Good morning, and welcome to Q4 presentation for B2 Impact. I am Erik Johnsen, COO of B2 Impact, and with me today I have André Adolfsen, the CFO of B2 Impact. The extraordinary year of 2020 ended on a positive note for B2 Impact, and I'm looking forward to sharing our comments, to result, and our view on the positive market outlook. Looking at the highlights for the quarter, we had a steady operation in our key markets. While most of our countries experienced a second pandemic wave in the quarter, the focus and response for our employees remained impressive. We were able to maintain close to normal operation while securing the health and safety of our employees. Collection and recoveries were above our expectation, resulting in a positive cash generation of the portfolio investments and interest coverage.
We are pleased to see that the reorganization of the secured business and the recovery strategies is starting to yield results. The focus on cost control and cost savings continued through the quarter and were in line with our targets. Investment activity in fourth quarter was higher than Q3, as indicated that it would be at the Q3 presentation, but relatively low compared to previous years. All portfolios acquired were unsecured, with the majority in Poland and Northern Europe. There is still a low activity in most markets compared to previous years, but the pipeline is building up in our markets and our markets outlook remains what we see as very positive. During the quarter, we did a full repayment of Bond1 and continued to buy back Bond2 and extended the RCF with one year.
At the end of the year, we are pleased to present a strengthened balance sheet with equity ratio close to 28%. Booked equity per share equals NOK 11.5. Lower net interest bearing debt results in a reduced leverage ratio. This gives us additional financial flexibility, and with higher liquidity reserves and future good cash flow, we can take part in the expected positive market going forward. Moving over to the key figures. Gross collection were NOK 1.3 billion for the quarter and NOK 5.7 billion for the year. The cash EBITDA was NOK 905 million for the quarter and NOK 3.65 billion for the year. Our leverage ratio was down to three and is trending downward with lower interest bearing debt. Total revenues amounted to NOK 847 for the quarter, and especially Poland Northern Europe performed well during the quarter.
Net profit of NOK 123 million, corresponding to an earnings per share of NOK 0.3 for the quarter. We had NOK 309 million for the year and an earnings per share of NOK 0.75 for the year. Portfolio purchases were higher in Q3, kept relatively modest at NOK 437 million, with a better IRR than previously. André will share more details about the financial results with you later. Moving over to the business update. We had a quarter where operation performed well and the bailiff and courts were functioning in most countries. Our organization was prepared for the second pandemic wave, flexible work arrangements have limited the impact on our operation capacity. Of the countries where we operate, Italy and Spain has been most impacted by the second wave. In our main markets, Poland and Northern Europe, we continue to see strong collections.
The recent months, we have seen that the pandemic environment can change quickly, and we remain cautious going forward. However, we believe that the potential future impact is limited in the short term as the organization has proved its resilience with good routines in place, both in securing stable operation and safeguarding our employees. Today, I would like to highlight the development in our secured division throughout 2020. The previous years, B2 Impact has faced challenges in perceived riskier markets with high concentration in corporate and secured assets. The new management structure was in place at the end of 2019, and in 2020, the secured asset management team has introduced a new approach of managing secured asset and REOs. Through a deep dive assessment, the team has revised the strategy of about 60% of the remaining secured ERC and new portfolio strategies has been implemented.
During 2020, we have gained better insight into our secured asset, improved our recoveries with potential of adding additional value in the secured portfolios. This transformation has already proved successful in several cases, and we are confident that new resolution strategies will deliver additional value. Now, looking specifically at REO asset under management, we saw an increased pace in the fourth quarter. REO asset under management has grown significantly in 2020, mainly driven by the repossession of key assets, which is fundamental part of the loan recovery strategy in secured portfolios to shorten time to cash and extract additional value. If you look at this real-life REO case of 57 villas, we can see how we use understanding of the underlying value of the case to design a proper strategy.
