16 Apr 2020 16:55
16 April 2020
Arrow Global Group PLC ("Arrow Global" or the "Company")
Annual Report and Accounts for the financial year ended 31 December 2019
and Notice of Annual General Meeting 2020
Arrow Global, a leading European investor and asset manager in non-performing and non-core assets, is pleased to announce that, further to the release of the Company's preliminary results announcement on 12 March 2020, it has today published its 2019 Annual Report and Accounts (the "Annual Report").
A copy of the following documents have been submitted to the National Storage Mechanism and will shortly be available for inspection at https://data.fca.org.uk/#/nsm/nationalstoragemechanism
· The Annual Report;
· Notice of Annual General Meeting 2020; and
· Proxy Form for the Annual General Meeting 2020.
(the "Documents")
The Documents may be viewed at and downloaded from the Company's website at www.arrowglobal.net and will be posted to shareholders in due course.
Arrow Global's seventh Annual General Meeting will be held on Tuesday, 2 June 2020 at 9:30am at Arrow Global, 2nd Floor, 6 Duke Street, St James's, London SW1Y 6BN.
Arrow Global is closely monitoring the developments relating to coronavirus (COVID-19) in view of the evolving situation, public health concerns and related measures. Following the enactment of the Stay at Home Measures by the UK government on 26 March 2020 in response to the outbreak of COVID-19, shareholders will not be permitted to attend the AGM in person and anyone seeking to attend will be refused entry unless the measures are lifted by the date of the meeting and the board considers it safe for shareholders to do so. The format of the meeting will be purely functional, involving the minimum possible number of attendees in person to allow the meeting to take place in accordance with legal requirements. Shareholders should vote by proxy and are asked to appoint the Chair of the meeting as their proxy, rather than a named person who will not be permitted to attend the meeting.
Given the situation is continuing to evolve, it may be necessary to change the arrangements for this year's AGM. Please continue to check the Company's website and regulatory announcements for any further updates prior to the meeting.
ENQUIRIES:
Arrow Global Group PLC
Stewart Hamilton (Company Secretary) +44 (0)161 242 5861
Additional information
The following information is extracted from the Annual Report (page references are to pages in the Annual Report) and should be read in conjunction with the Company's preliminary results announcement issued on 12 March 2020. This unedited text was produced as at 12 March 2020 and is prior to any assessment of COVID-19. Both documents can be found at www.arrowglobal.net and together constitute the material required by Disclosure Guidance and Transparency Rule 6.3.5 to be communicated to the media in unedited full text through a Regulatory Information Service. This material is not a substitute for reading the Annual Report in full.
Principal risks and uncertainties
Principal risks
Principal risks are identified through the risk framework and tracked via our risk committees. The following table identifies key thematic risks and mitigants, alongside an indicative risk rating based on risk framework data, management oversight and areas of business activity.
Key risk | | Key mitigating actions | Year on year movement | |
Strategic Risk | ||||
A. Macro and Political | | Geographic and asset class diversification, in-country expertise | | Stable |
B. Target Operating Model | | Updated organisational design, re-alignment of senior roles and responsibilities, modernised Governance | | Decreasing |
Financial Risk | ||||
C. Liquidity/Funding | | Strong governance (ALCO), Fund Management business reduces bond market reliance | | Decreasing |
D. Risk/Return Assumptions | | Strong governance and second line oversight, underwriting track record | | Stable |
Operational Risk | ||||
E. Regulatory Scrutiny | | Policy, processes and training, local expertise, stakeholder engagement | | Stable |
F. Operational Resilience | | Testing, business continuity and disaster recovery plans, information security standards | | Stable |
G. Fund Management Execution | | Organisational design, infrastructure, change management, process improvement, governance | | New |
H. Scalability | | Targeted investment in people, processes and systems to support strategy | | Increasing |
More broadly, our principal risks are captured under the headline categories of strategic, operational and financial risk. The disclosures on the following page should not be regarded as a comprehensive list of all the risks and uncertainties facing the Group, instead providing a summary of those key areas with the potential for material impact. Further financial risks are discussed in note 25 to the financial statements.
Link to strategic priority
1 Focus on strong consistent returns in the Investment business
2 To grow our specialist capital light Asset Management and Servicing business
3 To be a leading player in our chosen markets
4 To transform the customer journey within our industry
5 To attract and retain talent
Read more on our strategic priorities on pages 18-19
Key risk | | Description | | Mitigating actions |
Strategic Risk | ||||
A. Macro and Political Changes in the competitive, economic or political environment in the UK or Eurozone which could impact our ability to collect from portfolios, or competitively purchase and invest in line with our strategic objectives, consolidation or changing appetite within the sector.
