Intrum AB (publ) (INTRUM) Earnings Call Transcript & Summary

Hello, and welcome to the Intrum Q4 Report 2020. Today, I'm pleased to present CEO, Anders Engdahl; and CFO, Michael Ladurner. [Operator Instructions] Please begin your meeting.

Good morning, everyone. This is Anders Engdahl, CEO of Intrum. And with me today, I have Michael Ladurner, who I'm pleased to announce has now been appointed permanent CFO of Intrum. I'm happy to walk you through the fourth quarter results and our comments to that. So if we turn to the presentation on Page 3. 2020 has indeed been an extraordinary year, and the first half was characterized by synchronized lockdowns across major European jurisdictions, creating a very challenging operating environment. We saw court system efficiency decline where, for example, the number of real estate auctions in Italy declined nearly 50% compared to the expected volume. And we see major sectors in the economy have been shut or went into hibernation for several months during the year. Notwithstanding these challenges, Intrum was able to navigate through, thanks to the organization being able to switch to remote working in record time and our relentless focus on serving our clients and customers, supported by our core values, empathy, ethics, dedication and solutions. Despite these challenges, Intrum has been displaying strong stability and resilience, being able to continue to grow our business, our cash flow and our cash-based metrics through this extraordinary environment. Portfolio Investments has demonstrated stable returns. And whilst our investment pace has reduced, we have maintained a stable investment pace through the year at replacement rate, keeping the books stable while increasing our underwriting returns. We're also pleased to see the performance of our Strategic Markets business in the second half of the year where it's been recouping significant lost ground from the first half. Overall, we're optimistic about the medium-term outlook for the business. We're seeing increasing demand for our servicing business with a strong finish to 2020 in terms of new contract signings and expect the post-COVID environment to present interesting opportunities for organic growth. We see the secular trend of increased outsourcing, driven by regulation, efficiency improvements and clients' focus on core business continuing, and we see the delayed volumes from 2020 start to come back gradually during 2021 as the pandemic effects recede. And we're expecting to see a gradual normalization in the volume of portfolios for sale through 2021, albeit the COVID-related volume buildup would likely only come to market in 2022 and beyond. We turn to Page 4, looking at the highlights of the fourth quarter specifically. In terms of business performance, we're pleased to see that the continued growth in our cash generation continued to drive cash EBITDA growth and reduced leverage. LTM cash EBITDA landed at SEK 11.6 billion, and the leverage ratio reduced to 4.0, driven by the strong and growing cash generation, but also supported by FX tailwinds, to some extent, at the end of the quarter. We see increases in our new business volumes emerging. Whilst the fourth quarter was challenging in CMS, where new inflow volumes were muted, we finished 2020 with a strong new servicing sales and enter 2021 with record servicing pipeline. Our Strategic Markets business delivered a strong second half where the impact of the second wave was less pronounced than the first and leading to a cash ROIC of, for Q4, of 21% and 15% for the full year. We're particularly pleased to see that Greece closed its first full year as part of Intrum Group, in line with the original business plan in terms of EBITDA generation. On the Portfolio Investment side, our Q4 performance was strong with 112% performance index compared to the pre-COVID forecast, delivering 102% versus the pre-COVID forecast for the full year. And finally, we're pleased with the launch of the ONE Intrum transformation program, which is in full execution. Highlights include the opening of our multilingual contact center in Athens, which recently opened, and is already producing more than 16,000 customer contacts per day. We have also implemented the new operating technology platform in all countries now available for our small- and medium-sized enterprise clients. We turn to Page 5. Looking at the servicing business, in CMS, we've seen a temporary reduction in new case inflow in the wake of COVID, driven by clients taking a more lenient approach toward collections as well as various moratoria that are still in place in many markets. However, the underlying case stock is increasing, and we expect to see increased volumes come through as the pandemic effects recede. We also see interesting growth in e-commerce and fintech segments as an acceleration of the Buy Now Pay Later trend that we also discussed at the Capital Markets Day. Overall, we see increase in our servicing pipeline, and we have a very strong finish in terms of new contract signings. There's always a time lag and a ramp-up curve before the full value of new contracts translate into revenues, but it's a good early indicator of the positive momentum in servicing sales. We expect to continue to grow the value of our new client signings over the coming quarters and are adapting our commercial efforts to target the right opportunity set. In our Strategic Markets, we are very excited about the prospects of our joint ventures with our partner banks. And we see meaningful opportunities to add new clients and volumes to our platforms in Italy, in Spain and in Greece. Turning to Page 6, looking at Portfolio Investments. In the wake of COVID-19, as we also showed at the Capital Markets Day, we expect a significant increase in the stock of NPLs in Europe. This is highlighted by the meaningful increase in loan loss provisions observed across European banks during 2020 and echoed both by external research reports and the ECB's own expectations. We believe we have a strong position to capitalize on the emerging opportunity with a strong back book performance and ample liquidity. Whilst the investment pace during 2020 remained at replacement rate, we are expecting to see a gradual increase in capital deployment to normalized rates over the coming quarters with a continued attractive returns environment. Turning to Page 7. As we presented at our Capital Markets Day, sustainability is at the core of everything we do. As discussed in November, we have formalized our ESG agenda and included setting specific ESG targets. To repeat what we talked about in November, these targets include, first, targets for ethical collections, where the target is to maintain the high level of value index above 80. The second is what we labeled sound economy for clients, target is to increase our client satisfaction score above 75. The third is to reduce our environmental impact, where the target is to achieve climate neutrality by 2030 and reduce our total emissions by at least 20% from 2019. The fourth is to attract and retain talents, where our target is to increase our employment -- employee engagement index above 80. And the fifth is around diversity and inclusion, where our target is to reach balanced gender representation in all leadership positions and among all employees. In terms of activities on our ESG agenda, it is worth highlighting that we have initiated the process to obtain a solicited ESG rating, and we are formalizing a sustainability-linked finance framework. We have also implemented guidelines to support pandemic-affected customers, and we have further assured our sustainable payment plan practices. Turning to Page 8. The transformation program is in full execution, and I'm very proud to see that our contact center in Athens is now up and running for the first 3 countries, and we expect to have 4 more countries to the center by March 2021. We also expect to open our second center in Bucharest during the first quarter. The spend on the program is running according to plan. And during 2020, we have consumed 18% of the total program budget. Turning to Page 9. In terms of the KPIs that we showed at the Capital Markets Day, we intend to continue to show you how we progress on these metrics each quarter going forward. We remain on track with the KPIs, and the case volume migration is limited to date as we expect to start loading more volumes to the new platform during the second half of 2021. In terms of the FTE cost to collect, we remain on track. And we expect to see more meaningful financial benefits to start to materialize in 2022 and especially 2023 when we can start decommissioning the legacy. And with that, I hand it over to you, Michael, to review the financials.

