Intrum AB (publ)

Good morning, everyone. This is Andres Rubio.

As indicated by the operator, and I'm here with Michael Lederner, our Chief Financial Officer. Thank you for joining us this morning to discuss our third quarter results and where we stand today as a company. Before we get into the presentation, I will be making some overarching comments, but then I will go through some overview as to our performance during the quarter. Michael will conduct a more detailed financial review of the performance during the quarter. I will provide some concluding remarks, and then we will open it up for Q&A. Before I get into the presentation, I wanted to make some, again, overarching comments about our performance for the quarter. I think the performance during the quarter, which is traditionally a slow quarter, is one that witnessed a tremendous amount of activity for the company. an activity that is very emblematic of where we are in our development journey. What do I mean by that? The performance during the quarter is characterized by tremendously positive revenue performance and revenue prospects. That's driven fundamentally by the quality of our service, which is second to none in the credit management space, as well as the need, the increasing need of our services by our clients given the general macro backdrop, which I will get into. But despite the positive top line trends and prospects, we face realities. We are not immune to the environment. We face realities of the inflationary environment, growing our cost faster than we're comfortable with, which we are directly addressing with the cost reduction program we announced earlier this year. I'll give an update on that. And we also, as we communicated in our Capital Markets Day, need to continue to extract as much organic cash flow and dedicate all that cash flow to debt reduction, which we also made progress during the quarter and our highlight. So these are more near term. We have the privilege of a very positive top line. We have the direct challenges of cost and leverage, which we want to reduce. And we are doing all that. And at the same time, developing the company.

Both organic.

as well as through acquisitions of technology platforms like we did two in the last three months, as well as never losing focus on what our purpose is, which is helping consumers extract themselves from a very difficult situation and in the process collect on behalf of our clients. So now if we can turn to page three, the next three pages will be a bit of a reminder for everyone as to what we communicated at our Capital Markets Day on the 13th of September. Page three, we highlight the near-term and long-term goals. Near-term, we are going to reduce leverage, lower the risk around our platform. Long-term, we want to grow profit. We want to create the leading servicer, and I would actually say enhance our leading servicing position more appropriately, but also create a capital-like asset management platform from what is today fundamentally a proprietary investment platform. What are we doing specifically?

On the top, in terms of the near term, you'll see evidence of these to different degrees during the performance. But lower proprietary investments so that we can

liquidate and collect against our back book without reinvesting at our normal replenishment rate, which drives a net extraction of cash, which we will then use to reduce leverage and de-risk our platform. Cost reduction, we're going to give some very specific figures as to our progress and our ultimate aims in this regard, but that cost reduction is already partially implemented, and we'll see more to come in the next one to two quarters. We are evaluating selected potential exits of markets, as well as tactically selling a back book, all of which will raise proceeds, which we will then again dedicate to lowering our leverage over the near term, all of which, given the environment, will reduce the risk and reduce the leverage. Ultimately, long term, you have to have your foot on the accelerator as well as the brake, and the accelerator is to drive the development of the business. We want to be a tech-driven company. In fact, I want to be a tech company that does collections as opposed to a collections company that utilizes tech. We made two important acquisitions in eCollect and Ofellos, both of which are going to enhance our customer value proposition, make us more effective at collecting, as well as make us more efficient operationally. We want an intense commercial focus. We are already seeing this, and that's probably the factor on this page that's most evident. in this quarter's performance where we have a tremendous revenue performance, and we've laid the groundwork and planted the seeds for significant revenue improvement going forward where our commercial area is probably in the best area it's ever been. We want to, over time, leverage third-party capital. We are making progress in that regard in selected discussions with third parties to increase our investing activity without increasing our balance sheet. and more to come in the coming quarters on that. And we are implementing, in contrast to the one interim previous goal, we're implementing a more simplified and a more balanced local as well as central operating model, which will be more effective and provide more decision-making power closer to our clients and our customers. All of those will, again, grow profit and create the leading servicing platform, as well as create a capital-light asset management platform that can grow without growing our balance sheet. Next page. Just on page four, the lens with which we look at all of these things are these three pillars. Operational excellence, which is tech-driven, all of the activities that Annette Colleen highlighted in our Capital Markets Day. Client focus, intense focus on providing the best possible solution to our clients. In the end, will lead to significant revenue growth and ultimately profit. deleveraging. So there, you heard from George Yacopoulos in the last, in the Capital Markets Day, and we're already seeing significant benefits from our reorganization in our sales and commercial area. And then capital light. We want to extract capital over the near term, which is, as I said, we'll use for deleveraging, as well as ultimately over time, pivot to a capital-light, more efficient, and better return investing platform business. On page five, here you see, and later on, Mike was going to give you a progress report on how we did in the quarter against these targets, but we have some very clear targets over the next three years. We want to grow servicing, particularly external servicing, with third-party clients more than 10% a year. We want to get to 25% margin. We want to lower our balance sheet intensity, which, because we're going to do so by extracting value from our back book, means our proprietary investment book value will come down. We want to get to 3.5 leverage. We made a very small step towards that this quarter, but we want to get to that by 25 and into 26. And then with all of that, our intention is to continue or to resume rewarding our shareholders for holding our stock once we get to the more appropriate leverage level of three and a half. I'm happy to say, and I don't want to steal Michael's thunder, but we've made progress on almost all of these fronts during the quarter. but it is the beginning of a journey that's going to take the next two to three years to get to where we'd like to be.

On page six, you see where we stand on the quarter.

So progress on strategic initiatives. I'm happy to report that despite the headwind that we face on accelerating costs due to inflation, effects and the like, We are making significant progress towards the previously announced cost target. We announced in the second quarter 600 million. We expanded that during the capital markets day to 800 million SEC expectation. To date, we've implemented 350 million on a run rate basis, which means that as of today going forward, we should see on a like for like basis our cost reducing on an annualized basis by 350 million. So we will see that run rate during the fourth quarter. By the end of the year, we expect to get to in excess of our 800 million target on a run rate basis, all of which will be reflected in our 24 cost progression. We had a record ACB signings and win rate in the quarter. I'll go through that in a little bit later. But we are in the best place we've ever been on a commercial signing. We've exceeded last year already three quarters, and we're going to have the best year ever. And we're planting the seeds for significant commercial growth, particularly on servicing in the years to come. And we are progressing on back book disposal as well as market exits, more to come on that in the next quarter or two. And so those are all the strategic initiatives over the near term and we've made significant progress on all and more to come. During the quarter on the top right, you see that the top line growth reflective of my comments on how we've done very well commercially has been significant, 9% year on year coming from both businesses. We do have record high ACV sales and we've extracted $4.8 billion from investing in the last 12 months. That compares to $1.3 billion in the prior period. And during the quarter, we extracted $2.3 billion. So our extraction, our lowering of our investment levels and extraction of cash is actually accelerating, consistent with the message we delivered at the capital markets day. And our leverage ratio did increase, although modestly, to 4.4, which is a step in the right direction. On the bottom, how we progressed in more detailed initiatives. Operational scorecards have been integrated into all our monthly business review. This allows markets to compare themselves, not just with their past performance, but also to other markets. Very important benchmarking and a very important step in a cultural mindset shift towards performance management. We rolled out a new contact center platform in Finland, one of our most important markets, which has the greatest number of clients in the entire platform, 20,000 actually. And we are launching a leadership acceleration program because we need to make sure that we understand that although we want to be a tech company, we are fundamentally driven by our people and we need to invest and develop our people in order to continue the progress towards a more successful future. Over the near term as well, we hit some very important milestones. We closed, in fact, last week, the Ophelos acquisition. It is the only AI-driven company debt resolution platform that exists, we're now matching the leading AI-based collections platform with the leading collections platform in the world, us. The combination of which will lead to a better customer value proposition, more efficient operations, and better collections capabilities. We also signed our first few clients with eCollect, which is an invoice reminder services, an invoice management services business, a very important element of the value chain for clients, particularly in the middle and the north of Europe. And that's already off and running as part of the Intram family. Specifically, services and investing, our AUM is growing consistent with the environment and consistent with the recent quarterly trends. Our win rate has gone from 49 to 56. We continue to win in the marketplace, and we win because we provide the best service. We increased our income in servicing, which is our top line under our new disclosure. We call top line a revenue in servicing.

income. That is driven 11% by both FX and M&A.

