Half Year Results

RNS Number : 7468E

Manolete Partners PLC

10 November 2020

 

10 November 2020

MANOLETE PARTNERS PLC

("Manolete" or the "Company")

Unaudited half-year results for the six months ended 30 September 2020

Manolete (AIM:MANO), the leading UK-listed insolvency litigation financing company , today announces its unaudited results for the six months ended 30 September 2020.

Financial highlights:

· Revenue growth of 153% to £19.0m (H1 FY20: £7.5m);

· Gross profit up 44% to £9.5m (H1 FY20: £6.6m);

· Gross profits on realised cases up 440% to £4.0m (H1 FY20: £0.9m);

· EBIT up 47% to £6.6m (H1 FY20: £4.5m);

· Profit before tax up 49% to £6.4m (H1 FY20: £4.3m);

· Profit after tax up 49% to £5.2m (H1 FY20: £3.5m);

· Basic earnings per share up 49% to 11.8 pence (H1 FY20: 7.9 pence);

· Cash generated from completed cases up 45% to £4.2m (H1 FY20: £2.9m);

· Investment in cases has grown by 55% to £39.3m since 30 September 2019 (H1 FY20: £25.4m);

·     Net assets of £38.7m and net debt of £5.4m consisting of drawn down loan of £8.0m net of cash balances of £2.6m as at 30 September 2020;

· £12m of HSBC Revolving Credit Facility available for utilisation, as at 30 September 2020; and

·   Interim dividend proposed of 1.17 pence per share, 134% higher than 0.5 pence per share paid for H1FY20

Operational highlights:

· During H1 FY21, the number of new case investments rose by 69% to 110 (H1 FY20: 65) and was close to the total 141 new invested cases for the full twelve months of FY20;

· Ongoing delivery of realised returns: 52 case realisations in the period representing a 189% increase (18 case realisations in H1 FY20), generating discounted gross proceeds of £13.5m, a 611% increase (H1 FY20: £1.9m), over an average duration of 11.5 months;

·   Large £15m case completion in September 2020 of which £4.7m is payable in cash to Manolete representing a profit of c.£4.4m. Discounting for future cashflows £9.3m has been recognised in revenue and £2.8m as gross profit;

· Average money multiple of 3.1 times for cases completed in H1 FY21;

· High level of forthcoming potential case completions, with 40 live cases scheduled over the coming weeks and months for Alternative Dispute Resolution (mediations and formal without prejudice settlement meetings) or currently the subject of settlement offers and negotiations;

· Average case duration across the full portfolio of 305 completed cases remains constant at c.11 months;

· 98% increase in live cases: 214 in process as at 30 September 2020 (108 as at 30 September 2019). 219 live cases currently as at 20 October 2020 (all excluding Cartel cases);

· 91% of live cases have been signed in the last 18 months. Only one case remains ongoing from the FY17 vintage and only two cases are outstanding from the FY18 vintage. 100% of earlier case vintages have been completed; and

·   The Cartel cases continue to progress as planned, no uplift to their fair value has been made in this interim period, but this will be re-assessed at year end

Steven Cooklin, Chief Executive Officer, commented:

"These half year results evidence the strong progress we have made in the last six months. We completed 52 cases in the six-month period - that means we were completing on average two insolvency claims every single week of the six-month reporting period. That rate of execution is impressive: it is almost three-times as many cases completed than the first six months of last year and close to the 54 cases completed for the whole of the previous full financial year.

"The pipeline of new cases also continues to grow at a strong rate in the first six months. We made 110 new case investments that meet our stringent selection criteria in the first half of this financial year, 69% more than the same period last year. The Board is keeping a close watch on the effects of Covid-19 as well as the Government economic support measures and the impact these two opposing factors may have on the level of corporate insolvencies and personal bankruptcies in the short and longer term.

"We have achieved impressive triple-digit growth in revenues, and strong double-digit growth in gross profit and EBIT during the period, delivering continued outstanding investment returns yielding an average money multiple of 3.1 times (H1 FY20: 2.9 times) on the 52 completed cases (H1 FY20: 18 completed cases) with an average duration of 11.5 months (H1 FY20: 11.4 months).

