Intrum AB (publ)

Good morning everyone from a gray and slightly chilly Stockholm. Thank you for joining us here this morning. As the operator said, I'm here with Emo and we're here to present the results for the first quarter of 2024. So with no further ado, I'll jump into the presentation and obviously at the end, as always, we will have time for Q&A. But starting on page three, I would characterize the quarter as being one where we delivered good results, despite this being a seasonally slow quarter. And in particular this year, because this year, Easter holiday fell in the first quarter and it more typically falls in the second quarter as it did last year. So comparatively, our figures are that much more impressive, in my opinion. Top left overall, top line growth of 8%. EBIT growth of 8%, EBITDA growth of 2%. This has been driven by M&A as well as organic growth that we'll get into. We continue to extract cash from our back book and our leverage ratio was stable, but would have declined had it not been for some headwinds on the FX front. Looking at the two businesses on the bottom half of the page, bottom left, external top line is growing 16% in servicing. Again, driven by M&A, but as well as organic growth in North and Middle Europe. And also see that growth is also being driven by last year having been a record year for new contracts. Some of those are starting to filter into our revenue and driving the top line. And as you can see, even though last year was a record year for new contract or annual contract value, ACV signings, the first quarter, quarter on quarter is still up 11%. So we are compounding our new contract volumes. on what was a record year last year in demonstrating the significant momentum in this business. The margin for the quarter was structurally low because first quarters are traditionally lower margins, but year on year, it was flat. I'll remind you that for the prior three or four quarters, the year on year comparison has been in a negative trend. It looks like we're stabilizing that and setting ourselves up for a second half of the year where we get back up to high teens. And I'll get into that more on a later page, but servicing is driven by significant momentum. Investing, bottom right, despite it being a very difficult situation for the consumer, very difficult economic conditions in the real world, we collected 100% of our active or updated forecast. So that is a very good outcome, in my opinion. I'll remind everyone that active forecast is an updated forecast, but these levels of collections that we realized in the quarter are actually 109%. versus our original underwriting forecast. So we continue to significantly outperform our original forecast at the time of purchase of our portfolios. We did increase slightly our cash EBITDA, sorry, our top line and decreased slightly our cash EBITDA, but largely speaking that business was flat from a top line and EBITDA perspective. And we did invest 371 million, a little bit below the typical 500 million quarterly rate as of the middle of last year. but we did so at a higher IRR, 17 versus last year, which was 16. Top right, we need to be mindful continually of developing the business and also being mindful of cost. With regard to cost, there's a both tactical and a fundamental element to this. Last year, we announced 800 million. That was expanded from 600 million of cost savings. Through the end of the first quarter, we realized 500 of it. The remainder will be realized throughout 2024. On top of that, we have identified, are beginning to implement and expect to realize a little bit more than half this year and the remainder next year of an additional 700 million. So when you look at all of our tactical cost reduction programs, the 800 and the 700, we have 1.5 billion that began last year and will be fully concluded during 2025. That's near term and that's tactical and that's necessary, frankly. But long term, if we're going to structurally improve our cost competitiveness while at the same time improving our service quality, it has to come down to technology. And I'm very, very happy to announce an important milestone where we have gone live in the Netherlands with Ophelos, which is our AI-based autonomous debt resolution platform we acquired last year. Early indications, as I'll give you a little bit more detail later on in the presentation, are quite encouraging. And then ultimately on our financial front, I'm sure many of you are going to be eager to ask questions, but I'll preempt them now. We are in the discussions with our various creditors. Those discussions are ongoing. I would characterize them as constructive and solutions oriented, as I've stated in the past. We have liquidity for this year and for next year, but beyond that, given where the market levels are right now on our bonds in particular, we cannot be assured of continued market access on acceptable levels. So therefore, we are proactively and holistically initiating a dialogue to reshape and realign our capital structure with our business and allow us to perform and deliver on our business plan. Those discussions, as are the front book discussions, which I've referred to many times in the past, are ongoing. When there is more to report, we will come back to the market. On page four, the market, the environment. The environment continues, particularly as it relates to figures coming out of the financial