Results for the three months ended 31 March 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 |
|
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Giles Stewart |
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|
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 fromoff–marketpurchases, 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 |
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 |
Share |
Retained |
Hedging reserve |
Own share |
Translation |
Merger |
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.
END
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