Arrow Global Group PLC Results for the 9 months ended 30 September 2018

November 8th 2018
Arrow Global Group PLC Results for the 9 months ended 30 September 2018

TIDMARW

RNS Number : 7100G

Arrow Global Group PLC

08 November 2018

8 November 2018

Arrow Global Group PLC

Results for the nine months ended 30 September 2018

Reduced leverage while continuing to grow a diversified platform generating strong cashflows at high returns

Arrow Global Group PLC (the "Company", and together with its subsidiaries the "Group"), a leading European investor and asset manager in non-performing and non-core assets, announces its results for the nine months ended 30 September 2018.

Key Highlights

Øh; Strong Group operating and financial performance

--     Core collections increased 18.2%, driving a strong adjusted EBITDA result, up 28.8% 
   --     Underlying profit after tax increased 10.2% to GBP42.9 million 
   --     Profit after tax increased 28.4% to GBP20.5 million 
   --     Underlying LTM ROE of 33.4% 
   --     Improved underwriting performance increased to 104% of original forecast

-- Completion of the Europa Investimenti S.p.A. acquisition marks the successful scaling of our European platform with the primary focus now on organic growth

Øh; Investment Business

-- Record organic portfolio acquisitions of GBP200.1 million, increasing from GBP155.0 million in Q3 2017, and on track to deliver GBP230 million to GBP240 million of portfolio purchases

--     Non-UK portfolio investments now represent more than 50% of ERC

Øh; Asset Management & Servicing business (AMS)

--    Third party AMS income increased 25.1% to GBP63.3 million 
   --    Assets under management increased 22.6% to GBP51.5 billion 
   --    New target to double AMS income, growing to 50% of total income over the next five years

Øh; Strong balance sheet discipline

-- Leverage decreased to 3.8 times secured net debt to adjusted EBITDA, with new five year target leverage ratio of 3.0 to 3.5 times

--     Strong cash interest cover at 6.6 times 
   --     Commitment to prudent balance sheet management maintained

-- Attractive WACD of 3.9% and no bond maturities until 2024; strong liquidity with GBP128.8 million cash headroom to fund organic growth

Underlying financial highlights    30 September   30 September     Change 
                                            2018           2017          % 
---------------------------------  -------------  -------------  --------- 
 Underlying profit after tax 
  (GBPm)                                    42.9           38.9       10.2 
 Underlying LTM return on equity 
  (%)                                       33.4           33.9   -0.5ppts 
 Underlying basic earnings 
  per share (EPS) (p)                       24.5           22.3       10.2 
 
 
 Financial highlights               30 September   30 September   Change 
                                            2018           2017        % 
---------------------------------  -------------  -------------  ------- 
 Assets under management (GBPbn)            51.5           42.0     22.6 
 Core collections (GBPm)                   288.5          244.1     18.2 
 Total income (GBPm)                       255.3          231.6     10.2 
 Third party AMS income (GBPm)              63.3           50.6     25.1 
 Profit after tax (GBPm)                    20.5           16.0     28.4 
 Basic EPS (p)                              11.7            9.2     28.4 
 84-month ERC (GBPm)                     1,635.6        1,455.6     12.4 
 120-month ERC (GBPm)                    1,968.9        1,690.1     16.5

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

"I am delighted that our successful diversification of the business continues to bear fruit. Our Investment Business continues to thrive, with growing volumes and our highly disciplined approach generating resilient cashflows and unlevered returns ahead of our mid-teens target.

"Our AMS Business continues to flourish and its strong growth contributes to an improving diversification and quality of earnings.

"In combination, our two operating segments are generating a strong increase in earnings and cashflow at very attractive returns and we remain confident in delivering our targets for the year."

