Arrow Global Group PLC Results for the three months ended 31 March 2018

May 10th 2018
Arrow Global Group PLC Results for the three months ended 31 March 2018

TIDMARW

RNS Number : 5798N

Arrow Global Group PLC

10 May 2018

10 May 2018

Arrow Global Group PLC

Results for the three months ended 31 March 2018

Strong start to the year driven by the power of our differentiated business model; strategic partnership announced

Arrow Global Group PLC (the "Company" or the "Group") , a leading European credit management services provider, focusing on loan purchases and specialist asset management, announces its results for the three months ended 31 March 2018.

Financial Highlights           31 March      31 March     Change 
                                 2018          2017 
-----------------------------  ------------  -----------  ---------- 
 Core collections               GBP86.0m      GBP77.1m     11.6% 
 Revenue                        GBP77.1m      GBP64.5m     19.6% 
 Underlying profit after 
  tax                           GBP11.4m      GBP10.3m     10.3% 
 Underlying earnings per 
  share                         6.5p          5.9p         10.2% 
 Underlying return on equity    33.3%         30.8%        +2.5ppts 
 120-month ERC                  GBP1,852.4m   GBP1,618.3   GBP234.1m

Highlights

High growth

-- Continued progress expanding our specialist asset management product offering for third party capital seeking exposure to the attractive European NPL space

-- New strategic partnership with M7, the leading pan-European specialist commercial property investor, providing additional depth to our real estate investment capabilities across our European operations

-- Strong organic portfolio purchases, of GBP79.9 million surpassing Q1 2017's record Q1 volumes (Q1 2017: GBP77.4 million) with broad diversification by geography and asset class

-- Revenue growth of 19.6% supported by a 11.6% increase in core collections and a 19.9% increase in capital-light Asset Management income

-- The structural backdrop for future growth remains attractive, with both primary NPL sales and an increasingly important secondary market continuing to grow strongly

Operational excellence

-- Overall collections performance remains strong at 103% of original underwriting forecasts, demonstrating our track record of prudent investment and portfolio servicing expertise

-- A record 80.8% from off-market purchases - continuing trend and highlights strength of origination capabilities and key relationships across geographies

-- Integration of Parr Credit, our recent Italian acquisition, progressing well, with the business performing in line with expectations and adding significant depth to our Italian operations

--     Acquisition of Europa Investimenti expected to close in H2 
   --    One Arrow programme on track, with cost to income benefits predicted from late 2019 onwards

Financial excellence

--     84-month ERC increased to GBP1,562.2 million (Q1 2017: GBP1,403.5 million) 
   --     19.9% increase in capital-light Asset Management revenues to GBP18.9 million

-- 10.7% reduction in financing costs to GBP10.9 million (Q1 2017: GBP12.2 million) as benefits from 2017's refinancing continue to flow through

-- Successful 2018 refinancing has significantly strengthened the balance sheet, providing additional funding headroom,extending debt duration and underpinning our ability to invest in growth

-- Long debt duration with average facility maturity of 6.6 years as at 31 March 2018 (31 March 2017: 6.8 years)

--     Secured net debt to adjusted EBITDA of 4.0x, within guided range

Strong returns

--     10.3% increase in underlying profit after tax to GBP11.4 million (Q1 2017: GBP10.3 million) 
   --     10.2% increase in underlying basic earnings per share (EPS) to 6.5p (Q1 2017: 5.9p) 
   --     Underlying LTM Return on Equity (ROE) of 33.3% (Q1 2017: 30.8%)

Outlook

--     Continue to see attractive opportunities across core markets 
   --     Confident in meeting portfolio purchase target of GBP230.0-GBP240.0 million 
   --     On track to meet asset management revenue target of towards 30.0% of Group revenue

-- Remain on track to deliver a medium-term underlying ROE percentage at least in the mid-twenties, high-teens EPS growth and a progressive dividend

Lee Rochford, Group Chief Executive Officer, commented:

"The power of our differentiated model has meant that we have had another strong start to the year. Our sophisticated approach to capital investment and asset management, underpinned by our strong institutional client relationships and unique servicing capabilities, has meant that we have continued to purchase high volumes of portfolios at our required returns, while maintaining the growth of our capital-light asset management revenues.

