This has been an eventful year, domestically and around the world – from global events such as the war in Ukraine to the cost-of-living crisis at home – and there has been a huge impact on people’s everyday lives.
Britain is now facing soaring levels of inflation, levels we haven’t seen in a generation, and the knock-on effect will be huge.
Our most recent Financial Vulnerability Index, published in September, showed that the rise in cost of living means more households are turning to credit just to pay the bills. There is a huge concern that families in the UK may be teetering on a financial cliff edge.
Having said that, we’re also seeing unprecedented levels of government support, including the Chancellor's recent Autumn Statement that sought to support people on lower incomes – people often represented in our consumer groups.
From where we are right now, with the shifting geo-political situation and as we head into winter, it’s hard to make solid predictions about how this will all play out. But it’s clear our customers will be affected and, as ever, we will be working closely with them to ensure the best possible outcomes we can.
As for Lowell, we recently reported our third quarter results, which shows that our underlying business remains strong. Despite the volatile wider economic environment, our cash EBITDA grew £79m year on year to £583m. This followed the acceleration of collections associated with the publicly rated ABS structure and the long-term management of margin performance.
A significant moment in the quarter was the completion our deal to buy Hoist Finance UK, which is yet another milestone in our long-term growth ambitions. Acquisitions and ongoing collection initiatives will be crucial in our plans to keep growing, and the acquisition of Hoist Finance UK feels like the perfect fit for our UK business.
The Hoist deal, which includes the operations of the firm and its unsecured non-performing loan portfolio, which has more than 2 million consumer accounts, closed on October 2022. Almost all the loans in Hoist’s portfolio are in the credit card and personal loan sector. For us, this supports our growth into the UK financial services sector, specifically banking, and positions us as the UK’s largest credit management service provider.
This deal will help bring more data insight from the financial services market, speeding up pricing and analysis while reducing investment risk.
The orderly transition of the operations to Lowell is underway: the migration of the accounts to Lowell systems will start in 2023 and Hoist will be consolidated on Lowell’s balance sheet from the fourth quarter of this year.
Above all, though, we look forward to welcoming Hoist’s employees and ensuring they feel fully part of Lowell as we bring them on board. Close to 180 staff will be joining and we will continue to operate Hoist’s Salford office – which will look to recruit the best talent in the North-West.
Default rates remain low
Elsewhere in the business, there has been softness in UK collections compared with a strong performance the previous year – driven by reduced collection activity in the first half and pressure from reduced settlement values. Yet the business performed in line with the June reforecast, and default rates have remained low at less than 5%. There seems to have been no visible change on those rates even if there has been a marginal softness seen in the value of settlements.
Other positives remain in one of our big strengths is to turn non-performing loans into re-performing loans as well as having a very well-structured balance sheet, that will help when facing any short-term market turbulence.
All in all, though there are some early signs of inflationary pressure on the cost base, we are showing pleasing progress in our recovery. It was a strong financial delivery despite the headwinds and the strong comparison period.
As ever with Lowell we maintain a disciplined investment approach across all our regions to ensure we can continue to drive profitable growth. After a strong year of capital deployment, especially with the great opportunity to buy Hoist UK, we will focus on our balance sheet. The purchasing levels for 2023 will likely be more closely aligned to the Replacement Rate.
Supporting customers to regain financial health
Meanwhile we continue to monitor the macro environment closely, especially with the signs of market re-pricing underway. But at the heart of our business, as ever, is the desire to ensure our customers take control of their debt. We’ve helped 750,000 people do just that in the past year, and continue to engage ethically with our customers to reach the best possible outcome for them. Our mission remains to make credit work better for all with personal support and our increasing suite of digital tools.
We will continue to mitigate the headwinds, and work together to ensure we come out stronger. We are well placed to do so. Especially with an expanded company with new colleagues, we can look forward to the future with optimism.