Dear listeners, good morning. Welcome to DelfinGroup Investor Webinar. Today, our hosts are the CEO of DelfinGroup, Didzis Ādmīdiņš, and Member of the Management Board and CFO of the company, Aldis Umblejs, will walk us through the recently announced financial results of 12 months 2022. During the presentation, you are encouraged to ask your questions to the company by typing them in the Q&A window. We will cover them in the second part of the call. Without further ado, let me hand over to Didzis and Aldis.
Thank you, Ieva. Hello, dear participants, shareholders and investors for joining DelfinGroup webinar. I'm Didzis Ādmīdiņš, CEO of DelfinGroup, and today with me here is Aldis Umblajs, CFO of the company, and we will present you DelfinGroup unaudited twelve month results. Next slide, please. I will present you highlights of the company and Aldis will present financial and business data. At the end, we will be happy to answer your questions. How was the last year? I can say it was quite good, and despite difficulties, which is in geopolitics and energy crisis, we managed to increase our profitability and.
To start, we added one more year to our profitable operations, and altogether it's now 13 years. We are working with profit and since very beginning, since 2010. The company is only founded in 2009. It's quite an achievement. The year was quite good in terms of loan issuance, in terms of credit portfolio, in terms of revenue, and also in terms of profitability. The main reason for shareholders in terms of dividends. Next slide, please. About our key results, talking about loan issuance levels, at the beginning of 2022, there was still COVID-19 restrictions in first quarter.
They are lifted from 1st April last year. Since then, we managed to significantly increase our loan issuance levels. Altogether, we managed to grow in terms of issuance for consumer loans to 64%, and in terms of pawn loans for 55%. I count it a very, very good result, and how we managed to work as such a results to achieve them. We worked very actively with our passive and active client base, and we work very active also with our, all our channels, with our wide branch network, with online channels, with our mobile app, and also with our partners, which is brokers and affiliates.
We worked very actively with underwriting, with data analysis to better understand in such times our client sentiment and how they will pay back the loans. In terms of credit portfolio, we also managed to significantly increase our credit portfolio. Credit portfolio at the end of last year was EUR 67 million, which exceeded our guidance. If you talk about revenue, of course, larger issuance levels means a larger credit portfolio, and that means greater revenue, unless credit portfolio is well managed, and it is in our case. As you see in our profitability, we managed to increase profitability in 2022 for 40%. I count it as a very good year.
Next slide, please. To continue with our business segments, first of all, about online store, which I want to point out that is one of our strategic focus for 2023 and also it was for 2022. Especially our strategic focus is on buying those items from our clients. That mean business to customer segment. I want to just say that we have those three main sources how we get those items. We get them from pawn loan segment when clients didn't fulfill their obligations, then we sell the collateral. Also this growing segment for us is when we buy those items directly from our customers.
There is segment when we buy those, like business to business activities, when we buy those items, for example, from internet shops. This is our strategic focus, and I see that we can add real value to that because It's, we have very good competence how we can evaluate those items. If needed, we can repair them, and also we add the value through that every item which we sell, we also add guarantee. It's kinda similar how to when clients buy those items new. The experience is quite similar. Next slide, please. Especially if, since last year, since 2022, our strategic focus also is on innovations and we are focusing on innovations which add value to our business, actually for all our business segments.
We set a special focus for digitalization, UX improvements, customer experience improvements, and also on pro, product upgrades. We have strategic focuses on every of our business segments, which is consumer loans, small loans, and retail. Next slide, please. About talking about our stock, I want to mention that on October last year, we have this stock offering program, through that, we managed to increase our free float up to more than 50% and in terms of market capitalizations, more than EUR 10 million, and that was a requirement from Nasdaq Riga to be on the main list in on stock exchange. Next slide, please. Continue about our stock. I want to talk about dividend distribution.
On talking about how our stock is performing, I can say that we are a dividend story, but that's not the all. We also are stock which is growing and our business segment is growing. Dividend yield is somehow showing how we are performing because according to our dividend policy, we are distributing dividends four time a year. Last year, our dividend yield stood at 8.1%, which is quite good, and we don't see very often such kind of dividend yields in Baltics or in Europe. Also, I want to mention that compared to Baltic market also, our stock price was quite stable.
If we see that other stocks decreased, then our stock in last year increased in the share price. Next slide, please. Also talking about stock price and how others see us. In our webpage, we have this analyst coverage from LHV Bank and also from Enlight Research, and they see that our stock price is on base level is evaluated about EUR 1.80-2 per stock. At the end of year, our stock price was about EUR 1.50. We see that it's a bit undervalued. Of course, I understand last year the environment was quite difficult because all of energy crisis, ongoing war, and I understand that investor sentiment was not so good.
