All right. Thank you. Good morning, everyone, and welcome to this presentation of the results for the second quarter 2024 interim. I do apologize for us being 10 minutes late due to some technical issues, but I hope that we are fine anyway. We've got around 50 minutes, and I think Anders and I will try to be as brief as possible to leave for a Q&A session. Now, 2020 has turned out to be very different to our expectations in the beginning of the year, and the pandemic has impacted both our private and professional lives. Having said that, we are very pleased with the results of the second quarter. I think the result proves the strength of our business model, our diverse geographical presence, and our strong cash regeneration despite the external disruption in the form of the pandemic.
Before we look into the quarter in more detail, I would like to take this opportunity to thank all our 10,000 employees for the dedication and loyalty providing services for our clients and customers in a very professional manner during this time that has clearly made an impact in our second quarter results. If we switch to the next page, the operational update. Let me start with some comments around our operational status. In general, our operations are clearly moving towards a more normalized status. All markets are open, and the courts in Southern Europe, Spain, Italy, and Greece are open. There is a natural backlog, which we expect will last into the second half of 2020, of course, but courts will close for vacation in these countries, which, of course, is unfortunate given the backlog, but understandable in a year like this.
Today, we have approximately 60% of our staff working remotely, down from 80% at the peak. We expect this number to drop significantly after the holiday period, but we are mindful of any setbacks, and our recovery routines remain in place, and we are fully prepared to revert to remote working again if necessary. I think if you look at the second quarter, we have proven that we can operate in an efficient manner also by having a large part of our staff working remotely. The pandemic is not over, and despite a very strong second quarter, we remain fully alerted and monitor the situation carefully. Our core values have guided us well through the spring, and I am very proud how the organization has supported both clients and customers during this difficult period.
All in all, the second quarter is again evidence of the resilience of our business model. We clearly have the benefits of our strong market position and the fact that actually up to 85% of the collections in our own portfolios are generated from automatic and online payments. Now, switching to the next slide, Q2 highlights. Looking at the highlights from the quarter, I would like to focus on three areas. First of all, a strong result. The result came in at close to SEK 1.35 billion. That is 23% better than the first quarter. The result is an effect of strong collection performance throughout the organization in combination with strict internal cost control. We see the full effect of the efficiency program from last year in combination with added cost focus during the spring. The support from local governments is actually quite limited.
We have benefited from government support only in a handful of countries and amounting to EUR 1.5 million in total direct support. We have not used any government support in Sweden. Secondly, we have continued to generate strong cash flow. Cash EBITDA came in at SEK 2.7 billion, actually higher than the first quarter and last year. Our liquidity position continues to remain very strong despite paying dividend and executing on a share buyback program in the second quarter. Available liquidity at the end of the second quarter was at SEK 11 billion. We managed to reduce our leverage level from 4.5 to 4.2, sorry, 4.4 in the second quarter, which again is a proof point of the strength of our business model. Our cash flow from operating activities is SEK 2.9 billion in the second quarter.
That is over 50% higher than the equivalent quarter in 2019. Thirdly, we have seen a strong recovery in the strategic markets, Spain, Italy, and Greece in the second quarter. Overall, CMS was a bit slower with lower volumes, but performance in our own portfolios was relatively strong. Collections are clearly above active forecast at 111% compared to the forecast before COVID collections are at 92%. Looking into the future and our current outlook, switching to the next slide stating outlook, we are expecting both the servicing and the investment volumes to pick up in the second half of 2020 and early 2021. There has been a clear adjustment in the expected return level on investments.
Anders will cover it in a little bit more detail later on, and it would be interesting to see if the sellers are prepared to meet new price levels in the market and if the enhanced return levels would attract new investors. We take comfort in the strong second quarter and the positive developments towards the more normalized markets, but we are mindful of potential setbacks. We also have to remember that we are now in the seasonally slow third quarter. Courts will close for vacation, and general activity will be low. We do expect a more normal market at the end of the year in Q4. We anticipate slow economic activity throughout Europe. The relief package agreed earlier this week will certainly help, and there is potential for a quicker return to normality with higher economic activity in the later part of the year and in 2021.
