Interim results for the six months to 30 June 2016

31 August 2016

Arrow Global Group PLC

Interim results for the six months to 30 June 2016

Arrow Global Group PLC (("the Company") and its subsidiaries (together "the Group")), a leading European purchaser and manager of debt portfolios, is pleased to announce its interim results for the six months to 30 June 2016 ("H1 2016").

Commenting on today's results, Tom Drury, Group chief executive officer of Arrow Global said:

"Arrow Global has been pursuing a consistent and proven strategy over many years. This has seen us deliver profitable growth in the UK, while continuing to expand at pace internationally and add capital-light servicing revenues to the business. Today's numbers for the first half of 2016 are very much consistent with these themes.

"In May, we acquired the Dutch and Belgian business, InVesting, for an enterprise value of €100m, aligned to our strategy of being a leading player in each of our chosen markets.

"During H1, we also invested £96.0 million in organic portfolio acquisitions, of which 43.5% were in mainland Europe. Purchases continued to be in line with target returns, with an expected 120-month gross cash-on-cash multiple for this vintage of 2.0 times.

"With our new acquisition performing well, total revenue for the half increased to £101.5 million, up 32.4% compared to the same period last year, while Adjusted EBITDA increased 60.3% to £105.3 million, and underlying net income by 25.8% to £19.1 million. Over the period, asset management revenues increased to £17.2 million and this business is expected to contribute to circa 25% of group revenues on a run rate basis.

"This strong performance saw us achieve increased underlying basic EPS of 10.9p, up 25.8%, and strong LTM RoE of 27.4%. In line with our dividend policy, today we are confirming an interim dividend of 2.7p.

"While we are mindful of the macroeconomic uncertainty prevailing in the UK and more generally, we remain highly confident that our business has strong foundations. Our underlying assets are underpinned by affordable repayment plans across a broad range of consumers, where we have historically seen limited cash flow sensitivity to macroeconomic variables. At the same time, we also have a number of operating levers that should drive continued performance improvements.

"From a financing perspective, we deliberately increased funding ahead of the UK EU Referendum, successfully issuing a €230 million bond, the funds from which were used to finance the InVesting acquisition and repay outstanding amounts under the RCF. As at the end of June, we had £158 million of undrawn funds in our RCF which provides continued liquidity for further investment. In July we successfully refinanced this RCF on more favourable terms, further reducing the Group's average cost of debt and extending the average maturity.

"In August, we were delighted to receive our full FCA authorisations, an important milestone for the Group and core to delivering on our strategy. During H1, we also reached the point where all of our core UK panel of servicers received their full FCA authorisation.

"Overall, we see no changes in our opportunity for profitable investment across our business. While we are alert to the macroeconomic uncertainty, we expect full-year earnings to be in line with our expectations and remain confident in our continued growth over the years ahead."

Highlights

· Profit before tax up 24.7% to £20.5 million (H1 2015: £16.4 million) leading to a profit attributable to shareholders up 27.5% to £16.5 million (H1 2015: £12.9 million).

· Basic and diluted earnings per share (EPS) of £0.09 (H1 2015: £0.07). Underlying basic and diluted earnings per share (EPS) 1 of £0.11 (H1 2015: £0.09) delivering an LTM underlying return on equity (ROE)1 of 27.4% (31 December 2015: 26.5%)

· Interim dividend of 2.7p per share (H1 2015: 1.7p)

· Total revenue up 32.4% to £101.5 million (H1 2015: £76.7 million), driven by core collections up 38.0% to £138.8 million (H1 2015: £100.6 million) and income from asset management up 292.7% to £17.2 million, leading to an increase in Adjusted EBITDA up 60.3% to £105.3 million (H1 2015: £65.7 million)

· Increased total purchased loan portfolios to £692.0 million (31 December 2015: £609.8 million) with 120-month ERC up 15.7% to £1,417.2 million (31 December 2015: £1,224.5 million) and 84-month ERC up 16.7% to £1,200.0 million (31 December 2015: £1,028.6 million).

