Axactor is one of the leading debt management providers in its geographical markets, operating an efficient, scalable platform for debt collection on own and third-party portfolios as well as accounts receivables management services. Headquartered in Oslo, Norway, the company currently operates in six countries; Spain, Norway, Italy, Germany, Sweden and Finland.
Axactor started out in Spain, and quickly reached its goal of becoming a top-3 player in the Spanish debt collection market. The second strategic goal was to broaden the geographical scope to other established growth markets, and Axactor has gradually built a more balanced geographical footprint in terms of both revenues and capital invested.
Gross Revenue per country
Estimated Remaining Collection (ERC)
The main growth driver for the debt management market has been the high and growing credit-based spending among consumers and small businesses, which has come at a time when European financial institutions have been facing increasingly stricter capital requirements. Many lenders have therefore been required to offload risk volumes from their balance sheets to comply with legal and commercial regulations and expectations.
These market dynamics and Axactor’s business strategy have generated a steady flow of attractive business opportunities, and the company has in just four years of operations built a portfolio of non-performing loans with an estimated remaining collection of more than EUR 2 billion.
Axactor firmly believes that efficient in-house collection offers a clear competitive advantage over portfolio acquirers basing their investment cases on outsourcing of the collection process. Axactor’s third-party collection services further enhances the positive effects of this approach, offering synergies with the portfolio acquisition activities in terms of business origination, collection execution and data generation.
Axactor also owns a real estate portfolio in Spain, which was acquired prior to 2019 and no longer is considered core business for Axactor. These assets are expected to be realized over the next few years.
Axactor is built around three crucial enablers – People, Systems and Funding- and has established a skilled, scalable, lean and efficient organization that is well positioned to continue the company’s growth journey going forward.
Axactor was founded by industry professionals with long experience and strong track records, and the management team has from the outset sought to establish a flexible and sustainable operation through a combination of centralized core functions and strong
Axactor has implemented modern core collection systems that are adapted to handle the different legal frameworks in each of the individual markets. These core collection systems are supported by outsourced, standardized modules for client and debtor interface, data analysis, and infrastructure and group functions such as finance/HR and CRM.
Axactor continues to push the standardization process further through the ‘One Axactor’ program. By the end of 2019, the company had launched a standard debtor portal alongside updated websites under the Axactor brand. Standard dialer software has been implemented in all markets, enabling a centralized traffic control team in Spain to serve all six countries. A common data warehouse was also put in place during the year, offering significantly improved business intelligence capabilities built on standardized KPIs across the markets.
The standardization of systems and processes offers scalability and improved business capabilities at a lower cost. One example of the operational leverage is that Axactor’s IT and overhead costs have been steadily declining as a percentage of revenue. Increasing scale and continued cost efficiency programs are set to improve the cost
Another example of the scalability is that the company handles sharply increasing volumes per employee. The number of FTEs increased to 1,152 at the end of 2019 from 1,040 at the end of 2018. The growth of 11% compares to a revenue growth of 54% in 2019.
The last cornerstone of Axactor’s strategy has been to secure sufficient funding to support the growth ambition. Over the past years the company has established flexible financing agreements with major banks, issued a bond loan, and established a partnership with a major co-investor in Geveran Trading.
Overall, Axactor invested close to EUR 400 million in new NPL portfolios in 2019. This was funded by cash flow from operations and a funding increase of EUR 310 million in the form of additional bank and bond debt, and externally provided new equity and loans in Axactor Invest 1 which is jointly owned with Geveran Trading.
To fund further growth, the company in February 2020 raised
approximately EUR 50 million in gross proceeds through a private placement of 30 million shares at a subscription price of NOK 17.25 per share.
This will enable new portfolio investments of EUR 350-400 million also in 2020.
Axactor divides its operations into three business segments:
Non-performing loans (NPL), third-party collection (3PC), and real estate owned (REO).
Non-performing loans (NPL)
The NPL segment has been built through acquisitions of Non-performing loans for collection on the company’s own collection platform. The collection performance on own NPL portfolios was 98% of the active collection forecasts for the portfolios.
