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Good morning. Welcome to the Ferratum Q1 2021 Earnings Call. [Operator Instructions]I would now like to hand over to Jorma Jokela, CEO; and Bernd Egger, CFO. Please begin your meeting.
Great. Good morning, everybody. And nice to see so many people participation Ferratum Q1 2021 Earnings Call. We are very pleased to organize this call and go through with you in our first quarter on this year. But before we start to do that, one, we have -- today, there's some amazing news for you. And those news are based in our rebranding and our restructuring, what we have done during the Q1. The group went through the first quarter, we have rebranded the previous segment, the Microloan, PlusLoan, Credit Limit, CapitalBox and Mobile Wallet, naturally include the Primeloan as well. And new introduced segment and brand within the group or call it -- or call it, Ferratum, CapitalBox and SweepBank. According to new strategy, the group business unit will gain a much more independent role and will consequently be even more closely with customer and align with the customer needs. Naturally, we will be running those all independent business as a tribe and with agile philosophy.The group will concentrate to business-critical operation and [ offer ] to different things and deliver to greater economic scale. The group will remain as [ in author ] or the platform as we like to call that one and for the -- each of those 3 different business units. Prime lending and Mobile Wallet has now been rebranded through the Q1 as a SweepBank. And this brand is very clear customer focus, sustainable, clean mobile banking with the planned financial need and focus to make a customer life easier.The brand Ferratum is reserved only for the Near Prime lending purpose.Great. So this is something I made in years, and I want to starting to say that yesterday evening, the Ferratum Group Board have had a Board meeting, where we have agreed to proposal for set up the Extraordinary General Meeting, the 10th of June, to change the Ferratum group name as a Multitude name.And now I jump to Slide #3, what is the one of the my first slide and the Multitude, how we describe from this our new proposal group name is a brand reflects the total variety of our business, different group units and our wide know-how for the digital financial solutions.This proposed new structure and the brand structure and the business structure is, looking at Slide 4, you can see where the Multitude is proposed as a group structure, group name, group brand. And then we have Ferratum as being the Near Prime -- focused only for the Near Prime lending; SweepBank for the digital banking Wallet platform and Primeloan; and the CapitalBox staying our SME lending and SME customer segment focus over there. What is the most important? I think, today, I want to invite you all to hear more about our -- each of those 3 business strategy travesties and naturally, the Multitude strategy on our next Capital Markets Day on the 8th of June this year. So that's something what I really want to start in our earning calls today. So we have been doing the amazing -- our organization are doing an amazing job to go through this transformation. And I'm so proud of our team, what they have done, and I'm so hungry to see the future where this new part will be driving us.Great. But that's something that I want to start. And now I want to go to more then to Q1. So I jump on Slide #5. And Ferratum group, we have exactly the 16 years track record of deliver the profitability growth. We operate today to 19 countries. Ferratum businesses brings 86% of our total revenues today; CapitalBox, 11%; and SweepBank, 3%. And that's a little bit historical call, by the way, on the way that we will retire our old segment report from the -- during the first half of this year as well. And that's the reason why we have going to present at this as like a new segment as well these is all 3 business units. But like I say, we want to talk about Capital Markets Day more, and I really want to invite all of you to coming there. Related to Q1, we have 4 key takeaways. The first one is that COVID-19 is -- and especially the lockdowns, they are impacting in the loan demand on the Q1. We can see that especially on the countries where the lockdown have been much stronger that the loan demand has been the lower -- a little bit lower than in the countries where the lockdown not has been so strong. However, it's interesting to see that countries where it's not have been so strong lockdown, the lending business have started growing pretty nicely. And those countries that will have been stronger lockdown, we have seen a little bit less demand on the loan side. And this is related from the consumer and SME part, both type of the customer segment. The second key takeaway is that we have a great Q1 from the every point of view. It's a very solid starting point. The third one is we have launching the SweepBank as the really fast-growing position immediately with a 79% year-to-year growth delivery.And then the last one, the fourth one, that over the last call, objective related this year and we have really strongly executed all of those elements. I will go through those later.Q1, EUR 52 million of revenue, 21% down comparison to the last year. Of course, in my point of view, it's important to understand that we don't really comparison here to apple-and-apple due to the reason that over the half of this delta between the last year and this year is coming from the discontinued lending activity in the several markets. So we don't have a same country base there what we look in there. The second one, what is, of course, important to understand that when we comparison now the Q1 on the last year, that was the all-time best quarter for us on the many way. And that's the reason why it's pretty hard to comparison from the post -- early post-COVID quarter with the pre-COVID, the all-time high quarter from the sales point of view. The EBIT, EUR 5.4 million, and net profit a little bit minus EUR 0.3 million.Good. When we look to SweepBank, we can see that SweepBank is today is offering to 4 different countries: Finland, Germany, Latvia and Sweden. Of course, the SweepBank is a device with the Mobile Wallet, and then what is operated in Latvia. And the second great news is that during the May, during the last few weeks, our team has executed the wallet on the life in the Finland. And that's really, really great because that's just so our capability and our organization capabilities deliver the fast rollout and the successful rollout especially there. The lending business is operating in Finland, German, Latvia and Sweden. We launched -- during the Q1, we launched this new brand. We have optimized our existing markets from the fine-tuning to acquisition channels and underwriting and pricing logic. We have preparation for the new market entry. And of course, we have increased our investment in marketing and in partnership to accelerate the growth. And the outcome from that, you can see on the left hand that we can really say strongly that in each month, we have delivered a really nice growth as a lending portfolio point of future, what's -- delivered the revenue on the later on.The group objectives on the 2021 to Slide #7, that was the point what we shared in the previous call. And we can really confident say that we are well track on those all points. So we have a very solid liquidity position. We have a very successful transformation to agile organization. That was been the big organization change, but we have organization a very successful transformation running through. We see that credit quality is remain the trade level on all our tribes. We have launched a new branding strategy with the SweepBank. And now we are processed to launching the Multitude.SweepBank is -- its performance really strongly, as you can see. The Ferratum segment, like the whole Near Prime segment, it's stable, and we can see the solid profitability behind there. And like I explanation, there was -- we have discounted a few countries on the -- over the last 12 months, and that's naturally impact there as well as like a growth point of view. But if you look underlying the business, you can see that it's a really solid position.And SME lending is back to growth position and especially the lending portfolio position, lending portfolio growth position. So I really want to thank our team. They have did a great job, and we have a great Q1, and we really look into further here. Bernd, maybe we can jump to financial numbers.
Yes. Absolutely. Good morning, everybody. My name is Bernd Egger, and I'm happy to run you through the Q1 2021 financial results.To start off with from an earnings before interest and tax perspective, as Jorma pointed out, positive at EUR 5.4 million. What are the key drivers behind that? That is, on the one hand side, a very strong performance when it comes to impairment. So the year-on-year impairments have improved massively during 2021 Q1. And that kind of offset the revenue development during Q1.Maybe one sentence on revenue, down to EUR 52 million compared to EUR 65.6 million last year. But as pointed out already, 50% of the drop in consumer lending-related revenue is related to the discontinuation of lending activities in some markets, which actually has paid off. So we will see that a little bit later when we talk about the product levels, the strategy to discontinue lending in a number of markets was 100% correct from a profitability perspective. Now in terms of impairments, we ended Q1 at a level of EUR 16.5 million, which compares to EUR 35.6 million in Q1 2020. You might recall that in Q1 2020, we had the EUR 7.8 million onetime impairment related to the expectation of macroeconomic variables would deteriorate, and hence, have a negative impact on payment behavior. This up until now has not proven to be correct. Nevertheless, we decided to go for a prudent approach and leave this impairment untouched for the time being. If we take out for comparison purposes the EUR 7.8 million, then from Q1 2020 to Q1 2021, we would still see a 40% decrease in impairment. So really very, very strong development when it comes to underwriting credit quality.The second driver behind the EBIT improvement is, and you are aware of that already, is our ambition to reduce cost significantly and maintain a lower cost base. We have reduced total expenses by EUR 2.7 million compared to the first quarter last year. Key driver is, on the one hand side, personnel