Axactor ASA ($ACR)

Good day, and welcome to the Axactor Investor Call. [Operator Instructions] Please note that this call is being recorded. It is now my pleasure to introduce your host, CEO, Johnny Tsolis. Sir, you may begin.

Good morning, and welcome to this investor presentation in connection with the announced private placement in Axactor. First of all, I would like to say that I'm extremely proud to be able to present such an attractive and value-creating transaction. I am well aware that it can be perceived somewhat complex, and it has certain aspects that deserves a voiceover. I will try to go through the most important ones step by step during this presentation. With me today for the Q&A session, I have Kyrre Svae and Nina Mortensen. The plan is to go through the transaction highlights and then run a Q&A session. But first, let me give a short recap of Axactor on the next page. Axactor has 2 main core product offerings. The first one is debt collection services performed on behalf of banks and financial institutions, so-called 3PC. This includes predefault collection. The second is portfolio acquisitions, where we buy portfolios and use our platform structure to optimize collections over a longer time, typically more than 15 years on unsecured and 6 to 7 years on secured loans. Most of our claims are consumer loans and credit cards, but we also have competence in other important segments such as car loans and leasing. In Spain, we also have a relatively sizable book of secured NPLs. If we look a bit closer at our operational platform, I would like to highlight our industry-leading cost position. Our main explanation for this is Axactor's highly technologically driven platform, our 1,400 dedicated employees, economies of scale in certain markets such as Spain and Italy, and good cost discipline. We are on a continuing basis participating in several 3PC benchmark competitions or contracts, if you will, and we can document superior results compared to competitors in the vast majority of these. Please move to the next page for high-level market comments. Axactor is operating in a large and growing market for NPLs. From 2020 until 2025, the Stage 2 and Stage 3 loans grew from approximately EUR 800 billion to EUR 1.1 trillion in our 6 geographical markets. If I should highlight 3 market characteristics, I would say that, firstly, we see a structural credit tailwind that is driving NPL supply, we can observe a large and growing NPL stock across Europe, and we have experienced improving risk-adjusted returns on new vintages. To conclude, on the market, we anticipate long-lasting attractive NPL market conditions across Europe. And with yesterday's announcement, Axactor will be highly competitive going forward. Now let's move on to the next slide, where I will go through the deal summary. I'm very pleased and proud to present this transformational agreement, which is backed by 2 of the most respected names in the European NPL industry, Fortress and Geveran. The transaction consists of 3 main elements. Firstly, we have raised EUR 200 million at a price of NOK 4.7 in a private placement, of which EUR 175 million was precommitted by Fortress and Geveran. We are planning to execute a subsequent offering of up to EUR 20 million to existing shareholders. Secondly, in addition to the private placement, we will establish a co-investment partnership with Fortress, which will ensure Axactor's strong investment capacity going forward. This will also be a driver for capital-light revenue growth. The third element is that as part of the transaction, the company will divest a seed portfolio that will generate approximately EUR 100 million in proceeds with closing in Q2. As of the cutoff date for the sale, 31st of December 2025, the price corresponds to approximately 38% discount to the book value. This portfolio will be carved out in a separate SPV, where the company will continue to own 50.1% and Geveran and Fortress will own the remaining 49.9% equally. KPMG has issued a fairness opinion to the Board of Directors of Axactor ASA, stating that the transaction price is financially fair. Further, Axactor's book value of NPL portfolios is to be assessed in Q2 2026. Collection performance in Q1 on unsecured was 89%. In accordance with IFRS, the company will initiate a process to review the ERC forecast model during Q2. Fortress's pricing assumptions, if applied to the entire portfolio, would imply a negative adjustment of book values of maximum EUR 350 million. The company is compliant on all covenants and expects substantial headroom to covenants going forward. As a last remark, the Fortress partnership enhances Axactor's underwriting capabilities through a separate agreement, ensuring access to Fortress underwriting knowledge. On the next page, I will take you through the timeline for the transaction. As you already know, the transaction was announced yesterday, April 28. Today, the company will call for an Extraordinary General Meeting to seek approval for the private placement and the subsequent offering. An Extraordinary General Meeting will be held on May 20 to approve the private placement and the subsequent offering. In the third week of May, we plan for having the prospectus approved and published, in addition to listing of the shares issued in the private placement. May 22, we will have a settlement for the private placement. In May or early June, we will start the subscription period for the subsequent offering. Now let's move more into the strategic rationale for this transaction on the next page. The clear goal for the transaction is to unlock value creation for all stakeholders. It starts with a strong backing from industry-leading investors, Fortress and Geveran. The proceeds from both the private placement and the seed sale will significantly deleverage the business, resulting in substantially lower funding costs, enhance investment capacity and flexibility for potential M&A transactions. The co-investment partnership will further strengthen the company's underwriting capabilities and drive capital-light growth. Our highly efficient platform structure, with its industry-leading cost to collect levels, will provide further support for this profitable growth. Now let's deep-dive into some of these elements, starting on Page 11. I am sure that most of you are well familiar with both Fortress and Geveran, but I would still like to give some details. If I start with Fortress, in addition to, of course, having extensive funds available and long experience in buying European NPLs, for Axactor, the partnership adds some clear new dimensions. Fortress is not only investing in NPL portfolios but has substantial experience from investing in servicing platforms. For Axactor, their extensive NPL deal sourcing network will now become available for us through the co-investment agreement. And their superior underwriting capabilities and strong asset management skills will definitely improve Axactor's ability to select and underwrite NPL portfolios. Geveran, with a long NPL experience and deep industry knowledge, in combination with significant investment capacity, will continue to be an invaluable asset for Axactor going forward. Geveran has a proven track record of creating superior returns through transforming companies and industries. And with this transaction, all parameters are in place to do just that. Let's move to the next slide to discuss how this transaction unlocks a clear path to significant earnings growth. In principle, there are 4 major net income drivers that will derive from this transaction. The first one is deleveraging. It will happen immediately and the effect is instant, both the interest burden and the balance sheet risk will be reduced. Second, the transaction will offer improved opportunity to refinance and optimize the cost of funding. This will lead to structural savings on interest expenses. The third driver is the opportunity for substantially higher investment levels going forward. It will be a step change in investment capacity, generating higher revenues from portfolios. It will unlock the opportunity to purchase attractively priced portfolios available in the market. And lastly, from day 1, we will experience a 3PC uplift from servicing of the seed portfolio, and over time, the co-investment portfolios will contribute to growth in recurring asset-light revenue streams. To summarize, the transaction will be vital in creating net income growth going forward. Please move to the next slide for more details on balance sheet effects. As a result of the transaction, we will see an immediate and significant strengthening of the balance sheet. With EUR 200 million from the private placement and EUR 100 million from the seed portfolio sale, the pro forma net interest-bearing debt will be reduced from EUR 837 million down to EUR 537 million. This will, pro forma, reduce the leverage ratio from 3.7x to 2.3x, as defined in our bond covenant structure. Going forward, we expect leverage to be in the range of 2.25x to 2.75x. We anticipate a potential for substantially lower cost of funding after the transaction. With an estimated change in leverage ratio from 3.7x to 2.3x, the bond yield is expected to tighten substantially. Please move to Slide 14, where I will give some more color on the increased investment capacity. The investment capacity will increase by 7 times because of the transaction. At year-end 2025, due to capital constraints, Axactor's investment capacity was estimated to approximately EUR 80 million. After the transaction, Axactor will have an investment capacity of approximately EUR 400 million, and Fortress's share in the SPV will be another EUR 170 million, hence, giving a total investment capacity just shy of EUR 600 million. I would also like to mention that the partnership with Fortress supports continued disciplined capital deployment at attractive risk-adjusted returns. This is supported by their superior underwriting capabilities, significant data advantages, and a deep understanding of the European NPL business. Let's move to Slide 15 for more details on the co-investment partnership. In brief, Axactor will own 75% of the co-investment vehicle, and Fortress the remaining 25%. In the case the SPV invests more than NOK 300 million annually, Fortress's ownership share will increase to 35% for any amount above NOK 300 million. The SPV will be fully consolidated in Axactor's accounts and has an initial term of 5 years. A joint investment committee will oversee key decisions. The servicing fee that the SPV pays to Axactor will be based on local market levels per portfolio. And the agreement is valid for all geographies where Axactor is currently present. The co-invest and seed investment SPVs will drive our 3PC revenues. Please move to Slide 16 for more details. Axactor has already a strong momentum in the 3PC segment, delivering an organic year-over-year growth of 19% in 2025 at healthy contribution margins. This transaction will further enhance this momentum in 2 ways: one, the sale of the seed portfolio will from the start give an immediate uplift in 3PC revenues; and two, as soon as the new investments are done in the co-investment structure, the 3PC revenues will increase even further. To summarize, the transaction expands recurring high-margin servicing income and supports continued growth with less capital intensity. It is soon time to open up to questions, but I would like to present one more slide with our revised financial targets on Page 17. I will do this short. We target to invest between EUR 200 million and EUR 400 million annually in NPL portfolios. Further, we target to deliver on the annual average growth of 10% on 3PC. We will [ reach ] return on equity that exceeds 15%. And regarding leverage, we will focus on maintaining a moderate leverage ratio to create an optimal capital structure. The target is to keep a leverage ratio between 2.25x and 2.75x. When it comes to total shareholder distribution, we aim to pay a minimum of 50% of adjusted net income, distributed through cash dividends and/or share buybacks. We target the first shareholder distribution in June '27 when all current outstanding bonds are refinanced. With that, we open up for questions.

