Ladies and gentlemen, welcome to the Hoist Finance Q2 Report 2019. Today, I'm pleased to present CEO Klaus-Anders Nysteen and CFO Christer Johansson. For the first part of the call, all participants will be in listen-only mode, and afterwards there'll be a question- and- answer session. Speakers, please begin.
Thank you, and welcome. Thank you for taking your time. Here in this office in Stockholm, we have me, Julia, Head of IR. We have Klaus-Anders Nysteen, we have Christer Johansson, and I would also like to present Andreas Lindblom, our new Head of Investor Relations. I will start by handing over to Klaus-Anders and Christer that will give you a short presentation, and then we will follow after the presentation with questions.
Thank you, Julia, a very good morning to everybody, welcome to this Q2 earnings call. We will of course cover the Q2 performance, I'd also like to use this opportunity to update you on the work we are doing to mitigate the recent regulatory changes that we are experiencing, of course, go through the securitization that we issued a press release about last night. Let me first start off by talking about our second quarter earnings, I'll refer to page number four in the presentation.
I'm not going to steal all of Christer's thunder, just say that we are again reporting strong financial performance, all-time high earnings before tax at SEK 213 million, excluding items affecting comparability. This is actually the fourth quarter in a row with an all-time high financial performance. This is, of course, something we are really happy about. Collection performance continues to be strong and robust at 104%, cost-to-income ratio at 71%. I'm particularly pleased by the fact that we have strengthened our capital ratio.
Our CET1 ratio now is at 9.9%, and we should have in mind that we have absorbed the full change of the new risk weights, at the same time, sustained what I would call a healthy investment level the first half of the year. The way we look at the market, we still feel optimistic about what we see. The conditions are quite positive with strong supply out there. There's improved margins. Of course, what we have seen is also that the industry consolidation is continuing. Really happy about our rollout of digital solutions. We definitely feel on track.
I will comment a bit more on this later. Of course, it's almost needless to say, I guess, that we have good progress in implementing mitigating actions. Of course, very happy and very proud that we have announced our first securitization. Moving to slide number five. I'm not going to spend enormous amounts of time on this page. I just want to reiterate and say that I'm happy to see both the improvement quarter on quarter over this time, but also the consistency of our earnings and our returns. Moving quickly to slide number six in the deck.
The headline there is that 2019 volumes remain strong despite regulatory changes, and that's actually a pretty precise summary of that slide. The total investment level year to date is SEK 2.3 billion. As you know, of course, most of this is related to the acquisition of the GetBack portfolios that we have discussed in the past. I think it's a reasonably healthy number, SEK 2.3 billion. Not least factoring in the fact that we had these regulatory changes that you are so familiar with by now.
On top of the GetBack portfolios, we have done some smaller acquisitions in most markets, and of course, the regular forward flows. The investment level is lower than what we saw in 2018, but definitely on par with previous years, perhaps even stronger. The pipeline remains very strong and healthy. Our previous guidance has been around SEK 5 billion for this full year, but that's before taking mitigating actions into considerations. We can share some more thoughts about this a bit later into the presentation. Moving to slide number seven.
I think it's sometimes important just to remind ourselves what are we trying to achieve here. Slide number seven just summarizes the Hoist Finance strategy, the key cornerstones, that is. The first one is that we focus on some prioritized markets and aiming for the top three position rather than being too geographically scattered. We are now top three in three of our important markets. Of course, on the back of the GetBack transactions, we're happy that we now have taken another chief position in the Polish market.
Second cornerstone is to become the most effective, the most efficient operator in the industry, and I think we are on our way. We have redefined our ways of working. We introduced a much leaner and tighter organization. We have established three center of excellences. We have established a shared service center, and we done site consolidation. Harmonizing and standardizing our key work processes are ongoing. We are now managing centrally, for instance, campaigns, analytics, business intelligence.
