Intrum AB (publ)

And welcome to the presentation regarding the results for the fourth quarter of December, fourth quarter ended December 2023. I'm here in Stockholm with Anders Blomqvist, our interim CFO who came in in December, and also Emil Fokkesson, who is the head of the CFO office and investor relations director. Before I get into the details of the presentation, I just wanted to give a little bit of an overview from my perspective as to the quarter. I think that the fourth quarter and also the conclusion of 23 was a very strong end to what was a challenging and transitory year, despite a very difficult comparison with a very strong 22 and particularly fourth quarter 22, and also the overall economic backdrop and difficult in collectability, which I'll get into more detail later in the fourth quarter. we had a very positive result and it shows the strength and resilience of our business and also the drivers of our business. At the top line, we've had growth driven by acquisitions, but also organic growth in the middle and north of Europe and our profitability figures of adjusted EBIT and EBITDA are essentially flat, only slightly down despite the significant headwinds. Just as importantly, We entered with significant momentum in combating our two main headwinds. Inflation continues to impact our costs. But during the quarter, we hit 800 million of run rate on our cost reduction program. And we will expand upon that. And also on deleveraging, despite the fact that we paid the final installment of the dividend and we completed an acquisition, we were still able to reduce our net leverage and continue on the path of deleveraging. So if we can go to page Three, please, the just highlights. So on the top left, you can see that we continue to perform on all our key strategic initiatives. In 23, we shifted a significant focus and coordinated focus on the commercial development of servicing. That resulted in an all-time high in the annual contract value of new business. We hit the $800 million on a run rate basis I've already mentioned on the cost base. And we've also rolled out client profitability tool to three new markets during the quarter, all of which are important initiatives to continue to add to our profitability and to our top line. The quarter on the top right, as I said, top line growth. And right now, I think it's a wonderful environment for our top line. There's going to be increased demand for our services going forward, and the quarter certainly demonstrated that. It was driven by M&A, but it's also driven by organic growth in the middle and north of Europe. The cash EBITDA and EBIT in line with what was already a strong Q422, so very good comp despite the more difficult environment. On the investing side, our strategies to extract cash, we extracted $5.4 billion from investing, and also our leverage ratio remained stable. Specifically on the businesses in the bottom left, you get into a little bit more of a detailed picture as to the trends as well as the challenges. On servicing, our assets under management are growing substantially, not surprisingly. Our ACV signings are already high or hit a record for the year, but also we're significantly up quarter on quarter. Our external income, which is our client service business, is up significantly, driven by M&A primarily. And our servicing adjusted EBIT is down. And that's where we have one of our prime challenges, which is inflation continues to increase our costs. That manifests itself in our servicing business, which is the operational element of our business. And we need to continue to combat that. In the quarter, we had a very strong 23% margin, but last year was 27. For the year, we had 16, but last year was 21. This is one of our headwinds, which we are combating head on. On investing, collections performance, not surprisingly, is down. at 103 versus last year in 111. That's just a reflection of the environment. It is more difficult to collect on these claims today than it was a year ago. But despite that collections headwind, and despite the fact that we scaled back investments to extract cash and de-lever as of the middle of the year, cash income and cash EBITDA are incredibly resilient and perform very, very well. And our investments, albeit at a lower level of half a billion for the quarter, consistent with our 2 billion annual run rate, was at an all-time high IRR of 19%. And then in the bottom right, we continue to deliver on everything we're telling the market we're going to do over the near term. We want to reduce leverage and de-risk. We have lowered our investments down to the $2 billion level, as I mentioned. We have exited five markets and are evaluating the additional exit of three other markets. We announced earlier this week, and I'm sure there's going to be questions later on, on the sale of a very large portion of our back book to raise liquidity, to meet our maturities, and to cement our relationship with an already important client in the form of servers. And we are hitting on our cost reduction, but we're not fully there yet. We will continue to add to that $800 million, fully realize it, as well as add to it during 24. Next page, please. The environment continues to be favorable for our business in that our clients are going to continue to need us. Not surprising from top down, all of the support programs