revenues derive from continuing operations and are not seasonal in nature.

 

Net realised gains on investments in cases represents realised revenue on completed cases.

 

Fair value movements 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.

 

	31 March 2020		31 March 2019
	£000s		£000s
Net realised gains on investments in cases	7,782		7,148
Fair value movements (net of transfers to realisations)	10,900		6,624
	18,682		13,772

 

	31 March 2020		31 March 2019
	£000s		£000s
Arising from:
Funded cases	5,347		4,612
Purchased cases	13,335		9,160
	18,682		13,772

 

5.   Directors and employees

 

Staff costs for the Company during the year:

	31 March 2020		31 March 2019
	£000s		£000s
Staff costs (including directors):
Wages and salaries	2,222		1,537
Social security costs	236		169
Other pension costs and benefits	115		50
	2,573		1,756

 

Average monthly number of people (including executive and non-executive directors) employed by activity:

 

	31 March 2020		31 March 2019
	No.		No.
Directors (executive and non-executive)	5		3
Management and administration	14		9
	19		12

 

 

 

 

 

5.   Directors and employees (continued) 

 

Directors' emoluments:

	31 March 2020		31 March 2019
	£000s		£000s
Directors' emoluments:
Salaries and fees	745		608
Other pension costs and benefits	20		20
	765		628

 

	31 March 2020		31 March 2019
	£000s		£000s
Highest paid director:
Salaries and fees	335		350
Other pension costs and benefits	14		10
	349		360

 

Management consider the directors to be the key management personnel.

 

 

6.   Operating profit

 

Is stated after charging:

	31 March 2020		31 March 2019
	£000s		£000s
Bad debt expenses	535		49
Share based payments	48		21

 

Following the implementation of IFRS16, lease costs are no longer charged to operating profit but are recognised as an interest charge and a depreciation charge. Costs of £189,000 in 2020 would previously have been charged to operating profit, see accounting policies for IFRS16 Leases.

Operating profit also includes profit on sale of a residential property of £7,090 in 2020.

7.   Auditor remuneration

	31 March 2020		31 March 2019
	£000s		£000s
Fee payable to Company's auditor and its associates for the audit of financial statements	62		61
Fees payable to Company's auditor and its associates for other services:
Interim Agreed Upon Procedures	10		10
Corporate finance services	-		168
Other taxation services	15		41
Total	87		280

Details of the Company's use of the Auditors for non-audit services, the reasons why the Auditors were used rather than another supplier and how the Auditors' independence and objectivity was safeguarded are set out in the Audit Committee Report on pages 29 to 30.

8.   Analysis of expenses by nature

Internal legal costs are included within administrative expenses whereas external legal costs are either capitalised as Investments for open cases or recognised as cost of sales on completed cases.

The breakdown by nature of administrative expenses is as follows:

 

	31 March 2020		31 March 2019
	£000s		£000s
Staff Costs, including pension and healthcare costs	2,573		1,756
Office costs	201		243
Other costs, including marketing costs and expected credit losses	1,812		875
Total administrative expenses	4,586		2,874

    

9.   Finance income and finance expense

 

	31 March 2020		31 March 2019
	£000s		£000s
Bank interest	39		1
Other loan interest	50		-
Total finance income	89		1

 

	31 March 2020		31 March 2019
	£000s		£000s
Bank loan interest	57		179
Other loan interest (including interest on lease liabilities)	229		-
Bank loan charges	151		172
Other loan charges	-		42
Total finance expense	437		393

 

10.  Dividends

Dividends paid during the financial year were as follows. No dividend was paid in FY19. There was no interim dividend in FY19.

	31 March 2020 £000s		31 March 2019 £000s
Final dividend for the year ended 31 March 2019 of 1.49p per share, paid in September 2019	649		-
Interim dividend for the year ended 31 March 2020, of 0.50p per share, paid in December 2019	218		-
Total dividends paid during FY20	867		-

 

 

 

11.  Taxation

	31 March 2020 £000s		31 March 2019 £000s
Analysis of charge in year
Current tax charge on profits for the year	1,841		1,279
Adjustments in respect of prior periods	-		-
Income tax credit	1,841		1,279
Deferred tax	-		(5)
Total tax charge	1,841		1,274

 

 

The tax charge for the year differs from the standard rate of corporation tax in the UK of 19%. (2019: 19%). The differences are explained below.

