TIDMIPF
RNS Number : 2763Y
International Personal Finance Plc
08 September 2020
International Personal Finance plc
Half-year Financial Report for the period ended 30 June 2020
This announcement contains inside information
International Personal Finance plc specialises in providing
unsecured consumer credit to 1.8 million customers across 10
markets. We operate the world's largest home credit business and a
successful fintech operator, IPF Digital .
Key takeaways
Ø Solid Q1 performance; swift and decisive response to Covid-19
in March
o Strong trading performance in first ten weeks followed
by operational impacts as Covid-19 government policy responses
were implemented
o Prompt action taken to protect our people and customers
o Measures taken to optimise cash flow, reduce costs and
maintain liquidity
o Lending volumes reduced; increasing credit issued from
May focused on highest-quality customers
o Agent service reinstated following easing of lockdown restrictions
driving progressive improvement in collections effectiveness(1)
to 96% in August
o Organisational restructure to be completed in Q3
Ø H1 Group financial performance impacted by Covid-19
o Focus on quality and liquidity resulted in a 42% year-on-year
reduction in credit issued
o Elevated impairment charge recognised due to Covid-19 impact
- annualised pre-exceptional impairment as a percentage
of revenue 37.5% (H1 2019: 27.7%)
o Cost savings of GBP24.2 million delivered in H1
o Pre-exceptional loss before tax of GBP46.8 million (H1
2019 profit: GBP56.1 million)
o Net exceptional loss of GBP6.5 million resulting in statutory
loss before taxation of GBP53.3 million
Ø Strong capital and liquidity position; refinancing planned
o Well capitalised: equity to receivables ratio strengthened
to 51.4% at 30 June 2020 (31 December 2019: 44.8%)
o Significant net cash generation and inflows during and
after the half-year, resulting in non-operational cash
balances of GBP153 million versus drawings on bank facilities
of GBP107 million as at 31 August 2020
o Net debt reduced by GBP125 million since the 2019 year
end to GBP517 million at 30 June 2020
o All covenants at the 30 June 2020 test date passed, however
we are mindful of the short-term effect of Covid-19 on
our future covenant tests so have commenced discussions
on amending covenants with our banks
o Actively planning for the refinancing of the April 2021
Eurobond (for more details see the Group liquidity section
below)
Ø Sustainable, resilient business delivering credit to underserved
consumers
o Phased strategy for a quick return to profitability and
longer-term growth
Group key statistics YOY change
H1 2019 H1 2020 at CER
Customer numbers (000s) 2,197 1,818 (17%)
Credit issued (GBPm) 672.3 378.2 (42%)
Revenue (GBPm) 446.9 362.2 (15%)
Pre-exceptional annualised impairment
% revenue 27.7% 37.5% (9.8ppts)
Pre-exceptional annualised cost-income
ratio 43.9% 44.3% (0.4ppts)
Statutory PBT/(LBT) (GBPm) 56.1 (53.3)
Statutory EPS/(LPS) (pence) 14.8 (27.7)
Interim dividend per share (pence) 4.6 -
------------------------------------------------ ----------- ---------- -----------
(1) Collections effectiveness defined as percentage of
collections made (adjusted for portfolio size) compared to pre
Covid-19 expectations
Gerard Ryan, Chief Executive Officer at IPF commented:
"Covid-19 has created an extremely challenging trading
environment but thanks to our loyal and dedicated teams we have
adapted to continue serving our customers now and into the future.
From the outset, our priorities have been the health and safety of
our colleagues and customers, as well as protecting the business.
We have reviewed and redefined our medium-term strategy to ensure
we emerge from this period in a strong competitive and financial
position, enabling us to fulfil the significant demand for
affordable credit in our markets and put in place firm foundations
for a quick return to profitability and long-term growth. Our
near-term objective is the refinancing of our 2021 Eurobond,
supported by our robust balance sheet and the unique position we
occupy in the underbanked and underserved consumer finance
market."
Market overview and Covid-19 response strategy
The onset of the Covid-19 pandemic created a rapidly changing
and increasingly challenging operational landscape in our markets
from mid-March. Regulators and governments introduced a range of
measures in our markets, some of which have had a significant
impact on our businesses:
-- significant restrictions on non-essential contact prevented
agents from visiting customers to collect repayments or grant new
loans, and our offices had to close;
-- temporary tightening of existing rate caps in Poland, Hungary and Finland; and
-- government-mandated debt repayment moratoria allowing
customers to suspend loan repayments temporarily.
We took immediate action to manage the business through the
pandemic and our response was built around, and remains focused on,
three guiding principles: to protect our people, to prioritise our
loyal customers and to protect our business. This approach
safeguarded the core assets of the Group, enabled progressive
improvement in operational performance and created a solid platform
for future success.
The policy responses introduced by governments resulted in
either a partial or full suspension of our agent home service in
our European markets. In Mexico, where there has been a
state-by-state response rather than a central government plan,
disruption to the agent service has not been market wide. To assist
our customers, we provided greater access to existing remote
repayment systems and invested in the development of new tools to
facilitate the repayment of their loans remotely if their agent was
unable to visit.
In order to ease financial difficulties for borrowers during the
Covid-19 pandemic, the Hungarian government implemented a debt
repayment moratorium available for all consumers until the end of
2020; borrowers there can opt out if they wish to continue to repay
their loans. Temporary moratoria have been introduced in other
European markets and, with the exception of Hungary, take-up has
not been significant due to 'opt-in' eligibility criteria and our
proactive actions to offer alternative forbearance solutions to our
customers.
Temporary tightening of existing rate caps has been introduced
in Poland, Hungary and Finland. In Poland, the cap on non-interest
costs of credit for new lending was reduced from 1 April 2020 and
will be in force until 8 March 2021, after which the cap will
automatically revert to historic levels. The flat level of the cap
was reduced from 25% of the loan value to 15% and the additional
variable cap from 30% to 6% per annum. In Hungary , the maximum APR
applicable to new consumer loans was reduced temporarily to the
national bank base rate plus 5% until the end of 2020. In response,
we have introduced new, shorter-term lending products in Poland and
Hungary, enabling our agents to continue meeting the needs of our
highest-quality customers in these markets. We are also easing
credit settings in Poland in order to benefit from the improving
economic returns on loans with terms that go beyond the temporary
rate cap. In Finland, a temporary tightening of the existing rate
cap to 10% is in place for all new lending. This legislation
followed a significant reduction in the rate cap in September 2019
and significantly limits the economic returns achievable in this
market. As part of our review of expected returns and capital
requirements, we have decided to close our digital business in
Finland and collect out the portfolio.
We are encouraged by the extent to which our businesses are now
stabilising into a 'new normal' operational environment, and we
have achieved month-on-month improvements in collections efficiency
from 76% in April to 88% in June, and further improving to 96% in
August. The phased reopening of our European economies began in May
as government restrictions were eased or lifted which enabled
almost all our agents to resume weekly visits to their customers
during June, and this remains the case. We have undertaken a review
of our Covid-19 response experience and taken the lessons learned
to develop contingency plans that can be implemented swiftly should
there be a second wave lockdown in our markets. This includes the
sourcing of personal protective equipment, and a range of remote
alternative repayment options available to customers if agents are
unable to visit them.
Group performance
We made a good start to 2020 and trading in the first ten weeks
of the year was in line with our plan. We delivered good
operational performances in our European home credit and IPF
Digital's established businesses, and saw further improvements in
our Mexico collections performance where we had prioritised credit
quality over growth. Both credit issued and collections were in
line with our plan until mid-March when the effects of government
actions to manage the Covid-19 pandemic rapidly started to be felt.
As detailed above, these challenges had a significant impact across
the business, both operationally and financially, and resulted in a
pre-exceptional loss before tax of GBP46.8 million in the first
half of the year. In addition, the results include a net
exceptional loss of GBP6.5 million, details of which are set out
below.
H1 2019 H1 2020 Change Change Change
at CER
GBPm GBPm GBPm % %
--------------------------- -------- --------- ---------- ------- --------
Customer numbers (000s) 2,197 1,818 (379) (17.3)
Credit issued 672.3 378.2 (294.1) (43.7) (41.6)
Average net receivables 970.9 862.9 (108.0) (11.1) (7.8)
--------------------------- -------- --------- ---------- ------- --------
Revenue 446.9 362.2 (84.7) (19.0) (15.3)
Impairment (123.8) (182.2) (58.4) (47.2) (55.5)
--------------------------- -------- --------- ---------- ------- --------
Net revenue 323.1 180.0 (143.1) (44.3) (42.0)
Finance costs (31.8) (27.3) 4.5 14.2 11.1
Agents' commission (41.0) (36.3) 4.7 11.5 6.9
Other costs (194.2) (163.2) 31.0 16.0 12.9
--------------------------- -------- --------- ---------- ------- --------
Pre-exceptional profit
/ (loss) before taxation 56.1 (46.8) (102.9)
Exceptional items - (6.5) (6.5)
--------------------------- -------- --------- ---------- ------- --------
Profit / (loss) before
taxation 56.1 (53.3) (109.4)
--------------------------- -------- --------- ---------- ------- --------
In response to reduced collections, lower price caps and the
risk of an economic downturn, we tightened credit settings
significantly in March in order to protect credit quality and cash
flow. This resulted in a 17% reduction in Group customer numbers to
1.8 million and a 42% contraction in credit issued year-on-year. As
lockdown restrictions were relaxed and collections effectiveness
improved, we eased credit settings from June onwards remaining
focused on our higher-quality customers who have strong credit
quality characteristics. Average net receivables contracted by 8%
year on year, driven by a combination of restrictions on credit
issued and higher impairment provisions. Revenue contracted at the
slightly faster rate of 15%.
Group impairment
The application of IFRS 9 to the issues arising from Covid-19
had a significant impact on the Group's impairment charge in the
first half of the year and this, together with lower revenues, was
the principal driver of the reported loss compared to the profit
delivered in 2019. Annualised impairment as a percentage of revenue
increased year on year by 9.8 ppts to 37.5%.
H1 2019 H1 2020 Change Change Change
GBPm GBPm GBPm % at CER
%
---------------------------- -------- -------- --------- --------- ---------
European home credit 30.5 94.1 (63.6) (208.5) (220.1)
Mexico home credit 53.1 45.1 8.0 15.1 6.6
IPF Digital 40.2 43.0 (2.8) (7.0) (8.9)
---------------------------- -------- -------- --------- --------- ---------
Pre-exceptional impairment
charge 123.8 182.2 (58.4) (47.2) (55.5)
---------------------------- -------- -------- --------- --------- ---------
Government imposed restrictions on the freedom of movement and
the introduction of debt repayment moratoria, together with the
economic impact of the pandemic on our customers, had a significant
adverse impact on collection cash flows in all our businesses.
These events are unprecedented and, as a consequence, we have
reviewed our impairment modelling under IFRS 9. This included a
full assessment of expected credit losses, including a
forward-looking assessment of expected collection cash flows. As a
result, we have calculated overlays to our impairment models in
order to calculate the expected impact of the pandemic on the
Group's impairment charge.
Home credit impairment
In our home credit markets, the restrictions on freedom of
movement resulted in agent service to customers being disrupted
from mid-March through to the end of June albeit with a reducing
impact as the restrictions were progressively eased from May
onwards. We implemented alternative payment options in most of our
markets, which partially mitigated the reduction in customer
repayments normally collected by agents. The opt-out repayment
moratorium in Hungary had a more significant impact on performance
than those implemented in other European markets and is expected to
result in a combination of slower collections and a larger increase
in expected credit losses. In addition to these factors, some
customers' incomes have been negatively impacted and this has
reduced their capacity to make repayments.
The calculation of the expected credit loss ("ECL") is model
driven and is based on contractual arrears and so assumes that all
missed collections are as a result of credit quality deterioration,
generating a disproportionately increased ECL. We have, therefore,
reduced the modelled ECL based on historic customer roll rates
before calculating the increase in ECL arising from the pandemic.
This latter assessment is based on estimated future repayment
patterns on a market by market basis, taking into account
operational disruption, repayment moratoria and the expected
recessionary impact. We then assessed the extent to which the
reduction in cash flows is likely to be permanent or temporary. The
permanent reduction in cash flows has been recorded as an increase
in ECL, and this resulted in an incremental impairment provision of
GBP23 million. We expect temporary missed repayments to be repaid
at the end of the credit agreement, rather than at the point when
agent service is resumed. The charges for lending are largely fixed
and therefore these delayed cash flows have been discounted using
the effective interest rate to arrive at a net present value. This
resulted in an additional impairment charge of GBP36 million in the
first half of the year. We expect this element of the incremental
impairment charge to reverse during the next 12 months as the
temporary missed payments are collected from our customers.
