Arrow Global Group PLC Results for the three months ended 31 March 2019

May 9th 2019
Arrow Global Group PLC Results for the three months ended 31 March 2019

TIDMARW

RNS Number : 4417Y

Arrow Global Group PLC

09 May 2019

9 May 2019

Arrow Global Group PLC

Results for the three months ended 31 March 2019

Strong cashflow generation, deleveraging and further funding diversification from first securitisation

Arrow Global Group PLC (the "Company", and together with its subsidiaries the "Group"), a leading European investor and asset manager in secured and unsecured defaulted and non-core loan portfolios and real estate, announces its results for the three months ended 31 March 2019.

Key Highlights

--      Organic portfolio purchases of GBP56.4 million (Q1 2018: GBP79.9 million) 
   --      Core collections increased 22.7% to GBP105.5 million (Q1 2018: GBP86.0 million) 
   --      Third-party AMS income increased 21.7% to GBP23.0m (Q1 2018: 18.9 million) 
   --      Free cashflow grew 32.0% to GBP57.8 million (Q1 2018: GBP43.8 million) 
   --      Significant reduction in leverage ratio to 3.4x (Q1 2018: 4.0x) 
   --      Underlying profit before tax increased 14.1% to GBP16.2 million (Q1 2018: GBP14.2 million) 
   --      Underlying LTM ROE of 34.5% 
   --      Securitisation in April 2019 further diversifies funding structure 
 
 Financial highlights               31 March   31 March   Change 
                                        2019       2018        % 
---------------------------------  ---------  ---------  ------- 
 Core collections (GBPm)               105.5       86.0     22.7 
 Total income (GBPm)                    86.6       77.1     12.3 
 Third party AMS income (GBPm)          23.0       18.9     21.7 
 Profit/(loss) before tax (GBPm)        15.8      (7.6)        - 
 Underlying profit before tax 
  (GBPm)                                16.2       14.2     14.1 
 Basic EPS (p)                           6.1      (3.5)        - 
 Leverage (x)                            3.4        4.0    (0.6) 
 84-month ERC (GBPm)                 1,602.8    1,562.2      2.6 
 120-month ERC (GBPm)                1,935.4    1,852.4      4.5

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

"Our strong focus on returns and an improving pricing environment means that we took the decision in the first quarter to purchase fewer portfolios, conserving investment firepower for later in the year. Our strong pipeline visibility means that we remain confident in achieving around GBP250.0 million of portfolio purchases at our target returns.

Arrow Global is a highly cash generative business and this is evident when purchases are scaled back, driving the three-point reduction in leverage from 3.7x at the full year to 3.4x at the end of Q1. While leverage is likely to modestly rise from here as purchases increase, before trending down again by year end, we remain confident that our target leverage range of 3.0x-3.5x is a sustainable level for the business.

The announcement today of our first securitisation of loan portfolios via a GBP100 million revolving commitment adds an important element of diversification to our funding structure at attractive cost and modest scale.

We are pleased with the investment returns we have achieved so far in Q1 and believe that the pricing environment will continue to improve. Cash generation will continue to be a major priority through a heavy focus on delivering strong returns and our cost efficiency agenda."

Conference call details

There will be a conference call for analysts and investors at 0900 (UK time). Investors and analysts wishing to dial-in to the call can register using the following link:

http://bit.ly/2IZomJo

Notes:

A glossary of terms can be found on pages 14 to 16.

More details explaining the business can be found in the Annual Report & Accounts 2018 which is available on the Company's website at www.arrowglobalir.net

For further information:

Arrow Global Group PLC 
 Duncan Browne, Head of Investor Relations    +44 (0)161 242 5896 
 FTI Consulting 
 Neil Doyle                                   +44 (0)20 3727 1141 / arrowglobal@fticonsulting.com 
  Tom Blackwell 
  Laura Ewart

