CABOT CREDIT MANAGEMENT Financial Results For the three months - - PowerPoint PPT Presentation

CABOT CREDIT MANAGEMENT Financial Results

For the three months ended 31 March 2020

Proprietary and Confidential

12 May 2020

DISCLAIMER

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Proprietary and Confidential This presentation has been prepared by Cabot Credit Management (“the Company”) solely for informational purposes. For the purposes of this disclaimer, the presentation that follows shall mean and include the slides that follow, the oral presentation of the slides by the Company or any person on their behalf, any question-and-answer session that follows the oral presentation, hard copies of this document and any materials distributed in connection with the

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factors which are subject to uncertainty. Certain statements contained in this document that are not statements of historical fact, including, without limitation, any statements preceded by, followed by or including the words “targets,” “believes,” “expects,” “aims,” “intends,” “may,” “anticipates,” “would,” “could” or similar expressions or the negative thereof, constitute forward-looking statements, notwithstanding that such statements are not specifically identified. In addition, certain statements may be contained in press releases, and in oral and written statements made by or with the approval of the Company that are not statements of historical fact and constitute forward-looking statements. Examples of forward-looking statements include, but are not limited to: (i) statements about future financial and

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undertaking to disseminate any updates or revisions to any forward-looking statement to reflect events or circumstances after the date on which such statement is made, or to reflect the occurrence of unanticipated events. The presentation does not constitute or form part of, and should not be construed as, an offer to sell or issue, or the solicitation of an offer to purchase, subscribe to or acquire the Company or the Company’s securities, or an inducement to enter into investment activity. No part of this presentation, nor the fact of its distribution, should form the basis of, or be relied on in connection with, any contract or commitment or investment decision whatsoever. This presentation is not for publication, release or distribution..

TODAY’S PRESENTERS

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Proprietary and Confidential ➢ Joined Cabot Group in January 2016 ➢ 20+ years’ Finance experience ➢ Previous roles:

Christian Burgess

Chief Financial Officer

Craig Buick

Chief Executive Officer

PricewaterhouseCoopers Managing Director – Audit, Europe and Asia CFO – Italy Controller – UK Bank ➢ Joined Encore Group in January 2018 ➢ 20+ years’ Finance experience ➢ Previous roles: Chief Financial Officer Managing Director – Finance and Operations Strategy Director – Global Markets

AGENDA

• Key highlights of Q1 2020
• Financial review
• Outlook
• Q & A

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KEY HIGHLIGHTS

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Q1’20 CABOT HIGHLIGHTS

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➢ Successfully transitioned the majority of our debt purchase operations to work from home during March, both in the UK and in Europe. Providing a safe work environment for employees is a top priority ➢ The business remained fully operational and has capacity to deal with increased levels of inbound calls ➢ We continue to provide forbearance and support to our consumers in these difficult times ➢ Q1’20 collections performance of 93% of ERC (as of YE 2019) ❑ UK (~80% of our ERC) performed in line with expectations at 101% ❑ Europe at 71% performance, heavily impacted by Covid-19 in Spain (~10% of our Q1 ERC) ➢ Future ERC timing has been delayed, triggering a £34m increase in portfolio amortization. At this stage, we don’t anticipate a permanent loss of ERC but rather a timing shift ➢ 9% of employees currently furloughed and tight cost control implemented. We are monitoring the situation and assessing our cost base ➢ £231m of liquidity available and significant covenant headroom. Cabot remains well capitalised and able to capture future opportunities.

UNDERSTANDING OUR COLLECTIONS PROFILE

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DP collections & REO sales by type (£m) ➢ ~80% of our total collections arise from our UK business, of which ~75% comes from payment plans and ~25% from settlements

• UK payment plans provide stable, highly granular cash flows - average 90 day breakage rate ~ 2%
• ~50% of UK settlements are provided by customers who were previously payers

➢ Spanish collections comprise ~ 34% from secured assets, with the balance relating to unsecured accounts

59% 19% 11% 11%

Q1'20 - £112m

UK Payment Plans UK Settlements Spain Remaining Europe 55% 20% 12% 13%

2019 - £494m

HOW DO WE PROVIDE FORBEARANCE TO OUR CONSUMERS?

