Earnings Call: Q4 2023

Feb 26, 2024

Good morning. This is the Chorus Call operator. Welcome to the conference call of Generalfinance presenting full-year 2023 results. Let me remind you that all participants are in listen-only mode. After the presentation, there will be a Q&A, and you'll be able to ask questions. The presentation is available on the site www.generalfinance.it. By clicking on the banner, you can download it on the homepage. To be assisted by an operator during the conference call, please press star and zero. Let me now turn the conference over to Mr. Massimo Gianolli, CEO of Generalfinance. Mr. Gianolli, you have the floor. Very well. I would like to thank you very much. Let me give a warm welcome to all of you who are connected, and have a good day. Following the presentation, we start from page five in the presentation. For those of you who are following the presentation, we have the breakdown of our shareholding, so to say, after the placement of the former Crédit Agricole position, and the placement was made on the 4th of October 2023. As you can see, GGH is held by MGH, and they have 41.37% of the share capital and 58.53% of voting rights. The following page, you will see our turnover performance. As you can see from the slide, our turnover has been growing 27% between 2022 and 2023. CAGR between 2021 and 2023 was up 35%, and we manage about EUR 2.5 billion worth of turnovers of bills, of invoices sold by our clients. It's interesting to see the growth year-over-year. Compare it to the growth in the factoring market, which was instead declining. If we move to page seven, the interesting thing to notice is the net income. Net income growing 38% in excess of EUR 15 million, and almost 11 percentage points higher than it was between 2021 and 2023. That is very meaningful and proves how sound our growth and profitability are. Let's now move rapidly to page nine. We'll go into a greater level of detail in the following pages. The result we achieved was very interesting also considering what happened. Well, if you remember, we had disclosed and mentioned some effects that you see on page nine due to the new definition of default. Thanks to how we managed our receivables in some positions of our clients, the sellers, we managed to reduce the growth of NPE ratios between 0.35%-0.61%. As I've always said, well, the difference in the computing method that we had used could have had a very strong impact, which it didn't instead. We have a number of factors that are very interesting and meaningful and did not in any way raise concerns also with the new way of computing according to the DoD regulation. Let's now move to page 10, always going back to our NPE ratio. Despite this growth to 0.61, our NPE ratio is 335 basis points lower than the market. It's 335 basis points lower than the market NPE ratio. Another important point that you see on page 11, again, very interesting because if we stop, as always, on the right-hand side of the slide, you see the payment delays. You see that these delays, after the new way we manage sellers, and it's a different way of managing sellers and portfolios, of course. As you can see, 98% of maturities are paid at their natural expiry. Only 2% is cashed in, always in relatively short time frames. That is very important because if we combine that with the decline, you see that on page 12 of the presentation. If you associate that with the decline that we have seen, you see it's now, well, DSOs are picking up again, but on page 12, you can see that it's about 10 days lower than the other industry players. These are very interesting and meaningful data. We cash in our receivables very quickly. The NPE ratio, despite the new calculation according to the new DoD definition, did not have any meaningful impact on our accounts and our numbers. If you combine the effect, means we've been very careful and very fast in collecting. If we move to page 13, let me give you a brief update on our business model. It's a one-of-a-kind business model. I'm sure you're acquainted with it. You're aware of it. Let's focus on the central part of the slide, where you see a breakdown of our sellers, that they are mainly red and yellow. It's the sellers who are having the difficulties in accessing the loan universe, the credit universe. They are either restructuring or they are distressed companies. We have the assigned debtors that are mainly green. About 70% is green, a small part of yellow and a smaller part even of weaker, the red one, of weaker debtors. If you check the right-hand side of the slide, you see that the without recourse operations went up, thanks to the way we manage the portfolio of a large customer, mainly working with without recourse transactions. In 2023, we managed about 76% of our turnover with recourse and about 24% of our turnover as without recourse transactions. We are set apart by the industry average, because our performance is still very meaningful versus, as I said, the industry average. It's in line with our standard approach as Generalfinance. We've always tried to mitigate risk with our credit policy, with Allianz Trade covering 79% of our turnover and the disbursement, the issuance in the with recourse portfolio, you see it's 75% on average. The disbursed amounts are of paramount importance because sometimes we have to offset our portfolios in case some items are not performing through the collection of the performing portfolio instead. We offset the so-called non-disbursed amount. Another very important point is 10 times versus the number of assigned debtors versus the active sellers, 75% for Generalfinance versus seven, which is the market average, the industry average. We have very loyal customers. The retention rate is quite high. The average seller retention rate