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 2019

Unaudited        Unaudited 
                                                                                     three months     three months 
                                                                                            ended            ended 
                                                                                    31 March 2019    31 March 2018 
                                                                                           GBP000           GBP000 
 Continuing operations 
 Income from portfolio investments at amortised cost                                       44,760           45,172 
 Fair value gain on portfolio investments at FVTPL                                          6,647            4,816 
 Impairment gains on portfolio investments at amortised cost                               12,172            8,301 
                                                                                  ---------------  --------------- 
 Total income from portfolio investments                                                   63,579           58,289 
 Income from asset management and servicing                                                22,952           18,855 
 Other income                                                                                  98                - 
                                                                                  ---------------  --------------- 
 Total income                                                                              86,629           77,144 
                                                                                  ---------------  --------------- 
 Operating expenses: 
 Collection activity costs                                                               (26,790)         (27,808) 
 Other operating expenses                                                                (31,515)         (27,397) 
                                                                                  ---------------  --------------- 
 Total operating expenses                                                                (58,305)         (55,205) 
                                                                                  ---------------  --------------- 
 Operating profit                                                                          28,324           21,939 
 Net finance costs                                                                       (12,571)         (10,923) 
 Refinancing costs                                                                              -         (18,610) 
 Profit/(loss) before tax                                                                  15,753          (7,594) 
 Taxation (charge)/credit                                                                 (4,360)            1,561 
                                                                                  ---------------  --------------- 
 Profit/(loss) after tax                                                                   11,393          (6,033) 
                                                                                  ===============  =============== 
 Other comprehensive income: 
 Items that are to be reclassified subsequently to profit or loss: 
 Foreign exchange translation difference arising on revaluation of foreign 
  operations                                                                              (4,688)          (1,033) 
 Movement on the hedging reserve                                                             (54)            (298) 
                                                                                  ---------------  --------------- 
 Total comprehensive income for the period                                                  6,651          (7,364) 
                                                                                  ===============  =============== 
 
 Profit attributable to: 
 Owners of the Company                                                                     10,673          (6,051) 
 Non-controlling interest                                                                     720               18 
                                                                                  ---------------  ---------------

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11,393          (6,033) 
                                                                                  ===============  =============== 
 
 Basic EPS (p)                                                                                6.1            (3.5) 
                                                                                  ===============  ===============

UNDERLYING PROFIT

Underlying profit is considered to be a key measure in understanding the Group's ongoing financial performance. Adjusting items are those items that management deem by virtue of their size, nature or incidence (i.e. outside the normal operating activities of the Group) are not considered to be representative of the ongoing performance of the Group and these items are excluded from underlying profit.

Unaudited             Unaudited 
                                                                 three months ended    three months ended 
                                                                      31 March 2019         31 March 2018 
                                                                             GBP000                GBP000 
 Continuing operations 
 Total income                                                                86,629                77,144 
                                                               --------------------  -------------------- 
 Operating expenses 
 Collection activity costs                                                 (26,790)              (27,251) 
 Other operating expenses                                                  (31,064)              (24,741) 
                                                               --------------------  -------------------- 
 Total operating expenses                                                  (57,854)              (51,992) 
                                                               --------------------  -------------------- 
 Operating profit                                                            28,775                25,152 
 Net finance costs                                                         (12,571)              (10,923) 
 Underlying profit before tax                                                16,204                14,229 
 Taxation charge                                                            (4,445)               (2,814) 
                                                               --------------------  -------------------- 
 Underlying profit after tax before non-controlling interest                 11,759                11,415 
 Non-controlling interest                                                     (720)                  (18) 
                                                               --------------------  -------------------- 
 Underlying profit after tax                                                 11,039                11,397 
 
 Underlying basic EPS (p)                                                       6.3                   6.5 
                                                               ====================  ====================

Reconciliation between reported profit/(loss) and underlying profit

31 Mar 2019   31 Mar 2019   31 Mar 2019   31 Mar 2018   31 Mar 2018   31 Mar 2018 
                                        Profit                      Profit        Profit                      Profit 
                                    before tax           Tax     after tax    before tax           Tax     after tax 
                                        GBP000        GBP000        GBP000        GBP000        GBP000        GBP000 
 Reported profit/(loss)                 15,753       (4,360)        11,393       (7,594)         1,561       (6,033) 
 Adjustments: 
 Collection activity costs                   -             -             -           557         (139)           418 
 Other operating expenses                  451          (85)           366         2,656         (607)         2,049 
 Bond refinancing costs                      -             -             -        18,610       (3,629)        14,981 
                                  ------------  ------------  ------------  ------------  ------------  ------------ 
 Total adjustments                         451          (85)           366        21,823       (4,375)        17,448 
 Underlying profit                      16,204       (4,445)        11,759        14,229       (2,814)        11,415 
 Non-controlling interest              (1,075)           355         (720)          (18)             -          (18) 
 Underlying profit attributable 
  to owners                             15,129       (4,090)        11,039        14,211       (2,814)        11,397 
                                  ============  ============  ============  ============  ============  ============

In the period to 31 March 2019, the other operating expenses adjustment primarily related to acquisition costs. In the period to 31 March 2018, the collection activity adjustment related to the One Arrow programme and the other operating expenses adjustment related to the One Arrow programme and costs incurred on acquisitions. See note 3 for details of the bond refinancing costs.

