Intrum AB (publ)

Good morning everyone. This is Andres Shribio. 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. 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 -on-year. This is driven by the margin improvement. As you can see here our margin in the quarter was 21% in the 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 excuse me 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 in the quarter 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 out performed that. During the well 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 ultimately 647 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 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 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 a 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 important takeaway from that process is that that process has ratified our future prospects as a business as a cash generate generated business as a recurring business because we have the overwhelming support of all of our creditors. Other two things that we did more fundamentally on the business is 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 what we expect that to ramp up and then also we continue to inculcate or roll out technology across our platform both Othello's and other AI tools are being rolled out then 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 years margin last year in 24 which is 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 our PI 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 in 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 in 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 9 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 region 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 in middle and we want to mitigate that structural decline in southern Europe next page on page 7 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 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 I would highlight all in 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 8 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 percent 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 percent 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 two and a half billion 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 it's expected by the end of q1 20.5 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 this past the beginning of April so 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 include and use of technology in our platform all fellows 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 will be in four other countries Greece Germany Sweden and potentially Norway and there what 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 you know 30 million consumers almost 200 billion euros or 2 trillion SEC of assets under management including our own and client assets and takes a hundred and sixty million actions a year you can imagine what that potential impact could be when rolled out across the entire platform our objectives 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 fellows does exist and 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 week and what in the coming weeks excuse me 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 then human agents again going back to if you look at that and then put it in relation to the five to six thousand 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 want they're looking for solutions we provide them with those solutions we deal with them in a very delicate time 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 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 included 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 yes oh yeah what's 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 slightly down and we will go through that a little bit more later on I think the e-bit uptick and the 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 you know making the service margin increase continuing to extract value on the investing side ramping up the partnership with 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 have 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 four point five we do have tail winds 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 of 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 IE were 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 it will also help us on the cost side and you can see that our FDs are continuing down which they have been for many quarters now going to the next page on servicing I mean first of all starting the year off on an adjusted margin of 21% gives us a very very strong platform for the rest of the year I think if you look at the servicing business we have very different dynamics in the different regions and I think I'm just showed you 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 we have a nice margin there are the issues that we need to now get back to growing top line and and that's going to be one of the main things that we work with going forward throughout the year and that's mainly related to Spain and Greece Italy we see actually that we can extract income in that market and then the IECs 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 transformation but we're getting sort of we're past the we're past we've been past the peak but we will continue to improve both those countries as it relates to the M&A effects and integrations and I think it's quite telling I mean an even increase of more than two times adjusted on an adjusted basis just shows that their servicing business it has a very very good structure 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 testament that we actually have the discipline to not deploy money where we shouldn't of course now we having signed a 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 cost 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 cost that will come back with higher collections on the net debt we do have some I mean we do have 1.6 billion of operating cash flow lowering the net debt then we have a bit of finance net 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 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 don't 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 quarter basis and then finally on the financial targets I mean the KGAR 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 grow 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 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 have 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 I 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 some what the quarter is and I think what it also demonstrates it 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 etc etc 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 going to put the recapitalization behind us and we're going to attack the business we have the largest commercial footprint we have a large capital base and a the number one capital partner and we're including technology I think that I believe we will lead to success in the periods to come so with that we can go off to Q&A operator and Yaka will be the first one as always

to ask a question please dial pound key 5 on your telephone keypad to enter the queue if you wish to withdraw your question please dial pound key 6 on your telephone keypad the next question comes from Jacob has levic from Seb please go ahead

good morning andres and you want if we start with the servicing side I mean the ebit improvement it seems that expenses is finally under control which is comforting should we expect the current staff cost to be the new running rate with the further reductions to come in future quarters from layoffs made late in 2024 and also what reductions do you see from Ophelios being rolled out in Portugal and Italy

so I think that if you look at the there is a slight run rate effect that will come throughout the year but then in terms of technology and sort of Ophelios the true impact of that will probably be seen more into 2026 rather than 2025 because we're still ramping it up and we need to see that we can fully scale it and to be fair I mean we have rolled it out in many markets but the full scalability we're doing on a more selected basis and then when it comes to Olivia that effect will be seen probably already this year but it's not going to be material on a group level because we need to sort of make sure that it works properly so yeah that's probably also more of a 26 but yes the cost I mean we expect that the cost at the end of the year will on the run rate be lower than at the beginning of the year and then going into 26 you should continue

absolutely I mean I think in Jacob work we started the year last year at 9 ended at 19 we start the year this year at 21 that means I'm comfortable with the 25 percent target and also it's very tactical it's not fundamental as you could just indicated what we really see is the Ophelios impact beyond this year into next year and and further to be more fundamental improvement and so we needed to do the tactical as you indicated and now we're going to through this year continue to benefit from that and you'll see the fundamental on top of that and

