Hoist Finance AB (publ)
STO:HOFI
Hoist Finance AB (publ)
STO:HOFI
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Ladies and gentlemen, welcome to the Hoist Finance audiocast with teleconference Q4 2021. Today, I am pleased to present CEO, Per Anders Fasth; and CFO, Christian Wallentin. [Operator Instructions] Speakers, please begin.
Thank you very much for joining us here at our Q4 results presentation. I'm Per Anders Fasth. And as you heard Christian Wallentin is here, our CFO since the summer. You can go straight to Exhibit 4, please.Well, this quarter, I'm happy to announce that our transformation program is starting to show results. We're seeing signs -- positive signs in our collections, and we also see increasing portfolio acquisitions, as well as our cost program, which is also starting to show results. So I think we are starting to see signs of what we started on and communicated already in the summer that we would do.So if we summarize the Q4, we had a strong end with attractive acquisitions towards the end of the year, where, of course, the portfolio that we bought from Alpha Bank in Greece at SEK 1.1 billion stands out. What we've also done in this period is that we have strengthened the leadership team, and we've done so throughout the year. We worked quite a bit on our strategy to focus the company and also to strengthen the whole accountability and responsibility of the leadership.We are still awaiting the EBA or EU decision when it comes to the risk weighting, which Christian will come back to and show a little bit later, which will, of course, have a very positive impact on our capital situation. On an overall level, our net interest income is slightly lower than last year or actually significantly lower than last year, but in line with Q3. Our underlying cost level is lower than last year. We have taken some costs related to our transformation program in this quarter.In addition, as courts are opening up, which will have a positive impact going forward on our collections, there's a lag of somewhere between 3 and 12 months from the court cases are open and the collections increase. And as courts are opening up after the pandemic, we also see, of course, legal costs coming up.Collection performance, I mentioned, it's particularly towards the last couple of months of the year was very strong. We are now at portfolio volumes an increase of 6% year-on-year. Our CET1 ratio, including the portfolio acquisition in Greece is now at 9.56%, which is at the lower end of our ambitions. Return on equity is 6%.So just a quick -- if we move to the next page, Exhibit 5. You see the last 10 months, you've seen a reduction in our portfolio volumes over the year. And in the third quarter, Christian and I mentioned that we saw a bottoming out of the negative development in terms of portfolio volumes. And we see that coming up a little bit in Q3 and now with the acquisition towards the end of the year, we also see an increase, so 6% growth year-on-year.If we move to the next exhibit, we also summarized the year for acquisitions -- portfolio acquisitions at SEK 4.7 billion, which, of course, is a very strong and high increase compared to the COVID year 2020. And as you can see also in this exhibit, which shows the quarterly development of the portfolio acquisitions you can see it particularly towards the second half of the year, we see significant growth. And this SEK 4.7 billion is actually the highest -- or the third highest level in Hoist history.So summarizing portfolio on the next page, some portfolio volumes and net interest margin, our net interest income. You can also see that a significant portion of our profits or revenues are related to net interest income, which, of course, is a balance sheet business. So volumes are important and margins are important. And what this exhibit shows is there has been a margin pressure over the last years, particularly as the old previously acquired portfolios are sort of running in run out or run down. The newer portfolios have a lower IRR, but as you also can see, there's been a stabilization of the last 3 to 4 quarters in terms of margin development.Looking at the cost side on the next exhibit, on Exhibit 8. We see that -- looking at the bars here, you see quite a flat cost development. But if we take into account the restructuring-related costs that we have in this quarter and also compare as to what is the underlying cost level in Q4 last year, it's a slight reduction in the underlying cost level. And we are, today, 90 people less in the group than we were in Q4 2020 and actually 35 FTEs less than we were in Q3 '21. So we are -- in terms of our own plans, we are actually slightly ahead of our plans when it comes to the cost side.So overall, on the net profit on Exhibit 9, you can see that we are still at a too low level when it comes to net profit after tax. But what we're also working on hard and what we've done throughout the year is to what we call derisk our portfolios, our balance sheet and also our tax legacy issues. So a strong ambition for us is to increase the level of profits, of course, but also to reduce volatility in the results, which this exhibit illustrates. As you may remember, we had a significant write-down in Q1 this year of SEK 350 million and more than SEK 100 million in tax provisioning in Q2. So we had a rough start of this year, all legacy issues hitting the net profit.So if we look at Exhibit 10, where we are today, we have approximately SEK 22 billion, as I mentioned, SEK 22.4 million pro forma, including Greece in portfolio values. We have approximately 80% unsecured and 20% secured. And secured portfolios are mainly in Italy and in France. We've had some write-downs in France, U.K. and Spain throughout the year. And we have had significant or very strong collection performance in Poland and Germany as well as Italy, and of course, also Benelux, even though it's a fairly small portion of the portfolio also showing strong performance, and we see improvements in Spain. Greece shows a very strong return on equity. On an overall level, our secured performance is very strong.So with that introduction, I will now leave to Christian, who will go a little bit more into the overall financial side of the -- of our results, and then I'll come back towards the end to summarize.
