This week, the biggest secured lender on Mintos and leading international car loans based finance provider Mogo Finance has published its 2020 Q1 results. Company achieved yet another quarter of strong profitability growth in terms of EBITDA despite unprecedented headwinds of global COVID-19 pandemic. Below you can find Mogo key operational and financial highlights:
– A continuous rapid increase in quarterly EBITDA by 39.7%, reaching EUR 8.8 million (3M 2019: EUR 6.3 million)
– Interest and similar income, including income from used car rent up strongly by 29.8% to EUR 22.2 million (3M 2019: EUR 17.1 million)
– Net profit before FX for the period has remained unchanged at EUR 1.2 million (3M 2019: EUR 1.2 million) despite COVID-19 caused headwinds
– Mogo Finance shareholders have injected an additional EUR 5 million of capital during Q1 2020. This marks the total new capital of EUR 10 million injected into the Mogo group since September 2019.
– Growth in total equity by 9.7% to EUR 31.6 million (31.12.2019: EUR 28.8 million)
– In order to mitigate the effects of COVID-19, we have introduced a number of cost-cutting initiatives, which will result in 50%+ temporary admin cost saving during Q2 and c.20% permanent cost reduction
– We are focusing on cash conservation, and as a result of significantly optimized issuances, our portfolio is currently generating c. EUR 1.5 million of cash a week
Mogo Finance CEO, Modestas Sudnius: “Looking back at the first-quarter results, we need to split this period into 2 parts – pre and post COVID-19. During January, February and the first half of March, we were executing our yearly strategy outstandingly and beating the budgeted figures with very strong EBITDA, portfolio and profitability growth. However, during the second part of March, we had to change our strategy and shift our focus completely. I am very grateful to our team who managed to accomplish significant changes in core processes across the organisation from IT to debt collection just in two weeks.
Maintaining a safe working environment for our employees as well as providing the best possible service to customers is our top priority during the virus outbreak. Mogo is following local healthcare instructions and taking extra steps to make sure that all employees could work from home.
Understanding the current reality and economic effect on many of our existing customers, Mogo will be offering flexible restructuring solutions so that our clients could overcome short-term financial turbulence and continue using Mogo services. When it comes to newest issuances, in countries which are not in full lock-down, Mogo continues offering its services to the best client segments with significantly stricter underwriting procedures to be able to follow responsible lending requirements.
Without a doubt, the upcoming period will be challenging for the whole industry as well as Mogo group. We have already performed necessary actions to reduce our cost base significantly, strengthen our equity and will continue looking for efficiencies and potential optimisation across our operations. We strongly believe that our prudent secured product, strong processes as well as a clear focus on liquidity and cash generation will allow us to limit negative effects caused by COVID-19. This will allow us to strengthen our position as a leading international used car lender once the situation in the world stabilises.“
Mogo finance appreciates Mintos investors’ trust and interest in the company. Mogo will continue providing full transparency to investors through regular updates on its financials (at least once per quarter), limiting pending payments to 0 (current level – 0) and reacting to any COVID-19 related issues immediately as well as sharing this information with investors.
Earlier in April 2020 Mogo Finance team performed its regular earnings call with bondholders of Mogo group and would like to share it for investors on Mintos – find a video recording here of the finance performance presentation followed by questions on behalf of bondholders and Mogo answers.
Mogo answers investors
1. Why don’t you pay interest to your investors for delayed payments? The majority of your borrowers delay, so you are freezing a lot of investor money without interest.
Generally, there are two mechanisms on how to compensate investors for loans that are overdue, through delayed interest payments or penalty payments.
Investors that have invested in most of delayed Mogo loans are compensated through delayed interest (if invested in Mogo Albania) or penalty payments (for other Mogo countries) that is received from delinquent clients. This provides a fair interim compensation to our investors.
2. Do you plan to prematurely buy back loans with higher interest rates as you did in the past after the crisis is over? Do you consider this practice fair towards investors?
