B2 Impact ASA (B2I) Earnings Call Transcript & Summary

Good morning, and welcome to B2 Impact's first quarter presentation. Before I give the word to Trond Kristian, just a bit of practical information. For the Q&A, we will start with those who are dialing-in, and you can also ask questions in the chat, which we will then take after the live questions. So with that, over to you, Trond Kristian.

Thank you, Rasmus, and good morning, everyone. The Board of B2 Impact has been clear to us as a management; give us stable growth, give the shareholders high return, and make B2 Impact to become the stock you want to buy and never sell. In our view, due to the developed last years, that's where we are, and the journey has just started. We are also happy this is recognized by both new equity and credit investors. We hope this presentation will give you a good understanding of our position. Looking at Q1 highlights, I'm pleased that we once again can present strong collection performance and ERC growth combined with expenses and interest costs continuing to trend down. That's the main drivers for earnings of NOK 0.37 per share, up 41% from last year and on track to deliver dividend target '25 of NOK 1.50 per share. With great timing from our internal team and external advisers, we managed to issue a EUR 200 million bond on attractive conditions, giving us high level of flexibility. It has been high investment activity with already NOK 1.6 billion invested and committed for '25. The '25 priorities is unchanged, with profitable growth, driving cost scalability and extensive improvements in use of technology. Looking at our key financials to summarize, it's strong development in all our key financials and up from last year. With net profit up 41%, high level of investments and low leverage, we are in a strong position. As said, NOK 1.6 billion already invested and committed in Q1. An attractive and diversified pipeline is supporting our full year target of at least NOK 3 billion. Looking at the ERC, it is up to NOK 25.6 billion. That's before the full onboarding of the Zolva transactions. As communicated, we are focusing on unsecured assets and the secured is down to 30% of the total ERC. André will get back to it, but our ERC is conservative, and that will have a large impact on the number going forward. Technology is probably the most important for our business going forward. The total number of FTEs has continued to trend down, as the last quarter is including the platform of Zolva. At the same time, the collection per employee is still increasing significantly. We are proud to show this, but I'm even more proud and convinced that our highly competent people will create an even more dynamic operation going forward, including solutions, making it easier for our customers to pay. I started to announce the message from the Board, and it's all about balancing our growth, long-term stability and increasing cash flow, grow in investments, low leverage ratio, attractive dividends, knowing our position and the fact that our ERC is conservative based on historical long-term collection performance, we are convinced about our strategy. And then I hand over to André, our CFO.

