Intrum AB (publ)

morning everyone this is andres good morning from a very gray day here in stockholm thank you for joining the q4 2024 and full year 2024 report as the operator said i'm here with johan akerbloom our cfo jumping right in let's jump right into page three of the presentation the fourth quarter was a very solid quarter we had solid business performance across both of our uh businesses as well as significant progress on a number of our both internal and external initiatives starting with servicing on the bottom left we had the second strongest servicing quarter in terms of both margin and absolute ebit in the last five years uh we had an ebit increase of quarter on quarter and year on year of approximately 26 percent the quarter the margin in the fourth quarter was 30 percent the year prior equivalent period was 23 for the year it was above 19 our target was in the 18s and last year was 16. so significant margin improvement and positive momentum combined with organic growth as you can see in the bottom left in the northern and middle europe regions our largest economic catchment areas offset by what is as we all know a structural decline in the aum and our business in southern europe more on that later on investing in the bottom right collections performance for the quarter was 103 for the year was 101 against active forecast but just as importantly or even more importantly it was 110 versus original forecast during the quarter and during the year i believe was 111 against original forecast so we continue to outperform our forecast at the time when we bought these assets Given that performance and given the smaller book, because today we have a book of approximately 25 billion versus a year ago, which is approximately 35 or 36 billion, the income and EBITDA figures were quite stable and quite significant coming out of this business. We continue to invest in the quarter in conjunction with our partner Cerberus and other proprietary investments. We invested about 500, a little bit over 500 million in the quarter. And at an IRR well elevated, not only versus last year, 20 versus 19, but also significantly above what traditionally we have invested through the cycle, which is more in the mid to slightly lower than mid teens. So we continue to invest at the run rate of about two billion a year, which is our target currently off of our own book. And it elevated IRRs because that's where the market is right now. In terms of top left, we have a very strong profitability trajectory, not only due to the underlying strength in the businesses, but also due to cost measures. We ended the year last year with the lowest absolute costs in each of our two businesses, as well as our central functions. since this is the lowest absolute cost since i became ceo and what that gives us is an entry into 25 which johan will get into more later on a much lower run rate and an expectation that we will lower aggregate cost again in 25 while continuing to grow revenue the leverage ratio did increase from uh to 4.5 that is structural and expected The leverage ratio is a very simple ratio. It has our debt in the numerator, which as Johan will show later, is just slightly down. So essentially flat, just slightly down. But the denominator is our actual cash EBITDA over the trailing 12 months or the trailing four quarters. That comparison this year versus last year has discontinued operations last year. So it will continue. The numerator will continue to structurally decline over the next two quarters. And what will happen at the end of the second quarter as it relates to the ratio, which will continue to elevate slightly between now and the end of the second quarter, two things will happen. Number one, we will affect the recapitalization. which means we will have the haircut on the debt that we've agreed with our creditors that will lower our leverage. And then from the third quarter beyond the discontinued operations, distortion will no longer be in the comparables and we will have favorable period on period. So the numerator will grow and you will see our deleveraging really in the second half of this year and into 26. On the recapitalization top right, everyone knows, and I was on a, and I would encourage everyone, if you haven't seen it, to see my session last week with Nordea on the recapitalization. It lays it out in a very simple fashion and also allows investors and Nordea's research analysts to ask questions. But we had a very favorable decision on December 31st in the U.S., We initiated the Swedish reorganization a few weeks ago. We expect a creditor vote sometime in March, and we expect the overall recapitalization to be completed in the first half, specifically during the second quarter. And then on top of it, this is more a strategic initiative, but it really relates to investing. We have continued to scale up our service joint venture. with 12 portfolios. And if you remember, as of last quarter, we had five portfolios. So we've done seven more deals with them. I'll talk a little bit more about that later. And our total committed capital is well above 2 billion SEC. And we continue to drive our transformation to not just become a collections company that uses technology, but to become more of a technology