Results for the three months ended 31 March 2017

RNS Number : 7900E
Arrow Global Group PLC
11 May 2017
 


  


Arrow Global Group PLC

Results for the three months ended 31 March 2017

 

Arrow Global Group PLC (the “Company”) and its subsidiaries (together the “Group”), a leading European credit management services provider, is pleased to announce its results for the three months ended 31 March 2017 (“Q1 2017”).

 

Commenting on today’s results, Lee Rochford, Group chief executive officer of Arrow Global, said:

“In Q1 Arrow Global delivered another impressive quarter of profitable growth. Revenues grew 45% and underlying profit after tax was up 37%.    

“It was a strong start to the year for origination activity, with organic purchases of £77.4 million reflecting the strength of our European franchise where we have built leading positions in our chosen markets. Approximately two-thirds of this came from off-market trades, demonstrating the unique aspects of our business model.

“We continued to make progress on our strategic drive to diversify our revenue, with capital-light asset management revenues accounting for 24% of total revenues. These high quality revenue streams add further visibility to our earnings and are accretive to ROE.

“A robust pipeline across our geographic footprint gives us confidence in our ability to meet earnings expectations for the year. We also retain confidence in our medium-term objectives of an underlying ROE percentage in the mid-twenties, high teen EPS growth and a progressive dividend policy.”

Highlights

·    Growth in underlying profit after tax up 37% to £10.3 million (Q1 2016: £7.6 million)

·    Loss after tax of £11.7 million (Q1 2016: £7.6 million profit). This includes post tax one-off costs associated with the re-financing in March 2017 of £22.0 million

·    Growth in underlying basic earnings per share (EPS) increased 37% to 5.9p (Q1 2016: 4.3p)

·    Underlying LTM Return on Equity (ROE) of 30.8% (Q1 2016: 26.2%)

·    Growth in total revenues, which increased by 45% to £64.5 million (Q1 2016: £44.5 million), driven by an increase in core collections to £77.1 million (Q1 2016: £67.0 million) and asset management income to £15.7 million (Q1 2016: £7.2 million), resulting in an increase in Adjusted EBITDA of 9% to £56.5 million (Q1 2016: £51.7 million)

·    Capital-light asset management revenues now constitute 24% of total revenues (Q1 2016: 16%)

·    Strong organic portfolio purchases of £77.4 million (Q1 2016: £49.1 million), with the investment spread geographically: UK 56%; Portugal 17%; Netherlands 22%; Italy 5%

·    Our purchased loan portfolio asset base and loan notes increased by 6% taking total balance sheet value to £855 million (31 December 2016: £804 million), whichis reflected in the increased value of the 84-month ERC from £1,339 million to £1,404 million, up 5%

·    Issued €400 million senior secured notes due 2025, at a coupon of E+2.875% which is a record low rate for financing in our industry. The proceeds were used to redeem our existing E+5.25% €335 million 2021 notes, pay the early redemption fee and transaction costs and repay drawings under our revolving credit facility 

·    Group’s weighted average cost of debt is now 4.0% and average debt facility maturity 6.8 years

·    Commenced group-wide projects to further enhance the group’s risk, capital allocation and portfolio management capabilities, together with investment in  new operating and IT platforms in Portugal and the Netherlands

·    On 28 April, we completed the acquisition of Zenith Service S.p.A., (“Zenith”), marking our formal entry into the highly active Italian market and further enhancing our mainland European capabilities. In addition, we completed our first portfolio acquisition in Italy with a €4.8 million investment in aportfolio of unsecured receivables

 

Notes:

A glossary of terms can be found on pages 16 to 18

 

More details explaining the business can be found in the Annual Report & Accounts 2016 which can be found on the Company website at www.arrowglobalir.net

 

For further information:

Arrow Global

+44 (0)161 242 5885



Lee Rochford, Group chief executive officer 

Robert Memmott, Group chief financial officer

Anthony Frost, Group communications




Instinctif Partners

  +44 (0)20 7457 2020

 

Giles Stewart


 

 

There will be a conference call for investors today at 2pm (UK time). Details of how to register for the call can be found at:

 

http://emea.directeventreg.com                 

Using the code: 7543772

                

About Arrow Global – for further information please visit the company website:www.arrowglobalir.net

 

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 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 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 assumes no obligation to update or provide any additional information in relation to such forward-looking statements.

