B2 Impact ASA (B2I) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to B2 Impact's Fourth Quarter Presentation. My name is Rasmus Hansson, I will moderate the Q&A. And some practical information, for those of you who want to answer questions live, you can use the link for -- the dial in link, and we'll also answer questions in the chat for those of you who post questions there. We will then start with the live questions in the Q&A. And with that, I will give the word to our CEO, Trond Kristian Andreassen.

Thank you, Rasmus, and good morning, everyone. As this is my first presentation, I would like to use the opportunity to shortly introduce myself. I started in B2 Impact 1st of December last year. Most of my career, I worked in the finance industry with different positions as CEO. After 4 years in the Board of B2 Impact, I was enthusiastic to step in as a CEO. My first 2 months has been good. I'm impressed by the level of competence and positive atmosphere in the group. Together with the team, I'm really looking forward reaching new targets and create value for the shareholders. Digging into the full year 2024 highlights, I'm pleased that we can present strong collection performance combined with expenses and interest costs continuing to trend down. That's the main drivers for earnings of NOK 1.57 per share, and a proposed dividend of NOK 1.50 per share. We reached our investment target of NOK 2.5 billion signed in 2024. Looking forward, we have already committed investments of NOK 1.2 billion through forward flows and Q1 investments. Later in the presentation, we will come back with further details regarding 2025 priorities. Looking into more key figures for the full year 2024, you can see the cash collection of NOK 5,284 million and cash EBITDA of NOK 4,175 million. Compared with last year, the difference is mainly driven by the 2023 Q4 sale of our largest asset in Croatia. The unsecured performance is up to 108% of the latest forecast and adjusted net profit ends with NOK 579 million, compared with NOK 483 million last year. The leverage ratio is still at a low level of 2.2x. The outcome of focusing on unsecured assets has the last year changed the secured part from 29% down to 14% of the total estimated remaining collection. The investment target of NOK 3 billion for 2025 is mainly unsecured business in a setup where we only expect a marginal increase in costs. The total number of FTEs has continued to trend down. Compared with increased use of automation, digitalization and AI, the unsecured collection per FTE has increased significantly. That's the reason for our increasingly scalable cost base. I'm convinced that our highly competent people will create an even more dynamic operation going forward. And then we dig more into the financial performance, and I hand over to Andre.

