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

Welcome to Hoist Finance Q3 Report for 2023. [Operator Instructions] Now I will hand the conference over to CEO, Harry Vranjes; and CFO, Christian Wallentin. Please go ahead.

Thank you, and good morning, everyone, and welcome to this Hoist Finance earnings call for the third quarter. I'm Harry Vranjes, CEO of Hoist Finance. And as usual, our CFO, Christian Wallentin, is with me here today. Together, we will take you through the results and the highlights of the third quarter. But before we dive into the material, I just want to add that we have now closed the very successful 2-year journey that we call the rejuvenation program. We will spend a little bit of extra time on that in this presentation. So this has been 2 years of significant one-off positions that have modeled our quarterly reports and communication to the shareholders. We apologize for that, and we thank you for your patience, and we promised that we will be clearer to follow from the fourth quarter onwards. But all the modeling aside though, the key message is that we have during these 2 years fundamentally reshaped this company into a simpler, more efficient asset manager with a healthy book. This has been done at the same time as we have during these 2 years, delivered net earnings of about SEK 1.5 billion and increased our CET ratio by some 40%. And as a reminder, our market cap is currently around SEK 2.3 billion. Obviously, I can only barely take credit for the last 9 months of this program. So Christian will take you through the full journey later on in the presentation. But let me start by taking you through the highlights of the quarter. Excellent. Yes. So the profit before tax came in at SEK 282 million, adjusted for costs within the rejuvenation program, the result ended up at SEK 339 million, a significant improvement compared to same quarter last year. The results in the quarter was driven by a strong underlying business, but also from positive one-off effects, mainly from the currency hedges that went our way and from a JV in Poland that we have started to wind down. Return on equity, 19%. And as a reminder, our target -- our financial target is to ensure a return on equity above 15% for the full year. Adjusted for normalized capital levels and one of course, for the rejuvenation program, the return on equity would have been 28%. And again, a reminder, normalized for us means basically a CET1 ratio of 10.9% or 11%, which is in the middle of our target range, above regulatory. Investments in the new portfolio -- in the new portfolios totaled SEK 1.7 billion in the quarter, and we have signed an additional 1.6 million now in October after quarter closing. As I think indicated already before, the market is very active, continues to be active, both in terms of primary sales from banks, secondary sales from industry peers or investors who are looking to reduce their exposures to NPLs. And the market is strong in all the voice finances jurisdictions, and the market is also repricing. We'll get to that a little bit later. Now despite the challenging macro, our collection performance came in at 103%. And meaning that our loan management units around Europe collected 3% more than we had forecasted. As mentioned before, the rejuvenation program was closed according to plan at the end of this quarter. All targets that were set 2 years ago have been either met or exceeded. This is a -- has been a great program covering all areas of the company, and Christian will talk more about that later. Funding. Our funding base remains stable and very competitive. We have 85,400 deposit customers in Sweden, Germany, U.K. and now also Poland, thanks to our status as a regulated credit market company under the supervision of the Swedish FSA. The competitiveness of this model increases in the current interest rate environment, and we see no outflows of deposits or anything like that, slightly uncertain and volatile macro environment. In September, to complement the deposit funding, we successfully issued 2 senior unsecured bonds at a total value of SEK 750 million. So our capital and liquidity position remains very strong, significantly above regulatory requirements with a CET1 ratio of 13.86%, to be exact. Now just after quarter closing, we also lowered the risk in our book further by selling a single exposure of SEK 300 million. This was an Italian credit from 2018, and we sold it at book value. After this sale, our largest exposure in our total portfolio is SEK 25 million, and we only have 7 positions above EUR 10 million. Now to put that in context, this is in a book value at SEK 24 billion with more than 3 million individual debts. So we strive to become the leader in the consumer NPL segment, both in secured and unsecured. And I hope that these numbers show that we have a very diversified and granular book.

