Q3 2019 5 November, 2019 - Helping people keep their commitments - Hoist Finance

 
Q3 2019 5 November, 2019 - Helping people keep their commitments - Hoist Finance
Q3 2019

5 November, 2019

Helping people keep their commitments
Q3 2019 5 November, 2019 - Helping people keep their commitments - Hoist Finance
Today’s presenters

                     Klaus-Anders    Christer
                       Nysteen      Johansson
                         CEO           CFO

                                                2
Q3 2019 5 November, 2019 - Helping people keep their commitments - Hoist Finance
AGENDA

 1   Key highlights Q3

 2   Financial update

 3   Capital, funding and liquidity

 4   Summary

 5   Appendix

                                      3
Q3 2019 5 November, 2019 - Helping people keep their commitments - Hoist Finance
Strategic focus in Q3

 Q3 highlights                                                            Implementing strategy

 1. Underlying performance on par with previous quarters this year
 2. Executing on our strategy. Key achievements:                                       • Site consolidation in France
       • Firm commitment on first rated securitisation                                 • Targeting 80 FTEs in shared services
       • Decisive steps taken to become more efficient
       • Great progress in digital
 3. Strong balance sheet, and ready for growth in Q4                                   • Outsourcing IT infrastructure
                                                                                       • Live-testing digital solutions

 Key Performance
                                                                                       • Committment for rated securitisation
 • EBT* at SEK 194m
                                                                                       • Expected investment-grade rating
 • Collection performance at 101%
 • Cost-to-income* at 73%
 • Return on Equity (RoE)* at 15%
                                                                                       • Well capitalised for growth in Q4
 • Strengthened capital ratios, CET1 ratio at 10,3%

                         *Excluding Items Affecting Comparability (IAC)                                                         4
Q3 2019 5 November, 2019 - Helping people keep their commitments - Hoist Finance
Site consolidation continues

 • Positive outlook on French market, with
   growth across all asset classes

 • Bayonne site closed to improve efficiency

 • ~30 FTEs affected
                                                        Lille
 • Streamlined organisation with specialisation
     •   Lille – Unsecured NPLs                         Paris
     •   Paris – Secured NPLs

 • Strong pickup in digital collections           Bayonne
     •   10% since self-service launch in March

                                                                5
Q3 2019 5 November, 2019 - Helping people keep their commitments - Hoist Finance
Expansion in shared services

                                       Shared Service Centre                             Nearshoring Centre
                                             (Poland)                                        (Romania)

                               Accounting, IT, People, Legal, Tax, Risk,
   Types of services                                                           Back office, call centre activities
                               Internal Audit, Business Control

                                                                           •   Initial presence through acquisition of
                                                                               servicing entity Maran, which includes
                           •   Multiple markets transferring services          ~80 FTEs in Romania
   Current focus           •   Targeting ~65 FTEs by year-end              •   Adding capacity to service multiple
                                                                               markets, targeting additional ~30 FTEs
                           •   Cost benefit vs all markets                     by Q1-20
                                                                           •   Significant cost benefit

      Shared service to leverage scale and maximise skills, enabling us to work in a more effective and efficient way

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Q3 2019 5 November, 2019 - Helping people keep their commitments - Hoist Finance
Important step in becoming the digital leader
•   Larsen & Toubro Infotech Ltd (“LTI”) new IT        •      One of the Largest IT Companies in the Nordics
    infrastructure outsourcing partner
                                                       •      28,000 consultants worldwide
•   Ready to scale in the ambition to become the
    market leader                                      •      10 Delivery Centres situated in Europe, Poland & Nordics

•   Immediate access to experienced team in the        •      Deep domain experience in Core Banking, Payments,
    financial industry                                        Asset mgmt., Risk and Compliance

•   Current team of ~60 resources directly affected

•   Setup adds significant contribution to reach the
    2021 cost-to-income target

                                                           LTI wins ZEE Business National CSR Leadership Award for Innovations in CSR practices (Sept, 2019)
                                                                                                                                                               7
Q3 2019 5 November, 2019 - Helping people keep their commitments - Hoist Finance
Live-testing digital solutions

        WhatsApp for Business
   •   The largest messaging platform with over 1.4 billion users worldwide

   •   Traditionally used for personal use, but expanded to small business in early 2018

   •   Adopted widely by customers to replace SMS

        Rich Communication Services (RCS)
   •   RCS is a technology developed in conjunction with Google aimed to replace SMS as
       a new “Over-the-Top” messaging service

   •   Participation in the Early Access programme

   •   Outreach to all android devices in September 2019

   •   Android has 75% of the mobile device market in Europe

                                                                                           8
Q3 2019 5 November, 2019 - Helping people keep their commitments - Hoist Finance
On track to implement a sustainable business model

                                                                       Rated securitisation transaction
                                                                       •   Portfolio size: EUR337m

