MANO Manolete Partners Plc

19 November 2024

MANOLETE PARTNERS PLC

("Manolete" or the "Company")

Half-year results for the six months ended 30 September 2024

Manolete (AIM:MANO), the leading UK-listed insolvency litigation financing company, today announces its unaudited results for the six months ended 30 September 2024.

Steven Cooklin, Chief Executive Officer, commented:

"These are a strong set of results, particularly in terms of organic cash generation. In this six-month period, gross cash collected rose 63% to a new record at £14.3m. That strong organic cash generation comfortably covered all cash operating costs, as well as all cash costs of financing the ongoing portfolio of 413 live cases, enabling Manolete to reduce net debt by £1.25m to £11.9m as at 30 September 2024.

As a consequence of Manolete completing a record number of 137 case completions, realised revenues rose by 60% to a further record high of £15m. That is a strong indicator of further, and similarly high levels, of near-term future cash generation. A record pipeline of 437 new case investment opportunities were received in this latest six-month trading period, underpinning the further strong growth prospects for the business.

The record £14.3.m gross cash was collected from 253 separate completed cases, highlighting the highly granular and diversified profile of Manolete's income stream.

Manolete has generated a Compound Average Growth Rate of 39% in gross cash receipts over the last five H1 trading periods: from H1 FY20 up to and including the current H1 FY25. The resilience of the Manolete business model, even after the extraordinary pressures presented by the extended Covid period, is now clear to see.

This generated net cash income of £7.6m in H1 FY25 (after payment of all legal costs and all payments made to the numerous insolvent estates on those completed cases), an increase of 66% over the comparative six-month period for the prior year. Net cash income not only exceeded by £4.5m all the cash overheads required to run the Company, it also exceeded all the costs of running Manolete's ongoing 413 cases, including the 126 new case investments made in H1 FY25.

The Company recorded its highest ever realised revenues for H1 FY25 of £15.0m, exceeding H1 FY24 by 60%. On average, Manolete receives all the cash owed to it by the defendants of completed cases within approximately 12 months of the cases being legally completed. This impressive 60% rise in realised revenues therefore provides good near-term visibility for a continuation of Manolete's strong, and well-established, track record of organic, operational cash generation.

New case investment opportunities arise daily from our wide-ranging, proprietary, UK referral network of insolvency practitioner firms and specialist insolvency and restructuring solicitor practices. We are delighted to report that the referrals for H1 FY25 reached a new H1 company record of 437. A 27% higher volume than in H1 FY24, which was itself a new record for the Company this time last year. That points to a very healthy pipeline as we move forward into the second half of the trading year."

Financial highlights: 

·      Total revenues increased by 28% to £14.4m from H1 FY24 (£11.2m) as a result of the outstanding delivery of realised revenues generated in the six months to 30th September 2024.

·      Realised revenues achieved a record level of £15.0m in H1 FY25, a notable increase of 60% on H1 FY24 (£9.4m). This provides good visibility of near-term further strong cash generation, as on average Manolete collects all cash on settled cases within approximately 12 months of the legal settlement of those cases

·      Unrealised revenue in H1 FY25 was £(633k) compared to £1.8m for the comparative H1 FY24. This was due to: (1) the record number of 137 case completions in H1 FY25, which resulted in a beneficial movement from Unrealised revenues to Realised revenues; and (2) the current lower average fair value of new case investments made relative to the higher fair value of the completed cases. The latter point also explains the main reason for the marginally lower gross profit reported of £4.4m in this period, H1 FY25, compared to £5.0m in H1 FY24.

·      EBIT for H1 FY25 was £0.7m compared to H1 FY24 of £1.6m. As well as the reduced Gross profit contribution explained above, staff costs increased by £165k to £2.3m and based on the standard formula used by the Company to calculate Expected Credit Losses, ("ECL"), generated a charge of £140k (H1 FY24: £nil) due to trade debtors rising to £26.8m as at 30 September 2024, compared to £21.7m as at 30 September 2023. The trade debtor increase was driven by the outstanding record level of £15.0m Realised revenues achieved in H1 FY25.

·      Loss Before Tax was (£0.2m) compared to a Profit Before Tax of £0.9m in H1 FY24, due to the above factors together with a lower corporation tax charge being largely offset by higher interest costs.

·      Basic earnings per share (0.5) pence (H1 FY24: 1.4 pence).

·      Gross cash generated from completed cases increased 63% to £14.3m in the 6 months to 30 September 2024 (H1 FY24: £8.7m). 5-year H1 CAGR: 39%.

·      Cash income from completed cases after payments of all legal costs and payments to Insolvent Estates rose by 66% to £7.6m (H1 FY24: £4.6m). 5-year H1 CAGR: 46%.

·      Net cashflow after all operating costs but before new case investments rose by 193% to £4.5m (H1 FY24: £1.5m). 5-year H1 CAGR: 126%.

