Good morning, and welcome to the Q3 presentation for B2 Holding. It's been a good quarter for B2 Holding, and we are satisfied with the development since Q2. I would like to thank our employees for the impressive effort shown during the quarter. We had a positive quarter with operations close to normal. When I say normal, we still had strict measures in place with our employees working in shifts in the office and from home. The focus and response from our employees has been impressive, and the organization is well prepared for the second wave, which is now developing across Europe. I'm also pleased to see that we reached our cost-saving targets of NOK 20 million per month in the quarter. Collection and recoveries exceeded our expectation. Especially the secured recovers were good in the quarter, and we managed to solve some larger cases.
Investments in Q2 kept low, as previously indicated it would be in its Q2 presentation. The third quarter is usually quiet, and in this quarter, the activity has been lower than normal. All portfolios acquired were forward flows with the majority in Northern Europe. We have a very good relationship with our banks, and I'm pleased to announce that we have signed an 18-month bridge facility agreement with EUR 100 million with DNB and Nordea. We also extended our RCF with one year until May 2023. This gives us added financial flexibility going forward. Finally, we announced a reverse Dutch auction this morning where we can repurchase our second bond of up to EUR 50 million. Now, over to the key figures for the quarter. Gross collections were more than NOK 1.6 billion.
You may already have noticed that we are using a new definition where the word cash has been removed. The reason is that these figures include repossessed assets, and the cash definition has caused some confusion previously. This also means that we have excluded the repossessed asset from cash EBITDA of NOK 932 million. Historically, the difference between the new and old cash EBITDA definition has been small. According to our previous definition, cash EBITDA amounts to almost NOK 1.3 billion for the quarter. Our leverage ratio is 3.23, which is about 30 basis points higher than previous definition. Total revenue amounted to NOK 845 million, and especially Poland, France, and Northern Europe performed well during the quarter. Net profit of NOK 128 million corresponding to an earnings per share of NOK 0.31. Net profit includes non-cash write-down of portfolios of NOK 14 million.
Portfolio purchases, as mentioned, were kept low at NOK 264 million. Moving to the business update. We had a quarter where operation has performed well, and the bailiff and courts were open in most of the countries. In our main markets, Poland and Northern Europe, we have seen strong collections during the quarter. Even though we are satisfied with the quarter, we need to be cautious going forward as the second wave is building up. What is the difference from March is that the organization is well prepared, both in terms of working remotely, but also in terms of safeguarding our employees. Looking forward, we see upside potential, but also some risk that may affect our recoveries and collection. Some of the government support schemes for unemployment are expected to end, while others may be prolonged in the wake of the second wave.
We also know that employment levels and disposable income is expected to decrease over the next year, and a backlog of cases in court may cause delays. Still, we see upside potential in the NPL market and expect that volumes will increase in the back of the pandemic. That, combined with more disciplined buyers, will lower prices. All portfolio purchased in the quarter were forward flow agreements, and the volumes were slightly reduced compared to committed volumes as of Q2. Portfolio purchases are expected to increase somewhat in Q4. With committed volumes primarily in Northern Europe and Poland. While we are waiting for the market to pick up, we focus on further strengthening our internal operations and structures. On the operational side, we are moving forward with program Foresight, which is aimed to transforming our business processes using leading AI technology.
We are continuing to align and standardize IT systems across the group, while also continuing the cost-saving program. We have further developed our internal control and risk management functions over time, and we are continuing to focus on training and awareness. Finally, we experienced that ESG is a matter of increasing interest for investors, business partners, and internally in our group. We currently have group-wide ESG project ongoing and expect to extend our KPIs for ESG reporting next year. Financial performance. We've reported the profit after tax of NOK 128 million in the quarter, which we are satisfied with. This include non-cash write down of NOK 14 million and an unrealized exchange loss of NOK 8 million. We see increased revenue from third-party collection.
We had moderate impairment in Q3, but we do observe some uncertainty going forward in the wake of the second wave, although we are much better prepared this time around. We also see our major markets have shown resilience to the COVID impact on our collections. We are happy to see that we reached our cost-saving targets in Q3 as well, with cost savings of NOK 71 million compared to Q1, adjusted for FX. Cost related to legal collection, which is external cost of services provided, is coming back to normal level now that courts and bailiffs are opening up again. This was expected and is good news as the countries are returning to normality. We have a balance sheet of NOK 18.1 billion. We have an equity ratio that is up to 26.6%.
The FX impact on purchased loan portfolios on the balance sheet is approximately NOK 170 million in increased book value as a result of the weakened NOK, mainly against the EUR and HRK. Capital structure. On the capital structures, we are pleased to announce that we have received a bridge gap facility from DNB and Nordea of EUR 100 million, giving us additional financial flexibility going forward as previously mentioned. The RCF is also extended with one year until May 2023, giving us a healthy maturity profile. With the profitable quarter behind us and with low portfolio purchases, we have increased our headrooms to our original covenants. We expect to be compliant with original covenants going forward. As we said previously, we had a modest portfolio purchase in third quarter. Q3 is normally a quarter with low activity, and we acquired portfolio of NOK 264 million.