· £131.4 million invested during the period, including organic portfolio purchases of £96.0 million

· Acquisition of InVesting B.V. ("InVesting"), a leading consumer debt purchaser and collections provider with operations in the Netherlands and Belgium for an enterprise value of circa €100 million

· Successfully issued €230 million seven-year Floating Rate Notes to finance the InVesting acquisition, repay outstanding amounts under our RCF and provide funds for future investments

· Successfully refinanced £180 million multi-currency RCF with a reduced margin of 2.75%, a reduction of 100bps

· S&P upgrade of the Group's credit rating to BB- from B+ and the Group's Notes credit rating from BB- to BB

· Net debt £739.1 million and Net Debt to LTM Adjusted EBITDA ratio of 3.8x (31 December 2015: 3.8x)

· Full Financial Conduct Authority (FCA) authorisation received in August

Notes:

1 Due to transformation changes to the Group brought about by the strategic acquisitions, in order to understand the performance of the Group, underlying measures are disclosed

A glossary of terms can be found on pages 30 to 33

More details explaining the business can be found in the Annual Report & Accounts 2015 which can be found on the Company website at www.arrowglobalir.net.

For further information:

Forward looking statements

This document contains statements that constitute forward-looking statements relating to the business, financial performance and results of the Company and its subsidiaries (the "Group") and the industry in which the Group operates. These statements may be identified by words such as "expectation", "belief", "estimate", "plan", "target", or "forecast" and similar expressions or the negative thereof; or by forward-looking nature of discussions of strategy, plans or intentions; or by their context. All statements regarding the future are subject to inherent risks and uncertainties and various factors could cause actual future results, performance or events to differ materially from those described or implied in these statements. Such forward-looking statements are based on numerous assumptions regarding the Group's present and future business strategies and the environment in which the Group will operate in the future. Further, certain forward looking statements are based upon assumptions of future events which may not prove to be accurate and neither the Company nor any other person accepts any responsibility for the accuracy of the opinions expressed in this document or the underlying assumptions. The forward-looking statements in this document speak only as at the date of this presentation and the Company assumes no obligation to update or provide any additional information in relation to such forward-looking statements.

Business and financial review of the period to 30 June 2016

Aligned to our strategy of being a leading player in each of our chosen markets, in May we fully financed the acquisition of Netherlands and Belgian consumer debt purchaser and collector, InVesting. The acquisition included portfolios with an estimated 120-month ERC of €107 million.

InVesting's focus is on portfolio purchase, asset management and outsourced collections provision. It offers several additional services including debt factoring, FOCUM, a business information provider, and AcheterBetalen, a leading open invoice payment provider for online post payment solutions. This investment drives further growth in our asset management business. During the period across the group we achieved 17.0% of total revenue from asset management (30 June 2015: 5.7%), with an expected run rate of approximately 25%.

In H1 2016, we strengthened both our Board and senior management team. In March, we appointed Maria Luís Albuquerque to the Board as a non-executive director. In April, we appointed in-country CEOs in the UK, Portugal and the Netherlands, to our senior management team with responsibility for all of Arrow Global's assets and operations in these geographies.

In line with our dividend policy, the interim dividend will be 2.7p per share (30 June 2015: 1.7p), being 50% of the 2015 final dividend.

Key results

* excluding £23.5 million of portfolios due to be resold

A glossary of terms can be found on pages 30 to 33.

Purchased loan portfolios

We acquired debt portfolios with a face value of £1,050.2 million for a purchase price of £131.4 million (including £35.3 million from the Investing acquisition), equating to an average purchase price of 12.5p per £1. The 120-month gross cash-on-cash multiple for this vintage is expected to be 2.0 times (84-month: 1.7 times) from the date of purchase. Of the purchase price invested 45.0% related to secured portfolios.

The balance sheet value of our purchased loan portfolios increased by 13.5% to £692.0 million as at 30 June 2016 (31 December 2015: £609.8 million). The primary drivers for this were portfolios acquired of £131.4 million, net of amortisation £55.2 million. Other movements included the disposal of assets held for resale of £23.5 million and foreign exchanges movements of £26.5 million.

ERC overview

Our 84-month ERC - the expected collections from portfolios already acquired - after taking into account movement in foreign exchange rates, has increased by 16.7% from £1,028.6 million as at 31 December 2015 to £1,200.0 million, (120-month ERC 15.7% increase to £1,417.2 million (31 December 2015: £1,224.5 million)).

The ERC is underpinned by paying accounts that have a current face value of £1.7 billion (31 December 2015: £1.5 billion), which represents 1.4 times 84-month ERC cover and 1.2 times 120-month ERC cover (31 December 2015: 1.4 times and 1.2 times accordingly). As at 30 June 2016, we estimate the amount we would need to invest over the next 12 months to maintain our current 120-month ERC level is approximately £100 million.

Revenue

Total revenue for the period was £101.5 million, an increase of 32.4% from 2015 of £76.7 million. £12.0 million of the increase reflected the enlarged size of the portfolio assets and £12.8 million of the increase was income from asset management. The latter was due to a full period of results for Whitestar and the acquisition of InVesting in May 2016.

