And welcome to the Exacta SC Presentation of Q3 2020 Results. Throughout the call, all participants will be in listen only mode and afterwards there will be a question and answer session. Just to remind you, this conference is being recorded. Today, I'm pleased to present Johnny Solis. Please begin your meeting.
Good morning, and welcome to Axaktur's 3rd quarter presentation for 2020. This presentation will be divided into 4 parts. Firstly, we will go through the highlights of the quarter. Secondly, we will present more details on financials. Then we will conclude the presentation with a summary and outlook before we open for Q and A.
Please move to the next slide.
Aksaktiv continued a very positive trend toward normalization. We saw the early signs of this already in June and it continued in Q3, where we report a total gross revenue of €83,000,000 We experienced a solid pickup in gross revenues after a significant negative short term impact we had due to the coronavirus, where legal systems were completely shut down in Spain and Italy for a period of almost 2 months. I think it's fair to say that the situation has moved towards a more normalized situation faster than both we, the industry and the market in general had anticipated.
However, we are still not fully back to the collection levels we had before the pandemic. The Rio segment experienced higher volumes and better prices than
what we anticipated 3 months ago, and the Rio sales was just north of €10,000,000 for the quarter. We do not expect the historical seasonality pattern with Q4 peaking compared to the holiday season
in Q3 to apply this year. The main reason for this is that the
vacation period has been handled in
a different way, both in Aktokoye and for the debtors. We do see
a challenging environment for new 3P sales going forward due to COVID-nineteen restrictions, and this will limit the growth from new sales in Q4. Let's go to the next slide, please, where we look closer at gross revenue improvements per business segment. What we found particularly satisfying was the broad nature of the improvements that we saw in gross revenue as it applied to all business segments. The NPL gross revenue reached approximately EUR 62,000,000 up from EUR 54 1,000,000 last quarter. The good performance is partly explained by the lack of the traditional seasonality, although we, of course, did see a weaker August compared to both July September.
This year, we did manage our vacation list differently with vacations more smoothened out over the period as we believe it would be easier to get hold of debtors at home, which also turned out to be correct. The Tricia revenues was €11,300,000 up from €9,700,000 in the previous quarter. We do see that the Spanish and Italian volumes are gradually returning. As previously mentioned, the Rio segment experienced higher volumes at better prices than anticipated. We are satisfied with the development, especially since the actual new sales in Q2 was close to 0 as the sales closed in Q2 was mainly related to Q1 sales that could not be concluded due to the shutdown of NoteRisk.
Let's go to the next slide, please, where we look closer on how the positive development on reals will impact book values. As you all remember, AkSaktur announced a EUR 26,000,000 impairment accrual on the Rios book in Q2 as we did expect COVID-nineteen to have a negative impact on both volumes and the prices going forward. Although we do see a negative impact and there is still uncertainty about the long term effect on housing prices, the Q3 re year performance triggered a net release of EUR 5,100,000 which in turn increased the book values with the same amount. The estimation of the accrual in Q2 was done on an asset by asset basis, accumulating to the SEK 26,000,000. SEK 1,700,000 out of the SEK 5,100,000 is related to higher prices than estimated for assets sold in Q3.
And the remaining $3,400,000 of the release relates to improved estimates for future sales as we see positive pipeline for Q4. We are still waiting for the yearly routine valuations by
an external vendor to be concluded. This is expected to be finalized in Q4. Next slide, please, where
you can see the development of the EBITDA margin quarter by quarter. Axtraxor reported an EBITDA margin of 49% in Q3. Adjusted for the €5,000,000 accrual reversal on reals, we still saw 41% EBITDA margin, which is the highest level ever reported by Axaktiv. This high EBITDA margin is
the result of several elements. The combination of strong cost discipline and operational improvements in combination with
the pickup in gross revenues are the main explanation. But it was also helped by somewhat lower amortization levels as we did write down the NPL book by €27,000,000 in Q2. Axasagtu continues to show cost discipline. And even though part of the 2020 cost reductions will be reversed going forward, we are turning several of the cost reductions permanent. Especially within IT and nonmanning costs, this will be the case.