In addition to these impacts on impairment provisions as a
result of the model overlays, the impairment charge in the home
credit business was also adversely impacted by GBP20 million due to
reduced collections during the Covid-19 impacted period.
IPF Digital impairment
The key impacts of the pandemic on the digital business has been
a reduction in the number of customers regularly paying more than
their minimum monthly repayment, an increase in customers
requesting payment holidays (from 2% to 4%), and the disruption to
forward flow arrangements with debt purchasers.
We have reviewed payment holiday request patterns in our markets
alongside the expected economic impact of the pandemic on our
customers' debt repayment capacity. We used this information to
calculate the increased probability of customers defaulting and
recorded an impairment overlay provision for this. As a result of
the pandemic, some of the forward flow agreements we have with
purchasers of our delinquent accounts have been temporarily
suspended or repriced. As these agreements are used to calculate
loss given default rates ('LGD') which form an integral part of our
impairment accounting, this has resulted in an increase in LGDs in
all markets and an incremental impairment charge. The combined
impact of the overlay provision and the increase in LGDs on the
impairment charge was GBP12 million.
Group costs
As noted earlier, in response to the pandemic we implemented an
immediate cost reduction programme and the benefits of this are
evident in Other costs which reduced year on year by 13% (GBP24.2
million at constant exchange rates). The senior leadership of the
Group decided to forgo any bonuses for 2020 and this, combined with
significant cuts to discretionary expenditure, made up the majority
of the savings achieved. Collecting commission reduced at a slower
rate than the contraction in revenue as we sought to support agent
incomes during this very difficult period. Finance costs reduced
due to lower average borrowings, a reduction in reference rates and
the recognition of H1 2020 interest income in respect of the 2008
and 2009 Polish tax cases. The future impact of all cost reductions
including structural cost savings are detailed in the Strategy
section of this report.
Exceptional items
The income statement includes a net exceptional loss before
taxation of GBP6.5 million which comprises a GBP10.6 million charge
arising from the decision to close our business in Finland and a
GBP4.1 million charge for restructuring conducted in H1 2020,
partially offset by GBP8.2 million of interest income in respect of
pre-2020 interest on the Polish tax cases. The costs arising from
the decision to collect out the portfolio in Finland comprise an
impairment overlay provision of GBP2.5 million and accelerated
amortisation of intangible assets totalling GBP8.1 million. Further
details are set out in note 7 of this report.
Group liquidity, balance sheet and financing our growth
strategy
The Group continues to be very well capitalised with its equity
to receivables ratio strengthening from 44.8% at the 2019 year end
to 51.4% at 30 June 2020.
The Group's credit ratings were reaffirmed during the first half
of the year by Moody's and Fitch Ratings at Ba3 and BB,
respectively. Moody's maintained the rating on stable outlook in
May and Fitch Ratings placed the rating on negative outlook in
April in light of Covid-19.
At June 2020, the Group had total debt facilities of GBP764
million (GBP481 million of bonds and GBP283 million of bank
facilities) and borrowings of GBP617 million, with headroom on
undrawn facilities of GBP147 million. Total cash balances were
GBP101 million at 30 June 2020, including GBP35 million that is
used in our operations, and non-operational cash and undrawn debt
facilities totalled GBP213 million. The Group generated cash before
financing activities of GBP116 million in the first half of the
year, the majority of which was generated in the second quarter as
a result of our focus on liquidity management and credit quality.
This resulted in net debt reducing by GBP125 million to GBP517
million, including the repayment of GBP84 million of bonds that
matured in the second quarter. The Group also bought back EUR8.8
million of the 2021 Eurobonds at an average price of 87 cents, of
which EUR3.5 million was completed in June with the balance being
purchased in July.
We continued to generate operational cash inflows during July
and August which, together with the receipt of GBP45 million in
respect of the finalisation of the Polish tax dispute, resulted in
an increase in non-operational cash balances to GBP153 million as
at 31 August 2020. Since 30 June 2020 our drawings on bank
facilities reduced to GBP107 million and therefore total
non-operational cash and headroom on undrawn debt facilities at 31
August 2020 was GBP326 million as summarised in the following
table.
31 August
30 June 2020 2020
GBPm GBPm
------------------------------------ ------------- ----------
Non-operational cash 66 153
Headroom on debt facilities 147 173
------------------------------------ ------------- ----------
Total non-operational and headroom
on debt facilities 213 326
------------------------------------ ------------- ----------
The Group has historically been funded by a combination of
equity, retained cash generation, bond issues and bank facilities,
and we expect that to continue to be the case, albeit that the mix
may vary according to our own priorities and prevailing market
conditions. The overall debt funding requirement of the Group has
reduced due to contraction in the scale of the business and the
strengthening of the balance sheet which resulted in reduced levels
of net debt during the pandemic period.
Our covenants are tested on a 12-month look-back basis. Although
we passed all our covenants at the 30 June 2020 test date, the full
effect of Covid-19 is likely to temporarily affect our covenant
tests in the short term. Therefore we have commenced discussions
with our banks on appropriate covenant amendments and will also
take appropriate measures in relation to our outstanding bonds in
due course.
We have previously stated that we are mindful of the April 2021
maturity of our Eurobond, have appointed debt advisors and are
actively preparing for the refinancing of this bond in 2020. The
need to refinance the 2021 Eurobond and obtain covenant amendments
create a material uncertainty surrounding going concern, please see
note 1 for further details.
Strategy
The long-term success of our Group is founded on making a
positive difference in the lives of our customers, by offering
simple, personalised credit products and services responsibly to
those who might otherwise be financially excluded, and for which
there has been and continues to be substantial demand. Over the
last 10 years we have issued more than 25 million loans, generated
GBP1 billion of pre-tax profit and paid GBP233 million in dividends
to shareholders. For more than 20 years, we have operated
successfully through economic cycles and regulatory change. Like
many other businesses, Covid-19 has significantly impacted our
organisation yet the actions we took to safeguard the business in
March, and the subsequent progressive improvement in performance,
demonstrates the strength and resilience of the home credit and
digital business models. IPF has consistently delivered good levels
of profitability, returns, and capital generation, the key drivers
of which have significantly improved in the past three months as we
responded effectively to the pandemic and are expected to improve
further through the remainder of 2020 and into 2021.
In light of the operational impacts on our business resulting
from Covid-19 and the effects on the wider economic landscape, we
have redefined our core strategic goals to safeguard the business
during the crisis and develop firm foundations to return quickly to
strong profitability and longer-term growth. This strategy will
develop the business through four strategic phases:
Phase 1: Safeguard our people and the business
The actions taken during the initial pandemic phase, as
described in the Market overview and Covid-19 response strategy
section of this report, are now complete. Our guiding principles in
managing the impact of the pandemic ensured our people were and
remain well-protected, we have retained our loyal customers and
liquidity has been preserved.
Phase 2: Rightsize the business
We have taken a number of decisive steps to align the
organisation to the reduced size of business post-Covid, to enable
an accelerated return to profitability. An organisational
restructure is almost complete with role reductions weighted
towards back-office positions in order to protect the key field and
agent roles that are crucial to retaining loyal customers and
delivering future growth. This exercise, when combined with the
restructuring completed in H1, will result in a reduction in
headcount of around 1,200 and structural cost savings totalling
GBP35 million per annum.
Following a review of the level of expected returns and the
capital requirements of each business unit, we made the following
changes to optimise our overall return on capital:
-- Due to the further tightening of the APR cap in Finland, we
decided to close our digital business in this market and will
collect out the portfolio.
-- Our two digital businesses in Poland (Hapiloans and Provident
Direct) will be merged to create a number of operational synergies
and improved credit quality.
-- Four weaker-performing branches in Mexico will be closed.
Phase 3: Rebuild the business
Profitability in 2020 will be impacted by the disruption caused
by Covid-19. However, the implementation of the first and second
phases of our strategy during 2020 will lay the foundations for a
strong 2021.
Incremental impairment charges resulting from the Covid-19
operational issues and the exceptional restructure costs will flow
through our 2020 financial results. We are progressively increasing
the volume of credit issued each month, and by 2021, we expect
lending levels to increase towards 2019 levels as temporary rate
caps and repayment moratoria expire. We will also be operating with
a significantly lower structural cost base for the whole of the
year.
We expect our decision to continue providing finance during the
pandemic to our most credit- worthy and loyal customers will result
in the retention of a high-quality customer base which will act as
the foundation for rebuilding growth in 2021. We do not expect a
reduction in the demand for consumer credit from our customer
segment, but have already seen lower levels of supply and believe
this will be a feature of the consumer credit market for the next
few years.
Phase 4: Deliver longer-term growth
Beyond the return to profitability, we expect our market leading
positions and unrivalled knowledge and experience of our core
customer segment to create opportunities to deliver longer-term
growth across the Group.
European home credit - grow the receivables portfolio
-- Focus on providing slightly larger and slightly longer-term
loans to improve the credit quality of our portfolio.
-- Return to full-service lending when temporary rate caps and debt repayment moratoria end.
-- Provide hybrid and end-to-end digital options for customers
who can be successfully managed more remotely.
-- Offer an increased choice of value-added services building on
the success of our insurance intermediary business.
-- Gain market share from competitors who have exited the market.
Mexico home credit - deliver well controlled, steady growth
-- Serving one of the largest underbanked and underserved
populations in the world, with 44 million people in our target
segment.
-- Highly experienced country manager and strengthened
management team creating an operational environment to deliver on
the long-term potential of this market.
-- Near-term delivery of improved credit quality and operational
discipline together with revised returns-focused branch
infrastructure.
-- Refined growth strategy to be implemented as we return to
full capacity lending post-Covid-19 with a significantly reduced
cost base will deliver enhanced returns.
IPF Digital - significant long-term growth opportunity
-- Strong cost reduction and smart capital management will
reduce the time to profitability delivered by our new markets.
-- Differentiated propositions including the rollout of our
Mobile Wallet enabling customers to benefit from end-to-end digital
credit, payment and value-added services.
-- Generate growth opportunities from the digitalisation of our
home credit businesses to deliver new digital choices for customers
wanting more remote lending options as they improve their credit
standing.
Business division performance review
European home credit
Our European home credit businesses are well-established,
resilient operations with a long history of delivering good
returns. For the majority of Q1 2020, before the onset of the
Covid-19 pandemic, the business performed well and delivered
continued portfolio quality. From the second half of March, the
Covid-19 virus and resulting government policy responses began to
impact the business as described in the Group performance section
of this report. This resulted in European home credit delivering a
pre-exceptional loss before tax of GBP25.6 million which was driven
by a combination of lower revenues and incremental impairment
charges, partially offset by lower costs.
H1 2019 H1 2020 Change Change Change
at CER
GBPm GBPm GBPm % %
--------------------------- -------- --------- -------- -------- --------
Customer numbers (000s) 1,032 881 (151) (14.6)
Credit issued 364.6 215.2 (149.4) (41.0) (39.0)
Average net receivables 549.8 511.1 (38.7) (7.0) (3.7)
--------------------------- -------- --------- -------- -------- --------
Revenue 229.1 191.2 (37.9) (16.5) (13.7)
Impairment (30.5) (94.1) (63.6) (208.5) (220.1)
--------------------------- -------- --------- -------- -------- --------
Net revenue 198.6 97.1 (101.5) (51.1) (49.5)
Finance costs (18.5) (16.3) 2.2 11.9 8.9
Agents' commission (25.6) (25.3) 0.3 1.2 (1.6)
Other costs (94.3) (81.1) 13.2 14.0 11.5
--------------------------- -------- --------- -------- -------- --------
Pre-exceptional profit
/ (loss) before taxation 60.2 (25.6) (85.8)
--------------------------- -------- --------- -------- -------- --------
Customer numbers and credit issued contracted year on year by
15% and 39% respectively, attributable largely to the significant
tightening of credit settings implemented from March onwards.