Cash flow

Core collections

Core collections increased to £138.8 million (H1 2015: £100.6 million), reflecting the increase in our portfolio asset base. Core collections are in line with our ERC forecast. Strong performance of the 2015 and 2016 vintage has mitigated disruption of collections in Portugal, driven by moving from third party servicers to our in-house operation.

As at 30 June 2016, we have cumulatively collected 102% of our original underwriting forecast on a constant exchange rate basis, reflecting the success of our data driven approach to origination and underwriting.

Collection costs

Collections costs increased by 27.2% to £30.7 million (30 June 2015: £24.1 million).

During the period we completed the rationalisation of our UK panel and the associated migration of the accounts in-house, delivering the full benefit of the Capquest acquisition synergies.

During H1 2016, Adjusted EBITDA increased by £39.6 million (60.3%) to £105.3 million (H1 2015: £65.7 million). Cash generated by operations increased from £61.2 million in H1 2015 to £95.7 million in H1 2016. This was mainly driven by an increase in core collections net of collection costs.

Profit attributable to shareholders

Profit attributable to equity shareholders increased 27.5% from £12.9 million at 30 June 2015 to £16.5 million for the period ended 30 June 2016. This was largely driven by increased operational profit of £8.1 million, including £1.8 million from the InVesting acquisition, offset by an increase in net finance costs of £4.9 million. The latter was largely due to the issuance of €230 million Floating Rate Notes funding the acquisition of InVesting in May 2016 and increasing balance sheet liquidity in the run up to the Brexit vote.

We saw positive results of £1.3 million from our 15% interest in French market leader, MCS.

During the period, non-recurring items of £2.7 million were incurred, with an associated tax impact of £0.2 million. These arose on the strategic corporate acquisitions of InVesting and Redrock Capital Partners, S.A. ("Redrock").

After taking account of the non-recurring items discussed above, underlying net income increased 25.8% from £15.2 million at H1 2015 to £19.1 million for H1 2016.

Net assets, funding and net debt

Net assets increased £12.9 million during the period, mostly reflecting the retained profit for the period of £16.5 million and translation movements of £5.5 million, offset by the final 2015 approved dividend of £9.4 million.

In February 2016, we successfully increased our RCF to £180 million. In April, we issued €230 million senior Floating Rate Notes used to fund the InVesting acquisition and provide additional RCF headroom. As at 30 June 2016, we had cash and RCF resources of £170.0 million available. We continue to assess additional funding options as required, subject to market conditions.

Net debt at 30 June 2016 was £739.1 million (31 December 2015: £588.6 million). The drivers of the increase in net debt of £150.5 million from 31 December 2015 were the acquisitions of InVesting and Redrock and organic portfolio purchases.

All credit ratios remain within policy parameters. The net debt to LTM Adjusted EBITDA ratio has been maintained at 3.8 times. Cash interest cover has improved to 5.3 times (30 December 2015: 4.9 times). Net debt/84-month ERC loan to value ratio is 61.6% (31 December 2015: 57.2%) and the secured loan to value ratio is 58.5% (31 December 2015: 51.8%), which is significantly below our financial covenants of 75%.

On 29 July, we refinanced our £180 million multi-currency revolving credit facility, provided by four banks. The new facility has a margin of 2.75%, a reduction of 100bps from the previous facility. The commitment fee has also been reduced by 54bps. The new facility has an extended maturity of 30 November 2019 with a committed option of further extension to 31 July 2021. The cancellation of the previous RCF will result in a non-cash pre-tax cost of approximately £3 million, relating to writing off previous transaction fees, this will be treated as a non-recurring item in the group accounts.

As a reflection of our ability to continue to expand our franchise whilst maintaining our key credit ratios, on 1 August S&P upgraded the Group's credit rating to BB- from B+ and the Group's Notes credit rating from BB- to BB.

Shareholder returns

Basic EPS for the period ended 30 June 2016 was 9.5p (30 June 2015: 7.4p), representing an increase of 27.5%. Underlying basic EPS for the period ended 30 June 2016 was 10.9p (30 June 2015: 8.7p), representing an increase of 25.8%.

In accordance with our dividend policy, the interim dividend will be 2.7p per share (H1 2015: 1.7p), being 50% of the 2015 final dividend.

Recent Developments

In July we became a registered firm of the Lending Standards Board (LSB). We are now one of only a small number in our industry to achieve this. The LSB works with registered firms to promote fair lending practices and oversees adherence to the recently launched Standards of Lending Practice.