I think the other thing is just to add to that Jacob I mean one thing is to get the cost down another thing is to get the full scalability on the platform and we need to work on both because we can decrease the cost but then as we we want to grow we also need to make sure we don't add back cost every time we get new contracts so I think that's another sort of area that we focus on a lot to be more efficient but also create scalability on the business we run

yeah that's a good point and talking about scalability I mean margins within investing used to be at lower levels given the slightly higher cost which you you want stated before is it due to the book becoming too small and that you're losing the scale benefits you once had within the segment or is it just that back book is becoming too old and second do you have any plans for reducing the cost base in this segment going forward

so so I think first of all it's not the first it's a ladder basically the book is the case is getting older and older and the older book that gets the the more effort we have to put on collections or on efforts to collect and I mean we definitely have we are looking through our PI structure and how we can make that more efficient as well

yeah I mean we are I mean again the the back book is decaying but also we have we have three elements to our PI book we have the true back book that we own 100% of which is getting older and costing us more to collect that's the primary driver of what you're seeing then we have orange which we which is what we did with service the back book sale which we still on a meaningful levered stake that is actually performing quite well and in line with expectations and then we have what we call project blue which is the server's partnership which is going to ramp up and be at higher IRRs and give us all the other benefits the mix of all that is you'll see the ROI going up but we still have to deal with the aging assets which cost more to collect that's just a fact

yeah that's good and then my very last question is on the leverage ratio which was flat despite the tailwind from FX but as you talked about the cash EBT decreasing and will probably decrease also the next quarter from the discontinued operations but are you still confident to reach your leverage target by the end of next calendar year was a restructuring timeline changed anything when it comes to the leveraging as business momentum is probably not on top of your mind right now with all the legal proceedings

so so I mean we will we will have a new covenant structure once we close the transaction and and that will have a slightly new definition of the leverage ratio so I think we will look at that obviously much more than we look at this one in particular because that's the new that's going to be the new reality we live in and that's that's a common level that we definitely will make sure that we have good sort of gap towards and I think when we present the Q2 and we close the transaction I think we can come back to this this question at all but until then the three and a half is the target that we're working towards

but even if you change the definition will we be able to follow and track you on the three and a half

of course

as is today yeah okay

yeah I mean thank you you know but there will be a new definition as well.

Perfect, thank you.

Thank you, Njagam.

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

Good morning Airman. Good morning gents. Good morning for the presentation and for taking my question. So maybe if I start on the servicing margin do you think you can be at the 25% level for the full year in 2025 already given the good start you've had in Q1 and then if I just do all the questions right away the second question is on you said that you wish to stop the investment book from shrinking anymore. How much do you think that you will be investing per annum then to be able to do that? Is the current money multiple sustainable or is it even higher given that you're doing quite low volumes at the moment? And then lastly if you could just help us a little bit more on the economics that you mentioned there around the Cerberus partnership with the kind of 450 million invested versus the 650 million revenues you expect to get, kind of just how you get to those figures. Thank you.

Sure. And thank you for your questions, Airman. So first off we had an expectation to approach the 25 which meant we were not going to get there but we were going to get close this year. We've obviously outperformed in our first quarter so we'll see how that ripples into the second, third and fourth quarter. So I mean I think ultimately we're, as I said earlier, we're comfortable with that target and how we're getting there is more tactical and fundamental so you can derive the appropriate messages from that statement. On the second point we would love to stop the back book from shrinking. We have a targeted investment of about 2 billion SEC a year. Replacement cap ex against our existing book is above 3 billion. We're not going to be at 3 billion over the near term because we have to balance managing and scaling up our investment book with de-leveraging as well. And so we have to balance those two which is why your third question is a very logical question. The service partnership is fundamental to it. We have every euro or SEC if you will that we invest, we not only get the return on that investment which is typically high teens and this quarter was above 20 but then we also get fees when we close the deal on their capital invested. Every year fees on what we collect on their behalf and then ultimately fees based on their long term return. And then on top of that we get servicing over the life of those assets. And so that 650 is a combination of the investment management fees which are upfront and ongoing and then back ended plus our servicing revenue over life of the capital invested. It is an incredibly favorable model in terms of giving us operating leverage. We are an investor but also just as importantly if not more importantly a large operating platform that collects on these assets. Servus is a capital partner that brings capital and sophistication and discipline and I think this model works very well for both of us and is incredibly complimentary and over time as we scale it up we'll provide a much higher return on our capital invested than we had historically where we had 100% proprietary book as opposed to now an investment management model. Hopefully that addressed your questions.