1 | | Management monitor the competitive, economic and political environments in which we operate to influence future strategy. The board regularly carry out reviews of the markets and strategy, with impacts managed through our governance activities in accordance with regulatory requirements and industry best practice in each jurisdiction. The Group has continued to assess the risks associated with Brexit, including disruption within the UK political landscape, ensuring that procedural and strategic mitigants are in place. | | Arrow's geographic and asset class diversification allows the Group to respond to market opportunities arising from possible disruption, including market downturn scenarios driven by macroeconomic factors. This is informedby in-country expertise across investments, operational execution and regulatory compliance, ensuring that both the opportunity pipeline and horizon scanning inform decision-making Group-wide. A Brexit Working Group made up of cross-functional senior management have continued to monitor Brexit-related risks in 2019, notably in case of a 'No Deal' Brexit scenario, ensuring that procedural mitigants in relation to people and data were addressed in addition to strategic planning. Whilst this risk is in part decreased, the Group will continue to monitor the transitional period alongside macro and political trends in the EU and globally, informed by external macroeconomic data sources and statutory and regulatory horizon scanning. This is overseen by the executive and board risk committees. |
B. Target Operating Model The need to ensure enterprise-wide alignment of the updated model, including Fund Management capabilities, to prevent gaps between plans and performance.
2, 3 | | Long-term strategy, risk appetite and financial planning are aligned with the aim of providing greater depth of analysis and management tools for decision making, all of which inform the necessary business structures and operating model. The next step in Arrow's corporate evolution is the addition of Fund Management operations as a core part of an enhanced offering to deliver thestrategic vision. | | The strategic plan has been supported by an organisation-wide review of the target operating model, the outputs of which are now being embedded through a series of initiatives including: i. updated organisational design of three distinct but interdependent business lines, supported byCentral Functions; ii. re-alignment of senior leadership team roles and responsibilities and incentives; and iii. launch of a modernised Governance structure with clear linkages between localised and Group-wide policies, committees and delegated authorities. This remains underpinned by a commonset of values and a Group-wide Culture statement which informs our performance management process. |
Link to strategic priority
1 Focus on strong consistent returns in the investment business
2 To grow our specialist capital light Asset Management and Servicing business
3 To be a leading player in our chosen markets
4 To transform the customer journey within our industry
5 To attract and retain talent
Read more on our strategic priorities on pages 18-19
Key risk | | Description | | Mitigating actions |
Financial Risk | | | ||
C. Liquidity/Funding Risk The risk that the Group is unable to meet its obligations as they fall due.
1, 2 | | The Group is highly cash generative andhas a strong focus on collections. Funding and liquidity risks are managed by the central treasury team, and the Group seeks to maintain minimum levels of liquidity headroom, leverage of between 3.0-3.5 times, diverse funding sources and a balanced maturity profile of its debt facilities. | | Strong governance and alignment withrisk appetite is managed via the ALCO committee, with regular reporting of the key metrics. Through the regular budgeting and forecasting processes, the Group continues to assess the required level of liquid resources, funding plans and risk appetite. At the year end, the liquidity headroom was £153 million, leverage was 3.4 times and, except for the amortisation of the asset backed securitisation, the Group has no contractual debt maturities until 2024. Going forward, the Group has increased flexibility regarding investment levels, as it is able to increase investments through third-party funds it manages. This enables the Group to curtail investment volumes funded by the Group and conserve liquid resources, without impacting the franchise of the businesses. Overall, the Group iswell positioned given the term profile ofits liabilities. |
D. Risk/Return Assumptions The risk of returns adverse to forecast due to inadequate portfolio purchase analysis and consequent mispricing, or inadequate assessment of cost to collect and/or subsequent portfolio performance impacting estimated remaining collections.
1 | | Successful investments are the culmination of a series of activities spanning first and second line teams. Group risk provide a risk appetite framework, oversight of due diligence and challenge to models and assumptions to help accurately price new investment opportunities. Newly proposed investments are subject to second line oversight by Group risk, executive review through an investment committee process in accordance with agreed mandate levels prior to purchase. Similarly, an enhanced governance process has been deployed to further support the ongoing agreement and monitoring of servicing propositions. | | A revised governance and delegated authority matrix has been specifically designed to balance effective business decision-making and appropriate oversight in line with stated risk appetite. The updated governance model applies equally to the new Fund Management operations with specific details defined for the Fund Manager such as risk appetite and KRIs. The addition of a second line chaired model governance committee, a sub-committee of the Group executive risk committee, will add a further layer of robust challenge to 1st line activity, taking a balanced, risk-based approach to the Group's suite of models. Increasingly, scenario analysis is used to further validate key assumptions for new portfolio acquisitions. |
Key risk | | Description | | Mitigating actions |
Operational Risk | ||||
E. Regulatory Scrutiny Risk of non-compliance with regulatory obligations, increased regulatory scrutiny and inappropriate conduct and customer treatment.
