Manolete Partn. Regulatory News (MANO)

23 June 2021

MANOLETE PARTNERS PLC

("Manolete" or the "Company")

Audited results for the year ended 31 March 2021

Manolete (AIM:MANO), the leading UK-listed insolvency litigation financing company, today announces its audited results for the year ended 31 March 2021.

Steven Cooklin, Chief Executive Officer, commented: "Despite the UK Government taking extraordinary action to temporarily suppress the number of insolvencies and levels of unemployment, we have delivered another set of strong financial and operating results. We are especially proud of delivering a 214% increase in our realised revenues to a record level of £24.4m and a 113% increase in Manolete's retained share of cash generated from completed cases."

"A record 198 new case investments were made in FY21 and a further record 135 cases were completed - displaying the fast and effective delivery of the Manolete business model. We continue to deliver outstanding investment returns, yielding an average Money Multiple of 2.7x and ROI of 168% on 388 completed cases since inception.

"We entered FY22 with £1.1m of gross cash and £12m of our HSBC Revolving Credit Facility (RCF) unutilised. We have now agreed a new RCF with HSBC for £25m over an initial three-year period to 1 July 2024, with an option to extend by a further year. The new RCF also offers the Company an additional £10m accordion, if ever required. This new RCF will provide Manolete with the financial firepower to continue investing in new insolvency litigation cases at a record pace in order to maximise returns to shareholders over the coming years.

"While the Government's emergency suppression of insolvencies is currently still in place, having been extended before, those Temporary Measures are currently due to end on 30 September 2021. However most commentators would agree that the Government's restrictions cannot continue indefinitely and interestingly in May 2021 Creditor Voluntary Liquidations (by far the most common type of company insolvency) were back to pre-Covid levels, even with those restrictions in place. The insolvency process will play a critical role in allocating capital and resources to truly sustainable businesses in the post-pandemic UK economy. With the widely reported large backlog of insolvency cases, we expect new case enquiries to increase over the foreseeable future and we will continue working hard to deliver outstanding returns to both the creditors of insolvent estates and our investors."

Financial (statutory and non-statutory) highlights:

· Total revenues increased by 49% to £27.8m (FY20: £18.7m)

· Realised revenues increased by 214% to £24.4m (FY20: £7.8m)

· 88% of total revenues represented by realised revenues on fully completed cases (FY20: 42%)

· 75% of total gross profit generated from realised, completed cases (FY20: 24%)

· EBIT decreased by 25% to £7.4m (FY20: £9.8m) reflecting lower level of unrealised profits due to exceptional Government measures, a more conservative assessment of the value of our in-process cases against the background of the pandemic and the full year effect of our expanded staff network

· Profit before tax down 26% to £7.0m (FY20: £9.5m)

· Diluted earnings per share down 24% to 13 pence (FY20: 17 pence)

· Proposed final dividend of 1 pence per share

· Cash generation: gross cash receipts from completed cases increased 61% to £12.2m (FY20: £7.6m)

· The Company's retained share of gross cash receipts from completed cases (after all legal costs and payments to Insolvent Estates) increased by 113% to £6.8m (FY20: £3.2m)

· Operating cashflows before new investments and corporation tax (non-statutory layout) increased to £2.8m in FY21 (FY20: cash outflow of £0.8m) hence cash inflows from completed cases exceeded payments to lawyers and IPs incurred on those cases and all overhead payments

· Gross cash of £1.1m and borrowings of £8.0m as at 31 March 2021 and £12.0m unutilised funds available on Revolving Credit Facility with HSBC (same level as 31 March 2020) 

Operational highlights:

· 40% increase in new core investments in UK insolvency cases: 198 in FY21 (FY20: 141)

· Ongoing delivery of realised returns: 135 case realisations in FY21 (on average 2.6 case realisations per week) with an average duration on those 135 cases of 11 months

· ROI of 168% and Money Multiple of 2.7x from 388 completed cases since inception

· Average case duration across the full portfolio of 388 completed cases is 11 months

· 40% increase in live cases: 245 in process as at 31 March 2021 (175 as at 31 March 2020)

A copy of the annual report and accounts will be available on the Company's website shortly and will be posted to shareholders in due course. 

For further information please contact:

Manolete Partners

Steven Cooklin (Chief Executive Officer) via Instinctif Partners

Peel Hunt (NOMAD and Broker) +44 (0)20 7418 8900

James Britton

Rishi Shah

Duncan Littlejohns

Instinctif Partners manolete@instinctif.com / +44 (0)20 7457 2020

Tim Linacre

Lewis Hill

George Peele

Chairman's Statement

Overview

I am pleased to report the Company has delivered a resilient performance in an unprecedented year with 198 new case investments in the year to 31 March 2021.

The Company's results reflect the strength, resilience and capabilities of the business through its expanding network of Insolvency Practitioners and insolvency lawyers throughout the UK.

Financial results

Revenues for the year to 31 March 2021 increased by 49% to £27.8m (FY20: £18.7m) and Profit before Tax was £7.0m compared to £9.5m in the prior year.

There were 135 case completions (FY20: 54 case completions) which is a record for the Company and these generated Gross Cash Receipts of £12.2m (FY20: £7.6m) (Net Cash receipts of £6.8m (FY20: £3.2m)) and realised revenue of £24.4m (FY20: £7.8m).

