Good morning, and welcome to Q1 presentation 2021 for B2Holding. I'm Erik Johnsen, CEO of B2Holding, and together with me today, I have André Adolfsen, CFO of B2Holding. First quarter was a good quarter for B2Holding, as presented in our update fourth of May. Fantastic cash flow and B2 continued to strengthen the financial position in the quarter. We go straight to the highlights of Q1. Looking at the highlights for the quarter, we had good operation in all of our markets. Strong momentum in secured recoveries, both in cash and REO recoveries. The transformation that we experienced the previous quarters in our secured team has continued in Q1. The REO sold was done to above book value in the quarter, and we expect this to continue also forward. The unsecured recoveries continue to outperform the curves.
The digital transformation, as well as advanced analytics, a direction set in 2020, are starting to show results through concrete deliverables. The foundation set in 2020 is following the plan and has already delivered various projects across the group with promising results. We have a continued cost focus in the group and the cost savings that we have experienced in 2020, we expect also to continue in 2021. With higher activity, we also see that there will be some higher costs at some places, but we do still believe that we will have permanent savings going forward. The good cash collection and recoveries, together with cost discipline, generated very good cash flow for the group. We have a low investment as predicted, but B2 is ready to increase purchases, grow, and take advantage of opportunities in the coming quarters.
In particular, latter part of 2021, when we expect also there is coming more portfolios to the market. The cost of capital is coming down. We've repaid one bond already. We anticipate this to continue. Going into Q2, we see that our collection is still very strong and performance so far is very good. Let's go over to the key figures. As I said, the gross collection, NOK 1.5 billion, we're very satisfied with, both in secured and unsecured markets. The cash EBITDA was a little bit over NOK 1 billion. The net profit was NOK 130 million, corresponding to an earnings per share of NOK 0.32. Should be mentioned also here, the book value per share is NOK 11.3. André will share more numbers with you later and go through the more details later. Moving to the business update.
We experienced low transaction activity in Q1, largely a result of government schemes such as payment holidays. Caps on interest rates introduced in several of the markets in 2020 caused temporary reduction in consumer lending and respective NPL volumes. These limits are expected to be lifted at the end of 2021. Credit risk for the banks has increased at the end of 2020, and loans under moratoria or public guarantee schemes stood at EUR 660 billion at the end of 2020. Due to this, together with already existing NPL volumes in the banks, we expect significant rise in NPL activity late 2021 and into 2022. Now over to in Q4 presentation, we mentioned our commitment to ESG. As part of our increased commitment to sustainable development, B2 Holding reviewed its former materiality analysis in Q4 2020. It identified needs and requests from different stakeholders.
It present the first step toward what will be the ESG strategy for the next three years that will be approved by the board. The annual report for 2020 included first time a sustainability report published based on GRI standards. Furthermore, we also initiate process of ESG rating that will help the group fulfilling stakeholders' expectations. B2Holding ESG focus has been put in practice with our support of the 10 principles of the United Nations Global Compact which we are a participant from February 2021. The group will prioritize collaborative projects, particularly in those SDGs that we believe we can have great impact. Now over to the core priorities going forward. On the operations side, we have, one, continue to build on the positive development in the secured space, both with respect to secured recoveries and REOs.
In the unsecured space, we continue to focus on delivering on our strategy where the target is operational efficiency and effectiveness in our collections using such tools as digitalization and artificial intelligence as part of the package. Number three, keep the cost control and cost savings that we have delivered on over the past quarters and also keep on delivering on those going forward. In terms of investments, we have strengthened the balance sheet. We are prepared for improved market condition and investment volumes. JV and co-investment structures to further optimize risk exposure and diversify revenues are still a focus in the group. Finally, improve and implement the group ESG strategy as earlier talked about. With that, I hand over to you, André, to go through the financial numbers.
