Home Credit B.V.: IFRS consolidated results for the year ended 31 December 2015
A profitable second half powered by improved performance from restructured Russian business and rebalancing towards high-growth Asian markets.
Amsterdam, 11 March 2016: 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 year ended 31 December 2015 in accordance with International Financial Reporting Standards (IFRS).
“The positive trend seen in Q3 was confirmed in Q4, resulting in a profitable second half for the Group. While this did not fully offset the first half performance, it is clear that our strategy of expanding our presence in the high-growth Asian markets, our strong position in China, and our swift response to the difficult economic conditions in Russia are delivering tangible benefits. We are confident we are on the right path.
In Russia, our focus was on returning to profitability and we achieved this in the fourth quarter, although volatility is expected to continue. The measures we took there both to address costs and strengthen the quality of our customer base continued to bear fruit. To be clear, the economic situation in this market is still difficult but we remain vigilant.
Our Asian operations go from strength to strength. We have an excellent position in China where domestic consumption continues to rise in what remains one of the most dynamic economies in the world. In October, we set a new record in Home Credit China, adding a million new customers. India is also an exciting market for us with strong potential. It is growing quickly with operations in 31 cities, and we are investing to support that growth.
We enter 2016 in a solid position. While Russia stabilises, Asia is driving forward. Our proven ability to react quickly to changing macroeconomic conditions, and to recognise and capture new opportunities, enabled us to invest into an unrivalled scale-up in four big Asian markets. This has put our business on the best possible footing for the future. Financial discipline, an industry-leading customer value proposition and healthy growth remain our targets for the year ahead.”
Chairman of the Board of Directors and Group Chief Executive Officer, Home Credit B.V.
Assertive action to address the ongoing economic challenges in Russia, combined with continued investment in the growth markets of Asia, enabled the Group to build on the good performance in Q3 and deliver a positive result for the second half – a net profit of EUR 48.8 million. Asia remains key and the bulk of the EUR 173 million invested in 2015 by the Group across its operations was targeted in this region to support both the early stage operations in India, Indonesia and the Philippines and the rapid expansion in China.
China posted record months in September and October and more than doubled the volume of new loans in 2015 in EUR terms to EUR 2.7 billion. In Indonesia, we extended operations into two key cities, Surabaya and Makassar, while in the Philippines we acquired our 100,000th customer just two years after launching. Over 1 million customers used our services in Vietnam in 2015, up 20% year-on-year, with 5,400 applications daily.
As a result of this strong growth, in 2015 China represented 41.0% of new loan volumes, compared to 17.8% in 2014, while Asia as a whole accounted for 56.2% of the Group’s new loan volume. This reflects our successful diversification, particularly as we reduce volumes in Russia both to address the economic realities of that market and to focus on retaining and attracting higher-quality customers.
Engendering financial literacy remains the cornerstone of our approach and with 12.5 million active customers across the Group, Home Credit is broadening financial inclusion and improving customers’ understanding of how to borrow responsibly. In China in 2015, we were recognised by the first major independent report on consumer finance as the country’s leader in financial inclusion. With consumer credit in Asia expanding rapidly – for instance, it has grown five-fold in Vietnam over the past five years – Home Credit’s commitment to lend responsibly with a focus on affordability is a key differentiator, especially for first-time borrowers.
The profitable performance in Q3 and Q4 led to a reduced net loss for the full year 2015 of EUR 41.6 million, down from EUR 60.5 million a year earlier. While the Group posted a first-half net loss of EUR 90.4 million, it posted a second-half profit of EUR 48.8 million, buoyed by a strong performance in China, good growth in Vietnam, and as measures to address the tough economic environment in Russia delivered results.
New Loan Volume was EUR 6,558 million in 2015, down just 3.4% from EUR 6,792 million in 2014, as increasing traction with customers in high-growth Asian markets in particular offset the decline in volumes in Russia, which reflected the more cautious approach to lending in the region given the economic conditions. New volumes in China more than doubled in EUR terms, underscoring the importance of this market to the Group portfolio.
Operating income was impacted by the more conservative approach to lending in Russia, declining 16.9% to EUR 1,619 million (2014: EUR 1,949 million) while net interest income contracted 13.4% to EUR 1,193 million compared to EUR 1,377 million a year earlier. This in turn led to a reduction in the net interest margin which reduced to 15.4% (2014: 18.0%).
