Results for nine months ended 30 September 2019

RNS Number : 0330T
Arrow Global Group PLC
12 November 2019
 

12 November 2019

Arrow Global Group PLC

Results for the nine months ended 30 September 2019

 

Strong cash generation and continued focus on developing the fund management business

 

Arrow Global Group PLC (the “Company”, and together with its subsidiaries the “Group”), a leading European investor and asset manager in secured and unsecured defaulted and non-core loan portfolios and real estate, announces its results for the nine months ended 30 September 2019.

 

Key Highlights

 

·    Free cashflow grew 14.7% to £174.4 million (Q3 2018: £152.0 million)

·    Profit before tax increased by 65.6% to £42.4 million (Q3 2018: £25.6 million)

·    Underlying profit before tax decreased 5.4% to £50.4 million (Q3 2018: £53.3 million) – including a 15.1% increase in finance costs relating to deferred consideration costs and IFRS 16

·    Cost efficiency program on track – actions to deliver 40% of run rate savings complete

·    Strong focus on the development of the fund management business with the build out of AGG Capital Management

·    Trading is in line with market expectations for the full year

 

Group financial highlights
 

30 September
2019

30 September
2018

Change
%

Portfolio purchases (£m)

221.9

200.1

10.9

Core collections (£m)

312.5

288.5

8.3

Total income (£m)

256.9

255.3

0.6

Third party AMS income (£m)

68.7

63.3

8.5

Operating profit (£m)

82.8

79.3

4.4

Profit before tax (£m)

42.4

25.6

65.6

Underlying profit before tax (£m)

50.4

53.3

(5.4)

Underlying LTM ROE %

29.5

33.4

(3.9)ppts

Basic EPS (p)

17.1

11.7

46.2

Leverage (x)

3.7

3.8

(0.1x)

84-month ERC (£m)

1,725.8

1,635.6

5.5

120-month ERC (£m)

2,036.7

1,968.9

3.4

 

 

Commenting on today’s results, Lee Rochford, Group Chief Executive Officer of the Company, said:

 

“Returns in the investment business remain attractive and collections and cash generation both increased strongly during what is traditionally a quieter quarter. 

 

“The primary focus of the Group continues to be to build out our fund management capabilities and good progress has been made following the formation of AGG Capital Management Limited announced in the Group’s interim results. Our clear objective is to build a fund management business which will drive substantial growth in AMS revenues and, when combined with the cost efficiency programme, will see the Group evolve to become a more capital light, high margin business with less leverage.

 

 “The Group’s highly cash generative characteristics mean we continue to have the flexibility to allocate capital between investment for growth, dividends and deleveraging.  We therefore remain confident that we can continue to grow the business, reward shareholders and finish the year within our new targeted lower leverage range of 3.0x-3.5x.”

 

Conference call

There will be a conference call for analysts and investors at 08.30 (UK time).

 

Investors and analysts wishing to dial-in to the call can register using the following link:

 

https://bit.ly/2PcMZEm

 

Notes:

A glossary of terms can be found on pages 15 to 17. More details explaining the business can be found in the Annual Report & Accounts 2018 which is available on the Company’s website atwww.arrowglobalir.net 

For further information:

Arrow Global Group PLC

 

Duncan Browne, Head of Investor Relations

 

 

+44 (0) 7925 643 385

Dbrowne@arrowglobal.net

FTI Consulting

 

Neil Doyle

Tom Blackwell

Laura Ewart

+44 (0)20 3727 1141 arrowglobal@fticonsulting.com

 

Forward looking statements

This document contains statements that constitute forward-looking statements relating to the business, financial performance and results of the Group and the industry in which the Group operates. These statements may be identified by words such as “expectation”, “belief”, “estimate”, “plan”, “target”, or “forecast” and similar expressions or the negative thereof; or by the forward-looking nature of discussions of strategy, plans or intentions; or by their context. All statements regarding the future are subject to inherent risks and uncertainties and various factors could cause actual future results, performance or events to differ materially from those described or implied in these statements. Such forward-looking statements are based on numerous assumptions regarding the Group’s present and future business strategies and the environment in which the Group will operate in the future. Further, certain forward-looking statements are based upon assumptions of future events which may not prove to be accurate and neither the Company, the Group nor any other person accepts any responsibility for the accuracy of the opinions expressed in this document or the underlying assumptions. The forward-looking statements in this document speak only as at the date of this presentation and the Company and the Group assume no obligation to update or provide any additional information in relation to such forward-looking statements.

