TIDMIPF
RNS Number : 9328Q
International Personal Finance Plc
03 March 2021
International Personal Finance plc
Full-year Financial Report for the period ended 31 December
2020
This announcement contains inside information
International Personal Finance plc specialises in providing
unsecured consumer credit to 1.7 million customers across 11
markets. We operate the world's largest home credit business and a
successful fintech operator, IPF Digital .
Key takeaways
Ø Resilient H2 trading performance following decisive actions
to tackle Covid-19 challenges
o Highly effective Covid-19 response centred on protecting
our people, prioritising our loyal customers and protecting
the business delivered positive operational performance
and return to profit in H2
o Improvements in collections effectiveness(1) from May enabled
progressive increases in credit issued to our highest quality
customers
o Rightsized the business to reflect reduced scale of operations
including an organisational restructure focused on preserving
frontline roles
o R eturn to growth plan being implemented to return to full-year
profitability and deliver long-term, sustainable growth
Ø Group financial performance impacted by Covid-19; return
to profitability in H2
o Focus on portfolio quality and liquidity resulted in a
41% year-on-year reduction in credit issued
o Elevated impairment charge recognised due to Covid-19 impact
- significant improvement in H2 impairment charge
o Cost savings of GBP58.3 million delivered as a result of
tight cost control and rightsizing strategy
o Pre-exceptional loss before tax of GBP28.8 million (2019
profit: GBP114.0 million)
o Pre-exceptional profit before tax of GBP18.0 million in
H2 2020
o Exceptional loss of GBP11.9 million resulting in statutory
loss before taxation of GBP40.7 million
Ø Strong funding position and strengthened balance sheet
o Well capitalised: equity to receivables ratio strengthened
significantly to 55.4% at 31 December (31 December 2019:
44.8%)
o Successful completion of new 5-year Eurobond issue and
amended covenant package across all the Group's bonds and
bank facilities
o Bond and bank facilities total GBP624 million of funding
to support future growth with headroom on undrawn facilities
and non-operational cash balances of GBP210 million
Group key statistics FY 2019 FY 2020 YOY change
at CER
Customer numbers (000s) 2,109 1,682 (20%)
Credit issued (GBPm) 1,353.0 772.2 (41%)
Revenue (GBPm) 889.1 661.3 (22%)
Pre-exceptional impairment % revenue 27.4% 37.4% (10.0ppts)
Pre-exceptional cost-income ratio 43.5% 47.7% (4.2ppts)
Pre-exceptional PBT/(LBT) (GBPm) 114.0 (28.8)
Statutory PBT/(LBT) (GBPm) 114.0 (40.7)
Statutory EPS/(LPS) (pence) 32.2 (28.9)
Full-year dividend per share (pence) 12.4 -
------------------------------------------------ --------- --------- -----------
(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:
"We have managed the business effectively through this turbulent
period and proven the resilience of our international business
model. We responded quickly to the pandemic, taking the strategic
decision to establish three principles to guide our decision-making
- to protect our people, prioritise our loyal customers and protect
our business. This approach, together with the implementation of
our return to growth plan and the exceptional dedication of our
workforce, allowed us to continue serving our customers safely,
deliver an improving operational performance and return the
business to p rofitability in the second half of the year. Our
business plays a key role in society and we are well-placed to
remain at the forefront of lending responsibly to underbanked and
underserved consumers and, in turn, deliver long-term growth and
value to all our stakeholders."
Market overview and Covid-19 response strategy
From mid-March, the Covid-19 pandemic posed significant,
unforeseen challenges for many businesses, particularly those that
rely on face-to-face interactions with consumers such as our home
credit businesses. We responded quickly and took the strategic
decision to establish three principles to guide our decision-making
through this turbulent period. These were to protect our people,
prioritise our loyal customers and protect our business. We
subsequently developed and implemented our phased return to growth
plan to safeguard the business, drive our recovery and return to
profitability and future long-term growth. This approach, together
with the exceptional dedication of our workforce, allowed us to
continue serving our customers safely, deliver an improving
operational performance and returned the business to profitability
in the second half of the year.
As we have reported previously , regulators and governments
introduced a range of measures in our markets to manage the effects
of the pandemic, some of which had a significant impact on our
businesses. Over the course of the year, these measures have been
lifted, modified or extended as governments sought to manage their
economies through the evolution of the pandemic.
People movement restrictions
During April and May significant restrictions on non-essential
contact prevented most of our agents in Europe from visiting
customers to collect repayments or grant new loans. In Mexico,
where there is a state-by-state response rather than a central
government plan, disruption to our agent service has not been
market-wide or as severe as our experience in Europe. We used our
digital expertise to rapidly develop and deploy remote repayment
facilities in all our home credit markets, thus enabling customers
to continue repaying their loans while minimising personal contact.
We also transitioned all 6,000 office and call centre employees to
remote working practices. Since lockdown restrictions were eased,
we have continued to provide personal protective equipment and
safety guidance to ensure our agents are able to serve customers
safely and with confidence. We have also introduced flexible
working practices to allow colleagues to work from remote locations
or our offices as most befits their needs.
Temporary tightening of existing rate caps
Temporary tightening of existing rate caps was introduced in
Poland, Hungary and Finland during the first wave of the pandemic.
The temporary reduction of the APR cap in Hungary reverted to the
previous level of 24% plus base rate at the start of 2021. The
Polish government introduced a temporarily reduced cap on
non-interest costs of new lending until 8 March 2021 and this has
been extended until 30 June 2021. As we reported at the half-year,
the temporary tightening of the existing rate cap in Finland to 10%
for all new lending resulted in our decision to close our digital
business in this market and collect-out the portfolio.
Temporary debt repayment moratoria
In order to ease financial difficulties for borrowers during the
pandemic, the Hungarian government implemented a debt repayment
moratorium available for all consumers until the end of 2020, and
this was subsequently extended to 30 June 2021. Borrowers can
opt-out if they wish to continue to repay their loans and a
significant majority of our customers have chosen to do so.
Temporary moratoria allowing customers to suspend loan repayments
for defined periods were also introduced in a number of our other
European markets, but on an "opt-in" basis (unlike Hungary).
Take-up was not significant due to the eligibility criteria and our
proactive actions to offer alternative forbearance solutions to our
customers, including payment holidays.
Group performance
We started 2020 with a good performance before the outbreak of
the Covid-19 pandemic in mid-March. While the remainder of 2020 was
challenging, and we continue to face macroeconomic uncertainty as a
result of the pandemic, our swift and decisive actions early in the
year to manage the business through this turbulent period resulted
in an improving operational performance from June onwards, and a
return to profitability in the second half of the year. It also
demonstrated the resilience of our business model, the
effectiveness of our credit risk management systems and our ability
to generate cash.
The full-year result reflects the significant impact that the
pandemic had on our business, both operationally and financially,
with a pre-exceptional loss before tax of GBP28.8 million
(statutory loss before tax of GBP40.7 million) .
FY 2019 FY 2020 Change Change Change
GBPm GBPm GBPm % at CER
%
--------------------------- -------- -------- --------- ------- --------
Customer numbers (000s) 2,109 1,682 (427) (20.2)
Credit issued 1,353.0 772.2 (580.8) (42.9) (40.9)
Average net receivables 986.6 777.6 (209.0) (21.2) (18.6)
--------------------------- -------- -------- --------- ------- --------
Revenue 889.1 661.3 (227.8) (25.6) (22.4)
Impairment (243.5) (247.6) (4.1) (1.7) (6.9)
--------------------------- -------- -------- --------- ------- --------
Net revenue 645.6 413.7 (231.9) (35.9) (33.4)
Finance costs (63.5) (55.0) 8.5 13.4 10.4
Agents' commission (81.0) (72.0) 9.0 11.1 6.0
Other costs (387.1) (315.5) 71.6 18.5 15.6
--------------------------- -------- -------- --------- ------- --------
Pre-exceptional profit
/ (loss) before taxation 114.0 (28.8) (142.8)
Exceptional items - (11.9) (11.9)
--------------------------- -------- -------- --------- ------- --------
Profit / (loss) before
taxation 114.0 (40.7) (154.7)
--------------------------- -------- -------- --------- ------- --------
Our adherence to tighter credit settings and our liquidity
management strategy resulted in a 41% reduction in credit issued, a
19% decline in average net receivables and a 22% contraction in
revenue. Our collections performance was disrupted by the pandemic,
particularly the restrictions on people movement, and this resulted
in a significant increase in the IFRS 9 impairment charge, part of
which is assessed as being temporary and is expected to unwind in
2021 (see below for more details). A key component of our Covid-19
response was a significant cost reduction programme. This included
the elimination of discretionary expenditure in Q2 and a
rightsizing exercise that aligned the cost base to the reduced
scale of the business, removing around 1,200 roles from the
organisation. These actions delivered a GBP58.3 million (at CER)
reduction in other costs year on year. Finance costs reduced by 10%
due to lower average borrowing requirements resulting from our
focus on liquidity management and a reduction in base rates. We
took a strategic decision to support agent incomes during the
pandemic in order to reward the loyalty of our agents and maintain
agent - customer relationships, and this resulted in agents'
commission reducing at a slower rate than the contraction in
revenue.
The income statement includes a net exceptional loss before
taxation of GBP11.9 million which comprises a GBP10.6 million
charge arising from the decision to close our business in Finland
(further details are set out in note 9 of this report) and a GBP9.5
million charge for rightsizing, partially offset by the receipt of
GBP8.2 million of interest income in respect of our successful
court challenge to the Polish tax audit cases for 2008 and
2009.
Following a reported pre-exceptional loss before tax of GBP46.8
million in H1, it is pleasing to report that the business delivered
a pre-exceptional profit before tax of GBP18.0 million in the
second half of the year, an improvement of GBP64.8 million between
the periods.
H1 2020 H2 2020 FY 2020
GBPm GBPm GBPm
--------------------------------- -------- -------- --------
European home credit (25.6) 12.0 (13.6)
Mexico home credit (8.4) 11.9 3.5
IPF Digital (5.9) (0.1) (6.0)
Central costs (6.9) (5.8) (12.7)
--------------------------------- -------- -------- --------
Pre-exceptional (loss) / profit
before tax (46.8) 18.0 (28.8)
--------------------------------- -------- -------- --------
This significantly improved performance was driven by a
combination of lower impairment charges and cost reductions,
partially offset by lower revenue. Revenue reduced by GBP63.1
million in the second half due to the contraction in the
receivables portfolio arising from our credit quality and liquidity
management actions. Impairment in the second half of the year was
GBP116.8 million lower than the first half when significant charges
were booked to account for the expected impact of the pandemic.
Collections effectiveness, which reduced to 76% in April, improved
to reach 97% in Q4 2020. As a result, impairment as a percentage of
revenue improved significantly from 50.3% in H1 to 21.9% in the
second half and this included a 5.4 ppt benefit resulting from the
unwinding of discounting provisions. Costs in the second half of
the year reduced by GBP10.9 million compared to H1, reflecting the
initial benefits of our rightsizing programme.
Strategy
We play an important role in society by providing affordable
finance responsibly to underbanked and underserved consumers. Our
strategy centres on delivering a positive customer experience and
expanded product range in European home credit to enable these
businesses to return to delivering good levels of profitability and
returns. These returns will be used to maintain our investment in
improving the customer journey and operational efficiency while
reinvigorating growth in Mexico home credit and IPF Digital. As we
reported at the half-year, our underlying strategy has not changed,
but in light of the pandemic, we redefined our strategic goals in
April to safeguard the business and develop firm foundations to
return quickly to profitability and long-term growth.
Our strategic goals
Phase 1 - H1 2020: Completed
Protect our people, prioritise loyal customers and protect the
business
Phase 2 - H2 2020: Completed
Rightsize the business to accelerate recovery and refinance the
balance sheet
Phase 3 - 2021: Underway
Rebuild the business
Phase 4 - 2022+
Deliver long-term, sustainable growth
We successfully executed phases 1 and 2 of our plan, and this
supported the delivery of the improved operating and financial
performance in the second half of the year. In managing the impact
of the pandemic, we ensured that our people were well-protected,
that we retained our loyal customers and preserved liquidity.
Through our rightsizing programme, we significantly reduced our
cost base to reflect the smaller scale of our operations and to
accelerate a return to full-year profitability. Role reductions
were 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. In addition, following a
review of the level of expected returns and the capital
requirements of each business unit, we closed four
weaker-performing branches in Mexico, merged our two digital
businesses in Poland to create operational synergies and we decided
to collect out the IPF Digital Finland portfolio due to the further
tightening of the APR cap in that market.
Despite the challenges of the pandemic, we also made progress on
a number of strategic developments. We rolled out our new mobile
wallet in Latvia and launched our Creditea digital offering in the
Czech Republic. We continued the digital transformation of our home
credit operations, completing the roll-out of the sales and
collections functionality of our MyProvi mobile app for agents in
Europe and commenced the introduction of the first apps in Mexico.
Our new MyNews mobile communications app, which proved critical to
delivering health and safety information directly to agents and
field staff during the pandemic, has been rolled out to all agents
and most employees in Europe and 8,000 agents and employees in
Mexico, to date.
Phase 3: Rebuild the business
In 2021 we are focused on rebuilding the receivables portfolio
and we expect to progressively increase credit issued in each of
our businesses. We continue to believe that there will be lower
levels of supply of credit in the course of the next few years, and
we expect to be in a good position to meet the needs of underserved
consumers in our segment.
