Axactor : Q2 Report

Report

Q2 2022

2 Axactor Group

Highlights 1)

Second quarter 2022

• Continued income growth and margin expansion in the second quarter, with gross revenue growth for both core segments
• Annualized return on equity excluding non-controlling interests, including discontinued operations increased to 11.2% (6.9%). The annualized return on equity for continuing operations ended at 12.6% (8.4%)
• NPL investments amounted to EUR 46.8 million, up from EUR 12.3 million in the second quarter last year. Additionally, estimated forward flow commitments of EUR 57.1 million is secured for the second half of 2022
• Total gross revenue ended at EUR 87.2 million, up 5% from the second quarter last year (82.8), while total income increased by 13% to EUR 60.4 million (53.5)
• Total operating expenses ended at EUR 30.4 million for the quarter, up from EUR 28.4 million in the second quarter last year. Adjusting for EUR 0.9 million of restructuring cost in the second quarter 2021, opex over gross revenue increased from 33% to 35%. The increase is primarily driven by increased spending on legal collection, as well as a higher share of 3PC in 2022
• EBITDA reached EUR 30.0 million (25.1), resulting in an EBITDA margin of 50% (47%)
• Cash EBITDA was EUR 57.5 million, up from EUR 54.7 million in the second quarter last year. Adding contribution from the discontinued REO operations, Cash EBITDA was EUR 60.5 million (65.7)
• Net profit came in at EUR 12.5 million (9.0). Including the discontinued operations, the net profit to shareholders was EUR 11.1 million (7.2) and EUR -0.4 million to non-controlling interests (-2.8)
• Repurchase of bond loans at sub-par value resulted in a positive one-time impact on financial expenses of EUR 1.4 million
• Full network segmentation has been implemented across the Group's IT infrastructure, significantly enhancing IT security
• 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. Kristian Melhuus, will continue in his role as Chair of the Board
• Axactor ASA (formerly Axactor SE) was converted from a Societas Europaea company to a Norwegian Allmennaksjeselskap

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

Second quarter report 2022

3

First half 2022

• Gross revenue for the first half ended at EUR 165.6 million (158.6), while total income ended at EUR 117.8 million (105.4)
• EBITDA increased from EUR 45.1 million in the first half 2021 to EUR 57.7 million. The resulting EBITDA margin was thus 49% (43%).
• Net profit from continuing operations for the first half was EUR 20.1 million (8.9). Including the discontinued operations, the net profit to shareholders was EUR 17.7 million (5.7), while net profit to non-controlling interests was EUR -1.4 million (-4.7)
• NPL investments for the period amounted to EUR 126.5 million, up from EUR 28.4 million in the same period last year. This is significantly more than the replacement capex and adding committed estimated forward flow volume for the second half, EUR 183.5 million of NPL investments is secured for 2022
• The acquisition of Credit Recovery Service announced in 2021 was formally closed in January 2022 and is included in the consolidated financial statements. The acquisition significantly strengthens Axactor's presence in the Italian 3PC market

Events after the period

• Axactor has continued the repurchase of outstanding bonds to reduce the cost of funding in the third quarter. Up until the publishing of this report, a total of EUR 2.4 million of nominal outstanding amount has been repurchased in the third quarter.

4 Axactor Group

Key Figures Axactor Group

	For the quarter end		Year to date
EUR million	30 Jun 2022	30 Jun 2021 1)		30 Jun 2022	30 Jun 2021 1)	Full year 2021 1)
Gross revenue	87.2	82.8	165.6	158.6	307.6
Total income	60.4	53.5	117.8	105.4	158.3
EBITDA	30.0	25.1	57.7	45.1	40.5
Net profit/(loss) after tax from continuing operations	12.5	9.0	20.1	8.9	(25.4)
Net profit/(loss) after tax from discontinued operations	(1.8)	(4.6)	(3.8)	(7.9)	(20.6)
Net profit/(loss) after tax	10.6	4.4	16.3	1.0	(46.0)
Return on equity, excluding non-controlling interests, annualized	11.2%	6.9%	9.2%	3.1%	(8.5%)
Return on equity, continuing operations, annualized	12.6%	8.4%	10.4%	4.4%	(6.2%)
Growth gross revenue, period to period	5.2%	27.8%	4.5%	19.2%	8.0%
Cash and cash equivalents, end of period 2)	32.1	42.1	32.1	42.1	38.2
Cash EBITDA from continuing operations 3)	57.5	54.7	106.7	99.0	192.1
Cash EBITDA 4)	60.5	65.7	114.0	117.8	223.8
Gross revenue from NPL portfolios	72.6	69.9	137.8	134.1	258.0
Acquired NPL portfolios during the period	46.8	12.3	126.5	28.4	114.0
Book value of NPL portfolios, end of period	1,154.5	1,104.1	1,154.5	1,104.1	1,095.8
Estimated remaining collection (ERC), NPL	2,278.8	2,119.3	2,278.8	2,119.3	2,140.5
Interest bearing debt, end of period 5)	872.3	831.4	872.3	831.4	838.3
Number of employees (FTEs), end of period	1,221	1,062	1,221	1,062	1,096
Price per share, last day of period	5.94	10.35	5.94	10.35	7.55