·      Net assets as at 30 September 2024 were £40.5m (H1 FY24: £39.8m). Net debt was reduced to £11.9m and comprises borrowings of £12.5m, offset by cash balances of £0.6m. (Net debt as 31 March 2024 was £12.3m.)

·      £5m of the £17.5m HSBC Revolving Credit Facility remains available for use, as at 30 September 2024. That figure does not take into account the Company's available cash balances referred to above.

Operational highlights:

·      Ongoing delivery of record realised returns: 137 case completions in H1 FY25 representing a 18% increase (116 case realisations in H1 FY24), generating gross settlement proceeds receivable of £13.9m for H1 FY25, which is 51% higher than the H1 FY24 figure of £9.2m. This very strong increase in case settlements provides visibility for further high levels of cash income, as it takes the Company, on average, around 12 months to collect in all cash from previously completed cases.

·      The average realised revenue per completed case ("ARRCC") for H1 FY25 was £109k, compared to the ARRCC of £81k for H1 FY24. That 35% increase in ARRCC is an important and an encouraging Key Performance Indicator for the Company. Before the onset and impact of the Covid pandemic in 2020, the Company was achieving an ARRCC of approximately £200k. Progress back to that ARRCC level, together with the Company maintaining its recent high case acquisition and case completion volumes, would lead to a material transformation of Company profitability.

·      The 137 cases completed in H1 FY25 had an average case duration of 15.7 months. This was higher than the average case duration of 11.5 months for the 118 cases completed in H1 FY24, because in H1 FY25 Manolete was able to complete a relatively higher number of older cases, as evidenced by the Vintages Table below.

·      Average case duration across Manolete's full lifetime portfolio of 1,064 completed cases, as at 30 September 2024 was 13.3 months (H1 FY24: 12.7 months).

·      Excluding the Barclays Bounce Back Loan ("BBL") pilot cases, new case investments remained at historically elevated levels of 126 for H1 FY25 (H1 FY24: 146 new case investments).

·      New case enquiries (again excluding just two Barclays BBL pilot cases from the H1 FY24 figure) achieved another new Company record of 437 in H1 FY25, 27% higher than the H1 FY24 figure of 343. This excellent KPI is a strong indicator of future business performance and activity levels.

·      Stable portfolio of live cases: 413 in progress as at 30 September 2024 (417 as at 30 September 2023) which includes 35 live BBLs.

·      Excluding the Truck Cartel cases, all vintages up to and including the 2019 vintage have now been fully, and legally completed. Only one case remains ongoing in the 2020 vintage. 72% of the Company's live cases have been signed in the last 18 months.

·      The Truck Cartel cases continue to progress well. As previously reported, settlement discussions, to varying degrees of progress, continue with a number of Defendant manufacturers. Further updates will be provided as concrete outcomes emerge.

·      The Company awaits the appointment of the new Labour Government's Covid Corruption Commissioner and hopes that appointment will set the clear direction of any further potential material involvement for Manolete in the Government's BBL recovery programme.

·      The Board proposes no interim dividend for H1 FY25 (H1 FY24: £nil).

For further information, please contact:

Chief Executive Officer's Statement

Introduction

I am pleased to present our unaudited statements for the six months ended 30 September 2024 ("H1 FY25").

Manolete is the leading UK quoted company in the insolvency litigation finance market, a sector which plays an important role in returning funds to creditors, particularly HMRC.

The UK Insolvency Market

April 2022 was a major inflexion point for Manolete. The Conservative Government of the time ended its Covid era temporary suspension of a number of significant UK insolvency laws and also curtailed its very significant financial support provided to UK companies, causing the UK insolvency market to rebound very positively. In addition, UK companies were faced with a new economic environment, marked by high inflation, high interest rates and supply chain issues, factors which still impact UK businesses today. Added to those pressures, businesses are now also challenged by the recently announced increases in Employer National Insurance Contribution rates, above inflation labour pay rises and more stringent labour laws.

Source: UK Insolvency Service 18 October 2024

The overall UK insolvency market is now the most buoyant it has been since the 2008/09 financial crisis, with the level of Creditor Voluntary Liquidations ("CVLs") - by far the largest element of the insolvency market - at its highest levels recorded by the Insolvency Service since 1960. As anticipated by the Company, it can be seen from the graphic above, these high levels of insolvency activity persist. The Board of Manolete believes that these conditions will continue to drive elevated levels of UK insolvencies, for the reasonably foreseeable future.

Company Performance

As the leading operator in the specialist area of UK Insolvency Litigation Finance, it is unsurprising that the unprecedented gyrations in the UK insolvency market, over the last five years, are mirrored in Manolete's financial and operating performance, albeit with an average 12-month time delay.