In August, our key UK trading subsidiaries received their full FCA authorisations. This marked the successful completion of the application process following the submission of our application to the regulator during our Q3 2015 landing slot.

During the period, we also reached the point where all of our core UK panel of servicers received their full FCA authorisation.

Outlook

Against the backdrop of the recent Brexit vote we will continue to monitor market and wider economic changes closely. We have operations based in the geographies in which we operate. We are licensed in our own right in these markets and as such are not reliant on the UK's ongoing membership of the EU. Prior to the Brexit vote we took the opportunity to raise €230 million Floating Rate Notes at a rate of EURIBOR plus 4.75% to finance the InVesting acquisition, repay outstanding amounts under our RCF and provide firepower for future investments. The timing of this capital raising exercise was designed to secure longer term funding ahead of potential market volatility. The cost of holding additional liquidity has a negative impact on funding costs.

As part of today's H1 reporting, in our analyst and investor presentations we have completed an analysis of repayment behavior against the backdrop of uncertain UK macroeconomic conditions - for more information visit www.arrowglobalir.net. It looks to understand the impact on our customers' repayment behavior through the 2008 recession. The analysis illustrates any potential impact on ERC is within tolerances.

With organic portfolio purchases for the remainder of 2016 of over £29 million already awarded, coupled with the continued strong performance of our asset management businesses, we expect overall full-year earnings to be in line with our expectations and we remain confident in our continued growth.

Principal risks and uncertainties

At Arrow Global, we have an Enterprise-Wide Risk Management Framework, which sits alongside the strategic business plan and is designed to support the identification, assessment, management and control of the principal risks that threaten the achievement of our business objectives.

The overall Framework is underpinned by our Risk Appetite Statements and a suite of high level risk policies. Risk is governed by the board, executive management and various risk committees, and the Group has a formal three lines of defence model, with third line provided by Deloitte LLP, our internal auditor.

Our principal risks are categorised as strategic, financial, operational and conduct. The disclosures below should not be regarded as a comprehensive list of all the risks and uncertainties facing the Group, but rather provide a summary of some of the key areas that could have the biggest impact.

Directors' responsibilities statement in respect of the interim results

We confirm that to the best of our knowledge:

the condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU;

the interim management report includes a fair review of the information required by:

DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and

DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so.

The interim results were approved on 31 August 2016 by the board of directors and are signed on its behalf by:

 Robert Memmott Group Chief Financial Officer

Independent review report to Arrow Global Group PLC

Introduction

We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2016, which comprises the consolidated statement of comprehensive income, consolidated balance sheet, consolidated statement of changes in equity, consolidated statement of cash flows and the related explanatory notes. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the Company in accordance with the terms of our engagement to assist the Company in meeting the requirements of the Disclosure Guidance and Transparency Rules ("the DTR") of the UK's Financial Conduct Authority ("the UK FCA"). Our review has been undertaken so that we might state to the Company those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company for our review work, for this report, or for the conclusions we have reached.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the DTR of the UK FCA.

As disclosed in note 1, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the EU. The condensed set of financial statements included in this half-yearly financial report have been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU.

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Scope of review

We conducted our review in accordance with the 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 Auditing Practices Board for use in the UK. 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 the International Standards on Auditing (UK and Ireland) 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.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2016 is not prepared, in all material respects, in accordance with IAS 34 as adopted by the EU and the DTR of the UK FCA.

Richard Gabbertas

for and on behalf of KPMG LLP

1 St Peter's Square

Manchester

M2 3AE

31 August 2016

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the period ended 30 June 2016

CONSOLIDATED BALANCE SHEET

The interim results were approved on 31 August 2016 by the board of directors and are signed on its behalf by:

Robert Memmott Group Chief Financial Officer

 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the period ended 30 June 2016

Translation reserve

The translation reserve comprises all foreign currency differences arising from the translation of the financial statements of foreign operations.

Merger reserve

The merger reserve represents the reserve generated upon consolidation of the Group following the Group reconstruction as part of the IPO where Arrow Global became the parent Company.

Own share reserve

The own share reserve comprises the cost of the Company's ordinary shares held by the Group. At 30 June 2016 the Group held 86,658 ordinary shares of 1p each, held in an employee benefit trust. This represents less than 0.1% of the Company share capital at 30 June 2016.

