Intrum AB (publ)

Good morning, everyone. My name is Anders Engdahl. I'm the CEO of Intrum. And with me today, I have Michael Lederner, our CFO. And I'm happy to take you through the third quarter 2021 report. So if we start by turning to page three of the presentation, starting with the highlights of the third quarter. So over the past months, we've continued to see a positive economic development. as vaccination campaigns have successfully allowed societies to reopen, which has allowed the summer to be somewhat more of a normal summer vacation period with travel resuming, leisure activities being more back to normal, and discretionary consumer spending is picking up again. We've also seen continued strong business and consumer confidence levels maintained, which has led to a gradual normalization of business and consumer behavior. For interim, that has meant a reversal to more normal seasonality pattern, where Q3 is and has been a seasonally softer quarter. However, at the same time, we've continued to see a high level of commercial activity, which has allowed us to secure a number of important new client mandates, both in CMS and strategic markets. In terms of new case inflows, we're seeing they're continuing to come back towards the normal level, And we're currently about 5% below pre-pandemic levels. On the PI or the portfolio investment side, we're continuing to see strong cash collections in our back book, amounting to approximately 3 billion Swedish kronor in the quarter, corresponding to about 112% performance versus the active forecast. In terms of new investment, it has been a good quarter where we've deployed approximately 1.6 billion Swedish kronor in new portfolios, we continue to see attractive underwriting return levels. Our one interim transformation program is progressing well and according to plan. Our global front office project is well ahead of plan and we're scaling up rapidly our global capability. We now have approximately 300 global front office agents covering 14 markets across our four global sites, which is leveraging our common front office technology and processes. In terms of our migration to our common technology platform, we have tripled the cases migrated during the quarter. And last but not least, we're continuing to execute on our ESG agenda with the implementation of the task force for climate related financial disclosure, as well as the carbon disclosure project reporting. Then if we turn to page four. Economic sentiment continues to remain positive as societies have opened up and returned towards more normality. And the fact that we've seen a somewhat more normal holiday season is a very positive step toward post-pandemic normality. As I mentioned, we see new case inflow gradually reverting towards pre-pandemic levels, which is for us a leading indicator for the CMS business. First, we've seen non-financial claims return to normal in most places. albeit with lower average balances, and we now expect that financial claims will revert over the coming quarters as a consequence of increased consumer spending and normalized and increased use of credit. For us, this increased volume will ultimately convert into normalized revenues and margins in our servicing businesses, especially CMS. Also, the high level of business activity is for Interim demonstrating itself in terms of a strong momentum in our new business flow, where we've, during the third quarter, secured a number of important mandates, including, for example, a new mandate from a large Swedish niche bank. And in the strategic markets, we see positive development in our new AUM inflow, especially in Spain and in Italy, where we've been able to be awarded several new UTP mandates that will come into production during 2022. Turning to page five. The post-pandemic opportunity is now becoming increasingly clearer as moratoria have ceased in most jurisdictions. The majority of European banks are expecting a deterioration in asset quality, especially in their SME books. At the same time, European banks are under pressure from regulators to reduce and contain the pandemic impact on their NPN ratios. We therefore continue to expect the favorable environment to continue to develop with earlier intervention from banks to restructure sub-performing credits to limit NPL formation, which means more small businesses will be able to survive, which is good for society, for economic growth, and for employment. We also expect this to be the case for granular SME and mortgage segments, which require an industrial approach, where interim is well-positioned, especially in Southern Europe, And it is now evidenced by the new mandates awarded on the servicing side. We also see this translating into PI opportunities as banks would want to move exposures off balance sheet. We have existing technology and solutions to support our clients with this. Overall, we have seen significant growth in portfolio supply during 2021 and expect to continue to see further growth into 2022 and 2023. Acquiring fresher cases will mean faster cash conversion, shorter wells, and ERC curves. Turning to page six. Our one interim transformation program is proceeding well and overall according to plan. Our global front office project is well ahead of plan and we now have, as I said, approximately 300 agents covering across 14 markets and across four sites. leveraging our common front office technology infrastructure. This is important as it secures an important part of the value realization in the transformation plan. Case migrations into our common technology platform is now accelerating, and as mentioned, we tripled the number of cases migrated to the common platform during the quarter, and we are on track to migrate to further four to four and a half million cases during the coming weeks. We've consumed approximately 60% of the expected investment spent or budgeted spent for the program. And overall, this means we are on track to deliver the 1 billion of benefits from the program for the 1 billion of investment into the transformation. Turning to page seven. In terms of KPIs, case migrations are now accelerating after having fine-tuned our migration concept during the second quarter. And we are also expanding our migration capacity to be in a position to continue to accelerate migrations during 2022. Importantly, we're now completing migration out of several legacy systems, and we will start decommissioning legacy systems during the fourth quarter, which is an important step towards reducing the complexity of our legacy technology setup. Furthermore, we're now implementing our global operating model to ensure that the organization and operation is aligned with our one interim operational and operating model vision. Our FD cost-to-collect KPI is on track, albeit we've seen a short-term impact of lower case inflows in CMS in the RTM numbers, inflating the ratio somewhat. As case inflow reverts to normal, this effect is expected to go away, and we will see the ratio trend down as the benefits are realized during 2022 and 2023. Furthermore, we have completed our data management project as part of the transformation program, aligning our global data infrastructure to our global data hub, which allows us to close this project. And we will now accelerate the buildup of our global data and analytics capability. This will allow us to leverage our global data assets to continue to drive innovation and intelligent automation on our global technology platforms. This will be positive for our productivity, as well as for developing our client and customer experience in our servicing offering. Enhanced client and customer experience is crucial for us, both for client loyalty, as well as supporting our organic growth ambitions over the coming years. Turning to page eight. Sustainability is core to everything we do and what Intrum stands for. In order to continue to build on the very favorable ESG ratings received from both from Sustainalytics as well as from MSCI earlier this year, we now support task force for climate-related financial disclosure and are now adopting the principles for effective disclosure. In addition, Interm has joined the Carbon Disclosure Project, which evaluates companies' climate efforts and mitigating actions. Overall, we continue to work hard on reducing our carbon footprint in line with our stated targets and, in addition, offset the remaining impact achieving climate neutrality. With that, I will hand it over to you, Michael, for a review of the financials.

Thank you, Anders, and good morning. I'm looking at page 10, group key financials. The third quarter was seasonally softer, especially when compared to the strong, exceptional rebound observed in Q3 2020. This development is very much in line with the expected return to a more normal seasonal pattern, a slower summer period, and increased activity into the year-end that I described during the Q2 earnings call. The seasonality we experienced during Q3 is a further indicator that consumer and business behavior continues to normalize across the jurisdictions we operate in. It, however, also makes the comparison to the exceptional Q3 2020 less meaningful. In this context, it is important to note that cash revenues, cash EBITDA, cash EBIT, and cash ROIC increased when comparing the latest rolling 12 months with the full year 2020. When looking at the year to date, organic cash revenues in constant currency grew by 5%. Cash revenues came in at 5.3 billion, down 4% compared to Q3 2020. Similarly, cash EBIT was 1.4 billion, down from 1.7 billion in the third quarter 2020. Cash EBITDA was 2.9 billion for the quarter and 11.7 billion on a rolling 12-month basis. This compares to a rolling 12-month cash EBITDA of $11.9 billion at the end of Q2 2021, with a decrease of $0.2 billion due to the exceptionally strong third quarter 2020 being removed from the calculation. A decrease in net debt of $0.6 billion to $48.7 billion over the quarter was not sufficient to offset the decrease in cash EBITDA, implying a seasonally elevated leverage ratio of 4.2 times at the end of Q3. Cash ROIC for the quarter was 7.8%. On a rolling 12-month basis, returns increased to 8% compared to 7.7% at year-end 2020. I'm now turning to page 11. Here, I would like to emphasize the continued strong recurring cash earnings generation power of our business, even during a seasonally softer quarter. For Q3, recurring cash earnings came in at $2.9 billion, implying an annualized cash earnings yield relative to total shareholders' equity of 13%. As in past quarters, a key contributor to the cash generation was the continued strong performance in our portfolio investment segment, complemented by a seasonally softer development in credit management services and particularly strategic markets. Credit management services is also experiencing a more gradual normalization of revenues in the wake of COVID, but I will go into more detail on this later. Another point to note here is the increase in replenishment capex, primarily driven by strong collection performance. We also observed slightly higher cash taxes year over year due to an improving underlying result, as well as phasing of tax pay. I'm now focusing on the segments, starting with page 12. In CMS, we see some seasonal effects, but also a more gradual path towards revenue normalization. It is important to note, however, that the key leading indicator, case inflows, is moving in the right direction, with new case inflows in CMS now at minus 5% on average versus pre-pandemic levels at the beginning of 2020. This is a significant increase from the minus 15% experienced at the low point during the first quarter 2021, with the subsequent development confirming the inflection we communicated at the time. Improving new case inflows are an important step towards normalization in CMS, but a number of further steps are required for full normalization of revenues. For example, the current claims mix exhibits a higher proportion of lower value claims typically originated by non-financial clients, with a gradual increase of higher value financial services claims expected over time as consumer and business behavior translates into, for example, missed installments or unpaid credit card bills. Such a development will over time drive the normalization of revenues with the commercial successes Anders mentioned earlier today set to contribute to further growth in due course. CMS cash revenues for the quarter came in at just under $1 billion and cash EBIT at $396 million, both down compared to the exceptional Q3 2020. The segment cash ROIC was 8.2% in Q3. Now looking at page 13. Strategic markets, in line with pre-pandemic patterns, experienced a seasonally slower Q3. very much highlighting the success of vaccination campaigns and progress in reopening societies. Greece and Spain continue on the positive underlying trajectory observed during the past quarters, while Italy is still impacted by pandemic-related challenges, in particular with some moratoria prolonged to the year-end and the efficiency of the legal system still significantly impaired. As mentioned during past earnings calls, we only see a slow improvement in legal system throughput in Italy over time. The efficiency gap versus pre-pandemic levels has improved from about minus 30% during the first quarter to minus 20% during Q2, and now minus 10% in Q3. While this development is gradually moving into the right direction, there also still remains a pandemic-related backlog of cases to be resolved over time. Cash revenues came in at $1.2 billion and cash EBIT at $482 million, both down compared to Q3 2020. Strategic markets had a cash roic of 12.3% in Q3 and 16.2% on a rolling 12-month basis. Now turning to portfolio investments on page 14. Portfolio investments continued on its strong performance trajectory during the third quarter of with broad-based outperformance across jurisdictions as well as asset classes. We had gross cash collections of just under $3 billion during the quarter, corresponding to a performance versus the active forecast, our collections expectation, of 112% for Q3, as well as on a rolling 12-month basis. This has enabled us to take some of this outperformance into the book value with a net write-up of $112 million. The write-up is countered by a write-down in joint ventures of 219 million, largely due to the slower-than-expected recovery of legal system efficiency in Italy, highlighted in the strategic market segment. We are currently investigating a refinancing of the Italian SPV, which owns the portfolio interim, together with partners, acquired in 2018. We expect that such refinancing will lead to a reshape and delay of the associated expected remaining collections curve. Cash revenues and portfolio investments increased by 12% to 3.2 billion compared to Q3 2020. Cash EBITDA increased by 14% to 2.4 billion for the same period. Cash EBIT increased 21% versus the third quarter 2020 and came in at 907 million. We made portfolio investments of 1.6 billion in Q3, which brings us to 5.4 billion deployed year-to-date. well ahead of the $5.1 billion deployed during the full year 2020, with another quarter yet to come. I'm now looking at page 15. The spread or return gap between our cost of funds and the last 12-month average unlevered underwriting IRR was 4.1 times in Q3, up year over year. During the third quarter, we issued $1 billion five-year domestic NTN bond with proceeds used to repay outstanding amounts under our revolving credit facility. We were able to take advantage of a constructive market environment and price the new bond inside relevant reference curves, highlighting the strength of our funding franchise. During Q3, we increased available liquidity to $19 billion with no significant upcoming maturities until 2024. I'm now turning to page 16 and looking at the progress towards our medium-term financial targets. Rolling 12-month key performance indicators are again impacted by a more seasonal pattern in Q3 2021, particularly as the exceptional rebound observed in Q3 2020 is now removed from the calculation. Cash ROIC now stands at 8% up year over year. Recurring consolidated rolling 12-month cash EPS is 24.04 SEC per share. The leverage ratio is seasonally elevated at 4.2 times. Overall, we continue to execute towards achieving our medium-term financial targets by focusing on our two key priorities, transformation and organic growth. And now back to you, Anders, for some final remarks.

Thank you, Michael. Then if we turn to page 18. So to summarize, We expect a seasonally stronger Q4, and unlike last year where we saw an exceptional catch-up in Q3 and a Q4 impacted by the second wave restrictions, we expect 2021 to follow more of a normal seasonality pattern. Underlying, we expect to see a gradual normalization in servicing over the coming quarters into the first half of 2022 as volumes return and increasing volumes translates into revenues. We first see, as Michael said, the non-financial lower balance volumes have come back to a large extent and expect to see financial higher balance volumes return as consumption normalization translates into normal MPL formation. Beyond that, we expect that our strong pipeline of new deals, both in CMS and strategic markets, will provide a good underpinning for our growth ambitions over the medium term. On the PI side, we expect a busy Q4 investment season that allows us to invest at the level that provides a good starting point for growth of PI into 2022 at continued attractive return levels. In our transformation program, we expect to continue to ramp up our global front office operations, to accelerate case migrations into a common technology platform, and to continue to develop our global data and analytics development center. And with that, we're ready to open up for questions.