Operator: Q3 2026 report presentation. For the first part of the presentation, participants will be in listen-only mode. During the questions and answers session, participants are able to ask questions by dialing pound five on their telephone keypad. Now, I will hand the conference over to President and CEO, Johan Åkerblom, and CFO, Masih Yazdi. Please go ahead.
Johan Åkerblom: Good morning, everyone, and welcome to this Q3 presentation. I am here with Masih, and we will take you through the results, and then we will open up for Q&A. If we start with the highlights of the quarter, it feels like it is a Q2 event, but we actually did close the capital raise and the asset sale in Q3. That together, coupled with cost control, moves the service leverage to 4.5. We started the year at 5.7, and we have set out the course towards 3.0 in 2028. The negative trend on the income side, unfortunately, continues from H1. The drivers of that are mainly that we have development not according to plan in Germany and UK. The German development has led that we have taken a goodwill impairment of SEK 1.5 billion.
Johan Åkerblom: It also means that the goodwill that we used to have in Germany is now completely written off. As we said already in Q2, we have accelerated the operational excellence program, and we are now working on a plan to take us towards SEK 11 billion on total cost already in 2027. The cost base on a rolling 12 months in Q3 is SEK 11.8 billion, and we started the year SEK 12.3 billion. The investment pace has developed better than expected. We are underwriting SEK 670 million onto our balance sheet in the quarter, and we have done so with an investment IRR of 17% blended, which is actually higher than we expected, both in terms of volume and the returns, which is a very good sign. It shows that we can hopefully get to replenishing levels at some stage, and then make sure that the book stays flat.
Johan Åkerblom: The servicing margin is flat year-on-year, and we stay at 25%, and we are here targeting 30% to 35% in 2030. If we move on and talk about the servicing, as I said, the margins remain stable. You will get a bit more details later on from Masih. The organic growth, as in Q2 in the traditional markets, can only partly offset the natural decline that we have in the specialized markets. The two big deviations are UK and Germany. The traditional markets, excluding Germany, they grew 3% in the quarter, organic growth, and the margins remain stable. The trend that we have had in the H1 sort of continues into Q3. To give a little bit more details on what has happened, we had a plan.
Johan Åkerblom: We think that the plan delivers, but we have two things that are standing out on the negative side. Traditional markets, we see growth. We see the decline in Greece, Italy, and Spain pretty much in line where we expected. When we do not get the forecast growth in UK and Germany, but rather having a decline in those two markets, that leads to an overall negative effect. Those are the two outliers that we did not have in the original plan. Obviously, we are now taking measures to address that. In Germany we have strengthened the management team during the year. We have a new commercial lead that starts next week or the week after. In UK, we have a new Managing Director that joined us 1 September. He is coming from Koio, and he has a very strong commercial focus.
Johan Åkerblom: We have also recruited a new commercial lead that started after summer in the UK. On top of that, we have also increased the sales capacity, the new sales capacity of more than 30% across the board. We have now a much more structured and focused approach on our commercial performance. We will continue to take actions to improve the way we execute on the top line. What we have also done during the quarter is we have accelerated the operational excellence program. We had a plan from the beginning to do seven countries in 2026. We started the year with a central OpEx team that has fairly limited capacity. We have now recruited a number of people so we can broaden the program across almost the entire group. We are now covering 17 countries this year.
Johan Åkerblom: That also means that we will see more effects and we will have quicker effects in general. This is also why we are now working on a plan to get to a total cost base of SEK 11 billion in 2027. We will come back with more details when we have our Q4 results. Last but not least, on the investing side, the collections continue to be in line with our forecast or slightly above actually. We land the quarter at 101. We are at 107 versus the original forecast. More importantly, the volumes have increased already the same quarter as we closed the capital raise. This is one of the benefits with having a stronger balance sheet and more financial flexibility.
Johan Åkerblom: We are keeping a blended IRR of 17% in the quarter. Our investment levels are already now at the same level as they were in 2025. As I think we said before, and we will continue to repeat, we have an aim to reach replenishing levels, which is around SEK 3 billion annually, while maintaining the return requirements that we have. When expanding the volumes, we do expect that we will not be able to stay at 17%, 18% as we have been over the last quarters, but rather the return requirements will slightly go down, but they will still be sufficient enough for us to deploy capital. With that, I will hand over to Masih to take you through the financials.