3, 4 | | We operate in increasingly highly regulated environments in both the UK and across our European locations, this having extended as a result of the launch of the Fund Management business. Any actions leading to poor customer outcomes or customer detriment could lead to a breach of regulations, resulting in censure, financial loss and reputational damage. Poor customer outcomes or customer detriment could arise through the debt collection activities within our in-house operations or the third-party servicer network of collection agencies, whether we are collecting debt which we have acquired or whilst working on behalf of clients. We always seek to ensure we adhere to all local collections best practice and strive for regulatory parity with those counterparties that we transact with or act on behalf of. | | Regulatory conduct and Treating Customers Fairly (TCF) are at the heart of our business and Arrow has clearly defined, documented and communicated policies and procedures in place to guide colleagues on the required standards for customer outcomes. Employees and third-parties acting on our behalf receive mandatory training, including conduct risk, handling vulnerable customers and complaints relevant to the local market and our activities. Horizon scanning and industry body presence helps to influence best practice across the sector and ensures our internal practices and training are updated accordingly. We maintain increasingly proactive relationships with our key regulators in all locations. To further benefit from the increasing breadth and depth of expertise, the Group has developed pan-European Customer Experience Forums to allow for the exchange of best practice and are informed by customers. |
F. Operational Resilience Risk that the business is unable to withstand significant business disruption that could pose a threat to customer outcomes, corporate reputation and/or financial performance.
3, 4 | | The Group relies on core systems and processes for customer and data management, including data analytics. Should these systems experience performance issues or outage through,for example, cyber-attack, our customers would be impacted, and we could experience financial loss and/or reputational damage. | | Operational resilience and business continuity will be increasingly tested commensurate with the external and internal threats which exist, and the Group has recognised the importance of this through investment in associated programmes throughout 2019 and beyond. Our core systems and processes are regularly tested, backed up and managed through a set of quality and security policies, supported by disaster recovery and business continuity plans. We are in the process of deploying a One Arrow IT infrastructure, which will enable us to be more efficient, drive process automation and manage data more effectively and securely. This is governed at a Group level, with aligned strategies for IT, digital, security and data. |
Link to strategic priority
1 Focus on strong consistent returns in the Investment Business
2 To grow our specialist capital light Asset Management and Servicing business
3 To be a leading player in our chosen markets
4 To transform the customer journey within our industry
5 To attract and retain talent
Read more on our strategic priorities on pages 18-19
Key risk | | Description | | Mitigating actions |
Operational Risk continued | | | ||
G. Fund Management Execution Risk that poorly executed or misaligned operations processes result in reputational risk, financial loss and/or poor customer outcomes.
2, 3 | | With the additional clarity of Arrow's evolved business line structure, comesthe need to carefully design and executeon more efficient and cost-effective operational processes in all areas of the business. Whilst we learn from all instances of process failures, undertaking root-cause analysis in order that we can take appropriate action to resolve the incident and share lessons learned, the increasing maturity of the business drives greater foresight and proactive management of process changes through initiatives suchas LEAN and governance provided by both strategic change board and our risk and compliance committees. | | In support of the Fund Management launch, Arrow focused significant senior management time on areas of organisational design, infrastructure, change management, process improvement and governance - including the roles, responsibilities and membership at executive committee level. Furthermore, objectives, incentives and governance routines have been aligned to ensure appropriate levels of oversight - from strategy and budget setting through to operational and financial performance - with delegated authorities in place to promote efficient and effective day-to-day operations. This includes the important relationships now established with third-parties who we have engaged to support specific parts of the Fund Operations process and oversight, with aligned reporting back to our existing business line and central function management teams. |
H. Scalability Risk that the Group is unable to respond appropriately and efficiently to scaled opportunities as a result of the increased market opportunity arising from the Fund Management business .
