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Hello, everyone. And welcome to the Ferratum First Quarter Results 2020. Today, I am pleased to present Jorma Jokela, CEO; and Bernd Egger, CFO. [Operator Instructions]I will now hand you over to Jorma Jokela. Please begin your meeting.
Okay. Good morning, everybody. My name is Jorma Jokela, I am a CEO and founder of Ferratum Group. And today with our CFO, Mr. Bernd Egger, we will go through with you our first quarter result in 2020. And yes, let's go to point.So if we first jump to Slide #3. So Ferratum Group, we have a 15 years very solid track record. Every single year, we have delivered profit and growth. Today, we operate in 20 countries, through the 3 different business line or the product segment, it's consumer loans, business loans and mobile banking, where the consumer loans are the main part of our business, it's 87%, our revenue comes from there. And all our product and all our service what we offer for customer is based in the fast, easy, pure digital financial solution on the way that anyone, anywhere, anytime can really apply those or can get it -- those service.When we look our Q1 2020 revenue, Ferratum Group, we delivered a EUR 65.6 million revenue, what is the 10.4% down compared to the year -- previous year Q1 result. And during the same period, we delivered a negative EUR 2.3 million EBIT. However, its adjusted EBIT was EUR 5.5 million, where we excluded our COVID-19 onetime impairments effect.During this morning or during this call, I want to leave you in the few main key takeaway. I think the first one is that already beginning of the -- beginning of this COVID-19 pandemic, managements are at a very strong actions. We practically tighter in our scoring model and in all our countries. What -- consequence was that we reduced a little bit our sales as well. We start to, same time, to reduce our cost base as well, what practically we have already done in the few quarter, but this was just more accelerate, the speed of that one. And then we start to strengthen our liquidity position through the deposit funding. And that -- and this is something where we delivered a really, really strong performance from the whole management team. When we look the onetime operational -- onetime effective -- what we can see this COVID-19 is -- it's increased our credit loss provisions due to reason that macroeconomic forecast are worsening. And we have to use in our provision model in the base in IFRS 9, we have to use this macroeconomic forecast on the part of this element, and where the Bernd Egger will be explanation a little bit more of that. The third very important point is our -- in Ferratum Group, we have a very solid liquidity position. We have very solid balance sheet. We don't have any [ fund ], what's coming to repayment within next 24 months. And then the last one, that management team have already started working on the post-pandemic opportunities, and we can see that we can even accelerate our growth on the post-pandemic because this situation give us in the lots of opportunities there as well. This is the 4 main key takeaway, what I want to leave all of you on this call this morning. Let's jump to next slide. This is the Slide #4, and that I have always said that this is my favorite slide, where you can see the distribution between our product. And now, if you look this slide, you can see that our revenue had a decrease mainly on those product, what strategy point of view, we have already want to decrease as well. So Microloan and PlusLoan is -- it's where Microloan, its revenues coming to 43% down. PlusLoan was coming 28%. Credit Limit was around flat, and the business loan was growing to 31%. It was really strong in the beginning of the Q1. It was really, really strong. And the Primeloan had a strong, nearly -- strongly close development there as well. Of course, the part of the PlusLoan volume decrease is coming on the point that we already -- we suspend lending in the Canada and Poland. What we see that it was very important to protect our credit payment behavior. And partly, we already reduced the lending in the -- before the COVID time when we see that, that payment behavior was started worsening in those -- in Poland.During the COVID, like I say, in all our countries, we have reduced our -- we have increased our scoring parameters and scoring elements. What's mean that we have reduced the [ PAT ] portfolio lending, and that we have suspended lending in totally in the Spain, Canada, Poland, New Zealand and Russian during the Q1.Good. And I think it's -- I want to leave the next one, Bernd Egger, opportunity to go through with you our financial numbers one step more deeper. So if you jump to Slide #5 or 6. And Bernd, here, you can...
