Resurs Holding AB (publ)

to CEO Magnus Fredin and CFO Sophie Taring Lindell. Please go ahead.

Good morning and welcome to our Q1 earnings call for research. I'm Magnus Fredin, I'm the CEO and together with our CFO, Sophie Taring Lindell, we will take you through the performance during Q1. So if we start with a summary, we see a loan book increases with 2% compared to previous years and 6% versus last year and it's primarily driven by payment solution that is up 16% versus Q1 2023. This is an important growth ending for us and we're doing quite well. Q1 operating income rose by 3% compared to the previous years, and we're very happy to see that the MBI margin is stabilized after a few quarters where we've seen declines in the past, especially on the payment solutions side. We still have microeconomic conditions that are driving elevated organic credit loss levels, now at 4%, 4.7%. However, we are observing a positive trend towards the end of the quarter. And I think that we will hopefully see now that the worst is behind us, even though we are very humble about the future. On this topic, we have also strengthened the team going forward. We have Warren Davidson, who will join the management team, who has extensive experience in working with both credit, but also building products. He's been a part of Clarence leadership team in the past as an example. We see the cost increases 9% compared to previous years from investments in IT and development, marketing and personnel. And we are obviously changing a little bit the strategy related to our channel mix on the consumer loan side, which gives a short term impact in marketing. When we are selling through brokers, we are distributing the marketing costs throughout the duration, which we're not doing when we're selling in our own channels. And then we have strengthened the management team and overall strengthened the competence within the company on the personnel side. And we're driving projects within IT, for example, Dora, when it takes into place in 2025. We have announced an efficiency program, a centralization program, which aims to save 40 million a year. And we have provisions of that in the quarter of 23 million. But we have identified additionally 40 million on top of that, which we will see an impact of in 2025. That's something that we will come back to in Q2 and talk more about. And then we would like to also emphasize our strong momentum in payment solutions. Once again, we have onboarded a lot of partners in the end of the quarter four, which lead to that obviously we see an increase, but we are continuing to sign new strong partnerships. And we now announce Jula, which is a very important partnership from two aspects. One is that we continue to drive growth overall in our core offering with sales financing towards consumers. But in this case, we also broadening that to be part of our future strategy, which we're going to also handle their B2B payments towards their company customers. If we then look a little bit deeper into the payment solutions area, as said, we grow in 16%. And payment solution contains both cards and retail finance. And we are having retail finance here as a growth venue, which is going 23%, which is very strong. And we see the strongest momentum, especially related to our pipeline in Sweden and Finland. It's going well and well. We are also growing further on cards. We will accelerate that also going forward. We see more potential to grow. We are surpassing 2 billion in loan book for the first time in our card business. Then, once again, to emphasize on the strong partner pipeline that we see and have seen for quite a while now, we're starting to actually see the impact of increased volumes overall. Now, for clear reasons, we obviously see a decrease in transaction volume in Q1 versus Q4 out of seasonality with Black Friday, et cetera, during Q4. But to emphasize a little bit more on the partner pipeline and the great merchants that we have on board, we have obviously talked about Powering Gigante that we went live with in 2023. But also we announced Orleans in Q4. But we have also fresh collaborations with Porsche and SmartEyes that we have now announced. We are broadening our offering together with Daikin and Via Nord to more geographies. and now also having Yule on