Eleving Group S.A. (ELEVR.RG) Earnings Call Transcript & Summary

Dear participants. Welcome to Eleving Group's investor call dedicated to the current public bond offering. [Operator Instructions] For your convenience, we are recording this session, and replay will be available shortly after the call. That being said, I'm handing over to our host, Eleving Group's CEO, Modestas Sudnius; and CFO, Maris Kreics. Gentlemen, please.

Thank you very much, and good evening to everyone on the call. Thank you for joining here. As already announced, we just launched our new bond offering. So this time, we're back with all-time biggest issuance for the company up to EUR 250 million bond. And the agenda for today is, first of all, to still working through company's story, a little bit how we ended up where we are, tell latest updates on our financial information. And of course, in the end we'll then cover in more detail the actual bond transaction. So let's start with company's overview. So in very short, Eleving Group, we are a financial technology company from Baltics, headquartered in Baltics, domiciled in Luxembourg, which will be the issuer also of the new bonds, but actually operating globally. So we are currently operating in 16 different markets across the world. Our focus primarily is developing frontier markets. And we offer 2 main business lines. So one is the asset-backed lending where primary this vehicle financing product, whether it's a used car or like a new motor cycle in combination of that, this is 2/3 of our overall business. And then 1/3 of overall net loan portfolio is in unsecured lending. So traditional consumer lending, think about installment loan of 1 year or similar type of product. And these both products have in combination, EUR 375 million of net loan portfolio standing in the middle of this year. We've been a profitable company over the last 8 years already. And last year, we have finished with EUR 29 million of profit. This year, we have started already with EUR 15 million, which has been generated over the first 6 months, and we do expect to exceed the last year's result. Also worth to mention that we are a publicly listed company coming out of successful IPO almost like 1 year ago. So our shares are listed in Baltics NASDAQ Exchange in Frankfurt. And also, we've been a Fitch-rated company for the last 6 years. Currently, our Fitch rating is at B with a positive outlook. If we go further in this slide, you will see -- can we change the slide? Yes, in this slide, you can see company's development over the years. So we started in 2012 with Mogo brand in Latvia. And every year, we've been gradually growing our both geographical footprint as well as net loan portfolio. So over the last 8 years, we've been recording around 25% annual growth when it comes to net loan portfolio. And this is where we stand today, having 16 active markets. And if we think about the future, about next steps, we do want to maintain also sizable growth going forward, probably not at 25% as before because obviously, the base is way bigger, but our goal is to grow net loan portfolio 10% to 20%, I would say, more like closer to 20% per year. And that will come from a couple of sources. So if we think about next 2 to 3 years, still biggest growth will come from the organic growth because we do have a lot of potential to grow in our existing markets. Some of them are really big when it comes to population. But nonetheless, we're also going to be introducing, and we've already introduced quite a few new products in the existing markets, so essentially on the same platform. And as well as we will be entering new markets. Our plan is to enter 1 to 2 new markets per year. And one could expect that also this year, we'll announce soon that we are entering one new market. So rather balanced growth, both organic and let's say, while launching new markets. But still, if you think about net loan portfolio, the biggest part of growth will come from the -- development coming from existing markets. If we go to the next slide. So here, in one slide, you can see all of our 16 markets. So as of today, we have more than half of our portfolio in Continental Europe, and 1/3 in Africa and then [ Georgia ] [indiscernible] and Uzbekistan has remaining part. And what's worth to mention here and to emphasize is the portfolio diversification and split per market. If you would see these percentages of net loan portfolio, actually, we have very well-diversified portfolio per market, and most of the markets have 5% to 15% of overall net loan portfolio. And this has been the strategy all along. We don't want to have a very high dependence on one or few markets because, obviously, we do acknowledge that we are operating in frontier markets where some short-term turbulences might happen. So geographical diversification is very important and not to have too high dependency on one particular geography. So that's the plan also going forward. And if we think about development over the regions, we're quite comfortable with the split what we have now. Most likely going forward, Africa might slightly outgrow other regions, but still, we see that at least half of our portfolio will maintain in Continental Europe. If we move forward and go to products and underwriting, starting with the products. So here in this pie chart, you can see different brands, which we have for different product categories because we do have different brands for different product categories and our main brand is Mogo. So this is both used car financing. Also new motorcycles in African region also goes under brand Mogo. And also worth to mention that we just recently launched completely new product for us, smartphone financing in Kenya and Uganda, where we're financing smartphone and also by doing that, we also have a possibility to block a phone in case of customer default because we do have our exclusive app installed in these phone devices, which can't be deleted. So this is also very digital and digital product, which doesn't require a lot of human resources to scale up. So we see so far like very good traction in this business. And combination of that, again, just a reminder, secured financing is 2/3 64% of overall net loan portfolio and the remaining one split between Balkans and South African region is consumer financing, so unsecured financing, 36% of overall net loan portfolio. If we go further and talk a little bit about sales channels. So first of all, worth to mention that we are both online and offline player. That means actually, our sales leads are split almost equally between online and offline channels. Online still is obviously very important channels and many markets are very, very digital by now, where most of the leads are coming through our own product web pages, different integrations with online players and similar. But nonetheless, offline is important for us, and it helps us to cover wider geography. So we have in quite a few markets, significant branch network. In total, we have 316 branches across all of our 16 markets. And also a very important partner for us, offline partner is used car dealerships. So we provide an IT technologies to those used car sellers and they are able to onboard the customer and basically provide a financing offer within minutes, which is obviously very appreciated by the dealers. And for us, this is good quality leads coming from them. So again, a reminder that from a sales perspective, this is quite equally split on consolidated level between online and offline. If we move forward and a few words about technology and our underwriting processes. So firstly, for us, data is extremely important. We're a very data-driven company. Our risk department or data science department is second biggest in headquarters only behind the IT team, which always has been the biggest department. And in every single market, we're trying to get access to as much as many data sources as possible. So from traditional data sources such as credit bureaus, income databases, we're also accessing in some markets, alternative data sources such as mobile wallets, especially very popular in African markets, bank account statements, different mobile operator data and similar. The more data we get, the more accurate scorecards we can build, similar with a car -- we're also scraping data from most popular car portals to be able to identify what would be the real average price of the vehicles which we're financing. And essentially, our underwriting models as well as all of our kind of ERP systems, our backend front end is running in cloud systems. They are all in-house developed and managed by us. And that allows us to be very diligent when it comes to underwriting, very quick and also to be able to analyze the performance of our customer's almost real time. And looking from a customers' perspective, we are able to provide answer in most of our markets within minutes, but sometimes it takes longer, but always within the same day. And this is still a very big competitive advantage what we have. And you can just look at the top, just some numbers that within the last 12 months, we processed more than 2 million applications. That means ran so many scorecards, scoring models. And the conversion rate was, I would say, conservative or quite low, so less than 10% on vehicle financing side and every further client on consumer financing side. And the difference can be explained due to the size of the ticket on vehicle financing side, which is bigger. Also, there's like a down payment needed if you want to buy a car. And also, we're also taking into account like what's the quality of the car. But overall, these ratios have been quite stable even on downward trajectory, which shows that we're being more and more conservative. If we move forward, so a few words about debt collection. This is also split between consumer finance and in vehicle finance. So how do we do that collection? Here, again, we use a lot of IT technologies, which we've developed predictive dialers, robo calls, automatic restructurings and so on. So we're trying to make as many processes automated as we can, and then we're doing all of that in-house. But obviously, still we have defaults and then once customer default, especially on the vehicle finance side, it's, let's say, quite efficient and I would say, unique process because worth to mention that we have right to repossess a vehicle in all of our vehicle finance markets, and we do that, and we do that successfully. So on average, our repossession success rate is 84%. That means out of 100 customers in 84 cases, we're getting back the vehicle and then we're selling it ourselves on average in 55 days. And that, plus all the other legal actions, what we're doing allows us to have very strong post termination recovery ratio of 89%. That means even customer defaults in vehicle financing side, the loss of principal is quite small. So that's it on the operational part. Now handing over to you, Maris, for the finance part.

