Intrum AB (publ)

This is Andres Rubio, the CEO, and I'm here with Michael Lederner, our chief financial officer. Thank you for taking the time to listen to this review of our financial results for the fourth quarter of 2022 and full year 2022. We're conducting this call from our corporate headquarters in Stockholm. If we can move to page three, please. Starting here, I wanted to start with an overview of the quarter and our full year performance. Top left, we had a very strong finish to the year, replacing a seasonally strong fourth quarter 21 with a stronger fourth quarter 22, generating 11% cash revenue growth year on year and 12% quarter on quarter. All segments contributed positively to cash revenue growth with particular contribution from portfolio investments and strategic markets. As a consequence of this strong cash performance and the balancing of interests of all stakeholders, The board are proposing a flat dividend of 13.5 SEC per share, payable in two installments during 2023. Bottom left, regarding our servicing franchise, we continued to perform well with approximately $13 billion of total revenue, an increase of 7%, and AUM up 11% quarter on quarter. Not surprising, given the accelerated environment of new inflows, the AUM grew faster than our revenue. But we have yet to see the full expected increase in flow of financial services claim that we'll talk about more later when we talk about the market environment. In servicing the two markets that have really performed well relative to not only their own expectations but also to other markets are in particular Italy and Greece. Bottom right, our portfolio investments business had a stellar year with collections as a percentage of active forecast of 111% during the fourth quarter and 108% for the full year. This is really a testament to the quality of our underwriting and our workout capabilities. And I think in particularly, it's a result we're satisfied with and we think is impressive given the difficult economic environment. This is a metric which we should all expect somewhat to moderate with the continued worsening of the economic environment for the consumer across Europe. The underwriting IRRs on our new investments reached 15% during the quarter. And in fact, later on, you'll see it reached as high as 17 to 18 percent versus 12 percent in the first half continuing our adjustment to the changes in the overall risk environment top right with regard to 2023 we expect to see an increased flow of financial services claims into our servicing business and a moderate pace of investments reflective of the overall shifting of the risk environment and also our focus and progress towards our deleveraging target on page four We talk a little bit about the evolving market. The overall market dynamic is one of increased inflation and more than doubling of the household cost of borrowing, which leads to a likely recession or at the very least a significant economic slowdown over the near term. Asset investment volumes are expected to be mixed with some increase in secondary volumes expected as a precursor to primary volume increases as specialist investors gear up for future larger volumes and expected higher returns. It is really, focusing on the right-hand side of this page, it's really environments like this, in environments like this, that interim shines. With our multi-market and integrated business model producing, A, greater client wins, 36% increase during 2022 in the annual contract value of new client mandates versus 2021, with some selected win examples in the UK with Sainsbury's, in Italy with Credit Agricole, and in Sweden with Vattenfall. We have a general increase in the client need for our collection services given the environment. We have strong collectability despite the tough macro climate, and we have higher IRRs and new investments. Looking at page five, you can see that when looking at the overall environment, stage two loans have increased from 1.2 trillion to 2 trillion over the last three years, exceeding 10% of total European banking system loans. In the bottom, even more concerning and more recent, household cost of borrowing has more than doubled, going from approximately 1.3% to 2.9% in the second half of 2022. In addition, anecdotally, you know from our consumer payment report, which we published at the end of last year, that one of every three European households has missed a bill payment in the last 12 months, and one in three Europeans expects to miss at least one more bill payment in the coming 12 months. All of this plus our consistent conversations with our clients, indicate clearly to us that there will be a significant increase in MPL inflows over the coming years, which will initially drive the need for our collection services, and then with a lag, will represent a meaningful increase in investment opportunities over several years to come. Slide six is the same slide that we've shown previously, which demonstrates the continuation of what I believe to be our unmatched experience and track record in collections performance, which then translates into consistent investment returns for our portfolio investment business over time. Since 2004, over 18 years, we've grown our annual collections in our PI business over 17 times from 0.8 billion to most recently on a rolling 12-month basis during 2022 of 13.5 billion SEC. Over this extended 18-year period, with a much larger base of annual collections volume, we have averaged over 107% of collections versus original underwritten forecast. In addition to this consistent performance and outperformance, we have demonstrated extreme resiliency having endured three crises with the global financial crisis, the European sovereign wealth crisis, and the global pandemic, yet