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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Arrow Global Group Plc | LSE:ARW | London | Ordinary Share | GB00BDGTXM47 | ORD 1P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 307.00 | 307.00 | 307.50 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Apr 2019 to Apr 2024
TIDMARW
RNS Number : 0551F
Arrow Global Group PLC
12 November 2020
12 November 2020
Arrow Global Group plc
Interim results for the nine months ended 30 September 2020
Strong balance sheet cash collections and return to profitability in Q3; new five-year targets announced aligning to Arrow's capital light fund management strategy
Strong Q3 performance
-- Q3 discrete profit after tax up 15.8% at GBP9.1 million (Q3 2019: GBP7.9 million) -- Balance sheet cash collections of GBP260.9 million (Q3 2019: GBP312.5 million)
-- Continued improving trend in balance sheet cash collections performance following the impact of COVID-19 lockdowns - Q3 2020 discrete collections of GBP85.1 million represents 141% of revised 84-month ERC
-- Remain cautious of economic outlook upon the winding down of government support schemes; no change to balance sheet write-down taken at the half year 2020 following Q3 review
-- Asset Management and Servicing (AMS) business cashflows remained resilient
o AMS revenues improved 2.1% to GBP70.2 million (Q3 2019: GBP68.7 million)
o Record 16 new third-party contract wins in 2020 - currently equating to GBP4.8 billion of gross book value, evidencing increased demand for Arrow's services
-- Increased capital deployment in line with increasing investment opportunities - total investments of GBP64.2 million, including pro-rata fund co-investments
-- Q3 discrete total operating expenses of GBP56.0 million represents a 12.8% reduction on 2019 on a cash basis (2019: GBP55.4 million including benefits of GBP8.9 million of non-cash deferred consideration release)
-- GBP10 million cost reduction programme on track
Balance sheet and liquidity remain robust
-- The Group maintained a strong liquidity position - latest available cash headroom of GBP225.5 million (FY 2019: GBP153.0 million)
-- Free cash flow (FCF) generation of GBP120.4 million (Q3 2019: GBP174.4 million) -- LTM leverage of 4.2x (Q3 2019: 3.7x)
-- Expect leverage to be circa 4.0x by end 2021 and within target 3.0x-3.5x range by 2023 - well in advance of first bond refinancing requirement in 2024
Further fundraising success - Arrow Credit Opportunities (ACO) fund closed
-- Total ACO capital commitments at close EUR1.7 billion, with EUR1.3 billion from third party investors
-- Total Funds Under Management (FUM) at close of EUR4.2 billion - new target of EUR10 billion by 2025
-- Analyst seminar teach-in and Q&A scheduled for 14:00 today (12 November 2020)
Attractive medium-term outlook and updated targets
-- Economic dislocation expected to present increased investment and asset servicing opportunities
-- New targets reflect an acceleration of our capital-light strategy in an increasingly attractive operating environment:
o Greater than EUR10.0 billion of FUM by end 2025
o Greater than 50% of EBITDA from capital light businesses (Fund and Investment Management Business (FIM) and Asset Management and Servicing Business (AMS)) by FY 2025
o 40% EBITDA margin from FIM and at least 25% EBITDA margin in AMS by end 2025
o Return on equity of greater than 25% through-the-cycle between FY 2021 - FY 2025
o Greater than GBP500 million of cash generation after fund investments between FY 2021 - 2025
o Leverage of circa 4.0x by end 2021 and within target range of 3.0-3.5x by 2023
Commenting on today's results, Lee Rochford, Group chief executive officer, said:
"Arrow performed well in Q3 2020, registering a clear return to profitability and strong balance sheet cash collections. It is encouraging to see a notable increase in investment returns available in the market as the economic dislocation generates new opportunities. This has also led to increased demand for Arrow's third-party asset servicing capabilities, driving new, long-term contract wins for our Asset Management & Servicing Business.
Today we have also announced the final close of the fundraising for Arrow Credit Opportunities, our first discretionary closed-end fund, with total capital commitments of EUR1.7 billion. This marks an exciting new chapter for the business as it continues its pivot towards an increasingly capital-light model. Raising such a significant pool of third-party capital means that we are well positioned to be a leading investor into a large and fast-growing market with an improving returns trend, underpinning our target to manage EUR10 billion of FUM by 2025.
