(MCRB) MCB Finance

RNS Number : 3336I MCB Finance Group PLC 10 March 2010

10 March 2010

MCB FINANCE GROUP PLC

Final results for the 12 months ended 31 December 2009

Highlights

MCB Finance Group plc (AIM: MCRB.L) (the "Company" or "MCB"), the consumer finance company providing flexible credit solutions to retail customers in Finland, Estonia, Latvia and Lithuania, today announces its results for the 12 months ended 31 December 2009.

Operational and financial highlights

· Pro-forma pre-tax loss of -EUR0.63m for the full year (2008: EUR0.49m profit)
· Return to profitability in the second half with a pro-forma pre-tax profit of EUR0.56m.

· Economic conditions have stabilised after the unprecedented deterioration early in the year

· Successful restructuring of lending operations, with improved credit scoring, collections and cost reductions.

· Significant improvements in credit quality in the second half, back to target levels
· EUR10m credit facility with Rietumu bank extended to March 2011
· Company well positioned to resume growth once market conditions improve

Bertil Rydevik, Chairman, said:

"MCB has come through one of the most turbulent and testing times in recent economic history. Having successfully undertaken the changes needed, the business has emerged considerably stronger, providing a robust platform for future growth."

Further information:

MCB Finance Group plc:
Rami Ryh?n, Chief Executive +372 5300 8332

rami@mcbfinance.com
Henry Nilert, CFO +358 451 370 065
henry@mcbfinance.com www.mcbfinance.com

Media enquiries:

Allerton Communications:
Peter Curtain +44 20 3137 2500

peter.curtain@allertoncomms.co.uk

Nominated adviser and broker:

Fox-Pitt, Kelton:
Marc Milmo +44
Jonny Franklin-Adams 207065

CHAIRMAN'S STATEMENT

Business overview

MCB Finance Group is a consumer finance company providing fast, convenient, easily understood and flexible credit solutions under the Credit24 brand to retail customers in Finland and the Baltic countries of Estonia, Latvia and Lithuania. In its markets, the Company is a leading participant in the non-standard segment of the consumer credit sector, providing small-denomination, unsecured loans of between EUR100 and EUR2,000 to qualifying customers, with maturities ranging from one month to two years. Loan products are designed to suit customers' needs, with simple and transparent terms and flexible repayment schedules. The Company operates in a segment of the market that is typically under-served by larger financial institutions.

Loans are mainly offered online through the Company's Credit24-branded websites in Estonia, Finland, Lithuania and Latvia, as well as through certain distribution partners in the Baltic countries.

Operational update

Early 2009 was characterised by an unprecedented deterioration in economic conditions in the Baltic states and Finland, to which MCB aggressively responded by tightening credit criteria, adjusting loan terms, re-focusing lending to its highest-quality customers and improving credit scoring and collection processes. While credit performance was poor during the first half of the year, the actions taken by management resulted in significantly improved credit performance during the second half, and a return to profitability.

Economic environment:

Economic conditions in all markets in which MCB operates deteriorated dramatically during the first half of 2009, particularly in the Baltics which saw unprecedented drops in economic activity, increased unemployment, and greater pressure on household finances. Finland experienced similar trends although the deceleration was much less severe. As expected at the time of the interim results, economic conditions bottomed out during the second half and have stabilised, although at a low level.

Lending volumes

The Company extended approximately EUR40.4 million of loan principal during the year, down from EUR56.6 million in 2008. Out of this, EUR16.1 million was lent during the second half of the year, down from EUR24.3 million in the first half. The Company reduced lending volumes materially after the first quarter to limit its exposure to the deteriorating markets while it implemented changes to lending operations.

While it reduced overall lending, MCB took advantage of the significant differences between markets to focus on the areas of greatest opportunity. As a result lending has been focused on its best-performing markets of Lithuania and Finland, which together accounted for 75% of volumes during 2009, with Estonia accounting for most of the remainder. Lending in Latvia, where the economic situation has been most severe, was deliberately restricted. The Company also focused on existing customers with good credit history, temporarily reducing the proportion of loans granted to new customers.

