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Edited Transcript of HOFI.ST earnings conference call or presentation 5-Nov-19 8:30am GMT

Q3 2019 Hoist Finance AB (publ) Earnings Call

Stockholm Nov 26, 2019 (Thomson StreetEvents) -- Edited Transcript of Hoist Finance AB (publ) earnings conference call or presentation Tuesday, November 5, 2019 at 8:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Christer Johansson

Hoist Finance AB (publ) - CFO

* Klaus-Anders Nysteen

Hoist Finance AB (publ) - MD & CEO

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Conference Call Participants

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* Borja Ramirez Segura

Citigroup Inc, Research Division - Assistant VP & Analyst

* Ramil Koria

SEB, Research Division - Analyst

* Rickard Hellman

Nordea Markets, Research Division - Deputy Head of Credit Research & Chief Analyst of Credit

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Presentation

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Klaus-Anders Nysteen, Hoist Finance AB (publ) - MD & CEO [1]

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So a very good morning, everyone, and a warm welcome to Hoist Finance Third Quarter Presentation. Both welcome to you here in Stockholm, but also a warm welcome to you following this online.

And let me first say that we have a lot to talk about these days or today. There are many moving parts, lots of things going on, and we totally appreciate that this time, it must be a bit difficult to follow what's going on in Hoist Finance.

But let me make it very clear that I am so pleased with our ability to execute on a number of important issues and initiatives. And I'm confident and convinced that what we have actioned in the quarter is resolving a lot of the challenging issues for Hoist Finance, that's number one. Number two, it enables us to continue to grow as a company. And point #3, it will improve our profitability going forward.

But let me quickly move into the highlights of the quarter.

First of all, let me say that underlying performance -- the underlying financial performance is actually on par with the first and second quarter of the year. We are executing on our strategy, and there are some very key achievements in this quarter. You might have seen that we announced through our press release that we now have firm commitment on our second securitization. This time, a rated transaction, and this is really a landmark achievement for Hoist Finance.

Secondly, we are taking some decisive actions in terms of bringing our costs down. I will talk more about that in a second, and we're also taking some very important steps, becoming more digital for the future. And as a last point, don't forget that during this year, we have strengthened our capital significantly. We now have a CET1 ratio at 10.3%, and that feels radically different than what was the situation at the beginning of the year.

Christer will go through all the numbers and comment on all the deviation, but just to reiterate the fact that the third quarter actually is basically on par with Q1 and Q2, on par, around SEK 200 million for the quarter.

The only disappointment I have today because there are so many good news in this quarter report, so my only disappointment, if you like, is collection performance. It came in at 101%, which is below our expectations. And I believe strongly that we can do more. But this time around, we had certain challenges in one of our small markets in Spain, but we are again taking some decisive actions there. We have a new content management in place, an experienced seasoned leader from the industry and I'm convinced that we can turn that around rather quickly. So it's not like we're having problems on collection performance all over the place. There's one single market that stands out.

I mentioned also that the capital situation is very different now compared to what it was in the beginning of the year after regulatory changes came.

And I would like to say that we are definitely executing on our strategy. I said multiple times that the winners in this game, the winners in the industry will be those companies with the best operations and the lowest cost of funding. And we should not forget the fact that having the deposit-based funding has given Hoist a pretty unique competitive advantage. We actually have access to the lowest cost of funding in the industry. And now with securitization, we will continue to have the lowest cost of funding post the NPL backstop.

Let me then move on and offer some comments on our various initiatives. For those of you who have seen the report, you see that there are several one-off transactions in the numbers. And I would say, these are good costs because we are taking a number of steps to bring the long-term cost base down. And one of the key actions that we have done is to consolidate number of sites. If you have followed Hoist for some time, you know that we, over the last 18 months or so, have closed down our operations in Bremen in Germany, we have closed down our office in Milton Keynes in the U.K. and now we're closing one of our offices in Spain, the Bayonne office as you can see from this map.