system, favor the demand for our services. So top left, EU MPLs, both in aggregate as well as on a ratio basis, have increased going into the end of last year. Stage two loans, which are a precursor to non-performing loans, could continue to increase in the second half of last year. Top right, you're seeing this economic slowdown, which we're in the midst of. We're not out of it by any means. And obviously, from an interest rate cycle, you're seeing that we're now going into an easing cycle, which indicates that we have significant softness economically. that economic slowdown is starting to creep into unemployment. It had not yet. This had been a crisis which was impacted by people having jobs and income, but having too many costs. Now we see some uptick in unemployment, which would add another leg to this economic downturn and another element of pressure on the consumer. And then also, as you can see, while we are at the point where more expectations are for rate cuts going forward, particularly in Europe relative to the global central banks, that still doesn't mean that we're out of the woods. We still haven't fully felt the brunt of the original inflation as well as the original increase in interest rates. So the headline here is that the pressure on the consumer is not abating and it will lead to continued pressure on companies to collect on their invoices and banks to collect on their loans, which means there will be continued demand for our services going forward. And you see that in our new contract volume and our AUM trends. Now looking at page five, let's look directly at servicing. Here we've attempted to, I think for the first time, to connect some of the key metrics and operating drivers with our revenue evolution. So on the top half you see, and I've said this before publicly, but I want to demonstrate it very explicitly here graphically. We have AUM, which is the nominal value of the claims that we manage, the claims that we collect against, and these are external claims. That's 970 billion SEC. It was a bit higher than a trillion a year ago. But we collect against those. How much we collect is that ratio in the middle. So it was 11% this year. It was 9% last year. So we've collected more against our total collectible value or AUM. That generates collections during the period of 102, out of which we gain a commission, which is consistent at 11%. And there's your 11.4. So that was our revenue in 23. And the year prior, you see the progression of the trillion 1591 at 9% and 10.4. So you see right there, just a mere increase in our collections rate, even though our AUM declined a bit led to a significant increase in revenue. That's more of a top down view of the revenue evolution. When you look down below, we look at it period on period. And here you see the 9.7 on the bottom left, which was the, uh, top line in 21. You add to it our new annual contract value that was put on the books and actually realized during 21 of, or during 22, excuse me, of a half a billion. And then you have an additional one off of 0.3 and you get to the 10.4 in 22. You add to it another half a billion of annual contract value, which was signed in 21, but realized during, sorry, signed in 22 and realized during 23. And you add our M&A with some one offs, you get to the 11.4 what's great about this is in another indication of the momentum in this business is last year was a record year for annual contract value net of churn was 1.4 billion almost three times the prior two years run rate so we expect that to start floating into our revenue during 24 and again lead to probably another record year and a significant uplift to that 11.4 The next page looks at the same progression, but also looks at margin. I already referred to margin during the quarter being flat 10% this quarter versus 10% a year ago. This reverses a trend or stabilizes, I should say, a trend of the prior four quarters, which you can see here very clearly, of having the RTM margin decline from 19 to 15. We believe that by the end of the year, we will reverse that trend and get into the high teens, and we continue to be committed to our goal of getting that margin very significantly into the 20s by 2026. Why do we believe that? In part, because of the data on the bottom half of the page. Organic growth in Northern Europe was 2%, although in the first quarter, I think partly because of the Easter holiday, also partly because of other issues, it was negative. But on the trailing 12-month basis, Northern Europe organic growth was 2%. Middle Europe, which is our largest economic catchment area, grew a very healthy 11% on organic basis. And then while the negative five looks disappointing at face value, that last quarter was negative six. So in that region of South is our largest revenue region, our largest stock AUM region. And so a small decline or a small improvement from minus six to minus five actually yields a significant amount of improved bottom line. And that's being driven across all the markets, but in particular, because our Italian business had a banner first quarter and looks to have an exceptional 2024. Why are we comfortable on margins? You can see the bottom half of that bottom part of the graph. So our new business starting with last year's 1.4 billion and continuing during the first quarter, we grew 11% year on year. So it's continuing to accelerate. Our new contracts are all at significantly higher