Hoist Finance AB (publ)

Thank you very much. Good morning, everyone, and welcome to this Hoist Finance earnings call for the fourth quarter and full year of 2024. I'm Harry Vranjes, CEO of Hoist Finance, and next to me I have Christian Valentin, our CFO, and Karin Tycke, our Chief Investor Relations and Coms Officer. So thank you all very much for calling in and for your interest in Hoist Finance. We will try to run through the presentation today in 30 minutes to leave ample room for any questions you may have. And before we dive into the material, let me just take you through a little bit where we are and what the market is looking like. So the MPL market in Europe is still very active and there is still quite some movement also in the industry as a whole. So many players are finding their strategies and strategic positions in this new landscape. And just to reiterate, Hoist Finance has found its position and it is and will continue to be a capital heavy player in this industry. And of course, we strive to becoming the leading investor and asset manager of consumer and SME non-performing loans. And we think that the 2024 has been a year where we have made great advancements on that strategy or on that goal, both commercially and in terms of implementing our strategy on the ground, so to say. So during 24, we invested a record 10.8 billion SEK after a very strong second half of the year. Repricing in the market has continued. Christian will take you through that in a few minutes. When we closed the rejuvenation program in 23, That program mainly focused on getting the right steering model in place and setting the right mix of central local execution capability and accountability around the group. We addressed a lot of indirect costs. Now in 2024, I know we've said that these reports will be easier to track. But in 2024, we have continued to addressing with addressing profitability and local return on equity, which is our core target for every single manager in Hoist in every market. while at the same time insourcing our IT maintenance and also expanding into new markets. So this is sort of continuous improvement and this will continue forever and ever. However, in 24, let's call it the continuous improvement plus. So I think the tempo has been very high this year. Now, as you know, in the last days of the year, we issued a statement that we are delaying our notification of the STR status due to the regulatory uncertainty. We'll talk about that later in the material as well. But regardless of regulatory status, we will continue executing on our strategy with the aim to becoming the leading investor and asset manager of consumer and SME non-performing loans. And our financial goals remain in place as well as our growth ambitions. So now let's dive into the material if I can flip the slide there. Yes, key highlights of Q4. So profit before tax came in at 281 million SEK. We have taken about 56 million SEK in one of costs during the quarter relating to restructuring in Spain and a divestment in Italy. And I think adjusting for those, we would be at the earnings before tax of 336 million for the quarter. Christian, we'll take you through the bridge there later in the presentation. Return on equity came in at a strong 15.5%. And I think the key thing here is that this is now driven by the core business. It is much less impact of sort of positive one-off effects that we have been fortunate to be able to land during 22 and 23. Now in 24, it is the core business that is delivering. this return. In terms of investments, we closed portfolio investments of 1.9 billion SEC in the quarter following our record third quarter. And as you can see now in the material for the first time, we've started growing our co-investments as well. Now this will develop over the year and we'll separate out those numbers for you if and when that becomes material. Now volumes and pricing in the market are still attractive. The Portuguese portfolio that I just signed in time for the Q3 earnings call, for those of you who participated there, is now closed and we are very happy with our market entry into Portugal. Now, investments going forward will continue to be lumpy as our average size in terms of portfolio purchases keeps going up. So on the full year, this takes us to 10.8 billion invested, basically a 50% increase from 23, which gives a book growth of 26%, even after the relatively large portfolio sale we did now in Q4 in Spain. This gives down a net interest income