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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Welcome to the conference call of creditshelf. At our customers' request, this conference will be recorded. May I now hand you over to Dr. Daniel Bartsch, COO of creditshelf; and Mr. Fabian Brügmann, CFO of creditshelf.
Yes. Thank you very much. A warm good morning from our side. Daniel Bartsch speaking, Co-Founder and COO of creditshelf. This morning, we have provided an update for you to update you on the business of creditshelf. I believe you do have access to the slides that have been shared in advance. And therefore, I'd like to draw your attention on Page #3 for the business update as the first part of our presentation. So I mean, this year, we are seeing a continuous trend in terms of loan demand. We are, I would say, back in a situation where what we've seen in the last year is with regard to the COVID and corona situation. Now this year, I think what we're seeing is that customers are approaching us quite significantly for credit, and credit demand is quite good on our platform. As you can see from the numbers, in the meantime, since inception of the business, we've seen in excess of EUR 5 billion worth of loan demand. And actually, arranged loan volume is in excess of EUR 400 million in the meantime. That means we're obviously growing. I think the good thing is that we are obviously seeing new clients as well as existing customers. And on the existing customers side, I think historically, we've seen quite a high number of returning customers to us. So 80% recurring customer rate, I think, is testament to the fact that clients do like the service that they're getting from us. Of course, they appreciate the easy access of the platform and the good user experience, quick time to decision, quick time to money, something that we as creditshelf have obviously built into our design as opposed to banks who are typically taking weeks, if not months, in situations to actually make credit decisions. So on our side, we are growing our network. Our efforts obviously lead to the fact that customers are becoming more and more aware of these digital alternatives that exist in the market. So in the meantime, roughly 40% of SMEs have come across the name creditshelf, which obviously speaks for a certain brand awareness. And I think -- I mean, if you compare the EUR 400 million against the EUR 5.5 billion requests, you obviously see that this is less than 10%. But if you look at this year, we are steadily increasing conversion rate. And we've always said that we believe that 10% is a good target to be achieved in, I would say, the medium run. And this year, it looks as if we are very, very close to that. So I'm really confident to basically see a good quality of customers and, say, good credit quality applying via our platform. And this shows that the offering gets more and more interesting for a broader range of clients. If we get on the next page, I would quickly like to demonstrate and show you which is the sort of market that we're addressing. So essentially, I mean, on one side, you have the banks in the German market who are serving customers. As we know, Germany is quite a relatively well-served banking market, also for SMEs. However, what we're seeing is that in the, I would say, good to medium credit quality segment, banks tend to be very risk averse, and they would usually only want to lend against secured assets as collateral. And therefore, unsecured loans is typically something that our clients do have difficulties in hard times getting from banks. So this is where we at creditshelf come into play. We provide unsecured credit. We typically offer loans and complementing customers' balance sheet, i.e., banks are lending to our customers. But they would, as I said, be relatively strict about loan-to-value. And therefore, customers are asking for additional alternatives, and this is what creditshelf is providing. So we basically close the gap between the relatively cheap bank credit and additional alternatives, which would typically be more costly for customers. This could include finetrading, factoring and so on, alternatives which are typically more expensive than what we provide. So our loans typically start at 4%, 5% coupon, and then they would go into the lower teens. And again, these are interesting alternatives for clients, particularly because we complement bank funding in this regard. I think also one point to mention is that the competition we're seeing in our segment from banks is, in a sense, not so strong because the loans we are addressing, they typically go to customers that tend to be on the higher end of what Volksbanken are [indiscernible] serving and, on the other side, tend to be too small for, let's say, the larger private banks, including Deutsche Bank, for example, Commerzbank and UniCredit, [indiscernible] and so on. So essentially, we're addressing the mid-market segment of the German Mittelstand, the lower mid-market, which is where these banks typically have certain depths. And the segment is also not being addressed by debt funds. We are counting an increased number of debt funds in the German market. But they would, again, typically focus on deals that are larger EUR 10 million and simply because smaller deals from an economic perspective are too costly for them to look at. And of course, here, our technology comes into play and the way we address these customers and we service these customers and we process these customers, obviously, is based on the technology that we've built. And therefore, we can basically make this work from a cost economic perspective. I would like to draw your attention on the next slide on what we are seeing in the private debt space, I mean, from an investor perspective. So you know we run a platform, which, on one side, we have German SMEs that are looking for credit. On the other side, we have institutional investors that we basically place these credits