Intrum AB (publ)

Good morning, everyone.

My name is Anders Engdalen. I'm the CEO of Intrum. And with me this morning, I have Michael Ladner, our CFO. I'm very pleased to present to you the results of the second quarter 2022. So if we turn to page three of the presentations labeled highlights of Q2 2022. The second quarter was a seasonally strong quarter and the business continued to deliver double-digit growth across all key cash metrics. The business shows strong resilience and continued strong growth with no visible adverse impact from current uncertain macro environment. Cash revenues was up 12%, cash EBITDA up 15%, cash EBITDA up 13% compared to the second quarter last year. Over the same period, the rolling 12 months cash EPS has increased 19%. Our leverage ratio was temporarily elevated at the end of the quarter, and we usually do have a small uptick in the second quarter due to the regular dividend payment, but this quarter it increased a bit more due to a strong investment quarter and an adverse FX impact at the end of the quarter, inflating net debt. We expect this to reverse during the second half, and we would expect continue to deliver on our financial target over on three and a half times by the end of the year looking at our servicing businesses we continue to see strong growth in revenues up 11 versus last year supported by the strong new sales performance where we saw record value of new contracts up 60 versus the same period last year and adding net of losses 555 medium and large new clients to intro the new sales performance is broad-based and includes winning important new mandates across all our key servicing markets where we for now for instance service all the four major large banks in spain in addition we won a large contract for a button fund the large energy utility in sweden and many more Financially, strategic markets continue to perform strongly, where all three countries, Spain, Italy, and Greece, contributes very well, and we added approximately 40 billion SEC of new AUM. In CMS, we continue to see a pattern of lower like-for-like new inflows, offsetting the improving operating performance and new client wins. However, in the current uncertain macro environment, I am optimistic about the outlook for revenue growth and margins in CMS. Portfolio investments delivered a record quarter with gross collections at 115% of active forecast, driving revenues up 13% year over year. The performance in PI is very robust despite the adverse macro, supported by our diversified group of granular payment plans. ROI was stable at 14% and ROIC above 10%. It was also a very strong quarter for new investments with attractive risk-adjusted returns. We continue to execute on our transformation program according to our plans and the value realization remains fully on track. We continue to migrate cases to our common platform that now covers seven countries and approximately 25% of all our cases. Our global front offices now cover 17 markets and delivered about 18% of our calls and customer contacts most recently. The cost to collect ratio continues to reduce, stood at 5.9% for the rolling 12 months, and it's right in line with our expectations. Turning to page four. The economic environment in Europe is challenging with strong inflationary pressure and increasing interest rates, eroding affordability, and consumer confidence indicators are falling sharply. Households are concerned about the financial situation, and we see stage two loans continuing to increase across the banking system. Our European payment report points towards that businesses expect to see increasing late payments during the coming months. And speaking to our bank clients across a number of our key markets, they are asking us to make sure that we have capacity ready for greater volumes later in 2022 and into next year. This environment presents an opportunity for our servicing businesses over the coming 12 months, especially in CMS. As we have noted since the start of the pandemic, we saw a sharp drop in new inflows due to the strong fiscal and monetary response, as well as the moratoria introduced across many markets. Since the beginning of 2021, we have seen an increase in inflows for trade clients, sending out more, lower balance, lower margin invoice claims, but consumer unsecured lending and defaults remain low. Since the beginning of this year, and as the macro environment has worsened, we have seen a sharp increase in consumer unsecured lending across a number of the key markets. And as affordability reduces and interest rates increase, defaults are now increasing. We expect to see this translate into greater inflows of large balance, high margin financial claims over the coming 12 months. Furthermore, building on our strong momentum of our servicing sales, coming into production, this will help further boost revenue growth for CMS with a positive operating leverage and transformation reporting and improving margin development. Turning to page five, this chart shows what I was just talking about. Since the inflection point in Q1 2021, overall collection has increased, but due to the mixed shift towards inputs from lower balance, lower margin trade invoices, we have not seen the corresponding increase in revenues. Overall, costs, which are driven by collections, have been contained, and the cost-to-collect ratio has continued to be reduced, as well as our cost-to-income ratio. Looking forward, with the increasing inflows from higher balance, higher margin financial claims, we expect the revenue conversion from increasing collections to improve and thereby supporting revenue growth. Furthermore, you can see in the blue circles on the top, The strong commercial results