company that does collections. Ofellos is the tip of the spear in that initiative. I'll get more into that later. But we rolled it out in some of our major markets last year, and we continue to roll it out in this year. We have an ambitious rollout schedule this year, which I'll get into later. Going to the next page. recapitalization i'm not going to get too much into this i would encourage you to go to the nordea it's on our website by the way the nordea session so please go to that but we received a very favorable decision in the us we are in the middle of an independent and important and final step of the process with the swedish reorganization Then we have some structural changes that are conditions precedent that will be completed during the second quarter, and then we'll complete the recapitalization. I will emphasize that the locked up creditors who are 97% of our banks and 73% of our bondholders are legally committed to vote in favor of the Swedish process. when that vote comes up in March. I'll also highlight the fact that when we asked for votes specifically on Chapter 11, we received even greater support with 100% of our banks and 82% of our bondholders. That is why we are confident that we're going to be completing the recapitalization on the timeframe we've indicated. Next page, please. Talking a little bit about the market, as you'll see a little bit later, we deal with at any point in time, plus or minus 25 million consumers. These are consumers that have fallen on difficult times and that we have to deal with in the way that is reflective of their financial situation and their preferences. And that is changing along with the demographics. So a top left, just generally speaking, there seems to be more confidence in the markets. I'm not sure that actually is translating into our business. We're seeing more assets coming into our business. We believe the consumers are still under significant pressure. And I personally believe interest rates are not going to come down as fast as people think. So we still have a significant amount of pressure on the consumer, which then will translate to more assets, more individuals falling behind and more assets for us to manage. This is both cyclical as well as structural. As you can see in the top right, 40% of Gen Z members. And these statistics are all out of our European Consumer Payment Report published in November of last year. I would suggest to all of you, strongly suggest that you refer to that. It's a very detailed and informative report. on the market. But 40% of the Gen Z members, as you can see in the top right, still use credit to cover their monthly bills. This is indicative of a broader trend. People have income. They don't have enough income to cover what has been a very elevated cost. And although inflation has come down, it's still wages have not offset what is the cumulative effect of the inflation over the last several years. And that's going to be a structural issue that's going to continue to put pressure on consumers. Bottom left, there's also a demographic change that's changing the way we need to interact and deal with our customers or the consumers. In that survey, you see that 50% don't mind using an AI technology bot, so to speak, in order to manage their situation. This is incredibly relevant to us. This means they feel less judged. They're much more much more comfortable dealing with technology, not necessarily with humans. As you'll see in a few pages, we still have over 160 million actions a year, many of which are manual, many of which are human driven. That has to change in order for us to continue to improve our ability to help consumers and to collect for our clients. And bottom right, you just see a similar type statistic, which is 30% of millennials, a little different than Gen Z, but also report late bill payments. We're not out of the woods at the consumer level, and what that means is that we will continue to see high demand for our services. Next page, please. Now jumping into the business performance, I've already referred to some of these, but it's really an improvement in the margin story in servicing, both on a quarter-on-quarter and year-on-year basis. it's a collections above active forecast and just as importantly if not more importantly against original forecasts on the top right in investing it's a continued cost reduction story overall for the company And we continue to leverage the service partnership with high IRR, high number of deals, volumes coming in. And those volumes, as you'll see in a few minutes, are very important because they allow us to co-invest our share, which improves our proprietary book and refreshes our proprietary book. We get investment management fees as a result of their volume, and we get servicing business on the total perimeter. Next page. Servicing here, you see graphically represented the fact that the margin improvement is significant, and we expect it to continue. You see that the last three to four quarters are the strongest quarters in terms of income, and the margin story is growing very, very nicely. You see the 30% versus 23, the 19 versus 16 I referred to earlier, and you see an overall growth in adjusted income on a trailing 12-month basis in our servicing