And our EBIT margin is not where we want it to be. It was high 17% last quarter. It is now low 17% partly because of the headwind on cost that we're talking about. But I'm incredibly confident that we're going to be progressing and we're going to achieve our mid-20s, specifically 25% target in the next two to three years. On investing, despite the incredibly difficult environment, we did collect at 100% of our active forecast. Our cash income increased, our cash EBITDA increased, and we lowered our run rate investments to about a half a billion a quarter, which until we change structurally that business in the form of a capital partnership or something else, we will remain at that 2 billion sec roughly annual rate, or roughly half a billion a quarter run rate, which will lead to an extraction of cash on a consistent basis. Moving to page seven, what's going on in the environment? The environment is one where the consumer and the small and medium enterprise is under more pressure than we've seen in recent history. What do I mean specifically? We put out our consumer payments report recently. We're actually officially putting it out in the next few weeks. We put out excerpts thus far, but the numbers are quite stark and quite serious and concerning. 24% of European customers, consumers that is, across all of Europe every month spend more, have greater costs than they have income. In fact, 50% break even. So you're talking about 74% of all consumers across Europe either just cover their costs or are in deficit. As a result, more than a third, the highest number we have seen since we started compiling these figures five or six years ago, have failed to make one payment, deliberately could not make a payment in the last 12 months. And these consumers do not have a lot of cushion to fall back on. 50% roughly of European consumers have one month of income or less of savings. 20% have no savings. So not surprising, these consumers are taking on new credit to meet their current cost needs, and they're asking for a raise, which only serves to exacerbate the problem of indebtedness, deficit spending, as well as overall inflation. From the corporate side, as we put out a few months back in our payment report that focuses on small and medium enterprises, this extends to that arena as well. Two-thirds of SMEs are being asked to extend payment terms, to collect on invoices. We see it because we see an acceleration of our AUM. People are not getting paid on their invoices. And this, as you saw in our payment report, is a drag in total when you look at the number of days every small and medium enterprise spends trying to collect on their revenue. And you extrapolate that across the entirety of Europe. We're talking about an economic drag of nearly 300 billion euros. Very, very systemically important drag on our productivity. And bankruptcies, it's unfortunate, but it has to be recognized that they continue to accelerate and they hit the highest levels since 2015 in Europe, all of which means that the consumer and companies are under difficulty and clients need us more than ever to help them collect on their invoices or collect on their loans. Let's switch over to servicing and then investing for a few pages. On page eight, here you see the acceleration, our pipeline on the top and our win rate. So as you can see, in the last two years, we've gone from 46 to 49 to an all-time high of 56%. We win. more than half the times when we compete for new client business. Our pipeline hit an all-time high in Q2 and is still at one of our highest levels ever at 2.4. And the drop is not because there's less business out there. It's because we've signed more business than we expected in the fourth quarter, a significant amount, which is the bottom half of this page. And here you can see that our ACV has hit an all-time high. Through three quarters this year, through the end of September, we are at 1.1 billion SEC of new contract signings. That's the annual contract value, the annual revenue that we should expect from these signings that we've done in the first three quarters. That is our annual target, which is already achieved three quarters into the year. And it's 60% above last year, where we experienced through the full year only 690 million SEC of new ACV signings. So again, the numbers bear out the fact that our clients need us more than ever, and our service is the best in the marketplace. We've had some very specific great wins. We won a very large contract with Building Center, which is the real estate arm of CaixaBank in Spain. where we are now the servicer for 100% of all of their real estate exposures as an institution. We won a very large hospital contract in Norway. And we've recently expanded our activities with Virgin Money. These are just a few larger and more prominent, well-known company client examples of an overall trend of increasing commercial activity. And because of this, because of the pipeline, because of our signings, And because of these new contracts that come in, and the Q3 was the best quarter we ever had, and 2023 will be the best year we have, we're planting the seeds for revenue growth for the next one, two, and three years. On the next page, on page nine, you can see that ultimately our adjusted income as well as our top line is stronger than ever, but we do face a margin challenge here. And this is where our cost program is going to come in and have a dramatic impact from now going forward. We spent the better part of the last two quarters really scoping out, designing, and beginning to implement the cost program. We, as I said earlier, have already realized $350 million. We expect to get to in excess of the $800 million on a run rate basis by the end of the year, and we'll feel all of that next year. So that margin, I'm very confident, will continue a more positive trend in the coming quarters. But our servicing revenue, based on everything I just said, not surprisingly, is at a great top-line level. And we can work with that to improve our margin. But the other point that I wanted to make on this is that when we include technology, and this is a very specific example, which I think when you apply it across the entire company, shows the potential benefit, not just to us, not just to our customer, but to society as a whole of implementing technology. So this case study on the bottom of the dialogue box on the right is in Denmark. Every year we send three million physical letters out in Denmark. As of earlier this year, we transitioned to sending 80% of those letters in a digital form. On a like for like basis, the impact has been incredible. So on a like for like basis, on an annual basis, Despite the fact that we went from physical letters to digital letters, which, by the way, a lot of our jurisdictions require us to send out physical letters because they think it's better for the customer, our customer response rate has gone up 700%. So this tells you something. This tells you that it is actually digital is not only more efficient, but it is better for the customer. You get a better response rate from the customer. In the process of that, we lowered our costs. by 70%, and we've lowered our CO2 emissions, which this says 70%, but specifically we're talking, I believe, about 60 tons of CO2 that we avoided producing by virtue of not having to print the letters, not having to mail the letters, not having to deliver the letters. So think about this. This is an example of how just a very simple change, and this is not terribly sophisticated, This is just going from a physical letter to an electronic letter. This is technology that has existed for decades. But just doing that lowers our costs, dramatically improves the response rate for customers and services that are better, and is better for the planet. Now, this is one small example, but when you look at the bottom half of the page, you see that from a digital penetration perspective, we are at extremely low levels. Overall, of our 133 million activities that we conduct every year, self-service digital interfaces with consumers is less than 1%. Overall digital activity you can see here is high in Northern Europe relative to the other regions, but is low on an absolute basis at less than 15%. And most of that is in Finland. and a little bit of that is in Sweden. In the other markets, we have very limited to no digital activity. So imagine the impact of this one very modest size but targeted effort in Denmark, extrapolated across our 20 markets, extrapolated across our 133 million collections actions every year, extrapolated across our 97 billion sec of collections. the potential for impact from technology and this isn't even sophisticated technology is vast and we will see that in the coming years let's transition over to investing page 10. here you see that uh during the quarter we had a very strong uh ebitda of 2.8 billion we invested 0.5 billion for a net extraction of 2.3 billion the net extraction of cash that's Tax flow coming off of the book versus less investments over the last 12 months has accelerated to $4.8 billion. And this is something that I highlighted in the Capital Markets Day that I don't think is fully appreciated by the markets and perhaps is not fully understood by the markets. But we have a tremendously flexible asset base here that's incredibly granular that ultimately, if we just cut back on investments, our book auto liquidates. because our collections activity is continuous and granular across all our markets. And ultimately, our book throws off cash. And if we invest less, it ultimately throws off excess cash that we can divert and we can dedicate to other activities. In our case, as we said in the Capital Markets Day, over the next two plus or minus years, we're going to dedicate 100% of our organic cash flow plus any cash flows from our tactical measures to lowering our leverage. And this book, the extraction of cash from our back book is the most important source of cash generation in addition to also the important non-capital intensive EBITDA of our servicing business. On the next page, on page 11, you see that despite the very difficult environment, collectability is getting harder. There's no doubt about it. And in some markets harder than others. But we still hit 100% of active forecast in Q3. And our gross cash collections on a rolling 12-month basis is at an all-time high. So again, collectability because of our industrial capability, because of our history and experience, we get better over time. And that results in in all-time high collections and very good performance against active forecasts. This is one of the reasons why you've seen in our industry some players have write-downs when we have not necessarily had any write-downs recently despite the significantly worsening macro conditions.

