Home Credit B.V.: IFRS consolidated results for the three month period ended 31 March 2015: Continued diversification of country portfolio and successful growth in Asia a counterweight to tough conditions in Russia
Amsterdam, 11 June 2015: Home Credit B.V. (‘HCBV’ or ‘the Group’), the Netherlands-based holding company for Home Credit’s leading multi-channel consumer finance operations in CEE and Asia, announces its consolidated financial results for the three-month period ended 31 March 2015 in accordance with International Financial Reporting Standards (IFRS).
“Overall, we have achieved our aspiration to be a global leader in the POS business and successfully continue to develop our footprint in fast-growing Asian markets and strengthen our position in the more mature CEE markets. We are seeing continued strong growth from our successful roll-out in China and remain on target to open in 300 cities by the end of this year. We continue to invest in our newer markets: India, Indonesia and the Philippines. These regions have all started the year very strongly in terms of customer growth and sales volumes.
Nonetheless, the challenging macroeconomic backdrop in Russia continues to take its toll on the overall group performance as conditions further worsened during the quarter. Having said that, the benefits of our strategic decisions are starting to be seen as our cost base has drastically reduced and risk costs have stabilized. The new loans under tighter requirements are performing well and our Russian POS market share continues to increase (now at 26%) and we retain our number one position. On top of that, our nearest competitor’s share in POS lending is barely half of ours. We are therefore best-placed to emerge even stronger in this market when conditions start to improve.
2015 will not be without further challenges but these also bring potential opportunities. In Russia we are a strategic investor that adapts and stays when others leave. We remain strongly capitalized, we have good liquidity, and have an experienced management team to navigate our path by weathering the local economy’s downturn. At the same time we will continue to grow our business on a global basis with exciting developments - not just in China but across our chosen regions in Asia.”
Chairman of the Board of Directors and Group Chief Executive Officer, Home Credit B.V
Home Credit’s focus on balancing the business geographically with Asia playing a larger role in performance produced loans granted of EUR 1,125 million during the quarter while the number of active clients reached 9.1 million. Although the Russian contribution to the Group’s newly underwritten loan portfolio continues to decrease substantially (currently just 34% from 66% in the same period last year) as the Group’s global footprint successfully diversifies, the region’s performance overshadowed the continued strong development in Asia during the quarter.
- The Group posted a net loss of EUR 57 million overall in the quarter as the macro-economic environment in Russia worsened more quickly than the market anticipated. Profitability was also hit by the Group’s strategic decisions to continue to be very selective in granting loans in Russia in order to control NPLs, and therefore deliberately reduce new business volumes, as well as raising interest rates to attract deposits; a necessary and prudent decision to ensure a significant liquidity buffer to complement a strong capitalization in such volatile times.
- Operating income followed the reduction in loans, falling by 29.5% to EUR 366 million (Q1 2014: EUR 518 million) largely due to the impact of Russia. Net interest income fell by 30.8% to EUR 269 million compared to EUR 389 million for the same period last year. The net interest margin remained solid at 17.0% although down on last year (1Q 2014: 19.4%).
- Distribution points fell by 7.3% compared to the 2014 year end as a result of the managed reduction affected in Russia to 154,056 with 151,455 POS and loan offices, 629 bank branches and 1,972 post offices. Correspondingly, the Group reduced general administrative and other operating expenses by 9.2% to EUR 193 million from EUR 213 million thanks to stringent cost management initiatives. Despite this, the cost-to-income ratio increased to 52.9% from 41.1% in 1Q 2014, as a result of the drop in income.
- New loan volume during 1Q was EUR 1,125 million, down 34.8% from the previous year (1Q 2014: EUR 1,725 million), impacted by the prudent policy to tighten lending criteria and underwrite fewer loans in Russia. In contrast, the new volumes in China made a strong start to the year, almost tripling, and more than doubling in India compared to the same quarter last year, validating the strategic decision to expand into these high-growth markets.
- The net loan portfolio grew to EUR 5,205 million (YE 2014: EUR 5,060 million) demonstrating the growth in Asia.
- HCBV’s customer deposits rose by 18.8% to EUR 3,432 million (31 December 2014: EUR 2,890 million) as a result of the decision to raise interest rates in Russia to attract and secure funds. The share of current account balances and term deposits now comprises 55.6% of total liabilities (31 December 2014: 49.9%).
- Total assets reflected this increase by 6.5% to EUR 7,494 million.
- Despite efforts to reduce new business volumes, the quality of HCBV's loan portfolio fell in 1Q 2015 with the NPL (i. e. loans more than 90 days overdue) share of the gross loan book up slightly to 16.1% (15.3% as at 31 December 2014). Nonetheless, the new loans written with tighter requirements which we implemented since mid-2013 are performing well. We expect the vast majority of loans underwritten prior to this to run off by the end of the year. The NPL coverage ratio stands at comfortable level of 102.7% (31 December 2014: 106.4%).
- HCBV remains strongly capitalized with total equity of EUR 1,319 million and a solid equity to asset ratio of 17.6% (31 December 2014: 17.6%).
|Business Results||1Q 2015||FY 2014||1Q 2014|
|Loans granted YTD (EUR millions)||1,125||6,792||1,725|
|Number of clients actively served (millions)||9.1||9.1||7.8|
|Number of distribution points||154,056||166,272||143,024|
|- Number of POSs and loan offices||151,455||162,692||138,863|
|- Number of bank branches||629||853||1,355|
|- Number of post offices||1,972||2,727||2,806|
|Number of employees (thousands)||55.5||58.3||52.1|
|Profit and Loss (EUR millions)||1Q 2015||FY 2014||1Q 2014|
|Net interest income||269||1,377||389|
|Credit risk costs¹||(238)||(1,116)||(369)|
|Net profit for the year||(57)||(60)||(62)|
¹Credit risk costs represent impairment losses on the loan portfolio
²Operating expenses comprise general administrative and other operating expenses
|Financial Position (EUR millions)||1Q 2015||FY 2014|
|Net loan portfolio||5,205||5,060|
|Customer deposits and current accounts||3,432||2,890|
Source: Home Credit B.V., consolidated.
|Profit and Loss Ratios||1Q 2015||FY 2014||1Q 2014|
|Net interest margin¹||17.0%||18.0%||19.4%|
|Net interest income to operating income||73.7%||70.9%||75.1%|
|Cost to average net loans²||15.1%||13.8%||12.6%|
|Cost income ratio³||52.9%||44.6%||41.1%|
|Cost of risk ratio4||18.6%||17.8%||21.8%|
|Financial Position Ratios||1Q 2015||FY 2014||1Q 2014|
|Net loans to total assets||69.5%||71.9%||75.3%|
|NPL coverage ratio7||102.7%||106.4%||116.7%|
|Deposits to total liabilities||55.6%||49.8%||63.6%|
|Equity to assets||17.6%||17.6%||16.1%|
|Equity and deposits to net loans ratio||91.3%||81.6%||92.3%|
Source: Home Credit B.V., consolidated.
¹Net interest margin is calculated as net interest income divided by the average balance of net interest earning assets.
²Cost to average net loans is calculated as general administrative and other operating expenses divided by average net loans.
³Cost to income ratio is calculated as general administrative and other operating expenses divided by operating income.
4Cost of risk represents impairment losses on the loan portfolio divided by average balance of net loans to customers.
5RoAA is calculated as net profit divided by average balance of total assets.
6NPL 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.
7NPL coverage ratio is calculated as loan loss provisions divided by gross non-performing loan.