Collections effectiveness, which reduced in April to 76% of the
pre-Covid-19 level when agent service was suspended in a number of
markets, improved progressively through the remainder of the half
year reaching 87% in June as alternative collection processes were
implemented and agent service resumed. This improvement enabled a
modest increase in credit issued from June onwards, compared to
April and May, that was focused on our loyal, higher-quality
customers. Average net receivables reduced by 4% year on year,
reversing higher growth in the second half of 2019, due to
reductions in credit issued and incremental impairment provisions.
Revenue reduced at the faster rate of 14% reflecting a continuation
of the lower revenue yields that were reported in the second half
of 2019 and higher early settlement rebate charges in Poland.
Annualised impairment as a percentage of revenue increased by
13.2 ppts to 28.9% at the half year due to the incremental
impairment provisions explained in the Group performance section.
Cost saving measures implemented across the European home credit
businesses resulted in an 11% (GBP10.5 million at CER) reduction in
costs. Agents' commission costs were broadly flat year on year,
reflecting our objective of supporting agent incomes during this
difficult period.
Our agent mobile technology programme is now complete in our
European home credit operation, marking a major milestone in the
digital transformation of how our field teams and agents serve
customers. We are pleased with the improving collections
performance achieved during Q2 2020 and expect this to continue
alongside progressive increases in the level of credit issued in
the second half of the year.
Mexico home credit
Our strategy in Mexico for 2020 had been to continue to
prioritise credit quality over growth. As a result of operational
actions introduced in 2019 alongside a strengthened leadership
team, the early signs of recovery continued during Q1, with
improved collections and credit quality being delivered. The
impacts of Covid-19 reached Mexico several weeks after those
experienced in Europe. Using lessons learned, we took pre-emptive
action to protect our people and customers in anticipation of this
market being affected further. We also placed greater emphasis on
collections, tightened credit settings and implemented alternative
remote payment processes for customers. The business reported a
pre-exceptional loss before tax of GBP8.4 million in the first half
of 2020 which was driven by a reduction in revenue and higher
impairment as a percentage of revenue, partially offset by a lower
cost base.
H1 2019 H1 2020 Change Change Change
at CER
GBPm GBPm GBPm % %
--------------------------- -------- -------- ------- ------- --------
Customer numbers (000s) 861 670 (191) (22.2)
Credit issued 136.4 72.3 (64.1) (47.0) (42.1)
Average net receivables 167.8 119.0 (48.8) (29.1) (22.7)
--------------------------- -------- -------- ------- ------- --------
Revenue 126.6 91.0 (35.6) (28.1) (21.3)
Impairment (53.1) (45.1) 8.0 15.1 6.6
--------------------------- -------- -------- ------- ------- --------
Net revenue 73.5 45.9 (27.6) (37.6) (31.9)
Finance costs (6.0) (4.3) 1.7 28.3 21.8
Agents' commission (15.4) (11.0) 4.4 28.6 22.0
Other costs (48.6) (39.0) 9.6 19.8 13.3
--------------------------- -------- -------- ------- ------- --------
Pre-exceptional profit
/ (loss) before taxation 3.5 (8.4) (11.9)
--------------------------- -------- -------- ------- ------- --------
Our focus on delivering credit quality in Q1 and further
tightening of credit settings resulting from Covid-19 led to a 22%
contraction in customer numbers to 670,000 and a 42% reduction in
credit issued year on year. Average net receivables reduced by 23%
due to lower credit issued and incremental impairment provisions,
and this resulted in a 21% contraction in revenue.
The actions taken to improve operations from the second half of
2019 had begun to deliver improved collections and credit quality,
and resulted in a reduction in actual impairment year on year.
Evidence of lower collections began at the end of March as some
states in Mexico imposed tighter restrictions on people movement.
As a result, collections effectiveness reduced to 81% in April but
improved to reach 89% in June as our operational teams responded to
the new operating conditions. Annualised impairment as a percentage
of revenue increased to 44.4% at the half year, which represents a
3.5 ppt increase year on year and contrasts with our original
expectations of a significant reduction driven by the improved
operational performance before the pandemic impacted the
business.
Cost reduction measures in response to Covid-19 delivered cost
savings of 13% (GBP6.0 million at CER) and the reduction in agents'
commission was driven by lower collections, partially offset by
higher commission rates designed to protect agent incomes and
maintain customer relationships.
Whilst infection rates in Mexico continue to increase, we are
pleased with the repayment performance of our recent lending and
this gives us confidence to ease the very tight credit settings
that we have in place and recommence lending to new customers.
IPF Digital
IPF Digital provides an end-to-end remote lending model and, as
such, experienced significantly less disruption arising from
Covid-19 freedom of movement interventions. The regular contact we
have with our customers, through digital channels or call centres,
continued as our teams swiftly changed to undertaking their
day-to-day customer service roles from home. As a result,
performance during Q1 2020 was not materially impacted by the onset
of the pandemic. However, in order to protect credit quality and
manage cashflow we significantly tightened credit settings in the
second half of March, from which point lending was focused on the
very best quality new customers and higher-quality existing
customers. This resulted in the business reporting a
pre-exceptional loss before tax of GBP5.9 million driven by reduced
scale and incremental Covid-19 related impairment, partially offset
by lower costs.
H1 2019 H1 2020 Change Change Change
at CER
GBPm GBPm GBPm % %
------------------------- -------- -------- ------- ------- --------
Customer numbers
(000s) 304 267 (37) (12.2)
Credit issued 171.3 90.7 (80.6) (47.1) (46.5)
Average net receivables 253.3 232.8 (20.5) (8.1) (7.3)
------------------------- -------- -------- ------- ------- --------
Revenue 91.2 80.0 (11.2) (12.3) (11.5)
Impairment (40.2) (43.0) (2.8) (7.0) (8.9)
------------------------- -------- -------- ------- ------- --------
Net revenue 51.0 37.0 (14.0) (27.5) (27.3)
Finance costs (7.1) (6.7) 0.4 5.6 5.6
Other costs (44.3) (36.2) 8.1 18.3 17.4
------------------------- -------- -------- ------- ------- --------
Pre-exceptional loss
before taxation (0.4) (5.9) (5.5)
------------------------- -------- -------- ------- ------- --------
Year on year, customer numbers reduced by 12% to 267,000 and
credit issued contracted by 47%, driven by the restricted credit
settings introduced in response to Covid-19 and our strategy to
improve credit quality in our new markets. The temporary tightening
of the existing rate cap in Poland and the reduced rate cap
introduced in Finland in September 2019 also resulted in limiting
credit provided to customers due to lower returns on lending at
these rates. Average net receivables reduced by 7% and this,
together with a shift in portfolio mix towards the established
markets which have lower revenue yields, resulted in revenue
contracting at the slightly faster rate of 12%.
Collections effectiveness reduced to 82% in April with the main
drivers of this being fewer customers overpaying the minimum
repayment obligation on their credit line facility together with
higher payment holiday requests. Collections effectiveness improved
over the course of Q2 2020 to 92% in June. Annualised impairment as
a percentage of revenue increased by 7.7ppts year on year to 49.4%
reflecting the incremental impairment provisions set out in the
Group performance section, partially offset by an improvement in
underlying credit quality in the new markets. Tight cost control
resulted in a 17% reduction in costs (GBP7.6 million at CER) mainly
driven by lower marketing expenditure and other volume-related
costs.
The pre-exceptional profitability of IPF Digital is segmented as
follows:
H1 2019 H1 2020 Change Change
GBPm GBPm GBPm %
--------------------- -------- -------- ------- -------
Established markets 16.5 7.0 (9.5) (57.6)
New markets (9.2) (6.3) 2.9 31.5
Head office costs (7.7) (6.6) 1.1 14.3
--------------------- -------- -------- ------- -------
IPF Digital (0.4) (5.9) (5.5)
--------------------- -------- -------- ------- -------
Established markets
H1 2019 H1 2020 Change Change Change
at CER
GBPm GBPm GBPm % %
------------------------------- -------- -------- -------- --------- --------
Customer numbers (000s) 151 136 (15) (9.9)
Credit issued 80.9 54.8 (26.1) (32.3) (32.5)
Average net receivables 134.6 128.9 (5.7) (4.2) (4.4)
------------------------------- -------- -------- -------- --------- --------
Revenue 40.9 37.4 (3.5) (8.6) (8.8)
Impairment (7.4) (15.0) (7.6) (102.7) (102.7)
------------------------------- -------- -------- -------- --------- --------
Net revenue 33.5 22.4 (11.1) (33.1) (33.3)
Finance costs (3.5) (3.5) - - -
Other costs (13.5) (11.9) 1.6 11.9 12.5
------------------------------- -------- -------- -------- --------- --------
Pre-exceptional profit before
taxation 16.5 7.0 (9.5) (57.6)
------------------------------- -------- -------- -------- --------- --------
Year on year, our established markets delivered a reduced
pre-exceptional profit before tax of GBP7.0 million driven by the
expected lower net revenue resulting from rate cap changes in
Finland and Latvia in 2019, and incremental impairment arising from
Covid-19.
Credit issued contracted by 33% year on year, impacted by
tighter credit settings introduced in response to Covid-19 as well
as the reduction in credit issued volumes in Finland due to lower
returns under the new interest rate cap. Average net receivables
reduced by 4% which, together with lower revenue yields generated
in Finland and Latvia, drove a 9% contraction in revenue.
Annualised impairment as a percentage of revenue increased by
11.2ppts year on year to 30.2% due to the Covid-19 related
incremental impairment that is set out in the Group performance
summary above. Our cost reduction programme resulted in a 13%
reduction in costs (GBP1.7 million at CER).
New markets
H1 2019 H1 2020 Change Change Change
at CER
GBPm GBPm GBPm % %
------------------------- -------- -------- ------- ------- --------
Customer numbers (000s) 153 131 (22) (14.4)
Credit issued 90.4 35.9 (54.5) (60.3) (59.4)
Average net receivables 118.7 103.9 (14.8) (12.5) (10.6)
------------------------- -------- -------- ------- ------- --------
Revenue 50.3 42.6 (7.7) (15.3) (13.8)
Impairment (32.8) (28.0) 4.8 14.6 12.8
------------------------- -------- -------- ------- ------- --------
Net revenue 17.5 14.6 (2.9) (16.6) (15.6)
Finance costs (3.6) (3.2) 0.4 11.1 11.1
Other costs (23.1) (17.7) 5.4 23.4 21.7
------------------------- -------- -------- ------- ------- --------
Loss before taxation (9.2) (6.3) 2.9 31.5
------------------------- -------- -------- ------- ------- --------
Start-up losses in the new markets reduced in the first half of
the year, delivering a GBP2.9 million improvement in loss before
tax to GBP6.3 million. This was driven by lower net revenues offset
by the benefits of our cost control measures.
Customer numbers reduced by 14% to 131,000 and credit issued
contracted by 59% year on year due to a combination of credit
tightening implemented in the second half of 2019 in Poland and
Spain to manage credit risk together with further restrictions
implemented in response to Covid-19. Average net receivables
reduced by 11% and revenue contracted by 14%.
Annualised impairment as a percentage of revenue was 65.0% at
the half year, which represents a 2.3 ppt increase year on year.
Underlying improvements in credit quality were offset by the impact
of incremental Covid-19 related impairment charges. Costs reduced
by 22% year on year (GBP4.9 million at CER), driven principally by
lower marketing and other volume-related costs as we reduced our
credit issued volumes.
We expect further progressive improvements in IPF Digital
collections effectiveness in the second half of the year alongside
easing of our credit settings in most markets. Credit issued
volumes will continue to be significantly lower than the second
half of 2019 due to our decision to stop lending in Finland
together with a cautious positioning in other markets until the
economic impacts of the pandemic are clearer.
Regulatory update
As previously reported, UOKiK, the Polish competition and
consumer protection authority, is conducting a comprehensive review
of rebating practices by banks and other consumer credit providers
on early loan settlement, including those of the Group's Polish
businesses. In light of this and a recent European Court of Justice
declaratory judgment on the matter, new market standard rebating
practices are evolving in Poland. When we have full clarity on the
new emerging standards, our Polish businesses will conform their
rebating practices accordingly. At the 2019 year end, we estimated
the potential annual financial impact to be in the range of GBP10
million to GBP15 million. Our current expectation is that the
annual financial impact on profit before tax is now more likely to
be in the range of GBP5 million to GBP10 million and we are working
on a number of mitigating strategies.
