Axactor ASA (ACR) Q4 FY2025 Earnings Call Transcript & Summary

Good morning or good afternoon all, and welcome to the Axactor ASA presentation of Q4 results. My name is Adam, and I'll be your operator today. [Operator Instructions] I will now hand the floor to Johnny Tsolis, CEO, to begin.

Good morning, and welcome to Axactor's fourth quarter presentation. With me today, I have our CFO, Nina Mortensen. This presentation will be divided into 4 parts. First, I will take you through the Q4 highlights. Then Nina will present the financials before I go through our key focus areas going forward. We will round off with a Q&A session. Let us move to Slide 3 and have a look at the highlights for the quarter. Before I start, please note that the numbers are affected by one-off effects, in particular, portfolio sales in both 2024 and 2025. Reference is made to the footnote. In Q4, Axactor delivered revenue growth with positive contribution from both segments. NPL gross revenue grew by 3% year-over-year, and the 3PC growth was impressive 16%. Axactor delivered a solid cash EBITDA of EUR 54 million, up from EUR 51 million last year. Cash EBITDA margin increased from 63% to 64%. Annualized return on equity to shareholders was 14%. We continue to see positive effects from both changes in the IBOR interest level and reduced net debt, resulting in a 15% year-over-year reduction in interest expenses on borrowings. During the quarter, we divested a couple of smaller sized portfolios in Germany and Spain, and we did so at a solid premium to book value. The transaction strengthened the balance sheet and contributed to the strategy of renewing the NPL book. Let's move to Slide 4 for more comments on collection performance. Axactor delivered a strong reported collection performance of 106% for the quarter and a full year collection in line with expectations of 102%. Obviously, the collection performance was positively affected by the earlier mentioned portfolio sales. And excluding these, the collection performance for Q4 was 102% and 101% for the full year. Please move to the next slide for more comments on the portfolio sales we executed in Q4. During the quarter, we sold 2 small portfolios in Germany and Spain. The common denominator for the sales was that these were the oldest portfolios we had in the 2 respective countries. In Germany, the vintage was from 2016. And in Spain, this was the oldest remaining unsecured portfolio we had, and it was from an early 2018 vintage. The total proceed was approximately EUR 15 million and the transaction was done at a premium of more than 20% to book value. These transactions were a part of the strategy to renew our unsecured NPL book and the buy effect is obviously the positive effect it had on covenants, creating more covenant headroom. Let's move to the next slide for more comments on the development within 3PC. The 3PC segment continues to deliver impressive results. In Q4, the revenue growth ended at 16% year-over-year. We saw double-digit growth in both Norway, Spain and Germany. In Spain, the growth is fueled by a successful partnership with a major investment fund. The previously announced landmark agreement in Norway contributed with its first onboarded volumes during the quarter. We see a clear trend that the customers are more willing to pay for high-quality collection services and the growing pipeline with solid prospects give a positive foundation for further growth and margin expansions for not only in Norway but for the total group. Let's move on to Slide 7 for a summary of the key highlights of the year. 2025 was a busy year for our structure, and I would like to highlight 4 areas where we saw significant improvements from previous years. Firstly, we delivered an impressive 19% organic growth in the 3PC area. This is one of the highest, if not the highest growth for any collection company of a larger size in Europe. Secondly, our collection performance improved substantially from '24 to '25 supported by the negative revaluations performed on the back book in '24. The full year performance was in line with expectations, ending up 102%. During the first half of 2025, we spent a lot of time on refinancing activities and the maturity profile was derisked through the prolongment of the RCF and the issuance of a new bond ACRO5. And finally, we implemented a large cost initiative by changing our IT infrastructure supplier, taking down the cost for IT infrastructure by approximately 30%. All these 4 areas contributed to the improved financial results for Axactor in 2025. Let's move on to the next slide and comment on where we are compared to our financial targets for 2026. Let me start on the left-hand side, NPL investments. We anticipate NPL investments of EUR 100 million to EUR 200 million annually. In 2025, we below the target range at EUR 59 million. This is partly explained by the fact that in first half 2025, we were holding back on investments until we got the refinancing of the RCF and the ACR03 executed. Regarding return on equity, we were at 10% reported ROA and 12% adjusted for nonrecurring cost items in 2025. The target is to be at a minimum 12% ROA 2026. When it comes to returns and leverage, it is important to view these 2 in combination. We have a dividend policy with a dividend payout ratio between 20% and 50% and at the same time, we want to have a maximum leverage ratio of 3.5x at the end of 2026. What has become evidently clear over the last couple of years is that the debt market profoundly rewards low leverage ratios with tight bond spreads. It is, therefore, the Board's recommendation not to pay a dividend based on the 2025 results to prioritize deleveraging and hence improve cost of funding. We have already seen a strong tightening of the margin on our bonds and we hope that the trend will continue into 2026. With that, I will leave the word to Nina for the financial update.