We are very happy with this progress. The good news is that there is more work to be done, the potential is definitely not capped. In terms of digital leadership, we as an industry, we are definitely behind other industries, we should take inspiration from others. We have set ourselves out to become a digital leader. In the second quarter, two additional countries have now introduced our self-service portal to our customers. That means that only one country is remaining, and that country actually has a well-functioning payment portal, actually.
To my knowledge, none of our peers have been able to do anything similar. That's for us at least a testimony that we are moving in the right direction. If you think about cash collections coming through digital channels, it is increasing rapidly, I would say, quarter-over-quarter. It increased by 13% compared to Q1 this year. It's going in the right direction. Of course, the level is still low. The cash collection rate through digital channels is at Q2 at 11%. There's a significant and important potential to increase this number going forward.
The last cornerstone in our strategy is to capitalize on our unique funding model and our regulated status. I've said this many times, but being regulated as a bank has actually served us really well over time. I would say that now having announced securitization, we are adding another option to our toolbox to continue to deliver low cost of funding, also in an NPL backstop environment. At the same time, let me also say that we take a lot of pride in our amicable and holistic approach to collection and making sure that our operation is sustainable in all ways and over time.
This builds our brand, our reputation, and strengthens our position vis-à-vis our clients and our customers. This is a good bridge into the next page, slide of rates. We're talking about sustainability because the way we look at this, ethics and sustainability are not separate from the business. On the opposite, to be a truly and sustainable and ethical company, these matters need to be integrated in all processes and decisions of the company. As you know, our vision is to help people keep their commitments.
If we take a closer look at United Nations 2030 Sustainable Development Goals, they actually represent like a blueprint to achieve a better and more sustainable future for all. These sustainable development goals address the global challenges that we all face, including those related to poverty, inequality, climate, and prosperity, peace and justice. This might seem as a rather lofty type of vision or goals to have, but we at Hoist Finance see that we actually have a role to play.
Through the work that we do, we support a number of these sustainability relevant goals. If we think about it, being financially excluded from society is quite a heavy burden to carry for many people, and we are really proud to help people, to help our customers with financial difficulties, we help them back on track. Let me just pause here then for now and hand over to Christer, and he will take us through our financial performance in the quarter. Over to you, Christer.
Thank you, Klaus-Anders. Starting on page 10. Our financial performance in Q2 was solid, with total operating income closing in on SEK 800 million , and with profits before tax of SEK 230 million . This bottom line contribution is slightly better than Q1 2019, which in itself was an all-time high. Collection performance came in at 104%, cost income at 71%, and ROE at 16%. Now, this quarter did not include any items of the sort we would qualify as affecting comparability. We did in fact have and disclose such items on the cost side for the comparison quarter Q2 2018.
For this reason, I suggest that we move to page 11, where adjustments for those items have been made. To start with, on page 11, one can observe that growth in loan portfolio at 25% ties in well to growth in net interest income at 26%. This, if you think about it, confirms our previous comments on reduced margin pressure. Cost increased as well, they did so at roughly half the pace of income growth, so 13% versus 23%. On an aggregate level, costs in Q2 correspond to 71% of income, whereas in the same period last year, they amounted to 75% of income, adjusted for items affecting comparability.
I will come back to those costs a bit more on the next page. First, I'd just like to make a quick comment on the line related to profits from joint ventures. The low profit from joint venture in this quarter is explained by a negative revaluation on portfolios held within the Polish JV. This came with a negative SEK 11 million P&L impact. Despite that headwind, profit before tax came in 39% higher than Q2 last year. Moving to page 12 and costs. As mentioned, there are no particular one-off items in Q2 2019, so what you see here is a fair reflection of the underlying cost level.
I'd like to comment on three things. First, the increase in personnel costs. This is partly explained by the acquired entity Maran, which we consolidate since Q4 2018. This entity has some 150 FTEs located in Spoleto, Italy, so of course it makes a bit of a difference here. Secondly, a comment on collection expenses. We carry out most of the collection activities ourselves, and that's also our preference. Nevertheless, we do incur external variable costs, and that can, for example, be in the shape of court fees, and those are accounted for as part of collection costs.
