B2 Impact ASA (B2I.OL) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to B2 Impact's second quarter presentation. Before we start the presentation, just some practical information. As always, we will start with the live questions in the Q&A, and then we will follow up with questions in the activity feed for those posting questions online. So with that, I will leave the word to you, Trond Kristian.

Thank you, Rasmus, and good morning, everyone. Welcome to the Q2 2025 presentation. As you know, the key figures were preannounced in our market update on July 21. Today, we will focus on new updates and the positive adjusted targets for 2025. In our previous communications, we emphasized that B2 Impact continues to deliver stable growth combined with strong yield. Q2 is yet another quarter that provides solid comfort to this development. I would also like to emphasize that the underlying results are significantly stronger than last year when the large divestment of our lending business in Poland took place. We hope this presentation will give you a clear understanding of our position and outlook. I'm pleased to announce continued very strong collection and ERC growth. Investment activity on track with NOK 2.1 billion committed for 2025. REO sales have reached NOK 155 million by the end of Q2. And last year, we made NOK 330 million. I'm really pleased to announce that we expect NOK 600 million to NOK 800 million for this year. I'm also happy to announce that the integration of Veraltis under B2 Impact is well on track. Adjusted earnings per share is tracking ahead of full year target, and our new financial targets will just underline our strong position. The estimated remaining collection, what we call ERC is essentially our industry's oil reservoir. And we have had internal discussions on how to communicate the upside to the market. B2 Impact's ERC is developing positively, and we expect and are already seeing positive revaluations going forward. You will later see that the ERC is reported to NOK 26 billion with the risk that our CFO, André, will [ end my life ] is probably above NOK 30 billion. The key point supporting this view is our consistent out performance on expected collections, most recently at 112%. We continue strong cost discipline with FTEs trending down, while collections per employee are steadily increasing. This positive trend is expected to continue as our investment in technology remains a top priority. The potential is significant, and we are only at the beginning of this journey. As mentioned, REO sales are currently trending well above our 2025 target. The key strength of our accelerated REO sales strategy is that it enables deleveraging while reallocating capital into unsecured portfolios, driving substantial growth in ERC and earnings per share going forward. This performance underlines the robustness of our strategy and reinforces our commitment to creating long-term shareholder value. We are well on track to meet our investment target with NOK 2.1 billion already committed year-to-date. As mentioned, the conservative ERC has increased from NOK 23 billion to NOK 26 billion. As a result of these strong figures, including REO performance, we are pleased to announce that our revised 2025 investment target will be raised from NOK 3 billion to between NOK 3.5 billion and NOK 4 billion. I will then hand over to our CFO, André, for more flavor.