Page 12, and then I'll hand it over to Michael.

This is our bragging slide. And from an ESG perspective, I'm happy to state that over the last 12 months, we have helped 5.2 million individuals become debt-free with us. These are individuals who've fallen on difficult times, have had to enter into some kind of a payment plan, and ultimately have extinguished their past due debt, and during that time frame are excluded from the financial system, but can now attempt to reintegrate into the financial system, gain new credit, gain a new bank account, et cetera. That number, was a year ago, 4 million. So not only are we helping more people, not only are there more people who need our help, that's the macro environment, but we are being very successful in helping more people. Evidence again, that our services are more necessary now than they have been and will continue to be more necessary going forward. Overall, we deal with individuals in a very difficult time, a very sensitive time, yet we have a very high customer satisfaction rating. That's reflective of the fact that we deal with individuals with a solutions-oriented mindset in a very empathetic fashion. ultimately dealing with people who are in a very difficult situation, we offer solutions and we help them extract themselves from that. And that's reflected in their satisfaction. And we do that at scale. And this is the headline of this page. I failed to mention at the beginning is something I stole from my partner, Annette Koumlin, who in the Capital Markets Day called what we do on an operational basis, empathy at scale. And that is actually very, very appropriate. We do this to many people. across a lot of collections we help a lot of people and in the process collect them for our for our clients and this is now increasing this level of impact i mean we're not an industrial company although the denmark example did have an environmental benefit which we're going to continue to highlight our real impact from a societal perspective the s and esg is this is helping individuals become debt free and external uh external institutions are starting to recognize that and you see on the right hand side that during the quarter, Nordea improved our ESG rating from BBB to BBB. I think you're going to see more and more recognition of this importance, of this role we play for society in the coming years as we continue to highlight it, as well as the environment worsens and the consumer needs it more than ever. I think these institutions, third-party institutions, are going to increasingly reflect that and give us credit for that. With those comments, I'll hand it over to Michael for the financials.

Thank you, Andreas. And before I dive into the numbers, I would like to walk you through how we plan to report on the cost program from year end 2023 and the new financial disclosure. So please turn to page 14. The chart on the left illustrates what information we will disclose from next quarter. So from left to right, our baseline costs as of Q1 2023 can be divided into three parts, fully addressable costs, costs that are not production related, potentially addressable costs, production costs that are not directly related to our clients and customers, and non-addressable costs, production costs that are directly related to our clients and customers. And to remind everyone, our tactical cost program focused principally on the first part, non-production costs, to safeguard the revenue trajectory with a total savings target in excess of 800 million SAC per annum. But going back to the chart, the first bar in the waterfall will represent savings already visible in the P&L, as well as savings achieved on a rate basis. And the other three bars show factors affecting the underlying space to bridge the actual costs incurred on a rolling 12-month basis. These items include changes in volume, cost inflation, such as, for example, increases in salaries, and other changes, such as the impact of foreign exchange movements. We will start sharing this disclosure from next quarter as we expect to achieve the majority of our cost savings target by the end of this year on a run rate basis. In terms of progress to date, we have achieved run rate savings of circa 300 million, 350 million, which will gradually become visible in the results over the coming quarters. The savings are mainly from reductions in workforce, but also from contract renegotiations and terminations.

Costs to achieve and encourage today total 105 million.

And given the progress of the program during the quarter, we have also provisioned an additional 583 million in Q3.

Turning to page 15.

As briefly mentioned during the capital markets today, in combination with the new segmentation and financial targets, we are now also updating our financial disclosure. Our new reporting structure is fully aligned with the updated segmentation and strategy. with reporting focused on the two businesses, servicing and investing, as well as the four regions, northern, middle, and southern Europe, plus tactical markets. Our new reporting structure is transparent. The new reporting format gives the reader a much improved view on underlying trends and drivers, cost developments and profitability, and across the businesses and geographies. We have tried to make our reporting structure easy to use. We now have a matrix format where you can add across the businesses to give you the group's total performance with costs fully allocated down to the EBIT level. We have also implemented the most recent technical accounting guidance. For example, you will now find gains and losses on portfolio investments below the income line. But now moving on to our Q3 performance numbers, so please turn to page 16. The underlying trend of growing income continues for the third consecutive quarter. Q3 2023 adjusted income was 4.96 billion, up 9 percent compared to the same quarter last year. On the other hand, adjusted EBIT is down 13 percent, emphasizing the relevance of our cost program with savings expected to become visible in the 2024 results. The adjusted cost base, excluding items affecting comparability, has increased 15 percent to 3.6 billion in the quarter. About two-thirds of this increase is driven by effects movements, with inflation and the increased cost base from M&A activities also contributing compared to last year. Adjusted net financials and tax came in at 1.1 billion, 84% from last year, which reflects higher interest rates on gross debt, which currently stands at circa 5.5%, and an increase in the absolute level of debt by circa 5 billion. The leverage ratio decreased by 0.2 times in the quarter to 4.4 times, mainly driven by the inclusion of higher real estate and favorable FX movements. Turning to page 17. In servicing, we had positive income growth from M&A and FX movements. However, the margin remains under pressure due to the more challenging collection and cost environment we're currently experiencing. External income, grew by 14%, driven by M&A and FX, with a positive contribution from all regions other than Northern Europe. The bottom line for the servicing business is clearly under pressure, and I cannot emphasize enough our focus on improving the margins through the cost program, as well as the more fundamental improvements to operating efficiency that we produce. presented at the capital market today, which also underlines our targets to improve the servicing adjusted EBIT margin to more than 25% by the end of 2026. In terms of numbers, adjusted EBIT is down 25%, and the adjusted EBIT margin in the quarter is down 6 percentage points. On a positive note, This quarter was the most successful in the industry's history when it comes to new signings, with ACV of 594 million added, including the Transnational Contract with Building Center in Spain. Total AUM is also up 12% compared to last year. I'm now looking at page 18 in our investing business. Cash collections continue to be resilient, and we have started to extract value from the back book, as discussed with the capital markets today. Cash income and cash EBITDA increased 8% and 13% respectively, while adjusted EBITDA slashed compared to the same quarter last year. Collection performance in the quarter came in at 100% versus active . And we delivered a stable ROI of 14%. In the quarter, we made new portfolio investments of $530 million, in line with the communicated significant reduction in investment . These investments came at an unlevered underwriting IRR of 18%.

