Glossary

A


Adjusted EBITDA ratio
Adjusted EBITDA ratio represents the ratio of Adjusted EBITDA to core collections. See page 31 in our Annual report 2018 for a reconciliation of the movement in portfolio investments under IFRS reconciled to cash ERC.

 

Adjusting items
Adjusting items are those items that by virtue of their size, nature or incidence (i.e. outside the normal operating activities of the Group) are not considered by the Board to be representative of the ongoing performance of the Group and are therefore excluded from underlying profit after tax.

 

APM
APM means alternative performance measures.

 

AUM
AUM means assets under management.

 

Average net assets
Average net assets is calculated as the average quarterly net assets from 2017 to 2018 as shown in the quarterly and half yearly statements. In comparative periods this was calculated as the average annual net assets.

C


Cash interest cover
Cash interest cover represents interest on senior secured notes, utilisation and non-utilisation revolving credit facility fees and bank interest to Adjusted EBITDA.

 

Cash result
Cash result represents current cash generation on a sustainable basis and is calculated as Adjusted EBITDA less cash interest, income taxes and overseas taxation paid, purchase of property, plant and equipment, purchase of intangible assets and average replacement rate.

 

CGU
CGU means cash-generating unit.

 

Collection activity costs
Collection activity costs represent the direct costs of collections related to the Group’s portfolio investments, such as salaries, commissions paid to third-party outsourced providers, credit bureau data costs and legal costs associated with collections.

 

Core collections or collections
Core collections or collections means cash collections on the Group’s existing portfolio investments including ordinary course portfolio sales and put backs. Core collections is a key metric as it represents the Group’s most significant cash inflow. It is also a key component of adjusted EBITDA which is used to monitor the Group’s leverage position.

 

Cost income ratio
Cost income ratio see ‘total cost-to-income ratio’.

 

Cost-to-collect ratio
Cost-to-collect ratio is collection activity costs over total income.

 

Creditors
Creditors means financial institutions or other initial credit providers to consumers, certain of which entities choose to sell paying accounts or non-paying accounts receivables related to debt purchasers (such as the Group).

 

CSA
CSA means Credit Services Association.

 

Customers
Customers means consumers whose unsecured loan obligation is owed to the Group as a result of a portfolio purchase made by the Group.

D


Defaulted debt
Defaulted debt means a debt where a customer has breached the repayment terms governing that debt such that it is unlikely to be paid. Under the Consumer Credit Act 1974 there are specific legal obligations which require a customer to be sent the relevant statutory default notice(s) after which the customer’s agreement may ultimately be terminated. Other types of debts may also be defined as defaulted in the event that they remain unpaid for a period of 90 days or more, if there is not an acceptable arrangement in place to bring the account back up to date, in which case the creditor or lender may reasonably believe that the relationship has broken down. Under the Data Protection Act 1990 it is a requirement that any organisation seeking to register a default with a credit reference agency must also send a notice of intention to file a default, this notice is very similar in nature to that required under the Consumer Credit Act both of which give the debtor 28 days to bring the account back up to date before action is taken.

 

Diluted EPS
Diluted EPS means the earnings per share whereby the number of shares is adjusted for the effects of potential dilutive ordinary shares, options and LTIPs.

 

DSBP
DSBP means the Arrow Global deferred share bonus plan.

E


EBITDA
EBITDA means earnings before interest, taxation, depreciation and amortisation.

 

EBT
EBT means employee benefit trust.

 

ECL
ECL means expected credit losses. ‘EIR’ means effective interest rate (which is based on the loan portfolio’s gross internal rate of return) calculated using the loan portfolio purchase price and forecast gross ERC at the date of purchase. On acquisition, there is a short period that is required to determine the EIR, due to the complexity of the portfolios acquired.

 

EPS
EPS means earnings per share.

 

84-month ERC and 120-month ERC
84-month ERC and 120-month ERC (together ‘gross ERC’), mean the Group’s estimated remaining collections on portfolio investments over an 84-month or 120-month period, respectively, representing the expected future core collections on portfolio investments over an 84-month or 120-month period (calculated at the end of each month, based on the Group’s proprietary ERC forecasting model, as amended from time to time).

 

ERC roll forward
ERC roll forward relates to additional cash flows from rolling the asset life on all portfolios to seven years from the date of ERC, including the impact of any foreign exchange movement and the impact of reforecast in the period.

F


FCA
FCA means the Financial Conduct Authority.

 

Free cash flow
Free cash flow means Adjusted EBITDA after the effect of capital expenditure and working capital movements.

 

FVTPL
FVTPL – Financial instruments designated at fair value with all gains or losses being recognised in the profit or loss.

G


GFC
GFC means global financial crisis.