growth of 36% and with a cost growth of 19% and adjusted for these one-offs, this contributes to strengthening what we call the operating leverage, basically where income and direct cost grows with the book growth and indirect costs track with inflation. Collection performance came in at 106%. We did expect to bounce back from the 102% in Q3, and we saw that directly in October. The month of December was also very strong, and we see no signs of any adverse macro effects or anything like that in our collections. And now with the sale of our unsecured book in Spain, we are now shifting our operating model for unsecured in Spain. We believe Spain is still an attractive market and both the unsecured and the secured asset classes are attractive for us. And we will continue to pursue and invest in both of those asset classes going forward, but in a new setup. During the quarter, we also sold our servicing unit in Spoleto. This is something that we acquired in 2018. Basically, the strategy these days doesn't include any third-party servicing, so we don't sell third-party services. Now we have managed to divest that to a Italian outsourcing specialist. And we're very happy about this. This gives us more. This gives management more time to focus on on our core business investment and asset management. We have been very active in the Swedish bond market during the year and Q4 was no exception. We issued one billion SEC in Q4 and for the first time we issued a senior non-preferred bond at good pricing and our capital and position capital liquidity position remains strong and we have ample purchasing power still. With this report, also the board of directors propose a dividend of two SEC per share. And I think that should be viewed also in the light of share repurchase during 2024, which we did two rounds of. Full year. I'm going to try not to be too repetitive here. Yes. So internally here at Hoist, we've had an unofficial target of becoming a 1 billion net profit company by 2025. So with the closing of 24 now, we're happy to see and happy to announce that we've reached that goal a year in advance, despite taking 140, 150 million SEC of one of indirect costs over the P&L and then an additional 30 million direct costs. It's a very strong result in which we're very, very happy with. The return on equity for the year, a strong 16.8%. And as I mentioned earlier, this is driven by the core business primarily and to a lesser extent than before than sort of one-off activities. And very, very happy about that. Investment volume, we've covered record year and 50% up from previous year, which was also a record. We have great geographical spread on the portfolios and good diversification between asset classes. And basically our 45-man strong investment team. together with the countries as analyzed and priced hundreds of portfolios this year. And we believe we have had a balanced win ratio. You don't want to win everything, but you want to win the just right amount of deals. And we believe we have found that balance for this year. Now, collection performance, 105% for the year. strong, and then, you know, despite the insourcing IT and doing a lot of work on the operational units in Belgium, Netherlands, Germany, UK, Spain, and Italy. So despite that, we are still delivering really solid collection performance. Now, the total income, 4.4 for the year. versus three and a half last year. So that's 26% increase. I mentioned the IT insourcing that is completed has been completed, I think since Q3, and will give us a saving of some SEC 40 million per year going forward. And late or in Q3, we got an in an upgrade from from Moody's. from our previous BAA3 to a BAA2, so mid-range investment grade, and we're very, very happy about that. And as I mentioned, we were very active in the Swedish market, on the bond market this year, 1 billion in Q4 and 4.2 for the year as a whole. We did two rounds of share repurchases, once after the Q4 report in 2023 and once after the Q2. And our earnings per share has grown to basically 10 sec per share now, which we are also very happy with, definitely living up to our target of growing more than 15% per year. Now, our capital and liquidity position, as we said, is very strong, and the liquidity reserve, as you can see, is large. We have built it up in order to qualify for the SDR, and by the end of 24, we were at 154%, so ample room to the regulatory limits. Now, with that, I will... And over to Christian to take us deeper into the numbers.

Thank you very much Harry. Good morning everyone and thank you for joining this call. So Q4, we saw a strong continued portfolio growth resulting in a total investment portfolio of almost 31 billion, so 30.7 billion at the end of the quarter. This is a net 26% growth, and we say net because we divested our Spanish unsecured book during the quarter. So if we wouldn't have done that, then we would almost have been up 30% year over year. We have done slightly more strategic co-investments in this quarter and that's likely to grow in importance. And as Harry mentioned, if and when this happens, then we'll take you through a little bit more in detail how we account and how we think about that in the numbers. Overall, the market is supporting higher RRs together with the larger investment portfolio that is driving our net interest income higher. So you see that we've grown the book by 26% year over year and we've grown net interest income with 36%. So we have a NIM expansion here. We've gone from more or less 12% to 13% last quarter to last quarter four to this quarter four. And then that we've done despite having tripled the liquidity buffer over the year to prepare for SDR status. So we had a liquidity buffer of 8 billion a year ago, and now it's roughly 24, around 24 billion SEC. When it comes to collection performance, we had continued strong collection performance. It was 106% across the market, so above our management forecast. That's comparing to 105% the same quarter last year. And we are having a granular risk and collection device for now over 13 markets. So we entered Portugal in Q3, Q4. And this collection performance and the top line development is supported by stable underlying costs. However, these costs include one time items due to primarily the sale of the Spanish Secure Book, which deserves the comparison quarter over quarter. so point two points that we want to make we are not making any formal adjustments for these one-time costs we want to take them on the shin so to speak and that said we want to be open with the underlying cost development as well so if you would isolate the one-time cost that we see will not happen again then the underlying profit growth is really strong the PBT so it's 237 to 337 an increase of 42% if we adjust for these items and in 23 that would be currency gains of 40 million we didn't have hedge accounting at that point so that came in over the P&L then also we had other one-time costs of 20 million in 23. and in 24 now Q4 we had Spain divestment which was 42 million and also a VAT accruals that we didn't we don't think will is part of business as usual so that's the 56 million and that leads to a underlying growth of 42 percent of profits so despite taking this one off as business as usual we delivered a ROE of 15.5 percent in the quarter compared with 11.2 a year ago. We believe now that we have a really resilient business and the underlying business is delivering really well. So I'll take you through our redevelopment over the year but we have now an underlying business that is delivering our financial objectives and we are not depending on as we were in the past of one-time initiatives to reach our targets. Next page please. yeah 2024 was a really outstanding year for us we our firm delivered a record-setting investment year in in 24. it's was almost 11 billion which is the highest in our history it's also proving to to us and i hope to the external world that we have an industry-leading investment capacity and the potential to grow And also, which I think is a really strong point for us, while accelerating our investment pace, we also managed to expand our return levels, which is speaking to that we are in a supportive market for Hoist. We're investing at 2014 IRR levels currently, which is very attractive. We're also very disciplined in investing. So while you see blowout quarters like Q3 are averages around the two billion, if you take a look over two years, that's providing the growth long term for us. So in our valuations, we are very data driven and look at granular cash forecasts. So we minimize assumptions in these valuation portfolios. So we price in discipline way both the return levels and also using minimal amount of assumptions. So it's very much data driven granular approach to this. So we think the risk level in the book is very good. We have now also developed strategic partnerships to expand our sourcing network and work together with key partners. We've done that over the last few years. We include servicers that we work with on the servicing side. They help us to source volumes from the industries of the banking industry. We also work with industry and financial peers to source and co-invest. This is part of our strategy going forward. And in Q4, it was slightly less than 20% of volumes or so. And when we present the co-investments, this will always only be our share of the co-investments. So when we talk about co-investments, it's important to say that, okay, so the rest of the co-investments, so to speak, that belongs to the partners, we will never show in our numbers. This is only our part. and again we will detail this going forward in future reports up and when when this this part of the business grows next page please on this page we want to take a step back and look at the bigger picture you might remember this page from the capital markets day we had during the the autumn So we want to show that our growth is on track to achieve our long-term target. We set out the target in 21 to double the book, 21 to 26. So over five years, we wanted to go from 18 to 36 billion. And as you can see on this picture, we're 85% in achievement of that goal today. and if you take a roughly eight percent growth of the next two years versus if you compare that and that and then we will get to the 36 billion you can compare that average growth of eight percent with the last year's growth of 26 which was also including a divestment of volumes Or if you look at the overall level, 31 to 36, then it's clearly slightly less than 20% growth to reach our target. And as we have grown, we also expanded our servicing network, as I mentioned, and also the number of markets. So we have servicers helping us to source, we have strategic co-investors, and we are covering now 13 markets and counting. We're looking into markets close at home, I would call them. So very the same asset classes and the similar markets. So, for example, Portugal is a great example of that. We know Spain very well. And now we have expanded into Portugal on the Iberian Peninsula. We also see a strategic shift in the market to more capital like business models, which will create a vacuum to fill. So we believe that the market will and is supporting growth at attractive risks and returns. And on top of this, we believe that we have a really fit for purpose business model. So our funding model continues to be competitive edge. particularly in today's environment and when we are becoming a stronger operational operator overall as well. So to conclude on this page, I believe we are on track to achieve our growth ambitions by end of 26. And we have a strong operating backdrop in market and we're all working collaborative with our partners and co-investors. We're expecting to continue to beat our return targets while we continue to grow. Next page please. Thank you. Here you can see the asset mix and the diversification of the book. We believe we have a very nice diversification in the book. It's, as you know by now, a very granular risk in the underlying portfolios, very low single risk exposure. So it's a data driven model that we're running. and on top of it we are across now 13 markets so we have a really solid pan-European geographical diversification and then we are investing into two asset classes secured and unsecured on the high level and then clearly there's many sub-asset classes below these two levels. And we're also having a really sound and healthy risk profile in the book. And you can see that the results from that risk profile in the collection performance that we're generating. So the stable one of 5%. Next page, please. continue to see really nice operating leverage and scale effects in the business we've grown the book by the investment folder by 26 an underlying profit adjusting for the one-time items that have laid out on a prior page and we grown 42 percent in the um in profit before tax and the the one-time items as mentioned is mostly the spanish restructuring cost in q4 next page please And now to the full year 24. We delivered a strong performance in Q4 and for the full year 24. Overall, we achieved all our targets and more, delivered an investment portfolio growth of 26, interest income growth of 30%, operating income growth of 26%, net earnings growth of 53%, and then an ROE of almost 17% for the year. This is a result we are really proud of. We were aiming high this for 24 and we beat our targets. We invested a record amount of 11 billion almost. We continue to reprice and expand our margins. And we also continue to maintain a sound risk profile in the book and delivering strong collection performance of 105% for the full year. And then as Harry said, We had a really high focus on continuous improvements and restructuring across several markets. We sold a third-party servicing business. We sold our Spanish unsecured operations. We changed our Benelux model. We sold portfolios in Germany and Italy. So it's a really high pace of change to improve the business. And we see that this is going slightly down over the next year, but this has been a really beneficial change for us during the year. So we've been enjoying both material benefits and then also some one-off costs. And this has not taken away from the overriding result of the year, which is the 16.8% or 17% ROE. So all in all, and also the underlying indirect costs have been stable, so this provides a nice operating leverage when we grow. So all in all, we beat our return target in 24 by delivering almost 70% ROE, and we grew our book 26%. So we are in reach of reaching the 26 growth target of 36 billion. Next page, please. And this is the same trends for 24. So strong growth at right price and risk, healthy portfolio driving operating income, and then costs control and scale benefits boosting profits in the end. And then on the following pages we'll unpack this slightly for you. So we can go to page 12 please. Here you see the material net interest margin expansion that I was referring to before. So we are enjoying strong growth at the right prices. And this is despite us building up a large liquidity portfolio. Next page. So here we started to see the scale effects also in direct costs. We have a higher growth in investment portfolio than the direct costs. You can see the 26% compared with the 20% growth in direct costs, which is great. This is what we've been aiming for and we hope to achieve this going forward as well. This is hard work, clearly, but it is something that is really on our radar. On next page, please. OK, before we move on to the go back, so just comment on the direct FTEs. So if you take really the longer term perspective, we have we had almost 1100 direct FTEs and today we're 737. And this is the result of continuous improvements and restructuring of the business. So we've done that across a number of markets and then the model. So this is a real benefit of what we've been doing. Next page, please. So this is the ongoing improvement focus in the indirect cost. You see that we've been growing the portfolio since, and this is including before we divested the UK book, so the 21. We've grown the book 46% while we've taken down the indirect cost 16%. And this is an ongoing growth. focus and you can see year over year we are flat in essence in a really high inflation environment and this is very much driven by prior year work and then in this year the insourcing of the strategic capabilities in IT which we absolutely want to have in and then that also yields cost reductions. Next page please. And here you can see the development of ROE during the year. So we had reported ROE, which is the light bar. So 18, 17, 16, and 15 and a half. And then the underlying ROE, which if you try to clean out one-time items. We have not done this because we don't want to, we want to have simple numbers. So that said, you can see the underlying ROE coming more, coming higher and higher during the year. So the Q4 levels are very, very attractive. So this is due to sourcing and discipline pricing and also cost control and scale benefits coming in. Next, please. This is the capital position. We have a strong capital position. It's materially above regulatory requirements and we are now within the target range. We see that we will continue to generate strong capital and have a continued high investment capacity. In 2024, we have distributed significant capital repatriation to shareholders. So 200 million of share repurchase during 24, and then now two SEC per share proposed by the board. And this is in total almost 40% of the 24 profit. So on this, we see our liquidity position. We have an extraordinarily strong liquidity position and overall resilience as an institution. I think this is, I can't think of any other institution that show these numbers. So we built up the NSFR ratio gradually over the year, and we overshot to ensure that we meet the SDR criteria end of Q4. And that has tripled the liquidity portfolio, the liquidity reserve year over year. And we have an extraordinarily high LCR of 1000%. And by the end of Q4, it is 1400. thousand there is this average over a few quarters and then if you take a moment in time it's it's over 1400 which is uh incredibly resilient i would say next latest if you look at the the funding it's the same family mix as always we've grown the the uh deposit slightly it's a diversified stable and really competitively priced funding base which is supporting our growth We see that the average cost is going down from Q3 to Q4, so now the average is 3.7% or so. We've also issued material market issuance in Q4 and during the year, so 1.7 billion in Q4 and then around 4 billion in 24. and overall the senior unsecured debt is around 10 and then deposits 82 of the overall funding and this will vary slightly up and down over quarters but give or take this is where we will be next page please hurry yes thank you christian uh so on on the sdr

uh as as you know and as we have communicated we have postponed our notification uh until there is uh more regulatory certainty or less uncertainty and we are in the meantime of course in communication with both the sfsa and and and iba and we are comfortable with our interpretations of these criteria but we are running a business and we we cannot simply wait until EBA's ruling or interpretation comes back. So therefore, we are now also taking steps to sort of harmonize our setup with the interpretation of the SFSA. And this status, you will see, for instance, if you go into our deposit platforms that we have opened up three months and six months deposit products, which we believe will be very attractive. And so we are taking steps here. The SDR status is in our hands and we can meet all these criteria. So right now it is a question of time. If we would get a positive feedback from Eva, which we of course hope for, then we will of course immediately notify as an SDR in 2025. Now, if both questions would come back negative, then we still have it in our hands to be an SDR from 1st of January, 2027. And if it's a combination of one positive, one negative, it could be 2026. But basically, the message is that this is in our hands. Long term, we still think this is a very attractive status to reach. However, we are not an SDR today. We weren't an SDR the previous year. The growth that we have achieved in the last few years, we have achieved as a non-SDR, utilizing our existing tools, right? Securitizations and strategic co-investing. And we will continue to work on with these tools during 2025, 26 as well, if necessary. Our growth ambitions, the 36 billion, et cetera, are unchanged. Our financial targets remain in place. And as it happens, this is my last slide. So let's follow up on those financial targets. We have mentioned it a couple of times in the presentation, so I will not dwell on it, but the return on equity. So we have delivered what we think are great results also in 2022 and 2023. However, that has been driven to a larger extent by one of items. If we take out those one-off items, then it would look less attractive in 2022 and 2023. However, this year, now we see with the growth of the book, with the restructured organization, trimmed organization, etc., target setting that steers the company towards return on equity and profitability all the way from external targets to CEO to operations team leader in Spain. This has delivered the 15% ROE. If we look at the CT1 ratio target, yes, we are now within the range. We have been significantly above after selling the UK book back in 22. And we have managed to redeploy that capital into high yielding portfolios. So very happy about that. Now we intend to stay within this band here going forward. Now the earnings per share growth, our target is at least 15% growth per year. Obviously, with the results we see over the past years here, we are crushing that and we expect to continue to deliver above the 15% EPS growth. Now, in terms of the dividend, so this year or for 2024, the board proposes a two SEC dividend. It is, I would say, around 20% of net profit. So it is a start, but it should also be seen in conjunction with the share buybacks that have happened in 2024. So with that, I think we are opening up for questions.