29 May 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 three months ending 31 March 2020 (the ‘Period’).
- Solid initial start to the year, with further near-prime product development.
- Rapid business response to Covid-19, focused on supporting existing customers, with demand now increasing again.
- Strong liquidity position and lower leverage following bond buybacks in March & April.
Operational Highlights
- Rapidly adapted operations in March, moving over 2,000 staff across 16 countries to working from home in less than 10 working days, ensuring employee safety and enabling continuous service to be provided to customers. Established daily and weekly rhythm of executive committee, crisis team and Board meetings to coordinate Covid-19 response.
- 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 since March. Overall repayment behaviour in April and May is slightly below normal levels for this time of year, but remains within the typical annual range.
- Committed to supporting customers whose plans have been disrupted, with early and proactive measures including discounted or free payment deferrals. These have been subsequently reinforced by similar regulatory measures in many markets. Requests for payment deferrals have been concentrated in the TBI Bank SME portfolio and in the Czech Republic, where they are automatically available on request.
- Market-wide customer demand for loans has reduced since mid-March, and the Group has also reduced its marketing spend 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 and 64% (pro-rata) for May. Expecting to see further improvement in loan issuance volumes from June onwards.
- Development of near-prime lending products continued in Q1. 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 initial customer response. Near-prime issuance was up 22% year-on-year (64% in the online business and 17% 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 €77.3 million from €68.2 million in the prior year period, however issuance was impacted from March onwards, particularly 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 €96.6 million in the Period, down 9% from €106.5 million in the prior year period. Most products performed in line with expectations, with some quarter-on-quarter declines from a seasonally strong Q4 and reductions in some products that were de-emphasised in 2019. Reduced origination from Covid-19 also made a small impact.
- Cost to income ratio for the Period was 52.7%, vs. 52.0% in Q1 2019, with operating costs down 6% year-on-year, reflecting cost discipline across the Group and initiatives already in place, plus some initial reduction of marketing spend in March. Further cost reduction measures underway as part of Covid-19 response.
- Adjusted EBITDA was €23.3 million for the Period, down 21% year-on-year. The interest expense used in the bond covenant interest coverage ratio was reduced 18% year-on-year (following the USD 2019 bond repayment and bond buybacks) maintaining the interest coverage ratio at 2.5x, the same level as a year ago.
- Post-provision operating profit for the Period was €10.7 million, although profit before tax was only €0.2 million as a result of adverse FX movements and a non-cash accounting loss on the sale of its Georgian business.
- Net receivables totaled €542.6 million as of 31 March 2020, down 3.6% during the Period, given lower origination and some increased provisioning associated with Covid-19.
- Overall gross NPL ratio at 22.2% as of 31 March 2020 (28.3% for online), compared with 20.7% as of 31 December 2019 (24.9% for online), with the increase partly due to some debt sales being postponed in March.
- Overall cost of risk was 17.4% for the Period, stable compared with 18.4% in the prior year period. For the online business it was 29.5% for the Period, compared to 28.9% in Q1 2019, and in TBI Bank it was 4.7% for the Period, compared to 4.5% in the prior year period.
- Strong funding position, with €83.4 million of online cash at the end of the Period and no debt maturities in 2020, and solid liquidity and capital adequacy at TBI Bank.
Strategic Highlights
- At the end of Q1 2020, the near-prime segment (including TBI Bank consumer and online) represented over half (51%) of net receivables, up from 48% at the end of 2019. Single payment loans now represent only 17% of the Group’s net receivables.
- TBI Bank made a particularly strong start to the year, and whilst Covid-19 is having an impact on new issuance volumes, particularly in the offline SME segment, the Group is a local market leader in providing digital options for its customers, including online point-of-sale products for consumers and SMEs. The regulator has indicated that dividends should not be paid by Bulgarian banks currently, and so the Group does not expect dividends from TBI to resume until 2021.
- The Group continues to review its product range and cost structure as the impact of Covid-19, associated regulatory changes and the pace of resumption in economic activity become clearer. The Group has taken the decision to stop new lending in Argentina and Mexico, where currency volatility has been an additional hurdle, and in Finland. Across the online business, staff reductions have been initiated that will result in savings of c.20% of personnel costs from Q3 onwards, and other cost efficiency programmes have been accelerated.
- Progress on funding diversification projects continues, with further small sales of Polish instalment loans to TBI Bank during the quarter, and filing of a passport application for Lithuania with the Bulgarian National Bank in April ahead of planned initial sales of near-prime loans to TBI Bank in Q3.
- The Group made further market repurchases of its bonds in March and also subsequent to the Period end in April. As of the date of this report, the Group holds €1.1 million of its EUR 2021 bonds and $85.9 million of its USD 2022 bonds in treasury, whilst its current ‘online’ cash position, after the May bond interest payments, is approximately €90 million.
- Following the impact of Covid-19 on the high yield debt capital markets, and also on the Group’s near-term financial prospects, 4finance is reviewing its liability management options, including the possibility of seeking an extension to the maturity of its EUR 2021 bonds.
Oyvind Oanes, CEO of 4finance, commented:
“Despite the unprecedented challenges in recent months, we have kept our team safe, kept our business going and provided seamless support for our customers. I remain grateful to colleagues across the business for the way they have responded to working in this new environment, and am sure they will manage the gradual return to offices now being planned in many markets equally well.
“I want to talk about our customers – as a responsible lender we want to help support our customers through this time. That means two things: being there to offer a good regulated option for those who seek suitable credit and being ready to help those that might need extra time to pay due to Covid-19 impacting their finances. We moved quickly to offer respite to those in need, in many cases ahead of regulatory guidance. Most customers are able to meet their commitments – but we have a decade of experience of helping those whose circumstances change. We have of course tightened our lending criteria, but are keeping this under very regular review, and have already been able to increase acceptance rates in the last couple of weeks of May where prudent. Accessible credit is very important to our customer segment – arguably even more so at the moment.
“I also want to talk about our strategic view of the future and how we are preparing for this. There will be significant opportunities as the current crisis recedes. Consumers are even more used to transacting online, which suits both our native online business as well as TBI Bank, which is a digital pioneer in its markets. The overall segment of customers with a more complicated credit history is likely to expand, and our credit scoring expertise enables us to serve them. But we must be very focused on how we deploy our resources. This means concentrating on markets where we see the best prospects, and we have made the difficult decision to wind down our Latin American operations, given the gap to achieve scale in those markets and the continued additional currency challenges. Last September’s regulation in Finland has made it difficult to reach a meaningful economic contribution in that market also. As we adjust our footprint and product range, we will also adjust our cost structure. In addition to accelerating ongoing cost efficiency initiatives, we have already implemented significant staffing reductions.
“Navigating the next few months will continue to be challenging, but as a management team and board we are confident the business is well positioned to weather the storm and that we have the experience and operational capability to do this. And we are actively planning now so we can build on our industry leading market positions in the future.”