Due to their nature, they will vary a bit from quarter to quarter, and the levels seen in this quarter, I would rate as normal. Thirdly, just as a reminder, IFRS 16 is not a major topic for Hoist. However, it does move some SEK 13 million from administrative expenses to depreciation. Turning to page 13. As outlined, we are today at cost income 71%, and as you will probably know, we target 65% by 2021. It should come as no surprise that we have more work to do. There's been no change in our assessment of what can be achieved and no change in our assessment of what it will cost.
Current completion adds up to around 17% of the savings target. As you would expect, our action list includes both short-term fixes and some more far-reaching changes to the way we operate. We are progressing initiatives in both categories. In the short-term category, just as an example, I can mention that travel cost is down 29% per employee when comparing H1 this year with the same period last year. That kind of incremental change did not require much investment. In the category of more far-reaching changes, actions often take longer and come with upfront costs.
We will update you as certain milestones are passed in the coming quarters. Turning to page 15 on capitalization. I mentioned in our Q1 earnings call that we entered into the year with NRC to on target interval, and that we expect to end the year within that interval. That's still true, unlike our position a quarter ago, we are now also within that range. That's great. This is the result of accumulating profits at a reassuring pace, but also the result of us holding back a bit on acquisitions in Q2.
We could have invested more, but the acquisitions we did complete still amount to decent growth rate in core assets, so 7% up versus year-end 2018. Our liquidity position remains strong, which makes us well equipped for the second half of the year, and normally the second half of the year is the busy season in debt purchasing. Turning to funding on page 16. In fact, interest expense in relation to NPL book value is coming down slightly to 1.9%. This is a very competitive level. As illustrated in the graph, the proportion of funding sources have not changed much.
Remember the securitization, which we will come back to in a second, is not in place as per end of Q2. Within the retail deposit component we have during 2019 adjusted our pricing to the benefit of longer term deposits. We have also launched new longer fixed term accounts in the German markets, and those have been well received. When combined, those two measures, of course, come with a cost, since overnight deposits are cheaper, but in exchange, it helps our asset and liability management. This can be seen if you turn to page 17.
Shown on the left-hand side, when we came into 2019, fixed-term deposits constituted 35% of total deposits. As per end of Q2, the corresponding figure is 48%. By realizing this significant change, we have reduced our interest rate risk, and by extension, this allows us to manage capital requirements that build on such risk exposures. With that, I'd like to hand over back to Klaus-Anders, who will continue on the regulatory part.
Thank you, Christer. I will spend a bit of time on page 19 trying to talk to the background also of what's going on. Please bear with me. As you have seen from our announcement yesterday, we have taken one important step in the plan to adapt our business model to this new regulatory environment. Our announcement yesterday is an important milestone for us, and I believe that this is proof that we have a viable business model going forward. As you are aware, in December 2018, the Swedish FSA changed its practice and interpretation of the CRR in respect of risk weights for purchased secured NPLs.
This revised interpretation forced us overnight to apply a risk weight of 150% rather than the previous 100% that was used for those assets. Also the European Parliament and the Council approved and adopted the NPL backstop regulation, which in many ways is more important in this matter. This NPL backstop regulation came into force in April this year, but it's only a forward-looking problem. It doesn't really affect the back book because it applies only to loans originated after the 26th of April 2019.
This NPL backstop is a so-called prudential regulation, which effectively forces institutions like Hoist and other banks to fully deduct non-performing loans from its CET1 capital according to a specific timeline, as you can see from the graph, which then from a regulatory capital perspective, essentially is the same thing as a full write-down to zero after three years for unsecured NPLs. As you are fully aware of, our curves are much longer than three years.
I also think it's important to mention then that the NPL backstop was introduced to incentivize banks to offload NPLs into a well-functioning secondary market. That's really the purpose of the whole regulatory change. While Hoist Finance has an important role in the secondary market, we are also regulated as a bank and therefore subject to the Backstop regulation, even though it wasn't designed with us in mind. The NPL backstop consequence is unintended, but obviously something that we need to adapt to, and that's exactly what we are doing.
