Earnings Call: Q1 2017

Apr 27, 2017

Good morning, everybody, and warmly welcome to Horst Finance Quarterly Presentation. Besides Pontus and myself today, we have invited our group treasurer, Magnus Lindesand, on the stage. He will, of course, comment on the announcement that we made earlier this morning, where we are showing to the market that we're seeking ways to further capture market growth opportunities. Finally, I've asked Pontus to comment on two specific questions, which quite frequently come our way. And that is, of course, the impact on our operations and financials in an increased interest rate environment and also the impact on Brexit. So Pontus will comment on those two issues a bit later. I am, of course, pleased and proud to present yet another strong and stable solid quarter with a continued stable growth. We can show an impressive earnings per share growth of more than 40% compared to the same period last year, an increase of the same metric of 18% compared to last quarter. We continue to improve our EBIT margin, who today stands at 38% compared to 36% in the first quarter twenty sixteen. And our return on equity at 21% means that we have reached our medium term financial target for the first time since the IPO. During this quarter, we have also received a performance fee from Bank of Greece in accordance with our agreement, reflecting the solid work we have performed during 2016 in supporting Bank of Greece in the liquidation work of the entire Greek bad bank system. We foresee this successful cooperation to continue and also expect a continued contribution to our revenues in the years going forward. And with respect to our CET1 ratio, we have decided to clarify our target and changing it from having a fixed target of more than 12% to have it as a range instead. So our CET1 target will now be a range between two point five four point five percentage points above the regulatory demand. That would imply today that we should have a CET1 target of between 10.112.1%. And as you can see, we stand today at 12.5%. Finally, we continue to see a healthy and strong pipeline and deal flow across all our jurisdictions, and our outlook for the full year remains intact. On Page two here, some high level financials. Our total revenue at SEK $790,000,000 for the first quarter twenty seventeen is up 13% compared to the same period last year. And our earnings before tax is up with impressive 50% compared to the same period last year and stands now at SEK185 million. And this is, of course, a result of the increased EBIT margin and the higher return on equity. If we then turn into our portfolio development. So first quarter acquisition volumes are in line with last year's, which provides a healthy stable growth of our portfolio of 13% compared to the first quarter last year. And on the right hand side here, you see the development on our return on book. And as we have mentioned before, our disciplined investment strategy and investment hurdles is reflected in this stable return on book. This, in turn, translates into a stable and predictable cash flow. And since we see no reason at all to deviate from this disciplined investment strategy, you should expect a continued solid and stable performance going forward as well. Before handing over the word to Pontus, let me comment a bit about our outlook for 2017 and how we continue to intend to address that. So market conditions for our business continues to improve. This is mainly driven by three factors. One, the market continues to mature. And in a more mature market, a higher percentage of the NPL are sold from the banking system to the market. And we can see that quite clearly if we compare, for example, the by far most mature market in Europe, UK, where we see significantly higher volume of the NPLs being sold from the banking system than if we compare with, for example, Germany and France. And we can see that the other jurisdictions in Europe are continuing to mature, A higher percentage of the NPLs are being sold from the banking system. And across over Europe last year, only onethree of the NPLs in the reported NPLs in the banking system were sold to the market. So there is a market potential there. This is further supported by the increased regulatory environment that the banks are working within. And the implementation of Basel III, Basel IV and not at least IFRS nine next year continues to support this. This increased regulatory pressure serves as, you can say, catalysts or incentives or eye openers for the banking system to seek for alternatives to seek for players like hoist finance, who are much more skilled than the banking system to recover defaulted claims. Lastly, we have seen a rapid credit expansion throughout Europe since 02/2009. And with the same default ratios, this, of course, also implies to a higher volume. So the market is there. That is quite clear. You can see it. We see it. So how will we continue to address this? Well, since the market is so strong, again, we reiterate that we see no reason to deviate from our disciplined investment strategy. Also, we don't see no reason to deviate from our investment hurdles either. We will continue to capture growth opportunities, both with respect to seek for opportunities in new jurisdictions, but also to continue to work with operational efficiency to further take out economies of scale effects in our existing jurisdictions. Finally, we will continue our work to increase our financial flexibility and broadening our funding base, And it's a joy for us today to have Magnus Linusan to, in more detail, comment on that. And with this, I hand over the word to Pontus. Thank you, Jorgen. So to reiterate a little bit, we've seen a solid growth in revenues for the quarter, up 13% year on year, which follows suit with the last sorry, first picture, we'll do it again. So revenues are up 13% year on year, and that follows the portfolio growth that we've had last twelve months of 13%. So this means that the return on book stands stable at the level of around 11%. And even if adjusting for the performance fee that we received in Greece, it still stands just below 11%. So we are able to maintain a solid return on book. So if we flip to next slide, profit before tax continues to with margin outperform revenues and portfolio growth, it's up 50% year on year. Main drivers behind this are firstly that last year we experienced a fairly back ended investments into new portfolios, so quite a lot of the growth that we saw came late in the year. This is now feeding through in a way as we expected in the first quarter. Secondly, we're seeing our scalability continuing to pay off. And thirdly, also our continuous work with efficiency improvement is paying off both in terms of higher collection rates, but also in terms of lower cost to collect. And of course, we're also very pleased that we have received a performance fee for our work in Greece during 2016, and that market entry is now also contributing to the P and L. So if we go to the next slide, I'll talk you through efficiency improvement. So it's visualized and measured here in a way where we're looking at our total expenses in relation to the cash that we are collecting, I. E, the cost to collect all cost in, which has continued to trend down. It stands at 38% for the first quarter this year. And again, this is of course a proof of our scalable model, which means that we can scale up not only in our present jurisdictions, but also that we can bring the model into new jurisdictions as we've done throughout the year, both in terms of last year Spain and also Greece then, and that is paying off. And then the ever ongoing work in terms of improving our efficiency is also paying off, again, as said, in terms of good collection levels in the quarter, but also a lower cost to collect. This work will, of course, continue. It's ever evolving to ensure that we continue to bring efficiency improvements and also bring continue to bring value to our partner banks and also improving our interaction with the clients. So if we go to the regions, I'll comment short on the three regions. So let's start with region West Europe, portfolio growth 17%, where the main driver is The UK market, but also contributions from our newly entered market last year, Spain. Revenues outperformed portfolio growth, but even more importantly, our work with integration efficiency improvement both in The UK market and in the French market is really paying off. So cost in absolute numbers year on year has actually come down. This, of course, translates into a substantial improvement in our EBIT margin and also in our return on book, where this region is progressing towards where the other regions are currently running. So we go to Mid Europe. Mid Europe is the region where we've had the strongest portfolio growth, 24% last twelve months. Primary driver here is the Italian market. Italy has been and continues to and continue to be a very prosperous market for us. I mean clearly, Italian banks are struggling in various ways from bringing down NPL ratios, from improving capital ratios, improving our profitability, and they are increasingly engaging with us in these discussions. The EBIT margin remained stable in the region, whereas the return on book came down somewhat. So as we've said, we are, to some extent, replacing and reinvesting. We're trading at slightly lower IRR in the market than what the back book is running at. Though one could say the back book is a diminishing part of that contribution. So I mean as we have invested and we'll be growing fairly quick in these markets, especially in the Italian market, I would say that it's probably been leveling out and the return on book that we're seeing in the region is fairly where we expect we should be able to continue to run and operate. Again, in this region, we are of course pleased to see that we have a contribution from our market entry into Greece with the performance fee that we received. If we then go to Central East Europe, the portfolio is more or less on a standstill level comparing to year end and last twelve months also more or less standstill level. Firstly, the first quarter is generally a seasonally weak quarter in terms of supply. You will know that the fourth quarter is the strongest, the first quarter. This was definitely the case in this region and in this year as well. So we have invested limited into new portfolios in the first quarter. In spite of the lower growth rate, we have maintained our margins at similar levels, both measured as EBIT margin as well as return on book. The return on book is to some extent supported by that we had small positive revaluations, but even if adjusting for that, we are still running at solid good levels. So this again is of course a proof of that our work with improving efficiencies, etcetera, and collecting more out of our back book is bearing fruit. To reiterate in this region as well, which you will see from the full P and L, you will see a quite substantial drop in our fee and commission income. This stems from us, as announced last year, discontinuing our service operations in the Polish market. This though has been fully mitigated by us being able to reduce costs and FTEs associated with that activity to ensure that we continue to focus what our strategic ambition is. Then as mentioned before, I leave the floor to Magnus to comment more specifically on this morning's press releases. I'd like to walk you through the interest rate environment as well as the Brexit and how we look up on those things and how they might or might not affect us. So if we start with interest rates, clearly, European economy is showing a slow recovery, and we believe that interest rate has most likely reached the bottom and will gradually start to tick up into the future. So how does this affect our business model? So if we start with the liability side, we expect when rates when market rates start to pick up, we expect that we will have to follow. This means that we will have to offer higher rates to our deposit customers in terms of the floating deposits. We also expect to see a similar pattern in terms of term funding, both in terms of term deposits as well as the bonds that we have out in the market, though of course with the time lag as they mature. Important to point out here is that we do protect ourselves. So we protect ourselves through interest rate derivatives with tenders up to three years. So in practice, this means that over the P and L, you will see higher funding cost on the one hand, but on the other hand, you will see positive effects from mark to market on the derivatives that will offset the higher funding cost. Then if we move on to the asset side, so there's two substantial pieces on the asset side. So let's start with the more obvious one, our liquidity position. This is invested into low risk assets with short tenors, T bills, covered bonds, etcetera, which of course will follow market rates as we move forward, which means that interest income from these instruments will continue to tick up, where we're moving literally, we're moving from a paying environment today. So we're holding on to these assets and having negative yields on them. So if we go to the other side of the asset side, our acquired loan portfolios, these are less obvious in the sense that they're not pegged in the same way to an interest rate as a typical loan would be. We will in the coming three years, we will amortize roughly half of our portfolio, and we will, of course, replace that by reinvesting into new assets across all the jurisdictions. We, all things being equal, expect that unlevered IRRs on this investment will follow market rates as they start to tick up. So gradually, we will converge the book on an unlevered IRR basis to a high return down, which of course will mitigate the funding cost that we will see coming through over the P and L. So to and finally, a more implicit comment is, of course, moving into an environment with higher inflation and higher rates is, of course, an indication of a stronger economic condition, which means that there is potential for us to revisit our back book as well. And the circumstances might have changed for our clients, etcetera, and the ability to pay might have improved, which could also support higher collection levels out of the back book. So to summarize, I mean interest rates and moving upwards will clearly affect us as well as the industry in general. But we believe that we are on the things I've just mentioned, we believe that we are fairly protected for that environment and we or we protect ourselves with the various arrangements that we have in place, as just mentioned. So then if we move on to the other debated topic, the potential impact of Brexit. So it's now clear that the Prime Minister has triggered the Article fifty and two years of tough negotiations will start. We have looked at four areas which could affect our business model. So if we start with The UK economy and whether that will be swinging to a recession or not, it's of course unclear. But I think what we know for certain certain is that our business model has proven very resilient in weaker economic conditions, not the least because it's very much it's based on agreeing small affordable installment plans. So in The UK, the average installment for a client is around GBP25 per month. Market turmoil in terms of currencies and interest rates moving. This is something that we live with anyhow every day. We have open FX position open, we protect our FX position, we protect interest rates, etcetera, as I mentioned. And our strategy is, of course, to avoid and hedge this to the fullest possible extent. The regulatory landscape might change. To bear in mind is that we already today operate under various regulatory regimes. In The U. K, we operate and we have the authorization under FCA in our business. And then we also are under the Swedish financial Swedish FSA in terms of regulations. We don't foresee that we will have any problems to adopt to a slightly different regulatory landscape going forward. And also important that we do believe in this to be a strength to our business model to operate in this regulated environment. And then finally, the access to EU's inner market. We are not engaged in an activity which is around importing and exporting into the EU market. We conduct our activities solely in The UK. Would there be restrictions on capital flows between EU and The UK going forward? We expect that we will be able to adopt to those as well, not the least because of the funding model that we have in place, which is diversified and we can tap from various types of sources in terms of how we fund and the flows between the jurisdictions. So of course, we will continue to follow this development closely, but at this stage, we cannot conclude that we foresee any major things that will impact our business model and our activity in The UK. So with these words, I'd like to hand over to Magnus, who will walk you through the morning's press release and other stuff. Thank you, Pontus. So as you can see from the slide, Hoist has during the last twelve months been able and continued to develop its funding side. It has been broadened and diversified. Primarily this has been driven by increased wholesale funding, mainly through issuance of senior debt. As such, the wholesale funding has added contractual maturity to liabilities, why we enjoy a overall structural risk, which has been reduced somewhat. Partly as a result to the increased wholesale funding, the retail funding has also been reduced. Steel hoist have improved its structural position with respect to the NFSR, which is due for January 2019. And as credit institution, the retail funding will continue to be very dominant funding source to Hoist going forward. The wholesale funding issued in euro has subsequently reduced also the currency mismatch. And Hoist will continue to address this mismatch by adding further debts denominated in the core assets currencies going forward. Hoist is also currently underway with a second deposit taking scheme in euro, which is expected to be fully implemented by year end this year. So to comment on this morning's press release, we announced a public tender offer concerning the existing outstanding subordinated Tier two notes. And in conjunction with that, a hoist is considering an issuance of new subordinated Tier two notes. The buyback through a public tender and consent solicitation process will be associated with one off cost hitting us in the second quarter. But still, despite the tender price, the tender cash price at 1.145 we will enjoy a cost saving, which is compared to the remaining interest rate less than would have been paid until September year, which should be called. The new issue, subject to new market condition, would most likely take us into lower interest rate territory on the new subordinated notes. And the reason to the transaction is to further support our medium term growth potential to also continue to fine tune the capital structure and reduce currency mismatch. And not least, the supported ambition to improve the credit rating. So we are paving the way for an improved credit rating in the short to mid term horizon. To conclude, next slide, to look at our capital and liquidity position and a bit to repeat what Jurgen previously said. End of Q1, we posted 12.5 as CET1, well above the regulatory requirement and also our new target range as explained. As you can see from this and other capital ratios, Tier one and total capital ratio, we demonstrate a solid capital position going forward. Finally, looking at our liquidity reserve, we are today well positioned to grow the loan portfolio over the coming quarters. To conclude, hoist finance stands strong from a capital and liquidity position, and we are in a good position to grow our business going forward, both in terms of portfolio acquisition and also certain M and A activities. With that, I'd like to hand over the word to today's moderator, Victor Lindbergh, and open up for questions. Please welcome. Thank you, Magnus, Joergen and Pontus. So my name is Victor Lindebe. I will moderate today's Q1 presentation, and I'll start off with a few questions on my own. And then if we have any further questions in the audience, we'll be happy to take that as well. So you commented on now the interest rates Pontus might be trending higher and one could only assume this would benefit your clients, the banks as well. Just to understand a scenario, how you view upon that scenario, if the banks are starting to feel better, would you think that they are more eager to sell and offload more debt or that they can actually keep it for a longer time period on the balance sheet and deal with it by themselves? So I'll take that question, Victor. So we did not start our operations last year. We've been around for more than twenty two years. So we've seen different interest rate environments, and we can show proofs in our database of what happens then. So what happens when banks are in more healthy environment, it's easier for them to divest things. The tricky thing is that in harsh conditions, it's hard and demotivating to be even harsher towards your own P and L and balance sheet. So that perspective easing ups the atmosphere, if you can address like that. So that is something that not only we have seen, but the market has seen in previous upturns in the economy of the bank's behavior. Okay. And would you say from a geographical perspective that there ought to be any differences when looking upon this? No, the only thing we see, and again, it's not only us, but the market is that we see an increased maturity in markets, not at least the large jurisdictions like Germany, France, Italy, Poland, getting closer to U. K. Behavior on a more transparent larger percent of the NPLs coming out to the market from the banking system. And we all benefit from that, I. E, a larger portion of the NPLs are being sold. Okay. And looking then at your operation, you mentioned Poland now and 've taken some extra costs in this quarter now to facilitate more collections going forward. Just to understand the dynamics of that, I think historically you have been to some extent almost capitalized that cost and now you take it over the P and L. Is that correctly understood? No, it's not done in any different ways. You could say last year, the active I mean last year, we invested quite a lot in the Polish market. We were not undertaking the legal actions, etcetera, to the full extent, and that is being accelerated into this year. And I think what you see, you see the similar impact as you've seen in the past. You will see the kind of the amortization as a function of collection be moving, and that has moved in then, say, a favorable way this year. So in that context, yes, it's handled in the same way and it's definitely seen as an investment. It's things that we're doing to build the book into the future, And the impact and the return should be the similar. So I think technically, you could say in the region that meant that the EBIT margin, the way we measure it, came down a little bit, not because efficiency necessarily deteriorated, but more the timing of the expenses. That's quite clear. Finally for me before I leave it to the floor. Started out now the year with approximately SEK 600,000,000 in investment and you have a target of reaching NOK3.5 billion to NOK4 billion. Of course, this is a back end loaded business when it comes to purchasing. But given how the supply outlook is right now and what you have accomplished in Q1, how you feel about that outlook? So we are comfortable and firm about that reiteration of that outlook for the full year. And we also believe that we will have a healthy first half year, which we can see right now. Okay. Do we have any okay, let's see on the telco. Do we have any questions coming from the telco? And our first question comes from Adedapo Ogucheny from Morgan Stanley. Please go ahead. Your line is now open. Good morning. Thanks for taking my question. So my first question is relating to Mid Europe. From your slide on Slide 11, I can see that the revenue growth was much lower than the portfolio growth. If you could just comment on this. Sorry, I didn't are you portfolio growth? So on slide 11, your portfolio growth for the last twelve months was 24%. And then in terms of revenue growth, you are looking at 8% there. Again, last two sentences there. Yes. In terms of your revenue growth in Mid Europe, that's 8%. It's less than 24%, yes. Yes. Okay, I get it. So I partly tried to comment, but I'll give a bit more color to it. So as said, I mean, margins in terms of EBIT has remained more or less stable. The return on book has come down. And there is a number of things going on here. So one is, of course, as I I mean, are trading at slightly lower IRRs than the back book we held on to in the market, and which means that gradually we're converging to a lower return on book. Then comparing specifically to the first quarter twenty sixteen, which I probably didn't mention, as you see, we had a very strong Q1 twenty sixteen, where the return on book is well ahead of what it was for the full year 2016. And that was supported by a number of things. It was supported both by general good collections levels in the quarter and a few specific things that related to reclaiming of VAT on some of the older books we've been holding on to or we're having in the Benelux market, where we've had a few utilities and telco books, you will reckon from the part, that had substantial kind of impact in the first quarter twenty sixteen. So you could say that is kind of maybe not fully comparable. Okay. So but in terms of your return to book on book yet, where do you expect this to be going forward? No. But we expect that we should be able to again, we expect that we should be able to run a return on book in the range 10% to 11% as we previously been communicated. The way we think of our business, the way we think of our disciplined underwriting is, of course, designed not necessarily around a very explicit IRR, but it's designed around that we deliver up on the targets that we've set for the business, which is one, to improve efficiency and second is to deliver a return on equity of 20%. So that's very much how we steer the business. Then you could today, you could simplify it and say that means that you will have to have a return on book in the range of 10% to 11%. And we expect that we should be able to run the book at that level. Okay. My second question is relating to pretty much the amount of loan purchase you've announced or you've achieved in Q1 versus your target for the year. So I mean, in Q1, this is down 60% year on year. I know you've made comments on seeing larger portions of NPLs being sold in Germany and France. But just looking at your targets for the full year, just looking at midpoint of that target, let's say SEK 3,700,000,000.0, that would imply 15% growth for the rest of the year. Do you think you can achieve this? So again, so we reiterate our both comfort level and firm level of the full year acquisition targets. So the first quarter started off very well with acquisition volume of $611,000,000. And already today, as I answered to Victor here, we have a we are comfortable with that we will have a strong first half year as well to support this full year outlook. Is it possible to just maybe provide more color on your pipeline, I mean, going into the half year? And why you feel quite confident? Are you seeing growth coming from Italy, U. K? Where are you seeing the potential purchases coming from? So as many of you in the audience now have heard us from these nine consecutive quarters since we launched us as a public company, we never comment on jurisdiction by jurisdiction because it's impossible to comment on that. We are holding approximately a 10% to 15% market share in our jurisdictions in our asset classes, and that market knows. It's larger and larger portfolios. It's very black and white if you buy or not buy portfolio. It's black and white if the portfolio comes in U. K. Or France or in Italy or in Poland. So what we can clearly say to the market that due to the size of the pipeline, due to the size of the market volumes coming out of the market and our experience or our competitive edges, we can be firm about certain levels. And this year, we are firm and comfortable of indicating a full year acquisition outlook of SEK 3,500,000,000.0 to 4,000,000,000. Okay. My final question is on the potential impact of Brexit on the business. So you have a slide there, but just in terms of what do you think could be the potential impact on gross cash collections? I would assume if we were to have an economic downturn in The UK, this would reduce the ability of existing debt holders to pay. So what could be the impact on cost collections? So you see that on the first point where Pontus addressed this. This is also with reference to my first answer to Victor earlier today. We have twenty two years of data for this company, and we have experienced several different downturns in the economy previously. We were present in The Nordics during the IT crash 02/2001. We were around in crossover Europe 2,008 in that consumer downturn. And the business model shows that you hardly see an effect on gross cash collections due to the fact that