Eleving Group S.A. (OT8) Earnings Call Transcript & Summary

Good afternoon. Welcome to Eleving Group's Investor call dedicated to the new bonds issue exchange offer. We will begin with the presentation followed by a live Q&A session. [Operator Instructions] The call is being recorded, and a replay will be available shortly afterwards. With that, I'm pleased to hand over to our host, Eleving Group CEO, Modestas Sudnius and CFO Maris Kreics, please.

Thank you very much for your introduction, and good afternoon to everyone on the call. So today, like will refresh everyone's memory on Eleving Group history, latest results, operational achievements. And of course, we will provide more details about ongoing bond the exchange offer. So just to start right away start with slide about company overview, Eleving Group at a glance. So first of all, if we think about the Eleving company, we are a financial technology company, which focuses on diversified consumer lending products -- so currently, our mix stands at 57% of portfolio being secured, mainly backed by vehicles as well as device financing products and 43% of portfolio being unsecured, which main product is traditional consumer loan from a few months to actually majorities even up to 5 years. So this is currently 43% of our outstanding portfolio. So well diversified between the products, but as well as sell for us, diversification is very important. We're also very well diversified between the different geographies. So currently, 45% of our net loan portfolio is in markets which are in Continental Europe, 43% in Africa and pretty much coke Security Armenia and Uzbekistan stands at 12%. If we look at Eleving Group governance and kind of our, I would say, recent strengthening of governments, so it's been quite a consistent journey. We've established our Luxembourg entity where companies domiciled in 2012, so already more than 10 years, we're issuing a majority of our all actually our Eurobonds through entity. Also, this is an entity which has done an IPO in 2024. Also we have a fix trading international Supervisory Board and all the key elements of a mature well-governed company. Of course, most important are numbers. If we look at the last 12 months' performance, so ending mid this year to our net loan portfolio stood at already above EUR 0.5 billion, so EUR 522 million, revenue was almost a few million shy of EUR 300 million. EBITDA stood at almost EUR 120 million, and we continue demonstrating very stable and solid profitability. So net profit over the last 12 months was EUR 13.5 million, we can move to the next slide now. So here, kind of in 1 slide, our history, how we started in latin in 2012 and how we ended up where we are now with more than EUR 0.5 billion in portfolio operating in 18 markets. So you can see that every year, we were adding new portfolio. And actually, every single year, we were growing since the launch. And then we managed to sustain, I would say, stable and impressive growth ratio over last 10 years. Even in recent years when our base is already bigger, we still managed to sustain 25% on average growth rate. And then that's fueled by potential in all of the markets which we have launched as well as with adding new markets. And we started our journey in 2012 in Latin, then Lusaniaand Stone was a very quick with Georgia. And then almost every year, we were adding new markets, done a few small M&A transactions along the way. And in recent years, we have -- we started adding on market per year. So in 2025, we launched Tanzania. And just in the middle of this year, we launched South Africa. And the plan stays pretty much similar in upcoming years. I like to have around, I would say, 20% of growth per year. this year, probably is going to be a little bit higher because we really launched a lot of not only in the market, but new products as well. But in the long run, it would be, I would say, up to 20% per year biggest, at least midterm biggest focus will still be growing portfolios in existing markets. And this launch of markets, our goal is to launch at least 1 new market per year, but that's typically an investment into the future because no real growth in the newly launched market starts from third year. Now I think we can go to the next slide. This is visually very nicely. You can see all of the portfolio split market per market. And again, I want to mention this diversification factor -- you can see that the majority of the markets where we rate we have 5% to 10% from overall net loan portfolio. That being said, it's probably worth to mention 3 markets, which are the biggest, which stands out the most. So 1 is latin, where if we would take into account also the partnership which we have with local bank, where we have EUR 80 million of portfolio, so 14% from overall portfolio than our biggest market in Continental Europe on books, Romania, 12% from overall net loan portfolio. And in Kenya, this is our biggest market overall, our first market in Africa, which we have entered. So where we have also EBITDA above 15% of overall net loan portfolio. But -- so even those 3 markets, they are not kind of fundamental or critical like that just shows that we are very well diversified in between the markets. We also see a potential to grow in majority of existing markets, which I think is a good sign. So this diversification to stainless this we do acknowledge that we are working in developing part of our well. So this diversification is not only kind of our preference, but we believe it's also needed in case to kind of control our country risks well, and that's going to stay in the upcoming years as well. Now we can go to the following slide a bit more