International Personal Finance plc

Good morning everybody and welcome. Today Chris Adamski, our group treasurer and I will be happy to talk you through our results for what has been a very successful year for our group. As usual, I'll start with a high level and brief overview of how we got on for the group as a whole and then Chris is going to take us through at a more detailed level for each of our operating divisions. Chris will also cover off the balance sheet and our funding structure. I'll then go on and talk about regulatory matters before talking about purpose for the first time and the importance of purpose to our organisation. We'll cover strategy for each of our business units and then I'll wrap up with some comments on capital management and provide an outlook for the group as a whole. As always, we're going to have plenty of time at the end for Q&A. Now, when Chris comes up on screen, you're going to notice that we're in two different locations today. Chris is currently in Warsaw, and I'm in our office here in Leeds. But I view it as a step forward because six months ago, I was in my home office doing this. And I'm very hopeful that in six months' time, we'll be together for the presentation. Now, to go back to those questions, if you look at your screen and look just beneath the video, there should be a dialogue box there. And if at any stage you have a question, just type it in there. That will go straight through to Rachel, and Rachel will present us with those questions at the end of the presentation. So with that, let's move on with the presentation. Now, if you've had a chance to look at the statement we put out this morning, you'll see that our rebuild strategy is proving to be very successful, and we delivered 67.7 million pounds of PBT in the year. All three of our business divisions are profitable, and that's very much based on excellent operational execution, but also on investing in growth opportunities as and when the opportunities arose on a country-by-country basis. Our teams did a great job of holding on to cost savings coming forward from the restructuring that we did in 2020. And throughout, we've maintained a very strong balance sheet. And so I'm happy to confirm that the board is proposing a full year dividend of eight pence per share. And I'll talk more about that at the end of the presentation. As we go through our presentation this morning, the key theme is going to be that we are firmly back in growth mode. And you can see this most clearly on the right hand side of this page, with credit issued being up by a third and ending receivables up by 13%. Throughout the year, we've had a very effective process of relaxing credit settings to deal with local circumstances and the impact of COVID on each of our businesses. We've also extended a lot more flexibility to our customers, so forbearance and payment holidays. Equally, our customers are benefiting from improved value-added services and our investments in technology that is making their customer journey with us far easier. Now, with those improvements in place and a strong balance sheet, I'm very happy that we have the right foundations to take forward the momentum that we generated in the second half of the year as we progress through 2022. And with that, let me hand it over now to Chris, who's going to take us through our operational performance in a lot more detail.

Thank you, Gerard, and good morning, everybody. It's a great pleasure to talk about Group's 21 financial performance. I'll explain the drivers of each queue line in the P&L account and draw out specific factors that impacted our reporting segments. I'll then close with an update on the strength of the group's balance sheet and funding position. Starting with the overview. This slide sets out the summary of key components of financial performance in 2021 and a year-on-year comparison. Starting from the top left of this slide. We're delighted to see our credit issue growing by 33% and reaching almost 1 billion sales mark. The growth momentum continues throughout the year. However, we've seen pandemic impacting demand in some of our markets more than the others. We've seen recovery in demand as the economies opened up and vaccination programs reached a greater share of population. That was very visible in Q2 2021. And most of our markets set up growth from that moment. But we've also seen lockdowns coming back over summer and autumn, with Mexico, Australia and some of our Baltic markets being impacted. And in terms of quality of underwriting, on the back of excellent collections performance, we are able to ease our credit settings, which in most of the businesses are now close to pre-pandemic levels. Again, clearly, some of these areas and industries, such as hospitality, for instance, remain restricted in our scorecards. It's great to see receivables portfolio growing again with 13% increase in 2021. led by good momentum in our home credit businesses. The growth in portfolios started to feed into average net receivables in the second half of the year, and so the average receivables contraction slowed down to 9% at year end. Revenues are driven by receivables growth and yields. There is, however, a natural lag between the receivables generation and the revenue generation. The revenue declined by 15% as year-end receivables growth only started to feed into revenues in quarter four. We've also seen temporary revenue yield compression in home credit businesses, Poland and Hungary, where we've operated under COVID-related rate caps, all of which have now expired. So from the second half of the year, we've seen the revenue growing again, benefiting from both receivables growth and normalized product pricing. Now moving on to the bottom section of the slide. Our really strong collections performance led to a record low in permanent charge in 2021, resulting in 10.2% in permanent revenue ratio. These exceptionally low levels of impairment were observed across all our businesses and were a function of our outstanding collections performance and cautious credit settings. We've also seen better than expected collections on our pre-COVID portfolio, resulting in unwinding of some of the COVID-related impairment booked earlier