Resurs : Year-end report 2020

Q4

Year-end Report January-December 2020

1 October-31 December 2020*

• • Lending to the public fell 2% to SEK 30,858 million, up 2% in constant currencies.

• • As previously communicated, the quarter included nonrecurring costs of SEK 70 million related to the transformation journey.

• • Operating income fell 7% to SEK 876 million, excluding nonrecurring costs the decline was 6%.

• • C/I before credit losses (excl. Insurance) was 48.2% (39.2%), and 40.3% excluding nonrecurring costs.

• • Earnings before credit losses fell 19% to SEK 463 million, excluding nonrecurring costs the decline was 7%.

• • The credit loss ratio was 2.5% (2.7%), excluding nonrecurring costs of SEK 35 million in Q4 2019 the comparative figure was 2.2%.

• • Operating profit fell 26% to SEK 268 million, excluding nonrecurring costs the decline was 15%.

1 January-31 December 2020*

• • Lending to the public fell 2% to SEK 30,858 million, up 2% in constant currencies.

• • 2020 included nonrecurring costs of SEK 145 million, of which SEK 70 million in the fourth quarter related to the transformation journey and SEK 75 million for the extra credit provision made in the first quarter.

• • Operating income fell 2% to SEK 3,613 million.

• • C/I before credit losses (excl. Insurance) was 40.4% (39.0%), and 38.6% excluding nonrecurring costs.

• • The credit loss ratio was 2.7% (2.3%), and 2.5% (2.1%) excluding nonrecurring costs.

• • Operating profit fell 18% to SEK 1,287 million, excluding nonrecurring costs the decline was 10%.

• • In accordance with the Swedish Financial Supervisory Authority's recommendation, the Board proposes a dividend of 25% of the net profit for 2019 and 2020, corresponding to SEK 2.68 per share. The dividend policy is unchanged and the Board's intention is to pay the remaining predicted dividend in autumn 2021.

"Ambitious agenda for 2021 and several new partners"

Nils Carlsson, CEO Resurs Holding AB

ABOUT RESURS HOLDING

Resurs Holding (Resurs), which operates through the subsidiaries Resurs Bank and Solid Försäkring, is the leader in retail finance in the Nordic region, offering payment solutions, consumer loans and niche insurance products. Since its start in 1977, Resurs Bank has established itself as a leading partner for sales-driven payment and loyalty solutions in retail and e-commerce, and Resurs has thus built a customer base of approximately 6 million private customers in the Nordics. Resurs Bank has had a banking licence since 2001 and is under the supervision of the Swedish Financial Supervisory Authority. The Resurs Group operates in Sweden, Denmark, Norway and Finland. At the end of the fourth quarter of 2020, the Group had 722 employees and a loan portfolio of SEK 30.9 billion. Resurs is listed on Nasdaq Stockholm.

* Certain performance measures provided in this section have not been prepared in accordance with IFRS or the capital adequacy rules, meaning that they are alternative performance measures. Calculations and reconciliation against information in the financial statements of these performance measures are provided on the website under "Financial reports." Definitions of performance measures are provided on the website under "Financial data." In this section, changes and comparative figures refer to the same period in the preceding year. This applies to all other sections of text in this interim report, profit/loss items and cash flow that are compared with the same period in the preceding year. The exception is for financial position for which the comparative figure refers to 31 December 2019.

Statement by the CEO

Ambitious agenda for 2021 and several new partners

The fourth quarter marked the start of Resurs transformation journey to ensure the long-term competitiveness, sustainability and profitability of the bank. Resurs Bank will be a more data-driven and tech-oriented financial player in 2021. One of the first steps was to raise our sights and review our work methods to better capitalise on the synergies that are now being created through the new Nordic organisation. The more data-driven and agile work method of product development in autonomous teams that was implemented in the autumn immediately generated results in the form of a new version of our bank app, which has been developed in house, and now makes it even easier for our customers to manage their commitments with Resurs. Another part of the transformation journey is more intense focus on sustainability, and a business-driven Nordic Sustainability Manager was recruited in the quarter with the task of developing our Nordic sustainability agenda.

Nils Carlsson,

CEO Resurs Holding AB

The review of the balance sheet conducted in connection with the start of the transformation journey identified an impairment requirement of SEK 48 million, of which SEK 38 million referred to previously capitalised IT investments. The transformation journey also resulted in personnel changes and reductions, which cost SEK 22 million. Nonrecurring costs for the fourth quarter totalled SEK 70 million. These measures are creating the conditions necessary for ensuring that important business-driven IT projects and solutions can be carried out in the next few years. In 2021, we intend to present new financial targets and also host a Capital Market Day at which we will present more details in our transformation journey, future market position and the strategy for achieving the new financial targets.