Total portfolio investment in NPLs amounted to EUR 398 million in 2019, down from EUR 462 million in 2018.
The book value of the NPL portfolios was EUR 1,042 million at the end of the year, up from EUR 729 million at the end of 2018.
The estimated remaining collection (ERC) for the NPL portfolios was EUR 2,038 million at the end of 2019, which was an increase of 47% from EUR 1,388 million at the end of 2018. Per the end of 2019, the
ERC for the coming 12 months was estimated at EUR 258 million.
An increasing part of the NPL investments come in the form of forward flow agreements, in which Axactor enter into agreements with financial institutions to acquire the loans upon default.
ERC development NPL
In 2019, the company invested EUR 286 million in NPL acquisitions under such forward flow agreements, primarily in Nordic major consumer banks. This has created a more balanced geographical footprint.
At the end of the year, Axactor had entered into forward flow agreements with an estimated capital requirement level of EUR 178 million for 2020, which was not included in the book values or ERC level per the end of 2019.
A significant portion of total 2019 investments were done through Axactor Invest 1, an SPV which is jointly owned with Axactor’s largest shareholder Geveran Trading. The SPV was set up in 2017 with a total spending capacity of EUR 300 million. This was increased to EUR 350 million in 2019, when Axactor and Geveran injected an additional EUR 15m each in equity like Notes (A-Notes) and Geveran increased the mezzanine loan (B-Notes) by EUR 20m to EUR 140m. Taking into account the running forward flow agreements entered into by Axactor Invest 1, the vehicle was fully invested by year-end 2019. Running cashflow will be reinvested in the signed forward flow agreements. All investments in the SPV are being serviced by Axactor’s operating platforms, generating significant scale and skill benefits to the good of all shareholders.
Third-party collection (3PC)
The 3PC segment performs debt collection services on behalf of clients that typically pay a fixed price or a commission on the collected amount. The customer base primarily consists of leading financial institutions. The market position is particularly strong in Spain, where the company has established customer relationships with all of the top-12 banks, as well as with leading insurance companies and real estate firms. The position is also strengthening across Axactor’s other geographical markets.
3PC generates capital-light, stable and cash-rich earnings for reinvestment, as well as strong customer relationships that are key to access attractive portfolio on a bilateral basis.
Axactor has bought a number of NPL portfolios as carve-outs from larger portfolios under existing 3PC-agreements, and also established forward flow agreements with the basis in existing 3PC contracts. A key focus area going forward will be combined 3PC and forward flow deals, where Axactor initially performs 3PC services prior to acquiring the claims under a forward flow agreement.
The size and scope of the third-party debt collection business (3PC) continued to develop positively in 2019, with the company signing several new 3PC contracts with both existing and new clients. During the year, the company also subordinated the account receivable management (ARM) services under the 3PC segment.
Real estate owned (REO)
The REO segment comprises real estate assets bought from Spanish financial institutions at a discount to estimated sales values. These assets were originally taken in by banks as mortgage collateral after loan defaults, and Axactor saw an opportunistic business opportunity in taking over asset portfolios for resale through a network of local real estate brokerage houses.
The company did not acquire any new REO portfolios in 2019, and REO is not considered part of Axactor’s core business going forward.
Sales volumes remained good throughout the year, although somewhat short of original expectations. A total of 2,337 assets were sold during 2019, with 4,024 assets left in stock at the end of the year. The book value of the remaining assets was EUR 129 million. ERC for the REO portfolio was EUR 151 million, of which EUR 75 million is expected to be realized in 2020.
ERC development REO
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 conduct of business.
Axactor commits to comply with all applicable laws and regulations in all business activities. The company shall 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, the company will maintain an open and ongoing dialogue on these issues, internally and externally.
The Board of Director and the Executive management of Axactor are committed to Environmental, Social and Governmental responsibility (ESG), and to the company’s values, policies and guidelines for a sound corporate culture.
Please see page 24 in this annual report for a detailed description of Corporate Social Responsibility (CSR) activities, including the company’s reviews of working environment, gender equality and external environment. The company Corporate Responsibility policy, Environmental policy and Code of Conduct are available on the company’s website.