Thank you, Modestas. I believe we can move on to the Slide 14. So here on the Slide 14, we actually wanted to take a look back had one of the most important events for the company. So this was IPO, which was done at the end of last year. So as a reminder to our listeners here today, the company did the largest IPO in the Baltics during the year 2024. We managed to raise close to EUR 30 million for the company. So this was primary capital attractive for the company as a means of issuing new shares. So we issued 15% of new shares and all the money that was raised stayed with the company and was immediately put into use as a means of repaying subordinated debt, some other debt facilities and liquidity for future growth. So as a result of this IPO, the company's balance sheet was substantially improved, recapitalized and let's say, the company's future growth prospects improved. And we immediately saw the nice impact from the credit rating agencies with improved credit rating. And also now currently, we have been with a positive outlook. And importantly, still 80% of the company is held by founders and management, both of which are still under the lockup period for 1 more year. If we continue to next slide, please. So here on Slide 15, we see our key financial metrics. And if we start with the revenue, you can see how revenue actually correlates with the net loan portfolio growth, and we have been growing our top line consistently year-over-year. And even for the first 6 months of this year, our revenue exceeded EUR 117 million, which is actually 15% higher than for the equal period in year 2024. Usually, when the companies are growing in our industry at this pace, they are sacrificing on profitability. For -- in our case, it has not really been the case because we have also been improving our profitability that you can see in EBITDA first. So EBITDA for the first 6 months of this year stood at EUR 45.3 million, which was close to 4% higher than it was in the equal period in year 2024. Continuing on the net profit, you also see the improvements in net profitability, where for the first 6 months of this year, we managed to earn EUR 15.2 million, which was more than 4% higher than in the equal period in year 2024. For our debt investors, especially for our bondholders, the more important part of the slide would be the lower part with 3 financial metrics. So these are actually our financial covenants that you will be able to find in both of our issued Eurobonds as well as the new Eurobond on which we'll discuss a bit later today. So starting off with interest coverage ratio, this would be EBITDA over interest expenses. We're at 2.3x as of end of June of this year, which is quite substantially higher than the minimum level of 1.25. On the net leverage, which would be net debt over EBITDA, we're at 3.6x as of end of June, while the maximum allowed level would be 6x. So here, obviously, the lower the ratio, the less the risk that the company has in the balance sheet. And lastly, on the capitalization ratio. As of end of June, we stood at 25.9%, while the minimum allowed level has been or is 15%. So again, there's substantial headroom in the balance sheet. Importantly, maybe worth to mention that the capitalization ratio post-IPO has returned to more normal long-term level of this 25% range. This was -- this is measured actually after our first dividend payout to our shareholders in the month of June, where we paid dividends for half of the full year 2024 profits. So this year is unique on the dividend payout policy perspective because we are this year distributing profits that we made over 18-month period with the next dividend payout happening or expected in the month of November for the first 6 months of this year. But nevertheless, again, for the benefit of our bondholders, existing ones and the new ones, it's worth to mention that our publicly available dividend policy actually does limit the amount, which we can pay for dividends because we need to always make sure that the equity ratio is sufficient post dividends distributed. Just to give you an example, for us to be able to distribute 50% in dividends, we need to make sure that post dividend payout, the equity ratio remains about 20%. If it's not the case, then the ratio decreases and becomes 40% and the equity ratio needs to be more than 15% and so on. So this is our kind of version of a sustainable dividend policy that we have publicly committed to. Moving on to next slide, please. So here on the Slide 16, you can see our portfolio quality. On the left hand of the slide, we are showing the vehicle portfolio separately and the consumer loan portfolio separately. If we start off with the vehicle loan portfolio, you'll be able to see that NPLs here in our net loan portfolio are 5.5% and that is still given our very conservative NPL definition for vehicle business, which will be 35 days overdue. The industry practice usually will be 90 days overdue when the loan starts to become nonperforming. Then on the consumer loan portfolio, you'll see that our NPL ratio as of end of June was 4.4% with a more conventional 90-plus days overdue definition for NPLs. On the right-hand side, you can actually see our gross before provisions and net post-provisioning NPLs and how they have developed over the time, over the last 7 years. More importantly, actually, if you look back at the last 4 years, which were globally very evident with the high inflationary economic situation in many of the market or actually most of the markets where we operate, you can actually see that this pressure on the consumers has not left any tangible negative effect on our portfolio quality. And we believe this is a testimony to our underwriting capability that we can evidence here. If we continue now to the next slide. So here on the Slide 17, on the upper part, you can see how our assets have been developing over the time. So of course, they do correlate with the net loan portfolio. Now as of end of June, our total assets exceeded EUR 480 million. We believe we might reach EUR 0.5 billion balance sheet by end of this year. On the lower part, lower left-hand part of the slide, you'll see our liabilities breakdown. Currently, 2/3 of our interest-bearing liabilities would come from 2 currently outstanding Eurobonds, EUR 150 million bond, which is maturing in October next year and EUR 90 million bond, which is maturing in October in year 2028. Mintos marketplace for loans platform still remains to be an important source of our funding structure. So as a reminder to our listeners here, Mintos is one of the largest marketplace for loans in Europe. They are actually a licensed brokerage entity, and we have been cooperating with Mintos platform since 2015. And currently, we are -- as of end of June, we have attracted through the platform slightly more than EUR 50 million. Then important source of our funding structure remains to be local financing. Here, you can see that with the green color, EUR 41.1 million. This is also an important ForEx hedging tool for us because our aim is to -- especially in the markets where we issue loans in non-euro currencies would be to borrow also in local currencies from local creditors. And by doing so, we're actually minimizing any ForEx noise in our P&L. And lastly, we also do borrow from different local lenders, local banks. And this is generally the most cheapest source of capital for our balance sheet, and we like to do so because by doing so, we are actually diluting our average group's cost of borrowing. Moving on to next slide, please. So here, I'll hand over back to you, Modestas.

