quarterly - advanzia bank€¦ · q3-16 actual q2-16 qoq growth actual q3-15 yoy growth actual...

QUARTERLY REPORT Q3-16

Advanzia Bank S.A.

9, rue Gabriel Lippmann

Parc d’Activité Syrdall 2

L-5365 Munsbach (Luxembourg)

Registre de Commerce

et des Sociétés Luxembourg:

B109476

Tel.: +352 263 875 1

Fax: +352 263 875 699

E-mail: [email protected]

BIC (SWIFT): ADVZLULL

www.advanzia.com www.gebuhrenfrei.com www.advanziakonto.com www.cartezero.fr www.free.at

Quarterly Report

For the Quarter ended 30 September 2016

Advanzia Bank S.A. Simplicity, Transparency and Trust

Advanzia Bank S.A. Quarterly Report Q3-16 2

A. Kassen, “River Man”, 2016, Kistefos Museum, Norway. @ Courtesy of the Kistefos Museum. Photo: Frédéric Boudin. River Man (2016) is both a conceptual, performative and sculptural work. The performative element of the work begins as liquid bronze is poured directly into the water. As the bronze hits the water, it immediately sets, creating unexpected and abstract shapes formed by the conditions of the water. Three pours have been made, at three chosen locations along the river at Kistefos, and among hundreds, only three forms, one from each location, have been chosen and cast in bronze on a monumental scale.


Highlights: For the Quarter ended 30 September 2016

Gross credit card loan balance of MEUR 905, growth +8% QoQ and +21% YoY

598 000 active clients , growth +6% QoQ and +23% YoY

964 000 cards in force1, growth +5% QoQ and +21% YoY

Loan loss rate of 4.6% declined by 0.1%-points QoQ and 0.2%-points YoY

Customer acquisition cost of MEUR 5.0, -7% QoQ and +44% YoY

After-tax profit of MEUR 8.6, stable QoQ and YoY

Annualized return on equity of 37.9% vs. 38.8 % in Q2-16

Advanzia continues to show a strong growth in gross loan balance of 21% and a stable net profit YoY.

The difference between the growth in gross loan balance and after tax profit is primarily explained by

the 44% higher customer acquisition cost in Q3-16 of MEUR 5.0 compared to MEUR 3.4 in Q3-15. This is

in line with the strategy of increasing the intake of new clients and subsequently growing the gross credit

card loan balance. YTD the customer acquisition cost has increased from MEUR 10.3 per Q3-15 to

MEUR 15.1 per Q3-16, an increase of 46%. In Q3-16, the net interest income was 20% above the Q3-15

level in line with the growth in gross loan balance. Advanzia has issued 151 400 new active cards YTD

2016 compared to 104 600 YTD in 2015; this represents an increase of 45%.

Strategy: Create long-term value by aggressively increasing the number of customers and the loan

balance. The plan requires substantial investments in customer acquisition and marketing that short-

term will yield a lower growth in profit after tax, due to the client cycle where it takes 2-3 quarters before

new clients start to make a positive contribution and up to three years before the total investments in a

new client are recouped.

Figure 1: YoY growth – loan balance and net interest income

Figure 2: CAGR and YTD growth

Advanzia has since 2010 delivered a CAGR of 39% in net profit, 26% in loan balance and 23% in number of active credit card clients. The aim for the future is to continue this strong growth for an extended period of time.

1 It represents the number of issued cards including active and inactive cards.

CAGR (2010 - LTM*)

YTD 2016 vs. YTD 2015

* Last twelve months

22% 21% 5%

Growth metricsActive credit card

clients

Loans and advances to

credit card clientsProfit after tax

23% 26% 39%


Loan balance development

Figure 3: Loan balance development

Advanzia increased its total gross loan balance by 8% QoQ and 21% YoY. In total the gross loan balance grew with MEUR 63 and net loan balance with MEUR 61. This is the highest nominal growth since inception delivered by Advanzia. At the same time, impairments on delinquent balances showed a lower growth (+7% QoQ and +17% YoY) demonstrating the effectiveness of Advanzia’s risk management.