After taking control of the asset with recorded book value of EUR 1.7 million and the design and preparation of the completion project began. In our current stage, we have started completion of the villas and pre-sold four villas at three times book value. Expected sale proceeds will exceed EUR 5.5 million, resulting in significant additional value extracted from the REO strategy. This is one of the cases that we have on the table. Now, core priorities going forward. While we are waiting for the market pickup, we continue to strengthen our internal operations and structures. On the operating side, we focus on economies of scales in key markets to improve margins for future investments. We prioritize digital transformation and building B2 data and advanced analytics capabilities over time.
In terms of investment, we are preparing for improved market condition and expect lower investment required relative to what we amortize to maintain earnings going forward. We will maintain price discipline and continue to shift towards stable cash generating portfolios in core markets. Finally, we are strengthening our risk functions with a higher degree of centralization in investment. This combined with improved data quality and insight will result in a more efficient capital allocation going forward. With that, I will hand over to you, André, to go through the financials. André, please.
Thank you, Erik. It is great to be on board, and I'm happy to see that Q4 was a very solid end for the company to a challenging year. Looking a bit into the details of the fourth quarter, the collection performance continued to prove resilient and stable for both business lines with unsecured collections at 101% of the latest forecast. In terms of the secured collections, we also ended up above our latest forecast, despite some claims being moved out in time to Q1. If we include those claims into the Q4 collections, we would've been closer to the Q3 secured collections, including the repossessions. Important to note that the over-performance or the earlier collections on secured in the quarter resulted in some curve revisions related to timing effects.
The majority of these revaluations in the quarter on secured is related again to the over-performance, which is more comparable to increased amortization. To a smaller extent, we had effects of delayed collections as previously mentioned. On the cost side, we maintained continued cost control, as Erik touched upon earlier, with only some sequential increase driven by higher activity across the group. This resulted in an EBIT growth of 22% in the quarter. I want to note also that the EBIT was impacted by the exit we have previously communicated in Portugal of NOK 6 million in the quarter. Both the EBIT and EPS showed notably improvements compared to last year. That's despite a significant decrease in the investment pace throughout the year.
This was achievable due to continued focus on the efficiency and extracting value of the back book, strict price discipline, and as mentioned, cost control. All of these efforts made during the year resulted in a continued strong cash generation for the company. Despite increasing the investment level sequentially in Q4, we managed to reduce the leverage and at the same time also reduce the interest expenses going forward through the buyback of bonds, which I will touch more upon later in the presentation. Moving to page 11, we elaborate a bit more on the cash generation throughout 2020. On the left side, we demonstrate the development of cash EBITDA to cash earnings, adjusted for investments and any financial obligations. In the quarter, the cash surplus or cash earnings before any repayment of debt ended at NOK 204 million.
I just want to highlight that that number is not adjusted for any non-recurring items or one-off costs. Looking at the top right, you can see that the cash earnings and the potential investment level over the last quarters has been quite stable, with the opportunity to invest more into new portfolios if needed. Given the market conditions we see today, we have remained moderate in our investment level and maintained price discipline, and consequently utilized the cash earnings to reduce leverage, which you can see on the bottom right. Leverage was reduced from 3.23 in the third quarter to 3.04 in the fourth quarter. Comparing to last year and the old definition including repossessions, leverage was down from 2.9 to 2.7. Moving to page 12, we elaborate a bit more on the effects of the cost initiatives taken during 2020.
Let me just first say that I've been with the company now for only three months, and I am very impressed with the efforts made out in the countries. They have been able to reduce costs, maintain resilient collections, while at the same time moving to remote working from home. A big thanks for all the efforts to all the employees watching out there today. The total group delivered an FX-adjusted cost reductions compared to Q1 in the quarter of NOK 47 million, excluding impairments, depreciation, and amortization. For the three quarters, Q2 to Q4, the same savings ended at approximately NOK 200 million. Comparing the Q4 to last year, also adjusting for FX and non-recurring items, the savings was NOK 50 million and approximately 12% cost reduction year-over-year.