expenses with a little bit more than EUR 1.5 million reduction, but also, other operational expenses were reduced quite significantly and held pretty much stable from Q4 2020.Now finally, when it comes to finance cost, also quite significant decrease from close to EUR 6 million decreased by EUR 1.2 million to EUR 4.8 million. What is describing that? That is, on the one hand side, the fact that we've decreased deposit interest rate quite significantly. So despite the fact that we've built up quite substantial cash from incurred deposits, we have saved on interest expenses; and secondly, we've reduced the foreign exchange cost also quite significantly. In terms of balance sheet, the key message is basically simple. The increased liquidity that we have incurred during Q1 enables the group to reactivate growth. Jorma has started talking about the growth that we have seen on the prime lending portfolio, the SweepBank. We've also seen portfolio increase in the SME business. And that essentially led to us building up cash from -- predominantly from deposits.Total assets up by 13% to EUR 768 million. Key drivers, as I said, is cash and cash equivalents, which basically is driven up by deposits, but also, we've increased the loan volume by EUR 27 million; net accounts receivables, up EUR 27 million in the first quarter, which stands for increased lending activities.Equity ratio at stable and solid 16.3%; and net debt equity ratio, pretty much on the same level as last year, up a little bit from 2.5 in at year-end 2020 now at 2.74. From a product perspective, we have continued to put emphasis on the longer-term products. That is essentially the Credit Limit product, also the lower-yield, lower-risk SME business. So we have not stopped giving out launch in the SME business. Actually, we have accelerated SME business also slightly during Q1. And obviously, the key driver behind net accounts receivable growth is the SweepBank, so the prime lending portfolio, which increased by 80% from last year and essentially tripled from mid-2020 to end of Q1 2021. Marketing expenses are about to normalize. Obviously, as we are going back to growth mode from a lending perspective, marketing and sales-related expenses are going up a bit as well. We have a very solid underwriting performance in all products. That is something I made reference earlier. We did see some challenges when it comes to credit quality in Microloan and especially PlusLoan. Those problems have increased significantly. So essentially, in terms of credit losses over net sales, we have cut those in half within the year in the PlusLoan. So that is essentially gives evidence to the statement that we have made earlier and also last year that the strategy to discontinue lending in some of those markets that we've mentioned in the past is correct. It makes a lot of sense from a profitability perspective. That means that the margins have improved in all 5 product levels: micro lending; plus lending, PlusLoan, Credit Limit; SME, CapitalBox; and finally, the Wallets and the Primeloan. This is, by the way, the last time that we show this slide. Going forward, starting from H1 2021, we will introduce a new segment reporting, which reflects the new strategy, the new brand logic that Jorma explained. So the segments will be identical to SweepBank, to Ferratum and to CapitalBox. So this is going to be the key difference, number one.And the second key difference is going to be that the cost allocation will be more accurate. We will move away from revenue share as the cost allocation key to more accurate, to more direct cost allocation, which is going to help investors a lot to understand the economic drivers and the economic success behind the 3 tribes going forward. So this is something that will be introduced with the H1 presentation. Lending volume, I've mentioned that already. I would also like to reflect that with these 2 graphs. So on the right-hand side, you see the portfolio size, what that means -- on a quarterly level. What that means is that we are approaching pre-COVID level. The portfolio structure has changed. I'll come to that in a minute. But portfolio levels are pretty much almost on the same level as pre-COVID.How did that happen? How have we managed to get there? Over the last 6 months prior to March, essentially, we've kept loan volumes pretty much stable. So you see an increase -- on the left-hand side is an increase from Q2 2020 onwards, Q2, Q3; then during the second half of Q3 and during Q4, we have maintained the loan disbursements pretty stable. And then in -- especially in March, we see a quite significant increase in loan disbursement. So we are -- the key message here is we are building up lending portfolios quite significantly.How are we doing that? The core focus over the last couple of weeks and essentially the last couple of months has been on the SweepBank. But that means we have increased the loan portfolio, the lending activities in the prime lending portfolio quite significantly. So whereas on the right-hand side, that is Q1 2020 data, the loan portfolio size was some moderate EUR 13.9 million, generating a little bit more than EUR 0.5 million, EUR 800,000 in revenues. We have essentially tripled the portfolio, close to EUR 45 million within 