FULL-YEAR 2020

+11%

Growth in lending in constant currencies excl. Norway and NPL sales

38.6%

Several new partners and positive signs in Norway

The total lending declined 2 per cent year-on-year. The restrictive credit assessment that Resurs introduced in Q1 2020 remained fully in place and restricted growth. At the same time, the proactive measures are in line with the sustainable credit lending that is fundamental to Resurs's operations and ensure that customers do not borrow more than their personal financial situation permits. We continued to see no changed to our customers' payment patterns. Excluding the Norwegian market and sale of the NPL portfolio, the increase in lending in constant currencies was 11 per cent. The Norwegian market remained challenging, at the same time as there were signs that the efforts made to develop more attractive offerings have been positively received.

C/I ratio (excl. Insurance and nonrecurring costs)

288%

Liquidity Coverage Ratio (Statutory requirement 100%)

17.4%

Total capital ratio

(Regulatory requirement 11.7%)

Demand in Payment Solutions varied greatly between different industries and markets, which was an effect of the restrictions imposed to reduce the spread of contagion in physical stores. However, a broad diversification in Nordic retail gave us important resilience and an ability to offset industries with falling demand with other industries that performed relatively better. During the year, we continued to develop our e-commerce offering and in 2020 we entered into partnerships with 75 new e-commerce players. During the quarter, a new partnership was also initiated with Uno-X in Denmark and the company's nationwide chain of 248 unmanned petrol stations. We could also welcome back HiFi-klubben, with more than 20 stores in Norway and Sweden, after a couple of years with a competitor.

The trend in Insurance remained strong, with increased sales and profitability in the Motor segment, among other factors, contributing to a 13 per cent increase in the technical result in 2020. Insurance started a partnership with Elon, with 350 appliance stores and online sales in Sweden, during the quarter.

High confidence in the capital market and profit distributed to shareholders

In line with our strategy of long-term diversified financing, we extended our ABS financing with JP Morgan Chase Bank during the quarter. We applied the same strategy to the management of our non-performing loans, selling receivables for a gross amount of slightly more than SEK 500 million. The sale reduced our capital requirements and positively impacted liquidity, but ultimately had a neutral effect on earnings. Being able to carry out these transactions, given the market conditions, shows the confidence that the capital market has in Resurs.

In accordance with the Swedish Financial Supervisory Authority's recommendations in December, the Board proposes a dividend of 25 per cent of the net profit for 2019 and 2020 in spring 2021, corresponding to SEK 2.68 per share. The dividend policy is unchanged and the Board's intention is to pay the remaining predicted dividend in autumn 2021.

I am impressed by how quickly the business has been able to change and adapt to meet both external challenges and internal change processes in these exceptional times. This gives us self-confidence now as we look ahead and switch focus in order to strengthen Resurs's competitiveness and deliver growth in the long term with an even clearer sustainability approach. We will become a more data-driven and tech-oriented financial company by offering the most innovative services and products in the Nordic market that create business and customer value as well as value for shareholders.

Performance measures

SEKm unless otherwise specified	Oct-Dec 2020	Oct-Dec 2019	Change	Jan-Dec 2020	Jan-Dec 2019	Change
Operating income	876	945	-7%	3,613	3,679	-2%
Operating profit	268	364	-26%	1,287	1,563	-18%
Operating profit excl. nonrecurring costs	338	399	-15%	1,431	1,598	-10%
Net profit for the period	200	289	-31%	954	1,216	-22%
Earnings per share, SEK	0.98	1.43	-32%	4.68	6.07	-23%
C/I before credit losses, %*	47.2	39.2	40.7	39.3
C/I before credit losses excl. Insurance, %*	48.2	39.2	40.4	39.0
C/I before credit losses excl. Insurance and nonrecurring costs, %*	40.3	39.2	38.6	39.0
Common Equity Tier 1 ratio, %	15.1	13.6	15.1	13.6
Total capital ratio, %	17.4	16.3	17.4	16.3
Lending to the public	30,858	31,345	-1.6%	30,858	31,345	-1.6%
NIM, %*	8.7	9.4	9.1	9.7
Risk-adjusted NBI margin, %*	7.9	8.6	8.2	9.4
Risk-adjusted NBI margin, %* excl. nonrecurring costs	8.0	9.1	8.4	9.5
NBI margin, %*	10.5	11.3	10.9	11.7
Credit loss ratio, %*	2.5	2.7	2.7	2.3
Credit loss ratio, %* excl. nonrecurring costs	2.5	2.2	2.5	2.1
Return on equity excl. intangible assets (RoTE), %*	13.4	23.3	17.1	25.7
Return on equity excl. intangible assets and nonrecurring costs, given a Common Equity Tier 1 ratio according to the Board's target and deducted dividend from the capital base, (RoTE), %*	24.6	32.9	26.1	33.5