Over the last few months, we have worked intensively together with financial and legal advisors, and we have gone through and evaluated many different alternatives. We have developed securitization structures where NPL assets are transferred out of Hoist Finance prudential balance sheets so that assets are derecognized from a risk and capital adequacy perspective. That's the important point. Again, if you look at the underlying purpose of EU regulations that are addressing NPL issues, again, two main features.
One, to shift the risk of non-performing loans out of the balance sheets of the banks, which is a good thing. Two, establish a well-functioning and competitive secondary market and market participants that are able to handle those non-performing loans. We are very confident that we are fulfilling both these objectives by establishing securitization structures. We will be transferring the NPLs from the balance sheet from a risk perspective, and at the same time continue to be an active and responsible debt purchaser on the secondary market.
Helping our banking partners to clean up their balance sheets, as well as finding amicable and good solutions for our customers. I would like to emphasize at this point in time that we are not circumventing the relevant regulations or setting up a structure which is contradictory to the purpose of the regulation. We are merely adapting our financing model to the new regulatory environment. Even though this backstop regulation is new, there is a well-established securitization framework in the CRR, which clearly addresses capital treatment and, for example, for requirements to achieve significant risk transfer.
This is something that is done by banks all over Europe. In the process, we have received significant appetite or interest from a number of investors, and we are looking forward to developing these relationships further in the future. There is, of course, more work to be done. Going forward, we see securitization as a very viable route. As again mentioned, being a bank has historically served us well. We have by far had the lowest cost of funding in the market. Christer will use that when he went through the numbers.
Securitization structures will increase our financing costs to some extent. We do expect to fund ourselves well below where our predominantly high-yield bond finance peers currently finance themselves. Consequently, we will be well-placed to compete in our chosen and prioritized markets. Before discussing the securitization that we announced yesterday, let me first explain how we think about potential features of a securitization program in the context of the NPL backstop regulation.
I realize it was a long speech, let's now move to slide number 20. On this slide, in this picture, we try to get across how two different types of securitization structures actually work. We kind of call it step one and step two because, in essence, you're moving from step one towards step two. The unrated securitization structure is what you see to your left on this picture. This is the structure that we announced yesterday, and Christer will go through the key financial aspects and details in a couple of minutes.
This structure does not require a rating process and can therefore be implemented in a fairly short timeframe. The securitization structure that we announced relates to our back book. Being able to move at speed in implementing a securitization will be particularly important as we move towards securitization on the front book and the new purchases. This unrated securitization can be a short-term step to facilitate transfer to a potentially more efficient rated securitization, which is a step two then.
In the unrated structure, Hoist retains the junior tranche, and the external investor holds the senior tranche. Under existing CRR securitization rules, Hoist will deduct the retained junior tranche in full from the CET1 capital. In other words, this reduction will cover for Hoist's entire risk exposure in relation to the securitized portfolio. As the senior tranche is placed with an external investor, the securitized portfolio will not be treated as risk-weighted assets by Hoist, which in turn will achieve capital release.
To the right on this slide is the step two rated securitization. The structure that we are envisaging is aimed at achieving so-called significant risk transfer through selling the majority of the junior and mezzanine tranches and achieving derecognition from a prudential perspective. The senior tranche will be rated and retained by Hoist, funded by our deposits, of course. Depending on the rating, the risk weight applied by Hoist on this retained tranche is lower than holding the NPL directly.
For example, a triple B rating would have a risk weight of 105% under CRR regulation, which is lower than the 150% applicable to unsecured NPL assets comprising majority of our current book. We believe that we can implement such a structure subject to finalization of the rating process and conclusion of our dialogue with other stakeholders, including the regulator and investors. This rated securitization takes longer to implement given the rating process, but we are well underway and hope to deliver and expect to deliver this during the next few months.
Step one and two, while different in structure, both achieve capital relief. However, we expect that step two will be slightly more efficient from a funding cost and capital relief perspective. Due to the different timelines to implement, we expect both these securitization structures to form an increasingly important part of our financing structure in the future. As you know, the NPL backstop is not in scope for our assets today, since it applies only for loans originated after April 2019.
The importance of having these structures in place is gradually increasing, and of course, it's going to be very important from 2021 and 2022 onwards. Having spent quite a lot of time on these two slides, I now hand over to Christer for him to explain for us the financial implications of the unrated securitization. Over to you, Christer.
Thanks. Turning to page 21, where we have provided a somewhat simplified summary. The transaction is an unrated securitization of EUR 225 million, with the underlying assets being Italian unsecured NPL portfolios. As outlined, Hoist Finance will retain the junior tranche, representing, in this case, 5% of the overall portfolio book value. The senior tranche, representing 95% of the overall portfolio book value, will be held by the external investor and come with an initial coupon of 3.5%.
As made public, we have a firm commitment from a fund managed by CarVal to subscribe to the senior tranche. We are expecting to close this transaction in August. From an accounting perspective, our assessment is that the securitization vehicle will be fully consolidated. The senior tranche will be recognized as a liability. The assets in question will not be de-recognized in accounting terms. Just to be clear, this does not mean that the assets will be consolidated from a risk and capital adequacy perspective.
That is the key consideration in relation to the Backstop. As I will outline in a while, this securitization frees up around 60 basis points of CET1 capital, which in turn enables us to make at least EUR 100 million of additional portfolio investments. Upon closing the transaction, we will, of course, strengthen not only the capital position, but we will also strengthen an already strong liquidity position, and we will adapt the use of other funding sources accordingly in order to offset parts of the additional funding cost.
In the net terms, funding cost will still rise, but over time, this increase will be more than offset by us targeting SEK 6 billion in acquisitions instead of the previously targeted SEK 5 billion. Put in other terms, we expect the marginal return of those additional portfolio investments to exceed the marginal cost of the securitization. This structure is a first of its sort for Hoist, we have had to carry out substantial preparations, as you can imagine, and this has, of course, involved also external advisors, which comes with some cost.
We anticipate that most of this cost will be accounted for as part of the financing cost over time. Hence, the financial instrument will, in our books, run with an effective interest rate, which is somewhat higher than what the coupon alone would suggest. Turning to page 22, which illustrates the capital impact of an unrated securitization. As a result of the securitization, there is an RWA relief, as Klaus-Anders outlined. This comes from the fact that the portfolio is deconsolidated for prudential purposes.
On the capital side, the junior tranche will be deducted in full as it is retained by Hoist, and the net capital impact of the transaction we are announcing today or yesterday amounts to improving the CET1 ratio by approximately 60 basis points. As said, that frees up at least EUR 100 million of additional investment capacity for us. Before I hand back to Klaus-Anders, who will do a summary and open up for Q&A, I just want to mention that on page 23, we have illustrated how the capital treatment will differ in the case of a rated securitization.
Since that is not the transaction we've done, we will not go into details on that today. It's more for future reference. With that said, back to Klaus-Anders.
Thank you, Christer. We're now on page number 25. Regarding outlook, we definitely still see attractive market conditions. Regulatory changes that we have discussed in detail today will increase supply of NPLs from financial institutions in the years to come. The market is still developing favorably and margins are improving. We're seeing that from the deals that we are making. Industry consolidation is continuing, and all those things we see are positive elements.
Regarding strategy, let me first say that we are committed to our cost savings and operational excellence program and to become the digital leader in our industry. There is, as we discussed, good traction and good news is that there is more to be done. Although the regulatory changes that recently were introduced is positive for the industry and the market dynamics, they certainly gave Hoist some specific challenges being regulated as a bank.
Now, with yesterday's announcement, we are taking the first step in implementing the relevant mitigating actions. We see yesterday's announcement and the transaction together with CarVal, as an important milestone on the path towards a sustainable business model post-introduction of the NPL backstop. Let me round off by saying that I am very proud of the work my team has delivered, and I'm very optimistic that we can emerge and develop as an even stronger Hoist Finance despite the recent challenges.