 

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

For the period ended 30 September 2019

 

Unaudited

nine months ended

30 September 2019

 

Unaudited

nine months ended

30 September 2018

 

Unaudited

three months

ended

30 September 2019

 

Unaudited

three months

ended

30 September 2018

 

£000

 

£000

 

£000

 

£000

Continuing operations

 

 

 

 

 

 

 

Income from portfolio investments at amortised cost

142,703

 

149,837

 

47,696

 

53,694

Fair value gain on portfolio investments at FVTPL

27,634

 

10,609

 

6,510

 

4,501

Net impairment gains on portfolio investments at amortised cost and real estate inventories

17,440

 

30,795

 

1,719

 

7,514

Income from real estate inventories

118

 

 

118

 

Total income from portfolio investments

187,895

 

191,241

 

56,043

 

65,709

Income from asset management and servicing

68,680

 

63,336

 

23,041

 

21,984

Profit on sale of property

 

731

 

 

731

Other income

292

 

 

90

 

Total income

256,867

 

255,308

 

79,174

 

88,424

Operating expenses:

 

 

 

 

 

 

 

Collection activity costs

(83,124)

 

(90,331)

 

(29,107)

 

(30,391)

Other operating expenses

(90,953)

 

(85,668)

 

(26,300)

 

(30,923)

Total operating expenses

(174,077)

 

(175,999)

 

(55,407)

 

(61,314)

Operating profit

82,790

 

79,309

 

23,767

 

27,110

Net finance costs

(40,394)

 

(35,101)

 

(13,884)

 

(12,307)

Refinancing costs

 

(18,658)

 

 

Profit before tax

42,396

 

25,550

 

9,883

 

14,803

Taxation charge

(10,177)

 

(5,016)

 

(2,008)

 

(2,782)

Profit after tax

32,219

 

20,534

 

7,875

 

12,021

Other comprehensive income:

 

 

 

 

 

 

 

Items that are or may be reclassified subsequently to profit or loss:

 

 

 

 

 

 

 

Foreign exchange translation difference arising on revaluation of foreign operations

(1,402)

 

431

 

(769)

 

882

Movement on the hedging reserve

38

 

(279)

 

95

 

96

Total comprehensive income for the period

30,855

 

20,686

 

7,201

 

12,999

 

 

 

 

 

 

 

 

Profit attributable to:

 

 

 

 

 

 

 

Owners of the Company

30,010

 

20,489

 

7,906

 

12,008

Non-controlling interest

2,209

 

45

 

(31)

 

13

 

32,219

 

20,534

 

7,875

 

12,021

 

 

 

 

 

 

 

 

Basic EPS (p)

17.1

 

11.7

 

4.5

 

6.8

Diluted EPS (p)

16.6

 

11.5

 

4.4

 

6.8

 

 

 

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 30 September 2019

 

 

Unaudited            30 September

 2019

 

Unaudited      31 December

2018

 

Unaudited          30 September

 2018

 

Note

£000

 

£000

 

£000

Assets

 

 

 

 

 

 

Cash and cash equivalents

 

97,828

 

92,001

 

62,073

Trade and other receivables

 

98,132

 

94,206

 

80,245

Portfolio investments – amortised cost

2

927,306

 

869,056

 

870,671

Portfolio investments – FVTPL

2

175,354

 

217,974

 

180,830

Portfolio investments – real estate inventories

2

59,877

 

 

Property, plant and equipment

 

27,542

 

7,761

 

6,846

Other intangible assets

 

38,388

 

44,264

 

44,448

Deferred tax asset

 

8,697

 

8,113

 

Goodwill

 

275,211

 

262,679

 

224,203

Total assets

 

1,708,335

 

1,596,054

 

1,469,316

Liabilities

 

 

 

 

 

 

Bank overdrafts

3

2,477

 

2,696

 