1 year. And now we are really starting still on a fairly low level, but the trajectory is really upward sloping a lot. We have generated EUR 1.5 million in revenue during Q1. And the intention, obviously, is to continue on that path and to convert the SweepBank not only into a strategic product but also into a true revenue generator going forward. Asset quality. This is a slide I've been showing over the last couple of quarters. Why? To put the asset quality into a broader perspective, not to focus only on what happened prior and around the COVID crisis and right after that. We think it's much, much more important to bring across the message that when it comes to underwriting, when it comes to asset quality, that we have a long -- mid- to long-term vision that we are implementing. We're improving the underwriting skills. We are focusing on lower-risk classes, and that is very successfully reflected in this chart, which basically shows the impairment losses on a quarterly basis over net accounts receivable. Now we are covering a period of a little bit more than 3 years already, and you see a clear downward trend. Obviously, downward trends in impairment losses over net accounts receivables means that the asset quality is going up quite significantly. Funding structure. Key message here is also something that I've tried to bring across in the past, but now we really start seeing results. The core strategy when it comes to funding, to debt funding is to maintain a balance funding mix but a very clear focus on strengthening deposit funding. Why? Obviously, the ambition is to increase the independence from one funding source. That is why we have been pushing deposit funding quite significantly; and secondly, obviously, cost.So on the lower left-hand side, you see the weighted average cost of debt funding, which increased -- sorry, which decreased quite significantly by roughly 1/3 from 2019 to Q1 2021. Why is it the case? Because we are pushing deposits quite significantly. Pretty much everything that needed to be done in order to get there has been completed successfully. So consolidation of the European consumer lending business essentially out of the bank, establishing access to deposit funding also for other businesses such as CapitalBox has all been completed successfully, and that enables us to bring down cost of debt funding quite significantly. Third statement that I would like to make when it comes to funding is that we have the intention -- or actually, we started the preparation for issuing a perpetual bond. Why are we planning to do that? The purpose is to bring in nondilutive equity. So we're interested in raising an instrument that really address primarily a cash need that we currently don't have, but it's rather supplement to support our equity base. So we are currently in the planning phase. If all goes well, the ambition is to do that still during Q2 but during Q3, the latest. The mechanics, obviously, will be that we are talking about EUR 30 million to EUR 50 million instruments. And we will most likely also offer the opportunity for existing bondholders to convert their holdings into the new instrument. With that, I hand over to you again, Jorma, on the summary and key takeaways.
Great. Great. Thanks, Bernd. So I just want to repeat those 4 key takeaway, what we want to leave for you today. So market condition, the related COVID-19, the lockdown had an impact in the slower the demand into some of those countries. However, there are some other countries, the same time, can see the nice growth as the demand. We have a solid start on this year, EBIT EUR 5.4 million; credit loss, very well under control. We have a strong execution related to our key objectives. We have launched our new group structure related with the Multitude and the SweepBank and the Ferratum and CapitalBox related to brand structure. And I think I still want to leave here the 1 extra takeaway. What is really important that I really want to thank and use this opportunity to thank those 113 Ferratum people who had a participation or matching share program, and they have put their own personal money and investment for the company buying the Ferratum shares there. And I really see this as like a strong commitment and what our people can see the position where we are today.Great. So that's it. That's the more or less in the how the Q1 was look, and I think we are ready to take a question.
[Operator Instructions] We've got no questions from the audio lines at the moment. So I'll hand back over to our speakers.
Great. So then we can start with the Q&A, a question from the Q&A box. So the first question is a related -- it's coming from [ Stefan Hirshofer ]. Actually, he has a few questions here. The first question, when we can expect the financial guidance for 2021 revenue and EBIT? Bernd, do you want to comment that one?
Yes. Absolutely. In general, the plan is to give financial guidance as part of the Capital Markets Day. That's obviously not the only reason for doing the Capital Markets Day, but also to help everybody to understand the strategic core ambitions going forward and also the branding logic a little bit better. And as part of that, the intention is to give a financial guidance on the 8th of June in the Capital Markets Day.