A Capital Markets day and Q3 presentation for investors and analysts will be held at 0900 at the The Savoy, Strand, London WC2R 0EZ

Webcast Details:

Webcast link: https://fotwlive.videosync.fi/2018-11-08-arrow-cmd-2018

Alternatively, if you are in transit and wish to listen to the webcast via an audio bridge, please use the following number:

+44 203 695 0088

Meeting ID: 602 149 665

International numbers available: https://zoom.us/u/agE9ZkZGm

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 2017 which is available on the Company's website at www.arrowglobalir.net

For further information:

Arrow Global Group PLC    +44 (0)161 242 5896 
 Lee Rochford 
  Paul Cooper 
  Duncan Browne 
 Instinctif Partners       +44 (0)20 7457 2020 
 Giles Stewart

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 nine months ended 30 September 2018

Unaudited            Unaudited 
                                        Unaudited            Unaudited         three months         three months 
                                nine months ended    nine months ended                ended                ended 
                                30 September 2018    30 September 2017    30 September 2018    30 September 2017 
                                           GBP000               GBP000               GBP000               GBP000 
 Continuing operations 
 Income from portfolio 
  investments                             149,837              131,015               53,694               45,904 
 Fair value gain on 
  portfolio investments at 
  FVTPL                                    10,609                5,298                4,501                3,139 
 Impairment gains on 
  portfolio investments at 
  amortised cost                           30,795               44,640                7,514               16,324 
                              -------------------  -------------------  -------------------  ------------------- 
 Total income from portfolio 
  investments                             191,241              180,953               65,709               65,367 
 Income from asset 
  management and servicing                 63,336               50,637               21,984               16,434 
 Profit on sale of property                   731                    -                  731                    - 
                              -------------------  -------------------  -------------------  ------------------- 
 Total income                             255,308              231,590               88,424               81,801 
                              -------------------  -------------------  -------------------  ------------------- 
 Operating expenses: 
 Collection activity costs               (90,331)             (88,514)             (30,391)             (33,409) 
 Other operating expenses                (85,668)             (63,680)             (30,923)             (22,756) 
                              -------------------  -------------------  -------------------  ------------------- 
 Total operating expenses               (175,999)            (152,194)             (61,314)             (56,165) 
                              -------------------  -------------------  -------------------  ------------------- 
 Operating profit                          79,309               79,396               27,110               25,636 
 Net finance costs                       (35,101)             (33,495)             (12,307)             (10,935) 
 Refinancing costs                       (18,658)             (27,352)                    -                    - 
 Share of profit in 
  associate                                     -                1,522                    -                  450 
                              -------------------  -------------------  -------------------  ------------------- 
 Profit before tax                         25,550               20,071               14,803               15,151 
 Taxation charge                          (5,016)              (4,073)              (2,782)              (2,883) 
                              -------------------  -------------------  -------------------  -------------------

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Profit after tax                          20,534               15,998               12,021               12,268 
                              ===================  ===================  ===================  =================== 
 Other comprehensive income: 
 Items that are to be 
 reclassified subsequently 
 to profit or loss: 
 Foreign exchange 
  translation difference 
  arising on revaluation of 
  foreign operations                          431                3,524                  882                  352 
 Movement on the hedging 
  reserve                                   (279)                  299                   96                (217) 
                              -------------------  -------------------  -------------------  ------------------- 
 Total comprehensive income 
  for the period                           20,686               19,821               12,999               12,403 
                              ===================  ===================  ===================  =================== 
 
 Profit attributable to: 
 Owners of the Company                     20,489               15,987               12,008               12,257 
 Non-controlling interest                      45                   11                   13                   11 
                              -------------------  -------------------  -------------------  ------------------- 
                                           20,534               15,998               12,021               12,268 
                              ===================  ===================  ===================  =================== 
 
 Basic EPS (p)                               11.7                  9.2                  6.8                  7.0 
                              ===================  ===================  ===================  =================== 
 Diluted EPS (p)                             11.5                  8.9                  6.8                  6.9 
                              ===================  ===================  ===================  ===================

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 
                                                             nine months ended    nine months ended 
                                                             30 September 2018    30 September 2017 
                                                                        GBP000               GBP000 
 Continuing operations 
 Total income                                                          255,308              231,590 
                                                           -------------------  ------------------- 
 Operating expenses 
 Collection activity costs                                            (89,411)             (88,104) 
 Other operating expenses                                             (77,533)             (63,050) 
                                                           -------------------  ------------------- 
 Total operating expenses                                            (166,944)            (151,154) 
                                                           -------------------  ------------------- 
 Operating profit                                                       88,364               80,436 
                                                           -------------------  ------------------- 
 Net finance costs                                                    (35,101)             (33,495) 
 Share of profit in associates                                               -                1,522 
                                                           -------------------  ------------------- 
 Underlying profit before tax                                           53,263               48,463 
 Taxation charge                                                      (10,326)              (9,538) 
                                                           -------------------  ------------------- 
 Underlying profit after tax                                            42,937               38,925 
 Non-controlling interest                                                 (45)                 (11) 
                                                           -------------------  ------------------- 
 Underlying profit attributable to owners of the company                42,892               38,914 
 
