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Edited Transcript of RESURS.ST earnings conference call or presentation 29-Oct-19 8:00am GMT

Q3 2019 Resurs Holding AB (publ) Earnings Call

HELSINGBORG Nov 1, 2019 (Thomson StreetEvents) -- Edited Transcript of Resurs Holding AB (publ) earnings conference call or presentation Tuesday, October 29, 2019 at 8:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Christina Jungvid Ohlsson

Resurs Holding AB (publ) - IR Officer

* Kenneth Nilsson

Resurs Holding AB (publ) - President & CEO

* Peter Rosén

Resurs Bank AB (publ) - CFO & Head of IR

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Conference Call Participants

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* Håkon Astrup

DNB Markets, Research Division - Analyst

* Jens Hallén

Carnegie Investment Bank AB, Research Division - Research Analyst

* Patrik Brattelius

ABG Sundal Collier Holding ASA, Research Division - Analyst

* Peter Kessiakoff

SEB, Research Division - Research Analyst

* Robin Rane

Kepler Cheuvreux, Research Division - Equity Research Analyst

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Presentation

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Christina Jungvid Ohlsson, Resurs Holding AB (publ) - IR Officer [1]

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Welcome, everyone, to the Q3 presentation for Resurs Holdings. This year, our CEO, Kenneth; and our CFO, Peter Rosén, will present the Q3. And then we have Christina Kassberg, our Interim CFO, she is present with us today and she is going to be involved in the presentation for Q4 subsequently.

Kenneth, you have the floor.

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Kenneth Nilsson, Resurs Holding AB (publ) - President & CEO [2]

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Thank you, Christina. Moving on swiftly to our Q3 report published at 8:00 this morning, and you've obviously already had a look at it. We continue to deliver strong growth in spite of some challenges in Norway, and not least our Payment Solutions part is doing very well.

As for revenue, they're not growing quite as much as the loan book, as our lending, this is mainly due to the challenges in Norway, where we see already low margins reducing even further in significant competition, which is growing more tough. We do believe, however, in the Norwegian market.

We will continue to maintain our position. However, we will not be on board for any potential price war to be expected with the changes that have taken place. We'll focus our efforts mainly on the other markets and in particular, Sweden. This means most of the things that we will -- with controlling we will have an increase in the ticket size, and that's going to bring an increase of pressure on the margin. But it reduces our administrative costs. The Swedish market costs less to administrative. And in the current business cycle development, we believe that it will reduce the risk.

During the quarter, we see a somewhat improved cost of risk, but those of you who followed us for a while, you know that this varies a little bit up and down but it's generally quite a straight line over time. We have the benefit of being able to refocus our efforts between the 4 different countries where we're operating. We've done this. We're growing very well in Sweden. On a percentage basis, we have very high numbers in Finland, but it's a smaller market. Things are going well in Denmark. However, in Norway we see a slowdown.

We believe that we have to expect approximately 6 to 12 months ahead of us with low growth, even 0 level growth in Norway. The market will have to determine that. We believe that it has to find its current form. We don't believe that the underlying credit needs will change to any significant extent. However, the regulation situation has impacted the opportunity to provide such credits, and all the players in the market need to adapt and it can be costly to take a wrong turn. So we are sort of taking a step back when it comes to Norway. And we believe that we need to wait between 6 and 12 months before the market has arrived to a new status quo with the new regulatory framework. And if it's continually beneficial, we'll continue to move ahead.

Now a few words about our segments. Payment Solutions, here, we've continued strong growth, 12% for the quarter. We're growing a lot more rapidly than the underlying market, as usual. We have, as previously, about 30% of our volume coming from e-commerce. We continue to develop our operations with new innovative services. And from the off-line business, we now have 80% of our business that comes in digitally. The other countries are lagging behind, they're not at equivalent numbers. But it is increasing all the time.

We continue to renew business and we do this because our concept with loyalty cards is appreciated by and popular in the market. We have systems which enable the customers to know the size of their wallet when they step into the different stores, and so thus the merchant, the retailer, and that is of help in their communication. Combining this with our proximity to retail is something which tells us that we still have a very strong position in spite of competition.

During the quarter, we have signed an agreement with Svensk Handel, the Swedish Trade Federation, and a number of major car dealerships that are very interesting.

