Intrum AB (publ)

Good morning, everyone. This is Andres.

Good morning from a very gray day here in Stockholm. Thank you for joining the Q4 2024 and full year 2024 report.

As the operator said, I'm here with Johan Akerblom, our CFO. Jumping right in, let's jump right into Page 3 of the presentation.

The fourth quarter was a very solid quarter. We had solid business performance across both of our businesses, as well as significant progress on a number of our, both internal and external initiatives.

Starting with Servicing on the bottom left. We had the second strongest Servicing quarter in terms of both margin and absolute EBIT in the last 5 years.

We had an EBIT increase both quarter-on-quarter and year-on-year of approximately 26%. The quarter -- the margin in the fourth quarter was 30%.

The year prior equivalent period was 23%. For the year, it was above 19%.

Our target was in the 18s and last year it was 16%. So significant margin improvement and positive momentum, combined with organic growth, as you can see in the bottom left, in the Northern and Middle Europe regions, our largest economic catchment areas, offset by what is, as we all know, a structural decline in the AUM and our business in Southern Europe.

More on that later. On Investing on the bottom right, collections performance for the quarter was 103%, for the year was 101% against active forecast.

But just as importantly or even more importantly, it was 110% versus original forecast during the quarter. And during the year, I believe it was 111% against original forecast.

So we continue to outperform our forecast at the time when we bought these assets. The -- given that performance and given the smaller book because today, we have a book of approximately SEK 25 billion versus a year ago, which is approximately SEK 35 billion or SEK 36 billion, the income and EBITDA figures were quite stable and quite significant coming out of this business.

We continue to invest in the quarter in conjunction with our partner, Cerberus and other proprietary investments. We invested about SEK 500 million -- a little bit over SEK 500 million in the quarter and an IRR well elevated, not only versus last year, '20 versus '19, but also significantly above what traditionally we have invested through the cycle, which is more in the mid to slightly lower than mid-teens.

So we continue to invest at a run rate of about SEK 2 billion a year, which is our target currently off of our own book and at elevated IRRs because that's where the market is right now. In terms of top left, we have a very strong profitability target, not only due -- or profitability trajectory, excuse me, not only due to the underlying strength in the businesses, but also due to cost measures.

We ended the year, last year, with the lowest absolute costs in all of our -- in each of our 2 businesses, as well as our central functions. Since this is the lowest absolute cost since I became CEO, and what that gives us is an entry into '25, which Johan will get into more later on a much lower run rate and an expectation that we will lower aggregate cost again in '25 while continuing to grow revenue.

The leverage ratio did increase to 4.5x. That is structural and expected.

The leverage ratio is a very simple ratio. It has our debt in the numerator, which, as Johan will show later, is just slightly down, so essentially flat to just slightly down.

But the denominator is our actual cash EBITDA over the trailing 12 months or the trailing 4 quarters. That comparison this year versus last year has discontinued operations last year.

So it will continue -- the numerator will continue to structurally decline over the next 2 quarters. And what will happen at the end of the second quarter as it relates to the ratio, which will continue to elevate slightly between now and the end of the second quarter, 2 things will happen.

Number one, we will affect the recapitalization, which means we will have the haircut on the debt that we've agreed with our creditors that will lower our leverage. And then from the third quarter beyond, the discontinued operations distortion will no longer be in the comparables, and we will have favorable period-on-period.

So the numerator will grow. And you will see our deleveraging really in the second half of this year and into '26.

On the recapitalization, top right, everyone knows and I was on a -- and I would encourage everyone, if you haven't seen it, to see my session last week with Nordea on the recapitalization. It lays it out in a very simple fashion and also allows investors and Nordea's research analysts to ask questions.

But we had a very favorable decision on December 31 in the U.S. We initiated the Swedish reorganization a few weeks ago.

We expect a creditor vote sometime in March, and we expect the overall recapitalization to be completed in the first half, specifically during the second quarter. And then on top of it, this is more a strategic initiative, but it really relates to Investing.

We have continued to scale up our service joint venture with 12 portfolios. And if you remember, as of last quarter, we had 5 portfolios.

So we've done 7 more deals with them. I'll talk a little bit more about that later.

And our total committed capital is well above SEK 2 billion. And we continue to drive our transformation to, not just become a collections company that uses technology, but to become more of a technology company that does collections.

Ophelos is the tip of the spear in that initiative. I'll get more into that later, but we rolled it out in some of our major markets last year.

We continue to roll it out in this year. We have an ambitious rollout schedule this year, which I'll get into later.

Going to the next page. The recapitalization, I'm not going to get too much into this.

I would encourage you to go to the Nordea -- it's on our website, by the way, the Nordea session, so please go to that. But we received a very favorable decision in the U.S.

We are in the middle of an independent and important and final step of the process with the Swedish reorganization. Then we have some structural changes that are conditions precedent that will be completed during the second quarter, and then we'll complete the recapitalization.

I will emphasize that the locked-up creditors who are 97% of our banks and 73% of our bondholders are legally committed to vote in favor of the Swedish process when that vote comes up in March. I'll also highlight the fact that when we ask for votes specifically on Chapter 11, we received even greater support with 100% of our banks and 82% of our bondholders.

That is why we are confident that we're going to be completing the recapitalization on the time frame we've indicated. Next page, please.

Talking a little bit about the market. As you'll see a little bit later, we deal with, at any point in time, plus or minus 25 million consumers.

These are consumers that have fallen on difficult times and that we have to deal with in the way that is reflective of their financial situation and their preferences. And that is changing along with the demographics.

So top left, just generally speaking, there seems to be more confidence in the markets. I'm not sure that actually is translating into our business.