* Other reserves total £273,952,000 deficit (31 December 2015: £279,438,000 deficit, 30 June 2015: £279,074,000 deficit)

CONSOLIDATED STATEMENT OF CASH FLOWS

For the period ended 30 June 2016

 Notes

1. Statutory Information

Arrow Global Group PLC (the "Company") is a company domiciled in the United Kingdom. The condensed consolidated financial statements of the Company as at and for the six months ended 30 June 2016 comprise the Company and its subsidiaries (the "Group"). Through its subsidiary companies, the Group acquires certain pools of semi-performing and/or charged-off consumer loans pursuant to the terms of each specific purchase agreement. In addition, the Group enters into contractual servicing agreements with other third parties to collect the receivables, to administer and disburse the proceeds of the receivables.

This condensed set of consolidated interim financial statements has 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 a full annual financial statements, and should be read in conjunction with the consolidated financial statements of the Group as at and for the year ended 31 December 2015.

The annual financial statements of the Group are prepared in accordance with IFRS as adopted for use in the EU, and therefore comply with Article 4 of the EU IFRS Regulation. As required by the Disclosure Guidance and Transparency Rules of the Financial Conduct Authority, the interim financial statements has been prepared applying the accounting policies and presentation that were applied in the preparation of the Company's published consolidated annual report for the year ended 31 December 2015.

The consolidated financial statements of the Group as at and for the year ended 31 December 2015 are available upon request from the Company's registered office at Belvedere, 12 Booth Street, Manchester, M2 4AW or online at www.arrowglobalir.net.

The comparative figures for the financial year ended 31 December 2015 are not the Company's statutory accounts for that financial year. Those accounts have been reported on by the Company's auditor and delivered to the registrar of companies. The report of the auditor was

(i) unqualified

(ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report, and

(iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006. The interim financial statements of the Group have been prepared under the historical cost convention other than the fair value of derivative contracts and the amortised cost value of portfolio assets. The accounting policies are the same as those given in the annual report and accounts for the period ended 31 December 2015.

The statements were approved by the board of directors on 31 August 2016.

After making appropriate enquires, the directors have a reasonable expectation that the Company and the Group will be able to continue in operational existence for the foreseeable future, owing to the fact that forecasts show sufficient resources are available throughout the period under review. Thus, they continue to adopt the going concern basis of accounting in preparing the interim results.

2. Adoption of new standards

The following new standards and interpretations are mandatory for the year beginning 1 January 2016:

· Accounting for acquisitions of interests in joint operations (amendments to IFRS 11)

· Clarification of acceptable methods of depreciation and amortisation (amendments to IAS 16 and IAS 38)

· Equity method in separate financial statements (amendments to IAS 27)

· Annual improvements to IFRSs 2012-2014 cycle

· Disclosure initiative (amendments to IAS 1)

These standards and interpretations are not deemed to have a material impact on the results of the Group.

3. Accounting policies, critical accounting judgements and estimates

In applying the Group's accounting policies, the directors are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

In preparing the interim financial statements, the accounting policies, areas of judgement, estimation and assumption were the same as those applied  in the consolidated financial statements of the Group as at and for the year ended 31 December 2015 and also the following critical accounting estimate in relation to the InVesting and Redrock acquisitions, except as detailed in note 2 above:

Fair value of acquisition balance sheet and carrying value of goodwill

The Group capitalises goodwill on the acquisition of entities as discussed in the significant accounting policies. Goodwill is the excess of the consideration paid over the fair value of its net assets. The determination of the fair value of acquired net assets requires the exercise of management judgment, particularly for those financial assets or liabilities for which there are no quoted prices, or assets such as acquired investment portfolios where valuations reflect estimates and timing of future cash flows. Different valuations would result in changes to the goodwill arising and to the post acquisition performance of the acquisition.

The fair value of assets acquired directly impacts the amount of goodwill recognised on acquisition.

4. Earnings per share

5. Dividend

A dividend of £9,415,000 has been included in these interim results, being the final 2015 dividend of 5.4p per share.

The interim dividend will be 2.7p per share (30 June 2015: 1.7p), in accordance with our policy, being 50% of the 2015 final dividend. The dividend is payable on 13 October 2016 to shareholders who are on the register as at 16 September 2016. The ex-dividend date is 15 September 2016. The interim dividend has not been recognised as a liability in these interim financial statements.

6. Tax

The Group's effective consolidated tax rate for the six months ended 30 June 2016 was 19.45% (30 June 2015: 21.29%).

Non-recurring tax

We have identified non-recurring items in the period to 30 June 2016 amounting to £2,731,000 (30 June 2015: £2,780,000) with a £171,000 (30 June 2015: £563,000) associated tax impact.

