31 August 2017         

Arrow Global Group PLC

Interim results for the six months to 30 June 2017

Arrow Global Group PLC (the "Company") and its subsidiaries (together the "Group"), a leading European credit management services provider, is pleased to announce its results for the six months ended 30 June 2017 ("H1 2017").

Highlights

Growth

·     Strong organic portfolio purchases up 30.3% to £125.1 million (H1 2016: £96.0 million)

·     Revenue growth of 47.6% supported by 11.3% increase in core collections and 98.6% increase in Asset Management income from H1 2016

·     Completion of the acquisition of Zenith Service S.p.A. in Italy

·     Agreed terms to acquire Mars Capital, expanding UK secured servicing capabilities and entering the Irish market

Operational excellence

·     Overall collections performance at 103% of original underwriting forecasts, underlining the continued quality of data and analytics

·     Launch of a group-wide One Arrow programme to support future growth. This will invest in centres of excellence for our group capabilities, operational processes and platforms focussed on enhancing the customer journey and increasing productivity

·    Further investment in legal collection costs enhances the value of the back book and drives additional ERC

Financial excellence

·     84 month ERC increased to £1,478.5 million (31 December 2016: £1,339.1 million).

·     Increase in capital-light Asset Management revenues to 22.8% of total revenue (H1 2016: 16.9%)

·     Successfully raised €400 million senior secured floating rate notes due 2025, at a coupon of E+2.875%, reducing the Group's weighted average cost of debt to 3.9% (31 December 2016: 4.9%) and average debt facility maturity of 6.8 years as at 30 June 2017 (31 December 2016: 5.9 years)

Strong returns

·     Underlying profit after tax up 35.5% to £25.8 million (H1 16: £19.1 million)

·     Underlying basic earnings per share (EPS) increased 35.8% to 14.8p (H1 2016: 10.9p)

·     Statutory profit after tax down to £3.7m (H1 16: £16.5m), reflecting the impact of post-tax  costs associated with the refinancing in March 2017 of £22.1 million

·     Underlying LTM Return on Equity (ROE) of 32.8% (H1 2016: 27.4%)

·     Interim dividend of 3.2p per share (H1 2016: 2.7p), up 18.5%

Lee Rochford, Group Chief Executive Officer, commented:

"Arrow has delivered another period of strong, profitable growth. Revenues grew 47.6% to £149.8 million with underlying profit after tax up 35.5% to £25.8 million. Our returns-focused mindset continues to yield results with underlying Return on Equity increased to 32.8%. We are pleased to announce an interim dividend of 3.2p, up 18.5%. 

We continue to implement our active diversification strategy. Our capital-light asset management revenues have approximately doubled, and our portfolio investments are nicely balanced across geographies, asset classes and vintages.

Our entry into Italy is progressing well, and, we have announced today our intention to acquire Mars Capital. This will add significantly to our UK secured servicing capabilities, and provide a low-cost strategic entry into Ireland, a new market for the Group.  In H2, we expect to complete the sale of our 15% interest in MCS Groupe, which will deliver an excellent return to shareholders and enable us to redeploy capital in faster growing markets.

Our pan-European market position, scale and unique origination capabilities continue to underpin our outlook for growth. We now address over €1 trillion of market opportunity, with leading platforms and are investing to ensure Arrow Global has leading capabilities in the industry.

A strong pipeline in all of our core markets gives us confidence to meet our earnings expectations for the year and in delivering a medium-term underlying ROE percentage in the mid-twenties, high-teen EPS growth and a progressive dividend policy." 

Notes:

A glossary of terms can be found on pages 39 to 42.

More details explaining the business can be found in the Annual Report & Accounts 2016 which is available on the Company's 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 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 six months to 30 June 2017

The Group has built on its strong momentum and has continued to expand its European footprint and client offering across its attractive markets. This, coupled with our continued drive to generate a high quality and diversified income, has enabled us to deliver a strong first-half financial performance.

Key results

IFRS, cash metrics and underlying results are important to understand the key drivers of the business. The additional information on pages 36 to 38 have been prepared to aid this understanding, which helps to support the commentary of the financial review for the period.                              

