Earnings Call: Q3 2020

Oct 23, 2020

Thank you, and good morning, everyone. Very pleased to be here. As was said, I'm Anders Zengdala. I'm the new CEO of Interim. And with me today is Mikael Ladderner, our acting CFO. Well, first of all, I want to just say that I'm very honored by the trust given by the board appointing me as CEO to lead Interim going forward and humbled by the task to take Interim into its next phase of development. But turning to the quarter and the results presentation. If we start on Page 3 in the presentation, I'm very pleased to present the results of the 3rd quarter. The Q3 was, in all and overall, a very strong quarter for Interim, demonstrating the strength of our business model also through adverse times like the one that we've seen over the past 6, 7 months. It demonstrates the resilience of our business model and how it balances through changes over the business cycle. EBIT adjusted of SEK 16.47 was 25% ahead of the 2nd quarter despite what is normally a seasonally slower quarter in Q3 due to the holiday season normally over the summer months. But this year, clearly, we had a stronger Q3 than that seasonality would normally give. Looking across our segments, looking at the key drivers for our results, it's a couple of highlights I wanted to bring up and Michael will go into more detail later on is we clearly saw a strong rebound in our Strategic Markets segment, driven by both a catch up on volumes delayed from the Q2 as well as the underlying gradual normalization of the activity level. Clearly, the strategic markets were most impacted by the lockdowns in the Q2, and we saw activity opening up in June at the end of the second quarter and with further acceleration through July and the summer months. Noteworthy is clearly the contribution from our Greek partnership, which contributed meaningfully both in a year over year comparison as it was not included in the Q3 last year as well as on a quarter on quarter comparison to the Q2. We also from on the portfolio investment side, we saw the continuation of the gradual recover of collection performance on our back book that started in June and continued into the Q3. The Q3 most well, in the Q3, most of our markets operated at effectively pre COVID performance levels, which contributed to an overall outperformance versus the pre COVID forecast and a very meaningful outperformance to the COVID adjusted forecast. We only see a few markets, particularly in Southern Europe, still effectively operating on a below pre COVID level, but we can come back to that at a later point in the presentation. Thirdly, looking at the CMS segment, we continue to see the trend of lowercase inflow dampening the top line performance. This continued to be driven by our clients being more restrictive in sending overdue cases to collections as well as the continued effects of various moratoria, especially related to overdue financial receivables from our banking clients. And fourthly, it really we continue to see very strong cost control and the cost control supporting the margin development both in strategic markets and CMS. In total, the strong performance led to meaningful increase in our cash flow and cash EBITDA, which came in at SEK 3,100,000,000 in the quarter. And at the same time, our strong free cash flow supported the reduction of our absolute net debt. And the combination of these two factors helped reduce our leverage ratio to 4.2x, continuing path that we resumed in the Q2. Furthermore, the financing activities we undertook during the quarter assisted in strengthening our available liquidity even further, which is now amounting to SEK 16,000,000,000 at the end of the quarter, as well as removing all meaningful near term maturities before 2024. Turning to Page 4. In terms of outlook, clearly, the second wave of COVID and the pandemic trajectory increases the uncertainty near term in particularly as it relates to the Q4. I mean, we're seeing again locally and throughout our footprint that locally markets are increasing restrictions in certain countries and local lockdowns are being introduced. But so far, it's to a limited extent translating into full scale lockdowns of what we saw in Q2. And so far, we haven't seen entire countries being shut down in a similar way. That said, our readiness is high to respond to changes in circumstances. And at the moment, we're operating approximately 50% in office and 50% capacity from home. And we are fully prepared to adjust and change rapidly as all units have remained at full and large since Q2. The strong performance and response at the onset of the pandemic gives me comfort that we are able to navigate successfully also through a second wave. We're therefore a bit cautious in terms of the outlook for the Q4 and do not expect the same seasonal pattern that we usually see in the Q4. As you see, we've seen a strong Q3 and we're also a little bit cautious on Q4. Looking beyond though into 2021, we see that the pandemic effects will continue to linger as the recessionary impact of the pandemic takes full effect. On the other hand, we do see that economic support counterbalance this in part and many government stimuli programs supporting also into 2021. We therefore, we expect to see a gradual normalization of the operating and economic conditions through 2021, leading to gradual normalization of case inflows and gradual resumptions