“The second quarter saw a strong recovery in profits as we moved on from the challenges of the market restructuring in China at the start of the year and as our businesses in other countries continued to prosper.
There was a marked improvement in China where, as expected, the impact of the recent regulatory actions has moderated and the market is now better placed to serve the interests of consumers and regulated lenders. We did well in this context and in the second quarter generated a net profit of EUR 46 million in China.
Russia, Kazakhstan and Vietnam maintained their positive momentum, with all three businesses contributing strongly. Our growth markets of Indonesia and the Philippines have not only grown but also improved their performance delivering the first two consecutive quarters of profitability. India has successfully continued to build scale, expanding its network and reaching more customers.
We have continued to cement leadership positions across our markets, supported by significant investment in disruptive technologies. Our ability to deploy AI, advanced modeling and chatbots as well as our development of mobile application-based services and end-to-end paperless processes has allowed us to attract more customers, serve them better and gain market share.
Finally, I would like to welcome Ondrej Frydrych to his new role as Group CEO. In addition to his experience running one of our core businesses, he brings a real depth of understanding of technology and the online environment that will serve us well as we increasingly develop our digital presence. I have every confidence that together we will continue to drive profitable growth across the business in the second half of the year and beyond.”
Jiri Smejc, Executive Chairman of the Board of Directors, Home Credit B.V.
“After the first quarter, which was affected by the macro environment in China, the Group returned to profit in the second quarter. This Group net profit of EUR 71 million in the second quarter resulted in net profit of EUR 40 million for the whole six-month period. Throughout the half we have continued to successfully execute on our online strategy, including building strong B2B partnerships to reach new customers in new ways. A particular highlight has been our digital offering where, on average, our mobile app is used by close to 12 million customers per month, more than three times the number just a year ago. Digital is an important platform for us as it engenders loyalty and attracts new customers. We intend to develop it further in the months ahead as we build on our key strengths to take the business forward.”
Ondrej Frydrych, Group CEO, Home Credit Group
The Group delivered a solid set of financial results for the first half of the year, with a strong performance in the second quarter driving profitability. The significant improvement from the first quarter, which returned the Group to profit in the second quarter, resulted in first-half net income of EUR 40 million. At the same time, the quality of the Group’s loan portfolio substantially improved from the first quarter with the cost of risk ratio dropping from 14.9% in the first quarter to 10.6% in the second quarter. New loan volumes increased 4.1% y-o-y to EUR 10.0 billion in the first half.
Through further diversification of our product offering and further good progress in our multichannel distribution strategy, we have continued to gain market share, growing our customer base to 29.0 million active customers globally (compared to 26.5 million a year ago), reconfirming our leadership position in key markets. The overall number of customers the Group has served exceeded 106 million.
Home Credit’s geographical diversification is a key strength for the Group. The Group’s mature markets of Russia, Kazakhstan and Vietnam continue to have positive momentum which has contributed to the overall profitability of the Group.
In Russia, new loan volumes grew 23.6% y-o-y (on a local currency basis) on the strength of Home Credit & Finance Bank’s leading position in POS and on a 43% y-o-y hike in credit cards’ new volumes. Non-performing loans comprised just 3.9% of total gross loans, down from 6.2%, a significant improvement y-o-y.
In Kazakhstan, Home Credit Bank delivered further outperformance, with 64% growth y-o-y in new POS loan volumes and an increase in its deposit base of 87% y-o-y (both on a local currency basis).
Vietnam also continued to deliver strongly, with 24% y-o-y growth in new loan volumes (on a local currency basis) driven predominantly by the cooperation with major manufacturers of mopeds and motorbikes.
In our home market, the Czech Republic, excellent risk costs have been achieved as a result of new underwriting scorecards which are based on enhanced usage of external data. This, combined with an effective collection process, delivered a strong, profitable performance.
In China, the Group’s subsidiary achieved a notable improvement in risk costs in the second quarter of 2018 compared to the first quarter, strengthening to 13.9% from 21.3%, as the impact of regulatory changes in the consumer credit market moderated, in line with our expectations. The business was largely able to contain the negative impact of these market changes on profitability to the first quarter, with the China operation generating a net profit of EUR 46 million in the second quarter.
The subsidiary also successfully placed its first financial bond of RMB 1.5bn in the second quarter. Its oversubscription further demonstrated investors’ confidence in the strength and scale of Home Credit’s business in China.
The Group delivered further progress in its growth markets. The three businesses - Indonesia, the Philippines and India - have continued to grow in scale and gain market share. Home Credit remains the market leader in the Philippines, with a unique and unmatched value proposition which has already attracted three million customers. In the first six months of 2018, the Philippines’ subsidiary underwrote 123.4% more loans than in the same period a year ago (on a local currency basis) and was profitable in every month throughout the reporting period.
Similarly, our business in Indonesia recorded profit on a quarterly basis throughout the period and achieved over 50% market share in lending for consumer durables, providing access to its lending services to nearly 90% of the country’s urban population. New loan volumes increased 108.0% y-o-y over the period.
In India, newly underwritten loans rose 87.6% y-o-y while the number of active customers grew 40% y-o-y to almost three million. Since the subsidiary’s foundation, strong customer acquisition through the POS network drove the number of borrowers served to almost 7 million. These factors have solidified the position of the Group’s subsidiary as one of India’s leading non- banking financial companies with more than a fifth of the market in small loans for consumer durables.
