Intrum AB (publ) (INTRUM) Earnings Call Transcript

Thank you very much, operator and good morning, everyone. I am Andres Rubio, the CEO of Intrum and I'm here with Michael Ladurner, our Chief Financial Officer. Thank you for taking the time to listen to this review of our financial results for the third quarter of 2022. We are conducting this call from the headquarters of our Greece business in Athens. We're here celebrating the third anniversary of our entry into this market, with a strategic partnership with Piraeus Bank. In the 3 years since the initial partnership with Piraeus, we have grown in this market to be a clear leader with SEK 60 billion of assets under management, 1,800 employees, serving not only the Greek market, but also conducting call center services for several other Intrum markets and 17 third party servicing clients. During this time and commensurate with this business growth, Greece has become one of the best performing markets amongst our 24 markets in Europe. Now on to the results presentation, starting on Page 3. What I wanted to do here is start with how I see the business and some initial impressions from my first 2 months as CEO. As you can see here, I view our business as one single operating platform that does one thing, collect on unpaid claims on behalf of third party clients or on behalf of our own portfolio investments or PI business. This platform is the largest in the industry with 10,000 employees in 24 countries across Europe. On the servicing side, we have the trust of 80,000 clients and we make contact, not just telephone calls, but confirm communication across a wide range of channels with 250,000 consumers or customers per day, over 60 million of these communications per year. This business has over SEK 10 billion third party servicing revenue and SEK 3 billion internal servicing revenue on a rolling 12-month basis. And in the last -- and grew AUM 10%; cash revenue 12% and cash EBIT 19% versus third quarter 2021. And with recent very significant and key client wins across our platform, but particularly in Italy, with Credit Agricole and the UtP Italia fund and in Switzerland with Cembra Bank. On the PI side, this business is also the biggest and in my opinion, the best in class with SEK 40 billion of book value of investments and greater than SEK 80 billion of estimated remaining collections, with significant granularity across 19,000 portfolio and generating mid-teens ROI in an unmatched track record dating back over nearly 20 years. With regard to my first and initial impression, I'm incredibly impressed as these numbers indicate with the sheer scale and breadth and depth of our business, plus the significant cash generation, cash generation and the resiliency of our business. You'll see many of these themes coming through in the subsequent pages in this presentation. But above all, I'm incredibly impressed with the consistent quality and the high motivation of our employees. Finally, we need to keep in mind the importance of what we do at Intrum. We not only collect on the claims of our clients, but more important, we connect with and offer solutions to a vast number of consumers across Europe. In 2022 year-to-date, I'm incredibly proud to say that we have helped 2.5 million consumers across Europe, repay their debt with Intrum full and reintegrate into their financial system. People talk understandably about sustainability in the context of the environment. What we do is fundamental to the sustainability and the proper functioning of the financial system and economy as a whole. Now on Page 4. Here, regarding servicing, we believe the market dynamic is going to put a tremendous pressure on the consumer and therefore increase the demand for our collection services and solutions. High inflation and low growth are contributing to a severe economic environment, greater than 20% of consumers in Europe are having difficulty in paying their energy bills. On top of this, we have higher interest rates that same consumer's car loan, mortgage or other household cost are increasing as well, piling pressure onto the consumer. We have seen this already manifest itself in the increase of our industrial claims, meeting our help on the payment of their invoices and have heard from our clients and observed that this trend of delinquency is shifting into the financial system with Stage 2 loans continuing to increase and reaching 9.5% of European credit assets and consumer credit usage also increasing. All of this means that there will be greater demand for our servicing capabilities over the near term. Initially, with regard to invoices, something we've already seen for several quarters and then transitioning to higher-margin financial claims and then eventually 2 meaningful PI opportunities. This is a perfect example of the counter cyclical nature and resiliency of our core servicing business. Page 5, these developments can be seen on this page where off of a Q1 2021 low point we have -- sorry, our AUMs have grown 7% per year, our collections have grown 24%, but there's been a muted effect on servicing revenue and EBIT as the revenue conversion of these collections have yet to increase given the lag regarding financial institution claims. Looking at Page 6, regarding portfolio investments. This market is affected by the following factors, across-the-board funding cost increases, more difficulty