The market dynamics of financial institutions increasingly looking to remove NPL portfolios from their balance sheets, and the trading of those assets in both the primary and secondary markets, continues to provide us with a clear runway for growth.

I remain confident that we are favourably positioned to capitalise on future opportunities and we remain on track to deliver our financial targets for the year."

For further information: 
 Arrow Global 
  Duncan Browne, Head of Investor 
  Relations                           +44 (0)7925 643 385 
 Instinctif Partners 
  Giles Stewart                       +44 (0)20 7457 2020

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.

Unaudited consolidated statement of profit or loss and other comprehensive income

For the three months ended 31 March 2018

Unaudited       Unaudited 
                                                       Three    Three months 
                                                      months           ended 
                                                       ended          31 Mar 
                                                      31 Mar            2017 
                                                        2018 
                                           Notes      GBP000          GBP000 
 
 Income                                      2        77,144          64,528 
                                                  ----------  -------------- 
 Operating expenses 
 Collection activity costs                          (27,808)        (21,360) 
 Other operating expenses                           (27,397)        (19,020) 
                                                  ----------  -------------- 
 Total operating expenses                           (55,205)        (40,380) 
                                                  ----------  -------------- 
 Operating profit                                     21,939          24,148 
 Finance costs excluding refinancing                (10,923)        (12,234) 
 Refinancing costs                                  (18,610)        (27,226) 
                                                  ----------  -------------- 
 Total Finance costs                                (29,533)        (39,460) 
                                                  ----------  -------------- 
 Share of profit in associate                              -             840 
                                                  ----------  -------------- 
 Loss profit before tax                              (7,594)        (14,472) 
 Taxation charge on ordinary activities                1,561           2,818 
                                                  ----------  -------------- 
 Loss after tax                                      (6,033)        (11,654) 
                                                  ----------  -------------- 
 Other comprehensive income: 
 FX translation difference arising 
  on revaluation of foreign operations               (1,033)             402 
 Hedging movement                                      (298)             613 
                                                  ----------  -------------- 
 Total comprehensive income for 
  the period attributable                            (7,364)        (10,639) 
                                                  ==========  ============== 
 Loss after tax attributable to: 
 Owners of the Company                               (6,051)        (11,654) 
 Non-controlling interest                                 18               - 
                                                  ----------  -------------- 
                                                     (6,033)        (11,654) 
                                                  ==========  ==============

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UNDERLYING PROFIT

Unaudited         Unaudited 
                                                             3 months ended    3 months ended 
                                                              31 March 2018     31 March 2017 
                                                                     GBP000            GBP000 
 Continuing operations 
 Income                                                              77,144            64,528 
                                                           ----------------  ---------------- 
 Operating expenses 
 Collection activity costs                                         (27,251)          (21,360) 
 Other operating expenses                                          (24,741)          (19,020) 
                                                           ----------------  ---------------- 
 Total operating expenses                                          (51,992)          (40,380) 
                                                           ----------------  ---------------- 
 Operating profit                                                    25,152            24,148 
                                                           ----------------  ---------------- 
 Net finance costs                                                 (10,923)          (12,234) 
 Share of profit in associates                                            -               840 
                                                           ----------------  ---------------- 
 Underlying profit before tax                                        14,229            12,754 
 Taxation charge on underlying activities                           (2,814)           (2,423) 
                                                           ----------------  ---------------- 
 Underlying profit after tax                                         11,415            10,331 
 Non-controlling interest                                              (18)                 - 
                                                           ----------------  ---------------- 
 Underlying profit attributable to owners of the company             11,397            10,331 
 
