TIDMMANO
RNS Number : 8785S
Manolete Partners PLC
14 July 2020
14 July 2020
Manolete Partners Plc
("Manolete" or the "Company")
Response to Article Published by ShareProphets
Manolete Partners Plc ("Manolete" or the "Company"), the leading
listed insolvency litigation financing firm in the UK, notes that
on the afternoon of Friday 10 July 2020, a group called
"ShareProphets" published an article by an unnamed author
concerning the Company.
This article was published without any prior communication with
the Company and without any attempt to check the validity of the
points with the Company.
In the opinion of the Board, the article contains a large number
of false statements and is misleading.
Since the flotation of the business in 2018, the Board has been
transparent in its dealings with the market, and is always prepared
to engage with shareholders or commentators; it is therefore
regrettable that this article was written, published, and
distributed without any attempt being made to verify its contents
with the Company.
The Company has addressed and responded to the points made in
the article in the order they were published below:
1. Cash Utilisation
The article claimed that "Manolete is burning cash at a rate of
knots". That is untrue.
As evidenced in the Company's recently published financial
statements for the year ended 31 March 2020 ("FY20") the cash
generated from completed cases exceeded:
a) All cash legal expenses on closed cases; and
b) All cash payments to Insolvent Estates; and
c) All Company cash overheads
Company cash overheads underwent a step-change to GBP4m in FY20
(from GBP2.7m in FY19), a 48% increase. As well as a number of
one-off post-IPO costs (e.g. new website, recruitment costs), this
was largely due to the increased salary costs associated with the
establishment of Manolete's in-house regional network of solicitors
which gives the Company proprietary coverage across the whole of
the UK market. That network is now fully established and capable of
managing around 275 live cases (152 live as at 31 March 2020).
The significant point here being that the cash inflows from
cases started before the regional network was established more than
covered the overhead base of the much-expanded Manolete in-house
regional team.
The London and regional team have invested in a record 141 cases
in FY20 and the cash income derived from those cases will be
received in future reporting periods. As overheads will not require
a further step-change for a significant time, the net cash
generation prospects are attractive.
The only consumption of cash in FY20 was to finance the record
141 new case acquisitions and legal costs of other ongoing cases.
Clearly the Company has not benefitted from cash generation from
the large majority of those cases but has financed the cost of
those investments, deploying the net proceeds of the IPO in
December 2018. Shortly before the 31 March 2020 year end, as
COVID-19 impacted the country, purely as a liquidity precaution the
Company drew down GBP8m of its GBP20m Revolving Credit Facility
with HSBC ("RCF"). As at 31 March 2020, the entirety of the GBP20m
RCF capacity remained available to the Company.
In summary: FY20 represented a period of transformational growth
in the infrastructure of Manolete. That was entirely financed out
of organic internal operational cash generation. GBP4.1m of equity
finance (IPO proceeds) was utilised to finance a record number of
highly attractive UK insolvency litigation claims which the Board
believe will deliver the same high levels of investment returns
that have been consistently delivered over the last 8 years, within
the same short duration timescale of an average of 12 months.
2. Capital Structure
The article suggests that Manolete will need to issue new
equity. There is no basis for this.
As at 31 March 2020, the Company had full availability of the
entire GBP20m RCF capacity. The RCF facility agreement also
contains a trombone feature which, while not a firm additional
facility commitment, enables a fast-track application for a further
GBP20m extension of the RCF. Based on the Board's conservative
internal analysis, it believes that the Company is highly unlikely
to need the full GBP20m RCF to fund future activity, let alone the
potential trombone extension.
In summary: the Board is confident that the Company's existing
GBP20m RCF will be more than adequate to finance the business in
the foreseeable future.
3. Fair Value Accounting
As prescribed by relevant UK and international accounting
standards, the Company does Fair Value its ongoing, live cases at
each reporting period end. No cases remain open from its FY16
vintage, only one remains open from the FY17 vintage and just 6
remain open from the FY18 vintage, therefore the vast majority of
cases have been completed. If there had been any material adverse
discrepancies between Fair Values and actual achieved values on
those cases then material losses would have been already reflected
in the Company's audited financial statements. No such losses have
materialised.
Excluding the Cartel Cases (see further below) the average Fair
Value per open case at the end of FY19 was GBP156k per case (on 84
live cases) and at the end of FY20 was GBP166k per case (on 152
live cases).
In summary: Manolete's long established history of 257 realised
cases over a period of 11 years of operation has not given rise to
any material adverse losses in its financial statements over that
entire period.
4. Total Addressable Market
The article draws an adverse inference from the fact that
Manolete commissioned Professor Walton's updated April 2020 report
on the UK Insolvency Litigation Finance market.
That report Insolvency Litigation Funding - in the best
interests of creditors? was the third published by Professor
Walton. As the Company has clearly disclosed on its website and in
its most recent financial statements, the Company commissioned the
April 2020 Report. That report was fully supported by:
a) The Institute of Chartered Accountants of England and Wales; and
b) The Insolvency Practitioners Association
Professor Walton's earlier reports were:
"The Likely Effect of the Jackson Reforms on Insolvency
Litigation - An Empirical Investigation" Published April 2014.
Supporting organisations: R3, ACCA, ICAEW, ICAS, IPA, JLT, Moon
Beever, Moore Stephens
"Insolvency Litigation and the Jackson Reforms - An Update.
Published April 2016." Report commissioned by R3 (with the support
of ACCA, ICAEW, ICAS, ILA, IPA, IRS, JLT Specialty Ltd, Willis
Towers Watson)
In summary: The Company as well as many City analysts and
Manolete shareholders were keen to understand how the evolving
market had developed since the 2016 Walton Report. Supported by the
ICAEW and the IPA, Manolete commissioned the author of the previous
two reports to update his work.
5. Case Durations and Settlements
The article states: "Its case durations are short, but its
settlements are drawn out affairs".
By this we take the author to mean that debtor collection can be
longer than case duration. That is certainly true, by definition.
Most Manolete cases resolve by way of a negotiated settlement with
the potential Defendants (individuals or companies). Larger
companies or wealthy individuals tend to be associated with the
Company's larger claims. These defendants tend to be able to pay
the agreed settlement sum in a short period of time (usually 21
days or up to two or three months after the settlement agreement is
signed). In the last two financial years, the largest case
settlement in each year was settled in cash in a few weeks for FY19
and around 4 months in FY20.
It is the larger number of smaller claims where Manolete has to
sensibly accommodate the debtors' ability to pay. There is little
commercial value in agreeing an unrealistic payment plan only to
have to eventually force an individual into bankruptcy for
breaching the settlement agreement. These smaller claims (GBP20k to
GBP200k) tend to be with previous owner managers of UK SMEs. They
often have a relatively modest sum to contribute to the settlement
shortly after signing the settlement agreement, but Manolete will
then agree to take further monthly or quarterly payments for the
outstanding balance. In the large majority of these smaller cases,
Manolete will register a restriction on the Defendant's property to
ensure that it receives early notification of any attempt to
dissipate assets before full settlement with Manolete.
In summary: Manolete's investment returns are high but smaller
cases will demand that Defendants agree to manageable payment
plans. Manolete has an excellent track record of collecting on
those agreed plans, which have been agreed consensually with its
debtors.
6. High Case Acceptance Rate
The article states that: "It is absorbing higher risk as it
increases it acceptance rate while growing".
Manolete's case acceptance rate has increased from c. 20%
pre-IPO to around 30% since IPO. There are two important causal
factors to this:
a) Prior to IPO, Manolete was balance sheet and cash
constrained. The Company had to voluntarily decline cases simply
because of its limited access to funds. The new GBP14m equity and
the GBP20m RCF raised upon IPO released Manolete's model from these
shackles.
b) Manolete's new group of regionally based in-house lawyers has
given the Company unprecedented early access to cases, particularly
those outside of London. Prior to IPO, Manolete was essentially a
wholly London based team (the Company had only recently established
its North West presence). Pre-IPO, good claims with regional
Insolvency Practitioners ("IP") would normally default to the old
CFA/ATE model with a locally based solicitor, in order to advance
their claims. Manolete might then be approached a number of years
later, once the CFA/ATE had failed to make a recovery - or the case
might simply be abandoned due to lack of finance and perceived risk
of taking the claim any further. Post-IPO this position has changed
dramatically. Manolete's expert in-house lawyers are "on the
ground" locally, well known to the local insolvency professionals
and can offer full financing solutions at an early stage. Every IP
who has had a case financed by Manolete has always returned with
further cases, without exception. The most effective marketing of
the Company has been executing the cases and delivering tangible
results for the IPs and the creditors interests they represent.
Almost always, HMRC will be a creditor (and often the largest
creditor) of an insolvent entity. Manolete takes great pride in the
fact HMRC is the single largest beneficiary on the hundreds of
cases it has completed.
The quality of the cases invested post-IPO (the FY20 vintage)
have led to some of Manolete's best results in its history. 33 of
the 141 cases invested in FY20 have already completed in an average
duration of just six months, delivering gross proceeds of GBP6.2m
and at a Money Multiple of 4.6x.
7. High Case Concentration
This point was difficult to comprehend. Manolete has built a
highly granular portfolio of UK insolvency cases. There is a good
cross section of cases ranging from many smaller SME claims all the
way to larger cases - at the FY20 year-end Manolete had 35 cases
with headline claim values ranging from GBP1m through to GBP40m and
that excludes the City Link and Comet Cartel claims.