Next slide, please, where we show how AgSaktor is limiting its liquidity risk through reduced forward flow commitments. AgSaktor's main challenge when the pandemic started was the major imbalance between forward flow commitments and cash flow available for new investments. Despite the private placement done in February that secured the company approximately €50,000,000 the situation became challenging as performance started to dip in April May. As you can see from the graph, Q1 alone had a negative balance of €56,000,000 During Q2 and Q3, we have reduced our future commitments by agreeing on different acquisition profiles with some of our clients in combination with not renewing expiring contracts. Q2 did also represent a negative balance, but in Q3, the balance has turned positive.
This improves our liquidity and enables Axocto to delever going forward. It also puts the company in a completely different and much stronger position in the event
of a second COVID-nineteen wave. Let's move on to the
next slide please, where we have more details on this subject. Even though we are very satisfied with Q3 figures and
the way Axocto develops in general, it is obvious that the corona situation is not over. However, we believe there are some major differences from the first wave. In general, I
would say that AKSAKTOR is much better prepared both operationally and financially. The uncertainty we experienced back in March, April May was more or less complete. We saw societies going in full shutdown, legal system in some countries completely closed down more or less overnight. We have to take drastic measures within our sector in terms of cost and also arranging for approximately 900 FT feet feet feet feet feet feet feet feet feet
feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet
feet feet feet feet feet feet feet feet
feet feet Es to work from home, all to
be executed within a very short time frame. In the case of a second wave, we believe that we will see more local shutdowns and most likely legal systems will be open or
at least partly open and not fully closed down. However, this is
hard to predict and the situation is changing by the day. From an internal point of view, Axoctal is, of course, much better prepared. We are currently running with close to 5.50 FT feet
feet feet feet feet feet feet feet
feet feet feet Es working from home, The lowest number we have had of employees working from home since the beginning of the
pandemic is approximately 400. But we have proven that we
can still deliver satisfying performance. In addition, from a financial and liquidity perspective, the situation is completely different as we have reduced the financial commitments and improved our cost position compared to the start of the pandemic.
Let's move to the next slide please.
Luckily, it's not only about COVID-nineteen on how to mitigate the negative impacts from
the pandemic. As we have
done from the inception of the company, Akzoctur is spending a lot of time and effort to improve our underlying business and operational excellence. The aim is to secure the best cost position in the market. There are, in particular, two areas that I would like to highlight.
The first being operational efficiency, where the whole organization is constantly focusing on how we can achieve operational improvements. Important examples in this respect are our new operational blueprint model for
the NPL segment and the improved follow-up of KPI reporting. We are starting to see results of this as we lately have been winning the vast majority of the customer benchmarks we are participating in. Secondly, we are investing significantly in our centralized business intelligence platform, which improves our business control and allows for self servicing solutions that give high efficiency gains. We are also focusing a lot on building capabilities both through competent and improving architecture such as improved scorecards and prediction models, all which will help to avoid unnecessary costs. This concludes the Q3 highlights.
Let's move on to Slide 11 to have a deeper look at the Q3 financials. Axocto delivered a total income of €62,000,000 for the 3rd quarter, which is significantly up from the €29,000,000 in the previous one. But please bear in mind the negative SEK 27,000,000 revaluation on the NPL book done in Q2. The SEK 62,000,000 total income was only SEK 2,000,000 down compared to Q3 last year. As previously mentioned, the EBITDA margin was 41% adjusted for the Rio accrual reversal, but this is still 10 percentage points up compared to Q3 last year.
Cash EBITDA came in at €56,000,000 up €12,000,000 compared to Q2 and only €4,000,000 lower than Q3 last year. Next slide please, where we will see more details on the NPL performance. The last 12 months rolling collection performance reached 97% in Q3, up from 93% in
the previous quarter. The stand alone collection performance in Q3 was 101%.
The increase in collection performance was supported by the re the revaluations and the corresponding revisions implemented in Q2.
The fact that we are approximately at 100% collection performance gives us the comfort that the level of revaluations done in Q2 was correct and if anything prudent.
The long term average performance is expected to fluctuate around 100%. Moving on to the next slide, where we look more closely at the 3PC development. 3PC volumes are picking up, although we are still not back to pre COVID-nineteen levels. The total PPC income reached €11,300,000 which is €1,000,000 lower than for Q3 last year. We see a gradual return of the volumes that were suspended by clients in Spain and Italy earlier this year.
Regarding operational performance, I've already mentioned that Axaktur is winning a large number of the performance benchmarks that we participate in across all Axaktur countries. This is very important to Xactu both as an argument for new sales but also for existing clients. We still see a challenging environment for new sales due to COVID-nineteen restrictions, and this will limit the growth of new volumes in Q4. However, we still expect 3PC volumes to continue to ramp up towards normal levels. We also continue to prioritize 3PC volumes in combination with NPL forward flow agreements.
Next slide, please, where we look more into the real segment. At Saxe has now sold close to 2 thirds of all acquired real assets and we sold 417 units in Q3 alone. The average unit price was somewhat lower than earlier and this is partly due
to the sales mix in this quarter with large number of smaller assets and grocers sold in Q3 compared to the total RIA book. Absakta
owns approximately 40% of
the total arrear book value exposure. We have just north of 3,000 assets left and you can
see more details on Page 3536 in the supporting information. Next slide please to see more details on net financials, tax under net profit. Total net financial costs came in at €15,400,000 where over €14,000,000 were interest expense. The average blended interest cost is still approximately 5% and we did have a €1,400,000 unrealized FX loss for the quarter.
Profit before tax came in at €12,300,000 and the tax expense was €5,800,000 dollars The high tax expense is
a result of mainly two things. We are not allowed to recognize tax assets from loss making entities, primarily the Rio subsidiaries. And secondly, the interest limitation rules in Sweden increases the tax expense for the quarter. Net profit was $6,500,000 where $3,600,000 was attributed to Axacto shareholders and $2,900,000 to minorities. A significant part of the net profit was related to the RIIO accrual
reversal. Let's move on to the
next slide to have a short look at the most important balance sheet items. As always, our NPL portfolio represents approximately 90% of our total balance sheet value of €1,300,000,000 We have a gross interest bearing debt of €925,000,000 and
a cash position of 36 €1,000,000 And equity ratio at
the end of the quarter was 27%. This concludes the financial part of the presentation. Please move on to Slide 18 for a summary and outlook.
In AkSatur, we are constantly evaluating our strategy and how to improve. As part of this work, it is natural to reflect a bit where we
are in the company lifecycle and where we are heading. Since the start less than 5 years ago, we have been focusing on aggressive growth to build scale. We have focused on market entries to get presence and to diversify and we are focused on establishing efficient and effective IT and operations in order to handle both own portfolios and the 3rd party clients
in the best possible way.
We are now moving into a new phase where the focus will shift more towards profitability, operational excellence and to grow sites in existing markets.
The focus will be on return on equity and to create long lasting competitive cost advantages. We are also aiming to start to pay dividends within the next 5 year period.
And AkSachter will have an opportunistic view on the expected consolidation game in the NPL industry. Next slide please, where we discuss how the COVID-nineteen situation is expected to impact our return on equity in the short and medium term. We expect several COVID-nineteen effects on our return on equity drivers, both positive and some negative. We expect the NPL prices to continue to decline. This trend started already back in 2018, but will be further fueled by
the corona situation and we see
a large overhang of NPL portfolios to be sold as the market has been almost on hold in 2020. As portfolio prices are going down, some clients are preferring not to sell the portfolios but rather have collection companies to handle their claims on 3rd party contracts. It is also expected that an increase in default rates will drive the volume for certain segments. And by that we think that the business mix will be positively affected by this situation. We expect no significant impact on economies of scale.