margins. So we see here that historically Northern Europe, the margins were 15. Our newly underwritten business in the last 12 months was around 38. Middle Europe, similar 15, historically looking forward 31. And then roughly, it's a little bit below, but it goes up and below and it goes roughly above or below historical numbers in Southern Europe. These improved contract specific margins, plus the cost cutting I mentioned about earlier, are both going to drive that margin up. And it looks like the decline is stemming, stabilizing, and hopefully we're at an inflection point. Next page, page seven, we're in investing. This is the same picture it has been since the middle of last year. Dramatically less investments, net extraction. And in the last 12 months, we've extracted $6.4 billion. And ultimately, that was a lot less. That was less than $3 billion before on an equivalent trillion 12 month as of last year. So we are net extracting cash. And this is consistent with our strategy of downsizing our direct portfolio. in the future coming up with a third-party capital solution to continue to ramp up our investments without ramping up our proprietary balance sheet, and ultimately taking that cash flow and addressing our capital structure. When you look at the next page, eight, you see continued collections momentum. This is not just a evidence of a larger portfolio, but it's an evidence of an ability to collect. We as an industrial collector can manage these things dynamically, and as a result, We manage and hit active forecast, but we significantly exceed historical forecast. As you can see, this is just a statistical demonstration of how difficult it is to collect because in 21 and in 22, even against active forecast, our ability to collect was a bit ahead of active forecast, which is continually updated. Right now in 23, you see it's been at or around 100%, which shows we're still doing a very good job. We're being dynamic. We're dedicating resources to make sure we collect what we expect. we're not having that marginal performance that we had historically against active forecasts which is a demonstration of the difficulties in collecting in the current environment finally on page nine as it works to as it relates to esg uh on the carbon disclosure project we have a very high score higher than our sector higher than the global average somewhat expected but still we're higher than averages because we're not an industrial company bottom left we continue to get significantly high customer satisfaction ratings. These are customers, so consumers, despite the fact that we're interacting with them in very large scale, as well as at a very difficult moment for them, a testament to our solutions orientation of our collection strategy. We continue to collect at record levels. 120 billion, I think, is an all-time high in terms of our collections, both on behalf of our clients as well as our own book. And then the top right, again, a number I'm very proud of, just under 5 million people we helped become debt-free and ultimately allowing them to reintegrate into a financial society or the financial infrastructure, you know, on a very, very important role. We don't just collect and make money off of it. We also help people on large scale. So with that, I'll turn it over to Emil, who will deal with some of the financials, and then I'm going to come back with two or three key messages, and then we'll go to Q&A.

Thank you, Andres. Please go to page 11. So this is the fifth consecutive quarter with growing adjusted income. And the adjusted income was 4.9 billion in the quarter or up 8% compared to last year. And as mentioned, this is primarily driven by our servicing segment. And despite the challenging operating environment described and adjusting the EBIT for costs related to the cost initiatives and M&As we executed up on during 2023, We do see a corresponding increase in adjusted EBIT up to 8% or 1.2 billion for the quarter. The increase in adjusted net financials reflects the higher interest rates and higher gross debt. So our effective interest rate is up 80 basis points in the quarter and an average gross debt is up 3.7 billion. In the net financial items in the report, you'll also find a positive impact from the bond tender offer we executed in February, which resulted in a positive effect of 196 million Swedish krona per quarter. The leverage ratio remained at 4.4x during the quarter. Adjusted for the unfavorable FX moment, the leverage ratio would have been 4.3 net debt per cash EBITDA by the end of the first quarter. I'm now looking at page 12, our servicing segment. In the first quarter, we saw a significant increase in external income amounting to 2.9 billion, or an increase of 16% compared to last year. The increase is mainly driven by the acquisition costs. But also, as you saw on page 16, on an RTM basis, we grew 2% in Northern Europe, 11% in Middle Europe. And for the full segment, we had a flat organic growth on a trading 12-month basis. In the quarter, and taking into account the seasonality effect of the Easter, sorry, the calendar effect of Easter, we had a negative organic growth of 2% for the segment. Adjusted EBIT is up 8% versus first quarter 2023, translating into a flat margin of 10%. Cost continues to be a focus, and we want to reiterate what Anders said before, we expect the initiatives that we made by the end of 2023 and now during the beginning of 