B2 Impact Asa · OSL:B2I
B2 Impact Asa — B2Holding — Investor Day (November 2018)
76 slides from B2 Impact Asa's investor day presentation, Nov 28, 2018
Slide 1: Capital Markets Day 2018
Capital Markets Day 2018 B HOLDING’ Making each other better
Slide 2: Today's agenda
Today’s agenda Time Section Speaker 09:15-09:35 Introduction & strategy update Olav Dalen Zahl, CEO 09:35-09:50 Market update and outlook Rasmus Hansson, Director M&A and Investor Relations 09:50-10:20 Business Insight Erik J. Johnsen, CFO 15 minutes Coffee break 10:35-11:15 Portfolio and Investment
Slide 3: Introduction & strategy update
Introduction & strategy update Olav Dalen Zahl, CEO |3
Slide 4: Our vision
Our vision B2Holding shall be a leading player in the NPL industry in all our markets |4
Slide 5: Our mission: Making each other better
Our mission Making each other better Our customers Debt management Our partnerships Our expertise We find amicable We help manage We are a reliable We share expertise, solutions society’s debt business partner data and best problems for all stakeholders practice |5
Slide 6: Core values
Core values Trust & B2Gether Go For It Excellence Flexibility Integrity As a team we can achieve We have an entrepreneurial We strive for excellence in We will be flexible and agile We earn trust with our far more and get better mind-set, actively seeking all we do as people and organisation stakeho
Slide 7: Reliable business partner compliant with ethical standards
Reliable business partner compliant with ethical standards We act professionally We listen to people We follow laws and regulations We respect our clients, business partners, We restructure debt by finding amicable We abide by collector’s Best Practice Codes co-workers and investors solutions adapte
Slide 8: Grown organically and via accretive acquisitions of well-established platforms
Grown organically and via accretive acquisitions of well-established platforms Total ERC at 31 December NOK millions 20 608 15 264 9 489 4 430 6 492 NA 1 371 2012 2013 2014 2015 2016 2017 20181) Nov 2011: Apr 2013: Jan 2014: Jun 2016: Feb 2017: Mar 2018: B2Holding AS established Acquisition of Inter
Slide 9: Third quarter overview
Third quarter overview NOKm YTD Q3’2018 YTD Q3’2017 Change% Revenues 2,153 1,461 47 % EBIT 1,052 683 54 % EBIT margin 49% 47% 4% ERC 20,608 12,191 69% Gross Cash Collection 2,829 1,829 55% #FTEs 2,284 1,688 35% #Claims ~7.1m ~5.9m 20% Face value of portfolios ~152bn ~77bn 97% WE |9
Slide 10: Strategically well positioned
Strategically well positioned Nordic based NPL specialist with strong local presence in 23 European markets Access to the largest European NPL markets - Italy, France, Spain and Greece Well diversified both in terms of asset classes and geography Strong cost discipline and focus on operational effic
Slide 11: Strong and experienced Group management
Strong and experienced Group management Group functions Regional Directors Erik J. Johnsen Tore Krogstad Chief Financial Officer RD Scandinavia Danckert Mellbye Kari Ahlström Chief Org & Improvement RD Finland & Baltics Officer Jeremi Bobowski Maria Haddad Chief Investment Officer RD Western Europe
Slide 12: Track record of delivering on our strategy
Track record of delivering on our strategy Key developments since IPO Strategy in IPO-prospectus Focus on maturing markets with Entered seven new markets, including the four largest NPL markets in Europe higher IRRs and strengthen market Increased position in both growth and maturing markets in Euro
Slide 13: Supported by strong, profitable growth (1)
Supported by strong, profitable growth (1) CAGR Development in total gross ERC1 Total operating revenues NOK millions NOK millions 20,608 2,153 2,013 +37% +53% 15,264 1,396 9,489 1,076 6,490 4,430 510 1,371 232 2013 2014 2015 2016 2017 2018 2013 2014 2015 2016 2017 2018 9 months 9 months Cash EBITDA
Slide 14: Supported by strong, profitable growth (2)
Supported by strong, profitable growth (2) Gross cash collection on portfolios CAGR NOK millions 2,829 2,552 +38% 1,870 Steady increase in gross cash collection, based on good level of portfolio purchases and efficient collections 1,339 630 331 2013 2014 2015 2016 2017 2018 9 months Net profit NOK m
Slide 15: Established as one of top ten European debt collectors
Established as one of top ten European debt collectors European countries present (#) Estimated remaining collection (120m ERC, EURm) 24 4 202 23 3 318 23 2 848 14 2 728 11 2 211 10 2 166 7 1 930 6 1 925 5 1 674 5 1 514 Source: Company information and J.P.Morgan Credit Management Services Valuation
