Multitude SE

XETRA:FRU

Earnings Call Transcript 2024-Q1

[Operator]

Good morning, and welcome to the Multitude's 2024 Q1 Results Earnings Call. Today, we will hear presentation regarding 2024 Q1 results by CEO, Jorma Jokela; and CFO, Bernd Egger. We also have Chief Strategy and IR officer, Lasse Makela, available in the call. [Operator Instructions]I would now like to hand over to Multitude's CEO, Jorma Jokela. Please go ahead, Jorma.

[Jorma Jokela, executive]

Good. Thanks, [ Sara ], and good morning, everybody. Nice to see all of you over here. My name is Jorma Jokela. I'm the CEO and the Founder of Multitude. And today, I will take you through the Multitude preliminary result for the first 3 months of 2024 along with my colleague, our CFO, Mr. Bernd Egger.Good. Today, we want to leave all of you with 5 key takeaways: the first one, our call is -- the first one that we achieved an 18.3% growth in revenue; the second, we achieved 31% growth in EBIT; third, we confirm our EBIT guidance, EUR 67.5 million; fourth, the CapitalBox tribe acquiring a digital factoring business of Omniveta; and lastly, the Multitude Board of Directors decided yesterday to launch a share buyback program.Good. But before we jump to Q1 information, let's take a short recap on the [ Multitude ] -- who we are and what we're doing. So we hold an impressive 19 years track record of establishing a successful and profitable global FinTech, focused on helping customers who are overlooked by traditional banks with amazing and fully digital customer experience, originating from Scandinavia and Finland with a full EU-wide banking license and listing on the Frankfurt Stock Exchange in the prime standard. Today, our operation is across the 3 business units, or tribes, how we call them, collectively serving more than 400,000 customers across 16 countries with over 700 colleagues.Last year, we delivered around EUR 230 million revenue and EUR 16.4 million net profit.The Multitude people, our inspiration comes from our vision to change the world, building the most valuable financial platform, give amazing experience for customers who are often overlooked by other banks. We want to democratize financial service through digitalization, making them fast, easy and free. And this is where all our product logic and tribe logic plays as well. On FinTech's growth platform is built around the idea that Multitude serves as a core platform, supporting all our scalable components.Different business tribes benefit from this and can focus on improved customer experience and customer centricity. Currently, we have 3 business tribes on the platform: Ferratum, specializing on digital consumer banking; CapitalBox, focusing on digital SME banking; and our newest tribe targeting Wholesale banking customers under the Multitude Bank brand. SweepBank was integrated into Ferratum and CapitalBox as a product at the end of last year.On the Multitude platform, our focus is two-fold: enhancing scalability and constantly seeking new opportunities. So we are a very unique FinTech company, guided by ESG principles, and we have contributed in the growth and profitable [ signs ] [ to ] banking. We are confident in our business model, which has allowed us to meet our EBIT targets since 2021. And at the end of last year, we decided to go further and start guiding the net profit growth, not just EBIT. We have communicated our targets for the dividends payout ratio. And lastly, we communicated last year our dream to build EUR 1 billion valued company in 5 years' time.Good. Let's talk about the Multitude is doing in the Q1. So we have had amazing start to the year, with revenue [ growth ] over 18% and EBIT over 30%. This happened in a higher credit loss in some part of our business. And looking at the long-term, we can see that both EBIT and revenue have grown for multiple quarters in a row. For me as a person, this showed that our strategy and growth initiative are working really, really well. And I'm super proud that all our 3 business tribes have shown the strong double-digit growth in Q1, and this is very amazing news and big thanks going to all our people.The current market is strongly supporting our business initiative. Credit demand and payment behavior are solid, and digitalization and AI investment are driving us forward. The customer segments are entering on the market as well and our target addressable market is expanding as many banks struggle to serve their customers. We have been actively building the new embedded finance partnerships and exploring the acquisition opportunities. Those efforts take time and we don't want to rush them. However, at the beginning of this year, we closed the Omniveta acquisition, and strengthened our SME offering.Looking ahead, we have a clear focus. First, we aim to further improve scalability through multiple actions. Second, we are committed to deliver profitable growth through 3 main initiatives: organic growth; partnership; and acquisitions. And lastly, we are working to build a strategic value through our growth platform. Most importantly, we will confirm our EBIT guidance for 2024 aiming to deliver a EUR 67.5 million earnings before interest and tax, what is again around 50% growth from the previous year.Good. But let's jump to Ferratum and look a little bit closer in the Ferratum business. So same story. We have an amazing start of the year. Revenue increased by 12.9%, and EBIT by 51.3%, which is extraordinary strong performance. Our Q1 focus was improved to a credit risk management and collection performance and optimizing our digital marketing activities to acquiring quality application with lower cost. Marketing, risk and data science teams, those 3 teams