Axactor SE

Earnings Release • Oct 31, 2024

Highlights

Financial update

Outlook

Q&A

Financial highlights for the quarter

• Gross revenue increasing by 2% y-o-y
  • Declining by 3% adjusted for a minor EUR 4m portfolio sale in Spain

• Cash EBITDA increasing by 6% y-o-y
  • Strict cost control in all markets offset inflation pressure

• Healthy EBITDA margin of 48%
  • EBITDA of EUR 27m, down from EUR 34m last year
  • Including EUR 0.8m restructuring cost in Italy

Annualized return on equity to shareholders of 0%

• Burdened by "higher for longer" interest rates and a challenging collection environment

Accretive investments drives gross IRR to all time high

- Expect to ramp up investments from Q3 to Q4

NPL investments and Gross IRR on the total NPL book (EUR million, %)

Strict cost control enables a reduction in total operating expenses of 5% y-o-y, despite inflationary pressure

Total operating expenses (EUR million)

Total operating expenses down 5% y-o-y

• Total operating expenses down 8% y-o-y adjusted for restructuring cost in Italy
• Fourth consecutive quarter with y-o-y reduction despite inflationary pressure
• Key driver of Cash EBITDA growth for the quarter

On track to deliver on key cost reduction projects

• Closure of the office in Cuneo was announced on 1 July affecting approximately 100 employees in Italy
• All employees offered to relocate to the three competence centers for the future
  • Milazzo Amicable collection
  • Milan Legal collection and sales
  • Grosseto Administration and back-office

New IT infrastructure provider

• Planning of migration to new IT infrastructure partner on track with implementation phase expected to start during Q4 2024
• The new contract will reduce IT cost

Axactor will benefit materially if interest rates continue to decline

EURIBOR 3 months (Jan '20 – Sep '24)¹

Axactor is exposed to changes in interest rates

• Hedging ratio expected to increase in line with portfolio investments going forward

Status on interest rate hedges

• 8% of net interest-bearing debt is hedged end of Q3²
• In addition, in the P&L there will be a positive effect of EUR 1m per quarter in 2024 and EUR 0.8m in 2025 from a realized hedge contract

Interest rates are fixed around the beginning of the quarter for Axactor

• 1) Source: ECB
• 7 2) Two interest rate swap agreements in force end of Q3:
  • EUR 50m, 3-year duration and interest rate of 3.0% (EURIBOR)
  • NOK 300m 5-year duration and interest rate of 3.4% (NIBOR)

Highlights

Financial update

Outlook

Q&A

Group: Gross revenue is up 2% y-o-y

Gross revenue (EUR million)

• Gross revenue is up 2% y-o-y
  • NPL gross revenue increasing by 2% y-o-y
  • 3PC gross revenue is flat y-o-y
• NPL gross revenue supported by a portfolio sale of EUR 4m in Spain

NPL segment: Total income is down y-o-y driven by higher amortizations and revaluations

NPL Total income and CM% (EUR million, and %)

• Total income down y-o-y on the back of macroeconomic headwinds
  • Includes net neg. revaluations of EUR 7m
  • Portfolio amortization rate of 33% vs 24% same quarter last year
• Declining margin, from 78% to 76% y-o-y
  • Reduced total income partly offset by improved opex ratio
• Collection performance of 90% for the quarter
  • All markets performing below expectations

3PC segment: Underlying positive development on both the top line and margins

3PC Total income and CM% (EUR million and %)

• 3PC total income flat y-o-y
  • 6% growth excluding the closure of 3PC in Sweden and Finland
• Margins up from 33% to 37% y-o-y driven by strict cost control and closure of low margin customers and markets

Group: Total income and EBITDA under pressure whilst Cash EBITDA is growing by 6% y-o-y

Total income (EUR million)

EBITDA and EBITDA-margin (EUR million and %)

Cash EBITDA (EUR million)

ROE of 3% last twelve months – impacted by increased cost of funding and a challenging collection environment

Return on equity to shareholders (%)

Highlights

Financial update

Outlook

Q&A

Outlook

1	Collection	• Experience a challenging collection environment which is expected to prevail throughout 2024 and into 2025
2	OPEX	• Absorbed inflation and achieved OPEX reduction y-o-y last four quarters. Expect to be able to continue the trend
3	Cost of funding	• Expect only modest reduction in cost of funding in the short- and mid-term
4	NPL investments	• Expect NPL investments of EUR 100-150m, in line with the 2024 target • YTD investments of EUR 94m
5	Covenants	• Compliant on all covenants per Q3 Monitoring ICR1 • and Leverage ratio as the current headroom is limited

