Latest Results
Final results for the 12 months ended 31 December 2009
MCB Finance Group plc (AIM: MCRB.L) (the “Company” or “MCB”), the consumer finance company providing flexible credit solutions to retail customers in Finland, Estonia, Latvia and Lithuania, today announces its results for the 12 months ended 31 December 2009.
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Operational and financial highlights
- Pro-forma pre-tax loss of -€0.63m for the full year (2008: €0.49m profit)
- Return to profitability in the second half with a pro-forma pre-tax profit of €0.56m.
- Economic conditions have stabilised after the unprecedented deterioration early in the year
- Successful restructuring of lending operations, with improved credit scoring, collections and cost reductions.
- Significant improvements in credit quality in the second half, back to target levels
- €10m credit facility with Rietumu bank extended to March 2011
- Company well positioned to resume growth once market conditions improve
Bertil Rydevik, Chairman, said:
“MCB has come through one of the most turbulent and testing times in recent economic history. Having successfully undertaken the changes needed, the business has emerged considerably stronger, providing a robust platform for future growth.”
CHAIRMAN'S STATEMENT
Business overview
MCB Finance Group is a consumer finance company providing fast, convenient, easily understood and flexible credit solutions under the Credit24 brand to retail customers in Finland and the Baltic countries of Estonia, Latvia and Lithuania. In its markets, the Company is a leading participant in the non-standard segment of the consumer credit sector, providing small-denomination, unsecured loans of between €100 and €2,000 to qualifying customers, with maturities ranging from one month to two years. Loan products are designed to suit customers' needs, with simple and transparent terms and flexible repayment schedules. The Company operates in a segment of the market that is typically under-served by larger financial institutions.
Loans are mainly offered online through the Company's Credit24-branded websites in Estonia, Finland, Lithuania and Latvia, as well as through certain distribution partners in the Baltic countries.
Operational update
Early 2009 was characterised by an unprecedented deterioration in economic conditions in the Baltic states and Finland, to which MCB aggressively responded by tightening credit criteria, adjusting loan terms, re-focusing lending to its highest-quality customers and improving credit scoring and collection processes. While credit performance was poor during the first half of the year, the actions taken by management resulted in significantly improved credit performance during the second half, and a return to profitability.
Economic environment:
Economic conditions in all markets in which MCB operates deteriorated dramatically during the first half of 2009, particularly in the Baltics which saw unprecedented drops in economic activity, increased unemployment, and greater pressure on household finances. Finland experienced similar trends although the deceleration was much less severe. As expected at the time of the interim results, economic conditions bottomed out during the second half and have stabilised, although at a low level.
Lending volumes
The Company extended approximately €40.4 million of loan principal during the year, down from €56.6 million in 2008. Out of this, €16.1 million was lent during the second half of the year, down from €24.3 million in the first half. The Company reduced lending volumes materially after the first quarter to limit its exposure to the deteriorating markets while it implemented changes to lending operations.
While it reduced overall lending, MCB took advantage of the significant differences between markets to focus on the areas of greatest opportunity. As a result lending has been focused on its best-performing markets of Lithuania and Finland, which together accounted for 75% of volumes during 2009, with Estonia accounting for most of the remainder. Lending in Latvia, where the economic situation has been most severe, was deliberately restricted. The Company also focused on existing customers with good credit history, temporarily reducing the proportion of loans granted to new customers.
At the same time MCB shortened loan maturities from an average of approximately five months at the end of 2008 to approximately three months starting Q2, while maintaining lending margins. This has resulted not only in better visibility on credit performance, but also improved cash dynamics and higher returns on capital deployed to lending operations.
The Company has continued to improve the range and terms of products offered to customers. We believe MCB Finance now has one of the most comprehensive and flexible product selections in the short-term lending market, and a high rate of customer satisfaction. MCB Finance has continued actively to promote its Credit24 brand which remains one of the largest and most recognised providers of non-standard consumer loans in the markets in which the Company operates. We believe MCB's product selection, brand recognition and credit scoring abilities will benefit the Company as markets improve going forward.