 Underlying basic EPS (p)                                               6.5               5.9 
                                                           ================  ================

Reconciliation between Reported profit and Underlying profit

31 March   31 March   31 March   31 March   31 March   31 March 
                            2018       2018       2018       2017       2017       2017 
                          Profit                Profit     Profit                Profit 
                          before                 after     before                 after 
                             tax        Tax        tax        tax        Tax        tax 
                          GBP000     GBP000     GBP000     GBP000     GBP000     GBP000 
 Reported Profit         (7,594)      1,561    (6,033)   (14,472)      2,818   (11,654) 
 Adjustments: 
 Collection activity 
  costs                      557      (139)        418          -          -          - 
 Other operating 
  expenses                 2,656      (607)      2,049          -          -          - 
 Bond refinancing 
  costs                   18,610    (3,629)     14,981     27,226    (5,241)     21,985 
                       ---------  ---------  ---------  ---------  ---------  --------- 
                          21,823    (4,375)     17,448     27,226    (5,241)     21,985 
 
 Underlying profit        14,229    (2,814)     11,415     12,754    (2,423)     10,331 
                       =========  =========  =========  =========  =========  =========

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 to be representative of the ongoing performance of the Group and these items are excluded from underlying profit. Underlying profit after tax is considered to be a key measure in understanding the Group's ongoing financial performance.

The collection activity adjustment in the period to 31 March 2018 relates to the One Arrow programme. The other operating expenses adjustment in the period ended 31 March 2018 includes the One Arrow programme and costs incurred on acquisitions. See note 4 for details of the bond refinancing costs.

Unaudited consolidated statement of financial position

As at 31 March 2018

31 March   31 December    31 March 
                                                           2018          2017        2017 
 Assets                                       Notes      GBP000        GBP000      GBP000 
 
 Intangible assets                                      214,743       196,272     166,963 
 Property, plant & equipment                              9,885        10,168       3,911 
 Investments in associates                                    -             -      11,264 
 Cash and cash equivalents                               42,400        35,943      57,458 
 Other receivables                                       61,877        56,885      39,336 
 Portfolio investments                          3       984,620       951,467     855,429 
 Total assets                                         1,313,525     1,250,735   1,134,361 
                                                     ==========  ============  ========== 
 Equity 
 Share capital                                            1,753         1,753       1,753 
 Other equity reserves                                  171,056       193,395     154,427 
 Total equity attributable to shareholders              172,809       195,148     156,180 
                                                     ----------  ------------  ---------- 
 Non-controlling interest                                   191           173           - 
                                                     ----------  ------------  ---------- 
 Total equity                                           173,000       195,321     156,180 
                                                     ----------  ------------  ---------- 
 Liabilities 
 Trade and other payables                               149,863        98,359      85,196 
 Taxation                                                 9,392        18,688      11,483 
 Defined benefit liability                                    -             -       1,838 
 Derivative liability                                     3,210         2,865       1,792 
 Borrowings                                     4       978,060       935,502     877,872 
 Total liabilities                                    1,140,525     1,055,414     978,181 
                                                     ----------  ------------  ---------- 
 Total equity and liabilities                         1,313,525     1,250,735   1,134,361 
                                                     ==========  ============  ==========