We're seeing more assets coming into our business. We believe the consumers are still under significant pressure.

And I personally believe interest rates are not going to come down as fast as people think. So we still have a significant amount of pressure on the consumer, which then will translate to more assets -- more individuals falling behind and more assets for us to manage.

This is both cyclical as well as structural. As you can see in the top right, 40% of Gen Z members, and these statistics are all out of our European consumer payment report published in November of last year.

I would suggest to all of you strongly suggest that you refer to that. It's a very detailed and informative report on the market.

But 40% of the Gen Z members, as you can see in the top right, still use credit to cover their monthly bills. This is indicative of a broader trend.

People have income. They don't have enough income to cover what has been a very elevated cost.

And although inflation has come down, it's still wages have not offset what is the cumulative effect of the inflation over the last several years. And that's going to be a structural issue that's going to continue to put pressure on consumers.

Bottom left, there's also a demographic change that's changing the way we need to interact and deal with our customers or the consumers. In that survey, you see that 50% don't mind using an AI technology bot, so to speak, in order to manage their situation.

This is incredibly relevant to us. This means they feel less judged.

They're much more comfortable dealing with technology, not necessarily with humans. As you'll see in a few pages, we still have over 160 million actions a year, many of which are manual, many of which are human-driven.

That has to change in order for us to continue to improve our ability to help consumers and to collect for our clients. And bottom right, you just see a similar type statistic, which is 30% of millennials, a little different than Gen Z, but also report late bill payments.

We're not out of the woods at the consumer level. And what that means is that, we will continue to see high demand for our services.

Next page, please. Now jumping into the business performance.

I've already referred to some of these, but it's really an improvement in the margin story in Servicing, both on a quarter-on-quarter and year-on-year basis. It's a collections above active forecast and just as importantly, if not more importantly, against original forecast on the top right, in Investing.

It's a continued cost reduction story overall for the company. And we continue to leverage the service partnership with high IRR, high number of deals, volumes coming in.

And those volumes, as you'll see in a few minutes, are very important because they allow us to co-invest our share, which improves our proprietary book and refreshes our proprietary book. We get investment management fees as a result of their volume, and we get Servicing business on the total perimeter.

Next page. Servicing here, you see graphidly represented the fact that the margin improvement is significant, and we expect it to continue.

You see that the last 3 to 4 quarters are the strongest quarters in terms of income and the margin story is growing very, very nicely. You see the 30% versus '23, the 19% versus 16% I referred to earlier, and you see an overall growth in adjusted income on a trailing 12-month basis in our Servicing business.

Also more specifically on the bottom, you see the organic growth. These are annual figures or trailing 12-month figures.

You see organic growth in North and Middle. We expect that to continue.

Those are the 2 areas where we have a more balanced business between fresher commercial claims and loans. And we expect that -- and those are also 2 of our largest economic regions, particularly Middle Europe is our largest economic catchment region, having organic growth in that region will disproportionately benefit our business mix and our business performance.

And then you have the structural decline in Southern Europe, which will continue for some time, but we manage it. Southern Europe is still our largest profit center, but it is facing this headwind, which we will manage through the cycle.

On a margin basis, we continue to bring on board a significant amount of new annual contract value of new business. And the new business is underwritten at margins significantly higher than our back book of Servicing business.

So we expect that plus the cost cutting plus our overall momentum on our business to continue to drive our improved margin. Next page.

I'm now on Page 8. This is a new page, which I think really gives you a sense for the progress of our Servicing business in '23 and '24.

And I'll start on the top left. These are just external figures.

They are opening balance of Servicing AUM, assets under management, everything starts with assets. If we don't have assets to work, we don't have anything to do on behalf of our clients.

We don't have consumers with whom we can interact. We started '23 with SEK 1.3 trillion of external AUM.

We had roughly around a 7% recovery rate. So that's how much we recovered on behalf of our clients, just our clients, not our own book, just our clients, the SEK 102 billion in '23.

And then based on that, we had a conversion rate, which is the amount that we make in revenue per unit of collection at about 12%, leads to about SEK 12.3 billion in external Servicing income. During that year, the AUM grew to SEK 1,461 billion, as you can see in the bottom left.

And therefore, we started the year in '24 on the top right with that figure. We, on a larger base, maintained a stable recovery rate, slightly lower, but stable and yielded a SEK 110 billion collections on a comparable basis to the SEK 102 billion the year prior.

Due to mix and other factors, our conversion rate dropped slightly, but we really are focusing on conversion rate, as I'll get into in a second. And we -- that ultimately translates to growth in external Servicing income.

And our AUM going into '25 has grown from SEK 1,461 billion up to SEK 1,621 billion. So we're talking about double-digit growth in both '23 and '24 in AUM, which will continue to drive improved performance in our Servicing.

The conversion rate is really something we're focusing on. We're continuing to work to optimize the pricing of our product based on the value we deliver to our clients.

Conversion rate improvements are disproportionately impactful of our bottom line. But overall, we need to make sure to capture more assets, recover more and get paid better.

And that's the focus in Servicing. Next page.

Switching over to the back book of our -- to our Investing business and specifically the back book, you can see here that since the Q3 of 2023, we have cut back our investments, and therefore, there has been a net extraction of value from our back book. Also added to this is the sale of the back book approximately a year ago, which closed in the middle of last year to Cerberus.

And over the last few quarters, we've had an average -- we've extracted about SEK 6.4 billion versus about SEK 3.5 billion recently. We would like this to stabilize going forward, and we would like to scale up the third-party business with Cerberus, but also stabilize our portfolio because it is an important contributor to our overall earnings.

Next page. Here, you see the specific collections and performance versus forecast on our proprietary book.