Repayment performance
In early 2009 MCB initiated a project to improve its credit risk management procedures and scorecards. The company also reorganised its collection procedures to enable more effective management of delinquent accounts. As expected at the time of our interim results, these actions have resulted in significantly improved performance of loan pools, better collections of receivables in arrears, and greater control over credit issuance criteria and projected default rates. Delinquency rates of loan pools issued starting late Q2 2009 in Lithuania, Estonia and Latvia are now lower than at any time since the Company began trading, despite continued weak economic conditions. Delinquencies in Finland are at levels experienced in 2008 before the onset of the economic crisis. The Company has continued to sell aged receivables in Finland on attractive terms.
Debt financing
The Company has agreed with Rietumu Bank to extend its revolving credit facility to the end of March 2011. The facility was previously scheduled to mature in March 2010. The size of the facility will be revised to €10 million, down from €15 million previously and in line with MCB's requirements going forward. The interest on amounts drawn will be 13%, up from 12.5% previously. Approximately €5.9 million is currently drawn from the facility.
In connection with the renewal of the credit facility, MCB will grant Rietumu the option to purchase 724,760 shares in MCB Finance Group Plc (equivalent to approximately 4.2% of the current issued shares) at an exercise price of 45p. The option will expire 31 March 2011. In the event the option is exercised Rietumu will have the obligation to extend the credit facility for a further year to March 2012.
We are delighted to continue our partnership with Rietumu, and the extension of the credit facility gives MCB good visibility on the financing required to support the continued development of the Company.
Financial review
Revenue for the 12 months ended 31 December 2009 totalled €15.67m (2008: €13.06m). The higher revenues, despite lower lending volumes, are a result of increased average margins during 2009 and carry-over from lending made late 2008. Direct operating expenses, which include provisions and variable costs related to the Company's lending operations, were €9.82m (2008: €6.08m). Direct operating expenses excluding provisions were €2.06m (2008: €2.05m). Proforma administrative expenses were €5.16m (2008: €5.51m). Net finance costs were €1.32m (2008: €0.98m). The proforma pre-tax loss for the period was -€0.63m (2008 pre-tax profit: €0.49m). Proforma net loss for the period was -€1.06m (2008 net profit: €0.40m). Despite the net loss the Group was cash flow positive for the year.
The proforma figures above exclude non-cash reserves arising on employee share options.
Credit loss provisions totalled €7.76m for the period, or 50% of revenue, up from 31% of revenue during 2008. The large majority of provisions were taken during the first half of the year and reflect the weak performance of loan pools issued late 2008 and Q1 2009. Provisions were 37% of revenue in the second half of the year, and are expected to return to 2008 levels going forward.
While the Group as a whole was loss making during 2009 there were significant differences between markets. The Company's Finnish and Lithuanian operations each contributed positively to the Group's full year results. Estonia was close to break-even, while the Latvian operation's contribution was significantly negative due to high provisions.
The Company accrued a €0.42m tax liability for the year, primarily from its profitable Lithuanian operations. The accrued tax liability is high relative to this division's EBT contribution due to peculiarities in Lithuanian tax legislation which do not allow the deduction of certain costs for taxation purposes. We expect eventual 2009 liabilities to be reduced following further review.
The second half of the year saw a significant improvement in financial performance over the first half as a result of reduced provisioning requirements and reduced costs. The second half generated a pre-tax profit of €0.56, after a first half pre-tax loss of -€1.19m. As anticipated at the time of our interim results, the Company benefited from the cost reductions initiated in the first half of the year. Direct operating expenses and administrative expenses were reduced in the second half by 22% and 25% respectively compared to the first.
A summary of the Company's financial performance for the period is provided below.
| Year ended 31 December | ||||||||
| (€ thousands) | 2009 | 2008 | 2H 2009 | 1H 2009 | 2H 2008 | 1H 2008 | ||
| Principal lent | 40,424 | 56,606 | 16,143 | 24,281 | 30,520 | 26,086 | ||
| Revenue | 15,668 | 13,055 | 6,752 | 8,916 | 8,082 | 4,973 | ||
| Direct operating expenses | -9,824 | -6,077 | -3,430 | -6,394 | -3,674 | -2,403 | ||
| out of which Credit loss provisions | -7,764 | -4,031 | -2,526 | -5,238 | -2,534 | -1,497 | ||
| Provisions as % of Revenue | 50% | 31% | 37% | 59% | 31% | 30% | ||
| Proforma Administrative expenses | -5,156 | -5,507 | -2,212 | -2,944 | -2,820 | -2,687 | ||
| Net interest expenses | -1,322 | -984 | -554 | -768 | -648 | -337 | ||
| Proforma EBT (loss) | -634 | 486 | 556 | -1,190 | 939 | -453 | ||
| Proforma net income (loss) | -1,056 | 404 | 366 | -1,422 | 857 | -453 | ||
| Customer loan receivables | 12,811 | 20,385 | 12,811 | 17,617 | 20,385 | 15,014 | ||
| Borrowings | 6,460 | 12,050 | 6,460 | 10,730 | 12,050 | 7,450 | ||
| Total equity | 7,467 | 8,522 | 7,467 | 7,101 | 8,522 | 7,763 | ||
| Debt/equity ratio | 87% | 141% | 87% | 151% | 141% | 96% | ||
At the end of the period customer loan receivables totalled €12.81m (net of provisions), down from €20.39m at the end of 2008 and €17.62m at 30 June 2009 due to lower lending volumes and shorter average loan maturities.
MCB ended the year with a strengthened balance sheet, having repaid approximately €5.6m of its credit facility out of internally generated cash flow. At 31 December 2009 the Company had drawn €6.46m from its credit facility with Rietumu bank, down from €12.05m at 31 December 2008. The amount drawn has been further reduced to €5.9m at the end of February 2010. The reduced leverage has increased the Company's debt financing headroom for future growth. The Company has to date met all of its banking obligations and the Board expects the Company will continue to trade within its banking covenants.
Current trading and outlook
2009 was a particularly challenging year as a result of the market conditions that have affected the economies in which we operate. As soon as the extent of the economic deterioration in the Baltics became apparent we acted quickly and took the measures necessary to minimise default, and focused on our most productive business activities. The rapid and significant improvement achieved in the second half is a consequence of these actions.
MCB has come through one of the most turbulent and testing times in recent economic history. Having successfully undertaken the changes needed, the business has emerged considerably stronger, providing a robust platform for future growth. Since the end of the year MCB has maintained a cautious approach to lending and remains focused on credit quality, collections and improving our product offering. Lending volumes have remained steady, while credit performance continues to be strong. The focus is now on gradually increasing volumes while maintaining quality.
Our business model has been tested fully, as have the skill and determination of management. We expect economic conditions to improve gradually from current levels, benefiting operations in our current markets. While we are not currently seeking expansion into new markets, this remains an important component of our long-term strategy and we will continue researching opportunities with a view to possibly launch one additional market in 2011. We remain confident about both the strength of the business model and the benefits of a multi-territory approach, enabling the Company to leverage its central operating structure and focus on its most productive activities and regions.
Bertil Rydevik
Chairman
STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2009
| 2009 | 2008 | ||||
| € | € | ||||
| Revenue | 15,667,855 | 13,055,266 | |||
| Direct operating expenses | (9,824,109) | (6,077,072) | |||
| Cost of employee share options | 15,100 | (195,585) | |||
| Termination of contract payment | - | (82,250) | |||
| Other administrative expenses | (5,156,052) | (5,506,839) | |||
| Administrative expenses | (5,140,952) | (5,784,674) | |||
| Finance costs (net) | (1,321,695) | (984,442) | |||
| Comprehensive (loss)/profit on ordinary activities before taxation | (618,901) | 209,078 | |||
| Taxation | (421,703) | (82,229) | |||
| Comprehensive (loss)/profit on ordinary activities after taxation attributable to the equity shareholders of the parent company | (1,040,604) | 126,849 | |||
| Proforma (loss)/Profit calculation | |||||
| Cost of employee share options | (15,100) | 195,585 | |||
| Termination of contract payment | - | 82,250 | |||
| Proforma (loss)/profit before taxation | (634,001) | 486,913 | |||
| Taxation | (421,703) | (82,229) | |||
| Proforma (loss)/profit after taxation | (1,055,704) | 404,684 | |||
| 2009 | 2008 | ||||
| € | € | ||||
| Basic (loss)/earnings per Ordinary share | (0.0598) | 0.0075 | |||
| Diluted (loss)/earnings per Ordinary share | (0.0598) | 0.0074 |
All of the activities of the Group during the year are classed as continuing.
