Bullish indicating open at $55-$60, IPO prices at $37
Coface SA reported its second-quarter 2025 earnings, highlighting a net profit of €124 million for the first half of the year. The company saw a 2.3% increase in turnover, reflecting its strategic investments in technology and new business segments. With a market capitalization of $2.79 billion, the company has demonstrated strong momentum, achieving a 22.62% year-to-date return. According to InvestingPro data, Coface maintains an attractive P/E ratio of 9.56 and offers a substantial dividend yield of 8.64%.
Key Takeaways
- Coface achieved a net profit of €124 million for H1 2025.
- Turnover increased by 2.3%, driven by strategic investments.
- Business information and debt collection services showed significant growth.
- Stock price rose modestly by 0.68% post-earnings announcement.
Company Performance
Coface demonstrated resilience in a competitive market, with a net profit of €124 million for the first half of 2025. The company’s turnover rose by 2.3%, supported by strong performance in its business information and debt collection services. InvestingPro analysis reveals the company maintains a robust financial health score of 2.66, labeled as "GOOD," with revenue growth of 1.41% over the last twelve months. However, the factoring segment experienced a slight decline of 1.5%. For deeper insights into Coface’s financial health and growth prospects, investors can access the comprehensive Pro Research Report, available exclusively on InvestingPro.
Financial Highlights
- Net profit: €124 million for H1 2025
- Turnover: Up 2.3%
- Return on Average Tangible Equity (ROATE): 12.6%
- Combined Ratio: 71.3%
- Solvency Ratio: 195%
Outlook & Guidance
Coface remains focused on its strategic growth areas, particularly in business information and debt collection services. The company plans to maintain a conservative risk approach amid a challenging economic environment, characterized by high global insolvency levels and slow GDP growth. With a beta of 0.7, the company shows lower volatility compared to the market, while maintaining a healthy current ratio of 1.06. InvestingPro has identified several additional key metrics and insights available to subscribers, including detailed analysis of the company’s risk profile and growth potential.
Executive Commentary
CEO Xavier Duran highlighted the company’s strong performance despite economic challenges, stating, "We are delivering a combined ratio of 71.3, which is below what we had ambition as mid cycle." He emphasized the potential in the business information segment, noting, "We are investing deliberately in that area because we think there’s potential there."
Risks and Challenges
- Global economic slowdown, with GDP growth at its slowest in a decade.
- High global insolvency levels, 25% above pre-COVID figures.
- Slightly negative pricing environment, with a pricing impact of -1.4%.
- Inflation-driven cost increases affecting strategic investments.
Q&A
During the earnings call, analysts inquired about the impact of the newly launched Lloyd’s syndicate, which is expected to affect a small percentage of the existing client base. The potential for growth in the business information segment was also a focal point, alongside the impact of foreign exchange on the combined ratio.
Full transcript - Coface (COFA) Q2 2025:
Conference Operator: Good day, and thank you for standing by. Welcome to the Coface SA First Half twenty twenty five Results Call. At this time, all participants are in a listen only mode. After the speakers’ presentation, there will be a question and answer session. To ask a question during the session, you will need to press 11 on your telephone.
You will then hear an automated message advising your hand is raised. Please be advised that today’s conference is being recorded. I’d now like to hand the conference over to your speaker today, Xavier Duran. Please go ahead.
Xavier Duran, CEO/Management, Coface SA: Thank you, and thanks to all of you for logging in. We’re happy to report our first half twenty five results. You’ve seen from the headline, a $124,000,000 net profit for the first half. We qualify this as strong results. You you’ll see through the pitch some of the same themes that we’ve highlighted over the prior quarters, but I’m just gonna go through the key points here.
Turnover is up 2.3% at all things equal, with insurance growing 1.7%, a little bit of positive client activity even though there’s no clear trend there. The client retention remains at a at a near record level. Pricing continues to be, I would say, within the the average trend line of history. Good growth on business information growing almost 15%. Debt collection, strong growth at 35% for the first half.
Factoring remains, I’d say, the slow point here. As you know, we are a factor in Germany and in Poland, and that’s the heart of Industrial Europe, is the toughest place probably at this point in in Europe. The loss ratio is up five points at 40%, which brings the net combined ratio for the first half to 71%. We will go through the risk numbers later on the slides as we usually do, but pretty much the risk, I would say, is under control in an environment where which is, obviously more uncertain and more difficult than it was in the last four years. We have a net cost ratio, which has increased by 2.8%, which has both contains both the effect of the the slowing inflation and also a deliberate investments, dynamic investments by ourselves, which are very much in line with the strategy that we’ve highlighted, for Power the Core a year ago.
