CABOT CREDIT MANAGEMENT Financial Results For the year ended 31 - - PowerPoint PPT Presentation

cabot credit management financial results
SMART_READER_LITE
LIVE PREVIEW

CABOT CREDIT MANAGEMENT Financial Results For the year ended 31 - - PowerPoint PPT Presentation

CABOT CREDIT MANAGEMENT Financial Results For the year ended 31 December 2019 27 February 2020 Proprietary and Confidential DISCLAIMER This presentation has been prepared by Cabot Credit Management (the Company) solely for informational


slide-1
SLIDE 1

CABOT CREDIT MANAGEMENT Financial Results

For the year ended 31 December 2019

Proprietary and Confidential

27 February 2020

slide-2
SLIDE 2

DISCLAIMER

1

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

  • presentation. By attending the meeting at which the presentation is made, dialling into the teleconference during which the presentation is made or reading

the presentation, you will be deemed to have agreed to all of the restrictions that apply with regard to the presentation and acknowledged that you understand the legal and regulatory sanctions attached to the misuse, disclosure or improper circulation of the presentation. The Company has included non-IFRS financial measures in this presentation. These measurements may not be comparable to those of other companies. Reference to these non-IFRS financial measures should be considered in addition to IFRS financial measures, but should not be considered a substitute for results that are presented in accordance with IFRS. The information contained in this presentation has not been subject to any independent audit or review. A significant portion of the information contained in this document, including all market data and trend information, is based on estimates or expectations of the Company, and there can be no assurance that these estimates or expectations are or will prove to be accurate. Our internal estimates have not been verified by an external expert, and we cannot guarantee that a third party using different methods to assemble, analyze or compute market information and data would obtain or generate the same

  • results. We have not verified the accuracy of such information, data or predictions contained in this report that were taken or derived from industry

publications, public documents of our competitors or other external sources. Further, our competitors may define our and their markets differently than we

  • do. In addition, past performance of the Company is not indicative of future performance. The future performance of the Company will depend on numerous

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

  • perating results; (ii) statements of strategic objectives, business prospects, future financial condition, budgets, potential synergies to be derived from

acquisitions, projected levels of production, projected costs and projected levels of revenues and profits of the Company or its management or board of directors; (iii) statements of future economic performance; and (iv) statements of assumptions underlying such statements. Forward-looking statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions which are difficult to predict and outside of the control of the management of the Company. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements. We have based these assumptions on information currently available to us, if any one or more of these assumptions turn out to be incorrect, actual market results may differ from those predicted. While we do not know what impact any such differences may have on our business, if there are such differences, our future results of operations and financial condition, and the market price of the notes, could be materially adversely affected. You should not place undue reliance on these forward-looking statements. All subsequent written and oral forward-looking statements attributable to the Company or any person acting on its behalf are expressly qualified in their entirety by the cautionary statements referenced

  • above. Forward-looking statements speak only as of the date on which such statements are made. The Company expressly disclaims any obligation or

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..

slide-3
SLIDE 3

TODAY’S PRESENTERS

2

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

slide-4
SLIDE 4

AGENDA

  • Key highlights
  • Financial review
  • Outlook
  • Q & A

3

Proprietary and Confidential

slide-5
SLIDE 5

KEY HIGHLIGHTS

Proprietary and Confidential

slide-6
SLIDE 6

DELIVERING ON COMMITMENTS, BUILDING CABOT FOR THE FUTURE

➢ Successfully demonstrating our ability to generate sustainable cash flows to self fund growth ✓ Leverage reduced to 3.7x (4.1x end of 2018) ✓ Adjusted EBITDA up 6% to £375m at consistent 64% margin ✓ Simultaneously reduced net debt by 3% whilst growing ERC by 3% ➢ Maintaining operational differentiation to continue meeting client needs ✓ High level of customer satisfaction (82%), with consistently low breakage rates on payment plans ✓ Strong organic demand for our credit management services to meet client needs ➢ Optimising our model for continued success ✓ Successfully completed Spanish restructure (~200 FTE over past 18 months) ✓ Actively deploying capital with our co-investment partners in Q4’19

5

Proprietary and Confidential

slide-7
SLIDE 7

GROWING KEY METRICS WHILST DELIVERING DELEVERAGING

6

Proprietary and Confidential

DP Collections

(2018: £453.5m)

£475.6m

Servicing revenues

(2018: £82.0m)

£93.5m

Portfolio acquisitions

(2018: £333.4m)

£254.1m

+5% +14%

  • 24%

Adjusted EBITDA

(2018: £352.8m)

£375.1m

120-Month ERC

(2018: £2.7bn)

£2.7bn

Leverage

(2018: 4.1x )

3.7x

+6% +3%

  • 0.4x

1 1 – Net £206.4m after £47.7m disposal of recent purchases

slide-8
SLIDE 8

FINANCIAL REVIEW

Proprietary and Confidential

slide-9
SLIDE 9

GROWING REVENUE AND EARNINGS WHILST MAINTAINING MARGINS

8

Proprietary and Confidential

7% growth in revenue 6% growth in Adjusted EBITDA

272 299 310 40 82 94 315 393 423 13% 21% 22%

  • 5%

0% 5% 10% 15% 20% 25% 30% 35% 40% 2017 2018 2019

  • 50.0

100.0 150.0 200.0 250.0 300.0 350.0 400.0 450.0 500.0 DP Revenue Servicing Revenue Other Revenue Servicing % of Total (£’m) 295 353 375 66% 64% 64% 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

2017 2018 2019 Adjusted EBITDA Adj EBITDA Margin (£’m)

(1) Sale proceeds of £47.7m from the non-recurring sale of portfolio assets are excluded from the adjusted EBITDA calculation

1

slide-10
SLIDE 10

LEVERAGING SCALE AND LEADERSHIP POSITIONS TO MAINTAIN BEST IN CLASS COLLECTIONS RATIOS

9

Proprietary and Confidential

Evolution of cost base (£m) Evolution of cost ratios (%) ➢ Maintaining debt purchase and servicing collections margins through continual innovation ➢ Reducing underlying overhead cost ratio by delivering on benefits of scale, partially offset by rising costs of compliance and information security

450 551 587

(1)

Servicing as % of total revenue

13% 21% 22%

DP 21% Servicing 59%

(1) Recurring costs, adjusted to add back the effects of depreciation of property, plant and equipment, amortisation of intangibles, share based payments and net book value of assets sold

Total Gross Revenue: 48 55 58 108 146 154 155 201 212 2017 2018 2019 (£’m) 10.6% 10.1% 9.9% 23.9% 26.5% 26.3% 34.5% 36.5% 36.1% 2017 2018 2019 DP 21% Servicing 59%

slide-11
SLIDE 11

2,370 2,680 2,748 2017 2018 2019 (£’m)

10

Proprietary and Confidential

FOCUSED CAPITAL DEPLOYMENTS TO DELIVER DELEVERAGING AND ENHANCED RETURNS

Capital deployed – LTM £254m (£206m net) 120 month ERC growth

+3%

Capital deployed by geography 120m ERC by region

25 39 13 35 22 58 24 32 26 41 7 7 7 87 65 52 67 70 Q4 18 Q1 19 Q2 19 Q3 19 Q4 19 Paying Non-Paying Secured (£’m)

62% 38%

FY 2018 - £333m

UK Europe 74% 26%

FY 2019 £254m

UK Europe

UK, 79% Europe, 21%

Net deployment of £206m includes £48m sale of back book portfolios to co-invest partner

slide-12
SLIDE 12

11

Proprietary and Confidential

ACHIEVING IMPROVED RETURNS FROM RECENT PURCHASES

Lifetime vs. Pricing 120 month gross money multiple by vintage (31-Dec-19)

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.

2.1x 2.4x 2.2x 2.2x 2.1x 1.7x 1.9x 2.0x 1.8x 1.9x 2.0x 0.6x 1.2x 1.0x 1.3x 0.8x 0.8x 0.7x 0.7x 0.3x 0.2x 0.2x

2.8x 3.5x 3.2x 3.6x 2.9x 2.5x 2.6x 2.7x 2.1x 2.1x 2.2x 2.0x

'05-'09 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 120 GMM @ Pricing Lifetime GMM @ 31-Dec-19

  • Avg. 120 GMM @ Pricing

1

(2)

slide-13
SLIDE 13

880k 933k 2018 2019

Number of monthly UK Payers

0% 1% 2% 3% 4% 5% 2016 2017 2018 2019

90 day breakage rate for UK Payers

105% 101% 99% Vs Yr1 ERC at Dec 16 Vs Yr1 ERC at Dec 17 Vs Yr1 ERC at Dec 18

12

Proprietary and Confidential

£3.2bn

CONSISTENT, RELIABLE CASH FLOW GENERATION IN EXCESS OF ERC REPLENISHMENT NEEDS

Distribution of 180m Gross ERC by period as of 31-Dec-2019

£2.7bn

120 month ERC 180 month ERC

Collection performance

  • vs. historic ERC forecasts

Analysis of UK Payer population

90 day breakage rate represents the percentage of payers who failed to make a payment in the subsequent 3 months. Presented on an L3M basis

+6%

➢ 107% performance in 2019 against original investment expectations on portfolios originated in 2019

471 420 356 315 273 238 205 179 157 135 108 97 87 76 69 Yr1 Yr2 Yr3 Yr4 Yr5 Yr6 Yr7 Yr8 Yr9 Yr10 Yr11 Yr12 Yr13 Yr14 Yr15 (£’m)

slide-14
SLIDE 14

10 12 83 183 375 270 87

  • Adj. EBITDA

Capex Cash taxes Cash interest Free Cash Flow ERC replenishment rate Excess cash generation

13

Proprietary and Confidential

STRENGTH OF MARGINS DRIVES SIGNIFICANT CASH GENERATION

slide-15
SLIDE 15

4.2x 4.1x 4.1x 4.2x 4.2x 4.1x 4.2x 4.2x 4.1x 3.9x 3.8x 3.7x 3.7x Q416 Q117 Q217 Q317 Q417 Q118 Q218 Q318 Q418 Q119 Q219 Q319 Q419

14

Proprietary and Confidential

➢ Net debt £1,370m vs. £1,417m in Q4’18 ➢ Improvement in all key credit metrics over past year ✓ Reduced leverage to 3.7x vs. 4.1x in Q4’18 ✓ LTV: Lower to 60% vs. 63% in Q3’18 ✓ Strengthened FCCR to 4.5x vs. 4.2x in Q4’18 ➢ Available liquidity: £220m ➢ Weighted average cost of debt 5.7% ➢ Leverage target of 3.0x – 3.5x by the end of 2021 ➢ RCF maturity extended to 2023 in Q4 ‘19 ➢ ABL maturity extended to 2025 in Q1 ‘20

EXTENDED DEBT MATURITIES AND DELIVERING UPON DELEVERAGING COMMITMENT

Net debt as of 31-12-2019 (£’m) Bonds 851 ABL 350 RCF and other loans 219 Cash available (50) Net Debt 1,370 84 months ERC 2,277 LTM Adjusted EBITDA 375 LTV 60% FCCR 4.5x Net Debt / Adjusted EBITDA 3.7x Leverage Trend

(1) £385m RCF less drawn amount of £215.5m plus cash available of £50.4m

1

slide-16
SLIDE 16

Proprietary and Confidential

OUTLOOK

slide-17
SLIDE 17

16

Proprietary and Confidential

OUTLOOK

➢ Continued focus on “Being the Best at What We Do” and delivering on our mission of helping each and every customer to achieve their own financial recovery ➢ Seize the opportunities that being part of Encore, leveraging scale and expertise to maintain our competitive advantage, drive customer and compliance leadership and maximise our financial strength ➢ Continue to invest in compliance and information security to re-enforce our position as trusted partner ➢ Capture opportunities in growing markets (e.g. UK servicing, French debt purchasing) in order to deliver long term profitable revenue streams ➢ Focus on delivering deleveraging commitment of 3.0x – 3.5x by the end of 2021

slide-18
SLIDE 18

Proprietary and Confidential

Q&A

slide-19
SLIDE 19

Proprietary and Confidential

APPENDICES

slide-20
SLIDE 20

19

Proprietary and Confidential

APPENDIX 1: PROFIT AND LOSS

Reconciliation of 2019 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.

ECONOMIC P&L £m Total Non- recurring * Underlying Guide Collections on owned loan portfolios 475.6

  • 475.6

(a) Servicing revenue 93.5

  • 93.5

(b) Other income 18.0

  • 18.0

(c) Gross revenue 587.1

  • 587.1

(d) Recurring opex (excl. D&A) (212.0)

  • (212.0)

(e) Adj EBITDA 375.1

  • 375.1

(f) Non-recurring income 1.0 1.0

  • (g)

Share-based payment (3.1)

  • (3.1)

(h) Book value of REO assets sold (9.8)

  • (9.8)

(i) Non-recurring opex (2.8) (2.8)

  • (j)

Amortisation (216.4)

  • (216.4)

(k) Positive impairment of portfolio investments 50.9

  • 50.9

(l) D&A (17.0) (5.1) (11.9) (m) Operating Profit 177.9 (6.9) 184.8 (n) Finance income 0.2

  • 0.2

(o) Finance costs (100.4) (10.8) (89.6) (p) PBT 77.7 (17.7) 95.4 (q) Tax (11.8) 3.3 (15.1) (r) Net income 65.9 (14.4) 80.3 (s)

IFRS P&L

£m Reported Non- recurring * Underlying Guide Income on owned portfolios 259.2

  • 259.2

(a) + (k) Positive impairment of portfolio investments 50.9

  • 50.9

(l) Servicing revenue 93.5

  • 93.5

(b) Other income 18.0

  • 18.0

(c) Non-recurring income 1.0 1.0

  • (g)

Revenue 422.6 1.0 421.6 Recurring opex (excl. D&A) (212.0)

  • (212.0)

(e) Share-based payment (3.1)

  • (3.1)

(h) Book value of REO assets sold (9.8)

  • (9.8)

(i) D&A (17.0) (5.1) (11.9) (m) Non-recurring opex (2.8) (2.8)

  • (j)

Operating Profit 177.9 (6.9) 184.8 (n) Finance income 0.2

  • 0.2

(o) Finance costs (100.4) (10.8) (89.6) (p) PBT 77.7 (17.7) 95.4 (q) Tax (11.8) 3.3 (15.1) (r) Net income 65.9 (14.4) 80.3 (s)

slide-21
SLIDE 21

20

Proprietary and Confidential

Debt Structure as at Dec-19

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 £338.6m E+6.375% 14-Jun-24

  • 14-Jun-20

101.000% Bank Debt Revolving credit facility £215.5m L+3.000% 24-Sep-23

  • Loans

Asset backed lending facility £350.0m L+3.000% 03-Sep-23

  • 5.7%

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 2019 DEBT STRUCTURE

* Asset backed lending facility extended to March 2025 in Q1’20

Debt Maturity Profile as at Dec-19 (£m)

216 513 350 1,078 339 2020 2021 2022 2023 2024 2024 € SSFRN RCF 2023 SSN ABL

slide-22
SLIDE 22

21

Proprietary and Confidential

APPENDIX 3: ERC REPLENISHMENT RATE CALCULATION

(a) (b) (c) = (a) - (b) Year 1 Collections Year 11 Collections Net ERC decrease 31-Dec-18 467 97 370 31-Dec-19 471 108 363 Average net ERC decrease 366 (d) Avg 120 month MM 2.0x e ERC replenishment rate 183 (d) / e

slide-23
SLIDE 23

APPENDIX 4: COLLECTION PERFORMANCE VS. HISTORIC ERC FORECAST

22

Proprietary and Confidential ➢ ERC performance has been impacted by the devaluation of the € which was €1.11 at the end of 2018 to an average of €1.16 during 2019 ➢ The sale of a number of portfolios to our co-investor at the beginning of Q4’19 generated total proceeds of £47.7m, of which £17.4m related to assets acquired in 2018. These 2018 assets had an estimated £1.2m of ERC remaining in 2019 when the assets were sold

Collections reconciliation £m Collections on owned loan portfolios 475.6 Proceeds from REO sales 18.0 Core collections in 2019 493.6 Less: Core collections relating to 2019 purchases (38.3) Core collections relating to back book 455.3 FX impact from € devaluation during 2019 3.8 Effective core collections relating to back book 459.1 ERC reconciliation £m Expected 2019 collections from end 2018 ERC 467.0 ERC disposed by way of back book sale Q4’19 (1.2) Restated expected 2019 collections from back book 465.8 Operational performance against 2018 ERC projection £m ERC expected collections 465.8 Actual realised collections 459.1 2019 collections performance compared to 2018 ERC 99%

Calculation of 2019 collections performance compared to 2018 ERC

slide-24
SLIDE 24

23

Proprietary and Confidential

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