Thank you, Johnny. So now I'll take you through the Q4 financial performance. starting with the overall figures and then a bit more context on what is behind the numbers. Gross revenue for the group ended at EUR 99 million in the quarter, down 39% compared to the fourth quarter of 2024. The gross revenue was strongly affected by the sale of portfolios in both Q4 2024 and Q4 2025. Excluding the portfolio sold, the underlying like-for-like growth year-on-year was 6%. NPL segment reported a gross revenue of EUR 80 million. The underlying growth this quarter was 3% when adjusting for the sale of portfolios. The growth was mainly driven by improved collection performance. The 3PC segment continued to deliver a strong top line of EUR 19 million, up 16% from the fourth quarter in 2024. We look a bit more into details on each of the business events starting with NPL on the next slide. The NPL segment delivered total revenues in the fourth quarter 2025 of EUR 49 million. When doing the year-on-year comparison, it's important to note that in Q4 2024, the company adjusted ERC cures and reported a net negative revaluation of EUR 104 million resulting in negative total revenues for that quarter. Total revenues for Q4 2025 were positively impacted by the improved collection performance. Connect performance continues as expected to hold steady at around 100% and ended up at 106% for the quarter and 102% for the full year 2025. When excluding the sale of portfolios in Germany and Spain, the connection performance came in at 102% for the quarter. The contribution margin ended up 74% for the fourth quarter 2025. The contribution margin was slightly down compared to previous quarters due to higher legal activation in Italy in the quarter. This year, Axactor, will resume full focus on building a solid and investment pipeline consisting of attractively priced accretive portfolios. The market and wealth portfolios remain active with numerous opportunities expected through the coming year. The estimated replacement CapEx for 2026 is EUR 75 million. And based on expected investments for the year of EUR 100 million to EUR 200 million, we would likely see a growth in the NPL book value. Please turn to the next slide for comments on development in the 3PC segment. The Q4 2025 performance for 3PC segment was all-time high with solid revenues of EUR 19 million, reported double-digit growth in Norway, Spain and Germany and the year-over-year growth ended at 16%. The contribution margin was 48% and up from 44% in the fourth quarter of 2024. This represents the highest margin since 2019, even when we include the significant ramp-up costs related to the landmark agreement high in Norway during 2025. The 3PC segment continues to show strong momentum with ambitious new sales targets. The Norwegian landmark agreement will have a gradual ramp-up throughout the year, supporting our significant growth expectations for 2026. Let us move on to the next slide, where I'll present more details on the reported financials. Total revenue at group level ended at EUR 68 million for the quarter. Total revenue for the fourth quarter in 2024 ended negative due to the relations made at year-end. Reported EBITDA ended at EUR 35 million with a strong EBITDA margin of 52%. So we continue to see results from our cost reduction and revenue growth initiatives. Cash EBITDA ended at EUR 67 million for the fourth quarter compared to EUR 130 million in the corresponding quarter in 2024. Reduction was driven by the large portfolio divestment in the fourth quarter in 2024 compared to the smaller portfolio sales, mainly in the fourth quarter 2025. Now on to the next slide for a look at the development in return on equity. The return on equity for the year came in at 10%. The ROE is increasing to 12% when excluding cost-related NRIs. Our return on equity of 12% is in line with the communicated financial targets for 2026. This result was mainly achieved through improvements in collection performance, strict cost control and lower financial expenses. We continue to accelerate our operational amortization program to help maintain a healthy return on equity going forward. This concludes a positive year with a stable financial performance. With that, I'll now hand it back to Jonny for some comments on the focus areas going forward.

