Q3 2019 Earnings Call
Ladies and gentlemen, today's conference scheduled to begin shortly please continue to standby deeper patient ladies and gentlemen, today's conference is scheduled to begin shortly please continue to sound bite tapering patients.
Ladies and gentlemen, thank you for standby and welcome to the Encore capital goods.
Q3, 2019 earnings conference call I, just want all participants are in listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time, if anyone should require assistance. During the conference. Please press Star then <unk> on your Touchtone telephone as a reminder, this conference call.
Being recorded I would know Lucky couldn't conference over to your host Mr. Bruce Thomas. Please go ahead.
Thank you operator, good afternoon, and welcome to Encore capital groups third quarter 2019 earnings call.
With me on the call today are Ashish Masih, our president and Chief Executive Officer, John and Clark Executive Vice President and Chief Financial Officer, and by phone can standard the CEO of Cabot credit management.
Ashish and John will make prepared remarks today.
Then we will be happy to take your questions.
Yes, otherwise noted comparisons made on this conference call will be between the third quarter 2019, and the third quarter of 2080.
In addition, today's discussion will include forward looking statements subject to risks and uncertainties.
Actual results could differ materially from these forward looking statements.
Please refer to our FCC filings for a detailed discussion of potential risks and uncertainties.
During this call will use rounding and abbreviations for the sake of brevity.
We will also be discussing non-GAAP financial measures reconciliations to the most directly comparable GAAP financial measures are included in our earnings presentation, which was filed on form 8-K earlier today.
As a reminder, this conference call will also be made available for replay on the Investor section of our website, where we will also post our prepared remarks following the conclusion of this call.
With that let me turn the call over to Ashish Masih, our president and Chief Executive Officer.
Thanks, Bruce and good afternoon, everyone.
Thank you for joining our earnings call.
Today on quarter announced financial results for the third quarter of 2019.
I'm pleased to report that Q through Q3 was an outstanding quarter for encore.
We have again achieved record results across a number of key financial measures and a business was delivering its strongest performance in years.
We continue to make solid progress on key strategic priorities that are contributing to our success.
We provide some background on these priorities today.
And an update on our accomplishments.
But first let me provide a few highlights on the third quarter.
Global collections from a debt purchasing business were $499 million up 2% in constant currency.
Global revenues were a record $356 million in Q3 and were up 6% as reported and up 8% in constant currency.
Within that doldrums, U.S. revenues grew 18% to a record $211 million at the end of the quarter. Our worldwide E. R. C was $7.3 billion up 4% in constant currency.
Encores GAAP net income was up 88% to $39 million or dollar 23 per share.
Adjusted income in Q2 was up 45% to a record $52 million or Dollarssixty four per share.
This strong financial performance is the result of our steady progress on three strategic priorities.
We just strengthening of business and creating shareholder value first we have taken steps to strengthen our balance sheet, while continuing to deliver strong financial results.
Second we have sharpened our focus on the U.S. and UK markets, where we have the highest risk adjusted returns.
Third we continue to innovate to enhance a competitive advantages.
Let's now take a closer look at these priorities.
Strengthening our balance sheet continues to be a key priority for encore.
Through disciplined capital deployment and improved operational performance and we have continued to grow earnings and increased E. R C, while reducing leverage.
We have reduced our debt to equity ratio over the last two years from 5.9 times to 3.7 times.
We've also reduced our ratio of net debt to adjusted EBITDA, a measure common in the debt purchasing industry in the U.S. and in Europe .
Since the first quarter of 2018, we have reduced this ratio from 3.2 times to 2.7 times.
Resulting in a level that is amongst the lowest in the industry.
Although a portion of put improvement this year was driven by cabot's efforts to reduce the leverage.
Encores Delevering began almost two years ago, when a stronger operating performance and refocus capital deployment began to drive higher levels of efficiency and improved profitability.
Since the beginning of 2018, not only have we been purchasing portfolios at attractive returns. We have also reduced our leverage while simultaneously growing E. R. C like 11% on a constant currency basis.
