REG - Intnl Personal Fin - Half-year Report
01/08/2023 07:00
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RNS Number : 7859H International Personal Finance Plc 01 August 2023
1 August 2023
International Personal Finance plc
Half-year financial report for the six months ended 30 June 2023
Principal activity
International Personal Finance plc is helping to build a better world through
financial inclusion by providing affordable credit products and insurance
services to underserved consumers across nine markets.
FIRST-HALF PERFORMANCE AHEAD OF PLAN
Key highlights
Ø Strong first-half performance and increased interim dividend
· Reported profit before tax up 12% to £37.8m (H1-22: £33.8m), ahead of
internal plans.
· Interim dividend increased by 15% to 3.1p per share (H1-22: 2.7p), in line
with our stated dividend policy of paying 33% of the prior full-year dividend
in the first half.
Ø Excellent operational execution delivered continued growth and good credit
quality
· Closing net receivables of £893m, up 10% year on year (at CER), with all
three divisions delivering strong performances.
· Actions to improve Group returns continue to be successful:
- Revenue yield strengthened to 54.2% (H1-22: 49.8%).
- Repayment performance remains robust, with the impairment rate of
11.4% (H1-22: 7.5%) being in line with expectations as rates normalise
following Covid-19.
- Further reduction in the cost-income ratio to 57.4% (H1-22: 65.0%)
delivered through rigorous focus on cost efficiency.
Ø Robust funding position and balance sheet to fund growth
· Successfully extended £39m of debt facilities in the first half and, together
with advisors, exploring options to refinance the Group's Eurobond.
· Headroom on funding facilities of £84m, together with strong cash flow
generation, supports the Group's growth plans into the third quarter of 2024.
· Equity to receivables ratio at 51.8% (H1-22: 52.4%) underpins the Group's
growth plans and progressive dividend policy.
Ø Strategy to take advantage of substantial and sustainable long-term
opportunities being executed effectively
· Rollout of credit cards in Poland progressing well with 53,000 cards issued,
and customers recognising and using the extra utility of the new product.
· Mexico expansion strategy on track, with overall customer numbers in our home
credit and digital divisions approaching 800,000.
Group key statistics H1-23 H1-22 YOY change at CER
Customer numbers (000s) 1,718 1,718 -
Customer lending (£m) 578.8 513.3 4.8%
Average gross receivables (£m) 1,343.2 1,170.6 9.9%
Closing net receivables (£m) 893.1 769.9 9.7%
Reported PBT (£m) 37.8 33.8
Pre-exceptional EPS (pence)(1) 10.2 9.1
Interim dividend per share (pence) 3.1 2.7 15%
1 Prior to an exceptional tax charge of £4.0m in 2023, and an
exceptional tax credit of £10.5m in 2022, see tax section for details.
Gerard Ryan, Chief Executive Officer at IPF commented:
"Our focus on helping more people access affordable credit and excellent
execution of our strategy delivered good growth and a strong set of financial
results of which we are very proud. Notwithstanding the negative impacts of
high inflation, all three divisions delivered great performances and we
increased receivables by 10%, credit quality remained good and profit before
tax was up 12% to £37.8m. We made significant progress with the rollout of
our new credit card in Poland and further strong growth in Mexico through both
our face-to-face and digital channels.
Our half-year results reflect the collective efforts of the whole IPF team,
and I would like to thank my colleagues for all of their hard work and
commitment to our customers and the communities we serve. The Board is pleased
to declare an increase in the interim dividend of 15% to 3.1 pence per share,
which is fully supported by our strong trading performance and the Group's
robust balance sheet."
Alternative performance measures
This half-year financial report provides alternative performance measures
(APMs) which are not defined or specified under the requirements of
International Financial Reporting Standards. We believe these APMs provide
stakeholders with important additional information on our business. To support
this, we have included an accounting policy note on APMs in the notes to this
half-year financial report, a glossary indicating the APMs that we use, an
explanation of how they are calculated and how we use them, and a
reconciliation of the APMs we use to a statutory measure, where relevant.
Investor relations and media contact
International Personal Finance plc Rachel Moran
+44 (0)7760 167637
International Personal Finance will host a webcast of its 2023 half-year
results presentation at 09.00hrs (BST) today - Tuesday 1 August 2023, which
can be accessed here
(https://flyonthewall.videosync.fi/half-year-results-2023) .
A copy of this statement can be found on our website at www.ipfin.co.uk
(http://www.ipfin.co.uk) .
Legal Entity Identifier: 213800II1O44IRKUZB59
Chief Executive Officer's review
Group performance
Our focus on helping more consumers access affordable credit, combined with
the excellent operational execution of our strategy delivered good growth and
a strong set of financial results in the first half of the year. We increased
first-half profit by 12% to £37.8m and there remains strong demand for our
broad range of financial products, which supported a 10% increase (at CER) in
net customer receivables to £893m. Notwithstanding the negative impacts of
high inflation, customer repayment performance remained robust, and we are
pleased with the credit quality of our receivables portfolio.
Our financial model underpins our purpose to build a better world through
financial inclusion and targets a return on required equity (RORE) for the
Group of 15% to 20%, which we consider to be sustainable and balances the
needs of all our stakeholders. At the half year, our annualised
pre-exceptional RORE strengthened to 14.7% (H1-22: 12.3%) reflecting the very
good operational performances by the European and Mexico home credit
divisions, both of which delivered ROREs marginally above 20%. There remain
excellent growth opportunities for IPF Digital to achieve scale and deliver
our target returns.
The Group continues to have a well-capitalised balance sheet and robust
funding position with headroom on debt facilities of £84m, which supports our
business plans into the third quarter of 2024.
The excellent first-half performance fully supports a 15% increase in the
interim dividend to 3.1p (H1-22: 2.7p) per share, in line with our stated
dividend policy of paying 33% of the prior year full-year dividend in the
first half.
Full details of the Group financial performance are detailed in the financial
review section.
Strategic delivery
We play a vital role in society by providing access to affordable credit
products and insurance services to people who are often excluded from
day-to-day financial services by banks and other lenders. Our aim is to build
on our market leadership by deploying a broad range of products, expanding our
distribution channels and upgrading customer journeys to attract the next
generation of customers.
From our heritage as a dedicated provider of instalment loans delivered
face-to-face by our customer representatives, we have successfully diversified
our product mix across nine markets which today includes digital instalment
loans, credit cards, digital credit lines and mobile wallet as well as
insurances and other value-added services. The continued success of our
strategy to broaden our product range is particularly well demonstrated in our
Polish and Mexican markets as well as through our development of partnership
opportunities.
Poland
Over a number of years, we have broadened our product range in Poland in
response to changing consumer preferences and the evolving regulatory
landscape. We now serve our customers with face-to-face and
digitally-delivered instalment loans, a range of value-added products and,
more recently, an exciting new credit card.
It is pleasing to report that the new credit card has been well received by
both customers and field colleagues, and at the end of the first half we had
issued 53,000 credit cards. The average balance is around £500 and average
utilisation is c.80%. Whilst customers typically draw down around 90% of their
credit limit initially through interaction with their customer representative,
increasingly they are using their card to shop instore, spend online or access
cash at no extra charge through an ATM, as they become more familiar with the
benefits and added utility of a credit card. Importantly, customer repayment
performance to date is tracking in line with our plans and is very similar to
our experience of home credit instalment loans. We will continue to increase
functionality and added utility, and expect to be serving between 120,000 and
150,000 customers with credit cards in Poland by the end of the year.
The success of the rollout, which reached nationwide coverage early in April,
has proven the economics of the new credit card. We are therefore confident
that our business in Poland is capable of delivering our target returns when
it regains scale following the transition to operating under the total cost of
credit cap and new affordability requirements, which came into force on 18
December 2022 and 18 May 2023 respectively. As we have previously indicated,
we expect this transition to be complete in 2025 when credit cards are
expected to represent over half of our Polish receivables book.
Mexico
Capturing the significant growth potential in Mexico is core to our strategy
and we expanded both our geographic presence and product offering during the
first half of the year. We launched home credit operations in the new region
of Tampico in March which has started very well, and continued to expand our
operations in Tijuana which opened in 2022. In addition, within our IPF
Digital business we launched our mobile wallet to customers, providing them
with extra functionality to manage their revolving credit line through their
smart phones.
Mexico is a good example of where our traditional home credit business is
working very closely with IPF Digital to pass consumers not suitable for
managing a remote online credit facility to one of our customer
representatives so they may be served through our face-to-face instalment
lending channel. This ensures that we can serve more customers and also means
that our marketing investment is more efficient. We will look to replicate
this model within our other markets.
Partnerships
We see attractive growth opportunities to build more points at which consumers
can access credit through retail partnerships. In 2022, we focused on
understanding the customer journey and building our capability with the
testing of point-of-sale finance for consumers in Romania and Mexico. In 2023,
based on our learnings, we have identified a number of additional partnership
opportunities to expand our distribution in Romania and Mexico, and we see
these as a very important part of our growth plans going forward. The majority
of partnership opportunities will be delivered through IPF Digital, where
access to a revolving credit line delivered through smart phones is very
beneficial to customers.
Marketplace
The global economic downturn and cost-of-living crisis is the largest
challenge facing our business both in terms of its impact on our customers as
well as increased costs across the Group. Inflation rates have slowed across
our markets but are expected to remain elevated in the second half of the
year.
We have continued to see good levels of demand for consumer credit in all our
markets. While people within our target consumer segment often have lower
incomes, they also budget very carefully and only want to borrow small sums.
Their disposable income is under pressure because of increased food, fuel and
energy prices but these factors have not had a discernible impact on
repayments to date. Our lending criteria always centre on protecting customers
from potential over-indebtedness and minimising credit risk to the business,
and our responsible and prudent credit settings continue to reflect the
uncertain macroeconomic environment for consumers with higher credit risk
profiles. We continue to monitor lending and repayment performance carefully
and will adjust credit settings as appropriate.
All our markets continue to be competitive, but we have seen banks tightening
their underwriting as the effects of high inflation impact consumers'
disposable incomes. In addition, we have seen some signs that competition is
being impacted by both caution in capital markets and increasing regulation
which continues to present an opportunity for established, well-governed
businesses with a strong balance sheet like IPF. We believe that non-bank
financial institutions will remain a crucial source of finance for
lower-income underserved consumers, and we will continue to focus on serving
more customers in this demographic while maintaining lending quality.
Environment, social and governance (ESG)
We have a very strong social purpose and are committed not only to supporting
our customers by providing affordable and transparent credit in a responsible
way, but also by striving to create long-term, sustainable value for all IPF
stakeholders as we invest in promoting financial inclusion, developing the
capabilities of our team who serve millions of customers and implementing our
climate change strategy.
The key initiatives in the first half of the year included:
· The launch of our global 'Invisibles' community programme in Hungary,
Romania and the Baltics highlighting the plight of underprivileged,
marginalised and excluded members of society. Our work in this area was
recognised through a number of awards in the Czech Republic.
· The Group's sixth annual Volunteer and Financial Inclusion month saw
2,000 volunteers across our markets undertaking projects to support 35,000
people in need.
· Our Global People Survey demonstrated a high level of colleague
engagement.
· We have held the ISO 45001 Occupational Health and Safety Management
Standard in all European home credit markets since 2020. In the first half of
2023, we achieved this accreditation in Mexico home credit.
· Recognised with Top Employer and Super Ethical Company awards in
Poland, and IPF Digital in Mexico was named as the 'Best Place to Work for
Women'.
We are very proud of these achievements and our work in this area is
fundamental to our purpose of building a better world through financial
inclusion. We continued to further develop our ESG strategy, and will be
launching a "Responsible Business Framework" in the second half of the year as
part of our journey to embed ESG throughout all of our operations.