The non-controlling interest (NCI) relates to a co-investment in a portfolio where we have taken a majority share and hence consolidate the position and allocate the minority holding to the NCI.

Unaudited consolidated statement of financial position

As at 31 March 2019

31 March   31 December    31 March 
                                                           2019          2018        2018 
                                              Notes      GBP000        GBP000      GBP000 
 Assets 
 Goodwill and intangible assets                         294,601       306,943     214,743 
 Property, plant and equipment                           30,538         7,761       9,885 
 Cash and cash equivalents                               58,428        92,001      42,400 
 Other receivables                                       63,372        94,206      61,877 
 Portfolio investments                          2     1,061,236     1,087,030     984,620 
 Deferred tax asset                                       8,055         8,113       7,899 
 Total assets                                         1,516,230     1,596,054   1,321,424 
                                                     ==========  ============  ========== 
 Equity 
 Share capital                                            1,763         1,763       1,753 
 Other equity reserves                                  195,684       189,894     171,056 
 Total equity attributable to shareholders              197,447       191,657     172,809 
                                                     ----------  ------------  ---------- 
 Non-controlling interest                                 1,321           601         191 
                                                     ----------  ------------  ---------- 
 Total equity                                           198,768       192,258     173,000 
                                                     ----------  ------------  ---------- 
 Liabilities 
 Trade and other payables                               170,474       197,657     149,863 
 Net current and deferred tax liability                  24,057        22,845      17,291 
 Derivative liability                                       729           502       3,210 
 Borrowings                                     3     1,122,202     1,182,792     978,060 
 Total liabilities                                    1,317,462     1,403,796   1,148,424 
                                                     ----------  ------------  ---------- 
 Total equity and liabilities                         1,516,230     1,596,054   1,321,424 
                                                     ==========  ============  ==========

Unaudited consolidated statement of changes in equity

For the three months ended 31 March 2019

Ordinary 
                                       shares   Other equity reserves      Total   Non-controlling interest      Total 
                                       GBP000                  GBP000     GBP000                     GBP000     GBP000 
 Balance at 1 January 2018              1,753                 193,395    195,148                        173    195,321 
 Impact of adopting IFRS 9                  -                (14,000)   (14,000)                          -   (14,000) 
                                    ---------  ----------------------  ---------  -------------------------  --------- 
 Balance post-IFRS adjustments at 
  1 January 2018                        1,753                 179,395    181,148                        173    181,321 
 Loss for the period                        -                 (6,051)    (6,051)                         18    (6,033) 
 Exchange differences                       -                 (1,033)    (1,033)                          -    (1,033) 
 Net fair value losses - cash flow 
  hedges                                    -                   (378)      (378)                          -      (378) 
 Tax on hedged items                        -                      80         80                          -         80 
                                    ---------  ----------------------  ---------  -------------------------  --------- 
 Total comprehensive income for 
  the period                                -                 (7,382)    (7,382)                         18    (7,364) 
 Repurchase of own shares                   -                 (1,750)    (1,750)                          -    (1,750) 
 Share-based payments                       -                     793        793                          -        793