The close of our flagship fund has led us to outline a new set of 5-year targets for the Group which reflects our confidence in the business's ability to grow earnings, increase the contribution from capital-light fund management and servicing operations and significantly reduce leverage."
Hot Features
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Group financial highlights 30 September 30 September
2020 2019 Change
-------------------------------- --------------- -------------- ---------
Total income 85.0 256.9 (171.9)
FCF 120.4 174.4 (54.0)
Operating (loss)/profit (83.4) 82.8 (166.2)
(Loss)/profit after tax (GBPm) (101.3) 32.2 (133.5)
Basic EPS (GBP) (0.57) 0.17 (0.74)
Leverage (x) 4.2 3.7 0.5
30 September 31 December
2020 2019 Change
84-month ERC (GBPm) 1,567.2 1,817.9 (250.7)
120-month ERC (GBPm) 1,743.9 2,035.4 (291.5)
Presentation and Q&A details for Q3 2020 results and analyst fund management seminar
Q3 Results presentation:
A presentation detailing Arrow's Q3 2020 results is available on the Group's Investor Relations website.
Fund Management Analyst Seminar
A separate Fund Management Analyst Seminar will take place via video conference at 14:00 (GMT) and will be available to view via the Company's investor relations website https://www.arrowglobal.net/en/index.html .
Investors and analysts wishing to view this can register here: https://bit.ly/3mPx8t2
Investors and analysts wishing to listen to the presentation via audio only may do so using the below dial-in details. Please dial-in at least 10 minutes prior to the start of the session in order to ensure registration can take place in time for the call to commence:
Dial-in details for audio only listening
+44 (0)330 336 9126
Meeting ID: 2178984
A full recording will subsequently be made available on the Group's Investor Relations website
https://www.arrowglobal.net/en/index.html
Q&A for Fund Management Analyst Seminar and Q3 results
A live Q&A session will take place with Arrow's management team immediately following the session. Analysts and investors watching the video conference will be able to submit written questions via the viewing platform at any time during the presentation, which management will answer once the Q&A session starts.
Questions can also be submitted to the company's Investor Relations email address ( IR@arrowglobal.net ) at any time during the presentation
If investors and analysts would prefer to ask questions in person, they may use the audio only dial-in details above to submit their questions over the phone line. Registration will be required, so dialling in ahead of the Q&A session is advised to ensure questions can be asked without unnecessary delay.
Notes:
A glossary of terms can be found at the end of the document.
More details explaining Arrow's business can be found on the Company's website at www.arrowglobal.net
For further information:
Arrow Global Group PLC
Duncan Browne, Head of Investor Relations +44 (0) 7925 643 385
dbrowne@arrowglobal.net
FTI Consulting
Tom Blackwell +44 (0)20 3727 1141 arrowglobal@fticonsulting.com
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 the 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, the Group 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 and the Group assume no obligation to update or provide any additional information in relation to such forward-looking statements.
CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
For the period ended 30 September 2020
Unaudited Unaudited
Unaudited Unaudited three months three months
nine months ended nine months ended ended ended
30 September 2020 30 September 2019 30 September 2020 30 September 2019
GBP000 GBP000 GBP000 GBP000
Continuing operations
Income from portfolio
investments at amortised
cost 128,948 142,703 37,933 47,696
Fair value (losses)/gains
on portfolio investments
at FVTPL (4,454) 27,634 8,387 6,510
Impairment (losses)/gains
on portfolio investments (110,307) 17,440 10,446 1,719
Income from portfolio
investments - real estate
inventories 264 118 97 118
------------------- ------------------- ------------------- -------------------
Total income from portfolio
investments 14,451 187,895 56,863 56,043
Income from asset
management and servicing 70,151 68,680 24,693 23,041
Other income 385 292 44 90