business. Also, more specifically in the bottom, you see the organic growth. These are annual figures or trailing 12 month figures. You see organic growth in the north and middle. We expect that to continue. Those are the two areas where we have a more balanced business between fresher commercial claims and loans. And we expect that, and those are also two of our largest economic regions, particularly Middle Europe is our largest economic catchment region. Having organic growth in that region will disproportionately benefit our business mix and our business performance. And then you have the structural decline in Southern Europe, which will continue for some time, but we manage it. Southern Europe is still our largest profit center, but it is facing this headwind, which we will manage through the cycle. on a margin basis we continue to bring on board a significant amount of new annual contract value of new business and the new business is underwritten at margins significantly higher than our back book of servicing business so we expect that plus the cost cutting plus our overall momentum on our business to continue to drive our improved margin next page i'm now on page eight This is a new page, which I think really gives you a sense for the progress of our servicing business in 23 and 24. And I'll start on the top left. These are just external figures. They are opening balance of servicing AUM assets under management. Everything starts with assets. If we don't have assets to work, we don't have anything to do on behalf of our clients. We don't have consumers with whom we can interact. We started 23 with 1.3 trillion of external AUM. we had a roughly around a 7% recovery rate. So that's how much we recovered on behalf of our clients, just our clients, not our own book, just our clients, the 102 in 23. And then based on that, we had a conversion rate, which is the amount that we make in revenue per unit of collection at about 12% leads to about 12.3 billion sec in external servicing income. During that year, the AUM grew to 1461, as you can see in the bottom left. And therefore we started the year in 24 on the top right with that figure. We on the larger base maintained a stable recovery rate, slightly lower but stable, and yielded a 110 collections on a comparable basis to the 102 the year prior. due to mix in other factors our conversion rate dropped slightly but we really are focusing on conversion rate as i'll get into in a second and we that ultimately translate to growth in external servicing income and our aum going into 25 has grown from 1461 up to 1621 so we're talking about double digit growth in both 23 and 24 uh in aum which will continue to drive improved performance in our servicing The conversion rate is really something we're focusing on. We're continuing to work to optimize the pricing of our product based on the value we deliver to our clients. Conversion rate improvements are disproportionately impactful of our bottom line. But overall, we need to make sure to capture more assets, recover more, and get paid better. And that's the focus in servicing. Next page. Switching over to the back book of our, to our investing business and specifically the back book, you can see here that since the Q3 of 2023, we have cut back our investments and therefore there's been a net extraction of value from our back book. Also added to this is the sale of the back book approximately a year ago, which closed in the middle of last year to Cerberus. And over the last few quarters, we've had an average, we've extracted about 6.4 billion versus about three and a half billion recently. We would like this to stabilize going forward. And we would like to scale up the third party business with servers, but also stabilize our portfolio because it is an important contributor to our overall earnings. Next page, here you see the specific collections and performance versus forecast on our proprietary book. Lower absolute collections, but still very meaningful at 10.7. Lower because we just simply have a smaller book. Again, as I mentioned earlier, 25 versus roughly 35, 36 a year ago. But we continue to perform above active forecast. The active forecast performance should be around 100. If our revaluation process, and I've said this often to the market, it should be around 100. But we continue to extract more and therefore we outperform that. But just as importantly, if not more importantly, that 103 in the fourth quarter was 101 for the full year. And both those figures are 110 and 111 against original forecast. On a smaller book, we continue, and by the way, because it's smaller and it's slightly more aging, it's more difficult to collect on, but we continue to perform very well on collecting on our own book. Next page. Here we talk a little bit more detail about the servers deal. As I said, as of the third quarter, we had agreed on five deals. We've now added another seven to have a total of 12. We have total capex of a little bit over 2.2 billion, of which we're 680. It is broad based. It's across our entire platform. And everything we have done to date is based on a detailed, committed term sheet as of the middle of last year. So it's essentially two quarters of activity with them. And we expect to sign