Multitude AG (0R4W) Earnings Call Transcript

Welcome to Multitude's 2023 HR results earnings call. Today, we will hear a presentation regarding the 2023 H1 results by the CEO, Jorma Jokela; and the CFO, Bernd Egger. We have also Chief Strategy and IR Officer, Lasse Makela available on the call. Afterwards, there will be question-and-answer session. With this, I hand over the floor to you, Jorma.

Good. Thanks [indiscernible]. And hello, everyone. My name is Jorma, I'm the CEO and the Founder of Multitude. Today, I will take you through Multitude's results for the first half of 2023, alongside my colleague, our CFO, Mr. Bernd Egger. Bernd Egger will be joined a little bit later by mobile phone. We have a little bit technical challenge there, but we will -- both are in the call today. So I'm very thrilled to share that our [indiscernible] remains strong in the first half of the year, and I attribute this achievement primarily to our exceptional team. And I have to say that a dedication execution of our share plans and strategy have been both disciplined and highly professional. So really big thanks, really, really big thanks. Today, our main targets to leave for you the 4 key takeaways. The first one, we are on track with our EUR 45 million EBIT guidance on this year. The second one, we have a really strong starting of this year, EBIT is 66% up to EUR 20.9 million and profit up 250%, up to EUR 7.5 million. Strong cash position continues and robust payment behavior. So we have a really good news for you. Good. But before we build in the specific as our latest financial and business performance, I would like to take a moment to provide an overview of Multitude and our strategic direction. We hold an impressive 18-year track record of establishing the successful and profitable global FinTech ecosystem originating from the Scandinavia and Finland with a full EU-wide banking license and listing on the Frankfurt Stock Exchange in the prime standard. Today, our operations across the 3 business units, collectively serving more than 400,000 customers across 19 countries with over 700 colleagues. Our reiteration to deliver amazing financial track record year-after-year comes from unique market opportunity and Multitude people fashion to change the world and deemphasize financial service through digitalization, making them fast, easy and [ creative ]. This is all our products logic base. We want to do something unique or even extraordinary, something where everyone can be proud of. Our vision is to create the most valued financial ecosystem gives our people one call and direction. We have got a pretty impressive track record, 18 years of consistently delivering profit, growth and dividend to our shareholders. That's the path where we are planning to stay on in the future as well. Our financial ecosystem is designed around the idea that Multitude serve as a core platform posting all our scalable components. Currently, we have got 3 distance business unit operating on the platform, SweepBank, which concentrate on shopping and mobile banking, Ferratum specialize in digital consumer lending and CapitalBox focus on digital SME lending. Those units have the unique lifecycle space and focused areas. On the Multitude platform, our focus is twofold. First, we are working on the enhanced scalability across the board. And second, we are constantly on the look of the fresh opportunities for the entire crew. Like we done in Q1, we made an investment in Sortter, a leading financial service comparison platform in Finland as a part of our commitment to exploring the new horizons. Good. But hey, let's dive into Multitude's performance and our achievement at the H1. We have seen consistent growth in both EBIT and revenue over multiple consecutive quarters. The current market situation is providing the robust support to our business initiative in several ways. Credit demand and payment behaviors remain robust, and the ongoing digitalization trend has pushed us even further. Ferratum has been delivering the solid performance, showing revenue and EBIT growth quarter-after-quarter, just like a finely-tuned Swiss watch. CapitalBox, we are seeing the positive result from the turnaround effort. We are back on the path of profitable growth, which is really, really great news. As for the SweepBank, it is still in the startup phase. Sales growth is strong, but we are keeping a close eye on cost and credit loss as we move forward. Around a year ago, we kicked off the warehouse lending product from our growth platform. Since then, we have been in touch with a number of lenders across the Europe, both unsecured lenders and secure lender, and the response has been really, really positive. We are excited to offer value not only to our own business units, but also the third-party business through our banking platform products. The warehouse lending is one of the first one what we saw in the market. Given the current market condition, we have been the exploring potential strategy acquisition quite actively. Our interest lies in acquisitions that align with our growth strategy, whatever they complete current business units, country and product offering, offering something new to the table for the same customer segment in Europe where we operate today. During the first half of the year, we organized the Multitude Manager's event, expanded a week, bringing together 100 individuals from more than 20 countries. Throughout this event, we delved in the Multitude of internal business case and shared the intel came from various fields. When we're looking ahead, we have got a clear focus. First, we are all about leveraging our agile organization to build scalability. Then we are aiming to speed up profitability in the short and midterm. And let's not forget it, we are working on building the strategic value through our growth platform. And lastly, I want to emphasize that we are committed to confirm our EBIT guidance of EUR 45 million for this year. [Good] but let's take a closer look at SweepBank. We have seen the strong net revenue growth, mainly driven by the prime lending in Latvia, credit card sales in Finland and the success of our allocated warehouse lending in this sector. We have been making great progress on our product development roadmap. In the first half of this year, we have introduced a risk-free revenue features and several improvements to enhance the customer experience, including the real-time chat supporting the app. It is exciting to see the first risk-free revenue coming from the SweepBank app. Although it's still in the early stage and is small, but it showed the potential for the future. We have been managed the fixed cost development and sales costs effectively. However, it's important to