Yes. Absolutely. Thank you for that. So we have pointed -- Jorma has pointed already that we see a revenue decrease of roughly 10% in comparison between Q1 2020 to Q1 2019. There are essentially 2 reasons or 2 drivers behind that. One is, obviously, related to activities and measures, actions taken in reaction to the COVID-19 challenges, and I will go that -- into that a little bit later in more detail. Secondly, it is important to note that irrespective of the crisis, earlier in 2020, we have essentially decided to pause, to put on hold lending activities in some areas, especially in the lower maturity, higher-yield, higher-risk product type. I'm more specifically referring, for instance, to Poland, where we simply came to the conclusion that the risk pattern and the upside potential that we see is currently bringing us in a situation that it would make sense for us to discontinue lending activities, try to understand the market even better, also the regulatory changes that are upcoming. So we decided to pause lending activities early in Q1 already, which has an impact on revenue generation in Q1 2020.From a profitability perspective, we essentially have 2 main drivers. So EBIT, overall, is a negative at minus EUR 2.3 million. Obviously, one driver of that is the currently reduced revenue level. And secondly, I think, that is also important to note, we have built a EUR 7.8 million impairment in Q1, which reflects actually in a forward-looking way in accordance with IFRS, not the current payment behavior, not our current credit risk that we observe today, but this accounts -- takes into account the expectation that macroeconomic conditions are deteriorating. So I'm more specifically talking about, for instance, unemployment rate, that this might have a future negative impact on probabilities of default and, hence, going forward, might increase credit losses. So that is a pure forward-looking element that has an impact on the profitability in Q1. If we, for instance, adjust for this onetime impairment of EUR 7.8 million, then we would have ended up Q1 at a level of EUR 5.5 million positive EBIT.In our presentation in March, we pointed out that we have to expect quite an impact of foreign exchange currency movement during Q1. Essentially, there were 2 factors impacting that in Q1: one, again, COVID-19; and secondly, we saw extremely high fluctuation with some currencies in the first quarter, which was related essentially to the oil crisis, so the contract between Russia and Saudi Arabia, which had an impact on a number of currencies, including currencies that are more stable in a more normal economic situation in Norwegian crowns, for instance. Essentially, we managed to keep the impact on P&L fairly low at minus EUR 1.6 million in the first quarter. In addition to that, we have a slight impact of roughly EUR 2.5 million on equity as well, derived from subordinated loans, group internal subordinated loans. Over the last couple of months, we have substantially increased the hedging levels in most of the currencies and bringing us an impact of EUR 1.6 million on P&L in Q1. I would [ briefly ] also like to mention net debt equity ratio as this apparently is a fairly relevant to our bond funding. Net debt equity at the end of Q1 stands at 2.79, which is essentially the same level as end of Q1 2019, which was 2.76, and not too distant from the level of roughly 2.6 we had at year-end.Now move to the next slide, and give you more insight about the balance sheet. The key message -- I'm sorry, the key messages around the balance sheet are essentially explained in a way that liquidity is very strong. Overall, the balance sheet has increased by roughly 7%, which is essentially a function of increase in cash and deposits. Loans to customers have decreased slightly by roughly 5%, which is a function of basically: number one driver, the restricted lending with regards to COVID-19; and secondly, also this one-time impairment. Deposits. We've increased the deposit volume significantly. We started off the year 2020 with a deposit level of EUR 240 million. Roughly at the end of in Q1, we had deposits in the range of EUR 318 million. We go into that a little bit more when we talk about the impact of COVID-19.It's also important for us, which is important from the perspective of risk protection and risk management, essentially, we strive to improve the term structure of our deposits and essentially move gradually towards the longer end. We implemented new products, near-term deposits, which essentially worked very well over the last couple of weeks. Equity level, equity ratio, obviously, is not as strong as at year-end, where we had roughly 21% equity ratio. Currently, taking into consideration the result of Q1, a still solid equity level of close to 18%.On the next slide, I would like to give you a little bit more information on the segments that we have and also on the impact of the onetime impairment and also what the impact of the strategic decision earlier this year was on discontinuation of Poland. Essentially, the overall picture is that the strategic product, which is essentially Credit Limit and SME are still pretty strong; essentially, in relative terms, growing, so 59% credit limit, part of total revenues; SME now, a fairly strong 12%. In absolute figures, a fairly strong increase in the SME business also in Q1. So in both cases, the year started off very well, both in the Credit Limit business and in the SME business; SME business increasing from roughly EUR 6 million to close to EUR 8 million in the first quarter; revenue development of flat, but still strong in the Credit Limit business, where we saw that also existing customers are currently putting a little bit on hold the activities, obviously, driven by the fact that the options to -- or consumptions have been limited over the last couple of weeks.From a profitability perspective, the 2 points I would like to mention, we have been extremely focused on reducing cost. We have reduced marketing expenses significantly. We've essentially reduced the overall cost [ length ] by roughly 8%. One additional comment on the impairment related to COVID-19, maybe to point it out as in some areas, the impairment over net sales in some segments include the impairment related COVID-19, brings up the impairment rates pretty substantially. I'm especially focusing on the PlusLoan segment, which saw an increase to roughly 80% of impairment over net sales. That is essentially, roughly, close to 60% adjusted for the COVID-19 impact, and that is essentially Poland. So that is pretty much in line with what Jorma pointed out already. We've been analyzing the market for a while and decided, for the time being, to discontinue the lending activities, which is the consequence of the not totally satisfactory development in the risk pattern. What is important to note, adjusting for the COVID-19 impairment, both the SME segment, the Credit Limit segment are actually profitable also in Q1. On the next couple of slides, we would like to give you an update on where we see the relevance of COVID-19, what that actually did in terms of facing challenges on the organization, and how we have reacted to that and what management actions we have taken in order to guarantee that we actually are in a position to, not only weather this