21 November 2019

MANOLETE PARTNERS PLC

("Manolete" or the "Company")

Unaudited half-year results for the six months ended 30 September 2019

Manolete (AIM:MANO), the leading UK-listed insolvency litigation financing company, today announces its unaudited results for the six months ended 30 September 2019.

Steven Cooklin, Chief Executive Officer, commented:

"These are a strong set of interim results which showcase the excellent progress of the business since the IPO in December 2018. We continue to deliver stand-out returns for insolvency creditors and shareholders alike. We made 65 new case investments in the first six months of this financial year, benefitting from the availability of increased cash resources from the IPO and the establishment of our nationwide in-house legal team.

That total of 65 new case investments represents a 110% increase over the comparable six-month period last year and even exceeds the total 61 new cases signed over the full 12 months of the previous accounting year. We have achieved impressive double-digit growth in revenue, gross profit and EBIT during the period, delivering continued outstanding investment returns yielding an average money multiple of 2.9 times on 18 completed cases.

At the period end, there were 32 live cases already scheduled for either Alternative Dispute Resolution, trial or currently the subject of serious settlement offer negotiations. Indeed, six of these have already completed in October and November 2019 generating further gross proceeds of £762k, and we are excited by the case completion prospects for the second half of the year and beyond.  With average completed case durations remaining constant at 11 months, we expect the record number of new case investments to translate into higher levels of realised profits and significant new cash generation over the next six to twelve months."

Financial highlights:

·      Investment in cases up 83% to £25.4m (H1 FY19: £13.9m, FY19 £18.2m)

·      Revenue up 15% to £7.5m (H1 FY19: £6.5m)

·      Gross profit up 50% to £6.6m (H1 FY19: £4.4m)

·      EBIT up 37% to £4.5m (H1 FY19: £3.3m)

·      Profit before tax up 42% to £4.3m (H1 FY19: £3.0m)

·      Profit after tax up 41% to £3.5m (H1 FY19: £2.5m)

·      Earnings per share up 41% to 7.9 pence (H1 FY19: 5.6 pence)

·      Interim dividend proposed of 0.5p per share

·      Net Assets of £30.9m (£28.0m as at 31 March 2019) and cash balances of £3.1m as at 30 September 2019 (£9.7m as at 31 March 2019)

·      Fully unutilised £20m HSBC Revolving Credit Facility available

Operational highlights:

·    During H1 FY20, investment into new cases rose by 110% to 65 (H1 FY19: 31). This exceeds the total number of 61 new cases signed for the entire 12 months of FY19

·    Ongoing delivery of realised returns: 18 case realisations in the period (12 case realisations in H1 FY19, gross proceeds £5.5m), generating gross proceeds of £2.4m, over an average case duration of 11 months

·      Average money multiple of 2.9 times for cases completed in H1 FY20 (3.6 times H1 FY19)

·    High level of forthcoming potential case completions, with 32 live cases scheduled over the coming months for either Alternative Dispute Resolution (mediations and formal without prejudice settlement meetings), trial or currently the subject of settlement offers and negotiations. Six of these have been completed since the period end generating gross proceeds of £762k

·     Average case duration across the full portfolio of 215 completed cases remains constant at 11 months (11 months H1 FY19)

·     72% increase in live cases: 131 in process as at 30 September 2019 (76 as at 30 September 2018). Live cases total currently 144 (as at 7 November 2019)

·      90% of live cases have been signed in the last 18 months. Only two cases remain ongoing from the FY17 vintage. 100% of earlier case vintages have been completed

·    Roll-out of regional network of in-house lawyers completed. Manolete now has a proprietary network of highly experienced in-house insolvency solicitors based in: North West England, South West England & Wales, London, Eastern England, North East England, Midlands, Southern England and Scotland

·      Recruitment of a new CFO in October 2019

For further information please contact:

Manolete Partners:                                        

Steven Cooklin (Chief Executive Officer)                   via Instinctif Partners

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

Guy Wiehahn

Rishi Shah

Instinctif Partners                                                    +44 (0)20 7457 2020

Tim Linacre

Lewis Hill

Katie Bairsto

CHIEF EXECUTIVE OFFICER'S STATEMENT

Introduction

I am pleased to present our unaudited interim statements for the first half year to 30 September 2019.