Moving into what we've done more in detail in Payment Solutions. To make further progress and continue to grow more rapidly than the market, we've launched a new Checkout, which is an omni-solution. It makes it easier for the merchant, for the retailer. Regardless where the customer chooses to buy, whether it's in the physical store or online, we offer an open structure where the merchant, the retailer and both can decide which payment means to be offered, the Swish means or an invoice. It depends, to some extent, on the type of business. We're also offering the retailer the chance to whether they want it to be a (inaudible), should it be a Resurs invoice or the name of the shop or outlet invoice.

We have also developed technology which enables the customer to check and verify their credit rating and status. And when they come to the store, they already know whether they've been approved for credit or not, and they know how much money they can spend.

Customers in store, in physical stores, who can't make their minds up there and then can, until now, when they leave the store often meant that the business was lost. But we've developed a technology where the merchant can send the checkout with them back home, so that they get them via SMS, text message or email, so that they can keep looking at the business, buying it so far or what have you at home, and then make up their minds. So what was potentially a missed business deal or transaction is now an increased conversion for off-line and traders.

We've also launched a new Merchant Portal. This is of assistance to the merchant, to the retailer, to look at their customer involvement to -- or deal with administration. And for all those who don't have -- the customers who don't have our checkouts, you can conclude a transaction using the Merchant Portal as well. And there's a statistics follow-up function, for example, which assists the merchant. And it's highly appreciated. We launched it on a fairly broad-scale recently.

In Consumer Loans then, we continue to grow. And here we have fierce competition that we're faced with. In Norway, in particular, we see a drop in margins both at -- we also see that in the Swedish market competition is tough, but we're doing well and we're growing in the Swedish market. We have continued 80% of all new customers who come in to us already exist in our database. We know them from before, and that means that we have better control of their credit behavior and a better controlled credit risk as a result.

We continue to increase the ticket size by 15% up to SEK 100,000. It's slowly growing due to the successful consolidation. We're regaining a lot of business that we would have otherwise lost. So this consolidation is successful and it also entails that you've kept your own business and you've taken over business from someone else, in addition.

We've made the assessment that as we are likely moving into a slight drop in the business cycle, we're a little bit more cautious with the type of credits we provide. We're not making any huge changes to our scorecards, but we've started to have a look at what markets we want to push forward in, which segments we want to have a presence in, so we're starting to make preparations.

And all of this indicates, to some extent, lower margins. But at the same time, the costs are lower and considerably lower credit risks in the longer term. This is what we usually do, and we're taking the same steps this time.

Now our Insurance segment is showing continued development, where the premium and the results have developed in a positive direction. The technical result is up by 14%. We see an improved combined ratio. We're at 90.2%, down from 90.6% in Q2. We made an acquisition of a company in car guarantees and motor, and it's developed very well. We're very pleased with the development in sales and good profitability development. So solid Insurance is developing in a stable manner and we're very satisfied so far.

Another exciting point I'd like to tell you a little bit more about is AI and digitization. Predictive analyses and algorithms are nothing new to us. We've been using them for a long time in our credit scorecards very successfully, but using them in the business is new to us. We started about 1 year ago in Supreme Card originally, and we've reported back on our work also before.

We see long-term behavioral changes, where we have an improvement by 3 to 5x on -- when it comes to churn and churn behaviors compared to the manual processes that we used to employ. So we can focus and gear our efforts to where we should and would get the best input, which customers will get the best offers to stay away from churn. And we see that this has had a positive impact on Supreme Card.

And it's very interesting to note that we're now looking at this within Consumer Loans as well, not just for churn but to try and calculate when you need to be available for the customer, with what type of loans, how sensitive the customer is to different offers in terms of interest rates, et cetera. I don't have an exact forecast of when this is going to be launched, but that's what we're working on right now and we believe it's going to be a very good use to the company moving forward. That's more or less what I wanted to tell you today.

So now, some numbers. Peter?

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Peter Rosén, Resurs Bank AB (publ) - CFO & Head of IR [3]

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Well, thank you. I'm going to talk you through, in somewhat more detail, the figures. And we're growing the loan book with 13%, which is pretty much the same rate as we have shown the last few years. And you have to remember that this is some SEK 3 billion in monetary terms. So when we say that we grow with 14-or-so percentages, that means that we have a bigger loan book every year, which you have to remember.