Thank you, Anders, and good morning, everyone. Turning to Page 11, group key financials. Q4 was a strong quarter, again highlighting Intrum's resilience, particularly against the backdrop of the developing second wave of the COVID-19 pandemic. Also due to a more muted seasonality pattern, the fourth quarter is normally very strong. Cash revenues decreased 3% quarter-over-quarter to SEK 5.601 billion, while cash EBITDA increased by 2% to SEK 3.124 billion. Expenses reduced by 8% to SEK 2.477 billion quarter-over-quarter due to the full effect of the 2019 efficiency program as well as continued focus on cost control. Cash EBIT for the quarter came in at SEK 1.523 billion, up 7% from Q4 2019. Cash EPS was SEK 9.58 per share for the quarter, and we generated a cash return on invested capital of 8.7% for the same period. When looking at the full year 2020, all cash metrics show clear improvement compared to 2019. Cash revenues came in at SEK 21.377 billion, cash EBITDA at SEK 11.607 billion and cash EBIT at SEK 5.58 billion. For the full year 2020, we generated a cash EPS of SEK 26.96 per share and a cash return on invested capital of 7.7%. The leverage ratio, supported by FX tailwinds, reduced to 4x, down 0.2x from the preceding quarter and 0.3x from the end of 2019. Continuous improvement in cash ROIC throughout the year, significant recurring cash EPS growth and the reduction in leverage ratio highlight the progress on the trajectory towards achieving all of our new medium-term financial targets. Briefly turning to reported numbers, EBIT adjusted came in at SEK 1.611 billion for the quarter and SEK 5.738 billion for the full year with items affecting comparability of SEK 411 million for the quarter and SEK 1.043 billion for the year. Looking at Page 12 and the growth of recurring cash earnings year-over-year. Cash revenue is up 6% to SEK 21.4 billion and cash EBITDA 9% to SEK 11.6 billion, highlighting the operating leverage. Cash EBIT and recurring cash earnings have increased even more significantly year-over-year. When looking at the operational drivers in our segments behind this development, a slightly weaker CMS contribution is more than offset by highly resilient cash flows from the Portfolio Investments and growth in the results from Strategic Markets. Overall, we see a trend of continuous improvement in the recurring cash earnings with significant growth year-over-year. This is particularly noteworthy against the backdrop of the COVID-19 pandemic and a testament to our strength and resilience. The recurring cash earnings yield on total shareholders' equity was 15% for 2020. Now focusing on the segments, I'm looking at Page 13. CMS experienced a continuation of the trend from previous quarters, somewhat lower case volume inflows due to COVID-19 and an adverse FX development negatively impacting cash revenues, which were down 7% quarter-over-quarter to SEK 1.099 billion and came in at SEK 4.375 billion for 2020. On the other hand, the segment had a very strong year in signing new business and goes into 2020 with a record pipeline, as Anders has mentioned. Cash EBITDA reduced to SEK 392 million in Q4, down 29% quarter-over-quarter. For the full year, cash EBITDA came in at SEK 1.891 billion. The development of the expenses is also reflective of the continued effort to support overall collection performance as well as being prepared for when inflows fully resume. For cash EBIT, we observed a similar development with SEK 280 million for the quarter and SEK 1.596 billion for the year. Segment cash ROIC decreased from 8% to 5.8% quarter-over-quarter and from 8.6% to 8.1% year-over-year. We expect the return of new case inflow volumes from existing clients to relatively rapidly translate into revenues, while the new signings mentioned before are expected to more gradually convert to revenues over the coming quarters and years. Turning to Page 14. Strategic Markets continued to improve, albeit at a slower pace due to the accelerating second wave of the COVID-19 pandemic. Particularly when looking at the quarter-over-quarter comparison, it is important to point out that Q4 is usually a seasonally very strong quarter. This was somewhat more muted in 2020. Cash revenues decreased by 9% to SEK 1.461 billion quarter-over-quarter, while cash EBITDA increased by 41% to SEK 914 million for the same period. Cash EBIT also improved significantly to SEK 875 million quarter-over-quarter. The quarterly segment cash ROIC, therefore, also increased from 13.3% in Q4 2019 to 21.5% in Q4 2020. Looking at the full year 2020 figures, I would again like to highlight the significant growth across all cash metrics with 2020 cash revenues at SEK 5.409 billion, cash EBITDA at SEK 2.722 billion, cash EBIT at SEK 2.539 billion and an improvement in cash ROIC of more than 5 percentage points to 15%. 