Thank you, Harry. And then I will talk you through the Q3 actuals and then compare them with last year. As usual, we have adjusted for the U.K. divestment we did last year and also the interest rate swaps. We had included those since the summer '22. So you don't see any adjustments for that in this quarter. So we're really pleased to say that we have a solid underlying performance continuing. This is supported by the first step to resolve our Polish JV and then also FX going our way and positively contributing to the result of the quarter. So overall, we have an ROE of 19% normalized for the U.K. divestment and the higher equity that we're carrying. We have 28% ROE. It's been a stable investment quarter on track to reach our long-term targets. If you look at the interest income, we've been growing at 33% over the year, and that's based on -- we managed to reprice into the new investments that we've done and also the growth of the book, clearly. Interest income is supported by the turns from the liquidity portfolio and the interest expense is growing quickly and as expected. This is driven clearly from the higher interest rate environment. We've been compensating this with higher returns in the new investments and also higher returns from the liquidity portfolio. So overall, the net interest income is growing 22%, which is in line with the growth of our book for the year. Underlying our collection performance is over forecast. It continues in a strong trend to 103%. And we have this built on a really healthy book. We have derisked the book over the last 2 years, and now we are in a really good place, we believe, and this is delivering a higher-than-forecasted collection performance in this quarter, 103, which is a combination of the earlier quarter's good performance. We have seen no macro impact in the overall figures to date. And as I mentioned, you see the support from the FX hedging in net results from financial transactions. If you look at the cost, we are keeping indirect costs down, we'll come back to that, and that's offsetting the increased direct costs driven by the larger book that we are now carrying compared with a year ago. If you look at the JV line, this is the best JV that we have resolved with the profit. So we invested into this with best in Poland in around 2011, and it's been a good contributor throughout the years. And now we have agreed to buy 50% each of the portfolio, there were hidden value in the JV. So it's been again to this as well. So best bought 50%, then we bought 50%. And a majority of the JV line is that gain when we resort this JV. And we will have roughly half of the profit going in next year. This is an accounting treatment. So we're -- we see this as an internal transaction, half of it, and that will come back in revaluations next year if the portfolio continues to perform as it's been doing historically and recently. And the management of the portfolio will be transferred -- or the management of our part of the portfolio will be managed by our Polish operations going forward, starting now in Q4. Rejuvenation cost is EUR 57 million in the quarter to finalize the program now in Q3. This is officially closed in Q3, this was a 2-year program that we did. I'll come back to this. We believe it has been a tremendous success for us in reshaping the company and resetting the financials. Overall, the growth of the book and also keeping costs under control leads to more than a doubling of net profit quarter-over-quarter, which is clearly a result of the operating leverage that we see. So I'm delighted to say that we are ahead of where we wanted to be at this point with the continued support from extraordinary items as a result of the hard work of the team has and is putting in -- so I'll come back slightly to this, but we've seen positive one-off for extraordinary items throughout the rejuvenation journey. And this is no random event. This has been the result of really focused and really hard work. So it's been hard to follow the ROE for the last 2 years, but we have been beating our targets even in the rejuvenation period, which I think is a really good testament to the hard work that we've been putting in as a team. So I'll leave it back to Harry to talk through the investments of the quarter and then the strategic part of rejuvenation and then I'll come back to show you a little bit what the -- what we have achieved during rejuvenation.