------------------- ------------------- ------------------- -------------------
Total income 84,987 256,867 81,600 79,174
------------------- ------------------- ------------------- -------------------
Operating expenses:
Collection activity costs (74,984) (83,124) (24,600) (29,107)
Other operating expenses (93,373) (90,953) (31,438) (26,300)
------------------- ------------------- ------------------- -------------------
Total operating expenses (168,357) (174,077) (56,038) (55,407)
------------------- ------------------- ------------------- -------------------
Operating (loss)/profit (83,370) 82,790 25,562 23,767
Net finance costs (41,747) (40,394) (14,737) (13,884)
(Loss)/profit before tax (125,117) 42,396 10,825 9,883
Taxation credit/(charge) on
ordinary activities 23,800 (10,177) (1,709) (2,008)
------------------- ------------------- ------------------- -------------------
(Loss)/profit after tax (101,317) 32,219 9,116 7,875
=================== =================== =================== ===================
Other comprehensive
(loss)/income:
Items that are or may be
reclassified subsequently
to profit or loss:
Foreign exchange
translation difference
arising on revaluation of
foreign operations 9,506 (1,402) (28) (769)
Movement on the hedging
reserve 210 38 43 95
------------------- ------------------- ------------------- -------------------
Total comprehensive
(loss)/income for the
period (91,601) 30,855 9,131 7,201
=================== =================== =================== ===================
(Loss)/profit attributable
to:
Owners of the Company (100,631) 30,010 9,140 7,906
Non-controlling interest (686) 2,209 (24) (31)
------------------- ------------------- ------------------- -------------------
(101,317) 32,219 9,116 7,875
=================== =================== =================== ===================
Basic EPS (GBP) (0.57) 0.17 0.05 0.05
=================== =================== =================== ===================
Diluted EPS (GBP) (0.55) 0.17 0.05 0.04
=================== =================== =================== ===================
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 30 September 2020
Unaudited Unaudited
30 September Audited 30 September
2020 31 December 2019 2019
Assets Note GBP000 GBP000 GBP000
Cash and cash equivalents 224,498 88,765 97,828
Trade and other receivables 66,542 75,094 98,132
Portfolio investments - amortised cost 2 795,195 932,199 927,306
Portfolio investments - FVTPL 2 163,043 169,799 175,354
Portfolio investments - real estate inventories 2 63,362 61,626 59,877
Property, plant and equipment 23,189 24,521 27,542
Intangible assets 37,937 38,159 38,388
Deferred tax asset 40,358 10,759 8,697
Goodwill 281,085 267,700 275,211
------------------
Total assets 1,695,209 1,668,622 1,708,335
============== ================== ==============
Liabilities
Bank overdrafts 3 5,888 1,386 2,477
Revolving credit facility 3 281,013 230,963 247,975
Derivative liability 92 509 642
Trade and other payables 154,146 223,001 215,291
Current tax liability 7,174 7,645 8,873
Other borrowings 3 4,374 3,672 3,384
Asset-backed loans 3 175,828 84,077 91,620
Senior secured notes 3 934,368 897,875 916,096
Deferred tax liability 20,706 17,637 15,305
-------------- ------------------ --------------
Total liabilities 1,583,589 1,466,765 1,501,663
-------------- ------------------ --------------
Equity
Share capital 1,771 1,769 1,769
Share premium 347,436 347,436 347,436
Retained earnings 30,705 129,240 124,730
Hedging reserve (210) (423) (546)
Other reserves (271,686) (280,630) (274,956)
------------------
Total equity attributable to shareholders 108,016 197,392 198,433
-------------- ------------------ --------------
Non-controlling interest 3,604 4,465 8,239
-------------- ------------------ --------------
Total equity 111,620 201,857 206,672
-------------- ------------------ --------------
Total equity and liabilities 1,695,209 1,668,622 1,708,335
============== ================== ==============
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the period ended 30 September 2020
Share capital Other equity reserves Total Non-controlling interest Total
GBP000 GBP000 GBP000 GBP000 GBP000
Balance at 1 January 2019 1,763 189,894 191,657 601 192,258
Impact of adopting IFRS
16 - (947) (947) - (947)
