Investor Day March 21 st, 2013
Today s Agenda 08:30 Welcome & Introduction 08:45 Overview and Group Strategy Continued implementation of our strategic journey, The Intrum Way 09:30 Purchased Debt Stable growth and cash-flow generation from a well diversified portfolio 10:30 Intrum Justitia Finance Completing the service offering value chain for long-term growth acceleration 11:10 Risk Management Industrializing leading risk management best practices 11:30 Regional Perspectives Panel discussion with Regional Managing Directors 12:15 Financial Review Introducing new financial targets reflecting our strategy and outlook 2(22)
Overview and Group Strategy Continued implementation of our strategic journey, The Intrum Way Investor Day, March 21 st 2013
This is Intrum Justitia Market leader One of top five Other Intrum Justitia is a company offering credit management, risk reduction and financial services Services include payment services, collection services and purchase of overdue receivables A credit management market leader in most of the 20 European countries where Intrum Justitia is present Facts & Figures: Revenues, FY 2012: SEK 4.1 billion No of employees, Dec 31 2012: 3 485 Market cap, March 1, 2013: SEK 9,4 billion 5(22)
Service offering based on client payment value chain Client process Sales and marketing Payment administration Collection Credit management services Credit Optimization Services Payment services Debt collection services Financial Services Financing services Payment guarantee Purchasing of receivables Client needs Top line growth Financing needs Focus on core business Minimize credit losses Increased cash flow Improved operating profit Value proposition Credit decisions and purchase of invoices Efficient and secured revenue streams Effective collections or sale of recievables 6(22)
Market characteristics and positioning CMS Market trend highlights Success rate has become a key criteria for clients choosing their CMS partner, ahead of or equally important as price Legal collections increase in importance Customers increasingly factor in reputation and alignment to international standards PD Growing acceptance among current and potential sellers for realizing cash-flow from sales of NPL New financial services Online sales in Europe expected to grow at double-digit levels per year - with a strong consumer pull for pay-after payment methods Intrum Justitia s positioning Strong hybrid model, based on solid synergies between PD and CMS Full service provider of credit management services, flexibility to provide both integrated tailored solutions as well as standardized packages Experts in the local market, with the backing of one large multinational CMS company Strong, trusted brand, both from customer and debtor perspective 7(22) Clients increasingly partner with suppliers who can offer a full range of services, which we are well positioned for
Client base key characteristics About 75 000 corporate clients From SMEs to large multinationals Low client dependence Vast majority with B2C focus For Intrum Justitia s Credit Management business, key characteristics include: High loyalty/recurring revenues Key industries include telcos, utilities, financials and medical Increasingly, clients request a full value chain solution For Intrum Jutitias s Purchased Debt business, key characteristics include: Large amount of sellers, often clients of the CMS business and/or long-term PD relationships Large amount of portfolios, spread across geographies and industry segments Debtors are made up of large, homogenous base of consumers Average debtor receivable has a low nominal value, significantly overdue 8(22)
Competitive advantages - Our CMS business implies four sustainable advantages Extensive information database Deep understanding of payment behavior - right action / right time Ability to price purchased debt portfolios efficiently Strong, embedded brand Client confidence - a trusted partner in providing CMS services Debtor behavior seen as providing fair and just treatment Embedded throughout our value chain Local market leadership Payment behavior characteristics Expertise in local legal systems Pricing power Economies of scale Common development of services and IT Group-wide roll-out of Operational Excellence initiatives 9(22)