Business Model

Our business model provides a compelling proposition in four distinct ways:

·     High growth - a highly visible runway of significant long-term growth, underpinned by our unique origination capabilities, geographic reach and diversified offerings.

·     Operational excellence - a focus on securing the right outcomes for our customers in an efficient manner, leveraging our data, scale and track-record to drive competitive advantage.

·     Financial excellence - a rigorous focus on robust underwriting, selective portfolio bidding and cost management, geared towards delivering sustainable profitability.

·     Strong returns - a high-return business model, enabling future growth and capital distribution.

High growth

According to PwC's May 2017 report on the European NPL market, despite huge transaction volumes, European financial institutions continue to hold around €2.1 trillion of non-core loans, split broadly equally between performing and non- performing assets.

Against this backdrop, PwC suggest that transactions completed or in progress in 2017 have already reached over €50 billion and believe that, for third year in a row, transaction volumes could exceed €100 billion in 2017.

In our core markets of the UK, Portugal, the Netherlands, Italy, and from today, Ireland, outstanding NPLs amounted to approximately €500 billion (end-2016), with an equivalent value of non-core assets. Banks still need to divest non-performing loans and non-core assets because of both capital and regulatory requirements, resulting in long-term structural growth opportunities for Arrow Global. We have a pan-European footprint and benefit from diversified asset class capabilities and revenue sources.

Completion of the Zenith Service acquisition in Italy

On 28 April we completed the acquisition of Zenith Service S.p.A, a leading master servicing business with operations in Milan and Rome.

We are pleased with progress since completion. We have committed to purchasing two small portfolios in Italy for a consideration of €10 million. Both exemplify the rationale for acquiring Zenith and the opportunities now open to Arrow Global in Italy. One portfolio was master serviced by Zenith, thereby offering good visibility into past performance and quality, while the second was with a long-term partner of Zenith and who has worked regularly with them.

Moreover, Zenith's core business has benefitted from Arrow Global's network of institutional fund relationships.  Assets under management are up from c€14.8 billion, at the beginning of the year, to over €17 billion as at 30 June 2017.

Mars Capital, UK and Ireland

Today we have also announced the proposed acquisition of Mars Capital Finance Limited from Oaktree Capital Management ("Oaktree") for an enterprise value of £15.5 million.

The transaction strengthens our asset management capabilities and reinforces our leading position in the UK, while providing a strategic entry into Ireland. This is a new market for the Group that offers a €59 billion NPL opportunity with significant debt purchasing and servicing potential.

Mars Capital provides servicing for mortgages covering 1st / 2nd lien residential, buy-to-let and SME commercial mortgages, and provides full-loan lifecycle servicing, from loan origination support to late stage recoveries, with particular focus on managing distressed mortgage NPLs.

We are also pleased to announce a strategic partnership with Oaktree, a leading global asset manager with over USD$100 billion under management. This will see Arrow Global and Oaktree acquire future UK and Irish portfolios together. The agreement will also ensure Oaktree assets currently serviced by Mars Capital remain on the servicing platform for an agreed time.

The transaction is subject to regulatory approval by the Financial Conduct Authority (FCA) and fulfilment of Central Bank of Ireland notification obligations. It is expected to complete in late 2017.

Purchased loan portfolios and loan notes

We acquired debt portfolios with a face value of £968.2 million for a purchase price of £125.1 million, up 30.3% on H1 2016. Of the purchase price invested, 32.1% related to secured portfolios and the diversification by geography was: UK 49.8%, Portugal 28.6%, Netherlands 16.8%, Italy 4.8%.  51.2% of these trades came from off-market purchases, highlighting the strength and depth of the institutional and fund relationships we hold in each of our core markets. 

The carrying value of our purchased loan portfolios and loan notes increased by 12.1% to £901.7 million as at 30 June 2017 (31 December 2016: £804.1million). The most significant driver for this was portfolios and loan notes acquired of £125.1 million in the period.

The 120-month expected gross money multiple is 1.9 times for the current period purchases from the date of purchase.

See note 10 for the full reconciliation of purchased loan portfolios in the period.