Thank you so much, Nina. I would like to wrap up this presentation by emphasizing our key focus area going forward. We believe this area will be important in order to secure accretive growth for 2026 and beyond. Firstly, we will resume full focus on building an attractive NPL investment pipeline Most, if not all, of our portfolio acquisitions will be accretive on leverage ratio. Secondly, we will continue to fight for new attractive large-sized bank and finance customers in the 3PC segment. We target to place a EUR 100 million bond to refinance ACRO3 and to secure additional investment capacity. And at the same time, of course, not lose focus on daily operations and operational excellence. Despite the rapid growth that we are experiencing. With that, we will open up for questions.

[Operator Instructions] We have a question from [indiscernible] from Arctic Securities.

Could you walk through -- you might have mentioned it, the net financial items and why those were slightly higher, I guess, during this quarter versus the year before. Could you Talk a little bit more about those. I recognize that there's a deferred payment that was made. Can you help bridge this a little bit for us?

Yes, sure. I'll elaborate a little bit on the financial items. It's correct that we have a onetime effect in the financials in the Q4 this year. And it's also correctly stated that it's related to a deferred payment. This is portfolio in Spain, where we have a profit-sharing agreement, and this portfolio has been quite overperforming here lately. So that's why we have made an op for deferred payments. So it's not a cash effect of sui and approval for future payments.

Great. It seems on the investment side that we didn't quite see the large pickup in the fourth quarter, but obviously highlighting that you see a good pipeline and expected a large pickup in 2026. Could you just talk about maybe the competitive environment you saw in the fourth quarter and what you're seeing potentially so far in the first quarter that gives you that confidence in that pickup?

Yes, we can do that. I will say that the Q4 deal flow was more or less at normalized level, but this is -- but we also saw that some of the processes were delayed into Q1. So I would say that Q1 deal flow is a little bit higher than what we normally see. So -- and we don't see a pipeline longer than Q1, Q2 other than that we know that the annual processes from certain banks will always come in also second half of the year. The competitive environment is more or less the same as it has been for a while. We see less competitors than what we saw maybe 1 to 2 years ago, but the ones we see, they are relatively aggressive, and that is also the reason why we did not invest on the low side in Q4. We don't have unlimited investment capacity. So we are in a situation where we can select transactions where we see attractive IRRs. So we are thinking that is the most important in what we do and not aiming to necessarily push investments to the 100 mark that I was actually hoping for, but we could not do it unfortunately in 2025.

Understood. Maybe just 1 more on the 3 PC items, obviously, continuing to have pretty good growth in that segment. You had mentioned earlier that the larger contract in Norway was coming on as contributing as of the fourth quarter. Is there any way that you can give us any color on the amount of the growth that was driven by that particular client versus broad growth in the segment?

To be honest, I don't have that number in front of me. But obviously, it's a certain contribution. But what I can say is that the contract consists of several product areas and the largest 1 has not been on board yet. It will be onboarded late Q1, early Q2. So there is still a lot of upside potential from that contract. And it will also gradually -- the volume gradually picks up.

Great. So just understanding that it's relatively broad-based growth, obviously, not just that being the main driver is what I'm from that?

That is correct. As you can see that we have double-digit growth in 3 out of 4 countries. So it's not only the contract in Norway for sure.

We have no further questions from the phone line. So I'll hand back to the team to check questions.

