Lowell's creative slide 28

All,

FYI, below is an extract of our latest question to Lowell, in what is becoming an increasingly surreal conversation

Wolfgang

Email argument:

I have listened again to the presentation of the slide, but the issue remains all the same. Perhaps I can illustrate with a projection of that slide into next year:

Year 1 Collections:  £ 650m (per slides 38 and 39) Not including year zero collections on new purchases.

DP Cost to Collect:  £-150m (roughly grossed down in line with Year 1 Collections relative to Years 1 and 0 this year) also not including year zero collections on new purchases.

3PC Income:  £ 180m

3PC Cost to Collect:  £-110m

Overheads:   £-180m 

Cash Interest:  £-145m 

Purchases at 1x average RR: £-280m
FCF = £-35m 

Now clearly I’ve excluded the year zero collections. But before I add them back: The Replacement Rate only takes into account Year 1 Collections, as they are known today (before any in-year purchases - or collections there-on). So at a minimum - to keep ERC stable - we have to have new purchases of incremental £280m (or ERC 560m) left over at the end of the year if we are to compensate for the year one collections only. 

Of course we can (and should) supplement our earnings by working on our purchases right away (let’s not wait until Jan 2020 to open the box…). But we will have to buy those ERC over and above the £280m that must be left at year-end, if by then we want to have collected the £650m of the existing book.

So to level FCF, we would have to buy more than an extra £-35m of new portfolios to cover for incremental year zero collections of £70m - and that assumes no additional cost to collect/overhead/interest etc. (we can haggle about the exact incremental contribution). Given I’ve held everything constant, the necessary in-year purchases are more likely the same as those missing in this year’s calculation….

>>> Thus Lowell are still - deeply - FCF negative. <<<