Axactor : Q1 Report

Report

Q1 2022

Highlights

First quarter 2022

• · Axactor delivered profitable growth in the first quarter, with increased gross revenue and improving margins in both the NPL and the 3PC segment

• · Annualized return on equity excluding non-controlling interests ended at 7.0%, including discontinued operations. Excluding discontinued operations, the annualized return on equity ended at 7.6% (-0.3%)

• · NPL investments amounted to EUR 79.6 million, up from EUR 16.1 million in the corresponding quarter last year, continuing the positive trend of 2021. Adding estimated forward flow commitments of EUR 78.1 million for the remainder of 2022, NPL investments of EUR 157.7 million is already secured for the year

• · Total gross revenue ended at EUR 77.2 million, up 3% from the first quarter last year, while total income increased by 10% to EUR 56.2 million

• · Total operating expenses were reduced from EUR 31.4 million in the first quarter 2021 to EUR 29.2 million in the first quarter 2022. The decline is explained by cost savings and the EUR 3.2 million of restructuring cost recognized in the first quarter 2021, partially offset by increased volumes and a shift in business mix towards 3PC

• · EBITDA ended at EUR 27.0 million (19.7), resulting in an EBITDA margin of 48% (39%)

• · Cash EBITDA was EUR 48.1 million, up from EUR 43.6 million in the first quarter last year. Adding the discontinued REO segment, Cash EBITDA was EUR 53.4 million (52.1)

• · Net profit came in at EUR 7.2 million (-0.3). Adding the discontinued REO segment, net profit to shareholders was EUR 6.6 million (-1.4) and EUR -1.0 million to non-controlling interests (-2.0)

• · The acquisition of Credit Recovery Service was formally closed in January 2022 and is included in the consolidated financial statements. The acquisition will significantly strengthen Axactor's presence in the Italian 3PC market

• · Kristian Melhuus was elected chair of the Board in an extraordinary general meeting on 21 February 2022

Events after the period

• · Terje Mjøs, Kathrine Astrup Fredriksen, Brita Eilertsen and Lars-Erich Nilsen were re-elected as Board members for another term in the annual general meeting. The newly elected chair, Kristian Melhuus, will also continue in his role for the commencing term

• · The annual general meeting voted to convert Axactor SE from a Societas Europaea company to a Norwegian Allmennaksjeselskap (ASA). The process is expected to conclude during the second quarter 2022

The highlights section refers to Axactor's continuing operations, unless explicitly stated otherwise

Key Figures Axactor Group
EUR million	31 Mar 2022	31 Mar 2021 5)	Full year 2021 5)
Gross revenue	77.2	74.9	304.6
Total income	56.2	51.0	155.3
EBITDA	27.0	19.7	40.3
Net profit/(loss) after tax from continuing operations	7.2	(0.3)	(25.1)
Net profit/(loss) after tax from discontinued operations	(1.6)	(3.1)	(20.9)
Net profit/(loss) after tax	5.7	(3.4)	(46.0)
Return on equity, excluding non-controlling interests, annualized	7.0%	(1.6%)	(8.5%)
Return on equity, continuing operations, annualized	7.6%	(0.3%)	(6.5%)
Growth gross revenue, period to period	3.2%	10.7%	6.9%
Cash and cash equivalents, end of period 1)	39.5	47.1	38.2
Cash EBITDA from continuing operations 2)	48.1	43.6	189.8
Cash EBITDA 3)	53.4	52.1	223.8
Gross revenue from NPL portfolios	64.0	63.3	254.9
Acquired NPL portfolios during the period	79.6	16.1	114.0
Book value of NPL, end of period	1,160.4	1,123.6	1,095.8
Estimated remaining collection (ERC), NPL	2,258.7	2,158.8	2,140.5
Interest bearing debt, end of period 4)	888.1	865.9	838.3
Number of employees (FTEs), end of period	1,229	1,095	1,096
Price per share, last day of period	6.68	9.17	7.55

For the quarter end / YTD

• 1) Total cash and cash equivalents from continuing and discontinued operations, excluding restricted cash. See APM table

• 2) Cash EBITDA from continuing operations is EBITDA adjusted for change in forward flow derivatives, portfolio amortizations and revaluations and calculated cost of share option program. See APM table

• 3) Cash EBITDA is total EBITDA (continuing and discontinued operations) adjusted for change in forward flow derivatives, portfolio amortizations and revaluations, REO cost of sales and impairments, and calculated cost of share option program. See APM table

• 4) Interest bearing debt is total interest bearing debt allocated to continuing and discontinued operations. See APM table.

• 5) For some figures, comparative information has been re-presented due to a discontinued operation, see note 12.

Operations

Collections continued the positive trend from December 2021 into the new year, securing a solid topline for the first quarter 2022 with NPL gross revenue of EUR 64.0m and 3PC income of EUR 13.2m. The operational efficiency has been constantly improved over the last two years, leading to an historically low cost-to-collect ratio for the quarter. The combination of strong pipelines and successful sales within both NPL and 3PC will further improve the economies of scale and support operational efficiency going forward.

The integration of Credit Recovery Service (CRS) in Italy started immediately after the formal transaction was closed in January.

A post-merger integration team has been established with members from both CRS and the Italian country management team. The focus in the first quarter has been to integrate financial reporting, set the com-pany structure and governance, as well as feeding the CRS data into Axactor's enterprise data warehouse. The integration is on track, and CRS has delivered according to the business case in the first quarter.

The market activity for both 3PC and NPL business has been high so far in 2022. Axactor signed several significant 3PC contracts during the first quarter, and the pipeline remains strong. The positive impacts for the 3PC segment will be visible already in the spring and summer of 2022. The deployment of EUR 79.6m in NPL portfolios is important to support growth and realize increased economies of scale. The investments were done at an average gross IRR of 20.0%, significantly higher than the average for the current portfolio stack and thus supporting increased future profitability.

To become the industry benchmark, continuous improvement is necessary. During the quarter, a project with an external consultancy company was conducted to analyze the methodology and efficiency of portfolio pricing, operational excellence, and administrative cost levels. The report confirmed the positive traits of Axactor's organiza-tion and operations. Its conclusions were well-aligned with internal assessments and ambitions to work even more data driven, focusing on predictive modeling and utilization of machine learning technology.

Performance by business segment

for these claims. A positive development was observed through the quarter, and 5.9% of all active unsecured claims in the NPL segment had received at least one payment during March. Out of all payments in the quarter, 67% were related to monthly installment plans. The high portion of payments coming from installment plans stipulates a steady cash flow also going forward.

A new dedicated team of specialists have developed and integrated an updated collection strategy for the secured NPL claims. The team currently manages six portfolios in Spain, with a total of 986 assets in collateral. Although unsecured claims remain Axactor's core business, the Group will continue to explore the secured NPL segment in Spain.

3PC volumes are increasing steadily in the important Southern European markets, and the segment total income grew 14% in the first quarter 2022 compared to the corresponding quarter last year. The acquisition of CRS contributes to this improvement, as well as a very solid organic development in Spain. Axactor is consistently winning a majority of the benchmark competitions participated in, and as a result the volumes from existing customers are expected to increase further over the coming quarters.

Continued focus on self-service

The usage of self-service portals grew 60% in the first quarter 2022 compared to the first quarter 2021. The increase is partly attributed to the introduction of the debtor portal in Finland. The increased usage resulted in a 20% increase in the number of digital payments through the portals.

The total NPL collection performance ended at 100% for the quarter. Collections were in line with the revised curves put in place during the fourth quarter 2021, and Axactor expects collection performance to continue to fluctuate around 100% going forward.