-------------- ---------------------- ---------- ------------------------- -----------
Balance post IFRS
adjustments at 1 January
2019 1,763 188,947 190,710 601 191,311
Profit for the period - 30,010 30,010 2,209 32,219
Exchange differences - (1,402) (1,402) - (1,402)
Net fair value gains -
cash flow hedges - 49 49 - 49
Tax on hedged items - (11) (11) - (11)
-------------- ---------------------- ---------- ------------------------- -----------
Total comprehensive
income for the period - 28,646 28,646 2,209 30,855
Shares issued 6 - 6 - 6
Repurchase of own shares - (6) (6) - (6)
Share-based payments net
of tax - 2,024 2,024 - 2,024
Non-controlling interest
on acquisition - - - 5,429 5,429
Dividend paid - (22,947) (22,947) - (22,947)
Balance at 30 September
2019 (unaudited) 1,769 196,664 198,433 8,239 206,672
Profit after tax - 5,213 5,213 (145) 5,068
Exchange differences - (5,675) (5,675) - (5,675)
Recycled to income
statement net of tax - 7 7 - 7
Net fair value gains -
cash flow hedges - 138 138 - 138
Tax on hedged items - (22) (22) - (22)
Total comprehensive loss
for the period - (339) (339) (145) (484)
Share-based payments net
of tax - (587) (587) - (587)
Dividend paid - (115) (115) - (115)
Non-controlling interest
on acquisition - - - (3,629) (3,629)
Balance at 31 December
2019 (audited) 1,769 195,623 197,392 4,465 201,857
Loss for the period - (100,631) (100,631) (686) (101, 317)
Exchange differences - 9,506 9,506 - 9,506
Net fair value losses -
cash flow hedges - 346 346 - 346
Tax on hedged items - (136) (136) - (136)
-------------- ---------------------- ---------- ------------------------- -----------
Total comprehensive loss
for the period - (90,915) (90,915) (686) (91,601)
Shares issued 2 - 2 - 2
Repurchase of own shares - (561) (561) - (561)
Share-based payments net
of tax - 1,950 1,950 - 1,950
Purchase of
non-controlling interest - 232 232 (232) -
Change in non-controlling
interest - (84) (84) 57 (27)
Balance at 30 September
2020 (unaudited) 1,771 106,245 108,016 3,604 111,620
-------------- ---------------------- ---------- ------------------------- -----------
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
For the period ended 30 September 2020
Unaudited Unaudited
period ended period ended
30 September 2020 30 September 2019
GBP000 GBP000
Net cash flows from operating activities before purchases of portfolio
investments 123,445 202,298
Purchase of portfolio investments (64,168) (221,885)
Net cash generated by/(used in) operating activities 59,277 (19,587)
Net cash used in investing activities (18,277) (20,227)
Net cash flows generated by financing activities 85,908 47,003
------------------- -------------------
Net increase in cash and cash equivalents 126,908 7,189
Cash and cash equivalents at beginning of period 88,765 92,001
Effect of exchange rates on cash and cash equivalents 8,825 (1,362)
------------------- -------------------
Cash and cash equivalents at end of period 224,498 97,828
------------------- -------------------
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
1. Significant accounting policy updates
These financial statements are unaudited and do not include all the information required for annual or interim financial statements and therefore are not fully compliant with IAS 34 - Interim financial reporting. These quarterly results should be read in conjunction with the Group's consolidated annual report and accounts for the year ended 31 December 2019 and the Group's consolidated interim results for the period ended 30 June 2020.
The Group's consolidated annual report and accounts are prepared in accordance with IFRS as adopted for use in the EU, and therefore comply with Article 4 of the EU IFRS Regulation. As required by the Disclosure and Transparency Rules of the Financial Conduct Authority, these financial statements have been prepared by applying the accounting policies and presentation that were applied in the preparation of the Group's published consolidated annual report and accounts for the year ended 31 December 2019.
The consolidated annual report and accounts for the year ended 31 December 2019 are available upon request from the Company's registered office at Belvedere, 12 Booth Street, Manchester, M2 4AW and can also be found online at www.arrowglobal.net .