that came in during the pandemic are starting to effectively come due. There is a general view in the media and amongst people in the financial system that a very large portion of that $1 trillion is going to default over the near term. That's going to put pressure on not only collecting against those assets, but collecting on other assets from the same individuals who are defaulting. The UK continues to be a jurisdiction which is almost, as I say often, leading into the next crisis, whereas every market operates at their own speed. But the UK in particular, consistent with our published European consumer payment report in November, consumers are having a very difficult time with a recent report that 56% of UK consumers ran out of money as of the 20th in this month. A very significant pressure on the consumer, which has to manifest itself in additional credit, additional wage rises, which adds to the inflation, which will eventually turn into and many in the financial system of the UK believe that we're going to see an increase in consumer credit defaults in the coming years on par with the great financial crisis. And then you overlay on all of this the fact that our industry is becoming more regulated, which, as I've said in other public forums, is a positive for us. We are an established large player. We've been in this business for over 100 years in most of our traditional markets. We have a very large investment in compliance and legal. What that means is that in a more heightened regulatory environment, companies are going to turn to us more than others, in my opinion. Next page. Let's talk about servicing. Here you see the ACV year over year, 50% up on a gross basis. When you look at churn, obviously what we primarily focus on, you see it well above 200%. So a great year on the commercial side. And this is a function of many things. It's a function of putting George George Acopolis as the head of servicing as of April, which never existed before. It's a function of focusing on underwriting at higher margins, which I'll talk about later on. It's a focus on every single member of our platform going out there and find new business. And we had a record year and a record quarter. And we're going to continue that into 24. Commensurate with that on the bottom and also the general environment where our clients need us more than ever. Our assets under management are almost at 2.1 trillion. And you can see the actual signed quarter by quarter, actual signed business is significantly growing. We've had some key commercial wins. Two large wins within the financial sector in the UK, adding to that business, which now has a much larger base as a result of the Arrow acquisition, and also a key commercial win with Elias ASF and TF Bank in Norway. So we continue to win both in individual situations, also overall. Next page. Continuing with servicing, here you see the commensurate with what I just described. The revenue picture is quite robust, and I believe that that demand for our services and the revenue impact of that will continue going forward here you see clearly the 21 versus 16 which i mentioned earlier that is the challenge we have a headwind in terms of cost we are trying to address it that impact is already being seen in the fourth quarter and will be seen even further in 24. on the bottom you see an important point about our servicing business broken up into our three main regions north middle and europe organic growth was positive and very meaningful in the middle of europe and positive in the north of europe that's a reversal of prior trends And it was negative in Southern Europe, but that is a function of both the environment as well as our Southern European businesses, our very large businesses that manage very large stock, which doesn't renew as much, which inevitably is going to have some revenue headwind as we go through the cycle. But what you can see here to margin, you can see on the gray, you can see the SLE margins for 23. And you can see in the more turquoise or blue, the SLE margins of the new business signed in 23. In North and Middle Europe, more than double. And in Southern Europe, maintaining the very high margin, which is the reason that we believe that not only our tactical cost reduction measures, plus this fundamental just underwriting and costing out our new business in servicing better and the focus on that business and the commercial results will all translate into a reversal of that margin trend starting in 24 and ultimately hitting our objective to hit 25% by 2026 next page shifting over to investing this business is incredibly resilient you can see that we extracted 5.4 billion in the last 12 months and versus an average of 2.7 over the last three years and We can see a lower rate of investments here. And what this tells you is that it tells you that we are very good at collecting. It tells you that we have a very high quality book and that our industrial, the combination of our industrial capability to collect and to extract cash from our book is combined with our ownership of these assets yields this kind of cash extraction. But next, on the next page, you see it even more evident, which is the top line, or sorry, the gross cash collections continue to increase. against what is a decreasing book. And so again, it's resilient, it's a high quality book, and our industrial