Year ended 31 December 2014 Q3 Cabot Credit Management Unaudited results for the period ended 30 0
Contents About Cabot 1 Officers and Professional Advisors 2 Directors Report 3 Independent Review Report 6 Interim Consolidated Financial Statements 8 Appendix (Unaudited) Reconciliation of Adjusted EBITDA 40 Definitions 41 Key Contacts 42
About Cabot Cabot Credit Management ( CCM ) is a market leader in credit management services including debt purchasing, contingency collections, business process outsourcing and litigation. Cabot Credit Management Limited ("the Company" including its subsidiary companies, together referred to as the "Group ) encompasses five UK businesses including Cabot Financial, dlc, Apex Credit Management, Orbit debt collections and Mortimer Clarke Solicitors (a specialist litigation law firm, authorised and regulated by the Solicitors Regulation Authority) and three European businesses Cabot Financial Ireland, Cabot Financial Spain S.A. and Nemo. From its inception in 1998, CCM has invested c 2 billion in acquiring portfolios with a Face Value in excess of 24 billion. CCM has a 120 month ERC (estimated remaining collections) of 2.3 billion. It manages in the region of 5 billion of assets on behalf of clients, collects on average 54 million per month on portfolios it either owns or services on behalf of clients, and has delivered a consistently strong financial performance, having grown its business in each of the last 17 years without exception. The Group, which has purchased circa 9 million customer accounts, employs over 1,460 people with offices in Kings Hill, Brackley, Worthing, London, Dublin, Madrid, Paris, Lyon and Marseille. The company prides itself on its ethical values, customer service and high standards. It has an impressive list of accolades including: Investors in People Gold and Champion awards Treating Customers Fairly Award 2015 and, Credit Strategy Customer Feedback Strategy Award, The Institute of Customer Service The controlling shareholder of the Group is Encore Capital Group, an international speciality finance company providing debt recovery solutions. The remaining equity is held by a fund advised by J.C. Flowers & Co., in addition to company management. 1
Officers and Professional Advisors The Officers and professional advisers of the Company at the date of this report are as follows: Directors Ken Stannard Craig Buick Secretary Charlotte Taggart Company Registration Number 05754978 Registered office 1 Kings Hill Avenue Kings Hill West Malling Kent ME19 4UA Auditors BDO LLP Chartered Accountants and Statutory Auditor 55 Baker Street London United Kingdom W1U 7EU 2
Directors Report Business review and results The accounts presented herein are for Cabot Credit Management Limited ( CCM ) and its consolidated subsidiaries (the Group ). Previously Cabot Financial Limited ( CFL ), a wholly-owned direct subsidiary of CCM, produced and released quarterly consolidated accounts for the purpose of reporting to holders of the Group s outstanding senior secured notes. Beginning with the nine months ended 30, the Group s results will be consolidated and reported at the CCM level as permitted under the reporting provisions of the bond indentures. The differences between the consolidated accounts of CFL and the consolidated accounts of CCM relate to the level of equity, intercompany loans and balances owed to holding companies of which CCM is a subsidiary, and the incurrence of some professional fees at the CCM level. CCM s consolidated equity as of 30 was 181 million, compared to CFL s consolidated equity as of 30 of 185 million as a result of losses made in CCM. CCM s consolidated liabilities as of 30 were 1,331 million, compared to CFL s consolidated liabilities as of 30 of 1,318 million as a result of non-recurring IPO expenses being accrued in CCM. CCM s consolidated recurring operating expenses as of 30 were 115 million, compared to CFL s consolidated recurring operating expenses as of 30 of 115 million as a result of minimal costs included at CCM level. Other than the line items described above, there are no material differences between CCM s consolidated accounts and CFL s consolidated accounts. The unaudited condensed interim financial have been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU. They do not include all of the information required for full annual financial, and should be read in conjunction with the financial and other financial data included in the Offering Memorandums issued for the 25 July 2013, 27 March 2014, 6 October ; and the Floating Rate Loan Note on 11 November 2015. The Directors of Cabot Credit Management Limited ("the Company" including its subsidiary companies, together referred to as the "Group ) present their unaudited condensed interim financial on the activities and financial performance of the Group for the nine months ended 30 prepared in accordance with the Offering Memorandum for the 8.375% Senior Secured Loan Notes due 2020, the 6.500% Senior Secured Loan Notes due 2021, the 5.875% Senior Secured Floating Loan Notes due 2021, and the 7.500% Senior Secured Loan Notes due 2023. 3
Directors Report Key indicators of performance The key financial data and key performance indicators presented also contain other ratios and other measures which are derived from a combination of the principal IFRS measures and non-gaap measures used by the Company. Where such amounts have been presented a description of the amount and the measures from which it has been derived has been included on in the appendix. ( in thousands, except for percentages and ratios unless otherwise noted) 9 months to 30 9 months to 30 Change 84-Month ERC at reporting date 1,947,029 1,679,353 16% 120-Month ERC at reporting date 2,314,621 2,056,353 13% Loan portfolio purchases (a) 256,330 135,087 90% Accounts (in thousands) (b) 9,019 8,255 9% Number of owned loan portfolios (c) 1,501 1,411 6% Net debt 1,180,562 1,019,723 16% Collections on owned loan portfolios 297,954 266,299 12% Commission on serviced portfolios (d) 24,693 18,138 36% Servicing costs including group overheads (e) 109,115 104,001 5% Adjusted EBITDA 214,311 180,414 19% Adjusted EBITDA margin (f) 66.4% 63.4% 4.7% Staff turnover 31.4% 27.8% 