Lower absolute collections, but still very meaningful at 10.7%, lower because we just simply have a smaller book. Again, as I mentioned earlier, SEK 25 billion versus roughly SEK 35 billion, SEK 36 billion a year ago.

But we continue to perform above active forecast. The active forecast performance should be around 100%.

If our revaluation process, and I've said this often to the market, it should be around 100%, but we continue to extract more, and therefore, we outperform that. But just as importantly, if not more importantly, that 103% in the fourth quarter was 101% for the full year, and both those figures are 110% and 111% against original forecast.

So on a smaller book, we continue -- and by the way, because it's smaller and it's slightly more aging, it's more difficult to collect on, but we continue to perform very well on collecting on our own book. Next page.

Here, we talk a little bit more detail about the Cerberus deal. As I said, as of the third quarter, we had agreed on 5 deals.

We've now added another 7 to have a total of 12. We have total CapEx of a little bit over SEK 2.2 billion, of which we're SEK 680 million.

It is broad-based. It's across our entire platform.

And everything we're done -- we have done to date is based on a detailed committed term sheet as of the middle of last year. So it's essentially 2 quarters of activity with them.

And we expect to sign the definitive documentation in the course of the first quarter of this year, probably sometime in February, maybe March. And when we look to '25, our objective is to scale this up.

That SEK 2.266 billion is the first 2 quarters of our arrangement. It is still in a ramp-up period, and we expect next year to be well above the annual run rate of that volume.

Next page. Now switching over to technology, and then I'll hand it over to Johan, but we continue to want to push the initiative to, again, as I said, I believe earlier and I've said before in this forum, we want to be a technology company that does collections, not a collections company that uses technological tools.

That is a mindset shift as well as an architectural shift as well as an operational shift. And what we believe to be the payoff for that transformation is collect more, collect with less cost and give the customer a better experience.

Our experience on the left-hand page -- on the left-hand side of this page in the Netherlands, where we rolled out Ophelos in the first half of last year, and we have the most comparable data is that, relative to our legacy collections, we have a much lower cost to collect, driven, not just by unit and other costs, but also predominantly labor cost, and we have 25% higher collections rate. And we're giving the consumer, particularly as it relates to the more younger demographic in our consumer base, as I pointed out in the market page, we're giving them a better customer experience.

So this is really the Holy Grail of technology. We can do better, cheaper, better for our clients, better financially, cheaper, and we can deliver a better experience to our customer.

What does that mean? We need to roll this out as quickly as possible to drive this transformation.

And Ophelos is really just the tip of the spear. There's many other initiatives that we're doing to make ourselves more operationally efficient in line with 1 of the 3 pillars from our Capital Markets Day, which has become more operationally efficient and effective.

By the end of this coming year, we'll be in 9 markets. We rolled out at the end of last year to Spain and France.

We'll go out to another 4 or 5 markets this year. By the end of this year, we will have this rolled out in 60% of our economic footprint, i.e., revenue.

And we will have -- we expect the 7.4 million cases to be transferred, which is about 25% of new case inflows. And I'll remind you that this initially is just focused on amicable.

But I would like that 25% and that 7.4 million figure to be higher. But we have an ambitious schedule to roll this out, which will have, I believe, a dramatic impact, not just in '25, but more importantly in '26, '27 and beyond.

With that, I'll hand it over to Johan to go through the financials.

Okay. Thank you, Andres, and good morning, everyone.

So if we switch to Page 14. I think on the financials, I mean, I think we have highlighted the underlying comes in strong.

We see the trend continues, both the trend continues in Servicing and Investing has a strong finish to the year. However, if you look at the unadjusted numbers, they still are in a shape that we are not happy with.

So if you look at the full year, the income is higher than '23 on a comparable basis. The cost is slightly higher.

The adjusted cost is pretty much in line with what we had in '23, which means that we've been able to mitigate the full cost that we've added through the M&As. And if we look at the Q3 and if we look at the adjusted EBIT, it's also higher versus last year.

If we look at the quarter, the net income is minus SEK 767 million. We do have a significant amount of IACs, and I'll go through them on the next page.

But the adjusted EBIT is also coming in higher in Q4 than versus last year's Q4. The cash income is slightly lower, but that's also dependent on a little bit smaller book.

And the cash EBITDA is actually higher and I'll revert back to that when we talk about the leverage ratio. So I think with that, I think we can move to the next page and talk about the IACs.

So IACs has been a theme that has been occurring over the last -- in particular, the last 2 years. We have now reviewed this carefully.

And if you look at the IACs for Q4, we have basically 2 big buckets. We have 1 big bucket of intangibles, which relates mainly to the central system that we wanted to use for Servicing that we have decided that it's not going to be used, so it's been written off.

And the other parts are basically related to the restructuring cost savings, integration, both related to the M&A, but also in general. And if you look at the full year, on top of that, you need to add the goodwill that we did in Q3.

Those are effectively the 3 buckets we have. And we have now decided that next year, we will be very, very, very careful to discuss IACs.

We will basically have 2 types of IACs, either they are fully related to the indoor because that's going to be a massive transaction, the recapitalization because that will come with one-offs in both directions. And net-net, it will be positive because of the debt restructuring.

And the other thing that might pop up, but we don't know yet is, anything that is related to intangibles. We'll see what that comes.

So that's the idea. And we will have extreme focus on net income.

So the company will go back to net income on a positive level. And that will be a major focus starting -- it's already started once we hit the ground running 1st of January this year.

We did one more IAC, which is on the page that I mentioned. We do have a -- we did have a mismatch between the contract value of an acquired client contract in Spain and the revenue extraction.

So basically, the revenue extraction has been, to a large extent, made, and we still have the tail, but the value in the balance sheet was not properly reflecting that. So that was another adjustment we did in Q4.