(Numbers in brackets refer to the corresponding figure in the previous year)
Gross revenue by segment
Gross revenue increased by 54% to EUR 368.1 million in 2019 (238.8), reflecting growth in all business segments. Debt collection on own portfolios (NPL) was the main growth driver, supported by the investments over the past couple of years.
Net revenue amounted to EUR 285.2 million (206.9), after deduction of EUR 82.9 million in portfolio amortization and revaluations (31.9).
Gross revenue from NPL collection increased by 86% to EUR 217.1 million in 2019 (117.0), corresponding to 59% of total gross revenues (49%). The increase is mainly explained by portfolio investments.
Collection performance remained healthy, with actual collection over the past 12 months at 98% of the active portfolio forecast.
Estimated remaining collection (ERC) on the NPL portfolios stood at EUR 2,038.4 million at the end of 2019 (1,388.2), of which EUR 258 million is expected to be collected in 2020.
The entry into forward flow agreements will further increase the size of the NPL portfolio and collection revenue going forward. Per the end of the year, the estimated capital expenditure commitment for signed forward flow agreements was EUR 178 million for 2020. Renewals of contracts expiring during the year is likely to increase the investment level further. The total investment level for 2020 is estimated to EUR 350-400 million, with the main focus on unsecured NPL acquisitions.
The Third-party collection (3PC) business reported gross revenue of EUR 57.7 million in 2019 (52.0), corresponding to 16% of total gross revenue in 2019. Revenue growth was hence 11%, which reflected both new contracts with existing clients and new customers.
The 3PC-business offers Axactor synergies in terms of business origination, collection execution and data generation, and generates capital light and cash rich earnings for reinvestments.
Spain still accounts for the bulk of 3PC revenues, reflecting a well-established position with all the top-12 Spanish banks and several leading insurers and real estate companies on the client list.
Going forward, 3PC is well positioned to grow on cross-border deals in the bank/finance sector in the Nordic region. The company in early 2020 renewed and expanded several existing forward flow contracts to include 3PC for a period prior to acquisition. Such combined 3PC and forward flow agreements lower the capital intensity of Axactor’s business while remaining an attractive way for clients to offload their balance sheets. Axactor expect combined 3PC and forward flow contracts to be a key growth area going forward, in particular in the Nordic markets.
Gross revenue from REO portfolios amounted to EUR 91.2 million (69.8), corresponding to 25% of total gross revenues (29%).
Axactor increased the discounting to support volumes towards the end of 2019 and expects to continue this practice to maintain a high sales volume from a rapidly declining asset inventory also in 2020.
The company has lowered the ERC somewhat to reflect the higher discounting level and ended 2019 with a REO ERC of EUR 150.9 million (274.5). EUR 74.7 million of this is expected to be realized in 2020.
Although the numbers from the REO segment are consolidated into Axactor’s financial statements on a 100%-basis, it should be Noted that Axactor’s exposure to the REO segment is approximately 40% due to minority interests in the Reolux holding entity and two asset-owning subsidiaries of Reolux.
Operating expenses amounted to EUR 193.0 million (160.6), excluding depreciation and amortization.
This included REO cost of sales of EUR 74.1 million (54.5), representing reversal of the book value of sold assets, and REO impairments of EUR 0.4 million (1.9).
Personnel costs accounted for EUR 57.7 million (52.1). Measured as a percentage of net revenue, personnel expenses declined from 25% to 20%, which underlines the scalability of the business model.
Other expenses amounted to EUR 60.8 million (52.0), including IT/infrastructure costs, legal fees, and REO servicing costs. As a percentage of revenue, these other expenses declined from 25% to 21%.
Contribution by segment
The total contribution margin amounted to EUR 133.4 million in 2019 (83.4). The contribution margin reflects the segments’ contribution to EBITDA before local SG&A, IT and corporate cost. Please see Note 5.
The contribution margin from the NPL segment was EUR 101.9 million in 2019 (62.0), reflecting both higher volumes and sound collection performance. The NPL contribution margin increased to 76% of net revenue (73%).
The contribution margin from 3PC was EUR 22.4 million (16.6), corresponding to 39% of net revenue (32%).
The contribution margin from REO was EUR 7.1 million (4.8), after cost of secured assets sold of EUR 74.1 million (54.5) and including a negative effect of EUR 0.4 million (1.9) from revaluation of assets in accordance with the IFRS lowest value principle. The contribution margin was hence 8% (7%).
Local SG&A, IT and corporate cost amounted to EUR 41.3 million in 2019 (37.1), mainly reflecting the increased size of operations. Measured as percentage of Group net revenue, these costs declined to 14% in 2019 from 18% in 2018.
EBITDA almost doubled to EUR 92.1 million from EUR 46.3 million in 2018. The EBITDA margin thus increased to 32% from 22% the year before, showing the scale benefits of higher volumes, a better geographical mix, and the positive effect of an efficient business model with high operational leverage.
Cash EBITDA reached EUR 250.8 million in 2019, an increase of 84% from EUR 136.0 in 2018. Further details on reported alternative performance measures are available on page 20.
EBITDA and EBITDA margin
EUR million and %
Operating profit (EBIT)
Depreciation and amortization – excluding amortization of NPL portfolios – was EUR 10.1 million in 2019 (6.0). The increase is mainly explained by amortization of leasing contracts under IFRS 16, whereunder leasing costs are amortized over the lifetime of the contracts.
Operating profit (EBIT) was hence EUR 82.0 million (40.3).
Net financial items
Net financial items were a negative EUR 49.4 million in 2019 (34.1), comprising financial revenue of EUR 2.8 million (0.5) and financial expenses of EUR 52.2 million (34.6).
Interest expenses on borrowings accounted for EUR 51.3 million (29.7).
Net gain from foreign exchange were EUR 2.0 million (0.4). Other financial expenses amounted to EUR 2.3 million (2.0).
Net financials were positively affected by a reversal of EUR 2.1 million in distribution of interest on Notes that were classified as debt instruments in 2018.
Profits and tax
Profit before tax was EUR 32.6 million in 2019 (6.2), and net profit EUR 21.0 million (2.4).
Tax expense was EUR 11.7 million in 2019, compared to EUR 3.8 million in 2018, with the high effective tax rate reflecting that certain loss-making entities are not yet allowed to recognize tax losses carried forward. The tax rate has come down significantly compared to the previous year and is expected to continue to normalize over time.
Net profit to equity holders was EUR 16.3 million (4.5), whereas the net profit to non-controlling interests was EUR 4.6 (-2.1). Note that the total compensation of non-controlling interests in 2018 included interest on Notes charged to financial expenses.
Total comprehensive income was EUR 19.1 million for 2019 (-0.4), with the deviation from reported net profit mainly explained by foreign currency translation differences from foreign operations. EUR 14.4 million of this was attributable to equity holders of the parent company (1.7) and EUR 4.6 million to non-controlling interests (-2.1).
Earnings per share totaled EUR 0.106 (0.029) on an ordinary basis and EUR 0.093 on a fully diluted basis (0.026).
Total assets amounted to EUR 1,371.6 million at the end of 2019 (1,107.9), of which book value of purchased NPL portfolios accounted for EUR 1,041.9 million (728.8).
Total non-current assets amounted to EUR 1,139.0 million (814.9), including intangible assets of EUR 87.4 million (82.3). This reflects intangible assets and goodwill acquired since inception, as well as deferred tax assets of EUR 9.7 million (7.6). Note that certain loss-making entities are not yet allowed to recognize tax assets.
Current assets amounted to EUR 232.5 million (293.0), including stock of REO assets of EUR 129.0 million (200.0) and cash and cash equivalents of EUR 75.4 million (70.8).
Total interest-bearing debt stood at EUR 929.9 million at the end of 2019 (737.1), and net interest-bearing debt at EUR 854.5 million at the end of 2019 (666.3).