                                                                       •   Senior tranche: 85%
                Portfolio
                                                        Rated senior   •   Expected investment grade rating
                                                          tranche
                                         Rated senior
                                           tranche
                                                        Retained by
                                                                       •   Coupon on senior tranche: 1.8%
                             Selected                      Hoist
Hoist Finance   Purchase
                  price
                             portfolio                                 •   IRR on subordinated tranche: 15%

                                                                       •   Commitment from CarVal Investors, LP to close in Q4

                                                                       •   Further strengthens CET1 capital
                 Servicing
                agreement                               Mezzanine
                                         Subordinated
                                           tranche
                                                          Junior

                                                                                                                                 9
Well positioned ahead of seasonally strong Q4
Acquisition volumes, SEK billion

10

 9                                                                         Key takeaways
 8
                                                                       •   Positive trends across
 7
                                                                           multiple markets, for all
                                                                           asset classes
 6
                                                                       •   Market dynamics continue
 5                                                                         to support margin
                                                                           improvement
 4
                                                                       •   Strengthened capitalisation
 3                                                                         enables continued growth

 2                                                                     •   Q4 seasonally strong as
                                                                           banks focus on balance
 1                                                                         sheet management at year-
                                                                           end
 0
             2016                  2017             2018        2019
                                          Q1   Q2   Q3     Q4

                                                                                                         10
Attractive markets conditions throughout Europe

                                  • Renewed government guarantee systems (GACS)
Italy                             • Increasing sales of UtP loans & secondary market
                                    transactions

UK                                • Steady pipeline but some Brexit uncertainty

Poland                            • Favourable competitive dynamics post-GetBack

Germany                           • Stable and mature

France                            • Significant growth in the secured NPL market

Spain                             • Remains one of the most competitive markets

Benelux                           • Banks remain reluctant to sell but margins remain healthy

Greece                            • Deconsolidation and securitisation transactions prevalent

          SOURCE: Hoist Finance internal data                                                   11
AGENDA

 1   Key highlights Q3

 2   Financial update

 3   Capital, funding and liquidity

 4   Summary

 5   Appendix

                                      12
EBT suppressed short-term due to strategic initiatives
SEKm                                           Q3 2019   Q2 2019   Q1 2019   Q3 2018   Change

Interest income acq loan portfolios              836       848       810       718      16%
                                                                                                Key takeaways
Interest expense                                -138      -105      -104       -93      48%     •   Size of NPL book unchanged, with
Net interest income                              696       746       706       622      12%
                                                                                                    margins ~0.5% higher on new
                                                                                                    acquisitions, ’19 vs ‘18
Impairment gains and losses                      12        35        51        51       -76%
                                                                                                •   ~30 SEKm in additional interest expense
Net result from financial transactions           -45       -18       -16       40       N/A
                                                                                                    vs previous quarters, equally split
Total operating income                           698       797       774       731      -5%         between deposits and securitisation
Total operating expenses                        -568      -571      -561      -499      14%
                                                                                                •   Collection performance at 101%,
Net operating profit                             130       226       213       232      -44%        including -2% impact from Spain

Profit from participations in joint ventures     16         4        13        11       43%     •   31 SEKm negative impact from interest
                                                                                                    rate hedging, offset by lower future
Profit before tax                                146       230       226       243      -40%
                                                                                                    funding cost

Ratios                                         Q3 2019   Q2 2019   Q1 2019   Q3 2018   Change   •   Favourable underlying cost development,
                                                                                                    but accruing 33 SEKm for restructuring in
Return on Equity, %                              12        16        17        20       -8 pp       France and within IT-outsourcing
C/I ratio, %                                     80        71        71        67      13 pp

                                                                                                                                                13
EBT suppressed by strategic initiatives beneficial in the long-term
 SEK million
                   226                                 230

                                                                                                                                                                                    210

                                                                                                                                                                    16
                                                                                                                                           194

                                                                                                                   47

                                                                                         146

                 Q1-19 EBT                         Q2-19 EBT                            Q3-19              Restructuring*            EBT adjusted            Hedge effects      Underlying EBT
                                                                                                                                       for IAC                  related to
                                                                                                                                                              flattening of
                                                                                                                                                               yield curve

Cost-to-income     71%                                 71%                               80%                                              73%                                       72%

                    *Restructuring charges in connection with closure of Bayonne site, outsourcing of IT and realized loss in connection with adopting updated hedging models
                                                                                                                                                                                                 14
Financial summary, adjusted for Items Affecting Comparability (IAC)
SEKm                                                  Q3 2019            Q2 2019           Q1 2019              Q3 2018            Change