2. Portfolio investments
The movements in portfolios investments were as follows:
Period ended 30 September 2020
Real
Amortised estate
cost FVTPL inventories Total
GBP000 GBP000 GBP000 GBP000
As at 1 January 2020 932,199 169,799 61,626 1,163,624
Portfolios purchased during the
period 35,537 28,631 - 64,168
Collections in the period (217,788) (38,572) (4,513) (260,873)
Income from portfolio investments
at amortised cost 128,948 - - 128,948
Fair value losses on portfolio
investments at FVTPL - (4,454) - (4,454)
Income from portfolio investments
- real estate inventories - - 264 264
Net impairment losses (110,298) - (9) (110,307)
Exchange and other movements 26,597 7,639 5,994 40,230
As at 30 September 2020 795,195 163,043 63,362 1,021,600
========== ========= ============= ==========
Year ended 31 December 2019
Real
Amortised estate
cost FVTPL inventories Total
GBP000 GBP000 GBP000 GBP000
As at 1 January 2019 869,056 217,974 - 1,087,030
Portfolios purchased during the
period 248,470 30,052 25,165 303,687
Transfer between categories 11,483 (55,262) 43,779 -
Collections in the period (390,734) (48,034) (3,543) (442,311)
Income from portfolio investments
at amortised cost 199,094 - - 199,094
Fair value gain on portfolio
investments at FVTPL - 32,397 - 32,397
Income from portfolio investments
- real estate inventories - - 561 561
Net impairment gains/(losses) 12,720 - (6) 12,714
Exchange and other movements (4,729) (7,328) (4,330) (16,387)
Portfolio restructure (13,161) - - (13,161)
---------- --------- ------------- ----------
As at 31 December 2019 932,199 169,799 61,626 1,163,624
========== ========= ============= ==========
Transfer between categories represents positions where the Group has originally held one type of instrument relating to a portfolio, and subsequently increased or changed its interest in the portfolio, leading to the requirement to consolidate the underlying structure onto the Group's balance sheet. This leads to a change in the classification of the portfolio investment held. The 'portfolio restructure' represents the restructure of a leveraged structured deal to move to a de-levered position, and hence change the nature of the holding whist extinguishing related liabilities.
Period ended 30 September 2019
Real
Amortised estate
cost FVTPL inventories Total
GBP000 GBP000 GBP000 GBP000
As at 1 January 2019 869,056 217,974 - 1,087,030
Portfolios purchased during
the period 172,417 24,302 25,166 221,885
Transfers between categories 9,954 (44,021) 34,067 -
Collections in the period (264,002) (48,164) (328) (312,494)
Income from portfolio investments
at amortised cost 142,703 - - 142,703
Fair value gain on portfolios
at FVTPL - 27,634 - 27,634
Income from real estate inventories - - 118 118
Net impairment gains/(losses) 17,446 - (6) 17,440
Exchange and other movements (7,107) (2,371) 860 (8,618)
Portfolio restructure (13,161) - - (13,161)
As at 30 September2019 927,306 175,354 59,877 1,162,537
========== ========= ============= ==========
3. Borrowings and facilities
30 September 31 30
2020 December September
2019 2019
Secured borrowing at amortised cost GBP000 GBP000 GBP000
Senior secured notes (net of transaction fees of GBP11,048,000, 31
December 2019: GBP12,780,000,
30 September 2019: GBP13,329,000) 934,368 897,875 916,096
Revolving credit facility (net of transaction fees of GBP3,023,000, 31
December 2019: GBP3,720,000,
30 September 2019: GBP3,937,000) 281,013 230,963 247,975
Asset backed loan (net of transaction fees of GBP4,810,000, 31 December
2019: 1,658,000, 30
September 2019: GBP1,606,000) 175,828 84,077 91,620
Bank overdrafts 5,888 1,386 2,477
Other borrowings - non-recourse facility 4,374 3,672 3,384
------------- ---------- -----------
1,401,471 1,217,973 1,261,552
============= ========== ===========
Total borrowings
Amount due for settlement within 12 months 370,096 257,500 274,923
Amount due for settlement after 12 months 1,031,375 960,473 986,629
Asset backed securitisation
On 30 April 2019, the Group entered into a GBP100 million non-recourse committed asset backed securitisation facility with an advance rate of 55% of 84-month ERC. On the same date, the Group sold GBP137 million of ERC into AGL Fleetwood Limited, a wholly owned Arrow Global Group subsidiary, and borrowed an initial amount of GBP75 million non-recourse funding at LIBOR plus 3.1%, under the facility.
On 31 July 2019, the Group sold a further GBP44 million of ERC into AGL Fleetwood Limited and subsequently borrowed an additional GBP25 million non-recourse funding on the same terms under the facility.
On 31 March 2020, the Group sold a further GBP30 million of ERC into AGL Fleetwood Limited and on 2 April 2020 borrowed an additional GBP21 million non-recourse funding on the same terms under the facility. As at 2 April 2020, the amount drawn under the facility was GBP100 million. The facility had a five-year term comprised of an initial two-year revolving period followed by a three-year amortising period with an option to extend the revolving period by one year subject to lender consent.
During July 2020, the Group entered into further arrangements in connection with the non-recourse facility to mitigate potential collections impacts of COVID-19. An additional GBP33 million of 84-month ERC was sold into the structure with no additional borrowings made. In consideration of the additional ERC pledged, the lender agreed to amend certain performance criteria.