If we go to Servicing on Page 16. External income is slightly lower than last year Q4.

We do see good progress in our flow markets, if I may call them so. So the Middle and the North, where we have a different type of business mix is continuing to grow.

And the Southern Europe, we still see that we have a book that is shrinking, and that's just because the whole banking system, which we're very reliant on in the Southern part is in much better shape than it used to be, and that is reflected through our book and our revenue extraction. However, we are now exploring new avenues to grow in those countries, but also we have a strong focus on cost and being more efficient.

On a full year basis, the total Servicing external income actually grew, and we also see that the total income grew by 4% on a year-on-year basis. The cost is going down, both on a quarterly basis and on a full year basis, it's more or less flattish, again, reflecting the M&As that we've done, and we've basically been able to absorb that whole cost increase.

I think we have already alluded to the adjusted -- the EBIT margins and how they continue to expand, which is extremely good. But Servicing being the biggest part of our business and also where we have the biggest restructuring when it comes to M&A and integration has a big delta between the EBIT and the adjusted EBIT.

But again, as I said, this is something that will be different going into 2025. Investing, what I would like to highlight is that, the cost of Investing is increasing.

That's on the back of spending more cost to extract because the book -- as we invest less, a big part of the book actually becomes less replenished, which means that it might -- in some instances, it's harder to collect. We need to spend more time and money.

And some of the cases has to be put more into legal. And that is driven -- that's then driving cost.

But in the end, I think we focus on the EBIT and the cash EBITDA, which are still coming out in a good shape. The CapEx deployed was SEK 512 million in this quarter, which is in line with what we have said, the SEK 2 billion over the year.

And yes, book value is slightly lower than last year. I think on Page 18, which is the cost.

You clearly see the run rate effect. And you can also see that Q4, which normally is a little bit higher cost because we have a very high seasonality in our collection business is actually in line with Q3.

So we enjoy higher income in Q4, but the cost is flat. And we will continue to take the cost down into 2025.

So the cost number -- the absolute cost number for 2025 for the underlying business will be even lower than our 2024 number. And I mean, one thing is the FTE reduction, which is down 1,745 people year-on-year, but we're also looking through all our operating measures, external contracts, et cetera, et cetera, and the way we work.

Page 19 just shows how our net debt has developed. We do have some headwind on the debt side because of the euro strengthening in the quarter.

However, I mean, we did have big repayment 1st of October, and our leverage ratio has increased to 4.5x as you see in the next page. And our underwriting returns, they continue to be strong and increasing.

And the cost of fund is now reflecting the existing one in the recapitalization. The cost of funds will increase, but we'll still have a big delta between the underwriting IRR and our cost of funds going forward.

Maturity profile, just again, reminding everyone how the new debt stack will look like. That's on the bottom of the page, and we basically push and amend up until 2027 to 2030.

Cash and cash equivalents by the end of the quarter, end of the year sits at SEK 2.5 billion. And our interest rate sensitivity is around SEK 500 million.

But with the new debt stack and the recapitalization done, we will have a fixed rate to -- which would be sitting around 8%. And then lastly, just reminding everyone about our medium-term financial targets.

On the Servicing, we are hitting the target that we set up. We delivered a 10% CAGR as per Q4 '24.

On the EBIT margin, we're trajecting towards the 25% that we have pointed out. We're 19% right now.

Actually, our Investing book is lower than we said. We would actually like to increase to SEK 25 billion if we could, and we'll see how we can manage that in 2025.

And the leverage ratio, it is now higher than it was the last quarter. It will continue to increase slightly going into 2025 as we lose quarters of discontinued business.

But at the same time, we're also improving our results, and that will partly offset that. And then during the year, when we come out after the restructuring and when discontinued business is not part of our leverage ratio, the leverage ratio will come down.

Handing back to Andres.

Thank you, Johan. Moving to Page 23, just to recap a bit.

Top left, recapitalization proceeding nicely, Chapter 11 confirmed, Swedish process underway, completion first half. Our cost reduction initiatives, as I said, as well as Johan went into more detail, are bearing fruit.

Our focus on efficiencies and margin are bearing fruit. We entered '25 with an expectation on absolute cost reduction and revenue increase, which will disproportionately impact our overall margin.

We continue to roll out Ophelos very aggressively as the main initiative in transforming ourselves into a technology company. And what that means is our 2 businesses, we have improved profitability expectations in Servicing towards that 25% that Johan just mentioned.

And on Investing, we expect to continue to collect above our forecast and ramping up, it's not on the page, but ramping up our investment management progress with Cerberus. On the next page, for many, many years, I've heard because I've been on the Board of this company, et cetera, that, oh, from the market, the company says it's doing things and it doesn't always accomplish them well.

I think over the last few years, I have to give the entire Intrum team tremendous credit because we have set out a path since the middle of '23, and we are achieving that path. So we said we were going to improve Servicing profitability as of about a year ago.

You see that in the numbers clearly. We said we were going to continue, despite transitioning to a smaller book into more of an investment management model, continue to collect at or above our active and original forecast.

We do that. That's an evidence of our industrial capability to collect even on an older book, as Johan said, and a more difficult collections environment.

We are taking active steps towards becoming capital-light and an investment manager. We sold our back book approximately a year ago, we agreed to that.

And we are scaling up the joint venture or the investment partnership with Cerberus. And we're going to -- during all this transformation, we're also transforming fundamentally the operations with technology, Ophelos being, again, as I said, the tip of the spear in that, which will improve our efficiency, improve our ability to deliver collections and give the customer a better experience.