"This strong momentum has continued into the second half of the year with total case completions already up to 62 as at 31 October 2020 and there are another 40 live cases scheduled for Alternative Dispute Resolution or currently the subject of serious settlement offer negotiations. Alongside favourable macro-economic trends, this granular data underpins our excitement at the prospects for the second half of the year and beyond.

"This performance reflects Manolete's core strengths: market-leading position; operating in a specialist sector where Manolete can buy almost all cases (Manolete is not a mere passive "funder"); significant first-mover advantage and deeply embedded relationships with all key stakeholders in the Turnaround, Restructuring and Insolvency community, nurtured over our 11-year operating history."

For further information please contact:

Manolete Partners:   

Steven Cooklin (Chief Executive Officer)  via Instinctif Partners

Peel Hunt (NOMAD and Joint Broker)  [phone] 

James Britton

Rishi Shah

Duncan Littlejohns

Liberum (Joint Broker)     [phone]

Richard Crawley

James Greenwood

Instinctif Partners (Financial PR)  [phone]

Tim Linacre

Lewis Hill

Chief Executive Officer's Statement

Introduction

I am pleased to present our unaudited statements for the half year to 30 September 2020.

Manolete is the leading UK quoted company in the high growth insolvency litigation finance market, a market buoyed by favourable legislative and macro-economic tailwinds, and which plays an important role in returning funds to creditors, particularly HMRC. As these interim results clearly demonstrate, we performed strongly in the first six-month period of FY21: 52 case completions was 189% higher than the comparative period last year. We made 110 new case investments, that meet our stringent selection criteria, an increase of 69% compared to the first six months of last year (H1 FY20: 65 new case investments).

Performance

In the first half, gross profits increased 44% to £9.5m (H1 FY20: £6.6m), reflecting the record number of case completions, a record number of new case investments and the benefits of short duration case returns. Operating profit increased 47% to £6.6m (H1 FY20: £4.5m). Our business is strongly profitable: we recorded pre-tax profits of £6.4m, compared to £4.3m in H1 FY20, an increase of 49%.

Investments

Two key factors set Manolete apart in the litigation finance market: first, our ability to deliver rapid case realisation times and second, the volume of realised successful completed cases. In the first half, we completed 52 cases, resulting in discounted gross settlement proceeds of £13.7m (H1 FY20: £2.4m) with gross profit on realised cases of £4.0m (H1 FY20: £0.9m). The average money multiple on these 52 cases (H1 FY20: 18 completed cases) was 3.1x (H1 FY20: 2.9x). Money multiple is defined as the Company's gain on a case plus the amount recovered in respect of its legal costs and initial payment to the Insolvent Estate, divided by the amount of those legal costs and the initial payment to the Insolvent Estate.

The fair value of our in-process case investments as at 30 September 2020 increased 55% to £39.3m (30 September 2019: £25.4m; 31 March 2020: £32.4m), reflecting in the main, the continued attractive case investment opportunities provided by our long-established UK-wide network of Insolvency Practitioners and insolvency lawyers who refer cases into us on a daily basis. We invested £3.3m in legal and investment costs on live cases in the first half, compared to £2.1m in the first half of the previous year.

We continue to seek a balanced case portfolio by both size and type of case. In recent periods, we have looked to move up the value chain and accept a larger proportion of higher return, higher value case investments. This strategy is well supported by the strength of our case track record and facilitated by our enhanced capital position, following the proceeds raised on the flotation in December 2018 together with the extension of our Revolving Credit Facility with HSBC.

Vintages Table

This table highlights some of the key features of Manolete's model:

1.  The fast durations of our cases (average 11 months): it is the short durations and the repeat case types (all our cases are UK insolvency and insolvency-related claims) that make the case outcomes capable of accurate estimation. Allied to the fact that Manolete owns outright the large majority of its cases (rather than acting as a funder of third-party claims with no control over the key decisions relating to those claims), this drives conversion of unrealised profits into realised profits in a consistently short timeframe.

2.  High Return on Investment (ROI, calculated as Manolete profit divided by investment in case) and Money multiple (MoM, calculated as Manolete profit plus Investment in case divided by Investment in case) (long-term average 177% and 2.77x, respectively): these levels have been delivered on a consistent basis for each of the last 9.5 years and across a large and diverse number of cases.