note that the credit loss has been higher than anticipated due to various factors. We understand that reaching our short-term 2023 EBIT targets for SweepBank might be more challenged, but we maintain a positive perspective on the value SweepBank and trade for both customers and shareholders. And naturally, this is support by the ongoing trend of digitalization in the payments and credit industry as well. In the future, we are considering the strong cooperation with Ferratum and CapitalBox business units. Looking ahead, we are focusing on growing the prime lending, credit card offering and risk-free products in our current markets, while also working on improving our cost income ratio. It's important to mention that we remain commit to our midterm goal to achieving positive EBIT by 2024, even if there is a greater EBIT loss in 2023 than initial anticipate. And this commitment does not impact Multitude official guidance of achieving EUR 45 million EBIT this year. Now let's take a closer look at Ferratum business unit, where we have made some strategic shift focusing on offering the digital credit in Europe market and stepping back from several non-European [indiscernible]. This move has allowed us to concentrate our effort and it's paying off over the first half really, really well. Our net revenue has been showing the growth in all our focus markets. This is thanks to hard work our team who have been dedicated to improving our digital marketing and customer onboarding process. And this translate to better customer acquisition growth, higher retention rates for existing customers and steady influx of new customers month after month. When we are analyzing our first half number, it's really important to remember that we have to compensate for revenue loss from markets we have exit by increasing revenue in the European markets. During the first half of year, we have been really busy with many technology development. We have mainly focused on improving our front end and enhance our marketing efficient and make the ongoing process even smaller. In various countries, we have also managed to speed up our customer promise of time to money through different technical innovations. Our priorities have also included improving our collection and credit risk technology, along with enhancing process to ensure stable credit loss performance over time. When we're looking ahead, we are focused on higher profit countries in Europe. Our plan is to strength marketing, risk management and collection expertise in those regions, while keeping a tight grip on cost and automation process. We are also aiming to expand our product portfolio, whether it's coming [ onshore ] or through acquisitions to support our future growth. And we want to confirm our financial progress, we are committed to deliver over 5% EBIT growth year-after-year. But hey, last one, let's dive in the CapitalBox business unit. Over the past 12 months, CapitalBox has pulled off the real turnaround. You know the traditional kind, back on the growth and profit track, we saw a huge opportunity to improve the digitalization of the SME financial industry. We have taken the time to recognize areas where we go do better and maintain necessary decisions and actions. Both revenue and EBIT are on the rise, thanks to steps we have been talking about in our previous earnings calls. Our team's spirit and customer happiness really goes up as well, which is important for us in terms of the progress we have made in the long run. So what we have been up to? First, we kicked off by expanding our distribution channels. We brought in the new sales partner in all our countries and investment heavily in our own digital marketing during the first half of this year, and it has been very success. Next one, we rolled out the new product in existing markets. For example, we leveraged our digital process and big database to launch secure lending product for the larger SME customer segment in first half of this year. And the third piece of puzzle, we automated the underwriting and sales process even further. We have scaled this up in Finland and Sweden so far, and we are pushing forward to do the same in more countries. This shift has freed up the time for our team to focus on giving customers even a better service. We have also invested in our team, giving them more responsibility, their progress and training. I have to say this winning formula is working like charm, and we are keeping our eyes on the prize. We are not only comfortable with the improvements we have made, but we are also standing by our earlier targets to deliver the EUR 5 million EBIT this year and double that on the following year. So there you have it, all our 3 business units is hitting its stride, and we are excited to keep moving forward. Let's look at a few words about ESG. So I want to keep -- I would like to give you a short update on our ESG matters. As a part of our ESG program, we established our goals, targets and metrics for each ESG elements by 2025, which you can see in the left side of this dashboard. On the right side, you will find our main ESG actions for the first half of the year. And if you take a look, we have been quite busy in making solid progress. The first one we have made our Scope 2 and 3 initial public and enhance our data quality. Our responsibility lending index score has held very strong and total Net Promoter Score has remained strong. And one of the main reason there was that we're coaching our team to treat customers with extra care. We are all about enhancing personalized service and being the truly empathic to their needs. The eNPS score for employee satisfaction went up from 7 to 19, and this is a big improvement, and we are so proud of that. We have made a stride to improving growth diversity plus we kick off our double materiality assessment process. Looking forward, we are committed to engaging with stakeholders as we care after upcoming requirements outlined in the corporate sustainable reporting directive. But now I would like to extend a big thanks to you those incredible 6 months. And with that said, I will now hand over to Bernd, who will guide us through the financial performance. Hope Bernd your technical solution is on the place there. Bernd, can you hear us? Okay, looks like he did not manage to solve those technical challenges on the -- okay. If you can give us in the few minutes, we'll try to solve the technical issues and I really like to see the Bernd do presentation, the financial numbers. I can always do that myself as well, but I believe that Bernd is much better. Okay. So if you can give us in the few minutes more, let's say 1 or 2 minutes. If you can give us the 1 minute, I apologize for this technical challenge here.