Have in mind that France is one of our prioritized markets. And although the NPL problem for French banks perhaps not is at the same magnitude as the situation is for other European banks, the potential to work on the NPL volumes in Spain is huge just because the fact is that the banks have not been sellers on the NPLs until now. But now, we really see that the market is opening up across a number of asset classes, but perhaps in particular within secured nonperforming loans.

But in order to be even more competitive, we have decided to close down one of our offices and consolidate our operations in 2 places in Lille for unsecured consumer claims and in Paris for the secured NPLs.

We established 1st of January this year our One Hoist operating model. And this new operating model was put in place in order to harmonize, standardize and industrialize our work processes. Hence, we also established a shared service center in Wroclaw in Poland. The purpose of this shared service center is, of course, to work from a low cost jurisdiction and to offer services across all our markets, remove duplications and benefit from scale and skills. And you can see some of the functional areas that we now are working to deliver across the board from Wroclaw in Poland.

And actually, the progress that we have seen has -- is above our expectations. So we plan to have 65 FTEs working from Wroclaw by the end of the year, 65. And this is actually the fastest ramp-up process that I have seen in my experience and I've done this 3 times before. So it's good to see the very strong progress in ramping up our shared service center across the board delivered from Wroclaw.

We also, this time, want to highlight nearshoring. You might remember that we closed the acquisition on Maran in the second quarter. And when we bought Maran, we also got a small presence in Romania. And have in mind that the cost is, of course, even lower in Romania than in Poland. And now we see that we can deliver back-office support and even some call center services from Romania going forward. So we have now an ambition to have 30 FTEs working from Romania by the end of the first quarter next year. So these 2 initiatives, more than 100 FTEs working from a low-cost environment makes total sense for Hoist Finance.

One of the other restructuring charges this time is related to IT. And in our efforts to become the digital leader in our industry, it is important for us to have a stable, standardized scalable backbone. That's why we are very pleased to announce that Larsen & Toubro Infotech is going to be our partner in IT infrastructure outsourcing. And we have run a competitive process with several reputable firms competing for this contract. And we're very happy that LTI was able to meet our requirements, and we will work together with them to improve stability, security and also radically lower our costs going forward.

So we will now, of course, then reduce our own staff in Hoist Finance and shortly move our systems to the cloud.

Our One Hoist operating model allows us to develop once and then deploy all across our markets. And to my knowledge, Hoist Finance is the only pan-European debt recovery company that actually now has in production, a self-service portal where all our customers can log in and be self-serviced. And of course, going digital matters because the costs of going digital is significantly lower than doing this, the old-fashioned way through call centers. And right now, we are actually live testing as the only company in the industry, to my knowledge at least, some very interesting new features and some good new functionality. We know that, for instance, in Italy, a lot of people, a lot of -- the public actually prefers to use WhatsApp over SMS. So it's important for us to offer to our customers an omnichannel experience. So if we have them on WhatsApp in our dialogue, it's important for us to be able to close the payment at -- in the moment, so to say. And that's why we're now testing live the WhatsApp for business functionality where the customers actually can pay in WhatsApp.

Similarly, we know that Android is the biggest system for smartphones, and we're also testing their, the so-called, RCS technology, Rich Communication Services, again allowing the customers to pay when they are in their messaging service with us.

So the strategy is clear. We are going digital by default to radically bring down our costs, and it is working.

The biggest news of today and perhaps by far the most important is the fact that we have successfully now -- well, we are about at least to close the transaction, the second securitization transaction. And of course, when the regulatory changes came first in December last year with the change in risk weights, again another change in January 2019 this year, where the Swedish FSA or actually the European Parliament decided that we are introducing the so-called NPL backstop. There were a lot of questions about the validity and sustainability of our business model. It's consequently where it was very important for us then to meet those challenges without mitigating actions. And the most -- we saw pretty fast that the most interesting one would be to securitize to make sure that we got significant risk transfer.

