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    Home Credit B.V.: IFRS consolidated results for the six months ended 30 June 2014

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    Sustained profitable growth in Asia tempered by continued headwinds in Russia

    Amsterdam, 29 Aug 2014: Home Credit B.V. (‘HCBV’), the Netherlands-based holding company for Home Credit’s leading multi-channel consumer finance operations in CEE and Asia, announces its consolidated unaudited financial results for the six months ended 30 June 2014, prepared in accordance with International Financial Reporting Standards (IFRS).

    “Our expansion in the fast-growing regions of Asia continues to benefit the Group, with a robust performance recorded across the region. These results however weren’t enough to mitigate the challenging environment in Russia which held back our overall performance, resulting in a loss for the first half.

    As a further boost to our Asian business I am also pleased to announce that starting next quarter we will start consolidating results from our profitable operations in Vietnam into the overall Group performance, having received all necessary regulatory approvals in line with executed acquisition agreement with PPF Group N.V.

    The swift action taken last year and early this year in Russia is starting to show some early signs of delivering the needed improvement. Nonetheless challenges remain and are being addressed as the regulatory and economic environment in Russia evolves.

    Our commitment to growing our business remains and we are investing in the development of our distribution network and in hiring new employees to support this growth. At the same time, we have kept tight control of our cost base ensuring the overall efficiency of the Group as we move forward.
    Thanks to our experienced management team we have maintained a robust capital position, good liquidity and a strong competitive position in the consumer lending market. We will continue to leverage these strengths to ensure we are able to develop with the market and remain well positioned for the future.”

    Jiří Šmejc, HCBV Chief Executive Officer


    • Operating income was EUR 1,004 million in the first half of 2014, a decrease of 22.7% year on year (H1 2013: 1,298 million). The result was due to strong growth across the Group’s Asian operations, which was offset by the poor performance in Russia, although there are early signs that the swift measures taken there in 2013 and early 2014 are starting to improve performance.
    • The decision to diversify geographically continues to pay dividends as China saw new loan volume up 56.1% from the same period last year, while in Indonesia new loan volume more than quadrupled.
    • The level of customer deposits, which forms an important part of our diversified funding base, was broadly stable at EUR 4,912 at 30 June 2014, down just 3.8% from EUR 5,105 million as at 31 December 2013. The reduction also reflected the reduced lending levels in Russia.
    • The Group continued to invest in further distribution network expansion and, as at 30 June 2014, HCBV’s multi-channel network consisted of 145,236 distribution points of different formats: 141,325 points of sale, 2,803 post offices as well as a network of 1,108 retail bank branches.
    • The company reported net loss of EUR 79 million in the first half of 2014, compared to H1 2013 net profit of EUR 235 million. Profits were pulled lower by the weakening of the overall economy in Russia, which, although reducing in importance in the portfolio, remains Home Credit’s largest market. Net loss for the second quarter was EUR 17 million, a substantial improvement on the EUR 62 million net loss in the first quarter. Group RoAE was negative 11.0% in H1 2014 (H1 2013: 29.9%) reflecting the overall decline.
    • Net loan portfolio declined to EUR 6,400 million in H1 2014, down 10.8% from the year end 2013, as the Group continued applying its more conservative policy on lending which reduced the number of loans granted in Russia. (31 December 2013: EUR 7,171 million).
    • The intentional decision to underwrite fewer loans meant that the proportion of NPLs increased with NPL ratio of 16.2% (FY 2013: 12.2%). However, provisioning levels remain adequate with NPL coverage ratio of 107.0%.  
    • HCBV’s capitalisation remained solid with total equity of EUR 1,408 million as at 30 June 2014.



    In the first half of 2014 the Group posted a net loss of EUR 79 million, although there were signs of improvement with a second-quarter loss of just EUR 17 million against a EUR 62 million loss in the first quarter.

    Although the importance of Russia to the overall business is reducing, the Group result was pulled lower as the Russian economy continued to worsen. The macroeconomic backdrop has continued to weaken in Russia in the first half of 2014 and the consumer finance sector has been particularly impacted by on-going regulatory reform. In response to these tighter market conditions the Russian business decided last year to tighten its underwriting procedures and reduce the number of loans granted. Early positive signs of this enhanced approach to risk management are already emerging.  The pace of loss over the first half has slowed substantially and portfolio quality has improved. However, the reduction of underwriting has an impact on profitability and key ratios in the near term.

    Strong results across Asia, particularly in China, tempered the impact of increased provisioning in Russia, validating Home Credit’s strategy to expand across Asia.

    Net interest income for the six month period ended 30 June 2014 slipped 14.6% to EUR 737 million, compared to EUR 863 million for the same period in 2013. Net fee and commission income decreased 41.3% to EUR 201 million in H1 2014, from EUR 343 million in H1 2013, mirroring the decline in new loan volume.