New Case Enquiries

The new case enquiries graphic depicted below, represents the levels of new case investment opportunities referred to Manolete between 1 April 2018 and up to and including 30 September 2024. The graph closely mirrors the shape of the UK insolvency market trends, shown above, with a relatively short time lag, as Office Holders (Liquidators, Administrators and Trustees in Bankruptcy) naturally require a reasonable period of time to investigate their new appointments before they are in position to present potential case opportunities to Manolete.

Source: Company Data

For this latest interim period, new case enquiries were 27% higher than the corresponding first half period last year (please note that in order to best present the important underlying, sustainable trends, we have excluded the large block of 106 new case enquiries related to the Barclays BBL Pilot in H1 FY23 and the two further Barclays BBL Pilot case enquiries in H1 FY24, as there is no guarantee that this activity was more than an exceptional one-off project. Further details follow below.

The 437 new case enquiries in H1 FY25 were 13% ahead of the Company's previous record of 388 in H2 FY24 and far in excess of the levels experienced before the pandemic impact in H2 FY21.

New Signed Cases

In H1 FY25, the level of new signed case investments continued to exceed the pre-pandemic level by some margin (as above we have excluded the exceptional Barclays BBL Pilot cases. One further Barclays BBL Pilot case was signed in H1 FY25).

The single anomaly in the otherwise strong key performance indicators, was that the first quarter of FY25 delivered just 44 new signed cases. Much more positively, Q2 FY25 rebounded very strongly to 81 and that positive trend has continued into Q3 FY25, with 31 new case investments signed in October 2024. As in prior years the lower volumes in Q1 FY25 were due to Insolvency Practitioners ("IPs") and their staff being very busy attending to Members Voluntary Liquidations ("MVLs"), at around the time that the tax year ended on 5 April each year. MVLs are solvent liquidations of companies by their shareholders (rather than creditors) as they usually relate to tax planning issues. Furthermore, this factor was exacerbated this year, because of the further certainty of a UK General Election looming at some time later in the calendar year 2024. Therefore the MVL activity appears to have been exceptionally, but understandably, strong in Q1 FY25, leading to a short temporary loss of IP focus on insolvency litigation claims. It was pleasing to see a very strong recovery of this key performance indictor in Q2 FY25 and beyond.

Case Completions

H1 FY25 saw an outstanding, record level of 137 full legal case completion, an 18% increase over the 116 case completions recorded for H1 FY24.

The aggregate gross settlement proceeds receivable from those 137 legally binding case completions in H1 FY25 was an impressive £13.9m as that is 44% higher than the H1 FY24 figure of £9.2m. This very strong increase in the aggregate value of case settlements is a highly reliable indicator for future, near term, cash collection, as it takes the Company, on average, around 12 months to collect in all legally agreed cash receivables on its completed cases.

The Manolete Board has been keen to highlight that as the Company emerged from the Covid downturn, newly signed case volumes recovered very positively but the average realised revenue value per case was significantly lower than Manolete had been achieving prior to the onset of the Covid pandemic. This was because the first large wave of high insolvency levels featured a disproportionately larger number of smaller UK companies as they typically have less robust balance sheets, fewer financing options and are therefore less likely to withstand insolvency pressures. The level of UK Administration insolvencies (a good indicator of larger company insolvencies as they favour the Administration insolvency route) has only reached the higher pre-pandemic levels in the last 9 months or so and the rate of increase in Administrations has been far more gradual than the very sharp increase in CVLs, the latter being the typical route to insolvency for smaller and medium size companies. The size of claim referred to Manolete, ends to be determined by the size of economic entity from which the claim emanates.

Prior to the start of Covid in March/April 2020, Manolete achieved an average realised revenue per completed case ("ARRCC") of around £200k. That is close to the approximate market norm for the size of an average UK insolvency litigation case where cases tend to settle at approximately half of £500k average headline claim value. It is therefore encouraging that in H1 FY25 the ARRCC was £109k, a 35% increase from HY FY24 ARRCC of £81k. For the full 12 months of FY24 the ARRCC was £94k. Therefore, the H1 FY25 ARRCC is 16% above the full 12-month FY24 ARRCC. These are important and encouraging but still early trends pointing to an increasing ARRCC. The ARRCC is a highly important factor in determining the financial outturn of the Company for any given period. In any analysis of any sector of the Law, one should not draw definitive conclusions based on the results of just six months data. This trend requires analysis over a longer and statistically more significant period of time.

Average case durations (the time it takes from Manolete signing a new case investment to legally completing it) for the 137 cases completed in H1 FY25 increased to 15.7 months from 11.5 months for H1 FY24. The H1 FY25 period featured the welcome completion of a relatively larger number of older vintage cases compared to the H1 FY24 period.