The portfolios acquired were unsecured portfolio forward flow portfolios with around 80% acquired in Poland and Northern Europe. Finland and Sweden are the main countries for portfolio purchases in Northern Europe. The ERC development. The ERC is more or less on the same level, little bit lower over the past quarters due to the low purchase that we have been having in the past three quarters. As you can see, 50% of our ERC are in Poland and Northern Europe. These are market that has shown resilience during the pandemic. To sum up, we have seen a quarter with solid collection and recoveries and a well-functioning organization, which is well prepared for the second wave currently building up across Europe. The momentum into fourth quarter has been good with collection slightly above the curves. We have also seen good recoveries in secured asset this month in October.
We have added flexibility to our capital structure with good support from our banks, and we still see upside potential going forward in the NPL market with increased volumes coming to market and lower prices expected. That was the presentation, and now we move over to Q&A section. Rasmus, can you please join me? I'm not sure if we are COVID compliant now.
Okay. So far we have a few questions from Rickard Hellman at Nordea, and this is about the repossessed assets.
The question is, are the repossessed assets also included in your assessment of collections versus forecasts? That means are they counted as collected?
When an asset goes or a claim is going from a claim to a REO, a repossessed asset, it is usually also accounted as collection. When it comes to what we're seeing in third quarter, we had repossessed asset of around NOK 400 million. Also we saw a collection in the quarter of NOK 264 million in cash collection. The collection was quite a bit above also the estimated, which means that we actually are able to get the asset over as a repossessed asset in the quarter, which was very positive for the group.
A follow-up question. How are they valued, in the balance sheet or what is the book value of these assets?
The book value of these assets are valued at low prices. They are valued at liquidation value, which means that normally the market value is substantially higher than what we have in books.
Of course, an additional follow-up question is what is the prospect of actually selling these assets in the near term? He also makes a comment, "Isn't it just a way of kicking the can down the road?
No, it's actually the repossessed asset, when you go from a claim, you remove the legal aspects of the claim, and you then have the REOs on the balance sheet, which means that you are in position to sell it in the marketplace. Some of these repossessions are also done with agreement with the debtor that they have a possibility for a time off the repossessing to buy back the asset. There is an agreement with some of these assets that's been repossessed, but it makes the time to value faster by putting them on the books than having them as a claim and removes then the uncertainty regarding the legal aspect of the claim.
Very good. I think, yeah, we have a bit of time for the Q&A, we'll probably give Rickard a few more questions. He's quite active today.
Have you any assessment of how much the lower legal collection has affected the collection costs?
In the collection cost in the second quarter, we have NOK 22 million lower legal cost than we had in the first quarter. In the third quarter, we had NOK 5 million lower legal cost than we had in the first quarter. The third quarter, we're more or less back in a normal kind of status when it comes to the legal cost. Going forward, we do expect that the legal cost will come back to normal level. At least we hope that, because that would also then see that the legal collection will increase going forward.
One final question from Rickard before we move on to the next.
What is your customers or vendors saying about you being less active in the market? Is it a problem or are they fine with that?
They're fine with that. Everybody realize that this is a, let's say, unusual situation that we are going through with the pandemic, and it's a little bit uncertain to see the clear pictures on the cash flows, and they realize that as well. We also see that our competitors have moved in the same direction as us, it's the market conditions are well known to everybody.
Good. Over to Håkon Astrup at DNB. This also relates to the repossessed assets.
Question is, you have NOK 907 million in repossessed assets as of end Q3. When do you expect to sell these assets and see cash flow?
You have partly answered that.
Yeah, no, as I said, we have some agreements with some of them. Most of them, we sell as we go along. There are also, we do expect to see some build-up of REOs over the next couple of quarters. Then, going forward, we also expect the REOs to be sold and the volume go down on the balance sheet. It should be mentioned that putting the REOs on the balance sheet is a strategy that we have announced previously that we would be doing. It's part of realizing higher value on our assets on the balance sheet. This is according to our, let's say, strategy.
Follow-up question is also about the valuation of the repossessed assets.
I think you have answered that.
The third question, looking at your ERC profile, the expected collection in year three is reduced by almost NOK 700 million- NOK 3.3 billion. What are the key drivers behind this reduction?
I don't have the idea completely in my mind, but some of the claims that we have, looking at secured claims and sometimes we move them a little bit forward and a little bit back, depending on the legal process. We had a big collection this quarter as it was becoming a repossessed asset, and this was intended to be collected further out and is now a REO on the book. We removed the legal process and therefore it's then removed out from the curve further out. That's pretty good.
That will be the.
Yeah.
Explanation. We can get back to Håkon on that question.
Yeah.
We move on to Joakim Svingen at Arctic.
First question, given your strong liquidity position, why do you see the need for a bridge loan of EUR 100 million?
The EUR 100 million, it will be used to repay the bond number two. Instead of then using all our liquidity going forward getting from collections and so on, we are going to keep up the debt level more or less at the same level and the bridge loan will actually facilitate that. Also will give us more time to come back to either the bond market or looking at other financial possibilities going forward, as the bond market has moved quite a bit up at this point in time, at least.