Operational excellence

Enhanced services and Group capabilities

Arrow Global has grown rapidly since its stock market listing in October 2013. Since then, we have repositioned the business from a largely UK debt purchaser, in a single asset class, to offering a range of services that now extends beyond the purchase and collection of non-performing loans, and includes primary, special and master servicing of securitised and secured assets, credit data bureau services, asset management capabilities, real estate financing and servicing, all backed with local expertise and leadership.

Our expertise across multiple asset classes, combined with the depth of our third-party network and ability to co-invest provides our unique proposition to our diversified client base, which in turns supports our diversified earnings growth and high returns.

Investing for growth - One Arrow

Our strategy centres on controlled growth of our balance sheet, allowing us to maintain our discipline, in terms of the quality of our underwriting, maintaining returns and within our conservative leverage ratio requirements.

The combination of our origination strengths, client relationships and our servicing platforms means that we are well positioned to take advantage of the potential to grow capital-light Asset Management revenues. To take advantage of this in a safe, disciplined and sustainable way, we are investing further in our core capabilities.

This will see us strengthening Group governance and capabilities in certain centres of excellence such as Origination, Data & Analytics, Portfolio Management, Risk Management and our Change & IT Functions. In addition, we are increasing investment in our servicing and operating platforms to improve the customer journey through enhanced digital capabilities, which in turn will produce improvements in our productivity.

We are planning an investment and restructuring programme totalling £22 million across 2017 and 2018.  Approximately £10 million will be capital expenditure and the balance will be reported separately to underlying earnings.

On completion we will have a more scalable, resilient platform able to support future growth.

Financial excellence

ERC overview

Our 84-month ERC, the expected remaining collections from portfolios already acquired, has increased by 10.4% from £1,339.1 million as at 31 December 2016 to £1,478.5 million. The 120-month ERC increased 10.6% to £1,708.8 million (31 December 2016: £1,544.5 million). The increases are due to portfolio purchases, additional value driven by investment in legal collection activity and foreign exchange rate movements.

The ERC is underpinned by approximately 600,000 customer accounts that have paid the Group in the last three months. These accounts have a current paying face value of £1.8 billion, meaning the Group has 1.2 times coverage of the ERC from existing customers. As at 30 June 2017, we estimate the amount we would need to invest in portfolio purchases over the next 12 months to maintain our current 84-month ERC level is approximately £130 million.

Capital-light Asset Management

We have grown Asset Management revenues by 98.6% to £34.2m (H1 2016: £17.2m). This increase has been driven by the inclusion of InVesting B.V. ("Vesting") for the full period, along with a small contribution from Zenith since acquisition.

Funding

On 30 March 2017, the Group issued €400 million senior secured floating rate notes due 2025, at a coupon of E+2.875% (the '2025 Notes').

The proceeds of the 2025 Notes were used to redeem the existing 2021 Notes, pay the early redemption and transaction costs, and repay drawings under our revolving credit facility (the 'RCF').

The early redemption of the 2021 Notes resulted in finance costs of £27.4 million, of which £17.6 million related to the cash call premium and cancellation of interest rate hedging linked to the 2021 Notes, with the remaining £9.8 million due to a non-cash write-off of transaction fees in connection with the 2021 Notes.

On 24 February, the Group increased its RCF from £180 million to £215 million, and added an additional bank. The RCF has been extended to 31 March 2022.

As at 30 June 2017, the Group's weighted average cost of debt has been reduced to 3.9% (31 December 2016: 4.9%) and the weighted average maturity of the Group's debt is now 6.8 years (H1 2016: 5.2 years) with no facility maturing before March 2022.

As at 30 June 2017, the Group had available cash and RCF resources of £104.9 million.

Core collections

Core collections rose to £154.5 million (H1 2016: £138.8 million), reflecting the increase in our portfolio asset base. Core collections in H1 2017 are slightly favourable to our ERC forecast with good performance in the Netherlands and the UK, partially offset by collections below expectations in Portugal. Growth in core collections was impacted as expected by elevated collections in H1 2016, where we received a high proportion of collections from recently acquired portfolios.

As at 30 June 2017, we have cumulatively collected 103% of our original underwriting forecast on a constant exchange rate basis, reflecting the accuracy of our data driven approach to origination and underwriting.