information about products. So as I already mentioned, 57% of portfolios and secured products, that means there's a collateral, which is backing up the loan main product still stands like it's Carlo, where we have -- we're operating in that market. So financing the most popular car in our markets, which typically use our -- we also have grown nicely in 3 of our African markets with motorcycle financing, where we're typically financing taxi drivers, cargo drivers, which uses specifically a motorcycle to generate revenue for themselves. So this is pure productive lending product. And our new addition to the portfolio where we already, I guess, doing that for a bit more than a year. Visa device financing, which are smartphone loans where we're financing entry-level smartphone to African population. And what's made special is product that it also has a kind of factory installed app, which you can't -- customers can't believe and that app is used for all the communication activities with the customer. also being like a payment discipline control in case customer is not paying, then we have the right to block the form. So this is already 5% of 1 portfolio and growing max to it. And on the consumer side, I would say we have 2 main product categories, so traditional personal loans, which we're offering in Vulcan markets, primarily as well as Africa-specific product, the civil servant loan in some of the Afrin markets and specialties that we're primarily focused on government employees or financing government, municipal employees. And there is like a special, let's say, Africa Africa-specific product where we have the right using special deduction costs to deduct this -- that monthly payment from customers salary and bank or as that -- so it's a secure product but quite secure in its nature. So a combination of that, then we have 43% of our net loan portfolio in consumer loans. Moving forward, the -- to the next slide here, again, just a reminder of our sales channels, same as our business, sales channels are also very well diversified online and off-line. If we look at our three 1st markets, Baltic countries where we started with quite vast branch network by now, whereas nothing. There's no branches anymore. There's no need for that. Customers prefer to do everything digitally online and you have all the possibilities for that. So -- we either operate only through online channels or also through our partners, which are used car dealerships. A little bit different situation is in, let's say, process markets where this physical presence is still required by the customer needed where we have more branches in Africa where digitalization is maybe not so high, especially when it comes to sales channels with where the mix was actually quite vast network of our own branches, but was also for mobile phone product where a lot of let's say, dealerships, which are selling mobile phones, so we have all of our IT systems and so on. So Again, we're off-line, but not having our kind of physical employee presence. We are just working through partners that really market to market, it's a different strategy, but like our goal is to be close to the customer and to offer what's required I would say, if we look on the lead generation, we are close to 50-50, like on a blended level of 50% of lids comes from off-line channels, 50% from China. Moving on to our underwriting process. So here where technology really stands out because we are scoring very, very huge numbers of customers. So in the last 12 months, more than 2.5 million of customers have been scored. Most of that was done automatically using our underwriting tools, our scoring models, a lot of them are already using a lot of AI, enhanced solutions metals to provide customer answer very quickly. be diligent, adjust because, of course, we are getting, I would say, close to all possible data in all the markets. So we have a lot of data points to score the customers accurately and to select our customers which fits our risk criteria. And if we look at our conversion rates on vehicle finance side, 22% that means 1 out of 5 customers converted and on consumer finance, where tickets are smaller, more returning customers 1 out -- 2 out of 5 customers at cores 37.5% conversion rate. So I would say quite -- probably quite conservative if you compare versus our competition. Yes. So with that, we can move to next slide, a bit more information about debt collection. So key things here is that -- we are doing a lot of debt collection in-house, especially where as collateral. So we are repossessing it ourselves very efficiently, I believe, is way more efficiently than we would be doing the good third parties in 84% of the case, we're getting back the vehicle and then selling it ourselves. That means we really have outstanding post termination recovery rate, which stands at 95%. And -- of course, on a cool product. These numbers are way lower, but that means we just need to be more active in this mid collection stage to avoid customers default attending cost -- and when it comes to phones, as already mentioned, this phone blocking app is very efficient actually once customer is overdue. And once we've bought certain or key functional -- functions within 5 days, 95% of the customers start paying. So again, this allows us to have to process a big number of kind of customers' portfolio having relatively limited admin costs and being very digital here. So overall, key things when it comes to the production, it's in-house, it's efficient, and it's already like many years, we've been improving it, and it's really 1 of our core competencies. With that, handing over to you, Maris, for -- to go through our financials.