We are building, our on data. We’re building on technology. We’re strengthening our core expertise in credit insurance. We’ve announced a leadership change here with Georg Dibald, joining CoFAS, with a long history of both working in, in financial services in large groups and leading, a start up fintech in a start up fintech environment in Germany. And so he’s joining to lead, the BI and the partnerships areas, which are two growth areas for CoFast.
And then, Thibault Surer, which has been with us for more than nine years, is gonna lead and focus on technology, leading a new newly created technology hub. That’s really, really, taking, stock of the importance of technology of data for us both in in the BI, but also in the core insurance business. We’ve announced the creation of a Lloyd’s syndicate that’s gonna give us two notches of improvement, capability in our solutions to clients, and that’s particularly important for our financial institutions clients. We acquired Cedar Rose. We announced that last quarter, and we’ve closed that transaction.
We’ve also signed and now closed as of today the acquisition of a small company in Switzerland called Novoter International. So total of 124,000,000 for the first half with 62,000,000 in the second quarter brings the return on tangible equity to 12.6%. Strong balance sheet as well. We estimate the solvency ratio at a 195%, which is just almost the same as at the 2024 and clearly above our target range of, one fifty five to 175%. On the next page, we provide a little bit of a a background on the on the the environment.
I mean, you see on the top left, global GDP growth. As as you know, we’re we’re pretty much a reflection of the global economy. We we provide services in 200 countries in all sectors of activities. And what you see here is that 2025 so far is shaping up as being the slowest growth year in the last 10 on a global basis, barring, of course, the COVID, 2020 events. But, so it’s a sluggish growth environment, I would say.
You see the corollary of that on the bottom left, which is the global, insolvencies. Not only is it higher than where we were in 2019 pre COVID by something like twenty five percent, but it’s also the highest level of insolvencies we’ve seen in in the last ten years. So I think I think we can say we’re we’re clearly in a a tougher part of the of the cycle. As a result of this, we are managing risk actively. We’re we’re taking action.
You can see on the top right hand, the level of limit actions we’ve taken is 16% higher than it was at the same time last year and 50% higher than what we did in in 02/2019. So our actions take into account the environment. And, and I think we’ve got the risks. Our our policies have not changed. We we have been, I think, the past few years quite rigorous in the way we approach risk, and then we continue to do so in in this in this part of the cycle.
We’re also investing, and you’ll see that in the numbers. We are adding salespeople in TCI where we see market opportunities that are both profitable and and less tapped. We are above 800 people now in business information and data. This includes the the two businesses we bought. We’ve added 30 salespeople in two years in the debt collections teams.
We have created a a tech hub and staffed it with about 30 engineers in AI, and we have realigned the management structure. So all of these are clear investments that we’re making, betting on the future, but I think they, the good news is we’re starting to see some some some numbers move. The new business for trade credit insurance in q two is up 21%, so that’s the best that we’ve had in five years. Business information continues to to grow, double digits, and new business, year to date is up, 38%. Debt collection revenues are up 56% in q two, so we we see the impact and and actually the market appetite for the solutions that we’re able to provide.
And then we are introducing AI generated credit scores for our information clients, which are progressively, replacing the older versions of scores. And, and, clearly, it’s providing both better accuracy and better, productivity and better efficiency. So so, clearly, investments in that, in that space. In terms of the level of companies that we are able to get data on, we continue to increase our patrimony. We have an index now that reaches 240,000,000 companies around the world.
And, and so so clearly, investments going in. I think, we are continuing to do the the hard things in this business to invest in the future, and that’s gonna that’s gonna help going forward. The next page really talks about CSR, and I’ve had the opportunity to present this page or an update to this page several times already. So I’ll I’ll go quickly through the key pillars. As a responsible insurer, we are committed to reducing the carbon consumption of our portfolio.
We had set for ourselves a target of 30% reduction by 2025 and 40% by 02/1930. The good news is we are ahead of this ambition Through, the selection of, where we invest our money, we have been able to reduce the carbon consumption of our portfolio to the tune of 48% by the end of 02/2024. So clearly, good progress there. As a responsible employer, we, want to make sure we get, top notch engagement from our, employees, and and the latest survey results we get position is clearly in the top quartile of our industry benchmark. If not, in the top 10% on on on a number of those, of those criterias.
We’re continuing to work hard on diversity and inclusion. We’re, we’re focused on on disabilities, and we’re focused on achieving a forty percent target of women in the top 200 managers by 02/1930. We started out with thirty four percent in 02/2022, and we achieved thirty eight percent by the ’24. So good progress being made. We do not want to compromise in any way on the quality, which means that we have to continue to build, female talent pipelines throughout the entire organization.