the definitive documentation in the course of the first quarter of this year, probably sometime in February, maybe March. And when we look to 25, our objective is to scale this up. That 2.266 is the first two quarters of our arrangement. It is still in a ramp up period, and we expect next year to be well above the annual run rate of that volume. Next page. Now switching over to technology, and then I'll hand it over to Johan, but we continue to want to push the initiative to, again, as I said, I believe earlier and I've said before in this forum, we want to be a technology company that does collections, not a collections company that uses technological tools. That is a mindset shift as well as a architectural shift, as well as an operational shift. And what we believe to be the payoff for that transformation is collect more, collect with less cost, and give the customer a better experience. Our experience on the left-hand page, on the left-hand side of this page in the Netherlands, where we rolled out Ophelos in the first half of last year, and we have the most comparable data, is that relative to our legacy collections, we have a much lower cost to collect, driven not just by unit and other costs, but also predominantly labor costs. And we have 25% higher collections rate. And we're giving the consumer, particularly as it relates to the more younger demographic in our consumer base, as I pointed out in the market page, we're giving them a better customer experience. So this is really... The holy grail of technology. We can do better, cheaper, better for our clients, better financially, cheaper, and we can deliver a better experience to our customer. What does that mean? We need to roll this out as quickly as possible to drive this transformation. And Ophelos is really just the tip of the spear. There's many other initiatives that we're doing to make ourselves more operationally efficient in line with one of the three pillars from our capital market state, which has become more operationally efficient and effective. By the end of this coming year, we'll be in nine markets. We rolled out at the end of last year to Spain and France. We'll go out to another four or five markets this year. By the end of this year, we will have this rolled out in 60% of our economic footprint, i.e. revenue. And we expect the 7.4 million cases to be transferred, which is about 25% of new case inflows. And I'll remind you that this initially is just focused on amicable. But I would like that 25% of that 7.4 figure to be higher. But we have an ambitious schedule to roll this out, which will have, I believe, a dramatic impact, not just in 25, but more importantly, in 26, 27 and beyond. With that, I'll hand it over to Johan to go through the financials.

Okay. Thank you, Andreas. And good morning, everyone. So if we switch to page 14. I think on the financials, I mean, I think we have highlighted the underlying comes in strong. We see the trend continues, both the trend continues in servicing and investing as a strong finish to the year. However, if you look at the unadjusted numbers, they still are in a shape that we are not happy with. So if you look at the full year, the income is higher than 23 on a comparable basis. The cost is slightly higher. The adjusted cost is pretty much in line with what we had in 23, which means that we've been able to mitigate the full cost that we've added through the M&As. And if we look at the Q3 and if we look at the adjusted EBIT, it's also higher versus last year. If we look at the quarter, the net income is minus 7.67. We do have a significant amount of IECs. Now we'll go through them on the next page. But the adjusted EBIT is also coming in higher in Q4 than versus last year's Q4. The cash income is slightly lower, but that's also dependent on a little bit smaller book. And the cash EBITDA is actually higher. And I'll revert back to that when we talk about the leverage ratio. So I think with that, I think we can move to the next page and talk about the IECs. So IECs has been a theme. that has been occurring over the last, in particular, the last two years. We have now reviewed this carefully. And if you look at the ICs for Q4, we have basically two big buckets. We have one big bucket of intangibles, which relates mainly to the central system that we wanted to use for servicing that we have decided that it's not going to be used. So it's been written off. And the other parts are basically related to the restructuring, cost savings, integration, both related to the M&A, but also in general. And if you look at the full year, on top of that, you need to add the goodwill that we did in Q3. Those are effectively the three buckets we have. And we have now decided that next year, We will be very, very, very careful to discuss ICs. We will basically have two types of ICs. Either they are fully related to the indoor because that's going to be a massive transaction, the recapitulation, because that will come with bond offs in both directions. And net net, it will be positive because of the debt restructuring. And the other thing that might pop up, but we don't know yet, is anything that is related to intangibles. We'll see what that comes. So that's the idea. And we will have extreme focus on