Today, I think we show that Hoist Finance is a flexible, competent, and agile organization, and I believe that we have a sustainable and competitive business model fit for the future. Let me also say that I'm excited about working more closely with investors as strategic partners going forward, and I'm encouraged by the strong interest in working with Hoist Finance. For now, I recognize that we have covered a lot of ground and that you may have questions, which we of course, are happy to answer. By this, we open up for questions.
Thank you. Ladies and gentlemen, if you wish to ask a question, please dial zero one on your telephone keypads now to enter the queue. Once your name is announced, you can ask your question. If you find your question's been answered before it's your turn to speak, you can dial zero two to cancel. Our first question comes from the line of Ermin Keric of Nordea. Please go ahead. Your line is open.
Good morning, and thanks for taking my questions. Not so unexpected perhaps, but the first questions are regarding the securitization. You say that you free up around EUR 100 million, EUR 225 million you are securitizing right now. Is that a fair assumption that you get something similar in other transactions or how should we think about that? Also approximately how much would you expect to free up if you get it rated, so if you're in a step two situation?
Yeah. Good morning, Ermin. Christer here. As I think Klaus-Anders touched upon this briefly, we would expect the rated securitization to be somewhat more efficient. In that sense, it should be somewhat better. For the transaction that we've announced today, the numbers that we've given will give you a good understanding for how much capital we can free up in this transaction.
Okay. Somewhat better, you can't provide us with any ballpark estimate on how much more efficient it would be in a step two?
The step two is still a few months out in time, and as we complete that step, we can give you more details on that.
Okay. Thank you.
Among others on the rating. Yeah.
The process is well underway as I said, and the feedback from the rating agencies and then more than two is very positive. We expect the rated transaction to be more effective than the unrated one.
I understand. You've previously said that you aim to do maybe SEK 5 billion-SEK 6 billion in securitization. What are you expecting to do with the rest of the portfolio when it starts getting sort of affected by prudential backstops and so on? Are you still working on other solutions as well or have the sort of experience with securitization now been so good that this is the main track you will continue to pursue?
Yeah. As you're rightly saying, six months back we announced four mitigating actions. One was securitization, another one was to establish fund structures. The third was to work with internal rates, the rating IRB, and the fourth would be to work with the business mix. Now we have announced our first securitization, which I think is a very important step. We are still working with the other mitigating actions, so both fund structures and IRB. You know IRB takes a lot of time, but we are working with it.
Fund structures we hope to do, soon rather than later, because I think that's interesting to have as a tool in the toolbox. The work is ongoing also with the rest of the mitigating actions. As far as securitization in terms of volume and issuance, I think it's fair to say that it was important for us now to get this well underway, to take away the shadow that's been hanging over the share price and the questions around the viability or business model. I think we've done that now, and that gives us more time to maneuver, to say it that way.
Finally, is there anything that could be said about how regulators have been positioned regarding this transaction and overall the different initiatives you've taken? Have they said anything that you could share with us, or is it more just informal discussions you have with them?
I can start, and Christer can elaborate. The point is that the regulators will never give you any pre-approval. That's important to know. We have, of course, worked extensively with advisors on this process. We feel very confident that it works in a post-backstop environment, which is very important for us, of course. Of course, we also had a number of meetings with the Swedish regulator. They were really well aware of the transaction. Christer, do you want to shed some more light on this?
No, I think, of course, pre-approval would be the best thing. The second-best thing would be to do your homework, and I think that's what we've done.
Yeah.
Perfect. Thank you.
Thank you. Our next question comes from the line of Nicola Mezzadri of Barclays. Please go ahead. Your line is open.
Hi. Good morning. Sorry, more questions about the securitization. In the senior notes, are they issued at par? Is there a deferred purchase price for the portfolio?
Yes. The senior notes are issued at par, correct.
