Nordax Group Holding AB Interim report January-March 2015

January-March 2015

(Numbers compared with January-March 2014)

• Operating income increased 21.1% to 218 MSEK (180)
• Profit before credit losses increased 29.4% to 119 MSEK (92)
• Net credit losses amounted to -45 MSEK (-32), credit loss level 1.8% (1.5%)
• Operating profit increased 23.3% to 74 MSEK (60)
• Net profit increased 26.1% to 58 MSEK (46)
• Return on average net loans 12m rolling amounted to 3.8% (3.4%).

Volumes, capital and funding

(Numbers compared with December 31, 2014 unless otherwise indicated)

• New loan volumes increased 3.1% to 921 MSEK (893 Q1 2014)
• Lending to the general public increased 2.7% to 10,312 MSEK (10,042)
• Deposits increased 45 MSEK to 6,524 MSEK (6,479)
• Liquidity reserve of 3,272 MSEK (3,246), liquidity coverage ratio 6.18 (8.40).

Other events

• Further strengthening of the capital structure by issuance of 250 MSEK in Tier 2 capital
• Katarina Bonde and Hans Larsson appointed Non-Executive Directors.

Comments from the CEO

I am pleased to report that Nordax continues to grow in a controlled and profitable way. Our operating income increased in the quarter by more than 21% to 218 MSEK reflecting our growing lending volumes and stable margins. Operating profit grew by more than 23% to 74 MSEK. We pay a high attention to efficiency and our adjusted cost to income ratio on a 12-month rolling basis amounted to 28.9% (31.3%). This should be seen in the light of our conscious decision last year to increase expenses in order to accommodate the growth in our loan business, and to invest even more in compliance, risk management and the governance of the business. Over the last five years, Nordax’s operating profit has grown at an annual compound growth rate of 22%.

An essential part of our strategy is our diversified funding, based on multiple pillars; unsecured bonds, asset backed securities, warehouse funding facilities and retail deposits. We continue to take a conservative approach to liquidity risk and continuously keep about 40 % of our deposits as liquidity reserves. In March, we successfully issued 250 MSEK of subordinated Tier 2 capital, replacing our existing 200 MSEK subordinated loan. We met strong investor demand and the new Tier 2 capital will help support our growth efforts. Our Common Equity Tier 1 ratio was 12.6% which is significantly in excess of the regulatory minimum of 8.0% and is also higher than our internal target of 12%.

The year has started with continued growth of new loans. Year-over-year we grew the volume of new loans by 3.1% to 921 MSEK. The return on average net loans on a 12-month rolling basis was 3.8% (3.4%), well above our internal target of 3 %. Over the past five years, our lending balance has increased at an annual compound growth rate of 18% proving that we have earned our customers’ trust through a competitive and sound offering. We continue to grow and we grow in a responsible manner. Any decision to advance a customer loan is made using our thorough, data driven underwriting process. We focus on large personal loans and target customers who we believe are financially stable and in the prime of their life.

In the quarter, we experienced good development especially in Norway where lending increased by 5.2%. We commenced product testing in Germany in 2012 and I am pleased to note that sales in Germany continued to develop favorably with a growth of close to 14% in the quarter. The German market is a large untapped potential with a sizeable consumer finance market five times as large as Sweden and Norway combined. We remain cautiously optimistic about the potential in Germany.

The Group

January-March 2015

Operating income increased by 21.1% to 218 MSEK (180), mainly driven by higher interest income due to larger lending volumes to the general public. The adjusted cost to income ratio decreased to 28.9% (31.3%) through increasing operating leverage. Operating expenses increased by 12.5 % to 99 MSEK (88), reflecting Nordax’s growing sales volumes and larger portfolio. As a consequence, profit before credit losses increased by 29.3% to 119 MSEK (92). The number of employees grew by 3.7% to a total of 169 full time employees at the end of the quarter. All new employees are based in Sweden as Nordax’s strategy is to operate from one central platform.