our collections have never fallen below 98% on a rolling 12 month basis. And as you can see clearly from the slide, in that one instance, it's sharp bounce sharply bounced back from this low during the pandemic in 2020 this consistency in collections over the long term combined with the call it 12 to 15 percent IRRs and greater than two times money multiple is in my opinion the best track record in the industry and shows not only the resiliency of our business but also the true benefits of our integrated business model where we have world-class servicing and investment capability combined under one roof Page 7 shows the repricing of both our assets and our liabilities and how they adjust to overtime to the return environment. On the top left, you see the increasing underwritten return on our new investments from below 12% in Q2 22 to a high just below 18% during fourth quarter of 22, which in turn, as you look to the top right, As our book turns over approximately one fifth every year or specifically 19%, you can see that this drives and raises the overall back book return to nearly 14% on average. On the bottom left, we've laid out the high yield market overall yields since 2019. And in dotted lines, you see the five times we've accessed this market with the most recent issuance being in December 2022. As you can see, market yields have decreased since our transaction in December. And with our issuance specifically, which was priced well over 9%, now trading very solidly in the 8% range. On the bottom right, you can see that thanks to our carefully termed out debt and our largely fixed rate debt structure, this 450 million euro issuance at an elevated cost relative to history increased our debt maturity profile only, sorry, improved our debt maturity profile, pushing that important amount out into 2028 and only raised our weighted average cost of debt, approximately 50 basis points from 3.7% to 4.2%. On page eight, we're going to talk about our one interim transformation program. As we've discussed previously, Since I became CEO, we have prioritized a comprehensive review of this program and have validated that the recurring cost benefits of $1 billion SEC are achievable. This is important as we have visibility on these cost savings, but more importantly, this estimation of benefits doesn't fully reflect that this program should make us the most efficient and most highly functioning credit management platform in the market, which in turn should also translate into more new deal wins and more revenue from existing customers. this could be much more enduring and impactful than any estimated cost savings. The top graph shows that we are spending just below expectations to continue this important transformation. It's important to note, as indicated in some of the bullet points on the right, that we are achieving important metrics, which is nearly 20% of all calls being handled by global or central call centers, and our global collection systems are handling approximately 25% of all cases. However, as you can see in the bottom graph, We have deliberately paused migrations during the last two quarters of 22 to ensure the quality of these migrations and that we are operating at least at the same functional level as prior to the migrations and to ensure that future migrations maintain or, more importantly, even improve upon this level of quality of service. On page nine, you can see more on our progress to date. In the top half, you see our rolling 12-month FTE cost to collect is in line with the plan and continues to decrease. And down below, our realized $290 million SEC of cost savings to date. We've realized $290 million SEC of cost savings to date on the way to that $1 billion I referred to earlier. These are two key metrics by which we measure how this program is making us more efficient, but doesn't fully reflect that this program will naturally lead us to have more competitive client offering and enjoy market share growth as a result. Page 10 and 11 are my bragging slides, where I get to highlight the fact that we play an important social purpose while generating also strong financial performance and returns. On page 10, you see various metrics related to most of our key stakeholders, which prove that we, A, have satisfied clients and customers thanks to our ethical and solutions-oriented collections focus. B, we are playing our part in improving the environment and promoting diversity and inclusion. And all of this provides important motivation and increases engagement from our employees. In sum, our industry leading and engaged employees offer solutions to consumers in an ethical and respectful manner, which generates meaningful financial recoveries for our clients on their unpaid claims, all while enhancing the sustainability and the wellbeing of the financial system and economy as a whole. And finally, what in my opinion may be the most important statistic that I cite in this presentation, and that which I'm most proud of, is that during 2022, we have helped 4 million consumers across Europe repay their debt in full and reintegrate into the financial system. Transitioning to page 11, you can see that our capabilities and how we approach our business produces incredibly strong financial results, and this continued during 2022. Last year continued a positive trend where since 2018, we have grown annual cash EBITDA 8% a year and 35% overall. We've increased our total assets while deleveraging from 4.3X to 4.0X. all while increasing our dividend payout to our shareholders by 25% in aggregate and 4% a year, inclusive of the proposed dividend I mentioned at the outset of my comments. With that, I now turn it over to Michael to walk you through some more detailed results from the quarter.