top of that, which is a strong testament to the robustness in our core offering. If we look then on the consumer loan side, here is an area where we prioritize profitability over growth, and of course, very focused on the credit losses. We see that we have decreased the average loan quite a lot, and that's related to that we wanna decrease the risk and improve unit economics in general. And that's also comes down to our channel distribution where we have increased our own channels quite dramatically. And if we compare to 2023, we had 44% on channels and now we're up to 62%. So that's important for a unit economics going forward and strengthen profitability. And then related to payment solution to enable by adding more customers into our portfolio via payment solutions and the growth we see there will also be able to, in the future, give a good basis for further growth in consumer loans where we can cross-sell and upsell to customers. Then a few words on the strategic direction. We obviously announced in the Q4 report And we will continue to emphasize a little bit more in depth on this one. And we are leveraging our core strengths as the foundation for future growth. We're building it from the DNA which we come from with payment solutions and retail financing. However, we are prioritizing to stabilize our core business before we're making larger investments into the future. And this is important from a strategic approach of making sure that we have a solid base to expand from. So we're not making any larger investments until we have communicated the full strategy and the costs and the upsides related to that. We will, of course, then go into launching the next generation of products, and we already have started now to pilot. We are doing this together with Yule on the B2B side, but we also are doing some smaller pilots on the B2B lending side, which we are testing a little bit to see, making sure that we have a good product market fit, that we are understanding the processes and what our customers want. So step by step, we're taking this forward. This is intended to be a low strategy or low risk strategy, where we are basically taking the investments in correlation with how we are increasing the cost base going forward. And it's built on six elements on the consumer loan side. Once again, we want to optimize our profitability. It's a monetized business. This is not where we see that it's going to be our growth engine. We have our partnerships and merchant base on the retail finance side and payment solutions. Here we think we can utilize our unique position to leverage this further. And I think the most recent designs that we have done shows that we will continue there. And we can also broaden our offering by adding more products into existing customer base to be able to expand further. And then we have the next generation of products which we can build from a solid foundation. which will address a bigger market, a bigger addressable market, but also intended to actually drive growth further and also focus on maybe a little bit also smaller merchants that we see that we have on the retail finance side today, where we have quite a lot of enterprise merchants, but the margins overall a little bit stronger on. We feel look a little bit lower than that in terms of size of the merchants. And then we have three foundation enablers, to drive this forward is the tech modernization, data excellence and Oregon talent. And both on the tech and data excellence side, it's a lot about utilizing our data in a better way in order to drive automation. We have a lot of labor intensive tasks that we can automate through AI and other services. So that's one important, but also to utilize the strength of having a large customer base of 6 billion million customers in the Nordics that we can utilize by utilizing data in a better way. So tech modernization is intended to streamline operations, drive down costs, but also enable to build new products in a faster way. And to do all of this, we need to continue to strengthen the organization within the relevant areas, both in terms of on the tech side, but also on the commercial and on the credit side and underwriting side. So we will come back later on to present more on this in Q2 or after the summer. Now over to you, Sofie.