of portfolio sales activity. Beyond that, into the medium term, we do see increasing NPL formation in the pandemic aftermath, creating a supporting tailwind later in 2021 beyond. Furthermore, we believe that our clients will continue to seek externalized servicing solutions and increased sales of portfolios, driven by the structural need to limit capital drag from increasing NPL ratios, the need to modernize NPL management as well as the changing consumer behavior leading to growth in consumer credit. But with that, I'm I will hand it over to Mikael, who can take us through some of the details of the report. Thank you, Anders, and good morning, everyone. Turning to Page 6 now, group financials and summary. As Anders has just stated, we're very pleased with the strong financial performance in Q3, again highlighting the resilience of Interim's integrated business model. Supported by catch up effects in what is usually a seasonally slower quarter, revenues grew 16% relative to Q2 to SEK1.521 billion and are also up 19% year over year. EBIT adjusted came in at SEK1.687 billion, an increase of 25% relative to the preceding quarter and 14% relative to Q3 2019. Earnings per share for Q3 stand at SEK6.97 per share, significantly up from SEK4.26 per share in Q3 2019. When looking at the quarterly results on a cash basis, cash revenues came in at SEK5.5 billion and cash EBITDA at SEK3.1 billion, up 16% versus Q2 and 20% year over year. This development highlights the favorable growth trajectory of our cash results. Furthermore, expenses SEK2.4 billion were only up 4% year over year in comparison to the revenue increase of 19% for the same period, a testament to the ongoing benefit of the efficiency program executed in 2019 as well as continued successful focus on cost control during the pandemic. Focusing on leverage, we continue to delever. The ratio stood at 4.2 versus 4.4 in Q2, supported by growing cash EBITDA as well as a reduction in net debt despite FX headwinds during Q3. Focusing on the segments, I'm looking at Page 7 of the presentation. Credit Management Services, our servicing operations in the mature and emerging markets, experienced a quarter characterized by continued slower business volume inflow as well as an adverse FX development. The slower business volume inflow continues to be driven by our clients extending payment terms and moving fewer cases into collection as well as moratoria currently in force. The decrease in revenues SEK1.647 billion in Q3 2020 compared to SEK1.764 billion in Q3 2019 was, however, fully offset by efficiency gains with adjusted segment earnings of SEK482 1,000,000 compared to SEK 489 1,000,000 in Q3 2019. The resulting margin expanded by 1 percentage point year over year and 5 percentage points quarter over quarter, standing now at 29%. Based on conversations with clients across our footprint, we anticipate seeing a normalization of business volumes in 2021. Turning to Strategic Markets, Page 8, our servicing operations in Spain, Italy and Greece. It should be noted that under normal circumstances, Q3 usually is a seasonally slow quarter. However, while the segment was significantly impacted by the pandemic and associated lockdowns, including of the legal systems earlier in the year, in Q3, we observed more normalized business volumes, also due to postponed volumes from previous quarters. Greece, in particular, had a strong quarter due to recouping business volumes. Overall revenues came in at 1,738,000,000 dollars 37% higher than in Q2 and 81% higher than in Q3 2019. The margin improved to 30%, an increase of 3 percentage points compared to the last quarter and 13 percentage points compared to Q3 2019. This development again highlights the continuing benefits of the efficiency program carried out in late 2019 as well as ongoing focus on cost control. Segment earnings therefore came in at SEK515 1,000,000, an increase of 49% compared to Q2 and more than twice the level observed in Q3 2019. Now focusing on the portfolio investment segments, Page 9. We saw continued solid performance above pre COVID active forecast of 102%, 117% on a post COVID basis. Gross collections came in at SEK2.7 billion, 6% higher than in the previous quarter and up 1% year over year. The amortization of SEK 972,000,000 is explained by the significant outperformance previously mentioned versus the post COVID active forecast. Earnings from joint ventures were SEK60 1,000,000 in Q3 compared to SEK102 1,000,000 in Q2 and SEK310 1,000,000 in Q3 2019. Segment earnings stood at $1,093,000,000 up 9% relative to Q2 and down 12% year over year. However, removing the contribution of earnings from joint ventures, the underlying performance is improving year over year from SEK 926,000,000 to SEK 1.033 billion in Q3 2020. This translates into a return on investments of 12% for the quarter, up 1 percentage point from Q2 and down 3 percentage points from Q3 2019. Excluding the contribution from joint ventures, the return on investments for the quarter was 14%, up 2 percentage points versus Q2 and flat year over year. Investments of SEK 837 million were flat in comparison to Q3 2019. In addition, the underwriting levels in our investments remain attractive on the portfolios acquired during the ongoing pandemic. Turning to Page 10. As mentioned before, collection performance for the quarter came in at 102% of the pre COVID