net income. So the company will go back to net income on a positive level. And that will be a major focus starting. It's already started once we hit the ground running 1st of January this year. We did one more IEC, which is on the page that I mentioned. We did have a mismatch between the contract value of an acquired client contract in Spain and the revenue extraction. So basically the revenue extraction has been to a large extent made and we still have the tail, but the value in the balance sheet was not properly reflecting that. So that was another adjustment we did in Q4. If we go to servicing on page 16, external income is slightly lower than last year, Q4. We do see good progress in our flow markets, if I may call them so. So the middle and the north, where we have a different type of business mix, is continuing to grow. And the Southern Europe, we still see that we have a book that is shrinking. And that's just because the whole banking system, which we're very reliant on in the southern part, is in much better shape than it used to be, and that is reflected through our book and our revenue extraction. However, we are now exploring new avenues to grow in those countries, but also we have a strong focus on cost and being more efficient. On a full year basis, the total servicing external income actually grew, and we also see that the total income grew by 4% on a year-on-year basis. The cost is going down, both on a quarterly basis and on a full year basis, it's more or less flattish, again, reflecting the M&As that we've done, and we're basically unable to absorb that whole cost increase. I think we have already alluded to the EBIT margins and how they continue to expand, which is extremely good, but servicing of being the biggest part of our business and also where we have the biggest restructuring when it comes to M&A and integration has a big delta between the EBIT and the adjusted EBIT. But again, as I said, this is something that will be different going into 2025. Investing, what I would like to highlight is that the cost of investing is increasing. That's on the back of spending more costs to extract because the book, as we invest less, a big part of the book actually becomes less replenished which means that it might in some instances it's harder to collect we need to spend more time and money and some of the cases has to be put more into legal and that is driven that's then driving costs but in the end I think we focus on the EBIT and the cash EBITDA which are still coming out in a good in a good shape The campus deploy was 512 in this quarter, which is in line with what we have said, the 2 billion over the year. And yeah, book value is slightly lower than last year. I think on page 18, which is the cost. you clearly see the run rate effect and you can also see that Q4 which normally is a little bit higher cost because we have a very high seasonality in our collection business is actually in line with Q3. So we enjoy higher income in Q4 but the cost is flat and we will continue to take the cost down into 2025 So the cost number, the absolute cost number for 2025 for the underlying business will be even lower than our 2024 number. And I mean, one thing is the FT reduction, which is down 1,745 people year on year. But we're also looking through all our operating measures, external contracts, et cetera, et cetera, and the way we work. Page 19 just shows how our net debt has developed. We do have some headwind on the debt side because of the Euro strengthening in the quarter. However, I mean, we did have bigger repayment first of October, and our leverage ratio has increased to 4.5, as you see in the next page. And our underwriting returns, they continue to be strong and increasing. And the cost of fund is now reflecting the existing one in the recapitalization. The cost of funds will increase, but we'll still have a big delta between the underwriting IRR and our cost of funds going forward. Maturity profile, just again, reminding everyone how the new debt stack will look like. That's on the bottom of the page. And we basically push and amend up until 2027 to 2030. Cash and cash equivalents by the end of the quarter, end of the year sits at 2.5 billion. And our interest rate sensitivity is around 500 million. But with the new debt stack and the recapitalization done, we will have a fixed rate, which will be sitting around 8%. And then lastly, just reminding everyone about our medium term financial targets. On the servicing, we are hitting the target that we set up. We delivered a 10% KGAR as per Q4 24. On the EBIT margin, we're trajectory towards the 25 that we have pointed out. We're 19 right now. Actually, our investing book is lower than we said. We would actually like to increase the 25 if we could. um and we'll see how we can manage that in 2025 and the leverage ratio it is now higher than it was the last quarter it will continue to increase slightly going into 2025 as we lose quarters of discontinued business but at the same time we're also improving our results and that will partly offset that And then during the year when we come out after the restructuring and when discontinued business is not part of our leverage ratio, the leverage ratio will come down. Handing back to Andres.