Total equity amounted to EUR 377.6 million (328.2), including non-controlling interests of EUR 97.0 million (63.7). The equity ratio hence declined to 28% from 30% at the end of 2018. The company expects to maintain a long-term equity level around 30%.
Net cash flow from operating activities amounted to EUR 242.1 million in 2019 (136.3), with the increase primarily explained by higher collection on NPL portfolios and sale of REO assets.
Net cash outflow from investing activities was EUR 411.2 million (563.7), of which EUR 401.6 million was purchase of debt portfolios (456.3). Investments in REOs amounted to EUR 0.7 million (99.3), all related to assets in inventory.
Investments in subsidiaries amounted to EUR 0.3 million (1.1). No platform acquisitions were closed during 2019, whereas the company in 2018 acquired SPT Group Ltd. in Finland. Other investments in intangible and tangible assets amounted to EUR 9.6 million (7.0), mainly reflecting IT and infrastructure investments.
Net cash flow from financing activities was EUR 173.7 million in 2019 (447.8). Net proceeds from borrowings were EUR 223.9 million after debt repayments (443.9), whereas proceeds from equity issues were EUR 0.5 million (4.4).
Proceeds from non-controlling interests were a negative EUR 1.4 million, compared to a positive EUR 34.1 million in 2018.
Interest payments, loan fees and costs related to share issues represented a cash outflow of EUR 49.3 million in 2019 (34.5).
The increased leveraging of the company has been in alignment with the growth strategy and has required access to competitive financing solutions.
To this effect the company in 2017 negotiated a revolving credit facility (RCF) with DnB and Nordea for a total EUR 350 million. EUR 150 million of the RCF was in the form of accordion options, of which EUR 100 million was released in February 2019 and EUR 50m in June. The RCF facility was increased in by EUR 150 million in October 2019, through the grant of two accordion options of EUR 75 million each. One of the accordion options had been released by the end of 2019.
The establishment of a co-investment partnership with Geveran Trading in Axactor Invest 1 in 2017 increased total investment capabilities by EUR 300 million. The underlying financing through a EUR 120 million debt facility and a EUR 120 million B Notes loan mature in November 2021 and November 2022, respectively. During 2019, Axactor and Geveran each injected an additional EUR 15m in A-Notes, and Geveran at the same time increased the loan through B-Notes by EUR 20 million. This effectively increased the total investment capabilities of Axactor Invest I by EUR 50m to EUR 350m.
Axactor has one outstanding bond loan of EUR 200 million, maturing in June 2021. EUR 50 million of the bond was tapped in March 2019. One bond tap option of EUR 50m remains intact.
The REO assets are partly funded by a loan agreement with Nomura Intl., entered into through Reolux Holding in 2018. The outstanding balance was EUR 53 million per the end of 2019, and the agreement matures in August 2022.
In February 2020, the company raised new equity through a private placement of 30 million shares at a subscription price of NOK 17.25 per share. The gross proceeds were NOK 517.5 million (EUR 51 million).
Axactor uses cash EBITDA as an alternative performance measure to better reflect its operational business performance and to enhance comparability between financial periods. This alternative performance measure is reported in addition to but not as a substitute for the performance measures reported in accordance to IFRS.
Adjustment items include the main non-cash items in the EBITDA and can be reconciled as follows:
|REO cost of sale||74,464|
|Share option cost||1,256|
The parent company, Axactor SE, had a net result after tax of EUR -3,135 million in 2019, compared to EUR 0.4 million in 2018.
The result available for disposal of the Annual General Meeting is as follows:
|Distribution to share premium||-3,135|
The governance structure for 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.
Axactor’s 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 (NUES), last revised on 17 October 2018. Axactor is fully compliant with no deviations. Please see page 28-34 in this annual report for a detailed description of the corporate governance principles and reporting for 2019.
Axactor’s regular business activities entail exposure to various types of risk, including risk related to economic growth and employment levels in Axactor’s markets. The company also operates in a highly regulated industry environment, with enhanced focus from authorities and stricter regulations and reporting requirements for areas such as consumer rights, good debt collection practices, anti-money laundering (AML), market abuse (MAR), and general data protection regulation (GDPR).