3,624

Revolving credit facility

3

247,975

 

242,121

 

185,024

Derivative liability

 

642

 

502

 

77

Trade and other payables

 

215,291

 

197,657

 

149,314

Current tax liability

 

8,873

 

7,915

 

3,231

Other borrowings

3

3,384

 

11,635

 

13,468

Asset-backed loans

3

91,620

 

 

Senior secured notes

3

916,096

 

926,340

 

916,060

Deferred tax liability

 

15,305

 

14,930

 

9,411

Total liabilities

 

1,501,663

 

1,403,796

 

1,280,209

Equity

 

 

 

 

 

 

Share capital

 

1,769

 

1,763

 

1,763

Share premium

 

347,436

 

347,436

 

347,436

Retained earnings

 

124,730

 

116,589

 

113,196

Hedging reserve

 

(546)

 

(584)

 

(622)

Other reserves

 

(274,956)

 

(273,547)

 

(274,486)

Total equity attributable to shareholders

 

198,433

 

191,657

 

187,287

Non-controlling interest

 

8,239

 

601

 

1,820

Total equity

 

206,672

 

192,258

 

189,107

Total equity and liabilities

 

1,708,335

 

1,596,054

 

1,469,316

Note – the balance sheet has been presented on a reducing liquidity basis, and prior periods have been represented accordingly on this basis.

 

 

UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the period ended 30 September 2019

 

Ordinary
shares

Other equity reserves

Total

Non-controlling interest

Total

 

£000

£000

£000

£000

£000

Balance at 1 January 2018

1,753

193,395

195,148

173

195,321

Impact of adopting IFRS 9

(14,000)

(14,000)

(14,000)

Impact of adopting IFRS 15

(199)

(199)

(199)

Balance post IFRS adjustments at 1 January 2018

1,753

179,196

180,949

173

181,122

Profit for the period

20,489

20,489

45

20,534

Exchange differences

431

431

431

Net fair value gains on cash flow hedges

(355)

(355)

(355)

Tax on hedged items

76

76

76

Total comprehensive income for the period

20,641

20,641

45

20,686

Shares issued in the period

10

10

10

Repurchase of own shares

(2,509)

(2,509)

(2,509)

Share-based payments

2,384

2,384

2,384

Non-controlling interest on acquisition

1,645

1,645

Dividend paid

(14,156)

(14,156)

(14,156)

Dividend paid by NCI

(43)

(43)

Balance at 30 September 2018

1,763

185,556

187,319

1,820

189,139

Adjustment to IFRS 15 impact through profit

(32)

(32)

(32)

Balance post IFRS 15 adjustment at 30 September 2018

1,763

185,524

187,287

1,820

189,107

Profit for the period

9,512

9,512

9,512

Exchange differences

2,141

2,141

2,141

Recycled to profit after tax

(1,202)

(1,202)

(1,202)

Net fair value losses on cash flow hedges

64

64

64

Tax on hedged items

(26)

(26)

(26)

Total comprehensive income for the period

10,489

10,489

10,489

Share-based payments

883

883

883

Dividend paid

(7,002)

(7,002)

(7,002)

Non-controlling interest on acquisition

(1,219)

(1,219)

Balance at 31 December 2018

1,763

189,894

191,657

601

192,258

Impact of adopting IFRS 16

(947)

(947)

(947)

Balance post IFRS adjustments at 1 January 2019

1,763

188,947

190,710

601

191,311

Profit for the period

30,010

30,010

2,209

32,219

Exchange differences

(1,402)

(1,402)

(1,402)

Net fair value losses on cash flow hedges

49

49

49

Tax on hedged items

(11)

(11)

(11)

Total comprehensive income for the period

28,646

28,646

2,209

30,855

Shares issued in the period

6

6

6

Repurchase of own shares

(6)

(6)

(6)

Share-based payments

2,024

2,024

2,024

Non-controlling interest on acquisition

 

5,429

5,429

Dividend paid

(22,947)

(22,947)

(22,947)

Balance at 30 September 2019

1,769

196,664

198,433

8,239

206,672

 

 

 

UNAUDITED CONSOLIDATED STATEMENT OF CASHFLOWS

For the period ended 30 September 2019

 