to collect, given the tough macro environment, a natural lag in the accumulation of NPLs leading to portfolio sale by financial institutions, but there is a more developed NPL industry in market now than in past, which will lead to more orderly sales increases unlike past pricing and there has been a repricing of risk across the spectrum. These factors are very evident in our results given that our underwritten IRRs in the third quarter are at 15% versus 12% in the first and second quarter. We completed SEK 1.3 billion in the quarter of PI deals at 15%, but even just as importantly or more importantly even, at a money multiple of 2.3x. We have controlled funding costs, given ample liquidity of SEK 17 billion and termed out debt where we don't have any meaningful maturities until 2024. And collections, yes, are down from the 110% year-to-date average, but at 106% are still meaningfully above our original forecast. Turning to Page 7. This slide shows the fact that no one in the world has our experience and track record in collections performance, which then translates to consistent investment returns for our PI business. Since 2004, over 18 years, we have grown our annual collections for our PI business 16x from a little bit under SEK 1 billion, i.e. SEK 0.8 billion to SEK 12.9 billion annually and we've expanded from purely consumer unsecured to also include almost SEK 1 billion of secured collections. Over this extended time period and with a much larger base of annual collections, we have averaged over 18 years, 106% collections versus original underwritten forecast. We have demonstrated extreme resiliency having endured 3 crisis with the global financial crisis, the European sovereign wealth crisis and the global pandemic, yet our collections have never fallen below 98% of original underwritten forecast on a rolling 12-month basis and in every case has sharply bounced back from these lows. This consistency in collection over the long-term combined with the 12% to 15% IRRs and greater than 2x money multiple, in my opinion, the best track record in the industry and shows not only the resiliency of our business model, but also the benefits of our integrated business model, where world-class servicing and investments are combined under one group. Page 8, transitioning now to the ONE Intrum transformation program. In my first 2 months, I have prioritized a comprehensive review of this program and I'm glad to say that we have validated that the recurring cost benefits of SEK 1 billion are achievable. This is important as we have visibility on these recurring cost savings, but it is also important to note that this estimation of benefit doesn't reflect that this program should make us the most efficient and the most highly functioning credit management platform in the industry, which in turn should translate into more new client wins and more revenue from existing customers. This could be much more than and more enduring and impactful than the estimated recurring cost savings. As you can see in the bottom graph, we have paused migration during the quarter to ensure the quality of past migrations where we are operating at least at the functional level prior to migration and to ensure that future migrations maintain this level of quality of service. On Page 9, here you can see the progress to date, where we have continued to build out our 4 global front offices, one of which is here in Athens, now serving 18 Intrum markets and 20% of all calls and growing, all while not sacrificing quality with higher customer satisfaction than the local front offices. This effort has driven greater efficiency with cost to collect dropping to 5.3% of collections during the third quarter of 2022 versus 6.1% in the third quarter of 2021 and dropping nearly 20% on a like-for-like basis since the prior peak in earlier 2021. All of this while we are ahead of the expected cost saving realization on the transformation program on a run rate basis. We will continue our review and optimization of this program and I will come back with a more detailed review of the transformation early in Q1 2023. Pages 10 and 11 are my bragging slides, where I get to highlight the fact that we play an important social purpose, while generating strong financial performance and returns. On Page 10, you see the virtuous cycle of our employees, offering solutions to consumers in an ethical and respectful manner, generating financial recoveries for our clients on their unpaid claims and enhancing the sustainability and well-being of the financial system and the economy as a whole. It bears repeating and I'm very proud that in 2022 year-to-date, we have helped 2.5 million consumers across Europe repay their debt and reintegrate into the financial system. Transitioning to Page 11, you can see that we play this important role in the functioning of the financial system and economy, while producing incredibly strong financial results. Since 2018, we have grown annual cash EBITDA by 35% overall and 8% annually. We've increased our total assets from SEK 76 billion to SEK 92 billion, all on deleveraging from 4.3% to 4.0%. And we are increasing -- we have been increasing our dividend payout to our shareholders by 25% in aggregate and 7% a year. After highlighting this long-term strong financial performance, I now turn it over to Michael to walk you through the results from the quarter.