Thank you, Andres, and good morning, everyone. I'm now looking at page 13, Group T Financials. Q4 was a seasonally strong quarter with all segments contributing positively to cash revenues growth. Cash revenues increased 12% to 6.8 billion compared to the same quarter last year. Cash EBITDA increased by 2% to 3.8 billion. On the other hand, cash EBIT decreased 11% to 1.9 billion and cash EPS decreased to 8.6 crowns per share for the quarter. Cash return on invested capital also decreased by 1.7 percentage points to 10.3% compared to Q4 2021. What we see here is continued strong top-line growth and collection performance with the associated activity-driven costs, as well as additional costs supporting our transformation, plus build-out of competences, in particular in commercial and data and analytics areas. Replenishment CapEx is also up, despite an increase in money-on-money multiple to 2.12 times, due to the significant contribution of gross collections from portfolio investments to cash revenues growth. In addition, when looking at cash EPS, we see the increasing cost of funding as well as slightly higher cash taxes coming through. The same pattern is valid for the full year 2022. 2022 cash revenues came in at 24.6 billion, up 11% compared to full year 2021. Cash EBITDA was 13.2 billion, up 8%, and cash EBIT was 6.3 billion, flat compared to last year. For the full year 2022, we used a cash EPS of just under 25 crowns per share and a cash return on invested capital of 8.4%, down 0.5 percentage points year over year. The leverage ratio was four times unchanged compared to Q3 2022 and up 0.1 times compared to Q4 2021. Here we somewhat suffered from the depreciating Swedish crown, adversely impacting the ratio over the course of 2022, as well as settling the derivative agreement with Carval as disclosed during the quarter. I'm now turning to page 14, group cash earnings generation. The chart depicts the developments I've just described very clearly. We have been able to grow cash revenues significantly year over year, up 11%. with portfolio investments and strategic markets being the key contributors. Cash expenses are up 15% due to incremental costs underpinning revenues growth, activities supporting our transformation, and investments and competences. We therefore see an increase in cash EBITDA of 8%. Replenishment capex is up 16% due to the strong collection performance and portfolio investments contributing to cash revenues growth, and cash EBIT is flat at $6.3 billion. Cash net financials are increasing in this rising rate environment, and cash taxes also are resulting in recurring cash earnings of $3 billion. Overall, we delivered just under $10 billion of cash generation for discretionary deployments, $7.5 billion of which we invested in portfolios over the course of the year, $0.9 billion more than our replenishment level of $6.6 billion. From a returns perspective, the recurring cash earnings yield on total shareholders' equity was 13%. Now to the segments. I'm looking at credit management services on page 15. In CMS, we experienced increasing inflows from lower-balance, lower-margin invoices, such as utility bills. Higher-balance, higher-margin financial services claims are still lagging. As Andres has explained, the more challenging economic environment and associated increases in stage two loans are expected to lead to increasing financial services inflows. Increased costs in the segments are due to activity levels required to support revenues generation on invoices and the aging back book in the worsening macroeconomic environments. These dynamics result in cash revenues of 1.1 billion for the quarter of 9% or 2% excluding the impact of FX. Cash EBITDA decreased by 25% to $332 million and cash EBIT by 28% to $315 million compared to Q4 2021. The margin was also negatively impacted. Similarly, for the full year 2022, cash revenues increased by 4% while cash EBITDA, cash EBIT and the margin decreased. I'm now turning to strategic markets on page 16. In our strategic markets, we experienced a seasonally strong Q4 with the full year 2022 significantly outperforming an already strong 2021. Italy and Greece had a particularly good year with more stable performance in Spain, despite losing the CERAB contract. Our operations delivered healthy collection performance with cash revenues up 6.2 billion, or about 10% compared to full year 2021. All other cash metrics also increased significantly year over year, but Q4 was slightly down on the same quarter last year due to fewer transactional items. For Q4, cash revenues came in at $1.8 billion and cash EBIT at $1.1 billion. For the full year, cash EBIT was $3.4 billion, up 13% compared to full year 2021. Strategic markets had a cash ROIC of 30% in Q4 and 22.7% for the full year 2022. We continue to diversify our client base and we're able to add clients such as Credit Agricole Italy underlying the strength of our platform as well as collection performance. We expect the growth and performance trajectory to stabilize in 2023. Turning to page 17, portfolio investments. We delivered strong outperformance both in Q4 as well as for the entire year with collection performance holding up well. Gross collections came in ahead of expectations by 18% for Q4 and 12% for the full year. Adjusting for some small portfolio sales that we concluded during the year, this equates to 11% for Q4 and 8% for the full year. Sales totaled 381 million and generated a capital gain of 106 million. We invested 7.5 billion in new portfolios in 2022. 