Warmly welcome everybody to the presentation of the financial results for the fourth and final quarter 2017 for Hoist Finance. We can really summarize a very eventful year, especially a fourth quarter with record investments of nearly SEK 2.2 billion. The largest investment volumes in a single quarter ever in Hoist Finance history. Our earnings declined compared to the same quarter last year. The main reasons for this are decisions we took during the quarter to increase our operational efficiency. The quarter is also negatively affected by a one-off charge in Italy associated with an adjustment to cost accrual. Total items affecting comparability sum up to nearly SEK 60 million for this quarter. We decided to restructure our German and Benelux operations. We will consolidate our German operations to our Duisburg office and close down our office in Bremen.
Furthermore, we will do the same things in Benelux by closing down our Brussels office and run the Belgium operations from our Amsterdam office. These changes will of course increase our operational cost efficiency in the longer term. We have also decided to increase our investments in building our company for the future. Encouraged by the positive response in the U.K., where approximately now 30% of all new installment plans are coming in from our self-service portal. We have decided to accelerate our digitalization with increased investments, but also in ramping up our own competence. The market continues to grow in a high pace, and we notice a significant volume growth in asset classes such as SMEs and secured. We have already invested in these type of asset classes over the years.
Looking ahead, we believe that consumer unsecured will continue to show a healthy growth but will be outpaced by the growth in SME and secured. During this quarter, we also announced my successor in Klaus-Anders Nysteen, who will join us in mid-March. Turning to the full year of 2017. We can show yet another strong year, excluding items affecting comparability. We have a strong underlying profit before tax development of 31%. We have also made significant progress towards our return on equity target of 20%, which reaches 19% excluding IAC for the full year 2017, an increase of two percentage points compared to 2016. Our strong underlying cash flow enable us to make both growth driven investments and increase our dividend to our shareholders. For 2017, the board proposes a dividend of SEK 1.90 per share, up 46% compared to the same period last year.
The market is without doubt in a strong momentum. More and more banks are choosing to divest non-performing loans and also choosing to divest them at an earlier stage. The catalyst which we have mentioned in form of IFRS 9 is now in place, and the discussions on EU level with regards to guidance on provisioning levels of underperforming loans are proceeding. We believe that these factors will support an even stronger growth for the years to come. Our outlook is of course supported by our fourth quarter investments and our full year investments of SEK 4.3 billion, yielding to a portfolio growth of 19% and a book value that stands now at slightly more than SEK 15 billion. We were also active in the debt market last year, which translated into both lower funding costs and a better currency match.
We launched a second deposit-taking scheme in Euro in Germany. Altogether, we are in a very good position to be a relevant partner to the European banking system and to capture growth. I would like to spend some time looking at our investment process and the transactions we executed last year. We continue to apply a very consistent and diligent investment process. During 2017, at the lower end here, we can see that we reviewed potential transactions with a value corresponding to more than SEK 31 billion. Of these, approximately SEK 9 billion was not relevant for us, either not supporting our long-term vision or not the kind of debt we would like to put on our balance sheet.
We decided to proceed with 136 portfolios with a transaction value of a bit more than SEK 22 billion, of which we won 30 portfolios, either through giving the best offer through bilateral transaction or by adding values to the selling bank which competition couldn't match. Here, our track record, our brand, our amicable approach, and status as a regulated financial institution is of great value. Just during the fourth quarter, there was a fair share of transactions where the selling bank decided to proceed with the transactions with us, even though we did not offer the best price. Being a fair player and a good corporate citizen is increasingly paying off. The partners that decide to divest portfolios to Hoist Finance know that their customers will be treated fairly with the customer's best interest at hand.
They will also know that Hoist Finance has the highest standards and compliance to rules and regulations. Simply by being a fair player, building a long-term business and brand name is also paying off in terms of recurring transactions and a stronger partnership with banks across Europe. Moving on to our view of the market outlook and our agenda for 2018. Starting with the market, we continue to see strong demand from the European banking system to find ways to address underperforming loans. We see healthy growth when it comes to both unsecured loans, the banks are increasingly opening up for discussion when it comes to SME loans and secured type of loans as well. Given the market development and strong momentum, we will continue to build our company towards our vision.