Thank you, Per Anders Fasth. So if we move to Page 12, the financial summary. Q4 marked a positive ending of a challenging year for us. And the challenge parts during the summer has high sense of urgency in pace some change. So we are overall now is doing the plans developed and detailed during the autumn, and we believe that we have strong momentum internally.So Q3 NPL portfolio volumes were bottoming out. And now in Q3, we see that we have returned to growth. So we grew 6%, including the Greek transaction that we announced by the end. And as Per Anders mentioned, in this difficult year, 2021 marked the third largest investment volumes here for Hoist, including the signed Greek transaction.Also worthwhile to point out on the capital side, the Greek transaction ties up 44 basis points, while the interest income is expected in Q1 when we're closing the transaction. This, of course, will create a strong foundation for Q1 investment volumes and also drive the interest income for us in the year ahead.If you look at the quarter-on-quarter operating income, it grew 4% and also increased compared with Q4 2020. During the last month of '21, we reached significant improvements in collection performance. Overall, we had 101% collection performance for the quarter and also for the year. And it's also driven by more neutral impairment gains and losses versus Q4 2020.As in Q3, we have an unrealized positive change in value from interest rate swaps and that's driving the SEK 45 million you see on this page. In Q4 2020, the positive result was mainly driven by FX exchange results. Overall, the costs are slightly up in the quarter. However, underlying costs are lower than compared with Q4 2020. So it's driven by legal costs being increased as the court system is now catching up, and this is, as Per Anders also mentioned, 3- to 12-month lag before we see the benefits of this.We also have some transformation costs in the quarter of minus SEK 27 million, and we have reversed the variable pay as well. Positive as well. We don't see a Q4 effect, which we've seen over the last few years on the cost side. So that's also a slight sign that we are now seeing the transformation gaining momentum.We have a profit from JV contributing positively SEK 12 million during the quarter. So net profit is slightly up over the quarter 3% and then 60% year-on-year driven by tax differences mainly. So profit before tax is SEK 73 million and overall tax, SEK 4 million in the quarter. And this tax for the quarter is driven by our -- we have quite a complex structure with a lot of different legal entities. So the DTAs, et cetera, are driving positive tax when we have a lower overall yearly results. Overall, we see in the ROE that we have a positive trend, and the transformation is going to contribute positively. We have also taken down the number of activities during the quarter, it's minus 2%.So we go to the next page, please. Here you see, we have a strong liquidity position, providing a large financial flexibility. We are managing this -- the liquidity to the lower end of our target range. We are trying to -- we know that we're quick to attract deposits. We don't need to have a large liquidity portfolio. It's driven by the NSFR ratio mainly. The NPL portfolio volumes bottom out in Q3 and return to growth in Q4. It's a pro forma 6% growth, including the Greek. And it's also worthwhile to mention that if we compare with 2020 acquisitions, we more than doubled the volumes in '21, including the Greek transaction with Alpha Bank.If we go to the next page, please. We continue to have a solid and diversified funding position with a diversified maturity structure. As you are aware, we mainly raised this funding in the form of deposits from the public and also complement that with custom market issuance of senior secured and owned funds instruments. Our main source of funding tends to be sticky, meaning the public deposits. And I think I want to particularly point this out since we're in a raising interest rate environment. And that, of course, if this would continue, that would benefit ourselves, given that we have a large share of deposits in our funding.If you go to the next page, please. CET1 ratio is slightly lower than our return on target. And as I mentioned, the Greek portfolio is tying up capital from signing 44 basis points. So this has impacted the capital ratio in the end of December. And the interest income will come from -- when we settle the transaction in Q1. And on the right, you see that we've been managing down our liquidity reserve, so prefunding with lower pre-finance funding, given the volumes of deposits we can attract and also, it's a result of a lower book since Q4 '20. We're well within our target range, and we are meeting all the regulatory requirements with significant buffers.And just to remind you, the NSFR ratio, which is in this quarter, 116%, that drives a lot of the liquidity buffer that's our ruling constraints.Can you go to the next page, please? Just quickly on the year. We are leaving a challenging '21 behind with a positive Q4 momentum, both operationally and also being back to growth in the overall book. The net interest income was impacted by lower volumes and margins during the year. And also mostly defining 2021 is the significantly impacted impairment losses, and these are mainly from the 15 to 18 vintages. We've also seen when COVID has -- the closedowns have receded from societies, we've seen an acceleration in legal collection