If I quickly interrupt, Jorma. Unfortunately, Bernd still has some technical issues that he cannot be heard at the moment with his microphone. I don't know, Lasse, if you could maybe jump in to give some insights on the financial part as long as we are still figuring out how to get Bernd on the call.

Yes. Maybe that is the easiest solution. Maybe we can jump to Page 14 and sorry for the technical issues from our side. So looking at the -- at our income statement, as stated, our --

Lasse, unfortunately you're muted. Could you please switch on your microphone again. Yes, now we can hear you again.

Very sorry. Okay. So well, EBIT grew 66% and our net income grew 251%. And it's due to the net revenue increase of 5.8% from EUR 103.6 million to EUR 109.5 million during the first 6 months. And if you look at the cost elements here, our improvement -- sorry, our impairment losses increased 6.5%. So it's a de facto in line with our turnover growth. And then our bank and lending costs reduced by 13%. Our personnel expenses reduced by 6.4%. And our general and admin reduced by 17.4%. So overall, a great sort of performance of the company. And if we still look at the net financial costs, which has been, of course, on the table in the market. They increased from EUR 9.6 million to EUR 11.6 million, so 20.8% growth year-on-year. And if you look at the profitability once more, so really EBIT, 66% up to EUR 20.9 million in the first half, and it represents 19.1% margin. Then our profit before tax increased 209.6% which again came from EUR 3 million to EUR 9.3 million. And our profits increased from EUR 2.1 billion to EUR 7.5 million, which means 6.8% margin. Good. Maybe when we go to the next --

Now, last thing. Maybe we can try the -- can you hear the Bernd noise? Can you hear Bernd?

Can you hear me?

Yes, we can hear you. It's a little bit quiet, but I think it should work that way, Jorma.

Excellent. Okay.

Let's hand over to Bernd then.

Yes. Thank you.