We agreed on 22 June 2021 a new £25m Banking Facility with HSBC to support the growth of the business. This Revolving Credit Facility is for three years and has the option to extend for another year together with a further approved but uncommitted £10m accordion. Details are set out in the CFO's report.

Strategy

We remain focused on strengthening the profile of Manolete and an important component to our strategy is to continue to build upon our network of established Insolvency Practitioner and insolvency lawyer contacts throughout the UK.

The Covid-19 pandemic resulted in the UK Government introducing the Corporate Insolvency and Governance Act 2020 ("temporary measures") to protect employment and businesses which has led to a fall in corporate insolvencies. These Temporary Measures are due to end on 30 September 2021 and have impacted our business particularly in the second half of the year.

Dividend

The Board has reviewed the dividend policy and is recommending a final dividend of 1.00p (FY20: 3.00p) per share giving a total dividend for the year of 2.17p (FY20: 4.17p) per share. Subject to the approval of shareholders at the Annual General Meeting on 21 September 2021, the dividend to Ordinary Shareholders will be payable on 7 October 2021 to those shareholders who are on the register of members at 10 September 2021.

Corporate Governance

The Board of directors is committed to good corporate governance. The Company has adopted the ten principles of the 2018 Version of the Corporate Governance Code as set out by the Quoted Companies Alliance. Our arrangements are further described in our Corporate Governance Statement on pages 25 to 28. During the year the Board undertook a formal board evaluation exercise. The Company is also committed to a robust Environmental, Social and Governance (ESG) Policy which is set out on its website.

The Audit Committee report on pages 29 to 30 and the Remuneration Committee report on pages 31 to 33 describe the remits and approaches of those committees to fulfilling their governance responsibilities. A statement on corporate governance is also provided on our website (https://investors.manolete-partners.com/company-information/corporate-governance).

People

On behalf of the Board and shareholders, I would like to thank our staff for their commitment and hard work during the year.

Board

This is my last statement as Non-Executive Chairman as I will be retiring as Chairman of the Board at the forthcoming AGM. We have separately announced today that Lord Leigh of Hurley has joined the Board as Chairman Designate.

Outlook

While we continue to trade profitably, the numbers of new cases have been negatively impacted by the Government's Temporary Measures. As the country moves out of lockdown, we expect the Government to end these measures and we anticipate a return to business as normal.

Overall, the business is very well-positioned in the insolvency litigation financing market for long-term profitable growth.

Peter Bertram

Non-Executive Chairman

22 June 2021

CEO's Statement

I am pleased to report on significant delivery to shareholders for the financial year ended 31 March 2021. The business reported a highly creditable performance despite the extraordinary measures taken by the UK Government to suppress the level of UK insolvencies, using temporary legislative measures contained within the Corporate Insolvency and Governance Act 2020 (the "Temporary Measures"), in order to protect businesses and employment during the Covid-19 pandemic.

Total UK corporate insolvencies in the year ended 31 March 2021 were 11,661 compared to 18,194 for the prior year: a decrease of 35.9%. Having been extended twice before, those Temporary Measures are currently due to end on 30 September 2021. However, most commentators would agree the Government's restrictions cannot continue indefinitely and, interestingly May 2021 Creditor Voluntary Liquidations (by far the most common type of company insolvency) were back to pre-Covid levels, even with those restrictions in place. Against this temporary, artificial UK insolvency market background the Company delivered resilient key performance indicators in FY21:

· Invested in 198 new UK insolvency claims, an increase of 40% (FY20: 141);

· 135 cases were completed, an increase of 150% (FY20: 54);

· Realised revenues on completed cases were £24.4m, an increase of 214% (FY20: £7.8m);

· Gross cash receipts from completed cases were £12.2m, an increase of 61% (FY20: £7.6m);

· The Company's retained share of gross cash receipts from completed cases (after all legal costs and payments to Insolvent Estates) was £6.8m, an increase of 113% (FY20: £3.2m);

· Cash generated from operations (after all overheads but before new case investments and taxation) was £2.8m compared to an outflow of £0.7m in FY20; and

· EBIT decreased to £7.4m, a decrease of 25% (FY20: £9.8m).

As at 31 March 2021, the Company had £12m committed but undrawn funds on its Revolving Credit Facility with HSBC, the same position as at 31 March 2020. We have now agreed on 22 June 2021 a new RCF for £25m over an initial three-year period to 1 July 2024, with an option to extend by a further year. The new RCF also offers the Company an additional approved but uncommitted £10m accordion, if ever required. The interest rate is a maximum 2.9% over SONIA.

The Company's operating and financial results were largely unaffected until September 2020. Since then, the number of new case enquiries and new case investments have slowed. The following graph shows the number of new signed cases per quarter. For Q1 and Q2 FY21, those quarters were strongly ahead of their comparative quarters for the prior year. The Temporary Measures (which were originally scheduled to end in September 2020) adversely impacted the performance of Q3 and Q4 of FY21, relative to Q1 and Q2 in FY21.

As cases completed at record levels throughout the year, our realised revenues and realised profits were strongly ahead of FY20. However, unrealised profits (on newly signed cases) were inevitably adversely impacted as the number of newly signed cases slowed in H2 of FY21. As at 31 March 2021, the Board has also carefully and conservatively reviewed the carrying value of all live cases in the light of the prevalent general UK economic conditions. The combined effect of these two factors resulted in unrealised revenues declining from £10.9m in FY20 to £3.4m in FY21. Overall, for FY21, 88% of total revenues (FY20: 42%) of £27.8m (FY20: £18.7m) and 75% of total gross profit (FY20: 24%) of £13.4m (FY20: £14.4m) were from realised completed cases - a strong testament to the Company's business model delivery.