The Intrum Way Journey: taking us from a debt collection powerhouse to a full service provider in credit management and financial services Our aim: Establish Intrum Justitia as a full service provider in credit management and financial services, built on our market leading debt collection business Our service foundation is our debt collection business The debt collection operations provides a range of competitive advantages for service extensions In order to achieve this, we will: Maintain our position as the European market leader in debt collection Expand our service offering Strengthen our organizational capabilities Ensure operational excellence in everything we do Capture scale advantages, utilizing our size and presence Service expansion Value-added CMS services, e.g. credit decisions Sustainable competitive advantage Service foundation Pre-default financing services, e.g. Factoring Customer (debtor) situation & behaviour Service integration Brand and client confidence State of the art debt collection services Post-default financing services, e.g. PD 10(22) We have come a long way on our journey we are now moving into the next phase of Intrum Way
Intrum Way: a recap of 2008-2012 Improvement highlights 2008-2012 5 year performance Broadened base for recurring PD investments Addressed many under-performing units, through divestments or transformation Successfully implemented opex initiatives towards creating one company, e.g. implementation of best practice legal collections Considerable organizational and management changes Continuous improvement in CMS collection productivity From 2008 to 2012: 47% EPS growth (adj for fx and PD revaluations) Cash flow from operations has increased from 1.3 to 2 bln SEK Annual PD investments up by 2x 9% CAGR in dividends Established solid financial situation 11(22) Established platforms for roll-out of new financial services
Intrum Way looking ahead: Continuing our journey, with an increased focus on an established strategy Focus strategies Service expansion Value-added CMS services, e.g. credit decisions Pre-default financing services, e.g. Factoring Post-default financing services, e.g. PD Strengthen CMS collection productivity through group and regional efforts Continued PD investment growth Sustainable competitive advantage Customer (debtor) situation & behaviour Service integration Brand and client confidence Accelerate launch of new financial services Service foundation State of the art debt collection services Reinforce our Risk Management practice Reinforce healthy credit behavior in society 12(22)
Strengthen CMS collection productivity through group and regional efforts Service expansion Value-added CMS Pre-default Post-default services, e.g. credit financing services, financing services, decisions e.g. Factoring e.g. PD Sustainable competitive advantage Customer (debtor) situation & behaviour Service integration Brand and client confidence Service foundation State of the art debt collection services Focus strategies Strengthen CMS collection productivity through group and regional efforts Continued PD investment growth Accelerate launch of new financial services Reinforce our Risk Management practice Reinforce healthy credit behavior in society We will further improve our capabilities in scoring across the entire client value chain We will continue to increase our legal collection activities and investments, cascading our success in Northern Europe to other markets Further roll-out of other group initiatives to strengthen operational efficiency and creating one company in areas such as IT, Branding, HR and many other areas 13(22)
Accuracy in case treatment 14(17) Our strategy Intrum Justitia AB 2011. All rights reserved. Strengthen operational efficiency through group and regional efforts We will further improve our capabilities in scoring across the entire CMS client value chain Advantages of scoring We will further improve our capabilities in scoring across the entire client value chain - optimising what we do, and how we do it We will continue to increase our legal collection activities and investments, cascading our success in Northern Europe to other IJ markets In addition to scoring and legal, we continuously identify and improve areas where we can benefit from our size and reach, for example in IT High Portfolio Statistical scoring Scoring based segmentation and classification of cases. Segment and scoring-based collection strategies and action networks High Portfolio Judgement based segmentation Bucket based segmentation Specific activities per bucket based upon industry knowledge and empirical methods PD & CMS EBIT No segmentation Portfolio No segmentation Same treatment for all cases Low Low 14(22) Improved CMS operations through right activity / right time Increased PD sourcing competitiveness
14(17) Our strategy Intrum Justitia AB 2011. All rights reserved. Strengthen operational efficiency through group and regional efforts We will continue to increase our legal collection activities and investments The amicable/legal collection optimization We will further improve our capabilities in scoring across the entire client value chain - optimising what we do, and how we do it We will continue to increase our legal collection activities and investments, cascading our success in Northern Europe to other IJ markets In addition to scoring and legal, we continuously identify and improve areas where we can benefit from our size and reach, for example in IT Earnings Different timing in each country and type of debt Legal Amicable Active time Too many amicable activities 15(22) Increased results through higher performance in collections Increased competitiveness in PD through better pricing