Net credit losses increased compared to the same period 2014 and amounted to -45 MSEK (-32) equivalent to a credit loss level of 1.8% (1.5%). The credit loss level was better than plan, mainly reflecting the maturity of the portfolio compared to growth and size of the total loan book. The credit loss level in the quarter of 1.8% versus the full-year 2014 credit loss level of 1.2% is primarily due to seasonality effects.

Operating profit increased by 23.3% to 74 MSEK (60). Net profit in the quarter increased by 26.1% to 58 MSEK (46), implying a return on equity of 14.8% (17.0%).

Sweden is Nordax’ first market where new loan volumes have been developed over the years with careful attention to credit risk and market efficiency of proven as well as new sales channels. Over the last three years, credit losses have developed well as the portfolio has been growing and the ability to attract low risk customers remains strong. In the quarter, the operating profit decreased to 23 MSEK (27) compared to first quarter previous year due to slightly increased provisions. Lending at the end of the quarter was slightly higher than at year-end, which was according to expectations.

In Norway, new loan volumes continued to pick up in the quarter due to good contribution from repeat sales to existing customers and the larger loans product. Improvements in cost of risk can mainly be explained by the growth in the portfolio which increases the denominator in the equation since new loans generally experience very low losses during the first year after disbursement. The operating profit increased to 34 MSEK (23) since the portfolio is larger and new loans are originated at stable levels. In the quarter, the loan portfolio in Norway grew by 5.2%, positively impacted by currency exchange rate effects of 1.8%.

The Finnish operations were restarted in 2011 following the financial crisis and the portfolio has been carefully developed with respect to credit risk as well as the distribution channel mix. The margin development has been favorable as new origination has been kept at stable levels. The operating profit amounted to 26 MSEK (15) in the quarter. Finland has a legal debt collection environment which has helped in delivering low net credit losses. Sales increased in the quarter by 2.2% despite negative impact from currency exchange rate effects of 2.2%.

The German market provides untapped potential for Nordax and it is developing according to plan. Nordax started operations in 2012 in Germany and is still testing the market and building expertise. Credit losses are affected by conservative loss provisions and so far the underlying risk performance in Germany is close to the Norwegian performance. The operating loss amounted to -9 MSEK (-8) in the quarter. The loan portfolio increased by 13.9% in the quarter despite negative impact from currency exchange rate effects of 2.4%.We remain cautiously optimist about the potential in Germany.

A strategic decision to halt new loan volumes in Denmark was taken in 2008 and as a consequence the Danish loan portfolio is decreasing.

Lending volumes, capital and funding

Total assets of March 31, 2015 amounted to 14,567 MSEK (14,189). Lending to the general public increased in the quarter by 270 MSEK or 2.7% to 10,312 MSEK (10,042). Total currency exchange rate effects were insignificant. Lending to credit institutions increased in the quarter by 119 MSEK to 2,330 MSEK (2,211) of which 691 MSEK (699) was pledged cash holdings for the funding structure and the rest was cash liquidity.

Deposits from the general public increased in the quarter by 0.7% to 6,524 MSEK (6,479). At the end of the quarter, Nordax was funded with 2,943 MSEK (3,110) in asset backed securities, 482 MSEK (500) in senior unsecured bonds, 2,503 MSEK (2,274) in warehouse funding facilities provided by two international banks and 6,522 MSEK (6,460) in retail deposits (all in nominal amounts).

Nordax had a liquidity coverage ratio of 6.18 (according to Basel III) and net stable funding ratio of 1.3 at the end of the quarter. The liquidity reserve amounted to 3,272 MSEK (3,246). Of these holdings 52% (51%) were Nordic banks, 13% (19%) Swedish covered bonds and 35% (30%) Swedish municipality bonds. All investments had a credit rating between AAA and A+, with an average of AA.