2024 to come into effect in the margin by the second half of this year. Turning to page 13 and our investing business. As a function of the slower investment base, we will have a natural reduction in the income and also the adjusted EBIT. So the adjusted income decreased 3% and the adjusted EBIT decreased 6% during the quarter. And again, reiterating, we had a tough environment, but we continued to deliver 100% versus active forecast. And remember again, versus the original underwriting, we deliver 109% of the forecast during the quarter. The new investment we made during the quarter was approximately 400 million. It's in line with the reduced investment paid that we announced during the second quarter last year, and they were made at an underwriting IRR of 17%. During the first quarter, we did extract a bit more than 2 billion of net cash from the segment. Now turning to page 14 and the follow-up of the cost initiatives we launched in Q2 last year. So to date, we have really realized the majority of the cost programs. The target was to achieve more than 800 million Swedish krona in annual cost savings. To date, we have realized 500 million and expect the remaining to be realized during 2024. In the graph, we're trying to visualize the effect compared to the baseline cash cost, which was the first quarter of 2020. The first part is the actual real life savings of 500 million Swedish krona. The second bar shows that the like for like organic reduction in our income has reduced the cost before further with 500 million. And that's required higher and to our platforms in UK in 2023, because we have increased by 1.3 billion. And reverse the real life savings from volume and executed cost savings initiatives. And on top of that, we have the fourth and the fifth bar, which represent inflation and the currency effect. All these are adding to an increase in the cash cost of 1.2 billion. Sorry, 1.6 billion. As we've been talking for the last couple of quarters, we continue to monitor the cost development and we have identified a further 700 million that we will implement and execute during 2024 and 2025. So turning to page 15, I would like to walk you through the net debt development. So the cash flow that we have generated in the quarter of 1.2 billion has been used to invest approximately 400 million. and repay debt. However, as said before, the adverse ethics moment increased the report net debt by 1.3 billion to 57.9 billion. And in the bottom left corner, you can see that there's still a healthy return gap of our trailing 12 months underwriting our ROAs compared to our average cost of funds. And it's approximately three times larger. So with that, Andres, I hand it back to you for some remarks.

Perfect. Thank you very much, Emil. I wanted to, before I wrap up the presentation and move to Q&A, talk about two trends which are important trends, long-term secular trends, which are going to impact us and our industry directly, both of which are also going to be significantly favorable for interim. Those two trends are regulation and technology. Now turning to page 17, you have a very brief overview of the NPL directive. Many of you know that the EU has implemented an NPL directive to assist banks in how they deal with their NPLs. There's a bit of an explanation on the left-hand page. Banks can either sell NPLs to credit purchasers or utilize licensed credit servicers to collect on their behalf. The directive specifically requires both credit servicers and credit purchasers to be licensed in all jurisdictions. We act in both capacities as a purchaser and a servicer, and we act in almost all jurisdictions in Europe. So this clearly is going to have a very direct impact on our operations. Directive specifically regulates customer protection, complaints, information duties, internal controls, rules for outsourcing, reporting, supervision and cooperation with the regulatory authorities. It is important to note that while we are being regulated more like a bank, the capital and liquidity requirements put on a bank are not extending to us as an industry. And this is being implemented across all of our markets. Why is this beneficial to us? This puts a heightened burden and sensitivity and requirement when a bank takes a step towards dealing with its MPLs, either by selling it or by handing it over to someone else to collect against those claims on their behalf. That is a heightened level of scrutiny. That is a heightened level of required regulatory robustness on the part of the counterparty, which for us, having been in this industry in some cases for a century, in almost all cases for decades, and having been operating in all the different markets, we provide a much safer and more stable and reliable counterparty than almost all of our competitors. We are already today, by virtue of historically already adopting a high level of governance, almost bank-style governance, as well as operating in all of these countries in large scale and with regulated entities, counterparties, we are already compliant with the directive in almost all our countries. This is also going to be important in that it's going to harmonize processes, which is also to our benefit because we can deal with more counterparties in a more consistent fashion, which helps us deal with them more effectively and also be more cost effective and efficient in our own processes. And this is going to require anyone