 

Unaudited period ended

30 September

2019

 

Unaudited period ended

30 September

2018

 

 

£000

 

£000

Net cash flows from operating activities before purchases of portfolio investments

 

202,298

 

180,556

Purchase of portfolio investments

 

(221,885)

 

(203,150)

Net cash used in operating activities

 

(19,587)

 

(22,594)

Net cash used in investing activities

 

(20,227)

 

(61,630)

Net cash flows generated by financing activities

 

47,003

 

110,511

Net increase in cash and cash equivalents

 

7,189

 

26,287

Cash and cash equivalents at beginning of period

 

92,001

 

35,943

Effect of exchange rates on cash and cash equivalents

 

(1,362)

 

(157)

Cash and cash equivalents at end of period

 

97,828

 

62,073

 

 

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS 

1.         Significant accounting policy updates

These financial statements are unaudited and do not include all of the information required for full annual or interim financial statements and therefore are not fully compliant with IAS 34– Interim financial reporting.These quarterly results should be read in conjunction with the consolidated financial statements of the Group as at and for the year ended 31 December 2018.

 

The annual financial statements of the Group are prepared in accordance with IFRS as adopted for use in the EU, and therefore comply with Article 4 of the EU IFRS Regulation. As required by the Disclosure and Transparency Rules of the Financial Conduct Authority, these financial statements have been prepared applying the accounting policies and presentation that were applied in the preparation of the Group’s published consolidated annual report for the year ended 31 December 2018, other than IFRS 16, which has been applied for the first time this year. Changes to significant accounting policies in 2019 have been disclosed below.

 

The consolidated financial statements of the Group for the year ended 31 December 2018 are available upon request from the Company’s registered office at Belvedere, 12 Booth Street, Manchester, M2 4AW and can also be found online atwww.arrowglobalir.net.

 

IFRS 16 is effective from 1 January 2019 and the Group has adopted it from this date.

 

IFRS 16 replaces the previous standard IAS 17 ‘Leases’, bringing a number of leases on balance sheet, which were previously off-balance sheet and accounted for as operating leases under IAS 17.

 

The Group is not required to restate comparatives on the initial adoption of IFRS 16 and has therefore applied the modified retrospective approach. The Group has applied exemptions where appropriate for short-term leases of twelve months or less and low value assets to be expensed and has also applied ‘grandfathering’ to all IAS 17 judgements previously made. The incremental borrowing rates used to measure lease liabilities at initial application ranged between 4.2% and 7.2%.

 

The standard transition has led to a one-off opening 2019 reserves reduction of £0.9 million, a right-of-use asset disclosed in property, plant equipment of £23.8 million, a lease liability of £27.3 million and a release of lease accruals of £2.6 million, all of which are disclosed in trade and other payables.

 

The Group now holds a number of material real estate portfolio investments which are being held for immediate sale or being developed with a view to sell immediately once such development work is completed. As such, the Group has assessed that it should account for such investments under ‘IAS 2 – Inventories’.

 

Under IAS 2 these investments are held at their original cost plus any subsequent capital expenditure and are not subject to revaluations on a periodic basis. Such assets will be assessed for impairment at each reporting date, but any gain on these investments will not be recognised until they are sold and derecognised from the balance sheet.

 

 

2.         Portfolio investments 

The movements in portfolios investments were as follows:

Period ended 30 September 2019

 

Amortised cost

 

FVTPL

 

Real Estate

Inventories

 

Total

 

£000

 

£000

 

£000

 

£000

As at 1 January 2019

869,056

 

217,974

 

 

1,087,030

Portfolios purchased during the period

172,417

 

24,302

 

25,166

 

221,885

Transfer between categories

9,954

 

(44,021)

 

34,067

 

Collections in the period

(264,002)

 

(48,164)

 

(328)

 

(312,494)

Income from portfolio investments at amortised cost

142,703

 

 

 

142,703

Fair value gain on portfolios at FVTPL

 

27,634

 

 

27,634

Income from real estate inventories

 

 

118

 

118

Net impairment gains/(losses)

17,446

 

 

(6)

 

17,440

Exchange and other movements

(7,107)

 

(2,371)

 

860

 

(8,618)

Portfolio restructure

(13,161)

 

 

 

(13,161)

As at 30 September 2019

927,306

 

175,354

 

59,877

 

1,162,537

 

Transfer between categories represents positions where the Group has originally held one type of instrument relating to a portfolio, and subsequently increased or changed its interest in the portfolio, leading to the requirement to consolidate the underlying structure onto the Group’s balance sheet. This leads to a change in the classification of the portfolio investment held. The ‘portfolio restructure’ represents the restructure of a leveraged structured deal to move to a de-levered position, and hence change the nature of the holding whist extinguishing related liabilities.