of adding new clients is visible in the AUM development, which is now very positive over the recent quarters, which gives us a bigger asset base to work with going forward. Turning to page six. Despite the uncertain macro environment and increasing financing costs, competition and pricing for new portfolio investments remain stable. We continue to see a solid supply of portfolios in the market, and the pipeline has continued to grow across our footprint. In a worsening macro environment like this, we generally tend to see that fresher claims and non-payer portfolios are more sensitive in terms of worsening performance, whereas payer portfolios with a high cash flow generation tend to be more robust. Also, we expect to see the positive inflow An outlook for CMS will over time turn into greater supply of opportunities for sale in due course and with a lag, but we expect that to materialize over the coming years. In terms of what this means for interim, as we've pointed to in recent quarters, we do not expect the current level of 15% outperformance to continue indefinitely, but to normalize in the coming quarters towards the longer term trend of between 5% and 10%. Also, in terms of new investments, in the first half of 2022, we focused on safer, lower risk payer portfolios with high cash conversion and lower headline IRR and money multiples. Given the strong investment pace in the first half and the current pricing environment, we expect to moderate our investment pace for the second half of the year. We expect that the market will gradually reprice as competitors refinance and reset financing conditions or reflected in front of pricing. In the meantime, and as we often do in dislocated market conditions, we start to see the emergence of, you know, individual highly attractive off-market proprietary investment opportunities with outsized return. And we expect to focus more of our investment in these types of opportunities in the near term. as the market adjusts to prevailing conditions. Our near-term priority also remains to maintain our back-book performance, and in particular, our paying-book performance. Turning to page eight. We continue to progress well with our transformation program, and we remain on track on all our key KPIs. We have now migrated to SSL approximately 25% of all our cases to the common technology platforms, We now have seven countries live. Recently, we successfully migrated our UK PI portfolio, as well as our first servicing clients in Spain. The progress then to date remains slightly below budget, but more or less in line with our forecast. Turning to page nine. Our ST cost-to-collect ratio is on track at 4.9%, and has significantly improved compared to Q2 2021, as well as Q1 2022. In terms of value realization, we are on track, and right now we're slightly ahead of forecast, and we expect to reach approximately 300 million SEC run rate savings by year-end 2022, and the full 1 billion by the year-end 2023. Beyond that, we see that our continued investments into technology, automation, digitization, and analytics will continue to support the value realization on the common platform into 2024 and above and beyond the one billion that we have set out as part of the program. Turning to page 10, we continue to make progress on our ESG agenda. At the Capital Markets Day in 2020, we set out five sustainability targets to be achieved by 2023. Already halfway through now, we have made very good progress and achieved four out of those five targets. Furthermore, our strong sustainability rating by Sustainalytics has been reconfirmed, and we have been awarded the ESG industry top rated mark. And with that, I hand it over to you, Michael, for the financial performance review.

Thank you, Anderson. Good morning. I'm now turning to page 11 of the presentation and looking at our group key financials. We delivered a seasonally strong second quarter with substantial organic growth. All our key cash metrics are showing double-digit growth with cash revenues up 12%, cash EBIT up 15%, cash EBIT up 13%, and cash EPS up 61% compared to Q2 2021. Similarly, all key cash metrics are also up on a rolling 12-month versus full-year basis, with cash earnings per share of 31.34 crowns, above 30 crowns for the first time. Our cost-income ratio, cost expenses in relation to cash revenues, continues to improve to 45.6%, down 1.3 percentage points from the same quarter last year. CashRoyke is also improving to now 9% on a rolling 12-month basis and 8.4% in the quarter. This strong quarterly result is a testament to all our segments contributing with cash revenues growth. On the leverage side, we see a temporary increase to four times. This is due to the dividend of 1.6 billion crowns paid during the quarter, a front-loaded investment pace, as well as an adverse effects development, which in and by itself adds circa 1.5 billion to the net debt in the quarter. At the same time, cash EBITDA has increased substantially from 3 billion in Q2 2021 to 3.4 billion, up 15%. and 12.3 billion at year-end 2021 to 13.1 billion for the rolling 12 months. When looking at the remainder of the year, we expect the increase in debts to revert to a level roughly in line with the average of the preceding quarters, also due to the more moderate investment pace Anders mentioned earlier, while cash EBITDA will continue to grow. To sum up the results, in the second quarter, we produced cash revenues of 6.3 billion cash EBITDA of 3.4 billion, cash EBIT of 1.6 billion, cash earnings per share of 9.12 crowns, and a cash return on invested capital of 8.4%. I'm now turning to the next page in the presentation, page 12, and looking at group cash earnings generation. On a rolling 12-month basis, we really see the year-over-year progress come through, as well as the specific elements that drive this development. Year-over-year growth in cash revenues of 7% drives the growth in cash EBITDA of 9% due to cash expenses only increasing by 3%. This clearly shows the operating leverage in our business, even before having realized full benefits of the transformation, both in terms of recurring benefits as well as increased scalability. Replenishment capex is up due to the lower money and money multiple as we have acquired more defensive payer portfolios with higher short-term cash conversion during this quarter. At the same time, we continue to reduce our other capex. This results in a cash EBIT increase of 10%. Lower cash tax compensates somewhat higher cash financials in the context of the rising rates environment, resulting in recurring cash earnings growing by 19% year over year. From a returns perspective, we generated a recurring cash earnings yield on shareholders' equity of 16% and also return on equity of 16% based on adjusted net income. I'm now turning to the segments and starting with page 13, credit management services. Here I would like to refer to the dynamics that Anders has explained earlier. While we have made significant progress in signing new clients and thereby increasing volumes, This in aggregate has been offset by like-for-like reduction in inflows from existing clients and the reduction in revenue conversion. The reduction in revenue conversion is due to the inflow mix being skewed towards lower-value, lower-margin invoices, such as, for example, utility bills, rather than higher-value, higher-margin financial services claims. So while we have seen good progress in growing our franchise and increasing gross collections with the associated costs, It has not yet translated into meaningful revenues growth. In Q2 2022, we generated cash revenues of just over $1 billion, cash EBITDA of $348 million, and cash EBIT of $342 million. And with that, a cash return on invested capital of 7% for the quarter, as well as an adjusted margin of 19%. I'm now looking at strategic markets on page 14. Here we see a continued strong performance, again across all three markets, with cash revenues increasing by 18%, cash EBITDA by 44%, and cash EBIT by 46% compared to Q2 2021. This highlights the significant progress and continued improvements, both compared to the same quarter last year, as well as in a rolling 12-month basis. In my opinion, this result is even stronger than the headline numbers suggest as we continue to replace and exceed transactional revenues from 2021 with organic performance and growth. As I mentioned before, this result is growth-based with all markets contributing. Italy and Spain added a gross total of around about $40 billion of assets under management during the first half, and Greece continues to perform strongly as well. In Spain, the offboarding of CEREB volumes is expected to be completed by the end of the third quarter. From an impact perspective, this corresponds to a reduction in revenues of circa 7% for 2022 versus original expectations. However, with an immaterial impact on expected profits in Spain. Overall, cash revenues for the quarter were $1.6 billion, cash EBITDA $851 million, cash EBIT $834 million, and cash return on invested capital 22.5%. In Q2, the adjusted segment earnings margin came in at 35%. Now on to portfolio investments on page 15. Portfolio investments again delivered a very strong quarter. Collections outperformance versus active forecast was 115%. Gross cash collections increased 11% compared to the same quarter last year. 3.5 billion of gross cash collections also marks an all-time high for a single quarter. Supported by the strong collections performance, all other key metrics have also improved during this quarter, with cash revenues up 13%, 3.7 billion, and cash EBITDA up 17% to 2.8 billion compared to Q2 2021. The increase in cash EBIT, 15% to 1.1 billion, is relatively lower due to the higher growth and replenishment capex. And replenishment capex increased in the second quarter, not only due to the strong collections performance, but also given reduction in money-on-money multiple, coming in at 1.79 times for the quarter and 1.98 times on average over the last four quarters. The second quarter, we had a strong front-loaded investment base, employing $3.1 billion. During the quarter, we invested mainly in defensive payroll portfolios with good risk-adjusted returns in the current war and certain environments. Such portfolios, however, come with lower headline returns and money-on-money multiples. We expect this to revert in the coming quarters. Looking at page 16, due to the dynamics I've just outlined, the difference between our cost of funds and the last 12-month average unlevered underwriting IRR is slightly down at 3.6 times. Our liquidity position remains strong with $17.3 billion at the end of the second quarter. As of the end of the quarter, 72% of our net debt is fixed rate with longer dated maturities between 2024 and 2027. Now I'm turning to page 17. We continue to make progress and remain on track towards our medium term financial targets outlined during our capital markets day back in November 2020. Taking Q3 2020 as a starting point, we have increased our cash return on invested capital from 7.4% to 9%, up 1.6%. During the same period, we have also grown cash earnings per share from 22.3 crowns to 31.3 crowns, circa 40%. When it comes to the leverage ratio, this is also down compared to Q3 2020. And while temporarily elevated in the second quarter, we expect the landing in line with our financial targets. And now back to you, Anders, for some concluding remarks.