This includes establishing a position as a trustworthy partner coupled with strong capabilities in other asset classes. Our agenda for 2018 is therefore to continue to building our capacity outside the unsecured consumer loans. Looking at risk-reward, the selling banks have become more experienced over the years and are better at packaging and sharing data on the assets they wish to divest. We have also improved our data use as well and are running under one data warehouse across Europe. This enables an even higher certainty when it comes to making the right assumption of pricing and collecting on a portfolio. Given this evolution, we will invest in the next generation of data analytics and valuation models during 2018 in order to secure stability and certainty in our portfolio investments.
Turning to gross returns, the combined effect of improved risk reward and lower cost of funding has increased what we and the market are willing to pay for portfolios. The investments we make at these levels still support our return on equity target. To stay competitive, we have accelerated our work to further strengthen our cost efficiency. An example during the fourth quarter was the consolidation of the German and the Benelux operations. Looking into 2018, we will review initiatives to further increase our cost efficiency. We will also accelerate our digital transformation by introducing self-service portals in more jurisdictions, thus reducing cost to collect over time. These initiatives are associated with cost, that said, We would like to give you some guidance on the next slide for 2018. We continue to see a strong transaction market.
Hoist Finance, as one of the leading companies across Europe, will continue to capture this market growth. For 2018, we targeted 15%-20% portfolio growth in both unsecured consumer loans, but also in new asset classes. The increased costs associated with an accelerated digital transformation and the strength and capabilities in new asset classes will lead to return on equity below our 20% target in the range of 17%-18% during 2018. After 2018, we will continue to lever towards our 20% target. Our accelerated agenda will also drive a flat development of expenses across cash collections, The effect of both restructuring initiatives and investments will come in 2019 and onwards. With that, I would like to welcome Pontus to the stage to present the Q4 financials.
Thank you, Jörgen. Let's turn to the financial summary. Looking at our core business, revenues from acquired loan portfolios, they're up 13% year-over-year, which is a solid increase. It's primarily driven by portfolio growth in the Italian market, Spanish market, and the Polish market. If we come further down in the P&L and look at fee and commission income, it declines 46% year-over-year, which is an effect of us discontinuing our servicing activities in the Polish market as we've been commenting on earlier on in this year as well. With respect to profit and shares from participating in joint ventures, which are two things. It's the Polish joint venture and it's the Greek joint venture.
We're up 40% year-over-year, which is driven by us receiving a performance fee for the work that we've supported the Bank of Greece with during 2017. As Jörgen mentioned initially, we have substantial costs or items that affect the comparability in this quarter stemming from both the restructuring charges and the Italian cost accrual issue. We have also in the quarter, as you've heard, accelerated our activities in terms of moving in the direction of digitalization, strengthening our abilities in other asset classes, et cetera. Also as you've seen, it has been a very busy quarter in terms of we concluded a high volume on deals and obviously we saw even greater opportunities.
We've had a lot of costs associated with assessing these opportunities, and unfortunately, you're not going to win all the deals, which means that some of these costs have also come into the P&L for the fourth quarter. When you bring all this together, it translates into an EBIT that shows only a slight increase of 3% when you adjust for items affecting comparability on a year-on-year basis. Turning to the financial items we see a continuous improvement of 8% or down than 8% year-on-year, which is mainly an effect of us having further improved our funding efficiency and market rates and our ability to fund ourselves has strengthened. This is in spite of us having raised SEK 3 billion of additional debt during the fourth quarter in comparison to previous quarter.
If we look at some of the key metrics, the return on book ends at 10.1% for the fourth quarter. I think what is worse, when you adjust for items affecting comparability, obviously. What's worth mentioning here is that we've seen throughout the year, as you've heard, we've seen a very strong performance from our back book that has continued and supported us in a good way also in the fourth quarter. Also what we've said is that we have throughout, you could probably say last one and a half couple of years, we've seen a harmonization of return on book levels across the different countries and the different regions, which you will see when we move on to the regional development as well.