Yeah maybe on the first one I mean 25% we want to improve the servicing as much as possible. If that means that we hit the 25 already this year that would be a great benefit but as I think Anders said I mean you know we work to get as good as possible and then the result of that we'll have to see. Correct. We wouldn't hold off on the 25 just because we said it will happen next year. If we get there we get there. Yeah and

when we get there we're not going to stop we're going to continue to improve.

Next question. Sky's the limit. Thanks.

The next question comes from Ageliki Bairaktari from JP Morgan. Please go ahead.

Good morning.

Good morning and thank you for taking my questions. Three questions from me. Good morning. Just three from me please. First of all just to come back to the Cerberus partnership. When shall we expect to see those management fees and potentially also performance fees like a more meaningful contribution from those with income line because I mean obviously you don't break it down at the moment but I would expect it's probably in the next year. I think material is something more material next year as you run about the investments there. And have you considered doing similar capital partnerships with other players outside of Cerberus. Then secondly with regards to servicing I was wondering in which areas do you actually see growth in northern and middle Europe and are those clients that you're servicing there the new clients that you're bringing on mostly banking clients or sort of clients of utilities or commerce and how is the pipeline looking for client wings. I think in the past you were giving us the annual contract value development which I don't think you have included in the presentation this time so if you can give some color there that would be great. And then with regards to the investment division again just with regards to the EBIT margin which fell quite a bit to 48 percent in the first quarter. I heard your comment about sort of you know the king aging book which is harder to collect. How should we think about the evolution of the margin there in that division going forward. Thank you.

Sure. Thank you. So let's first talk about the service partnership. You're correct that this still needs to ramp up and that you're going to see some level of both what we call execution fees which are done when we close a transaction and then ongoing performance management fees which are based on collections this year. But you're really not going to see that until be meaningful until we ramp up significantly which will be more next year event than this year event. But we are going to start disclosing this in a discreet fashion in the second half of this year in line with our transition from a proprietary investor to an investment management platform. On your question of other capital partnerships we are approached on a regular basis by many capital sources to access this asset class. They have to come through us because of the nature of the asset class and who we are. Cerberus is our primary and exclusive partner in consumer unsecured. But we are in dialogues and always are open to dialogues with other capital partners and long term our objective is not to have a single partner but to have many partners and also to have a broad based even LP based limited partner based investing business down the road on servicing. It is broad based. We in the north and middle Europe it is very broad based. It is roughly fifty banks and industrial clients. Industrial clients we manage invoices for, banks we manage loans for and also in southern Europe although there is a structural decline Italy as Johan pointed out earlier doesn't have the same effect. And this is a part of the evolution of the southern markets in that when you have very large one time transfers and also a very quick creation of an industry such it was in Spain more than ten years ago but now in Greece more than ten years ago. You do have the structural decline and then it develops. Italy has had a very developed servicing market for decades and that is why you see stability to growth in Italy and you will see this process in the future in the other two markets but it takes time and you need to work off the traditional assets. But ultimately we want to raise our growth in the north and middle Europe and we will do that and we want to mitigate the near term decline and then in investing the EBIT margin has come down because of the age of the book as you see the service partnership ramp up on the investing book itself the IRR should come up and the ROI should come up and then it is related to your first point as well. The fees will start flowing into this business and you will look at it and see that on a totality basis per unit of invested capital we are getting a much much better return across the entire company.

And I think we will at one point we will actually start showing our businesses in three lines. So we would have then the servicing, we would have our pure investment business and then we would have our asset management. We are not there yet because it is still not fully meaningful but we will. And on the investing side I would also like to add, I mean if you look at the investing results, I mean on our own book it is kind of in line with last year, it is just that the book is slightly smaller so the income is lower but the costs are also slightly lower. But the biggest delta is on the JVs. On the JV line you see we had roughly 200 million of contribution last year, now we have 72. Out of that 72 basically we have 125 coming from our JVs with Cerberus, orange and blue and then the rest is actually negative. But if you remember that the old JVs they are more of a let's say secure type of asset characters so they will have swings. So you will also see going forward that some quarters they will be better and some quarters they will be worse because they don't have a constant flow. So I think that is also something that actually is a negative in this quarter that the old JVs are not performing, well they are performing on a collections basis but on a profit basis we don't get the full P&L effect given the structure.