Thank you, Trond Kristian, and good morning to everyone listening in. Now given that we released a commercial update back on July 21, the presentation today will hopefully provide some additional flavor on the underlying development so far this year, and even more importantly, clear guidance and expectations for the remainder of the year, including updated financial targets. So before we go into the financial details, I would like to remind you that in Q2 last year, we divested our lending business in Poland with a solid profit, which impacts comparable numbers. Throughout the presentation, we will focus on the underlying development, and I will comment on deviations based on comparable numbers, excluding the impact of the sale. Now moving to Page 8 and the financial highlights of the quarter. We are, of course, pleased to be able to announce that we are tracking well ahead of our initial financial targets for 2025. Cash collections in the second quarter was up 9% compared to the same quarter last year, with unsecured collections growing by 12%. The collection performance in unsecured has reached a consistent and sustainable high level, which indicates, as Trond Kristian pointed out, a notable upside in our current ERC, reflected in this quarter with a positive revaluation of NOK 73 million compared to NOK 30 million last year. We expect this trend to continue, and I will come back to how this will impact financials going forward later in the presentation. The total underlying operating expenses in the quarter was down 3% compared to last year. And this despite 9% growth in cash collection and inflationary pressure on the cost base, leading to a 19% underlying growth in EBIT. This reflects our long-term focus on improving our cost efficiency and drive scalability on our cost base. In terms of cash EBITDA, cash EBITDA was up 10% compared to last year, mainly driven by the growth in unsecured collections. Contribution from REO sales was year-to-date NOK 155 million at the end of Q2. For the remainder of 2025, we expect an additional NOK 450 million to NOK 650 million on top of this to contribute to cash EBITDA and further reduce leverage in the coming quarters. Interest expense was down 21% compared to the same quarter last year and significantly contributing to a net profit and earnings per share growth of 65% compared to last year. Earnings per share was NOK 0.91 per share in the first half of the year and tracking well ahead of our full year target of NOK 1.5. We are consequently updating and increasing our financial targets for 2025 with an investment level expected in the range of NOK 3.5 billion to NOK 4 billion, leverage well below 2.5, supported by the strong REO sales expected for the second half and increased dividends to NOK 1.5 to NOK 1.7 per share. Moving on to Page 9 and some more details on the collections in the quarter and for the rest of the year. We continue to see improvements in the collection performance on our unsecured portfolios across all our markets despite positive revaluations. We expect this trend not just to be sustainable, but to improve further in the coming periods. Unsecured collection performance was, as you can see on the top left, 112% in the quarter with growth in collection of 12% and ERC of 11%, indicating an accretive impact also from our new investments. Secured cash collections, including the REOs and our joint ventures was flat compared to last year. For the remainder of the year, we expect this to increase significantly, in particular from sale of REOs. As mentioned, we expect cash or sale of REOs of NOK 600 million to NOK 800 million for the full year. And as of today, we have already booked well north of NOK 500 million. Moving to Page 10 and the cash flow for the quarter. Cash earnings came in, in the second quarter at NOK 105 million after paid investments, including some deferred payments from Q1, interest cost and tax. Despite having limited tailwind from secured and REOs in the 2 first quarters, we continue to see a level of cash earnings, supporting our targeted investment level and maintained low leverage. At the end of the quarter, leverage stood at 2.4. In the coming quarters, we expect leverage to be in the range of 2.1 to 2.2 depending on the investment level, well below the targeted 2.5. Moving then on to Page 11 and the operating expenses. Comparable operating expenses were down 3% in the second quarter compared to the same period last year. And this is despite 9% total growth in cash collection. So the main takeaway we would like to leave on this slide is that the total cost base has been reduced by almost 4% compared to last year. And we are in the same period, growing our unsecured collection by 12%. This demonstrates the increased scalability we have on our platforms, confirming what Trond Kristian presented earlier related to collections per FTE. In terms of investments, our investments in the second quarter came in at NOK 450 million, but this does not reflect the actual activity level. As you could see from the deferred payments in the cash flow slide, we did pay for investments in Q2 that were closed late in the first quarter, and we have also closed some important investments early in the third quarter. We consequently have year-to-date around NOK 2.1 billion already committed in terms of investments for the full year. On the ERC side, I would like to reiterate again that we see a significant upside based on the current collection trend and the need to extend the collection period on many of our legacy portfolios. Page 13 and funding position. On the funding side, we have extended the RCF by 1 year in the quarter without any additional costs. Interest costs are down 21% compared to the same quarter last year, reflecting the successful refinancing plan we started last year. Current liquidity reserve and the expected strong cash flow for the rest of the year provides substantial room for increased investment levels this year and a maintained low leverage in the range of 2.1 to 2.2. So moving to Page 14 and probably the key highlight for this quarter, our updated financial targets. We said back in the Q1 presentation that we are on track to deliver and outperform our financial targets for the year. And we are pleased to be able to confirm that today and provide updated targets for 2025. Investment target is increased to a range between NOK 3.5 billion and NOK 4 billion compared to previous target of at least NOK 3 billion. Leverage ratio will remain well below 2.5, and the dividend target is increased to NOK 1.5 to NOK 1.7 compared to NOK 1.5 previously. We also add some additional guidance on REO sales for the rest of the year of NOK 600 million to NOK 800 million, supporting maintained low leverage and an increased investment level. And we also guide on the expected levels of portfolio revaluations. But this is very important for us because the current trend in collection performance that we see, it will end up in more portfolios being triggered for revaluations. And going forward, we expect an annual level to be at least in the area of NOK 150 million to NOK 200 million of positive revaluations in the coming years being book value increase. So to sum up the financial part of the presentation, we see a significant upside in our current ERC. This will result in further improvements in our collection performance and positive portfolio revaluations. High REO sales rest of the year will support increased investment target, combined with a low leverage. And of course, the dividend target is increased. Also, I would like to point out that the current development and targets will have a positive impact, of course, also on 2026 financials and support further growth in earnings per share and dividend potential going forward. We will come back with more tangible targets for '26 at a later stage.