Next, cash extraction.

Cash EBITDA less new investments was $2.25 billion for the quarter.

Page 19.

In the top left corner, you will see the net debt development. Cash flow is offset by capital deployed this quarter. Capital deployed includes investing in portfolios and M&A activities, including the closing of the IRA real estate acquisition in Spain. Q3 net debt also benefited from favorable FX movements. The return gap between unlevered underwriting IRs and cost of funds remains just below three times. Also, as stated at the Capital Markets Day, our termed-out liability structure together with our cash flow generation and the other measures introduced at the CMD make us comfortable about our near-term maturities. Finally, turning to page 20. Here we have our new medium-term financial targets, and this is how we will follow up on our progress going forward. Even though we only announced the targets a couple of weeks ago, here is the development. External servicing growth is 13% based on the annualized growth rate from Q2 2023. Servicing adjusted EBIT margin is at 17%. Our proprietary investment book, excluding revaluations, has decreased to 39 billion, and the reported pro forma leverage ratio is 4.4 times. And with that, I hand it back to you, Andres, for some final remarks.

Good morning, everyone. Apologies for the technical difficulties. I hope you all can hear me now. This is Anders Rubio. I wanted to just make on page 22 some final comments, and then we're going to open it up for Q&A. And apologies again for the technical glitches. But ultimately, we look at this page on page 22 as what we measure ourselves against over the near term in terms of our tactical measures to de-risk and to reduce leverage. but ultimately the same time focus on long-term development of the company to grow profit and to create the leading servicer and asset manager. I think as you saw in particular on the last page in Michael's session, we've made some modest progress, but we are at the very beginning of a multi-year journey, which we believe we're completely on the right track to achieve a significant benefit for all our stakeholders, for our clients, continue to deliver for them, continue to help customers, in the process improve and drive our revenue. Cost reductions are going to then lead to disproportionate profit, and that combined with deleveraging is going to allow us to deliver for our shareholders and our bondholders. So with that, I'll conclude and open it up for questions.

And again, apologies for the technical glitches.

If you wish to ask a question, please dial star 5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial star 5 again on your telephone keypad. The next question comes from Jacob Hesovic from SEB. Please go ahead.

Good morning, everyone. I have a few questions, but I will try to limit myself to three. First of all, can you help us with central cost?

I was wondering how much of the $1,084 million is related

to the cost program and how much you're expecting this row to decrease going forward with the cost program in effect from next year. And also how large part of that IAC of 653 million is related to the cost program.

Michael, would you like to address that? All right.

Well, I guess we don't have Michael. Jakob, good morning. I hope you can hear me.

Sorry, can you hear me now?

Yes, Michael. Go ahead, please.

Okay. So, sorry about that. We had to juggle a bit given the technical damage. So what I was saying, Jacob, and thank you for the question, is you see that we have IACs of 653 in the central column. And the vast majority of that, 583, is the provision that we took against execution costs or costs to achieve for the program. On top of that, we also have a little bit extra in terms of already incurred cost to achieves. And that goes across servicing and investing. And obviously that is gonna roll off as the program gets executed and gets included into the P&L, given that the cost to achieve is somewhat front loaded. But to give you a sense, the 583 is the provision in the quarter. In total, Outside the provision, we've already incurred 105 million cost to achieve, most of that in Q3. And there is a number of other elements, and this is going into a little bit more detail on the IAC disclosure. So in terms of group restructuring, we obviously have a number of elements outside the program. which are quite small, mainly related to the actions we're taking in Spain and in the UK in terms of bringing our new acquisitions on board and some other activities in terms of restructuring. But the main bulk of it is really all related to the cost program. And then the other IACs that we have are really principally related to IT transformation costs where we are continuing to upgrade the various systems and platforms that we operate in.

And then, Jacob, this is Andres. To answer the more fundamental question as to the breakdown between central and other, across the entire cost reduction program, where will we ultimately land above 800? Roughly speaking, half is in the markets. Roughly speaking, half will be experienced or witnessed in central functions.

All right. Thank you. That's very clear. And if we just move over a few columns to servicing, the EBIT margin is maybe not the best this quarter, but it seems it's really affected by the higher indirect costs. So does that also include anything related to the cost savings program? Or is it anything with M&A costs related to the high acquisitions?

And where do you think the run rate will be going forward?

Michael? Jacob, again, very good question.

As you can see, there's about 118 millions of items affecting comparability. That is to a part or good part related to what we're doing on the cost program and also other activities in terms of making our operations more effective and efficient. So we will see that coming down and obviously our goal is to particularly impact the indirect costs with the activities we are taking and over time also making the direct costs more effective through more digitalization. So I would obviously expect on a relative basis or relative to the volume of income that we have, both of those to come down into 2024, which drives the margin improvement where we've laid out the trajectory to the end of 2026 with our target of more than 25% adjusted EBIT margin.

But I think it's important also to highlight the fact that this cost reduction program is not focused on direct production costs. It's focused on non-production costs, which are common costs and indirect costs. So the vast majority of the program will be felt in those line items in the markets, as well as in central, as I said earlier.

All right, that's very clear. And just the last question, then.

On the seasonality effect that we have in the past, been discussing the strategic market being the most hit, i.e. Southern Europe in the new reporting structure. But it also seems that Northern Europe is underperforming during this quarter as well. Could you give any more call on the decline in EBIT to $277 million from $367 million there?

Michael? Andres, do you want me to take that? Yes, please. We've seen challenges in Northern Europe for a little while. So we see small claims. We see cost pressure. And we also see the environments. But on the flip side of that, we're signing up new clients at good volumes and good margins. And it's also... in many ways, the region that benefits the most, not just from the cost program in terms of adjusting that indirect cost base, but also from all the other actions we're taking around revamping our technological stack and the way we operate. I think it goes back to what Andres said before in terms of the kind of claims we operate there and the level of digitalization in society. I think between the cost program and between changing our operating model, that is one of the areas where over time we can do the most about affecting our margin with these steps.

But I think the other point on that, Jacob, and it's a good question. I mean, the new ACV signings that we talked about take time to come through. All of the new ACVs we highlighted very specifically in the capital markets days coming in at a higher margin than current because we've set up hurdle rates on the servicing side well above our current run rates to make sure that we're improving on the margin front. And our cost program is coming in from now going forward. But our overall costs continue to progress. So I would see these trends as reversing. And they impact different regions differently. There's more flow in the north. It has a structurally lower margin because it deals with lower claims and more industrial claims. So I'm not surprising. These effects that I'm talking about, about real-time ongoing cost increases and then the time to see these new ACVs and the cost programs take effect, have an impact in the north, of course.