Slide 16: Aiming for operational excellence
Aiming for operational excellence IT Software Collection strategies The B2H Group experience effects from scalability and increased efficiency, but still room for further improvement. Focus areas to further increase efficiency and effectiveness: Digitalisation Improve collection strategies - E.g. B2
Slide 17: Pursuing a strengthened position through continued growth and increased efficiency
Pursuing a strengthened position through continued growth and increased efficiency Strategic directions 2018 - 2021 Take advantage of the large pipeline and market access to increase growth in our Growth within established markets established markets, while ensuring diversification No further ge
Slide 18: Financial targets for 2021
Financial targets for 2021 Assuming no new equity needed in the period ROI1 ≥ 14% ROE ≥ 20% Dividend ≥ 20–30% Net interest-bearing Debt/Cash EBITDA Leverage ≤ 3x Equity ratio ≥ 25% 1. ROI before tax, excl. overhead cost of B2Holding ASA Oslo and Luxembourg | 18
Slide 19: Market update and outlook
Market update and outlook Rasmus Hansson, Director M&A and Investor Relations | 19
Slide 20: Access to a vast opportunity set for the future
Access to a vast opportunity set for the future Coverage of 78% of the EU NPL stock across our 23 countries European 200 bank NPL per country1 50 EURbn 45% Total volume of banking NPLs in Europe exceed EUR 780bn. 180 - Italy, France, Spain and Greece, the four largest markets, account for ca. 45 65%
Slide 21: Good market diversity in B2Holding countries of presence
Good market diversity in B2Holding countries of presence Early phase Growth phase Mature phase • no or very limited NPL sales • sales exceed NPL formation • large share of NPL stock sold annually • wide bid-ask gaps • increasing competition across debt purchasers • low NPL ratio • weak quality of da
Slide 22: We are a major player in all our regions
We are a major player in all our regions Northern Europe Poland Western Europe Central Europe South East Europe Market position Top 3 Top 3 Top 10 Top 3 Top 3 ERC NOK 5.33bn NOK 3.42bn NOK 2.30bn NOK 5.68bn NOK 3.87bn 1% 8% 22% 23% % of ERC Secured 33% Secured vs. 8% Unsecured Secured Unsecured 67%
Slide 23: Macroeconomic snapshot
Macroeconomic snapshot Private sector debt1) as % of GDP CE and SEE regions have relative lower percentage of private sector debt as % of GDP than Western Europe Trend show increased activity in credit markets towards consumers in CE and SEE regions Source: Eurostat; 2017 data. 1) Eurostat definitio
Slide 24: Cumulative decrease in unemployment rate
Trends in key countries for B2Holding Change in GDP & unemployment in the last 2 years Top 10 countries possess more than 90% of Group total portfolio 40% (measured as % of ERC) Czech Republic Poland 35% Cumulative decrease in unemployment rate Strong cumulative GDP development in the core of our 30
Slide 25: Trends in key countries for B2Holding
Trends in key countries for B2Holding % of total portfolio ERC Development unemployment rate Northern Europe Top 3 countries Western Europe Top 3 countries Key countries possess almost 95% of 2016 2017 2018E 2016 2017 2018E Group total portfolio (measured as % of total portfolio ERC). 19,6% 8,8% 8,5
Slide 26: Business insight
Business insight Erik J. Johnsen, CFO | 26
Slide 27: Business insight
Business insight 1 Key accounting matters 2 Key figures used in the sector 3 Scalability effect in our portfolio purchase 4 Capital Structure 5 Financial risk management 6 Financial targets 2018-2021 | 27
Slide 28: Key accounting matters
1 Key accounting matters B2Holding use IFRS as the accounting language. The loan portfolios shall be measured at amortized costs using the effective interest method. Accounting matter Description Purchase price The cost of the portfolio + external transaction cost occurred Portfolio curve Estimated
Slide 29: Key accounting matters
1 Key accounting matters Example of a Retail Unsecured Banking Portfolio 70 000 120% 60 000 100% 50 000 80% 40 000 60% 30 000 40% 20 000 20% 10 000 - 0% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Y1 Y2 Y3
Slide 30: Key accounting matters
1 Key accounting matters IFRS catch-up I (actualization) & II (revaluation) effects 3. Effect on the Income Statement and Balance Sheet 1. Forecast future cash flow 2. Deviation from projected and determine IRR profile of cash flow acquired portfolio The Yield (IFRS revenue) is adjusted by the Based