Thank you, Christian. Yes. So as mentioned in the highlights, the market at the moment is very active. The pipeline is in many places as strong as we've seen in many years. And at the same time, we have fewer players participating in the biddings. As a consequence of that, we see the returns improving. We are staying disciplined trying to find the correct pricing level. So we still lose auctions. But so far, we see an increase of some 30% in IRRs compared to the same period last year. And during this quarter -- during the third quarter, we closed and when we say close, we mean essentially paid portfolios for about SEK 1.7 billion. And so far in October, after quarter closing, we've signed an additional SEK 1.6 billion and we have outstanding binding offers of just below SEK 3 billion. So with 2 months left of Q4 and a steady stream of large and small deals passing through our investment committees, we fully expect to reach our target of SEK 8 billion annual volume for 2023. Next slide, please. So what is the purpose of Hoist Finance, why do we exist? Well, we are a performing financial institution dealing with nonperforming loans. So we firmly believe that we contribute to a healthy and resilient financial system in Europe. We do that by helping banks to reduce risks on their balance sheets and release capital through our investment management leg and by helping consumers repay their debts and provide them a path back into the financial system through our loan management leg. This is all done -- and we also then, of course, by offering consumers the ability to save money at competitive interest rates through our deposit accounts. And we do this in the context of our banking regulated status, ensuring the highest level of compliance in the industry. And that goes for consumer protection, anti-money laundering and counterterrorism financing, data protection, information security, et cetera. Now for the rest of the industry, I mean, the NPL directive will bring them a little bit closer to our level. But I guess those of you who work in the bank know that there is a difference there. So over to you again, Christian.

Thank you, Harry. So when we set out on the rejuvenation journey, we wanted to create a real value over this 2-year period. This was a time to take big structural measures, both in terms of how we wanted to redesign our strategy, focus on strategy and governance and performance management. So this was a 2-year program that was supposed to get us back to return to profitability and a run rate of ROE before above 15%. That was the financial targets. And then we wanted to scale up and grow the well-run and flexible company underway. And this is what we've been really focused on during the last 2 years. So let's go into how we actually achieve this what the -- how we met the objectives that we set out. So we wanted to return to what we showed you 2 years ago to illustrate how we were thinking to create value. And I'm proud and pleased to say that we have beat or exceeded all of our targets we set out. So the investment rejuvenation was -- it was basically a refocused strategy being designed during fall 2021, and that led to an updated governance, most principally being closer to the loan management locally and also looking over all the processes globally. And this we divided into 3 boxes in the execution program. So investment rejuvenation and then nonoperational rejuvenation and nonoperational rejuvenation. So the investment rejuvenation, we wanted to make sure that we had an investment strategy that was focused on what we wanted to buy from who and how. So this -- we weren't really clear. We were more eating from a menu 2 years ago of offering and we're buying what was offered to us. The last 2 years, we've been really focused on seeking out the right portfolios, meaning more complex, larger, higher return portfolios. This has led to a more active, proactive sourcing. We have a much higher pricing discipline driven by ROE requirements from the group and then cascaded down into all the relevant metrics when you break it down into each investment. And I think the -- that was supported by investing into the team. And the end result is clear. You can see it on the right here, we're on track to double the book now until the end of '26. And we are increasing our net IRRs substantially. In terms of the operational rejuvenation, this is production increase. So we wanted to support more people on their journey back to financial inclusion and in that process, clearly getting more collection up from the book that we have on our balance sheet. So this is about doing the right thing in the right way at the right time. And we've been working very hard across all our markets. And we set out a target of improving SEK 260 million. This is quite a difficult target to understand externally because it's a number of different efficiency and effectiveness measures that we've taken. But it's fair to say that we have beaten this the way we measure it here internally. And you can see it in the collection performance clearly that we have showed externally. The absolute cost reduction is focused on the indirect costs, so we wanted to take those down in absolute terms. And this has been enabled by a redesigned and refocused strategy. We closed down the retail bank, for example, we worked very actively on the central functions, how they work in a more efficient way and a more empowered way. We redesigned the governance, and we redesigned the performance management. So