 Underlying basic EPS (p)                                                 24.5                 22.3 
                                                           ===================  ===================

Reconciliation between reported profit and underlying profit

30 Sept 2018   30 Sept 2018   30 Sept 2018   30 Sept 2017   30 Sept 2017   30 Sept 2017 
                                   Profit                        Profit         Profit                        Profit 
                               before tax            Tax      after tax     before tax            Tax      after tax 
                                   GBP000         GBP000         GBP000         GBP000         GBP000         GBP000 
 Reported profit                   25,550        (5,016)         20,534         20,071        (4,073)         15,998 
 Adjustments: 
 Collection activity costs            920          (230)            690            410           (79)            331 
 Other operating expenses           8,135        (1,535)          6,600            630          (121)            509 
 Bond refinancing costs            18,658        (3,545)         15,113         27,352        (5,265)         22,087 
                            -------------  -------------  -------------  -------------  -------------  ------------- 
 Total adjustments                 27,713        (5,310)         22,403         28,392        (5,465)         22,927 
 Underlying profit                 53,263       (10,326)         42,937         48,463        (9,538)         38,925 
 Non-controlling interest            (45)              -           (45)           (11)              -           (11) 
 Underlying profit 
  attributable to owners           53,218       (10,326)         42,892         48,452        (9,538)         38,914 
                            =============  =============  =============  =============  =============  =============

The adjustments for collection activity costs and other operating expenses in the period relate to 'One Arrow' costs of GBP6.0 million and business acquisition and other costs of GBP3.1 million.

Bond refinancing costs in both periods relate to costs associated with restructuring the Group's long-term financing.

Unaudited consolidated statement of financial position

As at 30 September 2018

30 September   31 December   30 September 
                                                              2018          2017           2017 
                                              Notes         GBP000        GBP000         GBP000 
 Assets 
 Intangible assets                                         268,651       196,272        185,087 
 Property, plant and equipment                               6,846        10,168          6,075 
 Investments in associates                                       -             -          9,537 
 Cash and cash equivalents                                  62,073        35,943         36,150 
 Other receivables                                          80,245        56,885         49,297 
 Portfolio investments                          2        1,051,501       951,467        909,442 
 Total assets                                            1,469,316     1,250,735      1,195,588 
                                                     =============  ============  ============= 
 Equity 
 Share capital                                               1,763         1,753          1,753 
 Other equity reserves                                     185,524       193,395        175,230 
 Total equity attributable to shareholders                 187,287       195,148        176,983 
                                                     -------------  ------------  ------------- 
 Non-controlling interest                                    1,820           173            138 
                                                     -------------  ------------  ------------- 
 Total equity                                              189,107       195,321        177,121 
                                                     -------------  ------------  ------------- 
 Liabilities 
 Trade and other payables                                  149,314        98,359        101,264 
 Net tax liability                                          12,642        18,688         13,997 
 Derivative liability                                           77         2,865          1,654 
 Borrowings                                     3        1,118,176       935,502        901,552 
 Total liabilities                                       1,280,209     1,055,414      1,018,467 
                                                     -------------  ------------  ------------- 
 Total equity and liabilities                            1,469,316     1,250,735       1,195,58 
                                                     =============  ============  =============

Unaudited consolidated statement of changes in equity

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For the nine months ended 30 September 2018