 

Business and financial review of the three months to 31 March 2017

The Group has built on the strong momentum from 2016 and has continued to expand its European footprint and client offering across its attractive markets. This coupled with our continued drive to deliver high quality and diversified income has enabled us to deliver a strong first quarter financial performance.

Key results

 As of and period to

31-Mar-17

31-Mar-16

31-Dec-16


£m

£m

£m

Purchases of loan portfolios

77.4

49.1

223.0

Total purchased loan portfolios and loan notes

855.4

619.8

804.1

Core collections

77.1

67.0

286.0

Total revenue

64.5

44.5

235.9

Adjusted EBITDA

56.5

51.7

209.2

Loss (profit) after tax

(11.7)

7.6

26.3

Underlying profit after tax

10.3

7.6

45.6

84-month ERC

1,403.5

1,082.2

1,339.1

120-month ERC

1,618.3

1,285.8

1,544.5

Net debt

879.0

620.8

816.0

Net assets

156.2

157.8

167.4

A glossary of terms can be found on pages 16 to 18

Our business model provides a compelling position in four distinct ways:

·    High growth– a highly visible runway of significant long-term growth

·    Operational excellence– drives competitive advantage and is the foundation of our financial performance

·    Financial excellence– a highly predictable cash generative business, prudently funded

·    Strong returns– a sustainably-high return business model, allowing self-funded growth and capital distribution.

High growth

 

With European banks still needing to divest non-performing loans and non-core assets, as a result of both capital and regulatory reasons, we continue to see long-term opportunities for Arrow Global.

 

Purchased loan portfolios

 

We acquired debt portfolios with a face value of £468.2 million for a purchase price of £77.4 million. Of the purchase price invested, 17% related to secured portfolios and the spread by geography was: UK 56%, Portugal 17%, Netherlands 22%, Italy 5%. With 67% of these trades coming fromoffmarketpurchases, it highlights the strength of the key relationships we hold in each of our core markets. 

 

The statement of financial position value of our purchased loan portfolios and loan notes increased by 6% to £855 million as at 31 March 2017 (31 December 2016: £804 million). Significant drivers for this were total portfolios acquired of £77.4 million. See note 2 for the full reconciliation.

 

 

Core collections

 

Core collections increased to £77.1 million (Q1 2016: £67.0 million), reflecting the increase in our portfolio asset base. Core collections in Q1 2017 are in line with our ERC forecast. In Q1 2016, we experienced a high proportion of collections from recently acquired better performing portfolios.

 

As at 31 March 2017, we have cumulatively collected 103% of our original underwriting forecast on a constant exchange rate basis, reflecting the success of our data driven approach to origination and underwriting.

 

Revenue

 

Total revenue for the period was £64.5 million, an increase of 45% from Q1 2016 (£44.5 million). £8.6 million of the increase was attributable to income from asset management.

 

Adjusted EBITDA

 

Adjusted EBITDA increased by 9% to £55.6 million (Q1 2016: £51.7 million). Growth in Adjusted EBITDA was impacted as expected by elevated collections in Q1 2016, where we received a high proportion of collections from recently acquired portfolios with low cost to collect, and a higher cost income ratio reflecting the expansion of the asset management business, the Vesting acquisition in 2016 and investment in operational excellence.

 

Completion of the Zenith Service acquisition in Italy

 

On 28 April we completed the acquisition of Zenith Service, a leading master servicing business with operations in Milan and Rome, having received all necessary regulatory approvals from the Bank of Italy.    

 

The acquisition was announced on 6 December 2016 with Arrow Global acquiring Zenith for an enterprise value of €17 million. It is expected to be earnings neutral after taking into account amortisation of the acquisition intangible assets and is funded from cash resources, with 60% paid on closing and 40% payable 12 months after closing.

 

The acquisition offers the Group valuable insight into the Italian market, while further diversifying its income streams and increasing the weighting of asset management revenues. Arrow Global and Zenith already share some common clients, and as such, Zenith provides a low risk, robust platform and important servicing capabilities. 

 

Zenith was established in 1999 and has approximately €14.2 billion of assets under management. It manages around 120 special purpose vehicles for securitisation and covered bond transactions, and offers a range of services, including: servicer, master servicer, corporate servicer, calculation agent, cash manager, special servicer, European central bank / investor reporting, representative of the noteholders and back-up servicer. The business has over 80 staff and typical clients include Italian and international banks, leasing companies, hedge funds and other financial entities.