	31 March 2020		31 March 2019
	£000s		£000s
Profit on ordinary activities before tax	9,456		5,938
Profit on ordinary activities multiplied by the rate of corporation tax in the UK as above	1,797		1,128
Effects of:
Expenses not deductible	44		151
Provision for deferred tax release	-		(5)
Total taxation charge	1,841		1,274

 

12.  Earnings per share

 

The basic earnings per share is calculated by dividing the profit attributable to ordinary equity holders by the weighted average number of ordinary shares outstanding during the year. Diluted earnings per share is calculated by dividing the profit after tax by the weighted average number of shares in issue during the year, adjusted for potentially dilutive share options.

 

The following reflects the income and share data used in the earnings per share calculation:

 

	31 March 2020		Restated 31 March 2019	Restated 31 March 2018
	£000s		£000s	£000s
Profit for the period attributable to equity holders of the Company	7,615		4,664	3,261
Weighted average number of ordinary shares	43,571,925		37,380,949	37,380,949
Earnings per share	0.17		0.12	0.09

 

	31 March 2020		Restated 31 March 2019	Restated 31 March 2018
	£000s		£000s	£000s
Profit for the period attributable to equity holders of the Company	7,615		4,664	3,261
Diluted weighted average number of ordinary shares	44,318,539		37,614,660	37,614,660
Diluted earnings per share	0.17		0.12	0.09

 

Reconciliation of number of shares and diluted shares at year end:

 

	Number of shares, 31 March 2019	Net new share options issued	Number of shares, 31 March 2020
Base	43,571,425	-	43,571,425
Diluted	44,272,558	66,684	44,339,242

 

 

The earnings per share is diluted by options over ordinary shares, as detailed in note 24.

 

The earnings per share figures for 2019 and 2018 have been amended following a review of the Company's 2019 Financial Statements by the Financial Reporting Council. The figure presented for basic earnings per share of £0.32 in 2019 and £35.25 in 2018 should have been £0.12 and £0.09 respectively, as shown above. The figure presented for diluted earnings per share of £0.31 in 2019 and £35.25 in 2018 should have been £0.12 and £0.09 respectively. The difference arises to reflect a sub-division and subsequent consolidation of existing £1 shares, conversion of A shares into ordinary shares and a bonus issue which to ensure compliance with IAS 33 should have been adjusted retrospectively.

 

 

13.  Investments

 

Non-current investments and current asset investments comprise the costs incurred in bringing funded and purchased cases to the position that they have reached at the balance sheet date. In addition, where an event has occurred that causes the Directors to revalue the amount invested, a fair value adjustment is made by the Directors based on Counsel's and the Directors' opinion, which can either be positive or negative (see Note 3.2 on accounting estimates).

                                                                                                                                                            

 

	2020		2019
	£000s		£000s
As at 1 April 2019	18,197		10,555
Additions	4,917		2,405
Realisations	(1,599)		(1,387)
Fair value movement (net of transfers to realisations)	10,900		6,624
As at 31 March 2020	32,415		18,197

 

 

14. Intangible assets

Intangible assets comprised the costs of developing the Company's website. The website developments costs are amortised over the useful life of the website, which is estimated to be three years.

	2020		2019
	£000s		£000s
Website development costs
As at 1 April 2019	6		-
Additions	63		6
Amortisation charge	(13)		-
As at 31 March 2020	56		6

 

 

15.Stock

 

The Company purchased a house for re-sale in London in FY19, following the settlement of a case in unusual circumstances. The house was refurbished for a modest amount and was subsequently sold in November 2019 for a £7k profit. Hence, no stock is now held as at 31 March 2020.

