Arrow Global Group PLC Results for the nine months ended 30.09.17

November 9th 2017
Arrow Global Group PLC Results for the nine months ended 30.09.17

TIDMARW

RNS Number : 9819V

Arrow Global Group PLC

09 November 2017

9 November 2017

Arrow Global Group PLC

Interim results for the nine months to 30 September 2017

Arrow Global Group PLC (the "Company") and its subsidiaries (together the "Group"), a leading European credit management services provider, focusing on loan purchases and specialist asset management, announces its results for the nine months ended 30 September 2017 ("Q3 2017").

Highlights

High growth

*    Strong organic portfolio purchases, increasing 30% to 
             GBP155.0 million (Q3 2016: GBP119.3 million) with 
             significant diversification by geography and asset 
             class 
 
        *    Revenue growth of 41% supported by a 13% increase in 
             core collections and a 64% increase in Asset 
             Management income 
 
        *    Zenith performing well and continuing to increase the 
             Group's Italian market expertise and build valuable 
             relationships 
 
        *    Attractive outlook for NPL supply across Arrow's 
             markets, with support from recent ECB guidance on 
             accelerated provisioning

Operational excellence

*    Overall collections performance at 103% of original 
             underwriting forecasts, underlining the quality of 
             our data and analytics and consistent track record of 
             outperformance 
 
        *    One Arrow launched and on track to drive future 
             efficiency gains and sustained growth 
 
        *    Legal collection investment continuing to drive value 
             of the back book and additional ERC

Financial excellence

*    84-month ERC increased to GBP1,455.6 million (Q3 
             2016: GBP1,189.6 million) 
 
        *    64% increase in capital-light Asset Management 
             revenues to GBP50.6 million 
 
        *    6% reduction in financing costs to GBP33.5 million 
             (Q3 2016: GBP35.5 million) as benefits of refinancing 
             begin to flow through 
 
        *    Long debt duration with average facility maturity of 
             6.4 years as at 30 September 2017 (30 September 2016: 
             6.2 years) 
 
        *    Secured net debt to adjusted EBITDA reduced to 4.0x, 
             within guided range

Strong returns

*    34% increase in underlying profit after tax to 
             GBP38.9 million (Q3 2016: GBP29.1 million) 
 
        *    39% increase in statutory profit after tax to GBP16.0 
             million (Q3 2016: GBP11.5 million) 
 
        *    34% increase in underlying basic earnings per share 
             (EPS) to 22.3p (Q3 2016: 16.7p) 
 
        *    Underlying LTM Return on Equity (ROE) of 33.9% (Q3 
             2016: 27.4%)

Outlook

--     Continue to see attractive opportunities across core markets 
   --     Sustained pressure for banking reform across Europe provides growth opportunities

-- One Arrow investment programme on track to deliver enhanced operational capabilities and efficiency gains from 2019 onwards

-- Continued confidence in ability to meet earnings expectations for the year, deliver a medium-term underlying ROE percentage in mid-twenties, high-teens EPS growth and a progressive dividend policy

--     Focus for last quarter of 2017 remains consistent:

o High growth - a highly visible runway of significant long-term growth, underpinned by our unique origination capabilities, geographic reach and diversification by asset class

o Operational excellence - a focus on securing the right outcomes for our customers and leveraging our data, scale and track-record to drive competitive advantage

o Financial excellence - a rigorous focus on robust underwriting, selective portfolio bidding and cost management, geared towards delivering sustainable profitability

o Strong returns - a high-return business model, enabling future growth and capital distribution

Lee Rochford, Group Chief Executive Officer, commented:

"In the first nine months of the year, Arrow continued to grow strongly and profitably. Portfolio purchases in the period increased by 30%, and we are on track to meet our guidance of completing total purchases of approximately GBP200.0 million by the year end. The capital light asset management business has also seen excellent growth, and we expect this to continue into 2018 following the close of the acquisition of Mars Capital later this year.

We are delivering on our One Arrow initiative, investing in the people, processes and systems that the business requires to enhance performance and future efficiency. As previously guided, the benefit of this programme will start to be realised in 2019.

