Release Date: August 05, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Coface SA (CFACY, Financial) reported a net income of EUR 142.3 million for the first half of 2024, reflecting a 10% profit growth from the previous year.
- The company's solvency ratio remains robust at 195%, well above the target range.
- Business information segment showed strong growth, with revenues increasing by almost 17% at constant FX.
- Net combined ratio improved to 63.5%, indicating strong performance and effective risk management.
- Coface SA (CFACY) continues to make significant progress in its CSR strategy, including doubling its exposure to ESG projects and improving its employee NPS score.
Negative Points
- Turnover decreased by 3.1% to EUR 923 million compared to the previous year.
- Trade credit insurance premiums declined by 5.3% at constant FX, reflecting ongoing challenges in client activity.
- Factoring revenues were down 2.6%, indicating some weakness in this segment.
- Cost ratio increased by 3.2%, driven by lower revenues and continued investments.
- Political and economic uncertainties, including high election activity and rising insolvencies, pose ongoing risks to the business environment.
Q & A Highlights
Q: What are the key factors affecting Coface's financial performance in the first half of 2024?
A: Ajay Handa, Group Head - Data Management, highlighted that Coface reported a net income of EUR 142.3 million, a 10% profit growth from last year. The solvency ratio is strong at 195%. Turnover is down 3.1% to EUR 923 million, with trade credit insurance premiums down 5.3% at constant FX. Client retention remains high but has decreased from 2023 levels. Pricing is better than last year but follows a historic trend of decreasing by 1.5% annually. Business information is growing at almost 17% at constant FX, and factoring is down 2.6%. The net loss ratio improved to 35%, bringing the net combined ratio to 63.5%.
Q: How is Coface managing the current economic uncertainties and geopolitical risks?
A: Ajay Handa emphasized that Coface is prepared to help clients deal with volatility. The company remains focused on short-term credit and is ready to respond quickly to changing economic conditions. Coface has seen an uptick in insolvencies globally, higher than pre-COVID levels, and continues to monitor inflation, political uncertainties, and trade issues closely.
Q: What is the outlook for Coface's Business Information segment?
A: Ajay Handa noted that the Business Information segment is growing double-digit at almost 17% at constant FX. The company is making significant investments in this area, with over 500 people dedicated to it. The segment is expected to be profitable by 2027, and the investments are currently neutral on the P&L.
Q: How is Coface addressing the challenges in the trade credit insurance market?
A: Ajay Handa explained that the trade credit insurance premiums are down 5.3% at constant FX, reflecting lower client activity and a competitive environment. Coface has implemented risk mitigation plans and continues to focus on client retention and pricing strategies. The company is also benefiting from better fees and business information revenues.
Q: What are the key trends in Coface's regional performance?
A: Ajay Handa highlighted that Western Europe is down almost 4%, Northern and Central Europe are down about 7%, while the Mediterranean and Africa region continues to grow at 6%. North America is down 6-7%, driven by client activity, and Asia Pacific and Latin America are also experiencing negative growth. The regional performance reflects the global economic environment and commodity price normalization.
Q: How is Coface managing its solvency and capital allocation?
A: Phalla Gervais, Chief Financial and Risk Officer, stated that Coface's solvency ratio is robust at 204%, above the target range. The company remains disciplined in capital allocation, focusing on growth, acquisitions, and returning capital to shareholders. Coface is also continuously improving its internal model in coordination with regulators.
Q: What impact does inflation have on Coface's revenues?
A: Ajay Handa explained that inflation affects Coface's revenues through changes in commodity prices. Higher commodity prices lead to higher revenues, while lower prices result in lower revenues. The company's billing is based on a percentage of the value of the insured products, making it sensitive to inflation in commodity markets.
Q: How is Coface leveraging technology to improve its operations?
A: Ajay Handa emphasized that Coface is investing in technology to improve decision-making, accuracy, and connectivity. The company is automating more processes, enhancing data and technology resources, and improving its credit scoring models. Currently, 60% of credit decisions are made by computers, reflecting the significant role of technology in Coface's operations.
Q: What are the key factors driving the changes in Coface's insurance finance expenses?
A: Phalla Gervais noted that the level of technical reserves and interest rate movements are the main factors affecting insurance finance expenses. The technical reserves have decreased compared to last year, and interest rates have been more stable this year, leading to lower insurance finance expenses.
Q: How is Coface managing its exposure to different industries and geographies?
A: Ajay Handa explained that Coface manages its exposure on a micro basis, making decisions company by company. The company has a diversified portfolio with no significant geographic concentration. Coface continuously monitors sector and country evaluations and adjusts its exposure based on detailed risk assessments.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