Axwaptor is still expected to grow in 2021, but at a lower rate than what we have done historically. We see a slight negative effect on the tax rate due to loss in certain legal entities such as subsidiaries in Riolux and in Italy, and we are not allowed to recognize tax assets in these entities. Finally, the expected improvement in funding cost has been delayed compared
to what we believed when we started this year. Best estimate is that we
have gotten a 1 year delay in this respect. Next slide please, where we summarize the quarter and give some short term outlook perspectives. The Q3 financials was above expectations for all business areas and we are gradually returning to a normalized situation both on activity and collection levels. NPL collection performance was above 100% in Q3 and this indicates a correct portfolio revaluation in Q2 on the NPL book. We did a net accrual reversal of €5,000,000 on the real book due to higher volumes and better prices than expected.
ABSTACTER is more resilient than we were in Q2 towards a potential second COVID-nineteen wave. We have positive net cash flow after investments in the quarter and this is expected to continue and the organization is well prepared to continue working under COVID-nineteen restrictions. Q4 is expected to continue the good performance, but will not see the traditional seasonal increase due to a solid Q3, the unusual summer effect we saw this year and the challenging environment for new 3PC sales that will limit growth somewhat in Q4.
The high focus on competitive cost position will continue in Q4 and onwards. Anakshaktur will focus on deleveraging going forward, but will still deliver top line and cash EBITDA growth for 2021. With that, we open for Q and A.
Thank Our first question comes from the line of Johann Strom of Carnegie. Please go ahead. Your line is open.
Thank you very much. Two questions. First, on your planned investments, any comments on what you expect for CapEx in 2021? That is my first question.
Well, we haven't we will comment more concrete guiding on that when we announce Q4. But I think it's fair to say that it will be in more or less in line probably, maybe a little bit south of the SEK 200,000,000 that we invested this year. But it could be it will be plusminus to SEK 200,000,000 if it's between SEK 150,000,000 or SEK 250,000,000 somewhere, I guess.
Very clear. Thanks, Jon. And then on it's actually two questions. Any comments on costs? I mean, coming out or coming in at a fairly low level now in Q3.
So how should we think about the quarterly costs, let's say, in Q4, Q1 in the very near term? And then also on the funding side, what are your planned refinancing needs in the next six to 12 months? Anything there would you like to address on that?
Yes. So if we start with the cost, I think we will continue to have strict cost discipline, but it's clear that some of the cost elements that we have been holding back on will as the business is returning to normal levels, it will increase again. But I think it's the cost will increase probably a little bit less than the expected increase in gross revenues for Q4 at least. So that is the trend. So I think we will hold back on the cost.
But then also bear in mind that for Q4 and onwards, as we are gradually returning to normal, the amortizations are also increasing somewhat. So I think in total, at the margin level that you have seen now, it's more or less what we will see for the next quarter as well. But yes, so I think that is all I can say on the cost side. And then you asked about the funding. I think what we have said also in the presentation is that we are prioritizing to deleverage.
As you all know, we have a bond maturity coming up in June, but we have also promised our banks to try to come up with a solution to it within April 1, 2021. And we are hoping to be able to use the capital markets in a normal way. So in some shape or form, refinance the bond within Q1. But if that turns out to be difficult or we cannot achieve the necessary margin on it, we will deleverage and try to and also to use the RCF in combinations with other funds. But the plan is to use the capital market.
Alternatively, we will just deleverage holding back on investments for the next few quarters. So that should be sufficient to handle the bond maturity. Regarding the RCF, I think we have a really positive dialogue with the banks. Yes, it expires in December next year, but it's more because we have chosen to have a short maturity on it because we believe that we should be able to achieve more favorable terms as we are maturing as a company. So I don't view that as an issue.