Manolete is the leading UK-listed company in the high growth insolvency litigation finance market, a market buoyed by favourable policy tailwinds. As these interim results clearly demonstrate, we performed strongly in the first six-month period of FY20: 18 case completions was 50% higher than the comparative period last year and 65 new investments, that meet our stringent selection criteria, exceeded the 61 new case investments for the entire 12 months of FY19.

As promised at the time of the IPO, in December 2018, we have now completed the development of our regional network and have dedicated in-house lawyers situated in every major region of the UK.

Performance

In the first half, gross profits increased 50% to £6.6m (H1 FY19: £4.4m), reflecting the record number of new cases and the benefits of short duration case returns. Operating profit increased 37% to £4.5m (H1 FY19: £3.3m), with margin improving from 50% to 60% reflecting the operating leverage built into our business model. Our business is profitable, and we recorded pre-tax profits of £4.3m, compared to £3.0m in the comparable half year, an increase of 42%. Our pre-tax profit margin improved from 47% to 57%.

Investments

Two key factors set us apart in the litigation finance market: first, our ability to deliver rapid case realisation times and second, the volume of realised, successful completed cases. In the first half, we completed 18 cases, resulting in gross settlement proceeds of £2.4m (H1 FY19: £5.5m) with gross profit on realisations of £0.9m (H1 FY19: £2.0m). The average money multiple on these 18 cases was 2.9x. Money multiple is defined as the Company's gain on a case plus the amount recovered in respect of its legal costs and initial payment to the Insolvent Estate, divided by the amount of those legal costs and the initial payment to the Insolvent Estate.

The fair value of our in-process case investments as at 30 September 2019 increased 82% to £25.4m (30 September 2018: £13.9m; 31 March 2019: £18.2m), reflecting in the main, the continued attractive case investment opportunities provided by our long-established network of Insolvency Practitioners and insolvency lawyers who refer cases into us. We invested £2.1m in legal and investment costs on live cases in the first half, compared to £1.6m in the first half of the previous year.

A leading indicator of future profitability is the number of new cases that we have signed up. Over the first six months of FY 20 we have invested in 65 new cases (H1 FY19 31 new cases), which is more than the total number of 61 cases we signed in the entire 12 months of FY19. With the strong capital position following the IPO and the extension of our facility with HSBC we have moved up the value chain in a measured manner, and accept a larger proportion of higher return, higher value case investments. This strategy is well supported by our stringent case selection criteria, our historic case track record and diversified portfolio (both by size and case type).

Vintages Table

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

1.   The relatively short durations of our cases (average 11 months): it is the short durations and the repeat case types (all our cases are UK insolvency and insolvency-related claims) that make the case outcomes capable of accurate estimation. Allied to the fact that Manolete owns outright the large majority of its cases (rather than acting as a mere funder of third-party claims), this drives conversion of unrealised profits into realised profits in a consistently short timeframe.

2.   High ROI and MoM (average 159% and 2.6x, respectively): these levels have been delivered on a consistent basis for each of the last 8.5 years and across a large and diverse number of cases.

3.   Only two cases remain open from the FY17 vintage. All earlier cases are fully completed. In contrast to our listed peer group, the age of Manolete's unrealised case portfolio is short, with 90% of cases commencing in the last 18 months.

Strategy/Team

Our strategy is to increase the number and average size of our new case investments. We believe this will be achieved by building on, as well as expanding, the wide network of long-established Insolvency Practitioner and Insolvency Lawyer contacts throughout the UK.

At IPO, we promised to build out the then nascent regional network of our in-house lawyers nationwide. This has now been completed. The increased regional presence is strengthening our relationships with Insolvency Practitioners and legal firms, which has led to a record volume of new case enquiries and signed cases.