There is, I would say Hoist is getting the entire proceeds right away, or there is a deferred purchase price so that you get the proceed from the securitization over time?
We will get it upfront.
Upfront. the true IRR, I would say, of the investment into the senior is the 3.5% you're guiding to.
As I said, there will of course always be some costs associated with this, even more so when you do it the first time. The effective interest rate in our books will be somewhat different for the period of time.
No, I'm sorry. I was meaning for the investor, for CarVal. Is CarVal investing at 3.5% into the senior note, like at their true IRR?
For the period of time that we expect this transaction to be live, I'd say that that's a correct reflection of the return.
Are there, I would say, repurchases or similar obligation on Hoist? is it completely, I would say, obligation-free on your side of moving from this structure into a new structure?
I think the only sort of relevant mechanism to mention here is that as we outlined, there's a step one and there's a step two, and we've taken some steps to sort of prepare the ground for step two. Other than that, it's a cash securitization, it's a true sale, and nothing strange in that sense.
Got it. Two last questions. Sorry if I abuse your time. What's the ERC associated to this portfolio?
I'd say that the portfolio that we have securitized is similar to our overall book. If you use the overall figures between book value and ERC, you should get an ERC that's roughly right.
Got it. You mean on the average of your book or any other 1.6, I would say, is the money margin that are embedded?
The portfolio that is being securitized is not very different from our overall book.
Got it. Very last question, how did you choose the assets to securitize? Was there a random selection in your Italian unsecured? Was there a particular portfolio?
One of the considerations that we have taken into account is the originator, because it makes things a little bit easier. The assets are predominantly from one originator. Other than that, they're, I would say, similar to other assets.
Got it. Perfect. Thank you very much.
Thank you. Once again, if there are any further questions, please dial zero one on your telephone keypad now. We have one further question coming through. It's a follow-up from Ermin Keric of Nordea. Please go ahead. Your line is open.
Thank you. I was thinking we could also maybe speak something about the Q2, which was actually quite strong. When you say that you also see that margins continue to improve, do you now see that margins on new acquisitions are actually better than your back book blended IRR?
Yeah. Thanks for asking about Q2. I agree with you, it was a robust and strong quarter. We showed you previously a slide which shows that the front book profitability now has been on par with the back book average, and we continue to see healthy improvement in margins. Having said that, of course, and referring back to the slide on investment flow, Ermin, we haven't done that many transactions this year. Our point of reference is slightly lower than it usually is because we have concentrated our money to GetBack acquisitions, portfolios from GetBack and some forward flows.
The forward flow volumes that we've acquired, I would say that they typically reflect the price that was seen in previous year.
Unfortunately.
When those contracts were entered into.
Yeah.
In that sense that also plays into the overall development.
Okay. I suppose based on what you just said, that would also explain the reason we've only seen unsecured so far this year is merely that the number of protections have been quite few, so it's more of an incident than a shift in trend, so to speak.
Yeah.
Yes. Looking at the pipeline, it's well diversified in various articles.
Okay, perfect. on the collection performance, it remains quite strong at 104%, but we've actually heard some of the banks in Spain talk about recovery rates being somewhat lower in recent time. Have you noticed anything from that in any of the geographies?
I think what I can say is that, of course, 104% is the combined figure for the overall group, and we will always have some differences across countries. In Q2, we've seen very strong performance in Poland and Italy, and in fact, it's been a bit weaker on the Spanish side, which maybe goes to what you're saying.
Yeah, I think that coincides well with which banks have been saying those comments. Okay, thank you. That's all from me.
Thank you.
Thank you. Once again, if there are any final questions, please dial zero one on your telephone keypads now. Okay, there seems to be no further questions coming through, so I'll hand back to our speakers for the closing comments.
All right, well, thanks a lot for participating in the call, and let me use the opportunity to thank Julia for her time in Hoist Finance as the Acting Head of Investor Relations, and also to welcome Andreas in this role permanently. He's the one you can always call. Again, thank you for participating on the call. I wish you a great day and also a great summer. Goodbye.