Intrum AB (publ)

Thank you and good morning, everyone. I'm very pleased to be here. As was said, I'm Anders Engdahl. I'm the new CEO of Intrum and with me today is Michael Ladurner, our acting CFO. First of all, I want to just say that I'm very honored by the trust given by the board appointing me as CEO to lead Intrum going forward and humbled by the task to take Intrum into its next phase of development. But turning to the quarter and the results presentation, if we start on page three in the presentation, I'm very pleased to present the results of the third quarter. The third quarter was, in all and overall, a very strong quarter for Intrum, demonstrating the strength of our business model, also through adverse times like the one that we've seen over the past six, seven months. It demonstrates the resilience of our business model and how it balances through and changes over the business cycle. EBIT adjusted of 1647 was 25% ahead of the second quarter despite what is normally a seasonally slower quarter in Q3 due to the holiday season normally over the summer months. But this year clearly we had a stronger third quarter than that seasonality would normally give. Looking across our segments, looking at the key drivers for our results, a couple of highlights I wanted to bring up, and Michael will go into more detail later on, is we clearly saw a strong rebound in our strategic markets segment, driven by both a catch-up on volumes delayed from the second quarter, as well as the underlying gradual normalization of the activity level. Clearly, the strategic markets were most impacted by the lockdowns in the second quarter, and we saw activity opening up in June at the end of the second quarter and with further acceleration through July and the summer months. Noteworthy is clearly the contribution from our Greek partnership, which contributed meaningfully both in a year-over-year comparison, as it was not included in the third quarter last year, as well as on a quarter-on-quarter comparison to the second quarter. um we also from on the portfolio investment side we saw the continuation of the graduate recovery of collection performance on our back book that started in june and continued into the third quarter the third quarter um most you know in the third quarter most of our markets operated at effectively pre-covered performance levels which contributed to an overall outperformance versus the pre-covered forecast and a very meaningful outperformance to the COVID-adjusted forecast. We only see a few markets, particularly in Southern Europe, still effectively operating on a below pre-COVID level, but we can come back to that at a later point in the presentation. Thirdly, looking at the CMS segment, we continue to see the trend of lower case inflows dampening the top-line performance. This continued to be driven by our clients being more restrictive in sending overdue cases to collections, as well as the continued effects of various moratoria, especially related to overdue financial receivables from our banking clients. And fourthly, we continue to see very strong cost control, and the cost control supporting the margin development both in strategic markets and CMS. In total, the strong performance led to meaningful increase in our cash flow and cash EBITDA, which came in at 3.1 billion SEK in the quarter. And at the same time, our strong free cash flow supported the reduction of our absolute net debt. The combination of these two factors helped reduce our leverage ratio to 4.2 times, continuing the deleveraging path that we resumed in the second quarter. Furthermore, the financing activities we undertook during the quarter assisted in strengthening our available liquidity even further, which is now amounting to 16 billion SEK at the end of the quarter, as well as removing all meaningful near-term maturities before 2024. Turning to page four, in terms of outlook, clearly the second wave of COVID and the pandemic trajectory increases the uncertainty near term in particularly as it relates to the fourth quarter. I mean we're seeing again locally and throughout our footprint that locally markets are increasing restrictions in certain countries and local lockdowns are being introduced but so far it's to a limited extent translating into the full scale lockdowns what we saw in in q2 and so far we haven't seen entire countries being shut down in a similar way that said our readiness is high to respond to changes in circumstances and at the moment we're operating approximately 50 in office and 50 capacity from home and we are fully prepared to adjust and change rapidly as all units have remained at full alert since q2 The strong performance and response at the onset of the pandemic gives me comfort that we are able to navigate successfully also through a second wave. We're therefore a bit cautious in terms of the outlook for the Q4 and do not expect the same seasonal pattern that we usually see in the fourth quarter. As you see, we've seen a strong Q3 and we're also a little bit cautious on Q4. Looking beyond, though, into 2021, we see that the pandemic effects will continue to linger as the recessionary impact of the pandemic takes full effect. On the other hand, we do see that economic support counterbalance this in part, and many government stimuli programs supporting also into 2021. Therefore, we expect to see a gradual normalization of the operating and economic conditions through 2021, leading to gradual normalization of case inflows and gradual resumptions of portfolio sales activity. Beyond that, into the medium term, we do see increasing MPL formation in the pandemic aftermath, creating a supporting tailwind later in 2021 and beyond. Furthermore, we believe that our clients will continue to seek externalized servicing solutions and increase sales of portfolios, driven by the structured need to limit capital drag from increasing MPL ratios. the need to modernize NPL management as well as the changing consumer behavior leading to growth in consumer credit.