Dividend

An interim dividend is proposed equal to a third of the previous financial year's dividend, consistent with our Admission document. The Board has announced an interim dividend of 0.5p per ordinary share. The interim dividend will be paid on 31 December 2019 to those shareholders on the register at the close of business on 13 December 2019. The shares will go ex-dividend on 12 December 2019.

Outlook

We are well positioned to grow our business profitably given our dominant position in the specialist insolvency litigation market, our growing network of insolvency practitioners and the strong funding position of the Group.

We have invested in an exciting portfolio of cases and as at 30 September 2019 we had 32 live cases scheduled for either alternative dispute resolution, trial or currently the subject of serious settlement negotiations. Indeed, six of these have already been completed since the end of the interim period, generating gross proceeds of £762k. Therefore, we anticipate that we will receive meaningful increases in realisations in the second half of the year and beyond, evidencing the attractiveness of our current case portfolio which now comprises 144 ongoing live cases (as at 7 November).

 Given the strength of our position in the specialist insolvency litigation market, our firmly established and growing network of Insolvency Practitioners and our proven track record of delivering outstanding returns, we look forward to the second half and beyond with confidence and enthusiasm.

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

Steven Cooklin

Chief Executive Officer

CHIEF FINANCIAL OFFICER'S REVIEW

I am pleased to give my review of the Company's unaudited results for the first half year to 30 September 2019, which show strong growth compared to the first half of the previous year.

Revenue

Revenue in H1 FY20 has increased by 15% to £7.5m in comparison to H1 FY19 (£6.5m). This growth in revenue has been driven by an increase in unrealised income due to the significant investment in new cases (65 new cases in H1 FY20 in comparison to 31 in H1 FY19) and growth in the fair value of existing live cases.

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

Unrealised revenue grew by 149% to £5.6m, compared to the first half of FY19 of £2.2m. This reflects both the development of existing case investments and the increase in new case investments in the period.   

As previously discussed, with a significantly growing portfolio we would expect unrealised revenue will exceed realised revenue during this growth phase. However, given the c.11 month average case duration this can fluctuate over a short time period.

At 18 case completions, the numbers of case realisations were up 50% in H1 FY20. These generated realised revenues of £1.9m (£4.3m H1 FY19). Although we have always guarded against predicting exact timings for any litigation matter, there are a significant number of large cases that are nearing settlement opportunities. Hence, we are anticipating an increased level of realisations in the second half of the year and the next six month period beyond that.

Accounting standards require a value judgment to be made on cases in respect of their unrealised revenue. All cases greater than £100k are independently reviewed. Our proven extensive track record of rapidly converting unrealised into realised gains speaks to the robustness and accuracy of this important process.

H1 FY20 Realisations

There were 18 cases settled in H1 FY20 with case settlement values of between £0.7m at the largest to £10,000 and an average settlement value of £135,556. The money multiple has averaged 2.9x with a return on capital employed of 193% on average and an average case duration of 11 months. 

Cost of sales

Cost of sales comprises legal costs on realised cases, the initial payments made to Insolvent Estates on our case investments (both purchased and funded) and payments to Insolvent Estates on successful realisations (the Insolvent Estate's share of the realisation) of purchased cases.

Gross profit

Gross profit grew 50% to £6.6m (H1 FY19: £4.4m). Gross profit margin increased to 89% (H1 FY19: 68%). The growth in gross profit margin reflects the growth in unrealised revenue in the period.

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

Administrative expenses

Administrative expenses increased 83% to £2.2m in the first half (H1 FY19: £1.2m). Staff costs are the principal driver of the increase in administrative expenses, with the overall increase driven by higher staff numbers, as we have recruited in-house lawyers regionally across the UK, as we promised at the IPO.