 

                                                                                                                                                            

	2020		2019
	£000s		£000s
As at 1 April 2019	447		-
Additions	-		447
Realisations	(447)		-
As at 31 March 2020	-		447

 

16. Right of use asset

The Company holds one lease, an office property lease for 21 Gloucester Place, London which expires in September 2021.

Consistent with IFRS16, the net present value of future lease rental payments is recognised as a liability and asset in the Statement of Financial Position, this has been calculated as £221k as at 31 March 2020. Future minimum commitments are £192k within one year with the remainder later than one year and not later than five years.

Under IFRS16, lease costs are charged to the income statement as interest and depreciation rather than as an administration cost. The depreciation charge for the year was £125k and the interest charge was £64k.

 

17.Trade and other receivables

                                                                                                               

	31 March 2020		31 March 2019
	£000s		£000s
Amounts falling due in excess of one year:
Trade receivables	443		-
Amounts falling due within one year:
Other receivables	500		-
Prepayments	180		799
Trade receivables	4,774		2,978
	5,454		3,777

 

It is the Company's policy to assess receivables for recoverability based on historical data available to management in addition to forward looking information utilising management's knowledge. The Directors consider that the carrying amount of trade and other receivables is approximately equal to fair value.

 

Included within prepayments for 2019 are the costs of setting up the HSBC facility, which are being amortised over the remaining life of the facility, which terminates on 30 November 2022. For 2020, these set-up costs have been offset against the drawn down loan as disclosed in note 19.

 

 

 

18. Cash and cash equivalents

 

	31 March 2020		31 March 2019
	£000s		£000s
Cash at bank and in hand	8,371		9,692
	8,371		9,692

 

All bank balances are denominated in pounds sterling.

19. Trade and other payables

 

	31 March 2020		31 March 2019
	£000s		£000s
Amounts falling due in excess of one year:
Trade payables	213		-
Amounts falling due in one year:
Other taxation and social security	80		66
Corporation tax payable	1,006		2,557
Accruals and other creditors	3,149		1,527
	4,235		4,150

 

 

20. Deferred tax liabilities/(asset)

 

	2020		2019
	£000s		£000s
At 1 April 2019	(46)		5
Released during the year	-		(5)
Asset created	(111)		(46)
At 31 March 2020	(157)		(46)

 

 

Deferred tax has been credited to equity reserve because these movements in deferred tax assets relate to releases and creation of share options.

 

 

21. Borrowings

	31 March 2020		31 March 2019
	£000s		£000s
Non-current
Bank loans	7,526		-
	7,526		-
Current
Bank loans	-		-
Total borrowings	-		-

 

Borrowings are shown net of HSBC set-up amortised costs of £474k. Hence, the gross borrowings are £8,000k as at 31 March 2020.

 

Reconciliation of liabilities arising from financing activities

 

		1 April 2018	Cash flows	Non-cash changes	31 March 2019
		£000s	£000s	£000s	£000s
Bank borrowings		8,870	(9,500)	630	-
Other loans		-	-	-	-
Total liabilities from financing activities		8,870	(9,500)	630	-

 

		1 April 2019	Cash flows	Non-cash changes	31 March 2020
		£000s	£000s	£000s	£000s
Bank borrowings		-	8,000	(474)	7,526
Total liabilities from financing activities		-	8,000	(474)	(7,526)

 

The Directors consider the carrying value of all financial liabilities to be equivalent to their fair value.

 

A £20,000,000 credit facility was provided on 30 November 2018 by HSBC Bank plc. The Company granted a fixed and floating charge over all of its assets in favour of HSBC Bank plc. The facility term is four years. The interest rate is LIBOR plus a maximum margin of 2.75%, depending on the Company's financial performance against agreed covenants.

 

The arrangement fees for this facility were included within prepayments in 2019 and have been offset against gross borrowings for 2020 following the drawdown of a portion of the facility.

 

 

22. Share capital

 

	31 March 2020		31 March 2019
	No.		No.
Allotted and issued
Ordinary shares of £0.004 each	43,571,425		43,571,425

 

Voting rights

 

The holders of ordinary shares are entitled to one voting right per share. 