Phase 4: Deliver longer-term growth
Beyond the return to profitability, we plan to use our digital
expertise combined with our market-leading positions and unrivalled
knowledge of our core customer segment to enhance our product
proposition for customers and deliver longer-term growth across the
Group.
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. Following a good start to the year, the impact of the
pandemic and government policy responses had a significant impact
on these operations. This resulted in European home credit
delivering a pre-exceptional loss before tax of GBP13.6 million for
2020 (statutory loss before tax of GBP11.1million) . This comprised
a loss of GBP25.6 million in the first half followed by a return to
GBP12.0 million profit in H2, an improvement of GBP37.6 million.
The recovery was primarily driven by a GBP55.9 million reduction in
the impairment charge partially offset by reduced revenue arising
from the contraction in the receivables portfolio. The reduction in
impairment was driven by an improved collections performance and
the partial unwinding of discounting provisions booked in H1.
FY 2019 FY 2020 Change Change Change
GBPm GBPm GBPm % at CER
%
--------------------------- -------- -------- -------- -------- --------
Customer numbers (000s) 1,009 860 (149) (14.8)
Credit issued 751.3 479.6 (271.7) (36.2) (34.6)
Average net receivables 562.0 468.4 (93.6) (16.7) (14.4)
--------------------------- -------- -------- -------- -------- --------
Revenue 452.2 363.4 (88.8) (19.6) (17.6)
Impairment (56.0) (132.3) (76.3) (136.3) (139.7)
--------------------------- -------- -------- -------- -------- --------
Net revenue 396.2 231.1 (165.1) (41.7) (40.1)
Finance costs (37.1) (33.3) 3.8 10.2 7.8
Agents' commission (51.1) (50.7) 0.4 0.8 (2.0)
Other costs (192.9) (160.7) 32.2 16.7 15.0
--------------------------- -------- -------- -------- -------- --------
Pre-exceptional profit
/ (loss) before taxation 115.1 (13.6) (128.7)
Exceptional items - 2.5 2.5
--------------------------- -------- -------- -------- -------- --------
Profit / (loss) before
taxation 115.1 (11.1) (126.2)
--------------------------- -------- -------- -------- -------- --------
Customer numbers and credit issued contracted year on year by
15% and 35% respectively, attributable largely to the significant
tightening of credit settings implemented from March onwards.
Collections effectiveness, which reduced in April to 71% of the
pre-Covid-19 level when agent service was suspended in a number of
markets, improved through the remainder of the year, reaching 95%
in Q4 2020 . This robust performance enabled a progressive monthly
increase in credit issued focused on our loyal, higher-quality
customers from June onwards. Average net receivables reduced by 14%
year on year, due to reductions in credit issued and Covid-19
related impairment provisions. Revenue contracted at the faster
rate of 18%, driven by higher early settlement rebate charges and
the temporary reduction in the rate cap in Poland.
The impairment charge for the year increased by GBP76.3 million
to GBP132.3 million and this increase mainly arose during the first
half of the year as a result of the incremental impairment
provisions recorded in response to Covid-19 (see below for further
details). Impairment as a percentage of revenue increased by 24.0
ppts to 36.4%, driven primarily by the incremental provisions, the
most significant uplift of which was in Hungary where the temporary
opt-out debt repayment moratorium had a greater impact on
collections than in other markets. Successful cost-saving measures
implemented across these businesses resulted in a 15% (GBP28.4
million at CER) reduction in costs. Agents' commission costs
increased by 2%, reflecting our objective of supporting agent
incomes during this difficult period and the shift in the balance
of incentives from sales to collections.
In 2021, we will focus on continuing to regrow credit issued
while maintaining robust collections and credit quality. We will
also maintain strong cost control as we rebuild scale in these
businesses through the year.
Mexico home credit
Actions introduced in 2019 to improve portfolio quality in
Mexico were delivering an improved financial performance in the
first quarter before the pandemic impacted operations. Lessons
learned in Europe, where the onset of the pandemic began earlier
than in Mexico, guided pre-emptive action in this market in order
to protect our people and the business. For the year as a whole,
Mexico home credit reported a pre-exceptional profit of GBP3.5
million (statutory profit before tax of GBP0.8 million) . This
comprised a loss of GBP8.4 million in the first half followed by a
profit of GBP11.9 million in H2; a turnaround of GBP20.3 million.
This improved performance was driven by a combination of a GBP37.2
million reduction in the impairment charge together with a lower
cost base, partially offset by materially lower revenues arising
from the contraction of the receivables portfolio. The strong
reduction in impairment in H2 was driven by a continuation of the
improvements in collection trends reported before the pandemic and
the benefit of the partial unwinding of discounting provisions
booked in the first half of the year.
FY 2019 FY 2020 Change Change Change
GBPm GBPm GBPm % at CER
%
------------------------- -------- -------- -------- ------- --------
Customer numbers (000s) 795 599 (196) (24.7)
Credit issued 268.2 143.6 (124.6) (46.5) (40.2)
Average net receivables 164.4 102.5 (61.9) (37.7) (30.6)
------------------------- -------- -------- -------- ------- --------
Revenue 247.6 157.1 (90.5) (36.6) (29.3)
Impairment (102.3) (53.0) 49.3 48.2 42.2
------------------------- -------- -------- -------- ------- --------
Net revenue 145.3 104.1 (41.2) (28.4) (20.2)
Finance costs (11.8) (7.7) 4.1 34.7 27.4
Agents' commission (29.9) (21.3) 8.6 28.8 20.8
Other costs (93.1) (71.6) 21.5 23.1 14.8
Pre-exceptional profit
before taxation 10.5 3.5 (7.0)
Exceptional items - 2.7 2.7
------------------------- -------- -------- -------- ------- --------
Profit before taxation 10.5 0.8 (9.7)
------------------------- -------- -------- -------- ------- --------
Our focus on improving credit quality throughout 2019 and the
further tightening of credit settings resulting from Covid-19 led
to a 25% contraction in customer numbers to 599,000 and a 40%
reduction in credit issued year on year. Due to the shorter average
loan duration in Mexico, lower credit issued and incremental
impairment provisions, average net receivables reduced by 31% and
this resulted in a 29% contraction in revenue.
The actions taken to improve operations from the second half of
2019 had begun to deliver increased collections and credit quality
at the beginning of the year. However, the onset of the pandemic
and subsequent restrictions on people-movement resulted in
collections effectiveness reducing initially to 81% in April before
improving to 100% in Q4 2020. Impairment as a percentage of revenue
reduced year on year to 33.7%, which represents a 7.6 ppt
improvement, reflecting the improved operational performance
partially offset by incremental charges arising in respect of the
pandemic.
Significant cost savings were realised following cost reduction
measures taken in response to the pandemic, delivering a 15%
(GBP12.4 million at CER) reduction in other costs. 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.
The operational improvements introduced in 2019 had a positive
impact on performance during 2020 although this was negatively
impacted by the pandemic. The pre-pandemic improvements give us the
confidence to continue our strategy of easing credit settings and
rebuilding the receivables portfolio whilst maintaining credit
quality at the improved level delivered in 2020. The digital
transformation of the business will continue as we complete the
roll-out of the collections functionality of our MyProvi agent app,
which will further improve cost efficiency. We will also focus on
improving branch profitability and ensuring rigorous cost
management in order to deliver a much-improved financial
performance in 2021 and return the business to sustainable growth
thereafter.
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 restrictions in 2020. However, as part
of our strategy to protect credit quality and manage liquidity, we
tightened credit settings significantly 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 GBP6.0 million (statutory loss before tax of GBP17.3
million), driven by reduced scale and incremental Covid-19 related
impairment, partially offset by lower costs. This result comprised
a pre-exceptional loss of GBP5.9 million in the first half and a
GBP0.1 million loss in H2, with the improved performance resulting
from lower impairment and reduced costs, partially offset by
reduced revenues.
FY 2019 FY 2020 Change Change Change
GBPm GBPm GBPm % at CER
%
--------------------------- -------- -------- -------- ------- --------
Customer numbers
(000s) 305 223 (82) (26.9)
Credit issued 333.5 149.0 (184.5) (55.3) (55.3)
Average net receivables 260.2 206.7 (53.5) (20.6) (20.8)
--------------------------- -------- -------- -------- ------- --------
Revenue 189.3 140.8 (48.5) (25.6) (25.8)
Impairment (85.2) (62.3) 22.9 26.9 26.4
--------------------------- -------- -------- -------- ------- --------
Net revenue 104.1 78.5 (25.6) (24.6) (25.2)
Finance costs (14.4) (13.9) 0.5 3.5 4.1
Other costs (86.5) (70.6) 15.9 18.4 18.0
--------------------------- -------- -------- -------- ------- --------
Pre-exceptional profit
/ (loss) before taxation 3.2 (6.0) (9.2)
Exceptional items - (11.3) (11.3)
--------------------------- -------- -------- -------- ------- --------
Profit / (loss) before
taxation 3.2 (17.3) (20.5)
--------------------------- -------- -------- -------- ------- --------
Year on year, customer numbers reduced by 27% to 223,000 and
credit issued contracted by 55%, driven by the restricted credit
settings introduced in response to Covid-19, our ongoing strategy
to improve credit quality in our new markets and the cessation of
lending in Finland following a tightening of the rate cap in that
country. Average net receivables reduced by 21% and revenue
contracted at the slightly faster rate of 26%.
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 the year to 99% in Q4 2020. Impairment as a
percentage of revenue at 44.2%, was in line with 2019 and comprised
a reduction in the new markets, reflecting the benefit of our
credit quality improvement strategy, and an increase in the
established markets arising from Covid-19. Tight cost control
resulted in an 18% reduction in costs (GBP15.5 million at CER)
driven mainly by the benefits of the rightsizing exercise, lower
marketing expenditure and other volume-related costs.
The pre-exceptional profitability of IPF Digital is segmented as
follows:
FY 2019 FY 2020 Change Change
GBPm GBPm GBPm %
--------------------- -------- -------- ------- -------
Established markets 32.7 18.4 (14.3) (43.7)
New markets (15.5) (12.8) 2.7 17.4
Head office costs (14.0) (11.6) 2.4 17.1
--------------------- -------- -------- ------- -------
IPF Digital 3.2 (6.0) (9.2)
--------------------- -------- -------- ------- -------
Established markets
The established markets delivered a pre-exceptional profit
before tax of GBP18.4 million (statutory profit before tax of
GBP8.7 million) , driven by a combination of lower revenues and
higher levels of impairment arising from Covid-19, partially offset
by lower costs. This comprised a profit in the first half of GBP7.0
million and GBP11.4 million in H2 with the increase in the second
half year driven by reduced impairment.
FY 2019 FY 2020 Change Change Change
GBPm GBPm GBPm % at
CER
%
------------------------- -------- -------- -------- ------- -------
Customer numbers
(000s) 150 116 (34) (22.7)
Credit issued 165.5 85.0 (80.5) (48.6) (49.4)
Average net receivables 137.7 117.9 (19.8) (14.4) (15.5)
------------------------- -------- -------- -------- ------- -------
Revenue 83.1 71.6 (11.5) (13.8) (15.1)
Impairment (16.4) (20.5) (4.1) (25.0) (22.8)
------------------------- -------- -------- -------- ------- -------
Net revenue 66.7 51.1 (15.6) (23.4) (24.4)
Finance costs (7.2) (7.8) (0.6) (8.3) (5.4)
Other costs (26.8) (24.9) 1.9 7.1 8.1
------------------------- -------- -------- -------- ------- -------
Pre-exceptional profit
before taxation 32.7 18.4 (14.3)
Exceptional items - (9.7) (9.7)
------------------------- -------- -------- -------- ------- -------
Profit before taxation 32.7 8.7 (24.0)
------------------------- -------- -------- -------- ------- -------
Credit issued contracted by 49% year on year, impacted by
tighter credit settings introduced in response to Covid-19 together
with our decision to cease lending in Finland and collect out the
portfolio. Average net receivables contracted by 16% due to the
lower credit issued and this resulted in a 15% reduction in
revenue. Excluding Finland, the contraction in average net
receivables and revenue was significantly lower at 6% and 3%
respectively.
Impairment as a percentage of revenue increased by 8.9 ppts year
on year to 28.6% due to the Covid-19 related incremental impairment
that is set out above. Our cost reduction programme resulted in an
8% reduction in costs (GBP2.2 million at CER).
New markets
Losses in the new markets narrowed year on year to GBP12.8
million (statutory loss before tax of GBP14.4 million), which was
driven by lower impairment and costs, partially offset by reduced
revenue. Losses in the first and second half of the year were
broadly similar with lower revenue offsetting reduced impairment
and costs.
FY 2019 FY 2020 Change Change Change
GBPm GBPm GBPm % at CER
%
------------------------- -------- --------- -------- -------- ---------
Customer numbers
(000s) 155 107 (48) (31.0)
Credit issued 168.0 64.0 (104.0) (61.9) (61.3)
Average net receivables 122.5 88.8 (33.7) (27.5) (26.8)
------------------------- -------- --------- -------- ------- ----------
Revenue 106.2 69.2 (37.0) (34.8) (34.3)
Impairment (68.8) (41.8) 27.0 39.2 38.5
------------------------- -------- --------- -------- ------- ----------
Net revenue 37.4 27.4 (10.0) (26.7) (26.7)
Finance costs (7.2) (6.1) 1.1 15.3 14.1
Other costs (45.7) (34.1) 11.6 25.4 23.9
------------------------- -------- --------- -------- ------- ----------
Pre-exceptional
(loss) before taxation (15.5) (12.8) 2.7
Exceptional items - (1.6) (1.6)
------------------------- -------- --------- -------- ------- ----------
(Loss) before taxation (15.5) (14.4) 1.1
------------------------- -------- --------- -------- ------- ----------
Customer numbers reduced to 107,000 and credit issued contracted
by 61% 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 27% and
revenue contracted at the faster rate of 34% due to higher levels
of claims management charges in Spain.