We will continue to support our clients and will invest in new portfolios to keep our ERC stable over the year. We are committed to our leverage target and will balance our investments accordingly. We also expect our clients to continue to evaluate different strategies to protect balance sheet, including selling our portfolios and entering into carve-out structures. Before I hand over to Anders, I would like to spend a minute looking at an important part of our client universe on the next slide. Focusing on the banks, we note increased provisioning of non-performing loans by EUR 120 billion in the first quarter of this year. It is widespread, affecting all markets. In the graph, you see the increase in provisioning from Q1 last year from major banks in Europe.
This is, on average, more than double the amount in Q1 2019, and it is, of course, driven by regulatory pressure and accounting standards. Total non-performing loans increased by 20% in Q1 compared to the end of 2019. It is clear that banks in Europe are very cautious for the coming quarters. This will lead to higher activity in our market, larger volumes to service, and a higher supply of portfolios. Intrum is very well positioned to meet this demand for our services. We have strong liquidity and high operational efficiency and stability. Now over to Anders for more details around the second quarter. Anders, please.
Thank you, Mikael, and good morning, everyone. We are moving to page seven, group financials in summary. As Mikael was saying, overall, we are pleased with the financial performance in Q2, demonstrating the resilience both in terms of reported results as well as on our cash-based metrics. On a reported basis, our revenues grew 17% versus the first quarter to SEK 38.85 million and up 3% versus Q2 2019. This clearly reflects the inclusion of Greece into the numbers, which was not there last year, which is effectively offsetting the impact of COVID in the quarter, as well as reflecting the strong collection performance that we've seen on our own portfolios given the circumstances. EBIT adjusted came in at SEK 13.45 million, up 23% versus Q1 and minus 14% versus Q2 2019. Q2 is generally a seasonally stronger quarter, but also the inclusion of Greece clearly helped offset the weaker CMS performance.
Earnings per share came in at SEK 5.39 versus SEK 6.26 in Q2 2019. On a cash basis, our revenues approached SEK 5 billion, SEK 4,977 million, up 2% year- over- year. Expenses, as you can see, are down meaningfully from Q1 and in line with the Q2 2019 numbers, despite the inclusion of 1,000 employees in Greece, demonstrating the strong cost performance in the quarter across all our units. Cash EBITDA was very stable, up 1% versus Q2 2019 and up 3% versus Q1 2020 to SEK 2,709 million. Looking at the segments, first at Credit Management Services, which is in servicing business in mature and emerging markets. CMS had a challenging quarter with lower new case inflow due to clients taking a more cautious stance of sending new cases to collection in light of COVID-19.
We do, however, expect this to normalize during the second half of this year and going into 2021. Revenues consequently was down 7% versus the first quarter and down 9% versus the second quarter 2019 to SEK 15.90 billion. Looking at the margin, we see the good cost performance helped preserve the service line margin to 24% in the quarter versus 25% in Q1 and 26% in Q2 2019. That translates to a service line earnings of SEK 383 million versus SEK 420 million in Q1 and SEK 460 million in Q2 2019. Looking at strategic markets, the servicing business in Spain, Italy, and Greece, strategic markets were significantly affected by the restrictive lockdowns early in the pandemic, which was evident already in our Q1 numbers. During the latter half of the quarter, conditions eased and we saw a start of the return to normality in these markets with significant improvements in June.
Revenues in specific markets came in at SEK 12.65 billion compared to SEK 11.94 billion in Q1, which corresponds to an increase of 6%, and SEK 9.73 billion in Q2 2019, which corresponds to an increase of 30%, clearly reflecting the inclusion of Greece. Service line margin came in at 27%. That is to be compared with 9% in Q1 and 34% in Q2 2019. That translates to service line earnings, so SEK 345 million, which is more than three times more than we had in Q1 and in line with the Q2 2019 number of SEK 337 million. We did see a significant positive effect of the efficiency improvement program that we completed at the end of last year, as well as the strict cost control measures taken during the quarter supporting the margin.
We should also bear in mind that Q2 is seasonally strong and Q3 includes the summer holiday period with the month of August, which tends to be the seasonally weaker month and quarter of the year. Moving to portfolio investments, portfolio investment performance was very strong, very resilient, and exceeded our own internal expectations based on the somewhat cautious view we had in Q1. Collection performance returned towards pre-COVID active forecast in June with nearly 100% performance in the month of June, which translated to an average of 92% compared to our pre-COVID forecast for the quarter in total. Gross collections came in at a total of SEK 25.36 billion, which is minus 9% versus Q1 and minus 5% versus Q2 2019. Amortization was lower because of the write-downs that we did in Q1, as well as the lower absolute collection amount, but the ratio remained at nearly 40%.