all the things we do are broken down and all combined lead to an ROE metric in the end. So people understand in their daily job how they contribute to our purpose meaning a healthy inclusive financial system and how that supports also our financial objective, meaning ROE and growth for that matter. And then we have the strategic initiatives. So we were 2 years ago highly concerned around inflation and margin development in the current book. We've always been a strong believer in significant value creation can be done through structural efforts. So we wanted to take structural measures to derisk and reprice the balance sheet. We are a balance sheet business. So we sit where you sit until you actually change it actively. So we wanted to take the large measures on top of the ongoing operational measures. We looked at the books, so where we had the lowest margins, the highest risk, we went out to see if somebody else could create more value in that book. That's how we sold the U.K. portfolio last year with a large profit, and it's also why we sold the French back book during this year with the profits. It's also why we buy out the best JV. We see that we can create much more value there, and we've created a gain in that. So this has released a lot of capital and built enormous amount of capital, as you can see on the right-hand side. So we wanted to do this journey within our target range, meaning neutral while we did these structural initiatives, we've been much more successful than that. We have built our capital over the 2 years, but 40% to 50%, and that enables clearly a strong growth journey ahead. And now we can reinvest into the right hours for this interest rate environment because you sit where you sit until you change it, so to speak, and it takes time to reprice a balance sheet. And we have done a large part of that work already. And now in '21 and '22, we are investing at the right returns during the rejuvenation program to support our 15% target in this higher rate environment. And if you just run through the targets on the left, you see that the absolute cost reduction is what we call non-ops at that point. That's a net sales. So we set a target to ourselves about 20%. We have beaten that. We ended up now in Q3 at 23%, and that's on a constant currency basis. The collection effectiveness and efficiency, we set out the target of EUR 263 million. We landed at EUR 299 million. We have an investment volume target of 2x, so doubling the book until the end of '26. We're on track to achieve that. We've seen strong growth. But last year, we've grown 22% of the book. So we're absolutely on track to that. And then the capital, again, we've grown that 40% to 50% over this period, which is enabling us to really be offensive in the right way in the marketplace. And then the run rate return on equity, we're absolutely on track. We're beating it this quarter, clearly, and we've been beating it throughout the rejuvenation journey, although supported by extraordinary items, but those I can say were a result of really hard work and focused determination to deliver these results. So we are confident that next year will be a return to the levels we want to see. Next page, please. We wanted to revert back to the announcement we did in May. We said that we would save another SEK 85 million with SEK 100 million cost to achieve. We have now done the work and implemented all of this. So this is falling through the balance sheet. We found more than what we expected. So we've found around SEK 130 million of run rate benefits and the cost to achieve ratio is the same as before, so back then. So it's 1.17x the benefit, which is very much in line with industry best practice, I would say, normally, you would see between 1 and 1.5x, and we're towards the lower end of that range. So this has ended now the rejuvenation program in Q3. So we're seeing this run rate impact coming through the P&L. We've seen more or less 50% of this last benefit coming through. So full run rate benefits will be in Q1 '24, we expect. And then clearly, this has been driven unfortunately, of saying goodbye to good colleagues and contractors. So 77% of these cost realization is from people leaving us and then the rest is to cleaning up everywhere in our operations, which will yield a financial benefit, clearly. Next page, please. So this is an attempt to compare before and after rejuvenation. So this is the base -- this is the comparison level that we set to ourselves Q2 '21. This is just a quarter above before I started before we set this program in place. So the run ROE reported back then was minus 7%, and that was due to a large write-off in Q2. So if you normalize that write-off, we were underlying around 4%. There is no exact science, but that's roughly where we were. And in Q3, by the end of the rejuvenation program, we're at 19% ROE. And then if you normalize for our high capital levels and also the items affecting comparability, meaning the rejuvenation costs we are at 28%. So this ROE improvement is due to the quality of the loan portfolio. We have derisked this cost structurally and worked through very diligently in our performance management team. All the books from a bottom-up perspective, we review them. We have a really solid data and control system in place for all our portfolios in the full group. And we review this on a monthly basis now. So we are in full control of the quality of the book, and this is yielding returns, meaning we have collection performance that is solid