Year ended 31 December 2018

 

Amortised cost

 

FVTPL

 

Real Estate

Inventories

 

Total

 

£000

 

£000

 

£000

 

£000

As at 1 January 2018

920,578

 

30,889

 

 

951,467

Impact of adopting IFRS 9 at 1 January 2018

(93,734)

 

76,734

 

 

(17,000)

Brought forward after impact of IFRS 9 opening adjustment

826,844

 

107,623

 

 

934,467

Portfolios purchased during the period

169,514

 

93,836

 

 

263,350

Portfolio additions from acquired entities

3,339

 

8,514

 

 

11,853

Collections in the period

(387,699)

 

(23,889)

 

 

(411,588)

Income from portfolio investments

188,862

 

5,070

 

 

193,932

Fair value gain on portfolios at FVTPL

 

24,745

 

 

24,745

Net impairment gain

50,727

 

 

 

50,727

Exchange and other movements

17,469

 

2,075

 

 

19,544

As at 31 December 2018

869,056

 

217,974

 

 

1,087,030

 

Period ended 30 September 2018                                                           

 

Amortised cost

 

FVTPL

 

Real Estate

Inventories

 

Total

 

£000

 

£000

 

£000

 

£000

As at 1 January 2018

920,578

 

30,889

 

 

951,467

Impact of adopting IFRS 9 at 1 January 2018

(93,734)

 

76,734

 

 

(17,000)

Brought forward after impact of IFRS 9 opening adjustment

826,844

 

107,623

 

 

934,467

Portfolios purchased during the period

134,283

 

65,845

 

 

200,128

Portfolio additions from acquired entities

2,409

 

8,514

 

 

10,923

Collections in the period

(270,973)

 

(17,540)

 

 

(288,513)

Income from portfolio investments at amortised cost

144,767

 

5,070

 

 

149,837

Fair value gain on portfolios at FVTPL

 

10,609

 

 

10,609

Net impairment gain

30,795

 

 

 

30,795

Exchange and other movements

2,546

 

709

 

 

3,255

As at 30 September 2018

870,671

 

180,830

 

 

1,051,501

 

3.         Borrowings and facilities

 

30 September

2019

 

31 December

2018

 

30 September

2018

 

£000

 

£000

 

£000

Senior secured notes (net of transaction fees of £13.3m, 31 December 2018: £14.4m, 30 September 2018: £15.3m)

916,096

 

926,340

 

916,060

Revolving credit facility (net of transaction fees of £3.9m, 31 December 2018: £4.0m, 30 September 2018: £3.3m)

247,975

 

242,121

 

185,024

Asset backed loan (net of transaction fees of £1.6m)

91,620

 

 

Bank overdrafts

2,477

 

2,696

 

3,624

Other borrowings

3,384

 

11,635

 

13,468

Total borrowings

1,261,552

 

1,182,792

 

1,118,176

 

 

 

 

 

 

Amount due for settlement within 12 months

274,923

 

259,045

 

198,575

Amount due for settlement after 12 months

986,629

 

923,747

 

919,601

 

1,261,552

 

1,182,792

 

1,118,176

 

Asset Backed Securitisation

On 30 April 2019 the Group entered into a £100m non-recourse committed asset backed securitisation facility with an advance rate of 55% of 84-month ERC. On the same date, the Group sold £137m of ERC into AGL Fleetwood Limited, a wholly owned Group subsidiary and borrowed an initial amount of £75m non-recourse funding at Libor +3.1%, under the facility. On 31 July 2019 the Group sold a further £44m of ERC into AGL Fleetwood Limited and subsequently borrowed an additional £25m non-recourse funding on the same terms under the facility. The facility has a five-year term comprised of an initial two-year revolving period followed by a three-year amortising period with an option to extend the revolving period by one year subject to lender consent.

