Dear participants, good afternoon. Welcome to DelfinGroup Investor Webinar. Today our hosts are the Member of the Management Board and Chief Financial Officer, Aldis Umblejs, and Member of the Management Board and Chief Operating Officer, Sanita Zitmane, who will walk us through the recently announced financial results of six months, 2022. During the presentation, you are encouraged to ask your questions to the company by typing them in the Q&A window. We'll cover them in the second part of the call. Now, without further ado, let me hand over to Aldis and Sanita.
Good afternoon everyone, and w elcome to our presentation about unaudited results of first half of the year. First of all, let us thank you all for joining here today. My name is Sanita, and I'm leading operations and product development in DelfinGroup. In our presentation, I'll focus on main activities of second quarter. Further on, Aldis will give a detailed review on business and financial results. We have had a successful quarter. Despite the beautiful summer weather or maybe inspired by it, our teams in all departments have been working hard to achieve good results. Moving forward with quarter activities and slides. First of all, I'd like to mention that we have strengthened our leading position on the pawnshop market and completed the takeover of the loan portfolios of six pawnshop branches of the Finance 360 pawnshop partnership.
Among them were the loan portfolios of four branches in Riga, Rezekne, and Liepāja. That gives an option for people to sell and buy pre-owned and tested goods all over Latvia. Former customers of Finance 360 will also benefit as they get access to a wider range of services. For example, our online shop, mobile app services, and remote assessment of goods. Next to mention is that we move forward with stable growth rate and high returns for our shareholders. DelfinGroup regularly distributes up to 50% of quarterly profit, and this is an addition to annual dividends. Since January 1, 2022, DelfinGroup has paid dividends four times in the amount of almost EUR 4 million. In addition, two more dividend payments are expected to be made this year.
As another important topic, DelfinGroup has published second ESG report. The current ESG report is the first one since our company is being listed on Nasdaq Riga. The report shows that DelfinGroup is engaged in such important topics as employee well-being, improvement of work environment, and education. We employ more than 300 people, and according to surveys, 93% of them are satisfied with our workplace. This report includes not only the company financial data but also internal processes and management principles. It is available on the company's website. Next, I would like to mention about bonds. In June 2022, DelfinGroup concluded a bond issuance of EUR 10 million and listed them on Nasdaq Riga with the historically lowest annual coupon rate of 8%.
In addition, the company has registered annual private placement bond issue for EUR 10 million. The subscription period is currently open. The purpose of bond issuing is to diversify the financing structure and refinance existing liabilities on more favorable terms. This gives us possibility to invest more in product development, in growth of our business lines. We believe that when you give a great product to customers, you receive more in return. Also, in the second quarter, we continued to work on modernization of Banknote branch network and opened a new branch in Olaine. We observed that physical access to services is a concern all over the country, especially for the elderly and those who do not use the internet in their everyday lives.
People need a place where they can come and get a direct and a valuable service, and we can offer that. Our plans this year is to develop a modern and convenient Banknote branch and introduce a new branch concept. We want our products to be more visible and more understandable to our customers. Moving on to COVID-19 topic. Lifting of restrictions started from first April this year, and has positively impacted branch network sales results in all our business lines. In the pawn loan segment, second quarter this year already exceeded the pre-pandemic volumes. Stable results are also observed in segment of pre-owned goods. Consumer loan volumes in branch network also shows a big increase.
Further, I would like to highlight that in April, the Society Integration Foundation announced DelfinGroup is a family-friendly workplace. Within last couple of years, habits and needs have changed significantly. Wellbeing activities, remote work opportunities, and a good work-life balance is important to our company and our employees. These values represent also a long-term focus in our company, starting with staff development to business development and social responsibility. The last but not the least is the group has continued to support Ukraine with another EUR 100,000 donation. We donated to Children's Hospital Foundation and Entrepreneurs for Peace to help refugee children with healthcare services in Latvia and to send essential goods to people in Ukraine.
We support and offer help to those defending Ukraine and the victims of the war, and we cannot stop the war directly, but we can help with our support. Moving forward, Aldis will tell about financial and business results.
Okay thanks Sanita. I will be taking over right now and present the results of the second quarter and the six months of 2022. Overall, the group continues to show strong performance during the first half of this year. Good performance in all business segments has allowed the company to achieve another great quarter. DelfinGroup continues to increase the total loans issued for the fifth consecutive quarter, and during the second quarter of 2022, the group issued in total EUR 24.4 million, an 83% increase to the same period last year. The accumulated revenues end of the second quarter reached EUR 16.1 million, an increase by 35% compared to the last year.