And we're up 5% in net income after tax. And what we've seen is that we have a challenge in the NBI margins. What is positive is the C/I ratio, which continues to have a positive development, has had so for a long time. And what is also positive in this context is that the credit losses are very stable with 2%. And regardless of how you measure, SEK 320 million is a good result for this quarter.

If we then look at loan book in somewhat more detail, we have a growth of around 12% in Payment Solutions, and this has increased compared to what we had in Q2. If we look at this historically, we've been at 6%, 7%, perhaps 8%. But the last year or so, we have had margin around 10%, which is very strong.

Consumer Loans, 14% growth. This has been somewhat higher. And we've noticed in Q3, and Kenneth has mentioned this already, that Norway is pretty much, well, nothing is happening in the other markets, show very good growth.

If we look at our income in absolute numbers, we have that here, up by 5% in the quarter and year-to-date. At the 3 -- first 2 quarters, it's 7% compared to last year, and the challenge that we have -- that we've seen here is, well, the NBI margin. And if we look at the quarter or the three quarters, we are losing about 100 points compared to last year. And the main reason for this is the situation of the competition in Norway.

We also have, in Q3, the fact that Payment Solutions is decreasing somewhat in NBI margins and that doesn't have to do with prices but the customer mix, where we see a stronger growth in big customers. And unfortunately it seems, from our perspective, those margins are lower. But apart from that, it's basically Consumer Loans and Norway where we see a negative development.

And then if we continue with the more positive parts, we have the development of our costs. They are up about 1% in the quarter compared to last year. And year-to-date, the three quarters, 3%. And I should say that Q3, on a seasonal basis, is where we have the lowest costs. But regardless if we compare to last year and also looking at the 3 first quarters, we're improving the C/I ratio with 160 points. And the reason for this is good cost control and, more specifically, what we've done.

And looking at Norway, we have actually gotten back -- drawn back on market investments, and this means that we have a combination of 2 things.

And then if we look at our credit losses, they are up in absolute numbers, but that is because we're growing. If we look at cost of risk, it's 2% for the quarter and that is where it's been for a long time. And that means that it's very stable. And this means, looking at the risk-adjusted NBI, it's down, and the NBI margin is where we see a negative impact.

Then if we look at the 3 segments in somewhat more detail, and if we start with Payment Solutions, we have a growth in the loan book of 12%, which historically is very high. We have a lower NBI margin for the quarter, and that is driven mainly by the customer mix where we see big partners, bigger volumes and that has a negative impact. But we're also reducing our credit losses. And looking at the risk-adjusted NBI margin, it's pretty much stable.

And if we then continue with Consumer Loans, we've seen this slide before, with the good growth in the loan book, challenges with the NBI margin, mainly Norway, but also that the other markets are growing in ticket size and also that we see increased competition in all markets. And that has, to a certain extent, a negative impact, which means that we have a negative impact also on the risk-adjusted NBI margin.

And then if we look at Solid, our insurance business, we have premiums earned up 8% and the technical result up 12%. And this is also a trend, well, the development, that we've seen for quite some time where we see strong growth and strong development in technical result.

And then if we look at the capital position, it's strong. We have 13.1% in common equity Tier 1. And we also have a total capital ratio of 15.1% compared to 15.3%, which means -- and this is also taking into consideration the expected dividend, which means that we have a strong growth in the loan book and we distribute and we still grow our capital.

Here, I should also add that in the report that was published this morning, we have said that we have an ambition to issue AT 1 instruments if the preconditions are right. And that will strengthen the total capital ratio and the Common Equity Tier 1 Capital. And that is because we want to ensure that we have a good capital structure and also ensure that we have enough capital to manage growth in the future. And that is not the least considering the possible developments of the business cycle. We feel that this is a sound decision to acquire that type of capital.

And then if we look at the more ongoing funding of the activities, it looks pretty much the same as it's done for a long time. 75% of the financing is lending. We have that in Sweden, in Norway and also in Germany to a certain extent. And we have different channels that we're using to have a good currency mix but also in order to have a balanced financing cost.