Masih Yazdi: Thank you, Johan. Looking at slide 8 and looking at the group financials. In addition to what Johan already have said, just a few points. On the cost side, we have obviously an elevated level. A lot of that is driven by the impairment in Germany as well as other items affecting comparability. Those other items total around SEK 150 million during the quarter, and it is very much related to the acceleration of the OpEx program we are doing.
Masih Yazdi: On the underlying basis the costs are developing slightly ahead of plan, given the fact that we have had a consolidation of the Savoy portfolio, which increases the cost base for 2026 by about SEK 300 million, which would take our cost target for the year to around SEK 12 billion. Right now, we are trending slightly below that, and we expect to end the year below the SEK 12 billion level.
Masih Yazdi: On the net financial expense, it is now coming down on an underlying basis. If you look at the cash component of it, that is obviously driven by the capital raise and the asset sale, which reduces the debt level. So we are seeing a positive impact there. That positive impact should be a bit larger going forward as the liquidity management in the quarter has not been optimal due to the fact that we have done tenders and bought back bonds.
Masih Yazdi: So we have had to hold more liquidity on deposit accounts rather than to fully use the capital to reduce the debt. So we should see further tailwinds on the cash component of the net financial expense in Q4 and onwards, marginally offset with the higher interest rates which is only affecting our RCF and not the other debt as the other debt is on a fixed coupon basis.
Masih Yazdi: Then you can see that there has been a few one-offs on the net financial expense mainly related to the bond buybacks that we did for 2027 that were bought back above 100. So there is a negative effect there. Then we paid the consent fee to the RCF holders when we did the asset sale, which also has a negative effect. Move to the next page, which is on the servicing income. Johan has gone through most of the things here with a negative development on the external income. But at the same time, we have had good cost control, which means that the margin is stable in terms of the 12 months outlook. But year on year, we see an improvement of the margin going from 22% to 24% this quarter.
Masih Yazdi: Moving to the investing P&L, there is a pretty large decrease if you look at the adjusted EBIT. That is very much related to the consolidation of Savoy, which typically seasonally has a very weak Q3. Cost level in Savoy is at just over SEK 100 million in Q3, with income being less than that. So there is actually a negative contribution for Savoy that typically changes quite a bit in Q4, where Savoy has its seasonally strongest quarter. We expect the cost level to be approximately the same in Q4, but with income and collections more than doubling. So the negative effect we have in Q3 from this consolidation would reverse in Q4 and be a positive effect instead.
Masih Yazdi: Here we should also mention that the EBIT is stronger compared to last year, very much related to the asset sale of the Orange portfolio that led to a capital gain of about SEK 430 million. On the portfolio investments that Johan mentioned, which is SEK 617 million in the quarter, we think the outlook looks pretty good for Q4 and we expect to be able to be above that level with similar levels of returns in the next quarter. That is going to be dependent on one or two deals that could be binary, but assuming that everything goes according to plan, we expect to be able to improve volumes further.
Masih Yazdi: On the cost development on the next slide, obviously we have had a good development over the past couple of years with personnel expenses coming down by 20% and other costs by 14%. We are obviously continuing to work on this.
Masih Yazdi: We expect this development to continue and accelerate a bit in 2027 compared to development we have seen in 2026. You can already see in the Q3 numbers that there is a slightly larger decline of the FTE base in Q3 versus what we have seen in the last couple of quarters. That should accelerate further going forward. This has led to some restructuring costs that we have taken in Q3 and we expect these costs to be clearly higher in Q4, which will enable us to transform the business faster. Again, we will come back with further details, but the plan is to approach about towards SEK 11 billion in total cost in 2027. If I summarize the quarter, obviously the main priority for us as a company is to de-lever. We are doing that right now, obviously help with the capital raise and the asset sale.