Could we expect continued strong secured collections in Q4?
As I said, at least what we've seen in October was that the cash collection on secured collection in October was good. We do see possibilities still to do good collection on the claims that we have on our books. I think it will vary a little bit. It is bumpy when it comes to secured collections. Whether it's going to be in December or January will always be difficult to be certain upon. So far it looks pretty good.
Over to Johan Strøm at Carnegie.
What do you expect to invest in 2021? Will it be higher than 2020? Alternatively, do you expect the ERC to increase in 2021?
We expect the investment to increase in 2021. Coming out of COVID-19, there will be good opportunities as we can see the volumes coming from NPLs are going to be good and we are in a financially good position to take advantage of the market coming out. I do certainly expect that we will invest more in 2021.
We move on to [Robin Rané] at Kepler.
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?
This quarter here was, if you look at this quarter, we have not seen the catch-up effect from some delay. I think that will come a little bit later on when we see coming out of the crisis, not when we are in the middle of the crisis. No effect so far.
I think you've partly answered this. What do you think is a good yearly investment pace if and when things normalize going forward?
Well, what we've seen previously is that at least we should invest the amortization of the portfolios. The reinvestment will secure our income stream going forward and of course, some organic growth should also be anticipated. As we said previously, we also intend to invest more, but not using our own balance sheet, but using joint venture partners to grow our business that way.
Good. We have a few questions from some investors. This is from Arne Reinemo related to the secured portfolios.
First of all, he congrats with a good collection in the quarter. How should we think about the level of collection? It has increased from NOK 279 million in Q2. Is it catch-up or should we think about it as new higher level?
Was that the NOK 279 million?
No, it has increased from NOK 279 in Q2.
Oh, okay. Okay.
According to him. Is this catch-up or should we see this as a new higher level?
We can see that it is bumpy. I think he refers to secured asset at that point in time. If you look at secured, we had NOK 240 million in cash collection, and then we had NOK 400 million repossessed asset in the quarter. Going into October, we see that collection has been quite good and above the curves for secured collections. I think it will vary because we have some claims that might be coming in the fourth quarter, and one might be coming in the first quarter. It will be bumpy, but I see it a little bit higher going forward in 2021. Q4 is too early to tell.
A question from Ola Storsberg related to the forward flow agreements.
How are the prices of forward flows in the Nordics developing and price levels?
Generally, we have seen that the market has experienced COVID-19, and the prices and uncertainty of actually forecasting the cash flow forecast has increased somewhat the uncertainty, and therefore also the prices related to portfolio purchase has been going down somewhat to take this effect into effect. The price has gone down. We anticipate the prices to be down for some time. Then, of course, the increased volume is definitely also going to be positive going forward.
We have a few questions from Magnus Rasmussen at Swedbank.
I think we more or less answered this one, but, "What can you say about portfolio purchases? Will you continue purchasing just according to forward flow volumes, also in the coming quarters?
In Q4, we will have mainly forward flows and then maybe some one-offs also. Going into 2021, we will see both. We have seen quite a few tenders coming out. Some has been taken away from the market, but the number of tenders in this quarter was low. The number of tenders coming into Q4 is going to be higher, and therefore also the possibility of doing a good investment in Q4 will be there. We do have good liquidity situation, and therefore we will most likely also try to do some good purchases when opportunities when it comes.
An additional question from Magnus.
You say that market value of collateral assets are usually higher than what you put on your balance sheet. How come then that cost of collateral assets sold has been higher than the revenue from collateral assets sold for the last couple of quarters? Should we expect to see the opposite going forward?
Yeah. You will expect to see the opposite. What we see, actually assets sold, we have been having a profit. We did a small revaluation of some of the claims going back that was put on our books historically that we needed to adjust somewhat. The claims that we're putting on the balance sheet today is definitely a liquidity value, and we would expect the values of those when sold is going to be higher than the book value.
Very good. Since we have a bit more time, we will allow even an additional question from Rickard Hellman.
Will you still target leverage below 3x with the new definition of a cash EBITDA?
Yeah. What you will see with the new definition of leverage ratio is at 3.24. With the old one, we would already be below three. What we see going forward over next quarters and going forward, you will see that we are coming below three quite soon again. I anticipate that us to be below three, yeah.
Good. The final question so far which is something we like to talk about. "Looking at the recent purchases, it seems focus is slowly but steadily shifting towards certain key markets. Is there a strategy to reduce exposure to more complicated CEE, SEE markets?
Well, what we said already is that we're going to increase our focus on some core markets and also get a scale effect from those markets. Naturally then where we have the largest collection both in Finland and in Sweden and in Poland and some of the other countries that have scale effect, we will do that. We will also invest other places, but quite a bit of if it comes to secured portfolios, we will do that in joint ventures. Over the past quarters and also in the coming quarters, we will increase our investment in unsecured portfolios in key markets.
Very good. I think that was what we had of questions. If we have any additional questions, you can send them to me. You will find my email and phone number on our webpage. With that, Erik, we can conclude.
Thank you very much.