I hear what you're saying there, Mr. Rubio, on the ACV signings taking time to come through. But can you give us any timeline on when the new higher margin contracts will be seen in the financials?

Yeah, and you can call me Andres. You don't need to be so formal. ACV, generally speaking, once we sign it, it's a run rate revenue that takes between six and 12 months to get up to speed. So we should be seeing these ACV signings in 24 get up to run rates of the levels that we're talking about and correspondingly, the higher level of margins. So that's what it takes time. Now, remember, We've had a record ACV year. We started signing back in the first quarter, although the third quarter was the best. You will see these coming in in the coming two to four quarters.

All right. Thanks. That's very clear. I'll let my colleagues ask some questions, too. Thank you.

The next question comes from Patrick Bertilius from ABG. Please go ahead.

Thank you. Can you hear me? Yes, please. Thank you, Patrick.

Thank you. Perfect. Yes, a couple of questions from my side. If we start off again, Given the worsening collection performance that we have seen now, how do you assess the write-down risk of your portfolios?

Michael, would you like me to address that, or would you like to take it? Maybe I'll start.

I mean, when we look at our portfolios, we always take the most up-to-date view of our forecasts into account. And I think generally, historically, the level at which we are collecting versus active forecasts has been pretty well correlated with the movements in our revaluations.

Now we call them credit gains and losses.

So if we collect above 100%, we expect a moderate move up. If we collect below, we expect a moderate move down. But I think from what we can see now is that we are collecting just around expectations. And that's also on the back of having had sequential write-ups on our own balance sheet book over the last couple of years. So in terms of looking into what we see in the business now, yes, it's a bit harder to collect. Yes, the larger settlements in the more difficult environment have come down somewhat, but we're still very much collecting on that line that on average has been revalued up quite a bit. So from that perspective and what I can see near term talking to the business, is that we'll continue on that trajectory and we will continue to extract cash as we've done for many periods from the back books that we have. That is also very highly diversified and high quality, just to mention that.

So I'll just give you a more qualitative answer, Patrick. So ultimately, we have the most extensive industrial platform to collect. with the longest history collecting. That is something we fall back on in difficult times, at times we need to collect more. We have an independent organization led by our risk department, which revalues every single portfolio on a continuous basis. It's independent, it's robust. And then we have the inherent stability of our book in that it's incredibly granular, over 20,000 portfolios, and it's also geographically diversified. So all of that makes me comfortable that there are not significant write-downs in the horizon, despite the worsening macro.

I see. Thank you. And another question is in regard to the net financials line. It was a little bit higher than what I had anticipated in the quarter. It seems to be a significantly step up compared to what we've seen in the last quarter. Is this a new level, or are there any one-offs on that particular line that I should be aware of?

Patrick, to my mind, no particular one-offs. I mean, it really is, as I said in my presentation, a combination of the interest rate environment that is dragging up our cost of funds. which is around about 5.5% on an RDM basis. And then, obviously, the overall level of debt, which went up $5 billion, if I compare it to the same quarter a year ago. But, obviously, that is something, with all the measures that we talked about, that the capital market is staying, including a partial disposal of our back book capital, and so forth, debt will come down. So from that perspective, it's really a reflection of the market environment of our funding structure that is mostly fixed rate and turned out, but it has a variable rate component and then the absolute level of gross debt.

Okay. Thank you. And my last question is in regards to you came with new details of how you will segment your different regions. So I try to understand if I look at the EBIT margin in Northern Europe and Middle Europe, and look at the EBIT margin on a rolling 12-month basis, it seems to be trending down significantly more in these regions than in the other two regions. Can you please elaborate and help me understand what is driving this?

Again, Patrick, it's what I said earlier to Jakob's question, which is

The southern markets are stock markets, i.e., there's a stock of unpaid loans or unpaid claims that we're working through. The middle and the north of Europe are more flow. They're smaller ticket on average, and they have structurally slightly lower margins. And then we have the fact that costs continue to increase on an actual basis, but it takes time for the new contract values, which is evenly distributed across the platform. It exists in the north and the middle and the south. And for those revenues to come in at a higher margin and also for the cost program to kick in, which is also distributed proportionately across our regions to come in. And it's more of a timing issue that you're going to see these trends reverse over the coming quarters by virtue of the new business coming in at higher margin and our cost program kicking in. But over the medium term, until those do kick in, not surprisingly, the medium and the north are more susceptible to near-term deterioration.

I think, Andres, just to add a little bit, there's this additional factor, a bit on the fringes, where, obviously, in the middle, we've added the RO-UK platforms. Very happy with that acquisition. But obviously, we've only just started working on the synergies. So on a like-for-like basis, that's also going to obviously help the margins. And the same applies for IR real estate in Spain that we only had on the books for just about a month in the context of Q3. So at the margin, that's also going to help in terms of driving the margin picture as we realize those synergies.

Thank you so much for giving some clarity to that.

Thank you, Patrick.

The next question comes from Lars from Deutsche Bank. Please go ahead.

Good morning, Lars. Good morning, all. I have also a few questions today. First of all, if I look into Q3, I see that the underlying levered free cash flow before disposals, acquisitions, whether that's through cash flow from investing or in the financing segment, It was around 913 million on my number. So, you know, that's obviously a vast improvement driven by the reduction in purchases. The question really relates here to how do you think this will evolve in Q4, right? Because Q4 we know is seasonally a much stronger quarter. It's the strongest for you guys in the year. It's also the smaller cash interest paying quarter. And purchases will be, again, a lot lower, even though I think sequentially they will be up. You only invest it through the cash flow line at least 273 million, it looks, in Q3. So probably you will be around, you know, call it 700 in Q4 to get to a billion run rate roughly, which you have guided to. So can you just comment a bit on that, how we should think about free cash flow in Q4?

Lars, it's a very good question. You're absolutely right. Q3 is usually the strongest quarter in the year. It's the sprint into the year end, for lack of a better expression. I would expect that to happen this year again. Last year, we had a particularly strong one, so I think that's a tough comparison, but I think I do expect Q4 to be the strongest one in this year, relative to the other quarters. From an investing perspective, there is always a bit of a lag between an acquisition getting signed when it goes into the disclosure and when it actually gets paid. The other element that goes into this is obviously the dividends, because we have to pay the second installment in the fourth quarter. In terms of M&A, All we've done, and that's already closed, is a phallus, which has been done a couple of days ago. So from that perspective, I do expect to be cash flow in Q4 to be stronger, but obviously impacted by all these items I've just laid out.

Gotcha. But overall, also fair to assume in line with historical patterns that you will sequentially deliver again, right?

Barring changes to the effects movement, that is clearly our ambition.

What I would be a little bit cautious about, and I'm the cautious CFO here, right, is that obviously we have a very, very strong comparison quarter in cash EBITDA in terms of Q4 of last year. But in terms of the absolute level, obviously that's what we're working towards.

Okay, and then... Moving on maybe to another important building block of this 20 billion of organic and inorganic free cash flow you want to generate over the next two years, 6 billion of it is asset sales, as you said, on the CMD. I think you were quite clear on the CMD itself and said this is something which you try to announce by year-end, early 2024, the latest. You also talked around indications you received in terms of valuation marker relative to book value. So can you maybe just give an update there, you know, six weeks later now after the CMD. Is still everything in line with what you said there or were there any changes to call out?