who's outside of the EU to have an on the ground representative who is licensed in whatever jurisdiction we're dealing with, either as a servicer or as an investor. And as the market leader, we will be the logical candidate for any major player, external or outside the EU, who wants to go into the EU in either capacity, benefiting both our investing business and our servicing business long term. So this is, I've said it before, more regulation is good for us because it differentiates us. It limits our competitors who do not have the capacity to portray this level of of reliability or invest in the level of compliance and regulatory compliance that we do. And ultimately, over long terms, it means we're going to be able to win more business as well as price our business more favorably. Now on page 18, we see technology. As I said earlier, we launched Ophelos in the Netherlands. It is extremely early days, but the indications are positive. Here you see three individual cases where from a specific client, in this case a BNPL lender, who uploads automatically to us between five and 50 cases per day. Their average claims are 90 euros, so very small claims, which if we have high cost can eat into the net collections for our client and also our revenue. So it's very important that we're efficient the smaller the claim. Here you see three cases. All of which were we, within minutes of receiving the claim, analyzed the consumer, analyzed the claim, sent an email with a link to a portal. In the top case, within minutes, we had a full payment on a 81 euro claim. In the middle case, we had a consumer go to the portal on a delayed basis and then ultimately enter into a partial payment. And then in the bottom, we also had a case where on a very large claim, 385 euros, the email was sent. With a delay of a few days, the customer did go into the portal. And with a delay of a few days after that, they paid in full. So it shows the effectiveness. It demonstrates the effectiveness of the digital path to incite collections activities, even on a delayed basis. Even if it's not immediate, they come back to it. It makes it easier for the customer to pay. The customer has a better experience. And there is no human interaction. It's 100% managed by technology. And all of the data points, all of the clicks from when they open the email to when they go to the portal to where they click in the portal to where their mouse hovers in the portal, we gather data, which then is fed back into our algorithm, which allows us to more accurately predict how future consumers of similar profiles will act. I get incredibly excited, as you can tell by the tone in my voice when I see this. It is extremely early days, but if you look at this impact, And projected across the 159 million actions we take, of which 97% are not self-serve, of which more than half are more traditional phone calls and physical letters, it is vast. When you look at this impact on the 6,000 people we have in 41 call centers, the potential here is vast to not only improve our efficiency of collection, reduce our cost to collect, but improve our ability to serve, improve the product. both of which are going to structurally improve our company over the medium to long term. So I'm incredibly excited about this. Wrapping it up on page 19, we had, again, a good quarter delivering good results in what was a seasonally low, seasonally slow quarter, which also included, again, Easter during the first quarter rather than second quarter. So our results, I think, are that much more impressive. You do see the beginnings and the direction of our strategy of being more operationally efficient, tech driven, being more client centric and being more capital light. And we reiterate and commit, reiterate our commitment to our targets as set out at the Capital Markets Day last year. So we are growing at levels higher than what we anticipated and will continue to grow at high levels of top line external servicing income. we are moving towards that very solidly mid twenties margin. And we believe we are absolutely going to get there. We have already pro forma for the servers deal, although this figure is yet to have that impact, but pro forma for the servers deal, we've already hit, hit a lower level of portfolio balance on our proprietary portfolio. And while in the quarter it was stable, it would have declined a little bit. We're a little bit below. We're about 0.2 below last year. We are directionally correct, but it's still early days, but we are committed to de-lever between now and 2026 to the three and a half level and importantly beyond then to continue to de-lever, to continue to lower that ratio. So hopefully three and below in the subsequent years to 2026. So with that, we can turn it over to Q&A. One thing before we start Q&A. And as always, Jacob will be the first question. So thank you, Jacob, for always being first in line. But I want to preempt again and repeat something I said earlier. As it relates to any possible realignment, reshaping, restructuring, however you want to call it, of our capital structure, those discussions are ongoing. We do not have anything to report yet. And so I'm going to be very limited in anything I can comment on it. I'm sure you'll still try to ask, but I want to preempt you. And when we have something to report, we will come back and report on it. But with that, I think, operator, we can open it up for Q&A.