At the same time MCB shortened loan maturities from an average of approximately five months at the end of 2008 to approximately three months starting Q2, while maintaining lending margins. This has resulted not only in better visibility on credit performance, but also improved cash dynamics and higher returns on capital deployed to lending operations.

The Company has continued to improve the range and terms of products offered to customers. We believe MCB Finance now has one of the most comprehensive and flexible product selections in the short-term lending market, and a high rate of customer satisfaction. MCB Finance has continued actively to promote its Credit24 brand which remains one of the largest and most recognised providers of non-standard consumer loans in the markets in which the Company operates. We believe MCB's product selection, brand recognition and credit scoring abilities will benefit the Company as markets improve going forward.

Repayment performance

In early 2009 MCB initiated a project to improve its credit risk management procedures and scorecards. The company also reorganised its collection procedures to enable more effective management of delinquent accounts. As expected at the time of our interim results, these actions have resulted in significantly improved performance of loan pools, better collections of receivables in arrears, and greater control over credit issuance criteria and projected default rates. Delinquency rates of loan pools issued starting late Q2 2009 in Lithuania, Estonia and Latvia are now lower than at any time since the Company began trading, despite continued weak economic conditions. Delinquencies in Finland are at levels experienced in 2008 before the onset of the economic crisis. The Company has continued to sell aged receivables in Finland on attractive terms.

Debt financing

The Company has agreed with Rietumu Bank to extend its revolving credit facility to the end of March 2011. The facility was previously scheduled to mature in March 2010. The size of the facility will be revised to EUR10 million, down from EUR15 million previously and in line with MCB's requirements going forward. The interest on amounts drawn will be 13%, up from 12.5% previously. Approximately EUR5.9 million is currently drawn from the facility.

In connection with the renewal of the credit facility, MCB will grant Rietumu the option to purchase 724,760 shares in MCB Finance Group Plc (equivalent to approximately 4.2% of the current issued shares) at an exercise price of 45p. The option will expire 31 March 2011. In the event the option is exercised Rietumu will have the obligation to extend the credit facility for a further year to March 2012.

We are delighted to continue our partnership with Rietumu, and the extension of the credit facility gives MCB good visibility on the financing required to support the continued development of the Company.

Financial review

Revenue for the 12 months ended 31 December 2009 totalled EUR15.67m (2008: EUR13.06m). The higher revenues, despite lower lending volumes, are a result of increased average margins during 2009 and carry-over from lending made late 2008. Direct operating expenses, which include provisions and variable costs related to the Company's lending operations, were EUR9.82m (2008: EUR6.08m). Direct operating expenses excluding provisions were EUR2.06m (2008: EUR2.05m). Proforma administrative expenses were EUR5.16m (2008: EUR5.51m). Net finance costs were EUR1.32m (2008: EUR0.98m). The proforma pre-tax loss for the period was -EUR0.63m (2008 pre-tax profit: EUR0.49m). Proforma net loss for the period was -EUR1.06m (2008 net profit: EUR0.40m). Despite the net loss the Group was cash flow positive for the year.

The proforma figures above exclude non-cash reserves arising on employee share options.

Credit loss provisions totalled EUR7.76m for the period, or 50% of revenue, up from 31% of revenue during 2008. The large majority of provisions were taken during the first half of the year and reflect the weak performance of loan pools issued late 2008 and Q1 2009. Provisions were 37% of revenue in the second half of the year, and are expected to return to 2008 levels going forward.

While the Group as a whole was loss making during 2009 there were significant differences between markets. The Company's Finnish and Lithuanian operations each contributed positively to the Group's full year results. Estonia was close to break-even, while the Latvian operation's contribution was significantly negative due to high provisions.