into their balance sheet. And the reason is because we're not running it on our own balance sheet, right? So we basically have an originate-to-distribute model. Now on the investor side, we believe that this asset is extremely attractive, which is also what you can see if you look at institutional investors. And what they're obviously having in terms of challenges right now is in this current interest rate environment, anybody is basically looking for a yield. And the public markets are relatively expensive. I mean, obviously, if you look across the board into bond markets but also equity markets, you see high valuation, low rates and a compressed rate environment. And therefore, this need for alternatives is something that is stronger than ever before. And that's why we're seeing a lot of good demand with regard to institutional investors. They are now coming stronger back into the market than they did ever before. Corona has had a bit of a, I would say, a short-term dampening impact because some investors took a relatively short sort of risk-off approach. But now they're coming back to the market. And so there's more money coming into private assets. And this is also something that we will benefit from, from a creditshelf perspective. Because, of course, for us to be able to serve our growth plans, we need access to institutional capital. And -- but this secular trend is still ongoing. And we, therefore, expect, and this is obviously something that is currently showing in the dialogues we're having with institutional investors, that this interest is continuing ever more than it used to be. So that's a good signal for us. In terms of numbers, on Page 7, if you look at a bit at the sort of the loans we've been arranging. So for the first 9 months of this year, we've arranged EUR 110 million worth, which is larger than what we did in the full year of 2020. And the comparable in last year was EUR 70 million. So essentially, we're up significantly against the year before. Over the past 12 months, the rolling number is EUR 140 million. And if you look at simply the economics of these loans, we have 9.6% interest on average on these loans, which shows you a significant upside against what you can expect in, of course, public markets. But we still believe -- and this is also something the Sharpe ratio is showing, we obviously believe that this is a very, very attractive asset class. And particularly if you look at the performance of our book, which is the defaults, they -- the book behaves very resilient up to now. We haven't seen any significant negative effect of COVID. The good thing is that a good part of our loan book business is amortizing on a monthly basis. So all these customers, they pay us. And on every single day, we are seeing live proof of customers being able to repay, of customers paying. And this payment behavior, of course, gives us a very, very good signal and insight into where these businesses are standing. And I think that's a very, very important aspect of how you can judge basically where you stand. Now on the next slide, Slide #8, the funding base. Some of you might have seen that we've just announced an increase with our funding partner, FIBR. This is the new name that they have. They used to be called Amsterdam Trade Bank. They have just rebranded to FIBR Bank. And they are, of course, an interesting source of assets for us because as we increase this facility to EUR 120 million, we are having a bit of dry powder still in this pot. And the signal we're getting from our partners here is that they would even want to increase potentially over and above -- significantly over and above the EUR 120 million. But let's fill this first and then obviously take it from there. I mean, if you look at the breakdown for the first 9 months, you basically see that roughly 40% of our loan origination has ended up in the FIBR facility, roughly 30% in the creditshelf Loan Fund, who you know is our Luxembourg close-ended credit fund. And roughly 30% of the asset has been distributed to other investors directly on the platform. And I think this shows a healthy mix. On our side, as I said, we are focusing our efforts in addressing and opening up additional institutional investors so that we can broaden and diversify the funding base and also increase, of course, the funding base because we believe that with our objectives ahead, and particularly with regard to next year, we want to obviously have a broader diversified funding base. And we expect that next year will be an inflection point. A lot of the government support programs in the form of KfW will come to an end. And therefore, we would expect that some SMEs, as they -- particularly as they have to ramp up their businesses again coming out of COVID and basically supporting the economy and the ramp-up now again, we expect that they would have additional credit demand for working capital but also for investments. And this is something that we're already seeing. And basically, the banking market for SMEs has been, I would say, significantly impacted by this governmental interference over the past 15 months, 18 months. And we expect that if and when this goes away, i.e., next year, banks will not be 100% prepared to take up all of this again to their own balance sheet. As I said, they have been just pushing through to KfW mostly. And I think this will leave a significant opportunity for us, for alternative players like ourselves, to basically take market share from existing banks because we don't expect them to be going from 0 to 100 again and basically provide their own balance sheet to a significant extent. And therefore, we need funding, more funding, which is why we're having these dialogues. And as I said, I think the fact that FIBR is -- has just increased significantly is a very, very good signal. And it should set the way forward for other deals to be announced. With this, I would like to hand over to my colleague, Fabian, who will run you through the financials.