Thank you, Andres. Good morning, everyone. I'm now turning to Page 13 of the presentation, our Group Key Financials. The third quarter was as expected, seasonally slower, but with continued strong underlying performance, despite an increasingly challenging macroeconomic backdrop. While the preannounced negative adjustments following the Q3 revaluation impacted accounting earnings leading to a loss, they are non-cash in nature and principally related to one portfolio with no read across to the overall investment book. I will cover this point in more detail later in my presentation. Underlying, we saw a continuation of trends from the preceding quarters with all 3 segments contributing positively with 9% growth in cash revenues, compared to Q3 2021. CMS inflow is still skewed towards invoices with increasing collection and cost with lower revenue conversion by strategic market NPI continues to perform well. The overall cost development is impacted by the level of operating activity underpinning the growing collection trajectory, as well as the range of projects which supported in becoming an ever more effective and efficient market leader and shaper. Enrolling 12-months firm's cash revenues, cash EBITDA, cash EBIT and cash EPS are all again up with cash EPS also again above SEK 30. On the leverage side, the ratio is 4x, principally due to the continued adverse currency development with the Swedish Krona depreciating a further 2% versus the euro in the quarter. This effect alone negatively impacted our gross debt by circa SEK 0.6 billion and our net debt by circa SEK 0.4 billion. Cash EBITDA at the same time continues to increase on a rolling 12-month basis and is now up to SEK 13.2 billion. Overall, in the third quarter, we delivered cash revenues of SEK 5.8 billion, cash EBITDA of SEK 3 billion, cash EBIT of SEK 1.4 billion, cash earnings per share of SEK 2.48 and the cash return on invested capital of 7.3%. I'm now looking at the next page, Page 14, group cash earnings generation. Here our progress over time and the resilience, as well as operating leverage of our franchise become very visible. Year-over-year growth in cash revenues of 10% drives the growth in cash EBITDA of 13%, cash EBIT up 15% and recurring cash earnings of 25%, while cash expenses are up 7%. What this also shows is that underlying on a rolling 12-month basis with cash EBITDA of SEK 13.2 billion, we essentially generated SEK 13.2 billion that natural cash financials and tax, we can deploy on a discretionary basis, which means that we self-generate that means to invest in our business, invest in portfolios to both replenish and grow, as well as paying substantial dividend or while keeping block back margins back and substantially growing cash EBITDA. From a returns perspective, this then equates to recurring cash earnings yield on total shareholders' equity of 16%, as well as the return on equity of 17% based on adjusted net income. The substantial cash generation, together with our strong liquidity of circa SEK 15 billion. Our track record of resilience and the diversification between servicing and investing gives us a good starting position to both manage through challenging time, as well as the flexibility to add on attractive opportunities in this located markets. Now on to the segments and starting with CMS on Page 15. Andres has already given you a perspective on the key developments here, which are a continuation of what we have observed in the preceding quarters, both in terms of segment dynamics, as well as results. Collections in the segment are increasing, up 30% versus Q3 2021, with the associated activities also driving costs. However, revenues are still lagging as the inflows and collections are still skewed towards lower balance, lower margin invoices and therefore, lower revenue conversion. The current environment where more than 1/5 of European households are struggling to pay their energy bills and consumer credit balances are rising, should not only continue to underpin invoice inflows, but also translate into increasing financial services claims over time. Financial services claims are generally higher value and higher margin and will positively impact revenues and the segment margin in due course. In Q3 2022, we produced cash revenue of SEK 1.04 billion, cash EBITDA of SEK 360 million and cash EBIT of SEK 346 million, this translates into cash return on invested capital of 7% for the quarter, as well as an adjusted saving margin of 20%. Now turning to strategic markets on Page 16. This segment yet again delivered continued strong performance across all 3 geographies with cash revenues increasing by 22%, cash EBITDA by 45% and cash EBIT also by 45% compared to the same quarter last year. This very positive development is also clearly visible on a rolling 12-month basis. Greece continues to perform very strongly. Efficiency and effectiveness of the Italian platform has significantly improved over the last 24 months, a development that is clearly reflected in segment performance, as well as externally recognized with more new client wins, as mentioned by Andres. In Spain, we are offboarding SAREB volume has now been completed with the associated loss of revenues going forward. As previously mentioned, the expected bottom line impact of this is immaterial. In the seasonally slower third quarter, cash revenues came in at SEK 1.4 billion, cash EBITDA at SEK 718 million, cash EBIT at SEK 699 million and cash return on invested capital at 18.6%. In Q3, the adjusted segment earnings margin was 32%. I'm now looking