pandemic, but also, forward-looking, to be in a position to move out of this in a fast, agile and successful way.Maybe to start off on the next page with a short overview of where we see the key challenges related to this pandemic. I start on the right-hand side, obviously, payment behavior. So originally, naturally, our concern was that we need to make sure that payment behavior, that risk management is under control. From today's perspective, and this does not only relate to the quarter number 1 2020, but that is basically status as per today, the overall repayment pattern is robust. So that means that we do not see a substantial deterioration. In fact, we don't see any deterioration in payment behavior, with the exception of some markets. And again, these markets are predominantly those where the exposure to the micro lending portfolio is larger than in other markets. Other than that and from an overall perspective, and I think this is really a positive element for us to bring across payment behavior, is absolutely solid and robust. Secondly, on the left-hand side, impairments, mentioned that already. Naturally, the impairments related to COVID-19 has an impact on the Q1 figures. We will see what the evolution of this impairment is going to be and what the macroeconomic impact is going to be. What has not been taking into consideration here, but what will be -- what we will have to take into consideration is the element of governmental aid of subsidies of mitigation strategies. So the EUR 7.8 million is a pure reaction of the macroeconomic model, and we really have to see whether there is some upside potential in the future. I'm not saying that this is the case, but this -- I reemphasize that this is a forward-looking impairment.In terms of group revenues, what we have done is essentially tightened our underwriting policies. We've been very selective with the acceptance of new clients. Earlier this year, we've already put lending on hold. Naturally, this has an impact on revenue generation. But going forward, should us -- also bring in a position that we are, especially from the perspective of risk management, in a very good situation.On the next page, these are the key immediate actions that we have taken. And that is, obviously, around: number one, management for liquidity; secondly, control risk; thirdly, reduce the cost base; and of course, we did have an eye on opportunities going out of the pandemic. But I'll go into a little bit more detail on the forthcoming slides on those actions that we have been taking. Liquidity. This is really important for us to bring across. Liquidity position is strong. We have built up substantial cash reserves over the last couple of months. Deposits increased from EUR 240 million to 200 -- almost EUR 360 million at the end of April 2020. The cash position in one word is strong and stable. We have repaid the EUR 40 million bank bond in March. And within the next 24 months, we do not have any obligations to repay any bonds.On the right-hand side, I found that interesting to give an understanding of the dynamics of our deposits during the crisis. I'd like to draw your attention to the blue line. The solid blue line is essentially, on a daily basis, the net movement in our deposits. And the interesting -- the 2 interesting takeaways in that, one is in terms of volatility and reaction to the crises. Even in the peak phase of the crisis, we essentially saw no net outflows. So we saw a little bit of a higher volatility, higher outflows, but compensated by even higher inflows. And secondly, we have a very strong upward trend in our deposit development. What it actually means is that we have decided -- as a consequence, we have actually decided already, a couple of days ago, that we are reducing interest rates on the shorter end to make sure that we see some outflow again, which gives us the opportunity with the inflow, especially on the longer end in term deposits to have a very strong and solid deposit base, lower than where we are now ideally, and at the same time, have achieved a shift towards longer end. And in fact, the proportion of deposits in -- with the residual maturity of 9 month or longer than that has increased significantly over the last couple of weeks.Payment behavior. I would like to draw your attention rather to the dotted lines on the right-hand side. What that basically displays is an early indicator for credit risk. So the proportion of invoices of payments due that are fulfilled within 7 days past due. In blue, you see consumer lending. In gold, you see SME. Both slopes -- both the linear approximation but also the curve clearly show that this is upward sloping. What that essentially means is that the early indicator, 7 days -- payment within 7 days past due is upward sloping. That is an early indicator -- very important early indicator for us to understand the credit quality. And as this credit quality has been actually improving over the last couple of weeks, we think that the actions that have taken, not only as a reaction to COVID-19, but from the beginning of the year onwards, brings us in a position that, actually, going forward, the credit portfolio improves and which makes us pretty comfortable that we are in a good shape with regard to credit risk management going forward. Essentially, this could be read without promising too much going into the future, but this could be read in a way that this looks like credit quality is essentially going up.Action area number three, cost reduction. Now there are 2 messages I would like to bring across. The overall objective is to create a leaner organization. And the chart on the right-hand side shows you the development of headcount over -- essentially taking or including first half year 2020 over the last 3 years. What you see here is basically a clear upward sloping trend over the period from mid-2017 to 2018. Then a period till essentially mid-Q3 2019 with a flat development and as early as essentially second half of 2019, we have started reducing headcount significantly, and that is one element of the cost reduction plan we are undergoing. So this is not a reaction to COVID-19. What COVID-19 actually does to that is rather an accelerator of the cost reduction we are executing on already. In terms of numbers in Q1, in comparison 2020 in comparison to Q1 2019, personnel expenses are down some 6%. We are working on further reducing headcount substantially. And going forward, we anticipate an annualized cost impact on a full year basis of roughly EUR 6 million to [ now ] EUR 7 million.Operational expenses, same logic, so essentially initiated in the second half of 2019. Obviously, as you know, cost reduction activities sometimes come with a delay, but it's important to bring across the message that we've been working on that for a while now and essentially are not excluding any area. And what specifically this means to the cost reduction program on operational expenses is around review of all service providers. It is essentially equivalent to cutting back on all administrative expenses. We are reviewing the group structure, so we are eliminating organizational overlapping areas. And most importantly, we are accelerating on our path to automation in key processes throughout the organization.Jorma, if you agree, I would hand over to you again.