Finally, again, on the return on equity, we deliver 19%, which is close to our financial target if you adjust for items affecting comparability and slightly stronger than what we saw same period last year. If we then move on to the three regions, and we start with region West. We've seen a very good portfolio growth in the West region, 25% up, which is primarily driven by the U.K. market, followed by Spain. The solid growth in portfolio has, of course, been a clear driver why our EBIT has increased 71% year-on-year. Worth mentioning here is that in the fourth quarter 2000 last year, we had negative revaluations that affect the comparability. Even if you would adjust for those, you would see a very strong and solid increase in the EBIT line as well.
Turning to return on book, that is of course then suppressed by the negative revaluations if you compare last year. Again, also if you would adjust for that, you would see a solid and good increase in the return on book in this region, as you will see here as well throughout the year. The primary driver for this is a combination of us being able to grow our book in the region, but also improving our cost efficiency quite substantially here. Also, as mentioned, we've seen encouraging results from the early days of the digitalization and the self-service portal that we launched in the U.K., and we'll accelerate those efforts now into further jurisdictions into this year. If we move on to region Mid. In region Mid, we've also had a very strong portfolio growth.
Sorry. I should change slide to region Mid. My excuse. I said portfolio growth, we're up 21% seen over the last 12 months. This is mainly driven by portfolio investments, as you might understand, in the Italian market, and to quite some extent happening late in this year as well, which means that the contribution to quite a large extent, the investments that we've done now in the fourth quarter in portfolios happened very late in the year, just before Christmas, meaning that they don't support the P&L substantially in this year, obviously. If we turn to EBIT margin and return on book, they remain on a similar level as compared to last year if you adjust for the items affecting comparability, as we touched upon earlier in the Italian market.
If we move on to region Central East, we've had the strongest quarter of the year in terms of portfolio acquisitions. They amounted to SEK 466 million compared to SEK 180 million last year, which also meant that we closed the year with a higher book value than end of last year. The decline in EBIT margin and return on book that you see in the quarter is primarily or is driven by the fact that in this region last year, we posted quite substantial revaluations. In this region, they were in the positive direction of SEK 55 million. If you would adjust for those, we could say that return on book and the margins remain stable. If we move on to the next slide, our funding structure.
As mentioned, we continue to improve our funding structure with a better currency matching and also a better duration matching. The transactions that we've done in the third quarter, where we bought back EUR 100 million and issued EUR 250 million closed early in the fourth quarter. That is the item that is affecting the outstanding debt when you look at the year-end numbers. The increase in senior debt, that's driven from that activity. Also, we launched a while back our deposit offering in the German market, and we have to date raised equivalent of SEK 1 billion in deposits in the German market, and they today make up 7% of our total deposit base. This is another element of improving our currency matching then, obviously.
As you've seen, we've continued to improve our funding cost and funding cost then in the context of us measuring our funding cost in relation to the portfolios that we're acquiring is now down to 1.7%. If we turn to the next slide, our capital and liquidity ratios. Given the strong finish of the year in terms of portfolio acquisitions, it meant that we levered ourselves down on the CET1 ratio. We're now in the targeted range of 2.5%-4.5% above the regulatory requirement. We maintain a very strong liquidity position, not the least from the activities that we did on the capital markets early in the quarter, where we raised additional senior unsecured debt then. We remain, again, with a very strong balance sheet and a very strong liquidity position to continue to grasp opportunities into this year.
Finally, before I hand back to Jörgen, let's talk about our operational efficiency then. Measuring our total expenses in relation to gross cash collections, they have been trending down as you've seen before. Obviously they've soared quite substantially this quarter. If you don't adjust for these items that affect the comparability. They were up. If you adjust for those items, they remained on par with what we've seen previously, 37%. To further improve this cost efficiency, we need to invest. We need to invest in digitalization. We need to improve our efficiency, and you've seen signs of us executing on this by launching self-service platforms. You've also seen signs of this by doing the restructuring in both the Benelux region and the German region. These investments, of course, they will not have an immediate payoff time. It will feed in rather in 2019 than 2018.
Therefore, we believe that our ratios will stay on this level when you look into 2018. Yeah. I'll stop there, and with that, I'll hand back to Jörgen for some concluding remarks then.