capability to apply resources to extract collections from a very large underlying nominal asset base continues to bear fruit. You can see down below the headwinds we have on collectability. It is the lowest at 103 versus any one of the last three fourth quarters, so 112, 113, and 111 down to 103. Our underlying forecasts are also showing signs of not increasing by as much and actually moderating in some markets. So overall, it is a more difficult time to collect. But what I gain comfort on is the fact that that is 103, despite it's probably the most difficult quarter to collect we've had in many, many quarters. When you look at our 20-year history or 19-year history, we've only dropped below 100 once. So I think this is very resilient and also is reflective of our capabilities as an industrial collector, and it manifests itself in the performance index as well as the aggregate collections. Next page, this is one of my favorite pages. You've often heard me say, you know, you have to have a purpose. You have to have a why, why we get up in the morning, why we work hard collectively. And that first point there is one of the key drivers of our motivation, which is we helped in the last 12 months over 5 million individuals become debt-free with us and reintegrate into society. That shows how important we are to the financial system. That shows how much of an impact and how important we are to society as a whole. Consistent with a difficult environment, consistent with a large-scale activity, we continue to get very positive scores from our customers as well as our clients, and we continue to grow our activity where we collected $105 billion during the last 12 months, with 14 of that being from our own portfolios. Transitioning to page 10, we did announce a very important milestone a couple days ago. We announced a very significant back book sale to servers. This is a large transaction. It is a financial transaction which raises liquidity. and foregoes future profit on these assets to raise that liquidity to make sure that we can address all of our maturities in 2024 and 2025. Combined with this liquidity and our organic cash flow, we can meet all of them without relying on market access. That's a very important step in de-risking our near-term financial profile. The portfolio, the transaction specifically is a broad-based transaction in large, $11.5 billion across 13 jurisdictions, 10,000 portfolios, nominal value of $382 billion. The transaction price is 98. Again, a very important validation of our curves and our book values. We retain the servicing. Very big statement of confidence on the part of Cerberus, who already has a very large book of business with us, to add to that significantly and allow us to retain the servicing for at least five years. And bottom right, we're using all the proceeds to reduce leverage. Pro forma for that, we're going to get down to, this is a Q3 pro forma, but if you pro forma our Q4 number, we're down to $49.1 billion. You have to go back to 2020, the last time we had that lower level of debt at a year end. The leverage ratio, and I'll talk about this a little bit later on when I talk about targets, but the leverage ratio is slightly negatively impacted because we are foregoing profit as well as gaining liquidity. The target of three and a half has slipped from year end 25 into 26. There have been some reports that it switched to the end of 26. That's not correct. It slipped into 26. We are taking other active measures as obviously we are a management team and this is a dynamic equation and we have two years until that time frame at the end of 25. We are taking other measures to regain profitability and to bring that three and a half target back into hopefully year end 2025. The benefits of the transaction are manifold on page 11. It raises liquidity, accelerates deleveraging, reduces risk. It validates our curves as well as our book values on a very significant and representative portion of our investment portfolio. It cements our relationship with Service, who was already a top five client, has now cemented their position as one of our top clients. And very importantly, they're a different type of client than others. They are a financial client, not a bank client. They're a financial fund. And they are going to grow. They're one of the top MPL investors. So not only do we have a large book of business today, but as their activities grow, we can grow with them. This is an acceleration of our strategy, taking $11.5 billion of assets that sit in one pocket, which is our investment portfolio where we 100% own it and 100% fund it, over to the right pocket, which is our third-party servicing pocket, gaining liquidity but also gaining a very important growth to our external servicing perimeter. And it also provides a foundation for the next step. And I'm sure there'll be questions on this going forward where we want to not only take this back book and move it into third party servicing and actually keep a minority interest. But we want to do that going forward in a larger volume of new investments. We've reduced our proprietary investments to two billion. And today, if we have we fund two billion a year. But what we want to do is increase that overall investment activity from two billion up to our prior levels of seven, eight, nine, ten billion. keep our $2 billion from