Hoist Finance AB (publ) (HOFI) Earnings Call Transcript & Summary

[ Audio Gap ] [ 6.5 million ] customers in our 10 markets on a day-to-day basis. In other words, to ensure business continuity. And I have to say that, I'm extremely proud of the work that we have been able to do over the last couple of days and weeks, so it's been amazing. The effort has been -- that's been observed in all our markets where we have been able to acquire a few hundred laptops, tank them with the right software, make sure that we can work from home and remotely in a secure and safe way, in a compliant way, I have to say, so that we can still interact on a daily basis with all our customers. So presently, on the Friday afternoon, I think, more than 1,600 people or a total staff of 1,700 are working from home remotely. Still in contact by Hoist, still in contact with core collection platforms, still able to do good conversations with our customers. So that's a really important thing for us, of course, a very high priority. We did, of course, execute on our business continuity plans. And I'm very happy and very pleased and very proud that the Hoist organization has been able to deliver on this in a very short time. And in terms of production, the operation is ongoing as it should in all markets. We have very little downtime. We have very little technical issues. It's working the way it should, and we are able to conduct our business in an ordinary and orderly fashion. So that feels, of course, very good for us. The consequences of the corona crisis is felt differently in different markets, of course, and for those of you who follow the news, it's really -- I can confirm that, that perception is quite relevant also for our work. I mean in Southern Europe, where the crisis is bigger -- it's biggest like in Spain or Italy, it's more felt than for the north where crisis is perhaps a few weeks what we have seen in northern markets. So there is a difference from market to market. In fact, the crisis is more felt South than North. Having said that, I think you should expect production to be reasonably in line with expectations for the first quarter, but of course, we have seen towards the end of the quarter that we have more and more an impact on our operations and production as the [indiscernible] and people are having more difficulties than before. Our priorities, apart from business continuity, has been to protect capital and liquidity, and I guess, Christer can talk more to that in a second, to protect our cash flow, to deliver the best we can in terms of collection performance. And we are, of course, needless to say, almost going through the cost base to mature that we are as efficient and effective as you can be in this challenging times. And last, but not least, we are also preparing for what happens after the crisis, so that we are as ready as we can be and as progressive as we possibly can be. So that when things turn, we are ready to capture the tide as to -- as the crisis pass. So I guess that's enough for me as an introduction. And then I leave it to Christer to just briefly talk through some of the effects that we have disclosed today in our release. So Christer, if you can talk us through the key effects, please.

Thanks, and good afternoon. So I wish to briefly cover 2 topics, starting with Spain and then moving on to a few treasury items. Starting with Spain, and it's fair to say that performance has been below our expectation for some time, for a year, and we've taken a number of measures to address this. It's fair to say also that those efforts have come with various degrees of success. And in light of the recent development in the Spanish market, we do no longer expect these efforts to close the performance gap. So for this reason, we have revised our outlook and impact of this comes with 2 components. So to start with, we've seen a collection shortfall in Spain in Q1, and this is a realized shortfall. But then we have also then changed the outlook and this translates into an impairment of the book value in Spain. We expect these items, combined, to impact Q1 earnings by around SEK 120 million, it's a bit more than 2/3 being related to the future reductions. Moving on to the treasury side. We've seen rather volatile financial markets. And looking at the quarter as a whole, we've seen interest rates come down. This has had a negative impact on the accounting value of our interest rate swap because we are protecting ourselves from sudden increases in interest rates. And In this case, that has not paid off then. We have also seen spreads widen, and this has been in March specifically. And this is normally not something we would pay a lot of attention to because our liquidity portfolio is invested exclusively into government bonds and AAA-rated cover bonds. That said, I guess, these are not normal times, and we have, in fact, seen a negative impact on the market value of these assets. And they are held at fair value. So for that reason, this translates also into an accounting loss. I should add that this loss is unrealized, and we don't plan to realize it. And as such, this should unwind over time. Finally, I just want to reiterate that our balance sheet is robust. Our liquidity is very strong. Cash collections in Q1, I expect those to be an all-time high. And as such, our financial position remains strong despite the disclosures that we made today. So with that, I cover the key items, and I hand back to Klaus-Anders and for questions.

