TIDMIPF
RNS Number : 7859H
International Personal Finance Plc
01 August 2023
1 August 2023
International Personal Finance plc
Half-year financial report for the six months ended 30 June
2023
Principal activity
International Personal Finance plc is helping to build a better
world through financial inclusion by providing affordable credit
products and insurance services to underserved consumers across
nine markets.
FIRST-HALF PERFORMANCE AHEAD OF PLAN
Key highlights
Ø Strong first-half performance and increased interim dividend
-- Reported profit before tax up 12% to GBP37.8m (H1-22: GBP33.8m),
ahead of internal plans.
-- Interim dividend increased by 15% to 3.1p per share (H1-22:
2.7p), in line with our stated dividend policy of paying
33% of the prior full-year dividend in the first half.
Ø Excellent operational execution delivered continued growth
and good credit quality
-- Closing net receivables of GBP893m, up 10% year on year
(at CER), with all three divisions delivering strong performances.
-- Actions to improve Group returns continue to be successful:
* Revenue yield strengthened to 54.2% (H1-22: 49.8%).
* Repayment performance remains robust, with the
impairment rate of 11.4% (H1-22: 7.5%) being in line
with expectations as rates normalise following
Covid-19.
* Further reduction in the cost-income ratio to 57.4%
(H1-22: 65.0%) delivered through rigorous focus on
cost efficiency.
Ø Robust funding position and balance sheet to fund growth
-- Successfully extended GBP39m of debt facilities in the
first half and, together with advisors, exploring options
to refinance the Group's Eurobond.
-- Headroom on funding facilities of GBP84m, together with
strong cash flow generation, supports the Group's growth
plans into the third quarter of 2024.
-- Equity to receivables ratio at 51.8% (H1-22: 52.4%) underpins
the Group's growth plans and progressive dividend policy.
Ø Strategy to take advantage of substantial and sustainable
long-term opportunities being executed effectively
-- Rollout of credit cards in Poland progressing well with
53,000 cards issued, and customers recognising and using
the extra utility of the new product.
-- Mexico expansion strategy on track, with overall customer
numbers in our home credit and digital divisions approaching
800,000.
Group key statistics H1-23 H1-22 YOY change at
CER
Customer numbers (000s) 1,718 1,718 -
Customer lending (GBPm) 578.8 513.3 4.8%
Average gross receivables
(GBPm) 1,343.2 1,170.6 9.9%
Closing net receivables
(GBPm) 893.1 769.9 9.7%
Reported PBT (GBPm) 37.8 33.8
Pre-exceptional EPS (pence)(1) 10.2 9.1
Interim dividend per share
(pence) 3.1 2.7 15%
-------------------------------------------- ----------- ------------ ------------------
1 Prior to an exceptional tax charge of GBP4.0m in 2023, and an
exceptional tax credit of GBP10.5m in 2022, see tax section for
details.
Gerard Ryan, Chief Executive Officer at IPF commented:
" Our focus on helping more people access affordable credit and
excellent execution of our strategy delivered good growth and a
strong set of financial results of which we are very proud.
Notwithstanding the negative impacts of high inflation, all three
divisions delivered great performances and we increased receivables
by 10%, credit quality remained good and profit before tax was up
12% to GBP37.8m. We made significant progress with the rollout of
our new credit card in Poland and further strong growth in Mexico
through both our face-to-face and digital channels.
Our half-year results reflect the collective efforts of the
whole IPF team, and I would like to thank my colleagues for all of
their hard work and commitment to our customers and the communities
we serve. The Board is pleased to declare an increase in the
interim dividend of 15% to 3.1 pence per share, which is fully
supported by our strong trading performance and the Group's robust
balance sheet."
Alternative performance measures
This half-year financial report provides alternative performance
measures (APMs) which are not defined or specified under the
requirements of International Financial Reporting Standards. We
believe these APMs provide stakeholders with important additional
information on our business. To support this, we have included an
accounting policy note on APMs in the notes to this half-year
financial report, a glossary indicating the APMs that we use, an
explanation of how they are calculated and how we use them, and a
reconciliation of the APMs we use to a statutory measure, where
relevant.
Investor relations and media contact
International Personal Finance Rachel Moran
plc +44 (0)7760 167637
International Personal Finance will host a webcast of its 2023
half-year results presentation at 09.00hrs (BST) today - Tuesday 1
August 2023, which can be accessed here.
A copy of this statement can be found on our website at
www.ipfin.co.uk .
Legal Entity Identifier: 213800II1O44IRKUZB59
Chief Executive Officer's review
Group performance
Our focus on helping more consumers access affordable credit,
combined with the excellent operational execution of our strategy
delivered good growth and a strong set of financial results in the
first half of the year. We increased first-half profit by 12% to
GBP37.8m and t here remains strong demand for our broad range of
financial products, which supported a 10% increase (at CER) in net
customer receivables to GBP893m. Notwithstanding the negative
impacts of high inflation, customer repayment performance remained
robust, and we are pleased with the credit quality of our
receivables portfolio.
Our financial model underpins our purpose to build a better
world through financial inclusion and targets a return on required
equity (RORE) for the Group of 15% to 20%, which we consider to be
sustainable and balances the needs of all our stakeholders. At the
half year, our annualised pre-exceptional RORE strengthened to
14.7% (H1-22: 12.3%) reflecting the very good operational
performances by the European and Mexico home credit divisions, both
of which delivered ROREs marginally above 20%. There remain
excellent growth opportunities for IPF Digital to achieve scale and
deliver our target returns.
The Group continues to have a well-capitalised balance sheet and
robust funding position with headroom on debt facilities of GBP84m,
which supports our business plans into the third quarter of
2024.
The excellent first-half performance fully supports a 15%
increase in the interim dividend to 3.1p (H1-22: 2.7p) per share,
in line with our stated dividend policy of paying 33% of the prior
year full-year dividend in the first half.
Full details of the Group financial performance are detailed in
the financial review section.
Strategic delivery
We play a vital role in society by providing access to
affordable credit products and insurance services to people who are
often excluded from day-to-day financial services by banks and
other lenders. Our aim is to build on our market leadership by
deploying a broad range of products, expanding our distribution
channels and upgrading customer journeys to attract the next
generation of customers.
From our heritage as a dedicated provider of instalment loans
delivered face-to-face by our customer representatives, we have
successfully diversified our product mix across nine markets which
today includes digital instalment loans, credit cards, digital
credit lines and mobile wallet as well as insurances and other
value-added services. The continued success of our strategy to
broaden our product range is particularly well demonstrated in our
Polish and Mexican markets as well as through our development of
partnership opportunities.
Poland
Over a number of years, we have broadened our product range in
Poland in response to changing consumer preferences and the
evolving regulatory landscape. We now serve our customers with
face-to-face and digitally-delivered instalment loans, a range of
value-added products and, more recently, an exciting new credit
card.
It is pleasing to report that the new credit card has been well
received by both customers and field colleagues, and at the end of
the first half we had issued 53,000 credit cards. The average
balance is around GBP500 and average utilisation is c.80%. Whilst
customers typically draw down around 90% of their credit limit
initially through interaction with their customer representative,
increasingly they are using their card to shop instore, spend
online or access cash at no extra charge through an ATM, as they
become more familiar with the benefits and added utility of a
credit card. Importantly, customer repayment performance to date is
tracking in line with our plans and is very similar to our
experience of home credit instalment loans. We will continue to
increase functionality and added utility, and expect to be serving
between 120,000 and 150,000 customers with credit cards in Poland
by the end of the year.
The success of the rollout, which reached nationwide coverage
early in April, has proven the economics of the new credit card. We
are therefore confident that our business in Poland is capable of
delivering our target returns when it regains scale following the
transition to operating under the total cost of credit cap and new
affordability requirements, which came into force on 18 December
2022 and 18 May 2023 respectively. As we have previously indicated,
we expect this transition to be complete in 2025 when credit cards
are expected to represent over half of our Polish receivables
book.
Mexico
Capturing the significant growth potential in Mexico is core to
our strategy and we expanded both our geographic presence and
product offering during the first half of the year. We launched
home credit operations in the new region of Tampico in March which
has started very well, and continued to expand our operations in
Tijuana which opened in 2022. In addition, within our IPF Digital
business we launched our mobile wallet to customers, providing them
with extra functionality to manage their revolving credit line
through their smart phones.
Mexico is a good example of where our traditional home credit
business is working very closely with IPF Digital to pass consumers
not suitable for managing a remote online credit facility to one of
our customer representatives so they may be served through our
face-to-face instalment lending channel. This ensures that we can
serve more customers and also means that our marketing investment
is more efficient. We will look to replicate this model within our
other markets.
Partnerships
We see attractive growth opportunities to build more points at
which consumers can access credit through retail partnerships. In
2022, we focused on understanding the customer journey and building
our capability with the testing of point-of-sale finance for
consumers in Romania and Mexico. In 2023, based on our learnings,
we have identified a number of additional partnership opportunities
to expand our distribution in Romania and Mexico, and we see these
as a very important part of our growth plans going forward. The
majority of partnership opportunities will be delivered through IPF
Digital, where access to a revolving credit line delivered through
smart phones is very beneficial to customers.
Marketplace
The global economic downturn and cost-of-living crisis is the
largest challenge facing our business both in terms of its impact
on our customers as well as increased costs across the Group.
Inflation rates have slowed across our markets but are expected to
remain elevated in the second half of the year.
We have continued to see good levels of demand for consumer
credit in all our markets. While people within our target consumer
segment often have lower incomes, they also budget very carefully
and only want to borrow small sums. Their disposable income is
under pressure because of increased food, fuel and energy prices
but these factors have not had a discernible impact on repayments
to date. Our lending criteria always centre on protecting customers
from potential over-indebtedness and minimising credit risk to the
business, and our responsible and prudent credit settings continue
to reflect the uncertain macroeconomic environment for consumers
with higher credit risk profiles. We continue to monitor lending
and repayment performance carefully and will adjust credit settings
as appropriate.
All our markets continue to be competitive, but we have seen
banks tightening their underwriting as the effects of high
inflation impact consumers' disposable incomes. In addition, we
have seen some signs that competition is being impacted by both
caution in capital markets and increasing regulation which
continues to present an opportunity for established, well-governed
businesses with a strong balance sheet like IPF. We believe that
non-bank financial institutions will remain a crucial source of
finance for lower-income underserved consumers, and we will
continue to focus on serving more customers in this demographic
while maintaining lending quality.
Environment, social and governance (ESG)
We have a very strong social purpose and are committed not only
to supporting our customers by providing affordable and transparent
credit in a responsible way, but also by striving to create
long-term, sustainable value for all IPF stakeholders as we invest
in promoting financial inclusion, developing the capabilities of
our team who serve millions of customers and implementing our
climate change strategy.
The key initiatives in the first half of the year included:
-- The launch of our global 'Invisibles' community programme in
Hungary, Romania and the Baltics highlighting the plight of
underprivileged, marginalised and excluded members of society. Our
work in this area was recognised through a number of awards in the
Czech Republic.
-- The Group's sixth annual Volunteer and Financial Inclusion
month saw 2,000 volunteers across our markets undertaking projects
to support 35,000 people in need.
-- Our Global People Survey demonstrated a high level of colleague engagement.
-- We have held the ISO 45001 Occupational Health and Safety
Management Standard in all European home credit markets since 2020.
In the first half of 2023, we achieved this accreditation in Mexico
home credit.
-- Recognised with Top Employer and Super Ethical Company awards
in Poland, and IPF Digital in Mexico was named as the 'Best Place
to Work for Women'.
We are very proud of these achievements and our work in this
area is fundamental to our purpose of building a better world
through financial inclusion. We continued to further develop our
ESG strategy, and will be launching a "Responsible Business
Framework" in the second half of the year as part of our journey to
embed ESG throughout all of our operations.
Dividend
Reflecting the confidence in executing the Group's strategy and
realising the long-term growth potential of the business, the Board
is pleased to declare a 15% increase in the interim dividend to 3.1
pence per share. This is in line with our progressive dividend
policy which sets the interim dividend payment at 33% of the prior
year's full dividend payment. The interim dividend will be paid on
29 September 2023 to shareholders on the register at the close of
business on 1 September 2023. The shares will be marked ex-dividend
on 31 August 2023.
Regulatory update
There have been no material updates on the EU Commission's
review of the Consumer Credit Directive, and we continue to expect
that a final compromise proposal will be published later in
2023.
As previously indicated, we were granted a small payment
institution licence in Poland last year to enable credit card
issuance and payment services. We submitted an application for a
full payment institution licence in Q4-22 and are in dialogue with
the Polish financial supervision authority, the Komisja Nadzoru
Finansowego (KNF), to ensure that we meet the requirements for this
licence, a process which typically takes around 12 months.
In response to new affordability regulations that came into
force in Poland in May 2023, we successfully deployed new processes
and technology to assess customers in line with the new rules, and
in IPF Digital introduced systems to comply with the Payment
Services Directive Two (PSD2) ensuring customer authentication
processes.
Outlook
Our aim is to provide underserved consumers with access to
simple, personal and affordable credit and insurance services to
help protect them and their families. There is significant demand
for affordable credit within our target demographic, and we see
substantial and sustainable long-term growth opportunities through
meeting the needs of more consumers with an increased choice of
products and distribution channels.
All three of our divisions performed well in the first half of
the year, delivering good growth and financial results. Whilst
there has been no discernible impact from the rising costs of
living on customer demand or repayment performance, we will
continue to monitor this closely and maintain a cautious approach
to lending given the macroeconomic backdrop. As we have
demonstrated previously, we have a strong track record of adjusting
credit settings to adapt to market conditions very quickly in order
to maintain returns.
Looking ahead and as previously reported, we expect overall
Group receivables growth to be more modest for the year as a whole
and our returns to moderate as we continue to adapt our Polish
business to serving customers under the new pricing and
affordability regulations. In European home credit, we will focus
on rolling out our new credit card in Poland, whilst continuing to
deploy more digital solutions to improve customer experience and
cost efficiency in all four markets . In Mexico home credit, our
efforts will centre on delivering our expansion strategy to
maximise customer reach and, in IPF Digital, we will continue to
rebuild scale to deliver our target returns in the medium term,
particularly through strong growth in Mexico and Australia. We will
also maintain strict control of costs across the Group and see
further opportunities to drive operational and structural cost
efficiencies.
We have a strong balance sheet which underpins our confidence in
continuing to deliver a good set of results for the year as a whole
and deliver our progressive dividend policy and to return the Group
to its target returns in 2025.
Financial review
Group
We delivered a very good first-half performance and continued to
make progress on executing our strategy, despite the challenging
macroeconomic environment. We delivered a first-half profit before
tax of GBP37.8m, up by 11.8% (GBP4.0m) on the first half of last
year and ahead of our plans, reflecting a strong operational
performance as well as favourable movements in exchange rates
compared with our original assumptions. An analysis of profits
between our three trading divisions is set out below:
H1-23 H1-22 Change Change
GBPm GBPm GBPm %
------------------------ ------ ------ ------- -------
European home credit 30.3 29.6 0.7 2.4
Mexico home credit 11.4 7.4 4.0 54.1
IPF Digital 4.1 4.5 (0.4) (8.9)
Central costs (8.0) (7.7) (0.3) (3.9)
------------------------ ------ ------ ------- -------
Profit before taxation 37.8 33.8 4.0 11.8
------------------------ ------ ------ ------- -------
The detailed income statement of the Group, together with
associated KPIs is set out below:
H1-22 Change Change Change
H1-23 GBPm GBPm % at CER
GBPm %
---------------------------- -------- -------- --------- -------- ------------
Customer numbers (000s) 1,718 1,718 - - -
Customer lending 578.8 513.3 65.5 12.8 4.8
Average gross receivables 1,343.2 1,170.6 172.6 14.7 9.9
Closing net receivables 893.1 769.9 123.2 16.0 9.7
Revenue 380.0 297.4 82.6 27.8 17.6
Impairment (89.2) (43.3) (45.9) (106.0) (80.9)
---------------------------- -------- -------- --------- -------- ------------
Revenue less impairment 290.8 254.1 36.7 14.4 6.2
Costs (215.1) (190.3) (24.8) (13.0) (5.2)
Interest expense (37.9) (30.0) (7.9) (26.3) (18.8)
Reported profit before
taxation 37.8 33.8 4.0 11.8
---------------------------- -------- -------- --------- -------- ------------
Annualised revenue yield 54.2% 49.8% 4.4 ppts
Annualised impairment (3.9)
rate 11.4% 7.5% ppts
Annualised cost-income
ratio 57.4% 65.0% 7.6 ppts
Pre-exceptional EPS-(1) 10.2p 9.1p 1.1 p
Annualised pre-exceptional
ROE 11.3% 10.4% 0.9 ppts
Annualised pre-exceptional
RORE(1,2) 14.7% 12.3% 2.4 ppts
---------------------------- -------- -------- --------- -------- ------------
(1) Prior to an exceptional tax charge of GBP4.0m in 2023, and
an exceptional tax credit of GBP10.5m in 2022.
(2) Based on required equity to receivables of 40%.
Delivering growth responsibly is a core strand of our purpose to
increase financial inclusion for people who are unable to access
credit from banks and traditional lenders. The strong execution of
our strategy to capture growth opportunities and meet consumer
demand with our broadening range of financial products drove a 4.8%
increase in customer lending year on year. We increased our closing
net receivables portfolio by GBP123.2m (9.7% at CER) to GBP893.1m
at the half year, reflecting double-digit growth in all three
divisions, which resulted in strong revenue growth of 17.6%.
Customer numbers increased by 1.1% to 1.72m (excluding the
collect-outs of our businesses in Spain and Finland).
The Group annualised revenue yield continued to strengthen, up
4.4ppts to 54.2%, as a result of the positive impact of lower
levels of promotional activity introduced during the second half of
last year and the impact of price increases in some of our markets.
Price increases are only made after due consideration of rate caps,
which are often linked to movements in local base rates, and
stringent consideration of customer affordability. The Group
revenue yield is now within our target range of 53% to 56%, and we
expect it to increase further in the medium term as: (i) Mexico
home credit, which carries a higher yield, grows and represents a
larger proportion of the Group's receivables portfolio; and (ii)
the impact of price increases and lower promotional activity in the
receivables portfolio take greater effect.
We are always very disciplined and responsible in our lending
decisions to customers, and never more so than in difficult
economic times. The close relationships we have with our customers
also encourages a strong repayment ethos. Despite the increased
costs of living, we have not seen any discernible impact on
customer repayment behaviour and, together with tight credit
standards, the quality of our loan portfolio continues to be very
good. The annualised impairment rate at the end of the first half
was 11.4% (H1-22: 7.5%), which is in line with our expectations as
impairment rates normalise following the pandemic. We expect the
Group annualised impairment rate to rise closer to our target range
of 14% to 16% as we continue to grow the business and Mexico, which
carries a higher impairment rate, represents a larger proportion of
receivables. Our balance sheet remains very robust against the
impact of cost-of-living increases with an impairment coverage
ratio of 36.5% at the end of the first half (H1-22: 37.6%), which
is little changed from 36.4% at the end of 2022 and compares with a
pre-Covid-19 ratio of 33.5% at the end of 2019.
Maintaining tight control of costs and delivering efficiency
improvements through technology to offset inflationary pressures
are having a meaningful impact on our returns. These actions,
together with the growth in revenue, resulted in a significant
7.6ppt improvement in the annualised cost-income ratio from 65.0%
to 57.4% over the last 12 months. Given the momentum in the
business, and the initiatives underway, we have increased
confidence that we will outperform our medium-term target of 52% to
54% as we continue to achieve greater scale.
Reported pre-exceptional EPS was 10.2p per share (H1-22: 9.1p),
up 1.1ppts year on year, and in line with the growth in pre-tax
profits.
The pre-exceptional annualised RORE for the first half of 14.7%
was broadly in line with 14.6% at the end of 2022 ( H1 -22: 12.3
%). We continue to operate close to the lower end of our target
range of 15% to 20% as we rebuild scale and transition the Polish
business to the new regulatory landscape. The Group's annualised
pre-exceptional ROE, based on actual equity, was 11.3% at the half
year, down from 11.5% at end of 2022 (H1-22: 10.4%) due to
favourable exchange rate movements which have increased equity. As
previously reported, we anticipate Group returns will moderate for
2023 as a whole because the impact of the new regulations in Poland
is more pronounced in the second half, due to new affordability
rules which came into force on 18 May 2023. We expect to rebuild
returns in 2024 and deliver our target returns in 2025 .
Changes to financial model KPIs
Our financial model sets out the target returns we need to
support our dividend policy, fund our growth and ensure we retain a
strong balance sheet. The most integral part of our financial model
is that we must deliver a Group RORE of between 15% and 20%. We
target each of our divisions to deliver a return of at least 20% to
ensure that we can deliver the Group RORE, after taking account of
central costs. We believe that Group returns materially in excess
of our target range would result in us not balancing the needs of
all of our stakeholders in delivering our purpose.
Our financial model is underpinned by a stringent focus on
revenue yield, impairment rate and cost-income ratio. It is also
dictated by the cost of funding and the tax rate. We set targets
for each of these metrics 12 months ago and, in light of strong
operational performance over the last year together with the global
rise in interest rates due to cost-of-living pressures, we have
re-evaluated the targets for each of these metrics as follows:
Group KPI Previous target New, medium-term target
range range
Annualised revenue
yield 53% - 56% 56% - 58%
---------------- ------------------------
Annualised impairment
rate 14% - 16% 14% - 16%
---------------- ------------------------
Annualised cost-income
ratio 52% - 54% 49% - 51%
---------------- ------------------------
The revised targets are supported by our financial forecasts and
ongoing initiatives that are well progressed. They support the
delivery of our target returns of between 15% and 20% after taking
account of increasing funding costs and an ongoing tax rate of
approximately 40%.
Divisional performance
European home credit
Our European home credit division delivered a very good
operational performance in the first half of the year, reporting an
increase in profit before tax to GBP30.3m (H1-22: GBP29.6m),
despite operating under new pricing and affordability requirements
in Poland as described above.
H1-22 Change Change Change
H1-23 GBPm GBPm % at
GBPm CER
%
---------------------------- -------- ------- --------- ---------- ----------
Customer numbers (000s) 785 786 (1) (0.1) (0.1)
Customer lending 318.3 288.1 30.2 10.5 5.6
Average gross receivables 792.5 722.0 70.5 9.8 9.0
Closing net receivables 505.4 441.4 64.0 14.5 9.3
Revenue 192.2 148.8 43.4 29.2 23.8
Impairment (27.1) (1.1) (26.0) (2,363.6) (2,610.0)
---------------------------- -------- ------- --------- ---------- ----------
Revenue less impairment 165.1 147.7 17.4 11.8 7.0
Costs (110.8) (99.0) (11.8) (11.9) (7.4)
Interest expense (24.0) (19.1) (4.9) (25.7) (20.6)
Reported profit before
taxation 30.3 29.6 0.7 2.4
---------------------------- -------- ------- --------- ---------- ----------
Annualised revenue yield 45.6% 40.7% 4.9 ppts
Annualised impairment (2.8)
rate 3.9% 1.1% ppts
Annualised cost-income
ratio 59.8% 67.7% 7.9 ppts
Annualised pre-exceptional
RORE 21.0% 17.7% 3.3 ppts
---------------------------- -------- ------- --------- ---------- ----------
Despite the ongoing challenges in Europe's trading environment
driven by the impacts of the war in Ukraine, consumer demand
remained robust, and we delivered 5.6% growth in customer lending
year on year. The robust operational execution of our strategy
resulted in a 9.3% increase (at CER) in closing net receivables to
GBP505m with Hungary and Romania both delivering growth in excess
of 20% and the Czech Republic delivering 9%. These increases were
offset partially by a 4% reduction in Poland where we expected
growth to slow . Excluding Poland, customer lending and closing net
receivables both increased by 21%. Customer numbers ended the first
half at 785,000, broadly in line with H1-22.
The annualised revenue yield has strengthened significantly over
the last 12 months from 40.7% to 45.6%. This reflects the strong
management actions to bolster this metric, including reduced
promotional activity and modest price in June last year, some of
which relate to local rate caps which are linked to base rate
movements.
Customer repayment performance remained robust in all our
European home credit markets which, together with tight credit
standards, delivered an impairment rate of 3.9%, up from 1.1% as
rates began to normalise post-pandemic. We expect the medium-term
impairment rate to rise to between 8% and 10%.
The good growth in lending and tight management of costs
delivered a further significant improvement in the cost-income
ratio, reducing 7.9ppts year on year to 59.8% (H1-22: 67.7%). We
continue to drive more efficient processes and deliver greater
synergies across our four countries, including through the
deployment of technology and sharing of best practice and
resource.
The annualised pre-exceptional RORE in European home credit
improved to 21.0% (H1-22:17.7%) which is in line with our
divisional target returns. As we indicated last year, we expect
European home credit returns to reduce in the second half of 2023
and through 2024 as we transition our Polish business to the new
regulatory landscape in which we now operate before returning to
delivering target returns in 2025.
European home credit is the bedrock of the Group. It serves
nearly 800,000 customers, has good growth prospects and is
delivering our target returns. Our focus remains on increasing the
number of customers using our credit card offering in Poland,
expanding our remote digital offering in the Czech Republic,
broadening our product range to serve more customers, including
leveraging from our IPF Digital business, as well as continuing to
deploy more technology to improve customer experience and cost
efficiency.
Mexico home credit
Mexico home credit delivered further good growth and another
strong operational performance in the first half. Profit before tax
increased by 54% (GBP4.0m) to GBP11.4m (H1-22: GBP7.4m).
H1-22 Change Change Change
H1-23 GBPm GBPm % at
GBPm CER
%
-------------------------- ----------- ------- --------- -------- --------
Customer numbers (000s) 700 676 24 3.6 3.6
Customer lending 142.9 116.4 26.5 22.8 4.5
Average gross receivables 274.8 201.2 73.6 36.6 15.8
Closing net receivables 176.1 140.8 35.3 25.1 9.7
Revenue 125.4 93.1 32.3 34.7 14.8
Impairment (44.0) (31.0) (13.0) (41.9) (21.5)
------------------------------ ------- ------- --------- -------- --------
Revenue less impairment 81.4 62.1 19.3 31.1 11.5
Costs (64.1) (50.4) (13.7) (27.2) (9.0)
Interest expense (5.9) (4.3) (1.6) (37.2) (15.7)
Reported profit before
taxation 11.4 7.4 4.0 54.1
------------------------------ ------- ------- --------- -------- --------
Annualised revenue yield 88.5% 86.5% 2.0 ppts
Annualised impairment (4.3)
rate 32.2% 27.9% ppts
Annualised cost-income
ratio 50.0% 53.8% 3.8 ppts
(0.3)
Annualised RORE 20.5% 20.8% ppts
------------------------------ ------- ------- --------- -------- --------
Mexico home credit continued to deliver strong returns in a
market with high demand for credit and significant growth
potential. Our continued expansion, which included the launch of
home credit operations in Tampico in March, together with good
consumer demand, delivered a 4.5% increase in customer lending year
on year, against tighter credit settings introduced towards the end
of 2022. This compares with a very strong first-half performance in
2022 when we saw a resurgence in demand as Mexico recovered from
the pandemic. We expect customer lending growth to increase to
between 8% and 10% in H2-23, against a more normal growth rate
achieved in the second half of last year. Customer numbers grew by
3.6% in the first half to 700,000.
Closing net receivables increased by 9.7% (at CER) to GBP176.1m
which flowed into strong revenue growth of 14.8% year on year. The
annualised revenue yield improved from 86.5% in June last year to a
more normalised level post-pandemic of 88.5%. We expect this ratio
to remain close to this level going forward.
Customer repayment performance remained consistent during the
first six months of the year. The annualised impairment rate
increased to 32.2% (H1-22: 27.9%), which is higher than our target
rate for Mexico of 30%. This predominantly reflects a modest
deterioration in credit quality towards the end of 2022 prior to
credit tightening. Repayment performance is now back in line with
our plan, and we anticipate the impairment rate moving towards our
target level by the year end.
In line with our growth strategy, we continued to invest in
expanding our infrastructure and customer reach in Mexico which
resulted in costs increasing year on year by 9.0% (at CER).
However, the cost-income ratio has now improved by 3.8 ppts to 50%
over the last 12 months (H1-22: 53.8%), demonstrating the benefit
of operational leverage in this growing business as well as good
cost control. Mexico is the benchmark home credit operation for
cost efficiency.
Mexico home credit delivered an annualised RORE of 20.5% (H1-22:
20.8%), in line with our divisional target returns. As we have
indicated previously, investing in sustainable growth with a
relatively shallow "j-curve" is key to maintaining target returns
in this strong growth business.
Our Mexico home credit business offers very exciting and
significant long-term growth prospects. By successfully delivering
on our strategy, we will continue to deliver sustainable growth to
ensure consistent returns. We will enhance territory management to
maximise customer reach within the current geographic footprint and
selectively digitise the customer journey. We will also continue to
build on the synergies developed with IPF Digital, which is helping
us financially include more people in Mexico. Together, Mexico home
credit and IPF Digital in Mexico already serve nearly 800,000
customers, and there is good potential to grow to over one million
customers in the medium term.
IPF Digital
IPF Digital delivered good growth in all our ongoing markets and
reported a profit before tax of GBP4.1m (H1-22: GBP4.5m). Whilst
this is a reduction year on year, this reflects: (i) the "j-curve"
impact of strong receivables growth; (ii) the impact of
transitioning the Polish business to the new lower total cost of
credit cap and affordability rules; and (iii) the collect-out
markets of Spain and Finland contributing lower profits as they
near closure.
H1-22 Change Change Change
H1-23 GBPm GBPm % at CER
GBPm %
--------------------------- -------- ------- --------- -------- --------
Customer numbers (000s) 233 256 (23) (9.0) (9.0)
Customer lending 117.6 108.8 8.8 8.1 2.8
Average gross receivables 275.9 247.4 28.5 11.5 6.9
Closing net receivables 211.6 187.7 23.9 12.7 11.0
Revenue 62.4 55.5 6.9 12.4 6.7
Impairment (18.1) (11.2) (6.9) (61.6) (49.6)
--------------------------- -------- ------- --------- -------- --------
Revenue less impairment 44.3 44.3 - - (4.5)
Costs (32.2) (33.3) 1.1 3.3 7.5
Interest expense (8.0) (6.5) (1.5) (23.1) (17.6)
Reported profit before
taxation 4.1 4.5 (0.4) (8.9)
--------------------------- -------- ------- --------- -------- --------
(1.7)
Annualised revenue yield 45.0% 46.7% ppts
Annualised impairment (2.6)
rate 11.9% 9.3% ppts
Annualised cost-income
ratio 53.1% 62.8% 9.7 ppts
Annualised RORE 6.3% 6.1% 0.2 ppts
--------------------------- -------- ------- --------- -------- --------
Good demand for IPF Digital's revolving credit offering together
with a strong operational performance supported a 2.8% increase in
customer lending in the first half of the year. The growth rate was
heavily distorted by Poland, where changes to the regulatory
landscape resulted in a decline in lending of approximately 30%.
Elsewhere, there were impressive performances in Mexico and
Australia, which both delivered growth of 24% and in the Baltics
combined, customer lending increased by 13%.
Customer numbers ended the first half at 233,000. Mexico,
Australia and the Baltics delivered good growth and, together,
increased customer numbers by 7%. As expected, customer numbers
reduced in Poland by 20%.
We are successfully increasing receivables to gain scale and
deliver our target returns which resulted in an 11.0% increase (at
CER) in closing net receivables. Again, this was driven by Mexico,
Australia and the Baltics which delivered combined growth of 23%
whereas Poland saw a decline of 14%. The collect-out portfolios in
Finland and Spain have reduced from approximately GBP4m a year ago
to less than GBP1m at the end of June as the collect-outs continue
to progress well.
The annualised revenue yield has reduced by 1.7 ppts to 45.0%
over the last year. This reflects the impact of a combination of
factors including: (i) the flow through of a tighter rate cap in
Latvia in 2022; (ii) the reduction in higher yielding Finland and
Spain receivables during the collect-outs; (iii) the impact of the
lower total cost of credit cap in Poland; and (iv) the growth in
Australia, which is relatively lower yielding. These adverse
variances have been offset partly by the growth in Mexico which has
a higher revenue yield.
Customer repayments remained robust and the annualised
impairment rate increased from 9.3% last June to 11.9%. This is
mainly due to the growth in lending in Mexico which carries a
higher impairment rate as well as the rundown of the Finland and
Spain receivables portfolios which incur minimal impairment as it
has already been accounted for up front under IFRS 9.
Although we continued to invest in developing our product
offering and marketing to attract new customers and build scale,
tight control on expenditure delivered a 7.5% (at CER) reduction in
costs year on year and this was reflected in the cost-income ratio
which decreased significantly by 9.7 ppts to 53.1% (H1-22: 62.8%).
We expect the cost-income ratio to further improve as we continue
to rebuild the business and benefit from economies of scale. As a
fully digital business, we are targeting a cost-income ratio of
around 45% in the medium term.
IPF Digital's RORE in the first half of 2023 was 6.3%, broadly
unchanged from H1-22 and the 2022 year end, reflecting the
investment in growth in Australia and Mexico, the transition of the
Polish business to operating under the new regulatory environment
and the diminishing profit contribution from Finland and Spain.
Although IPF Digital has lower scale than we would wish following
Covid-19 and the closure of Finland and Spain, there are strong
organic growth opportunities in our existing markets, particularly
Mexico and Australia, and we will continue to consider inorganic
opportunities to deliver scale and increase returns to our target
levels. Our aim is for IPF Digital to deliver returns at the lower
end of the Group's target range in 2025.
Our focus in IPF Digital is to continue gaining scale and extend
the reach of our mobile wallet in the Baltics, Mexico and, in due
course, Australia. We will also continue to expand the new hybrid
lending opportunities that our digital and home credit businesses
are partnering on in Mexico and we are exploring the potential of
extending this to our other home credit markets. In addition, we
also see very strong growth potential from working with partners to
provide point-of-sale revolving credit facilities, and we are
currently working on a number of attractive opportunities.
Taxation
The pre-exceptional taxation charge on the profit for the first
half has been based on an expected tax rate for the full year of
approximately 40% (H1-22: 40%).
The first half results reflect an exceptional tax charge of
GBP4m relating to a new "extra profit special tax" implemented by
the Hungarian government in 2022 and chargeable on the financial
sector including non-bank financial institutions. As originally
enacted, the tax was due in respect of 2022 and 2023 only with an
exceptional tax charge of GBP5m being reflected in the 2022 Group
financial statements and a further exceptional charge of GBP6m had
been expected to be reflected in 2023. However, following changes
made to this regulation during the first half of 2023, the expected
impact on the Group for 2023 is a reduced exceptional tax charge of
GBP4m but as the tax has been extended by one further year, a
further tax charge of GBP2m is expected to arise in 2024.
Funding and balance sheet
We continue to maintain a very conservatively capitalised
balance sheet and robust funding position. At the end of June, the
Group's equity to receivables ratio was 51.8% (H1-22: 52.4%) and
this compares with our target of 40%. The ratio has remained
unchanged despite: (i) receivables growth being in line with our
financial model over the last 12 months; (ii) returns being below
the lower target threshold of 15%; and (iii) a dividend pay-out
ratio in excess of 40%. The absorption of capital from these
factors has been offset directly by GBP55m of foreign exchange
gains being credited to reserves over the last 18 months (GBP13m in
H1-23). Excluding the benefit of these exchange gains, the equity
to receivables ratio would have been around 46% at the end of June.
We intend to reduce the equity to receivables ratio progressively
over the next two years as we invest in growth, deliver our
progressive dividend policy and build returns to our target level
of 15% to 20%.
The gearing ratio was 1.2 times (H1-22: 1.3 times) at the end of
the first half, comfortably within of our covenant limit of 3.75
times, and our interest cover covenant was 2.2 times (H1-22: 2.4
times), compared with our covenant of 2.0 times.
At the end of June, the Group had total debt facilities of
GBP609m, comprising GBP413m of bonds and GBP196m of bank
facilities. We have borrowings of GBP523m and, together with
undrawn facilities and non-operational cash balances, headroom is
GBP84m. The Group's current funding capacity together with strong
business cash generation, is expected to meet our funding
requirements to the third quarter of 2024. Our additional funding
requirement in 2023 is not expected to be significant due to the
anticipated contraction in Polish receivables as we transition the
business to operate under new rate cap and affordability
regulations.
We successfully extended GBP39m of debt facilities in the first
half of the year, including GBP32m of bank facilities and the issue
of GBP7m of retail bonds held in treasury. The debt maturity
profile of the Group stands at 2.1 years. Together with our
advisors, we are actively exploring a number of options to extend
our debt maturity profile and refinance the Eurobond.
Our blended cost of funding in H1-23 was 14.0%, up from 12.2% in
H1-22. This is due to a significant step-up in interest rates
across our markets which resulted in higher costs of bank funding
and the cost of hedging. Our hedging policy is to match our local
currency receivables with borrowings in the same denomination to
provide certainty of cashflows and avoid significant volatility in
the income statement from movements in exchange rates. Accordingly,
our borrowings denominated in sterling and euros are swapped
through forward contracts into local currency when we onward lend
to our markets. As a result, the margin on the sterling/euro bond
is effectively added to the local base rate for determining the
cost of funding for that market. For countries such as Hungary and
Mexico, where base rates are currently 13.0% and 11.25% compared
with base rates in the UK and Eurozone of 5.0% and 4.0%
respectively, this has resulted in an increased cost of hedging. We
anticipate a modest increase in the overall Group cost of funding
in 2024 as we refinance maturing fixed interest rate funding.
Our credit ratings remained unchanged. We have a long-term
credit rating of BB- (Outlook Stable) from Fitch Ratings and Ba3
(Outlook Stable) from Moody's Investors Services.
Financial statements
Consolidated income statement
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2023 2022 2022
Notes GBPm GBPm GBPm
---------------------------------------- ------ ----------- ----------- ------------
Revenue 3 380.0 297.4 645.5
Impairment 3 (89.2) (43.3) (106.7)
Revenue less impairment 290.8 254.1 538.8
----------- ----------- ------------
Interest expense 4 (37.9) (30.0) (68.1)
Other operating costs (62.2) (57.9) (121.5)
Administrative expenses (152.9) (132.4) (271.8)
(253.0) (220.3) (461.4)
----------- ----------- ------------
Profit before taxation 3 37.8 33.8 77.4
Pre-exceptional tax (expense)/income
* UK - - 0.1
* Overseas (15.1) (13.5) (31.2)
---------------------------------------- ------ ----------- ------------
Pre-exceptional tax expense 5 (15.1) (13.5) (31.1)
---------------------------------------- ------ -----------
Exceptional tax (expense)/income 8 (4.0) 10.5 10.5
---------------------------------------- ------ -----------
Total tax expense (19.1) (3.0) (20.6)
---------------------------------------- ------ -----------
Profit after taxation attributable
to equity shareholders 18.7 30.8 56.8
---------------------------------------- ------ ----------- ----------- ------------
The notes to the financial information are an integral part of
these condensed consolidated interim financial statements.
Earnings per share - statutory
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2023 2022 2022
Notes pence pence pence
--------- ------ ----------- ----------- ------------
Basic 6 8.4 13.9 25.6
Diluted 6 8.0 13.2 24.3
--------- ------ ----------- ----------- ------------
Earnings per share - pre-exceptional items
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2023 2022 2022
pence pence pence
--------- ----------- ----------- ------------
Basic 10.2 9.1 20.8
Diluted 9.7 8.7 19.8
---------- ----------- ----------- ------------
Dividend per share
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2023 2022 2022
Notes pence pence pence
------------------ ------ ----------- ----------- ------------
Interim dividend 7 3.1 2.7 2.7
Final dividend 7 - - 6.5
------------------ ------ ----------- ----------- ------------
Total dividend 3.1 2.7 9.2
------------------ ------ ----------- ----------- ------------
Dividends paid
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2023 2022 2022
Notes GBPm GBPm GBPm
----------------------------- ------ ----------- ----------- ------------
Interim dividend of 3.1
pence
(2022: interim dividend
of 2.7 pence) per share 7 - - 6.0
Final 2022 dividend of 6.5
pence
(2022: final 2021 dividend
of 5.8 pence) per share 7 14.6 12.9 12.9
----------------------------- ------ ----------- ----------- ------------
Total dividends paid 14.6 12.9 18.9
----------------------------- ------ ----------- ----------- ------------
Consolidated statement of comprehensive income
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2023 2022 2022
GBPm GBPm GBPm
------------------------------------------------- ----------- ----------- -------------
Profit after taxation attributable to
equity shareholders 18.7 30.8 56.8
----------- ----------- -------------
Other comprehensive income
Items that may subsequently be reclassified
to income statement
Exchange gains on foreign currency translations 12.7 18.9 41.8
Net fair value losses - cash flow hedges (0.8) (2.8) (2.3)
Tax credit on items that may be reclassified - - 0.8
Items that will not subsequently be
reclassified to income statement
Actuarial (losses)/gains on retirement
benefit asset (1.2) 0.9 (3.8)
Tax credit/(charge) on items that will
not be reclassified 0.3 (0.2) 0.9
----------- ----------- -------------
Other comprehensive income net of taxation 11.0 16.8 37.4
------------------------------------------------- ----------- ----------- -------------
Total comprehensive income for the period
attributable to equity shareholders 29.7 47.6 94.2
------------------------------------------------- ----------- ----------- -------------
Consolidated balance sheet
Unaudited Unaudited Audited
30 June 30 June 31 December
2023 2022 2022
Notes GBPm GBPm GBPm
---------------------------------- ------ ---------- ---------- ------------
Assets
Non-current assets
Goodwill 9 23.4 23.4 24.2
Intangible assets 10 28.7 24.9 27.9
Property, plant and equipment 11 16.1 16.9 17.3
Right-of-use assets 12 19.4 18.5 19.3
Amounts receivable from
customers 14 201.5 179.2 212.2
Deferred tax assets 13 144.9 136.1 138.5
Retirement benefit asset 17 0.9 6.7 2.1
434.9 405.7 441.5
---------- ---------- ------------
Current assets
Amounts receivable from
customers 14 691.6 590.7 656.6
Derivative financial instruments 1.0 3.0 4.5
Cash and cash equivalents 28.2 43.7 50.7
Other receivables 16.2 15.6 16.2
Current tax assets 15 1.6 29.0 1.6
---------------------------------- ------ ---------- ---------- ------------
738.6 682.0 729.6
---------- ---------- ------------
Total assets 3 1,173.5 1,087.7 1,171.1
---------- ---------- ------------
Liabilities
Current liabilities
Borrowings 16 (59.5) (28.6) (71.8)
Derivative financial instruments (12.9) (5.9) (4.6)
Trade and other payables (129.5) (123.0) (122.2)
Provisions for liabilities
and charges (3.4) (2.6) (4.7)
Lease liabilities 12 (8.1) (6.9) (7.2)
Current tax liabilities (14.5) (17.2) (18.3)
---------------------------------- ------ ---------- ---------- ------------
(227.9) (184.2) (228.8)
---------- ---------- ------------
Non-current liabilities
Deferred tax liabilities 13 (5.9) (7.9) (5.9)
Lease liabilities 12 (13.3) (12.8) (14.2)
Borrowings 16 (463.5) (479.0) (477.0)
---------------------------------- ------ ---------- ---------- ------------
(482.7) (499.7) (497.1)
---------- ---------- ------------
Total liabilities 3 (710.6) (683.9) (725.9)
---------------------------------- ------ ---------- ---------- ------------
Net assets 462.9 403.8 445.2
---------------------------------- ------ ---------- ---------- ------------
Equity attributable to owners of
the Parent
Called-up share capital 23.4 23.4 23.4
Other reserve (22.5) (22.5) (22.5)
Foreign exchange reserve 21.9 (13.7) 9.2
Hedging reserve (0.7) (1.2) 0.1
Own shares (36.9) (44.5) (43.3)
Capital redemption reserve 2.3 2.3 2.3
Retained earnings 475.4 460.0 476.0
---------------------------------- ------ ---------- ---------- ------------
Total equity 462.9 403.8 445.2
---------------------------------- ------ ---------- ---------- ------------
Consolidated statement of changes in equity
Unaudited
------------------------------------------------------------------------------
Called-up share capital Other reserve *Other Retained Total
GBPm GBPm reserves earnings equity
GBPm GBPm GBPm
-------------------------------------- ------------------------ --------------- ----------- ----------- ---------
At 1 January 2022 23.4 (22.5) (75.3) 441.5 367.1
Comprehensive income
Profit after taxation for the period - - - 30.8 30.8
Other comprehensive income/(expense)
Exchange gains on foreign currency
translation (note 20) - - 18.9 - 18.9
Net fair value losses - cash flow
hedges - - (2.8) - (2.8)
Actuarial gain on retirement benefit
asset - - - 0.9 0.9
Tax charge on other comprehensive
income - - - (0.2) (0.2)
------------------------ --------------- ----------- ----------- ---------
Total other comprehensive income - - 16.1 0.7 16.8
Total comprehensive income for the
period - - 16.1 31.5 47.6
------------------------ --------------- ----------- ----------- ---------
Transactions with owners
Share-based payment adjustment to
reserves - - - 2.4 2.4
Purchase of own shares - - (0.4) - (0.4)
Shares granted from treasury and
employee trust - - 2.5 (2.5) -
Dividends paid to Company
shareholders - - - (12.9) (12.9)
-------------------------------------- ------------------------ --------------- ----------- ----------- ---------
At 30 June 2022 23.4 (22.5) (57.1) 460.0 403.8
-------------------------------------- ------------------------ --------------- ----------- ----------- ---------
Audited
At 1 January 2022 23.4 (22.5) (75.3) 441.5 367.1
Comprehensive income:
Profit after taxation for the year - - - 56.8 56.8
Other comprehensive income/(expense):
Exchange gains on foreign currency
translation (note 20) - - 41.8 - 41.8
Net fair value losses - cash flow
hedges - - (2.3) - (2.3)
Actuarial loss on retirement benefit
obligation - - - (3.8) (3.8)
Tax credit on other comprehensive
expense - - 0.8 0.9 1.7
------------------------ --------------- ----------- ----------- ---------
Total other comprehensive
income/(expense) - - 40.3 (2.9) 37.4
Total comprehensive income for the
year - - 40.3 53.9 94.2
------------------------ --------------- ----------- ----------- ---------
Transactions with owners:
Share-based payment adjustment to
reserves - - - 3.2 3.2
Shares acquired by employee trust - - (0.4) - (0.4)
Shares granted from treasury and
employee trust - - 3.7 (3.7) -
Dividends paid to Company
shareholders - - - (18.9) (18.9)
-------------------------------------- ------------------------ --------------- ----------- ----------- ---------
At 31 December 2022 23.4 (22.5) (31.7) 476.0 445.2
-------------------------------------- ------------------------ --------------- ----------- ----------- ---------
Consolidated statement of changes in equity (continued)
Unaudited
Called-up Other *Other Retained Total
share reserve reserves earnings equity
capital GBPm GBPm GBPm GBPm
GBPm
-------------------------------------------- ---------- ---------- ----------- ----------- ---------
At 1 January 2023 23.4 (22.5) (31.7) 476.0 445.2
Comprehensive income
Profit after taxation for the
period - - - 18.7 18.7
Other comprehensive income/(expense)
Exchange gains on foreign currency
translation (note 20) - - 12.7 - 12.7
Net fair value losses - cash
flow hedges - - (0.8) - (0.8)
Actuarial loss on retirement
benefit asset - - - (1.2) (1.2)
Tax credit on other comprehensive
income - - - 0.3 0.3
---------- ---------- ----------- ----------- ---------
Total other comprehensive income/(expense) - - 11.9 (0.9) 11.0
Total comprehensive income
for the period - - 11.9 17.8 29.7
---------- ---------- ----------- ----------- ---------
Transactions with owners
Share-based payment adjustment
to reserves - - - 2.9 2.9
Purchase of own shares - - (0.3) - (0.3)
Shares granted from treasury
and employee trust - - 6.7 (6.7) -
Dividends paid to Company shareholders - - - (14.6) (14.6)
-------------------------------------------- ---------- ---------- ----------- ----------- ---------
At 30 June 2023 23.4 (22.5) (13.4) 475.4 462.9
-------------------------------------------- ---------- ---------- ----------- ----------- ---------
* Includes foreign exchange reserve, hedging reserve, own shares
and capital redemption reserve.
Consolidated cash flow statement
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2023 2022 2022
Notes GBPm GBPm GBPm
--------------------------------------------- ------ ----------- ----------- -------------
Cash flows from operating activities
Cash generated from operating activities 19 85.1 23.0 58.8
Finance costs paid (23.3) (15.3) (65.2)
Income tax (paid)/received (22.6) (9.0) 5.5
Net cash generated from/(used in)
operating activities 39.2 (1.3) (0.9)
----------- ----------- -------------
Cash flows used in investing activities
Purchases of intangible assets 10 (7.5) (5.4) (14.7)
Purchases of property, plant and
equipment 11 (1.6) (6.0) (9.1)
Proceeds from sale of property,
plant and equipment - 0.2 0.3
Net cash used in investing activities (9.1) (11.2) (23.5)
-------------
Net cash generated from/(used in)
operating and investing activities 30.1 (12.5) (24.4)
----------- ----------- -------------
Cash flows from financing activities
Proceeds from borrowings 11.9 31.4 99.3
Repayment of borrowings (44.9) (0.3) (43.6)
Principal elements of lease payments 12 (5.7) (4.5) (9.2)
Shares acquired by employee trust (0.3) (0.4) (0.4)
Dividends paid to equity shareholders (14.6) (12.9) (18.9)
Cash received on options exercised 0.3 - -
Net cash (used in)/generated from
financing activities (53.3) 13.3 27.2
----------- ----------- -------------
Net (decrease)/increase in cash
and cash equivalents (23.2) 0.8 2.8
Cash and cash equivalents at beginning
of period 50.7 41.7 41.7
Exchange gains on cash and cash
equivalents 0.7 1.2 6.2
--------------------------------------------- ------ ----------- ----------- -------------
Cash and cash equivalents at end
of period 28.2 43.7 50.7
--------------------------------------------- ------ ----------- ----------- -------------
Notes to the condensed consolidated interim financial
statements
1. Basis of preparation
These unaudited condensed consolidated interim financial
statements for the six months ended 30 June 2023 have been prepared
in accordance with the Disclosure and Transparency Rules ('DTR') of
the Financial Conduct Authority and with IAS 34 'Interim Financial
Reporting' as adopted by the United Kingdom. These condensed
consolidated interim financial statements should be read in
conjunction with the Annual Report and Financial Statements ('the
Financial Statements') for the year ended 31 December 2022, which
have been prepared in accordance with International Financial
Reporting Standards ('IFRSs') and those parts of the Companies Act
2006 applicable to companies reporting under IFRS. These condensed
consolidated interim financial statements were approved for release
on 1 August 2023.
These condensed consolidated interim financial statements do not
comprise statutory accounts within the meaning of Section 434 of
the Companies Act 2006. The Financial Statements for the year ended
31 December 2022 were approved by the Board on 1 March 2023 and
delivered to the Registrar of Companies. The Financial Statements
contained an unqualified audit report and did not include an
emphasis of matter paragraph or any statement under Section 498 of
the Companies Act 2006. The Financial Statements are available on
the Group's website ( www.ipfin.co.uk ).
The accounting policies applied to prepare these condensed
consolidated interim financial statements are consistent with those
applied to the most recent full year Financial Statements for the
year ended 31 December 2022.
We operate a formal risk management process, the details of
which are set out on page 58 of the Financial Statements for the
year ended 31 December 2022. Details of our principal risks can be
found on pages 60 to 62 of the Financial Statements.
The risks assessed in preparing these condensed consolidated
interim financial statements are consistent with those assessed in
the most recent full year Financial Statements for the year ended
31 December 2022.
Board members
As at 30 June 2023, the Group's Board members were as
follows:
Stuart Sinclair Chairman
Gerard Ryan Executive Director and Chief
Executive Officer
Gary Thompson Executive Director and Chief
Financial Officer
Katrina Cliffe Independent non-executive director
Deborah Davis Independent non-executive director
Richard Holmes Senior independent non-executive
director
Aileen Wallace Independent non-executive director
Going concern
In considering whether the Group is a going concern, the Board
has taken into account the Group's financial forecasts and its
principal risks (with particular reference to funding, liquidity
and regulatory risks). The forecasts have been prepared for the two
years to 31 December 2024 and include projected profit and loss,
balance sheet, cashflows, borrowings, headroom against debt
facilities and funding requirements. These forecasts represent the
best estimate of the businesses performance, and in particular the
evolution of customer lending and repayment cash flows as well as
management's best assumption regarding the renewal/extension of
maturing financing facilities.
The financial forecasts have been stress tested in a range of
downside scenarios to assess the impact on future profitability,
funding requirements and covenant compliance. The scenarios reflect
the crystallisation of the Group's principal risks (with particular
reference to funding, liquidity and regulatory risks).
Consideration has also been given to multiple risks crystallising
concurrently and the availability of mitigating actions that could
be taken to reduce the impact of the identified risks. In addition,
a reverse stress test on the financial forecasts was undertaken to
assess the extent to which a recession would need to impact
operational performance in order to breach a covenant. This showed
that net revenue would need to deteriorate significantly from the
financial forecast and the Directors have a reasonable expectation
that it is unlikely to deteriorate to this extent.
At 30 June 2023, the Group had GBP84m of non-operational cash
and headroom against its debt facilities (comprising a range of
bonds and bank facilities), which have a weighted average maturity
of 2.1 years. Total debt facilities as at 30 June 2023 amounted to
GBP609m of which GBP87m (excluding GBP32m of uncommitted loans
which do not require extension) is due for renewal over the
following 12 months. A combination of these debt facilities, the
embedded business flexibility in respect of cash generation and a
successful track record of accessing funding from debt capital
markets over a long period (including periods with challenging
macroeconomic conditions and a changing regulatory environment),
are expected to meet the Group's funding requirements for the
foreseeable future (12 months from the date of approval of this
report). Taking these factors into account, together with
regulatory risks set out on pages 60-62 of the 2022 Annual Report
and Financial Statements, the Board has a reasonable expectation
that the Group has adequate resources to continue in operation for
the foreseeable future. For this reason, the Board has adopted the
going concern basis in preparing the half-year 2023 financial
report.
The following amendments to standards are mandatory for the
first time for the financial year beginning 1 January 2023 but do
not have any material impact on the Group:
-- IFRS 17 'Insurance contracts'
-- Amendments to IAS 12 'Income Taxes - Deferred Tax related to
Assets and Liabilities arising from a Single Transaction' and
'International Tax Reform - Pillar Two Model Rules'
-- Amendments to IAS 1 'Presentation of Financial Statements and
IFRS Practice Statement 2 Making Materiality Judgements -
Disclosure of Accounting Policies'
-- Amendments to IAS 8 'Accounting Policies, Changes in
Accounting Estimates and Errors - Definition of Accounting
Estimates'
As referred to in Note 13, in accordance with the amendment to
IAS12 in respect of the Pillar Two Model Rules, the Group has
applied the exception to recognising and disclosing information
about deferred tax assets and liabilities related to Pillar Two
income taxes.
The following standards, interpretations and amendments to
existing standards are not yet effective and have not been early
adopted by the Group:
-- IFRS16 'Lease liability in a sale and leaseback'
-- IAS 1 'Non-current liabilities with covenants'
-- IAS 1 'Classification of liabilities as current or non-current.'
Exceptional items
Exceptional items are items that are unusual because of their
size, nature or incidence and which the directors consider should
be disclosed separately to enable a full understanding of the
Group's underlying results.
Critical accounting judgements and key sources of estimation
uncertainty
The preparation of condensed consolidated interim financial
statements requires the Group to make estimates and judgements that
affect the application of policies and reported accounts.
Critical judgements represent key decisions made by management
in the application of the Group accounting policies. Where a
significant risk of materially different outcomes exists due to
management assumptions or sources of estimation uncertainty, this
will represent a critical accounting estimate. Estimates and
judgements are continually evaluated and are based on historical
experience and other factors, including expectations of future
events that are believed to be reasonable under the circumstances.
Actual results may differ from these estimates.
The estimates and judgements which have a significant risk of
causing a material adjustment to the carrying amounts of assets and
liabilities are discussed below.
Key sources of estimation uncertainty
In the application of the Group's accounting policies, the
directors are required to make estimations that have a significant
impact on the amounts recognised and to make estimates and
assumptions about the carrying amounts of assets and liabilities
that are not readily apparent from other sources. The estimates and
associated assumptions are based on historical experience and other
factors that are considered to be relevant. Actual results may
differ from these estimates.
The estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognised in
the period in which the estimate is revised if the revision affects
only that period, or in the period of the revision and future
periods if the revision affects both current and future
periods.
The following are the critical estimations, that the directors
have made in the process of applying the Group's accounting
policies and that have the most significant effect on the amounts
recognised in these condensed consolidated interim financial
statements.
Revenue recognition
The estimate used in respect of revenue recognition is the
methodology used to calculate the EIR. In order to determine the
EIR applicable to loans an estimate must be made of the expected
life of each loan and hence the cash flows relating thereto. These
estimates are based on historical data and are reviewed
regularly.
Amounts receivable from customers
The Group reviews its portfolio of customer loans and
receivables for impairment on a weekly or monthly basis. The Group
reviews the most recent customer repayment performance to determine
whether there is objective evidence which indicates that there has
been an adverse effect on expected future cash flows. For the
purposes of assessing the impairment of customer loans and
receivables, customers are categorised into stages based on days
past due as this is considered to be the most reliable predictor of
future payment performance. The level of impairment is calculated
using historical payment performance to generate both the estimated
expected loss and also the timing of future cash flows for each
agreement. The expected loss is calculated using probability of
default ('PD') and loss given default ('LGD') parameters.
Impairment models are monitored regularly to test their
continued capability to predict the timing and quantum of customer
repayments in the context of the recent customer payment
performance. The models used typically have a strong predictive
capability reflecting the relatively stable nature of the business
and therefore the actual performance does not usually vary
significantly from the estimated performance. The models are
ordinarily updated at least twice per year. Where we expect the
models to show an increase in the expected loss or a slowing of the
future cashflows in the following 12 months, we apply an adjustment
to the models. At 30 June 2023, this adjustment was a reduction in
receivables of GBP12.5m (30 June 2022: reduction of GBP13.0m, 31
December 2022: reduction of GBP11.6m).
Post model overlays (PMOs) on amounts receivable from
customers
Unaudited Unaudited Audited
30 June 30 June 31 December
2023 2022 2022
GBPm GBPm GBPm
------------- ---------- ---------- -------------
Home credit 20.6 23.3 21.8
IPF Digital 3.1 2.7 3.1
------------- ---------- ---------- -------------
Total 23.7 26.0 24.9
------------- ---------- ---------- -------------
To date there has been no discernible impact on customer
repayments as a result of the cost-of-living crisis. However,
inflation rates remain high, government support packages are
expected to be less generous this winter than the previous winter
and it is also believed that customer savings from the Covid-19
lockdowns have diminished significantly. This leaves customers more
financially exposed to high energy prices in the coming winter. As
a result, there still remains a risk that the cost-of-living crisis
will have a significant adverse impact on our customers' disposable
income and therefore their ability to make repayments. The PMO
related to the cost-of-living at June 2023 is GBP20.8m (31 December
2022: GBP20.6m). In order to calculate this PMO, country-specific
expert knowledge, informed by economic forecast data to estimate
the increase in losses, has been used. This represents management's
current assessment of a reasonable outcome from the cost-of-living
crisis.
The Hungarian debt moratorium, which initially began in March
2020, ended in December 2022. There remains a small proportion of
the portfolio that has at some point been in the moratorium. Given
the age of these loans, PMOs have been applied to the impairment
models in order to calculate the continued risks that are not fully
reflected in the standard impairment models. Based on management's
current expectations, the impact of these PMOs was to increase
impairment provisions at 30 June 2023 to GBP2.9m (31 December 2022:
GBP4.3m). In order to calculate the PMO, the portfolio was
segmented by analysis of the most recent payment performance and,
using this information, assumptions were made around expected
credit losses. This represents management's current assessment of a
reasonable outcome from the actual repayment performance on the
debt moratorium impacted portfolio.
Tax
Estimations must be exercised in the calculation of the Group's
tax provision, in particular with regard to the existence and
extent of tax risks.
Deferred tax assets arise from timing differences between the
accounting and tax treatment of revenue and impairment transactions
and tax losses. Estimations must be made regarding the extent to
which timing differences reverse and an assessment must be made of
the extent to which future profits will be generated to absorb tax
losses. A shortfall in profitability compared to current
expectations may result in future adjustments to deferred tax asset
balances.
Alternative performance measures
In reporting financial information, the Group presents
alternative performance measures, 'APMs' which are not defined or
specified under the requirements of IFRS.
The Group believes that these APMs, which are not considered to
be a substitute for or superior to IFRS measures, provide
stakeholders with additional helpful information on the performance
of the business. The APMs are consistent with how the business
performance is planned and reported within the internal management
reporting to the Board.
Each of the APMs used by the Group is set out in the APM section
of this report including explanations of how they are calculated
and how they can be reconciled to a statutory measure where
relevant.
The Group reports percentage change figures for all performance
measures, other than profit or loss before taxation and earnings
per share, after restating prior year figures at a constant
exchange rate. The constant exchange rate, which is an APM,
retranslates the previous year measures at the average actual
periodic exchange rates used in the current financial year. These
measures are presented as a means of eliminating the effects of
exchange rate fluctuations on the year-on-year reported
results.
The Group makes certain adjustments to the statutory measures in
order to derive APMs where relevant. The Group's policy is to
exclude items that are considered to be significant in both nature
and/or quantum and where treatment as an adjusted item provides
stakeholders with additional useful information to assess the
year-on-year trading performance of the Group.
2. Related parties
The Group has not entered into any material transactions with
related parties in the first six months of the year.
3. Segment analysis
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2023 2022 2022
GBPm GBPm GBPm
-------------------------- ----------- ----------- ------------
Revenue
European home credit 192.2 148.8 317.5
Mexico home credit 125.4 93.1 210.9
IPF Digital 62.4 55.5 117.1
------------
Revenue 380.0 297.4 645.5
-------------------------- ----------- ----------- ------------
Impairment
European home credit 27.1 1.1 5.2
Mexico home credit 44.0 31.0 75.5
IPF Digital 18.1 11.2 26.0
------------
Impairment 89.2 43.3 106.7
-------------------------- ----------- ----------- ------------
Profit before taxation
European home credit 30.3 29.6 65.6
Mexico home credit 11.4 7.4 17.7
IPF Digital 4.1 4.5 8.8
UK costs(1) (8.0) (7.7) (14.7)
-------------------------- ----------- ----------- ------------
Profit before taxation 37.8 33.8 77.4
-------------------------- ----------- ----------- ------------
Segment assets
European home credit 591.8 560.6 590.3
Mexico home credit 276.4 227.1 255.6
IPF Digital 248.5 230.8 248.4
UK(2) 56.8 69.2 76.8
-------------------------- ----------- ----------- ------------
Total 1,173.5 1,087.7 1,171.1
-------------------------- ----------- ----------- ------------
Segment liabilities
European home credit 320.4 306.3 348.8
Mexico home credit 126.4 108.4 124.2
IPF Digital 129.4 102.4 123.4
UK(2) 134.4 166.8 129.5
-------------------------- ----------- ----------- ------------
Total 710.6 683.9 725.9
-------------------------- ----------- ----------- ------------
(1) Although UK costs are not classified as a separate segment
in accordance with IFRS 8 'Operating Segments', they are shown
separately in order to provide a reconciliation to other operating
costs; administrative expenses and profit before taxation.
(2) Although the UK is not classified as a separate segment in
accordance with IFRS 8 'Operating Segments', it is shown separately
above in order to provide a reconciliation to consolidated total
assets and liabilities.
4. Interest expense
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2023 2022 2022
GBPm GBPm GBPm
-------------------------------- ----------- ----------- -------------
Interest payable on borrowings 36.9 29.3 66.5
Interest payable on lease
liabilities 1.0 0.7 1.6
Interest expense 37.9 30.0 68.1
-------------------------------- ----------- ----------- -------------
5. Tax expense
The taxation charge on the profit for the first six months of
2023 GBP15.1m (2022 GBP13.5m), has been based on an expected
effective tax rate for 2023 of 40% (2022 40%).
The exceptional tax charge of GBP4.0m is detailed in note 8.
The Group is subject to tax audits in respect of the Mexican
home credit business (regarding 2017) and in respect of the Polish
digital business (regarding 2019).
6. Earnings per share
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2023 2022 2022
pence pence pence
--------------------------- ----------- ----------- ------------
Basic EPS 8.4 13.9 25.6
Dilutive effect of awards (0.4) (0.7) (1.3)
Diluted EPS 8.0 13.2 24.3
--------------------------- ----------- ----------- ------------
Basic earnings per share ('EPS') for the six months ended 30
June 2023 is calculated by dividing the profit attributable to
shareholders of GBP18.7m (six months ended 30 June 2022: GBP30.8m,
31 December 2022: GBP56.8m) by the weighted average number of
shares in issue during the period of 223.4m which has been adjusted
to exclude the weighted average number of shares held in treasury
and by the employee trust (six months ended 30 June 2022: 222.0m,
31 December 2022: 222.2m).
For diluted EPS for the six months ended 30 June 2023, the
weighted average number of shares has been adjusted to 235.2m (six
months ended 30 June 2022: 233.6m, 31 December 2022: 234.0m) to
assume conversion of all dilutive potential ordinary share options
relating to employees of the Group.