[indiscernible]

Sorry, my apologies for the technical hiccups, we are having hope you can hear me well and coming to the phone now, but I'm sure we can manage. I understood that Lasse has covered the P&L already. So I will not go through each and every number. Under that, I would like to reiterate my first statement on the P&L [indiscernible] revenue up by 5.8%. We will talk about that [indiscernible] business that is the increase in revenue in Europe of [ 49% ] that's quite remarkable in our view. Secondly, credit loss impairment in line with revenue growth. So largely absolutely okay. Excellent performance here [indiscernible] very solid performance and there are some credit loss issues in [indiscernible] but overall, performance is good. From a cost perspective, I would like to highlight that this is more the reason I wanted to go by sort of the P&L slides. The key message that I want to say here is that the focus that we have been facing on improving the operating leverage over the last couple of quarters is paying off very nicely in essentially all cost line items with the exception of a slight increase in marketing, which is decreasing costs. Personnel expenses, a reduction compared to H1 last year of more than EUR 1 million, so that is 6.4% down. The key drivers of that are a very stringent cost focus in Swiss, pushing our automation initiatives; and thirdly, gradually building up human resources also outside Europe. General and admin expenses is down EUR 2 million, so minus 17%, essentially for the same reason. So focus on core initiatives and a very high cost sensitivity in the area. Combining those 3 statements or revenue of the credit losses very well under control and the cost management tightly. This brings me a view on profitability metrics. In a nutshell, all profitability metrics are in very good shape and has improved significantly from H1 2022. EBITDA up 2/3, 66% to EUR 20.9 million, profit before tax up 210% to EUR 9.3 million and a very strong increase of 250% to net profit of EUR 7.5 million for the first half of this year. Now moving on to the balance sheet, and I'm going to try to make up a little bit of time, not bore you with too many details. But the [indiscernible] is very simple. Total balance sheet, total assets up by EUR 70 million from a EUR 800 million to EUR 827 million, an increase of 9.5%. One of the key drivers is on the one hand side, an increase in cash balance, EUR 23 million plus an increase in financial assets, including investments from the warehouse lending business, which is picking up very nicely, increase of EUR 16 million and an increase in the loan book from EUR 509 million to EUR 520 million to an increase of EUR 11 million. On the next page, [indiscernible] on liabilities and equity. Equity is stable at EUR 180.5 million bond covenants that are [indiscernible] to the bond issued in December last year, we are way above that. So it is all in very good shape. On the liability side, the key driver of the increase deposits, up EUR 65 million, logic behind that is essentially to enable us to have the liquid resources on the balance sheet in order to facilitate growth in the second half of this year with at least towards longer maturities in deposits. Next slide, the loan portfolio in comparison to H1 2022. Again, basically through very simple statement. One, all loan and investment portfolios. So the loan and portfolio in all businesses have been growing over the last 12 months. Ferratum stands at a loan portfolio of net EUR 307 million that's a EUR 15 million increase. CapitalBox from EUR 81 million to EUR 91 million, increase of EUR 10 million and Sweep -- we are combining Sweep and warehouse lending investment portfolio, up EUR 53 million to EUR 164 million. Revenue, I briefly elaborated on the consolidated revenue development how does it look like from a segment reporting year. And with that move to next slide in one simple statement. Revenue is growing in all 3 segments. But let's start with Ferratum and take a closer look at Ferratum revenue up EUR 87 million to EUR 89.2 million. That's an increase of EUR 2.2 million or 2.5%. However, [indiscernible] plan the launches that are elaborated on very briefly in a little bit more detail, first half 2021, we generated EUR 4 million revenue outside Europe, which is essentially Ferratum revenue. That has dropped to less than EUR 1 million in the pursuit of our strategy is more focused on Europe to exit Australia and going forward also on [indiscernible]. But that in turn means that the core business, the Ferratum core business in Europe has actually increased revenue by EUR 5.4 million, which is 6.6%. So a very solid and actually a very strong performance, which is perfectly in line with our mid- and long-term targets. Credit losses for Ferratum, [indiscernible] absolute numbers exactly on the same level of -- exactly the same level it was last year in comparison or percentage of revenues, that is a further improvement at a very good pace. Operating expenses in [indiscernible] reduced and