Annual Report (ESEF) • Mar 31, 2022
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Download Source FileUntitled 2021 Annual Report Axactor at a glance 4 Our presence 5 Entering an era of value generation 6 Our values 7 Our purpose and vision 8 Highlights of the year 9 Key ıgures 11 Letter from the CEO 12 Report of the Board of Directors 14 Responsibility statement 24 Sustainability report 25 GRI Index 46 Corporate governance report 48 Board of Directors 55 Executive management 57 Shareholder information 61 Financials statements of Axactor Group and Parent Company 63 Summary of notes to the consolidated ınancial statements 70 Summary of notes to the parent company 119 Alternative Performance Measures 140 Content Gross revenue 0 50 100 150 200 250 300 350 400 2021202020192018 EUR million 368 325 239 344 EBITDA 0 20 40 60 80 100 2021202020192018 EUR million 24 92 46 32 Axactor at a glance Axactor is a pan-European company focusing on craftmanship debt collection with digital and state-of-the-art solutions for managing non-performing loans. The Group has two core business segments: Acquisition and collection on own portfolios of non-performing loans (NPL) and debt collection on behalf of third-party customers (3PC). The primary focus is unsecured debt originated within the ınancial sector. In addition, Axactor has a non-core business segment which is currently in run-off mode, acquiring and selling repossessed assets (REO). Axactor has operations across Finland, Germany, Italy, Norway, Spain and Sweden, and had approximately 1,100 FTEs at the end of the 2021. The book value of NPLs was EUR 1.1bn at the end of 2021, with an estimated remaining collection of EUR 2.1bn. Estimated Remaining Collection (ERC), NPL 0 1 2 3 2021202020192018 EUR billion 1.4 2.0 2.2 2.1 Cash EBITDA 0 50 100 150 200 250 300 2021202020192018 EUR million 251 136 224 210 Axactor Group4 Gross revenue per country SWE 13% ITA 8% FIN 7% ESP 38% NOR 19% DEU 14% Our presence Annual report 2021 5 • Aggressive growth • Market entries • Establish IT and operations Establish platform Secure foundation Value generation • Grow size in existing markets • Operational excellence • Initiate divided payments • New strategy • Stabilize operations • Exit non-core segments NPL ERC EUR million 317 633 1,388 2,038 2,169 2,141 Established as Axactor Q4-2015 2025202420232022202120202019201820172016 Entering an era of value generation Through a clear growth strategy Axactor has expanded its operations into six geographies since the inception in 2015: Finland, Germany, Italy, Norway, Spain and Sweden. The aggressive growth has been targeted at sound markets for owning and collecting on non-performing loans (NPL) within Europe. Through an industry leading IT and operations platform and 1,096 skilled employees, Axactor is positioned as an attractive partner for banks and the ınancial sector. 6 Axactor Group Our values Passion We are passionate about everything we do · Being focused · Feeling personal commitment · Loving challenges and wanting to improve Trust We act with integrity, create trust, and build long-term relationships · Delivering what we promise · Being straight and clear in our communication and treating everyone with respect · Cooperating effectively together as a team to be best in our selected markets and segments Proactive We are proactively looking for things to improve · Constantly learning from each other · Solving problems with an innovative and creative approach · Dedicating and continuously developing ourselves to deliver the best possible service Our core values deıne us and are embedded in everything we do. They serve as a declaration of how we treat each other, our customers, debtors, and our partners. As we expand into new markets, recruit new talent, and face new challenges, these values guide our decisions and actions. Annual report 2021 7 Our purpose and vision Purpose Our purpose is to help people and companies to a better future. We wake up every morning proud of working for Axactor because we know we make a difference. Every day we passionately help people pay their bills and make sustainable plans to get out of debt. Every day we help hard-working companies to get paid for their products and services. Last but not least, every day, we serve as an important cornerstone of the ınancial system – enabling people to beneıt from tomorrow’s money today. No debt collection, no borrowing of tomorrow’s money. Click here to learn more about our purpose Vision Our vision is to be the industry benchmark. Axactor was founded in 2015 because we believed it was possible to do it better. We were convinced it was possible to operate more efıciently with innovative and less costly IT-systems and more streamlined processes. A company raising the bar on environmental, social, and gov- ernmental standards. A company that delivers the best advice and fairest treatment of debtors, with more satisıed customers, happier employees, and, with higher return to investors. Our vision is to be the industry benchmark. The company that reinvents debt collection and that other will use as the benchmark when they want to improve. Click here to learn more about our vision Axactor Group8 Highlights of the year Full year 2021 x A year impacted by continued pandemic and positioning the company for future value creation x Gross revenue of EUR 344 million, up 6% from 2020 Total income ended at EUR 195 million, down 3% compared to 2020 x EBITDA for the year of EUR 24 million, resulting in an EBITDA margin of 12% x Cash EBITDA of EUR 224 million, up from EUR 210 million in 2020 x EUR 114 million invested in NPL portfolios throughout the year, of which EUR 71 million invested under forward low agreements x NPL book value decreased from EUR 1,125 million at the end of 2020 to EUR 1,096 million at the end of 2021, partly due to the relatively low investment level and partly due to net negative NPL revaluations x Estimated remaining collections on NPL portfolios ended the year at EUR 2,141 million x 3PC total income growth of 3% with markets slowly normalizing towards the end of 2021 after a period of historically low volumes during the Covid-19 pandemic x REO sales upheld on same volume as in 2020, totaling EUR 40 million for 1,263 assets x Net proıt for 2021 was EUR -46 million x Conducted large balance sheet restructuring including share issues, reınancing of funding lines and the acquisition of the minority stake in Axactor Invest I x Obtained credit rating from leading credit rating agencies Moody’s and S&P, and issued a EUR 300 million rated bond in the European high yield market x Return on equity (excluding non-controlling interests) was -9% x Announced the acquisition of Italian debt collection service provider Credit Recovery Service Annual report 2021 9 Signiıcant events in 2021 2021 was a year impacted by the continuation of the Covid-19 pandemic and characterized by high uncertainty. Mitigating meas- ures from the governments to contain the virus were introduced, withdrawn and re-introduced on a running basis following the development and spread of the virus. Large parts of Axactor’s work force have been working from home ofıce for long periods during 2021, and local restrictions such as moratoriums, payment reliefs and interest caps have been prolonged in several of Axactor’s six countries of operation. Simpliıcation and increased transparency were the mantras of 2021 for Axactor. At the end of 2020 and into early 2021, Axactor performed a large balance sheet restructuring. The exercise included an increase in share capital, the acquisition of a minority stake in a co-investments vehicle, and the reınancing of several credit lines at improved terms and with extended maturities. Furthermore, Axactor issued its ırst rated bond with ACR03 in the third quarter. The REO funding facility from Nomura was also repaid in full during the year. At the end of 2021, these transactions secure a sound equity ratio of 29%, a healthy leverage ratio of 3.4, and a clean setup for its core business with only two sources of credit: bond loans and the revolving credit facility. After a promising ırst half of the year, NPL collection performance deteriorated to 89% for the third quarter. Although there was a positive development during the fourth quarter, it was not sufıcient to support the book value of the portfolios. As a response, Axactor did a thorough review of the portfolios and took down future collection estimates. Total net NPL revaluations in 2021 thus ended at negative EUR 44.1 million. The new book values are considered robust, and the Group is in a good position to deliver proıtable growth going forward. NPL investments for 2021 ended at EUR 114.0 million. Axactor continued to prioritize quality over quantity and remained capital disciplined. The most attractive portfolios for Axactor on the market in 2021 were forward low portfolios in the Nordic countries and Germany. As forward low contracts typically have a length of 12 to 24 months, these contracts secure volumes going into 2022. Estimated investment commitments for 2022 at the end of 2021 stood at EUR 117 million, enough to secure book value growth in 2022. A cost reduction program was launched at the start of the year, aiming to reduce operating expenses by EUR 4.7 million compared to the fourth quarter 2020. The main elements of the program were site consolidations and outsourcing of non-core business. The project concluded successfully with annualized savings of EUR 5.5 million, enhancing Axactor’s margins and cost-to-collect position. The 3PC segment saw lower volumes during the pandemic both due to government-imposed restrictions and from lower consumer spending. The situation was gradually normalizing towards the end of 2021 and the segment income ended 3% up from 2020. Most of the cost reduction program was directed at the 3PC segment with signiıcant restructuring costs. The margin improved substantially towards the end of the year as the initiatives came into full effect. The acquisition of Italian debt collection service provider Credit Recovery Service announced in 2021, closed early 2022, will further enhance the healthy development for the 3PC segment. Operational improvements are continuously being implemented and Axactor is pleased to see good results in 2021. User trafıc through the self-service debtor portal increased by ıve times compared to 2020. The operational department delivered strong solution rates, as evidenced by winning 72% of all 3PC benchmark competitions participated in during the fourth quarter. Axactor Group10 Key ıgures Gross Revenue 344 EUR million 6% y/y ERC, NPL 2,141 EUR million -1% y/y EBITDA 24 EUR million 12% margin Cash EBITDA 224 EUR million Equity ratio 29% Key Figures Axactor Group EUR million 2021 2020 Gross revenue 344.5 325.2 Total income 195.1 201.2 EBITDA 23.7 32.0 Cash EBITDA 1) 223.8 209.5 Depreciation and amortization (excl portfolio amortization) (9.7) (10.8) Net ınancial items (54.8) (53.4) Tax (expense) (5.3) (1.8) Net proıt/(loss) after tax (46.0) (34.0) Return on equity, excluding non-controlling interests (8.5%) (6.1%) Return on equity, including non-controlling interests (11.3%) (9.1%) Growth total income, period to period (3.0%) (29.5%) Cash and cash equivalents, end of period 2) 38.2 47.8 Gross revenue from NPL Portfolios 254.9 236.5 Gross revenue from REO Portfolios 39.8 40.4 Acquired NPL portfolios during the period 114.0 208.2 Acquired REO portfolios during the period 0.2 0.4 Book value of NPL, end of period 1,095.8 1,124.7 Book value of REO, end of period 29.3 78.8 Estimated remaining collection (ERC), NPL 2,140.5 2,169.2 Equity ratio 29% 28% Interest bearing debt, end of period 838.3 936.2 Number of Employees (FTEs), end of period 1,096 1,128 Price per share, last day of period 7.55 10.70 1) Cash EBITDA is EBITDA adjusted for change in forward low derivatives, calculated cost of share option program, portfolio amortizations and revaluations, REO cost of sales and REO impairments. See APM table 2) Restricted cash excluded Annual report 2021 11 A brighter future Letter from the CEO There is unfortunately no way around the fact that result wise, 2021 was a challenging year for Axactor. The pandemic continued to impact our operations in a wide variety of ways. New variants of the virus and local restrictions came and went throughout the year. In short, 2021 was a year characterized by high uncertainty. This has been challenging to handle not only from an administrative perspective, but also for our employees who again had to endure long periods at home ofıce. Returning to proıtable growth As a young company with a short track record and limited amounts of data, Axactor had to assume a certain level of risk to achieve the desired growth during our ırst years after formation. The growth strategy paid off, with Axactor today being among the leading credit management companies in Europe. During the second half of 2021 however, certain portfolios did not meet the expected level of collection. This resulted in a net negative revaluation of EUR 43 million in the fourth quarter of the year, mainly directed at portfolios acquired in 2017 and 2018 and with an extra emphasis on Swedish portfolios. The new revised collection curves, combined with a substantially higher proıtability on more recent acquisitions, puts us in a much better position going into 2022 than we have had in the past. Our 3PC segment has been strengthening throughout 2021 as we have managed to retain our most important customers through the pandemic. Now that volumes are returning, we expect the segment to continue the positive development into 2022. To further enhance our 3PC service offering in Italy, we announced the acquisition of the debt collection servicer Credit Recovery Service. They are a great ıt with our strategy, servicing banks and ınancial institutions. During the year we completed a cost reduction program aimed primarily at site consolidations and outsourcing of non-core business. Such processes are tough, but unfortunately necessary. The positive side is that with the conclusion of the cost reduction program, we have an efıcient operational setup well-suited for our needs. In 2022 we will shift focus from cost reductions to continuous smaller improvements for our everyday operations to maintain our position as a market leader in terms of cost-to-collect. To simplify and improve our legal and ınancial structure we completed a long series of signiıcant transactions during 2021. The result was an increased equity ratio, and extended maturities and improved terms for all major credit lines. At the end of the year, we have a much cleaner legal structure for our continued operations, with two sources of credit: bond loans and our revolving credit facility. Despite the negative revaluations in the fourth quarter, our cash low has remained good throughout 2021. Axactor is a solid company in a comfortable liquidity position. We have an investment capacity of around EUR 300 million for 2022, ready to take part in the increasing market for NPL acquisitions. To sum up, we spent 2021 positioning Axactor for future value creation. Operational excellence Our employees are our greatest asset and their wellbeing is on the top of our agenda. Both because we care deeply about our people, but also because we believe that satisıed employees perform better, both at work and at life in general. This year we joined forces with Great Place To Work to measure the satisfaction of our employees. I am very pleased that ıve out of our six countries of operations were certiıed as a Great Place To Work. It is quite uncommon to receive this certiıcation the ırst time the survey is performed, and we will strive to further improve in 2022. The people of Axactor have had another difıcult year with disruptions from Covid-19, as well as difıcult transitions arising from the site consolidations and outsourcing initiatives. Still, our operational depart- ments have delivered good results, as evidenced by the very strong scores on both debtor and customer satisfaction. I am impressed by how the whole organization has handled these troubling times, and I ırmly believe we have the best people onboard to take Axactor to the next level. Strong focus on sustainable business With a continued focus on improving the sustainability of our business, Axactor signed the United Nations Global Compact in 2021. We thus commit to making its principles a part of our strategy, our culture, and our day-to-day operations, beneıtting both our stakeholders and the society as a whole. I am excited to present our ırst “Communication of Progress”, which is incorporated into our sustainability report. I would also like to take this opportunity to reiterate our continued commitment to the UN Global Compact initiative. Axactor Group12 I ırmly believe we have the best people onboard to take Axactor to the next level Johnny Tsolis, CEO Annual report 2021 13 1. Market development The years leading up to the Covid-19 pandemic were categorized by high supply in the market for both sale and outsourcing of non-per- forming loans. During the last two years, the pandemic has temporarily disrupted the market. Consumer lending volumes have declined and default rates are reduced. In addition, local restrictions have paused collection processes. As more and more of these restrictions were lifted towards the end of 2021, the market gradually returned. The market activity for non-performing loan sales was back to a nor- malized level at the end of 2021. However, the lower volume of defaults through the pandemic has reduced the average volume for individual transactions compared to pre-pandemic levels. With increasing con- sumer spending and lending, the generation of non-performing loans is expected to increase. Alongside a continued focus from regulators on banks and ınancial institutions to ofload bad debt from their books, the market activity for both portfolio sales and outsourcing of collection services should continue to gain momentum in 2022. 2. Strategy Axactor was incepted on the notion that the debt collection industry was inefıcient. As a young challenger without legacy, Axactor could disrupt the market in terms of cost-to-collect. During 2021 a strategy update was implemented, intensifying the focus on this cornerstone of Axactor’s vision. To ensure that Axactor maintains the position as a market leader in terms of cost-to-collect a cost reduction program was implemented throughout 2021. The program aimed primarily at outsourcing non- core operations and reducing the number of operative sites. A total of seven ofıces were closed during the year, with the remaining sites taking over the operational tasks. At the end of 2021 Axactor has the desired locations for the long run in all six countries of operation. With the conclusion of the cost reduction program at year-end, focus is shifted from cost reductions to continuous operational improvements and cost saving innovations. The updated strategy entails a narrow focus on the core competence of Axactor: fresh unsecured consumer debt originated within the regulated ınancial sector in carefully selected markets. Axactor performs craftsmanship debt collection services well suited for the typical size and complexity of these claims. Furthermore, this segment is perceived by Axactor as having the best risk/reward relationship. To maximize proıts, Axactor focuses primarily on this core competence. Axactor offers two main products to its customers: third-party debt collection services and acquisition of non-performing loans. By combining the two product offerings, Axactor both diversiıes its income stream and leverages synergies between the business segments in terms of business origination, collection execution and data generation. In addition, the combined product offering improves scale beneıts for both business segments. Having dedicated and motivated employees with great industry knowledge is crucial to deliver on the strategy. To attract, retain and develop the best talents, a high attention is directed towards making Axactor an attractive employer with good career opportunities. The Axactor Academy program offers a wide variety of courses to increase the employees’ skill sets. Promising talents are given the opportunity to participate in a mentorship program, where senior staff members provide personal guidance and learning opportunities for the participants. These initiatives are in place to enable the desired performance culture that characterizes Axactor. To enable the employees to achieve their potential, they need efıcient tools to perform their work. Axactor has had a clear strategy from day one of having modern, standardized and efıcient common IT solutions for the Group. As a young company with very little legacy, Axactor has had the opportunity to design and build its IT environment from scratch. The result is an IT platform with low maintenance cost combined with a high level of efıciency and security. Report of the Board of Directors Total income per country % NOR 18% DEU 16% FIN 5% ITA 9% ESP 49% SWE 3% NOR SWEESPITADEUFIN 2021 Total income EUR 195.1m NPL book value per country % ESP 24% NOR 23% DEU 12% SWE 21% ITA 10% FIN 10% NOR SWEESPITADEUFIN NPL book value EUR 1.1bn Axactor Group14 To further develop operations and enhance future efıciency, a continued emphasis is put on business intelligence, advanced data analytics and contact and payment channels. During 2021, new scorecards utilizing machine learning were developed, numerous business intelligence reports implemented and trafıc through the self-service debtor portal increased signiıcantly. These areas of development will remain crucial for Axactor also going forward. Another important beneıt of having common systems and setup on both the IT and the organizational side, is improved cross-border cooperation. It eases communication between countries, which in turn enables sharing of best practices and innovations. Cyber security is continuously growing in importance. A beneıt of Axactor’s strategy is that the modern and streamlined IT environment by default is up to the best current security standards. Working with large amounts of personal data, the employees of Axactor have a continuous focus on cyber security in their everyday operations. Training sessions and stress tests are performed on a running basis to be prepared for potential attacks. Axactor was the victim of an attempted large scale phishing attack in 2021 and is pleased to see that all routines and responses were in place to prevent the attack. Axactor strives to be a transparent, reliable and trustworthy company with focus on fair treatment of debtors, clients and employees alike. As a part of this ambition, Axactor has joined the United Nations Global Compact and adheres to the United Nations sustainable development goals 5 Gender equality, 8 Decent work and economic growth, 13 Climate action and 16 Peace, justice and strong institutions. This ambition is inherent in Axactor’s DNA and affects all parts of the Group’s business and decisions. Axactor sees working in a sustainable matter as an obvious goal in itself, and it is also an increasingly important factor for banks and ınancial institutions when they select their business partners. In order to fund the substantial growth during Axactor’s formative years, the Group adapted its legal structure to exploit available sources of credit. This resulted in a complicated and sub-optimal structure. During 2020 and 2021 several actions were taken to streamline the legal and funding structure, including mergers, reınancing of credit lines and liquidation of redundant legal entities. Not only does this ease the administrative burden and cost, but it also increases transparency and makes it more comprehendible for investors, customers and other inter- ested parties. This increased transparency is also in line with Axactor’s continuous focus on sustainable development and ESG factors. To enable access to the European bond market, Axactor obtained credit ratings from leading credit rating agencies Moody’s and S&P during 2021. Subsequent to obtaining the credit rating, Axactor raised EUR 300m in a rated bond issue directed towards the European high yield market at a substantially lower margin than obtained for previous bond issues. This was a milestone for Axactor in the strategic quest to obtain a lower funding cost. At the end of 2021 Axactor has a clean legal structure for its continued operations, with two sources of credit: bond loans and the revolving credit facility. The result is increased lexibility and reduced funding cost. To support even more lexibility at further improved prices, the Group over time aims to increase the share of unsecured bond loans relative to secured bank ınancing. With a relatively short history, Axactor has acquired the majority of its NPL portfolio during an economic cycle of high prices. With the current market environment and a strict price discipline the Group expects a gradual improvement over time. During 2021, Axactor acquired portfolios with a weighted average gross IRR of 23.4%, compared to an average of 15.7% on the total back book at the beginning of the year. NPL investments are expected to increase signiıcantly from the historically low level of EUR 114 million in 2021. To underline this, estimated commitments for 2022 under signed contracts already amounts to EUR 117 million at the end of 2021. These commitments have a weighted average gross IRR of 21.9%, also substantially higher than the average of 16.3% for the current back book. Axactor has established a skilled, scalable, lean, and passionate organization that is well positioned to continue the company’s growth journey. To deliver proıtable growth, Axactor will continue to improve operational performance, show investment discipline and grow the capital light part of the business. The Group will further intensify the investor relations work with banks, bond market, equity market and other sources of capital. Finally, Axactor will continue to pursue fair debtor treatment, high customer satisfaction and happy employees. 3. Operations When entering 2021 the expectation was that the pandemic situation would affect the business operations in a more limited way than in 2020. The majority of the workforce was still working from home at the start of the year, but the home ofıce regulations were expected to be removed within a short time period. Axactor had operational capacity to handle the expected increase in volumes with limited need to increase manning. The beginning of 2021 nevertheless started slowly due to stronger seasonality effects within the NPL segment and lower than expected 3PC volumes from the existing customers. The moratoriums in Italy and Spain had continued into 2021 and affected both NPL and 3PC collections. Volumes from both 3PC and NPL forward low contracts were limited by low default rates in the banks in the Northern part of Europe. While the NPL segment improved during the ırst half of the year, the 3PC segment took longer to recover. A cost saving program was initiated during the ırst quarter as a response to the lower volumes. The largest part of the program was related to closing down operational sites and divisions servicing 3PC customers. Annual report 2021 15 In Spain, the restructuring meant that the services done in Sevilla, Bilbao and Zaragoza were moved to the three larger operational centers in Madrid, Valladolid, and Alicante. For Finland, a homeshoring initiative was conducted with the close-down of the back ofıce departments in Estonia and Latvia and transferring the tasks back to Finland. In Germany, the non-core ıeld-service operation was outsourced. In Norway, a decision to close down the Hamar ofıce was made. Axactor Norway have gathered all operations in the main ofıce of Drammen going forward. The total effect of the cost saving program was an annualized saving of EUR 5.5 million. Together with an improved cost base there was also a clear positive trend of ınding amicable solutions with debtors, as well as highly efıcient tax refund campaigns. The improved collections and recovery rates gave an impression of returning back towards normality. Debtors in all markets were also satisıed with the communication and treatment, resulting in an average score of 4.5 out of maximum 5 in the group wide debtor satisfaction survey. The high score was upheld for the rest of 2021 and is a great testament of the work done by the operational staff. Axactor is always trying to help the debtors back to a sound economy, through ırm but friendly guidance and advice. The second half of 2021 started off quite challenging during the summer months. Even though the number of payments were at a stable level, the average payment size dropped and resulted in lower NPL collections. In addition, several 3PC contracts were transformed into NPL forward low contracts resulting in lower revenues for the 3PC segment. Towards the end of 2021 the NPL collection performance steadily improved to 98% in December, while 3PC volumes started to return as moratoriums and local restrictions were gradually lifted. Throughout 2021, resources and priority have been given to further develop the debtor portal. Investments have been made to utilize innovative payment solutions, offer self-service solutions to more debtors, and build more advanced logic into the service to offer a tailormade journey through the portal. The usage of the portal has increased rapidly and the number of debtors logging in was over ıve times higher in 2021 compared to 2020. Axactor is continuing its dedication to strengthen the usage of data to achieve more efıcient collection and securing good debt collection practices. During 2021 the company has added new sources of data to improve the enterprise data warehouse. The enterprise data warehouse holds consistent data to facilitate cross border reports and enable best practice sharing. Such cooperation is key within the business intelligence community in Axactor, connecting business intelligence employees in both the countries and on Group level. The advanced analytics team was strengthened during the year, and new areas have been supported by scorecards and improved analytic capabilities. The scorecards are integrated in the daily operations and play a key role in deciding the optimal worklow and supporting the collection strategy development. Analysis have been conducted to optimize call center opening hours and connecting the debtor with the best suited case handler. The efıciency measures implemented during 2021 have yielded satisfactory results. The cost reduction program, the cost culture in general, increased digital collection and self-service, as well as leveraging advanced data analytics, are all supporting the key strategic goal of being the market leader in terms of cost efıciency. The NPL cost-to-collect ratio has been improved from 43.1% in 2020 to 42.5% in 2021, despite the restructuring cost taken through the year. NPL estimated remaining collections per country 0 500 1,000 1,500 2,000 2,500 2021202020192018 EUR million 1,388 2,169 2,141 2,038 NOR SWEESPITADEUFIN REO book value per country 0 50 100 150 200 250 2021202020192018 EUR million 29 129 79 200 NOR SWEESPITADEUFIN Axactor Group16 Axactor was faced with two relevant global security vulnerabilities in 2021. During the summer the Microsoft print spooler vulnerability was discovered, and in December the Log4j vulnerability became known. Both vulnerabilities were successfully mitigated with minimal impact on the operational services of Axactor systems. The high focus on information security, clear routines and policies, and the cooperation with external partners, were success factors in reducing the impact. Throughout the 2021 Axactor has continued the work to improve information security awareness among all employees. Multiple sessions, online learning programs and phishing campaigns have been conducted. Results from the phishing campaigns shows positive results with higher focus and understanding among the employees. The work to increase awareness will continue to be a part of the yearly information security exercises and planning for Axactor. The REO segment has been in run-off mode in 2021 with no new portfolios acquired since 2018. Sales volumes were nonetheless upheld at a high level throughout the year, following a strategy of fast paced liquidation. 4. Corporate Social Responsibility Axactor strives to maintain the highest level of professional standards and places maximum focus and importance upon honesty, integrity, accountability, transparency, and compliance in all aspects of its con- duct of business. Axactor is committed to comply with all applicable laws and regulations in all business activities and act in an ethical, sustainable, environmental, and socially responsible manner, practice good corporate governance and respect internationally recognized human rights principles. To safeguard compliance and support the effectiveness of such acts, an open and ongoing dialogue on these issues, internally and externally shall be maintained. The Board and the executive management of Axactor are committed to Environmental, Social and Governmental responsibility (ESG), supporting the UN Sustainable Development Goals with speciıc focus on: 5. Gender equality; 8. Decent work and economic growth; 13. Climate action; 16. Peace, justice and strong institutions. The UN SDG commitments support the company’s values and policies ensuring a sound corporate culture. During 2021 Axactor further strengthened its commitment to the UN Sustainable Development Goals, by becoming a signatory to the UN Global Compact. The sustainability report describes in detail Axactor’s work on ESG, including the company’s reviews of working environment, gender equality and the Group’s effects on the external environment for 2021. 5. Financial performance Total income Total income for 2021 ended at EUR 195.1 million, down from EUR 201.2 million in 2020. The main driver of the decrease was net negative NPL revaluations and an increase in NPL amortization rate from 37% to 41%. This impact was partially offset by a 6% increase in gross revenue, with increased collection on NPL portfolios and a 3% growth in 3PC income. Net NPL revaluations for the year were negative EUR 44.1 million, of which EUR 37.6 million were taken in the fourth quarter as a response to low collection performance during the second half of 2021. The majority of the revaluations in the fourth quarter were directed at portfolios acquired during 2017 and 2018, with an extra emphasis on Swedish portfolios. With the new curves, Axactor is well positioned to deliver a collection performance luctuating around 100% going forward. Gross revenue from the NPL segment increased by 8% to EUR 254.9 million in 2021 (236.5). The increase is mainly explained by portfolio investments, as well as the gradual lifting of Covid-19 induced collection restrictions across Europe. Due to the pandemic adjusted curves put in place in 2020, the NPL amortization rate was lower than normal in 2020. In 2021 the NPL amortization rate increased from 37% to 41%, which in monetary terms translates to an increase from EUR 86.3 million in 2020 to EUR 104.4 million. Adding net NPL revaluations of negative EUR 44.1 million (-36.9) and contribution from change in forward low derivatives of negative EUR 0.8 million (-0.8), NPL total income ended at EUR 105.6 million for 2021 (112.5). This represents 54% of total income (56%). Total income by segment 0 50 100 150 200 250 300 2021202020192018 EUR million 285 207 NPLPortfolios 3PC REO portfolios Other/Not allocated 201 195 Annual report 2021 17 Estimated remaining collection (ERC) on the NPL portfolios stood at EUR 2,140.5 million at the end of 2021 (2,169.2), of which EUR 268.8 million is expected to be collected in 2022. Continued investments in NPL portfolios are expected to drive gross revenue growth for the NPL segment in 2022. Axactor invested a modest EUR 114.0 million in NPL portfolios in 2021, down from EUR 208.2 million in 2020. The investment pace picked up throughout the year, with 75% of total investments deployed during the second half of 2021. These acquisitions provide momentum going into 2022. In addition, a total estimated EUR 117 million of investments are committed in signed contracts for 2022 per the end of 2021. Adding new contracts in 2022, Axactor expects to deploy EUR 200-250 million in NPL portfolio investments during the coming twelve months. During 2021 Axactor implemented an update to its strategy with an intensiıed focus on the core competence of the Group. This means a stricter capital discipline with investments directed at fresh unsecured non-performing consumer loans from known sellers. This reduces risk, leverages customer relationships in both the 3PC and NPL segments and ensures Axactor invests only in attractively priced, high-quality portfolios. This strategy is evidenced by a signiıcantly higher gross IRR on acquisitions in 2021 compared to the average for the back book. This trend is expected to continue into 2022, with the current volume commitments also made on gross IRR levels well above the current back book average. The 3PC business reported total income of EUR 49.6 million for 2021, up 3% from 2020 (48.3). Local collection restrictions have hampered growth for large parts of 2021, and several 3PC contracts were transformed into NPL forward low contracts. Towards the end of the year, the development turned positive in terms of both volume from existing contracts and from new business. During the fourth quarter, Axactor announced an agreement to acquire 100% of the shares in the Italian debt collection service provider Credit Recovery Service (CRS). The transaction was formally completed in January 2022 and will have immediate impact on the results for 2022. 3PC continue to be an important business segment for Axactor, providing a capital light income stream and providing important synergies with the NPL segment. The 3PC total income corresponded to 25% of total income for the company in 2021 (24%). The REO segment is in run-off mode and has not been considered part of Axactor’s core business for some time. To further emphasize this fact, the segment will be reported as discontinued operations effective from 2022. Total income for the REO segment for 2021 ended at EUR 39.8 million, 1% down from last year (40.4) and representing 20% of the Group’s total income (20%). A total of 1,263 assets were sold during the year, compared to 1,403 assets sold in 2020. While income and assets sold were upheld at a good level, the number of assets in inventory declined 46% in 2021. Total number of assets left in inventory at year-end is 1,446. Operating expenses Total operating expenses for 2021 amounted to EUR 171.4 million (169.2), excluding depreciation and amortization. A cost reduction pro- gram was implemented during the year, with annualized savings of EUR 5.5 million. Related restructuring costs of EUR 4.2 million are included in total operating expenses for 2021. Furthermore, a settlement amounting to EUR 2.2 million with a Swedish bank regarding the termination of a forward low agreement was reached in the fourth quarter of 2021. REO cost of sales of EUR 44.6 million (36.8) and REO impairments of EUR 5.9 million (16.1) are included in operating expenses for 2021. The impairments came as a result of reduced price expectations in order to continue the fast paced ofloading of remaining assets. Personnel costs accounted for EUR 61.3 million in 2021 (54.9) and is the single most important input factor in Axactor’s operations. The increase compared to last year is partly explained by restructuring costs in 2021 and partly by temporary cost reductions put in place during the initial phase of the Covid-19 pandemic in 2020. Other expenses amounted to EUR 59.6 million (61.4), including IT/ infrastructure costs, legal fees and REO servicing costs. Contribution by segment The total contribution margin amounted to EUR 68.3 million in 2021 (71.7). The contribution margin relects the segments’ contribution to EBITDA before local SG&A, IT and corporate cost. Please see Note 5 for more details. The contribution margin from the NPL segment was EUR 69.5 million in 2021 (75.3), relecting the net negative revaluations of 44.1 million (36.9). The NPL contribution margin thus decreased to 66% of total income (67%). The contribution margin from 3PC was EUR 15.4 million (17.4), corresponding to 31% of total income (36%). Most of the restructuring costs in 2021 were directed towards the 3PC segment, and the margin is thus expected to increase signiıcantly in 2022 as the saving initiatives gain full effect. The contribution margin from REO was negative EUR 16.5 million (21.0), after cost of secured assets sold of EUR 44.6 million (36.8) and impairments of EUR 5.9 million (16.1). The contribution margin was hence negative 41% (-52%). Local SG&A, IT and corporate cost amounted to EUR 44.6 million (39.7) for 2021. Axactor Group18 EBITDA As a consequence of the net negative NPL revaluations and the REO impairments, EBITDA shrunk from EUR 32.0 million in 2020 to EUR 23.7 million in 2021. The resulting EBITDA margin was 12% (16%). After the correction of future NPL collection curves and the cost reduction program carried out in 2021, Axactor expects proıtable growth in 2022. Cash EBITDA ended at EUR 223.8 million in 2021, up from EUR 209.5 in 2020. Further details on reported alternative performance measures are available in chapter 8.7 Reported APMs. Operating proıt (EBIT) Some of the investments in the collection platforms during the initial years of the Group’s history have now been fully depreciated or amortized. After a period of stabilizing investments, depreciation and amortization – excluding amortization of NPL portfolios – fell to EUR 9.7 million in 2021 (10.8). Operating proıt (EBIT) was hence EUR 14.1 million for 2021 (21.2). Net ınancial items Net ınancial items were negative EUR 54.8 million in 2021 (53.4), comprising ınancial revenue of EUR 3.0 million (12.6) and ınancial expenses of EUR 57.8 million (66.0). Interest expenses on borrowings accounted for EUR 52.9 million in 2021, down from EUR 63.6 million in 2020. Several measures were taken during the year to reduce the effective interest cost. At the very beginning of the year, a large restructuring of Axactor’s balance sheet was conducted. This included several loan reınancing transactions, and EUR 7.1 million in loan fees pertaining to the reınanced loan facilities were written down in 2020. Later in 2021, the bond like instrument owned by Sterna Finance was reınanced through the issue of an ordinary rated bond loan with a lower interest rate. During the last years Axactor has seen a high volatility in its FX exposure towards NOK and SEK. Measures have been taken in 2021 to reduce this volatility, and the net foreign exchange impact included in net ınancial items for 2021 was a modest EUR -1.5 million, compared to a net impact in 2020 of EUR 11.5 million. Other net ınancial expenses amounted to EUR -0.4 million (-1.3). Proıts and tax The proıt before tax was negative EUR 40.7 million in 2021 (32.2), and the net proıt was negative EUR 46.0 million (34.0). Axactor recorded a tax expense of EUR 5.3 million in 2021, compared to a tax expense of EUR 1.8 million in 2020. Axactor expects to trend towards a normalized average effective tax rate of approximately 25% over time. Net proıt to shareholders was negative EUR 32.8 million (18.1), whereas the net proıt to non-controlling interests was negative EUR 13.2 million (15.9). Total comprehensive income was negative EUR 37.3 million for 2021 (45.3), with the deviation from reported net proıt/(loss) after tax mainly explained by foreign currency translation differences. EUR 24.1 million of this loss was attributable to shareholders of the parent company (29.5) and EUR 13.2 million to non-controlling interests (15.9). Earnings per share totaled EUR -0.112 both on an ordinary and on a fully diluted basis (-0.099). Financial position Total assets amounted to EUR 1,293.2 million at the end of 2021 (1,363.6), of which book value of purchased NPL portfolios accounted for EUR 1,095.8 million (1,124.7). 0 20 40 60 80 100 2021202020192018 EBITDA and EBITDA margin EUR million and % 3292 +99% 46 32% 24 16% 22% 12% Return on equity, excluding non-controlling interests -10 -8 -6 -4 -2 0 2 4 6 8 2021202020192018 % 1.7 % -8.5 % -6.1 % 6.0 % Annual report 2021 19 Total non-current assets amounted to EUR 1,196.7 million (1,215.3), including intangible assets of EUR 87.5 million (82.6). This relects intangible assets and goodwill acquired since inception, as well as deferred tax assets of EUR 13.7 million (7.8). Current assets amounted to EUR 96.5 million (148.3), including stock of REO assets of EUR 29.3 million (78.8) and total cash and cash equivalents of EUR 44.0 million (50.7), including EUR 5.8 million in restricted cash (2.9). Total interest-bearing debt stood at EUR 838.3 million at the end of 2021 after a net repayment of debt during the year (936.2). Total equity amounted to EUR 381.2 million (375.7), including non-controlling interests of EUR 1.0 million (74.1). A total of EUR 51 million was raised in new equity in 2021, while non-controlling interests were reduced signiıcantly when Axactor acquired the minority stake in the co-invest vehicle Axactor Invest I. The equity ratio was 29% at the end of 2021 (28%). Supervision of ınancial reporting As communicated in a press release on 13 December 2021, Axactor SE has received a conclusion from the Norwegian Financial Supervisory Authority (FSA) in accordance with the preliminary conclusion as stated in the press release of 2 September 2021. The FSA requires that the company expands its measurement model for portfolios of non-performing loans (NPL) with more input variables capturing current and future macroeconomic conditions and use of scenarios with effect from the reporting of the annual accounts for the ınancial year 2022. The company take notice of the conclusion from FSA and will implement the requested changes accordingly. The notice from the FSA also requires the company to conduct a new measurement of one speciıc NPL portfolio as of 2019 and onwards. The company will document the assumptions used for estimates of future credit losses occurring after 2026. The company has performed a new measurement with the information available at the end of 2019 and an external valuation agency has provided a benchmark valuation to verify the internal measurement. Based on the updated measure- ment, the company has booked an impairment of EUR 1.8 million in the fourth quarter of 2021. The error is related to 2019, but is regarded as not material and a retrospective restatement has not been made, in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors. 6. Cash low and Financing Net cash low from operating activities, including NPL and REO invest- ments, amounted to EUR 109.6 million in 2021 (-1.7). The improvement compared to 2020 was mainly due to reduced investments in NPL portfolios. The amount paid for NPL portfolios fell from EUR 213.0 million in 2020 to EUR 115.4 million in 2021. The difference between the amount paid and total NPL investments for the year is related to deferred capex on certain contracts. Excluding investments in NPL portfolios, cash low from operating activities was EUR 224.7 million (209.7), mainly driven by the increase in cash EBITDA. The difference between cash EBITDA and cash low from operating activities before NPL investments relates to taxes paid of EUR 3.3 million (5.5) and a decrease in working capital, excluding forward low derivatives, of EUR 4.2 million (5.7). Net cash outlow from investing activities was EUR 4.7 million in 2021 (6.1), mainly relecting reduced IT and infrastructure investments. Net cash low from ınancing activities was negative EUR 112.4 million in 2021 (-15.7). Net proceeds from borrowings were negative EUR 86.2 million after debt repayments (-2.8), whereas proceeds from equity issues were EUR 50.8 million (50.8). Proceeds to non-controlling interests were EUR 6.6 million for 2021 (7.0). Interest payments, loan fees and costs related to share issues represented a cash outlow of EUR 67.5 million in 2021 (53.9). Funding At the beginning of 2021 a large restructuring of the balance sheet was completed. The restructuring exercise included several steps aimed at lowering the effecting funding cost and simplifying the legal structure to reduce administrative cost and increase transparency. In short, the steps were: x A share capital increase by contribution in kind was done as payment for the minority stake in the co-invest vehicle Axactor Invest I. After the transaction Axactor owns 100% of shares and A-notes in Axactor Invest I. As part of the transaction, the B-notes held by Sterna Finance were converted into a bond-like debt instrument with Axactor SE as counterpart NOR SWEESPITADEUFIN 0 100 200 300 400 500 2021202020192018 Annual NPL investments per country EUR million 462 208 114 398 Axactor Group20 x Axactor’s main funding line, a revolving credit facility from DNB and Nordea, was reınanced and the maturity extended to 2024. As part of the reınancing, the revolving credit facility in Axactor Invest I was merged with the main funding line. The new loan agreement has similar terms as the previous main funding line, but with a pricing mechanism dependent on the portfolio loan-to-value. The total facility is of EUR 620 million, of which EUR 75 million in the form of an accordion option x The bond loan AXA01 was reınanced with a new bond issue, ACR02. The vast majority of the AXA01 bonds were rolled into ACR02 bonds, with the remaining AXA01 bonds settled. Pricing and general terms for ACR02 are similar as for AXA01 x Subsequent to the share capital increase by contribution in kind, a private placement of EUR 30 million was carried out. Following the private placement, an additional EUR 20 million were raised through a repair issue Through the roll-up of Axactor Invest I, Geveran increased their ownership share in Axactor to 44.31%, triggering a mandatory offer for the remaining Axactor shares. The offer was placed at NOK 8 per share. The Board of Directors decided not to recommend shareholders to accept the offer. Geveran received valid acceptances under the mandatory offer for a total of 625,806 shares, corresponding to approximately 0.23% of the registered share capital and voting rights in the company. These transactions signiıcantly increased the equity and extended the majority of debt maturities to 2024, while the roll-up of Axactor Invest I will be accretive for the shareholder’s return on equity. Further to the above transactions, Axactor obtained a credit rating from leading credit rating agencies Moody’s and S&P, and issued its ırst rated bond loan in 2021. The ACR03 bond has an outstanding balance of EUR 300 million and a loating interest rate of EURIBOR +535bps. This bond loan is thus signiıcantly less expensive than the unrated ACR02 bond. Proceeds from the ACR03 issue were partly used to reınance the bond like debt instrument held by Sterna ınance and the local Italian credit lines. The REO ınancing from Nomura was amortized in full during 2021. Going out of 2021, Axactor has two sources of credit: bond loans and the revolving credit facility from DNB and Nordea. All legal entities except Axactor SE and the Reolux structure are inside the ringfenced structure that is funded by the revolving credit facility. This ensures a clean and transparent setup for Axactors continued operations in 2022 and onwards. Axactor has remained compliant with all loan covenants through 2021. 