Resurs Holding AB (publ)

Welcome to resource holding Q2 report 2024. For the first part of the conference call, the participants will be in listen only mode. During the questions and answers session, participants are able to ask questions by dialing hash key five on their telephone keypad. Now I will hand the conference over to CEO Magnus Freden and CFO Sophie Taring Lindell. Please go ahead.

Good morning and welcome to our Q2 earnings call for research. I'm Magnus Fredin, I'm the CEO together with Sofie Taring-Lindell, our CFO. We will take you through the performance during Q2. We'll start with a summary and overall we are taking steps in order to improve our financial performance, but this is not a strong quarter. The loan book growth is stable with especially strong momentum in payment solutions. We can see that the operating income rose by 4% compared to previous years and the MBI margin is slightly increased to 9.1% up from 9.0 last quarter. We continue to be tightening our underwriting in consumer loans and improving credit quality, which also leads to that we have slightly lower growth in consumer loans than what we've been seeing in the past, especially related to volumes in Q2 versus Q1. The macroeconomic conditions are strengthened. We hope to see continuous interest decreases in the later part of the year. And we still see high level of credit loss provisions. However, it's remaining stable compared to March. The cost of risk amounts to 4% during Q2, which was down from 4.7% in Q1. We think that looking ahead, we will see gradual smaller improvements, but we think also they will take time. It's still a bit too early to draw any major conclusions from Q, given the enormous seasonality effects that we see in Q2 versus Q1. We continue to invest in IT and organization. We see the cost increase with 11% versus last year, if excluding those affecting comparability. And this is essential for the company to build a stronger foundation for the future. The operating profit decreased and amounted to 59 million SEK from 244 last year, excluding items that affect comparability, 109 million SEK. If you look at the significance events during the quarter, the SFSA has appealed and the administrative court has upheld and appeal, and confirming the decision over a mark and an administrative fine of 50 million SEK that impacts a quarter. After now two court instances issued conflicting ruling, we as Ressusha decided to now to seek for appeal and seek leave to appeal to the Supreme Administrative Court to clarify the legal position. However, I think it's important to note that we're still following the requirements needed in order to do the underwriting in the right way. We received the 17th of June, a public offer from CVC and Valdag through Ronneby UK Limited. They made a public offer to acquire all the shares of Research Holding at the price of 23.5 SEK per share in cash. The board in Research Holding anonymously recommends the shareholder to accept the offer. CVC and Valdex expect to publish an offer document regarding the offer on around the 1st of August and the acceptance period for the offer is expected to commence around the 2nd of August and expire around the 13th of August. The completion of the offer is conditional upon the fulfillment of the terms set forth for the offer. And given the historical low results, the board has decided not to propose an interim dividend corresponding the results for the first half of 2024. And the first half, the net profit amounts to 54 million SEK. If we then look at the loan book trend over time, we can see that Sweden is growing quite well year on year, plus 10%. It's especially driven by payment solution where we're growing 21%. We see a similar pattern in Finland on payment solutions where we're growing 26% related to new merchants that we have onboarded. Consumer loans is growing slightly slower in all markets and even decreasing in Norway where we obviously adapting to the system risk buffer requirements and also that we have sold the mortgage portfolio which amounts to 200 million SEK during the quarter. However, the sale of the portfolio has very limited impact on the result. So overall, this also shows a strong picture for payment solutions where we're growing. but we are growing slightly slower in consumer loans, and that's also related to a more restrictive underwriting policy. If we then deep dive a little bit further in payment solution, we can see that the loan book amounts to 15.7 million. Retail finance is the primary driver with 19% growth, and Jula is contributing that to the quarter. We went live in mid-May. And we also transferred a portfolio in the later part of the quarter, which amounts to 100 million SEC. So now we are live in both physical stores, but also in our e-commerce channels. And we will go live during the second part of 2024 related to B2B, which is our first merchants then out on the new solution for B2B payments. Transaction volumes is also growing 4% year on year and the number of cards is growing 4%. We believe cards is an important area for us going forward in order to optimize the profits. However, retail finance is where we see the big demand and where we think we will have the biggest growth opportunities also to create profitable growth in the future. We continue to strengthen our position within payment solution and retail finance. We're adding new merchants to an already very impressive list. So during the quarter, we have growth from both existing and new merchants. New on this map during the quarter is Möbelringen in Norway. We have Ylva, which we work with both in Denmark and Sweden. and New Day telecom provider, which has several sub brands that we're working with in Denmark. So we continue to having a strong inflow of new merchants. If we then move over to consumer loans, as said, we are seeing slightly lower growth, but also related to it's by choice because we are more stricter in our underwriting in order to improve the credit quality in the portfolio. Fairly stable loan book in Sweden and Denmark, and nor once again see decrease related to the divestment, but also due to adapting to the system risk buffer requirements. Important here is also to see the combination here where we see we're increasing the share of sales in our old channels, which amounts to 69%. It's up from 62% in Q1. And that's important both in terms of having a lower acquisition cost, but also it's easier to do the underwriting with more accuracy when we have more data on the customers. Related to that, we're also decreasing our average loan size. It's decreased quite a lot from last year, but also from Q1. So all of these in combination with lower acquisition costs, more internal challenge with better underwriting capabilities and lower ticket size and also lower or shorter duration leads to more quality into the portfolio. And with that said, I would like to move over to you, Sofie.

Thank you, Magnus. So let's look into the financial development in more detail. And this part of presentation describes the operations excluding the SFC fine if nothing else is stated. But starting to look in the controlled loan book growth, we can see that, as Magnus have said, the loan book was stable both versus last year and versus last quarter. We do have a good momentum in payment solutions, but at the same time, we are deliberately reducing the new lending volumes in consumer loans, focusing on the strengthening of our profitability. Looking into the income side, we can see that the operating income increased by 4% compared to last year, amounting to 899 million Swedish kronor. And the income is up 2% versus last quarter. In total, this leads to also a stable or somewhat strengthened NBI margin development versus both last quarter and last year. And the development differs a bit between the segments. So I will come back to that when we're reviewing the segment slides in just a little while. But first looking into the MBI margin more in detail, you can see here that even though we have had increased funding costs over the last one and a half year, we have managed to compensate for these costs and we have in total kept the MBI margin stable. In the yellow line you can see the total funding cost development and it has started to stabilize just as we communicated here in Q1. And we are of course following the market dynamics closely here with expected central banks decreases during the rest or the rest part of the year. Looking into the credit losses, as Magnus said, the credit losses has been stable since March and the improvement is seen in both segments following the normal seasonality with winter months affecting our customers more negatively. This leads to a total improved credit loss ratio in the quarter amounting to 4.0%, which still historical wise is on a high level. As Magnus also said, we have kept the strict measures that we implemented in Q1 with reduced risk appetite, mainly in the consumer lending area. And that in combination with an improved macro environment will over time have a positive impact on our development. But it's too early to make any big conclusions now as Q2 is impacted of seasonality effects. Looking into the segments we can see here payment solutions and loan book wise we have a strong momentum. The growth versus last quarter is primarily driven by Sweden and compared with last year it's mainly driven by Sweden and Finland. The MBI margin is somewhat down during the quarter as a result of mixed effects where we have partners with lower margins have been growing stronger in this quarter and also the new partners coming in have had volumes but not so much income during this quarter. And as we have been communicating previously, we are working with pricing within payment solutions to adjust for the increased funding costs that we have had during the recent time. But this work is expected to take some time. On cost of risk, we see improvements in Q2 versus last quarter, which is mainly explained by decreased number of customers in payment delays. Looking into consumer lending, the loan book is lower than both last year and last quarter, and we are focusing on internal channels, as Magnus said, with higher profitability. we can see the MBI margin has increased versus both last quarter and last year. And that is result of that we got full quarter effect of some interest increases that we made in Q1, but also positive mix effect as we are reducing volumes in Norway, which operates with the lowest MBI margin of all the countries. We can see here that compared with last year, the credit losses is higher than last year as a result of the negative development in customers' payment behavior. But we have a decrease in Q1 as a result of the normal seasonality where we have decreased numbers of customers in payment delays. Looking into our costs, the total cost in Q2 amounted to 394 million SEK and increased with 11% versus last year, following both increased personnel and IT expenses. And versus last quarter, the cost increased 3%. And the increase here is the result of increased personal expense, as we are strengthening the company for the future. For example, this is the first quarter where we have full costs of the new management team. And we are also having costs for changing competence within the company. And we are not investing as much in the balance sheet as previously, which also leads to increased personal expenses. In parallel, the process of streamlining operations through a number of key initiatives is ongoing. During Q2, we have completed the centralization program, meaning that we have reduced number of employees in Denmark and Norway substantially. This initiative is expected to provide annual savings of 40 million from 2025 but the majority of these savings will be invested in other parts of the business and more details on that will we come back to when we're presenting the full strategy. In Q1 we also communicated about the second efficiency program. which included further measures within the organization, renegotiations of major suppliers and replacing IT system. This program was initiated during the quarter, but was slightly delayed due to the public offer. But in total, this program is expected to deliver additional savings of 40 million from 2025. But during this quarter, it has also involved some cost of more of a non-recurring nature. So that is a summary of the cost side and looking into the earnings before credit losses, we can see that we have been having quite stable levels the last quarters. And as you can see, the negative credit loss development in Q4 and Q1 impacted the total profitability on operating profit level quite much. And we can see that the improvements here in Q2 is also related to the credit losses and that we have been having stable levels from March. And as Magnus said, we are not satisfied with results of these levels and we will continue to take actions on both credit losses and cost side to optimize profitability going forward. Just a short note on the capital position. We do have a stable capital position with capital ratios well above legal requirements and in line with board targets. And the capital ratios are in line with the first quarter. And looking into the funding, that is also stable. And deposit is the largest source of funding and more than 95% of the deposits are covered by the governmental deposit guarantee scheme. So that's just the financial summary and over to you, Magnus.

So some key message then looking ahead before we ramp up here is strong momentum in payment solution, as said, growing 14% versus Q2 2023. In consumer loans, we are prioritizing profitability over growth, which you clearly see in the loan book. Credit loss provisions is, of course, a continuous focus on going forward. We communicated in Q1 that March is the level we expect in Q2, and that's where we've been. We can see that Sweden shows the most significant improvements together with Finland consumer loans in the book. However, we also see that we are increasing losses a little bit in retail finance, especially related to Finland, where we see some higher loss levels related to that. We bring in a lot of new partners and it takes some time in the beginning before you ramp up how you can fine tune the scorecards. But overall, we see probably that's going to be stepwise improvements going forward. But once again, we think it will take time before we see further jumps down. We will remain focused on cost. That's one of the key focus obviously going forward as well. However, it's also important to highlight that we need to strengthen the organization. We need to make investments, making the company stronger and build for the future. And related to that, also, of course, related to our future strategy, we are finalizing the business plans going forward. We have been working on that during the quarter, but it's been slightly delayed due to the bid from Ronneby. And we plan to complete the remaining details now after the summer period. But we are not ready yet to announce a date where we're going to communicate the full strategy. What is clear, though, is that we will continue to focus on payment solutions and the strong demand that we have there. And obviously, we also see clearly that in order to take the next step, strengthen our offering, but also make the company more cost efficient, we need to invest in the next generation of system landscapes and architecture and modernize the system landscape overall. So with that, I would like to say thank you for listening, and I 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. The next question comes from Emil Johnson from D&B Markets. Please go ahead.

Thank you. Good morning. I just have a couple of questions. Firstly, when it comes to asset quality, is it still Sweden and Finland that stick out as particularly challenging. Has anything changed there in the quarter aside from just regular seasonality?

Related to Sweden and Finland, we saw obviously from Q4 and Q1, we saw the biggest uptick there on higher amounts and in consumer loans. That's also where we see the strongest recovery now, which is obviously by nature, given that we have a big loan book within those areas. We can see clearly that it's a little bit broader now that a bigger part of the business is obviously impacted by higher provisions overall. However, of course, where the loan book has the biggest size in terms of volume, it obviously has a bigger impact. And that's also why you see a bigger recovery in Sweden and in Finland in consumer loans.

All right. Thank you. And last question. Do you see any reason that the bid from CDC would not go through?

That's not something that I would like to comment on. I think it's up to the shareholders to decide where they stand on that. So they need to decide individually what they think is the best for them. All right. That's all for me. Thank you. Thank you, Emil.

As a reminder, if you wish to ask a question, please dial pound key 5 on your telephone keypad. There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.

Then once again, I would like to say thank you for listening. I wish you a great day and have a nice summer. Take care.

Bye.