interim report january-march 2018 - intrum.com · • ebit excl. nri and excl. revaluations up 10%...

Interim Report January-March 2018

27th of April 2018

Mikael Ericson, President and CEO

Thomas Moss, Acting CFO

Agenda

1. Highlights for the first quarter 2018

3. Explicit initiatives to reach longterm targets

2. First quarter review

5. Outlook & near-term priorities

6. Q&A

7. Appendix

4. Synergy update

2018 - Highlights from Q1 2018

3

• EBIT excl. NRI and excl. Revaluations up 10% year on year

• Continued good progress on integration – SEK 280 million cost synergies realized so far, well in line

to reach the target for 2018

• Completion of RemCo transaction

• Strong pipeline for portfolio investments and good opportunities in CMS

• Danko Maras appointed Chief Financial Officer for the Group

• Transformational partnership with Intesa Sanpaolo in Italy announced in April

January-September Solid start to the year

First quarter review - Group financials

- Regional review

- Service line review

- Synergy update

4

Group financials- Summary

5

SEK M, unless otherwise indicated Q1 2018 Pro forma

Q1 2017 Change %

Revenues 3 115 2 928 6

EBIT excl NRIs excl Revaluations 973 888 10

Net profit for the period 364 278 31

Earnings per share 2.77 n/a n/a

CMS Revenue Growth, % 3% n/a n/a

CMS Service Line Margins excl NRI's, % 25 27 -2 ppt

Portfolio Investments Book Value 22 599 18 185 24

Portfolio Investments ROI excl NRI’s, % 15 16 -1ppt

Net debt to Cash EBITDA excl NRI's 3.8 n/a n/a

Northern Europe

Q1 Highlights

• Revenues and EBIT behind last year – main driver is large one-off

secured payments that were in Q1 LY and are anticipated to come in Q2

this year

• Business units are now refocused on sourcing and internal efficiency

activities after the divestment of RemCo

Market leader

Top five

Other

6

New regional division is applied from Q3 2017. Northern Europe (NOE):

Denmark, Estonia, Finland, Latvia, Lithuania, Norway and Sweden

Excl Portfolio Revaluations and NRIs,

SEK M

Q1

2018

Pro forma

Q1

2017

Change

%

FX Adjust

%

Revenues 915 927 -1 -2

EBIT 288 298 -3 -4

EBIT Margin, % 31 32


Western and Southern Europe

Q1 Highlights

• Good revenue and EBIT growth driven by expansion of Portfolio

Investment book value, and solid collection performance

• Revenue and EBIT growth is also supported by the acquisition of CAF in

Italy at the end of 2017

• Transformational partnership entered into with Intesa Sanpaolo in Italy in

early April and will close in Q4

New regional division is applied from Q3 2017. Western & Southern Europe (WSE):

Belgium, France, Ireland, Italy, Netherlands, Portugal and United Kingdom

7

Market leader

Top five

Other


SEK M

Q1

2018

Pro forma

Q1

2017

Change

%

FX Adjust

%

Revenues 688 522 32 28

EBIT 186 103 81 77



Central and Eastern Europe

Q1 Highlights

• Solid revenue and EBIT growth coming from both service lines

• Continued growth in portfolio investment book value supported by

ongoing focus on collection performance and efficiency drive the result

• Recent expansion into Greece and Romania starting to contribute

positively

8

New regional division is applied from Q3 2017. Central & Eastern Europe (CEE):

Austria, Czech Republic, Germany, Hungary, Poland, Romania,Slovakia and Switzerland

Market leader

Top five

Other


SEK M

Q1

2018

Pro forma

Q1

2017

Change

%

FX Adjust

%

Revenues 856 774 11 7

EBIT 299 265 13 9



Spain

Q1 Highlights

• EBIT declines of >10% year on year result from reduced volume inflows

as BPO contracts mature

• Margins impacted significantly by top-line declines

• Spanish CMS unit has material impact on the Group as a whole

• Major restructuring recently announcement to reduce 400 FTE to bring

cost base into line with current volume inflows (partial effect in Q2 and full

effect by Q3)

9

New regional division is applied from Q3 2017. Spain (ESP)

Market leader

Top five

Other


SEK M

Q1

2018

Pro forma

Q1

2017

Change

%

FX Adjust

%

Revenues 643 664 -3 -8

EBIT 200 223 -10 -15



Credit Management Services

Q1 Highlights

• Limited top-line growth and margin declines driven by Spain, which

represents 25% of the Group’s CMS activities, where large scale cost

reduction program has commenced – other units delivering on expectations

• Merger synergies will have a positive effect in CMS service line in H2 2018

• Challenges with internal commission payments from Q4 largely addressed

during Q1 – arm’s length pricing of servicing of internal portfolios in place

• Q1 Likely to be the low point for CMS margins

10

Excl NRIs, SEK M Q1

2018

Pro forma

Q1

2017

Change

%

FX Adjust

%

Revenues 2 209 2 153 3 0

Service Line Earnings 548 585 -6 -9

Service Line Earnings Margin, % 25 27 -2 ppt

Financial Services

Q1 Highlights

• Increases in the Book Value (+24%) primary driver of increase in Service Line earnings