together with external partners utilizing big data and latest AI tools improved our digital marketing bidding process with amazing results. We doubled the ROAS, return of advertising spend, in our [ piloted ] countries.In Q1, we completed most of the technical preparation needed -- onboarded our future embedded finance partners onto our platform to expand our partner and distribution network. This groundwork ensures seamless integration between our system and our partner system, allowing them to offer financial solutions to their end users.Looking ahead, we are focusing on integrating Sweep Mobile Bank in the Ferratum customer offering. We aim to push our profitable growth through organic growth, partnership and acquisitions. We will improve our scalability through automation, data, AI and risk initiatives. And our target addressable market is EUR 24.9 billion, and we only hold 2.3% share of that, giving us plenty of growth potential. We also confirm Ferratum 2024 targets of over 5% EBIT growth.Good. Let's dive into CapitalBox business. Over the past 2 years, CapitalBox has made a real turnaround and is back to profitable growth. During Q1, we focused on further accelerating growth initiative, and it paid off well with a 40% increase in revenue driven by organic growth. EBIT was minus EUR 1.5 million due to higher credit loss reserve, mainly driven strong portfolio growth and lower recoveries in some industries. We naturally adjusted our underwriting accordingly. We successfully expand our sales distribution channels, improve the digital marketing performance, scale our secured lending product and further automated customer process.Following our strategy initiative, we are exploring potential acquisition opportunities to expand our product offering or enter the new markets. We closed the acquisition of Omniveta, a Denmark-based digital factoring company with a strong team and technology, where actually our whole deal [indiscernible] [ Phase 2 ]. We want to welcome them to our family and plan to roll out a service and amazing digital platform for all our countries. We see the huge opportunity to improve SME banking digitalization. Our target market is EUR [ 14.8 ] billion, and we only have 1% of that. So we have a lot of room to grow.Looking ahead, we are focusing on integrating the Sweep Mobile Banking in the CapitalBox offering. We aim to boost profitable growth through organic growth, partnership and acquisitions with enhanced scalability through automation, data, AI and risk initiatives. We are aiming for EUR 10 million EBIT this year. We know it's a big challenge, but our team is dedicated to demonstrating our capability for our customers and our investors.Good. But let's look at our newest tribe, Wholesale banking, and this is the first time we are reporting it as an individual unit. The first 3 months have started really, really strong as well, with revenue and lending portfolio growth around 180% year-on-year, generating solid positive EBIT. The new Tribe CEO, Mr. Alain Nydegger, started in April and is leading this tribe and it's a strong specialist team. In Q1, we focused on building a high-quality customer pipeline for our secured debt and payment solution product through various marketing activities.In the Wholesale tribe, we have 2 main products. The first is secured debt where we offer a refinancing option for the non-bank lenders, fintechs and other selected customers. All lending is collateralized and we use the Multitude platform technology and data. Our second product is real-time payment solution for fintech, e-money companies and other banks that need a large number of the fast and efficient pure digital payments across the Europe in various currencies. Our Wholesale banking tribe focus going forward is accelerate growth initiatives, focus on smart risk and disciplined underwriting process and improve underwriting and scalability through automation, data, AI and risk innovation. Our goal is to achieve the strong profitable growth in this huge market, while maintaining very strong filters. We are finalizing our external targets, which will be published together with the H1 report.Good. But let's jump to look at the ESG part. So as part of our ESG program, we have set a goal for the ESG elements achieved by 2025. In Q1, we disclosed our Scope 2 and Scope 3 emissions and set very ambitious targets. For Scope 3 financed emission, we significantly improved our data quality. In SME lending, the improved data quality resulted in 84% of emission receiving a PCAF data quality score of 4, with the rest being the natural score of 5. In 2022, in the previous year, only 6% emission received a score of 4. So it's a huge improvement.In Q1, our eNPS score, customer happiness and responsible lending index remained strong. We implement a new all-employee shareholder program, where all eligible employees received 53 shares, a total of around 25,000 shares we distributed. With this initiative, we aim to align the interest of employees and shareholders and strengthen employee ownership and dedication.Regarding diversity, as the EU diverse demand is being celebrated, we are happy to highlight our progress. In the Q1, the share of female managers increased to 42%, up from 36% at the end of 2023. Several actions under CSRD preparation were already completed last year and preparation continued during Q1 and will continue through this year as well. In Q1, we further developed our ESG assessment tool in Wholesale banking to include additional asset class, our investment asset class there.Good. I want to thank everyone for this incredible start of this year, and I will hand over to Bernd for the Q1 financial performance. Thanks, everybody.

[Bernd Egger, executive]

Many thanks, Jorma. Good morning to you all, and many thanks for your interest in Multitude's earnings call covering Q1 results. My name is Bernd Egger. And as in the previous calls, I will run you through the numbers and I will present to you details on financial performance for the first quarter, key financial and balance sheet metrics, data on asset quality and credit losses, this is certainly something we will look at a little bit closer, an update on funding and cash, all of that in accordance with the reporting format introduced for 2023 and all of that also reflecting the fine-tuned segment structure, which represents the refined strategy of the group.Let us start off with P&L. As pointed out during the Capital Markets Day and also during the '23 result presentation exactly 2 months ago, we are now presenting primary financial statements in the format and structure that is commonly used in financial industry, so essentially for regulated fintechs. This is also the main reason for slightly restated quarterly results for '23, with no impact on the full year, by the way.Key messages on P&L for Q1 are as follows: financial performance is characterized essentially by very strong growth dynamic with some credit risk challenges in specific markets.Let's go into the details. I would like to summarize the performance metrics as follows. Net interest income, which is essentially equivalent to revenue in the historic format, is representing a significantly accelerated business dynamic, plus EUR 9.9 million, so plus almost EUR 10 million compared to Q1 last year. This is equivalent to a top line growth of 18.3%. Important to note and to understand, we have a very balanced growth driver structure. All 3 segments are growing at double where in the case of the Wholesale business even 3-digit growth rates.Gross interest income, obviously, interest expenses increased quite significantly compared to Q1 '23, but remained essentially on a similar level as in the second half '24, especially in Q4 '23, of course.Interest expenses are at roughly EUR 8.5 million, which is significantly higher than in Q1 '23, when we had around about EUR 4 million -- EUR 3.9 million interest expense, but this is offset by almost EUR 2 million, EUR 1.9 million to be precise lower FX hedging and foreign exchange cost in Q1 '24. Hence, total financial expenses in the entirety are on expected level and foreign exchange and hedging costs are actually below expected level.This results in net interest income of some EUR 55.6 million, which compares to EUR 50.3 million in '23. Gross interest income is growing by EUR 5.3 million -- in relative terms -- EUR 5.3 million. In relative terms, this is 10.5%. And after the FX results, the positive impact of which I've already explained, the net operating income for Q1 is EUR 55.5 million versus EUR 48.4 million Q1 '23, which is a very significant increase of EUR 7.12 million or almost 15% increase in net operating income.The conclusion on business dynamic and consequently on top line development before and after funding cost is that the ambition to accelerate growth is bearing fruit in Q1. This is one of the 2 important and positive key messages for Q1.Let us move on and focus on operational expenses and expenses incurred from credit losses to gather a full picture and understanding of the P&L. Let us talk about credit losses first. Credit losses are at EUR 28.28 million in Q1, which compares to EUR 20.88 million in '23. Both numbers, by the way, include variable collection costs, which inflate them a bit by around about EUR 1 million to previous year's numbers.The fact is that there are a number of different drivers behind the increase in credit losses. Firstly, exceptionally low credit losses in Q1 '23 in some business. So this means we are starting and comparing from a very low reference level. This is the case with CapitalBox, where we just had [ EUR 800,000 ] credit loss in Q1 '23, which is less than 50% of any other quarter in '23.Secondly, very high growth dynamics. Jorma has pointed this out, and we will look into that a little bit later when we talk about the segments. Thirdly, indirect effect of higher interest rates via lower forward [ flow ] prices. Why? Because partners are using higher interest rates for their [ TCF ] models, which in our understanding, expectation should be a temporary issue only.And then, of course, in some areas, in some markets, there is an element of issues with loan quality where we are above the expected level, but mitigation action has been taken, and I will also go into a little bit more detail when we talk about CapitalBox.The fact is obviously that high sensitivity of our profitability to credit loss levels dictates that there is full focus on credit loss levels. So managing credit loss levels is top corporate priority. At the same time, we want to make sure with balance growth and credit loss costs wisely so that we do not give up too much from the very positive growth dynamics we'll see in currently.Key success factor #3 next to revenue growth and credit loss development from a P&L perspective is cost management. As a recap, this worked extremely well during '23 when we essentially kept cost development flat during a high inflation period.Personnel expenses last year not only behaved digressively, but remained stable in absolute numbers, in fact, slightly below previous year's level. In Q1, as we're investing in growth, we see an increase in personnel expenses of around about EUR 1 million. There are 3 drivers. One is general cost level increase, but more importantly, this is related to new initiatives supporting CapitalBox growth, supporting the Wholesale banking growth. So this is intended cost increase.Operational expenses, general and admin expenses down almost 9% or EUR 800,000 and taking operational and personnel expenses in total relevant expense line item, excluding credit loss mostly on the same level as last year, and this means that the efficiency gains from automation and from establishing a lean and scalable organization are essentially offsetting the cost pressure from inflation and also the pressure from a cost related to investment in future growth.Now, how do these developments in revenue, financial expenses, cost of credit and operational expenses translate into profitability? EBIT up to quite strong EUR 11.6 million. This is an increase of 30% compared to Q1, slightly restated, relevant comparable numbers, EUR 8.9 million. So obviously, we would love to see an increased cost to the plus 50%, but we are confident that we will catch up in order to make sure that we achieve the guidance for the full year.Profit before tax, EUR 3 million, same level as last year Q1. Tax expense, EUR 420,000, which is equivalent to an effective tax rate of 14%. And finally, this results in a net profit increase by 13% from EUR 2.3 million to EUR 2.6 million. So, so much on P&L for now. We will, as indicated, go back to the segment performance a little later.Let's have a -- take a quick look at the balance sheet structure on the next slide. Assets, that is not too complicated. There are 2 aspects I would like to highlight. One, obviously, with the increased market activities, loan portfolio and investment in wholesale business is going up some EUR 20 million during Q1 and correspondingly, we see a decrease in cash driven by deployed capital to the business and also a reduction in interest rate that we pay for new deposits.On the next slide, equity and liability also pretty standard development here, is absolutely in line with the strategy that we've been pursuing, and also explaining and outlining in the past over the last couple of quarters, deposits are and remain the main source of funding. Deposit base decreased somewhat to EUR 703 million from previously end of year, EUR 730 million, which as pointed out, is a function of deploying cash to growth to the businesses and