Yes. So thanks for that, Christer. So we are then open to take your questions.

[Operator Instruction] And our first question is from [ Armin Kitch ] from Carnegie.

The first one would be on the Spanish business and your view on it more long term. I mean you say you've struggled there for a while, and your exposure to the market is quite small. It doesn't really go with the strategic market briefing you've had overall for the group. Could you actually withdraw from the market and how many employees do you have? So could you say anything on the prospects for that?

Yes, of course. I can understand and appreciate your questions and your comments. I think you're right about that our operations in Spain is subscale and it's not -- it doesn't have the size, the critical mass that we would like it to have. We had plans to grow the Spanish business through M&A for some time. But that hasn't been easy to do. We, in 2019, as you're potentially aware of, we worked really hard to deal with regulatory issues and getting really prioritize doing a lot of M&A in that year. And right now, I'm quite disappointed about our performance in Spain. It is not what it should be. We have carried out a number of initiatives to bring it back to the levels that we expect, but haven't been -- it hasn't been having delivered the speed that we were hoping for. And now, of course, with the corona crisis in Spain, we just simply feel that it's prudent to make a revaluation and to make sure that we don't carry a problem forward. But of course, we will take a close look at a way forward for our Spanish business. I think the Spanish market has developed quite, I would say, almost in a negative direction for some time. It's been quite competitive and kind of crowded. I think all businesses have been struggling also in the Spanish market over the last couple of years. I think longer term, Spain would be an interesting market to be in. It's a large market. It's a professional market. We have banks in regular sellers and the business -- the business structure there in terms of how the value chain works in financial services, it's a good one. So I think it's a good market to be in. But we have to have the size, and obviously, if we don't have the size and the relevance, maybe it's better to withdraw. But I haven't said anything about that now. I'm just saying that we are going to look for ways to improve our operations. But we will also, of course, as always, we do take a strategic view and then we just have to decide.

Okay. If we just move on to Italy and Greece, you mentioned that you've seen a slowdown out towards the end of the quarter. And I appreciate it's very hard to sort of quantify. But I think what the market is most concerned about it. So where is the run rate currently if we extrapolate that to Q2, so what could we expect then?

Yes, you're right. It's difficult to be very precise. As you know, it's that time of the year, in that period, we can't disclose too much, right? So you have to bear with me. So what we're trying to say in our disclosure is that, okay, maybe the collection isn't perfect at this point in time, but what we have seen also in previous times is that even in a downturn, the collections typically holds up pretty well, right, even when things are rough and is difficult and challenging, collections have held up reasonably well. And -- but the way that time lag, and we saw that very clearly in the financial crisis, we have actually seen it in crisis before that in 2001. Even if you go back to the '90s with the mortgage crisis in the Nordics, we even saw that in the numbers then, that there will be a delay, but collections will then slip it up again. So currently, I can't really give you a precise number on this call. What we see is a bit of a slowdown. I think, in Italy, we are focused not on our business work there, is that it's primarily unsecured consumer, right? It's not like it's a big secured book there, it is primarily unsecured consumer. And 50% of all our collections in Italy is Cambiali. And Cambiali is the safest of everything, it's the most reliable, the most predictable. That's where you see the slowdown the least. So in that sense, I feel that we are at reasonably good spot given the circumstances in Italy. So that feels to me pretty robust and pretty resilient, but of course, the crisis in Italy and definitely in Spain, it's, of course, of a different magnitude and with a different impact than what we have seen previously. It's like a shutdown or lockdown, but anyway, thousands and thousands and thousands of customers, I mean, we have 6.5 million customers. We have 200,000 interactions all the time with our customers. All our channels are open in terms of contact center, digital. Thank God for the work that we have done on digital, that we are able to keep the shop open 24/7/365. That, of course, helps us a lot even in these times. And the fact that other banks, other companies are now working so hard to shift the customers onto digital platforms, that's kind of helping us, too. We are kind of piggybacking a little bit of the development that we see. So -- yes, so as we're being even more precise, but I'm just trying to say that given the situation in Italy, we are -- we feel reasonably in a good spot.