In addition to that, we have the -- it is a program and the MTN program. Within the MTN program, we have, since 2015, regular issue, and we intend to continue. We issue around SEK 400 million, SEK 500 million every time, and we do that on a regular basis.

And then if we look at where we're at since we were listed in 2016, we have been working with a number of financial targets and here we have them. Organic growth, over 10% annual lending growth. The risk-adjusted NBI margin in the span of 10% to 12%, and we're below with 9.5%. The other financial targets here, ratio, dividend, RoTE, we're above the targets. And we've always performed above, and we have around 35% looking at RoTE number, for example. And then you also see that capital targets. And we are above these targets there as well.

And that was the financial walk-through of Q3 and the first 3 quarters of the year.

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Questions and Answers

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Peter Kessiakoff, SEB, Research Division - Research Analyst [1]

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Thank you. Peter Kessiakoff is my name from SEB. I'm the moderator and I'm going to ask a few tricky questions myself to start with. If we look at this quarter, it resembles a lot of what we saw in Q2. Competition in Norway is tougher after the new regulatory provisions were introduced. You say that the margin dropped at group level, but you're facing this with lower costs, which you stated in Q2. And now again, today, the marketing in Norway is being held back, amongst other things.

So turning you back to the Capital Markets Day, which is about a year ago, one of the new initiatives was to put more resources into marketing, building the brand. And now, we see sort of a reverse trend during Q2 and Q3. Are these not mutually dependent or linked? What about marketing? What about Norway? What's your approach here?

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Kenneth Nilsson, Resurs Holding AB (publ) - President & CEO [2]

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Generally speaking, it is still essential to us to build our brand and we continue doing so in Sweden not least, where we see that we get paid for it. But to do this in a Norwegian market which is extremely price-focused right now is very expensive. And Resurs is not as strong a brand as to allow us to use small means to maintain that sort of investment. It takes major effort. And right now, it's not worth our while in Norway, so we're making adjustments right now.

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Peter Kessiakoff, SEB, Research Division - Research Analyst [3]

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And so the reduction in marketing costs, can that mainly be referred to Norway? Or does it happen in other markets, too?

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Kenneth Nilsson, Resurs Holding AB (publ) - President & CEO [4]

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Well, it's mainly in Norway, but we do look continuously at the situation in all countries. But it's mainly for Norway. But I imagine that those of you who are here in Sweden will see TV and radio ads regularly and we have a presence there.

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Peter Kessiakoff, SEB, Research Division - Research Analyst [5]

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But what about the cost level in Norway on a broader basis? You mentioned in Q2 as well that against the backdrop of the tough competition, you're reviewing the cost base in Norway. Have you already seen a result of that work? Or is it mainly about marketing? Or are there any broader scale measures?

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Peter Rosén, Resurs Bank AB (publ) - CFO & Head of IR [6]

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Well, what we see mainly is the focus on our marketing. But we're also reviewing the general cost level within the company as well, generally speaking, in all markets, but with a specific focus on Norway because the market conditions have changed in Norway.

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Peter Kessiakoff, SEB, Research Division - Research Analyst [7]

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And what about the development, the margin? You touched upon this. You said that you expect the Norwegian market to remain tough for another 6 to 12 months. You don't expect a lot of growth there against the backdrop of the not-so-attractive marginal situation. On an unchanged stock in Norway, do you expect to keep stable margins? Or will they unfortunately -- or will it be just to keep the stock unchanged with margins you will allow it to gradually fall slowly but surely?

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Peter Rosén, Resurs Bank AB (publ) - CFO & Head of IR [8]

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Well, we have made some price increases in Norway in Q2, and we've continued in Q3 to safeguard that we can keep our margins up. So our ambition is to keep the margins at a stable level. And then we'll have to see about market conditions, generally, and what our competitors do. But that's our ambition, to stay -- keep them at a stable level and perhaps get them up a little bit.

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Peter Kessiakoff, SEB, Research Division - Research Analyst [9]

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We have a question over here from Jens.

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Jens Hallén, Carnegie Investment Bank AB, Research Division - Research Analyst [10]

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I would like to continue with Norway. And you've said that Norway is an important market and we'd like to hear more about that and particularly then concerning 2020. For how long will it be profitable to defend your market share in Norway? And I assume that, that will continue to eat up some of the margins.