Also one very happy thing what happened is that investor clubs initiative, Investor Toomas, invested in our stock. I guess it was this year. Investor Toomas is like linked to Estonian Äripäev and let's say relative to Investor Toomas in Estonia. We are quite happy that he invested in our stock, and we will be happy to distribute also dividend to Investor Toomas. Next slide, please. Yes, even before COVID-19, we launched our stock exchange, stock option program. At the end of last year, first employees received their stock options, and they can exercise them this year.
I think very good thing about that is that many of our employees that will be the first stock, and they will join the capital markets, and I hope they will also invest in other Baltic stocks. I think it's very good also I think in capital market development perspective. Next slide, please. Also talking about our social responsibility activities. Like all previous years, we stayed actives in that field, and we invested, not invested, but donated for elderly people, also for children hospital. Also of course last year, because of ongoing war in Europe, we donated more than EUR 250,000 to Ukraine. Also, we will continue to do that also this year. Next slide, please.
Yes, talking about our business activities about retail, which is our strategic focus, I want to mention that this year we will open largest branch for Banknote. I hope it's the largest not only in Latvia, but that will be the largest pawnshop in all the Baltics. There will be very convenient way for our customers to pawn or sell larger items. It will be very comfortable because there is. It's in a good location in Riga. It's in Imanta, which is one of one district in Riga. It's very good, well visible from street, there is a good traffic infrastructure is quite good.
Also in this branch or shop, we will focus on retail. We will sell there all the range of things which we are selling in our webshop and in other branches. It will be open starting from second quarter of this year. All the customers, shareholders are quite welcome to buy items which we are selling in this pawnshop and branch. Next slide, please. I would give screen to Aldis, which will present results about our business performance and about our financial performance.
Thanks, Didzis. I will start with our largest segment, consumer loans. As you can see, the consumer loan continues to grow also during the fourth quarter. In total, 70 million new loans were issued in the last quarter, and the consumer and net loan portfolio exceeded 60 million EUR for the first time in company history, and grew by 55%. We are actively working on increasing the utilization rate of the claim credit line credit limits assigned to our customers, as well as constantly improving the product offering.
The non performing loan ratio, although slightly increased in the last quarter, it was 1.4% at the year-end. Nevertheless, it's far below the 3%-5% target we have set for the ratio internally. The low ratio, in my opinion, is evidence to our careful underwriting procedures and the usage of third party collection companies for management of delayed loans. The age analysis of the consumer lending portfolio shows a healthy portfolio as almost 90% of all our loans are not due yet. By comparing the portfolio with the data at the end of the last year, we actually see a slight improvement of the portfolio quality as the share of the loans delayed has decreased.
The pawn loan segment shows good results as well and is growing for the already seventh consecutive quarter and has surpassed the pre-pandemic levels. We see that the increase is driven both by the numbers of the transactions and as well as the average amount of the loans itself. To improve the customer experience, we are investing in digital solutions for the pawn loan segment and aim to introduce a full online process for issuing the pawn loans during this year. When looking at the redemption rates, we see that they continue to be stable, not indicating any deterioration of the pawn loan portfolio.
The retail sales for the last quarter of 2022 were solid and just slightly missed the high of the third quarter. In overall, the increase in sales for the second half of the year were driven by new investments in the internet shop, as already mentioned by Didzis, as well as by focused sales campaigns. The gross margin has slightly improved and was 42% at the last quarter and we actually expect for the internet shop to play an even more important role in the sale of the pre-owned goods segment going further as we see the number of the sales transactions increasing.
To satisfy the demand, we have increased sourcing for the goods, now almost half of the goods are sold that are acquired via business to business channels. This together with other initiatives has allowed us to increase the assortment of the goods in our shops, now there are almost over 40,000 items listed on our internet shop. As for the items that we are selling, smartphones continue to be our largest product category, following by the jewelry. Actually, jewelry is one of the segments we see a great potential that we will expand going further as this segment is growing by quarters.
Here in this slide, you can see just some of the benefits that we have mentioned when buying pre owned jewelry or goods from DelfinGroup. When you're buying, for instance, jewelry for us, from us, you can be sure that the items have been inspected, verified, by qualified experts. In addition, each of the items has been polished and can be purchased at a price that is below the price it would cost if you would purchase that as a new item. Also, for the purchases made in our internet shop, we provide 40 days' return guarantee, as well as for certain items we provide a warranty up to 24 months.