Impairment as a percentage of revenue improved by 4.4 ppts year
on year to 60.4% driven by underlying improvements in credit
quality, partially offset by higher provisions booked in respect of
Covid-19. Costs reduced by 24% year on year (GBP10.7 million at
CER), driven principally by the benefits of rightsizing, lower
marketing expenditure and other volume-related costs as we reduced
our credit issued volumes.
IPF Digital continues to offer significant long-term growth
opportunities. In 2021, we will focus on progressively rebuilding
the receivables portfolio and accelerating new customer growth,
delivering further improvements in credit quality and maintaining
tight control of costs. We also plan to expand our mobile wallet
offering in Latvia, leverage the benefits of merging our two
digital businesses in Poland and deliver our collect-out plan in
Finland.
Funding and balance sheet
We have a very strong balance sheet, funding position and robust
financial risk management. At December 2020, the equity to
receivables ratio was 55.4% (2019: 44.8%) and the gearing ratio was
1.3 (2019: 1.5).
The Group refinanced its April 2021 Eurobond in November 2020
with the issuance of a new 2025 EUR341 million 9.75% Eurobond and a
partial cash settlement at par. In addition, we obtained covenant
amendments from our other bondholders (2022 SEK and 2023 sterling
bonds) and from our current banking partners. At December 2020 the
Group had total debt facilities of GBP624 million (GBP423 million
of bonds and GBP201 million of bank facilities) and borrowings of
GBP499 million, with headroom on undrawn facilities and
non-operational cash balances of GBP210 million. The average period
to maturity of this debt funding is 3.3 years (2019: 1.7 years).
Total cash balances at December 2020 were GBP116 million (2019:
GBP37 million) and include GBP85 million that was not required for
operational purposes but is available to support future receivables
growth.
The equity to receivables ratio is materially higher than in
previous years and reflects the contraction of the receivables
portfolio that resulted from our liquidity management response to
Covid-19. This level of equity funding will provide sufficient
capital to fund expected receivables growth while maintaining the
resilience of the balance sheet given the ongoing Covid-19 pandemic
and regulatory uncertainty.
Regulatory update
As previously reported, UOKiK, the Polish competition and
consumer protection authority, has been conducting a comprehensive
review of early loan settlement rebating practices by banks and
other consumer credit providers. In light of this and a recent
European Court of Justice declaratory judgment on the matter, new
market standard rebating practices are expected to be implemented
in Poland during 2021. Our current expectation for our Polish
business is that the annualised financial impact on profit before
tax is 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 enacted by parliament in May 2020
implementing a cap on the total amount payable on a consumer loan
agreement was successfully challenged at the Constitutional Court
in January of this year. As a result, the law, which was suspended
pending the court challenge, has been annulled and any further
effort to implement similar proposals would require a new and
complete legislative process.
Taxation
The taxation charge on the post-exceptional loss for 2020 is
GBP23.5m. The pre-exceptional tax charge is GBP24.5 million. The
tax charge arises from a combination of factors but is largely
driven by the non-tax deductible impairment charges, 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 credit of GBP1 million is stated net of a
GBP1.1 million write-off of a deferred tax asset held in respect of
the Finnish business.
Following our successful appeals against the Polish Tax
Chamber's decisions for 2008 and 2009 earlier in 2020, the Group
currently has no open tax audits in Poland.
With regard to the European Commission's State Aid challenge to
the UK's Group Financing Exemption regime, following the enactment
of new legislation in December 2020, HMRC has issued a Charging
Notice seeking payment of GBP14.2 million in respect of the alleged
State Aid for the affected years. The payment of this amount is a
procedural matter, and the new law does not allow for postponement.
Accordingly this amount was paid in February 2021 and we are
appealing the Charging Notice on the grounds of the quantum
assessed. Whether the UK's Group Financing Exemption regime
constitutes State Aid is ultimately to be decided and we continue
to await a decision of the General Court of the European Union on
this matter. Further details are set out in note 23.
Dividend
The Board considered the financial performance in 2020 and
concluded that it is not appropriate to propose a final dividend;
however, it remains committed to paying a progressive dividend in
the future. The Board will review dividend payments regularly,
taking into account the financial performance and financial
position of the Group and we intend to recommence dividend payments
as soon as circumstances permit.
Board changes
Richard Moat, who joined the Board in 2012, and Cathryn Riley
who joined in 2014, will not be seeking re-election at the 2021 AGM
in April and will stand down from the Board as non-executive
directors at that time. We are pleased to announce that Richard
Holmes will replace Richard Moat as the Senior Independent Director
and Chair of the Audit and Risk Committee and Deborah Davis will
replace Cathryn as the Remuneration Committee Chair with effect
from the conclusion of the 2021 AGM, subject to their re-election
as directors. The Board would like to thank Richard and Cathryn for
their service, insight and contribution during their time at IPF
and is confident that Richard and Deborah will prove to be worthy
successors.
Outlook
Our business plays an important key role in society by providing
credit responsibly to those who are underbanked or underserved ,
and there remains significant demand for affordable credit from
this group of consumers in all our markets . As a more nimble, more
cost-effective business than we were before the pandemic we remain
well placed to satisfy this demand in the long term. Credit issued
during 2021 to date continues to show encouraging trends with
year-on-year improvements that are ahead of Q4 2020 despite renewed
restrictions on people movement having an impact on customer
demand, and we expect to progressively rebuild the receivables
portfolio as the year unfolds. Our strategy is supported by our
strong balance sheet and funding position, which will allow us to
rebuild our European home credit business, capture the substantial
growth opportunities in both Mexico home credit and IPF Digital,
return the Group to full-year profitability in 2021 and deliver
further growth thereafter.
Covid-19 impact on impairment
The application of IFRS 9 to the effects of Covid-19 had a
significant impact on the Group's impairment accounting and charge
in 2020. As reported in our half-year financial report,
government-imposed restrictions on freedom of movement and the
introduction of debt repayment moratoria, together with the
anticipated 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, accordingly, we
reviewed the appropriateness of our impairment modelling under IFRS
9 in the first half of the year. This included a full assessment of
expected credit losses, including a forward-looking assessment of
expected collection cash-flows. As a result, we applied overlays to
our impairment models in order to calculate the expected impact of
the pandemic on the Group's impairment charge. These overlays were
refreshed at the year end.
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, resulting in
slower collections and an expectation of a larger increase in
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, thereby assuming
that all missed collections are a result of credit quality
deterioration and generating a disproportionately increased ECL.
Therefore, for all lending issued before June 2020, we have 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 has resulted in an incremental impairment
provision of GBP33 million. We expect temporarily 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 has resulted in an additional impairment charge
of GBP16 million. We expect this element of the incremental
impairment charge to reverse during the next 12 months as the
temporarily missed payments are collected from our customers.
Impairment on lending from June 2020 onwards has been recorded
using our standard impairment accounting models without applying
these overlays due to the reduction in operational disruption and
the tightened credit settings on new lending.
In addition to the increased impairment provisions resulting
from the model overlays, a further GBP20 million impairment charge
was taken in the home credit business to account for reduced
collections during the first half of the year.
IPF Digital impairment
The key impacts of the pandemic on the digital business have
been a reduction in the number of customers regularly paying more
than their minimum monthly repayment and the disruption to
forward-flow arrangements with debt purchasers.
Having reviewed the expected economic impact of the pandemic on
our customers' debt repayment capacity and used this information to
calculate the increased probability of customers defaulting, we
recorded an appropriate impairment overlay provision. As a result
of the pandemic, some of the forward-flow agreements we have with
purchasers of our delinquent accounts have been disrupted. 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 GBP11
million.
Alternative performance measures
This full-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 full-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.
International Personal Finance plc
Consolidated income statement for the year ended 31 December
2020 2020 Exceptional 2020 2019
Pre-exceptional items
items (note 9)
Notes GBPm GBPm GBPm GBPm
--------------------------------------- ------ ----------------- ----------------- -------- --------
Revenue 4 661.3 - 661.3 889.1
Impairment 4 (247.6) (2.5) (250.1) (243.5)
Revenue less impairment 413.7 (2.5) 411.2 645.6
----------------- ----------------- -------- --------
Finance costs 5 (55.0) 8.2 (46.8) (63.5)
Other operating costs (108.7) - (108.7) (137.3)
Administrative expenses (278.8) (17.6) (296.4) (330.8)
Total costs (442.5) (9.4) (451.9) (531.6)
----------------- ----------------- -------- --------
(Loss)/profit before taxation 4 (28.8) (11.9) (40.7) 114.0
Tax income/(expense) -
UK 2.3 0.1 2.4 2.2
- Overseas (26.8) 0.9 (25.9) (44.4)
--------------------------------------- ------ ----------------- ----------------- -------- --------
Tax (expense)/income 6 (24.5) 1.0 (23.5) (42.2)
--------------------------------------- ------ --------
(Loss)/profit after taxation
attributable to owners
of the Company (53.3) (10.9) (64.2) 71.8
--------------------------------------- ------ ----------------- ----------------- -------- --------
(Loss)/earnings per share - statutory
2020 2019
Notes pence pence
--------- ------ ------- ------
Basic 7 (28.9) 32.2
Diluted 7 (27.4) 30.3
--------- ------ ------- ------
(Loss)/earnings per share - pre-exceptional items
2020 2019
Notes pence pence
--------- ------ ------- ------
Basic 7 (24.0) 32.2
Diluted 7 (22.8) 30.3
--------- ------ ------- ------
The notes to the financial information are an integral part of
this consolidated financial information.
Consolidated statement of comprehensive income for the year
ended 31 December
2020 2019
GBPm GBPm
--------------------------------------------------- -------- -------
(Loss)/profit after taxation attributable
to owners of the Company (64.2) 71.8
-------- -------
Other comprehensive (expense)/income
Items that may subsequently be reclassified
to income statement:
Exchange losses on foreign currency translations (4.1) (42.2)
Net fair value gains - cash flow hedges 1.3 0.6
Tax charge on items that may be reclassified (0.3) (0.1)
Items that will not subsequently be reclassified
to income statement:
Actuarial losses on retirement benefit obligation (1.4) (1.7)
Tax credit on items that will not be reclassified 0.3 0.2
-------- -------
Other comprehensive expense net of taxation (4.2) (43.2)
--------------------------------------------------- -------- -------
Total comprehensive (expense)/income for the
year attributable to owners of the Company (68.4) 28.6
--------------------------------------------------- -------- -------
The notes to the financial information are an integral part of
this consolidated financial information.
Balance sheet as at 31 December
2020 2019
Notes GBPm GBPm
-------------------------------------------- -------- --------
Assets
Non-current assets
Goodwill 10 24.4 23.1
Intangible assets 11 30.2 43.2
Property, plant and equipment 12 15.4 20.0
Right-of-use assets 13 17.5 18.8
Amounts receivable from customers 15 136.5 245.3
Deferred tax assets 14 135.7 151.7
Non-current tax asset 18 - 34.2
Retirement benefit asset 3.4 3.4
-------------------------------------- ---- -------- --------
363.1 539.7
-------- --------
Current assets
Amounts receivable from customers 15 532.6 728.3
Derivative financial instruments 17 0.5 0.3
Cash and cash equivalents 116.3 37.4
Other receivables 9.9 16.9
Current tax assets 1.5 0.1
-------------------------------------- ---- -------- --------
660.8 783.0
-------- --------
Total assets 1,023.9 1,322.7
-------- --------
Liabilities
Current liabilities
Borrowings 16 (0.2) (112.7)
Derivative financial instruments 17 (6.7) (16.2)
Trade and other payables (89.1) (123.9)
Provisions for liabilities & charges 19 (19.2) -
Lease Liabilities 13 (7.4) (8.7)
Current tax liabilities (13.4) (30.3)
-------------------------------------- ---- -------- --------
(136.0) (291.8)
-------- --------
Non-current liabilities
Deferred tax liabilities 14 (13.8) (20.0)
Lease Liabilities 13 (11.8) (10.8)
Borrowings 16 (491.8) (563.7)
-------------------------------------- ---- -------- --------
(517.4) (594.5)
-------- --------
Total liabilities (653.4) (886.3)
-------------------------------------- ---- -------- --------
Net assets 370.5 436.4
-------------------------------------- ---- -------- --------
Equity attributable to owners of the
Company
Called-up share capital 23.4 23.4
Other reserve (22.5) (22.5)
Foreign exchange reserve 5.0 9.1
Hedging reserve 0.9 (0.1)
Own shares (45.2) (46.1)
Capital redemption reserve 2.3 2.3
Retained earnings 406.6 470.3
-------------------------------------- ---- -------- --------
Total equity 370.5 436.4
-------------------------------------- ---- -------- --------
The notes to the financial information are an integral part of
this consolidated financial information.