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➢ Our mission is helping each and every customer to achieve their own financial recovery. ❑ Offering forbearance is a critical part of what we do, and something we have done for many years ❑ It is a well established practice consistent with delivering affordable and sustainable payment plans calibrated for each consumer’s circumstances ❑ We do not charge any fees or interest to do so ➢ The amount of forbearance that we have provided has remained consistent ❑ In the UK, during 2019, we provided forbearance to our consumers more than 350,000 times ❑ During Q1 (and April), we experienced a volume of accounts where forbearance was required consistent with historical trends ➢ We have however seen an extension of the average hold period for which forbearance has been provided ❑ In 2019, the average hold period as c. 22 days ❑ We did increase the average hold period to c. 45 days on average in early April. For April the average was 41 days ➢ Overall, forbearance has not, to date, had a material impact on our financial performance ➢ We continue to engage actively with our consumers in their path to financial recovery – the provision of forbearance is an established part of our normal operating model

FINANCIAL REVIEW

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Q1’20 KEY FINANCIAL MEASURES

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DP Collections

(YTD Mar ‘19: £117.5)

£107.8m

Servicing revenues

(YTD Mar ‘19: £21.6m)

£23.5m

Portfolio acquisitions

(YTD Mar ‘19: £64.8m)

£23.2m

• 8%

+9%

• 64%

Adjusted EBITDA

(YTD Mar ‘19: £90.1m)

£83.6m

120-Month ERC

(March 2019: £2.7bn)

£2.7bn

Leverage

(March 2019: 3.9x )

3.7x

• 7%

+2%

• 0.2x

CABOT GENERATING CONSISTENT GROSS REVENUES

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Maintaining collections during period of suppressed capital deployment Accounting revenue impacted by £34m amortisation charge associated with expected delays in collections

308 314 311 310 271 84 86 88 94 95 405 415 418 423 387 21% 21% 21% 22% 25%

• 5%

0% 5% 10% 15% 20% 25% 30% 35% 40% LTM Q119 LTM Q219 LTM Q319 LTM Q419 LTM Q120

• 50

100 150 200 250 300 350 400 450 DP Revenue Servicing Revenue Other Revenue Servicing % of Total (£’m) 462 470 475 476 466

• 5%

0% 5% 10% 15% 20% 25% 30% 35% 40% LTM Q119 LTM Q219 LTM Q319 LTM Q419 LTM Q120

• 100

200 300 400 500 600 DP Collections (£’m)

ADJUSTED EBITDA REFLECTS EARLY IMPACT OF COVID-19 WITH EXPECTED DOWNWARD PRESSURE IN NEAR TERM

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2% year over year increase in LTM Adjusted EBITDA ➢ Measures implemented by governments in order to address COVID-19 impacted on March collections, particularly in Europe ➢ Near term delays in collections as a result of COVID-19 will put downward pressure on Adjusted EBITDA and margins ➢ Rigorous cost controls in place to mitigate impact of expected near term collections reduction, including limitations on discretionary spend, freeze of non customer facing recruitment, placement of ~9% of workforce onto furlough

363 377 382 375 369 65% 66% 65% 64% 63% 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0% 90.0% 100.0%

• 50,000

100,000 150,000 200,000 250,000 300,000 350,000 400,000

LTM Q119 LTM Q219 LTM Q319 LTM Q419 LTM Q120 Adjusted EBITDA Adj EBITDA Margin (£’m)

39 13 35 22 4 24 32 26 41 19 7 7 7 65 52 67 70 23 Q1 19 Q2 19 Q3 19 Q4 19 Q1 20 Paying Non-Paying Secured (£’m)