Our focus on consistent, high returns has meant underlying LTM ROE increased to 33.9% - ahead of our guidance of mid-twenties over the medium-term. We are also executing efficiently on our strategy of diversifying by geography, asset class and revenue stream. Our consistent delivery, and the growing opportunity across all of our core markets, gives us confidence that we will deliver on expectations for the full year."

Key results                      30 Sept 2017                       30 Sept 2016 
                         IFRS   Adjustments   Underlying    IFRS   Adjustments   Underlying 
                         GBPm          GBPm         GBPm    GBPm          GBPm         GBPm 
 
 Profit before tax       20.1          28.4         48.5    14.2          21.2         35.4 
 Taxation               (4.1)         (5.5)        (9.6)   (2.7)         (3.6)        (6.3) 
 Profit after tax        16.0          22.9         38.9    11.5          17.6         29.1 
 
 Basic EPS (p)            9.2                       22.3     6.6                       16.7 
 
 Closing net assets     177.1                      177.1   152.3                      152.3 
 Average net assets     163.4                      163.4   149.6                      149.6 
 
 LTM ROE %               18.9                       33.9    15.2                       27.4 
 
 Core collections           -                      244.1       -                      216.1 
 Adjusted EBITDA            -                      156.7       -                      159.7 
 Secured leverage 
  ratio (times)                                      4.0                                3.7 
 
 Organic purchases 
  of loan portfolios 
  and notes                 -                      155.0       -                      119.3 
 Total purchased 
  loan portfolios 
  and notes                 -                      909.0       -                      696.8 
 84-month ERC               -                    1,455.6       -                    1,189.6 
 120-month ERC              -                    1,690.1                            1,404.6 
 
 
 For further information: 
 Arrow Global 
  Duncan Browne, Head of Investor 
  Relations                           +44 (0)7925 643 387 
 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.

CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

For the period ended 30 September 2017

Unaudited             Unaudited 
                               9 months ended 30     9 months ended 30   Unaudited 3 months   Unaudited 3 months 
                                       Sept 2017             Sept 2016   ended 30 Sept 2017   ended 30 Sept 2016 
                       Note               GBP000                GBP000               GBP000               GBP000 
 Continuing 
 operations 
 Revenue                2                231,590               164,360               81,801               62,844 
 Operating expenses 
 Collection activity 
  costs                                 (88,514)              (51,549)             (33,409)             (20,895) 
 Other operating 
  expenses                              (63,680)              (47,714)             (22,756)             (17,935) 
 Total operating 
  expenses                             (152,194)              (99,263)             (56,165)             (38,830) 
 Operating profit                         79,396                65,097               25,636               24,014 
 Net finance costs                      (33,495)              (34,730)             (10,935)             (12,804) 
 Bond refinancing 
  costs                                 (27,352)              (17,994)                    -             (17,994) 
 Total finance costs                    (60,853)              (53,507)             (10,938)             (30,798) 
 Share of profit in

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associates                               1,522                 1,779                  450                  439 
 Profit before tax                        20,071                14,152               15,151              (6,345) 
 Taxation charge                         (4,073)               (2,664)              (2,883)                1,323 
 Profit after tax                         15,998                11,488               12,268              (5,022) 
 
 Other comprehensive 
 income: 
 Foreign exchange 
  translation 
  difference arising 
  on revaluation of 
  foreign operations                       3,524                 7,800                  352                2,314 
 Hedging movement                            299                 (576)                (217)                  832 
 Total comprehensive 
  income for the 
  period                                  19,821                18,712               12,403              (1,876) 
 
 Profit attributable 
 to: 
 Owners of the 
  Company                                 15,987                11,457               12,257              (5,041) 
 Non-controlling 
  interest                                    11                    31                   11                   19 
                                          15,998                11,488               12,268              (5,022) 
 Total comprehensive 
 income attributable 
 to: 
 Owners of the 
  Company                                 19,810                18,681               12,392              (1,895) 
 Non-controlling 
  interest                                    11                    31                   11                   19 
                                          19,821                18,712               12,403              (1,876) 
 