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Kenneth Nilsson, Resurs Holding AB (publ) - President & CEO [11]

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Well, it's difficult to answer that question, but we intend to stay in Norway. It's an interesting market, we feel, and it's also a significant part of our business. There are more things we can do on the costs side. And Peter has already said that we've made some adjustments to the price and we can imagine to continue doing so in order to keep the profitability up quite simply. And then we're talking about profitability rather than the margin's profitability. Well, profitability is important, we need to be able to continue with dividends, continue to deliver and, yes.

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Jens Hallén, Carnegie Investment Bank AB, Research Division - Research Analyst [12]

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And well, talking about margins -- and when you will have new financial targets, perhaps you need to adjust them because you do well on all but one. But risk-adjusted NBI margin, it doesn't look as though it will come at above 10% in the next few quarters at least. And what's your viewpoint on that? And how important is it?

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Kenneth Nilsson, Resurs Holding AB (publ) - President & CEO [13]

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Well, you have to remember that we have a number of financial targets that you've already said that we delivered on all the others, it's just that one. And what is the most important thing by far is the total profitability, and the other ones are actually tools to get to there. And of course, we would like to deliver on all of these financial targets. But if we have to choose, well, then it is profitability. And NBI, we are not going to get up above 10% soon. We'll have to work over time with that.

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Jens Hallén, Carnegie Investment Bank AB, Research Division - Research Analyst [14]

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Another question. Peter touched upon this with costs and the increase that has been very low last couple of quarters. And looking at this from the outside, there is a bit of concern that there will be an investment need that is building up. And do you have something to say about that? Are you building such need to invest in IT? People? Something else? Is it something that we're not seeing?

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Kenneth Nilsson, Resurs Holding AB (publ) - President & CEO [15]

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Well, I've talked about this that we've just launched our new Merchant Portal that has been developed over the last year or so. And we've also launched, well new Checkout, new innovative app solutions so that we can better communicate with customers. And we also have the portable checkout that you can bring with you. And of course, that has costs, and that is what you see on the costs side. And we haven't pushed anything in front of us at all. But cost awareness, that is something that we have. That's part of Resurs and we've really needed to look at that and make adjustments.

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Jens Hallén, Carnegie Investment Bank AB, Research Division - Research Analyst [16]

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Last -- very last question. When we are thinking about 2020, 2021 and that rate of increase that we see today, this is not a totally unrealistic. Or is it, that you'll be able to maintain it?

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Kenneth Nilsson, Resurs Holding AB (publ) - President & CEO [17]

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I don't think we can promise things for 2020, 2021. This is what we have delivered. And if you look at this historically, we have seen a continuous improvement on the C/I ratio and it will level out at some point. But we can't say now when and what that will be.

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Patrik Brattelius, ABG Sundal Collier Holding ASA, Research Division - Analyst [18]

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Patrik Brattelius is my name from ABG. You mentioned that you're making some preparations for a slowdown in the market and you're a bit more cautious in verifying who you're going to lend money to. Can you tell us a little bit more about that and be a bit more specific about the time line, et cetera?

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Kenneth Nilsson, Resurs Holding AB (publ) - President & CEO [19]

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No, not on the time line, but we're addressing this the same way we have historically when we see changes in the market. We haven't felt ourselves any reduced interest from consumers or customers, but we're very attentive to what's being said in media, for example. And we hear and see an increased pressure mentioned more often of a slowdown in the economy. So we're not going to start running big campaigns or getting high-profit segments if there's a pressure on margin. Because we know that here and now, we have a good margin, but then we have credit losses in 18 months and we might be in a more difficult situation where the economy is concerned. So we're a little bit more cautious to stay away from high risk because we expect an impact on the margins.

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Patrik Brattelius, ABG Sundal Collier Holding ASA, Research Division - Analyst [20]

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You also mentioned that you've raised some prices in Norway during Q2. What was the impact and the reaction from customers? And could you tell us in more general terms your comments on the NBI margin in the different countries?