costs as markets have been reopening. And during Q2, you probably remember that we had almost SEK 100 million tax risk provision due to also legacy issues from 2014. And overall, I think it's pleasing to see that Q4 was a positive momentum. We stopped the year -- or we ended the year on a positive note. And overall, we were reducing our fees on the cost structure, and that's mostly in the non-op side with 5% over the year. And so we are hopeful for the momentum that we see in the transformation program.If we go to the next page, please. I will just remind you of the impact of the EBA risk weights that are reversing the -- from SEK 150 million to SEK 100 million. And this is a process that is ongoing, and we believe that it will be implemented during the year, of course, in -- during Q3 and Q2, and then we'll see the benefits most likely in H2. We -- this is a highly uncertain process that is politically driven, but that's the expectation that we have. And now we're going back to Per Anders to summarize our focus going forward.
Thank you, Christian. Yes, let's go to Exhibit 19. As you may remember, we communicated also before that we started the transformation program right after the summer, towards the end of the summer. And the transformation program focusing on all the aspects that impact our profits and then with some help from EBA also will have a positive impact on our equity so that we can focus on our key financial target, which is return on equity. We want to grow and we want to increase return on equity.So let's go to the next page. We are running a program to reduce our nonoperational costs. And we now have detailed plans and targets in each entity and in what you would call the budget, what we tried to call is the financial forecast. And we see that this will impact our absolute cost levels, and we expect that 2/3 of the impact will come on a run rate basis in Q4 this year, and we will see a full impact of the cost reduction in Q4 2023.Another area is, of course, what we're working on is the collection side, which as you can see on Page 21, where we work on improving our collections, increasing the collections of the portfolios that we own and also reduce the cost to collect in order to increase productivity.On an overall basis, if we look at Page 22, we -- today, we are in a situation where we have approximately 80% unsecured and 20% secured portfolios. Our ambition is to be at least twice the size where we are today, and we believe that we will grow in the secured to a higher degree than in the unsecured. In the secured portfolios, we have a higher competitive advantage. Our funding cost advantage is stronger in secured portfolios than it is in the unsecured portfolios that are hit by the backstop rules that we -- that are in place after the changes in 2018, 2019.And the way for us to reach our ambition to grow is to -- of course, we need to reduce costs and improve collection performance in order to generate profit. And we need this post viral to move in the positive direction because it's profit that can generate capital which in terms increases investment capacity, about 10x net profit is if we make SEK 100 million in net profit, we can invest approximately SEK 1 billion in order to stay at the same capital ratios.With the investment capacity increase, we can revenue -- generate higher revenues, which in turn will increase profits, which in turn will generate more capital. So in a position where you are capital constrained, the starting point needs to be to improve profits through cost effectiveness and collection performance. We cannot grow ourselves out of this situation. So we have to start where we have started. And of course, cost reduction has a quick impact on P&L than other measures.So to summarize this quarter, if you go to Page 24, what we have seen, and as you heard from both Christian and myself, it's a quarter where we have seen the transformation program showing positive signs and signals of that we are in the right way when it comes to improving profits, and we see higher collections and higher acquisitions. We have also throughout this year or since the summer, done significant changes in order to strengthen our core business, which is NPL portfolios unsecured and secured. We are also going through strategic reviews of our portfolios and of our entities in order to ensure that we are the best owners of those portfolios and those entities. We have also seen or we tried to communicate that our transformation program, that is the enabler for profitable growth. The true reason why we are doing the transformation is to improve profits, which we do through cost reduction where we have implemented our detailed plans in each entity in order to reach our absolute cost reduction. We have done significant, what we call, country deep dives, where we go through with each country on the operational side on collections and work for 3 weeks very intensively and identified significant collection improvement potential and it's very promising, creating significant energy, collaboration between countries and functions to draw the best practice out of each entity.And we have, throughout the year, now a more clear road map on where we want to prioritize our investment when it comes to asset classes and markets and how to work with our clients in order to be more successful in the acquisition process.So with those words, I think we are finished with our part of the show, and then we open up for questions. Thank you.