 Basic EPS (p)                               9.2                   6.6                  7.0                (2.8) 
 Diluted EPS (p)                             8.9                   6.4                  6.9                (2.8)

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 30 September 2017

Unaudited     Audited   Unaudited 
                                           30 Sept      31 Dec     30 Sept 
                                              2017        2016        2016 
                                  Note      GBP000      GBP000      GBP000 
 Assets 
 Non-current assets 
 Goodwill                                  141,331     128,081     128,150 
 Other intangible assets                    43,756      39,144      41,289 
 Property, plant and equipment               6,075       3,584       3,860 
 Investment in associates                    9,537      10,371      16,787 
 Deferred tax asset                          4,509       3,692       3,337 
 Total non-current assets                  205,208     184,872     193,423 
 Current assets 
 Cash and cash equivalents                  36,150      23,203      22,432 
 Other receivables                          49,297      35,484      48,871 
 Derivative asset                                -           -       7,006 
 Purchased loan portfolios         3       875,573     782,792     696,809 
 Loan notes                                 33,869      21,315           - 
 Total current assets                      994,889     862,794     775,118 
 Total assets                            1,200,097   1,047,666     969,541 
 
 Equity 
 Share capital                               1,753       1,744       1,744 
 Share premium                             347,436     347,436     347,436 
 Retained earnings                          99,442      92,327      76,238 
 Hedging reserve                             (333)       (632)     (1,878) 
 Other reserves                          (271,315)   (273,484)   (271,638) 
 Total equity attributable 
  to shareholders                          176,983     167,391     151,902 
 Non-controlling interest                      138           -         425 
 Total equity                              177,121     167,391     152,327 
 Liabilities 
 Non-current liabilities 
 Senior secured notes              4       759,478     681,158     687,172 
 Trade and other payables                    5,867           -           - 
 Deferred tax liability                     16,289      14,859      13,655 
 Defined benefit liability                       -       1,721           - 
 Total non-current liabilities             781,634     697,738     700,827 
 Current liabilities 
 Trade and other payables                   95,397      76,261      53,113 
 Current tax liability                       2,217       5,469       4,986 
 Derivative liability                        1,654       1,433           - 
 Revolving credit facility         4       126,234      74,169      41,385 
 Bank overdrafts                   4         1,323       7,698      13,326 
 Other borrowings                  4        13,307      12,077           - 
 Senior secured notes              4         1,210       5,430       2,577 
 Total current liabilities                 241,342     182,537     115,387 
 Total liabilities                       1,022,976     880,275     816,214 
 Total equity and liabilities            1,200,097   1,047,666     968,541

The interim results were approved on 9 November 2017 by the board of directors and are signed on its behalf by:

Robert Memmott

Group Chief Financial Officer

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the period ended 30 September 2017