Focus strategies Service expansion Value-added CMS services, e.g. credit decisions Pre-default financing services, e.g. Factoring Post-default financing services, e.g. PD Strengthen CMS collection productivity through group and regional efforts Continued PD investment growth Continued PD investment growth Sustainable competitive advantage Customer (debtor) situation & behaviour Service integration Brand and client confidence Service foundation State of the art debt collection services Accelerate launch of new financial services Reinforce our Risk Management practice Reinforce healthy credit behavior in society Increased focus on a segmented approach in PD to increase our capabilities and efficiency in PD sourcing Maintain a healthy PD portfolio through diversification of geographies, industries, and number of sellers and portfolios 16(22)
Accelerate our launch of new Financial Services Service expansion Value-added CMS Pre-default Post-default services, e.g. credit financing services, financing services, decisions e.g. Factoring e.g. PD Sustainable competitive advantage Customer (debtor) situation & behaviour Service integration Brand and client confidence Service foundation State of the art debt collection services Focus strategies Strengthen CMS collection productivity through group and regional efforts Continued PD investment growth Accelerate launch of new financial services Reinforce our Risk Management practice Reinforce healthy credit behavior in society We will launch new financial services in the market in the early parts of the payment value chain Over time, this will contribute to a strengthened customer offering as well as volumes for our PD and CMS business 17(22)
Focus strategies Service expansion Value-added CMS services, e.g. credit decisions Pre-default financing services, e.g. Factoring Post-default financing services, e.g. PD Strengthen CMS collection productivity through group and regional efforts Continued PD investment growth Reinforce Risk Management Sustainable competitive advantage Customer (debtor) situation & behaviour Service integration Brand and client confidence Service foundation State of the art debt collection services Accelerate launch of new financial services Reinforce our Risk Management practice Reinforce healthy credit behavior in society Reach industry-leading best practice in risk management We will further improve our risk management practice, optimizing risk/return in new financial services and PD 18(22)
Focus strategies Service expansion Value-added CMS services, e.g. credit decisions Pre-default financing services, e.g. Factoring Post-default financing services, e.g. PD Strengthen CMS collection productivity through group and regional efforts Continued PD investment growth Reinforce healthy credit behavior in society Sustainable competitive advantage Customer (debtor) situation & behaviour Service integration Brand and client confidence Service foundation State of the art debt collection services Accelerate launch of new financial services Reinforce our Risk Management practice Reinforce healthy credit behavior in society We seek to influence the regulatory process for the CMS industry, promoting sound and fair European wide rules and strong business ethics We deliver market insight to the European community through our publications, e.g. the European Payment Index 19(22)
In summary We are continuing on our Intrum Way Journey, building and expanding on our market leading debt collection business Our performance in the last five years show that we are on good track Going forward, we have increased our focus in : New financial services PD Risk CMS Operational Excellence with the aim to be the leading full service provider in credit management and financial services 20(22)
Q&A 21(22)
Purchased Debt Stable growth and cash-flow generation from a well diversified portfolio Investor Day, March 21 st 2013
Agenda Introduction to Intrum Justitia s PD business model Strategy for further growth 2(12)
Purchased Debt- Our focus Unsecured Consumer Debt 3(12) Disciplined focus on the above characteristics is the key driver behind Intrum Justitia s solid PD business
Our PD Operations Set Up Local PD PD Sourcing Analysis and evaluation Negotiation Closing Sales Collections Central PD PD Pricing Valuation Analysis Forecast Analysis Risk Rating Reporting tools CMS State of the art amicable and legal collections capabilities Strong Scoring capabilities Access to potential seller base of up to 75 000 corporate customers 4(12) Combining local market expertise and operational capabilities with centralized analytical strength