We have grown our ear BRC over this time period, despite the reduction of $120 million an E. R. C from the sale of Baycorp in the third quarter.
Another key component to a stronger balance sheet is timing up our debt maturities, we have taken steps over the past two years to extend maturities in both the U.S. and Europe to provide additional financial flexibility.
This is particularly constructive as we believe well the U.S. and UK debt purchasing markets are poised for substantial increases in supply.
The recurring market opportunity as a potential.
In the 1.1 trillion dollars of outstanding revolving consumer debt in the U.S.
As well as the quarter billion dollars of outstanding unsecured consumer credit in the UK.
Our continuing success in producing strong returns from these two consumer debt markets as the primary source of our optimism for the future.
In total we estimate that $18 billion in face value debt was sold by issuers in the U.S. and 2018.
With an approximate investment opportunity of $2 billion, which is nearly double the investment opportunity in 2014.
In the UK, we believe the investment opportunity in 2018 was approximately $1 billion based on $6 billion a face value sold.
We have demonstrated our increasing commitment to these two markets through our capital allocation decisions and the execution of our business strategy.
In the first three quarters of 2019, 94% or for portfolio purchasing was directed either toward the U.S. or the UK.
And we remain on track to set another record for annual deployments in the U.S. in 2019.
We have also streamlined and simplified a business structure through the sale of refinance here in South America last December .
And the sale of Big Corp in Australia in August .
These divestitures were consistent with our strategy.
Concentrating our resources in our businesses, but the highest.
Risk adjusted returns.
Within these markets. We believe it is vitally important to develop scale advantages in order to achieve superior returns.
Encores collective skill in these markets is unmatched and we continue to lever disadvantage through disciplined portfolio purchasing in the U.S. and UK.
And continually seeking to improve our operating performance in these regions.
Our improved operating performance for both MCM and Cabot has been enabled by a consumer centric approach to collections.
Put MCM. It was five years ago that you belong began to transform the way our call centers interacted with consumers.
Similarly, Cabot experienced its own consumer oriented transformation when the FC a standardized affordability assessments in the UK.
In both cases, it is clear to us that the progress we have made an improving a liquidation effectiveness is driving a strong financial results and providing us with competitive advantage.
For MCM, we are increasingly collecting a higher percentage of our U.S. collections from a lower cost call center and digital channel.
Meanwhile, our consumer centric approach build loyalty as demonstrated by cabot's extremely low breakage rates on payment plans.
As you grow our business these low breakage rates lead to increasing levels of cost efficiency.
In both are MCM business in the U.S. and in our cabinet business in the UK, we are continuing to convert more consumers to payers and we're collecting more cash sooner in the collections process.
Our improvement and collections efficiencies, particularly evident and MCM business, where we have grown collections, while improving cost to collect.
Since 2017, MCM connections have grown more than 17% well MCM cost to collect has improved by a full 360 basis points.
[noise], while Cabot has built its market leadership on unmatched scale and superior returns. It has also excelled on a very different dimension, which is best in class consumer satisfaction.
Banks must we a number of factors when choosing to firms with whom they do business whether through debt sales orbitz electing servicing partners.
Cabot consistently received very high consumer satisfaction scores in independent studies and continues to win important customer satisfaction awards in the UK.
Banks decide to partner with Cabot.
The confidence that their customers will be treated with respect to deserve reducing both the regulatory.
And reputation risk.
Let's now turn to third quarter performance for MCM, our U.S. business.
Redeployed hundred $73 million into us in the third quarter.
Up 41% compared to a year ago, and again when up our strongest purchasing quarters ever in the U.S.
This level of purchasing keeps us on track to establish a new record for annual deployment in the U.S. in 2019.
NCM collections were $331 million growing 4% compared to the third quarter of 2018.
The principal driver of this growth, where MCM was a call center and digital channel.
Elections were up 10% in this channel in Q3 compared to a year ago.
As a consumer centric approach and improve productivity continue to drive a higher proportion of collections through this channel.