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

Operating profit before non-recurring items grew by 38% to £4.5m in the first half (H1 FY19: £3.3m) with the operating profit margin improving to 60% from 50%. This reflects the good operational gearing in the business: overheads have increased by 83% but this has been surpassed by business revenue gains.

Finance costs

These costs comprise: the amortisation charge of the costs of setting up the £20m HSBC borrowing facility of £0.1m, which are being amortised over the four year life of the facility; commitment fees of £0.1m on this unutilised, standby facility, levied at the rate of 0.7% on the £20m amount of the facility.

Profit after tax

Profit after tax has increased by 41% from £2.5m to £3.5m. The post-tax margin has increased from 38% to 46%.

Investment in cases

The company was managing 131 live case investments as at 30 September 2019, compared to 84 live cases as at 31 March 2019, a 56% increase. The split between Purchased and Funded cases at these dates is as follows:

The total investment in cases amounted to £25.4m at 30 September 2019, growth of 40% from the value as at 31 March 2019 of £18.2m (30 September 2019 value of £13.9m). Investment in cases is shown at costs incurred plus valuation. Live cases are shown at fair value, based on the Company's estimate of the likely future realised gross profit. Any material valuations (greater than £0.1m per individual case) are corroborated with the external lawyers working on the case who provide updated legal opinions as at the year-end and the half year-end. The Company does not capitalise any of its internal costs, these are fully expensed to the Statement of Comprehensive Income as incurred. The average value per case as at 30 September 2019 was £0.19m, compared to £0.21m as at 31 March 2019 (£0.18m as at 30 September 2018). The median case value as at 30 September 2019 remained broadly flat at £0.05m (£0.04m as at 31 March 2019).

In September 2019, our solicitors (Collyer Bristow) delivered their Phase 2 Report on the Cartel Cases. Progress is in line with previous expectations and the value of the claims was increased by £1.2m to £6.3m. As previously highlighted, the significant claims here relate to Comet and City Link, where Manolete enjoys a 90% ownership position on the claims. City Link is currently being restored to the Companies Register. Once complete, the next stage of work will commence. The Cartel Cases will be much longer duration cases compared to our core insolvency claim portfolio.

As previously introduced in our Annual Report for 2019, we successfully funded a Trustee in Bankruptcy on a Transaction at Undervalue claim which resulted in the bankrupt estate recovering a valuable London property. So that the Trustee could distribute cash to creditors, Manolete had the property professionally valued and then purchased the property for £446k (including Stamp Duty).  Over the last few months a further £50k of refurbishment expenditure has been incurred. We have recently exchanged contracts for sale at £512.5k and we expect to complete this transaction on 22 November 2019. This property is currently shown on the balance sheet as stock.

Cash utilisation

Cash balances have decreased from £9.7m as at 31 March 2019 to £3.1m as at 30 September 2019. The Company also has the benefit of the fully unutilised £20m HSBC Revolving Credit Facility (4-year facility).

This cash outflow of £6.6m over the 6 month period has been utilised by the Company as follows: Investment in new cases of £2.1m; Corporation tax paid of £2.5m (including £1.2m relating to a one-off catch-up payment in respect of corporation tax on all unrealised gains up to 31 March 2018 following advice from our tax advisors); Dividends paid of £0.6m and cash outflow from operations (including increased working capital) of £1.2m. The balance of £0.2m consists of investment in a residential property, associated refurbishment costs and finance interest costs.

FH Gilman Loan

In June 2019, the Company provided a short term secured loan of £500k to FH Gilman & Co. This short-term investment opportunity was considered an effective use of our strong balance sheet which has the added benefit of providing finance to assist the administrator on this case. An arrangement fee of £12,500 was received in June and an interest rate of 10% applies in Year 1, increasing to 12% in Year 2.  The loan is secured by a senior charge on land outside Stamford, South Lincolnshire which has been independently valued at £2.4m.

Mark Tavener

Chief Financial Officer
 

Manolete Partners Plc

Unaudited Statement of Comprehensive Income for the 6 months ending 30 September 2019

The results reflected above relate to continuing activities.