Good. Thanks, Bernd. I think that was a really, really good summary of our business. And I think I want to thank everybody to listening our -- or participation our earning call. And I still want to summarize the key takeaways, what we, as a management, want to share with you on the -- during this call.So the first one, management have done the strong actions to improve our business, like you can see. Customers -- the second one, the customers are pay in time, and we have to see -- or if you look this careful than what Bernd presentation, it's even improvement the payment behavior. So we can say that our portfolio of quality have improved during this year, during this COVID time. The third one, Ferratum have a very strong liquidity and balance sheet structures. We have a -- we can survive at a very long time on -- with our very strong liquidity and equity position. And then the fourth one, that management are currently working the post-pandemic growth elements, and we see the lots of opportunities behind there. And our thinking process is -- it's very clear that the winners on this type of the situation is who come out on this type of pandemic the fastest and most efficient and capturing the new customer segment and take a bigger market position. And that's the way how we look in the future and the Ferratum today.Okay. That's it from the -- our side. So I think we are happy to take the all questions, and we can see that there is a -- lots of different questions are coming on the -- through the Q&A box. Shall we just start to go through those questions from here? Or should we take a call -- on-call questions, first?
[Operator Instructions] And there seems to be no audio questions. So I will hand it back to you for the questions from the web. Please go ahead.
Okay. Good. Thanks, everybody, and let's start to take questions from the -- here, the Q&A box. There's -- the first question is coming from the -- [ Stephan Hirschauer ]. And the question is, what is the reason for the increase of 22% in other operating expenses?Bernd, do you want to take? Or do you want to...
Yes, yes. No, no, I will take that. And in doing so, maybe put it a little bit into perspective since I would like to make sure that this is not in contradiction with the overall ambition, actually, overall process of reducing expenses. So from an overall expenses, the cost level has reduced quite significantly already in Q1 2020 compared to the previous year, more than 7%. There's some areas where the cost reduction is pretty well advanced. There are some areas in which we're essentially on the road of getting there. Essentially, what it means is we've reduced personnel expenses. We have substantially reduced, over the last couple of weeks, obviously, selling-related expenses and also marketing expenses. We've reduced the lending expenses, essentially, also, administrative expenses. Other operating expenses is essentially baskets for everything else, which went up by a little bit more than EUR 1 million in Q1. That is essentially driven by 3 factors. One is external services that we need from IT perspective that are reflected in other expenses. Secondly, project-related costs. So we're doing quite a bit in order to make sure that once we're approaching a situation where we feel comfortable to be more active with lending activities as, for instance, bringing a prime product to the market in Sweden, for instance, Germany, for instance, related to the mobile wallet. So those project-related costs are -- part of that is in there.Thirdly, during this crisis, this means a lot of regulatory and legal uncertainty in a way, which per se is not an issue, but we need to make sure that we very well understand the regulatory changes and the upcoming regulatory changes and the technical implementation of those. So there's also component related to external services around that, so legal fees, but also audit fees that have been reflected in the first quarter and not so much accruals over the full year in 2020. So that is essentially driving the operational expenses. The other operating expenses, up a bit. But again, putting that into perspective, it is an increase of roughly EUR 1.4 million in disposition, and the overall cost development is a cost -- a substantial cost reduction.
Okay. Thanks, Bernd. Then, we have a second question, comes from -- I just read those on the time order. So there is second question from [ Andreas Cooke ]. Is the payment behavior also very robust in Q2? Bernd?
Yes. Yes, it is. So the chart -- allow me to quickly go back to the chart essentially. So the period that we showed here, and really, actually, this -- deliberately decided to not only restrict the information, limit the information here on Q2, but also give more up-to-date information, both with regards to payment behavior and also liquidity and cash, as those are, obviously, extremely important for us. And by the way, we are managing that on a daily basis. So we have a number of key KPIs that we are observing and monitoring on a daily basis up to the management team. So we do have daily review sessions on those and have a very close eye or a number of pairs of eyes very closely on those. So yes, this statement that the overall payment behavior is still robust -- or is robust, I don't want to say still robust, is robust, is valued up until essentially today.
And I think it's a very -- if I just add here with just a few word. I think it's a -- we can practically see that all our countries are -- like you can see that the [ 70 BD ] was a really good early indicator for our real end-of-the-payment behavior, it's really robust, and still in the Q2 is robust.In some countries where we have seen in the likely worsening payment behavior because this is at group level. So we have a few countries where I see the likely worsening. Nothing alarming or nothing very dramatical in this so far, but we have seen just a small decreasing in the payment behavior in the few countries. And that -- but in the same time, we have seen that in the few countries, it actually improved the significant payment as well. So it's -- and that's the reason why it's interesting in the group level, this combined numbers is improvement during this -- during the last quarter, and it looks like this quarter as well.Okay. Let's jump to next question. Next question comes from Philipp Häßler. He have actually 6 questions. So maybe we do it in the way that I read one, and then we answer that one, and then we read the second one. Is that okay for you?
Okay for me, absolutely.
So on risk provision, do you expect an ultra negative impact from model parameters adjustment in Q2?
Do you want me to take that?
Please, please, Bernd. Maybe -- yes, it's better if you take it.
Okay. Well first of all, it's very difficult to say anything on this development going forward. Now on a general level, there are 2 or 3 elements we have to take into consideration. Element number one is what is actually relevant. Is a forward-looking period of just a couple of months not really so relevant? Or isn't it just -- also justifies to actually observe, at least, for a longer maturity product on a little bit longer horizon than just the remainder of the...Secondly, we need to understand -- and we're working on that, and this is not something that is typical for Ferratum. This is something that, I think, finds a lot of resources with the big 4, with the European Central Bank and others. What's the value actually of macroeconomic models in a situation where some of those parameters change in a disruptive manner? Does it actually make sense to just apply those models mechanically? Or does it make sense to apply managerial judgment? In the meantime, it is very clear, both from the perspective of the European -- very brief on that, just to put it in perspective. The European Central Bank, also IFRS committee, have the view that, essentially, the strict mechanical implementation of models developed for a less disruptive time is not the right way forward. So we will need to come out with management judgment over the next couple of weeks, and we're working on separate models to understand all dynamics better. From today's perspective, so from what happened between the end of Q1 and today, payment behavior, we've said that has not changed substantially. We will need to sort out what's the potential impact going forward could be. So from that perspective, I feel a little bit hesitant to say something about that in a forward-looking way, but definitely, this is something where also our judgment will come into play, whether or not we actually think that payment behavior and, hence, probability of default is actually going to be worse in the future, driven by those macroeconomic factors or not.
Good. Good. Then, the second question from Philipp, is the revenue expectation for Q2, can we expect a decline quarter-to-quarter?
Yes. I mean, if I may take that. As we have not given a guidance so far, especially -- and also, in last, we've not given a guidance on revenue, that is -- and obviously, it's also forward looking, it's hard to answer that at this stage. It is not that really the focus. So we're not managing predominantly for revenue development. What we are doing and what we are considering, obviously, is when is the right point in time to increase lending activities, in what areas, to make sure that a drop in revenue can be kept as short as possible. That is what we are currently focusing on.I don't know, Jorma, would you like to add something to that?
No, I think it's -- I think it was good answer. I think it's really hard, and it's really hard to forecast. I think what we know, what is the fact, with fact is that when that our payment behavior is really strong. The fact is that when that we -- our portfolio of quality has improved better and better. The fact is that when we have a cash position to go to market and start to doing the lending. But in the same time, we want to look a very -- we want to -- we don't -- we want to pour that good portfolio in our balance sheet during this COVID pandemic. We want to understand a little bit more dynamic in the different countries from the regulatory point of view, from the social security system point of view, the -- how this will be -- because this playing the big role into some countries as well, that the countries where you don't have a social security system or the system is very weak, and if people get to unemployment for the -- due the COVID-19 reason, it's very hard to fulfill in the liabilities then and then. So we want to be the very, very cautious. And of course, so we want to find the best customer segment, and we want to find those into good way -- to good cost per new customer point of view as well. So we don't want to overpay the -- just to go to selling those some segments. So we want to find the right segment, right price, and we're working currently to plan how we can accelerate our growth on the post-pandemic. And -- but what is exactly the short term revenue? It's really hard to go to publicly commitment some numbers there. Then, the third question from Philipp is, could you please update us how NPLs have developed quarter-to-date via, example, April, May? And what you expect to remain of the year?