Strong demand both in lending and sales contributed to that. The total net loan portfolio has also increased, and compared to the last year, grew by 62% on a year-on-year basis and has reached a record amount of EUR 53.8 million. The profit before tax for the first time reached EUR 2 million in a single quarter, making another milestone for the group. In total, the first half of 2022, the group achieved EUR 3.6 million of profit before tax. In the following slides, I will go into more details in the individual business segments of consumer loans, pawn loans, and sale of used goods.
Following the robust demand for our consumer loan products, the net loan portfolio grew by EUR 5.8 million in the last quarter and was EUR 49.5 million end of the second quarter. In overall, the portfolio has grown by 63% compared to the last year. The average loan amount per client continues to increase as well, given that our customers are using our products to finance higher value purchases. The non-performing loan ratio loans exceeding 90 days past due, continues to decrease also in this quarter and was the lowest rate ever, 1.6% end of the second quarter.
The result is achieved mostly because we apply prudent underwriting procedures, pre-procedures as well as a set of debt management tools that allows us to minimize the bad debt amount. The pawn loan portfolio continues to increase for the fifth consecutive quarter as well. At the end of the second quarter of 2022, the pawn net loan portfolio surpassed the level observed prior COVID-19 restrictions and reached EUR 3.2 million, an increase by 64%.
The lifting of the restrictions beginning of April had a huge impact on the demand of pawn loans as we were able to serve our customers in the branches, not having to limit number of them that we can serve at the same time. Also, the sale of pre-owned goods continues to show good results and reached EUR 2.6 million during the second quarter of this year. Likewise, as with the pawn loan segment, the lifting of the COVID-19 restrictions gave a positive boost for the sales since a large part of our sales for this segment is done in our physical shops.
The revenues for the second quarter grew by 46% and for the first half of the year by 35% compared to the same period last year. Credit loss expenses increased during the second quarter because of the increase of the loan portfolio, as well as because of a sale of a non-performing portfolio that we made. However, these are ordinary transactions within the management of bad debtors. Income taxes increased as well, but that's mostly because the clearing of annual dividends for the previous quarter that was made in April this year.
Nevertheless, the group achieved an increase in net profits by 47% for the second quarter and 61% for the first half of the year. The overall balance sheet has increased by 21%, and that's as a result of the increase of loan portfolio and the amount of inventories that follows the growth in loan sales and as well sales of retail of pre-owned goods. The retained earnings have decreased following the shareholder decision to distribute annual dividends in amount of EUR 2.5 million from the profits for the previous periods of 2020 and 2021.
When we look at the final financial ratios also, they show a robust performance of the group during this year. After accounting for all of the IPO related costs end of 2021, the group continues to improve its cost to income ratio. We expect that to decrease also going forward in the next quarters. Although the equity ratio has decreased, the reason for that being is the distribution of EUR 2.5 million additional annual dividends approved by the shareholders in April, as well as due to the faster increase in the total loan portfolio.
Following the good results up until now as well as the income generated by additional loan portfolio, we expect the equity ratio will continue to grow and be in line with our long-term targets. The average cost of interest-bearing liabilities have slightly increased in this year as a result of the start of the war in Ukraine. Following which, the capital markets have increased the premiums associated with the debt financing. Nevertheless, the strong performance of the group has offset this and the interest coverage ratio has increased and has reached 2.8 at the end of this quarter. Showing a strong ability of the group to service its debt.
As for the capital structure, DelfinGroup continues to employ a balanced structure of utilizing equity, bonds, and Mintos platform. As mentioned before by Sanita Zitmane, during the second quarter of 2022, we completed the placement of EUR 10 million bond and then started its listing on the Nasdaq First North alternative market of Nasdaq Riga. The bonds have a coupon rate of 8%, the lowest rate the group has achieved until now. If we look structure-wise, then the percentage of interest-bearing debt has slightly increased in this quarter compared to the previous periods.
However, with the start of a new EUR 10 million bond issue that was launched just recently in July, we expect to increase the share of bond financing in our total capital structure. Regarding the diversification, although presently the largest part of revenues for the group is generated by our consumer loan segment, we see that the pawn loans and retail of pre-owned goods are picking up and are increasing in the overall share of the group's revenues. We expect for this segment to grow also in the coming quarters as we put more emphasis on these segments and sales specifically.