Revenue

Total revenue for the period was £149.8 million, an increase of 47.6% (H1 2016: £101.5 million). £34.2 million of the total in 2017 was attributable to income from asset management (H1 2016: £17.2 million).

Cost

During the period, we have invested £12 million in additional legal collection costs. This upfront cost supports additional ERC of the back book. This activity will continue in Q3. This, combined with a full period of the Vesting acquisition drives an increase in our cost income ratio to 64.1% (H1 2016: 59.5%).

Profit

The profit attributable to equity shareholders for the period to 30 June 2017 was £3.7 million (H1 2016: £16.5 million), which reflects the post tax cost of £22.1 million, following the early redemption of 2021 Notes. The 2021 Notes were redeemed with the proceeds of the €400 million E+ 2.875% 2025 Notes. The material reduction in coupon resulted in the redemption being earnings accretive, together with extending the duration of the Group's funding.

After adjusting for the refinancing cost above, underlying net income increased by 35.5% from £19.1 million in 2016 to £25.8 million for H1 2017.

Adjusted EBITDA

Adjusted EBITDA decreased by 2.1% to £101.8 million (H1 2016: £104.0 million). Growth in Adjusted EBITDA was impacted by additional investment in legal collection costs, which will generate cash flows in future periods. In addition, and as expected, it was also impacted by elevated collections in H1 2016, where we received a high proportion of collections from recently acquired portfolios with low cost to collect, and a higher cost income ratio reflecting the expansion of the asset management business and the Vesting acquisition in 2016.

Net assets

Net assets increased to £164.0 million during the period (H1 2016: £158.3 million), representing the growth in underlying profitability offset by the impact of costs associated with the refinancing activity completed in the period.

Net debt

A glossary of terms can be found on pages 40 to 43.

Net debt increased to £929.7 million, driven by organic portfolio purchases, the acquisition of Zenith, the impact of the costs associated with refinancing of the 2021 Notes and movements in foreign exchange rates. These factors have increased the ratio of secured net debt to LTM Adjusted EBITDA, we expect this ratio to be within our policy of 3.5-4 times by the end of 2017.

Cash interest cover has remained at 5.3 times; this is expected to strengthen as the full-year effects of the refinancing activity are realised. The ratio of net debt to 84-month ERC ratio is significantly below our financial covenant of 75%.

Strong returns

We have delivered a period of strong, profitable growth. Underlying profit after tax is up 35.5% to £25.8m (H1 16: £19.1m).

We continue to exceed our key financial targets:

·     High-teens underlying basic EPS growth: 35.8% H1 2017

·     Mid-twenties underlying ROE LTM: H1 2017 32.8%

Dividend

In accordance with our progressive dividend policy, the interim dividend increased by 18.5% to 3.2p per share (Interim 2016: 2.7p), being 50% of our 2016 final dividend.

MCS Groupe, France

On 25 July MCS Groupe announced that a company controlled by funds advised by BC Partners, has signed an agreement relating to its acquisition. Subject to completion of the transaction, our 15% economic interest in MCS Groupe will end. While the terms of the transaction remain confidential the sale of MCS is expected to result in a net gain and cash inflow in H2 for the Group. 

Outlook

We continue to see attractive opportunities across our core markets.  Pressure for continued banking reform across Europe is evident, and we expect to see further sales of NPLs and non-core assets across our markets, in unsecured, secured, SME and commercial real estate portfolios, all of which play to the Group's strengths.

While we are mindful of the macroeconomic uncertainty prevailing in the UK, and the squeeze on real incomes, growth remains positive and unemployment is low. The European economy is showing encouraging signs of momentum in its economic recovery.

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, and we are not seeing indications of a high-level change of customers' ability or willingness to pay debts.

The investment in the One Arrow programme will result in a more scalable, resilient platform able to support future growth. 

Our focus for the remainder of 2017 will be on our core themes of high growth, investments to drive improvements in operational and financial excellence and delivering strong returns. A strong pipeline across our geographic footprint gives us confidence in our ability to meet our earnings expectations for the year, and in delivering a medium-term underlying ROE percentage in the mid-twenties, high-teens EPS growth and a progressive dividend policy.