Thank you, Trond Kristian. Good morning to everyone listening in today. So the clear takeaway from our financial sections this quarter is that the financial performance is on track to deliver our targets for 2025. So collection performance, as already touched upon from Trond Kristian, has reached a consistent and sustainable high level, which indicates notable upside in our current ERC. We see growth in our unsecured ERC, which is more than compensating for lower secured ERC. Underlying operational costs are down despite growth in collection and inflationary pressure. And we see a significant reduction in interest costs, following our successful refinancing process in 2024. And we will elaborate more on these topics during the financial section. Moving on then to Page 9 and the financial highlights for the quarter. Unsecured collection performance has seen a positive trend over the last years. And over the last 4 quarters, we have experienced a consistent higher collection performance. We expect this trend to continue and improve further in the coming period. The performance -- collection performance on unsecured in the first quarter was 109%. That is compared to 105% last year. We also see 12% growth in collections and 10% growth in unsecured ERC in the quarter. In terms of secured cash collection, it is down in the quarter compared to last year, mainly driven by lower REO sales, but it's up compared to the fourth quarter last year. In terms of REOs, we expect higher sales volume for the remainder of the year, and I'll come back to that on the next slide. Total underlying operating expenses are down 2% in the quarter in constant FX and personnel costs are down 5% compared to the same quarter last year. We consequently see cash EBITDA coming up 8% year-over-year, following the growth in collection with cost coming down in the same period. We expect to see more tailwind for cash EBITDA throughout the year from REO sales and secured collections. As communicated in recent quarterly presentations, the cost of debt or interest cost will come down notably in 2025. And in the first quarter, we have seen full effects of the refinancing completed in 2024 with interest cost coming down 24% compared to the first quarter of last year. We have also further strengthened our financial flexibility and investment capacity through a new 5-year EUR 200 million bond at the lowest margin so far for B2 in a primary issue of 3.75%. The adjusted earnings per share came in at NOK 0.37, a significant 41% growth compared to last year and puts us well on track to reach our target of NOK 1.5 for the full year. Investments in the quarter came in at NOK 890 million, a strong number in a seasonally slow quarter for investments. For the full year, we have NOK 1.6 billion invested and committed at the end of the quarter. With that -- with the current investment pace and a highly active market across our countries, we anticipate attractive opportunities to invest above the target. Moving to Page 10 and some more details on the collection performance. As you can see on the top left graph, the improvement in collection performance has consistently been at a high level over the last year. We expect this trend to be sustainable, and we see improvements also in the coming periods. Secured collections are down compared to last year, as mentioned, but up compared to the fourth quarter last year. With the secured book now becoming a much smaller part of our total book, we will see increased volatility between quarters and the same goes for REO sales, which is also down compared to last year, but with a margin-to-book value, which continued to be strong around 40%. I want to highlight that for the full year of 2025, we expect to see a higher contribution from REO sales compared to the level -- the full year level of NOK 330 million in 2024. Moving then to Page 11 and cash earnings for the quarter, cash earnings came in at NOK 95 million after paid investments, interest cost and tax. Despite having limited tailwind in the quarter from secured and REO sales, we continue to see a level of cash earnings that supports our targeted investment level and a maintained low leverage. Leverage at the end of the quarter was NOK 2.13 (sic) [ 2.13x ] and consequently, with notable headroom to our target below 2.5x. Page 12, and some more details on the costs. And we are very pleased to see the scalability in our cost base coming through in the financials. Comparable operating expenses in the quarter were down 2% with personnel costs down 5%. At the same time, we saw unsecured collection growing by 12%. In terms of legal collection costs or external expenses, they were slightly up compared to last year, mainly driven by a higher investment level. We have also moved some costs forward in time on the legal collection costs and expect those costs to come slightly down in the coming quarters compared to the same quarters last year. In terms of portfolio investments, in line with what we saw in the fourth quarter with high activity, we continued that pace into the first quarter this year, despite it normally being a slower quarter for investments. All investments were unsecured and mainly in the Nordics and Poland as well as Western Europe. We continue to see ERC growth in unsecured, up 10% compared to last year, which more than compensates for a decline in secured ERC. Unsecured at the end of the quarter make up now 87% of total ERC. Moving to Page 14. We would like to elaborate a bit more on the current ERC mix and expectations and reiterate an important topic we also touched upon previous quarters. The profile of unsecured portfolios provides us with long-term stable cash flows. And as touched upon a couple of times in the presentation, we see a notable upside in our current ERC reflected in our consistent strong over performance. Given the low leverage we have today, this offers a unique position for B2 where replenishment CapEx now has been reduced, earnings transparency has been increased. And together with lower costs, it allows us to balance attractive dividends, growth in investments with a moderate leverage level. On the right -- the graph to the right-hand side on Page 14, we have highlighted that including the portfolios signed but not yet closed from the Zolva transaction, the total ERC growth compared to last year is 9%, taking the total ERC at the end of the quarter above NOK 26 billion. We expect the remaining portfolios from the transaction to be onboarded during the second quarter. Moving to Page 15 and some more details on the funding position. Interest costs continue to decline as expected, with a drop of 24% compared to the same quarter last year. In the quarter, we have also concluded a bond issue of EUR 200 million at a margin of 3.75%. And this is the lowest primary issue in the company's history. The increased liquidity will not impact interest costs as the margin rate on the RCF will be lower following a lower utilization of the facility. The current capital structure provides a lot of flexibility. It gives us access now to a liquidity reserve of around NOK 5 billion plus, of course, operational cash earnings, and we have no short-term maturities. So summing up the financial part of the presentation on Page 16. I would like to reiterate the comment from the beginning of the presentation. We are on track to deliver and outperform our financial targets. Committed investments are already around 55% of the full year target at the end of the quarter, and we see a lot of attractive opportunities to go above the target level. Despite the higher investment level, leverage remains well below 2.5x. Earnings per share of NOK 0.37 is a strong start to the year in a seasonally slow quarter and highly supportive for the target of NOK 1.5 for the full year. Also, I would like to highlight again the increased comfort level in our current ERC. We see that the higher collection performance in unsecured is sustainable and expect further improvement also going forward. This will support our financials further through higher collection performance and positive portfolio revisions. And with that, I give the word back to you, Trond Kristian.