Thank you, Johan. Moving to page 23, just to recap a bit. Top left, recapitalization proceeding nicely. Chapter 11 confirmed. Swedish process underway. Completion first half. Our cost reduction initiatives, as I said, as well as Johan went into more detail, are bearing fruit. Our focus on efficiencies and margin are bearing fruit. We enter 25 with an expectation on absolute cost reduction and revenue increase, which will disproportionately impact our overall margin. We continue to roll out of fellows very aggressively as the main initiative in transforming ourselves into a technology company. And what that means is our two businesses, we have improved profitability expectations in servicing towards that 25% that Johan just mentioned. And on investing, we expect to continue to collect above our forecast and ramping up. It's not on the page, but ramping up our investment management progress with Cerberus. On the next page, for many, many years, I've heard, because I've been on the board of this company, et cetera, that, oh, you know, from the market, the company says it's doing things and it doesn't always accomplish them well. I think over the last few years, I have to give the entire interim team tremendous credit because we have set out a path since the middle of 23, and we are achieving that path. So we said we were going to improve servicing profitability as of about a year ago. You see that in the numbers clearly. We said we were going to continue, despite transitioning to a smaller book and to more of an investment management model, continue to collect at or above our active and original forecast. We do that. That's an evidence of our industrial capability to collect even on an older book, as Johan said, and a more difficult collections environment. We are taking active steps towards becoming Capital Light and an investment manager. We sold our back book approximately a year ago. We agreed to that. And we are scaling up the joint venture or the investment partnership with Cerberus. And we're going to, during all this transformation, we're also transforming fundamentally the operations with technology. Ofellos being, again, as I said, the tip of the spear in that, which will improve our efficiency, improve our ability to deliver collections, and give the customer a better experience. And the capital recapitalization process went through a very important milestone in the US. We are in the independent final and important process in here in Sweden. And what that will do, as Johan's chart clearly shows, is align our capital structure with our business plan and give us runway to deliver on this continued positive momentum in the underlying business. And I want to emphasize something. What that means in 25 is exactly what Johan said. you will see less IACs only specifically related to recapitalization and some other factors, maybe on intangibles. And what that will mean is that we will produce a meaningful positive net income in 25 and grow that going forward. That's going to be a prime focus to align ourselves with our shareholders. So again, across the board, underlying business trajectory is positive, strategic initiative is positive, and a realignment of our capitalization is positive. The next two pages are really important and highlighting the important role that we play. And then I'll hand it over to questions. I think everything starts on the top left with assets. If we don't have assets, we can't do anything, as I said earlier, including client as well as our own assets. We manage about 2.4 trillion. These are 35 million cases and 25 individuals. This is not just a number and a page. These are 25 million individuals with whom we deal every day. We take over 160 million actions, which includes emails, SMSs, letters, and calls, portals, which are portal visits, self-serve, and others. And what that results in is that every year, about 5 million people become debt-free They are, until they become debt-free, dealing with this issue. They are excluded from the financial system, and they can reintegrate into the financial system after this. This is a very important role that we take, that we play for our clients to collect, but we help these individuals reintegrate into financial society, which contributes to the sustainability of the financial system and the performance of the financial system, and is an important societal role. contribution and we do this on an industrial scale 160 million actions 25 million so we we deliver individual solutions with empathy on an industrial scale next page is the last page just following up on this a little bit in the last 12 months we have helped a little bit under 5 million that approximate 5 million in here 4.9 we deal with people at a very difficult time yet they rate us highly 4.2 out of five we deal with people when they're at their worst moments potentially and what we need to continue to do is give them a better customer experience and improve that while still delivering for them and for our clients and as you can see in the bottom in 24 we delivered for our clients 121 billion of collections part of which is our own about 11 billion but the rest is all clients so again we play a very important role we deal with individuals at sensitive time and we collect and we deliver for our clients with that I'll open it up for Q&A.