Earnings Call: Q1 2024

Apr 23, 2024

Good morning. This is the Chorus Call operator. Welcome. Well, this is Generalfinance conference call presenting Q1 2024 results. All participants are in listen-only mode. After the presentation, a Q&A session will be held. The presentation is available on the www.generalfinance.it website, and you can click on the banner on the homepage. To be assisted by an operator during the conference call, you may press star and one on your phone keypad. Let me now turn the conference over to Mr. Massimo Giannoli, CEO of Generalfinance. Mr. Giannoli, you have the floor. Please go ahead. Good morning to all of you, and you can follow the presentation by downloading the file from our website. Starting from page six, you see how our turnover has been growing. It's a meaningful growth. We closed Q1 with a 23% growth versus Q1 last year, and we landed at EUR 622 million versus the market average, Assifact data. There's a difference, a delta in our favor, about 3%. If we move to page seven, it's interesting to notice our net income, so the high profitability we have managed to achieve. Our net profit went up 66%, and that is a very interesting piece of information. If we compare it with our CAGR between 2021 and 2023, which was 26%, between 2023 and 2024, it's 66%. It's a very robust result, and it is in line with the results we have been producing for the full year. It is indeed very positive, EUR 4.9 million of net income. If we move to page nine, you'll see data are even more interesting. If we look at cost of risk, it's 0.01%, and NPE ratio lands at very interesting levels, 0.64% for the first three months of the year. On the right-hand side of the slide, you see our gross NPE ratio versus the market. You see market is about 3%, and we are 0.64%. Default rate, we are on page 10 of the presentation, still very positive, 0.15%. Another very reassuring factor, if we move to page 11, and we always reconfirm this, is that all these results are the outcome of how well we manage our portfolio. On page 11 you see on the right-hand side of the chart, you see that practically we have 98% of our collections that take place, well, 90% at the deadline and 8% immediately after the date, within the following 30 days. These are very interesting data, and if we compare that with market data, this gives you a snapshot of how efficiently we manage our portfolio and collection, the way we manage collection, which is of paramount importance, not just for Generalfinance but also for the clients we deliver services to. Our DSO, days of sales outstanding, is much shorter than that of the market. On page 12, you can see a comparison between Generalfinance and the rest of the market. Let's focus on the lower part of the slide, and you can see that there was a recovery starting from June last year, and we are landing around 68.5 days. In March we saw that the decline we had witnessed last year has been stabilizing and therefore is still a DSO, which is about 10 days shorter than the market average in any case. The most important factors of our operations are summarized on page 13, one, three. Starting from the left-hand side of the slide, our core business, I'm sure you all remember, our core business is focusing on enterprises that are in turnaround, that are not very appealing, that are not being helped by the lending and banking system, but they have strong or sound industrial fundamentals. It's both Italy and abroad, so they're high-quality clients. You look at the two central pies. Starting from the top are debtors, so the clients of our clients, so to say. They're mostly green, 67.2%, and also we have a 17% yellow and a 14% in red, and a 1.7% of black slice of a pie. As we saw for the collections somehow reflect the ability we have to manage our business. The performance is even more interesting if we somehow see it with the way we manage our full client portfolio. Both the assigned debtors are not normally accepted by the mainstream factoring business or banking business, but they instead are normally people who need help from the collection perspective. It's very important to perfectly understand those needs and therefore be able to pay back the collection. You see our clients are mainly green, are weak. They need to be looked after. Bottom part of the slide, as you see on the right-hand side, 84% are distressed clients. 21% is newco, so reasonably, of course, it's businesses that lead distressed company towards recovery. 31% are performing. Our business is mainly focused, 74% is transactions that are with recourse versus the Assifact average, which is 20%. Without recourse is much lower than the Assifact average. We retain an excellent coverage. About 79% of our turnover is covered by insurance, that is with Allianz Trade. They've been our partner for credit insurance. You see, the LTV is 73%, and that's interesting too. The risk is declining, it's going down. Despite that, we've had an excellent performance, as I shared with you before. Page 14, these are the novelties. As you well know, our proprietary digital platform is our feather in the cap somehow, and we keep investing in it. That really enables us, as you see in the top box, top right, to automatically manage and fully digitally 256 sellers rolling, and about 19,300 on average assigned debtors with figures that are very meaningful. Invoices, 375,000 invoices rolling and installments, 418 installments. All notifications are issued automatically, and we connected to our front end. We gave our sellers the possibility to assign their invoices, and GeneralWeb is connected to the FinDynamic platform so that we can provide a further service for pipeline to use the assigned loans to the pipelines. With Fabrick, we've connected our platform to current accounts that are somehow term deposits or current accounts that use non-notification lines, that are domiciled to somehow seized accounts, and that enables us to reduce risk and have a better monitoring of such accounts, and therefore be more efficient. With Piteco, it's another novelty. We can somehow reconcile transactions on banking accounts, also looking into costs and the way these accounts are operated upon. Let me turn it over to our CFO, Ugo Colombo, who will deep dive into the financials, and then I'll