[Operator Instructions] Our first question is from Jacob Hesslevik from SEB.
So my first question is on the appetite for secured assets. Has it increased as a result of the new Board's background within the real estate? And will you also mainly grow in France and Italy, where you have your main secured portfolios today? Or are you planning to go into new markets?
On the first question, I don't think that, that has an implication from the Board composition. I think it's been quite clear that we have a competitive advantage when it comes to funding on secured and we have had a very good experience on the secured portfolios. And of course, we want to grow in areas where we feel that we have a competitive advantage. And we have -- and we feel that we have that in secured and the competition is also slightly different in secured compared to unsecured.And then on your second question was related to -- if you just repeat it quickly.
Yes. I was just wondering, are you then focusing on growing more in France and Italy where you already have secured portfolio. So are you planning to go into new markets and new countries?
I think -- no, I think it's clear like we have unsecured, we are -- in all the markets where we are today, we have unsecured operations. I think the strong markets for secured are more in the southern parts of Europe, which actually is Italy and France and to some extent, we expect also Spain to increase in secured.
All right. And if we look at the -- I mean, cost, you had SEK 27 million taken as a transformation cost in this quarter. Should this be viewed as a one-off? Or should we expect more transformation costs for 2022 and 2023?
More or less a one-off. I would say -- I mean we have not taken major one-off costs, I would say, in our transformation program. But I think it's -- you shouldn't expect any major transformation costs going forward.
Okay. That's good to know. And also, could you tell me what the length is on the hedging contract that you Christian mentioned earlier?
Yes. It depends on the type of hedges. We have FX hedges and the interest rate hedges. So we're rolling these on a monthly and quarterly basis depending on what the purpose of it is. And the reason for having this both to hedge the business but also for regulatory focus for capital process.
Our next question is from Ermin Keric of Carnegie.
If you could maybe start with just going back to the Slide 20, could you just give us some kind of flavor on how much is nonoperational costs that you see today in absolute terms? And also, when you talk about the run rate being 65% impact basically until Q4 next year, that's on a reported basis. So kind of going back a little bit to the Jacob's question, we shouldn't expect any transformational cost to be in there?
I -- the reason why we have left these numbers not spelled out the numbers right now is that we, of course, have a very clear plan and we have a very clear baseline for this. But we want to -- it's quite likely that we will have a new composition of the Board within 10 days and we want to go through these plans and these targets with the likely new Board before we communicate any external numbers in the markets, but it is of significant size.
Got it. And actually, a follow-up on where you end up. So do you see any -- or do you expect any changes in the strategy given the possible product director reshuffle become weak?
It's a little bit -- I mean, of course, one way, I can say it's premature for me to talk about if the strategy would change with the new Board. But as you may remember, we also communicated in the summer that Lars Wollung would act as an adviser to us or to me in our change program. And Lars has been part of this and supporting this what we call the transformation program throughout the fall. So we have no indications of any major changes in our strategy. It's clear that we need to focus on where we are more competitive. We need to reduce costs. We need to improve collections and grow in the areas where we can add significant value. Maybe, Christian, do you want to add something?
Yes. And also for clarity, I mean, as you probably have seen large volume is proposed as the new Chairman.