Okay, that's very helpful. And actually, if you could just maybe elaborate even more on that. So in terms of your day-to-day work and communication with debtors, has that changed to any extent? I suppose you always need to have a balance act between trying to protect your cash flows and understand the situation of the debtor, but now in these circumstances, does that become even harder? Are you still working actively on setting up new payment plans? Or is it mainly making sure that the ones already up, keep on running?

Yes, good question. So I think collections, principally, is decided by 2 factors. One is the willingness to pay, and the other is affordability and ability to pay, right? So those 2 factors are very decisive. Right now, I think we haven't seen at least -- we do check in every day, right? So honestly, at this point in time, we haven't seen a reduction in willingness to pay, right? And that's great. People still want to have a good relationship with Hoist Finance that they are trying and haven't given up on their payment plans. So that's good news. The other factor is affordability, right? And obviously, we do have customers who do feel an impact in their affordability. And first, and it's important to have a dialogue to find out what is your new situation. Do we need to postpone something? Do we need to reduce your monthly installments somewhat? And if so, we will find an amicable solution for that. And have in mind that average payment for us on a monthly basis is around EUR 50. And also have in mind that our customers typically are the ones who experience financial difficulties throughout their lives more than average person, right? So it's not like many of our customers are unused or not being used to having some kind of challenge -- financial challenge. So -- and somehow, they also don't know how to cope, know how to get by. And in reality, spending opportunities for a lot of people have actually come down. I mean pubs are closed, restaurants are closed, amusement parks are closed, cinemas are closed. So from that point of view, they cannot spend that much money on alternatives currently. So hopefully, what you will see is that people can stay on their plans and the monthly installments won't be too much affected. I think there will be a delay. How much? I'm not ready to give any guidance on.

And our next question is from [ Mathias Tang ] from [ Lionstone Partners. ]

Just a question. Considering the recent Spanish Supreme Court ruling on revolving credit cards, I wonder if, after your write-down today, does the company has any residual exposure to WiZink or other revolving card issuers, both in terms of carrying book value and also of potential contingent liabilities pertaining to be declared onerous terms on such cards.

Yes. We have, of course, seen the recent verdict from the court about the WiZink portfolios and similar portfolios. I guess, it's reasonably public knowledge, at least if you go to the Spanish market you could probably find out that we have been buying some of these portfolios. It's not -- it's not something which is, I think the secret in the industry. We and others have been buying some portfolios from those companies, from that bank and similar banks. So there is some exposure there. What I can say today is we have done a revaluation of the Spanish book of the bank that we have disclosed. And I think I will stop there. I rather not comment on specific portfolios.

[Operator Instruction] Our next question is from Martin Bunge-Meyer from -- he's a private investor.

I was just wondering, you're saying you have a very strong cash position and the cash collections are still strong. Would you say that you are overcapitalized? And is there some measures you are considering in terms of, you have the stock down in SEK 20 by buyback or other programs that you see that some of your competitors are doing as well? I was just wondering if you're thinking about that and if you consider yourself overcapitalized at this point.

Thank you for that question. Christer here. I think in terms of stability in the situation of a crisis like this one, those having a strong balance sheet and having ample liquidity will serve Hoist Finance well. So coming into this crisis with a strong starting point is beneficial to us, and I don't see us taking actions that would sort of jeopardize that strong starting point.

Have you seen any changes in kind of Hoist's [ whole ] behavior? Are people taking out money or still putting in money? Or what are you seeing there?

We've actually not seen any particular flows in recent weeks here, positive or negative. So the greater position is holding steady, and we haven't seen anything actually.

I used to be CEO for a bank in the financial crisis. I learned the hard way how difficult it was when liquidity dried up. So at the moment, I think we have a very comfortable situation even in terms of liquidity, and that feels good at this point in time. So yes, we don't see an issue from that point of view. We have a very strong balance sheet and a very favorable liquidity position at this point in time. So good place to be from that point of view.

And our next question is from [ Armin Kitch ] from Carnegie.