In Romania, legislation was enacted by parliament in May 2020
which implemented a cap on the total amount payable on a consumer
loan agreement, being twice the amount borrowed for loans below
3,000 EUR, while defining an APR cap of 15% plus base rate for the
rest of consumer credit. This legislation is being challenged by
political opponents and the Constitutional Court is scheduled to
consider this matter in September 2020, pending which the
legislation is suspended. The vast majority of the Group's Romanian
business' current portfolio would be subject to the 100% total cost
of credit limit and not the 15% APR cap.
Taxation
The taxation charge on the pre-exceptional loss for the first
six months of 2020 (GBP8.0 million) has been based on an expected
pre-exceptional effective tax rate for 2020 of negative 11%,
increased by the write-off of deferred tax assets totalling circa
GBP2.7 million. The total pre-exceptional tax charge for the first
six months of 2020 represents an effective tax rate of negative
18%. The tax charge arises due to a combination of factors but is
largely driven by an increase in the non-tax deductible impairment
charge arising from an increase in expected credit losses,
liability to certain taxes that are computed with reference to
profits for prior periods rather than current year, and the
write-off of deferred tax assets.
The exceptional tax charge of GBP0.2 million includes a GBP1.1
million write-off of a deferred tax asset held in respect of the
Finnish business.
Our appeal against the Polish Tax Chamber's decisions for 2008
and 2009 was heard in the Warsaw District Administrative Court in
March and the court found in our favour. The Court has formally
confirmed that the decision is final and we received repayment of
the tax that was paid in January 2017 together with interest up to
the repayment date in August 2020. Interest of GBP9.6 million has
been included in the income statement for the half year, of which
the element relating to before 2020, GBP8.2 million, has been
treated as an exceptional item.
There is no change to our position with respect to the European
Commission's State Aid challenge to the UK's Group Financing
Exemption contained in the UK controlled foreign company rules,
which remains as set out in our 2019 full-year results statement
published on 26 February 2020.
Dividend
The Board has considered the trading performance of the business
in the first half of the year and expectations for the second half
together with the Group's liquidity position and concluded that it
is not appropriate to declare an interim dividend (30 June 2019:
4.6 pence per share).
Principal risks and uncertainties
Risk management process
We operate a formal risk management process, the details of
which are set out on page 44 of the Annual Report and Financial
Statements for the year ended 31 December 2019. Details of our
principal risks can be found on pages 46 to 52 of the Annual Report
and Financial Statements and are summarised below:
-- the risk that we suffer losses or fail to optimise profitable
growth due to a failure to operate in compliance with, or
effectively anticipate changes in, all applicable laws and
regulations (including GDPR), or due to a regulator interpreting
these in a different way or due to changes in legislation
that challenge the viability of the Group's business models;
-- the risk that we suffer losses or fail to optimise profitable
growth through not responding to the competitive environment
or failing to ensure our proposition meets customer needs;
-- the risk that we suffer additional taxation or financial
penalties associated with failure to comply with tax legislation
or adopting an interpretation of the law that cannot be sustained;
-- the risk that we suffer losses or fail to optimise profitable
growth due to a failure to develop and maintain effective
technology solutions or manage change in an effective manner;
-- the risk that our strategy is impacted by not having sufficient
depth and quality of people or being unable to retain key
people and treat them in accordance with our values and ethical
standards;
-- the risk that we suffer losses or fail to optimise profitable
growth due to a failure of our systems, suppliers or processes
or due to the loss, theft or corruption of information;
-- the risk that we suffer financial or reputational damage
due to our methods of operation, ill-informed comment or
malpractice;
-- the risk that we suffer financial loss as a result of a failure
to identify and adapt to changing economic conditions adequately;
-- the risk of personal injury or harm to our agents or employees;
-- the risk that we suffer financial loss if our customers fail
to meet their contracted obligations; and
-- the risk of insufficient availability of funding, unfavourable
pricing, a breach of debt facility covenants; or that performance
is significantly impacted by interest rate or currency movements,
or failure of a banking counterparty.
Risk management response to Covid-19
As set out in the Market overview and Covid-19 response strategy
of this report, the pandemic had a significant impact on the
Group's operations. We acted swiftly and implemented a governance
forum involving key members of the Group's leadership team which
met regularly to co-ordinate our overall response. The impact of
Covid-19 on our principal risks was managed by Group-level risk
owners as part of our formal risk management process.
The key risks impacted by Covid-19 were safety; business
continuity; credit risk; and funding, market and counterparty risk.
A core pillar of our Covid-19 response was to protect our people
and we took a series of steps to manage their health and safety
including the provision of personal protective equipment, the
temporary suspension of agent service and a revision to field
operational protocols. These issues were managed by the local
management teams and coordinated through the Group governance
forum. Following the implementation of lock downs in most of our
markets, we transitioned the vast majority of our office-based
teams to remote working. This involved invoking our business
continuity protocols and the roll out of new collaboration tools to
our teams. This work was overseen by the Group governance
forum.
In response to a reduction in collection cash flows and the
uncertain macro-economic environment, we implemented a very
significant tightening of credit risk standards across all
businesses in order manage liquidity and credit risk. These
decisions were managed through the Group governance forum as were
the decisions to relax some of these credit standards towards the
end of the second quarter following an improvement in the operating
environment.
Capital markets were disrupted by the pandemic in general and,
more specifically, for companies that operate in our sector with
similar credit characteristics. This resulted in a delay in our
plans to refinance the Group's April 2021 5.75% Eurobond and we now
plan to address this maturity in the second half of the year. The
management of this risk and the associated response was subject to
governance by the Board.
Outlook
Covid-19 has created a very challenging trading environment
across the Group's markets, but our leadership team, people and
businesses have proven resilient. We entered the period with a
strong balance sheet and funding position which, together with
robust liquidity management actions and our ability to serve our
customers well, will ensure we emerge in a strong competitive and
financial position. There is significant demand from underbanked
and underserved customers for affordable credit in our markets, and
we expect to increase our volume of new lending to fulfil this. Our
key focus is on refinancing our 2021 Eurobond in 2020 and we are
actively working on this. IPF has a history of consistently
delivering good levels of profitability, returns and capital
generation, and we have put in place firm foundations for a quick
return to profitability and delivering long-term growth.
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.
Condensed consolidated interim financial information for the six
months ended 30 June 2020
Consolidated income statement
Unaudited Unaudited Unaudited Unaudited Audited
Six Six Six Six months
months ended months ended months ended Year
ended Ended
31 December
30 June 2020 30 June 2020 30 June 30 June 2019
2020 2019
Exceptional
Pre-exceptional items
GBPm (note 7)
Notes GBPm GBPm GBPm GBPm
------------------ -------- ------------------ --------------- ---------- ----------- ------------
Revenue 3 362.2 - 362.2 446.9 889.1
Impairment 3 (182.2) (2.5) (184.7) (123.8) (243.5)
Revenue less
impairment 180.0 (2.5) 177.5 323.1 645.6
------------------ --------------- ---------- ----------- ------------
Finance costs 22 (27.3) 8.2 (19.1) (31.8) (63.5)
Other operating
costs (54.7) - (54.7) (69.1) (137.3)
Administrative
expenses (144.8) (12.2) (157.0) (166.1) (330.8)
Total costs (226.8) (4.0) (230.8) (267.0) (531.6)
------------------ --------------- ---------- ----------- ------------
(Loss)/profit
before taxation 3 (46.8) (6.5) (53.3) 56.1 114.0
Tax expense
- UK - - - - 2.2
- Overseas (8.0) (0.2) (8.2) (23.0) (44.4)
------------------ -------- ------------------ --------------- ---------- ----------- ------------
Tax expense 4 (8.0) (0.2) (8.2) (23.0) (42.2)
------------------ -------- ----------- ------------
(Loss)/profit
after taxation
attributable
to owners of
the Company (54.8) (6.7) (61.5) 33.1 71.8
------------------ -------- ------------------ --------------- ---------- ----------- ------------
(Loss)/earnings per share - statutory
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2020 2019 2019
Notes pence pence pence
--------- ------ ----------- ----------- ------------
Basic 5 (27.7) 14.8 32.2
Diluted 5 (26.3) 14.0 30.3
--------- ------ ----------- ----------- ------------
The notes to the financial information are an integral part of
this consolidated financial information.
(Loss)/earnings per share - pre-exceptional items
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2020 2019 2019
Notes pence pence pence
------- ------ ----------- ----------- ------------
Basic 5 (24.7) 14.8 32.2
------- ------ ----------- ----------- ------------
Dividend per share
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2020 2019 2019
Notes pence pence pence
------------------ ------ ----------- ----------- ------------
Interim dividend 6 - 4.6 4.6
Final dividend 6 - - 7.8
------------------ ------ ----------- ----------- ------------
Total dividend - 4.6 12.4
------------------ ------ ----------- ----------- ------------
Dividends paid
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2020 2019 2019
Notes GBPm GBPm GBPm
----------------------------- ------ ----------- ----------- ------------
Interim dividend of nil
(2019: interim dividend
of 4.6 pence) per share 6 - - 10.3
Final 2019 dividend of nil
(2019: final 2018 dividend
of 7.8 pence) per share 6 - 17.4 17.4
----------------------------- ------ ----------- ----------- ------------
Total dividends paid - 17.4 27.7
----------------------------- ------ ----------- ----------- ------------
The notes to the financial information are an integral part of
this consolidated financial information.
Consolidated statement of comprehensive income
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2020 2019 2019
GBPm GBPm GBPm
---------------------------------------------- ----------- ----------- -------------
(Loss)/profit after taxation attributable
to owners of the Company (61.5) 33.1 71.8
----------- ----------- -------------
Other comprehensive income
Items that may subsequently be reclassified
to income statement
Exchange gains/(losses) on foreign currency
translations 9.2 1.2 (42.2)
Net fair value gains - cash flow hedges 1.4 0.8 0.6
Tax charge on items that may be reclassified (0.3) (0.2) (0.1)
Items that will not subsequently be
reclassified to income statement
Actuarial gains/(losses) on retirement
benefit asset 0.2 (1.4) (1.7)
Tax (charge)/credit on items that will
not be reclassified (0.1) 0.3 0.2
----------- ----------- -------------
Other comprehensive income/(expense)
net of taxation 10.4 0.7 (43.2)
---------------------------------------------- ----------- ----------- -------------
Total comprehensive (expense)/income
for the period attributable to owners
of the Company (51.1) 33.8 28.6
---------------------------------------------- ----------- ----------- -------------
The notes to the financial information are an integral part of
this consolidated financial information.
Consolidated balance sheet
Unaudited Unaudited Audited
30 June 30 June 31 December
2020 2019 2019
Notes GBPm GBPm GBPm
---------------------------------- ------ ---------- ---------- ------------
Assets
Non-current assets
Goodwill 8 24.7 24.4 23.1
Intangible assets 9 36.8 41.8 43.2
Property, plant and equipment 10 18.0 19.3 20.0
Right-of-use assets 11 17.9 19.5 18.8
Amounts receivable from
customers 13 175.9 247.7 245.3
Deferred tax assets 12 137.2 138.0 151.7
Non-current tax asset 14 - 36.2 34.2
Retirement benefit asset 16 4.5 3.7 3.4
415.0 530.6 539.7
---------- ---------- ------------
Current assets
Amounts receivable from
customers 13 580.5 762.1 728.3
Derivative financial instruments 8.1 1.4 0.3
Cash and cash equivalents 100.6 37.9 37.4
Other receivables 26.1 25.4 16.9
Current tax assets 14 36.6 4.9 0.1
---------------------------------- ------ ---------- ---------- ------------
751.9 831.7 783.0
---------- ---------- ------------
Total assets 3 1,166.9 1,362.3 1,322.7
---------- ---------- ------------
Liabilities
Current liabilities
Borrowings 15 (387.1) (132.9) (112.7)
Derivative financial instruments (1.2) (10.4) (16.2)
Trade and other payables (92.0) (123.4) (123.9)
Provisions for liabilities (12.1) - -
and charges
Lease liabilities 11 (9.0) (6.6) (8.7)
Current tax liabilities (26.7) (29.9) (30.3)
---------------------------------- ------ ---------- ---------- ------------
(528.1) (303.2) (291.8)
---------- ---------- ------------
Non-current liabilities
Deferred tax liabilities (12.1) (8.5) (20.0)
Lease liabilities 11 (10.0) (14.0) (10.8)
Borrowings 15 (228.2) (582.7) (563.7)
---------------------------------- ------ ---------- ---------- ------------
(250.3) (605.2) (594.5)
---------- ---------- ------------
Total liabilities 3 (778.4) (908.4) (886.3)
---------------------------------- ------ ---------- ---------- ------------
Net assets 388.5 453.9 436.4
---------------------------------- ------ ---------- ---------- ------------
Equity attributable to owners
of the Company
Called-up share capital 23.4 23.4 23.4
Other reserve (22.5) (22.5) (22.5)
Foreign exchange reserve 18.3 52.5 9.1
Hedging reserve 1.0 - (0.1)
Own shares (45.5) (44.4) (46.1)
Capital redemption reserve 2.3 2.3 2.3
Retained earnings 411.5 442.6 470.3
---------------------------------- ------ ---------- ---------- ------------
Total equity 388.5 453.9 436.4
---------------------------------- ------ ---------- ---------- ------------
The notes to the financial information are an integral part of
this consolidated financial information.