12.9% (a) (b) (c) (d) (e) (f) Loan portfolio purchases represent the gross aggregate amount payable for all portfolio purchases in the period indicated. Number of accounts represents the total number of individual consumer debts that the Group owns as of the date specified. Number of owned loan portfolios represents the number of individual portfolios of accounts that the Group owns as of the date specified. Commission on serviced portfolios represents fees and commissions receivable from the servicing of loans on behalf of third parties. Servicing costs including Group overheads means total operating expenses less depreciation of property, plant and equipment, amortisation of intangible assets and non-recurring operating costs. Adjusted EBITDA margin represents adjusted EBITDA divided by collections on owned loan portfolios plus commissions on serviced portfolios. Asset base and returns on portfolios purchased The Group continues to experience significant growth in its asset base and cash flow generation as a result of the growing volume of portfolios which it has been able to purchase, and the strong and stable return on capital which it has delivered though its pricing disciplines and the sophistication of its collection operations. 4
Directors Report While returns achieved on individual portfolios can vary, the Group has a track record of generating strong and consistent unlevered returns on its aggregate purchased portfolios. ( in millions, except for ratios) Purchase Price (a) Actual collection to date 120-Month ERC Total estimated collection (b) Gross cashon-cash multiple (c) Pre 2008 292 676 80 756 2.59 2008 81 181 43 224 2.77 2009 74 198 70 268 3.62 2010 70 142 49 191 2.73 2011 182 338 192 530 2.91 2012 149 223 197 420 2.82 2013 188 236 251 487 2.59 2014 227 219 289 508 2.24 2015 289 205 348 553 1.91 194 93 343 436 2.24 256 25 452 477 1.86 Total 2,002 2,536 2,314 4,850 2.42 (a) (b) (c) Purchase price represents the gross aggregate amount paid for all portfolio purchases in the period indicated. Total estimated collection represents actual collection to date plus the 120-Month ERC, meaning actual collections to 30 plus forecast collections for the following 120 months. The Gross cash-on-cash multiple is total estimated collections / purchase price. For the purpose of calculating the gross cash on cash multiple, the co-invested amount has been included. 5
Independent Review Report to Cabot Credit Management Limited Introduction We have been engaged by the company to review the condensed set of financial in the financial report for the nine months ended 30 which comprises the interim consolidated of comprehensive income, interim consolidated statement of financial position, interim consolidated statement of changes in equity and interim consolidated statement of cash flows. We have read the other information contained in the financial report and considered whether it contains any apparent mis or material inconsistencies with the information in the condensed set of financial. Directors responsibilities The nine months financial report is the responsibility of and has been approved by the directors. The directors are responsible for preparing the nine months financial report in accordance with International Accounting Standard 34, Interim Financial Reporting, as adopted by the European Union. Our responsibility Our responsibility is to express to the company a conclusion on the condensed set of financial in the nine months financial report based on our review. Our report has been prepared in accordance with the terms of our engagement to assist the company and for no other purpose. No person is entitled to rely on this report unless such a person is a person entitled to rely upon this report by virtue of and for the purpose of our terms of engagement or has been expressly authorised to do so by our prior written consent. Save as above, we do not accept responsibility for this report to any other person or for any other purpose and we hereby expressly disclaim any and all such liability. Scope of review We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, Review of Interim Financial Information Performed by the Independent Auditor of the Entity, issued by the Financial Reporting Council for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. 6
Independent Review Report to Cabot Credit Management Limited Conclusion Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial in the financial report for the nine months ended 30 is not prepared, in all material respects, in accordance with the International Accounting Standard 34 as adopted by the European Union. BDO LLP Chartered Accountants London United Kingdom 31 October BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127). 7
Interim Consolidated Statement of Comprehensive Income For the period ended 30 Notes 9 months to 30 (Unaudited) 9 months to 30 (Unaudited) Revenue Income from portfolio investments 200,532 181,710 Servicing revenue 24,693 18,138 Property sales income 779 - Total Revenue 3 226,004 199,848 Operating Expenses Collection activity costs (75,709) (70,036) Recurring other operating expenses Non-recurring other operating expenses 5 (39,716) (10,539) (39,334) (908) Total Operating Costs (125,964) (110,278) Operating Profit 100,040 89,570 Recurring finance income 6 795 413 Gain on derivative financial instruments 2,127 11,665 Total finance income 2,922 12,078 Recurring finance costs 7 (64,449) (65,322) Non-recurring net finance costs 5 2,828 - Total finance costs (61,621) (65,322) Total profit before taxation 41,341 36,326 Total tax expense (5,852) (6,546) Profit for the financial period Other comprehensive income 35,489 29,780 Other comprehensive income to be reclassified to profit and loss in subsequent periods: Exchange differences arising on translation of foreign operations (2,402) (19,009) Total comprehensive income for the period 33,087 10,771 Underlying profit for the period 5 39,481 21,199 8