JV earnings was SEK 102 million for the quarter compared to SEK 81 million in Q1 and SEK 315 million in Q2 2019. That then translated to segment earnings of SEK 1,003 million for the Q2 quarter, to be compared with SEK 1,037 million in Q1 and SEK 1,214 million in Q2 2019. Worth noting is that if we look at the underlying performance, excluding the contribution from the JVs, the segment earnings were virtually flat year- over- year. If you look at the SEK 1,003 million minus the SEK 1,002 million, we had SEK 901 million of segment earnings underlying for the quarter compared to SEK 899 million in Q2 2019, so virtually a flat performance year- over- year, which obviously demonstrates significant resilience in the business. That translates into return on investment of 11% for the quarter, which is the same as in Q1.
If we exclude the contribution from the JVs, the underlying ROI was 12%, to be compared with 13% in Q1 and Q2 2019. Diving a little bit deeper into the collection versus forecast, as you know, we did revise our curves in Q1 to reflect the risk of the COVID pandemic, which also corresponded to the write-down that we did in Q1. However, collections did, now in hindsight, demonstrate more resilience than we expected, especially in our unsecured book in the mature and emerging markets. That is a testament to our diversified book across a large number of geographies and jurisdictions across Europe. Collection performance was 111% compared to the post-COVID revised forecast, which then, as mentioned, corresponds to 92% of the pre-COVID forecast. As said, in June, we had nearly 100% performance compared to the pre-COVID forecast.
We also wanted to show you a little bit more detail. What we've done is to look at the back book at the end of 2018 or beginning of 2019 and laid out what was the original forecast. That's the blue line in this graph on the right on page 11. What was the original forecast when we bought those portfolios? And then compared that to the actual cash collections. As you can see, in all the months leading up to the pandemic, we've continued to have outperformance versus the original forecast. In months of April and May, we had a short dip down below 100%. The red line went below the blue line, which obviously corresponds to the underperformance. That reverted back to overperformance again back in June.
As you can see, also, the bars in the chart demonstrate the accumulated performance, which continues to have been above 100% through the entire period. Looking at the cash flow, I'm on page 12, the cash flow evolution. We saw very strong operating cash flow in the quarter and continuing the trend of increasing cash flow and cash EBITDA sequentially on a rolling 12-month basis. Cash EBITDA rolling 12 months was SEK 11.2 billion, and free cash flow increased to SEK 9.3 billion. This is what supported our continued deleveraging in the quarter, despite having paid both dividends and conducting the share buybacks in the quarter. Moving to page 13, funding sources and maturity profile. We continue to have a strong balance sheet position and have SEK 11 billion of available liquidity and significant headroom under our covenants.
This, combined with the level maturity profile that we now have, following the re-terming of our balance sheet that we did during 2019, with limited near-term maturities, gives us an ideal position to monetize the upcoming business opportunities that we see emerging post-COVID. Moving to page 14. On the left-hand side, you can see, as we have previously said and mentioned, our net debt to cash EBITDA ratio declined to 4.4 times in Q2, but we also continued to deleverage the SPV portfolio in Italy, which at the end of the second quarter came down to 2.0 times leverage ratio. As we also discussed in the first quarter announcement, the inclusion of, since we did not consolidate, the inclusion of the SPV actually increases the group overall leverage ratio. If we exclude the impact from the SPV portfolio, the underlying leverage ratio is 4.1.
On the right-hand side, we look a little bit at the new investments, and following the comments from Mikael, we saw the new investments in the quarter was SEK 12.67 million, which is in line with the stated ambition to stay at the maintenance level in 2020, which means keeping the book and the ERC stable. Looking at the new investments in the quarter, after a period of falling investment returns for the last number of years, we see that investments made since the outbreak of the pandemic have been made at significantly higher return levels than compared to pre-COVID levels. The increase in return, which is depicted in the chart with the two red little diamond squares, more than offsets the increase in the funding spreads of our debt, which is the lower little blue arrow up. That outpaces that increase by more than 2.5 times.
Whilst obviously it becomes a little bit more expensive to borrow in these current market conditions, we see that the increase in return levels more than offsets that and still represents a very attractive business opportunity going forward. With that, I hand it back to you, Mikael, for the near-term priorities.
All right. Thank you, Anders. Let's move over to slide number 16, short and medium-term focus in 2020. We are, as we said, very satisfied with the second quarter and the resilience of our business model, but we remain vigilant and we monitor the developments closely. We are prepared for setbacks and, as such, are prepared to adapt if necessary and move back to more remote working again. We are accelerating the transformation of Intrum to rely more on standardized and global solutions, both in support and in front office functions.
The aim is to simplify our operational model, and this is a project that started already over a year ago, and to utilize our scale and our geographical presence. This will drive our value proposition to our clients and secure our operational margin for the years to come. The transformation includes a uniform and, to a higher degree, automated reporting structure relying on more central resources. Sorry. A simpler IT structure utilizing more common solutions and utilizing more shared solutions, both in support functions and front office, expanding our shared service centers and introducing multi-language call center for high-volume cases. We are prepared to meet increased demand for our products from our clients in the aftermath of the pandemic.
We expect higher volumes to come through late in 2020, as we said before, and in 2021, and as a result of increased provisioning in the banking sector and general increase in late payments in the markets. Finally, we are preparing for a capital markets day in the fourth quarter, where we will give you more guidance on our long-term financial targets and the transformation of Intrum. That concludes the presentation, and Anders and myself, we open up for Q&A.
Thank you. Ladies and gentlemen, if you have a question for the speaker, please press 01 on your telephone keypad. I repeat, if you have a question, please press 01 on your telephone keypad. If you have a question, the first question is from Patrick Bracklers from AVG. Mr. Patrick, please go ahead. Hi. Good morning.
Yes, my first question is regarding portfolio investment returns, where you showed a great slide here on page 14. The H1 underwriting return seems to be very elevated. Can you elaborate a little bit how you think this will continue to develop through the rest of the year and if it will stay elevated?
I guess that's a good question. Good morning. I think we will look forward to the second half of this year and into 2020, with it will be interesting to follow the market. If you look at it and we take, you can say, the experience of the second quarter, we, as you say, clearly see higher expected return levels on the portfolios and lower price levels. We also see a large number of portfolio sales that have been, you can say, postponed into later of this year.
It would be interesting to see if the sellers are prepared to meet, you can say, the new price level. We can also, I guess, expect that these types of return levels will attract maybe new investors into the market. As it looks right now, it is, as I think Anders clearly showed, a very favorable market that we hope that we will be able to take advantage of, of course.
Okay. Great. Thank you. My second question is regarding your cost base. You write that you have maintained tight cost control during this quarter. Could you provide with some color how your cost base is currently divided between fixed versus variable cost at this moment?
Anders, is that for you?
Good morning.
No, it's clearly the bigger important point here is we obviously entered the year on the back of having done the efficiency improvement program, and that's an important contribution to the tight cost control. On top of that, we obviously took additional measures to ensure that we adjusted accordingly as we, at the early stage of the pandemic, saw that this could have a meaningful impact on the revenue line and adjusted our costs accordingly in addition to the cost of the efficiency improvement program that we did. I think the cost sort of improvement that you see demonstrates the flexibility that we have in the cost space. Obviously, business like ours have fixed costs, semi-fixed costs, and variable costs.
That's not an easy question to answer, but I think what you do see in the numbers is that we have significant ability to adjust very rapidly in a situation like the one that we've been through over the last three months.
Okay. Yeah, I understand. That's all for me. Thank you.
Thank you. We have next question from Annette Kumlien from FarmAQ. Please go ahead.
Good morning, and thanks for taking the questions. The first question would be in connection with Q1, you guided us for sort of slide-ish adjusted EBIT also for Q3. I've understood that when you did that comment, you already sort of expected some opening up of societies from the start of Q3. Would you say that outlook has changed anything? Are we progressing more than you expected now when we enter Q3 relative to your expectations in Q1?