At the launch of our second quarter earnings, we talked about with the first securitized transaction which was unrated, we're quite happy about that transaction, and we are equally -- perhaps even more happy about this transaction. And I think we are definitely expecting from rating agencies to have investment-grade rating. And that's basically the first time around that any company receives investment-grade rating for nonperforming loans in Europe.

And if you look at the senior tranche, 85%, that's really impressive. We think this has definitely some costs, and Christer will talk more about this, but the benefits are huge. We believe that this resolves the NPL backstop, and that's the most important piece of news that we share today.

You might know that seasonality -- there is some seasonality in the debt recovery business. And as you can see from this slide, the fourth quarter is typically the high season of the year. And what we see at the moment is a very dynamic market. Our pipeline is very healthy across a number of asset classes and basically also across most of our markets. And I've seen that some of our competitors are reporting that underwritten IRRs are up, and we can confirm that, that's the case. I will not steal Christer's thunder here, but that's also very good news indeed.

So let me then share a few comments on the situation in our different markets. I will not go through them one by one, but let me just share some observations initially then. So there are some markets that really stand out in terms of growth opportunities, and that's Italy, Poland, France and Greece. Really active markets, lots of opportunities, several large transactions being live at this point in time.

Another comment is that the secondary market is definitely opening up now, and this is partially driven by the first wave of securitized transactions happening in Italy and Greece supported by government guarantees. That can be quite an interesting and active market for us also going forward.

The second observation I want to share is that France, as I mentioned, is surely opening up, and particularly in the secured NPL space.

The third comment or maybe this is the fourth now is Germany and Benelux. Those markets continue to be rather stable and conservative and quite slow. Nothing much happening right now in those markets.

So let me pause here with this overview and hand over to Christer to take us through all the details. So over to you, Christer.

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Christer Johansson, Hoist Finance AB (publ) - CFO [2]

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Good morning. So as Klaus-Anders has already told you, Q3 has been quite eventful, and we've taken a number of important steps. Some of those steps have come with costs but no benefits in Q3. In fact, as you will see in a second, if you adjust for those items, Q3 is on par with Q1 and Q2.

But before we go to that bridge, a few key comments on the financial development.

To start with, acquisition costs came in close to SEK 700 million in the quarter. This means that our NPL book is largely unchanged in the quarter.

We also note that underwritten margins on the new spot transactions are roughly 50 basis points better than the corresponding amount last year. So 50 basis points increase on margins. That's, of course, very encouraging and much in line with what we've seen peers report.

Funding cost, which in a bank P&L statement is part of the income side, has increased, and I will come back to some more details on this. But in short, half of the increase is relating to securitization with the other half being related to our strategy to improve and increase the average duration of deposits.

Collection performance in the quarter at 101% was not quite up to my expectations. And this number is significantly impacted by our operations in Spain, where we, in recent quarters, have been seeing disappointing outcome from legal collection workflows.

In Q3, we have taken 2 steps to rectify this. We have put new leadership in place, and we have, in fact, also reduced our projected future cash flows in this market. This impacts the impairment gains and losses line. And as you can see here, the level in Q3 is below the level we saw in Q2 and Q1.

Total operating income also includes net financial transactions. In Q3 2018, we saw a positive one-off related to bond restructuring. In Q3 2019, on the contrary, we have some large and negative amounts amounting to SEK 45 million. Of those SEK 45 million, SEK 31 million relates to interest-rate hedging. This SEK 31 million are, to some extent, related to changes that we've done in our hedging model. We've been adapting our positions to new risk models. That's SEK 15 million with residual, SEK 16 million being related to flattening of the yield curve. I will share some more thoughts on hedging in a second.

