Release Date: July 18, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Intrum AB (ITJTY, Financial) successfully completed an asset sale to Cerberus, raising significant liquidity.
- The company achieved SEK900 million out of a targeted SEK1.5 billion in cost reductions, enhancing efficiency.
- Servicing income grew by 10%, outperforming expectations, and EBIT grew by 23%, indicating margin expansion.
- The investment portfolio shrank from SEK37 billion to SEK26 billion while maintaining strong cash flow and collection rates above 100%.
- A long-term investment management agreement with Cerberus was signed, aligning with the capital-light strategy and enhancing future investment capabilities.
Negative Points
- Despite the positive developments, the leverage ratio remains high at 3.9 times net debt to cash EBITDA.
- The company's adjusted EBIT decreased by 15% due to temporary delays in collections and increased costs.
- The investment business saw a 12% decrease in adjusted income and a 33% decrease in adjusted EBIT, impacted by higher activity levels and inflation.
- The cost base increased by SEK1.7 billion due to acquisitions, inflation, and currency effects, offsetting some of the cost savings achieved.
- The company's equity decreased by 20% this quarter due to hedge effects related to the sale of assets.
Q & A Highlights
Q: The servicing margin is a little bit lumpy. Can you share more details on how we should think about the lumpiness of the margin looking into the second half?
A: It is seasonal rather than lumpy. The first quarter is relatively weak, the second quarter is stronger, the third quarter is relatively weaker compared to the second quarter, and the fourth quarter is the strongest. We expect a strong end to the year, confident in reaching around 18.8% by year-end.
Q: Regarding the Cerberus announcement, where investments can go up to EUR1 billion, could you elaborate on who decides the actual level and what might cause downward adjustments?
A: The EUR1 billion is a target once fully ramped up, assuming market opportunities exist. It will be a ramp-up period, and if there aren't EUR1 billion of opportunities, we won't strive for that volume. We have the option to lower our 30% share if needed.
Q: Can the annual NPL purchases be above EUR2 billion if you see the right opportunity?
A: This gives us the flexibility to invest more if we see the right opportunity. It won't materially change our business plan profile but allows us to capture opportunities without significantly increasing our debt.
Q: Regarding the 10% of equity to noteholders, is it at a predetermined price or based on reaching the 66.67% support?
A: It only happens if the restructuring is implemented and we reach the two-thirds threshold. We will issue 10% of additional shares irrespective of price, contingent on the restructuring's conclusion and the debt haircut realization.
Q: Should we expect updates on the debt restructuring acceptance levels, or will you only report once you hit the two-thirds threshold?
A: We will spend the next one to two months getting more sign-ups. Once we achieve a sufficient level, we will announce and formally launch the restructuring implementation.
Q: Is the income from discontinued operations in investing a good proxy for the fallout from the Cerberus transaction?
A: Yes, the income from discontinued operations can be used as a run rate going forward, decaying with the portfolio size.
Q: How do you forecast your leverage ratio to develop during H2 this year, and do you still expect to reach your target in 2026?
A: The 3.9x leverage ratio is an artifact of trailing 12 months including income from sold assets. It will remain around 3.9x to 4.0x into next year and then resume declining, targeting 3.5x by 2026.
Q: How are discussions with banks regarding the proposed restructuring? Are they supportive, and when can we expect an answer?
A: The RCF banks have been supportive from day one, committing to the capital. We are in active discussions and expect to reach an agreement in the coming days.
Q: What happens if you don't reach 66% support from bondholders?
A: We are confident we will reach the required threshold. If not, we would need to find an alternative solution, but this is very unlikely.
Q: Can you confirm that you are still above 50% support from bondholders after the 24 Eurobonds matured?
A: Yes, we remain at 50.1% or higher, as the agreement did not include the '24 holders.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