When looking at the consolidated income statement, we can see that the sales, as mentioned, have grown by 48% on a quarter basis and 42% on a year-on-year basis. The gross profit reached EUR 5.7 million for the quarter and EUR 20.8 million for the full year. EBITDA has increased over 20% for both the quarter and year. The profit for tax increased by 10% and was EUR 1.9 million for the last quarter, and for the full year it decreased by, I would say, staggering 40%, and it was EUR 7.3 million.
For the consolidated balance sheet, the total assets have grown by 48% and were EUR 77 million, and out of that, 87% comprises the net loan portfolio. On the liability side, we see an increase in the interest bearing debt that comprises of bonds and Mintos financing, and the increase in this position supports our portfolio increase. When considering financial ratios, we can see that they highlight the good business development DelfinGroup has delivered. The Cost to income ratio is decreasing, indicating an effective cost management from our side. Our interest rate coverage is healthy and two times above the amount required by our bond covenants.
Given the uncertainty in the capital markets and the rising interest rates by central banks, our cost of funding has increased as well. Nevertheless, during the last quarter, the increase of the average rate was at a slower pace compared to the previous quarters, indicating a gradual slowdown. Our capital structure provides that we use a blend of both internal and external source of funds. For the external capital, we use Mintos peer to peer platform and bonds. Currently, we have three bonds outstanding, out of which one is open for subscription. All the latest bond issues have been arranged in the incorporation with our partner, Signet Bank, via private placement.
One of our current bonds is listed on the Nasdaq First North alternative market. When we look at the revenue diversification, we see that although 66% of sales are generated by the consumer loan segment, the retail of pre-owned goods and pawn loans segments are picking up and such diversification in the revenues allows us to better navigate turbulent times and also be profitable in, I would say, basically every economic cycle. Yesterday we published our updated financial targets for the period 2023, 2025. They provide that DelfinGroup will continue its ambitious growth and aims to increase the net loan portfolio up to EUR 100 million by end of 2025.
Additionally, it is expected to double the profit by end of that. By doing so, we will also continue regular dividend distributions to shareholders and aim for the dividend payout ratio to be at least 50% as we have delivered also previously. Shortly about dividends, as Didzis already mentioned, we made already six dividend payments last year, four quarterly dividends and two payments for annual dividends. All together, we distributed almost EUR 6 million to our shareholders.
As well, given the publication of the unaudited results for the fourth quarter, the management is proposing to distribute additional EUR 839,000 dividends for the fourth quarter and this is up to shareholders' approval in the next shareholders' meeting. Taking this all into account, the dividend yield based on the share price that was at the year end would have been 8.1%. Also a little bit about the share performance. When looking back and at 2022, then the performance of DelfinGroup share was positive, an increase in 5.86%, while the OMX Baltic Benchmark Index declined by 11.75%.
As such, DelfinGroup was one of the few companies in the last year that delivered a positive return. This would conclude our presentation, and now we could move on to the questions and answers session.
Very well. Thank you for the presentation. Let's continue with the Q&A. Everyone is welcome to join the discussion by typing your question in the Q&A box that you see beneath the presentation. We will start with the previously submitted questions. The first one goes the following: What will be the greatest challenges looking ahead? What is the current market share in Latvia, and what do you forecast in the future?
Okay, thank you. I will cover this one. Of course, if we talk about challenges, of course, there is still, I think, geopolitical crisis, and there is still inflation, and we see some, like, from risk perspective, of course, there is financing risk. I could say that we are managing that quite well. Also, talking from a challenge perspective, we can talk about the payment discipline of clients, we are also managing that quite well. You all see our non performing loan levels.
If we talk about our market share and how it could develop from in latest data, which is from end of first half of 2022, we see that in a consumer loan, non bank consumer loan market, our market share is 13.3%, and it is growing every single year. For example, in 2018, our market share was only 5%, less than 5%. Now it's more than 13%, and we are seeing that it's growing, and I see that it will continue to grow. If we talk about pawn loan market share, our market share there is about 52%, and it is also is growing. We will grow in terms of market share in both our credit segments.
Thank you. When the company plans to achieve positive free cash flow stream?
Yes, I will cover that. Actually, the lending operations are our main bread and butter are cash intensive, and in the cases when company lends out more than it receives back from the borrowers, then the cash flow is negative. In our situation, the cash flow would become positive only in the case when the lending amounts would decrease and the inflows are larger as outflows.
Since we see a strong demand for the products in 2022 and in the years coming, given our projections for the years 2023, 2025, in order to satisfy the demand and grow the portfolio, we'll need to continue funding loans, and our cash flow will be negative. So, in our case, to achieve a positive one would mean back to scale back our operations, and I don't see that in the foreseeable future.