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Balance at 31 March 2018               1,753                 171,056    172,809                        191    173,000 
 Profit for the period                      -                  36,020     36,020                       (18)     36,002 
 Exchange differences                       -                   3,605      3,605                          -      3,605 
 Recycled to profit after tax               -                 (1,202)    (1,202)                          -    (1,202) 
 Net fair value gains - cash flow 
  hedges                                    -                      87         87                          -         87 
 Tax on hedged items                        -                    (30)       (30)                          -       (30) 
 Total comprehensive income for 
  the period                                -                  38,480     38,480                       (18)     38,462 
 Impact of adopting IFRS 15                 -                   (199)      (199)                          -      (199) 
 Shares issued                             10                       -         10                          -         10 
 Repurchase of own shares                   -                   (759)      (759)                          -      (759) 
 Share-based payments                       -                   2,474      2,474                          -      2,474 
 Dividends paid                             -                (21,158)   (21,158)                          -   (21,158) 
 Dividends paid by NCI                      -                       -          -                       (43)       (43) 
 Non-controlling interest on 
  acquisition                               -                       -          -                        471        471 
 Balance at 31 December 2018            1,763                 189,894    191,657                        601    192,258 
 Impact of adopting IFRS 16                 -                   (941)      (941)                          -      (941) 
                                    ---------  ----------------------  ---------  -------------------------  --------- 
 Balance post IFRS adjustments at 
  1 January 2019                        1,763                 188,953    190,716                        601    191,317 
 Profit for the period                      -                  10,673     10,673                        720     11,393 
 Exchange differences                       -                 (4,688)    (4,688)                          -    (4,688) 
 Net fair value gains - cash flow 
  hedges                                    -                    (65)       (65)                          -       (65) 
 Tax on hedged items                        -                      11         11                          -         11 
                                    ---------  ----------------------  ---------  -------------------------  --------- 
 Total comprehensive income for 
  the period                                -                   5,931      5,931                        720      6,651 
 Share-based payments                       -                     800        800                          -        800 
 Balance at 31 March 2019               1,763                 195,684    197,447                      1,321    198,768 
                                    ---------                          ---------  -------------------------  ---------

Unaudited consolidated statement of cash flows

For the three months ended 31 March 2019

Three months ended   Three months ended 
                                                                                     31 March             31 March 
                                                                                         2019                 2018 
                                                                                       GBP000               GBP000 
 Net cash flows from operating activities before purchases of portfolio 
  investments                                                                          64,961               84,450 
 Purchase of portfolio investments                                                   (56,377)             (80,971) 
 Net cash generated by operating activities                                             8,584                3,479 
 Net cash used in investing activities                                                (7,752)             (15,466) 
 Net cash flows (used in)/ generated by financing activities                         (32,546)               18,739 
                                                                          -------------------  ------------------- 
 Net (decrease)/ increase in cash and cash equivalents                               (31,714)                6,752 
 Cash and cash equivalents at beginning of period                                      92,001               35,943 
 Effect of exchange rates on cash and cash equivalents                                (1,859)                (295) 
                                                                          -------------------  ------------------- 
 Cash and cash equivalents at end of period                                            58,428               42,400 
                                                                          -------------------  -------------------

Notes

1.         Significant accounting policy updates

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

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

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

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

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

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

The standard transition has led to a one-off opening 2019 reserves reduction of GBP0.9 million, a right-of-use asset disclosed in property, plant equipment of GBP23.8 million and a lease liability of GBP27.3 million and a release of lease accruals of GBP2.6 million, both disclosed in trade and other payables.

2.         Portfolio investments

The movements in portfolio investments were as follows:

Three months ended     Year ended   Three months ended 
                                                                      31 March    31 December             31 March 
                                                                          2019           2018                 2018 
                                                                        GBP000         GBP000               GBP000 
 As at the period brought forward                                    1,087,030        951,467              951,467 
 Impact of adopting IFRS 9 at 1 January 2018                                 -       (17,000)             (17,000) 
                                                           -------------------  -------------  ------------------- 
 Brought forward after impact of IFRS 9 opening 
  adjustment                                                         1,087,030        934,467              934,467 
 Portfolio purchases during the year                                    56,377        263,350               80,971 
 Portfolio additions from acquired entities                                  -         11,853                    - 
 Collections in the period                                           (105,493)      (411,588)             (85,993) 
 Total income from portfolio investments                                63,579        269,404               58,289 
 Exchange and other movements                                         (27,096)         19,544              (3,114) 
 Portfolio restructure                                                (13,161)              -                    - 
 As at the period end                                                1,061,236      1,087,030              984,620 
                                                           ===================  =============  ===================

Classification of portfolio investments

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The following table provides a breakdown of the categories of portfolio investments under IFRS 9.

31 March 
                         Amortised cost     FVTPL        2019 
                                 GBP000    GBP000      GBP000 
 As at the period end           862,184   199,052   1,061,236 
                        ---------------  --------  ========== 
 
   3.         Borrowings 
 
                                   31 March   31 December   31 March 
                                       2019          2018       2018 
                                     GBP000        GBP000     GBP000 
 Senior secured notes               895,258       920,798    906,043 
 Senior secured notes interest        1,434         5,542      1,085 
 Revolving credit facility          221,262       242,121     50,446 
 Bank overdrafts                      4,248         2,696      1,319 
 Finance lease                            -             -      1,771 
 Other borrowings                         -        11,635     17,396 
                                 ----------  ------------  --------- 
 Total borrowings                 1,122,202     1,182,792    978,060 
                                 ==========  ============  =========

Revolving credit facility

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

On 4 January 2018, the commitment under the revolving credit facility were increased from GBP215 million to GBP255 million. The maturity of the facility was extended to 2 January 2023 and the margin reduced to 2.5%.

