Iute Group reports unaudited results for 6M/2024 – Evolution to quality also gaining momentum in quantity

Iute Group reports unaudited results for 6M/2024

Evolution to quality also gaining momentum in quantity

STRATEGIC HIGHLIGHTS

• Longer maturities and stronger customers are having an increasing effect in offsetting falling effective annual interest rates and rising interest costs as a result of growth.
• Number of active customers at 268 thousand (31 Dec. 2023: 274 thousand) with revenue per customer (LTM) up to 369 EUR (6M/2023: 338 EUR).
• Total number of customers up to 1,1 million (31 Dec. 2023: 1,05 million).
• Group consolidated balance sheet up 5,5% to 396,5 million EUR and equity up 8,8% to 69,4 million EUR as of 30 June 2024.
• Increasing use of MyIute app – 993 thousand downloads as of 30 June 2024 (31 Dec. 2023: 813 thousand).
• Wallet services and digital insurance brokerage continue to grow significantly faster than lending business – further acceleration expected.
• In July 2024, Fitch Ratings (Fitch) assigned a B- (Stable Outlook) Long-Term Issuer Default Rating (IDR) and a B- Senior Secured Debt Rating for EUR Bond 2021/2026.

OPERATIONAL HIGHLIGHTS

• Loan payouts at already high levels showing further increased by 38,0% to 184,6 million EUR (6M/2023: 133,8 million EUR).
• Number of loans signed with 167 thousand at prior-year level (6M/2023: 168 thousand).
• Cost of risk, expressed as net impairment charges to average gross loan portfolio, decreased to 9,0% (6M 2023: 11,0%), underlying trajectory to improvement of customer quality
• Gross loan portfolio up 13,0% to 284,7 million EUR (31 Dec. 2023: 252,0 million EUR) of which principal amount of loans increased 14,1% to 264,9 million EUR (31 Dec. 2023: 232,2 million EUR).
• Repayment discipline (Customer Performance Index, CPI30) at 86,4% (6M/2023: 88,1%), as a result of still below-average Situation in Bulgaria.
• Net loan portfolio up 14,4% to 265,7 million EUR (31 Dec. 2023: 232,2 million EUR).
• 77 cardless ATMs operational (31 Dec. 2023: 75 ATMs).

FINANCIAL HIGHLIGHTS

• Interest and commission fee income down 1,8% to 45,2 million EUR (6M/2023: 46,0 million EUR) which is attributable to the lower income from government bonds at Energbank.
• Interest and commission fee income adjusted for Energbank’s income from government bonds increased by 1,9 % to 44,0 million EUR (6M/2023: 43,2 million EUR).
• Net interest and commission fee income down 5,0% to 31,3 million EUR (6M/2023: 32,9 million EUR) attributable to higher interest expenses as a result of growth and a continued decline in APRs.
• Net interest and commission fee income adjusted for Energbank’s income from government bonds with 30,1 million EUR remained at previous year’s period (6M/2023: 30,1 million EUR).
• Total revenue up 3,4% to 53,6 million EUR (6M/2023: 51,9 million EUR) – adjusted for Energbank’s income from government bonds up 6,7% to 52,4 million EUR (6M/2023: 49,1 million EUR).
• Cost-to-revenue ratio up to 43,8% (6M/2023: 42,9%) as a result of lower income from government bonds at Energbank and higher personnel expenses related to recruitment of highly talented staff.
• EBITDA adjusted for FX down 11,2% to 20,5 million EUR (6M/2023: 23,1 million EUR adjusted for FX and one-off expenses related to the acquisition of Energbank in the amount of 3,1 million EUR).
• Net profit at 4,1 million EUR compared to 7,0 million EUR, attributable to increased personnel expenses related to recruitment of highly talented staff, while the prior-year period was influenced by stronger FX gains.
• Strong capitalization and profitability affected by discretionary strong growth efforts still in line with Eurobond covenants.

Tallinn, Estonia, 22 August 2024. Iute Group, a leading European personal finance group, reported today unaudited results for 6M/2024.

“Iute Group’s progress in the H1 2024 has been calm. The overall result is made up of many moving parts, some of which were expected to perform better. The most pleasing results have been achieved in the business activities that have been busy acquiring new customers and by the increased transactional activity of customers within Iute Group’s services ecosystem. The least pleasing observations relate to the increased pressure on profitability, which the Group has not managed to cope in line with expectations.