Thank you, Maris. And I think we can go one slide further. This is a summarizing slide like a key investment highlights. So things which we are most proud of and which we believe are the most worth to remember, while evaluating potential investments in the company. So first of all, it's our financial performance, which has been very strong over the years. We managed not only to grow the business, but also to maintain and strengthen profitability, EUR 29 million profit last year and a strong start of this year speaks for itself. Also, we've been -- like diversification has been very important for us, while building this business, both diversification on product side and also diversification on geographical footprint. And I would even mention what Maris just said and also even on funding structures. So we acknowledge that we do operate in developing markets and then the more diversification we have over our business, it allows us to sustain some one-off shocks in one or few markets. When it comes to underwriting and business management, we're very data and technology driven. We've always been so. We always have had a very sizable IT and risk management teams and probably best testament to that are our NPL ratios, which has been very stable even through turbulent times and has been at 4% to 5%. And lastly, talking about us as a company from a corporate governance perspective, and then also being an active capital markets player. So worth to mention and to remind that the issuer of bonds is Luxembourg entity because we are listed Luxembourg entity where we are domiciled, even though our main headquarters are in Baltic markets, mainly Latvia. And also, we have an International Supervisory Board, independent one since 2024. And lastly, you can always check out our Fitch Rating, which has been in place for more than 6 years, currently stands at B with positive outlook. So with that, I'm turning back to you, Maris, again, to walk through the deal structure.