7. Reported alternative performance measures Axactor uses gross revenue, EBITDA, cash EBITDA, Estimated remaining collection, NPL, Return on equity and Net interest-bearing debt as an alternative performance measures (APM) to better relect its operational business performance and to enhance comparability between ınancial periods. These alternative performance measures are reported in addition to, but not as a substitute for, the performance measures reported in accordance with IFRS. Numbers in brackets refer to the corresponding ıgure in the previous year. For deınition and reconciliation tables of the used APMs, see page 138. 8. Proposed allocation of the company’s results The parent company, Axactor SE, had a net negative result after tax of EUR 16.4 million in 2021, compared to negative EUR 27.2 million in 2020. The result available for disposal of the Annual General Meeting is as follows: EUR thousand Distribution from other paid in capital 16,404 9. Corporate Governance The governance structure of Axactor SE complies with Norwegian corporate law and Norwegian securities legislation and stock exchange regulations. The shares of Axactor are freely negotiable. There are no restrictions on owning, trading, or voting for shares in the Articles of Association. The shares in the company are not subject to any transfer restrictions. The Board has approved guidelines for good corporate governance in accordance with the Norwegian Code of Practice for corporate governance issued by the Norwegian Corporate Governance Board (NCGB and NUES), last revised on 14 October 2021. Axactor is fully compliant with the NUES recommendations. A detailed description of the corporate governance principles and reporting for 2021 can be found in the Corporate governance report. Axactor holds directors, ofıcers and company liability insurance policies covering the Directors of the Board and the CEO. The policies are granted by primary and excess insurers. The insurances cover the liability from claims which may arise from the decisions and actions taken within the scope of their regular duties. The coverage includes ınancial protection against the consequences of wrongful acts, their personal liability, ınancial loss in respect of any securities claim made against the company and certain costs and ınes related herein. The policies also cover reimbursement of the company where coverage has been made on their behalf. Coverage does not include fraudulent, criminal or intentional non-compliant acts or cases where directors obtained illegal remuneration, or acted for personal proıt. Annual report 2021 21 10. Risk proıle Axactor’s regular business activities entail exposure to various types of risk. There is a risk that the Group will be unable to compete with businesses that offer more attractive pricing levels and the Group’s competitors may have or develop competitive advantages that the Group is unable to match. Reputational damage due to an unforeseen event could adversely affect the business and ability to attract new customers. If the Group is unable to enter new debt collection contracts, fails to collect third party’s or own debts, is unable to purchase portfolios at appropriate prices or to make acquisitions that prove unsuccessful e.g., due to incorrect assumptions. There is also a risk that the business and ability to implement the business plan will be materially adversely affected. A failure to comply with applicable regulations in relevant jurisdictions may materially adversely affect the ınancial position due to e.g., loss of customers and/or ınes to pay, and the ability to operate in such jurisdictions due to e.g., loss of license. A failure to employ and retain skilled personnel and to retain third-party service providers may have a material adverse effect on the operations. A pandemic situation may, as experienced in 2020-2021, affect the operational efıciency, impairment, and the Group’s ınancial results. Enhanced focus from authorities and stricter rules and practices related to e.g., AML, GDPR, tax/vat and NPL are ongoing risks. The Group in all materiality complies with relevant rules and regulations for debt management providers in all its geographical markets. Axactor is also subject to regulatory changes in individual markets, such as temporary rules related to the Covid-19 pandemic, proposal for revised debt collection regulations in Norway anticipated during ırst half of 2022 and the currently discussed implementation of the NPL regulations (EU) 2019/630 of 17 April 2019 amending Regulation (EU) No 575/2013 as regards minimum loss coverage for non-performing exposures in Norway. Axactor monitors regulatory changes relevant for the business and is member of relevant association of debt collection and debt purchase companies locally such as ANGECO (member of FENCA) in Spain. Other important regulatory developments are the rapidly increasing number of regulations both in Norway and from the EU on sustainability reporting requirements, such as Regulation (EU) 2020/852 (Taxonomy), the proposal for a Corporate Sustainability Reporting Directive (CSRD), the Norwegian Transparency Act (“Åpenhetsloven”), etc. These developments are being carefully monitored to ensure compliance also going forward. Axactor adheres to new rules and believe the above-mentioned regulatory changes will have limited ınancial impact, but in relation to the ever-increasing reporting requirements, Axactor considers the administrative burden to be notable. Axactor also faces operational risks, mainly related to IT stability, application availability, as well as information security and data processing. The company seeks to mitigate these risks through partnerships with certiıed infrastructure, hardware and software and application providers and strict internal control including vendor management. These and other risk factors are covered in Note 3 of the Groups ınancial statement. Axactor’s ınancing and ınancial risks are managed within the Group in accordance with the Finance policy, the Treasury policy, and the Hedging policy established by the Board. Internal and external ınancial operations are concentrated to the Group’s central ınance function. Axactor’s exposure to market risks relating to interest rate, currency, credit, liquidity, and ınancing are also covered in detail in Note 3 to the Group’s ınancial statement. The main risks related to interest rates, liquidity and ınancing can be summarized as follows: The interest rate risk relates to the variable rates on Group’s interest-bearing debt, which amounted to EUR 838.3 million per the end of 2021 (936.2). An annualized increase/decrease of 100 basis points would increase/ decrease proıt before tax by EUR 7.0 million (9.4). The average effective interest rate for 2020 was 6.9% (5.8%). With regards to liquidity, the Group’s objective is to maintain a balance of ınancial assets that relects the cash requirements of its operations and investments for the next 12-24 months. The cash low from operating activities generated by the Group was positive in 2021, with relatively low investments in NPL portfolios. In previous years the NPL investments have exceeded the cash low from operating activities before NPL and REO investments. The 46% drop in amount paid for NPL portfolios from 2020 to 2021 shows how quickly the investment level can be scaled down. As long as Axactor deliver positive cash low from operating activities before NPL and REO investments, the Group will not hesitate to increase the NPL investments in the future to secure proıtable growth. Per the end of 2021 the Group held cash and cash equivalents of EUR 38.2 million excluding restricted cash (47.8). The liquidity is managed at Group level. The Group has certain ınancial covenants tied to its funding facilities. The headroom under these covenants were substantially improved through a large restructuring of the balance sheet at the start of 2021. Axactor has thus remained compliant with all covenants throughout 2021. Axactor has an investment capacity of approximately EUR 300 million at the end of 2021, and plans for an investment level in NPL portfolios between EUR 200 million and EUR 250 million in 2022. Given the current ınancial position, cash low projections and invest- ment outlook, the Board consider the liquidity risk to be fairly low. If any of the risks mentioned above were to materialize, either individually, cumulatively or together with other circumstances, it could have a material adverse effect on the Group and/or its business, results of operations, cash lows, ınancial condition and/or prospects, which may cause a decline in the value and trading price of the shares. Axactor has adopted a regime to manage and mitigate these risks. The Board has adopted a risk management policy. Annually a bottom-up and top-down risk assessment covering the entire risk spectrum is carried out. The Chief of Staff has the operational responsibility for risk management. The countries provide status updates of the Axactor Group22 internal control, most important risks and mitigation measures to the executive management on a monthly basis and ad-hoc when needed. Risks are discussed in the weekly executive management meeting and are reported quarterly to the audit committee. 11. Going concern Based on the review of Axactor SE’s ınancial statement, the Board of Directors conırms that the annual ınancial statements for 2021 have been prepared on the basis of a going concern assumption, and that this assumption has been made in accordance with Section 3-3a of the Norwegian Accounting Act. 12. Outlook After a challenging 2021, Axactor is in a good position to deliver proıt- able growth in 2022. The large negative NPL revaluation booked in the fourth quarter 2021 reduces downside risk for collection performance, which is expected to luctuate around 100% going forward. The cost reduction program has delivered above expectation, rendering a lower cost base going into 2022 than the Group had going into 2021. Furthermore, a series of initiatives to simplify the legal structure were carried out in 2021, creating a more efıcient structure in terms of expenses and administrative burden. Although total NPL investments for 2021 was on the low side, the fourth quarter saw a signiıcant uptick in investment level. These acquisitions provide momentum going into the ırst quarter of 2022. In addition, Axactor has estimated NPL investment commitments for EUR 117 million in 2022 at a satisfying gross IRR level of 22%. The forward low commitments alone are enough to secure positive NPL book value growth for the coming twelve months. Adding expected new acquisitions in 2022, Axactor expect to deploy between EUR 200 million and EUR 250 million in NPL portfolios for the coming twelve months. 3PC volumes are slowly returning towards pre-pandemic levels as local restrictions such as moratoriums are gradually phased out. The market for new 3PC business is healthy as well, with a strong pipeline of potential new customers. In Italy, the acquisition of Credit Recovery Service that was ınalized in early January 2022 will have a signiıcant positive effect. Credit Recovery Service comes with a recurring annual revenue of approximately EUR 6 million, as well as improving Axactor’s standing in the Italian 3PC market for fresh non-performing loans originated within the bank and ınance sector. The ırst quarter of 2022 has seen increasing geopolitical risk in Europe with the ongoing conlict in Ukraine. Although Axactor’s operations are not directly impacted by the conlict, the executive management and Board closely monitors the situation and potential indirect business impact, and maintains the business continuity plans. Oslo, 30 March 2022 The Board of Directors Merete Haugli Board member Brita Eilertsen Board member Terje Mjøs Board member Lars Erich Nilsen Board member Kathrine Astrup Fredriksen Board member Hans Harén Board member Kristian Melhuus Chair of the Board Johnny Tsolis CEO Annual report 2021 23 We conırm to the best of our knowledge that the consolidated ınancial statements for 2021 have been prepared in accordance with IFRS as adopted by the European Union, as well as additional information requirements in accordance with the Norwegian Accounting Act, that the ınancial statements for the parent company for 2021 have been prepared in accordance with simpliıed IFRS pursuant to the Norwegian Accounting Act and regulations regarding simpliıed application of IFRS issued by the Norwegian Ministry of Finance, and that the information presented in the ınancial statements gives a true and fair view of the assets, liabilities, ınancial position and result of Axactor SE and the Axactor Group for the period. We also conırm to the best of our knowledge that the Board of Directors' Report includes a true and fair view of the development, performance and ınancial position of Axactor SE and the Axactor Group, together with a description of the principal risks and uncertainties that they face. Responsibility statement Oslo, 30 March 2022 The Board of Directors Merete Haugli Board member Brita Eilertsen Board member Terje Mjøs Board member Lars Erich Nilsen Board member Kathrine Astrup Fredriksen Board member Hans Harén Board member Kristian Melhuus Chair of the Board Johnny Tsolis CEO Axactor Group24 The foundation of Axactor’s sustainability work Axactor’s purpose is to help people and companies to a better future, by helping companies to get paid, in a sustainable manner for the debtors, enabling further investments and economic growth. Axactor recognizes that business has a role to play in solving social challenges through responsible investments, by supporting and developing the skills of the employees, and by offering innovative products that cater to customers’ needs. This combines faster payments and respectful treatment of debtors, brings down outstanding credits, secures a stronger ınancial market, and increases quality of life for many people in ınancial difıculties. Through the core business and supply chain, Axactor create economic value and opportunities for society and local communities. Responsible operations are essential for the license to operate and an enabler of long-term value creation. Sustainability begins from within the organization, and a clear tone from the top is crucial. To increase the transparency in its sustainability reporting, Axactor has prepared this sustainability report in compliance with the Global Reporting Initiative (“GRI”) standards. This report has been prepared in accordance with the GRI Standards: Core option. At Axactor, everyone from the Board through the executive manage- ment team, and throughout the entire organization, are accountable for conducting business in an ethical, sustainable, environmentally, and socially responsible manner. Axactor practices good corporate governance, respect internationally recognized human rights principles and supports the UN Sustainable Development Goals ("SDGs”). Becoming a signatory to the UN Global Compact during 2021 further emphasizes this and commits Axactor to the ten principles of the UN Global Compact, in each of the four areas: human rights, labour, environment, and anti-corruption. To update its stakeholders and society on its progress in implementing the ten principles, Axactor needs to annually communicate on its progress about its efforts in a “Communication of Progress”. This report also incorporates Axactor’s ırst Communication on Progress (“COP”). The ten principles are all relected in Axactor’s various Board approved policies, being the cornerstone of Axactor’s governance structure. The ten principles of the UN Global Compact Human Rights Principle 1 Businesses should support and respect the protection of internationally proclaimed human rights; and Principle 2 make sure that they are not complicit in human rights abuses. Labour Principle 3 Businesses should uphold the freedom of association and the effective recognition of the right to collective bargaining; Principle 4 the elimination of all forms of forced and compulsory labour; Principle 5 the effective abolition of child labour; and Principle 6 the elimination of discrimination in respect of employment and occupation. Environment Principle 7 Businesses should support a precautionary approach to environmental challenges; Principle 8 undertake initiatives to promote greater environmental responsibility; and Principle 9 encourage the development and diffusion of environmentally friendly technologies. Anti-Corruption Principle 10 Businesses should work against corruption in all its forms, including extortion and bribery. Axactor has a zero-tolerance policy for corruption, fraud, money- laundering and terrorist ınancing. To safeguard compliance and support the effectiveness of relevant regulations, the company aims to maintain an open and ongoing dialogue on these issues, internally and externally. The success of Axactor’s business is dependent on the conıdence earned from the employees, customers, debtors, and investors. Credibility is gained by adhering to the given commitments, displaying honesty and integrity, and reaching company goals solely through honorable conduct. Sustainability report Annual report 2021 25 Highlights from 2021 Sustainability has been an integral part of Axactor’s business operations since the foundation of the company back in 2015. During 2021, Axactor has continued to improve the maturity and awareness within the entire organization and further improved policies, processes, systems and reporting mechanisms. Below a brief overview of the highlights from 2021, as detailed within the report: E Development of a GHG emissions tool initiated Signiıcantly reduced number of company cars Focused on waste reduction in ofıces and amongst suppliers Plastic reduction initiative Paper waste reduction initiative Board support to UN SDG #13 Policies and procedures updated to further address and promote climate action and continued environmentally friendly growth S Strengthened the understanding of the company’s purpose for all employees Measured stakeholders’ satisfaction Eased access to information and ability to pay through digital solutions: QuickPay and debtor portal Increased focused on sustainable payment plans, in light of the Covid-19 pandemic Established cooperation with Great Place To Work to measure employee satisfaction Set further KPIs to measure sustainability performance Implemented a new group-wide recruitment-tool to increase focus on talent attractions More courses launched through Axactor Academy Performance management and development, e.g. mentor- and student-programs Continued focus on gender equality and diversity New brand guideline and fonts, to ensure better readability for people with visual disabilities G Ethical committee established Improved vendor management and introduced a Supplier Code of Conduct New Group risk and compliance tool implemented to improve internal control, risk management, and internal audit processes Improved anti-money laundering processes and begun implementation of more automated transaction monitoring New intranet launched; The People Hub Participated and shared knowledge in relevant forums, e.g. through regulatory watch initiatives in debt collection associations and responding to EBAs requests for feedback on NPL standard templates. Improved procedures for customer and portfolio selections Improved information security and data privacy governance and awareness Individual policies established on anti-fraud and anti-corruption, anti-money laundering, anti-trust, and trade sanctions Whistle-blower channel made available to suppliers Signed UN Global Compact Axactor Group26 Strategic focus 2022 Axactor’s vision is to become the industry benchmark. A company that delivers the best advice and fairest treatment of debtors, with more satisıed customers, happier employees and, with high return on investments. Axactor’s values “passion, trust and proactive” help set the direction and guide the decisions, actions, and the way Axactor interacts with its stakeholders. Axactor is constantly looking for areas in which to continue to improve, going into 2022, the following areas will be of importance. E Implement GHG measurement tool Improve climate accounts for the Group Reduce number of company cars Set emission reduction targets Support local initiatives to reduce waste and/or emissions S Improve debtor complaint management, e.g. through setting further KPIs for debtor complaints and implement a tool for reporting. Increase number of scorecards for fairer and more efıcient operations Continue targeted efforts to improve gender equality and diversity Certify all six countries as a Great Place to Work Set KPIs for measuring and reporting on employee training hours G Strengthen information security, e.g. through network segmentation, mobile device policy, better security analysis tools, early detection and root-cause mitigation, automatizing of tools and worklows including improved incident reporting, and continuous awareness Improved regulatory watch: Focus on EU Taxonomy, CSR Directive, CSDD Directive, NPL Directive, etc. Increased knowledge-sharing Expand measurement model for portfolios of non-performing loans (NPL) with more input variables capturing current and future macroeconomic conditions and use of scenarios Continue to simplify the legal structure Strengthen preventive and detective measures to combat ınancial crime Reporting boundaries Deıning consistent boundaries for sustainability reporting is challenging due to the complexity of ownership and operational arrangements in six different countries, including, among others different regulatory requirements. Axactor strives to be consistent and transparent about variations in boundaries and provide a complete report in line with industry practice. Implementation of common reporting systems and development of common deınitions and reporting standards have raised the quality of the report, but there are still improvements to be made e.g. to be able to report correctly on incidents year over year. Historic numbers are sometimes adjusted due to e.g., changes in reporting principles, changes of calculation factors used by authorities, or re-classiıcation of incidents after investigations. Policies The Board’s commitment to ensure that the company maintains good corporate governance standards is explained in the Corporate governance report, and the commitment to sustainable operations in this sustainability report. The Board annually review and approve policies applicable for every employee in the Axactor group, to ensure that everyone complies with these commitments, and that the policies are adjusted to changes in the regulatory environment. The Board approved the following Group policies in 2021 which all contains elements to ensure sustainable operations: Quality Legal and compliance Insider Corporate governance Operations Anti-fraud and anti-corruption IT and information security Delegation of authority Anti-money laundering Code of Conduct Physical security Antitrust Procurement Corporate social responsibility Trade sanctions Finance Environmental Treasury Communication Debt purchase HR Data protection Annual report 2021 27 Material issues and stakeholder engagement Axactor has updated the materiality analysis conducted in 2020 to ensure the continuous relevance of the material sustainability aspects identiıed - the areas considered to be the most important for Axactor and its long-term value creation. The materiality analysis deınes the challenges and issues that Axactor and its stakeholders perceive as most important, and where impact on society and the environment is considered most decisive. The materiality analysis is based on feedback from external and internal stakeholders who have responded to and provided comments on a questionnaire based on relevant topics inspired by GRI standards, either by survey or through interviews. External stakeholders included customers, partners, regulators, suppliers, investors, and lenders. Internal stakeholders included representatives of the Board, the executive management, and employees. The survey covered key factors for Axactor’s daily operations and long-term value creation related to governance, people, and the environment. The focus areas and associated issues are presented in the materiality matrix below. The results of the materiality analysis have been substantially the same for the last two years, which further conırms what the stakeholders believe Axactor should focus on going forward. Axactor’s contribution to the UN’s Sustainability Development Goals The SDGs were agreed by all 193 UN member states in 2015, and provide a common guidance for governments, civil society, and the private sector to help create a better future for people and the planet. In 2021 Axactor signed the UN Global Compact, which is a CEO commitment on implementing universal sustainability principles, which further strengthens the Group’s previous commitments to the SDGs. Axactor places the SDGs at the core of its business, emphasizing especially its commitment to the goals below, which underpins the results of the materiality analysis. Here are a few examples of how these goals come into action through the daily operations: Materiality matrix Importance for Axactor’s stakeholders Importance to company Responsible value chain and partnerships Relationships with regulators and organisations Innovative and efıcient product offering Sound economy for our clients Increase ınancial literacy in society Environmental footprint Working conditions Ethical business behaviour Ethical collection by treating customers fairly Data security Customer privacy Preventing ınancial crime and corruption Diversity, non-discrimination and equal opportunities Talent attraction and retention Responsible selection of clients and portfolios Axactor Group28 UN Goal and Axactor main focus area Examples on Axactor’s contribution 5 Achieve gender equality and empower all women and girls Why is this important? Gender equality at all levels in the organization is pivotal to Axactor’s working environment, corporate culture, skill set, decision-making, as well as debtor and customer service. The beneıts of a conscious gender balance throughout the organization adds indisputable value, and Axactor aims to have a gender balance in all managerial teams, within a range of 40%–60%. What has our contribution been in 2021? • Continuous development of sustainable people processes with increased focus on embedding diversity and inclusion practices in them. • Roll-out of mentorship program focused on developing talents, women have been prioritized when suitable. • Extensive mapping of pay gaps between men and women, corrective actions completed where relevant. • Measure of experience of equity related to, but not limited to, treatment of men and women through employee survey (Great Place to Work). • Substantial increase in women in managerial positions since 2020. 8 Promote sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all Why is this important? Sense of achievement and contribution to a bigger whole are fundamental to many individuals’ well-being. Contributing to decent work for all individuals regardless of any variable that adds to their uniqueness is a strategic focus at Axactor. The beneıts of a diverse and inclusive workplace are manyfold, not least to business performance. What has our contribution been in 2021? • 20% of employees are under 30 years of age and 14% of employees are over 50 years of age. • A certain number of positions (variations per country) are reserved for by employees with disabilities. • Continuous development of sustainable recruitment, development, and promotion processes with focus on embedding diversity and inclusion practices in them and avoiding bias in any of these. • Roll-out of student program that aims to create a cross-border network for students for, among other things, knowledge sharing. 13 Take urgent action to combat climate change and its impacts Why is this important? Axactor’s business is low-polluting, and not associated with any signiıcant environmental impact. Despite this, Axactor recognizes that climate change is one of the biggest challenges of our generation. In recognition of this, Axactor actively takes steps towards reducing its operational emissions and promoting environmentally friendly behaviour amongst employees. What was our contribution in 2021? • Policies and procedures updated to further address and promote climate action and continued environmentally friendly growth. • Project to map the Group’s total GHG emissions, going further than current reporting requirements, to start working more actively towards reducing the Group’s environmental footprint. The project will continue going into 2022. • Paper management project in Spain, having the Group’s most paper-intensive operations because of physical mail requirements: Successfully recycling 12,920 kg of paper. Resulting in saving 180 trees, 11,6 tons of CO2 emissions, 646 m3 of water usage and 26 m3 of space saved in landılls. 16 Promote peaceful and inclusive societies for sustainable development, provide access to justice for all and build efective, accountable, and inclusive institutions at all levels Why is this important? Axactor’s focus on responsible and sustainable investment is in the larger picture aimed at achieving good long- term returns with a limited level of risk, while at the same time contributing to complete avoidance of the violation of fundamental rights. What was our contribution in 2021? • Policies and procedures to prevent and detect unethical behavior, fraud, corruption, money-laundering, trade sanctions, and terrorist ınancing have been established. The company is committed to a zero-tolerance policy. • Mandatory compliance trainings for all employees. • Regular and structured audits to identify weaknesses in policies and processes. • Supplier Code of Conduct signed by all key suppliers, compliance with the code conırmed through a self- assessment and veriıed through second line controls vendor management. • Made whistle-blower channel available to suppliers • Continued unequivocal dedication to being a ınancially stable company, pay taxes and fees, and employ staff with the knowledge that this encourages the building of accountable institutions at all levels. • Axactor contributes to the wider community by paying taxes and government fees. • Ethical committee established. Annual report 2021 29 Building a viable ınancial system for people and society The objectives of the Axactor Group are to engage efıciently, responsibly, and proıtable for investors, customers, debtors, partners, and employees. Axactor assists in improving cash low, increasing liquidity, and minimizing the risk for its customers, while also helping debtors get out of debt through fair debt collection practices and by providing support and advise throughout the debt collection process. Axactor builds trust and conıdence through transparency. Strong ethical values promoting fair treatment of its stakeholders to protect reputation and company values are essential to the company’s success. Mechanisms are in place to ensure that employees are aware of, and updated on policies, frameworks, and procedures to ensure ethical behavior in all aspects of the business. Ethical business conduct The Group’s corporate principles are relected in policies and proce- dures, which describes how to make decisions, act, and prioritize. Both while conducting day to day operations, but also in the planning phase of projects and strategies. Employees should always act in accordance with the intention of the policies, and not its letter, always with the highest standards of ethical integrity. Employees and representatives of Axactor shall always: x respect human rights, respect the rights of employees and their representatives, protect the environment, enable fair competition, and combat ınancial crime x balance potential beneıts of actions, against the consequences to society x incorporate proıtable business with social, ethical, and environmental goals and actions x clearly communicate its demands and expectations regarding corporate responsibility and ethical conduct to employees and business partners x have corporate responsibility as a deıning factor when developing ınancial products and services, and a deıning factor in asset management operations x have a transparent management structure in line with national and international standards for good corporate governance x have a strong compliance and internal control culture x only cooperate with customers, business partners and suppliers who operate in compliance with laws and regulations, good business practices and who maintains high ethical and environmental standards x ensure that all shareholders and other ınancial market players are treated and informed equally, and that the information is consistent, reliable, available, and not misleading Axactor sets clear responsibilities and expectations for its managers, employees, and partners. This enables Axactor to operate efıciently with the necessary oversight and control. Effective governance structures further allow the Group to work smoothly by ensuring that everyone has a clear understanding of the distribution of roles, responsibilities, rights, and accountability. The corporate governance of Axactor complies with formal regulations and generally accepted best practices as further outlined in the Corporate Governance report included in the Annual report 2021. In 2021, Axactor also established an ethical committee with Board level approval, to manage and advice on ethical considerations – in relation to a variety of topics, such as, diversity, discrimination, fraud, and corruption. All new employees are introduced to the Code of Conduct as part of their on-boarding and signs a declaration conırming that this is read and understood. Every employee re-conırms this commitment during their employment. In 2021, Axactor launched a Supplier Code of Conduct, which the Group’s suppliers are required to sign. By signing the Supplier Code of Conduct, the suppliers acknowledge that they, and any of their afıliates, agents, suppliers, fully comply with applicable laws, and adheres to internationally recognized environmental, social, and corporate governance standards. Each supplier’s commitment to the Axactor Supplier Code of Conduct is reafırmed through regular com- pliance questionnaires, and where necessary through enforcement of the audit rights set out in the Supplier Code of Conduct. The Supplier Code of Conduct includes a link to a whistle-blower channel, which may be used to report actual or potential breaches to the Supplier Code of Conduct on the part of the supplier or Axactor. Whistleblowing The company has an independent whistle-blower channel for all employees within the Group, and for its suppliers, to use if they wish to report censurable, illegal, or unethical conduct. The whistleblowing channel is easily accessible through the “intranet”, and through a link in the Supplier Code of Conduct. The whistle-blower channel is independent and available 24/7. The channel handles reported cases in local language with integrity, respect, and conıdentiality, also ensuring the protection of anyone reporting in good faith. The whistle-blower channel offers full anonymity if opted for and allows users to engage in written dialogue and to exchange information without losing their anonymity. Whistle-blower reports are processed in accordance with the company’s procedures and in line with data privacy regulations. The Board is informed of all cases reported, the types of misconduct and measures taken. 2021 2020 Group total 5 6 Three out of the ıve cases in 2021 were upon further inspection deemed not to be whistle-blower cases and were followed up accordingly. The remaining two were issues related to the working environment and operational practices, both considered non-material. All reports have been followed up in line with protocol, appropriately investigated and improvements proposed based on the ındings. Ethical debt collection is an essential part of a well-functioning credit market The markets Axactor operates in have clear local varieties in the way collection processes are done, but the main principles of the collection activities are quite aligned. This enables the possibility to set group wide operational targets and KPIs that still are relevant for the local markets. Axactor is handling volumes in many stages of the credit cycle throughout the different markets, from invoicing and pre-collection to legal collection and long-time surveillance. Paired with the element of debt purchase, Axactor is truly an integrated part Axactor Group30 of the European credit market. The debt collection industry enables banks, ınancial institutions, and companies to give credit. Axactor believes that this responsibility should not be taken lightly, which is relected in the in the operational policy, where Axactor commits to giving services of the highest ethical standards always in line with principles of good collection practices. In the majority of countries where Axactor operates, debt collection is strictly regulated through speciıc debt collection acts and regulations, requiring a license to operate. Many of the ınancial supervisory authorities and/or associations have additional certiıcation require- ments for both debt collection companies and their employees. Axactor has all mandatory certiıcations and licenses in place, and proactively seeks to certify employees within the debt collection profession. Further, Axactor is also actively engaged in the local debt collection associations and was in 2021 represented in various boards and sub-committees working on speciıc topics, such as new legislation and statistical reporting. Axactor’s engagement in local debt collection associations is motivated by its interest in protecting its own and the industry’s interest, but always with integrity and through transparent means. Axactor or its employees shall never mislead or try to obtain information dishonestly through inappropriate lobbying. In Finland, the application process has started internally to become a member of the local debt collection association Suomen Perimistoimistojen Liitto during 2022. Country Debt Collection Association Membership Norway Virke inkasso Yes Sweden Svenska inkassoforeningen Yes Germany Federal Association of German Debt Collectors (BDIU) Yes Italy UNIREC Yes Spain ANGECO Yes Finland Suomen Perimistoimistojen Liitto In process As a listed company, Axactor reports to the market on a quarterly basis. Adding to the ınancial numbers, Axactor has also set measurements to ensure that considerations of sustainability are closely linked with the company’s activities and value creation. In understanding key stakeholders’ satisfaction with Axactor’s debt collection services, the following KPIs have been identiıed: debtor, employee, and customer satisfaction. The feedback from these three important stakeholders is of the utmost importance to ensure that Axactor is delivering on their ambitions and continues to always improve, both in terms of ınancial results but also in sustainability performance. The overall results from the surveys listed below gives Axactor conıdence that the commitment to ethical debt collection is visible both externally and internally. Provider Survey 2021 Aggregated group-score Internal Debtor satisfaction 4.53 out of 5 Ennova Customer satisfaction 8.5 out of 10 Ennova Net Promotor Score (“NPS”) 50.3 Great Place to Work Employee satisfaction 72% Debtor satisfaction survey The debtor satisfaction survey is conducted via phone after the debtor has been talking with a collection advisor. The survey is 100% automized with no human interaction from Axactor’s side. The debtor is asked three questions related to the service provided in the previous call and is asked to rate Axactor’s services on a scale from one to ıve, where ıve is the highest score. Throughout 2021 all countries Debtor satisfaction survey 0 1 2 3 4 5 SwedenSpainNorwayItalyGermanyFinland 4.69 4.52 4.52 4.59 4.32 4.61 Annual report 2021 31 have been stable at high levels, and Axactor is committed to ensuring excellent service to all debtors contacting the contact centers. Customer satisfaction survey The customer survey is a valuable measurement of the satisfaction from key executives in Axactor’s customer’s organizations. Axactor has other customer related KPIs as well that are measured monthly, whereas the customer survey is conducted on an annual basis. When comparing the results for Axactor to statistics from the vendor, Axactor has enthusiastic customers which is in line with the company vision of being the industry benchmark. All countries have improved their score compared to the previous survey. The assessment scales from one to ten, with ten being the highest score. The second part of the results from the Ennova customer satisfaction survey is a measurement of the NPS. The NPS is a proxy for measuring a combination of the customer’s loyalty and satisfaction with the Axactor brand. The NPS is ranging on a scale from -100 to +100. A score above zero is positive, and a score of 50 or more is considered to be excellent. Employee satisfaction survey Within the ıeld of human resources, it was decided in 2021 to change the vendor for the employee survey, to Great Place to Work (GPTW). One of the main reasons for choosing GPTW is the focus on trust, relecting one of the three values of Axactor. Trust develops when managers are perceived as credible, respectful, and fair. This survey measures the employee’s relations with managers, their job, and their colleagues. In total, 1,098 eligible employees received the invitation, and 85.5% responded. Out of six countries, Axactor managed to certify ıve as a great place to work in the ırst year of carrying out this survey and are amongst the highest performers of employers in several markets. It was only Spain that fell short of reaching the threshold. Spain was fairly close to the level required to receive the certiıcation, and Axactor will continue the good work to secure the certiıcation in 2022, also for Spain. Axactor also measures on speciıc operational KPIs to trace perfor- mance and adherence to its business practice principles. The results will in turn be used to improve Axactor’s debt collection services. Phone collection Axactor sees it as its responsibility to be available for debtors wanting to get in contact and is always proactively trying to get in contact with debtors to ınd sustainable solutions. Upon this background, Axactor has deıned a group-wide target to achieve an average service level of answering 95% of all incoming calls to the contact centers. All contact centers have an automatic call-back function, to call back all debtors who does not reach the collection advisors, to ensure that all debtors Customer satisfaction survey 0 2 4 6 8 10 SwedenSpainNorwayItalyGermanyFinland 9.0 8.7 8.6 8.4 7.8 8.8 NPS 0 10 20 30 40 50 60 70 80 90 100 SwedenSpainNorwayItalyGermanyFinland 72.2 50.0 53.8 46.8 26.3 75.0 Axactor Group32 are serviced. Another important measurement is the nuisance rate when doing calling activities through the predictive mode. The dialer ensures that Axactor has enough collection advisors to handle the call volumes distributed by the sophisticated dialer. The overall target is that the abandoned call rate should not exceed 1%. The investments made in state-of-the-art contact center technology and the resource capacity-planning, ensured that Axactor delivered on the internal targets in 2021. Service level (inbound) Target Actual Nuisance rate (outbound) Target Actual NOR 95% 98.6% NOR <1% 0.53% SWE 99.6% SWE 0.36% FIN 99.0% FIN 0.32% GER 95.6% GER 0.34% ITA 93.8% ITA 0.67% ESP 99.6% ESP 0.63% Quality of payment agreements Another important KPI is the quality of payment agreements and how sustainable the agreement is for the debtor. The payer-to-payer ratio measures how many of the debtors that paid the previous month, who also paid the following month. This is a good measurement over time to ensure that payment agreements are not made on terms that are not possible to fulıl. Year Payer to payer (avg.) Improvement vs. 2019 2019 71.2% 2020 74.2% +4.2% 2021 75.8% +6.4% The payer-to-payer ratio has gradually improved year-over-year and shows that Axactor’s investments in training and education of employees yields positive results. Digital collection Axactor has debtor portals in place for all markets to ensure efıciency and availability for the debtors. Offering digital payment solutions enables sounder payment lows in the market in a more environmentally friendly manner. The self-service solution requires debtors to log in through secure identiıcation methods and gives debtors an extensive overview of their debt and correspondence, as well as the possibility to securely start a dialogue with Axactor. The use of the portal increased during 2021 with more than 600% compared to 2020, a development which is expected to continue in 2022. In addition to the self-service portal, a payment solution called QuickPay is offered in ıve out of six markets. This is an easy- to-use payment channel where payment information in the ofıcial correspondence from Axactor may be used to pay outstanding debt. Axactor Germany started a project during 2021 to utilize the QuickPay solution, and when launched in Germany, all Axactor markets will have the payment solution in place. Segmentation In 2021, Axactor has continued to mature in the use of advanced analytics and business intelligence, to build predictable scorecards to improve collection processes to increase efıciency and good debt collection practices through advanced segmentation tools, enabling adjustment of means when approaching debtors. The ability to identify vulnerable debtors enables Axactor to provide payment plans and services that takes into account each debtor's unique situation – in line with Axactor's core values. Products and services Further to the above, ethical debt collection is also about the value- chain of debt collection and ensuring that customers, debt portfolio sellers, and vendors used by Axactor, are acting responsibly and fully comply with applicable laws, and adheres to internationally recognized environmental, social, and corporate governance standards. Employee satisfaction survey 0 10 20 30 40 50 60 70 80 90 100 SwedenSpainNorwayItalyGermanyFinland 60% 87% 95% 83% 76% 84% Annual report 2021 33 Management shall ensure responsible investments. No portfolios which include use of unethical lending terms or aggressive sales methods, or are considered unethical for other reasons, shall be purchased. Axactor has structured purchasing processes and sourcing strategies to ensure that the services and goods acquired are ethical and of high quality. Axactor shall ensure that suppliers involved in the debt collection process, such as ıeld collectors, commit to Axactor’s Supplier Code of Conduct, and that they have implemented sufıcient organizational and technical information security measures to protect the privacy of the personal data processed. Only collection agents through the acknowledged organization LIC are used for international collection. Axactor’s core business is collecting unsecured consumer debt, mainly from regulated banks and ınancial institutions. The customers are chosen primarily due to the quality of the claims, as the customers are operating under strict regulations and supervision from authorities. This way, Axactor limits the risk of