On that -- my answer to that would be, we don't have substantial issue with the NPL development. We have some or had some issues, obviously, where we were not entirely satisfied or not satisfied with the quality of the loan book. And especially, we've talked about Poland. I mean, we've made a decision, which was not an easy one, but we have made a clear decision earlier this year to put that on hold -- lending activities on hold for the time being. Other than that, I would rather like to talk about the parameters that we see currently. So the [ NPL ] looks good. I have, prior to this call, received an update from Clemens Krause actually on the probability of default, which also shows a good pattern for both the consumer lending business and the SME business. So happy to give an update in Q2 on the first 6 months in more detail.
Okay. And then, we have a -- then, we have next question. You have achieved strong deposit growth in Q1, which I think is very positive development. Can you please give us some additional detail on the structure of your deposit? Example, how much are term deposit 3 months, 6 months, 12 months?
Yes. I'm not sure I want to give specific percentages, but I can give, I guess, quite a lot of useful information to that. So up until recently, the longest maturity was 12 months. So essentially, there was no term deposits in excess of 12 months. And the majority of -- or the biggest part of the volume was rather the short term. So what the objective that we have defined for ourselves was essentially to implement new products, a 24-month and 36-month, despite the fact, by the way, that we've been advising -- received feedback from the market that nobody in such a period will be interested in placing funds in a 12-, 24- and 36-month product, which currently is not the case. So we've seen really interesting and satisfying inflows. What I can say is that the target to essentially double the proportion of deposits with a residual maturity of more than 9 months within essentially a couple of weeks, so by the end of April, we have achieved that. So within a couple of weeks, we've implemented new products and essentially doubled the proportion of funds in the bracket 9 months, top.
Okay. And then, we have Philipp and the last question. Or sorry, there's 2 questions more intended. And so, the question is, are there any countries where you sell loans with the credit insulation? And if yes, could you please give us the proportion of the loans protected by credit insulation?This is not very -- this is a very common product for the low-yield consumer lending product. And those product, we offer the customer payment protection insulation as well in a few countries. But in the mid-range product like a Credit Limit type of the product, what is the main part of our portfolio, this payment protection insulation is not really common, and that's the reason why we don't offer this on the customers -- we don't have offer this to our customers.There is a lot of, of course, coming to question for the customers related to that one, not a lot, but some. And we are currently in the thinking process to add this product onto some of our product. And -- but currently, we don't -- we cannot give the more detailed proportion there. I have to say that in -- social security systems are practically named for Credit Limit type of product. Very similar role -- it's when unemployment -- if unemployment is increased, then the question is quite often that what's happened for the people cash flow. And like we can now see that the many of our countries, the unemployment ratio have increased to significant, but still, the cash flow have staying or even improved there. So this really, really important protection for the Ferratum point of view.And the last question, Philipp, regulatory change in Finland. Can you please update us on the impact on your business and how you have reacted? Maybe you can tell us how much of your Q1 revenues were generated in the Finland?Maybe I will be -- if you'd -- point of mind, I will predict just a general answer to that one. We don't have the country level numbers or the subsidiary numbers or the local entity numbers. However, in the Finland, it's important country for us. It's -- and we can see that during this COVID-19 time, the payment behavior improvement there. The demand have a little bit decreased in the Finland. It's due the reason this lockdown, that people are not -- people don't need the cash so much because they don't know where they can spend this money. And what's coming from this legal change, the Finnish government have a proposal for the temporary interest rate cap, from decrease the interest rate cap from 20% to 10%. What's really funny, I have to say that it's only impact in the online lending products or -- and not in the credit cards. What's a little bit funny on my point of view, in the person's point of view because the -- [ acumen ], what they use, there is -- that the people have during the corona time and when people have a challenge, that the interest rate is a little bit lower. And it's impact only on the new lending. It's -- or the law have a proposed it on the way that it's impact only the new loans, not the old portfolio. So it's only impact on the new lending. And Credit Limit type of the product is impacting in the new withdrawable as well.What we have done, we have this technical change we have implement our systems. And we expect that it's coming on the place in the sooner. But now, we can see that the political, it was stuck in -- on the -- during the political process because they find out that this is not maybe really, really working, this law, how they expect that it will be working. But I agree, in personal level. And now it's back to Minister of Justice, and we don't know when it's coming on the valid. But the law is kind of to decrease the interest rates cap from 20% to 10% from the from the end of the year, end of 2020, and it's not -- it's impact consumer lendings, what is the direct consumer lendings, and not, the example, the credit cards, what are the very popular industry in the Finland as well. But it's a very unsure that is -- this law is coming valid still. I don't want to guessing that one. But for us, we have preparation to doing those necessary change there. And the impact for us, it's hard to go to give the exactly numbers in this call now because we don't know exactly what is the final drafting on the law there. Good. Then, we jump to next question, what comes from [ Froisland Miloyd ]. Thank you for the detailed collection, credit quality data. Couple of the question. If I may, the EBIT is down adjustment basis as well, adjusting for the COVID-19 impairment. Can you, please, comment on this? What drove underlying performance down?
