Company Announcements

11 May 2021

Arrow Global Group plc

("Arrow Global")

Results for the three months ended 31 March 2021

 Good Q1 performance and strong momentum on capital-light strategy

Highlights

·   EBITDA of £27.1 million (Q1 2020: £26.5 million) - robust revenue performance despite European lockdowns; disciplined cost control

·    Profit after tax of £6.0 million (Q1 2020: £6.9 million) - FX headwinds and increased finance costs

·    Total income of £78.2 million (Q1 2020: £77.1 million)

·    Total operating expenses of £55.5 million (Q1 2020: £54.6 million) - new business growth saw increased collection and Fund and Investment Management costs which more than offset a 19.8% reduction in other operating expenses

·    Terms and conditions agreed for recommended all cash offer by TDR Capital; Scheme Document published on 28 April with shareholder vote taking place on 21 May

Fund and Investment Management (FIM) business - Attractive deployment opportunities

·   Continued momentum in deployment of Arrow Credit Opportunities 1 (ACO 1) fund with attractive investment opportunities - 40% of fund deployed or committed (gross, before capital recycling) at Q1 2021 (including balance sheet co-investment; 47% excluding co-investment) with a strong Q2 2021 investment pipeline

·    Q1 2021 third-party income of £3.2 million, up 38.6% (Q1 2020: £2.3 million)

·    Funds Under Management (FUM) of €4.3 billion (FY 2020: €4.3 billion)

Asset Management and Servicing (AMS) business - Resilient revenues and new contract wins

·    AMS business cashflows remained resilient with capital-light third-party income up 5.2% to £22.4 million (Q1 2020: £21.3 million)

·    6 new contract wins in Q1 2021, building on the record 26 wins in 2020, which will drive high-quality recurring revenue growth in 2021 and evidencing high demand for our servicing capabilities

·    73% of ACO 1 deployment being serviced by AMS platforms (as at 31 December 2020) - in line with 75% target

Balance Sheet (BS) business - Collections outperforming ERC

·    New portfolio purchases of £28.4 million (Q1 2020: £28.1 million)

·   Q1 2021 collections of £76.9 million (Q1 2020: £85.1 million) representing 105.8% of Estimated Remaining Collections (ERC) assumptions - in line with collections guidance

·    No change to methodology used for ERC forecast review at Q1 2021; Next review at HY 2021

Capital and liquidity

·    Strengthened the liquidity position with successful €75 million bond tap in Q1 2021 with cash headroom increasing to £219.7 million (FY 2020: £174.6 million)

·    Free cash flow (FCF) generation of £26.1 million (Q1 2020: £33.5 million)

·    Leverage of 5.1x (FY 2020: 5.1x) comfortably within revised covenant levels; expected to peak in HY 2021, as the negative impact of H1 2020 COVID-19 lockdowns on collections remain in the Group's trailing 12-month calculation

·    Continue to expect leverage to be circa 4.0x by the end of 2021 and within target 3.0x-3.5x range by 2023

Outlook and guidance

·    Despite a good start to the year and improving macroeconomic prospects in Arrow's target markets, the Group remains cautious given the ongoing short-term uncertainty, and the winding down of government support measures

·    Economic dislocation will present significant investment and asset servicing opportunities in Arrow's target markets; in a strong position to take advantage of future opportunities

·    Guidance given at FY20 remains appropriate

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

"Arrow has had a good start to the year, due to the strong commitment and dedication of colleagues and their relentless focus on maintaining excellent service to customers and clients. I am immensely proud of the high level of engagement shown across the Group, despite the operational challenges due to the continued lockdowns in our European markets. Our successful track record and the economic dislocation from the pandemic means we are well positioned to benefit from significant investment and asset servicing opportunities in our chosen markets."
 

* ROE has been calculated by extrapolating the quarterly results. The full definition of 'annualised' can be seen within the glossary on page 16.

Presentation for Q1 2021 results

No conference call will be held for the Q1 2021 results; however, the presentation detailing Arrow's Q1 2021 results is available on the Group's Investor Relations website.

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:

About Arrow Global

Established in 2005, Arrow Global is a European investor and alternative asset manager specialising in non-performing and non-core assets. We identify, acquire and manage secured and unsecured loan and real estate portfolios from and on behalf of financial institutions, such as banks, institutional fund investors and specialist lenders.

We play an active role in helping financial institutions reduce their balance sheets and recapitalise in order to increase mainstream lending. By purchasing and managing non-performing loans and other non-core assets, we provide valuable capital and expertise to a growing European market.  We are a regulated business in all five of our European markets.

We invest in this asset class via our Fund and Investment Management business and balance sheet, and also generate income from managing and servicing assets on behalf of third parties.

Arrow's Fund and Investment Management business has total funds under management of €4.3 billion (as at 31 March 2021).

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.

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

For the period ended 31 March 2021

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 31 March 2021

The March 2020 balance sheet has been re-presented to show £7,766,000 of bank balances subject to certain restrictions within cash and cash equivalents in the year, that were previously shown within trade and other receivables. See the unaudited consolidated statement of cash flows on page 8 for more detail.

UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the period ended 31 March 2021

UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS

For the period ended 31 March 2021

Included within cash and cash equivalents in £8,571,000 (2020: £7,766,000) of cash, which may be subject to constraints regarding when the balance can be remitted, such as cash in a consolidated securitisation structure awaiting a payment date. The 2020 reconciliation above has been re-presented to remove these amounts from the net cash generated/used by operating activities, as in the prior year they were included within this line item, but are now included within cash and cash equivalents at the beginning and end of each year.