Cash generation was very strong throughout FY21, particularly in the second half of FY21 which accounted for 66% of gross cash receipts from completed cases. Overall gross cash rose 61% to a record £12.2m for FY21. It should be noted that only 26% of those cash receipts came from cases completed in FY21 whereas 61% derived from cases that completed in FY20 (43%) and FY19 (18%), the balance of 13% coming from earlier case investment vintages. This highlights the cash latency in the Company's financial results: the large majority of the cash benefit of FY21's record realised revenues of £24.4m is yet to be reflected in the Company's cash reserves. The £12.2m of cash generated derived from 141 separate cases (FY20: £7.6m from 74 historical cases), which highlights the wide diversity and granularity of the Company's cash income.

The Cartel Cases continue to progress as expected and we note trials of similar related truck cartel cases are now scheduled in 2022. As Covid-19 has caused delays in the operation of the Competition and Appeals Tribunal, the Board has not adjusted the Fair Value of our Cartel Cases in FY21 which are valued at £7.1m (FY20: £7.1m).

The Company did not apply for any Covid-19 support, for example Government backed lending schemes or delayed tax settlements and no staff were put on furlough.

Investment Returns

Our investment track record, by vintage, continues to deliver outstanding results. All vintages, up to and including FY16, have been completed and FY17 has only one case remaining. FY18 cases are now 93% complete, FY19 88% complete and well over half of the FY20 cases. Manolete's model is characterised by short case durations, high ROIs (Return on Investment), exceptional Money Multiples and very high IRRs. We calculate case duration from the date we sign the investment agreement to the date the case is legally concluded. On average, cash collection takes around 12 months after legal completion.

The more mature later vintages of FY18, FY19 and FY20 all have total case recoveries of over £10m per year and IRRs ranging from 152% to 484%. The FY21 vintage already shows 55 completed investments at an average duration of just 5.0 months per case.

Industry Recognition

On 9 December 2020, Manolete was voted Insolvency Litigation Funder of the Year for the fourth time in the last five years at the industry's prestigious Turnaround Recovery and Insolvency Awards. A great testament to the tremendous work of all the Company's employees.

Board Change

We have announced Peter Bertram will be retiring as Chairman of the Board at our forthcoming AGM, to be replaced by Lord Leigh of Hurley. Lord Leigh has now joined the Board and the intention is for him to transition to the Chairman's role at the forthcoming AGM later this year. I would like to record our great thanks to Peter for his expert guidance and leadership of the Board in the lead up to our IPO in 2018 and to our position as a well-established listed company.

COVID-19 Impact and Current Trading

The Board remains focused on the health, safety and well-being of all colleagues. Throughout the Covid-19 pandemic period, we have operated without interruption, none of our people were placed on furlough, and the Company has not taken advantage of any other Government support measures. Colleagues adapted well to remote working during lockdown periods and previous investments in our IT and operating infrastructure have proven to be invaluable.

Our work lends itself particularly well to the new environment: almost all cases come to us in electronic format; our settlement meetings (Mediations and Without Prejudice settlement meetings) easily transitioned to online video conference format and the Courts worked very hard to keep trials and hearings on track using online technologies.

At the time of writing, the UK continues to emerge cautiously but steadily from lockdown restrictions, particularly thanks to the seemingly effective vaccine roll-out programme. If that progress continues, we would expect the business operating environment, including the workings of the UK insolvency system, to resume normal operations in due course. As many commentators have noted, once the Temporary Measures end, there is likely to be a material increase in the number of UK insolvencies over an extended period of time, due to the backlog that has built up while those measures have been in force since June 2020. The UK's highly regarded insolvency system plays a vital role in allocating resources in the UK economy to sustainable and profitable companies and we expect it to play a vital role as Britain builds back better.

As many have predicted, the COVID-19 crisis is likely to lead to widespread global economic disruption. As we have said previously, we expect there will be an unavoidable knock-on effect for the UK economy and it is likely that this will lead to an increase in case referrals to Manolete in the months to come. 

People and Stakeholders

I am enormously grateful to our in-house legal team and the finance and Net Worth Support team. It has been a very busy year, despite the challenges of COVID-19. All have performed admirably and are a great credit to the Company. My special thanks go to our Head of Legal, Mena Halton, who has onboarded and supervised a much larger UK-wide in-house legal team, on top of her day-to-day case work. The Company's excellent results are a great reflection of that work.

I would also like to record my thanks to the many Insolvency Practitioners and solicitors who refer cases to us. The majority of invested cases are from the same Insolvency Practitioner firms, and it is this recurring referral network that is the core engine of the Manolete business which has been built over the last 12 years.

I am pleased we continue to deliver on the growth plans, as we accelerate our growth through investing in more claims, accepting higher value cases and further developing our UK regional network.

Steven Cooklin

Chief Executive Officer

22 June 2021

CFO's Statement

I am pleased to give my review of the Company's audited results for the year to 31 March 2021.

*including 7 partially completed cases & 22 cartel cases in FY21 (2 partial completions and 22 cartel cases in FY20).