Active clients/credit cards

Figure 4: Credit card clients

The number of active clients reached 598 000, a growth of 6% QoQ and 23% YoY. The total intake of active clients during the quarter amounted to 52 900, an increase of 6% QoQ and a growth of 47% YoY.

Figure 5: Client/card statistics

The increase in number of clients, driven by the investment in customer acquisition, will form the basis for the loan balance growth in the coming quarters and years, in line with the client cycle.

Key figures (000's)Actual

Q3-16

Actual

Q2-16

QoQ

growth

Actual

Q3-15

YoY

growth

Actual

YTD-16

Actual

YTD-15

YTD

growth

New active cards 52,9 50,1 6% 36,0 47% 151,4 104,6 45%

Germany/Luxembourg 46,9 43,0 9% 33,4 41% 131,2 98,2 34%

France 2,2 3,0 -25% 2,7 -17% 8,0 6,4 26%

Austria 3,8 4,1 -7% - - 12,2 - -

Non delinquent active clients (total, after churn) 598,0 563,5 6% 487,8 23% 598,0 487,8 23%

Germany/Luxembourg 565,8 534,9 6% 470,0 20% 565,8 470,0 20%

France 20,8 19,9 4% 17,8 17% 20,8 17,8 17%

Austria 11,4 8,7 31% - - 11,4 - -


However as earlier reported, in France, Advanzia is expecting a slower growth trajectory in the short-term, reflecting challenges in that particular market. Advanzia has not been successful in France applying a similar strategy and marketing tools as in Germany and Austria. As a consequence of this, the Bank implemented a new strategy, temporarily reducing the spend and focus on the B2C segment and shifting more towards the B2B segment. Advanzia was successful in acquiring new B2B partnerships during the quarter which should yield a growth in customer intake from early 2017. Advanzia remains optimistic that success will be achieved with time in France, even though the results have been lacking so far.

Professional Card Services (PCS)

Key Figures, PCS clients Actual

Q3-16

Actual

Q2-16

QoQ

growth

Actual

Q3-15

YoY

growth

Actual

YTD-16

Actual

YTD-15

YTD

growth

Number of banks 15 14 7% 6 150% 15 6 150%

New active cards 88 292 -70% 175 -50% 449 466 -81%

Total cards 1.112 1.024 9% 615 81% 1.112 615 81%

Turnover (in MEUR) 4,3 3,1 38% 1,8 139% 9,9 3,6 19% Figure 6: Professional Card Services

One new partner bank joined the Professional Card Services (PCS) programme, which Advanzia is continuously developing. Turnover increased by 38% QoQ and 139% YoY, indicating that the programme is used more extensively.

Depositors and deposit balance

As a result of active campaigns, client deposits increased significantly in Q3-16, 21% growth QoQ. Advanzia continues to align the deposits to the prevailing liquidity requirements to efficiently fund the growing loan balance. Total deposits amount to MEUR 1 031 and the number of active depositors is 29 700.

Figure 7: Depositors and deposit balance

Board, management and staff

Eirik Holtedahl stepped down from the executive management committee as Deputy Chief Executive Officer and from the management committee as Chief Financial Officer. His successor in the executive management committee is Gregor Sanner, Chief Operating Officer, and in the management committee Patrick Thilges, new Chief Financial Officer.

As at 30 September 2016, Advanzia employed 117 full-time equivalent employees. Advanzia will increase its staff further, both in order to keep pace with the observed upward shift in business operations as well as to be ready to leverage its future growth potential.


Shareholding

Non-voting shares of one minority shareholder have been transformed into the voting ones during the quarter so currently all Advanzia’s shares have a voting right. Otherwise, there were no movements or changes in the distribution of shares during the quarter. Kistefos AS is the largest shareholder with 60.3%. Other shareholders hold below 10% individually.