and also offers a shot to any macro shocks that would come or in a cushion to any shock macro shocks that could come in the future. We've also seen that we've invested at much healthier IRR. So IRR expansion. If you look at the -- what we were investing in during '21 and now we're roughly 40% above those net IRR levels. So clearly, the repricing has happened and we've been pushing this pricing discipline throughout these 2 years. If you look at the core Tier 1, we've grown this significantly. We wanted to be in the target range. We were at the lower end when we started this. We have grown it. And this enables clearly strong growth and investing at really attractive returns these days. We unfortunately had to say goodbye to a lot of good colleagues. So we've gone down from almost 1,600 to less than 1,300 today. And this is driven by the central area reductions and also selling the U.K. platform during last year. And this healthy back book as we call it, is yielding positive collection performance and also providing this buffer to macro shops that I mentioned. Again, we're in line on track to grow the book with this 5-year target that we're having, and this is supported by a real continued focus on pricing. We are happy to step away from deals, which are not yielding return we want. We are incredibly focused on financial performance in the books that we take on. Next page, please. So this is just to show the FTE development over these 2 years. So the baseline is the Q2 '21 again, and then we compare with Q3 and also post rejuvenation. And this is to show a cleaner proxy if you disregard inflation because inflation has been much higher than what we expected, we were fearing high inflation. We didn't expect this high inflation. So this is a measure to show you what we've actually been doing in the underlying business. So the direct FTE and the indirect FTE on the right -- on the left and the right. So the direct FTE, you see the divested U.K. portfolio. We have sold the U.K. portfolio -- or the U.K. operations last year. So that -- we were 168 people there in Q2 '21. And then now we've helped the remainder of the direct operations flat. And it's important to note that the efficiency or the relative ratio has gone up clearly. We have a larger book today than where we were when we sold the U.K. So we're dealing with a much larger book now than we were with these 1,100 people than we are doing now with 940 people. So the efficiency of the people and the effectiveness of the people have gone up clearly with this structural measure as well. So it looks like we're flat on the existing one, but these are handling a much larger portfolio. On indirect FTEs, we have got 37%, so roughly 1/3 over this period. And this is driven by the central functions. So when we started, we were 262 people in the central functions. Now we're 114 more or less, when we done with post-rejuvenation. And you can also see in the platforms, meaning the markets that indirect stats sitting in the market so that can be finance, compliance, risk, et cetera. We've also gone down there, but not to the same extent -- in addition, we clearly got some benefit from indirect cost reductions in the U.K. as well. We're not having an equally large finance function in the U.K. now as when we had a platform, even though we're clearly investing into the U.K. still but a different model. You can also see that we invested into the asset management organization here. We were 24 in the asset management and now with 40. And that is also the investment team taking on new responsibilities with a much more granular view on data and portfolio management than what we were doing 2 years ago. Next page please. If you see the indirect cost development on this page, you can see that we started on 284 million indirect costs. And these are these 3 topics that I mentioned. So this is asset management, indirect costs in the markets and also central costs. And this is the -- there's been investments in the asset management, a cut in the central functions in the indirect cost in the local markets by divesting the U.K. And overall, we are down 23% at constant currency, and we continue to -- we will see some further benefits now in the -- in Q4 and Q1, given the last push we had in rejuvenation. This is despite the high inflationary pressure that we've seen. It's been driven clearly by us organizing differently than we did before. And so it's a strategic effort that has been driving these cost initiatives, customer optimization. So both how we're doing things and how effective we were doing the same processes. Next page, please. So this is more back to the quarter again. So we leave rejuvenation slightly behind. So this is more of a performance review to see. We've grown the portfolio book value with 23%, and the total cost has grown slightly less, particularly if you take away the FX-related cost and has been growing 15%. So we are getting operational leverage, as I call it internally from keeping down the indirect cost and growing the direct cost with the size of the book. And the operating income is clearly up even higher, and this is driven from a various number of things that we discussed earlier as well. So we're really pleased with this. We want to get more efficiencies into the direct cost, we want to get scale also there, not only in the indirect costs. So that's the real focus area for the coming year to make sure that we're not growing direct costs at the same pace as we're growing the book. And that's the