Thanks a lot, Trond Kristian, and good morning to everyone listening in. During the quarter, you will see that we have had a financial development that reflects the strategic direction we have pursued over the last 4 years. Strong improvements in unsecured collection performance, growth in unsecured and declining ERC in secured, operational cost reductions and significantly lower interest cost. In the same quarter last year, we had very strong cash collections from secured NPLs, mainly driven by the sale of our -- on collection of our largest sale as well as high REO sales. In the same quarter this year, you will see that we have had more modest secured collection impact and 6% growth in unsecured collections. The result is a slightly lower top-line, but a stronger bottom-line, allowing for sustainable high dividends. And we will elaborate more on this during the presentation. On Page 8, we look at the financial highlights for the quarter and for the full year 2024. We are very pleased to be able to present further improvements in the unsecured collection performance. Performance came in at 110% for the quarter, and 108% for the full year. And we continue to see the same trend into the first quarter of 2025. Secured collections are down compared to last year, again, mainly driven by our largest claim collected of approximately NOK 500 million and higher REO sales last year. The total operating expenses was down 5% in the quarter with personnel costs down 6%. During the fourth quarter, we have seen a further reduction in FTEs, which will impact operating costs also in the coming quarters. At the beginning of 2024, we presented a target to significantly reduce our run rate interest cost and we are very pleased to be able to present also in the last quarter that we are overshooting this target. During the fourth quarter, we have also completed a bond tap of EUR 100 million at a margin of 3.47%. This will further improve our savings program on interest cost. In the quarter, the interest costs were down 28% compared to the same period last year and we expect further decline also in the first quarter of 2025. As already touched upon, our investments are within our targeted range, and we have signed investments for the full year of '25 of NOK 2.5 billion. We have also signed quite a bit of new forward flows in the quarter. And in addition to investments already made in the first quarter of 2025, we already have a committed investment level of NOK 1.2 billion for 2025. As a reference, we had NOK 700 million at the beginning of 2024. The earnings per share for the full year came in at NOK 1.57, which is up 24% compared to the same -- compared to 2023. Based on our strong development, the Board has proposed a dividend of NOK 1.50 per share for the financial year 2024. On Page 9, we elaborate a bit more on the collection details. And as mentioned, we continue to see a strong and further improved unsecured collection performance. Throughout 2024, we have seen a positive trend taking the full year collection performance to 108%, compared to 105% last year despite several positive curve revisions during the year. Secured collections are down in the quarter as expected with our largest claim collected last year. And I'll share some more details on this on the next slide. REO sales was also lower than last year and normally fluctuates between the quarters. The margin to book value continued to be strong with REO sold around 40% above book value. On Page 10, we would like to share some more details on the ERC growth as well as collection development in 2024. And during '24, we have been able to more than replenish the decline in secured ERC with growth in unsecured ERC, demonstrated on the left-hand side of Page 10. The profile of unsecured NPLs is less front-end loaded than secured, but provides longer-term stability in our cash flows. We saw in the fourth quarter, a growth in unsecured collection of 6%, and we expect this growth to improve further in the coming quarters with more than 10% growth in unsecured ERC in the quarter. In terms of secured collections, this has declined, obviously driven by no new investments, which is in line with our communicated investment strategy and of course, the large claim collected at the end of 2023. In 2025, we should, on average, expect to see a higher contribution from secured per quarter than in the fourth quarter. But given that secured now only make up 14% of remaining collections we may see more volatility between the quarters. Moving to Page 11 then and the cash earnings. For the first time in 2024, we saw cash earnings being negative following a high investment level in the quarter. When we look at the full year, we see that cash earnings are positive with more than NOK 200 million, even after a signed investment level of NOK 2.5 billion and dividends of NOK 479 million. Meaning, we have more than funded our investment level and dividends through operational cash flow. And with significantly lower expected interest costs in 2025, this capacity will increase even further. Moving to operating expenses. The total operating expenses, again, were down 5% in the quarter despite considerable inflationary pressure. Personnel cost was down 6% and is expected to further decline in the coming period. In the quarter, we have booked nonrecurring items of NOK 116 million. The majority of this is related to severance pay following FTE reductions both in the third and the fourth quarter, which will impact costs in the coming period. In addition, we have a noncash provision of approximately NOK 60 million in the fourth quarter and provision for further restructuring planned in 2025 and beyond. And we will come back with further details during the course of 2025. So the key takeaway here is costs are coming down and we have done quite a lot of further actions both in the fourth quarter and will continue in 2025 to drive down cost and improve efficiency. In terms of investments, we have had a very active quarter. We have signed investments in the fourth quarter taking the full year level to above NOK 2.5 billion. All investments were unsecured NPLs. In addition, we have, as we touched upon, NOK 1.2 billion already committed for 2025. As of today, February 2025, including all signed investments, the ERC is currently north of NOK 26 billion, providing a solid base for growth in unsecured collections. On the next page, we would like to highlight a bit more the change in ERC profile as well as the growth in ERC that we have seen over the last 4 years. Although Kristian already touched upon this, but back in 2019, almost 30% of the ERC was related to secured NPLs, which is by nature more front-end loaded than unsecured. And we want to highlight that this has been very favorable for us as we have been able to delever the business quickly. Over the last 4 years, we have seen ERC also growing by 9%, driven by investments in unsecured, which today make up 86% of the remaining collections. Given the low leverage that we have today, this offers a unique position for B2. Our replenishment CapEx need, given the change in ERC profile, has been reduced. Our earnings transparency has been increased. And together with lower operational and interest costs, it allows us to distribute sustainable high dividends and grow investments without issuing new debt going forward. In terms of interest cost and funding on Page 15. As you can see on the bottom left graph, the interest costs have continued to decline throughout the year with a significant drop of 28% in the fourth quarter following a full bond refinancing. In addition, as I touched upon earlier, we have also made a bond tap of EUR 100 million in the fourth quarter. This was done at a margin of 3.47%, which is the lowest in the company's history. We consequently expect a further reduction in interest costs in the first quarter of '25 with approximately NOK 10 million to NOK 15 million. The current capital structure provides lots of flexibility, access to liquidity and we have no short-term maturities. So summing up the financial part of the presentation on Page 16, we would like to give you some guidance on our financial ambitions for 2025. We target an investment level of at least NOK 3 billion with more than NOK 1.2 billion already committed for '25. I would like to add that we also expect unsecured collection performance to remain strong and further improve. Should this trend continue, we may see further positive revisions going forward. Despite the higher investment level, we target a leverage below 2.5x. And lastly, we target to maintain the proposed dividend level of NOK 1.5 per share in dividends also in 2025 to be paid in 2026. And with that, I leave the word back to you Trond Kristian.