Statement of changes in equity
Called-up Other Other Retained Total
share reserve reserves* earnings equity
capital GBPm GBPm GBPm GBPm
GBPm
---------------------------------------- ---------- ---------- ------------ ----------- ---------
At 1 January 2019 23.4 (22.5) 7.9 424.2 433.0
Comprehensive income:
Profit after taxation for the
year - - - 71.8 71.8
Other comprehensive (expense)/income:
Exchange losses on foreign currency
translation - - (42.2) - (42.2)
Net fair value gains - cash
flow hedges - - 0.6 - 0.6
Actuarial loss on retirement
benefit obligation - - - (1.7) (1.7)
Tax (charge)/credit on other
comprehensive income - - (0.1) 0.2 0.1
---------- ---------- ------------ ----------- ---------
Total other comprehensive expense - - (41.7) (1.5) (43.2)
Total comprehensive (expense)/income
for the year - - (41.7) 70.3 28.6
---------- ---------- ------------ ----------- ---------
Transactions with owners:
Share-based payment adjustment
to reserves - - - 4.6 4.6
Shares acquired by employee
trust - - (2.1) - (2.1)
Shares granted from treasury
and employee trust - - 1.1 (1.1) -
Dividends paid to Company shareholders - - - (27.7) (27.7)
---------------------------------------- ---------- ---------- ------------ ----------- ---------
At 31 December 2019 23.4 (22.5) (34.8) 470.3 436.4
---------- ---------- ------------ ----------- ---------
At 1 January 2020 23.4 (22.5) (34.8) 470.3 436.4
Comprehensive expense:
Loss after taxation for the
year - - - (64.2) (64.2)
Other comprehensive (expense)/income:
Exchange losses on foreign currency
translation - - (4.1) - (4.1)
Net fair value gains - cash
flow hedges - - 1.3 - 1.3
Actuarial loss on retirement
benefit obligation - - - (1.4) (1.4)
Tax (charge)/credit on other
comprehensive income - - (0.3) 0.3 -
---------- ---------- ------------ ----------- ---------
Total other comprehensive expense - - (3.1) (1.1) (4.2)
Total comprehensive expense
for the year - - (3.1) (65.3) (68.4)
---------- ---------- ------------ ----------- ---------
Transactions with owners:
Share-based payment adjustment
to reserves - - - 2.5 2.5
Shares granted from treasury
and employee trust - - 0.9 (0.9) -
At 31 December 2020 23.4 (22.5) (37.0) 406.6 370.5
---------------------------------------- ---------- ---------- ------------ ----------- ---------
* Includes foreign exchange reserve, hedging reserve, capital
redemption reserve and amounts paid to acquire shares held in
treasury and by employee trust.
Cash flow statement for the year ended 31 December
2020 2019
GBPm GBPm
------------------------------------------------- ---------- ----------
Cash flows from operating activities
Cash generated from operating activities 329.8 169.2
Finance costs paid (54.7) (64.0)
Finance income received 9.9 -
Income tax paid (1.4) (41.0)
Net cash generated from operating activities 283.6 64.2
---------- ----------
Cash flows from investing activities
Purchases of intangible assets (11.7) (21.2)
Purchases of property, plant and equipment (3.8) (10.2)
Proceeds from sale of property, plant and
equipment 0.4 0.2
Net cash used in investing activities (15.1) (31.2)
---------- ----------
Net cash generated from operating and investing
activities 268.5 33.0
---------- ----------
Cash flows from financing activities
Proceeds from borrowings 311.3 119.9
Repayment of borrowings (490.0) (120.3)
Principal elements of lease payments (10.9) (9.9)
Shares acquired by employee trust - (2.1)
Dividends paid to Company shareholders - (27.7)
Net cash used in financing activities (189.6) (40.1)
---------- ----------
Net increase/(decrease) in cash and cash
equivalents 78.9 (7.1)
Cash and cash equivalents at beginning
of year 37.4 46.6
Exchange losses on cash and cash equivalents - (2.1)
------------------------------------------------- ---------- ----------
Cash and cash equivalents at end of year 116.3 37.4
------------------------------------------------- ---------- ----------
1. Basis of preparation
The financial information, which comprises the consolidated
income statement, statement of comprehensive income, balance sheet,
statement of changes in equity, cash flow statement and related
notes, is derived from the full Group Financial Statements for the
year ended 31 December 2020, which have been prepared in accordance
with European Union endorsed International Financial Reporting
Standards ('IFRSs') and those parts of the Companies Act 2006
applicable to companies reporting under IFRS. It does not
constitute full Financial Statements within the meaning of section
434 of the Companies Act 2006.
Statutory Financial Statements for the year ended 31 December
2019 have been delivered to the Registrar of Companies and those
for 2020 will be delivered following the Company's annual general
meeting. The auditor has reported on those Financial Statements:
its reports were unqualified, did not draw attention to any matters
by way of emphasis and did not contain statements under s498 (2) or
(3) of the Companies Act 2006.
The directors are satisfied that the Group has sufficient
resources to continue in operation for the foreseeable future, a
period of not less than 12 months from the date of this report.
Accordingly they continue to adopt the going concern basis in
preparing this financial information (see note 24 for further
details).
The accounting policies used in completing this financial
information have been consistently applied in all periods shown.
These accounting policies are detailed in the Group's Financial
Statements for the year ended 31 December 2020 which can be found
on the Group's website (www.ipfin.co.uk).
The following amendments to standards are mandatory for the
first time for the financial year beginning 1 January 2020 but do
not have any material impact on the Group:
-- Impact of the initial application of Interest Rate Benchmark
Reform amendments to IFRS 9 and IFRS 7;
-- Impact of the initial application of Covid-19-Related Rent Concessions Amendment to IFRS 16;
-- Amendments to References to the Conceptual Framework in IFRS Standards;
-- Amendments to IFRS 3 Definition of a business; and
-- Amendments to IAS 1 and IAS 8 Definition of material.
The following standards, interpretations and amendments to
existing standards are not yet effective and have not been early
adopted by the Group:
-- IFRS 17 'Insurance contracts';
-- Amendments to IFRS 10 and IAS 28 'Sale or Contribution of
Assets between an Investor and its Associate or Joint Venture';
-- Amendments to IFRS 3 'Reference to the Conceptual Framework';
-- Amendments to IAS 1 'Classification of Liabilities as Current or Non-current';
-- Amendments to IAS 37 'Onerous Contracts - Cost of Fulfilling a Contract';
-- Annual Improvements to IFRS Standards 2018-2020 - Amendments to IFRS 1 First-time Adoption of International Financial Reporting Standards, IFRS 9 Financial Instruments, IFRS 16 Leases, and IAS 41 Agriculture.
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 Consolidated Financial Statements requires
the Group to make estimates and judgements that affect the
application of policies and reported accounts.
Critical judgements represent key decisions made by management
in the application of the Group accounting policies. Where a
significant risk of materially different outcomes exists due to
management assumptions or sources of estimation uncertainty, this
will represent a critical accounting estimate. Estimates and
judgements are continually evaluated and are based on historical
experience and other factors, including expectations of future
events that are believed to be reasonable under the circumstances.
Actual results may differ from these estimates.
The estimates and judgements which have a significant risk of
causing a material adjustment to the carrying amounts of assets and
liabilities are discussed below.
Key sources of estimation uncertainty
In the application of the Group's accounting policies, the
directors are required to make estimations that have a significant
impact on the amounts recognised and to make estimates and
assumptions about the carrying amounts of assets and liabilities
that are not readily apparent from other sources. The estimates and
associated assumptions are based on historical experience and other
factors that are considered to be relevant. Actual results may
differ from these estimates.
The estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognised in
the period in which the estimate is revised if the revision affects
only that period, or in the period of the revision and future
periods if the revision affects both current and future
periods.
The following are the critical estimations, that the directors
have made in the process of applying the Group's accounting
policies and that have the most significant effect on the amounts
recognised in the Financial Statements.
Revenue recognition
The estimate used in respect of revenue recognition is the
methodology used to calculate the EIR. In order to determine the
EIR applicable to loans an estimate must be made of the expected
life of each loan and hence the cash flows relating thereto. These
estimates are based on historical data and are reviewed regularly.
Based on a 3% variation in the EIR, it is estimated that the
amounts receivable from customers would be higher/lower by GBP7.7
million (2019: GBP12.1 million). This sensitivity is based on
historic fluctuations in EIRs.
Amounts receivable from customers
The Group reviews its portfolio of customer loans and
receivables for impairment on a weekly or monthly basis. The Group
reviews the most recent 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 ('PD') and loss given default ('LGD') parameters.
The application of IFRS 9 to the effects of Covid-19 had a
significant impact on the Group's impairment accounting and charge
in 2020, and our post model overlays (PMOs) have been prepared to
ensure that the impacts of the pandemic are included within the
Group's impairment provisions, see below for further details.
Impairment on lending from June 2020 onwards has been recorded
using our standard impairment accounting models without applying
these overlays due to the reduction in operational disruption and
the tightened credit settings on new lending.
Impairment models are monitored regularly to test their
continued capability to predict the timing and quantum of customer
repayments in the context of the recent customer payment
performance. The models used typically have a strong predictive
capability reflecting the relatively stable nature of the business
and therefore the actual performance does not usually vary
significantly from the estimated performance. The models are
ordinarily updated at least twice per year. Data that would
normally be included within the periodic update this year contains
Covid-19 data. This includes data from when there were restrictions
on movements of agents and customers together with data driven by
the tighter credit settings that were put in place as part of the
Group's pandemic response strategy. This data is not considered to
be representative of the expected future performance and therefore
we have excluded it from our periodic update.
On the basis that the payment performance of customers could be
different from the assumptions used in estimating expected losses
and the future cash flows, an adjustment to the amounts receivable
from customers may be required. A 5% increase/decrease in expected
loss parameters would be a decrease/increase in amounts receivable
from customers of GBP4.5 million. This level of estimated impact is
based on historic fluctuations in performance compared to the
models and is subject to impairment overlay provisions.
Covid-19 post model overlay (PMO) on amounts receivable from
customers
As discussed above, Covid-19 had a significant impact on our
businesses in 2020. 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
to identify risks that are not fully reflected in the standard
impairment models. This included a full assessment of expected
credit losses, including a forward-looking assessment of expected
collection cash flows. As a result, for home credit lending, issued
before June 2020 and IPF Digital lending, we have prepared post
model overlays (PMOs) to our impairment models in order to
calculate the expected impact of the pandemic on the Group's
impairment provisions. Based on management's current expectations,
the impact of these PMOs was to increase impairment provisions at
31 December 2020 by GBP38.7 million as set out below.
ECL Discounting Total
GBPm GBPm GBPm
------------- ------- ------------ -------
Home credit (17.1) (16.4) (33.5)
IPF Digital (5.2) - (5.2)
------------- ------- ------------ -------
Total (22.3) (16.4) (38.7)
------------- ------- ------------ -------
Expected credit loss ('ECL')
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 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, debt 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 of GBP17.1 million in
ECL in the Group's home credit businesses as a Covid-19 PMO.
In our digital businesses, in line with our home credit markets,
we have reviewed the expected recessionary 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 PD has been included as a GBP5.2 million
Covid-19 PMO.
Discounting
We expect temporary missed repayments in our home credit
businesses 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 results in an additional impairment
provision of GBP16.4 million that is expected to unwind during the
next 12 months as the temporary missed collections are collected
from customers.
We have performed analysis on the ECL and discounting Covid-19
PMOs to show the estimated variation to amounts receivable from
customers as a result of the key variables influencing ECL (namely
operational disruption, repayment moratoria and recessionary) being
different to management's current expectations based on the
following collection scenarios:
-- ECL - variations in the key variables resulting in a 3%
increase/decrease in the ECL would result in an increase/decrease
in the Covid-19 PMO of GBP9.3 million.
-- Discounting - temporary missed repayments in home credit,
that are assumed to be repaid at the end of the loan, being
received three months later/earlier than forecast would result in
an increase/decrease in the Covid-19 PMO of GBP7.2 million.
These variations reflect management's current assessment of a
reasonable range of outcomes from the actual collections
performance.
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 GBP17.6 million (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 25% higher than the assumed rate.
Claims management charges in Spain
The operational review section of this report in relation to IPF
Digital's New markets makes reference to revenue contraction
resulting from higher levels of claims management charges in Spain.
We reviewed the charges by reference to the claims incidence
experience and average cost of resolution in the Spanish business.
The provision recorded of GBP8.0 million (split GBP6.4 million
against receivables and GBP1.6 million in provisions) represent the
Group's best estimate of future claims volumes and the cost of
their management, based on current claims management methodology,
together with current and future product plans. Whilst the future
claims incidence and cost of management could differ from
estimates, the Group's expectation at this stage is that overall
costs are unlikely to be more than 25% higher than those assumed in
the charges.
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 32,
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.
Deferred tax assets arise from timing differences between the
accounting and tax treatment of revenue and impairment transactions
and tax losses. Estimations must be made regarding the extent to
which timing differences reverse and an assessment must be made of
the extent to which future profits will be generated to absorb tax
losses. A shortfall in profitability compared to current
expectations may result in future adjustments to deferred tax asset
balances
Critical accounting judgements
Accounting judgements have been made over whether the EU State
Aid investigation requires a provision or disclosure as a
contingent liability, see note 23 for further details.
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. Some of these measures are also used for
the purpose of setting remuneration targets.