Dividend
Reflecting the confidence in executing the Group's strategy and realising the
long-term growth potential of the business, the Board is pleased to declare a
15% increase in the interim dividend to 3.1 pence per share. This is in line
with our progressive dividend policy which sets the interim dividend payment
at 33% of the prior year's full dividend payment. The interim dividend will
be paid on 29 September 2023 to shareholders on the register at the close of
business on 1 September 2023. The shares will be marked ex-dividend on 31
August 2023.
Regulatory update
There have been no material updates on the EU Commission's review of the
Consumer Credit Directive, and we continue to expect that a final compromise
proposal will be published later in 2023.
As previously indicated, we were granted a small payment institution licence
in Poland last year to enable credit card issuance and payment services. We
submitted an application for a full payment institution licence in Q4-22 and
are in dialogue with the Polish financial supervision authority, the Komisja
Nadzoru Finansowego (KNF), to ensure that we meet the requirements for this
licence, a process which typically takes around 12 months.
In response to new affordability regulations that came into force in Poland in
May 2023, we successfully deployed new processes and technology to assess
customers in line with the new rules, and in IPF Digital introduced systems to
comply with the Payment Services Directive Two (PSD2) ensuring customer
authentication processes.
Outlook
Our aim is to provide underserved consumers with access to simple, personal
and affordable credit and insurance services to help protect them and their
families. There is significant demand for affordable credit within our target
demographic, and we see substantial and sustainable long-term growth
opportunities through meeting the needs of more consumers with an increased
choice of products and distribution channels.
All three of our divisions performed well in the first half of the year,
delivering good growth and financial results. Whilst there has been no
discernible impact from the rising costs of living on customer demand or
repayment performance, we will continue to monitor this closely and maintain a
cautious approach to lending given the macroeconomic backdrop. As we have
demonstrated previously, we have a strong track record of adjusting credit
settings to adapt to market conditions very quickly in order to maintain
returns.
Looking ahead and as previously reported, we expect overall Group receivables
growth to be more modest for the year as a whole and our returns to moderate
as we continue to adapt our Polish business to serving customers under the new
pricing and affordability regulations. In European home credit, we will focus
on rolling out our new credit card in Poland, whilst continuing to deploy more
digital solutions to improve customer experience and cost efficiency in all
four markets. In Mexico home credit, our efforts will centre on delivering our
expansion strategy to maximise customer reach and, in IPF Digital, we will
continue to rebuild scale to deliver our target returns in the medium term,
particularly through strong growth in Mexico and Australia. We will also
maintain strict control of costs across the Group and see further
opportunities to drive operational and structural cost efficiencies.
We have a strong balance sheet which underpins our confidence in continuing to
deliver a good set of results for the year as a whole and deliver our
progressive dividend policy and to return the Group to its target returns in
2025.
Financial review
Group
We delivered a very good first-half performance and continued to make progress
on executing our strategy, despite the challenging macroeconomic environment.
We delivered a first-half profit before tax of £37.8m, up by 11.8% (£4.0m)
on the first half of last year and ahead of our plans, reflecting a strong
operational performance as well as favourable movements in exchange rates
compared with our original assumptions. An analysis of profits between our
three trading divisions is set out below:
H1-23 H1-22 Change Change
£m £m £m %
European home credit 30.3 29.6 0.7 2.4
Mexico home credit 11.4 7.4 4.0 54.1
IPF Digital 4.1 4.5 (0.4) (8.9)
Central costs (8.0) (7.7) (0.3) (3.9)
Profit before taxation 37.8 33.8 4.0 11.8
The detailed income statement of the Group, together with associated KPIs is
set out below:
Change at CER
H1-23 H1-22 Change Change %
£m £m £m %
Customer numbers (000s) 1,718 1,718 - - -
Customer lending 578.8 513.3 65.5 12.8 4.8
Average gross receivables 1,343.2 1,170.6 172.6 14.7 9.9
Closing net receivables 893.1 769.9 123.2 16.0 9.7
Revenue 380.0 297.4 82.6 27.8 17.6
Impairment (89.2) (43.3) (45.9) (106.0) (80.9)
Revenue less impairment 290.8 254.1 36.7 14.4 6.2
Costs (215.1) (190.3) (24.8) (13.0) (5.2)
Interest expense (37.9) (30.0) (7.9) (26.3) (18.8)
Reported profit before taxation 37.8 33.8 4.0 11.8
Annualised revenue yield 54.2% 49.8% 4.4 ppts
Annualised impairment rate 11.4% 7.5% (3.9) ppts
Annualised cost-income ratio 57.4% 65.0% 7.6 ppts
Pre-exceptional EPS-(1) 10.2p 9.1p 1.1 p
Annualised pre-exceptional ROE 11.3% 10.4% 0.9 ppts
Annualised pre-exceptional RORE(1,2) 14.7% 12.3% 2.4 ppts
(1 ) Prior to an exceptional tax charge of £4.0m in 2023, and an
exceptional tax credit of £10.5m in 2022.
(2 ) Based on required equity to receivables of 40%.
Delivering growth responsibly is a core strand of our purpose to increase
financial inclusion for people who are unable to access credit from banks and
traditional lenders. The strong execution of our strategy to capture growth
opportunities and meet consumer demand with our broadening range of financial
products drove a 4.8% increase in customer lending year on year. We increased
our closing net receivables portfolio by £123.2m (9.7% at CER) to £893.1m at
the half year, reflecting double-digit growth in all three divisions, which
resulted in strong revenue growth of 17.6%. Customer numbers increased by 1.1%
to 1.72m (excluding the collect-outs of our businesses in Spain and Finland).
The Group annualised revenue yield continued to strengthen, up 4.4ppts to
54.2%, as a result of the positive impact of lower levels of promotional
activity introduced during the second half of last year and the impact of
price increases in some of our markets. Price increases are only made after
due consideration of rate caps, which are often linked to movements in local
base rates, and stringent consideration of customer affordability. The Group
revenue yield is now within our target range of 53% to 56%, and we expect it
to increase further in the medium term as: (i) Mexico home credit, which
carries a higher yield, grows and represents a larger proportion of the
Group's receivables portfolio; and (ii) the impact of price increases and
lower promotional activity in the receivables portfolio take greater effect.
We are always very disciplined and responsible in our lending decisions to
customers, and never more so than in difficult economic times. The close
relationships we have with our customers also encourages a strong repayment
ethos. Despite the increased costs of living, we have not seen any discernible
impact on customer repayment behaviour and, together with tight credit
standards, the quality of our loan portfolio continues to be very good. The
annualised impairment rate at the end of the first half was 11.4% (H1-22:
7.5%), which is in line with our expectations as impairment rates normalise
following the pandemic. We expect the Group annualised impairment rate to rise
closer to our target range of 14% to 16% as we continue to grow the business
and Mexico, which carries a higher impairment rate, represents a larger
proportion of receivables. Our balance sheet remains very robust against the
impact of cost-of-living increases with an impairment coverage ratio of 36.5%
at the end of the first half (H1-22: 37.6%), which is little changed from
36.4% at the end of 2022 and compares with a pre-Covid-19 ratio of 33.5% at
the end of 2019.
Maintaining tight control of costs and delivering efficiency improvements
through technology to offset inflationary pressures are having a meaningful
impact on our returns. These actions, together with the growth in revenue,
resulted in a significant 7.6ppt improvement in the annualised cost-income
ratio from 65.0% to 57.4% over the last 12 months. Given the momentum in the
business, and the initiatives underway, we have increased confidence that we
will outperform our medium-term target of 52% to 54% as we continue to achieve
greater scale.
Reported pre-exceptional EPS was 10.2p per share (H1-22: 9.1p), up 1.1ppts
year on year, and in line with the growth in pre-tax profits.
The pre-exceptional annualised RORE for the first half of 14.7% was broadly in
line with 14.6% at the end of 2022 (H1-22: 12.3%). We continue to operate
close to the lower end of our target range of 15% to 20% as we rebuild scale
and transition the Polish business to the new regulatory landscape. The
Group's annualised pre-exceptional ROE, based on actual equity, was 11.3% at
the half year, down from 11.5% at end of 2022 (H1-22: 10.4%) due to favourable
exchange rate movements which have increased equity. As previously reported,
we anticipate Group returns will moderate for 2023 as a whole because the
impact of the new regulations in Poland is more pronounced in the second half,
due to new affordability rules which came into force on 18 May 2023. We expect
to rebuild returns in 2024 and deliver our target returns in 2025.
Changes to financial model KPIs
Our financial model sets out the target returns we need to support our
dividend policy, fund our growth and ensure we retain a strong balance sheet.
The most integral part of our financial model is that we must deliver a Group
RORE of between 15% and 20%. We target each of our divisions to deliver a
return of at least 20% to ensure that we can deliver the Group RORE, after
taking account of central costs. We believe that Group returns materially in
excess of our target range would result in us not balancing the needs of all
of our stakeholders in delivering our purpose.
Our financial model is underpinned by a stringent focus on revenue yield,
impairment rate and cost-income ratio. It is also dictated by the cost of
funding and the tax rate. We set targets for each of these metrics 12 months
ago and, in light of strong operational performance over the last year
together with the global rise in interest rates due to cost-of-living
pressures, we have re-evaluated the targets for each of these metrics as
follows:
Group KPI Previous target range New, medium-term target range
Annualised revenue yield 53% - 56% 56% - 58%
Annualised impairment rate 14% - 16% 14% - 16%
Annualised cost-income ratio 52% - 54% 49% - 51%
The revised targets are supported by our financial forecasts and ongoing
initiatives that are well progressed. They support the delivery of our target
returns of between 15% and 20% after taking account of increasing funding
costs and an ongoing tax rate of approximately 40%.
Divisional performance
European home credit
Our European home credit division delivered a very good operational
performance in the first half of the year, reporting an increase in profit
before tax to £30.3m (H1-22: £29.6m), despite operating under new pricing
and affordability requirements in Poland as described above.
Change at
H1-23 H1-22 Change Change CER
£m £m £m % %
Customer numbers (000s) 785 786 (1) (0.1) (0.1)
Customer lending 318.3 288.1 30.2 10.5 5.6
Average gross receivables 792.5 722.0 70.5 9.8 9.0
Closing net receivables 505.4 441.4 64.0 14.5 9.3
Revenue 192.2 148.8 43.4 29.2 23.8
Impairment (27.1) (1.1) (26.0) (2,363.6) (2,610.0)
Revenue less impairment 165.1 147.7 17.4 11.8 7.0
Costs (110.8) (99.0) (11.8) (11.9) (7.4)
Interest expense (24.0) (19.1) (4.9) (25.7) (20.6)
Reported profit before taxation 30.3 29.6 0.7 2.4
Annualised revenue yield 45.6% 40.7% 4.9 ppts
Annualised impairment rate 3.9% 1.1% (2.8) ppts
Annualised cost-income ratio 59.8% 67.7% 7.9 ppts
Annualised pre-exceptional RORE 21.0% 17.7% 3.3 ppts
Despite the ongoing challenges in Europe's trading environment driven by the
impacts of the war in Ukraine, consumer demand remained robust, and we
delivered 5.6% growth in customer lending year on year. The robust operational
execution of our strategy resulted in a 9.3% increase (at CER) in closing net
receivables to £505m with Hungary and Romania both delivering growth in
excess of 20% and the Czech Republic delivering 9%. These increases were
offset partially by a 4% reduction in Poland where we expected growth to slow.
Excluding Poland, customer lending and closing net receivables both increased
by 21%. Customer numbers ended the first half at 785,000, broadly in line with
H1-22.
The annualised revenue yield has strengthened significantly over the last 12
months from 40.7% to 45.6%. This reflects the strong management actions to
bolster this metric, including reduced promotional activity and modest price
in June last year, some of which relate to local rate caps which are linked to
base rate movements.
Customer repayment performance remained robust in all our European home credit
markets which, together with tight credit standards, delivered an impairment
rate of 3.9%, up from 1.1% as rates began to normalise post-pandemic. We
expect the medium-term impairment rate to rise to between 8% and 10%.