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Peter Rosén, Resurs Bank AB (publ) - CFO & Head of IR [21]

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Well, first question first. We raised the price for new lending and, look, we saw a positive impact in fact. The reason why it doesn't show here is because we're losing some of the existing customers who have quite good margins to competitors who are doing precisely what we are doing, too, consolidating right now. So we've seen a positive impact on new lending, but we've lost some on the -- in the other end. So financially, they sort of offset each other.

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Patrik Brattelius, ABG Sundal Collier Holding ASA, Research Division - Analyst [22]

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And I know you don't want to talk about the NBI margin between countries, but could you tell us a little bit more, at least in general terms, about the differences.

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Peter Rosén, Resurs Bank AB (publ) - CFO & Head of IR [23]

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Well, let put it this way, Norway stands out because competition is so fierce. There's virtually no growth right now in that market. If we look at the other markets, there's tough competition as well but it's a different type of competition with choices available, different options. We've chosen to raise the ticket size to step up because the volume growth it produces, even if it gives a slightly lower margin, is still beneficial to our total profitability.

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Patrik Brattelius, ABG Sundal Collier Holding ASA, Research Division - Analyst [24]

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And one final question on your capitalization. Comparing where you are compared to your targets, what about your buyback mandate? Do you have enough of a buffer to be able to use that or...

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Unidentified Company Representative, [25]

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Well, that's really a question for the Board of Directors, but we do have an authorization for buyback up to SEK 230 million. The Board of Directors did not choose to activate it up until now, but it is there. The level at which it's going to be activated is not something that I can answer.

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Patrik Brattelius, ABG Sundal Collier Holding ASA, Research Division - Analyst [26]

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And when does this mandate expire? This authorization?

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Unidentified Company Representative, [27]

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The current one expires at the end of November. After that, we'll have to send in a new application should that become relevant.

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Robin Rane, Kepler Cheuvreux, Research Division - Equity Research Analyst [28]

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Robin Rane. If we get back to the costs. You've talked about marketing costs and the cost base, what it's like looking at marketing and the costs that you can more easily do things with if there is a downturn.

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Unidentified Company Representative, [29]

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Well, if we look at the total cost base, about 30% is easy to do things with because it has to do with the administration of the loan book or procurement cost and marketing, that's about 30%.

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Robin Rane, Kepler Cheuvreux, Research Division - Equity Research Analyst [30]

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And then you have introduced the debt register in Norway during the summer. That has been introduced and have -- and we've seen over the summer that the debt level has been higher than many people have thought that they were. Were you surprised as well? And has that had an impact on your view on growth and credit losses in the Norwegian market in addition to the regulatory challenges that you've seen?

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Unidentified Company Representative, [31]

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Well, that is part of the overall picture of Norway. And of course, everything has an impact and we have noted that, that is the case. And that is one of several parameters on the Norwegian market, and we are being careful there.

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Robin Rane, Kepler Cheuvreux, Research Division - Equity Research Analyst [32]

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And then finally, a final question in Norway. You have regulatory changes that has triggered, so to say, the new market. And what is the risk that we'll see the same thing in Finland? In Sweden? Well, in Sweden quite recently, we have seen in media that papers have been writing about retail finance and lending. And there are actors who are not as serious as Resurs, admittedly, but perhaps Resurs will also be impacted by developments with more stringent requirements from regulators.

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Unidentified Company Representative, [33]

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Well, I do think in Sweden that we have a very serious, very good market. I don't think that we have any actors that are not serious. And it hasn't developed over such a short time span as we've seen in Norway. And Sweden's been developing over many, many years. And I do think that the actors that we have here, they abide by the rules.

The question on Finland, well, we will see some new rules and regulations, but we feel that, that is positive. And it's mainly the Norwegian banks that have gone into Finland, and that is what has led to the increase, to a large extent, in Finland. Thank you.

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Unidentified Analyst, [34]

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[Karl Smith] is my name. You seem to get a lot out of the digitalization data development projects. How much do you invest annually on average in those?

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Unidentified Company Representative, [35]

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You mean in terms of IT? We're not providing specific information on the actual IT investment costs. But if we look at the total cost base, IT is the single biggest item in that list, including our people in IT.