The group will, of course, continue to focus on costs and efficiency going forward, and we will use a lot of what we have learned during 2020 in order to continue to hold the underlying cost level at the low level and also continue to improve the scalability of our platform. Moving to page 13 and an update on the portfolio investments. As mentioned by Erik earlier, we increased the investment level in Q4 compared to Q3, but we continued to stay price disciplined, and I want to highlight that. The increase in Q4, compared to Q3, was mainly driven by investments related to one of portfolios at favorable terms compared to pre-COVID levels. To a large degree, they were made in bilateral processes. Almost 90% of the investments made in the quarter were done in Northern Europe and Poland.
A third of the investments were related to forward flows in the Nordics. The ERC from unsecured in the Nordics and Poland consequently now make up a bigger proportion of the total ERC, which is in line with our communicated strategic direction. Going forward, we anticipate a significant amount of volume coming out to market end of 2021, second half and going into 2022. We will, of course, in the coming quarters, continue to stay price disciplined and be moderate in our investment approach. We will also continue to shift focus towards more stable cash generating portfolios in our core markets and potentially seek partnerships on secured through joint ventures. Moving to page 14, capital structure and funding. During the fourth quarter, we both refinanced the bond, Bond1, and also made buybacks on Bond2.
We extended the maturity on the RCF. We now have full flexibility to pay down Bond2 following the EUR 100 million bridge facility communicated in Q3. The result is an improved maturity profile, increased flexibility, but also lower interest margin for the coming year. The cost related to the bond buybacks made in Q4 was NOK 13 million. The result is an interest margin of around 5.5% going forward. The net expected savings from the buybacks is NOK 10 million. Net interest bearing debt at the end of Q4 was NOK 11.1 billion, down from NOK 11.9 billion in Q3.
The reduction can be explained by the NOK 204 million cash earnings explained earlier, and the remaining effect is related to FX. At the end, I just want to highlight that the headroom to covenants now has increased in Q4, and that we expect this to continue in the coming quarters as we expect a moderate investment level in the next quarter or two. On the final positive note on that, this morning S&P decided to change the outlook for the company from negative to stable. That proves that we have been able to deliver on our promise, with stable resilient collections, good cost control, and increasing the headroom to covenants over time. With that, Erik, I leave the word to you again.
Yeah. Thank you, André. To summarize, we feel that the fourth quarter was stable with collections and recoveries above expectations. We have a well-functioning organization that has ensured stable operations during the second wave. Cash earnings enables further reduced leverage and secures additional investment capacity. We still see a positive market outlook with expected increased NPL volumes and also good prices going forward. At the end, I just want to comment also that we have mapped important ESG criteria for B2, and will revert with the plan and KPIs to the market during 2021. With that, we are then finished with the presentation, and we are ready for taking questions. Rasmus, you will help us with this.
I will. Thank you, Erik and André. I will moderate the Q&A. We have quite a few questions already, probably some more are coming in. We will start with quite a few are asking for will we pay a dividend for 2020? Let's start with that.
The board has not coming out with any recommendation now. Given that we have still a pandemic existing and also in the markets, I suspect that the board will most likely not give a dividend this year. Rather retain the cash flow, the cash in the company to secure a better balance sheet and also taking care or taking advantage of the future market conditions.
Thank you. We have a question from Frank Lehmann. He is thanking for good results. The first question is, will you retract from certain countries?
We have already retracted from Portugal. We have also down scaled our operations in three countries and have outsourced some of the collection on the portfolios in those three countries. We will at once when we do something like that, we will revert to the market with that information. As I said, we have down scaled operations in three markets also in addition to Portugal.
A second question, on forward flows, what's the contractual obligations we have in 2021?
Well, you can see that from the investment slide. The overall level has come down from what we saw in 2020, which we are happy about. We have been able to renegotiate many of the existing forward flows. The committed level now going into a bit more uncertain times in 2021 is lower than we had in 2020. We are happy about the current level we have.
We have a question from Rickard Hellman, a credit researcher at Nordea. The question is, given the communication in Q3, he had expected a higher amount of repossessed assets. Is the low number in Q4 a sign of better collection than expected, a change strategy on assets or just timing?
We still continue to do repossessed asset. We still believe that is going to be increasing somewhat going into 2021 as part of the strategy. We also seen that we have been having some collections has been going from what anticipated repossession to actually solving it with the cash. Our strategies pays off and but repossession will still be coming in quarters coming going forward.
