Intrum : Interim Report January-September 2020

Interim report

Third quarter 2020

Third quarter, July-September 2020

• Revenues increased to SEK 4,521 M (3,786) and adjusted revenues increased to SEK 4,520 M (3,777).
• Operating earnings amounted to SEK 1,688 M (1,375). The adjusted operating earnings increased to SEK 1,687 M (1,476). The operating margin for the quarter was 37 percent (36) and the adjusted oper- ating margin was 37 percent (39).
• Cash flow from operating activities increased to SEK 2,060 M (1,306) and available liquidity at the end of the quarter amounted to SEK 16 billion. The net debt ratio decreased to 4.2x (4.4x), due to strong cash flow.
• For the Credit Management segment, the operating margin increased to 29 percent (26) and the adjusted margin increased to 29 percent (28). For Strategic Markets, the operating margin increased to 30 percent (16) and the adjusted operating margin increased to 30 percent (17).
• The return on portfolio investments (ROI) was 12 percent (15) for the quarter. Portfolio investments for the quarter amounted to SEK 837 M (831).
• Net earnings for the quarter amounted to SEK 864 M (579), and earnings per share were SEK 6.97 (4.26).

As of 1 Janu- ary 2020, Intrum report on three segments, these being Credit Management Services (CMS), Portfolio Investments (PI) and Strategic Markets (Greece, Italy and Spain). At the same time, the previous segmentation into four geographical regions is being discontinued.

							Rolling
		Third quarter			9 months		12 months	Full year
	July-Sep	July-Sep	Change	Jan-Sep	Jan-Sep	Change	Oct 2019-
SEKm, unless otherwise indicated	2020	2019	%	2020	2019	%	Sep 2020	2019
Net revenues	4,521	3,786	19	11,739	11,322	4	16,402	15,985
Adjusted revenues	4,520	3,777	20	12,372	11,118	11	17,034	15,780
Operating earnings (EBIT)	1,688	1,375	23	3,495	4,197	-17	1,358	2,060
EBIT adjusted	1,687	1,476	14	4,127	4,387	-6	5,948	6,208
Earnings per share, SEK	6.97	4.26	64	11.80	16.06	-26	-6.73	-2.76
Cash flow from operating activities	2,060	1,306	58	7,228	4,555	57	9,065	6,392
Adjusted segment earnings Credit Management	482	489	-2	1,285	1,362	-6	1,716	1,793
Services
Adjusted segment earnings Strategic Markets	515	161	220	962	601	60	1,479	1,118
Adjusted segment earnings Portfolio Investments	1,093	1,236	-12	3,133	3,739	-16	4,341	4,947
Portfolio investments	837	831	1	3,754	3,544	6	7,534	7,324
Carrying value portfolio investments	34,940	33,196	5	34,940	33,196	5	34,940	35,429
Return on portfolio investments, ROI, %	12	15		9	15		10	15
Adjusted return on portfolio investments, ROI, %	12	15		12	15		12	15
Cash EBITDA	3,142	2,609	20	8,484	7,593	12	11,546	11,444
Net Debt/RTM Cash EBITDA							4.2	4.3

1	Intrum  Interim report, third quarter 2020

	Comment by	Group	Segment	Financial	Other
Q3 in brief	the President and CEO	overview	overview	reports	information	Definitions	About Intrum

Comment by the President and CEO

A strong quarter but uncertainties remain

It is with great pride and humbleness that I in my new role as President and CEO of Intrum, write my fist CEO comment. I would like to start by thanking my predecessor Mikael Ericson for his great contribution to Intrum the last 4 years, where the latest quarter is one of the strongest during recent years.

Because, with the third quarter behind us, we see a considerably more positive development of our business activities than we predicted in the spring. We were operational in all 25 of our countries throughout the quarter, and we have successfully worked actively to serve our clients while maintaining control of costs. Activity is typically lower during the third quarter because it includes the summer holiday period, but in the wake of the pandemic we note that seasonal patterns have diverged so far in 2020. We regained business volumes to some extent during the third quarter, volumes that had previously been expected in the first and second quarters of the year, but which were delayed due to the pandemic.

We are extremely pleased with our strong performance in the third quarter, although we are careful not to extrapolate too much from this recovery into the final quarter of the year, as business volumes from new sales remain limited. We expect this to be reflected also in our figures for the fourth quarter. With that said, we retain our optimistic view of business opportunities for 2021 and beyond, which is supported by, among other things, megatrends in consumer behaviour, digitalisation, continued regulation in the financial sector as well as volumes in the aftermath of the pandemic.

