Preliminary results for the year ended 31 December 2016

March 2nd 2017

Arrow Global Group PLC “Arrow Global” or “the Company” and its subsidiaries (together “the Group”), is pleased to announce its preliminary results for the year ended 31 December 2016.

To view the full press release, please click here. (PDF download)

Commenting on today’s results, Lee Rochford, Group chief executive officer of Arrow Global, said:
“2016 was a landmark year for Arrow. We ended the year a larger, stronger, more diverse business. Underlying profit after tax was 29% higher and we delivered strong returns, enhanced shareholder value and an increased dividend.

“During the year, we completed record organic purchases of £223 million with the majority sourced in off-market deals. In addition, we acquired Vesting in the Netherlands and agreed the purchase of Zenith in Italy.

“Our scale and reputation continue to provide a significant commercial advantage and we have started 2017 well, with a strong origination pipeline. We are confident in our objective of delivering high teens EPS growth and a progressive dividend policy, supported by ROE in the mid-20s, over the medium-term.”

Highlights

  • Final dividend of 6.4p proposed, bringing total dividends for 2016 to 9.1p per share, up 28.7% on 2015 and representing a 35% pay-out
  • Underlying basic earnings per share (EPS) increased 28.5% to 26.1p (2015: 20.3p) delivering underlying Return on Equity (ROE) of 29.1% (2015: 26.5%)
  • Total revenue for the year was £235.9 million, an increase of 42.6% (2015: £165.5 million), driven by an increase in core collections to £286.0 million (2015: £218.5m), resulting in an increase in Adjusted EBITDA of 36.7% to £209.2 million (2015: £153.1 million)
  • Capital-light asset management revenues now constitute 20% of total revenues
  • Profit after tax of £26.3 million (2015: £31.7 million), and basic EPS of 15.1p (2015: 18.2p). These include a number of one-off items, principally the costs associated with restructuring the group’s long-term financing in September 2016 of £18.0 million
  • Underlying profit after tax up 28.7% to £45.6 million (2015: £35.4 million)
  • A record year for organic portfolio purchases of £223.0 million (2015: £176.3 million)
  • Our purchased loan portfolio asset base and loan notes increased by 37.2% to £804.1 million (2015: £586.3 million*), which is reflected in the increased value of the 84-month ERC from £1,028.6 million to £1,339.1 million, up 30.2%
  • Acquisition of InVesting B.V. (“Vesting”) in the Netherlands and Belgium and agreed the proposed acquisition of Zenith Service S.p.A., (“Zenith”) in Italy. These transactions coupled with the announcement to co-invest in the assets and servicing of the RNHB Hypotheekbank loan book in the Netherlands have enhanced our European mainland capabilities significantly
  • Successful refinancing of the £220 million bond and the £180 million revolving credit facility, reducing the Group’s overall cost of debt to just under 5% and increasing the average debt facility maturity to 6 years
  • Group’s credit ratings upgraded by both S&P (to BB- from B+ and the Group’s Notes from BB- to BB) and Moody’s (to Ba3 from B1)

* Excluding £23.5 million of portfolios due to be resold

To view the full press release, please click here. (PDF download)

For further information:

Arrow Global
Lee Rochford (Group CEO)
Robert Memmott (Group CFO)
Anthony Frost (Group Communications)
+44 (0)161 242 5885

Instinctif Partners
Mike Davies
Giles Stewart
+44 (0)20 7457 2020

Forward looking statement
This document contains statements that constitute forward-looking statements relating to the business, financial performance and results of the Company and its subsidiaries (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.

Group chief executive officer’s review
I am delighted to have been appointed as Group chief executive officer. I am excited by the prospect of leading the next phase of Arrow’s growth, building on the Group’s momentum, high growth prospects, our operational and financial excellence and the strong financial returns we can deliver as we continue to expand in our chosen markets.

In 2016, Arrow has expanded its European footprint and client offering across attractive markets where the Group is targeting leadership positions. This coupled with a high quality and diversified investment portfolio has enabled us to deliver another strong financial performance.

A strong financial performance
Total revenue grew 42.6% to £235.9 million driven by a 30.9% increase in core collections to £286.0 million. Adjusted EBITDA increased 36.7% to £209.2 million. We continue to see an increase in the income from asset management, with revenues now constituting 20% of total revenues. These results were positively impacted by the Vesting acquisition in May 2016.

Our diversification across geographies and asset classes enabled us to deliver a strong increase in underlying profit after tax, up 28.7% to £45.6 million (2015: £35.4 million), and underlying return on equity (ROE) now stands at 29.1%. Due to post tax non-recurring items of £19.3 million, arising from restructuring the Group’s long-term financing and acquisition costs, profit after tax decreased to £26.3 million (2015: £31.7 million).