Axactor currently has approximately 1.2 million active unsecured NPL claims, and a key operational goal is to improve the payment ratio

The main use of the debtor portal can be attributed to the Nordic countries, while debtors in Spain and Italy make use of the QuickPay! functionality where no log-in is required. Further development of digital payment solutions and self-service functionality remains a key focus area for Axactor also going forward, providing easy access for debtors in a cost-efficient manner.

Phishing attack mitigated

In January the organization was the victim of a phishing attempt related to the Office365 platform, where the attackers managed to exploit the human factor to gain access to an email account. Through solid cyber security routines, and close cooperation between internal IT resources and the external infrastructure provider, the phishing attempt was promptly mitigated. No data was lost or shared with the attackers, and no consequences were identified. The incident was routinely reported to the Norwegian Financial Supervisory Authority on behalf of the Norwegian organization and to the Norwegian Data Protection Authority on a group level. Both cases were closed without any further follow-up from the authorities.

The incident was educating for the organization, proving that continuous focus on awareness, business continuity and information security are key success factors to mitigate the adverse consequences of such events. It is safe to say that Axactor's investments in these areas were of paramount importance to limiting the consequences of the attack. Despite the limited consequences, improvements to the cyber security defense have been implemented as a response to the lessons learned.

Advanced analytics ramp-up

performance may be found in the updated sustainability and corporate governance reports, published together with the 2021 annual report. The updated report show significant improvements in all areas through 2021. The 2021 reports are available atwww.axactor.com.

Continued focus has been attributed to vendor management during the quarter, with new procedures for purchasing and vendor management under development. The new procedures are put in place to ensure that Axactor's vendors foster sustainable and responsible corporate behavior. They also allow for good cost control, which in turn improves value creation for investors and shareholders.

The internal auditor has investigated the payment processes in Norway and Finland, and the physical security in Norway, as well as followed up on the closure of previously identified deviations. Several customer audits have also been performed across the group. No significant deviations were discovered. Despite the fact that internal and external audits show that Axactor has an effective internal control system in place and continues to deliver high quality services to its customers, the company is constantly looking for areas in which to improve. Anti-money laundering (AML) has been a focus area during the first quarter and several improvements have been made, e.g. improved automation of transaction monitoring processes, regular review of the AML risk assessments, and updated know-your-customer (KYC) evaluations.

The advanced analytics ramp-up progresses according to plan, and the team was expanded during the first quarter to support the ambitions in the area. The advanced analytics team assists all countries with machine learning initiatives. The aim is to further benefit from the successful models delivered to the operational units during the past two years through a higher level of automation. This will allow Axactor to improve collection strategies, resulting in increased efficiency in the collection processes. The goal is to escalate both the ambition level and number of resources within the advanced analytics team further throughout 2022.

Sustainability and governance

Strong ethical values promoting fair treatment of its stakeholders, to protect reputation and company values, are essential to the compa-ny's success. These are principles upon which Axactor was founded. Axactor aims to contribute to building a viable financial system for people and the society, through own contributions and by engaging actively with its stakeholders. The increased focus on sustainable growth enables Axactor to not only achieve this, but also to take these advancements and translate them into a competitive advantage. Further details on Axactor's corporate governance and sustainability

Compliance awareness e-learning trainings within data privacy and information security have been reviewed and prepared for distribution throughout 2022.

Building a strong corporate culture

By the end of the first quarter, all Axactor employees were back in the office full-time after the Covid-19 pandemic.

An updated short-term incentive model was implemented during the first quarter, and targets for 2022 have been set for all employees. Among the incentive targets, all managers have been given specific targets focusing on topics related to environmental, social and governance related topics. Appraisal talks with focus on employee satisfaction, development, and performance management have been conducted for all employees.

Axactor focuses on building a strong corporate culture. Key areas of attention have been performance management, career planning, leadership development, and fostering a positive and social work environment. Axactor will continue to invest heavily in its employees going forward.