Own 
                    Ordinary     Share   Retained   Hedging      share   Translation      Merger              Non-controlling 
                      shares   premium   earnings   reserve   reserve*      reserve*    reserve*      Total          interest      Total 
                      GBP000    GBP000     GBP000    GBP000     GBP000        GBP000      GBP000     GBP000            GBP000     GBP000 
 Balance at 1 
  January 2016         1,744   347,436     76,916   (1,302)    (1,936)         (541)   (276,961)    145,356                 -    145,356 
 Profit for the 
  period                   -         -     11,457         -          -             -           -     11,457                31     11,488 
 Exchange 
  differences              -         -          -         -          -         7,800           -      7,800                 -      7,800 
 Net fair value 
  losses cash 
  flow hedges              -         -          -     (625)          -             -           -      (625)                 -      (625) 
 Tax on hedged 
  items                    -         -          -        49          -             -           -         49                 -         49 
 Total 
  comprehensive 
  income for the 
  period                   -         -     11,457     (576)          -         7,800           -     18,681                31     18,712 
 Non-controlling 
  interest on 
  acquisition              -         -          -         -          -             -           -          -               394        394 
 Share-based 
  payments                 -         -      1,988         -          -             -           -      1,988                 -      1,988 
 Dividend paid             -         -   (14,123)         -          -             -           -   (14,123)                 -   (14,123) 
                   ---------  --------  ---------  --------  ---------  ------------  ----------  ---------  ----------------  --------- 
 Balance at 30 
  September 2016 
  (unaudited)          1,744   347,436     76,238   (1,878)    (1,936)         7,259   (276,961)    151,902               425    152,327 
 Profit for the 
  period                   -         -     14,848         -          -             -           -     14,848              (30)     14,818 
 Exchange 
  differences              -         -          -         -          -       (1,846)           -    (1,846)                20    (1,826) 
 Net fair value 
  gains cash flow 
  hedges                   -         -          -     1,452          -             -           -      1,452                 -      1,452 
 Tax on hedged 
  items                    -         -          -     (206)          -             -           -      (206)                 -      (206) 
 Remeasurement of 
  long term 
  employee 
  benefits                 -         -       (10)         -          -             -           -       (10)                 -       (10) 
 Total 
  comprehensive 
  income for the 
  period                   -         -     14,838     1,246          -       (1,846)           -     14,238              (10)     14,228 
 Settlement of 
  non-controlling 
  interest                 -         -          -         -          -             -           -          -             (415)      (415) 
 Share-based 
  payments                 -         -      1,251         -          -             -           -      1,251                 -      1,251 
 Balance at 31 
  December 2016        1,744   347,436     92,327     (632)    (1,936)         5,413   (276,961)    167,391                 -    167,391 
 Profit for the 
  period                   -         -     15,987         -          -             -           -     15,987                11     15,998 
 Exchange 
  differences              -         -          -         -          -         3,524           -      3,524                 -      3,524 
 Net fair value 
  gains cash flow 
  hedges                   -         -          -       351          -             -           -        351                 -        351 
 Tax on hedged 
  items                    -         -          -      (52)          -             -           -       (52)                 -       (52) 
 Total 
  comprehensive 
  income for the 
  period                   -         -     15,987       299          -         3,524           -     19,810                11     19,821 
 Non-controlling 
  interest on

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acquisition              -         -          -         -          -             -           -          -               187        187 
 Shares issued in 
  the period               9         -          -         -          -             -           -          9                 -          9 
 Repurchase of 
  own shares               -         -          -         -    (1,355)             -           -    (1,355)                 -    (1,355) 
 Share-based 
  payments                 -         -      2,326         -          -             -           -      2,326                 -      2,326 
 Dividends paid 
  to NCI                   -         -          -         -          -             -           -          -              (60)       (60) 
 Dividend paid             -         -   (11,198)                    -             -           -   (11,198)                 -   (11,198) 
                   ---------  --------  ---------  --------  ---------  ------------  ----------  ---------  ----------------  --------- 
 Balance at 30 
  September 2017 
  (unaudited)          1,753   347,436     99,442     (333)    (3,291)         8,937   (276,961)    176,983               138    177,121 
                   =========  ========  =========  ========  =========  ============  ==========  =========  ================  =========

* Other reserves total GBP271,315,000 deficit (31 December 2016: GBP273,484,000 deficit, 30 September 2016: GBP271,638,000 deficit)

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

The merger reserve represents the reserve generated upon consolidation of the Group following the Group reconstruction as part of the IPO where Arrow Global became the parent Company.

The own share reserve comprises the cost of the Company's ordinary shares held by the Group. At 30 June 2017 the Group held 303,614 ordinary shares of 1p each, held in an employee benefit trust. This represents less than 0.1% of the Company share capital at 30 June 2017.

The hedging reserve comprises the net cumulative fair value adjustments on the derivative contracts used in the Group's hedging activities which are deemed to be effective.