 

On 11 April 2017, Zenith’s rating was upgraded by Standard & Poor’s to strong, the highest level of ranking as a master servicer in Italy, with a stable outlook. 

 

Portfolio acquisition in Italy

 

Separately, during March, Arrow Global made its first portfolio purchase in Italy. We acquired a small portfolio of unsecured receivables for a purchase price of €4.8 million, which is master serviced by Zenith. This offered a low risk and attractive opportunity to make our first investment in a portfolio well known to the Zenith management team and in an asset class well understood by Arrow Global. 

 

Operational excellence

 

Our focus on operational excellence is built around three themes: our expertise in data and analytics; our strong track record of underwriting discipline; and a continual improvement in the customer journey.

 

In each of our core markets we are investing in our IT, people and systems. This will enable us to share best practice, to extend the richness of our database, maximise the use of portfolio performance data, improve our digital capabilities and enhance the customer experience in each country. This will be a focus throughout 2017 and 2018.

 

We have started a number of Group-wide projects, which will further embed our Group risk framework and develop our capital allocation and portfolio management capabilities. Progress in Q1 includes investment in a new operating platform in the Netherlands, improvement in our digital offer for student loans in the UK, while in Portugal we are combining our IT and business systems onto a single platform that will service secured and unsecured loans.

 

As indicated at the full year 2016 results, the delivery of these projects and the investment required will incur additional cost, but will help drive sustainable earnings growth into the future. 

 

Financial excellence

 

ERC overview

 

Our 84-month ERC – the expected collections from portfolios already acquired – after taking into account movement in foreign exchange rates, has increased by 4.8% from £1,339.1 million as at 31 December 2016 to £1,403.5 million. The 120-month ERC increased 4.8% to £1,618.3 million (31 December 2016: £1,544.5 million).

 

The ERC is underpinned by approximately 600,000 customer accounts that have paid the Group in the last three months.   

 

These accounts have a current face value of £1.7 billion meaning the Group has 1.2 times coverage of the ERC from existing customers. As at 31 March 2017, we estimate the amount we would need to invest over the next 12 months to maintain our current 120-month ERC level is approximately £120 million.

 

Capital-light asset management

 

By developing our servicing and asset management proposition as part of our origination strategy, we have increased the level of capital-light revenues and cash flows.

 

Our asset management contracts are long-term in nature and the revenues we generate are typically fee income, based upon collections performance of similar assets to those that we own in the ERC. These assets, therefore, have similar long-term collection forecasts that support earnings visibility.

 

We have grown asset management revenues from 16% in Q1 2016 to 24% of Group revenue in Q1 2017. 

 

Net assets

 

Net assets decreased to £156.2 million during the period, mostly reflecting the impact of the non-recurring costs associated with the refinancing completed in the quarter.

 

Net debt

 

Net debt at 31 March 2017 increased by £63.0 million to £879.0 million (31 December 2016: £816.0 million), driven by organic portfolio purchases and the impact of the costs associated with the re-financing of the €335 million senior secured notes.

 

The ratio of secured net debt to LTM Adjusted EBITDA has increased from 3.6 times to 3.8 times due to a strong first quarter of organic portfolio purchases and the refinancing costs. For the same reasons total net debt to LTM adjusted EBITDA increased from 3.9 to 4.1 times, we expect this ratio to reduce over the course of 2017.

 

Cash interest cover has remained at 5.2 times (31 December 2016: 5.2 times) and will improve following the refinancing. Net debt/84-month ERC loan to value ratio is 62.3% (31 December 2016: 60.0%) and the secured loan to value ratio is 59.5% (31 December 2016: 57.0%), which is significantly below our financial covenants of 75%.

 

Funding

 

On 30 March, the Group issued €400 million senior secured notes due 2025, at a floating rate of E+2.875% (the ‘2025 Euro Senior Notes’).

 

The proceeds were used to redeem the existing E+5.25% €335 million 2021 bonds, pay the early redemption fee and transaction costs and repay drawings under our revolving credit facility. The maturity of the revolving credit facility has been extended to 31 March, 2022.