Consolidated statement of changes in equity
Unaudited
---------------------------------------------------------
Called-up Other Other Retained Total
share reserve reserves* earnings equity
capital
GBPm GBPm GBPm GBPm GBPm
-------------------------------------------- ---------- --------- ----------- ---------- ---------
Balance at 1 January 2019 23.4 (22.5) 7.9 424.2 433.0
Comprehensive income
Profit after taxation for the
period - - - 33.1 33.1
Other comprehensive income/(expense)
Exchange gains on foreign currency
translation (note 19) - - 1.2 - 1.2
Net fair value gains - cash
flow hedges - - 0.8 - 0.8
Actuarial losses on retirement
benefit asset - - - (1.4) (1.4)
Tax (charge)/credit on other
comprehensive income - - (0.2) 0.3 0.1
---------- --------- ----------- ---------- ---------
Total other comprehensive income/(expense) - - 1.8 (1.1) 0.7
Total comprehensive income
for the period - - 1.8 32.0 33.8
---------- --------- ----------- ---------- ---------
Transactions with owners
Share-based payment adjustment
to reserves - - - 4.5 4.5
Shares granted from treasury
and employee trust - - 0.7 (0.7) -
Dividends paid to Company shareholders - - - (17.4) (17.4)
---------- --------- ----------- ---------- ---------
At 30 June 2019 23.4 (22.5) 10.4 442.6 453.9
---------- --------- ----------- ---------- ---------
At 1 July 2019 23.4 (22.5) 10.4 442.6 453.9
Comprehensive income
Profit after taxation for the
period - - - 38.7 38.7
Other comprehensive (expense)/income
Exchange losses on foreign
currency translation (note
19) - - (43.4) - (43.4)
Net fair value losses - cash
flow hedges - - (0.2) - (0.2)
Actuarial losses on retirement
benefit asset - - - (0.3) (0.3)
Tax credit/(charge) on other
comprehensive income - - 0.1 (0.1) -
---------- --------- ----------- ---------- ---------
Total other comprehensive expense - - (43.5) (0.4) (43.9)
Total comprehensive (expense)/income
for the period - - (43.5) 38.3 (5.2)
---------- --------- ----------- ---------- ---------
Transactions with owners
Share-based payment adjustment
to reserves - - - 0.1 0.1
Shares acquired by employee
trust - - (2.1) - (2.1)
Shares granted from treasury
and employee trust - - 0.4 (0.4) -
Dividends paid to Company shareholders - - - (10.3) (10.3)
-------------------------------------------- ---------- --------- ----------- ---------- ---------
At 31 December 2019 23.4 (22.5) (34.8) 470.3 436.4
-------------------------------------------- ---------- --------- ----------- ---------- ---------
Consolidated statement of changes in equity
Unaudited
Called-up Other Other Retained Total
share reserve reserves* earnings equity
capital
GBPm GBPm GBPm GBPm GBPm
-------------------------------------- ---------- --------- ----------- ---------- ---------
At 1 January 2020 23.4 (22.5) (34.8) 470.3 436.4
Comprehensive income
Loss after taxation for the
period - - - (61.5) (61.5)
Other comprehensive income/(expense)
Exchange gains on foreign
currency translation (note
19) - - 9.2 - 9.2
Net fair value gains - cash
flow hedges - - 1.4 - 1.4
Actuarial gain on retirement
benefit asset - - - 0.2 0.2
Tax charge on other comprehensive
income - - (0.3) (0.1) (0.4)
---------- --------- ----------- ---------- ---------
Total other comprehensive
income - - 10.3 0.1 10.4
Total comprehensive income/(expense)
for the period - - 10.3 (61.4) (51.1)
---------- --------- ----------- ---------- ---------
Transactions with owners
Share-based payment adjustment
to reserves - - - 3.2 3.2
Shares granted from treasury
and employee trust - - 0.6 (0.6) -
At 30 June 2020 23.4 (22.5) (23.9) 411.5 388.5
-------------------------------------- ---------- --------- ----------- ---------- ---------
* Includes foreign exchange reserve, hedging reserve, own shares
and capital redemption reserve.
Consolidated cash flow statement
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2020 2019 2019
Notes GBPm GBPm GBPm
-------------------------------------- ------ ----------- ----------- ------------
Cash flows from operating activities
Cash generated from operating
activities 18 176.0 76.9 169.2
Finance costs paid (39.7) (41.5) (64.0)
Income tax paid (12.5) (21.9) (41.0)
Net cash generated from operating
activities 123.8 13.5 64.2
----------- ----------- ------------
Cash flows used in investing
activities
Purchases of intangible assets 9 (6.4) (10.6) (21.2)
Purchases of property, plant
and equipment 10 (1.9) (3.3) (10.2)
Proceeds from sale of property,
plant and equipment 0.2 0.2 0.2
Net cash used in investing
activities (8.1) (13.7) (31.2)
Net cash generated from/(used
in) operating and investing
activities 115.7 (0.2) 33.0
----------- ----------- ------------
Cash flows from financing activities
Proceeds from borrowings 64.7 82.1 119.9
Repayment of borrowings (111.9) (69.0) (120.3)
Principal elements of lease
payments 11 (5.3) (4.0) (9.9)
Shares acquired by employee
trust - - (2.1)
Dividends paid to Company
shareholders 6 - (17.4) (27.7)
Net cash used in financing
activities (52.5) (8.3) (40.1)
----------- ----------- ------------
Net increase/(decrease) in
cash and cash equivalents 63.2 (8.5) (7.1)
Cash and cash equivalents at
beginning of period 37.4 46.6 46.6
Exchange losses on cash and
cash equivalents - (0.2) (2.1)
-------------------------------------- ------ ----------- ----------- ------------
Cash and cash equivalents at
end of period 100.6 37.9 37.4
-------------------------------------- ------ ----------- ----------- ------------
1. Basis of preparation
This unaudited condensed consolidated interim financial
information for the six months ended 30 June 2020 has 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 European Union. This condensed
consolidated interim financial information should be read in
conjunction with the Annual Report and Financial Statements ('the
Financial Statements') for the year ended 31 December 2019, which
have been prepared in accordance with International Financial
Reporting Standards ('IFRSs') as adopted by the European Union.
This condensed consolidated interim financial information was
approved for release on 8 September 2020.
This condensed consolidated interim financial information does
not comprise statutory accounts within the meaning of Section 434
of the Companies Act 2006. The Financial Statements for the year
ended 31 December 2019 were approved by the Board on 26 February
2020 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 ).
Going Concern
In considering whether the Group is a going concern, the Board
has taken into account the Group's financial forecasts, its
principal risks with particular reference to funding and regulatory
risks; and the expected depth and duration of the Covid-19
impact.The financial forecasts have been prepared for the period
through to December 2022 and include projected profit and loss,
balance sheet, cashflows, borrowings, headroom against debt
facilities and funding requirements. These forecasts represent the
best estimates of the expected impact of Covid-19 on the Group's
businesses, and in particular on collection and credit issuance
cash flows. The forecasts assume that temporary price controls
introduced in Hungary and Poland return to historic levels based on
the sunset clauses included in the respective implementing
legislation.
The forecast indicates that for the 2020 year end and the 2021
half year, the Group will meet three of the four financial
covenants in its bank facilities but is unlikely to pass its
current interest cover covenant as a result of the Covid-19
pandemic. The Group has therefore commenced a covenant amendment
process with its banks and plans to take appropriate measures in
relation to its outstanding bonds in due course. The outcome of
this process is unknown at present but based on their assessment of
the available information, the Directors have a reasonable
expectation of an acceptable outcome from this process.The Group's
EUR397 million Eurobond matures in April 2021 and the Group's
forecast assumes that this is substantially refinanced ahead of
this date. The Group has appointed debt advisors and a detailed and
credible refinancing plan has been prepared and it is intended that
it will be executed in the second half of the year. Therefore the
Board has a reasonable expectation of a refinancing transaction in
respect of the 2021 Eurobond being executed alongside the covenant
amendment processes.
The Group has prepared a reverse stress test on its forecasts to
assess the extent to which collections effectiveness would need to
deteriorate in order to cause a breach of the proposed amended
interest cover covenant (the most performance-sensitive covenant).
This showed that collections effectiveness would need to
deteriorate significantly from the forecast in order for the
proposed revised interest cover covenant levels to be breached. The
Directors have a reasonable expectation that collections are
unlikely to deteriorate to the level required to breach the
proposed revised interest cover covenant levels.
Given the upcoming refinancing of the 2021 Eurobond and
obtaining covenant amendments as appropriate, there is a material
uncertainty that may cast significant doubt on the Group's ability
to continue as a going concern. However, having considered all the
available information, the Directors have a reasonable expectation
that the Group will have adequate resources to continue trading for
the foreseeable future (12 months from the date of this report) and
accordingly the Directors have continued to adopt the going concern
basis in preparing this Half-year Financial Report.
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
information 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 Actual results may differ from these estimates.
The judgements and estimates which have a significant risk of
causing a material adjustment to the carrying amounts of assets and
liabilities are discussed below.
Critical accounting judgements
Accounting judgements have been made over the going concern
status of the Group given the complexities attached to the
refinancing as summarised below; and over whether the EU State Aid
investigation requires a provision or disclosure as a contingent
liability, see below for further details.
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.
The estimates and associated assumptions 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 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 the condensed consolidated interim financial
information.
Amounts receivable from customers
The Group's accounting policy for the impairment of loans and
advances to customers is explained on page 123 of the 2019 Annual
Report and Financial Statements.
The Group reviews its portfolio of customer loans and
receivables for impairment on a weekly or monthly basis. The Group
reviews the most recent collections 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 and loss given default parameters.
Impact of Covid-19 on amounts receivable from customers
As discussed in this report, Covid-19 had a significant impact
on our businesses in the first half of the year. Government imposed
restrictions on the freedom of movement and the introduction of
debt repayment moratoria, together with the economic impact of the
pandemic on our customers, had a significant adverse impact on
collection cash flows in all our businesses. These events are
unprecedented and, as a consequence, we have reviewed our
impairment modelling under IFRS 9. This included a full assessment
of expected credit losses, including a forward-looking assessment
of expected collection cash flows. As a result, we have calculated
post model overlays (PMOs) to our impairment models in order to
calculate the expected impact of the pandemic on the Group's
impairment provisions. The impact of these PMOs was to increase
impairment provisions at 30 June 2020 by GBP30.2 million as set out
below.
Group
GBPm
------------- -------
Home credit (23.9)
IPF Digital (6.3)
------------- -------
Total (30.2)
------------- -------
Home credit amounts receivable from customers
Missed collections as a result of government imposed
restrictions on the freedom of movement and the introduction of
debt repayment moratoria is not considered to be an indicator of a
significant increase in credit risk (SICR). However, our impairment
models cannot distinguish between a missed payment arising from
these factors and a missed payment arising from a customer not
making a payment. Therefore we have reduced the modelled expected
credit loss ('ECL') based on historic customer roll rates before
calculating the increase in ECL arising from the pandemic. This
latter assessment is based on estimated future repayment patterns
on a market by market basis, taking into account operational
disruption, repayment moratoria and the expected recessionary
impact. We then assessed the extent to which the reduction in cash
flows is likely to be permanent or temporary. The estimated
permanent difference in cashflows has been recorded as an increase
in ECL.