Sounds good. Thank you. So here on the slide, you can see a summary of transaction overview. So we are currently in the market to raise up to EUR 250 million Eurobond. The Eurobond would largely be structurally similar to our currently outstanding EUR 150 million Eurobond. And importantly, we are actually refinancing our EUR 150 million Eurobond with this new bond issuance. So also for those investors on the call who currently hold EUR 150 million Eurobond, it is important that they look -- if they're happy with their investment, they would like to remain invested with their living. Actually, they would need to participate in exchange offer to remain invested because otherwise, they would be repaid by end of this month because, again, we are refinancing our EUR 150 million Eurobond by means of this new bond issuance. And continuing on the use of proceeds, you can see that once we can issue this EUR 250 million bond, we also do partially expect to prepay some other outstanding debt facilities. So basically, we, as a company, we would not be sitting on the balance sheet on a sizable cash amount, not putting into a use because, of course, we cannot invest that reasonably in a short period of time in the loan portfolio, while we wait for the investments in net loan portfolio to materialize, we will actually -- as always, we will put back this money into refinancing currently outstanding liabilities. And then lastly, EUR 40 million would be left for essentially new loan portfolio growth, which we expect to deploy within 3 to 4 months in the net loan portfolio. A few characteristics of the new bond and important, we believe that this new bond would have a nominal value of EUR 1,000. The interest rate will -- or coupon -- annual coupon rate will not be lower than 9.5%. So currently, if you look at our documentation, you'll see a range, 9.5% to 10.75%. The final pricing is not yet determined. It will be done during the course of next week or closer to end of the next week. However, importantly, it will not be lower than 9.5%. Yes. And then we currently -- as mentioned before, we do have an exchange offer outstanding. So that is ongoing until 15th of October. We'll have a bit more details later on, on this one and public offer is live, and it will end on 17th of October. Yes. So in this new bond, we'll have also a semiannual coupon payments as of end of March and September. So again, those who have been our investors, bondholders and EUR 150 million Eurobond, they will be familiar with the structure. And I still also would like to emphasize the fact that this is actually one of the rare bonds in Baltics or even in European capital markets that is secured because our bond is being, first of all, guaranteed by our operational subsidiaries. You can see the structure here on the right-hand side of the slide. But in addition to that, we also do provide security in a form of pledges. We're pledging local subsidiaries loan portfolios, shares in those entities pledges our main bank accounts, pledges our trademarks. So again, this is a way more secured structure than it is customary -- than you would customary find in any high-yield bond issuance in the Baltics or Europe. So we believe this is a unique offering in terms of risk reward for any prospective investor. If we can move on to next slide, please. So here, for those who have a bit more time, you can go through and actually go through more details of the key terms and conditions. So as mentioned before, we have guaranteed and secured bond. You can go through and read all the specific names of our guarantors of the subsidiaries that are guaranteeing for the bond. You can also go through and read the legal names of the entities that are providing share pledges. One important aspect also, which we pride ourselves as a company to have in the bond is 2-tier level covenant structure in place because we do have maintenance covenants, covenants that we need to maintain at any given point in time. And then we have incurrence covenants, which we need to meet if we would like to go out and borrow outside of permitted debt basket. So again, if you compare that to any other bonds that are out there in the market, this is a more stricter structure than you would find it elsewhere. Importantly, as also mentioned before, the bond is being issued by our Luxembourg holding entity under Luxembourg law. It's a typical European high-yield bond structure with 2-year non-call period and different restrictions in place in the benefit of bondholders. And lastly, this bond is also expected to be listed in Frankfurt Stock Exchange as well as in NASDAQ Baltic Stock Exchanges. If we move on to the next slide. So here, we have a time line. So basically, as of this moment, we are in between or in the middle of both exchange offer as well as the new bond subscription. So the investors can actually or should actually see within their banks or brokers both offers. So if you're an existing bondholder, you should be able to reach out to your bank and actually give a notice if you choose to do so on exchanging the bond. Our suggestion actually would be to do that already this week, just to allow the manual processing on the bank side, so they report it on a timely manner back to European central depository and not wait until this 14th of October. And as it relates to the new bond offer, so the new bond offer is live. Most of the banks in the Baltics as well as in Germany, they do have this subscription functionality in place. Please do reach out to your local banks and brokers in order to subscribe to the new bonds. And lastly, the settlement of the new bonds is expected to happen on 24th of October, and the listing would follow shortly on 27th of October. I think that's it, at least from my side.