forecast and 117% of the post COVID forecast. The post COVID forecast here reflects the changes in expectations and associated write down taken during Q1 to account for the risks and continued uncertainty of the pandemic effect on collections. Also noteworthy is our year to date performance against the pre COVID forecast of 99%, highlighting the resilience of our collections against a very challenging operating environment in the context of the ongoing pandemic. In addition, we also benefit from our geographic diversification and that 85% of our collections came from digital and automated channels. Looking at the chart on the right hand side, this is evidenced very clearly by the performance of our static back book based on pre-twenty 19 vintages. Actual cash collections only marginally dipped below the original forecast during 2 months, April May, the months when the most restrictive COVID related measures to date were observed. On a cumulative basis, we collected 180 expectations over the period shown for this reference portfolio. Diving deeper into the cash flow, Page 11. We're seeing a continuing trend of increases across all cash metrics, cash revenue, cash EBITDA and operating cash flow on a rolling 12 month basis. This development is particularly noteworthy in the context of a very challenging operating environment and is a testament to the resilience of our cash flow. Looking at the chart on the right, which highlights the strong cash flow generated by our business, I would also like to point out that adjusting the free cash flow of €9,600,000,000 for the quarter for maintenance portfolio investment CapEx of circa $5,000,000,000 results in a free cash flow to equity of circa $4,600,000,000 This is free cash flow available to be deployed on growth, deleveraging or shareholder remuneration. I'm now on Page 12, looking at funding sources and maturity profile. In Q3, the absolute net debt has decreased, standing at SEK48.9 billion despite adverse FX effects of circa SEK300 1,000,000. At the end of the quarter, we had SEK16 1,000,000,000 of available liquidity and ample headroom under our covenants, allowing us to normalize our investment pace into 2021. We remain fully committed to our deleveraging path with a leverage ratio between 2.5 and 3.5 by the end of 2022 and evaluate capital deployment opportunities against delivering on this target. In terms of the maturity profile, I would like to point out that we have fully addressed all near term maturities with no significant maturities pre-twenty 24 remaining. Furthermore, our cash generating capacity exceeds the maturities in any given year in addition to the capacity available under the RCF. Turning to the net debt overview, Page 13. On the left, we're illustrating how the leverage is impacted by the Italian SPV portfolio. The net debt to cash EBITDA of our Italian SPV portfolio stood at 2 times. As previously explained, as we do not consolidate this investment, the impact is dilutive to the group's consolidated leverage ratio of 4.2. Adjusting for the impact of the SPV portfolio, the group's leverage ratio would have been at 3.9%. On the right hand side, we have put net debt in relation to year C, highlighting a decrease in the ratio in Q3 and bringing it in line with levels observed during 2018 and the 1st 3 quarters of 2019. Furthermore, the share of asset light servicing revenues and the overall mix continues to grow, in line with the trend over the past 2 years and further supporting our deleveraging path. And with this, I would like to hand it back to you, Anders, for a look at our near term priorities. Thank you, Mikael. If we then turn to Page 15, on the short- and medium term focus areas. 1st and foremost, our near term priority will be to continue to navigate the 2nd wave pandemic and be agile and ready to respond to ensure, 1st and foremost, the safety and well-being of our staff and our ability to service our clients and customers as well as protecting the business performance and cash flow of the business. I'm very confident in our ability to continue to manage this successfully and in the resilience of our business model. However, as said, it will likely put a damper on the Q4 performance in terms of the normal seasonality that we see in the Q4 throughout the year. Secondly, as was expressed in the press release on Sunday, Interim is now after a period of significant expansion where we have established a market leading position across Europe. We're now entering a new phase. We're now accelerating our work to create a more efficient operating model, which will allow us to sharpen our client offering and enhance our competitiveness. This, we believe, will create the prerequisites for long term organic growth and profitability for the years to come. Thirdly, we are also well prepared operationally and financially to capitalize on the significant business opportunities emerging in the aftermath of the pandemic. We are ready to serve our clients to capture the further business volumes that may arise. And finally, we intend to speak more about this at our Capital Markets Day on 18th November, and we invite you to participate and join us there. I will also then lay out more details about the strategy as well as to share the new financial targets for the group. So with that, I will hand it back to the operator and open up for Q and A. Thank Our first question