We expect temporary missed repayments to be repaid at the end of
the credit agreement, rather than at the point when agent service
is resumed. The charges for lending are largely fixed and therefore
these delayed cash flows have been discounted using the effective
interest rate which results in an additional impairment provision
that is expected to unwind during the next 12 months.
We have performed analysis on the home credit businesses to show
the estimated variation to the amounts receivable from customers
based on the following collection scenarios:
-- A 5ppt reduction in collections effectiveness in July 2020
compared to our projections followed by progressive monthly
improvements of 1ppt per month during the second half of the year.
The impact of this would be an increase in the PMO of GBP6.6
million.
-- Temporary missed repayments that are assumed to be repaid at
the end of the loan are received three months later than forecast.
The impact of this would be an increase in the PMO of GBP8.5
million.
IPF Digital amounts receivable from customers
The key impacts of the pandemic on the digital business has been
a reduction in the number of customers regularly paying more than
their minimum monthly repayment, an increase in customers
requesting payment holidays, and the disruption to forward flow
arrangements with debt purchasers. The disruption to forward flow
arrangements with debt purchasers has led to a GBP5.9 million
increase in our loss given default (LGD) parameters which form an
integral part of our impairment accounting, and therefore no PMO
was required. We have reviewed payment holiday request patterns in
our markets alongside the expected economic impact of the pandemic
on our customers' debt repayment capacity. We used this information
to calculate the increased probability of customers defaulting. The
estimated increase in probability of default (PD) has been included
as PMO.
The nature of the calculation of these PMOs means that they have
not been allocated to individual loans and therefore they are not
reported against stages in the table in note 13.
Polish early settlement rebates
The Regulatory update section of this report sets out details of
a comprehensive review being conducted by UOKiK, the Polish
competition and consumer protection authority, of rebating
practices by banks and other consumer credit providers on early
loan settlement, including those of the Group's Polish businesses.
We reviewed the likelihood of the resolution of this matter
resulting in higher early settlement rebates being payable to
customers that settled their agreements early before the balance
sheet date. A number of risks and uncertainties remain, in
particular with respect to future claims volumes relating to
historic rebates paid and the nature of any customer contact
exercise required. The total amount provided of GBP12.1 million (30
June 2019: GBPnil; 31 December 2019: GBP4.0 million) represents the
Group's best estimate of the likely future cost of increasing
historic customer rebates, based on its current strategy to achieve
resolution. Whilst the volume of claims could differ from the
estimates, the Group's expectation at this stage is that claims
rates are unlikely to be more than double the assumed rate.
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. This exercise of estimation with regards to
the EU State Aid investigation, which is disclosed in note 20,
could have a significant effect on the Financial Statements, as
there are significant uncertainties in relation to the amount and
timing of associated cash flows.
In respect of deferred tax assets, which arise largely from
timing differences between the accounting and tax treatments of
revenue and impairment transactions, estimations must be made
regarding the extent to which the timing differences will reverse
and a tax deduction will be obtained in future periods.
All other accounting policies adopted in this condensed
consolidated interim financial information are consistent with
those adopted in the Financial Statements for the year ended 31
December 2019 and are detailed in those Financial Statements.
There are no new standards adopted by the Group in 2020, and
there are no new standards not yet effective and not adopted by the
Group from 1 January 2020 which are expected to have a material
impact on the Group.
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 below 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
2020 2019 2019
GBPm GBPm GBPm
------------------------------------------ ------------ ------------ ------------
Revenue
European home credit 191.2 229.1 452.2
Mexico home credit 91.0 126.6 247.6
Digital 80.0 91.2 189.3
Revenue 362.2 446.9 889.1
------------------------------------------ ------------ ------------ ------------
Impairment
European home credit 94.1 30.5 56.0
Mexico home credit 45.1 53.1 102.3
Digital 43.0 40.2 85.2
Impairment - pre-exceptional
item 182.2 123.8 243.5
Exceptional item 2.5 - -
------------------------------------------ ------------ ------------ ------------
Impairment 184.7 123.8 243.5
------------------------------------------ ------------ ------------ ------------
Profit before taxation
European home credit (25.6) 60.2 115.1
Mexico home credit (8.4) 3.5 10.5
Digital (5.9) (0.4) 3.2
UK costs(1) (6.9) (7.2) (14.8)
------------------------------------------ ------------ ------------ ------------
Profit before taxation - pre-exceptional
items (46.8) 56.1 114.0
Exceptional items (6.5) - -
------------------------------------------ ------------ ------------ ------------
Profit before taxation (53.3) 56.1 114.0
------------------------------------------ ------------ ------------ ------------
(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 profit before
taxation.
Unaudited Unaudited Audited
30 June 30 June 31 December
2020 2019 2019
GBPm GBPm GBPm
--------------------------------- ---------- ---------- -------------
Segment assets
European home credit 608.3 708.1 710.0
Mexico home credit 164.6 248.3 230.3
Digital 254.5 330.4 314.9
Slovakia and Lithuania - 0.5 -
UK(2) 139.5 75.0 67.5
--------------------------------- ---------- ---------- -------------
Total 1,166.9 1,362.3 1,322.7
--------------------------------- ---------- ---------- -------------
Segment liabilities
European home credit 216.8 323.1 297.2
Mexico home credit 108.1 174.5 147.0
Digital 181.2 248.1 225.8
Slovakia and Lithuania - 3.3 -
UK(2) 272.3 159.4 216.3
--------------------------------- ---------- ---------- -------------
Total 778.4 908.4 886.3
--------------------------------- ---------- ---------- -------------
(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. Tax expense
The taxation charge on the pre-exceptional loss for the first
six months of 2020 (GBP8.0 million) has been based on an expected
pre-exceptional effective tax rate for 2020 of negative 11%,
increased by the write-off of deferred tax assets totalling circa
GBP2.7 million. The total pre-exceptional tax charge for the first
six months of 2020 represents an effective tax rate of negative 18%
(30 June 2019: 41%, 31 December 2019: 37%). The tax charge arises
due to a combination of factors but is largely driven by an
increase in the non-tax deductible impairment charge arising from
an increase in expected credit losses, liability to certain taxes
that are computed with reference to profits for prior periods
rather than current year, and the write-off of deferred tax
assets.
The exceptional tax charge of GBP0.2 million includes a GBP1.1
million write-off of a deferred tax asset held in respect of the
Finnish business.
The Group is subject to tax audits in Mexico (regarding 2017)
and Spain (regarding 2015-2017). The Polish tax audit in respect of
2008 and 2009 was successfully concluded in the period with further
details set out in notes 14 and 21.
5. (Loss)/earnings per share
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2020 2019 2019
pence pence pence
--------------------------- ----------- ----------- ------------
Basic (L)/EPS (27.7) 14.8 32.2
Dilutive effect of awards 1.4 (0.8) (1.9)
--------------------------- ----------- ----------- ------------
Diluted (L)/EPS (26.3) 14.0 30.3
--------------------------- ----------- ----------- ------------
Basic (loss)/earnings per share ('(L)/EPS') is calculated by
dividing the loss attributable to shareholders of GBP61.5 million
(30 June 2019: profit of GBP33.1 million, 31 December 2019: profit
of GBP71.8 million) by the weighted average number of shares in
issue during the period of 222.2 million which has been adjusted to
exclude the weighted average number of shares held in treasury and
by the employee trust (30 June 2019: 223.4 million, 31 December
2019: 223.1 million).
For diluted (L)/EPS the weighted average number of shares has
been adjusted to 234.2 million (30 June 2019: 237.2 million, 31
December 2019: 237.1 million) to assume conversion of all dilutive
potential ordinary share options relating to employees of the
Group.
6. Dividends
As declared in our announcement on 1 April 2020, the Board
believes that conserving cash and maximising financial flexibility
is in the long term best interests of the business and its
stakeholders. The Board therefore decided to cancel the proposed
annual final dividend payment of 7.8p per share which resulted in a
cash saving of GBP17.3 million. The Board has further considered
the trading performance of the business in the first half of the
year and expectations for the second half together with the Group's
liquidity position and concluded that it is not appropriate to
declare an interim dividend (2019: 4.6 pence per share).
7. Exceptional items
The income statement includes an exceptional loss of GBP6.7
million which comprises a pre-tax exceptional loss of GBP6.5
million and an exceptional tax charge of GBP0.2 million.
Pre-tax Tax Post-tax
GBPm GBPm GBPm
--------------------- -------- ------ ---------
Finland closure (10.6) (1.1) (11.7)
Restructuring costs (4.1) 0.9 (3.2)
Interest income 8.2 - 8.2
Exceptional items (6.5) (0.2) (6.7)
--------------------- -------- ------ ---------
The decision to close our business in Finland and to collect out
the portfolio following a tightening of the rate cap resulted in a
loss of GBP11.7 million. It comprises a GBP10.6 million charge
against loss before tax and the write-off of a deferred tax asset
of GBP1.1 million that we no longer expect to be realised. The
pre-tax loss comprises a provision taken against the carrying value
of the receivables book based on our best estimate of the value of
collections of GBP2.5 million and GBP8.1 million from accelerated
amortisation of intangible assets. The restructuring charge of
GBP4.1 million arose in connection with a downsizing exercise that
was conducted in H1 2020 and there is an associated tax credit of
GBP0.9 million relating to this item. A further group-wide
restructuring exercise was announced in July 2020 and is expected
to result in a further exceptional charge of around GBP6 million in
the second half of the year (see note 21 for more details). In
addition, the profit and loss account includes exceptional interest
income of GBP8.2 million, relating to the interest accrued on the
payments to the Polish tax authority made in January 2017 in
respect of the 2008 and 2009 cases for 2017 to 2019 (see below for
further details).
8. Goodwill
Unaudited Unaudited Audited
30 June 30 June 31 December
2020 2019 2019
GBPm GBPm GBPm
--------------------------------- ---------- ---------- ------------
Net book value at start of
period 23.1 24.5 24.5
Exchange adjustments 1.6 (0.1) (1.4)
Net book value at end of period 24.7 24.4 23.1
--------------------------------- ---------- ---------- ------------
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.
The key assumptions used in the value in use calculation relate to
the discount rates and cash flows assumed. We adopt discount rates
which reflect the time value of money and the risks specific to the
legacy MCB business. The cash flow forecasts are based on the most
recent financial forecasts which includes our best estimates of the
impact of Covid-19 and include the decision to collect out the
Finnish business. The rate used to discount the forecast cash flows
is 9% (2019: 9%). The discount rate would need to increase to 15%
before indicating that part of the goodwill may be impaired.
9. Intangible assets
Unaudited Unaudited Audited
30 June 30 June 31 December
2020 2019 2019
GBPm GBPm GBPm
--------------------------------- ---------- ---------- ------------
Net book value at start of
period 43.2 38.0 38.0
Additions 6.4 10.6 21.2
Amortisation (14.5) (6.8) (14.8)
Exchange adjustments 1.7 - (1.2)
Net book value at end of period 36.8 41.8 43.2
--------------------------------- ---------- ---------- ------------
Intangible assets comprise computer software. As noted in note
7, following a decision to close our digital business in Finland
and to collect out the portfolio, we have booked an exceptional
charge of GBP8.1 million from accelerated amortisation of
intangible assets.
10. Property, plant and equipment
Unaudited Unaudited Audited
30 June 30 June 31 December
2020 2019 2019
GBPm GBPm GBPm
--------------------------------- ---------- ---------- ------------
Net book value at start of
period 20.0 19.9 19.9
Exchange adjustments (0.2) - (0.9)
Additions 1.9 3.3 10.2
Disposals (0.1) (0.2) (0.7)
Depreciation (3.6) (3.7) (8.5)
Net book value at end of period 18.0 19.3 20.0
--------------------------------- ---------- ---------- ------------
As at 30 June 2020 the Group had GBP2.1 million of capital
expenditure commitments with third parties that were not provided
for (30 June 2019: GBP2.3 million, 31 December 2019: GBP2.7
million).
