The nature of the business and its operations
B2Holding’s vision is to be a trusted and innovative partner that actively re-shapes the credit management industry in all of the Group’s markets and to achieve or maintain a top five market position in the respective non-performing loan (NPL) markets, whereby efficiency is more important than footprint.
Efficiency is a prerequisite for sustainable platforms and is strived by adopting digital transformation processes and by leveraging Group projects on scale. The Group strategy and goals are assessed and evaluated annually.
The Group’s mission is to contribute to handling society’s debt problems and bridge the gap that defaulted debt represents in the credit chain, in short “bridging the gap”. Agility, Integrity, Diversity, Excellence and Responsibility are the core values of the Group and demonstrate the Group’s culture by being a common language of all employees, guiding behaviour and actions.
B2Holding ASA is a Norwegian public limited company with organization number 992 249 986 with its registered business address and headquarter in Stortingsgaten 22, 0161 Oslo, Norway. B2Holding ASA has since 8 June 2016 been listed on Oslo Stock Exchange and included in the Oslo Stock Exchange Benchmark Index (“OSEBX”) since 1 December 2016.
B2Holding ASA (“the Company”) is the parent company of the B2Holding consolidated group of companies (together “the Group” or “B2Holding”) and since the incorporation of the company in 2011, the Group has grown into a pan-European debt service provider. The Group is a debt solution provider for both customers (referred to as debtors) within unsecured and secured loans consisting of consumer credits, residential credits, and credits to small and medium-sized enterprise (“SMEs”) as well as corporate customers. In addition, the Group provides services for third party debt collection, credit information and project management as a full-service provider of debt management and servicing for co-investors, financial partners, and customers.
The strategy announced during 2019 remains unchanged where the main pillars are profitable growth through focused investments in core markets and strengthening the Group’s servicing capabilities with the reservation that efficiency is more important than footprint. The growth will be maintained and supported through co-investments, full collection and recovery servicing, forward flow deals and a preference for core countries.
This strategy is transforming the Group towards a more cost-efficient business model and leverages the Group’s servicing capabilities by increasing assets under management. In order to facilitate for the strategy, the Group is organized with a clear distinction between asset classes and increased operational focus. In addition, the company has in 2020 established functions with senior positions within risk management, compliance, and internal control.
B2Holding has a strong position in a European NPL market with significant opportunities through its operations in 22 European countries. As part of the strategy, the Group will continue to reduce its risk or footprint in certain non-core markets, allowing for strengthened focus on core markets.
Going into 2020, the Group described it as a year of transformation. That statement got several new dimensions with the outbreak of the Covid-19 pandemic (hereafter referred to as “Covid-19” or “the pandemic” with various mutations and steps), and the macroeconomic environment significantly changed. Ethical and responsible collections have always driven the Group’s business, but especially in such challenging times. B2Holding acknowledges its social responsibility and closely monitors its operations to ensure that the Group demonstrates required sensitivity towards those customers that are most vulnerable.
With access to the largest NPL markets in Europe, the Group wants to focus on investments in markets with growth potential that are of strategic importance. Further, during 2020 the Group has maintained its price disciplined and opportunistic investment approach consistent with the Group’s response to the uncertainty caused by the pandemic.
The majority of existing forward flow contracts have been renegotiated, and this has positively affected returns and performance during the year. Most of the investments were in Northern Europe and Poland and portfolio investments were driven by one-off deals at favourable return levels compared to levels pre-Covid-19. Together with Poland, Northern Europe was moderately impacted by the pandemic. The remaining purchases cover smaller portfolio acquisitions in Western and South Eastern Europe.
Gross collections including the Group’s share of portfolios purchased and held in joint ventures for the year ended at NOK 5,659 million, up NOK 234 million (4 %) versus 2019, primarily due to low portfolio investments throughout 2020 combined with some delays in collections due to Covid-19.
Gross collections on unsecured portfolios reached NOK 3,698 million in 2020. The Collection performance in 2020 reached same level as the pre-Covid-19 forecast, in line with trends during the year. Impact of the pandemic was most visible in the economies where the governments took measures with respect to legal framework of the financial system, and debt collection.
Some of the restrictions implemented in the early stage of the pandemic were eased during the year, for example, in Croatia the operations of the Fina agency (performing activities covered by bailiffs in most countries) were resumed in October after six months of suspension, which resulted in a visibly positive effect on the collections thereafter.
In parallel, collection strategies and operational set-up within the Group, have been adjusted continuously as a reaction to the development of the pandemic and the impact it has on the business environment. Altogether, both access to the customers and the payment discipline remained above the expectations pre-Covid-19, and notably higher than the Group’s stress test scenarios.
Collection results in the Group’s main unsecured markets in Northern Europe and Poland continued to perform in line with or above pre-Covid-19 levels. The performance in Western Europe varied and the impact of the pandemic on South Eastern Europe was more visible than in other regions.
A combination of external factors and actions take en by B2Holding, have facilitated the improvement. The second wave of the pandemic created a necessity to continue with the work-from-home routines in all the Group’s markets. IT systems fully support this distributed organization of work, and the quality of management routines of the dispersed organizations is functioning well.
