1H2020 Financial Results
FIRST HALF 2020 RESULTS
High operating profitability driven by strong AUM growth
- Assets under Management +15% y/y to €23.2bn; €33.8bn pro-forma[1]
- Balanced business mix between NPLs and UTPs[2] (56%/44%) and between debt purchasing and servicing revenues (56%/44%).
- EBITDA +174% y/y, with strong top line growth (+71% y/y) driven by debt purchasing activities. EBITDA margin at 58.5%.
- Net profit of €7.0m, impacted by net impairment losses on loans caused by delays in collections due to the pandemic and a single name exposure.
- Strong capital position: CET1 ratio of 69.8% and 36.3% pro-forma1.
- €2bn senior unsecured bonds issued in July, confirming the ability to finance growth.
[1] Pro-forma including the portfolios of BP Bari (July 2020), Creval (August 2020), the second tranche of UTPs from Carige (July 2020), and the MPS transaction (by the end of 2020).
[2] Credits classified as Unlikely to Pay, or inadempienze probabili.
Milan, September 10, 2020. – The Board of Directors of AMCO – Asset Management Company S.p.A. met yesterday and approved the Company’s separate and consolidated results for the first half of 2020.
“Since the beginning of this year, AMCO has experienced rapid business growth and we expect this growth path to continue, as recently announced transactions show. Operating profitability is high, also thanks to sustainable cost management. The balance sheet structure and capital ratios are very solid, and recent bond issuances confirm our ability to finance future business. We are continuing on our growth path, innovating and strengthening our team which today counts on 264 people” says Marina Natale, CEO of AMCO.
RESULTS FOR THE FIRST HALF OF 2020
Business Development
In 1H2020 the growth path driven by debt purchasing activity continued, bringing Assets under Management (AuM) to €23.2bn at the end of the period, of which 56% non-performing (NPLs) and 44% unlikely to pay (UTP). Including the transactions that have been completed, AuMs sit at €33.8bn pro-forma[1].
In 1H2020 the following transactions occurred:
- 12 March 2020: AMCO signed an agreement with Credito Valtellinese to purchase a portfolio of impaired loans for a gross book value of approximately €177m, consisting entirely of non-performing loans;
- 18 April 2020: for the third time Intesa Sanpaolo exercised the option for the transfer to the LCAs of high risk assets (performing at the time of the purchase by ISP) relative to the former Veneto Banks amounting to approx. €110m. These positions were simultaneously transferred from the LCAs to the respective AMCO-managed Segregated Accounts;
- 13 June 2020: Intesa Sanpaolo exercised its last option to transfer high risk assets totalling €200m. No further transfers are planned going forward;
- 15 June 2020: AMCO signed an agreement with Banca del Fucino and IGEA Banca for the purchase of a portfolio of impaired loans with a Gross Book Value of approximately €30m. The portfolio consists of Unlikely To Pay and non-performing loans.
In addition to the transactions described above, AMCO has signed three more agreements with legal effect after 30 June 2020:
- 29 June 2020: an agreement was signed with Banca Popolare di Bari to purchase a portfolio of impaired loans with a gross book value of approximately €2bn, 60% of which comprised of UTP and the remainder non-performing loans. The total value of the transaction is approximately €500m, with legal and economic effective date 1 July 2020;
- 18 July 2020: a second tranche of impaired loans was acquired from Banca Carige, relating to a single borrower group, with a value of approximately €227m. The legal effective date was set for 18 July 2020 and the economic effective date for 1 January 2020;
- 5 August 2020: AMCO signed an agreement with Credito Valtellinese to purchase a portfolio of impaired loans worth approximately €270m, mainly involving corporate customers, 60% of which non-performing and 40% UTP, with legal and economic effect in 2H2020. This transaction is in addition to that of 12 March 2020 signed with the same selling counterparty.
Moreover, on 29 June 2020 the Board of Directors of Banca Monte dei Paschi di Siena (MPS) and the Board of Directors of AMCO approved a project related to the partial non-proportional demerger with an asymmetric option from MPS in favour of AMCO of a compendium consisting of impaired loans totalling €8.1bn of which €4.8bn classified as non-performing and €3.3bn UTP, with a net value of €4.2bn, other assets (€0.1bn), financial debt (€3.2bn), and a positive balance sheet imbalance (€1.1bn). The Bank of Italy did not raise any objections towards AMCO on the demerger, which obtained the authorization of the European Central Bank in favour of MPS, making its effectiveness subject to certain conditions communicated by MPS on August 27, 2020. The AGMs of AMCO and MPS called upon to vote on the transaction are scheduled for October 4, 2020. The process is proceeding as per the plan and the demerger is expected to become effective by the end of 2020.
Cash collections in 1H2020 amount to €257m, and are equal to 2.2% annualized of the average monthly AuM. The trend for cash collections (-13% y/y) was affected by the economic impacts caused by Covid-19, in particular the temporary closure of Italy’s courts during the lockdown period in March and April. Monthly cash collections show a clear improvement starting in June and confirmed in July: annualized collections increase to 3.6% and 3.9% of AuM respectively.
Disclosure on the effects of the Covid-19 pandemic
The Covid-19 pandemic has had a limited impact on AMCO’s operations thanks to the measures put in place by the company. As early as February 23, 2020, work procedures have been modified to contain the spread of Covid-19; all employees have had access to smartworking facilities, making use of existing IT facilities within the company[2].
AMCO has supported its employees via dedicated video calls, with training sessions constantly providing useful information, and focussing especially on people in fragile situations. Other additional benefits delivered in this period include continuing to issue meal vouchers for the entire smartworking period and offering employees and their families the possibility to have serological blood tests, with reimbursement of costs.
The decree laws passed on 17 March 2020 (“Cura Italia”) and 14 August 2020 (“August Decree”) provide for an extraordinary moratorium on loans in force until 31 January 2020. Within this context until August 2020 AMCO had received from 542 UTP counterparties under management requests for a suspension or modification of payment schedules for a total of €479m, equal to 5% of UTPs. Virtually all of the requests were from corporates. In terms of loan amounts, only 18% of the requests are eligible under the “Cura Italia” scheme. Nonetheless, AMCO voluntarily examined the remaining requests by the counterparties and accepted 92% of them.
Data and comparisons
The following are AMCO’s consolidated results as at 30 June 2020. AMCO published its consolidated results for the first time in December 2019, thus comparisons here below related to the Income Statement are between the consolidated results as at 30 June 2020 and the separate results as at 30 June 2019, while comparisons related to the balance Sheet data are done with consolidated results as at 31 December 2019.
Income statement
In 1H2020 AMCO reported a net profit of €7.0m, down 14% y/y, impacted by net impairment losses on loans caused by delays in collections due to the Covid-19 pandemic and a single name exposure.
Operating income grows strongly, with EBITDA up 174%, driven by revenue growth (+71% y/y); costs have grown sustainably so that the cost/income ratio is down to 41.5% (versus 63.4% in 1H2019).
| Income statement (Data €/000) | 30/06/2020 | 30/06/2019 | Var % |
| Servicing fees | 23,866 | 23.347 | 2% |
| Interest and fees from customers | 25,052 | 7 | >100% |
| Other operationg income/expsnses | 5,270 | 8,304 | -37% |
| TOTAL REVENUES | 54,188 | 31,657 | 71% |
| Personnel expenses | (13,601) | (12,103) | 12% |
| Other administrative expenses | (8,868) | (7,963) | 11% |
| TOTAL COSTS | (22,469) | (20,066) | 12% |
| EBITDA | 31,720 | 11,591 | 174% |
| EBITDA MARGIN | 58,5% | 36,6% | |
| Net impairment gains/losses from loans and financial assets | (17,453) | 849 | >100% |
| Depreciation and amortization | (970) | (622) | 56% |
| Provisions | (173) | (68) | >100% |
| Other operating income/expenses | (8,322) | (5,049) | 65% |
| Net result of financial activities | 9,766 | 7,448 | 31% |
| EBIT | 14,568 | 14,149 | 3% |
| Net Interest and fees from financial activities | (5,638) | (2,270) | >100% |
| PRE-TAX INCOME | 8,930 | 11,879 | -25% |
| Income tax | (1,952) | (3,719) | -48% |
| NET PROFIT | 6,978 | 8,160 | -14% |
Revenues grow strongly (+71% y/y) reaching €54.2m, with an increasing weight of revenues from debt purchasing driving growth and accounting for 56% of the total, versus 26% in 1H2019. The remaining revenues originate from servicing activities. The servicing fees derive almost entirely from the management of the loan portfolio of the former Veneto banks, and their slight YoY growth (+2.2%) is linked to the entry of new High Risk assets into the former Veneto banks portfolio and to the fees relating to the Back2Bonis fund (“Cuvèe” transaction). Revenues from debt purchasing are comprised of: (1) interest from customers (EIR) calculated using the POCI method[3] mainly on the Carige portfolio, and on the ICS portfolio (from April 2019) and (2) other operating income which is down (-37% y/y) due to the impact of Covid-19 and, for the part relating to loans in the former Banco di Napoli, to its natural run-off.
Total costs amount to €22.5m, showing a 12% y/y increase due to the business expansion and the company’s growth. Personnel expenses are up 12% y/y due to staffing increases. There were 258 employees at June 30, 2020, compared to 233 at year-end 2019 and 211 at June 2019. AMCO now has 264 employees, following hirings in recent months, including during the Covid-19 lockdown period. New hirings are expected during the 2020-2025 plan to support further growth. Ordinary operating expenses increase by 31% y/y due to growth in size, while legal and debt collection expenses decrease by 25% y/y partly due to lower recoveries in 2Q2020, while the optimization of the network of external legal advisors is continuing. By the end of June 2020, 69% of staff were employed in business areas, with the remaining 31% in central functions. Assets managed per manager have reached a high level of efficiency (€108m in 1H2020), on the one hand due to the effects of recently acquired portfolios and on the other due to new hirings not yet finalized.
EBIT is up by 3% y/y, due to the negative effect of net impairment losses of €17.5m linked to the economic impact of Covid-19, which led to collection delays, and to a single name exposure. EBIT also benefits from the positive contribution of the net result of financial activities totalling €9.8m thanks to the sale of Government bonds (€8m) and the revaluation of AMCO’s equity investment in the Italian Recovery Fund (IRF)[4] of €1.7m.
Interest and fees from financial activities include: (1) interest income and proceeds from financial assets, mainly BTPs purchased in 2019 (€2.8m) and (2) interest expenses on bonds issued relating only to the accrued period (€8.1m).
Balance Sheet
The balance sheet structure is growing strongly, with assets and liabilities more than doubling in one year from €1.1bn at 30 June 2019 to €2.8bn at 30 June 2020. On the asset side, customer loans amount to €1,005m and include loans to customers relating to the Carige portfolio (€746m), Banco di Napoli (€111m), and Banca del Fucino (€92m)[5].
Financial assets amount to €1.345m and are composed of the equity investment in IRF of €489m, revalued by approx. €1.7m, and Government bonds worth €792m[6], representing available liquid assets.
Financial liabilities at the end of June 2020 amount to €913m, consisting mainly of the €250m senior unsecured bond placed with institutional investors in February 2019, under the Euro Medium Term Note Programme (EMTN), with five-year maturity and a fixed rate of 2.625%. The second senior unsecured bond issued in October 2019 amounts to €600m with 5-year maturity on January 27, 2025 and a fixed coupon rate of 1.375%, again under the EMTN program.
| Balance Sheet Assets (€/000) | 30/06/2020 | 31/12/2019 | Var % |
| Loans to banks | 371,800 | 324,338 | 15% |
| Loans to customers | 1,004,733 | 979,400 | 3% |
| Financial assets | 1,345,116 | 1,404,511 | -4% |
| Equity investments | 14 | 14 | 0% |
| Tangible and intangible assets | 6,112 | 6,816 | -10% |
| Tax assets | 77,816 | 79,912 | -3% |
| Other assets | 24,182 | 24,717 | -2% |
| Total assets | 2,829,774 | 2,819,708 | 0% |
| Balance Sheet Liabilities (€/000) | 30/06/2020 | 31/12/2019 | Var % |
| Financial liabilities at amortized cost | 912,511 | 915,507 | 0% |
| Tax liabilities | 3,701 | 8,201 | -55% |
| Provisions for specific purposes | 17,915 | 20,784 | -14% |
| Other liabilities | 70,763 | 52,353 | 35% |
| Shareholders’ equity | 1,824,884 | 1,822,862 | 0% |
| Capital | 600,000 | 600,000 | 0% |
| Share premiums | 403,000 | 403,000 | 0% |
| Reserves | 822,475 | 779,011 | 6% |
| Valuation reserves | (7,569) | (1,460) | >100% |
| Profit/loss for the year | 6,978 | 42,311 | -84% |
| Total liabilities and net equity | 2,829,774 | 2,819,708 | 0% |
It should be noted that on 9 July 2020, AMCO issued a senior unsecured bond divided into two tranches, for an amount of €1,250m with 3-year maturity and €750m with 7-year maturity, with settlement date 17 July 2020 and listing on the Luxembourg regulated market.
The 3-year bond has a fixed coupon of 1.5% and an issue price of 99.752%, while the 7-year bond has a fixed coupon of 2.25% and an issue price of 99.486%. The rating assigned to the issue, within the EMTN program, is BBB (Standard&Poor’s) and BBB- (Fitch).
Total net equity amounted to €1.825m at the end of June 2020, unchanged versus the end of 2019. The CET1 capital ratio is 69.8%; the Total Capital Ratio is also 69.8%, as there are no subordinated bonds on the balance sheet. The minimum regulatory capital requirements are 8% of the Total Capital Ratio: the company therefore has a strong balance sheet that enables it to manage potential risks and creates flexibility for further business expansion. The debt/equity ratio is 0.5x.
The CET1 pro-forma[7] is 36.3%, confirming the company’s strong capital position also following the transactions approved to date. The Debt/Equity ratio pro-forma is 1.6x.
RATINGS
On 30 June 2020, S&P Ratings confirmed AMCO S.p.A.’s Investment Grade rating. Both the Long-Term Issuer Default Rating (LTIDR) and senior unsecured bond rating are BBB with a negative outlook, the same as S&P’s sovereign rating on Italy. The rating agency states that with the transactions involving Banca Popolare di Bari and MPS, AMCO has confirmed that it plays a crucial role and enjoys an integral link with the Italian Government in derisking the balance sheets of troubled banks. S&P thus continues to align the long-term ratings on both AMCO and Italy.
On 1 July 2020 Fitch Ratings confirmed AMCO’s Investment Grade LTIDR at BBB- with Stable Outlook and Short-Term Foreign Currency IDR of F3. The confirmation follows the announcement of transactions with Banca Popolari di Bari and MPS, strengthening AMCO’s links with the Italian government. Fitch Ratings thus continues to align the long-term rating assigned to the company with that assigned to the sovereign.
STATEMENT BY THE MANAGER IN CHARGE OF PREPARING THE COMPANY’S FINANCIAL REPORTS I, Silvia Guerrini, in my capacity as the Manager in charge of preparing the company’s financial reports, do hereby declare, pursuant to paragraph 2 of Article 154/bis of the Consolidated Finance Act, that the accounting information contained in this press release corresponds to the documented results, financial accounts and accounting records.
[1] Pro-forma including the portfolios of BP Bari (July 2020), Creval (August 2020), the second tranche of UTPs from Carige (July 2020), and the MPS transaction (by the end of 2020).
[2] The additional costs incurred are: €0.2m for the upgrade of technological tools, €0.3m for the sanitization of offices. An additional €0.4m is budgeted for Covid-19 containment measures in 2H2020.
[3] Accounting method POCI – Purchased or Originated Credit Impaired – which calculates EIR interest – Effective Interest Rate.
[4] Italian Recovery Fund – previously called Atlante Fund – is a closed-end alternative investment fund regulated by Italian law, reserved to professional investors, set up for the purchase of financial instruments of different seniority, issued by one or more vehicles set up and/or to be set up for the purchase of bank NPLs. The fund’s maturity date is 31/12/2026.
[5] Plus loans related to the Creval (€34m), ICS (€10m), Igea Banca – Banca del Fucino (€8m), financing to Back2Bonis – Cuveè (€4m) portfolios.
[6] Also includes €46m related to the Back2Bonis fund.
[7] Pro-forma including the portfolios of BP Bari (July 2020), Creval (August 2020), the second tranche of UTPs from Carige (July 2020), the MPS transaction and the €2bn bond issued in July 2020.