Each of the APMs, used by the Group are 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. Principal risks and uncertainties
In accordance with the Companies Act 2006, a description of the
principal risks and uncertainties (and the mitigating factors in
place in respect of these) is included below. Effective management
of risks, uncertainties and opportunities is critical to our
business in order to deliver long-term shareholder value and
protect our people, assets and reputation. In 2020, we continued to
face a challenging external environment, particularly from changing
regulation, and the impact of issues arising from the Covid-19
pandemic. Internally, our operational governance framework and risk
management processes are continually reviewed to ensure that where
areas of improvement are identified, a plan of action is put in
place and can become a key focus for the Board. The effectiveness
of operating these processes is monitored by the Audit and Risk
Committee on behalf of the Board.
Risk key
Risk environment Risk appetite
Risk environment improving Risk appetite increasing
--------------------------------
Risk environment remains Risk appetite stable
stable
--------------------------------
Risk environment worsening Risk appetite decreasing
--------------------------------
The risks facing the business by risk category are:
Relevance to
Risk strategy Mitigation Commentary
---------------- --------------- --------------------------------------------------------------- ---------------------
1 Regulatory
---------------- --------------- --------------------------------------------------------------- ---------------------
Lead Impact We have highly In response to the
responsibility: Changes in skilled and experienced pandemic, governments
Chief Executive regulation, legal, public in several of our
Officer differences in affairs, compliance markets introduced
We suffer losses interpretation and privacy teams temporary regulation,
or fail to or at Group level including price
optimise clarification and in each of controls and debt
profitable of regulation, our markets They repayment moratoria.
growth or changes in monitor political, We have a strong
due to a failure the enforcement legislative and track record of
to operate in of laws by regulatory developments responding
compliance with, regulators, and risks. Expert successfully
or effectively courts or other third-party advisors to regulatory changes
anticipate bodies can lead are used where while maintaining
changes to challenge of necessary to support profitability, and
in, all our products these efforts. engaging with
applicable and/or We engage with regulators
laws and practices. We regulators, legislators, to ensure changes
regulations monitor legal politicians and actually benefit
(including data and regulatory other stakeholders. our customers. Our
protection and developments to Active participation swift response
privacy laws), ensure we in relevant sector focused
or due to a maintain associations contributes on operational
regulator compliance, to our monitoring, resilience,
interpreting remain and influencing flexible repayment
these competitive and capabilities. options for
in a different provide value Our compliance customers,
way. for our programme focuses product modifications
Objective customers. on key consumer and credit risk
We aim to ensure Likelihood legislation including management minimised
that effective The likelihood in relation to the impact as far
arrangements are of legal and data privacy. as possible.
in place to regulatory Oversight of regulatory Legislation further
enable change and the risks by the legal tightening price
us to comply impact of leadership team. controls in Finland
with challenge Regular reporting limited the economic
legal and vary by market, to the Audit and returns of lending
regulatory but the Risk Committee in this market and
obligations and majority on key regulatory the decision was
take fully have already and compliance taken to collect
assessed introduced risks. out the portfolio.
and informed price In Poland, new market
commercial legislation standards for early
risks. and settlement rebates
strengthened are expected to
consumer be implemented during
protection the course of 2021.
regulation, For more information
although see above.
there remains
a risk that
further
changes may be
made.
---------------- --------------- --------------------------------------------------------------- ---------------------
2 Competition and product proposition
-------------------------------------------------------------------------------------------------------------------------
Lead Impact Regular monitoring Our markets continued
responsibility: In an of competitors to be highly
Chief Executive environment and their offerings, competitive
Officer where customer advertising and at the start of
We suffer losses choice is share of voice 2020 which eased
or fail to growing, in our markets. from Q2 as a number
optimise ensuring our Strategic planning of competitors scaled
profitable product and tactical actions back operations
growth meets are developed and marketing due
through failure customers' in response to to funding
to be aware of needs is competitive threats. challenges,
and respond to critical Product development economic caution
the competitive to delivering committees and or temporary
environment or a sustainable processes in place regulation
failing to business. across the Group resulting from
ensure Likelihood to review the Covid-19.
our proposition We continue to product development At the same time,
meets customer operate in roadmap, manage more consumers have
needs while we highly product risks moved to borrowing
maintain product competitive and develop new online, accelerating
profitability. markets products, which take-up of new
Objective with regular meet customer models,
We aim to ensure new needs and are particularly those
we understand products and compliant with providing integrated
competitive services relevant regulatory credit and payment
threats being made requirements. experiences. In
and deliver available response, IPF Digital
customer-focused to our customer extended its mobile
products to segment. The wallet offering,
drive nature which complements
profitable of competition instalment loans
growth. varies by and credit line
market. offerings, providing
banking-like services
to customers.
We focused product
development on
innovating
to better respond
to customer
requirements
and align our
products
to temporary
regulation
in our European
home credit markets.
This included
offering
lower value,
shorter-term
loans also reflecting
the credit risk
the pandemic has
had on the income
level of households
and individuals.
In Mexico,
competition
is relatively stable
and is dominated
by offline
competitors
who continue to
expand territories
and digitise elements
of their customer
journeys.
3 Taxation
---------------- --------------- ----------------------------------------------------------------- -------------------
Lead Impact Tax strategy and In March 2020, the
responsibility: Against a policy in place. Warsaw District
Chief Financial backdrop Qualified and Administrative
Officer of increasing experienced tax Court
We suffer fiscal teams at Group upheld our appeal
financial challenges level and in market. against the Tax
loss arising for most External advisers Chamber's decisions
from economies, used for all material in respect of 2008
a failure to many tax transactions and 2009. The
comply authorities in line with tax successful
with tax are turning to strategy. conclusion of the
legislation corporate Binding rulings long-running Polish
or adoption of taxpayers or clearances tax dispute
an to increase obtained from resulted
interpretation revenues, authorities where in full recovery
of the law which either via appropriate. of the tax paid
cannot be taxation Appropriate oversight together with
sustained reforms or at executive level repayment
together with through over taxation interest. Following
the risk of a changes to matters. this result there
higher future interpretations are no open tax
tax burden. of existing audits in Poland.
Objective legislation. During 2020, tax
We aim to Likelihood audits in Hungary,
generate The likelihood Finland and Spain
shareholder of changes or were closed with
value challenges to no material
through tax positions findings.
effective varies by We have an ongoing
management of market. tax audit in
tax while acting This may Mexico.
as a good increase We await a decision
corporate due to Covid-19 of the General
citizen. We are budget Court
committed to deficits. of the European
ensuring Globally, OECD Union regarding
compliance with and EU-led applications for
tax law and developments the annulment of
practice may lead to the European
in all of the further Commission's
territories in changes in tax Decision on State
which we law and Aid announced in
operate. practice April 2019. Further
and an increase information
in audits and regarding
enquiries into risks associated
cross-border with the Group's
arrangements. finance company
is set out in note
23.
---------------- --------------- ----------------------------------------------------------------- -------------------
4 Technology and change management
-------------------------------------------------------------------------------------------------------------------------
Lead Impact Change management We recognise that
responsibility: A core part of framework and the successful
Chief Executive our strategy is process in place. delivery
Officer to modernise Programmes are of our strategy
We suffer losses our continually reviewed is dependent on
or fail to home credit with strong governance effective change
optimise operation of all major delivery across the Group.
profitable and invest in activity. In order to keep
growth digital Ongoing reviews pace with
due to a failure developments. of our services technology
to develop and Effective and relationships advances and
maintain management with partners maintain
effective of the ensures effective our position as
technology initiatives service operations a leading
solutions within this are maintained. non-banking
or manage key programme Annual review financial
business is essential. undertaken to institution
projects The Group is prioritise investment in our markets,
in an effective currently required in underlying the change agenda
manner. undergoing a technology ensures we run each year,
Objective large appropriateness and especially
We aim to project of the underlying those
effectively programme technology estate. initiatives driven
manage the which carries A dedicated Technology by IT, is
design, significant Committee to oversee significant.
delivery and levels technology and Our key focus in
benefits of inherent change risks. 2020 was to deliver
realisation of risk. agent mobile
major technology Failure to technology
and strategic deliver and provide support
business projects or with the
projects maintain centralisation
and deliver our IT estate of our field
according could lead to administration
to requirements, issues in centres. In
budgets and benefits addition,
timescales. realisation or as a response to
We look to business the pandemic, we
maintain disruption. introduced several
systems that are Likelihood alternative core
available to Our project digital processes,
support programme including online
the ongoing is complex, sales features on
operations covering our agent app and
in the business. numerous remote collections
markets. facilities for home
As such there credit customers.
is a level of To support these
risk associated developments, an
with its updated, more
delivery. effective,
Unforeseen change management
outages framework and
can happen process
against was introduced
key systems as across
a result of the Group.
change
or failures in
technology.
5 People
---------------- --------------- --------------------------------------------------------------- ---------------------
Lead Impact Our HR control In responding to
responsibility: In order to environment identifies the Covid-19
Chief Executive achieve key people risks pandemic,
Officer our strategic and the key controls we took the
Our strategy is goals, we must that we have in strategic
impacted by not continue to place to mitigate decision to put
having attract, them. the health and
sufficient engage, The key people-risks safety
depth and develop, and commensurate of our people
quality retain and controls cover: first.
of people or reward * Appropriate distribution of strategy-aligned It was also
being the right objectives necessary
unable to retain people. to implement a
key people and The very nature risk
treat them in of people risk * Monitoring and action with regards to key people management
accordance with means that it risks and issues strategy
our values and is often to rightsize the
ethical difficult organisation to
standards. to reduce the * Key people-processes support a
Objective frequency with smaller
We aim to have which risks global business.
sufficient occur; * Appropriate use of reward and compliance with Our people
breadth however, our delegated authority from the Remuneration Committee strategy
of capabilities controls to safeguard the
and depth of are aimed at organisation
personnel lowering through
to ensure that the impact of Covid-19
we can meet our any risks. comprises
strategic Likelihood three pillars:
objectives. Our processes, I. our Global
policies and Care
practices Plan was created
are designed to to provide an
reduce the end-to-end
likelihood framework to
of a ensure
significant a global
impact with strategic
respect umbrella for the
to people risk. health and
The Group has safety
strong of our people
governance and
around people their wellbeing;
risk including II. as well as
our people, protecting
organisation the health and
and planning safety
process of our field
used to force,
mitigate we took steps to
talent risks protect
and earnings,
our HR control adapt commission
environment. and incentive
schemes
and change
performance
programmes for
our
agents and
customer
service teams.
These
actions resulted
in a stable
people
turnover
outcome;
and
III. we stopped
all
discretionary
and controllable
people costs,
including
cancellation of
bonus schemes,
withdrawal
of PSP, a global
freeze on
recruitment
and cessation of
development
activities.
We also
undertook
an
organisational
restructure to
rightsize
the business.
---------------- --------------- --------------------------------------------------------------- ---------------------
6 Business continuity and information security
-------------------------------------------------------------------------------------------------------------------------
Lead Impact There is periodic The continuity of
responsibility: We record, testing and ongoing our core sales and
Chief Executive update monitoring of collections processes
Officer and maintain security and recovery has been
We suffer losses data capability for significantly
or fail to for each of our technology and challenged during
optimise customers on a premises. this pandemic.
profitable daily basis. Skilled team with However,
growth The relevant specialist the significant
due to a failure availability of qualifications. focus on people
of our systems, this data, the A dedicated committee safety has resulted
suppliers or continued in place to oversee in only very limited
processes operation business continuity, impact on business
or due to the of our systems information security, continuity risk.
loss, theft or and processes, and technology Another area with
corruption of and and change risks. high potential
information. availability inherent
Objective of our critical risk is the financial
We aim to suppliers, are and operational
maintain essential to robustness of our
adequate the suppliers, and in
arrangements effective particular, the
and controls operation technology suppliers
that of our business on which our core
reduce the and the systems depend.
threat security To manage this risk,
of service and of our customer we performed regular
business information. risk assessments
disruption Likelihood on the key suppliers
and the risk of While the and have worked
data loss to as external to develop internal
low as threat to our capabilities as
reasonably systems is an effective
practicable. increasing contingency
in the digital response.
age, the tools In response to the
in place reduce potential data breach
the likelihood risk generated by
of a moving employees
significant to remote working,
failure or all home credit
information markets implemented
loss. a range of security
controls including
Multi-factor
Authentication
which secures our
remote working.
IPF Digital is
reviewing
its security controls
to minimise any
future losses to
the business.
7 Reputation
---------------- --------------- --------------------------------------------------------------- ---------------------
Lead Impact Clearly defined We continued to
responsibility: Our reputation corporate values receive awards for
Chief Executive and that of the and ethical standards the way we conduct
Officer consumer are communicated our business. We
We suffer lending throughout the were recognised
financial sector can have organisation. for delivering high
or reputational an impact on Employees and standards of customer
damage due to both agents undertake experience, as a
our methods of customer annual ethics top employer and
operation, sentiment e-learning training. for being a socially
ill-informed and the Regular monitoring responsible business.
comment or engagement of key reputation At the heart of
malpractice. of key drivers both internally our home credit
Objective stakeholders, and externally. business around
We aim to impacting our Media strategy 17,000 agents are
promote ability to to support the meeting and talking
a positive operate key drivers of to our customers
reputation and serve our our business reputation every week. Taking
based on our customer and that of the action to protect
ethical segment. non-banking financial our agents and
standards, our Some elements institution sector. customers
commitment to of this risk Strong oversight during the pandemic
responsible relate by the senior contributed to
lending to external management group ensuring
via proactive factors on reputation our business
engagement with that are beyond challenges. reputation
all our our influence. was maintained
stakeholders. Controls in throughout
with the aim to place these challenging
help the Group have reduced times. Our internal
deliver its residual reputation tracking
strategic risk. There is survey found 92%
objectives. now limited of employees and
ability agents said that
to reduce this they like working
significantly. for the business.
