Kreditech to break even in cash flow in 2020


Kreditech’s financial statement for the financial year 2018 shows that the company is on track to reach profitability in the near future. The performance of the Hamburg-based fintech has improved significantly as a result of a new strategy that was implemented in 2018. The net financial result improved by 76% compared to the 2017 – driven by a strong focus on achieving profitability, evolution of the product portfolio, investment in innovations and effective cost-management measures. A recent capital injection from both existing and new investors has provided the company with funds to continue its transformation and focus on growth.

Kreditech combines market-leading tech capabilities and data science, with sound insight into consumer borrowing needs and extensive experience in Point of Sale (POS) and e-commerce partnerships. The company lends through its consumer brands Monedo Now and Kredito24, as well as through partners in four markets: India, Poland, Russia and Spain. In 2018, the company focused on pivoting its operations toward the near-prime lending market, with installment loans as a key product. A new management team was installed in early 2018 and, since that time, has focused its efforts on improving Kreditech’s operational efficiency, risk- and cost-management capabilities, and driving toward profitability. Throughout 2019, the company has successfully transitioned back to growth in its core installment loan product and has achieved its highest-ever levels of monthly installment loan issuance.  

Our results for 2018 clearly indicate that we have made excellent progress towards achieving our strategic objectives. We successfully expanded into the near-prime segment in most of our major markets, and we have continued – and will continue – in this strategic direction throughout the whole of 2019. Our growth is supported by investments in core infrastructure and the successful opening of exciting new possibilities, such as obtaining an NBFC license in India, which enables us to expand in this high-potential market”, says David Chan, company CEO. 

The Kreditech CEO believes that changes implemented in 2018 have resulted in further growth of the Kreditech business in all key areas in 2019. “2019 has proven to be a period of further stabilization, and we are confidently looking towards a sustainable and profitable growth trajectory in all our strategic markets” – comments David Chan.

The Kreditech Profit and Loss (P&L) statement for 2018 indicates a significant improvement and change in the company’s performance. The fintech’s net losses fell by 76%, from EUR 58.4 million in 2017 to EUR 13.9 million for 2018. The result was driven by improved profitability of sales operations, combined with effective risk- and cost management. Although revenue fell by 21.4% (from EUR 71.4 million in 2017 to EUR 56.1 million in 2018), this was more than made up for by a reduction in impairments. The net result is an increase in gross margin (+32.3%) and a much-improved gross rate of return (38.7% in 2018, up from 23.0% in 2017).

In 2018, Kreditech issued EUR 107.3 million of credit across all of the markets in which it provides lending services. The company generated revenue from core products amounting to EUR 56.1 million. This represents a decline of approximately 21% compared to the previous financial year, which is a reflection of Kreditech’s shift in strategic product focus from high-yield and short-term microloans with higher risk, to long-term installment loans, demand for which is growing at a disproportionately higher rate. “Our focus on more long-term and lower-risk products enables us to profitably scale our business at a healthy pace, and creates a sustainable and reliable cash flow”, remarked Mariusz Dąbrowski, Kreditech CFO.

With the main focus being on achieving profitability, the 2018 issuing volume (nominal value of the total of newly issued consumer loans) declined by around 42%, from EUR 185.2 million in 2017 to EUR 107.3 million. “We have consciously kept our issuing dynamics under strict control, to allow for a smooth transition to a new technical infrastructure“, says David Chan, CEO. With the aim of being a global platform of choice for tech-based lending, Kreditech has been investing in the infrastructure that underpins its services. This investment will enable Kreditech to benefit from enhanced scalability, resiliency, and the ability to add features and capabilities quickly and cost effectively. Kreditech’s new core system – a cloud-based banking platform called Mambu – was successfully deployed in Poland in Q1 2019 and in Spain in Q3 2019. 

With Kreditech’s focus being on the improvement of its portfolio quality, the level of impairments has been significantly reduced. Net impairment expenses for credit losses were reduced by 13 percentage points (p.p.), from 69% of revenue (EUR 49 million) in 2017 to 56% of revenue (EUR 31.4 million) in 2018. “This change was driven by an increase in the proportion of much lower-risk installment loans. We are happy to report that impairments are dramatically lower, contributing to our improved results. This reduction in impairments demonstrates our ability to effectively manage this area of our operations”, says Mariusz Dąbrowski.

Kreditech reported a 55% reduction in operating expenses (down to EUR 32.3 million) in 2018, which enabled operating losses to be reduced by 81% (from EUR 53 million in 2017, to EUR 10.3 million in 2018). A focus on deeper commercial engagement resulted in streamlined processes, which enabled the company to benefit from lower customer acquisition costs while increasing conversion rates. For the whole of 2018, Kreditech’s customer acquisition costs (CAC) were just EUR 3.7 million, which amounts to just 7% of gross revenue (compared to CAC amounting to 30% of gross revenue in 2017). 

Kreditech generated a positive cash flow from lending activities in 2018 (EUR 26 million compared to EUR 15.1 million in 2017) and the negative cash flow from operations was dramatically reduced (from EUR 89.2 million in 2017 to 13.8 million in 2018), thanks to decreased refinancing costs, better interest rates from new loan facilities and an overall reduction in spending. “We are proud to report that the positive cash trends have continued in 2019 and will result in a projected break even in 2020. This is a clear indication that our strategic decisions are making Kreditech a healthy, profitable and growing business”, says David Chan. 

Kreditech’s mission is to be the global leader in technology-enabled consumer lending and the platform of choice in the near-prime market. Headquartered in Hamburg, Germany, Kreditech currently employs more than 300 people across seven countries. With well-established and growing operations in Poland, Spain and Russia, Kreditech’s near-term focus will be on rapidly scaling its business in India. The company also has plans to further expand in other major consumer-lending markets in the coming years.

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