DelfinGroup AS (DGR1R) Earnings Call Transcript & Summary

Good morning. Welcome to DelfinGroup Investor Webinar. We will begin with the company's presentation, after which we will address the questions submitted by participants. [Operator Instructions] For your convenience, the webinar is being recorded, and a replay will be available shortly after the session. Now let me introduce today's hosts. Didzis Admidins, Chairman of the Management Board; and Andrejs Aleksandrovics, member of the Management Board and the CFO. Please, the floor is yours.

Thank you. Hello, everybody. I'm Didzis Admidins and today with me here is Andrejs, our CFO. And I will present to you the results for 2025 and I will start with business performance and later Andrejs will continue with financial results. And as always, we will answer your questions at the end of the presentation. Okay, okay. I will start with key results. Basically, about 2025, the year itself was quite good. If we talk about business performance and financial performance and revenue increased by 24% and profit before tax grew by 35%. And that resulted in a return on equity of 35% and the cost-to-income ratio was down 40%. And about the last year also, there was starting from second quarter, we placed additional focus on cost discipline and operational efficiency which further strengthened our profitability. That's basically how we achieved this result. And in parallel of that, we completed a unique transaction in Baltic Capital Markets, so DelfinGroup becoming the part of INDEXO. And we believe that, that will strengthen our strategic positioning looking forward. And let me briefly walk you through our key financials of 2025. If we talk about loan issuance and there you see loan issuance for both our credit business lines and in both countries. And loan issuance reached EUR 134.8 million, and it was up by 29% on a year-on-year basis, reflecting on strong demand across Latvia and Lithuania. And as a result of that, our credit portfolio increased to EUR 144 million, and that was up by 27%. And that actually exceeded our guidance by around 5%. Going forward, about revenue grew, and that was in line with portfolio expansion and that reached EUR 78.2 million, and that was up by 24%. If you look at profit before tax, it was at record level of EUR 12.4 million and up by 35% on a year-on-year basis. And you see that there is around like EUR 1 million onetime item in our profit before tax, but even excluding that, the run rate is significantly above like previous quarters. Okay. And now I will move to business highlights and what we will explain how we achieved these results. And I will start with like cost-to-income ratio and cost discipline of last year. And as I mentioned, from second quarter, we introduced measures to improve our efficiency and what we did, we basically closed our branch network in Lithuania. We had 7 branches across -- not across Lithuania, it was all in [indiscernible]. And altogether, in Latvia and Lithuania together, we reduced our headcount by 42 FTEs. And more or less, we shifted our focus more to consumer loans and we take a bit of focus from pawn and the retail operations. But nevertheless, we are still focused on that segment, but we shift our focus a bit to consumer loans and more of those personal decrease was in retail operations. And as a result of that, we basically decreased our administrative cost. And if we compare year-on-year basis, it was up by 4%. But if we compare quarter 4 to quarter 4, it was down to 9%. And that led actually to like improvement in cost-to-income ratio to 40.2%. And now I will move to our consumer loan segment, and that -- this is like backbone of our business. And this slide corresponds to like both countries in consumer loan segment. And in this segment, we increased our issuance by 31% on a year-on-year basis, and it was at EUR 136.4 million level. And the growth was mainly supported by higher average loan size and longer terms in portfolio and at the issuance level as well. And actually, we get this increase in issuance and increase in portfolio in both our countries. And if we talk about portfolio quality and nonperforming loan levels, it was at 4.3% level. And actually, I can comment that it's below our like comfort level, which we -- which stands at around like 7%. And now it's like below even 5%. Going further to Lithuania. And this slide corresponds to consumer loans only in Latvia (sic) [ Lithuania ]. In previous slide was both countries. And in Lithuania, our credit portfolio grew to EUR 7.7 million. And I count that it's quite good first