Indicative Financial illustration Invested amount: 100 SEK M Gross collection 2.05 x invested amount (SEK M) Y1 Y2 Y3 Y4 Y5 Y6-Y10 Y11-Y15 Y1-Y15 Cash-flow distribution 29% 18% 12% 9% 8% 20% 4% 100% Gross collection 60 38 25 19 15 40 8 205 Amortisation * -31-17 -11-9 -7-20 -5-100 Amortisation rate (Amortisation/Gross Collection) 52% 44% 45% 46% 48% 50% 59% 49% Revenues (Gross Collection less Amortisation) 28 21 14 10 8 20 3 105 Costs ** (mainly Collection Costs) -14-11 -6-4 -3-9 -2-48 Service Line Profit 15 10 8 6 5 11 2 57 Service Line Margin 52% 49% 57% 59% 60% 57% 52% 54% Book Value, Average Balance 84 60 47 37 29 15 2 RoI, defined as Service Line Profit/ (Average Book Value) 18% 17% 17% 17% 17% 77% 75% *) The PD amortization equals the change in carrying value in each year. The change in carrying value in turn is a function of the change of the estimated present value of future collections of the portfolio, estimated as the cash-flow from Gross Collections less Collection Costs, discounted at an estimated Effective Interest Rate (IRR) **) Collection Costs are mainly commission charged from Intrum's CMS service line at arms-length prices 5(12) Cash Flow payback on investment generally 3-5 years Stable and high ROI
Market Outlook Market size and growth Price, reputation, efficiency and certainty of execution are key value drivers for portfolio sellers Stable returns in major portfolios despite competitive pricing Three main factors influencing our investment decisions are portfolio type, geography and regulatory (legal) framework. Market trends Increased pressure on banks in most countries to improve capital adequacy ratios and reduce non-performing loans Smaller companies with less access to traditional funding increasingly see PD as an alternative to improved cash flow 6(12) Intrum Justitia is well positioned in the market, with: A presence in most European markets A strong funding base
Healthy PD portfolio through diversification Different industries Different countries Large number of individual portfolios Large recurring seller base Partnership strategy for major portfolios Different portfolio types 7(12) An overall steady cash flow and return Low total portfolio risk
Stable PD business with good growth PD RoI and PD Book Value 2008-2012 PD Investments 2002-2012 SEK M SEK M 3 600 3 200 ROI RTM excl. reval PD book value 20% 2 500 2 000 2 800 2 400 15% 1 500 CAGR 07-11: 13% 2 000 1 600 1 200 800 400 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 10% 5% 0% 1 000 500 0 2014 1804 CAGR 02-06: 28% 822 870 996 872 871 1050 258 201 267 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2008 2009 2010 2011 2012 High and stable RoI - very low volatility despite significant ramp-up phase of PD investments and during a period of significant macro uncertainty Double digit increase in CAGR over the past 10 years Continued positive long-term growth outlook, although PD investment levels in individual years may fluctuate significantly up/down 8(12)
Solid cash-flow generation and performance MSEK 2000 Indicative Net Cash Flow* on PD Portfolios 1800 1600 CAGR: 18% 1400 1200 1000 800 Indicative Net Cash Flow on PD Portfolios 600 400 200 0 2008 2009 2010 2011 2012 * ) Indicative Net Cash Flow = PD Collections less PD Service Line Costs (mainly collection costs) Stable cash-flow development from highly diversified portfolio Performance on average exceeding internal forecasts 9(12)
Our PD strategy: Increased sourcing and performance through segmentation, operational efficiency and organizational capabilities Focus Expected outcome Closeness to the market Build relationships with sellers at the right level 1 Increased volumes Ability to price more competitively due to higher margins Further improved segmentation approach Further diversify sourcing models for different segments Ensure good mix of volume growth, earnings stability and return levels 2 Expert PD sourcing and deal closing abilities Improved performance Ability to price more accurately due to higher precision in data analysis Improve operational efficiency in collections Improve operational efficiency, with focus on scoring and legal collections 3 Optimised case handling with reduced cost of collection Stable, recurring returns Strengthen organizational capabilities Increase sales and analytical capacities, both locally and centrally High degree of recurring investments = high degree of recurring revenues Balanced, diversified portfolio risk and high average IRRs 10(12)