And the capital recapitalization, excuse me, process is -- went through a very important milestone in the U.S. We are in an independent final and important process here in Sweden.

And what that will do, as Johan's chart clearly shows, is align our capital structure with our business plan and give us runway to deliver on this continued positive momentum in the underlying business. And I want to emphasize something.

What that means in '25 is exactly what Johan said, you will see less IACs, only specifically related to recapitalization and some other factors maybe on intangibles. And what that will mean is that, we will produce a meaningful positive net income in '25 and grow that going forward.

That's going to be a prime focus to align ourselves with our shareholders. So again, across the board, underlying business trajectory is positive, strategic initiatives is positive and a realignment of our capitalization is positive.

The next 2 pages are really important and highlighting the important role that we play, and then I'll hand it over to questions. I think everything starts on the top left with assets.

If we don't have assets, we can't do anything, as I said earlier, including client, as well as our own assets, we manage about SEK 2.4 trillion. These are 35 million cases and 25 million individuals.

This is not just a number on a page. These are 25 million individuals with whom we deal every day.

We take over 160 million actions, which includes e-mails, SMSs letters and calls, portals, which are portal visits, self-serve and others. And what that results in is that, every year, about 5 million people become debt-free.

They are until they become debt-free dealing with this issue, they are excluded from the financial system, and they can reintegrate into the financial system after this. This is a very important role that we take -- that we play for our clients to collect, but we help these individuals reintegrate into financial society, which contributes to the sustainability of the financial system and the performance of the financial system and is an important societal contribution.

And we do this on an industrial scale, 160 million actions, 25 million. So we deliver individual solutions with empathy on an industrial scale.

Next page is the last page, just following up on this, a little bit -- in the last 12 months, we have helped a little bit under 5 million, that approximate 5 million in here, 4.9 million. We deal with people at a very difficult time, yet they rate us highly, 4.2 out of 5.

We deal with people when they're at their worst moments potentially. And what we need to continue to do is give them a better customer experience and improve that while still delivering for them and for our clients.

And as you can see in the bottom, in '24, we delivered for our clients, SEK 121 billion of collections, part of which is our own, about SEK 11 billion, but the rest is all clients. So again, we play a very important role.

We deal with individuals at sensitive time, and we collect and we deliver for our clients. With that, I'll open it up for Q&A.

If we start with the Servicing side, it seems that over 80% of the IAC in the EBIT affecting Servicing can be derived to Southern Europe. Can you give us any more color on what the adjustment of over SEK 0.5 billion actually is related to on Page 5?

And where do I find the Spanish service contract, which you discussed?

Jacob, you should know that I have written your name down before I even knew you were first online. It wouldn't be a quarterly report without you being first.

But I'll ask Johan to give you the detail behind the IACs.

Sorry, you were referring to Page 5.

15. Sorry.

Because it seems that when you look on the division that over half or over 80% of the total IAC in EBIT is related to Southern Europe. And you did mention during the call that you lost the Spanish service contract that you wrote it down somehow.

No, no. So just to explain more carefully, we do have some service contracts where we have paid an upfront fee for the contract.

When you do that, normally, you would amortize the cost of that contract over the revenue that you expect. What we have seen is that, we have 1 contract in Spain where we haven't amortized in line with the revenues collected.

So we basically collected revenues, but we haven't amortized at the same pace, which means that we now do a catch-up, and that's why we write down part of the contract to more -- to better mirror the remaining revenue that we expect to collect. So we haven't lost that.

No, I understand that. Okay.

Fair enough. But if I look at on Page 5 in your report, items affecting comparability, it's SEK 1.126 billion.

And SEK 622 million is within Servicing. And when you look on the segment split, over SEK 0.5 billion is related to Southern Europe.

So I was just wondering, is there anything more contract.

Yes, yes. No, it's a Spanish contract, but then I also said that there's things related to M&A and integration.

So in Spain, we have Haya, and we did a big restructuring reserve on the personnel reduction in Q4. And then we also have some related integration costs and transformation costs in Spain.

So that's the total that you would see there. All of it is not Spain, but the bulk of it is Spain.

Okay. If we then continue on the adjusted EBIT margins within Servicing, it has been more volatile between quarters during 2024 than prior years.

And, I mean, once again, it's Southern Europe where the margins has fluctuated between 25% all the way up to 50%. Is this a new seasonality pattern with some very strong quarters and a few weak ones?

Or is there anything specific going on during this year?

Jacob, the Southern Europe EBIT margin historically was driven principally by Greece, which was extremely elevated. That is now stabilized because that contract has reached past its peak.

We've talked about that. Italy and Spain continue to improve their performance, but it is variable from quarter-on-quarter.

I wouldn't say it's new seasonality, but I would say that while we have stability in Greece, we expect -- and we have high margins in Italy, which we will maintain, we expect improved margins in Spain. That is the Southern Europe picture.

And I think also what needs to be remembered, I mean, the composition of our business in Southern Europe and in particular in Spain and Italy, we do have a lot of secured. And when we collect on the secured, that doesn't come -- it usually comes in chunks.

And we also, on top of that, we have a fairly high proportion, especially in Italy of JVs and the JVs are also not linear in how they perform. That would also come sort of on a quarterly basis.

So that sort of -- if you don't look behind the curtain, you wouldn't see all those movements.

Okay. That makes sense.

And then I heard your comment regarding the shrinking book in Southern Europe. But given that BBVA and Caixa reported quite strong numbers this morning, should we expect the book to continue to shrink during 2025?

Or should we pencil in any top line growth actually for the upcoming year?

I think Southern Europe has a different picture across markets. I think we'll have declining assets increase.

I think Italy is probably the most advanced market from what used to be just a big concentrated Intesa Sanpaolo contract that we bought to now a diversified business. I think there you will continue to see improved revenue.