Yes. And essentially, EBIT is negative EUR 2.3 million. EUR 7.8 million COVID-19-related impairment. So adjusted EBIT would be EUR 5.5 million plus. Or essentially, there are 2, 3 elements to that. One, obviously, less revenue has an impact on EBIT. So that is a matter of fact, which is also related to the discontinuation of countries to a certain extent, and of course, COVID-19. Secondly, credit quality, and I'm not talking about Credit Limit. I'm not talking about SME. But obviously, the still existing books where we actually have cut back and do not see much revenue coming in, but still have an impact on credit losses, essentially, has a negative impact on EBIT, even in a situation where actually the credit quality parameters currently look good. So that's the second reason. The third one, which is actually not explaining why it's going down, but gives -- going forward, as I said, where we're working on further cost reduction, essentially, in a situation where we are in the process of reducing costs, we do not see the full impact yet. So these are the 3 components that are -- that raised to that. Number four, maybe, we have a couple of product initiatives that we are currently preparing, we're working on, that, ideally, we'll be in revenue generation mode soon but have not contributed much. But of course, the preparation of rollout cost as well in that respect then, for instance, we're a little bit more cautious in rolling out and preparing the rollout for Primeloan products. We're one step further on that. And all these activities need to be prepared also in the phase where we actually don't do much yet, but we need to make sure that we are ready very quickly. So those are the 4 elements that I would see, with the expectation, clearly, that this will turn into revenue accretive initiatives going forward in the short term.
Okay. Then, we have next question. You have a runway of around EUR 24 million of losses before equity drops below EUR 94 million, taking the net taking the net debt-to-equity ratio above 3.5 up -- above that runway.
Yes. Do you want me to take that?
I think, it doesn't matter. I think the answer is pretty short here. It's -- I think, it's -- we feel very comfortable. I think, I just want to repeat that in the -- so far, what we can see during this COVID-19 things is payment behavior have improved. Our portfolio, the quality have improved. Our cost per new customers have increased. So it's -- our underlying business parameters, we have reduced the cost base quite significant. It's -- the headcount had decreased to more than 150 people during this year. I think it's -- we are very optimistic on the future, on the way that net debt equity are not the parameters, what we should be worried about in the near future.Then, the next question, without committing to basically guidance, do you roughly budget with a positive or negative return of investment for this year?It's very hard to give the -- exactly the guidance on this year. It's -- on that point of view, I don't know, Bernd, do you want to just comment to that some way? Or...
Well in a similar way, the -- we have some elements in the last couple of weeks that, from our perspective, have developed not as badly as expected as they could have, maybe. Still, it's a little bit too early to tell. And of course, you would have like to give a guidance earlier this year. Now we are in the middle of dealing with the challenges that we have. I guess, from that perspective, we are on a good track, but I feel it's a little bit too early to really comment on that.
Okay. And then, it's next question. Can you elaboration on the provision model? How much weight do forward-looking variables forecast have versus actual reported data? What is the latest data incorporated in the model in terms of time and GDP, unemployment forecast?Bernd, do you want to give...
Yes. Yes, I can try to give on that one, that -- essentially, we have to differentiate 2 factors here. One is the COVID-19-related impairment and the other one is the standard risk management process, which essentially defines the level of impairments, which are still forward-looking, but they are predominantly based on factual data. So what it means is, in existing markets, basically all data -- yesterday's data, flow into the calculation of the key parameters that essentially then expect -- define the expected credit losses, so obviously, loss given default, obviously, probability of default. This is -- these are parameters that are analyzed and updated essentially on a daily basis for the existing markets. This is, of course, more difficult when we talk about entry in new markets where data is simply not available, but that is currently not really a key issue. And then, we have essentially the issue of the COVID-19-related macroeconomic topic.And also, taking into consideration your question on employment -- unemployment forecast and the time and GDP unemployment forecast. So currently, what we are doing is we're using external data, in our case, Oxford Analytica and other data sources. We are feeding that into an existing forecasting model, feeding that into a reworked version to understand the implications. So that is actually changing, and this is really calibrated currently. So I think going into more detail on that would be a little bit lengthy process at this stage. But the key differentiator is for a standard business, for the ongoing business, all plays to flow into the valuation for the assessment of the COVID-19 impact. It's pure forward-looking data that we feed into a model.