And then as a responsible enterprise, we wanted to reduce the consumption, the emissions of carbon by our business by 11% by ’25 from from 02/2019. We’ve actually achieved 27% in absolute numbers. And if you take into account the fact that we’ve added staff in the business, it’s actually a 37% reduction per person. And and a good chunk of this is linked to reduction of travel, fewer smaller offices, less commute, work from home policies, etcetera, which have been allowing us to reduce quite significantly our our carbon emissions. We’re driving the culture.
We we I think this has been a multiyear effort. We have achieved a silver rating from EcoVadis last year. We are expecting soon a new rating on their behalf. We hope that’s gonna that’s gonna recognize the efforts that we’re making. But, clearly, it this is now an initiative which is embraced, I would say, throughout the company and and serves as a actually, a common theme that we can all refer to.
Going to the next pages, which you’re very familiar now with because we we pretty much keep the same formats every quarter. Turnover, as I said, up 2.3%. Services are up 8.2%. So now it’s been a few quarters that we see that services are actually helping the top line growth numbers. Within that, you see trade credit up 1.7, business information 14 and point seven, third party debt collection.
So these are debt collection services sold to non insured clients is up 35%. Factoring is down 1.5, not much there. The that’s news. I think it’s the heart of industrial Germany. And then, the insurance fees are continuing to grow in line with the with the premiums at 2.5%, so that’s something that contributes really nicely to our bottom line.
On the next page, we describe the split by region as we usually do, and and what you see, plus or minus, some some one offs is is a reflection of the global economy. I’ll start with Northern Europe, which includes mainly Germany, and Northern Europe. It’s, it’s down it’s actually up slightly 0.1%, so reflecting, I think, the the this slow, economy in that part of the world. Central Europe is negative, and There’s been a couple points of that negative, which is due to the transfer of the large clients to Asia Pacific. So pretty much, evolves as the Northern Europe.
Western Europe is slightly better. That includes France and and The UK and Switzerland, so slightly better numbers there. Even better numbers when it comes to the Med And Africa region with, three percent growth. That includes Spain, Italy, and, and the The Middle East. North America, a little bit lower than but but that 2%.
Asia Pacific doing pretty well. Gotta take a couple percent out of this for for transfer from Central Europe. And then Latin America, continues to see good growth on the back of local inflation and and commodity, soft commodity prices, which they they make a lot of. On the next page, continued growth story on new production. You see that this is the year we’ve had in in many with new business up actually, 21% in q two.
That’s the reflection both of a continued demand in the market as there is a lot of uncertainty out there. People are interested in the solutions we have to provide. And then, clearly, a also the the investments that we’re making in in sales and, and trying to tap, lesser segments, I think that’s paying off. Retention rate is actually, very good at 94%, close to our record level. So very we’re we’re staying very close to our clients, very consistent in the way we manage, risk and, and servicing.
Very, very focused on servicing our clients well. In terms of price, we are, negative 1.4. That’s pretty much the average of the last ten years. Market remains extremely competitive. I think we continue to see actors that are willing to take, a high level of risk and or maybe a level of returns that that that are not, awesome.
So we we stay very consistent to our strategy of delivering value through the cycle. And then, finally, client activity. Client volume is slightly up. No clear trend here. It’s up one month and down the next month.
It varies by region. So I think there’s been a lot of posturing in anticipation of the of the tariff policies by different actors in different industries, and some have tried to stock ahead of the of the imposition of tariffs and things like this. So it’s a little bit murky. No very clear trend at this stage. If we go to the next page, we are on losses.
So the gross loss ratio, as you can see, q two twenty five stands at 36.9. It’s clearly higher than where we were in 02/2024, but it’s better than actually in q one. I would say claims activity is back to pretty much historic levels. We are seeing higher amounts. There’s been some inflation, and, we are seeing severity continuing to increase slowly, but surely, bigger and bigger companies in all sorts of sectors and countries are being impacted than was the case before.
We haven’t changed our reserving policy. We still open the new vintage, as you can see, at 78 something percent, similar to prior years. We are getting good, bonies from the prior vintages. It’s actually 41%, albeit a little bit less than last year, which reflects, the slight slow, but but, but a certain increase in risk that we’re seeing in the market. On the next page, we describe as usual the risk for the total year, for the last four years.
I don’t think there’s much news here, so I’d rather focus on the next page, which describes the risk by quarter. And and I think the story here is that there is not much actually to see. You can see the four largest and most stable regions of our of our organization at the bottom, and pretty much all of them are are at very good levels in the 40% or or lower. There are little spikes here and there that will tie to one file or another, but, pretty much not much to say or not much to report. Same thing on the three smaller, more volatile markets on the top of the chart.
There are variations. Again, these are small regions, so so they’ll be more volatile, and they’re inherently more risky at being, faraway places. But we’ve got that, I would say, pretty much under control so far, and, and there isn’t much to to say again. So I think we’ve got risk well under control even though the market, is not in the best part of the cycle. If we go to the next page, we talk about costs.
And as you can see, which was pretty much the case also last quarter, our costs are up 8.2% from from the q two two thousand and twenty four. The cost ratio is up, and you’ve gotta walk on the top right hand of the chart here that shows, how we go from 32.6 in the ’24 to 34.6, so a 2% increase in 02/2025. Point 6% is really, I would say, the aftermath of the the the inflation surge and, recession that we’ve seen, in the last few years. So we’ve, have embarked cost inflation that is not now reflected in the activity of our clients. That’s about 0.6 points.
We are getting better contribution from services because they are growing, so they’re contributing to lower our cost ratio. And then finally, we are investing to the tune of 2.3 points. Within that, about 0.6 is tied to investments we’re making in the insurance sector, mainly sales and distribution. And then the 1.7 points are linked to business information and debt collections. We are investing deliberately in that area because we think there’s potential there, and and we are seeing progress in a number of markets.
So I think it’s worth it even though it it means that we are slightly below the line in terms of the contribution of that business. But I think it’s the right thing to do for the for the future. So that’s pretty much the the story for cost. And with that, I’m gonna turn it over to Fala for the reinsurance page.
Fala, CFO/Financial Management, Coface SA: Yes. Indeed. So we are now on page 16 on the reinsurance side. You can see that the premium session rate is pretty similar to half year ’24, while the claim sessions rate has increased from 22 to 23%. This lead us to a reinsurance result of minus 52% compared to last year.
And of course, last year was exceptional for us, so exceptional also for our external reinsurers. Let’s move to Page 17. So the net combined ratio at 71.3 with the net cost ratio, if you compare half year to half year, moving up by 2.8 points, and this is pretty similar to what Savi said in terms of increase of the cost ratio, gross cost ratio. When it goes to the net loss ratio increased by from 35% to 40%, so five points. Again, I think if we don’t compare to last year, was probably much, a very excellent year for us.
Now much more comparable to the half year 23 level, but in a much tougher economic environment. If we look at the q two only, I think, again, I would not compare that with the q two twenty four, but because in q two q two twenty four benefited from much higher, reserve release of burn from prior years. So and if we look at it and compare to Q1 twenty five, which is much more the same environment, the increase is about five points. I just want to highlight also the fact that in Q2 twenty five, given the internal reinsurance structure that we have and the drop of US dollars compared to euro, this has created, I think, a negative impact on net loss ratio. Part of that is basically offset and you see in the following page in the IFE line, it’s just a geography of booking of the FX impact.
Now we’re moving to Page 18. So the financial portfolio started with the mark to market value of EUR 3,200,000,000.0 after the payment of EUR 200,000,000 of dividend at the May. You can see that we’re still maintaining the same more or less the same asset allocation with a very high level in terms of liquid assets. This is a 13% bucket that you can see on the left hand side. When it comes to the investment income, I will start with the recurring income, which is moving from EUR 48,000,000 to EUR 52 and the accounting yield, which is now slightly improving, but more or less at 1.7% for half year.
When it comes to the FX lines, I will provide you with the same comments that we had in Q1. Actually, this is the minus EUR23.7 million is made of minus EUR6.7 million of hyperinflation accounting on Turkey mainly. And then FX loss, which is minus EUR17 million due to the U. S. Dollars dropped compared to euros, and this is really the loss on our investment assets.
On the other side, you can see the offset in the investment finance expense line, EUR 6,700,000.0. This is positive amount, out of which actually you have an FX gain of EUR 23,000,000. Of course, part of that is offsetting what I just said before on the asset side minus EUR 17,000,000, and part of that is offsetting the negative impact on the net loss ratio. So we need geography of booking. This lead us to a net income of 124% and operating income of 186,000,000 compared to $217,000,000 back to actually the first half twenty twenty three level.
Return on average tangible equity at €12,600,000,000 If you look at the average equity moving from 2,000,000,194 to EUR 2,000,000,000 EUR 2,100,000,000.0. Of course, we paid the full year dividend minus EUR $2.00 9,000,000,000, and we only account for the half year result. Return on average tangible equity moving from 13.9 to 12.6. This is similar to what we got in Q1. I think Q1, the return on average tangible equity stood at 12.7, So no change, no much change.
This quarter, we also have the solvency ratio and the balance sheet position. So total balance sheet at EUR €8,070,000 We talk about insurance investment, 3,200,000,000.0. Factoring assets totally backed by factoring liabilities, nothing much to say here. And, you know, we’re trading above the book value, of course, and above the tangible book value. Solvency ratio, a robust one.
We’re moving from one ninety six to one ninety five, one ninety six at the end of last year. You can see that, I think the operating the the operating results, which is the on fund valuations, is more than offsetting the SCR increase, which is, of course, sustaining the growth of our business. On the right hand side, you can see the two series of shock, the usual ones. So the market shocks, again, we will be above the upper range of our comfort zone. And then the one in 51 in 20 events, again, we will be on the upper range of our comfort zone.
If we move to page 24, this is how our 195% of solvency ratio is made of. You can see the capital requirement of 1,000,000,370 to be compared with, 72 eligible funds of €2,673,000,000. Xavier, I give the floor back to you for the outlook.
Xavier Duran, CEO/Management, Coface SA: Yep. So, this is pretty much the summary of the of the first half. We consider it to be a good first half. Net profit, one twenty four, 12.6% annualized ROATE. Clearly, a tougher insolvency cycle.
The con economic environment is is complicated. There’s a lot of uncertainty out there. We’re delivering a combined ratio of 71.3, which is below what we had what we had ambition as mid cycle. The q two is close to our mid cycle levels. And while we continue to invest, so we’re we’re not betting on a on a on our investments.
We’re doing the hard things, investing for the future. We it’s it’s hard to predict where the environment goes. I mean, tariffs are slowly falling in place. It’s not, as bad as some feared, but it’s clearly much higher than it used to be. So there I think, there is to be seen, what impact this will have.
Europe is still a slow place in general. We are investing. We are, we created a new tech hub. We are creating a Lloyd Syndicate. We acquired Cedar Rose.
We acquired Novatur. We are investing in TCI sales. We are innovating, I think. So I I I think our our strategy is right. I think we are very consistent with everything we’ve said about the company in the last few years about the power of the core strategy that we’ve laid out a year ago.
And we’re starting to see tangible, results materialize in in some of the metrics I I mentioned earlier. So that’s, I think, positive. And, with that, I would like to turn it back to to the audience for questions.
Conference Operator: Thank you. Our first question comes from the line of Benoit Velo of ODDO BHF.
Benoit Velo, Analyst, ODDO BHF: I have two questions, in fact. The first one is related to your new captive at Lloyd’s offering a AA rated solution to clients. I mean, can you just, I don’t know, quantify or give us any view on what is the potential level of premiums or where you’re coming from this new entity? The second question is related to BI. And I think that you mentioned the fact on when you comment on cost evolution that you made an investment, which has a negative impact of 1.7 percentage point from BI on your gross cost expense ratio.
And at the opposite, you have some slight positive effect due to product mix. But net net, it’s a drag on your expense ratio. You managed the business to be breakeven in the past. So can you just also quantify what has been the earnings from this business in Q2? What is the amount of investment or asset net losses from the business?
And if you still expect BI to be EPS negative on your RoTE for 0.5 percentage points in ’27? And the third question, if I may, is related to solvency margin. Do you have an issue on what could be the potential impact from you from the Solvency II review? Thank you.
Xavier Duran, CEO/Management, Coface SA: I’ll leave the last one for for Fala to to think about. In terms of the Lloyd syndicate, I mean, what it does is it gives us a a two notch improvement in our rating. So we we go through a double a. We were at a disadvantage in the market. Let’s be fair.
Given our rating, which is good, but not as good as at least one of the other participants. This puts us back right on par. It will help us address a piece of the financial institutions market, which is very sensitive to ratings. And this is a part of the market where you see, limited losses, but clearly rating matters because it’s, it enhances, the the RWE relief that the banks who are our clients get. So this is for this is something like half of our financial institutions.
So it’s a few percent of our of our total premiums that are gonna go through this. In terms of BI, yes. We we run it at a 0% profit, I would say, by and large. As you can see, this quarter, we are investing a little bit more, so it’s creating a little bit of a drag. And there’s no reason for us to change the guidance.
I mean, this is all timing stuff stuff. We’re not changing our strategy. We’re not, doing anything different than what we thought we would do. It’s it’s just, I think, timing. The the earlier you invest, the the sooner you will be able to get the results, and and we feel that in some of these areas, there’s an opportunity for us to do that.
So that’s how we think about it. In terms of solvency, Faala?
Fala, CFO/Financial Management, Coface SA: Yeah. We we don’t expect, you know, we don’t expect a major impact. I think it’s really on, you know, the the, interest. But this is also what we already take into account. So, no, it’s not, it’s not for us.
Benoit Velo, Analyst, ODDO BHF: Thank you very
Fala, CFO/Financial Management, Coface SA: much. Not for our profile of yes, not for our profile of business.
Benoit Velo, Analyst, ODDO BHF: Okay. Thank you.
Conference Operator: Thank you. We will now take our next question. Please stand by. Our next question comes from the line of Mikael Huttner of Berenberg. Fantastic.
And
Mikael Huttner, Analyst, Berenberg: I had lots of little questions, if I may. One is a strategic one. Is the aim with the business information to become the kind of European equivalent of Dun and Bradstreet? And how can we measure that if that’s the kind of implicit ambition? It’s it’s difficult, you know, the I don’t know the business very well.
I I can see some of the growth numbers are fantastic. The investment in people is huge, 800. It it sounds like it’s like 20% of Cofas is now here. And you’ve got this new guy from this new two guys, I guess, from Germany. So that’d be one question.
The second is the debt collection, which actually seems to be, in the short term, even more attractive, I guess, because it’s closer to what people associate with it. And I just wondered whether you could give us a few metrics like maybe, well, basically the profit. Here’s what I’d like to know, but even if you just have sales, because I can figure out the profit margin must be huge on this. The third question is on the combined ratio. So we’re clearly well above 70 now.
I was always hoping that we’d stay below 70, but clearly, I’m wrong. Both in we’re above 70 both in Q2 and also in H1. Is this given your experience, and I know you’re going to say it’s a forward looking statement, but maybe you can help me in some way. Given where we are in the cycle, clearly, we’re we must be close to the worst point in the cycle in terms of the insolvency charge you showed at the beginning. Is that is this number going to in your experience, does it get much worse?
Or does it are we beginning to stabilize at these levels? I know you’re going to say, but maybe you can help out a bit. And then I had another question. You mentioned the new business sales, plus 56% to Hanwha and plus 21%. Can you explain a little bit more what they are?
They sound fantastic numbers, but I don’t know how to gauge them. But I know it’s lots of silly questions, I apologize. Thank you.
Xavier Duran, CEO/Management, Coface SA: Yes. Well, they’re not silly questions. I mean, it’s a so so in BI, I mean, this is a market, you mentioned some competitors here. This is a market which is which is covered today by a number of actors. We think we have something quite unique to bring because of the track record and the experience that we bring to this using the data for underwriting.
You know? So we don’t just make data for the sake of selling data. We we make or we buy or we improve data, and we score data for the sake of underwriting a 720,000,000,000 book of business, which is performing extremely well. So it brings an advantage, and it brings a differentiation, to this market where you have a number of actors which are more or less local or associated between each other to try to cover the world. We we are agnostic in the source of data.
It could be private. It could be public. We could make it ourselves. We could buy it. It doesn’t matter.
We get the best data that we believe is out there. We try to negotiate the best terms. We bring it all into one into one umbrella. We use technology and expertise based on our own underwriting to come up with scores that are, we believe, very, very good. And we provide that seamlessly to our clients through technology tools, which make it easy for them to access.
So they get the CoFast brand, the CoFast expertise, and they get the best of whatever data is out there in all in one, in one shot. That’s what we do. So it’s slightly different, but it is competing with some of these, these guys that you are mentioning who tend to be both, providers, competitors, partners. I mean, for us, we’re very flexible. So and then in terms of the size, yes, it is it is meaningful for us.
It’s a small piece of our turnover, but it is, it is inherently profitable business that, as you know, is is valued differently by the markets than, the traditional insurance business, which carries a lot of capital. In terms of, debt collections, it’s, yeah. The I mean, we we just happen to have made the technology investments over several years. It was hard. We’re able to track and perform collections throughout the world using one system that I think that’s a that’s a very unique feature.
And as we as we’re able to go to the market with something a little bit different, and and the cycle is where it is, there’s demand, so it’s growing nicely. And, it’s it’s small, but it’s, but it’s significant in terms of growth, and, and it is profitable business. We just basically get a cut on anything we can we can collect. I would say our brand name and the fact that we’re an insurer also helps in collecting, so, so it’s a good business. In terms of the combined ratio, I think you’ve been following us for for a decade or more probably, Michael.
Mikael Huttner, Analyst, Berenberg: So I think you you
Xavier Duran, CEO/Management, Coface SA: can probably refer to where we were and where we are today. I think what I’m trying to say here is we are not in the best part of the cycle. It’s hard to say where this goes. Frankly, if you if you know, let me know because we’re all interested. But, clearly, it’s not as good as it was five years ago, And we’re still performing in the in the just slightly above 70%, which, by all measures, I think, is a pretty strong pretty strong level in the insurance industry and in the trade credit insurance industry.
We still probably are the, yeah, at the best level in the industry. So so I think that’s what I would say is, I’m not gonna make forward looking statements. You’re right. But but, clearly, we’re not in the best part of the cycle, and we are still performing extremely well. In terms of of new sales metrics, as you know, new sales for us is a few percent of our book because our book tends to renew, as I mentioned, 94% year on year.
So we keep 94% of our clients. We we acquire, below 10% new ones, and then we grow we grow typically single digits. That’s that’s the way this industry works. So so that puts the numbers in perspective, but still, we are we are seeing new sales growth, and and and I think it’s it’s the result of, of the investments and the focus we have on this. So I I take it as a good sign for the for the future.
Mikael Huttner, Analyst, Berenberg: Very helpful. Thank you.
Conference Operator: Thank you. Our next question comes from the line of Benoit Velogh of ODDO BHF.
Benoit Velo, Analyst, ODDO BHF: Yes. Sorry, just a very quick follow-up question on my side. Farah, you just mentioned the negative impact from the weakness of the U. S. Dollar on the Q2 net loss ratio.
Can you please just quantify this impact?
Fala, CFO/Financial Management, Coface SA: Well, I think if you if we look at the this impact plus the the the gain that we have on on the, I would say, I c nine because this is how we will have to look at it. Right? We’re talking about year to date, probably less than two points. Our
Conference Operator: next question comes from the line of Pierre Chedavy of CIC. Please go ahead. Your line is open.
Pierre Chedavy, Analyst, CIC: Good evening. It seems to work now. First question, I was wondering if you see in this new context, I would say, a change in the behavior of your main competitors or if you feel that all of us or all of you are becoming more and more restrictive in terms of insurance policy. I was also wondering if in that context of, I would say, much more difficult environment, right, I would say, a ramp up opportunity for business information or is that the environment is neutral considering this type of activity? And last question, but maybe it has been asked, a follow-up regarding the FX impact on combined ratio.
We have seen that the dollar is keeping up a little bit more in July. Do you think that it could a little bit improve your combined ratio in q three or q four? Thank you.
Xavier Duran, CEO/Management, Coface SA: Okay. So I’ll in terms of the market, clearly, we we cannot be the only ones feeling increased levels of risk in the market. I don’t know. I haven’t seen any results from anyone else. But so what we see is a still a competitive market.
So I think the market’s taking a view that, you know, the the the efforts to underwrite some business is worth it, which I’m not always in of that view. So we I think we are we are probably ourselves more conservative than than most, and we’ve been for years. So there’s there’s nothing here that is new, frankly. Some are slowing. Others are picking up the slack, if I may say.
So, unfortunately, this industry remains very competitive at this stage. In terms of the demand for BI, it’s there. There is demand for BI. I mean, it’s there’s two things. There’s there’s a lot of interest.
There’s also companies that have more pressure on their cost base, so they’re trying to they’re trying to get data cheaper, but but there’s a lot of interest, for data. And and are we taking this as an opportunity for ramp up? But, yes, we are investing deliberately. We’re making acquisitions. So we we clearly are taking a view that this is going to be a market that’s that’s gonna grow or where we can take we can take a piece of business here that’s that’s nice.
And and we are making the investments because we think it’s it’s the right time, and we are well positioned. On on the combined ratio, I’ll let, Paula take that question.
Fala, CFO/Financial Management, Coface SA: Yeah. Of course. Have Of the FX. Honestly, we don’t know where q three and q four in terms of, rest of the effects will end up. If I look at the FX today, I think it has it it has moved back, but very, I think, very slight slight movement.
So it’s not I I will not say that at this stage, all being a course, if we stay in the same level, it would not be, significant. While the drop that we see what we saw in h one was much more significant than than than improvement that we’ve seen in a couple of days.
Xavier Duran, CEO/Management, Coface SA: That could
Fala, CFO/Financial Management, Coface SA: be the coming to the D.
Xavier Duran, CEO/Management, Coface SA: Went from from quasi parathy to one eighteen. Right?
Fala, CFO/Financial Management, Coface SA: Yeah. Exactly. And that’s today is what? It’s one fourteen. I think.
Yeah.
Xavier Duran, CEO/Management, Coface SA: So that’s that’s been quite a movement in a quite short amount of time following the Liberation Day or anticipating the Liberation Day announcement. Correct.
Mikael Huttner, Analyst, Berenberg: K. Thank you.
Conference Operator: Thank you. Our next question comes from the line of Michael Huttner of Berenberg. Please go ahead. Your line is open.
Mikael Huttner, Analyst, Berenberg: Thank you
Benoit Velo, Analyst, ODDO BHF: very much for this opportunity.
Mikael Huttner, Analyst, Berenberg: I just had two. One is on the Lloyd’s syndicate. I think I heard a couple of percent, but I don’t know what this relates to. So I suppose I don’t know how to ask it. What’s the addressable client base or market relative to what you have or within what you have, which you can now do which you couldn’t before?
I don’t know if or some idea of the growth potential. And then on the just going back to the FX and the combined ratio, I’m really sorry, I wasn’t paying attention here. Was it 2% at the half year? Thank you.
Fala, CFO/Financial Management, Coface SA: It’s less than 2%. Sorry.
Xavier Duran, CEO/Management, Coface SA: Go ahead. Go ahead, Bara. Sorry.
Fala, CFO/Financial Management, Coface SA: Yeah. It’s less than 2% for half year. That’s right. You could say.
Mikael Huttner, Analyst, Berenberg: Okay. Mhmm.
Xavier Duran, CEO/Management, Coface SA: Okay. But, look, on on the Lloyd’s syndicate, what I said, Michael, is this concerns a few percent of our full existing client base. But, you know, you can’t compete in that space if you don’t have the right rating. So, obviously, it’ll put us in a much better position going forward to to, first of all, retain that business and remain completely competitive and then and pertinent in this space and also, hopefully, to to to get some more. But it’s it’s as much as a defensive as an offensive move here.
Mikael Huttner, Analyst, Berenberg: Makes makes perfect sense. Thank you.
Conference Operator: Thank you. There are no further questions. Speakers, please continue.
Xavier Duran, CEO/Management, Coface SA: Oh, we don’t have we, on our side, don’t have much more to say. So is there any other question out there, or should we
Conference Operator: We have one more question in the queue.
Xavier Duran, CEO/Management, Coface SA: Yes. Go ahead. Our
Conference Operator: next question comes from the line of Pierre Chedavy of CIC.
Pierre Chedavy, Analyst, CIC: Sorry to interrupt the conclusion. Just a last question because we talked about the cost ratio, but I wanted to ask regarding the evolution year on year on the cost as we used to do for most companies, and we see that the evolution is plus 8% as far as I remember. And I wanted to know if this is a mid to long term trend that we have to consider or not.
Xavier Duran, CEO/Management, Coface SA: Well, I mean, the the way the way I look
Pierre Chedavy, Analyst, CIC: Cost at ratio is a is a ratio. But
Xavier Duran, CEO/Management, Coface SA: Yeah. Yeah. Yeah. No. I I understand.
But a couple things. For those of you who follow the company for quite a while, you’ve seen that, actually, our cost ratio went down all the way until this year, pretty much, right, or or the end or middle last year. And and so we’ve been driving cost out or cost efficiency consistently day in, day out, and we don’t change that stance. What’s changed is two things. One, the inflation burst that we had in 02/2223 has helped lower the cost ratio because you’ve had turnover from clients that has grown in line with inflation.
And since we bill them a percentage of their turnover, we we were lifted, I would say, naturally by that burst of inflation. And at the same time, the cost that we incur, took some time before it started to reflect that inflation because, as you know, salary increases or purchases are are not done on an instantaneous basis, but with several months of delay. So we had a benefit for some time, and now we’re seeing our we’re seeing the the reverse, which is inflation has slowed, so we’re not getting the benefit from clients. And at the same time, we still incur the salary increases and the hike in prices that we’ve seen in the past. But that’s not something that is forever.
This is something that is tied to where we are in the cycle. The second thing that is in these numbers is the investments that we are making, which are, deliberate choices to invest in sales, distribution, data, technology, AI, etcetera. And so these these are things that we are doing with a view towards the future, because we think it’s the right time, and there’s a business opportunity, that that that needs to be grabbed and that we need to we need to make the efforts to to go get. And, again, these are investments that we know we know exactly what we’re doing. We we we monitor the outcomes of these investments.
We will always have the opportunity to decide whether to continue or whether to stop them or whether to curtail them in one way or another, based on, on on the outcome and the the market changes here.
Mikael Huttner, Analyst, Berenberg: Thank you. Thank you.
Conference Operator: Thank you. There are no further questions at this time. Speakers, please continue.
Xavier Duran, CEO/Management, Coface SA: Right. So well, I mean, if there’s no further questions, we we don’t have much more to to ask or to to to talk about. I mean, clearly, I think the company is in good shape. The cycle is where it is. We’ll know more as things develop.
We haven’t changed strategy. We haven’t changed our posture in the market. We haven’t changed our goals. We continue to execute. So I will all we will meet again, for q three, earnings.
Do we have the dates, Pomeh, on this?
Pierre Chedavy, Analyst, CIC: Yes. It’s early November on the third.
Fala, CFO/Financial Management, Coface SA: November 3.
Xavier Duran, CEO/Management, Coface SA: Early November. So thank you for joining, and, we will speak soon. Thank you all.
Conference Operator: This concludes today’s call. Thank you for participating. You may now disconnect.
Fala, CFO/Financial Management, Coface SA: Thank
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