POINT OF SALE NETWORK
Home Credit Group has continued to increase its distribution reach through a global network of 429,635 sales points at the end of June 2018 compared to 364,735 as at June 2017. The transformation into a fully paper-less underwriting process which has been completed in China and Indonesia enables the Group to offer excellent customer service and reduce costs. The Group is selectively introducing a model which is fully operated by partnering retailers’ employees, again optimizing costs. This distribution model accounts for 17% of the Group’s entire in-store presence. In our growth markets we have significantly expanded our network. In India, Home Credit’s POS network, mostly operated by retailers’ employees, has more than doubled compared to the same time last year, allowing the company to better serve its customers through a network of more than 27,000 outlets across 120 cities. In Indonesia, we added almost 8,700 distribution points and in the Philippines 1,700 points over the previous 12 months.
ONLINE DISTRIBUTION AND DIGITAL
Through the expansion of innovative new technologies, the Group is seeing greater loyalty and retention rates amongst the existing customer base as well as attracting new customers. In the first half of 2018, Home Credit Group focused on enhancing its online distribution capabilities resulting in, for example, a 127.7% y-o-y increase in online sales and a 74% increase from Q1 to Q2. Cross-selling of cash loans through the mobile app was the main online sales growth driver. In June, our mobile app was used by nearly 12 million customers compared to 3.71 million a year ago. Social media platforms like Facebook, Instagram and their equivalents in China and Russia attracted 9.98 million followers (74% growth Q1-to-Q2) and started complementing our offline distribution to generate leads.
In China, Home Credit has invested further in its advanced machine learning technology capabilities and became the first local consumer lender to employ voicebots and chatbots on a large scale, making an average of 50,000 calls a day. The use of these bots provides greater business efficiency while maintaining customer satisfaction.
Home Credit Russia has continued to develop its online capabilities with the share of active customers using online services reaching 56% and the share of online payments reaching 44% in the period. Home Credit Russia has also invested in improving the functionality of its mobile bank and “My Credit Application”; from Q2 2018, customers are able to make contactless payments through key payment platforms such as Apple Pay, Samsung Pay and Google Pay. Also, Russia’s Home Credit was the first to leverage the country’s Unified Biometric System for remote identification of an applicant for a loan. This opens the possibility to provide consumers who opt for registration in this country-wide biometrical database any online lending product they qualify for.
At Air Bank in the Czech Republic, approximately 50% of its 637,087 customers bank solely bank through its mobile app, whether carrying out money transfers or taking a loan. A comprehensive rewards program, run in cooperation with retail partners, attracts many more each month. Also in the Czech Republic, Home Credit serves the country’s major e-shop, Mall.cz, with its seamless, one-click lending solution where customers’ data fields are pre-filled for a hassle-free customer experience.
The Group posted net profit of EUR 40 million for the first six months of 2018 compared to EUR 133 million in the same period of 2017. In the second quarter of the current year the Group registered a strong recovery with a net profit of EUR 71 million. If reported on the previous IAS 39 standards, net profit would have been EUR 31 million higher. However, by adopting the IFRS-9 principles, the Group created an additional reserve, which boosted NPL coverage up to 131.7% and will be of benefit in forthcoming periods.
In July 2018 the role of Chairman and CEO was split, with Jiri Smejc, the Group’s minority shareholder, moving from Group Chairman and CEO to Group Executive Chairman, while Mr Ondrej Frydrych, previously our Country Manager in China, became the new Group Chief Executive Officer. The roles have clear and separate responsibilities with Jiri Smejc focusing on Group strategy, providing overall direction and supporting the growth of key business-to-business relationships. Ondrej Frydrych, who will report to Jiri Smejc, comes to the Group CEO role with extensive experience in the area of technology. He will help drive the development of the online offering and Group’s digital platform as well as having responsibility for overall operational oversight and management of Home Credit Group.
In this reporting period the Group has completed its divestment in Belarus and, after having discontinued its banking activities in 2016, sold its subsidiary to Alfa Bank Group, a leading Russian privately-owned banking group.
|Business Results||6M 2018||YE 2017||6M 2017|
|Loans granted YTD (EUR million)||10,031||20,689||9,636|
|Number of active clients (million)||29.0||29.9||26.5|
|Number of distribution points||429,635||399,276||364,735|
|- Number of POSs and loan offices||428,940||397,114||362,588|
|- Number of bank branches||443||432||417|
|- Number of post offices||252||1,730||1,729|
|Number of employees (thousands)||130.8||157.7||144.8|
|Profit and Loss (EUR millions)||6M 2018||YE 2017||6M 2017|
|Net interest income||1,542||2,417||1,062|
|Credit risk costs1||(991)||(1,124)||(448)|
|Net result for the period||40||244||133|
|Net profit attributable to equity holders of the parent||48||256||135|
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)||6M 2018||YE 2017|
|Net loan portfolio||16,439||15,452|
|Customer deposits and current accounts||6,676||6,356|
Source: Home Credit B.V., consolidated.
|Profit and Loss Ratios||6M 2018||YE 2017||6M 2017|
|Net interest margin1||15.8%||14.7%||13.9%|
|Net interest income to operating income||79.7%||77.4%||76.0%|
|Cost to average net loans2||11.2%||12.9%||13.2%|
|Cost to income ratio3||45.4%||52.0%||53.2%|
|Cost of risk ratio4||12.6%||8.9%||8.0%|
|Financial Position Ratios||6M 2018||YE 2017||6M 2017|
|Net loans to total assets||75.5||71.8%||70.6%|
|NPL coverage ratio7||131.7%||121.7%||128.7%|
|Deposits to total liabilities||33.5%||32.6%||34.1%|
|Equity to assets||8.5%||9.4%||8.5%|
|Equity and deposits to net loans ratio||51.8%||54.3%||56.3%|
Source: Home Credit B.V., consolidated.
Ratios are annualized where applicable.
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.