Our underlying basic EPS has increased 28.5% to 26.1p (2015: 20.3p). The strong cash result for the year is pleasing and allows us to continue to deliver good returns to our shareholders while allowing for future investment and growth. As such, the full-year dividend for 2016, including the proposed final dividend of 6.4p, will increase to 9.1p, up 28.7% and represents a 35% payout ratio.

A landmark year for the Group
2016 was a year of many important milestones for the Group.
We made a number of acquisitions and continued to add to our loan portfolios through carefully considered purchases. Building from our strong UK base, we have made material progress in expanding our capabilities and the range of services we offer to financial institutions in all of our markets. In addition to the UK, we now have leading positions in the Netherlands and Portugal, with a presence in France, and from 2017, on completion of the Zenith acquisition, we will enter the Italian market.

Acquisitions in the Netherlands and Italy

During 2016, we acquired a market leading business in the Netherlands.

In May we completed the acquisition of Vesting, which has operations in the Netherlands and Belgium. Our relationship with Vesting commenced in 2015, when they started servicing portfolios on our behalf. As we got to know the management team and came to respect their collections capabilities, including the benefits of access to the Focum credit bureau, it was a natural progression to purchase the business outright.

In September, we strengthened our Dutch offering with a transformative deal. We acquired the servicing capabilities of RNHB Hypotheekbank and co-invested, alongside CarVal Investors, in loan portfolios with a face value of approximately €1.7 billion; resulting in an investment in loan notes of £21.3 million. The loan book comprises 9,300 high quality real estate loans, with an average loan-to-value of 66%. It builds on the secured asset expertise and real estate capabilities of our Portuguese business, and offers an attractive model for future deals.

For some time we have been evaluating the Italian market, which has the highest non-performing loan volumes in Europe along with a strong securitisation and structured finance market. We were delighted to mark our entry into Italy by agreeing terms to acquire Zenith Services S.p.A., a leading master servicing business that has an excellent reputation for securitisation and structuring services.
The transaction is subject to regulatory approval by the Bank of Italy, and we expect this to complete in the first half of 2017. On completion, it will offer us a strong and established client base of leading Italian and international banks and funds, increase the weighting of asset management revenues across the Group, and provide a valuable insight into the Italian market and the performance and administration of credit portfolios. We consider Zenith to be a low-risk business, with stable revenues and is a sensible entry into the Italian market.

Record year for investment and strengthened funding
2016 was a record year for investment. We acquired purchased loan portfolios and loan notes with a face value of £2.2 billion for a purchase price of £258.4 million. Of this, £223 million related to the purchase of organic portfolios and £35.4 million for the Vesting back book. Of the purchase price invested, 52% related to secured portfolios.

During the year we also took the opportunity to strengthen and secure our long-term funding. In July, we refinanced our revolving credit facility reducing the cost by 100bp and extending its term to July 2021. In September, we successfully refinanced our £220 million bond, securing a coupon reduction of 275bp. Our average debt facility term is now just under six years and our average cost of debt is now less than 5%.

Reshaping our earnings
Our market entry strategy has been to target leading operating platforms in countries that meet our criteria.

Our increased diversification, by both geography and asset class provides a good platform to diversify our earnings as we balance our strength in debt purchase with that of asset management.

Asset management is attractive as it is capital-light and helps us grow both earnings and return on equity (ROE) through long-term contracted revenues. Our ability to provide servicing on behalf of third parties has strengthened our partnership with credit funds, which has become a key part of our origination strategy.

Over time, we want to increase the percentage of our Group revenues derived from asset management. We made good progress in 2016, ending the year with asset management constituting 20% of total revenues, and we expect this to strengthen further in 2017 to approximately 25%.

Arrow now services 9 million customer accounts. The access we have to historic credit performance data in the markets in which we operate provides us with significant insight into customer behaviours. This, added to a number of initiatives Group-wide, such as a new servicing platform in the Netherlands and our UK digital portal, will enable us to improve customer engagement.

Our people
As the Group has expanded, we have welcomed new colleagues to Arrow. Our philosophy is to attract and retain the best talent.
In 2016, we have added considerably to the expertise we have across the Group. We now have over 1,500 colleagues, and it is their hard work, combined with a strong Group culture, that will continue our success.

As a result of our continued expansion we introduced a new management structure during the year. In addition to creating a small Group function that will have oversight for the whole Group, we appointed new Country chief executive officers. Phil Marsland was appointed in the UK, Joost van Rens in the Netherlands and Belgium and John Calvão in Portugal. John will take responsibility for Italy on completion of the Zenith acquisition in H1 2017, to be replaced in Portugal by João Bugalho.

To view the full press release, please click here. (PDF download)