BFF Banking Group approved the 1Q17 consolidated financial statements - BFF Group
- Reported Net Income of €34.2m in 1Q17, versus € 15.3m in 1Q16
- Adjusted Net Income of €21.8m in 1Q17, up 20% versus €18.3m in 1Q16 with Magellan
- Growing business activity, with loans increasing by 11% y/y
- Increased geographic diversification: 26% of loans in international markets
- Solid capital position: Total Capital Ratio1 of 19.6% versus Group target of 15%; Common Equity Tier I of 14.1%
- Dividend capacity: €21.8m distributable as dividends, implying a 100% payout of adjusted earnings
- Low risk profile: net NPLs/net loans at 0.5 % and annualised cost of risk of 10 basis points.
Milan, 9 May 2017 – The Board of Directors of BFF Banking Group (BFF), approved the 1Q17 consolidated financial statements. In 1Q17 the group reported Net Income of €34.2m, compared with €15.3m in 1Q16, which did not include Magellan in the consolidation perimeter. 1Q17 adjusted net income reached €21.8m, with a 20% growth versus 1Q16 including Magellan, thanks to revenue growth driven by strong business activity, an efficient costs structure and low risk profile. Customer loans at the end of 1Q17 amount to €2.531 million, +11% compared to €2.270m at the end of 1Q16 (including Magellan). Volume of new business is up 24% y/y. Geographic diversification is increasing: at the end of 1Q17 international markets (Spain, Portugal and CEE) account for 26% of loans, above the 22% of a year before. Capital ratios confirm the Group’s very solid capital position: Total capital ratio was 19.6% at the end of 1Q17, well above the company’s 15% target. At the same date, CET1 ratio was 14.1%. These ratios are calculated after setting aside €21.8m for 1 Calculated on the Banking Group perimeter (pursuant to former TUB – Testo Unico Bancario). 2 dividend distribution, which implies a 100% payout of adjusted Net Income and already taking into account the effects of the DBRS sovereign rating downgrade. The Group enjoys a very low risk profile, with Net Non Performing Loans representing only 0.5% of net customer loans, flat versus year end 2016. The annualised cost of risk for 1Q17 is 10 bps, in line with that of full year 2016 including Magellan. “In 1Q17 our Group experienced strong business performance, with expanding new business volumes that show how geographic diversification is paying off. We continue to deliver healthy profitability, growth and dividend capacity with a solid capital position and low risk.” - commented Massimiliano Belingheri, CEO of BFF.
Key consolidated financial statements items
The 1Q17 reported results reflect the full consolidation of Magellan within the Group. 1Q16 reported results do not include Magellan’s contribution since the acquisition closed in 2Q16. In this document year-on-year comparisons are made on the basis of 1Q16 data pro-forma including Magellan, in order to show more meaningful comparisons between 1Q17 and 1Q16 performance2 . We show year-on-year comparisons also due to the nature of the business, which is affected by seasonality, characterized by elevated volumes of new business at the end of each year.
1Q17 Adjusted Net Income is calculated excluding the following extraordinary items net of taxes: • €17.8m one-off income related to the change in LPI estimated recovery rate from 40% to 45%; • €1.7m extraordinary costs related to the IPO. All IPO costs are now fully expensed; • €1.1m extraordinary costs related to stock option plan (also related to the IPO3 ); this item generates a positive equity reserve, with therefore no impact on Group equity; • €2.6m after tax negative impact in P/L from the change in €/PLN exchange rate on the acquisition loan for the purchase of Magellan, which is more than counterbalanced by a positive change in equity reserve, related to the higher value in euro of the purchase price of Magellan, reflecting the natural hedging between those two items. The adjusted result includes, however, the entire yearly ordinary contribution to the Resolution Fund for 2017 (€0.8m net of taxes), which has been expensed in 1Q17, while in 2016 it was expensed in 2Q16. 1Q16 Adjusted Net Income is calculated excluding the following extraordinary items net of taxes: €0.5m extraordinary costs related to IPO costs; €0.1m extraordinary costs related to Magellan acquisition. The result includes an €0.1m accrual net of taxes for the ordinary contribution to the Resolution Fund.