Interim Consolidated Statement of Comprehensive Income For the period ended 30 Profit for the period attributable to: 9 months to 30 (Unaudited) 9 months to 30 (Unaudited) Equity holders of the parent 35,432 29,754 Non-controlling interest 57 26 35,489 29,780 Other comprehensive income for the period attributable to: Equity holders of the parent (2,402) (19,009) (2,402) (19,009) Total comprehensive income for the period attributable to: Equity holders of the parent 33,030 10,745 Non-controlling interest 57 26 33,087 10,771 Earnings per share ( ) Basic 108.68 94.02 Diluted 108.68 94.02 Underlying earnings per share ( ) Basic 120.92 66.91 Diluted 120.92 66.91 9
Interim Consolidated Statement of Comprehensive Income For the period ended 30 Notes 3 months to 30 (Unaudited) 3 months to 30 (Unaudited) Revenue Income from portfolio investments 68,449 62,541 Servicing revenue 10,789 6,121 Property sales income 474 - Total Revenue 3 79,712 68,662 Operating Expenses Collection activity costs Recurring other operating expenses Non-recurring other operating expenses 5 Total Operating Costs (26,729) (14,111) (4,215) (45,055) (21,131) (14,511) (398) (36,040) Operating Profit 34,657 32,622 Recurring finance income 6 509 221 Gain on derivative financial instruments 122 4,130 Total finance income 631 4,351 Recurring finance costs 7 (22,007) (22,470) Non-recurring net finance costs 5 3,366 - Total finance costs (18,641) (22,470) Total profit before taxation 16,647 14,503 Total tax expense (232) (2,618) Profit for the financial period Other comprehensive income 16,415 11,885 Other comprehensive income to be reclassified to profit and loss in subsequent periods: Exchange differences arising on translation of foreign operations Total comprehensive income for the period (269) (3,929) 16,146 7,956 Underlying profit for the period 5 15,373 8,892 10
Interim Consolidated Statement of Comprehensive Income For the period ended 30 Profit for the period attributable to: 3 months to 30 (Unaudited) 3 months to 30 (Unaudited) Equity holders of the parent 16,488 11,819 Non-controlling interest (73) 66 16,415 11,885 Other comprehensive income for the period attributable to: Equity holders of the parent (269) (3,929) (269) (3,929) Total comprehensive income for the period attributable to: Equity holders of the parent 16,219 7,890 Non-controlling interest (73) 66 16,146 7,956 Earnings per share ( ) Basic 48.76 37.35 Diluted 48.76 37.35 Underlying earnings per share ( ) Basic 45.67 27.89 Diluted 45.67 27.89 11
Interim Consolidated Statement of Financial Position As at 30 Assets Notes 30 (Unaudited) 31 December (Audited) Non-current assets Goodwill 10 276,463 267,731 Intangible assets 19,344 18,215 Property, plant and equipment 5,176 5,683 Deferred tax asset 4,061 4,196 305,044 295,825 Current assets Cash and cash equivalents 11 49,870 43,287 Purchased loan portfolios 12 1,109,347 944,605 Inventory 16,654 16,496 Trade and other receivables 13 23,749 26,045 Current tax asset 5,177 1,899 Other financial assets 2,225 337 1,207,022 1,032,669 Total assets 1,512,066 1,328,494 Equity and liabilities Equity Share capital 354 322 Share premium 48,088 16 Capital contribution reserve 7,270 3,436 Retranslation reserve (28,027) (25,625) Accumulated profits 153,100 117,668 Equity attributable to owners of the parent 180,785 95,817 Non-controlling interest 609 552 Total equity 181,394 96,369 12
Interim Consolidated Statement of Financial Position As at 30 Liabilities Notes 30 (Unaudited) 31 December (Audited) Non-current liabilities Borrowings 15 1,196,243 1,063,591 Deferred tax liability 21,010 21,079 Other financial liabilities 10,836 7,044 Provisions 16 4,500 4,455 1,232,589 1,096,169 Current liabilities Trade and other payables 14 78,295 111,230 Borrowings 15 2,921 19,870 Current tax liabilities 5,705 347 Provisions 16 5,553 3,446 Other financial liabilities 5,609 1,063 98,083 135,956 Total liabilities 1,330,672 1,232,125 Total equity and liabilities 1,512,066 1,328,494 These financial of Cabot Credit Management Limited, with registered number 05754978, were approved by the Board of Directors and authorised for issue on 31 October. Signed on behalf of the Board of Directors by: C Buick Director 13
Interim Consolidated Statement of Changes in Equity (Unaudited) Share Capital Share Premium Capital contribution reserve Retrans -lation reserve Accum -ulated profit Total attribute -able to parent Non- Control -ling interest Total equity As at 1 January 322 16 3,436 (7,391) 94,597 90,980-90,980 Comprehensive income for the period: Profit for the period - - - - 29,754 29,754 26 29,780 Other comprehensive losses - - - (19,009) - (19,009) - (19,009) Total comprehensive income - - - (19,009) 29,754 10,745 26 10,771 Acquisition of subsidiary - - - - - - 538 538 As at 30 322 16 3,436 (26,400) 124,351 101,725 564 102,289 Loss for the period - - - - (6,683) (6,683) (12) (6,695) Other comprehensive income - - - 775-775 - 775 As at 31 December 322 16 3,436 (25,625) 117,668 95,817 552 96,369 Comprehensive income for the period: Profit for the period - - - - 35,432 35,432 57 35,489 Other comprehensive losses - - - (2,402) - (2,402) - (2,402) Total comprehensive income - - - (2,402) 35,432 33,030 57 33,087 Issue of share capital 32 48,072 - - - 48,104-48,104 Capital contribution from intermediate parent undertakings - - 3,834 - - 3,834-3,834 As at 30 354 48,088 7,270 (28,027) 153,100 180,785 609 181,394 14
Interim Consolidated Statement of Cash Flows For the period ended 30 Notes 9 months to 30 9 months to 30 Net cash used in operating activities before 17 (85,108) (94,166) collections and purchases Income taxes and overseas taxation paid (3,598) (761) Collections on owned loan portfolios, net 300,965 266,299 determination cash Purchases of loan portfolios, net of determination (251,404) (161,863) (a) (b) cash Sales of loan portfolios 2,680 404 Proceeds on disposal of inventory 779 - Net cash generated from operating activities (35,686) 9,913 Investing activities Interest received 19 94 Purchases of property, plant and equipment (4,328) (3,791) Repayment/(Purchases) of intangibles (167) (18) Acquisition of subsidiary, net of cash acquired (3,718) (354) Net cash used in investing activities (8,194) (4,069) Financing activities Interest paid (79,165) (64,196) Repayment of borrowings (344,516) (67,436) Proceeds from borrowings 475,001 118,344 Cash flows on derivatives 4,155 11,057 Transaction costs from borrowings (4,822) (1,231) Net cash used in financing activities 50,653 (3,462) Net increase in cash and cash equivalents 6,773 2,382 Cash and cash equivalents at beginning of period 43,288 30,742 Effect of foreign exchange rate changes on cash and (191) 5,053 cash equivalents Cash and cash equivalents at end of period 49,870 38,177 (a) (b) Determination cash relates to collections generated between the disclosure date, when a portfolio purchase is agreed, and the completion date. This represents the amount paid for portfolio purchases in the period plus a deferred element of purchases from prior periods. 15