The loan portfolios of both the bank and non-bank businesses grew along with maturities. Energbank partially compensated for the revenue it previously generated with high-yield government bonds by replacing the amortized bonds and growing its loan portfolio in H1 2024 by more than 14 million EUR or +21% compared to the end of the previous year. Iute non-bank has increased its net loan portfolio by 18 million EUR or +10%. The weighted average maturity of both bank and non-bank loans exceeds 24 months. The Group’s consolidated net loan portfolio totaled 265 million EUR at the end of H1 2024, in line with the target set of 300 million EUR by the end of 2024.

The Group’s profitability has been achieved despite a steady decline in loan pricing. Non-bank loans have an APR of nearly 37%, while bank loans yield only 11%, and we expect the downward trend to continue. At the same time, lending regulations are tightening and competition continues to increase. A declining APR is beneficial to loan customers, but requires the lender to maintain prudent management of credit risk and operating expenses. In H1 2024, lending margins narrowed as the cost of deposits, bonds and other forms of capital rose faster by +6,2% year-on-year. On the upside, margin pressure was partially offset by improved operational efficiency in non-bank business, where the use of automated processes reduced costs.

Revenues grew in all non-bank value streams: loans, wallet, and insurance brokerage, while Energbank’s revenues declined as the “party” on high-yield government bonds ended and the newly originated loan portfolio is not yet generating adequate revenues. From a consolidated perspective, the Group’s revenues in H1 2024 increased by +3,4% year-on-year, but more slowly than the 5,6% hike in total operating expenses. Consequently, operating expenses remain a source of pressure to profitability due to compliance costs, but also due to costs related to Energbank’s turnaround.

Looking back at H1 2024 it is fair to say that the non-bank business supports the banking business more than the other way around. Nevertheless, building and leveraging synergies between bank and non-bank businesses is ongoing and we expect to see the first fruits of technology and data sharing still in 2024, which will translate into higher revenues and a larger customer pool for the bank.

Adding to the complexity of the picture is the cost of credit risk. The Group’s allowances for loan impairment in H1 2024 increased by 9,5% year-on-year, as also reflected in the non-bank CPI30, which remained at 86,4% in May and June 2024.

Both bank and non-bank businesses grew in terms of asset size. The asset growth was achieved along with more customers. However, the non-bank business attracted more than 4.000 customers in Q2 2024 while Energbank added a few hundred customers only. Until Energbank starts offering fully digital services, there is little incentive for our target customers to switch from their existing banking service provider. In total, the Group reached 229.310 performing individual customers who use and pay for our services.

The transaction activity of the Group’s customers’, both bank and non-bank, increased both in terms of the number of transactions executed with the Iute Wallet and in terms of volume. Revenues from wallet services grew to 2,6 million EUR in H1 2024 on a year-on-year basis, accelerating to 23% from Q1 to Q2.

Iute Group’s insurance brokerage revenues hiked and reached a significant 1,4 million EUR in H1 2024. Here, Q2 revenues doubled over Q1, a gratifying demonstration of the team’s aggressive growth efforts. In total, both wallet and insurance revenues exceeded 7,5% of the Group’s total revenues and show a sustainable growth trend.

In the coming quarters, pressure on efficiency will remain high. Especially Energbank’s operational turnaround will remain an ongoing challenge with occasional signs of progress. We are not satisfied with the bank’s opex-to-revenue ratio, which remains above 60%.

On the bottom line, progress to achieve the Group’s annual net profit target of 15 million EUR has slowed in H1 2024, while other key performance indicators are well on track,” said Tarmo Sild, CEO of Iute Group.

The full unaudited report for 6M/2024 is available under www.iute.com/investor/reports-and-presentations.

Earnings Call:

CEO Tarmo Sild and CFO Kristel Kurvits will comment on the unaudited 6M/2024 results by means of a webcast presentation today, 22 August 2024, 11.30 CEST. The webcast/call will be held in English.

Please register in time to participate in the webcast/call at:
Iute Group – Earnings Call 6M 2024.

The corresponding presentation will also be available on the Company's website prior to the earnings webcast/call.

Contact:

Kristel Kurvits, Group Chief Financial Officer (CFO)
Email: investor@iute.com
Phone: +372 622 9177

About Iute Group:

Iute Group is a fintech company established in 2008 in Estonia. The Group specializes in consumer finance, payment services, banking, and insurance products. It serves customers in Albania, Bulgaria, Moldova, and North Macedonia. Iute Group finances its loan portfolios with equity, deposits, and secured bonds on the Regulated Market of the Frankfurt Stock Exchange and the Nasdaq Baltic Main List.

www.iute.com