2022 02 15 Transcript Conference Call FY-2021 Results (English version only)
Please note that the conference call was accompanied by a complementary presentation in PDF format available on the Group's website:http://www.coface.com/Investors, under the "Financial results and reports" section.
FY-2021 Results
Conference Call Transcription
IMPORTANT INFORMATION- In the conference call meeting upon which this transcript is based, Coface made certain forward- looking statements. Such forward looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. Forward-looking information and statements are not guarantees of future performance and are subject to various risks and uncertainties. Actual results could differ materially from those expressed in, or implied or projected by, forward-looking information and statements.
Readers should read the Interim financial report for the for the first half 2021 and complete this information with the Universal Registration Document for the year 2020, which was registered by the Autorité des marchés financiers ("AMF") on
Please refer to chapter 5 "Main risk factors and their management within the Group" of the
The information contained in the transcript is a textual representation of the conference call and while efforts are made to providean accurate transcription, there may be material errors, omissions, or inaccuracies in the reporting of the substance of the conference calls. In no way does Coface assume any responsibility for any investment or other decisions made based upon theinformation provided on this transcript.
Presentation
Moderator
Ladies and gentlemen, welcome to the conference call for the presentation of Coface's results for the period ending
Xavier DURAND, CEO, COFACE
Thank you and good evening, everyone. Thank you for joining this call. We are happy to report our full-year 2021 results.
I think you're aware this has been quite an exceptional year for Coface. Nothing really happened as planned, but it's still a year where we managed to reach all our key objectives. We're reporting total net income of
In terms of claims, the loss ratio has improved by 14.4 points to 33.3% for the year. The net combined ratio comes in at 64.6%. If you exclude the government schemes, we're at 54.5% for year. That brings the net loss ratio to 50.4% and 10.9% excluding government schemes for the fourth quarter. The net cost ratio has improved from last year by 0.8 points and that brings the net combined ratio for the fourth quarter to 83.0%.
The big news here is what we've done on the government schemes. They lowered our pre-tax profits by
From a balance sheet standpoint, you see on the next page that we're coming out strong at the end of 2021. The solvency ratio comes in at 196%. What's important is we don't expect any further significant impact from government schemes in that ratio. The solvency is way above our target of 155% to 175% as you know. We have renewed our reinsurance cession rate at 23% like prior years. The private reinsurance programme has been renewed under improved conditions despite the fact that the market is generally tighter. That brings the total retuon average tangible equity for the year to 12.2%. This strong balance sheet and the profitability of the business allows for a record dividend of
You'll recognise the two pillars. Number one, building leadership in the trade credit insurance space and we've got three points here. One is simplifying and digitising the operating model. If you think of where we are here, about 75% of our products have been migrated to the new product suite, which is a condition to further digitisation of our business, and that's in the mid-market space. We have been investing and we are investing heavily in digitisation. In total through the plan, we will invest about
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other companies do, and in the second half of 2021 our Net Promoter Score was above 30%. I take that as a sign that we're moving in the right direction and this business is appreciated by its clients.
In terms of information and risk capabilities, I think we've proven through the last two years that we can navigate a pretty volatile and uncertain environment. This is one of the things we had discussed initially when I joined Coface. We're now using the partial internal model for pricing and we are also investing in improving our trove of data. This is one of Coface's assets, and we're continuing to build and enlarge our database from 70m to 130m corporates. We've also increased the number of fields that we track on each one of the companies around ten-fold.
In terms of growth, we've completely realigned our organisations across regions. We've been driving retention for several years in a row through both services and technology, and we've been expanding progressively into new risk segments like excessive loss in the US, bonding in
The second pillar is really about growing select specialties. Over last three years, we've been turning around our factoring business. I think we've done a great job here, driving better business through higher value segments such as private equity and cross-border. Improving the risk profile of the portfolio, in terms of being self-liquidating, in terms of increasing efficiency and investing in our tools to manage this business and then optimising its capital consumption, which you'll see in the solvency calculations.
Single risk in bonding is now led by a senior leader. We're reinforcing our business in key markets. We're launching in new places and we're starting to look at it from a reinsurance standpoint as well. Finally, information and services, which is certainly the biggest initiative we've had in terms of adjacencies in this business. We're aggressively developing it as a new core activity for Coface. We're investing in the platform and we're taking the opportunity of a relatively low claims environment to launch a new single worldwide collection tool in 45 countries, which really updates our technologies in the space. So, there is a lot going on, not just managing the crisis, not just managing the performance, but also continuing to change this business at its heart.
If you go to page 7, there are further details on what we're doing in terms of information. This whole thing started with the realisation that we had an underutilised asset in the company, which is the data we use for our own credit insurance business. We have assets in terms of companies' data; we have payment behaviour data; we have underwriting expertise. There are hundreds of people around the world who are focused on managing solvency and scoring companies, and then we have a global network and a global brand which is recognised in the industry. So, when we come with data, it's not just data that is being collected by us, it's data that's being utilised to manage
So, we've been investing in the platform over the last few years, whether it's in terms of sales or recruiting more people. We've actually almost tripled the FTEs on this business. We've doubled the number of companies that we follow and increased ten-fold the number of fields that we track on each company. We are expanding the range of products that we're offering and then we're investing in the technology to be able to manage this data and make it available in an easy format for our clients. Our total services are up 27% over the last three years, which comprises 48% growth in information and a 29% decrease in debt collection. That will change at some point when the cycle reverses but our information business has performed pretty well. The reported number is
On page 8, we see the key financial targets we set for Build to Lead. The combined ratio is below 80%. You can see we were actually below that for the last three years. This year is particularly strong at 64.6%. A pay-out ratio which is commensurate with our solvency ratio, so solvency's been way above our target range again this year at 196%. The
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pay-out ratio has been 100% for the last two years and the retuon tangible equity, despite the fact that we have actually probably more equity than we really need, is at 12.2% for the year, so well above the 9.5% that we targeted in Build to Lead.
On page 9, I also wanted to give you an update on our CSR strategy. We're at this point now where we're embedding the strategy into our daily operations and we're setting specific targets. There are three key pillars. One is becoming a responsible insurer. On this, we've done several things in the last couple of years. We've improved the ESG rating of our investment portfolio by 1 notch from C- to C. We built and tested an internal tool to assess the environmental impact of our debtor portfolio, so this is something new. We've also integrated some ESG indicators into our risk appetite statements. Moving forward, we want to continue to work on the investment portfolio ESG rating. We set a clear target of a 20% reduction of investment portfolio emissions by 2025. We want to integrate the environmental policy into our commercial policy. We can do this using the tool that we have and as the taxonomy of green, brown and black investments is developed. Then we want to upgrade our procurement policy.
The second pillar is really being a responsible employer. We've worked hard on diversity and inclusion. The standards that have been made mandatory for French companies are now being applied throughout the world. We've improved our diversity index by three points over 2021. We've been very specific about LGBT+ inclusion. We've increased employee engagement by 24 points and we are driving employee development. We still need to formalise our Diversity
- Inclusion policy. We continue to work on digital tools to be able to on-board people as we spend less time in the office and more digitally. We want all these on boarding questions and training issues to be handled in an easier way for people. We've committed to a specific target of 40% women in senior management. What we're talking about here is not the Executive Committee but the top 200 jobs globally in the company, so that goes well beyond the target that companies usually track.
In terms of being a responsible enterprise, which is how much we ourselves consume in terms of carbon, we've launched a full carbon footprint assessment with an outside firm. We've been working on our policies to reduce our carbon consumption whether it's by introducing electric vehicles in our fleet, monitoring travel policies, how much our buildings consume and how much we use buildings. As two areas that we're still working on, one is to develop a reduction plan to achieve net zero. I think that's something we've got in front of us. And then as we move increasingly from brick and mortar to digital, to be able to define a responsible IT roadmap because we're increasingly using digital tools, which transfers some of the burden onto IT. We set a short term target of a 3g CO2 reduction in our car fleet. We've got to start somewhere and we're continuing to work on this.
And then the last pillar is about driving the culture inside the company and making sure everybody is involved. We've got some grassroots movements that have been initiated by our employees, called the Green to Lead initiative. We're supporting that. We want to make sure that we have all our employees formally trained by the end of 2022. We're revamping our governance. The goal here is to make it an enterprise endeavour, not just something that's managed from the top or dictated to people in the company.
With that, I'm going to take you now to the usual pages that we review during these calls. There's a lot of stability as you know in our presentations from here on.
So, again on page 11, we had a very strong growth year. Total revenue was up 8.3% and TCI was up 9.7%. Business information increased 18% in 2021 and 30% in the fourth quarter. Factoring was up almost 11%, third party collections were down. The fees ratio to premiums is down and that's really driven by the fact that for our insured clients the collection fees have been lower and that's correlated to lower claims.
On page 12, we look at the geographies. Growth has been pretty much spread out and the underlying reasons are pretty consistent across the regions so I'm not going to comment on them individually. We see that WesteEurope, NortheEurope,
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starting to pick up a little bit of momentum.
If we go to page 13, you can see the usual way we look at growth. It was still a pretty good year for new business at
On page 14, talking about the loss ratio, you can see that it comes in at 21.4% for the full year 2021. The quarterly sequence here shows that we reached a very low point at 10.5% for Q4. Some of the same trends that I've highlighted before are still pretty much in play here - continued limited large loss activity, low claims frequency across all the regions since Q3-2020. A high of level reserves are still being released. I think we've reached the trough in the claims, which happened at the end of the first half of last year and since then we have been seeing a normalisation. There's been no change in our reserving policy. You can see on the bottom right-hand side that we're opening the new year at 66.3%, which really reflects our expectation that claims are normalising, but this is happening progressively, and then you're seeing the 47.7% recoveries on prior years, which is actually exceptionally high.
Moving to page 15, you can see the loss numbers for the year by region, which are quite low pretty much across the board with WesteEurope, NortheEurope,
On page 17, you can see our costs during the year have grown by 7.1%, and they're growing mainly due to employment costs. We had low bonuses in 2020, on the back of lower performance. That has been reversed obviously in 2021, however, the growth in the costs is lower than the growth in the premiums so we get operating leverage during the year. Our cost ratio before reinsurance dropped from 36% in Q4 2020 to 33.2% in Q4 2021, and the net cost ratio at the bottom right-hand side of the chart fell from 33.7% to 33.1%, which gives us about 1.4 points of positive operating leverage. The investments that we've made in business information had a negative impact of 0.2 point and then lower collection fees, which I've already commented on, had a negative impact of 0.6 point. The message here on costs is that we're disciplined, we're thoughtful, and we continue to invest. Every year, whether we're growing or not, you can see that we are actually improving the cost ratio of the business.
With that I'm going to tuit over to Phalla to take us through the next pages.
Phalla GERVAIS, Group CFO and Risk Director
Thanks, Xavier. Our reinsurance result reflects the low loss activity and impact of the public schemes. The premium cession rate dropped from 46.4% to 39%. As a reminder, the public schemes ended on 30 June last year. The cession rate drop was very sharp indeed, from 50.7% to 5.0%. The reserve releases resulting from positive developments in prior years and especially in 2020, as mentioned by Xavier, go back to the reinsurers and in particular to the government that put in place the public schemes. The reinsurance result on the bottom line, which is a cost for Coface went from
If we move to the next page, page 19, let's focus on the government schemes and impacts. We think that that we have recognised a large majority of the costs related to these schemes. The chart on the top left-hand side has two bars - dark blue and green. Dark blue represents the published combined ratio and green is the combined ratio including the
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