2020 also marks the first full year of consolidating Intrum Hellas, our market-leading servicing platform in Greece. Focusing on Portfolio Investments, Page 15. Q4 proved to be a very strong finish to the year in the Portfolio Investments segment across our franchise, building on the remarkably resilient performance of the previous quarters. Overall, Portfolio Investments exceeded its pre-COVID-19 collection expectations, the active forecast, by 12% for the quarter and 2% for the full year 2020. Cash revenues increased by 3% to SEK 3.041 billion quarter-over-quarter, and cash EBITDA increased by 7% to SEK 2.243 billion for the same period. Cash EBIT also improved by 16% to SEK 834 million quarter-over-quarter. For the full year 2020, we observed a positive development of all cash metrics with 2020 cash revenues at SEK 11.593 billion, significantly up in a COVID year, cash EBITDA at SEK 8.545 billion, cash EBIT at SEK 3.19 billion and an improvement in cash ROIC to 9%. 2020 Portfolio Investments of SEK 5.012 billion were in line with the replenishment level. We maintained a steady investment pace throughout the year, and we're able to deploy capital at attractive returns, significantly above pre-COVID levels. Furthermore, approximately SEK 750 million of transactions won but not closed in 2020 were carried over into early 2021. Now looking at Page 16. Here, we have group Q4 items affecting comparability of net SEK 411 million into 3 clusters. First, alignment to accounting practice refers to an adjustment of methods and estimates with regard to calculating amortized cost using the original gross effective interest rate as well as significantly tightening the performance deviation criteria used to trigger revaluations. This resulted in a positive revaluation of the Investment Portfolios of in total SEK 899 million, reflected in revenue, and the negative revaluation of our shares in joint ventures of minus SEK 643 million shown in earnings from joint ventures. The net P&L effect of the alignment accounting practice was plus SEK 256 million in Q4. Second, portfolio revaluations reflect the outcome of our regular periodical revaluation process with revaluations of minus SEK 150 million reflected in revenue, real revaluations of minus SEK 21 million included in service line costs and the revaluation of shares in joint ventures of minus SEK 397 million shown in earnings from joint ventures. Total portfolio revaluations for the quarter amounted to minus SEK 568 million. The overall impact visible in the earnings from joint ventures line is primarily related to our Italian JV portfolio and also due to likely delayed cash flows and increased economic uncertainty versus our original expectations. Third, other items affecting comparability in Q4 came in at minus SEK 99 million. Turning to Page 17. The alignment to accounting practice I've just described also has an effect in our ERC curve. Tightened deviation criteria and the resulting net revaluations impact the ERC positively by implicitly capitalizing part of our consistent outperformance track record. The 180-month ERC at year-end 2020, therefore, increased to SEK 65.5 billion. As higher collection expectations are now already reflected in ERC, we expect a reduction in outperformance in comparison to historically observed levels going forward. In other words, we expect our actual gross collection performance to be more closely aligned with the active forecast going forward. Now looking at Page 18. The difference between our cost of funds and the last 12-month average unlevered underwriting IRR continues to widen and now stands at 4.2x. We, at the end of Q4, had available liquidity of SEK 17 billion, up SEK 1 billion from Q3 and no significant upcoming debt maturities before 2024. In addition, during Q4, we have also extended our revolving credit facility by 1 year. It now matures in January 2026. Turning to Page 19 and progress towards the new medium-term financial targets. LTM cash ROIC is continuously improving and now stands at 7.7% versus a target of greater than 10%. Recurring consolidated LTM cash EPS is exhibiting strong growth, supportive of the target of more than 10% growth on average per annum. Deleveraging is progressing well with a leverage ratio of 4x as of year-end 2020. This is in line with the trajectory to reach the 3.8x area at year-end 2021 and meet our target of a leverage ratio between 2.5x and 3.5x by year-end 2022. In summary, progress towards achieving our medium-term target is fully on track. And with that, back to you, Anders, for some final remarks.