Ordinary 
                                       shares   Other equity reserves      Total   Non-controlling interest      Total 
                                       GBP000                  GBP000     GBP000                     GBP000     GBP000 
 Balance at 1 January 2017              1,744                 165,647    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 losses - cash flow 
  hedges                                    -                     351        351                          -        351 
 Tax on hedged items                        -                    (52)       (52)                          -       (52) 
                                    ---------  ----------------------  ---------  -------------------------  --------- 
 Total comprehensive income for 
  the period                                -                  19,810     19,810                         11     19,821 
 Non-contolling interest (NCI)              -                       -          -                        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 
 Dividend paid                              -                (11,198)   (11,198)                          -   (11,198) 
 Dividends paid to NCI                      -                       -          -                       (60)       (60) 
 Balance at 30 September 2017           1,753                 175,230    176,983                        138    177,121 
 Profit for the period                      -                  23,884     23,884                         33     23,917 
 Exchange differences                       -                     777        777                          -        777 
 Recycled to profit after tax               -                 (1,870)    (1,870)                          -    (1,870) 
 Net fair value gains - cash flow 
  hedges                                    -                     (3)        (3)                          -        (3) 
 Tax on hedged items                        -                     (7)        (7)                          -        (7) 
 Remeasurement of defined benefit 
  liability                                 -                    (25)       (25)                          -       (25) 
                                    ---------  ----------------------  ---------  -------------------------  --------- 
 Total comprehensive income for 
  the period                                -                  22,756     22,756                         33     22,789 
 Share-based payments                       -                   1,008      1,008                          -      1,008 
 Dividends paid                             -                 (5,599)    (5,599)                          -    (5,599) 
 Dividends paid by NCI                      -                       -          -                          2          2 
 Balance at 31 December 2017            1,753                 193,395    195,148                        173    195,321 
 Impact of adopting IFRS 9                  -                (14,000)   (14,000)                          -   (14,000) 
 Impact of adopting IFRS 15                 -                   (231)      (231)                          -      (231) 
 Balance post IFRS adjustments at 
  1 January 2018                        1,753                 179,164    180,917                        173    181,090 
 Profit for the period                      -                  20,489     20,489                         45     20,534 
 Exchange differences                       -                     431        431                          -        431 
 Net fair value gains - cash flow 
  hedges                                    -                   (355)      (355)                          -      (355) 
 Tax on hedged items                        -                      76         76                          -         76 
                                    ---------  ----------------------  ---------  -------------------------  --------- 
 Total comprehensive income for 
  the period                                -                  20,641     20,641                         45     20,686 
 Shares issued in period                   10                       -         10                          -         10 
 Repurchase of own shares                   -                 (2,509)    (2,509)                          -    (2,509) 
 Share-based payments                       -                   2,384      2,384                          -      2,384 
 Non-controlling interest on 
  acquisition                               -                       -          -                      1,645      1,645 
 Dividend paid                              -                (14,156)   (14,156)                          -   (14,156) 
 Dividend paid to NCI                       -                       -          -                       (43)       (43) 
 Balance at 30 September 2018           1,763                 185,524    187,287                      1,820    189,107 
                                    ---------                          ---------  -------------------------  ---------

Unaudited consolidated statement of cash flows

For the nine months ended 30 September 2018

Nine months ended   Nine months ended 
                                                                                  30 September        30 September 
                                                                                          2018                2017 
                                                                                        GBP000              GBP000 
 Net cash flows from operating activities before purchases of portfolio 
  investments                                                                          180,556             155,920 
 Purchase of portfolio investments                                                   (203,150)           (155,653) 
 Purchase price adjustment relating to prior year                                            -                 474 
 Net cash (used in)/ generated by operating activities                                (22,594)                 741 
 Net cash used in investing activities                                                (61,630)            (18,157) 
 Net cash flows generated by financing activities                                      110,511              30,097 
                                                                            ------------------  ------------------ 
 Net increase in cash and cash equivalents                                              26,287              12,681 
 Cash and cash equivalents at beginning of period                                       35,943              23,203 
 Effect of exchange rates on cash and cash equivalents                                   (157)                 266 
                                                                            ------------------  ------------------ 
 Cash and cash equivalents at end of period                                             62,073              36,150 
                                                                            ------------------  ------------------

Notes

1.         Significant accounting policy updates

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

The annual financial statements of the Group are prepared in accordance with IFRS as adopted for use in the EU, and therefore comply with Article 4 of the EU IFRS Regulation. As required by the Disclosure Guidance and Transparency Rules of the Financial Conduct Authority, these financial statements have been prepared applying the accounting policies and presentation that were applied in the preparation of the Group's published consolidated annual report for the year ended 31 December 2017, other than IFRS 9 and IFRS 15, which have been applied for the first time this year. Changes to significant accounting policies in 2018 have been disclosed in the condensed consolidated interim financial statements of the Group for the period ended 30 June 2018.

