Interim report January - June 2015 July 31, 2015 Continued stable earnings and growth
Introduction to Hoist Finance Introduction Established in 1994, Hoist Finance is a leading debt restructuring partner to international banks Main focus is the acquisition and management of bank-originated non-performing unsecured consumer loans (NPLs) 20 year track record of successfully acquiring and collecting on more than 1,550 NPL portfolios Amicable collection process striving for sustainable repayment plans Licensed and supervised by the SFSA with access to cost-efficient deposit funding base, HoistSpar, in Sweden (98% of deposits covered by Swedish deposit guarantee scheme) Diversified funding through senior and subordinated unsecured bonds in SEK and EUR Clear focus on debt purchase and FIs 16% Pan-European presence in nine countries Funding operations (HoistSpar) and Headquarter Debt Purchasing and Debt Collection operations 22% 14% Carrying value (1) 9.0bn 23% 25% PRODUCT MIX (2) Revenue Q2 2015 TYPE OF DEBT (3) Carrying value 30 June 2015 Third-party collections & Other 10% Trade & Other 2% Debt Purchase 90% Financial Institutions (FI) 98% Focus on bank originated debt 1) Including run off portfolio of consumer loans and portfolios contained in joint venture 2) Third-party collections and other ratio defined as revenue from servicing divided by total revenues 3) Financial institutions ratio defined as unsecured B2C FI debt to total. Trade & Other include unsecured B2C Retail, Secured and Other 2
Highlights Q2 Key events during the quarter Continued stable earnings and growth High market activity with negotiations and acquisitions in multiple markets Increased operating expenses mainly due to aqcuisitions and greater business volumes and to the rise in legal collection activities, primarily in the UK Negative impact from one-off financial items Major efforts on preparation for the Compello acquisition that was finalised on 1 of July Acquisitions were completed very late in the quarter and will generate revenue as of Q3 Platforms in Italy and Poland acquired in 2014 perform and deliver according to plan S 3
Seasonality in portfolio acquisitions Prerequisites Outcome SEK million 3 500 The timing of our portfolio investments are uneven during the year. 3 000 Q3 pro-forma including Compello 2 500 Acquisitions in the second quarter of 2015 were somewhat below the same period in previous years, and in addition completed very late in the quarter 2 000 1 500 1 000 Very strong start in the third quarter, including the large Compello transaction 500 0 2013 2014 2015 Q1 Q2 Q3 Q4 4
Second quarter key financial highlights Gross cash collections (SEK million) EBIT (SEK million) Jan-Jun 2015 includes IPO costs of SEK 46m that have a negative impact on EBIT 253 276 615 834 1,151 1,625 132 161 Q2 2014 Q2 2015 Jan-Jun 2014 Jan-Jun 2015 Q2 2014 Q2 2015 Jan-Jun 2014 Jan-Jun 2015 Total revenue (SEK million) Portfolio acquisitions (SEK million) 1,330 401 537 759 1,036 897 665 938 Q2 2014 Q2 2015 Jan-Jun 2014 Jan-Jun 2015 Q2 2014 Q2 2015 Jan-Jun 2014 Jan-Jun 2015 5
Financial highlights SEK Million Q2 2015 Q2 2014 Change % Jan-Jun 2015 Jan-Jun 2014 Change % Gross cash collections 834 615 36 1,625 1,151 41 Net revenue from acquired loan portfolios 477 347 37 912 653 40 Total revenue 537 401 34 1,036 759 37 EBIT* 161 132 22 276 253 9 EBIT margin, % 30 33-3 pp 27 33-7 pp Financial net -108-76 -42-212 -147-44 Profit before tax* 52 56-6 59 106-44 Net profit for the period* 44 44 0 48 82-41 Acquisition of loan portfolios 665 897-24 938 1,330-29 * The Jan-Jun 2015 period includes IPO costs of SEK 46m that have a negative impact on EBIT. 30 Jun 2015 30 Jun 2014 Change % 31 Dec 2014 Carrying value of acquired loans, SEK M 1 9,040 7,386 22 8,921 Gross ERC 120 months, SEK M 2 15,316 12,182 26 15,576 Return on equity, % 11 16-5 pp 16 Total capital ratio, % 15.28 12.74 3 pp 12.17 CET1 Ratio, % 12.58 9.24 3 pp 9.35 Liquidity ratio, % 59 41 18 pp 50 Number of employees (FTEs) 1,174 792 48 1,077 1) Including run-off consumer loan portfolio and portfolios held in joint venture 2) Excluding run-off consumer loan portfolio and portfolios held in joint venture 6
Regional overview Germany and Austria Comments SEK million Q2 2015 Q2 2014 Change Full year 2014 Gross cash collections 210 155 35% 724 Total revenue 104 88 18% 446 EBIT 43 35 24% 224 Gross cash collections up 35%, mainly attributable to two large acquisitions EBIT improved with 24% as a result of increased collections where operating expenses have increased to a lesser extent Carrying value increased by 10% due to higher acquisition activity EBIT-margin, (%) 42 39 3 pp 50 Carrying value 1 2,221 2,010 10% 2,350 120-month ERC 2 3,616 3,235 12% 3,817 1) Including run-off portfolio of consumer loans 2) Excluding run-off portfolio of consumer loans 7
Regional overview France, Belgium and the Netherlands Comments SEK million Q2 2015 Q2 2014 Change Full year 2014 Gross cash collections 234 192 22% 733 Total revenue 90 79 14% 256 Gross cash collections increased 22 % with non-recurring contributions from Belgium accounting for parts thereof Aquisition levels lower y-o-y and were primarily conducted in the Netherlands Restructuring in France running according to plan and budget; office in Guyancourt about to be closed EBIT 41 33 24% 61 EBIT-margin, (%) 45 42 3 pp 24 Carrying value 1,982 2,084-5% 2,194 120-month ERC 3,178 3,423-7% 3,512 8
Regional overview UK Comments SEK million Q2 2015 Q2 2014 Change Full year 2014 Gross cash collections 163 125 30% 527 Total revenue 170 106 61% 458 EBIT 39 40-3% 181 EBIT-margin, (%) 23 38-15 pp 40 Carrying value 1,900 1,438 32% 1,798 Gross cash collections up by 30% as a result of acquistions in second half of 2014 Operating expenses increased as a consequence of adjusting the workforce to acquired business volumes and a rise in legal collections activity Increased litigation activity affecting EBIT margin in the short term, but will support cash collections in the medium to long term In y-o-y terms acquisition level was down, but this will be compensated by the strong start to Q3 due to the acquisition of Compello 120-month ERC 3,335 2,496 34% 3,391 9
Regional overview Italy Comments SEK million Q2 2015 Q2 2014 Change Full year 2014 Gross cash collections 127 61 110% 261 Total revenue 87 38 127% 170 EBIT 42 24 75% 64 Gross cash collections up 110% as a result of the strong investment level last year Operating expenses increased as a result of the fact that we now operate our own collection platform, combined with the implementation of extensive collection activities for the large portfolios acquired in 2014 Acquisition activity has been somewhat lower, y-o-y EBIT-margin, (%) 48 63-15 pp 37 Carrying value 1,264 519 144% 1,181 120-month ERC 2,443 839 191% 2,407 10
Regional overview Poland Comments SEK million Q2 2015 Q2 2014 Change Full year 2014 Cash collections continued to grow, up 22% y-o-y Gross cash collections 99 82 22% 296 Total revenue 73 78-6% 279 EBIT 51 61-15% 202 EBIT-margin, (%) 71 78-7 pp 72 EBIT margin remain on a very attractive level and reflect a profitable market in which we have historically acquired portfolios with good returns Integration of Navi Lex progressing well. In connection with this further portfolios undergoing review leading to changes in portfolio valuation amounting to -6 MSEK. Acquisition activity picked up significantly in Q2 Carrying value 1,449 1,115 30% 1,182 120-month ERC 2,744 2,189 25% 2,449 11
Balance sheet Balance sheet structure 30 June 2015 Balance sheet development SEK million SEK million 30 June 2015 31 March 2015 Change Cash and interest-bearing securities 7,675 7,429 3% Acquired loans 1 9,040 8,827 2% Cash and Interest-bearing Securities 44% Liquidity Reserve Floating Deposits Other assets 688 593 16% Total 17,403 16,849 3% Other Liabilities Deposits 12,768 12,317 4% Senior unsecured debt 1,459 1,464 0% Subordinated debt 335 334 0% Acquired Loans 53% Termfunding 1-3 Year Deposits Senior Unsecured Debt Other liabilities 694 608 14% Shareholders equity 2,148 2,126 1% Total 17,403 16,849 3% Subordinated Debt Other Assets Shareholders Equity (incl. Tier 1) 1) Including run-off portfolio of consumer loans and portfolios held in joint venture 12
