Axactor ASA (FRA:2LJ) Q2 2024 Earnings Call Highlights: Navigating Challenges with Strategic Growth and Cost Control

Despite revenue declines, Axactor ASA (FRA:2LJ) boosts Cash EBITDA and maintains strong cost management amid macroeconomic pressures.

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Oct 09, 2024
Summary
  • Gross Revenue: Declined by 2% year-over-year.
  • Cash EBITDA: Increased by 3% year-over-year to EUR61 million.
  • EBITDA: EUR30 million, down from EUR33 million last year, with a margin of 51%.
  • Return on Equity (ROE): 4% annualized.
  • Operating Expenses: Decreased by EUR3 million or 11% year-over-year.
  • NPL Segment Income: EUR46 million, down 12% from EUR52 million in Q2 2023.
  • 3PC Segment Revenue: EUR13 million, reflecting an 8% growth excluding closed operations in Sweden and Finland.
  • Total Income: EUR59 million, down from EUR65 million in Q2 2023.
  • Interest-Bearing Debt: Approximately EUR950 million, with 95% unhedged.
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Release Date: August 15, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

  • Cash EBITDA increased by 3% year-over-year, reaching EUR 61 million, marking one of the highest levels for Axactor ASA (FRA:2LJ, Financial).
  • Strict cost control led to a reduction in operating expenses by EUR 3 million or 11% year-over-year.
  • The company successfully executed a planned shift in investment levels, with investments at attractive prices improving the total gross IRR on the back book.
  • The 3PC segment delivered a growth of 8% in Q2, driven by double-digit growth in Spain and Norway.
  • Axactor ASA (FRA:2LJ) is compliant with all covenants, maintaining a healthy EBITDA margin of 51% due to cost control measures.

Negative Points

  • Gross revenue declined by 2% year-over-year, impacted by macroeconomic challenges and government-imposed debt relief initiatives.
  • The NPL segment reported a negative growth of 3% this quarter, with total income from the segment declining by 12%.
  • The annualized return on equity was only 4%, pressured by higher interest rates and a challenging collection environment.
  • 95% of the company's interest-bearing debt is unhedged, exposing it to interest rate fluctuations.
  • The collection performance in Norway and Germany was challenging, ending at 93% for the quarter.

Q & A Highlights

Q: Can you provide more details on the collection performance in Norway and Germany, and how other regions are performing?
A: In Spain, the secured business is delivering over 100%, while unsecured is slightly less. Italy has been around 100% but was lower in Q2 due to operational changes. Sweden and Finland are close to 100% based on active forecasts.

Q: Your ERC curve seems to be lifting upwards this quarter. Is this due to new investments or changes in your cash flow projections?
A: It's a combination. We've adjusted our forecasts and taken revaluations, which moved some cash out in time. New portfolios starting collection will also contribute to this uplift.

Q: How much of your funding is in Norwegian krone versus other currencies, considering interest rate differences?
A: We have approximately EUR300 million in euro bonds and another bond in NOK. Our RCF is mostly drawn in euro and SEK. In total, NOK exposure is around NOK200 million, with the rest in euros and SEK.

Q: Regarding future investments, you guide for EUR100 million to EUR200 million. What factors will influence reaching the higher end of this range?
A: It's not related to covenants. Q3 is typically slower, but we have a pipeline that could lead to meaningful investments. Q4 has a solid pipeline, so we expect to invest more than EUR100 million, but uncertainty remains.

Q: Can you comment on the IRR levels for new investments and how you balance IRR versus investment volume?
A: We haven't disclosed IRR for the quarter, but historically, it's been around 30%. We've slightly lowered IRR to increase investments, but it remains higher than our total back book. More investments typically require a lower IRR.

Q: The portfolio amortization rate changed from 26% in Q1 to 34% in Q2. What drives this difference?
A: Last year, we pushed more cash collection out in time, reducing the amortization rate. This year, it's more normalized, leading to a higher amortization rate.

Q: Is the current level of OpEx sustainable, or should we expect changes due to inflationary pressures?
A: We expect cost pressures to continue, but we have initiatives to absorb these through cost reductions. Our ambition is to maintain current OpEx levels despite inflation.

Q: If collection performance stays below 95%, is there a risk of portfolio write-downs?
A: Write-downs depend on portfolio-specific parameters. Being at 95% increases the risk of adjustments, but it's not automatic. Each portfolio is assessed individually.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.