at portfolio investments on Page 17. In portfolio investments, Q3 was again a strong quarter with collection value performance versus active forecast of 106%. The Q3 reduction in outperformance versus previous quarters and also the year-to-date level of circa 110% is consistent with a gradual normalization in the context of economic cycle. A more challenging macro environment primarily leads to fewer and lower settlement while sustainable payment plans remain stable and resilient. Gross tax collections of $3.2 billion increased 7% compared to the same quarter last year. All other key metrics also improved in Q3 with cash revenues up 6% to SEK 3.4 billion, cash EBITDA up 8% to SEK 2.5 billion and cash EBIT up 10% to SEK 999 million compared to Q3 2021. The adjusted return on investments was stable at 14%. In Q3, we also saw the first tangible sign of the potential market repricing that like-for-like yields up compared to preceding orders and then IRR from new investments of circa 15% with a money and money multiple of 2.3x. Our investment pace was more moderate with SEK 1.3 billion deployed as we become even more selective in the current dislocated macroeconomic environments. Page 18, here, I wanted to give you some additional detail on the preannounced negative revaluation adjustments. Final adjustments of SEK 3.2 billion are very much in line with the range previously communicated. All adjustments are non-cash principally related to the Italian JV portfolio with no near-term impact. In aggregate, these adjustments reduced ERC by circa 2% relative to Q2 2022 and impact collection expectations in 2025 and onwards. The factors driving these adjustments are portfolio-specific with no read across other exposures we have invested into, which has been confirmed by a thorough risk led exercise. It also needs to be mentioned that outside the effect of disclosures, we have a positive revaluation of SEK 40 million for the quarter, supported by continued outperformance versus the active forecast. Out of the total SEK 3.2 billion, SEK 1.7 billion are an impairment in participation in joint ventures, SEK 0.9 billion in reduced earnings from joint ventures, SEK 0.4 billion are related to an impairment in client relationship with an additional SEK 95 million fair value loss. Turning to Page 19. The chart on the left clearly highlight the dynamics I mentioned earlier in the context of portfolio investments with the average rolling 12-month underwriting IRRs starting to turn off. Given the increase in cost of credit, this is then also reflected in cost of funds increasing. As a reminder, our reliability structure is termed out with principal maturity between 2024 and 2027 and largely fixed rate, i.e., 72% of net debt. We are currently considering options to refinance the 2023 and 2024 bond maturities. Our liquidity stands at SEK 17.3 billion at the end of the third quarter. Looking at Page 20. We are trying to depict some key elements underpinning our business model. We generate a substantial amount of cash. RTM cash EBITDA was SEK 13.2 billion, while the average over the last 3 years was SEK 12 billion. Our cash generation is resilient and growing also due to the offsetting characteristics of servicing and investing throughout the cycle. Let's call it an internal hedge. The use of this cash generation, excluding that service impact is largely discretionary. We have used some of this cash generation to replenish and grow our portfolio investment business, which as of today is run as a self-financing cash compounder. We have, therefore, over time, built a business with a current book value of SEK 40 billion and estimated remaining collections of SEK 83 billion. This business is self-liquidating with over the last 3 years, on average 19% per annum in price incubating market conditions. This business is also highly resilient with an RTM index versus original underwriting expectations of no lower than 98% and an average 106% since 2004. Similarly, circa 20% per annum of our gross debt, which is termed out and largely fixed rate will on average reprice in the coming 5 years, and we have liquidity of SEK 17 billion. In aggregate, this means that we have repricing on both the asset and liability side, integrating market pricing in terms of returns and costs as we move through time, combined with significant and resilient cash generation and a substantial liquidity buffer. These factors give us the confidence and flexibility to face challenging times and exploit opportunities as they arrive. I'm now turning to Page 21. It was nearly 2 years ago in November 2020 that we held our Capital Markets Day on the back of Q3 2020 figures. It is now also just over 2 years that I have acted as Chief Financial Officer for Intrum. This then gives me the opportunity to not just focus on the challenges, but also on what we have achieved during these 2 years. To put it into a notch, we have significantly grown our cash generation with RTM cash EBITDA up 14% to SEK 13.2 billion over the last 2 years, increased recurring consolidated cash EPS by circa 10% to 35%, improved our profitability with a cash ROIC up 1.4 percentage points and added to our dividend year-after-year. All of this while deleveraging from 4.2x to 4x with more to come. So overall, we've made substantial progress versus our medium-term financial targets, balancing growth, shareholder returns and leverage while navigating a changing difficult operating environment in [indiscernible] with the current challenges. And now back to you, Andres, for the concluding remarks.