On 1 November 2018, the commitment under the revolving credit facility were increased from GBP255 million to GBP285 million.

Senior secured notes

On 7 March 2018, Arrow Global Finance Plc issued EUR285 million floating rate senior secured notes due 2026 at a coupon of 3.75% over three-month EURIBOR and also issued a GBP100 million tap 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.

In 2018, bond refinancing costs comprised GBP18.6 million incurred on the early redemption of the EUR230 million notes due 2023, of which GBP13.6 million was a cash cost related to the call premium. The remaining GBP5.0 million was due to a non-cash write-off of related transaction fees, relating to the 2023 notes.

4.         Post balance sheet events

Drydens Limited ("Drydens")

On 8 April 2019, the Group acquired 100% of the share capital of Drydens. Drydens is a provider of legal services, the acquisition of which will broaden the Group's UK range of servicing capabilities and skills across consumer and commercial litigation, probate and insolvency.

Asset backed security

On 30 April 2019, the Group completed a securitisation of loan portfolios at a GBP100 million revolving commitment, through an asset backed security funding structure at LIBOR + 3.1% per annum.

Additional Information

The adjusted EBITDA reconciliations for the periods ended 31 March 2019 and 31 March 2018 are shown below:

Three months ended   Three months ended 
                                                                                       31 March             31 March 
                                                                                           2019                 2018 
                                                                                         GBP000               GBP000 
 Reconciliation of net cash flow to adjusted EBITDA 
 Net cash generated by operating activities                                               8,584                3,479 
 Purchase of portfolio investments                                                       56,377               80,971 
 Income taxes paid                                                                        2,625                4,550 
 Working capital adjustments                                                              8,853             (35,369) 
 Amortisation of acquisition fees                                                            43                   69 
 Adjusting operating expenses                                                               451                3,213 
 Adjusted EBITDA                                                                         76,933               56,913 
                                                                            -------------------  ------------------- 
 Reconciliation of core collections to EBITDA                                            GBP000               GBP000 
 Income from portfolio investments including revaluations                                63,579               58,289 
 Portfolio amortisation                                                                  41,914               27,704 
 Core collections (includes proceeds from disposal of portfolio 
  investments)                                                                          105,493               85,993 
 Income from asset management and servicing                                              22,952               18,855 
 Other income                                                                                98                    - 
 Operating expenses                                                                    (58,305)             (55,205) 
 Depreciation and amortisation                                                            4,728                3,163 
 Foreign exchange losses                                                                    673                   31 
 Amortisation of acquisition fees                                                            43                   69 
 Share-based payments                                                                       800                  794 
 Adjusting operating expenses                                                               451                3,213 
 Adjusted EBITDA                                                                         76,933               56,913 
                                                                            -------------------  ------------------- 
 Reconciliation of operating profit to EBITDA                                            GBP000               GBP000 
 Profit/(loss) after tax                                                                 11,393              (6,033) 
 Underlying net finance costs                                                            12,571               10,923 
 Taxation charge/(credit) on ordinary activities                                          4,360              (1,561) 
 Adjusting financing costs                                                                    -               18,610 
                                                                            -------------------  ------------------- 
 Operating profit                                                                        28,324               21,939 
 Portfolio amortisation                                                                  41,914               27,704 
 Depreciation and amortisation                                                            4,728                3,163 
 Foreign exchange losses                                                                    673                   31 
 Amortisation of acquisition fees                                                            43                   69 
 Share-based payments                                                                       800                  794 
 Adjusting operating expenses                                                               451                3,213 
 Adjusted EBITDA                                                                         76,933               56,913 
                                                                            -------------------  -------------------