year. And as you know, 2025 first full year of operations in Lithuania, in consumer lending space, and talking about loan issuance levels, at the end of the year, it was at a level of EUR 3.6 million. And at the moment, we are still calibrating our business model and our risk models. And after that, when we will be ready, we will push harder and increase our issuance levels. Going further to our pawn loan segment and talking about pawn loans, they remain quite stable in 2025 and DelfinGroup continues to be a clear market leader in Latvia. And at the moment, we have around like 53% of market share in this segment and the portfolio for us was stable last year. And I could say that pawn is like steady and reliable part of our business. And also you can see that in last year, the average loan amount increased, and that was mainly supported by gold price increase. And as you know, that gold price was up by more than 50% during the last year, and actually, it continues to grow. And our focus on this segment is not so much on aggressive growth, but improving like profitability and operational efficiency. And this part is like stabilizing part for our business and for our branch network as well. Going further to like retail of pre-owned goods. And in this segment, we delivered quite solid growth in 2025. And the total sales was up by around 15% and this growth was mostly supported by both like part of this business, off-line sales and also online sales, but mostly by online sales because online sales was up by around 25%. And in the year of 2025, online sales now corresponds about like 25% of total sales. And also in last year, we sold a lot of gold scrap. And of course, like high gold price was -- we were favorable of that, and we actually like sold gold by EUR 4.5 million like -- that actually helped us to like unlock free cash, which we can then later invest in credit portfolio or like for inventory. And yes, and going further to our branch network and talking about branch network. As you know, we are like operating extensive branch network across Latvia. Altogether, we have 88 branches and in 38 towns and cities. And last year, it was actually quite like impressive with relocating or renovating or opening new branch concepts. For example, we converted one of our branch in Liepaja to Banknote XL branch. And altogether, we now have 4 Banknote XL branches. And what does it mean Banknote XL? That basically is the branch with the larger floor space, and we can sell more like do more sales in these kind of branches. And as well, we like renovated some smaller branches or relocated, then for example, we renovated a branch in Ogre, Tukums, and relocated the branches in Cesis and Valmiera. And about the guidance of 2026 and going and beyond and more or less our focus for yes, going beyond this to build the larger loan portfolio in both countries in Latvia and Lithuania. And as you know that our backbone of our business is consumer lending. And mainly, we will build this portfolio on this consumer lending space. But also, we are planning to introduce new type of loan, and this is like home equity loan. And actually, we plan to issue first loans in the near term. Actually, I think we will issue first loans even in March this year and that will be one of our new loan segments, which we will start very soon. And other new segment for us, which we are still like looking how to develop and how to go into this market is the consumer loans to lower risk level clients, and that basically means like larger loan amounts to lower risk profile clients. And also like talking about our guidance and our strategy, our aim is to be cost efficient and keep our cost-to-income ratio below 45% or even below 40%. And and to keep our equity like return on equity level above 30%. And now talking about our shareholder structure. And as you know, in December and January INDEXO completed, both like voluntary un mandatory share offering of the DelfinGroup shares. And now INDEXO group holds 71.52% of the DelfinGroup. And today, we have almost 8,000 shareholders. And I could say that being a part of INDEXO Group, of course, like it delivers us like broader platform and like strategic synergies of both those groups. And also, I forgot one thing that in this like guidance slide that this guidance doesn't actually include like potential synergies of both companies in like, let's say, the DelfinGroup and INDEXO Group, and we see that as like potential upside. Okay. And with that, I will now hand over to our CFO, Andrejs, who will walk you through the financial performance in more detail.