Thank you, Pontus. To summarize this morning's presentation, I would like to pinpoint three things. We continue to see and capture a very strong growth momentum in the transaction market. We will also continue to build on our brand name as a fair and transparent partner, which is increasingly paying off. In the near term, during 2018, we will make sure to make the necessary investments in building the company for the future to reach an increased cost efficiency and also stronger offer across other asset classes to our banking partners. Beyond 2018, we will see the effects of the investments being made today, and we will continue to progress towards our financial targets. This will be my last quarter presentation before handing over to Klaus-Anders Nysteen, who will join us in mid-March.
We very much look forward to welcoming him to the company, I know that he's truly excited to start with us. With that said, thank you very much for listening to me during these last 12 quarterly presentations as a publicly listed company. It has been my pleasure presenting the evolution of a very solid and value-driven company. During my first presentation in May 2015, we stood at a book value of SEK 9 billion, and we are today at SEK 15 billion, up some 66%. We also posted some total revenues of SEK 1.7 billion during 2014, up 70% to SEK 2.8 billion last year. We have made a solid progress in our strive towards our vision to become a leading debt restructuring partner to international banks and financial institutions.
The journey has only begun, and you should expect us to carry on at a strong pace going forward as well. Thank you very much for listening, and I would now like to open up for the Q&A and welcome Ermin Mekic from Nordea.
Thank you very much, Jörgen. I thought I'll start off the Q&A with some questions of my own, and then I'll hand over if we have some questions here in the audience and on the telephone conference and on the webcast as well. Starting with your win ratio, you mentioned that you won approximately 15% of the portfolios you actually bid for, and you also mentioned that this drove up your cost somewhat as you had a lot of portfolios you evaluated but eventually didn't actually get. How has this ratio developed over the years? Do you see anything from the, at least speculated about price competition that's been in the markets the last couple of years?
Over these last six years when we have showed this strong growth, we have been quite constant on a 20% hit ratio, which now in the fourth quarter has gone down. You could see this both on the positive and negative side. On the positive side, you can see that despite that we have a low hit ratio, we still can acquire for SEK 2.2 billion. It's a very strong underlying market. On the negative side, it is associated with higher costs. You have due diligence costs, which we don't mention in the report here, but a lower hit ratio includes a higher cost then for transactions that you participate in with high intensity, but which you lose out on then. Of course, to refer to your last sentence there, it continues to be a very competitive market.
Prices are going up, to some extent, due to that the sector such is everybody's enjoying this lower funding environment. We have a few new industrial players as well coming up to the market, that combined with the traditional private equity and hedge funds, of course, continues to make this a very competitive market.
Moving on to, you mentioned that your expenses over gross collections will move below 35% in 2019. Given the larger investments you're taking digitalization over the coming year or this year, how much is due to digitalization efforts and how much is due to scale simply becoming larger?
It's a combination of both, obvious. I think what we're saying is that we have been able, as you've seen, we've been able to prove our cost efficiency to a certain level. To take it now to the next level, we do need to invest in digitalization to bring them down even further.
I think scale is an element of it. There is, of course, as you know, there's a few markets where we recently entered. Take one example is, of course, the Spanish market. Another is the Greek market, where, of course, we see that we should have further scale opportunities, whereas some of the other markets, it's more driven by us. It's the fine-tuning and using modern technique and things like that.
Do we have any questions in the room? Okay.
Two questions, if I may. You write in the outlook that next generation of analytics and valuation models, can you elaborate on what that is?
As you know, we use data to invest into our assets and assess our assets, and we invest on a very long-term basis. Whatever we can do to improve that capability in terms of data analytics and using sources that are available and also making the use of the data even more efficient, that's in essence what it means.
You have to invest in new analytics tools in order to be more efficient when you bought a portfolio, when to analyze the portfolio, and to use the data in order to collect in a more efficient way. Basically, you invest in new brand names and new analytical tools in order to get more out of the book value that we have acquired.
The second question on margin pressure. You wrote in the report that it has increased. You've said, I think, for several quarters that it's been about the same. Is it worse now than previously?
Of the SEK 2.2 billion that we acquired in the fourth quarter, basically everything was signed and closed on or after December 15th. It was an extreme concentration at the end of the year. Besides that, what Pontus pointed out, we did not get any contribution at all on the revenue side. It also showed another side that we've made bids for portfolios in a constant pace during the quarter. Many portfolios, we were outbid by others. We will all continue to apply a very disciplined investment strategy. The large result was actually an outcome of the gross volumes at the continued levels that we would like to invest on. We are very firm, Pontus and me, to express to the market that all the portfolios we've made will support our financial targets of a return on equity on or about 20%.