in 2020. I'm going to talk more about this later. We also retain great cost discipline. You probably remember we took 1,200 rolls out in 2020 to address the new size of the business. Those savings are now well embedded in the business processes and are making our business more efficient and flexible. This is why the business was able to invest in growth, acquisition and technology in 2021 and yet keep the other costs flat year-on-year. All these movements in a P&L combined led to an outstanding £108 million year-on-year rebound in profitability, with profit before tax of £67.7 million in 2021. with European home credit firmly back on track to recover pre-COVID profitability, Mexico showing outstanding growth in returns while strongly growing the customer base, and digital business demonstrating record levels of profitability. On the next few slides, I'll expand on the key performance drivers, starting with credit issues. We returned to strong credit issue growth in 2021. The chart on the left illustrates quarterly progression in credit issue. It's great to say that the growth momentum continued throughout the year, with quarter for sales peaking at £268 million. It's pleasing to note that all our reporting segments delivered credit issue growth against 2020. with exceptional performance in European and Mexican home credit businesses, delivering 40% growth. You'll remember that back in Q1 last year, credit demand was suppressed by lockdowns in most of our European markets. CE Economist opened up again from April, and it gave significant boost to credit demand, and it was visible in our sales from quarter two. Although these businesses continued growing throughout the year, we have seen weaker demand in some of these markets in quarter four as a micron spread across the region. Our Mexican business continued to grow from quarter two and did grow even in quarter three when country was impacted by another wave of COVID. It's pleasing to know that credit-issued growth in Mexican home credit was largely driven by strong customer growth of 55,000. Digital sales grew at 10%. As a reminder, the established markets consist of Latvia, Lithuania and Estonia, as we see spending in Finland in H1 2020. These markets operated under strict COVID lockdowns in quarter one, returning also in some markets during the second half. But as the restrictions started to ease, we saw demand returning, And it led to H2 credit issued 21% stronger than first half. And the new market has delivered great credit issued growth, similar to the levels achieved in European and Mexican home credit. And we have two clear growth engines there. And that was Mexico and Poland. In terms of the growth outlook for the group, We're conscious of the Omicron wave across our markets. However, we aim to grow credit at around 8% to 10% in 2022. Turning now to net receivables and revenue growth. The chart on the left shows the half-yearly receivables since 2019. So the portfolio grew by 48 million pounds over 2021. or 13% of constant exchange rates. And we're delighted to see the acceleration in the second half of the year. The growth was led by a Mexican home credit business with 29 year-on-year increase in portfolio, whereas a European home credit delivered good growth of 17%. Both divisions have now reached around 85% of pre-pandemic portfolio size, leaving significant growth potential for 2022. As I talked you through on a credit slide, digital had a tougher time in 2021 as COVID impacted demand. But if you look at the growth in receivables excluding Finland, which as you know is in collect-out and is progressing well, The business portfolio grew by 5% last year, with the momentum building in the second half. So when the COVID-related demand headwinds disappear, there is a sizable growth opportunity there. Looking back at the total group portfolio, we're pleased with the 2021 growth. And looking at where we were in 2019, We have plenty of scope for further growth to get back to pre-pandemic levels. And now moving to the video on the right, you can see how receivables grow is now starting to feed into the revenue growth. The 10% revenue growth in the second half of 2021 was driven by great progress in Mexican and European home credit businesses. The growing book, together with improving yields as the temporary price caps have been lifted, will lead to faster revenue generation in 2022. So in terms of the outlook, we expect double digits growth in revenue in 2022. Let's look at the impairment now. The chart at the top sets out the impairment journey between 2020 and 2021. Clearly 2020 was an exceptional year because of COVID. The 248 million pounds charge booked in 2020 included 80 million pounds of higher impairment levels as a result of increased anticipated expected losses, both permanent and temporary. following the reduction in collections we saw earlier in pandemic. In 2021, nothing like that happened. And so these higher impairment charges haven't been repeated. Moving to the next bar on the chart, our average net receivables reduced by around 100 million pounds compared to 2020, resulting in impairment reducing by 16 million pounds. But the real story here is the operationally driven performance, which led to almost 100 million pounds reduction in impairment year on year. Firstly, with respect to pre-COVID portfolio, our customers were very diligent in terms of catching up on missed payments. And our teams collected very well on this portfolio. This led to unwinding of 32 million pounds impairment booked into 2020. Secondly, and more importantly, the collections performance on the portfolio written since June 2020, granted largely under tighter than normal credit settings, have been materially better than predicted by our impairment models. And that led to £64 million improvement in impairment. Taking all the above factors together results in reporting record low 56 million pounds in permanent charge. The chart at the bottom shows the impact of those factors on the impairment to revenue ratio for the group. The abnormally high impairment to revenue of 37% from 2020 turned into unusually low ratio in 2021 of 10%. With the continued business growth, we expect impairment to increase to around 18% to 20% in 2022, and trend towards a 25% to 30% target by 2023. So overall, we're delighted with our team's operational execution, the quality of our book, and how credit and collection processes transformed over pandemic. Moving into the balance sheet now. The group's balance sheet is ready to support significant growth aspirations in 2022 and beyond. We have 575 million of well-diversified debt funding with an average maturity of around three years and a debt capacity available for growth of 108 million pounds. 