 

The early redemption of the 2021 Notes resulted in non-recurring finance costs of £27.2 million, of which £17.6 million related to the cash call premium and cancellation of interest rate hedging related to the 2021 Notes and £9.6 million related to a non-cash write-off of transaction fees in relation to the 2021 Notes.

 

The weighted average cost of debt has been reduced to 4.0% (31 December 2016: 4.9%) and the weighted average maturity of the Group’s debt is now 6.8 years (31 December 2016: 5.9 years) with no facility maturing before March 2022.

 

As at 31 March 2017, we had cash and RCF resources of £150.0 million available.

 

Strong returns

 

Loss (profit) attributable to shareholders

 

The loss attributable to equity shareholders for the period to 31 March 2017 was £11.7 million due to post tax non-recurring items of £22.0 million, following the issuance of €400 million 2025 Euro Senior Notes.

 

After taking account of the non-recurring items above, underlying net income increased 37% from £7.6 million for Q1 2016 to £10.3 million for Q1 2017.

 

We continue to exceed our key financial targets:

·    High teen underlying basic EPS growth rate of 37%: Q1 2017: 5.9p (Q1 2016: 4.3p)

·    Mid twenties underlying ROE: LTM Q1 2017: 30.8% (Q1 2016: 26.2%)

 

Senior management update

 

As announced in March 2017, John Calvão, previously country head for Portugal, has now assumed responsibility as country head for Italy and is responsible for all of Arrow Global’s operations, including Zenith Service. John is replaced in Portugal by João Bugalho, previously chief executive officer of Whitestar.

 

In May, we appointed Clodagh Gunnigle as Group Chief Risk Officer, having received the necessary approval and authorisation from the FCA.  Clodagh joins us from GE Capital, where she has spent over 15 years in various global risk and compliance roles.  She is a qualified accountant and her experience in managing risk across Europe, but in particular in the UK, Portugal and the Netherlands, will be valuable.  It strengthens our risk and compliance area and reflects the successful growth of the group across geographies and different asset classes, and our commitment to maintaining high standards in the management of all types of risk.  Clodagh will report to Lee Rochford and will join the Group Executive Committee.

 

 

 

Outlook

We had a strong first quarter for portfolio purchases which leaves us well positioned to invest approximately £200 million in 2017.

We continue to maintain a strong financial profile with significant liquidity, which has been further strengthened by the recent bond issuance at a record low coupon for our sector. We have strong market positions which will be supportive of the Group’s ability to execute on its growth opportunities. This combined with the value we can add from our expanded Group, supports continued strong earnings growth.

A robust pipeline across our geographic footprint gives us confidence in our ability to meet earnings expectations for the year. We remain confident of our ability to deliver a medium-term underlying ROE percentage in the mid-twenties, high-teen EPS growth and a progressive dividend policy. 

 

Unaudited consolidated statement of profit or loss and other comprehensive income

For the three months ended 31 March 2017




Unaudited

Three months

ended

31 Mar 2017


Unaudited

 Three months ended

31 Mar 2016


Notes


£000


£000

Revenue

1


64,528


44,479

Operating expenses






Collection activity costs



(21,360)


(13,603)

Other operating expenses



(19,020)


(11,298)

Total operating expenses



(40,380)


(24,901)

Operating profit



24,148


19,578

Finance income




89

Recurring finance costs



(12,234)


(10,566)

Non-recurring finance costs






Bond refinancing costs



(27,226)


Total finance costs



(39,460)


(10,566)

Share of profit in associate



840


591

(Loss) / profit before tax



(14,472)


9,692

Recurring taxation charge on ordinary activities



(2,423)


(2,141)

Tax on non-recurring items



5,241


Taxation charge on ordinary activities



2,818


(2,141)

(Loss) / profit after tax



(11,654)


7,551

Other comprehensive income:






FX translation difference arising on revaluation of foreign operations



402


1,872

Hedging movement



613


2,352

Total comprehensive income for the period attributable



(10,639)


11,775

Underlying profit after tax



10,331


7,551

 

 