Okay. And then perhaps just moving over to the investment side. You previously talked about competition being quite fierce, have you seen any change in the regulatory -- or not regulatory competitive on last page, sorry?
I think it's been -- what the -- I mean, 2 things, of course, drive competitiveness in terms of on each acquisition. One is, I would say, that there was a lack of supply in 2020, which sort of -- there's quite a few competitors needed to invest. And with supply being quite low in 2021 for quite some time, of course, there was a gap between demand and supply. What we see now is that there has been an increase in the supply towards the end of the year. And we also see a positive increase in the supply for the pipeline, what we expect for this year. So will that have an impact, I think also they will be having an impact is, like Christian was mentioning interest rate levels are likely to increase. And I think we have an advantage because since we deposit funded, some significant portion of our competitors are market-based funded and spreads tend to increase as interest rates increase.
And then one final question just on the capital. So now you're slightly below your own internal target, does that have any kind of -- does that put any restrictions on you in how you're planning your investments during the year? And also, have you heard anything new regarding the Pillar 2 guidance about the timing and the expectation of the impact?
I can start on the -- I mean, first of all, it's the internal target. It's, of course, significantly above our internal limits. And of course, as Christian showed significantly above our regulatory limits. Our target is more what we -- on a long-term basis planned for. So -- but of course, we need to be -- and we are continuously and on a regular basis, updating our pipeline and prioritizing our pipeline in relation to our capital situation. But so far, we haven't had any -- we haven't said no to any acquisitions due to our capital situation.And then maybe, Christian, you want to go a little bit more into the Pillar 2 and EBA guidance?
Sure. So the -- I mean, just 1 thing. I mean, when we look forward in the pipeline, we don't see any capital restrictions in terms of the number of deals that we've won, that we looked at. That is not being -- I mean if we roll that forward, we don't -- we're not going to be restricted by the capital levels that we have.With regards to the changes in -- coming forward. So the EBA, we see that this will most likely be implemented in the second half of this year. With regards to the Pillar 2 guidance, it's difficult to say. So the Swedish FSA is working through the banking landscape. And we're a category 3 bank and we haven't initiated that dialogue with them yet. So we foresee that, that will be pushed a little bit further than what we believed last year. So we see that this is more in line with the implementation of the EBA risk-weight as well more or less. But of course, we haven't initiated a dialogue. So it's uncertain process as well.
Our next question is from [ Max Lilero ] of SEB.
A few questions, if I may. If we look at you have quite a lot of deposits, NII sensitivity for, let's say, a rate of 100 basis points. Do you have an updated number for that?
How sensitivity to interest rate hike, you mean?
Yes.
No, we haven't -- I mean we've been living in such a low interest rate environment so long, so we don't have any internal good benchmark for how that will play out. But the expectation is that the banking system overall will use its pricing power to keep deposit rates down. So if the lending margins go up, we don't expect to see that the deposit rate will go up at the same pace. So it is sticky. So the elasticity is much lower on the deposit side.
Okay. And then on funding, how do you see funding need going forward and also subordinated, is there a need for that? And in relation to that, on the dividend policy, do you believe that you are on track to pay a dividend for next year? Or how do you see that -- or for this year?
So on the market funding, we have a diversified funding profile now, and we've been issuing it mostly in euro. So we have a new Head of Treasury, and him and I are working closely together how to optimize both the funding structure in terms of currency and also size. So there's different pros and cons of having it in euro and then versus having in FX. So we're reviewing this. And in terms of the Tier 2, we have a call date now in May. So normally, that would be -- people would expect that to be called overall in the market, the Tier 2.
And when it comes to...
Finance it or...
We see benefit of having a Tier 2.
Yes. And when it comes to dividend, of course, we have -- the Board has an ambition to pay dividend to its shareholders. But I think at this point in time, as you've seen last year and this year, it's not been any room for that. However, I mean, we have -- it's a bit premature to talk about the dividend for 2023, but there will be no dividend proposed for this year's AGM.
Our next question is from Joakim Svingen of Arctic Securities.
I'll just start with the Greek portfolio, Christian mentioned. Do you expect a full effect on NII in Q1? And also how do you expect costs to be affected by onboarding the Greek portfolio?
