Intrum AB (publ)

Good morning, everyone, and welcome to this presentation. So my name is Anders Engdahl, and I'm the CEO of Intrum, and I'm here together today with Michael Adener, our CFO. And today I'm pleased to present the results of the second quarter for Intrum. Overall, the second quarter was a solid quarter, demonstrating the progress that we're making on our strategic plan towards one Intrum, towards our financial targets, and towards sustainable organic growth. So if we turn to page three of the presentation. So to summarize the highlights of the second quarter, first and foremost, the second quarter was a record collections quarter, where we also saw accelerating deployment in terms of new investments. We saw record collections in the portfolio investment business with over 3 billion SEC collected, which is up 23% year over year. We invested over 2 billion SEC in new portfolios during the quarter. But beyond that, we have now committed investments totaling 6 billion SEC for the full year 2021 at attractive returns. What's most noteworthy to my mind is the broad-based performance across our footprint, both in terms of backbook performance, where all countries performed in excess of our active forecast, and in terms of broad-based deployment, where no single country stands out in terms of concentration. Secondly, we see gradual normalization in our servicing businesses. and a few landmark transactions that are noteworthy that we have been able to win this quarter. CMS and strategic markets, or servicing businesses, continued the path to normalization, and we do now see improving new case inflows. We also start to see the conversion of our record pipeline into new signed transactions, including a few landmark transactions, such as the agreement with Svenska Handelsbanken in Sweden, and Deva Capital as an example in Italy, supporting the organic growth ambitions that we pursue. Thirdly, our One Interim Transformation program is well underway. We continue to deliver on our transformation plan, where we now enter a very intense phase. During the second quarter, we opened the third of our three global front offices in south of Spain, And now all three centers are live serving 11 countries with today in total 115 agents. And we will now gradually scale them up, up to full efficient scale over the coming 12 to 18 months. During the quarter, we also migrated our first secured portfolio into a new global IT platform. And finally, during the quarter, we launched our 10 principles for ethical and sound collections. These principles are a codification of our operating principles and practices and apply to all employees across all markets, where fair treatment is a cornerstone to creating sustainable value for stakeholders and society. And if we turn to page four. Looking at our segments, and we start with our servicing segments. The macro recovery is coming through with an associated rebound in consumption underway. This is of course supported by the successful rollout of the vaccination programs across European jurisdictions. As consumer confidence returns, consumption is expected to increase and normalize, and with that new case inflow is expected to revert to normalized levels as well, both in terms of number of cases and the average value of those cases. Improving business climate also paves the way for successful resolutions on existing cases, enhancing solution rates. In terms of new business, we continue to see a strong pipeline and pipeline conversion into signed contracts that support our objective of sustainable growth in our capital light servicing businesses. So, to summarize, the combination of increasing case inflow from existing clients improving solution rates on existing cases, and an accelerating pace of new client signings, bodes well for servicing growth into 2022 and beyond. Then if we turn to page five. On the portfolio investment side, we have very strong momentum. Our collection performance remains very strong with broad-based outperformance versus our expectations. both in terms of unsecured and secured exposures. Of course, this is supported by the improving macro recovery and the ability to achieve settlements, resolutions, and asset disposals has underpinned this strong performance. In addition, as we set out at the end of last year, we now start to see a material increase in the level of portfolio sales activity among our clients. which is evidenced also by the level of portfolio sales in the market overall in the first half of this year. At interim, we have now in total of 6 billion SEC of committed investment volume for this year, and we continue to see a high level of activity going into the second half. Underwriting returns remain stable at attractive mid-teen levels, and beyond the short term, we expect that supply will continue to increase with a particular focus on SME exposures. This backdrop bodes well for Interim's ability to continue to grow the investment business at double-digit growth rates in line with our financial targets. We turn to page six. We recently launched our 10 Principles for Ethical and Sound Collection. For Interim, as the industry leader in our market in Europe, It is of vital importance for us and to our clients that we, on our client's behalf, treat their customers fairly. The 10 Principles is a codification of our global standards of practice, and we have already operated with these for many years, and which apply to all our agents interacting with our customers. Ultimately, fair and ethical treatment is a cornerstone to creating sustainable value for stakeholders and society, and our ambition is that these principles can serve as a basis for an industry standard in the future. Interim welcomes all initiatives to create harmonized rules and regulations across Europe for equal treatment of customers. We turn to page seven. Our one interim transformation program is progressing in line with plan. During the first half of 2021, we've made significant progress in our transformation program. As I mentioned in the beginning, we're now live with all our three global front offices in Athens, in Bucharest, and in Malaga, and they are now serving in total 11 countries. We expect to scale these centers up to efficient scale over the coming 12 to 18 months. In addition, we're now also piloting a virtual global front office concept, where in markets where the employee cost does not warrant moving the staff, we will operate these local staff as an extension to the global front offices in order to make sure that we benefit from the scale, the technology, and that we align the best practices across our entire front office footprint. And this concept, if successful, will be prevalent, especially in Eastern Europe. If we look at the KPIs of the program, they are on track, and we've now spent approximately 49% of the expected total program budget, which is approximately 5% lower than anticipated at this point. This does not mean that we will spend less in total than anticipated, but that the timing of certain expenses is delayed. Then if we turn to page eight, In terms of case migrations, we remain ahead of plan, and this quarter we had not planned to migrate substantial volumes, as you can see on the chart on the upper side of page 8. This quarter we have digested the learnings from the first large-scale migrations we made at the end of Q1, and we're now well prepared for the acceleration of migrations during the second half. FTE Cost to Collect is largely on track with minor variations, And we remain on track to deliver the 20% reduction in FD costs to collect by the end of 2023. And with that, I will now hand it over to Michael, who can take you through the financials of this quarter.

Thank you, Anders, and good morning, everyone. I'm now turning to page 10, group key financials. Q2 was a solid quarter, during which we continued to deliver improving cash metrics. cash revenues, cash EBITDA, cash EBIT, and cash ROIC compared to Q2 2020, as well as in a rolling 12-month versus full-year basis. While COVID-19 remains a topic, we have, however, seen a significant reopening of societies and increase in business and consumer confidence and activity, supporting the path to gradual normalization. Cash revenues, in constant currency grew by 17% versus Q2 2020 to 5.6 billion, or 12%, including the currency effect. Cash EBITDA increased by 9% to just under 3 billion. On a rolling 12-month basis, cash EBITDA came in at 11.943 billion, showcasing the positive development in underlying cash generation relative to Q1, as well as the year end. Cash EBIT for the quarter came in at 1.413 billion, up 9% versus the same quarter last year. When looking at recurring cash earnings and cash EPS, 685 million or 5.7 crowns per share for the quarter respectively, we see a decrease compared to Q2 2020, driven by phasing of cash net financials and tax, which we expect to even out over the course of the year. Cash ROI for the quarter was 7.9%, and in a rolling 12-month basis, we again continue to improve returns. We are now at 8.4% versus 7.7% at year-end. The leverage ratio remains stable at 4.1 times compared to the first quarter, with both cash EBITDA and net debt up during the quarter, also due to the dividend paid in May. It is also worth noting that we see and expect a more normal seasonal pattern in 2021 with a slower summer period and increased activity into the year end compared to the COVID-19 related slump in Q2 2020 and the more even split between Q3 and Q4 2020. We continue to execute and deliver on the gradual path to normalization we first mentioned at our capital markets day last year. focusing on transformation and organic growth, areas where we have made good progress during the second quarter, as highlighted by Anders earlier. Now turning to page 11. I would really like to highlight the significant operating leverage made evident by our results. Year-over-year rolling 12-month cash revenues growth of 5% translates into cash EBITDA growth of 8%, an increase in cash EBIT of 19%, and recurring cash earnings growth of 44%. Key contributors to this positive development are continued strength in our portfolio investment segment, as well as gradual normalization in credit management services, as well as strategic markets. But more about that later. Also, like for like, replenishment capex increased versus the preceding quarter as the rolling 12-month money-on-money multiple decreased to 2.1 times, compared to 2.18 times in Q1, but is up versus Q2 2020. The decrease in recurring cash earnings compared to Q1 was due to higher cash net financials and tax, with the phasing of interest payments reset over the course of last year and an uneven distribution of cash taxes paid. The recurring cash earnings yield on total shareholders' equity came in at 14%. In summary, we're continuing our path of growing recurring consolidated cash EPS by more than 10% on average per annum as set out in our medium term financial targets. Now turning to the segments, I'm looking at page 12. In CMS, the inflection point we mentioned at the end of Q1 is not quite visible in the data, which I will come to in a minute. Cash revenues came in at just over $1 billion, down 1% versus the second quarter last year in constant currency, with cash EBIT at $411 million, up 10%. The segment cash roids increased by a percentage point to 8.5% compared to Q2 2020. The important point to note here, though, is that when looking at the rolling 12-month cash EBIT development, I'm looking at the chart on the bottom right. We see the gradual reduction from Q2 2020 as COVID-19 started to impact inflows, the inflection points in Q1 2021, and the momentum towards gradual normalization in Q2 2021, with rolling 12-month cash, CMS cash EBIT, up to $1.583 billion. During the second quarter, we continue to see improving inflows in terms of number of cases. we expect an increase of case values to follow as consumption patterns gradually normalize. The compounding of these factors over time will drive revenues and therefore, together with the positive operating leverage, a continued improvement in the rolling 12-month cash EBIT trajectory. This is also further supported by the commercial success in signing new servicing clients that Anders just mentioned, with benefits into 2022 and beyond. Looking at page 13, strategic markets continued its solid trajectory with a strong performance in Greece, a positive revenue development in Spain, which is increasingly broad-based, but yet again also supported by an outstanding result from real estate servicing, as well as a more gradual normalization in Italy. Just to provide some context in Italy and the gradual normalization, particularly in terms of the efficiency of the legal system which we rely on. During the first quarter, we saw an efficiency gap of circa minus 30% versus pre-COVID levels. This has improved to about minus 20% during Q2. We continue to actively monitor and manage developments, but would like to note the significant potential inherent in Italy over the coming periods, also with debt moratoria set to expire in autumn. Cash revenues increased by 9%. or 15% in constant currency, to $1.315 billion versus the same quarter last year. Cash EBIT also increased by 9% to $572 million compared to Q2 2020. The quarterly segment cash ROIC came in at 14.4% for Q2, up 2.5 percentage points versus Q2 last year. On a rolling 12-month basis, it now stands at 18%. Now on to portfolio investments on page 14. Portfolio investments went from strength to strength during the second quarter, continuing on from the first quarter as well as the end of 2020. We achieved record cash collections of more than $3 billion during the quarter, corresponding to performance versus collection expectations, the active forecast, of 116% for the quarter. The strong result was extremely broad-based across geographies as well as asset classes, with virtually all jurisdictions delivering a performance ahead of expectations. Cash revenues increased by 20% to 3.265 billion compared to Q2 2020. Cash EBITDA also increased by 20% to 2.402 billion for the same period. Cash EBIT increased 19% versus Q2 2020 and came in at $925 million, supported by the strong collection performance as well as a higher rolling 12-month money-on-money multiple, resulting in a relatively lower replenishment capex. We made portfolio investments of $2.051 billion during the second quarter and have invested $3.8 billion year-to-date. Combined with the circa 2.2 billion we have already committed for the second half, this puts our current deployment for 2021 at circa 6 billion at this stage. During Q2, we also executed joint venture investments of 280 million in securitization structures in Greece, supported by the Hercules Asset Protection Scheme and sponsored by our partner, Piraeus Bank. The securitized assets were previously part of our servicing perimeter in Greece, and continue to be so in full also post the securitization. Now looking at page 15. The spread between our cost of funds and the last 12-month average unlevered underwriting IRR now stands at a healthy 4.4 times. During Q2, we issued a 1.5 billion MTN bond, which settled on the 1st of July. Proceeds were used to redeem the outstanding 2022 Eurobond of €150 million on July 15. Regarding the newly issued MTN bond, we were able to take advantage of a conducive market environment and achieve an attractive pricing inside relevant reference curves. At the end of Q2, we had available liquidity of $17 billion and no significant upcoming debt maturities prior to 2024. Turning to page 16 and focusing on progress towards our medium-term financial targets. Rolling 12-month cash flow continues to improve and now stands at 8.4% versus a target of greater than 10%. Recurring consolidated rolling 12-month cash EPS is exhibiting strong growth and now stands at 26.2 crowns per share, in line with our target ambition of more than 10% growth on average per annum. As regards leverage, we reiterate our ambition to reach the 3.8 times area by year-end 2021 and meet our target of a leverage ratio between 2.5 and 3.5 times by year-end 2022-2021. Overall, we continue to make progress towards achieving our medium-term financial targets, supported by executing on our key priorities, transformation and organic growth. And now over to you, Anders, for the final remarks.

Thank you, Michael. So if we turn to page 18, and to summarize the key messages from the second quarter, with the recent developments, we continue to be cautiously optimistic on the trajectory of the pandemic recovery in general and the gradual improvement of our business climate in particular. We continue to see improving client and customer sentiment, supporting the continued normalization across our business segments, especially CMS and strategic markets. In CMS, we expect to see gradual normalization of UK's inflows, and our strong pipeline conversion to add to the growth outlook into next year and beyond. In strategic markets, we see continued solid performance with strong delivery from our Greek business and our real estate business in Spain, and where our Italian business, which has experienced a delayed recovery, is expected to gradually go back to full operating capacity. Our investment business continues to have very strong momentum, displaying strong back-book performance and accelerating deployment pace at attractive mid-teen returns. And lastly, our one interim transformation program remains on track, and we're now, during the second half of 2021, accelerating the case migration into our new global technology environment. So all in all, transformation is on track, and we're setting the company on course for sustainable organic growth. And with that, we open it up for questions.