comes from the line of Hermann Kirich of Carnegie. Please go ahead. Your line is open. Good morning, gentlemen, and thanks for taking my questions. I would like to start on the collections. So year to date, we've seen your collection performance essentially be in line with your pre COVID forecast. You said 99%. But this year, we also had consistent overperformance. Does that mean we should maybe see another quarter of sort of supportive catch up also in Q4 when you sort of make up for that historical over collections we had? Or what should we expect there? And also in terms of the amortization ratio, that was pushed down well below 40% due to the revelation you did in Q1. How should we think about that in the coming quarters? No, it's a good question, Herman, and thank you for asking. I mean, in terms of collections, as you say, we're now at 99% performance year to date and 102% on the pre COVID forecast in the Q3. And as you rightly say, we have had historically outperformance to our forecast. And as I tried to comment on in the beginning of the introduction, most of our markets are now operating at effectively pre COVID performance levels. That said, we still have some markets, particularly in the Southern European markets, where we have still not back to full normalized operating performance. That we expect to be a, call it, a continued gradual improvement. But it's because of the severity of the lockdown and the associated economic impact, we do expect that to be gradual through the end of this year and into 2021 before we're all back to fully pre COVID levels across every country where we operate. Also, it's worth noting that we've seen a greater impact in terms of the time it takes to go back to normalized operating performance on the secured side compared to the unsecured side. So the combination of secured portfolios taking longer to sort of renormalize as well as the economic effect, particularly in some of the Southern European markets, as sort of it's the remaining differential between the current level of collections and the normalized level of collections, if that helps you to understand that. But we don't I would say that given the short term uncertainty of the second wave, I would expect it takes a bit longer for it to normalize and sort of into 2021 before we're back to full operating speed. And on the mix ratio, if I may? Of course. No, no, you're absolutely right. I think your comment is correct. We did adjust the forecast when we did the book value revision in the Q1, which meant that we had a more conservative expectation for the collection performance in the quarter. And therefore, the significant outperformance on the post COVID forecast creates that lower amortization ratio. We have in our expectation when we did the revaluation, assumed a gradual normalization, which means that as we progress, that delta will diminish, meaning that I would say we should have a relatively more normalized amortization ratio in the coming quarters. That's very clear. Thank you. Then in terms of your comments on sort of lower new sales or new volumes, is that exclusively on CMS or is that also on strategic markets on sort of the forward looking volumes? And also just if you could say anything on did the SPV catch up as much as the strategic markets in general? Sorry, I'm just taking notes to make sure to answer your question. In terms of the new inflows, it's across the servicing business overall. We're seeing both in terms of new inflows in strategic markets as well as in our CMS business. And it's a combination of factors. In the CMS business in particular, meaning the non strategic markets or not the strategic markets, I should say, we call them a mature and emerging market. We see that our clients have been more cautious about sending overdue receivables for collections, taking a more cautious stance. And that has delayed and reduced the total inflows. In addition to that, we also have we have had a moratoria for the treatment of or classification of what has been performing loans into nonperforming in many markets on financial claims. And that in many markets, we see them now, so finishing at the end of the Q3. We're also seeing a number of these moratoria being now extended in some countries to the end of the year and in some countries also some way into 2021, which means that as long as those moratoria are there, it effectively reduces the inflow in the short term. But clearly, the total buildup of NPLs in the system, we expect to lead to increasing inflows in the coming years beyond these moratorium extensions. In terms of the STV, clearly, given that it's mainly a secured portfolio and it's also in Italy, the bigger part of that or the S3, which is comes into the JV line, which is the majority of what's in the JV line. I mean, as you can see, the performance contribution in this quarter was more limited and certainly more limited than what we saw last year. I think you have 2 effects there, right? You have both the, call it, the accounting effect, which contributed strongly in 2019 and gradually reduces as the portfolio matures and you have a sort of very early accounting contribution and a later cash flow contribution because of the structure of the vehicle. The second part is clearly, and we see that Italy was strongly affected by the lockdowns and the economic impact on Italy. And it's taking time before we're