Thank you. How are you looking at the market in Asia? Are you going in the market or?
We have said before that since our banking partners, many of our banks have a global presence, like HSBC, for example, is very big in Asia. We, of course, shall look at the development of the market outside of Europe. So far, we can participate in conferences to follow developments in the Asian or South American or the U.S. market. So far we have not done more than that. Of course, we are in discussions with our banking partners, but there's nothing that we have as a live cost-driven project.
Thank you.
I think we have a question from telephone conference.
Thank you. Ladies and gentlemen, if you have a question for the speakers, please press 01 on your telephone keypad now. Our first question comes from the line of Adedapo Oguntade from Morgan Stanley. Please go ahead. Your line is open.
Thank you. Morning. Just three questions. The first one, given the record level of acquisitions this quarter, I was just wondering maybe if you could give some form of guidance for next year. Looking at the portfolio growth guidance you provided, it seems to suggest that you might be planning to make purchases of between maybe SEK 4.7 billion-SEK 5.5 billion for next year. Maybe if you could maybe comment on this and also in terms of what do you think will be driving this level of acquisitions. Would it be consumer, unsecured or secured or SME?
We can approximately confirm the volumes outlook that you mentioned. We said that we foresee a portfolio growth of 15%-20% for 2018. It will be on the same level or slightly higher level than this year. We foresee the vast majority to be unsecured consumer claims for next year as well. The SME and secured are increasing quarter by quarter. We cannot guide on a specific percentage because as you know, it becomes a bit black and white when you acquire a portfolio, which portfolio you actually win, which portfolio you don't win, and at what composition. Pontus, do you want to give any more flavor to that or?
I think it's like we're saying, we want to strengthen our position obviously in other asset classes going forward. Of course, we should expect a larger portion of the book and the purchasing to be in the direction of SMEs, secured, and then potentially also performing assets then. Again, as Jörgen is saying, it's a bit black and white. I think you could say we're in two very large markets in Europe, the Italian and the U.K. market. Also, as I commented earlier, we're in a few other markets that are sizable, but we are not very sizable, the Spanish and the Greek market. It's an early phase for us there. I think to give some kind of color how you should think of sourcing in terms of those asset classes and jurisdictions, that's probably what I'd say.
Okay. Just in terms of the guidance for loan purchase, would that be above SEK 5 billion for next year, for 2018, let's just say?
To summarize the 15%-20% in numbers, we'll give you a guidance of between SEK 4 billion-SEK 5 billion for 2018.
Okay, thanks. My second question. Given your plans to expand to new asset classes, just looking at the cost structure between those asset classes, is there any significant difference? For example, in the cost of collection and particularly, do you have the same return profile across these asset classes? Maybe if you could expand on any difference there.
Of course, every asset class will have their own features and ways of collecting. You take one extreme being performing books, then obviously you have a very low cost to collect. It's more about maintaining and running off such a book. Whereas if you look on the other extreme, then say secured portfolios would have very different elements to it than the unsecured. Again, it's hard for us to give a guidance on exactly how will the composition of a number around SEK 5 billion in acquisition, how would that composition look, what the cost is going to be. What I'd say is, the way we think of other asset classes is of course, the same way as the normal kind of unsecured. We look at sourcing and underwriting this on a risk-reward basis that will support our financial target of ROE of 20%.
If that was the answer to your question.
That's fine. Last question. Just in terms of your cost guidance, if maybe you could elaborate on the nature of the investments management is making. Particularly given that you're investing in digitalization, you've been doing that for some time now. Just wondering what is driving this sudden increase going forward?
As we say, we saw absolutely an uptick of cost now in the fourth quarter. It's of course, a mixture of a lot of things. As we commented earlier, there are projects ongoing in terms of merging the two Swedish entities. There are IFRS initiatives on our side, et cetera. There's, of course, another bucket is when we're moving into new asset classes and new jurisdictions. Of course, our capabilities are not as great as they are in the more established market, which means again, we won't win all the deals, and we're going to have costs associated with understanding, learning, and assessing some of these portfolios. That hopefully going forward will decrease as you bring your hit ratio up and you're able to bring some of that knowledge and capacity in-house. The third bucket is more, again, than investing into technology in terms of building Self-Service platforms.