Thank you, Michael. Now going to Page 23, I would like to make some concluding remarks on our outlook going forward. With regard to servicing, we expect market to increase in the demand for our services and a renewed client focus and deployment of technology to increase both our revenues and margins meaningfully. On PI, our portfolio investments, we expect to collect with more difficulty but still above original forecast, while selectively investing and investing at higher IRRs. On the platform, we expect to continue our progress to be the most efficient and most highly functional operating platform in the industry. More specifically on the financial outlook, we expect a seasonally strong servicing fourth quarter to end the year on a high note. We expect selective PI investing as the environment adjusts to a higher cost of risk. And we are going to continue to focus on growth, commercial success and cash generation. Finally, we will continue to work towards achievement of all our financial targets as soon as possible, including, in particular, the leverage ratio of 3.5x and greater than SEK 30 cash EPS. With this, I'd like to thank you for listening to our presentation and turn it back to the Operator for questions.

[Operator Instructions] The first question comes from Jacob Hesslevik from SEB.

Thank you. Good morning Andres and Michael. So -- my first question is on leverage. You stated before that your target was to reach a ratio of 3.5x by the end of this year. But in your comment on this, you now state that you aim to achieve it as soon as possible. Can you give us any more clarification on the time line, please?

Jacob, I'll start and hand over to Andres. Essentially, where we started the year was with a very clear plan and trajectory to get to 3.5x. We are executing on that time and trajectory. The element that we can't control is foreign exchange and about 70% of our debt is euro-denominated as for our revenue. So it's pretty well matched. But what happened is we moved through time and the SEK is depreciating versus euro, we translate our balance sheet at spot and our P&L at the average. So that is one effect that we cannot control. And just to give you a sense, we started the year at a Euro SEK exchange rate of around about 10.2%, 10.3% and we are up to nearly that. So what I'm trying to say with this on an underlying trajectory, we're executing what we plan to do, which is consistent with getting the leverage down to the ballpark we mentioned, plus we are contending again, an FX situation that are our control. But that does not change our commitment and our focus to get down to that ratio as soon as possible. But maybe, Andres, you can elaborate on that?

Listen, on leverage, we've heard the market. We understand the need to delever in this uncertain environment. We maintain that target of 3.5x by year end, and we're going to get a closer box, if not achieve it.

Okay. So if FX suddenly were to reverse, you might think you are able to do it by Q4 this year still?

Yes, we can't control FX, putting FX aside, we can only control actually deleveraging, and we're going to achieve this goal.

All right. Perfect. If we then move to Slide 19, we can see that your cost of fund continues to increase slightly. Have you been able to update your reference curves to reflect the new macro situation when purchasing new portfolios? How often do you update your funding cost as your discount rates?

To give you a sense and this again ties into how we operate. We have an ongoing process, where we update our hurdle rates. And a key input into those hurdle rates is the funding cost, not on the lost indexes, but on a risk-adjusted current basis as we look at our entire footprint, right? So from that perspective, we are obviously updating our ONE perspective, but we're also starting to see pricing in the market. So when we look at this quarter, we've invested at an average IRR of 15%. The last 2 quarters run by 12%. If you look at this on a real like-to-like basis on the deal we invest in, this is up 1 to a bit more than 2 percentage points. So we are starting to see that repricing. And as I mentioned, and this is really important to me, our assets and liability reprice over time. Our liabilities has firmed out largely fixed rate, no asset itself liquidating, and we choose to deploy some of the cash we generate into replenishing and [indiscernible]. And thereby, both sides, update the pricing in accordance with the prevailing market condition at the same time.

I also think -- I mean, it's very clear, and I tried to state in my comments that we're being selective in PI because the market hasn't fully adjusted. And we're not going through new deals for the sake of doing deals. We're going to do deals that we think we're paid appropriately for the risk. And I would also highlight that while in the secondary market, our funding costs have expanded. They've expanded less than all our direct competitors. So in this environment, this should actually become a competitive advantage for us over time.