seeing normalization of the operating environment for secured claims in Italy. So the combination of those two effects has dampened the contribution from the SPV in this quarter. Understood. But just if I may stick to the SPV a little bit. If I look to your numbers, it seems like you're expecting SEK 1,700,000,000 of cash flows from the SPV in the coming 12 months. How should we think about when to phase that in? And will that be coming through like gradually? Is there some kind of trigger? Does the senior notes in the SPV need to be fully repaid for that to start coming through? Or how should we think there? We will we obviously, as you know, we are amortizing the senior debt in the structure. And as we saw on Michael's chart as well, we have meaningfully amortized over the last 18 months, 2 years. The majority of the cash flows goes towards repayment against the senior debt for as long as the senior debt is there and a smaller portion is cash flows to the union noteholders. That will continue to be that way until the tenure is fully repaid. I mean it is clearly as also is evident, I think, in the numbers that there is a lower cash flow and performance in the SDV over the last 6 months because of COVID. And therefore, there will be also an associated delay in terms of the total cash flows received for junior noteholders through the life of the portfolio. That's as much as I will comment on that, I think. Thank you very much. I'll jump back in the queue. Thank you. Thank you. Thank you. And our next question comes from the line of Giulia Varesco at JPMorgan. Please go ahead. Your line is open. Good morning. This is Giulia Varesco from JPMorgan. Thank you for the presentation. I have two questions to begin with, please. The first one is quite high level, but I'm sure you've done a lot of work on this ahead of the Capital Markets Day. From where we stand today, which area do you think efficiency programs? Could it be cost efficiency programs? Could it be investments in new debt? Or maybe growth in the servicing business? And then the second question is on credit management, which had a 4% organic revenue decline. Could you just quantify these effects you mentioned on organic growth from the moratoria and the easing in payment terms from your clients, both in Q3 and so far in 2020? And if we expect a gradual recovery from here, would it be safe to assume, say, mid single digit organic growth rate for 2021? And what is the structural long term growth rate potential in this market? Maybe you could comment as well by division, by region. Thank you. See if I get your questions here. In terms of the first question, I will defer to the Capital Markets Day as we will go into our view of the contribution from the various business segments into the sort of into the future between what we see from the change program that we have now started, and we will disclose a lot more details around that Capital Markets Day as well as how we see the future in relation also to the new financial targets that we will have for the group going forward. So I will not comment on that specifically today. But as I said, we'll come back on the 18th November with some more details around that. In terms of the decline on this inflows on the CMS side, we are not disclosed the quantification of the sort of the contribution contributing factors of that. But it's clear that both parts in terms of the lesser inflow from our clients from a more cautious stance versus what is specifically moratorium related, both meaningfully contribute to the totality of the reduction that we've seen so far. And as for the normalization of that, I think that it's a bit uncertain given the fact that we are just starting to see the 2nd wave take effect and how long that will take before we are out of that 2nd wave and the normalization of economic business conditions can normalize. That's, I guess, anybody's guess at this point. But I think that from our perspective, it clearly extends the time frame for us getting into normalized inflow environment. So I think the combination of, obviously, extension of Maratoria into 2021 in some places as well as the continued COVID environment continue to make our clients more cautious about sending new cases to collections. But we would expect that during 2021, that will lead us to have current expectation at least that by end of 2021, we should have a normalized environment. But again, timings are very challenging to predict this uncertainty that we have. Could you quantify like a normalized structural growth rate in that business for Northern and Central Europe versus Southern Europe? I mean, first point is to when we talk about normalized, I mean, we can look at what were our sort of levels pre COVID, right? 