Steady and profitable transition to the modern banking in Southeastern Europe

STRATEGIC HIGHLIGHTS

• Longer maturities and stronger customers are having an increasing effect in offsetting falling effective annual interest rates and rising interest costs as a result of growth.
• Number of active customers at 266 thousand (31 Dec. 2023: 271 thousand) with revenue per customer (LTM) up to 410 EUR (9M/2023: 384 EUR).
• Total number of customers up to 1,17 million (31 Dec. 2023: 1,05 million).
• Group consolidated balance sheet up 8,7% to 408,5 million EUR and equity up 13,0% to 72,1 million EUR as of 30 September 2024.
• Increasing use of MyIute app – 1.088 thousand downloads as of 30 September 2024 (31 Dec. 2023: 813 thousand).
• Wallet services and digital insurance brokerage continue to grow significantly faster than lending business – further acceleration expected.
• In July 2024, Fitch Ratings (Fitch) assigned a B- (Stable Outlook) Long-Term Issuer Default Rating (IDR) and a B- Senior Secured Debt Rating for EUR Bond 2021/2026.

OPERATIONAL HIGHLIGHTS

• Loan payouts at already high levels showing further increased by 30,7% to 278,6 million EUR (9M/2023: 213,1 million EUR).
• Number of loans signed with 261 thousand well above prior-year level (9M/2023: 250 thousand).
• Cost of risk, expressed as net impairment charges to average gross loan portfolio, decreased to 9,1% (9M 2023: 12,0%), underlying trajectory to improvement of customer quality.
• Gross loan portfolio up 18,8% to 299,3 million EUR (31 Dec. 2023: 252,0 million EUR) of which principal amount of loans increased 20,2% to 279,1 million EUR (31 Dec. 2023: 232,2 million EUR).
• Repayment discipline (Customer Performance Index, CPI30) at 86,6% (9M/2023: 87,3%), as a result of still below-expectations performance in Bulgaria.
• Net loan portfolio up 21,0% to 280,9 million EUR (31 Dec. 2023: 232,2 million EUR).
  77 cardless ATMs operational (31 Dec. 2023: 75 ATMs).

FINANCIAL HIGHLIGHTS

• Interest and commission fee income down 0,5% to 68,5 million EUR (9M/2023: 68,8 million EUR) which is attributable to the lower income from government bonds at Energbank.
• Interest and commission fee income adjusted for Energbank’s income from government bonds increased by 3,1 % to 66,9 million EUR (9M/2023: 64,9 million EUR).
• Net interest and commission fee income broadly stable (-0,9%) at 47,7 million EUR (9M/2023: 48,1 million EUR).
• Net interest and commission fee income adjusted for Energbank’s income from government bonds up 4.0% to 46,1 million EUR (9M/2023: 44,2 million EUR).
• Total revenue up 6,1% to 83,7 million EUR (9M/2023: 78,9 million EUR) – adjusted for Energbank’s income from government bonds up 9,5% to 82,1 million EUR (9M/2023: 74,9 million EUR).
• Cost-to-revenue ratio up to 43,3% (9M/2023: 41,7%) as a result of lower income from government bonds and central bank deposits at Energbank while turnaround of operations slower than expected.
• EBITDA adjusted for FX down 5,6% to 31,9 million EUR (9M/2023: 33,8 million EUR adjusted for FX and one-off expenses related to the acquisition of Energbank in the amount of 3,1 million EUR).
• Net profit at 7,5 million EUR compared to 9,3 million EUR, attributable to higher marketing, legal and consulting costs, while the prior-year period was influenced by stronger FX gains.
• Strong capitalization and profitability affected by discretionary strong growth efforts still in line with Eurobond covenants.

Tallinn, Estonia, 7 November 2024. Iute Group, a leading European personal finance group, reported today unaudited results for 9M/2024.

“Iute Group’s ongoing transition of from a fintech microcredit provider to the Modern Banking Group in the Balkans has been steady and profitable for 9 months 2024. The shift in services and revenue streams from pure lending to an integrated offering of Wallet Services, Insurance Intermediation, and Instant Lending is visible in both customer numbers and revenues.