Initiatives to reduce cost and improve efficiency continued to have a meaningful impact on our MCM business.
And have helped to improve operating leverage and reduce cost to connect.
Which improved 90 basis points compared to Q3 last year.
Turning to Europe .
Our portfolio purchases in Q3 totaled $85 million and would like returns that are 200 basis points higher than last year.
These high returns are being driven by our operational scale as well as the unique access to portfolio purchasing brought about by a leading servicing platform.
Collections in the third quarter from a European debt purchasing business grew 3% in constant currency compared to the same period a year ago.
Our European GRC of $3.6 billion was up 4% and constant currency compared to the ended the third quarter last year.
Cabot's debt leverage continues to decline driven by our improved operating performance, while we maintain focus on being more selective in a portfolio purchases.
Finally, Cabots collection sufficiency continues to improve as we have now completed the consolidation of our operations in Spain.
As we mentioned a quarter ago, we have passed an inflection point in our business.
Enriched the majority of for U.S. collections are now derived from portfolios purchased in 2017 and later.
Which have more attractive returns than those of the recent past.
When coupled with new deployments in our key markets at even higher returns along with improvement in overall operating efficiency.
We are delivering a new level of operating margin performance and profitability.
Our operating margin compared favorably to our peer group and is driven by a number of factors described earlier.
We have achieved scale advantages in our key markets, which share certain characteristics that include.
Market sophistication substantial opportunities for growth.
And significant barriers to entry for new participants.
We continue to strive for improved operating efficiency by lowering our costs and moving more for collections to a lowest cost channel the call Center and digital channel.
We continue to leverage advanced analytic tools and capabilities and be employed proprietary data assets to underwrite portfolios and develop collection started used to make the most of each investment opportunity.
Finally, we have divested our baycorp and refinancing our businesses, which operated with lower margins and risk adjusted returns than a U.S. and European businesses.
Our improved level of operating performance has also led to a new level of returns in our business. In fact, the best returns we have seen in years and is a key driver for the ability to continue to increase profits.
As I mentioned earlier, our ultimate goal when setting priorities in a business is to create shareholder value.
In this regard we believe our return on equity performance is a solid indicator of attractive steady returns to shareholders over time.
With that I'd like to hand, the call over to John for more detailed review of our financial results.
Thank you are shape.
As a reminder, we will sometimes referred to our US business by its brand name Midland credit management or more simply MCM, who may also referred to our European business as Kevin.
We delivered strong third quarter results. Despite the impact of foreign currency exchange rate headwind the magnitude of which we will identify for certain financial measures to better demonstrate the strength of our underlying business.
In addition, our results in Q3. This year do not include contributions from refinance here, which was sold in December 2018, or the full quarter perform performance from Baycorp, which we sold in a transaction previously announced in August of this year.
Global deployments totaled $260 million in the third quarter compared to $249 million in the third quarter of 2018.
MCM deployed a total of $173 million in the us during Q3 up 41% from the same period, a year ago, when we deployed $123 million.
This year, our MCM business in the U.S. remains on track to establish a new annual record level of purchasing directly from issuers.
European deployments totaled $85 million during the third quarter compared to $115 million in the same quarter a year ago.
As we have previously discussed European deployments decreased due to more selective purchasing related to our plan to reduce cabot's leverage over time.
Global collections were $499 million in the third quarter, that's flat when compared to a year ago, but grew 2% in constant currency terms.
MCM collections from our debt purchasing business in the U.S. grew 4% in Q3 to $331 million.
Call Center in digital collections for MCM were up 10% compared to Q3 of last year due to the benefits of our consumer centric collections approach and improved productivity.
Collections in Europe in the third quarter were 3% in constant currency terms when compared to the same period last year.
Global revenues adjusted by net allowances were a record $356 million in the third quarter up 6% compared to $337 million in Q3 of 2018 and were up 8% in constant currency terms.
In the U.S. MCM revenues adjusted by net allowances were a record $211 million in the third quarter up 18% compared to the same quarter a year ago.