Great. And then [ Stefan ] had the second question, can you please comment on the perspective of -- for share investors? Share price is declining significant and not dividend size 2 years. What about share repurchasing program with this lower -- low share price?I think it's -- maybe I can comment, but shortly, Bernd, if you don't mind, it's -- I think that's true that we don't have a -- we didn't -- last year and this year, we did not pay the dividends. And we had in the report, we have a talk about or exploring the opportunity as the share repurchasing program. We did not have done any final decision there, but let's use on the -- let's say, on the way that we have exploring the opportunity, and we keep this as one of the tool what we can see in our toolbox. And I think this matching share topic is some way to create opportunity for us as our key people, 113 people to involve the -- those as our future growth as well and the share price increasing. So that's the way what I can comment at today. Okay. Unless, Bernd, you want to...
Yes, maybe add 1 sentence or 2. I'm totally with you on the answer for that from the perspective of 2 years, obviously, the share price is not where it used to be 2 years ago. However, it's not a linear process. So in the second half of -- from the second half of 2019, so basically from end of Q3, Q4 to February 2020, so right before the crisis kicked in, if I do recall it correctly, essentially, the share price almost doubled from 7% to 14%. Obviously, I do not have -- I'm not in a position to give a clear reason why this is the case. But I think it could have well to do with the fact that during 2019, we've actually managed to embark on a very cost-sensitive way of managing the organization plus met the financial guidance at the end of 2019 that we have given, plus have started to make progress in the prime lending in Q1.So from that -- my reading from that was that if we deliver on our promises, then there is quite some potential. Obviously, then the last 14 months, I would assume there was an impact from the crisis as well. But yes, that's just one additional comment I would like to make to the share price.
Yes. Good point. And [ Stefan ] have 2 more questions. Let's combine that one, and so we can go to other question. So I was negatively surprised by higher personnel costs in the Q1 versus Q4 in the last year. So EUR 8.6 million versus EUR 8.2 million. What is the reason behind? Second question, can you please comment on higher -- high income tax in Q1? I did not expect that as well. So Bernd, do you want to take those? Or do you want...
Yes, absolutely. Absolutely. Starting with personnel expenses. Now what we've been doing from end 2019 throughout the year 2020 is obviously to refocus the organization to create the structure that enables us to implement a very clear end-to-end responsibility for the 3 tribes and, at the same time, gradually but quite significantly and quickly move towards lower manual intervention, automated processes, improved processes and correspondingly reduce personnel expenses. I think we've been doing that quite successfully and reduced -- if you, for instance, compare Q1 2020 with Q1 2021, reduced from EUR 10 million to EUR 8.6 million, so by almost EUR 1.5 million.In comparison to Q4, there's a slight increase. That's correct, we need to take into consideration that now as we are focusing on restarting growth, bringing life new products in new markets, this requires some investments also into personnel. But the structure has changed. So we are not going back to a situational setup where we solve, I would say, process-related issues and problems with hiring people. But we have a clear focus when it comes to hiring people on market, on the end-to-end responsibility from a market perspective. That is the reason -- the main reason for a slight increase during Q1 compared to Q4. But still, we are on a considerably lower level than in the last year from the staff cost expenses perspective. Now to your second question on higher income tax in Q1 2020. There are essentially 3 reasons for that. Reason number one is corporate income tax in -- or accrued corporate income tax related to legal entities that operated positively during Q1. Reason number two is essentially German trade tax. That's an issue that we just have, which is not massive, but it is a cost factor. And the third one is related to depreciation or essentially a write-off of deferred tax assets. So we revalued some of the deferred tax assets. Related to tax loss carryforward, in more technical terms, we adjusted the likelihood that we attach to us being in a position to utilize tax loss carryforward in the future in some jurisdictions.