Thank you, Erik. First of all, pleased to be here today to present yet another very solid quarter for the company. We've seen notable improvements throughout the group in the quarter. I just want to use the opportunity to tell all the employees out there that we really appreciate the strong efforts you made in order to deliver these results. Looking a bit more into the financial details of the quarter. Gross collections, as Erik mentioned, came in at approximately NOK 1.5 billion, up 4% compared to last year. In constant currency, the number was up more than 7% compared to last year. Looking into the details of the asset classes, unsecured collections continued to perform strongly with 101% of the latest forecast, which is a seasonally very strong performance.
Secured collections made up a larger part of the business mix in the first quarter of this year compared to last year, coming in at NOK 520 million of collections, of which NOK 203 million were repossessions. Unsecured collections usually make up a larger percentage in terms of amortization. Consequently, we saw the reported revenue up 1%. Cash revenue was up 4%. Adding to the strong cash metrics, we also saw in the quarter that we were able to sell REOs or collaterals on our balance sheet of NOK 28 million compared to a book value of NOK 19 million, which translates into a premium to book value of 47% in the quarter. Cash EBITDA was consequently up 15% compared to last year with a margin of 71%, up from 65% last year and 67% sequentially.
EBIT was up 30%, very much driven by the continued cost focus, as Erik mentioned, and improved scalability in many of our markets. Costs were down 12% in constant currency while collections were up 7%, demonstrating that we have improved scalability in our markets during 2020. In the quarter, we continued to show price discipline in terms of investments and invested NOK 192 million in the quarter. Cost of debt came down compared to Q4 last year with NOK 25 million lower interest driven by buybacks that we had last year and also repayment of bond number one in Q4. With the strong cash development we've seen, we've been able to take down leverage from 3.04 in the fourth quarter of last year to 2.62 in the first quarter of 2021. Moving to the next slide, we elaborate a bit more on the collection performance in the quarter.
As mentioned, unsecured performance continued to show stable and strong performance, delivering 101% of the latest forecast in the first quarter and 99% of the forecast over the last 12 months. More importantly, we continued to see strong performance also going into the second quarter. Comparing to last year, we saw that unsecured collections increased slightly in constant currency despite lower investment level. We are very pleased to see the strong development we've had in secured collections. You can see on the bottom left, on the blue part of the chart, that cash collections had a positive trajectory throughout last year, but we had a significant improvement also in the first quarter. As you may recall, in the fourth quarter, we mentioned a couple of payments which were delayed, and we're very happy to see that we were able to deliver those in the first quarter.
In terms of REOs sold, I mentioned that we were able to sell REOs of NOK 28 million in the quarter, which translates into a 47% premium to the book value. We want to highlight that we expect the pace of sale of REOs to continue into the second quarter and improve over the levels we saw in the first quarter at a comfortable premium to the book values. We also expect REOs sold during the full year on a quarterly level to be above the level we saw in the first quarter. Moving to the next slide to elaborate a bit more on the cash metrics in the quarter. On the left, you can see the development of cash EBITDA to cash earnings adjusted for investments and financial obligations.
As you can see on the top right, the first quarter this year was clearly the strongest quarter in terms of cash earnings over the last five quarters. If we add back to the NOK 669 million of cash earnings, the NOK 192 million we invested, we had more than NOK 800 million of organic funding for investments in the quarter. As stated back in Q4 also, we continue to show a modest approach to investment, at least short- term, we have consequently taken down leverage to 2.6 from 3.04 in the fourth quarter last year. We expect the cash metrics and cash earnings to continue to show strong results in the coming quarters.
I want to highlight that because of the monetization we have on REOs and the strong secured performance we have currently, we should be able to invest on our own book without increasing leverage notably going forward. A bit more details on the cost side. As mentioned, costs were down 12% in constant currency, or NOK 62 million, compared to the first quarter of last year. Accumulated from the first quarter last year, this translates into NOK 265 million of savings also in constant currency. During the year of 2020, we have seen that the organization has been able to adapt very well to a new way of working. Going forward, we expect a lot of what we've learned throughout the year to continue to improve the scalability on the cost side and will definitely allow us to continue to deliver attractive yields with more scalability throughout the group.