An additional question from Rickard. I will give this to you, André. Can you give an assessment of your replacement CapEx needs to keep your C stable?
Yeah.
Also including the more favorable pricing in the market.
I guess what the rule of thumb is to say that the amortization is the expected level of replenishment CapEx. What we expect going forward is the price level to change a bit, and we have seen that through the one-off portfolios we've acquired so far. Meaning that the replacement CapEx will, given the more favorable terms, be lower than the amortization level on average. That said, we expect to collect a lot of the claims on both secured NPLs and REOs going forward, and the amortization rate there is higher. We can reinvest that cash into more stable cash-generating portfolios, as mentioned, in particular in secured in our core markets.
We have a couple of questions from Johan Strøm, Equity Research at Carnegie. What is your expectations for 2021 portfolio investments? More than NOK 2 billion?
I think it's too early to say something specific about 2021. As mentioned, we expect more volumes to come to market, probably more closer to the second half of the year. We will still maintain a moderate, cautious approach in the short- term. When the market hopefully sets in terms of price levels post pandemic, we obviously expect to invest closer to amortization and maintain earnings going forward.
An additional question from Johan. Do you think net debt EBITDA will go below 2.5x before year-end 2021?
Guiding on that is too early. It all depends on the market development. As you can see from the cash earnings slide, with the cash earnings we have today and the lowered cost level, we can reduce leverage further, but we can also invest more. We have to balance that with the market outlook we see going forward.
We have a couple of questions from Joakim Svingen, Equity Research at Arctic. The first one is on CapEx. I guess we have already answered that, let's see if we want to elaborate a bit more. What do you expect to invest in the first half of 2021 in addition to forward flow contracts?
I guess that answer is more or less the same as the previous one. We don't guide specifically on the CapEx level. That said, we hope over time to increase investment level compared to what we saw in 2020. You have to look at the year in total, and I fully understand you would like short-term guidance, but we have to balance the investment level with maintaining a strong balance sheet, and that we will continue to do.
We have a couple of questions from Robin Ranné at Kepler. The first one is dividend. That has already been addressed. The second question is have you had any help in the quarter from catch-up effects from previously delayed collections that maybe not will be sustained into the coming quarters?
I think that question is, the answer is more or less no. That's difficult to answer because the secured collections are very binary compared to unsecured, and you can see that from the results in Q4. We had good collections. Still we had some delayed collections, and we had some earlier collections. The effect of that, as I touched upon, is a revaluation, which I again want to note that is an increased amortization of earlier collections. This will always fluctuate, and it's difficult to determine the exact month or quarter where the larger corporate claims will be resolved.
I can just add. We've seen that a couple of the court systems or bailiff's offices has been opened up in a couple of countries, giving a positive effect. On the other side, we are also seeing that some of the court system, the bailiff's office, closed down in other markets. This is where it's differences between the different markets that we operate in. On a whole, I would say that we see that collection has been somewhat hurt by the pandemic. Overall, we have performed very well on our collections in the quarter.
We also had an additional question from Robin. I think we have addressed that already, but I'll give it to you, André. What do you think is a good yearly investment pace if and when things normalize going forward?
The answer is still the same on that. I just want to stress again that we expect in the coming one or two years, we expect a lot of collections on secured NPLs and also resolutions or monetization of the REO assets. Consequently, the amortization rate will be higher if we deliver on our plan. That cash can be reinvested into more stable cash generating unsecured portfolios in the core markets.
That's important to stress. Investing purely at the amortization going forward is not necessarily what we want to do. If we are able to reinvest that cash with high amortization into lower amortization, more stable performance type of portfolios going forward, that is the strategic direction we want to go.
We have a question from Ulrik Zurcher at Nordea. Any potential to sell a significant amount of collateral assets in the first half of 2021, or does the economy need to improve further?
We have a REO strategy for both REOs and collateral assets. We have re-strategized over 60% of our ERC, and we follow those strategies strictly. We will see both that we will repossess more, most likely in the coming quarter, as we said, and also throughout the year, sell more REOs and repossessed assets. The timing of this might vary a little bit from quarter to quarter, and predicting just on a half-year basis, we do not give out prediction on that. I think on a general statement is what I already mentioned.