Revenues and Profit

The Company recorded its highest ever realised revenues of £15.0m in H1 FY25, exceeding H1 FY24's £9.4m by an impressive 60%. On average, Manolete receives all the cash owed to it by the defendants of completed cases within around 12 months of the case being legally completed. That provides excellent near-term visibility and therefore a reasonable expectation for the continuation of the Company's strong and now clearly well-established track record of cash generation.

The Company's H1 FY25 movement on unrealised revenues (which are also technically the same as the Company's unrealised gross profit) showed a negative movement of £633k compared to a positive £1.8m movement in H1 FY24. The primary reasons for this were: (1) the record level of case completions in H1 FY25 which cause a beneficial movement from "unrealised" to "realised" revenues and "unrealised" to "realised" gross profit; (2) the ARRCC factor explained above. The new cases being added to the Company's case portfolio have on average been the (internally estimated) relatively smaller cases compared to those many cases that were completed in the last 6-month trading period. However, as stated above, the Company has not only achieved strong levels of new signed cases, there are also early indications of a recovery in ARRCC, back towards the attractive pre-pandemic ARRCC level.

Referring now to the Company's reported Operating Profit: while the CFO Report below analyses this in greater detail, it is the product of the multiple factors covered above that combine to produce the operating profit of £658k for H1 FY25, a 58% decrease compared to the £1.6m reported for H1 FY24. The main factor supressing the current level of profitability continues to be the lower fair value our in-house legal team (who are the principal drivers of the fair value of the in-process, live cases in Manolete's case investment portfolio at any one time) attribute to those more recent ongoing cases, compared to the comparative previous financial period of H1 FY24.

A continued improvement in the Company's ARRCC and a sustained performance in the already high levels of case volumes, are the key to bringing a strong and sustained recovery in the Company's profitability.

Cash Generation

Manolete's cash generation performance over the last several years and, particularly this most recent H1 FY25 period, is the Company's most outstanding and important achievement as cash generation is the paramount performance benchmark for most corporate entities.

(i)            Gross Cash

In the first six months of this current trading year, Manolete reported gross cash received from completed cases of £14.3m, an increase of 63%, compared to the corresponding period H1 FY24 of £8.7m.

Starting from the first full financial year following the Company's IPO on AIM in December 2018 (FY20), Manolete's gross cash generation is now very well established. Over the six-year period of first half trading results that are covered by the graph below, the Company has delivered an impressive Compound Average Growth Rate ("CAGR") for gross cash collected of 39%.

Source: published accounts of Manolete Partners Plc.

Note*: H1 FY23 has been adjusted to exclude an exceptionally large funded, one-off case that generated gross cash of £9.5m

(ii)           Net Cash Received

A similarly impressive picture emerges from an analysis of Manolete's net cash income collected from completed cases (which is the gross cash referred to immediately above, but after the deduction of all payments of legal costs and payments to Insolvent Estates on the completed cases in each respective period - defined here as "Net Cash Received"). For H1 FY25 Manolete reported Net Cash Received from completed cases of £7.6m, an increase of 66% compared to the corresponding H1 FY24 of £4.6m. It is worth noting that the H1 FY25 Net Cash Received figure of £7.6m exceeds the £5.9m of full year cash operating costs of running the Company throughout the whole 12 months of FY24. The Board is confident that the cash costs of operating the Company in this current full year of FY25 will be similar to those of FY24. Therefore, the first six months of Manolete's FY25 have generated significantly more cash than the costs of running the Company for the entire 12 months - an excellent milestone achievement.

Source: published accounts of Manolete Partners Plc.

Note*: H1 FY23 has been adjusted to exclude an exceptionally large funded, one-off case that generated gross cash of £9.5m

Over the six-year period of first half trading results covered by the graph above, the Company has delivered an impressive CAGR for Net Cash Received of 46%.

(iii)          Net Operating Cash Received

Finally, one can see a similarly strong and consistent trend when analysing Manolete's cash received before new case investments. This is the Net Cash Received, as previously defined above, less all cash costs of operating the entire Company in each of the respective first six-month periods of the relevant financial years. This is defined here as "Net Operating Cash Received".

For H1 FY25 Manolete reported Net Operating Cash Received of £4.4m, an increase of 193% compared to the corresponding H1 FY24 of £1.5m.

As can be seen from the graph below, over the last four years, the Company has been consistently delivering positive Net Operating Cash Received in the first half trading results during that period. The Company's CAGR for Net Operating Cash Received over the last four years is 126%.

Source: published accounts of Manolete Partners Plc.

Note*: H1 FY23 has been adjusted to exclude an exceptionally large funded, one-off case that generated gross cash of £9.5m

For H1 FY25, the Net Operating Cash Received of £4.4m exceeded the costs of financing the 413 ongoing live cases, which included the acquisition of 126 new case investments (including one new Barclays BBL Pilot case). That high level of organically generated cash was then used to reduce the Company's net debt.