CONSOLIDATED STATEMENT OF CASH FLOWS

For the period ended 30 September 2017

Unaudited period ended   Unaudited period ended 
                                                                     30 Sept 2017             30 Sept 2016 
                                                                           GBP000                   GBP000 
 
 Net cash used in operating activities                                        741                  (4,815) 
 Investing activities 
 Purchase of property, plant and equipment                                  (534)                    (363) 
 Purchase of intangible assets                                            (7,370)                  (6,422) 
 Dividends received from associates                                         2,737                        - 
 Investment in associates                                                       -                  (1,305) 
 Acquisition of subsidiary, net of cash acquired                          (4,102)                 (62,465) 
 Acquisition of subsidiary, deferred consideration                        (8,888)                 (16,068) 
 Net cash used in investing activities                                   (18,157)                 (86,623) 
                                                          -----------------------  ----------------------- 
 Financing activities 
 Proceeds/ (repayment) from additional loans                               42,587                 (26,255) 
 Early redemption of bonds costs                                         (17,631)                  (8,664) 
 Proceeds from senior notes (net of fees)                                 340,510                  173,069 
 Redemption of senior notes                                             (290,866)                        - 
 Repayment of interest on senior notes                                   (28,687)                 (31,521) 
 Proceeds of loan notes                                                         -                      938 
 Net other interest                                                       (2,604)                  (3,673) 
 Repurchase of own shares                                                 (1,355)                        - 
 Issued share capital                                                           9                        - 
 Payment of dividends                                                    (11,258)                  (9,415) 
 Settlement of deferred consideration interest                              (608)                    (594) 
                                                          -----------------------  ----------------------- 
 Net cash flow generated by financing activities                           30,097                   93,885 
                                                          -----------------------  ----------------------- 
 Net increase in cash and cash equivalents                                 12,681                   12,077 
                                                          -----------------------  ----------------------- 
 Cash and cash equivalents at beginning of period                          23,203                   10,183 
 Effect of exchange rates on cash and cash equivalents                        266                      172 
                                                          -----------------------  ----------------------- 
 Cash and cash equivalents at end of period                                36,150                   22,432 
                                                          =======================  =======================

Notes

1. Statutory information

Arrow Global Group PLC (the "Company") is a company incorporated in England and Wales. The condensed consolidated financial statements of the Company as at and for the nine months ended 30 September 2017 comprises the Company and its subsidiaries (the "Group"). The Group's principal activity is to identify, acquire and manage secured and unsecured defaulted loan portfolios from financial institutions, such as banks and credit card companies, as well as retail chains, student loans, motor credit, telecommunication firms and utility companies. In addition, the Group enters into contractual servicing agreements with other third parties to collect the receivables, to administer and disburse the proceeds of the receivables.

This condensed set of consolidated interim 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 2016 and the interim financial statements for the 6 months ended 30 June 2017, in particular the strategic report, principal risks and uncertainties and significant accounting policies.

The consolidated financial statements of the Group as at and for the year ended 31 December 2016 are available upon request from the Company's registered office at Belvedere, 12 Booth Street, Manchester, M2 4AW or online at www.arrowglobalir.net.

2. Revenue

Period   Period ended 
                                              ended 30        30 Sept 
                                             Sept 2017           2016 
                                                GBP000         GBP000 
 Income from purchased loan portfolios         173,977        132,783 
 Profit on portfolio sales                         660            610 
 Income from loan notes                          1,018              - 
 Fair value gain on loan notes                   5,298              - 
                                           -----------  ------------- 
 Total revenue from portfolios 
  and loan notes                               180,953        133,393 
 Income from asset management                   50,637         30,967 
                                           -----------  ------------- 
 Revenue                                       231,590        164,360 
                                           ===========  =============

Notes (continued)

3. Financial assets

Purchased loan portfolios

The Group recognises income from purchased loan portfolios in accordance with IAS 39. At 30 September 2017, the carrying amount of the purchased loan portfolio asset was GBP875,572,000 (31 December 2016: GBP782,792,000; 31 September 2016: GBP696,809,000).