Yes. Good morning, everybody, also from my side. And thank you, Daniel, for the elaboration. I think we put, for a good reason, a focus on the debt side this time. You talked about a very healthy mix of funding sources. Let me talk about a very healthy mix, in my view, on how we develop our top line, paired with continued strict cost management to show -- and we are pretty well on track with this regard, I guess, visible by looking at the numbers on Page 10 that we are on track to not only grow the business but scale the business, thanks to strict cost control, as mentioned. So revenue is in line with the top line. Arranged loan volume growth are up by 33%, and I will have a deep dive on that in a second. Total expenses are actually down 19%, which means we have a much better EBITDA and EBIT margin year-over-year. That is thanks predominantly to a much more focused marketing approach. As you can see, obviously, much more bang for the buck, given the growth in the top line. It's the targeted, custom-oriented campaigns, which we are running. It's also thanks to the infrastructure investments we have done last year, remember first quarter 2020 when we have shown this in the P&L. And we have also chosen a well-mixed and balanced approach towards personnel expenses, which are down year-over-year despite the fact that the head count has not actually gone down. That's a mix of senior and junior personnel but also a more cautious approach with respect to restricted stock units. How this play into EBITDA? As mentioned, the margin has improved 66%. So we only lost EUR 1.125 million in the first 9 months 2021. Thanks to the lower expenses but also top line growth, we have seen a similar EBIT improvement despite the fact that we had a little bit of a higher amortization bulk in the first 9 months. By the way, I do expect amortization and depreciation full year pretty much in line for 2021 with the number we have seen in 2020. So EBIT has more than halved, and we are now talking only minus EUR 2.076 million. With that short recap through our P&L, let me switch to Page 11 and talk you through our revenues, where we, and that's not a new one, do see a slight shift, in particular, in the, let's call it investor, service and advisory fee bucket, in favor of service and advisory fees who can be distributed for both the borrower side where we do analysis in some borrowers where we have not seen a payout, but also on the investor side where we continue to see a trend towards -- and I would actually expect the largest percentage growth going forward actually in this bucket, not in absolute terms, but in relative terms, due to the fact that we continue to see fees which are not new business-dependent, but actually outstanding volume-dependent, for instance, with the Loan Fund. Borrower fees are up 45% to a decent EUR 3.607 million print in the first 9 months 2021. That's contributing strongly to total revenue growth. Also, the -- and I've mentioned that in the H1 call, the total revenues, or including extraordinary income, the total revenue quality has improved even beyond the only revenue print as we do see much less of extraordinary or other income streams. The investor fees, the lower investor fee margin of around 1% can be explained by various factors. And I'm not too worried about them at all, first, because I've mentioned that they are partially substituted over time by the service and advisory fees, first. Secondly, with the slightly -- with the slight concessions on the investor fee margin, we do see a decent growth in available funding, not to mention, as Daniel has done that in his previous slides ago, about FIBR and ATB Bank. So that's the second driver. And last but not least, we have seen a little increase in rebates. That's obviously due to the larger volume, not because the portfolio would not perform. Actually, the opposite is the case. We continued to see defaulted loans much below model expectations and not too much impacted by the corona crisis despite the fact that we often asked -- get asked that, that we have -- or no longer see these insolvency regimes being on hold. With that, actually, we -- as I mentioned, we have seen decent revenue growth paired with strict cost control. So having talked about the P&L, let me quickly talk about our balance sheet, which is shown on Page 12. Current assets have decreased to EUR 2.2 million. Remember, compared to the last full year 2020 December number, which stood at EUR 5.5 million, which was -- the decrease was predominantly driven by these accounts which we do have for cash transactions which are settled literally the day after, which kind of explains this technical issue on the balance sheet. Noncurrent assets are pretty stable, a little