• Continued solid collection performance (110% of active forecasts) and pricing discipline

maintain a ROI broadly in line with last year

• Healthy pipeline and expanded opportunities in mixed and secured portfolios

• A decent investment volume quarter in line with seasonally adjusted expectations

Excl NRIs, SEK M

Q1

2018

Pro forma

Q1

2017

Change

%

FX Adjust

%

Revenues 1 508 1 280 18 14

Service Line Earnings 827 696 19 16

Service Line Earnings Margin, % 55 54 1 ppt

Portfolio Investments 1 373 2 522 -46

ROI, % 15 16 -1 ppt

Carrying Value 22 599 18 185 24

ERC 46 929 38 895 21

Common Costs

Q1 Highlights

• Common costs increase year on year partly due to acquired units and

amortization of intangibles from Lindorff merger

• Common costs in line with Q4 2017 (SEK390m)

• Merger synergy benefits are masked by high activity levels

• Project and activities at Group level have been reprioritized – common costs will

decrease during 2018

12

Excluding NRIs, SEK M Q1

2018

Pro forma

Q1

2017

Change

%

FX Adjust

%

Common Costs -389 -352 11 8

Explicit initiatives to reach longterm targets

13

Spain

Already implemented

• Reduction of around 400 FTEs in Spain – union negotiations completed

• Around 50 FTEs transferred to low cost service centers

• 18 office locations closed – reducing costs significantly and unites existing organisation in fewer locations

To be implemented in 2018 and onwards

• Robotics for automated collection services under development

• Consolidation of production systems

14

Alicante

Murcia Almería

Badajoz

Jerez de la F.

Málaga

Granada

Sevilla

Las Palmas

Tenerife

Mallorca

Tarragona

Valencia

Zaragoza

Vigo

Lisbon

Valladolid

Barcelona

Cádiz

Jaen

Córdoba

Santander

Coruña

Santiago

Ciudad Real

Talavera

Vilafranca

Madrid

Integrated office

Closed site

Netherlands

• Reduction of approximately 50 FTEs

• New premises in Amsterdam, close the two existing

• New location is closer to key clients and prospects

• Consolidation of core IT platforms

15

New consolidated site

Existing site to be closed

The Hague Amersfoort

Amsterdam

• Integration delivering a performance step in Poland

‒ Legacy of 2 sub-scale units

‒ Overly diversified and overlapping operational footprints

• Identified and partly implemented actions

‒ Staff reductions supported by positively received voluntary program

‒ Review of client focus and profitability

‒ Excess office space rented out

‒ Divestment of non-core portfolios

• 2019 and beyond

‒ Focused and highly efficient operating model taking advantage of market growth opportunities

‒ Expected run-rate cost savings of EUR 10 million p.a. by end 2018

Poland

16

Existing site

Warszawa

Białystok

Wroclaw

Synergy update

17

Run-rate of achieved cost synergies (End of year estimate in MSEK)

Actual 2017 / Forecast FY 2017 Q1 2018 FY 2018 FY 2019

2017 Capital Markets Day Forecast 190 440 580

Estimated actuals + updated forecast 200 280 440 +100 (Poland) 580 +100 (Poland)

Deviation +10 - +100 +100

Actual 2017 / Forecast FY 2017 Q1 2018 FY 2018 FY 2019 Total

2017 Capital Markets Day Forecast 200 - 380 145 725

Estimated actuals + updated forecast 250 65 330 145 725

Deviation -50 - +50 0 0

• 280 MSEK in run-rate synergies realized after Q1 2018

• Improved outlook due to increased possibilities in Poland (EUR10m/p.a.)

Cost to realize synergies (Full Year estimate in MSEK)

• No change in outlook for total costs to realize synergies up to 2019

Outlook & near-term priorities

18

19

Landmark Long-term Strategic Partnership in Italy

• A landmark partnership between Intrum, Europe's largest credit management services company, and Intesa, one of the largest and strongest banks in Europe

• Establishes Intrum as a leading CMS company and NPL servicer in Italy – a large and strategically important market for Intrum

− Unparalleled access to future growth opportunities in Italy

− Ability to attract servicing contracts and portfolios from other Italian banks

− Highly efficient, professional and compliant Italian CMS player

• Demonstrates Intrum’s competitive strengths

− Scale, following the Intrum Justitia / Lindorff merger, to be the go-to partner for large banks

− Capabilities to replicate its proven and successful business model into new markets

− Business model to drive integrated NPL purchases and servicing carve-outs

• Significant reinvestment of proceeds from remedy units disposal at attractive returns

Intrum ideally positioned to capture market opportunities

• More than EUR 800 billion of NPLs on the balance sheets of European Banks

• Regulatory changes and pressure from ECB, EU and national regulators on banks drives increased activity

• Harmonised regulation further strengthens Intrum’s position

• ”Competence gap”- Intrum has a strong position to be able to capture NPLs more efficiently than competition

• European banking sector looking for strong partners to manage existing and future NPLs

• Investments in data and analytics in recent years, as well as our undisputed market leadership and heritage within

Credit Management puts Intrum in an ideal position to become a strong business partner to European Banks

20

Near-term priorities

21

Continue to select and invest in the most attractive deals taking advantage of strong pipeline

Proactively drive the pipeline for larger CMS acquisitions and BPO-opportunities

Improve margin trend for CMS

Continue to realize the full synergy and integration benefits from the merger

GMT member Harry Vranjes appointed Head of CMS for the Group

Appendix

Table of content

24

1. NRI and revaluations by profit and loss segment

2. Funding base

3. Pro forma portfolio investments and ROI

4. Portfolio investments collections vs active forecast

5. Portfolio investments ERC

6. Portfolio investments gross Cash-on-Cash multiple

7. Cash flow and balance sheet highlights

8. Upcoming IR activities

Q1 2018 NRIs distribution

Regions Service lines

SEK M, excl discontinued

operations NOE CEE WSE Spain Group CMS FS Common Group

EBIT incl NRIs 278 293 144 182 897 526 826 -455 897

Lindorff integration NRIs -15 -23 -21 -6 -65 -21 0 -43 -65

Other NRIs -9 -6 -4 -5 -24 -1 -1 -23 -24

Total NRIs -24 -29 -25 -11 -89 -22 -1 -66 -89

EBIT excl NRIs 302 322 169 193 986 548 827 -389 986

Revaluations 14 23 -17 -7 13 13 13

EBIT excl NRIs & revaluations 288 299 186 200 973 548 814 -389 973

1. NRIs and revaluations by profit and loss segment

25

2. Funding base

Syndicated revolving credit facility EUR 1.1bn

‒ Unutilized per 31 Mar 2018

Swedish MTN program

‒ SEK 1 bn, 5Y, issued June 2013 (margin of 2.22%)

‒ SEK 1 bn, 5Y, issued May 2014 (margin of 1.60%)

Senior bonds issued June 2017

‒ SEK 3.0bn, 5Y (3m Stibor(0% floor) + 2.75%)

‒ EUR 300m, 5Y (3m Euribor(0% floor) + 2.625%)

‒ EUR 1.5bn, 5Y (coupon: 2.75%)

‒ EUR 900m, 7Y (coupon: 3.125%)

Private placement

‒ EUR 160m, 7Y, issued June 2016

Commercial paper (up to SEK 4bn)

‒ SEK 50 m outstanding per 31 Mar 2018

Co-Investors – for large portfolios of receivables

‒ Typically participate by 50-75% of total investment

26

-

5 000

10 000

15 000

20 000

25 000

2018 2019 2020 2021 2022 2023 2024

MS

EK

CP BONDS SEK MTN Private Placement

Maturity profile

3. Pro forma portfolio investments and ROI

3 431 3 867

678 567

2522* 671 934

1287

537 828

1177

3 150 2350

2784

0%

5%

10%

15%

20%

0

1 000

2 000

3 000

4 000

5 000

6 000

7 000

8 000

2013 2014 2015 2016 2017 2018

266

SEK M

Q1

Q2

Q3

Q4

FY

Portfolio ROI ex NRI and Revaluations RTM * 1st Credit Portfolio Investment at SEK 1,3 bn

27

1373

4. Proforma portfolio investment collections vs. active forecast

28

*The R12 numbers for these quarters have been adjusted for previously disclosed portfolio sales.

0,0%

2,0%

4,0%

6,0%

8,0%

10,0%

12,0%

14,0%

16,0%

18,0%

Q1 16 Q2 16 Q3 16* Q4 16* Q1 17* Q2 17 Q3 17 Q4 17 Q1 18

Collections vs Active Forcastper Quarter

Collections vs Active ForcastR12

5. ERC ERC (SEK, billions)

Cash Multiple (ERC/Current BV)

as of 31th March 2017

= 2,08

29

47,0

38,3

31,3

25,4

20,4

16,1

12,8

10,1

7,8 6,0

4,5 3,2

2,1 1,1 0,4

0

5

10

15

20

25

30

35

40

45

50

6. Pro forma gross cash-on-cash multiple

30

Gross Cash-on-Cash Multiple:

Gross cash-on-cash multiple means the actual gross collections to date, plus the ERC as of the same date

divided by the total amount paid for the portfolio at the date of purchase.

Vintage Purchase Price, SEK M Gross Cash-on-Cash

Multiple

2008 and before 8 619 2,08

2009 1 355 1,98

2010 1 906 2,08

2011 2 648 2,23

2012 3 785 2,11

2013 3 431 2,13

2014 3 867 2,30

2015 5 036 2,01

2016 4 979 2,19

2017 7 804 1,91

2018 1 373 1,93

7. Cash flow statement

31

SEK M, unless otherwise indicated Q1 2018 IJ reported

Q1 2017

Operating earnings (EBIT) 897 467

Amortization/depreciation and impairment 177 41

Amortization and revaluation of portfolio investments 874 502

Other -549 -315

Cash flow from operating activities (CFFO) 1 399 695

Portfolio investments -1 400 -2 070

Proceeds from Sale of RemCo 7 512 0

Other -94 -82

Cash flow from investing activities (CFFI) 6 018 -2 152

Free cash flow (CFFO + CFFI) 7 417 -1 457

7. Balance sheet highlights

32

SEK M

31 Mar

2018

Pro Forma

31 Mar 2017

Dev

%

Intangible fixed assets 34 273 34 805

- whereof goodwill 31 099 30 735

Tangible fixed assets 247 253

Financial fixed assets 23 465 22 629

- whereof portfolio investments 22 598 18 185

Current assets 6 487 4 677

Non-current assets of disposal group held for sale 0 0

Total assets 64 472 62 364 3

Shareholders' equity 23 632 22 799

Long-term liabilities 35 281 32 391

Current liabilities 5 559 7 174

Non-current liabilities of disposal group held for sale 0 0

Total shareholders equity and liabilities 64 472 62 364 3

Net Debt

32 043 32 725 -2

8. Upcoming IR activities 2018

Additional events*

‒ Goldman Sachs - European Small and Mid cap

London, Thursday, May 3rd

‒ SEB & Nasdaq - Nordic markets day

New York, Tuesday, May 16th

‒ SEB, ABN Amro & Commerzbank - Nordic day

Boston, Wednesday, May 17th

‒ Svenska Handelsbanken- Nordic Small and Mid cap

Stockholm, Thursday, May 24th

‒ Deutsche Bank - European leveraged finance

London, Wednes-/Thursday, June 13th/14th

33

Financial calendar

‒ Interim report Jan-June 2018, Tuesday, July 24th

‒ Interim report Jan-Sept 2018, Thursday, October 26th

* Preliminary and subject to future updates

Disclaimer

34

The material in this presentation has been prepared by Intrum Justitia AB (publ( (“Intrum”).

This information is given in summary form and does not purport to be complete. Information in this presentation, including forecast financial information, should not be considered as advice or a recommendation to investors or potential investors in relation to holding, purchasing or selling securities or other financial products or instruments and does not take into account your particular investment objectives, financial situation or needs. Before acting on any information you should consider the appropriateness of the information having regard to these matters, any relevant offer document and in particular, you should seek independent financial advice.

All securities and financial product or instrument transactions involve risks, which include (among others) the risk of adverse or unanticipated market, financial or political developments and, in international transactions, currency risk. This presentation may contain forward looking statements including statements regarding our intent, belief or current expectations with respect to Intrum’s businesses and operations, market conditions, results of operation and financial condition, capital adequacy, specific provisions and risk management practices. Readers are cautioned not to place undue reliance on these forward looking statements.

Intrum does not undertake any obligation to publicly release the result of any revisions to these forward looking statements to reflect events or circumstances after the date hereof to reflect the occurrence of unanticipated events. While due care has been used in the preparation of forecast information, actual results may vary in a materially positive or negative manner. Forecasts and hypothetical examples are subject to uncertainty and contingencies outside Intrum’s control. Past performance is not a reliable indication of future performance.

All securities and financial product or instrument transactions involve risks, which include (among others) the risk of adverse or unanticipated market, financial or political developments and, in international transactions, currency risk. This presentation may contain forward looking statements including statements regarding our intent, belief or current expectations with respect to Intrum’s businesses and operations, market conditions, results of operation and financial condition, capital adequacy, specific provisions and risk management practices. Readers are cautioned not to place undue reliance on these forward looking statements. Please read our most recent annual report for a better understanding of these risks and uncertainties.

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interim report january-march 2018 - intrum.com · • ebit excl. nri and excl. revaluations up 10%...

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