Masih Yazdi: But going forward, the de-leveraging will be fully driven by the organic development. We have had this large goodwill write down in Germany and we are accelerating the operational excellence program. On the servicing side, we continue to see unfortunately the negative external income development mainly driven by UK and Germany. But we are able to offset that by reducing the cost level and therefore keeping the margin largely flat. On the investing side, we see an acceleration of investments. We expect that acceleration to continue. For now, returns are still stable at high levels. We expect returns to come down, but still be at sufficiently good levels for us to do these investments. With that, we will stop and open up for Q&A.
Operator: If you wish to ask a question, please dial pound key 5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key 6 on your telephone keypad. Please limit your questions to 2 per turn. The next question comes from Patrik Brattelius from ABG. Please go ahead.
Patrik Brattelius: Thank you. Can you hear me?
Masih Yazdi: Yes.
Patrik Brattelius: Perfect. Good morning. My first question is on servicing. You had a chart there on slide 4 explaining the difference. Could you break it down a little bit on the underlying dynamics here? You flagged that traditional markets are improving and growing while Greece, Italy, Spain, UK, and Germany are reducing. Can you talk a little bit about how you see the risk of more markets moving in the same direction as the markets that are falling in growth or the opposite way? What needs to change in the UK and the German market in order for them to come back to growth, the underlying dynamics in your view here?
Johan Åkerblom: If we start with UK and Germany, UK, if we look at the background, UK comes from a history of acquisitions, right? There was a big acquisition done a couple of years ago and then we have been working on that integration. Then unfortunately, we had one of our larger clients that was acquired and then they decided to move the servicing during last year and we were expecting that we could offset part of that with new clients coming in. That transition has just taken longer and we have also been, to be fair, we have not had a firm leadership because we have had the last MD left.
Johan Åkerblom: During 2024, the new MD now started this fall. UK is now continuing its integration and continuing its transition from a BPO to a more traditional NPL player. With that, we also expect that the effects we are taking will start showing going forward. Germany is another story. Germany, there we have operational issues and we are basically rebuilding the platform. We are changing the infrastructure. Germany is more an effect of not being able to have the right setup in order to facilitate growth. We thought that we had that. Now when we have spent more time with Germany, we also have the new management working on it, we can clearly see that there needs to be a complete rebuild, and that is what we are doing. Coming to your question around do we have other markets.
Johan Åkerblom: The bulk of our markets on the traditional side, they are organically built. They have no legacy of big acquisitions, big mergers. They also have seen a number of quarters in a row where we see growth. Then you have Greece, Italy, and Spain, which I think we all know how they have been built up and what the history is. There we have a very good view on how they will develop going forward. I think that is how we see it. If we would have had UK and Germany performing according to our plan, then the negative income growth that we are now seeing in Q3 would have been much less of an issue.
Patrik Brattelius: Thank you. Going back a little bit to the financial plan laid out in Q4, we discussed the flat development in servicing to then gradually increasing and accelerating later on. We have now talked that it will rather shrink in 2026. How should we think about the growth trajectory from 2026? Are you aiming for more flat ambition in 2027, or do you still believe that you can start to achieve growth looking into 2027?
Masih Yazdi: Hi, Patrik. I will take that one. I think given that development so far this year has been more negative than we expected, we want to be a bit humble in terms of giving any forecast for 2027. What I can say at this point in terms of our expectations is that we expect the traditional markets to continue to grow going forward, and we expect the Southern European markets, Greece, Spain, and Italy to, on average, continue to have a decay. At the same time, when you look at the UK and Germany, we believe that going into next year, the comps will be easier. We believe that we are approaching the trough in those two markets. The comps will be easier for those two.
Masih Yazdi: I think the goodwill write-down in Germany and not doing the same thing in the UK gives some indication as well that in Germany, we probably have a larger structural challenge to grow, whereas in the UK, we believe that this is more cyclical and in the long term, we have a plan and we have more conviction that that market can grow. What a net effect of all of this is, we will have to come back with. But in terms of the overall development, it is difficult to see that it is going to be as negative as this year as, again, it is driven largely by two markets where we have seen most of the headwinds already, and it is difficult to see that those headwinds continue into 2027.
