Cabot sees drop in collections, EBITDA and acquisitions

A trading update shows portfolio purchases dropped 64 percent to £23m for the first quarter, compared to the same period in 2019. EBITDA dropped seven percent to £83m and pre-tax profit dropped to a £21m loss, from a £20m profit in Q1 last year.

The update states that, as the Covid-19 crisis unfolded, Cabot rapidly adapted its business to protect employees and serve customers. The company transitioned the majority of its debt purchase operations to work from home during March, both in the UK and in Europe.

Having transitioned fast, the business is now implementing “rigorous cost controls” to mitigate an expected reduction in collections. This has involved a freeze on non customer-facing recruitment and the placement of nine percent of its workforce onto the furlough scheme.

The trading update adds that Cabot expects a “material impact on collections” for the remainder of 2020 as a result of Covid-19, with a recovery ensuing over the following two years.

Cabot’s US parent Encore also released a trading update on May 11 which stated that UK banks had paused portfolio sales in Q1, affecting supply in the near term. This was the context against a fall in Cabot’s acquisitions and an eight percent drop in debt purchase collections to £108m. Cabot also endured an impairment of £27m on a portfolio in the first quarter.

Despite this backdrop, total estimated remaining collections held firm at £2.7bn in Q1. Cabot’s trading update also says the company remains well capitalised and “able to capture future opportunities”.

Forbearance
Cabot said forbearance volumes through Q1 and April were consistent with historical trends and haven’t so far impacted financial performance. The business has however seen an extension of the average hold period across forbearance accounts. This increased to 45 days from an average of 19 days last year.

Cabot chief executive Craig Buick said that following the outbreak, the business is finding more and more customers requiring expertise to help them recover from a personal financial crisis.

On pure financials, he added: “Our balance sheet remains strong as a result of our recent strategy, with significant covenant headroom, available liquidity of £231m, and no debt maturities before late 2023.”

Aside from the UK, government measures to curb Covid-19 infections have impacted the group’s operations in Europe. Spanish court closures have limited the firm’s ability to collect or sell real estate during lockdown restrictions. Although the group has a significant presence in Spain, 80 percent of its total collections arise from the UK business, of which 75 percent comes from payment plans and 25 percent from settlements.