In Europe Q3 revenues adjusted by net allowances were $131 million were up 1% in constant currency terms.
Our E. R. C was $7.3 billion at the end of September up $76 million when compared to the end September 2018, and up 4% in constant currency terms.
This growth and Youre seeing more than offset a reduction of $120 million of ERP associated with the sale of Baycorp in August .
In the third quarter, we recorded GAAP earnings of $1.23 per share up 78% compared to Q3 a year ago.
As a sheesh mentioned earlier encores GAAP earnings were impacted by our divestiture of Big Corporate August which drove a 22 cents per share reduction in EPS after tax.
After applying this and other adjustments and their related income tax effects. Our adjusted EPS was a record dollarssixty four per fully diluted share and our non-GAAP economic EPS was also a record dollarssixty four up 38% compared to Q3 a year ago.
When encore purchased we noncore purchase Kevin.
Our earnings have also recently benefited from a larger portion of our us revenues being derived from pool groups with stronger returns with that ill turn it back over to Ashish.
Thank you John .
In summary, Q3 was a fantastic quarter for encore.
And I'm very pleased with our operational and financial performance.
I continue to be very excited about our prospects.
We reported record results in the third quarter as global revenues and adjusted earnings reached all time new highs.
In the U.S. portfolio purchases were up 41% or Q3 last year.
And we reported record revenues for NCM into third quarter and call Center in digital collections were up 10% compared to Q3 a year ago.
We also continue to make progress on our strategic priorities, which include.
Number one.
Strengthening our balance sheet, while delivering strong results.
Number two.
Concentrating on the U.S. and UK, our most valuable markets with the highest risk adjusted returns.
And number three innovating to continually enhance MC EMS and cabot's competitive advantages.
Our progress on these priorities is strengthening of business and helping to drive a new level of financial performance for Encore, we're operating under conditions in which more reported revenues are generated by portfolios with strong returns and via purchasing portfolios with even better returns.
This highly desirable combination is reflected in our improved operating margin and the best returns that encore has delivered in years as we continue our focus on creating shareholder value.
Now we'd be happy to answer any questions that you may have operator, please open up the lines for questions.
Sure, Sir ladies and gentlemen, if you had the question at this time. Please press star one telephone keypad. It's your question has been answered all you wish to be moved to your thoughts on the Q press accounts again debts or once you asked a question.
Our first question comes from the line it avid Keegan KBW. Your line is now.
Great. Thanks, Good afternoon, guys, just confirming John the the $19 million tax adjustment from GAAP to core.
That was made at your statutory tax rate not the 7% tax rate that was used in gap right.
I'm, sorry, specifically what are you referring to Eric I, just want to make sure I mean answering the question correctly that the $19.1 million of.
Tax related adjustments from GAAP to core.
Just a tax rate that was yet the.
The.
The after tax number four.
Hey Corp.
The 22 cents, if that's what you're referring to so that includes the tax impact is that your question.
And so therefore not in its not in the rest the rest are regular tax rate if you will.
Yes, yes, okay. If that answers the question. Thank you that's question.
It does thanks a lot.
And then can you guys just give us a snapshot in time of just how pricing and multiples on fresh paper compare.
Now versus let's just say earlier in the year when I think your your commentary was maybe equally as bullish as it is now.
Thanks.
Yes, so Eric how this is ashish and Tom So the U.S. market. When you speak of fresh paper I think thats what are you referring to.
The market is pretty stable in terms of pricing from earlier in the year.
Pricing improved from 15 to 16, 16, 17, a bit towards 18 and since then it's been stable now.
Depending on the portfolio. It goes up 5% comes down a little bit but in general I would say the market is very stable and growing at a steady clip.
And does equilibrium between kind of what our returns we expect and how those centers of selling so pricing is pretty stable this year as deal observed.
Got it thank you.
And then.
When does the the term on the revolver come up for renewal at both Midland and at Cabot.
I think it 2021 for MCM.
Cabot.
I believe is 2023.
Second.
Check.