11. 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
2020 2019 2019
GBPm GBPm GBPm
--------------------------- ---------- ---------- ------------
Properties 10.9 13.0 12.4
Motor vehicles 6.9 6.4 6.4
Equipment 0.1 0.1 -
Total right-of-use assets 17.9 19.5 18.8
--------------------------- ---------- ---------- ------------
The movement in the right-of-use assets in the period is as
follows:
Unaudited Unaudited Audited
30 June 30 June 31 December
2020 2019 2019
GBPm GBPm GBPm
--------------------------------- ---------- ---------- ------------
Net book value at start of
period 18.8 21.2 21.5
Exchange adjustments (0.4) 0.2 (0.7)
Additions 4.5 2.5 7.1
Depreciation (5.0) (4.4) (9.1)
Net book value at end of period 17.9 19.5 18.8
--------------------------------- ---------- ---------- ------------
The movement in lease liabilities in the period is as
follows:
Unaudited Unaudited Audited
30 June 30 June 31 December
2020 2019 2019
GBPm GBPm GBPm
----------------------------- ---------- ---------- ------------
Lease liabilities at start
of period 19.5 21.2 21.5
Exchange adjustments (0.4) 0.1 (0.7)
Additions 4.5 2.5 7.1
Interest 0.7 0.8 1.5
Lease payments (5.3) (4.0) (9.9)
Lease liabilities at end of
period 19.0 20.6 19.5
----------------------------- ---------- ---------- ------------
Analysed as:
Unaudited Unaudited Audited
30 June 30 June 31 December
2020 2019 2019
GBPm GBPm GBPm
-------------------------------- ---------- ---------- ------------
Current 9.0 6.6 8.7
Non-Current:
- between one and five years 9.9 14.0 10.6
- greater than five years 0.1 - 0.2
---------- ---------- ------------
10.0 14.0 10.8
Lease liabilities at end of
period 19.0 20.6 19.5
-------------------------------- ---------- ---------- ------------
12. 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.
At the half year, a review of the recoverability of deferred tax
assets recognised at 31 December 2019 resulted in net write-offs of
circa GBP4 million.
13. Amounts receivable from customers
Amounts receivable from customers comprise:
Unaudited Unaudited Audited
30 June 30 June 31 December
2020 2019 2019
GBPm GBPm GBPm
----------------------------- ---------- ---------- ------------
Amounts due within one year 580.5 762.1 728.3
Amounts due in more than
one year 175.9 247.7 245.3
Total receivables 756.4 1,009.8 973.6
----------------------------- ---------- ---------- ------------
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
2020 2019 2019
GBPm GBPm GBPm
------------------- ---------- ---------- ------------
Polish zloty 260.5 365.4 339.7
Czech crown 57.1 65.1 68.6
Euro* 151.8 185.8 178.2
Hungarian forint 111.5 131.6 135.6
Romanian leu 57.1 71.7 70.3
Mexican peso 97.7 170.6 158.1
Australian dollar 20.7 19.6 23.1
Total receivables 756.4 1,009.8 973.6
------------------- ---------- ---------- ------------
*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 101% (30 June
2019: 108%, 31 December 2019: 105%). All amounts receivable from
customers are at fixed interest rates. The average period to
maturity of the amounts receivable from customers is 12.0 months
(30 June 2019: 12.1 months, 31 December 2019: 12.2 months).
Determining an increase in credit risk since initial
recognition
IFRS 9 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 1) and
lifetime expected credit losses for financial instruments for which
the credit risk has increased significantly since initial
recognition (stage 2) or which are credit impaired (stage 3).
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:
30 June 2020 Stage 1 Stage 2 Stage 3 Covid-19 Total net
GBPm GBPm GBPm PMO receivables
GBPm GBPm
-------------- -------- -------- -------- --------- -------------
Home credit 343.5 74.2 154.6 (23.9) 548.4
IPF Digital 199.8 11.9 2.6 (6.3) 208.0
-------------- -------- -------- -------- --------- -------------
Group 543.3 86.1 157.2 (30.2) 756.4
-------------- -------- -------- -------- --------- -------------
No adjustment is made in the table above to reflect the
proportion of balances deemed likely to have experienced a SICR for
which no evidence exists and for which a Covid-19 PMO has been
calculated.
30 June 2019 Stage 1 Stage 2 Stage 3 Total net
GBPm GBPm GBPm receivables
GBPm
-------------- -------- -------- -------- -------------
Home credit 458.7 90.4 192.0 741.1
IPF Digital 248.2 18.1 2.4 268.7
-------------- -------- -------- -------- -------------
Group 706.9 108.5 194.4 1,009.8
-------------- -------- -------- -------- -------------
31 December 2019 Stage 1 Stage 2 Stage 3 Total net
GBPm GBPm GBPm receivables
GBPm
------------------ -------- -------- -------- -------------
Home credit 448.8 85.7 186.9 721.4
IPF Digital 232.5 18.8 0.9 252.2
------------------ -------- -------- -------- -------------
Group 681.3 104.5 187.8 973.6
------------------ -------- -------- -------- -------------
The Group has one class of loan receivable and no collateral is
held in respect of any customer receivables.
14. Current tax asset
Current tax asset includes an amount of GBP34.9 million in
respect of the tax paid to the Polish Tax Authority (30 June 2019
and 31 December 2019: included as a non-current tax asset). Our
appeal against the Polish Tax Chamber's decisions for 2008 and 2009
was heard in the Warsaw District Administrative Court in March and
the court found in our favour. The Court has formally confirmed
that the decision is final and we received repayment of the tax
that was paid in January 2017 together with interest up to the
repayment date in August 2020. Interest of GBP9.6 million has been
included in the income statement for the half year, of which the
element relating to before 2020, GBP8.2 million, has been treated
as an exceptional item.
15. 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
2020 2019 2019
GBPm GBPm GBPm
------------------------------ ---------- ---------- ------------
Repayable
- in less than one year 387.1 132.9 112.7
---------- ---------- ------------
- between one and two years 81.4 393.9 366.7
- between two and five years 146.8 188.8 197.0
228.2 582.7 563.7
---------- ---------- ------------
Total borrowings 615.3 715.6 676.4
------------------------------ ---------- ---------- ------------
Borrowings is stated net of deferred debt issuance costs of
GBP2.1 million (30 June 2019: GBP4.5 million; 31 December 2019:
GBP2.8 million).
The maturity of the Group's bond and bank facilities is as
follows:
Unaudited Unaudited Audited
30 June 30 June 31 December
2020 2019 2019
GBPm GBPm GBPm
------------------------------ ---------- ---------- ------------
Repayable
- on demand 11.4 23.8 23.7
- in less than one year 425.3 201.1 171.5
- between one and two years 146.5 413.5 424.9
- between two and five years 180.7 273.7 241.5
Total facilities 763.9 912.1 861.6
------------------------------ ---------- ---------- ------------
The undrawn external bank facilities is as follows:
Unaudited Unaudited Audited
30 June 30 June 31 December
2020 2019 2019
GBPm GBPm GBPm
------------------------------ ---------- ---------- ------------
Expiring within one year 48.9 91.4 82.3
Expiring between one and two
years 65.1 18.4 57.1
Expiring in more than two
years 32.5 82.2 43.0
Total 146.5 192.0 182.4
------------------------------ ---------- ---------- ------------
Undrawn external facilities above does not include unamortised
arrangement fees.
The average period to maturity of the Group's external bonds and
committed external borrowings is 1.5 years (30 June 2019: 1.5
years; 31 December 2019: 1.7 years).
The Group complied with all four of its covenants at 30 June
2020. Each covenant calculation has been made in accordance with
the terms of the relevant funding documentation, after making any
applicable adjustments.
16. 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
2020 2019 2019
GBPm GBPm GBPm
--------------------------------- ---------- ---------- ------------
Diversified growth funds 8.1 6.7 6.9
Corporate bonds 20.2 17.7 18.3
Liability driven investments 23.8 20.1 18.7
Other 0.8 0.9 1.9
---------- ---------- ------------
Total fair value of scheme
assets 52.9 45.4 45.8
Present value of funded defined
benefit obligations (48.4) (41.7) (42.4)
--------------------------------- ---------- ---------- ------------
Net asset recognised in the
balance sheet 4.5 3.7 3.4
--------------------------------- ---------- ---------- ------------
The charge recognised in the income statement in respect of
defined benefit pension costs is GBPnil (6 months ended 30 June
2019: GBPnil, 12 months ended 31 December 2019: GBP0.1 million
credit).
17. Fair values of financial assets and liabilities
IFRS 7 requires disclosure of fair value measurements of
derivative 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).
All of the Group's derivative financial instruments held at fair
value fall into hierarchy level 2 (30 June 2019 and 31 December
2019: all of the Group's derivative financial instruments held at
fair value fell into hierarchy level 2). 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.
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
2020 2019 2019 2020 2019 2019
GBPm GBPm GBPm GBPm GBPm GBPm
-------------------- ---------- ---------- ------------- ---------- ---------- -------------
Financial
assets
Amounts receivable
from customers 756.4 1,009.8 973.6 1,050.2 1,410.1 1,340.4
756.4 1,009.8 973.6 1,050.2 1,410.1 1,340.4
---------- ---------- ------------- ---------- ---------- -------------
Financial
Liabilities
Bonds 479.2 581.8 539.1 413.9 558.4 533.4
Bank borrowings 136.1 133.8 137.3 136.1 133.8 137.3
615.3 715.6 676.4 550.0 692.2 670.7
-------------------- ---------- ---------- ------------- ---------- ---------- -------------
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
agent collection costs, at the Group's weighted average cost of
capital.
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.
18. Reconciliation of profit after taxation to cash generated
from operating activities
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2020 2019 2019
GBPm GBPm GBPm
---------------------------------------- ----------- ----------- ------------
(Loss)/profit after taxation (61.5) 33.1 71.8
Adjusted for
Tax charge 8.2 23.0 42.2
Finance costs 19.1 31.8 63.5
Share-based payment charge 1.8 2.3 2.4
Amortisation of intangible
assets (note 9) 14.5 6.8 14.8
(Profit)/loss on disposal of
property, plant and equipment (0.1) - 0.5
Depreciation of property, plant
and equipment (note 10) 3.6 3.7 8.5
Depreciation of right-of-use
assets (note 11) 5.0 4.4 9.1
Short term and low value lease
costs 0.9 - 2.9
Changes in operating assets
and liabilities
Amounts receivable from customers 211.9 (15.8) (34.3)
Other receivables 1.1 (3.4) (3.7)
Trade and other payables (18.3) (12.1) (18.3)
Provision for liabilities and 12.1 - -
charges
Retirement benefit asset (0.9) (1.0) (1.0)
Derivative financial instruments (21.4) 4.1 10.8
---------------------------------------- ----------- ----------- ------------
Cash generated from operating
activities 176.0 76.9 169.2
---------------------------------------- ----------- ----------- ------------
19. 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 Closing
Year
H1 June H1 June 2019 December
2019
2020 2020 2019 2019
-------------- -------- -------- -------- -------- -------- ----------
Polish zloty 5.1 4.9 4.9 4.8 4.9 5.0
Czech crown 30.4 29.4 29.2 28.6 29.2 30.1
Euro 1.1 1.1 1.1 1.1 1.1 1.2
Hungarian
forint 401.1 381.6 366.7 361.5 370.0 391.0
Romanian leu 5.5 5.3 5.4 5.3 5.4 5.7
Mexican peso 28.8 27.8 24.7 24.4 24.6 25.0
Australian
dollar 1.9 1.8 1.8 1.8 1.8 1.9
-------------- -------- -------- -------- -------- -------- ----------
The GBP9.2 million 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 2019 and
June 2020 shown in the table above.
20. Contingent Liability Note
State Aid investigation
As previously reported, in late 2017 the European Commission
opened a State Aid investigation into the Group Financing Exemption
contained in the UK controlled foreign company rules, which were
introduced in 2013. On 2 April 2019 the EU announced its finding
that the Group Financing Exemption is partially incompatible with
EU State Aid rules. In common with other UK-based international
companies whose intra-group finance arrangements are in line with
current controlled foreign company rules, the Group is affected by
this decision. The total tax benefit obtained by the Group in all
years as a result of the structure affected by the decision is
estimated at up to GBP13.9 million. The amount repayable by the
Group under the decision however is expected to be lower than this
as the final decision only found the UK tax regime to be partially
incompatible. The final amount will be subject to agreement with
HMRC, and a process of information gathering and assessment is
ongoing with affected taxpayers, including IPF, for this purpose.
