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 Anderson 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 remote working again, if necessary. And I think if you looked at the second quarter, we have proven that we can operate in an efficient manner also by having a large part of our staff working remotely. The pandemic is not over and despite the 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'm 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 results came in close to ,000,000 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 government is actually quite limited. We have benefited from government support only in a handful of countries and amounting to ,500,000 euro in total direct support. We have not used any government support in Sweden. Secondly, we have continued to generate strong cashflow. Cashier with deal 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 models. Our cashflow 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 21. There has been a clear adjustment in 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, will 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 activities 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 we'll invest in new portfolios to keep our ERC stable over the year. We are committed to our leverage target and we'll balance our investments accordingly. We also expect our clients to continue to evaluate different strategies to protect balance sheet including selling our 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% in Q1 compared to the end of 2019. It is clear that banks in Europe are very cautious for the coming quarters. This would 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, Mikael and good morning everyone. So we're moving to page seven group financials in summary. Mikael 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. Even 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 helped 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 5.4977, 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-event data was very stable, up 1% versus Q2 2019 and up 3% versus Q1 2020 to 2709. Then looking at the segments, first at credit management services, which is 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 helps preserve the service line margin to 24% in the quarter versus 25% in Q1 and 26% in Q2 2019. That translates to a service line 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 specific markets came in at 1265 compared to 1194 in Q1, which corresponds to an increase of 6% and 973 in Q2 2019, which corresponds to an increase of 30% clearly reflecting the institutional 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 19 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 tend to be the seasonally weaker month and quarter of the year. Moving to portfolio investment. 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 19. 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 19. That then translated to segment earnings of 10.03 for the Q2 quarter, to the big compared with 10.37 in Q1 and 12.14 in Q2 19. What's nothing is that we could look at the underlying performance, excluding the contribution from the JVs, the segment earnings were virtually flat year over year. So if you look at the 10.03 minus the 1.02, we had a 9.01 of segment earnings underlying for the quarter compared to 899 in Q2 19. 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 19. 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 mature NMRD market. 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 compare 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 month 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, 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 or continued the 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 we have 11 billion sector available in liquidity and significant headroom under our governance. This combined with the level maturity profile that we now have following the re-termination 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 de-leverage 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, the inclusion of, 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 Michael, we saw the new investment 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 investment in the quarter, after a period of 40 investment returns for the last number of years, we see that investment made since the outbreak of the pandemic have been made at significantly higher return levels 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 once the overseas 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, Michael, 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 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 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 market stay 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 Andrews and myself, we open up for a Q&A.

Thank you. Ladies and gentlemen, if you have a question for the speaker, please press 01 on your telephone keypad. I repeat, if you have a question, please press 01 on your telephone keypad. If you have a question, the first question is from Patrick Braslus from AEBG. Mr. Patrick, please go ahead.

Hi, good morning. Yes, my first question is regarding portfolio investment returns, where you showed a great slide here on page 14. The H1 underwriting return seems to be very elevated. Can you elaborate a little bit how you think this will continue to develop through the rest of the year? And if it will stay elevated?

I guess that's a good question, good morning. And I think we will look forward to the second half of this year and into 2020, where it will be interesting to follow the market. If you look at it, and we take, you can say the experience of the second quarter, we, as you say, clearly see higher expected return levels on the portfolios and lower price levels. But we also see a large number of portfolio sales that have been, you can say, postponed into later of this year. And it will be interesting to see if the sellers are prepared to meet, you can say, the new price level. We can also, I guess, expect that these type of return levels will attract maybe new investors into the market. But as it looks right now, it is, I think, Anders clearly showed, a very favorable market that we hope that we will be able to take advantage of, of course.

Okay, great, thank you. And my second question is regarding your cost base. You write that you have maintained tight cost control during this quarter. Could you provide with some color how your cost base is currently divided between fixed versus variable cost at this moment?

Anders, start for you.

Good morning. No, it's, you know, clearly the bigger, you know, important point here is we are with the end of the year on the back of having done the efficiency improvement program. And that's an important contribution to the tight cost control. On top of that, we obviously took additional measures to ensure that we adjusted accordingly as we at the early stage of the pandemic so that this could have meaningful impact on the revenue line and adjusted our costs accordingly in addition to the cost or the efficiency improvement program that we did. So that's, I think, the cost sort of improvement that you see demonstrates the flexibility that we have in the cost base. And, you know, obviously a business like ours have fixed costs, semi-fixed costs, and variable costs. And that's, you know, not an easy question to answer, but I think what you do see in the numbers is that we have significant ability to adjust very rapidly in a situation like the one that we've been through over the last three months.

Okay, yeah, I understand. That's all for me. Thank you.

Thank you. We have some next questions from Irwin Kulish from FarmerEQ, please go ahead.

Good morning, and thanks for clicking the questions. So the first question would be, in connection with Q1, you guided us for the slightly adjusted EBITs, also for Q3. And I've understood that when you did that comment, you already sort of expected some opening up of societies. From the start of Q3, would you say that outlook has changed anything? Are we, could we progress more than you expected now, now when we enter Q3, relative to your expectations in Q1?

I think it's hard to say that. I mean, we have seen a more, a quicker reopening of the markets in the second quarter than we anticipated at the time of our presentation of the first quarter results. Having said that, what we see now in Q3 is, as you know, a more seasonally slow quarter. We had our hopes in back in April that the courts in Southern Europe should remain open over the holiday season and, take care of some of the, of course, backlog that has been worked up during the pandemic. That will not be the case. And I guess everyone deserves a vacation a year like this. And even the courts in Southern Europe, so they will be closed as a normal kind of, so we will see a seasonally slow Q3. But I mean, if things continue to develop as we've seen, we still hope that we, when we come to the end of the year, that we have a more normalized market in general. So I think that's the kind of general commerce we can do around it.

That's very, thank you. Then on the investment case, I mean, so far, if we looked on the first six months, you're up on around 2.9 billion. And I think you've commented before that around 500 million euros is what you need to, so just replace your ERC. What sort of the bottleneck from going much more aggressive already now when you see this positive return gap and your liquidity is holding up well? Because it sounds like you're still sort of just aiming for maintaining the book flat this year, or have I understood something wrong?

No, I think it's two things in this, and Anders, you add to this. But first of all, I mean, we are, as you know, investing in portfolios is part of a value proposition to our clients. We react on the, you can say demand from our clients on those type of services. So we work with our clients and we see the need they have and we see what that would lead into, so to say. But we are also strictly committed to our long-term deleveraging target. And as you know, unfortunately, we are not able to meet that in 2020 because of the pandemic, but we still have that clearly in focus. So it's a balance for us between the need for our clients and our deleveraging targets. But of course, I mean, we will try to work, given those, that balance, so to say, as proactive as we can in the market. And of course, it's comforting to see that the expected return levels is at the level where it is. I know Anders, if you would like to add to that.

No, I can add a little bit. And then as also, I was commenting upon, during Q2, we did see a number of transactions being postponed into the second half of the year. And also Q3 tends to be a seasonally slower quarter, also from a new investment point of view, because of the summer holiday period. So transactions that have been postponed from Q2 tend to come out after the holidays, in July, August, which means that they tend to be pushed into Q4. So Q3 tends to be seasonally slower. And then, as we said, it remains to be seen. I mean, we expect more volume to come out during the second half of the year, and especially from September onwards. But obviously the pricing picture combined with increased volumes, obviously presents an interesting market opportunity, definitely. And obviously we will want to try to participate in that. But exactly how that will play out, it's very difficult to predict at this point, given the uncertainties in the market overall.

Anders, and then just on working capital, could you help us understand there what's been enabling you to see such improvements during both Q1 and Q2, and how we should think about it going forward?

Look, I think what is important to remember is the, when we've done the partnerships in particular, we saw it when we did the transaction in Italy, we've seen it in Spain, we've seen it in Greece. In the ramp up phase, we tend to have, there's always a timing difference between the completion of a month and the invoice period, which means that at the beginning of those, we tend to bind a bit of working capital. I think what we're seeing now in a period of stable or in that sort of matter falling or lower collection levels, is that we've been able to receive invoices that have been obviously built up as working capital over those introductory months or quarters, to actually being able to work that level down during the last six months. So there's that dynamic to bear in mind, because obviously, if you look at the first half of 2019, you actually did see build up of working capital that then went into more of a steady state. There's that dynamic to bear in mind.

And I mean, you can also say that this is also a result of an efficient finance department working in the second quarter. Anders didn't say that, but that's also true.

Thank you, if I'm well enough. So then just, I mean, coming back to previous questions here, but on the expenses, I think it's very impressive and would be interesting to understand a bit more how you've been able to reduce the cost of the 13%, at the same time, I can see your headcounts actually increased, for instance, quarter on quarter. What is it underlying that you've been able to reduce so much, especially given you haven't really taken up any state aid?

Well, if you remember the efficiency program that we talked about last year, we actually divided into three different parts. One is, of course, you can say very much related to Spain, where it's been an ongoing adjustment of the workforce over the last couple of years. And that was also a big part of the efficiency program. The second one of it is actually re-prioritizations on the IT side. And I talked about the transformation of interim, and that is basically to switch from, you can say, local initiatives to more global initiatives, utilizing common resources. That in itself gives us cost benefits, of course. And the third one was a general cost discipline in the organization in the autumn. And we took out a lot of, you can call it, well, a little bit stopper than unnecessary cost. But then, as Anders also said, during the spring, we've had a very strict cost focus in our operation to make sure that we are mitigating the loss of top line. And with the very tight follow-up on all markets and all areas, that actually paid off. It's not more difficult than that,

actually. Perfect. Thank you very much for taking my question.

Thank you. Next question is from Rameel Karnia from SGB. Please go ahead.

Thank you, operator. Morning, guys. Thank you for the presentation. Starting off on a pretty high-level note here, I mean, IFRS 9 obviously changes the provisioning regime for banks. And naturally, that all LSEQOL should have sort of added to provisioning levels, which you've depicted on slide five here. But based on your sort of discussions with the bank and tying into, you know, your seemingly decent collection performance, why should banks divest expected credit losses this early? Again, bearing in mind that your collection levels obviously have held up quite decently, which to me, in some extent, illustrates that perhaps expected loan losses in Q1 reports were, you know, potentially a bit overestimated. Very high-level question, but let's start off there and see.

Yeah, good morning, Rameel. No, but I mean, it would be interesting to see the market and to follow the market through. You're absolutely right. If you look at the provisioning, it's driven by accounting rules, of course. So you can say it's very much about what you can say, provision, forecasting non-performing loans, so to say. But still, they are there. And we all know that the regulators has been very focused on making sure that the banks are dealing with the non-performing assets of the balance sheets as early as possible. And we also know that late payments in general is a challenge, especially in the downturn scenarios that we are looking at right now for Europe. Even though we now have a huge package in Europe supporting the countries, which I think will be very beneficial in itself, it is still the case that both financial institutions and others needs to work with their late payments. We don't, you know, it will be interesting to see. We're not expecting, you know, a complete shift in the market, but clearly, you know, larger volumes coming through in end of 2020 and 2021. And if someone believes that the MPL markets is, you can say disappearing in Europe, I think there clearly evidence that that is not happening. We see the contrary, but the development and the sequences over the coming quarters, it will be interesting to follow. But in our dialogues with our clients, it's clear that this is also very much on top of their mind right now. They think a lot about this.

Crystal clear, and then perhaps more concrete here. Could you say anything about the deals in Q2? Was it a few big transactions, was it smaller transactions, big, small tickets, big, you know, portfolios, assets, geographies, et cetera? Anders?

No, look, it was a good spread of investment portfolios. Clearly, a bit more tilted towards the Anzici world, on average, I would say. I'd say more from a proportional perspective, secure and corporate portfolios were delayed into the second half of the year. I think it's all better for the remaining flow from a five-time point view on the Anzici side. And it's a good spread that reflects our footprint. So I would say, you know, well diversified and in line with the shape of our back.

And perhaps on a nitty-gritty level, what differentiates the sellers so far versus the banks that have postponed sales of portfolios? Is there any common denominator here?

Not really. I would say that, maybe the one thing I would say that the ones that are the most experienced sellers that have seen the ups and downs of the market and have been actively selling for many years have been the ones sort of staying the course with their disposal strategies. But overall, it's been a good, continued good spread and diversification of overall from a seller's perspective as well. But I think what we have seen in the market over the last number of years, it's a significant increase of maturity level from a seller's point of view as well. So I think they will recognize that this is part of normal business for them.

It's crystal clear. Just a follow up on that as well, Anders, if that's fine. On page 14 here, I think the charts on the right-hand side as a previous analyst also said they're great. But speaking about mix effects and seeing ROI levels feeding through to the P&L as such, you'll get some flavor in your annual report of different vintages weight on your book. But when should reported ROI levels drop, if I may?

Look, as you know, it's a mix and volume point, right? So, if we're able to capture more volume at the current levels, clearly we will have a faster return upwards on the average for the booking total, of course. So it's a little bit difficult to predict given the uncertainty of volume and price development going on in the coming quarters. But what we can say is that we do see some good prospects for the coming quarters and years in terms of volume, build up and expected volumes coming to market combined with a meaningfully improved price picture. So one obviously can run different scenarios and modeling on how that will play out depending on which assumptions you put in. But I think that's how we see it will play out.

Okay, and I mean, just to square this, I find I'm sorry, but to square this, I mean, so the ROI level has come up by, I don't know, so let's say five percentage points versus reported levels, but presumably, entering the pandemic, given the trajectory of the ROI level, the increase now versus pre-pandemic is presumably higher than the five percentage points we're seeing versus reported levels. So could you address that in numbers, i.e. pre-pandemic ROI or gross IRR versus current ROI or gross IRR?

That is what we're trying to show here. Sorry, I'm not sure if I get the question because we have been investing at levels which were said in the previous quarters, new investments in line with the sort of stated ambition in terms of IRR and ROI as we had our previous financial targets. And obviously we've seen the meaningful now re-rating all that upwards, as you can see in the charts. And that sort of, we also have the scale there so you can see that, you know, more or less the levels. So that really does predict the reality that we've been seeing now pre-imposed COVID.

Okay, let's do it offline then. Thank you so much.

Thank you. The next question we have is from Robin Vane from Capcom, Hawaii, so I hate the word.

Yes, good morning. So now with the Q results coming in stronger, than you had previously expected and the lockdowns of them did not have some adverse effect on the collections as could have been feared. How comfortable are you looking forward? I mean, when the repercussions from the lockdowns will come through in the form of higher unemployment, perhaps property prices developing weekly, how comfortable are you with the current forecasts that you make and the quality of the book?

Well, I put it like this, you know, it's as a manager, when you're facing an external disruption like this, it is very much about protecting your franchise, working with your clients and customers, protecting your employees and you tend to, you can say, end up with a more kind of -to-day management. I think the organization has managed the second quarter very well and showing resilience in our business model despite this external disruption. And that is something we take with us and we talked about it many times before. But of course, for us it's also important that we are careful when we look forward and we are prepared for setbacks in the development as such. And if you look at it, at the peak level, we were close to 80% of our staff working remotely and we were still able to operate in a fairly efficient way. I mean, even though we're looking back at the strong second quarter and we are all very happy with it, it is still lower than you can say the ambition we had when we entered the 2020. So it's in relative terms, one has to be a little bit careful. So doing long-term projections is of course difficult when you have external disruptions like this. We are trying to be mindful of that and careful. But of course, we take comfort in a strong second quarter, we take comfort in the development during the quarter and we take comfort that the underlying cashflow is as strong as it is despite the external disruption. I don't know, Anders, if you would like to add to that.

No, absolutely. And I think that what has been obviously very helpful is the data that we've been able to gather through this period in how our book has performed and our collections have performed in face of a concerted and simultaneous shutdown of the economies across the entire European footprint. And then as we tried to, that's why we tried to put it in on page 11 in the presentation for you to see how the book has actually performed and reacted during this period. And with this level of volatility in the face of this type of disruption, we take a lot of comfort that we have an underlying conservatism in effect built into the forecasts that support the book values that we have and the URCs that we have. And we do continue obviously with the uncertainty that we have, continue to do scenario modeling and so forth, what this could mean. But I think that the period, if anything, demonstrated that the book is very resilient and we are as such comfortable with the forecast that we have.

Yeah, and if you remember, when we presented our first quarter results, we said the provision we did in the first quarter, given what we saw in April, were on the margin of the conservative side. And of course, you can say that's been confirmed throughout the quarter, but we still think that it was prudent to do. And it basically reflects, you can say, our attitude to this.

Okay, thank you. And then to quick follow up question. So just a clarification on the cost base in the second quarter. Was there any sort of temporary reductions that we should expect to come back in the coming quarters on the cost base? And secondly, on the investments, what was the distribution of secured versus unsecured investments? From the quarter view, if you're able to tell us that.

I can start with that. I think, I mean, you should bear in mind clearly, there is a direct variable element in cost to collect, which relates to legal expenses. And given the fact that costs were closed during the quarter, the amount of legal expenses was reduced accordingly with reduction in collections. So there is that element, but I think the biggest fortune was, as Nikke was referring to, the effects of the efficiency program and the other cost measures taken in the quarter. So that's sort of on the cost side. In terms of the distribution of investment, I think I already commented upon that on the previous question, but I think what I was trying to say is that was a tilt toward more unsecured in the quarter, as more on average, that there's more secured portfolios were delayed into the second quarter.

Okay, thank you very much.

Thank you. We have a next question from Mr. Johan Ekloon from UPS. Please follow him.

On on the- What part was activity related and what part is the cost saving program? Alternatively, can you give us a rough idea how much of the cost savings that you announced last year are kind of fully reflected in the Q2? I think if I understood you correctly earlier, the vast majority of that is realized in Q2. So that's the first question. And then I guess on the same topic on the recovery, how should we think about the working capital? I mean, you clearly gave some guidance that some of the effects that we saw this quarter is relating to the slower activity and the good working of the finance department. But as we look into Q3, I mean, I think all of the cashflow improvement that you showed in the slide came from working capital pretty much. Should we expect all of that to reverse once activity picks up or are there some permanent improvements in efficiency that can lead to lower working capital on the forward-going basis?

Yeah, maybe I can try to answer that. On the first one, we don't disclose the details that you're looking for, but it is consisting on those three elements that we have described, which is the efficiency improvement program, additional measures taken during the COVID pandemic, as well as an element of variable costs, which naturally comes down with lower collections, for instance, in legal expenses. So, and I'd say the legal expenses is a smaller portion of the total, but it is an element. In terms of working capital, there is, for that, you know, put it like that, an element which is, we would view as a permanent improvement. Going forward, we do not expect clearly to have that continued contribution from lowering working capital, but neither do we expect a buildup again to the levels previously. So, I would, you know, I would more expect it to be a neutral contribution in the coming quarters.

Thank you.

Okay, so we have a last question from Mr. Sunil Sudeep from Melbourne, Sydney. Please go ahead.

Yes, hi, good morning, can you hear me? Yes, we can. Yes, I just, going back, sorry to the cost again. So, if we look at the EBIT improvement, Q1 to Q2, most of it has come in the strategic markets, the division, and in that, it's mostly about 250, around 200 million of cost savings. So, I just want to understand, like, and this is Q1 to Q2, so I guess it cannot be attributed to the efficiency program, because we should have seen it in Q1 also. And given that strategic markets and credit management services kind of do the same thing, we didn't see that in the credit management services, Q1 to Q2, the improvement, in fact, the earnings are down. So, I just want to narrow down to what specifically were you able to take out in terms of costs in strategic markets, Q1 to Q2, that's a benefit of 200 million, and is that sustainable going forward? Thank you.

Maybe I can comment on that. You're right, clearly, in a sense, the meaningful reduction of total cost or expenses in the strategic markets in the quarter, compared to Q1. Bear in mind, though, that if you look at the business mix in the strategic markets, you have a bigger portion, which is related to secured and corporate servicing, as opposed to unsecured in the strategic markets. So, it's unsecured if it's only a portion of the current business mix point to you, which means that you have a greater reliance on the court system, which is also why we've had, obviously, a greater impact on the revenue line. So, that sort of, that dynamic means that also legal expenses are proportionally down from that perspective in the strategic markets. That's one element. The other element is clearly we've done a lot of activities also on, given the severe impact we've saw from the restricted lockdowns that there was at the early stage already in the beginning of March. We've very rapidly took measures to contain costs in the strategic markets, particularly, to suggest there was evidence that we would have a revenue impact to try to pare off the impact on the margin. So, it's a combination of business mix on one hand and also on top of, but there is an underlying cost improvement from the efficiency program, but clearly the specific measures that we took at the early part of the pandemic had an important element in the strategic markets cost.

So, in terms of, when you think about courts opening up again, activity picking up, because the revenues were up in strategic markets, Q1 to Q2, so it's not the revenues that went away, revenues actually improved with the costs. So, as you go into Q3, Q4, would you expect that cost base to come back so that the operating margins are again falling back down or you think you can sustain this mid-20s level?

So, I would just point you back to Q2-19, our margin was 34%. Obviously, we have already included Greece, but we have also had a pandemic effect on the revenues. Remember the systemality of the business in strategic market is much more system than the other markets in our business. Where Q2 and Q4 are system in strong quarters with a lot of resolutions, which is sort of normal part of the calendar. So, that means that, from our perspective, Q2-19 is more representative of a normal margin quarter and we still have a sort of, no, we work at full efficiency from that perspective in Q2 compared to what we would expect in a normal Q2. Thank you.

All right, do we have any more questions? Apparently not. In that case, I think, Andrews and myself, we thank you all for participating in this update and again, apologizing for some technical issues and hiccups, but thank you anyway, so to say for your patience. We wish you all a good summer when you come to it on holiday period. So, thank you very much.