During the second quarter of this year, a total of three dividend payments were made, and almost EUR 2.5 million were distributed to shareholders. These payments involved the distribution of quarterly dividends for the last quarter of 2021 and first quarter of 2022, as well as half of the annual dividends. Additionally, beginning of July, the second half of the annual dividends was distributed. In total up until now, EUR 3.7 million have been returned to the shareholders during 2022. Also, following the announcement of the second quarter results, the management proposed distribution of extraordinary dividends for the second quarter of this year in the amount of EUR 600,000.
Shareholders will have the opportunity to vote on that during the shareholders meeting in September. When we look at our share price then, although there was an initial drop following the IPO in price following the release of the financial results for this year and also presenting a good track records of distributing the dividends to shareholders, our share price has recovered. In addition, when looking and comparing the share price to the overall market, we see that DelfinGroup shares have a positive performance compared with the overall Baltic benchmark during 2022, where that has a negative path.
Still, when we compare our company to other financial industry companies, the shares of DelfinGroup company is relatively cheaply valued. We consider, let's say a good potential for investment also for investors going forward. If you would like to get the latest information about our company, please subscribe to our newsletter and this can be done through the website that is now on the screen. Yes, with that, I would like to conclude our presentation and we can now move forward answering your questions.
Aldis Umblejs and Sanita Zitmane, thank you for the presentation. We have received several questions before the webinar. We'll start with those, and then we'll continue with the questions received online from you. If you do have any question to the management of DelfinGroup, please type it in the Q&A box that you see below the screen. The first question: In Mintos peer-to-peer lending platform, I see offer 15% + 3%. It's expensive financing, isn't it? Why not issue 6%-8% bonds instead?
I will answer on that. In overall, our aim is to have a balanced financing structure for us consisting of both short-term and long-term financing. Indeed, the financing in Mintos platform right now is more expensive as compared to bonds. However, it comes with the convenience in accessing it in cases we need additional funds to grow our business rather fast and as this is like a credit line. Issuing bonds is a much more complex and longer process compared to obtaining funding from Mintos. We issue bonds periodically following the demand and after also the previous issue has been fully subscribed and has been closed.
As I mentioned before, we have started a new bond issue in July for EUR 10 million, and we will use these funds to finance growth and also, let's say, shift some of the funds from Mintos to the bond parts.
Mm-hmm. Thank you. Does DelfinGroup plan stock buybacks?
Yeah. Actually, our IPO is just a year ago and I would say it would be too early to consider any stock buybacks for now. Right now, we consider the dividend payments, distribution of dividends, the best way how to give back to our shareholders as we have committed to make them regularly and also in a predictable amount. I would say that in the interest of the shareholders for now, this would be the best solution and there is no intention of stock buybacks.
Thank you. How resilient is the business in case of a steep rise in default rates due to a severe economic downturn?
I can give an answer to that question. We don't really know if there will be a crisis. If there is, yes, how broad it would be. The impact could be applied to the whole Latvian financial market, in fact, yes. We are actively improving the products economy and closely monitoring portfolio quality indicators. Portfolio is stable currently, and our risk policy is becoming more strict. We have also a regular debt sale processes. Debt collection tools as well that we can offer to help our customers. Overall, the quality of solvency is good at the moment, and we have also, of course, experienced the COVID-19 management period like every other company in Latvia, yes. That period shows that even in turbulent times, the solvency of customers did not deteriorate significantly.
Although the first quarter non-performing loan ratio level increased a bit, but it is stable and even flat. We feel quite stable currently.
Thank you. I am shareholder, but I'm also interested in DelfinGroup debt bonds on Mintos platform. Is it a safe way to invest?
I can answer on that. We have been on Mintos platform since its beginning, starting from 2016. Also, we have a history of issuing bonds, starting 2013, so it's safe to say that we have a rather long history in attracting and servicing external debt. During all these years, we have honored our liabilities as well. We have been awarded with one of the highest ratings on the Mintos platform. In addition, as I mentioned before, the interest coverage ratio for us is increasing quarter by quarter, indicating that DelfinGroup is in a good position to service its debt.
I would say yes, it's safe to invest with us.
Thank you. How did your management relationship and cost structure change since Mintos launched peer-to-peer credits inside exchange traded notes?