70% of debt is provided by three bondholder groups, with investors from the UK, continental Europe, and the Nordics. And around 30% is the bilateral debt granted by 18 banks across seven jurisdictions. We talked to our rating agencies regularly, and a great progress made by the business did not go unnoticed, and Fitching improved our business outlook to stable. During the year, we're delighted to issue a new bond in Nordics with reduced 7% coupon. And we also extend the trade of 150 million pounds of bank facilities. With the strong backing from our investors, we're growing our business with confidence. And we put a concerted effort to make the balance sheet work harder. and a strong receivables growth led to a reduction in equity to receivables to 51.2%. The growth in the business and the new progressive dividend will bring the equity to receivables closer to our target. Gerald will talk more about our dividend policy later. Let me now hand you back to Gerald for the remainder of the presentation.

Thanks, Chris. Now, before moving on to purpose and strategy, let me first cover off regulatory matters. Now, it has to be said that COVID brought with it its fair share of regulatory change, all of which was directed at making consumers' lives easier through the pandemic. In particular, it came in two forms. First of all, the ability to suspend payments on a loan without impacting a credit record. And secondly, a limit on what could be charged on new credit. Now, I'm happy to say that all of those temporary regulations have expired, with the one exception of the moratorium in Hungary. Now, in Hungary, the latest iteration of the moratorium is due to expire in June of this year, and it just so happens that that is immediately after the elections in Hungary. Today, we only have 11,000 customers in the moratorium, so our local leisure team is very focused on trying to re-engage with customers who came out of the previous version, and that's their focus in the months ahead. Now, I'm sure that most of you will know that the EU Consumer Credit Directive is currently being reviewed, and we believe that that review will be complete either by the end of this year or by the end of Q1 of next year. After that, countries will have an opportunity to look at any revisions and see if their local regulation needs to be changed to be compliant. And that probably becomes effective, we think, sometime from 2024 or beyond. In Poland, the same proposal that was brought forward in 2015 to reduce the total cost of credit cap to 10 plus 10 has been brought forward again by the same minister. This has been forwarded to the EC for review, and they are due to respond by the 28th of March. And before that date, no change should take place in Poland. Now, we expect this proposal to go through various committee and subcommittee stages of the Polish Parliament, and through that process, it could be amended, adopted, or completely dismissed altogether. And when we have something more concrete that we can talk to you about, we will, of course, come back and do that. And then finally, in Romania, we see a proposal going through Parliament there for a rate cap. Now, this is the same rate cap, more or less, that we would have talked about, I think, two years ago, which went on to become legislation, but was subsequently rejected by the Constitutional Court. Now, we think the current version is likely to go ahead, possibly with some amendments, and become law later this year. So with that, let's move on now to purpose. Now, I know that purpose and ESG are being used as a yardstick to measure corporate behavior around the world. But for us, purpose is not something new. We've always believed that we have a very strong social purpose and role to play, providing credit to those who are underbanked and underserved. Perhaps what we haven't done is shouted loudly enough about this in the past. but I have to say the focus on ESG and purpose has re-energized our belief in what we're doing and has caused us to think long and hard about how we might communicate that better as we go forward. Over the past 18 months, we've spent a lot of time and energy talking to all of our stakeholders, so from agents to customers, from politicians to shareholders. And the question we've asked them is, If we were truly living up to our purpose, how is it that you would describe our business in the future? And so all of that feedback we're using to inform how our processes need to change in the years ahead. If you looked for concrete examples of what some of those changes might be, I'd give you a couple. First of all, today, our most loyal customers are also our most profitable customers. In the future, we need to find a way to reward that loyalty more effectively, and I believe that's going to be through better pricing and more choice. Secondly, if we truly believe in financial inclusion, we need to find a way of giving those customers the option of being fully digital. Now, obviously, I would like that option to be our digital offering, but ultimately, the goal has to be to offer those best customers more choices as to where they can get finance in the future. Now, these are lofty aims, but they're the right ones, and they'll take several years to get in place. But it's a journey that we are firmly committed to. Moving on from purpose now to strategy. What I've tried to do on this page is to distill our strategy into what it is we need to do for our existing loyal customers and what it is we need to invest in to attract the next generation of customers. So for our existing customers, we need to continue to invest in technology to make their journey with us easier, more frictionless, let's put it that way. But also, we need to invest