2022 02 15 Transcription Résultats FY-2021 (Version Anglaise uniquement)

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

Paris, 15 February 2022

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. The Coface Group is under no obligation and does not undertake to provide updates of these forward-looking statements and information toreflect events that occur or circumstances that arise after the date of the said meeting.

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 31 March 2021 under the number No. D.21-0233. These documents all together present a detailed description of the Coface Group, its business,financial condition, results of operations and risk factors.

Please refer to chapter 5 "Main risk factors and their management within the Group" of the Coface Group's 2020 Universal Registration Document in order to obtain a description of certain major factors, risks and uncertainties likely to influence the Coface Group's businesses. The Coface Group disclaims any intention or obligation to publish an update of these forecasts, orprovide new information on future events or any other circumstance.

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 31 December 2021. As a reminder, this conference call is being recorded. Your hosts for today's call will be Xavier Durand, CEO, and Phalla Gervais, CFO.

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 EUR 223.8m, of which EUR 32.9m in the fourth quarter of 2021. I'm most pleased with growth in turnover, which reached EUR 1,568m, which is up 8.3% at constant FX and perimeter for the year. Trade credit insurance is growing by close to 10% at 9.7%. Pricing is still slightly positive but, as I've I highlighted in previous quarters, it has now been negative for the last three quarters. Information Services grew 18% for the year and 30% in the fourth quarter. Factoring is up almost 11%. Debt collection is down 24% but that's really not a surprise as the claims activity has been pretty low and there's a very strong correlation between the two.

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 EUR 160m in 2021, of which EUR 103m in the fourth quarter, which means that we anticipate that a large majority of the expected cost of the government programmes has now been taken into our accounts. That brings the total net income for the year to EUR 223.8m, which means earnings per share of EUR 1.50 compared to the EUR 0.55 that we had in 2020.

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 EUR 1.50 per share, which is a 100% pay-out ratio. This is right in line with what we've done and what we said we would do in our Build to Lead target. So, we delivered I think a very strong financial year, but we are also completely on track with our Build to Lead strategic objectives. I like to give you a periodic update on where we are on these plans, and this why we put in a page on page 6, which gives you an update on what's happened during the year.

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 EUR 100m in technology to make our business leaner, faster, and better, and that's well underway. We're moving people into shared data centres where we get more productivity, more standardization, and then the one thing that's very important is client satisfaction. One way that we measure this is through NPS, like many

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 Romania and other things.

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 EUR 600bn in exposures, and I think that carries weight with our clients. We also realised there is a need for that kind of service in the markets. People want to make informed decisions. They want better quality, better speed and a one stop shop. They want insights rather than just data, and I think we're well positioned to offer these kinds of products.

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 EUR 42m. That's what we consolidate. If you add the entities that are not consolidated, we're at EUR 48m. Despite all the investments that we're making, the contribution margin is above 30% and this platform is able to actually self-finance the investments we're putting in it. That's what I wanted to highlight here on the information business.

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

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, Central Europe, and Med & Africa were all in the 8% to 9% range. North America is lower but it's

starting to pick up a little bit of momentum. Asia Pacific is at 5%. Latin America is quite high at almost 15% and that's driven by commodity and agro-food prices.

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 EUR 129m although not quite as good as 2020 and 2019. Retention is almost at a record, and it's been very stable for the last three years. The price effect is still positive, but the market has become very competitive and pricing was down during Q4, as it was Q2 and Q3 as well. And then the big driver here of our rebound is activity, which is up by 8.4%, which is a very strong performance after the drop in 2020.

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, Central Europe, and Med & Africa all in the 20s or lower, and then the most volatile markets that we're usually more concerned with - North America, Latin America, Asia Pacific - all in the teens or below. So, it has been a really very strong year in terms of losses and, if you look at page 16, which gives you the quarterly story, six of our southeregions are in the single digits loss ratio for the quarter, and one, Med & Africa, is at 15% which is quite benign for the business that we're in. So clearly very strong performance across the board.

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 EUR (44.1)m pre-tax to EUR (314.3)m. The private reinsurance treaties were successfully renewed with the same quota share and improved terms and conditions in a tighter market.

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