bit down versus year-end. That's due to the, let's say, conservative approach towards the own work capitalized, i.e., software development versus regular amortization of our intangibles. Current liabilities reduced to EUR 1.7 million. That's corresponding to the current asset position on this collection account I mentioned before. Noncurrent assets -- liabilities have rosen to EUR 2.6 million. That's certainly driven by an increase in other noncurrent financial liabilities and predominantly means the shareholder loan, which stood at EUR 1.5 million at the end of the first 9 months, are not much beyond that number as we speak today. Total equity -- which, by the way, means that a strict cost control also benefits the equity and the cash position on our path to breakeven. Total equity stood at EUR 2.1 million, resulting from the negative net result, partially compensated, as in the previous periods, by RSU equity settlement in capital reserves. With that, let me quickly talk you through our outlook. You have seen that the bandwidth provided for both revenues and EBIT are unchanged versus the first half. But let me provide a little bit more, first, qualitative and then also quantitative guidance on where I do see the financial year 2021 coming out. First of all, slightly adjusted assumptions on the qualitative side. So we assume that the German economy will continue to recover. And I think that's already also well documented for 2022 with a pickup in growth momentum. Assuming the absence of another hard lockdown, I should say, at the same time, certainly increasing number of corona cases and temporary supply bottlenecks do harbor some risks, which needs to be monitored cautiously. Certainly, and that's a longer structural trend, every crisis offers opportunities. So we -- as Daniel has pointed out, we expect that the structural changes in the German SME lending markets are accelerating and continue to provide tailwinds to our young business.So based on efficiency gains, ongoing investments, which we continue also to see next year, and the growing network, we consider ourselves well positioned to further scale our business towards profitability. And I think with the homework we have done this year, it's a much easier path towards breakeven than probably looking at this a year ago, to scale our business towards breakeven and expand our market penetration in SME finance. Where are we standing in terms of quantitative bandwidth outlook? Let me probably start with the top line. So year-over-year, we actually are now pretty much in line with year-to-date requested volumes. Remember back 6 months and 3 months, obviously, we had a tougher time comparing this year versus last year because we had this large spike in requested volumes due to the first lockdown back in the days. Now we are actually on track actually with -- paired with really decent momentum in the last months. So good momentum to fill -- the pipeline is pretty much filled. With that, I'm pretty confident that we are sort of fully in line with the bandwidth. Let's see how the crisis develops. Probably a little bit more cautious on the upper end, but I think a good and reasonable chance with the pipeline to be executed. Obviously, as you know, we always need to execute before year-end to see the revenues because it's due to deals being paid out. But again, very confident to be well in line with the bandwidth provided. As already indicated with the last call, H1, and you've seen that in today's numbers, I guess we have done decent progress on the cost side, which gives me even more confidence compared to the H1 call that the lower end of this bandwidth is probably the outcome from today's perspective. With that, let me conclude, say thank you to each and everybody. And Dan and I are happy to take questions.
[Operator Instructions] The first question is from Mr. Benjamin Kohnke from KBW.
I hope you can hear me well. A couple of questions. Let me start with strategic ones. Could you be so kind to split the 30% of other investors that you mentioned that are funding your deals and investing in your loan offerings? Or maybe an overall number of investors on the platform may be helpful in this context as well. Second question would be, if you could be so kind to provide an update on the -- on your own fund, which is -- obviously, I've backed. And as far as I'm aware, there was another funding round, money raising round ongoing at some point. I was just wondering if you could provide an update where we stand on that front. And let me see. And Daniel, you mentioned some other funding deals that look promising. And I was just wondering if you could be a little more detailed with regard to the time line here? That would be my first question.