For the nine months ended 30 1. General information Cabot Credit Management Limited is a limited company incorporated and domiciled in England and Wales. The registered office is located at 1 Kings Hill Avenue, Kings Hill, West Malling, Kent. The principal activities of the Group comprise credit management services, including the purchase and recovery of non-performing consumer loans in the United Kingdom and Europe. 2. Significant accounting policies 2.1. Basis of preparation These interim consolidated financial have been prepared in accordance with IAS 34 Interim Financial Reporting. They do not include all disclosures that would otherwise be required in a complete set of financial and should be read in conjunction with the Group s annual financial as at 31 December. The preparation of interim consolidated financial in compliance with IAS 34 requires the use of certain critical accounting estimates. It also requires Group management to exercise judgement in applying the Group s accounting policies. There have been no material revisions to the nature and amount of changes in estimates of amounts reported in the annual financial for the year ended 31 December. The accounting policies adopted in the preparation of the interim condensed financial are consistent with those followed in the preparation of the Group s annual consolidated financial for the year ended 31 December. There have been no new standards impacting the preparation of these interim financial. The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not effective. The purchased loan portfolios held on the statement of financial position are classified as current assets in line with IAS1, as they represent the trading assets of the business and are expected to be realised within the normal operating cycle. 2.2. Changes in accounting policies and disclosures Recent accounting pronouncements The standards and interpretations that are issued, but not yet effective are disclosed below. The Group intends to adopt these standards, if applicable, when they become effective. IFRS 9 Financial Instruments IFRS 9 brings together all three aspects of the accounting for financial instruments project: classification and measurement, impairment and hedge accounting and replaces IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 is effective for annual periods beginning on or 16
For the nine months ended 30 after 1 January 2018, with early application permitted. Retrospective application is required but providing comparative information is not compulsory. The Group continues to assess the likely impact of adopting IFRS 9. Management do not anticipate the adoption having a significant impact on the results of the Group as the Group purchase assets at a deep discount which already reflects the credit loss on the assets. It is anticipated that disclosures will change as a result of adopting IFRS 9. The Group plans to adopt the new standard on the required effective date. IFRS 15 Revenue from Contracts with Customers IFRS 15 establishes a five-step model to account for revenue arising from contracts with customers. Under IFRS 15, revenue is recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. The new revenue standard will supersede all current revenue recognition requirements under IFRS. Either a full retrospective application or a modified retrospective application is required for annual periods beginning on or after 1 January 2018. Early adoption is permitted. The Group plans to adopt the new standard on the required effective date. The Group does not anticipate the impact of IFRS 15 to be material as the amount of revenue recognised under this standard is approximately 10% of total revenue. The Group plans to adopt the new standard on the required effective date. IFRS 16 Leases IFRS 16 Leases applies to accounting periods beginning on or after 1 January 2019 but has not yet been endorsed for use by those entities applying EU IFRS. It requires lessees to bring all leases within its scope on the statement of financial position, showing an asset for the right of use and a liability for the discounted amount of future payments. The Directors have not yet considered the impact of this standard. Share-based payment The Group provides benefits to employees in the form of share-based payment transactions, whereby employees render services as consideration for equity instruments. The cost is measured by reference to the fair value on grant date and is recognised as an expense over the relevant vesting period, ending on the date on which the employee becomes fully entitled to the award. At each reporting date prior to vesting, the cumulative expense is calculated, representing the extent to which the vesting period has expired and the best estimate of the number of equity instruments that will ultimately vest, adjusted for leavers. The movement in the cumulative expense since the previous reporting date is recognised in the income statement, with the corresponding increase in reserves. 17
For the nine months ended 30 3. Revenue An analysis of revenue by activity is as follows: 9 months ended 30 9 months ended 30 Income on owned portfolios (note 12) 200,532 181,710 Servicing fees 24,693 18,138 Property sales income 779-226,004 199,848 Of which outside United Kingdom Income on owned portfolios 30,910 22,446 Servicing fees 19,326 15,425 Property sales income 779-51,015 37,871 3 months ended 30 3 months ended 30 Income on owned portfolios 68,449 62,541 Servicing fees 10,789 6,121 Property sales income 474-79,712 68,662 Of which outside United Kingdom Income on owned portfolios 10,790 7,954 Servicing fees 6,956 8,459 Property sales income 474-18,220 16,413 18
For the nine months ended 30 4. Segment information For management purposes, the Group is organised into business segments based on geographical locations, which is consistent with internal reporting to the chief operating decision-maker, the executive board. These segments are managed separately due to the different nature and relationships within each location. The Group s reportable segments are as follows: UK: This segment is for earnings from our UK operations, including both collections on owned assets and earned commissions on collections for third parties. Europe: This segment is for earnings from our European operations, in Ireland, Spain, Portugal and France. This includes both collections on owned assets and earned commissions on collections for third parties. Group: Group costs represent the costs incurred in maintaining a central group function. These costs cannot be directly attributed to other segments. This segment incurs support costs that are not fully allocated to the operating businesses. Segment performance is evaluated based on revenues, operating costs and adjusted EBITDA, which in certain respects, as shown in the table below, is measured differently from the same measures in the consolidated financial and on a non-gaap basis. This is due to intragroup revenues and costs which are removed at a consolidated level. Gross revenue is cash collections, income from servicing and other income. Total costs are all operating costs incurred by the Group as shown in the income statement excluding non-recurring costs, depreciation and amortisation. Adjusted EBITDA is calculated as net cash generated from operating activities adjusted to exclude the effects of working capital changes, acquisitions and integration costs, exceptional costs and loan portfolio acquisitions. Income taxes are managed on a group basis. 9 months to UK Europe Group Adjustments Total Gross Revenue 262,289 72,072 7,218 (18,154) 323,425 Net Revenue 185,919 51,021 7,218 (18,154) 226,004 Total Costs (81,138) (29,523) (17,110) 18,154 (109,617) Adjusted EBITDA 173,100 40,637 574-214,311 EBITDA 96,730 19,586 574-116,890 Operating profit 101,722 18,357 (20,039) - 100,040 * The majority of the Europe segment relates to trade from Ireland 19
For the nine months ended 30 4. Segment information (Continued) 9 months to UK Europe Group Adjustments Total Gross Revenue 240,374 53,467 4,864 (14,267) 284,438 Net Revenue 171,558 37,693 4,864 (14,267) 199,848 Total Costs (81,346) (23,311) (13,620) 14,267 (104,010) Adjusted EBITDA 159,028 30,156 (8,770) - 180,414 EBITDA 90,212 14,382 (8,770) - 95,824 Operating profit 89,118 12,568 (12,116) - 89,570 * The majority of the Europe segment relates to trade from Ireland 3 Months to UK Europe Group Adjustments Total Gross Revenue 90,155 27,007 2,411 (5,565) 114,008 Net Revenue 64,641 18,225 2,411 (5,565) 79,712 Total Costs (27,452) (10,060) (7,276) 5,565 (39,223) Adjusted EBITDA 60,325 16,276 (1,313) - 75,288 EBITDA 29,137 24,613 (12,758) - 40,992 Operating profit 43,067 7,150 (15,560) - 34,657 * The majority of the Europe segment relates to trade from Ireland 3 Months to UK Europe Group Adjustments Total Gross Revenue 79,929 19,855 2,217 (5,498) 96,503 Net Revenue 58,438 13,505 2,217 (5,498) 68,662 Total Costs (25,401) (9,029) (5,022) 5,498 (33,954) Adjusted EBITDA 54,528 10,827 (2,818) - 62,537 EBITDA 33,037 4,474 (2,818) - 34,693 Operating profit 32,708 3,783 (3,869) - 32,622 * The majority of the Europe segment relates to trade from Ireland 20
For the nine months ended 30 5. Underlying Profit Underlying profit is the profit for the period after tax adjusted for the post-tax effect of non-recurring items, amortisation of acquired intangibles and the gain or loss on the derivative financial instruments. This is considered a more comparable performance metric as this excludes the impact of one-off material items which can lead to variability in reported profit. 9 Months to (Unaudited) 9 Months to (Unaudited) Profit after tax 35,489 29,780 Add back: Non-recurring operating expenses Restructuring costs 582 764 Company acquisition costs 2,832 122 IPO costs 6,964 - Other non-recurring expenses 161 22 Total non-recurring operating expenses 10,539 908 Non-recurring finance costs Early redemption fees 7,875 - Release of unamortised fair value adjustment (11,313) - Facility fees 610 - Total non-recurring net finance costs (2,828) - Gain on derivative instrument (2,127) (11,665) Total non-recurring costs 5,584 (10,757) Tax effect of above (1,592) 2,176 Underlying profit after tax 39,481 21,199 21
For the nine months ended 30 5. Underlying Profit (Continued) 3 Months to (Unaudited) 3 Months to (Unaudited) Profit after tax 16,415 11,885 Add back: Non-recurring operating expenses Restructuring costs 56 412 Company acquisition costs 498 (36) IPO costs 3,522 - Other non-recurring expenses 139 22 Total non-recurring operating expenses 4,215 398 Non-recurring finance costs Early redemption fees 7,875 - Release of unamortised fair value adjustment (11,313) - Facility fees 72 - Total non-recurring net finance costs (3,366) - Gain on derivative instrument (122) (4,130) Total non-recurring costs 727 (3,732) Tax effect of above (1,769) 739 Underlying profit after tax 15,373 8,892 22
For the nine months ended 30 6. Finance income 9 months ended 30 9 months ended 30 Bank interest income 104 176 Interest income from parent undertakings (a) 691 237 Fair value gain on derivative instruments 2,127 11,665 2,922 12,078 (a) Interest receivable from parent undertakings is accrued but not paid at a rate of LIBOR plus 4% p.a on trading balances and at a rate of 5% p.a on loans. 3 months ended 30 3 months ended 30 Bank interest income 37 55 Interest income from parent undertakings (a) 464 166 Foreign exchange on borrowings 8 - Fair value gain on derivative instruments 122 4,130 631 4,351 (a) Interest receivable from parent undertakings is accrued but not paid at a rate of LIBOR plus 4% p.a on trading balances and at a rate of 5% p.a on loans. 23
For the nine months ended 30 7. Finance cost 9 months ended 30 9 months ended 30 Interest and fees on borrowings 3,711 4,007 Interest on Senior Secured Notes and related charges 59,271 59,715 Interest expense due to parent undertakings (a) 396 267 Unwind of discount on deferred consideration 326 919 Foreign exchange on borrowings 237 356 Other bank or similar interest 508 58 64,449 65,322 (a) Interest payable to parent undertakings is accrued but not paid at a rate of LIBOR plus 4% p.a on trading balances and at a rate of 5% p.a on loans. 3 months ended 30 3 months ended 30 Interest and fees on borrowings 1,034 3,603 Interest on Senior Secured Notes and related charges 20,192 18,043 Interest expense due to parent undertakings (a) 180 134 Unwind of discount on deferred consideration 94 124 Foreign exchange on borrowings - 507 Other bank or similar interest 507 59 22,007 22,470 (a) Interest payable to parent undertakings is accrued but not paid at a rate of LIBOR plus 4% p.a on trading balances and at a rate of 5% p.a on loans. 8. Tax The applicable corporation tax rate for the period to 30 was 19.25% (30 : 20%). The Group's effective consolidated tax rate for the period to 30 was 14% (30 : 18%). The current period effective rate tax is reflective of the applicable corporate tax rate for the period and reconciling items. 24
For the nine months ended 30 9. Business combinations Orbit On 19 May, the Group completed the acquisition of 100% of the ordinary shares of Orbit Debt Collections Limited ( Orbit ), a servicing business based in the UK. Orbit was acquired by Cabot Debt Recovery Solutions Limited which is a member of the Group. Orbit was acquired because it allowed for entry into a new market that fits naturally with the Group s group model. The assessment of fair values of the identifiable assets and liabilities at acquisition are shown below and are provisional under the measurement period. Management have not yet completed the purchase price accounting. Fair value recognised on acquisition Assets Property, plant and equipment 287 Trade and other receivables 1,876 Cash 365 Intangible assets 2,061 4,589 Liabilities Trade and other payables (1,515) Third party loans (28) (1,543) Total identifiable net assets at fair value 3,046 Goodwill arising on acquisition 8,554 Purchase consideration recognised 11,600 Purchase consideration Cash paid 3,506 Deferred contingent consideration 8,094 Total consideration 11,600 Analysis of cash flows on acquisition Net cash acquired with the subsidiary 365 Cash paid (3,506) Net cash flow on acquisition (3,141) The excess of consideration over fair value of identifiable net assets (goodwill) of 8.6 million is primarily attributed to synergies and other benefits from combining the assets and activities of Orbit with those of the Group. The goodwill is not deductible for income tax purposes. 25
For the nine months ended 30 9. Business combinations (Continued) All acquired receivables are accounted for at fair value and represent the full contractual amounts. As at the date of acquisition, the gross contractual amount of trade and other receivables was equal to the fair value, and this reflects the best estimate of contractual cash flows. The deferred contingent consideration of 8.1 million has been calculated based upon the expected outcome calculated with reference to the terms stipulated in the SPA. This is based on the future performance of Orbit measured against performance targets over the period to 30 June 2019. These terms do not limit this payment. Since the date of acquisition to 30, Orbit has contributed 2.7 million revenue and 0.2 million profit before tax to the continuing operations of the Group. If the acquisition had taken place at the beginning of the year, Orbit would have contributed 5.0 million revenue and 0.5 million profit before tax to the continuing operations of the Group. 10. Goodwill At 1 January 266,289 Acquisitions 409 Exchange differences 1,033 At 31 December 267,731 Acquisitions 8,554 Exchange differences 178 At 30 276,463 11. Cash and cash equivalents 30 31 December (audited) Own cash balances 34,685 30,982 Client cash balances (a) 15,185 12,305 Total 49,870 43,287 (a) Cash balances collected on behalf of and due to third party clients and relates to items held within trade and other payables 26
For the nine months ended 30 12. Purchased loan portfolios 30 31 December (audited) Expected falling due after 12 months Purchased loan portfolios 960,956 831,067 Expected falling due within 12 months Purchased loan portfolios 148,391 113,538 Total 1,109,347 944,605 The following table summarises the movement in the current value of the Group s loan portfolios in the period: 30 31 December (audited) Current value at the beginning of the financial period 944,605 879,690 Movement in current value (a) 203,433 244,459 Gross collections on owned portfolios (301,221) (358,669) Portfolios acquired during the period, net of determination cash 259,573 168,392 Portfolios acquired through acquisition of a subsidiary - 1,565 Portfolios sold during the period (1,454) (4,688) Foreign exchange and pre-determination cash 4,411 13,856 Current value at the end of the financial period 1,109,347 944,605 (a) Return for credit risk, adjusted for changes in the current values of the loan portfolios arising from periodic changes in estimates of future cash flows on owned loan portfolios as shown in note 3. 13. Trade and other receivables 30 31 December (audited) Trade and other receivables 16,385 14,941 Amounts owed by parent undertakings 684 7,360 Prepayments and accrued income 6,680 3,744 23,749 26,045 Loans and amounts owed by/to parent and subsidiary undertakings are unsecured, include amounts outside of the CCM group but under common control, have no fixed repayment date, are repayable on demand and interest on such balances is accrued on an arm s length basis. 27
For the nine months ended 30 14. Trade and other payables 30 31 December (audited) Trade payables 21,168 14,866 Other tax and social security 3,949 879 Amounts owed to parent undertakings 8,615 66,220 Other payables 20,380 7,545 Accruals and deferred income 24,183 21,720 78,295 111,230 15. Borrowings 30 31 December (audited) Non-current Senior Secured Notes 880,279 1,037,389 Bank loans and overdrafts (a) 55,032 24,187 Other loans 260,932 2,015 1,196,243 1,063,591 Current Senior Secured Notes 3,813 21,587 Bank loans and overdrafts (a) (892) (1,717) 2,921 19,870 Total borrowings 1,199,164 1,083,461 Analysis of loan repayments: Within one year 2,921 19,870 In more than one year but less than 5 years 847,049 714,262 In more than 5 years 349,194 349,329 1,199,164 1,083,461 (a) Bank loans and overdrafts include unamortised facility fee in relation to the revolving credit facility. 28
For the nine months ended 30 15. Borrowings (Continued) The following table analyses the Senior Secured Notes held by the Group, together with the Directors assessment of their fair value based on the Luxembourg Stock Exchange quoted price at the reporting date. 30 31 December (audited) Maturity date Interest rate Fair value 30 Fair value 31 December (audited) 100m Senior Secured Note 150m Senior Secured Note 175m Senior Secured Note 310m Senior Secured Floating Rate Note 350m Senior Secured Note 100,000 100,000-150,000 175,000 175,000 272,815 265,593 350,000 350,000 1 August 2020 1 August 2020 1 April 2021 15 November 2021 5 October 2023 8.375% 104,449 105,000 10.500% - 163,688 6.500% 180,360 178,938 EURIBOR +5.875% 277,509 268,800 7.500% 380,639 351,313 Asset backed lending facility Revolving credit facility 897,815 1,040,593 942,957 1,067,739 260,000-23 LIBOR +2.85% 2022 260,000-24 56,500 27,000 56,500 27,000 2019 Other loans 932 2,015 932 2,015 Unamortised debt issue costs (20,767) (20,891) - - Accrued interest 4,684 21,183 4,684 21,183 Unamortised fair value adjustment [ 150m Note from Marlin acquisition] - 13,561 - - 1,199,164 1,083,461 1,265,073 1,117,937 29
For the nine months ended 30 15. Borrowings (Continued) Based on the Luxembourg Stock Exchange quoted price at the reporting date, the Directors believe the fair value of the senior secured loan notes to be 943.0 million (31 December : 1,067.7 million). For all other items, the Directors believe the fair value of the liabilities is not materially different to the carrying value because the balances are readily converted to cash and because there has been no significant change in interest rates since the amounts were initially recognised. As at 30 the revolving credit facility had a drawdown balance of 56.5 million (31 December : 27.0 million). There are also unamortised debt issue costs of 20.8 million (31 December : 20.9 million) regarding the Group borrowing facilities. Such costs are released to the statement of comprehensive income over the life of the facility. The Group is covenanted to ensure its Loan to Value ( LTV ) Ratio shall not exceed 0.75, and at 30 the LTV Ratio was compliant at 0.61 (31 December : 0.61). The LTV Ratio is calculated as being the ratio of the net financial indebtedness to the Group 84 month ERC at the reporting date. On 23 August, a 100% owned subsidiary within the Group entered into a non-recourse 260m Asset Backed Senior facility, with a five year legal maturity at an initial rate of 2.85% over LIBOR. Professional fees of 3.9 million were capitalised relating to the facility. On 4, the Group redeemed the 150 million 10.5% Senior Secured note which had a maturity of August 2020. The note was redeemed at a premium of 5.25%, which was charged to non-recurring finance costs. In addition, the fair value adjustment recognised on acquisition of Marlin, that had been unwound over the remaining term of the note, was also released resulting in a credit of 11.3 million to non-recurring finance income being recognised. Net debt represents third-party indebtedness, less cash at bank and in hand (excluding cash held for clients), and excluding unamortised debt issue costs and accrued interest relating to the Group s thirdparty indebtedness. A reconciliation of Net Debt as reported in the key indicators of performance is as follows. ( in thousands, except for percentages and ratios unless otherwise noted) 30 (Unaudited) 30 (Unaudited) Borrowings 1,199,164 1,059,003 Deduct: Cash as reported in the financial (49,870) (38,177) Net debt: borrowings less cash as reported in the financial 1,149,294 1,020,826 Add back: unamortised facility fees and similar costs 20,767 21,714 Add back: client cash (note 11) 15,185 11,345 Deduct: accrued interest (4,684) (19,777) Deduct: fair value adjustment to Marlin Notes - (14,385) Net debt 1,180,562 1,019,723 30
For the nine months ended 30 16. Provisions Decommissioning Restructuring Other Total Brought forward as at 1 January 500 1,763 5,638 7,901 Unwinding of discount 45 - - 45 Utilisation - (648) (145) (793) Additions - - 2,900 2,900 As at 30 545 1,115 8,393 10,053 Current - 1,115 4,438 5,553 Non-current 545-3,955 4,500 Decommissioning A provision has been recognised for decommissioning costs associated with various premises leased by the Group. The Group is committed to restoring the premises to their original state at the end of the lease term. Restructuring As part of the dlc integration, we have consolidated the Apex and dlc operations in dlc s Brackley office and closed the Apex Stratford office. Other Other provisions include liabilities that arise as a result of regulation, compliance and business acquisitions. 31
For the nine months ended 30 17. Notes to the statement of cash flows Group 30 30 Profit for the period 35,489 29,780 Adjustments for: Current value movement on owned loan portfolios (203,433) (181,709) Net finance costs 58,699 53,244 Income tax expense 5,852 6,546 Profit on sale of portfolios (1,337) - Depreciation of property, plant and equipment 2,363 1,836 Amortisation of intangible assets Non-recurring costs 3,947 (3,316) 3,532 (115) Share-based payment expense 938 - Operating cash flows before movements in working capital (100,798) (86,886) Increase in receivables (5,054) (4,262) Increase in inventory (495) (3,018) Increase in payables 21,239 - Cash used in operating activities before collections and purchases (85,108) (94,166) 32
For the nine months ended 30 18. Financial Instruments (a) Carrying amount of financial instruments A summary of the financial instruments held by category is provided below: 30 31 December (audited) Financial assets Financial assets at fair value through profit and loss Derivative assets 2,225 337 Financial assets not at fair value through profit and loss Cash and cash equivalents (note 11) 49,870 43,287 Loan portfolios (note 12) 1,109,347 944,605 Trade and other receivables (note 13) 17,069 22,301 Total 1,178,511 1,010,530 Financial liabilities Financial liabilities at fair value through profit and loss Derivative liabilities 5,609 1,064 Other financial liabilities 7,517 2,056 Financial liabilities not at fair value through profit and loss Trade and other payables (note 14) 74,346 110,351 Loans and borrowings (note 15) 1,199,164 1,083,461 Other financial liabilities 3,319 4,988 Total 1,289,955 1,201,920 (b) Carrying Amount versus Fair value The following table compares the carrying amounts and fair values of the Group's financial assets and financial liabilities as at 30. The Group considered that the carrying amount of the following financial assets and financial liabilities are a reasonable approximation of their fair value due to their short term nature: Trade and other receivables; Trade and other payables; and Cash and cash equivalents. The carrying amount of other payables is considered to be equal to its fair value as there has been no significant change in interest rates since the payable was initially recognised. 33
For the nine months ended 30 18. Financial Instruments (Continued) Financial Assets Cash and cash equivalents (note 11) 30 (Unaudited) Carrying Fair Amount Value '000 '000 31 December (Audited) Carrying Amount '000 Fair Value '000 49,870 49,870 43,287 43,287 Loan portfolios (note 12) 1,109,347 1,109,347 944,605 944,605 Trade and other receivables 17,069 17,069 22,301 22,301 (note 13) Derivative financial assets 2,225 2,225 337 337 Total 1,178,511 1,178,511 1,010,530 1,010,530 Financial liabilities Trade and other payables 74,346 74,346 110,351 110,351 (note 14) Loans and borrowings (note 1,199,164 1,265,073 1,083,461 1,117,937 15) Other payables 10,836 10,836 7,044 7,044 Derivative liabilities 5,609 5,609 1,064 1,064 Total 1,289,955 1,355,864 1,201,920 1,236,396 (c) Fair value Hierarchy The level in the fair value hierarchy within which the financial asset or financial liability is categorised is determined on the basis of the lowest level input that is significant to the fair value measurement. Financial assets and liabilities are classified in their entirety into only one of the three levels. The fair value hierarchy has the following levels: Level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2 - inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); Level 3 - inputs for the asset or liability that are not based on observable market data (unobservable inputs). The objective of valuation techniques is to arrive at a fair value measurement that reflects the price that would be received to sell the asset or paid to transfer the liability in an orderly transaction between market participants at the measurement date. 34
For the nine months ended 30 18. Financial Instruments (continued) The following table analyses derivative financial instruments measured at fair value at the reporting date by the level in the fair value hierarchy into which the fair value measurement is categorised. The amounts are based on the values recognised in the statement of financial position. 30 Level 1 Level 2 Level 3 Financial instruments measured at fair value Derivative assets 2,225-2,225 - Derivative liability (5,609) - (5,609) - Deferred contingent (7,517) - - (7,517) consideration Total (10,901) - (3,384) (7,517) 31 December (Audited) Level 1 Level 2 Level 3 Financial instruments measured at fair value Derivative assets 338-338 - Derivative liabilities (1,064) - (1,064) - Deferred contingent (2,056) - - (2,056) consideration Total (2,782) - (726) (2,056) (d) Transfers during the period During the period ending 30 : There were no transfers between Level 1 and Level 2 fair value measurements; and There were no transfers into or out of Level 3 fair value measurements. 35
For the nine months ended 30 18. Financial Instruments (continued) (e) Valuation techniques (i) Derivative assets and liabilities Derivative financial instruments include foreign exchange forward contracts and interest caps. The determination of fair value is based on the market price of the derivate as at the period end and includes reference to third party valuations received from financial institutions. (ii) Deferred contingent consideration The deferred contingent consideration as at 31 December relates to the historic purchase of Gesif S.A.U. which was released during the period. The fair value of this was determined at acquisition to be 2.3m using DCF method. The deferred contingent consideration as at 30 relates to the purchase of Orbit disclosed in note 9. 19. Related party transactions During the nine month period to 30 there were intra-group interest charges with companies outside of the Cabot Credit Management Limited Group but under common control that resulted in interest income of 0.7 million (: 0.2 million) and interest expenses of 0.4 million (: 0.3 million). These amounts are included within the amounts owed by parent undertakings of 0.7 million (: 7.4 million) and amounts owed to parent undertakings of 8.6 million (: 66.2 million). During the nine month period to 30, fees of 0.6 million (: 0.6 million) were recharged to Encore Capital Group Inc ( Encore ), the Company s ultimate parent for any fees incurred by the Cabot Credit Management Limited Group which solely relate to US GAAP and Sarbanes Oxley compliance. Amounts outstanding as at 30 were 0.5 million (: 0.2 million). During the nine month period to 30, fees of 0.5 million (: 0.3 million) were recharged from Encore for costs that it incurred on behalf of the Cabot Credit Management Limited Group. Amounts due as at 30 were 0.5million (: 0.2 million). During the nine month period to 30, a fee of nil million (: 2.2 million) was charged to the statement of comprehensive income in respect of servicing fees payable to Midland Credit Management India Private Limited, a fellow subsidiary of Encore. The amount due in respect of these fees as at 30 was 0.1 million (: 0.2 million) which is included within other payables. During the nine month period to 30, a fee of 2.1 million (: 0.5 million) was charged to the statement of comprehensive income in respect of servicing fees payable to Grove Performance Management Limited, a fellow subsidiary of Encore. The amount due in respect of these fees as at 30 was 0.2 million (: 0.2 million) which is included within other payables. 36