Intrum AB (publ)

All right, thank you. And good morning, everyone, and welcome to this presentation of the results for the second quarter 2020 for Interim. And I do apologize for us being 10 minutes late due to some technical issues, but I hope that we are fine anyway. We've got around 50 minutes, and I think Anders and I will try to be as brief as possible to leave for a Q&A session. Now 2020 has turned out to be very different to our expectations in the beginning of the year and the pandemic has impacted both our private and professional lives. Having said that, we are very pleased with the results of the second quarter. I think the result proves the strength of our business model, our diverse geographical presence and our strong cash regeneration despite the external disruption in the form of the pandemic before we look into the quarter in more detail i would like to take this opportunity to thank all our 10 000 employees for the dedication and loyalty providing services for our clients and customers in a very professional manner during this time that has clearly made an impact in our second quarter results. So if we switch to the next page, the operational update. So let me start with some comments around our operational status. In general, our operations are clearly moving towards a more normalized status. All markets are open and the courts in Southern Europe, Spain, Italy and Greece are open. There is a natural backlog, which we expect will last into the second half of 2020, of course. But courts will close for vacation in these countries, which of course is unfortunate given the backlog, but understandable in a year like this. Today, we have approximately 60% of our staff working remotely, down from 80% at the peak. We expect this number to drop significantly after the holiday period. but we are mindful of any setbacks and our recovery routines remain in place and we are fully prepared to revert to remote remote working again if necessary and i think if you look at the second quarter we have proven that we can operate in an efficient manner also by having a large part of our our staff working remotely the pandemic is not over And despite a very strong second quarter, we remain fully alerted and monitor the situation carefully. Our core values have guided us well through the spring, and I am very proud of the organization has supported both clients and customers during this difficult period. All in all, the second quarter is again evidence of the resilience of our business model. We clearly have the benefits of our strong market position, And the fact that actually up to 85% of the collections in our own portfolios are generated from automatic and online payments. Now, switching to the next slide, Q2 highlights. Looking at the highlights from the quarter, I would like to focus on three areas. First of all, a strong result. The result came in close to 1 billion and 350 million Swedish kronor. That is 23% better than the first quarter. The result is an effect of strong collection performance throughout the organization in combination with strict internal cost control. We see the full effect of the efficiency program from last year in combination with added cost focus during the spring. The support from local governments is actually quite limited. We have benefited from government support only in a handful of countries and amounting to one and a half million euro in total direct support. We have not used any government support in Sweden. Secondly, we have continued to generate strong cash flow. Cash EBITDA came in at 2.7 billion Swedish kronor, actually higher than the first quarter and last year. Our liquidity position continues to remain very strong despite paying dividend and executing on a share buyback program in the second quarter. Available liquidity at the end of the second quarter was at 11 billion Swedish kronor. We managed to reduce our leverage level from 4.5 to 4.2, sorry, 4.4 in the second quarter, which again is a proof point of the strength of our business model. Our cash flow from operating activities is 2.9 billion Swedish kronor in the second quarter. That is over 50% higher than the equivalent quarter in 2019. Thirdly, we have seen a strong recovery in the strategic markets, Spain, Italy, and Greece in the second quarter. Overall, CMS was a bit slower with lower volumes, but performance in our own portfolios was relatively strong. Collections are clearly above active forecast at 111%, compared to the forecast before COVID collections are at 92%. Looking into the future and our current outlook, switching to the next slide, stating outlook, we are expecting both the servicing and the investment volumes to pick up in the second half of 2020 and early 2021. There has been a clear adjustment in the expected return level on investments. Anders will cover it in a little bit more detail later on. And it would be interesting to see if the sellers are prepared to meet new price levels in the market. And if the enhanced return levels with it attract new investors. We take comfort in the strong second quarter and the positive developments towards a more normalized markets. But we are mindful of potential setbacks. We also have to remember that we are now in the seasonally slow third quarter. Courts will close for vacation and general activity will be low. We do expect a more normal market at the end of the year in Q4. We anticipate a slow economic activity throughout Europe. The relief package agreed earlier this week will certainly help And there is potential for a quicker return to normality with higher economic activity in the later part of the year and in 2021. We will continue to support our clients and will invest in new portfolios to keep our ERC stable over the year. We are committed to our leverage target and will balance our investments accordingly. We also expect our clients to continue to evaluate different strategies to protect balance sheet, including selling of portfolios and entering into carve-out structures. Before I hand over to Anders, I would like to spend a minute looking at an important part of our client universe on the next slide. Focusing on the banks. We note increased provisioning of non-performing loans by 120 billion euro in the first quarter of this year. It is widespread affecting all markets. In the graph you see the increase in provisioning from Q1 last year from major banks in Europe. This is on average more than double the amount in Q1 2019 and it is of course driven by regulatory pressure and accounting standards. total non-performing loans increased by 20 percent in q1 compared to the end of 2019. it is clear that banks in europe are very cautious for the coming quarters this will lead to higher activity in our market larger volumes to service and a higher supplier portfolios interim is very well positioned to meet this demand for our services We have strong liquidity and high operational efficiency and stability. And now over to Anders for more details around the second quarter. Anders, please.