7. Dividends
Reflecting the confidence in executing the Group's strategy and
realising the long-term growth potential of the business, the Board
is pleased to declare a 15% increase in the interim dividend to 3.1
pence per share. This is in line with our progressive dividend
policy which sets the interim dividend payment at 33% of the prior
year's full dividend payment. The interim dividend will be paid on
29 September 2023 to shareholders on the register at the close of
business on 1 September 2023. The shares will be marked ex-dividend
on 31 August 2023.
8. Exceptional tax items
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2023 2022 2022
GBPm GBPm GBPm
Benefit of Polish Supreme Administrative
Court decision - 30.9 30.9
Decision of the General Court of
the EU on State Aid - (15.3) (15.3)
Temporary Hungarian extra profit
special tax (4.0) (5.1) (5.1)
Exceptional tax items (4.0) 10.5 10.5
------------------------------------------ ----------- ----------- -------------
Further information relating to the exceptional tax items is
shown in the tax section of this report.
9. Goodwill
Unaudited Unaudited Audited
30 June 30 June 31 December
2023 2022 2022
GBPm GBPm GBPm
--------------------------------- ---------- ---------- ------------
Net book value at start of
period 24.2 22.9 22.9
Exchange adjustments (0.8) 0.5 1.3
Net book value at end of period 23.4 23.4 24.2
--------------------------------- ---------- ---------- ------------
Goodwill is tested annually for impairment or more frequently if
there are indications that goodwill might be impaired. The
recoverable amount is determined from a value in use calculation,
based on the expected cash flows resulting from the legacy MCB
business' outstanding customer receivables and taking into account
the collect out of the Finnish business. The key assumptions used
in the value in use calculation relate to the discount rates and
cash flows used. The rate used to discount the forecast cash flows
is 13% (30 June 2022: 13% and 31 December 2022: 12%) and would need
to increase to 15% for the goodwill balance to be impaired; the
cashflow forecasts arise over a 1-4 year period and would need to
be 13% lower than currently estimated for the goodwill balance to
be impaired.
10. Intangible assets
Unaudited Unaudited Audited
30 June 30 June 31 December
2023 2022 2022
GBPm GBPm GBPm
--------------------------------- ---------- ---------- ------------
Net book value at start of
period 27.9 25.2 25.2
Additions 7.5 5.4 14.7
Amortisation (6.3) (5.9) (12.6)
Exchange adjustments (0.4) 0.2 0.6
Net book value at end of period 28.7 24.9 27.9
--------------------------------- ---------- ---------- ------------
Intangible assets comprise computer software and are a mixture
of self-developed and purchased assets. All purchased assets have
had further capitalised development on them, meaning it is not
possible to disaggregate fully between the relevant intangible
categories.
11. Property, plant and equipment
Unaudited Unaudited Audited
30 June 30 June 31 December
2023 2022 2022
GBPm GBPm GBPm
--------------------------------- ---------- ---------- ------------
Net book value at start of
period 17.3 13.8 13.8
Exchange adjustments 0.4 0.3 0.8
Additions 1.6 6.0 9.1
Disposals - (0.2) (0.2)
Depreciation (3.2) (3.0) (6.2)
Net book value at end of period 16.1 16.9 17.3
--------------------------------- ---------- ---------- ------------
As at 30 June 2023, the Group had GBP4.7m of capital expenditure
commitments with third parties that were not provided for (30 June
2022: GBP4.4m; 31 December 2022: GBP4.5m).
12. Right-of-use assets and lease liabilities
The recognised right-of-use assets relate to the following types
of assets:
Unaudited Unaudited Audited
30 June 30 June 31 December
2023 2022 2022
GBPm GBPm GBPm
--------------------------- ---------- ---------- ------------
Properties 12.4 12.6 13.6
Motor vehicles 7.0 5.8 5.7
Equipment - 0.1 -
Total right-of-use assets 19.4 18.5 19.3
--------------------------- ---------- ---------- ------------
The movement in the right-of-use assets in the period is as
follows:
Unaudited Unaudited Audited
30 June 30 June 31 December
2023 2022 2022
GBPm GBPm GBPm
--------------------------------- ---------- ---------- ------------
Net book value at start of
period 19.3 17.7 17.7
Exchange adjustments 0.8 0.8 1.4
Additions 3.9 4.0 8.8
Modifications - - (0.1)
Depreciation (4.6) (4.0) (8.5)
Net book value at end of period 19.4 18.5 19.3
--------------------------------- ---------- ---------- ------------
The movement in lease liabilities in the period is as
follows:
Unaudited Unaudited Audited
30 June 30 June 31 December
2023 2022 2022
GBPm GBPm GBPm
----------------------------- ---------- ---------- ------------
Lease liabilities at start
of period 21.4 18.7 18.7
Exchange adjustments 0.8 0.8 1.6
Additions 3.9 4.0 8.7
Interest 1.0 0.7 1.6
Lease payments (5.7) (4.5) (9.2)
Lease liabilities at end of
period 21.4 19.7 21.4
----------------------------- ---------- ---------- ------------
Analysed as:
Unaudited Unaudited Audited
30 June 30 June 31 December
2023 2022 2022
GBPm GBPm GBPm
-------------------------------- ---------- ---------- ------------
Current 8.1 6.9 7.2
Non-current:
- between one and five years 11.8 10.9 12.2
- greater than five years 1.5 1.9 2.0
---------- ---------- ------------
13.3 12.8 14.2
Lease liabilities at end of
period 21.4 19.7 21.4
-------------------------------- ---------- ---------- ------------
13. Deferred tax assets
Deferred tax assets have been recognised in respect of tax
losses and other temporary timing differences (principally relating
to recognition of revenue and impairment) to the extent that it is
probable that these assets will be utilised against future taxable
profits. On 20 June 2023, Finance (No.2) Act 2023 was substantively
enacted in the UK, introducing a global minimum effective tax rate
of 15% consistent with the OECD's model Pillar Two rules. The UK
legislation implements a domestic top-up tax and a multinational
top-up tax, effective for accounting periods starting on or after
31 December 2023. The Group is assessing the potential impact of
the new rules and has applied the exception under the IAS 12
amendment to not recognise deferred tax assets or liabilities in
relation to Pillar Two. Under the IAS12 amendment there is no
requirement to disclose additional information about potential
future Pillar Two top-up income taxes.
14. Amounts receivable from customers
Amounts receivable from customers comprise:
Unaudited Unaudited Audited
30 June 30 June 31 December
2023 2022 2022
GBPm GBPm GBPm
----------------------------- ---------- ---------- ------------
Amounts due within one year 691.6 590.7 656.6
Amounts due in more than
one year 201.5 179.2 212.2
Total receivables 893.1 769.9 868.8
----------------------------- ---------- ---------- ------------
All lending is in the local currency of the country in which the
loan is issued. The currency profile of amounts receivable from
customers is as follows:
Unaudited Unaudited Audited
30 June 30 June 31 December
2023 2022 2022
GBPm GBPm GBPm
------------------- ---------- ---------- ------------
Polish zloty 257.4 259.8 278.9
Czech crown 55.0 48.4 56.1
Euro* 90.1 83.0 90.5
Hungarian forint 143.2 105.1 125.4
Romanian leu 93.9 76.8 89.1
Mexican peso 213.5 163.3 188.7
Australian dollar 40.0 33.5 40.1
Total receivables 893.1 769.9 868.8
------------------- ---------- ---------- ------------
*Includes receivables in Estonia, Finland, Latvia, Lithuania and
Spain.
Amounts receivable from customers are held at amortised cost and
are equal to the expected future cash flows receivable discounted
at the average effective interest rate ('EIR') of 100.1% (30 June
2022: 96%, 31 December 2022: 99%). All amounts receivable from
customers are at fixed interest rates. The average period to
maturity of the amounts receivable from customers is 12.7 months
(30 June 2022: 12.6 months, 31 December 2022: 13.0 months).
Determining an increase in credit risk since initial
recognition
IFRS 9 has the following recognition criteria:
-- Stage 1: requires the recognition of 12 month expected credit
losses (the expected credit losses from default events that are
expected within 12 months of the reporting date) if credit risk has
not significantly increased since initial recognition.
-- Stage 2: lifetime expected credit losses for financial
instruments for which the credit risk has increased significantly
since initial recognition.
-- Stage 3: credit impaired.
When determining whether the risk of default has increased
significantly since initial recognition the Group considers both
quantitative and qualitative information based on the Group's
historical experience.
The approach to identifying significant increases in credit risk
is consistent across the Group's products. In addition, as a
backstop, the Group considers that a significant increase in credit
risk occurs when an asset is more than 30 days past due.
Financial instruments are moved back to stage 1 once they no
longer meet the criteria for a significant increase in credit
risk.
Definition of default and credit impaired assets
The Group defines a financial instrument as in default, which is
fully-aligned with the definition of credit-impaired, when it meets
one or more of the following criteria:
-- Quantitative criteria: the customer is more than 90 days past
due on their contractual payments in home credit and 60 days past
due on their contractual payments in IPF Digital.
-- Qualitative criteria: indication that there is a measurable
movement in the estimated future cash flows from a group of
financial assets. For example, if prospective legislative changes
are considered to impact the collections performance of
customers.
The default definition has been applied consistently to model
the probability of default (PD), exposure at default (EAD) and loss
given default (LGD) throughout the Group's expected credit loss
calculations.
An instrument is considered to no longer be in default (i.e. to
have cured) when it no longer meets any of the default
criteria.
The breakdown of receivables by stage is as follows:
Total net
Stage 1 Stage 2 Stage 3 receivables
30 June 2023 GBPm GBPm GBPm GBPm
---------------- ---------- ---------- ---------- -------------
Home credit 446.6 81.5 153.4 681.5
IPF Digital 196.5 8.6 6.5 211.6
---------------- ---------- ---------- ---------- -------------
Group 643.1 90.1 159.9 893.1
---------------- ---------- ---------- ---------- -------------
30 June 2022 Stage 1 Stage 2 Stage 3 Total net
GBPm GBPm GBPm receivables
GBPm
--------------- --------- --------- --------- -------------
Home credit 387.3 66.1 128.8 582.2
IPF Digital 174.3 8.2 5.2 187.7
--------------- --------- --------- --------- -------------
Group 561.6 74.3 134.0 769.9
--------------- --------- --------- --------- -------------
31 December 2022 Stage 1 Stage 2 Stage 3 Total net
GBPm GBPm GBPm receivables
GBPm
------------------- --------- --------- --------- -------------
Home credit 439.7 78.9 140.9 659.5
IPF Digital 193.7 9.4 6.2 209.3
------------------- --------- --------- --------- -------------
Group 633.4 88.3 147.1 868.8
------------------- --------- --------- --------- -------------
The Group has one class of loan receivable and no collateral is
held in respect of any customer receivables.
Gross carrying amount and loss allowance
The amounts receivable from customers includes a provision for
the loss allowance, which relates to the expected credit losses on
each agreement. The gross carrying amount is the present value of
the portfolio before the loss allowance provision is deducted. The
gross carrying amount less the loss allowance is equal to the net
receivables.
Total net
Stage 1 Stage 2 Stage 3 receivables
30 June 2023 GBPm GBPm GBPm GBPm
----------------------- ---------- ---------- ---------- -------------
Gross carrying amount 795.8 169.0 442.6 1,407.4
Loss allowance (152.7) (78.9) (282.7) (514.3)
----------------------- ---------- ---------- ---------- -------------
Group 643.1 90.1 159.9 893.1
----------------------- ---------- ---------- ---------- -------------
30 June 2022 Stage 1 Stage 2 Stage 3 Total net
GBPm GBPm GBPm receivables
GBPm
----------------------- --------- --------- --------- -------------
Gross carrying amount 695.6 138.2 399.1 1,232.9
Loss allowance (134.0) (63.9) (265.1) (463.0)
----------------------- --------- --------- --------- -------------
Group 561.6 74.3 134.0 769.9
----------------------- --------- --------- --------- -------------
31 December 2022 Stage 1 Stage 2 Stage 3 Total net
GBPm GBPm GBPm receivables
GBPm
----------------------- --------- --------- --------- -------------
Gross carrying amount 782.0 161.8 422.8 1,366.6
Loss allowance (148.6) (73.5) (275.7) (497.8)
----------------------- --------- --------- --------- -------------
Group 633.4 88.3 147.1 868.8
----------------------- --------- --------- --------- -------------
15. Current tax asset
As at 30 June 2022, the current tax asset included the
recognition of amounts receivable following the Group's Polish
subsidiary successfully obtaining a Ministry of Finance ruling
confirming the tax deductibility of certain expenses linked to
intra-group transactions in respect of years 2018 onwards.
16. Borrowing facilities and borrowings
The maturity of the Group's bond and bank borrowings is as
follows:
Unaudited Unaudited Audited
30 June 30 June 31 December
2023 2022 2022
GBPm GBPm GBPm
------------------------------ ---------- ---------- ------------
Repayable
- in less than one year 59.5 28.6 71.8
---------- ---------- ------------
- between one and two years 65.0 89.0 57.1
- between two and five years 398.5 390.0 419.9
463.5 479.0 477.0
---------- ---------- ------------
Total borrowings 523.0 507.6 548.8
------------------------------ ---------- ---------- ------------
Borrowings are stated net of deferred debt issuance costs of
GBP4.8m (30 June 2022: GBP5.6m; 31 December 2022: GBP5.4m).
The maturity of the Group's bond and bank facilities is as
follows:
Unaudited Unaudited Audited
30 June 30 June 31 December
2023 2022 2022
GBPm GBPm GBPm
------------------------------ ---------- ---------- ------------
Repayable
- on demand 32.5 34.3 31.6
- in less than one year 87.5 35.0 84.7
- between one and two years 70.6 105.1 57.4
- between two and five years 418.8 396.8 437.3
Total facilities 609.4 571.2 611.0
------------------------------ ---------- ---------- ------------
The undrawn external bank facilities are as follows:
Unaudited Unaudited Audited
30 June 30 June 31 December
2023 2022 2022
GBPm GBPm GBPm
------------------------------ ---------- ---------- ------------
Expiring within one year 60.3 40.7 44.5
Expiring between one and two
years 4.5 15.3 0.3
Expiring in more than two
years 16.8 2.0 12.0
Total 81.6 58.0 56.8
------------------------------ ---------- ---------- ------------
Undrawn external facilities above do not include unamortised
arrangement fees.
The average period to maturity of the Group's external bonds and
committed external borrowings is 2.1 years (30 June 2022: 2.5
years; 31 December 2022: 2.5 years).
The Group complied with its covenants at 30 June 2023. Each
covenant calculation has been made in accordance with the terms of
the relevant funding documentation.
17. Retirement benefit asset
The amounts recognised in the balance sheet in respect of the
retirement benefit asset are as follows:
Unaudited Unaudited Audited
30 June 30 June 31 December
2023 2022 2022
GBPm GBPm GBPm
--------------------------------- ---------- ---------- ------------
Diversified growth funds 4.7 5.8 4.6
Corporate bonds 11.0 15.5 14.5
Liability driven investments 12.5 17.0 11.7
Other 0.7 0.6 0.1
---------- ---------- ------------
Total fair value of scheme
assets 28.9 38.9 30.9
Present value of funded defined
benefit obligations (28.0) (32.2) (28.8)
--------------------------------- ---------- ---------- ------------
Net asset recognised in the
balance sheet 0.9 6.7 2.1
--------------------------------- ---------- ---------- ------------
The charge recognised in the income statement in respect of
defined benefit pension costs is GBPnil (6 months ended 30 June
2022: GBPnil, 12 months ended 31 December 2022: GBP0.1m).
18. Fair values of financial assets and liabilities
IFRS 13 requires disclosure of fair value measurements of
financial instruments by level of the following fair value
measurement hierarchy:
-- quoted prices (unadjusted) in active markets for identical
assets or liabilities (level 1);
-- inputs other than quoted prices included within level 1 that
are observable for the asset or liability, either directly
(that is, as prices) or indirectly (that is, derived from
prices) (level 2); and
-- inputs for the asset or liability that are not based on observable
market data (that is, unobservable inputs) (level 3).
The fair value of derivative financial instruments has been
calculated by discounting expected future cash flows using interest
rate yield curves and forward foreign exchange rates prevailing at
the relevant period end.
In 2022 and 2023, there has been no change in classification of
financial assets as a result of a change in purpose or use of these
assets.
Except as detailed in the following table, the carrying value of
financial assets and liabilities recorded at amortised cost, which
are all short-term in nature, are a reasonable approximation of
their fair value:
Carrying value Fair value
----------------------------------------- ----------------------------------------
Unaudited Audited Unaudited Audited
Unaudited 30 June 31 December Unaudited 30 June 31 December
30 June 2022 2022 30 June 2022 2022
2023 GBPm GBPm 2023 GBPm GBPm
GBPm GBPm
----------------- ------------ ----------- -------------- ------------ ----------- ----------------
Financial
assets
Amounts
receivable
from customers 893.1 769.9 868.8 1,122.8 992.6 1,111.2
893.1 769.9 868.8 1,122.8 992.6 1,111.2
------------ ----------- -------------- ------------ ----------- ----------------
Financial
liabilities
Bonds 408.7 402.1 413.7 373.1 319.1 358.2
Bank borrowings 114.3 105.5 135.1 114.3 105.5 135.1
523.0 507.6 548.8 487.4 424.6 493.5
----------------- ------------ ----------- -------------- ------------ ----------- ----------------
The fair value of amounts receivable from customers has been
derived by discounting expected future cash flows (as used to
calculate the carrying value of amounts due from customers), net of
customer representative repayment costs, at the Group's weighted
average cost of capital which we estimate to be 13% (30 June 2022:
13%; 31 December 2022: 12%) which is assumed to be a proxy for the
discount rate that a market participant would use to price the
asset.
The fair value of the bonds has been calculated by reference to
their market value.
The carrying value of bank borrowings is deemed to be a good
approximation of their fair value. Bank borrowings can be repaid
within six months if the Group decides not to roll over for further
periods up to the contractual repayment date. The impact of
discounting would therefore, be negligible. This methodology has
been used consistently for all periods.
19. Reconciliation of profit after taxation to cash generated
from operating activities
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2023 2022 2022
GBPm GBPm GBPm
------------------------------------------ ------------------- ----------- ------------
Profit after taxation from operations 18.7 30.8 56.8
Adjusted for
Tax charge 19.1 3.0 20.6
Finance costs 37.9 30.0 68.1
Share-based payment charge 1.4 1.4 2.2
Amortisation of intangible assets
(note 10) 6.3 5.9 12.6
Profit on disposal of property,
plant and equipment - - (0.1)
Depreciation of property, plant
and equipment (note 11) 3.2 3.0 6.2
Depreciation of right-of-use
assets (note 12) 4.6 4.0 8.5
Short term and low value lease
costs 0.9 0.6 1.2
Changes in operating assets
and liabilities
Amounts receivable from customers (8.3) (36.9) (115.7)
Other receivables 1.0 (0.5) 13.2
Trade and other payables (9.5) (7.8) (3.8)
Provision for liabilities and
charges (1.2) (2.8) (0.9)
Retirement benefit asset - (0.9) (1.0)
Derivative financial instruments 11.0 (6.8) (9.1)
------------------------------------------ ------------------- ----------- ------------
Cash generated from operating
activities 85.1 23.0 58.8
------------------------------------------ ------------------- ----------- ------------
20. Foreign exchange rates
The table below shows the average exchange rates for the
relevant reporting periods and closing exchange rates at the
relevant period ends.
Average Closing Average Closing Average Closing
Year
H1 June H1 June 2022 December
2022
2023 2023 2022 2022
-------------- -------- -------- -------- -------- -------- ----------
Polish zloty 5.3 5.2 5.5 5.4 5.5 5.3
Czech crown 27.1 27.5 29.1 28.7 28.5 27.2
Euro 1.1 1.2 1.2 1.2 1.2 1.1
Hungarian
forint 433.2 430.0 443.6 464.9 452.3 450.8
Romanian leu 5.7 5.8 5.9 5.8 5.8 5.6
Mexican peso 22.2 21.8 26.2 24.8 24.6 23.5
Australian
dollar 1.8 1.9 1.8 1.8 1.8 1.8
-------------- -------- -------- -------- -------- -------- ----------
The GBP12.7m exchange gain on foreign currency translations
shown within the consolidated statement of comprehensive income
arises on retranslation of net assets denominated in currencies
other than sterling, due to the change in foreign exchange rates
against sterling between December 2022 and June 2023 shown in the
table above.
21. Post balance sheet events
There were no significant post balance sheet events.
Responsibility statement
The following statement is given by each of the directors:
namely; Stuart Sinclair, Chairman; Gerard Ryan, Chief Executive
Officer; Gary Thompson, Chief Financial Officer; Katrina Cliffe,
non-executive director; Deborah Davis, non-executive director;
Richard Holmes, Senior independent non-executive director; and
Aileen Wallace, non-executive director.
The directors confirm that to the best of their knowledge:
-- the condensed consolidated interim financial statements,
which have been prepared in accordance with the applicable
set of accounting standards, give a true and fair view of
the assets, liabilities, financial position and profit or
loss of the issuer, or the undertakings included in the consolidation
as a whole as required by DTR 4.2.4R;
-- the half-year financial report includes a fair review of
the information required by DTR 4.2.7 (indication of important
events during the first six months and description of principal
risks and uncertainties for the remaining six months of the
year); and
-- the half-year financial report includes a fair review of
the information required by DTR 4.2.8 (disclosure of related
parties' transactions and changes therein).
Alternative performance measures (APMs)
This half-year financial report provides APMs which are not
defined or specified under the requirements of International
Financial Reporting Standards. We believe these APMs provide
readers with important additional information on our business. To
support this we have included a reconciliation of the APMs we use,
where relevant, and a glossary indicating the APMs that we use, an
explanation of how they are calculated and why we use them.
APM Closest Reconciling Definition and purpose
equivalent items to
statutory statutory
measure measure
------------------- ------------ --------------- -------------------------------------------
Income statement measures
--------------------------------- --------------- -------------------------------------------
Customer lending None Not applicable Customer lending is the principal
growth (%) value of loans advanced to customers
and is an important measure
of the level of lending in the
business. Customer lending growth
is the period-on-period change
in this metric which is calculated
by retranslating the previous
half-year's customer lending
at the average actual exchange
rates used in the current financial
year. This ensures that the
measure is presented having
eliminated the effects of exchange
rate fluctuations on the period-on-period
reported results.
------------------- ------------ --------------- -------------------------------------------
Revenue growth None Not applicable The period-on-period change
at in revenue which is calculated
constant exchange by retranslating the previous
rates (%) half-year's revenue at the average
actual exchange rates used in
the current financial year.
This measure is presented as
a means of eliminating the effects
of exchange rate fluctuations
on the period-on-period reported
results.
------------------- ------------ --------------- -------------------------------------------
Revenue yield None Not applicable Revenue yield is reported revenue
(%) divided by average gross receivables
(before impairment provision)
and is an indicator of the return
being generated from average
gross receivables. This is reported
on a rolling annual basis (annualised).
------------------- ------------ --------------- -------------------------------------------
Impairment None Not applicable Impairment as a percentage of
rate (%) average gross receivables (before
impairment provision). This
is reported on a rolling annual
basis (annualised).
------------------- ------------ --------------- -------------------------------------------
Cost-income None Not applicable The cost-income ratio is costs,
ratio (%) including customer representatives'
commission, excluding interest
expense, divided by reported
revenue. This measure is reported
on a rolling annual basis (annualised).
This is useful for comparing
performance across markets.
------------------- ------------ --------------- -------------------------------------------
APM Closest Reconciling Definition and purpose
equivalent items to
statutory statutory
measure measure
---------------------- ------------ --------------- -------------------------------------
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 Calculated as the sum of undrawn
external external bank facilities and
bank non-operational cash.
facilities
---------------------- ------------ --------------- -------------------------------------
Net debt (GBPm) None Not applicable Borrowings less cash.
---------------------- ------------ --------------- -------------------------------------
Gross receivables None Not applicable Gross receivables is the same
(GBPm) definition as gross carrying
amount.
---------------------- ------------ --------------- -------------------------------------
Impairment None Not applicable Expected loss allowance divided
coverage ratio by gross receivables (before
(%) impairment provision).
---------------------- ------------ --------------- -------------------------------------
Pre-exceptional None Not applicable Return on equity (ROE) calculated
ROE (%) as rolling annual pre-exceptional
profit after tax divided by
average net assets over the
same period.
---------------------- ------------ --------------- -------------------------------------
Pre-exceptional None Not applicable Return on required equity (RORE)
RORE (%) is calculated as rolling annual
pre-exceptional profit after
tax divided by required equity
of 40% of average net receivables.
---------------------- ------------ --------------- -------------------------------------
Other measures
---------------------- ------------ --------------- -------------------------------------
Customers None Not applicable Customers that are being served
by our customer representatives
or through our money transfer
product in the home credit business
and customers that are not in
default in our digital business.
---------------------- ------------ --------------- -------------------------------------
Constant exchange rate reconciliations
The period-on-period change in profit and loss accounts is
calculated by retranslating the 2022 half-year's profit and loss
account at the average actual exchange rates used in the current
year.
H1 2023
GBPm European Mexico IPF Digital Central Group
home credit home credit costs
--------------------------- ------------- ------------- ------------ -------- --------
Customer numbers
(000s) 785 700 233 - 1,718
Customer lending 318.3 142.9 117.6 - 578.8
Average gross receivables 792.5 274.8 275.9 - 1,343.2
Closing net receivables 505.4 176.1 211.6 - 893.1
Revenue 192.2 125.4 62.4 - 380.0
Impairment (27.1) (44.0) (18.1) - (89.2)
Revenue less impairment 165.1 81.4 44.3 - 290.8
Costs (110.8) (64.1) (32.2) (8.0) (215.1)
Interest expense (24.0) (5.9) (8.0) - (37.9)
--------------------------- ------------- ------------- ------------ -------- --------
Profit before tax 30.3 11.4 4.1 (8.0) 37.8
--------------------------- ------------- ------------- ------------ -------- --------
H1 2022 performance, at average H1 2022 foreign exchange rates
GBPm European Mexico IPF Digital Central Group
home credit home credit costs
--------------------------- ------------- ------------- ------------ -------- --------
Customer numbers
(000s) 786 676 256 - 1,718
Customer lending 288.1 116.4 108.8 - 513.3
Average gross receivables 722.0 201.2 247.4 - 1,170.6
Closing net receivables 441.4 140.8 187.7 - 769.9
Revenue 148.8 93.1 55.5 - 297.4
Impairment (1.1) (31.0) (11.2) - (43.3)
Revenue less impairment 147.7 62.1 44.3 - 254.1
Costs (99.0) (50.4) (33.3) (7.6) (190.3)
Interest expense (19.1) (4.3) (6.5) (0.1) (30.0)
--------------------------- ------------- ------------- ------------ -------- --------
Profit before tax 29.6 7.4 4.5 (7.7) 33.8
--------------------------- ------------- ------------- ------------ -------- --------
Foreign exchange movements
GBPm European Mexico IPF Digital Central Group
home credit home credit costs
--------------------------- ------------- ------------- ------------ -------- -------
Customer numbers - -
(000s) - - -
Customer lending 13.3 20.3 5.6 - 39.2
Average gross receivables 5.2 36.2 10.7 - 52.1
Closing net receivables 21.1 19.8 3.0 - 43.9
Revenue 6.5 16.1 3.0 - 25.6
Impairment 0.1 (5.2) (0.9) - (6.0)
Revenue less impairment 6.6 10.9 2.1 - 19.6
Costs (4.2) (8.4) (1.5) - (14.1)
Interest expense (0.8) (0.8) (0.3) - (1.9)
--------------------------- ------------- ------------- ------------ -------- -------
Profit before tax 1.6 1.7 0.3 - 3.6
--------------------------- ------------- ------------- ------------ -------- -------
Constant exchange rate reconciliations (continued)
H1 2022 performance, at average H1 2023 foreign exchange rates
GBPm European Mexico IPF Digital Central Group
home credit home credit costs
--------------------------- ------------- ------------- ------------ -------- --------
Customer numbers
(000s) 786 676 256 - 1,718
Customer lending 301.4 136.7 114.4 - 552.5
Average gross receivables 727.2 237.4 258.1 - 1,222.7
Closing net receivables 462.5 160.6 190.7 - 813.8
Revenue 155.3 109.2 58.5 - 323.0
Impairment (1.0) (36.2) (12.1) - (49.3)
Revenue less impairment 154.3 73.0 46.4 - 273.7
Costs (103.2) (58.8) (34.8) (7.6) (204.4)
Interest expense (19.9) (5.1) (6.8) (0.1) (31.9)
--------------------------- ------------- ------------- ------------ -------- --------
Year-on-year movement at constant exchange rates
% European Mexico IPF Digital Central Group
home credit home credit costs
--------------------------- ------------- ------------- ------------ -------- --------
Customer numbers
(000s) (0.1%) 3.6% (9.0%) - -
Customer lending 5.6% 4.5% 2.8% - 4.8%
Average gross receivables 9.0% 15.8% 6.9% - 9.9%
Closing net receivables 9.3% 9.7% 11.0% - 9.7%
Revenue 23.8% 14.8% 6.7% - 17.6%
Impairment (2,610.0%) (21.5%) (49.6%) - (80.9%)
Revenue less impairment 7.0% 11.5% (4.5%) - 6.2%
Costs (7.4%) (9.0%) 7.5% (5.3%) (5.2%)
Interest expense (20.6%) (15.7%) (17.6%) 100.0% (18.8%)
--------------------------- ------------- ------------- ------------ -------- --------
Balance sheet and returns measures
Average gross receivables (before impairment provisions) are
used in the revenue yield and impairment rate calculations.
Average Gross Receivables Unaudited Unaudited Audited
30 June 30 June 31 December
2023 2022 2022
GBPm GBPm GBPm
--------------------------- ---------- ---------- ------------
European home credit 792.5 722.0 747.5
Mexico home credit 274.8 201.2 239.0
IPF Digital 275.9 247.4 258.0
Group 1,343.2 1,170.6 1,244.5
--------------------------- ---------- ---------- ------------
The impairment coverage ratio is calculated as loss allowance
divided by gross carrying amount.
Impairment coverage ratio Unaudited Unaudited Audited
30 June 30 June 31 December
2023 2022 2022
GBPm GBPm GBPm
------------------------------- ---------- ---------- ------------
Closing gross carrying amount 1,407.4 1,232.9 1,366.6
Loss allowance (514.3) (463.0) (497.8)
------------------------------- ---------- ---------- ------------
Closing net receivables 893.1 769.9 868.8
Impairment coverage ratio 36.5% 37.6% 36.4%
------------------------------- ---------- ---------- ------------
Pre-exceptional return on equity (ROE) is calculated as rolling
annual pre-exceptional profit divided by pre-exceptional
equity.
Pre-exceptional ROE 30 June 2023 Unaudited Unaudited Audited
30 June 30 June 31 December
2023 2022 2022
GBPm GBPm GBPm
---------------------------------- ---------- ---------- ------------
Equity (net assets) 462.9 403.8 445.2
Exceptional items 4.0 (10.5) (10.5)
---------------------------------- ---------- ---------- ------------
Pre-exceptional equity 466.9 393.3 434.7
---------------------------------- ---------- ---------- ------------
Average pre-exceptional equity 430.1 378.2 400.9
Profit after tax 18.7 30.8 56.8
Exceptional items 4.0 (10.5) (10.5)
---------------------------------- ---------- ---------- ------------
Pre-exceptional profit 22.7 20.3 46.3
---------------------------------- ---------- ---------- ------------
Pre-exceptional profit 12 months 48.7 -
to 30 June 2023
Pre-exceptional ROE 11.3% 11.5%
---------------------------------- ---------- ---------- ------------
Pre-exceptional ROE 30 June 2022 Unaudited Unaudited Audited
30 June 30 June 31 December
2022 2021 2021
GBPm GBPm GBPm
---------------------------------- ---------- ---------- ------------
Equity (net assets) 403.8 363.0 -
Exceptional items (10.5) - -
---------------------------------- ---------- ---------- ------------
Pre-exceptional equity 393.3 363.0 -
---------------------------------- ---------- ---------- ------------
Average pre-exceptional equity 378.2 - -
Profit after tax 30.8 22.9 41.9
Exceptional items (10.5) - -
---------------------------------- ---------- ---------- ------------
Pre-exceptional profit 20.3 22.9 41.9
---------------------------------- ---------- ---------- ------------
Pre-exceptional profit 12 months
to 30 June 2022 39.3
Pre-exceptional ROE 10.4%
---------------------------------- ---------- ---------- ------------
Pre-exceptional return on required equity (RORE) is calculated
as rolling annual pre-exceptional profit divided by required equity
of 40% of average net receivables.
Pre-exceptional RORE European Mexico
30 June 2023 home credit home credit IPF Digital Group
GBPm GBPm GBPm GBPm
------------------------- ------------- ------------- ------------ -------
Closing net receivables
H1 2022 441.4 140.8 187.7 769.9
Closing net receivables
H1 2023 505.4 176.1 211.6 893.1
------------------------- ------------- ------------- ------------ -------
Average net receivables 473.4 158.5 199.7 831.5
------------------------- ------------- ------------- ------------ -------
Equity (net assets) at
40% 189.4 63.4 79.9 332.6
Pre-exceptional profit
before tax:
FY 2022 65.6 17.7 8.8 77.4
Exclude H1 2022 (29.6) (7.4) (4.5) (33.8)
H2 2022 36.0 10.3 4.3 43.6
H1 2023 30.3 11.4 4.1 37.8
------------- ------------- ------------ -------
12 MO to H1 2023 66.3 21.7 8.4 81.4
Tax at 40% (26.5) (8.7) (3.4) (32.6)
------------------------- ------------- ------------- ------------ -------
Pre-exceptional profit
after tax 39.8 13.0 5.0 48.8
------------------------- ------------- ------------- ------------ -------
Pre-exceptional RORE 21.0% 20.5% 6.3% 14.7%
------------------------- ------------- ------------- ------------ -------
Pre-exceptional RORE European Mexico
30 June 2022 home credit home credit IPF Digital Group
GBPm GBPm GBPm GBPm
------------------------- ------------- ------------- ------------ -------
Closing net receivables
H1 2021 405.9 99.8 168.5 674.2
Closing net receivables
H1 2022 441.4 140.8 187.7 769.9
------------------------- ------------- ------------- ------------ -------
Average net receivables 423.7 120.3 178.1 722.1
------------------------- ------------- ------------- ------------ -------
Equity (net assets) at
40% 169.5 48.1 71.2 288.8
Pre-exceptional profit
before tax:
FY 2021 54.5 18.4 8.7 67.7
Exclude H1 2021 (34.9) (9.4) (6.1) (43.3)
H2 2021 19.6 9.0 2.6 24.4
H1 2022 29.6 7.4 4.5 33.8
------------- ------------- ------------ -------
12 MO to H1 2022 49.2 16.4 7.1 58.2
Tax at 38% H2 2021, 40%
H1 2022 (19.3) (6.4) (2.8) (22.8)
------------------------- ------------- ------------- ------------ -------
Pre-exceptional profit
after tax 29.9 10.0 4.3 35.4
------------------------- ------------- ------------- ------------ -------
Pre-exceptional RORE 17.7% 20.8% 6.1% 12.3%
------------------------- ------------- ------------- ------------ -------
Pre-exceptional RORE European Mexico
2022 home credit home credit IPF Digital Group
GBPm GBPm GBPm GBPm
------------------------- ------------- ------------- ------------ -------
Closing net receivables
2022 501.0 158.5 209.3 868.8
Closing net receivables
2021 425.9 117.6 173.3 716.8
------------------------- ------------- ------------- ------------ -------
Average net receivables 463.4 138.1 191.3 792.8
------------------------- ------------- ------------- ------------ -------
Equity (net assets)
at 40% 185.4 55.2 76.5 317.1
Pre-exceptional profit
before tax 65.6 17.7 8.8 77.4
Tax at 40% (26.2) (7.1) (3.5) (31.1)
------------------------- ------------- ------------- ------------ -------
Pre-exceptional profit
after tax 39.4 10.6 5.3 46.3
------------------------- ------------- ------------- ------------ -------
Pre-exceptional RORE 21.3% 19.2% 6.9% 14.6%
------------------------- ------------- ------------- ------------ -------
Independent review report to International Personal Finance
plc
We have been engaged by the Company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 30 June 2023 which comprises the consolidated
income statement, the consolidated statement of comprehensive
income, the consolidated balance sheet, the consolidated statement
of changes in equity, the consolidated cash flow statement and
related notes 1 to 21.
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
June 2023 is not prepared, in all material respects, in accordance
with United Kingdom adopted International Accounting Standard 34
and the Disclosure Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
Basis for conclusion
We conducted our review in accordance with International
Standard on Review Engagements (UK) 2410 "Review of Interim
Financial Information Performed by the Independent Auditor of the
Entity" issued by the Financial Reporting Council for use in the
United Kingdom. A review of interim financial information consists
of making inquiries, primarily of persons responsible for financial
and accounting matters, and applying analytical and other review
procedures. A review is substantially less in scope than an audit
conducted in accordance with International Standards on Auditing
(UK) and consequently does not enable us to obtain assurance that
we would become aware of all significant matters that might be
identified in an audit. Accordingly, we do not express an audit
opinion.
As disclosed in note 1, the annual financial statements of the
Group will be prepared in accordance with United Kingdom adopted
international accounting standards. The condensed set of financial
statements included in this half-yearly financial report has been
prepared in accordance with United Kingdom adopted International
Accounting Standard 34, "Interim Financial Reporting".
Conclusion relating to going concern
Based on our review procedures, which are less extensive than
those performed in an audit as described in the Basis for
Conclusion section of this report, nothing has come to our
attention to suggest that the directors have inappropriately
adopted the going concern basis of accounting or that the directors
have identified material uncertainties relating to going concern
that are not appropriately disclosed.
This conclusion is based on the review procedures performed in
accordance with this ISRE (UK), however future events or conditions
may cause the entity to cease to continue as a going concern.
Responsibilities of the directors
The directors are responsible for preparing the half-yearly
financial report in accordance with the Disclosure Guidance and
Transparency Rules of the United Kingdom's Financial Conduct
Authority.
In preparing the half-yearly financial report, the directors are
responsible for assessing the Group's ability to continue as a
going concern, disclosing as applicable, matters related to going
concern and using the going concern basis of accounting unless the
directors either intend to liquidate the company or to cease
operations, or have no realistic alternative but to do so.
Auditor's responsibilities for the review of the financial
information
In reviewing the half-yearly financial report, we are
responsible for expressing to the Group a conclusion on the
condensed set of financial statements in the half-yearly financial
report. Our conclusion, including our Conclusions Relating to Going
Concern, are based on procedures that are less extensive than audit
procedures, as described in the Basis for Conclusion paragraph of
this report.
Use of our report
This report is made solely to the company in accordance with
International Standard on Review Engagements (UK) 2410 "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Financial Reporting Council. Our work
has been undertaken so that we might state to the company those
matters we are required to state to it in an independent review
report and for no other purpose. To the fullest extent permitted by
law, we do not accept or assume responsibility to anyone other than
the company, for our review work, for this report, or for the
conclusions we have formed.
Deloitte LLP
Statutory Auditor
Leeds, United Kingdom
1 August 2023
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END
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