the function of the interest rate reduction for new deposits, quite significant interest rate reduction for new deposits, I should say.Capital market debt, no changes so far. We will get back to that when we talk about funding. And finally, equity increased to a very strong EUR 185.2 million, which is equivalent to a net equity ratio of 25.2%.Now let us take a quick look at the segment performance, how are our 3 tribes, including the new one, performing.Let us start off with Consumer Banking operating under the brand name, Ferratum. Ferratum, in short, in a nutshell, has been performing very well. It shows impressive growth, high scalability and high resilience despite some credit loss pressure with some 21% higher credit losses in Ferratum than last year. But this is more than compensated and offset by the scalability of the organization. So cost structure essentially flat and quite impressive growth.In details, revenue up by EUR 6.2 million, an increase of almost 13%, and this is obviously a significant growth. When we compare that, for instance, with the full year '23, growth of 4%, essentially tripling the growth rate. I think this is an excellent performance delivered by the consumer lending by the Ferratum team. Credit losses, no thought about that, could be a little bit better but in most of the markets, credit loss management, underwriting portfolio management is really working well in Ferratum. The growth rate of credit losses is growing a bit higher than top line growth.It's a balancing act between growth and credit risk, but we think the credit losses in Consumer business are absolutely acceptable as we are dedicated to accelerated growth, and this is working successfully. And that translates into a great performance in terms of profitability. As said, overall cost development flat, actually digressive. So Ferratum is even managing to reduce cost base somewhat. EBIT increasing further from EUR 8 million in Q1 last year to EUR 12 million, so an increase of more than 50% within this year's profit before tax from EUR 3.4 million to very strong EUR 6.1 million.Now, I would like to continue with CapitalBox. We are now, I have to say, very satisfied with revenue performance. We see a top line growth, 40%, driving up revenues to EUR 7.7 million. If we annualize that, then this would be equivalent to actually the strongest performance in revenue in the history of CapitalBox. So this is really, really encouraging.Credit losses, and to be clear about that, performance is not fully satisfactory during Q1. But at the same time, we need to understand and isolate the key drivers behind the current loss development in CapitalBox in Q1. Key driver #1 is growth. Compared to last year, loan sales have essentially doubled in CapitalBox from EUR 6 million to EUR 7 million each month in the first 3 months 2023 to EUR 13 million, EUR 14 million per month, so 1% increase.And this accounts for and explains roughly EUR 800,000 to a EUR 1 million of the delta in credit losses. So this is purely driven by the fact that loan disbursement and the portfolio size has increased significantly, portfolio size from a little bit more than EUR 90 million to more than EUR 120 million, so around about 1/3.Secondly, there are some performance issues in some industries in limited and restricted markets. I have to say that we've taken the CapitalBox team together with group risk management and have taken quite significant action to make sure that we focus on profitable business only and calibrate a little bit the underwriting to protect future performance.And as pointed out already in Q1 '23, the credit loss level of CapitalBox was extremely low with some EUR 800,000, which was 50%, or less than 50% of any other quarter in 2023. And what that means, in turn, is that a normalized level would have been around EUR 1.5 million last year ago. So we are reducing the delta between the EUR 800,000 and EUR 3.9 million to economically EUR 1 million to EUR 1.5 million, a direct consequence of payment issues with some of the clients. As pointed out, we are aware that we're doing a lot to reduce credit losses. At the same time, I need to reiterate that the focus going forward is not to avoid credit losses going forward, but to find the balance between growth and credit losses.Cost of CapitalBox, just very briefly, as we are scaling the business and increasing revenue significantly, this requires somewhat more resources. And this is the consequence, or the consequence thereof rather is the personnel expenses up by some EUR 500,000, general and admin and marketing expenses by EUR 800,000, but that is part of the ambition to grow the business. And by the way, this cost increase includes also the effect related to the Omniveta business.As a consequence of higher growth, elevated credit losses and higher cost levels, which we look at as an investment in future growth, EBIT contribution is negative EUR 1.5 million. Profit before tax negative at EUR 3.1 million for CapitalBox. But as Jorma has pointed out, the target still is to achieve meaningful positive EBIT contribution for the full year in light of our EUR 67.5 million guidance.Let me conclude the review of the business unit's performance with the Wholesale business. Revenue up to EUR 2.3 million, which represents a gross factor of almost [ EUR 3 million ], starting from EUR 800,000 last year. Credit loss performance, this is -- it is important to understand, this is a collateralized business. So pledged assets, de facto cover expected credit losses, hence, hardly any credit loss impairments reflected in the P&L.As an early stage business, personnel expenses are naturally going up a bit, plus EUR 270,000, but it is a highly scalable business model and these investments are certainly going to help us to scale the business significantly going forward. Overall, from a profitability perspective, very promising performance in this segment. EBIT positive at plus EUR 1 million, also profit before tax slightly positive, already now at EUR 42,000.Next slide gives us the picture or the view on asset quality. If we move to the next slide, please. And the key message here is essentially that we see a slight increase over Q1. But still, I would like to put that into perspective of the last couple of quarters, 2 to 3 years. Key message is that credit losses relative to net portfolio size are stable on a much lower level than a couple of years ago and lower level of credit loss to portfolio size is obviously reflective of improving asset quality, as a long-term trend and over the last couple of quarters, 2 years, we essentially see a stable development. Naturally, we are focusing, as I've pointed out in detail, on credit loss management in the next couple of quarters. And I would like to add that this chart obviously includes the investments from the Wholesale business.Cash position on the next slide. Nothing that deserves a lot of attention. I've explained that the funds have been deployed. This is why we see a slight reduction in cash. Total cash stands at EUR 225 million and cash is exactly within our target corridor. So that is all fine and good. Funding, currently, we do have our target structure in place. As pointed out, we are concentrating on deposit funding with some activities in the capital markets. Obviously, we see an increase in cost of debt capital, but still the very high proportion of deposit funding protects us against too high increases in financing expenses.With our growth ambitions, which are quite significant in mind, we are currently evaluating the market conditions for potential transactions, be it a potential Tier 2 transaction on the level of a bank or on holdco level, this is something we're working on. And we will provide an update on this in due course.With that, I would like to conclude. I do hope you found this update of interest and relevance to you. Many thanks for listening, and Jorma, I hand over back to you.

[Jorma Jokela, executive]

Good. Thanks, Bernd. Thanks, Bernd. Okay. So I want to a little bit repeat our key takeaways over here. So I think is our key targets today to leave all of you those 5 key takeaways. Revenue growth, 18.3%, EBIT growth, 31%. We confirm our guidance, EUR 67.5 million EBIT on this year. CapitalBox acquisition of the digital factoring company of Omniveta from Denmark. And on the last evening, our Board of Directors have announced on our share buyback program. So those are the message what we want to leave for you, and I think we are ready to take a Q&A part.

[Operator]

[Operator Instructions] And with this, I hand over again to Jorma and Bernd.

[Jorma Jokela, executive]

Good. Thanks, [ Sara ]. Look, I don't see any --

[Bernd Egger, executive]

There is one -- I can see one question in the chat.

[Jorma Jokela, executive]

Okay. Yes, that's correct. One question just coming. Bernd, do you want to take it?

[Bernd Egger, executive]

Yes. The question is, can you please elaborate a bit on share buyback program?In the end, the ambition is to engage in a limited buyback program. Limited means around about -- or up to 100,000 shares. The plan is to, at this stage, not deploy more than EUR 1 million. And the main driver for that is to make sure that we have sufficient shares on the books for incentive schemes, for potential transactions and that kind of thing. And so it's not a massive program. It's quite a limited program, I would say.

[Jorma Jokela, executive]

And then question comes from [ Maximilian Suntoppel ]. Can you talk a little bit about the current competition environment and how the competitors are developing there?Bernd, maybe I can start, and then you can help me the supporting [ there is ]. If we're looking for the competitor landscape, there is -- we have to divide this on the base in our tribes. So if we first start in the consumer banking part, we can see that Scandinavia, the digital banks, they are performing still very well. There is, of course, the higher funding cost you can see there. You can see that the acquisition costs have a little bit increased there as well. So they're fighting on the markets there.But in general, they are doing pretty okay today. I think all of them are somehow the developing on the -- looking on the newer products on their portfolios, but they are very focused on the -- the thinking process is a very general is that they're staying in the market what they have a choice and they want to stay on that one and expand the product offering on this particular markets there. So that's a more or less like, they like a strategic choice there.If we look the SME part, the situation is -- maybe consumer part back that those are all the main peer group. They are typical on one to keep a very simple product offering. What is the one way it's really cool, because it's very cost efficient. But other hand, owning the whole customer lifetime journey, it's to make a little bit more complicated for them. And that's something where we are maybe looking a little bit more to expand that one. And of course, the partnership part is what we have a publicly announcement as well. So that's maybe where we [ differentiate ] a little bit.If we look at the SME part, SME part, the market is much more less offering available on the markets. So the typical traditional banks, they are -- like we all know it, they are relatively slowly to move there and that they have been very careful. And that's, by the way, the mirroring a little bit in the consumer part as well. So we can see that the consumer retail banks are the more conservative, and that's actually way how the new customer segments are floating in the alternative banks, and that's the very positive news for us.SME, it's even more stronger. So the traditional retail banks are very conservative there today. What this means that the really, really good customers are just -- are [ under bank ]. And it's not mean that they are like a bad customer. They are just one or other way don't fit in the main bank current customer profile, what they are looking for there. So that our -- the more or less the situation, the competitive landscape on those parts.Wholesale banking, it's -- there is a service offering, but not really like -- there is even less opportunities on the market. And especially, the really good customers are very underserved there, even that there is not really -- and for me, it's very hard to understand that one, but it's like some reason when the decision is done and they're driving their own principles and the true one, they focus on some segments, they lift over lots of really good customers there. So that are more or less the exploring from my side.I don't know, Bernd, do you want to open something else? And I see that during meantime we have lots of new questions coming on the chat. But do you want to --

[Bernd Egger, executive]

That's perfectly fine. I agree. I suggest we move on with another question.

[Jorma Jokela, executive]

Yes, good. Okay. Shall we take an audio question on this point? [ Sara ]?

[Operator]

Yes, I already unmuted Philipp so he is able to ask his questions right now.

[Philipp Häßler, analyst]

Philipp Hassler from Pareto speaking. I have 3 questions, please. Firstly, your FX losses were more or less at 0 in Q1, a very positive development. Was it just due to favorable FX movements? Or was there any other reason, [ or ] you had different hedging strategy or positive one-off? Then selling and marketing expenses were down by 2% year-on-year, while interest revenues were up by 18%. I would have assumed that they develop more or less parallel. Maybe you can explain that?And then pre-tax profit was at EUR 3 million, while the consensus forecast stands at EUR 28 million for the current year? Do you think consensus is way too optimistic? Or can we see an acceleration of the earnings development in the next quarters?

[Jorma Jokela, executive]

Good. Thanks, Philipp. Really good question. Bernd, do you want to take over for some of those?

[Bernd Egger, executive]

Yes, I made some notes. The first one, foreign exchange losses and hedging cost in the end. I mean, the overall strategy, as we do not look at foreign exchange positions as a source of income, is to protect us against negative hits and costs to the extent possible. So overall, we are applying a close to 1% hedging strategy, and that comes as a cost. As the business portfolio is moving -- is not static, there's always a residual element of open positions, which explains the volatility. So this is, in this particular case in Q1, not a one-off result. That is the result of profits from residual open position, compensating foreign exchange hedging costs.Second question, selling and marketing expenses down 2%, interest rate expenses up. Yes, on the interest rate expenses, it is what it is. We have quite significant increase, but that is absolutely in line with what we expected. We have kept actually our capital markets debt relatively low, which helps. So here, I think we're pretty well on track. Selling and marketing expenses down a little bit in some of the business, but overall, pretty much in line with the planning. There's nothing that --

[Jorma Jokela, executive]

Maybe, Bernd, I can just a little bit support here in that marketing and selling part. I think it's -- of course, this current macroeconomic situation, our team, we have a preparation all the while on to put the more effort from the performance-driven marketing and of course, improved the -- improve our customer quality and the lead quality what we gained there, and of course, try to find a way how we can lower the customer acquisition cost and way how we can lower the customer application cost. This bidding part, what I explained during the Ferratum presentation part, it's a good example of that one. It's not happening overnight. It's taken like 6 months working behind there. But if you look to this bidding part, just an example of that one, it's -- If you paid the EUR 10 that you can get the EUR 100 revenue, and you have doing that before. And now if you double your roster, so you practically pay the -- you get the EUR 10, EUR 200 revenue. So it's mean that it's your -- of course, the absolute terms, your marketing cost is coming in those cases down.But of course, when you blended the all data together, this is not the full picture. But it's -- we have systematically looking for the channel by channel and product by product we look in those opportunities. And yes, that's like -- a little bit like just supporting the story there. But in the overall, it's still in the -- when you blended the all marketing cost, it's -- you can see there the little bit improvement the efficiency.