 

Dividends

 

The holders of ordinary shares are entitled to dividends out of the profits of the Company available for distribution.

 

 

 

23. Reserves

 

Share premium

 

Includes all current and prior year premiums received on issue of share capital, as follows:

 

 

	2020		2019
	£000s		£000s
As at 1 April	4		1,015
Proceeds from share issues	-		16,213
Transaction costs of share issue	-		(723)
Conversion into distributable reserves	-		(16,501)
As at 31 March	4		4

 

Share based payment reserve

 

Includes amounts recognised for the fair value of share options granted in accordance with IFRS 2.

 

Special non-distributable reserve

 

A special non-distributable reserve was created in FY19 to ensure there was sufficient reserves held within the Company to satisfy creditors at the time of a conversion of share premium to distributable reserves to allow a dividend to be paid in FY19. The balance on this reserve will decline to nil over time as creditors are paid. 

 

Retained earnings

 

Includes all current and prior periods retained profits and losses.

 

24.Share options

The Company adopted the Manolete Partners Plc Company Share Option Plan on 21 November 2018, details of which are as follows:

 

The Company generally uses the Black-Scholes method to value share options when issued.

 

Details of the share options granted, exercised, lapsed and outstanding at the end of each year are as follows:

 

	Number of share options No.	Weighted average exercise price £
Outstanding at beginning of year	701,133	1.12
Granted during the year	260,465	4.35
Forfeited/lapsed during the year	(193,781)	1.12
Exercised during the year	-	-
Outstanding at end of the year	767,817	2.22
Exercisable at end of the year	-	-

 

The weighted average contractual life of the options outstanding at the reporting date is 1 year and 11 months.

 

 

 

Exercise prices of share options outstanding at the end of the period:

	Number of share options No.	Exercise price £
CSOP Options	154,764	2.58
Unapproved Options	613,053	2.13

The fair values of the options granted during the year were calculated using the Black Scholes model, with the following assumptions:

Risk free interest rate	0.5%
Expected volatility	33%
Expected dividend yield	1%
Life of the option	3 years
Weighted average share price	£4.00

 

25.Commitments and contingences

Capital commitments

There were no capital commitments at 31 March 2020.

 

26. Retirement benefits

 

The Company operates a defined contribution pension scheme for all qualifying employees. During the year, the Company charged £63,317 (FY19-£30,000) as employer's pension contributions. The outstanding pension creditor as at 31 March 2020 was £6,265 (FY19-£5,000).

 

27. Financial instruments - classification and measurement

Financial assets

 

Financial assets measured at amortised cost comprise other receivables, trade debtors and cash, as follows:

 

	31 March 2020		31 March 2019
	£000s		£000s
Other receivables	500		-
Trade debtors	5,216		2,977
Cash at bank	8,371		9,692
	14,087		12,669

Financial assets measured at fair value through profit or loss comprise of investments;

 

		31 March 2020		31 March 2019
		£000s		£000s
Investments		32,415		18,197
		32,415		18,197

 

 

 

27.Financial instruments - classification and measurement (continued)

Financial liabilities

 

Financial liabilities measured at amortised cost comprise accruals and other creditors and bank loans, as follows:

 

	31 March 2020		31 March  2019
	£000s		£000s
Accruals and other creditors	3,149		1,527
Bank loans	7,526		-
	10,675		1,527

The fair value of investments is determined as set out in the accounting policies in Note 2.

               

The fair value hierarchy of financial instruments measured at fair value is provided below:

 

Fair value hierarchy

	31 March 2020
	Level 1	Level 2	Level 3
	£000s	£000s	£000s
Investments	-	-	32,415
			32,415

 

 

		31 March 2019
		Level 1	Level 2	Level 3
		£000s	£000s	£000s
Investments		-	-	18,197
		-	-	18,197

28. Financial instruments - risk management

The Company's activities expose it to a variety of financial risks: market risk (including cash flow interest rate risk), investment risk, liquidity risk and credit risk. Risk management is carried out by the Board of Directors. The Company uses financial instruments to provide flexibility regarding its working capital requirements and to enable it to manage specific financial risks to which it is exposed.