Turning to the cost side. The level -- the underlying level in Q3 has had a favorable development. That said, we are taking restructuring charges of SEK 33 million in the quarter. This relates to the closure of the site in Bayonne, and it relates to staff changes in connection with the IT outsourcing. These restructurings will generate considerable savings, and I have more details on that on a later page.

So as you can tell, there's a number of moving pieces here and those pieces have a significant impact on comparability.

On Page 14, we have illustrated the relevant adjustments starting with the reported Q3 earnings of SEK 146 million. Adjusting for restructuring, you arrive at SEK 194 million. Our ongoing hedging of interest rates is perhaps not something I would call -- it's business as usual in a sense. Nevertheless, in Q3, we saw a negative impact of SEK 16 million. Adjusting also for that, you can see that Q3 is, in fact, more or less on par with Q1 and Q2.

On Page 15, we have, for reference, included the quarterly figures adjusting for items affecting comparability in all periods. On an adjusted basis, our cost/income and ROE came in at 73% and 15%, respectively. But rather than staying at this high level, I will go into a bit more depth on a few selected topics starting with the most important one, our efforts to improve efficiency. On this front, progress is tangible. As you've heard, we have decided to consolidate our sites in France, and we are in the process of closing the site in Bayonne, that comes with costs.

In Q3, we are accruing some SEK 24 million in related expenses. This consolidation will generate annual run rate savings of SEK 10 million starting from the second half of 2020. We are also accruing costs related to staff changes in connection with the IT outsourcing, recruiting some SEK 7 million. And as Klaus-Anders described, we're now in the middle of this process. We are running a transition project at full speed in Q4. When completed, we expect the IT outsourcing to generate annual run rate savings of SEK 45 million, with a gradual phasing from 2020 to 2021. That's a considerable saving.

Surely, these actions are not the first ones and they're not the last ones, but they represent a significant step towards and perhaps even beyond the SEK 300 million in identified savings potential. So very happy with that.

Turning to Page 17. The second topic that I want to expand just a little bit on is interest-rate hedging, and this is the topic where we've had some questions. Intuitively, hedging interest rate makes a lot of sense for a business like ours. And in fact, if we did not hedge interest rates, we would end up having to run the business with more equity. With our current hedges in place, 10 basis points increase of the yield curve will come with a positive P&L impact of around SEK 9 million. So that's the sensitivity that we have. Now of course, interest rates can also decrease and that's what they did in Q3, which is why we saw a negative impact in the results.

Now this is only one side of the equation. When benchmark rates decrease, this affects the deposit marketplace. And as we've illustrated here in Q3, we have decreased our offer rates a number of times. At constant volumes, those changes will translate into run rate decrease of funding costs of at least SEK 15 million. So that's where you have the trade-off. Taking a step back, and this is perhaps stating the obvious, interest-rate hedging helps us to control the medium-term funding costs, even though it may not always look like it on a monthly or even quarterly basis.

Moving into liquidity and capital, on Page 19. The recovery in CET1 ratio has continued in Q3, and we are now approaching the middle of our target range. Had it not been for the weakening SEK in Q3, this number would've been 10.5%.

On your right-hand side, you can see the liquidity position. Q4 is often the busy season, and I think it's clear to everyone that liquidity will not be holding us back on the purchasing. I should, however, point out that this position is not the new normal. In fact, from a P&L perspective, it's a bit suboptimal. It's influenced by the securitization and our change in the deposit mix.

Turning to Page 20. You can see that this change in deposit mix has, in fact, been quite large from 31% fixed term deposits to 58% in just a year, so a big change. We have now arrived at the targeted mix, and I have no ambition to drive this change further. Unsurprisingly, longer-term deposits come at a higher cost. We've pointed this out in previous quarter, and you saw some signs of that in the previous P&L slides. Nevertheless, I think you would all agree that 5-year euro funding at 1.5% is a very competitive level. And not only is it competitive, this is also a funding source that comes with high availability.