Net Debt Reduced

HSBC provides the Company with a £17.5m Revolving Credit Facility ("RCF"). The strong cash generation delivered in H1 FY25 enabled the Company to repay HSBC a net £1.25m (by comparison, in H1 FY24, the Company increased its drawings from the HSBC RCF by an additional £2.5m). The Company's Net Debt as at 30 September 2024 was reduced to £11.9m (at 30 September 2023 Net Debt was £12.0m and at the most recent year ended 31 March 2024, Net Debt was £12.3m).

Vintages Table

This table highlights some of the key performance features of Manolete's business model. In H1 FY25, our in-house legal team was able to complete several of the few remaining older cases that we had in the investment portfolio. That had an effect of lengthening the average duration on cases completed in H1 FY25. However, looking at the investment portfolio as a whole, 72% of the current in-process cases were signed in the last 18 months, which demonstrates Manolete's impressive ability to realise cases, and generate cash from them for further reinvestment in our specialist sector. That delivers consistently very high returns on capital employed. Some of the key features to note from the table below include:

1.     Consistently high IRRs across 1,064 completed cases.

2.     Fast case completions, at an average of 13.3 months per case (H1 FY24: 12.7 months per case) from the date of signing the investment agreement to the date that the case is legally completed. Cash tends to be collected, on average, over the following 12 months (H1 FY24: 12 months).

3.     All cases completed for the 2019 vintage and earlier.

4.     Only one of the 141 cases invested in the 2020 vintage remains open.

Case Vintages as at 30 September 2024

Strategy, Outlook and Team

The Company ended H1 FY25 with 413 live cases in-progress (417 live cases at the end of H1 FY24). The Directors believe that given the challenging prevalent economic environment, featuring relatively high inflation, significantly higher interest rates and historic record high levels of UK insolvencies, the Company is well set to continue its growth trajectory.

From January 2023, the Company started to take assignments of cases from the specialist recovery work it is undertaking with Barclays Bank plc on a range of defaulted Bounce Back Loans ("BBLs") issued by Barclays. The Company awaits the new Labour Government's appointment of a Covid Corruption Commissioner. Following that appointment, the Company expects to learn whether it is likely, or not, to have any further material involvement in the recovery of defaulted BBLs.

As previously, and recently, reported, we have a number of potential settlement discussions ongoing, at varying levels of progress, relating to our Truck Cartel cases. Where settlements with truck manufacturer defendant companies are not possible, Manolete will progress those cases to trial.

Our Board is always very grateful to the high quality, dedicated team of its colleagues, across all the departments of Manolete.

Dividend

The Board recommends no interim dividend be proposed for the six months to 30 September 2024.

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 half year to 30 September 2024.

The financial results for the 6 months to 30 September 2024 (H1 FY25) report an Operating profit of £0.7m (H1 FY24 £1.6m). Revenue in H1 FY25 was reported as £14.4m (H1 FY24 £11.2m) an increase of 28% on the same period in the prior year. 

Operationally, the business performed strongly and completed 137 cases in the 6-month period to 30 September 2024 (116 cases, H1 FY24) and signed, including Barclays BBL cases, 126 new cases (179 new cases, H1 FY24) and continues to realise cash proceeds from both historic and current year completed cases. 

Revenue increased from £11.2m in H1 FY24 to £14.4m in H1 FY25, an increase of 28%, which was a result of a higher number and value of case completions in the 6-month period resulting in a record level of realised revenue. We look at each realised and unrealised revenue separately:

Realised revenue increased from £9.4m H1 FY24 to £15.0m in H1 FY25, an increase of 60%. This was a result of a higher number and value of completed cases in the 6-month period, 137 completed cases at an average realised value of £109k per case (H1 FY24, 116 completed cases at an average realised value of £81k per case).

Unrealised revenue decreased to (£0.6m) H1 FY25 compared with a positive £1.8m in H1 FY24. This was due to a high value of completions (a negative to unrealised revenue) not being fully replaced by the value of new cases signed in the 6-month period.

Gross profit decreased from £5.0m in H1 FY24 to £4.4m in H1 FY25, primarily due to the positive contribution of Unrealised revenue in the prior year period. Once again, we review realised and unrealised gross profit separately.

Realised gross profit increased to £5.0m H1 FY25 (£3.2m H1 FY24), due to the large number of completions within the 6-month period. Realised gross profit margins remained stable at 33% H1 FY25 compared to 34% H1 FY24.

Administrative expenses increased by 8.6% to £3.7m in the six months to 30 September 2024 (H1 FY24: £3.4m) which is principally attributable to an increase in staff costs by £165k, a result of annual staff salary increases.

Increase in bad debt expense represents an increase in the expected credit loss in line with an increase in gross debtors as well as an in-depth review into the Company's older debts.