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 2020.

The Group's consolidated annual report and accounts are prepared in accordance with the international accounting standards in conformity with the requirements of the Companies Act 2006 ('Adopted IFRS') and also in accordance with IFRS adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the EU. 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 2020.

The consolidated annual report and accounts for the year ended 31 December 2020 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 31 March 2021

Year ended 31 December 2020

Period ended 31 March 2020

3.   Borrowings and facilities

Senior secured notes

The senior secured notes comprise three publicly issued Euro and Sterling senior notes secured by substantially all of the assets of the Group; £320 million 5.125% fixed-rate notes due September 2024, €400 million floating rate senior secured notes due April 2025 at a coupon of 3.75% over three-month Euribor and €360 million floating rate senior secured notes, including the €75 million tap, due March 2026 at a coupon of 3.75% over three-month Euribor. The Euro notes are subject to a zero percent floor on Euribor.

On 12 February 2021, Arrow Global Finance plc issued €75 million senior secured notes maturing 2026, at an issue price of 99%. This tap issue of the existing €285 million senior secured floating rate bonds due 2026 means that all terms and conditions of the new bonds are identical to those of the existing 2026 bonds, except for the issue price. The proceeds from the transaction of €74,250,000 less transaction fees and expenses were used to partially repay drawings under the Group's revolving credit facility.

Revolving credit facility

The £285 million revolving credit facility, provided by a syndicate of banks, matures in January 2024. On 12 August 2020, the Group executed an amendment agreement with its lenders 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 of between 2.50% and 3.25%.

Asset backed securitisation

The Group has two non-recourse committed asset-backed securitisation term loans.

The first loan of £66 million as at 31 March 2021, secured on UK unsecured assets, pays LIBOR plus 3.1%. The Group has sold ERC to a wholly owned subsidiary, AGL Fleetwood Limited, at various times since the transaction was originally established in April 2019.

On 31 March 2020, the Group sold a further £30 million of ERC into AGL Fleetwood Limited and on 2 April 2020 borrowed an additional £21 million non-recourse funding on the same terms under the facility.

During July 2020, the Group entered into further arrangements in connection with the non-recourse facility to mitigate potential balance sheet cash collections impacts of COVID-19. An additional £33 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, the Group entered into a second non-recourse amortising loan of €104,700,000, which was fully drawn during the month. This loan was secured against €356 million of Portuguese 84-month ERC at a margin of 4.25%. The outstanding amount of the loan as at 31 March 2021 was €64 million.

As at 31 March 2021, £279,492,000 of the portfolio investments, set out in note 2, are pledged as collateral for the asset-backed securitisations.

ADDITIONAL INFORMATION (UNAUDITED)

The adjusted EBITDA reconciliations for the periods ended 31 March 2021 and 31 March 2020 respectively are shown below:

For more information about the 31 March 2020 re-presentation, see page 8.

The table below reconciles the reported profit for the period to the free cash flow result.

Reconciliation of profit after tax to the free cash flow result

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 offset by bond payment timings.

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 13 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 ALTERNATIVE PERFORMANCE MEASURES

GLOSSARY

'ACO 1' is Arrow Credit Opportunities Scsp, our first closed fund encompassing all fund vehicles.

'Adjusted EBITDA'. See the glossary of alternative performance measures on page 15 for the definition.

'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.

'AMS EBITDA margin' is the EBITDA margin for the AMS segment.

'Annualised' terminology is used in respect of ROE. As the 31 December 2020 result was a large loss after tax, for the ROE calculation for the 31 March 2021, the result has been annualised by extrapolating the Q1 2021 result.

'Balance sheet cash collections'. See the glossary of alternative performance measures on page 15 for the definition.

'Capital-light % of Group EBITDA' is the Asset Management Servicing and Fund and Investment Management segment EBITDAs as a percentage of total EBITDA.

'Cash headroom' is cash on balance sheet, excluding the reclassified cash as detailed in the unaudited consolidated statement of cash flows on page 8, together with headroom on committed facilities.

'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' means Estimated Remaining Collections. See the glossary of alternative performance measures on page 15 for the definition of 84-month ERC and 120-month ERC.

'FIM' means the Fund and Investment Management.

'FIM EBITDA margin' is the EBITDA margin for the FIM segment.

'Free cashflow' or 'FCF'. See the glossary of alternative performance measures on page 15 for the definition.

'Funds under management (FUM)' means the value of all fund management assets managed by Arrow Global plc, including Arrow Credit Opportunities, Norfin Investimentos, Europa Investimenti, Sagitta, 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 with others in the market.

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

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

'IFRS' means EU adopted international financial reporting standards.

'Income from AMS' includes commission income, debt collection, due diligence, real estate management and advisory fees.

'Leverage' is secured net debt to LTM Adjusted EBITDA. See the glossary of alternative performance measures on page 15 for more detail.

'LTIP' means the Arrow long-term incentive plan.

'LTM' means last twelve months, calculated by the addition of the consolidated financial data for the year ended 31 December 2020 and the consolidated financial data for the three months to 31 March 2021, and the subtraction of the consolidated financial data for the three months to 31 March 2020.

'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 31 March 2021 is as follows:

'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.

'ROE' means the return on equity as calculated by taking annualised profit after tax divided by the average equity attributable to shareholders. Average equity attributable is calculated as the average quarterly equity from Q1 2020 to Q1 2021 as shown in the quarterly, half year and full year statements. See 'Annualised' for more information.

'Secured net debt' means the sum of the outstanding principal amount of the senior secured notes and asset-backed loans, 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 31 March 2021 is shown in net debt above.