2019, we were pre COVID and we were in a normalized environment. The first step is to get back to a normalized environment. The second step is to capture the growth of the opportunity set that emerges post COVID. And from that perspective, clearly, there are a number of research reports out that one can read. And clearly, we have seen many different estimates. But overall, clearly, we do see the prerequisites for very meaningful NPL formation and some estimate that to be to the size of what we saw during the financial crisis in 2,008 'nine or the aftermath of that. I think we can all take a view on that. But I think from our perspective, it does give us a tailwind in terms of both the prospects for future inflows on the servicing side as well as more active volumes coming out in the market from a PI perspective. Thank you very much. All right. Thank you. Thank you. Our next question comes from the line of Raimo Curia of SEB. Please go ahead. Your line is open. Thank you, operator. A few questions, if I may. Just coming back to the previous analyst question about CMS volumes. I'm going to rephrase it a bit and refer it to strategic markets. But any sort of feeling for how much delayed revenues you saw in Q3 from canceled or revenues in Q2? And then just on the wording in sort of the report here. Margins, I mean, you're saying you expect a stable ending to Q4 in seasonality as well. Could you just help us square sort of the margin trajectory shorter term in strategic markets? Yes. I mean, I can comment in the following way. I mean clearly, as you see, it's a meaningful step up of total revenues from Q2 to Q3 in strategic markets. There are 2 factors in there, right? One factor is the catch up of volumes that were delayed and would have normally, the cases that would have finalized and settled and completed or for that matter being restructured during the Q2, and therefore, we would have had those revenues in the Q2. So there's an element of the totality of the differential that dampened Q2 and boosted Q3. The second element is clearly the underlying normalization of the operating speed, throughput speed, if you will, where we had obviously clear breaks in the system with the lock down where the courts were closed and we were not able to put through claims through the legal channels in particular. And what we saw during the Q2, certainly in the months of April May, were largely amicable settlements. Legal settlements started to come back in June, and we saw a clear upswing in June and which supported the 2nd quarter totality in terms of margin because also, particularly in the strategic markets, you have some in quarter seasonality where the 3rd month is important before the quarter end. But that cleared that sort of recovery of throughput for legal claims and then call it an uninterrupted third quarter made us come back to not full speed yet in all markets, but closer to full speed in those markets. So there's still an element of catching up to do, but we think that will be gradual and not immediate in the Q4. So I think hopefully, that helps you to understand that a little bit. And in terms of the margin picture, clearly, having had a bit of catch up of volumes that were in the second quarter that should have well, should have come in the 2nd quarter that came in the 3rd quarter, obviously, contributes positively to margins also because obviously the cost side is does not flex 1 to 1 for the revenues. But clearly, we do see that the margin picture is clearly improving and the cost efficiencies that we put through have a positive effect as well. That's very clear, Anders. Just a follow-up on that, if I may. I mean, there's a step up of SEK 300,000,000 in OpEx quarter over quarter in Q3, which presumably should see some, at least in a normal year, some tailwind from seasonality. Could you just elaborate a bit on sort of the sustainability in the OpEx number we saw in Q3? And perhaps if there is some element of catch up volumes leading to higher OpEx than usual as well? Well, you should bear in mind that in terms of OpEx, we have 2 parts, right? We have and particularly on the legal claims that catch up, you have legal fees associated with those claims. So once you actually settle them, you also have associated legal expenses. And those are directly variable. I think the other part is clearly that we managed capacity in the Q2. And obviously, we also managed capacity up a bit during the Q3 to ensure that we were protecting the margin in a more challenging in the Q2. And obviously, with higher activity level in 3rd, we have obviously managed up staffing levels to some extent. So those two factors play in, in terms of the total OpEx. And also, obviously, we will continue to the legal fees are, as I said, directly variable. And therefore, if we have lower settlements or more normalized settlements, those legal fee levels will be more normalized. And also, I think we will continue to be very proactive in terms of staffing level management also going forward. As we are in an uncertain period, it is very difficult to predict exactly how the second wave will play out. That's clear. And then circling back to your final or your concluding remarks in the presentation on the transformation program and perhaps on the more defensive side with the harmonization of systems and processes that you referred to in the press release. Can you just take us through what that really entails? I'm sure we'll talk more about this in the Capital Markets Day, but how does this differ from sort of the reasoning around share service centers that you've elaborated on before? Yes. I mean, what we are looking at is creating a group wide common operating model, which really goes further than the shared service center concept that we discussed in the past. And as you said as you said yourself, we will really elaborate on this in the Capital Markets Day on the 18th November. But what it really goes towards is to create a common operating model, common operating processes and investing into