Operating profit decreased to £0.7m in H1 FY25 (H1 FY24: £1.6m) with an operating profit margin of 5% (H1 FY24: 14%).

Finance expense increased to £859k in H1 FY25 (H1 FY24: £647k) as base interest rates have been at a higher average rate than in the 6-month period to 30 September 2023.

No interim dividend is proposed for FY25 (FY24 interim dividend, nil).

The Company was managing 413 live case investments (including Cartel cases) as at 30 September 2024, compared to 417 live cases (including Cartel cases) as at 30 September 2023. The total investment in cases amounted to £39.5m at 30 September 2024 (30 September 2023 value of £39.4m).

Investments in cases are shown at fair value, based on the Company's estimate of the likely future realised gross profit. Management, following discussion with the in-house legal team, on a case by case basis, amend the valuations of cases each month to accurately reflect management's view of fair value. In addition, at year end reporting periods, a sample of material valuations are corroborated with the external lawyers working on the case who provide updated legal opinions as to the current status of the case. The Company does not capitalise any of its internal costs, these are fully expensed to the Statement of Comprehensive income.

Trade and other receivables have increased to £29.3m H1 FY25 from £24.3m H1 FY24, an increase of 20%, driven by a high number and value of case completions. This amount is net of provision for bad debts.

Gross cash receipts of £14.3m in H1 FY25 (£8.7m H1 FY24) represents a strong increase in cash generation in comparison with H1 FY24. 

Cash generation was positive after payment of IP share and external legal costs on those completed cases and after payment of overheads of (£3.1m) and after investment in new and existing cases.

In this 6-month period, we only utilised our internally generated cash resources to invest in new and existing cases.    

The Company has Net debt of £11.9m with a drawn down balance of £12.5m (£13.0m H1 FY24) of its £17.5m HSBC loan facility as at 30 September 2024 and continues to deploy loan capital, if required, to finance investment in cases. During H1 FY25 the Company repaid a net £1.25m of its HSBC loan facility (drew down £2.5m H1 FY24). The Company held cash reserves of £0.6m as at 30^th September 2024 and had £5.0m available of the £17.5m HSBC facility. This facility and cash reserves will be used to fund future growth in case volumes. The HSBC loan refinancing is due in June 2025, we are scheduled to undertake discussions with HSBC from January 2025, we are also in early-stage discussions with potential other lenders.

Mark Tavener

Chief Financial Officer

Unaudited Statement of Comprehensive Income for the period ended 30 September 2024

The above results were derived from continuing operations.

Unaudited Statement of Financial Position at 30 September 2024

The interim statements were approved by the Board of Directors and authorised for issue on 19 November 2024.

Unaudited Statement of Changes in Equity for the period ended 30 September 2024

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Unaudited Statement of Cashflows for the period ended 30 September 2024

Unaudited notes to the financial statements for the period ended 30 September 2024

1    Company information

Manolete Partners PLC (the "Company") is a public company limited by shares 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 Company's ordinary shares are traded on the AIM Market.

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

2    Accounting policies

(a)    Basis of preparation

The half-yearly financial statements do not constitute statutory accounts within the meaning of Section 434 of the Companies Act 2006.

The interim condensed financial statements for the six months ended 30 September 2024 have been prepared in accordance with IAS 34 Interim Financial Reporting. The interim condensed financial statements do not include all the information and disclosures required in the annual financial statements, and should be read in conjunction with the Company's annual financial statements as at 31 March 2024.

The statutory accounts for the year ended 31 March 2024 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 2024 was unqualified and did not contain any statements under Section 498 (2) or (3) of the Companies Act 2006.

(b)    Going concern

The interim financial statements relating to the Company have been prepared on the going concern basis. The company has met each of its quarterly bank covenants during the six months in H1 FY25.

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 interim financial statements. In reaching this conclusion, the Directors have considered the position with respect to covenant compliance, short-term cash forecast, the general environment with respect to number of insolvencies in the UK economy. For these reasons, they continue to adopt the going concern basis in preparing the Company's interim financial statements.

(c)    Revenue recognition

Revenue comprises two elements: the movement in fair value of investments and realised consideration.

Realised consideration occurs when a case is settled, or a Court judgement received. This is an agreed upon and documented figure.

The movement in the fair value of investments is recognised as Unrealised gains within Revenue. This is management's assessment of the increase or decrease in valuation of an open case, the inclusion of value for a new case and the removal of the fair value of a completed case. These valuations are estimated following the progress of a case towards completion and also reflect the judgement of the legal team working on the case (see Note 2(d). Significant Judgements and Estimates). Hence, unrealised revenue is the movement in the fair value of the investments in open cases over a period of time.

When a case is completed the carrying value is a deduction to unrealised income and the actual settlement value is recorded as realised revenue.