talk to you again shortly. Thank you very much. Good morning to all of you. Let me share with you some details on our financial highlights. Starting from the top part is the income statement, our top line, and the net interest income. The NII has been very positive. After the first part of 2023, we have a 50% growth year-on-year, specifically thanks to volumes, as we saw at the beginning of the presentation, and the profitability that has remained stable or increased. The negative effect we had in 2023 is instead now growing positively. We had a repricing of assets, and we completed the repricing of assets. As to interest margin and net commissions, we see the contribution of the very intense activity we've been running at the end of 2023. As we had already said during the previous call, that impact, the income impact, had a very strong contribution to the first quarter of 2024. Revenues are at these levels, as you could see, for the first quarter. We have a turnover increasing 23%, and net commissions are 32%, and revenues are up. Costs are stable, flat year-on-year, and therefore margins, overall margins, meaning net profit, lands with a growth rate of 66%, as we saw at the beginning. The income statement performs in a way that enables us to further improve our gearing. Cost-income ratio is at our all-time lows, 31% versus 41% in Q1 2023, so a 10 percentage point increase with a scale effect that is driven by the increase in productivity, also thanks to the use of our digital platform. Profit increase versus if compared to the number of sellers, based on the improvement of our efficiency. As you can see, we have an increase of 30% year-on-year again, for its income. Assets are about EUR 500 million versus the end of 2023. There's a seasonal reduction of assets. They're down from EUR 462 financial assets to EUR 362 million, EUR 72 million, with liquidity that, again, is affected by seasonal, and it's quite high, in excess of EUR 100 million. Total of net shareholders' equity in excess of EUR 70 million before dividend payout, with a total of financial debt of EUR 393 million. Page 17, capital ratios, as you can see, are very robust, very sound, and are improving versus 2023, specifically thanks to the volume effect and the effects I've mentioned a few minutes ago, and the improvement in assets and liabilities versus 2023, with a stronger impact of our retail portfolio versus the corporate one. CET1 is in excess of 16 points with almost 12 points of capital buffer, with a TCR in excess of 18%, with a buffer in excess of 10%. These are very robust ratios and very meaningful given the growth rate of our assets, of our operations, that will support or contribute to our turnover in the coming months. Page 18, a detail of funding. We see we've used our funding between financial assets and selling without recourse. We have EUR 700 million worth of available facilities. As we sell in Italy, we have a counterparty of about EUR 340 million. Our financial position is very meaningful. Cost of funding. Cost of funding is around 5% versus 4.4% in 2023, considering that 100% of funding is at variable rate, so cost of funding is increasing because of the increase in market interest rates. Page 19, on the lower part of the slide, we see the net interest margin performance, which is recovering versus Q1 2023. It was lower than 1.9%, and now we are back to 2.5% net interest margin, thanks to the repricing of our assets and also thanks, as I was saying, to the contribution of the transactions that we made at the end of 2023. That also contributes to our NII. Page 20, net commission income as NII. Net commission income on turnover is improved by 10 percentage points, breaking somehow the type of performance we had between 2021 and 2023. It gave a very meaningful contribution instead this time with the net commission impact, thanks to the favorable business performance, especially at the end of 2023. Page 21, cost-income, operating costs on the total are 3% year-on-year, the delta. And if we look at the individual items, personnel costs €2.1 million, but up 15%, we further enhanced our team, strengthened our team. FTE goes from 66 to 73. We've strengthened our risk and lending control functions. We've reinforced our competencies and skills as well, and less meaningful instead is other admin costs and expenses. And if we consider other perceived €600,000, total costs are €3.3 million. I'm going to stop here, and I hand it back to our CEO. Thank you very much. Thank you, Ugo. And the factors characterizing this first quarter are very positive indeed. And we have talked about them and during the overview we provided you with, but very interesting indeed is the market performance that we see as very positive and from our point of view, from our perspective, and we have witnessed the introduction of the incoming of many new clients. The market outlook, when it comes to debt restructuring, the market outlook is growing indeed. If you look at that from the point of view of the perspectives we have of the opportunities we may seize, it's a positive indeed scenario. Our CFO has told you already, has given you an overview of our performance and of our capital ratios. We have a very sound funding structure, funding set up, and therefore we can somehow ride the growth and achieve the sales targets we have set ourselves. This is the utmost focus we have at corporate level. We also started the process to looking beyond the Italian borders of how we can grow abroad. Based on all that, we cannot but reconfirm the guidance we gave you in our business plan. With a net income, the guidance we gave you, net income in excess of EUR 20 million at the end of 2024. I'm not going to add anything else, and I leave it up to you to ask your questions. Thank you very much for your attention. This is the Chorus Call Operator. We now move on to the Q&A session. If you want to ask a question, press star and one on your phone keypad. Please use your handsets to ask your questions. If you want to ask a question, press star and one on your phone now. First question comes from the line of Luigi Tramontana with Banca Akros. Good morning to all of you. Thank you very much for the presentation, and congratulations for the excellent results you have achieved. I have three