8. The Cartel Cases
Manolete has always reported separately on this sub-group of 22
claims. It has purchased and is therefore in control of all of
those claims. The smaller cases were purchased on a simple GBP5k
upfront consideration and 50/50 split of net proceeds. On the two
much larger claims (City Link and Comet) GBP100,000 and GBP125,000
was paid in initial consideration (the largest Manolete has ever
paid) but Manolete owns a 90/10 split of the net proceeds.
These are fundamentally Competition Law claims but all assignor
companies are insolvent and in liquidation. Liability has been
established in all the claims against a number of leading and large
manufacturers of trucks weighing six tonnes and above for operating
an illegal price fixing cartel during the years 1997 to 2011. The
task for Manolete is to prove the quantum and causation of the
claims. Over a two-year period Collyer Bristow Solicitors and
Punter Southall Litigation Support, working in conjunction with
Manolete and the Liquidators of the various companies have been
assembling the evidence to tens of millions of pounds of truck
purchases over the cartel period. The focus has been very much on
the much larger claims and the data gathered on those has been of
very high quality. The claims will be for the over-charge element
of the truck purchases plus interest (which continues to run).
At every financial reporting period Collyer Bristow collate the
latest data and submit a detailed legal and financial evidence
report to the Board and the Auditors. The latest report included
input from three independent expert cartel case valuation companies
as well as a specialist Competition Law QC. For the avoidance of
doubt, Punter Southall constructed a database for the truck
listings for Manolete. PS's work ended last year and at no time was
it involved in case valuation.
The Royal Mail Plc and the Road Haulage Association (backed by
other litigation funders) are both progressing claims through the
Courts in England and Wales. Many other claimant groups (again,
many backed by litigation funders) are taking similar action in
other European countries.
The Fair Value of the Cartel Claims in the balance sheet at the
FY20 year end is GBP7.1m. Capitalised costs to date are GBP1.1m.
The Company and its advisors believe that the claims will
ultimately recover significantly more value for shareholders but
this group of claims has a much longer duration and therefore the
Board has always held the value at a highly discounted level.
9. Specific Case Issues
The article questions certain specific cases which can be
addressed as follows:
a) Manolete Partners v Siza (Palms Palace)
The article states that even though a judgment was received in
Manolete's favour for GBP4.2m "Manolete's claim is likely to be
worth GBP1.5 million to GBP1.8 million net of legal fees and the
IP's share of proceeds".
Despite the final judgment in Manolete's favour (Mr Siza has no
further rights of appeal), Manolete will always restrict case
values (realised and unrealised) to conservative recoverable
amounts and the fact is that at all times the Company has valued
this case in its accounts at below the author's worth of
GBP1.5m.
b) Manolete Partners v PV Solar Solutions Limited
This case was won at trial but there have been issues in
recovering against the Defendants therefore large provisions were
applied in Manolete's FY19 financial statements against the large
majority of the debtor and costs balances and those provisions
remain in place while the Trustee in Bankruptcy continues to
attempt making recoveries. There is a prospect of some recovery but
the net exposure to Manolete is immaterial.
c) Manolete Partners v Hastings Borough Council
The article states that "the recoveries from the case did not
even cover Manolete's legal costs of pursuing the claim". That is
false.
Manolete made close to 100% cash profit from this case.
Manolete only agreed to take an assignment of this case on
unique terms: that it received 2x its costs before a 50/50 split
with the Insolvent Estate. This was because there was a high risk
that the case would last significantly longer than normal. That was
a correct assumption. Manolete ultimately won the case in the
Supreme Court (having also won in the High Court and Court of
Appeal).
d) FH Gilman Limited Loan
Manolete had excess cash shortly after the IPO and the
opportunity to provide a secured loan of GBP500k at an interest
rate of 10% in year 1 and 12% in year 2. The loan is secured on
valuable substantial freehold land in the Stamford area. The land
is in the process of being sold to Aldi and two other commercial
operators. Professional external valuers valued the land at in
excess of GBP1.5m which comfortably exceeds Manolete's loan
exposure.
The loan enables the Administrator of FH Gilman to conclude the
sale of the land parcels and thereby deliver a significantly higher
return to the creditors of FH Gilman Limited.
For further information, please contact:
Manolete Partners Plc via Instinctif Partners
Steven Cooklin (Chief Executive Officer)
Peel Hunt (NOMAD and Joint Broker) +44 (0)20 7418 8900
James Britton
Rishi Shah
Duncan Littlejohns
Liberum (Joint Broker) +44 (0)20 3100 2000
Richard Crawley
James Greenwood
Instinctif Partners (Financial PR)
Tim Linacre +44 (0)7949 939237
Lewis Hill +44 (0)7837 674600
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
MSCSFWFWDESSEIW
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