that all results in super strong earnings sequences to tax of almost EUR 28 million and EUR 27.9 million, increase of EUR 3.6 million or almost 15% compared to last year. SweepBank's performance, there are 2 messages that are -- one that is not so strong. Let's start with revenue first up EUR 3.3 million, with an increase of [indiscernible] year-on-year to EUR 9.4 million. Credit losses during last period of time, an increase of EUR 4.5 million. Despite the strong revenue increase, it is not satisfying. So here, we will -- we are in during the remainder of the year but very much emphasis to focus on this topic. It's largely under control, but still from a numerical perspective, we are not really happy with the credit losses here, but this current [indiscernible] shows improvement [indiscernible]. Positive on positive note a EUR 3 million positive impact on P&L compared to last year from post reduction. So in totality, with deposits also growing an improvement in terms of EBIT contribution by EUR 1.8 million to EUR 1.8 million better than last year, but still a negative EUR 8.9 million contribution to EBIT after cost allocation. So in a nutshell great improvement, but it's not exactly where we want to be. And as pointed out, it is definitely going to be one of the important area means the [indiscernible] on utilization of assets in other areas. And on the CapitalBox, an increase of 5.8% in terms of revenue from 10.43% to EUR 11 million. Credit losses was a little bit of the same point in the first half of 2022. The credit loss performance much, much better in CapitalBox first half 2023, credit loss is down 47% from 4.5 million to less than EUR 2.5 million. So that is [indiscernible] very well on that for a couple of hundred thousand in addition to [indiscernible] taken over the [indiscernible]. Other [indiscernible] impact profitability and CapitalBox first half 2022 was not negative in the range of EUR 1 million. In terms of EBIT that has changed quite substantially. Now we see a positive result of almost EUR 2 million, EUR 1.9 million. So this is an increase year-on-year, so an improvement of EUR 3 million EBIT contribution. So in a nutshell on CapitalBox summarized all that and [indiscernible] strong cost control underwriting focus going forward is going to be on pushing growth on accelerating the growth [indiscernible]. Next slide. As far as you are familiar with that in one statement continues to be stable. Again, impairment losses in comparison to net accounts receivables. The net portfolio remains below 4% on a quarterly level despite the fact that we have some elevated [indiscernible] segment is essentially compensated the very strong underwriting [indiscernible] portfolio management, the performance now on the level of [indiscernible] and CapitalBox. And on next page on cash development, we're holding more EUR 197 million in cash. This is enough to give us really room to move over the next couple of months to accelerate the business. So we are perfectly well placed for future from a liquidity perspective. 2/3 of that to give a little bit of detail on the balance sheet of the bank, which is a little bit more than EUR 130 million. And finally, let me briefly elaborate on earnings structure, cost of debt, but also one or 2 statements on going forward. Funding mix over the last months has seen a shift to deposits with a focus on longer-term deposit as a consequence of interest rate developments. We all are aware of debt funding currently slightly above 3% which we absolutely need to accept, but at the same time, it also gives us the opportunity enter into quite attractive deals over the last couple of weeks in terms of start earning meaningful interest income also on the [indiscernible] with the Central Bank, and [indiscernible] bank. We don't have any upcoming maturities before end of 2025. So that is all good. So [indiscernible] in fact 2 of this now [indiscernible] information I would like to give with regards to Multitude Bank. Firstly, Multitude Bank has for the first-time ever successfully completed a rating process. It will be actually today being -- cost rating from Fitch, that is the same level as the consolidated group. There's a rational behind rating the bank separately and that is that we plan to step into the market are considering the tier 2 transaction on the level of the bank to support regulatory patent may be going forward to the growth, but also to lead the upcoming rent requirements and resets for minimum requirements, foreign funds and digital liabilities. That is the second on statement that I wanted to make. So we are planning to go to market for Q2 transaction with Multitude Bank in the first 7 weeks. And finally, on this presentation on the left, I would like to bring across [indiscernible] information that might be relevant. We have decided to do a Capital Markets Day on 21st of November. And of course, we'll be happy to see you all joining our Capital Markets Day. With that, again, sorry for the today. With that, I now turn over back to you, Jorma.