questions. The last two are clarifications on the figures for non-recurring events. The provisions you've made for risk and charges, EUR 340,000, what is that for? Despite a very low increase on the default rate, which is still very low, you have write back EUR 150,000 or write back on loans. Could you elaborate on that? Are there any non-recurring items? Your Spanish operations. In a couple of weeks, you should start operating in Spain. Is there anything you can tell us about it? Luigi, on the first two items, I'll answer. As to the risk and charges, provisions for risks and charges, we've released provisions we made in 2023 for our Chief Commercial Officer. The previous Chief Commercial Officer, who left the company because he retired, and he retired during the first quarter, so we had made provisions for his position. With the severance agreement we made with them, we used those funds that were then somehow embedded in personnel costs. From an income point of view, we released those provisions on the one hand, and then we have personnel costs increased because of that release. The net result overall is basically negligible when it comes to the performance of the fourth quarter. The provisions for loans is a seasonal effect that has a positive impact due to the release of the loan stock. We have deflated because of the very strong performance of 2023 and the collections of early 2024 led to a reduction of EUR 90 million in our loans, and we had Stage 1 and Stage 2 provisions that were released. Therefore, the cost of risk was almost positive. There's this factor, this element that is connected with the business seasonality in the first part of 2024. It's not, from that perspective, something that is repeatable result-wise. There's this component that could be a few 100 thousands of EUR, and during the year, regardless of volumes, could be taken up again with an increase of provisions, and more specifically, also with the increase in our loan stock. Very well. As to Spain, we have started a number of checks because, of course, there were technical steps to be undertaken so that we could actually launch the process in a very hands-on and practical way. Later, we will have a set-up stage, and the first transactions should happen over the summer. In a worst-case scenario, it could be early months in the autumn. As we had already announced, talking about this pathway in Spain, we are going through a setup stage, but we're also looking at a potential JV, and therefore the opening of Generalfinance Spain could happen through the setting up of a joint venture. The pathway is clear. We've started it, and we'll keep you posted. We'll update you as we move through the process, and as soon as we complete the technical verifications or due diligence with the regulators. Thank you very much. The next question comes from the line of Davide Rimini with Intesa Sanpaolo. Go ahead, sir. Good morning. Congratulations on your results. I have a couple of questions with reference to slide 19 and 20. You talk about your commercial spread that has improved over the first quarter, and also the net commission income went up 10 percentage basis points, reversing a trend that you had between 2021 and 2023. You made a reference to the results you achieved, the performance you had in the last part of the year, that then contributed and had an impact on the first part of this year. What are your expectations, or what kind of expectations could we have for these two indicators for the rest of the year? The second question instead is on your cost-income ratio that has grown sizably. Just a confirmation of your target to further cut it below 30%, 30, by year-end. Thank you. Davide, on the spread and commissions, we started... Well, the performance this year is quite different from the previous years, also on how income and revenues can have an impact on the rest of the year. In the first quarter, it has a lower impact than in the following quarters. This year it's going to be a bit different, the opposite almost, because the last part of the business of 2023 was the last 15 days of the quarter. That turnover led to it being accounted for in 2023, but the real impact on the income statement was low for 2023. Interest and commissions for those transactions that were achieved in 2023 actually had a strong impact on the first quarter of 2024. If you look on page 19, spread going to 3.2% is determined by this income part and the loan stock decreases and the income stays and the spread lands at 320 basis points. If you look at page 20, the same applies to the increase of 10 percentage points on the net commission income on turnover. What are our expectations? Spread-wise, the expectations, if we look at 2024 full year, is to retain a spread around 230-240 commercial spread, 230-240 basis points, which is basically the spread we are recording today on the loans we are disbursing today, considering the now complete repricing of our loans and the cost of funding as well, considering that so far should not have any negative performance going forward. If you put all together for 2024, we expect a spread between 230 and 240 basis points. As to commissions, we expect to retain the ratio between commission income and turnover around 140 basis points-145 basis points, slightly below the 150 basis points, which are the result of a seasonal effect that somehow goes back to normal as we move through the fiscal year. Thank you. Just a confirmation with reference to your cost-income ratio target. You shared your 31% excellent result, 31% on the quarter. Could you confirm that it's also the target you have for the full year? Yes, we are working on the full year target. We are constantly working to make that happen, and it is of paramount importance because it reflects the overall efficiency of our company. We confirm those targets. Let me remind you that if you want to ask a question, you may press star and 1 on your phone handset. For further questions, please press star and one on your phone keypad. If there are no more questions, this is Mr. Giannoli speaking, as it seems. No, there are no more questions at the time being. In that case, I would like to thank you all for your attention and have a good day. Talk to you at the next conference call. Thank you so much.