Revenue recognition differs between a purchased case, where full recognition of the settlement is recognised as revenue (including the insolvent estate's share) and a funded case where only the Company's share of a settlement is recognised as revenue. This differing treatment arises because the Company owns the rights to the purchased case.

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

(d)    significant judgements and estimates

The preparation of the Company's interim financial statements in accordance with UK adopted International Accounting Standards requires the Directors to make estimates and assumptions that affect the reported amounts of assets and liabilities at the statement of financial position date, amounts reported for revenues and expenses during the period, and the disclosure of contingent liabilities at the reporting date. However, uncertainty about these assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amount of the assets or liabilities affected in the future.

Estimates and judgements are continually evaluated and are based on historical experiences and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

The Company makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are detailed below.

Valuation of investments

Investments in cases are categorised as 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. Due to the nature of Manolete's business model, an unrealised fair value gain will be recognised on initial investment in a case.  Thereafter, positive material progression of an investment will give rise to an increase in fair value and an adverse progression a decrease.

The key stages that an individual case passes through typically includes: initial review on whether to make a purchase or funding offer, correspondence from the Company in-house lawyer, usually via externally retained solicitors, to the opposing party notifying them of the Company's assignment or funding of the claim, a fully particularised Letter Before Action and an invitation to without prejudice settlement meetings or mediation, if the opposing party does not respond then legal proceedings are issued. Further evidence may be gathered to support the claim. Eventually a court process may be entered into. The progress of a case feeds into the directors' valuation of that case each month, as set out below.

In accordance with IFRS 9 and IFRS 13, the Company is required to recognise live case investments at fair value at the half year and year end reporting periods, at 30 September and 31 March each year.

The Company undertakes the following steps:

• On a weekly basis, the internal legal team report developments into the Investment Committee on a case-by-case basis in writing. Full reviews then take place on a monthly basis to review progress on all live cases, on a case-by-case basis.

• On a monthly basis, the directors adjust case fair values depending upon objective case developments, for instance: an offer to settle, mediation agreed, positive or negative legal advice. These adjustments to fair value may be an increase or decrease in value or no change required;

• At reporting period ends, a sample of open case investments for which written assessments are obtained from external solicitors or primary counsel working on the case on behalf of the Company.

In all cases, a headline valuation is the starting point of a valuation from which a discount is applied to reflect legal advice obtained, strength of defendant's case, the likely amount a defendant might be able to pay to settle the case, progress of the case through the legal process and settlement offers.

Movements in fair value on investments in cases are included within revenue in the Statement of Comprehensive Income. Fair value gains or losses are unrealised until a final outcome or stage is reached. At 30 September 2024 there were 413 open cases, of these 369 had a valuation of less than £100k. These cases are not expected to have an individually material impact on the business when they are settled. The remaining 44 cases make up £23.3m of the Investments and are material to the business, the significant judgements and estimates in their valuations at the balance sheet date were as follows:

1. Judgements:

1.1 The amount that cases are discounted to recognise cases being settled before they are taken to Court, based on the facts of each case and management's judgement of the likely outcome.

1.2 Litigation is inherently uncertain. The Company seeks to mitigate its risk by:  seeking to settle cases as early as possible. Nevertheless, the risk and uncertainty can never be completely removed. The key inputs are: the headline claim value, the likely settlement value, the opposing party's ability to pay and the likely costs in achieving judgement. These inputs are inter-related to an extent.

1.3 The Company accrues for future legal costs on the basis that cases will be settled before trial which is how the vast majority of cases completed to date have been settled. When it becomes clear a case will progress all the way to trial then the additional costs are accrued at this point on a case-by-case basis.

1.4 The Company classifies all legal cases (non-cartel) as current assets as the intention and expectation is to reach a settlement within 12 months. Cartel cases are classified as non-current assets as the legal process for these Competition Law cases is a longer-term process except where settlement negotiations have commenced.

2. Estimates:

2.1 All cases will be subject to the internal key stages and regular fair value review processes as described above. For the avoidance of doubt, the fair value review requires an estimate to be made by senior management based upon the facts and progress of the case and their experience. For a sample selected by Management , an external opinion is requested from counsel or a solicitor who is working on the case which provides an independent description of the merits of the case.

These assessments include various assumptions that could change over time and lead to different assessments over the next 12 months.

2.2 Future legal costs have been estimated on the estimated time the case will take to complete and whether it will go to Court. Future results could be materially impacted if these original estimates change either positively or negatively.

2.3 Recovery of debts is based on the Company's ability to recover assets owned by the counterparty. Prior to case acceptance, a net worth review of the defendant is undertaken to assess whether they own sufficient assets to support the claim value. Cases that are settled without going to Court typically recover in full, whilst those that result in Court cases are less predictable in terms of full recovery.