[Operator Instructions] Our question comes from the line of Rickard Hellman from Nordea.

I would like to start to ask a little bit about if you could give more specific details around the 89% collection performance. Any regions, any particular portfolios or any more details around how we could be at that level? Let's start with that one.

Yes. So thank you for that. Well, we have not prepared a lot of details on this. That will be released in the Q1 report that is to be released in late May. But what I can say is that most regions, except Spain, Spain is delivering quite well. But other than that, the 5 other regions are [indiscernible].

And is this also the same portfolios that you did have the loss write-down a little bit more than a year ago as well? Or is this new portfolio vintages?

No, the 89% reflects the total book. Sowe don't give out specifics on certain portfolios. So 89% is for the total book. That includes both portfolios that was primarily written down in 2024, which was the vintages from 2017 to 2020. But yes, that is what I can say so far on this, Rickard. I don't have any more details.

My second question was around SPVs, which you state that they are to be unlevered at least initially, or I interpreted as you're referring to the seed portfolio at least. Is this also true for the coming SPVs that there will be no [ debt ] in these structures?

The total debt structure is to be settled. We are continuing with the same existing RCF. So we don't do any changes to this. Going forward, there might be changes in the structure, but that's not been decided yet. So what we have agreed with the RCF bank is that we have reached an agreement to have a very flexible flotation of cash between the ring-fence and the SPVs, but then we comply with the set of covenant levels. So it will naturally be a change in the total funding structure somewhere down the line, but not in connection with this transaction.

But I guess, since all SPVs are to be consolidated, it will be on-balance sheet items. It will not appear anywhere or in any off-balance sheet way.

No, that is correct.

Yes. And hence, also cash flow out or cash leakage in the SPVs for debt will be similar to as if you were to have the debt and the cash leakage in Axactor holding.

That is also correct. Yes.

[Operator Instructions] There no questions at this time. I will now hand the call back over to CEO, Johnny Tsolis, for closing remarks.

Thank you so much. We have a few questions here on the line. The first one goes like this. The discount was substantial. What was the background for this, and how do you think about dilution for other shareholders? So first of all, I would like to say that given the total size of this private placement, the discount is in line with market practice for similar transactions. Secondly, it's also worth mentioning that Geveran is also being diluted from approximately 50% down to 35%. So when it says other shareholders, it's actually all shareholders. And thirdly, there will be -- the plan at least is to have a repair issue, a very sizable repair issue. So there will be ample opportunity for all shareholders to participate. Second question, Nina, will you take this one?

Yes. I can say that when there is new agreements, they will get net proceeds of NOK 300 million, NOK 200 million will come from the private placement, and then we will have approximately NOK 100 million coming also from the seed sales. So it will immediately reduce the debt level in Axactor. But also going forward, to have lower leverage, we will also then benefit from having lower funding costs that will also have a positive impact on '27 and going forward. So I think this is the high-level impacts from the new deals and from the debt structure.

Very good. Thank you And then we have the next question: Given that the portfolio is sold to SPV at 38% discount, is it realistic to say that the whole portfolio will be revalued at similar rates? And the short answer to that is no. However, we have also stated that we will assess the entire book during Q2. But the work has not started yet, and we will start that work now in a few weeks. Next question. You mentioned a target to invest EUR 200 million to EUR 400 million annually. How much is reinvested? And what's the plan for growth going forward? Any strategic target for the total book? I don't think that -- I don't have that specific number in front of me right now, unfortunately. So if you send an email, we could calculate. But we don't have that available. Yes, we got another question. Why Italy and Finland was excluded from the seed portfolio? And the simple answer is that we only managed to get to an agreement on the 4 countries that are included.

This concludes today's conference call. Thank you for your participation. You may now disconnect.