Okay.
Well I guess as you start for that I mean, the positive trends that you guys are discussing especially as it relates to your leverage I mean do you think.
That will work in your favor in negotiating the loan terms on your revolvers as those come due.
Well, there's there's already a leverage component built into it so.
I don't.
C and overt.
Over difference if you will are obvious difference in our negotiation negotiating.
Physician.
Because we think about a right if you already have triggers and they are based on leverage so.
It's helpful implicitly built already built into the document right the less Levered yarberry again, when the Cabot facilities.
Comes due in 2022.
Yes September 22.
Great. Thanks, one on one of them Cecil actually just before I hop off from one of the impacts of one may argue is just the stricter capital regime that.
Banks have to work with <unk> and I realize Cecil is really just from an accounting impact more than anything it's not economic necessarily but you still expect that Cecil could change the behavior of banks and other credit providers.
In terms of their willingness or ability to sell paper or is it really just too early to tell.
So it's not fully in effect yet so you could say, it's a bit early to tell but I would say the banks have been analyzing the impact on their see off season on their books and financials for a long time.
And we have not heard any.
Material impact in terms of sales strategies.
Okay running here it would go up or later or pressure you hear mixed things in general if you step back and look at what banks are talking about we are seeing as I mentioned last quarter.
Especially heightened level of activity and discussions from all major banks Im talking about setting and that includes banks, who have not sold for years. So we're clearly seeing increased discussion whether to see some driven or an economic outlook or belief that loss rates midrise, regardless of c. So I'd.
Don't know, but everybody is preparing for a higher credit loss environment and we are engaged in all those discussions so I feel much more optimistic very bullish about that supply will potentially increase now nobody has actually started selling.
But many of them are really and later stages of active discussions so I see that as the overall positive.
Weather season, how to.
Minor positive or negative impact I don't know for sure I think we'd have to wait for that one.
Got it.
Thank you very much for the comments.
Sure. Thank you.
Your next question comes front line of David Scharf JMP Securities. Your line is now open.
Hi, good good afternoon, and thanks for taking my questions as well.
Hey.
Sure.
Clearly seem to be sort of too.
Things that are.
Happening simultaneously in terms of sort of impacting the margin profile as you mentioned sort of that inflection point on.
Higher yielding vintages, coupled with just the.
Increasing mix.
Call Center in digital collections, focusing just on the margins.
I don't want to pin you down on guidance, but.
I'm trying to get a sense for.
Well I guess, perhaps what the endgame is where the endpoint in your mind in terms of the percentage of.
Collections that will be call center based and therefore higher margin than through the legal channel.
To give us.
Some sense sort of put maybe that in the context of where margins operating margins GAAP operating margins can go from what you just reported.
Sure.
You have a very very good question David.
Thank you hit on a couple of key drivers of margin improvement, which is higher multiples and returns.
As well as you hit on one off the elements of cost to collect improvement, which is shifting call center in digital but the other one is just in every other channels, the actually reducing cost to collect including gn an overhead costs. So just overall CTC improvement.
Combined with multiple improvement is a driver margin now.
The shift to call center.
We've been pushing on it through two things improving our kind of call center approach, we started that an empty in five years ago.
The acquisition of Atlanta credit and finance the call Center approach gets cash collections earlier in the cycle and before consumers have to be kind of go through the legal process in some cases. The other one is digital investments now we've made a significant shift and we expect.
It should continue but as you can imagine the Mars no change.
I would slow down and the other thing is to keep in mind. It's it's been a fairly homogenous mix a fresh paper with certain balance ranges that you have seen an MCM.
Mix depends a lot on what kind of paper, we buy and at times, a higher CDC people or could have even a higher return in terms of Wyatt ours.
Because we may have a mix lower balance accounts are different kind of balances accounts. Our age accounts. So CDC is an output of our strategy and our continued push to reduce cost in each channel and an overhead what it actually comes out depends on the mix. So over time, if mix shifts a little bit towards.
Lower balances Cdcs could rise, but we maybe buying those at much higher ours, but.