Loan buybacks cannot be ruled out in the future. Depending on Mogo’s financial position, overall economic situation, interest rate environment, and other variables, we might explore those going forward. The Secondary Market is providing Mintos investors with the opportunity to “normalize” the yield of their portfolio to the prevailing market rate. Similarly, loan buybacks are providing Mogo and other loan originators with similar “normalization” opportunity.
3. Mogo Finance 2022 bond is currently being traded at 21 % yield-to-maturity. Is the company able to refinance its maturing debt at this level of interest rates?
Covid-19 has had a significant adverse impact on Mogo bond price, just as it has impacted prices of most of the publicly listed assets across the world. However, our current cost of debt has limited impact on upcoming refinancing that is more than two years away (for Eurobond) or a year from now (for Latvian bond).
4. Do you face problems with finding vehicle locations in different countries if borrowers do not want to pay a loan?
Car repossession is one of Mogo’s core competences, and we have developed it since day 1 of Mogo’s operations. We have experienced people, clear processes, and advanced technology (GPS tracking), enabling us to repossess vehicles. However, current economic and lockdown conditions have prompted us to reshape our debt collection strategy, and now we are focused on keeping the borrower “liquid” (e.g. working together to ensure at least a partial payment is made) rather than repossessing the hard asset – in this case, the car. Thus, the car repossession, although important, is not anymore a critical component of our debt collection journey.
5. If borrowers do not pay a loan at all, how long on average can a judicial recovery take in different countries?
Terms of legal recovery differ significantly across countries. In some countries, it is a matter of days, while in others it can take up to 3 months.
6. In 1Q 2020 the company had a 3,7 million EUR loss as a result of foreign exchange fluctuations. How is Mogo Finance hedging its currency risk?
Mogo is employing 3 primary hedging strategies:
- Natural hedges – borrowing in local currencies (Armenia, Georgia, Belarus, etc.)
- Lending in “hard” currencies – loans are indexed to USD (Belarus with other countries in pipeline)
- Or loan prices that are extended to the borrowers have inherently built-in forex risk, thus allowing us to build up an equity cushion in “riskier” markets to absorb any forex effects
Plain vanilla hedging is prohibitively expensive in many countries of our operations. Moreover, end of Q1 2020 exchange rates were historical lows for many of the currencies in our portfolio, and they have experienced significant recovery during April.
7. 70% of Latvian and Lithuanian loans are delayed. 30% are current or in grace period because of extensions. Without extensions, it would be close to 100% delayed. Why is there such a big delay ratio? (edited)
As of 29 April 2020, 78% of Mogo Latvia and 76% of Mogo Lithuania loans outstanding on Mintos were current (including grace period). The delayed loan percentage is significantly smaller than indicated in the question and is unlikely to reach anything close to 100%.
In general, we can comment that customers’ payment discipline has been almost unchanged in the Baltics, and we still observe strong incoming cash flows. Moreover, as already indicated in our Q1 2020 earnings call presentation, across all the Mogo Group, the performing (current and up to 34 days overdue) loan portfolio part accounts for 91% of our total net loan portfolio.
8. Lithuania and Moldova car loans and Covid-19 / Moratorium. Will you buy back loans on Mintos that exceed 60 days of no payments? If not, what will happen?
We are not aware of payment moratoriums introduced in Lithuania or Moldova. Defaulted loans will be treated exactly as elsewhere, and we will buy those back.
9. To keep things simple, you lost € 2.5m in Q1 2020 (Net earnings post FX). Do you expect to lose the same ballpark in Q2 2020?
We do not provide guidance on our expected financial results. As mentioned in question 6 above, forex loss in Q1 2020 was driven by historically low FX rates in many of our countries, so it would not be prudent to use our Q1 2020 net result as a basis for Q2 2020 forecast. Moreover, most of the currencies to blame for FX losses and historically low FX levels by end of March now have fully or partially recovered already during April 2020.