No, I think we're very comfortable, this is Anders, we're very comfortable with the six billion figure across either back book sales or tactical market exits. And we are still talking about things that are in the range of book value. We are going to be disciplined and selective in what we do. And we're not going to do anything that destroys value. But we're very comfortable with that six billion figure, Lars. And the timing, you asked about the timing as well. Apologies. The timing is the same as I indicated. Sometime in the fourth quarter or first quarter of next year, we should come back to the market with an update.

Perfect, perfect, appreciate that. And then maybe, you know, last but not least, drilling into these segments, if I look into Q4, you know, talking about investing here, all the leading indicators I look into for collection performance, whether that's unemployment rate or credit card delinquencies, all of that seems to be still, you know, in check. And yes, it is normalizing, but, you know, far from levels We have seen even before COVID or, you know, if you want to be using a more brutal comparator in the GFC, obviously very, very different setups. So is it fair to assume that you see a continuation of this collection performance in Q4 around 100% of forecasts?

Yeah, I mean, again, the macro is worsening. You're correct in that certain indicators are not deteriorating as much as you would expect, and certainly not in comparison to the global financial crisis or the sovereign debt crisis that occurred a few years later here in Europe. This crisis is very different. than past crises. This is not an unemployment crisis yet, but it is an income shortage crisis. As I highlighted in my comments, people have jobs, they don't have enough income, and they have increasing costs. And so that leads to a different dynamic, but it is inevitable. Stage two loans are increasing. They're going to inevitably lead to non-performing loans increasing. And we're going to see flows coming in over the coming years into servicing first, and then to provide opportunity for investing. In terms of collectability, it is a difficult environment, but we always aim to, and we're confident that we'll be in and around 100% of active 4%.

Gotcha. Gotcha. And then on the servicing side, how should we think about Q4? Obviously, there's the seasonality. Revenue-wise, I think income-wise, you were in line with consensus, if I'm not mistaken, even in Q3. So it really is, again, more of a mixed problem, maybe, or cost-related, clearly. How can we think about that in Q4, given the seasonality will help, obviously, with the operating leverage in that segment? will we see a continuation of the trends in terms of margin loss or margin decline year over year?

I think the fourth quarter is traditionally the case is going to be a strong quarter. Inherently, clients also want to deal with things before the end of the year. They want to put things in place before the end of the year, into next year, et cetera. That benefits us traditionally. We have, as Michael's indicated a couple of times, a very difficult comparable with last year where a lot of things that were scheduled on some clear counterparties for the beginning of this year were put into the fourth quarter of last year by them. And there was a lot of front loading of activity. So that makes it a difficult comparable. We still expect our servicing business to continue to benefit. And we expect some impact, although it's only on a run rate basis. And the numbers we quote on our cost program, our annual figures, and we only have one left quarter, but we do have that factor working in favor of a more stabilizing and improving margin. But we think the revenue will be stronger, and we think our margin, some of these cost effects will be reflected in the margin. So we hope that our margin is stable to slightly better.

Okay. And on an organic basis, if I compare it on that metric, will that be more impacted due to what you said, that obviously it was a very tough comp? Or can we expect, you know, a similar kind of number there? Minus 6%, I think it was in Q3, right?

I apologize, but I don't follow the question. Maybe, Michael, you did.

No, no, no. Look, it's a very good question. And obviously into the end of last year, as Andres said, we had some specific items that were fairly large that from an expectation perspective could have happened either last year or earlier this year. The vast majority of them happened last year, so that makes the comparison tough. Q4, obviously, I'm not going to comment on FX. We'll see where that moves. The other element is we'll see more of IR real estate coming into the numbers. So that's going to help drive the top line as well. Again, we haven't started extracting the synergies yet. That's going to very much come into next year. And then the other element is sort of the purely organic comparison. And again, we try to drive it as hard as we can, but we have a tough comparator. In terms of The cost picture, obviously, it's a challenging one. It's developing. We're very much counter-steering with what we're doing in the cost savings program, and that's starting to come into the P&L, but it's really going to become visible into the 2024 results.

OK.

The next question comes from from Carnegie. Please go ahead.

Good morning. Thanks for taking the questions. It will be a few follow-ups and clarification questions So just if we start on the organic growth or decline of 6% on the servicing, if we just look on slide number eight and the ACVs, I mean, if we look on a rolling column on spaces where we are currently compared to one year ago, even if it takes some time to ramp up new contracts, How come we haven't started to see more of that on the organic growth by now?

Because it's not the first quarter you're seeing strong success on new contract signings.

Again, You know, the, you're right, Ermin, on page eight, we've had a strong pipeline. We've had accelerating, on the bottom half, ACB sign things.

These things take six to 12 months to incorporate.

We had a very good Q1 2022, which is one of the reasons that we're benefiting now from the growth that we're experiencing. And as you can see, Q1, Q2, and Q3 in particular this year are meaningfully above anything in recent history. So that's what I'm talking about in terms of acceleration. We are seeing an improvement in servicing top-line growth, and we expect that to accelerate over the coming quarters.

Just maybe something to add, and this goes back to the capital markets day. I think George at the time showed a slide where – he showed not just the progression in ACV signings, but also the progression in terms of how we've been able to limit churn. So last year we had higher churn, and obviously those effects are sort of phasing into this year. And you see that a little bit on the margin, whereas this year we've also really been able to limit churn. So on a net basis, that gives us a much better transmission of those ACV signings into into next year, I would argue.

Let's put it like this. When do you expect to be able to post positive organic growth in servicing?

I would hope certainly into next year.

Absolutely.

I mean, into... I think this is very much a changeover year, as we've said before. And it's also a change in focus as we've laid out at the Capital Markets Day in terms of where the principal attention is of the management is, and that's very much in driving that servicing business, extracting the cash from the back book, and decreasing risk and deleveraging, right?

That's fair, thanks. And then just to understand correctly, you're basically saying that you would expect cash EBITDA to be down year-on-year in Q4, even including the M&A contribution and benefit of the cost program?

What we're saying is in an organic like for like basis we have a very strong fourth quarter last year which given the worsening environment in general is going to be challenging to match. And then we have our M&A which we're integrating and we are still integrating and that will have some impact. So ultimately on a like for like basis I don't believe we're going to hit the same top line growth we had last fourth quarter.

Got it. But it's not necessarily down here on here in reported numbers when we include the inorganic parts. But again, that's the quarter.

We'll see when we get there. But my point here is on a like-for-like basis, organically, last fourth quarter was significantly stronger than I anticipate given the worsening environment given our visibility today.

will be this quarter, although it will be a seasonally strong quarter.

Perfect.

Thanks. And then just on the one-offs, I think you tried to be quite clear on it in the initial start of the Q&A, but just simplifying it for me, how much of the cost program budget has now been taken? What is left? And what, if anything, of the other one-offs, like the IT transformation and other group restructuring, should we expect to recur in Q4 and potentially in Q1?

That's a good question.

I take that one. In terms of the budget per se, as we said before, the total cost to achieve, we expect to be in the range of 0.75 to 1.25 times the recurring benefits. So obviously, we've said we want to achieve more than $800 million, but I would argue that that cost to achieve will be linked to the final number that we actually managed to achieve. And we're trying to drive that up each and every single day.