purchasing, and collecting on debt not in accordance with its ethical and business practice requirements. A “know-your-customer” control shall always be conducted before entering a contract. Customers who represent an unacceptable reputational or compliance risk shall not be accepted. Axactor places signiıcant importance on the mutual contractual obligations relating to ethics and compliance requirements in the value chain. Information on good debt collection practices, requirements to the collection process related to information, transparency, guidance, interest rates etc. are provided to the customers to ensure compliance and high quality throughout the debt collection process. The debt collection process is closely governed. Axactor has developed solid internal control routines in all countries, which is being monitored by the local compliance teams and internal audit. Axactor has implemented a debtor complaint process in each country. A limited number of complaints were received from debtors during 2021, and none were considered critical. All complaints are handled in accordance with the applicable local procedures; investigated, answered, errors (if any) corrected, reported, and ıled. In a number of markets, Axactor is also subject to supervision by the authorities, which oversees Axactor’s regulatory compliance. Regulatory scrutiny is expected to increase in all markets in the years to come, especially considering the NPL directive which is subject to implementation across EU Member States. Additionally, Axactor’s customers conducts regular reviews to ensure that Axactor is compliant with its contractual commitments, regulatory obligations, and the advertised business practice principles. Where weaknesses are discovered, corrective measures are implemented. If weaknesses or errors are discovered in the customer’s process, advice and instructions are also given promptly to the relevant customer, to always ensure good debt collection practices are followed. Always with a view to ensure ethical and responsible value creation throughout the value chain. Corporate citizenship Axactor’s strategy is to be close to the community where it operates, where the country organizations are the hub of the customer relationships, based on knowing local regulations and market conditions for customers and debtors. In addition to its economic and ınancial responsibilities towards its investors, Axactor also recognizes its social, cultural, and environmental responsibility in the local communities where it operates. Empowering the local organizations to adapt an interactional approach to corporate citizenship, based on mutual trust and transparency. The goal is to produce higher standards of living and quality of life for the communities that surrounds them. Axactor believes that this cannot be achieved strictly by transactional contributions. Success requires proximity, expertise, and local engagement. Even more so now, than in the last decade, the above holds true. In the aftermaths of the Covid-19 pandemic, many of the communities in which Axactor operates have seen rising unemployment rates and challenging economic circumstances. In a time where local communities need to rebuild their economies, Axactor’s mission has become even more relevant. Axactor’s purpose is to help businesses to a better future, not only ensuring that they get paid, but also being an aid to the companies and people with ınancial difıculties, offering sustainable solutions. Corporate citizenship is not about ambitions, it is about tangible impacts and taking a corporate social responsibility. In 2021, the local Axactor organizations have engaged in a wide array of initiatives, including amongst others, supporting the lood victims in Germany Log-ins 0 1,000 2,000 3,000 4,000 5,000 6,000 Dec-21Nov-21Oct-21Sep-21Aug-21Jul-21Jun-21May-21Apr-21Mar-21Feb-21Jan-21 3,861 5,586 4,804 4,546 4,471 4,626 5,285 5,050 5,058 5,496 5,772 5,021 Number of log-ins to the debtor portal(s). Axactor Group34 through company organized volunteer work and donations, lea market on old ofıce equipment to the beneıt of the local children’s hospital, providing facemasks to hospitals in Spain during the Covid-19 pandemic, and supporting local sports teams. Ukraine Along with the rest of the world, Axactor watches with dismay at the unfolding attacks on Ukraine. Axactor has a partnership with a Ukraine- based IT supplier and employs a limited number of dedicated resources based in Ukraine. To contribute to the safety and wellbeing of the people still in Ukraine, Axactor has provided direct ınancial support to each person, in dialogue with their employer. Axactor has also decided to support the valuable work of humanitarian charitable organizations UNICEF and Red Cross, through company donations. Further, the local organizations of Axactor have contributed through various means, such as over-time campaigns where the salaries have been donated to charitable organizations, fundraising campaigns where Axactor has matched the contributions from the employees with the same amounts, collecting necessities to refugees, and paid volunteer work. Privacy protection and information security Axactor respects the personal integrity of individuals. Different types of personal data are processed in different ways and situations, depending on whether a person is the representative of a customer, vendor or public authority, debtor, employee, job applicant, visitor, etc. A robust data privacy framework is required when handling huge amounts of data, including sensitive data related to individual’s ınancial and, in many cases, vulnerable situations. Protecting the fundamental rights and dignity of all data subjects of which Axactor process personal data is crucial to Axactor, and also reiterated in the Board approved Group’s policy on data protection. As a listed company and with great respect for the trust given by partners and investors, Axactor also focus on safeguarding conıdential information and trade secrets to which Axactor has access. The data privacy policy and IT and information security policy sets out detailed procedures and clear roles and responsibilities applicable for all employees within the Group and are approved by the Board annually. The information security procedures below have also been reviewed and where necessary updated. IT information assets inventory Backup Secure software development Remote access Best practice guidelines for IT & information security Data encryption and communication Access control and administration Security incident Antivirus security Information classiıcation Vulnerability management Data migration Policies and procedures have been adjusted to relect the risk situation. Data protection impact assessments have been established for all relevant processing activities, art. 30 registers, privacy declarations and cookie policies updated, retention periods reviewed, efıcient communication especially with debtors and use of encryption discussed, data privacy agreements reviewed, and vendor agreements updated due to the Schrems II verdict. Regardless of situation, Axactor shall only process personal data in accordance with applicable data protection regulations. Appropriate technical and organizational measures are implemented in accordance with the GDPR and local data protection laws. Continuous attention has been paid to the integrity of data subjects as many employees still worked remotely during the year. Following the minimization principle, only personal data necessary for the relevant processing is collected, and the personal data should be processed fairly and lawfully towards the data subjects. To ensure trans- parency and safeguard the rights of the data subjects, information on Axactor’s data processing is provided at Axactor’s web pages, in email and letters sent, in agreements, internal and external communication. Personal data is deleted when Axactor no longer has legal grounds for processing, and the purpose of the processing has been fulılled. Anonymization- and pseudonymization-techniques are used to remove unnecessary personal data, e.g. during system testing activities. Axactor process requests from data subjects regarding their rights and inform about data breaches in a timely manner in accordance with the established breach notiıcation procedure. The number of complaints from debtors claiming breach of GDPR due to incorrect registration of the debtor in public debt register has increased. However, there has not been an increase in the number of cases where the local supervisory authority has ruled in favour of the debtor complaining. Country No. of inquiries from the data supervisory authority No. of data breaches reported to the data supervisory authority No. of ınes or corrections by the data supervisory authority Norway 1 0 0 Sweden 1 0 0 Finland 0 6 0 Germany 1 1 0 Italy 0 0 0 Spain 9 0 0 Group total 12 7 0 To build a solid security culture Axactor carries out awareness activities continuously. During 2021, Axactor extensively carried out initiatives and trainings to all employees, including regular data privacy and information security awareness trainings, covering both theoretical and technical aspects. Multiple waves of custom phishing test campaigns took place in all countries. These exercises aim to increase the employee’s awareness of potential threats and cyber- security issues. The results of these exercises are being regularly analyzed and discussed to identify further improvement areas and necessary mitigations. Security surveys performed shows a high average awareness level amongst the employees. Further, business continuity and crisis management trainings were conducted during the year, across all countries and at the corporate headquarters. The group CISO, the security committees, and the data protection ofıcers, monitor risks, govern compliance, manage incidents and government data requests, and report on a regular basis to manage- ment and the Board. During 2021, this process has been complemented with the implementation of a new Group risk and compliance tool, implemented in all countries, supporting a more detailed tracking and follow-up of the internal controls, and risk management process. Annual report 2021 35 Data processing agreements are entered with all vendors processing data on Axactor’s behalf. The vendor responsible for most of the Group’s infrastructure conırms their compliance through independent third party ISAE 34002 and ISAE 34000 reports. The main vendor for application operations and IT development is ISO 27001 certiıed. New technical measures have been implemented during 2021 to strengthen the level of security at Axactor, such as Data Loss Prevention functionality with a ırst pilot country, and the extension of Multi Factor Authentication to core internal applications. In close cooperation with Axactor’s main infrastructure provider, important projects have been set-up, laying the foundation for the network segmentation, and for the disaster recovery backup by means of inter-regional replication to a Dark Site. These are important measures towards further mitigation of serious risks in case of generalized attacks, such as ransomware etc. Access management has been improved through a more integrated use of the Axactor conıguration management database. Practices and technology are adopted to preserve conıdentiality, integrity, and availa- bility of data. Automated internal security scans are performed regularly within the infrastructure area. A complementary external penetration test from an independent specialized company commissioned by Axactor, including advanced testing on Axactor prioritized systems, is conducted for an additional level of vulnerability identiıcation. Deviations and data breaches must be reported internally through the established incident and data breach notiıcation channel. A clear operational process for security incident and data breach manage- ment has been implemented, but awareness must be improved and types of incidents to be reported and follow-up clariıed. Awareness activities relect the number of reported incidents. Physical security assessments are performed at all locations to identify gaps and potential improvements to secure the quality of the processes. Preventing ınancial crime and corruption Each year, millions of transactions pass through Axactor, which entails an inherent risk for ınancial crime. Axactor is committed to comply with all applicable laws and regulations to combat fraud, anti-money laundering, bribery, and corruption in the jurisdictions in which Axactor operates, and to prevent Axactor from being used for any illegal activity. This also includes complying with all relevant trade sanctions regu- lations. Axactor has a zero-tolerance attitude. Non-compliance with policies to prevent ınancial crime may result in criminal or civil penalties which will vary according to the offence. Axactor prohibits facilitation payments, kickbacks, or other improper payment for any reason. Employees are not permitted to give or receive any gifts or other beneıts that endanger any decision-making process, which should be based on sound ınancial principles and/or strategic decisions. Legitimate charitable contributions may be given, but adequate measures shall be taken to prevent misuse before entering into such agreements. All donation requires approval from the Group Chief of Staff. Charitable contributions to political parties shall never be approved, and no such contributions have been made during the life- time of Axactor. This also precludes Axactor’s engagement in political lobbying. Axactor has strict rules for cash management and account- ing. No invoices, customer, or vendor who lack documented legal foundation shall be approved. Cash payments should be avoided, and when exceptionally used, strict procedures must be followed. Axactor has detailed policies regulating different preventing and mitigating actions. These Board approved policies are updated annually to relect the risks identiıed through the annual risk assessments. Through a “know your customer” procedure Axactor conducts appropriate checks to avoid entering into agreements with customers or suppliers involved in any fraudulent, corruptible, money-laundering, or other illegal activities, or coming from a sanctioned country, and to prevent any conlict of interest. Axactor has a structured customer and supplier selection process, to ensure that the selection is based on transparent and objective criteria, free from personal interests. Contracts shall contain warranties of compliance to relevant laws, regulations and business practice principles, hereunder ethical obli- gations. Axactor encourages competition by ensuring non-discrim- ination in customer and supplier selection processes, and promotes use of resources in an efıcient, effective, and ethical manner. Decision making shall be conducted in an accountable and transparent manner in accordance with the Delegation of authority policy. During the contractual period, the quality and quantity of goods or services received shall be reviewed to verify that the supplier delivers according to what has been invoiced. Axactor has implemented a group-wide contract management system, and accounting and invoicing system, to manage all supplier agreements and invoices in an appropriate manner. All records should be as complete and accurate as possible, and timely kept. In 2021, Axactor has further strengthened its vendor management process with the introduction of a group-wide vendor management tool. Having good vendor management routines allows Axactor to monitor its suppliers’ compliance with Axactor’s requirements, including identifying and following up any gaps. During the second half of 2021, all of Axactor’s key suppliers were asked to verify compliance with Axactor’s Supplier Code of Conduct. Axactor regularly evaluate systems, internal control mechanisms and procedures, to ensure that they are effective and efıcient. In addition, appropriate measures are taken to correct any identiıed deıciencies. All transactions must be executed in accordance with management’s general or speciıc authorization. Accurate books and records that fairly document all ınancial transactions, risk assessments and due diligence shall be maintained and available in case of audits. Financial authorities across the jurisdictions Axactor operates are interested in Axactor’s efforts to combat ınancial crime, and Axactor has an open and active dialogue with its regulators. Employees are encouraged to report of any suspicions of violations through one of the many reporting channels. Axactor is committed to follow up all reports of suspicious acts and take appropriate action. During 2021, there have been no cases of conırmed fraud and/or corruption within the Group. Axactor Group36 Country No. of reported whistle-blower cases regarding fraud and/or corruption No. of reported whistle-blower cases regarding fraud and/or corruption 2021 2020 2021 2020 Norway 0 0 0 0 Sweden 0 0 0 0 Finland 0 0 0 0 Spain 0 0 0 0 Germany 0 0 0 0 Italy 0 0 0 0 Group total 0 0 0 0 Part of the internal audit work is to provide the Board with reasonable assurance that controls are present and functioning, also from a fraud prevention perspective. Internal audit has during the year had focus on risk of misuse of funds and evaluation of the internal control structure, by evaluating the transactions in the collection system vs. accounting, auditing the payment process, audit of NPL portfolio post-sale imple- mentation, and follow-up on observations from 2020. The results of internal audits are reported to the Board, risks are when identiıed managed and mitigating actions are always followed up by the Board. No material ındings were reported by Group Internal Audit in 2021. Through 2021, Axactor has further simpliıed its legal and ownership structure to ease transparency, e.g. by merging Swedish and Finnish companies, prepared liquidation of the Baltic entities, extracted the Italian portfolios from the SPV-structure to the operational company and transferred the ownership of this company into the ınancial ring fence. Additionally, the ownership of the Luxembourg portfolio holding company has been acquired in full by Axactor. The work on simplifying the legal structure is still on-going and will continue going into 2022. People Axactor is built around three crucial enablers – People, Systems and Funding. The employees are carriers of the corporate values and culture, which is vital to Axactor’s success. The concept of how to run a successful collection business is based on trust and respect for the individual – customers, debtors, and employees. With the expertise and dedication of its employees, Axactor can meet stakeholder expectations. Axactor strives to ensure that it remains an attractive workplace for its 1243 employees by providing challenging and meaningful work and by fostering a culture that empowers everyone to learn and grow. The company sets clear expectations for its leaders to act as role models who promote the core values, drive customer centricity, and inspire their employees to succeed by working with engagement. In Axactor all stakeholders shall be treated with trust and respect, provided with professional and ethical advice based on their individual situation. The strong feedback given by debtors, employees and customers in the satisfaction surveys presented above shows Axactor dedication. Strategic goals, policies and procedures coupled to recruiting, devel- opment and succession of employees are formulated at the Group level. The operating companies in the Group have a local HR director managing all HR related matters daily and assisting the management in respective markets. Fundamental preconditions are also the ability to act according to laws and regulations coupled with labour law and the work environment and the group-wide policies, local procedures, and collec- tive agreements. During the year, all HR processes have been reviewed. The People Hub Correct, easily accessible and comprehendible information is vital to stay compliant and have efıcient operations. A continuous focus on new and effective ways to communicate and share information is needed, to ensure that the right decisions are taken and that the employees continuously develop their competencies to be able to deliver the best possible service to the customers and debtors, Axactor has during the year implemented a new intranet, the “People Hub”. This also to mitigate the request from the employees for more information, as highlighted in the employee survey. Equality and diversity Axactor invests long-term efforts in creating an inclusive work climate and increasing diversity. The ambition is that the employees in the organization will relect society at large. A good mix of competencies and perspectives creates better results for the entire operation. Axactor has zero tolerance towards discriminatory behaviour and does not tolerate discrimination based on age, gender, pregnancy, parental leave, ethnicity, political opinion, philosophy of life, func- tional ability, religious beliefs and/or sexual orientation, or any other characteristics. The culture and work environment are to be inclusive, with a fundament of mutual respect and appreciation of the beneıts that arise from different backgrounds, competencies, and experiences. Employees at all levels are encouraged to voice their opinion or concern when something is not right or does not feel right. Different opinions shall always be respected, and people are encouraged to question the decisions of others. At Axactor, everyone shall be treated with fairness and respect. Team spirit, mutual trust and a respectful attitude are important factors of the Group’s success. It is the responsibility of management to lead by example, setting a clear tone-from-the-top, to ensure that all employees are aware of these principles and behaves accordingly. The employees have through the employee satisfaction survey conırmed that they are treated fairly, regardless of their age, race or ethnic origin, gender, and sexual orientation. Axactor aims to have an even gender balance in all managerial teams, where genders are represented within a range of 40%–60%. Gender balance per country 2021: Annual report 2021 37 Gender balance per country 2021 2020 Number Women % Men % Number Women % Men % Finland 48 67% 33% 63 76% 24% Germany 183 67% 33% 225 66% 34% Italy 120 80% 20% 123 76% 24% Norway 130 53% 47% 136 54% 46% Spain 692 65% 35% 640 64% 36% Sweden 70 71% 29% 48 65% 35% Group total 1,243 66% 34% 1,235 65% 35% Examples of measures to increase diversity, has included ensuring job listings for vacant positions are written in an inclusive manner and to attract more women to leadership positions. In 2021, Axactor continued to include diversity and inclusion leadership development courses for new managers and as part of leadership development activities in all countries. Overall, the company employed 66% women and 34% men at the year-end 2021. The percentage of women in the country management teams has increased from 37% to 44% in 2021, building upon an increase in 2020 from 29% to 37%, entailing a 15% increase over the course of two years. Furthermore, leadership positions below country management level have a majority of women, at 54%. Axactor has not yet achieved a more balanced gender distribution across all levels, business functions and countries, but continuous efforts are giving tangible results. Gender balance number of employees in % 2021 2020 2019 Number Women % Men % Number Women % Men % Number Women % Men % Board of Directors 6 50% 50% 7 43% 57% 6 50% 50% Executive management incl. CM 12 42% 58% 13 31% 69% 13 31% 69% Country management all countries 39 41% 59% 43 37% 63% 45 29% 71% All other managers 160 57% 43% All Group employees 1,243 66% 34% 1,235 65% 35% 1,200 63% 37% Axactor offers job opportunities to individuals with disabilities. In 2021, 2% of Axactor’s employees in Spain were employees with a disability grade of more than 33% and 7% in Italy were employees with a disability grade of more than 46%. All ofıces are universally designed to accommodate employees with disabilities. In the spring of 2022, Axactor in Spain will move into new premises designed to better accommodate employees with disabilities. Hiring students provides young academics access to employers that provide relevant work experience and increases employment in groups that can ınd themselves outside today’s labour market. Axactor offers students different job training opportunities in all countries where it operates. The aim is to support the company’s succession and competency planning, and to promote gender equality and diversity. As part of the training, each student works at Axactor full-time or part-time, takes relevant professional develop- ment courses and learns about the Axactor culture. Several students are offered jobs in Axactor, while others gain a valuable experience for their CVs. There are many country-speciıc initiatives to promote student participation in work life, one of which is that Spain has an agreement with the university offering students practical experiences. Furthermore, there are several students that are doing practical work for vocational studies and work part-time across the Group. Axactor also has measures in place that help to ensure that older employees can continue working also after retirement age. The measures vary between countries. It includes the possibility of reduced working hours and extra holidays. Out of Axactor’s 1,243 employees, 29 are over the age of 60 years. Age distribution Group total 0 50 100 150 200 250 65-6960-6455-5950-5445-4940-4435-3930-3425-2920-2415-19 Number of employees per age 2021 2020 Axactor Group38 Equal pay for equal work Axactor’s remuneration policy states the principle of equal pay for equal work or work of equal value. From a gender equality and a legal perspective, it is important to monitor the development of differences in pay between men and women. Axactor is working systematically to ensure equal pay for equal work or equal value and to rectify unwar- ranted pay differences between women and men. Annual analyses are performed by all countries to facilitate discussions with management and the local unions where applicable on pay gaps. Axactor works closely with relevant managers in the organization to ensure fair and equal pay, to raise awareness and ensure correct salary levels are set. Axactor has continued the work in developing a job framework across all countries, to support identiıcation of comparable roles, compe- tences, and expectations, as well as ongoing work on fair and equal pay. The Board’s remuneration for 2021 differentiates between the responsi- bility and types of committees, not men and women – setting the tone from the top. The remuneration for executives reporting to the CEO have been harmonized, local market conditions and responsibilities considered. The work to reduce the gender pay gap will continue until the gender pay gap has been closed. Axactor complies with applicable collective bargaining agreements. A normal principle with a ıxed percentage for salary increase for all employees will be challenged as it increases already identiıed differences. There are more men in the company's top positions, more women in support functions as e.g. HR and more women in part-time positions. However, these challenges are not hindering Axactor in achieving the goal of closing the gender pay gap. Gender pay gap analysis for Axactor: Salary difference women vs. men, all employees by country % 2021 Finland -30% Germany -24% Italy -46% Norway -26% Spain -28% Sweden -16% Group total -28% Number Men Women Men % Women % Salary difference % Board of Directors 6 3 3 50 50 (19) Executive Management 12 7 5 58 42 (20) Country Management (excl. Country Managers) 39 23 16 59 41 (18) All other Managers 160 69 91 43 57 (24) All Group employees 1243 424 819 34 66 (28) Gender balance, management % 0 20 40 60 80 100 All other managers Country management all countries Executive management incl. CM Board of Directors Women Men Target 50 42 41 57 50 58 59 43 Annual report 2021 39 Salary difference CEO vs. average base salary of all employees. CEO Salary Average salary per employee EUR 405,000 EUR 37,434 Talent attraction and retention It is important for Axactor to attract and retain skilled employees. The recruitment process is a valuable opportunity to present a positive image of Axactor as an employer. Career pages have been developed for all countries. Axactor strives for objectivity in its recruitment, and extensive work has been carried out to harmonize and professionalize the recruitment process. Upon this background, Axactor Spain has introduced an initiative they have branded the “blind CV” in the local recruitment process, to limit bias by removing identiıers such as gender, nationality, and age. Furthermore, internal recruitment and promotion are very positive and beneıcial. All job vacancies are advertised internally. Managers encourage employees to actively apply for new positions in the Group, and Axactor’s internal mobility program helps to retain crucial expertise, promote Axactor’s culture and contribute to internal career development. In 2020 a recruitment process with more digital system support was implemented as a part of the Groups new HR-system, and this process has been further developed and improved during 2021. Succession planning is crucial to satisfy the current and future demand for managers and specialists. One important task for managers at Axactor is to identify, encourage and develop new managers and specialists. To prepare prospective managers, mentor programs are carried out focusing on developing leadership skills, change manage- ment, and developing the business model. Managers at Axactor must be act as ambassadors for the company’s corporate culture, one of the reasons for which managers are often recruited internally. To ensure success in the work on developing and attracting employees Axactor monitors the development of new hires and employee turnover. The Group employee turnover rate for 2021 was 31.3%, which was substantially higher than in 2020. This is due to organizational restruc- turing to optimize organizational operations, such as homeshoring the backofıce functions in the Baltics and closing of 1 site in Norway, 3 sites in Spain and the ıeld collection service in Germany. The restructuring processes were all performed in compliance with local law and regulations and Axactor’s organizational restructuring procedure. Furthermore, thorough analysis and continuous improvement of the different elements of the employee journey at Axactor is conducted regularly to contribute to retention. Employee turnover by country and gender, % 1) 2021 2020 Total % Women % Men % Total % Finland 43 26 50 12 Germany 32 48 24 10 Italy 31 49 26 12 Norway 28 27 28 16 Spain 33 42 28 10 Sweden 9 16 5 22 Group total 31 40 27 11 1) Employee turnover refers to the proportion of permanent employees who have left the company in relation to all employees in 2021 including voluntary turnover, retirement, death, dismissals, organization changes and efıciency. Organisation 2021 Number of new employees Women % Men % Axactor Finland 8 50 50 Axactor Germany 26 62 39 Axactor Italy 36 22 78 Axactor Norway 27 48 52 Axactor Spain 270 42 59 Axactor Sweden 28 21 79 Axactor Group 395 40 60 Continued learning and development It is important to Axactor that employees can develop in their roles, and it is stated in Axactor’s HR policy that the company is committed to continuous professional development of its employees. The Axactor Academy is the Group’s own centre for learning and development. All employees have the right and obligation to training and competence development. Axactor Academy provides the organization with a streamlined structure to manage the competence development for all employees. All employees receive training to secure compliance to relevant laws and regulations such as debt collection regulations, tax and ınancial regulations, anti-fraud and anti-corruption, data privacy, information security, anti-money laundering and terror ınancing and other business ethical standards. Axactor Group40 Employees are also provided with training that gives them the tools with which they can give customers or debtors a positive experience, for instance through in-depth knowledge of the relevant collection processes they work with, and comprehensive communication training. Employees are also offered various e-learning courses throughout the year, some of which are mandatory. Axactor strives to be transparent and report on trainings, and for the purpose of creating a foundation to build upon next year, preliminary statistics have been prepared, detailing the statistics from e-learning courses through the Group HR system: Courses Country Number of courses Finland 49 Germany 70 Italy 101 Norway 52 Spain 129 Sweden 57 Group total 338 Participants Courses completed by employee Quantity of employees (without duplicates) 15-22 12 10-14 84 5-9 556 1-4 756 Total 1,408 Participants per course Country Quantity of courses (completed/undergoing) Course per employee Finland 319 5.15 Germany 1,021 4.40 Italy 925 6.61 Norway 361 3.57 Spain 3,582 4.59 Sweden 458 4.92 Average 4.87 Hours spent Country Average time (h) spent on training per employee Finland 6.8 Germany 9.6 Italy 19.8 Norway 6.5 Spain 16.3 Sweden 18.0 Group total 27.4 Average time spent on training per employee Average time spent on training per employee with Junglemap 13.2 hours 14.2 hours Annual report 2021 41 Axactor’s managers are held to a high standard and are offered a variety of courses through Axactor Academy. Managers are expected to act in accordance with the different elements of Axactor’s leadership platform – strategic direction, leadership principles, and corporate values. Managers are offered trainings in a combination of on-the-job-training, sharing of best practices and knowledge, e-learning, classroom training and mentorship programs. Learning and development objectives for both managers and employees are linked to Group-wide organizational objectives. In accordance with the performance management process at Axactor, performance appraisals, including the establishment of new development goals, are conducted annually between all employees and their immediate managers. The completion rate of these performance reviews is close to 100% at all levels of the organization. Employee’s motivation, development and continuous feedback are also secured through structured and regular “check-ins”. Axactor has worked systematically to develop its organization and culture. The efforts over the last years have been directed towards securing a global people management system, developing consistent performance management practices, leadership development efforts to underpin trust-based leadership, mentoring programs, student programs and an evaluation of the “employee journey” through an assessment of the HR processes. All these initiatives are aimed at creating common structures and further strengthening the trust-based culture. To verify this, Axactor has partnered with world-leading employee survey supplier Great Place To Work. The majority of Axactor’s employees participated in the survey, as provided set out above. Although it is rare to achieve the certiıcation the ırst year of running the survey, all countries besides Spain achieved the “Great Place To Work”-certiıcation. Spain too delivered impressive results, considering the restructuring process conducted in 2021 and the severe consequences of Covid-19. The feedback from the employees show that Axactor has an effective, rational, and competent organi- zation with a clear strategy. The management set clear expectations and the employees have high trust in management. There is an open dialogue where straight answers are given. There are no signs of discrimination due to sex, religion or the like nor experiences of sexual harassment. Employees are proud to work for Axactor. Identiıed areas with improvement potential are internal information sharing, employee involvement in decision making, recognition of achievements, focus on middle management, renumeration and lexibility. Axactor will continue to work to strengthen performance management, succession planning and increase focus on leadership development going forward. Remuneration and beneıts The main purpose of the company’s remuneration is to encourage a strong and sustainable performance-based culture which supports growth in shareholder value over time, based on responsible business practices and aligned with company values. This is stated in the Group’s remuneration policy, determined by the Board and approved by the general meeting. To attract and retain employees, Axactor offers competitive employment terms in line with local market conditions. The individual salaries are set and adjusted by managers and approved in accordance with the grandfather principle, after which they are communicated to each individual employee in the annual salary review dialogue between manager and employee. Conditions and beneıts differ within the Group and are adapted to the markets where the company operates and to the collective agreements which have been entered. Axactor has entered collective bargaining agreements in Sweden, Finland, Norway, Italy, and Spain. Ca. 69% of all employees are covered by collective bargaining agreements. Axactor has also offered employees in Germany the opportunity to sign up for collective bargaining agree- ments. Axactor commits to the International Labour Conventions on the freedom of association and the right to collective bargaining among its employees and has constructive discussions and collabora- tion with the unions. The collective bargaining agreements regulate, among other things, salaries, terms of employment such as notice period. Axactor collaborates well with the unions and facilitates their work by offering use of Axactor ofıces and equipment for Axactor union related work. The Group has established a European Works Council with representatives from all countries in which issues and topics that have cross-border relevance are addressed. Axactor has also established networking and afınity groups across the organi- zation, to ensure employee’s involvement and knowledge-sharing between the countries. Axactor recognizes the importance of work-life balance, which is supported through various initiatives, e.g. accommodating for a sub- stantial number of part-time employees, most of which are women. To Axactor’s knowledge, all part-time work is voluntary and is largely related to students working in combination with studies, employees with reduced capacity, and mothers with younger children requesting part-time work after maternity leave. In Italy the amicable and ıeld collection advisors work part-time, 6 hours per day on shift from 8 to 20. This has been part of a restructuring project of 2018, where the affected employees voluntarily accepted the part time reduction. However, in accordance with its commitment to the SDG #5, Axactor aims to decrease the number of part-time workers. An important means to this end is the continued focus on the development of female employees, the encouragement of them taking opportunities when given and facilitating a good work environment for talented women. The form of employment is expected to be a topic in all per- formance appraisals, and leaders are encouraged to work with part- time employees to ınd other accommodations that can contribute to minimizing the need for part-time work. Axactor Spain has shown dedication to the reduction of part-time employees through various initiatives, one of which is entering into agreements with day-care centres and toy nurseries that give Axactor employees discounts and therefore an increased possibility of working full-time. Other beneıts such as pensions advice, salary exchange, ıtness subsidies follow market conditions and best practice in each of the countries and apply equally for all employees in country regardless of form of employment and percentage of employment. In Norway and Sweden for instance, Axactor offers e.g. maternity and paternity pay greater than the statutory requirement. Axactor Group42 Employees by form of employment, 2021: Employees by form of employment 2021 2020 Number Women % Men % Number Women % Men % Regular employment - Full time 863 63 37 920 63 37 - Part time 204 80 20 237 78 22 Temporary employment 176 63 38 78 58 42 Group total 1,243 1,235 Axactor shall offer a working environment where it is possible to combine work, career, family life and spare time. An important element is the possibility to take parental leave. Country Maternity leave # of women # of weeks of maternity leave Paternity leave # of men # of weeks of paternity leave Norway 9 223 3 25 Sweden 11 138 2 2 Finland 6 167 2 7 Germany 8 293 2 12 Italy 14 248 2 2 Spain 21 241 13 99 Group total 61 1,017 22 135 The parental leaves were taken without any restrictions or conse- quences for the remuneration, beneıts, or work tasks of the employee. With reference to the statistics presented above, the company considers itself compliant with the reporting obligations pursuant to the Norwegian Equality and Anti-Discrimination Act section 26. Health and work environment Axactor continuously addresses risks and opportunities related to the workforce. To sustain a workplace that is healthy and safe – both physically and mentally – Axactor builds its efforts on an active working environment, councils, and engagement initiatives, as well as collabo- ration with unions, employee representatives and local management. Axactor does not engage in and expressly prohibits any kind of forced-, compulsory- or child labour in all its operations, including those serviced by suppliers. A continuous and trust-based dialogue between managers and their employees makes it possible to detect early signs of poor health and to ensure the work situation is sustainable in the long run. This is done systematically across the Group through structured annual appraisal talks and regular “check-ins”. Working actively to facilitate a positive work environment, Axactor encourages employees to be physically active and take care of their health. There are several initiatives in all countries and ofıces to pro- mote employees’ health, e.g., initiatives to facilitate cycling to work, sponsoring of health club membership, common training for groups of employees, physiotherapist availability in the ofıce on a regular basis, football games, annual culture and value events dedicated to physical and mental health, and local health insurances. Axactor does not accept any form of sexual harassment. Speciıc focus to raise awareness is given through, e.g. the digital ethical e-learning courses mandatory for all employees to conduct. Axactor has not received any whistle-blower reports on incidents of sexual harassment and the result from the employee satisfaction survey conırms that this is not a challenge within Axactor. No. of whistle-blower reports concerning sexual harassment No. of reported cases resulting in disciplinary and/or criminal sanctions Country 2021 2020 2021 2020 Norway 0 0 0 0 Sweden 0 0 0 0 Finland 0 0 0 0 Spain 0 0 0 0 Germany 0 0 0 0 Italy 0 0 0 0 Group total 0 0 0 0 Annual report 2021 43 All managers have access to tools to be able to act upon early signs of ill-health among employees and increase the work attendance rate through proactive wellness initiatives. Furthermore, Axactor monitors the sick-leave trends, through local HR processes. Axactor has established a European Works Council with representa- tives from all countries elected by the employees for two years at a time. It is a forum for information and discussions for the employees in the Group. Representatives from the executive management provides a status of the company at least twice a year. The agenda covers the structure of the Group, the ınancial and the economic situation and envisioned developments, anticipated progress of the business, sales, signiıcant changes to any area within the Group’s company structure, transfer of undertakings, mergers, cutbacks or closures of undertakings, personnel policies of the Group and equality between men and women (as well as minorities) in the Group. The well-being of the employees is a key factor in relation to Axactor’s ability to recruit, develop and retain a diverse and motivated workforce. It is only with such a workforce that Axactor will be able to continue to provide an even better service to the customers and debtors in future. Axactor recognized that quality, health, and safety are integral aspects of the company’s operations, and systems are in place to monitor and follow up accidents and/or incidents. Axactor’s business is by nature non-hazardous. No. of workplace injuries recorded No. of serious or fatal workplace injuries recorded No. of commuting injuries recorded Country 2021 2020 2021 2020 2021 2020 Norway 0 0 0 0 0 0 Sweden 0 0 0 0 0 0 Finland 0 0 0 0 0 1 Spain 0 0 0 0 13 7 Germany 0 0 0 0 0 0 Italy 0 0 0 0 1 0 Group total 0 0 0 0 14 8 Combatting climate change Axactor shall have a cautious and conscious approach to its envi- ronmental impact, and the environmental and climate impact from business operations is of ever-increasing importance for stakeholders and society. Axactor’s operations are by nature low-polluting and relatively harmless to the environment. At the same time, Axactor recognizes that the responsibility to combat climate change is shared, and the company has since its foundation worked actively to minimize its environmental footprint. Axactor’s environmental commitments follows from its environmental policy, which is adopted annually by the Board. Further, the principles set out in the environmental policy is also relected throughout the rest of the policies and corporate governance structure. Axactor’s risk management system requires the group to identify, assess and document environmental risks and opportunities. An environmental risk assessment is conducted annually with high risks expected to be mitigated through the ordinary risk management process, and opportunities should be elevated to the executive management for further evaluation. Additionally, an internal climate risk assessment of Axactor’s locations have been conducted, showing limited climate related risks. Environmental aspects are included in considerations for relevant parts of the value chain and investments. To ensure this, Axactor has a struc- tured purchasing process and sourcing strategies to make sure that ser- vices and goods acquired are provided from suppliers with acceptable environmental standards and use products and services that represent the lowest total impact on the environment. Axactor further ensures its suppliers’ commitments to its environmental expectations, through the prerequisite to sign Axactor’s Supplier Code of Conduct. The main source of Axactor´s emissions are generated through consumption of energy in the company´s ofıces and through business travel. The single largest source of energy consumption within Axactor is the servers and data centers, which are run by Axactor’s infrastructure partner. In 2021, all the servers are run by the same infrastructure vendor, to among others lessen the environmental impact. This infrastructure provider is certiıed as a green light house, operating with 100% renewable energy. Requirements and guidelines to encourage the use of energy-efıcient and space-saving properties are deıned, and Axactor is working continuously with the property owners to adopt energy conservation measures in the buildings where it operates. Additionally, initiatives are made to actively reduce the need for physical meetings to reduce travel and encourage a more time-efıcient use of resources. Below, the Group’s measured emissions for 2021: Category Subcategory Unit of measure User data kg CO2e/unit Emissions total Prosentage emission Scope 1 Company cars Liter 89,765 2.7 240,250 28% Scope 2 Electricity usage kwh 1,293,121 0.4 467,254 55% Scope 3 Flights and hotel nights N/A NA NA 144,031 17% Total emissions 851,534 100% Axactor Group44 With regards to energy consumption, all Axactor ofıces have systems for smart controlling and monitoring of ventilation, heating/cooling and lights. No relocations or reconstruction of existing ofıces shall lead to higher energy consumption per m. In 2021, the Group’s subsidiaries in Norway and Germany relocated to brand new ofıces, compliant with applicable energy use requirements. This is expected to lead to a reduction in energy costs per m in both countries, visible in the climate accounts from 2022. Axactor’s travel procedure speciıes that employees are encouraged to limit travel whether to the ofıce on day-to-day business or for business travels and use tele-/video conferencing to avoid unnecessary travels. At the same time, due to the company’s international operations, some level of travelling is to be expected. Axactor strives to lower the travel ratio and aims to choose less emission intensive travels where possible. In respect of company cars, Axactor has limited use of company cars and incentivizes the choice of low emission vehicles. It is mandatory to select models/speciıcations that have a lower-than-average fuel consumption and emission for its class, according to in the World Light Vehicle Test Procedures (“WLTP”), however it is strongly encouraged to choose an electrical vehicle. During 2021, the number of company cars have been reduced with 29 cars. Axactor aims to reduce the number