During FY21, the Company completed a record 135 cases (FY20: 54) converting historical unrealised gains into realised revenue and profit. FY21 has seen a transition in the Company's revenue and margin mix, with realised revenue accounting for 88% of revenue (FY20: 42%) and 75% of gross profit.

This transition has driven improved operational cash generation before investment in cases and corporation tax to £2.8m (FY20: £(0.7)m) but has also resulted in the decline in gross margin from 77% in FY20 to 48% in FY21 as unrealised revenue flows through to gross profit at 100% margin. EBIT has decreased to £7.4m due to the increase in administrative costs by £1.4m primarily due to the full year impact of the lawyers recruited during FY20.

While the Company has completed a record number of cases, we have also signed 198 new cases (FY20: 141). However, due to the Government Covid-19 business support measures expected to remain in place until 30 September 2021, the sector has seen a notable decline in the level of insolvencies within the market during H2 which has translated into a reduced level of new case additions for Manolete in H2 FY21, 88 compared with 110 in H1 FY21 which has consequently impacted on unrealised revenue during FY21.

Despite the short-term drag on new cases, the Company's total revenues have increased significantly by 49% to £27.8m (FY20: £18.7m).

Realised revenue grew 214% to £24.4m (FY20: £7.8m) due to a record level of case completions, with 135 completions during the year including a significant case completion, which is explained in further detail below.

The decrease in unrealised revenue derives from a combination of the higher level of case completions (moving from unrealised revenue to realised revenue), a temporary slow-down in the insolvency market which reduced new case additions during H2 FY21 and the Board's reassessment of investment valuations in light of the pandemic which resulted in reduction of the Fair Value across ongoing live cases. Note 13 of the accounts provides a breakdown on the fair value movement.

Significant case completion

A significant case was completed during the year, for a settlement of £15m generating an undiscounted gross profit of £4.4m. The settlement is payable to Manolete over a 10 year period which is exceptional in nature when

compared with all other case settlements in the Company's history which typically settle within 12 months. Consequently, in accordance with IFRS 9, the gross proceeds of £15m have been discounted to revenue of £9.3m and gross profit of £2.8m in the FY21 accounts at an appropriate discount rate to recognise the significant financing component implicit in the arrangement. This represents an ROI of 1,592% before discounting and 1,019% after discounting. The impact of the settlement on the FY21 results is illustrated below.

The decline in gross profit of 7% to £13.4m in FY21 (FY20: £14.4m) and the decrease in gross margin from 77% to 48% was a result of the increased proportion of realised revenue, for which revenue and related costs of sales are recognised, whereas, unrealised revenue (the Company's expected profit on each case) is recorded at 100% margin which is illustrated in the analysis of gross profit above. The large case completion in FY21 also impacted the gross margin for FY21.

Gross profit: H1 v H2

Reported gross profit in the six months to 30 September 2020 was £9.5m (71% of total gross profit), however, in the six months to 31 March 2021 was £3.9m (29% of total gross profit). Realised profits grew from £4.0m H1 to £6.0m in H2, but have been offset by a significant fall in unrealised profits from £5.4m in H1 to £(2.1)m in H2 as the impacts of the Covid-19 measures protecting businesses have started to filter through.

The ongoing Government temporary insolvency restrictions contained in the Corporate Insolvency and Governance Act 2020 which commenced in June 2020 and are due to largely expire in September 2021 have led to a decrease in the number of UK insolvencies since the start of the Covid-19 pandemic, which has seen the rate of the Company's new case additions slow from 110 in H1 to 88 in H2.

The directors have also carefully considered the investment valuations based on the challenging economic conditions and have adjusted case valuations where there has been evidence of defendant's having impaired asset positions which has impacted on total potential claim value in H2.

Administrative expenses increased by 31% to £6.0m (FY20: £4.6m) but decreased as a proportion of gross revenue from 25% FY20 to 22% FY21. The increase in Administration expenses was primarily a result of increases in staff costs and bad debt expense.

Staff costs increased as the full year impact of previously recruited in-house lawyers and inflationary salary increases whilst headcount has increased marginally from 19 as at 31 March 2020 to 21 as at 31 March 2021.

In FY21, we have taken a cautious approach to providing against the small number of overdue receivables, particularly given the economic uncertainties due to the Covid-19 pandemic. We have increased our specific provision by £1.6m and we have also increased the level of our lifetime expected credit losses by £0.5m as shown in note 16. This has driven an increase in the bad debt expense in FY21 to £1.4m (FY20: £0.5m) which reflects the net credit risk to the Company after the gross provision against trade receivables is adjusted for a corresponding reduction in share of profits due to the Insolvency Practitioner.

Professional fees in FY21 include the services of two business development consultants (together a cost of £110k FY21) to further develop new cases.

Marketing costs decreased significantly by 67% in FY21, a direct result of Covid-19 limiting the ability to undertake business development activities.

Operating profit (Earnings Before Interest and Tax)

Operating profit decreased by 25% to £7.4m (FY20: £9.8m) with the operating margin decreasing to 27% (FY20: 53%). There were no exceptional items in FY21 or in FY20.

Finance costs

The Company agreed a £20m debt facility with HSBC in December 2018 to facilitate the growth of its case load in the future. The Company pays a 0.7% commitment fee on any unused facility with HSBC. As at 31 March 2021, £8.0m of the £20m HSBC facility has been drawn down, which is the same level of drawdown as at 31 March 2020.