Unaudited consolidated statement of changes in equity

For the three months ended 31 March 2018

Other 
                                     Ordinary      equity              Non-controlling 
                                       shares    reserves      Total          interest      Total 
                                       GBP000      GBP000     GBP000            GBP000     GBP000 
                                    ---------  ----------  ---------  ----------------  --------- 
 Balance at 1 January 2017              1,744     165,647    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                            -    (10,639)   (10,639)                 -   (10,639) 
 Shares issued in the 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     154,427    156,180                 -    156,180 
                                    ---------              ---------  ----------------  --------- 
 Profit for the period                      -      51,525     51,525                44     51,569 
 Exchange differences                       -       3,899      3,899                 -      3,899 
 Recycled to profit after tax               -     (1,870)    (1,870)                 -    (1,870) 
 Net fair value gains - cash 
  flow                                      -       (391)      (391)                 -      (391) 
 Tax on hedged items                        -          67         67                 -         67 
 Remeasurement of defined benefit 
  liability                                 -        (25)       (25)                 -       (25) 
                                    ---------  ----------  ---------  ----------------  --------- 
 Total comprehensive income 
  for the period                            -      53,205     53,205                44     53,249 
 Repurchase of own shares                   -           1          1                 -          1 
 Share-based payments                       -       2,559      2,559                 -      2,559 
 Dividends paid                             -    (16,797)   (16,797)                 -   (16,797)

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Dividends paid by NCI                      -           -          -              (58)       (58) 
 Non-controlling interest on 
  acquisition                               -           -          -               187        187 
                                    ---------  ----------  ---------  ----------------  --------- 
 Balance at 31 December 2017            1,753     193,395    195,148               173    195,321 
 Impact of adopting IFRS 9                  -    (14,000)   (14,000)                 -   (14,000) 
                                    ---------  ----------  ---------  ----------------  --------- 
 Balance post IFRS 9 adjustment 
  at 1 January 2018                     1,753     179,395    181,148               173    181,321 
 Profit for the period                      -     (6,051)    (6,051)                18    (6,033) 
 Exchange differences                       -     (1,033)    (1,033)                 -    (1,033) 
 Net fair value gains - cash 
  flow                                      -       (378)      (378)                 -      (378) 
 Tax on hedged items                        -          80         80                 -         80 
                                    ---------  ----------  ---------  ----------------  --------- 
 Total comprehensive income 
  for the period                            -     (7,382)    (7,382)                18    (7,364) 
 Shares issued in period                    -           -          -                 -          - 
 Repurchase of own shares                   -     (1,750)    (1,750)                 -    (1,750) 
 Share-based payments                       -         793        793                 -        793 
 Balance at 31 March 2018               1,753     171,056    172,809               191    173,000 
                                    ---------              ---------  ----------------  ---------

Unaudited Consolidated Statement of Cash Flows

For the three months ended 31 March 2018

Three months ended   Three months ended 
                                                                                     31 March             31 March 
                                                                                         2018                 2017 
                                                                                       GBP000               GBP000 
 Net cash flows from operating activities before purchases of loan 
  portfolios and loan notes                                                            84,450               66,108 
 
   Purchase of portfolio investments                                                 (80,971)             (78,488) 
 Net cash generated/(used in) by operating activities                                   3,479             (12,380) 
 
   Net cash used in investing activities                                             (15,466)             (10,782) 
 
   Net cash flows generated by financing activities                                    18,739               57,411 
                                                                          -------------------  ------------------- 
 Net increase in cash and cash equivalents                                              6,752               34,249 
 
   Cash and cash equivalents at beginning of period                                    35,943               23,203 
 
   Effect of exchange rates on cash and cash equivalents                                (295)                    6 
                                                                          -------------------  ------------------- 
 Cash and cash equivalents at end of period                                            42,400               57,458 
                                                                          -------------------  -------------------

Notes

1.         Significant accounting policy updates

These financial statements do not include all of the information required for full annual financial statements, and should be read in conjunction with the consolidated financial statements of the Group as at and for the year ended 31 December 2017.

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 Guidance 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 Company's published consolidated annual report for the year ended 31 December 2017 with the exception of the significant accounting policy changes detailed below.

The consolidated financial statements of the Group as at and for the year ended 31 December 2017 are available upon request from the Company's registered office at Belvedere, 12 Booth Street, Manchester, M2 4AW or online at www.arrowglobalir.net.

On the 1 January 2018 the Group adopted IFRS 9. This resulted in some changes to key accounting policies that are summarised below.