Principal risks and uncertainties

Sound risk management is at the centre of our day-to-day activities. It benefits our business by ensuring balanced growth and stability of earnings while also protecting the sustainability of our future prospects.

Delivering our strategic priorities relies on the successful identification, assessment, management and reporting of risk. We focus on the top risks that impact our business, and also monitor emerging risks that might affect us in the future.

We operate an Enterprise-Wide Risk Management Framework. The overall Framework is underpinned by our Risk Appetite Statements and a suite of policies. Risk is governed by the board, executive management and various risk committees.

The Group operates a three lines of defence model, with the internal audit function performed by a combination of Deloitte LLP and our own Internal Audit functions in our European subsidiaries.

Our principal risks are categorised as strategic, conduct, operational and financial. 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.

Strategic risk

The risk to earnings arising from changes in the business environment and from adverse business decisions, improper implementation of decisions or lack of responsiveness to changes in the business environment.

The Group's growth strategy is based on the future purchase and collection of distressed loan portfolios, including as a servicer for third parties, and development of asset management services across the geographies in which we operate.

Changes in the competitive, economic, political (including Brexit) or regulatory environment in the UK or Eurozone could impact our ability to collect from portfolios, or competitively purchase and invest in line with our company objectives e.g. as a result of consolidation within the sector.

Negative attention and news regarding the debt collection industry and/or the Group's collections activity may impact our reputation and therefore the Group's ability to acquire portfolios and customers' willingness to repay the debt that the Group acquires.

Key mitigating actions

Management monitor the economic, political and regulatory environments in which we operate to influence future strategy. In addition, appropriate currency liquidity management and scenario planning is in place.

Strong relationships have been developed with our creditor client base and investment funds in order to mitigate the risk of reduced debt purchase opportunities in the market. The board regularly carries out reviews of the markets and strategy and reputational impacts are managed through our governance activities and by operating in accordance with all regulatory requirements and jurisdictional industry best practice.

Financial risk includes:

Market risk: the risk of losses in portfolios due to changes in foreign exchange rates and the level of interest rates,

Funding & Liquidity risk: the risk that the Group is unable to meet its obligations as they fall due,

Credit risk: the risk to earnings or capital arising when a customer or counterparty defaults on its contractual obligations, including failure to perform obligations in a timely manner,

Tax risk: tax compliance risks arise from the complex nature of tax legislation and practice,

Investment risk: the risk of returns adverse to forecast as a result of inadequate portfolio purchase analysis and consequent mispricing therefore affecting ERC.

Key mitigating actions

The Group's overarching financial risk management strategy is governed by a robust policy framework and is overseen by the treasury and tax committee, which is a delegated committee from the board and executive risk committees.

The Group aims to mitigate foreign exchange risk (a market risk) by matching foreign currency assets with foreign currency liabilities. The Group manages remaining exposures to foreign exchange at a Group level principally through the use of forward contracts. Interest rate risk is managed principally using interest rate swaps.

Funding and liquidity risk is managed through matching the maturity of our funding facilities with the maturity of our assets; forecasting funding requirements, applying appropriate stress testing and ensuring that we maintain a balanced maturity profile of debt facilities. We are highly cash generative and aim to maintain a flexible cost base. Portfolio investment is largely discretionary and this provides us with a large degree of control over working capital.

Counterparty credit risk is managed through regular monitoring of the quality of new and existing counterparties and of our exposure to each. Counterparty risk with debt sellers is also mitigated through warranties. Credit risk is principally taken on through the purchase of customer debt and overseen on a country basis.

Tax risk is addressed through the use of tax specialists who advise the Group on its tax compliance obligations, application of tax legislation, and the transactions and activities undertaken by the Group.

Investment risk is managed through rigorous due diligence and controls to consider risks (including operational risks) and accurately price new investment opportunities. These include executive review through an investment 'gate' process and in certain circumstances board approval prior to purchase execution. Portfolio performance is regularly monitored by senior management and the board.

Operational risk

The risk of loss resulting from inadequate or failed internal processes, people and systems, or from external events, including those relating to legal issues and IT security weaknesses.