During the year, the Company incurred £0.5m of finance costs (FY20: £0.4m). Loan interest amounted to £0.3m (FY20: £0.2m) and the remaining costs of £0.2m (FY20: £0.2m) comprised the amortisation charges of the costs of setting up the facility. The unamortised costs of £0.3m in the balance sheet are being amortised over the four-year life of the facility.

Profit before tax

Profit before tax has decreased by 26% to £7.0m (FY20: £9.5m). The Company's pre-tax profit margin has decreased from 51% to 25% in FY21.

Taxation

The Company's effective tax rate is 17.9%. The Company will discharge its corporation tax liabilities over the next few months.

Profit after tax

Profit after tax has decreased by 25% to £5.7m (FY20: £7.6m). The post-tax margin has decreased from 41% to 20%.

Earnings per share

As disclosed in Note 12, earnings per share decreased by 26% from 17 pence to 13 pence.

Balance sheet - Investment in Cases

The Company was managing 245 live case investments as at 31 March 2021, compared to 175 live cases as at 31 March 2020, a net increase of 70 cases, 40%. The total investment in cases amounted to £37.5m in FY21, an increase of 16% (FY20: £32.4m). Investment in cases are shown at fair value, based on the Company's estimate of the likely future realised gross profit, plus costs incurred.

Management, following discussion on a case-by-case basis with the in-house legal team, amend valuations of cases each month end to accurately reflect management's view of fair value. In addition, at the interim and final reporting periods, a sample of material valuations are corroborated with the external lawyers working on the case, who provide updated legal opinions as to the current status of the case. The Company does not capitalise any of its internal costs, these are fully expensed to the Statement of Comprehensive Income as incurred.

Gross cash receipts 

Following the IPO in December 2018, the Company has experienced a period of significant investment with a total of 360 new cases signed. In FY21, while the level of cash investment in new cases continued to grow, the rate of growth slowed to 44% in FY21 compared with 67% in FY20 whilst there has been an acceleration in case completions which grew to 135 in FY21 (FY20: 54) and resultant cash collection.

This inflexion has driven strong growth in gross cash receipts from £7.6m in FY20 to £12.2m in FY21 (61%) and importantly, cash generated from operations before investment in cases and corporation tax has increased from a cash outflow of £(0.7)m in FY20 to a cash inflow of £2.8m in FY21 which has been reinvested into the portfolio.

Overheads & corporation tax

Excluding non-cash items (including bad debt expense), cash incurred on overheads remained broadly stable at around £4.0m. The Company has benefitted from savings on marketing and travel as a consequence of restrictions from the Covid-19 pandemic and improved operational leverage as revenue and case numbers have grown and the lawyers recruited during FY20 have been fully deployed. 

Corporation tax paid during the year fell from £3.4m in FY20 to £1.9m as the Company settled one-off historical corporation tax liabilities of £2.6m with HMRC during FY20. As corporation tax is paid on unrealised as well as realised profits, the Company effectively pre-pays an element of its corporation tax liability. In FY21, the Company generated unrealised profits of £3.4m (FY20: £10.9m) of which corporation tax is payable at 19% totalling £0.6m (FY20: £2.1m).

Investment in cases

We have continued to invest heavily in our existing and new cases with total capital of £5.9m deployed during FY21 compared with £4.1m in FY20 which has been funded through cash receipts and our HSBC loan facility.

Working Capital

The £6.3m movement in working capital shown in the statutory cashflow (which excludes movements on prepayments and the property loan of £500k presented within other receivables in the notes to the financial statements) during FY21 is primarily due to a significant case completion (£3.1m) which is being settled over a 10 year period. Excluding the significant case completion which management view as an exceptional case, there was a £3.2m absorption into working capital due to the increased level of realised income during FY21. This increase in net trade receivables will generate cash in FY22. Debtor days on a countback basis increased from 150 in FY20 to 202 in FY21 mainly due to the settlement of the large case which is being settled over 10 years. Excluding the large case settlement, there has been a small decrease in debtor days to 142 (FY20: 150), albeit this has been limited by the Government-imposed moratorium on residential possession orders which has put a temporary halt on collection of several of our receivables. The moratorium has now been partially lifted as of 31 May 2021.

1 Days sales outstanding

Debt Financing

The Company has drawn down £8.0m of its £20m HSBC loan facility and has continued to deploy loan capital to finance investment in cases. The Company held cash reserves of £1.1m as at 31 March 2021 which are available to both respond to any uncertainty over the Covid-19 pandemic and to deploy on new case investment. It also has £12m available of the £20m facility with HSBC and this facility and the cash reserves will be used to finance the growth of the case portfolio over the next few years. The Company has complied with its financial covenants during the year. A further drawdown of £2m has been made post year end.

We have agreed on 22 June 2021, a new RCF for £25m over an initial three-year period to 1 July 2024, with an option to extend by a further year. The new RCF also offers the Company an additional approved but uncommitted £10m accordion, if ever required. The interest rate is a maximum 2.9% over SONIA.

Mark Tavener

Chief Financial Officer

22 June 2021 

Statement of Comprehensive Income

The above results were derived from continuing operations.

The notes on pages 43 to 66 form part of these financial statements. 

