Manolete Partn. Regulatory News (MANO)

14 March 2023

Manolete Partners PLC

("Manolete" or the "Company")

Trading Update

Manolete Partners plc (AIM:MANO), the leading quoted UK insolvency litigation financing company, is pleased to provide the following update on trading for the year ending 31 March 2023 ("FY23").

Since the announcement of the Company's unaudited interim results in November 2022, trading has continued to rebound strongly. All figures below are subject to audit.

1. Record New Case Investments

As at the time of writing, the number of new case investments for FY23 year to date ("FY23 YTD") is 246, 55% higher than the 159 new case investments for the whole of FY22. The FY23 YTD number is already the highest Manolete has ever recorded.

As explained in the interim results, the first half of FY23 was still impacted by the UK Government's temporary suppression of UK insolvencies that only ended in March 2022, such that for H1 FY23 we recorded 83 new case investments (H1 FY22: 78). The record number for new case investments in FY23 is therefore overwhelmingly driven by the particularly strong performance in the second half of FY23: 163 new case investments, which is 96% higher than H1 FY23 and 101% higher than H2 FY22. Indeed, the 163 cases signed so far in H2 FY23 is more than the Company signed in the whole 12 months of FY22.

During its lifetime, Manolete has now invested in over 1,000 UK insolvency litigation claims, over 80% of which Manolete has purchased rather than funded. In more recent years, due to favourable legal changes, over 90% of cases have been purchased.

2. Record Case Completions

For the current FY23 YTD Manolete has already completed a record number of cases: 168 (FY22: 139 completed cases) representing an aggregate of £28.8m (FY22: £15.3m) comprising predominantly legally binding settlements plus a small number of favourable Court judgments. This record level of completed cases will drive cash income for the foreseeable future, as the Company collects in the cash owed by defendants on these matters.

3. Record Cash Recoveries

With two weeks to go until the year end, Manolete has delivered record gross cash recoveries from previously completed cases of £26.2m, 69% higher than the £15.5m for FY22. The £26.2m is spread across 227 separate completed cases (FY22: 183) at an average of £115k per case (FY22: £85k).

After all of the business's running costs (principally salaries and overheads) and after legal fees and the Insolvent Estate's share of our case recoveries, but before new case investments, taxation, dividends and interest, as at the end of February 2023 Manolete has generated £8.7m of net cash, representing a 179% increase compared to the comparable 11 month period for FY22 of £3.1m.

For the 11 months ended 28 February 2023, after all costs (including new case investments, taxation, dividends and interest), the Company generated £2.4m of net free cashflow compared to a net outflow of £5.1m for the comparable 11-month period for FY22.

4. The UK Bounce Back Loan ("BBL") Opportunity

As previously announced, the Company is working on a pilot with Barclays Bank to assist in the recovery of Bounce Back Loans that appear to have been misappropriated by a number of company directors. 119 companies were included in the Barclays pilot and, so far, 45 cases have been assigned to Manolete, in the early months of this calendar year. Of those 45 cases, Manolete has already settled three cases and has offers from Directors to settle on a further seven cases. In all but one of those combined 10 cases the Directors have offered, or agreed to re-pay, the full amount of the mis-appropriated BBL. This is encouraging progress as the Manolete team have only had access to these cases for a few weeks.

The Company is now in advanced discussions with another major UK high street bank regarding running a separate BBL recovery pilot programme for that institution.

While still at a relatively early stage, the BBL recovery opportunity is potentially highly significant. The Board are confident that the Company's business model is the best route to optimising recoveries in this important area. Prior to Manolete's involvement, certain banks had only managed to achieve a 0.14% recovery on mis-appropriated BBLs.

5. Truck Cartel Cases

The judgments on the British Telecom and Royal Mail cases were handed down on 7 February 2023. The Company's retained competition law case value experts (Fideres Partners LLP) have accordingly updated their valuation of Manolete's 22 cases and the Board is satisfied that, subject to audit, the current carrying value in the balance sheet of £13.2m is materially correct. Further non-Manolete truck cartel case judgments are awaited, and the Company's own claims remain stayed at present.

6. Court of Appeal Decision

Over our 13-year operating history, more than 97% of our 665 completed cases have been resolved and settled before trial. Often the defendants on our cases see the good sense in settling the litigation matter before the case is even issued through the Courts. As we highlighted in our H1 FY23 results, one of the rare (larger) cases that did go to a trial resulted in an equally rare adverse trial decision for the Company. The Company was successful in obtaining permission to appeal, but today the Court of Appeal dismissed Manolete's appeal. While this is disappointing, it is one of the very few that the Company has lost at trial in its 13-year history, an enviable track record in the litigation finance industry. The full write off of the fair value of this case had already been accounted in H1 FY23. The final costs (including adverse costs) consequent to the appeal of c. £750k, relating to this case, will now be written off in H2 FY23 and a line drawn under the matter.

7. HSBC £25m Revolving Credit Facility ("RCF")

Terms of a revised covenant package relating to the RCF have now agreed with HSBC and credit committee approval has been granted by the bank. The new agreement is currently being documented by both sets of legal teams and completion is expected imminently.

Consequent to the Company's strong cash generation in FY23 YTD, the Company has repaid a net £3.5m against the RCF. The Company's current exposure under the RCF is £10.5m, leaving £14.5m unutilised headroom on the facility, at present.

8. Trading and Financial Outlook

Whilst subject to full audit, after a Profit Before Tax loss of £5.5m for H1 FY23, the Company has reported a strong run of 5 months' consecutive profitability to the end of February 2023. Considering all the factors above (including the costs related to the adverse Court of Appeal decision), the Board expects the PBT loss reported for H1 FY23 to be reduced by a positive pre-tax profit contribution for H2 FY23. The Company will give a further update next month, once the full FY23 trading period has been completed.

Based on many of the factors referred to earlier above, the Board expects the Company's overall profitability to recover strongly for FY24 and beyond.

Steven Cooklin, Chief Executive Officer, commented:

"We are delighted with the way that the Company has driven the resurgence in its business after the two-year artificial suppression of the UK insolvency sector, brought about by the UK Government's reaction to the COVID-19 pandemic. The UK is now experiencing record high levels of insolvencies and that is directly leading to the Company's impressive operating performance. With the persistent macro headwinds of inflation and significantly higher interest rates, the Board expects these favourable trading conditions to persist for the foreseeable future."

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