is about six years. You see 62% of these clients are distressed, and the remaining 38% is performing. Let's now move to page 14 in our presentation. Here I will just focus on some details that are important parts for us. The number of installments, 408,000 installments were processed over the year. 365,000 of invoices were assigned, were sold, and 12,260 disbursements, automatic disbursements. This is based on the sales we got from our sellers. It's 11,827. This is the automatic disposal. These figures are achievable thanks to our digital platform. Starting from the 1990s, we have been investing in that digital platform. There are novelties. You see them with a red box, and we've labeled them as new. You see them on the slide. We have connected our platform to the dynamic discounting platform because it's in the supply pipeline of many clients, of many customers. Through Biteco, we introduced an intelligent data matching of collections, and that is done automatically. Through Fabrick, we are connected to the accounts of all of our clients, and we manage collections on constrained accounts. That is also reducing operating risk and increase the efficiency we operate with. Our colleagues can operate in a much faster environment. Speed and efficiency are key to be successful in our industry. Over the year, over 2024, I mean this year, there'll be many other novelties that we will be disclosing to you as we go along. There'll be new functions, connections, and links to our platform. The platform is still the distinctive feature Generalfinance has. Before getting to the final remarks, let me hand it over to our CFO, Mr. Ugo Colombo, who will tell you about some figures. Ugo, you have the floor. Good morning to you. I'm on page 16 of the presentation, and you see some details of our income statement, balance sheet, and the most relevant ratios we normally report on. We have interest margin that went up 24%. This is the CAGR figure between 2021 and 2023, despite monetary policies changing a lot between 2021 and 2023. Generalfinance most of our funding was at variable rate, so we managed to manage assets and liability in a very positive way, with a margin performance that is growing in line with volume, so in a positive way. Net commissions are also positive, so are up 15%, despite a decline of interest margin on DSOs year-on-year. That is working without recourse enabled us to offset the negative effect of the reduction in DSOs by increasing instead our top line year-on-year, increasing it by 17% year-on-year. If we look at all other indicators, the interaction between, well, we are at 8.5% net banking income and average loans, interest margin, net banking income and cost-to-income ratio. We offset the general profitability of our portfolio, and we retained it and consistent and flat year-over-year. The return on capital is about 29%, 2023 versus 24% in 2022. If we look at the balance sheet, and I'm looking at the table at the bottom of the page, it's still very simple. Most of our assets are financial assets, short-term receivables, with or without recourse that are up 20%. The turnover somehow is lower because of duration. ` tags. Correct. Wait, "And then our capital position..." -> "Our capital position..." "And that basically..." -> "That basically..." "And then in Q4..." -> "In Q4..." "So capital..." -> "Capital..." Wait, "And then RWA went up..." "...we generated profits, and then RWA went up..." This "and then" is in the middle of a sentence. Wait, is it a new sentence? "In Q4, we generated profits, and then RWA went up in its rated portion on the debtors portfolio, and without recourse sales that were stronger in the last quarter than in the previous quarters." This is one long sentence. "and then" is fine. Wait, "That basically because of RWAs, as you well know, it has a seasonal effect, is subject to a seasonal effect." Is "That basically because of RWAs" a complete sentence? It's missing a verb ("That is basically..."). But I must keep word-for-word. "That basically because of RWAs, as you well know, it has a seasonal effect, is subject to a seasonal effect." This is a bit of a run-on, but it's what was said. Wait, "On page 17, you see the ratio on the left-hand side from 78%- Still to be underlined is the strong capital position we have. We have a capital buffer CET1 ratio in excess of 900 basis points and total capital ratio, an indicator in excess of 15%, 15.5%, and a strong buffer capital soundness despite the 20% asset growth. Page 18, you see a breakdown of our funding position and cost of funding position. At the bottom of the slide, you see a counterbalancing capacity at the end of 2023 of about EUR 290 million. It was computed based on the funding available and declared stated by the different counterparties, EUR 680 million, and financial indebtedness, EUR 409, and liquidity position, EUR 17 million. We are lean and flexible also from a financial perspective. There's a good diversification in terms of counterparties and financial instruments. Funding, it's the pie on the right-hand side, it's mainly at variable rates. On page 19, you see the net interest margin is faring. We have a stability between NII and average loans. As we said, it's a further positive factor to say that our NII is stable despite the changing economic backdrop. We have on the next page, the net commission income. Stable and flat is still the net commission income on turnover is slightly down about 20 basis points, but still act in the positive. In 2023, there's a shift of our operation towards corporate clients. EUR 20 million turnover, about 80% of turnover, which has margins that are slightly lower, sorry. DSOs do have an impact, the increase in DSOs. On page 21, you see the cost income reflecting the efficiency in operating costs. You