96% 4%

YTD Q1'19 - £65m

UK Europe 90% 10%

YTD Q1'20 - £23m

UK Europe

UK, 79% Europe, 21%

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CONTINUED CAPITAL DEPLOYMENT RIGOR THROUGHOUT Q1’20 – FUTURE PURCHASES LINKED TO SUPPLY AND ABILITY TO PRICE RISK

Capital deployed – LTM £213m (£165m net) 120 month ERC growth

+2%

Capital deployed by geography 120m ERC by region

Net deployment of £165m after £48m sale of back book portfolios to co-invest partner 2,680 2,748 2,682 2,729 2018 2019 Q1 19 Q1 20 (£’m)

£15m of forward flow commitments as at 1 April ‘20

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£3.2bn

PROFILE OF EXPECTED COLLECTIONS IMPACTED BY COVID-19, BUT LIFETIME VALUE EXPECTED TO BE MAINTAINED

Distribution of 180m Gross ERC by period as of 31-Mar-2020

£2.7bn

120 month ERC 180 month ERC

388 447 377 319 279 241 206 179 157 136 107 98 88 80 73 Yr1 Yr2 Yr3 Yr4 Yr5 Yr6 Yr7 Yr8 Yr9 Yr10 Yr11 Yr12 Yr13 Yr14 Yr15 (£’m)

Covid-19 reforecast expected cumulative performance Vs. Q4’19 published ERC ➢ Material impact on collections expected remainder of 2020 as a result of COVID-19, with recovery over following two years ➢ Spanish court closures currently limit our ability to collect, or sell real estate during this period ➢ Lower near term UK settlements expected as a result of change in collections strategies ➢ Curves reflect an expected delay in collections

93% 81% 93% 97%

Q1'20 Q4'20 Q4'21 Q4'22

cumulative expected performance Vs. Q4’19 published ERC

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STRONG LIQUIDITY AND SIGNIFICANT COVENANT HEADROOM

➢ Significant covenant headroom ✓ LTV 61% vs. 75% covenant(1) ✓ FCCR 4.6x vs. 2.0x covenant ➢ Strong available liquidity: £231m(2) ➢ No maturities until late 2023 ➢ Weighted average cost of debt 5.6% ➢ Leverage target of 3.0x 3.5x over the medium term Net debt as of 31-Mar-2020 (£’m) Bonds 868 ABL 350 RCF and other loans 199 Cash available (50) Net Debt 1,367 84 months ERC 2,257 LTM Adjusted EBITDA 369 LTV 61% FCCR 4.6x Net Debt / Adjusted EBITDA 3.7x

(1) RCF maintenance covenant (2) £375m RCF less drawn amount of £181.0m plus cash available of £50.0m

Debt Maturity Profile as at Mar-20 (£m)

194 513 707 355 350 2020 2021 2022 2023 2024 2025 2024 € SSFRN RCF 2023 SSN ABL

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OUTLOOK

HISTORIC CORRELATION OF UK UNEMPLOYMENT AND CHARGE-OFF RATES INDICATE FUTURE FRONT BOOK OPPORTUNITIES

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Sources: Bank of England, Office of National Statistics, JPM Research

0% 1% 2% 3% 4% 5% 6% 7% 8% 9% Derived total unsecured annualised quarterly charge-off rate Unemployment rate (aged 16 and over, seasonally adjusted) Forecast unemployment rate

➢ Given various market views of expected rise in near term unemployment rate, historic correlation indicates that charge

• ff rate likely to rise in the near term which creates future market opportunities (debt purchase and servicing)

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OUTLOOK

➢ Focussed on continuing to protect our employees and their families ➢ Helping our customers during periods of financial hardship (including forbearance) is what we have been doing for many years and will continue to do ➢ Managing business to navigate short term reduction in collections – reflects a delay rather than loss of collections ➢ Monitoring impact of government measures and macro economic factors to understand potential impact on future conditions ➢ Maintaining our strong liquidity position, solid balance sheet and positive cash generation. We remain committed to our leverage target of 3.0x - 3.5x, over the medium term ➢ Working with our clients to help them meet their credit management needs and strengthen our long term relationships