Yes. I think now we are ready for the Q&A.

Indeed, thank you for the presentation. [Operator Instructions] Why should holders of the 2026 bonds switched to a new bond maturing after the 2028 bond, but potentially yielding less?

So here important aspect is that this bond offers exactly as a minimum, the same coupon, 9.5%, or potentially a bit more than the currently 2026 bond. So basically, from the yield perspective, it does yield the same -- same return for the bondholders. If you compare that to our currently to the other bond here, which is maturing in the year 2028, we believe if you look at the secondary trading price of that bond, that bond is also yielding around 10%. So this, we believe, from a company's perspective is a fair assessment of company's cost of debt as of the moment.

Thank you, Maris. How can I buy the bonds if I'm based outside the Baltics or Germany?

Yes. So we know that our German investors should have the functionality in place to subscribe to the new bonds. That is -- that should be available to your banks or brokers. So please do reach out to them. In case if you have a very specific situation, you would like us to try to help you. You can reach out to our Investor Relations department, and we can always try to do our best in terms of maybe suggesting you a bank that we know for sure is offering this functionality.

What amount will be distributed as dividend for Q1 and Q2 2025?

That amount is still yet to be calculated. We expect to announce the specific amount by end of this month with the payment to follow shortly in the month of November. But of course, as a base, we'll use the first 6 months net profit for the calculation purposes. But then again, the specific amount will be announced in a near the future.

As the company grows, it has to ensure the growth of equity, too, how does it plan to do that?

So here, it's important to mention that although we have a dividend policy in place, it is -- it actually prescribes the situation where we always need to retain certain profits with the company, and the capitalization ratio also needs to be at a certain level. So basically, always some part of the profits will always be retained, and that will be used for company's future growth of the balance sheet. And yes, and this is our approach, the sustainable growth in everything that we do.

And maybe just to add that based on our projections, also the ones which we have announced, we see that we already have a very profitable business model and our planned growth rates, let's say, with a combination of profitability, what Maris just mentioned, will be enough to sustain at least current or even actually even strengthen our -- like a capitalization equity ratios.