I think it's fair to say that, I mean, we have seen a quicker reopening of the markets in the second quarter than we anticipated at the time of our presentation of the first quarter results. Having said that, what we see now in Q3 is, as you know, a more seasonally slow quarter. We had our hopes back in April that the courts in Southern Europe should remain open over the holiday season and take care of some of the, of course, backlog that has been worked up during the pandemic. That will not be the case. I guess everyone deserves a vacation year like this, and even the courts in Southern Europe, so they will be closed as a normal kind of. We will see a seasonally slow Q3.
I mean, if things continue to develop as we've seen, we still hope that when we come to the end of the year, we have a more normalized market in general. I think that's the kind of general comments we can do around it.
That's fair. Thank you. On the investment pace, I mean, so far, if we look on the first six months, you're up around SEK 2.9 billion. I think you've commented before that around EUR 500 million is what you need to just replace your ERC. What's sort of the bottleneck from going much more aggressive already now when you see this positive return gap and your liquidity is holding up well? It sounds like you're still sort of just aiming for maintaining the book flat this year, or have I understood something wrong?
No, I think it's two things in this, Anders, you add to this. First of all, I mean, we are, as you know, investing in portfolios is part of our value proposition to our clients. We react on the, you can say, demand from our clients on those types of services. We work with our clients, and we see the need they have, and we see what that will lead into, so to say. We are also strictly committed to our long-term deleveraging target. As you know, unfortunately, we are not able to meet that in 2020 because of the pandemic, but we still have that clearly in focus. It is a balance for us between the need for our clients and our deleveraging targets.
Of course, I mean, we will try to work, given that balance, so to say, as proactive as we can in the market. Of course, it's comforting to see that the expected return levels is at the level where it is. Anders, if you would like to add to that.
No, I can add a little bit. I mean, as also Mikael was commenting upon, during Q2, we did see a number of transactions being postponed into the second half of the year. Also, Q3 tends to be a seasonally slower quarter, also from a new investment point of view because of the summer holiday period. Transactions that have been postponed from Q2 tend to come out after the holidays in July, August, which means that they tend to be pushed into Q4. Q3 tends to be seasonally slower.
Then, as we said, it remains to be seen. I mean, we expect more volume to come out during the second half of the year, and especially from September onwards. Obviously, the pricing picture combined with increased volumes obviously presents an interesting market opportunity, definitely. Obviously, we will want to try to participate in that. Exactly how that will play out is very difficult to predict at this point, given the uncertainties in the market for our overall.
Understood. Just on working capital, could you help us understand there what's been enabling you to see such improvements during both Q1 and Q2, and how would you think about it going forward?
Look, I think what is important to remember is when we've done the partnerships in particular, we saw it when we did transaction in Italy.
We've seen it in Spain. We've seen it in Greece. In the ramp-up phase, we tend to have there's always a time difference between the completion of a month and the invoicing period, which means that in the beginning of those, we tend to bind a bit of working capital. I think what we're seeing now in a period of stable or, for that matter, falling or lower collection levels is that we've been able, obviously, to receive invoices that have been obviously built up as working capital over those sort of introductory months or quarters to actually have been able to work that level down during the last six months. There is that dynamic to bear in mind because, obviously, if you look at it in the first half of 2019, you actually did see a build-up of working capital that then went into more of a steady state.
There's that dynamic to bear in mind.
I mean, you can also say that this is also a result of an efficient finance department working in the second quarter. Anders didn't say that, but that's also true.
Thank you. It's humbling enough. Just, I mean, coming back to previous questions here, but on the expenses, I think it's very impressive and would be interesting to understand a bit more how you've been able to reduce the cost base by 13%. At the same time, I can see your headcount has actually increased, for instance, quarter on quarter. What is it underlying that you've been able to reduce so much, especially given you haven't really taken up any stay pace?
If you remember the efficiency program that we talked about last year, we actually divided it into three different parts.
One is, of course, you can say very much related to Spain, where it's been an ongoing adjustment of the workforce over the last couple of years, and that was also a big part of the efficiency program. The second one of it is actually reprioritizations on the IT side. I talked about the transformation of Intrum, and that is basically to switch from, you can say, local initiatives to more global initiatives, utilizing common resources. That in itself gives us cost benefits, of course. The third one was a general cost discipline in the organization in the autumn, and we took out a lot of, you can call it, well, a little bit sloppy then, unnecessary cost.