But with that, I will hand it over to Michael who can take us through some of the details of the report.

Thank you Anders and good morning everyone. I'm turning to page six now, group financials and summary. As Anders has just stated, we're very pleased with the strong financial performance in Q3, again, highlighting the resilience of Interim's integrated business model. Supported by catch-up effects in what is usually a seasonally slower quarter, revenues grew 16% relative to Q2 to SAC 1.521 billion and are also up to 19% year-over-year. EBIT adjusted came in at SAC 1.687 billion, an increase of 25% relative to the preceding quarter and 14% relative to Q3 2019. Earnings per share for Q3 stand at 6.97 SEC per share, significantly up from 4.26 SEC per share in Q3 2019. When looking at the quarterly results on a cash basis, cash revenues came in at 5.5 billion SEC and cash EBITDA at 3.1 billion SEC. up 16% versus Q2, and 20% year-over-year. This development highlights the favorable growth trajectory of our cash results. Furthermore, expenses, 2.4 billion SEC, were only up 4% year-over-year in comparison to the revenue increase of 19% for the same period, a testament to the ongoing benefit of the efficiency program executed in 2019, as well as continued successful focus on cost control during the pandemic. Focusing on leverage, we continue to de-labor. The ratio stood at 4.2 versus 4.4 in Q2, supported by growing cash EBITDA as well as a reduction in net debt despite FX headwinds during Q3. Focusing on the segments, I'm looking at page 7 of the presentation. credit management services are servicing operations in the mature and emerging markets experienced a quarter characterized by continued slower business volume inflow as well as an adverse fx development the slower business volume inflow continues to be driven by our clients extending payment terms and moving fewer cases into collection as well as moratoria currently in force the decrease in revenues 1.647 billion SEC in Q3 2020 compared to 1.764 billion SEC in Q3 2019 was, however, fully offset by efficiency gains with adjusted segment earnings of 482 million SEC compared to 489 million SEC in Q3 2019. The resulting margin expanded by one percentage point year-over-year and five percentage points quarter-over-quarter, standing now at 29%. Based on conversations with clients across our footprint, we anticipate seeing a normalization of business volumes in 2021. Turning to strategic markets, page eight, our servicing operations in Spain, Italy, and Greece. It should be noted that under normal circumstances, Q3 usually is a seasonally slow quarter. However, while the segment was significantly impacted by the pandemic and associated lockdowns, including of the legal systems earlier in the year, In Q3, we observed more normalized business volumes, also due to postponed volumes from previous quarters. Greece in particular had a strong quarter due to recouping business volumes. Overall revenues came in at 1.738 billion, 37% higher than in Q2 and 81% higher than in Q3 2019. The margin improved to 30%, an increase of 3 percentage points compared to the last quarter and 13 percentage points compared to Q3 2019. This development again highlights the continuing benefits of the efficiency program carried out in late 2019, as well as ongoing focus on cost control. Segment earnings therefore came in at 515 million SEC. an increase of 49% compared to Q2, and more than twice the level observed in Q3 2019. Now focusing on the portfolio investment segments, page 9, we saw continued solid performance above pre-COVID active forecast of 102%, 117% on a post-COVID basis. Gross collections came in at 2.7 billion SEC, 6% higher than in the previous quarter and up 1% year-over-year. The amortization of 972 million is explained by the significant outperformance previously mentioned versus the post-COVID active forecast. Earnings from joint ventures were 60 million SEC in Q3 compared to 102 million in Q2 and 310 million in Q3 2019. Segment earnings stood at 1.093 billion, up 9% relative to Q2, and down 12% year-over-year. However, removing the contribution of earnings from joint ventures, the underlying performance is improving year-over-year, from SEC 926 million to SEC 