3.  Only one case remains open from the FY17 vintage and two cases from the FY18 vintage. All earlier cases are fully completed. In contrast to our listed peer group, the age of Manolete's unrealised case portfolio is short, with 91% of live cases commencing in the last 18 months.

Case Vintages as at 20^th October 2020

FY	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
Vint	No	No	% total	No	£'000	£'000	£'000	£'000	£'000	£'000	£'000	Months	%	%
2010	3	3	100%	0	-	52	52	28	(24)	10	(35)	7.0m	(67%)	.33x
2011	0	0	0%	0	-	-	-	-	-	-	-	0.0m	0%	.00x
2012	8	8	100%	0	-	763	763	2,524	1,761	580	1,181	18.0m	155%	2.55x
2013	10	10	100%	0	-	174	174	780	606	316	290	7.1m	166%	2.66x
2014	42	42	100%	0	-	594	594	3,884	3,290	2,427	863	10.0m	145%	2.45x
2015	39	39	100%	0	-	1,404	1,404	7,029	5,625	3,290	2,336	12.8m	166%	2.66x
2016	36	36	100%	0	-	1,908	1,908	9,309	7,401	4,123	3,278	15.0m	172%	2.72x
2017	31	30	97%	1	286	1,086	1,372	4,393	3,307	1,951	1,356	12.2m	125%	2.25x
2018	29	27	93%	2	1,142	1,535	2,676	13,988	12,453	8,678	3,776	14.0m	246%	3.46x
2019	59	43	73%	16	843	985	1,828	3,726	2,740	1,278	1,462	11.6m	148%	2.48x
2020	141	55	39%	86	2,080	1,479	3,559	8,845	7,367	3,957	3,410	8.0m	231%	3.31x
2021	126	12	10%	114	1,067	180	1,247	469	288	172	116	3.7m	64%	1.64x
Total	524	305	58%	219	5,418	10,160	15,578	54,973	44,813	26,781	18,032	11.2m	177%	2.77x
Note: The vintages table excludes the 22 cartel cases and is net of deductions for bad debt provisions (excluding ECL provisions)

Strategy/Team

Our strategy is to increase the number and average size of our new case investments and to complete these cases on the most optimal terms. Returns benefit our shareholders as well as the creditors of those numerous insolvent estates. We believe this will be achieved by building on, as well as expanding, the wide network of our long-established Insolvency Practitioner and Insolvency Lawyer contacts throughout the UK.

At IPO, we promised to build out the then nascent regional network of our in-house lawyers nationwide. That network is now well-established and operating with great effectiveness. We are also adding selectively to certain particularly active areas.

Dividend

The current intention of the Board is to adopt a progressive dividend policy. As outlined in our Admission Document, the Company intends to pay an interim dividend for the half year ending 30 September 2020 equal to a third of last year's dividend. Dividends will take into account the progressive nature of the dividend policy, distributable reserves and other applicable law and the trading performance of the business.

The interim dividend to Ordinary Shareholders will be payable on 17 December 2020 to those shareholders who are on the register of members at 27 November 2020.

Impact of Covid-19

During the current Covid-19 pandemic, both our regional and London staff have operated remotely and continue to conduct mediations and meetings with external solicitors and Insolvency Practitioners via online platforms, this has allowed our business to continue without material interruption.

Outlook

The business has adjusted and traded very well through the unique challenges of 2020. The level of Government support in response to the Covid-19 pandemic has resulted in a short-term sharp reduction in the number of corporate insolvencies and bankruptcies. While we anticipate this trend will reverse in the medium term, the Board will continue to closely monitor the evolving situation and the impact on anticipated levels of litigation finance enquiries in and beyond the near term.

I would like to express my gratitude to my colleagues for all their exceptional work and the tremendous support they have given to the Company.

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 first half year to 30 September 2020, which show strong growth compared to the first half of the previous year.

Revenue

Revenue in H1 FY21 has increased by 153% to £19.0m in comparison to H1 FY20 (£7.5m). This growth in revenue has been driven by an increase in realised income due to the completion of 52 cases in the six month period, including a significant case generating realised revenue alone of £9.3m (discounted).