Just 2 follow-ups. On the cost side, could you talk anything about that, sort of what should we think about as being more flexible and possible to adapt to lower activity? Is it mainly the part you classified collection costs? And then second also, with regards to your long-term cost program, does anything change with the execution of that one sort of timing-wise?

In terms of costs, of course, if courts close down, this will have -- this will reduce the short-term spending on litigation or legal fees. Although that is, of course, spend that we would rather have. So in that sense, it's not what we seek. Other than that, we have, as Klaus-Anders elaborated on, we have our full workforce still working and still being in contact with our debtors. So I should not expect any big changes on the cost side as a direct result of the current situation. Taking a longer perspective, we can certainly see profitability coming under pressure. And in that context, I think it will make a lot of sense for us to look even harder on the cost base and potentially increase our ambition, which is to say, SEK 300 million in run rate savings by 2021. I think that ambition level is something that we need to consider.

Okay. And then the second question was for -- around the investment side. Has that market completely sort of dried up now? And how do you see on the opportunities going out of the crisis? I hear some talks about Italy possibly looking to give banks some tax advantage to directing NPLs [ and so on ]. Could you give us any details on that?

Yes. So in terms of current trading and current transactions, it dried up, I think it's fair to say. I mean just practically speaking, it's very difficult to do any businesses there. You cannot go to meetings. You cannot really go and see the banks, the sellers. It's hard to do the diligence. So just from that point of view, it's tougher to do business. And also, I think the banks who are sellers of nonperforming loans, they have other things to do at this point in time. So -- and of course, uncertainty, it's very hard. So I think you should expect, and I think that goes to the whole industry, a slow Q1, typically a slow quarter anyway. I think Q2 is going to be slow also, which is in any way, fine. And I think, hopefully, that things will pick up again after summer. But that is my best judgment at this point in time. And also, right, in this industry, for every crisis we've had, we see that yields are coming up, and the volume is coming up after the crisis. So I actually expect us to see more volume coming to market and hopefully, also with better returns, at least that's what we've seen in the past and that's what we are ready to take our lion's share of that growth. So I certainly hope that, that's going to happen. And I think it will be based on what we have seen in the past. And just also to reiterate what Christer said, is there is no quote that says smaller banks are good in crisis. And of course, we're not wasting our times on the cost side. We're using this opportunity to go through everything again to see if we can speed things up or ramp things up and be focusing on executing our cost program and potentially expanding it going forward. So that's a very high priority for us. And also, I just think that longer term, and during this crisis, we're going to learn the world new ways of working and from that point of view, it will be new learnings for us also in this that can have a good impact long term. So we are, of course, thinking about the short term, so business continuity, making customer interactions, making sure that we work with them in a sustainable way that we take the corona crisis very seriously. And we're also thinking about our business longer term, right; how can we ramp up digital? How can we work differently, et cetera.

[Operator Instruction] And our next question is from [indiscernible] from Citi.

This is Borja Ramirez from Citi. I have a very quick question. There has been some news from European bank regulators on forbearance regarding capital requirements and potentially like the decreasing capital buffers. Have you had any -- could you -- is there any details you could provide on potential forbearance?

Sure. So the regulators, they have been quite active, as you've seen. And they have done a few things. For example, they have reduced the so-called countercyclical buffers, and this reduces the capital requirement of Hoist by 0.3%. And as you might remember, our capital targets are related to the capital requirements. This also means that the capital targets have come down 30 basis points. Other than that, they have also issued a bit of clarification on how to deal with forbearance. This has been primarily relevant for the performing loans, which we have. In reality, the performing loan book that we have, it's rather small. It's below SEK 1 billion. So I don't see that as having a significant impact on us.

And as there are no further questions, I will hand you over back to the speakers for any final comments.

All right. Well, thanks, everybody, for being on this call. I appreciate that. And I can assure you that we do what we can to stay in close contact with our customers to find an economic-friendly solutions with them and to protect both cash flows and profitability and capital. So thank you, and wash your hands, stay calm and stay healthy. Have a great afternoon and a good weekend. Bye-bye.