As Anders also said, during the spring, we've had a very strict cost focus in our operation to make sure that we are mitigating the loss of top line. With the very tight follow-up on all markets and all areas, that actually paid off. It's not more difficult than that, actually.
Sounds great. Thank you very much for taking my questions.
Thank you. Next question is from Ramil Kumlium from SEB. Please go ahead.
Thank you. Pretty good morning, guys. Thank you for the presentation. Starting off on a pretty high-level note here, I mean, IFRS 9 obviously changes the provisioning regime for banks, and naturally, that all else equal should have sort of added to provisioning levels, which you've depicted on slide five here.
Based on your sort of discussions with the bank and tying into your seemingly decent collection performance, why should banks divest expected credit losses this early? Again, bearing in mind that your collection levels obviously have held up quite decently, which, to me, to some extent, illustrates that perhaps expected loan losses in Q1 reports were potentially a bit overestimated. Very high-level question, but let's start off there and see.
Good morning, Ronald. No, I mean, it would be interesting to see the markets and to follow the market through. You're absolutely right. If you look at the provisioning, it's driven by accounting rules, of course. You can say it's very much about what you can say, forecasting non-performing loans, so to say, but still they are there.
We all know that the regulators have been very focused on making sure that the banks are dealing with the non-performing assets off the balance sheets as early as possible. We also know that late payments in general is a challenge, especially in the downturn scenarios that we are looking at right now for Europe. Even though we now have a huge package in Europe supporting the countries, which I think will be very beneficial in itself, it is still the case that both financial institutions and others need to work with their late payments. It will be interesting to see. We're not expecting a complete shift in the market, but clearly larger volumes coming through in the end of 2020 and 2021. If someone believes that the NPL markets is, you can say, disappearing in Europe, I think there's clearly evidence that that is not happening.
We see the contrary. The development and the sequences over the coming quarters, it will be interesting to follow. In our dialogues with our clients, it is clear that this is also very much on top of their mind right now. They think a lot about this.
Crystal clear. Perhaps more concrete here, could you say anything about the deals in Q2? Was it a few big transactions? Was it smaller transactions? Big, small tickets, big portfolios, assets, geographies, etc.?
Anders.
No, look, it was a good spread of investment portfolios. Clearly, a bit more tilted towards the unsecured on average, I would say. I would say more from a proportional perspective, secured and corporate portfolios were delayed into the second half of the year, but we saw better sort of remaining flow from a pipeline point of view on the unsecured side.
It is a good spread that reflects our footprint. I would say well-diversified and in line with the shape of our backlog.
Perhaps on a nitty-gritty level, what differentiates the sellers so far versus the banks that have postponed sales of portfolios? Is there any common denominator here?
Not really. I would say that maybe the one thing I would say is that the ones that are the most experienced sellers, that have seen the ups and downs of the market and have been actively selling for many years, have been the ones sort of staying the course with their disposal strategies. Overall, it has been a good, continued good sort of spread and diversification from a seller's perspective as well.
I think what we have seen in the market over the last number of years is a significant increase of maturity level from a seller's point of view as well. I think they will recognize that this is part of normal business for them.
It's crystal clear. Just a follow-up on that as well, Anders, if that's fine. On page 14 here, I think the chart on the right-hand side, as a previous analyst also said, they're great. Speaking about mixed effects and seeing ROI levels feeding through to the P&L, as such, you get some flavor in your annual report of the different vintages weighed on your sort of book. When should reported ROI levels trough, if I may? Look, I mean, as you know, it's a mixed volume point, right?
If we're able to capture more volume at the current levels, clearly we will have a faster return upwards on the average for the book in total, of course. It's a little bit difficult to predict given the uncertainty of volume and price development going in the coming quarters. What we can say is that we do see good prospects for the coming quarters and years in terms of volume build-up and expected volumes coming to market combined with a meaningfully improved price picture. One obviously can run different scenarios and modeling on how that will play out depending on which assumptions you put in. I think that's how we see it will play out.
Okay.