The Company accrued a EUR0.42m tax liability for the year, primarily from its profitable Lithuanian operations. The accrued tax liability is high relative to this division's EBT contribution due to peculiarities in Lithuanian tax legislation which do not allow the deduction of certain costs for taxation purposes. We expect eventual 2009 liabilities to be reduced following further review.

The second half of the year saw a significant improvement in financial performance over the first half as a result of reduced provisioning requirements and reduced costs. The second half generated a pre-tax profit of EUR0.56, after a first half pre-tax loss of -EUR1.19m. As anticipated at the time of our interim results, the Company benefited from the cost reductions initiated in the first half of the year. Direct operating expenses and administrative expenses were reduced in the second half by 22% and 25% respectively compared to the first.

A summary of the Company's financial performance for the period is provided below.

Year ended 31 December
(EUR thousands) 2009 2008 2H 2009 1H 2009 2H 2008 1H 2008

Principal lent 40,424 56,606 16,143 24,281 30,520 26,086

Revenue 15,668 13,055 6,752 8,916 8,082 4,973
Direct operating expenses -9,824 -6,077 -3,430 -6,394 -3,674 -2,403
out of which Credit loss -7,764 -4,031 -2,526 -5,238 -2,534 -1,497

provisions
Provisions as % of Revenue 50% 31% 37% 59% 31% 30%
Proforma Administrative -5,156 -5,507 -2,212 -2,944 -2,820 -2,687

expenses
Net interest expenses -1,322 -984 -554 -768 -648 -337
Proforma EBT (loss) -634 486 556 -1,190 939 -453
Proforma net income (loss) -1,056 404 366 -1,422 857 -453

Customer loan receivables 12,811 20,385 12,811 17,617 20,385 15,014
Borrowings 6,460 12,050 6,460 10,730 12,050 7,450
Total equity 7,467 8,522 7,467 7,101 8,522 7,763
Debt/equity ratio 87% 141% 87% 151% 141% 96%

At the end of the period customer loan receivables totalled EUR12.81m (net of provisions), down from EUR20.39m at the end of 2008 and EUR17.62m at 30 June 2009 due to lower lending volumes and shorter average loan maturities.

MCB ended the year with a strengthened balance sheet, having repaid approximately EUR5.6m of its credit facility out of internally generated cash flow. At 31 December 2009 the Company had drawn EUR6.46m from its credit facility with Rietumu bank, down from EUR12.05m at 31 December 2008. The amount drawn has been further reduced to EUR5.9m at the end of February 2010. The reduced leverage has increased the Company's debt financing headroom for future growth. The Company has to date met all of its banking obligations and the Board expects the Company will continue to trade within its banking covenants.

Current trading and outlook

2009 was a particularly challenging year as a result of the market conditions that have affected the economies in which we operate. As soon as the extent of the economic deterioration in the Baltics became apparent we acted quickly and took the measures necessary to minimise default, and focused on our most productive business activities. The rapid and significant improvement achieved in the second half is a consequence of these actions.

MCB has come through one of the most turbulent and testing times in recent economic history. Having successfully undertaken the changes needed, the business has emerged considerably stronger, providing a robust platform for future growth. Since the end of the year MCB has maintained a cautious approach to lending and remains focused on credit quality, collections and improving our product offering. Lending volumes have remained steady, while credit performance continues to be strong. The focus is now on gradually increasing volumes while maintaining quality.

Our business model has been tested fully, as have the skill and determination of management. We expect economic conditions to improve gradually from current levels, benefiting operations in our current markets. While we are not currently seeking expansion into new markets, this remains an important component of our long-term strategy and we will continue researching opportunities with a view to possibly launch one additional market in 2011. We remain confident about both the strength of the business model and the benefits of a multi-territory approach, enabling the Company to leverage its central operating structure and focus on its most productive activities and regions.

