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

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