Intrum AB (publ)

Welcome to this presentation of the first quarter results of 2020 for Intram. I'm Michael Eriksson and we will now walk you through the quarter results and pay special attention to some analysis of the potential consequences for Intram with the focus of course on our cash flow and the projections for the rest of 2020. I expect this presentation actually to take a little bit more than 30 minutes so since we have allocated one hour to this call it unfortunately will be a little bit less of time for Q&A but we'll try to manage the time as good as we can. First of all I must say I'm actually satisfied with the result for the first quarter given the circumstances and I would like to characterize our performance as stable in an uncertain environment. If you look at our cash EBITDA, it actually increases by 14% compared to the first quarter of last year. And if you look at the stability of the company, at the end of the first quarter, the end of March, we actually had 13.5 billion Swedish kronor in available liquidity in the group. Well, since the outbreak of COVID-19, we have conducted an early management call every morning to share the development in our different markets. And we have also involved all our country managers on a regular basis. And of course, listen to their experience from the respective countries to make sure that we are on top of what's going on. So it's been, you can say, a daily monitoring of the events in the group. With that, I turn over to the first page of the presentation, labeled Q1 Highlights. This quarter has been very unusual and challenging in many ways. It has affected not just our group, but also, of course, our clients and customers. Our reported adjusted result for the quarter is close to 1.1 billion Swedish kronor. That is 19% lower than Q1 2019. But our cash EBITDA is a little bit over 2.6 billion Swedish kronor, and as I said before, 14% higher than the first quarter of 2019. And as I said in the beginning, we have ample available liquidity in the end of March of 13.5 billion Swedish kronor. In this circumstances, I think it's important to note, and we have disclosed it earlier, that we estimate that over 80 percent or close to 85 percent of our collections are actually generated through automated and online payments and that 73 percent a little bit over 70 percent of our total collections amounts is generated without the involvement of legal proceedings which tells you a little bit of the underlying strength of the of our cash flows The result is affected by revaluation of a little bit over 600 million Swedish kronor and lower revenue from joint ventures. If you look at the red valuation, it reflects our expectation of delayed cash flows in the quarters to come. If you actually look at our collection in the first quarter, it is above our active forecast and it doesn't really give an indication of a revaluation. but we take you can say a cautious measures if we look at the quarters to come and if you look at the collections in april it actually indicates that our provisions is on a margin conservative fx impact our leverage level and despite the strong cash ebitda contribution the net attribute dr is 4.5 in the end of the quarter up 0.2 percentage points and that is due to a weaker swedish chrono for those of you who have followed us for a while i would like to remind you that we have changed our segment reporting starting from this quarter the kobe 19 has a clear impact on primary our new segment strategic markets due to the lockdown in spain italy in greece in the other 22 markets we know the more stable performance with expanding margin, France and Portugal being the exceptions. On the investment side, we note lower performance than expected, but collections are still above our active forecast in Q1. This is good proof that we have been able to operate in all markets during this pandemic. Our diverse business model is resilient and we note a strong cash flow generation overall. We have made an analysis of the consequences of the downturn in 2008-2009 using our current portfolio and business mix. And Anders will later take you through the conclusions of this analysis, and of course also go through the quarter in more detail. Turning to the next slide, labeled Outlook. Now, what do we see ahead of us? Europe will gradually open up in the second quarter. Already today, we have more than 50% of our staff in Italy back in the office and all 30 offices in 22 locations in Italy are open. We are following local guidelines, of course, but we actually will gradually increase the presence in the office and expect to be within a couple of weeks to have 80% of our staff in Italy back in the offices. Courts are also gradually opening up in Southern Europe, even though it will be a step-by-step approach. If you look at Italy, for example, we expect the courts to start to reopen from next week, but the larger courts in Milan and in Rome will not open until June or July. But of course, there will be a backlog to deal with and that challenge will be evident in all of these markets in Southern Europe. But there is a clear pleasure from the business community of not closing the course fully for the traditional summer vacation to manage this backlog. We see limited or no impact on our pipeline for servicing contracts within traditional collections, CMS. On the contrary, we actually expect increased activity from our clients later in the year with higher volumes. Clients are expecting growing volume in non-performing exposures in the months to come, and I think that is obvious for everyone. We are committed to a leverage target of 2.5 to 3.5 in net debt to cash EBITDA, even though we will not be able to reach it by the end of 2020. We are reducing our investment level to a level in line with keeping the portfolio stable, and we do not see any material M&A activity during the year. Many larger portfolio transactions have natural causes being delayed in the first quarter, But there are small evidence in the market of, you can say, significant price adjustment reflecting higher refinancing rates and added uncertainty in the small number of smaller transactions that we have seen being executed in the last two months. To conclude, we expect continued challenges in the next two quarters with flat or similar results in Q2 and Q2. to the q1 basically resulting q2 and q3 in line with q1 and we forecast to be back in the more normal or normalized operations in the fourth quarter i now turn to slide number four leading the way during kovid 19. our core values have always guided our actions From very early on in this pandemic, our employees demonstrated a high degree of empathy towards both clients and customers. We introduced freezing of interest calculation and prolonged payment plans in some markets. We suspended our fee collection activities in many markets, and we revised our written and verbal communication to be even more sensitive. All in all, our value-based approach to collections has really served us well in the last two months. Turning to the next slide. Our daily business operations. Since the outbreak of COVID-19, we have conducted a daily early management call to share experience, numbers, and of course, action planning. Already in January we began instructing our staff to carefully follow the health guidelines of the World Health Organization and in a matter of weeks we took a further step to organize efforts in all our 25 countries to work from home. Today we have 75% of our staff working remotely and more than two-thirds are working in our production systems all through secured connections. We have enhanced our internal communication to secure best practices shared between markets and also to keep up motivation and engagement. And you can say that our markets or our operations has been open in all markets during from day one in this pandemic. As I earlier said, we have been and are able to operate also in Spain, Italy, Greece, and france and portugal who has been clearly impacted other markets besides those five has been affected to a lesser extent and now we see the markets are gradually opening up and we of course we are coordinating all our efforts and group level to secure that local guidelines are followed and our staff is protected Turning to slide six, preparing for post-COVID-19. Before I hand over to Anders, I would like to cover some other important points. We have revisited all local and group initiatives due to new circumstances and reprioritized projects aiming at cost saving and of course to protect the margin in our business. At this point we have also assessed the government support programs provided in certain markets, but as you know this type of support often comes with some obligations and we are following local advice. We have applied and been approved in a couple of the markets and of course we see some short benefits in the second quarters to this support from local governments. I would like to point out that we are also accelerating the transformation of Intrum. We will hold on to our ambition to find solutions to leverage our scale and offer cost-efficient products to our clients. The transformation aims to utilize, to a much larger extent, standardized and centralized solutions, both in support functions and frontline, facing clients and customers. This journey has already started and today we operate on one outsourced IT infrastructure. It's actually an infrastructure who have served us very well during this pandemic. But we have also implemented since last, during last year, a common IT solution for HR and for sales. And we have also invested in a common telephone system in the group. This work will continue and is now accelerating the transformation towards one interim. There are a lot of evidence of discussions in the markets, of course, of the consequences of COVID-19. Our clients expect growing volumes of late payments and non-performing exposures. Interim has a stable platform, strong liquidity, and resilient cash flow generation, and we're prepared to stand even stronger from an operational perspective when the markets normalize. I think it's fair to say that Intrum has proven to be able to handle this unprecedented time through a solid IT infrastructure, dedicated managers and loyal staff, And I would actually like to take this opportunity to thank all our employees for their fantastic contribution during these last months. And now Anders, over to you for the first quarter in more detail.

Thank you Mikael, and good morning everyone. So we turn to page 8, Group Financials in summary, in the presentation. And as you can see in total, we do see an effect of COVID-19 into our financial results for the Q1 2020. And it's especially pronounced in the strategic markets, as well as the contribution from the SPV in Italy. On a reported basis, our revenues declined 11% to 33.33, which does include the negative effect of the revaluations of the book. On an adjusted revenue basis, our revenues grew 11%, year-over-year to 39.69. Our reported EBIT is 4.59, which includes the negative revaluation effect of 6.36. EBIT adjusted was 10.95, down 19% year-over-year, which corresponds to 255 million SEC lower than last year, which is fully explained by the lower contribution from the SPV in Italy. Adjusting for that, the underlying profit contribution is up 2% year-over-year. Our reported earnings per share is a negative 0.25 krona per share in the quarter. However, on the cash basis, our cash revenues grew 16% to 52.50 and our cash EBITDA up 14% year-over-year to 26.33. Our leverage ratio increased 0.2 times to 4.5 in the quarter, which is fully explained by the change of the currency between particularly the SEC-euro exchange rate at the end of the quarter, which fully explains the increase in the leverage ratio. Our net debt at the end of the quarter is 51.3, which is an increase of 2.2, which is, as I said, driven by the translation, particularly from euro to SEC. On an FX-adjusted basis, we actually did reduce the net debt in the quarter by about 200 million. Looking at the segments, so moving to page 9 in the presentation, which is now according to our new segment disclosure, our credit management services segment, which is the servicing in the 21 markets not included in strategic markets. We saw a limited impact of COVID-19 in the quarter with stable performance and expanding margins. Revenues declined one percentage point to 17.05 on an FX organic underlying basis that's a negative four percent which does reflect the challenges specific in France and Portugal from COVID-19. Service line earnings on the other hand was up two percentage points year over year to 4.20 which corresponds to service line margin increase of 1 percentage point to 25%. Cash EBITDA contribution from the segment was 499 minus 1% year over year. For credit management services, as also Mikael commented upon, we are cautiously optimistic regarding the outlook for CMS in many markets where we do expect to see increased CMS volume flow in the coming quarters. Moving to page 10, strategic markets, which is the servicing business in Spain, Italy and Greece. We do see a significant impact of COVID-19 in March. Revenues are up 8 to 1% to 11.94%, which is driven by the acquisitions in Spain and our platform in Greece. service line earnings though is 102 million down one percentage point year-over-year which corresponds to service line margin of nine percent down seven percent year-over-year down from an already challenging quarter one 2019. however the cash evita contribution from strategic markets was 328 up 24 year-over-year clearly COVID-19-driven lockdown in these countries in the south of Europe had a pronounced negative effect on the business in Q1. In quarter seasonality, March is normally the strongest month of the quarter and clearly with a strong effect of the lockdown in March, it did have a meaningful impact on the quarter overall. In April, We continue to see a challenging operating environment, whilst we are now seeing the gradual reopening, with quartz activity resuming in May and June, which makes us more optimistic for an improvement in the coming months, as the majority of the claims we serve in these markets are secured and rely on the quartz being effective. Moving to page 10, portfolio investments. Portfolio investments saw a limited impact in March of COVID-19. Our gross collections for the quarter increased 7% year-over-year, and revenues adjusted came in minus 4% to 17.21, which is driven by higher amortization and lower real sales activity, despite an increase in gross collections. The earnings from JV contribution was down 279 million to 81 million in the quarter. However, the cash flow from the JVs increased to 152 million. Service line earnings for the total for portfolio investments was down 20% to 1037. And cash EBITDA for the segment was 2239, up 14% year-over-year. Return on investments for portfolio investments adjusted for the book value revision is 11%, and if we look on the underlying, excluding the SPV, it was 13%. New investments in the quarter was 16.50, and we invested predominantly in the northern half of Europe. Book value at the end of the quarter was 36.3 billion, up 16% year-over-year. portfolio investments in the quarter we do have a revaluation of 636 million which corresponds to approximately 1.8 percent of the book value and is approximately two times the normal quarter we also do have we have no upward revaluations as we have normally had in most quarters due to the uncertainty of covid 19. It is important to note, as also Mikael was referring to, that the re-evaluations are based on our future expected performance of collections in the coming quarters and is not based on underperformance in Q1. We do expect to see a delay in collections with the most pronounced effect in Q2 and Q3 2020. Also, it's important to note that our experience points to that we will recapture those collections over the life of the portfolio. So from that perspective, it's a matter of a timing effect. In terms of market outlook, we do see many transactions delayed at the moment into the second half of 2020, and we do expect significant volumes in the fourth quarter and moving into 2021. In terms of return on investment or IRR on transactions completed since the COVID-19 outbreak, we have seen materially higher IRRs, but it does remain to be seen if the market will stabilize at these new levels once the dust settles. Moving to page 12, portfolio investment collections versus active forecast. In Q1 2020, our portfolio performance was 103% versus active forecast. And in March, our portfolio performance was 100%. In April, we do see collection levels which are in line with our 2019 collection level, but although they should have been higher due to the investments made and the growth of the book. This is clearly the effect of COVID-19. But it's also clear that the impact is concentrated in the most affected markets in Southern Europe, whilst Western, Eastern and Northern Europe see a very benign impact. And that is obviously supported by the fact that we have 73% of our collections in total based on amicable collections, and 85% of the payments generated from automated or online payments, providing stability of the collections. If you look on the right-hand side, Experiences from previous crises show that in a crisis scenario as similar to what we're looking at now, we would see an initial drop in collections at the onset of the crisis, but with a subsequent recovery. The chart on the right overlays the 2008-2009 experience on our current portfolio shape and size. As you can see, we would move from a position of outperformance to a temporary position of underperformance. It is important, though, to see that the chart is cumulative. So as you can see, already after 12 months, we reached the inflection point. And after 24 months, we are back to the active forecast in totality, in total cumulative collections. Also, as you can see from the chart, over the life of the portfolio, we do not expect to lose any collections, which supports our view that this will be a delay in the timing of the collections. moving to page 13 cash flow evolution in the first quarter of 2020 our cash flow was 2.3 billion sec up 68 year-over-year and that was supported by a strong cash evita of 2.6 billion up 14 year-over-year as well as positive development of our networking capital On a rolling 12-month basis, our cash flow is 8.3 billion, which corresponds to 15% CAGR, since the combination between Interministerie and Lindorf. And our cash EBITDA is 11.5 billion SEK, corresponding to a 14% cumulative annual growth rate. Looking at the cash generation of the group, cash revenue in the rolling 12-month basis is 20.6 billion, and our cash EBITDA excluding the performer for M&A, 11.0. That corresponds to cash EBITDA margin of 53%. So we deduct the interest, tax, and other non-cash items in CapEx. That leaves us with 7.7 billion of free cash flow. That is more than sufficient to cover our portfolio investments, our dividends, and our buybacks. Moving to page 14, funding sources and maturity profile. We are very pleased with the reshaping of our balance sheet that we did in 2019. We now have ample liquidity of total 13.5 billion SEC at the end of the first quarter 2020. We also have ample headroom under our covenants. On the right-hand side, you can also see our maturity profile, which shows that we have limited maturities in the next years, which means that we have sufficient capital generation and liquidity to meet all upcoming maturities and makes us independent of the capital markets for the coming years. We move to page 15, net debt and illustrative impact from new investments. As we stated, our cash EBITDA for the rolling 12 months is 11.5 billion, and our net debt is 51.3 billion, corresponding to a leverage ratio of 4.5 times. However, that does include also our investment in the SPV in Italy. Our SPV in Italy obviously was an upfront investment, but has contributed limited to our cash EBITDA in the period. contributed from the SPV investment, our underlying leverage ratio is 4.1 times. And the SPV leverage itself, so the leverage that is remaining in the SPV itself, is currently standing at 2.4 times, which means had we consolidated actually the SPV, we would have a meaningfully reduced the group leverage ratio. Clearly, Interim has had elevated leverage ratios over the recent periods due to the significant business expansion since the merger between Lindorf and Interim Stuttgart in 2017. To illustrate the impact of growth in portfolio investments, we wanted to present you with a worked example. So on the right-hand side, you can see that if you imagine that you buy a 1 billion SEK portfolio at 14% IRR and you fund it fully with a drawdown from the RCS. Clearly, Immediately after buying the portfolio, it does increase the net debt to EBITDA ratio. And as we only gradually recognize the cash flow into our cash EBITDA. But already at 12 months, so in what is labeled Q4 in the chart, you can see that it goes down rapidly to 2.7 times, which means that it is actually accretive to our leverage ratio already within 12 months. And it's actually also at the lower end of our long-term target leverage ratio range. So to wrap up this section, moving to page 16 in the presentation. Resilient business model through the economic cycle. Now in a shifting economic environment, we see the benefits of the integrated business model and the resilience through the cycle. Clearly, in the up cycle, we have experienced over the last few years, we have benefited from lending volume growth, increasing debt sales, strong repayment capacity, and backdoor collectability. But also, we have seen limited new case inflow in CMS, and we've also seen expanding credit lending criteria. So now, when we face the down cycle, we see that we expect higher NTL formation, increased case flow into CMS, and demand for our services. but also a more challenging collection rate. So overall, we see that these factors help to balance the peaks and the troughs of the cycle, creating a more limited cyclicality environment as we have both legs to stand on. And with that, I hand it back over to you, Mikael.

Well, thank you, Anders. And let's now turn to page number 18, short and medium-term focus in 2020. Our first priority is the well-being of our employees and of course mitigating the headwind that we experience in the markets. We track the health of our employees on a daily basis and we pay special attention now when offices gradually open up again. It requires adjusting the working environment to local requirements to secure the health of our staff. At the same time, we focus on both short and midterm actions to mitigate the effect of COVID-19. We are prioritizing all initiatives to save cost with the ambition to restore the EBIT margin in 2021. We're also utilizing 2020 to accelerate the transformation of interim as I've talked about before. As you remember, we entered 2020 in fairly good shape after delivering on an efficiency program in the second half of 2019. Reaching our target for 2020 that we stated in 2017 required a flawless execution and we felt in the beginning of the year that our targets were within reach. Today it is obvious that we will not reach our targeted EPS level in the end of 2020. Besides focusing, of course, on the short-term cost initiatives, we will also use 2020 INSTEP to accelerate the transformation of INTROM that was initiated last year and led to the reorganization of the group that we talked about today. The transformation includes utilizing standardized and centralized resources to a much larger extent, both for support and front office activities, and it will allow Interim to leverage our scale from all our markets and deliver cost-efficient solutions to our clients and secure our market-leading position. We will continue to build on our position as the preferred speaking partner to large financial institutions throughout our markets. We have not abolished our leverage target. The target is still to be at the net debt to cash EBITDA between two and a half to three and a half. We will not reach it in 2020, but the ambition is there and the target is clear. As you know, we have postponed our Captain Markets Day to after the summer. We will then take the opportunity to talk more about the transformation of Intron and the long-term impact. And we will also give you new guidance for both our growth and EPS ambitions. We will see new non-performing exposures being generated in Europe in the aftermath of COVID-19 that will drive additional demand for our services in many markets in the years to come. Interim is very well positioned to capture that opportunity. We are prepared to meet that demand. With that, we complete the presentation and I'm pleased to say that we didn't use that much more than the 30 minutes and we open up for Q&A.

Thank you. Just as a reminder, if you do wish to ask a question, please dial 01 on your telephone keypad now. And if you find your question is answered before it's your turn to speak, you can cancel by dialing 02.

our first question comes from the line of earning carriage of company please go ahead your line is open thank you and uh good morning for taking my good morning and thank you for taking my question that's the order so just the first question when you guide for flatish adjusted ebit for q2 q3 versus q1 should we expect any larger difference to the underlying cash flows relative to q1

and also any larger difference in the composition between the segments well perhaps i can i can start by saying that no that's right we are guiding towards a flat fish just to do that for q2 and q3 and also as i guided towards we are currently experiencing collection rates which are in line with the 2019 performance as we saw it at the time which you know does also point to a relatively flattish cash flow profile however it is it may not be completely in sync as you know we know it does differ from from time to time but sort of directionally i think it's the right guidance

Okay, thank you. And then you did some buybacks during the quarter and start of Q2. Could you just talk us through sort of how you're thinking between pursuing more portfolio investments and growing your own book relative to buying back the shares?

Well, good morning. It's Michael here. Now, I think that's, of course, a relevant question. And, you know, with the kind of liquidity that we actually have in the group, of course we are always balancing different investment opportunities and one of them being actually buying back shares and at the time you know we saw that the buying back share has actually created a very good and healthy value for us and going forward it actually depends on where the market will take us you know and this is always the balance that we and the board will do whether how to allocate the capital so if you look at it the buyback of shares was not something that on top it was part of you can say our investment decision basically investing in our back book which we at the time saw as the best investment we could do wonderful and then

In terms of the CMS and strategic markets, would it be able to share sort of how much of your revenues that are based on sort of base fee in terms of your AUM rather than collection performance that we can sort of see as stable regardless of how performance develops in the short term?

We don't provide that level of split of the revenues into our servicing businesses, but I think that the pattern that you have seen is ultimately very stable performance in the CMS side of the business, whereas the strategic markets servicing has been much more significantly impacted because of the lockdown in the Southern European markets. And that tells you that the variability it has a significant component of variability driven by success rates effectively being dependent on resolutions through the court system.

Thank you, and then just one last question if I may. So you say that the leverage target is still intact, but in the report it seems like you're aiming to reach it basically by 2022. So should we read into that that you rather see 2021 as a sort of golden opportunity to grow your book at Tractor Returns? Or how should we read into that given that you think operations will be at least closing in on normalization by Q4 this year?

No, I think it's a way for us to basically communicate that we are, you know, the leverage target is still there. We feel that we are taking a cautious approach in these uncertain times. We did, as you know, a revaluation of the portfolio based on our expectation of delayed cash flows going forward. Not really in terms of what we saw in the first quarter in terms of collections versus our active forecast. And in that sense, we try to be cautious also in our projections during 2021-2022 at this stage. But of course, we will see growing volumes, but it is important for us to underline our commitment to the leveraged target in itself.

Great, thank you.

Thank you. Our next question comes from the line of Johan Ekholm of VPS. Please go ahead. Your line is open.

The cash flow and the buyback. I mean, so on slide 13.

I'm sorry, you're breaking up. We could just hear a couple of words there. Can you hear me now? Now I can hear you.

Perfect. And since I just wanted to come back at first to the free cash flow on slide 13. So you're saying that there is 7.7 billion of free cash flow. And if I think about the uses of cash, you know, you have buyback and dividends are committed about two and a half. You're saying you want to keep your book stable, which I guess is another four and a half or something like that of investment. And you have a billion of repayment. and yet you are far away from your leverage target. How do you justify the buyback when it would seem the market would want you to focus more on reducing your leverage, but clearly you don't think that's important to accelerate that process? I just want to see why you're comfortable pushing out the reduction in leverage given where your bonds are currently trading. And then it gets related to the investment part. How do you think about the longer-term financing costs? I mean, clearly, where bonds are trading today, it would be hard to make the maths work. I guess we can assume some kind of normalization, but what's your thinking long-term in terms of cost of debt? And then the second question is just a quick one on You showed quite a large reduction in the leverage in the SPV in Italy. But if I look at the annual report, I think the debt in the SPV fell by 12% during 2019. And I'm just struggling to square that with what you've said about reducing leverage rapidly in that portfolio. If you can comment on what I'm missing there, that would be great. Thank you.

What shall I start then, and then Anders compliment my answer, because that was a long question and several of them, Johan. But if you look at the beginning of it, I mean, if you look at the balance between different investments, uh buying back shares uh at the time looked like a very good investment if you look at it from from from my perspective or andrew's perspective or the company's perspective we will always like to invest more in in you can see our clients and in portfolios but it is a balance that we always do what is the most relevant and create best value for the company so buying back shares come at the expense of of in that case buying back buying portfolios in doing other types of investments then you have to remember that we actually have a rapid growth in our cash a bit there supporting the leveraging target going forward what we see now is a delay in that process that is unfortunate But you shouldn't look at the buyback of shares as on top of everything else we do. It's actually the balance between different parts of investments that we do. And what we actually do is we are investing in our own back book, which we clearly see has a very strong and high value in itself. Anders, do you want to continue and complement that answer?

sure i mean also to your sort of second question if you will in terms of long-term financing costs clearly we are committed to reaching our longer-term leverage targets i think what has been clear on the since the advent of the covet 19 crisis is that the leveraging path will be delayed but that does not mean that we will not continue on that path and reach those targets We give the guidance that we, in our view, will be able to reach that at the end of 2022 and there will be a path from current levels down to the target range over that period. That will, in our view, support our cost of funding, if you will, in the long term to reach those levels. But also, it's important to state, which is, I think, evident from the presentation that we've given, that we are independent of the capital markets for the next coming years, which means that we do not have any need to go out and refinance any maturities for the next years, which will allow us to reach our target range well in advance of needing to do any financing operations where that level will clear at the end of the day it's very difficult for us to have a view on in the light of the current turbulence so i think anyone's guess is you know can guess what that those levels will be but clearly we will uh you know we will continue to be um on that path and be firm on that path to to our target range in the medium term

then in terms of the specific question about the stv leverage perhaps victor you can walk through that quickly with the group um yes sure so i think if you look uh you are on slide number 15 we tried to help you on modeling the the spv and where we stand today and obviously it has been a good deleveraging from about three and a half um in mid 2019 to the 2.4 level where we stand today. And if you look at these numbers and also the LTV of the portfolio and combining what you have in the notes in the annual report, I think you can actually crystallize the cash flows coming out of that. And you mentioned that the debt was reduced by about 12% corresponding to 2.7 billion or so and then you should also bear in mind that the cash flows were also used to increase the cash position by about 500 million and then there's minor impact from fx of about 0.3 billion some working capital and we also paid of course our our interests and so that is all specified and you can see that it's accumulating it up to a cash EBITDA of just south of 5 billion if you do the maths on that and that should actually correlate with what you see in the balance sheet. You can take additional details offline if you want.

It's also important to note that what you stated as interest-bearing liabilities of the Italian SGB in the annual report is not the senior debt but it's a total interest uh interesting variability abilities from a definitional point of view in the in the vehicle part of which is part of the of the equity because of the capital structure of the s3 what is relevant is the senior senior funding in the structure which is a much smaller number than what is in the in the annual report but perhaps victory can also give an offline explanation if needed

Yeah, I mean, if you could disclose that senior number, you know, in the quarterly or annual report, that would probably help us. And then just a final quick question. You said that you might be or you will be making use of some of the government furlough schemes, etc. Have you done that in Sweden? And what's the comment then if that's the case around your dividend and buyback?

We have not done it in Sweden. It's just a couple of countries where we have used it, but it has come with, you can say, local obligations in some of securing contracts for employees.

Perfect. Thank you very much. Thank you.

Thank you. Our next question comes from the line of Robin Raine at Kepler Chevro. Please go ahead. Your line is open.

Yes, hi, thank you for taking the question.

On the negative revaluation that was made in the quarter, can you say anything about the geographical breakdown? Maybe you did and I missed it, but any color on the geographical breakdown on the portfolio negative revaluations? And then secondly, also on the revaluation. So you say that this reflects your expectations for 2020, and my interpretation of that is, and also your comments from your presentation, is that you don't really... It's a delay, but not a lower total amount of collections that you forecast. However, is there any worries at all, you think, from lower recovery values on the secured portfolios? Should, for example, property prices go down and so on in Spain and Italy or other countries? Thank you.

Perhaps I can comment on that. If you look at the geographic breakdown, obviously, we have reflected our expectation of a more significant impact, which is consistent with the comment I made as I went through the page number 12 in the presentation, that we see quite a concentrated effect in the markets in Southern Europe. So from a revaluation point of view, the revaluation reflects that quality of graphic view. with a much more benign impact in the northern half of Europe. So, Western East and Northern are significantly less impacted. So, from a totalit of impact point, we do see a significant impact in Spain, Italy, Greece, France, and Portugal, and I would say that this will have obviously a disproportionate portion of the total revaluation in the quarter. But it is obviously spread across all, but in relation to the severity and expected severity of the COVID-19 impact. As for the comment on secured, clearly it also covers secured exposures. And we have taken into account that there will be potentially an impact on HPI in the markets where we have secured exposures. But do remember that 80% of our book is unsecured. and only 20% of the book in total is secured. And that's also, we say, reflective in the total contribution to the revaluations in the quarter.

Okay, thank you very much.

Thank you. Our next question comes from the line of Mats Ludegaard of Kendall's Bank. And please head to your line, it's open.

Yes, thank you. Good morning. I think most have been answered, but a follow-up to Johan, perhaps. In terms of rating agencies, I see that you are a negative outlook from both S&P and Fitch. How is the dialogue with the rating agencies considering the share buybacks and I know they they had in the previous comments they said that leverage was really important now you postpone it how's the dialogue going with them and also in terms of does the rating matter in your terms of negotiating with with the banks when they are especially doing forward contracts I also see your CDS which is more more on screens, but it's going through the roof at 1100 basis points or so. If you could shed some light on that, that would be helpful.

Thanks. In terms of rating agencies, we have an active dialogue with all three of them. It's a positive and constructive dialogue, and we continue to do so. Clearly, two of them have come out with rating updates during the crisis, and we obviously take that into consideration in our deliberations of how to allocate our capital. And also, it is important for us to demonstrate continued deleveraging to our long-term target range, which is obviously part of that discussionary equation as well. In terms of

The importance of a rating or CDS level or whatever, especially when you negotiate longer forward flows.

From a market point of view, clearly we are the largest and viewed by our clients as a stable and important counterparty for them. clearly it is important for us to be there for our clients and demonstrating a strong balance sheet position for us is important in these times to be able to be there for our clients also you know in times of stress like the one we're currently seeing in terms of forward flows we have a very cautious approach we have had for a longer time now a very cautious approach to forward flows per se um and uh you know we are very selective about the you know counterparties where we have a forward flow commitment so it's a smaller well there's a minor portion of that total capital commitment in any year if the forward flows and we only do it with our you know call it long-term partners um where we have more of a strategic uh client relationship And in those instances, it clearly is from a relative to any of our peers, I think we have a positive stance in the view of our clients relative to the industry.

If I may add to this, Mats, if you look at it, I think one can take some comfort in all the activities we did last year on the balance sheet, refinancing the group, and you can take to some extent to prepare the balance sheet. And today, as Anders talked about a couple of times, I'm more or less independent of the capital markets for a number of years to come. and we also exit the first quarter with a very strong liquidity position in the group that for us is clear evidence that we have a strong position going forward and the one could be comfortable yeah okay thank you if i might just follow up on revaluation you did 636 million this quarter and you still have 36 billion in the in the portfolio

was that i mean obviously that was made as of closure of march and we i would guess that asset values haven't increased since uh and during april so um could you just confirm what the timing the exact timing for for that revaluation was end of march or how should i see it

Yeah, that's correct. I mean, we do a valuation, as you know, by quarter end. But as we now said, you know, it's important when you look at actually our performance in the first quarter and our collections versus our active forecast, that doesn't imply that we needed to do a revaluation in the first quarter. We actually performed above our active forecast and in line with our active forecast in March, as Anders was saying earlier. but we have been cautious in this and we have you know accounted for delayed in our cash flows in the quarters to come and we do a revaluation of the book over close to two percent of the book value and you know by then also doing no positive revaluations basically you know expecting a delayed in the cash flows if we look at the performance in april you know and compare that we can say that that provision that we did in in in in end of march them is actually on the margin on the conservative side so also today we are comfortable that that that revaluation has fully captured the delayed in the cash flows that we expect in the portfolio okay thank you

Thank you. Our next question comes from the line of Romuald Correa at SEB. Please go ahead, your line is open.

Thank you, Alfredo. Thank you, Jens, for this presentation and for taking my questions. A lot of questions have been asked, so let me try to get some details on some of them. On the modelling of asset quality on the secured side and potentials of deterioration in asset prices ahead, understood but on the remaining 80 percent on the unsecured side what has been assumed in terms of unsecured performance squarings of unemployment rates and fiscal policies so far covering the the the decreases in household income look we have made an assumption based On our experience, we have a very significant amount of data going a long period back in time. Clearly, we have in particular a significant amount of data from the financial crisis, granularly by asset class and by country and type of claim at the time. We have used all of that data to also reassess the unsecured book to see what could be the impact of the crisis like the ones we're facing now. And as I also showed in the chart in the presentation, how that plays out in terms of timing. Clearly we're seeing a very rapid decline, much faster than in the financial crisis in 2008-2009. But it does obviously help us in the modeling and obviously overlaying the current shape of the book to get us to a forecast for how this can play out over the coming quarters. As Mikael was stating, the current trading and the collection levels that we see in April are slightly in excess of those assumptions and we are modestly optimistic about an improvement over the coming months, which would support the fact that we are being on the conservative side with the total value of the revaluation, also on the unsecured look. And then, I mean, just finally, in terms of seeing some signs of CMS volumes increasing, please remind us, how do discussions typically go? At which point do you receive the volumes, and how should we model that in the coming few quarters here, do you think?

This is, of course, a difficult question, and you can hear that we talk about our own expectations as such. Of course, regular dialogue with all our clients. And I remind you, we have more than 80,000 clients throughout Europe, everyone from small entrepreneurs up to large financial institutions. And I think it's fair to say it's very early to draw any conclusions on this. We follow our pipeline on a weekly basis on group level and what we can say is if we look at our pipeline, we see no deterioration in our pipeline in terms of servicing contracts and dialogues with our clients at all at this time. But on the contrary, we have anecdotal evidence, of course, around the markets with our country managers of active dialogues with our clients that they are looking for more kind of long term solutions and that they are, you know, considering different actions, given that they see for themselves more difficult times ahead. So our conclusion, but I mean, it is a conclusion and expectation is that we will see growing volumes coming through, especially, you know, in Q3, Q4 leading into 2021 and more active dialogues with our clients. And I think that works well in hand with what we see different comments in the different markets about the more challenging times that is ahead. Perfectly clear.

Thank you.

thank you our next question comes from the line of kevin rodriguez please go ahead your line is open hello there thank you very much for taking the question um can i please ask just going back i know you've talked about the buyback but it just from a sort of overview um you know it was a time in the market when most companies big uf companies were going down their liquidity lines we've had you know everybody applying for government schemes and so forth. So I'd just like to sort of hone in on what the thinking of the board was in doing the buyback at a time when everybody else was really thinking about protecting liquidity and what the thinking was. I mean, I get that you're saying that it was an investment and so on, but it was just such an unusual time to be doing such a thing. And I just wondered exactly why, you know, the focus was so much on the equity price at that time rather than necessarily thinking about prudence and so forth. And then a second question would be, so you've done your stress tests and so forth, and you're sort of paralleling to the financial crisis, but it's also the case that people are saying that this is unprecedented times, unprecedented times. So the example of the financial crisis really may or may not be that relevant. Just want to understand in your downside scenarios, what GDP and what disposable income cuts are you assuming? Because you're saying that your servicing guys are looking at, you know,

more difficulties ahead but that doesn't seem to be modeled necessarily in your view of your unsecured book and your valuations all right i'll try to comment on the first one and understand the second one i just reiterating i mean we have a mandate from my shareholders we got it last year to buy back shares so it's part of the different investment alternatives that we have in the group We balance that with M&A carve-outs, investment in portfolios and buying back shares. Every single time we look at different alternatives and how to use that investment capacity. This time it seemed to be the best investment that we could do.

Sorry to interrupt. I get that it was a good investment in theory. the timing of the investment that was so unusual. That's what I think people struggle with. Why did you have to invest anything at all at that moment?

Yeah, but I'm just coming back to the same answer. I mean, it is a judgment call that the board is doing at every single time. And at this time, it was deemed to be the best investment that we could do. Okay. All right.

Thanks. I mean, time's up. I'm just wondering. Scenario analysis. Clearly, we have done a very significant amount of stress testing, but it is back in March at the time of the revaluations. We'll continue to update that as we go along. We don't work with one scenario. We've worked with a range of scenarios, including ones which are significantly more challenging than the ones that we're currently seeing come out in terms of, if you look at the economic predictions from various institutes. I think that the scenario that is on the basis of the book value adjustment that we did was a cautious central scenario issue at the time, which I think now as we've received more data over the last six or so weeks proves to be on slightly the conservative side compared to the scenarios that we are seeing in terms of GDP and unemployment development. It is also a reflection, obviously, of the totality of the economic development across the 24 markets where we operate. And we are seeing that clearly that, you know, some countries are facing a more challenging environment. But also we are seeing that a significant number of countries are actually facing a much more benign development than we had in our stress tests. So I think it's, you know, there's a range of clearly outcomes that we have been working with. We've also been working with what is the ultimate output in average for the group in total, but given that we are actually seeing a more benign outlook for many of the countries in the northern half of Europe compared to what we had in our scenarios, that actually helps to balance the scales, if you will, which means that we are slightly on the conservative side overall. Got it. Thank you very much.

Thank you. And our next question comes from the line of Alex R. Nordhagen of Goldman Sachs. Please go ahead. Your line is open.

Hi. Thank you very much for taking my questions. Just a couple. I noticed that the April you said collections were in line with last year. I mean, one, I don't know what collections were in April last year, but your portfolio is 13% higher year-on-year. So just wondering if you could give us a little bit more color on what collections are like in April, perhaps, versus March to begin with?

No, we don't give specific month-by-month guidance like that, but to give at least some form of benchmark, and obviously everyone can see what our collections were in Q2 last year. it demonstrates that we are on the track which was in last year and we are also seeing that we have um you know slightly more optimistic outlook for may and june compared to april and also you know remember april is also very short month with easter in the middle of it and so forth but um it the comment is there to give a little bit of guidance in terms of uh the totality of the of the outcome in april and um sort of for people to be able to quantify it to somewhat but as i said i think the um the outlook for may and june are relatively speaking uh compared to april and looking more uh positive than what we saw perhaps going into april a month ago okay so i would i mean i would guess then that central portfolio is 13 so bigger that your collections are probably

13 or 14 or 15 percent lower than you would have expected them to be in april would that be fair well as i said we don't give those numbers specifically but it's a reference to be able to for people to have something to hold on to by referring back to our collections of q2 last year okay great and and then just um on um purchases this year are you is there any guidance you can give us uh on what your portfolio investments might be for the full year

Well, what we have guided towards is that we're now, at the moment at least, as long as we're in this uncertain environment, reduced our investment pace to what is effectively a maintenance level, which means that we're covering our replacement rate, which has fluctuated a little bit, but is approximately in the area of 5 billion SEK per year. It's not an exact guidance, clearly, but to give people an understanding of which ballpark we're talking about.

Okay, great. And then, I mean, it's more of a housekeeping one. Slide 12 on the right-hand chart. I was wondering if you could just tell me what the y-axis is, because to me it looks like it might be saying that your collections are in line with your forecast so far, or would be, and I don't think that is what you're saying. But, yeah, if you could explain that chart a little bit better on the right side of 12, I'd appreciate it.

Yeah, the line is cumulative, right? So the growth versus the active forecast means that there's a relative underperformance in the early first 12 months. But then you see the infection point where it starts to go up towards the active forecast again, which means that you have a dip in the first 12 months and then you have a the relative outperformance starting to kick in after 12 months, which means that you've effectively recovered to the FD forecast after 24 months. That's the experience from the financial crisis. I think that's also what's common, but clearly this is a new crisis, it's not a financial crisis, but it clearly gives us some guidance to the point, importantly, that we do see that we will catch up to the collections over time, and that it's more of a timing of collections. In terms of exact numbers, clearly, you know, I think the guidance that we were just giving in terms of the lab load collection in April, which appears to be at least, you know, so far the most challenging month, you know, we should give you a quantum of impact in total from the top, and then we should start to see a gradual improvement.

Okay, great. And so my final one, just with respect to the way the virus spread through Europe from the south to the north. And I think Italy, you can just say was first hit and it looks like the UK is going to be the last to get out of this. Have you seen the collections dip in accordance with that? So perhaps Italy was first impacted and the UK still is? Or is it not quite that simple?

It's not quite that simple because it also depends actually more about the composition of the payment flow. And as I commented upon, we have a very significant amount of automated and online payments based on payment plans, which means that there is a very strong, but that composition differs by country. We have a much more automated infrastructure in the northern half of Europe compared to the south. That's also why you do see a higher degree of manual payments and the restrictions in the economies in the southern European part impacting to a greater extent than what you have in the northern half, which also contributes to the stability of the unsecured payments in the northern part of Europe. So, no, it's not quite as simple as saying it's not one for one with the spread of the virus. It has much more to do with the collection infrastructure and the level of automation in the system and the amount of payment plans. It's also fair to say that we've seen negligible impact on default rates in our payment plans in this period.

Great. Thank you very much.

Thank you. And our next question comes from the line of Gergic Canberra at JP Morgan. Please go ahead, your line is open.

Hi, good morning. Most of my questions have been answered, actually. Just got one follow-up. So just when we think about the sort of guidance sequentially for sort of stable adjusted EBIT, and then, you know, the comments around, you know, year-on-year collections broadly stable in April, you know, so obviously year-on-year your EBITDA is going to, you know, decline pretty significantly. So I'm just trying to you know, square up the year-on-year flat collections versus, I guess, the flat sequential EBITDA guidance?

Sorry, I'm not quite sure I know what the question is.

I guess are you sort of saying, you know, if you look at the year-on-year EBITDA clearly it will decline pretty significantly, but whereas you're saying the collections year-on-year have been pretty stable, would that not imply that sequentially you would see some improvement there? Or are you saying that maybe May and June could deteriorate year-on-year?

No, I'm not saying that collections will deteriorate year on year in May, June. On the contrary, I think that we have a positive development year on year in May, June, looking at the current view of where the market is going. So I think we were in line in April. I think we have a more constructive view on May and June. And our guidance is clear that we're expected on an adjusted EBIT basis to be on May. sequentially with quite a slack development into Q2 and Q3.

Okay, fine. And just one quickly on the tax rate, I know the guidance is for 20% to 25%, but just sort of nearer term into 2020, is there some sort of deferred tax aspect you can get benefits from in the short term, which will perhaps bring that towards the lower end of that guidance?

Look, we continue to guide in that range. I think if you see most of the quarters, we have been in around the middle of that range. We were so also in this quarter, clearly with the reported loss that became a positive from a tax perspective. But we continue to guide in that range and towards the middle of that range.

Okay, great. Thank you very much.

Thank you. Our next question comes from the line of Sonal Sodhi of Morgan Stanley. Please go ahead, your line is open. If you have your phone on mute, you will need to unmute it.

Hello, can you hear me now? We now can hear you. Yes, hi, good morning. So first question is again just going back to Gurjeet's question on Q2 adjusted EBIT. So last year, yesterday's EBIT was around 1.5 billion. You are saying this year it's going to be in Q2 around 1.1 billion, which is the level of Q1. So where is the difference of that 400 million coming from?

Look, I think that we have also a a different composition of the business to some extent compared to Q2 last year so you need to take that into account as well because you also have some of the markets which have a lower contribution in Q1 that are part of the mix now in Q2 and also were not there in Q2 2019 outside particularly in the strategic markets. I think that it's not a one point answer, but I think it's quite a clear guidance in terms of the total adjusted EBIT and also from the collection point of view, what we're seeing on our own portfolio. But clearly there are also parts of the business which are sufficiently contributing in the second quarter compared to the first. So there's composition differences in the guidance that we're given the guidance of the totality.

because if i look at q1 the entire difference of q120 versus q119 is because of the decline in earnings from the joint venture from 350 or 280. so that's basically all your decline in adjusted event in q1 so if so should i assume that basically another 350 million that was there in q2 from the earnings of joint ventures that is basically going close to zero because you're saying on your own business if i exclude the jvs you're doing fine in terms of collections both on the core cms side and on the portfolio side so basically that's the big delta year on year that the earnings from joint ventures are going to be severely impacted also in q2 um clearly we do expect q2 to be challenging for the spd and ictl as well that's obvious um

you know, whether exactly it will be the same result as in Q1, I cannot comment on, but I wouldn't expect it to be lower than Q1.

And just lastly, thank you, in terms of the leverage, so you're at four and a half, so any sense that you can get us give us in terms of how that will go through the year and where you expect to end up in ballpark ranges for end of 2020 any guidance would be helpful so that we can start building a bridge towards your two and a half three and a half in 2022 so it'd be good to know what the near term target is also so we know your commitment to leverage versus other investment opportunities

I think on that, it is clearly challenging to see deleveraging in 2020, but clearly going into 2021 and 2022, we do expect to see the deleveraging resumed and to reach our target by the end of 2022. Hopefully that helps. Okay, thank you.

Thank you.

All right, we are now coming up. We are 15 minutes after the end time. Do we have many more questions now? We do have three people still in the queue. All right, so let's, I hope we can then, so I don't have to cut anyone off. So we have to keep mindful of the time, please.

Sure. The next one comes from the line of Magda Papro-Flute. Please go ahead, your line is open.

Hi, quick question. Can you just advise within your larger markets and what each of the regulator ratings have allowed in terms of payment holidays for the consumer?

I mean we follow this of course closely in all our markets and you know and that is also part of our normal kind of forecast but operating in 25 different markets you know there are different you can say situations in all markets overall i would say it is a you know, not a material impact on the business as such, because many of those type of initiatives that you see is directed towards performing loans, not through non-performing exposures. On the contrary, we see actually quite a lot of activity, I have seen for quite a long time now, from regulators pushing and actively trying to deal with the non-performing exposures in the different markets.

Thank you. Our next question comes from the line of Rickard Hellman of Nordea Credit Research. Please go ahead, your line is open.

Thank you. Based on your holistic view on investments, have you evaluated buying back bonds as well? And are you allowed to do that? Or are you restricted in any way with your RCF? Thank you.

I can answer that. No, we're not restricted in any way to also look at buying back bonds. We are considering all investment opportunities and evaluate them at all times now and clearly that has been one of many, including the investment on portfolios and the share buybacks that we have looked at and considered and we don't preclude that that could be something to consider. in the year to come, but it's nothing that we have actioned upon at this point.

Okay, thank you.

Thank you, and our final question comes from the line of Johan Ekblom of UBS. Please go ahead, your line is open.

Apologies for having a quick follow-up, but can you just detail what the revaluation impact was on the Italian SPD portfolio?

No, we don't discuss that separately, but there is an impact of also an adjustment in the STD in the quarter, yes.

Okay, thank you.

Thank you, and if there are no further questions, it's time I'll hand out to our speakers for the closing comments.

All right, thank you very much for taking this time to listen. I hope that you all appreciate that we have increased our transparency in this quarter and also given some more firm guidelines for the rest of the year. I think as a final comment I would say that we are actually satisfied with the first quarter given the circumstances and we think that Indrum actually exits the first quarter in a clearly stable position with a strong liquidity with 13.5 billion Swedish kronor as available liquidity refinanced balance sheet would make us independent of the capital markets and we are actually well prepared to to meet you know continued demand in the marketplace going forward but with that i thank you all for participating and uh i'm sorry for us you know taking more than one close to one and a half hour of your time but i hope it's been valuable for you all so thank