We talked about data analytics and things. Of course, these are investments that require everything from building the systems as well as taking on people that can support on that journey. This is, of course, nothing that translates into efficiency in the next quarters. We have ramped up this activity throughout the year, and we expect to continue at a very high pace into 2018, thus holding back the counter there. If you look at cost to gross cash collections on a fairly flat level in 2018 and then expect it to further come down as we go forward. Finally, maybe also worth mentioning, of course, you also see that we've taken initiatives in restructuring or reorganizing the operations in a few countries. It's the same there. That will take a period of time before that comes through the P&L in full effect.
We estimate to see the first signs of that late 2018, mostly the full-year run rate will be in 2019 and onwards.
Yeah. Thank you.
Thank you. I remind you that if you do want to ask an audio question, you will have to press 01 on your telephone keypad now. As there are no further questions registered, I now hand back to you speakers.
Thank you. We actually have some questions from the webcast. The first is: What's driving the CET1 ratio move quarter-on-quarter? Basically, the growth in the balance sheet. I think it came down now or yeah, it came down, and it came into our targeted range for the reason that we invested ahead of SEK 2 billion in the fourth quarter.
There's a question on the return on book that is still compressing. Are you comfortable giving any outlook on that for the coming years?
No, we wouldn't give a guidance on the return on book. We'd rather give the guidance that we've done now where we say that we believe or we see that our return on equity will not come all the way up to the targeted range in 2018. It will sit a little bit below. It did close a little bit below this year as well.
The final question is on the restructurings you're doing in Germany. Will we see more of that in other geographies?
As a growing company that wants to stay ahead and aligned with the competition, you will always have work in progress in different ways. Of course, we will make sure that we will be continued a preferred and a leading player in this market, and we don't have any such actions going around the corner. We look every quarter, of course, for ways to further increase our operational efficiency and by doing then effectivization. We don't have anything around the corner on the cost side to further restructure the business today. We took two big steps here with the Benelux and German operations.
I actually have a question myself on the financing cost. It's down to, I think 1.3% in Q4, which is exceptionally low compared to peers. Do you see any scope for that going even further down? Also in terms of the speculation on interest rates moving up, being funded that much on deposits, how much of that is hedged and how much would be an immediate effect if we see interest rates going up?
The first question, I guess, is that of course, funding cost is as important as operational efficiency for us. Every basis point we can find, we'll continue to strive to find that. I think should you expect it to drop another 100 basis points from this level? Most likely not, right? I think we are continuously working with that and seeking opportunities. Every basis point counts here. I think then on the other side, if rates are starting to tick up, as we said, we do protect ourselves for up to three to four years by interest rate swaps, basically in the market.
Thank you. One final question from my side. Both of you are actually leaving the company, and we are seeing these rather big investments for the coming years. How do you think about the timing of this transition?
You know that I'm not leaving the company. I'm moving on to a position as vice chairman of the board and continuing my role as a major shareholder as well in the company. I will be a very caring owner and an active board member as well from that perspective. I'm extremely happy for our choice of Klaus-Anders Nysteen, my favorite candidate, and we have a very good relationship today even though he's not starting until mid-March. Every decision that I've taken, every move that I'm making since we got him on board, of course, I've done that in close agreement with him, so he understands and are with me in what he will continue to drive. There will not be any gaps or jumps because I'm leaving my role as CEO.
It is also the case that you know that we have a very strong value-driven culture in this company with a fabulous, strong foundation in terms of our country managers and business unit heads. Of course they are not unaffected by changes in the top management, but this is not a company which is solely dependent on the top management. It's actually driven by the different jurisdictions and the very strong business unit managers. To summarize, whatever decision I take is very aligned with the organization and will continue to be capitalized upon by the new management team.
Do we have any additional questions from the room? No, it doesn't seem so. Thank you very much. I'll hand it back over to you.
Okay. With that, I just thank all of you for listening to us. Thank you.