Thank you, Andre. Just a short summary. In today's presentation, you have heard that B2 Impact has a continued solid and improving performance. Combined with a scalable cost base and a low cost of debt, we are able to propose a dividend of NOK 1.5, already well on our way to achieve our investment target of 2025. We are confident to deliver attractive returns to the shareholders in the future. With those words, Rasmus, we'll open it up for questions.

[Operator Instructions].

We'll then start with Hakon Astrup from DNB.

So 2 questions from me. The first one on -- so the cost base going forward, you mentioned some initiatives that you are planning to make and we have seen that the number of FTEs and the efficiency in the business has improved. What can we expect here going forward? Is it -- can you give some data points on perhaps FTE -- following some data points on potential FTE reductions or how much the cost base can come down from where we are today? And that's the first question. And then the last question, it's to Trond Kristian. As you are the new CEO, can you -- you talked a little bit about it, but can you say -- give some more insight into anything that you would like to do differently from what B2 has been doing before?

Maybe I can start on the cost side. We have not provided any specific targets on this, so I won't be able to share any specific details. But obviously, we are continuously seeking to improve our both cost base as well as efficiency, meaning our potential to add volume without increasing cost. So obviously, we are targeting, at least in the short-term, a decline in cost as touched upon, we've already seen a reduction in FTEs in the fourth quarter. But it's not all about reducing the cost base. It's also obviously mitigating inflation. But the key for us is that we have changed our cost base, and we continue to change the cost base to be much more focused on utilizing data, technology and actions that we -- that will help us increase the scalability, meaning grow the business with only marginal costs going forward. And we -- we're quite clear that we believe we can grow the business now going forward without adding anything but marginal cost.

Yes. On your second question to me, I would say that the change in the group in terms of focusing on secured -- sorry, unsecured is actually needing quite a different focus and kind of organization. It's much easier for us to create an even more lean organization focusing only on the unsecured part. So that's my main focus, to focus on core areas, to focus on the unsecured part and also to develop the operational organization according to that.

Then we give the word to Gustav Larsson from Arctic. Gustav?

I only have one here. You have a new investment target of NOK 3 billion per year and the new dividend policy today. Can you just comment on how this compares to your replenishment rate CapEx and the target of distributing 100% of net profit? What I'm asking is, does low -- if you maintain the same dividend level for 2025, does this imply lower than 100% of adjusted net profit given that you're investing NOK 3 billion per year?

Gustav, I don't hear you that well. So maybe if I try to repeat the question, you can let me know if I understood. So you're asking if we're able to invest NOK 3 billion and pay dividends and still maintain the level of leverage below 2.5x? Or did I understand your question correctly?