Thank you, André. Some few key takeaways as you see on the slide. In today's presentation, you have learned that B2 Impact has a continued solid and improving performance. Combined with a scalable cost base and low cost of debt, we are able to take part in an attractive market. Already well on our way to achieve our investment target for '25, we are confident to deliver attractive returns to the shareholders in the future. And then we are finished with the presentation and go over to the Q&A session, Rasmus?

Thank you, both. We will then start with -- [Operator Instructions]. Thank you Ms. AI. And we will then open up for live questions. We will then start with Ulrik Zürcher from Nordea. Ulrik, the floor is yours.

You have a pretty strong message on the collection trend going forward. I was just wondering -- because obviously, a big part of your portfolio amortized over a year. But -- so I'm just wondering how should we think about interest income plus over performance maybe into '26 and '27? And are you investing at higher net IRRs on your front book and back book? Like how will that mix be? Or will we get some sort of drop-off in over collection in a year or 2?

There was many questions. I'm not exactly sure where to start. But the reason why ERC drops in the first and the second year is, of course, the secured book, which is collecting quicker than the unsecured, as you could see on the slide where we presented the mix of ERC. You see that the new investments that we make in unsecured has a longer tail. And obviously, that will impact growth short term compared to long term, which means it will not be significant collection growth short term, but it gives us much more stability longer term. And what we're trying to say with the collection performance is that we expect to continue to see an increase in collection performance on our back book. That's not necessarily related to front book. It's related to our existing ERC. We see that we have a very strong trend in collection, which is not fully reflected in the ERC, which will result in increasing collection performance on the back book going forward. And that has to be reflected in some way, most likely in some positive revisions going forward. And the last question on IRRs. As you know, we don't comment specifically on IRRs. What I think is important to understand is that we are reinvesting cash flow from secured in markets where we haven't invested for a long time, which obviously impacts scalability on cost in those markets. And we're reinvesting in unsecured. As we've pointed out also in the presentation, we see a significant increase in efficiency in our unsecured markets, and we can add investments without -- with only a small marginal increase in cost, which should drive an accretion to the bottom line going forward and continue to drive growth in EPS in the years to come because we switch from markets where we don't have scale to markets where we have scale. So implicitly, you're driving a higher return on total business based on a new business mix. I guess that's what we can share on front book, Ulrik.

Okay. Yes, that's actually very helpful. And just one last one. I was just wondering, are there any, let's say, like large exposures in your collateral assets that you have the potential to resolve? Or is it more like normally distributed? I'm just wondering if there's any upside there to your guidance?

So obviously, the secured book now is more granular than it was some years ago, in particular, with the collection of the large claim at the end of 2023 of NOK 500 million. But yes, we have some -- not at the same size, but some assets that we are working on. And you heard my comments maybe in the presentation. We do expect a higher sales volume than we saw last year on REOs during 2025, and we are quite well advanced on some of them.

Yes, I was just wondering because -- is there any like -- you say above NOK 330 million, but I'm not saying we're going to put this into estimates or anything, but like could it be NOK 500 million in 1 year?

Yes, it could, but it's all about timing. And as I said, it, of course, fluctuates between quarters. But yes, that's possible, if everything goes according to plan.

Then we will get over to Gustav Larsson from Arctic.

You've committed NOK 1.6 billion now for the rest of the year. It's already above half of the full year target. Should we expect a front-loaded investment pace here? Or is this throughout the year?

I think what we can say is that we are definitely tracking ahead of the pace necessary to reach the target. And as commented in the presentation, we do see attractive opportunities to go above. Of course, those opportunities have to be accretive to our book, but we absolutely see potential to do more in the current market.

On OpEx then, they're down 2% year-over-year, and you're closing the Zolva portfolio now in the second half year. My question here is that will OpEx increase when you onboard the rest of the Zolva portfolio? That's one question. And also, you highlighted here in the presentation, improved collections per FTE. Can you share any targets on what you can do there in terms of productivity per FTE or elaborate on digital channel penetration and what we can expect on increases here?

So first part of the question, the cost of Zolva is already included in our numbers, but not the entire back book. So what you will see going forward is an increased positive impact when the portfolios are onboarded, as we've already reflected the FTEs and the costs in our numbers.