CONSOLIDATED BALANCE SHEET
As at 31 December 2009
| 2009 | 2008 | |||||||
| € | € | € | € | |||||
| ASSETS | ||||||||
| Non-current assets | ||||||||
| Goodwill | 737,723 | 737,723 | ||||||
| Intangible assets | 21,145 | 37,006 | ||||||
| Property, plant and equipment | 53,822 | 84,280 | ||||||
| Deferred tax asset | - | 124,776 | ||||||
| Total non-current assets | 812,690 | 983,785 | ||||||
| Current assets | ||||||||
| Trade and other receivables | 12,980,244 | 20,909,025 | ||||||
| Assets classified as held for sale | - | 9,611 | ||||||
| Cash and cash equivalents | 2,214,477 | 1,162,765 | ||||||
| Total current assets | 15,194,721 | 22,081,401 | ||||||
| Total assets | 16,007,411 | 23,065,186 | ||||||
| EQUITY AND LIABILITIES | ||||||||
| Equity | ||||||||
| Issued share capital | 2,542,460 | 2,542,460 | ||||||
| Share premium account | 8,453,870 | 8,453,870 | ||||||
| Other reserves | 513,284 | 528,384 | ||||||
| Retained earnings | (4,042,810) | (3,002,206) | ||||||
| Total equity | 7,466,804 | 8,522,508 | ||||||
| Current liabilities | ||||||||
| Trade and other payables | 1,100,615 | 983,156 | ||||||
| Deferred income | 979,992 | 1,509,522 | ||||||
| Short-term borrowings | 6,460,000 | - | ||||||
| Total current liabilities | 8,540,607 | 2,492,678 | ||||||
| Non-current liabilities | ||||||||
| Long-term borrowings | - | 12,050,000 | ||||||
| Total non-current liabilities | - | 12,050,000 | ||||||
| Total equity and liabilities | 16,007,411 | 23,065,186 |
STATEMENT OF CASH FLOWS
For the year ended 31 December 2009
| Group | ||||||
| 2009 | 2008 | |||||
| € | € | |||||
| Cash flow from operating activities | ||||||
| Cash generated from operations | 6,801,157 | (11,679,868) | ||||
| Income tax paid | (136,439) | - | ||||
| Net cash generated from operating activities | 6,664,718 | (11,679,868) | ||||
| Cash flow from investing activities | ||||||
| Purchase of property, plant and equipment | (18,599) | (69,705) | ||||
| Purchase of intangible assets | (4,407) | (28,687) | ||||
| Net cash used in investing activities | (23,006) | (98,392) | ||||
| Cash flow from financing activities | ||||||
| Issue of share capital | - | 5,139,265 | ||||
| Expenses relating to the issue of shares | - | (204,333) | ||||
| Net increase (decrease) in borrowing | (5,590,000) | 7,500,000 | ||||
| Net cash raised from (used in) financing activities | (5,590,000) | 12,434,932 | ||||
| Increase in cash and cash equivalents | 1,051,712 | 656,672 | ||||
| Cash and cash equivalents at 1 January | 1,162,765 | 506,093 | ||||
| Cash and cash equivalents at 31 December | 2,214,477 | 1,162,765 | ||||
Notes
The full results including the notes to the financial statements are available in the PDF Download.