Manolete Partners (LSE:MANO) — Annual Accounts

0:01 Good afternoon, and welcome to the MANOLETE PARTNERS PLC investor presentation. Throughout this quarter presentation, investors will be in listen only mode. Questions are encouraged and can be submitted at any time by the q and a tab situated in the right hand corner of your screen. Just simply type in your questions and press send. The company may not be in a position to answer every question it received in the meeting itself. However, the company can review all the questions submitted today and publish responses where it's appropriate to do so. Before we begin, I'd like to split the following poll. I'd now like to hand you over to Steven Cookland, CEO. Good afternoon to you, sir. Good afternoon. Thanks very

0:31 much indeed to to you and also to everyone who's found the time to join us today. Thank you. So, yes, these are our reports of the year ended 03/31/2024. I'm joined today by Mark Taverner, our CFO. Hey, everyone. What we're gonna cover today is an overview of the company. I'm always very aware that some listeners are completely new to MANOLETE and even litigation funding. Others of you are are pretty much experts. So I'll go through it as quickly as I can, but I do wanna make sure everyone's up to speed. Then I'll hand over to Mark for the financial results.

1:16 And then an important new new information today was really our current trading because we are now five months into the new financial year, what we call f y twenty five, and then we'll move on to q and a. So MANOLETE is a very focused litigation financing company. We only focus on insolvency and really UK insolvency. And we are by far by far the leader in our field. I'll come on to that in a in a second. And it is a unique business model when you compare it to the other listed funders because we buy the claims. We're not the funder. We are actually the litigant, the claimant. We own them outright by what's called an assignment. And what we're doing, we're buying these off insolvent companies. Companies have gone bust.

2:09 And and the people who we negotiate that deal with are the people who've been put in charge by statute of those insolvent companies, so liquidators, administrators, or in individuals' cases, what's called trustees and bankruptcy. And there's a group we call those office holders. By buying the claim, there are many, many benefits as a business model. It gives MANOLETE full control as if it was our case from from from day one. We get to conduct to the case. We can contact the other side to see if they would like to sit down and settle the case, and around 97% of our cases end exactly that way. We we can manage the costs and and the the strategy of the claims as well. And insolvency is the only area of law where this is permissible, and hence, the focus on on the sector.

3:10 We've invested in many cases, 1,300. We completed over 900 of those, and the settlements that that we've signed up on on those aggregate to over a 136,000,000 over a sixteen year period. The returns, as we'll see in a while, are very, very high. Internal rates of return, a 130%. Return on investment, 116%. And, again, as you'll see on what what we call our vintage table, this has been spread in a very granular way across many hundreds of cases. On IRRs, internal rates of return, when I was wet behind the ear, qualifying as a as a an accountant and then into corporate finance with Cooper's and Librand. I I I dealt with a lot of venture capital private equity funds. And over a kind of five year, seven year period, the targeted internal rates of return were compounding at 25% per annum. So to to see anything with with triple digit IRR is is really very unusual.

4:16 The the insolvency service is part of the government, and they track all the liquidations and administrations on a monthly basis. I'll explain this graph a little bit more detail in a second. But what we have got now in The UK after COVID is the highest number of what's called creditor voluntary liquidations since the start of 1960. Their numbers don't get go back further than that. And and these CVLs, as we call them, are by far the most are the biggest part of the market. So just to look at that graph a little bit closer, for years and years per month, the number of companies going insolvent, the black line in total, we can't, you know, up and down 1,200 to just over 2,000.

5:08 But then at the start of COVID, what happened was that the government introduced emergency, almost wartime legislation to to temporarily suspend various key insolvency laws, and that had the effect of a very sharp decline. As you can see, that kind of droop by that COVID nineteen. Very sharp decline in the number of companies becoming. That lasted for two years. They said it was temporary, and it was you know, it won't last long. But, actually, after every lockdown, every new variant, it was extended extended. That ended in April 2022 after a brief period needed for the office holders to investigate claims. As you can see, the number of insolvencies absolutely rocketed ever since way above the pre pandemic level.

6:04 The one exception to that, to a certain degree, was what's called administration. So from part of the graph, but but a very small part of the graph. Now this is administrations is usually the route that larger companies go down to when they become insolvent. The office holders are kind of effectively running the company for a period of time trying to sell it as as a concern. Now the administrations have taken a much, much longer time to get back to levels. It's only really in the last few months. And bigger bigger companies are going into insolvency, inevitably, at least to bigger claims, and that theme will pick up as as we progress.

6:53 What we noticed in our own data, we bought reported this before. In the first half of this f y twenty four, we just saw nine sign ups of of of £1,000,000 plus cases, which we call we define as large. And but in the second half, that was doubled. So that was that really was being driven by these number of administrations coming back to pre pandemic levels. MANOLETE is very much the dominant third party funder. If you look at that pie chart here, that represents a whole of the kind of annual insolvency litigation claim market, about 2,000, 2,500 claims see the life today a year. The blue bit of the kind of Pac Man is lawyers working on a no win fee case. And if you were to go back ten, twelve, fifteen years, the entire pie would be blue.

7:49 But what's emerged over the last decade or so has been third party funders coming along and and buying the claims. And MANOLETE of that yellow piece is by far the biggest. 67% market share has been the latest estimate, and the the closest to us is is is about 4%. On top of that, there's a publication called the chamber's guide, which has taken very held in very high regard by the legal and insolvency community. They started insolvency litigation, a legal table, if you like, four years ago. And the top band, band one, the only company that's ever been there and has been every single year is has been MANOLETE PARTNERS PLC. Since the IPO back in 2018, we've built up a network of our own people full time, in house lawyers from Edinburgh, Manchester, Leeds, Newcastle, Bristol, Cambridge, London, and then all the way down to Exeter and Southampton of our own top class, very senior insolvency litigators who who work for us full time.

8:57 The head of that is Mina Horton, who has been with us for over ten years now. And many of these well, almost all of these lawyers were joined us as as previously partners in private practice. And in fact, two of them are act act part time as deputy district judges. So they're very heavyweight experts in in the field. The business mix, two points here, really. I said I've said for many years that the portfolio will develop into pretty much a 100% purchase purchase cases. And these new investments here, 03/10, 01/03/2011. So this year's new investments were almost all purchase cases, which is great, giving us full control.

9:43 And then above that, the kind of ring is the kind of cases that we call them the seven deadly sins. So it's the same repeat insolvency cases in The UK against UK directors or insurance companies, what have you, that that repeat day in, day out in our line of business.

10:08 The route to market, very simply, the company becomes insolvent. The directors either voluntarily put it into liquidation or the creditors wind it up at court. An IP is appointed, funding is sought, and then MANOLETE PARTNERS the claim. I'm just gonna excuse me. We then go into what we call the the funnel, and so that that inquiries come in. We then have two groups within MANOLETE to to to run test past it. So number one is what's called the high net worth group. So no matter how big the claim is or how good the claim is from a legal merits point of view, these people are checking for us, have they got any money if the if the potential defendants are living in rented accommodation in a tiny little flat in in Aberystwyth, you know, it the work stops there. They haven't got any assets. What's the point of any of this? If it does pass that, it they go into the the the legal review run by one of these 15 in house lawyers.

11:20 They pass up a report to the investment committee, which is Mark, our CFO, myself, and Mina Holden, our MD, and and we send out the offer. We reject about 70% of cases. And when our offers are sent out, 89 of the time, they are accepted by the liquidators. So that gets signed up on average over these hundreds and hundreds of cases that we've completed. It takes about a year to complete the claim legally, so it's usually by signing settlement agreement with with the directors on the other side. And although a year might sound like a long time, if any any listener here has dealt with the the law or the legal process, a year is not a long time. It it's it's it's an incredibly short time.

12:13 And on average, again, across hundreds of cases, we then collect the cash from those directors over an average of of a further twelve months. Now that can range from everything paid immediately to to the need to to give people an extended payment period, but that is the average is is is one year.

12:36 So just to remind you of that graph again that I've put here on the in the top left hand corner, if you just focus on the last quarter really of it, so just in the lead up to the COVID drop. Yeah. So those were the that that was the whole liquidations market in The UK. And what is very striking is is that the case inquiries that we have had in mirror that graph, the shape of that graph very, very well indeed. So in the run up to COVID, this business was growing at a rate of knots, kind of quadrupled in size in in in about three years. Then there was a very sharp decline because of COVID, the law changes. After that, it was put back to normal. We then recovered very, very strongly, and and now the inquiries are are above even our halcyon days of the lead up to to COVID.

13:29 And that is very much mirrored in shape by new signed cases going up sharply, dropped for COVID, and then a very, very strong recovery of which this current year is part of, of course. On number of completed cases, this is a rather different shape. We were the team were able to keep on completing cases and and realizing completions on those cases despite COVID. I mean, you can imagine the excuses that lawyers on the other side and and directors on the side other side, oh, we we'd love to meet you to settle this, but, you know, you've got COVID. Can't can't do it. So there was there was very little impact on that side, which was fantastic.

14:14 The realized revenues were very stable actually as well. '21 and '23 there have particularly large settlements in those periods. An important caveat and and note for everyone to to understand is really on this average revenue per realized case. Now when the huge increase in insolvencies happened after the insolvency laws came back to normal, it was the same time that the government withdrew 500,000,000,000 worth of financial support to UK businesses. The first companies to fall into liquidation were the small, weak, many call them zombie companies. Don't think it's disrespectful in any way.

15:04 And and so what what had happened for us is that there was a huge increase in the volume of cases as we've seen, but the size of the cases was on average a lot lower than it had been pre pandemic. So if you look at f y twenty four, the average realized revenue for each of the cases that we completed this year was about 100,000. But in the lead up to COVID, it was more like 200,000. So once the administration, so larger cases, continue to recover, all things being equal, the mix in the insolvency world will go back to where it was pre COVID. And as a consequence, our average revenues should be much closer to the 200 that we previously saw at that mix rather than the 100,000 in these rather skewed times today.

16:00 Cash has been a very, very positive story for us and really the final court of appeal on any business model. So as you can see on the left, this again, despite COVID, strongly increasing cash every year. On the right hand side, the only difference is this was a reported cash. There was a very, very big receipt we had in f y twenty three. So just on the left, we've we've we've just excluded that to see the underlying trend. And this is on a net basis. So after we paid the the the insolvent estate and they pay their creditors. The creditors usually includes HMRC, which is a jolly good thing for everyone.

16:44 That you then get MANOETE retaining the cost that it needs to be reimbursed and its share of the profit on that case. Again, the only difference between the two graphs is that one big extraordinary settlement last year for 9,500,000. This is the so called vintage table. It's not that easy to to read nowadays, but it's quite easy to summarize. The key points are there are no cases outstanding earlier than the financial year 2020. So this fact that we bought the case, we control the case, and we drive it to settlement is a very unique picture of our model.

17:29 If you were to other excellent litigation funders who who do vintage tables, because their model is funding, they don't control the case, and they will have quite a few cases running off eight, nine, ten, twelve years old. The second point is is the very consistent returns here. So these cases on average over a very long period of fifteen years now have settled in just over twelve months. The the the return metrics, IRR, ROI, and money multiple are consistently very strong every year. So it hasn't been one or two or even 50 or a 100 cases that have gone extremely well, outweighing lots of losses. No. It's been, the granular, wins in in double quick time across hundreds and hundreds of of cases.

18:28 Two more specific areas of interest. First of all, bounce back loans. So just by way of background, and, again, it's COVID. In June 2020, Rishi Sunak, when he's chancellor, pushed out about 50,000,000,000 of government money to many, many thousands of SMEs in The UK, up to £50,000 loan they could take from their bank, and the government would guarantee it 100%. The trouble was it was done in a very quick period of time. The the business people who were asking for those loans self self certified, which was, like a red rag to a bull for a fraudster.

19:14 And what the government's now found is as it's been trying to collect in those monies of that 50,000,000,000, 8,900,000,000 has already defaulted, and the government's had to pay exactly that amount out to the banks because they've lost money on those. But there is another 30,000,000,000 that is performing at the moment. But, obviously, if the government don't take good enforcement action, that may be a very big outflow from from an already stretched government balance sheet. So

19:44 Barclays approached us a couple of years ago. They were the biggest distributor of BBLs. They gave us pilot to to run over about a 100 cases. They'd run a number of pilots. Other banks run a number of pilots. And the returns on the other pilots on what money they got back using various methods were less than a fraction of 0.1%. That was told to us many, many times. Within a year of taking on these cases using our method, we generated £1,400,000. The recovery rate was was about 70% on on these PPLs. There's numbers still still going on, so it goes up and down a bit, but but everyone's been absolutely bowled over how effective this has been.

20:31 There was talk of other pilots starting. Barclays are gonna send us a few more cases, but not more than than a few. But the big the big change was this snap election, it was called, just a a weeks, months ago, again, by. Because, of course, this is this is the government, the government's money, our money here. So the decision makers, obviously, were in. And things are now paused while we we turn to see what Rachel Reeves, the the current chancellor, will do. She's been very vocal, very focused on this. These are big numbers, and she is about to appoint, I think, any day now, a COVID corruption commissioner, and and we will learn what they intend to do to to to get these monies back or at least some of these monies back.

21:27 MANOLETE has presented very well to all of the banks, the British business bank who really both been managing this. And I won't name much departments and certainly no names, but but key key key stakeholders in in central government as well. So they know exactly what we've done, and they're delighted with it. But, obviously, you know, needs to need needs to do the very best thing for for for for the British public.

21:57 Finally, before I hand it over to Mark, cartel cases, these really are very different. Competitional cases, there was the truck manufacturers in Europe were price fixing for many years, 1998 to 2011. They were found guilty by the European Commission, biggest fine in history. What we did was buy the claims companies that

22:24 that would have had claims if they'd still been around. They were in liquidation so we could buy the claims off off off the liquidator fairly moving approach. But on running this case, our strategy has been the the total opposite of of our core business. And we've you know, 400 cases going at the moment. I'm talking about 22 cases here. So we have piggybacked

22:48 the the the first wave of cases. So Royal Mail and British Telecom went to trial. They were awarded a 5% overcharge. They were awarded a very high recovery on their costs. A second wave of cases coming through. We've issued our claims. They currently stayed. There was an appeal by DAF on a single head of claim that in January this year was dismissed by the court of appeal. We don't know whether it was the supreme court, but we think that's pretty much the end of of the road for the defendants, and it's costing them an absolute absolute fortune in terms of legal fees

23:26 to to defend the indefensible. So that's where we sit there. And what's happened since that failed appeal is that a number of the defendants have contacted us, and we've started to trade counter offers and organize face to face sit down settlement meetings. So that's very encouraging. Whether we meet get get to an agreement, who knows?

23:53 Will we get to agreement with all of the defendants? Who knows? Those that we don't settle with, we'll we'll just push on to trial, and there'll be other settlement windows. But I think we're now moving into the the final flushes of of that of that process. Can I hand over to Mark? Mark, I'll leave you to control the slides, if that's okay. Great. Thank you, Steven. So a bit of a deeper dive into the financial numbers now. This first slide pulls pulls out a few of our key financial highlights for FY '24.

24:23 Particularly, I wanted to draw your attention to three of these. EBIT profit of 2,500,000 for FY '24 as opposed to that prior year where we made a 3,100,000 loss. So that's a nice return to profitability. Secondly, gross margin of 39% against the prior year of 18%. So significant increase in gross margin. And once again, generation remains strong for really the third year in a row whether you look at net or gross cash generation.

24:57 So on to the trading performance. So the top half of the profits and loss, total revenue of 26,300,000 has been reported in f y twenty four. That's up 27% on the prior year. And if you remember, it's comprised of two elements. There's realized revenue, which is actual completions. That was 24,200,000 in f y twenty four and generated by record 251 case completions.

25:25 The other element of of revenue is unrealized revenue, which is effectively the movement in our fair value, and that was recorded as positive 2,100,000 in f y twenty four, which generated primarily from 311 new cases signed in f y twenty four. That compares to 263 in the prior year, so also a record a record number. Just looking at the graph on that slide briefly, you'll see the revenue composition. And for f y twenty four, as we like to see, the majority of the of the revenue was realized revenue. So actually 92% of total revenue was realized. And obviously, it's realized revenue which turns into cash. So that's what we like to see. Over the page, so just looking at the bottom half of the profit and loss, we made a conscious decision to increase headcount this year. And this obviously related resulted in higher overheads.

26:22 This positions the business, however, well for growth going forward and for both the increasing case numbers that we've seen and and that we expect going forward.

26:33 After these overheads cost, this resulted in a f y twenty four EBIT of 2,500,000 as as previously mentioned. So a new slide on performance KPIs. This is just a selection of KPIs that that we monitor as part of the business. I think it really demonstrates the growth in operations over a three year time frame.

26:56 The management team monitor these on a very regular basis. These are these are more actually. So just to share these with you. Over the slide to the balance sheet as at March 31. A few points to draw out on this slide. An an element of the cartel case investment value is now has now been allocated to current investments. So you'll see that investment in cases is shown both as non current and current. So an element of that cartel investment is now being shown in the investment in cases in current assets. And this is because we're now we're now into negotiations with a number of the truck manufacturers. Secondly, the trade receivables balance, if you look at both current and non current, now totals 29,300,000.

27:46 This is a significant number and is our visible cash collection over the near near term. We've we've got obviously known collection dates for for those trade receivables. Thirdly and finally, just looking at drawn down debt which was 13,700,000 at the end of March with positive cash balances of 1,400,000. So hence, a net debt of 12,300,000. And that gives us significant headroom of 5,200,000 on our 17,500,000 facility. So just in summary, the balance sheet's strong and it allows us to take advantage of the growth opportunities coming ahead. So over the slide to cash flow. As previously mentioned, cash flow remains strong in FY '24.

28:36 Gross cash collected was 17,700,000 before any payments to IPs. This compares to 15,500,000 in '22. And if you adjust the '23 figure to remove the exceptional case, the adjusted figure would be 17,200,000. So you've got a very nice upward strong trend in gross cash collection. But the other important point from from this slide is really that our net cash generated for completed cases in all three years is sufficient to cover our payment to employees and overhead costs, which is obviously something that we expect to be able to do each year and and we do. And hence, net borrowing is is purely to fund investment in new cases.

29:24 Final slide from me. Just a slide that you've probably seen before. This is the aging of our trade receivables. Just really making the point that the the bulk of our trade receivables are not yet due. The aging is very, very good, and and there's only really a small tail of older outstanding balances. I'll hand back to Steven to complete the presentation. Thanks, man. So quite interesting new data on this bit. So clearly, we're into we've passed the the first five months of the new financial year.

30:02 So so this is kinda statistically significant. So in those first five months, we've we've received the highest ever number of new case inquiries. Compared to last year, for example, we are 22% ahead, which is very good indeed. Second point is we we continue to sign new case investments at a as a at a rapid rate. There's only been one further Barclays bounce back loan case in that in that hundred and three.

30:32 And this is therefore broadly in line with, again, not including BBLs, the the record one four six in the first half of of last year. Year to date, the team has quite sensationally completed in just five months a 116 cases, which really is phenomenal. And the set the if you add up the settlements value of of all those 116 that, you know, the directors, etcetera, have signed off, The aggregate of that is is 11,800,000. So that's kind of building up your realized revenue for this current year. And that compares very favorably with last year on on a like for like basis. So instead of a 116, we did this year, we did 93 last year, and the value of last year was just 6,300,000 with almost half what we've done in the first five months of this year, which is 11.8.

31:28 So that is a very, very good outturn for the first few months of the year. Cash, the good news continues. The gross cash receipts actually, you know, in in the bank account on completed cases, 10,300,000. For the whole six months of last year, That was at 8.7. On a similar basis, the net cash, once you paid the creditors there, share, we we paid the legal costs, we're at 6,500,000 for the first five months, and that compares very favorably to 4,600,000 for the whole six months of of last year. So that's terrific. Strategy really remains very focused on UK insolvency claims. We're looking to build the portfolio not only in in number of investments, but obviously also in size of investments.

32:17 And if we can get that average revenue per case up from a 100,000 to closer to 200,000, That would not need any further investment in in overhead at all. That almost doubling of growth revenue would drop to the bottom line and would start to look like our financial statements in f y nineteen, f y twenty before this, COVID pandemic hit. So as the market, starts to, reform, back to its its previous state, that that presents a very strong opportunity. I've spoken about the cartel claims. They are now moving towards an interesting

33:02 crescendo, and we hope to be completing some, if not all. And then as I mentioned on the bounce back loans, potentially a huge opportunity, but there there can be no promises. You know, we we've we've not been contacted by anyone in the labor administration. I wouldn't expect to either. And until this COVID corruption commissioner has had time to to work out the government strategy, we will we will patiently wait to see if we have an opportunity to assist.

33:36 Very actually, I might use this as as my summary slide. So maybe we can turn to to q and a. Perfect. Steve and Mark, thanks very much for your presentation. What I'll do is I'll just bring your cameras back up at this point. Ladies and gentlemen, please do continue to submit your questions just by using the q and a tab, which is situated on the top right hand corner of your screen. But while the company take a few minutes for you to questions that have been submitted today, I'd like to remind you the recording of this presentation along with a copy of slides and the published q and a can be accessed via your investor dashboard. Steve and Mark, as you can see, we have received a number of questions throughout today's presentation. And if I could ask you to read out the questions and give responses to where it's appropriate to do so, I'll pick up from you both at the end. Super. Mark, there's very few financial type questions. I'll probably say an opening comment and then hand over to you if that's okay.

34:23 So first question, in view of the unfortunate delay and need for you to change auditor, when will you be releasing an update for unaudited six month figures? So just to reiterate why that order to change happens. It was RSM. We've been working with them very happily for for for number of years since the IPO. Shortly before the year end, we purchased a £15,000,000 headline claim from a an insolvent company where an RSM insolvency partner was acting as the liquidator. So we set up with RSM, and we both agreed, actually, this this could taint the independence of of of them as an auditor. So so we changed auditor. That had not gonna effect effect the audit reporting timetable. Usually, we report in June, and this is going to be answer to the question.

35:10 We are we we are now here in September. We will now be back to our normal timetable. So for the interims, which is what this was asking about, which is to the end of September, We will give a trading update as we usually do a few days, a week or so, part once we pass that date. And then the audited accounts sorry. Unaudited six month accounts should be due for circulation and and announcement just towards the end of November. And then for the year end of March 25, we will be announcing all things being well in in June 2025. So back to to to normal reporting timetable. This one, I will move on to Mark in a second. So Alex c says, regarding the bad debt expense, how much of the 1,440,000 do, say, the top five parties represent?

36:10 Last year, bad debt expense was similarly high. Were these different parties? Your provisions have risen significantly. Do you expect similarly ongoing train on profits going forward? I'll leave the second part of the question for a minute. My one comment before I hand over to Mark, this can be a little bit misleading because the ninety seven, 98% of our cases are settled. The director has agreed to pay us those. If he doesn't or if he misses a payment in his schedule, then his we've got all sorts of restrictions on his on his personal house and and all the rest of it. And so our recovery on those is very, very good indeed, and one of Mark's slides spoke to that. Where we get a judgment of very rare trial cases, the director obviously hasn't agreed to pay us the million pounds. A judge has told them to. So there's there's much less certainty. We're kind of in the world of of of of of other litigation funders here. You have very big enforcement departments.

37:14 We we will be putting charging orders on houses immediately. The judgment comes out in our favor, etcetera, etcetera. But we will do a very conservative, I e, high level of provision against those amounts, because it's not been agreed to, Mark. I'll over to you, but that's certainly Yeah. I mean, not not not a great deal to add to that other than we'd we know we do a very robust review of the debtor balance at both the interims and the year end, and we will provide against those balances that we feel are in doubt in in any way. So the the top five parties or the top five provisions were were different from last year.

38:00 It's difficult to say if if the level of provisioning will be as high next year. It it all depends on the behavior of our of our debtors and the collection of our debtors. But as Steven says, in in in general, our collection profile is is very good, and we have assets behind those that that don't meet their agreed payment schedules. Mark, would I be right in saying that the ECL might come into this as well? So as as the book grows, just sort of But, yeah, there's also there's also something called an ECL calculation, which is actually kind of a mathematical it's all it's like what used to be a general provision. So for for each aging bucket of data, we provide a certain percentage based on our historical level of of of bad debt. So so that's like a second level of provisioning behind the specific provisioning that we're we're required to do.

39:02 So as the business grows, that would automatically grow? That that will. As the as the debtor's balance grows, that will automatically, yeah, just tick up. That's brilliant. We've got a few, so I'll I'll keep it I'll I'll keep it moving on. The other bit of question

39:16 in the and maybe this is similar kind of area. In the going concern comments in the annual report, you note modeling a downside scenario included an elevated credit loss and assume write down of one high value case. Can you provide more color on this, please? How large is the model write down? Thank you for taking my questions. Mark? It it's and I think the key here is it's a downside scenario. It's just something that the auditors like us to run addition to our already prudent level of provisioning. So I wouldn't really like to go into what the level of the specific provision is. I I I don't think it's relevant. Yeah. It it just it just to allow the auditors to know in a worst case scenario, are we still okay? Yes. It reminds me of a stress test at the bank.

40:02 Yeah. Exactly. Exactly. Yeah. Okay. Moving on. Again, I'll make a a comment off this, hand over to Mark. 2019, 2020 gross margin was over 70 percent, EBIT margin, 50%. Will margins ever get back there? There's no need to complete risk question. I I completely get it. It's the same kind of point. Yes. Yes. They will. And I hope this presentation has explained why. It's because the state of the insolvency market is still very skewed by the aftershocks of COVID. It's the the large very large majority of of of, insolvencies are smaller zombie companies. It's taking a lot longer for the bigger companies to topple over. If Kirstamos to be really believed it's gonna get worse before it gets better, so maybe we can expect some more of that activity even on top of these buoyant times.

40:56 So the the returns that we make on bigger cases are far higher than the small cases. The corollary really, if you're in a law firm or an accounting firm or an investment bank, if you're working on a £100,000,000 transaction, you'll get a fee of, let's say, you know, £2,000,000. If you're working on a £5,000,000 transaction, you'll get free probably of a £150,000. So we are missing we're still missing a return of how the book looked before COVID hit us. But it's just a matter of time. There's no reason why it should not return to its previous profile, and the margin impact will be very direct from that. We have very fixed overhead cost base, and so the vast majority of that falls to the bottom line. And in the tough horrible COVID period, the vast majority of the loss fell to the bottom line.

41:52 So, Mark, I don't know if you wanna add anything to I don't have any spot on. No. That's great. Super. Thank you. Can you give a rough market size and growth rate with UK only relevance such a high market share is growth caps. Right. Okay. So market size, this would documented by online by a paper by by a chap called a professor Peter Walton, a professor of law at Wolverhampton University. He said that the and I mentioned this in in passing that there are about 2,000, 2,200 claims. I see the light of day when he was looking at the data. The value of those is about 1,500,000,000.

42:37 We're going back to, I think, 2,010 data here. The data in this era is really very poor. And that had grown really exponentially in the in the kind of eight years prior to that 2010 dataset that that he was looking at. So all that one can add on to that is going back to the insolvency graph that I had on page seven, and you you're seeing a huge increase in the number of insolvencies. And sure as eggs is eggs, you know, every insolvency will have a potential plane and and and probably not just one. So that's as as good as I think anyone can can get on on the market at the moment. Sorry. This has skipped down to the bottom. Yeah.

43:31 These are new. Oh, what's happened here? I think the other thing oh, oh, here we are. Growth yes. Going back to that pie chart, the growth isn't just about the growth in in in insolvencies and the value of insolvencies. It's also about taking market share off the lawyers doing it on a no win, no fee basis. Now the third party funders, all of us, have been eating into that year by year. We're now, I think, about 25% and and and and no win, no fee. But there were something called Jackson reforms a few years ago, and that makes no with no fee really very difficult for to work for for insolvency.

44:20 So we are very confident that it's one way traffic and that that yellow in that pie chart will just get bigger and bigger. Moving on, Mark. One for you, I think. How much is spent on external legal fees that is not expensed in the p and l but capitalized as part of the investment? Today's account share transfer of 1,500,000 for 2,023 on the cartel cases alone. I don't think that's right. But yeah. No. That last bit wasn't right. But we we it's it's right that we we capitalize our legal costs as well as the value of carrying value of the case while the case is live. And then we recognize both cost and revenue in the p and l at the point the the the case complete. So there are kind of single figure millions of external legal fees capitalized on on the balance sheet, but there are tens of millions of of of fair value that are about to be turned in in into into revenue.

45:26 So yeah. That they they will be recognized to together in in in the profit and loss at the same time. And I'm pretty sure that every single litigation funding company, yeah, treats it exactly that way. Yeah. Question here by Simon b. Can you explain why your net debt increased to 12,300,000 from 9.9? Also, do you have any plans to cap the amount of debt you take on? Thank you. So yes. So, Simon, you you would have obviously picked up two key points as we went through the presentation. Number one, a huge increase in the number of cases that obviously cost money to buy and run those cases. And then we we increased the headcount to cope with those. We added a few extra lawyers and and and and and that, of course, adds to outflow.

46:25 What I would point you to is that when you look at the net debt in the half year of f y twenty four, it was around 12,000,000 itself, maybe 12.1 if memory serves me right. So it's only gone up a smidge in the second half of the year despite buying this huge number of cases and more on business development costs, etcetera. So I think the fact it's stabilized there is a very good sign. We have had, as I showed on the current trading slide, a huge amount of organic cash come through, 10,300,000. We've been repaying HSBC rather than taking more of them recently. So so I think we're in in in in a very good place as far as debt management is concerned.

47:16 I think we've answered that market share one. Yeah. Legal and Spec. Yeah. We did did the illegal freeze. Yeah. This, I I thought, was I didn't agree with this. So I'll read it out anyway and just in all to be fair. I fear that in a recession, the current government might be willing to reestablish the pandemic period restrictions on the insolvency process. Any thoughts on this? Well, there's just no way that would happen. Number one, you know, people aren't dying, and that's very important. I do not say that flippantly at all. Number two is is is when you listen to in in the garden when he spoke, when you just listened to Rich Reeves, our governments and many governments' balance sheets are hugely stretched at the moment, yet they've got to pay for social services, defense, etcetera. So as I as I mentioned as we went through, when we send half of the net proceeds back to the insolvency state, yes, the liquidator will take his fee, but the remainder will be going to the creditors.

48:23 And most always, creditors are led by HMRC. And in fact, they have priority now. They've gone back to be a superior creditor. Now that money is going to HMRC, which is the public purse, which is the education budget, which is hospitals, which is defense spending. And this is the the huge importance of of what MANOLETE does in the wider wider society. So this is just to explain what I said, why I I do pay them and they disagree with with that comment. Has the increase in staff numbers reached a plateau? Not necessarily so, Peter. It's easy. Excellent question. Thank you. We have got 15 in house lawyers. That's a key key critical constraint on a number of cases.

49:09 The way we work is is that once we're fully up to speed, every in house lawyer can manage about 35 cases at any one time. So that gives us current capacity to be running 520 odd cases today. Mark, I think live, we've got at the moment four Four hundred and eighteen at the year end. 118. So we've got nice headroom to to build into before we need to think about any more headcount coming in. But if if we if, you know, if if in six months time, we're at 500 live cases, which who knows, we we will want to have been planning to increase headcount to to give us that flexibility and and capacity is is the right word. I suppose it's fair to say we're not expecting a significant increase in head count.

49:55 It would be any increase would be gradual. Yeah. Yeah. Yeah. And and, actually, always has been, really. And yeah. Yeah. David b, good question. Will the second of the trial cases go all in one go or separately with each counterparty? The latest thinking on this is it will be sequential. I mean, there are big numbers. There's only about seven different defendants on this. So and they're all very, very big companies. You know, Mercedes, Daimler, etcetera, Renault. So it looks like it will be sequential, but they say they're not talking to each other, but, you know, they're they're facing so many claims on this. And I I'm I'm rather skeptical when when I hear that. So and and it's just a gut feel from me, and I could be wrong.

50:41 I think, except with one or two, I suspect those the the one or two who who haven't engaged with us at that stage may well come through. Yes. Someone asked me and these these questions jump around Mhmm. Awful lot. So someone asked about time to yes. So we answered that. So are you releasing revenue and past estimates for FY twenty five? So, obviously, we don't release any forecast. That would be against the rules and, I think, even the Financial Services Act. However, our brokers, are excellent at Canaccord, Porsche Patel, and Justin Bates, they they will be initiating coverage, as Mark and I understand it, over over the coming weeks ahead that they're doing an awful lot of really good work across the board. So I think that will emerge. So, hopefully, that answers your your question.

51:39 I think the final one here, again, David, the RSM related claim is of significantly higher value. Have you got other large claims in the pipeline? Well, not just the pipeline, David. We've got many that we're working on that are not dissimilar in size to to to that case. Now just because it's got a headline value of 15,000,000 doesn't mean it we're gonna get 15,000,000 from it. Of course, You know, back to the point about the net worth team. People haven't got money. It doesn't matter how big it is. It's it's it's worth nothing. So, yes, we as I said, as we're going through, we picked up 20 of not dissimilar so at least seven figures, if not eight figure potential in the second half of this financial year that's just gone. We picked up nine in the first half since so the the the the direction of travel is is going very well.

52:40 So, yes, hopefully, that's obviously, I can't talk about live litigation, but hopefully, get back with your flavor of of of what's going on. But per perfect. Steve and Mark, thank you very much for answering those questions. You can for investors. Of course, the company can review all the questions submitted today, and we will publish those responses on the investor meet company platform. But just before redirecting investors to try to get their feedback, Krishna, it's particularly important to you both. Steven, could I just ask you for a few closing comments? Sure. Can can the viewers still see the slides? Yes. They can do. Wonderful. Okay. So as I said, I just thought I'd use this as a as a wrap up. So we are The UK's leading and some litigation financing company. It's a unique model in the wider world of litigation funding, but a very different model because we buy the claims and the others don't.

53:28 They fund other people's claims. We have significant expertise in nationwide coverage. Some of you would have seen a subsidiary of Rosenblatt solicitors, Lionfish, and then their insubvency offering called Islero tried to compete with us. They signed one case in a year, and then they they stopped doing it. And and the cases they bought in other led to four losses in arose, and they that seems to have disappeared as I understand it from from Rosenblatt at least. So we've got expertise, a very wide, and a very effective moat, which is why I talk about that that example. The market drivers that are very strong tailwinds behind the business now, the the number of insolvencies are growing at very strong rate and it's the number one company in in this segment. We are positioned particularly well to benefit from that.

54:25 The durations of the cases are very short. The cash generation track records, I think Mark elucidated, is is is very strong now. The operational leverage means that as the case sizes increase now, the profitability will will drop very quickly to the bottom line. And, I I I find, the vintage table always, leaves me feeling, very positive about the business. It's because of this very long, very granular, and very consistent track record of delivering, very high returns. I know that the last few years have been very challenging for this company, and that is reflected in in the share price. And I'm I'm a very large shareholder person, so it it hurts no one more than me on a value basis.

55:16 It was extraordinary what happened in COVID. It was as the judge on our bill said, it is was wartime legislation, you know, similar to what the government did in in World War one and World War two to, suppress insolvencies to stop mass employment. That is all now behind us, and the business, as you can see from these graphs, has rebounded incredibly strongly. Thank you very much indeed for your time again. Perfect. Thank you once again for updating investors today. Could I please ask investors not to close the session? It should now be automatically redirected to provide your feedback in order the management team can better understand your views and expectations. This will then take a few members to complete, but I'm sure will be greatly valued by the company. On behalf of the management team of MANOLETE PARTNERS PLC, we'd like to thank you for attending today's presentation. Good afternoon to you all. Thank you.