The movements in purchased loan portfolios were as follows:

Period Ended     Year Ended    Period Ended 
                                                             30 Sept 2017    31 Dec 2016    30 Sept 2016 
                                                                   GBP000         GBP000          GBP000 
 As at the period brought forward                                 782,792        609,793         609,793 
 Portfolios acquired during the period*                           141,389        224,640         121,414 
 Purchased loan notes resold                                            -       (23,519)        (23,519) 
 Portfolios acquired through acquisition of subsidiaries                -         35,343          35,343 
 Collections in the period                                      (235,678)      (285,960)       (216,051) 
 Income from purchased loan portfolios                            173,977        188,914         132,783 
 Exchange gain on purchased loan portfolios                        12,906         32,880          36,436 
 Profit on disposal of purchased loan portfolios                      660            701             610 
 Purchase price adjustment relating to prior year                   (474)              -               -

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As at the period end                                             875,572        782,792         696,809 
                                                           ==============  =============  ==============

* inclusive of capitalised acquisition expenditure

Loan notes

Period Ended     Year Ended    Period Ended 
                                         30 Sept 2017    31 Dec 2016    30 Sept 2016 
                                               GBP000         GBP000          GBP000 
 As at the period brought forward              21,315              -               - 
 Loan notes acquisition expenditure*           14,264         21,315               - 
 Changes in Fair Value                          5,298              -               - 
 Collections in the period                    (8,439)              -               - 
 Income from loan notes                         1,018              -               - 
 Exchange gain on loan notes                      413              -               - 
                                       -------------- 
 As at the period end                          33,869         21,315               - 
                                       ==============  =============  ==============

* inclusive of capitalised acquisition expenditure

Notes (continued)

4. Borrowings and Facilities

30 Sept 2017   31 Dec 2016   30 Sept 2016 
 Secured borrowing at amortised cost                                           GBP000        GBP000         GBP000 
 Senior secured notes (net of transaction fees of GBP16,144,000, 31 
  December 2016: GBP20,562,000, 
  30 September 2016: GBP21,202,000)                                           759,478       681,158        687,172 
 Revolving credit facility (net of transaction fees of GBP2,815,000, 
  31 December 2016: GBP2,756,000, 
  30 September 2016: GBP3,615,000)                                            126,234        74,169         41,385 
 Senior secured notes interest                                                  1,210         5,430          2,577 
 Bank overdrafts                                                                1,323         7,698         13,326 
 Other borrowings                                                              13,307        12,077              - 
                                                                        -------------  ------------  ------------- 
                                                                              901,552       780,532        744,460 
                                                                        =============  ============  ============= 
 Total borrowings 
 Amount due for settlement within 12 months                                   142,074        87,297         57,288 
 Amount due for settlement after 12 months                                    759,478       693,235        687,172 
                                                                        -------------  ------------  ------------- 
                                                                              901,552       780,532        744,460 
                                                                        =============  ============  =============

On 30 March 2017, the Group issued EUR400 million senior secured floating rate notes due 2025 (the '2025 Notes') at a coupon of EURIBOR +2.875% per annum with EURIBOR being not less than 0%. Interest is paid quarterly in arrears. The 2025 Notes can be redeemed in full or in part on or after 1 April 2019 at the Group's option. Prior to 1 April 2019 the Group may redeem, at its option, some or all of the 2025 Notes at a redemption price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, plus an applicable make-whole premium.

The proceeds from the 2025 Notes were used to redeem the existing 2021 Notes, pay the early redemption and transaction fees payable in respect of the 2021 Notes and repay drawings under the RCF.

On 24 February 2017 the commitments under the RCF were increased from GBP180 million to GBP215 million. Upon redemption of the 2021 Notes on 30 March 2017, the maturity of the facility was extended to 31 March 2022.

Additional Information

UNDERLYING PROFIT

Unaudited         Unaudited         Unaudited         Unaudited 
                                            9 months ended    9 months ended    3 months ended    3 months ended 
                                              30 Sept 2017      30 Sept 2016      30 Sept 2017      30 Sept 2016 
                                                    GBP000            GBP000            GBP000            GBP000 
 Continuing operations 
 Revenue                                           231,591           164,360            81,801            62,844 
                                          ----------------  ----------------  ----------------  ---------------- 
 Operating expenses 
 Collection activity costs                        (88,104)          (51,549)          (32,999)          (20,895) 
 Other operating expenses                         (63,051)          (44,454)          (22,127)          (17,406) 
                                          ----------------  ----------------  ----------------  ---------------- 
 Total operating expenses                        (151,155)          (96,003)          (55,126)          (38,301) 
                                          ----------------  ----------------  ----------------  ---------------- 
 Operating profit                                   80,436            68,357            26,675            24,543 
                                          ----------------  ----------------  ----------------  ---------------- 
 Net finance costs                                (33,495)          (34,730)          (10,935)          (12,804) 
 Share of profit in associates                       1,522             1,779               450               439 
                                          ----------------  ----------------  ----------------  ---------------- 
 Underlying profit before tax                       48,463            35,406            16,190            12,178 
 Taxation charge on underlying 
  activities                                       (9,538)           (6,324)           (3,083)           (2,166) 
                                          ----------------  ----------------  ----------------  ---------------- 
 Underlying profit after tax                        38,925            29,082            13,107            10,012 
 Non-controlling interest                             (11)              (31)              (11)              (19) 
                                          ----------------  ----------------  ----------------  ---------------- 
 Underlying profit attributable to 
  owners of the company                             38,914            29,051            13,096             9,993 
 
 Underlying basic EPS (p)                             22.3              16.7               7.5               5.8 
                                          ================  ================  ================  ================

Reconciliation between IFRS profit and Underlying profit

30 Sept   30 Sept   30 Sept   30 Sept   30 Sept   30 Sept 
                           2017      2017      2017      2016      2016      2016 
                         Profit              Profit    Profit              Profit 
                         before               after    before               after 
                            tax       Tax       tax       tax       Tax       tax 
                         GBP000    GBP000    GBP000    GBP000    GBP000    GBP000 
 IFRS Profit             20,060   (4,073)    15,987    14,121   (2,664)    11,457 
 Adjustments: 
 Collection activity 
  costs                     410      (79)       331         -         -         - 
 Other operating 
  expenses                  630     (121)       509     3,260     (561)     2,699 
 Bond refinancing 
  costs                  27,352   (5,265)    22,087    17,994   (3,099)    14,895 
                       --------  --------  --------  --------  --------  -------- 
                         28,392   (5,465)    22,927    21,204   (3,660)    17,594 
 
 Underlying profit       48,452   (9,538)    38,914    35,375   (6,324)    29,051 
                       ========  ========  ========  ========  ========  ========

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 and other operating expenses adjusted in the period ended 30 September 2017 above, relate to the One Arrow programme. The other operating expenses adjusted in the period ended 30 September 2016 relate to costs incurred on acquisitions.

Additional Information (continued)

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Adjusted EBITDA

Period ended   Period ended 
                                                           30 Sept 2017   30 Sept 2016 
                                                                 GBP000         GBP000 
 Reconciliation of net cash flow to adjusted EBITDA 
 Net cash flow used in operating activities                         741        (4,815) 
 Purchases of loan portfolios                                   141,389        119,303 
 Purchase of loan notes                                          14,264              - 
 Purchase price adjustment relating to prior year                 (474)              - 
 Income taxes paid                                                7,510          2,495 
 Working capital adjustments                                   (10,752)         29,444 
 Dividends received from associates                               2,735              - 
 Amortisation of acquisition fees                                   206            207 
 Effect of exchange rates on cash and cash equivalents                -            172 
 One Arrow programme costs                                        1,040          3,260 
                                                          -------------  ------------- 
 Adjusted EBITDA                                                156,659        159,696 
                                                          =============  ============= 
 
 Reconciliation of core collections to adjusted EBITDA 
 Income from loan portfolios and loan notes                     174,995        132,783 
 Portfolio amortisation                                          69,120         83,268 
                                                          -------------  ------------- 
 Core collections                                               244,115        216,051 
                                                          -------------  ------------- 
 Asset management income                                         50,638         30,967 
 Operating expenses                                           (152,194)       (99,263) 
 Depreciation and amortisation                                    8,387          6,099 
 Foreign exchange (gains)/losses                                  (593)            387 
 Amortisation of acquisition fees                                   206            207 
 Share based payments                                             2,325          1,988 
 Dividends received from associates                               2,735              - 
 One Arrow programme costs                                        1,040          3,260 
                                                          -------------  ------------- 
 Adjusted EBITDA                                                156,659        159,696 
                                                          =============  =============

Glossary

'Adjusted EBITDA'means profit before interest, tax, depreciation, amortisation, foreign exchange gains or losses and non-recurring items.

'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 Q3 2016 to Q3 2017 as shown in the quarterly and half yearly 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 collections related to the Group's purchased loan portfolios, including internal and third party costs such as employee costs, commissions paid to third party outsourced providers, credit bureau data costs and legal costs associated with collections.

"Core collections" or "core cash collections" mean cash collections on the Group's existing portfolios and loan notes including ordinary course portfolio sales and put backs. The breakdown of core collections for the periods ended 30 September 2017 and 30 September 2016 is as follows: -

Period     Period 
                                         ended      ended 
                                       30 Sept    30 Sept 
                                          2017       2016 
                                        GBP000     GBP000 
 Collections from purchased loan 
  portfolios                           235,678    216,051 
 Collections from loan notes                11          - 
 Collections from loan notes at          8,426          - 
  Fair Value 
 Core collections                      244,115    216,051 
                                     =========  =========

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

'Creditors' means financial institutions or other initial credit providers to consumers, certain of which entities choose to sell paying accounts or non-paying accounts receivables related thereto to debt purchasers (such as the Group).

'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.

Glossary (continued)

'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 over an 84-month or 120-month period, respectively, representing the expected future core collections on purchased loan portfolios over an 84-month or 120-month period (calculated at the end of each month, based on the Group's proprietary ERC forecasting model, as amended from time to time).

'Existing Portfolios' or 'purchased loan portfolios' are on the Group's balance sheet and represent all debt portfolios that the Group owns at the relevant point in time.

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

'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.

'IPO' means initial public offering.

'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.

'LTM' means Last Twelve Months and is calculated by the addition of the consolidated financial data for the year ended 31 December 2016 and the consolidated interim financial data for Q3 2017, and the subtraction of the consolidated interim financial data for Q3 2016.

Glossary (continued)

'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 30 September 2017 is as follows:

30 Sept 2017   31 Dec 2016 
                                        GBP000        GBP000 
 Cash and cash equivalents            (36,150)      (23,203) 
 Senior secured notes *                775,622       701,720 
 Revolving credit facility *           129,048        76,925 
 Secured bank overdrafts                     -         6,419 
 Secured net debt                      868,520       761,861 
 Deferred consideration                 41,830        35,401 
 Senior secured notes interest           1,210         5,430 
 Bank overdrafts                         1,323         1,279 
 Other borrowings                       13,307        12,077 
                                 -------------  ------------ 
 Net debt                              926,190       816,048

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=============  ============

*pre- transaction fee net off

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

'Organic purchases of loan portfolios' means those purchased through the ordinary course of business, not through acquisition. The breakdown of organic purchases for the period is as follows:

30 Sept   30 Sept 
                                                    2017      2016 
                                                  GBP000    GBP000 
 Portfolios acquired during the period           141,389   121,414 
 Purchases of loan notes                          14,264         - 
 Capitalised acquisition expenditure               (648)   (2,111) 
                                                --------  -------- 
 Organic purchases of loan portfolio and loan 
  notes                                          155,005   119,303 
                                                ========  ========

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

'Purchased loan portfolios' see 'existing portfolios'.

'Putback' means an account that is to be sold back to or replaced by the original creditor.

'Purchases of loan portfolios resold/to be resold' relates to a portfolio of assets, which has been acquired at the period end, and will shortly be resold to an investment partner. These are separately disclosed from other purchased loan portfolios, as an investment partner is intending to complete their acquisition from us.

'RCF' means revolving credit facility.

Glossary (continued)

'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 Q3 2016 to Q3 2017 as shown in the quarterly 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 30 June 2017 is shown in Net Debt above.

'SIP' means the Arrow Global all-employee share incentive plan.

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

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

'Underlying return on equity' represents the ratio of underlying profit for the period attributable to equity shareholders to average shareholder equity post restructure.

This information is provided by RNS

The company news service from the London Stock Exchange

END

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November 09, 2017 02:00 ET (07:00 GMT)