All right. Thank you, Didzis. Good morning, everyone. Didzis covered the main events in the business in 2025, let's have a bit closer look how it reflects in our numbers. So very strong year for DelfinGroup. We exceeded the guidance, which was 25% growth and seemed fairly ambitious, all when it was said and reported. Top line grew by 24%. Our largest business line is consumer lending, which constitutes around 71% in 2025 of our total revenues. That part of the business increased by 25% year-on-year. And also, we had an increase in pawn and retail businesses, which combined increased by 21% in 2025. While cost of sales increased 38%. This is only due to the mix of sales where larger part this year comprised of the gold scrap sales. And those gold scrap sales doubled the amount in '25 versus '24. And obviously, those sales have a significantly lower, however, still very healthy margin. If excluded the gold scrap sales, the margin on the other sales remained very stable, did not decrease. In fact, it slightly increased in 2025 compared to previous year, meaning increase were a 1% increase in the margin. Credit loss expenses, yes, this line of expenses did exceed both increase in portfolio growth and consumer loan income. However, we see already the improvement of this position in second part of the year, and we expect we will maintain this positive momentum also into and through 2026. Our interest expenses. Financing costs show favorable trend increase of 17%, but compared to the increase in consumer lending of '25 portfolio of 27% and so our cost of interest-bearing liabilities really decreased this year, and we will see that in a later slide when we look at the financial ratio slide. Didzis already mentioned our cost discipline, something that we worked on in 2025 a lot. Selling and admin lines are the ones affected the most. We became much leaner organization, and that really helped us to increase our operating leverage, which ultimately resulted in profit growth by 35% year-on-year as compared to the gross profit, which increased only by 16%. There were two larger one-offs that we wanted to highlight. The first one is VAT or value-added tax refund for the prior periods starting from 2022. We worked during the 2025 with the advisers from one of the big 4 advisory companies. We consulted the state revenue service, and we actually got a refund, cash in bank during Q4, so that was one of them. And the second one-off is really a correction of a phasing of our revenues for 2025, and which resulted in one-off positive impact in Q4 again. But even excluding those one-offs, DelfinGroup did record best-ever result for both full year as well as 1 quarter in Q4. A quick look at the balance sheet. Total assets up 28%, mainly driven by net loan portfolio, which increased 27%. Inventory is down 26%, but that's largely on the sale of gold scrap. I mentioned already, and also, we have a continuous focus on increasing our retail efficiency and stock turnover. So the increase in assets were financed by mix by both really by our equity increase which increased by solid 21%. Retained earnings up 39%, driven on the exceptional Q4, obviously. And also funded by interest-bearing debt or interest-bearing liabilities, where we actually have achieved some reduction in costs. I mentioned that in the income statement, but also, we're going to see that in our financial ratios on the next slide. Yes. So financial ratios, let's jump straight to the cost of interest of bearing liabilities. The -- this ratio now at the end of 2025 sits at 10.1%, which is down from 11.1% at the end of 2024. So really a reduction of 1% from 11% to 10%, which further allows us to improve our leverage. All the ratios, all the remaining ratios are calculated on the 12 months' figures and all of them improved suggesting that we have managed to course correct during 2025. Our EBITDA up to 35% for the year. Return on equity also reached 35%, while interest coverage ratio is at comfortable 2.1% and equity ratio closing on 25%, with both well above our covenants, which are 1.5% and 20%, respectively. Cost/income ratio already discussed by Didzis, so moving on. Yes, capital markets, still 3 major pillars of our external funding. First, the bonds. In 2025, we launched a new EUR 25 million bond in September, which we finalized in -- early this year and already listed on the exchange, currently trading at a small premium. We also redeemed in full bonds maturing in February 2026. Not on the slide, but mentioned in our financial statements for balance sheet events, we had EUR 1.2 million put options exercised by our bondholders after change of our shareholders, which we -- which triggered change of control cost. I must say only EUR 1.2 million in options, put options out of possible EUR 30 million. So we want to express our gratitude toward the investors who maintain the -- and showed confidence and showed trust in our company and remained invested with us. We will settle those put options, those EUR 1.2 million put options later this week. Banks, we renewed and extended our corporation with our good partners from Multitude Bank. And our total exposure is almost EUR 30 million as of today. And of course, Mintos, slightly decreased in position. We had some excess liquidity and reached managing financing costs. We reduced our position there. However, Mintos remains a significant partner for us. And we continue -- and we see this to continue going forward. Our capital structure on the left side did slightly change due to the events I just mentioned. If we jump to the schedule of maturities. So excluding Mintos, we had maturities of EUR 35 -- almost EUR 36 million this year. EUR 11 million bank loan we already refinanced with the Multitude Bank and maturity moved to 2028. And we redeemed EUR 10 million of bonds, leaving EUR 15 million with maturity this year. So actually, after this week, when we redeem the puts, we will have a little less than EUR 40 million maturities remaining. So already by now, we have cleared more than half of debt maturing in 2026. And of course, we're going to be working on putting plans to refinance remaining amount. Well, actually, we already started. And in 2027, we will have one bond in total amount of EUR 25 million to refinance. So we have now 5 active bonds remaining all listed on the exchange. Dividends, yes. Since we had a record profit for a quarter, keeping to our dividend policy, we will pay -- or at least we'll propose to pay a record high dividend payout to our shareholders for Q4 2025, which will bring total dividend yield to 8.9% this year. Dividends for the last quarter is almost EUR 0.04. None of our previous dividends had even come close to this. The next largest were actually last quarter, in the Q3, '25 and were around a little more than EUR 0.025. And about our share performance. Yes, obviously, also impacted by the joining shareholders with us joining INDEXO Group. The price offered by INDEXO in voluntary and then mandatory offering was EUR 1.3 per share. Positive for investors who kept DelfinGroup shares also that price have remained and even slightly appreciated since then. And plus current shareholders can reasonably expect that almost EUR 0.04 per share in dividends can be paid in Q2 2025 (sic) [ 2026 ]. Yes. I guess then I'm through my slides, and we can go to the Q&A session.