Yes. All right. Perfect. And if I may move over to collections, how do you see collections has developed in October and what input has made it worse? I mean you said electricity bills. So what's 23% in Europe is having issues and then the prices haven't moved up that much yet. But then gas and petroleum prices are down. So is it just -- what is the biggest input here going forward or the main challenge do you think?

I think, again, this is a differentiated impact across geographies. Scandinavia has slightly different dynamics and rules around energy prices versus for example, in the U.K. or France, right? So the repricing and resetting happens at different paces. But I think what we can all agree on, and I think what we see wherever we operate is that the current environment is increasingly challenging for the consumer, which is not just something we feel is borne out quite statistics with 23% of European household being challenged data built, which is something we see in Stage-2 loans continuing to increase, which we see in consumer credit increasing and is also borne out by our numerous time conversation, largely with European banks and obviously, all the other companies we serve as well, showing that delinquencies are on the increase.

Listen, I think having the experience of being in this industry in past crises, I think the beauty of where we are now with Intrum is, we have the resiliency of collection. So we've never dropped below 98% or 99% in the most severe economic environment. So that's number one. And number 2, we apologies, I missed my train of thought. But -- and also what we have now is a much more orderly NPL market. And so our clients are clearly going to see an accumulation of NPLs. We see it. I've seen it in past crisis and I see it dependent. What is different this time is that it's a much more orderly NPL market and so you're going to see gradual increases but definite increases in servicing volume and then in PI volumes. So it's not going to be an abrupt have to sell type of an onslaught, it's going to be a gradual increase and inevitable increase and being the leading industrial player, we stand to benefit from that.

Yes. That's good. And just one last quick question for me. I mean, looking forward, will you decrease amicable collections and rather focus more on small legal collections in order to get the low willingness to pay segment to actually paid spills. As on Slide 6, I believe, you said non-payers are more challenging to activate in adverse macro.

I think this is like a comment about amicable versus legal. We obviously always try to do the appropriate things for our customers in an active manner, right? This comment is much more about if the backdrop is challenging, then when you make that first contact to get over the hurdle to establish a payment plan to become a payer is the start of the past to being reintegrated into the financial society, is that a little bit more difficult.

Shifted strategy focus heading into the recession of preparing that you're going to do more legal collections now?

No. Honestly, what it take to the environment, which leads to increasing volume being externalized and driving our servicing inflows. But at the same time, given the macroeconomic challenges, we see collectability come down a little bit. But the volume also effect outweigh generally outpace the flexibility effect. And that also then translates across the PI, where in the first instance, we see the collectability and then we further investment opportunities down the line, which is really what Andres talked about before how our 2 businesses balance themselves or balance charter as we move through the cycle, which leads to the disability of cash flow generation that we've exhibited over decade.

The next question comes from Patrik Brattelius from ABG.

So my first question is to Andres. And I was wondering if you could talk a little bit about your view now being a new CEO on deleveraging and what is a sustainable long-term leverage ratio for Intrum in your view?

So on deleveraging, I mean, deleveraging is important in a number of factors. Obviously, when we think about the deployment of our capital, as Michael said, we have a very large cash generation, and we can invest that in portfolios, we can invest it in our servicing business. We can invest it in dividends, we can invest it in deleveraging. And we have to evaluate all of that. But today, I believe that we do need to delever at least to our target of 3.5x. And then at that point, focus on cash generation and maintenance of leverage. Today, I am very comfortable with our leverage level, although we are progressing towards that 3.5 level because we have ample liquidity. We have termed out debt and we have 2 businesses that repriced. And also, we have a very large asset base in our SEK 40 billion of book value, SEK 80 billion of ERC relative to our debt level. So I'm very comfortable. And I think the market reflects the fact that on a relative basis, we're much better than our competitors, which is a comparative advantage that will manifest itself over the coming months, as I said earlier. And we're much better than our investors, our competitors on an absolute basis. So regards long-term, I'd like to get down to that 3.5x target. And then we will reassess how that should proceed, but we're always going to focus on cash generation.

But just to reiterate, it's getting there as soon as possible.

Correct. And we're getting there -- that is an objective, and we're getting there as soon as possible.

Okay. And you talk about being more selective here in your investment pace for new portfolios in Q4. But you also talk about coming down as soon as possible with deleveraging to the target ratio. So how should we think about investments in new portfolio in 2023 more granularly, please?