Thank you, Michael. So if we turn to Page 21, so to summarize, the fourth quarter of 2020 was a stable and solid quarter given the circumstances. If we look ahead into 2021, we expect a somewhat uneven normalization through the year and recovery to accelerate during the second half of 2021. First half remains more difficult to predict due to the continued uncertainty relating to the pandemic development and their effects on the economies across Europe. However, we see an underlying buildup of business opportunities, both in relation to increasing servicing demand as well as gradual increase in portfolio sales activity in the market. Our ONE Intrum transformation program remains our core focus, and we expect to open our second multilingual contact center during the first quarter as well as broadening the scope of our asset center. We also expect to fully migrate the first country to the new operating platform and technology platform during the first half of 2021. So we have many exciting items on the agenda for the transformation program ahead, and we look forward to continue to update the market as we progress through the year. And with that, it concludes our presentation, and we can open it up for the Q&A.

[Operator Instructions] Our first question is from Robin Rane from Kepler Cheuvreux.

So starting with Italy in -- before Christmas, in Italian press, there were some comments on Intesa reviewing the partnership with Intrum. And I know that you, of course, will not comment on rumors. But from your perspective, is there any reason for you or for Intesa to review the current strategy and partnership in Italy?

Robin, yes, thank you for the question. You are right, we do not comment on press rumors. What we can say is we remain fully committed to our Italian partnership. We're very pleased with our cooperation and partnership with Intesa in Italy. And we see significant business opportunities emerging in the Italian market on the back of COVID, in particular, for the coming years, and we look forward to developing that partnership together with Intesa going forward. So we remain fully committed on that.

Okay. And then on the common group costs, I think you didn't really touch on that in the presentation. It was a pretty good development on the common group cost. Any comment from you guys on that one?

Let me take that one. What I would note is what I've also said in my remarks is that, obviously, we see the effect of the 2019 efficiency program coming through, and we have a very strong continued focus on cost control. In addition to that, it should also be noted that, as we've announced at the Capital Markets Day, we also have our transformation program ongoing, which is a little movement in the other direction, obviously. But I think we're very pleased with the overall results that we are managing to deliver that cost trajectory and carry out the transformation program at the same time.

Okay, very great. And then lastly, on revaluations. If I look at the sort of traditional P&L, there is quite a lot of quite large movements, both in the positive and the negative direction on revaluations on Portfolio Investments. Is this solely explained by the accounting changes? Or what's driving this?

I'll take that one as well. We've tried to break it down in the presentation by identifying what's related to the alignment to accounting practice and what is our more standard periodical revaluation process that, obviously, going forward, we'll take into account the tightening of deviation criteria that I've mentioned. So to answer your question, the alignment to accounting practice is very much a one-off effect. We will obviously continue with tightened deviation criteria to periodically, on a quarterly basis, review our portfolios, their performance and how we reflect them into ERC and book value.