[Bernd Egger, executive]

Good. And then it was the third question on profit before tax, EUR 3 million and analyst consensus EUR 28 million. 2 aspects to respond here. Firstly, I don't want to give you exact comment on the profit before tax consensus as we limit our guidance to what it currently is. But logically, the way we look at the business from today's perspective, the EUR 11.6 million EBIT, the expectation to get to EUR 67.5 million, this implies that we grow significantly, that we keep cost on a degressive part and manage credit loss as well. And that implies a profit before tax level that is obviously double-digit and more than [ EUR 20 million ]. So from that perspective, without giving a big comment, I don't think that this is off.

[Jorma Jokela, executive]

Yes, exactly. Exactly. And maybe we can combine this -- Philipp, the last question related EBIT and Q1 EBIT. There is a chat question from Peter Irblad from the Tiger Asset Management. There is a question about the CapitalBox. The -- Can you please explain how you will achieve the EUR 10 million EBIT guidance in CapitalBox, it will include EUR 4 million per quarter for the rest of the year.I think it's a little bit same thinking process like Bernd say here. I mean, it's the first one, I think we want to stay only one guidance. We want to stay on the -- like a group level guidance. That's our -- that's like end of the day, we -- all our bonus model or internal process is driving on the way that -- they're driving the one hole. And this is a group EBIT. So even just like an explanation a little bit that everybody understand the thinking process behind there. So we don't want to example, incentive for our management or people to sub-optimize that. If we can see that we -- it's more valuable for the shareholders and the group, the target point of view, we can reallocate that resource in the group in the different project if we want to do it.So everybody bonus and target setting is end of the day the group level. We try to demonstrate our -- each tribe on the performance and the numbers there as well. And that's the reason why we originally want to share that one. So that's a little bit like a thinking process behind. However, our team have a commitment for the fighting on the [ credit this ] EUR 10 million EBIT on the place from the CapitalBox. And the way the tools how we do in that one is exactly like Bernd explanation. So we have now the 40% higher top line there. We, of course, continue to grow that one. We keep the fixed cost under the control there. We onboarded the new partnership. We're scaling the new product there. And that's practically -- that's a program that's driving our results behind there. Of course, the very smart risk management is very important, playing the big role there as well.Good. I don't know, Bernd, do you want to add something or --

[Bernd Egger, executive]

No. I do not disagree. I absolutely agree.

[Jorma Jokela, executive]

That's good. Thanks, Philipp. Very good.

[Operator]

So we will now move over with the questions from Marius.

[Marius Fuhrberg, analyst]

A couple of questions from my side as well. First one, could you be a little bit more precise on which markets and industries were kind of problematic when it comes to credit risks? And what is your remaining exposure in these markets and industries? So should we expect this development to continue like that? Or is an improvement to be expected already in Q2 or Q3? And another question, or my last question, actually. You mentioned the selling costs were down due to more efficient marketing, which makes sense. But more generally speaking, also your operating costs declined in spite of, yes, your strong top line growth, which seems a little bit counterintuitive. So could you comment on the more precise drivers which were resulting in this development? And also how should we think of this going forward? Because normally I would expect also increasing costs, even though maybe proportionately lower?

[Jorma Jokela, executive]

Thanks. A very great question. It's -- Bernd, how we want to share this question. Do you want to start and I continue or opposition way? It's -- maybe I can start the scalability and then you can come back for the credit risk part. It's -- So I take the easy part and you take a more complicated part. Yes. No. I think it's -- one of the thinking process what we try to keep in the Multitude asset across the tribes is that we don't want to fix the problems. We want to fix the process there. We want to fix the process and we want to automate those. We have put a significant management effort and time across the tribes how we can more further automate our back-office process, our front-office process.We have tens of different AI projects is currently running in the company, how we can take a more intelligence into our process and maybe more like to save the people time and give the people more time on the -- to do the right things to improve the customer experience there. And those are, of course, pay off slowly, but those are some of the very big drivers behind our scalability there as well. So we have -- last 2 years we have put a lot of effort for that one. And this is something what this pay off slowly. Of course, it's not so easy. We have to fight in that. It's -- We have to fight every day to keep this ongoing because it's so easy to recruiting people, take external partners, take external advisers to doing the different buy and so on.But we have crossed the P&L lines. We have probably all lines looking the very careful -- looking our office space cost, look into our travel budgeting, look into our -- the market in different channels there and looking at our teams what they do in there and so on. And so I think we have doing lots of the improvements there. And we believe that we are very early stage on that activity. So we believe that we can much, much further to scaling the company and maintain the short-term cost level there to building the scalability there. And that is the part of the management incentive there as well. I don't know, can I [ explanation ] this more further in this without going to so detail. But Bernd, do you want to add there? Is there any --

[Bernd Egger, executive]

Maybe just a question on what does it mean going forward. I think we had also in -- 2 months ago in the -- and also in the Capital Markets Day, we wanted to manage expectations a little bit. So the ambition and the determination to grow logically means even more so in an environment of increased cost pressure that it is fair to assume that cost will go up mid to long-term. [ However ], our plan is to mitigate as much, as Jorma said, automation and standardization and at the same time make sure that in all business we have a degressive development. As long as the development is degressive, we should basically [ find ], and this is clearly the expectation.