In summary Solid track record: stable RoI and fast cash flow pay-back on investments Healthy risk diversification: investments spread over many industries, geographies and portfolio-types Positive growth outlook: recurring revenues from broad base of sellers coupled with positive market outlook Clear strategy for driving future growth: Closeness to the market Further improving our segmented approach Improved CMS collection performance More efficient pricing of PD portfolios Strengthened organizational capabilities 11(12)
Intrum Justitia Finance Completing the service offering value chain for long-term growth acceleration Investor Day, March 21 st 2013 1
Agenda Introduction and description of Intrum Justitia Finance Future outlook 2(15)
Intrum Justitia Finance a new business unit Managing Director Jan Haglund 10+ years experience from Financial Services Previous positions include Country Manager for Santander Consumer Finance & Nordic Business Area Manager for Entercard 2 years with Intrum Justitia, previously Finance Director for Region Northern Europe Focused on services early in the payment value chain Separate business unit 3(15) Independent organisation to achieve speed of launch and control
Responsibility of Intrum Justitia Finance from a value chain perspective Before or at the point when an invoice falls due Client Process SALES PROCESS PAYMENT ADMINISTRATION COLLECTIONS Credit Management Services Credit Optimization Services Payment Services Collection Services Financial Services Financing Services Payment Guarantee Purchased Debt Responsibility of IJ Finance 4(15) Closing the gap in our value chain coverage
Intrum Justitia Finance service offerings Invoice purchase solution targeted at SME s Factoring Services B2B Includes administration/outsourcing and invoice purchase with and without recourse For Factoring, our target market is invoice purchase and not invoice lending Delivered with high quality at competitive pricing E-Commerce Finance Services B2C Finance services targeting needs of on-line merchants Includes Admin/outsourcing, Payment Guarantee (PG), invoice purchase and consumer finance PG is a service where we at the time of transaction issue a guarantee to our client to buy invoices X days after due date, if payment has not taken place Helping merchants increase sales without funding constraints and risk 5(15) Targeted Financial Services offering, connected to transactions and invoice-financing
Market fit Services Market Opportunity Client Needs Factoring Services Invoice Purchase expected to grow at double-digit levels on an annual basis Starting point is the highly attractive Nordic markets Potential to extend to non-nordic markets Focus on improved liquidity, reduced risk and outsourcing of administration Getting paid quickly after a sale has been made E-Commerce Finance Services Fast growing and still developing market attractive opportunity for players with the right offering Large volumes of online trade shifted towards pay later alternatives Increase merchant sales by providing pay later alternatives; Invoices & payment guarantees Provide purchasing power to the customers of our clients - revolving accounts & installments 6(15) High growth driven by both client and consumer needs
Competitive Strengths / Synergies with the Group Market Access Brand Name/Trust Strong European leader Significant base of existing clients Strong brand for B2B client acquisition Building new consumer brand Group Synergies Financial Strength Collection Effectiveness Cross-selling along the credit mgmt value chain Utilization of robust operations across the group Very strong financial position today Good ability to support relatively fast growth rates Very good collection performance Improving overall profitability 7(15) Strong potential to leverage client relationships, brand and our overall strength as a group
Current Geographical Focus - Factoring launched and operational in Sweden in 2012 - In 2013, we have launched Factoring in Finland and e-com Finance Services in The Netherlands - Ambition for a strong European presence over the next 5 years 11(15)
Regulations and prerequisites Regulatory environment differ from country to country We have the required permits for Sweden/Finland/The Netherlands/Switzerland, for the services operational as of today We have submitted an application to the Swedish FSA to receive a permit as a kreditmarknadsbolag, regulated by Finansinspektionen This permit will allow us to passport our activities to new geographies in Europe, where permits are required 12(15)
Future outlook In 2013, we will: Launch and expand offering in Sweden, Finland and The Netherlands Continue to build our business and organizational capacity as a separate unit Guidance for 2013 P&L impact: EBIT of about -40 MSEK, due to start-up losses in new markets and build-up of central costs to create platform for further European launches Our 5-year ambition focus on: Expand our service offering Continued launch into additional European markets Become a significant contributor to Intrum Justitia s overall growth SEK 1 bln revenue business in 5 years 13(15)
