Axactor SE: Third quarter 2021 financial results
Axactor SE (Axactor, OSE: ACR) delivered total income in this year’s third quarter of EUR 46.7 million, down 25% from the same period last year (62.3) as debtors prioritized private consumption, including summer holiday expenses, over repayment of debt when European societies re-opened post Covid-19. As a result, EBITDA ended at EUR 10.4 million, down from EUR 30.3 million in the third quarter 2020, equivalent to an EBITDA margin of 22% (49%).
“It has been both surprising and worrying to witness how quickly people discarded the financial cautiousness they demonstrated throughout the pandemic. We believe that their ability to repay debt has improved, but people’s willingness to do so seems to have deteriorated significantly after they received their vaccines and societies re-opened this summer. Put bluntly, private consumption was chosen over repayment of existing debt. This weakened Axactor’s third quarter figures but will – ironically – strengthen our future outlook as the increased consumer spending is likely to generate higher volumes of defaulted debt,” says Johnny Tsolis, CEO of Axactor.
Axactor delivered gross revenues of EUR 78.1 million in the third quarter, a decrease of six percent from the same quarter last year (83.3). Total income in this year’s third quarter was EUR 46.7 million (62.3 million). EBITDA* was EUR 10.4 million (30.3) and cash EBITDA* ended at EUR 50.8 million (56.1). Operating profit (EBIT) was EUR 8.1 million in the third quarter (27.7). Net profit ended at EUR -5.4 million (6.5).
Good cost control cushions the income shortfall, with positive impacts from the ongoing cost saving program. Estimated annualized savings realized by the end of the third quarter was higher than estimated at EUR 5.1 million, while expected annual savings at the end of 2021 stands at EUR 5.6 million. A total of EUR 0.3 million of restructuring cost was booked in the third quarter. The cost reduction program is expected to reach full P&L-effect in Q4.
Nevertheless, the weak quarterly financial result is explained by two main factors. Firstly, debtors prioritized private consumption over repayment in a quarter of society re-opening. Secondly, this leads to NPL (non-performing loans) underperformance compared to active forecast and negative revaluations on NPL, in line with relevant accounting principles.
NPL investments ended at EUR 32.0 million for the quarter, down from EUR 34.6 million last year, but up from EUR 12.3 million in the previous quarter. Axactor expects investments to increase above the replacement level for the coming quarters, although only in line with the Group’s strategy and at attractive prices. If portfolio prices reach unattractive levels, Axactor will prioritize deleveraging over NPL investments.
“Despite seeing a soft third quarter result, we are pleased that NPL investments are now picking up again after a low-point in the second quarter. At the same time, the headroom towards our bond covenants have also increased. We will continue to remain price disciplined and invest only in portfolios that are attractively priced and well suited to our strategy”, adds Johnny Tsolis.
Axactor targets improved return on equity over time, based on increasing economies of scale, changes in the business mix, reduced funding cost and the gradual blending in of lower NPL Portfolio prices. The annualized return on equity excluding non-controlling interests for the third quarter 2021 was -3.3% (4.9%).
BUSINESS SEGMENT UPDATE
Axactor operates in two main segments: non-performing loans (NPL) and third-party collection (3PC). The REO (real estate owned) segment is treated as a run-off scenario and is expected to steadily decline over time.
NPL total income of EUR 27.9 million fell 32% compared to the third quarter last year (40.9). This was driven partly by the negative revaluations booked in the quarter, partly by lower collections and partly by increased amortization rates. Gross revenue for the NPL segment decreased 4% compared to last year, ending at EUR 59.3 million (61.9). In addition, the investments in NPL portfolios have been below the replacement level for the past months, causing the NPL book value to decrease and contributing to the fall in gross revenue.
Total income for the 3PC segment ended at EUR 10.9 million for the third quarter 2021, down from EUR 11.3 million during the corresponding quarter last year. In addition to the reduced collection due to a lower willingness to pay, the 3PC segment still suffers from less volumes than normal. There are still some moratoriums and grace periods active in Southern Europe, and where they have been lifted there is a time lag before claims run into default and are subsequently transferred to debt collection. Both these effects are expected to gradually return to a pre covid-19 level over time.
“The 3PC market is improving with an increasing pipeline. We also expect volume reversion as default rates increases again, particularly after the consumer spending spree we witnessed this summer,” says Johnny Tsolis.
Outlook
Axactor expects debtors’ willingness to settle their debts to increase over the next months. The higher consumer spending is also likely to generate higher volumes of defaulted debts, although there is uncertainty related to the timing of defaults.
The market for NPL portfolios is still increasing, although at a slower pace than previously anticipated. Axactor aims to increase its NPL investment level for the coming quarters. However, the Group will only do so at attractive price levels in line with the Group’s strategy. If prices are considered too high, Axactor will reduce its investment level and focus on deleveraging instead. During the third quarter Axactor refrained from following biddings to unattractive levels in some of the processes Axactor attended. Total expected NPL investments for the fiscal year 2021 are thus reduced to approximately EUR 150 million, although still highly dependent on closing significant one-off transactions in the fourth quarter.
For the cost savings program initiated in the first quarter 2021, Axactor has increased its expected annual savings from EUR 5.2 million to EUR 5.6 million.
*EBITDA and other alternative performance measures (APMs) are defined and reconciled to the IFRS financial statements as a part of the APM section on page 32 of the third quarter 2021 financial report.
Live presentation and webcast
Axactor will present its interim third quarter 2021 financial results today at 08:30 am (CET). The presentation will take place at Hotel Continental, Stortingsgata 24/26, Oslo. The presentation will be held in Norwegian. For attendance at Hotel Continental please send an e-mail to mette.bentsen@axactor.com.
In addition, there will be a global investor webcast with a live Q&A session at 10.00 (CET). The webcast will be held in English and can be accessed through the following URL: https://streams.eventcdn.net/axactor/q3-2021/ or through participant dial-in:
Denmark: +45 78 72 32 51
Norway: +47 23 96 36 88
Sweden: +46 850 55 83 65
United Kingdom: +44 333 300 9273
United States: +1 646 722 4904
For additional information, please contact:
Johnny Tsolis, CEO, Axactor, tel: +47 913 35 461, e-mail: johnny.tsolis@axactor.com
Kyrre Svae, Chief of Strategy & IR, Axactor, tel: +47 478 39 405, e-mail: kyrre.svae@axactor.com
This information is considered to be inside information pursuant to the EU Market Abuse Regulation and is subject to the disclosure requirements pursuant to Section 5-12 the Norwegian Securities Trading Act. This stock exchange announcement was published by Kyrre Svae, Chief of Strategy & IR at Axactor SE, on 27 October 2021 at 07:00 CET.
Attachments:
Quarterly Report Q3 2021 (pdf)
Axactor Q3 2021 Presentation (pdf)
About Axactor
Axactor Group is a next-generation debt management company operating in Norway, Sweden, Finland, Germany, Spain and Italy with an ambitious growth strategy. Axactor acquires and collects on own portfolios of non-performing loans and also provides debt collection for third parties. After only five years in business, external analysis show that Axactor already has an industry leading cost-to-collect ratio on NPL. The company has approximately 1,100 employees.
To learn more, visit www.axactor.com