    General administrative and other operating expenses were stable at EUR 448 million (H1 2013: EUR 431 million) even as the business added new employees and boosted its distribution network. HCBV’s cost-to-income ratio increased to 44.7% over the six month period (FY 2013: 36.4%), affected by the decrease in income, while the ratio of cost to average net loans remained stable at 13.5% in the first six months of 2014 compared to 13.0% at FY 2013.

    The decline of HCBV’s loan portfolio, which stood at EUR 6,400 million at 30 June 2014, was a result of an intentional policy to grant fewer loans in Russia where the Group underwrote slightly over the half of the volume of loans compared to the same period a year ago (H1 2014: EUR 2,313 million vs H1 2013: EUR 4,200 million). This planned portfolio shrinkage was also in response to the weaker outlook in Russia. However, the decline in Russia was partly mitigated by significant new growth in Asia. In China new loan volume grew 56.1% to EUR 585 million from the year earlier period.

    The NPL ratio (gross non-performing loans more than 90 days overdue as a percentage of total gross loan book) rose to 16.2%, mathematically impacted by the reduced loan portfolio. However, through HCBV’s conservative approach to provisioning, the NPL coverage ratio remained adequate at 107.0% at the end of the first half 2014 compared to 117.0% as at 31 December 2013. Thanks to the experience gained during the previous period of economic weakness in Russia in 2008, HCBV has taken swift proactive measures to improve the quality of its loan book.

    HCBV maintained a solid funding base and liquidity position, and the Group’s funding structure remained diversified as the Group successfully continues to attract deposits from individual and corporate customers. The share of account balances and term deposits comprised 66.3% of total liabilities as at 30 June 2014 (31 December 2013: 65.6%).


    Business Results As at Jun 30, 2014 As at Dec 31, 2013 As at June 30, 2013 YTD Change, % YO-Y Change,%
    Loans granted YTD  (EUR millions) 3,456 9,739 5,182 (64.5%) (33.3%)
    Number of active clients (millions) 7.9 7.7 7.1 1.9% 11.2%
    Number of distribution points 145,236 139,612 125,006 4.0% 16.2%
    Number of employees (thousands) 53.9 51.4 44.8 4.9% 20.4%


    Income Statement (EUR millions)
    6M period ended
    Jun 30, 2014
    6M period ended
    Jun 30, 2013
    Net interest income 737 863 (14.6%)
    Operating income 1,004 1,298 (22.7%)
    Impairment losses on financial assets (623) (567) 9.9%
    Operating expenses1 448 431 4.0%
    Net profit after tax (79) 235 -133.6%
    Financial Position (EUR millions) As at Jun 30, 2014 As at Dec 31, 2013 Change,%
    Total assets 8,820 9,313 (5.3%)
    Net loan portfolio 6,400 7,171 (10.8%)
    Shareholders' equity 1,408 1,532 (8.1%)
    Wholesale funding 2,115 2,237 (5.5%)
    Customer deposits 4,912 5,105 (3.8%)
    1) Operating expenses comprise general administrative and other operating expenses



    Income Statement Ratios As at
    Jun 30, 2014
    As at
    Dec 31, 2013
    As at
    Jun 30, 2013
    Net interest margin1 18.5% 19.8% 19.1%
    Net interest income to operating income 73.4% 69.3% 66.5%
    Cost to average net loans2 13.5% 13.0% 12.4%
    Cost to income3 44.7% 36.4% 33.2%
    Cost of risk ratio4 18.7% 16.7% 16.3%
    RoAA (1.8%) 3.3% 4.7%
    RoAE (11.0%) 20.5% 29.9%


    Financial Position Ratios As at Jun 30, 2014 As at Dec 31, 2013 As at
    Jun 30, 2013
    Net loans to total assets 72.6% 77.0% 70.4%
    NPL ratio5 16.2% 12.2% 9.5%
    NPL coverage ratio6 107.0% 117.0% 122.2%
    Deposits to total liabilities 66.3% 65.6% 65.6%
    Equity to assets 16.0% 16.5% 15.2%
    Equity and deposits to net loans ratio 98.8% 92.6% 100.5%

    1) Net interest margin is calculated as net interest income divided by average balance of net interest earning assets.
    2) Cost to average net loans is calculated as general administrative and other operating expenses divided by average net loans.
    3) Cost to income ratio is calculated as general administrative and other operating expenses divided by operating income.
    4) Cost of risk represents impairment losses divided by average balance of net loans to customers.
    5) NPL ratio is calculated as gross non-performing loans divided by total gross loans. The Group defines non-performing loans as collectively impaired loans that are overdue by more than 90 days as well as loans considered individually impaired.
    6) NPL coverage ratio is calculated as loan loss provisions divided by gross non-performing loans.

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