of company cars going forward, and the tendency is visible year-over-year, pursuant to the table below. No. of company cars Country Per 31.12.2021 Per 31.12.2020 Change Norway 1 5 (4) Sweden 4 6 (2) Finland 1 1 0 Spain 26 26 0 Germany 14 35 (21) Italy 10 12 (2) Group total 56 85 (29) Further to reducing greenhouse gas emissions, Axactor is also committed to reducing waste. The general waste hierarchy is to ırst reduce waste at the source, secondly to reuse items if possible, and thirdly to ensure that items not possible to reuse are recycled. The procurement policy shall ensure that all purchases are in line with envi- ronmentally friendly considerations regarding selection of vendors, products, and volumes. All ofıces have recycling of paper and systems for waste sorting to secure proper handling. Not all ofıces have systems for recycling or ensured environmentally friendly destruc- tion of used electronic ofıce equipment and some do not offer to handle employees’ private IT waste. Where possible, Axactor strives to partner only with certiıed IT suppliers, being obliged to ensure recycling of IT-equipment and seek efıcient and environmentally friendly alternatives for sourcing, packaging, and transportation. Both of Axactor’s largest IT suppliers are certiıed and has such systems in place. Further improvements concerning waste handling and recycling across all ofıces are planned to continue, going into 2022. In 2020, Axactor started to measure and report on greenhouse gas emissions for a set of speciıc categories. Axactor has continued building on this bedrock during 2021, with the aim to signiıcantly improve its climate accounting for 2022. With assistance from climate mitigation consultants, Axactor has initiated the development of a greenhouse gas emission tool. The tool will enable Axactor to better understand and identify its emission sources, enabling the identiıca- tion and concretization of appropriate mitigating actions, to further reduce the Group’s greenhouse gas emissions going forward. This initiative also aims to prepare Axactor to set science-based targets in the future, in support of the goal to limit global warming to 1.5°C, to prevent the worst effects of climate change, in accordance with the Paris Agreement. This also supports Axactor’s ambition to continue to meet the stakeholder’s future expectations, by delivering on the promise of sustainable economic growth. Additionally, the project is also considered important to prepare for the ever-increasing regulatory requirements – statutory as well as “volun- tary”. The latter with reference to sustainability rating agencies, credit rating agencies, banks, green bonds, etc., which comes with separate requirements, not imposed by governments, but which may still offer both opportunities and threats for the Group. Regarding statutory requirements, Axactor is carefully monitoring the developments in relevant markets. Axactor strongly supports the European Green Deal, and its ambition for the European Union to become climate neutral by 2050, at the same time acknowledging the challenges that comes with it. By 2030, the European Union’s aim is to reduce greenhouse gas emis- sions by at least 55% and achieve climate neutrality by 2050. There is no doubt that this is an ambitious goal, which will fundamentally change the level of effort and expertise required in all EU based companies regarding environmental compliance in the years to come, being an important driver also for Axactor. Speciıcally, being the cornerstone of EU’s sustainable ınance strategy, Regulation (EU) 2020/852 (Taxonomy) aims to create a framework to facilitate sustainable investment. The Taxonomy Regulation currently has a limited impact on the debt collection industry, but it is expected to play an increasingly important role going forward, at which point Axactor will be prepared and able to act in the best interest of the Group and its investors. Further to the group-wide initiatives, Axactor strongly supports and encourages local environmental initiatives, based on a belief that everything helps. Axactor believes that businesses that actively engage with the shifting context around them, and strive to be part of the solution, will be the ones that prosper in the long term. Annual report 2021 45 GRI Index GRI standard: Disclosure: Reference chapter (include page): 101 This report has been prepared in accordance with GRI Standards Core option Sustainability report: page. 25 Organizational proıle 102-1 Name of the organization Front page 102-2 Activities, brands, products, and services Axactor at a glance: page. 4 102-3 Location of headquarters Note 1: page. 71 102-4 Location of operations Axactor at a glance: page. 4 Our presence: page. 5 102-5 Ownership and legal form Corporate governance report: page. 48 Shareholder information: page. 61-62 102-6 Markets served Axactor at a glance: page. 4 Our presence: page. 5 Report of the Board of Directors: page. 14 102-7 Scale of the organization Axactor at a glance: page. 4 Our presence: page. 5 Key ıgures 2021: page. 11 102-8 Information on employees and other workers Sustainability report: page. 38-40, 43 102-9 Supply chain Axactor at a glance: page. 4 Report of the Board of Directors: page. 15-17 102-10 Signiıcant changes to the organization and its supply chain Highlights of the year: page. 9-10 Letter from the CEO: page. 12 Report of the Board of Directors: page. 15-17 102-11 Precautionary principle or approach Sustainability report: page. 33-34, 44-45 102-12 External initiatives Sustainability report: page. 25 102-13 Membership of associations Sustainability report: page. 31 Strategy 102-14 Statement from senior decision maker Letter from the CEO: page. 12 Ethics and integrity 102-16 Values, principles, standards and norms of behavior Our values: page. 7 Our purpose and vision: page. 8 Sustainability report: page. 30 102-17 Mechanisms for advice and concerns about ethics Sustainability report: page. 30 Corporate governance report: page. 53 Governance 102-18 Governance structure Corporate governance report: page. 51 Board of Directors: page. 55-56 Management: page. 57-60 Stakeholder engagement 102-40 List of stakeholder groups Sustainability report: page. 28, 30 102-41 Collective bargaining agreements Sustainability report: page. 42 102-42 Identifying and selecting stakeholders Sustainability report: page. 25 102-43 Approach to stakeholder engagement Sustainability report: page. 28, 31-33 102-44 Key topics and concerns raised Sustainability report: page. 28 Axactor Group46 Disclosure: Reference chapter (include page): Reporting practice 102-45 Entities included in the consolidated ınancial statements Note 2: page. 71 102-46 Deıning report content and topic boundaries Sustainability report: page. 27 102-47 List if material topics Sustainability report: page. 28 102-50 Reporting period Front page 102-51 Date of most recent report This is the ırst GRI-based report by Axactor 102-52 Reporting cycle Annually 102-53 Contact point for questions regarding the report [email protected] 102-54 Claims of reporting in accordance with the GRI standards Sustainability report: page. 25, 28 102-55 GRI content index Page. 46-47 Topic speciıc disclosures: Disclosure: Reference chapter (include page): 103: 1-3 Disclosure on management approach Sustainability report: page. 28 Corporate governance report: page. 48-54 205-1 Operations assessed for risks related to corruption Report of the Board of Directors: page. 22 Sustainability report: page. 36-37 Corporate governance report: page. 53 205-2 Communication and training about anti-corruption policies and procedures Sustainability report: page. 36-37, 40-41 Corporate governance report: page. 53 205-3 Conırmed incidents of corruption and actions taken Sustainability report: page. 37 302-1 Energy consumption within the organization Sustainability report: page. 44 305-1 Direct (scope 1) GHG emissions Sustainability report: page. 44 305-2 Energy direct (scope 2) GHG emissions Sustainability report: page. 44 305-3 Other indirect (scope 3) GHG emissions Sustainability report: page. 44 401-1 New employee hires and employee turnover Sustainability report: page. 40 403-2 Types of injury and rates of injury, occupational diseases, lost days of absenteeism, and number of work-related fatalities Sustainability report: page. 44 404-1 Average hours of training per year per employee Sustainability report: page. 41 405-1 Diversity of governance bodies and employees Sustainability report: page. 38-40 405-2 Ratio of basic salary and remuneration of women to men Sustainability report: page. 39 406-1 Incidents of discrimination and corrective actions taken Sustainability report: page. 43 418-1 Substantiated complaints concerning breaches of customer privacy and losses of customer data Sustainability report: page. 35 419-1 Non-compliance with laws and regulations in the social and economic area Corporate governance report: page. 22 Report of the Board of Directors: page. 53 Annual report 2021 47 Axactor SE is a Norwegian SE-company (Societates Europaeae) listed on the Oslo Børs and bases its corporate governance structure on Norwegian legislation and recommended guidelines. Axactor is committed to good corporate governance standards which contributes to optimizing the value creation over time and strengthens the stakeholders’ trust and conıdence in the company. The company’s corporate governance framework regulates the division of roles, responsibilities and accountability between shareholders, the Board, CEO, and the rest of the executive management, to ensure that the company’s resources are applied in an efıcient and sustainable manner. The Board has the ultimate responsibility for ensuring that good corporate governance is practiced. Conıdence in Axactor and its business activities is essential for the Group’s competitiveness. Axactor is committed to openness and transparency about its principles and procedures for how the Group is managed. 1. Implementation and reporting on corporate governance The company adheres to the Norwegian Code of Practice for corpo- rate governance (“Code”), last revised 14 October 2021, issued by the Norwegian Corporate Governance Board (“NUES”). The principles and implementation of corporate governance are subject to annual reviews and discussions by the Board, last revised and approved by the Board 15 December 2021. The current corporate governance policy is available on the company’s website. This report addresses Axactor’s main corporate governance policies and practices and how Axactor has complied with the Code in the preceding year. Application of the Code is based on the “comply or explain” principle and any deviation from the Code is explained under each item. In the AR 2020 Axactor reported on one deviation from the Code pertaining to share options to the chair of the Board. This deviation was closed in May 2021. By the company’s own assessment, Axactor is by year-end fully compliant with all sections of the Code. 2. Business activity The company’s business as set out in the articles of association is: “to directly or indirectly through subsidiaries or investment partnerships, conduct debt collection work, ınancial and administrative services, legal services, invoicing services, debt acquisition and other investment activities, as well as therewith associated activities”. The Board has developed clear objectives, strategies and a risk proıle for the business within the scope of the deınition of its business, to create value over time. Axactor’s commitment to sustainable development is codiıed in the quality policy. Engaging in the activities described above, the company’s long-term objective is to establish itself as the industry benchmark within the areas of its operations. The company will continue to pursue the following main strategies to reach its overall objective: x Putting emphasis on loyal and satisıed customers, x Being an innovative player that takes full advantage of available technologies to achieve competitive advantages, x Identifying and securing access to attractive debt portfolios and other opportunities in the marketplace based on responsible investment and product offering, x Being an attractive employer, with a focus on creating an environ- ment for professional and personal growth, with respect and regard for each employee, x Being a proıtable company with a focus on organic and structural growth, x Maintain a sound corporate culture, efıcient corporate governance and preserve Axactor’s integrity by supporting employees to follow good ethical business standards towards all people and players in all our markets, and x Emphasis on becoming and maintaining a position as a leading, responsible, and sustainable European player in the company’s market, and x Helping debtors solving their ınancial commitments through fair debt collection practices. A description of the key risk factors and risk management can be found in the Board’ report on page 14 During 2021, the company has reviewed its policies and procedures providing business practice guidance on environmental, social and governance matters including but not limited to human resources, legal and compliance, data privacy, information security, anti-money laundering, corporate social responsibility, code of conduct and anti- fraud and anti-corruption. A separate report on how these policies and procedures are integrated with the company’s activities and how they relate to value creation for the company’s stakeholders can be found in the sustainability report integrated in the Annual report 2021 page 26. The company’s objectives, strategies and risk proıle are subject to regular review by the Board throughout the year. Deviations from the Code: None 3. Equity and dividend The Board aims to maintain a responsible equity ratio, considering the company’s goals, strategy, and risk proıle. This to ensure that the company has an appropriate balance between equity and other sources of ınancing. On 31 December 2021, the Group had an equity ratio of 29.5% and a debt-to-equity ratio of 2.2x. The Board considers the current capital structure as appropriate in the context of Axactor’s objectives, strategy and risk proıle. The Board has stated a policy for shareholder return as part of the overall strategy. The objective is to generate a return for the shareholders at a level which is at least equal to other investment possibilities with comparable risk. The main goal is to build scale, Corporate governance report Axactor Group48 improve efıciency and increase proıtability. An increased return on equity will allow Axactor to initiate dividend payments in the upcoming 2-3-years. At the EGM on 5 January 2021, an authorization to increase the company’s share capital was granted to the Board: x Authorization to increase the share capital with up to EUR 14,001,570.27130603 by issuing up to 26,750,000 new shares, each with a nominal value of EUR 0.523423187712375, in connection with the subsequent repair offering in order to allow those of the company’s shareholders as of close of trading on 9 December 2020 (as registered in the VPS on 11 December 2020) who were not allocated shares in the private placement to subscribe for shares on the same terms as the contemplated private placement. This authorization expired at the AGM 15 April 2021. The authorization was utilized in full (26,750,000 shares). At the AGM on 15 April 2021, 2 authorizations to increase the company's share capital were granted to the Board: x Authorization to increase the share capital by issuing new shares with a total nominal value of up to EUR 19,366,658, equal to 30,214,546 shares, each with a nominal value of EUR 0.523423187712375 in connection with acquisitions of assets within the company's core areas of expertise. x Authorization to increase the share capital by issuing new shares or acquire own shares with a total nominal value of up to EUR 5,031,313.79 equal to 9,612,325 shares, each with a nominal value of EUR 0.523423187712375 in connection with the share options allocated under ESOP 2019 and ESOP 2020 (also named ESOP 2020-B) which are incentive programs for the executive manage- ment and key personnel. Both authorizations are valid until the AGM in 2022, and no later than 30 June 2022. As of 31 December 2021, neither authorization have been used. There was a separate vote on each of the authorizations. Both authorizations have a limited overall amount by which the Board is permitted to increase the share capital. For supplementary information, see the minutes of the AGM held on 15 April 2021 available at www.axactor.com. Deviations from the Code: None 4. Equal treatment of shareholders The Board and executive management are committed to treat all shareholders equally, unless there exists a factual basis for deviation from this principle, justiıed by the common interests of the company and the shareholders. In the event of a capital increase based on authorization from the general meeting, where the pre-emptive rights of shareholders are set aside, the company shall provide reasons for the action in the stock exchange release in which the capital increase is announced. In 2021 Axactor concluded a private placement, and a contribution in kind against issuing of new shares. The capital increases main objectives were to fund growth opportunities and general corpo- rate purposes. The private placement and the share issuing were performed 9 December 2020, and were approved on the EGM 5 January 2021, ref. information available on Axactor’s webpage, stock exchange announcements given December 2020 and January 2021 and the notice to the general meeting dated 15 December 2020. The EGM concluded, based on a recommendation from the Board, to offer a subsequent repair offering with a subscription price equal to the subscription price in the private placement, to mend the adverse consequences of the private placement for the other shareholders. Any transactions the company carries out in its own shares shall be carried out either through the stock exchange or at prevailing stock exchange prices. If there is limited liquidity in the company’s shares, other ways to ensure equal treatment of all shareholders shall be considered. There were no transactions in treasury shares in 2021. The instruction issued by the Board states how the company shall manage agreements with closely related parties. For signiıcant transactions with closely related parties, Axactor will use valuations and statements from an independent third party. There were no such signiıcant transactions in 2021, other than the agreement entered 9 December 2020 with the largest shareholder Geveran Trading Co. Ltd. and Sterna Finance Ltd., approved by the EGM 5 January 2021 as reported in the AR 2020 (corporate govern- ance section no. 4). An independent fairness opinion conırmed by an independent third party was arranged for this transaction. As part of this transaction, the B-notes which at the time was held by Sterna Finance was converted into a bond-like debt instrument, dated 8 February 2021, with Axactor SE as counterpart, a debt instrument which is fully repaid during 2021. Subsequently, effective 20 February 2021, the parties’ entered an amendment agreement for the company to cover Geveran Trading Co. Ltd. and Sterna Finance Ltd’s legal costs of the transaction, as the agreement was of a greater interest to the company and all its shareholders, necessary to enable the transaction. For other transactions with related parties, reference is made to the servicing agreement with Seatankers Management Co. Ltd. (a company controlled by Geveran) entered 17 February 2020, as reported in the AR 2020. Secondly, the board has, subject to the approval of the annual general meeting on 21 April 2022, entered into an option agreement with Andrés López Sánchez (Country Manager, Spain), dated 18 May 2021 to secure his retention. Lastly, on 1 October 2021 the company entered an agreement with Aston AS (a company controlled by Kristian Melhuus, personal deputy board member for board member Kathrine Astrup Fredriksen) for the delivery of advisory services to the company (expires automatically by the AGM in 2022). All three agreements are entered on an arms-length basis and are not considered signiıcant. For further details, see note 31 to the ınancial statements for 2021. Deviations from the Code: None 5. Shares and negotiability Axactor has one class of shares, and each share carries equal voting rights. The shares of Axactor SE are freely negotiable. There are no restrictions on owning, trading, or voting of shares in the articles of association. Deviations from the Code: None Annual report 2021 49 6. General meetings The general meeting is the company’s ultimate corporate body. The Board strives to ensure that the general meeting is an effective forum for communication between shareholders and the Board. All registered shareholders have the right to participate in the general meetings, which exercise the highest authority of the company. To attend, nominee-registered shareholders must be registered in the VPS by the close of business the day before the general meeting. Notices of general meetings are made available on newsweb.no and on the company’s website and are sent to all shareholders no later than 3 weeks in advance of the meeting. The articles of association stipulate that the supporting documents handling matters to be considered at a meeting can be made available on the company’s website rather than being sent to shareholders by post. However, shareholders are still entitled to receive the documents by post upon request if they so wish. The general meetings in 2021 were conducted digitally with no prior registration deadline. When attending the online general meetings shareholders were able to listen to a live audiocast of the meeting, see the presentation, submit questions relating to the items on the agenda and cast their votes in the real time poll. Identiıcation of the shareholders was secured. The notices included information providing the shareholders with sufıcient detail for the shareholders to assess all the matters to be considered as well as all relevant information regarding attendance and voting procedures including a proxy form with and without voting instructions that permitted separate votes for each item up for consideration in the general meetings and each candidate up for election by the AGM. Advanced votes and proxies were required to be provided the last business day prior to the general meetings by electronic means, in writing or by use of written proxy forms. The chair of the Board declared the general meetings opened. The person chairing the general meetings was elected by the general meeting and was considered independent of the company and the Board. Representatives of the Board, executive management, the company’s auditor, and the chair of the nomination committee were present at the AGM. For the EGM only the chair of the Board and CEO were present which was deemed sufıcient given the items treated. In 2021, Axactor held its AGM on 15 April 2021 with 51,06% of the shares represented. In addition, an EGM was held on 5 January 2021 to increase the share capital, with 38% of the shares represented. The minutes from general meetings are published on newsweb.no and on the company’s website. Deviations from the Code: None 7. Nomination committee The company has established a nomination committee, ref. articles of association article 8. It consists of 2 members: x Anne Lise E. Gryte (chair) x Magnus Tvenge (member) Both were elected by the AGM in 2020 for a period of 2 years, until the AGM in 2022, and are considered independent of the Board and the executive management. Efforts are made to ensure that the nomination committee comprises of persons with the necessary expertise and understanding of the shareholders’ interests. The general meeting in 2020 elected the chair of the nomination committee and determined the remuneration to the members based on the nature of the duties performed and the time invested. The remuneration for the second year was also approved by the general meeting in 2021. The duties and responsibilities of the nomination committee is regulated by the instructions to the nomination committee approved by the general meeting in 2020. The main responsibilities are to propose candidates for election to the Board, and to advice on the remuneration of the board members. Grounds for recommendations are provided when nominees are presented to the general meeting, at latest at the time of the notice of the general meeting. All shareholders are entitled to nominate candidates to the Board, and information on whom to contact can be found on the company’s website. The nomination committee monitors the need for any changes in the composition of the Board through dialogue with the shareholders, board members, and executive management. The nomination com- mittee has also reviewed the Board’s report on its own performance as outlined in section 9 on the next page. Deviations from the Code: None Operational Management Internal Control General Meeting (GM) Board of Directors Internal Audit External Audit Supervisory Authority Risk Management Compliance Other CEO / Executive-team Axactor Group50 8. Board of Directors Composition The Board shall constitute of 3 to 7 directors, as regulated in the articles of association clause 5. The Board was elected by the general meeting. As the chair, Glen Ole Rødland resigned from his duties 29 May 2021, the Board decided to elect Merete Haugli as interim chair. On 31 December 2021, the Board consisted of the following 6 directors: Name Role Age Considered independent of main shareholders Served since Term expires Participation Board meetings 2021 Share ownership in Axactor as of 31 December 2021 (direct/indirect) Merete Haugli Chair 57 Yes 20.01.17 and as interim chair since 30.05.21 AGM 2022 28/29 0 Brita Eilertsen Director 59 Yes 20.01.17 AGM 2022 28/29 19,892 Lars Erich Nilsen 1) Director 40 No 04.05.18 AGM 2022 29/29 0 Kathrine Astrup Fredriksen 1) Director 38 No 01.04.20 AGM 2022 21/29 0 Terje Mjøs Director 60 Yes 20.01.17 AGM 2022 27/29 400,000 Hans Harén Director 71 Yes 25.05.20 AGM 2022 27/29 22,150 Kristian Melhuus Personal deputy for Kathrine Astrup Fredriksen 40 No 15.04.21 AGM 2022 7/29 0 1) According to the NUES, Kathrine Astrup Fredriksen and Lars Erich Nilsen are related to Geveran Trading Co Ltd, which owned 45,98% of the shares in Axactor SE at 31 December 2021, ref. page 62. All members of the Board are elected until the next AGM and may be re-elected. The composition of the Board is based on broad representa- tion of the shareholders, as well as the company’s need for competence, capacity, and ability to form balanced decisions. Information on each Board member’s expertise and capacity can be found in the Annual report 2021 on page 46 and on the company’s website. Independence The nomination committee has evaluated all the board members to be independent of the executive management and material business contacts. 4 out of 6 board members are regarded as independent of the main shareholders. The independence of board members is evaluated by the Board, and if any changes occur, their independence will be re-evaluated. Deviations from the Codee: None 9. The work of the Board The Board has the primary responsibility for overseeing and super- vising the executive management and operations. The Board has adopted written instructions which describes the responsibilities and duties of the Board, including how the Board should handle agreements with related parties, and regulate the allotment of work between the CEO and the Board. The instructions also regulate work related to the Board committees. The Board’s primary responsibilities include: (i) participating in the development and approval of the strategy and budget, (ii) performing necessary monitoring functions, and (iii) acting as an advisory body to the executive management. The Board’s duties may change over time, depending on the company’s ongoing needs. The Board has prepared an annual plan for its work with special emphasis on goals, strategy, and implementation, to ensure that, (i) the operation of the company complies with the company’s values, ethical guidelines and corporate social responsibility, (ii) that the business and assets are well-managed, and (iii) that the risk management and the ınancial reporting is carried out in a prudent and satisfactory manner. The Board has also established rules on conlicts of interest to ensure that any potential conlicts are identiıed and handled in a professional manner. If the Board is to consider material matters in which the chair of the Board is, or has been, personally involved, the meeting in which the matter is considered shall be chaired by another board member. There were no such cases in 2021. The chair of the Board ensures that the Board’s work is performed in an effective and correct manner. It is the Board’s responsibility to ensure that that the company is managed with clear distribution of responsibilities and duties. The Board appoints the CEO, which is responsible for the day-to-day operations of Axactor Group and for ensuring that the Board receives accurate, relevant, and timely information, sufıcient for the Board to carry out its duties. The duties, responsibilities and delegated authorities for the CEO are stated in the CEO instruction issued by the Board. All members of the Board regularly receive information about the operational and ınancial development. The company’s strategies are regularly subject to review and evaluation by the Board. The Board holds regular physical meetings, at least every 2 months, where the members may elect to attend either physically or virtually. Extraordinary board meetings are held when necessary and may be conducted as telephone conferences or, in exceptional circumstances, the Board may take its decisions on the basis of circulating documents. In 2021, the Board held 29 board meetings. 4 of these were held prior to the interim reporting, while 4 were devoted to strategy discussions, Annual report 2021 51 business, operational and ınancial updates, risk and internal control, ESG discussions, portfolio assessments, remuneration and employee related matters, review of polices and instructions etc. In addition, 21 extraordinary board meetings were held to discuss repair issue in relation to a private placement, bond issue, change of the Board’s composition, portfolio purchases, process with the Norwegian supervisory authority, acquisition, budget and deep dive on the local business operations. The CEO has been present in all board meetings. However, the Board has discussions without executive management present in all board meetings and separate discussions with the auditor without executive management present. The Board’s work, constitution of the board committees and review and approval of the Board’s instructions were discussed in the consti- tutional board meeting following the AGM. In addition to the Board’s discussions without the executive management present after each ordinary board meeting, the Board conducts an annual assessment of its performance and expertise. The assessment of the year 2021 was conducted in December 2021 and discussed in the board meeting 17 February 2022.The results has been presented to the nomination committee. In addition, the nomination committee has discussed the performance with each board member. Board committees The Board has established an audit committee, an investment committee and a remuneration committee to provide subject matter advice to and preparation for the full Board. The audit committee’s main responsibilities are to supervise the Group’s internal control and risk management system, to ensure that the auditor’s independency, and to ensure that the annual accounts give a fair picture of the Group’s ınancial results and ınancial condition in accordance with generally accepted accounting practice. The audit committee works as the Board’s risk committee, reviews the procedures for risk management, and assess the risks and ınancial controls related to the Group’s business activities. The audit com- mittee ensures that the company has sufıcient focus on ESG to contribute to sustainable development and appropriate risk manage- ment to minimize negative impact of the operations. The committee follow-up on regulatory changes, compliance matters that may have a material impact on the ınancial statements or policies, monitor material external investigations, sanctions, claims, litigations, substantial authority contact, licenses issues and follow up security incidents and whistle blower reports. The audit committee also receives reports on the work of the internal and the external auditor and the results of the audits. As of 31 December 2021, the audit committee consisted of the following members: x Hans Harén (Chair) x Merete Haugli x Terje Mjøs x Brita Eilertsen All of the members are independent of the executive management, and all of the member(s) have qualiıcations within accounting. The audit committee held 6 meetings in 2021. The investment committee oversees the ınancial investment process and proposals to ensure that the relevant investments meet the requirements with respect to expected return, responsible investments and due diligence prior to commitment of funds. Further, the investment committee quarterly reviews the re-evaluations of portfolios regularly assess the risks of the market from a micro and macro perspective and evaluate and implement necessary mitigations to reduce the risks. As of 31 December 2021, the Investment Committee consisted of the following members: x Brita Eilertsen (Chair) x Lars Erich Nilsen x Kathrine Astrup Fredriksen The investment committee held 20 meetings in 2021. The remuneration committee develops the philosophy, policy and guidelines for remuneration that creates the link between remuner- ation levels, business performance and return to shareholders and makes proposals to the Board on the employment terms and total remuneration of the CEO and approve the terms and remuneration for the executive management which are communicated to the general meeting. These guidelines create precedence for remuneration throughout the organization. Further, the committee oversees that the company has an appropriate succession plan, monitor employee satisfaction, and assess and follow-up other material employment issues related to executive personnel. As of 31 December 2021, the remuneration committee consisted of the following members: x Terje Mjøs (Chair) x Merete Haugli The remuneration committee held 4 meetings in 2021. Deviations from the Code: None 10. Risk management and internal control The Board is responsible for ensuring that the company has sound internal control and systems for risk and compliance management appropriate to the extent and nature of the company’s activities. In 2021 Axactor has continued to build on the advancements made during 2020 on the ESG performance, further strengthening the value for the stakeholders and society. Sustainability is an integral part in the company’s vision to become the industry benchmark, as also anchored in the quality policy. This is further outlined in the sustainability report, cf. Annual report 2021 page 25. The company’s systems and procedures related to risk management and internal control contributes to efıcient operations, timely and correct ınancial reporting, and compliance with applicable laws and regulations. These systems form an integral part of the management’s decision-making process. The internal control and risk management system cover the organizational structure, managerial responsibilities for compliance, policies and procedures, training, customer and supplier due diligence, monitoring through ınancial reviews and internal audits, incident Axactor Group52 investigations and corrective actions as well as reporting. The Code of Conduct and Group policies are reviewed and approved by the Board annually. All policies have designated owners within the executive management, responsible for developing and monitoring compliance with their respective areas. The Board has approved the following policies in 2021: Quality Legal and compliance Insider Corporate governance Operations Anti-fraud and anti-corruption IT and information security Delegation of authority Anti-money laundering Code of Conduct Physical security Antitrust Procurement Corporate social responsibility Trade sanctions Finance Environmental Treasury Communication Debt purchase HR Data protection To each policy a set of procedures are established e.g. the Legal and Compliance policy has a procedure for managing internal control and risk management. The risk management framework shall ensure that the business operations comply with applicable laws and regulations, commitments to sustainable operations, and business ethics, as well as ensuring proıtability, efıciency, and continuity. The company operates a structured risk management process that includes relevant catego- ries of risk, such as strategic, ınancial, operational and regulatory risks. A top-down/bottom-up risk assessment is conducted annually. Key risks are monitored through monthly business reviews with the executive management, and through quarterly reporting to the Board. All employees are trained regularly, and annually as a minimum, through trainings on inter alia business ethics, anti-fraud and anti- corruption, good debt collection practices, GDPR and anti-money laundering and customized training within their area of responsibility. Compliance with the Code of Conduct is another key component in the Group’s internal control system. The company has established an independent whistle-blowing channel for all employees and vendors to report any concerns related to illegal or unethical conduct. Internal controls are conducted throughout the Group annually, at deıned intervals which vary between departments. The legal and compliance functions, locally and at group level, follow up on the performance of the controls, as well as any deviations and necessary mitigations. The results are reported to the Board regularly. Axactor’s internal auditor conduct audits recommended by the Board and reports its ındings to the Board quarterly. Axactor’s separate entities prepares its ınancial statements within a standard ınancial accounting system which is consolidated into the Group’s results. Impairment testing of NPLs is conducted on a quarterly basis and goodwill and REOs at least on an annual basis. These processes are reviewed by the external auditor. The external auditor presents a review of the internal control procedures, including identiıed weaknesses and proposals for improvement, to the Board at least once a year. The audit committee monitors the ınancial reporting and internal control regularly. Under Norwegian securities laws, the Norwegian Financial Supervisory Authorities (FSA) oversees that the ınancial reporting of issuers of transferable securities which are quoted or for which admission to quotation has been requested on a regulated market within the EEA, is compliant with relevant laws and regulations. As communicated in a press release on 13 December 2021, Axactor SE has received a conclusion from the Norwegian Financial Supervisory Authority (FSA) regarding the review of certain accounting practices and their implications for the AR 2019 and Half-Year Report 2020. The company take notice of the conclusion from FSA and will implement the requested changes accordingly. Further information about the FSA process can be found in Board report page 20 and in note 3 in the Annual report 2021. The Board accounts for the main features of the internal control and risk management systems in the annual report. Deviations from the Code: None 11. Remuneration of the Board of Directors The remuneration of Board members is stipulated annually by the AGM based on the nomination committee’s recommendation. The remuneration relects the Board’s responsibilities, work, time invested and the complexity of the company. The remuneration of Board members is not performance based and in principle the company does not grant share options to board members. The chair the Board receives a higher compensation than the other board members, and work in board committees provides for additional compensation. The Board shall be informed if any board members perform other tasks for the company than exercising their role as board members. An agreement has been entered with Aston AS, a company controlled by the personal deputy board member for Kathrine Astrup Fredriksen, Kristian Melhuus for his advisory services for the company when he does not act as board member in Fredriksen’s absence. There were no other arrangements of similar sort entered in 2021. Further details about the remuneration of the Board can be found in note 8 to the annual accounts in the Annual report 2021. Deviations from the Code: None 12. Salary and other remuneration of executive management The Board decides the salary and other compensation paid to the CEO. The CEO’s salary and bonus are based on an evaluation with emphasis on speciıc factors determined by the Board. Each year, the Board carries out an assessment of the salary and other remuneration to the CEO and revise the total compensation and remuneration criteria without any executive management present. The CEO determines the remuneration of executive employees together with the Board’s remuneration committee. The Board has Annual report 2021 53 issued guidelines for the remuneration of the CEO and the executive management team which has been presented and approved by the AGM and published on the company’s website. The salary level ensures that the company can attract and retain executive employees with the desired expertise and experience without harming the company’s reputation or exceeding the norm in comparable companies. Performance related salary in the form of share options, bonus schemes or the like is linked to value creation for shareholders or the earnings performance over time, and subject to an absolute limit of 75% of the annual base salary for the CEO and 50% for the members of the executive team. The Board’s statement regarding remuneration of the executive management can be found in note 8 to the annual accounts in the Annual report 2021. Deviations from the Code: None 13. Information and communication The company complies with the relevant recommendations and market practices for reporting ınancial and other Investor Relation (“IR”) related information. The Board and the executive management team prioritize to give shareholders quick, relevant and current information about the company and its activity areas, while ensuring equal treatment. The Board has adopted an insider policy to increase awareness of the responsibility entailed by the possession of inside information and the consequences of misusing such information and to ensure that Axactor itself fulıls its responsibilities. The Board has also adopted a communication policy which regulates spokespersons on behalf of the company and disclosure of information to the market and investor community in a transparent, honest, consistent, reliable and timely manner. The CEO and the Chief of IR and strategy are the main contact persons in such respects. Contact details of the IR represent- atives are available at the company website to facilitate the dialogue between the company and its shareholders. Financial information is published by producing quarterly reports and annual reports as well as stock exchange notices, in accordance with Oslo Børs’ recommendations. The Board shall keep itself updated on matters of special importance to the shareholders. The Board shall therefore ensure that the shareholders are given the opportunity to make known their points of view at and outside the general meeting. Deviations from the Code: None 14. Take-over bids There are no restrictions in the articles of association to hinder the acquisition of shares in Axactor. Guidelines have been prepared for how the Board shall respond to any takeover bids. The guidelines are in accordance with the Code. As reported in the AR 2020, and as announced 9 December 2020 and approved by the EGM 5 January 2021, Axactor achieved 100% ownership of Axactor Invest 1 S.a.r.l through the acquisition of Geveran's 50% stake therein as one of multiple initiates taken to strengthen Axactor’s ınancial platform to improve shareholder returns and support further growth. Axactor and Geveran agreed on a consideration of 50 million shares to be issued at a share price of NOK 8.00, corresponding to a value for the 50% stake of EUR 38 million. The transaction increased Geveran’s ownership in Axactor from 31.95% to 46.41% and Geveran was consequently obliged to provide a mandatory offer to purchase the remaining shares. The offer was evaluated by an independent third-party expert approved by the Oslo Børs. The Board decided to recommend shareholders to not accept the Mandatory Offer. Geveran received valid acceptances under the mandatory offer for a total of 625,806 shares, corresponding to approximately 0.23% of the registered share capital and voting rights in the company. At completion of the mandatory offer Geveran owned 122,643,578 shares representing 44.53% of the total registered share capital and voting rights in the company (based on 275,395,464 issued and registered shares in the company). Following registration of the share capital increase issued by the company on 23 February 2021, Geveran's relative shareholding was 40.59% of the total share capital and voting rights in the company. Deviations from the Code: None 15. Auditor The auditor has attended one meeting with the Board at which the company’s management was not present to review the company’s ınancial reporting, accounting principles, risk areas, internal control routines etc. The Board’s audit committee has met twice with the auditor during 2020 where the auditor presented a plan for the implementation of the audit work, observations, risks etc. The auditor has conırmed in writing to the Board and the audit committee that independence and objectivity requirements are met. The auditor is only used as a ınancial advisor to the company if such use of the auditor cannot inluence or call into question the auditors’ independence and objectiveness in its capacity as auditor for the company. The Board has established guidelines in respect of the use of the auditor by the company’s executive management for services other than the audit. The breakdown between the auditor’s fee and consultancy fees for 2021 is described in note 9 to the annual accounts. At the AGM, the Board presented a review of the compensation paid to the auditor for audit work required by law and remuneration for other concrete assignments. In connection with the auditor’s presentation to the Board of the annual work plan, the Board also reviewed the work and performance of the auditor. The Board arranges for the auditor to attend all AGMs and EGMs when deemed necessary depending on item treated. The company’s auditor is PwC and considered independent from the company and the Board. Deviations from the Code: None Axactor Group54 Board of Directors Brita Eilertsen Board member Ms. Eilertsen has experience from investment banking and consulting institutions like SEB Enskilda, Orkla Finans and Touche Ross Mgmt Consultants (Deloitte). She has held various board positions for a number of listed and private companies in different industries since 2005. Eilertsen currently holds board positions for Pareto Bank and C WorldWide. Ms. Eilertsen holds a Master of Economics and Business Administration (Norwegian “Siviløkonom”) from the Norwegian School of Economics (NHH) and is a Certiıed Financial Analyst (AFA). Merete Haugli Interim Chair Ms. Haugli has experience as a board member from a number of companies, currently as chair in Norwegian property ASA as well as a member of their audit committee. She has also been a board member of Solstad Offshore ASA, Comrod Communication ASA, Reach Subsea ASA, RS Platou ASA, and Aktiv Kapital ASA. Ms. Haugli has held several senior positions including Head of Wealth management in SEB, Head of Formuesforvaltning AS, Partner in First Securities ASA and Head of investment in Alfred Berg Norway AS. She has also been a member of the nomination committee of Mowi ASA and North Energy ASA. She was previously Assistant Chief in the Oslo Police, responsible for the economic crime section. Ms. Haugli is a business economist from the Banking Academy and from the Norwegian Business School, BI, with special focus on ınance, tax, and accounting. Terje Mjøs Board member Mr. Mjøs was CEO of Visolit AS from 2017 to 2021, chair of the board of Solid Media Group and a senior advisor to Apax Partners (private equity) from 2015 to 2017, CEO of EVRY ASA from 2010 to 2015 and before that CEO of Ergo Group AS from 2004 to 2010. He held in the period 1989 to 2004 several senior positions in Hydro IS Partner AS. Mr. Mjøs has a Cand. Scient. Degree in Computer Science from the University of Oslo, and an MBA in Economics and Business Administration from Norwegian Business School BI. Annual report 2021 55 Kathrine Astrup Fredriksen Board member Ms. Fredriksen is currently employed by Seatankers Management Co Ltd. in London and serves as director in SFL Corporation Ltd. Her previous directorships include Seadrill Ltd, Frontline Ltd, Golar LNG and Deep Sea Supply. She has been a board member in Norwegian Property ASA since 2016 and SFL Corporation Ltd. since April 2020. Ms. Fredriksen was educated at the European Business School in