At March 31, the Common Equity Tier 1 capital ratio of 12.6% (12.3%) was significantly in excess of the regulatory minimum of 8.0% (8.0%), which means Nordax’ has a substantial buffer. Total Common Equity Tier 1 capital requirement including buffer requirements amounted to 7.0% (7.0%) of which 2.5% (2.5%) represented the capital conservation buffer requirement. The Common Equity Tier 1 capital available to Nordax to use as buffer, including the capital conservation buffer requirement amounted to 8.1% (7.8%).

On March 12, Nordax issued 250 MSEK in a 10 year subordinated Tier 2 loan at 3 months Stibor +5.75%. The transaction enabled Nordax to redeem early the previous Tier 2 capital arrangements, amounting to 200 MSEK. The transaction received strong investor demand. The loan, which is included in the capital base and strengthens the company´s total capital adequacy, is classified as Subordinated Liabilities in the balance sheet.

Risks and uncertainties

The Group is exposed to both credit risk and to other financial risks such as market risks including foreign currency risk, interest rate risk in fair value measurement, interest rate risk in cash flow and price risk as well as liquidity risk. The Group is also exposed to IT and operational risks. The Group’s overall risk and capital policy details the risk framework as well as risk management roles and responsibilities for the Group. The risk composition of the Group as well as related risk, liquidity and capital management, is described in Nordax Group Holding’s Annual Report for 2014 and Risk Management and Capital Adequacy Report. Planning in scenarios continues to be crucial in order to be able to swiftly adapt to changed market conditions in case they should occur.

Internal control

The Group has established independent functions for risk control and compliance in accordance with the Swedish Financial Supervisory Authority’s regulations and guidelines FFFS 2014:1, FFFS 2010:7 as well as the European Banking Authority’s guidelines on internal control (GL 44). These functions report directly to the Board of Directors and CEO. The evaluation of the organisation as regards, among other things, the internal control, is carried out with the assistance of the internal audit function, which is outsourced to Mazars SET. It has not been deemed cost effective to internally establish an internal auditing organisation, based on the size and the complexity of the Group. Furthermore, allowing an external auditing firm to conduct the internal audit provides the Group with the opportunity to benefit from that external auditing firm’s expertise knowledge in various areas, and potential alternative solutions within areas important to the operations, gained from other audit assignments undertaken by the external auditing firm.

Accounting principles

This quarterly report has been prepared according to IAS 34, Interim Financial Reporting. The consolidated accounts for the Nordax Group have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU, together with the Annual Accounts Act for Credit Institutions and Securities Companies (1995:1559), the Swedish Financial Accounting Standards Council’s recommendation RFR 1, Supplementary Accounting Regulations for Groups as well as the Swedish Financial Supervisory Authority’s regulations and guidelines FFFS 2008:25. The Parent Company’s annual report has been prepared in accordance with the Annual Accounts Act (1995:1554) and the Swedish Financial Accounting Standards Council’s recommendation RFR 2, Accounting for legal entities. In all material aspects, the Group’s and the Parent Company’s accounting policies, basis for calculations and presentations are unchanged in comparison with the 2014 Annual Report.

Other events

On February 27, 2015 Nordax announced that one new non-executive director of the Board had been appointed at the Extraordinary General Meeting on February 26, 2015.  Nordax has appointed Synnöve Trygg as non-executive director. Synnöve Trygg has an extensive background in the financial industry and is currently a non-executive director of various companies within the bank and debt collection industry. Synnöve Trygg has previous operational experience from SEB Kort where she was CEO for 20 years.

Events after closing of the reporting period

On April 1, 2015 Nordax announced that two new non-executive directors of the Board had been appointed at the Extraordinary General Meeting held the same day.  Nordax has appointed Katarina Bonde and Hans Larsson as non-executive directors in Nordax Bank AB (publ), Nordax Holding AB and Nordax Group Holding AB. Katarina Bonde is a senior board professional with a focus on technology companies, financial institutions and entrepreneurships. She has held various executive positions in the software industry. Hans Larsson has extensive experience in financial services and global banking, having held various operational, strategic and executive roles across numerous sectors and product groups in SEB. Arne Bernroth, non-executive director was elected vice chairman of the board. The appointments are pending the Swedish Financial Supervisory Authority’s assessment.

