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Arrow Global posts profit fall as debt sale market slows

Debt purchaser Arrow Global saw pre-tax profits drop over 40 percent for Q1 2020, though the group was boosted by a €356m injection to its NPL fund management business.

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According to a trading update, Arrow’s pre-tax profit fell 43 percent to £9m, compared with 15.8m in Q1 2019, as lockdown restrictions across the UK and Europe affected cash collections and portfolio acquisitions.

 

In a UK market where some banks are pausing portfolio sales, Arrow described its cash deployment as “conservative”. New portfolio purchases were £28.1m compared to £56.4m in Q1 2019. EBITDA also fell 23 percent to £59m.

 

Like other debt purchasers, Arrow is operating in a collections environment that’s uncertain in the near term, due to several factors including court closures and a frozen property market.

 

"Arrow anticipates a deep recessionary environment in its European markets"

 

Arrow has also withdrawn financial guidance for the 2020 financial year and delayed interim results until August 25, to provide the maximum time for economic forecasts to stabilise. Given the level of operational and economic uncertainty across Europe, Arrow hopes to provide revised guidance for 2020 performance at that time.

 

The trading update adds: “Arrow currently anticipates a deep recessionary environment in its European markets.”

 

The business is in fact only just beginning to see early signs of the pandemic’s impact on cash collections and servicing revenues across its European operations.

 

The debt purchaser, which recently said it would not be paying dividends for 2019, saw drops in collections through its investment business, though cashflows in its asset management division held firm and total estimated remaining collections (ERC), for 120 months, increased on a year ago.

 

Its investment business saw collections of £85m in the first quarter – a drop from £105m in the same period last year. The £85m represented 92 percent of ERC assumptions. Arrow’s 120-month ERC total increased slightly to just over £2bn from 1.9bn a year ago.

 

The trading update says asset management and servicing (AMS) business cashflows “remained resilient”. Revenues in this division notched up marginally to £23.6m, compared to Q1 2019.

 

In terms of operations, the trading update says 100 percent of Arrow’s 2,500 employees were working from home and fully operational by the end of March. The group has made no job losses and not reduced any pay, including for furloughed staff.

 

The business has also implemented a specific Covid-19 customer support programme, where employees provide extra help to customers directly affected.

 

Fund management

Arrow’s NPL fund management business launched last year and in Q1, the group closed €356m more capital commitments. Total commitments for the fund now stand at €1.2bn.

 

Arrow’s group chief executive Lee Rochford said: “A €356m increase into our fund against the continuing backdrop of uncertainty from Covid-19, highlights the attractiveness of our fund management strategy to the alternative investment community."

 

He added: “While the virus is clearly a humanitarian tragedy, Arrow provides services that are more in demand in times of economic dislocation. Therefore, while our immediate outlook on collections remains cautious, we are highly optimistic about an increasingly attractive investment and asset servicing environment.”

 

As for a longer-term outlook on collections, Arrow said its experience of the global financial crisis suggests about 50 percent of lost unsecured collections are collected in subsequent years. Currently, automated collections form around 46 percent Arrow’s total group collections and around 80 percent of northern European unsecured collections

 

 

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