 

Gross money multiple
Gross money multiple means core collections to date plus the 84-month gross ERC or 120-month gross ERC, as applicable, all divided by the purchase price for each portfolio, excluding REO purchases and purchase price adjustments relating to asset management fees.

I


IB
IB means the Investment Business.

 

IFRS
IFRS means EU adopted international financial reporting standards.

 

Income from AMS
Income from AMS includes commission income, debt collection, due diligence, real estate management, advisory fees and intra-group income for these services.
Details below represent values from 2018 (£000):

Third party AMS Business income - 91,661

Intra-group AMS income - 40,645

AMS Business income - 132,306

 

IPO
IPO means initial public offering.

L


Leverage
Leverage is secured net debt over Adjusted EBITDA.

 

Loan to value or LTV ratio
Loan to value or LTV ratio represents the ratio of 84-month ERC to net debt.

 

LTIP
LTIP means the Arrow Global long-term incentive plan.

M


Merger reserve
Merger reserve represents the reserve generated upon consolidation of the Group following the Group reconstruction as part of the IPO where Arrow Global became the parent company.

N


NCI
NCI means non-controlling interest.

 

Net debt
Net debt means the sum of the outstanding principal amount of the senior secured notes, interest thereon, amounts outstanding under the revolving credit facility and deferred consideration payable in relation to the acquisition of portfolio investments, less cash and cash equivalents. Net debt is presented because it indicates the level of debt after taking out of the Group’s assets that can be used to pay down outstanding borrowings, and because it is a component of the maintenance covenants in the revolving credit facility.

 

Net IRR
Net IRR means the internal rate of return net of cost to collect.

 

NPL
NPL means non-performing loan.

O


OCI
OCI means other comprehensive income.

 

Off market
Off market means those loan portfolios that were not acquired through a process involving a competitive bid or an auction like process.

 

Own share reserve
Own share reserve comprises the cost of the Company’s ordinary shares held by the Group. At 31 December 2018, the Company held 1,030,766 ordinary shares of 1p each, held in an employee benefit trust. This represents 0.6% of the Company share capital at 31 December 2018.

P


Paying account
Paying account means an account that has shown at least one payment over the last three months or at least two payments over the last six months.

 

Pay-out ratio
Pay-out ratio represents the total amount of dividends paid out divided by the underlying profit after tax.

 

POCI
POCI means purchased or originated credit impaired.

 

Portfolio investments
Portfolio investments are on the Group’s statement of financial position and represent all debt portfolios that the Group owns at the relevant point in time. A portfolio comprises a group of customer accounts purchased in a single transaction.

 

PwC
PwC means PricewaterhouseCoopers.

R


RCF
RCF means revolving credit facility.

 

Replacement rate
Replacement rate means the level of purchases needed during the subsequent year to maintain the current level of ERC.

 

ROE
ROE means the return on equity as calculated by taking profit after tax divided by the average equity attributable to shareholders. Average equity attributable is calculated as the average quarterly equity from 2017 to 2018 as shown in the quarterly and half yearly statements. In the comparative period this is calculated as the average annual equity attributable.

S


Secured loan to value ratio
Secured loan to value ratio represents the drawn revolving credit facility, senior secured notes and bank overdrafts (all pre-transaction fees net off), less cash to 84-month ERC.

 

Secured loan to value or secured LTV ratio
Secured loan to value or secured LTV ratio represents the ratio of 84-month ERC to secured debt (net debt as defined above excluding deferred consideration and interest on the senior secured notes and including the fair value of foreign currency contracts and interest rate swaps).

 

Secured net debt
Secured net debt see table in ‘net debt’ definition.

 

SIP
SIP means the Arrow Global all-employee share incentive plan.

 

SMART
SMART means aligning the leadership teams across the Group around our Mission, Vision and Strategy.

 

SME
SME means small and medium-sized enterprises.

 

SPPI
SPPI means solely payments of principal and interest.

T


TCF
TCF means the treating customers fairly FCA initiative.

 

Total cost-to-income ratio
Total cost-to-income ratio is total operating expenses over total income.

 

Translation reserve
Translation reserve comprises all foreign currency differences arising from the translation of the financial statements of foreign operations.

 

TSR
TSR means total shareholder return.

U


Underlying basic EPS
Underlying basic EPS represents earnings per share based on underlying profit after tax, excluding any dilution of shares.

 

Underlying profit after tax
Underlying profit after tax means profit for the period after tax adjusted for the post-tax effect of certain adjusting items. The Group presents underlying profit after tax because it excludes the effect of items (and the related tax on such items) which are not considered representative of the Group’s ongoing performance, on the Group’s profit or loss for a period and forms the basis of its dividend policy.

 

Underlying return on equity
Underlying return on equity represents the ratio of underlying profit after tax attributable to equity shareholders, to average shareholder equity.