The good growth in lending and tight management of costs delivered a further
significant improvement in the cost-income ratio, reducing 7.9ppts year on
year to 59.8% (H1-22: 67.7%). We continue to drive more efficient processes
and deliver greater synergies across our four countries, including through the
deployment of technology and sharing of best practice and resource.
The annualised pre-exceptional RORE in European home credit improved to 21.0%
(H1-22:17.7%) which is in line with our divisional target returns. As we
indicated last year, we expect European home credit returns to reduce in the
second half of 2023 and through 2024 as we transition our Polish business to
the new regulatory landscape in which we now operate before returning to
delivering target returns in 2025.
European home credit is the bedrock of the Group. It serves nearly 800,000
customers, has good growth prospects and is delivering our target returns. Our
focus remains on increasing the number of customers using our credit card
offering in Poland, expanding our remote digital offering in the Czech
Republic, broadening our product range to serve more customers, including
leveraging from our IPF Digital business, as well as continuing to deploy more
technology to improve customer experience and cost efficiency.
Mexico home credit
Mexico home credit delivered further good growth and another strong
operational performance in the first half. Profit before tax increased by 54%
(£4.0m) to £11.4m (H1-22: £7.4m).
Change at
H1-23 H1-22 Change Change CER
£m £m £m % %
Customer numbers (000s) 700 676 24 3.6 3.6
Customer lending 142.9 116.4 26.5 22.8 4.5
Average gross receivables 274.8 201.2 73.6 36.6 15.8
Closing net receivables 176.1 140.8 35.3 25.1 9.7
Revenue 125.4 93.1 32.3 34.7 14.8
Impairment (44.0) (31.0) (13.0) (41.9) (21.5)
Revenue less impairment 81.4 62.1 19.3 31.1 11.5
Costs (64.1) (50.4) (13.7) (27.2) (9.0)
Interest expense (5.9) (4.3) (1.6) (37.2) (15.7)
Reported profit before taxation 11.4 7.4 4.0 54.1
Annualised revenue yield 88.5% 86.5% 2.0 ppts
Annualised impairment rate 32.2% 27.9% (4.3) ppts
Annualised cost-income ratio 50.0% 53.8% 3.8 ppts
Annualised RORE 20.5% 20.8% (0.3) ppts
( )
Mexico home credit continued to deliver strong returns in a market with high
demand for credit and significant growth potential. Our continued expansion,
which included the launch of home credit operations in Tampico in March,
together with good consumer demand, delivered a 4.5% increase in customer
lending year on year, against tighter credit settings introduced towards the
end of 2022. This compares with a very strong first-half performance in 2022
when we saw a resurgence in demand as Mexico recovered from the pandemic. We
expect customer lending growth to increase to between 8% and 10% in H2-23,
against a more normal growth rate achieved in the second half of last year.
Customer numbers grew by 3.6% in the first half to 700,000.
Closing net receivables increased by 9.7% (at CER) to £176.1m which flowed
into strong revenue growth of 14.8% year on year. The annualised revenue yield
improved from 86.5% in June last year to a more normalised level post-pandemic
of 88.5%. We expect this ratio to remain close to this level going forward.
Customer repayment performance remained consistent during the first six months
of the year. The annualised impairment rate increased to 32.2% (H1-22: 27.9%),
which is higher than our target rate for Mexico of 30%. This predominantly
reflects a modest deterioration in credit quality towards the end of 2022
prior to credit tightening. Repayment performance is now back in line with our
plan, and we anticipate the impairment rate moving towards our target level by
the year end.
In line with our growth strategy, we continued to invest in expanding our
infrastructure and customer reach in Mexico which resulted in costs increasing
year on year by 9.0% (at CER). However, the cost-income ratio has now improved
by 3.8 ppts to 50% over the last 12 months (H1-22: 53.8%), demonstrating the
benefit of operational leverage in this growing business as well as good cost
control. Mexico is the benchmark home credit operation for cost efficiency.
Mexico home credit delivered an annualised RORE of 20.5% (H1-22: 20.8%), in
line with our divisional target returns. As we have indicated previously,
investing in sustainable growth with a relatively shallow "j-curve" is key to
maintaining target returns in this strong growth business.
Our Mexico home credit business offers very exciting and significant long-term
growth prospects. By successfully delivering on our strategy, we will continue
to deliver sustainable growth to ensure consistent returns. We will enhance
territory management to maximise customer reach within the current geographic
footprint and selectively digitise the customer journey. We will also continue
to build on the synergies developed with IPF Digital, which is helping us
financially include more people in Mexico. Together, Mexico home credit and
IPF Digital in Mexico already serve nearly 800,000 customers, and there is
good potential to grow to over one million customers in the medium term.
IPF Digital
IPF Digital delivered good growth in all our ongoing markets and reported a
profit before tax of £4.1m (H1-22: £4.5m). Whilst this is a reduction year
on year, this reflects: (i) the "j-curve" impact of strong receivables growth;
(ii) the impact of transitioning the Polish business to the new lower total
cost of credit cap and affordability rules; and (iii) the collect-out markets
of Spain and Finland contributing lower profits as they near closure.
Change at CER
H1-23 H1-22 Change Change %
£m £m £m %
Customer numbers (000s) 233 256 (23) (9.0) (9.0)
Customer lending 117.6 108.8 8.8 8.1 2.8
Average gross receivables 275.9 247.4 28.5 11.5 6.9
Closing net receivables 211.6 187.7 23.9 12.7 11.0
Revenue 62.4 55.5 6.9 12.4 6.7
Impairment (18.1) (11.2) (6.9) (61.6) (49.6)
Revenue less impairment 44.3 44.3 - - (4.5)
Costs (32.2) (33.3) 1.1 3.3 7.5
Interest expense (8.0) (6.5) (1.5) (23.1) (17.6)
Reported profit before taxation 4.1 4.5 (0.4) (8.9)
Annualised revenue yield 45.0% 46.7% (1.7) ppts
Annualised impairment rate 11.9% 9.3% (2.6) ppts
Annualised cost-income ratio 53.1% 62.8% 9.7 ppts
Annualised RORE 6.3% 6.1% 0.2 ppts
Good demand for IPF Digital's revolving credit offering together with a strong
operational performance supported a 2.8% increase in customer lending in the
first half of the year. The growth rate was heavily distorted by Poland, where
changes to the regulatory landscape resulted in a decline in lending of
approximately 30%. Elsewhere, there were impressive performances in Mexico and
Australia, which both delivered growth of 24% and in the Baltics combined,
customer lending increased by 13%.
Customer numbers ended the first half at 233,000. Mexico, Australia and the
Baltics delivered good growth and, together, increased customer numbers by 7%.
As expected, customer numbers reduced in Poland by 20%.
We are successfully increasing receivables to gain scale and deliver our
target returns which resulted in an 11.0% increase (at CER) in closing net
receivables. Again, this was driven by Mexico, Australia and the Baltics which
delivered combined growth of 23% whereas Poland saw a decline of 14%. The
collect-out portfolios in Finland and Spain have reduced from approximately
£4m a year ago to less than £1m at the end of June as the collect-outs
continue to progress well.
The annualised revenue yield has reduced by 1.7 ppts to 45.0% over the last
year. This reflects the impact of a combination of factors including: (i) the
flow through of a tighter rate cap in Latvia in 2022; (ii) the reduction in
higher yielding Finland and Spain receivables during the collect-outs; (iii)
the impact of the lower total cost of credit cap in Poland; and (iv) the
growth in Australia, which is relatively lower yielding. These adverse
variances have been offset partly by the growth in Mexico which has a higher
revenue yield.
Customer repayments remained robust and the annualised impairment rate
increased from 9.3% last June to 11.9%. This is mainly due to the growth in
lending in Mexico which carries a higher impairment rate as well as the
rundown of the Finland and Spain receivables portfolios which incur minimal
impairment as it has already been accounted for up front under IFRS 9.
Although we continued to invest in developing our product offering and
marketing to attract new customers and build scale, tight control on
expenditure delivered a 7.5% (at CER) reduction in costs year on year and this
was reflected in the cost-income ratio which decreased significantly by 9.7
ppts to 53.1% (H1-22: 62.8%). We expect the cost-income ratio to further
improve as we continue to rebuild the business and benefit from economies of
scale. As a fully digital business, we are targeting a cost-income ratio of
around 45% in the medium term.
IPF Digital's RORE in the first half of 2023 was 6.3%, broadly unchanged from
H1-22 and the 2022 year end, reflecting the investment in growth in Australia
and Mexico, the transition of the Polish business to operating under the new
regulatory environment and the diminishing profit contribution from Finland
and Spain. Although IPF Digital has lower scale than we would wish following
Covid-19 and the closure of Finland and Spain, there are strong organic growth
opportunities in our existing markets, particularly Mexico and Australia, and
we will continue to consider inorganic opportunities to deliver scale and
increase returns to our target levels. Our aim is for IPF Digital to deliver
returns at the lower end of the Group's target range in 2025.
Our focus in IPF Digital is to continue gaining scale and extend the reach of
our mobile wallet in the Baltics, Mexico and, in due course, Australia. We
will also continue to expand the new hybrid lending opportunities that our
digital and home credit businesses are partnering on in Mexico and we are
exploring the potential of extending this to our other home credit markets. In
addition, we also see very strong growth potential from working with partners
to provide point-of-sale revolving credit facilities, and we are currently
working on a number of attractive opportunities.
Taxation
The pre-exceptional taxation charge on the profit for the first half has been
based on an expected tax rate for the full year of approximately 40% (H1-22:
40%).
The first half results reflect an exceptional tax charge of £4m relating to a
new "extra profit special tax" implemented by the Hungarian government in 2022
and chargeable on the financial sector including non-bank financial
institutions. As originally enacted, the tax was due in respect of 2022 and
2023 only with an exceptional tax charge of £5m being reflected in the 2022
Group financial statements and a further exceptional charge of £6m had been
expected to be reflected in 2023. However, following changes made to this
regulation during the first half of 2023, the expected impact on the Group for
2023 is a reduced exceptional tax charge of £4m but as the tax has been
extended by one further year, a further tax charge of £2m is expected to
arise in 2024.
Funding and balance sheet
We continue to maintain a very conservatively capitalised balance sheet and
robust funding position. At the end of June, the Group's equity to receivables
ratio was 51.8% (H1-22: 52.4%) and this compares with our target of 40%. The
ratio has remained unchanged despite: (i) receivables growth being in line
with our financial model over the last 12 months; (ii) returns being below the
lower target threshold of 15%; and (iii) a dividend pay-out ratio in excess of
40%. The absorption of capital from these factors has been offset directly by
£55m of foreign exchange gains being credited to reserves over the last 18
months (£13m in H1-23). Excluding the benefit of these exchange gains, the
equity to receivables ratio would have been around 46% at the end of June. We
intend to reduce the equity to receivables ratio progressively over the next
two years as we invest in growth, deliver our progressive dividend policy and
build returns to our target level of 15% to 20%.
The gearing ratio was 1.2 times (H1-22: 1.3 times) at the end of the first
half, comfortably within of our covenant limit of 3.75 times, and our interest
cover covenant was 2.2 times (H1-22: 2.4 times), compared with our covenant of
2.0 times.
At the end of June, the Group had total debt facilities of £609m, comprising
£413m of bonds and £196m of bank facilities. We have borrowings of £523m
and, together with undrawn facilities and non-operational cash balances,
headroom is £84m. The Group's current funding capacity together with strong
business cash generation, is expected to meet our funding requirements to the
third quarter of 2024. Our additional funding requirement in 2023 is not
expected to be significant due to the anticipated contraction in Polish
receivables as we transition the business to operate under new rate cap and
affordability regulations.
We successfully extended £39m of debt facilities in the first half of the
year, including £32m of bank facilities and the issue of £7m of retail bonds
held in treasury. The debt maturity profile of the Group stands at 2.1
years. Together with our advisors, we are actively exploring a number of
options to extend our debt maturity profile and refinance the Eurobond.