Thank you. There is a question about your borrowings through the Mintos platform. How do you see the situation with interest rate changes in 2023? Will they increase or decrease?
About the interest rates, the overall interest rate market, as we see, it's upward going, but I think in overall, it will reach a peak or has reached a peak more or less, and will flatten out. As for the rates in Mintos' platform, as you know, this is a marketplace and the rates are determined there based on supply and demand principles. To forecast if they will go up and or down, I can't comment on that.
Basically it will depend on if there will be sufficient, let's say, investor that will drive the demand, and therefore the prices go, the rates go down, or otherwise, if there are, let's say, lower amount of investors and the prices, the rates stay as they are.
The participants are also inquiring about the potential public offering of DelfinGroup shares in future. Would there be one?
Yeah. We had our initial public offering a year and a half back, and last year, there was another one where the larger shareholders sold part of their shares. Actually right now, we don't see, let's say in the near future, any other public offering. Again, situations might change, and then if something that's in that respect comes up, we will definitely let know.
What will be your strategy for the next five years?
Okay. Thank you. Yes, talking about our strategy, first of all, I want to point out that our main target is to increase value of the company. That's our main strategic objective, and all our activities support that. Also our strategic focus is on being like first choice for consumer loan and pawn loan crediting segments in Latvia. That's our like strategic focus on that. Also our strategic focus is on being ambassadors of a circular economy in Latvia. That's also we have very strong focus and on retail of buying and selling pre-owned goods.
How we will achieve that is by innovation and investments in our products and investments in that how we serve our customers. Basically is that is very shortly about our strategy. So that's the answer.
Thank you. Let's now turn to the questions submitted during our online session. The first one, question regarding the credit loss expense in fourth quarter 2022. This seems to have gone a bit off. Have you got it back in line in first quarter this year?
Okay. I will try to answer on that. Actually, when looking at the credit loss expenses, I cannot say that they went off as they are reasonable. The reason for the increase in the credit loss expenses is due to increase in the portfolio as by applying IFRS you have to recognize credit loss expenses at day one when you in fact issue loans. I would say that the increase is due to the application of IFRS principles and the loan portfolio. When you look at, let's say, the quality of the portfolio and the non-performing loan ratio, we don't see any, let's say, deterioration in the portfolio, and that's
It's more of an accounting issue rather than actual problems, potential problems of the loan portfolio.
Thank you. In the middle of all the questions, we also have one positive feedback, a compliment regarding the great presentation and good investor relations work. The next question that we have received. There was announcement of the next shareholders meeting, which included an agenda point of changes in the dividend policy. Will it affect the amount of future dividends?
Yeah, I will answer on that. No, the changes proposed to the dividend policy are actual rather technical and they in fact benefit the shareholders as the current wording would limit us in the timeframe when we can distribute the annual dividends, whereas the proposed changes would allow us to make annual dividend payments also later in the year if there would be, let's say, a favorable situation for that.
Thank you. Would it not make sense to expand pawn loans into neighboring countries?
Okay. Thank you. Yes, very good question. I think it makes sense to expand business not only to neighboring countries, but the countries where this market segments where we are working is active, where there is a demand for such service. Of course, we are looking around. We are actively thinking about how to develop our business and how to work in the future. Of course, the stock exchange will be the first place where we will inform about our plans. At the moment there are not exact plans about that.
Thank you. During the previous investor call, you noted that you aim for equity ratio at around 27%, whereas now you guide for equity ratio in the 20% area. What's the so story behind that? Wouldn't it be more reasonable to conserve capital currently instead of implementing aggressive dividend payout? An additional question, are there any plans to increase your buffer to bonds capitalization covenant?
Regarding this question, first I would like to note that our intention is to have the equity ratio above 20%. The guidance says that it's 20% the minimum, but it will be above. Just for convenience, it's not specified there, let's say 22% or 23% cause it might change. So we left it at the 20 but it will be higher. Why it is lower, first is because of the growth of the business. Of the growth of the balance sheet because obviously by growing the balance sheet, the equity ratio decreases.
Also we see that the need for such a higher equity, maybe it's not optimal for the company because when seeing how to best utilize, let's say, capital and, in form of shareholders' equity and borrowing, we might consider that 27% is rather high. In regards to the dividend distribution, I wouldn't say that we have a aggressive dividend policy. Let's say in our opinion, let's say, a normal dividend policy that's is according to the policy of distributing of 50% of the profits to the shareholders as dividends.