[Operator Instructions] We will start with a question submitted prior to the call, then we'll prioritize the audio questions and finally, continue with those submitted in writing. Our first question, are there any plans to expand to Estonia, Poland or other countries?

I have this one. At the moment, we are with the licensing process in Romania, but that's actually not covered in our guidance, and we don't have any like plans to open abroad like to open about other countries at the moment.

Can you comment on the taxes for residents of Latvia?

All right. So on the dividends, we don't withhold any taxes. And similar regarding the bonds when we pay the coupons to investment accounts, we don't with -- withhold any taxes, however, if paid to the security account, we have to withhold income tax. But if you have investment account, then there is no tax withheld by us.

Thank you. About dividends, will dividend policy stay the same with the new majority shareholder INDEXO and what amount is planned to be distributed in dividends for Q4 2025?

Okay. Andrejs already covered about dividends for quarter 4, and it will be close to EUR 0.04 per share. And about the dividend policy, as mentioned during like this share offering from INDEXO, they don't have any plans to change the dividend policy, and it remains as it is.

As I don't see any raised hands, we will continue with the questions submitted in writing. What are the main drivers for Q4 loan volume decrease? Are those internal decisions or external factors?

Yes, I will cover this. We can look in other side of this, for example, quarter 3 was actually not like ordinary quarter, but it was extremely good quarter for us. And the quarter 4 was a bit lower than quarter 3. And there was like some months in quarter 3, especially in Latvia, where we had special promotions to issue loans. That was the reason we had a quarter 3 was exceptionally good. And then quarter 4 back to the root of where we are developing our issuance. That's more like that.

Thank you. Continuing with the questions submitted by the participants. Is there any update on the potential banking tax rate on the last year? Will this tax still be present in 2026?

If this is meant that about paying the tax on a profit then we don't anticipate any changes, at least I haven't heard of any developments that it could be canceled in 2026 or in foreseeable future.

Thank you. Do you plan to scale down the retail branch network further in 2026?

We don't have exact plans to scale down the branch network, but we don't plan to increase the count of shares -- sorry, the count of branches. There could be some that we close some branches in some smaller towns, but that decrease will not be like significant. Maybe we will close one or about two branches.

