- Proactive business response to Covid-19, providing continuous service to customers and adapting products.
- Strong performance from TBI Bank and focusing online business on core products & markets.
- Solid capital and liquidity position with no maturities until 2022.
20 November 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 nine months ending 30 September 2020 (the ‘Period’).
Operational Highlights
- Maintained proactive operational response to Covid-19, including recent second wave. Seamless move back to working from home in relevant markets based on process implemented successfully in March. Ongoing focus on ensuring employee safety and providing continuous service to customers.
- Strong customer repayment dynamics observed throughout Q3 enabled underwriting criteria and acceptance rates to be restored close to normal levels for new and existing customers in most products by the end of the quarter.
- Support made available for customers whose plans have been disrupted, with early and proactive measures including discounted or free payment deferrals. New entry to all regulatory-driven programmes has now finished and there is minimal take-up of voluntary measures. No adverse effect seen in performance of customers coming out of payment deferral periods in relevant markets (Czech Republic and TBI Bank) compared to the rest of the portfolio.
- Market-wide customer demand for loans had recovered by early Q3 in most markets, with loan issuance in the third quarter in continuing products reaching pre-Covid levels. The Group made targeted marketing investments in the third quarter to support this, with spend increasing from a low point in Q2.
- Development of near-prime lending products has continued, with the launch of a near-prime product in Denmark under market-leading Vivus brand in August as part of adapting to the new regulatory pricing regime. Near-prime issuance in the Period was up 12% year-on-year (21% in the online business and 11% in TBI Bank) reflecting strong customer demand and the expanded product range.
- TBI Bank loan issuance volume during the Period grew by 5% year-on-year to €245.1 million from €233.4 million in the prior year period, with increased issuance in the third quarter in all products.
Financial Highlights
- Interest income of €237.3 million in the Period, down 26% from €319.1 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 Q2 and Q3, as well as the effect of some product and market exits.
- Cost to income ratio for the Period was 57.5%, vs. 51.5% in 9M 2019, due to the lower interest income, with operating costs down 17% year-on-year, reflecting cost discipline across the Group, the reduction of marketing spend and savings in personnel costs.
- Adjusted EBITDA was €52.0 million for the Period, down 44% year-on-year. The full interest coverage ratio as of the date of this report is 1.9x. The Q3 quarterly EBITDA contribution was up significantly from Q2, and bond buybacks have reduced the proforma interest expense, however the Group is now below its incurrence covenant levels (see page 8 for further details).
- Post-provision operating profit for the Period was €12.2 million, and a loss before tax of €1.7 million.
- Net receivables totaled €515.1 million as of 30 September 2020, down 11.0% year-to-date. During the third quarter, TBI Bank grew net receivables and the online business saw a stabilisation in performing loan levels.
- Overall gross NPL ratio at 19.9% as of 30 September 2020 (24.4% for online), compared with 20.7% as of 31 December 2019 (24.9% for online). The resumption of debt sales in most markets in Q3 drove the significant reduction in NPL ratio during the third quarter, as well as the increased proportion of near-prime lending in the portfolio.
- Overall cost of risk was 15.2% for the Period, improved from 17.3% in the prior year period. For the online business it was 26.6% for the Period, compared to 27.6% in 9M 2019, and in TBI Bank it was 5.2% for the Period, compared to 4.3% in 9M 2019.
- Strong funding position, with €92.6 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 Q3 2020, the near-prime segment (including TBI Bank consumer and online) represented 59% 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 throughout 2020, with its strong points-of-sale relationships and market leading digital options helping to grow consumer loan issuance volumes in Q3. However given the regulatory environment, the Group does not expect dividends from TBI to resume until 2021.
- Refocusing online business on core markets and products where the Group’s strong brands and experience can deliver superior unit economics. Decision taken to wind-down the business in Armenia in addition to earlier plans to withdraw from Argentina, Finland and Slovakia.
- Costs are being reviewed across the Group with a focus on efficiency and ensuring our operating approach is consistent with the reduced footprint. In the online business, the staff reductions initiated in Q2 were visible in lower personnel costs quarter-on-quarter throughout the year. Marketing spend was increased selectively in Q3 to support increased issuance volumes, but remains below pre-Covid levels.
- Closer cooperation with TBI Bank to develop near-prime lending across the business. Planned initial sales of Lithuanian near-prime loans to TBI Bank awaiting regulatory passport approval.
- The Group made further market repurchases of its USD bonds subsequent to the Period end in October. As of the date of this report, the Group holds €1.1 million of its EUR bonds and $96.9 million of its USD bonds in treasury, whilst its current 'online' cash position, as of end October, is approximately €90 million.
- Successful completion of EUR bond maturity extension in Q3 leaves no maturities until 2022, allowing financial results and markets to normalise prior to addressing longer-term capital structure.
Kieran Donnelly, CEO of 4finance, commented:
“Our financial results for Q3 demonstrate that cost efficiency measures implemented by the team in the second quarter are starting to deliver benefits. Our asset quality ratios have also improved, following strong repayment rates, some normalisation in debt sale markets and a greater proportion of higher quality near-prime lending in the portfolio. This led to an encouraging increase in EBITDA quarter-on-quarter in both our online and banking operations.
“We are optimising our market and product footprint to focus on seven online markets and TBI Bank. We see revenue growth opportunities in the subprime segment across these core markets – not least given changes in the competitive landscape this year. In parallel we can scale our near-prime businesses in the Nordic and Baltic markets, powered by TBI Bank. But we know we must go further and faster in right sizing our infrastructure and cost base to become a more efficient and nimble organisation. This will be critical to delivering an improved performance in 2021 for all our stakeholders.
“This business remains one of the key players in online consumer lending in Europe with market leading brands and, in TBI Bank, has a strong and growing near-prime lender. The need for a responsive lender, that understands its customers is undiminished and our segments remain underserved.
“I would like to thank our supervisory board Chairman, Bill Horwitz, who steps down this month, for his strong contribution to 4finance in recent years. The market remains challenging, but reconnecting with people throughout the firm in recent weeks gives me confidence that we can make the most of the undoubted opportunities ahead.”