We plan to stick to this target also going further as explained in the previous slides. As for the plans to increase buffer to bond capitalization covenants, we follow closely on our covenants constantly and just to have for the sake of larger buffer. We are not, let's say, aiming for that. We are doing as said to have a balanced utilization of both equity and borrowings.
Thank you. How will you ensure the growth published in the latest guidance?
Yeah. Thank you. I will cover this one. Of course, that's the question is very linked to our strategy. Of course, we will continue to invest in our product, and we will continue to invest in innovation. That mean that the product will be with better user experience and we can, let's say, scale our product and through that, We see that we can grow market share, and we will do that by better serving our customers. Actually also what I already mentioned about to be like ambassadors in circular economy market, circular economy field, we will expand our activities also in retail segments, not only in credit segments.
That will, through that we will achieve the targets which is in our latest guidance.
Thank you. The 2024 portfolio growth targets are quite ambitious. While year-over-year growth in loan issuance is quite good, quarter-over-quarter growth is quite minor. Where and how do you see reaching target growth if bond loan market will remain stable and group's market share in consumer loan market has rather slight upside?
Okay. I will I can cover this and maybe Aldis can add something. I think the question is about why maybe for last quarter of 2022 is not so good, not so large increase in the loan issuance levels. That's a bit linked to that. At the end of last year, there was some exchanges in customer sentiment because of energy crisis. If you look forward, we see that, of course, our target is quite ambitious, but also that how we manage our business is quite ambitious.
Actually, I can say that we are quite confident about credit portfolio, potential increase. We see this track record, we see that we increased our market share in terms of credit portfolio historically very good. Yes, we are quite confident that by investing in our product, investing in innovation, we can achieve them. I'm quite sure about that.
Why credit loss expense remained at the same level after one off cessation deal? Shouldn't, at least in short term, credit loss be at lower levels? Where do you see Q1 credit loss level?
Okay. I will try to cover this. Don't know if I do it get right, but about why credit loss expense remained at the same level after one off cessation. If, if that's relates to the income statement, then the cessations already include the credit loss expenses created in the previous periods because when we write off the loan portfolio, when in case of the cessation, we offset the loss with the credit loss expense we have recognized in the previous periods and that comes from the balance sheet and it doesn't, it isn't reflected in the income statement. Where do you see the credit loss levels at Q1?
I would say it's rather early because it's just the second month has ended. let's say seeing the situation in January and also having some feelings of the February, I can say that we don't see any let's say deterioration in the overall borrowing market and customer repayment. in fact, we see, let's say, a positive sentiment from the customer side and that is also reflected in our credit provisioning.
Thank you. Two more questions to go. Equity ratio is below 2022 targets and capitalization ratio is approaching covenant limits. How is this going to impact annual dividend distribution?
Yes, I think I covered a little bit the equity ratio previously, but how that is going to impact annual distributions, let's say, the annual dividend distribution, this issue will be reviewed by the management and then will be up to vote for the shareholders at the annual meeting after we have completed the audits of the annual statements. Clearly we will look that as a complex matter in considering, let's say that the further growth of the company and also in fulfilling the dividend policy.
Thank you. The last question, can you please comment on the default rates current year versus prior year and remind the key drivers for tendencies and repayments in 2022?
Okay, thank you. If you talk about We can talk about default rates only for of course, consumer loans because for phone loans, default rates are not impact on our profitability because in case of default, we are selling the collateral. If you talk about consumer loan, then about default rates in the long run, it's like the default rates are increasing because of our data science team and how we are making underwriting for consumer loans. Also we have some positive legacy from COVID-19 times because we
In COVID-19 times when there was that stress situations with customers didn't know what to do, how they will pay their loans, we have this possibility to make restructurizations for consumer loans if there is any problems, and we are using that. Also, we are using debt sales for non-performing loans and but I can also say that actually customer like possibility to pay back their loans is actually very good.
The reason for that is that we have managed in the long run to very good understand our customer, and we know them very good and our underwriting policy is quite like quite good and we can divide the customers which can pay back loan and which can't, and we are crediting only those who can repay back. The reason is that in the long run. That mean that in the long run, the default rates are decreasing. One thing what you see in our non-performing ratio that it's also at a very, very low level, and that's also the good thing for investors because in our balance sheet there is no such non-performing loans or they are at a very, very low level.
That mean that our credit portfolio is up to date and the clients are paying for their loans.
Thank you. All questions are now answered. The recording of the webinar will soon be available online. Therefore, as always, please follow DelfinGroup announcements to stay up to date. Thank you for joining the call today, and have a nice day.
Thank you.
Thank you.