If nothing else changes I would like I would believe.
Teddy improvement in that mix will continue although perhaps not as faster rate as in the past because we've made a lot of push early on.
Understood and maybe shifting to the yields side.
You know once again just looking for some.
Helped directionally if I just do a simple gross yields calculation just just taking your.
To answer receivable revenue divided by average receivables in the quarter.
I guess, excluding the big allowance reversal it was a 39.5% gross yield.
Which ticked up a bit from the prior quarter given the on given where your.
Purchasing or pricing.
Paper lately.
And given the pace at which pre 27 team.
Vintages are rolling off the balance sheet.
Should we be comfortable modeling north of a 40% gross yield.
Last year.
So in terms of the paper, we are buying Youre right. So 17 and onward and is now.
The majority of for collections now for us so they have better yield and the previous ones.
Im not sure if I cannot say a 40% question.
As directly right now.
We may have to take that offline or something but.
If you look at our.
Multiples.
Third one decimal place at around 2.1, and they are slightly improving if you look at the more detailed information in the Q.
And we continue we expect that will continue and as supply increases potentially even improve but at this point as I said earlier pricing is fairly stable and we had a very good equilibrium market.
And Thats, what you, but to put us at least who will continue.
And we are focused on IR ours, just the other thing I would highlight.
And not multiples multiples is one dimension of the return on a portfolio.
And the 2.1 multiple today at a much higher or than a 2.1 multiple a few years ago, because the cost to collect is better and we're collecting cash earlier.
So those two factors in addition to higher multiples are improving our IR ours as we go forward.
Got it.
Just just one last question I wanted to see sold as well for Jonathan and Oh.
Well I'll be careful I phrase this but.
My understanding is is that.
You will no longer record allowance charges that.
Symmetry will be restored so that any revisions of cool.
Forecasts.
Or downward now just flow through a new yield forecast.
And.
It seems like that reduces a lot of volatility.
To downward estimates downward performance and.
Does this.
Yes.
It does the absence of allowance charges in your mind give you a little more room to perhaps be.
Less cautious in.
And how you're going to Seth initial.
Yields.
Well I think there isn't that you're correct. There is no longer the asymmetric risk David.
I think what people will seen just to make sure everybody understands.
Your yield will be set.
Day one.
And to the extent that anything good or bad happens.
Yield discount the change in expected cash flows either maybe just a shortage for the current period or perhaps a different outlook on the long term ability.
The.
Core to collect cash on a given portfolio will make an adjustment either up or down so.
So the concept of the symmetric risk is gone and conceptually.
There was just to be clear there is no safe harbor and conservatism in U.S. GAAP to you. We try every time to put our best.
Forecast into the mix, if you will enter into our long term projections.
But you're you are correct that that.
Asymmetric risk is gone the volatility.
That you mentioned is great cocktail party conversation and speculation because you need sit back and think about it David It comes down to your view on how correlated or not.
A global portfolio is in terms of.
I'll call it the goods at the Bas right. If everybody runs in one direction that could create more volatility if they tend to counterbalance each other than it will.
Create less volatility.
Got it very helpful. Thank thanks for taking my questions.
Again, ladies and gentlemen, if you had the question at this time. Please press Star then the number one key on your Touchtone telephone again debts scholar one to ask the question. Your next question comes from the line. If you Miller the Bakken Dunn Your line now.
Hi, Thanks for taking my questions.
Just I guess had a couple on Europe .
So in this slide deck there is a notable uptick in the cost to collect for Europe and was wondering if you could just maybe you point out what may have been driving that how we should think about that.
Yeah. Matthew this is our shoes. Thanks for your question.
Yes, so last year for Q3 in 2018, and there was a bit of an adjustment and catch up for the first two quarters of the year, that's what caused.
The CDC for Europe to be lower than normal that you would see a year ago.
Okay, Great that's helpful.
And then maybe a couple for Ken.