London. Lars Erich Nilsen Board member Mr. Nilsen is the CEO and Chair of Seatankers Management Norway AS. He has experience as an investment analyst from Fearnley Advisors AS and equity analyst from Fearnley Securities AS. He is also currently a board member of Norwegian Property ASA, Bulk Infrastructure Holding AS and FP Bolig Holding AS. Mr. Nilsen has a Master of Economics and Business Administration (Norwegian “Siviløkonom”) from Norwegian Business School, BI. Hans Olov Harén Board member Mr. Harén has extensive experience from bank and ınance within the consumer ınance segment. He retired from the position as CEO of Gjensidige Bank ASA in 2017, a position that he held for eight years. Prior to that, he was Country Business Manager and General Manager Consumer Business in Citibank consumer segment in Norway. He also has broad experience from senior positions in American Express, Wasa Insurance and Trygg Hansa Liv. Mr. Harén holds a degree in business administration (Swedish “Marknadsekonom”) from IHM Stockholm as well as a training in senior management from the Stockholm School of Economics. Kristian Melhuus Deputy Board member (Chair as of 21 February, 2022) Mr. Melhuus is partner in Sandwater AS, an impact venture capital fund and Deputy Chair of Mowi ASA. Before partnering up with Sandwater he held the position as director of Seatankers Management Norway AS, Investment Director in HitecVision, CFO/COO of Liquid Barcodes and analyst at ABG Sundal Collier. In the EGM 21 February 2022, Kristian Melhuus was elected Chair of the Board. Mr. Melhuus holds an MSc in Industrial Economics and Technology Management from the Norwegian University of Science and Technology (NTNU), and has also studied Finance, Derivatives, and Econometrics at the University of Karlsruhe. Axactor Group56 Executive management Johnny Tsolis Chief Executive Ofıcer Mr. Tsolis is the Chief Executive Ofıcer at Axactor, in charge of managing the company. Mr. Tsolis is a co-founder of Axactor and has previously held positions as Chief Financial Ofıcer and Chief of Strategy & Projects. He has eight years of experience from working as a consultant for the Lindorff Group, with main focus on PMI/cost, productivity improvement and post-merger acquisition processes. Mr. Tsolis has a broad international experience with more than ıve years on projects abroad, primarily in Spain, Germany, the US, the Netherlands, Denmark, Sweden and Finland. Mr. Tsolis’ former work experience includes positions as a partner at Cardo Partners AS, partner at DHT Corporate Services, Handelsbanken Capital Markets and Arkwright. Mr. Tsolis graduated from BI Norwegian Business School (BI) with an MSc in business degree. Arnt Andre Dullum Chief Operating Ofıcer Mr. Dullum is the Chief Operating Ofıcer at Axactor Group, overseeing the company's business operations. Prior to the Chief Operating Ofıcer role, he was Head of Operations in Axactor Norway, and he has held multiple roles within Lindorff Group and Lindorff Norway, including Operational Director and Project Director. Mr. Dullum has extensive international experience, working on multiple Pan-European projects, and has also been stationed in Spain and the Netherlands for extended periods as an expatriate. He holds a bachelor’s degree from BI Norwegian Business School (BI) and an MBA with the highest distinction from Norwegian School of Economics (NHH). Vibeke Ly Chief of Staff Ms. Ly is the Chief of Staff, responsible for legal & compliance, sustainability, internal audit, HR and marketing & communications. Ms. Ly has more than nine years of experience from the industry. Prior to joining Axactor, she held the positions as Group corporate lawyer and Group data protection ofıcer in Intrum, and EVP group compliance and group corporate lawyer in Lindorff. Earlier she served as a Group corporate lawyer in EVRY, as an associate in lawyers ırm Grette and as a legal advisor in the Justice Department. She holds a Master of Laws from the University of Oslo (UiO), in addition to international law from Université libre de Bruxelles (ULB) and law and prosecution rights from University of Bergen (UiB). Annual report 2021 57 Kyrre Svae Chief of Strategy and IR Mr. Svae is the Chief of Strategy and IR at Axactor Group, responsible for the strategy formulation and investor relations. He has fourteen years of experience working primarily as a management consultant on projects in Norway, Sweden, Denmark, Finland, the Netherlands, Germany and the USA. Mr. Svae has extensive experience from strategy development, operational improvement and M&A in a wide range of industries, including the debt management industry. His former work experience includes positions as founder and managing partner in Breidablikk Consulting AS and partner in Cardo Partners AS. Mr. Svae holds an MSc from Copenhagen Business School, with part of the degree from Harvard University and China Europe Int. Business School. Robin Knowles Chief Investment Ofıcer Mr. Knowles is the Chief Investment Ofıcer at Axactor Group, responsible for the purchase and evaluation of Axactor’s portfolios. Mr. Knowles has seven years of experience working as the Investment Director at Lindorff Group. He has broad industry experience across Scandinavia, Continental Europe and the UK covering the last 20 years, including positions in Aktiv Kapital (PRA), Cabot Financial and Morgan Stanley as well as his time in Lindorff. His former work experience includes investment banking with Barclays Bank for four years and container shipping with P&O Nedlloyd for four years, where he also qualiıed as a management accountant. He holds a bachelor’s degree from the University of Plymouth and is a qualiıed accountant with Chartered Institute of Management Accountants (CIMA). Nina Mortensen Chief Financial Ofıcer Ms. Mortensen is the Chief Financial Ofıcer at Axactor Group, having primary responsibility for managing the company’s ınances. She has extensive experience in ınancial governance and transformations, ınance operations and mergers & acquisitions. Ms. Mortensen has held several ınancial leadership positions within TietoEVRY, among others interim CFO for the EVRY group and Head of Corporate Controlling and Finance Operations, and within Deloitte. She holds a master’s degree in economics and business administration from the Norwegian School of Economics (NHH) and is MBA-qualiıed. Ms. Mortensen is also a certiıed public accountant (CPA) from BI Norwegian Business School (BI). Axactor Group58 Lisa Sohtell Country Manager Sweden Ms. Sohtell has over 20 years’ experience of customer service as site manager for multiple call centers at Transcom and Teleperformance. Prior to entering the position as Country Manager at Axactor Sweden she spent several years as Head of Operations at both Lindorff and Axactor. Ms. Sohtell studied at the Gothenburg School of Business, Economics and Law (GU). Heidi Piispanen Country Manager Finland Ms. Piispanen has over 20 years’ experience from the debt collection industry and the banking and ınance industry. Prior to the role as Country Manager in Finland, she was Group Operations Director in Axactor. Before joining Axactor, she held the position as director of debt purchase in Lindorff for Finland, Baltics and Russia. Former work experience includes positions as director of the non-performing loans portfolio in Aktiv Kapital in Finland and as collection department manager in Citibank. Ms. Piispanen holds a bachelor’s degree from Helsinki Metropolia University of Applied Sciences. Steffen Fink Country Manager Germany For the last 25 years Mr. Fink has held various management positions for the international credit insurer, Coface. Before joining Axactor he was "Head of Nordics" with responsibility for all Scandinavian subsidiaries. He was also CEO of two debt collection companies in Denmark and Sweden. Until 2014 Mr. Fink was Regional Claims and Debt Collection Director with the same credit insurer in Germany and responsible for activities in Germany, Russia, the Netherlands and Scandinavia. Mr. Fink graduated from Commercial College Wiesbaden and ınalized as a lawyer and notary professional. Annual report 2021 59 Andrés López Country Manager Spain Mr. López began his professional career advising on legal matters at AIG Europe Limited company before becoming one of the founding partners of ALD Abogados, a solicitor and legal startup acquired by Axactor in 2015. Over the past 17 years he has specialized in the Spanish market, consolidating his experience in acquiring & valuating debt portfolios. Mr. López holds a degree in law from Complutense University of Madrid, and a PDD from IESE Business School. Antonio Cataneo Country Manager Italy After having held managerial roles in other sectors, Mr. Cataneo now has over 12 years’ experi- ence in running debt collection businesses. Before acting as Country Manager in Axactor Italy, he held primary executive roles in KRUK Group in Italy and was COO & Member of the Board of Credit Base International. Mr. Cataneo holds a bachelor’s degree from Universitá di Pavia in political and economic sciences. Stina Koren Country Manager Norway Ms. Koren has over 20 years of experience working with debt collection and customer service. Prior to the role as Country Manager at Axactor Norway she has had several management roles in Lindorff, both in Norway and Sweden, mainly within operations, business development and digitalization. Ms. Koren holds a bachelor’s degree from BI Norwegian Business School (BI). Axactor Group60 Shareholder information The company’s total capitalization at 31 December 2021 was NOK 2.28 billion, based on a closing share price of that day of NOK 7.55. Dividend policy The company is a growth company in a capital-intensive industry. At this stage, focus will be to ınance purchase of portfolios and devel- oping operations. The current dividend policy is to not pay cash as dividend to shareholders. As the return on equity gradually improves, Axactor aims to update this policy and initiate dividend payments. Shares and share capital At 31 December 2021, Axactor had 302,145,464 ordinary shares outstanding with a par value of EUR 0.523 (rounded) per share, see note 25 to the ınancial statement. The company has one share class, and all shares have equal voting rights and the right to receive dividend. At 31 December 2021 the company had 11,128 shareholders. Listing The Company’s shares are quoted and traded in NOK at Oslo Børs (Ticker: ACR) since 2015. The shares belong to the ınance category and are registered in the Norwegian Central Securities Depository (VPS), with DNB Issuer Service Registrar. The shares carry the security number ISIN SE0011309319. Principal shareholders The 20 largest shareholders of Axactor are predominantly Norwegian and international institutional investors. A table of the 20 largest shareholders is included in this chapter. Employee incentive plan The company has a share option plan for the executive management and key employees. A total of 0.5 million share options were granted under this plan during 2021 and per 31 December 2021 8.5 million share options are outstanding. Further information on the company’s share option plan has been included in note 26 to the consolidated ınancial statements. Investor relations Axactor wishes to maintain an open dialogue with the capital market. Regular information is therefore published through the annual report, interim reports and presentations and stock exchange announcements. The company distributes all information relevant to the share price to Oslo Børs. Such information is distributed without delay and simul- taneously to the capital market and the media and published on the company website. The CEO and the Chief of Strategy and IR are responsible for the company’s investor relations activities and for all communication with the capital markets. All information is communicated within the framework established by security and accounting legislation and rules and regulations of Oslo Børs. All information regarding Axactor is available on the company’s website at www.axactor.com. Annual General Meeting The annual general meeting is normally held in April or May. Written notice and additional relevant material are sent to all shareholders individually or to their custodian bank at least three weeks before the AGM is to take place. The notice is also made available on the company’s website. Shareholders are encouraged to participate and to vote at the AGM. To vote, shareholder must either be physically or digitally present or be represented by a proxy. Annual report 2021 61 20 largest shareholders as registered in VPS at 31 December 2021 Name Shareholding Share% Geveran Trading Co Ltd 138,920,892 45.98% Torstein Ingvald Tvenge 10,000,000 3.31% Ferd AS 7,864,139 2.60% Verdipapirfondet Nordea Norge Verdi 4,454,162 1.47% Skandinaviska Enskilda Banken AB 3,079,467 1.02% Nordnet Livsforsikring AS 2,247,811 0.74% Endre Rangnes 2,017,000 0.67% Gvepseborg AS 2,009,694 0.67% Stavern Helse Og Forvaltning AS 2,000,000 0.66% Alpette AS 1,661,643 0.55% Verdipapirfondet Nordea Avkastning 1,643,423 0.54% Velde Holding AS 1,400,000 0.46% Verdipapirfondet Nordea Kapital 1,343,933 0.44% Klotind AS 1,296,693 0.43% Andres Lopez Sanchez 1,177,525 0.39% David Martin Ibeas 1,177,525 0.39% Svein Dugstad 1,154,187 0.38% Nordea Bank Abp 1,116,576 0.37% Nordnet Bank AB 1,086,987 0.36% Latino Invest AS 1,040,000 0.34% Total 20 largest shareholders 186,691,657 61.79% Other shareholders 115,453,807 38.21% Total number of shares 302,145,464 100% Geographic residence of shareholders as registered in VPS at 31 December 2021 Shareholding Share % Norway 144,582,187 47.9% Cyprus 138,920,892 46.0% Luxembourg 5,131,808 1.7% Spain 2,469,331 0.8% Sweden 2,018,062 0.7% United Kingdom 1,539,706 0.5% United States 1,254,144 0.4% Other 6,229,334 2.1% Total 302,145,464 100% Ownership structure by size of holdig as registered in VPS at 31 December 2021 Number of holders Number of shares Share % 1-10,000 shares 9,216 13,737,605 4.55% 10,001- 100,000 shares 1,657 45,716,676 15.13% 100,001- 1,000,000 shares 234 54,999,526 18.20% 1,000,001- 5,000,000 shares 18 30,906,626 10.23% Above 5,000,000 shares 3 156,785,031 51.89% 11,128 302,145,464 100% Axactor Group62 Financials statements of Axactor Group and Parent Company Consolidated statement of proıt or loss 64 Consolidated statement of comprehensive income 65 Consolidated statement of ınancial position 66 Consolidated statement of changes in equity 68 Consolidated statement of cash lows 69 Notes to the consolidated ınancial statements 71 Parent company statement of proıt or loss 113 Parent company statement of comprehensive income 114 Parent company statement of ınancial position 115 Parent company statement of changes in equity 117 Parent company statement of cash lows 118 Notes to the parent company ınancial statements 120 Annual report 2021 63 Consolidated statement of proıt or loss For the year ended 31 December EUR thousand Note 2021 2020 Interest revenue from purchased loan portfolios 6, 18 168,421 163,093 Net gain/(loss) purchased loan portfolios 6, 18 (62,013) (49,813) Other operating revenue 88,704 87,871 Other income 15 24 Total income 5,6 195,127 201,175 Cost of REOs sold, incl. impairment 22 (50,515) (52,932) Personnel expenses 7, 8 (61,313) (54,872) Other operating expenses 9 (59,565) (61,372) Total operating expenses (171,393) (169,176) EBITDA 23,733 31,999 Amortization and depreciation 10, 14, 15, 16 (9,654) (10,838) Operating proıt 14,080 21,161 Financial revenue 11 3,033 12,650 Financial expenses 11 (57,809) (66,039) Net ınancial items (54,775) (53,390) Proıt/(loss) before tax (40,696) (32,228) Income tax expense 12 (5,296) (1,774) Net proıt/(loss) after tax (45,992) (34,002) Attributable to: Non-controlling interests (13,194) (15,871) Shareholders of the parent company (32,797) (18,131) Earnings per share: basic 13 (0.112) (0.099) Earnings per share: diluted 13 (0.112) (0.099) Axactor Group64 Consolidated statement of comprehensive income For the year ended 31 December EUR thousand Note 2021 2020 Net proıt/(loss) after tax (45,992) (34,002) Items that will not be classiıed subsequently to proıt or loss Remeasurement of pension plans (4) (58) Net gain/(loss) on equity instruments designated at fair value through OCI (16) - Items that may be classiıed subsequently to proıt or loss Foreign currency translation differences 8,924 (11,278) Net gain/(loss) on cash low hedges 19 (230) - Other comprehensive income/(loss) after tax 8,675 (11,336) Total comprehensive income/(loss) (37,317) (45,338) Attributable to: Non-controlling interests (13,194) (15,871) Shareholders of the parent company (24,123) (29,467) Annual report 2021 65 Consolidated statement of ınancial position For the year ended 31 December EUR thousand Note 2021 2020 ASSETS Intangible non-current assets Intangible assets 6, 14 17,824 19,989 Goodwill 6, 14, 15 55,960 54,879 Deferred tax assets 12 13,700 7,769 Tangible non-current assets Property, plant and equipment 6, 16 2,290 2,530 Right-of-use assets 6, 10 10,768 4,826 Financial non-current assets Purchased debt portfolios 17, 18 1,095,789 1,124,699 Other non-current receivables 338 458 Other non-current investments 17, 21 28 196 Total non-current assets 1,196,698 1,215,346 Current assets Stock of secured assets 22 29,310 78,786 Accounts receivable 23 7,060 7,124 Other current assets 23 16,154 11,645 Restricted cash 24 5,798 2,946 Cash and cash equivalents 24 38,155 47,779 Total current assets 96,476 148,281 Total assets 1,293,175 1,363,627 Axactor Group66 Consolidated statement of ınancial position For the year ended 31 December EUR thousand Note 2021 2020 EQUITY AND LIABILITIES Equity Share capital 25 158,150 97,040 Other paid-in equity 269,919 236,562 Retained earnings (40,475) (16,036) Translation reserve (7,074) (15,999) Other reserves (245) - Non-controlling interests 976 74,113 Total equity 381,249 375,680 Non-current liabilities Interest bearing debt 17, 27 834,411 579,282 Deferred tax liabilities 12 6,144 6,436 Lease liabilities 10 8,866 2,804 Other non-current liabilities 29, 30 1,994 1,433 Total non-current liabilities 851,415 589,955 Current liabilities Accounts payable 7,282 6,147 Current portion of interest bearing debt 17, 27 3,845 356,903 Taxes payable 12 20,259 12,002 Lease liabilities 10 2,185 2,282 Other current liabilities 30 26,941 20,657 Total current liabilities 60,511 397,992 Total liabilities 911,925 987,947 Total equity and liabilities 1,293,175 1,363,627 Oslo, 30 March 2022 The Board of Directors Merete Haugli Board member Brita Eilertsen Board member Terje Mjøs Board member Lars Erich Nilsen Board member Kathrine Astrup Fredriksen Board member Hans Harén Board member Kristian Melhuus Chair of the Board Johnny Tsolis CEO Annual report 2021 67 Equity related to the shareholders of the parent company Restricted Non-restricted EUR thousand Share capital Other paid in capital Translation reserve Other reserves Retained earnings Total Non controlling interest Total equity Closing balance at 31 Dec 2019 81,338 201,879 (4,721) 2,153 280,648 96,977 377,626 Result for the period (18,131) (18,131) (15,871) (34,002) Other comprehensive income for the period (11,278) (58) (11,336) (11,336) Total comprehensive income for the period - - (11,278) (18,190) (29,467) (15,871) (45,338) Proceeds from non-controlling interests - (6,994) (6,994) New share issues 15,703 35,064 50,767 50,767 Cost related to share issues (959) (959) (959) Share-based payment 578 578 578 Closing balance at 31 Dec 2020 97,040 236,562 (15,999) - (16,036) 301,566 74,113 375,680 Result for the period (32,797) (32,797) (13,194) (45,992) Other comprehensive income for the period 8,924 (245) (4) 8,675 8,675 Total comprehensive income for the period - - 8,924 (245) (32,802) (24,123) (13,194) (37,317) Proceeds from non-controlling interests - (6,625) (6,625) Acquisition of remaining 50% of Axactor Invest 1 7,319 8,363 15,682 (53,317) (37,635) New share issues 61,110 27,318 88,427 88,427 Cost related to share issues (1,460) (1,460) (1,460) Share-based payment 180 180 180 Closing balance at 31 Dec 2021 158,150 269,919 (7,074) (245) (40,475) 380,273 976 381,249 Consolidated statement of changes in equity For the year ended 31 December Axactor Group68 Consolidated statement of cash lows For the year ended 31 December EUR thousand Note 2021 2020 Operating activities Proıt/(loss) before tax (40,696) (32,228) Taxes paid 12 (3,261) (5,515) Adjustments for: - Finance income and expenses 54,775 53,390 - Portfolio amortization and revaluation 5, 18 148,542 123,179 - Cost of secured assets sold, incl. impairment 22 50,515 52,932 - Depreciation and amortization 10, 14, 16 9,654 10,838 - Calculated cost of employee share options 26 180 578 Change in working capital 4,991 6,541 Cash low from operating activities before NPL and REO investments 224,700 209,713 Purchase of debt portfolios 18 (115,402) (213,032) Sale of debt portfolio 450 2,050 Purchase of REOs 22 (193) (399) Net cash low from operating activities 109,555 (1,668) Investing activities Purchase of intangible and tangible assets 14, 16 (4,718) (6,114) Interest received 5 25 Net cash low from investing activities (4,712) (6,089) Financing activities Proceeds from borrowings 27 542,496 81,631 Repayment of debt 27 (628,681) (84,395) Interest paid (42,050) (48,392) Loan fees paid 27 (24,033) (4,503) Lease payments 10 (2,812) (2,898) New share issues 50,792 50,767 Proceeds /(repayments) from/(to) non-controlling interests (6,625) (6,994) Costs related to share issues (1,460) (959) Net cash low from ınancing activities (112,373) (15,743) Net change in cash and cash equivalents (7,531) (23,499) Cash and cash equivalents at the beginning of period 50,725 75,396 Currency translation 759 (1,172) Cash and cash equivalents at end of period, incl. restricted funds 43,953 50,725 Annual report 2021 69 Note 1 Corporate information 71 Note 2 Summary of signiıcant accounting principles 71 Note 3 Financial risk management objectives and policies 77 Note 4 Critical accounting estimates and judgments in terms of accounting policies 79 Note 5 Segment reporting 82 Note 6 Income 84 Note 7 Employees, salaries and other compensations 85 Note 8 Key management compensation 86 Note 9 Other operating expenses 89 Note 10 Leases 89 Note 11 Financial items 90 Note 12 Income tax and tax assets and liability 91 Note 13 Earnings per share 92 Note 14 Intangible assets 93 Note 15 Impairment testing of intangible assets with an indeınite life time 94 Note 16 Tangible assets 95 Note 17 Financial instruments 96 Note 18 Purchased debt portfolios 97 Note 19 Hedge accounting 99 Note 20 Shares in subsidiaries 101 Note 21 Other non-current investments 102 Note 22 Stock of secured assets, REOs 102 Note 23 Accounts receivable and other current assets 103 Note 24 Cash and cash equivalents 104 Note 25 Issued shares and share capital 104 Note 26 Share-based payment 106 Note 27 Borrowings and other interest-bearing debt 108 Note 28 Pension liabilities 110 Note 29 Other non-current liabilities 110 Note 30 Other current liabilities 111 Note 31 Transactions with related parties 111 Note 32 Purchase price allocations 111 Note 33 Pledged assets 112 Note 34 Subsequent events 112 Summary of notes to the consolidated ınancial statements Axactor Group70 Notes to the consolidated ınancial statements Note 1 Corporate information The parent company Axactor SE (publ) (“Axactor”), with Norwegian corporate identity number 921 896 328 is a joint-stock company, domiciled in Norway. The registered address is Drammensveien 167, NO-0277 Oslo. The company’s shares are traded in Norway on Oslo Børs. The principal activities of the Company and its subsidiaries (the Group) are debt management, specialising on both purchasing and collection on own debt portfolios and providing collection services for third- party owned portfolio. The activities are further described in note 5. The Annual Report and Parent Company Report for Axactor SE (publ) were adopted by the Board of Directors on 30 March 2022 and will be submitted for approval to the Annual General Meeting on 21 April 2022. Note 2 Summary of signiıcant accounting principles 2.1 Basis for the preparation The consolidated ınancial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as endorsed by the European Union (EU) and effective as of 31 December 2021. Axactor also provides additional disclosures in accordance with requirements in the Norwegian Accounting Act. The Parent Company’s functional currency is euro (EUR) and this is also the reporting currency for the Group. All amounts in the ınancial reports are stated in EUR thousand unless otherwise speciıed. As a result of rounding adjustments, the ıgures in one or more columns may not add up to the total of that column. Preparation of ınancial statements including note disclosures requires management to make estimates and assumptions that affect amounts reported. Actual results may differ. The most important accounting principles that have been applied are described below. These prin- ciples have been applied consistently for all years presented, unless otherwise speciıed. 2.2 Consolidation principles The Group’s consolidated ınancial statements comprise Axactor SE and entities in which Axactor SE has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. There is a presumption that if the Group has the majority of the voting rights in an entity, the entity is considered as a subsidiary. To support this presumption and when the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over the entity, including ownership interests, voting rights, ownership structure and relative power, as well as options controlled by the Group and shareholder's agreement or other contractual agreements. The assessments are done for each individual investment. The Group re-assesses whether it controls an entity if facts and circumstances indicate that there are changes to one or more of the three elements of control. Business combinations are accounted for by using the acquisition method. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Proıt or loss and each component of other comprehensive income (OCI) are attributed to the shareholders of the parent of the Group and to the non-controlling interests, even if this results in the non-controlling interests having a deıcit balance. When necessary, adjustments are made to the ınancial statements of subsidiaries to bring their accounting policies in line with the Group’s accounting policies. All intra-group assets and liabilities, equity, income, expenses, and cash lows relating to transactions between members of the Group are eliminated in full on consolidation. Non-controlling interests are presented separately under equity in the Group's consolidated statement of ınancial position. Change in ownership interest without loss of control A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. The consideration is recognized at fair value and the difference between the consideration and the carrying amount of the asset is recognized against the equity attributable to the parent. Annual report 2021 71 Loss of control In cases where changes in the ownership interest of a subsidiary lead to loss of control, the consideration is measured at fair value. Assets and liabilities of the subsidiary and non-controlling interest at their carrying amounts are derecognized at the date when the control is lost. Differences between the consideration and the carrying amount of the asset are recognized as a gain or loss in proıt or loss. Investments retained, if any, are recognized at fair value, and surplus or deıcits, if any, are recognized in proıt or loss as a part of gain/loss on subsidiary disposal. Amounts included in other comprehensive income are recognized in proıt or loss or directly as equity depending on their prior classiıcation in other comprehensive income. 2.3 Functional currencies and presentation currency The ınancial statements are presented in EUR, which is the functional currency of the Parent Company, as well as being the presentation cur- rency for the Group. For the purposes of presenting this consolidated ınancial statement, the assets, and liabilities of the Group’s non-euro operations (i.e. Sweden and Norway) are translated to EUR using exchange rates prevailing at the end of each reporting period. Income and expense items are translated at the average exchange rates for each month. All group transactions and group unsettled matters, and proıt and losses for transactions between group companies that are put into effect, are eliminated at the consolidation. 2.4 Business combination and goodwill Business combinations are accounted for using the acquisition accounting method. Acquisition costs incurred are expensed and included in operating expenses. When the Group acquires a business, it assesses the identiıable assets acquired and liabilities assumed for appropriate classiıcation and designation in accordance with the contractual terms, economic circumstances, and relevant conditions as at the acquisition date. The acquirer’s identiıable assets, liabilities and contingent liabilities that meet the conditions for recognition are recognized at their fair values at the acquisition date, except for non-current assets that are classiıed as held for sale and recognized at fair value less cost to sell, and deferred tax assets and liabilities which are recognized at nominal value. Goodwill arising on acquisition is recognized as an asset measured at the excess of the sum of the consideration transferred, the fair value of any previously held equity interests and the amount of any non-con- trolling interests in the acquire over the net amounts of the identiıable assets acquired and the liabilities assumed. If, after reassessment, the Group’s interest in the net fair value of the acquirer’s identiıable assets, liabilities and contingent liabilities exceeds the total consideration of the business combination, the excess is recognized in the income statement immediately. Any contingent consideration to be transferred by the acquirer will be recognized at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration which is deemed to be an asset or liability will be recognized in the income statement as ınancial income or expense. If the contingent consideration is clas- siıed as equity, it will not be remeasured, and subsequent settlement will be accounted for within equity. If the business combination is achieved in stages, the fair value of the Group’s previously held equity interest in the acquiree is remeasured to fair value at the acquisition date through the income statement. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating units that are expected to beneıt from the combination, irrespective of whether other assets or liabilities of the acquired entity are assigned to those units. The Group assesses each cash generating unit semi-annually to determine whether any indication of impairment exists. Where an indicator of impairment exists, a formal estimate of the recoverable amount is made, which is considered to be the higher of the actual value less costs to sell and value in use. If there is an indication that an asset is impaired, the recoverable amount of the asset is calculated in accordance with IAS 36 Impairment of Assets. For goodwill, other intangible assets with indeınite useful lives and intangible assets not yet ready for use, the recoverable amount is assessed annually. 2.5 Segment reporting Axactor derives its revenues from the following operating segments: Non-performing loans (NPL), Third-party collection (3PC) and Real estate owned (REO). Axactor reports its business through reporting segments which corresponds to the operating segments. Segment proıtability and country proıtability are the two most important dimensions when making strategic priorities and deciding where to allocate the Group's resources. For management purposes, the Group is in addition organised into business units based on the geographical regions. The internal reporting provided to the Board of Directors of Axactor, which is the Group's chief decision maker, is in accordance with this structure. 2.6 Revenue and revenue recognition Revenue from NPL-portfolios is recognized according to IFRS 9 Financial instruments using the effective interest rate method, while revenue from 3PC is recognized according to IFRS 15 Revenue from Contracts with Customers. The recognition of revenues from NPL portfolios is described in detail in 2.12.1. The group can sell a NPL portfolio to another debt collector. The revenue will be recognized at the time the portfolio is transferred to an external buyer. 3PC revenue is derived from a combination of ıxed fees paid by Axactor’s customers for services provided and commissions for solved cases and/or fees paid by the debtors to an Axactor entity. Revenue from 3PC is recognized in 'Other operating revenue' in the consolidated statement of proıt or loss. Revenue from REO is recognized at the point of time where the ownership of the property has been transferred to an external buyer. Revenue from REO is recognized in 'Other operating revenue' in the consolidated statement of proıt or loss. 2.7 Employee beneıts Pension obligations The Group’s pension obligations vary between countries depending on the local legislation and different pension systems, see notes 7, 8, 28 and 29 for further descriptions. Deıned contribution retirement plans are retirement plans where the company’s payment obligations are limited to the ıxed contributions Axactor Group72 and where the fees already have been undertaken. The retirement beneıts for the individual employee are dependent on the contribu- tions paid to the retirement plan or an insurance company by the employer, and the return of capital invested in the retirement fund. Consequently, it is the employee that holds the risk of return (that the return will be lower than expected) and the risk of the investment (the risk that the invested pension provision will not be sufıcient to cover expected retirement compensation in the future). The obligations of the Group related to payments of deıned contribution retirement plans are expensed in the consolidated statement of proıt or loss as they are earned by the employee for services rendered on behalf of the employer during the period. For deıned beneıt plans, the pension obligations do not cease until the agreed pensions have been paid. Deıned beneıt plans typically deıne an amount of pension beneıt that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and compensation. The liability recognized in the consolidated statement of ınancial position in respect of deıned ben- eıt pension plans is the present value of the deıned beneıt obligation at the end of the reporting period less the fair value of plan assets. Share-based compensation The group operates an equity-settled compensation plan, under which the entity receives services from employees as consideration for equity instruments (options) of the Group. The fair value of the employee services received in exchange for the grant of the option is recognized as an expense (payroll expenses) over the vesting period. The total amount to be expensed is determined by reference to the fair value of the options granted: x Including any market performance conditions (e.g. an entity's share price). x Excluding the impact of any service and non-market performance vesting conditions. x Including the impact of any non-vesting conditions. At the end of each reporting period, the Group revises its estimates of the number of options that are expected to vest based on the non-market vesting conditions and service conditions. It recognizes the impact of the revision to original estimates, if any, in the proıt or loss, with a corresponding adjustment to equity. The fair value of the options has been estimated at grant date and is not subsequently changed. When the options are exercised, and the company elects to issue new shares, the proceeds received net of any directly attributable transaction costs are credited to share capital (par value) and share premium. Social security costs related to the options are accrued on quarterly basis. Only at the moment of exercising these social security costs will become payable for the amount that relates to the actual exercised number of options. 2.8 Taxes Income taxes consists of current tax and deferred tax. Current income tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted at the reporting date. Deferred income tax is provided using the liability method on temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for ınancial reporting purposes. Deferred income tax liabilities are recognized for all taxable temporary differences except where the deferred income tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting proıt nor taxable proıt or loss. A deferred tax asset is recognized to the extent that it is probable that future taxable proıt will be available or which unused tax losses and unused tax credits can be utilised. A deferred tax asset arising from unused tax losses or tax credit is only recognized to the extent that the entity has sufıcient taxable temporary differences or that there is convincing other evidence supporting the utilisation of the tax losses and tax credits, including the impact of time restriction by local tax authorities. The carrying amount of deferred tax assets are reviewed at the end of each reporting period. Unrecognized deferred tax assets are reassessed at each reporting date. Deferred income tax assets and deferred income tax liabilities are offset only when a legally enforce- able right exists to set off tax assets against income tax liabilities and the deferred income taxes relate to the same taxable entity or taxation authority. 2.9 Intangible assets Expenditures for software development that can be attributed to identiıable assets under the Group’s control and with anticipated future economic beneıts are capitalised and recognized as intangible assets, in accordance with IAS 38 Intangible Assets. These capitalised expenses can include staff expenses if the resource has been taken out of its ordinary course of work for a longer period to work on the development project, which has been recognized as having future economic beneıts. Customer relationships that are recognized as ıxed assets relate to fair value recognized upon acquisition in accordance with IFRS 3 Business Combinations. They are amortized on a straight-line basis over their estimated period of use (3–5 years). Other intangible ıxed assets relate to other acquired rights and are amortized on a straight-line basis over their estimated period of use. 2.9.1 Goodwill Goodwill represents the excess of cost of an acquisition over the fair value of the net identiıable assets of the acquired subsidiary at the date of acquisition. Goodwill on the acquisition of subsidiaries is included within intangible assets. Goodwill that arises on the acquisition of subsidiaries is allocated to cash generating units (CGUs). Goodwill is measured at cost (residual) less accumulated impairment losses. Goodwill is tested for impairment at least annually, or when there are indications of impairment. Impairment is determined for goodwill by assessing the recoverable amount of each CGU to which the goodwill relates. When the recoverable amount of the CGU is less than its carrying amount, an impairment loss is recognized. Impairment losses relating to goodwill cannot be reversed in future periods. When the Group disposes of an operation within a CGU or group of CGUs to which goodwill has been allocated, a portion of the goodwill is included in the carrying amount of the operation when determining the gain or loss on disposal. The portion of the goodwill allocated is measured based on the relative values of the operation disposed of and the portion of the CGU retained at the date of the partial disposal, unless it can be demonstrated that another method better relects the goodwill associated with the operation disposed of. Annual report 2021 73 The same principle is used for allocation of goodwill when the Group reorganizes its businesses. 2.9.2 Customer relationships and databases Separately acquired customer relationships and databases are initially recognized at historical cost. The assets acquired in a business com- bination are recognized at fair value at the acquisition date. Customer relationships and databases have a ınite useful life and are carried at cost less accumulated amortization. Amortization is calculated using the straight-line method to allocate the cost over their useful lives of 3 to 6 years. Development costs on an individual project are recognized as an intangible asset only when there is an identiıable asset that will generate expected future economic beneıts and when the cost of such asset can be measured reliably, otherwise development costs are recognized as an expense when incurred. During 2021 the Group has continued the development of the business intelligence system and business infrastruucture, hereunder debtor- and client portals. 2.10 Tangible ıxed assets Tangible ıxed assets are reported at cost in the consolidated statement of ınancial position, with a deduction for accumulated depreciation and any impairment.Depreciation is made on a straight- line basis over the asset’s estimated useful life, which is assessed on an individual basis, ranging from three to six years. 2.11 Right of use assets and lease liabilities The Group has applied IFRS 16 Leases. At the inception of a contract, the Group assesses whether the contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identiıed asset for a period of time in exchange for consideration. For contracts that constitute, or contain a lease, the Group separates lease components if it beneıts from the use of each underlying asset either on its own or together with other resources that are readily available, and the underlying asset is neither highly dependent on, nor highly interrelated with, the other underlying assets in the contract. The Group then accounts for each lease component within the contract as a lease separately from non-lease components of the contract. At the lease commencement date, the Group recognizes a lease liability and corresponding right-of-use asset for all lease agreements in which it is the lessee, except for the following exemptions applied: x Short-term leases (deıned as 12 months or less) x Low value assets For these leases, the Group recognizes the lease payments as other operating expenses in the statement of proıt or loss when they incur. The lease liability is recognized at the commencement date of the lease. The Group measures the lease liability at the present value of the lease payments for the right to use the underlying asset during the lease term that are not paid at the commencement date. The lease term represents the non-cancellable period of the lease, together with periods covered by an option either to extend or to terminate the lease when the Group is reasonably certain to exercise this option. The lease liability is subsequently measured by increasing the carrying amount to relect interest on the lease liability, reducing the carrying amount to relect the lease payments made and remeasuring the carrying amount to relect any reassessment or lease modiıcations, or to relect adjustments in lease payments due to an adjustment in an index or rate. The Group does not include variable lease payments in the lease liability. Instead, the Group recognizes these variable lease expenses in proıt or loss. The Group presents its lease liabilities as separate line items in the statement of ınancial position. The Group measures the right-of use asset at cost, less any accumu- lated depreciation and impairment losses, adjusted for any remeasure- ment of lease liabilities. The Group applies the depreciation requirements in IAS 16 Property, Plant and Equipment for depreciating the right-of-use asset, except that the right-of-use asset is depreciated from the commencement date to the earlier of the lease term and the remaining useful life of the right-of-use asset. The Group applies IAS 36 Impairment of Assets to determine whether the right-of-use asset is impaired and to account for any impairment loss identiıed. 2.12 Financial instruments A ınancial asset or liability is recognized in the consolidated statement of ınancial position when the Group has a contractual commitment regarding such an instrument. Financial instruments reported as assets in the consolidated statement of ınancial position are included in the line items purchased debt portfolios, other non-current receivables, other non-current investments, accounts receivables, other current assets, restricted cash and cash and cash equivalents. The majority of the Group’s ınancial assets are classiıed as measured at amor- tized cost, with the exception of derivatives which are classiıed as measured at fair value through proıt or loss and an investment which is classiıed as measured at fair value through OCI. Financial instruments reported as liabilities in the consolidated state- ment of ınancial position are included in the line items current and non-current interest bearing debt, accounts payable, lease liabilities and other current and non-current liabilities. The Group’s debt and other ınancial liabilities are, with the exception of derivatives, initially recognized at fair value, including transaction costs directly attribut- able to the transaction, and are subsequently measured at amortized cost. Derivative liabilities are, as derivative assets, measured at fair value through proıt or loss. A ınancial asset is derecognized when the contractual rights to the cash lows from the ınancial asset expire, or when the Group has either transferred the contractual right to receive the cash lows from that asset or has assumed an obligation to pay those cash lows to one or more recipients, subject to certain criteria. Axactor Group74 A ınancial liability is derecognized when the obligation under the liability is discharged, cancelled or expired, ususally when the Group has paid the contractual obligation. Interest income and interest cost are calculated using the effective interest rate method. 2.12.1 Non-performing loans (NPL) Non-performing loans, presented as ‘Purchased debts portfolios’ in the consolidated statement of ınancial position, consists of portfolios of delinquent consumer debts purchased signiıcantly below nominal value, relecting incurred and expected credit losses, and thus deıned as credit impaired. For non-performing loans, timely collection of principal and interest is no longer reasonably assured at the date of purchase. Non-performing loans are recognized at fair value at the date of purchase. Since the loans are measured at fair value, which includes an estimate of future credit losses, no allowance for credit losses is recorded in the consolidated statement of ınancial position on the day of acquisition of the loans. The loans are subsequently measured at amortized cost according to a credit adjusted effective interest rate. Since the delinquent consumer debt is a homogeneous group, the future cash lows are projected on a portfolio basis. The carrying amount of each portfolio is determined by projecting future cash lows discounted to present value using the credit adjusted effective interest rate as at the date the portfolio was acquired. The total cash lows (both principal and interest) expected to be collected on purchased credit impaired loans are regularly reviewed. Changes in expected cash low are adjusted in the carrying amount and are recognized in the proıt or loss as income or expense in ‘Net gain/ (loss) purchased loan portfolios’. Interest revenue is recognized using a credit adjusted effective interest rate, included in ‘Interest revenue from purchased loan portfolios’. The majority of the non-performing loans are unsecured. Only an immaterial part of the loans, approximately 3% of the book value of the loans, is secured by a property object. Estimating the timing and amount of cash lows requires signiıcant professional judgment regarding key assumptions, including severity of loss, amounts and timing of payment receipts. All of these factors are inherently subjective and can result in signiıcant changes in cash low estimates over the term of the loan. Estimated future cash low (ERC) from the portfolios is assessed and updated regularly and at the end of each quarter a review of the ERC is made for all the portfolios, based on the Group's actual collection compared to the forecasted collection over time, as well as the Group's view on the impact on the ERC curve of several factors (see note 18) and conditions. The fact that the claims are credit impaired reduces the presence of non-linear effects on credit losses. Non-performing loans that are secured by a property may have the securing property repossessed. The assets are then transferred internally to an owning entity at fair value. Any internal gains or losses arising from the transaction is eliminated at group level until the asset is sold to an external party. These assets are no longer classiıed as non-performing loans according to IFRS 9, hence all values relating to the asset is de-recognized from the portfolio value in the consolidated statement of ınancial position. All non-performing loans are classiıed as non-current assets. 