a common technical platform to support that common operating model. And that's really the journey that we now started, and we will continue obviously, we'll continue to work on this for the coming periods. And it's something that the whole organization is now completely centered around to execute upon. And we see meaningful benefits coming out of that in terms of our client proposition, being able to support our clients, to be able to increase the efficiency of our operations and to drive our financial, bottom and organic growth point of view and from a profitability point of view for the coming years. So that's really the highlights of it. But I mean, this is what we tried to communicate as well in the release earlier this week. But we'll expand on that a lot more during the Capital Markets Day. Got you. That's very clear. And a final one from me then perhaps on a more high level note. But you've been very active on sort of the debt side recently. I mean, if I'm not completely mistaken here, sort of financing costs on a like for like basis on refinements you refinanced are up by more than 200 basis points. And you're saying that you expect gross IRR levels on portfolio purchases to normalize. Could you just take us through sort of your view on whether you could have waited with the refinancings and the impact that you expect on levered ROI, if you will, from higher financing costs whereas higher levels are expected to normalize? Yes. Now in terms of the total impact on financing costs, I mean, the average financing cost increase for the totality of our financing is at 55 basis points, okay? Clearly, we went out proactively during the Q3 to address the maturity profile to ensure that we had no outstanding maturities until 2024, which gives us a clear runway to capitalize on opportunities upcoming post COVID as well as securing a very strong liquidity position, also continuing to be able to navigate safely the uncertainties that we're now facing in the second wave and ensuring that we have very healthy headroom on all aspects. So from our perspective, it was important to do that proactively now when we had the opportunity as we saw that uncertainties could research or the I don't know, it could create continued uncertainty for the period forward, and I must say, I'm really quite happy about that. And in terms of the investment market, clearly, it's a bit early to draw too many conclusions. I think we saw a continued healthy investment levels also through the Q3, not meaningfully changing from what we saw in the Q2, albeit that continued relatively limited volumes, 3rd quarter is usually a relatively slower quarter from an investment point of view. We deployed more or less the same as we did in 2019 in Q3. But it's a bit too early to draw too many conclusions on the medium term sort of impact on pricings. But so far, we're seeing a very healthy development in terms of the new deployment investment rates versus the financing cost developments. So that spread, which is very important for us, has continued to widen, which is, I guess, the key conclusion for us. That's very clear. Thank you. Thank you. Thank you. And we have one further question in the queue. The next question in the queue comes from Richard Hellman of Nordea Credit Research. Please go ahead. Your line is open. Thank you very much and good morning. I just wanted to perhaps have a little bit more flavor about your ending remarks and the emerging business opportunities. Is that portfolios or is it structural transactions or combinations? What are you looking at? And perhaps also have you received increased interest from structural transactions as well? Thank you. Good morning, Richard. From our perspective, clearly, our focus is very much on the change journey that we're now embarking upon. And therefore, the, call it, structural growth that has been very active during the last few years has a on balance a lower priority. We don't exclude doing structural transactions in the future completely, but it will not be the main priority for us going forward. So the main priority for us going forward is to continue to service our clients to meet their needs in this in the aftermath of the pandemic. And we see that emerging both in terms of increasing potential for increasing servicing volume inflows and to be able to capture more clients and capture larger share of our clients in the future to drive our servicing business as well as to continue to participate as an active participant on the portfolio investment market and service our clients there. I mean, remember, we do buy most of our portfolios from our existing clients and where we have an overarching servicing and investment relationship. And for us, that is important. But clearly, we see opportunities on both sides coming up. But as I said, the structural transactions will be of a lesser priority. Thank you. But also, I mean, I also want to reiterate our continued determination to reach our leverage target by 2022 as we disclosed back in March. That still very much is a target for us, and we see the trajectory over the coming 2 years to reach that. Okay. Thank you. Thank you. And we have a follow-up from Julie Vrasko at JPMorgan. Please go ahead. Your line is open. Yes. Hello. Just a couple of clarifications, kind of short housekeeping questions. On investments, your presentation indicates that you plan to grow