a funding perspective and own that percentage, but the remainder funded by third-party capital. This tactical backbook sale provides a foundation as a logical step towards that. And all of that is an important step, as the last point on this page, towards the ultimate goal of becoming a very high profitable servicer, but also more importantly, a capital-like asset manager in the consumer NPL space. When you look at page twelve, I'll wrap it up and then I'll hand it over to who is going to handle the financial pages this morning. But twenty three was, as I said, a very challenging year externally. There was a lot going on internally. There were tremendous amount of challenges changes changes in management changes in strategy, but it was also a year of tremendous accomplishments. We acquired two technological platforms that long-term are going to assist us in becoming more technologically intensive and driven and where we can specifically lower our cost to collect and increase our ability to collect against the same level of nominal claims. We've dramatically improved our servicing franchise. You've already seen the numbers over the last few quarters. I think this will continue to accelerate into 24. Our cost-saving target was achieved, the 600 originally, expanded to 800. We've now hit the 800 on a runway basis. We're going to continue to expand upon that and add to it. to have a mentality and a culture of continuous improvement, specifically addressing one of our major headwinds, which is inflation. We did two other acquisitions, which are consistent with our strategy of market leadership in the UK and Spain. Being number one is important. Being the largest is important in our service, in our industry. It accrues significant benefits over the long term. These two acquisitions made us number one in UK and Spain. And then we did, obviously, as I just mentioned, the material asset sale to accelerate our strategy and to raise important liquidity. So it was a year of significant activity, significant accomplishment. And I think we've laid the foundation of the base to enter into 24 in the best possible fashion we could, given the environment and given our development as a company. With that, I'll hand it over for the financial overview to Emil, and then I'll give some wrap-up comments at the end, and we'll turn to questions. Emil?

Thank you, Anders, and good morning. My name is Emil Folksson, and I've been at Interim for the past eight years and are now primarily looking after our investor relations functions. Turning to page 14. The trend of growing adjusted income continues for the fourth consecutive quarter, up 8% to 5.5 billion compared to last year. The full year adjusted income is up 5% to 20 billion flat. The growth is primarily driven by M&A activities in our servicing segment. The increased cost that we have discussed throughout the year are affecting our profitability with our adjusted EBIT down 1% for the quarter and 13% for the full year. Adjusted net financial tax came in 3% lower in the quarter. And for the full year, net financial tax increased by 23% to 4.3 billion, which reflects the higher interest rates, as well as increasing in the gross debt of circa 6 billion on average throughout the full year. The leverage ratio remained at 4.4 times during the quarter, despite us paying the dividend and we're closing all the eCollect platforms. In the quarter, we also had a positive impact on leverage from the FX movements. Now looking at page 15 and the progress of our cost program. To date, we have achieved the majority of the runway cost savings targets. The majority of these savings are relating to the redundancies, adding other efforts such as IT contract renewals and termination, plus reduction of general spending. It stacks up to run rate savings of 800 million by end of 2023. Of this, 300 million is visible in the full year's result. In the graph, we're trying to visualize the effect. So we're starting at the baseline rolling 12 months cash cost by the first quarter of 2023. The first bar represents the actual savings by year end of 300 million. second bar shows that with organic decreasing volumes we managed to further reduce our cost base with 400 million as you can see in the third bar these savings are reversed due to our mna activities which increased our costs by circa 800 million the fourth and the fifth bar represent the inflation and currency effects which are both out of our control and they are adding 1.1 billion in increasing costs all in all uh the total cost increase of 1.1 billion compared to the baseline, baseline cost based on the first quarter of 2023 for the full year 2023. The cost to achieve today is 230 million, and we expect the full cost to achieve will come in below one times the total savings. I'm now looking at page 16 in our servicing segment. In the fourth quarter, we saw significant increase in external income amounting to 3.4 billion, a 17% increase in the quarter versus 10% increase in the full year 2022. This is driven by acquisition as well as organic growth in Northern and Middle Europe. As you saw on page six, we are seeing organic growth in these two regions, also at significantly higher margin. As Anders mentioned, the southern European region is a different environment where you essentially work out the stock. And that stock is by nature leading