ANNUAL REPORT INTRUM JUSTITIA A N N U A L R EP O R T 2 0 ...

Accounts receivable
The Group’s accounts receivable from clients and debtors in various industries,
and are not concentrated in a specific geographical region. The Group’s largest
client accounts for less than two percent of revenues. Provisions for impaired
receivables amounted to SEK 10.2 M (16.3) during the year.
Purchased debt
As part of its operations, Intrum Justitia acquires portfolios of consumer receivables
and tries to collect them. Unlike its conventional collection operations
where Intrum Justitia works on behalf of clients in return for commissions
and fees, in this case it assumes all the rights and risks associated with
the receivables. The portfolios are purchased at prices significantly below their
nominal value, and Intrum Justitia retains the entire amount it collects, including
interest and fees.
The acquired receivables are overdue and in many cases are from debtors
who are having payment problems. It is obvious, therefore, that the entire
nominal amount of the receivable will not be recovered. On the other hand,
the receivables are acquired at prices significantly below their nominal value.
The risk in this business is that Intrum Justitia could, at the time of acquisition,
overestimate its ability to collect the amounts or underestimate the costs
of collection. The maximum theoretical risk is of course that the entire carrying
value of SEK 2,373.4 M (2,311.9) would become worthless and have
to be written off.
To minimize the risks in this business, Intrum Justitia exercises prudence
in its purchase decisions. The focus is on small and medium-sized portfolios
with relatively low average amounts, to help spread risks. The average nominal
value per case is approximately SEK 7,100. Purchases are usually made
from clients with whom the Group has maintained long relationships, so it
is usually familiar with the receivables in question. The acquisitions generally
involve unsecured debt, which reduces the capital investment and significantly
simplifies administration compared with collateralized receivables. Intrum
Justitia places high yield requirements on the portfolios it acquires. Prior to an
acquisition, a careful evaluation is made based on a forecast of future cash flow
(collected amount) from the portfolio. In these calculations Intrum Justitia
benefits from its extensive experience in debt collection and from the Group’s
scoring methods. Intrum Justitia therefore believes it is capable of evaluating
this type of receivable. To facilitate acquisitions of large portfolios at an attractive
risk level, Intrum Justitia cooperates with other companies and shares the
capital infusions and profits. Such alliances have been in place with Calyon
Bank since 2002 and with Goldman Sachs sedan 2003 and with East Capital
and the European Bank or Reconstruction and Development since 2010.
Risks are diversified by acquiring receivables from clients in different sectors
and different countries. The Group’s portfolio comprises receivables from
debtors in 21 countries, the largest of which are Sweden (22 percent of the
Group’s total carrying value of purchased debt), Netherlands (11 percent),
Finland (10 percent), Germany (9 percent) and Austria (8 percent). Of the
total payable value of the Group’s portfolio of receivables sellers in the banking
sector account for 35 percent, telecoms 25 percent, credit card debts 14
percent, other finance 14 percent and other segments 12 percent.
Of the total carrying value at year-end, 26 percent represents portfolio acquisitions
in 2010, 19 percent acquisitions in 2009, 18 percent acquisitions
in 2008. The remaining 17 percent relates to receivables acquired in or before
2007, which have therefore been past due for over three years. In the case of
a large share of the oldest receivables, Intrum Justitia has reached agreement
with the debtors on payment plans.
Outlays on behalf of clients
As an element in its operations, the Group incurs outlays for court fees, legal
representation, bailiffs, etc., which can be charged to and collected from debtors.
In many cases Intrum Justitia has agreements with its clients where any
expenses that cannot be collected from debtors are instead refunded by the client.
The amount that is expected to be recovered from a solvent counterparty
is recognized as an asset in the balance sheet on the line, Other receivables.
Derivative contracts
The credit risk in the Group’s forward exchange contracts is because the counterparty
generally is a large bank or financial institution. The company does
not expect any of these counterparties to become insolvent.
Notes
Charge card guarantees
As part of its service offering in Switzerland, Intrum Justitia reviews charge
card applications for card issuers and guarantees – for a fee – that the issuers
will receive full compensation for the value of their receivables if the cardholder
fails to pay. The total guarantee at year-end amounted to SEK 1,371.2
M (1,270.9), of which receivables overdue by more than 30 days amounted to
SEK 5.5 M (0.8). Intrum Justitia’s risk in this operation is managed through
strict credit limits on the issuance of new charge cards and through analysis of
the credit rating of cardholders. As of year-end Intrum Justitia had allocated
SEK 15.4 M (14.0) in the balance sheet to cover payments that may arise due
to the guarantee.
NOTE 39
ACQUISITIONS Of OPERATIONS
The Nordic CMS operation of Aktiv Kapital
The 16 of December 2010 Intrum Justitia finalised the acquisition of Aktiv
Kapital’s Nordic credit management operations for external clients. The
acquired operation includes all shares in three companies that together
have 150 employees in Norway, Sweden and Finland and revenues in
2010 amounted to SEK 234.6 M. Through the aqcuistion Intrum Justitia
stregthens its market position, primarily in Norway. In Finland and Sweden
the market leadership is further stretgthened.
Costs related to the acquisition amounted to SEK –6.0 M. The result is
also charged with costs of SEK 5.6 M for restructuring the acquired operation.
Preliminary the acquistion is reported in accordance to the following:
Carrying
Fair value
value before Adjustment recognized in
SEK M
acquisition to fair value the Group
Intangible fixed assets 0.4 19.3 19.7
Tangible fixed assets 14.3 – 14.3
Current assets 26.0 – 26.0
Liquid assets 120.8 – 120.8
Deferred tax liabilities/assets –4.2 –4.9 –9.1
Current liabilities –41.1 – –41.1
Net assets 130.6
Group goodwill 429.2
Purchase price paid in cash
and acquisition costs
–559.8
Liquid assets (acquired) 120.8
Net effect on liquid assets –439.0
The acquired operations are consolidated from December 16 2010 and is
contributing to the Group revenues with SEK 10.6 M and to the Group
operating result with SEK –3.8 M. If the aqcuistion would have been excecuted
by January 1 2010 it would have contributed to the Group revenues
with SEK 234.6 MSEK and to the operating result with SEK 46.6 M. The
reported goodwill item is attributable to synergies and increased market share.
Nice Invest Nordic AB
On December 28 2010 Intrum Justitia stregthened its market position in Sweden
further by acquiring Nice Invest Nordic AB, wich focuses on investing in
Purchased Debt from clients within mail-order and e.commerce and financial
receivables that such business entail. The acquisition includes an existing
portfolio and an agreement regarding forward-flow contracts.
Preliminary the acquistion is reported according to the following. In the
Cash-flow statement SEK 178.4 M from the acquisition is reported under
Debt Purchases.
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