Highlights

Financial update

Outlook

Q&A

Supporting information

NPL investment commitments of EUR 4m next 12 months

Quarterly NPL investments (EUR million)

ERC has been stable last twelve months

ERC development (EUR million)

Forward ERC profile by year (EUR million)

3PC volumes by geographic region

3PC Total income split by geographic region

• Spain accounting for 52% of total income on 3PC
• Segment closed down in Finland and Sweden, with no active clients per year-end 2023

Bond covenants (1/2)

Leverage ratio - covenant ≤4.0x

(Net interest-bearing debt divided by LTM Pro-forma adjusted cash EBITDA)

Interest coverage ratio - covenant ≥3.0x (Pro-forma adjusted cash EBITDA divided by net interest expenses)

Bond covenants (2/2)

Loan-to-value - covenant ≤80% (Net interest-bearing debt divided by total portfolio book value)

Secured Loan-to-value - covenant ≤60%

(Secured net interest-bearing debt divided by total portfolio book value)

Terms and abbreviations

Abbreviations

		3PC	Third-party collection
		AGM	Annual general meeting
		APM	Alternative performance measures
		ARM	Accounts receivable management
		B2B	Business to business
Terms		B2C	Business to consumer
		BoD	Board of Directors
Active forecast	Forecast of estimated remaining collection on NPL portfolios	BS	Consolidated statement of financial position (balance sheet)
Board	Board of directors	CF	Consolidated statement of cash flows
Cash EBITDA margin	Cash EBITDA as a percentage of gross revenue	CGU	Cash generating unit
Chair	Chair of the board of directors	CM	Contribution margin
Contribution margin (%)	Total operating expenses (excluding SG&A, IT and corporate cost) as a percentage	D&A	Depreciation and amortization
	of total income	Dopex	Direct operating expenses
Collection performance	Gross collection on NPL portfolios in relation to active forecast, including sale of	EBIT	Operating profit/Earnings before interest and tax
	repossessed assets in relation to book value	EBITDA	Earnings before interest, tax, depreciation and amortization
Cost-to-collect	Cost to collect is calculated as segment operating expenses plus a pro rata	ECL	Expected credit loss
	allocation of unallocated operating expenses and unallocated depreciation and
	amortization. The segment operating expense is used as allocation key for the	EGM	Extraordinary general meeting
	unallocated costs	EPS	Earnings per share
Equity ratio	Total equity as a percentage of total equity and liabilities	ERC	Estimated remaining collection
Forward flow agreement	Agreement for future acquisitions of NPLs at agreed prices and delivery	ESG	Environmental, social and governance
Gross IRR	The credit adjusted interest rate that makes the net present value of ERC equal to	ESOP	Employee stock ownership plan
	NPL book value, calculated using monthly cash flows over a 180-months period	FSA	The financial supervisory authority
Group	Axactor ASA and all its subsidiaries	FTE	Full time equivalent
		GHG	Greenhouse gas emissions
NPL amortization rate	NPL amortization divided by collection on own NPL portfolios	IFRS	International financial reporting standards
NPL cost-to-collect ratio	NPL cost to collect divided by NPL total income excluding NPV of changes in	LTV	Loan to value
	collection forecasts and change in fair value of forward flow commitments	NCI	Non-controlling interests
One off portfolio acquisition	Acquisition of a single portfolio of NPLs	NPL	Non-performing loan
Opex	Total operating expenses	OB	Outstanding balance, the total amount Axactor can collect on claims under
Recovery rate	Portion of the original debt repaid		management, including outstanding principal, interest and fees
Replacement capex	Acquisitions of new NPLs to keep the same book value of NPLs from last period	OCI	Consolidated statement of other comprehensive income
Repossession	Taking possession of property due to default on payment of loans secured by	P&L	Consolidated statement of profit or loss
	property	PCI	Purchased credit impaired
Repossessed assets	Property repossessed from secured non-performing loans	PPA	Purchase price allocations
		REO	Real estate owned
SG&A, IT and corporate cost	Total operating expenses for overhead functions, such as HR, finance and legal etc	ROE	Return on equity
Solution rate	Accumulated paid principal amount for the period divided by accumulated	SDG	Sustainable development goal
	collectable principal amount for the period. Usually expressed on a monthly basis	SG&A	Selling, general & administrative
		SPV	Special purpose vehicle
		VIU	Value in use
		VPS	Verdipapirsentralen/Norwegian central securities depository
		WACC	Weighted average cost of capital

WAEP Weighted average exercise price

23