Group results*

Fourth quarter 2020, October-December

Operating income

The Group's operating income decreased 7 per cent to SEK 876 million (945). The relatively lower income was mainly due to the decline in Norway, and mix effects in Payment Solutions where many of Resurs's retail finance partners managed relatively well during the pandemic, with unchanged, and in some cases higher, demand. At the same time, these partnerships involve lower margins, which negatively impacted the overall NBI margin. Excluding nonrecurring costs of SEK 10 million for impairment of a small unlisted shareholding, operating income fell 6 per cent.

Net interest income decreased 8 per cent to SEK 681 million (741), interest income totalled SEK 775 million (846) and interest expense totalled SEK -93 million (-105). The decline in net interest income was mainly the result of the lower lending in Norway and mix effects in Payment Solutions. Fee & commission income amounted to SEK 45 million (55) and fee & commission expense to SEK -16 million (-16), resulting in a total net commission for the banking operations of SEK 29 million (39). The lower net commission was due in its entirety to the effects of COVID-19, attributable to lower credit card income, loan commission and lower factoring income.

In insurance operations, premium earned, net, were unchanged at SEK 231 million (231), while claim costs, which are recognised under insurance compensation, net, totalled SEK -57 million (-55). Fee & commission expenses in the insurance operations amounted to SEK -62 million (-59). In total, net insurance income decreased to SEK 113 million (117).

Recovery continued in the capital market during the quarter, and the market value of equities and bond portfolios increased, which resulted in a positive outcome for net income from financial transactions for Insurance of SEK 6 million (5). Nonrecurring costs of SEK 10 million for the impairment of a small unlisted limited company were charged to net income from financial transactions, and the item totalled SEK -5 million (-16). Other operating income, mainly comprising remuneration from lending operations, amounted to SEK 58 million (64).

Operating expenses

The Group's expenses before credit losses excluding nonrecurring costs declined 5 per cent to SEK -354 million (-370) due to continuing good cost control. The quarter was charged with nonrecurring costs of SEK 60 million related to the transformation journey, of which

SEK 22 million was costs related to personnel reductions and SEK 38 million to previously capitalised IT investments. Including nonrecurring costs, the Group's expenses before credit losses increased 12 per cent year-on-year to SEK -413 million (-370). Viewed in relation to the operations' income, the cost level (excluding Insurance and nonrecurring costs) amounted to 40.3 per cent (39.2 per cent) as a result of the lower income level.

Credit losses totalled SEK -195 million (-210) and the credit loss ratio was 2.5 per cent

(2.7 per cent). Excluding nonrecurring effects of SEK 35 million in Q4 2019, the comparative figures are SEK -175 million and 2.2 per cent, respectively. Excluding nonrecurring costs, credit losses for the quarter increased both in absolute terms and as a percentage of lending, which was mainly an effect of the previously higher growth in lending. The bank has not yet seen any changed payment patterns among its customers due to COVID-19, which is why credit losses for the period were not impacted by direct effects related to COVID-19. The risk-adjusted NBI margin totalled 7.9 per cent (8.6 per cent). In addition to the effect of the previously higher growth in lending, the lower margin was mainly due to changes to the mix in Payment Solutions.

Profit

Operating profit fell 26 per cent to SEK 268 million (364), excluding nonrecurring costs operating profit declined 15 per cent. Tax expense for the quarter amounted to SEK -68 million (-75). Net profit for the quarter amounted to SEK 200 million (289).

Full-year 2020, January-December

Operating income and expenses

The Group's operating income declined 2 per cent to SEK 3,613 million (3,679). The relatively lower income was mainly due to the continued decline in Norway, and mix effects in Payment Solutions where many of Resurs's retail finance partners managed relatively well during the pandemic, with unchanged, and in some cases higher, demand. At the same time, these partnerships involve lower margins, which negatively impacted the overall NBI margin.

Net interest income fell 1 per cent to SEK 2,859 million (2,902), with interest income amounting to SEK 3,259 million (3,311) and interest expense to SEK -400 (-409).

-6%

Operating income for the quarter excl. nonrecurring costs

-5%

Expenses for the quarter excl. nonrecurring costs

40.3%

C/I ratio excl. Insurance and nonrecurring costs

* Certain performance measures provided in this section have not been prepared in accordance with IFRS or the capital adequacy rules, meaning that they are alternative performance measures. Calculations and reconciliation against information in the financial statements of these performance measures are provided on the website under "Financial reports." Definitions of performance measures are provided on the website under "Financial data."