2.4 The valuations assume that there is no recovery for interest and costs except for the cartel cases which do assume a figure for both costs recovery and interest charge. If cases go to Court and result in a judgement in the Company's favour, it is likely that the Company will be awarded interest and costs.

Sensitivity analysis has not been included in the financial statements, due to the vast amount of inputs and number of variables which are inherently specific to each case, making it impossible to provide meaningful data. Whilst the Board considers the methodologies and assumptions adopted in the valuation are supportable, reasonable and robust, because of the inherent uncertainty of valuation, it is reasonably possible, on the basis of existing knowledge, that outcomes within the next financial year are different from the assumptions could require a material adjustment to the carrying amount of the £39.5m of investments disclosed in the balance sheet (Note 6). However, as an indication we note that a 10% increase/(decrease) in the fair value of our top 20 cases (excluding cartel cases) would result in an increase/(decrease) in the fair value investment of +/- £0.9m.

Approach to cartel case valuation:

Following publication of the ruling in respect of an EU Competition test case (the "BT / Royal Mail" case) we requested that our independent expert valuation firm apply the assumptions contained within the test case ruling to the valuation of Manolete's 22 cartel cases. Following the ruling and the receipt of further case data, the directors consider that additional discounting, or the use of a "tier based" system is no longer required and the year-end valuation therefore represents Manolete's percentage ownership of the overall case valuation. The cartel case carrying valuation as at 30 September 2024 was £15.0m (HY24 £15.2m).  

Recoverability of trade receivables

The Company's business model involves the provision of services for credit. The Company normally receives payment for services it has provided once a claim has been pursued and settled or decided in Court. The average time from taking on a case to settlement is c.13.3 months although this can vary significantly from case to case. As part of the settlement agreement, the timing of payment of the award by the defendant to the Company is agreed and this is a legally binding document. Settlements can be received in full on the day of settlement or (at Management's discretion) paid in instalments over a defined settlement plan.

As such, Management applies a number of estimates and judgements in the recording of trade receivables, for example: in relation to default judgements Management assess the likely recoverability and do not necessarily recognise the full judgement.

The Company applies the simplified approach in providing for expected credit losses under IFRS 9 which allows the use of the lifetime expected credit loss provision for all trade receivables. In measuring the expected credit losses, trade receivables have been stratified by settlement type and days past due. Expected lifetime expected credit loss rates are based on the payment profiles of completed cases from April 2022 to December 2023. The Company attempts to assess the probability of credit losses but seeks to mitigate its credit risk by undertaking rigorous net worth checks before taking on a case. Occasionally credit defaults do occur when counterparties default on an agreed settlement payable by instalments. There is a concentration risk in relation to the trade receivable of £6.0m which relates to a large case completion in FY21. Repayments to date have been made according to the agreed schedule. Based on Management's assessment of the receivable no provision has been recognised against this balance.

Recovery of receivables is closely monitored by Management and action, where appropriate, will be taken to pursue any overdue payments. The Company seeks to obtain charging orders over the property of trade receivables as security where possible. The receivables' ageing analysis is also evaluated on a regular basis for potential doubtful debts. Where potential doubtful debts are identified specific bad debt provisions are held against these. It is the Directors' opinion that no further provision for doubtful debts is required. Please see note 9 of the interim accounts.

3   Segmental reporting

During the six months ended 30 September 2024, revenue was derived from cases funded on behalf of the insolvent estate and cases purchased from the insolvent estate, which are wholly undertaken within the UK. 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. Revenue 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 derive from continuing operations and are not seasonal in nature.

Net realised gains on investments in cases represents realised revenue on completed cases.

Fair value movements include the increase / (decrease) in fair value of open cases, the removal of the carrying fair value of realised cases (in the period when a case is completed and recognised as realised revenue) and the addition of the fair value of new cases.

4     Analysis of expenses by nature

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Internal legal costs are included within administrative expenses whereas external legal costs are either capitalised as Investments for open cases or recognised as cost of sales on completed cases. The breakdown by nature of administrative expenses is as follows:

5     Finance expense

6    Investments 

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Investments represent the expected gross profit generated on the Company's ongoing portfolio of cases on settlement. This incorporates the expected gross settlement less the costs incurred to initially purchase the claim, costs incurred to date, expected future costs, and the share of net gain due to the Insolvency Practitioner. 

7   Analysis of fair value movements

8 Non-cash adjustments to cashflows generated from operations

9   Trade and other receivables                                                   

10 Trade and other payables

11 Earnings Per Share

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The Basic Earnings Per Share is calculated by dividing the profit attributable to ordinary equity holders by the weighted average number of ordinary shares outstanding during the period. Diluted Earnings Per Share is calculated by dividing the profit after tax by the weighted average number of shares in issue during the period, adjusted for potentially dilutive share options. The following reflects the income and share data used in the Earnings Per Share calculation: