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

CABOT CREDIT MANAGEMENT Financial Results For the six months ended 30 June 2020 6 August 2020 Proprietary and Confidential DISCLAIMER This presentation has been prepared by Cabot Credit Management (the Company) solely for informational


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CABOT CREDIT MANAGEMENT Financial Results

For the six months ended 30 June 2020

Proprietary and Confidential

6 August 2020

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SLIDE 2

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

  • 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..

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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

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AGENDA

  • Key highlights of H1 2020
  • Financial review
  • Outlook
  • Q & A

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Proprietary and Confidential

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KEY HIGHLIGHTS

Proprietary and Confidential

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H1’20 CABOT HIGHLIGHTS

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Proprietary and Confidential

➢ Performance for H1 of 85% with steady monthly improvement during the course of Q2 towards normalisation of collection activity. ❑ In the UK, we resumed most of the outbound activity (calling, lettering, campaigning) in late May driving June monthly performance close to the original December target and above the March ERC reforecast ❑ In Europe, the re opening of courts and notaries allowed to resume collection activity leading to June monthly unsecured performance of c. 80% of Dec ERC, significantly above the March ERC reforecast ➢ We continued to provide forbearance as required. During Q2 we saw the average hold period peak at 41 days in April, the average for the quarter was 34 days. For July, the downward trend continued with 26 days compared to 22 days for 2019 ➢ Efficient and flexible cost base delivered an Adj EBITDA margin for the quarter of 62.6% while maintaining full

  • perational capabilities and stable headcount

➢ Portfolio purchases remained low during Q2 reflecting thin volumes being sold by banks during the quarter. We continue to monitor the situation in anticipation of a material increase in charge off once banks stop forbearance across our markets ➢ £255m of liquidity available and significant covenant headroom. Cabot remains well capitalised and able to capture future opportunities.

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SLIDE 7

FINANCIAL REVIEW

Proprietary and Confidential

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H1’20 KEY FINANCIAL MEASURES

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Proprietary and Confidential

DP Collections

(YTD Jun ‘19: £236.5)

£198.2m

Servicing revenues

(YTD Jun ‘19: £44.9m)

£43.4m

Portfolio acquisitions

(YTD Jun ‘19: £116.8m)

£41.6m

  • 16%
  • 3%
  • 64%

Adjusted EBITDA

(YTD Jun ‘19: £187.1m)

£154.1m

120-Month ERC

(June 2019: £2.7bn)

£2.7bn

Leverage

(June 2019: 3.8x )

3.9x

  • 18%
  • 1%

+0.1x

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314 311 310 271 275 86 88 94 95 92 415 418 423 387 387 21% 21% 22% 25% 24% 7% 12% 17% 22% 27% 32% 37% LTM Q219 LTM Q319 LTM Q419 LTM Q120 LTM Q220

  • 50

100 150 200 250 300 350 400 450 DP Revenue Servicing Revenue Other Revenue Servicing % of Total (£’m) 470 475 476 466 437

  • 5%

0% 5% 10% 15% 20% 25% 30% 35% 40% LTM Q219 LTM Q319 LTM Q419 LTM Q120 LTM Q220

  • 100

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

COLLECTIONS AND REVENUES OVERVIEW

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Proprietary and Confidential

LTM collections at 93% of the level delivered a year ago LTM revenue impacted by Q1’20 impairment charge – maintained consistent LTM revenue in Q2’20

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FLEXIBLE COST BASE HAS ENABLED CABOT TO LARGELY MAINTAIN ADJUSTED EBITDA MARGIN, DESPITE DROP IN Q2 COLLECTIONS

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Proprietary and Confidential

Adjusted EBITDA evolution ➢ As expected, collections were down in Q2 as a result of COVID-19. ➢ Collection levels steadily recovered during the quarter from its nadir in April. ➢ Adjusted EBITDA Margin has remained relatively stable despite lower collections within the quarter as costs directly attributable to collection activities have largely reduced in line with collections. ➢ Cost controls will remain in place and will be monitored closely throughout the course of H2 2020.

377 382 375 369 342 66% 65% 64% 63% 62% 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 Q219 LTM Q319 LTM Q419 LTM Q120 LTM Q220 Adjusted EBITDA Adj EBITDA Margin (£’m)

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13 35 22 4 1 32 26 41 19 17 7 7 7 52 67 70 23 18 Q2 19 Q3 19 Q4 19 Q1 20 Q2 20 Paying Non-Paying Secured (£’m) 2,680 2,748 2,743 2,726 2018 2019 Q2 19 Q2 20 (£’m)

82% 18%

YTD Q2'19 - £117m

UK Europe 92% 8%

YTD Q2'20 - £42m

UK Europe

UK, 79% Europe, 21%

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Proprietary and Confidential

LOWER SUPPLY IN CORE MARKETS AND FOCUS ON RETURNS HAS LIMITED PURCHASES YEAR TO DATE

Capital deployed – LTM £178m (£130m net) 120 month ERC Capital deployed by geography 120m ERC by region

Net deployment of £130m after £48m sale of back book portfolios to co-invest partner Q4’19

£1m of forward flow commitments as at 1 July ‘20

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Proprietary and Confidential

£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 30-Jun-2020

£2.7bn

120 month ERC 180 month ERC

Covid-19 reforecast expected cumulative performance Vs. Q4’19 published ERC ➢ Q2 collections better then forecasted at Q1 with the initial impact of COVID-19 not as severe as anticipated. ➢ Cumulative collection expectations for the full year 2020 now at 85% vs Q4 19 published ERC, up from 81% communicated at Q1. ➢ ERC levels have remained flat quarter-on-quarter with impact of COVID-19 expected to result in changes in phasing of collections.

431 430 366 316 272 237 204 178 156 137 109 98 89 81 74 Yr1 Yr2 Yr3 Yr4 Yr5 Yr6 Yr7 Yr8 Yr9 Yr10 Yr11 Yr12 Yr13 Yr14 Yr15 (£’m)

93% 85% 85% 94% 97%

Q1 '20 Actual Q2 '20 Actual Q4 '20 Estimate Q4 '21 Estimate Q4 '22 Estimate

cumulative expected performance Vs. Q4’19 published ERC

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Proprietary and Confidential

STRONG LIQUIDITY AND SIGNIFICANT COVENANT HEADROOM

Net debt as of 30-Jun-2020 (£’m) Bonds 875 ABL 350 RCF and other loans 170 Cash available (44) Net Debt 1,351 84 months ERC 2,256 LTM Adjusted EBITDA 342 LTV 60% FCCR 4.3x Net Debt / Adjusted EBITDA 3.9x ➢ Significant covenant headroom ✓ LTV 60% vs. 75% covenant(1) ✓ FCCR 4.3x vs. 2.0x covenant ➢ Strong available liquidity: £255m(2) ➢ No maturities until late 2023 ➢ Weighted average cost of debt 5.6% ➢ Leverage target of 3.0x 3.5x over the medium term ➢ Encore consolidated leverage for Q2: 2.4x

(1) RCF maintenance covenant (2) £375m RCF less drawn amount of £211.0m plus cash available of £43.6m

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

164 513 677 362 350 2020 2021 2022 2023 2024 2025 2024 € SSFRN RCF 2023 SSN ABL

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Proprietary and Confidential

OUTLOOK

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Proprietary and Confidential

OUTLOOK

➢ Continuing to focus on protecting our employees and helping our customers ➢ Working with our clients to help them meet their credit management needs and strengthen our long term relationships ➢ Progressive increase in collections activity is expected to continue lifting collections performance ➢ Actively managing cost base to continue delivering strong operating cash margins ➢ Monitoring impact of government measures and macro economic factors to understand potential impact on future conditions ➢ Expecting material increase in supply for both servicing and purchasing when delinquencies rise ➢ 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 ➢ Part of the Encore group, which delivered strong Q2 earnings and cash generation, and reported consolidated group leverage of 2.4x at the end of Q2’20

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Proprietary and Confidential

Q&A

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Proprietary and Confidential

APPENDICES

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Proprietary and Confidential

APPENDIX 1: PROFIT AND LOSS

Reconciliation of H1 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) booked in Q1’20

ECONOMIC P&L £m Total Non- recurring * Underlying Guide Collections on owned loan portfolios 198.2

  • 198.2

(a) Servicing revenue 43.4

  • 43.4

(b) Other income 6.2

  • 6.2

(c) Gross revenue 247.8

  • 247.8

(d) Recurring opex (excl. D&A) (93.7)

  • (93.7)

(e) Adj EBITDA 154.1

  • 154.1

(f) Share-based payment (2.8)

  • (2.8)

(g) Book value of REO assets sold (3.3)

  • (3.3)

(h) Non-recurring opex (1.2) (1.2)

  • (i)

Amortisation (77.3)

  • (77.3)

(j) D&A (8.6) (2.6) (6.0) (k) Operating Profit 60.9 (3.8) 64.7 (l) Finance income 3.4

  • 3.4

(m) Finance costs (49.5) (3.9) (45.6) (n) PBT 14.8 (7.7) 22.5 (o) Tax (6.1) 1.4 (7.5) (p) Net income 8.7 (6.3) 15.0 (q)

IFRS P&L

£m Reported Non- recurring * Underlying Guide Income on owned portfolios 120.9

  • 120.9

(a) + (j) Servicing revenue 43.4

  • 43.4

(b) Other income 6.2

  • 6.2

(c) Revenue 170.5

  • 170.5

Recurring opex (excl. D&A) (93.7)

  • (93.7)

(e) Share-based payment (2.8)

  • (2.8)

(g) Book value of REO assets sold (3.3)

  • (3.3)

(h) D&A (8.6) (2.6) (6.0) (k) Non-recurring opex (1.2) (1.2)

  • (i)

Operating Profit 60.9 (3.8) 64.7 (l) Finance income 3.4

  • 3.4

(m) Finance costs (49.5) (3.9) (45.6) (n) PBT 14.8 (7.7) 22.5 (o) Tax (6.1) 1.4 (7.5) (p) Net income 8.7 (6.3) 15.0 (q)

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Proprietary and Confidential

Debt Structure as at Jun-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 £362.4m E+6.375% 14-Jun-24 101.000% 14-Jun-21 100.000% Bank Debt Revolving credit facility £164.0m 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 Jun-20 (£m)

164 513 677 362 350 2020 2021 2022 2023 2024 2025 2024 € SSFRN RCF 2023 SSN ABL

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Proprietary and Confidential

APPENDIX 3: EVOLUTION OF MONEY MULTIPLES OVER TIME

Lifetime vs. Pricing 120 month gross money multiple by vintage (30-Jun-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)

Given low level of purchases in H1’20, the reported MM for 2020 is not considered to be indicative of overall market conditions

2.1x 2.4x 2.2x 2.2x 2.1x 1.7x 1.9x 2.0x 1.8x 1.9x 2.0x 2.3x 0.7x 1.2x 1.0x 1.4x 0.8x 0.8x 0.7x 0.8x 0.4x 0.2x 0.3x 0.2x

2.8x 3.5x 3.3x 3.7x 2.9x 2.4x 2.7x 2.8x 2.2x 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 @ 30-Jun-20

  • Avg. 120 GMM @ Pricing

(2)

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Proprietary and Confidential

APPENDIX 4: 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