18 April 2024

Manolete Partners PLC

("Manolete" or the "Company")

Trading and Business Update

Very strong momentum and a return to profit

Manolete Partners Plc (AIM:MANO), the leading quoted UK insolvency litigation financing company, is pleased to provide the following update on its trading and business for the year ending 31 March 2024 ("FY24").

The business has seen strong momentum and a return to profit through a combination of new case investment and case completion volumes running at record highs and an increasing bias towards larger cases. A combination of strong cash recoveries and a new covenant package provides a strong and efficient financing platform to exploit self-generated opportunities.

All figures contained in this announcement are subject to full audit.

Steven Cooklin, Chief Executive Officer, commented:

"During FY24, the UK insolvency market showed it was fully rehabilitated from the temporary two-year suppression of insolvencies that the Government had enacted during the Covid-19 pandemic. Significantly higher prevalent interest rates, heightened concerns over geo-political conflicts in Eastern Europe and the Middle East and the withdrawal of the largescale financial supports provided by the Government to UK businesses during the Covid-19 period, has resulted in the highest level of UK insolvencies for 30 years. Insolvency Service statistics from January 2024 show the number of Creditor Voluntary Liquidations, the largest constituent part of the UK insolvency market, in 2023 was at its highest level since 1960.

"These factors led to a substantial and sustained rebound in the number of Manolete's case enquiries and new case investments in the first half of the current financial year. That trend has continued into the second half, which has also seen a return of significantly larger value case investment opportunities, much more reflective of the more normal profile of the UK insolvency market that was witnessed in the years before the Covid-19 pandemic.

"An agreed amended financing package with HSBC and the robust organic cash generative nature of the Manolete business, provides a strong and efficient financing platform for the business to take advantage of these attractive market conditions."

1.   Record New Case Investments and the Return of Larger Cases

There were 311 new case investments in FY24, 18% higher than FY23's previous record number of 263.

Significantly, in the second half of FY24, the Company saw the return of investments in larger cases. In the first half of FY24, the Company signed only nine cases where the headline value of the claims were each over £1m, whereas in the second half of FY24, the Company signed 20, £1m plus size cases. While little reliance can be placed on "headline" values of cases (as opposed to completed, realised and cash values), this does serve as a useful generic indicator that average case sizes within our portfolio are now rising at this stage of the economic cycle. This is further borne out by the recent return of larger company Administrations getting back to pre-pandemic levels of activity.

By way of illustration, the final trading month of FY24, March 2024, saw the Company completing 28 cases for an aggregate settlement value of £6.6m. What is noteworthy is that three out of those 28 cases were larger cases representing, in aggregate, settlements of £6m (respectively, these three cases settled at: £2.7m, £1.8m and £1.5m). While one cannot extrapolate from a single month's data, this does highlight the importance of the return of larger cases to Manolete's portfolio.

At the year-end Manolete had 418 live cases in progress (FY23: 351).

2.   New Case Enquiries

New case enquiries remained at elevated levels, following FY23's record number of 798. FY23 included a one-off block of 106 case enquiries from our previously announced Bounce Back Loan Pilot with Barclays Bank. Adjusting for that, FY23's new case enquiries were 692. For FY24, the Company recorded 731 new case enquiries (excluding two further Barclays Pilot case referrals), 6% ahead of last year's adjusted figure of 692.

3.   Record Volume of Case Completions

In FY24, Manolete completed a new record number of 251 cases, 31% higher than last year's previous record number of 192, which is a remarkable testament to our in-house Legal Team headed by our Managing Director, Mena Halton. Those 251 cases represent an aggregate of £24.2m (FY23: £26.7m) legally binding settlements, together with a small number of favourable judgments. The FY23 figure included a one-off large case completion of £4.9m (Manolete share of a funded case) - after adjusting for that case, FY23 showed an aggregate of £21.8m.

Therefore, Manolete's case completion volume was 31% higher in FY24 but by value FY24's £24.2m (an average of £96k per case for FY24) was 9% lower than FY23's £26.7m (an average of £139k per case for FY23). That is a reflection of the important point raised in Section 1 above: the cases being completed in FY24 were heavily weighted to the smaller size case referrals (including the Bounce Back Loan cases which are typically just £50k case claims) that were typical of the large number of small company ("zombie") insolvencies that dominated the insolvency market as Covid-19 ended and the Government financial support for UK companies was withdrawn. This is why the indications of a strong recovery in the number of larger cases that were signed up in the second half of FY24 is a key factor in driving the average case completion values back to the levels that Manolete was achieving, prior to the detrimental, but temporary, Covid-19 impact on the UK insolvency market.

By way of comparison: FY21 was the trading year that best reflects the completion values of cases acquired and funded before the Covid-19 impact (this is because, on average, cases take around 12 months to complete). In FY21, audited realised revenues were £24.4m from 135 cases: an average of £180k per case, which is close to double the average for FY24 of £96k.

The Manolete Board's strategy is to drive both elements of our revenues: higher volumes and higher average case sizes.

4.   Gross Cash Recoveries

In FY24, Manolete delivered gross cash recoveries (cash received on completed cases before payments to insolvent estates and associated legal costs) from completed cases of £18.2m, (FY23: £26.7m but that included the previously mentioned one-off significantly large case gross cash recovery of £9.5m. Adjusting for that single large case recovery, FY23 was £17.2m). The £18.2m of cash generation was spread across 309 separate completed cases (i.e. cases completed in prior years as well as in the current financial year) (FY23: 237), highlighting the attractive granularity of Manolete's business model.

What was additionally pleasing to see was the monthly consistency of the £18.2m gross cash received in FY24. It was the first year on record that monthly gross cash receipts exceeded at least £1m in every single month of the trading year:

5.   Bounce Back Loans ("BBLs")

The Company has continued to perform exceptionally well on the Barclays BBLs Pilot. By the end of FY24, 83 cases had been assigned to Manolete and 35 had been completed, generating over £1.1m of aggregate settlements, of which, £918k has already been received in cash. This compares very favourably against other test pilot recovery programmes (using traditional debt collection agencies) that have been tried by various banks, where we are informed recoveries were less than 1%. Manolete has already achieved 63% on Barclays BBL case completions to date.

The Company also continues to undertake many BBL cases outside of the Pilot, taking assignments from its UK-wide case-referral network of insolvency practitioner firms, achieving equally impressive results.

Discussions are ongoing with many of the key stakeholders including the UK Government, the British Business Bank, the Insolvency Service and a wide range of UK banks to potentially expand this line of business, by identifying the means to optimise taxpayer recoveries from the £51 billion BBL Scheme. The Government has already paid various banks over £8 billion under its 100% loan guarantee for BBLs that have defaulted. Over £1 billion of the £8 billion is classed by the Government as "fraudulent". The key decisions are not in our control, but Manolete believes the exceptionally efficient results that it has already achieved on the Barclays Pilot positions it well for potential future recovery initiatives.

6.   Cartel Claims

Good progress continues in relation to this subset of Competition Law claims, purchased from a range of insolvent UK companies. As has been reported in the legal and trade media, DAF's appeal against the Competition and Appeals Tribunal decision relating to one of the first test cases where significant damages, interest and costs were awarded to the Royal Mail, was unsuccessful.

As before, our 22 truck cartel cases have been externally assessed and valued by Fideres, the specialist competition law advisory business. No change has been made to the carrying values of these cases as at 31 March 2024.

7.   Revenue and Profit Estimate for FY24

Manolete delivered a 26% increase in overall revenues for FY24 to £26.3m (FY23: £20.8m). As shown in the table below, total revenues for FY24 were underpinned by a high level of Realised Revenues on completed cases, with Realised Revenues accounting for 92% of total revenues in FY24, whereas Unrealised Revenues were 8% of the total revenues.

As previously stated, FY23 benefitted from a one-off particularly large case completion which represented £4.9m in terms of Realised Revenues (as this case was a rare Funded Case only Manolete's share of the recovery plus the reimbursement of its full costs is included in Realised Revenues). Excluding this single case the Realised Revenues for FY23 were £21.9m. Realised Revenues for FY24 of £24.2m were 10.5% higher than the adjusted FY23 figure of £21.9m.

                                                FY23                FY24

                                                   £m                    £m

Realised Revenues                    26.8                  24.2

Unrealised Revenues                 (6.0)                  2.1

Total Revenues                         20.8                  26.3                 

At the start of FY24, to address the anticipated increase in case enquiries, new case investments and the management and completion of a larger volume of cases, the Board decided to increase capacity in the Company's in-house legal team and its Net Worth Review team. Accordingly, head count increased from 25 at the end of FY23 to 31 at the end of FY24. While all members of those teams are highly experienced lawyers and finance professionals, it takes around six months to train them in the way Manolete operates its unique business model and to get the in-house lawyers to start building and managing their own portfolios of cases at scale. The full benefits of this investment in capacity will therefore deliver in FY25 and beyond.

With now 18 members of the in-house legal team, the Board believes that the Company now has the capacity to run around 550 live cases at any one time. At the year end for FY24, Manolete had 418 live cases in progress.

FY24 was the first full year of release from Covid-19 restrictions (and the after-effects of those). That meant the return of many important and high-profile industry events on a face-to-face basis. As Manolete is the only funder that enjoys long term strategic partnership agreements with: R3 (the insolvency and restructuring industry trade body); the Institute of Chartered Accountants (Insolvency Group) and the Insolvency Practitioners Association, our Business Development teams took full advantage of the renewed networking opportunities these presented to us. These are all critical drivers of new business opportunities. Also helpful for Business Development was, for the third year in succession, the well-respected and very influential "Chambers and Partners" rankings placed Manolete as the only firm in Band 1 for insolvency litigation funding.

The Company expects to report, subject to audit, a PBIT of around £2.5m for FY24. This compares to the PBIT loss of £(3.1)m reported for FY23.

As at the year-end of 31 March 2024, the Company had cash balances of £1.5m, £13.75m drawn down on its HSBC debt facility and therefore a net debt of £12.25m.

8.   Completion of New Covenant Package for the Revolving Credit Facility ("RCF") with HSBC Bank

During the second half of FY24, the executive team worked very closely with a team at HSBC to revise and reset the covenant package attaching to the Company's Revolving Credit Facility ("RCF"). The RCF had originally been completed and documented in 2018, providing an initial facility of £10m,  when Manolete was still a private company and a very much smaller business. The existing covenants, which had not changed significantly since 2018, were deemed no longer appropriate to the Company as a much larger business within a listed entity. Furthermore, over the six-year life of the RCF, the total facility had been increased, in stages, to £25m with the Company having utilised no more than around half of that figure at any time. However, as is common, companies have to pay not only for the utilised element of an RCF, but also for the unutilised element. With interest rates far higher now compared to 2018, that unutilised element had become a significant cost to the Company.

As a result of this process the RCF was accordingly amended as follows:

(a)  Total facility size is reduced to £17.5m.

(b)  One covenant deleted in its entirety: Leverage covenant.

(c)  The remaining covenants are: Interest Cover, Asset Cover and Case Recoveries to Unrealised Income ratio.

(d)  The margin payable to HSBC is 4.7% over SONIA

Together with the strong organic cash generation from the business, the Board believes the amended RCF terms provide the Company with a strong and efficient financing platform. With the possibility of declines in interest rates later this year, the Board will be closely examining all debt financing options over the longer term.

This announcement contains inside information as defined in Article 7 of the Market Abuse Regulation No. 596/2014 ("MAR").

All FY24 figures quoted in this paper are draft and subject to external year-end audit ahead of the final Year-End Results announcement.

For further information please contact:

Manolete Partners                                                       

Steven Cooklin (Chief Executive Officer)                      via Instinctif Partners

Canaccord (NOMAD and Sole Broker)                        +44 (0)20 7523 8000

Emma Gabriel

Instinctif Partners                                                        +44 (0)20 7457 2020

Tim Linacre