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Manolete Partners plc (LON:MANO), the leading listed insolvency litigation financing firm in the UK, has announced a trading update and the successful completion of one of the larger cases in its portfolio of UK insolvency claims.

During the current trading period since 31 March 2020, Manolete has completed 40 cases, including the Claim, which itself will generate a realised gain of approximately £4.1m and a net pre-tax profit contribution to the current accounting period of approximately £2.1m (net of the reversal of the previous unrealised gain of £2.0m that was previously allocated to the Claim).  No material write offs were sustained in Manolete’s portfolio of cases.  New business has developed well in the five-month period to 31 August 2020, with 84 new cases being acquired/ funded, an increase of 65% over the same period last year.

Vintages Table

As at 4 September 2020

Note: The Vintages table excludes 22 Cartel Cases and is net of deductions for bad debt provisions.

The Claim

The Company, alongside the other interested parties in the Claim, has entered into a settlement agreement (the “Settlement Agreement”) with the former directors of an insolvent UK company (the “Defendants”). The Claim was consensually settled pursuant to the Settlement Agreement, with no admission of liability or any wrongdoing by any party to the Settlement Agreement.

The Claim was settled for a gross amount of £15.0m of which £4.7m is payable in cash to Manolete. This crystallises a realised gain for Manolete of £4.1m representing a 17.4x Money Multiple and a Return on Investment of 1,640%.

Manolete will first receive its total costs of approximately £250k as a first priority payment from the settlement proceeds. Of the remaining settlement proceeds of £14.75m, Manolete will receive 55% of the first £750k; 45% of the next £750k; 35% of the next £3.5m; and 25% of the remaining £9.75m.

To allow the Defendants time to liquidate and generate assets, the £15.0m settlement proceeds will be paid in instalments as follows: £160k within four months, a further £1.0m within 18 months, a further £1.2m 18 months later and then seven annual payments of approximately £1.8m per annum.

The Claim was purchased by Manolete during its financial year ended 31 March 2018. As at 31 March 2020, the end of the Company’s last financial year, Manolete had estimated the fair value of the Claim based on assumed settlement proceeds of £5.5m and a resultant fair value unrealised gain of £2.0m (please refer to case number 1 on page 16 of Manolete’s “Results for the Year Ended 31 March 2020”: https://investors.manolete-partners.com/results-reports/results-centre dated 3 July 2020. That document provides an analysis of the fair values underlying 17 of the larger 35 cases within the Company’s portfolio of 152 ongoing cases UK insolvency claims).

The largest creditor in the insolvent estate relating to the Claim is HMRC. Manolete understands that creditors are expected to receive a significant payment of approximately £10.0m.

Steven Cooklin, CEO of Manolete, commented: “We are very pleased with the latest period of current trading and the significant outcome on one of our larger claims. Not only for our shareholders but also for the large return it generates for the creditors, particularly HMRC, which is the largest creditor in that insolvent company estate by far. This case serves to highlight the excellent returns our business model generates for all stakeholders, as well as the strong Ethical, Social and Governance principles that guide the way we operate.

That case settled at £15m and so was materially higher than our conservative estimated fair value which was based on a settlement sum of £5.5m. As at the year ended 31 March 2020, our team was managing 35 larger UK insolvency claims with headline values in the range of £1m to £40m, reflecting the marked increase in the average size of cases we have invested in, particularly since our IPO in December 2018. While litigation outcomes and returns are never simple to estimate, this result again highlights our conservative and measured approach to valuing unrealised gains”.

Manolete Partners plc (LON:MANO) have noted the potential for a spike in insolvencies later this year if R3 member survey figures hold true. In a report published on the R3.org.uk website it states that an overwhelming majority (93.7%) of respondents to a survey of members of the insolvency and restructuring profession carried out by the profession’s trade body expect corporate insolvency numbers to increase over the next year.

Breaking down the numbers it showed that more than half the respondents expect corporate insolvency numbers to be ‘significantly higher’ than last year and 37.6% think that it will be ‘somewhat higher’.

The survey found during the early stages of the pandemic demand for corporate insolvency procedures fell, as government support helped to keep businesses afloat, but all this could change.

R3’s North West chair Allan Cadman, said: “Despite the lockdown and the economic turmoil, government figures show corporate insolvencies actually decreased in April and May compared to previous months.

“Our members also told us that the enquiries they received were mainly about companies’ eligibility for state relief, rather than formal insolvency advice.

“This is, in no small part, due to the Government’s support measures.

“However, it’s clear from the survey that it’s a question of when, not if, corporate insolvencies increase, as the support available has deferred rather than deterred the rise you would expect in an economic climate like this.”

Manolete Partners has completed investments in over 450 UK specialist insolvency cases. They are renowned for an unparalleled knowledge of the Insolvency and Recovery sector.

Manolete Partners plc (LON:MANO), the UK’s leading listed insolvency litigation financing company, has announced its audited results for the year ended 31 March 2020.

Steven Cooklin, Chief Executive Officer, commented: “We have delivered another set of strong financial and operating results, with impressive double-digit growth in revenue and EBIT during the period. We continue to deliver outstanding investment returns, yielding an average Money Multiple of 2.7x and ROI of 174% on 257 completed cases since inception.

“Despite the large expansion of the infrastructure overhead required for the rapid expansion of the business in FY20, Company net cash receipts from completed cases (after all payments to Insolvency Practitioners and lawyers’ fees on those cases) exceeded all Company overhead costs. We are currently running a record 201 live cases and foresee no requirement for any further material increase in overhead costs, so the outlook for cash generation is very positive.

“Despite the challenges of COVID-19, the activity levels within the business are at record levels, highlighted by the 47 new case investments (124% more than the same period last year) and 23 case completions (up from four in the same period last year) that the team has transacted in the first quarter of FY21. New case enquiries are also at all-time record levels, running at around double the rate we had this time last year. We entered FY21 with £8.4m of gross cash, a positive net cash balance and £12m of our HSBC Revolving Credit Facility unutilised. All these factors firmly underpin our confidence in the current and future trading performance of the business.

“With the widely reported economic disruption likely to ensue, we expect new case enquiries to increase over the foreseeable future and we will continue working to deliver outstanding returns to both insolvent estates and investors.”

Financial (statutory and non-statutory) highlights:

·      Revenue increased by 36% to £18.7m (FY19: £13.8m)

·      Gross profit up 43% to £14.4m (FY19: £10.1m)

·      EBIT pre-exceptionals increased by 36% to £9.8m (FY19: £7.2m)

·      Profit before tax (before exceptional IPO costs of £882K in FY19) up 40% to £9.5m (FY19: £6.8m)

·      Profit after tax (adjusted for exceptionals) increased by 38% to £7.6m (FY19: £5.5m)

·      Diluted earnings per share up 70% to 17 pence (FY19: 10 pence)

·      Proposed final dividend of 3.0 pence per share, 100% increase on FY19 final dividend of 1.49p

·      Investment in cases up 78% to £32.4m (FY19: £18.2m)

·   Cash generation: cash receipts from completed cases exceeded all completed case legal costs, all payments to Insolvency Practitioners on completed cases and all Company overheads in FY20

·   Operating cashflows before movements in working capital pre new investments (non-statutory layout) increased to £1.2m in FY20 (FY19: £0.7m) hence cash inflows from completed cases exceeded payments to lawyers and IPs incurred on those cases and all overhead payments

·    Gross cash of £8.4m and borrowings of £7.5m as at 31 March 2020 and £12m borrowings available on Revolving Credit Facility with HSBC

Operational highlights:

·     139% increase in new core investments in UK insolvency cases: 141 in FY20 (FY19: 59), excluding two Cartel Cases in FY19

·    Ongoing delivery of realised returns: 54 case realisations in FY20 (on average one case realisation per week) with an average duration on those 54 cases of 11 months, generating a 10% increase in gross proceeds to £10.2m (FY19: 35 case realisations generating gross proceeds of £9.3m of Company cash income)

·      ROI of 173% and Money Multiple of 2.7x from 257 completed cases since inception

·      33 cases already completed in the FY20 vintage at a Money Multiple of 4.6x

·      Average case duration across the full portfolio of 257 completed cases is 12 months

·      81% increase in live cases: 152 in process as at 31 March 2020 (84 as at 31 March 2019)

·      Over 200 live cases currently in process

·    Roll-out of regional network completed with in-house lawyers recruited in: North West, South West & Wales, Eastern, North East, Midlands, London, Southern and Scottish regions of the UK

·      New case enquiries at all-time record levels

·      47 new case investments made and 23 cases already completed in FY21 to date

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. 

Manolete Partners has today appointed Liberum Capital Limited as joint broker to the Company.

Chairman’s Statement

Overview

I am pleased to report that the Company has seen excellent growth over the past year with 141 new case investments in the year to 31 March 2020. 

The Company’s results reflect the strength, resilience and capabilities of the business, as it continues to increase the number and average size of new case investments through its expanding network of Insolvency Practitioners and Insolvency Lawyers throughout the UK.

Financial results

The business achieved impressive growth in the year ended 31 March 2020, with revenues increasing by 36% to £18.7 million (FY19: £13.8m) and Profit before Tax growing by 61% to £9.5 million (FY19: £5.9m).

The Company has achieved this growth through its regional network of in-house lawyers, the successful deployment of the funds raised through the HSBC credit facility and the IPO, the Company’s increased public profile following the IPO and the continued hard work of the team.

Strategy

We remain focused on strengthening the profile of Manolete, as we continue to increase the number and average size of cases within our insolvency litigation investment portfolio.

An important component to our strategy is to build upon our ever-growing network of established Insolvency Practitioner and Insolvency Lawyer contacts throughout the UK. We have been strengthening the team, and now have 11 high quality in-house lawyers in different regions across the UK.  As a result, we have seen a significant increase in the volume of enquires.

Dividend

The Board has adopted a progressive dividend policy based on a pay-out ratio of 20% of profit after tax, with one third being paid as an interim dividend and two thirds as a final dividend. For the year to 31 March 2020 the Board is proposing a final dividend of 3.00p per share. Subject to the approval of Shareholders at the Annual General Meeting on 22 September 2020, the dividend to Ordinary Shareholders will be payable on 30 September to those shareholders who are on the register of members at 11 September 2020.

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 24 to 28. During the year the Board undertook its first formal board evaluation exercise.

The Audit Committee report on pages 29 to 30 and the Remuneration Committee report on pages 31 to 34 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

On 1 October 2019 we announced that Patrick Lineen decided to retire on 27 November 2019 and the Board are grateful to Patrick for assisting us through the IPO process. We are delighted to welcome Mark Tavener to the Manolete Board as Chief Financial Officer, who joined the Company and the Board on 7 October 2019.

Outlook

Despite COVID-19, activity levels in April, May and June 2020 have remained strong with new case referrals of 186 compared to last year’s total of 98. The team are currently running a record 200 live cases. We are confident that our portfolio of cases will provide attractive returns for shareholders. Overall, the business is very well-positioned in the insolvency litigation financing market for long-term profitable growth.

Peter Bertram

Non-Executive Chairman

Manolete Partners plc (LON:MANO), the leading UK-listed insolvency litigation financing company, has said that it will be announcing its audited results for the twelve months ended 31 March 2020 on Wednesday, 24 June 2020.

The results will be published at 07:00 BST through the regulatory news service (RNS) and on the Company’s investor website: https://investors.manolete-partners.com.

A presentation for analysts will be held online at 09:30 BST. Those wishing to attend, please register with Instinctif Partners at [email protected].