Gross recoveries on secured portfolios were NOK 1,580 million for the year which is 7 % lower compared to NOK 1,696 million last year. The ERC for secured portfolios at year end is NOK 5,423 million or 24 % of the Group’s total ERC. The momentum of resolutions in secured portfolios continued during 2020 with actual performance at same level as the latest forecast.
Overall, the secured recoveries continued to improve in 2020, despite significant delays and interruptions in key public services necessary for progressing such resolutions, specifically the courts and bailiff systems and operations related to real estate transactions such as land books.
The Group is continuously monitoring changes in the legal systems and governments’ measures in response to the pandemic to protect the value of its assets and preserve recovery levels. The centralised asset management team continues to evaluate the Group’s secured portfolios, identifying opportunities for upside strategies that improve and secure the quality of the back-book.
Part of the strategies designed and implemented in the corporate and secured portfolios, relates to repossession of the underlying assets, and aims to shorten the legal processes; time-to-asset and time-to-money.
The value of collateral assets (real estate owned) increased during 2020 and was NOK 873 million at the end of the year.
Due to Covid-19 related restrictions and particularly the lockdown measures in the legal systems across Europe, the activity levels, both with regards to sale of collateral assets and non-amicable repossessions, remained at a low level.
In accordance with the strategy, the Group is actively pursuing further co-investments to gain access to a larger pipeline and utilize the Group’s servicing platforms. At the end of 2020, the Group has established co-investment arrangements for portfolios in Romania, Greece, Croatia, Sweden and Cyprus and further co-investments are under consideration.
The ability to transact with reputable investors creates unique advantages for B2Holding with regards to a more flexible purchasing capacity (ability to participate in large deals across many geographies), the opportunity to leverage the servicing platforms by acting as servicer of portfolios for investment partners, and the ability to manage the risk versus return by adjusting the Group’s exposure regardless of transaction sizes.
The total portfolio purchases in 2020, excluding portfolios purchased in JVs, was NOK 1,664 million which is a 51 % reduction from 3,409 million in 2019.
The allocation of portfolio investments in 2020 ended at 54 % (NOK 898 million) to Northern Europe, which is a decrease of 57 % from 2019. Northern Europe is the largest region with 40 % of the ERC (36 % in 2019). The exposure in Central Europe has been reduced to 19 % (23 % in 2019) and the exposure in South Eastern Europe is stable at 14 % (13 % in 2019) in terms of ERC, while Poland and Western Europe are unchanged with 16 % and 12 % respectively.
Northern Europe collections continued to perform well in 2020 and increased from NOK 1,579 million in 2019 to NOK 1,786 million in 2020 (13 %) mainly due to increased collections in Sweden, Denmark, and Latvia. The gross collection in 2020 is mainly from unsecured portfolios (99 %).
Total revenue from purchased portfolios including profit from shares in joint ventures were up NOK 40 million (5 %) to NOK 848 million mainly due to profit from shares in associated parties/joint ventures. Other revenues were NOK 33 million higher (NOK 138 million) than in 2019.
The net credit loss from purchased portfolios was NOK 36 million compared to a Net credit gain of NOK 44 million for 2019 mainly due to a reduction in future collection estimates of NOK 72 million in 2020. Cost to collect slightly increased due to external cost related to increased collections, but the cost to collect percentage improved to 14 % (15 %). EBITDA for 2020 ended at NOK 601 million, up NOK 24 million (4 %) from 2019.
The number of full-time equivalents (FTEs) in the region by year-end was 373.
Central Europe reduced collections by NOK 76 million (6 %) and has a stable cost level, while revenues from purchased portfolios were up NOK 262 million to NOK 518 million, whereof the significant change was caused by the one-off write down in second quarter 2019.
The cost to collect percentage decreased to 15 % during the year from 18 % in 2019. EBITDA for 2020 ended at NOK 304 million, up NOK 289 million from 2019, and operating profit was NOK 295 million.
The number of FTEs in the region by year-end was 256.
Western Europe was the region most affected by the Covid-19 pandemic and subsequent governmental measures. Collections decreased by NOK 73 million to NOK 549 million (-12 %) and revenues from purchased portfolio were down NOK 152 million (-34 %) due to the governmental measures caused by closed courts and bailiffs. Net credit loss was NOK 65 million in 2020 mainly due to negative revaluation of secured portfolios. Cost to collect ratio slightly increased by 1 percentage points to 28 % in 2020.
The number of FTEs by year-end was 455, which is a significant decrease from last year by 28 % due to cost efficiency program under the Covid-19 pandemic. EBITDA decreased by NOK 155 million to NOK 125 million and operating profit decreased by NOK 159 million (62 %).
South Eastern Europe decreased collections by NOK 44 million (7 %) with a stable cost level, however total revenues from purchased portfolio were NOK 296 million, up NOK 72 million from 2019. The increase is mainly due to the one-off write down of secured portfolios in Bulgaria and Romania in 2019. Profit from joint ventures decreased by NOK 29 million (49 %) to NOK 29 million. EBITDA increased by NOK 30 million to NOK 78 million.