investments in 2021. Would it be possible to just quantify the potential increase if we're at a run rate around SEK 5,000,000,000 this year, are we looking to come back to sort of SEK 7,000,000,000 and upwards in 2021 already? That's the first question. And then the second one is on the depreciation and amortization. There was an increase in Q3 versus Q2. I was just wondering what's behind that. And finally, I think this has been touched upon slightly, but just to maybe you could just clarify that the statement in the release that says, in light of our ambition to increase our level of investment in 2021 and beyond, current return levels are likely to be maintained. Just to clarify, when you're talking about current return levels unlikely to be maintained, this is in reference to relative absolute wood return levels. Okay. Starting with the investment pace. I think what we're trying to say is that in 2020, we're and as we have stated in the previous quarters as well, aiming to keep our ERC stable, which effectively means a maintenance level. And our maintenance level is approximately SEK 5,000,000,000 this year, can vary a bit. We don't have exact numbers for it, but the overall ambition is to be on a stable ERC basis in 2020. What we are trying to express is that we see that we would have a more normalized investment pace in 2021, which is consistent with the average over the last few years since the merger. So in the last few years since the merger, we've been more on a normalized level, which means underlying growth, moderate growth of the investment pace and as opposed to the maintenance level that we are at currently. In terms of the 2nd quarter presentation for people's or for your benefit a chart which demonstrated the difference on post COVID levels versus pre COVID. And what we're trying to say with that comment is that we also expect pricing to be more normalized, meaning that we do not expect to maintain these elevated levels we saw in Q2 as we normalize the investment pace into 2021. That said, it's too early to tell exactly where that will land, but we do expect that those pricing levels, which are lower, much lower than we talked pre COVID, will not entice the clients to actually sell portfolios. And therefore, I think that and also the competition will also be more normalized into 2021, we believe. And therefore, we will find a new equilibrium in the market going forward. But as I said, it's a bit too early to tell as we haven't started to see all those volumes and activity in the market really resume in full speed. But we'll obviously continue to monitor this as we go along. This seems to be slightly less optimistic statement than what we've heard before. No, it's the same statement, just to be clear. We do not expect the Q2 levels to be the same levels going forward, but we do not also see any reason why we'd reach any pre COVID levels at this point in time. So our expectation is somewhere in between, but what I'm trying to say is that it's too early to sell exactly where in between we will end up. So it's no there's no difference in the statement in that sense, just to be clear. Okay. And the final one was on the depreciation and amortization. Thank you. I'm not sure I understood what you're looking for. In terms of the amortization ratio, clearly, the amortization ratio is lower. But the I'm sorry, This is not with reference to the portfolio. This is just Okay, okay. Yes. No, we have some some accelerated D and A in the quarter. We also we'll continue to, I think, have some more D and A in the coming quarters as we also will be reviewing in terms of our well, our existing infrastructure. And as we now will continue to invest more into technology, that will likely continue to elevate the D and A somewhat in the coming quarters, but we clearly continue to revisit this on a periodic basis to ensure that we do not carry too high values on our balance sheet. But yes, no, we did some acceleration of D and A in the quarter that increased the D and A. And sorry, just I know this question has been asked before, and you provided an explanation since we just touched on the portfolio amortization run rate in Q3. I understand the explanation for the Q3 level. But if we're modeling that going forward, 2021 and beyond, what is like what long term ratio should we be incorporating in our forecast? I think it's more in line with what we've had over the last actually quite a few quarters, last 2 years, I would say, we've been hovering in the more or less 40% range. Some quarters a little bit less, some a little bit more. So I mean the average of the last number of quarters, I think Q3 is a little bit exceptional in that sense. In Q2, we were closer to that. And previous quarters before that, we've been relatively stable on the amortization ratio. Thank you. Okay. And there seems to be no further questions at this time. So I'll hand back to our speakers for the closing comments. Okay. Thank you so much for joining. As I said, I'm very pleased with the results for the quarter, and we obviously continue to monitor the developments short term. But overall, yes, very pleased with the result. And I also want to thank you all for joining. If you have any additional questions afterwards or going forward, please don't hesitate to reach out to Victor, our IR Director or to ourselves. So thank you so much for joining. Have a good day.