we the majority of the collections are not legal collections or one offs in Castle collections. The majority of the collections are small, small, small installment plans. And as you see in the slide, in U. K, an average GBP 25 per month per individual. And that business structure gives you a very resilient business model. So the data and the experience supports this fact here that we don't foresee any major impact at all of a downturn in the British economy on cash collections. Okay. Thank you. We have an additional question from Emmanuel De Figueroa from LBV Asset Management. Please go ahead. Your line is now open. Good morning, gentlemen. I would like a little bit of color, if possible, on Italy. And namely sorry, namely, what I would like to know is if you if in Italy, you have a similar market share. So you just mentioned that in most of your markets, you have between 10% to 15%. If you could confirm that you have a similar market share to other regions. If you can also give us some color on what you think is happening to ROIs in Italy, given the very increase the significant increase in volumes from Italian banks? And finally, in Italy, are you also looking at SMEs like the biggest player there, which is banker Ifis? Thank you. So on these three questions on Italy then. So we don't comment specifically on jurisdiction to jurisdiction with respect to market share due to the fact that it differs from quarter to quarter. But on average, throughout in the jurisdictions where we are present, we can show historically for the last five years that we have been hovering around 10% to up to 16% actually market share from year to year across all of the jurisdictions. So that's the first answer. We don't foresee any dramatic changes in ROE in Italy due to the higher potential higher supply from the banking market. Italy is a very competitive market like in most other jurisdictions. We see new players there coming in as well, having established themselves, both industrial player and hedge funds. So we need to be on our toes and continue to be competitive. And we expect our IRRs to remain the same going forward in Italy, and that's also the indication we have acquired quite a bit here in the first quarter on the same IRRs. Lastly, Italy is the jurisdiction where we have acquired SME and have been quite successful of that, as we have announced. And we have actually also acquired quite a bit of SMEs from the same seller as well that now sees us as a preferred partner in the Italian market. Thank you. And the next question comes from Mikael Holm from Danske Bank. Please go ahead. Your line is now open. Hello. I just had one question. Maybe I missed this, but did you say this performance fee from Bank of Greece, how large that was in the quarter? No, maybe we didn't say the number. It was SEK 13,000,000, I think it's stated in the report. And that is a fee that we received for the work during 2016. So it's not for efforts that were done in the first quarter this year. Okay. Thanks. And the next question comes from Owen Jones from Citigroup. Please go ahead. Your line is now open. Hey, good morning. Thank you. I have two questions, please. First one, of your acquisitions done in the first quarter, could you give us an indication as to what was done by your forward flow agreements and what was done in the open market? Second question, back to your comments around balance sheet mix and makeup versus your interest rate sensitivity. Could you give us an idea of that sensitivity to, for example, a normalizing interest rate environment in Europe and what impact that might have on your interest payments going forward? I'm not sure that I got the last question. But the first question there The forward flow, as we announced last year, we entered into a substantial forward flow contract in The U. K. Market. I'd say around just below onethree of the volume that is in the first quarter stems from forward flow agreements. Just to comment on what Pontus previously said with respect to British common also, I think in general, should we have an increased interest rate environment in Europe overall, we would see a typical compensation through the derivatives as Pontus also mentioned. So there is a bit of increase with respect to interest rate expenses from debts, but also we have been able to anchor these derivatives, meaning that we are receiving float and paying fixed. So from that point of view, I think we are fairly well positioned. Okay. Sorry. So the difference is beta is zero? Not zero. I cannot guarantee zero, but a very nice contribution. Let put it that way. Okay. Thank you. And the next question comes from Gabriel Bergmann from Danske Bank. Please go ahead. Your line is now open. Thank you so much. So first off, I'd like to apologize because I might have missed this, lots of conference calls this morning. But I have a question regarding the updated target, the capital targets where you are now sort of you were above the 12% before as well, but you're also above sort of the range that you have now set for yourself. Does this say anything on sort of your risk appetite in terms of the balance sheet? And or does it just say something about how you would like to sort of allocate the capital requirements across types of liabilities and related maybe to the announcement of a potential Tier two issue as well? That's my question. So if we start with the CET1 ratio of 12.5% today, and that also in combination with the announcement that we made regarding new issue of Tier two bonds, which would further then enhance our capital ratio. I have never experienced that it would be a disadvantage to be prepared for market opportunities, if I may answer your question like that. So we have always tried to be prepared to capture growth opportunities. And I do believe that, that is the main rationale and reason why we managed to grow show this growth 12