see reported costs go down two percentage points. In 2022, operating costs included the IPO costs that were accounted for in the income statement. On an adjusted basis, the growth would be 11%, which is in line with our historical average over the last two, three years. You see FTE from 73 to 71, and we are advancing some actions we undertook in cost controlling, governance actions, et cetera, and they were up-fronted in 2023. Despite this strong strengthening of our staff, we still have the cost-income ratio in the positive with a decline of cost of seven percentage points versus 2022. The adjusted data were landed at 38%, so we went down two percentage points. We are now below 40%, which is definitely showing our efficiency and our ability to leverage economies of scale thanks to our proprietary platform. Having said that, I turn the conference over to Massimo again. Thank you, Ugo. We have given you an update on page 23, and you can see that one and a half years down the line after the IPO, as majority shareholder and controlling shareholder, I'm very happy of how the share price has been faring and also of the total shareholder return. As you can see, we have highlighted on the share price at the IPO date and now the share price yesterday or the day before yesterday. We've also shown always on page 23, the dividend and dividend yield, the dividend that will be submitted to the AGM, the shareholders meeting. The main points, if you scroll down to page 24, other important elements are, I'm not going to mention what I've already talked about, and Ugo also mentioned before about how we have had efficiency gains and cost cuttings and the risk management and control, and we've highlighted that several times. Let me stop and dwell on the macroeconomic evolution and the market evolution that has been quite positive for us. We expect this year to, well, it started positively. The macroeconomic backdrop is a new opportunity for us, for our industry, the market we are close to, and we've been close to for many, many years. We had the final exit transaction, well, Crédit Agricole disposed of its position, so we disposed of the overhang risk that we would have otherwise had and the new shareholders that have entered in the first 50 days of this year. New clients and new shareholders, therefore robust growth, this is what we expect thanks to the funding diversification we have been focusing on, and also capital ratios in excess of 15% that will enable us to grow without any specific concerns. Those are all elements of fundamental importance. To that, we have to add that our business plan, let me confirm the guidance with a net profit in excess of EUR 20 million. That's the guidance we reconfirm for 2024. I confirm that we're going to start working on foreign markets. They have not been discounted in our business plan. Spain is going to be the first country we'll focus on, and then we are looking, as you well know, we're looking into the Swiss market. We've completed that study already. Of course, we are also looking at opening new markets in addition to those two. This will be presented and disclosed to you in due time when we come up with a new business plan. I don't think I have anything else to share with you right now. We are now opening for questions. If you want to have a greater level of detail, there'll be room for you to ask your questions now. This is the Chorus Call Operator, and we now start the Q&A session. If you want to ask a question, please press star and one on your phone keypad. To be removed from the Q&A queue, please press star and two. Ask your question using your handsets. If you want to ask a question, please press star and one on your phone keypad. The first question comes from the line of Simonetta Chiriotti with Mediobanca. Madam, go ahead. Good morning to all of you. I have a couple of questions. The first one is, you talked about your project to expand abroad. Are there any novelties? Can you elaborate on that? The DSO performance, I saw that there was a bottom in June, and then you started picking up again. My question is, in the first few months of 2024, is this recovery going on, or what is happening? The number of debtors is higher than you showed in your business plan. Could you elaborate on that trend, please? Thank you very much. I'll start, and then Ugo, of course, if you want to step in. Thank you, Mrs. Chiriotti. I'll start, and then Ugo, of course, you can add your own. Expanding abroad, we have not yet given figures, but we started the process, so to say, of opening up to the Spanish market. We hope that during the summer, we'll be able to have the first deal or deals, and therefore maybe in autumn, we will be able to give you some projections. We would rather, it's in our DNA, we want to look into figures first and then come up with plans that are within our reach. We don't want to be too early. There are no numbers yet to disclose to you. Switzerland and other potential markets will be approached in the same way. We'll look into them, we'll analyze them, and then maybe they will be included in the new business plan, but only when we have enough visibility, when we are more certain, when we have more firm sort of ideas for each market. Because each market is a fundamental test to see if there are criticalities, if there's something we underestimated. We want to see whether or not we can apply our model. It may sound trivial, but when you go to a new country, you have to keep your feet firmly on the ground because you don't want to underestimate things that may then hit you in practice. To the DSOs have stabilized, and potentially it could pick up even better. It could be increased a few days more, but now it's in line with the DSO we had in Q4. As to the number of assigned debtors and sellers, both the sellers are increasing and the number of assigned debtors. Both figures are growing constantly. Another important point is that the portfolios of both sellers and assigned debtors has a huge potential to be further developed at commercial levels. It's very important for these figures to grow, because the more we break down the risk of assigned debtors, the more we are safe on the collection side. Also we see a wonderful commercial opportunity because very often our assigned debtors are then in turn become sellers. They are potential new clients that we can work with. If there's anything else, Ugo, you would like to add, of course you have the floor. Otherwise we move on to the next question. Did I answer your question, Mrs. Chiriotti? Yes. You did answer my question. The next question comes from the line of Luigi Tramontana with Banca Akros. Go ahead, sir, please. Good morning to all of you. I have a couple of questions. The first one is on the number of assigned debtors and the turnover per debtor. Because four months. In the debtor turnover in 2023, you closed at EUR 135 million per assigned debtor. It's EUR 135,000, not EUR 135 million per debtor. That gives us a breakdown of. It's a very important element to tell us that the growth is always achieved, but at the same time, a way to curb risk, to reduce risk. As we grow in size, we expect that figure to grow, but will never change in our DNA, because if you were to divide by 10 and we were to be aligned with the Assifact average, the number would have to be multiplied by 10. The risk concentration would be much higher, which we don't have and which we don't want. Thanks to our digital platform, and thanks to the valuable work of our team and people who are working in our company, people have been with us for 30 years, just like myself, but many other people have been with us for more than 20 years now. The value of our team is a very experienced team, so it has a great value. Management that has joined me over the years, and our first line of command, and our entire staff at Generalfinance, they, together with our digital platform, they give us the opportunity to keep on growing our numbers without being concerned of becoming less efficient. This is a very, very important factor. As to the bond, I think, and it's not an urgent matter, but here I would hand it over to our CFO and then, of course, he can come back to you if I'm not exhaustive. As to the capital, I read what you said, Luigi. We have about EUR 4 million, if I understood correctly, of Tier 2, so EUR 12.5 nominal value of bond. At the end of 2024, the EUR 8 million will be EUR 5.5 million due to the effect of linear amortization and depreciation. As you correctly said, we had introduced the possible refinancing assumption of refinance of EUR 7.5 million, but market conditions up until a few months ago were not very positive. For placements, now market conditions should probably normalize over time. We expect three-four rate cuts, as now it's discounted in the rate curves. In the second half of 2024, we should be able to start thinking in practice about a refinancing of the amortized part. In the second half of this fiscal year, we could start thinking about it in practice. In any way, in any case, from a business plan perspective, the current business plan spans over 2024, and it implies and covers a capital ratio that is declining. A CET1 ratio at a lower percentage, if I understand correctly, it's at 11%. We should be in line with our projections and lower use of capital. That really lets us be more flexible, gives us more flexibility. This is something we will look into in the second half of 2024. The next question comes from the line, well, it's a follow-up of Simonetta Chiriotti with Mediobanca. Go ahead, madam. Mrs. Chiriotti, you have the floor. Here I am. Sorry, apologies. You gave a target for 2024 of net profit that is higher than EUR 20 million. How about increase in turnover? What can we expect over the course of 2024? As to the RWA density, do you think that the current level reflects the new type of clients you have, or can it grow again? I did not understand the second question very well. It's about the RWA density you achieved in 2023 reflects the new client breakdown, or can we expect a further growth or not? We expect to go between 20% and 30% as we disclose in the business plan. This is the growth trend we have aligned to. More recently, especially. All the factors I spoke about during the presentation, in drawing final conclusions, are very important elements, factors that enable us to somehow take advantages of more opportunities so growth could be even higher. As to the second question, I'll give the floor to Ugo Colombo, our CFO, about the RWA density. Sorry, but the sound is intermittent. I cannot hear Mr. Colombo very well. If I understand correctly, over the year, we've turned to debtors of slightly higher size. We do not expect a worsening of debtors. In the next quarter, we should be around 80%-85% versus 78% that we had in 2022, assuming there will be consistency in what we do, with similar trend to that of 2023. Sorry, but the sound is intermittent. I could not hear the last part of Mr. Colombo's sentence. Ladies and gentlemen, there are no questions for the time being. No more questions. Very well. Mr. Gianolli is speaking. If there are no more questions, we wait for a few seconds. If we get the confirmation that there are no more questions, I would like to thank all of you who logged in to this conference call. I would like to thank you for your questions, and we'll talk again at the next call. Have a good day. Thank you very much. This is the Chorus Call operator. The conference call has come to an end. You may disconnect your phones. Thank you very much.