The Company's revenue is split between realised and unrealised revenue. When a case is fully completed, revenue is then recognised as realised and previously unrealised gains on that case are reversed.

Unrealised revenue was broadly unchanged at £5.4m in H1 FY21, compared to the first half of FY20 of £5.6m. This reflects the development of existing case investments, the realisation of completed cases and the increase in new case investments in the period. 

At 52 case completions, the number of case realisations was up 189% in H1 FY21. These generated realised revenues of £13.5m (H1 FY20: £1.9m). This reflects the higher rate of case completions which was signalled in earlier financial reports.

Accounting standards require a value judgment to be made on cases in respect of their unrealised revenue. Analysis of fair value movements shows Manolete's fair value estimates are close to or slightly below final realisations. A sample of 36 cases, chosen for their significant carrying value or significant increase in value over the 6 month period to 30 September are independently reviewed. Our proven extensive track record of rapidly converting unrealised into realised gains speaks to the robustness and accuracy of this important process.

H1 FY21 Realisations

There were 52 cases settled in H1 FY21 with case settlement values of between £9.3m (discounted) at the largest to £10,000 and an average settlement value of £263,206. The money multiple has averaged 3.1x with a return on capital employed of 164% on average and an average case duration of 11.5 months.

Large case completion

A significant case completed within the 6-month accounting period, at a commercial settlement of £15.0m generating a Manolete profit of £4.4m. HMRC was the main creditor on this case. The agreed schedule of payments is set over a period of time and as in accordance with IFRS 9 we have discounted the future cashflows at an appropriate discount rate resulting in recognition in our Interim accounts of £9.3m revenue and Manolete profit of £2.8m from this case. This represents a ROI of 1592% before discounting and 1019% after discounting.

Our trade receivable in relation to this case is £8.9m after we apply our ECL (general provision) to the discounted revenue figure and there is also an accrual of £6.2m held in relation to payment of the insolvent estate's share (dependent upon the Company receiving funds), hence a net receivable of £2.7m as at 30 September 2020.

The schedule of gross payments and receipts is set out below:

£'000	FY21	FY22	FY23	FY24	FY25	FY26	FY27	FY28	FY29	FY30	FY31
Gross receipts	164	1,000	150	1,150	1,857	1,857	1,857	1,857	1,857	1,857	1,393
Gross IP payments	-	(479)	(17)	(701)	(1,207)	(1,297)	(1,393)	(1,393)	(1,393)	(1,393)	(1,045)
Gross Manolete share	164	521	133	449	650	560	464	464	464	464	348
Cumulative gross receipts	164	1,164	1,314	2,464	4,322	6,179	8,036	9,893	11,750	13,607	15,000
Cumulative gross payments	-	(479)	(495)	(1,197)	(2,404)	(3,701)	(5,094)	(6,487)	(7,880)	(9,272)	(10,317)
Cumulative Manolete share	164	686	819	1,268	1,918	2,478	2,942	3,406	3,871	4,335	4,683

* excludes initial IP payment and legal costs.

Cost of sales

Cost of sales comprise legal costs on realised cases and payments to Insolvent Estates on successful realisations (the Insolvent Estate's share of the realisation) of purchased cases.

Gross profit

Gross profit grew 44% to £9.5m (H1 FY20: £6.6m). Gross profit margin decreased to 50% (H1 FY20: 89%) a reflection of the lower proportion of unrealised revenue in the period.

We analyse gross profit into the separate categories of funded and purchased cases. Our strategic preference is to purchase cases rather than fund them. Generally, our Insolvency Practitioner clients, where possible, prefer the Company to purchase cases as this gives them and the Insolvent Estate complete protection from any potential adverse costs. It also provides the Company with full operational control of the case through the litigation process.