Statement of Financial Position

The notes on pages 43 to 66 form part of these financial statements.

The financial statements were approved by the Board of Directors and authorised for issue on 22 June 2021.

Steven Cooklin

Chief Executive Officer

Statement of Changes in Equity

*attributable to the equity owners of the Company.

The notes on pages 43 to 66 form part of these financial statements.

Statement of Cash Flows

The notes on pages 43 to 66 form part of these financial statements.

Notes forming part of the Financial Statements

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 2021 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 2020 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 2021 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 22 June 2021.

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.

In particular, the Board considered the refinancing of the existing HSBC loan with a £25m revolving credit facility and a further approved but uncommitted £10m accordion which was signed on 22 June 2021 for a term until 1 July 2024 with a further 1 year extension along with the financial forecast of the business for an 16 month period from June 2021 to September 2022 which was discussed at January's Board meeting.

Furthermore, the Board has discussed the impact of Covid-19 on the business throughout the year. A reduced level of activity in the Insolvency market over the last 6 months, itself driven by unprecedented levels of Government support to failing businesses, has resulted in a lower level of new cases signed than would otherwise have been the case. The directors expect that the removal of Government support in the coming months 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 insolvency practitioners and external lawyers and continuing to progress cases. The Courts continue to function at first remotely but increasingly in person.

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 as a minimum for a period of at least 12 months from the approval of these financial statements. 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 and amended IFRS Standards that are effective for the current year:

· Amendment to IFRS 16, 'Leases' - Covid-19 related rent concessions

· Amendments to IAS 1, Presentation of financial statements' on classification of liabilities

New and revised IFRS Standards in issue but not yet effective:

At the date of authorisation of these financial statements, the Company has not applied the following new and revised IFRS Standards that have been issued but are not yet effective:

· Amendments to IAS 1 Classification of Liabilities as Current or Non-current

· Amendments to IFRS 3 Reference to the Conceptual Framework Amendments to IAS 16 Property, Plant and Equipment-Proceeds before Intended Use

· Amendments to IAS 37 Onerous Contracts - Cost of Fulfilling a Contract Annual Improvements to IFRS Standards 2018-2020 Cycle

· Amendments to IFRS 1 First-time Adoption of International Financial Reporting Standards, IFRS 9 Financial Instruments, and IFRS 16 Leases.

The directors do not expect that the adoption of the Standards listed above will have a material impact on the financial statements of the Company in future periods.

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, the inclusion of value for a new case and the removal of the fair value of a completed case. These valuations are estimated following the progress of a case towards completion and also reflect the judgement of the legal team working on the case (see Note 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.

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

2.9 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 specifically against receivables where Management have identified default or delays to payments in addition to the simplified approach within IFRS 9 using lifetime expected credit losses. The Company applies the simplified approach in providing for expected credit losses under IFRS 9 which allows the use of the lifetime expected credit loss provision for all trade receivables. In measuring the expected credit losses, trade receivables have been stratified by settlement type and days past due. Expected lifetime expected credit loss rates are based on the payment profiles of sales from January 2019 (post IPO). 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.

Contract assets are initially recognised in respect of earned interest revenue earned on completed cases but where the settlement will be paid to the Company over a significant period of time (i.e. there is a significant financing component implicit in the transaction).

2.10 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.

Lease liabilities

A lease liability is recognised at the commencement date of a lease. The lease liability is initially recognised at the present value of the lease payments to be made over the term of the lease, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Company's incremental borrowing rate. Lease payments comprise of fixed payments less any lease incentives received.

Lease liabilities are measured at amortised cost using the effective interest method. The carrying amounts are remeasured if there is a change in the following: future lease payments arising from a change in an index or a rate used; residual guarantee; lease term; certainty of a purchase option and termination penalties. When a lease liability is remeasured, an adjustment is made to the corresponding right-of-use asset, or to profit or loss if the carrying amount of the right-of-use asset is fully written down.

Contract liabilities

Contract liabilities represent the Company's obligation to transfer goods or services to a customer and are recognised when a customer pays consideration, or when the Company recognises a receivable to reflect its unconditional right to consideration (whichever is earlier) before the consolidated entity has transferred the goods or services to the customer.

2.11 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.

2.12 Share capital

Ordinary shares are classified as equity. There is one class of ordinary share in issue, as detailed in note 21. Incremental costs directly attributable to the issue of new shares are shown in share premium as a deduction from the proceeds, net of tax.

2.13 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.

2.14 Share-based payments

Equity-settled share-based compensation benefits are provided to employees.

Equity-settled transactions are awards of shares, or options over shares, that are provided to employees in exchange for the rendering of services.

The cost of equity-settled transactions are measured at fair value on grant date. Fair value is independently determined using the Black-Scholes option pricing model that takes into account the exercise price, the term of the option, the impact of dilution, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk free interest rate for the term of the option, together with non-vesting conditions that do not determine whether the consolidated entity receives the services that entitle the employees to receive payment. No account is taken of any other vesting conditions.

The cost of equity-settled transactions are recognised as an expense with a corresponding increase in equity over the vesting period. The cumulative charge to profit or loss is calculated based on the grant date fair value of the award, the best estimate of the number of awards that are likely to vest and the expired portion of the vesting period. The amount recognised in profit or loss for the period is the cumulative amount calculated at each reporting date less amounts already recognised in previous periods.