IFRS 9 is effective from 1 January 2018 and the Group has adopted it from that date.

The standard is the new standard for recognising and measuring financial assets and liabilities. It replaces the existing standard IAS 39 'Financial Instruments: Recognition and Measurement', and covers three main areas:

-      Classification and measurement; 
   -      Hedging; and 
   -      Impairment.

The Group is not obliged to restate comparatives on the initial adoption of IFRS 9. This assessment is preliminary because not all transition work has been finalised, therefore the actual impact may change because: assumptions and judgements are subject to change until finalisation of the financial statements for the year ending 31 December 2018 and the Group is still refining its models and methodology for expected credit loss calculation ('ECL') calculation.

For full details of the more significant items that are likely to be important in understanding the impact of the implementation of IFRS 9 on the Group, refer to the consolidated financial statements of the Group as at and for the year ended 31 December 2017.

Based on 31 December 2017 data and current implementation status, we estimate the adoption of IFRS 9 will lead to a reduction in opening 2018 shareholders' equity of approximately GBP17 million before tax (GBP14 million after tax) relating to an increase in provisions for impairment losses of GBP17 million before tax, resulting in a reduction in purchased loan portfolio of this amount shown in the statement of financial position and an increase in deferred tax assets of GBP3 million. This impact is driven by the impairment requirements of IFRS 9 that introduce the requirement to incorporate forecasts of future economic forecasts into estimated ECL's. We continue to refine and monitor certain aspects of our impairment process which may change the actual impact.

2.         Income 
 
                                                   Three months 
                                           Three          ended 
                                          months         31 Mar 
                                           ended           2017 
                                          31 Mar 
                                            2018 
                                          GBP000         GBP000 
 
 Income from portfolio investments        58,289         48,796 
 Income from asset management             18,855         15,732 
                                       ---------  ------------- 
 Total income                             77,144         64,528 
                                       =========  ============= 
 
   3.         Financial assets - Portfolio investments

The Group recognises income from portfolio investments purchased in accordance with IFRS 9 from 1 January 2018. The movements in portfolio investments were as follows:

Three months ended                   Three months ended 
                                                                   31 March      Year Ended             31 March 
                                                                       2018     31 December                 2017 
                                                                                       2017 
                                                                     GBP000          GBP000               GBP000 
 As at the period brought forward                                   951,467         804,107              804,107 
 Impact of adopting IFRS 9 at 1 January 2018 (See 
 note 1)                                                           (17,000)               -                    - 
                                                        -------------------  --------------  ------------------- 
 Brought forward after impact of IFRS 9 opening 
  adjustment                                                        934,467         804,107              804,107 
 Portfolios acquired during the period                               80,971         225,734               78,488 
 Collections in the period                                         (85,993)       (342,210)             (77,058) 
 Income from purchased loan portfolios                               58,289         247,917               48,796 
 Exchange (loss)/gain on purchased loan portfolios                  (3,114)          16,393                1,096 
 Other movements                                                          -           (474)                    - 
 As at the period end                                               984,620         951,467              855,429 
                                                        ===================  ==============  =================== 
 
   4.         Borrowings 
 
                                          31 March   31 December   31 March

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2018          2017       2017 
                                            GBP000        GBP000     GBP000 
 Senior secured notes                      906,043       763,740    741,937 
 Senior secured notes interest               1,085         6,670      1,267 
 Revolving credit facility                  50,446       153,036    118,038 
 Bank overdrafts                             1,319         1,332      1,283 
 Finance lease                               1,771         1,816          - 
 Other borrowings - non-recourse debt       17,396         8,908     15,347 
                                         ---------  ------------  --------- 
 
 Total borrowings                          978,060       935,502    877,872 
                                         =========  ============  ========= 
 
   4.         Borrowings (continued)

On 7 March 2018, Arrow Global Finance Plc issued EUR285 million 3.75% over three-month EURIBOR floating rate senior secured notes due 2026 and issued a tap of GBP100 million of its existing GBP220 million 5.125% fixed rate notes due 2024. As part of the transaction Arrow Global Finance Plc also redeemed its EUR230 million 4.75% over three-month EURIBOR floating rate senior secured notes.