The work of harmonising and streamlining our operations across all markets was intensified during the third quarter. We are working purposefully to create "One Intrum", where we are co-ordinating and simplifying as much as we can in terms of systems, processes, and operational methods, in order to sharpen our client offering and meet our clients and customers consistently, responsively, and efficiently. At the same time, the centralisation of processes and support functions makes us more competitive and allows us to take advantage of the economies of scale of being the largest player in Europe.

Strong organic growth embedded in a strong financial position

Group revenues amounted to SEK 4,521 M (3,786). Organic revenues increased 10 per cent on the previous year, while the business we acquired in Greece contributed 14 percentage points to growth. Operating income for the quarter amounted to SEK 1,688 M (1,375).

Cash flow from operating activities increased by 58 per cent to SEK 2,060 M (1,306). Our cash EBITDA amounted to SEK 3,142 M (2,609), corresponding to an increase of 20 per cent compared to the previous year. Due to declining net debt and rising cash EBITDA, net debt ratio decreased to 4.2x compared to 4.4x at the end of the second quarter.

Intrum's financial position is strong. At the end of the quarter, we had available liquidity of SEK 16,0 billion. During the quarter, we refinanced parts of our loan structure and extended its maturity profile. This means that we have very limited loan volumes that fall due over the coming three years. This, together with our liquidity position and strong cash flow, provides favourable conditions for attractive investment opportunities in overdue receivables that we anticipate coming to market in 2021 and beyond.

Robust profitability despite reduced revenues in Credit Management Services The Credit Management Services segment performed stably, although the trend from the second quarter - with a lower inflow of new business volumes - continued to have a negative impact on revenues. Organic revenues decreased 4 percent, while operating result of SEK 482 M (489) was 1 per cent down on the same period last year. The adjusted operating margin of 29 per cent (28) was supported by good

"The work of harmonising and streamlining our operations across all markets was intensified during the third quarter."

2	Intrum  Interim report, third quarter 2020

	Comment by	Group	Segment	Financial	Other
Q3 in brief	the President and CEO	overview	overview	reports	information	Definitions	About Intrum

internal cost control and the previous year's cost savings programme but was also held back by lower sales in the quarter.

Strong recovery in business volumes for Strategic Markets

Strategic Markets registered a strong quarter with operating income at SEK 515 M (161). In contrast to last year, our operations in Greece are included in this segment's results as these activities were consolidated in the fourth quarter of 2019, but even excluding Greece, earnings improved markedly compared to the previous year. The quarter was characterised by generally good business activity and a recovery of delayed volumes from previous quarters. The adjusted operating margin improved to 30 per cent (17) due to unseasonal high business volumes and from savings generated by our cost savings programme launched in 2019.

Stable collections in Portfolio Investments

The Portfolio Investments segment reported a solid operating income performance of SEK 1,093 M (1,236). Results were positively affected by solid collection levels, which overall amounted to 117 per cent of the Covid-19-adjusted forecast and 102 per cent of our pre- Covid-19 forecast. For the first nine months of the year we have collected 99 per cent of the pre-pandemic forecast. The decrease in earnings compared to the previous year is entirely attributable to our participations in joint ventures decreasing to SEK 60 M (310). The performance of our participations in joint ventures is primarily our Italian SPV portfo- lio, which performed strongly in 2019 and has a natural decaying contribution over its life- time, while its contribution to income in 2020 is also being affected by the pandemic.

Portfolio Investments amounted to SEK 837 M (831) in the quarter. The expected return level on investments made in the quarter continues to be significantly above the level we invested at in 2019 and before the outbreak of the pandemic. This is of course encouraging, but at the same time we are mindful of that in light of our ambition to increase our level of investment in 2021 and beyond, current return levels are unlikely to be maintained.

A key role in the financial ecosystem

Intrum recently published its European Payment Report 2020, in which approximately 10,000 companies in 29 countries in Europe were interviewed about how payments affect their operations. It is clear that the pandemic has had a negative impact, and many are now taking steps, such as cost savings and more prudent lending, to counteract an economic slowdown. Payment periods are generally increasing, especially in southern Europe, where more than half of those surveyed indicated that they accept longer payment periods than desired in order not to lose customers.

The decline in GDP during the year has hit European companies' revenues and has had a strongly negative impact on both liquidity and cash flow. At Intrum, we work every day to help companies get paid for the goods and services they provide. Intrum's role, to work for a sound economy, is based on the fact that in close dialogue with our clients we find solutions to assist their customers in identifying payment solutions that are individualised and result-oriented for all parties. To constantly have our goal of "leading the way to a sound economy" and value creation for our various stakeholders in focus, is the core of our sustainability agenda. This is especially true in these challenging times when a healthy economy is a must for Europe to rapidly return to normalcy.