In addition, a further evolution in the use of deep data in the Group’s operations is underway, with the scope of data analytics not being limited to loan decisions alone. While the results are promising, challenges remain. The biggest challenge is to increase profitability, because at Iute Group every new product, solution, or business initiative should generate a reasonable return. Success is measured by the amount of money we generate from paying customers. We need more success.

It is therefore encouraging, that Iute Group grew again compared to the previous quarter and increased its performing customer pool by 3% to 236 thousand customers. The new customers were acquired mainly by Iute Non-Bank in Moldova, Albania, and Bulgaria. Energbank is expected to complete its first digitalization projects by the end of 2024, which will unlock new smartphone app possibilities for its customers both in wallet and in loan services.

Iute Group’s balance sheet also grew compared to the previous quarter, increasing by 3% to 408 million EUR. The share of yielding assets grew even faster, with the net loan portfolio up 6% quarter-on-quarter to 281 million EUR. Thus, the portfolio growth is on track for the target of 300 million EUR by end of 2024. There is less idle capital on the balance sheet while the decline in the pricing of newly issued loans has stabilized. The Non-Bank loan portfolio yields an APR of 38% while Energbank loans yield an average APR of almost 11%.

Customer transaction activity with their wallets was stable. Growth in Albania was offset by a decline in Moldova caused by the suspension of certain remittance services from Russia, prescribed by authorities towards all banks. Overall, the growth of wallet revenues accelerated alongside that of insurance intermediation revenues. The latter two revenue streams contributed more than 17% of Iute Group’s total revenue in 9M 2024, and their share continues to grow.

Although, revenue momentum is starting to improve, with marginal gains in operational efficiency and better credit risk management, the pressure on profitability remains high. An example of the increase in operational efficiency is the 22% share of fully automated loans issued by Non-Bank subsidiaries in Q3 2024. Full automation means that there is not a single human intervention or manual operation involved in the entire loan origination cycle, starting from the loan application by the customer through to the signing of the loan agreement and disbursement of the loan to the customer. The Non-Bank’s OPEX to revenue ratio remains below 40%. Improved credit risk management is reflected in the rise of Iute Group’s Non-Bank CPI30 up 0.3 percentage points quarter-on-quarter to 87.0%. One full point is approximately equivalent to 1.8 million EUR.

The overall economic situation in the Balkans is fragmented. However, the decline in inflation and interest rates throughout the region gives rise to justified optimism for falling interest costs for Iute Group, even though competition with banks is likely to lead to a continuous decline in loan yields. In other words, savings in the cost of capital for the Group will be passed on to end customers. The economies and national currencies of our countries show no signs of weakening, while and some are becoming increasingly integrated into European markets. While Albania aims to join the Single Euro Payments Area (SEPA), Bulgaria is expected to adopt the euro in 2025. Moldova has just narrowly passed a referendum on its constitutional goal of joining the EU.

Energbank’s operational turnaround continues to be a work in progress with marginal gains achieved. We believe that Energbank’s cost-to-income ratio is the key metric to measure the success of the turnaround. Anything over 60% is a failure in the short term and anything over 40% is a failure in the long term.

On the bottom line, Iute Group’s annual net profit target of 10 million EUR is in sights, while the initially set 15 million EUR is beyond reasonable expectations. Other key performance indicators are well on track, including growth in customer pool, balance sheet, and revenue,” said Tarmo Sild, CEO of Iute Group.

The full unaudited report for 9M/2024 is available under www.iute.com/investor/reports-and-presentations.

Earnings Call:

CEO Tarmo Sild and CFO Kristel Kurvits will comment on the unaudited 9M/2024 results by means of a webcast presentation today, 7 November 2024, 10.00 CET. The webcast/call will be held in English.

Please register in time to participate in the webcast/call at:
Iute Group – Earnings Call 9M 2024.

The corresponding presentation will also be available on the Company’s website prior to the earnings webcast/call.