According to the Articles of Association, adopted at the Extraordinary General Meeting on February 26, 2015 the board shall consist of not less than 5 and not more than 12 permanent members. After the election of directors, at the Extraordinary General Meetings on February 26, 2015 and on April 1, 2015, the board consists of nine members; Richard Pym (chairman), Arne Bernroth (vice chairman), Christian Beck, Andrew Rich, Daryl Cohen, Synnöve Trygg, Hans Larsson, Katarina Bonde and Morten Falch. In accordance with the adjusted Articles of Association, the executive directors Johanna Clason and Jacob Lundblad were discharged from their positions as board members; and the deputy board members Camilla Wirth, Per Bodlund, Iva Anguelov and David Lamb were discharged from their positions as deputy board members.

CEO’s affirmation

The CEO declares that the interim report January-March 2015 provides a fair overview of the Parent Company’s and the Group’s operations, their financial positions and results and describe material risks and uncertainties facing the Parent Company and the Group.

Stockholm April 29, 2015

Morten Falch

CEO

Report of Review of Interim Financial Information

Introduction

We have reviewed the condensed interim financial information (interim report) of Nordax Group Holding AB as of 31 March 2015 and the three-month period then ended. The board of directors and the CEO are responsible for the preparation and presentation of the interim financial information in accordance with IAS 34, Annual Accounts Act for Credit Institutions and Securities Companies and the Swedish Annual Accounts Act. Our responsibility is to express a conclusion on this interim report based on our review.

Scope of Review

We conducted our review in accordance with the International Standard on Review Engagements ISRE 2410, Review of Interim Report Performed by the Independent Auditor of the Entity. A review consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing, ISA, and other generally accepted auditing standards in Sweden. The procedures performed in a review do not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the interim report is not prepared, in all material respects, in accordance with IAS 34, Annual Accounts Act for Credit Institutions and Securities Companies and the Swedish Annual Accounts Act, regarding the Group, and with the Swedish Annual Accounts Act, regarding the Parent Company.

Stockholm April 29, 2015

Öhrlings PricewaterhouseCoopers AB

Helena Kaiser de Carolis

Authorized Public Accountant

Contacts

For more information, please contact

Morten Falch, CEO, +46 8 690 15 07, morten.falch@nordax.se

Camilla Wirth, CFO, +46 8 690 15 07, camilla.wirth@nordax.se

Johanna Clason, treasurer and debt investor relations, +46 8 690 15 07, johanna.clason@nordax.se

Åse Lindskog, media and equity investor relations, +46 730 24 48 72, ase.lindskog@nordax.se

Financial calendar

The report for the period January-June 2015 will be published on July 15, 2015

The report for the period January-September will be published on October 22, 2015

About Nordax

Nordax is one of the leading niche banks in the Nordic region providing unsecure consumer loans and deposits to about 100,000 customers in Sweden, Norway, Finland, Denmark and Germany. Nordax employs about 200 people, all working in one office in Stockholm. Nordax was founded by five entrepreneurs with extensive risk management experience and over the course of ten years the Group has developed a sound, thorough and data driven underwriting process. Nordax’s customers are financially stable people in the prime of life. Through a centralized and highly scalable platform, Nordax is on a journey to become one of the leading niche banks in Northern Europe. As of December 31, 2014 lending to the general public amounted to 10.0bn SEK and deposits from customers amounted to 6.5bn SEK. Nordax takes a conservative approach to risk and is unique among niche banks in using multiple sources of funding and Nordax only uses a limited share of deposits to fund lending to the public. Nordax is supervised by the Swedish Financial Supervisory Authority since 2004 and deposits are covered by the Swedish deposit guarantee scheme. Read more on www.nordax.se.

Nordax announces this information in accordance with the Securities Market Act and/or the Act on Trading in Financial Instruments. This information was submitted for announcement on April 29, 2015 at 07.30am CET.

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