I mean, just to square this, a final one, sorry, but to square this, I mean, the ROI level has come up by, I do not know, so let's say 5 percentage points versus reported levels. Presumably, entering the pandemic, given the trajectory of the ROI level, the increase now versus pre-pandemic is presumably higher than the 5 percentage points we are seeing versus reported levels. Could you address that in numbers, i.e., pre-pandemic ROI or gross IRR versus current ROI or gross IRR? That is exactly what we are trying to show here.
Sorry, I am not sure if I get the question because we have been investing at levels which were set in the previous quarters, new investments in line with the sort of stated ambition in terms of IRR and ROI as we had our previous financial targets.
Obviously, we've seen a meaningful now rerating of that upwards, as you can see in the chart. That sort of, we also have the scale there, as you can see there, more or less the levels. That's the big reality that we've been seeing now pre and post-COVID.
Okay. Let's do it offline then. Thank you so much.
Thank you. The next question we have is from Robin Rains from Kaufman Ferrari Store here.
Yes. Good morning. Now with the Q2 results coming in stronger than you had previously expected and the lockdowns then did not have some adverse effect on the collections as could have been feared, how comfortable are you looking forward?
I mean, when the repercussions from the lockdowns will come through in the form of higher unemployment, perhaps, perhaps property prices developing weakly, how comfortable are you with the current forecasts that you make and the quality of the book?
I put it like this. As a manager, when you're facing an external disruption like this, it is very much about protecting your franchise, working with your clients and customers, protecting your employees. You tend to, you can say, end up with a more kind of day-to-day management. I think the organization has managed the second quarter very well and showing resilience in our business model despite this external disruption. That is something we take with us, and we talked about it many times before.
Of course, for us, it's also important that we are careful when we look forward, and we are prepared for setbacks in the development as such. If you look at it at the peak level, we were close to 80% of our staff working remotely, and we were still able to operate in a fairly efficient way. I mean, even though we're looking back at a strong second quarter and we are all very happy with it, it is still lower than you can say the ambition we had when we entered 2020. In relative terms, one has to be a little bit careful. Doing long-term projections is, of course, difficult when you have external disruptions like this. We are trying to be mindful of that and careful. Of course, we take comfort in a strong second quarter.
We take comfort in the development during the quarter, and we take comfort that the underlying cash flow is as strong as it is despite the external disruption. I don't know, Anders, if you would like to add to that.
No, absolutely. I think that what has been obviously very helpful is the data that we've been able to gather through this period and how our book has performed and our collections have performed in face of a concerted and simultaneous shutdown of the economies across the entire European footprint. I mean, as we try to, that's why we're trying to put it in on page 11 in the presentation for you to see how the book has actually performed and reacted during this period.
With this level of volatility in the face of this type of disruption, we take a lot of comfort that we have an underlying conservatism, in effect, built into the forecasts that support the book values that we have and the USCs that we have. We do continue, obviously, with the uncertainty that we have, to do scenario modeling and so forth, what this could mean. I think that the period, if anything, has demonstrated that the book is very resilient, and we are, as such, comfortable with the forecast that we have.
Yeah. If you remember, when we presented our first quarter results, we said the provision we did in the first quarter, given what we saw in April, were on the margin on the conservative side.
Of course, you can say that's been confirmed throughout the quarter, but we still think that it was prudent to do. It basically reflects, you can say, our attitude to this.
Okay. Thank you. Two quick follow-up questions. Just a clarification on the cost base there in the second quarter. Was there any sort of temporary reductions that we should expect to come back in the coming quarters on the cost base? Secondly, on the investments, what was the distribution of secured versus unsecured investments in the quarter, if you're able to tell us that?
Maybe I can start with that. I think, I mean, you should bear in mind clearly there is a direct variable element in cost of collect, which relates to legal expenses.
Given the fact that courts were closed during the quarter, the amount of legal expenses was reduced accordingly with the reduction in collections. There is that element, but I think the bigger portion was, as Mikael was referring to, the effects of the efficiency program and the other cost measures taken in the quarter. That is sort of on the cost side. In terms of the distribution of investments, I think I already commented upon that on the previous question, but I think what I was trying to say is that there was a tilt toward more unsecured in the quarter, as more on average, I think, more secured portfolios were delayed into the second half.
Thank you very much.
Thank you. We have a next question from Mr. Johan Eklund from UBS. Please go ahead. [Going on the.]