Patrik Brattelius: Okay. Fair enough. Thank you so much.
Operator: The next question comes from Björn Olsson from SEB. Please go ahead.
Björn Olsson: Hi, guys. First, if we just extrapolated basically your baseline growth trajectory from here with the SEK 11 billion targets for 2027, how should we view the servicing margin impact then? I understand that it is moving parts, but still, from your baseline perspective, are you defending the margin or do you expect it to pick up?
Masih Yazdi: Well, if you look at this year, we have had a clearly worse development on the servicing top line than we expected. Despite that, we have been able to keep the margin largely flat. It is actually marginally up quarter despite this negative organic growth. Obviously, going into next year, we do not expect the organic growth to be as negative as it is now. Simultaneously, we are accelerating the cost reductions. In terms of our expectations, that dynamic should lead to the margin going up. Obviously, overall, it is the combination of the margin and the income you generate that is most important. You can always defend a high margin, but if your income is coming down simultaneously, you are just generating less cash flows. Obviously, we want to see an improvement of the margin simultaneously as the income improves.
Masih Yazdi: Overall, I would say that our expectation is that the margin will go up next year as the cost reduction should be larger than any downside risk we have on the income side.
Björn Olsson: Okay, that is clear. Then just second. You hinted that you, in Q3, had roughly SEK 150 million in redundancy costs and that this will be higher in Q4. Could you give any
Björn Olsson: Any flavor of the size in Q4?
Masih Yazdi: Well, as we say in the presentation, we are working on the plan. It is not finalized yet, and it is going to be finalized in December when it is approved by the board. As long as that is not the case, we cannot give you a firm number. I think I can say at this point it will be clearly higher than what we had in Q3. We just started the work, and we have been able to take the restructuring that we have already identified. There will be more of that coming in Q4. You will have to wait until that report before you see the full disclosure of that number.
Björn Olsson: Fair enough. Thanks.
Masih Yazdi: Of course.
Operator: The next question comes from Johan Ekblom from UBS. Please go ahead.
Johan Ekblom: Thank you. The first question is really thinking around leverage and your refinancing plans. It has been a difficult market over the last two or three months, and we have seen significant increase in high yield credit spreads, et cetera. How has this impacted how you think about the refinancing? I guess there is relatively little left for 2027, but when you think about the optionality you have and timing of dealing with the 2028s, et cetera, maybe if you can talk a little bit about that. The second question would be around Spain specifically. There have been some press stories that you are looking to potentially sell the majority of your Spanish business. Q1, do you have any comment to that? Then just if I could bring that back to, I think Masih said in Q2 that the Spanish business is significantly less profitable than the servicing business overall.
Johan Ekblom: Is that still a valid comment or did I misremember that?
Johan Åkerblom: Yeah. Hi, Johan. I will have Masih start on the first one and then I will take the second.
Masih Yazdi: Yep. So on the leverage and the refinancing, you are right. The market has clearly become more negative over the last couple of months. I think one positive aspect of that is that we did refinancing in July when the market still was strong, and we were able to refinance the one and a half lien bonds that we had maturing in 2027 at sufficiently good levels. In the market we have today, there are very few high yield issuers that go out in the market, and you have that over the course of a year that happens a couple of times, so you have to be prepared for the market not being really open to you. I will just repeat what we have said about the refinancing. We have a bond maturing in 2027 that is about €190 million.
Masih Yazdi: We have liquidity to cover that, we will do that when that comes due, we will not refinance that. The next refinancing need we have is for 2028, so that is almost 2 years away. We are working on that refinancing. We have said in the past that the RCF we have will be materially smaller when we refinance it, we will make up for the shortfall of the small RCF by issuing bonds. The market we have now is not a market where we will do that in. Irrespective of what plans we could have had in the past, it is not a market we will refinance in because the financial cost of that will be too large.
