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4finance Holding S.A. reports results for the three months ending 31 March 2018

24 May 2018. 4finance Holding S.A. (the ‘Group’ or ‘4finance’), one of Europe’s largest digital consumer lending groups, today announces unaudited consolidated results for the three months ending 31 March 2018 (the ‘Period’).


Operational Highlights

  • Online loan issuance volume during the Period grew by 11% year-on-year to €337.3 million from €302.7 million in Q1 2017.
  • Instalment Loan issuance volume up 119% year-on-year to €63.0 million, with strong quarterly growth since Q1 2017.
  • Single Payment Loan issuance volume stable overall at €269.2 million (down 1% year-on-year), with LatAm Single Payment Loan issuance volume more than doubling year-on-year.
  • The number of online lending active customers was 0.41 million in the Period compared with 0.44 million in Q1 2017.
  • TBI Bank loan issuance volume during the Period grew by 22% year-on-year to €61.5 million from €50.6 million in Q1 2017.
  • TBI Bank active borrowing customers reached 0.46 million, up 11% from a year ago, with 0.21 million current accounts as of 31 March 2018, up 15% from a year ago.

Financial Highlights

  • Interest income up 18% year-on-year to €123.6 million in the Period compared with €104.7 million in the prior year period.
  • Operating income (revenue) up 18% year-on-year to €113.1 million in the Period from €95.6 million last year.
  • Adoption of IFRS 9 as of 1 January 2018, including change of customer loan write-off period to 360 DPD from 730 DPD in the online lending business. Significant impact on opening balance of gross and net receivables and equity.
  • Net receivables reached €549.1 million as of 31 March 2018, up 4% compared with 1 January 2018 opening balance.
  • Pre-provision operating profit up 28% year-on-year to €52.0 million in the Period compared with €40.7 million in the prior year period.
  • Adjusted EBITDA was €32.1 million for the Period, down 8% year-on-year, with adjusted interest coverage of 2.2x.
  • Profit before tax for the Period was €15.2 million, decreasing 10% year-on-year from €17.0 million in Q1 2017, reflecting increased impairment charges, largely due to the transition to IFRS 9.
  • Cost to income ratio for the Period was 54%, vs. 58% for Q1 2017, reflecting cost discipline and faster revenue growth.
  • Financial strength remains solid, with equity / assets ratio of 15% as of 31 March 2018 and equity / net receivables of 27%. Both ratios improved by 1 percentage point during the quarter from their 1 January 2018 post-IFRS 9 levels.
  • Improvement in asset quality following move to 360 DPD write-off, with an overall gross NPL ratio of 19.5% as of 31 March 2018 (22.1% for online) compared with 26.7% as of 31 December 2017 (33.5% for online).
  • The annualised cost of risk for the online business was 27.2% for the Period, compared to 17.9% in Q1 2017, and in TBI Bank it was 9.8% for the Period, compared to 4.8% in Q1 2017. The increases reflect the impact of IFRS 9 and removal of 360-730 DPD online receivables.
  • Online lending customers with open loans that are up to 30 days past due

Strategic Highlights

  • Continued momentum in instalment loans, with particularly strong customer demand in Poland and ongoing migration of single payment loan customers to longer-term instalment products in various markets.
  • Good progress with our new IT platform, designed to better support business growth, deliver faster product and scorecard innovation and facilitate IT cost reduction in the medium term, now in beta testing phase.
  • Continued development of near-prime products, with the pilot in Spain progressing well, the Lithuanian near-prime lending business reaching a sustainable scale, and the pilot launch in Sweden in June.
  • Further progress on funding diversification, with loan securitisation platform pilot expected to launch in July. TBI Bank annualised cost of deposit funding reduced to 1.0% in the Period from 1.5% in Q1 2017 and regulatory approval received to passport deposit license to Germany.
  • Ongoing review of each market to ensure the businesses meet our financial return criteria. Decision taken to wind down Dominican Republic operations.
  • CEO, Mark Ruddock has signaled his intent to step down, and will transition back to the Supervisory Board once the long-term CEO is in place in August 2018.

Mark Ruddock, CEO of 4finance, commented:

“These results evidence a strong start to the financial year, with interest income growth of 18% compared to the first quarter of 2017. This growth has been driven by an increase of over 50% in the contribution from instalment loans as we continue to successfully deploy the proceeds of last April’s bond issue. Together with a healthy increase from TBI Bank operations, our portfolio rebalancing strategy has significantly diversified our product mix and provided greater visibility on future revenue. Our traditional single payment loan brands continue to evolve, with many markets migrated towards more line-of-credit like products. We continue to see promising progress in some of our newer markets, although we retain a conservative bias towards expanding before the economics are proven.

“As last year’s strategic cost initiatives bear fruit, our focus on cost discipline is reflected in a cost growth which is lower than revenue growth year-on-year. Whilst we have more work to do on reducing the cost/income ratio, the reduction in quarter-on-quarter costs was encouraging. This was achieved despite our policy of expensing, rather than capitalising, tactical IT development related to our legacy platform. Finally, the 28% increase in pre-provision profits has meant we have been able to absorb the impact of moving to IFRS 9 provisioning and still maintain a solid level of profitability and EBITDA generation.

“When I agreed to step off the Supervisory Board and into the role of CEO, there were three specific initiatives we identified as being important foundations for the future of the firm: a new IT platform, the development and launch of near prime capabilities and the creation of a securitisation and funding platform. I am happy to confirm that all three are now at the point of implementation, and I am proud of the progress the company has achieved in the last year.  I am confident that these initiatives, as well as our scale and financial strength, have set 4finance on a good trajectory for the future, and I look forward to working with the incoming CEO to continue to realise the potential of this business.”

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