2.12.2 Forward low agreements The Group has entered into several forward low agreements to purchase future non-performing loan portfolios, ref. note 4. These are agreements whereby Axactor agrees to buy and the counterparty agrees to sell future periods' ınancial assets (loans) that fulıls a set of speciıed criteria (past due status etc.) in a number of batches over a speciıed time period. The price at which Axactor buys the loans is agreed when the contract is signed and can be segmented by types of claim or size bands. The value of a forward low agreement shall relect fair value. Any signiıcant changes to the expected future cash low will lead to a revaluation of the portfolio. If external factors assumed directly or implicitly in the business case valuation change signiıcantly before the acquisition date of one or more batches in a portfolio, so that it will impact the value of the batch(es) through a change in the expected future cash low from the batch(es), the change in value is recorded as a fair value adjustment with immediate effect. The fair value adjust- ment is recognized in the consolidated statement of proıt or loss as 'Other operating revenue'. 2.12.3 Accounts receivable Accounts receivables are recognized initially at fair value and meas- ured at amortized cost. Evaluation of the value of overdue accounts receivable are based on individual judgment and/or from historical experience. 2.12.4 Trade and other payables Trade payables are recognized at the original invoiced amount. Other payables are recognized initially at fair value. The payables are measured at amortized cost. 2.12.5 Client funds Client funds arises from cash received on collections on behalf of a client. Collections are kept on separate restricted bank accounts and are relected simultaneously as a liability. The funds are reported as 'Restricted cash' and 'Other current liabilities' in the consolidated statement of ınancial position, and shown on a separate line in note 24 and note 30. 2.12.6 Cash and cash equivalents Cash and cash equivalents include cash at banks and on hand and other short term highly liquid investments with original maturities of three months or less. 2.12.7 Derivatives Derivatives are recognized at fair value on the date the contract is entered into and are subsequently measured at fair value. Derivatives are designated as hedging instruments in cash low hedge relationships, and related gains or losses are recognized as described in note 2.17. 2.13 Stock of secured assets / real estate owned (REOs) Real estate owned consists of portfolios of properties held for sale as a part of the ordinary course of business. The properties are acquired exclusively with a view to subsequent resale in the near future and getting involved in renting out is not part of the business idea. Since Annual report 2021 75 REOs are held for sale, the Group considers the REOs as stock of secured assets in accordance with IAS 2 Inventories and valued at the lower of cost and net realizable value. 2.14 Provisions and contingent liabilities Provisions are recognized when the Group has a present legal or con- structive obligation as a result of past events, it is more likely than not that an outlow of resources will be required to settle the obligation and the amount can be reliably estimated. Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that relects current market assessments of the time value of the money and the risks speciıc to the obligation. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that relects, when appropriate, the risks speciıc to the liability. When discounting is used, the increase in the provision due to the passage of time is recognized as a ınance cost. Restructuring provisions are recognized only when the recognition criteria for provisions are fulılled. The Group has a constructive obli- gation when a detailed formal plan identiıes the activities concerned, the location and number of employees affected, a detailed estimate of the associated costs, and an appropriate timeline. Furthermore, the employees affected have been notiıed of the plan’s main features. 2.15 Government grants The Group has applied IAS 20 for government grants and support received. Government grants are recognized when there is rea- sonable assurance that the grant will be received. If conditions are attached to the grant which must be satisıed before the Group is eligible to receive the contribution, these conditions will be disclosed. Government grants relating to costs are deferred and recognized in proıt or loss over the period necessary to match them with the costs that they are intended to compensate. Government grants relating to the purchase of property, plant and equipment are included in non-current liabilities as deferred income and they are credited to proıt or loss on a straight-line basis over the expected lives of the related assets. 2.16 Hedge accounting The Group has elected to apply hedge accounting rules in IFRS 9. When a hedging relationship meets the speciıed hedge accounting criteria in IFRS 9, the Group applies hedge accounting, based on the purpose of the hedge. Currently the Group only applies cash low hedge accounting to mitigate the impact of changes in loating interest rates. Derivatives are used as hedging instruments and consist of interest rate caps. At inception, the Group formally documents how the hedging rela- tionship meets the hedge accounting criteria. It records the economic relationship between the hedged item and the hedging instrument, including the nature of the risk, the risk management objective and strategy for undertaking the hedge, the hedge ratio determined in the risk management strategy and the ratio in the actual hedges per- formed and the effect of credit risk on the relationship, which cannot dominate the value changes from the economic relationship. For designated and qualifying cash low hedges, the effective portion of the cumulative gain or loss on the hedging instrument is initially recognized in OCI as net gain/(loss) on cash low hedges in other reserves. The ineffective portion of the gain or loss on the hedging instrument is recognised immediately in proıt or loss as a ınancial revenue or expense. When the hedged cash low affects the proıt or loss, the effective portion of the gain or loss on the hedging instrument is recorded in the corresponding income or expense line. The market value is calculated by third parties. The calculation is based on a net present value calculation of the difference from agreed premium and market premium at the reporting date. To test the hedge effectiveness, the Group compares the changes in the fair value of the hedging instruments against the changes in fair value of the hedged items attributable to the hedged risk. When a hedging instrument expires, is sold, terminated, exercised, or when a hedge relationship no longer meets the criteria for hedge accounting or the risk management objectives, any cumulative gain or loss that has been recognized in OCI at that time remains in OCI and is recognized when the hedged forecast transaction is ultimately recognized in proıt or loss. 2.17 Changes in accounting policies and disclosures implemented in 2021 Axactor has applied hedge accounting in accordance with IFRS 9 for the ırst time during 2021. Details of the hedge relationships are described in note 19. The Group has considered the IFRIC agenda decision 'Conıguration or Customisation Costs in a Cloud Computing Arrangement' (IAS 38 Intangible assets) and concluded that there was no resulting changes that needed to be accounted for as a change in accounting policy. The amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 related to the Interest Rate Benchmark Reform – Phase 2 provide temporary reliefs which address the ınancial reporting effects when an interbank offered rate (IBOR) is replaced with an alternative nearly risk-free interest rate (RFR). The amendments had no impact on the consolidated ınancial statements of the Group. In all other respects, the accounting principles applied during 2021 are consistent with principles applied in the previous accounting period. No new standards or other changes in accounting policies have been implemented during 2021. 2.18 Changes in accounting policies and disclosures for 2022 calendar year or thereafter The new and amended standards and interpretations that are issued, but not yet effective, are not expected to have a material impact on the Group. Axactor Group76 Note 3 Financial risk management objectives and policies Axactor deınes risk as all factors which could have a negative impact on the ability of the Group to achieve its business objectives. All economic activities are associated with risk. Axactor’s ınancing and ınancial risks are managed within the Group in accordance with the ınancial policy and treasury policy established by the Board of Directors. In order to manage risk in a balanced way, it must ırst be identiıed and assessed. Axactor conducts risk management at both a group and company level, where risks are evaluated and monitored in a systematic manner. Responsibility for risk management and internal control is an integral part of management responsibility. Risks asso- ciated with changes in economic conditions are monitored through on-going dialogue with each country manage ment team and through regular checks on developments in each country. Axactor was compliant with all covenants throughout the year. The following summary offers an overview of all material risk factors which are considered especially important for Axactor’s future development. Market risks Axactor’s ınancing and ınancial risks are managed within the Group in accordance with the treasury policy established and overseen by the Board of Directors. The treasury policy contains rules for managing ınancial activities, delegating responsibility, measuring, identifying, and reporting ınancial risks and limiting these risks. Internal and external ınancial operations are concentrated to the Group’s central ınance function in Oslo, which ensures both economies in scale when pricing ınancial transactions as well as concentration of compe- tent resources. Because the ınance function can take advantage of temporary surplus deıcits in the Group’s various countries of operation, the Group’s total interest expense can be reduced. In each country, investments, revenues, and most operating expenses are denominated in local currencies, and thus currency luctuations have a relatively minor effect on operating earnings. Revenues and expenses in national currency are thereby hedged in a natural way, which limits transaction exposure. Regulatory risks Regulatory risks, because of increased focus from authorities and stricter rules e.g. MAR (market abuse regulation), AML (anti money laundering), GDPR (general data protection regulation), debt collection laws and BEPS (base erosion and proıt shifting), are being monitored continuously. During the Covid-19 pandemic Axactor has faced temporary changes in debt collection regulations in a few countries. The debt collection industry is also facing reduction of (regulatory) collection fees as a consequence of a more consum- er-friendly legislation in both EU and Norway. Axactor continuously monitors the EU’s regulatory efforts to be able to indicate potentially negative effects for European credit management companies and to work for favourable regulatory changes. The ınancial effect is expected not to be material for the Group. Interest rate risks Interest risk is related to the risk the Group is exposed to from changes in the market’s interest rate which can affect the net proıt. The Group’s main interest rate risk arises from long-term borrowings with variable rates, which amounted to EUR 838.3 million at 31 December 2021 (2020: EUR 936.2m). The loans carries a variable interest rate based on the interbank rate in each currency with a margin. Axactor has entered into two EUR interest caps at strike at 0,5% for the nominal amount of EUR 200 million with 3 years duration with start mid December 2022, in order to mitigate the effect of interest rate changes on the loating rate bonds and applies cash low hedge accounting. The details of the hedge relationships are described in note 2.17 and 19. Any annualised increase by 100 basis point would decrease the Groups proıt before tax by EUR 7.0 million. (2020: EUR 9.4m). At 31 December 2021, the 3 months EURIBOR was negative. Hence, any annualised decrease would not affect the Group's proıt. The average interest rate in 2021 was 6.2% (2020: 6.2%). Currency risk Currency risk refers to the risk that the value of liquid and ınancial instruments may shift because of changes in currencies’ conversion rates. Much of the Groups business operation is taking place in euro countries. The Group’s functional currency is therefore held in euro. However, some of its business operations is in non-euro countries like Norway and Sweden. This foreign exchange exposure may affect the Company’s results and the value of monetary assets. When the ınancial position of foreign subsidiaries are recalculated in EUR, a translation exposure arises that affects consolidated share- holders’ equity. This translation exposure is limited by raising loans in foreign currencies, stated as the aforementioned countries. Credit risk Credit risks is the risk that the counterparty will not meet its obliga- tions under a ınancial contract or customer contract, leading to a ınancial loss. The Group is exposed to credit risk from its operating activities, primarily related to purchased debt and trade receivablies. Customer credit risk is managed subject to established policies, procedures and controls relating to customer credit risk management. The maximum exposure to credit risk at the reporting date is the carrying value of each class of ınancial assets. The credit risk (excluding purchased debt) is not considered to be a material risk in Axactor. Risk inherent in purchased debt To minimize the risks in this business, caution is exercised in purchase decisions. The focus is small and medium-sized portfolios with rela- tively low average amounts, to help spread risks. The acquisitions gen- erally involve unsecured debt, which reduces the capital investment and signiıcantly simpliıes administration compared with collateralised receivables. Purchased debt portfolios are usually purchased at prices signiıcantly below the nominal value of the receivables, and Axactor retains the entire amount collected, including interests and fees. Axactor places high yield requirements on purchased debt portfolios. Before every acquisition a careful assessment is made with a projection of future cash lows (collected amount) from the portfolio. In its calculations, Axactor is aided by scoring models and historical data. Annual report 2021 77 Scoring entails, the debtor's payment capacity being assessed through statistical analysis. The historical data is used to assess the impact on future cash lows of external factors and events. In addition, Axactor uses specialised industry consultants to get a second opinion on con- templated debt portfolios purchases. Axactor is therefore comfortable that it has the expertise required to evaluate the purchased debt. Liquidity risk Liquidity risk is the potential loss arising from the Group’s inability to meet its contractual obligations when due. The Group monitors its risk of a shortage of funds using cash low forecasts regularly. The driver of negative cash low from operating activities is investments in NPL portfolios. These investments can be scaled down relatively quick, as evident by the 46% reduction in investments in NPL portfolios from 2020 to 2021. The Group generates positive cash low from operating activities before NPL and REO investments. The Group had cash and cash equivalents of EUR 44.0 million at 31 December 2021 (2020: EUR 50.7 million). The following table details the Group’s undiscounted remaining con- tractual maturity for its non-derivative ınancial liabilities with agreed repayment periods. For forward low NPL agreements, expected cash lows are presented. The maturity calculation is made under the assumption that Axactor has a constant RCF draw in the period. The table includes both interest and principal cash lows. To the extent that interest lows are loating rate, the undiscounted amount is derived from the interest rate curves at the end of the reporting period. The contractual maturity is based on the earliest date on which the Group may be required to pay. The amounts presented are subject to change dependent on a change in variable interest rates. Year ended 31 December 2021 EUR thousand Q1-22 Q2-22 Q3-22 Q4-22 1- 2 years 2- 4 years 4+ years Total Forward low NPL agreements, non-cancellable 1) 2) 34,597 19,938 19,420 21,092 31,984 - - 127,030 Forward low NPL agreements, cancellable 1) 2) - 8,992 7,116 6,300 45,600 17,349 - 85,357 Revolving credit facility DNB/Nordea 2,772 2,772 2,772 2,772 363,064 - 374,152 Bond (ISIN: NO0010914666) 3,578 3,500 3,539 3,578 14,194 203,578 - 231,967 Bond (ISIN: NO0011093718) 4,013 4,102 4,102 4,057 16,273 32,590 312,216 377,352 Other non-current liabilities - - - - - - 1,994 1,994 Accounts payable 7,282 - - - - - - 7,282 Other current liabilities 23,177 3,764 - - - - - 26,939 Total 75,418 43,067 36,948 37,799 471,115 253,517 314,210 1,232,074 1) Ref note 2.12.2 2) Expected cash lows. Cash lows are limited to EUR 308.5 million by contracted capex limits See note 10 for contractual maturities of lease liabilities and note 18 for expected incoming cash low (ERC) from NPL portfolios Year ended 31 December 2020 EUR thousand Q1-21 Q2-21 Q3-21 Q4-21 1- 2 years 2- 4 years 4+ years Total Forward low NPL agreements 1) 2) 12,702 12,205 9,636 7,173 21,518 - - 63,234 Revolving credit facility DNB/Nordea 20,139 22,312 18,446 20,996 73,434 254,588 - 409,915 Interest bearing loans Italy 1,945 2,665 3,331 3,294 12,125 16,454 2,400 42,215 Interest bearing loans Nomura 7,515 6,806 6,465 3,790 - - - 24,576 Bond (ISIN: NO0010819725) 200,311 - - - - - - 200,311 Interest bearing A & B notes - - - - 140,000 - - 140,000 Interest bearing loans DNB/Nordea (Axactor Invest 1) 7,502 8,651 13,635 10,382 34,436 45,845 - 120,450 Other non-current liabilities - - - - - - 1,433 1,433 Accounts payable 6,148 - - - - - - 6,148 Other current liabilities 16,112 4,159 386 - - - - 20,657 Total 272,373 56,798 51,900 45,635 281,513 316,887 3,833 1,028,939 1) Ref note 2.12.2 2) Expected cash lows. Cash lows are limited to EUR 102.6 million by contracted capex limits The Group manages the liquidity risk by continuously monitoring the liquidity status and the monthly rolling consolidated result- and cash low forecasts. The Group has no contractual maturity on loan repayments for the next 12 months. Hence, the contractual maturity of loans presented as less than 1 year (41.5 million) represents estimated interest payments. The cash low from operating activities in future years will positively be affected by the investment levels during 2018-2021. Together with the Group’s RCF and bond loans this will meet the future payment obli- gations. The Group had an unused part of the RCF agreement of EUR 193 million, an uncommitted accordion option of EUR 75 million, in addition to unrestricted cash and cash equivalents of EUR 38.2 million. Axactor Group78 Axactor was compliant with all covenants throughout the year. Based on the above described cash situation, the drawing capacity together with the cash generation from operations the Group assesses the liquidity to be sufıcient to meet the obligations and sufıcient lexible to meet future investment priorities. Financing risk To support the Group's growth ambitions, the Group continuously work on securing necessary committed ınancing and alternative funding sources. Securing non-current ınancing at competitive terms is a major part of the Group’s long-term liquidity planning. Short term ınancing risk would be changes in market conditions and or business performance that limits the Group's ability to source funding at competitive terms. Capital management The primary objective of the Group’s capital management is to ensure the Company maintains a solid capital structure enabling it to develop and build its business to maximise shareholder value. The Group’s objective is to maintain a balance of ınancial assets that relects the cash requirement of its operations and investments for the next 12-24 months. No change was made in the objectives, policies, or process for managing capital during the year ended 31 December 2021. Update on process with FSA As communicated in a press release on 13 December 2021, Axactor SE has received a conclusion from the Norwegian Financial Supervisory Authority (FSA) in accordance with the preliminary conclusion as stated in the press release of 2 September 2021. The FSA requires that the company expands its valuation model for portfolios of non-per- forming loans (NPL) with more input variables capturing current and future macroeconomic conditions and use of scenarios with effect from the reporting of the annual accounts for the ınancial year 2022. The company takes notice of the conclusion from FSA and will implement the requested changes accordingly. The estimation of future cash low is affected by several factors, including general macro factors, market speciıc factors, portfolio speciıc factors and internal factors. Axactor is already considering relevant macro factors and market speciıc factors when estimating future cash low but not as direct input generating output in the forecast models. Portfolio speciıc factors and internal factors are considered to affect the estimation of future cash low signiıcantly more than changes in general macro factors and market speciıc factors. The company takes notice of the conclusion from the FSA and has started the work on expanding the portfolio valuation model to better relect the macro factors and scenarios as required. The com- pany has initiated testing to identify the impact of macroeconomic factors on collection performance. So far, regression analysis has rejected macroeconomic factors as prediction variables for collection performance. The company will continue to reıne the analysis with the aim to identify any variance explained by macroeconomic factors. The company has implemented requirements for documentation of the relevant macroeconomic assumptions in portfolio acquisition processes. The company considers interest rate, unemployment, GDP growth, housing price growth, inlation, salary growth and regulation changes to be the most relevant macroeconomic factors. The company will have the expanded model implemented with effect for the annual accounts for 2022. The notice from the FSA also requires the company to conduct a new measurement of one speciıc NPL portfolio as of 2019 and onwards. The company is required to document the use of reasonable and sup- portable assumptions for estimates of future credit losses occurring after 2026. The company has performed a new measurement with the information available at the end of 2019 and an external valuation agency has provided a benchmark valuation to verify the internal measurement. Based on the updated measurement, the company has booked an impairment of EUR 1.8 million in the fourth quarter of 2021. The error is related to 2019, but is regarded as not material and a retrospective restatement has not been made, in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors. Note 4 Critical accounting estimates and judgments in terms of accounting policies The preparation of the consolidated ınancial statements in conformity with IFRS requires the use of certain critical accounting estimates and assumptions that affect the reported amounts of revenue, expenses, assets and liabilities, and the accompanying disclosures, and the disclosures of contingent liabilities. It also requires management to exercise its judgment in the process of applying the Group's account- ing policies. Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities affected in future periods. Estimates and judgments are continually evaluated and are based on historical experience and other factors, where, e.g., the effect of the Covid-19 pandemic impact has been considered and expectations of future events that are believed to be reasonable under the circumstances. Critical accounting estimates and assumptions The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by deınition, seldom equal the related actual results. The Group based its assumptions and estimates on parameters available when the ınancial statements were prepared. Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstances arising beyond the control of the Group. Such changes are relected in the assumptions when they occur. The estimates and assumptions that have signiıcant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next ınancial year are addressed below. Revenue recognition of NPL Portfolios The Group uses the credit-adjusted effective interest rate method to recognize revenue for portfolios of purchased credit impaired loans. The use of the credit-adjusted effective interest rate method requires the Group to estimate future cash lows from the NPL portfolios at each reporting date. The underlying estimates that form the basis for revenue recognition depend on variables such as the ability to contact Annual report 2021 79 the debtor and reach an agreement, timing of cash lows, general economic environment, and statutory regulations. If the estimations are revised, the Group adjusts the carrying amount of the portfolios and loans to relect actual and revised estimated cash lows in accordance with IFRS 9.5.5.14. Events or changes in assumptions and managements judgment will affect the recognition of revenue in the period. Book value of NPL portfolios Non-performing loans presented as ‘Purchased debt portfolios’ in the consolidated statement of ınancial position consist of acquired non-performing (credit impaired) unsecured loans. Such assets are recognized at amortized cost using the effective interest method. Changes in assumptions and management's professional judgment will affect the expected cash low for the portfolios and therefore also the net present value of future cash lows and the book value of the portfolios, see note 18. The Group determines the carrying value by calculating the present value of estimated future cash lows at the receivables’ initial effective interest rate. Adjustments are recognized in the income statement. The valuation method provides the best estimate of the fair value of debt portfolios. The carrying value of purchased loans and receivables recognized at amortized cost does not perfectly match the fair value determined by discounting the net cash low i.e. the gross cash receipts reduced by the cost to collect and tax costs discounted with a market-based discount rate at every end of the reporting period. The method and result of the fair value estimation at 31 December are described below and shows a non-signiıcant deviation between the two valuation methods. The method falls within level 3 of the fair value hierarchy, ref note 17. Fair value estimation of NPL portfolios The fair value of ınancial instruments that are not traded in an active market (e.g. NPL portfolios) is determined by using valuation techniques such as net present value of estimated cash lows. For NPL portfolios, the discount rate used is the weighted average cost of capital, which is the weighted value of the Group’s cost of debt and the cost of equity. The cost of equity is estimated by applying the capital asset pricing model. The Group has assumed that this WACC is the same as the market would use, in order to get to the fair value of the portfolios. The preparation of cash low estimates requires signiıcant estimates to be made by management regarding future cash lows from portfolios. The estimated future portfolio cash lows are reviewed by management each quarter considering the current collection environment. The fair value is estimated to approximately EUR 1,238 million (2020: EUR 1,248 million) and is based on net future estimated cash lows after tax, discounted with the estimated WACC. The cor- responding carrying amount is EUR 1,096 million. (2020: 1,125 million), which is based on IFRS 9 using the estimated gross future cash lows, where the discount factor is the individual credit-adjusted effective interest rate for each portfolio. The fair value estimation is based on estimated net cash lows from portfolios. The estimated net cash lows from portfolios are the assumed future collection on portfolios per country, less assumed collection costs per portfolio before tax. Collection costs consist of operational costs in the portfolio segment, i.e. commission to debt col- lection, payroll expenses, premises, communication costs, depreciation, and other costs directly attributable to the debt purchasing segment. The collection costs as a percentage of the portfolio collection differ from portfolio to portfolio, ranging from less than 10% to over 50%. In addition, the country speciıc marginal tax rate is applied. This individual collection cost and tax rate is applied to each portfolio’s estimated future cash low, adding up to an estimated total net cash low for the Group. The weighted average cost of capital after tax for the portfolio segment is estimated to 5.8% (2020: 5.4%) at 31 December 2021 (details of the calculation is shown below). Based on this rate, the discounted value of the estimated net cash lows indicates that the fair value of portfolios is approximately EUR 1,238 million (2020: 1,248 million). To evaluate this calculation, a sensitivity analysis of the cash low estimates is presented in the table below to show the effect of deviations from the cash low estimates and variations in the cost of capital. Fair value sensitivity table Performance EUR million 90% 95% 100% 105% 110% WACC 4% 1,214 1,279 1,345 1,410 1,476 5% 1,117 1,178 1,238 1,299 1,359 9% 1,014 1,069 1,124 1,179 1,234 10% 973 1,026 1,079 1,132 1,184 11% 935 986 1,037 1,088 1,139 12% 900 949 998 1,047 1,096 13% 868 915 962 1,010 1,057 The cost of capital after tax for the portfolio segment is calculated using the capital asset pricing model (CAPM) in combination with the weighted average cost of capital (WACC). Based on the variables from the table below, the estimated cost of capital after tax is approximately 5.8%. Axactor Group80 Cost of equity 2021 2020 Risk-free rate (0.479%) (0.724%) 5 year euro area tripple A rated government bonds, as reported by the European Central Bank Market risk premium 4.7% 4.7% Damodaran 6 January 2022 Estimated beta (equity) 2.07 1.76 Observed beta for Axactor Company speciıc premium 6.0% 6.0% Ibbotson research 2014 1) Cost of equity before tax 8.8% 8.1% WACC 5.8% 5.4% 1) Latest data available. The Group considers this to be the best estimate to be available Risk free rate The risk-free rate used in the calculation of the WACC is based on EUR risk-free interest rate, which at 31 December was priced at negative 0.479%. Most of the Group’s cash low is in EUR, although the Group has some part of the cash lows in other currencies, the largest being NOK and SEK. Calculating a currency speciıc WACC, the risk- free rate element would have increased the WACC slightly compared to the WACC estimated for the Group. Risk premium Based on empirical research done the long-term risk premium is about 4-6%. It is reasonable to assume that the risk of investing in non-performing loan portfolios is in the higher end of the observed average market risk premium. Therefore, a company risk premium of 6% is added to the calculation. These risk premiums are based on the research found by Ibbotson risk premiums over time report. Equity beta The equity beta is based on ıve years of monthly observations for the Axactor share. The calculations are based on data from Reuters. Thereafter this is used as a basis for the beta used to calculate cost of equity for Axactor. Cost of debt The average cost of debt for 2021, deıned as the loan interest in the loan agreements divided by the individual loan balances at 31 December, is 6.9% (2020: 6.9%). Future cash low estimates The future cash low estimates are based on the current 15-year IFRS forecast for the current asset base with no value after this 15-year period. Therefore, there are no adding cash lows from future invest- ments included in the fair value estimation. See note 18 for further details. Goodwill In accordance with the stated accounting policy, the Group annu- ally tests whether goodwill has suffered any impairment or more frequently if impairment indicators are identiıed. The recoverable number of cash-generating units has been determined based on value-in-use calculations. These calculations require the use of estimates. The value-in-use calculation is based on a discounted cash low model. The cash lows are derived from the ıve years business plan approved by the board of directors, and do not include signiıcant investments that will enhance the performance of the CGU being tested, except from already committed. The recoverable amount is most sensitive to the discount rate used for the discounted cash low model, as well as the expected future cash-inlows (sensitive to estimates of sales and cost levels) and the growth rate used for extrapolation purposes. Further details about goodwill and impairment reviews are included in note 15 Impairment. Annual report 2021 81 Note 5 Segment reporting Axactor delivers credit management services and the Group's revenue is derived from the following three operating segments: Non-performing loans (NPL), Third-party collection (3PC) and Real estate owned (REO). Axactor’s operations are managed through these three operating segments. The NPL segment invests in portfolios of non-performing loans. Subsequently, the outstanding debt is collected through either amicable or legal proceedings. The 3PC segment’s focus is to perform debt collection services on behalf of third-party clients. The operation segment applies both amicable and legal proceedings in order to collect the non-performing loans, and typically receive a commission for these services. Other services provided include, amongst other, helping creditors to prepare documentation for future legal proceedings against debtors, handling of invoices between the date and the default date and sending out reminders. For these latter services, Axactor typically receive a ıxed fee. The REO segment relates to the investment in real estate assets held for sale. The stock of secured assets was EUR 29.3 million per 31 December 2021 (2020: EUR 78.8 million), see note 22. As of 1 January 2022, the REO segment is considered as discontinued operation and will be reported separately. Axactor reports its business through reporting segments which correspond to the operating segments. Segment revenue reported represents revenue generated from external customers. Segment proıtability and country proıtability are the two most important dimensions when making strategic priorities and deciding where to allocate the Group’s resources. The accounting policies of the reportable segments are the same as the Group’s accounting policies described in note 2. Segment contribution margin represents contribution margin earned by each segment without allocation of management fee, central administration costs, other gains and losses as well as ınance costs. The measurement basis of the performance of the segment is the segment’s contribution margin. Year to date 31 December 2021 EUR thousand NPL 3PC REO Eliminations/ Not allocated Total Collection on own portfolios 254,949 - 39,846 - 294,795 Portfolio amortization and revaluation (148,542) - - - (148,542) Other operating revenue/income: -Change in forward low derivatives (782) - - - (782) -Other operating revenue and other income - 49,640 - 15 49,655 Total income 105,625 49,640 39,846 15 195,127 REO cost of sales - - (44,601) - (44,601) Impairment REOs - - (5,915) - (5,915) Direct operating expenses (36,168) (34,235) (5,865) - (76,269) Contribution margin 69,456 15,405 (16,534) 15 68,342 SG&A, IT and corporate cost (44,609) (44,609) EBITDA 23,733 Amortization and depreciation (9,654) (9,654) Operating proıt 14,080 Total operating expenses (36,168) (34,235) (56,380) (44,609) (171,393) Contribution margin (%) 65.8% 31.0% (41.5%) na 35.0% EBITDA margin (%) 12.2% Opex ex SG&A, IT and corp.cost / Gross revenue 14.2% 69.0% 141.5% na 36.8% SG&A, IT and corporate cost / Gross revenue 13.0% Axactor Group82 Year to date 31 December 2020 EUR thousand NPL 3PC REO Eliminations/ Not allocated Total Collection on own portfolios 236,459 - 40,407 - 276,866 Portfolio amortization and revaluation (123,179) - - - (123,179) Other operating revenue/income: -Change in forward low derivatives (826) - - - (826) -Other operating revenue and other income - 48,290 - 24 48,315 Total income 112,454 48,290 40,407 24 201,175 REO cost of sales - - (36,818) - (36,818) Impairment REOs - - (16,114) - (16,114) Direct operating expenses (37,174) (30,938) (8,433) - (76,546) Contribution margin 75,280 17,352 (20,958) 24 71,698 SG&A, IT and corporate cost (39,699) (39,699) EBITDA 31,999 SG&A, IT and corporate cost (10,838) (10,838) Operating proıt 21,161 Total operating expenses (37,174) (30,938) (61,365) (39,699) (169,176) Contribution margin (%) 66.9% 35.9% (51.9%) na 35.6% EBITDA margin (%) 15.9% Opex ex SG&A, IT and corp.cost / Gross revenue 15.7% 64.1% 151.9% na 39.8% SG&A, IT and corporate cost / Gross revenue 12.2% Annual report 2021 83 Note 6 Income The Group operates in seven European countries: Finland, Germany, Italy, Luxembourg, Norway, Spain, and Sweden. Apart from in Luxembourg, Axactor delivers credit management services in all countries. Axactor’s activities in Luxembourg are limited to investing services for the Group. The Group’s revenue from continuing operations from external customers by location of operations and information about its non-current assets by location of assets are detailed below. The information in the table presented is based on the location of the debtors and the country of the company performing the collection (which correspond). This is not necessarily the same as the country owning the portfolio. The same principle is used for the allocation of the non-current assets. Geographical information Total income Non-current assets 1) 2021 2020 2021 2020 Finland 10,113 10,710 4,052 4,539 Germany 30,331 31,964 15,884 13,497 Italy 17,387 14,424 9,184 9,720 Norway 35,271 37,949 36,088 33,004 Spain 95,837 87,962 17,519 19,176 Sweden 6,187 18,165 4,115 2,286 Total 195,127 201,175 86,843 82,223 1) Non-current assets consists of intangible assets, goodwill, property, plant and equipment and right-of-use assets. Portfolio revenue Portfolio revenue is recognized as 'Interest revenue from purchased loan portfolios' and 'Net gain/(loss) purchased loan portfolios' in the consolidated statement of proıt or loss and can be split further down as follows: EUR thousand Yield 1) CU1 2) 5) CU2 3) 5) CU2 tail 4) 5) Net revenue 2021 Finland 14,931 (1,728) (3,817) - 9,385 Germany 21,612 (1,223) (671) 442 20,160 Italy 16,023 (272) (816) 133 15,067 Norway 36,889 (5,932) (4,343) 1,614 28,230 Spain 44,911 (1,605) (15,700) 1,111 28,716 Sweden 34,055 (7,107) (24,465) 2,367 4,849 Total 168,421 (17,867) (49,812) 5,666 106,407 EUR thousand Yield 1) CU1 2) CU2 3) CU2 tail 4) Net revenue 2020 Finland 14,727 (2,155) (3,218) - 9,353 Germany 23,015 (2,260) 355 595 21,705 Italy 16,996 (1,776) (3,559) 275 11,936 Norway 29,703 1,997 (4,032) 1,775 29,443 Spain 47,790 (2,427) (23,574) 978 22,767 Sweden 30,864 (6,325) (8,728) 2,266 18,076 Total 163,093 (12,945) (42,755) 5,888 113,280 1) 'Interest revenue from purchased loan portfolios' in the consolidate statement of proıt or loss 2) Catch up 1. Over- or underperformance compared to collection forecast 3) Catch up 2. Revaluations and net present value of changes in forecast 4) Catch up 2 tail. The net present value effect of rolling 180 months forecast, except for Finland who is limited to 180 months from legal date 5) The sum of CU1, CU2 and CU2 tail equals 'Net gain/(loss) purchased loan portfolios' in the consolidated statement of proıt or loss. Axactor Group84 Note 7 Employees, salaries and other compensations Personnel expenses EUR thousand 2021 2020 Salaries 39,862 36,991 Bonus 4,036 3,557 Commission 2,210 1,822 Social contribution 10,047 9,340 Pension cost 1,489 1,320 Share option program 180 580 Other beneıts 3,489 1,262 Total personnel expenses 61,313 54,872 In 2020, the Group received EUR 1.2 million in government assistance related to the Covid-19 pandemic. The assistance was related to support of employee costs and was hence recognized as a reduction of personell expenses. No support was received for 2021. Average number of employees 2021 2020 Number of FTE's, start of year 1,128 1,152 Number of FTE's, end of year 1,096 1,128 Average number of FTE's 1,112 1,140 Number of FTE's at end of year, per country 2021 2020 Finland 42 57 Germany 148 187 Italy 104 103 Norway 111 121 Spain 628 614 Sweden 64 45 Total number of FTE's 1,096 1,128 Post-employment beneıts EUR thousand 2021 2020 Salaries 302 742 Share option program - - Other beneıts - 1 Total post-employment beneıts 302 743 Axactor Group is compliant with the different local mandatory occupational pension requirement. For information on the country speciıc pension schemes, see note 28. The Group has not received government assistance in 2021, neither related to Covid-19 or other government assistance. In 2020, the Group received government assistance as result of the Covid-19 pandemic for operations in Spain, Norway, Germany, Sweden, and Italy. The type and nature of ınancial support was different from country to country. All received assistance was related to support of employee costs. Annual report 2021 85 Overview of received government assistance EUR thousand 2021 2020 Nature of assistance Unfulılled conditions Finland - - na na Germany - 121 Short time allowance No Italy - 129 Temporary lay off scheme No Norway - 47 Reduction social security No Spain - 906 Temporary workforce reduction program No Sweden - 7 Reduction social security No - 1,208 Note 8 Key management compensation Board of Directors remuneration EUR thousand 2021 2020 Glen Ole Rødland 2) 27 44 Bjørn Erik Næss - 34 Kristian Melhuus 1) 10 - Lars Erich Nilsen 41 47 Kathrine Astrup Fredriksen 41 28 Merete Haugli 3) 54 41 Terje Mjøs 45 44 Brita Eilertsen 47 50 Hans Harén 41 21 Beate S. Nygårdshaug 1) - 13 Total 306 322 1) Member until 2020 2) Chair of the board until May 2021 3) Interim chair of the board from May 2021 until February 2022 4) Chair of the board from February 2022 The following remuneration has been made to the members of the nomination committee during the year: Nomination committee EUR thousand 2021 2020 Anne Lise Ellingsen Gryte 1) - - Magnus Tvenge - 3 Cathrine Loferød Feght 2) - 3 Robin Bakken 2) - 4 Total - 10 1) Member from April 2020 2) Member until April 2020 Axactor Group86 Executive management remuneration 2021 EUR thousand Salary Bonus Pension Other Share option 1) Total Johnny Tsolis, CEO 410 87 35 1 39 573 Endre Ragnses, CEO 2) - 44 - - - 44 Nina Mortensen, CFO 3) 92 20 7 1 - 120 Teemu Alaviitala, CFO 4) 44 16 2 - - 61 Arnt Andre Dullum, COO 178 18 16 2 17 230 Oddgeir Hansen, COO 5) 46 133 - - - 179 Kyrre Svae, Chief Strategy and IR 185 49 14 2 8 257 Vibeke Ly, Chief of Staff 199 29 14 1 17 261 Robin Knowles, Chief Investment Ofıcer 297 25 3 - 19 344 Steffen Fink, Country Manager Germany 260 24 - 44 5 334 Andres Lopez, Country Manager Spain 265 50 - 13 30 357 David Martin, Country Manager Spain 6) 177 50 - 9 - 236 Lisa Sohtell, Country Manager Sweden 203 19 75 2 26 325 Stina Koren, Country Manager Norway 208 31 7 1 25 271 Antonio Cataneo, Country Manager Italy 170 15 - 12 24 221 Heidi Piispanen, Country Manager Finland 175 53 40 7 5 279 Total 2,909 662 214 93 215 4,093 1) Cost in relation to share option program, not exercised 2) CEO until 3 April 2020 3) CFO from 1 August 2021 4) CFO until 31 January 2021 5) COO until 1 July 2020 6) Country Manager Spain until 14 July 2021 Annual report 2021 87 Executive management remuneration 2020 EUR thousand Salary Bonus Pension Other Share option 1) Total Johnny Tsolis, CEO 2) 336 109 6 1 72 524 Endre Rangnes, CEO 3) 700 329 6 - (45) 991 Teemu Alaviitala, CFO 4) 72 - 3 - 4 78 Arnt Andre Dullum, COO 5) 72 - 3 - 29 104 Oddgeir Hansen, COO 6) 270 94 6 - (25) 346 Kyrre Svae, Chief Strategy and IR 7) 72 - 3 - 4 78 Vibeke Ly, Chief of Staff 169 37 6 - 25 238 Siv Farstad, EVP HR 8) 102 - 3 - (20) 84 Robin Knowles, Chief Investment Ofıcer 259 91 3 1 36 390 Steffen Fink, Country Manager Germany 234 18 - 12 3 267 Andres Lopez, Country Manager Spain 244 63 - 50 52 408 David Martin, Country Manager Spain 244 63 - 50 52 408 Lisa Sohtell, Country Manager Sweden 202 82 - 9 45 338 Stina Koren, Country Manager Norway 164 75 6 2 40 287 Antonio Cataneo, Country Manager Italy 201 95 10 - 38 344 Heidi Piispanen, Country Manager Finland 9) 15 - 2 - - 17 Jarkko Jalonen, Country Manager Finland 10) 123 70 35 - 40 267 Total 3,476 1,125 94 126 348 5,170 1) Cost in relation to share option program, not exercised 2) CFO until 26 June 2020, interim CEO from 3 April 2020, permanent CEO from 26 June 2020 3) CEO until 3 April 2020 4) CFO from 1 August 2020 until 31 January 2021 5) COO 50% from 19 May 2020, 100% from 1 September 2020 6) COO until 1 July 2020 7) Chief of Stategy and IR from 1 August 2020 8) Head of HR until 31 March 2020 9) Country Manager Finland from 4 December 2020 10) Country Manager Finland until 3 December 2020 The CEO, Johnny Tsolis, has a six-month notice period and is entitled to a severance pay of six months in case of termination by the company. In addition, there is a non-compete and non-solicitation clause in the employment agreement. The country managers are entitled to severance pay from three to twelve months. The share-based option program is presented in note 26. Bonus stated in tables above relects the paid amounts during the year. At the end of 2021 no loan or prepayments were granted to Board of Directors and executive management. Members of the executive management employed in Axactor SE has an additional contribution pension entitling them to pension rights for salary over 12G (Norwegian Grunnbeløp). Axactor Group88 Note 9 Other operating expenses Other operating expenses EUR thousand 2021 2020 Direct operating expenses 9,066 9,597 External services 32,321 32,949 IT expenses 11,496 11,976 Restructuring cost 1,591 1,277 Other operating expenses 5,091 5,573 Total other operating expenses 59,565 61,372 Remuneration to company auditors PricewaterhouseCoopers EUR thousand 2021 2020 Fees, auditing 966 780 Fees, audit related services 26 - Fees, tax advisory 114 33 Fees, other services 72 119 Total fees, PwC 1,179 932 Note 10 Leases The Group leases premises, ofıce equipment and vehicles under non-cancellable lease agreements. The lease terms are between 1-6 years and the majority of lease agreements are renewable after the end of the lease period. No periods covered by an option to extend the lease has not been included in the lease term, as the Group is not reasonably certain to exercise the individual options. Leasing contracts are classiıed as lease liabilities and right-of-use assets under IFRS 16, see note 2, section 2.11. Right-of-use assets EUR thousand Buildings Vehicles Other Total Right-of-use assets at 1 Jan 2020 5,039 541 267 5,846 New leases 1,421 780 - 2,201 Depreciation of the year (2,358) (502) (187) (3,048) Disposals (94) (18) - (112) Currency exchange effects (58) (3) - (61) Right-of-use assets at 31 Dec 2020 3,949 797 80 4,826 New leases 9,333 107 51 9,491 Depreciation of the year (2,503) (346) (80) (2,929) Disposals (484) (84) (4) (572) Currency exchange effects (48) 1 - (48) Right-of-use assets at 31 Dec 2021 10,247 475 46 10,768 Remaining lease term 1-6 years 1-4 years 1-3 years Depreciation method Linear Linear Linear Annual report 2021 89 The Group had new leases of EUR 9.3 million in 2021, mainly relating to new ofıces in Germany, Norway and Sweden. The interest costs relating to IFRS 16 Leases during the year are relected in the proıt and loss statement with EUR 366 thousand (EUR 334 thousand). The interest rate used for discounting the lease liability is based on the interest rate from the Group's external ınancing. Lease liabilities EUR thousand 2021 2020 Lease liabilities at 1 Jan 5,086 6,029 New leases, modiıcations and terminations 8,812 1,995 Lease payments (2,812) (2,898) Currency exchange effects (35) (40) Lease liabilities at 31 Dec 11,051 5,086 Current 2,185 2,282 Non-current 8,866 2,804 The future aggregated minimum lease payments under lease liabilities are as follows: EUR thousand 2021 2020 < 1 year 2,717 2,496 1-2 years 2,511 1,396 2-3 years 2,065 1,027 3-4 years 1,821 368 4-5 years 1,800 125 > 5 years 2,100 78 Total undiscounted lease liabilities, end of period 13,015 5,492 Discount element (1,964) (405) Total discounted lease liabilities, end of period 11,051 5,086 Note 11 Financial items EUR thousand 2021 2020 Financial revenue Interest on bank deposits 5 25 Exchange gains realized 2,982 705 Net unrealized exchange gain - 11,901 Other ınancial income 46 20 Total ınancial revenue 3,033 12,650 Financial expenses Interest expense on borrowings 1) (52,895) (63,554) Exchange losses realized (3,161) (1,153) Net unrealized exchange loss (1,326) - Other ınancial expenses 2) (427) (1,332) Total ınancial expenses (57,809) (66,039) Net ınancial items (54,775) (53,390) 1) Figure for 2020 includes expensed capitalized loan fees of EUR 7.1 million related to reınancing. 