In summary Intrum Justitia Finance completes our offering along the payment value chain Strong synergies with current CMS and PD business Early stage launch during 2013, but with a complete set of competitive services already up and running in four countries Long-term, significant contributor to Intrum Justitia s overall growth 14(15)
www.intrum.com
Regional Perspectives Roundtable discussion with Regional Managing Directors Investor Day, March 21 st 2013
Northern Europe 49 percent of total revenues Denmark, Finland, Norway, Poland, Sweden Market position Market leader Top 5 Highlights 2012 Solid growth in PD investments Increasingly positive returns from legal collections strategy Acquisition of large bank portfolio in Poland Focus 2013 and beyond Continue to build on current momentum, particularly for PD, across the region Jan-Dec Jan-Dec Change Excl. PD Revaluations 2012 2011 % Revenues, SEKm 1979 1759 13% EBIT, SEKm 584 435 34% EBIT margin % 30% 25% 5 ppt 2(5)
Central Europe 24 percent of total revenues Austria, Germany, Hungary, Czech Rep., Slovakia, Switzerland Market position Market leader Top 5 Other Highlights 2012 Stable performance in most markets, excluding Germany Strong focus on growing Legal Collections practice with very encouraging results Disappointing development in Germany, but with strong turn-around plan initiated Jan-Dec Jan-Dec Change Excl. PD Revaluations 2012 2011 % Revenues, SEKm 948 899 5% Focus 2013 and beyond Grow PD investments Continue implementation of operational efficiency programs mainly legal and scoring Follow-through on German turn-around EBIT, SEKm 192 194-1% EBIT margin % 20% 22% -2 ppt 3(5)
Western Europe 27 percent of total revenues Belgium, France, Ireland, Italy, Netherlands, Spain, Portugal, UK Market position Market leader Top 5 Other Highlights 2012 Top-line impacted by weak macro development Strong focus on CMS cost efficiency significant savings programs implemented Acquisition of high-growth, PSP-business in Holland during Q1 key to the roll-out of Intrum Justitia Finance unit Focus 2013 and beyond Grow PD investments Continued focus on CMS cost efficiency combined with operational excellence programs for legal, scoring and IT platforms Jan-Dec Jan-Dec Change Excl. PD Revaluations 2012 2011 % Revenues, SEKm 1212 1273-5% EBIT, SEKm 186 230-19% EBIT margin % 15% 18% -3 ppt 4(5)
Risk Management Industrializing industry-leading risk management practices Investor Day, March 21 st 2013
We are industrializing our risk management framework Our risk framework is built around three key components. Our strategic focus is to industrialize this framework across the Intrum group Risk management mission Goals and strategic objectives of risk management Functional capabilities All key risk management capabilities, across all stakeholder and segment needs Operational capabilities Operational capabilities to support and enable the operating model 2(7) Consistent and standardized view on risk throughout the Intrum Justitia Group, driving towards optimal risk-return balance
Functional capabilities in practice Risk taxonomy Risk assessment tool Risk taxonomy of purchased debt transactions Executive summary of overall risk assessment TBA PD deal level risks Local overal risk assessment 3 Cash-flow risks (financial risks) Execution risks (non-financial risks) Concluding remarks on overall risk assessment GAT overal risk assessment 3 * Overall this PD transaction should be viewed and treated as a relatively high risk deal * The data, benchmarks and assumptions are worse than what we are used to and due to lack of experience and established business practices to handle PD risk in Denmark uncertainty on model accuracy and future collection performance are higher than for a typical PD transaction * Although this transaction could be a strategic opportunity it does not change the fact that there is a considerable risk of material deviation from the cash flow forecast that the purchasing price is based upon 1 2 Model risk Recovery risk 3 4 Capability risk Process risk 5 Reputational risk # of ratings higher 3 Main risks than 3 (needs to cover at least all >3 ratings) # of 5 ratings 0 * Data: Lack of payment history and number of debtors and original granting data of the loans are unknown * Assumptions: 1) No appropriate internal benchmarks are available and reliance on externally purchased portfolio benchmarks are therefore used. Those don't have granular case level split & require a set of qualitative/subjective assumptions as support; 2) GE's cherry picking of paying accounts and the fact that there are no current payers in the portfolio (collections need to be started from zero) leads to higher uncertainty of assumptions * Collection environment: In Denmark, legal collection is not permitted which leads to higher volatility * Human capital capabilities: Limited local experience of purchasing debt and handling PD portfolios 1.1 2.1 3.1 4.1 5 Main mitigations (needs to capture all mitigation actions mentioned below) * Contractual/Legal: We will structure the contract so that IJ can put back uncollectable cases. (this is not an upside but a necessity in order to reach the benchmark curve which most likely has already been cleaned of any fraud cases etc. (e.g. standard put-back clauses in Sale and Purchase Agreement so the GCV refers to the cleaned portfolio) 1.2 2.2 3.2 4.2 1.3 2.3 3.3 4.3 2.4 3.4 4.4 2.5 3.5 4.5 The "check-list" - Risk assessment by type Cash flow risk Execution risks Rating principles Type of risk Risk rating Type of risk Sub categories Risk rating Rating scale: The rating scale 1-5, where 5 is high risk Sub categories 1. Model risk 3. Capability risk Rating philosophy : An average deal gets the median score of 3 across all categories and that a material deviation from Data 1.1 input 3 Contractual/ 3.1 Legal 1 that definition gets a one and a five (i.e. the 1 or 5 rating are 4 General 1 General Assumptions 1.2 not so extreme they are never used) Control 3.2 of agreement n.a. Forward flow specific n.a. Forward flow specific Methodology 1.3 & calculation 1 Human 3.3 capital 4 Mitigated risk level: The risk rating should refer to the mitigated risk level (i.e. the risk that is still present after all Infrastructure 3.4 2 mitigation actions have been taken) 2. Recovery risk - country level Governance 3.5 2 2 General Market 2.1 1 4. Process risk Financing & Liquidity Country level 2 Data 4.1 2 Macro-economics 2.2 3 Human 4.2 error 1 Portfolio responsiveness 1 Fraud 4.3 1 Regulatory environment change Regulatory 2.3 1 External 4.4 services 1 & political Political environment: change 2 Other 4.5 Op. Risks 1 Portfolio responsiveness Collection 2.4 environment 4 Exposure 2.5 concentration 3 5. Reputational risk Reputational 5 1 3(7)
Three lines of defence framework is the very starting point for all instruction and governance from Risk 1 st line of defence 2 nd -i line of defence 2 nd -ii line of defence 3 rd line of defence High-level description Risk taking Conduct the business Seek best available risk/return Credit and PD- Investments Initiate / track corrective action Risk control Define mandates and limits Monitor risk profile Risk audit Independent review Identify operational weaknesses Planning activities Business planning Checking impact of business plans on risk profile Limits and policy setting Audit planning and prioritisation Day-to-day business activities Ownership of day-to-day risk taking Identification / evaluation of risks Risk advisor and risk challenger Modelling and analysis Challenging 1st LoD reporting Review processes and adherence to risk guidelines Review of models Reporting activities Limit monitoring Exposure reporting to 2 nd LoD Limit breach escalation Exposure aggregation Risk reporting Communicate areas for improvement
For Intrum Justia Finance we have established a traditional credit organization combined with strong central analytics resources Traditional credit organization Local credit managers with expert knowledge of their respective markets Central analytical capabilities Organized in accordance with Three Lines of Defense 2 1 The Business Run the daily business Managing Director Risk and Credit (CRO) Board of directors Overall responsibility for prudent governance and control of the business Management responsibility for the organization Management of Credit, Market and Liquidity risks 2 Risk Management Implement guidelines and routines 2 Compliance Ensure compliance with guidelines and routines 3 Internal Audit Review and evaulate the internal control External Audit 5(7)
In summary Strengthened risk management practice will drive improved risk-return profile for the Intrum Justitia Group Current focus is to industrialize our risk management practices, particularly for PD portfolio assessments Framework is built according to industry best practice Well positioned to handle our service expansion into new financial services 6(7)
www.intrum.com
Financial review New financial targets reflecting strategy and outlook Investor Day, March 21 st 2013
Financial review past five years Growth recovery Operating margin expansion MSEK MSEK 4500 10% 1000 25% 4000 3500 3000 2500 2000 1500 1000 500 0 2008 2009 2010 2011 2012 * 8% 6% 4% 2% 0% -2% 900 800 700 600 500 400 300 200 100 0 2008 2009 2010 2011 2012 20% 15% 10% 5% 0% Revenues Organic Growth(%) EBIT Operating Margin excluding Revaluations * Dip in 2010 affected by right-sizing of non-performing units PD investment growth Organic growth for CMS improving Revenue mix PD growth Turn-around of low-performing units Operational excellence programs Successful CMS acquisitions 2(10)