As I don't see any hands raised for audio questions, we'll be taking the ones coming in, in written form. Are you considering any acquisitions of similar product offering companies in Lithuania and in other markets, like other East Europe countries -- other Eastern Europe countries and countries in Africa?

Sure. So I guess the answer would be that we are open for such growth avenues. If we speak particularly about Lithuania, currently, we don't have any targets, which we would be engaged of or which we would be evaluating off. Biggest, let's say, issue here is actually to find the right acquisition target. We've done some -- we've done acquisitions in the past. So for us, ideally, we would be looking at smaller companies, which maybe have good presence, but have not reached the necessary scale yet. And -- but at the same time, which have good brand recognition, good, strong management in place. And this is especially in the more developing regions, this is not that easy to find. So we remain open for that. But as of now, we don't have active process, which could finish in the nearest time.

What are the prerequisites for choosing and entering a new consumer finance or asset-backed finance market? And what are some of the clauses or conditions that make you exclude the markets?

Sure. So while choosing new market to enter, we actually run a very, let's say, length and diligent process of market research. We start with -- on market research, which we can do digitally. So also analyzing the economic situation in the market, analyzing the legal background, analyzing the possible cash movements, what are the possibility to hedge currency if it's non-euro. Once we see that we don't see some stoppers there because there are very attractive markets, which we would like to operate. But let's say, we see the capital movement in, and outside country would be problematic. So obviously, that would be a red flag, or maybe regulatory environment is not acceptable for us. Same if there's no possibility to hedge the currency or borrow locally, then that most likely would also make us exclude such market. Once we see that, okay, this part works out, then we're digging deeper into competition, into data sources available, into, in general, like potential sales channels, we're actually sending our team to go in those markets on the ground, at least a few times even before we make a decision to launch or not to launch. And whenever we decide that we want to expand, we always look at multiple markets and then choose the best fitting one for us. So typically, it's quite a lengthy process. And then once we make a decision when we establish legal entity and then the licensing process starts, which again, can be quite lengthy process and take even more than a year.

Can you explain what the secured loan is in your base model? And how secure, in fact, they are. For example, for smartphone loans, are they secured for auto or motor lending, how easy it is to get back the value in case of default?

Sure. So secured loan in our instance is primarily especially when it comes to vehicle financing, this is the loan where we have a collateral and outstanding asset, which we have a right to repossess. So 99% of our asset-backed portfolio as of now is vehicle financing, whether used cars or new motorcycles. And if customer doesn't pay, we have a legal right to repossess the vehicle and actually, we use it. That's our goal. So for the markets where we do repossession processes, we collect, on average, 84% of vehicles. That means out of 100 default cases in 84% of the case, we're getting back a car or motorcycle, which we believe is a very strong ratio, and it just shows that it works efficiently. And in terms of mobile phone financing, yes, you are right that maybe it is a little bit different security to car financing. But what's special about this product that we have our factory installed app there, which can be deleted because we do collaborate with mobile phone providers or producers. And that app allows us in case of customer nonpayment to block partial functionality or even full functionality. And this is a very effective tool how to manage, first of all, debtors. And actually, in case of customer fully nonpayment, we still require to bring back the phone because then we could sell it, resell it, refinance it and decrease the outstanding loan substantially. So it is, to some extent, also like could be called an asset-backed financing.

Based on the experience from past and future projections, how fast in months or years, do you see you can scale up these new or recently launched markets. And how much room does this scaling provide for you to lower CI ratio even further from run rate levels?

So first of all, about scaling up new markets. So in our practice and typically, like the goal for us is to make the market breakeven within the first 2 months -- within sorry, first 2 years. So first year, we are not aiming to scale new markets significantly because we're still learning. We still need to understand our unit economics work, how our underwriting models are operating and so on. And when the scale-up starts -- like at the beginning of second year. And for us, in a market to become a breakeven level, of course, differs a little bit market to market, but good estimate would be having around EUR 10 million of net loan portfolio. So I think that, that we try to achieve at least within 2 years, ideally even faster within 16, 18 months. And then after that, I think, good proof that unit economics work, then we start even faster scale up. And from that on, it all depends on market potential. But also worth to mention that we have quite a stable country mix as of now because we have not launched any new markets within the last 2 years. So most of the markets have been in our portfolio for quite sizable time. And then actually out of 16 markets, 14 markets are profitable on a stand-alone basis and 2 markets already reached a breakeven level. So most of the markets basically are contributing to consolidated profitability by now.