One of the kind of positives around the Wescott acquisition was just the ability to potentially by accounts. The details of the accounts that what's got servicing and was just wondering you know it has that become a source of capital deployment.
For Cabot and.
And if so how does that return profile look compared to what you're seeing in the open market.
Yes so.
I also outside directly Ashish so yes, the answer it's not the same every quarter.
But if I look at this year and last year I'd say a considerable.
Percentage.
Something like a third of the deployment in the UK would have been from.
Holding some are effectively servicing on the west school side of things.
And.
Did you have the returns Bachelot definitely I can give you a precise number but I will talk in this 100 basis points, Iraq range and that comes from not necessarily I.
A difference in the approach.
Launching with the with the seller, we going to give the declines this class we can but we we understand the book so much better I mean, I understand the on the way in which we're going to collect on those books I'm, especially the we're able to deliver a higher liquidation.
The one so it.
It is you have proved to be very successful strategy we visit.
And it's come along.
By virtue of the the clients wanting to sell that books and on those books. The managed by by Wescott. So it's continued to be successful now.
This new work for us going into the future because as defaults wise in the UK.
Well Scott receives more.
Low fresh step into the market through its collection so to send the the banks will continue to have more and we'll start to to sell to these is from what Scott. So this is not something that runs out of the timing. So continue advantage. If this acquisition.
Definitely helpful color. Thank you for that and then maybe a question on France, we're hearing a little bit about a rising secured NPL sales are they going on and that jurisdictions. I was wondering if you could maybe comment about what you're seeing in the nonperforming space there.
Yeah, maybe a sense of how I know that the focuses on the UK at this point, but how much you deploying in France, and what could that be overtime, if we are seeing or horizon opportunities there.
Yes, it's very good question. So I think France is certainly now seeing.
Shift in mindset.
There's a lot more conversation happening a lot more coming to market I would say.
In the secured space certainly there's been some big transactions that happens we haven't participated knows when looking at potentially servicing some of those going forward, but not deploying capital. It's good implants as as we speak but an unsecured market has I would say grown by about 50% already and could be going up further from.
That.
Obviously from a relatively low base and as yet I think.
Deployed to still relatively modest in France, you know so we.
We will be spending.
Yeah. So good.
10 to 20 million euros, not anything greater this year, but I think over the next few years I'd expect that drives.
To quite a meaningful number.
Thank you for that's definitely helpful and then I guess one on Spain.
One of your peers reported some collection challenges in Spain, and I guess, particularly in the legal channel.
How is cabot viewing the operating environment, there and how much of your legal expertise from Marlin can you apply in the Spanish market.
Well first of all thing I think what youre, referring to is quite different troubles that were quoted by one of that competitors in the last few days in that Q3 results were much more driven by the BPL contracts that they had effectively.
Large scale ones in the Spanish market, and some of which should come to a point determination.
And we Havent.
On the other tool in our business all of the business we've been growing over the last few years has been organic like insert the sun in and deployment in unsecured.
So all the other ticket so it's a read across from anyway, I think our Spanish businesses.
Benefiting enormously from the integration benefits, so too will arguably subscale businesses that we put together subsequent to the integration in mid 2018 Weve.
We've actually made those businesses considerably more efficient.
I think we're now competing very effectively I think we probably leading in certain asset classes in non performing.
Unsecured loans.
And growing that business.
Very good.
You positively on the bottom line basis, so I'm feeling very positive about spine coming from relatively.
Smooths Kyle.
Growing.
We don't have.
The legacy of big contracts at all a running down so it's very different story for us.
Got it that's helpful. Thank you and then one last from me just as we think about kind of if you know the collections in the UK.
So you guys have significant headroom between the payment plan, the receiving a disposable income from the consumer.
But.
Okay.
Given the prolong uncertainty around Brexit.
Is there any impact that you're seeing there just in terms of the ability to generate collection lift and does it way on the consumers mindset, the discussions you're having with them.
Any impact whatsoever, you're seeing there on cash collections.
A very good question I'm here, we are spending an awful lot of time monitoring I think the the.