Moving to the next slide, a bit more details regarding the investments in ERC. Investments, as mentioned, came in at NOK 192 million in the quarter. The distribution of that was mainly into unsecured forward flows in the Nordics and in Poland. We have seen activity picking up in the market. Short- term, we have seen that the market has not yet met an equilibrium in terms of volume and price. As Erik has highlighted, we do see activity picking up, and we expect higher volumes and more favorable market conditions during the second half of this year. In terms of ERC and the distribution, we are currently at 22% of the book in secured and 78% unsecured. If we add back the REOs we have under management, which is approximately NOK 1 billion, the distribution will be 25% secured and 75% unsecured.
Sequentially, the ERC came down, but I want to highlight that approximately 60% of that decline was related to FX. In the quarter, we showed an increase in collection despite lower ERC compared to last year. A bit more details on the capital structure and funding. Net debt in the quarter came down to NOK 9.9 billion from NOK 11.1 billion in the fourth quarter last year. The decline can be explained mainly by the strong cash earnings of NOK 669 million, but also FX effect of around NOK 500 million. A consequence of that and the bond buybacks and the repayment of bond number one we did in fourth quarter last year, interest expenses were down NOK 25 million sequentially, or NOK 16 million in constant currency.
We currently have full flexibility in order to take out bond number two and the strong liquidity reserve we have currently of NOK 360 million, together with the cash earnings we expect, provides us with more than enough firepower to take advantage of the favorable market conditions we expect going forward. With that, Erik, I leave the word back to you again.
Okay. Thank you. Let's go over to the summary. As André said and I said also, the Q1 numbers, the first quarter was very good despite normally at this point in time, the first quarter year normally is a little bit lower collection than other quarters in a year. Despite that, we had a very good collection in Q1, and the good thing is going into Q2, it looks like things are moving also forward and we're optimistic when it comes to Q2 the way things are moving now. We have a much stronger financial position and a strong financial cash flow to participate in what we see as a good market going forward.
Yes, we have been holding back a little bit on the investment, seeing that investment is good, but we anticipate also that new volumes are coming to market and that we will be able to participate in that market going into second half of 2021 and into 2022. All in all, the financial position and also the operations are in very good shape and we look forward actually participating in what we see as a good market going forward. With that, I think we open for Q&A.
Thank you both. We will start with questions. We will start with Joakim Svingen from Arctic. He has three questions. The first one will go to you, André, I guess. What level of repossessed assets do you expect the coming quarters?
That's a tricky question, Joakim. I think we can say that secured collections in general, we do expect it to have a positive trajectory compared to what we saw in 2020. Repossessions is, as you have seen in 2020, it fluctuates quite a bit between the quarters. In general, when we look at what we have on our balance sheet, I think what we should see going forward is that we will continue to increase the pace of sales and that the book value, going forward, will come down slightly on the REO side.
The second question, what should we read into the lower gross IRR, 17.4% in Q1 versus 20% in Q4?
I think I have to look into that in detail myself, to be honest.
We'll get back to Joakim on that after this presentation.
Okay.
The last question from Joakim. Do you expect similar OpEx development in Q2 and Q3?
In terms of cost, what we've seen so far in Q2 is the same development we've seen for the last quarters. In the second quarter, we should expect a similar cost level. We should also expect into the second half of this year, as investment activity picks up, we should expect to see an increase in legal and bailiff expenses related to investments and also improved collections. On the question related to gross IRR, I mean, the business mix definitely impacts that. We did have an increase in secured collections in the quarter and gross IRR may be impacted by the secured collection. The business mix definitely impacts that.
We have a question from Ulrik at Nordea. Two questions. First one is other operating costs down NOK 38 million year-on-year. What are these cost savings and are they sustainable?