And I think Spain, we're getting more and more assets in Spain focused on conversion rate. We should continue to have a strong top line in Spain going forward.

It is our largest Servicing revenue market. So I do think that the organic decline will stem, but you're talking about asset -- places that have very large assets that were transferred at onetime that we continue to work down and new entries are important, are growing, but they're not fully offsetting the amortization of the prior book.

So I think it's going to get slightly better. I would not envision a strong turnaround in '25.

On top line?

On top line in Europe. On bottom line, it's a different picture.

Yes, sure. And then just lastly on CapEx deployed.

Your target for this year has been SEK 2 billion, but you invested only SEK 1.4 billion. But then on Page 11 in the presentation, you wrote that not all transaction has closed.

So if we just pro forma these investments, what would your Q4 CapEx have been?

No. So the CapEx is actually SEK 1.7 billion for the year.

I think there was a mistake in the first word that came out, it has been adjusted. So we are slightly lower than the SEK 2 billion.

That mainly comes from not the fourth quarter. The third quarter was slightly lower.

The second quarter, I think, was in line and the first quarter was slightly lower. We want to continue on that pace.

And particularly with Cerberus, we can also get the full leverage, as Andres explained before, that we both invest, but we also get a much bigger amount that goes into our Servicing.

But I want to emphasize, Jacob, you bring up a good point. We want to invest around the SEK 2 billion figure, but Investing is not a linear business.

It's also not a volume or market share business. We invest when we see opportunities that are attractive.

And we still have that guidance and that target of doing around SEK 2 billion. And as Johan said earlier, we'd like to actually grow our book slightly over the coming years.

We'll manage that in the context of everything else that's going on at the company. But the real important numbers are the collections against our back book.

1% or 2% improvement in that collections basically can offset whatever improvement we have in our profit from new investments. So you need to have a balance of both, but really, the 101%, 103% are really more important figures as it relates to our financial performance.

Yes. And on the Investing side, I mean, instead of being sort of religious about the number we invest, we have been being religious about the return that we get.

That's more important as well because that's going to have a big impact on the future, but not now.

Yes, a few questions from my side. So first off, starting on the Servicing side.

When do you foresee this structural decline in the Southern Europe to -- within Servicing to disappear?

Patrik, again, as I said earlier, I think every market is a bit different. I think in Italy, we've already seen it plateauing.

I think in Greece, you'll see slight decline, but we have to -- and in Spain, you will see we're getting more assets, which means more revenue. We need to focus on the bottom line in all 3 markets, and that will be done dynamically.

So in Southern Europe, I think the organic growth or the organic decline in revenue will stem, i.e., be less, but we will still be dealing with it for several periods. What we need to do is, dynamically manage the bottom line to maintain our profit level.

And overall, as I said and also Johan said, with the different mix of business and the different economic activity levels in the Middle and Northern Europe as a whole, we want to see positive organic growth, and we anticipate that in '25.

And I think also, I mean, to be fair, we focus a lot on Southern Europe here now. But, I mean, one of the things that we've done, and we've done it actually successfully is to mitigate the concentration risk we have in Southern Europe by expanding in Middle and Northern Europe.

And we've been successful in growing there, and we will continue to grow there. So we have -- that's the beauty of being big and being in many, many markets.

So Southern Europe, yes, we will have -- continue to have headwinds on the top line, but the rest of the markets has to compensate. And then on top of that, we need to focus on being more efficient.

So bottom line, it should be net positive.

I see. My next question is on item affecting comparability, which will decrease, it sounded like significantly going forward, but we still have these items in connection with the process you're currently in.

So could you please -- or if you've been able to share any guidance of the expected items affecting comparability the coming 2 quarters, please?

So, I mean, I can give you the components. So, I mean, we do have -- as you all seen, the restructuring has been very transparent.

So, in the restructuring, we have a debt conversion, which will give us a 10% haircut on the existing debt. That's one of the IACs.

We will compensate the debt holders with 10% equity. That's another IAC.

And then thirdly, we have the cost to run the process. And that's basically it.

And then, I mean, the cost of -- in the cost of running the process, of course, I include then also sort of early birds, consent fees, et cetera. But that's the components of IACs that we have.

And they will all be reported when we close the transaction.

Yes. And the cost of the program needs to be put in the context of a capital structure, which is nearly SEK 50 billion, as we've showed, and also the benefit that we're going to have post this in terms of we're going to have a significant realignment of our capital structure, which gives us runway to move forward.

And also, while we look at those different components that Johan said, we're always going to be vigilant and look at our intangibles and see if we can't further refine our intangibles as a percentage of our total assets.

And it's not possible then to share the budget, what you have calculated to be the cost around the process because I guess that one you have budget for?

We're not disclosing those specific figures. You'll see them as they flow into our reports.

Okay. Fair enough.

And my last question is regarding the leverage ratio because a few months ago in the Q2 report, you expected leverage ratio to be around 4x, and now it's at 4.5x and trending upwards. So can you please elaborate a little bit what has not gone according to plan?

Again, I want to level set the information I said it earlier. The leverage ratio is our absolute debt at the numerator.

That as we saw, is stable, slightly down. And the denominator is our actual trailing 12-month cash EBITDA.

That has 2 months -- 2 quarters, excuse me, of a larger book in it, and therefore, the year-on-year comparison is that, it declines. That is the reason for the elevated ratio.

We expect the elevated ratio. We said 4 to 4 plus, but you're right, it's now at 4.5x.