Financial statements

Below are the unaudited accounts for Advanzia as at end of the third quarter of 2016. All amounts are in millions of euro (MEUR). Advanzia follows IFRS accounting principles and the figures are presented so that they reflect Advanzia’s actual business activities and operations, which develop favourably.

Figure 8: Unaudited accounts as at 30 September 2016

Assets (MEUR)Actual

Q3-16

Actual

Q2-16

QoQ

growth

Actual

Q3-15

YoY

growth

Actual

YTD-16

Actual

YTD-15

YTD

growth

Cash, balances with central banks 108,0 83,1 30% 50,0 116% 108,0 50,0 116%

Loans and advances to credit institutions 185,7 86,8 114% 85,9 116% 185,7 85,9 116%

Loans and advances to credit card clients 905,3 841,9 8% 745,2 21% 905,3 745,2 21%

Value adjustment (losses) (46,9) (44,0) 7% (40,2) 17% (46,9) (40,2) 17%

Net loans and advances to credit card clients 858,4 797,9 8% 705,0 22% 858,4 705,0 22%

Investments 0,9 0,9 0% - - 0,9 - -

Tangible and intangible assets 5,8 5,2 12% 1,7 244% 5,8 1,7 244%

Other assets 1,7 2,3 -28% 1,3 27% 1,7 1,3 27%

Total assets 1.160,4 976,1 19% 843,9 38% 1.160,4 843,9 38%

Liabilities and equity (MEUR)Actual

Q3-16

Actual

Q2-16

QoQ

growth

Actual

Q3-15

YoY

growth

Actual

YTD-16

Actual

YTD-15

YTD

growth

Amounts owed to credit institutions 0,1 0,0 234% (0,0) - 0,1 (0,0) -

Amounts owed to customers 1.030,6 849,9 21% 740,9 39% 1.030,6 740,9 39%

Other liabilities, accruals, provisions 27,1 23,0 18% 19,1 41% 27,1 19,1 41%

Subordinated loan (AT1) 9,5 9,2 3% 8,9 6% 9,5 8,9 6%

Sum liabilities 1.067,2 882,1 21% 769,0 39% 1.067,2 769,0 39%

Subscribed capital 27,4 26,4 4% 26,4 4% 27,4 26,4 4%

Reserves 13,1 13,1 0% 11,6 13% 13,1 11,6 13%

Profit (loss) brought forward 38,4 38,4 0% 26,7 44% 38,4 26,7 44%

Profit for the financial year (net of interim dividend) 14,3 16,2 -12% 10,2 40% 14,3 10,2 40%

Sum equity 93,2 94,0 -1% 74,8 25% 93,2 74,8 25%

Total liabilities and equity 1.160,4 976,1 19% 843,9 38% 1.160,4 843,9 38%

Income statement (MEUR)Actual

Q3-16

Actual

Q2-16

QoQ

growth

Actual

Q3-15

YoY

growth

Actual

YTD-16

Actual

YTD-15

YTD

growth

Interest receivable, credit cards 36,4 34,1 7% 30,5 19% 103,2 85,9 20%

Interest receivable and similar income, others (0,1) (0,0) 639% 0,0 -409% (0,1) 0,0 -393%

Interest payable and similar expenses (1,7) (1,5) 18% (1,7) 3% (5,1) (5,2) -1%

Interest payable, other (0,1) (0,2) -28% (0,1) -10% (0,4) (0,2) 164%

Net interest income 34,4 32,4 6% 28,7 20% 97,5 80,6 21%

Commission receivable 3,0 2,7 11% 3,3 -7% 8,3 9,1 -9%

Commission payable (2,6) (2,4) 8% (2,2) 15% (7,1) (6,2) 15%

Other financial items/operating income 0,2 1,3 -82% 0,8 -70% 2,0 2,0 -1%

Total income 35,2 34,1 3% 30,5 15% 100,7 85,6 18%

Card acquisition costs (5,0) (5,3) -7% (3,4) 44% (15,1) (10,3) 46%

Card operating costs (3,2) (3,2) 1% (2,5) 31% (9,2) (7,1) 30%

Staff costs (2,8) (2,7) 4% (2,4) 17% (8,2) (7,2) 13%

Other administrative expenses (1,2) (0,7) 87% (0,8) 62% (2,7) (2,2) 22%

Depreciation, tangible + intangible assets (0,4) (0,4) 5% (0,2) 81% (1,2) (0,7) 59%

Sum operating expenses (12,7) (12,3) 3% (9,3) 36% (36,3) (27,6) 32%

Value adjustments (2,9) (1,5) 99% (1,1) 171% (6,3) (3,2) 94%

Write-offs (7,3) (8,1) -9% (7,9) -7% (23,0) (21,4) 8%

Total loan losses (10,3) (9,6) 8% (9,0) 14% (29,3) (24,6) 19%

Profit (loss) on ordinary activities before taxes 12,2 12,3 0% 12,2 0% 35,0 33,4 5%

Income tax and net worth tax (3,6) (3,6) 0% (3,6) 0% (10,2) (9,8) 5%

Profit (loss) for the period 8,6 8,7 0% 8,7 0% 24,8 23,6 5%


Comments to the accounts

In Q3-16, the gross loan balance on credit cards grew by MEUR 63.4, which represents an 8% increase compared to Q2-16 and a 21% increase compared to Q3-15. The customer acquisition costs were MEUR 5.0 in Q3-16 compared to MEUR 3.4 in Q3-15, an increase of 44%. YTD the customer acquisition cost has increased from MEUR 10.3 per Q3-15 to MEUR 15.1 per Q3-16, an increase of 46%.

Overall liquidity increased by approximately MEUR 124 during the quarter (from approximately MEUR 170 to MEUR 294).

Total income in Q3-16 increased by 15% compared to Q3-15, landing at MEUR 35.2 (3% higher QoQ). The main driver is increased interest income due to the larger gross credit card loan balance generated by the higher client base. Commission receivable increased QoQ, but is relatively lower than in previous years mainly due to lower interchange fees driven by regulatory changes within the EU. Other income is lower in Q3 amongst others due to increased provisioning towards FGDL (Luxembourg Deposit Guarantee Fund) required as a result of increased deposit volumes.

Operating expenses increased by 3% compared to previous quarter, mainly a result of higher administrative expenses.

On an YTD basis, the growth in loan losses from 2015 to 2016 (+19%) is below the growth in gross loan balance (+21%) and interest income on credit cards (+20%). This implies that the bank manages credit risk efficiently.

Advanzia’s profit after tax was stable at MEUR 8.6 in Q3-16.

Figure 9: Income and profit development

Note that the Q3-14 total income is influenced by income shift transactions (MEUR 4.2). The Q4-15 total income is influenced by the first provision to the new deposit guarantee fund (MEUR 1.5). Q4-15 is affected by a lower tax expense applicable to the entire year, but recognised in that period (MEUR 4.8).


Key performance indicators (KPIs)

Financial ratiosActual

Q3-16

Actual

Q2-16

QoQ

growth

Actual

Q3-15

YoY

growth

Actual

YTD-16

Actual

YTD-15

YTD

growth

Yield, credit card loans, weighted (%) 17,8% 17,9% -0,1%-p 18,0% -0,2%-p 17,9% 18,1% -0,1%-p

Net interest margin, int. bearing assets, weighted (%) 13,2% 13,7% -0,5%-p 13,9% -0,7%-p 13,3% 13,7% -0,4%-p

Loan loss rate (12 months trailing, credit cards) (%) 4,6% 4,7% -0,1%-p 4,8% -0,2%-p 4,6% 4,8% -0,2%-p

Cost/Income (%) 36,1% 36,0% 0,1%-p 30,5% 5,6%-p 36,1% 32,2% 3,8%-p

Return on equity (%), annualised 37,9% 38,8% -0,9%-p 47,0% -9,1%-p 37,2% 43,5% -6,3%-p