Based on striking give you is that on plans and regular smooth payments were not seeing any impact I think.
But as we have predicted been really robust I think.
As you approach various different deadlines for breaks and the Hudson many.
There is some evidence that customers hold back.
From making settlements in just running up to those particular deadlines and then as the six month extensions go through I think some of those settlement thing come through again, but.
You can do you have you can be in danger of reading too much into into the Brexit deadline impact, but we're certainly sort of.
Focused on making sure we can put it as much of it as possible I think the more I was writing.
Trends in the UK, all driven by some other things that people don't spend as much time thinking about I mean, if you look at UK.
Default rates in the past few years, it's been a very benign environment lowest for so many many years, but we all got NBC rising defaults in the UK trip by some important changes I mean, obviously the unsecured lending has been driven upwards has been.
And opening up of underwriting criteria.
And then very importantly regularly the regulatory perspective, as a percent change and persistent debt, which means that those customers who regularly the tight minimum payments on credit cards.
12 month period are gonna have to be put behind higher payment amounts and that's causing a more calls more difficult in the UK. So I think we will see in the UK client default rates higher flows into our business.
It's not a matter of whats the thinking they go up it's a matter of how much so.
Preparing ourselves to be ready from a capacity perspective to take on the additional volume and just to keep our clients in a position where they can.
Yes, so question that default rate as much as possible.
Thanks, Ken it's very helpful insight.
And from because.
Your question and answer your question Brent.
Your next question comes front line up Robert Dodd Raymond James Your line Standalone.
Hi, guys just a couple of first I'll follow up on the Brexit question I guess, it keeps getting yes kick download every quarter.
Given the the latest talk like which as I think already been phone in the tough.
I would add any incremental complications to you. If there was a hypothetical a European data protection directive line down the middle of the.
The I wish I see I mean, you've got populations in Ireland, and then the UK, but would add any complications to collections for the northern Ireland.
Good morning, Good question of we've been spending quite a little time, making sure that with perpetual exactly that had been quality. So.
Making sure that you know a day off to any obstacle Brexit we can.
And so a European client, who wants to know where the data resides and making sure that it does reside outside the future definition as you.
We already very well prepared without databases and.
He.
Barry is to ensure that we can reassure those clients in will recall. So there was no issue now European structure from a regulatory perspective, because all about businesses also regulated the one thing that we do need to make sure. We can reach direct loans on its the right.
Didnt location of all about data well prepared to be able to do that so we don't see any impact on our ability to collected different jurisdictions will indeed keypad clients happy with respect to the where that data resides okay got it. Thank you for that kind of and then one more unrelated to that but magnets and.
Any update on on.
Rule, making process in the U.S.
That's a U.S. question.
Yeah.
Ashish will not.
Hello, Operator, yes, we were cut off we just got back in some something happened. So we have to dial back into the operator.
Okay, Okay, let's see.
I repeat the question any any update on on rulemaking and they get it shouldn't in in the U.S.
Robert and the only update is the comment period has ended and a lot of comments were filed happy Finder Commons trade associations finder comments, so it seems a bit delayed than the original timeline that was set so.
After the rules are promulgated I think it's going to be a year to take into effect. So.
At this point.
I don't have a timeline I was expecting perhaps mid next year for rules to be in effect, it's possible. It so happens, but maybe some delay.
That's the best we know for now but the common period has ended so that key step is done and there's a lot of common so I'm sure. The CFPB is analyzing those and will be kind of incorporating those and our any changes into the proposed rules. Okay got it. Thank you.
You're welcome apologies somehow we were cut off so.
We are Bakken now from San Diego.
And I know today is a very busy day for.
Company's earnings announcements I think in in a long time, it's one of the busy busiest day ever or something like that so.
I believe many companies are conducting calls so we do not have any more questions in the queue that we can see and this concludes the call for today. Thank you all for taking the time to join US we look forward to providing you a fourth quarter 2019 results in February thank you.
Ladies and gentlemen, this concludes today's conference and ticket for your participation you may now disconnect.