We expect that to elevate a bit more into Q1 and Q2, simply because the debt will be stable and the numerator will continue to have year-on-year declines because of that structural working through the fact that we have stronger quarters, which included a larger back book in the equation. Then as of the end of the second quarter, we will have no longer -- we have worked through all those comparables and then the year-on-year comparables will be positive.

So the numerator will start increasing. And we'll have 2 things, a decline, which -- a structural decline of 10% of our debt -- 10% of our bonds, I should say, which we've agreed in the context of our recapitalization with our creditors, that will lower the numerator and further improve the ratio.

And then we'll have our cash flow from that point forward can be fully dedicated to lowering our debt, and you'll see the decline in our ratio.

And I think -- maybe just to add to that. I mean, if you just look at the year-on-year, so our cash EBITDA in Q4 is around SEK 2.9 billion.

Our cash EBITDA are fully including discontinued business in Q4 '23 was SEK 3.7 billion. So -- and the discontinued operations is roughly SEK 950 million.

So that effectively rolls out, and then we roll in an increase in Servicing cash EBITDA of SEK 150 million, slight decrease on the Investing and then an increase or a positive effect from our central cost cutting. So net-net, we have been able to actually decrease the leverage ratio on a fully comparable basis.

But given that we have discontinued in, it will continue to suffer from that sort of headwind over the next 2 quarters. But as I also said, we want the underlying business to improve, and that might close the gap slightly.

And then we see how the big debt and the haircut of debt will have an impact as well.

Yes, it was also -- it also relates to the timing. We thought we were going to be in and out of the process sooner than the middle of this year.

We thought it was going to be more the beginning of this year or end of '24. And that timing getting pushed out means that the haircut has not happened, so the decline hasn't happened.

That's part of also the shift.

But I think we have a great Q4 leverage...

Yes, I think the latter then.

And then, I mean, we do have a pretty -- we have a very good understanding of our leverage ratio. To be fair, I mean, on the last call, I've spent basically 3 weeks in the company.

Now I spent 4 months. So I'm learning as we go along.

And I think we have a very good prediction on how our leverage ratio will evolve.

Some questions for me as well, please. So maybe just starting, you're mentioning several times that you have higher margins on your front versus back book on the Servicing.

I mean, in that context, why are we seeing the conversion rate being down in '24 versus '23 on Slide #8? And also just generally, the AUM is clearly increasing, but at the same time, the ACVs in Q4 seem to be down a bit.

Is that just kind of a one-off that happens to be down year-on-year? Or is it anything that's changed in the momentum you see currently in signing new contracts?

Ermin, talking about the margin, as well as the conversion rate, we have -- all the new ACVs have been underwritten at higher margins, to be clear. But that's at a margin level.

When you look at the conversion rate, that is related to revenue and it's related to mix. For example, on very, very old debt, we'll get paid a big percentage of total collections.

On the average amount of debt, we'll get paid something well above 7%. But then on commercial claims, which is a very big piece of what's in Middle and Northern Europe, we get paid a lower amount.

The mix very easily can move that conversion rate across. What we want to do is to make sure to focus on increasing assets and delivering for the clients in the form of collections, and optimizing the revenue line.

That -- and that doesn't -- that isn't necessarily inconsistent with the margin figure where that actually does flow down to the bottom line. You have to look at revenues as a combination of several things, renewals, churn and new business.

And the new business is at higher margins. That's part of what's driving our margins.

So hopefully, that's clear in terms of the conversion rate versus the margin. What was your second question, Ermin?

Yes. The second question was just on the ACVs.

If I'm looking on Slide #7, it seems like they're down year-on-year. So I was just wondering, is that just randomized that happens to be down?

Or have you seen any change in momentum in signing new contracts?

No. I mean, it is down on the quarter.

You can't look at any 1 quarter as a trend. Our ACV figures, net of churn are still very significant relative to a few years ago and also '23 was a particularly strong year.

So it suffers a little bit from year-on-year comparisons because '23 versus '22, for example, we had very high gross ACVs. We reduced churn next to nothing.

We're keeping clients. And then this year, we still have a very strong ACV and long churn, but the comparison isn't as strong because of '23 strength.

But I wouldn't read too much into it, Ermin.

Got it. Then just on Southern Europe and the margin.

I know a few years back, it used to be...

Sorry, just to add one more comment on the ACVs. I mean, the ACVs, that's a great way to look at long-term trends on the income.

But the conversion between one contract versus another, how quickly we convert that into real revenue is very different. And that's also why the ACV should be looked at almost on an annual basis because that's a trend that should go up.

And then the conversion rate between the ACVs that might differ between 1 simple contract where we convert almost in a month versus a more complex contract might take 3, 4 up to 6 months.

That's fair. Yes.

I got it. Then I just wanted to ask on Southern Europe.

I know a few years ago, the margin was boosted sometimes from having advisory fees, for instance, in Greece. Have you had any of that now in Q4 this year?

We continue to have -- we would not have any of those in Spain or Italy. We continue to have some of that in Greece, although it's moderating.

Going forward, we're not budgeting for those kind of things. We're transitioning all 3 of these markets, but particularly Greece from a very specific rate card to a -- that's driven by processes, et cetera, to one that's purely driven by performance at the Investing -- at the collections level.

And that's underway. And what that's going to lead is lower than a few years ago, but a more industrial and more reliable margin going forward.

Great. Then the final question was just on IACs for next year.

It almost sounds like do you think that you should do some more intangible impairments. I mean, what's stopping you from doing it now?

And kind of which areas are you looking closer at?

I mean, we -- I mean, I don't think we think we will do any intangibles. I'm just saying when we talk about IACs because I think we have a history of IAC-ing a lot of things, I want to -- we want to have much more discipline going forward.