Minimum bond offer interest rate is 9.5%. What are the conditions for it to be higher?

So we are still in the, let's say, book building process/road showing. So we are still meeting investors, especially our institutional investors who will also be participating in the new bond offering. So the actual final coupon rate will depend on these discussions with investors. Of course, they are influenced by, first of all, allowing a group company story, but also the market health also does play a role here. We cannot forecast what's going to be the overall market sentiment during next week, but we believe our credit story is strong enough to actually support the current level of the bond, which is closer to -- which is 9.5%. So it remains to be seen based on these discussions with the broader group of investors.

What are the reasons for decreased profitability in 6 months, 2025 versus 2024?

Yes. As we looked in the slides before, our net profit for the first 6 months of this year is actually higher by 4.1% than it was during the first 6 months of year 2024. Also, our EBITDA is higher by close to 4% if we compare first 6 months of this year versus previous year. So we don't see the decrease in profitability. Of course, if you compare first 6 months results with the full year 2024, naturally, it will be lower because we still -- there's 6 months left to turn the remainder of the profits. But if we compare like-for-like periods, we don't see a decrease in profitability.

Continuing about financials. Revenue grew by 15% year-over-year, but EBITDA increased only by 4%, suggesting that overheads, such as admin costs, provisions were proportionately higher. Why is that? Economies of scale suggests profitability shall increase more than the revenue.

Yes. So here, 2 factors and mainly actually the biggest one is the forecasted growth of the portfolio and actual growth of the portfolio as described before, we have entered into a new product segment, which is smartphone financing in the African region. So as we build the functions, build the operations for new market entry, new product launches, there comes a bit of upfront OpEx expenses as well as the -- especially once we grow the loan portfolio quite substantially, the impairment expense is more front-loaded than it is normally. So the dynamics you see currently with a slightly elevated impairment expense and operating expenses versus revenue are quite normal, especially given the phase where the company is currently at. So I think this -- the dynamic is as expected and quite reasonably explainable.

Would it be fair to assume some pressure on average income yield in coming years? On the backdrop of new market entries, competitional pressures and your strategy of tapping more existing customer base through higher longer maturity tickets?

Sure. So if we look at our projections going forward, actually, we do project and we do forecast that we should be able to sustain similar yield on our portfolio and the reason is in the mix of products. So some of the new products we are launching, we're launching in a higher interest rate product categories. So that grows the overall yield of portfolio. But at the same time, as correctly mentioned, we're also focusing more on upsells on existing portfolios. So there, the yield is lower to the average and kind of push it down. But once you put all the factors together, we see, and we actually aim to maintain similar levels. And when it comes to competition, we do, especially in quite a few markets, we are not the, let's say, most expensive offer of these particular products. So we see that still we're actually quite comfortable operate. And even if competition slightly lower down their pricing, we should not be affected in that in a significant way. So the goal is to actually maintain the similar profitability levels.

What is your average borrowing cost on Mintos platform?

So currently, the cost of borrowing in Mintos would be in the range of 10% to 11%, but that is given the fact that even as of this moment, we are nearing EUR 70 million in Mintos platform. If you look at the presentation, end of June figure was EUR 50 million. And at that point in time, the cost of borrowing there was 9% to 10%. So yes, that's the current level here.

Is the planned EUR 60 million partial repayment of debt facilities related to the payment of any shareholder loans or loans from related parties?

No, it's not related to that. So it will be -- it will relate to the outside liabilities. For instance, as mentioned before, Mintos liabilities. So yes, these are third-party liabilities.

What are major reasons of the rating agencies not to assign Eleving Group rating higher than B?

Yes. So there are several factors that Fitch Rating agency mentioned. So first of all, that's, let's say, the capitalization of the company, the -- let's say, the fact that we operate in these emerging markets, the business model as such, although it was very positively assessed by Fitch as being very profitable and returning high levels of cash for bondholders, shareholders. So the share exposure of the business in these markets capitalization. And lastly, the refinance, EUR 150 million bond refinance, Fitch Rating agency is expecting us to present the tangible steps, how we're going to do it. And ultimately, they would like to see this bond refinance the maturity profile extended and we, as a company, believe once this is done and once this transaction is over, there are reasonable grounds to expect a rating improvement from the current levels.

A technical question. Is it possible to place an exchange bid at a limit price, for example, to exchange only if the yield is set at 10.75%?