Capital adequacy ratio Tier 1 (%) (incl. interim profit) 13,0% 14,5% -1,5%-p 13,4% -0,4%-p 13,0% 13,4% -0,4%-p

Capital adequacy ratio Tier 1 (%) (excl. interim profit) 11,8% 12,8% -1,0%-p 11,6% 0,2%-p 11,8% 11,6% 0,2%-p

Liquidity coverage ratio (LCR) (min 100%) 303,6% 351,2% -47,5%-p 230,3% 73,3%-p 303,6% 230,3% 73,3%-p

Net stable funding ratio (NSFR) (min 100%) 125,2% 113,5% 11,7%-p 109,8% 15,4%-p 125,2% 109,8% 15,4%-p Figure 10: Key performance indicators overview

The KPIs are in line with expectations and the development of the business as explained above. The gross yield on credit cards remains stable at around 18%. Advanzia managed to reduce its loan loss rate by 0.2%-points YoY through improved credit risk measures. The cost-income ratio, showing the Bank’s ability to manage its expenses compared to its income, remains stable at 36% QoQ. The cost-income ratio excluding acquisition cost is 22% in Q3-16. Advanzia maintains a stable solvency, having a capital adequacy ratio (incl. interim profits) of 13% and a liquidity coverage ratio of 303.6% in Q3-16.

Figure 11: Key performance indicators development


Selected market performance indicators

Figure 12: Market performance indicators

Germany/Luxembourg is growing satisfactorily. Austria, launched in end 2015, follows a similar succesful pattern to the first year in Germany/Luxembourg. It is, however, too early to draw any final conclusions with regards to Austria. France remains weak but is expected to deliver better results with time (please see the Active clients/credit cards section for additional details).

Germany/Luxembourg (in 000's)Actual

Q3-16

Actual

Q2-16

QoQ

growth

Actual

Q3-15

YoY

growth

Actual

YTD-16

Actual

YTD-15

YTD

growth

Gross loan balance (KEUR) 867,0 811,5 7% 728,0 19% 867,0 728,0 19%

Interest receivable, credit cards (KEUR) 35,2 33,1 6% 29,9 18% 100,2 84,3 19%

Loan losses (KEUR) (9,0) (8,4) 7% (8,4) 7% (26,0) (22,8) 14%

France (in 000's)Actual

Q3-16

Actual

Q2-16

QoQ

growth

Actual

Q3-15

YoY

growth

Actual

YTD-16

Actual

YTD-15

YTD

growth

Gross loan balance (KEUR) 29,0 25,7 13% 17,1 69% 29,0 17,1 69%

Interest receivable, credit cards (KEUR) 1,0 0,9 11% 0,6 55% 2,6 1,6 58%

Loan losses (KEUR) (1,1) (1,0) 13% (0,6) 90% (3,0) (1,8) 66%

Austria (in 000's)Actual

Q3-16

Actual

Q2-16

QoQ

growth

Actual

Q3-15

YoY

growth

Actual

YTD-16

Actual

YTD-15

YTD

growth

Gross loan balance (KEUR) 9,3 4,7 98% - - 9,3 - -

Interest receivable, credit cards (KEUR) 0,2 0,1 n/a - - 0,4 - -

Loan losses (KEUR) (0,1) (0,1) n/a - - (0,3) - -


Outlook

The economic environment in all countries continues to remain stable and is favourable for Austria and Germany. Advanzia will continue its momentum in Germany and Austria, but remains prudent about the development in France at this stage.

As pointed out, in line with the strategy, the Bank’s gross loan balance is growing quickly, while profit growth is more subdued due to high acquisition investments and other general investments needed to realise the Bank’s growth potential and to increase its market share.

The Bank’s financial situation is expected to remain strong, with stable operating costs and loan losses, all contributing to continued strong financial performance.

Munsbach, Luxembourg

08.11.2016

Gregor Sanner Marc Hentgen Chief Operating Officer Chief Executive Officer

quarterly - advanzia bank€¦ · q3-16 actual q2-16 qoq growth actual q3-15 yoy growth actual...

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