 

The Company finances its operations through a mixture of equity finance, bank debt, cash and liquid resources and various items such as trade debtors and trade creditors which arise directly from the Company's operations.

 

Interest rate risk

Interest rate risk is the risk that the fair value of future cash flows associated with the instrument will fluctuate due to changes in market interest rates. Interest bearing assets including cash and cash equivalents are short-term liquid assets. It is the Company's policy to settle trade payables within the credit terms allowed and the Company does therefore not incur interest on overdue balances.  No sensitivity analysis has been prepared as the impact on the financial statements would not be significant.

 

 

28. Financial instruments - risk management (continued)

The interest rate profile of the Company's borrowings is shown below:

 

	31 March  2020				31 March 2019
	Debt	Interest		Debt		Interest
	£	Rate		£000s		Rate
Floating rate borrowings
Bank loans	8,000	LIBOR and Margin of 1.75%		-		n/a

Liquidity risk

 

The Company seeks to maintain sufficient cash balances. Management reviews cash flow forecasts on a regular basis to determine whether the Company has enough cash reserves to meet future working capital requirements and to take advantage of business opportunities.

 

A maturity analysis of the Company's borrowings is shown below:

 

	31 March 2020		31 March 2019
	£000s		£000s
Less than one year	-		-
One to two years	-		-
Two to five years	8,000		-
	8,000		-

 

 

Capital risk management

 

The Company is both equity and debt funded, and these two elements combine to make up the capital structure of the business. Equity comprises share capital, share premium and retained earnings and is equal to the amount shown as 'Equity' in the balance sheet. Debt comprises bank loans which are set out in further detail above and in note 19. The Company initially raised funds through an IPO in December 2018 and has drawn down £8m of a HSBC loan facility in 2020, the total facility is a £20m revolving credit facility with HSBC.

 

The Company's current objectives when maintaining capital are to:

 

·      Safeguard the Company's ability as a going concern so that it can continue to pursue its growth plans.

·      Provide a reasonable expectation of future returns to shareholders.

·      Maintain adequate financial flexibility to preserve its ability to meet financial obligations, both current and long term.

 

The Company sets the amount of capital it requires in proportion to risk. The Company manages its capital structure and adjusts it in the light of changes in economic conditions and the risk characteristics of underlying assets. In order to maintain or adjust the capital structure, the Company may issue new shares or sell assets to reduce debt.

 

During the year ended 31 March 2020 the Company's strategy remained unchanged.

 

 

 

28. Financial instruments - risk management (continued)

Credit risk and impairment

 

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Company. The maximum exposure to credit risk is the carrying value of its financial receivables, trade and other receivables and cash and cash equivalents, as disclosed in the notes. The Company attempts to assess the probability of credit losses but seeks to minimise its credit risk by undertaking rigorous net worth checks before taking on a case. Credit defaults do not occur very often but occasionally counterparties may default on an agreed settlement, which involves payment by instalments.

 

The Company does not consider any concentration of risk within either trade or other receivables to be significant. The Company seeks to obtain charging orders over the property of trade receivables. The receivables' age analysis is also evaluated on a regular basis for potential doubtful debts. It is the Directors' opinion that no further provision for doubtful debts is required.

 

Credit risk on cash and cash equivalents is considered to be very low as the counterparties are all substantial banks with high credit ratings.

 

Currency risk

 

The Company is not exposed to any currency risk at present.

 

29. Related party transactions

 

Director and key management remuneration is disclosed in Note 5. There are no other related party transactions.

 

30. Ultimate controlling party

 

The Company has no ultimate controlling party.

 

31. Post balance sheet events

On Friday 26^th June 2020, the judgment in relation to a purchased case was 'handed down' following a trial held and completed in March 2020. The judgment found in favour of the defendant on the two main aspects of the case and as such, an adjustment was posted to the accounts to write off the full fair value holding value as at 31 March 2020 and all associated capitalised costs, amounting to an adverse impact on the Statement of Comprehensive Income of £709k in FY20.