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Peter Kessiakoff, SEB, Research Division - Research Analyst [36]

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I thought I'd follow up on a few questions that I have heard from some of my colleagues here in the room. The pace of growth. You have a growth target growing by more than 10%. Do you feel that this is under threat? Or could that be a problem to you if the Norwegian market doesn't start to grow? Are you comfortable with this level?

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Unidentified Company Representative, [37]

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We're comfortable with this target. We see growth in other countries that we can work on. We could grow more that what we're doing currently if we wanted to right now.

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Peter Kessiakoff, SEB, Research Division - Research Analyst [38]

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So if you add to the comment wanting to be a little more cautious in this part of the cycle, cherry-picking to some extent, choosing your risks, and in spite of this, the growth ambition, are you still okay with it?

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Unidentified Company Representative, [39]

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Yes. There is additional growth, but you need to strike the right balance, get the growth at the right administrative costs. We're focusing a lot on consolidation right now, as I mentioned. We think that the ticket size will grow. The average loan and the margin will be impacted. But in terms of percentages, the administrative costs, the rate of acquisition, those all -- costs all go down because these people that we bring in have better resilience if there's a weakening in the financial climate in the economy. So this is good for business.

Now is there anything over the phone? Let's find out.

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Operator [40]

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(Operator Instructions) And our first question is from Håkon Astrup from DNB Markets.

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Håkon Astrup, DNB Markets, Research Division - Analyst [41]

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This is Håkon from Norway and a question about capital requirements in Norway, where there is a proposal from Norwegian authorities to go up from 3% to 4.5%, and that should also apply to foreign banks with a presence in Norway. And my question is do you think that you can see those increased capital requirements when it comes to Norway?

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Unidentified Company Representative, [42]

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It is impossible for us to answer that question. This is something for the Norwegian regulatory authorities, and I think this is something they want to do. And EBA has been -- has sent out. And Sweden and Denmark, they have gone against that because they feel that, that is not along the lines of what the EBA wants to do, and we can't answer that question. That will have to be for the regulatory authorities. And what we know about -- well, those requirements that we know about, they are in our forecasts.

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Håkon Astrup, DNB Markets, Research Division - Analyst [43]

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And have you looked at what kind of impact that will have? Will you have a buffer? Or what is your thinking?

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Unidentified Company Representative, [44]

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Well, we always have ongoing forecasts looking at different types of scenarios, and that goes for this specific case as well. But this is hypothetical, and we'll await. We'll wait for an answer to that one.

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Operator [45]

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There are no further phone questions. Handing the floor back to the moderator.

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Peter Kessiakoff, SEB, Research Division - Research Analyst [46]

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I think we have a question over there. Just wait for the microphone, please.

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Unidentified Analyst, [47]

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[Nate Young, Industry]. I have a follow-up question on growth. Right now how much would you say is due to new customers as opposed to existing ones who are increasing their involvement with you?

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Kenneth Nilsson, Resurs Holding AB (publ) - President & CEO [48]

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I don't know if we can answer that.

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Peter Rosén, Resurs Bank AB (publ) - CFO & Head of IR [49]

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No, not off the top of my head. But we can get back to you on that one.

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Unidentified Analyst, [50]

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Okay. Let's look at the reporting last 12, 18 months in Payment Solutions. This is something pleasing that you have a growth rate that is at the upper part of the span that we've seen historically. And you've talked about margins coming down and customer categories, bigger customers with perhaps better agreements. But looking at growth and how much is driven by new customers, new merchants, could you say something about what type or what proportion of growth that is from new customers?

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Unidentified Company Representative, [51]

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Well, we see growth mainly from historical or older customers. And then, of course, we have new customers, new partners, and that has an impact. But if we bring in a new partner, let's say, middle of the year that we bring in a new partner, it will be some 6 months perhaps before we reap the benefits, because it takes some time to bring them into the system and for our concept to really have an impact in sales, et cetera. And then following year after that, they will be an existing customer.

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Unidentified Analyst, [52]

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And then if, let's say, that about 1/3 of what you have is from e-commerce and there are discussions, legislative proposal, that credit alternatives cannot be something that you choose in advance for e-commerce, would that have an impact on penetration conversion rates?

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Peter Rosén, Resurs Bank AB (publ) - CFO & Head of IR [53]

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Well, we feel that the answer is no. Kenneth has mentioned this, that our retail partners they decide themselves on that order. So our business model is not based on, let's say, invoice being the first option. That is not where we make our money. And that is what we feel, that it will not have an impact.