I think it's very important for us that we do as much as we can.

can in this tactical cost program to really make sure that we compensate the underlying picture as much as possible and also give us the best possible ramp into all the other measures, including getting better operationally, becoming more digital, et cetera, that we've laid out at the capital markets. Now, in terms of looking at this, and we've tried to be as clear as possible in our sort of updated and more detailed IAC disclosure, so we have a provision of $583 million in the quarter. That comes out of group restructuring IACs of 681. They also include some of the 150 already incurred on the program. On top of that, in that call at 98 delta, you also have a little bit of IACs relating to the activities around the UK, where we've bought the Arrow UK platforms, and we're obviously working very hard on integrating them the best possible way, as well as extracting synergies. And then there is very much marginal items around some of the changes we're making, for example, in finance, where we are bringing in a newer ERP system. Now, in terms of other IACs, we have the bigger item is IT transformational costs. That's a total of $74 million in the quarter. And that really relates to all the activities that we've outlawed that Annetta has outlined at the capital market stake. So in terms of the IT transformational costs, those I would expect to continue. In terms of group restructuring costs, or IACs, the vast majority of those, I would expect to phase out together with the cost program. But again, I think in terms of the next one or two quarters, we may see a little bit more as we deliver more savings. And obviously, as I've laid out, we'll have very detailed reporting on what we already see in the P&L and what we've achieved on a run rate basis and how that ties to the overall cost progression. And obviously then the final accounting on the cost to achieve needs to be in line with the savings that we deliver. And we very much expect that to be the case.

Excellent. Anything else? I mean, we have a long list. We're happy to catch up separately as well, but we have a long list of people. That's all. Thank you very much. Well, thank you, Armin. Have a good day. Thanks.

The next question comes from Angelique Barattari from JP Morgan. Please go ahead.

Good morning, and thanks for taking my questions. First of all, you may have already explained that, but I just want to double check.

Within the external income in servicing of 2,785 million SEK, how much is coming from ARO and HAYA in Q3?

Second question, in terms of the annual contract value, is that reflective of new clients signing contracts with you, or could that also include existing clients who are perhaps updating or rolling over their contracts? Thank you.

I'll start with the first one, and I'll leave the second one to... address. So on the first one, if you go to our presentation on slide 17, where we talk about servicing, we split out organic, acquired, and FX-related elements of the external income growth. And the acquired element is 10%. And that very much reflects a quarter of the Our UK platforms, and about a month of our real estate.

The ACV that you see on page 8 on the bottom is new clients as well as new contracts signed with existing clients. It's all new business that will translate into incremental new revenue over the coming periods.

Okay, I just wanted to be clear about that for the prior caller.

Go ahead, Mikel, please.

So I want to question on the cash flow statement. There is an outflow from repayment of borrowings of $10.5 billion

of which I think 3 billion comes from the refinancing of the bonds and around 2.5 comes from the Euro RCF repayment. What does the other 5 billion relate to? Can you help me tie that?

Mika, why don't we take the details offline? Then we can sort of talk you through the exact breakdown.

Okay, and a second question, which is kind of related, your liquidity declined from $13 million to $9 million, like quarter on quarter. Can you explain what are the drivers of this, which is kind of related to the other question, but it would be good to understand what happened there.

No, happy to. I think in terms of the liquidity, obviously we used some of that in terms of all the various actions we took, Also, in terms of the liquidity as we define it in Q3, we've not taken the backup RCF into account. That's sort of an other delta, which is around about 2 billion SEC of the difference.

Okay. So, like for like would be 11 billion compared to 13 billion. Okay. Perfect. Okay. Okay, that makes sense. Where would you expect liquidity to trend in the coming quarters? I mean, do you expect more cash generation, organic cash generation, etc.? But given that we had those outflows in this quarter from the borrowing, repayment, etc., do you expect that to continue in the next few quarters? Or should liquidity actually increase?

From my perspective, I think there's an answer of two halves. The first one is if I look into the next quarter, I see it as relatively flat because obviously we have cash generation, but we also have the dividends. We have some investments. We're paying our fellows. There is going to be some actual cash out from the cost savings program in terms of all the actions we are taking. So I would expect that to be relatively flat to up. I think going forward, that very much then depends on how we progress and execute on the measures we talked about at Capital Markets Day in terms of, for example, partial I think the second half to the answer is in the past we've obviously kept a very, very high liquidity buffer also because we were an investor that put up to a billion euros into portfolios and other activities a year.

So I think as we

move much more towards being a servicer and have a much more subdued investing trajectory, I think the overall liquidity requirements compared to the levels that we've seen in the past comes down somewhat, given the change in strategy and business model effectively.

That makes sense. And that would imply that you use your cash to repay your maturities, given that you are not paying dividends. You plan to deliver, right?

Absolutely. I think what we tried to convey at the Capital Markets Day, putting it in a nutshell, is

is that we use all the cash that we generate to really bring down the liability side of the balance sheet over the next two years. That's really the principal focus.

So it's absolute deleveraging and then also in conjunction with that ratio leveraging as we focus and grow our servicing business and then improve profitability with the margin trajectory that we've laid out at the Capital Markets Day over the coming years. Thank you.

I want to be very clear on that also, Mikel, that, you know, we had the recent acquisitions as well as the dividend payment that we had to finish this year. Obviously, we're not going to pay a dividend next year. That cash allocation is going to go towards deleveraging, and there's no meaningful M&A on the horizon. So all of our organic cash flow, as well as any tactically generated cash flows, as I mentioned earlier, are going to go to delever.

Perfect. Very clear. Thank you.

Thank you.

The next question comes from Wolfgang Felix from Soria. Please go ahead.

Yes, hello. Thank you very much. I also wanted to look forward a little bit towards next year, summer 24. If I'm not mistaken, you have some bonds that want to be refinanced or at least repaid around that time. And I believe you still want to or still need to take care of your RCF by that time. And I was wondering what the targets were around that. I understand sort of differentiating between maybe absolute versus ratio to leveraging. if you're selling part of your back book and if you're growing overall your collections or trying to, I can see how that raises ultimately the churn of your back book or how you're eating your cake faster, if you will. But I don't know if you think that between now and then you'll be managing to deliver from an LTV perspective in any way. I was wondering if you, if you had any ideas around that and ultimately if your target is to maybe not refi the summer 24 maturities and with what kind of level of drawing of RCF you think you can deal around that time?

I mean, I will address it conceptually and then Michael will add more specifics around the numbers for you, Wolfgang. But we have an objective. on a leverage ratio basis to get down to 3.5 or lower by the end of 25 into 26. That objective remains the same, to be clear. That's cash EBITDA, is it? That is, yes, cash EBITDA, correct. That's a leverage ratio basis. So right now we're at 4.4, we were at 4.6. Because of the fourth quarter closing Othellos and the dividend and other things, we don't suspect that it's going to meaningfully drop in the fourth quarter. In fact, it will probably stay flat slightly up. But into next year, you're going to see the deleveraging hit. With our organic cash flow, with the tactical measures, which we do have to complete, we have all of the maturities for 24 and 25. That doesn't mean we're not going to be in the market. We're going to selectively be in the market if we can.

And obviously the market, you know, recently has softened a little bit or opened up a little bit more to certain issues.

We will see what happens when we get closer and we will dynamically manage that. But ultimately, we intend to not depend on market participation and market access over the next two years.