Yes. Thank you, Modis. Hello, everyone, on the call. Let's continue now with the financial performance and financial highlights -- so here, we'll be looking at the first 6 months results of this year as first 9-month results are yet to be published, and that is expected to happen next month. So if we look at the top line and the revenue Here, you can see consistent year-over-year development. And if you look at the -- for the first 6 months of this year and compare that for the first -- with the first 6 months of year 2025, you'll notice a quite excellent 40% growth. This basically correlates with the growth of our net loan portfolio. In addition to that, we're actually also growing and improving our profitability that we can see in our adjusted EBITDA figures -- so adjusted EBITDA stood for the first 6 months of this year at EUR 62.6 million, which was also 40% higher, bigger than it was in year 2025. I -- and then if we continue to look at net profit, so that figure for the first 6 months of this year was EUR 16.5 million. Again, growth. At the same time, it was a bit slower growth in the area of close -- and that is mainly due to the fact that since we are growing and making more money in African markets, these markets are actually do have higher corporate income tax rates. So our group's effective corporate income tax rate has increased -- and that is probably something that will be evident in our figures also going forward. Nevertheless, again, I would like to emphasize the growing business be growing profitability here. If you look at the lower part of this slide, so here, you'll see 3 financial covenants. These are financial covenants that you'll find in all our euro bonds and also in the new year bond on which we'll speak a bit later in the later slides. So let's start with interest coverage ratio. This ratio is EBITDA over interest expenses -- so you'll see over the last 4 to 5 years, we have consistently performed in 2.3x, 2.4x area, which is quite substantially higher than the covenant itself, which is 1.25x as a minimum. If you look at the net leverage, so this ratio shows net debt over EBITDA. As of end of June of this year, we stood at 3.9x which again is consistent with the figures you will see in the prior years, and it is quite well on the maximum allowed level of 6x. And lastly, capitalization ratio. So this ratio shows equity over net loan portfolio. As of end of June, we stood at 22.1%, and -- and this is quite nicely above the minimum allowed level of 15%. Let's continue with next slide. So on this slide, we're looking at our portfolio quality, especially in the nonperforming loans. Starting with the left part of the slide, we are breaking down 2 major business lines separately. So we device finance first, -- so here, if you look at this business segment, you can see that our NPLs were 5.2% as of end of June, and that has been achieved even with a quite conservative NPL definition which was that 35 days an overview. This is where loan is already considered nonperforming. If you look at the consumer finance business segment now further, again, we see quite low loans of NPL [Technical Difficulty] 4.2% in the total net loan portfolio as of the end of June. On the right part of the slide, you can see our gross NPLs. So these are NPLs before provisions and net NPLs, so NPLs after provisions in our network portfolio and how they have developed over the time since 2019. So although there have been spikes, certain spikes in certain periods, let's say, year 2020 or year 2020 to 2024 in gross NPL's -- what is important, our net NPLs have remained stable around 5% point area. -- which basically indicates that ever happens in our gross loan portfolio, it is always sufficiently provisioned for. Let's continue with the next slide. So on this slide, we're looking at our assets and liabilities breakdown. Let's start with the assets first. So here, again, as in previous slides, the consistent story here is growth, development consistently year-over-year that you can see in the trajectory of our assets have developed. And at the same time, our equity has also grown at a similar or higher pace -- we actually pride ourselves as a company that operates with quite low levels of cash. Over the last 3 years, we are trying to keep the cash, say, below EUR 40 million. as we always prefer our excess liquidity always being invested in the most profitable assets on our balance sheet, and that is the net loan portfolio. If you look at the liabilities, so here, you can see the liabilities breakdown as of end of June of this year. You'll notice that all 3 quarters of our liabilities, they consist of 2 issued eurobonds, 275 million eurobonds issued last year and then 90 million eurobonds, which were issued into the tranches in year 2023 as well as in year 2025. Apart from our bonds, second, quite important source of financing for us has always been loans attracted through Mitas marketplace for loans platform. So for those who don't know, that's a third-party platform with which we have cooperated already since 2015, use loans that we issue from our own balance sheet. We we transferred them into the platform at a certain rate that we set ourselves as a company, and we tend to use this source of financing in the times when we are not raising any other debt. Then third, quite important and also growing source of product financing, how we finance our assets and net portfolio would be debt attractive at the local subsidiary level, and we attract that debt in local currency. So this is especially important for our African businesses. because this is the way how we manage our FX risk in Africa by borrowing locally and hence, we are naturally hedging our asset position. And -- this has been quite successful up to date. So for instance, our largest and most profitable market in the total group's portfolio, which is Kenya now is able to cover 85% of their funding needs with local currency debt, which is something excellent that we actually see that growing for other markets as well. And we have a quite strong pipeline of tens and millions euros worth of financing, which is yet to be onboarded in the near term. Let's move on to the next slide. And the next slide is actually 1 of the last basic slides. So