The proceeds were used to fund transaction costs and the redemption costs of the 2023 Notes and to fund the purchase price for the acquisition of Parr Credit S.r.l and partially repay drawings under the revolving credit facility.

In 2018, Bond refinancing costs comprised GBP18,610,000 incurred on the early redemption of the EUR230 million notes due 2023, of which GBP13,575,000 was a cash cost related to the call premium. The remaining GBP5,035,000 was due to a non-cash write-off of related transactions fees, in connection with the 2023 Notes.

5.         Acquisition of subsidiary undertaking

On 1 March 2018, the Group acquired 100% of the share capital of Parr Credit S.r.l ("Parr"). Parr manages unsecured performing and non-performing loans and customer relationships for banks and Tier-1 telecommunications companies. The acquisition builds on the successful 2017 acquisition of Zenith and gives the Group valuable Italian primary and special servicing capabilities that support the Group's growth ambitions. The total consideration for the acquisition is EUR24,796,000 (GBP21,164,000) including deferred contingent consideration. The provisional net assets totalled EUR3,063,000 (GBP2,693,000).

The initial accounting for the acquisition has been determined provisionally because of the limited time available between the acquisition date and the preparation of these quarterly statements.

Additional Information

'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 2018 and 31 March 2017 are shown below:

Three months ended   Three months ended 
                                                                                       31 March             31 March 
                                                                                           2018                 2017 
 Reconciliation of Net Cash Flow to EBITDA                                               GBP000               GBP000 
 Net cash (used in)/generated by operating activities                                     3,479             (12,380) 
 Purchase of portfolio investments                                                       80,971               78,488 
 Income taxes paid                                                                        4,550                2,177 
 Working capital adjustments                                                           (35,369)             (12,746) 
 Amortisation of acquisition and bank facility fees                                          69                   81 
 Effect of exchange rates on cash and cash equivalents                                        -                    6 
 Share of profit in associates                                                                -                  840 
 Non-recurring operating costs                                                            3,213                    - 
 Adjusted EBITDA                                                                         56,913               56,466 
                                                                            -------------------  ------------------- 
 Reconciliation of Core Collections to EBITDA                                            GBP000               GBP000 
 Income from portfolio investments                                                       58,289               48,796 
 Portfolio amortisation                                                                  27,704               28,262 
 Core collections (includes proceeds from disposal of purchased loan 
  portfolios)                                                                            85,993               77,058 
 Other income                                                                            18,855               15,732 
 Operating expenses                                                                    (55,205)             (40,380) 
 Depreciation and amortisation                                                            3,163                2,630 
 Foreign exchange gains                                                                      31                (270) 
 Amortisation of acquisition and bank facility fees                                          69                   81 
 Share-based payments                                                                       794                  775 
 Share of profit in associate                                                                 -                  840 
 Non-recurring operating costs                                                            3,213                    - 
 Adjusted EBITDA                                                                         56,913               56,466 
                                                                            -------------------  ------------------- 
 Reconciliation of Operating Profit to EBITDA                                            GBP000               GBP000 
 Loss for the period                                                                    (6,033)             (11,654) 
 Recurring finance income and costs                                                      10,923               12,234 
 Taxation charge on ordinary activities                                                 (1,561)              (2,818) 
 Share of profit on associate                                                                 -                (840) 
 Non-recurring finance costs                                                             18,610               27,226 
                                                                            -------------------  ------------------- 
 Operating profit                                                                        21,939               24,148 
 Portfolio amortisation                                                                  27,704               28,262 
 Depreciation and amortisation                                                            3,163                2,630 
 Foreign exchange gains                                                                      31                (270) 
 Amortisation of acquisition and bank facility fees                                          69                   81 
 Share-based payments                                                                       794                  775 
 Share of profit in associate                                                                 -                  840 
 Non-recurring operating costs                                                            3,213                    - 
 Adjusted EBITDA                                                                         56,913               56,466 
                                                                            -------------------  -------------------

Glossary

'Adjusted EBITDA ratio' means the ratio of Adjusted EBITDA to core collections.

'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 to be representative of the ongoing performance of the Group and are therefore excluded from underlying profit after tax.

'Average net assets' is calculated as the average quarterly net assets from Q1 2017 to Q1 2018 as shown in the quarterly, half yearly and annual statements.

'Cash interest cover' represents interest on senior secured notes, utilisation and non-utilisation RCF fees to Adjusted EBITDA.

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

'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.

'Cost-to-collect ratio' is the ratio of collection activity costs to core collections.

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

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

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'EIR' means effective interest rate (which is based on the loan portfolio's gross internal rate of return) calculated using the loan portfolio purchase price and forecast 84-month gross ERC at the date of purchase. On acquisition, there is a short period that is required to determine the EIR, due to the complexity of the portfolios acquired.

'EPS' means earning per share.

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

Glossary (Continued)

'FCA' means Financial Conduct Authority.

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

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

'IFRS' means EU endorsed international financial reporting standards.

'Income from asset management' includes commission income, debt collection, due diligence, real estate management and advisory fees.

'Lending Code' means the voluntary code of practice issued by the Lending Standards Board and describes minimum standards of good practice for banks, building societies, credit card providers and their agents.

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

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

'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 2017 and the consolidated financial data for the three months to March 2018, and the subtraction of the consolidated financial data for the three months to March 2017.

'LTM Pro Forma Adjusted EBITDA' means 'LTM Adjusted EBITDA' inclusive of full twelve months impacts of acquisitions that occurred within the last twelve months and exclusive of any items deemed non-recurring within the last twelve months to give a twelve months pro forma Adjusted EBITDA operating level at the reported date.

'Net debt' means the sum of the outstanding principal amount of the senior secured notes, interest thereon, amounts outstanding under the revolving credit facility and deferred consideration payable in relation to the acquisition of loan portfolios, less cash and cash equivalents including transaction fees. Net debt is presented because it indicates the level of debt after taking out of the Group's assets that can be used to pay down outstanding borrowings, and because it is a component of the maintenance covenants in the revolving credit facility. The breakdown of net debt for the period ended 31 March 2018 is as follows:

Glossary (Continued)

31 March   31 December 
                                                                  2018          2017 
                                                                GBP000        GBP000 
 Cash and cash equivalents                                    (42,400)      (35,943) 
 Senior secured notes (pre transaction fees net off)           922,355       779,347 
 Revolving credit facility (pre transaction fees net off)       54,087       155,757 
                                                            ----------  ------------ 
 Secured net debt                                              934,042       899,161 
 Bank overdrafts                                                 1,319         1,332 
 Senior secured notes interest                                   1,085         6,670 
 Deferred consideration                                         62,589        30,509 
 Other borrowings                                               19,167        10,724 
                                                            ----------  ------------ 
 Net debt                                                    1,018,202       948,396 
                                                            ==========  ============

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

'Paying Account' means an account that has shown at least one payment over the last three months.

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

and Experian.

'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.

'Replacement rate' means the level of purchases of portfolio and loan notes needed during the subsequent year to maintain the current level of ERC.

'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 Q1 2017 to Q1 2018 as shown in the quarterly, half year and full year statements.

'Secured loan to value' or 'secured LTV ratio' represents the ratio of 84-month ERC to Secured Net Debt.

'Secured Net Debt' means the sum of the outstanding principal amount of the senior secured notes, 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 31 March 2018 is shown in Net Debt above.

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

Glossary (Continued)

'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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May 10, 2018 02:00 ET (06:00 GMT)