7. Non-recurring items

Non-recurring items include items that, by virtue of their size and nature (i.e. outside of the normal operating activities of the Group), are not considered to be representative of the on going performance of the Group.

In the period to 30 June 2016, £2.7 million of costs were incurred relating to the completion of two strategic entity acquisitions, InVesting in the Netherlands and Redrock in Portugal.

In the period to 30 June 2015, £1.4 million of costs were incurred relating to the completion of two strategic Portuguese entity acquisitions, Gesphone and Whitestar, £0.9 million due to share option charges in relation to the IPO and £0.5 million due to Capquest integration, moving from an outsourced model to a partially insourced model.

8. Other operating expenses

Other operating expenses has been arrived at after charging/ (crediting):

9. Goodwill

The goodwill on acquisition of subsidiaries arose from the acquisitions of InVesting B.V. £36,870,000 and Redrock Capital Partners, S.A. £2,550,000. For more details see note 14.

On 22 April 2015, the Group acquired 33% of the share capital of Silver Parallel S.A. (the holding company of Whitestar Asset Management S.A.), recognising all of the Whitestar results at the date of the initial consideration as full voting control and economic interest had passed. We increased our holding to 75% of the shares for a further payment of €19,256,000 on 1 April 2016.

10. Financial assets

Purchased loan portfolios

The Group recognises income from purchased loan portfolios in accordance with IAS 39. At 30 June 2016, the carrying amount of the purchased loan portfolio assets was £691,959,000 (31 December 2015: £609,793,000).

The movements in purchased loan portfolio assets were as follows: 

* inclusive of capitalised portfolio expenditure of £2,383,000 (31 December 2015:, £1,406,000, 30 June 2015: £1,163,000)

For more details on the portfolios acquired through acquisition of subsidiaries see note 14.

11. Trade and other payables

The directors consider that the carrying amounts of the current trade and other payables are approximate to their fair value on the basis that the balances are short term in nature. The non-current deferred consideration has also been calculated to fair value.

12. Related party transactions

Key management, defined as permanent members of the executive committee, received the following compensation during the period.

During the period there were no other related party transactions other than discussed above.

13. Borrowings and Facilities

Senior secured notes

On 21 April 2016, the Group issued €230 million seven-year Floating Rate Notes, bearing an interest rate of EURIBOR plus 4.75% per year (Euro FRN). Interest is paid quarterly in arrears. The euro senior notes can be redeemed in full or in part on or after 1 May 2019 at the Group's option. Prior to 1 May 2017, the Group may redeem, at its option, some or all of the euro senior notes at a redemption price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, plus an applicable make-whole premium.

Revolving credit facility

On 29 July 2016, the Group refinanced its existing revolving credit facility. The Group's existing revolving credit facility was cancelled and replaced with a new £180 million multi-currency facility. The new revolving credit facility is provided by a syndicate of four participating financial institutions that provide commitments totalling £180 million. The facility has an expiry date of 30 November 2019, with a further committed extension option to 31 July 2021. For more information see Note 18, post balance sheet events.

The new revolving credit facility has a margin of 2.75% per annum over the relevant base rate. Group is required to pay a commitment fee at a rate of 35% of the margin per annum on the undrawn portion of each Lender's commitment. The revolving credit facility is secured by the same assets as the euro and sterling senior notes and ranks supersenior to these. The assets that are secured are those of the consolidated Arrow Global Guernsey Holdings Limited group of companies.

The cancellation of the existing revolving credit facility will result in a non-cash pre-tax cost of approximately £3 million, relating to writing off previous transaction fees; this will be treated as a non-recurring item in the group accounts.

Bank overdraft

Upon completion of the InVesting B.V. acquisition, the Group maintained the €20 million overdraft facility provided to the InVesting Group by a Dutch bank. The overdraft has a renewal date of 31 December 2016. The balance on this facility at 30 June 2016 was £6,979,000. The facility is secured on the assets of the InVesting Group. 

14. Acquisitions of subsidiary undertakings

InVesting

On 4 May 2016, the Group acquired 100% of the ordinary share capital of InVesting B.V. (subsequently renamed Arrow Global Investments Holdings Benelux B.V.). InVesting has a similar principal activity as the Group, is a leading consumer debt purchaser and third party collections provider with operations both in the Netherlands and Belgium.