Yes. Thanks very much. I think yes, probably, I think I'll probably take your last question first with regard to the sort of momentum that we are seeing in the discussions with institutional investors. And let me put a little bit of context to that by looking a bit how the situation has behaved over the past 12 to probably 18 months during the crisis. So I think what we've seen, when I look back at the -- since the inception of our business, is that obviously, initially, when you pitch your product to institutional investors, what they like to see is track record. They like you to see -- they like you to be around for a couple of years. They want to see stable returns, ideally low volatility and so on and so forth. And I mean, we've been on this track. And as we've shown you, as you look at the default rates and the respective yearly cohorts, you are actually seeing that the trend is our friend, right? The performance is improving consistently since the inception of the business. And when we were making, I would say, conversations to institutional investors probably around 2 years or so, COVID came in. And what this led to was that they were saying, "Let's take a bit of a step on the sideline, see how things are behaving, particularly in the SME market, see how the economy is behaving, and then maybe we can reengage." And this has happened now. So obviously, as the COVID situation has been -- I wouldn't say resolved as we look at today's numbers. But broadly speaking, I mean, you are seeing that the economy is coming out of a difficult, probably, last year. And things are getting better as we speak, despite certain hiccups in, let's say, in logistics and supply chain. But that said, I mean, what I was trying to obviously say is that institutional investors are coming back to the table, and they have come back to the table. And we are now having quite serious conversations about how we're going to fund our business going forward simply because I strongly believe that we are now at an inflection point when it comes to loan demand. I mean, there is now -- as I said earlier, the government programs will come to an end. There will be ever more need for funding from an SME perspective to basically ramp up the economy. And banks, I think, will not strictly go from 0 to 100 and provide outrightly all their balance sheets again. So why are we having these dialogues with additional institutional investors? Because we want to diversify our funding base. Because we certainly need more funding for the business that we anticipate in the next couple of years. And that's why we're having, I would say, more than a handful of very good quality discussions, as we speak, with term sheets available that we are sharing and that has been shared with us. So I would expect -- and that's what I'm seeing. I see more investors really flocking into this market, and this is a very, very good result because let me be plain open with you. I mean, the segment that we've shown you on the right side of the slide deck, if you go at Page #5, what you see there is -- we've put this out there distinctly, right? You see this -- on the right side, you see this, let's say, the segment of up to EUR 10 million, right? We think that this space is very underserved. If you look at the 2 segments that we are serving in the German market, one is classic SMEs, it's the traditional family businesses. And on the other side, we serve, as you know, fast-growing scale-up companies. And this, particularly with the latter segment, is the new Mittelstand. It's the Mittelstand of tomorrow. And these companies, typically asset-light digital businesses, I'm thinking about e-commerce, software-as-a-service, cloud computing, something which is difficult for banks to assess and difficult for banks to support because these businesses are scaling and growing very, very fast. But they need access to capital. They are not yet profitable, but they need access to capital. And they are typically 100% or significantly equity financed, and here's an opportunity for that. But what we are seeing is that the debt tickets in this space, they are -- with our offering of up to EUR 5 million, we are not capturing all of the opportunities. What I'm saying here is that we think that there are very, very decent opportunities, in some cases, to go over and above EUR 5 million. And again, for this, we need the funding, right? So what I'm saying is that probably this year, we could have originated even more volume if we had a broader diversified funding base because the loan demand is there. We're clearly seeing that, and that's why we're working very hard on this side of the business. And as I've said, we are making traction. We are seeing investors that are discussing with us on a very thorough level, and I'm very confident that we can bring something to the table. Now the second question I think you asked was about the question, where do we stand with the Loan Fund? So the Loan Fund, as you know, has been established right in the midst of the first, let's say, year of the crisis. So we launched the Loan Fund in May 2020, which I think was a very great success. To be able to do a first closing at these market conditions, I think, is testament to the fact that we're offering a very interesting product from a risk/reward perspective for an investor. So in the meantime, we have -- the first closing was providing capital commitment of up to EUR 62 million. The fund is now invested at EUR 60 million. So we've basically invested the capital commitments. We are now in discussions -- as I've said earlier, we're now in discussions with -- also with investors on the Loan Fund side. And we hope to be able to do effective closing sometime early next year, again, for us to be able to bring the fund higher from a volume perspective. The absolute maximum that the fund can go is EUR 150 million. So this is where it would be unlocked. But I think the good thing is that the European Investment Fund, who you know is an anchor investor in the product, they have already signaled readiness and willingness to support a successor fund to the extent we would be looking at this because they are very happy with the performance of the product and with the purpose of the product, which is to serve German Mittelstand. Now when it comes to the other investors, we would not be disclosing exact numbers here and breakdowns. But I mean, as we've said earlier, it's a mix of family offices, small private credit funds that are obviously looking at this space and where we have longstanding relationships. And they are, of course, also purchasing loans via the platform directly. And I think this continues to be, for us, an interesting aspect. Whereas we -- what we are seeing, as I said earlier, is that these typically a bit larger type deals with investors such as FIBR, we probably expect even more direction into this route. Fabian, anything to add from your side?