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Unidentified Analyst, [54]

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If you go back to the Capital Market Day a year ago, one of the new growth initiatives was factoring -- linked to -- we were under SEK 200 million at the time of the listing on the stock exchange. What's progressed since in that area? Is there anything that's contributing? Anything that is part of the report here.

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Unidentified Company Representative, [55]

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Well, it's a lot more than SEK 2 million right now. We're focused on it, we usually say that we -- before we go for a swim straight off, we have a feel with -- by dipping our toes in the water first. So we do it slowly by degrees. We're looking at this with calculations, and we've looked at offering the types of loans potentially. We might get back to this at the next quarterly report and tell you more about it.

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Unidentified Analyst, [56]

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And on the topic of the next report, is that when we might get an update on financial targets, perhaps, which will box in some of the components that you don't comply with right now and the C/I ratio as well, where you're exceeding your current one?

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Unidentified Company Representative, [57]

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Well we'll have to turn to the Board of Directors and see what they have to say about that.

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Peter Kessiakoff, SEB, Research Division - Research Analyst [58]

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Any further questions? Jens, hold on for the microphone.

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Jens Hallén, Carnegie Investment Bank AB, Research Division - Research Analyst [59]

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Just one final question, the debt register in Norway. You said that you haven't really seen any changes. The new data that you have received, has that been included when you had made provisions for Q3?

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Unidentified Company Representative, [60]

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Well, parts of it, yes. So if we are to try to draw some conclusions about those changes, no, you shouldn't expect any huge changes when it comes to those provisions.

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Jens Hallén, Carnegie Investment Bank AB, Research Division - Research Analyst [61]

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Then let me do a follow-up when it comes to provisions and the size of those. Looking at -- you have when it comes to uncertain debt, we see that going down for, well, different reasons, different factors, but we've seen a continued downward trend during the quarter. And do you have any idea as to how that will continue? The Capital Market Day about a year ago, if I may talk about that again, you talked about that expectation of a downward trend. But I think I didn't expect it to be that much.

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Unidentified Company Representative, [62]

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Well, to -- there were several questions in there, but we cannot say exactly where we will be at an exact point in time because we've seen it go down slowly over time. And there are 2 driving forces primarily. One is that towards the end of last year, beginning of this year, we sold a couple of portfolios where we had rather high provisions and that had to do with the cash flow situation. And that had an impact, selling those when we got those out of our books. And that's more of a technical explanation.

But then another one is that when we make calculations as to the size of those provisions, we upgrade what we call LGD when we use rolling 4 quarter basis system, and that looks at the cash flow. The cash flow is improving all the time, which means that the LGD is going down. And that way, the level of provisions, that number goes down as well, and that is positive. This is positive that we have a better cash flow compared to, let's say, a year ago. And that is the reason why it's going down.

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Jens Hallén, Carnegie Investment Bank AB, Research Division - Research Analyst [63]

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Then if we try to be visionary and look ahead 1 year, will that trend continue?

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Unidentified Company Representative, [64]

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The answer is that we don't know. That depends on the developments of the cash flow, but we shouldn't expect any sudden movements.

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Jens Hallén, Carnegie Investment Bank AB, Research Division - Research Analyst [65]

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And then on the regulatory side, you have the NPL backstop, among other things, where the idea is to force banks to make write-offs of those in secured debts. And do you have any changes that you have made to what you do?

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Unidentified Company Representative, [66]

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Well, we look at the rules, regulations and we have a strategy for the next 2 or 3 years. But exact numbers, we can't give you. We have a strategy for how to handle those rules, but then we'll have to see over time.

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Peter Rosén, Resurs Bank AB (publ) - CFO & Head of IR [67]

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So we'll check if there are any further questions amongst the participants here today. No, that does not appear to be the case, I think most of the answers have been dealt with and questions, it would appear.

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Christina Jungvid Ohlsson, Resurs Holding AB (publ) - IR Officer [68]

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Thank you, Peter. Thank you very much for taking part. And the next time we meet you, it will be on the 4th of February when we release the Q4 numbers. Thank you very much to all.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]