Likelihood This positive result
We maintain is confirmation
strong of our investment
relationships in reputation
with key management
stakeholders and internal
in order to communication.
develop
their
understanding
of our business
model our role
in society and
economy and how
we deliver
services
to our
customers.
This helps
protect
the business
from
unforeseen
events
that could
damage
our reputation.
---------------- --------------- --------------------------------------------------------------- ---------------------
8 World economic environment
-------------------------------------------------------------------------------------------------------------------------
Lead Impact Treasury committees The fast-paced growth
responsibility: Changes in review economic of unsecured consumer
Chief Financial economic indicators. lending in previous
Officer conditions may Monitoring of years decreased
We suffer have an impact macroeconomic during 2020 due
financial on our conditions, geopolitical to the pandemic.
loss as a result customers' events on financial The pandemic also
of a failure to ability to make markets and national led to lower levels
identify and repayments. news briefings. of consumer
adapt This Strong, personal confidence,
to changing risk is led customer relationships reduced household
economic entirely inform us of individual spending and
conditions by external customer circumstances. financial
adequately. factors institutions, in
Objective that are not particular banks,
We aim to have controllable being less willing
business and is driven to lend money in
processes by the business these uncertain
that allow us model and in times. As a result,
to respond to particular central banks across
changes in the specifics the globe lowered
economic of the markets reference interest
conditions and in which we rates to encourage
optimise operate. consumption. Despite
business Likelihood a further wave of
performance. While we Covid-19 cases in
operate Q4 2020, news of
in numerous several successful
markets, vaccine tests raised
the likelihood expectations that
of a change in economic activity
economic will bounce back
markets significantly in
that we are 2021 together with
unable increased demand
to respond to, for consumer credit.
and that In recent years,
impacts our risk universe
our strategy, has evolved, and
is minimised by world economic risk
our short-term factors are now
lending considered as
business specific
models. risks impacting
our business in
other principal
risks, like credit,
funding and taxation.
As a result, starting
in 2021, we will
remove the world
economic risk
category
from the principal
risks list and
reflect
these macroeconomic
factors in the
above-mentioned
categories.
9 Safety
---------------- --------------- --------------------------------------------------------------- ---------------------
Lead Impact Market safety The safety of our
responsibility: A significant committees and people, particularly
Chief Executive element of our safety management agents, was a key
Officer business model systems in place risk management
The risk of involves our based on internationally area during 2020.
personal agents recognised standards. While we provided
injury or harm and employees Annual safety our customers with
to our agents interacting survey. alternative payment
or employees. with Biannual risk facilities, most
Objective our customers assessment for chose to return
We aim to in their homes each agency including to repaying their
maintain or travelling mitigation planning agent when people
the highest to numerous and field safety movement restrictions
standards locations training. were lifted. In
and controls to daily. Annual self-certification response, we
reduce the risk Their safety of safety compliance concentrated
to the lowest while by managers. our efforts on
level as is performing Regular branch implementing
reasonably their safety meetings systems of work
practicable. role is and safety awareness to keep our agents
paramount campaigns. safe including
to us. Role-specific extensive
Likelihood training and competence. Covid-19 prevention
Safety risks training and the
typically provision of PPE.
arise from the Safety committees
behaviour of met frequently across
individuals the Group providing
both internal assurance and
and external to oversight
the business of health and safety
and, risk management.
therefore, it We hold the ISO
is not possible 45001 Occupational
to remove the Health and Safety
risk entirely Management Standard
with the in all European
current home credit
business model businesses
involving with a plan for
17,000 our Mexico home
agents. credit business
Improvements, to enter the ISO
however, are 45001 accreditation
constantly process in the second
sought to half of 2021.
reduce We have a safety
the risk where strategy specifically
possible. for our Mexico home
credit business
where inherent risks
are greater than
those in Europe
both in terms of
likelihood and
impact.
---------------- --------------- --------------------------------------------------------------- ---------------------
10 Funding, liquidity, market and counterparty
-------------------------------------------------------------------------------------------------------------------------
Lead Impact Adherence to Board-approved The refinancing
responsibility: Funding at policies monitored of the Group's
Chief Financial appropriate through the Treasury Eurobond
Officer cost and on Committee, finance was completed in
The risk of appropriate leadership team November 2020,
insufficient terms, and and regular reporting together
availability of management to the Board. with amendments
funding, of financial Funding plans to covenants on
unfavourable market presented as part the Sterling and
pricing, a risk, are of budget planning. Swedish Krona bonds,
breach necessary Senior management and the Group's
of debt facility for the future group oversight. bank facilities.
covenants, or growth of the Strong relationships The impact of
that performance business. maintained with Covid-19
is significantly Likelihood debt providers. on the financial
impacted by Board-approved markets and our
interest policies trading performance
rate or currency require resulted in an
movements, or us to maintain increased
failure of a a resilient cost of this funding.
banking funding In order to protect
counterparty. position with the business, we
Objective good headroom swiftly implemented
We aim to on undrawn bank a successful
maintain facilities, liquidity
a robust funding appropriate management strategy
position, and hedging of as restrictions
to limit the market on people movement
impact risk, and and debt moratoria
of interest rate appropriate adversely impacted
and currency limits to collections
movements counterparty effectiveness.
and exposure to risk. The Lending was
financial residual restricted
counterparties. risk after the and we took effective
mitigation is action to manage
in place costs and preserve
represents cash.
the impact of During the first
changes in half of the year,
financial the Group's credit
markets on the ratings were
Group's funding reaffirmed
position and by Moody's and Fitch
the Ratings at Ba3 and
period of time BB respectively.
until the bonds Moody's maintained
mature. its rating and stable
outlook in May.
Fitch Ratings
subsequently
downgraded its rating
to BB- with negative
outlook.
The Group will
continue
to be funded from
a combination of
equity, retained
earnings, bond issues
and bank facilities.
Hedging of market
risk and limits
on counterparty
risk are in line
with Board-approved
policies.
---------------- --------------- --------------------------------------------------------------- ---------------------
11 Credit
---------------- --------------- --------------------------------------------------------------- ---------------------
Lead Impact A comprehensive In contrast to the
responsibility: With the credit control positive start to
Chief Executive intended framework developed 2020, as the Covid-19
Officer growth plans using data from pandemic took hold
The risk of the for years of experience we took the decision
Group suffering IPF Digital and operating in our to optimise
financial loss Mexico home specific customer collections
if its customers credit, segment and the and tighten credit
fail to meet it is important markets in which rules significantly
their that we retain we operate. in order to protect
contracted control of Weekly credit liquidity. This
obligations credit reporting on the prudent approach
or the Group losses in order quality of lending resulted in a
failing to achieve our at the time of reduction
to optimise intended issue as well in credit issued
profitable returns. as the overall but has provided
business For the portfolio. This a solid foundation
opportunities European feeds into weekly on which we will
because of its home credit performance calls rebuild the business.
credit, businesses, between each business We modified our
collection we focus on and the Group credit risk
or fraud writing credit director. parameters
strategies profitable Monthly local to ensure we lend
and processes. business credit committees, to our
Objective to deliver a monthly Group highest-quality
To maintain strong credit committee customers, that
robust returns to and monthly performance fit our normal risk
credit and invest calls between profiles but being
collections in building a each business aware that those
policies and long-term and the Group profiles might
regularly sustainable management team. change.
monitor credit future. The When a change Another risk factor
performance. nature is introduced, impacting our
of the business the credit systems business
is such that allow for a testing results is the
the approach that capacity
financial compares the current and availability
impact 'champion' regime of debt sale partners
of credit risk, against the new across the Group.
even at 'challenger'. Many experienced
appetite Scorecard and difficult trading
levels, is portfolio quality and offers either
substantial. monitoring. stopped or reduced
Reducing credit A comprehensive in price.
risk further control framework Credit control
could which covers the actions
result in internal and external taken in Mexico
reduced fraud risks along home credit and
revenue and with anti-money IPF Digital's new
increased laundering supported markets in the last
cost ratios. by roles and responsibilities two years delivered
For covering frontline improved credit
new businesses, controls monitoring quality prior to
credit risk is and reporting the pandemic.
higher due to on results and
the lack of audit of the control
historical framework.
data our credit Specific controls
scorecards rely to cover anti-bribery.
upon to make
adequate
lending
decisions
and a higher
proportion
of new
customers
than in the
established
markets.
Likelihood
In normal
times,
our control
environment
means that we
will see issues
quickly and the
systems in
place
mean that we
can
change credit
settings
quickly,
and therefore
the likelihood
of suffering
large
losses is low.
However, the
unprecedented
impact of
Covid-19
caused
significant
disruption and
resulted in
impairment
moving outside
our target
range.
---------------- --------------- --------------------------------------------------------------- ---------------------
3. Related parties
The Group has not entered into any material transactions with
related parties during the year ended 31 December 2020.
4. Segmental analysis
Geographical segments
2020 2019
GBPm GBPm
----------------------------------- ------ ------
Revenue
European home credit 363.4 452.2
Mexico home credit 157.1 247.6
Digital 140.8 189.3
----------------------------------- ------ ------
Revenue 661.3 889.1
----------------------------------- ------ ------
Impairment
European home credit 132.3 56.0
Mexico home credit 53.0 102.3
Digital 62.3 85.2
----------------------------------- ------ ------
Impairment - pre-exceptional item 247.6 243.5
Exceptional item 2.5 -
----------------------------------- ------ ------
Impairment 250.1 243.5
----------------------------------- ------ ------
(Loss)/profit before taxation
European home credit (13.6) 115.1
Mexico home credit 3.5 10.5
Digital (6.0) 3.2
Central costs* (12.7) (14.8)
---------------------------------------------- ---------- ----------
(Loss)/profit before taxation (28.8) 114.0
Exceptional items (11.9) -
---------------------------------------------- ---------- ----------
(Loss)/profit before taxation (40.7) 114.0
---------------------------------------------- ---------- ----------
*Although central costs are not classified as a separate segment
in accordance with IFRS 8 'Operating segments', they are shown
separately above in order to provide reconciliation to profit
before taxation.
2020 2019
GBPm GBPm
---------------------- -------- --------
Segment assets
European home credit 507.0 710.0
Mexico home credit 170.2 230.3
Digital 202.5 314.9
UK 144.2 67.5
---------------------- -------- --------
Total 1,023.9 1,322.7
---------------------- -------- --------
Segment liabilities
European home credit 275.7 297.2
Mexico home credit 76.2 147.0
Digital 138.4 225.8
UK 163.1 216.3
---------------------- ------ ------
Total 653.4 886.3
---------------------- ------ ------
2020 2019
GBPm GBPm
------------------------------- ----- -----
Capital Expenditure (note 12)
European home credit 3.0 7.5
Mexico home credit 0.5 1.8
Digital 0.3 0.9
Total 3.8 10.2
------------------------------- ----- -----
2020 2019
GBPm GBPm
------------------------------- ----- -----
Depreciation (note 12)
European home credit 5.0 5.4
Mexico home credit 1.4 2.1
Digital 0.6 0.4
UK 0.2 0.6
------------------------------- ----- -----
Total 7.2 8.5
------------------------------- ----- -----
2020 2019
GBPm GBPm
---------------------------------------- ----- -----
Expenditure on intangible assets (note
11)
European home credit - -
Mexico home credit - -
Digital 4.8 12.8
UK 6.9 8.4
---------------------------------------- ----- -----
Total 11.7 21.2
---------------------------------------- ----- -----
2020 2019
GBPm GBPm
------------------------ ----- -----
Amortisation (note 11)
European home credit - -
Mexico home credit - -
Digital 15.9 5.7
UK 10.0 9.1
------------------------ ----- -----
Total 25.9 14.8
------------------------ ----- -----
5. Finance Costs
2020 2019
GBPm GBPm
--------------------------------------- ------ -----
Interest payable on borrowings 55.2 62.0
Interest payable on lease liabilities 1.5 1.5
Interest income (9.9) -
Total 46.8 63.5
--------------------------------------- ------ -----
Interest income was received in respect of the successful appeal
against the 2008 and 2009 tax decisions, GBP8.2 million of this
income, which relates to the period from January 2017 to December
2019 has been treated as an exceptional item (see note 9 for
further details).
6. Tax expense
The taxation charge on the post-exceptional loss for 2020 is
GBP23.5m. The pre-exceptional tax charge is GBP24.5 million. The
tax charge arises from a combination of factors but is largely
driven by the non-tax deductible impairment charges, 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.
Tax paid in the cashflow statement is net of GBP35.1 million
repaid in respect of the successful appeal against the 2008 and
2009 tax decisions. The Group is subject to a tax audit in Mexico
(regarding 2017).
7. (Loss)/earnings per share
2020 2019
pence pence
--------------------------- ------- ------
Basic (L)/EPS (28.9) 32.2
Dilutive effect of awards 1.5 (1.9)
-------
Diluted (L)/EPS (27.4) 30.3
--------------------------- ------- ------
Basic (loss)/earnings per share ('(L)/EPS') is calculated by
dividing the loss attributable to shareholders of GBP64.2 million
(31 December 2019: profit of GBP71.8 million) by the weighted
average number of shares in issue during the period of 222.4
million which has been adjusted to exclude the weighted average
number of shares held in treasury and by the employee trust (31
December 2019: 223.1 million).