here, we have summarized 5 important things which we would like you to take away from this presentation about Eleving group. So first and foremost, that's proven financial performance. Now the group operates with a net loan portfolio of more than EUR 500 million, with growing revenue and excellent and sustainable profitability. So our last 12-month profitability figure was more than EUR 30 million, for instance, and we operate with the adjusted figure well above EUR 100 million on a 12-month rolling basis. Then the second thing is diversification. As spoken before, we're well diversified group across geographies or countries across our products, across our sales channels and also across our funding sources. Third thing, underwriting. So this is a proven underwriting. We operate with low levels of NPLs that have been proven or difficult tiers. We covered or beating increasing interest rate environments, we have always maintained high portfolio quality. The next thing, it's established corporate governance our holding companies domiciled in Luxembourg. And this company is also the 1 that did a share issuance in year 2024. Our HQs and Baltics in European Union. And we do have international independent Supervisory Board, which was appointed 2 years ago. And then the last thing is capital markets and our company's track record in them. We showed our very first eurobond in 2018 -- and since year 2019, we have maintained fire rating, credit rating without any GAAP years consistently, and now we stand at B with a positive outlook. Let's move on to the next slide, and here, we'll talk specifics on the bond. So first slide on the bond itself. So -- as you might already know that, and as you have read probably in the exchange news. We have recently raised EUR 175 million as a private placement in the form of new bond, which was very nicely oversubscribed, so we are looking at 1.5x oversubscription -- and now we're looking to do an exchange offer, capped at EUR 25 million, which would bring the total volume of the bond at EUR 200 million. So this new bond would have an annual coupon rate of 9%, paid out quarterly with a term of 6 years. So basically maturing in year 2032. The nominal value will be EUR 100, and we are issuing this bonded part. The bond, same as all our other previous rebounds would be dual-listed listed in Frankly Stock Exchange as well as in NASDAQ Regan. What's quite important is that the use of proceeds of this new bond that we are issuing mostly go to replace and refinance current liabilities. So we are repaying our 2028 bond and we're also retiring part of our other sources of liabilities, which amount to approximately or up to EUR 17 million and let's say, only around EUR 14 million will be less cash for general corporate purposes, but think about cash that eventually would be invested in the net loan portfolio. If you look at the security package of this bond. So this 1 sells all our other bonds is senior secured bond guaranteed by our operational subsidiaries. On the right part of the slide, you can see that with the dropped basically the current tours. These are our subsidiaries that are guaranteeing for this bond. Basically, if you add all of them up, you'll be able to see that this covers almost the biggest part of the group. So the volume is well covered from that aspect. On top of that, we're also providing, let's say, as we call credit enhancement in the form of ledgers. So there are 3 initial companies -- so Mogo Kenya, Mongo, Georgia and Model Armenia, that will provide portfolio cliches. There are also pimples and bank accounts on their shares, trademarks. Let's move on to the next slide. And here, on this slide, we are providing a bit more details on the actual exchange offer that's on the table. So if you are 2028, I mean bond holder. You pretty much have 2 options as of this moment. So 1 option would be to accept the exchange offer and the other option would essentially be to do nothing. Let's speak about the first option. So that's the exchange offer. You have an option to convert the ratio of 1:1. So let's say, you have EUR 1,000 worth of 2028 bonds, you can exchange those into 2032 bonds, the ratio of 1:1, and let's say, in that instance, EUR 1,000 and basically remain invested with our company and the collective 9% annual interest rate in the form of quarterly coupons. If you like that offer, you have -- there's a time line that's important for you. So we are conducting this exchange offer up to October 20. However, we are actually drawing your attention that we have received information that some of the banks and ballots will be already closing the exchange option already on the 15th of October. So meaning tomorrow, we would -- for those who are still considering the exchange offer and might exchange. We would strongly encourage for you to not lead this decision until 20th of October or next week. We do encourage you to do that or submit your interest already this week. If you do that, then on 26th of October, your bonds will be exchanged into new bonds. Everyone will be paid accrued coupon rates up to 26th of October. And starting that moment, you will have the new bond. Then on the other options, maybe just quickly continue our finishing on the exchange offer. So -- as far as we know, the exchange offer is available at all of the bags in Baltics as well as in the investment platform, Intus, if you have any bonds there, you can also submit your interest in that platform as well. Then -- and then the last option, if you choose not to do anything, you will receive all accrued coupons on the 31st of October. And then on the second of October or around that date, you will get all your bonds repaid with a premium of 1%. So in case you have 100 eurobonds outstanding, you do not do anything on second of November or around that date, you'll get back EUR 101 for your investment. Yes. And then last important point to point out is that this exchange offer is capped. It's capped at EUR 25 million. And in case of interest that's higher than that, we'll need to allocate it lower to EUR 25 million. And Basically, the bondholders might get a lower amount that they have submitted to exchange for. This basically concludes our presentation. We're happy now to take questions.