Okay. I will answer on that as well. In overall, I would say there hasn't been any significant change to us in respect shifting from sessions to notes. Of course, there was additional resources needed to make the transfer, but this involved mostly legal resources and time from the finance and management to prepare all the prospectus, legal documents, legal due diligence and so on. Apart from that, it doesn't change anything in the day-to-day operations or cost-wise. It's not more expensive than it was before.
Thank you. We have answered all the previously submitted questions and will now turn to the ones received online. The first one is about the non-performing loans. The non-performing loans have decreased significantly. What is the long-term forecasted value on annual basis?
I can start giving my answer, and Aldis can add something if there will be. Yes, we have worked a lot to decrease this NPL ratio, and I should say that we have changed our strategy. Strong focus is on one to 30 days past due buckets. Yes. We have introduced also a regular debt sale processes. It helped us. Of course, our monitoring of portfolio and quite a lot of changes in our scoring models as well.
To add what Sanita is saying, yes, we have improved these processes. As regards to the longer period, we believe that the level should be around 2%, max around 2%, up to 2.5%. If it will be at the year-end, we hope so, yes.
Nevertheless, given the current circumstances, there might be some slight increase in the coming periods, but still, we don't expect any larger increases as also during the COVID-19 period, we saw that we can maintain them in a rather low and let's say lean way.
Mm-hmm. Thank you. What about long-term plans about Mintos? Will there be a possibility to invest in DelfinGroup using Mintos in future?
Yes, I can answer on that. As mentioned in the slide about our capital structure and we see Mintos as a long-term, say, partner on obtaining funding and we will definitely use that also going forward. Again, it depends, sure, from the rates that are available because as a company, we are interested to, let's say, attract funding in the most cost efficient way. However, as explained, Mintos has this convenience in obtaining funding faster as compared to bonds or other sources. We will continue using that.
What is your dividend policy in future?
I will cover that as well. About our dividend policy, that is set in the document that has been approved by the shareholders and it says that we are distributing up to 50% of the quarterly profits and we have followed that ever since the IPO and we'll do that going forward. In addition, we might pay out annual dividends if that allows us to let's say retain the equity level as stipulated by the dividend policy and also in line with our long-term strategic goals. Our dividend policy says that our equity ratio must be at least 20%.
Our long-term targets for now are 27% equity ratio. For now, let's say everything indicates that we will pay also annual dividends.
Thank you. Are you planning on issuing additional equity to increase the buffer to your capitalization ratio covenant or perhaps a cap on further dividend distributions?
Yes. Regarding a secondary offering or additional shares, let's say, although hypothetically there is a possibility, but that's what probably would be done for other reasons, not just to increase the capital buffer or have a higher capital level. Let's say we see right now that our capital level is optimal for our current operational levels. There would be no need just to have an additional capital because that costs for the shareholders. Regarding the dividends, we might adjust as said in the previous questions if that's so that it would be in line with our dividend policies.
I said the dividend policy says that we have to have at least 20% equity ratio, and we are well above that. Our long-term targets is 27% equity ratio. We aim to, let's say, maintain our level around that. If that goes above the percentage, then we might pay out a larger amount of dividends. If that goes, let's say, significantly below, then we might consider some smaller amount of annual dividend.
Thank you. What is the total pawn portfolio value acquired from six pawnshop branches of the Finance 360 pawnshop partnership? Also, for how much?
I can say about the price that we won't be able to disclose that because that's, let's say, a business transaction between two parties and we are not allowed, let's say, to share this information. Regarding the value of the pawn loan portfolio and the goods that we acquired, if I'm not mistaken, that was around somewhere between EUR 200,000 and EUR 300,000.
Thank you. Currently the last question that we have received is about the profit guidance. Are you still confident on EUR 8.7 million pre-tax profit guidance from IPO for 2022?
Actually, right now we don't see any reasons why we should not be because we see that the demand for the product is strong. That is also visible in our financial results as well as the increase of the loan portfolio. Nevertheless, there could be some actions or impacts that we are potentially not controlling and that could have effect. We are not aware of such right now. If any arises we will sure make that public.
Thank you. All questions are now answered. The webinar has been recorded and the recording will soon be available online. Therefore, please follow DelfinGroup announcements to find out more. From my side, thank you for joining the call with us.
Thank you.
Thank you for your time and for attention.