But, Michael, I'm sure you have more specifics as it relates to how the RCF interplays with our bond, venture securities, and the like. No, absolutely.

Look, it's a very good question. In terms of what we're going to do in terms of market activity, obviously that depends on the environment. I think the general point that I also tried to convey at the Capital Markets Day is in the past, being an investing company,

we effectively had a need to refinance a billion euros more a year, right?

With the changes that we're making, that drops to half of that or less. And obviously, over the next 24 months, as Andres said,

with the measures we are taking, we are covering ourselves.

In terms of next year, my expectation would be that we address the Eurobonds that is coming in the middle of the year out of organic cash flow generation. as well as in the context or partially in the context of the back book transaction we've talked about. And obviously that back book transaction then also supports to start addressing either more of the 25s or the RCF. And we'll obviously manage that dynamically as we progress through 2024. But I think the key message is really also what we tried to convey at the Capital Markets Day, that in terms of the generation that we expect organically and what we are planning to do, what we have in flight to do from actions on our back book, we really cover an amount equivalent to the maturities we have into 2024 and 2025.

Okay, I understand. One more comment and then I'll get out of the line. We're using Zoom phones, and the operator you're using has always issues with that. We get tossed out all the time. We can't ask questions. I'm calling you from my mobile now. If you can possibly look at exchanging the operator next time, that would be wonderful. But that's it.

Thank you. Thank you, Wolfgang, and sorry for the technical difficulties. Obviously, today has not been the smoothest call, technically.

The next question comes from Christopher Naseby from Cheneverry. Please go ahead.

Thank you very much for today's presentation. My question has already been answered, so we can move on to the next question.

All right. Thank you.

The next question comes from Sabahi from Spread Research. Please go ahead.

Yes, good morning, guys. I just had one question regarding the organic numbers in terms of cash income and EBITDA. When extracting the back book sale that you've made, so I understand that the ESV has dropped sequentially, declined from 86 billion to 81, and that the book value also decreased sequentially. But my question relates to what is accounted for in Q3 and numbers regarding the earlier sales of ERC because obviously you know that is a key question when you look at lower numbers when they report the numbers I was just wondering how much you have in terms of cash income and habitat and organic basis excluding these cash extraction. Thank you.

Yeah, I mean, and Michael can fill in with more details, but we have not done a back book sale yet, so none of the numbers you've seen in the third quarter or prior have any asset sales. They only have ongoing collections in terms of the movement of liquidating of the book.

Net of the lower investment, we've extracted the cash during the third quarter.

So we had organic EBITDA of 2.8 minus 0.5. The net 2.3 is the extraction of cash. There has been no asset sales in the third quarter. I want to be clear about that. And if that's not clear, that's our fault for not being clear previously.

Thank you.

Sorry, Andres, very, very minimal correction. We've closed two countries out of the Baltics that we've communicated before we're exiting. So there is a minimal impact. But again, those numbers, we're slow. And they're very, very small.

Those are de minimis in the context of the 2.8 versus the 2.5. But my fundamental point still stands.

Okay, thank you. Thank you, Sabahin.

The next question comes from Harris Papadopoulos from Bank of America. Please go ahead.

Hello, hi. Can you hear me? Yes.

Good morning, Harris.

Good morning. Just a question on my side. You might have answered the first one, actually, but I just wanted to confirm. So a large part of the ICF has been drawn now, and this actually resulted to a notch on the unsecured by one of the agencies. So I was wondering, when should we expect a major repayment there?

Just one sort of one point of debate or correction. So I think you're referring to Moody's. It's actually not related to the actual drawings. Their model, once you get notched, assumes a higher utilization, which then subordinates the senior. So it's not related to the actual drawing. It's related to the Moody's rating methodology. On the other hand, you're right. We have a higher drawing. Obviously, we haven't been that active in the markets, but we also... call it at an inflection point. So you can see that during the first half, we still invested at a higher pace, which was largely driven by transactions we'd already locked in towards the end of last year. And now we're seeing those investments coming down. So it's really that changeover and all the actions we're taking in terms of deleveraging and de-risking on an absolute basis. that will also be part of addressing the RCF.

Okay, thank you. And then secondly, I think you said that apart from the back book and the tactical markets specifically, you're also evaluating other asset sales. What would these assets be?

We are only evaluating the potential exit of those three markets we indicated previously, as well as a potential sale of a piece of our back book to be determined to what size. There's nothing else on the horizon.

Okay, thanks a lot.

The next question comes from Ricard Hellman from Nordea. Please go ahead.

Hi, guys. Can you hear me now?

Ricard, are you there?

Yeah, I'm here. Can you hear me?

Yes, we can hear you. Good morning.

Yeah, great. Good morning. So, yes, some short questions to start with. I didn't find the replenishment capex in your report.

Is that something you have ceased with reporting, or can you give us that?

If I may, we've ceased reporting that because we've revamped our disclosure and aligned it with the segmentation and strategy that we currently work under. And also, I think the other point is, in terms of replenishment of CapEx, the point historically was very much about a growing investing franchise, whereas now it's very much about cash extraction. And we will decrease that book. In fact, we have an explicit target on decreasing that book. But to give you a sense, the RTM money on money multiple in Q3 2023 was 2.29, so around about 2.3. And on the investing side, the cash collections, if you give me a second, they were around about $3.5 billion.

So this gives you a sense of what the replenishment capex and quarter would have been if you divide one by the other.

Thank you. From my point of view, I use it a lot, but that's just my personal view on the replenishment. Also, a quick question around your cash flow. You have a pretty large increase in repayment of leases going from last year to 318. Is that something that relates to acquisitions? Will it remain going forward?

It partially does. Again, what I would recommend is we can talk you through in detail offline. Sure.

Okay, my final question. If you can give some color or at least some trend on the collection performance within the quarter, how it has developed?

From my perspective, and Andreas, please add, but from my perspective, it's been pretty consistent. It's been at 100% very consistently throughout the quarter, and it's very much in line with us having adjusted the book value upwards over the last couple of quarters when we saw that kind of bounce coming out of COVID where disposable incomes and savings balances were actually quite high. And now as we are in a more challenging environment, we are very much performing in line with that active forecast that is reflective of the ERC as stated.

Okay. And there are no markets that stand out in any direction either?

I mean, we don't comment specifically in collections by market. Every market is different. I've often been quoted as telling people that we act across 20 countries, and obviously there are countries that are in more difficult situations than others, and that this is the weighted average of that. And obviously there are some above and there are some slightly below, but I think it's been, as Michael correctly said, very consistent. And I mean, this could become a very... Book value, to be clear.

Yeah. This could become a very long answer, but obviously that performance spits out over 20,000 portfolios. So you have a very, very strong diversification effect. So across such a large number of portfolios, you always have some that are over and some that are under. But in aggregate, we're at or above, if you look at the last couple of years, the expectation that's at any given point in time embedded in the ERC, which is effectively our active forecast as it unwinds.

Excellent. Thank you. Thank you, Ricardo. I believe that's our last question, but we'll let the operator confirm.

There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.

Excellent.

Well, thank you, everyone, for listening, for participating, for putting up with the technical glitches and for your questions. We look forward to follow-up discussions with you directly in separate one-on-ones or group sessions. And we're available for anything you need. So please reach out. Thank you and have a good day.