I mean, 2023, I suspect that what you're going to see is this way. Right now, we're seeing the invoice wave. Then you're going to see NPLs starting to accumulate the Stage-2 loans starting to turn into non-performing loans, which is going to impact our servicing business first. And then I suspect that in the latter half of 2023, where you're going to see acceleration of PI opportunities. So I would suspect at the beginning of 2023, it will be similar to 2022 in terms of the opportunity, while the market is adjusting, we're going to be selective. And then I think we're going to be in a great position to capitalize on what will be an increased volume of PI opportunity going into the latter half of '23 and into '24. That's the way I view the progression of the opportunities.

And in total investments, do you think that will -- you right here SEK 7.5 billion in 2022, do you think that will be larger in 2023, given this opportunity or approximately at the same level? Or what do you think?

Patrik, just to make one play very clear, we do not have volume targets and investments. That's the wrong thing to do. We are now obviously approaching the end of the year. So we have a good view of roundabout where we would land, but our primary focus is on doing good deals. So we are driven by our internal capacity, what we can do and buy what's available, and we try to be selective, takeout appropriate deals with right risk return and then deliver. And again, the chart that Andres showed and commented really is a testament that we don't just do this today when we've done this over nearly 20 years, right?

Yes, I've been an investor in the NPL world for 20 years. And you don't invest for the sake of the investment. I think I said that earlier in some of my comments or maybe in response to the first question, but we're going to be opportunistic, and we're going to be careful and we're going to invest where we think we're getting paid for the risk. I can't predict whether it's going to be the same volume, greater or lower. I can tell you that over the coming years, I expect greater volumes. And I also suspect that we will explore other things like not only investing our own capital, but potentially partnering or investing third-party capital to grow our PI business. The PI business has a growing opportunity from my opinion.

Great. And just as a last question here. You talked about it throughout the presentation, but if we can really dig down into the coming quarters, this adverse macro scenario where new case inflow benefits while collectability is negatively impacted. How do you expect this to play out in the short-term? Is there any lag effect here, which we will see first into the numbers, please?

I mean, I think you're seeing it already in our numbers. This is more of a phenomenon in what we call CMS versus strategic markets currently. And I suspect that's going to reverse itself going into year-end and the beginning of next year. As you see those Stage-2 loans become NPL and you see consumers and the pressure on consumers is inevitably going to lead and higher interest rates and inevitably to greater volumes. And we're going to start seeing that, in my opinion, where you can never have a perfect crystal ball into year-end and certainly in the beginning of next year.

Yes. And then it's important to also recognize that once you see the inflow, there's a certain small time lag so they turn into revenues and then obviously, we have combining facts because obviously, we've had lower inflows from financial services pretty well. This builds up over time, but I've talked about that previously.

And again, I said it earlier, I've been doing this for 20 years. It's inevitable coming. What's great now is that we have an orderly market and that we're the leading industrial player.

The next question comes from Ermin Keric from Carnegie.

A few questions, if I may. Maybe if we start on Slide #5. Just to understand, it looks like the collections have continued to increase. It's quite a strong pace. But we don't really see any impact on the revenues. And I know before we talked obviously about the mix with lower financial plans as on. But is there still actually a churn of financial plans kind of an increasing tilt towards utility business and so on? Or have we seen a bottom of that kind of mix shift already?

I mean, it's a very good question. So what we're trying to show on this page is that in terms of business activities and the inflows and then ultimately, auto collection, we are moving up as we're lapping some of the revenue conversion, which is largely due to that financial services inflow effect. This is really what that fundamentally depicts. I think in terms of where we are in financial services, I'd be very hesitant to call it reassure but generally in our conversation throughout quarter with the various markets, we do see no initial time. It's a bit uneven across footprint, but I think it's more important just to sort of go back to what Andres just said, it's a little bit inevitable. We see it moving to the pipe. And from a funnel perspective, you have a more challenging environment. First, we see end boards, that's what we're seeing, but that's driving costs because there's activities to collections, driving collections and revenues to a lesser extent, the next step is lead the financial services where we've seeing make sure we're increasing, which will have to translate into us. And that obviously that creates the basis for a gradual increase in the PI business in due course.