Adding it all up on Page 21, you can see the change in deposits, and you can see the introduction of securitization. When relating interest expense to book value, the pickup that you can see below the graph is somewhat overstated since we have brought in funding, but we've not yet deployed it. So on a normalized liquidity level, this number would be 2.3. This number in itself, the 2.5%, however, misses one important dynamic, misses the fact that securitization frees up regulatory capital that can be reinvested at attractive returns. So there's a trade-off here between the funding cost on one side and capital efficiency on the other side. Obviously, these are topics that we have spent a lot of time on in the recent quarters. And on the next page, I want to share some more forward-looking perspective on that.

Turning to Page 22. Here, we are comparing a single transaction in what I would call the old structure with the same transaction in a rated securitization along the lines we have disclosed today.

Starting with funding costs on your left-hand side. Historically, funding costs used to be around 2%. In a securitized structure, we see this as being close to 4%, around 4%. Assuming 50% of new transaction go into a securitized structure, you would then expect the average funding for Hoist to approach 3%, so would trend from the current 2.5% towards 3% in that scenario.

Now in contrast, the new structure is more efficient from a capital perspective. And as you can see on the right-hand side, there's quite a big change in the so-called risk weights. It's a big decrease in the risk weights in the securitized structure.

Summing this up based on all the experience that we have to date and our findings and our experience, we believe that securitization is not only a tool to address the regulatory change. It's also a tool that we can use to improve ROE and that's, of course, very important.

So with that, I'd like to hand back to Klaus-Anders to sum things up, and then we will open for questions.

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Klaus-Anders Nysteen, Hoist Finance AB (publ) - MD & CEO [3]

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Thank you, Christer. I guess that was a lot to digest in a very short time. But let me just try to say that the market is great. The market is actually really, really good. In my life in this industry, which now is almost 6 years, I haven't seen better market conditions than what I see at this point in time. And it feels good to have enough gunpowder, which is dry and ready to be deployed in the fourth quarter and also going forward. And a healthy thing is that there is good margin recovery. As Christer said, the underwritten IRRs are now trending into a much more positive territory.

And I really, really hope that this presentation shows you how committed we are to deliver on our strategy. We are resolving some very important and challenging issues. We are remaining and retaining a very low-cost funding and the validity of our business model. We are reducing costs to a number of important actions taken in the quarter. And last but not least, we are in the process of becoming the digital leader in the industry.

So we actually feel that this is a great day. We feel that there are a number of good news to deliver to the market, and we appreciate that it takes a bit of time to let it sink in, but please read the report. And now we're happy to take your questions. And today, we actually have a moderator.

So welcome to you, Ramil. He will help us through the Q&A session.

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Ramil Koria, SEB, Research Division - Analyst [4]

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Correct. Ramil Koria from SEB Equity Research. I'm here to moderate the Q&A here today. I think since I'm up on stage, I'll take the liberty to ask the first few questions before we hand it out to the audience. And perhaps afterwards, through the telco as well.

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Questions and Answers

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Ramil Koria, SEB, Research Division - Analyst [1]

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So starting off where we ended, Christer. On the securitization, you're upsizing it, first off from step 1 to step 2. Perhaps starting off at the asset -- sort of assets within the securitization, is it still from the same originator, et cetera? And perhaps how you sort of -- how you were able to find the assets in the upsize?

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Christer Johansson, Hoist Finance AB (publ) - CFO [2]

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Yes. So the scope of the second securitization includes the full scope of the first securitization plus some additional portfolios. They're all from the Italian market. There is actually some SME assets in there as well. So it's not all from the same originator, all in the same market though.

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Ramil Koria, SEB, Research Division - Analyst [3]

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Got you. And perhaps looking at the sort of indication of ratings and -- because obviously, that will impact the risk weight on the senior tranche. What kind of indications have you gotten? And when you're calculating internally, are you sort of sure if you're ending up at 80% to 90% roughly? Or is it perhaps towards 105% risk weight?

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Christer Johansson, Hoist Finance AB (publ) - CFO [4]

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Yes, I'm confident that we will achieve investment-grade rating.

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Ramil Koria, SEB, Research Division - Analyst [5]

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And then perhaps one final question before handing it out to the audience. What's the sort of -- what's the logic in going from step 1 to step 2? You mentioned improving risk weights, but then again that's not certain. So could you please elaborate a bit on sort of versus freed up capital as well? How you've been reasoning internally?

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Christer Johansson, Hoist Finance AB (publ) - CFO [6]

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Yes. I think as we elaborated a little bit on here, we have very good access to low-cost funding. In the first structure, we are not really benefiting from this since we were subscribing to the junior piece and we were then selling the senior piece. In the second structure, it's the other way around. We are subscribing to the senior piece. We're selling the junior piece, which arguably makes more sense if you have access to cheap funding.

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Ramil Koria, SEB, Research Division - Analyst [7]

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And when should we expect the freed up capital to be deployed?

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Christer Johansson, Hoist Finance AB (publ) - CFO [8]

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I think typically Q4 is the busy season. So I'm hoping for Q4.

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Ramil Koria, SEB, Research Division - Analyst [9]

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So looking out at the audience and we have a microphone, so please by raise of hand, if anyone has a question here in the room?

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Klaus-Anders Nysteen, Hoist Finance AB (publ) - MD & CEO [10]

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I guess it's also possible to post questions online in the system. So I think our Head of Investor Relations is ready to relay any questions that you might have.

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Ramil Koria, SEB, Research Division - Analyst [11]

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Yes. Perhaps, we check the telco. No questions. Then, you have a question? Okay.

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Operator [12]

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Yes. So we have a question on the telephone line, and that is from Borja Ramirez from Citi.

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Borja Ramirez Segura, Citigroup Inc, Research Division - Assistant VP & Analyst [13]

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This is Borja Ramirez from Citi. Thank you for your time, and congratulations on your second securitization in recent months. Two quick questions, if I may. Firstly, given the current environment where macro expectations are trending down, and this could be an opportunity for your company, did you see an increase in the NPL stock in any of your markets at sector level in the following -- in the next month?

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Klaus-Anders Nysteen, Hoist Finance AB (publ) - MD & CEO [14]

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All right. Well, thanks for that question. No, I wouldn't say so. I mean we all are aware of the macroeconomic uncertainty around the world. I mean our president's on Twitter every day and we see other things happening, right? So it's not like the world is a stable place at the moment, but the fundamentals are still pretty robust, and there's nothing really new to report.

The one thing we should have in mind is our business is quite resilient through the macro cycles. We -- if you go back in time and look at collections, the macro impact is actually quite low. The most important factor that could have something to say and has a bearing on collections is unemployment. At this point in time, we really don't see rising unemployment in any of our big markets.

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Operator [15]

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(Operator Instructions)

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Ramil Koria, SEB, Research Division - Analyst [16]

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Okay. So perhaps we'll go back to the telco in a bit. Looking more operationally, you mentioned that Spain was struggling in the quarter and you've taken 2 measures, specifically. How do you -- if looking forward, how do you change your behavior on the market in terms of buying and sort of collecting on assets?

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Klaus-Anders Nysteen, Hoist Finance AB (publ) - MD & CEO [17]

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You mean in the Spanish market?

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Ramil Koria, SEB, Research Division - Analyst [18]

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In the Spanish market. Correct.

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Klaus-Anders Nysteen, Hoist Finance AB (publ) - MD & CEO [19]

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This is always difficult, right? Because if you have an operations, which is kind of too small, it's always hard to be that competitive, but today what we are doing now is to get some really good industry knowledge into the company, into the Spanish operations and a very senior, very seasoned country manager coming from one of our competitors, same as the head of operations coming from other competitors. So we've been able to recruit talent. But we also have to make sure that we do our things right and run them all in the right way that we have. That we use our data across the board in a best possible way and really try to be competitive.

Long term, I believe in the Spanish market, I've spent a lot of time myself in the Spanish market over the years and the banks are very professional sellers. And we are now bidding on one portfolio, and we're not too far off. So I think we can get there I believe in the market.

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Ramil Koria, SEB, Research Division - Analyst [20]

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Moving to the cost side. You took SEK 31 million in restructuring charges in Q3, and you've taken some also pre-Q3, specifically SEK 49 million. But you also mentioned in conjunction with the CMD, the sum of the costs for the restructuring work will be capitalized. So could you please elaborate sort of how much has been capitalized? How much has been taken as pure costs? And how should we perhaps view that moving forward?

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Christer Johansson, Hoist Finance AB (publ) - CFO [21]

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Yes. So what we've said is that we expect to spend some SEK 250 million in cash to achieve the improvement in our efficiency. Some part of that is related to restructuring, which is obviously not capitalized. The other parties related to investments into IT and those investments we would typically write off over, say, 3 to 5 years. So of course, the investments into the portals, the self-service portal, for example, that has not been expensed to the full extent.

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Ramil Koria, SEB, Research Division - Analyst [22]

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And in terms of restructuring charges on the P&L becoming, say, perhaps looking into Q4 and H1 2020, do you have anything we should know of?

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Klaus-Anders Nysteen, Hoist Finance AB (publ) - MD & CEO [23]

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Good question. Now I mean what's important for us to get across is that we are working every day on numerous initiatives to bring down costs, and we will continue to do so. And there will be smaller and larger projects at all times. And we will, of course, announce when the time is right. We are committed.

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Ramil Koria, SEB, Research Division - Analyst [24]

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Got you. Sounds very good. Final question from my side before handing it out to the audience again. If excluding Spain from the collection performance in Q3 were 103%, give or take, is that sort of the trajectory we should expect also moving on or, obviously, it's very difficult to say something here and now, but I mean how has Q4 started, et cetera?

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Klaus-Anders Nysteen, Hoist Finance AB (publ) - MD & CEO [25]

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Right. So I think we would rather not guide too much, right, on these type of numbers. But the start of the quarter is good. I'm not saying that we're going to be back up to 105% at this quarter, not at all. But I think there are improvements now being seen across our various markets and that's obviously helpful. What we have put in place is center of excellence. And center of excellence's sole purpose is to benchmark performance in different markets, identify our best ideas, our best processes, make sure that those are copied in the other markets and run performance management across all our markets. And I can clearly say that we are building knowledge in a different way. And of course, going digital is going to help also. And currently, we are running at 12%, 12% is now all digital, don't touch by humans. We're implementing chatbots -- chat voice. We're using artificial intelligence. And all those things are of great importance of a data-driven company like we are. So I have high hopes and expectations to be able to deliver strong on collection performance also going forward. But you should not forget that one thing is collection performance.

Currently, at 101%, maybe 103% adjusted for Spain. But what's even more important actually is the underwritten IRRs. So one thing is to jump at this level. That's fine, but we have actually raised the bar by the fact that we have raised the underwritten IRRs somewhat 0.5%, I think you mentioned, Christer. And that's really good news because that really helps the long-term profitability for the company. So that's perhaps even more important per se than collection performance.

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Ramil Koria, SEB, Research Division - Analyst [26]

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Thank you. So anyone in the room having questions? I think we have one here in the front as well, but starting off in the back.

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Unidentified Analyst, [27]

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Congratulations again to the securitization. Just a quick question on if you expect the authorities -- the Swedish authorities to react positively to the capital relief? If there was any indication from them?

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Klaus-Anders Nysteen, Hoist Finance AB (publ) - MD & CEO [28]

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All right. Good question. So we never get a pre-approval from the Swedish FSA on this type of transactions, but I would say that we have spent a lot of time with the Swedish FSA, with advisers, with legal counsel, and we feel confident that this is going to be okay.