Our blended cost of funding in H1-23 was 14.0%, up from 12.2% in H1-22. This
is due to a significant step-up in interest rates across our markets which
resulted in higher costs of bank funding and the cost of hedging. Our hedging
policy is to match our local currency receivables with borrowings in the same
denomination to provide certainty of cashflows and avoid significant
volatility in the income statement from movements in exchange rates.
Accordingly, our borrowings denominated in sterling and euros are swapped
through forward contracts into local currency when we onward lend to our
markets. As a result, the margin on the sterling/euro bond is effectively
added to the local base rate for determining the cost of funding for that
market. For countries such as Hungary and Mexico, where base rates are
currently 13.0% and 11.25% compared with base rates in the UK and Eurozone of
5.0% and 4.0% respectively, this has resulted in an increased cost of hedging.
We anticipate a modest increase in the overall Group cost of funding in 2024
as we refinance maturing fixed interest rate funding.
Our credit ratings remained unchanged. We have a long-term credit rating of
BB- (Outlook Stable) from Fitch Ratings and Ba3 (Outlook Stable) from Moody's
Investors Services.
Financial statements
Consolidated income statement
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
30 June 30 June 31 December 2022
2023 2022
Notes £m £m £m
Revenue 3 380.0 297.4 645.5
Impairment 3 (89.2) (43.3) (106.7)
Revenue less impairment 290.8 254.1 538.8
Interest expense 4 (37.9) (30.0) (68.1)
Other operating costs (62.2) (57.9) (121.5)
Administrative expenses (152.9) (132.4) (271.8)
(253.0) (220.3) (461.4)
Profit before taxation 3 37.8 33.8 77.4
Pre-exceptional tax (expense)/income
- UK - - 0.1
- Overseas (15.1) (13.5) (31.2)
Pre-exceptional tax expense 5 (15.1) (13.5) (31.1)
Exceptional tax (expense)/income 8 (4.0) 10.5 10.5
Total tax expense (19.1) (3.0) (20.6)
Profit after taxation attributable to equity shareholders
18.7 30.8 56.8
The notes to the financial information are an integral part of these condensed
consolidated interim financial statements.
Earnings per share - statutory
Unaudited Unaudited Audited
Six months ended Six months ended Year
ended
30 June 30 June 31 December 2022
2023 2022
Notes pence pence pence
Basic 6 8.4 13.9 25.6
Diluted 6 8.0 13.2 24.3
Earnings per share - pre-exceptional items
Unaudited Unaudited Audited
Six months ended Six months ended Year
ended
30 June 30 June 31 December 2022
2023 2022
pence pence pence
Basic 10.2 9.1 20.8
Diluted 9.7 8.7 19.8
Dividend per share
Unaudited Unaudited Audited
Six months ended Six months ended Year
ended
30 June 30 June 31 December 2022
2023 2022
Notes pence pence pence
Interim dividend 7 3.1 2.7 2.7
Final dividend 7 - - 6.5
Total dividend 3.1 2.7 9.2
Dividends paid
Unaudited Unaudited Audited
Six months ended Six months ended Year
ended
30 June 30 June 31 December 2022
2023 2022
Notes £m £m £m
Interim dividend of 3.1 pence -
(2022: interim dividend of 2.7 pence) per share -
7 6.0
Final 2022 dividend of 6.5 pence 14.6 12.9
(2022: final 2021 dividend of 5.8 pence) per share
7 12.9
Total dividends paid 14.6 12.9 18.9
Consolidated statement of comprehensive income
Unaudited Unaudited Audited
Six months ended Six months ended Year
30 June 2023 30 June 2022 ended
31 December 2022
£m £m £m
Profit after taxation attributable to equity shareholders 18.7 30.8 56.8
Other comprehensive income
Items that may subsequently be reclassified to income statement
Exchange gains on foreign currency translations 12.7 18.9 41.8
Net fair value losses - cash flow hedges (0.8) (2.8) (2.3)
Tax credit on items that may be reclassified - - 0.8
Items that will not subsequently be reclassified to income statement
Actuarial (losses)/gains on retirement benefit asset (1.2) 0.9 (3.8)
Tax credit/(charge) on items that will not be reclassified 0.3 (0.2) 0.9
Other comprehensive income net of taxation 11.0 16.8 37.4
Total comprehensive income for the period attributable to equity shareholders 29.7 47.6
94.2
Consolidated balance sheet
Unaudited Unaudited Audited
30 June 30 June 31 December 2022
2023 2022
Notes £m £m £m
Assets
Non-current assets
Goodwill 9 23.4 23.4 24.2
Intangible assets 10 28.7 24.9 27.9
Property, plant and equipment 11 16.1 16.9 17.3
Right-of-use assets 12 19.4 18.5 19.3
Amounts receivable from customers 14 201.5 179.2 212.2
Deferred tax assets 13 144.9 136.1 138.5
Retirement benefit asset 17 0.9 6.7 2.1
434.9 405.7 441.5
Current assets
Amounts receivable from customers 14 691.6 590.7 656.6
Derivative financial instruments 1.0 3.0 4.5
Cash and cash equivalents 28.2 43.7 50.7
Other receivables 16.2 15.6 16.2
Current tax assets 15 1.6 29.0 1.6
738.6 682.0 729.6
Total assets 3 1,173.5 1,087.7 1,171.1
Liabilities
Current liabilities
Borrowings 16 (59.5) (28.6) (71.8)
Derivative financial instruments (12.9) (5.9) (4.6)
Trade and other payables (129.5) (123.0) (122.2)
Provisions for liabilities and charges (3.4) (2.6) (4.7)
Lease liabilities 12 (8.1) (6.9) (7.2)
Current tax liabilities (14.5) (17.2) (18.3)
(227.9) (184.2) (228.8)
Non-current liabilities
Deferred tax liabilities 13 (5.9) (7.9) (5.9)
Lease liabilities 12 (13.3) (12.8) (14.2)
Borrowings 16 (463.5) (479.0) (477.0)
(482.7) (499.7) (497.1)
Total liabilities 3 (710.6) (683.9) (725.9)
Net assets 462.9 403.8 445.2
Equity attributable to owners of the Parent
Called-up share capital 23.4 23.4 23.4
Other reserve (22.5) (22.5) (22.5)
Foreign exchange reserve 21.9 (13.7) 9.2
Hedging reserve (0.7) (1.2) 0.1
Own shares (36.9) (44.5) (43.3)
Capital redemption reserve 2.3 2.3 2.3
Retained earnings 475.4 460.0 476.0
Total equity 462.9 403.8 445.2
Consolidated statement of changes in equity
Unaudited
Called-up share capital
Other reserve *Other reserves Retained Total
£m earnings equity
£m £m
£m £m
At 1 January 2022 23.4 (22.5) (75.3) 441.5 367.1
Comprehensive income
Profit after taxation for the period - - - 30.8 30.8
Other comprehensive income/(expense)
Exchange gains on foreign currency translation (note 20)
- - 18.9 - 18.9
Net fair value losses - cash flow hedges - - (2.8) - (2.8)
Actuarial gain on retirement benefit asset - - - 0.9 0.9
Tax charge on other comprehensive income - - - (0.2) (0.2)
Total other comprehensive income - - 16.1 0.7 16.8
Total comprehensive income for the period - - 16.1 31.5 47.6
Transactions with owners
Share-based payment adjustment to reserves - - - 2.4 2.4
Purchase of own shares - - (0.4) - (0.4)
Shares granted from treasury and employee trust - - 2.5 (2.5) -
Dividends paid to Company shareholders - - - (12.9) (12.9)
At 30 June 2022 23.4 (22.5) (57.1) 460.0 403.8
Audited
At 1 January 2022 23.4 (22.5) (75.3) 441.5 367.1
Comprehensive income:
Profit after taxation for the year - - - 56.8 56.8
Other comprehensive income/(expense):
Exchange gains on foreign currency translation (note 20) - - 41.8 - 41.8
Net fair value losses - cash flow hedges - - (2.3) - (2.3)
Actuarial loss on retirement benefit obligation - - - (3.8) (3.8)
Tax credit on other comprehensive expense - - 0.8 0.9 1.7
Total other comprehensive income/(expense) - - 40.3 (2.9) 37.4
Total comprehensive income for the year - - 40.3 53.9 94.2
Transactions with owners:
Share-based payment adjustment to reserves - - - 3.2 3.2
Shares acquired by employee trust - - (0.4) - (0.4)
Shares granted from treasury and employee trust - - 3.7 (3.7) -
Dividends paid to Company shareholders - - - (18.9) (18.9)
At 31 December 2022 23.4 (22.5) (31.7) 476.0 445.2
Consolidated statement of changes in equity (continued)
Unaudited
Called-up share capital
£m Other reserve *Other reserves Retained Total
£m £m earnings equity
£m £m
At 1 January 2023 23.4 (22.5) (31.7) 476.0 445.2
Comprehensive income
Profit after taxation for the period - - - 18.7 18.7
Other comprehensive income/(expense)
Exchange gains on foreign currency translation (note 20)
- - 12.7 - 12.7
Net fair value losses - cash flow hedges - - (0.8) - (0.8)
Actuarial loss on retirement benefit asset - - - (1.2) (1.2)
Tax credit on other comprehensive income - - - 0.3 0.3
Total other comprehensive income/(expense) - - 11.9 (0.9) 11.0
Total comprehensive income for the period - - 11.9 17.8 29.7
Transactions with owners
Share-based payment adjustment to reserves - - - 2.9 2.9
Purchase of own shares - - (0.3) - (0.3)
Shares granted from treasury and employee trust - - 6.7 (6.7) -
Dividends paid to Company shareholders - - - (14.6) (14.6)
At 30 June 2023 23.4 (22.5) (13.4) 475.4 462.9
* Includes foreign exchange reserve, hedging reserve, own shares and capital
redemption reserve.
Consolidated cash flow statement
Unaudited Unaudited Audited
Six months ended Six months ended Year
30 June 30 June ended
2023 2022 31 December
2022
Notes £m £m £m
Cash flows from operating activities
Cash generated from operating activities 19 85.1 23.0 58.8
Finance costs paid (23.3) (15.3) (65.2)
Income tax (paid)/received (22.6) (9.0) 5.5
Net cash generated from/(used in) operating activities 39.2 (1.3) (0.9)
Cash flows used in investing activities
Purchases of intangible assets 10 (7.5) (5.4) (14.7)
Purchases of property, plant and equipment 11 (1.6) (6.0) (9.1)
Proceeds from sale of property, plant and equipment
- 0.2 0.3
Net cash used in investing activities (9.1) (11.2) (23.5)
Net cash generated from/(used in) operating and investing activities
30.1 (12.5) (24.4)
Cash flows from financing activities
Proceeds from borrowings 11.9 31.4 99.3
Repayment of borrowings (44.9) (0.3) (43.6)
Principal elements of lease payments 12 (5.7) (4.5) (9.2)
Shares acquired by employee trust (0.3) (0.4) (0.4)
Dividends paid to equity shareholders (14.6) (12.9) (18.9)
Cash received on options exercised 0.3 - -
Net cash (used in)/generated from financing activities (53.3) 13.3 27.2
Net (decrease)/increase in cash and cash equivalents (23.2) 0.8 2.8
Cash and cash equivalents at beginning of period 50.7 41.7 41.7
Exchange gains on cash and cash equivalents 0.7 1.2 6.2
Cash and cash equivalents at end of period 28.2 43.7 50.7
Notes to the condensed consolidated interim financial statements
1. Basis of preparation
These unaudited condensed consolidated interim financial statements for the
six months ended 30 June 2023 have been prepared in accordance with the
Disclosure and Transparency Rules ('DTR') of the Financial Conduct Authority
and with IAS 34 'Interim Financial Reporting' as adopted by the United
Kingdom. These condensed consolidated interim financial statements should be
read in conjunction with the Annual Report and Financial Statements ('the
Financial Statements') for the year ended 31 December 2022, which have been
prepared in accordance with International Financial Reporting Standards
('IFRSs') and those parts of the Companies Act 2006 applicable to companies
reporting under IFRS. These condensed consolidated interim financial
statements were approved for release on 1 August 2023.