All right. If I look at the P&L, you have SEK 3 billion positive revaluation and SEK 2.4 billion negative revaluation. So is this driven by the more regular process of revaluation? Or is this driven by the accounting change now?

From a -- the way we display it in our report, it obviously captures both elements, but the largest part is captured by the change to accounting practice. As you -- as I've described before, when we look at tightening the deviation criteria, we obviously capture a large number of portfolios or a larger number of portfolios than usual in terms of both underperformance but as well as over-performance. And historically, on average, we have delivered a very strong over-performance track record on average versus our expectations reflected in the ERC.

And our next question is from Julia Varesko from JPMorgan.

I have a couple of questions, please. The first one is on the new contracts. So you say you signed a record number of new client contracts. Could you please -- is there any way of quantifying this? Or maybe you could provide some color on the development by division, by region within the division, by sectors? And then related to that, when do you expect this to translate into a positive trend in revenues? And then I was wondering if you could provide some additional color on such a sharp contrast in performance between the Strategic Markets and the CMS. They both had year-on-year revenue declines, but there's such a sharp contrast in the margin development. What do you see going forward in terms of -- what's the sustainable level for Strategic Markets? And would you need to see for Credit Management to return to better margins in the new year?

Julia, thank you for the question. In terms of the new client contract signings, we don't disclose the detailed values per se. But what we can say is that we have a very positive trajectory, and it reflects the increasing demand for servicing business and CMS business and that trajectory. In terms of the contrast between CMS and Strategic Markets, I think that we should keep in mind that the CMS business has a greater proportion of early NPLs, meaning that we have much higher turnaround and more velocity in the turnaround of cases. And a lot of the cases we received are resolved in the first 90 days. And therefore, when new inflows go down, as we have seen during 2020, we see the impact in terms of translation into revenue faster. It's going to -- for the Strategic Markets, obviously, we have longer lead times, and these are claims that take longer time to resolve, and therefore, it's a much longer process. And therefore, those movements don't really translate into revenue declines of growth at the same extent as it does in the CMS business. In terms of the development into growth, I think that I commented a little bit of it. When we get the new contract signed, first, it needs to be onboarded and then it needs to go into full production. And there is a -- it depends on the contract type and the client. But you can have a 6- to 12-month lead time before you input production in such a contract. And therefore, you will see a gradual sort of positive effect into revenues from the servicing business and particularly for CMS. But also the other point on the CMS business is that, because of COVID, we have had a more limited new case inflow. We also expect to see normalization of case inflows back to pre-COVID level throughout the 2021 year and particularly in the second half of 2021. And therefore, you would -- we are expecting to see both effects being a positive contributor to the CMS segment in particular during the year. In terms of margins, especially on the CMS business, as was noted, we had a more challenging margin development in the fourth quarter, and it's, to a large extent, driven by the inflow pattern. The -- as we then see volumes coming back, we're also expecting to see gradual improvement in the margin picture for the CMS business. Medium term, we also expect to see that the transformation program will have a positive contribution also on the margin side, of course. I don't know, Michael, if you want to add something to that.

No, Anders, you've covered it very well. It's exactly as you say. Obviously, we see that decline in inflows on existing contracts. But given that when inflows resume and the rather fresh nature of those cases on average, we then also expect revenue to come back rather quickly. And on top of that, we have the gradual phase-in of the revenues from the contracts we have signed. What needs to be noted there is that the effect on those signed contracts, depending a little bit on the nature of the contract and product mix, is often cumulative as you build volumes up over time.

That's very helpful. Maybe I can just ask kind of a clarification on the portfolio revaluation. If collections are running on track and above plan, why are we still seeing kind of sizable -- relatively sizable negative items on that line? And how should we model them going forward?

This is a good question. As we said, the majority of this is displayed in the presentation, pertains to an alignment to accounting practice. From a going-forward perspective, I would point to the fact that we will continue with our regular pattern of revaluing portfolios and looking at the performance portfolios on a quarterly basis. What we do expect is that we will, due to the tightened performance criteria, capture more portfolios in each of these exercises as well on the underperformance side as on the over-performance side.

[Operator Instructions] Our next question is from Ramil Koria from SEB.

A few questions from my side, just more or less clarifications. But first off, could you perhaps just touch upon why you decided to do this alignment of accounting practice this quarter? And I'd say, I guess, a follow-up to that, should we, just based on what you just said, Michael, about revaluation deviation narrowing, should we expect more volatility in the revaluation line item moving forward as well?

Ramil, thank you for your question. In terms of why, that's a very easy answer. As the market leader in our industry, we continuously review our best practices together with our advisers and auditors. And we felt that this change to methods and estimates would be reflective of applying best practices in terms of looking at our best estimate of our expectations for an essentially larger part of our over and underperforming portfolios, which I reflected as tightening of deviation criteria. So that's a natural evolution. In terms of the second question that you had, as I've pointed out before, we will essentially capture more over and underperforming portfolios because we have tightened that deviation band. In terms of the pattern of revaluations going forward, again, if you look at our historical track record, we have delivered a very stable performance over time, also due to the very significant diversification we have across our book.

Right. That's clear. And then a follow-up on the margin comment about turnover of servicing volumes in CMS versus Strategic Markets. Should we, just looking, let's say, 6 months out, the coming 2 quarters, should we expect the margin step-up in Strategic Markets and the margin step-down in CMS to be reflected in H1 as well given your comments?

I think the first comment to that, Ramil, is that I would say that the first half of 2021 will continue to be very difficult to predict very accurately because of the continued impact of the pandemic on economies across Europe. I think trend-wise, as I tried to outline in my comments earlier, we would expect that as we see volumes normalize under our existing contracts as well as the addition of and putting into production the new contracts and the positive momentum we have in terms of adding new contracts for servicing, that translates into more revenue and thereby also contributing to margin improvement gradually as we progress. And the exact pattern during the first and second quarter will be -- continue to be very challenging to predict with high degree of accuracy because of the uncertainties that we continue to live with for some time. But I don't know, Michael, if you want to add to that.

Yes, Anders, I would put it into the framework that we used during the Capital Markets Day, where we very much spoke to normalization and then transformation. So I think the normalization concept is applicable to both CMS as well as Strategic Markets. And as you pointed out, Anders, the next couple of months are somewhat more uncertain given the unpredictable development of the pandemic. But when we look at that in terms of gradual normalization over the course of the year, we can see a return on the CMS side as inflows resume to where we used to be. And then obviously, we see an impact of the transformation program gradually overlaid on top of that. In the Strategic Markets, I would argue, quarter-to-quarter, it's due -- it's also potentially a little bit more volatile due to the uncertainty that we've pointed out. But also there, we see normalization and then transformation.

It's very clear and, of course, fully understandable. So looking into 2021 again and touching upon investment volumes, perhaps, could you elaborate a bit on your willingness or your ability to remain forward-leaning and perhaps invest more than replacement CapEx? And then as a follow-up to that, I mean, we're seeing a GMM step-up in this quarter. And obviously, that comes with mix, et cetera. How should we reason on that specific line item given cash metric modeling moving forward?

Yes, maybe I can start. Thank you, Ramil, for the question. In terms of the market outlook for the Portfolio Investments business, as we've commented upon, the 2020 year was characterized by significantly lower-than-normal volumes coming for sale in the market. And we have been continuously investing at a stable rate in terms of volume per quarter through the year and at significantly improved and more attractive returns. Looking into 2021, and as we also lay out here, obviously, we have strong back book performance, we have ample liquidity and we are making good progress on our leverage ratio, which gives us the possibility and the prerequisites to normalize also our investment level. We would expect that as the market volumes return into the market. Still -- and comment on the first half also applies here, it's more difficult to predict exactly how it will pan out in the first 2 quarters. But certainly, in the back half of the year and going into 2022, we would expect a meaningful pickup in activity level in the market and also our ability to deploy capital, we would expect to gradually normalize to a level which has been more akin to the previous years, which we would label a normalized level of investment that also then is driving growth in investment business on an ongoing basis. So again, a gradual improvement and gradual increase in that volume. And from a pricing perspective, we see attractive opportunities. So we'll continue to invest at attractive rates. But then again, exactly where it will pan out, it's difficult to predict. But as we said at the Capital Markets Day, our view is that it will most likely end up in between the pre-COVID levels and the Q2 levels that we saw at the height of the price resetting during last year. But the outlook is positive from an investment point of view.

And perhaps just -- yes, go ahead. Sorry.

Yes. Just touching on your second question. I think you're referring to the money-on-money multiple used in the calculation of the replenishment CapEx. I think there, what we have to note is that we see certain changes quarter-over-quarter depending on what type of portfolios we invest in. And therefore, we see the average of the last 4 quarters is the most appropriate indicator of what kind of levels we can invest in at any given point in time. And so for the last 4 quarters, that is 2.08x.