For diluted EPS the weighted average number of shares has been
adjusted to 234.1 million (31 December 2019: 237.1 million) to
assume conversion of all dilutive potential ordinary share options
relating to employees of the Group.
8. Dividends
Dividend per share
2020 2019
pence pence
-------------------------- ------- ------
Interim dividend - 4.6
Final proposed dividend - 7.8
-------------------------- ------ ------
Total dividend - 12.4
-------------------------- ------ ------
Dividends paid
2020 2019
GBPm GBPm
------------------------------------------ ------ ------
Interim dividend of nil pence per share
(2019: interim dividend of 4.6 pence
per share) - 10.3
Final 2019 dividend of nil pence per
share (2019: final 2018 dividend of
7.8 pence per share) - 17.4
------------------------------------------ ----- ------
Total dividends paid - 27.7
------------------------------------------ ----- ------
The Board considered the financial performance in 2020 and
concluded that it is not appropriate to propose a final dividend;
however, it remains committed to paying a progressive dividend in
the future. The Board will review dividend payments regularly,
taking into account the financial performance and financial
position of the Group and we intend to recommence dividend payments
as soon as circumstances permit. (2019: full-year dividend 12.4
pence per share).
9. Exceptional Items
The income statement includes an exceptional loss of GBP10.9
million which comprises a pre-tax exceptional loss of GBP11.9
million and an exceptional tax credit of GBP1.0 million.
Pre-tax Tax Post-tax
GBPm GBPm GBPm
--------------------- -------- ------ ---------
Finland closure (10.6) (1.1) (11.7)
Restructuring costs (9.5) 2.1 (7.4)
Interest income 8.2 - 8.2
Exceptional items (11.9) 1.0 (10.9)
--------------------- -------- ------ ---------
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
GBP9.5 million arose in connection with rightsizing exercises that
were conducted in 2020 and there is an associated tax credit of
GBP2.1 million relating to this item. In addition, the profit and
loss account includes exceptional non-taxable interest income of
GBP8.2 million, relating to the interest accrued for the period up
to 31 December 2019 on the payments to the Polish tax authority
made in January 2017 in respect of the 2008 and 2009 cases which
were refunded in 2020.
10. Goodwill
2020 2019
GBPm GBPm
------------------------------- ----- ------
Net book value at 1 January 23.1 24.5
Exchange adjustments 1.3 (1.4)
Net book value at 31 December 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 growth rates adopted. 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 budgets approved by the Board. The rate
used to discount the forecast cash flows is 10% (2019: 9%). The
discount rate would need to increase to 16% before indicating that
part of the goodwill may be impaired.
11. Intangible assets
2020 2019
GBPm GBPm
------------------------------- ------- -------
Net book value at 1 January 43.2 38.0
Additions 11.7 21.2
Amortisation (25.9) (14.8)
Exchange adjustments 1.2 (1.2)
Net book value at 31 December 30.2 43.2
------------------------------- ------- -------
Intangible assets comprise computer software and are a mixture
of self-developed and purchased assets. All purchased assets have
had further capitalised development on them, meaning it is not
possible to disaggregate fully between the relevant intangible
categories.
GBP8.1 million of amortisation of intangible assets is
accelerated amortisation relating to the decision to close our
business in Finland, this has been treated as an exceptional item
(see note 9).
12. Property, plant and equipment
2020 2019
GBPm GBPm
------------------------------- ------ ------
Net book value at 1 January 20.0 19.9
Exchange adjustments (0.6) (0.9)
Additions 3.8 10.2
Disposals (0.6) (0.7)
Depreciation (7.2) (8.5)
Net book value at 31 December 15.4 20.0
------------------------------- ------ ------
As at 31 December 2020 the Group had GBP2.6 million of capital
expenditure commitments contracted with third parties that were not
provided for (2019: GBP2.7 million).
13. Right-of-use assets and lease liabilities
The movement in the right-of-use assets in the period is as
follows:
Right-of-use assets
2020 2019
GBPm GBPm
------------------------------- ------ ------
Net book value at 1 January 18.8 21.5
Exchange adjustments (0.5) (0.7)
Additions 6.0 6.2
Modifications 3.6 0.9
Depreciation (9.9) (9.1)
Impairment (0.5) -
Net book value at 31 December 17.5 18.8
------------------------------- ------ ------
The recognised right-of-use assets relate to the following types
of assets:
2020 2019
GBPm GBPm
--------------------------- ----- -----
Properties 10.5 12.4
Motor Vehicles 6.9 6.4
Equipment 0.1 -
Total right-of-use assets 17.5 18.8
--------------------------- ----- -----
The movement in the lease liability in the period is as
follows:
Lease Liability
2020 2019
GBPm GBPm
-------------------------------- ------- ------
Lease liability at 1 January 19.5 21.5
Exchange adjustments (0.5) (0.7)
Additions 9.6 7.1
Interest 1.5 1.5
Lease payments (10.9) (9.9)
Lease liability at 31 December 19.2 19.5
-------------------------------- ------- ------
Analysed as:
Current 7.4 8.7
Non-current: 11.1 10.6
* between one and five years 0.7 0.2
11.8 10.8
* greater than five years
------- -------
Lease liability at 31 December 19.2 19.5
----------------------------------------- ------- -------
Lease liabilities are measured at the present value of the
remaining lease payments, discounted using the rate implicit in the
lease, or if that rate cannot be readily determined, at the
lessee's incremental borrowing rate. The weighted average lessee's
incremental borrowing rate applied to the lease liabilities at 31
December 2020 was 7.4%.
The amounts recognised in profit
and loss are as follows:
2020 2019
GBPm GBPm
---------------------------------------- ----- -----
Depreciation on right-of-use assets 9.9 9.1
Interest expense on lease liabilities 1.5 1.5
Expense relating to short term leases 1.6 2.5
Expense relating to leases of low
value assets 0.1 0.4
Amounts recognised in profit and
loss 13.1 13.5
---------------------------------------- ----- -----
The total cash outflow in the year in respect of lease contracts
is GBP11.4m (2019: GBP13.1m).
14. 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. No deferred tax liability is recognised on temporary
differences of GBP15.4 million (2019: GBPnil) relating to the
unremitted earnings of the Czech and Romanian subsidiaries on which
dividend withholding tax may arise, as the Group is able to control
the timings of the reversal of these temporary differences and it
is probable that they will not reverse in the foreseeable
future.
15. Amounts receivable from customers
All lending is in the local currency of the country in which the
loan is issued.
2020 2019
GBPm GBPm
------------------- ------ ------
Polish zloty 225.3 339.7
Czech crown 50.9 68.6
Euro 117.0 178.2
Hungarian forint 89.9 135.6
Mexican peso 100.8 158.1
Romanian leu 62.1 70.3
Australian Dollar 23.1 23.1
------------------- ------ ------
Total receivables 669.1 973.6
------------------- ------ ------
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 of 96% (2019: 105%). All
amounts receivable from customers are at fixed interest rates. The
average period to maturity of the amounts receivable from customers
is 11.1 months (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:
2020 Stage 1 Stage 2 Stage 3 Total net
GBPm GBPm GBPm receivables
GBPm
------------- -------- -------- -------- -------------
Home credit 309.3 51.9 143.0 504.2
IPF Digital 157.2 6.2 1.5 164.9
------------- -------- -------- -------- -------------
Group 466.5 58.1 144.5 669.1
------------- -------- -------- -------- -------------
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.
16. Borrowing facilities and borrowings
The maturity of the Group's external bond and external bank
borrowings and facilities is as follows:
2020 2019
Borrowings Facilities Borrowings Facilities
GBPm GBPm GBPm GBPm
------------------------ ----------- ----------- ----------- -----------
Repayable:
- in less than one
year 0.2 85.8 112.7 195.2
----------- ----------- ----------- -----------
- between one and two
years 74.3 104.4 366.7 424.9
- between two and five
years 417.5 433.8 197.0 241.5
491.8 538.2 563.7 666.4
----------- ----------- ----------- -----------
Total borrowings 492.0 624.0 676.4 861.6
------------------------ ----------- ----------- ----------- -----------
Total undrawn facilities as at 31 December 2020 were GBP124.6
million (2019: GBP182.4 million), excluding GBP7.4 million
unamortised arrangement fees and issue discount (2019: GBP2.8
million).
17. Derivative financial instruments
At 31 December 2020 the Group had an asset of GBP0.5 million and
a liability of GBP6.7 million (2019: GBP0.3 million asset and
GBP16.2 million liability) in respect of foreign currency
contracts. Foreign currency contracts are in place to hedge foreign
currency cash flows. Where these cash flow hedges are effective, in
accordance with IFRS, movements in their fair value are taken
directly to reserves.
18. Retirement benefit asset
The amounts recognised in the balance sheet in respect of the
retirement benefit obligation are as follows:
2020 2019
GBPm GBPm
------------------------------------------- ------- -------
Diversified growth funds 8.4 6.9
Corporate bonds 20.4 18.3
Liability driven investments 23.0 18.7
Other 0.4 1.9
------- -------
Total fair value of scheme assets 52.2 45.8
Present value of funded defined benefit
obligations (48.8) (42.4)
------------------------------------------- ------- -------
Net asset recognised in the balance sheet 3.4 3.4
------------------------------------------- ------- -------
The credit recognised in the income statement in respect of
defined benefit pension costs is GBP0.5 million (2019: GBP0.1
million). This credit includes a past service credit of GBP0.4
million due to a Pension Increase Exchange exercise that took place
during 2020.
19. Provisions for liabilities and charges
The Group receives claims brought by or on behalf of current and
former customers in connection with its past conduct. Where
significant, provisions are held against the costs expected to be
incurred in relation to these matters. Customer redress provisions
of GBP19.2 million represent the Group's best estimate of the costs
that are expected to be incurred in relation to early settlement
rebates in Poland (2020: GBP17.6 million; 2019: GBP4.0 million,
included in trade and other payables) and claims management charges
incurred in Spain (2020: GBP1.6 million; 2019: GBPnil). All claims
are expected to be settled within 12 months of the balance sheet
date. Further details are included above.
20. Fair values of financial assets and liabilities
IFRS 13 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).
With the exception of derivatives, which are held at fair value,
amounts receivable from customers, and bonds, the carrying value of
all other financial assets and liabilities (which are short-term in
nature) is considered to be a reasonable approximation of their
fair value. Details of the significant assumptions made in
determining the fair value of amounts receivable from customers and
bonds are included below, along with the fair value of other Group
assets and liabilities.
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:
2020 2019
Fair value Carrying Fair value Carrying
value value
GBPm GBPm GBPm GBPm
----------------------- ----------- --------- ----------- ---------
Financial assets
Amounts receivable
from customers 908.8 669.1 1,345.6 973.6
----------- --------- ----------- ---------
908.8 669.1 1,345.6 973.6
----------- --------- ----------- ---------
Financial liabilities
Bonds 405.4 415.9 533.4 539.1
Bank borrowings 76.1 76.1 137.3 137.3
----------- --------- ----------- ---------
481.5 492.0 670.7 676.4
----------------------- ----------- --------- ----------- ---------
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
collection costs, at the Group's weighted average cost of capital
which we estimate to be 10% (2019: 9%) which is assumed to be a
proxy for the discount rate that a market participant would use to
price the asset.
Under IFRS 13 'Fair value measurement', receivables are classed
as level 3 as their fair value is calculated using future cash
flows that are unobservable inputs.
The fair value of the bonds has been calculated by reference to
their market value where market prices are available.
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.
Derivative financial instruments are held at fair value which is
equal to the expected future cash flows arising as a result of the
derivative transaction.
For other financial assets and liabilities, which are all
short-term in nature, the carrying value is a reasonable
approximation of their fair value.
21. Reconciliation of (loss)/profit after taxation to cash
generated from operating activities
2020 2019
GBPm GBPm
------------------------------------------------- ------- -------
(Loss)/profit after taxation from operations (64.2) 71.8
Adjusted for:
Tax charge 23.5 42.2
Finance costs 56.7 63.5
Finance income (9.9) -
Share-based payment charge 1.1 2.4
Depreciation of property, plant and equipment
(note 12) 7.2 8.5
Loss on disposal of property, plant and
equipment (note 12) 0.2 0.5
Depreciation of right-of-use assets (note
13) 9.9 9.1
Impairment of right-of-use assets (note 0.5 -
13)
Amortisation of intangible assets (note
11) 25.9 14.8
Short term and low value lease costs (note
13) 1.7 2.9
Changes in operating assets and liabilities:
Decrease/(Increase) in amounts receivable
from customers 294.9 (34.3)
Decrease/(Increase) in other receivables 4.1 (3.7)
Decrease in trade and other payables (31.2) (18.3)
Change in provisions 19.2 -
Change in retirement benefit asset (1.4) (1.0)
(Decrease)/increase in derivative financial
instrument liabilities (8.4) 10.8
------------------------------------------------- ------- -------
Cash generated from operating activities 329.8 169.2
------------------------------------------------- ------- -------
22. Average and closing 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
2020 2020 2019 2019
------------------- -------- -------- -------- --------
Polish zloty 5.0 5.1 4.9 5.0
Czech crown 30.1 29.3 29.2 30.1
Euro 1.1 1.1 1.1 1.2
Hungarian forint 399.0 405.7 370.0 391.0
Mexican peso 28.3 27.1 24.6 25.0
Romanian leu 5.5 5.4 5.4 5.7
Australian dollar 1.8 1.8 1.8 1.9
-------------------- -------- -------- -------- --------
The GBP4.1 million exchange loss (2019: loss of GBP42.2 million)
on foreign currency translations shown within the 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
December 2020 shown in the table above.