£'000	H1 FY21			H1 FY20
Funded cases	767	8%		2,179	33%
Purchased cases	8,714	92%		4,453	67%
Gross profit	9,481	100%		6,632	100%

Administrative expenses

Administrative expenses increased 32% to £2.9m in the first half (H1 FY20: £2.2m). Staff costs (due to the roll out of our UK-wide in-house legal team network) and applying our bad debt provisioning policy across a larger trade receivables balance are the principal drivers of the increase in administrative expenses. The recruitment of in-house lawyers regionally across the UK is mostly complete, taking place over FY20, and hence now at close to full cost.

Statutory operating profit before non-recurring items (Earnings Before Interest and Tax)

Operating profit before non-recurring items grew by 47% to £6.6m in the first half (H1 FY20: £4.5m) with an operating profit margin of 35% (H1 FY20 60%). This reflects the higher proportion of realised revenue with their associated cost over unrealised revenue where associated legal costs are capitalised on the balance sheet.

Finance costs

These costs comprise: the interest cost on the drawn down portion of the HSBC loan, charged at 1.75% plus LIBOR, the amortisation charge of the costs of setting up the £20m HSBC borrowing facility of £0.1m, which are being amortised over the four year life of the facility; and commitment fees of £0.1m on the unutilised portion of the £20m facility, levied at the rate of 0.7%.

Profit after tax

Profit after tax has increased by 49% from £3.5m to £5.2m. The post-tax margin is 27% in H1 FY21 (H1 FY20: 46%) reflecting the higher level of realised profits and the associated accounting treatment as noted above.

Dividend

An interim dividend is proposed equal to a third of the previous financial year's dividend, consistent with our Admission Document.

Investment in cases

The Company was managing 237 live case investments (including Cartel cases) as at 30 September 2020, compared to 131 live cases (including Cartel cases) as at 30 September 2019, a 63% increase. The split between Purchased and Funded cases at these dates is as follows:

Live cases (by number)	30 September 2020			30 September 2019
Funded cases	36	15%		29	22%
Purchased cases	201	85%		102	78%
Total live case investments	237	100%		131	100%

The total investment in cases amounted to £39.3m at 30 September 2020, growth of 55% from the value as at 30 September 2019 of £25.4m (31 March 2020 value of £32.4m). Investment in cases is shown at costs incurred plus valuation. Live cases are shown at fair value, based on the Company's estimate of the likely future realised gross profit. Any material valuations are corroborated with the external lawyers working on the case who provide updated legal opinions as at the year-end and the half year-end. The Company does not capitalise any of its internal costs, these are fully expensed to the Profit and Loss as incurred. The average value per case as at 30 September 2020 was £172k, compared to £202k as at 30 September 2019.

Trade receivables and cash conversion

Trade and other receivables have increased by 266% from £4.1m to £15.0m due primarily to the completion of 52 cases including one significant case for a Net Present Value discounted revenue and trade receivable of £9.3m. Included in other receivables is a secured loan to an administrator of £0.5m; this loan is for two years and is at an attractive rate of interest and due to be repaid in July 2021 including accrued interest. The loan is secured by a senior charge on land which has been independently valued at well in excess of the loan.

We have increased the level of our expected credit loss (ECL) provision to 4% (from 2%) which is applied to all trade receivables that have not been specifically provided against. This increase has generated an additional P&L charge of £0.3m during H1 FY21.

Borrowings and loans

The Company has drawn down £8.0m of its £20.0m HSBC loan facility at an interest rate of 1.75% plus LIBOR. The Company intends to continue to use this finance to invest in new cases.  

Cash flow statement - Corporation tax

We continue to utilise our cash resources to invest in new cases, with a cash investment of £3.3m in the six month period, hence generating a cash outflow at the operating level.

In the half year to 30 September 2020, a corporation tax payment of £1.0m and year-end dividend payment relating to FY20 of £1.3m were also paid out.