[Jorma Jokela, executive]

Exactly. And I think it's -- if we look in the -- drilling a little bit deeper there, we can see that lot of our operating costs like banking and lending cost, we have managed to decrease down. Of course, there is a number of the individual examples as well. I mean, just to give example, our Wholesale banking, it's whole -- our Wholesale banking, the payment platform was originally building in the few years back in our own purpose and our own needs. So we want to build in our own direct access to different central banks and really like building the fast, super automated and digitalized the real-time payment platform around Europe. And this we benefit today as well. It's our own lending business what's bringing our lending costs down. And now part of the capitalization or monetization of that one further, we have activities in the Wholesale banking tribe and we are currently have that pipeline there to integrate for the other banks and other e-money license companies to utilize this asset what we have it there.Good. Bernd, shall we jump to credit loss part?

[Bernd Egger, executive]

Yes, yes. Absolutely. Marius, I made 2 notes, one is which markets are problematic and how can this be expected to look in the future. Now the good thing is, and I'm focusing more on CapitalBox, but this statement also holds true for the wider business. We don't have a high concentration of risks. So that means that there is no huge bulk risk in any of those businesses. What we see though is that in CapitalBox, we see a little bit worsening payment behavior in transportation, for instance, in car dealer, some elements of industries that are related to construction, which is in line with what everybody can see how the economy develops. Currently, the reaction to that is to underweight this in new underwriting, new credit disbursements. This is the situation and the action. How would that impact the credit losses going forward? 2 statements to that. One is the more economic one. Obviously, we have taken a lot of action and are trying to mitigate those risk factors. At the same time, I think both Jorma and myself have pointed this out, we are not going to eliminate all credit losses because we need to grow in order to get us where we want from a mid to long-term perspective. Technically, increasing credit losses via the credit loss impairment model logically means that expected credit losses will go up via higher expected PDs as these -- all these models are forward-looking. So we cannot totally isolate the technical aspect of underwriting, but that's the more timing issue. So in the end, it's all about the balance, finding the balance between the growth and credit losses.

[Jorma Jokela, executive]

Good. Hope we answer, Marius, your questions, and shall we continue the next call?

[Operator]

All right. So Jorma, just let me shortly remind our participants that if they have still further questions, we would be happy to answer them. [Operator Instructions] And in the meantime, we'll go over with the questions from [ Frank ].

[Unknown Analyst]

Yes, here, out of Berlin, greetings. First point to make is, I was wondering why are you relocating the business to Switzerland? Can you comment on that a little bit? I just saw that on your website that you started the process here. My comment would be that, generally, I do understand there might be some operating reasons, et cetera, et cetera. However, regulation in Switzerland is also there, and we have seen what happened with Credit Suisse and UBS and how regulators have behaved there and, et cetera, et cetera. So that's certainly something I have in the back of my mind. The other point to make is that in general, the one to move, in my mind, would be a move out of Malta because we do not, in Europe, have a generally very high view about the Maltese financial markets. Not sure where that comes from, but there must be a history of that, but I have observed that. That would be my first question.The second question would be on capital. Are you not showing a lot of patience with that business, specifically in the light that you now have a Wholesale finance business, which seems to pick up and which seems to deliver and which also, I think, is very well received in the market? Because I happen to have talked to some of your clients on that and everyone kind of thought that, that's a very clever way to do business from your side.And my third question would be, and that's to Bernd and, the total capital in the bank, when that was presented to me on a recent call, that looked a bit tight, and I was wondering whether that has moved around? I was looking for the numbers actually, but I couldn't find them on your website. So the pure bank total capital ratio, that would be -- end of Q1, that will be something I would be interested in.

[Jorma Jokela, executive]

Good. Thanks, Frank. I have it -- a little bit hard to hear on the second question. I don't know, Bernd, did you hear that one, but there was something wholesale banking and capital, but was between there, I was not hearing very well.

[Bernd Egger, executive]

[ Whether we are ] patient with the [ capital ] business.

[Jorma Jokela, executive]

Okay. Then it was my line. Okay. Good, good. Thanks, Frank, very good questions as well. And let me start to maybe, Bernd, on this relocation thinking process behind there and maybe then you can take those 2 questions behind there. So we have -- as a model, we have -- we look in our structure. So we have a very particular structure on the legal structure as a historical. So I'm the original from Finland. I am living the 13 years in the Switzerland. I have like -- we have founded a company in the Helsinki, Finland and our headquarter is Helsinki. We have around 700 people on the group, a little bit above where around the 40 people are located in Helsinki office and rest are the around our other office.And then 2015, we listed our Helsinki-based company shares in Frankfurt. So we have like -- if you look our legal structure, we have a Helsinki-based holding company, what is the own the bank in the Malta and then we are the listed the shares in the Frankfurt. So we have to follow up to quite many different -- the corporate governance there naturally, and there is going to the lots of the challenge on that one.One of the biggest challenge what we have faced there because, we have a look in this relocation already while there. And only day when we do the IPO in 2015, we know it that we might have a little bit problem on the challenge that Finnish shareholders -- when you are the listed, when you are the Finnish legal entity and you're trading your shares in the Frankfurt, it's the systems that behind the booking systems are the different there.And that's probably create a lot of problems there on the way that -- example, the shareholders on the other countries, they have a huge complication to entry on our shareholder meeting or AGM. So they probably have to transfer their shares from the German to Finland that they can get access in the AGM events. So this is the one reason why we want to [ bring in the whole ] shareholders in the -- across the globe, the easier access to all shareholder rights to using that. So it's increasing the shareholder rights there and equalize that one. Then it's working a little bit opposition side as well.And it's working on the way that, that in the all Finnish shareholders, they are not -- all the Finnish banks today, they don't trade in the Multitude shares for the local citizens. So if you're holding the Finnish passport or the Finnish legal entity, you have very hard to buy the Multitude shares because that it's so expensive for the banks to buying the shares from the Frankfurt and they have to trading this in the next day in the Finnish system, because based on local law, you have to hold in the shares if the buyer or shareholder is in the Finnish entity or the private individuals, you have to hold in those into Finland. And this situation was already in 2015 when we do the IPO, and there was lots of stories that this would be changed and this will be normalized and [ in the trade ] as like a standardized European system. But I mean, after 9 years, it was not happened.At some point, you have to say that, okay, maybe it's not happening soon. And we have been very patient that one. And then this is one of the key drivers behind that. We want to take a new shareholders in the Multitude and we want to give all our shareholders the opportunity in the trade in our shareholders. And this is the quite big topic the behind there. There is no tax benefits or things like that one. This is more like a supporting our shareholders' benefits behind there.