Okay. Then, the last question, you did not elaboration on marketing cost. Are there acquisition cost where customer still lower than their margin for SME and the Credit Limit product?Short answer is yes. Our customer lifetime value is positive still, and that's a very important driver for us. And we expect that post-COVID, this -- we will see the even improvement from that part.Okay. Then, we come back to next question or the next person, it's [ Lutz Rittmeier ]. Why are financing costs going up, Q1 2019 versus Q1 2020, while at the same time, more funding is done via bank deposit? I expect deposit to have lower interest compared to bonds or market refinancing.
Yes. Yes to the second question. Obviously, deposits have substantially lower interest rate level than the bonds. So the interest rate level of our bonds is 5.5% for the 2 still existing bonds and used to be 6.25% for the bank bond. And that is also basically the explanation. So in the first quarter 2020, we had 2 group bonds outstanding, EUR 180 million, plus the EUR 40 million of the bank bond, so essentially, the largest proportion or volume of bonds outstanding. Whereas in Q1 2019, this was essentially prior to the issuing of the 2023 bonds, so the debt related to bond was considerably lower in 2019 than in 2020. And there's a second element, which actually contributed a little less than I had expected. We have a P&L of EUR 1.6 million impact of foreign exchange fluctuations, which is slightly higher than in 2019. But totally agree, the higher the degree of the percentage of funding we'll be able to use deposit funding, the lower the financing cost will be.
Yes. Okay. Then, there's a next question from [ Matthias Dominikus ]. Dear all, can you give a little bit of color with respect to the regulatory requirements regarding your banking license, example, the MREL, liquidity coverage ratio or [ NCSR ] and the current over fulfillment to these key figures? Best regard, [ Matthias Dominikus ]. Probably then, they're against management. Sorry. Sorry, my Chairman, it's still the rough -- I try to learn.But I think maybe we can do in this -- we don't have a historical reporting, the banking regulatory parameters, like example, liquidity coverage ratio or CET1 ratio or things like that on parameters. On the -- so far, I think we are very comfortable with those in the general level. And we can speak with the [ Fed ], and maybe future, we can look what type of the data we are capable to start reporting on the quarter base in our -- for our investors as well. In technical, it's data. Data is there. I mean, we're reporting every day and every month and every quarter to central bank. So it's -- that's not the point. But let us think about the data packets, what we are comfortable to share, and we will come back to this question later.Good. Then, we have, I think, this last question under my list, [ Robert Stoeckel ]. How have your thoughts concerning dividends payment have developed in the last weeks?Oh, this is a tough question. I think it's a very, very, very, very tough question. It's where I feel a little bit uncomfortable to keep the very some of you over here. I mean, my thinking process was general on the -- it was a long conversation on our Board meeting and with our Board related -- the team on the last year, the bonus paid out, example. And we practically -- we know that based in the -- our bonus model, the management team was earned a bonus. They did not get the full bonus, but they get a okay bonus. And based in that one, our Board, we decide to postpone all paid out in the few months because we didn't want to pay out this. And immediately, we want to understand that through -- COVID-19 impact for us. And when the Board was 100% sure that the cash flow is under place, and the company are -- this is not doing any harm for the company to pay the management 2019 bonus, then we decided to do in the payments there. What's coming from the dividends is a little bit similar logic that is related for the last year, not in this year. I think it's -- on the other hand, my personal view that we should pay the dividends from the last year. But still, in the other hands, before we can report into everything, it's a rock-solid equity point of view. It's -- feel a little bit uncomfortable. So I have to say that, that -- there's 2 different view, and I don't have a very strong personal view of that today. We have a proposal to our AGM in the end of the June. So I understand that until that, we have to decide that one. And of course, we have always opportunity. If the Board and the management, we are not comfortable to propose on that one, we have always 2 different options there. And where the one option is that when that we make the AGM the decision that we pay the dividends, but we delay the payments on the later on when we see that things are more solid and stable. Or we just don't pay the dividends, and then we -- if we want to later on this year, we can always take a new AGM and make a new decision there. And so this is the technical solution, what options we have in there. But my thought process, it's a little bit -- 2 different filter, and I don't have a strong opinion today. That's a good question, Robert. This is really good question.Okay, looks like our Q&A box is empty and looks like we are the 11 over the time as well. It's taken 1 hour, 11 minutes. I'm very sorry that it takes so a little bit over time. But I think it's behalf of the whole Ferratum team and our people, we want to thanks for your attention, our Q1 earning call. And let's stay in touch. And if there's any question, you are always welcome to connected with the Bernd Egger or myself, and we are happy to share the information for you. Good. Thanks, everybody, your time, and let's keep in touch.
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