Good. Good. Thanks, Bernd and very apologize for everybody about this technical challenge what we face over this time. If you can go the previous slide, still nothing, please. So today, in this call, I hope we managed to leave for you those 4 key takeaway. First one, we are well on track on guidance with our EUR 45 million EBIT. The second one, we have very strong performance in the first 6 months, EBIT 66% up to EUR 20.9 million in profit, 251% up to EUR 7.5 million. We continue with a strong cash position. We have very robust payment behavior. Those are the 4 key takeaways that we want to leave for you, and I think we are open for the questions. And Bernd, you can join with this backup technical solution as well.

[indiscernible].

Good.

I think that would work. All right, great. A little turnaround, but I think you should be fine for the Q&A session now with that. We already received a lot of questions via chat. So if you have questions, please place them in the chat, and Jorma and Bernd will read them out and answer them for you. And you have also the possibility to ask your questions directly by audio line. In order to do so, please press your virtual hand. We would start with one question from a virtual hand from Marius Fuhrberg.

I hope you can hear me.

Yes, we can hear you well.

Executive^ Perfect. So my first question with regards to the SweepBank segment. So as we learned, there are large or there were, I would say, surprisingly large credit losses in the second quarter. What is actually the reason for that? Is it a misperception of risks? Or how did that come together? And secondly, also with the outlook for SweepBank. How do you plan to bring this segment to breakeven? Is it rather via top line improvement? And if yes, what is the target or how do you plan to achieve that or is it rather via cost cutting? And secondly, also on these financial results, in general, that improved in Q2 compared to Q1. What is the reason for that, especially as we learned that your debt costs increased slightly from Q1 to Q2?

Maybe we can do it on the way that Bernd. I will be like take first question and if you can take general the -- our performance improvement question. Is that okay?

Yes. Perfect.

Perfect. So if we look to SweepBank, we have an investment to SweepBank several areas in the world now. And we have improved our strategy step-by-step. We have done the mistake. We have learned that one. We have done the correction and moved in the different direction or improved the steps there. We currently feel that we have a very close to the situation that we always see how the logic is working there. And what is the key learning for us there is that we don't want to see like a free -- like a service provider and generate a huge loss there and making the whole company on this point of view, that how this will be successful. So we want to more look the front of improvement on the profitability and business case as well. So [indiscernible] that one, our view on the [indiscernible] trip, it's that we are very commitment to 2024 the breakeven and how we will get it that one. It's a little bit answer to your credit loss question actually at the same time because when we look in other credit loss that they are a little bit greater than we anticipate in the beginning, there is a few factors behind them. The first one is that we have some runoff portfolios where we see a little bit higher the credit loss, what we anticipate. And the second one is that we came to a lot of new customers where you're doing the higher credit lost reservation there as well. So we see that this will be like flattened. This will be like stabilized over the next 6 to 9 months period there where we can see like a full picture of this business unit and that's the reason how we see that one. When we look at the outlook, our view is that one, and there is actually somebody else make the chat question here as well in the German SweepBank plan there. So our plan is very simple here. Maybe I can take both questions at the same time. So our plan on the future is simple. We want to deliver the digital network bank and digital credit card on the real time for the customer. We want to distribute this in the different ways in the pure direct through the online, but we want to use future on the Ferratum and CapitalBox platforms and business units as well there. We want to gain the customers, and we want to put a lot of effort for the engaging customers that they are more the longer-term customers there. We already see that this strategy is working and pay off. Just a question is that it's pretty small today. So what we're doing now, we're practically scaling up, but we want to scale up these small steps. We don't want to do it like a big bang. We rather prefer they do it like a step-by-step that one. And that is the reason why we are comfortable on the SweepBank future as a part of the Multitude offering and coming to breakeven there as well. Good. That's my part on the answer. Bernd, do you want to continue or add something?

Yes, [indiscernible] in Q2 in comparison to Q1 that we raise and is absolutely correct. Basically there are 3 main reasons. Firstly, in the second quarter, we had exceptionally [indiscernible] I take into consideration that we are operating in a market, so foreign exchange costs, hedging costs has impacted [indiscernible] is a factor that has reduced significantly, is very low in the second quarter, having a positive impact. Secondly, we had a onetime effect in Q1, one-off payment related deposit compensation scheme and [indiscernible] the cash position deposit whereas those remain pretty much flat during the second quarter and building up deposit levels pretty as variable cost related to its positive compensation scheme. So that brings us to on average, a little bit less than EUR 6 million net financial results per quarter, and that is pretty much -- it's exactly [indiscernible] but given last time any questions, I was honest, what we think is going to be the level of financial results for the next 1 or 2 quarters, then it is average [indiscernible].