The UK government has announced that it has filed an annulment
application before the General Court of the EU. In common with a
number of other affected taxpayers, IPF has also filed its own
annulment application. Nevertheless, the amount of finally agreed
State Aid will need to be paid by the Group to HMRC in accordance
with the State Aid rules. Based on legal advice received by
management regarding the strength of the technical position set out
in the annulment applications, it is expected to be more likely
than not that any payment that the Group makes under the decision
will ultimately be repaid. HMRC has stated that it does not
consider that the timing and form of the UK's exit from the EU will
have any practical impact on this matter.
21. Post Balance Sheet Events
In July 2020, a Group-wide restructuring exercise was announced
to align the organisation to the reduced size of the business post
Covid-19. This together with restructuring completed in H1, is
expected to result in a reduction in headcount of around 1,200 and
structural cost savings totalling GBP35 million per annum. The
one-off cost of this exercise is expected to be approximately GBP6
million, which is in addition to the GBP4.1 million that was
reported as an exceptional item in the first half of the year.
In August 2020 the Group received cGBP45 million from the Polish
Tax Authority in repayments of amounts paid to appeal tax
assessments for the 2008 and 2009 tax years together with
associated interest. Further details are set out in note 14.
22. Finance costs
Total finance costs of GBP19.1 million comprise finance costs of
GBP28.7 million partially offset by finance income of GBP9.6
million. The finance income represents amounts received from the
Polish tax authority following the successful conclusion of a
dispute (see note 7 for details) and GBP8.2 million of this income
has been disclosed as an exceptional item.
Responsibility statement
The following statement is given by each of the directors:
namely; Stuart Sinclair, Chairman; Gerard Ryan, Chief Executive
Officer; Justin Lockwood, Chief Financial Officer; Richard Moat,
Senior independent non-executive director; Deborah Davis,
non-executive director; Richard Holmes, non-executive director;
John Mangelaars, non-executive director; Cathryn Riley,
non-executive director and Bronwyn Syiek, non-executive
director.
The directors confirm that to the best of their knowledge:
-- the condensed consolidated interim financial information
has been prepared in accordance with IAS 34 'Interim Financial
Reporting' as adopted by the European Union;
-- 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).
The directors are responsible for the maintenance and integrity
of the Company's website. Legislation in the United Kingdom
governing the preparation and dissemination of financial statements
may differ from legislation in other jurisdictions.
Alternative performance measures
This 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 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 Reconciling Definition and purpose
equivalent items to
statutory statutory
measure measure
---------------------- ------------ --------------- ---------------------------------------
Income statement measures
------------------------------------ --------------- ---------------------------------------
Credit issued None Not applicable Credit issued is the principal
growth (%) value of loans advanced to customers
and is an important measure
of the level of lending in the
business. Credit issued growth
is the period-on-period change
in this metric which is calculated
by retranslating the previous
half-year's credit issued 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.
---------------------- ------------ --------------- ---------------------------------------
Average net None Not applicable Average net receivables are
receivables the average amounts receivable
(GBPm) from customers translated at
the average monthly actual exchange
rate. This measure is presented
to illustrate the change in
amounts receivable from customers
on a consistent basis with revenue
growth.
---------------------- ------------ --------------- ---------------------------------------
Average net None Not applicable Average net receivables growth
receivables is the period-on-period change
growth at constant in average net receivables which
exchange rates is calculated by retranslating
(%) the previous half-year's average
net receivables 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 None Not applicable The period-on-period change
at in revenue which is calculated
constant exchange by retranslating the previous
rates (%) half-year's revenue at the average
actual exchange rates used in
the current financial year.
This measure is presented as
a means of eliminating the effects
of exchange rate fluctuations
on the period-on-period reported
results.
---------------------- ------------ --------------- ---------------------------------------
Revenue yield None Not applicable Revenue yield is reported revenue
(%) divided by average net receivables
and is an indicator of the gross
return being generated from
average net receivables.
---------------------- ------------ --------------- ---------------------------------------
Impairment None Not applicable Impairment as a percentage of
as a revenue is reported impairment
percentage divided by reported revenue
of and represents a measure of
revenue (%) credit quality that is used
across the business. This measure
is reported on a rolling annual
basis (annualised).
---------------------- ------------ --------------- ---------------------------------------
Cost-income None Not applicable The cost-income ratio is other
ratio (%) costs divided by reported revenue.
Other costs represent all operating
costs with the exception of
amounts paid to agents as collecting
commission. This measure is
reported on a rolling annual
basis
(annualised). This is useful
for comparing performance across
markets.
Balance sheet and returns measures
----------------------------------------------------------------------------------------------
Equity to receivables None Not applicable Total equity divided by amounts
ratio receivable from customers, this
(%) is a measure of balance sheet
strength.
---------------------- ------------ --------------- ---------------------------------------
Headroom (GBPm) Undrawn None Headroom is an alternative term
external for undrawn external bank facilities.
bank
facilities
---------------------- ------------ --------------- ---------------------------------------
Net debt None Not applicable Borrowings less cash
---------------------- ------------ --------------- ---------------------------------------
Other measures
---------------------- ------------ --------------- ---------------------------------------
Customers None Not applicable Customers that are being served
by our agents 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 IFRS 9 profit and loss accounts
is calculated by retranslating the 2019 half-year's profit and loss
account at the average actual exchange rates used in the current
year.
H1 2020
GBPm European Mexico IPF Digital Central Group
home credit home credit costs
------------------------- ------------- ------------- ------------ -------- --------
Customer numbers
(000s) 881 670 267 - 1,818
Credit issued 215.2 72.3 90.7 - 378.2
Average net receivables 511.1 119.0 232.8 - 862.9
Revenue 191.2 91.0 80.0 - 362.2
Impairment (94.1) (45.1) (43.0) - (182.2)
Net revenue 97.1 45.9 37.0 - 180.0
Finance costs (16.3) (4.3) (6.7) - (27.3)
Agents' commission (25.3) (11.0) - - (36.3)
Other costs (81.1) (39.0) (36.2) (6.9) (163.2)
------------------------- ------------- ------------- ------------ -------- --------
Pre-exceptional loss
before tax (25.6) (8.4) (5.9) (6.9) (46.8)
------------------------- ------------- ------------- ------------ -------- --------
H1 2019 performance, at average H1 2019 foreign exchange rates
GBPm European Mexico IPF Digital Central Group
home credit home credit costs
------------------------- ------------- ------------- ------------ -------- --------
Customer numbers
(000s) 1,032 861 304 - 2,197
Credit issued 364.6 136.4 171.3 - 672.3
Average net receivables 549.8 167.8 253.3 - 970.9
Revenue 229.1 126.6 91.2 - 446.9
Impairment (30.5) (53.1) (40.2) - (123.8)
Net revenue 198.6 73.5 51.0 - 323.1
Finance costs (18.5) (6.0) (7.1) (0.2) (31.8)
Agents' commission (25.6) (15.4) - - (41.0)
Other costs (94.3) (48.6) (44.3) (7.0) (194.2)
------------------------- ------------- ------------- ------------ -------- --------
Profit/(loss) before
tax 60.2 3.5 (0.4) (7.2) 56.1
------------------------- ------------- ------------- ------------ -------- --------
Foreign exchange movements
GBPm European Mexico IPF Digital Central Group
home credit home credit costs
------------------------- ------------- ------------- ------------ -------- -------
Credit issued (11.9) (11.6) (1.7) - (25.2)
Average net receivables (18.9) (13.8) (2.3) - (35.0)
Revenue (7.6) (10.9) (0.8) - (19.3)
Impairment 1.1 4.8 0.7 - 6.6
Net revenue (6.5) (6.1) (0.1) - (12.7)
Finance costs 0.6 0.5 - - 1.1
Agents' commission 0.7 1.3 - - 2.0
Other costs 2.7 3.6 0.5 - 6.8
------------------------- ------------- ------------- ------------ -------- -------
Profit/(loss) before
tax (2.5) (0.7) 0.4 - (2.8)
------------------------- ------------- ------------- ------------ -------- -------
H1 2019 performance, at average H1 2020 foreign exchange rates
GBPm European Mexico IPF Digital Central Group
home credit home credit costs
------------------------- ------------- ------------- ------------ -------- --------
Credit issued 352.7 124.8 169.6 - 647.1
Average net receivables 530.9 154.0 251.0 - 935.9
Revenue 221.5 115.7 90.4 - 427.6
Impairment (29.4) (48.3) (39.5) - (117.2)
Net revenue 192.1 67.4 50.9 - 310.4
Finance costs (17.9) (5.5) (7.1) (0.2) (30.7)
Agents' commission (24.9) (14.1) - - (39.0)
Other costs (91.6) (45.0) (43.8) (7.0) (187.4)
------------------------- ------------- ------------- ------------ -------- --------
Year-on-year movement at constant exchange rates
% European Mexico IPF Digital Central Group
home credit home credit costs
------------------------- ------------- ------------- ------------ -------- --------
Credit issued (39.0%) (42.1%) (46.5%) - (41.6%)
Average net receivables (3.7%) (22.7%) (7.3%) - (7.8%)
Revenue (13.7%) (21.3%) (11.5%) - (15.3%)
Impairment (220.1%) 6.6% (8.9%) - (55.5%)
Net revenue (49.5%) (31.9%) (27.3%) - (42.0%)
Finance costs 8.9% 21.8% 5.6% 100% 11.1%
Agents' commission (1.6%) 22.0% - - 6.9%
Other costs 11.5% 13.3% 17.4% 1.4% 12.9%
------------------------- ------------- ------------- ------------ -------- --------
Independent review report to the members of International
Personal Finance plc
We have been engaged by the company to review the condensed set
of financial statements in the half-year Financial Report for the
six months ended 30 June 2020 which comprises the consolidated
income statement, the consolidated statement of other comprehensive
income, the consolidated balance sheet, the consolidated statement
of changes in equity, the consolidated cash flow statement and the
related notes 1 to 22. We have read the other information contained
in the half-year Financial Report and considered whether it
contains any apparent misstatements or material inconsistencies
with the information in the condensed set of financial
statements.
Directors' responsibilities
The half-year Financial Report is the responsibility of, and has
been approved by, the directors. The directors are responsible for
preparing the half-year Financial Report in accordance with the
Disclosure Guidance and Transparency Rules of the United Kingdom's
Financial Conduct Authority.
As disclosed in note 1, the annual financial statements of the
Group are prepared in accordance with IFRSs as adopted by the
European Union. The condensed set of financial statements included
in this half-year Financial Report has been prepared in accordance
with International Accounting Standard 34 "Interim Financial
Reporting" as adopted by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the half-year
Financial Report based on our review.
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 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.
Material uncertainty related to going concern
We draw attention to note 1 in this Half-year Financial Report
regarding the Company's ability to continue as a going concern. A
material uncertainty has been noted over the going concern basis
due to the Company's primary bond maturing in April 2021 and
seeking a covenant amendment from its lenders. As stated in note 1,
these events or conditions indicate that a material uncertainty
exists that may cast significant doubt on the Group's ability to
continue as a going concern. Our opinion is not modified in respect
of this matter.
Conclusion
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 2020 is not prepared, in all material respects, in accordance
with International Accounting Standard 34 as adopted by the
European Union and the Disclosure Guidance and Transparency Rules
of the United Kingdom's Financial Conduct Authority.
Use of our report
This report is made solely to the company in accordance with
International Standard on Review Engagements (UK and Ireland) 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
8 September 2020
Investor relations and media contact
International Personal Finance Rachel Moran
plc +44 (0)7760 167637 / +44 (0)113
285 6798
International Personal Finance will host a webcast of its 2020
half-year results presentation at 09.00hrs (BST) today - 8
September 2020, which can be accessed in the Investors section of
our website at www.ipfin.co.uk .
A copy of this statement can be found on our website at
www.ipfin.co.uk .
Legal Entity Identifier: 213800II1O44IRKUZB59
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
RNS may use your IP address to confirm compliance with the terms
and conditions, to analyse how you engage with the information
contained in this communication, and to share such analysis on an
anonymised basis with others as part of our commercial services.
For further information about how RNS and the London Stock Exchange
use the personal data you provide us, please see our Privacy
Policy.
END
IR FLFVDAAIDIII
(END) Dow Jones Newswires
September 08, 2020 02:00 ET (06:00 GMT)
International Personal F... (LSE:IPF)
Historical Stock Chart
From Apr 2024 to May 2024
International Personal F... (LSE:IPF)
Historical Stock Chart
From May 2023 to May 2024