Great. Then we have the next question comes from [ Philippe Wieland ]. Is the macroeconomic reserve EUR 7.8 million still available after Q1? Or was it used partly? Second question, while the lending volume is level of Q4 2019, the revenue is significantly lower. Could you please explain the reason for that? Both question comes from [ Philippe Wieland ]. Bernd, do you want to take that one? Or should I? Yes. Okay. Go ahead.
So I started just to [indiscernible]. So the first question, the macroeconomic reserves, EUR 7.8 million is still available. Yes, that is still available. We have not used it yet. What we will be doing also at the end of H1 is basically 2 things: reevaluate and reassess the macroeconomic forecast with an old model but also with a new model that, in parallel, we are introducing. And at that point in time, we will reevaluate also the EUR 7.8 million impairment that is currently still on the books and will be reassessed at the end of Q2. And the -- which, by the way, the reason for that is, I know that, obviously, the -- we see some positive signs. We see that now after 6 months of lockdown, the number of new infections are going down. We see the impact from vaccination. Obviously, it could be fair to assume that going forward, the also macroeconomic variables look better. I don't think that this would be an unfair assumption to make. So there might well be a potential, yes, to see a little bit of an upside going forward. Now when it comes to the second question, the lending volume on the level of Q4 revenue is significantly lower. Could you explain the reason for that? There are 2 reasons for that. One is during Q -- during 2019, we basically had a fairly high level of net accounts receivables throughout the whole Q4, whereas during in Q1 2020 we're in the process of building up portfolio, which means that, on average, those books are on the balance sheet for a shorter period of time, generating less revenue. So there's a time lag effect that we need to take into consideration. But as you rightfully said, we are almost there from a portfolio perspective. And the reason number two, which is also, to a certain extent, reflected in the excellent underwriting and credit loss performance, is that we have a very clear focus throughout the last couple of quarters, essentially, to focus on higher customer lifetime value, which also means both for CapitalBox and also for consumer lending, especially for the SweepBank brand to focus on high credit quality, lower-risk classes, which also comes with a slightly lower yield. So that is the second reason for that.
Right. Okay. Then the next question come in Mr. [indiscernible]
[indiscernible]
Yes. Sorry, my pronounce. Regarding share is a big program. Do I understand it right? You will be double the number of the shares of the employees, both on 1st April when they are vested.And short answer is, yes, the structure how it's working, the matching program, what we have launched for our people. So people have a 2x per year, they have opportunity to port Ferratum shares. And after 2 years, when they port those shares, after 2 years, after the short-term conditions, very basic conditions, the vested term is 2 years. So after 2 years, if people are in the -- working for Ferratum and they can list their shares, and they get the 1 extra shares against the all share what -- 1 share what they have a port on the 2 years earlier. Good. So that's a more or less traction. So people have the opportunity to port 2x times per year, and it's a port time is around 5% of the yearly salary, what they have opportunities. So it's a limited amount of their -- and then they have a total amount of the shares per year. What is coming, it's coming from around the 10% what they have -- what they can buy -- what they can invest in Ferratum shares over the year. Good. Then we have the next question is coming the [ Philippe Wieland ]. Do you plan to break down the guidance to the new business segment? Bernd?
Well, first of all, I don't think that we want to preempt the Capital Markets Day entirety. But obviously, as we are changing the structure, as we are making very clear statements that we want to grow in all those 3 segments, we will definitely focus not only on the big picture but go into more detail on the tribe level. And when we go on a tribe level, we -- I think we will aim at giving some objectives and targets for those tribes as well. To what extent there will be a qualitative nature and to what extent there will be of constitute financial nature, this is something I would like to ask you for a little bit patience on that. But definitely, we will make a statement what it is that we want to achieve with all 3 tribes.
Okay. Good. And I think we want to thank all of you for your attention and interest in -- for the Ferratum group or the future as we would like to call us the Multitude group. And I hope we will see the lots of people, the participation, 8th of June, our Capital Markets Day, when we really want to go more deeper in our strategy and the brand strategy, each of our 3 tribes and the group level naturally as well.So really big thanks for your time, and thanks for the Ferratum team, and let's go further. And the registration to Capital Markets Day will open on the next Monday. So you can start registration during the -- only on the next Monday.Good. Really big thanks, everybody, and see you soon.