Masih Yazdi: Typically what happens is that you have these kind of episodes in a year, couple of months with a very sort of lukewarm market with less activity, you have to be patient and wait for the market to recover and become better. The aim for us is to refinance before the RCF and the bond in 2028 becoming current, which is by next summer. We feel that we have at least time until then to finalize that refinancing. Obviously it is difficult to see that the market will be the way it is now for another 9 months. Hopefully we will be in a better market at that point. We have a plan, if we look at it now, that will help us delever in the next couple of quarters. We think that we have an organic plan that will enable that.
Masih Yazdi: Hopefully both the market will be better, we will also be in a better position as a company to refinance when that comes due.
Johan Ekblom: Is there anything preventing you from buying back 2028 bonds at a discount?
Masih Yazdi: No, there is nothing preventing us from doing that. We can do tenders. We can buy back bonds, 2028, 2029, and 2030s. We are obviously looking at that. We mentioned that we did that in Q3, during Q3, and we are looking into doing that as well. There are no decisions being made on if we buy and how much we buy and what bonds we buy. We need to manage that together with the liquidity need we have. I think what has changed marginally since we did the last tender, spreads are wider, so it is cheaper to buy back. But simultaneously, we have seen more activity on the investment side than we expected back then. Then it is a balance between having liquidity to do those investments and the returns you can expect on those investments, and then the returns you can expect on buyback bonds.
Masih Yazdi: Obviously we keep looking at this, and we will be optimistic in what we choose, but I think the change really is that we see a bigger potential to invest more than we expected a few months ago.
Johan Åkerblom: Okay. Then on the second one, which is around Spain. There will always be rumors in the market. In general, we do not comment on the rumors. I think we said before that we have an organic plan, and the organic plan is our base case. Then obviously if things happen where we can extract value as we have done, for example with the sale of the Orange portfolio, the back that we sold to Brocc, we will obviously explore it. You are right, the Spanish servicing market has in general a lower margin than the average margin we have in servicing overall.
Johan Ekblom: Thank you.
Operator: The next question comes from Ermin Keric from DNB Carnegie. Please go ahead.
Ermin Keric: Good morning. If we start on the cost execution, it looks like you are talking about it taking about one year to execute, and you are talking about SEK 11 billion of full-year costs for next year. What do you expect the run rate to be by the end of 2027 then?
Masih Yazdi: Hi, Erman. The run rate approaching SEK 11 billion, given the fact that is the average level for next year. The run rate by the end of the year should be lower. It gives us a good fundament to move into 2028 with a good cost trajectory. Exactly what the run rate will be, I cannot say at this point. As we said, we are working on the plans, and we have not finalized those yet. I think a good assumption is that we will move into 2028 roughly having around 1,000 fewer FTEs than we have today.
Ermin Keric: Got it. Thanks. On the organic development, you are talking about increase in sales capacity. I think you talked about 30%. How long lead times
Johan Åkerblom: Yeah
Ermin Keric: do you expect for that to actually come to any fruition that is visible in the top line?
Johan Åkerblom: We assume if you hire someone on the new sales side, it usually takes between 6 and 12 months, depending on first of all, their experience, their network. It also a little bit dependent on the outside factors, like are there big tenders in the market? It is not only dependent on our internal capacity, it is also depending on the demand in the market and the cadence and the pace of bigger servicing contracts being out there.
Ermin Keric: Got it. Lastly, you touched upon it a little bit already, but could you discuss a little bit more on your thinking between the balance, doing bond buybacks and investments of new portfolios. If you see the 17% IRR currently, how much more can debt come down before you feel that it is not really worthwhile given where your incremental funding costs are right now if we just look at market pricing?
Johan Åkerblom: You are right. It is a balancing act. It is a balancing act between the returns we get and what we can get in terms of buyback bonds. Then it depends on what kind of investments we are doing. Again, we can always invest on our own book or we can co-invest together with Brocc, and if we co-invest, we get servicing revenues as well, which gives you an uptick on the IRR. It is not a clear science around it. We have said that we will invest only when it is sufficiently above the funding cost that we have.
Johan Åkerblom: That still holds. We will try to find to strike a balance so we will not invest at a pace that does not allow us to take debt down nominally. That is something we want to do quarter by quarter to reduce the debt in absolute terms, but also reducing the leverage.
