Intrum AB (publ)

Good morning, everyone. This is Anders Engdahl, CEO of Intrum. And with me today, I have Michael LaDurner, who I am pleased to announce has now been appointed permanent CFO of Intrum. I'm happy to walk you through the fourth quarter results and our comments to that. So if we turn to the presentation on page three, 2020 has indeed been an extraordinary year. And the first half was characterized by synchronized lockdowns across major European jurisdictions, creating a very challenging operating environment. We saw port system efficiency decline, where for example, the number of real estate auctions in Italy declined nearly 50% compared to the expected volume. And we've seen major sectors in the economy have been shut or went into hibernation for several months during the year. Notwithstanding these challenges, Interm was able to navigate through thanks to the organization being able to switch to remote working in record time and our relentless focus on serving our clients and customers supported by our core values, empathy, ethics, dedication, and solutions. Despite these challenges, Intermasken displaying strong stability and resilience, being able to continue to grow our business, our cash flow, and our cash-based metrics through this extraordinary environment. Portfolio investment has demonstrated stable returns, and whilst our investment pace has reduced, we have maintained a stable investment pace through the year at replacement rate, keeping the book stable while increasing or underwriting returns. We're also pleased to see the performance of our street civic markets business in the second half of the year, where it's been recouping significant lost ground from the first half. Overall, we're optimistic about the medium-term outlook for the business. We're seeing increasing demand for our servicing business with a strong finish to 2020 in terms of new contract signings and expect the post-COVID environment to present interesting opportunities for organic growth. We see the secular trend of increased outsourcing driven by regulation, efficiency improvements, and the client's focus on core business continuing. And we see the delayed volumes from 2020 start to come back gradually during 2021 as the pandemic effects recede. And we're expecting to see a gradual normalization in the volume of portfolios for sale through 2021, albeit the COVID-related volume buildup will likely only come to market in 2022 and beyond. We turn to page four, looking at the highlights of the fourth quarter specifically. In terms of business performance, we're pleased to see that the continued growth in our cash generation continues to drive cash EBITDA growth to reduce leverage. LTM cash EBITDA landed at 11.6 billion Swedish krona, and the leverage ratio reduced to 4.0, driven by the growing cash generation but also supported by FX tailwinds to some extent at the end of the quarter. We see increases in our new business volumes emerging. Whilst the fourth quarter was challenging in CMS, where new inflow volumes were muted, we finished 2020 with a strong new servicing sales and entered 2021 with record servicing pipeline. Our strategic markets business delivered a strong second half, where the impact of the second wave was less pronounced than the first and leading to cash flow for Q4 of 21% and 15% for the full year. We're particularly pleased to see that Greece closed its first full year as part of Intron Group in line with the original business plan in terms of EBITDA generation. On the portfolio investment side, Our Q4 performance was strong with 112% performance index compared to the pre-COVID forecast, delivering 102% versus the pre-COVID forecast for the full year. And finally, we're pleased with the launch of the One Interim Transformation Program, which is in full execution. Highlights include the opening of our multilingual contact center in Athens, which recently opened and is already producing more than 16,000 customer contacts per day. We have also implemented the new operating technology platform in all countries now available for our small and medium-sized enterprise clients. We turn to page five. Looking at the servicing business, in CMS, we've seen a temporary reduction in new case inflow in the wake of COVID, driven by clients taking a more lenient approach toward collections, as well as various moratoria that are still in place in many markets. However, the underlying case stock is increasing, and we expect to see increased volumes come through as the pandemic effects recede. We also see interesting growth in e-commerce and fintech segments as an acceleration of the buy now, pay later trend that we also discussed at the Capital Market Day. Overall, we see increase in our servicing pipeline and we had a very strong finish in terms of new contract signings. There's always a time lag and a ramp up curve before the full value of new contracts translate into revenues, but it's a good early indicator of the positive momentum in servicing sales. We expect to continue to grow the value of our new client signings over the coming quarters and are adapting our commercial efforts to target the right opportunity set. In our strategic markets, we're very excited about the prospects of our joint ventures with our partner banks, and we see meaningful opportunities to add new clients and volumes to our platforms in Italy, in Spain, and in Greece. Turning to page six, the net portfolio investments. In the wake of COVID-19, as we also showed at the Capital Markets Day, we expect a significant increase in the stock of NPMs in Europe. This is highlighted by the meaningful increase in loan loss provisions observed across European banks during 2020 and echoed both by external research reports and the ECB's own expectations. We believe we have a strong position to capitalize on the emerging opportunity with a strong back of performance and ample liquidity. While the investment pace during 2020 remained at replacement rate, we are expecting to see a gradual increase in capital deployment to normalize rates over the coming quarters with a continued attractive returns environment. Turning to page seven. As we presented at our capital markets day, sustainability is at the core of everything we do. As discussed in November, we have formalized our ESG agenda and included setting specific ESG targets. To repeat what we talked about in November, these targets include, first, a target for ethical collections, where the target is to maintain the high level of value index, about 80. The second is what we labeled sound economy for clients. The target is to increase our client satisfaction score above 75. The third is to reduce our environmental impact, where the target is to achieve climate neutrality by 2030 and reduce our total emissions by at least 20% from 2019. The fourth is to attract and retain talent, where our target is to increase our employee engagement index above 80. And the fifth is around diversity and inclusion, where our target is to reach balanced gender representation in all leadership positions and among all employees. In terms of activities on our ESG agenda, it is worth highlighting that we have initiated the process to obtain a solicited ESG rating, and we are formalizing a sustainability-linked finance framework. We've also implemented guidelines to support pandemic-affected customers, and we have further assured our sustainable payment plan practices. Turning to page eight. The transformation program is in full execution and I'm very proud to see that our contact center in Athens is now up and running for the first three countries. We expect to add four more countries to the center by March 2021. We also expect to open our second center in Bucharest during the first quarter. The spend of the program is running according to plan, and during 2020, we have consumed 18% of the total program budget. Turning to page 9. In terms of the KPIs that we showed at the Capital Markets Day, we intend to continue to show you how we progress on these metrics each quarter going forward. We remain on track with the KPIs. And the case volume migration is limited today, as we expect to start loading more volumes to the new platform during the second half of 2021. In terms of the SBE cost to collect, we remain on track. We expect to see more meaningful financial benefits to start materialize in 2022, and especially 2023, when we can start decommissioning the legacy. And with that, I hand it over to you, Michael, to review the financials.

Thank you, Anders, and good morning, everyone. Turning to page 11, group key financials. Q4 was a strong quarter, again highlighting interim resilience, particularly against the backdrop of the developing second wave of the COVID-19 pandemic. Also due to a more muted seasonality pattern, the fourth quarter is normally very strong, Cash revenues decreased 3% quarter-over-quarter to $5.601 billion, while cash EBITDA increased by 2% to $3.124 billion. Expenses reduced by 8% to $2.477 billion quarter-over-quarter due to the full effect of the 2019 efficiency program, as well as continued focus on cost control. Cash EBIT for the quarter came in at 1.523 billion, up 7% from Q4 2019. Cash EPS was 9.58 SEC per share for the quarter, and we generated a cash return on invested capital of 8.7% for the same period. When looking at the full year 2020, all cash metrics show clear improvement compared to 2019. Cash revenues came in at 21.377 billion, cash EBITDA at 11.607 billion, and cash EBIT at 5.58 billion. For the full year 2020, we generated a cash EPS of 26.96 SEC per share and a cash return on invested capital of 7.7%. The leverage ratio, supported by FX tailwinds, reduced to four times, down 0.2 times from the preceding quarter, and 0.3 times from the end of 2019. Continuous improvement in cash ROIC throughout the year, significant recurring cash EPS growth, and the reduction in leverage ratio highlight the progress on the trajectory towards achieving all of our new medium-term financial targets. Briefly turning to reported numbers, EBIT adjusted came in at 1.611 billion for the quarter, and $5.738 billion for the full year, with items affecting comparability of $411 million for the quarter and $1.043 billion for the year. Looking at page 12 and the growth of recurring cash earnings year-over-year, cash revenue is up 6% to $21.4 billion and cash EBITDA 9% to $11.6 billion, highlighting the operating leverage. Cash EBIT and recurring cash earnings have increased even more significantly year over year. When looking at the operational drivers in our segments behind this development, a slightly weaker CMS contribution is more than offset by highly resilient cash flows from the portfolio investments and growth in the results from strategic markets. Overall, we see a trend of continuous improvement in recurring cash earnings with significant growth year over year. This is particularly noteworthy against the backdrop of the COVID-19 pandemic and a testament to our strength and resilience. The recurring cash earnings yield on total shareholders' equity was 15% for 2020. Now focusing on the segments, I'm looking at page 13. CMS experienced a continuation of the trend from previous quarters, somewhat lower case volume inflows due to COVID-19 and an adverse FX development negatively impacting cash revenues, which were down 7% quarter over quarter to $1.099 billion and came in at $4.375 billion for 2020. On the other hand, the segment had a very strong year in signing new business and goes into 2020 with a record pipeline, as Anders has mentioned. Cash EBITDA reduced to 392 million in Q4, down 29% quarter over quarter. For the full year, cash EBITDA came in at 1.891 billion. The development of the expenses is also reflective of the continued effort to support overall collection performance, as well as being prepared for when inflows fully resume. For cash EBIT, we observe a similar development with 280 million for the quarter and 1.596 billion for the year. Segment cash growth decreased from 8% to 5.8% quarter over quarter and from 8.6% to 8.1% year over year. We expect the return of new case inflow volumes from existing clients to relatively rapidly translate into revenues, while the new signings mentioned before are expected to more gradually convert to revenues over the coming quarters and years. Turning to page 14. Strategic markets continue to improve, albeit at a slower pace due to the accelerating second wave of COVID-19 pandemic. Particularly when looking at the quarter-on-quarter comparison, it is important to point out that Q4 is usually a seasonally very strong quarter. This was somewhat more muted in 2020. Cash revenues decreased by 9% to 1.461 billion quarter-over-quarter, while cash EBITDA increased by 41% to 914 million for the same period. Cash EBIT also improved significantly to 875 million quarter-over-quarter. The quarterly segment cash flow therefore also increased from 13.3% in Q4 2019 to 21.5% in Q4 2020. Looking at the full year 2020 figures, I would again like to highlight the significant growth across all cash metrics with 2020 cash revenues at $5.409 billion, Cash EBITDA at 2.722 billion. Cash EBIT at 2.539 billion and an improvement in cash flow of more than five percentage points to 15%. 2020 also marks the first full year of consolidating Intram Hellas, our market leading servicing platform in Greece. Focusing on portfolio investments, page 15. Q4 proved to be a very strong finish to the year in the portfolio investment segment across our franchise, building on the remarkably resilient performance of the previous quarters. Overall portfolio investments exceeded its pre-COVID-19 collection expectations, the active forecast, by 12% for the quarter and 2% for the full year 2020. Cash revenues increased by 3% to $3.041 billion quarter over quarter and cash EBITDA increased by 7% to $2.243 billion for the same period. Cash EBIT also improved by 16% to $834 million quarter over quarter. For the full year 2020, we observe a positive development of all cash metrics with 2020 cash revenues at $11.593 billion, significantly up in the COVID year, cash EBITDA at $8.545 billion, cash EBIT at $3.19 billion and an improvement in cash ROIC to 9%. 2020 portfolio investments of $5.012 billion were in line with the replenishment level. We maintained a steady investment pace throughout the year and were able to deploy capital at attractive returns, significantly above pre-COVID levels. Furthermore, approximately 750 million of transactions won but not closed in 2020 were carried over into early 2021. Now looking at page 16. Here we have group Q4 items affecting comparability of net 411 million into three clusters. First, alignment to accounting practice refers to an adjustment of methods and estimates with regard to calculating amortized cost using the original gross effective interest rate, as well as significantly tightening the performance deviation criteria used to trigger revaluations. This resulted in a positive revaluation of the investment portfolios of in total $899 million reflected in revenue. and the negative revaluation of our shares and joint ventures of minus 643 million shown in earnings and joint ventures. The net P&L effect of the alignment to accounting practice was plus 256 million in Q4. Second, portfolio revaluations reflect the outcome of our regular periodical revaluation process with revaluations of minus 150 million reflected in revenue real revaluations of minus 21 million included in service line costs, and the revaluation of shares in joint ventures of minus 397 million shown in earnings from joint ventures. Total portfolio revaluations for the quarter amounted to minus 568 million. The overall impact visible in the earnings from joint ventures line is primarily related to our Italian JV portfolio and also due to likely delayed cash flows and increased economic uncertainty versus our original expectations. Third, other items affecting comparability in Q4 came in at minus 99 million. Turning to page 17. The alignment to accounting practice I've just described also has an effect on our ERC curve. Tightened deviation criteria and the resulting net revaluations impact the ERC positively by implicitly capitalizing part of our consistent outperformance track record. The 180-month ERC at year end 2020 therefore increased to 65.5 billion. As higher collection expectations are now already reflected in the ERC, we expect a reduction in outperformance in comparison to historically observed levels going forward. In other words, we expect our actual gross collection performance to be more closely aligned with the active forecast going forward. Now looking at page 18. The difference between our cost of funds and the last 12-month average unlevered underwriting IOR continues to widen and now stands at 4.2 times. We, at the end of Q4, had available liquidity of $17 billion, up $1 billion from Q3, and no significant upcoming debt maturities before 2024. In addition, during Q4, we have also extended our revolving credit facility by one year. It now matures in January 2026. Turning to page 19 and progress towards the new medium-term financial targets. LTM Cash Roy is continuously improving and now stands at 7.7% versus a target of greater than 10%. Recurring consolidated LTM Cash EPS is exhibiting strong growth, supportive of the target of more than 10% growth on average per annum. Deleveraging is progressing well with a leverage ratio of four times as of year-end 2020. This is in line with the trajectory to reach the 3.8 times area at year-end 2021 and meet our target of a leverage ratio between 2.5 and 3.5 times by year-end 2022. In summary, progress towards achieving our medium-term targets is fully on track. And with that, back to you, Anders, for some final remarks.

Thank you, Michael. So, if we turn to page 21, So to summarize, the fourth quarter of 2020 was a stable and solid quarter given the circumstances. If we look ahead into 2021, we expect a somewhat uneven normalization through the year and recovery to accelerate during the second half of 2021. First half remains more difficult to predict due to the continued uncertainty relating to the pandemic development and their effects on the economies across Europe. However, we see an underlying build-up of business opportunities, both in relation to increasing servicing demand, as well as a gradual increase in portfolio sales activity in the market. Our one interim transformation programme remains our core focus, and we expect to open our second multilingual contact centre during the first quarter, as well as broadening the scope of our essential centre. We also expect to fully migrate the first country to the new operating platform and technology platform during the first half of 2021. So we have many exciting items on the agenda for the transformation program ahead, and we look forward to continue to update the market as we progress through the year. And with that, it concludes our presentation and we can open it up for the Q&A.