We have a question from an investor, I assume, Jan Frisch. Given all the recent achievements and very favorable new issue markets, would it make sense to issue new bonds to secured funding, increase maturities?
Should I cover that?
Yeah.
I guess the general answer to that is that we're always looking to improve both maturity and the interest expenses or the cost of capital. We are, of course, monitoring the market. We're looking at the bond market today. We're seeing the tighter spreads. We've today announced that the outlook for the company is now stable from negative from S&P. We are of course, monitoring that and it is an option going forward. Currently we're happy with the balance sheet and the cash we have in terms of the investment outlook that we see through 2020.
We have a question from Johannes Ørbech Nelsen. I guess this is not company specific. It's a quite general question, I would say. Are you properly prepared for both a deflationary and inflationary economic environment?
The business within this sector has always been resilient to economic moves. We see that in an upturn, generally, we have higher collection, and in downturn, we generally are able to buy portfolios. When it comes to the inflationary rate, deflationary situation, well, I think that that's more the macroeconomic people that can answer what direction we are heading. Short- term, we don't see that either have an impact on B2 Impact, but it's hard to tell. I think that needs to be answered by the macroeconomic people and not us.
I think we have proved during 2020 that the company and the industry is quite resilient to downturns. Hopefully the environment will change going forward and we can both continue with the improvements we've done from the internal point of view on both collections and cost. We can be able to take part in a market where we expect prices to be more favorable with higher volumes going forward.
We have a couple of questions from Vegard Toverud at Pareto. He's thanking for the presentation. Could you tell us which three countries we have downsized and the reason for downsizing specifically these three countries?
We have downsized three countries within Central Europe. I'll keep it at that. The reasoning for that is quite clear. We have a fairly low investment in those countries. As we said previously, we would rather focus our investments going forward on countries where we can have the economies of scale and take down the cost and be prepared so we can have better margin. Therefore, it doesn't make sense for us at this point of time to have additional investment in those countries.
A second question from Vegard. JVs contributed well in Q4 without any new JVs. What would you expect in contribution from your existing JVs in 2021?
I think still our JVs will perform well. We have good portfolios and good cooperations with our JVs, but indicating absolute number there is we haven't done it in the past and I don't think we're going to do it going forward. What I can say is that we see further development within the JV structures. We have several people contacting us and want to do JV structures together with us, and we see that is in particular within the secured assets that we would like to have JV structures to have a lower investment, but still very profitable investment in that segment that we believe is good. We have a very good secured asset management team to participate on the servicing also of these assets. JV is still on the table and is still going to be profitable and we're still going to continue doing it.
Numbering it specifically, I don't think we would do that.
We have an additional question from Rickard Hellman. I assume this refers to what we have previously communicated around a potential carve out of some of our secured assets. Can you give an update on your divestment of portfolios? Is it possible to sell portfolios at book value given the increased IRRs in the primary market? I'll give that to you, André.
Okay. I can take that. We will not sell portfolios below book value. Like Erik just mentioned, we have sized down in some countries where we've outsourced the collections and downsized the organization as we don't feel we have the scalability necessary in those markets. That is a more favorable solution than selling the portfolios below book value. Given the current market environment, it's not necessarily the time to sell portfolios. We will have to come back when we have any potential bids on the table. Currently we're seeing that it's more beneficial for us to outsource in those countries instead of selling the portfolios.
I would also just add that with the new strategies that we have on our secured books we feel very comfortable with our book value. Also we feel comfortable and believe there is a potential upside in some of our secured assets. There has been some interest for some of these assets, so far it has not materialized anything. We continue our good approach on our secured strategies for secured assets. That's the situation as of now.
Thank you both. I think that concludes the Q&A. Should you have additional questions, you can contact me, Rasmus Hansson. You will find my contact details on our website. With that, we thank you all for following this Q4 presentation and wish you a pleasant day and weekend when that time comes.
Thank you very much.
Thank you.