Very good. Yes, we have a few questions here online. So the first one is as follows. The 3PC fees in Norway have been fixed since 2017, but will be higher from '26 onwards. My estimation is that this will increase after EPS with about 5 or taking the landmark contract in Norway into account. Is my assumption correct? And if so, if not, I'm in the ballpark. And then first of all, I can say that the fee structure is a bit more complex than just the fixed fee. So especially, there's an element of success commission. So it's not so straightforward to calculate. And also, we cannot answer detailed questions regarding specific customer contract. But what I can say that the fee changes in that has been done or will be done will definitely be positive also for this contract. Second question is, were there any one-offs in the net financials and cost. And I think we have already answered this partly, I don't know, Nina, if you have anything to add on it.

Yes, we already answered it on the financial offers, but we can also add that on a more operational cost, I do also have some smaller ones relating to the transactions of selling their portfolios in Spain and Germany and also some legal fees in Spain.

Yes. Third question, do you believe that your AI is better than the average competitors? And I think the question is that, no, I don't, to be honest. I think we are more or less on average for now. We are preparing. We are not still not using AI to a large extent. We are doing it in some areas. It's under implementation. We have started to see some effects, but I also noticed during the Arctic NPL center earlier in January that very few competitors are talking a lot about AI. It's a lot about automation, and scorecards and so on, but pure AI. I think everyone has more or less the same. A lot of us are using the same, for example, the same dialer system, which opens up for or a lot of the same AI tools. So no, I don't think that we are far ahead of competitors. So next, how do you as the outlook for collection performance for 2026? Several peers has indicated that the positive collection trends seen in '25 and expected to continue into 2026. Do you observe a similar development? So that is question number one. Now as you can see, we have been more or less right on our collection forecast for 2025. We see -- we believe to be close to this, but please remember that there are risks in our curves going forward. It's affected by macro trends. It's a regulatory environment. There's a lot of risks built into the curves. So I don't have any comments to give on this early in the year. We'll have to see after Q1 to see how the year starts. Second, you have delivered strong TPC growth recently at a high level, what level of PC growth should we expect in 2026. So we don't guide a specific level, but we have said that it will be -- let we expect also strong growth into 2026. Since we also have announced this 1 large agreement, but we also signed other large 3PC agreements during '25 that is building up. We see that the growth will be I'd say, more than the market growth is what I can say. But we're not going to give a specific number for it. Third part of the question, could you provide some indications of the expected impact of the IT migration of operating expense? We're not guiding any on the total. We have said that just the change of IT infrastructure was 30%. And I think in some of the previous quarterly presentation that we had last year, we gave some more numbers on it. But unfortunately, I don't have that in front of me right now. Question number five, did the portfolio sale impact the collection performance, yes. And it's also thoroughly described in both the report and the presentation, and you can see the difference with and without the sales on the collection performance. The next question. Will you do a bond in euro given the performance of the new bond from [indiscernible], why not take advantage of the very strong market in NOK? So no decision has been taken on and what currency we will do the bonds. But normally, I can say, normally, we do Eurobonds and it's also important to remember that the bond price that is consist of to price elements. So 1 is the underlying interest element, which then for book would be the Norwegian interest rate level, which is substantially higher than Euribor. And the second part is the margin. So we will come back to what kind of currency this will be issued in and it also depends on the market conditions at the time we are addressing the market. Next question is what would the leverage ratio have been adjusted for the portfolio sale? And that is a number that we don't have that we will not share. And then going back to the TPC fees, I think that the question was misunderstood. Will increase from NOK 700 to NOK 750 increase your apps with about [indiscernible]? Point one, I don't have the calculation. So I cannot comment on it a point to, we will not also comment on this specific contract. That was all the questions we have received so far. I don't know if we have any more online questions on the phone. I mean nothing?

Nothing more from the phone, so I'll hand the go back to yourself.

Okay. Thank you so much, and thank you all for participating, and have a great day. Bye-bye.

This concludes today's call. Thank you very much for your attendance. You may now disconnect.