Slide 31: Key figures used in the sector
2 Key figures used in the sector KPI Description Money Multiplier (MM) Is the sum of gross expected cash flows (ERC) divided by the portfolio purchase price. Is the expected net return before tax on a portfolio investment based on gross expected cash Net IRR flow less cost to collect on a given port
Slide 32: Key figures used in the sector
2 Key figures used in the sector Different portfolios with different MM and ERC but same net IRR, will have the same return on investment over time given reinvestment of the amortized amount in the same type of portfolio Secured portfolio Portfolio Characteristics 250 000 150% MM 1,5 Short curve 200
Slide 33: Scalability effect in our portfolio purchase
3 Scalability effect in our portfolio purchase In a zero investment environment B2Holding will repay the bank & bond debt in less than 3 years Gross cash flow & ERC development 100% 20 000 90% 80% 15 000 70% 60% ERC Millions 50% 10 000 40% 30% 5 000 20% 10% - 0% Year 0 Year 1 Year 2 Year 3 Year 4 Ye
Slide 34: Scalability effect in our portfolio purchase
3 Scalability effect in our portfolio purchase Practical examples of implementing efficency programs & scale effects Development Finland 170 30% Efficiency program started in 150 130 25% 2013 110 20% FTE decreased to 130 90 70 15% Book value portfolio increased 50 10% 5x 30 10 5% CtC decreased with
Slide 35: Capital structure
4 Capital structure Funding structure with sound leverage levels, significant financial flexibility and supporting liquidity reserves Strategy Staggered maturity profile with ample liquidity headroom EUR millions Equity, bond and bank debt is used to get access to capital when larger Lev Ratio NOK 6
Slide 36: Financial risk management
5 Financial risk management The strategy of the Group is to manage and limit both currency and interest rate risk. The Group holds various derivative financial instruments with the purpose of reducing its interest rate exposure and achieving a suitable currency ratio between its assets and liabiliti
Slide 37: Financial targets for 2021
6 Financial targets for 2021 Assuming no new equity needed in the period ROI1 ≥ 14% ROE ≥ 20% Dividend ≥ 20–30% Net interest-bearing Debt/Cash EBITDA Leverage ≤ 3x Equity ratio ≥ 25% 1. ROI before tax, excl. overhead cost of B2Holding ASA Oslo and Luxembourg | 37
Slide 38: The link between ROI and ROE
6 The link between ROI and ROE Return on purchased portfolios Annualized Improvement possibilities Return on purchased portfolio 13,9 % Best practice programs + scalability Admin and central functions* -1,2 % Scalability Interest charges related to portfolios** -5,0 % Continued strengthening balance
Slide 39: Portfolio and investments
Portfolio and investments Jeremi Bobowski, CIO | 39
Slide 40: Large & growing pipeline – with hit rates stable over time
Large & growing pipeline – with hit rates stable over time A growing pipeline – with stable hit rates Well positioned for further growth Significant pipeline growth due to expansion into new 50 000 1000 geographies; high NPL activity in all regions 40 000 800 Able to participate in a large number of
Slide 41: Taking advantage of the large secured and mixed NPL pipeline
Taking advantage of the large secured and mixed NPL pipeline Secured workout team in place 137 secured workout specialists in 13 countries Secured workout 80+% of the banking NPL market consists of secured and mixed setup planned assets (40%+ of our pipeline) Poland B2H Group has secured recovery in
Slide 42: Prudent approach to pricing – secured portfolio valuation process
Prudent approach to pricing – secured portfolio valuation process Pricing based on independent appraisals, internal and external legal assessment and line-by-line analysis average Market Value over several 3rd party appraisals 3rd party valuation may be higher or lower than BMV average cut for liqui
Slide 43: Partnerships for large portfolios – higher capacity, lower risk
Partnerships for large portfolios – higher capacity, lower risk B2Holding is actively pursuing joint ventures to gain access to a larger pipeline Following a successful co-investment with EOS in Romania in 2016, new partnerships developed in 2018 Own licensed servicing platform launched in Greece B2
Slide 44: Record-high purchases: EUR 495m in 2018 YTD Q3
Record-high purchases: EUR 495m in 2018 YTD Q3 Portfolio purchase volumes Comments EUR million Strong purchase volumes in Q3 2018 2014 2015 2016 2017 2018 - 41% increase compared to Q3 2017 Portfolios acquired in all major markets - two successful large JV transactions in 2018 238 - further JV struc
Slide 45: Highly diversified client base across geographies and industries
Highly diversified client base across geographies and industries Diversified set of debt vendors across industries FINANCIAL SERVICES OTHER Banks Credit cards Micro loans Leasing Utilities, telecom etc. In-store credit Steady increase in number of vendors… …spread across geographies… …resulting in l
Slide 46: Group Investment Office – returns above WACC driven by stringent investment plan
Group Investment Office – returns above WACC driven by stringent investment plan Group investment strategy is implemented across geographies by the Investment Office located in Luxembourg Acquisition Portfolio Risk & Legal Finance Support Management Underwriting support support Group Investment Offi
Slide 47: Disciplined pricing policy across geographies, performance reporting via Group data warehouse
Disciplined pricing policy across geographies, performance reporting via Group data warehouse Board of Approve investment strategy EUR 75m+ Directors Approve allocation plan & IRR targets Chairman, BoD Rep, CEO, CFO, CIO, CCO and CLO Investment Review and monitor investment strategy EUR 20m+ Committ
Slide 48: Stable investment performance with increasing investment levels
Stable investment performance with increasing investment levels Historic collection performance at 103% vs forecast Historic collection performance at 103% vs forecast 106,0% Annual portfolio purchases, 105,0% including pre-acquisition by B2H (EURm) Cumulative back book performance €494m €474m 104,0
Slide 49: Historic multiples show upside potential
Historic multiples show upside potential Expanding multiples compared to initial valuation show recovery potential beyond initial forecasts Forecasts are gradually updated over time only as actual collections are proven and typically further into the lifecycle of portfolios 3,6x Initial collection c
Slide 50: Diverse portfolio mix – good returns regardless of money multiples
Diverse portfolio mix – good returns regardless of money multiples Secured portfolios and forward flows provide lower cash multiples, but not lower returns Unsecured portfolios: good returns with high cash-on-cash multiples and long-term recoveries Cash multiples depend on asset type Forward flow tr
Slide 51: Increasing share of forward flows – profitable & stable collection profile
Increasing share of forward flows – profitable & stable collection profile Cost efficiency and stable long-term vendor relationships Stable flow of new NPLs and low-cost, low-risk cash flows Win-win: - Vendors sell NPLs early with minimal tender and migration costs - buyers have minimal transact
Slide 52: Advanced analytics drives performance improvements
Advanced analytics drives performance improvements Increased recoveries A broad experience and toolset in place Single Client approach: 8% higher Competence recoveries in the first month - Poland, Finland, Spain with 5+ years experience in Scoring & segmentation: 65% increase in developing advan
Slide 53: Regional perspectives
Regional perspectives | 53
Slide 54: Poland
Poland Adam Parfiniewicz, Regional Director Poland | 54
Slide 55: Poland
Poland Debt purchase Debt collection Consumer lending Key trends and market drivers Debt collection market dominated by consumer loans 21% Consumer Finance NPLs increase in last 2 years with positive perspective in future of Group Revenues Stable secure NPL market with positive future development 68
Slide 56: Poland
Poland Restructuring plan delivered – over 20 key initiatives in place Development #FTEs Jan 2017 – Sep 2019 Status as of Oct 2018 Total 147 FTE less than in January 800 Hiring freeze 2017 (-20%): in support Start of functions reorganization This includes 79 FTE resulting 750 from pure restructuring
Slide 57: Poland
Poland Key optimizations and improvements in operations % of automation vs. all legal documents Automation in the bailiff’s process: Scanning and reading 28,8% documents automatically, reducing manual data input. 30,0% ~30% savings and still growing 23,5% 22,1% Digital platform: Similar to home bank
Slide 58: Poland
Poland Debt purchase Debt collection Consumer lending Strategic priorities going forward • Strengthening the leading position in the consumer finance sector Portfolio • Increasing share of forward flow deals and fresh portfolios investments • Rebuilding position in banking consumer debts • Expansion
Slide 59: Central Europe
Central Europe Ilija Plavcic, Regional Director Central Europe | 59
Slide 60: Central Europe
Central Europe Slovenia, Croatia, Bosnia and Herzegovina, Serbia, Debt purchase Debt collection Third party collection Montenegro, Hungary, Czech Republic Key trends and market drivers Maturing markets. B2Holding is the market leader in the region 26% combined Still an active region with exiting opp
Slide 61: Central Europe
Central Europe Slovenia, Croatia, Bosnia and Herzegovina, Serbia, Debt purchase Debt collection Third party collection Montenegro, Hungary, Czech Republic Strategic priorities going forward • Focus on secured portfolios in Slovenia and Serbia and unsecured portfolios in Hungary and Czech Portfolio i
Slide 62: Western Europe
Western Europe Maria Haddad, Regional Director Western Europe | 62
Slide 63: Western Europe
Western Europe Spain, Italy, France, Portugal Third party collection Debt purchase Debt collection Key trends and market drivers 12% The largest region combined in terms of NPL volumes (EUR 420bn) Spain: High activity of NPL sales and large volumes still to come. Spain of Group Revenues is still a c
Slide 64: Western Europe
Western Europe Spain, Italy, France, Portugal Third party collection Debt purchase Debt collection Strategic priorities going forward Portfolio investments • Further strengthen position in investment and servicing in France and Italy - B2C secured (large opportunity) • Diversification. Access to mul
Slide 65: South East Europe
South East Europe George Christoforou, Regional Director South East Europe | 65
Slide 66: South East Europe
South East Europe Romania, Bulgaria, Greece, Cyprus Debt purchase Debt collection Third party collection Key trends and market drivers 19% Strong position in all markets: #1 in Bulgaria, among top 5 in Romania, #3 in Greece and first mover in Cyprus of Group Revenues Strong pipeline going forward: -
Slide 67: South East Europe
South East Europe Romania, Bulgaria, Greece, Cyprus Debt purchase Debt collection Third party collection Strategic priorities going forward • Increased focus on SME/Large Corporate and other secured portfolios Portfolio investments • Co-investment structures, mainly large portfolios purchases, to al
Slide 68: Northern Europe – Finland & Baltics
Northern Europe – Finland & Baltics Kari Robert Ahlström, Regional Director Finland & Baltics | 68
Slide 69: Northern Europe – Finland & Baltics
Northern Europe – Finland & Baltics Finland, Estonia, Latvia and Lithuania Debt purchase Debt collection Third party collection Credit information Key trends and market drivers Finland: Very mature market. Three biggest banks dominate 90% of the 15% financial market and sell very little portfolios d
Slide 70: Northern Europe – Finland & Baltics
Northern Europe – Finland & Baltics Finland, Estonia, Latvia and Lithuania Debt purchase Debt collection Third party collection Credit information Strategic priorities going forward • Long-term strategy is sustainable and profitable growth. Very strong growth in portfolio investments in Portfolio in
Slide 71: Northern Europe – Scandinavia
Northern Europe – Scandinavia Tore Krogstad, Regional Director Scandinavia | 71
Slide 72: Northern Europe – Scandinavia
Northern Europe – Scandinavia Sweden, Denmark, Norway Debt purchase Debt collection Third party collection Key trends and market drivers Mature and regulated market with political stability 7% Steady payments: legal, wage enforcement (exception Denmark), of Group Revenues public registers, safety ne
Slide 73: Northern Europe – Scandinavia
Northern Europe – Scandinavia Sweden, Denmark, Norway Debt purchase Debt collection Third party collection Strategic priorities going forward • Increase number of portfolios while being disciplined on IRR targets Portfolio investments • Financial license obtained in Norway August 2018 (NPLs from fin
Slide 74: Q&A
Q&A | 74
Slide 75: Concluding remarks
Concluding remarks Olav Dalen Zahl, CEO | 75
Slide 76: Disclaimer
Disclaimer This Presentation (the “Presentation”) has been produced by B2Holding ASA (the “Company”) solely for information purposes. This Presentation does not constitute, and should not be construed as, a prospectus, an offer to sell or issue securities or otherwise constitute an invitation or ind