Failure to comply with relevant legal and regulatory requirements through failed internal processes could result in the suspension or termination of our ability to conduct business, and could lead to regulatory censure and financial loss.

The Group relies on IT systems for customer and data management and 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.

There is also a risk of data quality and documentation deficiencies in purchased portfolios that require remediation post-purchase. The effectiveness of this remediation activity potentially affects the enforceability of debt, our future collections and credit risk or the quality of customer outcomes.

We choose to outsource the management of some customer accounts to third party partners who collect on our behalf. We are also dependent upon third party firms with whom customers engage to manage their debt or insolvency. Should these third parties experience sustained business interruption, be subject to takeover by an unfriendly competitor or fraudulent activity, or fail to maintain regulatory authorisation, we could suffer financial loss and/or potential detriment to customers.

Key mitigating actions

Operational risk is managed in line with our operational risk policy, which sets out the framework and processes for managing this risk type.

We have a quarterly Risk & Control Self-Assessment ("RCSA") process to identify and assess key operational and regulatory risks. Key risk areas are governed by a suite of policies approved by the board or executives to ensure standards are appropriately set across the Group.

We employ industry specialists to monitor the latest regulations and update our internal policies accordingly, and where required, we take external specialist advice. We also engage in regular training and assurance activity to ensure compliance with internal policies.

IT systems are regularly tested, backed up and managed through a set of quality and security policies, supported by disaster recovery and business continuity plans.

Due diligence is undertaken on prospective investment purchases to identify potential data quality and documentation weaknesses (see investment risk section above). Our Legal team are involved in all purchases and external legal advice is taken where required, with contractual terms and warranties used to provide protection against legacy issues.

We undertake on-going oversight of our suppliers, including third party partners involved in the collection of payments from customers.  This oversight includes compliance with regulation, information security and their business continuity arrangements. We monitor industry consolidation activity and have a diversified panel of partners to ensure that we are not reliant on any particular third party servicer.

Conduct risk

The risk of inappropriate strategy, systems, behaviour, or processes that leads to poor customer outcomes or impacts market integrity.

We operate in a highly regulated environment, particularly in the UK and increasingly in other European countries, with any action that leads to poor customer outcomes or customer detriment could lead to a breach of regulations, resulting in censure, financial loss and reputational damage to our brand.

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 on behalf of clients. We always seek to ensure we adhere to all local best practice collections approaches.

Key mitigating actions

Conduct risk and Treating Customers Fairly ("TCF") are at the heart of our business, our purpose being to build better financial futures. 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.

We consider customer outcomes when developing our strategy, systems, policy and processes and ensure that our HR framework and Company values support appropriate customer outcomes.

We have a rigorous oversight framework, focused on compliance, independent assurance, performance, and customer outcomes across both our in-house operations and third party 'partner' network, with a continuous programme of reporting and reviews.

Governance over conduct risk is provided by the risk committees, principally through the operational risk committee in the UK and risk committees in each of our European subsidiaries. These committees provide oversight of the Group's processes and procedures, monitoring their effectiveness in fulfilling regulatory obligations and the management of risk that may result in non-compliance and/or poor outcomes for customers. Conduct risk exposures are also managed and monitored against the board's risk appetite.

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 2017 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

Conclusion

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 2017 which comprises the consolidated statement of profit and loss and other comprehensive income, consolidated statement of financial position, consolidated statement of changes in equity, consolidated statement of cash flows and the related explanatory notes 1 to 19.

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 2017 is not prepared, in all material respects, in accordance with IAS 34 Interim Financial Reporting as adopted by the EU and the Disclosure Guidance and Transparency Rules ("the DTR") of the UK's Financial Conduct Authority ("the UK FCA").

Scope of review

We conducted our review in accordance with 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.  We read the other information contained in the half-yearly financial report and consider whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) 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.

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 International Financial Reporting Standards as adopted by the EU.  The directors are responsible for preparing the condensed set of financial statements included in the half-yearly financial report in accordance with IAS 34 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.

The purpose of our review work and to whom we owe our responsibilities

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 DTR of 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.

Richard Gabbertas

for and on behalf of KPMG LLP

1 St Peter's Square

Manchester

M2 3AE

31 August 2017