REG - Manolete Partners - Trading and Business Update

Manolete PartnersAnnouncement

18/04/2024 07:00

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RNS Number : 1413L  Manolete Partners PLC  18 April 2024

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:

 

 

 April 2023:   £1.25m   Oct 2023:      £1.92m
 May 2023:     £1.01m   Nov 2023:      £1.11m
 June 2023:    £1.61m   Dec 2023:      £1.96m
 July 2023:    £1.03m   Jan 2024:      £1.34m
 Aug 2023:     £1.97m   Feb 2024:      £1.32m
 Sept 2023:    £1.86m   March 2024:    £1.78m

 

 

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

 

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