The company in all materiality complies with relevant rules and regulations for debt management providers in all its geographical markets.
The company is also subject to regulatory changes in individual markets, such as proposed stricter debt collection regulations in Norway and Germany. The company will adhere to new rules and believe the above-mentioned regulatory changes will have only a limited financial impact.
Axactor also faces operational risks, mainly related to IT stability and application availability, as well as information security. The company seeks to mitigate these risks through partnerships with certified hardware and software /application providers.
These and other risk factors are covered in detail in Note 3 of the Groups financial statement.
The Board has adopted a risk management policy, and annually carries out a bottom-up and top-down risk assessment covering the entire risk specter. Head of Group Legal and Compliance has the operational responsibility for risk management. The countries provide status updates of the internal control, most important risks and mitigation measures to the Executive management on a monthly basis. Head of Group Legal and Compliance report monthly to the Executive management and quarterly to the audit committee.
Axactor’s financing and financial risks are managed within the Group in accordance with the Financial policy and Treasury policy established by the Board of Directors. Internal and external financial operations are concentrated to the Group’s central finance function.
Axactor’s exposure to market risks relating to interest rates, currency developments, credit, liquidity, and financing are also covered in detail in Note 3 to the Group’s financial statement. The main risks related to interest rates, liquidity and financing can be summarized as follows:
The interest rate risk relates to the variable rates on Group’s interest-bearing debt, which amounted to EUR 929.9 million per the end of 2019 (737.1). An annualized increase/decrease of 100 basis points would increase/decrease profit before tax by EUR 9.3 million (7.2). The average effective interest rate for 2019 was 5.8% (6.1%).
With regards to liquidity, the Group’s objective is to maintain a balance of financial assets that reflects the cash requirements of its operations and investments for the next 12-24 months.
The Group generates positive cash flow from operating activities, and per the end of 2019 the Group held cash and cash equivalents of EUR 71.7 million excluding restricted cash (67.6). The liquidity is managed on the Group level.
Axactor plans for an investment level of EUR 350-400 million for 2020. This is dependent on an extension or refinancing of a EUR 500 million Revolving Credit Facility (RCF) which matures in December 2020.
In January 2020, the company strengthened its equity ratio and cash position through a private placement that generated gross proceeds of approximately EUR 51 million.
Given the current financial position and cash flow projections, and the investment outlook and financing opportunities, the Board of Directors believes refinancing can be achieved at improved terms and considers the liquidity risk to be manageable.
Based on the review of Axactor SE’s financial statement, the Board of Directors confirms that the annual financial statements for 2019 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.
Axactor will continue to develop its position as a leading European debt management company in the years to come.
Axactor reported gross revenue growth of 54% in 2019, on the back of investments made through 2018 and 2019. The EBITDA-margin increased from 22% to 32% and EBITDA almost doubled in 2019, in reflection of sound collection performance, scale benefits, and the leverage effects of a lean and efficient business model.
The company will continue to sharpen its competitive edge through further standardization on the common ‘One Axactor’ platform.
Axactor sees increasingly attractive acquisition opportunities in its main markets, with lower prices and improved IRRs both for one-off portfolio investments and forward flow agreements. At the same time, Axactor monitors the current macroeconomic development including the effects from the Covid-19 virus. If the current situation develops into even more challenging financial markets and real economy conditions, the supply and prices of NPL portfolios may be positively affected, while access to capital and collection will be negatively affected.
Current funding and cash flow projections allow for an NPL investment level of approximately EUR 350-400 million in 2020, with the expected positive effects of improved IRR levels to be blended in over time.
Axactor will continue to seek growth opportunities for its capital light 3PC business, where the company has a strong position in the Spanish market and see a growth potential in combined 3PC and forward flow agreements in the financial sector in the Nordic region.
Axactor does not plan to deploy additional capital into the REO market in 2020, and the exposure to the area will diminish as the remaining stock is being sold off.
Overall, Axactor expects increased scale and growing profitability to improve return on equity over time.
Letter from the CEO