Great. That's crystal clear. A final one from me, if I may, on the topic of the SPV write-down here. To my knowledge, 1/3 pertains to, call it, underperformance. But you didn't do any write-downs in connection with the larger write-down in Q1 on -- for the Intesa portfolio. Could you just take us through the timing element here? I mean the pandemic should be behind us, at least the worst -- the first wave, which was probably the worst one as well. Why does this write-down come now and not in Q1?

Thank you, Ramil, for the question. What we have to note here is that as of Q1, it was very difficult to predict how exactly the pandemic would play out in terms of duration and severity. And if we go back to that point in time, Italy was one of the jurisdictions that was particularly affected. So what we have done now is looked at where we believe things will go, and we've taken a prudent view both in terms of likely delays as well as the macroeconomic uncertainty. And therefore, this was the appropriate point in time to make this adjustment.

And also, I mean, just to add to that, Ramil, I think that it's also -- if you look at the efficiency of the legal system in Italy, in particular, we have seen a significant slowdown. If you look at the real estate, court auctions have been at about 50% level compared to the previous year, so the expected level for the year pre-COVID. And that, in itself, obviously, we expect to normalize in terms of speed and throughput, but it also means that we have the backlog in the system overall, which we'll live -- we have to live with for one, which is part of creating those delays that Michael is pointing towards.

And our next question is from Ermin Keric from Carnegie.

If I could start on the revaluation, could you just confirm if you've also done some tail extensions that are included in the alignment to accounting practice? And if so, how much is that impacting?

Thank you, Ermin. The way to look at this is when we talk about tightened deviation criteria, it means that we capture a very significant portion of our portfolios, both in terms of under as well as over-performance. And then we review that against our best estimates for those portfolios versus what we currently have as an active forecast. And best estimates in this context refers both to quantum as well as timing, so duration. So the net effect, as you can see in the ERC curve, is then an overall increase, but also a lengthening of the curve.

Okay. And just so I also understand, now with the sort of narrowed span on when you're doing revaluations, how should we think about over-collections going forward? Should we expect them to basically average to 0? Or should we still expect some slight over-collection as historically?

Very good question. In terms of the very near term, as we said, there, we see a little bit more uncertainty in the general picture. Overall, we expect the over-performance to come closer to the active forecast.

Okay. That's very clear. And then on the cash tax. And if I look at the cash EBIT bridge, it's SEK 128 million. Well, if I look in the cash flow statement, it's SEK 623 million, I believe. What's the differential made up of there?

There is -- in Q4, we had a one-off tax payment, which refers to an imbalance that's been built up over time between local GAAP and IFRS as well as a tax rate differential between jurisdictions. We've accrued for that on the balance sheet, and we've now settled it in Q4. But it effectively refers to that historical imbalance that will not be the case anymore going forward. So it's a very specific item. And we also define our cash taxes and normalized cash tax to be reflective of the true underlying trend there.

Okay. And then if I may, just on the returns on your new acquisitions, have they normalized anything more since we talked this summer? I mean, during fall, while we're looking to you, you said that perhaps levels you saw during -- or has the dynamic during spring would be normalized gradually during the year? Have you seen that playing out? And kind of where are we now if we would just take Q4 relative to pre-COVID?

Anders, do you want to comment? Or do you want me to take it?

I can start on that. Thank you, Ermin, for the question. If we look at the underwriting trends through the year, we saw, as we commented upon also around the Q3 report, a bit of a peak in returns and the trough in prices in the second quarter, we saw a somewhat normalized pattern in the third quarter. But we also were quite consistent in the fourth quarter underwriting at a level which is significantly above the levels that we saw in 2019. So we have seen now -- and we would expect that the levels that we've seen during the second half also is more indicative of the levels going forward, which is a significant uptick to the pre-COVID levels. So I think that overall, when compared to 2019, for instance, we see a meaningful uptick. It's not quite at the levels we saw in Q2, but it's a meaningful increase compared to the pre-COVID levels. And that's sort of -- it's basis for the guidance that we have tried to give in terms of ending up sort of somewhere in between the 2. But it has been a fairly good development in the fourth quarter as well, albeit on lower-than-ordinary volumes in the fourth quarter compared with the fourth quarter to a normal fourth quarter.

And our next question is from Peter Testa from One Investments.