And then I think we have a question on

the ACVs.

But did you have anything further, sorry? Yes,

there was a question on, I mean I just wanted to check if you want to disclose that number, you used to disclose it, I don't think you disclosed it in Q1.

No, so we are basically reviewing the whole ACV setup and especially we are trying to figure out how we can better track the ACV into real revenue and for the moment until that work is ongoing we have decided not to make sure that it is not misleading. You do have the ACV or you have the assets under management which is a different thing but the ACVs we have decided to not disclose for the time being.

Thank you.

The next question comes from Michal Luzma from Bain Capital. Please go ahead.

Thank you for the presentation. Could you discuss the terms of the settlement with the short N notes?

I'm not sure we have publicly disclosed them. I can tell you right now that effectively, we call it a settlement but it is effectively and I will say this openly in any forum, it was a capitulation on their part that we were going to be successful. So we covered a minor portion of their fees and they agreed to support in every forum. They agreed to withdraw their opposition and support in both the US and in Europe.

It's a settlement and effectively we covered some of their costs more or less. That's it.

So it would be maybe a single digit million?

You're not far off. It was minor, I can say it right there.

Okay. Maybe following up on Angelique's question on the margin on investing and the decay on the book, I didn't really understand how if the margin on the back book is getting worse because the book is getting older, why unit economics are going to get better? I didn't really follow that. If you could maybe explain that again,

please. So let me start with as you have a pool of assets that gets older, it costs more to collect. The same unit of collections against that original investment cost more. That's our interim back book. Then we have Orange, which as Johan said, which is the back book we sold to Cerberus, which is performing quite well, is levered. It's important to know that it's levered and we are getting a return there that's quite attractive and that contributes to the margin. And then ultimately we have the new partnership with Cerberus, which is both collecting at a higher rate and now ramping up and at a higher IRR. So the blend of those three, you should see the ROI improving going forward and that not even including the benefits of the service partnership to investment management and to servicing. I hope that addresses your question.

Yeah, OK, so with the blend of the three, it should get better. But if we look at the back book itself, it should continue to get better.

That is the nature of these assets. Yeah,

and what should be the magnitude of the... If we think that you are going to continue investing below replenishment at maybe a similar rate as what you are investing now, and the book is going to continue to decline and the book is going to continue getting old. Where do we think margins could get? Maybe in the low 30s, is it in the 20s or is it still high 30s? Where is the throw for collections margins? No,

I mean, I think that the new... So we have a targeted investment rate of two billion sec a year. Replenishment is above three billion. That delta doesn't mean that the book is going to decline massively. It's going to decline very gradually going forward because it is a large book. And therefore, you'll see some moderation. And on purely the back book, you'll see some moderation and reduction in collection margin. It will be more than offset with return on the lever joint venture with servers and the other joint ventures as they come back. They're lumpy now, but they come back. And then with the new investments, as those gain higher IRRs, that will also contribute to the return on this business, not to mention the other benefits of the service partnership. So listen, I think there's going to be... We don't anticipate our margin to decline significantly.

Yeah. OK. Yeah, there will be some quarters will be better. Some quarters will be more. Go ahead. OK.

And you have touched on this, but in general, on servicing, organic growth continues to be a challenge. I think Southern Europe has been a challenge for a while, and the rest of Europe is barely very given on an organic basis. So what should we expect for the next few quarters? And in the Middle and Northern Europe, where you have grown up to 2%, size is a volume. What has driven that 2% growth?

So we expect... And you've hit upon one of our primary areas of focus right now, which is we want to regain an overall growth trajectory to what today is on a blended basis, effectively stable to slightly down, top line in servicing. We fundamentally have to do that. In the North and Middle Europe, it's 2%, as we indicated in the presentation on a 12-month basis. That's come from improvements in number of clients and AUM, as well as slight improvement in conversion margin in those two regions. Southern Europe, as we indicated, when you disaggregate it, it's really Spain and Greece that have headwinds on the top line. Italy is actually quite favorable, and the Italian platform continues to carve out a bigger and bigger revenue out of that market. And so when we look at the blend of this, our goal is to improve the Middle and North, which we are doing, and to mitigate the Southern European decay, the blend of which should be higher than flat. We want to regain a growth trajectory over the coming quarters. That is our objective.