real next step for us. Next page, please. You can see here that we've been investing -- we had a target of -- we have a target of having a 40-60 split. So secured being 40% -- secured asset being 40% of the book and 60% being unsecured. A year ago, we were around high 20s, and now we're 22% -- 32%, so almost 1/3 of the book. So we keep on growing this, and we have an internal objective to invest 50-50 into unsecured and secured. And this was clearly this is not in the goal in itself. We go to the asset class where we see the right risk-adjusted returns, and that's where we invest. But we believe that, that's roughly 50-50 for now, and then we'll see where we end up. This is more and more of a sort of guideline as it's not an objective in itself. We want to have the right returns at the right risk. We've also seen that we've been diversifying over a number of new markets. So Sweden, we reinvested into the U.K., and we've taken down the individual exposures in the countries. We like this. We want to have diversification between asset classes and also geographies. We're trying to tie back to what Harry was saying before. Now when we after the quarter, have divested our largest single exposure, we have a very granular book, both in secured and unsecured, which means that this is purely statistical model. And if I may step back one second, is to explain a little bit the assets we invest into. So we help the banks to offload their NPL portfolios. We do that a significant discount, which enables us to work with the underlying consumers in a productive way to get sustainable repayment plans in place. And by buying at these significant discounts, what was a high-risk asset becomes a remarkably stable, much lower risk assets. And this, together with a really granular portfolio, both on the secured and the unsecured backed by either an individual or a hard asset makes it a really controlled and low-risk portfolio if you manage it in the right way. And if you invest with discipline, which is exactly what we're aiming to do. I can also say that we mentioned again that we've been seeing asset pricing continuing, particularly we've seen the secured reprice even more than the unsecured, but both asset classes are repricing currently. Next page please. The capital, we're still significantly above the target ratio. We see significant opportunities in the market. Harry was speaking about the portfolio, about the pipeline. It's unusually large, both with what we normally would invest into up to EUR 100 million, but also larger. And we are currently focused on our bread and butter up to EUR 100 million portfolios, and that's where we see the real value we can add. You see that the liquidity reserve is pretty stable. It's up and down depending on what happens in the quarter because Q4 was unusually high. That's when we got the liquidity from the U.K. sale. And then we invested that and we now are stable around SEK 6 billion, SEK 7 billion, that's where we normally are. Next page, please. Again, I think it's really helpful to understand our liability side. We have a very granular liability side, so around 80,000 savings customers and none of them above in practical terms, none of them above the deposit guarantee scheme and very stable. We are having full access to capital markets. We issued 2 tranches of senior unsecured of totaled SEK 750 million in the quarter. So we have full access to the markets, even though the industry is in somewhat turmoil. And we also issued earlier in the year, as you might remember, another senior secured in Q1 and then 81 in Q2. 73% of our liability side of the funding is deposit base, and that's around the level that we see it going forward as well. Now I'll leave back over to Harry to conclude before we open up for Q&A.

Thank you very much, Christian. And I hope that has given all of you a little bit of clarity on this fantastic program as we call the rejuvenation program and the quarter. So as a banking regulated entity, we act in the same regulatory context as our clients. This is appreciated by the clients. It's also appreciated by the regulator. In 2019, the regulators introduced a banking package with the purpose of ensuring that European banks would stand strong in the event of a new financial crisis. And among other -- many other items in that package, changing risk weights for nonperforming loans and so on. That was also the introduction of a concept called the prudential backstop. Now this was designed to force banks to offload nonperforming loans as early as reasonable. And we at Hoist Finance, of course, fully support this and believe it's a very healthy regulation. The backlog regulation drives significant volume from banks to the NPL markets ensuring a good secondary market for nonperforming loans. Now being a banking regulator ourselves, however, means that we are also subject to this regulation. And for a performing financial institution holding primarily nonperforming loans on its balance sheet, this poses an issue. So the regulator is working on adjusting this in close cooperation with us at Hoist as well as they see the benefit of having also the nonperforming loans and consumers treated under the same banking regulatory supervision as the performing loans. So they are introducing a status called a specialized debt restructure. So this will be a new form of specialized banking regulated institutions that will have to live up to a number of distinct requirements. The regulation is in progress right now. And as part of