During July 2020, a second non-recourse amortising loan of EUR104,700,000 was fully drawn during the month. The second loan was secured against EUR356 million of Portuguese 84-month ERC at a margin of 4.25%.
As at 30 September 2020, GBP303,498,000 of the portfolio investments, set out in note 2, are pledged as collateral for the asset backed securitisations.
Revolving credit facility
On 26 February 2019, the GBP285 million revolving credit facility was extended to 2024, with no change to the 2.5% margin.
On 12 August 2020, the Group executed an amendment agreement with its Lenders under the revolving credit facility to amend the financial covenants under the facility to reflect the potential impact on the business of COVID-19. The amendments to the financial covenants are for the period from September 2020 up to and including June 2022 and provide suitable headroom based upon the Group's downside projections, including an amendment to the maximum permitted leverage and minimum liquidity, and a move to a more dynamic margin calculation.
ADDITIONAL INFORMATION (UNAUDITED)
The adjusted EBITDA reconciliations for the periods ended 30 September 2020 and 30 September 2019 respectively are shown below:
30 September 2020 30 September
GBP000 2019
GBP000
Reconciliation of net cash flow to adjusted EBITDA
Net cash flow generated by/(used in) operating activities 59,277 (19,587)
Purchase of portfolio investments 64,168 221,885
Income taxes paid 4,351 9,091
Working capital adjustments 49,578 6,367
Amortisation of acquisition and bank facility fee 41 72
Adjusting items - 7,984
Adjusted EBITDA 177,415 225,812
------------------ --------------
Reconciliation of balance sheet cash collections to EBITDA
Income from portfolio investments including fair value and impairment losses
and gains 14,451 187,895
Portfolio amortisation 246,422 124,599
Balance sheet cash collections (includes proceeds from disposal of portfolio
investments) 260,873 312,494
Income from asset management and servicing and other income 70,536 68,972
Operating expenses (168,357) (174,077)
Depreciation and amortisation 12,568 14,509
Foreign exchange losses 714 660
Amortisation of acquisition and bank facility fees 41 72
(Profit)/loss on disposal of intangible asset (910) 2,051
Share-based payments 1,950 2,024
Adjusting items - 7,984
Provision releases - (8,877)
Adjusted EBITDA 177,415 225,812
------------------ --------------
Reconciliation operating profit to EBITDA
(Loss)/profit after tax (101,317) 32,219
Net finance costs 41,747 40,394
Tax (credit)/charge on ordinary activities (23,800) 10,177
Operating (loss)/profit (83,370) 82,790
Portfolio amortisation 246,422 124,599
Depreciation and amortisation 12,568 14,509
Foreign exchange losses 714 660
Amortisation of acquisition and bank facility fees 41 72
(Profit)/loss on disposal of intangible asset (910) 2,051
Share-based payments 1,950 2,024
Adjusting items - 7,984
Provision releases - (8,877)
Adjusted EBITDA 177,415 225,812
------------------ --------------
The table below reconciles the reported profit after tax for the period to the free cash flow result.
Reconciliation of profit after tax to the free cash flow result
Income Reported profit Other items Free cash flow
GBP000 GBP000 GBP000
Income from portfolio investments 129,212 131,661 260,873 Balance sheet cash collections
in the period
Fair value gain on portfolio
investments at FVTPL (4,454) 4,454 -
Impairment gains on portfolio
investments at amortised cost
and real estate inventories (110,307) 110,307 -
Income from asset management and 70,151 - 70,151 Income from asset management and
servicing servicing
Other income 385 - 385 Other income
---------------- ------------ ---------------
Total income (1) 84,987 246,422 331,409 Cash income
Total operating expenses (168,357) 14,363(2) (153,994) Cash operating expenses
---------------- ------------ ---------------
Operating (loss)/profit (83,370) 260,785 177,415 Adjusted EBITDA(4)
Net financing costs (41,747) 136(3) (41,611) Cash financing costs
------------ ---------------
(Loss)/profit before tax (125,117) 260,921 135,804
Taxation credit/(charge) on
ordinary activities 23,800 (28,151) (4,351) Cash taxation
---------------- ------------ ---------------
(Loss)/profit after tax (101,317) 232,770 131,453
================ ============ ===============
(11,054) Capital expenditure
---------------
120,399 Free cash flow (5)
===============
(1) Total income is largely derived from income from portfolio investments plus income from asset management and servicing, being commission on balance sheet cash collections for third-parties and fee income received . The other items add back loan portfolio amortisation to get to balance sheet cash collections. Amortisation reflects a reduction in the statement of financial position carrying value of the portfolio investments arising from balance sheet cash collections, which are not allocated to income. Amortisation plus income from portfolio investments equates to balance sheet cash collections.
(2) Includes non-cash items including depreciation and amortisation, share-based payment charges and FX.
(3) Non-cash amortisation of fees and interest.
(4) Adjusted EBITDA is a key driver to free cash flow. This measure allows us to monitor the operating performance of the Group. See additional information provided on page 12 for detailed reconciliations of adjusted EBITDA.
(5) Free cash flow is the adjusted EBITDA after the effect of capital expenditure and working capital movements.
GLOSSARY OF KEY PERFORMANCE INDICATORS (KPIs)
A description of the Group's KPIs relating to clients, financial position and performance is set out in the 'additional information' section.
The Group's KPIs are used throughout this document to help explain the performance of the business. This glossary sets out why each of these KPIs are important to the Group.
84-month ERC
The 84-month ERC means the Group's estimated remaining balance sheet cash collections on portfolio investments (of all classifications) over the next 84-months, representing the expected future balance sheet cash collections on portfolio investments during this period. The expected future balance sheet cash collections are calculated at the end of each month, based on the Group's proprietary ERC forecasting model, as amended from time to time. The 84-month ERC is particularly important for the Group as it shows the forecast cash inflows over the same period that is used to calculate the future cash flows of the Group's portfolio investments.
120-month ERC
The 120-month ERC means the Group's estimated remaining balance sheet cash collections on portfolio investments (of all classifications) over the next 120-months, representing the expected future balance sheet cash collections on portfolio investments during this period. The expected future balance sheet cash collections are calculated at the end of each month, based on the Group's proprietary ERC forecasting model, as amended from time to time. The 120-month ERC is an important metric for the Group as in some cases the collection profile of a particular portfolio can extend beyond 84-months, and as such, the 120-month ERC gives a more holistic view of potential remaining balance sheet cash collections from the Group's portfolio investments.
Leverage ratio
The Group's leverage ratio is calculated by dividing the secured net debt outstanding at the end of the period by the LTM (12 months' rolling average) Adjusted EBITDA. The leverage ratio presented in the condensed consolidated interim financial statements is calculated on the same basis as the financial covenant stipulated within the Group's revolving credit facility provided by a syndicate of banks. As at 30 September 2020, the actual leverage was 4.2x.
Funds under management (FUM)
The funds under management figure for the Group represents the current gross discretionary capital that the Group is responsible for managing in some capacity, including any of its own capital which it has committed to invest alongside third-parties. FUM is an important metric used to understand the scale of the Group's Fund and Investment Management business and how this compares to others in the market.
Net IRR
The net Internal Rate of Return (Net IRR) is calculated by taking the cumulative expected returns from a portfolio investment (or group of portfolio investments) and discounting these at a rate that makes the net present value of such returns equal to the price paid for the investment(s). This is an important metric for the business as it is a measure of the returns which are being generated by investing the Group's own capital into new purchases in the period.
GLOSSARY OF ALTERNATIVE PERFORMANCE MEASURES
APM Definition Why is the measure used?
------------------------------ ---------------------------------------- ----------------------------------------
Adjusted EBITDA The Adjusted EBITDA figure represents Adjusted EBITDA is an approximate
the Group's earnings before interest, measure of the underlying cash EBITDA of
tax, depreciation the Group. In addition,
and amortisation, adjusted for any the leverage ratio of the Group is
non-cash income or expense items. calculated as the ratio of secured net
debt to Adjusted
EBITDA. This makes the Adjusted EBITDA
figure a key component of this metric,
which also features
in the Group's banking covenant
measures.
------------------------------ ---------------------------------------- ----------------------------------------
Balance sheet cash collections Balance sheet cash collections or Balance sheet cash collections is a key
collections represent cash collections metric as it represents the Group's most
on the Group's existing significant
portfolio investments including ordinary cash inflow. It is also a key component
course portfolio sales and put-backs. of adjusted EBITDA which is used to
calculate the
Group's leverage position.
------------------------------ ---------------------------------------- ----------------------------------------
Leverage Leverage is calculated as secured net The leverage metric provides an
debt over LTM adjusted EBITDA. indication of the level of indebtedness
of the Group, relative
to its underlying cash earnings. This is
also an important metric used in the
Group's banking
covenants.
------------------------------ ---------------------------------------- ----------------------------------------
GLOSSARY OF OTHER ITEMS
'ABS' means asset-backed security.
'ACO' is Arrow Credit Opportunities, our first closed fund encompassing all fund vehicles.
'AMS' Income from Asset Management and Servicing (AMS) contracts. The Group recognises revenue when it satisfies a performance obligation related to a service it has undertaken to provide to a customer.
'APM' means alternative performance measure.
'Collection activity costs' represents the direct costs of balance sheet cash 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 balance sheet cash collections.
'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.
'ERC roll forward' relates to additional cash flows from rolling the asset life on all portfolios to seven years from the date of ERC, including the impact of any foreign exchange movements and the impact of reforecast in the period.
'FIM' means Fund and Investment Management.
'Free cashflow' or 'FCF' means adjusted EBITDA after the effects of capital expenditure, financing and tax cash impacts and before the replacement rate.
'F unds under management (FUM)' means the value of all fund management assets managed by Arrow Global plc., including Arrow Credit Opportunities, Norfin Investimentos, Saggita, any of Arrow's own capital which it has committed to invest alongside third-parties committed capital and Arrow's back book. FUM is an important metric used to understand the scale of the Group's Fund and Investment Management business and how this compares to others in the market.
'FVTPL' - means financial instruments designated at fair value with all gains or losses being recognised in the profit or loss.
'FY' means full year being the 12 months to 31 December 2019.
'Gross AMS income' includes commission income, debt collection, due diligence, real estate management, advisory fees and intra-group income for these services.
30 September 30 September
2020 2019
GBP000 GBP000
Third party AMS income 70,151 68,680
Intra-Group AMS income 33,605 34,010
------------- -------------
Gross AMS income 103,756 102,690
============= =============
'Gross income' includes commission income, debt collection, due diligence, real estate management, advisory fees and intra-group income for Asset Management and Servicing, total income for the Balance Sheet Business and other income.
30 September 30 September
2020 2019
GBP000 GBP000
Third party AMS income 70,151 68,680
Intra-Group AMS income 33,605 34,010
------------- -------------
Gross AMS income 103,756 102,690
Balance Sheet Business income 14,451 187,895
Other income 385 292
------------- -------------
Gross income 118,592 290,877
============= =============
'Balance Sheet Business' was previously referred to as Investment Business (IB).
'IFRS' means EU adopted international financial reporting standards.
'Income from AMS' includes commission income, debt collection, due diligence, real estate management, and advisory fees.
'LTIP' means the Arrow 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 2019 and the consolidated financial data for the three months to 30 September 2020, and the subtraction of the consolidated financial data for the three months to 30 September2019.
'NCI' means non-controlling interest.
'Net debt' means the sum of the outstanding principal amount of the senior secured notes and asset-backed loans, 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 as at 30 September 2020 is as follows:
30 September 31 December
2020 2019
GBP000 GBP000
Cash and cash equivalents (224,498) (88,765)
Senior secured notes (pre-transaction fees net off) 943,963 902,656
Revolving credit facility (pre-transaction fees net off) 284,036 234,683
Asset-backed loans (pre-transaction fees net off) 179,630 85,604
------------- ------------
Secured net debt 1,183,131 1,134,178
------------- ------------
Deferred consideration - portfolio investments 25,146 62,944
Deferred consideration - business acquisitions 24,508 30,372
Senior secured loan notes interest 1,453 7,999
Asset backed loan interest 1,008 -
Bank overdrafts 5,888 1,386
Other borrowings 4,374 3,672
------------- ------------
Net debt 1,245,508 1,240,551
============= ============
'OCI' means other comprehensive income.
'Portfolio amortisation' represents total balance sheet cash collections plus income from portfolio investments.
'Portfolio investments' are on the Group's statement of financial position and represent all debt portfolios that the Group owns at the relevant point in time. A portfolio comprises a group of customer accounts purchased in a single transaction.
'Secured net debt' see table in net debt definition.
'Translation reserve' comprises all foreign currency differences arising from the translation of the financial statements of foreign operations.
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