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

Reconciliation of profit after tax to the free cash flow result

Reported profit   Adjusting items        Underlying   Other items   Free cash flow 
 Income                                          (4)            profit 
                            GBP000            GBP000            GBP000        GBP000           GBP000 
 Income from 
  portfolio                                                                                             Collections in 
  investments               44,760                 -            44,760        60,733          105,493   the period 
 Fair value 
  gains 
  portfolio 
  investments at 
  FVTPL                      6,647                 -             6,647       (6,647)                - 
 Impairment 
  gains on 
  portfolio 
  investments at 
  amortised cost            12,172                 -            12,172      (12,172)                - 
 Income from                22,952                 -            22,952             -           22,952   Income from 
 asset                                                                                                  asset 
 management and                                                                                         management and 
 servicing                                                                                              servicing 
 Other income                   98                 -                98             -               98 
                  ----------------  ----------------  ----------------  ------------  ---------------  --------------- 
 Total income 
  (1)                       86,629                 -            86,629        41,914          128,543   Cash income

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Total operating                                                                                        Cash operating 
  expenses                (58,305)               451          (57,854)      6,244(2)         (51,610)   expenses 
                  ----------------  ----------------  ----------------  ------------  ---------------  --------------- 
 Operating                                                                                              Adjusted 
  profit                    28,324               451            28,775        48,158        76,933(5)   EBITDA 
 Net financing 
  costs                   (12,571)                 -          (12,571)    (2,158)(3)         (14,729) 
 Profit before 
  tax                       15,753               451            16,204        46,000           62,204 
 Taxation charge 
  on ordinary 
  activities               (4,360)              (85)           (4,445)         1,820          (2,625) 
                  ----------------  ----------------  ----------------  ------------  ---------------  --------------- 
 Profit after 
  tax                       11,393               366            11,759        47,820           59,579 
                  ================  ================  ================  ============  ===============  =============== 
                                                                                              (1,743)   Capital 
                                                                                                        expenditure 
                                                                                               57,836   Free cash flow 
                                                                                      ===============  ===============

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

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

(3) Non-cash amortisation of fees and interest

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

(5) This is the adjusted EBITDA for the business, which is a key driver to the cash result. This measure allows us to monitor the operating performance of the Group. See page 12 for detailed reconciliations of adjusted EBITDA

Glossary

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

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

'AMS' means asset management and servicing.

'Cash income' represents core collections and income from asset management and servicing.

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

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

'EPS' means earnings per share.

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

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

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

'Grandfathering' allows the application of IFRS 16 only to those contracts in which a lease was previously identified in accordance with IAS 17.

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

31 March 
                               2019 
                             GBP000 
 Third party AMS income      22,952 
 Intra-Group AMS income       9,172 
                          --------- 
 Gross AMS income            32,124 
                          =========

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

31 March 
                                   2019 
                                 GBP000 
 Third party AMS income          22,952 
 Intra-Group AMS income           9,172 
                              --------- 
 Gross AMS income                32,124 
 Investment Business income      63,579 
 Other income                        98 
                              --------- 
 Gross income                    95,801 
                              =========

'IFRS' means EU adopted international financial reporting standards.

'Incremental borrowing rate' is the rate of interest that a lessee would have to pay to borrow over a similar term, and with a similar security, the funds necessary to obtain an asset of a similar value to the right--of--use asset in a similar economic environment.

'Leverage' is secured net debt to LTM Adjusted EBITDA.

'LTM' means last twelve months and is calculated by the addition of the consolidated financial data for the year ended 31 December 2018 and the consolidated financial data for the three months to 31 March 2019 and the subtraction of the consolidated financial data for the three months to 31 March 2018.

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

31 March   31 December 
                                                                  2019          2018 
                                                                GBP000        GBP000 
 Cash and cash equivalents                                    (58,428)      (92,001) 
 Senior secured notes (pre transaction fees net off)           909,645       935,567 
 Revolving credit facility (pre transaction fees net off)      225,244       245,587 
                                                            ----------  ------------ 
 Secured net debt                                            1,076,461     1,089,153 
 Deferred consideration - acquisitions                          52,116        59,922 
 Deferred consideration - portfolios                            15,067        12,031 
 Senior secured notes interest                                   1,434         5,542 
 Bank overdrafts                                                 4,248         2,696 
 Other borrowings                                                    -        11,635 
                                                            ----------  ------------ 
 Net debt                                                    1,149,326     1,180,979 
                                                            ==========  ============

'NCI' means non-controlling interest.

'Non-controlling interest', also known as minority interest, is the portion of equity ownership in a subsidiary which is not attributable to the parent company, who has a controlling interest of greater than 50% but less than 100%, and consolidates the subsidiary's results with its own.

'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 2018 to Q1 2019 as shown in the quarterly, half year and full year statements. In the comparative period this is calculated as the average annual equity attributable.

'Secured 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 is shown in net debt above.

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

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

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

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.

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