1. For some figures, comparative information has been re-presented due to a discontinued operation, see note 12
2. Total cash and cash equivalents from continuing and discontinued operations, excluding restricted cash. See APM table
3. Cash EBITDA from continuing operations is EBITDA adjusted for change in fair value of forward flow commitments, portfolio amortizations and revaluations, repossessed assets cost of sale and impairment, and calculated cost of share option program. See APM table
4. Cash EBITDA is total EBITDA (continuing and discontinued operations) adjusted for change in fair value of forward flow commitments, portfolio amortizations and revaluations, REO and repossessed cost of sales and impairments, and calculated cost of share option program. See APM table
5. Interest bearing debt is total interest bearing debt allocated to continuing and discontinued operations. See APM table.

Second quarter report 2022

5

Operations

Axactor's operations had a hectic quarter with seasonal campaigns related to tax refunds and the upcoming vacation period. Additionally, the uptick in NPL investments over the past six months have increased the volumes to be handled within both amicable collection and legal collection. With an NPL collection performance including the sale of repossessed assets of 99%, the NPL gross revenue grew to EUR 72.6 million for the quarter. The 3PC segment had a solid quarter as well, with 3PC total income of EUR 14.6 million. Italy and Spain were the main contributors to the 3PC growth, with good volume development from both existing and new customers.

The NPL segment had an increase of 15.6 thousand cases compared to the end of the first quarter with estimated remaining collections at the end of first half of EUR 2,279 million. The amount of claims with a registered payment during the quarter increased to 6.3% of all active claims, an all-time high for the Group. Axactor continuously work to increase the number of payment plans to build a predictable and stable cash flow, and to support debtors in gaining better control over their finances.

The effects of the Covid-19 pandemic seem to wear off, while new challenges arise. All of Axactor's markets are facing rising inflation and reduced purchasing power for consumers. So far, the impacts on collection have been limited across the Group, although to some extent visible in the German market. The NPL portfolio performance of 99% underlines this observation.

The two main operational cost elements for Axactor are personnel expenses and fees related to legal collection. Legal cost increased in the quarter due to the new inflow of cases, giving a short-term negative effect on the cost-to-collect. The legal fees are typically paid in advance when the legal collection process is initiated, while the corresponding collection takes time to materialize.

The 3PC segment saw the positive trend continue and the cash collected on behalf of customers was above expectations. The higher collection triggered the payout of performance bonuses and higher commission. Total income ended at EUR 14.6 million, a 13% increase from the corresponding quarter last year, and a 51% increase from the corresponding quarter in 2021.

The integration of Credit Recovery Service (CRS), the Italian credit service provider acquired in January, is progressing according to plan. All 3PC volumes in Italy will be handled by CRS, with most customers already transferred. CRS continues to deliver performance above business case and Axactor expect the Italian 3PC business to deliver double-digit organic growth in 2022 compared to 2021.

The cost saving initiatives implemented during 2021 are visible in the 3PC numbers for the second quarter. Contribution margin over total income was 41%, up from 35% adjusted for restructuring cost in the second quarter of 2021.

Enhancing business intelligence and advanced analytics

Axactor continues to have high attention on developing and improving its advanced analytics capabilities. The centralized data scientist team in Madrid was increased during the quarter, with further recruitment activities ongoing to strengthen the team. The team continues to utilize big data and machine learning to improve internal collection processes and develop models for valuation and revaluation of NPL portfolios.

A successful process mining pilot was executed in Germany during the first half year. The pilot identified both potential cost savings and increased revenue potential through more efficient processes. The tools and the analytical approach will subsequently be implemented for other business segments, as well as expanded to the Nordic countries through best practice sharing within the Axactor business intelligence network.

Expanding the self-service functionality

As of the second quarter, all countries have fully digital payment solutions included in the Axactor debtor portal. Furthermore, the secure chat solution was successfully implemented for Norway with positive feedback from the initial users. The work to improve the debtor portal will continue going forward, enabling new communication channels to reach debtors, making it easier for debtors to access their details and make payments, and at the same time improving Axactor's cost efficiency. The debtor portal saw a continued increase in usage during the second quarter and further increases are expected as new or improved functionalities are developed.