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Q&A

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APPENDICES

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APPENDIX 1: PROFIT AND LOSS

Reconciliation of Q1 2020 IFRS Reported Net Income

* Non-recurring items are those items or income or cost that that by virtue of either their size or nature, are not considered part of the underlying performance of the business. Amortisation includes COVID-19 impact of curves adjustments (£34m)

ECONOMIC P&L £m Total Non- recurring * Underlying Guide Collections on owned loan portfolios 107.8

• 107.8

(a) Servicing revenue 23.5

• 23.5

(b) Other income 3.9

• 3.9

(c) Gross revenue 135.2

• 135.2

(d) Recurring opex (excl. D&A) (51.6)

• (51.6)

(e) Adj EBITDA 83.6

• 83.6

(f) Share-based payment (1.3)

• (1.3)

(g) Book value of REO assets sold (2.0)

• (2.0)

(h) Non-recurring opex (1.1) (1.1)

• (i)

Amortisation (70.5)

• (70.5)

(j) D&A (4.3) (1.3) (3.0) (k) Operating Profit 4.4 (2.4) 6.8 (l) Finance income 1.8

• 1.8

(m) Finance costs (28.0) (5.0) (23.0) (n) PBT (21.8) (7.4) (14.4) (o) Tax 2.5 1.6 0.9 (p) Net income (19.3) (5.8) (13.5) (q)

IFRS P&L

£m Reported Non- recurring * Underlying Guide Income on owned portfolios 37.3

• 37.3

(a) + (j) Servicing revenue 23.5

• 23.5

(b) Other income 3.9

• 3.9

(c) Revenue 64.7

• 64.7

Recurring opex (excl. D&A) (51.6)

• (51.6)

(e) Share-based payment (1.3)

• (1.3)

(g) Book value of REO assets sold (2.0)

• (2.0)

(h) D&A (4.3) (1.3) (3.0) (k) Non-recurring opex (1.1) (1.1)

• (i)

Operating Profit 4.4 (2.4) 6.8 (l) Finance income 1.8

• 1.8

(m) Finance costs (28.0) (5.0) (23.0) (n) PBT (21.8) (7.4) (14.4) (o) Tax 2.5 1.6 0.9 (p) Net income (19.3) (5.8) (13.5) (q)

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Debt Structure as at Mar-20

Instrument Face Value Interest Rate Maturity Date Current Redemption Price Next Call Date Next Redemption Price Bonds 2023 Senior Secured Note £512.9m 7.500% 05-Oct-23 103.750% 01-Oct-20 101.875% 2024 € Senior Secured Floating Rate Note £355.0m E+6.375% 14-Jun-24

• 14-Jun-20

101.000% Bank Debt Revolving credit facility £194.0m L+3.000% 24-Sep-23

• Loans

Asset backed lending facility £350.0m S+3.060% 15-Mar-25

• 5.6%

Weighted average cost of debt

We continue to explore possible synergies with respect to Encore, including in connection with potential debt refinancing options.

APPENDIX 2: OUTLINE OF 2020 DEBT STRUCTURE

Debt Maturity Profile as at Mar-20 (£m)

194 513 707 355 350 2020 2021 2022 2023 2024 2025 2024 € SSFRN RCF 2023 SSN ABL

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APPENDIX 3: EVOLUTION OF MONEY MULTIPLES OVER TIME

Lifetime vs. Pricing 120 month gross money multiple by vintage (31-Mar-20)

Excludes secured purchases (1) Reflects underlying portfolios from acquired businesses in the year in which they were originated by the acquired business (2) Lifetime GMM reflects actual collections to date plus estimated collections over next 180 months.

