Lowell preliminary quarter 3 2020 trading update





Lowell, a European leader in credit management services, today provides a preliminary trading update for the quarter ending 30 September 2020.

Financial highlights

  • Resilient collections at 93% YTD vs Dec-19 static pool and ahead of Jun-20 static pool
  • LTM Cash EBITDA margin expansion +600bps supported by strong cost control, efficiency initiatives and reduced litigation spend
  • Leverage improved to 4.6x
  • £180m capital deployed YTD on portfolio acquisitions; on track to deploy c£300m at c19% IRR in 2020
  • Drawings under RCF reduced to £252m from £403m as at 30 June 2020
  • Substantial available liquidity of c£300 million

Collections resilience continues

Collections have continued to demonstrate resilience with performance against our Dec-19 static pool at 93% YTD. Consistent with our Q2-20 update, our DACH and Nordics businesses continue to outperform our Dec-19 static pool. Our UK business has seen the largest impact on collections, principally driven by the management actions undertaken in Q2-20 to protect our customers during the early stages of the COVID pandemic. UK management actions in Q2-20 temporarily reduced outbound customer contact activity and paused new litigation activity, accounting for approximately 90% of the impact to UK collections.

Since June 2020, our UK Division has increased outbound consumer contact activity to volumes more in line with Q1-20, prior to the outbreak of the COVID pandemic, and since August 2020 has resumed new legal collections, both of which have resulted in an improvement in the UK collections with performance against our static pool improving to 86% in September 2020 from 83% in July 2020.

Our UK collections continue to be underpinned by affordable repayment plans, which account for approximately 80% of UK collections, together with a stable paying base of customers that has performed at 96% of static pool expectations during 2020. In the three months ended September 30 2020, our UK collections performed at 102% of our June 2020 forecast.

Strong consumer engagement supported by remote working

We continue to be very pleased with our positive consumer feedback and response to our approach to customer care, which is reflected in our strong Trustpilot score of 4.4/5. Digital channels continue to perform well, supporting customer engagement and collections, and contributing to more efficient collections.

Remote working continues to be the focus of our operations and is well embedded within all of our businesses, providing a stable and robust operating environment.

Focus on efficiency drives seventh quarter of margin expansion

Focus on cost control remains at the heart of our business and has delivered a significant expansion in our Cash EBITDA margin across the LTM to 57%. Margin expansion has been driven by increased operational leverage of our indirect cost base together with improved collections efficiency. We estimate the temporary reduction on legal fees related to litigation activities to have contributed to short term margin expansion of approximately 2% in Q3-20. Additional cost initiatives have been enacted in Q3-20 which are principally focussed on further indirect cost efficiencies to support sustainable margin expansion of approximately 300bps across the next 24 months compared to the base at Q2-20.

Outperformance of ERC projection in quarter

As at June 30 2020, we recognised an £11m net portfolio write down, representing 0.7% of the Group’s portfolio carrying value after completing a reforecasting exercise which was subject to review by our auditors. The net portfolio write down principally reflected the impact of the expected delay to a proportion of our UK collections as a result of the management actions described above. We do not expect the COVID pandemic to have a significant impact on our 120M ERC because we have treated collections as deferred rather than lost, and consequently we believe we will be able to achieve projected collections over the 120-month period.

In the three months ended September 30 2020, our UK collections performed at 102% of our June 2020 forecasts which underpins our expectations of the paying base performance together with the impact of increasing outbound activity and resuming litigation activities in Q3-20.

Strong liquidity and improving leverage

As at September 30 2020 we have available liquidity of approximately £300m comprising cash on balance sheet, available undrawn RCF capacity and amounts available under our securitisation facility. During September 2020 we repaid a substantial proportion of RCF drawings from cash on balance sheet. As at September 30 2020 amounts drawn under the RCF totalled £252m. In addition, during October we expect to draw down available capacity under our securitisation facility which stood at approximately £50m as at September 30 2020.

Leverage has improved to 4.6x as at September 30 2020 and we remain committed to our guidance of reducing leverage to 4.0x-3.5x by 2021/22. However, given the timing of purchases in the current year being skewed into Q4 we expect total net leverage to increase slightly during Q4 before returning to its downward trajectory. We continue to evaluate opportunities to optimise our capital structure, including through monitoring the capital markets.