Good question. I asked the same question. About NOK 20 million of that is related to consultancy and marketing expenses. I think what we have seen by doing deep dives into the countries is that many of these costs will not come back going forward. As I mentioned, the most important thing we are seeing today is that we can deliver increase in collections on the cost base we have today. Going forward, we expect to continue to deliver scalability on more platforms than we have seen historically. That development we have seen that continue in 2020. It's difficult to put a number on the NOK 38 million, how much will come back or not. But if you look into the cost savings.
Mostly the legal expense. This is what we expect to come back short- term.
We have a short question from Robin Rane at Kepler. This is for you, Erik. "No dividend for 2020?
Well, what the board has requested for the general assembly in the next hour is that they approve a potential dividend up to NOK 0. 32 per share. That is to give them flexibility. Now, it should be said that the board of directors believe this is prudent to preserve capital, improve group's financial solidity, and prepare the company for opportunities going forward. Whether it's going to be dividend or not is going to be also a question of the opportunities in the marketplace. As I said, the board of directors want to have these options, so in case they wanted to go out to the market to give a dividend, they don't have to go into an extraordinary general assembly and call for that. That's the reason behind that.
Good. We have a few questions from Vegard at Pareto. First question, "You expect investments to pick up in the second half, but what investment levels do you expect in Q2?
We don't guide on investment levels, so we'll not disclose that. I think the only thing we can say is that we will continue to be selective. In the first quarter, we saw activity picking up. We had opportunities to invest, but we decided not to go too far in terms of price, at least short term, as we expect more volume to come to market later.
Second question, "How much do you expect OpEx to increase with increased activity, for instance, by Q4 2021?
Yeah. As mentioned, I also forgot one thing in terms of the NOK 38 million in the question earlier. A lot of that is also related to premises and office costs. What we have seen is that we have been able to renegotiate a lot of contracts, and we've also already established a hybrid solution in terms of home office and office space going forward in many of the countries. Those costs will be sustainable, a large part of it at least. In terms of cost increases, what I have said is that that will be related to activity and legal expenses, and that is very much dependent on the activity level, if it comes from the secured side or from the unsecured side.
I think the overall answer to that is that we expect variable costs related to collections to increase, but we expect scalability on the cost level we have today.
We have actually a final question. Not too many questions today. This is from a shareholder. I think you have answered it already, but since we have time for this, I will present the question. This is from Ola Solberg. "What are the ambitions for further cost savings going forward, and what cost level should we expect in a more normal world?
The plan is not necessarily cost savings, is to be able to grow on the current cost base. That's what we intend to do. We see that the market is coming, and we will definitely be part of the growth in the market, and we expect to be able to do that without adding a significant amount of costs. We have scaled down costs to a level where we are quite happy with the cost base we have today, and we believe we will be able to grow on that cost level without increasing the fixed costs, but only the collection dependent costs, like I mentioned, legal and bailiff costs.
I think that's really important for B2. The programs that was initiated in 2020 had a focus on scalability. Scalability is something that we see as so necessary, it was a difference between the different countries. What we're trying to do now is implement all the programs in the different countries to also have scalability in all the countries. We had some scalability to a large extent in some countries than others. Now we see that we have scalabilities and more platforms. The cost levels that we have come down to, we are comfortable with. Also, as André said, it gives us the scalability also on those costs. Not necessarily fixed costs. It's not coming up. The variable costs will come up when activity takes up.
That was actually the questions we had. I guess that's what happens when you give a corporate update two weeks before the presentation. Some final words from you guys?
No. We are in a good position. B2 has strengthened its position both financially and operationally, and we are happy about the development. The market looks good. We see that the NPL levels are coming up, and we are in position to take advantage of that. We also see that our attention to joint venture partners are increasing that want to participate with B2Holding ASA, and thereby also have a higher scalability on our platforms. We are happy about the position that the development in 2020 going into 2021 and look forward to the rest of 2021, actually.
Very good. I think we will conclude the Q1 presentation. Of course, if anyone has additional questions, you can contact either André, Erik, or myself. Thank you very much.
Thank you.
Thank you.