Manolete Partners Plc

Unaudited Statement of financial position as at 30 September 2019

The interim statements were approved by the Board of Directors and authorised for issue on 20 November 2019.

Manolete Partners Plc

Unaudited Statement of changes in equity as at 30 September 2019

Attributable to the equity owners of the company

Manolete Partners Plc

Unaudited Cash Flow Statement for the 6 months to 30 September 2019

Manolete Partners Plc

Unaudited notes to the financial statements for the six months ended 30 September 2019.

1    Company information

Manolete Partners PLC (the "Company") is a public company incorporated in England and Wales. The Company is domiciled in England and its registered office is 2-4 Packhorse Road, Gerrards Cross, Buckinghamshire, SL9 7QE.

The principal activity of the Company is that of acquiring and funding insolvency litigation.

2    Accounting policies

(a)     Basis of preparation

The consolidated half-year financial statements, do not constitute statutory accounts within the meaning of Section 434 of the Companies Act 2006. The statutory accounts for the year ended 31 March 2019 have been filed with the Registrar of Companies at Companies House. The auditor's report on the statutory accounts for the year ended 31 March 2019 was unqualified and did not contain any statements under Section 498 (2) or (3) of the Companies Act 2006.

The published financial statements for the year ended 31 March 2019 were prepared in accordance with International Financial Reporting Standards as adapted for use in the EU ("IFRS").

(b)  Going concern

The financial statements relating to the Company has been prepared on the going concern basis.

After making appropriate enquires, the Directors of the Company have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future and for at least one year from the date of the signed financial statements. For these reasons, they continue to adopt the going concern basis in preparing the Company's financial statements.

(c)  Revenue recognition

Revenue comprises of fair value of investments and realised consideration. Realised consideration occurs when a case is settled or a Court judgement received. On recognition of realised revenue, any unrealised revenue relating to that case converts into realised. Provisions are made where potential difficulties are envisaged on enforcement of Court judgements. Unrealised gains are recognised as cases that appreciate in value and settlement draws near.

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

(d)  Financial assets

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. The valuation of all investments over £100,000 each is confirmed by an external legal opinion, which supports 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 the balance sheet date. The future income generation of such litigation is estimated from known information and the opinion of external senior specialist counsel. Valuations of each case, at the balance sheet date, are therefore arrived at by the Directors, considering counsel'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.

3    Segmental reporting

During the six months ended 30 September 2019, the revenue was derived from cases funded on behalf of the insolvent estate and cases purchased from the insolvent estate. Where cases are funded, upon conclusion, the Company has the right to its share of revenue whereas for purchased cases, it has the right to receive all revenue from which a payment to the insolvent estate is made. Revenues arising from funded cases and purchased cases are considered one business segment and are considered to be the one principal activity of the Company. All revenues are from continuing operations and are not seasonal in nature.

4    Analysis of expenses by nature

The breakdown by nature of administrative expenses is as follows:

5      Non-recurring item-IPO costs

The Company's shares were admitted to trading on the Alternative Investment Market (AIM) on 14 December 2018 in an Initial Public Offering.

6     Finance income

7     Finance costs

8     Investments

Current asset investments comprise the costs incurred in bringing funded and purchased cases to the position that they have reached at the balance sheet date. In addition, where an event has occurred that causes the Directors to revalue the amount invested, a fair value adjustment is made by the Directors based on Counsel's and the Directors' opinion, which can either be positive or negative.

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

9       Analysis of fair value movements

10   Trade and other receivables                                                   

Note: Other receivables as at 30 September 2019 includes a secured loan of £500k, with a maturity date of 30 June 2021.

11 Trade and other payables

12   Earnings per share

The EPS for the 12 months to 31 March 2019 is as per stated in the statutory accounts, with the number of shares being a weighted average pre and post IPO. The number of shares included in the EPS calculation for the 6 months to 30 September 2018 has been restated using the post IPO number of shares for comparison to the 6 months to 30 September 2019.