Thank you, André. We trust this presentation has highlighted our strong position. I would really like to express my appreciation to the Secure team in Central Europe for developing and executing such an effective strategy. We are confident in delivering attractive shareholders' return while also remaining ready to capture opportunities in M&A and the secondary deal market. I would also like to express my gratitude to all B2 Impact's employees for their contribution to our great results and for your commitment to developing the business. With that, I hand over to you again, Rasmus for the Q&A session.

[Operator Instructions]

With that, we will start the Q&A, and we will kick off with those calling in.

The next question comes from Ulrik Zürcher from Nordea.

I have a couple here. I just wondered if Trond could maybe expand a bit on what he's saying that ERC could be over NOK 30 billion. That's 20% up from -- at least from the current level. Like what are the drivers here? Like why do you believe that? And also, I see that the over-collection on the unsecured is like -- that's half of what you're saying the ERC could be understated with. And the other one there is that, obviously, if you have such an upside on the ERC and you're guiding on -- you're actually guiding on very low revaluation annually, like just a little bit over 1%. Is that extremely conservative? Is there some accounting stopping you? Or what's going on?

It was kind of a long question, but I try to start with the ERC, which was probably the main part of your question. Actually, for us, this ERC is quite easy, but we recognize in the market and in -- among the environment we are in that it's necessarily not that easy to understand. But what we see is that our goal is to have a realistic or kind of conservative approach because this is a long-term collection we have to deal with. By that, we always would like to be on the conservative side. But at the moment, and as you can see in the past, we are steadily over performing. And that is a very good sign that our ERC is too conservative. We also reevaluate everything all the time. So this is also backed by our analytic view. So we are very confident that it is conservative, and that is a very good situation to be in. But at the moment, we are probably on the -- kind of too conservative. And that's the reason for why we pointed it out this time. And as André mentioned, we will continue to probably do something with that in the next quarters.

I need to add a couple of things there, Ulrik. First of all, the increase we're discussing on revaluations is not ERC, it's book value. Obviously, ERC is much higher than book value. And we closed finally the portfolios -- final portfolios related to Zolva in July, which is an ERC slightly above NOK 0.5 billion. and 30 divided by 26.5 is 12%, and we are performing at 12% above the curve. So only our collection performance, I would say, reflects this upside. And we need to step-by-step do revisions over time to, first of all, follow our principles, which is triggered portfolios that meets the requirements for revaluations. And of course, we need to step-by-step do revisions and see that we perform along with the new curves. So it's not 20% upside where we're discussing. We're discussing in the area of 12%, which is where we are today.

Okay. But given the revaluation you're guiding on, let's just say, a little bit over 1%, then at the current trends, you will also continue to report over collection then at the current trend?

We will, but it's not 1%. It's close to NOK 200 million for 3 years at NOK 600 million of book value.

Yes, I just meant annually. But okay, I think I get it. And then sorry for taking time here. I was just looking -- wondering if the 2 things. On the REO sales, could we expect that sort of level to carry over into '26? Or are there some one-offs there? And then just secondly, on the portfolio investment that you're doing, is it your opinion that like IRRs have stabilized now? Or do we still see -- could we see an uptick in IRRs?

That's a long question. Where do we start? We don't comment on IRRs. I guess we've said that many times before. Can you repeat the first part of your question, Ulrik?

Yes, that was just on the REO level. You said NOK 600 million to NOK 800 million this year. I was just wondering if that could be matched next year.

We will come back with targets for 2026 at a later stage. But the clear ambition is to, as pointed out by Trond Kristian, to accelerate REO sales when possible. Obviously, we'll not leave money on the table. But if we find opportunities to accelerate sales, we will do that to drive cash flow to reinvest more into the unsecured business.

Congratulations with a good report.

The next question comes from Gustav Larsson from Arctic Securities.

Congratulations on the strong report. I have 2 questions mainly. The increased investment level now to NOK 3.5 billion to NOK 4 billion per year for 2025. Do you consider this to be a one-off for 2025 due to the acceleration of REO sales that enables higher investments? Or do you think this is a sustainable level going forward as well?