No. That's good. Thank you.
The next questions are from Mr. Fabien Le Disert from Kepler Cheuvreux.
Two questions on my side. First one is on the German economy. As you mentioned, the German economy has been held back by supply bottlenecks after rapid growth in swing. And your loan portfolio is geared toward capital goods in the auto and parts sector. So do you think that this could have a negative impact on your volume growth in Q4? And the second question, solid profitability number this morning, but maybe a slight disappointment on revenues. Why was the borrower fee margin under pressure in Q3? I mean, the pressure on investor fee margin is not really a surprise, but maybe the drop in the borrower fee margin is more concerning. So maybe if we could have more color on this.
Yes. I will take the first question.
Yes. And I'll take the second, okay?
Yes. Okay.
Yes. So I think with regard to the economy, yes, I think we've seen a strong rebound this year, whilst we're not yet out of the woods, for sure. I think what clients are telling us, particularly in the capital goods sector, is that they are sometimes seeing these disruptions. And this is something to obviously have a careful look at because what we've clearly seen is that some particularly car manufacturers that are having difficulties in getting access to particularly chips and electronics, obviously, they slowed down with their production, and they've also slowed down the demand for products from their suppliers, which is our clients. On the other side, the businesses that we broadly see in our portfolio, we believe that they are flexible enough and robust enough to navigate alongside such challenges and clearly because I think the general sentiment is much, much better than what we've seen a year ago or so, and yet they've made it to this point. So I think, yes, it's one to look at. We're not overly concerned. We think that it's something that we've seen already this year, that credit demand will continue, and it will be probably more -- even more stronger in the next couple of quarters. Fabian, would you take the second?
I'll take the second one. Thank you. Fabien, I think it's a good observation. Certainly, we had a couple of effects here, which I should consider rather a one-off than a general trend. So in the third quarter, in particular, we had a larger reverse inquiry, a pretty short term with a small portfolio with a short tenor. And as you know, short tenors are always bad for both the borrower fee but also the investor fee margin. That, I think, explains a large part of the decline, again, which I do not expect as a structural trend. However, having said that, that's also linked towards the funding side. I think looking at requested volumes versus paid out volumes, actually, the borrower demand is to go for longer tenors, which we can, only to a certain percentage, deliver given the current constraints in our funding vehicles. So I would even expect that once we absorbed kind of this constraint on the funding side that -- and at the same time, are then able to put this demand into arranged loan volumes again, there's a decent chance to grow the borrower fee. So I think this is the question from 2 various perspectives.
[Operator Instructions]
Any further questions today?
Winfried Becker from FMR Research.
Is it better now?
Yes.
Okay. Fine. Sorry for having some technical problems here. I have 2 questions, please. One is on your...[Technical Difficulty]
We can no longer hear you, Winfried. Probably we take this offline, if that's okay.
I'm afraid the line has broken down with Mr. Becker. [Operator Instructions] And there seems to be no further questions at this time.
All right. Then let me say in the name of Daniel and myself, very much thank you to joining today's call and very much happy to take one of the other question afterwards. Thank you very much. Stay healthy.
Thank you. Bye.
We want to thank all the participants of this conference. Have a nice day, and goodbye.