28 February 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 twelve months ending 31 December 2019 (the ‘Period’).
Stable quarterly revenue and cost discipline deliver full year adjusted EBITDA of €123 million.
Strong receivables growth at TBI Bank in Q4, with further progress in using the bank to fund online loan portfolios.
Solid ‘like-for-like’ performance in online business, overall YoY comparisons impacted by product/market exits in 2018.
Operational Highlights
- Launch of near-prime product in Latvia in December under Vivus brand, with half of the Group’s European markets now active in the near-prime segment.
- New ‘post-regulation’ products launched in Q3 in Latvia (‘minimum-to-pay’ line of credit) and Finland (shorter-term ‘mini’ instalment loan) continue to perform well, consistently generating over 30,000 combined loan applications per month.
- Near-prime loan issuance up 20% year-on-year (+83% in online business and +15% in TBI Bank) reflecting strong customer demand and new product launches.
- Overall online loan issuance remains above €1 billion for the Period, despite year-on-year reduction in volumes of Single Payment Loans (as more markets transition to Line-of-Credit products, and some product/market rationalisation).
- Instalment Loan issuance volume of €156.5 million in the Period, compared with €196.6 million in 2018, driven by a more focused lending approach and product reviews in markets including Poland, Armenia and Spain.
- The number of online lending active customers(1) was 0.32 million as of 31 December 2019, compared with 0.38 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 19% year-on-year to €336.7 million from €281.7 million in 2018.
- TBI Bank had 0.42 million active borrowing customers, up 3% from a year ago, with 0.31 million current accounts as of 31 December 2019, up 12% from a year ago.
Financial Highlights
- Interest income of €423.9 million in the Period, down 11% from €475.2 million in the prior year period. The contribution from largest markets (TBI Bank, Poland, Spain and Denmark) was stable year-on-year, but overall year-on-year comparisons remain impacted by markets and products that were rationalised during 2018.
- Continued stable quarterly top line performance in Q4 2019, with interest income of €104.8 million (down 1% from Q3 2019) and operating income of €97.3 million (up 1% from Q3 2019).
- Cost to income(2) ratio for the Period was 51.4%, vs. 52.1% for 2018, with operating costs down 12% year-on-year, reflecting ongoing cost discipline across the Group.
- Adjusted(3) EBITDA was €123.5 million for the Period, down 17% year-on-year. Q4 2019 Adjusted EBITDA was €29.7 million, down 5% from Q3 2019. The interest expense used in the bond covenant interest coverage ratio was reduced 15% year-on-year (following the USD 2019 bond repayment and USD 2022 bond buybacks) bringing the interest coverage ratio to 2.4x from 2.5x last year.
- Profit after tax for the Period was up 6% year-on-year at €28.2 million from €26.6 million in 2018 (which was impacted by FX losses).
- Net receivables increased by 2.9% during the fourth quarter to €578.9 million as of 31 December 2019, driven by TBI Bank.
- Overall gross NPL ratio at 20.7% as of 31 December 2019 (24.9% for online), compared with 19.4% as of 31 December 2018 (22.0% for online), with the increase partly due to lower new issuance in H2 2019 in certain instalment products.
- Overall cost of risk was 17.1% for the Period, stable compared with 17.7% in 2018. For the online business it was 27.5% for the Period, compared to 24.0% in 2018, and in TBI Bank it was 4.6% for the Period, compared to 8.0% in 2018. The improvement in the TBI Bank ratio reflects the normalisation of asset quality in the bank’s Romanian portfolio.
Notes: (1) Online lending customers with open loans that are either current or are up to 30 days past due
(2) Operating costs (excluding D&A) divided by operating income (revenue)
(3) See page 8 for details of adjustments
Strategic Highlights
- TBI Bank continues to perform well, with further strong origination in Q4 in both consumer lending (all in the near-prime segment, and increasingly digital) and its new online SME offering.
- Continued progress in the near-prime segment in the online business, with 2019 issuance nearly double that of 2018. Successful new product launch in Latvia in December, new scorecard introduced in Spain in December and product upgrades implemented in Lithuania post year end.
- At the end of 2019, the near-prime segment (including TBI Bank and online) represented 48% of net receivables, up from 41% at the end of 2018.
- Successfully adapting to new regulation in the Nordics & Baltics region, with encouraging customer reception to new products, including optional service fees, introduced alongside regulation in Latvia in July and Finland in September.
- Ongoing migration of single payment loan customers to products with more flexible repayment terms, e.g. ‘minimum-to-pay’ lines of credit or shorter-term ‘mini’ instalment loans with maturities of under 12 months. Single payment loans now represent only 18% of the Group’s net receivables, down from 24% as of 31 December 2018.
- Focus on unit economics for traditional instalment loans across all markets. In Armenia, switched focus in Q4 to line of credit product; in Poland, the more conservative underwriting approach adopted in mid-2019 is delivering improved asset quality; in Spain, focusing on near-prime segment.
- Progress on funding diversification projects, with further sales of Polish instalment loans to TBI Bank in Q4, with over €3 million of loan principal transferred in 2019 and work underway for passport application for Lithuania.
Oyvind Oanes, CEO of 4finance, commented:
“In Q4 2019, we delivered another quarter with interest income of over €100 million and Adjusted EBITDA of €30 million. These solid results complete a year of consistent and stable financial performance by 4finance. We have been particularly pleased with the loan growth at TBI Bank in the fourth quarter, and together with the key online markets of Poland, Spain and Denmark, these businesses have anchored our financial performance throughout 2019.
“In the past year, we have made significant progress both in our traditional business lines and in broadening our European franchise into the near-prime segment, which now represents nearly 50% of our loan portfolio. In successfully adapting our products to new regulations in Latvia and Finland we changed our marketing approach, incorporated product features from our other markets, brought in new technology suppliers and – above all – focused on addressing the needs of our customers as a responsible lender. We are now ‘live’ with near-prime products in half of our European markets, and this, combined with the ability to access deposit funding via TBI Bank, has laid significant foundations to build from in 2020.
“The scale and resilience of our business, as well as our disciplined approach to allocating capital and a prudently managed balance sheet, position 4finance well for the future. We believe the experience we have gained from evaluating fifty million online lending decisions and issuing more than €7 billion in over a decade of fully digital end-to-end consumer lending is unparalleled and puts us in a unique position to adapt and grow in evolving markets.”