Related to the technology and achievements, it's a bit difficult to quantify every initiatives, but we have now put all this effort into a better structure, better organization. And we are about to do this in a more kind of way that is -- where we can concrete measure the cost saving more in detail. This is in progress, and it's a really high focus throughout the whole group.

And following up here on Ulrik's questions about secured portfolio, you had a negative revaluation here at NOK 86 million, and it's described as amortization due to early collections. Can you just clarify the mechanics of the treatment here? And if you continue to deliver in line with what you have, does that mean that negative revaluations will be a recurring item going forward?

So what you're referring to now is secured revaluation. And...

Correct.

What the -- I mean it's a bit technical, but the mechanism, you saw that the over performance in secured was high, meaning we are collecting the assets before -- no, earlier than what was anticipated, meaning when you do that, you have to take the asset or the claim out of the curve. And that translates into a revaluation, and it's the same as moving the amortization forward in time. So it's an amortization, and it is not a negative revaluation of values. It's only because we collected earlier. It has nothing to do with value. So when we discuss upside in collection performance and positive revisions, we are referring to unsecured and not secured. Was that...

Great -- yes, that's perfect. I have one more question. Sorry if I'm taking up all the time here for questions. But you're reiterating the NOK 1.5 EPS target for 2025. But if we annualize Q1, which is seasonally slower normally, we're already there. Can you just bridge what needs to happen during the rest of the year to get to this target? It seems that to me, it's already looking a bit low with NOK 1.5 EPS target for 2025.

I think we have, during the presentation, showed that we like to be a bit conservative, maybe too conservative. And I think that's the answer for your question as well.

We then have a few questions in the chat. We will start with [ Jacob ] from [ SpareBank 1 Markets. ] How do you assess the competition of the NPL investment market across various regions? That's the first question.

Well, I guess we can say that competition is obviously different from market to market. But all in all, we see a market which is very attractive for us with a lot of opportunities. We saw the pace of activity picking up at the end of last year. It has absolutely continued into the first quarter, which is visible from our investment level, which is very high for first quarter. And we continue to see a lot of opportunities to do good transactions for us across all our markets. So market-wise, it is a good market for us, and there will be good opportunities for us to do accretive investments.

Second question from Jacob. Do you expect the tariffs to -- that impact the broader economy to affect the debt collection industry?

So I guess what we see so far is that it may impact cost of IT, in particular, from U.S. companies, if any impact, but at least that's what we see so far. In terms of collection, it's something we're monitoring, but we are currently not seeing any potential negative impact on collection. And as with other challenging periods for collection, we believe collection, in particular on our back book is very resilient, which has been proven throughout all difficult periods and financial crisis we have seen over the last 20-plus years. So what we can say so far.

Thank you, André. Then we have some questions from [indiscernible]. We can start with the first one. Could you please comment on the profitability and operations across countries in Europe for the unsecured business?

We don't report specifically on each country, unfortunately, so we cannot share those details.

Then a question on REO sales. I think you have partly answered this question, but we can ask it anyway. For both 2023 and 2024, the inflow of REOs were higher than sales. Do you expect the same development in 2025 as first quarter indicates?

No, we did not expect that. We expect sales to be higher than inflow. And I just want to highlight, it's not inflow, it's merely a change of balance sheet position, moving the claim from being an NPL to a REO in order to take away legal restrictions on the claim and be able to collect higher and quicker than continuing with the claim as an NPL. So it's not an inflow, it's just a change in the balance sheet. And yes, we are expecting to sell more. But if we do see higher return from repossessing and selling than continuing having the claim as an NPL, we will, of course, do that. But the clear expectation for this year is that the book will decline.

Then a final question from [indiscernible]. Are there any geographic markets you prioritize for portfolio investments, like, for example, Poland?

I think we have highlighted our 12 core countries. And that's quite -- we are in a good position because we can balance this according to the capacity and the prices to achieve, which difference a bit throughout Europe.

Very good. That concludes the Q&A. Thank you to Trond Kristian and André, and we will then meet again on August 21 for the second quarter presentation. If there are any questions you would like to ask the company, you can find my contact details on the last page of the presentation. So thank you all, and we wish you a pleasant weekend and celebration of our National Day.

Thank you.

Thank you.