the updated banking package that is passing through the European Parliament Council and Commission at the moment, we believe we will live up to these requirements and therefore, get an exception to the backstop regulation. So we are in dialogue with the regulator on this topic, and we expect to have more clarity around Q1 2024. Now in the meantime, we continue to manage the back stop through our 2 main options. One is this securitization structure. We have -- well, this achieves a so-called significant risk transfer, which means that the regulator considers this properly managed from a risk point of view, and we are exempted from the backstop. We have 2 of these structures up and running. But as with everything, they have advantages and disadvantages. So it is sort of fairly expensive compared to on balance sheet investing, and it's complex to set up. A more strategic solution is the co-investment. This has the additional benefit of exempting us from the backstop and is something we would like to do regardless of backstop regulation. Basically, if we own 50% or less of our co-investment vehicle, we would then deconsolidate and be exempt. This is very capital efficient, gives us access to additional volumes, makes it possible for us to work with new partners. So this is a very attractive setup and something we are working with a number of partners about -- well, at the moment. So next slide, please. So just to wrap up and reiterate our key points from the quarter. Strong underlying business, strong interest income growth driven by portfolio growth and repricing. -- continued strong collection performance above forecast. Operational leverage, as Christian was talking about supporting our net profit growth again, strong return on equity, 19% or 28% if we normalize now. The market is very active, both primary and secondary, with a large pipeline, many large deals, but also a steady stream of smaller deals. And when we say smaller, we talk about less than EUR 20 million or SEK 200 million. And yes, we expect -- we fully expect to reach our SEK 8 billion full year investment volume for 2023. The repricing is continuing. We see it especially in secured assets. But on the unsecured, it's also repricing. We have closed the rejuvenation program, and we're very happy to say that we have met and exceeded our targets. The current interest rate environment is, of course, strengthening our funding advantage compared to peers. And we have a very stable funding base and full access to capital markets despite this turmoil in the sector at the moment. And again, very strong capital and liquidity position significantly above regulatory requirements and setting us up for continued growth. Now before we open up for questions, just trying a few comments on the sector. I think the industry as a whole, right, the rising cost of debt linked to it or coupled with low back book returns, suboptimal collection/cost performance and relatively high leverage levels, it's negative for the sector. Investors have fundamental concerns over the current market funded business models. Now we at Hoist, we have a different funding model. We stand outside of that model. And we are very much looking forward to the continuation of our growth journey in the next quarter and the next years. So with that, I think I'll open up for questions.

[Operator Instructions] The next question comes from Ermin Keric from Carnegie.

Thanks for the presentation and details on the rejuvenation program, very helpful. Maybe a question to start relating with that. How should we think about absolute costs? I suppose some of the benefits from the rejuvenation is already in the figures, but you're also growing your business, even though we do have some benefits left from rejuvenation and it seems like you have quite boxed in how much you expect to invest per annum going forward as well. So could you give us any color on what to expect in terms of absolute cost for next year?

We are a business that invests by quarter, right? So over time, we have set this target of doubling the book until the end of '26. And we believe we're on track on this. So that will lead to clearly direct costs going up. And we want to grow the book, and that will lead to these costs going up. However, we want to do those in a less -- so we want to get some scale into the direct costs. We don't want to grow the direct cost at the same pace as we grow the book. So that's the starting point. But those will grow as we grow the book because it's just operational cost. And then the indirect cost we have now during the last 2 years, reduced this by 23% at constant currency. And we don't want to do this again. We don't want to go through a program again. And that said, it's equally important to us to keep on having a really razor-sharp cost focus. So we will not let this run away. We have a continuous improvement focus throughout the business and particularly where we don't need to grow. So the indirect cost will, of course, be impacted by inflation, but we will fight inflation as much as we can, and we hope that we can keep this growth below inflation over time because we want to see some productivity increasing there. So overall costs will depend on the size of the book. We believe that till the end of '26, will be around SEK 35 million, SEK 36 million of investments. So that's the cost trajectory on the direct side. And then on the indirect, it is slightly driven by inflation, but we aim to beat the inflation meaning fighting off it somewhat.