0.9 billion above our replenishment rate of 6.6 billion. In line with the guidance provided earlier, we saw a more moderate investment pace in Q4 with investments of 1.3 billion at attractive expected returns of just under 18%. We expect a more moderate investment pace to continue through most of 2023. Cash revenues for the segment increased by 20% to 3.8 billion compared to Q4 2021, and 14% to $14.2 billion versus full year 2021. Cash EBITDA increased by 24% to $3 billion in Q4, and 17% to $10.8 billion for full year. Cash EBIT improved by 37% to $1.2 billion in the fourth quarter, and 19% to $4.2 billion year over year. Segment cash return on invested capital was up three percentage points compared to Q4 2021 and increased to 10.5% year over year. I'm now looking at page 18. For completeness, we have included information on the negative adjustment in the Italian SPV carried out in Q4, which are fully in line with the information disclosed in our press release. dated 24th of November and discussed in detail in the context of our investor call on the 28th of November. We have also included additional information on our 10 portfolio joint ventures on slide 35 in the appendix. In aggregate, these exposures currently have estimated remaining collections of $2 billion, or 2.5% of total ERC, and the book value of $1.2 billion, equivalent to 3% of total book value. Turning to page 19. Here we clearly see that while our cost of funds is increasing, so are our underwriting returns as discussed in more detail by Andres earlier. On the funding side, we benefit from a termed out liability structure with main maturities between 2024 and 2028 after the refinancing exercise in December. The average lifetime of our debt is 37 months and we have no material immediate refinancing needs. At the end of Q4, we had available liquidity of 17 billion. I'm now looking at page 20 and our medium term financial targets. We have made progress compared to 2020, but due to the dynamics discussed in detail earlier, current metrics are slightly subdued. The leveraging continues to be the focus with our target ratio of three and a half times to be achieved as soon as possible. In this context, the proposed dividend remains in line with last year at 13.5 crowns per share to be paid in two equal installments in May and November. From a leverage ratio perspective, this equates to about 0.1 times. With this, we also write forward our decade-long trajectory of paying an at least stable dividends. And with that, back to you, Andres.

Thank you very much, Michael. If we can turn to phase 22, please. Now that we have concluded 2022 and I have been confirmed as CEO of the company, I want to give you a glimpse into our overall priorities and also some near-term initiatives. Our strategic priorities remain unchanged, where we want to grow and to be more efficient. I want to categorize this specifically into two themes, which you can see in the middle of page 22, where I and the senior management want to simplify and focus our activities and grow and transform our business. Specifically, these long-term goals and themes translate into some near-term initiatives we will execute during 2023, including A, reorganizing and focusing our geographic footprint. B, expanding our service offering to clients. C, improving the client centricity and commercial of the enterprise. And D, taking steps towards building an asset management business within our current portfolio investments business. As indicated in the bottom of page 22, we intend to conduct a capital markets day during the second quarter of 2023, where we will provide greater detail on these broader themes and the long-term expected development of our business. On page 23, you see some more detail as to how we are simplifying our footprint and focusing our activities. What are we going to do? We will focus on two businesses, servicing and investing. We are going to focus on these two businesses across a more focused footprint, which includes 15 core franchise markets, where we have balanced and sizable businesses including both third-party client businesses as well as proprietary investing. In these markets, our goal is to become the market leader in each and every one of these markets. In addition, we have a group of tactical markets, mostly in Eastern Europe, where we have meaningful profitability and presence, but our activity is almost entirely focused on investing, i.e. not third-party clients, and our operating presence is a direct function of our investment volume. Here our intention is to monitor these markets closely and continually right-size our operating presence in line with our latest investment volumes and hopefully build a client business to balance and create a more enduring business model over time. Finally, in line with focusing our efforts, we are initiating an investigation into the exit of five of our markets where our financial performance and market presence is small relative to our overall scale. This includes Brazil, the Baltics, and Romania, And we're doing this so we can dedicate even more of our resources to our larger franchise markets. On page 24, you will see that we are combining this renewed focus and simplification of the application of our integrated business model with some important client and business initiatives. It is our intention to expand the services to our clients that will include earlier arrears and late-stage real estate solutions, This is already happening in some of our key markets, particularly in Southern Europe, and we expect it to occur across our entire footprint going forward. We are improving our customer and client portals, rolling out a state-of-the-art dialer system, and introducing an end-to-end digital collections capability in some of our key franchise markets during 2023. This will improve our clients' experience and our collections effectiveness, further improving our client and overall growth prospects. Finally, we are formally initiating a process whereby we're taking the first step in creating an asset management business with our investing franchise in the form of seeking a capital partnership where one or more third-party investors will invest alongside our own capital on a systematic basis going forward. All of this is part of our long-term plan for transforming our business and furthering our industry leadership. With that, we're going to conclude our formal and planned remarks and are happy to take questions, as always.