Johan Åkerblom: But at the same time, we want to keep the investment pace at a sufficiently high level for the investment income to not be a large headwind for us. But again, it is not scientific in the sense that we know the exact number. It depends on what kind of investments we are doing, what kind of servicing revenues that also can generate, but obviously on where our bond is trading as well. So the balance will be reduce debt, improve leverage, but also have as little headwind on the investment income as possible.
Ermin Keric: Fair enough. Thank you very much.
Operator: As a reminder, if you wish to ask a question, please dial pound key 5 on your telephone keypad. The next question comes from Shamir Shah from Citigroup. Please go ahead.
Shamir Shah: Hi there. Thanks for the question. Just go back to the specific point on the debt side and your plan for refi-ing the RCF. Just in terms of potential timing for any future tenders, can you just confirm that you could launch whenever you wanted based on when you see the best use of capital? The second question is specific point in the new bond that you issued, which is the 2031 1.5 lien, you have the concept of an incurrence ratio test. My understanding is that so long as the current second lien debt remains outstanding, you cannot make use of that 3.5x ratio. So can you advise of the plan on how you can incur that incremental debt to help with the lower RCF size? Thanks.
Masih Yazdi: Thanks, Shamir. Your sound was pretty low, so I am not sure if I caught everything you said. On the RCF refinancing potential tenders, I think the only sort of balancing act there is that the more tenders we do, the less liquidity we would have, and therefore that would put a limit on how much we could reduce the RCF when we have a new RCF in place. We have to find that balance there. That is what we are thinking about. Right now, the planning scenario is that the RCF will be probably less than half than the current RCF. Then we need to think about then how much liquidity do we need to enable that, and how large of a bond do we need to issue when we reduce the RCF to half of the current level. That is the balancing act we have in mind.
Masih Yazdi: Other than that, I cannot really comment on it. On the 2031 bond that we issued, when our leverage is below 3.5 times, we can issue new bonds. Any outstanding bonds that we have today on the second lien layer, we can refinance that on the 1.5 lien layer. That is correct. I am not sure if that answered your question, but there is no limitation on us doing that if the leverage is below 3.5 times.
Shamir Shah: But just to be clear, that has to be your total leverage, not just 1.5 lien leverage.
Masih Yazdi: Yes, that is the total leverage.
Shamir Shah: Fine. As of today, you couldn't incur more 1.5 lien debt to refi the second liens.
Masih Yazdi: Exactly.
Shamir Shah: Okay, thanks.
Operator: The next question comes from Robert Dynnek from DNB Carnegie. Please go ahead.
Robert Dinic: Good morning, guys, and thank you for taking my question. Just one from me, and it's that one of your large servicing peers has stated that they will target some of your tenders, specifically Intesa Sanpaolo and Piraeus over the coming few years. My question is, how have you accounted for these sort of large tenders in your business plan? Have you assumed that you win them? If yes, at what margin compared to today? Thank you.
Johan Åkerblom: I think we know what you are referring to. First of all, some of those contracts have already been prolonged, so they are not even on the market. Secondly, we take a probability approach on any big contracts and how we can roll them over. At the same time, we also take a realistic approach on what margin we can assume. Some of those contracts have very healthy margins. Some of those contracts have very unhealthy margins. It is a pretty mixed bag of opportunities.
Robert Dinic: Thank you. Maybe just one final question. On the 1.5 lien, the refi, is there any limitation in the second lien docs in your understanding for doing new 1.5 lien bonds?
Masih Yazdi: Yeah, there is limitation, as we said before. We can only do it if the leverage is below 3.5x. Overall, indeed, for the second liens, you have to ask for consent to put anything in front of them. That is the limitation, yeah.
Robert Dinic: Understood. Thank you.
Operator: There are no more questions at this time. I hand the conference back to the speakers for any closing comments.
Johan Åkerblom: Thank you for listening. Thank you for taking the time. Thank you for the questions. We will speak again when we report our Q4 numbers in January, if I am not mistaken. No, actually, I think it is February. Sorry. It is the beginning of February. Have a great day, everyone. Thank you, and bye.
Operator: The host has ended this call. Goodbye.