Yes. Well, yes, that is one question you can answer, of course, but I'm just asking, if you're investing NOK 3 billion growing the business and you're maintaining dividend for 2025 at NOK 1.5, does that mean that your target is lower than 100% of adjusted net profit for 2025?

Understood. So the clear policy that the Board has issued today is that we can distribute up to 100%. And the target of NOK 1.5 in dividend per share reflects around 100% payout, yes.

Can you also comment on NOK 3 billion investments? How does this compare to your replenishment rate?

This will be notably above our replenishment rate. As you've seen, we've been able to more than replenish our ERC and actually, grow the ERC with investment levels that we have shown just north of NOK 2 billion and up to NOK 2.5 billion. So it depends on what you want to replenish if it's ERC or if it's bottom line. And for us, we've been able to replenish the ERC at a level of around NOK 2.5 billion. So NOK 3 billion will clearly deliver growth in ERC. As I touched upon in the presentation, it doesn't necessarily mean growth in top-line because you see secured declining, but unsecured increasing. But the bottom-line based on the lower cost level and the nature of the unsecured assets as well as the lower interest expense, we expect the lower top-line to deliver a notably higher bottom-line.

That concludes our live questions. We have a few questions in the feed here. We will start with [indiscernible] from [ SpareBank 1 Markets ]. The company had a strong OpEx cutting trajectory from Q1 to Q3 2024, but in Q4, all OpEx components increased quarter-on-quarter. Looking ahead, should we treat Q4 as a one-off? Or should we model future OpEx development based on year-on-year decreases rather than quarter-on-quarter changes?

Sequentially or year-over-year? I'm not sure I understood the question.

I can repeat. The company had a strong OpEx cutting trajectory from Q1 to Q3 2024, but in Q4, all OpEx components increased quarter-on-quarter. Looking ahead, should we treat Q4 as a one-off? Or should we model future OpEx development based on year-on-year decreases rather than quarter-on-quarter changes?

In general, I would always look at each quarter comparing to the same quarter last year as we always see seasonality both in cost and collections in terms of quarters. So definitely, I would model based on a full year cost level and the decline that we saw in the fourth quarter was 5% compared to the same quarter last year. So I would, for sure, model a decline in costs based on the development we saw in the quarter compared to the same quarter last year.

Then a second question from [ Jacob ]. Can you elaborate on the decision to enter and focus on the Norwegian NPL market? Previously, this market was not a key focus area for B2I. What drove this shift in strategy?

Yes, we acquired here as presented Zolva's back book in the Nordics, including Sweden, Finland and Norway, representing an increase in the ERC of -- at around NOK 100 million. Included in the transaction was the Norwegian platform, which further strengthened our position in the Nordics.

Additional question. Can you comment at what levels the company hedged interest on that?

On average, it's approximately 100 basis points below the current floating interest rates in terms of euros -- in terms of EURIBOR rates.

Very good. Then we move to Erik Gjerland from ABG. Can you give some more details into the results from the secured portfolio, both today's results and going forward? I think you elaborated a little bit on that, and may give some more color. Any more comments on what's already shared on secured collections?

Yes. No, I think we covered it. Obviously, we have fluctuations between the quarters. The ERC in secured is now significantly lower than it's been historically, and we've been collecting the largest assets to a large extent. So as I touched upon, we will expect to see, on average, a higher contribution per quarter, but we may see more volatility between the quarters.

And one additional question from Jacob from SpareBank 1 Markets. Can you please provide a breakdown on unsecured performance with regard to geographies? And what is your performance outlook for 2025?

No. We have not shared before any details on geography in terms of performance. But I think we can say that we see across the board very strong performance. We've also had some markets where we don't perform up to the level that we want, and others where we have seen very strong performance. The current performance reflects quite a bit of improvements in the markets that we have seen not deliver up to the level that we expect, which is part of also explaining the improvement in collection performance.

Very good. That concludes the Q&A. Thank you to Trond Kristian and Andre, and thank you to everyone who was listening. We look forward to see you again on the Q1 presentation in May.

Thank you.

Thank you.