These condensed consolidated interim financial statements do not comprise
statutory accounts within the meaning of Section 434 of the Companies Act
2006. The Financial Statements for the year ended 31 December 2022 were
approved by the Board on 1 March 2023 and delivered to the Registrar of
Companies. The Financial Statements contained an unqualified audit report and
did not include an emphasis of matter paragraph or any statement under Section
498 of the Companies Act 2006. The Financial Statements are available on the
Group's website (www.ipfin.co.uk (http://www.ipfin.co.uk) ).
The accounting policies applied to prepare these condensed consolidated
interim financial statements are consistent with those applied to the most
recent full year Financial Statements for the year ended 31 December 2022.
We operate a formal risk management process, the details of which are set out
on page 58 of the Financial Statements for the year ended 31 December 2022.
Details of our principal risks can be found on pages 60 to 62 of the Financial
Statements.
The risks assessed in preparing these condensed consolidated interim financial
statements are consistent with those assessed in the most recent full year
Financial Statements for the year ended 31 December 2022.
Board members
As at 30 June 2023, the Group's Board members were as follows:
Stuart Sinclair Chairman
Gerard Ryan Executive Director and Chief Executive Officer
Gary Thompson Executive Director and Chief Financial Officer
Katrina Cliffe Independent non-executive director
Deborah Davis Independent non-executive director
Richard Holmes Senior independent non-executive director
Aileen Wallace Independent non-executive director
( )
Going concern
In considering whether the Group is a going concern, the Board has taken into
account the Group's financial forecasts and its principal risks (with
particular reference to funding, liquidity and regulatory risks). The
forecasts have been prepared for the two years to 31 December 2024 and include
projected profit and loss, balance sheet, cashflows, borrowings, headroom
against debt facilities and funding requirements. These forecasts represent
the best estimate of the businesses performance, and in particular the
evolution of customer lending and repayment cash flows as well as management's
best assumption regarding the renewal/extension of maturing financing
facilities.
The financial forecasts have been stress tested in a range of downside
scenarios to assess the impact on future profitability, funding requirements
and covenant compliance. The scenarios reflect the crystallisation of the
Group's principal risks (with particular reference to funding, liquidity and
regulatory risks). Consideration has also been given to multiple risks
crystallising concurrently and the availability of mitigating actions that
could be taken to reduce the impact of the identified risks. In addition, a
reverse stress test on the financial forecasts was undertaken to assess the
extent to which a recession would need to impact operational performance in
order to breach a covenant. This showed that net revenue would need to
deteriorate significantly from the financial forecast and the Directors have a
reasonable expectation that it is unlikely to deteriorate to this extent.
At 30 June 2023, the Group had £84m of non-operational cash and headroom
against its debt facilities (comprising a range of bonds and bank facilities),
which have a weighted average maturity of 2.1 years. Total debt facilities as
at 30 June 2023 amounted to £609m of which £87m (excluding £32m of
uncommitted loans which do not require extension) is due for renewal over the
following 12 months. A combination of these debt facilities, the embedded
business flexibility in respect of cash generation and a successful track
record of accessing funding from debt capital markets over a long period
(including periods with challenging macroeconomic conditions and a changing
regulatory environment), are expected to meet the Group's funding requirements
for the foreseeable future (12 months from the date of approval of this
report). Taking these factors into account, together with regulatory risks set
out on pages 60-62 of the 2022 Annual Report and Financial Statements, the
Board has a reasonable expectation that the Group has adequate resources to
continue in operation for the foreseeable future. For this reason, the Board
has adopted the going concern basis in preparing the half-year 2023 financial
report.
The following amendments to standards are mandatory for the first time for the
financial year beginning 1 January 2023 but do not have any material impact on
the Group:
· IFRS 17 'Insurance contracts'
· Amendments to IAS 12 'Income Taxes - Deferred Tax related to Assets
and Liabilities arising from a Single Transaction' and 'International Tax
Reform - Pillar Two Model Rules'
· Amendments to IAS 1 'Presentation of Financial Statements and IFRS
Practice Statement 2 Making Materiality Judgements - Disclosure of Accounting
Policies'
· Amendments to IAS 8 'Accounting Policies, Changes in Accounting
Estimates and Errors - Definition of Accounting Estimates'
As referred to in Note 13, in accordance with the amendment to IAS12 in
respect of the Pillar Two Model Rules, the Group has applied the exception to
recognising and disclosing information about deferred tax assets and
liabilities related to Pillar Two income taxes.
The following standards, interpretations and amendments to existing standards
are not yet effective and have not been early adopted by the Group:
· IFRS16 'Lease liability in a sale and leaseback'
· IAS 1 'Non-current liabilities with covenants'
· IAS 1 'Classification of liabilities as current or non-current.'
Exceptional items
Exceptional items are items that are unusual because of their size, nature or
incidence and which the directors consider should be disclosed separately to
enable a full understanding of the Group's underlying results.
Critical accounting judgements and key sources of estimation uncertainty
The preparation of condensed consolidated interim financial statements
requires the Group to make estimates and judgements that affect the
application of policies and reported accounts.
Critical judgements represent key decisions made by management in the
application of the Group accounting policies. Where a significant risk of
materially different outcomes exists due to management assumptions or sources
of estimation uncertainty, this will represent a critical accounting estimate.
Estimates and judgements are continually evaluated and are based on historical
experience and other factors, including expectations of future events that are
believed to be reasonable under the circumstances. Actual results may differ
from these estimates.
The estimates and judgements which have a significant risk of causing a
material adjustment to the carrying amounts of assets and liabilities are
discussed below.
Key sources of estimation uncertainty
In the application of the Group's accounting policies, the directors are
required to make estimations that have a significant impact on the amounts
recognised and to make estimates and assumptions about the carrying amounts of
assets and liabilities that are not readily apparent from other sources. The
estimates and associated assumptions are based on historical experience and
other factors that are considered to be relevant. Actual results may differ
from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognised in the period in which the
estimate is revised if the revision affects only that period, or in the period
of the revision and future periods if the revision affects both current and
future periods.
The following are the critical estimations, that the directors have made in
the process of applying the Group's accounting policies and that have the most
significant effect on the amounts recognised in these condensed consolidated
interim financial statements.
Revenue recognition
The estimate used in respect of revenue recognition is the methodology used to
calculate the EIR. In order to determine the EIR applicable to loans an
estimate must be made of the expected life of each loan and hence the cash
flows relating thereto. These estimates are based on historical data and are
reviewed regularly.
Amounts receivable from customers
The Group reviews its portfolio of customer loans and receivables for
impairment on a weekly or monthly basis. The Group reviews the most recent
customer repayment performance to determine whether there is objective
evidence which indicates that there has been an adverse effect on expected
future cash flows. For the purposes of assessing the impairment of customer
loans and receivables, customers are categorised into stages based on days
past due as this is considered to be the most reliable predictor of future
payment performance. The level of impairment is calculated using historical
payment performance to generate both the estimated expected loss and also the
timing of future cash flows for each agreement. The expected loss is
calculated using probability of default ('PD') and loss given default ('LGD')
parameters.
Impairment models are monitored regularly to test their continued capability
to predict the timing and quantum of customer repayments in the context of the
recent customer payment performance. The models used typically have a strong
predictive capability reflecting the relatively stable nature of the business
and therefore the actual performance does not usually vary significantly from
the estimated performance. The models are ordinarily updated at least twice
per year. Where we expect the models to show an increase in the expected loss
or a slowing of the future cashflows in the following 12 months, we apply an
adjustment to the models. At 30 June 2023, this adjustment was a reduction in
receivables of £12.5m (30 June 2022: reduction of £13.0m, 31 December 2022:
reduction of £11.6m).
Post model overlays (PMOs) on amounts receivable from customers
Unaudited Unaudited Audited
30 June 30 June 31 December 2022
2023 2022 £m
£m £m
Home credit 20.6 23.3 21.8
IPF Digital 3.1 2.7 3.1
Total 23.7 26.0 24.9
To date there has been no discernible impact on customer repayments as a
result of the cost-of-living crisis. However, inflation rates remain high,
government support packages are expected to be less generous this winter than
the previous winter and it is also believed that customer savings from the
Covid-19 lockdowns have diminished significantly. This leaves customers more
financially exposed to high energy prices in the coming winter. As a result,
there still remains a risk that the cost-of-living crisis will have a
significant adverse impact on our customers' disposable income and therefore
their ability to make repayments. The PMO related to the cost-of-living at
June 2023 is £20.8m (31 December 2022: £20.6m). In order to calculate this
PMO, country-specific expert knowledge, informed by economic forecast data to
estimate the increase in losses, has been used. This represents management's
current assessment of a reasonable outcome from the cost-of-living crisis.
The Hungarian debt moratorium, which initially began in March 2020, ended in
December 2022. There remains a small proportion of the portfolio that has at
some point been in the moratorium. Given the age of these loans, PMOs have
been applied to the impairment models in order to calculate the continued
risks that are not fully reflected in the standard impairment models. Based on
management's current expectations, the impact of these PMOs was to increase
impairment provisions at 30 June 2023 to £2.9m (31 December 2022: £4.3m). In
order to calculate the PMO, the portfolio was segmented by analysis of the
most recent payment performance and, using this information, assumptions were
made around expected credit losses. This represents management's current
assessment of a reasonable outcome from the actual repayment performance on
the debt moratorium impacted portfolio.
Tax
Estimations must be exercised in the calculation of the Group's tax provision,
in particular with regard to the existence and extent of tax risks.
Deferred tax assets arise from timing differences between the accounting and
tax treatment of revenue and impairment transactions and tax losses.
Estimations must be made regarding the extent to which timing differences
reverse and an assessment must be made of the extent to which future profits
will be generated to absorb tax losses. A shortfall in profitability compared
to current expectations may result in future adjustments to deferred tax asset
balances.
Alternative performance measures
In reporting financial information, the Group presents alternative performance
measures, 'APMs' which are not defined or specified under the requirements of
IFRS.
The Group believes that these APMs, which are not considered to be a
substitute for or superior to IFRS measures, provide stakeholders with
additional helpful information on the performance of the business. The APMs
are consistent with how the business performance is planned and reported
within the internal management reporting to the Board.
Each of the APMs used by the Group is set out in the APM section of this
report including explanations of how they are calculated and how they can be
reconciled to a statutory measure where relevant.
The Group reports percentage change figures for all performance measures,
other than profit or loss before taxation and earnings per share, after
restating prior year figures at a constant exchange rate. The constant
exchange rate, which is an APM, retranslates the previous year measures at the
average actual periodic exchange rates used in the current financial year.
These measures are presented as a means of eliminating the effects of exchange
rate fluctuations on the year-on-year reported results.
The Group makes certain adjustments to the statutory measures in order to
derive APMs where relevant. The Group's policy is to exclude items that are
considered to be significant in both nature and/or quantum and where treatment
as an adjusted item provides stakeholders with additional useful information
to assess the year-on-year trading performance of the Group.
2. Related parties
The Group has not entered into any material transactions with related parties
in the first six months of the year.
