Intrum AB (publ)

So good morning, everyone. It's been a busy morning. We have a lot of things to cover in this call. We will start with the Q1 presentation and then we will move forward to the rights issue or the capital race. I think we will go through both of them and then we'll move into Q&A rather than to pause in between. So if we start with the first quarter highlights for 26, and again, this is the first quarter of our strategic execution, which has an end date, which is 2030. But I think we think that we are moving according to plan. I mean, if we look at the P&L, we are ahead on the cost reductions and the servicing income is slightly behind. and a lot of FX effects in there. The service leverage is largely unchanged and the overall leverage is slightly down, but it's supported by the consolidation of Savoy Group, and we think that there will be further improvements to come in q2 when we close the portfolio if we would close the portfolio sale announced in january uh i think one of the important highlights obviously not part of the quarter but that's been announced today is that we have a fully guaranteed capital raise of seven and a half billion which will help us accelerate uh but we'll talk about more about that later moving on to the servicing I mean, margins quarter this quarter versus last year's Q1 are slightly up. So we move from 20 to 21. The rolling 12 remains at 25%. We do have organic growth in our traditional markets. They continue to grow on aggregate. But it doesn't fully offset the natural decline that we have in the specialized markets. Our client satisfaction index remains high. And we continue with a strong cost discipline. Cost levels are now 10% lower year on year. We have an 11% increase in rolling through months on the adjusted EBIT compared to Q1. And the sales execution in Q1 is more than 30% higher than Q125. And we will continue to focus a lot on the ACV to top line conversions. Moving to the next slide around our investment portfolio, we are closing the quarter with higher volumes than we guided, if you take that on a run rate basis. However, now with the race of capital, obviously, we will have to look at different volumes going forward. The good thing is that we are still very disciplined in terms of how we invest and what returns. And with the consolidation of Savoy, that increases the book materially. And the collection index is at the 100% versus the active forecast. And you... A new slide that we have introduced, and we will continue to follow up on this, is that we are making good progress when it comes to the AI and tech implementation. This is just to highlight the main areas where we're working. So we are spending a lot of time on our document AI. We are handling millions of documents every year, and a lot of them are done either manually or semi-manually. And we are now looking to automate that management and processing using AI. We are exploring, we're live in Spain, and then we are running seven countries or eight countries additionally, where we either are in pilot phase or exploration. And we're doing this in a coordinated effort between a central team and local resources. When it comes to AI, we are doing millions of calls, both outbound and inbound, and all of them, almost all of them, are managed by people. So in terms of using agented AI, there's a huge potential, and we're already exploring that. In Spain, which I think we talked about before, we have Olivia that is running roughly 80 to 100,000 calls per month. I think so far she has been able to process over a million calls. And then we are now running pilots in Germany and Spain, and we are exploring use cases in Italy and Poland. This will also have a major impact on the way we operate going forward and also in the way it will impact our cost to collect. And the conversion rate so far is in par or maybe sometimes even better. On the email AI, again, another big driver of the work that we do, millions of emails are being processed. Some of them manually, some of them semi-manual. We're now moving into automated email responses and also send outs. We are live with a prototype in Belgium and we are doing work in another three countries to start implementation. And here we think that there's actually a possibility to develop a solution that we can use in almost every country that we operate. It just needs the local connection to the core systems. So this is super exciting. We'll continue to follow up on this and we'll be more specific as we go in terms of the impact it could bring. I'll hand over to Masi.

Thank you, Ivan. Let's move into the P&L on slide seven. So we've talked about some of this before, but total income is down 12% versus the first quarter last year. We do have some FX headwinds. So despite the fact that the corona was actually weaker than the euro by the end of the quarter, on average during the quarter, the corona was strong, which has a negative impact on our income line, as well as a positive impact on the cost line. So that compounds the numbers here. As you can see, what stands out this quarter is that we have a capital gain from the constellation of Savoy. I'll come back to that later on, but that has a big impact on EBIT this quarter. We also have some extraordinary items on the net financial expense line. So the interest expense in the quarter is what it should be about 870 million based on what we're paying for our debt, but we have some non-cash items there impacting that number. There's an FX effect. As I said before, the corona was weaker by the end of the quarter, which has a negative FX effect on the net financial expense line. We have fair value adjustments, and we have a write-down of shares related to the constellation of Savoy that impacts that number. So net financial expense accounting-wise is almost double the level it is cash wise normally this quarter, which leads to the fact that we report a net income, a negative net income in the quarter. If you move on to the JV Savoy, we've named it Penelope sometimes in the past as well. There are different names in this structure, but we'll call it Savoy here. So what we've done during the quarter is that we've increased our share of this JV as we see value in it. And we have taken control of the structure by having more board seats. This allows us to consolidate the JV. and therefore it has implications on both our P&L as well as our balance sheet. Here in the P&L you can see that we have a credit gain as we've done a revaluation of the portfolio, but we also have impairments of financial assets in the notes in the group. So the net P&L impact is plus 254 million. At the same time, as we're consolidating, the book value of our portfolio investment goes up by 3.7 billion. There are some property holdings in there as well. And in the structure, there is some restricted cash. And we're now including all this senior debt in the structure in our own debt stack, which adds 1.9 billion of debt to our debt stack. But also we're including the cash that is related to this structure in the consolidated numbers. The net effect of the cash being included, as well as the debt being included, is a positive impact on our total leverage ratio of about 50 basis points. So to be clear, this is a JV where we think that there is cash flows coming in in the future. We want to visualize that, that there is value in this JV. Therefore, we've increased our stake. We've taken control. In practical terms, in the near future, the cash that has been generating in this JV will be paying down the senior debt that's in the structure. We own the mezzanine and junior nodes. And as the senior debt has been fully paid down, we will start to receive cash from this structure. And at this point, we expect that to happen sometime by mid-2028 as a starting point. And then this is a very large portfolio and it could be a long tail of cash being generated, and we'll see how long that tail is. Now we've done a valuation of this, we revalued it, and we've used the best estimate that we have in terms of the future cash generation. If I move to servicing, so on the headline numbers, it's down 10% on the external income. About half of that is organic. About almost half is FX. As Johan mentioned before, we continue to grow in the traditional markets, but it's not fully offsetting the decay we have in the specialized markets. I think the difference between the quarters in the past, the Q3 and Q4, when we reported overall organic growth, is the fact that the traditional markets are growing slightly less this quarter. The decay in the specialized markets are approximately the same as they have been in the past. We continue to have good cost control, down 10% year on year in servicing, and that is obviously helped by FX to some extent, but is also driven by the efficiency work we're doing. We're in line with our plan or slightly ahead of our plan of reducing costs in total by 5% this year compared to last year. If I move to investing, income is down clearly more than in servicing, 18%, again, impacted by FX. But obviously what's happening here as well is that we are investing less than what is amortizing. So the book is shrinking and therefore the income generation is lower. What also has impacted results this quarter is that we have a performance which is in line with active forecast. So the performance is at 100%. But the first quarter last year, it was at 102. And that sort of deterioration in performance, even though it's at 100%, also has a negative impact on the on the income line. Again, we're doing new investments at very high price discipline, which means that this quarter we've done a blended IR of 19%. And again, recall that when we do investments together with servers, we do get the servicing revenues as well. So typically the consolidated IRs are clearly higher than the 19%. So I'll ask you on to summarize the quarter before we move into the capital race.

Yeah. So, um, I think what we said upfront and I mean, that's part of the situation. I mean, top line development is slightly behind plan. Um, but, um, we don't see any structural changes. Uh, it's, it's also some seasonality. We have a positive sales momentum. We continue to increase how much we actually close in terms of new business. And that we now need to convert into real top line. The margins are stable. I think in our guidance, we have said that we will move slightly upwards, but it's going to be in a steady pace. On the investing side, I think the trend continues. The 345 comes at a very high IRR. And as Marcia also said, I mean, it brings servicing income. And we now have the full launch of the execution of the strategy and we have a full management team in place and our operation efficiencies are ahead of plan. And most importantly, with the fully guaranteed capital raise, we can speed up the execution of our 2030 strategy. So let's move to the next part, which is around the capital raise. So the capital raise is 7.5 billion. It's fully guaranteed. We have clearly articulated as part of our strategy that we want to focus a lot on our deleveraging. So the intention is to use around 5 billion to reduce debt and the remainder will support growth and profitability through investing volumes could be increased and to selectively speed up initiatives that we do in our operational transformation. That includes adjusting our way of working, that includes speeding up the AI initiatives that I talked about before, but it also includes how we can leverage data and technology in becoming more efficient in how we serve our customers and clients. The capital raise has a very positive effect on how our cash flows are impacted. First of all, it will lead to direct deleveraging. That in itself should help us to move our credit rating in the right direction, which will lead to lower funding costs when we go out and either refinance and work with our capital stack. That itself will help us to free up cash to accelerate our growth in the investing and the servicing business, and that in itself will improve the cash flow. So every step we take leads to an improvement in the next step, which in the end has a multiplier effect on how much profit we can generate. So we believe that the acceleration is two years via the strategy that we presented at the end of January income in terms of reaching our leverage target of 3.0. It will help us improve our refinancing profile and it will create a much stronger credit rating trajectory. It will reduce the funding costs immediately and it will continue to reduce the funding costs as we address the capital stack. And it will also help us to get much better access to capital markets. And the capacity to increase portfolio investments will be there. And we will also do the targeted efficient initiatives. And I think as we very clearly articulated in the strategy is that the better we can be in operating our platform, the more attractive we will be in terms of generating new revenue to the servicing line. And with reaching the leveraging target of 3.0, we also now open up for a potential dividend post the 28th financial year. I'll hand over to Masi who will take us through a little bit more of the exact implications.

yeah uh so this slide we showed in conjunction with our strategy presentation in january we indicated on a few different lines how we think the development will look like from 2026 on to 2030 and here we're trying to indicate how we think the capital raise will impact the way forward we don't see a any significant impact on the servicing income or on the cost line It is possible that with some of the acceleration in the operational excellence work that we do, that we could front load some of those investments, which would then lead to a better cost trajectory beyond that, but also with the platform improving faster than will be assumed in the past. leading to better service income growth. But at this point we haven't, we don't think that that's going to be a significant magnitude and therefore we haven't changed our indications in terms of service income and on total costs. The main delta will obviously come on the interest cash expense. We're at 3.5 billion last year that will start to come down as soon as the capital raise has been concluded, as we can park the money, for example, in the RCF and reduce our interest expense immediately. And then over time, as we refinance with a better rating, we will refinance at better terms and therefore reduce our interest expense faster than earlier indicated. And then obviously the big delta is on portfolio investments where we had a plan this year to do slightly less investments than we did last year and then accelerate afterwards. Now we think that with this capital raise, we can potentially increase investments this year compared to the levels we saw last year. And then going forward from 2027 and onwards, we will be able to increase investments faster than we planned to do previously. Now, in terms of portfolio investments, we will continue to be extremely disciplined on price and in our underwriting. And we won't do investments if we feel that the price or the market isn't right. But at least the capital raise gives us the potential to do so. And if we don't think that it is the right market to do so, we'll obviously use that capital for other purposes. Obviously, an important purpose is to reduce debt faster. On the next slide, you can see how we now think about the leverage going forward. We reported a total leverage of 4.6 now in Q1. And we now expect that to move down to around three times by 2028 instead of reaching that level by 2030. On servicing leverage, we're at 5.8 times now in Q1. And we believe that that will go down to about three times already in 2028 rather than in 2030. So this is the two year acceleration that you all mentioned.

So I mean, in terms of the speed of how we reduce our leverage, obviously, the curve will be slightly steeper now. But if we compare it to what we have achieved so far, the curve will pretty much be in line when it comes to total leverage. And for the service leverage, it will actually be slightly slower than we've done in the past. So we see this as very much achievable. And let's see how we progress as we move along.

And then finally, hopefully you've seen this already, but here's just a timeline of how this will be executed. We're calling to an EGM on the 9th of June, where we're asking for the EGM to approve the rights issue. And then this will go along for the remainder of the month of June and be settled early July. And as you've probably seen in the press release, this capital raise is divided into a direct additions of 1.5 billion. You've seen hopefully the names that have been announced. So it's supported by Schusterforce, a few funds in Carnegie Fonder, funds managed by DMBS management, as well as Toluma. And on the guarantee side, all of these are participating, and we have several other long-term investors that have undertaken to guarantee the rights issue. And the main shareholder today, Nordic Capital, which holds 7.8%, they've undertaken to support the transaction and vote in favor of the direct issue and the rights issue on the EGM that has been called now. I think we'll stop there and we'll open up for Q&A.

If you wish 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 Heslevich from Seb. Please go ahead.

Good morning Johan and Masi. You stated that the majority of proceeds will reduce net debt and that interest costs currently at a weighted average of 7.6% will be substantially reduced. Which specific debt instruments or tranches are targeted for repayment first and can you quantify the expected annualized cash interest saving once the 7.5 billion is fully deployed?

Hi, Jacob. Thanks for those questions. So we haven't decided what parts of the bonds or the RCF we will address. We are very cognizant of seeing the market reactions and making sure that we do what creates most value. So we will use this money to reduce debt by approximately 5 billion, as we said in the presentation, but we haven't decided exactly what bonds or whether it's going to be the RCF. Again, we have to look at how the market reacts to this capital raise and what makes most sense for us to do from a practical point of view on addressing the debt stack. Obviously, what happens right away when the capital is being raised and we get it in is that we can park it in the RCF where we have an RCF of 11 billion and we can reduce that by seven from day one. which means that the current interest rate on that is about 6%. So right away from day one, we start saving 7 billion times 6%. And then depending when and how we address different bonds, that cost will be reduced further as we keep generating more cash flow as the debt has been reduced. We're paying less on interest, so therefore the cash flow improves. And with that, we can start to either buy back bonds, refinance at cheaper levels, or address the RCF. We haven't decided because we need to be very cognizant of seeing the data points on how things trade and what the impact is and obviously await more clarity from rating agencies on how this will impact our rating going forward.

Okay, thank you. And on that comment, I mean, you said $5 billion will be used for deleveraging and you have stated that you will invest an additional $6.5 billion between 2026 to 2028. So the remaining is $4 billion. And also saying you might start paying a dividend on top of it. So I'm just wondering, where will the additional cash come from? Is it all from lower interest payments or? to accelerate investment in servicing that quickly that it starts to generate cash.

You shouldn't see the additional investments nor the dividend as something that we are today saying we'll definitely do. Those numbers only indicate what is possible to do. Again, we'll only do the investments to the degree that we feel that it makes sense. that the returns are good enough and we're getting the returns that we require. Those numbers are just indications of what is possible with the capital raise. What happens with the balance sheet is very dynamic in the sense that we have bonds that are maturing And we have estimates of at what levels we will be able to refinance those bonds and to what extent we will be able to reduce the nominal amount of those bonds together with the higher investment volumes that improves the cash flow generation going forward. And the combined effect is the delta, which gives you that number of six billion of additional investments that are possible to do during this period. Again, it's not something we've decided today that we'll definitely do. We will use the cash flow that we have in the best way possible if returns are good enough. we will do more portfolio investments. If they're not, we'll use the cash flows for other purposes. And obviously one main purpose would be to reduce debt further and faster than what is currently planned.

Okay, thanks for the clarification. And then just a final question from my side on servicing income. It was already below planning Q1, which specialized market declining and new sales not yet converting. What gives you the confidence that full year service income will be largely flat versus 2025, given that Q1 is running an annualized shortfall versus last year's base at 12.3 billion? And is the guidance at risk if FX stays at current levels?

I mean, first of all, I think the guidance we made was on the basis of FX being the same. So of course, if the FX remains negative, then the top line will most likely come in slightly lower than the flat that we guided. I think on the servicing income, I mean, the specialized markets that have had the biggest or has the biggest impact on the decline would be Greece and Spain. Spain, I think we have discussed many times and we are running there a business that is predominantly driven by the sale of real estate. that pool of real estate is not unlimited and therefore every quarter the more we sell basically the less the lower the book becomes greece you also know about our relationship with and how we manage the hubs. That is also a business where we now focus a lot on making it super efficient to make sure that we keep the cash impact, but the top line uh, has a natural runoff. Um, so that's, I think the answer to that one. And, and, uh, and then, I mean, there's also some, um, some, some things that we know will come, uh, most likely that didn't come in Q1 that gives us comfort around the overall guidance.

I would just add to that, Jacob, is that the thing that gives us most comfort is that Q1 actually is just marginally below the internal business plan that we had for the full year. So we have a tilt in the business plan that is more towards the second half of the year rather than the first half.

And the conversion, I mean, from ACV to top line, I mean, that's not something that is an issue. It's just that we will continue to make sure that we get the volumes as fast as possible, which means that we need to increase the speed of onboarding. And then we need to continue to perform because that's how you get the allocation.

Fair enough. Thank you for the details.

The next question comes from Johan Ekblom from UBS. Please go ahead.

Thank you very much for taking my questions. So first of all, just when we come to talk about retiring the outstanding debt, could you just highlight to us what your options are? Are you able to call parts of existing bonds or do they have to be called in full? I guess buybacks you can structure different, but just to understand what your flexibility is in kind of altering the term structure of your debt. That's the first question.

We can call bonds and obviously we can call bonds and refinance parts of it, which would have the same impact as calling parts of the bonds, but we can call bonds up to a year prior to the maturities. So that's something we can consider doing. And obviously then if we call the entire bond, we can refinance what is necessary to refinance at that point in time. And obviously the whole idea here is to then be able to refinance at lower levels and have savings there. I didn't catch the second part of your question.

No, I was just trying to understand. I guess with buybacks, you can kind of target the whole series of bonds. But I'm just trying to understand what the... When you say up to a year, does that mean from a year before maturity, you can call, or... the last call date this year before?

So basically the 27th, they have a non-call one. So they will be called as we move into the fall. The 28th has a long call too. So they will come due the next year. And then that continues along the depth stack. The RCF can re-refine us at any time. And then we can do buybacks. So those are the sort of optionalities we have. And then on top of that, we can always... probably go and discuss with our debt holders if there's a bigger refinancing package to be made as well. So I think we have quite big flexibility.

Excellent. Thank you. And then you mentioned that part of the use of proceeds was to finance the kind of cost takeout that you flagged. But we go back to the Q4 results. I mean, the 10 to 11 billion cost, I'm guessing those cost takeout was kind of fully costed in the plan. So if you're putting more money into accelerating efficiency, should we think about moving lower in that range? Or is it turning out to be more expensive to achieve the cost saves that you'd planned for three months ago?

I mean, the work we've done so far this quarter, I mean, we just started the sort of operational excellence work more bottom up. And we are starting out with two markets where we sort of are accelerating this. And so far, we actually have found slightly more cost savings than we had initially indicated. So I think so far it's going according to plan or even slightly better than plan. In that cost trajectory you have until 2030, we had a plan of implementing this in several markets, but going at step by step. We can't do 20 markets at the same time. So we are onboarding more and more markets. What we will be able to do now is to increase the pace of that onboarding. We can have a bit more staff to be able to implement the platform improvements in more markets simultaneously. As I said before, we haven't exactly decided to what extent we'll be able to accelerate this. We need to manage these funds between the different purposes that it has, reducing debt, increasing investments, as well as improving the operational platform. But in theory, it could mean that you have a cost trajectory that in the initial phase is slightly less. So the reduction is slightly less. But then the end point is probably not lower than what we've indicated, but we reach it earlier than the 2030 targets.

Yeah. And I think here you want, I mean, We have indicated that we can move and achieve the leverage target two years earlier. We have kept the target that we have in terms of service margin and cost for 2030. Obviously, with this capital raise, we will sit down and we will also go through what's doable and how do we deploy the money in the best way. And if we would see that the outcome of that materially deviate from what we have given in the 2030 strategy will give an update.

But we shouldn't read into this that you think it will be more costly to achieve the 10 to 11 billion.

Not at all. It's more of a question of is it possible to reach that level earlier? Yes. And that practical work is starting now.

Perfect. And then the next one is just in terms of the accounting treatment of the Savoy transaction. I'm guessing this will mean that the investing business will show a lower cash conversion than in the past because you don't own 100%, right?

Yes, I mean, it dilutes the cash conversion when the structure is moved in. That's correct.

How does that come through in the accounts? Like where do we see that cash adjustment? Because I guess previously the only cash adjustments we had was related to the JB line.

Exactly. You won't, I don't think you will be able to see it because the cash, I mean, we will, this is not fully consolidated. So whatever cash it produces will be consolidated and, But then that cash is to a large extent used to pay down the senior, which is on our balance sheet as well.

But the ERC I see is 100% of... Exactly. So the gross collections is non-cash, but there's got to be an adjustment somewhere that reverses that, right? We can take this offline after, but I'm just trying to understand how we should model the cash generation because we don't know what part of the ERC by year is related to Savoy from what I've seen in the material. And then just finally, I don't know if there's a reason, the slides you went through in the webcast are not the slides that are on the website. So if you're able to share those with us later today, that would be helpful.

They will be posted with the webcast link. So it's a combo.

Okay, thank you. Thank you.

As a reminder, if you wish to ask a question, please dial pound key five on your telephone keypad. The next question comes from Rickard Hellman from Nordia. Please go ahead.

Thank you. I think most of my questions was related to the debt which we have discussed, but just a follow up on that. You earlier said you had an ambition to refinance the new money notes before the summer of 2027. I guess what you said earlier has to be clear now that that statement is not necessarily accurate anymore. You will wait a little bit and see.

Hi, Rikard. Which new money notes are you referring to?

The 2027.

The one and a half million. Yes. We have an ambition to obviously deal with that this year. But now we've been working on the capital raise, so that's been a priority. But as soon as this has been settled, obviously, the work on the debt stack will emerge.

Great. Otherwise, I think all good. Thank you. Okay. Thanks.

There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.

So thank you all for listening. I think we might have a bit more follow ups with some of you after this call. And yeah, we were excited. We think this is a very good outcome for the company. We're moving ahead and we're excited to see this capital raise all the way through and continue to work on our strategic plan and the execution of it. Thank you so much and have a fantastic day.