It's more like kind of a wanted maturity profile from our side currently. Did you have another question there? So Johan, I almost thought.
I think you answered it pretty quite clear there, Johan. So thanks very much and great to see the strong collections in Q3.
Thank you. Thank you.
Okay. There seem to be no further questions from the phones at this time.
Yes. Then we have a few questions that have been sent in. So the first one is from and the question is how is the dividend outlook for 2021 and how will you work in order to reach this goal? And I think for 2021, there will not be any dividend payout. We have stated on Page 18 in the presentation that we will pay dividends and the target is to initiate dividend payments over the next 5 year period.
And with that said, we will we haven't decided which year to pay that we will start the dividend payments. But 2021, I think it's to be on the aggressive side. We will, like I've just explained, we will focus on deleveraging and to handle the bond maturity before we even consider the dividends. But it's a clear goal that we will initiate dividends within the next 5 year period. And it's probably I don't think I will speculate in which year, but it's obvious that it will be initiated, but we haven't decided which year.
And how do we work to reach this goal? I think we are working with this by taking down the cost and increasing the revenue. Simply said, we need to have best possible cash flow and then we could choose what to do with that cash flow after we have paid off our interest. We could choose either to invest in portfolios or to repay to our shareholders. And over time, we will do both.
2nd question is actually 2 questions coming from Joakim Swingen. And the first one saying you had a very solid progress on OpEx in Q3. Could you give some guidance on what we can expect in Q4? And I think I just did that, but shortly to repeat, I think we will hold back on cost. It will be a high cost discipline and it will increase less than the expected growth in gross revenue for Q4.
That is that with OpEx. And then also, as I mentioned, as we are returning to normalized levels, amortization will also increase somewhat. Second question is how many portfolio has been offered in Spain and Italy in Q3? Approximately IRR on these? And how long can you withstand from deploying CapEx in these markets in your view?
So first of all, we have not engaged in any tenders in neither Spain nor Italy in Q3. I would say that the NPL market, at least in our markets as such, is more or less put on hold. There has been some tenders in it has been in Norway, it has been in Germany. But to my knowledge, these large, call it, annual processes that have been initiated have actually been stopped due to probably too low prices according to compared to the sellers' expectations. And I would say that the deals that is now going is more or less bilateral deals.
And but there are possibilities to do acquisitions, but we have not been very active as we have been focusing on deleveraging. But it is very clear that if you were to buy portfolios and spend these days, you will be able to buy that at significantly higher IRRs than what we saw before the corona. But since we haven't done any real transactions, I will be careful to speculate in the exact level. And then how long can we withstand from deploying CapEx in this market? So I think, first of all, in our budget for 2021, we are deploying we are planning to deploy CapEx in both Spain and Italy.
But what is positive to see is that we are refilling with 3 PC volumes in more or less all Aksaktoyr markets. So we have been taking down costs in Italy, so we don't have a lot of excess capacity. In Spain, let's see going forward, we have probably excess capacity in the organization, but we are expecting the substantial growth in 3PC and also when we get back in back of the horse and start to buy portfolios, we would we must be careful not to have reduced the capacity too much as it's expensive both to take down the manning costs, but also to increase it again when you have to then rehire. So for now, I think we are in a good spot regarding the cost position. Definitely potential to do more if we need to, but I think it's a good it's sensible to take it a little bit, relax and see the development of PPC volumes and our capacity.
So also when I answered Johan earlier on regarding the CapEx investment, so that is kind of the low case where we prioritize heavily deleveraging
and some portfolio investments. So hope that answers your question, Joakim. And we
don't have any more questions on our list. So I don't know if there's been any more requests from the moderator.
None so far. Once again, if you do wish to ask a question on the phones, No, it seems there's no further questions on the phone. So I'll hand back to you for the closing comments.
Very good. Well, thank you so much for your time. So by that, I wish all of you a nice day and stay safe. Bye
bye.