So the only thing that would qualify as IACs in our view right now is anything that relates to restructuring. And if there would be a reason to do anything on the intangibles, that could be qualified as an IAC as well.

And we all know how our balance sheet looks like, but that's it. So you're not going to see sort of restructuring and this and that and that.

It's going to be much cleaner. It's going to be 1 number that you look at, not with a lot of adjustments.

And that's how we want to steer, both internally and externally, and that's more the message rather than that we think that we have to do something on the intangibles.

And that translates into the net income perspective that we articulated earlier.

And just 3 from my end, please. And the personnel reduction of 16% year-on-year is very significant and very impressive.

And at the same time, when we look at the revenues, they've actually, as you pointed out, have not been affected by that cut. Is that because the personnel reduction reflected exit resources or perhaps the cuts were in regions that are not creating as much Servicing income growth, such as, for example, Southern Europe?

If you can give us some color on sort of which areas drove that personnel reduction? And then the second question, with regards to Servicing, can you give us some color on the pipeline of new contracts that you see for 2025?

And do you expect to see an acceleration post the completion of the restructuring process? And lastly, on the leverage ratio, I do appreciate that the different moving parts in the denominator.

Do you still expect to reach the 3.5x leverage ratio in 2026? Or are we looking at 2027 more realistically for the leverage ratio to be below 3.5x?

Okay. Thank you, Angeliki.

I'll address the first one, and then I think Johan will probably address the second and third one. But on the reduction in personnel, it is correct, it's a significant reduction.

A big chunk of it, about 700 out of the 1,600 or so people was done in Spain last year. That was part of the IACs that we actually incurred because we had to pay redundancy costs.

That was part of the acquisition of Haya and the adjustment of the combined platform. It has not impacted our revenue.

I would say that what we looked at is nonproduction personnel, in some cases, production personnel, but also continuing to do -- to collect on behalf of our clients. The reason the revenues haven't gone down is because our collections that we've indicated multiple times in this deck, have gone up.

As long as our collections are going up, our revenues are going to be stable to up. And so, I think we are, as an organization, doing more with less human resources, doing more with more technology, doing more with improved processes.

And what you see is exactly the phenomenon you described, which is while we've had a very important human resource decline. It hasn't impacted our commercial activity on a top line basis.

Okay. On the ACVs, I think -- I mean, I don't think we can talk about any coming contracts that we see in the pipeline.

I mean, the pipeline looks good. We will continue to attract clients.

But I think one thing that I personally assume is that, when we're done with the restructuring, it will be easier to sign contracts because today, if you are in discussions with us, you might actually wait and see that we come out successfully before you sign. So I think that the organic growth will have a positive effect from us coming out of the restructuring.

Even though we haven't suffered yet, I think we have a positive momentum in that sense. And then I think on the 3.5x leverage, I mean, we are doing everything we can to get there and the restructuring is a part of that.

And we have no reason to change the guidance where we are right now.

Thanks for the presentation. I apologize, but I was away briefly here.

So you might have answered, and then I'll just look it up in the records. But you have stated that the leverage target was 3.5x first, I think it was set to 2025, then into 2026.

And now it looks like -- I don't think you communicated that before, you may have, but it seems to me that it's the first time you communicate that it's not reached until end of 2026. So that would be my first question and what the drivers for that was and change of expectations, et cetera?

And my second question would be on the cost base in the business plan in connection with the restructuring. You mentioned that you expect SEK 300 million of -- excuse me, you mentioned that you have an additional SEK 400 million remaining cost savings for the Phase 2 cost saving, which would be achieved by 2025.

Could you just remind me if that's sort of the final part of the restructuring and there would be not any further cost savings expected beyond that compared to the cost base you report on today, which looks like it's around SEK 12 billion for 2024 cash cost base? So if there is any additional savings beyond the SEK 400 million in 2025?

And perhaps also if we should consider that like a nominal reduction or if there still could be wage inflation, et cetera, that would offset some of that in the cost base nominally for 2025?

Yes. Thank you, Alexander.

I'll repeat what Johan said just a few minutes ago on the leverage ratio. Our target is 3.5x, as we've indicated.

Those were 3-year targets that were communicated in '23 that were going to be realized in '26. We did previously have an accelerated level, but accelerated timetable on the cost -- on the leverage ratio, which we extended into '26.

We are doing everything we can to achieve that. The delay and cost around the restructuring does impact it, but we have no reason today to change that target that we're going to hit 3.5x during 2026.

And it is correct. It's most likely going to be by the end of 2026.

That's logical -- and for now, and we will keep the market updated as we progress, but you're going to see the deleveraging really in the second half of this year and during next year. On the cost base restructuring, we have done 2 different initiatives in the past, which yielded significant discrete efficiencies.

And as Johan mentioned earlier, our absolute cost base will decline in '25. That's 2 things.

That's a continuation of those and a full realization of those programs on a full year basis, as well as, generally speaking, in our ongoing budget, we continue to drive for a significantly incremental cost efficiencies as just part of our management of the business every day, not part of discrete cost programs. So your cost number of SEK 400 million plus more will be realized in '25 on a run rate basis.

Yes. And, I mean, we will probably stop talking about the cost programs as such.

We will solely focus on absolute cost because we think that's much, much stronger. And as I said, the cost base next year will be lower than this year.

And I don't see any reason why it shouldn't go down further, unless we find some tremendous growth where we need to invest and the margin has a very positive impact on our net income.

Thank you, operator, and thank you, everyone, for joining today. Thank you for listening to us.

Thank you for your Q&A, your questions, and thank you for your continued support. Obviously, we are also available, not just today in this forum, but we're available separately if you want to reach out to us with any specific concerns.

But I thank you for your attention today and for your continued support of the company and for following us on the journey.