Investor Presentation 17 th October 2013
a better way forward Presented by James Cornell CEO Colin Storrar CFO Lowell Group Q4 2013 RESULTS INVESTORS PRESENTATION 1
a better way forward Overview & Highlights A strong final quarter to what would have been the year ending 31 August, with purchasing success particularly noteworthy in achieving further diversification Lowell Group Q4 2013 RESULTS INVESTORS PRESENTATION 2
Quarterly Performance Summary Further Enhancement Of Our Unique Proposition Growth & ROC Growth & ROC Liquidity Liquidity Diversification & Visibility Diversification & Visibility Analytical Advantage Analytical Advantage 9% Collections growth Strong ongoing cash Q4 2013 saw our Diversification across all from £37.0m in Q4 2012 flow generation allowed account base reach debt types and balance to £40.4m in Q4 2013 us to realise £45.5m of 12.2m - a 1.1m increase sizes further portfolio purchases in the quarter augmented by without drawing on the acquisitions in the 14% Adjusted EBITDA RCF facility – our most Breadth of data and quarter growth from £25.2m in successful quarterly insight resulting from Q4 2012 to £28.8m in Q4 purchase volume ever high penetration of 2013 Cumulative to Aug-12 May-13 Aug-13 credit active adults in Portfolio Purchases (£M) 473 548 594 Face Value (£B) 9.0 10.0 11.0 the UK increasingly a Solid cash flows No. of Combined Portfolios 586 674 708 Unlevered IRR * of 35.9% No. of Accounts (M) 10.0 11.1 12.2 point of strategic expected to continue as in Q4 2013 differentiation, allowing a result of 24% growth for better pricing and in ERC from £428.8m in £70m of forward flow enhanced collection Q4 2012 to £531.5m in purchase commitments effectiveness Q4 2013 creating strong visibility on portfolio purchases for FY 2014 Cash asset return of 23.6% * Unlevered IRR defined throughout the presentation as net of collection activity costs Lowell Group Q4 2013 RESULTS INVESTORS PRESENTATION 3
Behind The Numbers Differentiation Through Customer Centricity Preparation For FCA Regulation Progressing Well Customer focus recognised externally… Customer focus recognised externally… FCA preparations in full progress… FCA preparations in full progress… • Awarded an ‘Outstanding’ rating by Investor In • FCA consultation paper reiterates the need for Customers the customer to be central to the debt management and debt purchase business model • Setting industry standards - first debt purchaser to ever receive a service rating from Investor In • Lowell’s FAIR programme receiving great Customers (the UK’s leading customer engagement from the call centre and impressive experience consultancy) feedback from both customers and clients as to the resulting quality of calls • Award follows analysis of responses from 2,500 customers and 500 employees • Continuous improvement program in place to enhance customer experience in all key customer contact areas • Lowell enjoys a net promoter score of +25%, an impressive achievement given our industry and the nature of relationship with our customers • Updating governance structure to better align with new FCA rules Lowell Group Q4 2013 RESULTS INVESTORS PRESENTATION 4
Interlaken Significant Progress Made In Executing Our Plans To Date Source Of Value Impact What We’ve Delivered 1 Interlaken FS high balance expertise Enhanced collections through Deeper consumer insight & allows us to bring ever more best practice sharing collections analysis sophistication and automation to appropriate litigation 2 Savings achieved through Improved service cost ratio in Lower cost structure negotiation of Group rates in the Lowell. Margin enhancement in across the Group telephony, SMS, banking, mail and Interlaken audit arena 3 Leverage Interlaken’s skills Accelerate acquisition spend & Key to successful portfolio in FS high balance to drive aid portfolio diversification purchases of c£10m in FS debt incremental purchases 4 Pre agency offering being Value added services expected Wider client offering of developed while three to unlock £10m+ of incremental broader suite of services spend opportunity in 2014 Government trials now underway Lowell Group Q4 2013 RESULTS INVESTORS PRESENTATION 5
a better way forward Financial Performance Year on year growth continues across all key indicators, generating stable returns and leverage well within our covenants Lowell Group Q4 2013 RESULTS INVESTORS PRESENTATION 6
