Bff Bank Spa · MIL:BFF
Bff Bank Spa — H1 2020 Earnings Presentation
49 slides from Bff Bank Spa's earnings presentation, September 2020
Slide 1: Investor presentation and 1H 2020 results
Investor presentation and 1H 2020 results September 2020 A Bank Like No Other® 00
Slide 2: Disclaimer
Disclaimer This presentation may contain written and oral "forward-looking statements", which includes all statements that do not relate solely to historical or current facts and which are therefore inherently uncertain. All forward-looking statements rely on a number or assumptions, expectations, p
Slide 3: Table of Content
Table of Content 1. 1 year after Business Plan: delivering the vision 2. DEPObank acquisition: preparing the integration 3. 1H 2020 results: beating the virus 4. Annexes 22
Slide 4: “BFF 2023” – A Leading Specialty Finance Bank Built with Discipline
“BFF 2023” – A Leading Specialty Finance Bank Built with Discipline “BFF 2023” Banking group leader in specialty finance niches in Europe, leveraging on its leadership position Vision in financial services to the suppliers of PA and HC ▪ Operating with honesty and transparency, respecting and valuin
Slide 5: A rock-solid business
A rock-solid business Highly Capital Generating Significant Deferral of Essentially No Credit Model Income Losses on Factoring 38% €414m Zero on Public sector Adj. Return on Tangible Equity off-balance sheet back-book income reserve €5.5m(1) (unrecognised stock of LPIs) >10% cumulated last 13 years,
Slide 6: Built over 35 years of serving HC and PA suppliers
Built over 35 years of serving HC and PA suppliers 1985: Established by a 2013: Turning 2016: Acquisition 2017: becomes BFF 2019: acquisition of 2020: announced group of pharmaceutical point, becomes a of Magellan Banking Group and IOS Finance, acquisition of companies bank lists on the Italian lead
Slide 7: Three main Business Lines
Three main Business Lines 1 2 3 Financing and Non- Credit Collection Non-recourse Factoring in Southern Europe Recourse Factoring in CEE Management (i.e. Servicing) % on total 74% 23% 3% revenues(1) 4% 1% 0.04% 3% 1% 8% Volumes by 30% geography 65% 96% 92% Italy Spain(*) Portugal Greece Croatia + Fr
Slide 8: Proven ability to execute organic growth and M&A
Proven ability to execute organic growth and M&A Customer Loans Adjusted Net Income (€bn) (€m) BFF (excluding Polska) 3.2 79 Strong 47 ▪ Extended factoring activity from HC only to entire PA in Italy 1.1 organic ▪ Expanded greenfield from 2 to 6 countries across HC and PA growth 2013 2019 2013 2019
Slide 9: Strong barriers to entry in our market…
Strong barriers to entry in our market… ▪ Strong customer loyalty from large and multinational companies Large and ▪ Opportunity to leverage customer relationships across geographies Stable Top 10 clients with BFF on ▪ Constantly present and able to serve clients also in times of stress (i.e. 2011-1
Slide 10: …With revenues coming from both suppliers and debtors
…With revenues coming from both suppliers and debtors Public Sector Suppliers (BFF’s Clients) Public Sector Entities (BFF’s Debtors) ▪ Leading multinational and national suppliers ▪ Debtors are PA in the EU of the public sector − Central government entities (i.e. For illustrative purpose only minist
Slide 11: With excellent growth opportunities ahead
With excellent growth opportunities ahead Organic growth opportunity > 10% p.a. volume and loans growth Long-Term Public Expenditure Increase Market Penetration New Markets Growth Growth on the back of HC and public Only c. 10% of €270bn PA invoices Potential new PA markets account for expenditure g
Slide 12: Infrastructure, Funding and Capital ready to support growth
Infrastructure, Funding and Capital ready to support growth 1 Invested in the business for Significant investment in infrastructure and expanded employee base to support growth growth ... 2 ... with plenty of Ample excess liquidity (LCR >400% at YE19) and access to multiple deposit and wholesale ava
Slide 13: Disciplined approach to value-creation M&A
Disciplined approach to value-creation M&A Adjacent sectors Existing business New niche markets 2016 2019 2020 Targets profile: Targets profile: ▪ Operating in niche business not ✓ ▪ Operating in the same businesses of BFF or in adjacent sectors covered by traditional banks ▪ Attractive asset yield
Slide 14: Delivering the vision set in “BFF 2023” Strategy
Delivering the vision set in “BFF 2023” Strategy 2023 STRATEGIC GOALS ACHIEVEMENTS IN 2Q 2020 ACHIEVEMENTS IN 2H 2019 AND 1Q 2020 ANNOUNCED IN JUNE 2019 DURING COVID-19 PANDEMIC ▪ Received the authorizations to ▪ Further strengthened the leadership position in Italy, open a branch in Greece, with a
Slide 15: Table of Content
Table of Content 1. 1 year after Business Plan: delivering the vision 2. DEPObank acquisition: preparing the integration 3. 1H 2020 results: beating the virus 4. Annexes 14 14
Slide 16: Key pillars of DEPObank acquisition
Key pillars of DEPObank acquisition Key benefits of the Transaction ✓ ✓ Addition of fee-based income → 30% of combined entity’s revenues from securities services and payments business ✓ ✓ Access to a significant and low cost funding base → c. €7.5bn currently invested in low/negative yield assets ✓
Slide 17: DEPObank: specialized player in Securities Services and Payments businesses
DEPObank: specialized player in Securities Services and Payments businesses Diversified revenue mix among Securities Services, Payments and Treasury (1) Total Gross operating Customer Revenues (€m) margin (€m) FTEs (#) deposits (€bn) 139 42 363 7.5 ` Treasury function manages the liquidity generated
Slide 18: ~€7.5bn of liquidity invested in Italian Government bonds and ECB deposits
~€7.5bn of liquidity invested in Italian Government bonds and ECB deposits available to fund BFF’s low risk and short-term credit business Key considerations DEPObank liquidity as of 31/12/2019 (€bn) ▪ DEPObank’s liabilities mainly consist of BFF cost of funding customer deposits for €7.5bn. Such li
Slide 19: Capital neutral approach in M&A confirming BFF’s disciplined approach
Capital neutral confirming BFF’s disciplined approach in M&A No impact on BFF’s Total Capital ratio: both the shares to be issue in the context of the merger and the badwill generated by the Transaction are expected to cover the capital absorption @ 15% TC ratio target. Positive impact on Tier 1 rat
Slide 20: Significant value creation, with €25-35m run-rate synergies…
Significant value creation, with €25-35m run-rate synergies… Pre-tax annual run rate synergies (€m) Key initiatives Funding synergies ▪ Deployment of DEPObank’s liquidity (c. €7.5bn at YE19) to fund BFF’s Euro business Funding Equal to 20-30bps over DEPObank − Current BFF funding lines assumed to be
Slide 21: Progressing towards Closing as scheduled
Progressing towards Closing as scheduled 13-May-20 ✓ Signed the binding Agreement for the acquisition of DEPObank 24-Jun-20 ✓ Approval of the Merger plan by BFF and DEPObank’s Board of Directors 30-Jun and 7-Jul 2020 ✓✓ Clearance of Antitrust and Golden Power 4Q 2020 Relevant Supervisory authorities
Slide 22: Post DEPObank merger: One of the few Italian Public Companies
One of the few Italian Public Companies BFF shareholding structure Shareholding structure ▪ One of the few Italian public companies, with 88% 4.3% Management(1) free float (doubled vs. 44% at IPO), of which c. 4% 11.9% held by management BFF Luxembourg Today (Centerbridge) 83.7% ▪ In the context of
Slide 23: Table of Content
Table of Content 1. 1 year after Business Plan: delivering the vision 2. DEPObank acquisition: preparing the integration 3. 1H 2020 results: beating the virus 4. Annexes 22 22
Slide 24: 1H 2020 results: beating the virus
1H 2020 results: beating the virus 2019 Dividend ▪ On 27th and 28th July 2020, both the European Central Bank and Bank of Italy, issued new recommendations requiring no distribution at the dividend payments until 1-Jan-21 earliest date ▪ Today the Board of Directors acknowledged the ECB/BoI recommen
Slide 25: €40m Adjusted Net Income, with lower LPI over-recoveries and increased NPL coverage
€40m Adjusted Net Income, with lower LPI over- recoveries and increased NPL coverage Adjusted Net income(1) (€m) ▪ Adjusted Net Income flat y/y at €40.2m vs. Adjusted €41.2m in 1H19, despite (i) net LPIs over-recovery RoTE(2) 32% 33% 30% Reported €2.6m lower than 1H19, with €3.7m lower LPIs 41 40 ca
Slide 26: Growing Interest Income and LPIs stock
Growing Interest Income and LPIs stock Adjusted Interest Income (€m) ▪ 1H20 Interest Income at €117m, +7% y/y vs. Ann. Customer interest 1H19, despite €2.6m of lower net LPIs over- 7.1% 6.0% 5.7% income/loans(2) recovery(1) accounted in P&L vs. previous year 10.8% 9.8% 9.8% Adj. interest income/RWAs
Slide 27: Cost of Funding at 1.60%
Cost of Funding at 1.60% ▪ Interest expenses increased at €26m (+15% y/y), due Adjusted Interest expenses (€m) to: – the increase of average drawn funding from €3.2bn Average funding lines to €3.6bn, with more online deposits and less other used (excluding 2,607 +22% 3,176 +14% 3,607 REPO, €m) whole
Slide 28: Single digit growth of Adjusted Net Interest Income and Net Banking Income
Single digit growth of Adjusted Net Interest Income and Net Banking Income ▪ Adjusted Net Interest Income and Adjusted Net Adjusted Net Interest Income (€m) Banking Income +5% y/y vs. 1H19, with: Ann. RoRWA (1) 8.7% 7.7% 7.6% Ann. Net customer 5.5% 4.6% 4.2% int. income/loans(2) - €2.6m of lower net
Slide 29: Good operating efficiency despite continuous investment in growth
Good operating efficiency despite continuous investment in growth Operating Costs(1) (€m) ▪ Highly efficient structure with Adjusted Operating Adjusted Operating 2.29% 2.01% 2.03% Costs (1,2)/Loans (3) Costs(1,2)/Loans ratio of 2.03% in 1H20 vs. 2.01% in Adjusted (1,2) 38% 40% 42% 1H19 and 2.29% in
Slide 30: Double digit growth in Customer Loans
Double digit growth in Customer Loans ▪ Strong growth in customer loans at €3.8bn (+10% y/y) throughout Customer Loans Evolution (€m) the Group: +11% at constant − Italy grew by 2% y/y Euro/Zloty FX rate − Spain +100% y/y excluding IOS Finance for 1H19 (+21% y/y 3,789 including IOS Finance for 1H19)
Slide 31: Double digit growth in New Business Production
Double digit growth in New Business Production Total New Business Volume (€m) ▪ New business grew by 29% y/y with volume at €2.5bn in 1H20: BFF Polska Group (€m) 324 − Resumed growth in Italy (+3% y/y) 2 279 17 3 247 28 1 − Spain +132% y/y excluding IOS 2,541 2 Finance for 1H19 (+39% y/y 324 305 Cze
Slide 32: Strong liquidity and no ECB financing
Strong liquidity and no ECB financing Available Funding(2,3) (€m) ▪ Significant increase in available funding at €4.1bn, +16% y/y LCR 250.8% 499.1% 520.1% − €0.7bn(1) excess liquidity (undrawn credit lines), +66% y/y, which provides higher flexibility of BFF’s balance NSFR 111.3% 107.4% 107.9% sheet
Slide 33: Fortress balance sheet
Fortress balance sheet ▪ Customer loans funded through a well diversified funding Breakdown of Balance Sheet 1H 2020 (€m) base Leverage ▪ Conservative asset / liability management Ratio 4.5% ▪ Natural currency hedge: forex assets funded with forex liabilities 5,923 5,923 Other 247 Other 181 ▪ Govern
Slide 34: Negligible credit risk
Negligible credit risk ▪ Net NPLs excluding Italian municipalities in conservatorship Net Non Performing Loans Evolution (€m) down to €3.2m (-37% y/y and -25% vs. YE19) and 0.1% of net loans, with a 81% coverage ratio up from 75% at YE19 NPL Ratio 1.3% 1.5% 1.7% ▪ Increase in total Net NPLs entirely
Slide 35: Strong capital position, with €108m of dividend capacity
Strong capital position, with €108m of dividend capacity ▪ Total Capital ratio at 15.7% and CET1 ratio at Total Capital Ratio - Banking group ex TUB(1) 11.5%(1) excluding: SREP requirement Under the Standard Model, the incl. CCB risk weighting factors for CET1 11.6% 10.9% 11.5% 7.85% exposures to NH
Slide 36: Table of Content
Table of Content 1. 1 year after Business Plan: delivering the vision 2. DEPObank acquisition: preparing the integration 3. 1H 2020 results: beating the virus 4. Annexes 35 35
Slide 37: 2019 Dividend not included in the regulatory capital and ready to be paid-out
2019 Dividend not included in the regulatory capital and ready to be paid-out as soon as possible Timetable for 2019 Dividend distribution ▪ BFF dividend policy is capital protective: no dividends are distributed unless Total Capital ratio is in excess of 15%, and 27-Mar-20 BFF chose “Option ECB ask
Slide 38: COVID-19 Governments’ measures have not had material impacts on BFF (1/2)
COVID-19 Governments’ measures have not had material impacts on BFF, besides lower LPIs collections (1/2) ▪ No significant impacts for BFF because of COVID-19 pandemic, besides lower LPI over-recoveries. Lower tax collection by local entities, PA working by remote, and courts’ lockdown, delayed (i)
Slide 39: COVID-19 Governments’ measures have not had material impacts on BFF (2/2)
COVID-19 Governments’ measures have not had material impacts on BFF, besides lower LPIs collections (2/2) Countries Government liquidity measures to face COVID-19 pandemic Expected impact for BFF 1) Slight decrease of PA DSOs and 1) In 1H20 Government issued a cash injection for regions (FLA – fondo
Slide 40: Focus on deferral income and net over-recovery of LPIs collection
Focus on deferral income and net over-recovery of LPIs collection Deferral Income of LPIs collection ▪ BFF prudently recognizes in P&L on an accrual basis only 45% of LPIs Outstanding Evolution (Excl. BFF Polska Group) (€m) legally due (discounted over 1800 days, i.e. 5 years horizon). 45% is the LP
Slide 41: Non-recourse Volume (1/2)
Non-recourse Volume (1/2) Non-recourse growth Volume (€m) 1H20 vs. 1H19 Italy 1H 2018 861 504 27 1,392 1H 2019 855 439 43 1,337 +3% 1H 2020 902 428 43 1,374 Spain 1H 2018 101 217 170 489 1H 2019 122 191 211 524 +39% 1H 2020 465 263 728 NHS P.A. Other IOS Finance 40 40
Slide 42: Non-recourse Volume (2/2)
Non-recourse Volume (2/2) Non-recourse growth Volume (€m) 1H20 vs. 1H19 Portugal 1H 2018 65 0 65 1H 2019 51 0 51 +51% 1H 2020 76 1 77 Greece 5 1H 2018 4 0 +58% 1H 2019 18 3 21 1H 2020 29 4 33 Croatia 1H 2018 0 1H 2019 00 N.a.% 1H 2020 0.3 France 1H 2018 N.a. 1H 2019 N.a. N.a.% 1H 2020 5 5 NHS P.A. O
Slide 43: New Business Volume
New Business Volume New Business growth New Business (€m) 1H20 vs. 1H19 Poland 1H 2018 216 27 5 248 1H 2019 211 34 0 244 +25% 1H 2020 225 80 305 Slovakia 1H 2018 25 2 28 1H 2019 20 2 +722% 1H 2020 16 1 17 Czech 1H 2018 3 Republic 1H 2019 1 +41% 1H 2020 2 Healthcare Local Government Commercial Factor
Slide 44: Traditional business subject to seasonality, with peak in 4Q
Traditional business subject to seasonality, with peak in 4Q Loans Evolution by Quarter (€m) 1Q 2Q 3Q 4Q BFF Polska Group IOS Finance 4,118 137 3,738 3,789 3,583 3,563 3,461 3,454 96 890 3,026 760 859 882 3,018 2,878 3,000 767 794 849 2,499 2,531 2,5572,596 627 647 702 3,090 2,270 2,319 2,212 619 2,
Slide 45: Adjusted Net Income reconciliation
Adjusted Net Income reconciliation €m 1H18 1H19 1H20 Group BFF Reported Net income 41.3 38.1 37.5 Exchange rates movement (offset at the comprehensive income and equity level) (2.8) 0.8 (2.7) Stock Options & Stock Grant 0.9 1.3 1.1 Extraordinary Resolution Fund contribution 0.5 0.5 0.5 M&A costs 0.6
Slide 46: Summary Profit & Loss
Summary Profit & Loss 1H18 1H18 1H18 1H19 1H19 1H19 1H20 1H20 1H20 Reported Adjustments Adjusted Reported Adjustments Adjusted Reported Adjustments Adjusted Interest Income 108.3 108.3 108.6 108.6 116.5 116.5 of which interest income calculated using the effective interest rate method 93.7 93.7 100.
Slide 47: Summary Balance Sheet
Summary Balance Sheet 1H18 1H19 1H20 Reported Reported Reported Cash and cash Balances 38.6 36.1 111.2 Financial assets measured at fair value through profit or loss 0.0 0.0 0.0 a) financial assets held for trading 0.0 0.0 0.0 b) financial assets designated at fair value 0.0 0.0 0.0 c) other financi
Slide 48: Breakdown by quarter – BFF Banking Group
Breakdown by quarter – BFF Banking Group Adjusted Values 2018 2019 2020 Data in €/m 1Q 2Q 3Q 4Q FY 1Q 2Q 3Q 4Q FY 1Q 2Q Interest income 53.4 54.9 49.3 74.0 231.6 55.9 52.7 55.3 85.1 249.0 57.4 59.1 Interest expenses (11.3) (10.1) (10.3) (11.2) (42.9) (11.5) (11.3) (12.3) (13.5) (48.4) (14.1) (11.9)
Slide 49: Asset quality
Asset quality 30/06/2020 €/000 Gross Provision Net Total non performing 79,743 (14,156) 65,588 Total unlikely to pay 18,350 (2,283) 16,067 Total past due 49,915 (1,048) 48,868 Total 148,008 (17,487) 130,522 30/06/2019 €/000 Gross Provision Net Total non performing 57,016 (11,805) 45,211 Total unlike