I think -- no, I think the NII, as Christian mentioned, it will come in the -- during the quarter, which means that we will not get a full net interest income impact in the Q1 because it will not -- it's not signed -- close from January 1. So -- but we will see some positive impact on the NII, but we'll have a full impact in Q2. There are some costs related to this, but not in the size that it's material, in that sense. Christian, maybe you want to add something?
Yes. So I mean, in Greece, we have an outsourced model, and then that is very cost efficient and a high-return business. And that's why we see this portfolio acquisition is highly attractive.
Okay. That's great. And then given your complex tax structure, is there anything new regarding the expected tax rate? Or could you give some guidance on 2022 tax rate?
Yes, in a normalized year, we will be around 2022 mark. That's the overall expectation that we have. And then when profits are lower and we're running a loss that is comes a little bit out of WACC, I would say.
Okay. And then just a follow-up on Jacob's question around OpEx. I guess it's difficult to give any guidance for perhaps towards the end of 2022. But Q1, could you give some flavor on what you -- how you expect the trajectory to be from Q4?
Well, I think it's back to what Per Anders said about the Board, we would love to inform you more, but would need to restrain on guiding. We will, of course, come back and track these developments going forward.
But for analysis...
Our ambition is to be transparent and be -- for you to be able to follow up on this, which I think the company has lacked historically. So we want to make sure that you can actually see what -- in the numbers that what we also deliver on what we have said. I think it's -- but we don't want to do that at this point because of the situation with an incoming -- most likely an incoming new composition of the Board.
That's fair. That's fair. Okay. Just one final thing for me. With regards to the agreement with Magnetar, is there anything new? I mean, how much have you drawn and how much is co-invested so far? Is there any new status with regards to that agreement? I don't think it was mentioned in the report.
No, there's nothing new in that agreement, and we have drawn very little on that so far, but we expect to draw more on it during this year.
It's approximately 3% to 5%. Now I don't have the number in front of me, but that's the range that we have in the unsecured portfolio in securitization that is owned by external projects.
How much was that, Christian, sorry?
3% to 5%. But we can come back to on the exact number. And that's on the unsecured, which is then the only relevant part of it. So we don't securitize the secured.
Our next question is from Borja Ramirez of Citibank.
Two quick questions, if I may. Firstly, during the presentation on Slide 22, on the evolution in 5 years, I would like to check if there was anything you mentioned regarding the evolution of the overall size? I apologize, I can't -- didn't fully understand. And then my second question would be if you expect to increase the portfolio acquisitions year-over-year?
Yes. Our ambition is to grow Hoist and so that the Hoist would be at least twice the size of what it is today in 5 years. That's the overall -- that's an ambition. And we also then -- what this exhibit shows is that we expect it to have a higher growth rate in the secured so that the composition will move more towards a slightly more balanced than we have today, where we only have approximately 20% secured of the total portfolio.And when it comes to the portfolio acquisitions for this year, as we mentioned earlier, we see a more positive outlook and a significant higher volumes in -- coming into the market and what is in our pipelines today than we have seen in quite a few years. So we are optimistic on that side and believe that we will see good growth this year.
One follow-up, if I may. And thank you very much for your very detailed answer. And I could ask on the outlook for the markets were in the short term, where would you see the best opportunity for portfolios?
Well, the thing is that it's -- we -- during this year, we have had, of course, with the Greek portfolio, a significant cost increase. But we also mainly seen good growth in Italy and Poland. We also saw some positive growth in Spain. What we see now is some of those markets that we haven't really seen for quite some time, showing very strong supply is Germany and also actually France. And to some extent, we see a little bit more volumes coming into the market also in the U.K. Of course, the Poland and Italy is still being strong.
And also to add to that, I mean as you hear, it's more of a balanced pipeline this year we see now than the previous year.
There are no further questions at this time. So I'll hand back over to our speakers.
Okay. If there's no further questions. Both Christian and I ask you for joining us in this Q4 presentation. And of course, if there are further questions and things you want to ask, you can always call, of course, Christian, myself, but also Ingrid Osthols, our new Head of Investor Relations and Communications. So with those words, thank you very much for joining us and until next time.
Thank you very much.