Despite the strong growth in Asia, the Group’s general administrative and other operating expenses were held relatively steady in 2015, rising 1.7% to EUR 887 million from EUR 871 million. The cost-to-income ratio for the year increased to 54.8% from 44.7% in 2014, largely reflecting the decline in income during the year. The effect of the strong performance in Asia, which represents an ever-increasing proportion of the new loan volumes, and the benefit of the tightened lending criteria in Russia is seen in the increased quality of HCBV's loan portfolio: as at 31 December 2015, the NPL share (i.e. loans more than 90 days overdue) of the gross loan book was just 10.0% (31 December 2014: 15.3%) while the NPL coverage ratio rose to 115.7% at year-end (31 December 2014: 106.4%).
Impairment losses were EUR 725 million for 2015, substantially down from EUR 1,116 million in 2014, a decline of 35.0% reflecting a consistent reduction period-on-period throughout the year.
As it focused on returning Russia to profitability during the year, the Group optimised its Russian distribution network, reducing the number of branches. At the same time, the Group quickly expanded its operations in Asia where it is seeing strong growth. As at 31 December 2015, HCBV’s multi-channel network consisted of 185,893 distribution points, up 11.7% with 183,488 POS and loan offices, 1,966 post offices and 439 bank branches. At the end of the year the Group had 72,904 employees.
The net loan portfolio rose to EUR 5,835 million (31 December 2014: EUR 5,060 million) largely because of strong growth across the Group’s Asian operations, particularly China, and the acquisition of Air Bank in June 2015.
HCBV’s customer deposits were EUR 4,909 million at 31 December 2015, an almost 70% increase compared to the end of 2014 (31 December 2014: EUR 2,890 million), predominantly as a result of the Group’s acquisition of Air Bank in the Czech Republic. The share of current account balances and term deposits now comprises 58.0% of total liabilities (31 December 2014: 49.8%).
HCBV’s capitalisation remained solid with total equity of EUR 1,196 million and an equity-to-assets ratio of 12.4% (31 December 2014: 17.6%).
|Business Results||As at Dec 31, 2015||As at Dec 31, 2014||Change,%|
|Loans granted YTD (EUR millions)||6,558||6,792||(3.4%)|
|Number of active clients (millions)||12.5||9.1||37.4%|
|Number of distribution points||185,893||166,377||11.7%|
|- Number of POS´s and loan offices||183,488||162,796||12.7%|
|- Number of bank branches||439||853||(48.5%)|
|- Number of post offices||1,966||2,727||(27.9%)|
|Number of employees (thousands)||72.9||58.3||25.0%|
|Profit and Loss (EUR millions)||2015||2014||Change,%|
|Net interest income||1,193||1,377||(13.4%)|
|Credit risk costs1||(725)||(1,116)||(35.0%)|
|Net result for the year||(42)||(60)||(31.2%)|
1) Credit risk costs represent impairment losses on the loan portfolio
2) Operating expenses comprise general administrative and other operating expenses
|Financial Position (EUR millions)||As at Dec 31, 2015||As at Dec 31, 2014||Change,%|
|Net loan portfolio||5,835||5,060||15.3%|
|Customer deposits and current accounts||4,909||2,890||69.9%|
Source: Home Credit B.V., consolidated.
|Profit and Loss Ratios||2015||2014|
|Net interest margin1||15.4%||18.0%|
|Net interest income to operating income||73.7%||70.7%|
|Cost to average net loans2||16.1%||13.9%|
|Cost to income ratio3||54.8%||44.7%|
|Cost of risk ratio4||13.2%||17.8%|
|Financial Position Ratios||As at Dec 31, 2015||As at Dec 31, 2014|
|Net loans to total assets||60.4%||71.9%|
|NPL coverage ratio7||115.7%||106.4%|
|Deposits to total liabilities||58.0%||49.8%|
|Equity to assets||12.4%||17.6%|
|Equity and deposits to net loans ratio||104.6%||81.6%|
Source: Home Credit B.V., consolidated.
1) Net interest margin is calculated as net interest income divided by the 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) RoAA is calculated as net profit divided by average balance of total assets.
6) 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.
7) NPL coverage ratio is calculated as loan loss provisions divided by gross non-performing loans.