Thank you, Magnus. Let's look into the financial development in Q1 in more detail. We can take the next page. Looking into the loan book growth, as Magnus said, the loan book increased with 6% versus last year and 2% versus last quarter. Just as Magnus said, we have a really strong momentum in payment solutions, both versus last year and versus last quarter. And we have deliberately reduced the new lending volumes in consumer loans, focusing on increasing profitability. And if we're going to the next slide, we can see in the market split. And now we compare with quarterly sales. quarterly development, then you can see that the growth stems from all markets except for Norway, and I'll come back to that. But starting on the Swedish market, we see a good growth in both segments. Payment solutions growth stems from both existing and new partners. And in the consumer lending area, we are focusing on improving the share of lending in internal channels. Denmark continued its positive growth from Q4 and we see strong momentum here in both consumer lending and payment solutions. And looking into the Norwegian market, as you already know, we decided last year to reduce lending volumes following the new systemic risk buffered requirement that came in the summer. And during the quarter, we have focused on starting up new sales again, but with higher profitability demands in the consumer lending area. And in payment solutions, we see some seasonality effects impacting negatively from Q4 to Q1. In the Finnish market, we see a strong growth, mainly in payment solutions, where we have really strong momentum and increased 6% versus last quarter. And this is mainly related to the new partnerships with Power and Giganti that is developing quite well. In the consumer lending area, we are having a stable development and we are focusing more towards internal channels, which will reduce the growth rate going forward. In the Finnish market, we have also prepared for a new positive credit register that has come live here in April. And this will enable us access to additional customer data for credit assessments. And this is expected to have a positive effect on credit risk over time. And now looking into the operating income, we can see that operating income increased with 3% versus last year amounting to 881 million SEK in the quarter. The operating income is lower than Q4 due to the negative development in net income financial transaction, which was minus six in the quarter and plus 12 in Q4. But overall, we see a stable NIM development versus last year, 7.3. And it's actually improved versus last quarter following that we have been managing to improving pricing, mainly in payment solutions, but also in consumer loans. And this has mitigated the increased funding costs that we've been seeing during the recent period of time. And we will soon look into that in more detail. But first, net commission income is growing in a lower pace than NIM versus last year and are lower versus last quarter following lower factoring volumes than Q4. So in total, stable MBI margin development. And on next slide, you can see that we are managing to stabilize the margin development that we, as Magnus said, for several years previously have had a negative development in total MBI. But now, during the recent quarters, we have been managing To have a stable development we have been working actively with pricing in both payment solutions and consumer lending and now we can see that we're having a stable margin even though we have increased funding costs following the macroeconomic environment development. Looking into the credit losses, as Magnus already has described and that you are aware of, we had a negative development in our consumers' payment behavior during December. The negative development has continued in Q1, but I just want to highlight that December was still the worst month and that we have seen that lower levels in January and February, and now we have seen a substantial improvement in March. And this follows improved consumer behavior and it's seen in both segments. And it follows the normal seasonality that we have where the winter months are more strained for our customers. And now in March, we can see that it has improved. And as Magnus also said, we are continuing to taking measures to improve the credit quality over time. And this in combination with a more positive macroeconomic development coming period, we believe that we have the worst behind us. And let's look into the segments in more detail. And here you can see in payment solutions that we're having a strong growth, both from existing and new partners and both versus last year and last quarter. And as you can see, the last quarters in the NBI margin, we have managed to stabilize the development, even though we're having higher funding costs. We have still not been able to compensate fully for the increased funding costs, but we are working on it and we are having pricing discussions with both partners and have also managed to pass on to end customers during the quarter. And cost of risk, it's the same pattern as for the entire group that we have had negative development in customers' payment behavior during Q4 and Q1, but it's improved towards the end of the quarter. Looking into consumer loans, we see the growth versus last year and last quarter is stable. We are focusing on internal channels and you can see that we've also been managing to having a stable margin development. during the recent time period. And looking into cost of risk here, you see that the underlying cost of risk are not in the positive way, as you see in this graph, because in Q4 23, we had a one time effect of 52 million that is impacting most in consumer lending. So underlying the credit losses are higher in Q1 following the seasonality effects where January and February were higher, and then March became an improved behavior in the consumer underlying performance. So that is the segment deep dive and look into the costs then we can see that the operating expenses improved with not improved but increased with 9% versus last year and 3% versus last quarter and this is excluded the one-time effects of 23 million as Magnus talked about. And as we said, the increased cost is mainly based on increased personal cost, increased marketing. And as Magnus said, marketing expenses are posted in the OPEX line, but broker fees are posted in the net interest margin. So that is why we see an increase also in OPEX here in the quarter. And the CI ratio was higher in QM. And that is of course, because we have actively made some investment in the cost space for being able to have a better improvement long-term in the company. And as we said, we have launched initiatives for further efficiency going forward, and we will have the positive effects from 25 and onwards. And then looking into the operating profit or earnings before credit losses, you can see that we have a quite stable development versus both last year and last quarter, even though we're having higher costs. And the comparison here is somewhat disturbed by the negative net financial transactions. and then you can see that the operating profits are quite lower than previous quarters and that is of course because of the increased credit loss levels and as Magnus said we are not satisfied with having profits on these levels and therefore we are taking strong actions on both the cost side but also in how we're actively working with improving credit losses and reducing our credit risk appetite Looking into the capital base, we have a stable capital position with 200 bps headroom in total capital ratio versus legal requirement. And the reason for the lower capital ratios versus last quarter and last year is following the redemption of the T2 of 300 million here in March. And we also have a stable funding position and deposits are the largest source of funding and more than 95% of our deposits are covered by the governmental deposit guarantee scheme. And during the quarter, we also got confirmation from Nordic Credit Rating regarding our BBB flat rating. So that I think was the financial summary and over to you, Magnus.

Yes, and then to sum up with some of the key messages then, a very robust momentum in payment solutions, strong pipeline, many new signed customers that we will see soon also to onboard and start to generate volumes. We're happy also to see the improved MBI margin overall in this business over time, so that's good. We are prioritizing profitability over growth in our consumer loan business. And then to emphasize once again that we are not satisfied at all with the credit loss levels that we see, even though we see, of course, some very clear trends that are on the positive side in the end of the quarter. And then further cost focus on top of the already announced 40 million, we see also that we have 40 million on top of that, that we will now present more in Q2 that can take effect into 2025. And then, of course, we're looking forward to share more information about our future strategy in Q2 or directly after the summer. So now we will open up for questions.

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.

Good morning. This is Emil from D&B. I'd like to begin by asking, it's looking pretty likely that we'll probably start getting rate cuts in Sweden beginning next month. If and when this happens, do you think that you'll need to lower your lending rates sort of in lockstep with deposit rates, or do you think it'll be possible to sort of keep lending rates elevated while deposit rates come down.

Good morning, Emil. We believe that it's possible for us to keep the margins strong going forward related to that. We don't need to decrease the cost, so to say, or decrease the interest rates. So that's the short message on this. That's our ambition and that's what we believe in.

Presumably, competition is still pretty high in consumer loans, especially. Don't you think that as soon as rates start coming down, there'll be an opportunity for more opportunistic actors in the space to lower rates, to take market share, and then keep margins from expanding when policy rates come down?

I know I understand your question better, but I think overall, it obviously depends how we are distributing our loans. And if you look at our strategy overall related to that, we prioritize profitability over growth and that we have less volume going through the broker channel. It's quite clear that we think that we are able to keep stronger margins over time by selling in our own channels. And that's not only related to the interest rate itself. It's also related to the whole kind of unit economics related to that that business area. So we need to look at all the parameters in that equation as well, of course, as well. But but to answer your question, we think that, of course, some pressure can be put into to overall market when the interest rates going down. But we think that given where we are right now with an increased volume in our own channels, we will have better possibility to mitigate that going forward.

Okay, that makes sense. And on funding costs, do you think the funding costs have peaked in Q1 or do you think they have yet to peak in some future quarter?

Of course, it's hard to guide on exactly when funding costs will peak, but I think I think it will be here in the coming month, I would guess. I don't think we have the... Of course, there could be mixed changes and so on, but I think... I think we have the peak in front of us, but it will be here in the very short term.

All right, that makes sense. Moving on to credit losses. Thanks, by the way, for showing the monthly split in Q1. That's very helpful. But you've talked before about how mainly it's been larger consumer loans in Sweden and Finland that have performed poorly. What's the performance been so far on the other segments in terms of credit losses during the quarter?

No, but as you see, we have a little bit of an increase also in payment solutions. I would say overall, it's kind of the same pattern that are driving that we communicated earlier in Q4 with higher ticket sizes in Finland and Sweden, et cetera. But we see a little bit also an elevated level in some of the other business areas. Now it goes a little bit faster. given the shorter duration on the loan book in the payment solution area to mitigate that. But overall, we see a little bit increase in other business areas as well, as you can see in the numbers going up from 3.5 to 3.3% in payment solution as an example.

All right. And presumably you can You can presumably see pretty easily in your systems which loan sizes and which risk classes have been seeing the highest default rates so far. Do you think that there's still a considerable volume of similar type loans that have yet to default, that have not defaulted yet?

That question we can of course not answer. Overall, as we have said, is that we obviously see a good trend. If you look at the end of the quarter, we think that hopefully given also the inflation and the interest rates obviously going down that we have seen the worst behind us. I think it's also important to say that we are very humble about the future related to what we've been through. But I don't want to give a detailed answer to exactly that question. I think it's a clear pattern that you can follow overall and make your own assumption based on that.

Okay. And what have you done during the quarter to sort of process the more at-risk customers and permit further losses?

We are working of course hard with the pre-collection activities and we have continuously worked with our scoring models and making sure that the new lending is obviously on a different level so this is of course the classical actions that we are taking and working hard with and then on top of that it's also related to that we talked a little about during the uh deep dive in the business segment to lower the average amount uh it's one critical thing but also actually the channel plays the channel distribution also plays a role in this so all of those uh actions that you can take um we have basically been on top of and then obviously it takes some time um as we also then see in the quarter before you you turn a little bit uh the bigger part of the loan book all right and um

If you look historically at what's happened in Q2, most of the time the loan loss ratio has come down between 10 and 30 basis points, Q and Q. Do you see anything that gives you reason to believe that we will not end up in that change this year?

I think, Emil, you should look into our March development and then ask yourself, do you believe that there is macroeconomic things that will negatively impact the customers going forward? And if not, then you will see a positive rate going forward as the total quarter will be in a lower level.

Okay. And one last thing. uh so warren davidson am i am i correct that he has not been in the company before may and that am i correct in that he's taking over the role uh he used to be held by stefan yeah partly he he's taking over that role together with also driving products

And we see that both product and credit is such an important part of the company overall, and that needs to hang together, how you build the processes technical wise, et cetera, and how you build your future product suite. So he's taking over both Stefan's roles, but also how we're building products. And then he would start in May.

All right. And what do you think will what do you think will improve with with him in that role?

Now, first of all, Stefan is still in the company to be very clear. So they will join to work on improving our core business going forward related to this. But I think he has obviously worked for other providers in the market and has extensive experience, how you're building scoring models, et cetera, that I think is very suited for what we are having within our growth plans in terms of retail financing. So I think he would add seniority of understanding how we can improve this overall operationally wise and making sure that he's seen it from many different directions on many different products, not only related to retail finance, but also work with other products that are important for us for the future. So the extensive experience and overall work with this for a long time operationally, I think will add a lot of value into the team together with Stefan and the current team that we have.

All right, that clears up my questions. Thank you very much for the presentation and for taking my questions.

Thanks, Emil.

Thank you, Emil.

The next question comes from Jacob Heslevich. Please go ahead.

Hi, good morning everyone. So if we start on the margins in consumer loans, the MBI margin has been relatively flat for some time, but the NIM in consumer loans increased by around 10 basis points over the quarter, and it's now the highest level since several years. So I was just wondering, how should one reason about the development going forward? What kind of tailwind do you see, and are there any specific headwinds when it comes to rate cuts from the central banks, etc.? ?

I think, Jacob, two things you should have in mind in the margins in consumer lending. The first of all is that we're going more on lower ticket sizes and they have a higher margin overall. And we're also going more into internal channels and then we are not having the broker fee that is posted on the NIM. So that is also impacting the margin in a positive way and will continue to impact positively going forward, even though it's periodized over the length of the loan. So it's not a direct effect, but it is having impact, of course. And then there is some mixed effects also growing stronger in some markets where we have higher interest rates and so on. And going ahead, as Magnus said, we are focusing more on internal channels and this will helping us keeping up the margin going forward. But I don't think you should expect I think you should expect the stable development overall as we have been seeing.

All right, that's very clear. And then, how do you see credit development so far in April? Has it continued on the trend from March into Q2?

I think we need to go back to the answers that we gave to Emil. We don't want to go into that detail level of answering those questions. I think overall, I think Sophie said it well in terms of looking overall at the inflation and interest rates and where that's heading and then look at it from from a kind of end of the quarter, how that will progress. And I think that's the level of detail that we want to be on today, at least.

And just to stress the seasonality effects and the improvement from the seasonality effects, that you can see between February and March. So that might help you as well, because the winter month we are referring to is more of like December to February. Then you're having the higher or the more strained households with higher energy prices and effects from Christmas shopping and so on.

All right, that's clear. But if I rephrase my question slightly then, in which segments do you see the biggest improvement at the end of the quarter? Is it in payments or consumer loans that's improving the quickest?

I mean, it's both.

So it's evenly split between both of them, even though the duration in payments is slightly shorter than in consumer loans. And I guess ticket sites are small in payments as well.

Yeah, they are, of course, much more in payment solutions. But both are contributing.

But then looking forward, if you get the tax rebate in early April, hopefully, and it's the largest one ever due to the high interest rate costing last year, shouldn't payments then get more rebates or or paying off more of your loans in payments, rather than consumer loans, which is maybe a larger sum which needs to be repaid over a longer period of time.