Main balance sheet data
Customer loans at the end of 1Q17 amount to €2.531m, compared to €2.270m at the end of 1Q16 (including Magellan), and up by 11% y/y. For the first time, first quarter loans are higher than year end loans (+1.3%), notwithstanding the seasonality of the business. Geographic diversification brings relevant contribution to growth, confirming BFF’s successful international strategy. International markets (Spain, Portugal and CEE) account for 26% of loans, well above the 22% of 1Q16. Business activity was strong in the period: in 1Q17 overall Group new business volumes reached €830m, representing a 24% growth compared to 1Q16 (€670m including Magellan). Iberia highlighted healthy business with Spain growing by 231%. In Italy volumes grew by 3% y/y, while at Magellan new business was up by 72% y/y, with strong contribution both from Poland and Slovakia. 1Q17 confirmed the continuous diversification of funding and capital sources, with total available funding amounting to €3.216m (+22.9% compared to €2.616m at the end of 1Q16, and +2% versus the end 2016). In particular, online deposits reached €838m, up by +63.4% y/y and by +2.6% from end 2016. A €100m subordinated Tier II bond was issued on March 2nd 2017, maturing in March 2027. Undrawn funding at the end of 1Q17 is more than €1bn. The Group maintained a very healthy liquidity position, with a Liquidity Coverage Ratio (LCR) of 360%.
Main profit and loss data
Adjusted net banking income4 amounts to €45.9 million in 1Q17, up 20% compared to the €38.2 million of 1Q16 including Magellan. This item was driven by Adjusted Net Interest Income4 , which reached €45.0m in 1Q17, with a 24% increase versus 1Q16 4 including Magellan, thanks to higher stock of loans (+11% y/y), widening interest spreads and good LPI (Late Payment Interest) collection. As of the end of 1Q17, the offbalance sheet LPI fund reached €522m, 5% higher than that of the end of 1Q16 (€496m). Wider interest spreads were driven by higher margins on loans5 of 8.6% in the period 1Q17, compared with 7.7% a year earlier, and lower cost of funding. The average cost of funding shows a further reduction compared to the previous year: the combined figure including Magellan fell from 2.2% in 1Q16 to 2.0% in the first three months of 2017, which includes one month of the Tier II bond cost, and the cost of the Magellan acquisition financing. In 1Q17 Magellan cost of funding continued to improve, thanks to negotiation of terms and conditions of local funding, a process which will continue in the year. The operational structure remains highly efficient with an adjusted cost/income ratio6 excluding extraordinary costs of 34% compared to 33% in 1Q16. In 1Q17 operating costs excluding extraordinary costs7 were €15.6m, versus €12.7m in 1Q16 including Magellan and excluding extraordinary costs8 . Employees at Group level at end of March 2017 were 404 (of which 227 in BFF ex Magellan) compared to 350 at end of March 2016 (189 for BFF ex Magellan). Growth in staff has stabilised. The total employee base of 404 FTEs at end of 1Q17 is slightly lower than 409 FTEs at year end 2016. Operating costs in 1Q17 include the full yearly cost of the contribution to the Resolution Fund (€1.2m pre tax). Loan loss provisions reached €0.7m in 1Q17, versus €0.2m in 1Q16 including Magellan, implying an annualised cost of risk of 10 basis points (4 bps annualised in 1Q16) in line with full year 2016. 1Q17 Adjusted net income reached €21.8m, showing a significant 20% growth compared to the €18.3m adjusted net income of 1Q16 including Magellan.
The Group maintains high capital ratios9 , with a 14.1% CET1 ratio and a 19.6% Total Capital ratio calculated on the Banking Group perimeter (pursuant to former TUB – Testo Unico Bancario)10. These ratios embed the impact of the reduction in the rating of the Italian Republic to BBB (high) done by the rating agency DBRS – the Group ECAI – on January 13, 2017. As previously announced, the extraordinary part of Net Income (€12.5m) is included in the above capital ratios, while the Adjusted Net Income - €21.8m- is set aside for dividends distribution, in compliance with the Group’s dividend distribution policy. The 19.6% total capital ratio remains well above the company’s 15% target.
Superior asset quality is confirmed with a net non-performing loans/net loans ratio of 0.51% at end of 1Q17, versus the 0.48% at end 2016. Total impaired loans (nonperforming, unlikely to pay, past due) – net of provisions - amounted to €62.5m, (€61.8m at year end 2016). In detail, at the end of 1Q17 net NPLs totaled €12.8m (from €5.9m at 1Q16 and €12.1m at year end 2016). Net Loans under the unlikely to pay category reached €4.6m in 1Q17 (€3.6m at year end 2016). Net Past due loans were €45.1m (€46.2m at year end 2016).
Significant events during 1Q 2017
On February 21, 2017 BFF Banking Group announced the private placement to institutional investors of a subordinated Tier II bond due in March 2027, for a total nominal amount of €100m, with an annual fixed coupon of 5.875% prior to the issuer call date (March 2022). On March 12, 2017 BFF Banking Group received – following the conclusion of the annual supervisory review and evaluation process (SREP) – from the Bank of Italy a notification of the initiation of the administrative procedure concerning capital decision adoption. The regulatory authority has requested that the Group, pursuant to 9 €12m of one-off earnings from change in LPI accounting net of extraordinary costs are included in Class I Primary Capital (Common Equity Tier I – CET 1), subject to the authorization of the competent authority. 10 Considering the CRR Group perimeter, including the parent company BFF Luxembourg, the CET1 Ratio is 13.7% and the Total Capital ratio 19.2%. These ratios are subject to approval by BFF Luxembourg S.àr.l. 11 1Q16 figures are not comparable since Magellan did not report unlikely to pay and past due loans. NPLs are available also for 1Q16 including Magellan. 6 the CRR, comply with the following minimum capital ratios, each of which including the capital conservation buffer component: 6.55% in relation to the Common Equity Tier I ratio (CET1 ratio); 8.35% in relation to the Tier I Ratio; 10.75% in relation to the Total Capital Ratio (TCR). These capital ratios are applicable starting from 30/06/17.
Significant events after the end of 1Q 2017
On April 5, 2017 BFF Banking Group announced the conclusion of the placement, reserved to institutional investors, of the ordinary shares of Banca Farmafactoring S.p.A. and the admission to trading on the Mercato Telematico Azionario, organized and managed by Borsa Italiana S.p.A.. The placement comprised 53,000,000 of BFF’s ordinary shares offered for sale by BFF Luxembourg S.àr.l. equal to 31.16% of the share capital (without considering the exercise of the greenshoe option). The offer price for the shares was set at €4.7 per share. The trading on the MTA started on April 7, 2017. According to notifications received by the Group, as of May 8th, 2017the main shareholders are BFF Luxemburg (controlled by Centerbridge) with 55.81%12 and the management team (31 shareholders) jointly owning 7.59%. On April 11, 2017, Magellan Management Board resolved to close Magellan S.A. Corporate Branch in Spain located in Barcelona. Farmafactoring España S.A. acquired in 2016 the operating activities and the portfolio of financial assets of Magellan S.A. Corporate Branch in Spain. On March 29, 2017, BFF received authorisation by the Bank of Italy to offer factoring services in Greece under the freedom to provide services.
Statement of the Manager responsible for preparing the company’s financial reports
The manager responsible for preparing the company’s financial reports, Carlo Zanni, declares, pursuant to paragraph 2 of Article 154 bis of the Consolidated Law on Finance, that the accounting information contained in this press release corresponds to the document results, books and accounting records of the Company.