Unaudited consolidated statement of financial position

As at 31 March 2017



31 March

 2017


31 December

2016


31 March
2016

Assets

Notes

£000


£000


£000

Non-current assets







Goodwill


128,353


128,081


84,739

Intangible assets


38,610


39,144


21,313

Property, plant & equipment


3,911


3,584


3,558

Investments in associates


11,264


10,371


14,072

Deferred tax asset


3,581


3,692


534

Total non-current assets


185,719


184,872


124,216

Current assets







Cash and cash equivalents


57,458


23,203


73,097

Other receivables


39,336


35,484


35,435

Derivative asset




4,309

Purchased loan portfolios

2

834,806


782,792


619,800

Loan notes


20,623


21,315


Total current assets


952,223


862,794


732,641

Total assets


1,137,942


1,047,666


856,857

Equity







Share capital


1,753


1,744


1,744

Share premium


347,436


347,436


347,436

Retained earnings


81,448


92,327


85,130

Hedging reserve


(19)


(632)


1,050

Other reserves


(274,438)


(273,484)


(277,566)

Total equity attributable to shareholders


156,180


167,391


157,794

Liabilities







Non-current liabilities







Senior secured notes

3

741,937


681,158


466,221

Trade and other payables


1,393



8,019

Deferred tax liability


14,442


14,859


4,297

Defined benefit liability


1,838


1,721


Total non-current liabilities


759,610


697,738


478,537

Current liabilities







Trade and other payables


83,803


76,261


69,814

Current tax liability


622


5,469


5,122

Derivative liability


1,792


1,433


Revolving credit facility

3

118,038


74,169


139,619

Bank overdrafts


1,283


7,698


Other borrowings

3

15,347


12,077


Senior secured notes

3

1,267


5,430


5,971

Total current liabilities


222,152


182,537


220,526

Total liabilities


981,762


880,275


699,063

Total equity and liabilities


1,137,942


1,047,666


856,857

 

Unaudited consolidated statement of changes in equity

For the three months ended 31 March 2017

 


Ordinary
shares

Share
premium

Retained
earnings

Hedging reserve

Own share
reserve*

Translation
reserve*

Merger
reserve*

Total

Non-controlling interest

Total


£000

£000

£000

£000

£000

£000

£000

£000

£000

£000

Balance at 1 January 2016

1,744

347,436

76,916

(1,302)

(1,936)

(541)

(276,961)

145,356

145,356

Profit for the period

7,551

7,551

7,551

Exchange differences

1,872

1,872

1,872

Net fair value gains –  cash flow

2,868

2,868

2,868

Tax on hedged items

(516)

(516)

(516)

Total comprehensive income for the period

7,551

2,352

1,872

11,775

11,775

Share-based payments

663

663

663

Balance at 31 March 2016

1,744

347,436

85,130

1,050

(1,936)

1,331

(276,961)

157,794

157,794

Profit for the period

18,754

18,754

1

18,755

Exchange differences

4,082

4,082

20

4,102

Net fair value gains – cash flow

(2,041)

(2,041)

(2,041)

Tax on hedged items

359

359

359

Remeasurement of defined benefit liability

(10)

(10)

(10)

Total comprehensive income for the period

18,744

(1,682)

4,082

21,144

21

21,165

Share-based payments

2,576

2,576

2,576

Dividends paid

(14,123)

(14,123)

(14,123)

Non-controlling interest on acquisition

394

394

Settlement of non-controlling interest

(415)

(415)

Balance at 31 December 2016

1,744

347,436

92,327

(632)

(1,936)

5,413

(276,961)

167,391

167,391

Profit for the period

(11,654)

(11,654)

(11,654)

Exchange differences

402

402

402

Net fair value gains –  cash flow

739

739

739

Tax on hedged items

(126)

(126)

(126)

Total comprehensive income for the period

(11,654)

613

402

(10,639)

(10,639)

Shares issued in period

9

9

9

Repurchase of own shares

(1,356)

(1,356)

(1,356)

Share-based payments

775

775

775

Balance at 31 March 2017

1,753

347,436

81,448

(19)

(3,292)

5,815

(276,961)

156,180

156,180

*Other reserves total £274,438,000 deficit (December 2016: £273,484,000; March 2016: £277,566,000)

Translation reserve

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

Merger reserve

The 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.

Own share reserve

The own share reserve comprises the cost of the Company’s ordinary shares held by the Group.