A summary of our cashflow or H1 FY21 in comparison to H1 FY20 is presented below:  

	6 months	6 months
	H1 FY21	H1 FY20
	£'000	£'000
Net opening cash	8,371	9,692
Operating cashflow for the year	3,106	(768)
Investment in new cases	(3,343)	(2,124)
Net cash outflow after operating and investments	(237)	(2,892)
Working capital	(3,135)	(413)
Dividends and interest payments	(1,353)	(657)
Corporation tax	(966)	(2,504)
Other cash items	(87)	(107)
Borrowings	-	-
Net cashflow movement in period	(5,778)	(6,572)
Net closing cash balance as at 30 September	2,593	3,120

Mark Tavener

Chief Financial Officer

Unaudited Statement of Comprehensive Income for the period ended 30 September 2020

	Note	6 months ended 30 September 2020 Unaudited		6 months ended 30 September 2019 Unaudited	Year ended 31 March 2020 Audited
		£000s		£000s	£000s
Revenue	3	18,964		7,480	18,682
Cost of sales		(9,483)		(848)	(4.292)
Gross profit		9,481		6,632	14,390
Administrative expenses	4	(2,930)		(2,159)	(4,586)
Operating profit		6,551		4,473	9,804
Finance income	5	76		33	89
Finance costs	6	(269)		(215)	(437)
Profit before tax		6,358		4,291	9,456
Taxation		(1,208)		(837)	(1,841)
Profit and total comprehensive income for the period attributable to the equity owners of the Company		5,150		3,454	7,615
Basic earnings per share	11	11.8p		7.9p	17.5p
Diluted earnings per share	11	11.6p		7.8p	17.2p

 The above results were derived from continuing operations.

Unaudited Statement of Financial Position as at 30 September 2020

Company Number: 07660874	Note	30 September 2020 Unaudited	Restated 30 September 2019 Unaudited	31 March  2020 Audited
		£000s	£000s	£000s
Non-current assets
Investments	7	7,136	6,305	7,136
Intangible assets		46	63	56
Deferred tax asset		118	111	157
Trade receivables	9	9,871	-	443
Total non-current assets		17,171	6,479	7,792
Current assets
Investments	7	32,169	19,098	25,279
Stock		-	497	-
Trade and other receivables	9	5,123	4,096	5,454
Right of use assets		161	-	221
Cash and cash equivalents		2,593	3,120	8,371
Total current assets		40,046	26,811	39,325
Total assets		57,217	33,290	47,117
Equity and liabilities
Equity
Share capital		174	174	174
Share premium		4	4	4
Share based payments reserve		207	160	226
Special reserve		905	905	905
Retained earnings		37,456	29,670	33,613
Total equity attributable to the equity owners of the Company		38,746	30,913	34,922
Non-current liabilities
Borrowings and loans		7,612	-	7,526
Trade and other payables	10	6,520	-	213
Total non-current liabilities		14,132	-	7,739
Current liabilities
Trade and other payables	10	4,185	2,377	4,235
Lease liabilities		154	-	221
Total current liabilities		4,339	2,377	4,456
Total liabilities		18,471	2,377	12,195
Total equity and liabilities		57,217	33,290	47,117

The interim statements were approved by the Board of Directors and authorised for issue on 09 November 2020.

Unaudited Statement of Changes in Equity for the period ended September 2020

	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 2019 (audited)	174	4	67	3,157	24,613	28,015
Comprehensive Income
Profit and total comprehensive income for the period	-	-	-	-	3,454	3,454
Transactions with owners
Share based payment expense	-	-	28	-	-	28
Deferred tax on share-based payments	-	-	65	-	-	65
Dividend	-	-	-	-	(649)	(649)
Release of Special Reserve	-	-	-	(2,252)	2,252	-
As at 30 September 2019 (unaudited)	174	4	160	905	29,670	30,913
As at 1 October 2019 (unaudited)	174	4	160	905	29,670	30,913
Comprehensive Income
Profit and total comprehensive income	-	-			4,161	4,161
Transactions with owners
Share based payment expense	-	-	20	-	-	20
Deferred tax on share-based payments	-	-	46	-	-	46
Dividend	-	-		-	(218)	(218)
As at 31 March 2020 (audited)	174	4	226	905	33,613	34,922
As at 1 April 2020 (unaudited)	174	4	226	905	33,613	34,922
Comprehensive Income
Profit and total comprehensive income	-	-	-	-	5,150	5,150
Transactions with owners
Share based payment expense	-	-	37	-	-	37
Deferred tax on share-based payments	-	-	(56)	-	-	(56)
Dividend	-	-	-	-	(1,307)	(1,307)
As at 30 September 2020 (unaudited)	174	4	207	905	37,456	38,746