2.15 Right-of-use assets

A right-of-use asset is recognised at the commencement date of a lease. The right-of-use asset is measured at cost, which comprises the initial amount of the lease liability, adjusted for, as applicable, any lease payments made at or before the commencement date, net of any lease incentives received, any initial direct costs incurred, and, except where included in the cost of inventories, an estimate of costs expected to be incurred for dismantling and removing the underlying asset, and restoring the site or asset.

Right-of-use assets are depreciated on a straight-line basis over the unexpired period of the lease or the estimated useful life of the asset, whichever is the shorter. Right-of-use assets are subject to impairment or adjusted for any remeasurement of lease liabilities. Depreciation is charged to administrative expenses in the Statement of Comprehensive Income.

2.16 Earnings per share

Basic Earnings Per Share

Basic earnings per share is calculated by dividing the profit attributable to the owners of the Company by the weighted average number of ordinary shares outstanding during the financial year.

Diluted Earnings Per Share

Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares.

2.17 Dividends

Dividends are recognised when declared during the financial year and no longer at the discretion of the Company.

3. Significant judgements and estimates

The preparation of the Company's financial statements under IFRS 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 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.

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 recognise live case investments at fair value 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 monthly 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; and

• At reporting period ends, a sample of open case investments is selected for which written assessments are obtained from external solicitors or primary counsel working on the case on behalf of the Company.

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 245 open cases, of these 194 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 51 cases make up £26.4m of the Investments and are material to the business, the significant judgements and estimates in their valuations at the balance sheet date were as follows:

1. Judgements:

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

1.2 Litigation is inherently uncertain. The Company seeks to mitigate its risk by: rejecting the majority of cases referred to it because the merits of the claim are considered weak or the defendant is considered not to have sufficient net worth and seeking to settle cases as early as possible. Nevertheless, the risk and uncertainty can never be completely removed. The key inputs are: the headline claim value, the likely settlement value, the opposing party's ability to pay and the likely costs in achieving the judgement. These inputs are inter-related to an extent. 

1.3 Excluding the large case completion in FY21, the Company does not consider there to be any significant concentration of risk within either trade or other receivables.

1.4 The Company accrues for future legal costs on the basis that cases will be settled before trial which is how the vast majority of the 388 cases completed to date have been settled. When it becomes clear a case will progress all the way to trial the additional costs are accrued at this point on a case-by-case basis.

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 Management and reviewed by the external auditors, an external opinion is requested from counsel or a solicitor who is working on the case which provides an independent description of the merits of the case.

These assessments include various assumptions that could change over time and lead to different assessments over the next 12 months.

2.2 Future legal costs have been estimated on the estimated time the case will take to complete, ranging between 3 to 24 months (excluding the Cartel cases) and whether it will go to Court. Future results could be materially impacted if these original estimates change either positively or negatively.

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

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.

Sensitivity analysis has not been included in the financial statements, due to the vast amount of inputs and number of variables which are inherently specific to each case, making it impossible to provide meaningful data. Whilst the Board considers the methodologies and assumptions adopted in the valuation are supportable, reasonable and robust, because of the inherent uncertainty of valuation, it is reasonably possible, on the basis of existing knowledge, that outcomes within the next financial year that are different from the assumptions could require a material adjustment to the carrying amount of the £37.5m of investments disclosed in the balance sheet. However, as an indication we note that a 10% increase/(decrease) in the fair value of our top 20 cases (including Cartel cases) would result in an increase/(decrease) in the fair value investment of +/- £2.13m.

Recoverability of trade receivables

The Company's business model involves the provision of services for credit. The Company normally receives payment for services it has provided once a claim has been pursued and settled or decided in Court. The average time from taking on a case to settlement is c.12 months although this can vary significantly from case to case. As part of the settlement agreement, the timing of payment of the award by the defendant to the Company is agreed, this is a legally binding document. Settlements can be received in full on the day of settlement or (at Management's discretion) paid in instalments over a defined settlement plan.

As such, Management applies a number of estimates and judgements in the recording of trade receivables, for example: in relation to default judgements Management assess the likely recoverability and do not necessarily recognise the full judgement; Management also assessed recoverability of receivables in light of the Covid pandemic and its impact on certain debtors to manage repayments; which further informed our expected credit loss.

The Company applies the simplified approach in providing for expected credit losses under IFRS 9 which allows the use of the lifetime expected credit loss provision for all trade receivables. In measuring the expected credit losses, trade receivables have been stratified by settlement type and days past due. Expected lifetime expected credit loss rates are based on the payment profiles of sales from January 2019 (post IPO). The Company attempts to assess the probability of credit losses but seeks to mitigate its credit risk by undertaking rigorous net worth checks before taking on a case. Occasionally, credit defaults do sometimes occur when counterparties default on an agreed settlement, payable by instalments.

There is a concentration risk in relation to the trade receivable of £9.6m in relation to the large case completion in FY21. Repayments to date have been made according to the agreed schedule. Based on management's assessment of the receivable no provision has been recognised against this balance.

Recovery of receivables is closely monitored by Management and action, where appropriate, will be taken to pursue any overdue payments. The Company seeks to obtain charging orders over the property of trade receivables as security. The receivables' ageing analysis is also evaluated on a regular basis for potential doubtful debts. It is the directors' opinion that no further provision for doubtful debts is required.

