Modestas Sudnius (CEO) and Māris Kreics (CFO) have just been interviewed by BondGuide, a German media outlet providing up-to-date information on the market for fixed-income securities issued primarily by medium-sized companies. The interview briefly covers topics such as the Eleving Group’s performance in recent years, the view on what is happening on the capital markets, and discusses current events at the company.

BondGuide: Gentlemen, I’ll open the door right now: How is the Eleving Group’s business going?

Kreics: The first quarter of 2023 unfolded as we projected, as the mobility and consumer sectors usually go at a slower pace during the cold months. Elevated utility bills impacted individual spending priorities and overall consumption levels, which had direct and indirect impacts on the business across some of our markets. During 1Q, the Group generated revenues of EUR 44.7 million, with a net portfolio of EUR 290.3 million. The corresponding EBITDA for this period stood at EUR 18.9 million, compared to EUR 16.4 million from the previous year. Furthermore, the adjusted net profit before FX reached EUR 7.3 million, marking a rise of EUR 1.4 million compared to the first quarter of 2022. As we are currently summarising the results of 2Q, we already see that the business activity is gradually gaining momentum, and our ambition remains to achieve annual double-digit growth in our net portfolio. Overall, we have maintained good profitability levels during the short-term headwinds, which confirms that the company’s strategy, revised last year, is performing well. We will continue to focus on improving our existing products, increasing cost efficiency, and developing our business in the recently added four African markets in Sub Saharan region.

BondGuide: Since 2020, we’ve had three years of a state of emergency – for all sorts of reasons that we all know. Will 2024 finally be a ‘normal’ year again?

Sudnius: We all look forward to it. Although, in the current geopolitical and economic environment, it is difficult to make accurate and factual predictions because there are so many variables, unknowns, and known unknowns that can influence the year ahead. At Eleving Group, we focus more on the things we can control and improve – our products, processes, and funding strategy. If the company has the right approach, it can successfully overcome difficult years. I think that we are one of the best examples in our sector because, despite the setbacks of the Covid-19 pandemic, the full-scale invasion of Ukraine launched by Russia, and the shifts in the global economy, we have finished the last year with record-high results in all key business figures. The world events of the previous three years will undoubtedly keep some impact in the coming years. The biggest concern for all of us right now, apart from geopolitical challenges, is the inflation and normalization of capital markets.

BondGuide: In the Baltic States, you are closer to the war in Ukraine. How does this reflect on your business and the respective markets?

Sudnius: Of course, after the events in February of last year, sentiment changed in the Baltic States, and the feeling of insecurity temporarily grew. However, we must remember that the war has been going on since 2014. So, it is already over nine years. The Baltic states are safe – we are an EU and NATO members with all the resulting guarantees. As the uncertainty grows, you can see changes in consumption volumes and people’s willingness to take on new commitments at other times. This time such short-term trends were initiated not by the sentiment as such but by the rise of gas and electricity prices during the cold months. These prices were a burden to people’s budgets, but now we see that the situation is normalizing, and our countries have diversified supply channels and moved away from Russian resources. As for the Eleving Group, we felt the direct impact of the war on our business because we had to write down Ukraine and exit Belarus markets; however, we managed to do that without causing a significant financial impact. It is a small sorrow on the background of everything happening in Ukraine.

BondGuide: Lately, you have just been confirmed a B- with a stable outlook by Fitch. What did Fitch like, and where did they see room for improvement?

Kreics: Fitch ratings appreciated that Eleving has delivered on its promises to stakeholders and successfully continued its de-leveraging with an even more improved gross debt to tangible equity ratio (end-1Q23: 5.1x; end-2021: 7.7x).

Another aspect is continuously strong profitability, mainly thanks to high-yielding products and mostly fixed-rate funding in place. Additionally, Eleving Group was able to successfully absorb negative impacts from its portfolio write-down in Ukraine and scale down in Belarus, which indicates the overall quality of the Group’s portfolio and its high cash generation capabilities.

The third factor highlighted by Fitch was the robust funding structure, with the largest EUR 150 million Eurobond maturing only in 2026 and the availability of flexible capital that can be raised through Mintos marketplace, a Latvian-licensed platform for retail investing in loan products.

Speaking about room for improvement, Fitch highlights such factors as open foreign-exchange position (although that has also decreased to what it was in 2021 and 2020), as well as, in Fitch’s mind, specific improvements can be made to improve the strength of capital such as decreasing related party receivables, which are expected to be closed during 3Q 2023.

BondGuide: At the end of 2021, you issued a long-running bond until 2031 with a 12% coupon. Where is the pain threshold for refinancing?

Kreics: We assume here that the reference is made towards our subordinated bond, which counts as part of equity capital as per methodology by Fitch. Hence, it is important to stress that this bond (small in size, of only EUR 25 million) is not how Eleving Group finances its loan portfolio. This, again, is part of equity capital, similar to bank-issued subordinated bonds, which carry high single-digit coupon rates or yields but, of course, are not used by banks to issue mortgage loans to retail customers.

Speaking about bonds that support our loan portfolio (e.g., Eurobond and local bonds in Latvia and Kenya), we see that a successful and profitable business case can be made with high single digits or low double-digit cost of financing. Anything above those levels would pretty much warrant a decision by us not to issue bonds and instead scale down the business through portfolio amortization – due to the high cash-generation capabilities of our loan portfolio (e.g., every month, we do take in more than EUR 20 million of cash inflow from our loan portfolio).

BondGuide: Are there still some opportunities in your industry to grow profitably?

Sudnius: Definitely. As long as we live in a consumer-driven society and as long as people use vehicles to commute, our business has the potential to grow in all business metrics. In addition, it should be noted that people’s habits change over time, and it is up to companies to adapt to these habits with new, tailored, and even more advanced products. This is the path to open up and explore new niches, contributing to growth. Eleving Group has not yet reached the ceiling in any of the markets in which we operate with our mobility and consumer financing products, and, of course, there is always the possibility of strengthening the growth potential by obtaining a competitor’s business. We have just completed such a step by adding to our portfolio EC Finance Group, better known as ExpressCredit. It is a consumer lending business for mainly public administration employees in Africa, where we already have a solid business footprint. As a result, we have four new markets to expand and grow our business while utilizing our experience in the continent gained from operations in Kenya and Uganda.

BondGuide: Which countries do you particularly like? We would also be interested to know where you rank Germany in this respect.

Sudnius: We certainly like the markets we are already in, especially Africa, where we see much potential. It is a continent where opportunities are almost limitless. Moreover, for us – European companies – Africa is an opportunity to grow the business and create a positive economic and social impact by offering products to clients whom traditional banks underserve. Eleving Group tries to provide not only the core service but also to promote an inclusive economy where people have access to financing alternatives and can buy vehicles that often serve as an income-generating instrument for them and their families. If we look at Europe, these markets are very mature and have a strong product supply. I similarly see Germany. From a business point of view, it is a vast economy where it is enough to be successful if you have a few percent of the market. However, tapping into such markets requires an entirely different level of investment. This is not to say that Eleving Group intends to stop at its current global reach. The doors to Europe and other continents remain wide open to us.