Unaudited Statement of Cashflows for the period ended 30 September 2020

	6 months ended 30 Sept 2020 Unaudited		Restated 6 months ended 30 Sept 2019 Unaudited	Year Ended 31 Mar 2020 Audited
	£000s		£000s	£000s
Cash flows from operating activities
Profit before tax	6,358		4,291	9,456
Adjustments for other operating items:
Sale / (purchase) of property	-		-	493
Investment in cases	(3,343)		(2,124)	(4,098)
Issue of borrowings	-		-	(500)
Adjustments for non-cash/non-operating items:
Fair value movements	(5,441)		(5,576)	(10,900)
Legal costs and IP payments on realised cases	1,894		494	1,599
Finance income	(76)		(33)	(89)
Finance costs	269		215	445
Depreciation	55		-	-
Amortisation	11		-	-
Deferred tax movement	-		(65)	-
Equity settled share-based payment transactions	36		(93)	(63)
	(237)		(2,892)	(3,657)
Changes in working capital:
(Increase) in trade and other receivables	(8,997)		(319)	(1,620)
Increase / (decrease) in trade and other payables	5,863		(94)	433
Cash flow used in operations	(3,371)		(3,305)	(4,844)
Taxation paid	(966)		(2,504)	(3,431)
Net cash used in operating activities	(4,337)		(5,809)	(8,275)
Cash flows from investing activities
Purchase and refurbishment of property	-		(50)	-
Purchase of intangible assets	-		(57)	(50)
Interest received	6		33	35
Net cash (used)/generated from investing activities	6		(74)	(15)
Cash flows from financing activities
Proceeds from borrowings	-			8,000
Repayment of obligations under finance leases	(88)		-	-
Interest paid	(52)		(41)	(164)
Dividend paid	(1,307)		(649)	(867)
Net cash (used)/generated from financing activities	(1,447)		(690)	6,969
Net decrease in cash and cash equivalents	(5,778)		(6,572)	(1,321)
Cash and cash equivalents at the beginning of the period	8,371		9,692	9,692
Cash and cash equivalents at the end of the period	2,593		3,120	8,371

Unaudited notes to the financial statements for the period ended 30 September 2020

1  Company information

Manolete Partners PLC (the "Company") is a public company 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 principal activity of the Company is that of acquiring and funding insolvency litigation.

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 statutory accounts for the year ended 31 March 2020 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 2020 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 2020 were prepared in accordance with International Financial Reporting Standards as adapted for use in the EU ("IFRS").

(b)  Going concern

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

Furthermore, the Board has discussed the impact of Covid-19 on the business and its market. 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 our trading for the 6 months to 30 September 2020 continues to be robust, 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. 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 Note 3. Significant Judgements and Estimates). Hence, unrealised revenue is the movement in the fair value of the investments in open cases over a period of time.

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

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

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

(d)  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. 

 

3  Segmental reporting

During the six months ended 30 September 2020, the revenue was derived from cases funded on behalf of the insolvent estate and cases purchased from the insolvent estate. 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 are from continuing operations and are not seasonal in nature.

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

Fair value movements includes the increase / (decrease) in fair value of open cases, the removal of the carrying fair value of realised cases (in the period when a case is completed and recognised as realised revenue) and the addition of the fair value of new cases.

	6 months ended 30 Sept 2020 Unaudited		6 months ended 30 Sept 2019 Unaudited	Year Ended 31 March 2020 Audited
	£000s		£000s	£000s
Net realised gains on investments in cases	13,523		1,904	7,782
Fair value movements (net of transfers to realisations)	5,441		5,576	10,900
Revenue	18,964		7,480	18,682

	6 months ended 30 Sept 2020 Unaudited		6 months ended 30 Sept 2019 Unaudited	Year Ended 31 March 2020 Audited
	£000s		£000s	£000s
Arising from:
Funded cases	1,045		2,421	5,347
Purchased cases	17,919		5,059	13,335
Total cases	18,964		7,480	18,682

4  Analysis of expenses by nature

The breakdown by nature of administrative expenses is as follows:

	6 months ended 30 Sept 2020 Unaudited		6 months ended 30 Sept 2019 Unaudited	Year Ended 31 March 2020 Audited
	£000s		£000s	£000s
Staff Costs, including pension and healthcare costs	1,544		1,135	2,573
Office costs	94		142	201
Other costs, including marketing costs and expected credit losses	1,292		882	1,812
Total administrative expenses	2,930		2,159	4,586

 

5   Finance income

	6 months ended 30 Sept 2020 Unaudited		6 months ended 30 Sept 2019 Unaudited	Year Ended 31 March 2020 Audited
	£000s		£000s	£000s
Bank interest	6		33	39
Other loan interest	70		-	50
Total finance income	76		33	89

6  Finance costs

	6 months ended 30 Sept 2020 Unaudited		6 months ended 30 Sept 2019 Unaudited	Year Ended 31 March 2020 Audited
	£000s		£000s	£000s
Other loan interest	28		50	57
Bank loan interest	33		-	57
Amortisation of HSBC facility set-up costs	86		86	172
Bank loan charges	122		79	151
Total finance costs	269		215	437

7  Investments

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.

Any change in value is taken to other reserves as an unrealised gain or loss.

	30 Sept 2020 Unaudited		30 Sept 2019 Unaudited	31 March 2020 Audited
	£000s		£000s	£000s
As at 1 April 2020	32,415		18,197	18,197
Additions	3,343		2,124	4,917
Realisations	(1,894)		(494)	(1,599)
Fair value movement (net of transfers to realisations) see Note 8	5,441		5,576	10,900
As at 30 Sept 2020	39,305		25,403	32,415

 

8  Analysis of fair value movements

	6 months ended 30 Sept 2020 Unaudited		6 months ended 30 Sept 2019 Unaudited	Year Ended 31 March 2020 Audited
	£000s		£000s	£000s
Net realised gains on investments in cases	13,523		1,904	7,782
Fair value movements (net of transfers to realisations)	5,441		5,576	10,900
Revenue	18,964		7,480	18,682

	6 months ended 30 Sept 2020 Unaudited		6 months ended 30 Sept 2019 Unaudited	Year Ended 31 March 2020 Audited
	£000s		£000s	£000s
Valuation of new cases in the period	8,154		3,540	8,581
Increase in valuation of existing cases	2,158		2,770	3,729
Movement in cartel cases	-		1,171	2,003
Decrease in valuation of existing cases	(921)		(796)	(1,412)
Reversal of valuation on realised cases	(3,950)		(1,109)	(2,001)
Total fair value movements	5,441		5,576	10,900

9 Trade and other receivables 

	30 Sept 2020 Unaudited		30 Sept 2019 Unaudited	31 March 2020 Audited
	£000s		£000s	£000s
Amounts falling due in more than one year:
Trade receivables	9,871		-	443
Amounts falling due within one year:
Trade receivables	4,365		2,857	4,774
Other receivables	716		1,239	500
Prepayments	-		-	180
Loan receivable	42		-	-
Trade and other receivables	5,123		4,096	5,454

10Trade and other payables

	30 Sept 2020 Unaudited		30 Sept 2019 Unaudited	31 March 2020 Audited
	£000s		£000s	£000s
Amounts falling due in more than one year:
Accruals and other creditors	6,520		-	213
Amounts falling due within one year:
Other taxation and social security	88		154	80
Corporation tax payable	1,265		878	1,006
Accruals and other creditors	2,804		1,345	3,149
Loan payable	28		-	-
Trade and other payables	4,185		2,377	4,235

11  Earnings per share

	6 months ended 30 Sept 2020 Unaudited		6 months ended 30 Sept 2019 Unaudited	Year Ended 31 March 2020 Audited
	£000s		£000s	£000s
Profit and total comprehensive income for the period attributable to the equity owners of the Company	5,150		3,454	7,615
Shares in issue	43,571,925		43,571,425	43,571,925
Proforma earnings per share	11.8p		7.9p	17.5p
Fully diluted shares in issue	44,341,581		44,272,558	44,318,539
Proforma fully diluted earnings per share	11.6p		7.8p	17.2p

 

END

 

 

IR FLFETLSLAIII