The number of FTEs decreased from 592 last year to 567 in 2020 due to cost efficiency programmes under the pandemic.
Poland shows steadily increasing collections and lower cost to collect ratio versus 2019. Total collection in 2020 was NOK 1,033 million which is 7 % higher than same period last year. Revenue from purchased portfolios were up by NOK 10 million (2 %) to NOK 597 million despite that portfolio purchases year-on-year was reduced by 10 % to NOK 36 million in 2020.
The Net credit gain from purchased portfolio was NOK 20 million mainly due to higher collection above estimates of NOK 45 million in 2020. Cost to collect improved from 33 % to 30 % due to higher gross collection combined with reduction in FTEs of 89 (-15 %) to 484 at the end of 2020.
Funding structure and financing
During 2020, the Group has strengthened the liquidity reserve, increased the headroom to financial covenants and refinanced some of its debt. Combined, this has resulted in a healthier debt maturity profile and more flexible capital structure. The headroom to covenants is expected to be further improved going forward.
On 3 November 2020, the EUR 510 million senior secured Revolving Credit Facility (RCF) was extended by one year, from 31 May 2022 to 31 May 2023. The margin structure and the financial covenants remained unchanged. This has strengthened the balance sheet and the Group is in line with original RCF covenants.
In addition to the RCF, the Group completed an agreement for a EUR 100 million Senior Secured bridge facility with DNB and Nordea at market rates. The purpose is to have flexibility under the bank financing to repurchase, and in the end, repay the Bond 2 of EUR 175 million at maturity date in October 2021.
The extended RCF in combination with the new bridge facility confirms the support of the syndicate banks and gives the Group increased optionality and flexibility.
On top of the mentioned RCF and bridge facility, the Group holds four listed senior unsecured bond loans for a total of EUR 775 million. The first bond of NOK 150 million was repaid in full on maturity date 8 December 2020. In addition to this repayment, the Group has during 2020 repurchased a nominal value of EUR 47 million in Bond 2 at an average price of 102.3. In total the Group holds a nominal value of EUR 91 million in treasury bonds at year end, of which EUR 64 million is held in Bond 2 maturing on 4 October 2021. The outstanding amount of EUR 111 million in Bond 2 will primarily be refinanced via a combination of operating cash flow, the RCF and the bridge facility.
The rating agency Moody’s affirmed their Ba3 (negative outlook) rating in their latest credit opinion on 18 December 2020 with a negative outlook reflecting Moody’s view on further delays in collection could increase the liquidity risk and reduce the acquisition capacity going forward.
Similar rating from S&P is B+ (stable outlook). The outlook was revised in their latest research updated on 12 February 2021. The outlook was changed from “negative” to “stable” due to resilient financial performance in 2020, improved covenants headroom and their expectations that B2Holding will maintain stable leverage metrics over 2021.
The Board of Directors (the Board) is of the opinion that the annual financial statements provide a true and fair view of the net assets, financial position and result of B2Holding ASA and the Group for the year. The Group’s consolidated financial statements are presented in compliance with International Financial Reporting Standards (IFRS) as adopted by the EU.
Profit and loss
The Group recorded a full-year operating profit of NOK 1,224 million for the year 2020, compared to NOK 959 million in 2019. The cost to collect was 21 % which is a reduction from 23 % last year mainly due to the focus on operational efficiency and cost reductions.
Revenues from purchased loan portfolios amounted to NOK 2,535 million compared to NOK 2,313 million in 2019. Operating revenues for the year amounted to NOK 3,174 million compared to NOK 2,874 million in 2019, an increase of NOK 300 million mainly due to the one-off write down of NOK 388 million in 2019.
Operating expenses, excluding depreciation and amortisation and impairment losses and cost of collateral assets sold, decreased by NOK 23 million (1 %) in 2020 compared to 2019.
The number of FTEs in the Group was 2,191 at the end of 2020, a net decrease of 326 during the year. The FTE numbers have decreased in all regions, with the most significant decrease in Western Europe (-28 %) and Poland (-15 %) due to efficiency programs related to the Covid-19 pandemic. Going forward the number of FTEs is expected to be reduced as a result of the ongoing efficiency programs and the planned reduction of regional footprint.
Net financial items ended at NOK 814 million, of which interest expenses on interest bearing debt amounted to NOK 795 million and a net foreign exchange loss of NOK 65 million. The Net foreign exchange loss is mainly related to unrealised exchange losses on internal financing of the Group.
Profit and loss
Cash flows and cash collection
As described above, Gross collections increased in 2020 with NOK 234 million (4 %) to NOK 5,659 million due to significant increase in activity. The increase in gross collections was driven by Northern Europe and Poland.
Cash flow from operating activities for the year ended at NOK 3,248 million, NOK 361 million (10 %) lower than the same period in 2019. The difference between operating cash flows and the operating profit of NOK 1,224 million is mainly related to amortisation/revaluation of purchased loan portfolios offset by unrealised foreign exchange balances, paid taxes, and timing differences. Cash flow from investing activities ended at minus NOK 1,760 million, while the Net cash flow from financing activities in the period ended at minus NOK 1,544 million.
Balance sheet and liquidity
Total assets at 31 December 2020 amounted to NOK 17,169 million compared to NOK 16,942 million in 2019. The equity amounted to NOK 4,719 million and the book equity ratio was 27.5 % compared to 25.0 % at 31 December 2019.
The total book value of purchased loan portfolios ended at NOK 13,033 million end of December 2020 which is NOK 387 million lower than year-end 2019. Net interest bearing debt as of 31 December 2020 was NOK 11,068 million compared to NOK 11,379 last year.
Cash and short-term deposits amounted to NOK 423 million at the balance sheet date compared to NOK 356 million at the end of 2019. The Group’s liquidity situation and the ability to finance future investments are adequate.
B2Holding ASA, the parent company, recorded a full year loss of NOK 110 million after negative changes in deferred tax of NOK 10 million compared to a loss of NOK 157 million in 2019. Interest income from Group companies accounted for NOK 516 million in 2020 compared to NOK 496 million in 2019. Net cash flow for the year ended negative at NOK 1 million compared to a deficit of NOK 5 million for 2019.
Total assets at 31 December 2020 amounted to NOK 10,946 million compared to NOK 13,137 million in 2019. The equity amounted to NOK 3,717 million and the book equity ratio was 34.0 %. Cash and cash equivalents amounted to NOK 5 million at the balance sheet date compared to NOK 6 million at the end of 2019. Of this amount, NOK 5 million were restricted balances. The Company’s liquidity situation, ability to finance future investments, meeting its obligation and the solidity of the parent company are adequate and satisfactory.
Financial and other risks
B2Holding’s approach to risk management is to proactively manage risks so that it generates profitability and value for all the Company’s stakeholders and ensure sustainability.
B2Holding has placed significant focus on risk management during 2020 by embedding a new Group-wide enterprise risk management framework. The framework facilitates effective analysis and monitoring of significant risks, both internal and external. The purpose is to enable the Group’s management at all levels to easier identify and quantify the risk factors that may negatively affect the Company’s profitability and sustainability, while at the same time strengthening internal controls and governance.
B2Holding is implementing risk management principles across the Group based on the framework of Committee of Sponsoring Organizations of the Treadway Commission Enterprise Risk Management (COSO ERM) with the overriding objective to achieve improved governance, drive operational excellence and achieve enhanced value for all stakeholders. The components and principles of the COSO ERM framework will when rolled out transform the business into a risk aware organization.
At the end of 2020, the risk framework and risk mapping process, has been rolled out in six major entities with clear actions and improvement plans agreed that will pro-actively be followed up by the Group risk function. The risk framework will be rolled out to the remaining Group entities in 2021.
The risk governance structure is overseen by the Board and its Audit Committee, under the responsibility of the Group CEO and headed by the Group Chief Risk Officer with appointed risk managers from local entities. The Group Risk function works with local risk managers to correctly identify and assess risks, challenge risk assessments and act as a consultant to support clear and transparent risk mapping processes.
To further support the risk management principles, the Company, in consultation with the Audit Committee, has established an Internal Audit function reporting to the Audit Committee.
The Group’s core business is to generate profitable returns through controlled exposure to credit risks in the form of acquiring and managing non-performing loans. Therefore, the Group actively pursues this type of risk which inherently carries the highest potential impact on the income statement and balance sheet. As such, there is an increased central focus on this risk area, with particular emphasis and oversight on the portfolios acquisition process, performance management and reporting.
Risks such as liquidity, operational, and market risk should be minimized but balanced, as far as it is economically justifiable, following internal policies and guidelines. Other types of risk such as management, regulatory and reputational risk are addressed through the Group’s governance and compliance policies.
The CEO and the Heads of Unsecured and Secured Asset Management are responsible for and shall ensure that all business units operate and develop in accordance with B2Holding’s risk management and internal control policy and routines.
The Board reviews the Group’s most important risk areas and its approach to address the identified risk on an annual basis. Principal risks are identified through the Group-wide risk framework or through incidents raised. The risks are grouped into three broad categories: strategic, financial, and operational.
Reference is made to the Risk management report describing the risk management structure in more detail and constitutes an integral part of the Directors’ Report.
A good reputation is crucial to the Groups long-term sustainability to operate as a viable company. A good reputation is crucial as the Group deals with debt collection activities and the Group’s customers need to trust B2Holding in order to positively engage with the Group. It is therefore crucial to B2Holding that the customers are always fairly treated. The Group places great emphasis on reputation and relationships with all stakeholders including, but not limited to, customers, vendors, investors, authorities, and employees.
Group’s compliance policies, the Code of Conduct and adopted values are embedded in the operations and how the employees conduct themselves in day-to-day work and in relationships with stakeholders.
In 2020, the above policies were updated, communicated, and implemented across the Group. The Group also expects its vendors, partners, and suppliers to comply with the principles in the Code of Conduct, in particular those that provide collection services on behalf of the Company.
All Group entities have a Compliance function which follows up on the collection practices and internal standards regularly to ensure that good ethical practices are applied across the Group. All data and compliance breaches are now monitored through central Group databases.
The Group is organized into two business lines: Unsecured and Secured Asset Management supervised by the Head of Unsecured and the Head of Secured Asset Management, who report directly to the Group CEO being responsible for all business units.
Business lines are operating and developed in accordance with B2Holding’s risk management framework and are subject to internal controls. The Group’s investment management, legal, tax, risk, compliance, project management and controlling teams support the business lines and local operations in conducting their business and with assessing and managing their risk.
B2Holding operates in multiple countries with different competitive and regulatory landscapes and historically operating in a decentralised model. This may give rise to different types of risks as local entities have different operating models and different levels of maturity. A more centralised model through Group level functions and oversight is being implemented, enabling synergies, optimisation and greater governance control and procedures taking into consideration oversight requirements.
The risk of increased competition in purchasing NPL portfolios, pricing pressure and lower returns accepted by competitors, may adversely affect operations and profitability. The Group Management monitors the competitive environment by regularly monitoring the countries opportunity pipeline and horizon scanning for suitable transactions to pursue. These are taken into consideration during the decision-making process.
The Group uses local collection platforms with established position and experience, providing in-depth local knowledge of the markets. These local collection platforms are supported by dedicated Group resources in key business areas, such as investment pricing, portfolio management, operations, IT, and others.
The Group is actively pursuing investment partnerships which allow opportunistic participation in multiple portfolio investments with reduced capital requirements, whilst benefitting from additional servicing earnings.
The Group depends on authorisations and licenses from different authorities in order to operate. Risk arises from non-compliance or breaches to existing processes and procedures implemented. Regulatory changes can also influence the markets and local operations, either in a positive or in a negative way. License requirements, adherence to these and potential regulatory changes are managed and monitored by the relevant local legal and compliance teams supporting the operations and reported to Group on a regular basis.
In 2020, the Group updated and implemented the Group Compliance Policy across the Group and all its local subsidiaries. The Group also monitors regulatory changes and developments through open dialogue with the local management teams.
Furthermore, B2Holding also participates and co-operates with policymakers and in industry associations that develop standards and best practices and promote the role of the industry in supporting the health and viability of the financial system. All data and compliance breaches are monitored through the Group’s central databases.
Credit risk is the risk arising from customers not repaying principal or interest accrued or counterparties not meeting their contractual obligations. For B2Holding, this refers mainly to NPL portfolio acquisitions, accounts receivable, cash and cash equivalents, and outlays on behalf of clients. NPL portfolio risks are addressed under investment risks.
For cash and cash equivalents, these are deposited with established banks where the risk of loss is remote. For counterparty risks, the Group primarily deals with known customers with good creditworthiness. Credit risk is analysed, monitored, and controlled by the local entity’s management.
The market risk is the risk arising from unexpected movements in exchange rates and interest rates. Foreign exchange risk that has an impact on B2Holding’s financial statements arises mainly as a result of:
- The currency used in the consolidated financial statements is different from the reporting currency of the subsidiaries (translation risk).
- Assets and liabilities of the Group are denominated in different currencies and certain revenue and costs arise in different currencies (transaction risk).
B2Holding’s accounts are denominated in NOK, while a large part of the Group’s business is carried out in EUR, SEK, DKK, PLN, HRK, RON, BGN, CZK and other currencies. The Group’s receivables portfolios (assets) are mainly denominated in foreign currencies. The Group’s net borrowing adjusted for currency derivatives is made in relevant currencies reflecting the underlying expected cash flow from the loans and receivables. Thus, the Group is exposed to both translation and transaction risk.
Furthermore, in each of the jurisdictions where the Group is present, all revenue and most of the expenses are in local currency. Accordingly, any significant movements in the relevant exchange rates may have a material effect on the Group’s business, results of operations, or financial conditions.
To mitigate the currency risk the Group uses a multicurrency bank facility and bond loans denominated in Euros, effectively establishing an operational hedge by financing acquired portfolios in the same currency as the repayments expected from portfolios. However, portfolios acquired in Czech Republic, Croatia, Serbia, Bosnia and Herzegovina, Hungary, Romania and Bulgaria are financed by Euros due to limited possibilities for medium and long-term hedging arrangements when borrowing in those currencies. Croatia and Bulgaria have pegged their currency to the Euro within a limited band.
B2Holding is exposed to changes in interest rates since the Group’s debt has an element of floating interest rate. The Group employs hedging strategies that enable B2Holding to, within certain limits, hedge its interest exposure and hence monitor and reduce overall interest rate risk exposure.
Operational currency exposure is constantly monitored, and relevant hedging arrangements are assessed and applied in accordance with Group’s risk policies.
B2Holding invests in NPL portfolios and then tries to make a profit from these investments by assuming all rights and risks arising from these transactions. The risk on this type of business, may arise by overestimating collections or underestimating costs to collect and thereby incurring losses.
Therefore, it is crucial for the Group’s business to achieve an overall rate of collection above that reflected in the prices paid. While B2Holding believes that the recoveries on the Group’s loan portfolios will be in excess of the amount paid, amounts recovered may be less than targeted.
B2Holding buys NPL portfolios at discounted prices and therefore the risk is partially mitigated through pricing and expected returns. Furthermore, the Group assets are diversified both in terms of asset classes (secured, unsecured) and geographical location across more than 20 countries.
All acquisitions are based on careful valuations to predict future net collections and are strictly governed via the controlling functions for this purpose.
B2Holding constantly aims to reduce the risk through applying its extensive experience and using the Company’s proprietary database consisting of detailed analytical data based on a history of NPL purchases and performance. In 2020, the Group strengthened this process further by introducing new standardized forecasting models owned by the Group.
B2Holding’s liquidity requirements consist mainly for the funding of purchased portfolios, operating expenses, tax liabilities and interest payments. The Group’s principal sources of liquidity are net cash generated from its operating activities, borrowings under the four bond loans and the revolving credit facility in addition to share capital increases when appropriate. The Group’s multi-currency revolving credit facility and four bond loans ensure necessary funding to meet future payment obligations.
The capital threshold for equity is set at a minimum consolidated book equity ratio of 25 %, and a minimum liquidity capacity is set out in a Liquidity policy reflecting the main covenants and short-term free liquidity requirements. Based on the Group’s capacity to assume risk, the thresholds are determined by the Board. B2Holding’s risk control function monitors and ensures that the Group does not assume risk that exceeds the risk capacity and limits.
The Board considers the Group’s liquidity reserves, the RCF utilization capacity and cash generated from operations to be adequate and flexible enough for covering financial obligations when they fall due as well as meeting its business priorities.
People and equality
Environment and employees
Administration and personnel
On 5 February 2020, the Board announced that the Group’s CFO Erik J. Johnsen was appointed as permanent CEO, succeeding Olav Dalen Zahl who stepped down from his position on 15 August 2019. Erik Johnsen has been with B2Holding ASA since 2013 as Chief Group Controller and later as Chief Financial Officer, a position that was taken over by André Adolfsen from 1 November 2020.
There were 107 (2 %) days of sick leave in the parent company B2Holding ASA in 2020 compared to 179 (3 %) last year.
Throughout 2020, no incidents resulting in serious injury or material damage have been reported except for some property damage in the Zagreb office due to the earthquakes in Croatia. The workplace environment is considered to be positive and improvements are made on a continuous basis.
B2Holding ASA, the Group’s head office located in Oslo, had 28 employees at the end of the year, of which 12 were women and 16 were men.
At 31 December 2020, the Board consisted of seven members of which three were women and four were men.
Equality and discrimination
The B2Holding Group has 2,398 employees at year-end comprised of 1,602 women and 796 men. The total number of full-time employee equivalents (FTEs) was 2,191 of which 1,421 women and 770 men, compared to 2,517 FTEs in 2019 of which 1,646 women and 871 men. The Group aims to be a workplace where there is gender equality. The Group employs a policy where no discrimination is allowed.
The Norwegian Anti-discrimination Act aims to promote equal opportunities and rights and to prevent discrimination of any form. The Group works actively, purposefully, and systematically to promote and ensure that the Group adheres to the fundamental principles laid out by the Anti-discrimination Act. These activities are targeted in recruitment, wage and working conditions, promotion, development, and protection against harassment. For further information on the Board’s work to prevent discrimination and promote equality, see the Sustainability report on “Diversity and inclusion”.
In the beginning of 2021, B2Holding became a participant of the UN Global Compact committing the Group to report on the UN’s Ten Principals of which Human Rights and Labour are two major Principals.
The Group strives to be a workplace where no discrimination is made as a result of mental disability or physical limitations. The Group works to design and facilitate the physical environment in a way so that it can be accessible to as many as possible. Employees and applicants with physical disabilities will receive individual solutions to facilitate their workplace environment and responsibilities.
Corporate responsibility (ESG)
Under section 3-3a and 3-3c of the Norwegian Accounting Act, B2Holding is required to report on its corporate responsibility and selected related issues. The Sustainability report is based on principles described in the Euronext ESG Guidelines for listed companies and principles under the Global Reporting Initiative’s (GRI). The report is an integrated part of the Directors’ report.
The general development during 2020 with increased focus on ESG, has led to a thorough review of internal and external analysis of preferences from B2Holding’s stakeholders, which in turn has provided the basis for this year’s updated Sustainability report.
As a participant of the UN Global Compact, B2Holding is committed to report on the UN’s Ten Principals of which Human Rights, Labour, Environment and Anti-corruption are assessed to be the most relevant to the Group’s business. Through B2Holding’s operations, the Group helps manage society’s debt problems and aims to contribute to a stable financial ecosystem. A well-functioning debt servicing industry is important and significant for bridging the gap in the financial value chain.
Of the Group’s stakeholders, four groups are assessed to be of special importance. These are the customers struggling with indebtedness, the vendors trusting the Group to continue to treat their customers fairly, the investors providing various groups of risk capital and the employees being the Group’s most valuable resource.
Towards customers, the main approach for debt collection is to establish a satisfactory and respectful relationship resulting in a positive outcome for both parties. B2Holding is required to have mechanisms to allow customers to express their opinion and assess their level of satisfaction. This is not limited to treating the customer adequately but extends to identifying how to improve the relationship with the customer base and develop associated plans. Customer complaints (as opposed to customer disputes) for 2020 represented 0.01% of cases serviced during this period which is assessed to be at a manageable low level.
For the employees, 2020 has been a challenging year. In March, more than 90 % of the employees were shifted to work-from-home to secure health and safety during the Covid-19 pandemic, which has lasted throughout 2020. Despite major challenges with local lockdowns and earthquakes in Croatia, the employees’ willingness to adapt and operational skills proved substantial and secured stable operations from remote locations.
Although 2020 was a challenging year, B2Holding piloted an e-learning platform in nearly 30 % of the countries during the year. The piloting proved successful and will be implemented in all countries during 2021. 32 % of all employees participated in various training courses on digital platforms, both internal and external. The internal communication platform, Workplace by Facebook, proved valuable and was used by all employees as a communication and collaboration platform and proved particularly valuable when the pandemic escalated.
To ensure a safe work environment for all employees, as part of the anti-corruption work and the work against unwanted behaviour, B2Holding is in the process of setting up an external whistleblowing channel.
B2Holding’s approach to and work with ESG related issues was strengthened through establishing a new Corporate Development function under the Group Head of Corporate Development. This function is coordinating the Group’s sustainability initiatives and is responsible for planning, implementing, following up on and further developing of the Group’s sustainability programme.
The Board wishes to thank all employees for all support and efforts made for the achieved results and progress in 2020.
Through B2Holding’s operations, the Group helps manage society’s debt problems and aims to contribute to a stable financial ecosystem. A well-functioning debt servicing industry is important and significant for bridging the gap in the financial value chain.
Risk management and internal control
The Corporate Governance report constitutes an integral part of the Directors’ report. B2Holding ASA is subject to corporate governance reporting requirements under section 3-3b of the Norwegian Accounting Act. Further the Company is subject to the Norwegian Code of Practice for Corporate Governance (“the Code”) as well as the Euronext Rule Book 2 Issuer Rules section 3 applicable for all companies listed on Oslo Stock Exchange. B2Holding reports no deviations from the Code.
B2Holding considers solid corporate governance a prerequisite for gaining the trustworthiness needed to access the capital market, the non-performing loan market, and last, but not least, to the market of human capital that ultimately creates value for B2Holding’s stakeholders.
A well-functioning corporate governance framework is the cornerstone to ensuring that the organization has an effective and balanced internal management control system, which encompasses clear delineated responsibilities, and administers subsequent accountability.
B2Holding is subject to the extensive external regulatory framework described above which is reflected in its internal controlling mechanisms. The setup of its internal governance structure reflects both the resolutions and proxy given by the Company’s shareholders, in their Annual General Meeting, as well as the policies and instructions that are adopted by the Board.
The Annual General Meeting adopts the Instruction for its Nomination Committee submitting proposals for the election of the members of the Board and the Chair of the Board, fees to the members and the Chair and for the members of the Board committees.
At B2Holding ASA’s Annual General Meeting on 27 May 2020, Harald L. Thorstein, Trygve Lauvdal, Grethe Wittenberg Meier and Trond Kristian Andreassen were elected for the period until the Annual General Meeting in 2022 and on the Annual General Meeting on 24 May 2019 Kari Skeidsvoll Moe and Adele Bugge Norman Pran were elected for the period until the Annual General Meeting in 2021.
The Board established the Audit Committee after the Annual General Meeting on 27 May 2020 with Adele Bugge Norman Pran as the leader and Trond Kristian Andreassen as a committee member. The external auditor, EY, will participate in meetings with the Audit Committee when matters falling within the scope of the external auditors’ responsibilities are considered.
The Board established the Remuneration Committee after the Annual General Meeting on 27 May 2020 with Harald L. Thorstein as the leader and Trygve Lauvdal as a Committee member.
The Board has both managerial and supervisory duties and approves the Corporate Governance Principles of “the Code” and is responsible for compliance with the principles.
B2Holding commits to ethical and sustainable business practices, reliable and transparent financial reporting, and compliance with all regulations, requirements, and industry standards in each of the countries where the Group operates. Corporate governance within the Group is therefore about more than how the Board and Group Management conducts its affairs, it is also about consolidating and further developing the Group’s values and its ethical footprint.
The Board has adopted a set of policies and instructions which further define the governance structure of the Company and the wider Group. These policies, instructions and procedures outline and clarify the different levels of responsibilities within the Group, and which limitations or control mechanisms coincide with these responsibilities.
The Board will at all times ensure that B2Holding complies with the requirements of section 3-3b of the Accounting Act and the Code. This is done by ensuring that the topic of good governance is an integral part of the decision-making process in matters dealt with by the Board. B2Holding’s corporate governance principles are subject to annual review and discussion by the Board. The progress of the project to improve governance in the Group is reported to the Board on a regular basis.
The Group is currently organized into two main business lines: Unsecured and Secured Asset Management. Both the Head of Unsecured and Head of Secured Asset Management are, together with the Group CEO and with the support of Group functions, responsible for and shall ensure that all business units operate and develop in accordance with the governance policies outlined by the Board. All policies, instructions and procedures are based on B2Holding’s ethical standards for conducting business and its Code of Conduct.
For investment in and evaluation of loan portfolios, the Board has established policies for an internal control framework including an investment committee and an investment office in Luxembourg. This framework is established to control the specific operational risks and risks related to financial reporting of purchased loan portfolios.
The Group Management prepares monthly consolidated financial reports that are sent to the Board. When the Group’s quarterly financial reports are to be presented, the Audit Committee reviews the reports prior to the board meeting.
The Board annually reviews the strategic plan and as part of the preparation for the strategic discussion, the Board also reviews the Group risks.
B2Holding’s Nomination Committee is stated in the Articles of Association. The Nomination Committee shall have three members, including the head of the Committee. As to the composition of the Nomination Committee, the interests of the shareholders will be considered, and the majority of the members shall be independent of the Board and of the Group Management. The Chair of the Board and CEO shall be invited to a minimum of one meeting of the Nomination Committee before it gives its final recommendation. They will have the right to address the committee but have no voting rights.
The Nomination Committee shall propose and present candidates for election to the Board at the Annual General Meeting. The instruction for the Nomination Committee was approved by the Extraordinary General Meeting on 19 May 2016 after which each member of the Nomination Committee shall act for two years. At B2Holding ASA’s Annual General Meeting on 27 May 2020, Kjetil Garstad (leader), Albert Collet and Hans Thrane Nielsen were elected for a period until the Annual General Meeting in 2021.
Due to the Covid-19 virus outbreak and measures implemented locally to prevent further spread of the virus, the Annual General Meeting on 20 May 2021 will be conducted as a virtual meeting and the Board will request shareholders to use the possibility of casting advance votes or voting by proxy.
The parent company’s book value of equity at 31 December 2020 amounted to NOK 3,717 million. Total book value of equity for the Group at 31 December 2020 was NOK 4,719 million corresponding to a book equity ratio of 27.5 %. Considering the nature and scope of B2Holding’s business, the Board of Directors considers that the Company has adequate equity.
The annual accounts have been prepared on a going concern basis and in the opinion of the Board the accounts provide a fair representation of the Company’s business and financial results. The Board confirms that the going concern assumption has been satisfied.
As a result of the pandemic and the prolonged uncertainty, the Group will continue to carefully monitor the market and remain price disciplined while maintaining an opportunistic approach. At the same time, the Group will focus on strengthening its balance sheet, and improve headroom to loan covenants.
The Group expects that increasing volumes of nonperforming loans will be coming to the market in the second half of 2021 and continuing into 2022, and that the yields will continue to be attractive. The Group will continue to actively seek co-investment solutions and servicing opportunities.
On the operational side, the main focus going forward, will be to utilize economies of scale in key markets in order to improve margins for future investments. Furthermore, there will be continued focus on business transformation towards a higher degree of automation in collection and use of advanced technology for big data analytics.
In parallel with this, the Group will strengthen the risk function with a higher degree of centralization in investments and improved data quality and insight that will result in a more efficient capital allocation going forward.
2020 was marked by the outbreak of the Covid-19 pandemic which affected the environment in all the markets in which B2Holding is present, and changed the way the vendors, clients and employees operated.
The European governments have introduced significant economic relief packages and are in the process of vaccinating the population. The ultimate timing and effectiveness of these efforts remain uncertain and, at the time of writing this report, the spread of the virus in Europe is not yet under control.
B2Holding’s primary concern is the well-being of its employees, followed by ensuring business continuity, and it has actively addressed both as the pandemic progressed.
Governmental measures such as lockdown and forced closedown of businesses, have amongst other things had an effect on local bailiffs and court systems as well as impacting many customers who may find themselves in a more challenging and uncertain financial situation. In this respect, the Group’s values emphasizing both ethical and responsible collections, are fundamental and more important than ever. B2Holding has implemented a detailed protocol when contacting the customers, as well as a script for identifying and following up those that have been affected by the pandemic so that B2Holding can offer ad-hoc solutions for them.
B2Holding and its entities moved their workforce to work-from-home within weeks from the inception of the pandemic and complied with all regulations imposed by the local health authorities and governments. This allowed the Group to mitigate the risks caused by the lockdowns imposed in first quarter 2020. Furthermore, the Group has successfully operated under flexible work-from-home schemes throughout 2020, being able to adjust its operations to the health and safety requirements during the subsequent waves of the pandemic.
In second quarter 2020, B2Holding undertook stress testing of its acquired portfolio to estimate the financial impact of the outbreak on its portfolios. So far, the Group has been outperforming the projected stressed scenarios.
B2Holding continues to actively monitor the pandemic developments as they unfold and maintains a cautious stance towards new investments.
Annual profits and distributions
The Board has proposed to allocate the 2020 loss of NOK 109.9 million of the parent company B2Holding ASA as follows:
Transfer from retained earnings NOK 109,856,820
Total distributions NOK 109,856,820
|Oslo, 21 April 2021
Harald L. Thorstein
Chair of the Board
Adele Bugge Norman Pran
Kari Skeidsvoll Moe
Grethe Wittenberg Meier
Trond Kristian Andreassen
Erik J. Johnsen
Chief Executive Officer