3. Segment analysis
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
30 June 30 June 31 December 2022
2023 2022
£m £m £m
Revenue
European home credit 192.2 148.8 317.5
Mexico home credit 125.4 93.1 210.9
IPF Digital 62.4 55.5 117.1
Revenue 380.0 297.4 645.5
Impairment
European home credit 27.1 1.1 5.2
Mexico home credit 44.0 31.0 75.5
IPF Digital 18.1 11.2 26.0
Impairment 89.2 43.3 106.7
Profit before taxation
European home credit 30.3 29.6 65.6
Mexico home credit 11.4 7.4 17.7
IPF Digital 4.1 4.5 8.8
UK costs(1) (8.0) (7.7) (14.7)
Profit before taxation 37.8 33.8 77.4
Segment assets
European home credit 591.8 560.6 590.3
Mexico home credit 276.4 227.1 255.6
IPF Digital 248.5 230.8 248.4
UK(2) 56.8 69.2 76.8
Total 1,173.5 1,087.7 1,171.1
Segment liabilities
European home credit 320.4 306.3 348.8
Mexico home credit 126.4 108.4 124.2
IPF Digital 129.4 102.4 123.4
UK(2) 134.4 166.8 129.5
Total 710.6 683.9 725.9
(1) Although UK costs are not classified as a separate segment in accordance
with IFRS 8 'Operating Segments', they are shown separately in order to
provide a reconciliation to other operating costs; administrative expenses and
profit before taxation.
(2) Although the UK is not classified as a separate segment in accordance with
IFRS 8 'Operating Segments', it is shown separately above in order to provide
a reconciliation to consolidated total assets and liabilities.
4. Interest expense
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2023 2022 2022
£m £m £m
Interest payable on borrowings 36.9 29.3 66.5
Interest payable on lease liabilities 1.0 0.7 1.6
Interest expense 37.9 30.0 68.1
5. Tax expense
The taxation charge on the profit for the first six months of 2023 £15.1m
(2022 £13.5m), has been based on an expected effective tax rate for 2023 of
40% (2022 40%).
The exceptional tax charge of £4.0m is detailed in note 8.
The Group is subject to tax audits in respect of the Mexican home credit
business (regarding 2017) and in respect of the Polish digital business
(regarding 2019).
6. Earnings per share
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2023 2022 2022
pence pence pence
Basic EPS 8.4 13.9 25.6
Dilutive effect of awards (0.4) (0.7) (1.3)
Diluted EPS 8.0 13.2 24.3
Basic earnings per share ('EPS') for the six months ended 30 June 2023 is
calculated by dividing the profit attributable to shareholders of £18.7m (six
months ended 30 June 2022: £30.8m, 31 December 2022: £56.8m) by the weighted
average number of shares in issue during the period of 223.4m which has been
adjusted to exclude the weighted average number of shares held in treasury and
by the employee trust (six months ended 30 June 2022: 222.0m, 31 December
2022: 222.2m).
For diluted EPS for the six months ended 30 June 2023, the weighted average
number of shares has been adjusted to 235.2m (six months ended 30 June 2022:
233.6m, 31 December 2022: 234.0m) to assume conversion of all dilutive
potential ordinary share options relating to employees of the Group.
7. Dividends
Reflecting the confidence in executing the Group's strategy and realising the
long-term growth potential of the business, the Board is pleased to declare a
15% increase in the interim dividend to 3.1 pence per share. This is in line
with our progressive dividend policy which sets the interim dividend payment
at 33% of the prior year's full dividend payment. The interim dividend will
be paid on 29 September 2023 to shareholders on the register at the close of
business on 1 September 2023. The shares will be marked ex-dividend on 31
August 2023.
8. Exceptional tax items
Unaudited Unaudited Audited
Six months ended Six months ended Year
30 June 30 June ended
2023 2022 31 December
2022
£m £m £m
Benefit of Polish Supreme Administrative Court decision - 30.9 30.9
Decision of the General Court of the EU on State Aid - (15.3) (15.3)
Temporary Hungarian extra profit special tax (4.0) (5.1) (5.1)
Exceptional tax items (4.0) 10.5 10.5
Further information relating to the exceptional tax items is shown in the tax
section of this report.
9. Goodwill
Unaudited Unaudited Audited
30 June 30 June 31 December
2023 2022 2022
£m £m £m
Net book value at start of period 24.2 22.9 22.9
Exchange adjustments (0.8) 0.5 1.3
Net book value at end of period 23.4 23.4 24.2
Goodwill is tested annually for impairment or more frequently if there are
indications that goodwill might be impaired. The recoverable amount is
determined from a value in use calculation, based on the expected cash flows
resulting from the legacy MCB business' outstanding customer receivables and
taking into account the collect out of the Finnish business. The key
assumptions used in the value in use calculation relate to the discount rates
and cash flows used. The rate used to discount the forecast cash flows is 13%
(30 June 2022: 13% and 31 December 2022: 12%) and would need to increase to
15% for the goodwill balance to be impaired; the cashflow forecasts arise over
a 1-4 year period and would need to be 13% lower than currently estimated for
the goodwill balance to be impaired.
10. Intangible assets
Unaudited Unaudited Audited
30 June 30 June 31 December
2023 2022 2022
£m £m £m
Net book value at start of period 27.9 25.2 25.2
Additions 7.5 5.4 14.7
Amortisation (6.3) (5.9) (12.6)
Exchange adjustments (0.4) 0.2 0.6
Net book value at end of period 28.7 24.9 27.9
Intangible assets comprise computer software and are a mixture of
self-developed and purchased assets. All purchased assets have had further
capitalised development on them, meaning it is not possible to disaggregate
fully between the relevant intangible categories.
11. Property, plant and equipment
Unaudited Unaudited Audited
30 June 30 June 31 December
2023 2022 2022
£m £m £m
Net book value at start of period 17.3 13.8 13.8
Exchange adjustments 0.4 0.3 0.8
Additions 1.6 6.0 9.1
Disposals - (0.2) (0.2)
Depreciation (3.2) (3.0) (6.2)
Net book value at end of period 16.1 16.9 17.3
As at 30 June 2023, the Group had £4.7m of capital expenditure commitments
with third parties that were not provided for (30 June 2022: £4.4m; 31
December 2022: £4.5m).
12. Right-of-use assets and lease liabilities
The recognised right-of-use assets relate to the following types of assets:
Unaudited Unaudited Audited
30 June 30 June 31 December
2023 2022 2022
£m £m £m
Properties 12.4 12.6 13.6
Motor vehicles 7.0 5.8 5.7
Equipment - 0.1 -
Total right-of-use assets 19.4 18.5 19.3
The movement in the right-of-use assets in the period is as follows:
Unaudited Unaudited Audited
30 June 30 June 31 December
2023 2022 2022
£m £m £m
Net book value at start of period 19.3 17.7 17.7
Exchange adjustments 0.8 0.8 1.4
Additions 3.9 4.0 8.8
Modifications - - (0.1)
Depreciation (4.6) (4.0) (8.5)
Net book value at end of period 19.4 18.5 19.3
The movement in lease liabilities in the period is as follows:
Unaudited Unaudited Audited
30 June 30 June 31 December
2023 2022 2022
£m £m £m
Lease liabilities at start of period 21.4 18.7 18.7
Exchange adjustments 0.8 0.8 1.6
Additions 3.9 4.0 8.7
Interest 1.0 0.7 1.6
Lease payments (5.7) (4.5) (9.2)
Lease liabilities at end of period 21.4 19.7 21.4
Analysed as:
Unaudited Unaudited Audited
30 June 30 June 31 December
2023 2022 2022
£m £m £m
Current 8.1 6.9 7.2
Non-current:
- between one and five years 11.8 10.9 12.2
- greater than five years 1.5 1.9 2.0
13.3 12.8 14.2
Lease liabilities at end of period 21.4 19.7 21.4
13. Deferred tax assets
Deferred tax assets have been recognised in respect of tax losses and other
temporary timing differences (principally relating to recognition of revenue
and impairment) to the extent that it is probable that these assets will be
utilised against future taxable profits. On 20 June 2023, Finance (No.2) Act
2023 was substantively enacted in the UK, introducing a global minimum
effective tax rate of 15% consistent with the OECD's model Pillar Two rules.
The UK legislation implements a domestic top-up tax and a multinational top-up
tax, effective for accounting periods starting on or after 31 December 2023.
The Group is assessing the potential impact of the new rules and has applied
the exception under the IAS 12 amendment to not recognise deferred tax assets
or liabilities in relation to Pillar Two. Under the IAS12 amendment there is
no requirement to disclose additional information about potential future
Pillar Two top-up income taxes.
14. Amounts receivable from customers
Amounts receivable from customers comprise:
Unaudited Unaudited Audited
30 June 30 June 31 December
2023 2022 2022
£m £m £m
Amounts due within one year 691.6 590.7 656.6
Amounts due in more than one year 201.5 179.2 212.2
Total receivables 893.1 769.9 868.8
All lending is in the local currency of the country in which the loan is
issued. The currency profile of amounts receivable from customers is as
follows:
Unaudited Unaudited Audited
30 June 30 June 31 December
2023 2022 2022
£m £m £m
Polish zloty 257.4 259.8 278.9
Czech crown 55.0 48.4 56.1
Euro* 90.1 83.0 90.5
Hungarian forint 143.2 105.1 125.4
Romanian leu 93.9 76.8 89.1
Mexican peso 213.5 163.3 188.7
Australian dollar 40.0 33.5 40.1
Total receivables 893.1 769.9 868.8
*Includes receivables in Estonia, Finland, Latvia, Lithuania and Spain.
Amounts receivable from customers are held at amortised cost and are equal to
the expected future cash flows receivable discounted at the average effective
interest rate ('EIR') of 100.1% (30 June 2022: 96%, 31 December 2022: 99%).
All amounts receivable from customers are at fixed interest rates. The average
period to maturity of the amounts receivable from customers is 12.7 months (30
June 2022: 12.6 months, 31 December 2022: 13.0 months).
Determining an increase in credit risk since initial recognition
IFRS 9 has the following recognition criteria:
· Stage 1: requires the recognition of 12 month expected credit losses
(the expected credit losses from default events that are expected within 12
months of the reporting date) if credit risk has not significantly increased
since initial recognition.
· Stage 2: lifetime expected credit losses for financial instruments
for which the credit risk has increased significantly since initial
recognition.
· Stage 3: credit impaired.
When determining whether the risk of default has increased significantly since
initial recognition the Group considers both quantitative and qualitative
information based on the Group's historical experience.
The approach to identifying significant increases in credit risk is consistent
across the Group's products. In addition, as a backstop, the Group considers
that a significant increase in credit risk occurs when an asset is more than
30 days past due.
Financial instruments are moved back to stage 1 once they no longer meet the
criteria for a significant increase in credit risk.
Definition of default and credit impaired assets
The Group defines a financial instrument as in default, which is fully-aligned
with the definition of credit-impaired, when it meets one or more of the
following criteria:
· Quantitative criteria: the customer is more than 90 days past due on
their contractual payments in home credit and 60 days past due on their
contractual payments in IPF Digital.
· Qualitative criteria: indication that there is a measurable movement
in the estimated future cash flows from a group of financial assets. For
example, if prospective legislative changes are considered to impact the
collections performance of customers.
The default definition has been applied consistently to model the probability
of default (PD), exposure at default (EAD) and loss given default (LGD)
throughout the Group's expected credit loss calculations.
An instrument is considered to no longer be in default (i.e. to have cured)
when it no longer meets any of the default criteria.
The breakdown of receivables by stage is as follows:
Total net receivables
Stage 1 Stage 2 Stage 3 £m
30 June 2023 £m £m £m
Home credit 446.6 81.5 153.4 681.5
IPF Digital 196.5 8.6 6.5 211.6
Group 643.1 90.1 159.9 893.1
Total net receivables
Stage 1 Stage 2 Stage 3 £m
30 June 2022 £m £m £m
Home credit 387.3 66.1 128.8 582.2
IPF Digital 174.3 8.2 5.2 187.7
Group 561.6 74.3 134.0 769.9
Total net receivables
Stage 1 Stage 2 Stage 3 £m
31 December 2022 £m £m £m
Home credit 439.7 78.9 140.9 659.5
IPF Digital 193.7 9.4 6.2 209.3
Group 633.4 88.3 147.1 868.8
The Group has one class of loan receivable and no collateral is held in
respect of any customer receivables.
Gross carrying amount and loss allowance
The amounts receivable from customers includes a provision for the loss
allowance, which relates to the expected credit losses on each agreement. The
gross carrying amount is the present value of the portfolio before the loss
allowance provision is deducted. The gross carrying amount less the loss
allowance is equal to the net receivables.
Total net receivables
Stage 1 Stage 2 Stage 3 £m
30 June 2023 £m £m £m
Gross carrying amount 795.8 169.0 442.6 1,407.4
Loss allowance (152.7) (78.9) (282.7) (514.3)
Group 643.1 90.1 159.9 893.1
Total net receivables
Stage 1 Stage 2 Stage 3 £m
30 June 2022 £m £m £m
Gross carrying amount 695.6 138.2 399.1 1,232.9
Loss allowance (134.0) (63.9) (265.1) (463.0)
Group 561.6 74.3 134.0 769.9
Total net receivables
Stage 1 Stage 2 Stage 3 £m
31 December 2022 £m £m £m
Gross carrying amount 782.0 161.8 422.8 1,366.6
Loss allowance (148.6) (73.5) (275.7) (497.8)
Group 633.4 88.3 147.1 868.8
15. Current tax asset
As at 30 June 2022, the current tax asset included the recognition of amounts
receivable following the Group's Polish subsidiary successfully obtaining a
Ministry of Finance ruling confirming the tax deductibility of certain
expenses linked to intra-group transactions in respect of years 2018 onwards.
16. Borrowing facilities and borrowings
The maturity of the Group's bond and bank borrowings is as follows:
Unaudited Unaudited Audited
30 June 30 June 31 December
2023 2022 2022
£m £m £m
Repayable
- in less than one year 59.5 28.6 71.8
- between one and two years 65.0 89.0 57.1
- between two and five years 398.5 390.0 419.9
463.5 479.0 477.0
Total borrowings 523.0 507.6 548.8
Borrowings are stated net of deferred debt issuance costs of £4.8m (30 June
2022: £5.6m; 31 December 2022: £5.4m).
The maturity of the Group's bond and bank facilities is as follows:
Unaudited Unaudited Audited
30 June 30 June 31 December
2023 2022 2022
£m £m £m
Repayable
- on demand 32.5 34.3 31.6
- in less than one year 87.5 35.0 84.7
- between one and two years 70.6 105.1 57.4
- between two and five years 418.8 396.8 437.3
Total facilities 609.4 571.2 611.0
The undrawn external bank facilities are as follows:
Unaudited Unaudited Audited
30 June 30 June 31 December
2023 2022 2022
£m £m £m
Expiring within one year 60.3 40.7 44.5
Expiring between one and two years 4.5 15.3 0.3
Expiring in more than two years 16.8 2.0 12.0
Total 81.6 58.0 56.8
Undrawn external facilities above do not include unamortised arrangement fees.
The average period to maturity of the Group's external bonds and committed
external borrowings is 2.1 years (30 June 2022: 2.5 years; 31 December 2022:
2.5 years).
The Group complied with its covenants at 30 June 2023. Each covenant
calculation has been made in accordance with the terms of the relevant funding
documentation.
17. Retirement benefit asset
The amounts recognised in the balance sheet in respect of the retirement
benefit asset are as follows:
Unaudited Unaudited Audited
30 June 30 June 31 December
2023 2022 2022
£m £m £m
Diversified growth funds 4.7 5.8 4.6
Corporate bonds 11.0 15.5 14.5
Liability driven investments 12.5 17.0 11.7
Other 0.7 0.6 0.1
Total fair value of scheme assets 28.9 38.9 30.9
Present value of funded defined benefit obligations (28.0)
(32.2) (28.8)
Net asset recognised in the balance sheet 0.9 6.7 2.1
The charge recognised in the income statement in respect of defined benefit
pension costs is £nil (6 months ended 30 June 2022: £nil, 12 months ended 31
December 2022: £0.1m).
18. Fair values of financial assets and liabilities
IFRS 13 requires disclosure of fair value measurements of financial
instruments by level of the following fair value measurement hierarchy:
· quoted prices (unadjusted) in active markets for identical assets or
liabilities (level 1);
· inputs other than quoted prices included within level 1 that are observable
for the asset or liability, either directly (that is, as prices) or indirectly
(that is, derived from prices) (level 2); and
· inputs for the asset or liability that are not based on observable market data
(that is, unobservable inputs) (level 3).
The fair value of derivative financial instruments has been calculated by
discounting expected future cash flows using interest rate yield curves and
forward foreign exchange rates prevailing at the relevant period end.
In 2022 and 2023, there has been no change in classification of financial
assets as a result of a change in purpose or use of these assets.
Except as detailed in the following table, the carrying value of financial
assets and liabilities recorded at amortised cost, which are all short-term in
nature, are a reasonable approximation of their fair value:
Carrying value Fair value
Unaudited Unaudited Audited Unaudited Unaudited Audited
30 June 30 June 31 December 30 June 30 June 31 December
2023 2022 2022 2023 2022 2022
£m £m £m £m £m £m
Financial assets
Amounts receivable from customers 893.1 1,122.8 992.6
769.9 868.8 1,111.2
893.1 769.9 868.8 1,122.8 992.6 1,111.2
Financial liabilities
Bonds 408.7 402.1 413.7 373.1 319.1 358.2
Bank borrowings
114.3 105.5 135.1 114.3 105.5 135.1
523.0 507.6 548.8 487.4 424.6 493.5
The fair value of amounts receivable from customers has been derived by
discounting expected future cash flows (as used to calculate the carrying
value of amounts due from customers), net of customer representative repayment
costs, at the Group's weighted average cost of capital which we estimate to be
13% (30 June 2022: 13%; 31 December 2022: 12%) which is assumed to be a proxy
for the discount rate that a market participant would use to price the asset.
The fair value of the bonds has been calculated by reference to their market
value.
The carrying value of bank borrowings is deemed to be a good approximation of
their fair value. Bank borrowings can be repaid within six months if the Group
decides not to roll over for further periods up to the contractual repayment
date. The impact of discounting would therefore, be negligible. This
methodology has been used consistently for all periods.
19. Reconciliation of profit after taxation to cash generated from operating
activities
Unaudited Unaudited Audited
Six months ended Six months ended Year
ended
30 June 30 June 31 December 2022
2023 2022
£m £m £m
Profit after taxation from operations 18.7 30.8 56.8
Adjusted for
Tax charge 19.1 3.0 20.6
Finance costs 37.9 30.0 68.1
Share-based payment charge 1.4 1.4 2.2
Amortisation of intangible assets (note 10) 6.3 5.9 12.6
Profit on disposal of property, plant and equipment
- - (0.1)
Depreciation of property, plant and equipment (note 11)
3.2 3.0 6.2
Depreciation of right-of-use assets (note 12) 4.6 4.0 8.5
Short term and low value lease costs 0.9 0.6 1.2
Changes in operating assets and liabilities
Amounts receivable from customers (8.3) (36.9) (115.7)
Other receivables 1.0 (0.5) 13.2
Trade and other payables (9.5) (7.8) (3.8)
Provision for liabilities and charges (1.2) (2.8) (0.9)
Retirement benefit asset - (0.9) (1.0)
Derivative financial instruments 11.0 (6.8) (9.1)
Cash generated from operating activities 85.1 23.0 58.8
20. Foreign exchange rates
The table below shows the average exchange rates for the relevant reporting
periods and closing exchange rates at the relevant period ends.
Average Closing Average Closing Average Year Closing
H1 June H1 June 2022 December 2022
2023 2023 2022 2022
Polish zloty 5.3 5.2 5.5 5.4 5.5 5.3
Czech crown 27.1 27.5 29.1 28.7 28.5 27.2
Euro 1.1 1.2 1.2 1.2 1.2 1.1
Hungarian forint 433.2 430.0 443.6 464.9 452.3 450.8
Romanian leu 5.7 5.8 5.9 5.8 5.8 5.6
Mexican peso 22.2 21.8 26.2 24.8 24.6 23.5
Australian dollar 1.8 1.9 1.8 1.8 1.8 1.8
The £12.7m exchange gain on foreign currency translations shown within the
consolidated statement of comprehensive income arises on retranslation of net
assets denominated in currencies other than sterling, due to the change in
foreign exchange rates against sterling between December 2022 and June 2023
shown in the table above.
21. Post balance sheet events
There were no significant post balance sheet events.
Responsibility statement
The following statement is given by each of the directors: namely; Stuart
Sinclair, Chairman; Gerard Ryan, Chief Executive Officer; Gary Thompson, Chief
Financial Officer; Katrina Cliffe, non-executive director; Deborah Davis,
non-executive director; Richard Holmes, Senior independent non-executive
director; and Aileen Wallace, non-executive director.
The directors confirm that to the best of their knowledge:
· the condensed consolidated interim financial statements, which have been
prepared in accordance with the applicable set of accounting standards, give a
true and fair view of the assets, liabilities, financial position and profit
or loss of the issuer, or the undertakings included in the consolidation as a
whole as required by DTR 4.2.4R;
· the half-year financial report includes a fair review of the information
required by DTR 4.2.7 (indication of important events during the first six
months and description of principal risks and uncertainties for the remaining
six months of the year); and
· the half-year financial report includes a fair review of the information
required by DTR 4.2.8 (disclosure of related parties' transactions and changes
therein).
Alternative performance measures (APMs)
This half-year financial report provides APMs which are not defined or
specified under the requirements of International Financial Reporting
Standards. We believe these APMs provide readers with important additional
information on our business. To support this we have included a reconciliation
of the APMs we use, where relevant, and a glossary indicating the APMs that we
use, an explanation of how they are calculated and why we use them.
APM Closest equivalent Reconciling items to Definition and purpose
statutory measure statutory measure
Income statement measures
Customer lending growth (%) None Not applicable Customer lending is the principal value of loans advanced to customers and is
an important measure of the level of lending in the business. Customer lending
growth is the period-on-period change in this metric which is calculated by
retranslating the previous half-year's customer lending at the average actual
exchange rates used in the current financial year. This ensures that the
measure is presented having eliminated the effects of exchange rate
fluctuations on the period-on-period reported results.
Revenue growth at None Not applicable The period-on-period change in revenue which is calculated by retranslating
the previous half-year's revenue at the average actual exchange rates used in
constant exchange the current financial year. This measure is presented as a means of
eliminating the effects of exchange rate fluctuations on the period-on-period
rates (%) reported results.
Revenue yield (%) None Not applicable Revenue yield is reported revenue divided by average gross receivables (before
impairment provision) and is an indicator of the return being generated from
average gross receivables. This is reported on a rolling annual basis
(annualised).
Impairment rate (%) None Not applicable Impairment as a percentage of average gross receivables (before impairment
provision). This is reported on a rolling annual basis (annualised).
Cost-income ratio (%) None Not applicable The cost-income ratio is costs, including customer representatives'
commission, excluding interest expense, divided by reported revenue. This
measure is reported on a rolling annual basis (annualised). This is useful for
comparing performance across markets.
APM Closest equivalent Reconciling items to Definition and purpose
statutory measure statutory measure
Balance sheet and returns measures
Equity to receivables ratio (%) None Not applicable Total equity divided by amounts receivable from customers, this is a measure
of balance sheet strength and the Group targets a ratio of around 40%
Headroom (£m) Undrawn None Calculated as the sum of undrawn external bank facilities and non-operational
cash.
external bank
facilities
Net debt (£m) None Not applicable Borrowings less cash.
Gross receivables (£m) None Not applicable Gross receivables is the same definition as gross carrying amount.
Impairment coverage ratio (%) None Not applicable Expected loss allowance divided by gross receivables (before impairment
provision).
Pre-exceptional ROE (%) None Not applicable Return on equity (ROE) calculated as rolling annual pre-exceptional profit
after tax divided by average net assets over the same period.
Pre-exceptional RORE (%) None Not applicable Return on required equity (RORE) is calculated as rolling annual
pre-exceptional profit after tax divided by required equity of 40% of average
net receivables.