Simplicity in a strengthened client offering

Although Intrum is of course affected by the pandemic, I look back on the first three quarters of the year with pride and confidence. It is great to see how the organisation has handled the challenges that have arisen, and I would like to thank each and every one of our dedicated employees. I look forward to taking on the role as CEO of Intrum, a company which I have gotten to know very well during my six years in various leading positions. Together with our management and employees, my priority will be to develop a new more efficient operational model which will enable us to further improve our competitiveness and allow for an enhanced offering to our clients and customers. In that way, we create further opportunities for long-term organic growth and profitability. I look forward to updating you more about our way forward and our updated financial targets at the digital capital markets day that we will hold on 18 November.

Stockholm, October 2020

Anders Engdahl

President & CEO

"To constantly have our goal of "leading the way to a sound economy" and value creation for our various stakeholders in focus, is the core

of our sustainability agenda."

3	Intrum  Interim report, third quarter 2020

	Comment by	Group	Segment	Financial	Other
Q3 in brief	the President and CEO	overview	overview	reports	information	Definitions	About Intrum

Group overview

Development during the third quarter

Revenues and operating earnings

Revenues for the third quarter increased to SEK 4,521 M (3,786), corresponding to a 19 percent increase, with organic growth accounting for 10 percent, acquisitions for 14 percent and currency effects for -5 percent. The share of revenue denominated in EUR amounted to 67 percent (61).

Operating earnings (EBIT) for the third quarter amounted to SEK 1,688 M (1,375), with items affecting comparability of SEK 1 M (-101). The adjusted operating earnings, excluding items affecting comparability, increased to SEK 1,687 M (1,476).

Items affecting comparability

Operating earnings for the quarter included items affecting comparability of SEK 1 M (-101).

Net financial items

Net financial items for the quarter amounted to SEK -573 M (-633). Net interest amounted to SEK -452 M (-381), exchange rate differences to SEK 19 M (-17) and other financial items to SEK -140 M (-235). Other financial items for the quarter include SEK -87 M (-190) in expenses for early redemption of bonds

Earnings for the period and taxes

The tax expense for the quarter amounted to 22.5 percent of earnings before tax. Accordingly, net earnings for the quarter amounted to SEK 864 M (579), corresponding to earnings per share of SEK 6.97 (4.26) before and after dilution.

The company's assessment is that the tax expense will, over the next few years, be around 20-25 percent of earnings before tax for each year, excluding the outcome of any tax disputes.

Cash flow and investments

Cash flow from operating activities during the third quarter amounted to SEK 2,060 M (1,306). The increase is largely due to a positive change in working capital.

Adjusted revenues, SEKm

	4,662	4,520
3,777	3,969	3,882

Q 3	Q 4	Q 1	Q 2	Q 3
2019	2019	2020	2020	2020

Adjusted EBIT, SEKm

1,821

1,687

1,476

1,345

1,095

Q 3	Q 4	Q 1	Q 2	Q 3
2019	2019	2020	2020	2020

Assets and financing

At the end of the quarter, total assets amounted to SEK 84 billion, compared with SEK 86 billion at the end of 2019. Net debt amounted to SEK 48.9 billion, down SEK 0.2 billion since the start of the year, despite Intrum having implemented share repurchases and dividends totalling SEK 2.5 billion. Net debt in relation to rolling 12-month adjusted Cash EBITDA amounted to 4.2x, compared with 4.3x at the end of 2019.

In July, Intrum issued a five-year unsecured bond of EUR 600 M at a fixed interest rate of 4.875 percent. The proceeds were used to refinance a fixed-rate bond maturing in 2022. In September, a supplementary issue of EUR 250 M was placed at an issue price of 100.75, giving an effective interest rate of 4.70 percent. The proceeds of the supplementary issue were used to repay outstanding amounts under Intrum's credit facility.

Also during the quarter, Intrum issued two unsecured bonds - a two-year bond of SEK 750 M at STIBOR 3m +250 basis points, and a five-year bond of SEK 1250 M at STIBOR 3m +460 basis points. The bonds were issued within the framework of the existing Swedish MTN programme.

Also, during the quarter, Intrum increased its borrowing by issuing commercial papers for SEK 0.3 billion.

The proceeds from the issues under the MTN program and the increase in commercial papers issued have been used to repay outstanding amounts within Intrum's credit facility.

At the end of the quarter, SEK 3.7 billion of Intrum's credit facility had been utilised, a decrease of SEK 5.5 billion compared with the second quarter.

Net Debt/RTM Cash EBITDA

4.4x		4.5x	4.4x
4.3x
		4.2x

Q 3	Q 4	Q 1	Q 2	Q 3
2019	2019	2020	2020	2020

4	Intrum  Interim report, third quarter 2020