Thank you, Michael. And good morning, everyone. So we're moving to page seven group financials in summary. As Mikkel was saying, overall, we are pleased with the financial performance in Q2, demonstrating the resilience, both in terms of reported results as well as on our cash-based metrics. On a reported basis, our revenues grew 17% versus the first quarter to 38.85, and up 3% versus Q2 2019. This clearly reflects the inclusion of Greece into the numbers, which was not there last year, which is effectively offsetting the impact of COVID in the quarter, as well as reflecting the strong collection performance that we've seen on our own portfolios, given the circumstances. EBIT adjusted came in at 13.45, up 23% versus Q1, and minus 14% versus Q2 2019. Q2 is generally a seasonally stronger quarter, but also the inclusion of Greece clearly has offset the weaker CNS performance. Earnings per share came in at 5.39 versus 6.26 in Q2 2019. On a cash basis, our revenues approached 5 billion 49.77, up 2% year-over-year. And the expenses, as you can see, are down meaningfully from Q1, and in line with the Q2 2019 numbers, despite the inclusion of 1,000 employees in Greece, demonstrating the strong cost performance in the quarter across all our units. Cash EBITDA was very stable, up 1% versus Q2 2019, and up 3% versus Q1 2020, to 27.09. Then looking at the segments, first at credit management services, which is in servicing business in mature and emerging markets. CMS had a challenging quarter with lower new case inflows due to clients taking a more cautious stance of sending new cases to collection in light of COVID-19. We do, however, expect this to normalize during the second half of this year and going into 2021. Revenues consequently was down 7% versus the first quarter and down 9% versus the second quarter 2019 to 1590. Looking at the margin, we see the good cost performance helped preserve the service line margin to 24% in the quarter versus 25% in Q1 and 26% in Q2 2019. That translates to service and earnings of 383 versus 420 in Q1 and 460 in Q2 2019. Then looking at strategic markets, so the servicing business in Spain, Italy and Greece. Strategic markets were significantly affected by the restrictive lockdowns early in the pandemic, which was evident already in our Q1 numbers. During the latter half of the quarter, conditions eased and we saw a start of the return to normality in these markets with significant improvements in June. Revenues in strategic markets came in at 12.65 compared to 11.94 in Q1, which corresponds to an increase of 6%, and 9.73 in Q2 2019, which corresponds to an increase of 30%, clearly reflecting the inclusion of Greece. Service line margin came in at 27%, that is to be compared with 9% in Q1 and 34% in Q2 2019. That translates to service line earnings of 345, which is more than three times more than we had in Q1, and in line with the Q2 2019 number of 337. We did see a significant positive effect of the efficiency improvement program that we completed at the end of last year. as well as the strict cost control measures taken during the quarter supporting the margin. But we should also bear in mind that Q2 is seasonally strong, and Q3 includes the summer holiday period with the month of August, which tends to be the seasonally weaker month and quarter of the year. Moving to portfolio investments, portfolio investment performance, was very strong, very resilient and exceeded our own internal expectations based on the somewhat cautious view we had in Q1. Collection performance returned towards pre-COVID active forecast in June with nearly 100% performance in the month of June, which translated to an average of 92% compared to our pre-COVID forecast for the quarter in total. Cost collections came in at the total of 2536, which is minus 9% versus Q1, and minus 5% versus Q2 2019. Amortization was lower because of the write-downs that we did in Q1, as well as the lower absolute collection amount, but the ratio remained at nearly 40%. JV earnings was 102 for the quarter compared to 81 in Q1 and 315 in Q2 2019. That then translated to segment earnings of 1003 for the Q2 quarter to be compared with 1037 in Q1 and 1214 in Q2 2019. Worth noting is that we could look at the underlying performance Excluding the contribution from the J-lease, the segment earnings were virtually flat year-over-year. So if you look at the 1003 minus the 102, we had a 901 of segment earnings underlying for the quarter compared to 899 in Q2 2019. So virtually a flat performance year-over-year, which obviously demonstrates significant resilience in the business. That translates into return on investment of 11% for the quarter, which is the same as in Q1. And if we exclude the contribution from the JVs, the underlying ROI was 12%, to be compared with 13% in Q1 and Q2 2019. Diving a little bit deeper into the collection versus forecast, As you know, we did revise our curves in Q1 to reflect the risk of the COVID pandemic, which also corresponded to the write-down that we did in Q1. However, collections did now, in hindsight, demonstrate more resilience than we expected, especially in our unsecured books in the matured emerging markets. That is a testament to our diversified book across a larger number of geographies and jurisdictions across Europe. Collection performance was 111% compared to the post-COVID revised forecast, which then, as mentioned, corresponds to 92% of the pre-COVID forecast. That said, in June, we had nearly 100% performance compared to the pre-COVID forecast. We also wanted to show you a little bit more detail. What we've done is to look at the back book at the end of 2018 or beginning of 2019 and laid out what was the original forecast. That's the blue line in this graph on the right on page 11. What was the original forecast when we bought those portfolios? And then compared that to the actual cash collections. And as you can see, in all the months, leading up to the pandemic, we've continued to have outperformance versus the original forecast. Then in the months of April and May, we had a short dip down below 100%. So the red line went below the blue line, which obviously corresponds to the underperformance. But then that reverted back to overperformance again back in June. So as you can see also, the bars in the chart there demonstrate the accumulated performance, which continues to have been above 100% through the entire period. Then looking at the cash flow, I'm on page 12, the cash flow evolution. We saw very strong operating cash flow in the quarter. and continuing the trend of increasing cash flow and cash EBITDA sequentially on a rolling 12-month basis. Cash EBITDA rolling 12 months was 11.2 billion, and free cash flow increased to 9.3 billion. This is what supported our continued B leveraging in the quarter, despite having paid both dividends and conducting the share buybacks in the quarter. Moving to page 13, Funding Sources and Maturity Profile. We continue to have a strong balance sheet position and have 11 billion SEK available in liquidity and significant headroom under our covenants. This combined with the level maturity profile that we now have following the re-terming of our balance sheet that we did during 2019 with limited near-term maturities. gives us an ideal position to monetize the upcoming business opportunities that we see emerging post-COVID. Moving to page 14. On the left-hand side, you can see, as we have previously said and mentioned, our net debt to cash EBITDA ratio declined to 4.4 times in Q2. But we also continued to deleverage the SPV portfolio in Italy, which at the end of the second quarter came down to 2.0 times leverage ratio. As we also discussed in the first quarter announcement, since we do not consolidate, the inclusion of the SPV actually increases the group overall leverage ratio. If we exclude the impact from the SPV portfolio, the underlying leverage ratio is 4.1. On the right hand side, we look a little bit at the new investments, and following the comments from Mikael, if you saw the new investments in the quarter was 1267, which is in line with the stated ambition to stay at the maintenance level in 2020, which means keeping the book and the ERC stable. Looking at the new investments in the quarter, after a period of falling investment returns for the last number of years, we see that investments made since the outbreak of the pandemic have been made at significantly higher return levels than compared to pre-COVID levels. The increase in return, which is depicted in the chart with the two red little diamond squares, is more than offset the increase in the funding spreads of our debt, which is the lower little blue arrow up. And that outpaces that increase by more than two and a half times. So whilst obviously it becomes a little bit more expensive to borrow in these current market conditions, we see that the increase in return levels more than offset that and still represents a very attractive business opportunity going forward. So with that, I hand it back to you, Mikael, for the near-term priorities.

All right. Thank you, Anders. And let's move over to slide number 16, short and medium-term focus in 2020. We are, as we've said, very satisfied with the second quarter and the resilience of our business model, but we remain vigilant and we monitor the developments closely. We are prepared for setbacks. and as such are prepared to adapt if necessary and then move back to more remote working again we are accelerating the transformation of interim to rely more on standardized and global solutions both in support and in front office functions the aim is to simplify our operational model And this is a project that started already over a year ago to utilize our scale and our geographical presence. This will drive our value proposition to our clients and secure our operational margin for the years to come. The transformation includes a uniform and to a higher degree automated reporting structure, relying on more central solutions to central resources, sorry. a simpler it structure utilizing more common solutions and utilizing more shared solutions both in support functions and front office expanding our shared service centers and introducing multi-language call center for high volume cases we are prepared to meet increased demand for our products from our clients in the aftermath of the pandemic We expect higher volumes to come through late in 2020, as we said before, and in 2021, and as a result of increased provisioning in the banking sector and general increase in late payments in the markets. Finally, we are preparing for a capital markets day in the fourth quarter, where we will give you more guidance on our long-term financial targets and the transformation of Interim. That concludes the presentation, and Anders and myself, we open up for Q&A.