DLL, a global provider of vendor finance, reported interim results for the first half of 2020.
Despite challenging external conditions, the company delivered portfolio and income growth during the first six months of the year, but net profits were heavily diluted by growing risk costs attributable to the Covid-19 pandemic.
The company’s portfolio balance increased by more than 2% over the prior year’s interim results and totalled EUR 35.4 (£31.7) billion.
During the first half of 2020, new business volume was EUR 12.4 (£11.1) billion, representing a 5% drop from the prior year and can be attributed to a reduced level of demand linked to the Covid-19 pandemic.
This resilient top-line performance was achieved under challenging economic conditions and supported by the company’s broad geographic diversification and spread of business across multiple industry sectors.
Excluding the effect of currency movements, the company recorded a net profit of EUR 52 (£46) million in the first six months of 2020, a drop of 71% from the prior year.
This result can be directly linked to higher risk impairments, which registered significant growth due to the negative impact of the Covid-19 pandemic. The underlying performance of the portfolio continued to trend positively, with net interest income of EUR 625 (£559) million, which represented more than 8% growth over the prior year.
Bill Stephenson, chief executive and chairman of the executive board, said: “I am very proud of the hard work and dedication exhibited by our global workforce during these unprecedented times.
“Over the past months, we have clearly demonstrated the ability to operate our business on a 100% remote basis in more than 30 countries, while managing the well-being of our employees and supporting our customers during their time of need.
“Despite the impact of the pandemic on our risk costs, the underlying performance of our business model remained both positive and strong.”
The company reported significant growth of impairment charges linked to the Covid-19 pandemic. During this period, impairments more than tripled to EUR 279 (2019: 86) million, representing 155 (2019: 51) basis points of the average portfolio and well above DLL’s long-term average of 56 basis points.
Marc Dierckx, chief financial officer, said: “The economic hardships brought on by the pandemic limited the ability of some customers to service their debt.
“As a result, we saw elevated levels of delinquency and a growing number of customer requests to restructure contracts and payment terms.”
To assist its customers, the company processed more than 80,000 requests to restructure contract payment terms during the first half of the year.
Of further note, a significant driver of the increased impairments were IFRS-9 Stage 1 and Stage 2 impairments, which are heavily influenced by the macro-economic outlooks in the markets where DLL operates and by key indices such as unemployment.
IFRS-9 Stage 1 and Stage 2 impairments were EUR 177 (2019: 20) million, which represented 63% of total impairments.
Dierckx said: “Overall, our portfolio continued to grow, albeit at a slower pace due to reduced demand and softer commercial volumes.
“More importantly, and despite the growth in delinquency and impairments brought on by the COVID-19 pandemic, we are comfortable with the overall quality of the portfolio and the long-term outlook on performance.”
Stephenson said: “Our business model and strategy were both tested and validated during the last global financial crisis, and that is happening again with COVID-19.
“We will continue to learn from this experience and take further steps to ensure DLL emerges from the pandemic as an even stronger company.”