Intrum AB (publ)

Good morning, everyone, and welcome to the Q1 2022 results presentation. My name is Anders Engdahl. I'm the CEO of Intrum. And with me, I have Michael Lederner, our CFO. If we turn to page three of the presentation. I'm very pleased with the performance in the first quarter of 2022, which exceeded our own expectations. As we've highlighted in recent quarters, as we've left the pandemic behind us, We've seen the return of seasonality to our business, where we see slower business activity in the first and third quarters and higher activity in the second and fourth. Despite being a seasonally slower quarter, we see a strong underlying organic growth trajectory across all our segments of the business, with cash revenues up 10% and cash EBITDA up 12% versus the less seasonally affected Q1 2021, making it an even more difficult comparison. Servicing revenues were up 4% versus Q1 2021 and we see continued improvement in new case inflows in CMS and strategic markets continued to perform strongly across all three markets. It was also a very strong quarter commercially where we saw one of the strongest quarters ever in terms of new contract signings. Portfolio investments continued its strong performance with strong self-funded growth with attractive returns and minimal volatility. Gross collections stood at 110% of active forecast and cash return on invested capital of approximately 10%. We also see a growing pipeline of new investment opportunities and a high level of activity across all markets. The transformation program continued at full speed and we continue to build out our global front office footprint. We recently migrated cases in Greece And we also recently added Sweden to the new platform. We also initiated the work to add five more countries to the platform during 2022, in line with our plan. We turn to page four. If we put our current performance in context of the longer-term performance of Intrum, we see that since the merger in 2017, Intrum has delivered 10% cumulative annual growth in cash data continued margin improvement, and 19% KR in cash EPS versus 2018. This is achieved while deleveraging the balance sheet, reducing our leverage ratio from 4.3 times to 3.8 currently. And in this context, we are convinced that we can deliver on our financial targets of double-digit cash EPS growth while delivering on our leverage target and reaching that range of 2.5 to 3.5 times net debt to cash EBITDA. Turn to page five. Looking at the market conditions for our servicing segments, since the outbreak of the war in Ukraine, consumer confidence has substantially decreased, inflation and interest rates have risen, and European growth outlook has been revised downwards. At the same time, we see double-digit growth in demand for consumer credit, and savings rates have dropped back to pre-pandemic levels. In our business, we've already seen increased new inflow volumes in, for example, the utility bills segment, and our clients are now preparing for increased volumes of overdue consumer credits during the second half of this year. The interim with our strong banks and finance franchise is well positioned to capture new servicing volumes in the banks and finance segment from our clients. We also see a strong pipeline of new client opportunities as more banks look to outsource collections. This potential is further amplified by the scalability that the transformation program provides. Turning to page six. Market outlook for our portfolio investment segment remains supportive, and while bank MPL ratios remain low, ECB statistics reveal high and increasing level of doubtful credits. At the same time, market cost of funding is materially up due to rising rates, and the competitive environment remains intense but rational. Overall, the supply levels of portfolios is approaching pre-pandemic levels with more and larger portfolios coming for sale. For Interim, this presents a strong front book environment with a strong pipeline across all markets, where our servicing franchise provides us with privileged access to transactions. The strong pipeline continues to allow us to be selective and disciplined in our underwriting, supporting stable and attractive risk-reward also going forward. Our deployment levels for 2022 consisted with self-funded double-digit growth in line with 2021. Our strong and stable backbook performance is built on diversified and a granular backbook with sustainable payment plans, which is expected to continue to perform well also in the current more challenging macro environment. Let's turn to page seven. The transformation program continues according to plan, and the spend to date is approximately 3% below budget. We migrated a complicated secured portfolio in Greece, and we recently added Sweden as the fifth country to the platform. This quarter, we've also started to prepare five new countries for migrations that will start to migrate volumes to the new platform during 2022, which means that we expect to have 10 countries live by the end of the year. Turning to page eight. The cost to collect ratio in Q1 2022 has meaningfully improved compared to Q1 2021, going from 6.9 to 6.1% during the quarter, based primarily on higher collection volumes compared to last year. We remain on track to deliver approximately 300 million SEC or run rate savings from the program by the end of 2022, and the full one billion by year end 2023. In addition, we're currently developing the technology roadmap that will allow us to introduce advanced analytics and automation into our core processes based on the common platform that we see will continue to generate benefits beyond 2023. We expect to revert with further details regarding this during the coming quarters. Turning to page nine. Our sustainability work continues and I'm very pleased with the progress made. All sustainability KPIs are improving year over year. And in addition, during Q1 2022, we developed a new global sustainability policy to further clarify the governance, responsibilities and expectations throughout the business and in relation to key stakeholders. And with that, I hand it over to you, Michael, to take us through the financial performance.

Thank you, Anders, and good morning, everybody. I'm now looking at page 11 of the presentation. group key financials. In the first quarter of 2022, we posted a strong underlying performance. And just as a reminder, Q1 is a quarter that is usually seasonally slower. At the end of Q4, we communicated our expectation that 2022 would see a normal seasonality pattern following 2020 and 2021 that were distorted by the pandemic. A normal seasonality pattern is also what we now see unfolding in Q1 and into Q2. A normal seasonality pattern means a slower Q1, a seasonally strong Q2, a slower summer quarter, and a strong finish to the year in Q4. But coming back to Q1. Supported by the strong underlying performance trajectory I mentioned before, we saw cash revenues, cash EBITDA and cash EBIT increase both in comparison to the first quarter last year, as well as in a rolling 12-month basis versus the full year of 2021. Relative to Q1 2021, cash revenues increased by 10%, from 5.2 to 5.8 billion. Cash EBITDA also increased. from 2.7 to 3 billion, or 12%, showing more limited operating leverage than we would usually expect. This is due to expenses increasing in comparison to Q1 2021, predominantly driven by the FX development, as well as external spend, which is expected to produce incremental revenues in the coming quarters. Cash even increased 3% versus the first quarter of last year to just over 1.4 billion. This lower growth in cash EBIT is due to a relative increase in replenishment capex. In Q1, we had a normal rolling 12-month money on money multiple of 2.04 times, down from 2.18 times a year ago. We see a level of around two times as sustainable going forward and in line with levels experienced in the second half of 2021, as well as during all of 2019. Further to this, We continue to deliver on our deleveraging trajectory with the leverage ratio now down to 3.8 times. The deleveraging trajectory is particularly evident when looking at the same quarter over a longer period of time. We went from 4.5 times in Q1 2020 to 4.1 times in Q1 2021 to now 3.8 times, a reduction of between 0.3 and 0.4 times each year. I'm now turning to page 12, group cash earnings generation. On a rolling 12-month basis, we again see the same developments coming through that I have just talked about. Growth in cash revenues of 6% translates into an increase of cash EBITDA of 8%, with operating leverage being lowered due to the 5% expenses increase I explained earlier. Lower other capex due to reduced investments into our legacy is more than offsetting the relative increase in replenishment capex due to higher money on money multiple, resulting in a cash EBIT increase of 9%. Cash net financials and tax were significantly higher in Q1 than during the first quarter of 2021. This is mostly due to the facing of cash taxes being more front-loaded this year. We expect this to reverse in Q2. From a returns perspective, we generated a recurring cash earnings yield on shareholders' equity of 13%, and based on adjusted net income, a return on equity of 15%. Looking at the segments and starting with CMS on page 13, we continue to see improving new case inflows, with particularly utility claims up significantly. Higher value financial claim inflows are coming back. however, at a slower pace to date. In addition to this underlying trajectory, the increasing utilization of credit Anders mentioned earlier is expected to also be supportive here in due course. Based on this, we now see growing cash revenues both versus Q1 2021, up 2%, as well as in a rolling 12-month basis in comparison to the full year 2021. We ended Q1 2022 with cash revenues of 1.1 billion. At the cash EBITDA and cash EBIT level, we however see the impact of the higher expenses with a cash EBITDA of 324 million and a cash EBIT of 314 million, as well as a cash return on invested capital of 6.6% for the quarter and an 18% adjusted margin. I need to emphasize that the underlying cost trajectory in aggregate is on track. as shown by the progress made on the FTE cost to collect compared to the same quarter last year, highlighted by Anders earlier. The way to think about this conceptually is that we have, when looking at CMS, collected more with more or less stable level of underlying direct costs. From a revenue perspective, however, the case mix also matters. And here, a higher share of lower value, lower margin, non-financial claims, mostly invoices, leads to only a small increase in revenues. The observed cost increase over and on top of this is largely due to external spend, which will generate revenues in the coming quarters, for example, legal spend. I'm now turning to strategic markets on page 14. Here we see really strong underlying performance across all three markets, with cash revenues up 5%, cash EBITDA up 12%, and cash EBITDA up 13%. In fact, all cash and accounting metrics are up. This trajectory is particularly remarkable as in Q1 2021, circa 14% of cash revenues were of a more transactional nature, which in 2022 have been more than fully replaced by asset-based revenues in combination with stronger operational performance. What is also pleasing is that all three markets are contributing substantially to the strong result in Q1. In Italy, we saw growth in assets under management, as well as significant performance improvement. Greece and Spain continue to perform strongly. In Spain, the loss of the SARAB contract will impact revenues later this year. The associated impact on profits in Spain will, however, be immaterial. To sum it up, cash revenues for the quarter were $1.4 billion, cash EBIT $728 million, and cash ROIC 19.8%. The adjusted segment earnings margin came in at 32%. Onto portfolio investments on page 15. Here, the very strong performance continues into Q1. Outperformance for the quarter was 110% of active forecast, with gross cash collections up 15% compared to Q1 last year and cash revenues up 16%. Similarly, cash EBITDA increased by 19% to $2.5 billion in Q1. Cash EBIT also improved by 14% to $942 million, somewhat impacted by higher replenishment capex, as explained earlier. Cash ROIC for the segment was 9.6%. To put this trajectory into perspective, cash revenues EBITDA and EBIT not only increased in comparison to Q1 2021, but also in comparison to Q4 2021, when we had a seasonally strong finish to the year. Another point to note is that the quality of our earnings has also improved. with accounting earnings from joint ventures down from 196 million to 126 million and cash from joint ventures up to 88 million from 44 million compared to Q1 2021. We made portfolio investments of 1.8 billion during Q1, roughly in line with last year and consistent with a run rate of just over 8 billion per year. Now turning to page 16. The difference between our cost of funds and the last 12 months average unlevered underwriting IRR is roughly stable at 3.8 times. Our liquidity position remains strong with 20 billion at the end of Q1. And another point to note, particularly in this rising rates environment, is that 75% of the net debt is fixed rates and longer dated with maturities between 2024 and 2027. In fact, We do not have any significant debt maturities before 2024. I'm now looking at page 17. We continue to make progress and remain on track towards our medium term financial targets. Also in terms of our leverage target, we continue to decrease our leverage ratio with a clear path towards our target range of two and a half to three and a half times. which we expect to reach according to the timeline set out at the capital markets day in late 2020. A leverage ratio equal to or lower than three and a half times by the end of this year. And with this, I hand it back to Anders for some concluding remarks.

Thank you, Michael. So if we turn to page 19. So to summarize, Q1 was a strong performance in a seasonally slower quarter, and as we look into the second quarter, we expect a seasonally strong Q2. Looking at the segments, as we look forward in CMS, we expect to see continued growth in new case inflow, with financial change growth increasing during the second half of 2022. We expect recent new signings to start contributing positively during the year, and the macro environment to lead to increasing late payment volumes in the economy. In strategic markets, we expect to see continued strong momentum across all three jurisdictions and continued broadening of the client franchise and further improved margins as the Sareb contract is continued. For portfolio investments, portfolio sales volumes are approaching pre-pandemic levels, which is reflected in a strong pipeline of privileged transactions. The strength of our pipeline allows us to continue to be selective and choose portfolios delivering attractive, risk-adjusted returns. The deployment trajectory is expected to be consistent with an annual run rate at slightly above 8 billion SEC, resulting in a continued, self-funded, double-digit growth path. Backbook outperformance continues to be supported by granular, sustainable payment plans, and we remain optimistic that the current outperformance levels will continue near term. The one Interim Transformation Program benefits will start becoming visible during 2022 with a run rate of approximately 300 million SEC at the end of 2022 and the full 1 billion SEC benefits reached by the year end 2023. Beyond that and into 2024, we can see continued benefit potential as we continue to implement advanced analytics and automation into our core processes. Overall, this leads us to be confident to deliver on our financial targets of at least 10% growth in cash EPS and to reduce our leverage ratio down to our target range of three and a half times or better by the year end 2022. And with that, we're ready to open up for your questions.