1

(2)

2.1x 2.4x 2.2x 2.2x 2.1x 1.7x 1.9x 2.0x 1.8x 1.9x 2.0x 2.4x 0.7x 1.1x 1.0x 1.4x 0.8x 0.7x 0.8x 0.7x 0.4x 0.2x 0.2x 0.2x

2.8x 3.5x 3.2x 3.6x 2.9x 2.4x 2.7x 2.8x 2.1x 2.1x 2.3x 2.5x 2.0x

'05-'09 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 120 GMM @ Pricing Lifetime GMM @ 31-Mar-20

• Avg. 120 GMM @ Pricing

Given low level of purchases in Q1’20, the reported MM for 2020 is not considered to be indicative of overall market conditions

23 Monthly Historical Collections for Pre-crisis Vintages1 Rolling 12M Breakage Rates Evolution1

Source: Company information. Office of National Statistics

• 1. U.K. only

Monthly collections (£ in millions) U.K. unemployment rate

0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% 9.0% £0.0 £0.5 £1.0 £1.5 £2.0 £2.5 £3.0 £3.5 £4.0 £4.5 2005 2006 2007 2008 2009 2010 2011 2012 2013 2005 2006 2007 UK unemployment rate 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% 2006 2007 2008 2009 2010 2011 2012 2013 Rolling 12M breakage rate Period of rising unemployment

APPENDIX 4: ROBUST PERFORMANCE OF U.K. BACK BOOK DURING THE FINANCIAL CRISIS

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APPENDIX 5: GLOSSARY

120-Month ERC 120-Month ERC means the Group’s estimated remaining collections on purchased loan portfolios over a 120-month period, which represents the expected future gross cash collections on the Group’s purchased loan portfolios over a 120-month period Adjusted EBITDA Adjusted EBITDA is Operating Profit adjusted to add back the effects of current value movements on owned loan portfolios, depreciation of property, plant and equipment, amortisation of intangibles, share based payments, net book value of assets sold and non-recurring operating expenses Adjusted EBITDA margin Adjusted EBITDA divided by gross revenue CAGR Compound annual growth rate Capital deployed ‘Portfolio acquisitions’ Collection activity costs Collection activity costs consists of staff salaries and benefit costs, servicing fees, communication costs (including the cost of collection letters sent to customers, such as printing and postage costs), credit bureau data costs and legal costs directly associated with collection activity. Cost to collect ratio Ratio of collection activity costs as a percentage of ‘Gross revenue’ DP collections Amounts collected, including by agents on behalf of the Group, from customers on purchased loan portfolios ERC ERC means the Group’s estimated remaining collections on purchased loan portfolios over a defined period, which represents the expected future gross cash collections on the Group’s purchased loan portfolios over a defined monthly or annualised period ERC replenishment rate Average of two ERC forecasts. ERC replenishment rate calculated as Year 1 collections less Year 11 collections, divided by average 120 month Money Multiple (2.0x) FCCR Fixed Charge Coverage Ratio ‘FCCR’ is calculated as LTM Adjusted EBITDA/ Net Interest Expense Gross revenue ‘DP collections’ plus ‘Servicing revenues’ plus ‘Other income’ adjusted to add back the effect of net book value of assets sold Leverage Leverage is Net debt / LTM Adjusted EBITDA LTM Last twelve months LTV Loan to Value ‘LTV’ ratio is calculated as Net Debt/ 84 ERC Money multiples Money multiples are total expected gross cash collections divided by portfolio acquisition price Non-recurring items Items or income or cost that that by virtue of either their size or nature, are not considered part of the underlying performance of the business. This includes restructuring costs, acquisition costs, IPO costs, costs associated with refinancing, foreign exchange gains or losses, the gain or loss on hedge instruments and amortisation of acquired intangibles Net revenue Revenue as reported in statutory accounts. Gross revenue less portfolio amortisation Portfolio acquisitions Portfolios purchased by the Group Servicing revenues Fees receivable and commissions from the servicing of loan portfolios on behalf of third parties, as recognised in the profit and loss account with respect to paying commissions accrued, inclusive of fees for other credit management services such as consultancy services, training, business process outsourcing and hosted IT systems provision