28 August 2020. 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 2020 (the ‘Period’).
- Proactive business response to Covid-19, providing continuous service to customers and adapting products.
- Consumer demand increasing since mid-May with online issuance in July returning close to normal.
- Strong liquidity position following bond extension and further bond buybacks in July.
Operational Highlights
- Maintained strong, proactive operational response to Covid-19. Rapidly adapted operations in March, moving over 2,000 staff across 16 countries to working from home. Ongoing focus on ensuring employee safety and providing continuous service to customers.
- Continued to provide credit to loyal customers, with acceptance rates for returning customers in shorter term products maintained within 5 percentage points of usual levels in most markets in the second quarter. Overall repayment behaviour in April was slightly below normal levels but improved during the quarter, with June above average.
- Supported customers whose plans were disrupted, with early and proactive measures including discounted or free payment deferrals, reinforced by similar regulatory measures in many markets. Requests for payment deferrals were concentrated in TBI Bank, Armenia and the Czech Republic during Q2 and those programmes have either subsequently ended (Armenia) or are expected to end soon.
- Market-wide customer demand for loans reduced during the initial Covid-19 related lockdown periods in many markets from mid-March before recovering from mid-May onwards. The Group reduced its marketing spend in Q2 and tightened aspects of its underwriting criteria, particularly for new customers. Compared to the January-February average, online loan issuance volumes were at 89% in March, 53% in April, 64% in May, 76% in June and 85% in July.
- Development of near-prime lending products continued throughout the period. Good take-up of new launch in Latvia among suitably qualified existing customers. Products in Lithuania and Sweden were significantly enhanced and offered through new channels, with positive customer response. Near-prime issuance was up 12% year-on-year (31% in the online business and 10% in TBI Bank) reflecting strong customer demand and the expanded product range.
- TBI Bank loan issuance volume during the Period grew by 13% year-on-year to €77.1 million from €68.2 million in the prior year period, with consumer volumes holding up well in Q2 but lower in the SME segment. The majority of TBI Bank branches and service points have remained open and are operating in line with local healthcare guidance.
Financial Highlights
- Interest income of €167.0 million in the Period, down 22% from €213.4 million in the prior year period. The significant reduction in online loan issuance since mid-March due to Covid-19 resulted in a lower level of interest income in the second quarter, particularly in Spain and Poland.
- Cost to income ratio for the Period was 57.5%, vs. 52.2% in H1 2019, due to the lower interest income, with operating costs down 14% year-on-year, reflecting cost discipline across the Group and a reduction of marketing spend in the second quarter. Further cost savings from headcount reductions implemented in Q2 will be evident in H2 2020 results.
- Adjusted EBITDA was €33.3 million for the Period, down 47% year-on-year. The full interest coverage ratio as of the date of this report is 2.2x, reflecting a lower quarterly EBITDA contribution in Q2 and a reduced level of proforma interest expense from bond buybacks and exclusion of non-cash charges (see page 8 for further details).
- Post-provision operating profit for the Period was €6.2 million, and a loss before tax of €2.1 million.
- Net receivables totaled €502.2 million as of 30 June 2020, down 13.2% during the Period, given significantly lower origination in the online business in the second quarter.
- Overall gross NPL ratio at 24.0% as of 30 June 2020 (31.6% for online), compared with 20.7% as of 31 December 2019 (24.9% for online), with the increase due to lower new origination and some debt sales being postponed.
- Overall cost of risk was 16.6% for the Period, slightly improved from 17.3% in the prior year period. For the online business it was 27.7% for the Period, compared to 27.2% in H1 2019, and in TBI Bank it was 5.8% for the Period, compared to 4.5% in the prior year period.
- Strong funding position, with €93.5 million of online cash at the end of the Period and no debt maturities until 2022, and solid liquidity and capital adequacy at TBI Bank.
Strategic Highlights
- At the end of Q2 2020, the near-prime segment (including TBI Bank consumer and online) represented 56% of net receivables, up from 48% at the end of 2019. Single payment loans represent only 13% of the Group’s net receivables.
- TBI Bank continues to perform well, with its strong points-of-sale relationships and market leading digital options helping to maintain a good level of consumer loan issuance volumes in Q2. However given the regulatory environment, the Group does not expect dividends from TBI to resume until 2021.
- The Group reviewed its product range and cost structure in Q2 as the impact of Covid-19, associated regulatory changes and the pace of resumption in economic activity became clearer. The Mexican business was sold in June, Argentina is only lending to existing customers, and Finland has stopped all loan issuance.
- Costs have been reviewed across the Group. In the online business, staff reductions have been initiated that will result in savings of c.20% of personnel costs, with some reduction visible in Q2 even after severance costs. Marketing spend was reduced in Q2, but is planned to increase selectively in Q3 to support increased issuance volumes.
- Progress on funding diversification projects continues, with planned initial sales of Lithuanian near-prime loans to TBI Bank in the next couple of months, subject to regulatory passport approval.
- The Group made further market repurchases of its USD bonds subsequent to the Period end in July. As of the date of this report, the Group holds €1.1 million of its EUR bonds and $94.6 million of its USD bonds in treasury, whilst its current ‘online’ cash position, as of late August, is approximately €85 million.
- In June the Group commenced a formal process to amend its EUR bond terms and conditions to extend the maturity date by 9 months to 23 February 2022. The amendment resolution was successfully passed in July, and the new T&Cs came into force as of 24 August.
- The Supervisory Board has decided not to recommend a dividend payment by 4finance Holding S.A. in 2020, further supporting the Group’s capital position.
Oyvind Oanes, CEO of 4finance, commented:
“I am proud of the way our people have responded to unprecedented challenges this year. From the customer care teams providing continuous service and support to customers with new features like payment deferrals, to the risk teams analysing how best to adjust our underwriting in a very dynamic environment, to the product and IT teams adapting our products rapidly to regulatory changes. And all the while adjusting to working from home, managing the reductions in some teams and more recently gradually returning to offices.
“This has enabled us to ‘stay open’ and see an increase in business volumes in recent months. In Poland, for example, despite credit bureau data indicating a reduction in overall market demand, in July we saw the highest level of applications for our short-term Vivus product for over two years. The strong repayment dynamics seen across the business in June and July have also allowed us to relax some of the tightening loan underwriting measures taken in March/April.
“However the operating environment remains difficult with an uncertain outlook. Although loan volumes are increasing again, it will take longer to rebuild our interest income and profitability given the interest rate cap changes in Poland and Denmark, and our decisions to exit some markets & products. Understanding this new profile of our business was part of the rationale for seeking an extension on the maturity of our EUR bonds. We are grateful to our EUR bondholders for their support in this process, and look forward to further positive dialogue with all our investors in due course as we address our longer-term capital structure.
“The increase in demand for our products coupled with good repayment behaviour, and the growing near-prime portfolio, are encouraging signs for us. We remain confident that the business is well placed to weather the storm and build on its industry leading market positions.”