1.033 billion in Q3 2020. This translates into a return on investments of 12% for the quarter, up one percentage point from Q2 and down three percentage points from Q3 2019. Excluding the contribution from joint ventures, the return on investments for the quarter was 14%, up two percentage points versus Q2 and flat year over year. Investments of 837 million SEC were flat in comparison to Q3 2019. In addition, the underwriting levels in our investments remain attractive on the portfolios acquired during the ongoing pandemic. Turning to page 10. As mentioned before, collection performance for the quarter came in at 102% of the pre-COVID forecast and 117% of the post-COVID forecast. The post-COVID forecast here reflects the changes in expectations and associated write-down taken during Q1 to account for the risks and continued uncertainty of the pandemic effect on collections. Also noteworthy is our year-to-date performance against the pre-COVID forecast of 99%, highlighting the resilience of our collections against a very challenging operating environment in the context of the ongoing pandemic. In addition, we also benefit from our geographic diversification and that 85% of our collections came from digital and automated channels. Looking at the chart on the right hand side, this is evidenced very clearly by the performance of our static back book based on pre-2019 vintages. Actual cash collections only marginally dip below the original forecast during two months, April and May. the months when the most restrictive COVID-related measures to date were observed. On a cumulative basis, we collected 180% of our original expectations over the period shown for this reference portfolio. Diving deeper into the cash flow, page 11. We're seeing a continuing trend of increases across all cash metrics, cash revenue, cash EBITDA, and operating cash flow on a rolling 12-month basis. This development is particularly noteworthy in the context of a very challenging operating environment and is a testament to the resilience of our cash flow. Looking at the chart on the right, which highlights the strong cash flow generated by our business, I would also like to point out that adjusting the free cash flow of $9.6 billion for the quarter for maintenance portfolio investment CAPEX of circa $5 billion results in a free cash flow to equity of circa $4.6 billion. This is free cash flow available to be deployed on growth, deleveraging, or shareholder remuneration. I'm now on page 12, looking at funding sources and maturity profile. In Q3, the absolute net debt has decreased, standing at 48.9 billion ZEC, despite adverse FX effects of circa 300 million. At the end of the quarter, we had 16 billion SEC of available liquidity, an ample headroom under our covenants, allowing us to normalize our investment pace into 2021. We remain fully committed to our deleveraging path with a leverage ratio between 2.5 and 3.5 by the end of 2022 and evaluate capital deployment opportunities against delivering on this target. In terms of the maturity profile, I would like to point out that we have fully addressed all near-term maturities with no significant maturities pre-2024 remaining. Furthermore, our cash generating capacity exceeds the maturities in any given year in addition to the capacity available under the RCF. Turning to the net data overview, page 13. On the left, we're illustrating how the leverage is impacted by the Italian SPV portfolio. The net debt to cash EBITDA of our Italian SPV portfolio stood at two times. As previously explained, as we do not consolidate this investment, the impact is dilutive to the group's consolidated leverage ratio of 4.2. Adjusting for the impact of the SPV portfolio, the group's leverage ratio would have been at 3.9. On the right-hand side, we have put net debt in relation to year C, highlighting a decrease in the ratio in Q3 and bringing it in line with levels observed during 2018 and the first three quarters of 2019. Furthermore, the share of asset-light servicing revenues in the overall mix continues to grow, in line with the trend over the past two years and further supporting our deleveraging path. And with this, I would like to hand it back to you, Anders, for a look at our near-term priorities.

Thank you, Michael. If we then turn to page 15 on the short and medium-term focus areas. First and foremost, our near-term priority will be to continue to navigate the second wave pandemic and be agile and ready to respond to ensure, first and foremost, the safety and well-being of our staff, and our ability to service our clients and customers, as well as protecting the business performance and cash flow of the business. I'm very confident in our ability to continue to manage this successfully and in the resilience of our business model. However, as I said, it will likely put a damper on the Q4 performance in terms of the normal seasonality that we see in the Q4 throughout the year. Secondly, as was expressed in the press release on Sunday, Interim is now after a period of significant expansion where we have established a market-leading position across Europe. We're now entering a new phase. We're now accelerating our work to create a more efficient operating model which will allow us to sharpen our client offering and enhance our competitiveness. This, we believe, will create the prerequisites for long-term organic growth and profitability for the years to come. Thirdly, we are also well prepared operationally and financially to capitalize on the significant business opportunities emerging in the aftermath of the pandemic. We are ready to serve our clients to capture the further business volumes that may arise.

And finally, we intend to speak more about this at our Capital Markets Day on the 18th of November, and we invite you to participate and join us there.

But we'll also then lay out more details about the strategy as well as share the new financial targets for the group.

So with that, I will hand back to the operator and open up for a Q&A.

Thank you. If you wish to ask a question, please dial 01 on your telephone keypad now to enter the queue. Once your name is announced, you can ask your question. If you find it's answered before it's your turn to speak, you can dial 02 to cancel. So once again, that's 01 to ask a question or 02 if you need to cancel. Our first question comes from the line of Erman Kiric of Carnegie. Please go ahead. Your line is open.

Good morning, gentlemen, and thanks for taking my questions. I would like to start on the collections. So year-to-date, we've seen your collection performance essentially be in line with your pre-COVID forecast. You said 99%. But historically, you also had consistent overperformance. Does that mean we should maybe see another quarter of the supporter of catch-up also in Q4 when you sort of make up for that historical overcollections you typically had? Or what should we expect there? And also in terms of the amortization ratio, that was pushed down well below 40% due to the revelation you did in Q1. How should we think about that in the coming quarters?

It's a good question, Ermin, and thank you for asking. In terms of collections, as you say, we're now at 99% performance year to date and 102% on the pre-COVID forecast in the third quarter. And as you rightly say, we have had historically outperformance to our forecast. And as I tried to comment on in the beginning of the introduction, Most of our markets are now operating at effectively pre-COVID performance levels. That said, we still have some markets, particularly in the southern European markets, where we have still not back to full normalized operating performance. That we expect to be a continued gradual improvement. uh but you know it's you know because of the severity of the uh the lockdown and the associated economic impact we do expect that to be uh you know gradual through the end of this year and into 2021 um before we're all back to fully pre-covered levels across every country where we operate uh also it's worth noting that we've seen a greater impact in terms of the time it takes to go back to normalized operating performance on the secured side compared to the unsecured side. So the combination of secured portfolios taking longer to re-normalize, as well as the economic effect, particularly in some of the Southern European markets, it's the remaining differential between the current level of collections and the normalized envelope collections if that helps you to understand that but you know we don't i would say that you know given the sort of the short term uncertainty of the second wave i would expect it takes a bit longer for it to normalize um and go you know sort of into 2021 uh before we're back to full full um operating speed and on the market issue if i may Of course, you're absolutely right. I think your comment is correct. We did adjust the forecast when we did the book value revision in the first quarter, which meant that we had a more conservative expectation for the collection performance in the quarter. And therefore, the significant outperformance on the post-COVID forecast creates that lower amortization ratio. We have, in our expectation, when we did the revaluation, assumed a gradual normalization, which means that as we progress, that delta will diminish, meaning that I would say we should have a relatively more normalized amortization ratio in the coming quarters.

That's very clear. Thank you. Then, in terms of your comments on sort of lower new sales, the new volume, Is that exclusively on CMS or is that also on strategic markets on the forward-looking volumes? And also, just if you could say anything on, did the SPV catch up as much as the strategic markets in general?

Sorry, I'm just taking notes to make sure to answer your question. Now, in terms of the new inflows, it's across the servicing business overall. We're seeing both in terms of new inflows in strategic markets as well as in our CMS business. And it's the combination of factors in the CMS business in particular, meaning the non-strategic markets, or not the strategic markets, I should say. We call them the mature and emerging markets. We see that our clients have been more cautious about sending overdue receivables for collections, taking a more cautious stance, and that has delayed and reduced the total inflows. In addition to that, we have had moratoria for the treatment or classification of what has been performing loans into non-performing in many markets on financial claims. In many markets, we see them now finishing at the end of the third quarter, but we're also seeing a number of these moratoria being now extended in some countries to the end of the year and in some countries also some way into 2021, which means that as long as those moratoria are there, it effectively reduces the inflow in the short term. Clearly, the total build-up of MPLs in the system, we expect to lead to increasing inflows in the coming years beyond these moratoria extensions. In terms of the SPV, clearly, given that it's mainly a secured portfolio and it's also in Italy, the biggest part of that, or the SPV which comes into the JV line, which is the majority of what's in the JV line. I mean, as you can see, the performance contribution in this quarter was more limited and certainly more limited than what we saw last year. I think you have two effects there, right? You have both the quality accounting effect, which contributed strongly in 2019 and gradually reduces as the portfolio matures and you have a sort of very early accounting contribution and a later cash flow contribution because of the structure of the vehicle. The second part is clearly, and we see that Italy was strongly affected by the lockdowns and the economic impact on Italy, and it's taking time before we're seeing normalization of the operating environment for secured claims in Italy. So it's a combination of those two effects that dampen the contribution from the SPV in this quarter.

Understood, thank you. But just if I may Let's stick to the STV a little bit. If I look to your numbers, it seems like you're expecting 1.7 billion of cash flows from the STV the coming 12 months. How should we think about when to phase that in and will that be coming through gradually? Is there some kind of trigger? Does the senior notes in the STV need to be fully repaid for that to start coming through or how should we think there?

We obviously, as you know, we are amortizing the senior debt in the structure and as we saw on Michael's chart as well, we have meaningfully amortized over the last 18 months to years. The majority of the cash flows goes towards repayment against the senior debt for as long as the senior debt is there and the smaller portion is fatally cash flows to the junior note holders. That will continue to be that way until the senior is fully repaid. I mean, it is clearly, as also is evident, I think, in the numbers that there is a lower cash flow and performance in the SPV over the last six months because of COVID. And therefore, there will be also an associated delay in terms of the total cash flows received for junior note holders through the life of the portfolio. Not as much as I would comment on that, I think.

Thank you very much. I'll jump back in the queue. Thank you. Thank you.

Thank you. Our next question comes from the line of Giulia Varesco at JPMorgan. Please go ahead. Your line is open.

Good morning. This is Giulia Varesco from JPMorgan. Thank you for the presentation. I have two questions to begin with, please. The first one is quite high level, but I'm sure you've done a lot of work on this ahead of the capital markets day. From where we stand today, which area do you think could deliver the highest earnings improvement potential for the group? Could it be cost efficiency programs? Could it be investment in new debt? Or maybe growth in the servicing business? And then the second question is on credit management, which had a 4% organic revenue decline. Could you just quantify these effects you mentioned on organic growth from the moratorium and the easing in payment terms from your clients, both in Q3 and so far in 2020? And if we expect a gradual recovery from here, would it be safe to assume, say, mid-single-digit organic growth rate for 2021? And what is the structural long-term growth rate potential in this market? Maybe you could comment as well by division, by region. Thank you.

um let's see if i get through your questions here in terms of the first question i will depart to the capital market stay as we will um you know go into to our view of the contribution from the various business segments into the sort of into the future between what we see from from the uh change program that we have now uh started and we will disclose a lot more details around that capital markets day as well as you know how we see the future in relation also to the new financial targets that we will have for the group going forward. So I will not comment on that specifically today. But as I said we'll come back on the 18th of November with some more details around that. In terms of the decline on the inflows on the CMS side, we are not disclosing the quantification of the contributing factors of that, but it's clear that both parts, in terms of the lesser inflow from our clients from a from a more cautious stance versus what is specifically moratoria related, both meaningfully contribute to the totality of the reduction that we've seen so far. And as for the normalization of that, I think that It's a bit uncertain given the fact that we are just starting to see the second wave take effect and how long that will take before we are out of that second wave and the normalization of economic business conditions can normalize. That's I guess anybody's guess at this point. But I think that from our perspective it clearly extends the time frame for us getting into normalized inflow environment. So I think the combination of obviously extension of moratoria into 2021 in some places, as well as the continued COVID environment, continue to make our clients more cautious about sending new cases to collections. But we would expect that during 2021, that will lead us to have a current expectation, at least, that by end of 2021, we should have a normalized environment. But again, timings are very challenging to predict in this uncertainty that we're in.

Could you quantify like a normalized structural growth rate in that business for Northern and Central Europe versus Southern Europe?

I mean, first point is when we talk about normalized, I mean, we can look at what were our sort of levels pre-COVID, right? 2019, we were pre-COVID and we were in a normalized environment. The first step is to get back to a normalized environment. The second step is to capture the growth of the opportunity set that emerges post-COVID. And from that perspective, clearly, there are a number of research reports out that one can read. And clearly, we've seen many different estimates. But overall, clearly, we do see the prerequisites for very meaningful MPL formation. And some estimate that to be to the size of what we saw during the financial crisis in 2008 and 2009, or the aftermath of that. I think we can all take a view on that, but I think from our perspective it does give us a tailwind in terms of both the prospects for future inflows on the servicing side as well as more active volumes coming out in the market from the PI's perspective. Thank you very much. All right, thank you.

Thank you. Our next question comes from the line that are from North Korea of SCB. Please go ahead. Your line is open.

Thank you, operator. A few questions, if I may. Just coming back to the previous analyst's question about CMS volumes, I'm going to rephrase it a bit and refer it to strategic market. Any sort of feeling for how much delayed revenues you saw in Q3 from canceled revenues in Q2? And then just on the wording in the report here, you're saying you expected stable lending to Q4 in strategic markets. Margins held up quite well in Q2, were great in Q3, and you say diverging seasonality as well. Could you just help us square the margin trajectory shorter term in strategic markets?

Yeah, I mean, I can comment in the following way. I mean, clearly, as you see, it's a meaningful step up of total revenues from Q2 to Q3 in strategic markets. There are two factors in there, right? One factor is the catch up of volumes that were delayed and would have normally cases that would have finalized and settled and completed. or for that matter, being restructured during the second quarter, and therefore we would have had those revenues in the second quarter. So there's an element of the totality of the differential that dampened Q2 and boosted Q3. The second element is clearly the underlying normalization of the operating speed, throughput speed, if you will, where we had obviously clear breaks in the system with the lockdown, where the courts were closed and we were not able to put through claims through the legal channels in particular. And what we saw during the second quarter, certainly in the months of April and May, were largely amicable settlements. Legal settlements started to come back in June, and we saw a clear upswing in June, which supported the second quarter totality in terms of margin, because also, particularly in the strategic markets, you have some in-quarter seasonality where the third month is important before the quarter end. But that sort of recovery of throughput of legal claims, and then call it an uninterrupted third quarter, made us come back to not full speed yet in all markets, but closer to full speed in those markets. So there's still an element of catching up to do, but we think that will be gradual and not immediate in the fourth quarter. So I think hopefully that helps you to understand that a little bit. And in terms of the margin picture, clearly having had a bit of catch-up of volumes that were in the second quarter that should have come in the second quarter that came in the third quarter obviously contributes positively to margins also because obviously the cost side is it does not flex one-to-one for the revenues but clearly we do see that you know the the margin picture is clearly improving and the cost efficiencies that we put through have a positive effect as well so that's that's very clear and it's just a follow-up on that if i may i mean there's a step up of 300 million kronas in opex quarter over quarter in q3 which presumably should see some

at least in a normal year, some tailwind from seasonality. Could you just elaborate a bit on the sustainability in the OPEX number we saw in Q3, and perhaps if there's some element of catch-up volumes leading to higher OPEX than usual as well?

You should bear in mind that in terms of OPEX, We have two parts, and particularly on the legal claims that catch up, you have legal fees associated with those claims. So once you actually settle them, you also have associated legal expenses, and those are directly variable. I think the other part is clearly that we managed capacity in the second quarter, and obviously we also managed capacity up a bit during the third quarter. to ensure that we're protecting the margin in the more challenging quarter. In the second quarter, and obviously with higher activity level in the third, we have obviously managed up softening levels to some extent. So those two factors play in, in terms of the total objects. And also, obviously, we will continue to... The legal fees are, as I said, directly variable. And therefore, if you have lower settlements or more normalized settlements, those legal fees levels will be more normalized. And also I think we will continue to be very proactive in terms of staffing level management also going forward. As we are in a certain period and it is very difficult to predict exactly how the second wave will play out.

That's clear. And then circling back to your final or your concluding remarks in the presentation on the transformation program perhaps on the more defensive side with the harmonization of systems and processes that you referred to in the press release. Can you just take us through what that really entails? I'm sure we'll talk more about this in the capital market, but how does this differ from the reasoning around shared service centers that you've elaborated on before?

Yes. I mean, what we are looking at is creating a group-wide common operating model, which really goes further than the shared service center concept that we discussed in the past. And as you said yourself, we will really elaborate on this in the capital market stay on the 18th of November. But what it really goes towards is to create the common operating model, common operating processes, investing into a common technical platform to support that common operating model and that's really the journey that we now thought and we will continue to work on this for the coming periods and it's something that the whole organization is now completely centered around to execute upon and we see meaningful benefits coming out of that in terms of our client proposition being able to support our clients, to be able to increase the efficiency of our operations, and to drive our financial, both from an organic growth point of view and from a profitability point of view for the coming years. So that's really the highlights of it, and this is what we tried to communicate as well in the release earlier this week, but we'll expand on that a lot more during the capital markets day.

That's very clear. And a final one from me then, perhaps on a more high-level note, but you've been very active on the debt side recently. I mean, if I'm not completely mistaken here, financing costs on a like-for-like basis on the instruments you refinanced are up by more than 200 basis points. And you're saying that you expect gross IRR levels on portfolio purchases to normalize Could you just take us through your view on whether you could have waited with the refinancing and the impact that you expect on levered ROI, if you will, from higher financing costs, whereas higher levels are expected to normalize?

In terms of the total impact on financing costs, the average financing cost increase for the totality of our financing is 55 basis points. Clearly, we went out proactively during the third quarter to address the maturity profile to ensure that we had no outstanding maturity until 2024, which gives us a clear runway to capitalize on opportunities upcoming post-COVID, as well as securing a very strong liquidity position, also continuing to be able to navigate safely the uncertainties that we're now facing in the second wave, and ensuring that we have very healthy headroom on all aspects. So from our perspective, it was proactively important to do that proactively now when we had the opportunity, as we saw that uncertainties could research or the... I don't know, it could create continued uncertainty for the period forward, and I must say I'm really quite happy about that. And in terms of... In terms of the investment market, clearly it's a bit early to draw too many conclusions. I think we saw a continued healthy investment levels also through the third quarter, not meaningfully changing from what we saw in the second quarter, albeit that continued relatively limited volumes. relatively slower quarter from an investment point of view we deployed more or less the same as we did in in 2019 in the third quarter but it's a bit too early to draw too many conclusions on on the medium term sort of impact on pricings but so far we're seeing a very healthy development in terms of the you know new deployment investment rates versus the financing cost developments so that spread which is very important for us has continued to widen, which is, I guess, the key conclusion for us.

That's very clear. Thank you.

Thank you. Thank you. And we have one further question in the queue. So just as a reminder to participants, if you do wish to ask a question, please dial 01 on your telephone keypads now. The next question in the queue comes from Richard Hellman of Nordea Credit Research. Please go ahead. Your line is open.

Thank you very much, and good morning. I just wanted to perhaps have a little bit more flavor about your ending remarks and the emerging business opportunities. Is that portfolios or is it structural transactions or combinations? What are you looking at and perhaps also have you received increased interest from structural transactions as well? Thank you.

Good morning Richard. From our perspective, clearly our focus is very much on the change journey that we're now embarking upon and therefore the structural growth that has been very active during the last few years has on balance a lower priority. We don't exclude uh doing structural transactions in the future completely but it will not be the main priority for us going forward so the main priority for us going forward is to continue to service our clients to meet their needs in this in the aftermath of the pandemic and we see that emerging both in terms of increasing potential for increasing servicing volume inflows and to be able to capture more clients and capture larger share of our clients in the future to drive our servicing business as well as to continue to participate as an active participant on the portfolio investment market and service our clients there. I mean, remember, we do buy most of our portfolios from our existing clients and where we have an overarching servicing and investment relationship. And for us, that is important. But clearly, we see opportunities on both sides coming up. But as I said, the structural transactions will be of a lesser priority. Thank you. I also want to reiterate our continued determination to reach our leverage target by 2022, as we disclosed back in March. That still very much is a target for us, and we see the trajectory over the coming two years to reach that.

Okay. Thank you. Thank you. And we have a follow-up from Julie Vresko at JPMorgan. Please go ahead. Your line is open.

Yes, hello. Just a couple of clarifications, kind of short housekeeping questions. On investment, your presentation indicates that you plan to grow investments in 2021. Would it be possible to just quantify the potential increase? So if we're at the run rate around 5 billion kroner this year, are we looking to come back to sort of 7 billion and upwards? in 2021 already that's the first question and then the second one is on the depreciation and amortization there was an increase in q3 versus q2 i was just wondering what's behind that um and finally i think this has been touched upon slightly but just to maybe you could just clarify there's a statement in the release that says in light of our ambition to increase our level of investment in 2021 and beyond current return levels are likely to be maintained Just to clarify, when you're talking about current return levels unlikely to be maintained, this is in reference to relative absolute wood return levels.

Okay. Starting with the investment pace, I think what we're trying to say is that in 2020 we're, and as we have stated in the previous quarters as well, aiming to keep our ERC stable, which effectively means a maintenance level. And our maintenance level is approximately 5 billion SEK this year. It can vary a bit. We don't have exact numbers for it, but the overall ambition is to be on a stable ERC basis in 2020. What we are trying to express is that we see that we would have a more normalized investment pace in 2021. which is consistent with the average of the last few years since the merger. In the last few years since the merger, we've been more on a normalized level, which means underlying growth, moderate growth of the investment pace, as opposed to the maintenance level that we are at currently. In terms of the return picture, the comment is relating to... We disclosed in the second quarter presentation for your benefit a chart which demonstrated the difference on post-COVID levels versus pre-COVID. And what we're trying to say with that comment is that we also expect pricing to be more normalized, meaning that we do not expect to maintain these elevated levels we saw in Q2 as we normalize the investment pace into 2021. That said, it's too early to tell exactly where that will land, but we do expect that those pricing levels, which are lower, much lower than we saw pre-COVID, will not entice the clients to actually sell portfolios. And therefore, I think that, and also the competition will also be more normalized in 2021, we believe. therefore we will find about you know a new equilibrium in the market going forward but as i said it's a bit too early to tell as you know we haven't started to see all those volumes and activity in the market really resume in full speed but we'll obviously continue to monitor this as we go along this seems like a slightly less optimistic statement that than what we've heard before where my No, it's the same statement, just to be clear. We do not expect the Q2 levels to be the same levels going forward, but we do not also see any reason why we would reach any pre-COVID levels at this point in time. So our expectation is somewhere in between, but what I'm trying to say is that it's too early to say exactly where in between we will end up. So there's no difference in the statement in that sense, just to be clear. Okay.

The final one was on the depreciation and amortization.

Thank you. I'm not sure I understood what you're looking for. In terms of the amortization ratio, clearly the amortization ratio is lower. But, you know, the... I'm sorry, were you talking about the amortization portfolio or the DNA?

This is not with reference to the portfolio. This is just DNA. Okay, okay.

yes no we have um we had some accelerated dna uh in the quarter um we also will continue to i think have some more dna in the coming quarters as we also will be reviewing um in terms of um uh our um uh well our existing uh Infrastructure, and as we now will continue to invest more into technology, that will likely continue to elevate the DNA somewhat in the coming quarters, but we clearly continue to revisit this on a periodic basis to ensure that we do not carry too high values on our balance sheet. But yeah, we did some acceleration of DNA in the quarter that increased the DNA.

I know this question has been asked before and you provided an explanation since we just touched on the portfolio amortization run rate in Q3. I understand the explanation for the Q3 level, but if we're modeling that going forward, 2021 and beyond, what long-term ratios should we be incorporating in our forecast?

I think it's more in line with what we've had over the last actually quite a few quarters in the last two years, I would say. We've been hovering in the more or less 40% range. Some quarters a little bit less, some a little bit more. So, I mean, the average of the last number of quarters, I think Q3 is a little bit exceptional in that sense. In Q2, we were closer to that. And previous quarters before that, we've been relatively stable on the amortization ratio. Thank you.

Okay, and there seems to be no further questions at this time, so I'll hand back to our speakers for the closing comments.

Okay, thank you so much for joining. As I said, I'm very pleased with the results for the quarter, and we obviously continue to monitor the developments short term. But overall, yeah, very pleased with the result, and I also want to thank you all for joining. If you have any additional questions afterwards or going forward, please don't hesitate to reach out to Victor, our IR director, or to ourselves. So thank you so much for joining. Have a good day.