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Ramil Koria, SEB, Research Division - Analyst [29]

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I think we had one here in the front as well.

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Unidentified Analyst, [30]

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I wonder over this savings potential of SEK 300 million, you touched upon a couple of things. When do you believe that to be reached?

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Christer Johansson, Hoist Finance AB (publ) - CFO [31]

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So as laid out in the Capital Markets Day, I guess it's almost a year ago now. And that was like a 3-year plan. So run rate, end of 2021 is when that will be achieved.

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Unidentified Analyst, [32]

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And what is the main item that is still to handle?

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Christer Johansson, Hoist Finance AB (publ) - CFO [33]

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Yes. I think what -- if you looked at one of the pages, you could see that we've done quite a bit of work on sort of the, let's call it, overhead functions. I think we have not yet reaped a lot of benefits from the digitalization. So we're basically -- we've taken those investments. We're driving collections in that direction. We've not yet seen those benefits, and those benefits will materialize, I'm sure, and there will be -- in terms of being able to run the business with less people.

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Ramil Koria, SEB, Research Division - Analyst [34]

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I think we have some questions on the telco as well.

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Klaus-Anders Nysteen, Hoist Finance AB (publ) - MD & CEO [35]

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Just to add to what Christer said, we don't worry about the SEK 300 million. We see that they are coming. We have tangible projects. And I think even Christer alluded to the fact that maybe there's much to do, right, in the cost base going forward. So this is something we feel we're very comfortable about.

On the phone?

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Operator [36]

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Yes. Next question is from Rickard Hellman from Nordea Credit Research.

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Rickard Hellman, Nordea Markets, Research Division - Deputy Head of Credit Research & Chief Analyst of Credit [37]

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I've some technical questions regarding the securitization. First of all, as you write in your press release, the excess collection from the asset will serve as credit support. Does that mean there's a stay in the SPV as long as SPV are live? And the second question is regarding the subordinated notes where you state that combined IRR is capped at 15%. Could you give some details?

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Christer Johansson, Hoist Finance AB (publ) - CFO [38]

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Yes. Rickard, so starting with the first question then the cash receipts in the SPV will be distributed to the senior note holders, to junior note holders. So they will not be a buildup of a large cash position in the SPV. So I guess that answers the first question. On the second one, so the junior and the mezzanine tranche combined run at a 15% IRR. I guess the distribution in between those classes don't really matter much since we've sold both of them to CarVal. So 15% is what you should use as a sort of cost rate for the subordinated tranche, which is then 15% of the total securitization.

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Rickard Hellman, Nordea Markets, Research Division - Deputy Head of Credit Research & Chief Analyst of Credit [39]

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Okay. But that is with regular payments?

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Christer Johansson, Hoist Finance AB (publ) - CFO [40]

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Sorry, say again?

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Rickard Hellman, Nordea Markets, Research Division - Deputy Head of Credit Research & Chief Analyst of Credit [41]

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But that goes with regular payments on the subordinated share?

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Christer Johansson, Hoist Finance AB (publ) - CFO [42]

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Yes.

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Operator [43]

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No further questions registered so far.

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Ramil Koria, SEB, Research Division - Analyst [44]

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I think we can hand back to Klaus-Anders in case there were concluding remarks.

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Klaus-Anders Nysteen, Hoist Finance AB (publ) - MD & CEO [45]

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Yes. Well, thanks. Thanks for being here in Stockholm. Thanks are being online. As you can see, I'm a happy guy today. We have done a lot of good things for the company these first 3 quarters of the year, and I think we're looking into a very exciting fourth quarter. So with that, I would wish you a very good day. Thank you for coming in. Bye-bye.

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Christer Johansson, Hoist Finance AB (publ) - CFO [46]

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Thank you.