Axactor ASA

Good morning and welcome to AXActor's third quarter presentation. Together with me, I have our CFO, Nina Mortensen. This presentation will be divided into four parts. First, I will take you through Q3 highlights. Then Nina will go through the financial update before I present an updated outlook. As always, we will round off with a Q&A session. Let's move to slide three and have a look at the highlights for the quarter. Gross revenue increased year over year by 2%. The marginal growth was supported by a small portfolio sale of €4 million in Spain. Adjusted for this, the gross revenue declined 3% year-over-year. The main reasons are still the economic environment, the debt relief initiatives from the governments, and the relatively moderate investment levels we had in 2023. However, cash EBITDA was up 6% year-over-year, reaching €59 million for the quarter. Strict cost control in all markets offsets declining gross revenue and inflation. EBITDA ended at 27 million euros, down from 34 million last year, but still at a healthy margin level of 48%. This number includes 0.8 million restructuring costs in Italy. The annualized return on equity was 0%. We are, as most of the industry, burdened with higher for longer interest rates and a challenging collection environment, putting pressure on profitability. Moving on to slide 4 for more details on accretive investments. Q3 is normally a slow investment quarter for Xactor, which was also the case this year. We invested 30 million euros at the same price level that we have seen in recent quarters. Accretive investments continues to improve our gross IRR on our backbook, although moderate in Q3 due to the limited new investments in the quarter. We have been able to improve our total gross backtrack IRR with three percentage points during the last three years, going from 15.7% in Q1 2021 up to 18.7% at the end of Q3 this year. We aim to continue to gradually ramp up our investments and still expect to invest up to €150 million for the year, with year-to-date investments at €94 million. But let me underline that we will only invest in what we consider to be attractive enough IRRs. Hence, the final investment level is still uncertain. Let's move to the next slide for more details on the development in operating expenses. Axtractor is facing cost pressure with increasing salaries, more expensive IT licenses and higher office rents to pick a few examples. We have the ambition to keep operating expenses at the same level in absolute terms year over year. This means that we need to initiate substantial cost measures to compensate for the unavoidable cost increases. I am therefore very pleased to see that our operating expenses are down 2 million euros or 5% year over year. The low OPEX ratio of 33% is an important driver of the high cash EBITDA in the quarter. However, as we expect the cost pressure to continue, we constantly need to improve. Please move to the next slide for a short update on two important initiatives that will help us to reach our ambition on costs going forward. Last quarter, we introduced these two very important projects that over time will improve our cost position further. The first one is called Growth Italy and aims primarily to make us more equipped to handle expected growth in the Italian market. The process is fully on track, and the build-up of NPL amicable capabilities at Sisley and administration functions in Grosseto goes according to plan. The second initiative, which is to change the IT infrastructure provider to Advania, has moved from the closing of the tender and into the pre-launch phase. We expect to start to migrate the first country to the new infrastructure from Q1 next year. The last point I will make before I leave the word to Nina is regarding interest rates. Please move to the next slide for more comments. As I said during the Q2 presentation, this is not an area that we can really impact that much, except working with the capital structure in different ways to reduce the margins on our borrowing facilities. But I still think it's important to mention it. A potential decline in interest rates will really move the needle in terms of profitability if the interest forward curves materialized over the next couple of years. Currently, 8% of our net interest-bearing debt is hedged as of end Q3, and you can expect this share to increase over time as we do new investments and we hedge these new investments correspondingly. We have a positive P&L effect of €1 million per quarter in 2024 and €0.8 million in 2025 from an already realized hedged contract. With approximately 950 million euros in net interest-bearing debt and 92% being unhedged, it is clear that just a one percentage point reduction in the interest rates will improve our sector's cash flow and net financial results rather substantially, and hence also the return on equity. That is the good news. Unfortunately, this will take time, but we will gradually start to see the positive effects from Q4 this year and onwards. Nina, with that, I leave the word to you.

Thank you, Johnny. So now I'll take you through the Q3 financial performance, starting with the overall figures and then a bit more context on what is behind the numbers. Total gross revenue for a group and the 2% above Q3 2023. The challenging macro situation and government-imposed debt relief initiatives continue to impact the collection performance negatively. The relatively moderate investment levels we had in 2023 are also limiting the growth rate. The NPL segment reported a growth of 2% this quarter. The growth was supported by the sale of a small portfolio in Spain of 4 million euros. The CPC segment delivered revenues in line with the same quarter last year, excluding the CPC businesses in Sweden and Finland that were closed during the fourth quarter of 2023. The growth was 6%. Let's look a bit more into details on each of the business segments, starting with NPL on the next slide. Total income for the NPL segment ended at 42 million euros in Q3, down from 52 million euros in the third quarter of 2023, a decline of 18%. We continued to see a challenging collection environment during the quarter, where all markets performed below expectations. The overall collection performance ended at 90% for the quarter. It is important to note that Q3 is a seasonally weak quarter. Total income was negatively impacted by revaluations of 7 million euros in the third quarter, combined with an increased and failed amortization rate of 33%, up from 24% in Q3 last year. The reduction in total income was partly offset by lower OPEX ratios, and we are pleased to see continued positive results from the ongoing cost improvement projects. The contribution margin for the quarter ended at 76%, down two percentage points from 78% in Q3 last year. Please turn to the next slide for comments on the development in the CPC segment. The CPC revenues ended up 13 million euros for the quarter, equal to a growth of 6% if we exclude Sweden and Finland, which were closed down last year. The increase was driven by double digit growth in Norway, as well as a strong development in both Spain and Germany. The Norwegian CPC business is experiencing solid growth from new sales within the banking and finance segment, a key focus area of a Saktors strategy. The contribution margin was 37% in the third quarter, up from 33% in the third quarter last year. The increase in margin is a result of healthy cost control and the exit of low margin business. Let us move on to the next slide, where I will present more details on the reported financials. Total income at group level ended at 55 million euros in Q3, down from 64 million euros in Q3 2023. The reduction was, as previously mentioned, impacted by negative relations, a higher amortization rate, and a continued challenging macro environment for collections. The EBITDA margin ended at a healthy level of 48% due to strict cost control in all countries. The EBITDA also includes a restructuring provision of €0.8 million related to the site consolidation project in Italy. Cash EBITDA ended at €59 million for the quarter, a growth of 6% from Q3 2023. The increase in cash EBITDA was driven by a reduction in operating expenses and the sale of a portfolio in Spain. Now on to the next slide for a look at the development in internal equity and a summary of the Q3 financials. The ROE came in at 3% on a 12-month rolling basis. ROE was negatively affected by the macro situation and increased cost of funding. We are pleased to see that our cost reduction strategy is showing results and is supporting a healthy underlying cash EBITDA and margin. Another positive development is that our 3PC strategy is working with continued growth and improved margin this quarter. I'll now hand it back to Johnny for some comments on the outlook.

Thank you so much, Nina. Regarding outlook, there are only a few changes from the Q2 report. And to summarize, we expect to experience a challenging collection environment during the whole of 2024, and we also expect this to continue into 2025. Further, we have very good cost control and expect to be able to absorb any cost inflation through OPEX reductions. As I mentioned earlier, we expect only a modest reduction in cost of funding in the short and mid-turn. We expect to invest up to 150 million euros, which is in line with the investment target of 100 to 200 million euros annually. Year-to-date investments are 94 million euros. Finally, as of end Q3, we are compliant on all covenants, but given the limited headroom on leverage ratio and interest coverage ratio, we will pay close attention to these going forward. We are continuously working on mitigating actions. With that, we open up for Q&As.