Interest income acq loan portfolios                       836                848               810                 718                16%
                                                                                                                                                              Key takeaways
Interest expense                                          -138              -105              -104                  -93               48%                      •     Q3 2018 adjusted for modification gain
Net interest income                                       696                746               706                 622                12%
                                                                                                                                                                     in connection with repurchase of senior
                                                                                                                                                                     bonds
Impairment gains and losses                                12                 35                51                  51               -76%
                                                                                                                                                               •     No items affecting comparability in Q1
Net result from financial transactions                    -31*               -18               -16                  -2*             >100%
                                                                                                                                                                     and Q2 2019
Total operating income                                   712*                797               774                 689*                3%
                                                                                                                                                               •     Q3 2019 adjusted for restructuring
Total operating expenses                                 -534*              -571              -561                 -499                7%
                                                                                                                                                                     charges
Net operating profit                                     178*                226               213                 191*               -7%

Profit from participations in joint ventures               16                  4                13                  11                43%

Profit before tax                                        194*                230               226                 202*               -4%

Ratios                                                Q3 2019            Q2 2019           Q1 2019              Q3 2018            Change

Return on Equity, %                                       15*                 16                17                 16*               -1 pp

C/I ratio, %                                              73*                 71                71                 71*                2 pp

                                  *Items affecting comparability (IAC) in Q3-18 refer to a modification gain taken up as income in conjunction with repurchase of senior bonds (42 SEKm). For Q3-19 IAC consists of restructuring charges in connection
                                  with closure of Bayonne site (24 SEKm), staff-related costs in connection with outsourcing of IT (7 SEKm) and realized loss in connection with adopting updated hedging models (15 SEKm).
                                                                                                                                                                                                                                                          15
Major strategic steps in Q3
 Cash-to-achieve until 2021                                  Run rate expected financial impact 2021
 SEKm                                                        Decreased cost in SEKm
                                                   200-250
      French site consolidation
      IT infrastructure outsourcing                             Collection excellence                  ~100
      Pre-Q3 initiatives

                                                                Digitization of
                                                                                                              ~50
                                                                customer interface

                                                                Collections analytics                               ~50

                                                     24
                                                      7         Indirect cost/
                                                                Organization                                              ~100
                                                     49

   Investments in      Site optimisation   Other    Total
                                                             Total                       55      45 10                    300
  IT infrastructure,   and near-shoring
   digitization and
       analytics

                                                                                                                          16
Reduction in market rates comes at a cost which is offset over time

                                   Average offered interest rate – Hoist deposits
•   Interest rate risk is hedged
    for business and capital        1,8%
    reasons                         1,6%

•   Hedging EUR, GBP and PLN        1,4%                                                                     At constant
    rates, with average             1,2%                                                                     volumes, Q3
    duration 2.5 year               1,0%                                                                     changes in offered
                                                                                                             rates translate into
•   +/- 10 bps movement of          0,8%
    yield curves translates into                                                                             at least 15 SEKm
                                    0,6%                                                                     reduction of
    ca +/- 9 SEKm change in
                                    0,4%                                                                     annualized future
    value of IRS instruments
                                    0,2%                                                                     funding cost
•   Q3 2019 includes -16 SEKm
    from interest rate hedging      0,0%
                                            2019-06-01   2019-07-01   2019-08-01   2019-09-01   2019-10-01
                                             June          July        Aug         Sept           Oct
                                        Floating deposits (Sweden)             Fixed deposits (Sweden)
                                        Floating deposits (Germany)            Fixed deposits (Germany)

                                                                                                                              17
AGENDA

 1   Key highlights Q3

 2   Financial update

 3   Capital, funding and liquidity

 4   Summary

 5   Appendix

                                      18
Capital and liquidity position

 Q3 2019 Capitalisation, %                             Capital ratios, %                                         Liquidity reserve, SEKm

                                                                31 Dec 2018             30 Sep 2019                       31 Dec 2018   30 Sep 2019

                                                                                                        14,9%
                                                                                               14,1%
 11,9%
                      CET1-target range                                               12,3%
                                            10,3%                             11,7%
 9,9%
                            2,2%                                  10,3%
           8,1%                                          9,7%
                                                                                                                                        12 836

                                                                                                                           7 399

         Regulatory     Margin above      CET1-ratio    Common Equity             Tier 1            Total
           capital         capital                     Tier 1 capital ratio    capital ratio     capital ratio
        requirement     requirement

                                                                                                                                                      19
Active shift to reduce balance sheet risk
Distribution of deposits

                                                                              Key takeaways

                                                                          •   Gradual shift in the last
                                                                  42%
                                                          52%
                                                                              year to reduce interest
                           65%
                                         60%                                  rate risk
          69%
                                                                          •   Arrived at the targeted
                                                                              mix – no desire or need to
                                                                              move beyond current
                                                                              level
                                                                  58%
                                                          48%             •   Best-in-class funding rates
                                         40%
          31%              35%                                                across durations
                                                                              − Floating at 0.45-0.60%
                                                                              − Fixed Sweden: 3 years at 1.75%
                                                                              − Fixed Germany: 5 years 1.50%
          Q3-18            Q4-18     Q1-19                Q2-19   Q3-19