Bertil Rydevik

Chairman

10 March 2010

For the year ended 31 December 2009

Revenue 15,667,855 13,055,266

Direct operating expenses (9,824,109) (6,077,072)

Cost of employee share options 15,100 (195,585)
Termination of contract payment - (82,250)
Other administrative expenses (5,156,052) (5,506,839)

Administrative expenses (5,140,952) (5,784,674)

Finance costs (net) (1,321,695) (984,442)

Comprehensive (loss)/profit on ordinary (618,901) 209,078

activities before taxation
Taxation (421,703) (82,229)

Comprehensive (loss)/profit on ordinary (1,040,604) 126,849

activities after taxation attributable to the equity shareholders of the parent company Proforma (loss)/Profit calculation
Cost of employee share options (15,100) 195,585
Termination of contract payment - 82,250
Proforma (loss)/profit before taxation (634,001) 486,913
Taxation (421,703) (82,229)
Proforma (loss)/profit after taxation (1,055,704) 404,684

Basic (loss)/earnings per Ordinary share (0.0598) 0.0075
Diluted (loss)/earnings per Ordinary share (0.0598) 0.0074

All of the activities of the Group during the year are classed as continuing.

As at 31 December 2009

Non-current assets
Goodwill 737,723 737,723
Intangible assets 21,145 37,006
Property, plant and 53,822 84,280

equipment
Deferred tax asset - 124,776
Total non-current assets 812,690 983,785

Current assets
Trade and other receivables 12,980,244 20,909,025
Assets classified as held for - 9,611

sale
Cash and cash equivalents 2,214,477 1,162,765
Total current assets 15,194,721 22,081,401

Total assets 16,007,411 23,065,186

Equity
Issued share capital 2,542,460 2,542,460
Share premium account 8,453,870 8,453,870
Other reserves 513,284 528,384
Retained earnings (4,042,810) (3,002,206)
Total equity 7,466,804 8,522,508

Current liabilities
Trade and other payables 1,100,615 983,156
Deferred income 979,992 1,509,522
Short-term borrowings 6,460,000 -
Total current liabilities 8,540,607 2,492,678

Non-current liabilities
Long-term borrowings - 12,050,000
Total non-current liabilities - 12,050,000

Total equity and liabilities 16,007,411 23,065,186

For the year ended 31 December 2009
Group

Cash flow from operating activities
Cash generated from operations 6,801,157 (11,679,868)
Income tax paid (136,439) -
Net cash generated from operating 6,664,718 (11,679,868)

activities Cash flow from investing activities
Purchase of property, plant and equipment (18,599) (69,705)
Purchase of intangible assets (4,407) (28,687)
Net cash used in investing activities (23,006) (98,392)

Cash flow from financing activities
Issue of share capital - 5,139,265
Expenses relating to the issue of shares - (204,333)
Net increase (decrease) in borrowing (5,590,000) 7,500,000
Net cash raised from (used in) financing activities (5,590,000) 12,434,932

Increase in cash and cash 1,051,712 656,672

equivalents
Cash and cash equivalents at 1 1,162,765 506,093

January
Cash and cash equivalents at 31 2,214,477 1,162,765

December

1 STATUTORY ACCOUNTS

The preliminary results for the year ended 31 December 2008 are unaudited. The financial information included in this statement does not constitute the Group's statutory accounts within the meaning of Section 240 of the Companies Act 1985 for the year ended 31 December 2009. The Independent Auditors' report on the statutory accounts for the year ended 31 December 2009 has not yet been signed. Those accounts are expected to be sent to shareholders during April 2009 and will be delivered to the Registrar of Companies after the Company's Annual General Meeting.

2 BASIS OF PREPARATION

The consolidated financial statements have been prepared in accordance with, and comply with, International Financial Reporting Standards ("IFRS"), as adopted by the European Union. The financial information is presented in euros and has been prepared under the historical cost convention and on a going concern basis.

The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries).

3 (LOSS)/PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION

The (loss)/ profit on ordinary activities before taxation is stated after charging/(crediting):

Staff costs 2,202,497 2,353,368
Credit losses 7,764,214 4,030,384
Operating leases 102,079 110,597
Net foreign exchange gains (233) (655)

Auditors' remuneration: