Intrum AB (publ)

good morning everyone this is Anders Rubio good morning from a blue sky and sunny although probably a bit chillier than everyone would hope Stockholm I'm here, as the moderator said, with Johan, our CFO, and thank you for dialing in to our quarterly results call. I'm also happy, before I jump into the results, to say that, as usual, Jakub Heselvik from SEB is first in line for questions, and we will be going through the business over the next call at 20 to 30 minutes, then opening it up for questions. And I see that not only him, but many others have already lined up for questions. We look forward to that. If we can turn please to the first page, page three of the presentation. The first quarter is a good set of numbers. As you can see in the top left, on an overall basis, our EBIT has more than doubled to more than a billion. We have continued our focus on cost. We'll get into more of that later. And we have produced a positive net income quarter for the first time since 2023. That's a very important indicator that all of our collective efforts to refocus the business, refine the strategy, cut costs, become more effective and more efficient are starting to flow to the bottom line. um our leverage ratio is stable as a result of many different factors which johan will go through later but the real drivers of the business are the servicing and investing so on servicing our income was slightly down i'll address that a little bit more later but our ebit on both an reported basis and adjusted basis are significantly up year on year this is driven by the margin improvement As you can see here, our margin in the quarter was 21% in the first quarter of 25. In the equivalent first quarter of 24, it was 9%. Not only is that an absolute increase that's very significant, 12 percentage points, But as you can see, it's broad based. It's both across all three of our major regions, North, Middle and Southern Europe have very, very meaningful margin expansion. And what it means is we have a more profitable and a stronger servicing business, I believe, than we've ever had. On the investing side, bottom right, we have collected above active forecast. Our income is down merely because we have less assets. That is very mathematical. But ultimately, our EBIT is still strong because we continue to collect above active forecast, 102.25%. And that 102 is equivalent to 108 of our original forecast, indicating the trend continues that when we originally make investments, we generally and consistently over history have outperformed that. During the last few quarters, we have started ramping up, although we still have more to go on the ramp up, our investment management activities, specifically with service as a partner. and we've invested there um uh ultimately 647 uh which our share was 111 at a very very healthy irr and i'll talk more about irrs and volumes in investing later in the presentation very importantly also during the quarter we've had two important strategic initiatives the recapitalization i am uh very happy to say that effectively we are turning the page on that chapter We had a very favorable ruling, as everyone knows, in the US on the last day of 24. And during the first quarter, that ruling was also confirmed and ratified by a positive ruling in the Swedish courts. We now have between now and closing merely conditions precedent, which are primarily regulatory approvals, and we expect to close recapitalization in the first week of July. So what has been effectively a year of this process, we can now close that chapter and move forward. What we get in result of it, and we're going to go into much more detail on that in the next quarter, is a realignment of our capital structure in line with our business plan. And the other thing that's an important takeaway from that process is that that process has ratified our future prospects as a business, as a cash generated business, as a recurring business, because we had the overwhelming support of all of our creditors. other two things that we did more fundamentally on the business is sign the servers partnership in the quarter we had been working off of a term sheet since the middle of last year that's an important milestone and now you'll see we what we expect that to ramp up And then also, we continue to inculcate or roll out technology across our platform. Both Ophelos and other AI tools are being rolled out. And I'll get into a little bit more detail on that later. But that is going to add to our margin momentum by improving our fundamental ability to deliver more collections and at a more profitable rate. Next page, please. So during the quarter, we also put out our European payments report. This was a report that's incredibly useful. For those of you who have not seen it, I would encourage you to look at it. We put out a European payments report, which is focused on small and medium sized enterprises once a year, and also European consumer payments report that focuses on consumers. Here you see and everything we see here means that or has indicated to us that there is significant uncertainty in the marketplace, in the economic marketplace of Europe. There is a significant amount of value at risk in the terms of accounts payable. And extended payments are still a persistent problem, which we directly assist companies with. And also that technology is increasingly getting on people's agenda, getting on companies' agenda as a way to interact with their customers. So not surprisingly, the need for our services is increasing. and the recognition that technology plays a role in your interaction with your customers or clients, those two factors are both going to bode well for demand for our services going forward. Next page. Now going into the various elements of the business, very similar or same themes as I said earlier. It's all about margin on the top left in the servicing business, incredible momentum. I think it's important also to recognize that the 21% that is in the quarter was higher than our entire year's margin last year in 24, which was a little bit above 19. So it shows that this trend is both strong and continuing. On the top right, we continue to have positive collections in RPI business. We would expect that to continue. And that's really evidence of the fact that we as a servicer can dedicate resources and manage returns on portfolios that we buy dynamically such that we always try to exceed our forecast. And we do so both on an active basis and an original basis. And the cost focus continues on the bottom left. We have had two discrete cost reduction programs. We are now transitioning to management of our total cost base, which is at a more manageable level, driven by both processes as well as headcount reduction. And we now, on a continuous basis, will manage our total cost basis to be more and more efficient going forward. And then on the milestone front on the bottom right, as I've already mentioned, during the quarter, we signed the servers partnership agreement. On page six, you see our servicing business. And you see in the top half of the page, the margin trend and the revenue trend through the end of 24 was positive on revenue, slightly negative on margin, and then significant turnaround on margin and a stabilization of revenues into 25. There you see the 9% last year in the Q1 24, and the 21% this year in Q1 25. So last year, we started at nine. finished in the fourth quarter with 30, and a blend for the year was 19. This year, we're starting at 21. That bodes well for how we're going to go through the remaining quarters of 2025. What you see also is that stabilization of revenues. When you divide it up, you see in the bottom half of this page, both the margin improvements as well as the top line organic growth by region, by key regions. You see that the north and middle are growing, although I'd like to see those numbers higher, frankly. And you still have the structural decline in assets in southern Europe. But you also see that all three areas or all three regions have improved their margins with southern Europe, albeit in a structural decline, being the highest margin region. So these trends are things that we want to directly address. We have been addressing the margin, which you see a broad based improvement. We want to get the organic growth up higher in the north and the middle. And we want to mitigate that structural decline in Southern Europe. Next page, on page seven, you see a page we introduced a few quarters ago, which goes through AUM, recovery rate, conversion rate, servicing income, closing balance. And you can see here that there's been incredible stability Our collections during 24 and then on a trailing 12 month basis as of the end of the first quarter are quite consistent at around 110 billion. And this is only external assets to be clear. um and our external servicing income is quite stable so what we're recovering and how much we're getting paid per unit of recovery from our clients is quite stable uh i would highlight only one thing between the rtm beginning of 1621 on the top right and the 1551 closing balance at the end of the first quarter that is largely due to fx movements The next page, page eight, is one of my favorite pages. We brought it back into the quarterly report this quarter. And this gives you a sense for the history and the trajectory and the performance of our investing business over time. And this goes back to 2004 when we really started to invest in any meaningful fashion. And over this entire 20 plus period, we've invested over 8 billion euros, just to put it in context. And over that time period, we have collected against original forecast 107%. You can see that in the top left. against active forecast 105. Since 2018, which is really when you see the large volumes being collected, which indicates large volumes also being invested, we've generated what I believe to be a very consistent and attractive unlevered return at 14% and a two times gross money on money multiple. I think the other element here is that long-term while the movements in terms of our collections rate, which is the blue part relative to active and original forecast has gone up and down. It is very attractive averages and is only dip below 100 once that's during the pandemic and came right back very strongly. the other element that's important to highlight which is one of the reasons we have some headwinds on revenue in our investing business is the decline you see in the blue chart which is our collections from 23 to now that's partly the sale of the back book that's also partly just we have less assets so we collect less that is something that i would expect to stabilize in the coming periods The next page is a very important point, which is how much we've done together with servers to date through the first quarter. As I said earlier, we have been operating on a term sheet basis, working together across our footprint since the middle of last year. We've agreed 14 deals, actually closed and funded 11, about $2.5 billion plus, of which we've done over $750 million of our share. And we have what's really interesting is that we have completed investments at a very attractive investing return. Here you indicate on the third bullet point, the 1.9 net money multiple that's expected by the end of Q1 2025. But what's very important is that this model generates investment management revenues and servicing revenues, which are equivalent to not more. than ultimately our investing returns. So that's the beauty of the model that we invest with a partner. We have our share of investing returns. We just make decisions on investments based on investment return. And then we have the added benefit to our model of investment management fees and servicing revenue. And again, we signed the definitive document regarding this in the beginning of April. And ultimately, what this means is that we now, we believe over the coming quarters, we want to scale up our volumes done in this partnership. The next page goes through a fundamental point here, which is the diffusion and inclusion and use of technology in our platform. Ofelos, as many of you know, is the autonomous debt resolution platform that we purchased in 2023. It is now in six countries, UK, Ireland, Spain, France, Belgium, and Netherlands. It's now going to be in Portugal and Italy in the coming month. By the end of the year, we'll be in four other countries, Greece, Germany, Sweden, and potentially Norway. And there, where we have it rolled out, you see a very common theme and a very consistent impact. Higher collections relative to our legacy collections capability, better customer experience, and lower cost, so higher margin for us. For a company that ultimately has 30 million consumers, almost 200 billion euros or 2 trillion sec of assets under management including our own and client assets and takes 160 million actions a year you can imagine what that kind of potential impact could be when rolled out across the entire platform Our objective is between now and the end of the year to not only get into these four additional countries, but ramp up volumes in the countries where Ophelos does exist. We will see a tangible run rate impact at the end of this year and going into next year. In addition, just anecdotally on the bottom left, During the quarter, we launched Olivia, which is our AI voice agent, to make fully automated AI automated outbound calls. We are making about 10,000 a month in Spain related to our real estate business. That's going to go up by several multiples in the coming weeks. And what we've seen is that this agent, AI agent, which fully identifies itself as an AI agent, is actually more effective at getting to a positive conclusion phone call than human agents. Again, going back to if you look at that and then put it in relation to the five to 6000 people we have in over 40 call centers, the potential is quite dramatic. Next page. Again, we are incredibly privileged to play an important societal role. We continue to help people who are in a very difficult situation, who are in debt that they can't potentially address directly and they're looking for solutions. We provide them with those solutions. We deal with them in a very delicate, and we provide them with solutions on an industrial scale. So we helped 4.6 million people over the last 12 months become debt-free. These are individuals, you've heard me say this many times, but it's one of the privileges of our function as a company. These individuals now can reintegrate into financial society because they are excluded until they are able to deal with this debt. And despite dealing with them at a very delicate time, we get very positive ratings. And all of this activity leads to delivering also for our clients, which we consistently over the last 12 months continue to deliver in large scale at 119 billion total, of which a little bit less, about 9% or so, a little bit less is for our own book. The rest are for clients. So the last point I'll make, and this is deliberately the last point in the main section, because hopefully going forward, we won't even have to have a page like this. But the recapitalization, as I said earlier, we've turned the page. It is effectively concluded. The court processes were all concluded and in our favor. We have overwhelming creditor support. Now what's left is regulatory approvals, which are conditions precedent, and we expect to close it at the beginning of July.

So with that, and maybe on that today, actually, please. Yesterday was the last day of appeal in the Swedish court, which means that effective from today, the court ruling is fully in place. Wonderful. And hand it over to you, which is what we expected. So thank you, Andres. So talking about the financials on the group level, I mean, we improve on every line except for the income side. where we're slightly down, and we will go through that a little bit more later on. I think the EBIT uptick and the discipline that we showed basically brings us to deliver a net income in this quarter, which is the first time since Q4 2023. And I think the things that we have highlighted during the fall, which is around making the service margin increase continuing to extract value on the investing side, ramping up the partnership with Cerberus. However, that hopefully should be accelerating now. Being strict on cost, not being very, very disciplined when it comes to taking extraordinary costs. I think all of those things are delivered in the first quarter. And I think that's a testament to what we actually, that we are now doing. We're sort of starting to find a pace and a cadence in our business along with the markets that is fully aligned. The leverage ratio stays flat at 4.5. We do have tailwinds from the FX side, but we also do have headwinds because the discontinued business rolls out every quarter. And I think that's sort of the summary from the first page. We go to the next page. This just illustrates how our cost has emerged over time. And you can see that the cost level we put in Q3 remains flat, i.e. we're basically able to compensate for any increases by being more efficient. We will continue to focus on cost. We will continue to focus on structural measures to continue to take the cost down. and also to compensate for any investments that we need to make. On top of that, we have the whole impact from our fellows and other technologies that will also help us on the cost side. And you can see that our FTEs are continuing down, which they have been for many quarters now. going to the next page on servicing uh i mean first of all starting the year off on an adjusted margin of 21 percent gives us a very very strong platform for the rest of the year um i think if you look at the servicing business we have very different dynamics in the different regions and i think andres showed you uh the fundamentals in north and middle we will continue to focus on the adjust the the margin going up and continue to grow the top line in the south we need to uh we have a nice margin there are the issues that we need to now get back to growing top line uh and and that's going to be one of the main things that we work with going forward throughout the year that's mainly related to spain and greece italy we see actually that we can extract income in that market and then the ics that we have which are fairly small but they're still there they relate to uk and spain where we still are working heavily on the transition and the transformation but we're getting sort of we're past the We've been past the peak, but we will continue to improve both those countries as it relates to the M&A effects and the integrations. And I think it's quite telling. I mean, an EBITDA increase of more than two times adjusted on an adjusted basis just shows that their servicing business has a very, very good traction. On the investing side, of course we would like to invest more we would like to extract we like to invest more But at the same time, the investing business is not something you do on a targeted investing metric. You invest on. And if we don't see those returns, we have to stay disciplined. And I think this is more a testament that we actually have the discipline to not deploy money where we shouldn't. Of course, now we having signed the partnership, we want to see those volumes ramping up, but We are also partly depending on where the market is here. We are continuing to extract good money from the back book. We do suffer a little bit from higher costs in the quarter, and that is mainly the reason why the ROI goes down. And we will have to look into how we can be even more efficient in our collection to avoid those extra costs going forward. But there's also part of this is also legal costs that will come back with higher collections. On the net debt, we do have some I mean, we do have one point six billion of operating cash flow lowering the net debt. Then we have a bit of finance going the other way. We have investing, which is lower than expected, as we discussed. And then the FX is obviously a big tailwind here. On the other hand, when we look at the leverage ratio, as I said, the discontinued business is now only included with one quarter and it will fully exit as for Q2. And we expect that the IR levels for the new investments to remain at the high level. We are not going to sacrifice the IR going forward for volume. Page 19 is essentially a repeat of what we showed before. It's the new maturity profile. I'm not going to comment too much on that. I think what is worth mentioning is that the cash and cash equivalent has gone up to 3.2 from 2.5. So we're improving our cash position on a quarter to quarter basis. And then finally, on the financial targets, I mean, the CAGR on the external servicing is pretty much in line. We need to work to continue to keep that around 10%. The service margin, we're not going to celebrate that yet, but it's moving clearly in the right direction. And we feel quite comfortable that we can meet that target going forward. On the investing book, I think here is more question how we can actually get the book to shrink less. And that's something that we have on the agenda. So we basically want to stabilize the book as much as possible. And then last on the leverage ratio, we are stable and we're targeting for that to continue to go down.

Great. So if we can go to page 22, I'll just make some very brief summary comments and then we'll open it up to questions. But, you know, the first quarter, which was a very active quarter, it is also seasonally our slowest quarter or our seasonally most conservative quarter. And so therefore, to have the kind of results we have sets us up, as Johan just said a few minutes ago, very nicely for the rest of the year. During the quarter, top left on page 22, we had the Swedish reorganization confirmed. That is effectively the final step towards turning the page on our recapitalization, which we've done. We continue to focus on cost, and we've now transitioned from two discrete cost reduction and targeted cost reduction programs that we've successfully completed to now managing our total cost base, which was evident on Johan's page, and continually improving that. We continue to to utilize and include technology in our business. I gave you some ideas earlier and in prior sessions as well as to the potential impact of that. We now need to execute on that impact on over the coming periods. And ultimately, it's margin improvement and address the top line in servicing and investing collections above forecast while we ramp up our partnership model. So that's in sum what the quarter is, and I think what it also demonstrates finally, and then I'll turn it to questions, is the strength of the platform and the strength of the people. We had an incredibly active last year with many fronts open, and for the company to operate with these kind of results while we're going through a recapitalization, while we're trying to reorient the strategy, et cetera, et cetera, is just a testament to the quality of the people, not just on this call, but all 10,000 people or 9,000 people in the platform. And I'm incredibly proud of how the platform has performed during this period. We are now entering a new chapter. We're gonna put the recapitalization behind us and we're gonna attack the business. We have the largest commercial footprint. We have a large capital base and the number one MPL investor is our capital partner. And we're including technology. I think that I believe will lead to success in the periods to come. So with that, we can go off to a Q&A operator and Jakob will be the first one as always.