The Group paid cash consideration of €76,964,000 (£60,649,000) and contingent consideration of €270,000 (£213,000), with an additional requirement to repay outstanding loans and other costs of €12,280,000 (£9,677,000). The contingent consideration is payable on the one year anniversary of the transaction and has been included at its fair value, at the amount contractually agreed. The contingent consideration is based on the previous shareholders fulfilling their service responsibilities for 12 months post acquisition; management deem this to be highly probable at the reporting date. Included within the opening net assets are debt liabilities of £18,412,000, comprising an overdraft with a facility limit of €20 million, drawn at the acquisition date to the value €11,084,000 (£8,735,000) and an intercompany loan of €12,280,000 (£9,677,000) from an entity of the previous Group. Further to this an intercompany loan of €12,280,000 (£9,677,000) was created between Arrow Global Investments Holdings Limited and Investing.

Goodwill of €46,788,000 (£36,870,000) was created as a result of this acquisition. The primary reasons for the acquisition were to create scale and servicing capability across multiple asset classes and to create a market leader within the Benelux market.

In the period from acquisition to 30 June 2016, InVesting contributed revenue of £8,884,000 and profit of £1,425,600 to the consolidated results for the period. If the acquisition had occurred on the first day of 1 January 2016, Group total revenue would have been an estimated £116,124,000 and profit would have been an estimated £17,735,000.

Effect of the acquisition

The acquisition had the following effect on the Group's assets and liabilities:

Goodwill of £5,410,000 previously recognised in Investing is not an identifiable asset when applying acquisition accounting and has therefore been written off through fair value adjustments accordingly.

A fair value adjustment of £16,879,000 arose on purchased loan portfolios being a difference between the carrying value and management's assessment of fair value. A fair value adjustment of £13,850,000 on the intangible asset acquired arose from fair value of existing customer relationships. An associated deferred tax liability of 25.8% of the fair value adjustment is recognised on these two fair value adjustments.

A fair value adjustment of £400,000 arose to reduce the deferred tax asset, reflecting the uncertainty over the amounts and timing of historical tax losses.

Other receivables in the acquired entities comprise gross contracted amounts of £3,675,000. There is doubt over the recoverability of £47,000 of this amount, being a specific provision against an overdue amount.

The minority interest was recorded at fair value at the acquisition date.

Redrock

On 29 February 2016, the Group acquired 100% of the ordinary share capital of Redrock Capital Partners, S.A. satisfied with cash of €3,200,000 (£2,515,000), together with deferred consideration of €454,000 (£357,000) being a total consideration of €3,654,000 (£2,872,000). The deferred consideration is payable on the one year anniversary of the transaction and has been included at its fair value, being the gross amount contractually agreed. Redrock has a similar principal activity as the Group being the management and servicing of non-performing debt portfolios on behalf of third party clients and the Group in Portugal.

Goodwill of €3,244,000 (£2,550,000) was created as a result of this acquisition. The primary reasons for the acquisition, which makes up the goodwill, were to enable further synergy gains within the Portuguese CGU from a combination of lower servicing costs and more control over owned loan portfolios. This also allows focus on low valuation collections.

In the period from acquisition to 30 June 2016, Redrock contributed revenue of £86,000 and profit of £19,000 to the consolidated results for the period. If the acquisition had occurred on the first day of 1 January 2016, Group total revenue would have been £101,546,000 and profit would have been £16,529,000.

Effect of the acquisition

The acquisition had the following effect on the Group's assets and liabilities:

A fair value adjustment of £407,000 on intangible asset acquired arose from the fair value of existing customer relationships. A fair value adjustment of £95,000 to reduce the opening value of plant, property and equipment to nil arose following the relocation of the Redrock offices in March 2016. An associated deferred tax liability of 33.0% of the fair value adjustment is recognised on these fair value adjustments.

Other receivables in the acquired entities comprise gross contracted amounts of £315,000. There are no provisions for overdue amounts.

Acquisition expenses

The Group incurred non-recurring acquisition expenses of £2,731,000 in relation to the acquisitions of InVesting and Redrock, which has been charged to the statement of comprehensive income and included within other operating expenses.

Measurement period

Whilst the Group believes the acquisition accounting fair value adjustments to be complete, IFRS 3 allows a measurement period of up to one year after acquisition to reflect any new information obtained about facts and circumstances that were in existence at the acquisition date. If any additional material changes to the Redrock or InVesting acquisition figures are required within this measurement period, these will be reflected in the 2016 Annual Report and Accounts.

The valuation techniques and inputs used in the measurement of fair value of material assets acquired are consistent with prior acquisitions as described in our 31 December 2015 financial statements.

15. Notes to the cash flow statement

*Amortisation is the net of collections in the period and income from purchased loan portfolios

16. Share based payments

The following awards were made in 2016.