 

 

Unaudited Consolidated Statement of Cash Flows 

For the three months ended 31 March 2017

 



Three months ended

31 March

2017


Three months ended

31 March

2016



£000


£000

Net cash flows from operating activities before purchases of loan portfolios and loan notes


66,108


59,337

Purchase of purchased loan portfolios


(78,342)


(49,731)

Purchase of loan notes


(146)


Net cash (used in)/generated by operating activities


(12,380)


9,606

Net cash used in investing activities


(10,782)


(5,741)

Net cash flows generated by financing activities


57,411


58,150

Net increase in cash and cash equivalents


34,249


62,015

Cash and cash equivalents at beginning of period


23,203


10,183

Effect of exchange rates on cash and cash equivalents


6


899

Cash and cash equivalents at end of period


57,458


73,097

 

 

Notes

1.         Revenue




 

Three months

ended

31 Mar 2017


Three months ended

31 Mar 2016




£000


£000







Income from purchased loan portfolios



47,780


37,303

Income from loan notes



732


Profit on portfolio sales



284


Total revenue from portfolios



48,796


37,303

Income from asset management



15,732


7,176

Revenue



64,528


44,479

 

2.         Financial assets

Purchased loan portfolios

The Group recognises income from purchased loan portfolios in accordance with IAS 39. At 31 March 2017, the carrying amount of the purchased loan portfolio asset was £834,806,000 (31 December 2016: £782,792,000; 31 March 2016: £619,800,000).

The movements in purchased loan portfolio assets were as follows:



Three months ended

31 March

2017


 

Year Ended

31 December

2016


Three months ended

31 March

2016



£000


£000


£000

As at the period brought forward


782,792


609,793


609,793

Portfolios acquired during the period *


78,342


224,640


49,731

Purchased loan portfolios to be resold



(23,519)


(23,519)

Portfolios acquired through acquisition of a subsidiary



35,343


Collections in the period


(75,418)


(285,960)


(66,962)

Income from purchased loan portfolios


47,780


188,914


37,303

Exchange gain on purchased loan portfolios


1,026


32,880


13,454

Profit on disposal of purchased loan portfolios


284


701


As at the period end


834,806


782,792


619,800


*
inclusive of portfolio expenditure and recoverable litigation expenditure of £981,000 (31 December 2016: £22,940,000, 31 March 2016: £652,000)

 

 

 

3.         Borrowings



31 March

2017


31 December

2016


31 March

2016

Secured borrowing at amortised cost


£000


£000


£000

Senior secured notes (net of transaction fees of £16,985,000 31 December 2016: £20,562,000; 31 March 2016: £18,507,000)


741,937


681,158


466,221

Revolving credit facility (net of transaction fees of £3,101,000, 31 December 2016 £2,756,000; 31 March 2016: £3,381,000)


118,038


74,169


139,619

Senior secured notes interest


1,267


5,430


5,971

Bank overdrafts


1,283


7,698


Other borrowings – non-recourse debt


15,347


12,077




877,872


780,532


611,811

Total borrowings







Amount due for settlement within 12 months


125,978


87,297


145,590

Amount due for settlement after 12 months


751,894


693,235


466,221

 

4.         Non-recurring items

Non-recurring items include items that, by virtue of their size and nature (i.e. outside of the normal operating activities of the Group), are not considered to be representative of the on-going performance of the Group.

 

In the period to 31 March 2017, £27.2 million of non-recurring finance costs were incurred in relation to the early redemption of the 2021 Notes, of which £17.6 million related to the cash call premium on repayment of the Notes and cancellation of interest rate hedging related to the 2021 Notes, and £9.6 million related to the non-cash write-off of capitalised transaction fees in relation to the 2021 Notes.

 

There was an associated tax impact of £5.2 million in relation to the costs detailed above.

 

 

Glossary

“Adjusted EBITDA”means profit for the year attributable to equity shareholders before interest, tax, depreciation, amortisation, foreign exchange gains or losses and non-recurring items. The Adjusted EBITDA reconciliations for the periods ended 31 March 2017 and 31 March 2016 are shown below:

Reconciliation of Net Cash Flow to EBITDA

Three months ended

31 March

2017

£000


Three months ended

31 March

2016

£000

Net cash (used in)/generated by operating activities

(12,380)


9,606

Purchases of loan portfolios

78,342


49,731

Purchase of loan notes

146


Income taxes paid

2,177


769

Working capital adjustments

(12,746)


(10,000)