We don't believe that's possible. You can only exchange it at the 9.5% or higher, whatever the end coupon rate will be. So please do reach out to your local banks and brokers to clarify a specific situation, but it should be the case, as I just explained.

A participant mentions that in his view, the covenants have been set quite low. He has seen higher benchmarks in the sector. ICR, capitalization and leverage ratios are gradually declining. Do you plan to maintain a decent cushion for them?

Yes. So first of all, we believe that we already have a decent cushion. So although there is a comment that the covenants are declining, the person who asked the question also does recognize that there's a decent cushion. So this needs to be taken into account. From our perspective, what we have currently is already a more stricter version than you would see in markets in general because the companies usually in the high-yield bond issuance sector, they actually operate within current covenants. So it's quite rare that the company would actually have a maintenance covenant level set that they need to maintain at any given point in time. So our bond offering is unique because of this 2-tier covenant structure, maintenance plus incurrence covenants. And maintenance covenants are, of course, they're set at a lower level than the incurrence covenants because their goal is to protect really the downside of the investors, while still allowing the company to conduct the business and grow the business. And incurrence covenants are the ones that actually regulate the borrowing capacity of the company. So what you see currently is actually quite fair and even from our perspective, stricter than usual offering you would find in any high-yield bond issuance in the region.

Why there is a mention of sanctions as a put event? Are there any risks of this happening?

Yes. So we believe this is a customer risk factor that is part of any bond offering in the European market. So it is probably a risk that needs to be in place given the current geopolitical environment, and there is nothing specific to the company itself. And from the management's perspective, we don't see this risk to materialize anytime soon.

Does the exchange offer work somehow for those who bought your bonds through Mintos?

Yes. So Mintos platform does not currently have the functionality in place to accommodate the exchange offer. And -- yes, so Mintos investors who bought our bonds through Mintos platform, they'll get the money back. But, having said that, after the settlement of the new bond offering, you can expect that the Mintos platform, there will be available new bonds to purchase. These new bonds that we'll issue because we have established partnership with Mintos where we have committed a certain amount of bonds to be listed in the platform after October 24.

Have you considered entering a consumer financing market in the Baltics, or is that excluded as it could lead to cannibalization of some of the companies in the industry that have majority shareholder overlapping with Eleving's?

Sure. So we did consider that. And actually, we are I would say, gradually entering that. Our primary focus is working with existing customer database. So we just started this product in Latvia and Estonia. In both markets, we operate more than 10 years in the market. So we have, I would say, very huge database and our first issuances of consumer loans are more as a retention tools because obviously, people are not purchasing vehicles that often. But with a consumer loan, we can offer customers different products and then maintain them in our portfolio even if we have repaid or already repaid biggest part of vehicle finance loan. So this is the short-term strategy and the midterm, based on the performance of these products, we do anticipate that we would be offering just the unsecured consumer loans also to a wider -- broader population, not only for existing or past customers.

We have 2 more questions to go. Where will the bonds be stored and there's a kind request to respond in Lithuanian, if possible.

Maybe I'll respond in English first. So, Modestas can kindly repeat that in Lithuanian. And basically, the bonds, if you purchase the bonds through your bank broker, they'll be stored with that custodian bank or the broker entity. So basically, wherever you supplied to our bonds, that's the place where your securities will be held.

And for Lithuanian translation [Foreign Language]

How will your interest costs improve with the new issue?

Yes. So our interest cost immediately most likely will stay the same because if we are replacing the 9.5% bond with potentially 9.5% or slightly more higher coupon bond, there is no immediate effect. However, given what we already discussed before, the potential improvement in the company's credit rating post successful bond refinance, post the maturity deferral in the future, there is a potential credit rating upgrade, and those usually come with secondary effects on the company's ability to borrow debt at more cheaper levels going forward. So in the midterm, we do expect a positive improvement. But in the short term, basically, they would stay at the current levels.

All questions have been addressed. Following this call, if you do have new questions, you're more than welcome to approach the company individually. That concludes our today's call. But before we're closing, it's back to Eleving Group for the final remarks.

So I just want to thank everyone who joined the call, who is interested in this potential investment. Once again follow the time line. We're still quite some time left, but be mindful also that for exchange offer, you might need a bit more time due to technical reasons. So don't wait too long. And from our side, thanks a lot again for everyone who participated today. Goodbye.

Thank you. Bye.