The consolidated financial statements of the Group for the year ended 31 December 2017 are available upon request from the Company's registered office at Belvedere, 12 Booth Street, Manchester, M2 4AW and can also be found, along with the condensed consolidated interim financial statements of the Group for the period ended 30 June 2018, online at www.arrowglobalir.net.

2.         Portfolio investments

The Group recognises income from portfolio investments in accordance with IFRS 9 from 1 January 2018.

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The movements in portfolio investments were as follows:

Nine months ended     Year ended   Nine months ended 
                                                                   30 September    31 December        30 September 
                                                                           2018           2017                2017 
                                                                         GBP000         GBP000              GBP000 
 As at the period brought forward                                       951,467        804,107             804,107 
 Impact of adopting IFRS 9 at 1 January 2018                           (17,000)              -                   - 
                                                             ------------------  -------------  ------------------ 
 Brought forward after impact of IFRS 9 opening adjustment              934,467        804,107             804,107 
 Portfolio investments acquired during the period *                     211,051        225,734             155,653 
 Collections in the period                                            (288,513)      (342,210)           (244,116) 
 Total income from portfolio investments                                191,241        247,917             180,953 
 Foreign exchange gain                                                    3,255         16,393              13,319 
 Purchase price adjustment relating to prior year                             -          (474)               (474) 
 As at the period end                                                 1,051,501        951,467             909,442 
                                                             ==================  =============  ==================

* Inclusive of acquisition costs and portfolios acquired through acquisition of EI

2.         Portfolio investments (continued)

Classification of portfolio investments

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

30 September 
                         Amortised cost     FVTPL           2018 
                                 GBP000    GBP000         GBP000 
 As at the period end           858,577   192,924      1,051,501 
                        ---------------  --------  ============= 
 
   3.         Borrowings 
 
                                  30 September   31 December   30 September 
                                          2018          2017           2017 
                                        GBP000        GBP000         GBP000 
 Senior secured notes                  914,711       763,740        759,478 
 Senior secured notes interest           1,349         6,670          1,210 
 Revolving credit facility             185,024       153,036        126,234 
 Bank overdrafts                         3,624         1,332          1,323 
 Finance lease                               -         1,816          1,832 
 Other borrowings                       13,468         8,908         11,475 
                                 -------------  ------------  ------------- 
 Total borrowings                    1,118,176       935,502        901,552 
                                 =============  ============  =============

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 GBP18,658,000 incurred on the early redemption of the EUR230 million notes due 2023, of which GBP13,623,000 was a cash cost related to the call premium. The remaining GBP5,035,000 was due to a non-cash write-off of related transaction fees, relating to the 2023 notes.

On 4 January 2018 the commitments 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 commitments under the revolving credit facility were increased from GBP255 million to GBP285 million.

4.         Acquisition of subsidiary undertakings

Europa Investimenti S.p.A ("EI")

On 13 September 2018, the Group acquired 100% of the share capital of EI. EI originates and manages Italian distressed debt investments. The acquisition builds on the 2017 acquisition of Zenith, and subsequent acquisition of Parr in 2018. These three acquisitions now give the Group Italian primary and special servicing capabilities that support the Group's growth ambitions. The fair value of total consideration for the acquisition is EUR65,450,000 (GBP58,735,000) including deferred and contingent consideration. The provisional net assets acquired totalled EUR9,958,000 (GBP8,897,000).

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

Additional Information

The adjusted EBITDA reconciliations for the periods ended 30 September 2018 and 30 September 2017 are shown below:

Nine months ended   Nine months ended 
                                                                                    30 September        30 September 
                                                                                            2018                2017 
                                                                                          GBP000              GBP000 
 Reconciliation of net cash flow to adjusted EBITDA 
 Net cash (used in)/ generated by operating activities                                  (22,594)                 741 
 Purchase of portfolio investments                                                       203,150             155,653 
 Purchase price adjustment relating to prior year                                              -               (474) 
 Income taxes paid                                                                         6,505               7,510 
 Working capital adjustments                                                               1,769            (10,752) 
 Dividends received from associates                                                            -               2,735 
 Amortisation of acquisition fees                                                            206                 206 
 Proceeds from sale of property                                                            3,759                   - 
 Adjusting operating expenses                                                              9,055               1,040 
 Adjusted EBITDA                                                                         201,850             156,659 
                                                                              ------------------  ------------------ 
 Reconciliation of core collections to EBITDA                                             GBP000              GBP000 
 Income from portfolio investments including revaluations                                191,241             180,953 
 Portfolio amortisation                                                                   97,272              63,163 
 Core collections (includes proceeds from disposal of portfolio investments)             288,513             244,116 
 Income from asset management and servicing                                               63,336              50,637 
 Operating expenses                                                                    (175,999)           (152,194) 
 Depreciation and amortisation                                                            10,696               8,387 
 Foreign exchange gains                                                                    (100)               (593) 
 Amortisation of acquisition fees                                                            206                 206 
 Share-based payments                                                                      2,384               2,325 
 Proceeds from sale of property                                                            3,759                   - 
 Dividends received from associates                                                            -               2,735 
 Adjusting operating expenses                                                              9,055               1,040 
 Adjusted EBITDA                                                                         201,850             156,659 
                                                                              ------------------  ------------------ 
 Reconciliation of Operating Profit to EBITDA                                             GBP000              GBP000 
 Profit after tax                                                                         20,534              15,998 
 Underlying net finance costs                                                             35,101              33,495 
 Taxation charge on ordinary activities                                                    5,016               4,073 
 Share of profit on associate                                                                  -             (1,522) 
 Adjusting financing costs                                                                18,658              27,352 
                                                                              ------------------  ------------------ 
 Operating profit                                                                         79,309              79,396 
 Portfolio amortisation                                                                   97,272              63,163

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Depreciation and amortisation                                                            10,696               8,387 
 Foreign exchange gains                                                                    (100)               (593) 
 Amortisation of acquisition fees                                                            206                 206 
 Share-based payments                                                                      2,384               2,325 
 Profit on sale of property                                                                (731)                   - 
 Proceeds from sale of property                                                            3,759                   - 
 Dividends received from associates                                                            -               2,735 
 Adjusting operating expenses                                                              9,055               1,040 
 Adjusted EBITDA                                                                         201,850             156,659 
                                                                              ------------------  ------------------

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.

'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 bureau 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.

'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.

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

'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).

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

'IFRS' means EU adopted international financial reporting standards.

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

30 September 
                                            2018 
                                          GBP000 
 Third party AMS Business income          63,336 
 Intra-Group AMS income                   27,940 
                                   ------------- 
 AMS Business income                      91,276 
                                   =============

'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 2017 and the consolidated financial data for the nine months to 30 September 2018, and the subtraction of the consolidated financial data for the nine months to 30 September 2017.

'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 investment, 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 for the period ended 30 September 2018 is as follows:

30 September   31 December 
                                                                     2018          2017 
                                                                   GBP000        GBP000 
 Cash and cash equivalents                                       (62,073)      (35,943) 
 Senior secured notes (pre transaction fees net off)              930,000       779,347 
 Revolving credit facility (pre transaction fees net off)         188,310       155,757 
                                                            -------------  ------------ 
 Secured net debt                                               1,056,237       899,161 
 Deferred consideration - acquisitions                             44,468        15,200 
 Deferred consideration - portfolios                               37,516        15,309 
 Senior secured notes interest                                      1,349         6,670 
 Bank overdrafts                                                    3,624         1,332 
 Other borrowings                                                  13,468        10,724 
                                                            -------------  ------------ 
 Net debt                                                       1,156,662       948,396 
                                                            =============  ============

'NCI means non-controlling interest.

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

'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 2017 to Q3 2018 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 for the period ended 30 September 2018 is shown in net debt above.

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

'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.

'WACD' means weighted average cost of debt.

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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November 08, 2018 02:01 ET (07:01 GMT)