4finance Holding S.A. reports results for the six months ending 30 June 2019

29 August 2019. 4finance Holding S.A. (the ‘Group’ or ‘4finance’), one of Europe’s largest digital consumer lending groups, today announces unaudited consolidated results for the six months ending 30 June 2019 (the ‘Period’).

Stable quarterly revenue and ongoing cost discipline deliver adjusted EBITDA of €62.5 million.

USD 2019 bonds fully repaid in August, improving the interest coverage ratio to 2.7x.

Improvement in NPL ratio of 2.5 percentage points during Q2 to record low.

Year-on-year comparisons remain impacted by product/market exits in mid-2018.

Operational Highlights
  • In June, the Group surpassed the milestone of 7 billion euros in online loan issuance since establishment in 2008.
  • Online loan issuance volume of €523.2 million in the Period, compared with €643.0 million in H1 2018, mainly reflecting the rationalisation of some products and markets during 2018.
  • Instalment Loan issuance volume of €91.3 million in the Period, compared with €108.4 million in H1 2018, driven by a more focused growth strategy. Quarterly issuance stable for the last five quarters.
  • The number of online lending active customers was 0.35 million as of 30 June 2019, compared with 0.50 million a year ago. The reduction was largely attributable to products and markets that were exited during 2018.
  • TBI Bank loan issuance volume during the Period grew by 21% year-on-year to €146.6 million from €121.6 million in H1 2018.
  • TBI Bank had 0.39 million active borrowing customers, down 6% from a year ago, with 0.29 million current accounts as of 30 June 2019, up 29% from a year ago.
Financial Highlights
  • Interest income of €213.4 million in the Period, down 13% from €245.4 million in the prior year period. The contribution from largest markets (Poland, Spain, Denmark and TBI Bank) was stable year-on-year. Interest income for Q2 2019 was €106.9 million, up 0.4% from Q1 2019.
  • Year-on-year comparisons remain impacted by markets and products that were rationalised during 2018 (Friendly Finance, Georgia, Romania and the Dominican Republic).
  • Operating income was stable quarter-on-quarter at €95.9 million in Q2 2019 (€95.7 million in Q1 2019).
  • Cost to income ratio for the Period was 52.2%, vs. 53.6% for H1 2018, with operating costs down 17% year-on-year, reflecting ongoing cost discipline across the Group.
  • Adjusted EBITDA was €62.5 million for the Period, down 16% year-on-year, with interest coverage of 1x. However, following the repayment of the USD 2019 bonds and using the last 12 month pro-forma figures as per our debt covenants, the interest coverage ratio now stands at 2.7x. Q2 2019 Adjusted EBITDA was €33.1 million, up 13% from Q1 2019.
  • Profit before tax for the Period increased by 11% to €27.1 million from €24.5 million in H1 2018 (which was impacted by FX losses).
  • Net receivables increased by 0.7% during the second quarter to €551.3 million as of 30 June 2019, driven by TBI Bank.
  • Overall gross NPL ratio significantly improved to 17.9% as of 30 June 2019 (19.3% for online), compared with 19.4% as of 31 December 2018 (22.0% for online), helped by strong debt sales volumes in Q2.
  • The annualised cost of risk for the online business was 27.2% for the Period, compared to 22.7% in H1 2018, and in TBI Bank it was 4.5% for the Period, compared to 10.4% in H1 2018. The improvement in the TBI Bank ratio reflects the ongoing normalisation of asset quality in the bank’s Romanian portfolio.
Strategic Highlights
  • Strong underlying customer demand for Instalment Loans, including Spain, the Czech Republic and the Baltics. More conservative approach to instalment loan issuance in Poland, with a focus on unit economics across all markets.
  • Ongoing migration of single payment loan customers to longer-term instalment or line of credit products in various markets, with single payment loans representing less than 22% of the Group’s net receivables, down from 28% as of 30 June 2018.
  • TBI Bank continues to perform well, with strong origination in both consumer lending and its new online SME offering, and good progress with integration of the Bulgarian vivus.bg online business.
  • Continued pro-active management of NPL portfolio, with debt sales in online instalment loans and TBI Bank contributing to the 2.5 percentage point reduction in the Group’s overall NPL ratio during the quarter to its lowest in several years.
  • Adapting to new regulation in the Nordics & Baltics region, with some impact on H1 2019 results and further preparations made for incoming regulation in Q3 in Latvia and Finland.
  • Good progress in near-prime origination in Spain and Lithuania, near-prime product re-launch in Sweden and business plans being finalised for a further three markets.
  • Funding diversification projects ongoing, with internal pilot securitisation project successfully launched in Denmark in June and first sales of Polish instalment loans to TBI Bank expected in early Q4 2019.
  • Strong new hires into senior management team, with creation of Chief Operations Officer role and new appointments to C-level roles in legal, risk and IT.

Oyvind Oanes, CEO of 4finance, commented:

These results demonstrate the continued resilience of our core businesses. Our largest markets of Denmark, Poland, Spain and TBI Bank delivered stable year-on-year interest income and have performed solidly overall. The reductions we did see in interest income mainly relate to products we decided to discontinue as we refocus on priority markets and longer-term opportunities. Our continued focus on cost efficiency is also reflected in an improved cost/income ratio.

“Our businesses in the Nordic & Baltic markets continue to evolve, and we are pleased to welcome a new country manager in Finland. A respected consumer finance manager locally, he brings the right experience to bear as we manage the upcoming regulatory changes. The initial customer response from our new product structure in Latvia since July has also been encouraging.

“As we look to transition to the near-prime segment in selected markets, our dedicated unit, 4finance Next, is providing additional resource and support. The opportunities for us in that segment are substantial, and we are actively developing plans to ramp up our efforts.

“We say goodbye to a couple of long-serving senior team members this quarter, with Jūlija Lebedinska-Ļitvinova and Sanda Laicēna stepping down. I would like to thank them both for their strong contribution to the Group over a number of years. However, I am also delighted at the new ExCo appointments we have made in those risk and legal roles, as well as in operations and IT, and am confident in our refreshed and focused leadership team.

“2019 continues to be a challenging and transitional year for several of our markets. But we are also excited about the medium term growth opportunities available as we develop into a multi-segment, multi-product, consumer credit specialist.

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