to a natural organic decay. In addition, last year we lost this REB contract and towards the end of the year we accelerated the cash income related to a specific contract in Italy. If we're adjusting for this effect, the total organic growth for this segment will be close to zero, both on a quarterly and yearly basis. As you can see, the elevated cost in segment affects the segment's profitability with adjusted EBIT down 8% in the quarter and 7% for the year. Regarding our investment business, now looking at page 17, as a function of the slower investment pace, we will have a natural reduction in our adjusted income and adjusted EBIT, which increased 4% and 5% respectively during the quarter. However, we do continue to have the resilient cash collection versus our forecast. The collections came in at 103% and 102% versus active forecast for the quarter and the year respectively. The segment delivered a stable ROI of 14% for the quarter and for the year. During the quarter, we made new investments of 532 million at an underwriting ROI of 19%. In the full year 2023, we deployed 5.5 billion versus new or in new portfolios, and these are expected to deliver 16% unlevered IRR. In line with our target to extract cash from our investing segments, we had a net cash extraction of 2.2 billion in the quarter and 5.4 billion for the full year. And we expect the cumulative net cash extraction to increase in 2024 as we have reduced our on-balance investment base and our collections remain extremely resilient. Looking at my last page, slide number 18, you have the net debt development in the top left corner. As illustrated, the 2 billion of net cash flow in the fourth quarter has by and large funded the dividend as well as our investment activities and M&As. In addition to this, we also have a positive currency effect on the reported net debt of 1.7 billion. In the bottom left corner, you can see the return gap between our underwriting IRR, average underwriting IRR on balance, and our average cost of funding, which remains at the healthy level above 10%, despite the fact that our average cost of funds is increasing with higher market rates. If you look at the maturity profile, so the graph to the top right, it's in principle unchanged compared to the third quarter. But with the announcement made on Tuesday night, we expect to repay a portion of the drawn RCA. And we will be able to address the maturities in 2024 and 2025 with liquidity and organically generated cash flow as they become due. With that, I'll hand back to Anders for some final remarks.

Perfect. Thank you, Emil. I am now on page 20, where we look at our starting point, how we've done in the quarter, and then our targets. So the top is the starting point. The middle is the quarter. The bottom of the target is left to right on servicing income or revenue growth. You can see we had a very good quarter. I'm not worried. Given the dynamics in the marketplace, I am not worried about top lines. We started off the 18 percent margin. We have a target of 25. The quarter is at 16. These are the headwinds of the specific factors I mentioned earlier. We're addressing that in many different ways with the tactical cost cutting measures plus the increase focused on higher underwriting margins in that business that will reverse in the coming periods. The investment portfolio is at 41 billion. We have a target of going down to 30 billion. It is at 37 billion officially but pro forma for The transaction we announced a couple of days ago were already below $30 billion. So that target, at the very least, based on the completion of that transaction, is achieved. And then the leverage ratio, as I explained earlier, we started at $4.6. We're now at $4.4. The $3.5 as a result of that transaction that we announced earlier does get pushed into $26. We are taking other measures to bring that back sooner, and hopefully as soon as restoring it to the end of 2015. On page 21, just to recap over the near term tactical measures, we said we were going to lower investments. We did it. We said we were going to exit certain markets. We exited five. We're evaluating an additional three. We said we were going to exit a part of our back book. We did so in, I think, as positive a fashion as possible with the announcement earlier this week. And we're already well on our way to achieving our cost reduction targets. But I think cost reduction needs to be something that needs to be continual. So reducing leverage and de-risking the platform, we are delivering everything we said we were going to as of the middle of last year and in particular in September at our CMD. Long term, our goals are the same. We want to grow profit, we want to be the leading servicer, and we want to be a capital light asset management platform in the consumer NPL space. Part of the acquisitions we made of the tech platforms in 23 Part of what we did, we planted the seeds as part of our tactical back book sale for third party capital going forward. All of that is moving in that direction. And I think it's going to help us achieve the targets I outlined on the prior page on or sooner than promised. And with that, I'll just conclude. Again, good quarter. Very strong end to what was a challenging year. We've created, I think, the foundation to enter 24 on a very strong basis. And now we're happy to take your questions.