What part was activity-related and what part is the cost-saving program? Alternatively, can you give us a rough idea how much of the cost savings that you announced last year are kind of fully reflected in the Q2? I think if I understood you correctly earlier, the vast majority of that is realized in Q2. That is the first question. I guess on the same topic of kind of on the recovery, how should we think about the working capital? I mean, you clearly gave some guidance that some of the effects that we saw this quarter is relating to the slower activity and the good working of the finance department. As we look into Q3, I mean, I think all of the cash flow improvement that you showed in the slide came from working capital pretty much.
Should we expect all of that to reverse once activity picks up, or are there some permanent improvements in efficiency that can lead to lower working capital on a forward-going basis?
Yeah. Maybe I can try to answer that. On the first one, we do not disclose the details that you're looking for, but it is consisting of those three elements that we have described, which is the efficiency improvement program, the additional measures taken during the COVID pandemic, as well as an element of variable costs, which naturally comes down with lower collections, for instance, with legal expenses. I would say the legal expenses is a smaller portion of the total, but it is an element. In terms of working capital, there is, put it like that, an element which we would view as a permanent improvement.
Going forward, we do not expect clearly to have that continued contribution from lowering working capital, but neither do we expect a build-up again to the levels previously. I would more expect it to be a neutral contribution in the coming quarters.
Thank you.
Okay. We have a last question from Mr. Sunil Reddy from Morgan Stanley. Please go ahead.
Yes. Hi. Good morning. Can you hear me?
Yes, we can.
Yes. Just going back, sorry, to the cost again. If we look at the EBIT improvement Q1 to Q2, most of it has come in the strategic markets division. In that, it is mostly about around SEK 200 million of cost savings. I just want to understand, and this is Q1 to Q2. I guess it cannot be attributed to the efficiency program because we should have seen it in Q1 also.
Given that strategic markets and credit management services kind of do the same thing, we did not see that in the credit management services Q1 to Q2, the improvement. In fact, the earnings are down. I just want to narrow down to what specifically were you able to take out in terms of costs in strategic markets Q1 to Q2 at the benefit of SEK 200 million? Is that sustainable going forward? Thank you.
Maybe I can comment on that. You are right. Clearly, in the sense that it is a meaningful reduction of total cost or expenses in the strategic markets in the quarter compared to Q1. Bear in mind, though, that if you look at the business mix in the strategic markets, you have a bigger portion which is related to secured and corporate servicing as opposed to unsecured in the strategic markets.
is unsecured, which is the smaller portion from a business mix point of view, which means that you have a greater reliance on the court system, which is also why we've had, obviously, a greater impact on the revenue line. That dynamic means that also legal expenses are proportionately down from that perspective in the strategic markets. That's one element. The other element is clearly we've done a lot of activities also on, given the severe impact we saw from the restricted lockdowns at the early stage already in the beginning of March, we very rapidly took measures to contain costs in the strategic markets, particularly as there was evidence that we would have a revenue impact to try to tear off the impact on the margin.
It's a combination of business mix on the one hand and also the sort of on top of, but there is an underlying cost improvement from the efficiency program. Clearly, the specific measures that we took at the early part of the pandemic had an important element in the strategic markets cost base in the system.
In terms of when you think about courts opening up again, activity picking up, because the revenues were up in strategic markets Q1 to Q2, it's not the revenues that went away. Revenues actually improved with the cost. As you go into Q3, Q4, would you expect that cost base to come back so that the operating margins are again falling back down, or you think you can sustain this mid-20s level?
I would just point you back to Q2 2019. Our margin was 34%.
Obviously, we have obviously included Greece, but we have also had a pandemic effect on the revenues. Remember, the seasonality of the business in strategic markets is much more seasonal than the other markets in our business, where Q2 and Q4 are seasonally strong quarters with a lot of resolutions, which is sort of a normal part of the calendar. That means that from our perspective, Q2 2019 is more representative of a normal margin quarter, and we still have a sort of we were not at full efficiency from that perspective in Q2 compared to what we would expect in a normal Q2.
Got it. Thank you.
All right. Do we have any more questions?
Apparently not.
In that case, I think Anders and myself, we thank you all for participating in this update and, again, apologizing for some technical hiccups, but thank you anyway, so to say, for your patience. We wish you all a good summer when you come to it on holiday period. Thank you very much.