But I also think that you should bear in mind in payment solutions, we have some other effects as well. We're having a strong growth and we're also growing in some markets where we have new partnerships that we are taking in. And as always, when you're having new partnerships, it often comes with a bit higher credit losses in the beginning. And that is some effects that we see in payment solutions as well. So even though we're having a positive impact to some extent, we're also having some negative drivers in more detail in payment solutions.

Yeah, and to add to that, you're obviously then working with your scorecards in the beginning to make sure you mitigate that very early in the cycle. But short term, you can see those effects, of course.

All right, that's very clear. And then just a last question on the cost efficiency program, which will generate 40 million in savings. But then you also mentioned that another 40 million savings will arrive from efficiencies. So should we expect these to 2025 as well, or is it rather 2026 question?

No, no. What we said on the first 40 million that we had discussed, we have said that we will reinvest those money in other areas in order to strengthen the business overall. Then the additional 40 million that we announced, that's the cost saving that will impact 2025.

Okay, that's very clear. Thank you.

The next question comes from Patrick, ABG, please go ahead.

Thank you, can you hear me?

We can hear you. Good morning, Patrick.

Perfect. Good morning, good morning. Yes, so my first question will a little bit touch on the issues or questions that my colleagues ask. If you annualize the March level in the loan loss ratio, what would that stand at?

We don't answer that question, Patrick. That's why we haven't had the numbers in the presentation. We wanted to show you the trend, but we think it's too early to give you that clear guidance, since of course there are uncertainties going forward.

Okay, but is it according to scale? Can we use a type of measurement in order to try to recalculate it ourselves? Is there any way to do that?

Yes, you can.

Okay, perfect. Thank you. And looking at slide 13, We can see the delta in the funding cost is increasing, but as rates are now flattening out, how should we think about these funding cost increases going forward? We saw the delta in Q1 was 0.3 percentage points. How should we think about that in the coming quarters?

I think, as I said previously, I think that we're about to hit the hike, depending, of course, what central banks are doing. But I think there might be some increases coming quarter and then depending, of course, what the central banks are doing. But I think short term, we will reach the hike.

Okay, but not more than 0.3 in delta, at least.

No.

Okay, perfect. Thank you. Then my last question is a little bit more strategically tilted. We have seen peers that have shifted part of their operations towards credit cards in Europe, and that seems to be very profitable. How do you view Ressurs embarking on a similar strategic journey going forward in order to improve profitability?

We have, I think, been quite clear on the areas where we see our growth going forward. And it's more related to work on the Nordic market. It's more related to increase our efforts in retail financing and broaden the customer base there. I think that we have been fairly focused on the enterprise segment where we have a long list of quite impressive customers that we work with. we maybe have been less active on the little bit smaller segment where the margins are much stronger. And I think that we can overall improve margins, or at least that's ambitious in the future related to have a broader target group also approaching a little bit smaller merchants. then of course we have uh our b2b side of the business style that we now also launching medulla and continuously putting our efforts in to build up the next generation of products that's that's what we see in the horizon and that's our bet so but why are you so fixed on the like the nordic market per se because like your operating profit it peaked in 2019 and been on the downward slope isn't it

maybe time to rethink the little bit the strategic initiatives if you see peers are enhancing profitability going abroad.

No, but as I said, I think that that's exactly what we have done, right? We have done a strategic assessment overall in the company in which direction we are heading. We think that doing what we have done in the past or focus on a fairly narrow type of merchant or retailer to be able to drive growth to that where the margin pressure is quite high. But to broaden that portfolio, I think that we will have a lot of potential to improve margins. And then on top, we'll go more towards the B2B direction where we see strong momentum overall, where we get questions from both partners, but overall in the market. So we see bigger potential to really be very, very good at what we're doing based on the strategy going forward in the Nordics and broadening the geographical expansion. And I worked a lot with that in the past and I know what it requires and I see a better kind of value for shareholders in terms of investment versus what we see in financial potential to improve.

Okay, that is fair. Thank you so much.

Thank you.