Thank you. Now we have received several questions on the same topic. So synergies between DelfinGroup and INDEXO. Have there already been any actions from DelfinGroup or INDEXO to unlock synergies between the two companies? And if so, could you elaborate a bit on these? Also, how will this affect your cost of capital? And when could that be?

Yes. I will start and maybe then Andrejs will continue with cost of capital. About the synergies, yes, we already are doing some cross-sell activities and we actually see quite okay development in terms of that. And basically, that works like that, that INDEXO are offering their service to our customer base. And as you know, we have a quite large customer base, which we have developed since the beginning of DelfinGroup. And yes, we are offering like INDEXO services to our clients. And maybe you can?

Yes. Well, this is obvious synergy to be expected when we joined the INDEXO Group, right? We are working towards it. We don't -- so -- but we don't have already any synergies in place. We do expect some in 2026, probably in the second part of the year and then grow, increasing for the years to come. Yes, but obviously something that the place where we're going to look for the synergies for sure.

A follow-up on the same topic. Will those synergies be mainly on INDEXO side or DelfinGroup? If INDEXO and DelfinGroup will share client data, then how will you decide who will issue a loan to the customer, INDEXO or DelfinGroup?

I could say from -- it could be more that we offer like INDEXO products to DelfinGroup customers, but if you look from a customer's perspective, I think that should work and I believe that we will work on that. We need to offer for clients what's needed for a client. If clients needed like mortgage loan, which is like something similar to large banking product, then of course, it's more an INDEXO product. But if it's like a smaller consumer loan, the product, which we are offering, that it could be on our side. Yes, that's mainly what's beneficial for customer and not needed for customer because our products are not so similar. We are both operating in lending space. We both now have like real estate loans. We both have consumer loans, but the product itself is not so similar, and we are like operating in different spaces, actually.

And just to add about the synergies and the financing, whether it's going to fall on INDEXO or DelfinGroup side, I trust it's going to be on both. So it's going to be both beneficial for INDEXO to be able to finance us as well as us will benefit from the fact that we expect to get this financing at a better rate, yes.

And there's also a follow-up question, the potential impact on the P&L from the merger.

It could be on both sides because, for example, if in the future, if INDEXO will fund our company, it will be on both sides because we can decrease the capital cost. And for INDEXO, it will be a very good place where to invest.

About the funding, will INDEXO help you with funding of the company? Do you expect to refinance existing bonds prematurely? If not, are there any plans to issue new bonds this year?

Yes, I'll take this one. We don't have a plan now, as we said, to refinance any bonds prematurely from INDEXO funding. We will -- we plan for issuance of the new bond this year to refinance the bonds that we have maturing in February in 2026. And obviously, the company expects also to grow, not only to refinance existing bonds. So INDEXO financing will help in -- for us in achieving that, right? So they will finance also the growth of the company, more focusing on that.

I see. There have been quite significant savings for operating expenses in the last 2 quarters. How do you see OpEx development going forward?

I'll take this one. Yes, we're definitely going to keep working our costs. So while costs might increase going forward, there is an inflation and all those, I know that. But we definitely expect that we will increase our operating leverage by costs increasing slower than we can grow our business.

Currently, the final question that we have received at this moment. Credit loss expense decreased quarter-over-quarter. What were the drivers for this decrease?

Yes. So there are two. One is really the phasing of the revenue that I mentioned. So that impacted it a little. However, also the actual cost of this cost decrease because we managed to improve our LGD or loss given defaults. We do sell certain nonperforming loans, and we improved the contracts regarding the sale of these loans. And actually to add to this, we were kind of prudent in the approach. The improvement came in the second quarter -- second half of the year, while we still were calculating the provision, we've calculated the 12 months average. So improvement, we took only improvement for the couple of months of 2025. This is where -- this is why I said that we expect this level to be stable and improve through -- into 2026 and throughout 2026.

All questions have been answered. That concludes our Q&A session. We appreciate your time and interest, and we will be looking forward to welcoming you in our future events.

Thank you.

Okay. Thank you, everybody.