Amortisation of acquisition and bank facility fees

81


74

Effect of exchange rates on cash and cash equivalents

6


899

Share of profit in associates

840


591

Adjusted EBITDA

56,466


51,670

Reconciliation of Core Collections to EBITDA

£000


£000

Income from loan portfolios and loan notes

48,512


37,303

Portfolio amortisation

28,546


29,659

Core collections(includes proceeds from disposal of purchased loan portfolios)

77,058


66,962

Other income

15,732


7,176

Operating expenses

(40,380)


(24,901)

Depreciation and amortisation

2,630


1,152

Foreign exchange gains

(270)


(47)

Amortisation of acquisition and bank facility fees

81


74

Share-based payments

775


663

Share of profit in associate

840


591

Adjusted EBITDA

56,466


51,670

Reconciliation of Operating Profit to EBITDA

£000


£000

(Loss)/profit for the period

(11,654)


7,551

Recurring finance income and costs

12,234


10,477

Taxation charge on ordinary activities

(2,818)


2,141

Share of profit on associate

(840)


(591)

Non-recurring items

27,226


Operating profit

24,148


19,578

Portfolio amortisation

28,546


29,659

Depreciation and amortisation

2,630


1,152

Foreign exchange gains

(270)


(47)

Profit on disposal of purchased loan portfolios

(284)


Amortisation of acquisition and bank facility fees

81


74

Share-based payments

775


663

Share of profit in associate

840


591

Adjusted EBITDA

56,466


51,670

 

 

 

Glossary(Continued)

“Collection activity costs”represents the direct costs of external collections related to the Group’s purchased loan portfolios, such as 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 and loan notes including ordinary course portfolio sales and put backs. The breakdown of core collections for the period ended 31 March 2017 and 31 March 2016 is as follows: –




Three months

ended

31 Mar 2017


Three months ended

31 Mar 2016




£000


£000







Collections from purchased loan portfolios



75,418


66,962

Collections from loan notes



1,640


Core collections



77,058


66,962

 

“EBITDA”means earnings before interest, taxation, depreciation and amortisation

 

“84-month ERC”and“120-month ERC”(together“gross ERC”), mean the Group’s estimated remaining collections on purchased loan portfolios over an 84-month or 120-month period, respectively, representing the expected future core collections on purchased loan portfolios 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)

 

“Existing portfolios”or“purchased loan portfolios”are on the Group’s balance sheet and represent all debt portfolios that the Group owns at the relevant point in time

 

“Gross cash-on-cash 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

 

“Last Twelve Months (LTM)”is calculated by the addition of the consolidated financial data for the year ended 31 December 2016 and the consolidated financial data for the three months to March 2017, and the subtraction of the consolidated financial data for the three months to March 2016

 

“Net debt”means the sum of the senior secured notes excluding transaction fees, interest thereon, and amounts outstanding under the RCF, 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 RCF. The breakdown of net debt for 31 March 2017 and 31 March 2016 is as follows:

 

Glossary(Continued)


31 March

2017


31 December

2016


£000


£000

Cash and cash equivalents

(57,458)


(23,203)

Senior secured notes (pre transaction fees net off)

758,922


701,720

Senior secured notes interest

1,267


5,430

Revolving credit facility (pre transaction fees net off)

121,139


76,925

Bank overdrafts

1,283


7,698

Deferred consideration

38,535


35,401

Other borrowings

15,347


12,077

Net debt

879,035


816,048

 

“PCB”means the Proprietary Collections Bureau, a data matching tool designed by Arrow Global

and Experian

 

“Purchased loan portfolios”see“existing portfolios”

 

“Purchased loan portfolios to be resold”relates to a portfolio of assets, which has been acquired at the year end, and will shortly be re sold to an investment partner. These are separately disclosed from other loan portfolios, as an investment partner is intending to complete their acquisition from us

“RCF”means revolving credit facility

 

 “Underlying profit after tax”means profit for the year attributable to equity shareholders adjusted for the post-tax effect of non-recurring items. The Group presents underlying net income because it excludes the effect of non-recurring items (and the related tax on such items) on the Group’s profit or loss for a year and forms the basis of its dividend policy

“Underlying return on equity (ROE)”means the return on equity as calculated by taking underlying profit after tax divided by the average equity attributable to shareholders.

 

This information is provided by RNS
The company news service from the London Stock Exchange
 

END

 
 

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