Key Financial Metrics Impressive Growth Across All Key Indicators Collections (£m) Adjusted EBITDA (£m) 113 2012 v 2013 +9% 2012 v 2013 + 14% 160 40 37 29 25 Q4 12 Q4 13 LTM Aug 13 Q4 12 Q4 13 LTM Aug 13 ERC (£m) Collections performance, allied to purchase • success, driving earnings and asset growth 2012 v 2013 + 24% 531 Adjusted EBITDA continues to grow faster than • collections (lower cost growth vs. collections) 473 429 24% year on year increase in ERC positions the • business well for the future Q4 12 Q3 13 Q4 13 Lowell Group Q4 2013 RESULTS INVESTORS PRESENTATION 7
Liquidity And Profitability Continued Strength In Cashflow And Returns Cashflow (£m) Unlevered Rate Of Return Q4 12 Q4 1 Q4 13 LTM A Q4 1 Aug 13 Cash sh ge generative a asse sset b backing: g: ER ERC 4 428.8 531.5 531. 1.5 Reported portfolio purchases 31.2 45.5 121.0 Net Debt 191.1 258.7 258.7 35.9% Net IRR (collection activity costs) Net IRR Ca Cash g genera ration: Collections/income on owned portfolios 37.0 40.4 160.0 Other income 0.1 0.4 0.7 Servicing costs (11.9) (12.0) (47.6) Adjust sted E EBITDA DA 25.2 25.2 28 28.8 113.2 Capital Expenditure (0.6) (0.4) (2.4) Working Capital Movement 5.3 (0.5) (2.0) Cash flow before debt and tax servicing 29.9 27.9 108.8 Net CoC (collection activity costs) Net CoC 1.74x Conversion of Adjusted EBITDA to Cash Flow 119% 97% 96% Cash asset return n/a n/a 23.6% Retu turn o on capi pita tal Unlevered N d Net I t IRR o of o owned portfolios ( (collection a acti tivity ty c costs) n/a 35.9% 35.9% • Cash flow conversion of 97% for the quarter – Net IRR on portfolios owned at 31 August 13 of • consistent with prior quarter 35.9% – consistent with previous quarter • Cash asset return of 23.6% represents a significant Unlevered IRR consistent with prior quarter and • and rapid conversion of ERC into cashflow, thereby pricing expectations reducing risk and providing substantial liquidity for new purchases Lowell Group Q4 2013 RESULTS INVESTORS PRESENTATION 8
Portfolio Purchases Significant Purchase Growth Adding To ERC Diversification Portfolios purchased in the quarter • Portfolio purchases in the quarter were £45.5m million 22% 29% Financial services 49% • ERC grew from £473.2 million to £531.5m between Communications Q3 and Q4 close, and stands at £530.3m at the Home retail credit 56% end of September 2013 22% 21% • June 13 was a record month for portfolio purchases at £30.3m, the majority of which was in Portfolios purchased since inception financial services • Excellent prospects for further growth on back of 26% strong pipeline of opportunities Financial services Communications Home retail credit 59% 15% Lowell Group Q4 2013 RESULTS INVESTORS PRESENTATION 9
Collections Rising Collections And Sustained Low Default Rate LTM Collections v August 2012 PVM Projections Gross Cash Collections (£m) 140 2012 v 2013 +9% 160 120 100 40 37 £ Millions 80 29% £ M 60 49% 40 20 21% 0 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Q4 12 Q4 13 LTM Aug 13 Aug 12 Projection Actual Collections Default Rate (%) • LTM collections at 102.4% of Aug 2012 model expectations 19.4% 19.2% • Collections in the quarter on portfolios owned at 17.9% 31 August 2012 performed at 103.1% of ERC projections • Further improved default rate compared to prior year in line with expectations Q4 12 Q4 13 LTM Aug 13 Lowell Group Q4 2013 RESULTS INVESTORS PRESENTATION 10
Cost Management Focus on Servicing Cost Efficiencies Continues Our Sustained Our Sustained Focu Focus s On On Cost Cost Management Management Continue Continued In Q4… d In Q4… … Contr … Contributing ng To An To An 8% 8% Reduction Reduction in in Collec Collectio ion n Cost Per Acco Cost Per Accoun unt (Pen t (Pence ce) • Interlaken Acquisition - Leverage of in house DCA platform - Leveraging the buying power of the enlarged group • Effort Sloping and Analytics 8.4% reduction 8.4% reduction - Reduction in non value adding communication through strategic letter targeting Note - Chart shows normalised variable collection costs associated with internal and external collections (excluding litigation costs) across our total account base …With …With More To More To Come Going Come Going Into FY2014… Into FY2014… • Final negotiations underway with renowned third party technology provider to deliver an integrated digital Proof of Concept regarding e-collections and e-contact • Industry leading IT hub under development to yield increased DCA collections through more effective partnerships and relationship management Lowell Group Q4 2013 RESULTS INVESTORS PRESENTATION 11
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