Hoist Finance AB (publ)

Thank you very much. Good morning, everyone. Welcome to Voice Finance Earnings Hall for the first quarter 2024. I am Harry Vranjes, CEO of Voice Finance. And this time calling in from home, we have a very sick CFO, Christian Valentin. So we'll try to do this not being in the same room for the first time for me, at least. So hopefully the technology will work out just fine. And together we will take you through the results and highlights of this first quarter. But before we do that, just like last time, I want to repeat and try to drive home the message about what we at Hoist Finance are about. And we are a performing financial institution working with non-performing loans. We are a different animal compared to the rest of the industry. Hoist Finance is a regulated credit market institution supervised by the Swedish FSA. As such, we have a different regulatory environment and a different funding model than our peers. As you know, our main funding source, some 70%, comes from savings accounts from the public. The remaining 30 are various types of bonds that we hold to ensure a balanced funding mix and reliable access to the markets. Now, this gives us a considerable funding cost advantage compared to the rest of the industry. But of course, the regulated status also comes with a relatively high fixed cost. Now, our strategy is to grow our portfolio to some 36 billion SEC by the end of 26 and to keep our cost base aligned to that growth. And we do that through combining our internal capabilities with outsourcing partners. So we run a very collaborative model, let's say. Now, we expect direct costs to grow in line with portfolio growth and indirect costs to grow in line with inflation or just above. And I think what we can see some signs of during this first quarter is that this operating leverage is starting to happen where we see that the portfolio grows 15%, income 27% and costs 10%. So many peers are going capital lighter, focusing on third-party servicing, and we want to continue to be capital heavy. We have the setup, we have the access, and we have the balance sheet for it. So now let's start with the highlights of the first quarter here. yes profit before tax came in at 284 million sec a big improvement compared to to the same quarter last year now we had some costs related to the rejuvenation program last year but i would say we have some similar costs this quarter for restructurings that we are doing sort of as business as usual return on equity came in at 19%, helped, we should say, by an unusually low tax rate for the quarter, assuming our sort of usual tax rate, and that will even out over the year. Return on equity is around the 15% mark or basically in line with our core financial target. We closed portfolio investments of 2.1 billion SEC in the quarter. A solid investment quarter and one of our better, if not the best, Q1 so far in terms of acquisitions. January did start out slow, I would say across Europe, but then activity picked up significantly in February and we see a healthy pipeline for the rest of the year, both in the primary market and in the secondary. and why we still see repricing continuing slowly, slowly. And after quarter closing, we've signed portfolios of roughly a billion SEC during what is now Q2, I guess. Collection performance, very strong in the quarter, came in at 106%. Solid performance across Europe, despite the impact of Easter, et cetera, landing in the last days of March. And so we still see very limited impact of, let's say, the cost of living crisis and the macro environment around Europe. And we're very pleased to see this level of operational performance around the group. In terms of operations, we continue to work on operational efficiency across the company. We mentioned before that we are bringing home the running and maintenance of our IT infrastructure. We're in the middle of that process now, and it's going very smoothly, I must say. But then, of course, we also do initiatives around the markets. And the strategy or the modus operandi basically is to keep these initiatives small, local and clearly measurable. So if we have a problem in country X in the scanning department or something, that is a problem that we solve in that country, not by starting a group initiative and procuring new global systems, etc. This is a local responsibility and that's how we want to During the quarter, a big event was the confirmation from the Swedish FSA on the Pillar 2 guidance at 0.5%. This is within our existing buffers, so it does not lead to any change of our financial targets. We are very happy that this decision came. It removes uncertainty that has been there for quite some time. And we believe that it confirms... Sorry, our screen went black here, but now it's back again. Yeah. And we believe it confirms the way Hoyst Finance works with risks and with our balance sheet overall. What else? We launched our share repurchase scheme in the first quarter, where we wanted to buy back shares for 100 million SEC up until the AGM, which is on the 7th of May. I believe this program most likely ends this week or next, as we expect to hit the 100 million mark. And then we will see what the AGM has to say about anything for the future in that respect. Now, during the quarter, we've also issued senior unsecured bonds at spreads ranging from 325 to 375. And comparing that to the same quarter last year, spreads were significantly higher and We believe that this shows a greater understanding and confirmation of our model out in the markets. And yes, we have a strong capital and liquidity position, significantly above the regulatory requirements with a CET ratio of 14.31%. I think those are the highlights. A lot of stuff has happened in the quarter. There are activities across Europe in the company. But now I'll hand you over to Christian to, with a shaky voice, take us through the details.

Thank you, Harry. Hopefully not that shaky voice. Let's take it forward here. So Q1 financial summary. We had a strong start 2024 with Q1 RE of 19%. And this is based on the foundation that we built the last few years. So we believe that we have a sound and robust credit portfolio. That's both because we invest in the right assets with the right returns and risk. We also have worked actively with the older book as well. We have also during the quarter continued with our continuous improvement efforts. including the IT and also working with some of the markets. We have a high effectiveness and efficiency attention, which will continue. If you dive into the numbers, we have book growth of 15% compared with a year ago, with interest income of 23%. This reflects two things, the larger book and also repricing efforts. We've done a lot of effort on repricing and having higher margins on the books we invest in. And we can see that in the development of these numbers. And that's slightly more than offsetting the increase in funding costs that we've seen, which leads to a net interest margin of growth of 16%, which is higher than the 15% book growth. We also think that interest expense should have peaked in our geographies. We see it in the markets. We hear it from the comments from the central banks. And we also see it in our own deposit rate levels that we're offering. So the foundation of our business is the quality of the book. And that's now reflected in the collection performance. So we have collection performance of 106% in the quarter, and that's driven by Italy, Poland, and Greece in particular. And that's a much broader performance, as Harry mentioned, which is mainly positive because it means like, The book is gaining momentum across Europe, which is something we think is really encouraging. If you look at the gross collections, those are up 25% year over year with a 15% book growth, which means that we are getting more out of the same size of book this year than we did last year, which is also encouraging for operational efforts that we put in the last few years. If you look at the operating income, which reflects both the value of the interest income and also the collection performance, that is up 27% year over year. And in the quarter, we have introduced the last hedge accounting in euro that's now implemented. So the net results for financial transactions in the P&L will be more stable going forward, even if the currencies move. A few things cannot be under hedge accounting and that's why we see this 16 here during the quarter. We have a continued sharp focus on cost efficiency and that will clearly continue going forward. We can see that the rejuvenation efforts that we put in the last few years are paying off. We see that the underlying indirect costs are flat and that's driven from central costs going down and then some expansion in the markets. for example we've expanded into over the last year and a bit we expanded into a secured setup in Spain which is clearly driving some indirect costs as well to support that direct effort in secured. We're also working on after the rejuvenation program to go into continuous improvement and that's exactly what we're doing the the big two buckets are we're insourcing the the it as harry mentioned and that's ongoing expect to conclude that over the next few months and then we're working to optimize a few markets that are not hitting our internal hurdle rates so hopefully we can deal with this over the next few quarters as well and we have share of Profit from joint ventures. We had two JVs historically. We're now wrapping up the Polish one that started in Q4, and we see the last benefits coming through in Q1. That's the seven million. So this we expect to be the last contribution from the best JV in Poland. And then we have another JV in Greece, so PQH, and that is not yielding benefits on an ongoing basis. We expect that that will be one payment before it wraps up over the next year or so. It's unclear what the timing and the size of that benefit will be. It depends on the last portfolio that will be sold by the Greek underlying government there. In the quarter, we have a low effective tax rate, and this is due to timing. With the full year expected tax rate, we expect that to be historical average levels. So all in all, if you add this up in the P&L, we see a strong operating leverage in the quarter. Operating income up 27%. And then we have a low cost growth and the book value growth. And that leads to almost doubling of profit before tax. And that together with a low effective tax rate gives us a ROE of 19% for the quarter. Or if you would apply the historical tax rate, then it would be in line with 15% in line with our financial targets. Also looking forward, 15% is where we plan and we're working to be for the full year 24. Overall, we have strong capital and liquidity, which will enable growth and overall flexibility to create value for our shareholders. And we are continuing to have a high pace of change. So overall it's very exciting time poised and we see a lot of interesting and productive developments coming as well. If you look at the portfolio acquisitions, we invested 2.1 billion in the quarter. So it's a steady investment level that's continuing. We have 1 billion which is closed and or signed until today in Q2. We also see that the supportive repricing is continuing. We've seen over the last two years a steady IRR expansion and we hopefully can see that rates have peaked now on the funding side. We do believe that the industry dynamics is supporting continued repricing. There's a number of our competitors and colleagues in the industry that has balance sheet topics to work out. And there are also a number of them going for more capital light strategic models, which means all of this means lower investment volumes on the aggregate coming from players that historically have invested a lot into this industry. The demand is on aggregate not as high as it was a few years ago. Here you can see the significant operating leverage during the quarter. This is leading to an almost doubling of profit before tax. This is depending on the growth clearly from the portfolio book values of 15%. And then the health of that book So a sound portfolio will always lead to strong collections. And we also see that over time, when there's a strong book, we both can and we need to do cautious positive revaluations. We hope that that will support us over the next few years as well. The total cost they include both in Q123 and in this quarter, some exceptional costs. We didn't label them as items affecting comparability neither in Q1-23 nor in Q1-24. We've chosen only to do that, meaning breaking them out as items affecting comparability if they're material and also clear that they will not reoccur. We had a few examples. We had one large example in Q2-23, which were rejuvenation costs. The majority of those came in Q2 and Q3. We didn't have any items affecting comparables in Q1 because they were slightly smaller than in Q2 and Q3. And the reason behind this is clearly that continuous improvements will always be a part of our business. So we'll have some minor restructuring, reorganization costs every quarter we would expect over the long term. And in this quarter, it was 9 million of the exceptional cost that was including for the IT dual running and then also we're restructuring our operations in Romania. If you look at our book and the composition of it in Q1, as I mentioned, we see that the repricing in all markets is continuing, so that's ongoing. And we'll see if this stops with interest rates peaking. We believe and we hope it will continue. The vintages 22 to 24, they now make up 55% of the current credit portfolio. And the reason why this is important is that there are very strong vintages, so there's strong collection performance in these recent vintages. And as we've discussed in previous quarterly updates, early performance is a clear indicator for future performance. If it's poor performance, it's even stronger indicator. If it's positive, it's likely less strong correlation with future performance, but it's still very strong. So this is very encouraging. And then the rest of the book, the 45%, which is older, we've done a material cleanup over the last few years of those older vintages. So those are also in good shape and supporting our overall collection performance. It's worth to say also that we're working very hard to ensure we're managing the book in a prudent and cautious way in order to remain it healthy and to ensure that we have a stable and predictable collection performance. Overall, Harry was mentioning this in his introduction as well, we have a highly diversified book. It's across geographies. If you would look back eight quarters or so, you would see that we would have larger concentration in certain markets. Now it's more spread across Europe, which we're very pleased with. On top of it, we have no single exposure risk. So we invest in consumer unsecured and secured. There are very small claims spread across a number of portfolios. We're talking about thousands of portfolios. So there's no single exposure risk in these portfolios. We have a few ones that are larger in relative size and those large are very small. So they're around 20 million. We have a few of those SEC that is in the book. It's highly granular exposures and it's also invested over time. So we were very pleased with the diversified book that we're holding currently. We received our pillar 2 guidance during the quarter. This was 50 basis points which is covered within our management buffer. This means that all financial targets remain unchanged, including the minimum quarter 1 target. We believe that this reflects an understanding from the SFA that our business risk is well managed and also low, which we're happy with. And we spent significant time talking with our regulators to explain how our business works. And we think they have a really solid understanding of Hoist Finance these days. We continue to have strong capital and liquidity levels. This clearly can enable growth. It also gives us flexibility around capital repatriation. And we have the AGM, as Harry mentioned, next week, so we will understand how the shareholders think about these priorities, and we will revert, if and when necessary, to these topics. Overall, the interest rate environment has been strengthening our funding advantage. We still have a very, very stable funding base and it has become increasingly competitive over time. We still see that that's the case. We have deposits at 74% of the overall funding mix currently. So we're trying to run the deposits at the right level, which is roughly here. So we expect it to be around 70, slightly above percent of the overall mix going forward as well. Overall, we believe the regulators and our banking partners think it's beneficial for us to be banking regulated. We operate within the same and high regulation, which is a real benefit. We have three lines of defense. We have the highest possible consumer protection in the market. And clearly, it gives us access to deposits, which brings competitive pricing to the table. And the regulators see this as supporting the secondary NPL markets clearly because we can offer good prices to the banking partners. On top of that, I think it's important to also mention that it provides a regulated balance sheet. So for example, we cannot borrow as much as we would not be regulated and we cannot have And if we would buy companies, for example, then the good would be deducted in our regulatory capital as well, which is a benefit because it provides stability to the balance sheet. I will leave over to Harry to take us through the last slides.

Thank you, Christian. Let's see how your voice manages through the question session later. Yes, so to manage the backstop we've had or we have three options basically. We have implemented securitization vehicles which are currently live. We have been working on co-investment as as a way of managing the backstop. Now I think co-investment we see more as a strategic product going forward. So it will not primarily be used for managing the backstop. Our main alternative for managing the backstop is is the SDR. So with the regulation now moving through chambers basically there was a vote that passed in the EU Parliament on the 24th taking it one step further and I guess it will be published in this official journal during early summer basically making it law. and then it will go into force on January 1st next year. So we are in discussions with the FSA, how this will be implemented in Sweden, and those discussions will go on. But basically, the main message is that this is moving on through the process, and it looks well basically every month that passes increasingly attractive and increasingly likely that this will kick in from the 1st of January 2025. Yes, so to then recap the quarter here, I'll try to be brief here. 284 million earnings before tax, 19% ROE, 2.1 billion investments, strong collection performance, good acquisitions. And I think we see very good sort of response from the internal organization. on these operational efficiency projects that we are running across the group, which is very pleasing to see. We are working on collection strategies, etc., and so on, and increasing the level of legal collection, which will also show in the numbers years to come. Now, and the share purchase scheme that commenced in the first quarter, we believe is ending around now. And yeah, on the financing, the issuances we've done so far this year, we're very happy to see the spreads coming down and the strong interest from the debt markets to invest in our instruments. and a strong capital and liquidity position still remaining significantly above the regulatory requirements. With that, I think we'll open up for questions. There is a possibility to do written questions. We've never tried this before, so we'll see if we find these questions once you post them. But as far as I understand, we will be starting with the phone queue.