Financial review past five years Solid cash flow generation Strong balance sheet MSEK MSEK 2500 2000 1500 CAGR: 12 % 3500 3000 2500 2000 1,80 1,60 1,40 1,20 1,00 1000 500 0 2008 2009 2010 2011 2012 1500 1000 500 0 2008 2009 2010 2011 2012 0,80 0,60 0,40 0,20 0,00 Cash flow from operations (MSEK) Net Debt EBITDA Net Debt/EBITDA Rapid cash-flow payback from PD portfolios Attractive working capital profile Limited capex growth Uptake in PD investments by 2x, 2012 vs 2010, largely financed by own cash-flow generation 3(10)
Financial review past five years Healthy EPS development Solid dividend growth SEK SEK 8 7 6 5 4 3 2 1 0 CAGR: 7 % 2008 2009 2010 2011 2012 6 5 4 3 2 1 0 CAGR: 9% 2008 2009 2010 2011 2012 EPS(SEK/Share) Dividends/Share Good shareholder value growth - despite largely challenging macro 4(10)
Financial outlook next five years Delivering our strategy will drive financial value creation allowing us to meet our objectives Service Line perspective Service expansion Value-added CMS Pre-default Post-default services, e.g. credit financing services, financing services, decisions e.g. Factoring e.g. PD Sustainable competitive advantage Customer (debtor) situation & behaviour Service integration Brand and client confidence Service foundation State of the art debt collection services Focus strategies Strengthen CMS collection productivity through group and regional efforts Continued PD investment growth Accelerate launch of new financial services Reinforce our Risk Management practice Reinforce healthy credit behavior in society 1. PD: investment and top line growth from good market conditions and stable return profile 2. CMS: gradual margin expansion from operational excellence programs 3. New financial services: launch of Intrum Justitia Finance Regional perspective 4. Northern Europe: continued solid momentum reaping the rewards from past investments 5. Western Europe and Central Europe: must increase their contribution to the group s earnings, reflecting their relative market size potential Sustainable growth Improved margins Strong cashflow generation Opportunistic activities 6. Selective value accretive acquisitions mainly small to mid-sized CMS targets 5(10) Solid foundation for continued growth of revenues, operating margins and earnings per share
New financial targets Financial target New Same as today 1. EPS growth to exceed 10% per year Defines shareholder value creation 2. Return on PD investments to exceed 15% Remains highly relevant due to the PD expansion 3. Net Debt/EBITDA should be between 2,0 and 3,0 Net debt / cash-flow is the most relevant way to view Intrum Justitia s gearing Current level of ~ 1,5x is on the conservative end, meaning healthy room to increase gearing going forward - primarily by means of business expansion, complemented by redistribution of funds to shareholders Dividend policy: A dividend or its equivalent to shareholders that over time averages at least half of the net earnings for the year, taking into account future revenues, financial position, capital requirement and general status of the group. 6(10)
Solid, stable growth through service expansion EPS (SEK) 11,00 Target: 10% per year 9,00 CAGR: 6% 7,00 5,00 CAGR: 24% 3,00 1,00-1,00 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012-3,00 2002-2005 2006-2012 2013-2017 - CMS growth. - PD main driver for net profit growth. - PD continues to be a growth engine, mainly from CEU and WEU. - Intrum Justitia Finance to deliver further value creation in itself and through PD and CMS synergies. 7(10)
Net debt/ebitda Return on PD investment EPS (SEK/share) New financial targets 25% 20% 15% 10% 10+%/year EPS growth 5% 0% -5% 7% CAGR 2008 2009 2010 2011 2012 2013 2014 2015 Definition: Growth in net profit per share in relation to average outstanding nr of shares -10% 25% 20% Return on PD investment 15% 10% Over 15% 5% Definition: PD Service Line Earnings/Average PD Book Value Net debt/ebitda 0% 3,50 3,00 2,50 2,00 2008 2009 2010 2011 2012 2013 2014 2015 Between 2.0 3.0 1,50 8(10) Definition: Net interest bearing debt in relation to earnings before depreciations and amortization of intangible assets and portfolios 1,00 0,50 0,00 2008 2009 2010 2011 2012 2013 2014 2015
In summary We have a healthy financial track record for the past five years - evidence that we are delivering on our strategy The continued implementation of the Intrum Way strategy over the next five years provides a solid foundation for further financial value creation Our new financial targets are aligned with our strategic focus and ambition to accelerate value creation for our shareholders 9(10)
www.intrum.com