Hoist Finance Q1 report for 2025. For the first part of the conference call, the participants will be in listen-only mode. During the question-and-answer session, participants are able to ask questions by dialing pound key five on their telephone keypad. Now, I will hand the conference over to CEO Harry Vranjes and Acting CFO Magnus Söderlund. Please go ahead.
Thank you. Good morning, everyone, and welcome to this Hoist Finance earnings call for the first quarter of 2025. I am Harry Vranjes, CEO of Hoist Finance, and next to me, I have Magnus Söderlund, our Acting CFO for his first presentation, and Karin Tyche, our Chief Investor Relations Officer. Before we dive into the numbers and the highlights, I just want to thank you all for your interest in Hoist Finance. We will try to run through the presentation today in 30 minutes to leave room for any questions you may have, as usual. First, just very shortly about Hoist Finance for those of you who are new to us. On a high level, our business model is very simple. We acquire portfolios of non-performing loans from banks at significant discounts, historically an average discount of 90%.
Basically, we buy on average for 10% of nominal value. Now, to then reach our financial targets, we manage these portfolios, and we collect circa 20% of that of the nominal value. We do this in a banking suite, or more specifically, a credit market company suite, that enables us to have a stable and cost-effective funding source in the form of deposits from the public. In an industry that is undergoing significant change, we are and will continue to be a capital-heavy industrial actor, and we strive to become the leading investor and asset manager of consumer and SME non-performing loans in Europe. The first quarter of 2025 has been another very active quarter for Hoist Finance on many fronts. During February, we received clarity on the interpretations of the two outstanding criteria for the qualification for so-called specialized debt restructuring.
Now, this has triggered a host of activities within Hoist Finance, mainly with regards to our funding, where we've replaced all our flex accounts with three- to six-month term accounts. All of these activities were completed before the 31st of March, so before the end of the quarter. As you need to fulfill the SDR criteria per every reporting date during the preceding year, we now conclude that we are on track to notify as an SDR in 2026. Now, let's dive into the material. Key highlights from Q1. Profit before tax came in at SEK 332 million, compared to SEK 279 million in Q1 of last year. The market uncertainty or turbulence towards the end of the quarter and FX had only a minor impact on the income statement, more on the balance sheet, but Magnus will take you through this later in the presentation.
Our core measurement, return on equity, came in at a strong 16.7%, driven by the core underlying business. As we continue to execute on our strategy, the underlying core is now generating profit to a higher and higher degree. Those of you who followed us already in 2022, 2023, you know that we had a lot of positive one-off effects that drove the result. Now it is the core business. We closed portfolio investments of SEK 1 billion in the quarter at good returns. After, I guess we could call a sleepy January, the market woke up and is now very busy. Our investment team is currently working on 60 transactions across Europe. Now, volumes and pricing in the market are still attractive, but as you know, investment levels will continue to be lumpy between quarters as our average portfolio size keeps going up.
During April, so after the quarter ended, we signed acquisitions for an additional SEK 1.3 billion that we expect to close now during Q2 and Q3. Our portfolio now stands at SEK 29 billion, which corresponds to a 10% increase year-on-year, but FX adjusted, that would be like 16%. Now, the FX is also the main reason the book shrinks between Q4 and Q1 this year. Now, net interest income up 19% compared to Q1 last year, despite the added cost of the liquidity portfolio. A 19% interest income growth versus a currency-adjusted portfolio growth of 16% means that our so-called operating leverage continues to expand, much benefited by cost control as well. Now, collection performance came in a solid 103, and we keep continuously improving efficiency in all units and with our collection partners around Europe.
This cost structure that we have spent the last few years building has helped mitigate the lower investments in the quarter, just as it should for an investment business. During Q1, we also called our Euro 81 of EUR 40 million without replacing it with another 81 instrument. You will not see the full effect in Q1 as we paid the full year coupon in February, but that is now not reoccurring. In the quarter, we also issued senior preferred and non-preferred bonds for a total of SEK 1.45 billion. As you can see, our capital and liquidity position is very strong, and we have ample purchasing power. Our CET1 ratio came in at 13.1%. With that, I will hand over to Magnus to take you through the numbers in detail.
Thank you, Harry, and thank you all for joining this call. If we start with our financial summary. For Q1, we're delivering a solid quarter from an earnings and returns perspective. We have SEK 332 million in profit before tax, which is a 19% increase from last year, and a return on equity of 16.7%. This is slightly lower, the ROE, than last year's 18.4%, but that was also partially impacted by a materially lower than usual tax rate for the quarter that related to timing differences. We have a net interest income of SEK 920 million for the quarter, which represents a growth of 19% versus last year. Our net interest margin remains at good levels at the same time as we are meeting all requirements of becoming SDR compliant, also with the increased cost that brings.
Looking at the cost side, we have no material extraordinary one-off costs to consider for the quarter during 2024. We have completed our restructuring with the extraordinary costs reported, particularly in Q2 to Q4. Whilst the extraordinary costs, one-off costs, will likely appear also in the future, it will be to a lesser extent. Our ambition is to be less volatile than previous years on the cost side. We're seeing the benefits from the completed rejuvenation program and further restructuring activities during last year coming through now in Q1. We are growing the book by 10% or 16%, excluding FX, and we remain cost flat versus Q1 last year, but we also did not have any material one-offs in the P&L. Looking at our cost-to-income ratio for Q1, it comes in at 68% to be compared to last year with a 71%. We are very happy about that improvement.
As Harry concluded, we saw rather sharp FX impact towards the end of Q1. The size of our book decreases versus last quarter by roughly SEK 1.7 billion. Out of this, SEK 1.5 billion is driven by FX movements that occurred in the later days of the quarter. For the P&L, the impact was not as significant since it is average currencies of the quarter, but for the portfolio, which is reported as point in time, the impact was more significant. All in all, we are very happy with the results for the quarter and the fact that we are managing a 16% growth in our book with a flat year-on-year. Next slide, please. Investments. Volumes come in at roughly SEK 1 billion for the quarter, which is a relatively low number compared to our quarterly average run rate during 2024.
Also in our line of business, some quarters are slower than others and some more intense. For instance, Q3 of last year where we acquired close to SEK 4.5 billion. We remain disciplined in our investment and pricing strategy. We are very data-driven and granular in our cash forecasts when assessing new deals, and we are very careful to minimize the level of assumptions in our valuations. Hence, the risk level of our book is in a very good place, which is also proven by our collection performance, which has been above forecasted levels throughout the whole of 2024 and now also in Q1 of this year. We are in a supportive market where we are still seeing good and healthy return levels, and we believe this will continue and support us as we see a shift in the market to more capital-light business models for some of our peers.
We have a really strong business model, and our funding capabilities continue to be a competitive edge for us. As Harry mentioned, we have signed the additional deal sequel to a book value of SEK 1.3 billion in Q2, which we expect to close and implement later this year. We remain convinced and aligned to meet our plan of SEK 36 billion in book value at the end of 2026. We also have a very healthy and big pipeline that will provide many good opportunities during the rest of this year. It is also worth mentioning we are continuing with our strategic partnerships to expand our sourcing network. We are continuously working with servicing partners, industry, and financial peers to source and potentially co-invest where we see fit. In Q1, our cooperation with co-investors represented a total share of roughly 25% of the total acquired portfolios.
is also worth iterating that we will always only report and show our share of all co-investments in the balance sheet and P&L. Next slide, please. The mix of our assets and the geographical spread remains similar to last quarters. We have a healthy diversification of the book with granular risk monitoring and a very low single risk exposure. We have a solid pan-European presence and geographical diversification. Our main two asset classes we invest into remain to be secured and unsecured. There are a couple of subsectors as well, but those are the main asset classes. Our collection performance is the evidence of a healthy book and risk profile. If we go to the next slide. Looking at our operating leverage, we continue to see an increase in operating leverage and scale effects also during Q1.
We have a growth in the book, 16% as mentioned, excluding FX. The profit before tax increased by 19%. We are growing our net interest income by 19%, whilst remaining cost flat year-on-year. This is a result of our cost control activities and completed restructuring work in last year. We are obviously also actively working with further cost efficiency improvements in our daily business. We can go to the next slide. I think this is a new slide in the presentation. The purpose of this is to illustrate the development of our direct and indirect costs over time. As you can see when comparing the direct cost to collections, collections is the top graph, sorry, the top line in the graph.
We have a very flexible cost base, and we are becoming more flexible over time thanks to our outsourcing model applied in a number of our markets at this point. Looking at our indirect costs, we see a fairly flat underlying cost development with the previously mentioned and discussed one-offs during 2024 that mostly related to the restructuring program. Also to keep in mind that the flat number of indirect FTEs includes an increase of roughly 40 FTEs that came with the insourcing IT initiative. This also brought the cost savings that make up for the high inflation environment. We are becoming more flexible over time. We can also see the number of FTEs reducing over time, which is a combination of efficiency improvements and outsourcing where we find it optimal. The next slide. The funding.
Looking at the funding, it is a similar mix to the one we presented in Q4. The largest portion consists of our deposits, which are by the end of Q1 transformed into 100% deposits with contractual maturity. We also issued two bonds during Q1 of a total of SEK 1.5 billion. As Harry mentioned, we called the EUR 40 million 81. So, 80% of our funding consists of term deposits, three months to five years, and the rest consists of different types of market funding in order to maintain a healthy diversification. This ratio can vary slightly throughout the year, but this is roughly where we'll be. It's a diversified, stable, competitively priced funding base, which is supporting our growth. We have an average cost of 3.7%, which is in the same range as Q4 of last year. Next slide, please. Our liquidity position.
Looking at the LCR, we continue to maintain a very high level. We have more than tripled the liquidity portfolio and reserve year over year, and we have an extraordinarily high LCR at over 1,500%. Regarding NSFR, we are now reporting in accordance with the legal position of the SFSA. We have also restated Q4 now of 2024 accordingly. For Q1, as you can see, we are above the required 130%. The growth of the liquidity reserve is basically driven by three factors. It is the 130% NSFR requirements, the legal position of the SFSA, and the removal of the flex accounts. This is all related to the SDR criteria that Harry will cover more in detail a bit later. We can move to the next one. Our CET1 capital position, we maintain a very strong capital position materially above regulatory requirements.
We moved from 11.5% in Q4 to 13.1% now in Q1. This increase is mainly driven by three factors. First, a new standard model with calculating financial risk that came with the updated banking package. Secondly, the FX impact. Third is the fact that we had a relatively slow investment quarter in Q1. We have a continued and significant purchasing power sufficient to meet our growth plans for the remainder of this year. With that, I will hand back to you, Harry.
Thank you very much, Magnus. Yes, SDR. As mentioned, we are aiming to notify as SDR in 2026. To do that, we need to fulfill a number of criteria. In the beginning of this quarter, the discussions between regulators that started in late autumn 2024 and continued until clarification in February this year have centered around two criteria.
Primarily, what does preceding financial year mean? Basically, one of the criteria is that you need to have fulfilled all the other criteria during a full year before being able to notify as SDR. This has now been clarified exactly how that should be interpreted. That is the interpretation. The clarification is that we need to meet all the criteria at each reporting date for a full financial year before notifying as SDR. Feel free to go through the appendix to see all the other full article text and the other criteria as well. Basically, we conclude that we are fulfilling all the criteria per first reporting date of 2025 today. We are well on the way towards SDR 2026 based on this criteria. The second question where there was discussion around the interpretation was how site deposits should be defined.
Now, also here, the Swedish Financial Supervisory Authority has clarified that all deposits without contractual maturity should be considered site deposits. For that reason, we have phased out all our so-called flex accounts, which did not have contractual maturity. We now only offer fixed term deposits with a duration from three months to five years. No overnight or flex accounts anymore. This makes us very confident that we are now well on the way to notifying as an SDR in the beginning of 2026. Key takeaways. Before we open up for questions, I just want to leave you with some key takeaways for the quarter. We have a strong investment pipeline for the year, and we reiterate our ambition of having a SEK 36 billion portfolio by the end of next year, actually.
NPL ratios in European banks are growing again, and we see a highly active secondary market still. Our operating leverage continues to increase with good cost control and a flexible cost model, which we have spent years building. Significant, of course, purchasing power, and we also have an unmatched funding cost in the industry. As mentioned a couple of times now, we are on track to notify as SDR in 2026. I should also repeat that the board of directors has suggested a dividend of SEK 2 per share after Q4, which is up for decision in the AGM tomorrow. That concludes actually our remarks for the first quarter. Thank you all for listening. Let's open up for questions. Do we press anywhere here? No.
To ask a question, please dial pound key five on your telephone keypad to enter the queue.
If you wish to withdraw your question, please dial pound key six on your telephone keypad. The next question comes from Björn Olsson from SEB. Please go ahead.
Good morning, guys. A few questions on the SDR then. First one, on page 11 in your slide pack, as you mentioned there, basically when you qualify as SDR, you become exempt from the MPL backstop, freeing up currently around SEK 890 million by 2026. How should we view this sort of excess capital that you then hold? Should we look at this as an additional buffer for additional acquisitions or an extra dividend, or could you guide any on that?
I think the excess capital that will be released at that moment will be utilized either for portfolio purchases, which is always our preference, but the board may very well choose to do something else related to that.
We always have the options of share buybacks, etc. I guess we will continue to inform the markets of how we are going to handle that going forward.
Makes sense. On the growth side then, your funding, like you mentioned, is basically flat, Qo Q. Has this shift in deposit intake, as you are trying to qualify as SDR, affected the growth of your portfolio acquisition pace? Has it limited you or?
No, no. There has been no sort of no link between those two. No.
Right. Finally then, since you now know that you will qualify or are on path to qualify as SDR, will you shift your acquisition pace or change what you are purchasing, or how should we view that, and how should we view that 36 billion target?
I think we reiterate the SEK 36 billion target, and I mean, we have a wide range of options for what we purchase. Obviously, the closer we get to SDR, the options expand further, let's say, right? We have the tools with securitizations. We have the co-investments already now. We have the secured asset class, which we are very successful in, where we see a strong pipeline for the year. We expect that becoming an SDR will give us a little bit more options. Of course, the benefits will be that we will have a greater independence in our sourcing.
Great. Finally, on the acquisition pace then or investment pace, since it's still quite low, is it explained by sort of lack of supply in the market or that you've felt that the competition in pricing has been not attractive enough, or how should we view that?
You said it was sleepy in January, but you decided to go ahead and hire it after Christmas. Is there any other explanation?
I think that it is a question of timing. I think usually Q1 starts, usually there is sort of a burst of activity in Q4, and then Q1 typically starts slowly. Previous years, we have had portfolios that have started out or were supposed to close in Q4, where the seller for some reason has chosen to postpone the closing into next year. This year, we had fewer of those. In terms of sort of sleepiness of January, it is pretty much the same as it has been other years as well. It is a traditionally seasonally weaker quarter. As we say, we saw the pace pick up again in February, March, which now means we have signed SEK 1.3 billion already in April.
We are positive for the acquisition pace for the full year and for the 36 billion target in 2026.
Great. Thanks, guys.
Thank you.
The next question comes from Markus Sandgren from Kepler Cheuvreux. Please go ahead.
Hi guys. No, I was just thinking three things. First, FX, how much of income is denominated in non-SEK and the same for the cost base?
Yes, Magnus?
Yes. Thank you for that question, Markus. I think if we look at our income, that pretty much follows our book value split. It is roughly 70% Euro, 16% Zloty, and then a smaller part for the sterling, roughly 8%. On the cost side, looking at OpEx, we have approximately 50% of our costs in Euro, 30% in SEK, and then 10% in sterling and Polish Zloty, respectively.
Okay. That is the 30%.
Okay, so 30% SEK and not much on the income side then?
No. No, that's definitely.
Okay. Okay, good. On this SDR status again, sorry for asking, but is there any uncertainty in your view about that this is going to happen Q1 2026?
What we need to do is we need to continue to deliver on these criteria for three more quarters. That is all in our own hands, and we will make sure to do so. As long as we do that, there is no uncertainty.
Okay, great. Lastly, costs in Q1 now, are they representative, so to speak? If you grow, that will be direct expenses that mostly grows from here?
Yes. As I said in the presentation, we're very happy to see our low cost base. I mean, our cost base is improving, and we are flexible.
If and when we grow, we will grow for sure, then the direct costs will move accordingly. On the indirect cost, our stay flat.
Yes. Okay, very good. That's all from me. Thanks.
Thank you very much, Markus.
Question comes from Ermin Keric from Carnegie. Please go ahead.
Good morning, gents, and thanks for the presentation and for taking my question. Maybe I'll just start with following up on the cost question. It's almost what you just answered, but do I get it correctly then that the best way to forecast your cost going forward would be to kind of look at the gross collection to direct cost, and we just use kind of the rolling 12-month average or something going forward as well? Indirect cost, is it now flat instead of going with inflation?
You're actually a little bit more ambitious on indirect cost, or is it still the same?
I think the way of looking at it is comparing it to the collection rate. Then the investment volumes also play a part, right? Because if we have a quarter with intense investments, that will likely drive some of the direct costs up for the sort of starting period of the portfolio. It's not exactly linear from that sense, but I think looking at the collection levels is the best indication. Sorry, Ermin, you had another question.
The indirect costs? No, no, there was the indirect cost. I think previously you said that they should grow in line with inflation, and now you said flat.
Is that just because you expect inflation to be further low this year, or are you more ambitious on how much indirect cost you can take out?
That's a fair point, Ermin. Apologies for that. We obviously have to consider inflation as well.
Yeah, no. The guiding remains the same on that. We see the IT insourcing is basically giving us the savings this year to sort of offset the inflation so far. That is actually delivering better than expected. I think the guidance stays that indirect costs will follow inflation.
Great. On the impairment gains and losses, how should we think about that going forward? It was obviously a bit higher last year, even though you still have a solid kind of collection rate relative to your active forecast now as well.
Yeah. We do have or we had a very solid performance last year.
Yes, Q1 of this year is slightly lower, but these things can move up and down as well depending on time. We have a very healthy book. We have a positive tilt in our book. I mean, as long as we're above 100%, we're happy. We will obviously not guide for this in the future. I mean, our ambition is to remain in this range or at this level. Considering the quality of the book, that's definitely something we believe in.
Great. One last question just for my understanding. On the SDR, obviously you need to keep above all the criteria for the rest of the year to notify into next year. How does it work thereafter? If you would live below on, let's say, an NSFR for one quarter in two years, does it reset?
You lose your status and you have to qualify for another year, or how does that work? Maybe as a follow-on on that, then just like how much buffer do you want to have to the NSFR requirement on a long-term basis?
I think the buffer, we will keep some 10%-13% above the NSFR target of 130. That is where we want to, or from 5%-15%, let's say, right? Is where we want to be. Now we are smack in the middle of that range for this quarter. In terms of how this will work going forward, we will need to stay on these criteria throughout the full time. Should there be anything, then there is a discussion with the SFSA. We fully intend to stay within and above the criteria that are set by the regulators for the full period.
Great.
Thank you.
Thank you, Ermin.
Reminder, if you wish to ask a question, please dial pound key five on your telephone keypad.
Yeah. Okay. No more questions on the phone.
Next question comes from Marcus Sandgren from Kepler Cheuvreux. Please go ahead.
Hi again. Yes, one last one on the AT1 redemption. What kind of costs was it in this quarter? Was it for coming quarters, or was it related to the redemption in itself, or what was it that took it higher?
In February, we paid the full year coupon for the redeemed AT1, the SEK 40 million. Going forward, we will not have that, right?
Okay. Thanks.
The remaining AT1, the SEK 700 million, has a quarterly interest payment.
Okay.
Super. Any more questions?
No more phone questions at this time.
I hand the conference back to the speakers for any written questions or closing comments.
Thank you for that. Thank you for the questions. We have.
Yes, let's do some written questions as well. There is one here on the CEO letter. Harry, you write that if market rates rise, our lead will increase, and if rates fall, we will see an immediate positive impact on our results. Can you please elaborate on that?
Yes. Typically, higher market rates means higher rates, basically, for bond-financed peers, right? I think this is one of the benefits we have seen with the Hoist model, and one of the core benefits that we have is our very, very competitive funding, right? We have seen also now during this, let's say, turbulence after the 2nd of April, how bond markets briefly froze.
Now, of course, we are less dependent on those markets than many other actors in the industry. Typically, higher market rates will make us more competitive when it comes to portfolio purchases. Obviously, if interest rates fall, then typically we will see that immediately in our interest expense lines, right? Our deposit funding, we can very quickly react and adapt interests to the market levels, right? That is sort of the point of that statement in the CEO letter.
Very good. That is actually all the questions we had today. Thanks very much for listening in.
Thank you all very much, and have a great continued day. Thank you.
Thank you.