FIMBank plc - Interim Results
On 6 August FIMBank plc published its interim financial statements covering the six months ended 30 June 2014.
Performance Overview
The first half of 2014 was characterised by 3 salient developments within FIMBank which affected the Group’s financial position and performance. FIMBank increased its shareholding in two of its factoring joint ventures, FactorRus and India Factoring, to a controlling stake in each, resulting in a re-classification of the entities as subsidiaries, and thus consolidating the entities on a line-by-line basis. During the second quarter, the Bank further increased its share capital through a rights issue.
FIMBank’s net interest income increased nearly two-fold, from USD7.4 million in the first half of 2013 to USD14.5 million in the first 6 months of 2014. This was the result of lower cost of funding, aided by higher volumes of interest-generating business and the consolidation of the net interest income from the Russian and Indian subsidiaries. Meanwhile, non-interest income increased, as marked-to-market losses in the trading portfolio of the Group were considerably lower than those in the comparable period of 2013 (1H2014: loss of USD0.8 million; 1H2013: loss of USD6.9 million). This resulted in a substantial improvement in operating income before impairment charges and extraordinary gains of USD25.2 million compared to USD11 million in the first half of 2013.
The Bank’s non-interest expenses increased by 43% to USD20.3 million. The Directors reported that this is due to the consolidation of the new subsidiaries, as well as further increases in the Bank’s staff and other operating costs. This resulted in a cost-to-income ratio of 90%, which is an improvement over the previous year’s ratio of 166%, but remains extremely high compared to other banking peers.
FIMBank’s income statement was once again characterised by a series of impairment charges during the first 6 months of the year totalling USD10.2 million. The Directors reported that the Group had to recognise particular impairments in the factoring portfolios of the newly-consolidated Russian and Indian factoring companies. Losses arising from the Group’s equity investments (including Russia and India pre-consolidation and the JVs in Egypt, Lebanon and Brazil) increased nearly 17% to USD2.9 million, mainly attributable to the problems in Egypt and Russia. The performance of these companies was impacted by specific provisions given the worsening credit assessment.
FIMBank also recognised a one-off fair value adjustment of USD7.83 million after the Group acquired a controlling interest in India Factoring and CIS Factors which were previously classified as associates and measured using the equity method. The notes to the interim financial statements explain that this gain has been calculated on the basis of the re-measurement to fair value of the equity stakes previously held in these two companies. However, the auditors noted that the figure taken to the income statement is yet provisional and it could be revised retrospectively should new information obtained within one year from the acquisitions in question identify adjustments required to the implied fair value.
The factoring entities accounted through the equity method yielded a net share of loss of USD2.9 million compared to a net loss of USD2.5 million in the first six months of 2013. These results include the share of losses for India and Russia up to acquisition date as well as the results from the other investments in Egypt, Brazil and Lebanon. The worsening performance is mainly attributable to the companies in Egypt and Russia.
The fair value adjustment of USD7.83 million helped the pre-tax loss of the FIMBank Group to narrow to only USD0.34 million compared to USD7.5 million in the first six months of 2013. After accounting for a tax credit of $1.8 million, the FIMBank Group registered a net profit of USD1.5 million.
The balance sheet as at 30 June 2014 shows total assets of USD1.3 billion, an increase of 7.4% since 31 December 2013 mainly representing the line-by-line consolidation of the 2 new subsidiaries and the higher level of Malta Government Treasury Bills to USD108 million reflecting the Group’s ongoing strategy to optimise its liquidity management and short-term yields. Moreover, goodwill of USD22.5 million was recognised arising on the acquisition of the subsidiaries in India and Russia. The Group’s equity as at 30 June 2014 stood at USD201 million, representing an increase of 35%, mainly reflecting the proceeds of the rights issue.
Dividend
The Directors did not declare an interim dividend.
Outlook
The Directors explained that the acquisition of majority stakes of the factoring companies in Russia and India are important to the Group’s factoring strategy. While India is showing positive signs, other markets like Russia and Egypt represent downside risks for the Group due to the geopolitical tensions that hang over these economies. Moreover, the lack of robust momentum in the advanced economies and the less optimistic outlook for several of the emerging markets are leading to lower global growth projections for the rest of 2014 and in future years. Given this backdrop, the FIMBank Group reaffirmed its intention to step up its attempts to recover impaired assets and to seek to limit further similar events going forward.