Other measures
Customers None Not applicable Customers that are being served by our customer representatives or through our
money transfer product in the home credit business and customers that are not
in default in our digital business.
Constant exchange rate reconciliations
The period-on-period change in profit and loss accounts is calculated by
retranslating the 2022 half-year's profit and loss account at the average
actual exchange rates used in the current year.
H1 2023
£m European home credit Mexico home credit IPF Digital Central costs Group
Customer numbers (000s) 785 700 233 - 1,718
Customer lending 318.3 142.9 117.6 - 578.8
Average gross receivables 792.5 274.8 275.9 - 1,343.2
Closing net receivables 505.4 176.1 211.6 - 893.1
Revenue 192.2 125.4 62.4 - 380.0
Impairment (27.1) (44.0) (18.1) - (89.2)
Revenue less impairment 165.1 81.4 44.3 - 290.8
Costs (110.8) (64.1) (32.2) (8.0) (215.1)
Interest expense (24.0) (5.9) (8.0) - (37.9)
Profit before tax 30.3 11.4 4.1 (8.0) 37.8
H1 2022 performance, at average H1 2022 foreign exchange rates
£m European home credit Mexico home credit IPF Digital Central Group
costs
Customer numbers (000s) 786 676 256 - 1,718
Customer lending 288.1 116.4 108.8 - 513.3
Average gross receivables 722.0 201.2 247.4 - 1,170.6
Closing net receivables 441.4 140.8 187.7 - 769.9
Revenue 148.8 93.1 55.5 - 297.4
Impairment (1.1) (31.0) (11.2) - (43.3)
Revenue less impairment 147.7 62.1 44.3 - 254.1
Costs (99.0) (50.4) (33.3) (7.6) (190.3)
Interest expense (19.1) (4.3) (6.5) (0.1) (30.0)
Profit before tax 29.6 7.4 4.5 (7.7) 33.8
Foreign exchange movements
£m European home credit Mexico home credit IPF Digital Central Group
costs
Customer numbers (000s) - - - - -
Customer lending 13.3 20.3 5.6 - 39.2
Average gross receivables 5.2 36.2 10.7 - 52.1
Closing net receivables 21.1 19.8 3.0 - 43.9
Revenue 6.5 16.1 3.0 - 25.6
Impairment 0.1 (5.2) (0.9) - (6.0)
Revenue less impairment 6.6 10.9 2.1 - 19.6
Costs (4.2) (8.4) (1.5) - (14.1)
Interest expense (0.8) (0.8) (0.3) - (1.9)
Profit before tax 1.6 1.7 0.3 - 3.6
Constant exchange rate reconciliations (continued)
H1 2022 performance, at average H1 2023 foreign exchange rates
£m European home credit Mexico home credit IPF Digital Central Group
costs
Customer numbers (000s) 786 676 256 - 1,718
Customer lending 301.4 136.7 114.4 - 552.5
Average gross receivables 727.2 237.4 258.1 - 1,222.7
Closing net receivables 462.5 160.6 190.7 - 813.8
Revenue 155.3 109.2 58.5 - 323.0
Impairment (1.0) (36.2) (12.1) - (49.3)
Revenue less impairment 154.3 73.0 46.4 - 273.7
Costs (103.2) (58.8) (34.8) (7.6) (204.4)
Interest expense (19.9) (5.1) (6.8) (0.1) (31.9)
Year-on-year movement at constant exchange rates
% European home credit Mexico home credit IPF Digital Central Group
costs
Customer numbers (000s) (0.1%) 3.6% (9.0%) - -
Customer lending 5.6% 4.5% 2.8% - 4.8%
Average gross receivables 9.0% 15.8% 6.9% - 9.9%
Closing net receivables 9.3% 9.7% 11.0% - 9.7%
Revenue 23.8% 14.8% 6.7% - 17.6%
Impairment (2,610.0%) (21.5%) (49.6%) - (80.9%)
Revenue less impairment 7.0% 11.5% (4.5%) - 6.2%
Costs (7.4%) (9.0%) 7.5% (5.3%) (5.2%)
Interest expense (20.6%) (15.7%) (17.6%) 100.0% (18.8%)
Balance sheet and returns measures
Average gross receivables (before impairment provisions) are used in the
revenue yield and impairment rate calculations.
Average Gross Receivables Unaudited Unaudited Audited
30 June 30 June 31 December
2023 2022 2022
£m £m £m
European home credit 792.5 722.0 747.5
Mexico home credit 274.8 201.2 239.0
IPF Digital 275.9 247.4 258.0
Group 1,343.2 1,170.6 1,244.5
The impairment coverage ratio is calculated as loss allowance divided by gross
carrying amount.
Impairment coverage ratio Unaudited Unaudited Audited
30 June 30 June 31 December
2023 2022 2022
£m £m £m
Closing gross carrying amount 1,407.4 1,232.9 1,366.6
Loss allowance (514.3) (463.0) (497.8)
Closing net receivables 893.1 769.9 868.8
Impairment coverage ratio 36.5% 37.6% 36.4%
Pre-exceptional return on equity (ROE) is calculated as rolling annual
pre-exceptional profit divided by pre-exceptional equity.
Pre-exceptional ROE 30 June 2023 Unaudited Unaudited Audited
30 June 30 June 31 December
2023 2022 2022
£m £m £m
Equity (net assets) 462.9 403.8 445.2
Exceptional items 4.0 (10.5) (10.5)
Pre-exceptional equity 466.9 393.3 434.7
Average pre-exceptional equity 430.1 378.2 400.9
Profit after tax 18.7 30.8 56.8
Exceptional items 4.0 (10.5) (10.5)
Pre-exceptional profit 22.7 20.3 46.3
Pre-exceptional profit 12 months to 30 June 2023 48.7 -
Pre-exceptional ROE 11.3% 11.5%
Pre-exceptional ROE 30 June 2022 Unaudited Unaudited Audited
30 June 30 June 31 December
2022 2021 2021
£m £m £m
Equity (net assets) 403.8 363.0 -
Exceptional items (10.5) - -
Pre-exceptional equity 393.3 363.0 -
Average pre-exceptional equity 378.2 - -
Profit after tax 30.8 22.9 41.9
Exceptional items (10.5) - -
Pre-exceptional profit 20.3 22.9 41.9
Pre-exceptional profit 12 months to 30 June 2022 39.3
Pre-exceptional ROE 10.4%
Pre-exceptional return on required equity (RORE) is calculated as rolling
annual pre-exceptional profit divided by required equity of 40% of average net
receivables.
Pre-exceptional RORE 30 June 2023 European home credit Mexico IPF Digital Group
home credit
£m £m £m £m
Closing net receivables H1 2022 441.4 140.8 187.7 769.9
Closing net receivables H1 2023 505.4 176.1 211.6 893.1
Average net receivables 473.4 158.5 199.7 831.5
Equity (net assets) at 40% 189.4 63.4 79.9 332.6
Pre-exceptional profit before tax:
FY 2022 65.6 17.7 8.8 77.4
Exclude H1 2022 (29.6) (7.4) (4.5) (33.8)
H2 2022 36.0 10.3 4.3 43.6
H1 2023 30.3 11.4 4.1 37.8
12 MO to H1 2023 66.3 21.7 8.4 81.4
Tax at 40% (26.5) (8.7) (3.4) (32.6)
Pre-exceptional profit after tax 39.8 13.0 5.0 48.8
Pre-exceptional RORE 21.0% 20.5% 6.3% 14.7%
Pre-exceptional RORE 30 June 2022 European home credit Mexico IPF Digital Group
home credit
£m £m £m £m
Closing net receivables H1 2021 405.9 99.8 168.5 674.2
Closing net receivables H1 2022 441.4 140.8 187.7 769.9
Average net receivables 423.7 120.3 178.1 722.1
Equity (net assets) at 40% 169.5 48.1 71.2 288.8
Pre-exceptional profit before tax:
FY 2021 54.5 18.4 8.7 67.7
Exclude H1 2021 (34.9) (9.4) (6.1) (43.3)
H2 2021 19.6 9.0 2.6 24.4
H1 2022 29.6 7.4 4.5 33.8
12 MO to H1 2022 49.2 16.4 7.1 58.2
Tax at 38% H2 2021, 40% H1 2022 (19.3) (6.4) (2.8) (22.8)
Pre-exceptional profit after tax 29.9 10.0 4.3 35.4
Pre-exceptional RORE 17.7% 20.8% 6.1% 12.3%
Pre-exceptional RORE 2022 European home credit Mexico IPF Digital Group
home credit
£m £m £m £m
Closing net receivables 2022 501.0 158.5 209.3 868.8
Closing net receivables 2021 425.9 117.6 173.3 716.8
Average net receivables 463.4 138.1 191.3 792.8
Equity (net assets) at 40% 185.4 55.2 76.5 317.1
Pre-exceptional profit before tax 65.6 17.7 8.8 77.4
Tax at 40% (26.2) (7.1) (3.5) (31.1)
Pre-exceptional profit after tax 39.4 10.6 5.3 46.3
Pre-exceptional RORE 21.3% 19.2% 6.9% 14.6%
Independent review report to International Personal Finance plc
We have been engaged by the Company to review the condensed set of financial
statements in the half-yearly financial report for the six months ended 30
June 2023 which comprises the consolidated income statement, the consolidated
statement of comprehensive income, the consolidated balance sheet, the
consolidated statement of changes in equity, the consolidated cash flow
statement and related notes 1 to 21.
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half-yearly
financial report for the six months ended 30 June 2023 is not prepared, in all
material respects, in accordance with United Kingdom adopted International
Accounting Standard 34 and the Disclosure Guidance and Transparency Rules of
the United Kingdom's Financial Conduct Authority.
Basis for conclusion
We conducted our review in accordance with International Standard on Review
Engagements (UK) 2410 "Review of Interim Financial Information Performed by
the Independent Auditor of the Entity" issued by the Financial Reporting
Council for use in the United Kingdom. A review of interim financial
information 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 (UK) and consequently does
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.
As disclosed in note 1, the annual financial statements of the Group will be
prepared in accordance with United Kingdom adopted international accounting
standards. The condensed set of financial statements included in this
half-yearly financial report has been prepared in accordance with United
Kingdom adopted International Accounting Standard 34, "Interim Financial
Reporting".
Conclusion relating to going concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis for Conclusion section of this report,
nothing has come to our attention to suggest that the directors have
inappropriately adopted the going concern basis of accounting or that the
directors have identified material uncertainties relating to going concern
that are not appropriately disclosed.
This conclusion is based on the review procedures performed in accordance with
this ISRE (UK), however future events or conditions may cause the entity to
cease to continue as a going concern.
Responsibilities of the directors
The directors are responsible for preparing the half-yearly financial report
in accordance with the Disclosure Guidance and Transparency Rules of the
United Kingdom's Financial Conduct Authority.
In preparing the half-yearly financial report, the directors are responsible
for assessing the Group's ability to continue as a going concern, disclosing
as applicable, matters related to going concern and using the going concern
basis of accounting unless the directors either intend to liquidate the
company or to cease operations, or have no realistic alternative but to do so.
Auditor's responsibilities for the review of the financial information
In reviewing the half-yearly financial report, we are responsible for
expressing to the Group a conclusion on the condensed set of financial
statements in the half-yearly financial report. Our conclusion, including our
Conclusions Relating to Going Concern, are based on procedures that are less
extensive than audit procedures, as described in the Basis for Conclusion
paragraph of this report.
Use of our report
This report is made solely to the company in accordance with International
Standard on Review Engagements (UK) 2410 "Review of Interim Financial
Information Performed by the Independent Auditor of the Entity" issued by the
Financial Reporting Council. Our work has been undertaken so that we might
state to the company those matters we are required to state to it in an
independent review report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to anyone other
than the company, for our review work, for this report, or for the conclusions
we have formed.
Deloitte LLP
Statutory Auditor
Leeds, United Kingdom
1 August 2023
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