Share incentive plan scheme (SIP)

In 2016, the Group offered to all UK employees the opportunity to participate in the SIP, where the Company gives the participating employees one matching share for each partnership share acquired on behalf of the employee using the participating employees' gross salaries. The shares vest at the end of three years on a rolling basis as they are purchased, with employees required to stay in employment to receive the shares.

Long-term incentive plan (LTIP)

In 2016, nil cost share options and conditional awards were granted to eligible employees based on a maximum of 150% of base salary. The LTIP awards vest at the end of three years, subject to the achievement of performance conditions. On the same date, UK tax qualifying options were granted as part of the LTIP awards ("CSOP options"). Each CSOP option is subject to the same performance targets as apply to the nil cost option part of the awards.

Each CSOP Option is subject to the same performance targets as apply to the nil-cost option part of the awards. If a CSOP Option is exercised at a gain, the number of shares that may be delivered under the above associated nil-cost option under the LTIP will be reduced at exercise by the same value to ensure that the total pre-tax value of the original LTIP award delivered to the participant is not increased by the grant of the CSOP Option.

For each eligible employee, 50% of the LTIP awards are subject to EPS growth criteria, and vests as follows:

For each eligible employee, 25% of the LTIP awards are subject to total shareholder return criteria, being share price growth plus the value of dividend. The Group is compared against the FTSE 350 Index, with the LTIP awards vesting as follows:

For each eligible employee, 25% of the LTIP awards are subject ROE growth criteria, and vest as follows:

Restricted share award and deferred bonus share awards

A restricted share award was made in May 2016, which vest on 1 May 2018. Deferred share bonus awards were made in April 2016, which vest on 8 April 2019. All are subject to continuity of employment.

Grant information for the period

The terms and conditions of the grants during the period are as follows:

There was a conditional award of 22,950 shares which vested on 31 May 2016.

The weighted average fair value of options granted during the period was £2.28. The majority of options granted to date are nil cost options.

The fair value of equity settled share based payments has been estimated as at date of grant using the Black Scholes model.

The inputs to the models used to determine the valuations fell within the following ranges.

The Company holds the obligation to settle the share options; however, the benefit arises in the subsidiaries Arrow Global Limited (AGL) and Capquest Debt Recovery Limited (CDRL) with the charge in the statement of comprehensive income recharged to AGL and CDRL.

The basis of measures used to measure executive remuneration can be seen in the Annual Report & Accounts 2015 on the Company website at www.arrowglobalir.net.

17. Financial instruments

Fair value estimation

The fair values of financial assets and financial liabilities that are traded in active markets are based on quoted market prices or dealer price quotations. For all other financial instruments, the Group determines fair values using other valuation techniques.

For financial instruments that trade infrequently and have little price transparency, fair value is less objective, and requires varying degrees of judgment depending on liquidity, concentration, uncertainty of market factors, pricing assumptions and other risks affecting the specific instrument.

Valuation models

The Group measures fair values using the following fair value hierarchy, which reflects the significance of the inputs used in making the measurements.

Financial instruments measured at fair value - fair value hierarchy

The following table analyses 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 balance sheet.

There have been no transfers in or out of Level 2.

The fair value of derivative financial instruments has been calculated by discounting expected future cash flows using interest rate yield curves and forward foreign exchange rates prevailing at 31 December 2015.

Financial instruments not measured at fair value - fair value hierarchy

The following table analyses financial instruments not measured at fair value at the reporting date, by the level in the fair value hierarchy into which the measurement is categorised. The amounts are based on the values recognised in the balance sheet. All of the Group's financial instruments fall into hierarchy level 3.

There have been no transfers in or out of Level 3.

A reconciliation of the opening to closing balances for the period of the purchased loan portfolios can be seen in note 10.

Treasury related risk management

The treasury function enters into derivative transactions, principally interest rate swap, currency swaps and forward currency contracts. The purpose of these transactions is to manage the interest rate and currency risks arising from the Group's underlying business operations. No transactions of a speculative nature are undertaken and written options may only be used when matched by purchased options. No written options were entered into during the period (2015: £nil).

18. Post balance sheet events

On 29 July 2016, the Group refinanced its existing revolving credit facility. The Group's existing revolving credit facility was cancelled and replaced with a new £180 million multi-currency facility.

The cancellation of the existing revolving credit facility will result in a non-cash pre-tax cost of approximately £3 million, relating to writing off previous transaction fees, this will be treated as a non-recurring item in the group accounts.

Glossary