23. Contingent Liability Note
State Aid investigation
In late 2017 the European Commission (EC) opened a State Aid
investigation into the Group Financing Exemption contained in the
UK's controlled foreign company rules, which were introduced in
2013. In April 2019 the EC 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 the UK's
controlled foreign company rules, the Group is affected by this
decision. On 12 February 2021 HMRC issued a Charging Notice,
following the introduction of new legislation in December 2020
empowering HMRC to issue such Notices in order to collect alleged
unlawful State Aid. The Charging Notice requires a payment of
GBP14.2 million with respect to accounting periods ended 2013 to
2018, which was paid in February 2021, with a further amount of
interest estimated at c. GBP1.3 million payable in due course. The
payment of this amount is a procedural matter, and the new law does
not allow for postponement. The company is appealing the Charging
Notice on the grounds of the
quantum assessed.
The UK government has filed an annulment application before the
General Court of the European Union. In common with a number of
other affected taxpayers, IPF has also filed its own annulment
application. Based on legal advice received regarding the strength
of the technical position set out in the annulment applications, it
is expected to be more likely than not that the payment of alleged
State Aid that the Group has to make under the Charging Notice will
ultimately be repaid and therefore no provision has been recorded
in the Financial Statements.
As a separate issue, HMRC has initiated a review of the Group's
finance company's compliance with certain conditions under the UK
domestic tax rules to confirm whether the company is eligible for
the benefits of the Group Financing Exemption which it has claimed
in its historic tax returns. IPF believes that all conditions have
been complied with and have sought legal advice with regard to the
interpretation of the relevant legislative condition. The legal
advice has confirmed IPF's view and assessed that, in the event
that HMRC were to take the matter to Tribunal, it is more likely
than not that the company would succeed in defending its position.
In the unexpected event that HMRC were to conclude that the company
is not in compliance with the conditions and to pursue the matter
in Tribunal, and won, the amount at stake for years up to and
including 2018 is GBP7.3 million. This domestic tax issue and the
State Aid issue are mutually exclusive, and the UK legislation
implemented in December 2020 and referred to above includes
provisions to ensure no double charge to tax arises. It is of note
that currently HMRC have simply asked for information and no
challenge has been made to the company's filing position.
24. Going concern
In considering whether the Group is a going concern, the Board
has taken into account the Group's 2021 business plan, its
principal risks (with particular reference to regulatory risks),
and the expected trajectory of recovery from the Covid-19 pandemic.
The 2021 business plan includes the budget for the year ending 31
December 2021 and forecasts for the two years to 31 December 2023
and includes projected profit and loss, balance sheet, cash flows,
borrowings, headroom against debt facilities and funding
requirements. These forecasts represent the best estimate of the
expected recovery from the impact that Covid-19 had on the Group's
businesses, and in particular the evolution of credit issuance and
collection cash flows. The forecasts assume that debt repayment
moratoria are not extended and temporary price controls introduced
in Poland return to historical levels on 1 July 2021, based on the
sunset clause included in the implementing legislation.
The financial forecasts in the business plan have been stress
tested in a range of downside scenarios to assess the impact on
future profitability, funding requirements and covenant compliance.
The scenarios reflect the crystallisation of the Group's principal
risks (with particular reference to regulatory risks) as outlined
in note 2 and evaluate the impact of a more challenging recovery
from the impact of the Covid-19 pandemic than assumed in the
business plan. Consideration has also been given to multiple risks
crystallising concurrently and the availability of mitigating
actions that could be taken to reduce the impact of the identified
risks. In addition, we examined a reverse stress test on the
financial forecasts to assess the extent to which a recession would
need to impact our operational performance in order to breach a
covenant. This showed that net revenue would need to deteriorate
significantly from the financial forecast and the Directors have a
reasonable expectation that it is unlikely to deteriorate to this
extent.
At 31 December 2020, the Group had GBP210 million of
non-operational cash and headroom against its debt facilities
(comprising a range of bonds and bank facilities), which have a
weighted average maturity of 3.3 years. The total debt facilities
as at 31 December 2020 amounted to GBP624 million of which GBP40
million is uncommitted and GBP86 million is due for renewal over
the next 12 months. These debt facilities, together with a
successful track record of accessing debt capital markets over a
long period (including periods with challenging macroeconomic
conditions and a changing regulatory environment), are sufficient
to fund business requirements for the foreseeable future (12 months
from the date of approval of the Financial Statements). Taking
these factors into account, together with regulatory risks set out
in note 2, the Board has a reasonable expectation that the Group
has adequate resources to continue in operation for the foreseeable
future (12 months from the date of approval of the Financial
Statements). For this reason, the Board has adopted the going
concern basis in preparing the Annual Report and Financial
Statements.
Responsibility statement
This statement is given pursuant to Rule 4 of the Disclosure
Guidance and Transparency Rules.
It is given by each of the directors as at the date of this
report, namely: Stuart Sinclair, Chairman; Gerard Ryan, Chief
Executive Officer; Justin Lockwood, Chief Financial Officer;
Richard Moat, Senior independent non-executive director; Richard
Holmes, non-executive director; Deborah Davis, non-executive
director; John Mangelaars, non-executive director; Cathryn Riley,
non-executive director, and Bronwyn Syiek, non-executive
director.
To the best of each director's knowledge:
a) the financial information, prepared in accordance with the
IFRSs, give a true and fair view of the assets, liabilities,
financial position and profit of the Company and the undertakings
included in the consolidation taken as a whole; and
b) the management report contained in this report includes a
fair review of the development and performance of the business and
the position of the Company and the undertakings included in the
consolidation taken as a whole, together with a description of the
principal risks and uncertainties that they face.
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 equivalent Reconciling Definition and purpose
statutory items
measure to
statutory
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 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 (constant
exchange rates).
---------------------- ------------------- --------------- -----------------------------------------
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 (constant exchange
rates). 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
exchange rates which is calculated by retranslating
(%) the previous 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 (constant
exchange rates).
---------------------- ------------------- --------------- -----------------------------------------
Revenue growth None Not applicable The period-on-period change
at in revenue which is calculated
constant exchange by retranslating the previous
rates (%) 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 (constant exchange
rates).
---------------------- ------------------- --------------- -----------------------------------------
Impairment None Not applicable Impairment as a percentage
as a of 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.
Pre-exceptional Profit/(loss) Exceptional Profit/(loss) before tax and
profit/(loss) before tax items exceptional items. This is
before tax considered to be an important
(GBPm) measure where exceptional items
distort the operating performance
of the business.
Pre-exceptional Earnings/(loss) Exceptional Earnings/(loss) per share before
earnings/(loss) per share items the impact of exceptional items.
per share (pence) This is considered to be an
important measure where exceptional
items distort the operating
performance of the business.
---------------------- ------------------- --------------- -----------------------------------------
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 and the Group
targets a ratio of around 40%.
Headroom (GBPm) Undrawn None Headroom is an alternative
external bank term for undrawn external bank
facilities facilities.
---------------------- ------------------- --------------- -----------------------------------------
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
2020
GBPm European Mexico IPF Digital Central Group
home credit home credit costs
------------------------------- ------------- ------------- ------------ -------- --------
Customers 860 599 223 - 1,682
Credit issued 479.6 143.6 149.0 - 772.2
Average net receivables 468.4 102.5 206.7 - 777.6
Revenue 363.4 157.1 140.8 - 661.3
Impairment (132.3) (53.0) (62.3) - (247.6)
Net revenue 231.1 104.1 78.5 - 413.7
Finance costs (33.3) (7.7) (13.9) (0.1) (55.0)
Agents' commission (50.7) (21.3) - - (72.0)
Other costs (160.7) (71.6) (70.6) (12.6) (315.5)
------------------------------- ------------- ------------- ------------ -------- --------
Pre-exceptional (loss)/profit
before tax (13.6) 3.5 (6.0) (12.7) (28.8)
------------------------------- ------------- ------------- ------------ -------- --------
2019 performance, at 2019 average foreign exchange rates
GBPm European Mexico IPF Digital Central Group
home credit home credit costs
------------------------- ------------- ------------- ------------ -------- --------
Customers 1,009 795 305 - 2,109
Credit issued 751.3 268.2 333.5 - 1,353.0
Average net receivables 562.0 164.4 260.2 - 986.6
Revenue 452.2 247.6 189.3 - 889.1
Impairment (56.0) (102.3) (85.2) - (243.5)
Net revenue 396.2 145.3 104.1 - 645.6
Finance costs (37.1) (11.8) (14.4) (0.2) (63.5)
Agents' commission (51.1) (29.9) - - (81.0)
Other costs (192.9) (93.1) (86.5) (14.6) (387.1)
------------------------- ------------- ------------- ------------ -------- --------
Profit/(loss) before
tax 115.1 10.5 3.2 (14.8) 114.0
------------------------- ------------- ------------- ------------ -------- --------
Foreign exchange movements
GBPm European Mexico IPF Digital Central Group
home credit home credit costs
------------------------- ------------- ------------- ------------ -------- -------
Credit issued (18.5) (27.9) (0.4) - (46.8)
Average net receivables (15.0) (16.8) 0.7 - (31.1)
Revenue (11.4) (25.4) 0.4 - (36.4)
Impairment 0.8 10.6 0.5 - 11.9
Net revenue (10.6) (14.8) 0.9 - (24.5)
Finance costs 1.0 1.2 (0.1) - 2.1
Agents' commission 1.4 3.0 - - 4.4
Other costs 3.8 9.1 0.4 - 13.3
------------------------- ------------- ------------- ------------ -------- -------
Profit/(loss) before
tax (4.4) (1.5) 1.2 - (4.7)
------------------------- ------------- ------------- ------------ -------- -------
2019 performance, restated at 2020 average foreign exchange
rates
GBPm European Mexico IPF Digital Central Group
home credit home credit costs
------------------------- ------------- ------------- ------------ -------- --------
Credit issued 732.8 240.3 333.1 - 1,306.2
Average net receivables 547.0 147.6 260.9 - 955.5
Revenue 440.8 222.2 189.7 - 852.7
Impairment (55.2) (91.7) (84.7) - (231.6)
Net revenue 385.6 130.5 105.0 - 621.1
Finance costs (36.1) (10.6) (14.5) (0.2) (61.4)
Agents' commission (49.7) (26.9) - - (76.6)
Other costs (189.1) (84.0) (86.1) (14.6) (373.8)
------------------------- ------------- ------------- ------------ -------- --------
Year-on-year movement at constant exchange rates
European Mexico IPF Digital Central Group
home credit home credit costs
------------------------- ------------- ------------- ------------ -------- --------
Credit issued (34.6%) (40.2%) (55.3%) - (40.9%)
Average net receivables (14.4%) (30.6%) (20.8%) - (18.6%)
Revenue (17.6%) (29.3%) (25.8%) - (22.4%)
Impairment (139.7%) 42.2% 26.4% - (6.9%)
Net revenue (40.1%) (20.2%) (25.2%) - (33.4%)
Finance costs 7.8% 27.4% 4.1% 50.0% 10.4%
Agents' commission (2.0%) 20.8% - - 6.0%
Other costs 15.0% 14.8% 18.0% 13.7% 15.6%
------------------------- ------------- ------------- ------------ -------- --------
Information for shareholders
1. The Annual Report and Financial Statements 2020 and the
notice of the Annual General Meeting will be posted on 23 March
2021 to shareholders who have elected to continue receiving
documents from the Company in hard copy form. All other
shareholders will be sent a letter explaining how to access the
documents on the Company's website from 24 March 2021 or an email
with the equivalent information. Paper proxy forms can be requested
from the Registrar by phoning the number above.
2. The Annual General Meeting will be held at 10.30am on 29
April 2021 at the Company's registered office, Number Three, Leeds
City Office Park, Meadow Lane, Leeds, LS11 5BD. Given the
challenges and restrictions imposed as a result of Covid-19, the
Board's current intention is that this year's meeting will be
attended only by a limited number of Company representatives to
ensure that a valid meeting is held. Updates will be given via the
website should plans change in light of future developments.
This report has been prepared solely to provide additional
information to shareholders to assess the Group's strategies and
the potential for those strategies to succeed. The report should
not be relied on by any other party or for any other purpose. The
report contains certain forward-looking statements. These
statements are made by the directors in good faith based on the
information available to them up to the time of their approval of
this report but such statements should be treated with caution due
to the inherent uncertainties, including both economic and business
risk factors, underlying any such forward-looking information.
Percentage change figures for all performance measures, other than
profit before taxation and earnings per share, unless otherwise
stated, are quoted after restating prior year figures at a constant
exchange rate (CER) for 2020 in order to present the underlying
performance variance.
Investor relations and media contact
International Personal Finance Rachel Moran
plc +44 (0)7760 167637
International Personal Finance will host a webcast of its 2020
full-year results presentation at 09.00hrs (GMT) today - Wednesday
3 March 2021, which can be accessed via 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
FR UUAKRABUORAR
(END) Dow Jones Newswires
March 03, 2021 02:00 ET (07:00 GMT)
International Personal F... (LSE:IPF)
Historical Stock Chart
From Feb 2024 to Mar 2024
International Personal F... (LSE:IPF)
Historical Stock Chart
From Mar 2023 to Mar 2024