4. Segmental reporting

During the year ended 31 March 2021, revenue was derived from cases funded on behalf of the insolvent estate and cases purchased from the insolvent estate, which are wholly undertaken within the UK. Where cases are funded, upon conclusion, the Company has the right to its share of revenue; whereas for purchased cases, it has the right to receive all revenue, from which a payment to the insolvent estate is made. 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.

Included within the net realised gains on investments in cases above are £434k (FY20: Nil) in relation to the unwinding of the discount of amounts due on a significant debtor.

5. Directors and employees

Staff costs for the Company during the year:

The average monthly number of employees (including executive and non-executive directors) employed by activity was:

The aggregate amounts charged in the accounts for key management personnel (including employer's National Insurance contributions), being the directors of the Company, were as follows:

Director's remuneration is detailed in the Remuneration report.

Management consider the directors to be the key management personnel.

6. Operating profit

Is stated after charging / (crediting):

7. Auditor remuneration

Amounts payable to RSM UK Audit LLP and its related entities in respect of both audit and non-audit services are set out below.

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:

9. Finance income and finance expense

10. Dividends

Dividends paid during the financial year were as follows.

11. Taxation

The tax charge for the year differs from the standard rate of corporation tax in the UK of 19% (2020: 19%). The differences are explained below.

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:

Basic Earnings Per Share is based on the profit for the year attributable to the equity holders of the Company divided by the weighted average number of ordinary shares during the period.

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

The earnings per share is diluted by options over ordinary shares, as detailed in note 23.

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).

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.

15. Right-of-use assets

The Company holds one lease, an office property lease for 21 Gloucester Place, London which expires in September 2022.

During FY21 the lease of the Company's office in London was extended to September 2022. Additions to right-of-use assets include extensions to existing lease agreements.

The incremental borrowing rate used in the calculation of the lease liability was 3% (FY20: 3%). The maturity analysis of the finance lease liability is included in note 28.

16.Trade and other receivables 

Trade receivables are amounts due from settled cases in the ordinary course of business. Trade receivables are recognised initially at the amount of consideration that is unconditional, unless they contain significant financing components, when they are recognised at fair value. The Company holds the trade receivables with the objective of collecting the contractual cash flows and therefore measures them subsequently at amortised cost using the effective interest method. Ageing of the expected credit loss allowances is included in note 28

In 2020 other receivables comprised of a £500k loan due payable by June 2021. The loan was repaid in during FY21 totalling £581k including interest of 81k. Interest accrued on the loan of £38k was presented within accruals in FY20.

Contract assets relate to accrued interest income due on settlement of the large case completion in FY21.

No impairment provision has been recognised in respect of other receivables or contract assets as there is no past history of impairment losses and future losses are not anticipated.

Movements in the allowance for expected credit losses are as follows:

The Company applies the simplified approach in providing for expected credit losses under IFRS 9 which allows the use of the lifetime expected credit loss provision for all trade receivables. In measuring the expected credit losses, trade receivables have been stratified by settlement type and days past due. Expected lifetime expected credit loss rates are based on the payment profiles of sales from January 2019 (post IPO).

17. Cash and cash equivalents

All bank balances are denominated in pounds sterling. 

18. Trade and other payables

Trade payables are unsecured and are usually paid within 30 days of recognition. The carrying value of trade and other payables approximates their fair value, as the impact of discounting is not significant.

Accruals - direct costs relates primarily to accrued amounts due to Insolvency Practitioners on the Company's completed cases and accrued legal costs of completed cases. Of the £6.6m shown as non-current, £5.8m relates to the amounts payable to the Insolvency Practitioner due in more than one year in respect of the large case completion in FY21.

The contract liability relates to interest accruing on the significant financing component in respect of amounts payable to the Insolvency Practitioner on the large case completion during FY21.

19. Deferred tax asset

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

20. Borrowings

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. 

Gross borrowings are £8,000k as at 31 March 2021 but are presented net of HSBC set-up amortised costs of £302k above (FY20: £474k) and in the Statement of Financial Position. The maturity analysis of bank loans is included in note 28.

The Company has complied with the financial covenants of its borrowing facilities which are assessed on a quarterly basis, during the 2021 and 2020 reporting periods.

Reconciliation of liabilities arising from financing activities:

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.

We have agreed on 22 June 2021, a new RCF for £25m over an initial three-year period to 1 July 2024, with an option to extend by a further year. The new RCF also offers the Company an additional approved but uncommitted £10m accordion, if ever required. The interest rate is a maximum 2.9% over SONIA. Under terms of the new agreement, Steven Cooklin is required to maintain a minimum shareholding of 5% of the issued share capital of the Company, and is subject a change in control clause such that no investor may hold more than 30 percent of the voting rights of the Company.

Commitments in relation to leases are payable as follows:

21. Share capital

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.

22. Reserves

Share premium

Includes all current and prior year premiums received on issue of share capital.

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.

23.Share-based payments

The Company operates a number of share-based payment schemes as follows:

CSOP share scheme

The Board has adopted the Manolete Partners Company Share Option Plan (CSOP) to enable conditional share awards to be granted, which may be subject to achievement of performance criteria and the awards are exercisable between three and ten years following their grant. There are no cash-settlement alternatives and the awards are therefore accounted for under IFRS 2 as equity settled share-based payments.

Year ended 31 March 2021

Year ended 31 March 2020