Yes. I mean, again, I've been doing this for a long time. It sounds a little bit like a broken record. I speak to many banks across Europe. Every single one of them are assuming this is going to happen. What's great now is that the -- our industry much more established, the relationship with our clients is much more established and you're going to see a much more direct relationship with accumulation of [indiscernible] servicing activity and then with the lag PI opportunities. In my opinion, it is inevitable, it will come. We can't really call the bottom, I don't know. But we will see this in the coming months. I'm sure of it.

Great. That's helpful. Then on Slide #7, I think that's a very helpful slide to get touch with that. But just if you could give us your thoughts on that the portfolio has kind of changed in composition maybe from the financial crisis, both with having a bigger exposure to Southern Europe, but also we have some secured assets in the mix. So do you think the risk is lower unsecured. Could you give us any flavor on what kind of the average LTV there for instance? And also on the reach of difference to change how that plan?

I mean, obviously, every portfolio is a living thing of nearly 20 years, right, and the world has changed a bit. But I think what is important is that our key principles and how we approach this business hasn't changed, the collections market is learning a lot that we've moved through time. So from an unsecured perspective, there is a dynamic, even though they're specific to each individual market and portfolio, but there are some general conclusion, which is when you're very granular, very diversified and focused on sustaining the payment plan, then you create resilience and you also do right by your customers because you were able to look at their individual circumstances and offer them a part for reintegration into financial society. Now I think this is also very clearly highlights that we have complemented this unsecured history with a bridge of secured exposures. But you can also see that, that has a relatively limited the impact in terms of total collection. And also from an investment push back that on our book is very much majority, 80% or 80% platform secured. So obviously, secured has depending on the specific situation of volatility, for example, in the dynamics when the core system initially shut down that had a more pronounced impact in secured and unsecured. But overall, it's really the diversification, the mix and our approach in being very careful in terms of only investing in what we can operate and on having superior data that really differentiates us. And then really, I think, in the chart that tells the story of resilience and success over a very long period of time.

Yes. I mean, I think the fact that we are much bigger now than we were because there is more data. The fact that we're more geographies than we were previously is more diversified data. We can do better underwriting, we have better underwriting analytics and we're also prudent. And the vast majority is still unsecured, as Michael said. So secured is a natural evolution of our PI business, but it's still a very small piece of our overall picture. And being this thing and this many geographies is better because I think we can better capture the risk opportunities that are available. The opportunity is available to us relative to the risk.

Great. That's very helpful. And then on ONE Intrum, we can see that the migration of cases had a halt in Q3, as you mentioned. Could you just give us some flavor now we've been about 2 years since your program what is the feedback? Do you see any change kind of in quality or efficiency when you have migrated? Is that a cause for having to pause a little bit before you continue on? Or is there any other reason for pause there in Q3?

Yes. There's various facts here. As everyone has ever operated in any kind of an industrial technological environment, migrations are complicated, but we have the benefit also of having a cash flow volume of portfolio investments that we can migrate -- to fully migrate to third-party volumes and our collections on PI have been great. So I think the functionality of some of the migrated cases or some of the markets that have migrated has not been at the level that I would have liked. That's one of the reasons we had the pause button. But the returns and the collections are the testament to our people, the collections continue to perform, and we want to get that right so that we can accelerate it. And we don't migrate for migration sakes, just like we don't invest in for investment sake. We actually migrate to make sure that we're capturing the opportunities of cost savings, and we're capturing updates to improve our functionality, which this does, and we're doing so in the most important and the most prudent in the markets where we think this is going to have the greatest return, not in every single market at one time. But migrations are complicated, and we're going to have ups and downs going forward. There's no doubt about it. That's the reason for the pause.

And maybe a bit from the CFO perspective, but to my mind, the whole [indiscernible] really build the peoples and processes and systems and they can't changes across all the interventions, but it through the CFO [indiscernible] what's really important to me is that the cost-to-collect, right? And you see that definitely moving in the right direction. And that means that the game Germany are starting to play together, and that's really a curve that we want to expand, continue on.

And then maybe one final question. So maybe I leave, just a quick one here. But when you mentioned now on the financial targets, which ones you are focusing the most on it sound, there was kind of the cash EPS and the leverage. So are those superior to the dividend, for instance?

No. But those are the 2 that I chose to highlight in my commentary. Leverage has obviously been very topical. The questions have indicated that today. Cash EPS to me is the ultimate measure of our profitability to our shareholders in cash alone. And yes, I don't -- I wouldn't say it's superior or interior to the dividend.