[Unknown Analyst]

Sounds awfully complex. It's awful.

[Jorma Jokela, executive]

It is very complex. And I mean what is the public information as well that if you look at -- I have distributed like my personal shares in the 2 different legal entities. It's -- And even the last AGM, the -- not my all shares was not successful registration in the AGM due to that reason. So it's really unfair and not -- I mean I don't have enough words. I don't want to blame the system, but it's -- I mean it is -- and there's lots of like stakeholders and it's a very expensive process that yearly pays to transfer your shares. And then [ Altum ] is not secure. It's not -- you don't know that before the AGM morning that are you eligible to join the meeting or not. So this is the thinking process behind them. Sorry that I speak very open and frankly, but I mean, it's -- I think it's maybe want to clarify that everybody that thinking process.Good. Bernd, do you want to jump to other questions?

[Bernd Egger, executive]

Yes. There were 2 more questions. One, I could elaborate a bit on, but I will try to be short. CapitalBox and patience. The simple reason for patience, if we consider us patient at all in the first place is that this is an excellent business model with fantastic opportunities. Now we need to put it a little bit -- and this is where it could be a little bit lengthy, but I will try to be short. The business has been around for 7, 8 years now, has improved significantly in the beginning, accelerated growth from 0 to EUR 30 million revenue and profitable up until the end of 2019.Then we have decided to protect the quality of assets and we had 2 or 3 years with more of a side movement in terms of top line. And now we've decided last year it's time to push the throttle and really go for the strategic ambition that we have, and this is to develop a European market leader as this is a multibillion-dollar Europe business in Europe, which is not taken by anybody, and we want to take this position.Naturally, on this way, there are challenges. You're absolutely right. But we still think that this is absolutely a viable business model, and we still have this chance to transform CapitalBox into European market leader in this business, which from a value creation perspective of the organization is a key business for us. So this is why we -- I would rather say we confirm that we believe in the business model and now we're focusing on what it takes to make it profitable and growing. So that's one.The other one, the bank. Multitude Bank is a 100% subsidiary, which is the regulatory backbone of the organization. And I would fundamentally disagree with the view that the capitalization is low. The capitalization of the bank at the end of Q1, if I have that right on top of my head, is 7.6% -- 7.65% with a target range or a minimum requirement of a little bit more than [ 16% ]. We are exactly in the target range between [ 17% ] and [ 18% ]. Up until now, the bank has almost 100% in CET1, so top quality equity, 17% out of the 17.6%, so excellently capitalized bank. What we are considering is to take on -- considering let's see whether the market conditions are good and then the pricing is attractive to supplement Tier 1 capital over time with Tier 2.This is what practically all the banks do. Statement 1. Statement 2, all reasonable bank managers make sure that they are not overcapitalizing the bank massively. So if you compare balance sheets of banks, you will always see that there's an element of buffer beyond the capital requirements, and we are doing the same. So we would not be happy as holdco management if bank management would ask for a 5% buffer because it doesn't make sense. The bank has never had any problems with capitalization. It is super well capitalized. So from that perspective, it is super solid.

[Unknown Analyst]

And best of luck for Q2 and the upcoming Capital Markets transactions.

[Jorma Jokela, executive]

Thank you.

[Bernd Egger, executive]

Thanks, Frank.

[Operator]

So it seems like all your questions are answered.

[Jorma Jokela, executive]

We have one question on the chat here. It's from [ Martin Havle ]. It's -- I don't know, we can maybe shortly cover that as well to Bernd. The EBIT guidance for the full year is clear. Could you indicate the guidance on net profit as well?Bernd, I leave it for you.

[Bernd Egger, executive]

Yes. We have understood from investors, and I think investors are right that they would prefer at some point to switch from EBIT to net profit guidance. We have issued this EBIT guidance 3 years ago. In the last Capital Markets in November, we've issued a net profit guidance for 2026, so not specifically for those years that are covered [ as '24 ], but the EBIT guidance already. This is a net profit guidance of EUR 30 million for '26 or a growth of [ 2.5x ] the most recent net profit, which was EUR 12 million back then. So growth factor 2.5 to EUR 30 million in '26 is the net profit guidance.

[Jorma Jokela, executive]

Okay. I think all questions is answered and we are 30 minutes overtime. It's maybe time to ending the call here. Good. Thanks, everybody.

[Bernd Egger, executive]

Thank you.

[Jorma Jokela, executive]

It was a really, really interesting morning with you and hope we will see soon, and let's be -- let's stay connection. Thanks, everybody.

[Bernd Egger, executive]

Bye. Thank you.

[Jorma Jokela, executive]

Thank you.

[Operator]

Thank you, everyone, for joining the call. So this concludes our call for today. So thank you, and goodbye.