1, 2, 5 | | The opportunity to grow volumes in line with the updated funding model presentsa risk that the necessary people, processes and systems may not be available to maximise potential demand which in turn could lead to strategic, financial or operational risks that detract from the long-term success of the company. | | The Group is focused on developing process and system capability to absorb new opportunities through deeper, broader and more consistent methodologies, including standardisation of data processing activities. Operational resilience is an enabler for scalability, alongside a strong risk-aware culture. This enables the Group to expand whilst deploying resource and infrastructure improvements to front line services to maximise commercial opportunities that align with customer, regulator and client expectations, whilst delivering on our financial commitments. There are increasing opportunities for professional development across theGroup, alongside the growth of our talent pool, in the context of a values-led, professional culture. |
Statement of directors' responsibilities in respect of the Annual Report and the financial statements
The directors are responsible for preparing the Annual Report and the Group and parent Company financial statements in accordance with applicable law and regulations.
Company law requires the directors to prepare Group and parent Company financial statements for each financial year. Under that law they are required to prepare the Group financial statements in accordance with International Financial Reporting Standards as adopted by the European Union (IFRSs as adopted by the EU) and applicable law and have elected to prepare the parent Company financial statements on the same basis.
Under Company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and parent Company and of their profit or loss for that period. In preparing each of the Group and parent Company financial statements, the directors are required to:
· select suitable accounting policies and then apply them consistently;
· make judgements and estimates that are reasonable, relevant and reliable;
· state whether they have been prepared in accordance with IFRS as adopted by the EU;
· assess the Group and parent Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and
· use the going concern basis of accounting unless they either intend to liquidate the Group or the parent Company or to cease operations, or have no realistic alternative but to do so.
The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the parent Company's transactions and disclose with reasonable accuracy at any time the financial position of the parent Company and enable them to ensure that its financial statements comply with the Companies Act 2006. They are responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities.
Under applicable law and regulations, the directors are also responsible for preparing a strategic report, directors' report, directors' remuneration report and corporate governance statement that complies with that law and those regulations.
The directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Responsibility statement of the directors in respect of the annual financial report
We confirm that to the best of our knowledge:
· the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and
· the strategic report and directors' report include a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.
We consider the annual report and accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group's position and performance, business model and strategy.
Related party transactions
Group
Related party balances as at each year end were as follows:
| Key management personnel £000 | Total £000 |
As at 31 December 2019 and 2018: | | |
Trade | - | - |
| - | - |
Remuneration for directors has been disclosed in note 10 along with the statement of profit or loss and other comprehensive income charges in the year and in the remuneration report.
Summary of transactions
Key management, defined as permanent members of the board plus all non-executive directors, were awarded the following compensation for the financial year:
Remuneration | 2019 £000 | 2018 £000 |
Salaries and performance-related bonus | 1,628 | 2,057 |
Pension-related benefits | 110 | 128 |
Share based payments | (306) | 426 |
| 1,432 | 2,611 |
The number of key management during the year was 6 (2018: 7).
Company
Related party balances as at each year end were as follows:
| Arrow Global Group Holdings Limited £000 | Arrow Global Limited £000 | Arrow Global One Limited £000 | Vesting Finance Detachering B.V. £000 | Total £000 |
As at 31 December 2019 | | | | | |
Due from subsidiary undertakings | - | - | 212,495 | 40 | 212,535 |
Due to subsidiary undertakings | (1,367) | (151) | - | - | (1,518) |
| (1,367) | (151) | 212,495 | 40 | 211,017 |
| Arrow Global Group Holdings Limited £000 | Arrow Global Limited £000 | Arrow Global One Limited £000 | Vesting Finance Detachering B.V. £000 | Total £000 |
As at 31 December 2018 | | | | | |
Due from subsidiary undertakings | - | - | 222,331 | 40 | 222,371 |
Due to subsidiary undertakings | (1,367) | (686) | - | - | (2,053) |
| (1,367) | (686) | 222,331 | 40 | 220,318 |
The material receivable balance due from subsidiary undertakings from Arrow Global One Limited relates primarily to final dividends declared by Arrow Global One Limited in 2018. In the current period, the movement in this balance relate primarily to the partial settlement in cash of this receivable. Balances relate to intercompany loans that are repayable on demand and are therefore held as current liabilities or assets. No 'other' transactions occurred between the related parties, excluding those disclosed above.
As a loan repayable on demand, expected credit losses were estimated on the assumption that repayment of the loan is demanded at the reporting date. It was assessed that loan was not in default as (i) the repayment had not been demanded, and (ii) the subsidiary was considered to be performing.
The maximum period over which expected impairment losses were measured was the period needed to transfer the cash once demanded. As at 31 December 2019, Arrow Global One Limited could repay the outstanding balance of the receivable within six months, with the majority of the payment being received immediately. Therefore, the expected credit loss was limited to the effect of discounting the amount due on the balance over this period. As the expected repayment schedule is short, discounting at the receivable's effective interest rate did not result in a material expected credit loss.
During the year there were no other related party transactions other than discussed above.