Revolving credit facility

On 26 February 2019, the maturity of the facility was extended by one year to 4 January 2024 with no change in margin.

 

4.         Acquisition of subsidiary undertakings

On 8 April 2019, the Group acquired 100% of the share capital of Drydens. Drydens is a provider of legal services, the acquisition of which has and will broaden the Group’s UK range of servicing capabilities and skills across consumer and commercial litigation, probate and insolvency. The total undiscounted consideration for the acquisition was £11,115,000 (including deferred and contingent consideration).

Contingent consideration is payable at various times within two years from completion of the transaction upon the satisfaction of three mutually exclusive conditions which are based upon the business achieving certain targets around future volumes and the successful migration of Group account.

An intangible asset of £688,000 has been recognised at acquisition, being the fair value (after appropriate discounting) of expected cash flows arising from existing customer relationships.

Goodwill of £14,519,000 was created as a result of this acquisition. The primary reason for the acquisition was to broaden the Group’s range of servicing capabilities in the UK.

In the period from acquisition to 30 September 2019, Drydens contributed income of £2,508,000 and profit after tax of £696,000 to the consolidated results for the period. If the acquisition had occurred on 1 January 2019, Group total income would have been higher by an estimated £1,167,000 and profit after tax would have been lower by an estimated £24,000.

 

 ADDITIONAL INFORMATION (UNAUDITED)

‘Underlying profit’ is considered a key measure in understanding the Group’s ongoing financial performance.

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

 

Reconciliation of reported to underlying costs

 

Period ended 30 September 2019

 

Period ended 30 September 2018

 

Reported

Adjustments

Underlying

 

Reported

Adjustments

Underlying

 

£000

£000

£000

 

£000

£000

£000

Continuing operations

 

 

 

 

 

 

 

Income

256,867

256,867

 

255,308

255,308

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

 

Collection activity costs

(83,124)

(83,124)

 

(90,331)

920

(89,411)

Other operating expenses

(90,953)

7,984

(82,969)

 

(85,668)

8,135

(77,533)

Total operating expenses

(174,077)

7,984

(166,093)

 

(175,999)

9,055

(166,944)

Operating profit

82,790

7,984

90,774

 

79,309

9,055

88,364

Net finance costs

(40,394)

(40,394)

 

(53,759)

18,658

(35,101)

Underlying profit before tax

42,396

7,984

50,380

 

25,550

27,713

53,263

Taxation charge

(10,177)

(1,704)

(11,881)

 

(5,016)

(5,310)

(10,326)

Underlying profit after tax

32,219

6,280

38,499

 

20,534

22,403

42,937

Non-controlling interest

(2,209)

(2,209)

 

(45)

(45)

Underlying profit attributable to owners of the Company

30,010

6,280

36,290

 

20,489

22,403

42,892

 

 

 

 

 

 

 

 

Underlying Basic EPS (p)

 

 

20.6

 

 

 

24.5

Underlying effective tax rate

 

 

23.6%

 

 

 

19.4%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusting items in the period relate to business acquisition related costs of £1.7 million, costs related to the expansion of the Group fund management business of £1.0 million and other costs of £5.3 million related to the Group’s simplification programme, including redundancy and IT decommissioning costs.

Prior period adjusting items within collection activity costs and other operating expenses in the period related to ‘One Arrow’ costs of £6.0 million and business acquisition and other costs of £3.1 million.

Financing costs adjusting items in the prior period relate to costs associated with restructuring the Group’s long-term financing.