Just a couple of questions, please. Just carrying on, on the point on PI collection. Can you just give a sense as to why you think the collection rates have stayed higher than projected? And what, therefore, would bring it back to your projected levels?

Overall, what we can say on the PI collection performance is that it has continued to be very resilient despite the COVID pandemic backdrop through the entire year. And fourth quarter, we had strong seasonal performance and strong performance overall and was very broad-based. So very pleased with that. And we continue to obviously focus a lot on continuing to maintain and continue to improve our collection performance on our portfolios. And we see very -- less than one could have feared, if you will, given the continued restrictions we saw during the second wave, and the impact from that was much more limited than what we saw, for instance, during the first wave in the second quarter. So very pleased with that performance.

Anders, if I may add to that, I think it's also important to see here that our PI segment is composed of a very, very large number of individual portfolios that are very diversified in all dimensions. So what this performance is also a testament to is the fact that we've built the gross collections on a very large number of individual payments and employing sustainable collection practices. We ensure that we can maintain that track record even in times where the macroeconomic backdrop is somewhat more challenged. So it really highlights the resilience both of the way we've constructed the book and the collection practices that we employ.

Okay. But why should it normalize, therefore? I mean it sounds like you're doing much better than expected on internal efforts.

I believe the normalization...

Well, I mean -- sorry, Michael. Go ahead.

I believe the normalization Anders was referring to was also in terms of the returns we invest in for new portfolios. In terms of normalization on the portfolio side, in terms of the performance there, what we would note is that historically, we've had a more significant outperformance than the one shown this year. However, with the alignment to accounting practice, as I've noted before, we would expect that to come closer to the expectations now reflected in our ERC curve.

And let me clarify then. It's because the ERC curve is slightly higher then because of the upward revision rather than the collections coming down.

Right. Okay. And then just on the Strategic Markets, Greece is obviously performing extremely well. You could see it in the margin. We saw, when you started with Italy, there was an element, let's say, low-hanging fruit. And after a period of time, it normalized. Do you expect that in Greece? Or are you also seeing then something different on flows, et cetera, which give you some confidence that this is sustaining at a high rate going forward?

In terms of the Greek business, as we said, we're very pleased to see the performance of the Greek business in -- especially in light of COVID and being able to generate our original business plan in a COVID year for the full year of 2020. In terms of the performance going forward, it's -- we have a very stable outlook for Greece, and there's obviously opportunities in the market also to continue to grow with new opportunities. So we're looking very optimistically on the Greek market. In terms of the margins, they have been strong. And also, we have continued to be able to work on the cost efficiency of the Greek operation. So from that perspective, we'd see more of a stable development from a margin perspective in the Greek business going forward.

Okay. So you'd expect the high margins and high collection rate to continue to benefit the P&L like you've seen in 2020?

Yes. We have no reason to see that coming down from the current levels. So...

Okay. And then just on Italy, you've talked about kind of some different views going forward on collection and economy at such a legal system. How should we view the joint venture performance after the accounting adjustments taken? Do you expect that to basically encompass the P&L impact we would have seen going forward? Or do you also expect to see lower P&L performance at that joint venture for a period of time?

Do you want to answer that one?

Michael?

Yes, indeed. I think when you refer to joint venture, I believe you're referring to the portfolio. What we have tried to do is, in the appendix, we've also laid out what we expect or the expectations we have and how they are reflected into our estimated remaining collections curve. So I would direct your attention to the appendix there. And obviously, given the revaluation, that expectation has come down somewhat compared to the prior expectation.

[Operator Instructions] And our next question is from Rickard Hellman from Nordea.

Just one question is about your deviation criteria or your new deviation criteria. If you could shed some light about what kind of levels you are using now in terms of bulk or thresholds for write-downs and -- yes.

Thank you for your question. We don't disclose the precise criteria. However, what is important to say here is that if you look at our historical track record, we've consistently produced an outperformance versus expectations. So aligning with best practices, we have tightened those criteria, so we capture more under as well as over-performing portfolios in those regular exercises, which then, in turn, will bring down that outperformance as the track record is effectively already reflected into the estimated remaining collections curve.

Yes, I see. Yes, I did not expect you to give me a number, but at least I need to try.

Thank you. I think we're coming up to 10:00 now, so we need to round up the call now.

So there are no further audio questions. So any final words before we close the event?

Okay. Thank you so much. Thank you all for participating. And yes, we look forward to speaking to you again at the next quarter, but that's, I think, all for us today. So thank you all for joining. Goodbye.

Thank you.