2) Includes interest expense from negative bank accounts in group multicurrency cash pool and negative interest on bank deposits. Axactor Group90 Note 12 Income tax and tax assets and liability Income tax calculation The Group’s tax expense is affected by several factors, where the most important are limitation of interest deduction, unrecognized tax losses carried forward, currency effects and local GAAP/IFRS-differences for calculation of taxable proıt. EUR thousand 2021 2020 Ordinary result before taxes (40,696) (32,228) Basis for income tax (40,696) (32,228) Income tax payable calculated 5,411 15,892 Tax effect on permanent difference (7,859) (5,886) Adjustment for previous year 8 (621) Tax effect on tax rate reduction (1) (154) Limitation of interest deduction, for which no deferred tax asset was recognized 4,014 (2,637) Limitation interest deduction, recognized in deferred tax - 1,465 Use of tax losses, previously not recognized - 108 Tax assets, previously not recognized - (216) Tax losses for which no deferred tax asset was recognized (1,530) (16,009) Tax effect of change in net deferred income tax liabilites/assets (3,912) 6,462 Effect on foregin exchange rates (1,426) (178) Income tax expense (5,296) (1,774) Deferred taxes EUR thousand 2021 2020 Non-current portfolios (2,887) (4,416) Non-current intangible assets/liabilities (159) (1,076) Current assets 158 1,168 Non-current liabilities (52) (822) Limitation interest carried forward - 1,274 Re-classiıcation deferred taxes relating to group contribution (2,863) (1,261) Tax losses carried forward 13,359 6,466 Net deferred tax 7,556 1,333 Deferred tax asset 13,700 7,769 Deferred tax liability (6,144) (6,436) Annual report 2021 91 Unrecognized deferred tax assets A deferred tax asset is recognized only to the extent that it is probable hat future taxable proıts will be available against which the asset can be utilized. Tax losses carried forward, not recognized, mainly relates to companies in Luxembourg and Italy. Limitation of interest deduction, not recognized, relates mainly to Norway: EUR thousand 2021 2020 Tax losses carried forward, not recognized 32,349 21,120 Limitation of interest deduction, not recognized 4,014 3,992 Net assets not recognized 36,363 25,112 Income tax expense per country EUR thousand 2021 2020 Germany 1,425 1,677 Italy (92) (493) Finland 300 56 Luxembourg - 2,053 Norway (1,391) (5,107) Spain (498) 375 Sweden (5,040) (335) Income tax expense (5,296) (1,774) Note 13 Earnings per share Basic earnings per share (EPS) is calculated by diving the proıt attributable to shareholders of the parent company by the weighted average number of ordinary shares outstanding during the year according to note 25. Axactor currently has no share-based compensation programs that results in a dilutive effect on earnings per share. See note 26 for an overview of outstanding instruments in the share option plan. The following relects the income and share data used in the basic and diluted EPS calculations: EUR thousand 2021 2020 Net proıt/(loss) attributable to shareholders of the parent company (32,797) (18,131) Number of shares (in thousands) Weighted average number of ordinary shares 293,408 182,445 Effects on dilution from share options - 11,544 Weighted average number of shares adjusted for the effect of dilution 293,408 193,989 Basic earnings per share (0.112) (0.099) Diluted earnings per share (0.112) (0.099) The following instruments could potentially dilute basic earnings per share in the future: 2021 2020 Employee share options 8,548,969 13,775,508 Axactor Group92 Note 14 Intangible assets EUR thousand Customer relations Databases Software Goodwill Other intangibles Total Cost price Cost price at 1 Jan 2020 12,700 3,694 23,150 56,170 3,426 99,140 Acquisition - - 4,988 - 491 5,479 Reclassiıcation - - - - - - Disposals at cost price - - (62) - - (62) Currency exchange effects (392) (83) - (1,291) (11) (1,778) Cost price at 31 Dec 2020 12,308 3,611 28,076 54,879 3,905 102,779 Acquisition - - 3,131 - 412 3,543 Reclassiıcation - - 619 - - 619 Disposals at cost price - - (2,885) - - (2,885) Currency exchange effects 324 69 15 1,081 10 1,499 Cost price at 31 Dec 2021 12,631 3,680 28,956 55,960 4,328 105,555 Amortization and impairment Accumulated amortizations at 1 Jan 2020 (9,620) (2,412) (8,070) - (1,381) (21,483) Amortization of the year (2,371) (649) (3,463) - (318) (6,800) Reclassiıcation - - - - - - Disposals accumulated amortizations - - 62 - - 62 Currency exchange effects 272 48 (12) - 2 310 Accumulated amortizations at 31 Dec 2020 (11,718) (3,013) (11,483) - (1,697) (27,911) Amortization of the year (597) (553) (4,188) - (517) (5,854) Reclassiıcation - - (619) - - (619) Disposals accumulated amortizations - - 2,863 - 135 2,998 Currency exchange effects (316) (59) (6) - (2) (383) Accumulated amortizations at 31 Dec 2021 (12,631) (3,625) (13,433) - (2,081) (31,769) Carrying amount at 31 Dec 2021 - 55 15,523 55,960 2,247 73,784 Useful life 3-5 yr 3-6 yr 3-10 yr na 1-10 yr For impairment testing of goodwill see note 15. Annual report 2021 93 Note 15 Impairment testing of intangible assets with an indeınite life time Goodwill and intangible assets stated in the consolidated ınancial position are mainly derived from excess values following the acquisitions of ALD Abagados in Spain (2015), IKAS Group in Norway (2016), CS Union in Italy (2016), Altor Group in Germany (2016), Profact in Sweden (2017) and SPT Group Finland (2018). Recognized goodwill amounts to 56.0 EUR million at 31 December 2021 (2020: EUR 54.9 million). Other intangible assets related to excess values in the annual accounts are customer relations, databases, and software, with a carrying amount of EUR 0.1 million at 31 December 2021 (2020: EUR 1.2 million). Only goodwill has an indeınite lifetime, all other intangible assets are amortized, see note 14. Goodwill is tested for impairment for each cash generating unit (CGU) prior to preparation of the annual accounts. The test is performed annually, and when there are indications of impairment. The recoverable amount for each CGU has been determined estimating their value in use (VIU) and comparing that to the carrying amount of the speciıc CGU. The calculation of VIU has been based on management's best estimate, relecting the Group's ıve-year strategy plan set up during 2021. The discount rates are derived as the weighted average cost of capital (WACC) for a similar business in the same business environment. Goodwill has been allocated for impairment testing purposes to the CGU “Third-party collection business” for the following CGU “Countries”: EUR thousand 2021 2020 Finland 2,592 2,592 Germany 9,301 9,301 Italy 7,310 7,310 Norway 21,270 20,166 Spain 14,328 14,328 Sweden 1,159 1,181 Total 55,960 54,878 Cash low projections and assumptions A ıve-year forecast of discounted cash lows plus a terminal value was used to determine the net present value of the CGU. Discounted cash lows related to the third-party collection business were calculated pre-tax and applying a pre-tax WACC. The pre-tax WACC was derived by back-solving based on the estimated value using the post- tax WACC and the post-tax cash low. The terminal value is based on the estimated pre-tax net cash low in 2026, using a standard perpetuity formula with a long-term growth rate of 1.5% (2020: 1.5%). Key assumptions for the value in use calculations The calculation of VIU for the CGU is most of all sensitive when it comes to the following assumptions: Discount rate The input data for the WACC is gathered from representative sources, peer groups etc., and this is used to determine the best estimate. The WACC was calculated after tax, and then back solved to arrive at a pre-tax WACC. All parameters were set to relect the long-term period of the assets and time horizon of the forecast period of the cash lows. Key inputs for the WACC for the CGU: EUR thousand EUR NOK SEK Beta 0.76 0.76 0.73 Risk-free interest (0.48%) 1.63% 0.07% Market risk premium 4.24% 4.72% 4.72% Small cap premium 6.00% 6.00% 6.00% Cost of equity 8.80% 11.20% 9.54% Equity ratio 30.15% 30.15% 30.15% Cost of debt 5.90% 5.90% 5.90% WACC 5.83% 6.47% 6.11% x Risk free rate: 5-year risk free bond per country x Beta (equity): Unlevered beta based on observed monthly levered beta for Axactor for the last ıve years x Market risk premium: The market risk premium is based on empirical data for risk premium (Damodaran) x Company speciıc/small cap premium: The company speciıc premium is based on Ibbotson analysis x Capital structure: Applied 30% equity ratio based on company estimates for 2022 x Cost of debt: Applied cost of debt of 5.9% based on company estimated forecasts Growth rate The growth rate in the forecast period is based on management's expectation for the development in the different markets, and management's strategic plan. The terminal growth rate at 1.5% applied in 2020 remains at 1.5% in 2021. Cash low The calculation includes cash lows for ıve years, in addition to terminal value. Cash low estimates are based on a weighted average of a ıve-year ınancial plan reviewed by the Board of Directors and a base case with more conservative assumptions. Axactor Group94 The cash low shows expectation of gross proıt improvement and revenue growth handled by the existing organization. Impairment – test results and conclusion The VIU exceeds carrying amount for each of the CGUs. The impair- ment test did not indicate that the value of the goodwill needs to be impaired. Based on a sensitivity analysis, the ceteris paribus impact of reducing the terminal growth rate from 1.5% to 0.5% would not result in any impairment of goodwill. Similarly, the ceteris paribus impact of increasing the WACC by one percentage point would not result in any impairment of goodwill. Management has considered and assessed reasonable possible changes for key assumptions and has not identiıed any instance that could cause the carrying amount of the goodwill to exceed its recoverable amount. Note 16 Tangible assets EUR thousand Fixtures Vehicles Ofıce equipment Total Cost price Cost price at 1 Jan 2020 4,373 82 3,326 7,781 Acquisition 201 - 434 635 Reclassiıcation 5 - (4) 1 Disposals at cost price (8) - (129) (137) Currency exchange effects 10 (2) (27) (19) Cost price at 31 Dec 2020 4,581 80 3,600 8,260 Acquisition 472 - 591 1,063 Reclassiıcation 1 - (1) - Disposals at cost price (2,233) (80) (852) (3,165) Currency exchange effects (7) - 27 21 Cost price at 31 Dec 2021 2,814 - 3,366 6,180 Depreciation and impairment Accumulated depreciations at 1 Jan 2020 (2,767) (49) (2,060) (4,877) Depreciation of the year (337) (8) (645) (990) Reclassiıcation (3) - 2 (1) Disposals accumulated depreciations 3 - 118 122 Currency exchange effects (4) 2 17 16 Accumulated depreciations at 31 Dec 2020 (3,107) (55) (2,568) (5,730) Depreciation of the year (338) (7) (515) (860) Reclassiıcation - - (1) (1) Disposals accumulated depreciations 1,916 62 747 2,725 Currency exchange effects 2 - (25) (23) Accumulated depreciations at 31 Dec 2021 (1,527) - (2,363) (3,889) Carrying amount at 31 Dec 2021 1,288 - 1,003 2,290 Useful life 3-6 yr 5 yr 3-5 yr Annual report 2021 95 Note 17 Financial instruments The Group’s ınancial assets consist of purchased debt portfolios, derivatives, trade and other receivables, cash and cash equivalents, in addition to an immaterial equity investment. The majority of the Group’s ınancial assets are classiıed as measured at amortized cost, with the exception of derivatives which are classiıed as measured at fair value through proıt or loss and the equity investment which is classiıed as measured at fair value through other comprehensive income (FVOCI). The Group’s debt and other ınancial liabilities are, with the exception of derivatives, initially recognized at fair value, including transaction costs directly attributable to the transaction, and are subsequently measured at amortized cost. Derivative liabilities are, as derivative assets, measured at fair value through proıt or loss. The Group uses the following hierarchy for determining and disclosing the fair value of ınancial instruments by the inputs used in the valuation techniques: Level 1: Quoted prices in active markets for identical assets or liabilities Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly Level 3: Inputs for the asset or liability that are not based on observable market data (unobservable input) The level in this fair value hierarchy within which the measurements are categorized is determined based on the lowest level input that is signiıcant to the fair value measurement. The following table shows the carrying amounts and fair values of ınancial assets and ınancial liabilities, including their levels in the fair value hierarchy. It does not include fair value information for ınancial assets and ınancial liabilities not measured at fair value if the carrying amount is a reasonable approximation of fair value. For other non-current investments, only the amount related to the equity investment measured at fair value through OCI is included in the table. Financial instruments Carrying amount Fair value EUR thousand Loans and receivables Other ınancial assets and derivatives Total Level 1 Level 2 Level 3 Total 31 Dec 2021 Financial assets NPL portfolios 1,095,789 - 1,095,789 - - 1,238,070 1,238,070 Forward low derivatives, asset - - - - - - - Investment measured at FVOCI - 5 5 - - 5 5 Total 1,095,789 5 1,095,794 - - 1,238,075 1,238,075 Financial liabilities Interest bearing debt 838,256 - 838,256 503,320 351,998 - 855,318 Forward low derivatives, liability - 409 409 - - 409 409 Cash low hedge derivatives - 230 230 - 230 - 230 Total 838,256 639 838,894 503,320 352,228 409 855,957 31 Dec 2020 Financial assets NPL portfolios 1,124,699 - 1,124,699 - - 1,247,501 1,247,501 Forward low derivatives, asset - 257 257 - - 257 257 Investment measured at FVOCI - 20 20 - - 20 20 Total 1,124,699 277 1,124,976 - - 1,247,778 1,247,778 Financial liabilities Interest bearing debt 936,185 - 936,185 204,000 736,185 - 940,185 Forward low derivatives, liability - 1,091 1,091 - - 1,091 1,091 Total 936,185 1,091 937,276 204,000 736,185 1,091 941,276 The fair value of the bond loans was determined using the quoted market values for the bond loans from the Norwegian Verdiforetakenes Forbund. The fair value of the other interest-bearing loans at 31 December 2021 is equal to the nominal value and accrued interest. Axactor Group96 Forward low derivatives, balance movements EUR thousand 2021 2020 Balance at 1 Jan (834) - Deliveries of forward low contracts 1,221 (882) Value change (796) 48 Balance at 31 Dec (409) (834) Note 18 Purchased debt portfolios EUR thousand 2021 2020 Balance at 1 Jan 1,124,699 1,041,919 Acquisitions during the year 3) 113,979 208,250 Collection (254,949) (236,459) Yield - Interest revenue from purchased loan portfolios 168,421 163,093 Net gain/(loss) purchased loan portfolios 1) (62,013) (49,813) Repossession of secured NPL to REO (845) (2,279) Deliveries of forward low contracts (1,221) - Disposals 1) (193) (403) Translation difference 7,911 392 Balance at 31 Dec 1,095,789 1,124,699 Payments during the year for investments in purchased debt amounted to EUR 2) 115,402 213,032 1) Gain on disposals is netted in proıt or loss as 'Net gain/(loss) purchased loan portfolios' 2) Payments during the year will not correspond to credit impaired acqusitions during the year due to deferred payments 3) Reconciliation of credit impaired acquisitions during the year; Nominal value acquired portfolios 827,810 424,062 Expected credit losses at acquisition (713,831) (215,812) Credit impaired acquisitions during the year 113,979 208,250 For a description of Axactor's accounting principles for purchased debt, see note 2 and for a description of revenue recognition and fair value estimation, see note 4. Non-performing loans consist of portfolios of delinquent consumer debts purchased signiıcantly below nominal value, relecting incurred and expected credit losses, and thus deıned as credit impaired. NPLs are recognized at fair value at the date of purchase. Since the loans are measured at fair value, which includes an estimate of future credit losses, no allowance for credit losses is recorded in the consolidated statement of ınancial position on the day of acquisition of the loans. The loans are subsequently measured at amortized cost applying the credit adjusted effective interest rate method. Since the delinquent consumer debt is a homogenous group, the future cash lows are projected on a portfolio basis. The carrying amount of each portfolio is determined by projecting future cash lows discounted to present value using the credit adjusted effective interest rate as at the date the portfolio was acquired. The total cash lows (both principal and interest) expected to be collected on purchased credit impaired loans are regularly reviewed and updated in line with expectation on an array of economic factors and conditions over time. Changes in value resulting from changes in expected cash low are adjusted in the carrying amount and are recognized in proıt or loss as income or expense in ‘Net gain/(loss) purchased loan portfolios’. Interest income is recognized using the credit adjusted effective interest rate, included in ‘Interest revenue from purchased loan portfolios’. The majority of the non-performing loans are unsecured. Only an immaterial part of the loans, approximately 3% of the book value of the loans, is secured by a property object. Annual report 2021 97 EUR thousand Market Book value 2021 2020 Finland 111,841 118,225 Germany 131,059 126,689 Norway 249,439 230,338 Sweden 228,068 267,432 Italy 111,348 122,832 Spain 264,034 259,183 Total 1,095,789 1,124,699 The estimation of future cash low is affected by several factors, including general macro factors, market speciıc factors, portfolio speciıc factors and internal factors. Axactor considers relevant macro factors and market speciıc factors when estimating future cash low but not as direct input generating output in the forecast models. Portfolio speciıc factors and internal factors are considered to affect the estimation of future cash low signiıcantly more than changes in general macro factors and market speciıc factors. Axactor has incorporated into the estimated remaining collection (ERC) the effect of the economic factors and conditions that is expected to inluence collections going forward. An analysis of the effects of historical crises like the ınancial crisis in 2008 and the experience on collections during the Covid-19 pandemic over the last years has formed the basis for the current ERC. The ERC represents the estimated gross collection on the NPL portfolios. The yield represents the interest revenue from purchased loan portfo- lios and can be reconciled as the ERC less amortization. The ERC, amortization and yield can be broken down per year as follows (year 1 means the ırst 12 months from the reporting date): ERC at 31 December 2021: EUR thousand Estimated remaining collection (ERC), amortization and yield per year Year 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Total ERC ERC 268,832 261,948 225,843 200,819 177,633 160,087 141,774 127,467 114,766 103,142 93,135 84,078 72,064 58,344 50,611 2,140,543 Amortization 107,788 118,694 101,236 91,330 81,907 76,761 69,424 65,132 61,836 59,169 57,780 57,213 53,505 47,268 46,746 1,095,789 Yield 161,045 143,254 124,607 109,489 95,726 83,326 72,350 62,335 52,930 43,973 35,354 26,865 18,559 11,075 3,864 1,044,754 ERC at 31 December 2020: EUR thousand Estimated remaining collection (ERC), amortization and yield per year Year 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Total ERC ERC 283,369 253,413 222,474 198,545 178,731 160,049 142,649 128,421 116,276 105,617 95,752 87,016 79,133 65,609 52,099 2,169,153 Amortization 125,840 114,880 99,902 90,097 83,014 76,036 69,272 64,823 61,897 60,088 58,845 58,587 59,228 54,092 48,097 1,124,699 Yield 157,529 138,533 122,573 108,447 95,717 84,013 73,377 63,598 54,379 45,529 36,907 28,428 19,905 11,517 4,003 1,044,454 Axactor Group98 Note 19 Hedge accounting The Group´s risk management objective is to mitigate the effect of interest rate changes related to its loating rate instruments. In order to achieve the objective, the Group´s strategy is to use derivatives to limit the impact of changes in interest rates on the Group´s interest expenses. The Group applies cash low hedge accounting to ensure that the Group´s risk management strategy is relected in its ınancial statements. Cash low hedges Interest rate risk in loating rate instruments The Group´s risk management objective and strategy is to apply cash low hedge accounting for interest rate risk in order to mitigate the effect of increasing EURIBOR rates on issued bonds and therefore limit the impact on the Group´s interest expenses. The hedged items consist of a proportion of issued loating-rate bonds. The hedged risk is deıned as interest rate risk for EURIBOR interest rates. The hedging instruments consist of interest rate caps. The hedge ratio for the relationships is deıned by the ratio of the principal of the interest rate cap to the designated proportion of the hedged item, resulting in 100% hedge ratio. Potential sources of ineffectiveness have been identiıed as differences in timing of cash lows of hedged items and hedging instruments, derivatives used as hedging instruments having a non-nil fair value at the time of designation and the effect of changes in counterparties’ credit risk on the fair values of hedging instruments or hedged items. The Group started with hedge accounting at the end of 2021. All comparable ıgures for 2020 for the tables presented below are hence 0 and not presented as separate tables. The Group’s strategy is to hedge between 50% and 70% of interest bearing debt with a duration of three to ıve years. The ınancial instruments designated as hedged items in current cash low hedge relationships are: Hedged items - cash low hedges Other reserves EUR thousand Nominal amount Nominal amount designated for hedge accounting Changes in fair value used to calculate ineffectiveness Continuing hedges Discontinued hedges 31 Dec 2021 Interest rate risk Floating rate issued bonds 200,000 200,000 - (230) - Total 200,000 200,000 - (230) - The hedged items are included as part of interest bearing debt in the consolidated statement of ınancial position. Annual report 2021 99 The table below sets out the derivatives designated as hedging instruments in current cash low hedge relationships, and the outcome of the Group´s hedging strategy: Hedging instruments - cash low hedges EUR thousand Up to 1 year 1-5 years Over 5 years Total 31 Dec 2021 Interest rate caps Nominal amount 2,778 197,222 - 200,000 Average strike 0.5% 0.5% - 0.5% Carrying amount EUR thousand Nominal amount Assets Liabilities Changes in fair value used to calculate ineffectiveness Changes in value recognised in OCI Ineffectiveness recognised in proıt or loss Amount reclassiıed from other reserves to proıt or loss 31 Dec 2021 Interest rate risk Interest rate caps 200,000 - 230 - (230) - - Total 200,000 - 230 - (230) - - The hedging instruments are included as part of other non-current liabilities in the consolidated statement of ınancial position. The effective portion of the gain or loss on the hedging instrument is, if applicable, included as part of ınancial expenses. Hedge ineffectiveness is, if applicable, recorded as part of ınancial expenses or ınancial revenue. Amounts reclassiıed from the cash low hedge reserve into proıt or loss are, if applicable, recorded as part of ınancial expenses. Axactor Group100 Note 20 Shares in subsidiaries Subsidiary company EUR thousand Share of ownership Share of voting rights Ofıce location, city Ofıce location, country Result 2021 Equity 2021 Axactor Italy Holding Srl 100.0% 100.0% Cuneo Italy (571) 86,238 Axactor Italy SpA 100.0% 100.0% Cuneo Italy 853 64,014 Axactor Capital Italy Srl 4) 100.0% 100.0% Cuneo Italy (2,263) (325) Axactor Portfolio Holding AB 100.0% 100.0% Gothenburg Sweden (27,902) 339,399 Axactor Platform Holding AB 100.0% 100.0% Gothenburg Sweden (1,241) 132,674 Axactor Sweden AB 100.0% 100.0% Gothenburg Sweden (16,583) 12,213 Axactor Norway Holding AS 100.0% 100.0% Oslo Norway 3,319 31,016 Axactor Capital AS 100.0% 100.0% Drammen Norway 11,363 134,705 Axactor Norway AS 100.0% 100.0% Drammen Norway (1,152) 581 ReoLux Holding Sarl 1) 50.0% 50.0% Luxembourg Luxembourg (15,894) (7,383) Axactor Invest 1 Sarl 100.0% 50.0% Luxembourg Luxembourg 11,342 19,465 Axactor Capital Luxembourg Sarl 100.0% 100.0% Luxembourg Luxembourg 13,594 109,242 Beta Properties SLU 2) 100.0% 100.0% Madrid Spain (1,218) 2,224 Borneo Commercial Investments SLU 2) 100.0% 100.0% Madrid Spain (550) 635 Alcala Lands Investments SLU 2) 100.0% 100.0% Madrid Spain (615) 178 PropCo Malagueta SL 3) 75.0% 75.0% Malaga Spain (8,180) 13,131 Proyector Lima SL 3) 75.0% 75.0% Madrid Spain (7,360) 9,059 Axactor Espana SLU 100.0% 100.0% Madrid Spain 1,671 30,776 Axactor Espana Platform SA 100.0% 100.0% Madrid Spain (3,520) 1,140 Axactor Germany Holding GmbH 100.0% 100.0% Heidelberg Germany (327) 12,609 Axactor Germany GmbH 100.0% 100.0% Heidelberg Germany (5,904) (18,030) Heidelberger Forderingskauf GmbH 100.0% 100.0% Heidelberg Germany 4,246 22,644 Heidelberger Forderungskaurf II GmbH 100.0% 100.0% Heidelberg Germany (971) (2,169) Axactor Finland OY 100.0% 100.0% Jyväskylä Finland (3,076) 5,955 SPT Latvija SIA 4) 100.0% 100.0% Riga Latvia (17) (3) SPT Inkasso OÜ 4) 100.0% 100.0% Tallin Estonia (54) 9 1) The parent company owns 50% of the shares of Reolux Holding. Based on the contractual arrangements between the Group and the other investor, the Group has concluded that it has control of Reolux Holding and the company is therefore consolidated in the Group's ınancial statements. 2) The company is owned 100% by Reolux Holding Sarl, in which Axactor owns 50% of the shares and has control. 3) The company is owned 75% by Reolux Holding Sarl, in which Axactor owns 50% of the shares and has control. 4) Dormant, to be liquidated The ınancial ıgures of the subsidiaries have been included in the consolidated ınancial statements of Axactor Group from the date of acquisition. During 2021, several small entities have been liquidated or merged into other Axactor entities to simplify the legal structure within the Group. Annual report 2021 101 Note 21 Other non-current investments Other non-current investments EUR thousand 2021 2020 Club Financiero Génova, S.A 11 21 Insurance funds (severence scheme in Italy) - 142 Investment measured at FVOCI 4 20 Other investments 13 13 Total other non-current investments 28 196 Note 22 Stock of secured assets, REOs EUR thousand 2021 2020 Acquisition cost, balance at 1 Jan 78,786 129,040 Acquisitions during the year 1) 193 399 Repossession of secured NPL 845 2,279 Cost of sold secured assets (44,601) (36,818) Aquisition cost, balance at 31 Dec 35,225 94,901 Impairment (5,915) (16,114) Balance at 31 Dec 29,310 78,786 Number of assets 1,446 2,694 1) Acquisitions include expenses for registry, inscription and upgrades to existing assets in inventory. No new REOs are acquired. REO assets are held for sale and therefore considered as stock of secured assets in accordance with IAS 2 Inventories, valued at the lower of cost price and net realizable value. All REO assets are located in Spain and owned by Spanish entities. The challenging pricing conditions have continued to affect the projected estimates for this business. Based on external valuations an impairment amounting to EUR 5.9 million was recognized in 2021 (2020: EUR 16.1 million). The REO segment is considered to be a discontinued segment from 2022 and will be presented as discontinued operation from 1 January 2022. Axactor Group102 Note 23 Accounts receivable and other current assets Accounts receivable EUR thousand 2021 2020 Accounts receivable 7 060 7 124 Due to the nature of the business the amount of outstanding accounts receivable is low and shows an acceptable aging. Allowances for doubtful debts are recognized against account receivables on an individual basis, set per country. The allowance amount recognized is not material. Other current assets EUR thousand 2021 2020 Prepaid taxes 3,019 2,132 Prepaid expenses 4,609 2,791 Accrued revenues 1) 2,754 2,989 Forward low derivatives, asset - 257 Other 5,772 3,477 Total other current assets 16,154 11,645 1) Accrued revenue relates to 3PC business A forward low agreement is an obligation to acquire a portfolio of cases described in a contract. Typically, these agreements are to buy defaulted cases from the vendor on a monthly basis. The total volume under the contract can be capped. The price for the cases in the forward low is agreed upfront when the contract is signed. Initially the value of the derivative is nil, as the future expected collection level is unchanged from the valuation assumption underlying the contract. If the future cash low estimates for the forward low changes from the assumed level when signing the contract, there can be a change in the value of the derivative. Forward low derivative liabilities are shown in note 30. Annual report 2021 103 Note 24 Cash and cash equivalents For the purpose of the consolidated statement of cash lows, cash and bank deposits include cash on hand and in banks. Cash and cash equivalent at the end of the reporting period as shown in the cash low statement can be reconciled to the related items in the consolidated statement of the ınancials position as follows: EUR thousand 2021 2020 Cash and bank deposits 38,155 47,779 Restricted cash - client funds 1) 5,090 1,177 Restricted cash and bank deposits - other 708 1,769 Total cash and cash equivalents 43,953 50,725 1) The corresponding client funds payable is reported as part of other current liabilities in note 30. Restricted cash at the end of the reporting period relates to client funds, deposits for building rent guarantee and employee withholding taxes. There has been a classiıcation error between restricted and unrestricted cash in the fourth quarter 2021 Interim report due to an erroneous setup in the reporting in one of the subsidiaries. The classiıcation error amounted to EUR 3.4 million and has been corrected in the Annual Report. Total cash and cash equivalents remains unchanged. The composition of the cash per currency is shown below: EUR thousand 2021 2020 NOK 17,583 10,510 SEK 548 (6,808) EUR 25,816 47,012 GBP 6 10 Total cash and cash equivalents 43,953 50,725 Cash in bank earns interest at loating rates based on daily bank deposit rates. Note 25 Issued shares and share capital Issued shares and share capital Number of shares Share capital (EUR) At 31 Dec 2019 155,395,464 81,337,590 New share issues, Feb 30,000,000 15,702,696 At 31 Dec 2020 185,395,464 97,040,286 New share issues, Jan 50,000,000 26,171,159 New share issues, Jan 40,000,000 20,936,928 New share issues, Mar 26,750,000 14,001,570 At 31 Dec 2021 302,145,464 158,149,942 Each share has the same rights and has a par value of EUR 0.523 (rounded). All issued shares are fully paid. Axactor Group104 20 largest shareholders at 31 Dec 2021 Name Shareholding Share % Geveran Trading Co Ltd 138 920 892 46.0 % Torstein Ingvald Tvenge 10 000 000 3.3 % Ferd AS 7 864 139 2.6 % Verdipapirfondet Nordea Norge Verdi 4 454 162 1.5 % Skandinaviska Enskilda Banken AB 3 079 467 1.0 % Nordnet Livsforsikring AS 2 247 811 0.7 % Endre Rangnes 2 017 000 0.7 % Gvepseborg AS 2 009 694 0.7 % Stavern Helse Og Forvaltning AS 2 000 000 0.7 % Alpette AS 1 661 643 0.5 % Verdipapirfondet Nordea Avkastning 1 643 423 0.5 % Velde Holding AS 1 400 000 0.5 % Verdipapirfondet Nordea Kapital 1 343 933 0.4 % Klotind AS 1 296 693 0.4 % Andres Lopez Sanchez 1 177 525 0.4 % David Martin Ibeas 1 177 525 0.4 % Svein Dugstad 1 154 187 0.4 % Nordea Bank Abp 1 116 576 0.4 % Nordnet Bank AB 1 086 987 0.4 % Latino Invest AS 1 040 000 0.3 % Total 20 largest shareholders 186 691 657 61.8 % Other shareholders 115 453 807 38.2 % Total number of shares 302 145 464 100 % Total number of shareholders 11 128 Shares owned by related parties Name Shareholding Share % Latino Invest AS 1) 1 040 000 0.3 % Johnny Tsolis Vasili 1) 670 000 0.2 % Terje Mjøs Holding AS 3) 400 000 0.1 % Robin Knowles 2) 183 714 0.1 % Kyrre Svae 2) 150 000 0.0 % Vibeke Ly 2) 133 750 0.0 % Arnt Andre Dullum 2) 110 000 0.0 % Nina Mortensen 2) 95 000 0.0 % Hans Olov Harén 3) 22 150 0.0 % Brita Eilertsen 3) 19 892 0.0 % 1) CEO/Related to the CEO of Axactor 2) Member of the Executive Management Team of Axactor 3) Member of the Board of Directors of Axactor / controlled by member of the Board of Directors of Axactor Annual report 2021 105 Note 26 Share-based payment To incentivise and retain key employees, the Group operates an equity-settled option plan, where one stock option may convert into one ordinary share in Axactor SE. The options carry neither rights to dividends nor voting rights before exercised into ordinary shares. In general, participants resigning loses their options when leaving the Company. The Group uses the Black-Scholes-Merton option pricing model at time of grant to determine the impact of stock option grants in accordance with IFRS 2 Share-based payment. The model utilizes the following parameters as input; the Company's share price, the strike price of the options, the expected lifetime of the options, the risk-free interest rate equalling the expected lifetime and the volatility associated with the historical price development of the underlying share. The total fair value of the options is amortized over the vesting period. Social security provisions are accrued on a quarterly basis and become payable at exercise of the options. The social security provisions are estimated based on the gain on the options multiplied with the relevant social security rate. The total expense recognized for the share-based programs during 2021 was EUR 0.2 million (2020: EUR 0.6 million). Total social security provisions amounts to EUR 0 at 31 December 2021 and 2020 (social security costs on exercised options have been paid in connection with the relevant exercises, hence taken out of the provisions accounts). The total intrinsic value of the employee stock options was EUR 0 at 31 December 2021 (2020: EUR 0) as the lowest strike value is higher than the share price at period end. For 2021, the Company's granted share-based payment arrangements are quantitatively described with their weighted average parameters to the Black-Scholes-Merton option pricing model. Granted instruments 2021 Parameters connected to instruments granted in 2021 Instrument Quantity 31.12.2021 (instruments) Quantity 31.12.2021 (shares) Contractual life 1) Strike price 1) (NOK) Share price 1) (NOK) Expected lifetime 1) Volatility 1) Interest rate 1) FV per instrument 1) Vesting conditions Vesting structure Strike structure Options 500,000 500,000 3.90 24.10 9.30 2.40 50.00% 0.74% 0.67 Service conditions only The awards are vesting annually over two years with the ırst vesting approximately one year from grant date 20% of the total award has a strike price of 17,50 NOK 30% of the total award has a strike price of 22,00 NOK 50% of the total award has a strike price of 28,00 NOK 1) Weighted average parameters at grant of instrument As the employee options are "non-transferable", and the options' gains are taxed with personal income tax (higher), whereas gains on ordinary shares are taxed with capital gains tax (lower), it is reasonable to assume that participants tend to exercise early. Hence estimated lifetime of the options is expected to be shorter than the time from grant until expiry. However, exercise patterns are monitored frequently and expected option lifetime for future grants will relect exercise behaviour. At year end the Group has options outstanding that were granted from 2017 to 2021 and the exercise prices vary from NOK 17.5 to NOK 37.5 per option. Axactor Group106 The table below illustrates the status on all outstanding options at 31 December 2021 and the activity during the year. Share option plan 2021 Activity Number of options Weighted average strike price (NOK) Outstanding at beginning of year 13,775,508 24.98 Granted 500,000 24.10 Forfeited (4,101,481) 26.54 Expired (1,625,058) 12.74 Outstanding at end of year 8,548,969 26.50 Vested CB 4,531,169 28.05 Outstanding instruments overview Outstanding instruments Vested instruments Strike price (NOK) Number of instruments Weighted average remaining contractual life Weighted average strike price (NOK) Vested instruments 31.12.2021 Weighted average strike price (NOK) 17.5 0 950,000 3.50 17.50 283,333 17.50 22.00 1,425,000 3.50 22.00 425,000 22.00 24.50 723,189 2.32 24.50 723,189 24.50 26.50 723,189 2.32 26.50 723,189 26.50 28.00 3,059,466 3.23 28.00 708,333 28.00 30.00 419,375 0.54 30.00 419,375 30.00 32.00 419,375 0.54 32.00 419,375 32.00 35.00 419,375 0.54 35.00 419,375 35.00 37.50 410,000 0.54 37.50 410,000 37.50 Total 8,548,969 4,531,169 Annual report 2021 107 Note 27 Borrowings and other interest-bearing debt EUR thousand Currency Facility limit Nominal value Capitalized loan fees Accrued interest Carrying amount, EUR Interest coupon Maturity Facility Bond (ISIN: NO0010914666) EUR 200,000 (4,778) 3,033 198,255 3m EURIBOR+700pbs 12.01.2024 Bond (ISIN: NO0011093718) EUR 300,000 (3,853) 791 296,938 3m EURIBOR+535bps 15.09.2026 Total bond loan - 500,000 (8,631) 3,824 495,193 Revolving credit facility DNB/Nordea EUR 545,000 17,368 (8,936) 21 8,453 EURIBORmargin 22.12.2023 (multiple currency facility) NOK 114,267 114,267 NIBORmargin 22.12.2023 SEK 220,343 220,343 STIBORmargin 22.12.2023 Total credit facilities 545,000 351,977 (8,936) 21 343,063 Total borrowings at 31 Dec 545,000 851,977 (17,566) 3,845 838,256 whereof: Non-current borrowings 834,411 Current borrowings 3,845 of which in currency: NOK 114,267 SEK 220,343 EUR 503,646 EUR thousand Bond loan Credit facilities Other borrowings Total borrowings Total borrowings at 31 Dec 2019 199,069 495,318 235,546 929,933 Proceeds from loans and borrowings - 73,302 8,329 81,631 Repayment of loans and borrowings - (43,251) (41,144) (84,395) Loan fees - (4,503) - (4,503) Total changes in ınancial cash low - 25,548 (32,815) (7,267) Change in accrued interest - (2) 94 92 Amortization capitalized loan fees 1) 1,214 11,521 2,799 15,534 Currency translation differences - (2,106) - (2,106) Total borrowings at 31 Dec 2020 200,283 530,278 205,625 936,185 Proceeds from loans and borrowings 311,050 231,446 - 542,496 Repayment of loans and borrowings (11,050) (411,175) (206,456) (628,681) Loan fees (10,948) (13,087) 2 (24,033) Total changes in ınancial cash low 289,052 (192,816) (206,454) (110,218) Change in accrued interest 3,513 (45) (334) 3,134 Amortization capitalized loan fees 2,345 4,239 1,165 7,749 Currency translation differences - 1,406 - 1,406 Total borrowings at 31 Dec 2021 495,193 343,063 - 838,256 1) Includes expensed capitalized loan fees of EUR 7.1 million related to the reınancing Axactor Group108 Maturity EUR thousand Currency Carrying amount Total future cash low Estimated future cash low within 6 months or less 6-12 months 1-2 years 2-5 years ISIN NO 0010819725 EUR 198,255 231,967 7,078 7,117 14,194 203,578 ISIN NO 0011093718 EUR 296,938 377,352 8,114 8,159 16,273 344,806 Total bond loan 495,193 609,319 15,192 15,276 30,467 548,384 Revolving credit facility DNB/Nordea (multiple currency facility) NOKSEKEUR 343,063 374,152 5,544 5,544 363,064 - Total credit facilities 343,063 374,152 5,544 5,544 363,064 - Total borrowings at 31 Dec 838,256 983,472 20,736 20,820 393,531 548,384 The maturity calculation is made under the assumption that no new portfolios are acquired and the revolving credit facility draw is constant to maturity date. Bond loan Bond (ISIN NO 0010914666) ACR02 was placed at 3m EURIBOR +7.00% interest, with maturity date 12 January 2024. The bond is listed on Oslo Børs. The following ınancial covenants apply: x Interest coverage ratio: >4.0x (Pro-forma adjusted Cash EBITDA to net interest expenses) x Leverage ratio: <4.0x (NIBD to pro-forma adjusted cash EBITDA). x Net loan to value: <75% (NIBD to total book value all debt portfolios and REOs) x Net secured loan to value: <65% (secured loans less cash to total book value all debt portfolios and REOs). Trustee: Nordic Trustee Bond (ISIN NO 0011093718) ACR03 was placed at 3m EURIBOR +5.35% interest, with maturity date 15 September 2026. The bond is listed on Oslo Børs. The following ınancial covenants apply: x Interest coverage ratio: >4.0x (Pro-forma adjusted Cash EBITDA to net interest expenses) x Leverage ratio: <4.0x (NIBD to pro-forma adjusted cash EBITDA). x Net loan to value: <80% (NIBD to total book value all debt portfolios and REOs) x Net secured loan to value: <65% (secured loans less cash to total book value all debt portfolios and REOs). Trustee: Nordic Trustee Revolving credit facility DNB/Nordea The revolving credit facility consists of EUR 545 million in a multicurrency facility, with an addition of 75 million in the form of accordion option. The loan carries a variable interest rate based on the interbank rate in each currency with a margin. The following ınancial covenants apply: x NIBD ratio to pro-forma adjusted cash EBITDA < 3:1 (secured loans (RCF) less cash to pro-forma adjusted cash EBITDA L12M) x Portfolio loan to value ratio < 60 % (NIBD to total book value of debt portfolios) x Portfolio collection performance > 90 % (actual portfolio performance L6M to active forecast L6M) x Parent loan to value < 80 % (total loans for the Group less cash to total book value of all debt portfolios and REOs) The maturity date for the facility is 22 December 2023. Annual report 2021 109 All material subsidiaries of the Group are guarantors and have granted a share pledge and bank account pledge as part of the security package for this facility. ReoLux Holding Sarl is not part of the agreement nor the security arrangement. Italian banks In the fourth quarter of 2021, local Italian facilities have been repaid in full by drawing on the RCF and Italian subsidiaries have been incorporated in the loan agreement and security arrangement with DNB and Nordea. Note 28 Pension liabilities Axactor meets the different local mandatory occupational pension requirements in the countries where Axactor operates. Axactor operates deıned contribution retirement beneıt plans for all qualifying employees of its subsidiaries in Sweden and Norway. The Group’s legal obligation for these plans is limited to the contributions. The employees of the Finnish, Spanish and German subsidiaries are member of a state managed retirement beneıt plan operated by the government of respectively Finland, Spain, and Germany. The subsidiaries are required to contribute a speciıed percentage of payroll costs to the retirement beneıt scheme to fund the beneıts. The Group’s legal obligation for these plans is limited to the contributions. In Italy all employees are entitled to a termination indemnity (TFR) upon termination of employment for any reason. This TFR is considered a deıned beneıt obligation to be accounted for in accordance with IAS 19. Axactor funds deıned beneıt plans for the qualifying employees. Pension liabilities are recognized in the consolidated statement of ınancial position as other non-current liabilities (note 29). The total pension expenses recognized in the consolidated statement of proıt or loss amount to EUR 1.5 million (2020: EUR 1.3 million) and represent contributions payable to these plans by Axactor at rates speciıed in the rules of the plans. Note 29 Other non-current liabilities EUR thousand 2021 2020 Other non-current accruals 471 222 Cash low hedge derivatives (note 19) 230 - Pension liability (note 28) 1,293 1,210 Total other non-current liabilities 1,994 1,433 Axactor Group110 Note 30 Other current liabilities EUR thousand 2021 2020 Public duties 3,943 3,983 Personnel related liabilities 6,452 3,828 Accrued solicitors 544 492 Deferred payments relating to NPL 8,863 5,504 Forward low derivatives, liability 2) 409 1,091 Accrued restructuring cost 1,039 439 Client funds payable 1) 5,090 1,177 Other accruals 600 4,143 Total other current liabilities 26,941 20,657 1) The corresponding client funds cash balance is reported as part of cash in note 24 2) For a description of forward low derivatives, see note 23. Note 31 Transactions with related parties EUR thousand 2021 2020 Related party balances as per year end Geveran Trading Co LTD owned 50% of Axactor Invest 1, a company controlled and consolidated by Axactor Group, has by one of its subsidiaries subscribed to deeply subordinated income sharing notes issued by Axactor Invest 1. The loan was fully repaid in Q1 2021. - 140,000 Following the co-investment partnership with Geveran, notes in the amount of EUR 230 million have been issued, of which for EUR 185 million has been subscribed to by Sterna Finance, a company in the Geveran Group. The loan was fully repaid in Q1 2021. - 185,000 Related party transactions during the year On 17 February 2020, the Company entered into a servicing agreement with Seatankers Management Co. Ltd., a company controlled by Geveran, under which Seatankers Management Co. Ltd. has agreed to provide the Company with advisory and other support services upon request. The agreement is entered on an arm-length basis and is not considered material. 7 114 On 5 January 2021 Axactor aquired the remaining 50% of the shares in Axactor Invest 1 Sarl from Geveran Trading Co LTD. Axactor Invest 1 Sarl was prior to the aquisition fully consolidated by Axactor, as a result of this there is a change between non-controlling interest and equity related to shareholders of the parent company in the consolidated statement of changes in equity. 