Managing our competitive funding with focus on the long term Recent development Near term outlook Lowering offered deposit rates Strive for diverse funding, reducing mismatch Exceptionally large liquidity portfolio, with poor realized yield Adjusting offer in sync with market Instant effect on current accounts; effect on term deposits linked to maturity profile with current turnover in stock being modest Partial buy-back of SEK-bond initiated in Q2 Deposit mix gradually moving towards term Composition unchanged; very low risk, short tenor, close to zero yield Liquidity available to accommodate potentially large acquisitions (e.g. Compello in early Q3) Unfavorable credit spread development impacting net interest income in Q2 by -13 MSEK, although aim is to hold to maturity Confident in current funding strategy Capacity to acquire, even if net deposit flow would turn negative in some period Further bond issues unlikely in the near term 13
Funding structure, capital- and liquidity ratios Funding structure Capital ratios 13% 11% 2% 3% 9% 7% Equity Subordinated debt Senior unsecured debt 12.58% 13.28% 9.24% 10.74% 15.28% 12.74% 32% 20% 1-3 Year deposits Floating deposits Common Equity Tier 1 capital ratio Tier 1 capital ratio Total capital ratio Q2 2015 Q2 2014 44% 59% Liquidity ratios Q2 2015 Q2 2014 Improved capital ratios 59% 41% Improved maturity matching Strong liquidity ratio Liquidity ratio Q2 2015 Q2 2014 14
Our strategy and financial targets Cornerstones of our strategy Our financial targets TO CONTINUE TO POSITION THE COMPANY AS THE LEADING DEBT RESTRUCTURING PARTNER TO INTERNATIONAL BANKS Strengthen platform in current markets and continue European expansion Maintain business focus and underwriting discipline Optimize collection strategies with primary focus on in-house collections Utilize embedded operating leverage to increase efficiency Maintain solid capital and liquidity positions Profitability Capitalization Dividend policy By utilizing our operating leverage we aim to achieve an EBIT margin of above 40% in the medium term Common equity Tier 1 capital (CET1) ratio to exceed 12% with potential to temporarily go below as a result of large portfolio or goodwill acquisitions As we continue to foresee substantial acquisition opportunities in our markets we will initially aim to distribute around 25 30% of our net profit as dividend over the medium term. Given the historically strong cash flow generation of our business, our long term aim is to distribute around 50% of the annual net profit as dividend 15
Acquisition of large portfolio in the UK Hoist Finance has acquired debt purchase company Compello Holdings Limited Biggest deal to date for Hoist Finance The acquisition includes: A diversified banking portfolio, consisting of more than one million banking claims originated by 19 different financial institutions An established and proven collection platform with 178 FTE:s bringing additional capacity to one of our most important markets The portfolio has approximately SEK 2,823 million 10-year ERC The total amount of the investment is SEK 1,256 million No acquisition goodwill S 16
Outlook Continued focused strategy on profitable growth and geographical expansion Well positioned to capture growth opportunities in the market Positive trend with substantial amount of portfolios in pipeline Pricing harmonisation between countries Target for FY 2015: purchase volumes in line with or higher than 2014 17
Key takeaways Q2 well in line with our expectations with stable earnings and growth High market activity Platforms acquired in 2014 well integrated and performing according to plan Strong balance sheet Good start of Q3 with single biggest deal to date 18
Appendix
Cash flow (incl. Adjusted EBITDA) Adjusted EBITDA reconciliation Adjusted EBITDA development SEK million Q2 2015 Q2 2014 Jan-Jun 2015 Jan-Jun 2015 Full Year 2014 SEK million Net profit for the period 44 44 48 82 180 + income taxes 8 12 12 24 38 + portfolio revaluations 6-9 - 15 - interest income (excl. interest from run-off performing portfolio) 12-12 7-23 -52 + interest expense 93 82 185 166 345 +/- net result from financial transactions 4 7 24 4 18 + depreciation and amortisation 11 7 22 14 30 EBITDA 178 140 307 267 574 + amortisation on run-off portfolio 17 23 37 54 91 + amortisation on acquired loan portfolios 354 278 710 519 1,128 Adjusted EBITDA 549 441 1,054 840 1,793 441 +24% 549 840 +25% 1,054 1,793 Capital expenditure PPE and IT -10-8 -23-14 -79 Operating cash flow 539 433 1,031 826 1,714 Net interest expenses (excl. Interest from run-off performing portfolio) Operating cash flow after financing expenses -105-70 -192-143 -293 434 363 839 683 1,421 Q2 2014 Q2 2015 Jan-Jun 2014 Jan-Jun 2015 Full year 2014 Portfolio acquisitions 665 897 938 1,330 3,227 21