And also as part of the exercise to increase the margins, we've actually said no to quite some business, and we actually have terminated a number of client contracts. So that also has a negative effect on our top line. It does help us on the margin, because we take out costs at the same time, but it doesn't help us on the top line. So now when we've been washing through the portfolio and getting to an end of that, even though this is a continuous process, but the big exercises are done, it will also help us to then regain, again, top line growth, because we will then not have any more washouts. We will basically continue to work with existing clients that are on the margin, which is OK, and then attract new clients and new contracts. And then also on top of that, if we can get performance, we can probably shift even more volumes onto our platform from other platforms where we already have an existing relationship.

I think that last point is actually a very, very good point. I mean, fundamentally, how do we grow? We grow with getting more clients and more assets or selling them new services. But also let's keep in mind that we are the number one and number two servicer in every market we operate in. There's a lot of other servicers because of financial difficulties or regulation that are falling away. That business will naturally come to us over time. We are cleaning up our revenue base, as Johan said, but ultimately we have a plan to sell more and to sell new. We will also benefit from the environmental struggles that some of our direct competitors have. And we'll work through this washing out effect of bad clients, which impacts negatively our top line, but improves our EBIT line.

And to be fair also, I mean, still there are a lot of the big part of the market is wanting to do pure play on the investing side, but they still sit on servicing. And that's also something that we see that there are still a number of exits that hasn't happened. And that would help us because that's business that we can take over as some of the other players transition fully into investing.

Yeah, yeah, yeah. And to be fair, your margins have been surprisingly good this quarter. So that's showing in the numbers. But I think the question on volume has not been answered. So if you could follow up on that.

Sorry, can you restate the question? I thought we had addressed your questions. Can you just restate the force, please?

Yeah, if you could break down the 2% organic growth in northern and middle European price and volume.

I don't have those figures. Are you bringing volumes or? It is both. It is both. It is both. We have more clients, more assets, and we have a slightly better conversion rate.

OK, OK. Thank you.

If you wish to ask a question, please dial pound key five on your telephone keypad. The next question comes from Null. Please go ahead.

Yes. Good morning Wolfgang Felix here from Saria. I meant to ask, what is your duration now on that orange book? If I followed your color coding correctly, that's the book you're sharing. What's your average duration of that book versus, I guess,

the full book? I mean, again, it's going to be skewed in terms of its translation into our results because it is levered. But that has a typical duration of, you know, kind of there's going to be collections over the next 15 years there. It's going to be skewed as all our books to a weighted average that will be slightly less than five years. But that's a weighted average. Remember that our asset class by definition has significant earnings, but then it's almost asymptotic into the long term. And it'll have a very long tail. So we'll be collecting on that book for many, many, many, many years. But the lion's share of the going forward ERC is going to be in the next. The majority of the ERC is going to be the next five years and it's going to be levered. So it's going to provide us with a significant, a significant return. And let's be clear that that book is a cross section of our entire book. So it actually is very representative of the asset class in general. So it isn't

it doesn't have a shorter duration than your. It

does not.

All

right. On the mental difference between the orange book and our back book.

Okay. And as regards to the back book is now becoming, I guess, naturally more expensive to collect. We are in a high interest rate environment. You're about to come out the other end of your structuring. Should we for a bit of a write down there to bring that profitability back in line with, I guess, the business required to connect it? Is that is there something we should be

looking forward to? We would not anticipate that. But obviously, we look at this on a continuous basis. Let's not forget that we over going back to my presentation over the life of our assets, we have collected at one hundred seven, one hundred eight percent of history of original forecast. That's what drives write downs or write ups, so to speak. Our active forecast collections always lower than our original forecast. And that's going to be true for the back book. That's going to be true as we add to the back book with the new assets in the new partnership with Cerberus. So we I wouldn't say that you should anticipate any meaningful write downs over the medium term. But again, we look at this on a continual basis.

All right. Well, thank you. Good luck.

Thank you very much.

More questions at this time. So I hand the conference back to the speakers for any closing comments.

Excellent. Thank you. Listen, I want to just thank everyone for listening to us today for your very good questions. Hopefully, this has been illuminating as to, you know, kind of the quality of our efforts of the business, the results of our efforts. We continue to be available after this call for any of you. So please reach out to us through the normal channels and thank you again for following the company. We will talk again next quarter. And with some of you, we may speak before then. We're always available to address any and all questions. So thank you again and have a good day.