 

The adjusted EBITDA reconciliations for the periods ended 30 September 2019 and 30 September 2018 are shown below:

 

30 September

2019

£000

 

30 September

2018

£000

Reconciliation of net cash flow to adjusted EBITDA

 

 

 

Net cash used in operating activities

(19,587)

 

(22,594)

Purchase of loan portfolios

221,885

 

203,150

Income taxes paid

9,091

 

6,505

Working capital adjustments

6,367

 

1,769

Amortisation of acquisition and bank facility fees

72

 

206

Proceeds from sale of property

 

3,759

Adjusting items

7,984

 

9,055

Adjusted EBITDA

225,812

 

201,850

Reconciliation of core collections to EBITDA

 

 

 

Income from loan portfoliosincluding revaluations

187,895

 

191,241

Portfolio amortisation

124,599

 

97,272

Core collections(includes proceeds from disposal of loan portfolios)

312,494

 

288,513

Other income

68,972

 

63,336

Operating expenses

(174,077)

 

(175,999)

Depreciation and amortisation

14,509

 

10,696

Foreign exchange losses/(gains)

660

 

(100)

Amortisation of acquisition and bank facility fees

72

 

206

Disposal of intangible asset

2,051

 

Share-based payments

2,024

 

2,384

Proceeds from sale of property

 

3,759

Adjusting items

7,984

 

9,055

Provision releases

(8,877)

 

Adjusted EBITDA

225,812

 

201,850

Reconciliation of Operating Profit to EBITDA

 

 

 

Profit after tax

32,219

 

20,534

Underlying net finance costs

40,394

 

35,101

Taxation charge on ordinary activities

10,177

 

5,016

Adjusting financing costs

 

18,658

Operating profit

82,790

 

79,309

Portfolio amortisation

124,599

 

97,272

Depreciation and amortisation

14,509

 

10,696

Foreign exchange losses/(gains)

660

 

(100)

Amortisation of acquisition and bank facility fees

72

 

206

Disposal of intangible asset

2,051

 

Share-based payments

2,024

 

2,384

Profit on sale of property

 

(731)

Proceeds from sale of property

 

3,759

Adjusting operating expenses

7,984

 

9,055

Provision releases

(8,877)

 

Adjusted EBITDA

225,812

 

201,850

 

The table below reconciles the reported profit for the period to the free cash flow result. For completeness we also split out other adjusting items.

 

Reconciliation of profit after tax to the free cash flow result

Income

Reported profit

Adjusting items4

Underlying profit

Other items

Free cash flow

 

 

£000

£000

£000

£000

£000

 

Income from portfolio investments at amortised cost

142,703

142,703

169,791

312,494

Collections in the period

Fair value gain on portfolio investments at FVTPL

27,634

27,634

(27,634)

 

Net impairment gains on portfolio investments at amortised cost and real estate inventories

17,440

17,440

(17,440)

 

Income from real estate inventories

118

118

(118)

 

Income from asset management and servicing

68,680

68,680

68,680

Income from asset management and servicing

Other income

292

292

 –

292

 

Total income1

256,867

256,867

124,599

381,466

Cash income

Total operating expenses

(174,077)

7,984

(166,093)

10,4372

(155,656)

Cash operating expenses

Operating profit

82,790

7,984

90,774

135,036

225,8105

Adjusted EBITDA

Net financing costs

(40,394)

(40,394)

3,5543

(36,840)

 

Profit before tax

42,396

7,984

50,380

138,590

188,970

 

Taxation charge on ordinary activities

(10,177)

(1,704)

(11,881)

2,790

(9,091)

 

Profit after tax

32,219

6,280

38,499

141,380

179,879

 

 

 

 

 

 

(5,448)

Capital expenditure

 

 

 

 

 

(138,292)

Replacement rate6

 

 

 

 

 

36,139

Cash result

 

1Total income is largely derived from income from portfolio investmentsplus income from asset management and servicing, being commission on collections for third parties and fee income received. The other items add back loan portfolio amortisation to get to core collections. Amortisation reflects a reduction in the statement of financial position carrying value of the portfolio investments arising from collections which are not allocated to income. Amortisation plus income from portfolio investments equates to core collections

2 Includes non-cash items including depreciation and amortisation, share-based payment charges and FX

3Non-cash amortisation of fees and interest

4The cash result is viewed on an underlying basis which excludes certain items. These items have been excluded to provide a more comparable basis for assessing the Group’s performance between financial periods

5This is theadjusted EBITDA for the business, which is a key driver to the cash result. This measure allows us to monitor the operating performance of the Group. See page 13 for detailed reconciliations of adjusted EBITDA

6Replacement rate is the rate of portfolio investments purchases, at our target portfolio returns, required over the next 12 months to maintain the 84-month ERC as at 30 September 2019

 

 GLOSSARY

‘Adjusted EBITDA’means profit for the period attributable to equity shareholders before interest, tax, depreciation, amortisation, foreign exchange gains or losses and 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.