Thank you. Yes, we will now move to the Q&A session. [Operator Instructions] The first question that we have received, I wish to exchange EUR 100,000. Is there any possibility that you will exchange only a lower amount as the exchange offer is limited to EUR 25 million.

Yes. As mentioned in my last few sentences, there is such possibility. Indeed, the exchange offers capped at EUR 25 million. So we'll need to see what the total interest amounts to and then allocate it accordingly. So yes, there is such a possibility that you'll get allocated lower amount.

What is your offer for those who bought the DEIcen bond at 109% of nominal value in 2025 during your previous exchange from 13% to 10%. There are a couple of questions on the topic, so we probably address them as one.

Sure. Yes. So firstly, I need to point out that the offer as it stands right now, it applies to all the bondholders -- so this is the offer that's currently on the table available for all the bondholders that fall 2028 bond to convert into a new 9% annual rate on -- this one, the 9% bond, it reflects company's ability or cost of debt as of this moment, company's ability to fundraise euro capital in the current capital markets. And yes, all the everyone who is interested or who has the bones, they have the option to whether basically take that offer or not take the offer. And maybe if you go back historically also, and I were to point out, that the offers that we offer in the market, be it 9.5%, 13% or 10% they depend from several factors. So first and foremost, it's a company's performance at that point in time as well as also external factors. So macroeconomics, for instance, or general economic stability in the capital markets in European capital markets. All these factors come together and they form the offer that we as a company are going out in the market with.

Thank you. As I don't see any hands raised, so we'll continue with the written questions. Is there a new public bond issue plans?

There's no new public bond issued plan. This probably -- this exchange offer is probably less capital markets activity from the company in the foreseeable future. and nothing after this is explained as of this moment.

Impairment is increasing much faster than your revenue growth. Can you comment on current credit quality of the new loans and compare it to that of older vintages?

Sure. So Yes. First of all, like our impairment revenue did grow quite a bit in the last 6 months. But if we look at our portfolio growth, which was also very significant. So for lending companies, even for new -- for new loans, we also have to account certain impairment expenses. So the fact that our portfolio has grown by 40% over last period which is kind of we have to admit, which is a significant amount explains a big part of this impairment growth because we need to book impairment costs upfront even for loans which kind of our current bucket, which we just issued yesterday. So that's kind of, I would say, main reason for demand growth and the other reason is depending on product mix. So over last 12 months, we have launched more unsecured products, and we have also launched more shorter-term products, which would be smartphone financing. So those products carry a higher return. But at the same time, they carry also higher risk level. So kind of revenue on absolute terms growth also very significantly. But of course, kind of impairment expenses also grow accordingly, it's higher than for, let's say, traditional car financing product. And lastly, obviously, once we launch something new, there is new market or a completely new product, it still takes a certain amount of time to calibrate your underwriting algorithm, but worth to mention that in those cases, our forth impairments are higher, but on absolute terms, they don't play a very significant role because we are not issuing very significant amounts -- so kind of summarizing the answer, impairment growth comes from 3 main factors: one, just overall portfolio growth and then kind of this IFRS 9 methodology, how we have to book impairment than the fact that we have launched new products and a little bit higher priced products. And the last 1 is just newly launched products. In principle, we don't have significant issues with impairment in some particular market. It takes time to calibrate them, but I think most of the things are according to our strategy and budgets.