                                   Fix         Floating

                                                                                                                 20
Funding rate remains highly competitive
   Funding excluding equity and AT1-capital, SEKbn
                                                                                                                                                    Key takeaways

      35
              1,80%                                                                                                     1,63%            2,0%   •   Continuous growth in retail
                                                                                                                                         1,8%       deposits during the quarter,
      30                                                                                                                                            where senior unsecured
                                                                                                                                         1,6%
      25
                                                                                                                                                    remained constant (excluding
                                                                                                                                         1,4%
                                                                                                                                                    effects from securitisation)
                                                                                                                                         1,2%
      20
                                                                                                                                         1,0%   •   The successful securitisation
      15
                                                                                                                                         0,8%       improved capital ratios but
                                                                                                                                         0,6%
                                                                                                                                                    results in slightly higher cost
      10
                                                                                                                                                    of funding
                                                                                                                                         0,4%
       5
                                                                                                                                         0,2%   •   Oversized liquidity reserve
       0                                                                                                                                 0,0%       had a negative effect on the
             Q1-17   Q2-17     Q3 -17 Q4 -17             Q1-18        Q2-18   Q3-18      Q4-18        Q1-19      Q2-19        Q3-19                 Interest expense in relation
                             Deposits                                          Senior unsecured debt (excluding securitisation)                     to book value
                             Senior unsecured debt (securitisation)            Subordinated liabilities
                             Commercial Paper                                  Average cost of funding, %

Interest
expense/     2,4%     2,6%        2,1%        2,1%         1,9%        1,9%    2,0%        2,1%           2,0%     1,9%           2,5%
Book value

                                                                                                                                                                                      21
Implementing a sustainable business model

Weighted average cost of debt                                                                                    RoE of securitisation
•   Cost of funding does increase somewhat but still very attractive                                              •      Securitisation structures seen as consistent with NPL backstop
    versus high yield funded competitors                                                                                 regulation
      •   Majority of competitors fund at cost in excess of the rated                                             •      More efficient from a capital perspective
          securitisation (currently around 4 - 6.5%)                                                              •      Supporting attractive RoE development
•   Given this transaction is the first of its kind, Hoist expects further
    efficiencies with potentially further improved terms from future
    transactions
                                                                                                                  Unsecured risk weights as % of acquired NPLs(1)

                                                                         4%                                                          150%

                                                                                                                                                                          80-105%
                                                                                                                                                                           92,50%
                   2%

                 Current                                        Rated securitisation
                                                                                                                                    Current                          Rated securitisation

                           1) For rated securitization it depends on weighted average life and rating; includes 5% retention
                                                                                                                                                                                            22
AGENDA

 1   Key highlights Q3

 2   Financial update

 3   Capital, funding and liquidity

 4   Summary

 5   Appendix

                                      23
Outlook and today’s key takeaways

Attractive market conditions
•   Well positioned for a seasonally strong fourth quarter
•   Strong pipeline across a number of markets and asset classes
•   Continued margin improvements

Delivering on our strategy
•   Delivering on strategic agenda
•   Implementing a sustainable post NPL backstop business model
•   Becoming the digital leader in our industry

                                                                   24
AGENDA

 1   Key highlights Q3

 2   Financial update

 3   Capital, funding and liquidity

 4   Summary

 5   Appendix

                                      25
Investor Relations
Most recent stock recommendations                                      Selected Investor Relations
Date                 Institution    Recommendation   TP
                                                                       events in 2019
2019-10-30           Citi           Neutral          54
2019-10-11           Nordea         Hold             n/a on hold   •   Geneva & Paris, November 7-8
2019-10-11           Pareto         Hold             55            •   Oslo, November 15
2019-10-07           SEB            Buy              68            •   Brussels/Amsterdam, December 2
                                                                   •   USA/Canada, December 4-6
                                                                   •   Goldman Sachs Annual Credit Mgmt Day,
Recommendations                                                        December 11
                                      3

                     1
                                                      0

                    Buy             Hold             Sell              For more information:
                                                                       Web: ir.hoistfinance.com/en
Analyst coverage
Institution                         Analyst
                                                                       Head of Investor Relations:
Citi Investment Research            Borja Ramirez
                                                                       Andreas Lindblom
Nordea Markets                      Ermin Keric
                                                                       andreas.lindblom@hoistfinance.com
Pareto Securities                   Vegard Toverud
                                                                       +46 (0)72 506 14 22
SEB                                 Ramil Koria

                                                                                                               26
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applicable to companies listed on Nasdaq Stockholm. The Information has not been independently verified and will not be updated. Unless otherwise
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