 

‘AMS’means asset management and servicing.

 

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

 

‘Core collections’or ‘core cash collections’mean cash collections on the Group’s existing portfolios including ordinary course portfolio sales and put backs.

 

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

 

‘Drydens’means Drydens Limited, a company incorporated in England with company number 06765260.

 

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

 

‘EPS’means earnings per share.

 

’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).

 

‘Free cashflow’means Adjusted EBITDA after the effects of capital expenditure, financing and tax cash impacts and before the replacement rate.

 

‘FVTPL’– means financial instruments at fair value with all gains or losses being recognised in the profit or loss.

 

‘IFRS’means EU adopted international financial reporting standards.

 

‘Gross AMS income’includes commission income, debt collection, due diligence, real estate management, advisory fees and intra-group income for these services.

 

 

30 September

2019

 

£000

Third party AMS income

68,680

Intra-Group AMS income

34,010

Gross AMS income

102,690

 

‘Gross income’ includes commission income, debt collection, due diligence, real estate management, advisory fees and intra-group income for Asset Management and Servicing, total income for the Investment Business and other income.

 

30 September

2019

 

£000

Third party AMS income

68,680

Intra-Group AMS income

34,010

Gross AMS income

102,690

Investment Business income

187,895

Other income

292

Gross income

290,877

 

‘Leverage’is secured net debt to LTM Adjusted EBITDA.

 

‘LTIP’means the Group long-term incentive plan.

 

‘LTM’means last twelve months and is calculated by the addition of the consolidated financial data for the year ended 31 December 2018 and the consolidated financial data for the nine months to 30 September 2019, and the subtraction of the consolidated financial data for the nine months to 30 September 2018.

 

 ‘Net debt’means the sum of the outstanding principal amount of the senior secured notes and asset-backed loans, interest thereon, amounts outstanding under the revolving credit facility and deferred consideration payable in relation to the acquisition of portfolio investment, less cash and cash equivalents. Net debt is presented because it indicates the level of debt after removing 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. The breakdown of net debt for the period ended 30 September 2019 is as follows:

 

30 September

2019

 

31 December

2018

 

£000

 

£000

Cash and cash equivalents

(97,828)

 

(92,001)

Senior secured notes (pre-transaction fees net off)

928,046

 

935,567

Revolving credit facility (pre-transaction fees net off)

251,909

 

245,587

Asset-backed loans (pre-transaction fees net off)

93,098

 

Secured net debt

1,175,225

 

1,089,153

Deferred consideration – acquisitions

43,386

 

59,922

Deferred consideration – portfolios

31,293

 

12,031

Senior secured notes interest

1,379

 

5,542

Asset backed loan interest

129

 

Bank overdrafts

2,477

 

2,696

Other borrowings

3,384

 

11,635

Net debt

1,257,273

 

1,180,979

 

‘NCImeans non-controlling interest.

 

‘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 Q3 2018 to Q3 2019 as shown in the quarterly, half year and full year statements. In the comparative period this is calculated as the average annual equity attributable.

 

‘Secured netdebt’means the sum of the outstanding principal amount of the senior secured notes and asset-backed loans, amounts outstanding under the revolving credit facility, less cash and cash equivalents. Secured net debt is presented because it indicates the level of secured debt after taking out the Group’s assets that can be used to pay down outstanding secured borrowings, and because it is a component of the incurrence tests in the senior secured notes.The breakdown of secured net debt for the period ended 30 September 2019 is shown in net debt above.

 

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

 

‘Underlying profit after tax’means profit for the year attributable to equity shareholders 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 and forms the basis of its dividend policy.

‘Underlying ROE’represents the ratio of underlying profit for the period attributable to equity shareholders to average shareholder equity.

 

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 contactrns@lseg.comor visitwww.rns.com.
 

END

 
 

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