37,635 - For additional information on agreements entered with related parties, see corporate governance section. Note 32 Purchase price allocations Axactor has not acquired any shares in other companies in 2021 or 2020. Annual report 2021 111 Note 33 Pledged assets EUR thousand 2021 2020 Group 977,958 776,050 Parent (Axactor SE) 530,843 271,504 All material subsidiaries of the Group are guarantors and have granted a share pledge and bank account pledge as part of the security package for the revoving credit facility, see note 27. ReoLux Holding Sarl is not part of the agreement nor the security arrangement. Note 34 Subsequent events Acquisition of CR Services On 3 January 2022, Axactor took control over 100% of the shares in the Italian debt collection agency Credit Recovery Services S.r.l. The business combination is considered not to be material for the Group. Conversion of Axactor SE to Axactor ASA On 17 February 2022, the Board of Directors decided to initiate the process of converting Axactor SE from a Societas Europaea company to a Norwegian Allmennaksjeselskap (ASA). Conlict in Ukraine The conlict in Ukraine does not directly impact Axactor’s operations. The Group’s ınancial and non-ınancial exposure to Ukraine is not material but is being closely monitored. Axactor Group112 Parent company statement of proıt or loss For the year ended 31 December EUR thousand Note 2021 2020 Management services to group companies 10,519 7,675 Other revenue - - Total revenue 10,519 7,675 Personnel expenses 3 (4,922) (4,289) Operating expenses 5 (7,394) (6,331) Total operating expense (12,315) (10,620) EBITDA (1,797) (2,945) Amortization and depreciation 6, 9, 10 (2,004) (1,665) Operating proıt (3,801) (4,610) Financial revenue 7 23,561 21,345 Financial expenses 7 (36,187) (44,720) Net ınancial items (12,626) (23,375) Proıt/(loss) before tax (16,427) (27,985) Income tax expense 8 23 754 Net proıt/(loss) after tax (16,404) (27,231) Distibution to share premium reserve (16,404) (27,231) Annual report 2021 113 Parent company statement of comprehensive income For the year ended 31 December EUR thousand Note 2021 2020 Net proıt/(loss) after tax (16,404) (27,231) Items that may be classiıed subsequently to proıt and loss Net gain/(loss) on cash low hedges 18 (230) - Other comprehensive income/(loss) after tax (230) - Total comprehensive income/(loss) (16,634) (27,231) Axactor SE114 EUR thousand Note 2021 2020 ASSETS Intangible non-current assets Intangible assets 10 10,291 10,451 Deferred tax assets 8 - 1,227 Investment in subsidiary 12 532,086 334,804 Tangible non-current assets Property, plant and equipment 9 71 103 Right-of-use assets 6 521 681 Financial non-current assets Loans to group companies 15 290,507 116,030 Total non-current assets 833,475 463,296 Current assets Receivables to group companies 15 37,310 38,438 Other current assets 13 664 404 Restricted cash 14 402 446 Cash and cash equivalents 14 4,182 10,542 Total current assets 42,558 49,830 Total assets 876,033 513,126 Parent company statement of ınancial position For the year ended 31 December Annual report 2021 115 EUR thousand Note 2021 2020 EQUITY AND LIABILITIES Equity Share capital 158,150 97,040 Other paid in capital 218,386 219,580 Other reserves 18 (230) - Result for the year (16,404) (27,231) Total restricted equity 201,753 192,349 Total equity 11 359,903 289,389 Non-current Liabilities Interest bearing debt 16 491,369 - Interest bearing debt from group companies 15 - - Deferred tax liabilities 8 167 - Lease liabilities 6 401 558 Other non-current liabilities 230 - Total non-current liabilities 492,167 558 Current Liabilities Accounts payables 781 842 Current intercompany liabilities 15 15,607 18,999 Current portion of interest bearing debt 16 3,824 200,283 Taxes payable 8 1,962 1,787 Current portion of lease liabilities 6 156 144 Other current liabilities 17 1,632 1,124 Total current liabilities 23,964 223,179 Total liabilities 516,131 223,737 Total equity and liabilities 876 033 513 126 Parent company statement of ınancial position For the year ended 31 December Oslo, 30 March 2022 The Board of Directors Merete Haugli Board member Brita Eilertsen Board member Terje Mjøs Board member Lars Erich Nilsen Board member Kathrine Astrup Fredriksen Board member Hans Harén Board member Kristian Melhuus Chair of the Board Johnny Tsolis CEO Axactor SE116 Parent company statement of changes in equity For the year ended 31 December Equity related to the shareholders of the Parent Company Restricted Non-restricted EUR thousand Share capital Other paid in capital Other reserves Result for the year Total Total Equity Balance on 1 Jan 2020 81,338 188,033 (3,135) 184,897 266,235 Merger effect when merged with subsidiary Axactor AS Transfer of prior years net result 1) (3,135) 3,135 - - Result of the period (27,231) (27,231) (27,231) Total comprehensive income for the period (3,135) (24,096) (27,231) (27,231) New share issues (exercise of share options) 15,703 35,064 35,064 50,767 Cost related to share issues (959) (959) (959) Share-based payment 578 578 578 Group contribution - - - Closing balance at 31 Dec 2020 97,040 219,580 (27,231) 192,349 289,389 Transfer of prior years net result 1) (27,231) 27,231 - - Result of the period (16,404) (16,404) (16,404) Net gain/(loss) on cash low hedges (230) (230) (230) Total comprehensive income for the period (27,231) (230) 10,827 (16,634) (16,634) Acquisition of remaining 50% of Axactor Invest 1 - - New share issues 61,110 27,318 27,318 88,427 Cost related to share issues (1,460) (1,460) (1,460) Share-based payment 180 180 180 Closing balance at 31 Dec 2021 158,150 218,386 (230) (16,404) 201,752 359,903 1) Ref. resolution in Annual general meeting on 10 April 2019 and 1 April 2020 Annual report 2021 117 Parent company statement of cash lows For the year ended 31 December EUR thousand 2021 2020 Operating activities Proıt/(loss) before tax (16,427) (27,985) Taxes paid 8 (1,787) (726) Adjustments for: - Finance income and expense 7 5,616 (5,340) - Impairment of subsidiaries 7 6,760 26,946 - Net exchange gain /(loss) realized 7, 16 (1,350) 1,769 - Depreciation and amortization 6, 9, 10 2,004 1,665 - Impairment on inter company receivable 1,600 - - Calculated cost of employee share options 81 81 Change in Working capital 1,500 2,881 Net cash low from operating activities (2,003) (709) Investing activities Investment / share issue in subsidiaries (148,100) (2,000) Purchase of intangible and tangible assets 9, 10 (1,652) (2,130) Interest received 1 4 Net group contribution received 4,346 4,234 Net cash low from investing activities (145,405) 108 Financing activities Proceeds from external borrowings 16 299,717 - Loans to subsidiaries / repaid from subsidiaries 15 (176,593) (37,975) Interest paid (21,217) (14,539) Lease payments 6 (144) (156) Loan fees paid 16 (10,976) - New share issues 50,792 50,767 Costs related to share issues (1,460) (959) Net cash low from ınancing activities 140,119 (2,863) Net change in cash and cash equivalents (7,289) (3,464) Cash and cash equivalents at the beginning of period 10,988 14,801 Currency translation 886 (350) Cash and cash equivalents at end of period, incl. restricted funds 4,584 10,988 Axactor SE118 Summary of notes to the parent company Note 1 Corporate information 120 Note 2 Summary of signiıcant accounting principles 120 Note 3 Personell expenses 121 Note 4 Key management compensation 121 Note 5 Other operating expenses and remuneration to auditors 123 Note 6 Commitments and leases 124 Note 7 Financial items 125 Note 8 Income tax and tax assets and liabilities 126 Note 9 Tangible assets 127 Note 10 Intangible assets 127 Note 11 Share capital and shareholder information 128 Note 12 Subsidiaries 129 Note 13 Other current assets 129 Note 14 Cash and cash equivalents 130 Note 15 Loans and receivables to group companies 130 Note 16 Borrowing 131 Note 17 Other current liabilities 132 Note 18 Hedge accounting 132 Annual report 2021 119 Notes to the parent company ınancial statements Note 1 Corporate information The Parent Company Axactor SE (publ), with Norwegian corporate identity number 921 896 328 is a joint stock company, domiciled in Norway. The registered address is Drammensveien 167, NO-0277 Oslo. The company’s shares are traded in Norway on Oslo Børs. The Annual Report and Parent Company Report for Axactor SE (publ) were adopted by the Board of Directors on 30 March 2022 and will be submitted for approval to the Annual General Meeting on 21 April 2022. Note 2 Summary of signiıcant accounting principles These parent company ınancial statements should be read in conjunction with the consolidated ınancial statements of the Axactor Group, published together with these ınancial statements. With the exceptions described below, Axactor SE applies the accounting policies of the Group, as described in Axactor Group's disclosure, note 2 Summary of signiıcant accounting principles, and reference is made to the Axactor Group note for further details. Insofar that the company applies policies that are not described in the Axactor Group note due to group level materiality considerations, such policies are included below if necessary, for sufıcient understanding of Axactor’s accounts. The principal accounting policies applied in the preparation of these ınancial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. As a result of rounding adjustments, the ıgures in one or more columns may not add up to the total of that column. 2.1 Basis for preparation The ınancial statements of the Parent Company are prepared in accordance with simpliıed IFRS pursuant to the Norwegian Accounting Act §3-9 and regulations regarding simpliıed application of IFRS issued by the Norwegian Ministry of Finance on 3 November 2014. The Company follows the exception from IAS 10 regarding timing of recognition of group contribution and dividend. The Parent Company’s functional currency is Euro (EUR) and this is also the reporting currency for the Group. All amounts in the ınancial reports are stated in EUR thousands unless otherwise speciıed. 2.2 Investments In subsidiaries and associated companies, and other non-current Investments. Investments in subsidiaries are accounted for using the cost method in the parent company accounts. The investments are valuated at cost unless impairment losses occur. Write-down of investments are recognized under 'Impairment' in the statement of proıt or loss. 2.3 Segment reporting Axactor SE's activities are currently organized as one operating unit for internal reporting purposes, thus no segment information is presented in these ınancial statements. Axactor SE120 Note 3 Personell expenses Personell expenses EUR thousand 2021 2020 Salaries 3,507 3,048 Bonus 806 25 Social contribution 479 384 Pension cost 103 107 Share Option program 83 81 Other beneıts (57) 644 Total personnel expenses 4,922 4,289 Axactor SE meets the local mandatory occupational pension requirement. Average number of employees EUR thousand 2021 2020 Number of FTE's, start of year 16 18 Number of FTE's, end of year 19 16 Average number of FTE's 17 17 Post-employment beneıts EUR thousand 2021 2020 Salaries - 528 Other beneıts - 1 Total post-employment beneıts - 529 Note 4 Key management compensation Board of Directors remuneration EUR thousand 2021 2020 Glen Ole Rødland 2) 27 44 Bjørn Erik Næss - 34 Kristian Melhuus 1) 10 - Lars Erich Nilsen 41 47 Kathrine Astrup Fredriksen 41 28 Merete Haugli 3) 54 41 Terje Mjøs 45 44 Brita Eilertsen 47 50 Hans Harén 41 21 Beate S. Nygårdshaug 1) - 13 Total 306 322 1) Member until 2020 2) Chair of the board until May 2021 3) Interim chair of the board from May 2021 until February 2022 4) Chair of the board from February 2022 Annual report 2021 121 The following remuneration has been made to the members of the nomination committee during the year: Nomination committee EUR thousand 2021 2020 Anne Lise Ellingsen Gryte 1) - - Magnus Tvenge - 3 Cathrine Loferød Feght 2) - 3 Robin Bakken 2) - 4 Total - 10 1) Member from April 2020 2) Member until April 2020 Executive management remuneration 2021 EUR thousand Salary Bonus Pension Other Share option 1) Total Johnny Tsolis, CEO 410 87 35 1 39 573 Endre Ragnses, CEO 2) - 44 - - - 44 Nina Mortensen, CFO 3) 92 20 7 1 - 120 Teemu Alaviitala, CFO 4) 44 16 2 - - 61 Arnt Andre Dullum, COO 178 18 16 2 17 230 Oddgeir Hansen, COO 5) 46 133 - - - 179 Kyrre Svae, Chief Strategy and IR 185 49 14 2 8 257 Vibeke Ly, Chief of Staff 199 29 14 1 17 261 Robin Knowles, Chief Investment Ofıcer 297 25 3 - 19 344 Total 1,451 420 91 7 100 2,069 1) Cost in relation to share option program, not exercised 2) CEO until 3 April 2020 3) CFO from 1 August 2021 4) CFO until 31 January 2021 5) COO until 1 July 2020 Axactor SE122 Executive management remuneration 2020 EUR thousand Salary Bonus Pension Other Share option 1) Total Johnny Tsolis, CEO 2) 336 109 6 1 72 524 Endre Rangnes, CEO 3) 700 329 6 - (45) 991 Teemu Alaviitala, CFO 4) 72 - 3 - 4 78 Arnt Andre Dullum, COO 5) 72 - 3 - 29 104 Oddgeir Hansen, COO 6) 270 94 6 - (25) 346 Kyrre Svae, Chief Strategy and IR 7) 72 - 3 - 4 78 Vibeke Ly, Chief of Staff 169 37 6 - 25 238 Siv Farstad, EVP HR 8) 102 - 3 - (20) 84 Robin Knowles, Chief Investment Ofıcer 259 91 3 1 36 390 Total 2,051 660 40 3 79 2,834 1) Cost in relation to share option program, not exercised 2) CFO until 26 June 2020, interim CEO from 3 April 2020, permanent CEO from 26 June 2020 3) CEO until 3 April 2020 4) CFO from 1 August 2020 until 31 January 2021 5) COO 50% from 19 May 2020, 100% from 1 September 2020 6) COO until 1 July 2020 7) Chief of Stategy and IR from 1 August 2020 8) Head of HR until 31 March 2020 The CEO, Johnny Tsolis, has a six-month notice period and is entitled to a severance pay of six months in case of termination by the company. In addition, there is a non-compete and non-solicitation clause in the employment agreement. The share-based option program is presented in Group note 26. Bonus stated in tables above relects the paid amounts during the year. At the end of 2021 no loan or prepayments were granted to Board of Directors and executive management. Members of the executive management employed in Axactor SE has an additional contribution pension entitling them to pension rights for salary over 12G (Norwegian Grunnbeløp). Note 5 Other operating expenses and remuneration to auditors Other operating expenses EUR thousand 2021 2020 Direct operating expenses 972 1,008 External services 2,651 1,049 IT expenses 3,590 4,037 Other operating expenses 181 236 Total other operating expenses 7,394 6,331 Annual report 2021 123 Remuneration to company auditors PricewaterhouseCoopers EUR thousand 2021 2020 Audit 227 113 Audit related services - - Tax advisory 55 33 Other services 15 79 Total 297 225 Note 6 Commitments and leases The company leases premises only. The Facility contract was entered into 01.04.2020, and is being recognized as right-of-use asset and lease liability from this date. Leasing contracts are classiıed as lease liabilities and right-of-use assets under IFRS 16. See Axactor Group note 2.12. Right-of-use assets EUR thousand Buildings Total Right-of-use assets at 1 Jan 2020 54 54 New leases 801 801 Depreciation of the year (174) (174) Right-of-use assets at 1 Jan 2021 681 681 New leases - - Depreciation of the year (160) (160) Right-of-use assets at 31 Dec 2021 521 521 Remaining lease term 1-6 years Depreciation method Linear Axactor SE124 Lease liabilities EUR thousand 2021 2020 Lease liabilities at 1 Jan 701 56 New leases and lease modiıcations - 801 Lease payments (144) (156) Lease liabilities at 31 Dec 558 701 Current: 156 144 Non-current 401 558 The future aggregated minimum lease payments under lease liabilities are as follows: EUR thousand 2021 2020 Undiscounted lease liabilities and maturity of cash outlow < 1 year 185 181 1-2 years 188 185 2-3 years 192 188 3-4 years 49 192 4-5 years - 49 > 5 years - - Total undiscounted lease liabilities at 31 Dec 614 795 Discount element (57) (94) Total discounted lease liabilities at 31 Dec 558 701 Note 7 Financial items EUR thousand 2021 2020 Financial revenue Interest on bank deposits 1 4 Interest on intercompany loans 12,778 16,468 Group contribution 4,323 4,625 Exchange gains realized 2,012 249 Net unrealized exchange gain 4,447 - Other ınancial income - - Total ınancial revenue 23,561 21,345 Financial expenses Interest expense on borrowings (27,041) (15,498) Exchange losses realized (662) (2,017) Impairment of subsidiary (8,360) (26,941) Other ınancial expenses (123) (264) Total ınancial expenses (36,187) (44,720) Net ınancial items (12,626) (23,375) Annual report 2021 125 Note 8 Income tax and tax assets and liabilities EUR thousand 2021 2020 Proıt/(loss) before tax (16,427) (27,985) Adjustment prior year (297) - Non deductable expenses 2 12 Other permanent differences 3,547 24,731 Interest expense limitation 8,118 Group contribution with tax effect 15,942 19,733 Change in deferred tax (640) (7,037) Adjustment for currency differences due to tax calculation in NOK (119) 149 Basis for income tax 10,126 9,603 Taxes payable before tax decution scheme 2,227 2,113 Tax deduction scheme 1) (265) (326) Taxes payable 1,962 1,787 Change in deferred taxes 1,460 1,534 Adjustment for previouse year (158) 198 Tax effect on permanent difference - 1,431 Effect on foreign exchange rates (1,279) (180) Tax on Group contribution - (2,228) Income tax expense 23 754 1) Skattefunn - Tax deduction scheme in Norway for companies with research and develoment projects. Temporary differences EUR thousand 2021 2020 Current assets 214 175 Limitation interest carried forward 3,202 1,209 Tax losses carried forward, recognized - - Differences not included in the calculation of deferred tax (3,583) (156) Net income tax reduction temporary differences (167) 1,227 Net deferred tax asset - 1,227 Net deferred tax liability (167) - Net deferred tax (167) 1,227 Axactor SE126 Note 9 Tangible assets EUR thousand Fixtures Ofıce eqipment Total Cost price Cost price at 1 Jan 2020 100 39 140 Acquisition 45 56 101 Cost price at 31 Dec 2020 145 95 241 Acquisition 6 7 13 Cost price at 31 Dec 2021 152 102 253 Amortization and impairment Accumulated depreciations at 1 Jan 2020 (63) (39) (102) Depreciation of the year (25) (11) (36) Accumulated depreciations at 31 Dec 2020 (88) (50) (138) Depreciation of the year (25) (19) (44) Accumulated depreciations at 31 Dec 2021 (113) (69) (182) Carrying amount at 31 Dec 2021 38 33 71 Useful life 3-5 yr 1-5 yr Note 10 Intangible assets EUR thousand Software Other Intangibles Total Cost price Cost price at 1 Jan 2020 9,385 2,264 11,648 Acquisition 1,549 481 2,029 Disposals at cost price (62) - (62) Cost price at 31 Dec 2020 10,871 2,745 13,616 Acquisition 1,227 412 1,639 Disposals at cost price - - - Cost price at 31 Dec 2021 12,098 3,157 15,255 Amortization and impairment Accumulated amortizations at 1 Jan 2020 (1,363) (409) (1,772) Amortization of the year (1,144) (311) (1,455) Disposals of accumulated amortizations 62 - 62 Accumulated amortizations at 31 Dec 2020 (2,445) (720) (3,165) Amortization of the year (1,447) (352) (1,799) Disposals of accumulated amortizations - - - Accumulated amortizations at 31 Dec 2021 (3,892) (1,072) (4,965) Carrying amount at 31 Dec 2021 8,206 2,084 10,291 Useful life 3-10 yr 1-10 yr Annual report 2021 127 Note 11 Share capital and shareholder information Issued shares and Share capital Number of shares Share capital (EUR) At 31 Dec 2019 155,395,464 81,337,590 New share issues, Feb 30,000,000 15,702,696 At 31 Dec 2020 185,395,464 97,040,286 New share issues, Jan 50,000,000 26,171,159 New share issues, Jan 40,000,000 20,936,928 New share issues, Mar 26,750,000 14,001,570 At 31 Dec 2021 302,145,464 158,149,943 Each share has the same rights and has a par value of EUR 0.523 (rounded). All issued shares are fully paid. 20 largest shareholders as at 31 Dec 2021 Name Shareholding Share % Geveran Trading Co Ltd 138,920,892 46.0% Torstein Ingvald Tvenge 10,000,000 3.3% Ferd AS 7,864,139 2.6% Verdipapirfondet Nordea Norge Verdi 4,454,162 1.5% Skandinaviska Enskilda Banken AB 3,079,467 1.0% Nordnet Livsforsikring AS 2,247,811 0.7% Endre Rangnes 2,017,000 0.7% Gvepseborg AS 2,009,694 0.7% Stavern Helse Og Forvaltning AS 2,000,000 0.7% Alpette AS 1,661,643 0.5% Verdipapirfondet Nordea Avkastning 1,643,423 0.5% Velde Holding AS 1,400,000 0.5% Verdipapirfondet Nordea Kapital 1,343,933 0.4% Klotind AS 1,296,693 0.4% Andres Lopez Sanchez 1,177,525 0.4% David Martin Ibeas 1,177,525 0.4% Svein Dugstad 1,154,187 0.4% Nordea Bank Abp 1,116,576 0.4% Nordnet Bank AB 1,086,987 0.4% Latino Invest AS 1,040,000 0.3% Total 20 largest shareholders 186,691,657 61.8% Other shareholders 115,453,807 38.2% Total number of shares 302,145,464 100% Total number of shareholders 11,128 Axactor SE128 Shares owned by related parties Shareholding Share % Latino Invest AS 1) 1,040,000 0.3% Johnny Tsolis Vasili 1) 670,000 0.2% Terje Mjøs Holding AS 3) 400,000 0.1% Robin Knowles 2) 183,714 0.1% Kyrre Svae 2) 150,000 0.0% Vibeke Ly 2) 133,750 0.0% Arnt Andre Dullum 2) 110,000 0.0% Nina Mortensen 2) 95,000 0.0% Hans Olov Harén 3) 22,150 0.0% Brita Eilertsen 3) 19,892 0.0% 1) CEO/Related to the CEO of Axactor 2) Member of the Executive Management Team of Axactor 3) Member of the Board of Directors of Axactor / controlled by member of the Board of Directors of Axactor Note 12 Subsidiaries Subsidiary company EUR thousand Share of owner- ship Share of voting rights Ofıce location, city Ofıce location, country Book value in parent company Result 2021 Equity 2021 Axactor Portfolio Holding AB 100.0% 100.0% Gothenburg Sweden 369,234 (27,902) 339,399 Axactor Platform Holding AB 100.0% 100.0% Gothenburg Sweden 162,852 (1,241) 132,674 Reolux Sarl 1) 50.0% 50.0% Luxembourg Luxembourg - (15,894) (7,383) 1) An impairment of EUR 6.8 million was recognized in 2021 due to reduced asset prices in the Reolux subsidiaries. Note 13 Other current assets Other current assets EUR thousand 2021 2020 Prepaid expenses 675 407 Other current receivables (11) (2) Total other current assets 664 404 Annual report 2021 129 Note 14 Cash and cash equivalents EUR thousand 2021 2020 Cash and bank deposits 4,182 10,542 Restricted cash 402 446 Total cash and cash equivalents 4,584 10,988 Composition of the cash per currency NOK 1,058 1,435 SEK 349 358 EUR 3,171 9,185 GBP 6 10 Total cash and cash equivalents 4,584 10,988 Note 15 Loans and receivables to group companies 2021 2020 EUR thousand Loans to group companies 1) Current IC receivables Loans from group companies Current IC payables Loans to group companies 1) Current IC receivables Loans from group companies Current IC payables Axactor Portfolio Holding AB 6,417 218 - - (11) - - Axactor Platform Holding AB 243,336 313 - 54,357 89 - (3,187) Axactor Norway Holding AS - 4,322 - - 6,013 - - Axactor Norway AS - 718 - (1,607) - 1,152 - (427) Axactor Capital AS 4,452 17,947 - (13,761) - 19,241 - (14,995) Axactor Sweden AB - 435 - (120) - 220 - (179) Axactor Germany Holding GmbH - 2,157 - - - - - Axactor Germany GmbH - - - (17) - 1,605 - - Axactor Espana, S.L.U. - (32) - (5) - 26 - - Axactor Platform España S.A - 1,075 - (45) - 392 - (146) Axactor Capital Luxembourg S.a.r.l. - 172 - - 41 - - Axactor Italy Holding S.r.l. 156 - - 16,758 - - - Axactor Italy S.p.A 210 - - (24) 5,100 457 - (26) Axactor Capital Italy Srl - 314 - - (21) - - Axactor Invest 1 S.a.r.l. 2) - 9,352 - - 8,960 - - Reolux Holding S.a.r.l 35,936 50 - 39,815 12 - - Axactor Finland Holding OY - 270 - - - - - Axactor Finland OY - - - (30) - 262 - (38) Closing balance at 31 Dec 290,507 37,309 - (15,607) 116,030 38,438 - (18,998) 1) Loans to subsidiaries carries an interest rate of 6.3-7.38 %, to be paid at year end. 2) An impairment of EUR 1.6 million has been recognized in 2021 due to reduced real estate prices in Spain. An ECL (Expected Credit Loss) assessment according to IFRS 9 has been carried out and concludes that there is no expected credit loss on receivables to Group companies. Axactor SE130 Note 16 Borrowing EUR thousand Currency Facility limit Nominal value Capitalized loan fees Accrued interest Carrying amount, EUR Interest coupon Maturity Facility Bond (ISIN: NO0010914666) EUR 200,000 (4,778) 3,033 198,255 3m EURIBOR+700pbs 12.01.2024 Bond (ISIN: NO0011093718) EUR 300,000 (3,853) 791 296,938 3m EURIBOR+535bps 15.09.2026 Total bond loan 500,000 (8,631) 3,824 495,193 Total borrowings at 31 Dec 2021 495,193 whereof: Non-current borrowings 491,369 Current borrowings 3,824 EUR thousand Bond loan Total Borrowings Balance at 1 Jan 200,283 200,283 Proceeds from loans and borrowings 500,000 500,000 Repayment of loans and borrowings (200,283) (200,283) Loan fees (10,976) (10,976) Total changes in ınancial cash low 288,741 288,741 Change in accrued interest 3,824 3,824 Amortization capitalized loan fees 1) 2,345 2,345 Currency translation differences - - Total borrowings at end 31 Dec 2021 495,193 495,193 1) Includes expensed capitalized loan fees of EUR 0.4 million related to the reınansing of the bond Maturity EUR thousand Currency Carrying amount Total future cash low Estimated future cash low within 6 months or less 6-12 months 1-2 years 2-5 years ISIN NO 0010819725 EUR 198,255 231,967 7,078 7,117 14,194 203,578 ISIN NO 0011093718 EUR 296,938 377,352 8,114 8,159 16,273 344,806 Total bond loan 495,193 609,319 15,192 15,276 30,467 548,384 Total Borrowings at 31 Dec 2021 495,193 609,319 15,192 15,276 30,467 548,384 Annual report 2021 131 Bond (ISIN NO 0010914666) ACR02 was placed at 3m EURIBOR +7.00% interest, with maturity date 12 January 2024. The bond is listed on Oslo Børs. The following ınancial covenants apply: x Interest coverage ratio: >4.0x (Pro-forma adjusted Cash EBITDA to net interest expenses) x Leverage ratio: <4.0x (NIBD to pro-forma adjusted cash EBITDA). x Net loan to value: <75% (NIBD to total book value all debt portfolios and REOs) x Net secured loan to value: <65% (secured loans less cash to total book value all debt portfolios and REOs). Trustee: Nordic Trustee Bond (ISIN NO 0011093718) ACR03 was placed at 3m EURIBOR +5.35% interest, with maturity date 15 September 2026. The bond is listed on Oslo Børs. The following ınancial covenants apply: x Interest coverage ratio: >4.0x (Pro-forma adjusted Cash EBITDA to net interest expenses) x Leverage ratio: <4.0x (NIBD to pro-forma adjusted cash EBITDA). x Net loan to value: <80% (NIBD to total book value all debt portfolios and REOs) x Net secured loan to value: <65% (secured loans less cash to total book value all debt portfolios and REOs). Trustee: Nordic Trustee Note 17 Other current liabilities EUR thousand 2021 2020 Public duties 359 283 Personnel related liabilities 807 717 Other accruals 467 123 Total other current liabilities 1,632 1,124 Note 18 Hedge accounting The Group´s risk management objective is to mitigate the effect of interest rate changes related to its loating rate instruments. In order to achieve the objective, the Group´s strategy is to use derivatives to limit the impact of changes in interest rates on the Group´s interest expenses. The Group applies cash low hedge accounting to ensure that the Group´s risk management strategy is relected in its ınancial statements. Cash low hedges Interest rate risk in loating rate instruments The Group´s risk management objective and strategy is to apply cash low hedge accounting for interest rate risk in order to mitigate the effect of increasing EURIBOR rates on issued bonds and therefore limit the impact on the Group´s interest expenses. The hedged items consist of a proportion of issued loating-rate bonds. The hedged risk is deıned as interest rate risk for EURIBOR interest rates. The hedging instruments consist of interest rate caps. The hedge ratio for the relationships is deıned by the ratio of the principal of the interest rate cap to the designated proportion of the hedged item, resulting in 100% hedge ratio. Potential sources of ineffectiveness have been identiıed as differences in timing of cash lows of hedged items and hedging instruments, derivatives used as hedging instruments having a non-nil fair value at the time of designation and the effect of changes in counterparties’ credit risk on the fair values of hedging instruments or hedged items. The Group started with hedge accounting at the end of 2021. All comparable ıgures for 2020 for the tables presented below are hence 0 and not presented as separate tables. The Group’s strategy is to hedge between 50% and 70% of interest bearing debt with a duration of three to ıve years. Axactor SE132 The ınancial instruments designated as hedged items in current cash low hedge relationships are: Hedged items - cash low hedges Other reserves EUR thousand Nominal amount Nominal amount designated for hedge accounting Changes in fair value used to calculate ineffectiveness Continuing hedges Discontinued hedges 31 Dec 2021 Interest rate risk Floating rate issued bonds 200,000 200,000 - (230) - Total 200,000 200,000 - (230) - The hedged items are included as part of interest bearing debt in the consolidated statement of ınancial position. The table below sets out the derivatives designated as hedging instruments in current cash low hedge relationships, and the outcome of the Group´s hedging strategy: Hedging instruments - cash low hedges EUR thousand Up to 1 year 1-5 years Over 5 years Total 31 Dec 2021 Interest rate caps Nominal amount 2,778 197,222 - 200,000 Average strike 0.5% 0.5% - 0.5% Carrying amount EUR thousand Nominal amount Assets Liabilities Changes in fair value used to calculate ineffectiveness Changes in value recognised in OCI Ineffectiveness recognised in proıt or loss Amount reclassiıed from other reserves to proıt or loss 31 Dec 2021 Interest rate risk Interest rate caps 200,000 - 230 - (230) - - Total 200,000 - 230 - (230) - - The hedging instruments are included as part of other non-current liabilities in the consolidated statement of ınancial position. The effective portion of the gain or loss on the hedging instrument is, if applicable, included as part of ınancial expenses. Hedge ineffectiveness is, if applicable, recorded as part of ınancial expenses or ınancial revenue. Amounts reclassiıed from the cash low hedge reserve into proıt or loss are, if applicable, recorded as part of ınancial expenses. Annual report 2021 133 Auditor’s report PricewaterhouseCoopers AS, Dronning Eufemias gate 71, Postboks 748 Sentrum, NO-0106 Oslo T: 02316, org. no.: 987 009 713 MVA, www.pwc.no Statsautoriserte revisorer, medlemmer av Den norske Revisorforening og autorisert regnskapsførerselskap To the General Meeting of Axactor SE Independent Auditor’s Report Report on the Audit of the Financial Statements Opinion We have audited the financial statements of Axactor SE, which comprise: • The financial statements of the parent company Axactor SE (the Company), which comprise parent company statement of financial position as at 31 December 2021, parent company statement of profit or loss, parent company statement of comprehensive income, parent company statement of changes in equity and parent company statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies, and • The consolidated financial statements of Axactor SE and its subsidiaries (the Group), which comprise the consolidated statement of financial position as at 31 December 2021, the consolidated statement of profit or loss, consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies. In our opinion: • the financial statements comply with applicable statutory requirements, • the financial statements give a true and fair view of the financial position of the Company as at 31 December 2021, and its financial performance and its cash flows for the year then ended in accordance with simplified application of international accounting standards according to section 3-9 of the Norwegian Accounting Act, and • the financial statements give a true and fair view of the financial position of the Group as at 31 December 2021, and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the EU. Our opinion is consistent with our additional report to the Audit Committee. Basis for Opinion We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Company and the Axactor Group134 Independent Auditor's Report - Axactor SE (2) Group as required by laws and regulations and the International Ethics Standards Board for Accountants’ International Code of Ethics for Professional Accountants (including International Independence Standards) (IESBA Code), and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. To the best of our knowledge and belief, no prohibited non-audit services referred to in the Audit Regulation (537/2014) Article 5.1 have been provided. We have been the auditor of the Company for 4 years from the election by the general meeting of the shareholders on 17 October 2018 for the accounting year 2018. Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. The business activities are largely unchanged compared to last year. We have not identified regulatory changes, transactions or other events that qualified as new Key audit matters for our audit of the 2021 financial statements. The valuation of the portfolios continues to be an important focus area in our audit. Key Audit Matter How our audit addressed the Key Audit Matter Valuation of debt portfolios Debt portfolios represent a considerable part of the Group’s total assets. The valuation of the portfolios includes substantial elements of management judgement. The book value of debt portfolios is determined by projecting expected future cash flows and discounting them to present value using the effective interest rate as of the date the portfolios were acquired. Some of the key judgmental assumptions related to the valuation includes the size of expected future cash flows, and timing of future payments. The estimated timing and size of payments of cash flows require judgement and experience to assess and the estimates may differ from actual timing and size of payments. Management performed a review every quarter in which they assessed the performance of the group’s portfolios, with particular focus directed towards whether portfolios met certain performance criteria. The procedure was We satisfied ourselves to the accuracy of initial recognition of portfolios by tracing purchase prices in the contracts back to registration in the system on a sample basis. We also checked completeness, by reconciling value per 31.12.2021 of the debt portfolios from the database, which is used as a source for the performance review, to the booked value. To test the accuracy of managements assumptions about timing and size of payments, we sampled and matched reported cash collection to underlying bank statements. Correspondingly, we obtained cash collection reports and traced the amounts to the database. We obtained a detailed understanding of management’s review and relevant controls associated with the review management performed quarterly, and tested the control performed. We sampled all portfolios not meeting management’s defined performance criteria at year end. Based on obtained documentation for these portfolios, including inspection of the underlying figures in the database, we challenged management’s assumptions and conclusions noted in their review. We discussed with them their assessments and tested assumptions, and where deemed necessary, obtained and evaluated additional documentation that substantiated management’s Annual report 2021 135 Independent Auditor's Report - Axactor SE (3) designed to identify portfolios with need to adjust the book value. We focused on this area because valuation of the debt portfolios carries the inherent risk that judgmental assumptions may affect the Groups net profit. conclusions. We performed recalculation based on our own models to test the completeness and accuracy of the company’s, portfolio database. For one portfolio, management had obtained a separate report to support their own judgement. We obtained, read, and understood the report and met with the experts management used. We tested whether the experts based their calculations on accurate and complete data from the company. We looked at the model and the assumptions underlying the model and considered whether the model contained the elements that we expected and the reasonableness of the assumptions. To understand the results from the report, we held extensive interviews with the experts where we challenged the methodology and assumptions. We assessed qualifications, competence, and objectivity of the experts by among other, reviewing their terms of engagement to determine whether there were unusual terms that might have affected their objectivity or imposed scope limitations upon their work. Based on this work, we were satisfied that the experts remained objective and competent, and that the scope of their work was appropriate. We discussed with management how the Covid-19 pandemic may have affected the assumptions underpinning the value of the loan portfolios. We also evaluated the models management used to discount the cash flows and tested the accuracy of the inputs and whether the models made calculations as expected. Any differences encountered as part of our detailed testing fell within a reasonable range. The Group notes 2.12.1, note 3, note 4 and note 18 to the financial statements are relevant for the description of the Group’s debt portfolios. We read the notes and found them to be adequate and give a balanced overview of the different parameters and judgmental assumptions used. Other Information The Board of Directors and the Managing Director (management) are responsible for the information in the Board of Directors’ report and the other information accompanying the financial statements. The other information comprises information in the annual report, but does not include the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the information in the Board of Directors’ report nor the other information accompanying the financial statements. Axactor Group136 Independent Auditor's Report - Axactor SE (4) In connection with our audit of the financial statements, our responsibility is to read the Board of Directors’ report and the other information accompanying the financial statements. The purpose is to consider if there is material inconsistency between the Board of Directors’ report and the other information accompanying the financial statements and the financial statements or our knowledge obtained in the audit, or whether the Board of Directors’ report and the other information accompanying the financial statements otherwise appears to be materially misstated. We are required to report if there is a material misstatement in the Board of Directors’ report or the other information accompanying the financial statements. We have nothing to report in this regard. Based on our knowledge obtained in the audit, it is our opinion that the Board of Directors’ report is consistent with the financial statements and contains the information required by applicable legal requirements. Our opinion on the Board of Director’s report applies correspondingly to the statements on Corporate Governance and Corporate Social Responsibility. Responsibilities of Management for the Financial Statements Management is responsible for the preparation of financial statements that give a true and fair view in accordance with simplified application of international accounting standards according to the Norwegian Accounting Act section 3-9, and for the preparation and true and fair view of the consolidated financial statements of the Group in accordance with International Financial Reporting Standards as adopted by the EU, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, management is responsible for assessing the Company’s and the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so. Auditor’s Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also: • identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error. We design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one Annual report 2021 137 Independent Auditor's Report - Axactor SE (5) resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. • obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's or the Group's internal control. • evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. • conclude on the appropriateness of management’s use of the going concern basis of accounting, and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company and the Group's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company and the Group to cease to continue as a going concern. • evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves a true and fair view. • obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with the Board of Directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the Audit Committee with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with the Board of Directors, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Report on Other Legal and Regulatory Requirements Axactor Group138 Independent Auditor's Report - Axactor SE (6) Report on compliance with Regulation on European Single Electronic Format (ESEF) Opinion We have performed an assurance engagement to obtain reasonable assurance that the financial statements with file name 549300P5VT8OMA17TJ33-2021-12-31-en.zip have been prepared in accordance with Section 5-5 of the Norwegian Securities Trading Act (Verdipapirhandelloven) and the accompanying Regulation on European Single Electronic Format (ESEF). In our opinion, the financial statements have been prepared, in all material respects, in accordance with the requirements of ESEF. Management’s Responsibilities Management is responsible for preparing, tagging and publishing the financial statements in the single electronic reporting format required in ESEF. This responsibility comprises an adequate process and the internal control procedures which management determines is necessary for the preparation, tagging and publication of the financial statements. Auditor’s Responsibilities For a description of the auditor’s responsibilities when performing an assurance engagement of the ESEF reporting, see: https://revisorforeningen.no/revisjonsberetninger Oslo, 30 March 2022 PricewaterhouseCoopers AS Anne Lene Stensholdt State Authorised Public Accountant Annual report 2021 139 Alternative Performance Measures (APM) used in Axactor APM Deınition Purpose of use Reconciliation IFRS Gross revenue Total income plus portfolio amortizations and revaluations, and change in forward low derivatives To review the revenue before split into interest and amortization (for own portfolios) Total income in consolidated statement of proıt or loss Cash EBITDA EBITDA adjusted for change in forward low derivatives, calculated cost of share option program, portfolio amortizations and revaluations, REO cost of sales and REO impairments To relect cash from operating activities, excluding timing of taxes paid and movement in working capital EBITDA (total income minus total operating expenses) in consolidated statement of proıt or loss and net cash low from operating activities in consolidated statement of cash lows ERC Estimated remaining collection express the expected future cash collection on own portfolios (NPLs) in nominal values, over the next 180 months ERC is a standard APM within the industry with the purpose to illustrate the future cash collection including estimated interest revenue and opex Purchased debt portfolios in consolidated statement of ınancial position Net interest bearing debt (NIBD) Net interest bearing debtmeans the aggregated amount ofinterest bearing debt, less aggregated amount of unrestricted cash and cash equivalents, on a consolidated basis NIBD is used as an indication of the Group's ability to pay off all of its debt Non-current interest bearing debt, current portion of interest bearing debt and unrestricted cash and cash equivalents in the consolidated statement of ınancial position, adjusted for capitalized loan fees and accrued interest according to note 27. Return on equity (ROE), including or excluding non-controlling interests Net result divided by average quarterly equity for the period Measures the proıtability in relation to stockholders’ equity Equity in consolidated statement of changes in equity APM tables Gross revenue EUR thousand 2021 2020 Total income 195,127 201,175 Portfolio amortizations and revaluations 148,542 123,179 Change in forward low derivatives 782 826 Gross revenue 344,451 325,180 EBITDA and Cash EBITDA EUR thousand 2021 2020 Total income 195,127 201,175 Total operating expenses (171,393) (169,176) EBITDA 23,733 31,999 Change in working capital related to forward low derivatives 782 826 Calculated cost of share option program 180 578 Portfolio amortizations and revaluations 148,542 123,179 REO cost of sale, including impairment 50,515 52,932 Cash EBITDA 223,752 209,514 Taxes paid (3,261) (5,515) Change in working capital, excl. forward low derivatives 4,209 5,714 Cash low from operating activities before NPL and REO investments 224,700 209,713 Alternative Performance Measures Axactor Group140 Estimated remaining collection, NPL EUR thousand 2021 2020 Purchased debt portfolios 1,095,789 1,124,699 Estimated opex for future collection at time of acquisition 296,290 303,731 Estimated discounted gain 748,463 740,722 Estimated remaining collection, NPL 2,140,543 2,169,153 Net interest bearing debt (NIBD) EUR thousand 2021 2020 Non-current portion of interest bearing debt 834,411 579,282 Current portion of interest bearing debt 3,845 356,903 Total interest bearing debt 838,256 936,185 Capitalized loan fees (17,566) (1,283) Accrued interest 3,845 705 Nominal value interest bearing debt 851,977 936,763 Unrestricted cash and cash equivalents 38,155 47,779 Net interest bearing debt (NIBD) 813,821 888,984 Return on equity, excluding non-controlling interests EUR thousand 2021 2020 Net proıt/(loss) after tax attributable to shareholders of the parent company (32,797) (18,131) Average total equity for the period related to the shareholders of the parent company 384,751 296,222 Return on equity, excluding non-controlling interests (8.5%) (6.1%) Return on equity, including non-controlling interests EUR thousand 2021 2020 Net proıt/(loss) after tax (45,992) (34,002) Average total equity for the period 407,454 375,526 Return on equity, including non-controlling interests (11.3%) (9.1%) Annual report 2021 141 Active forecast Forecast of estimated remaining collection on NPL portfolios Board Board of directors Cash EBITDA margin Cash EBITDA as a percentage of gross revenue Chair Chari of the board of directors Contribution margin (%) Total operating expenses (excluding SG&A, IT and corporate cost) as a percentage of total income Collection performance Collection on own NPL portfolios in relation to active forecast Equity ratio Total equity as a percentage of total equity and liabilities Forward low agreement Agreement for future aquisitions of NPLs at agreed prices and delivery Gross IRR The credit adjusted interest rate that makes the net present value of ERC equal to NPL book value, calculated using monthly cash lows over a 180-months period Group Axactor SE and all its subsidiaries NPL amortization rate NPL amortization divided by NPL gross revenue One off portfolio aquisitions Aquisition of a single portfolio of NPLs Opex Total operating expenses Recovery rate Portion of the original debt repaid Replacement capex Aquisitions of new NPLs to keep the same book value of NPLs from last period SG&A, IT and corporate cost Total operating expenses for overhead functions, such as HR, ınance and legal etc Solution rate Accumulated paid principal amount for the period divided by accumulated collectable principal amount for the period. Usually expressed on a monthly basis Yield Interest revenue from purchased loan portfolios Terms Axactor Group142 3PC Third-Party Collection AGM Annual General Meeting APM Alternative Performance Measures ARM Accounts Receivable Management B2B Business to Business B2C Business to Consumer BoD Board of Directors BS Consolidated Statement of Financial Position (Balance Sheet) CF Consolidated Statement of Cash Flows CGU Cash Generating Unit CM1 Contribution Margin D&A Depreciation and Amortization Dopex Direct operating expenses EBIT Operating proıt/Earnings before Interest and Tax EBITDA Earnings before Interest, Tax, Depreciation and Amortization ECL Expected Credit Loss EGM Extraordinary general meeting EPS Earnings Per Share ERC Estimated Remaining Collection ESG Environmental, social and governance ESOP Employee Stock Ownership Plan FSA The Financial Supervisory Authority FTE Full Time Equivalent GHG Greenhouse gas emissions IFRS International Financial Reporting Standards LTV Loan to value NCI Non-Controlling Interests NPL Non-Performing Loan OB Outstanding Balance, the total amount Axactor can collect on claims under management, including outstanding principal, interest and fees OCI Consolidated Statement of Other Comprehensive Income P&L Consolidated Statement of Proıt or Loss PCI Purchased Credit Impaired PPA Purchase Price Allocations REO Real Estate Owned ROE Return on Equity SDG Sustainable development goal 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 Abbreviations Annual report 2021 143 Financial calendar 2022 Annual General Meeting 21.04.2022 Quarterly Report - Q1 28.04.2022 Quarterly Report - Q2 18.08.2022 Quarterly Report - Q3 27.10.2022 Quarterly Report - Q4 17.02.2023 Contact details Axactor SE (publ) Drammensveien 167 0277 Oslo Norway www.axactor.com The shares of Axactor SE (publ.) are listed on Oslo Børs, ticker ACR. Cautionary Statement: Statements and assumptions made in this document with respect to Axactor SE’s (“Axactor”) current plans, estimates, strategies and beliefs, and other statements that are not historical facts, are forward-looking statements about the future performance of Axactor. Forward-looking statements include, but are not limited to, those using words such as “may”, “might”, “seeks”, “expects”, “anticipates”, “estimates”, “believes”, “projects”, “plans”, strategy”, “forecast” and similar expressions. These statements relect management’s expectations and assumptions in light of currently available information. They are subject to a number of risks and uncertainties, including, but not limited to, (i) changes in the economic, regulatory and political environments in the countries where Axactor operates; (ii) changes relating to the statistic information available in respect of the various debt collection projects undertaken; (iii) Axactor’s continued ability to secure enough ınancing to carry on its operations as a going concern; (iv) the success of its potential partners, ventures and alliances, if any; (v) currency exchange rate luctuations between euro and the currencies in other countries where Axactor or its subsidiaries operate. In the light of the risks and uncertainties involved in the debt collection business, the actual results could differ materially from those presented and forecast in this document. Axactor assumes no unconditional obligation to immediately update any such statements and/or forecasts. axactor.com Design and production: Artbox AS Norway549300P5VT8OMA17TJ332021-01-012021-12-31549300P5VT8OMA17TJ332020-01-012020-12-31549300P5VT8OMA17TJ332021-12-31549300P5VT8OMA17TJ332020-12-31549300P5VT8OMA17TJ332019-12-31ifrs-full:IssuedCapitalMember549300P5VT8OMA17TJ332019-12-31ifrs-full:AdditionalPaidinCapitalMember549300P5VT8OMA17TJ332019-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember549300P5VT8OMA17TJ332019-12-31ifrs-full:RetainedEarningsMember549300P5VT8OMA17TJ332019-12-31ifrs-full:EquityAttributableToOwnersOfParentMember549300P5VT8OMA17TJ332019-12-31ifrs-full:NoncontrollingInterestsMember549300P5VT8OMA17TJ332019-12-31549300P5VT8OMA17TJ332020-01-012020-12-31ifrs-full:IssuedCapitalMember549300P5VT8OMA17TJ332020-12-31ifrs-full:IssuedCapitalMember549300P5VT8OMA17TJ332020-01-012020-12-31ifrs-full:AdditionalPaidinCapitalMember549300P5VT8OMA17TJ332020-12-31ifrs-full:AdditionalPaidinCapitalMember549300P5VT8OMA17TJ332020-01-012020-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember549300P5VT8OMA17TJ332020-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember549300P5VT8OMA17TJ332020-12-31ifrs-full:MiscellaneousOtherReservesMember549300P5VT8OMA17TJ332020-01-012020-12-31ifrs-full:RetainedEarningsMember549300P5VT8OMA17TJ332020-12-31ifrs-full:RetainedEarningsMember549300P5VT8OMA17TJ332020-01-012020-12-31ifrs-full:EquityAttributableToOwnersOfParentMember549300P5VT8OMA17TJ332020-12-31ifrs-full:EquityAttributableToOwnersOfParentMember549300P5VT8OMA17TJ332020-01-012020-12-31ifrs-full:NoncontrollingInterestsMember549300P5VT8OMA17TJ332020-12-31ifrs-full:NoncontrollingInterestsMember549300P5VT8OMA17TJ332021-01-012021-12-31ifrs-full:IssuedCapitalMember549300P5VT8OMA17TJ332021-12-31ifrs-full:IssuedCapitalMember549300P5VT8OMA17TJ332021-01-012021-12-31ifrs-full:AdditionalPaidinCapitalMember549300P5VT8OMA17TJ332021-12-31ifrs-full:AdditionalPaidinCapitalMember549300P5VT8OMA17TJ332021-01-012021-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember549300P5VT8OMA17TJ332021-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember549300P5VT8OMA17TJ332021-01-012021-12-31ifrs-full:MiscellaneousOtherReservesMember549300P5VT8OMA17TJ332021-12-31ifrs-full:MiscellaneousOtherReservesMember549300P5VT8OMA17TJ332021-01-012021-12-31ifrs-full:RetainedEarningsMember549300P5VT8OMA17TJ332021-12-31ifrs-full:RetainedEarningsMember549300P5VT8OMA17TJ332021-01-012021-12-31ifrs-full:EquityAttributableToOwnersOfParentMember549300P5VT8OMA17TJ332021-12-31ifrs-full:EquityAttributableToOwnersOfParentMember549300P5VT8OMA17TJ332021-01-012021-12-31ifrs-full:NoncontrollingInterestsMember549300P5VT8OMA17TJ332021-12-31ifrs-full:NoncontrollingInterestsMemberiso4217:EURiso4217:EURxbrli:shares
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