to make it easier and simpler for them to get a loan and to examine how their loan is performing. We also need to be a broader lender, and by that I mean provide them with more value-added services because we can provide value-added services at price points that these customers can't get as individuals, and they really value that, and it creates stickiness in the relationship. And obviously, we also need to fulfill the social purpose I've just talked about on the purpose. as for the next generation of customers, but clearly customers are becoming more and more demanding. And in the future, we're going to have to be able to offer them more choices. And by more choices, I mean digital, I mean mobile wallet, but also hybrid, which is the crossover between agent and digital. We're also going to have to be more present where the customer wants to use their money. And that means establishing retail partnerships. And I'll talk more about that in a second. And finally, expanding our footprint. Particularly here, I'm talking about Mexico, and we'll come on to that. Now, the first thing to say here is that excellent operational execution by our leadership team has delivered a significant rebound in growth and profitability. And over the last 18 months, we've been very focused on tailoring our credit settings to the local circumstances in each of our markets. But in particular, we focus on offering flexibility to our customers. So more forbearance and payment holidays so that they could more easily manage their changing circumstances, all of which were being driven by COVID. We've also improved our customer experience, and we're spending a lot of time and effort on improving our technology. And quite recently, we just launched our first mobile app that allows our home credit customer to interrogate their account online, which might sound like a small step, but actually it's something that's really valued by our customer base. And then the final thing for our existing home credit loyal customers is the amount or the value that we can bring to them in terms of value-added services. Now, these can be anything from general insurance to health insurance, but the beauty of this is that we can provide these at price points that are not available to them as individual consumers. As for the next generation of customers, well, we're going to have to have digital and hybrid available in every country. Now, today it's available in Poland and lately in Czech Republic, but we also need to have that available to them in Hungary and in Romania. We need to improve our customer journeys because today, but more probably in the future, our customer group are going to expect to be able to deal with this through the channel of their choice. Now, that's going to mean a significant upgrade in our technology, but I'm happy to say we're already well underway on that, and we've improved our technology significantly in Romania, and we have a plan for a further rollout across Europe over the next number of years. Even though I don't like the word, I guess we're moving towards providing omni-channel experience for our customers. Now, there are two other key strategic developments that are particular to European Home Credit. The first is the test and launch of a credit card in Poland, which we expect to do later this year. I just want to say that when we do this, it will be under test mode, and that means reasonably limited functionality so that we can get to understand how our customer segment deals with revolving credit for the first time. And then the second major development for us is the establishment of our first retailer relationship in Europe, and we've done that in Romania. It's only just started, but it's an exciting opportunity because it's a completely new distribution channel for us. So if we move on now to Mexico Home Credit. Our leadership team here are delivering consistently improving results by maintaining a rigorous operating rhythm, which is fantastic for our business. All of our customer representatives, our agents, are now using our handheld technology. And we're also trying to digitize as much as possible of our internal processes. And in Mexico, specifically to improve what we would call time to cash. And that's the time from a customer initiating an application for credit to physically getting cash in their hand. The other thing our leadership team have focused on is working more closely with Creditea, and that's our digital business in Mexico. And what we're seeking to do here is to complete an application that comes through digital in-home credit, where the particular applicant doesn't have a strong enough credit record for a fully digital offer. And finally, we're promoting more and more women from our frontline operations in Mexico into more senior positions. And this is a business that's very geared towards women serving women. And I believe that this can only be good for our business as we move forward. Now, if we look at how we're going to attract the next generation of customers in Mexico Home Credit, There are clearly crossovers with the strategy that we see in European Home Credit, specifically when it comes to retailer relationships. And I can let you know that we've just commenced our very first retailer relationship in Mexico. It's simply just started, but we think this is a big opportunity for us. Secondly, these hybrid offers that I've just mentioned, which are going to allow us to say yes more often to more of our digital applicants in Mexico. And that's a big opportunity given the scale of the population there. And then there are two specific strategic avenues that we're following for Mexico. The first is expanding our footprint. And here now we're talking around Mexico City in particular and in the northwest. And the population available to us there is enormous. And then finally, we're looking at digital onboarding and digital completion in our home credit business. Now, this would be several steps down the road, but it would mean the fulfillment of the contract in an e-version and potentially the disbursement of cash in an e-version also. Let's move on now to IPF Digital, which is our second major growth opportunity in the group. As with our home credit businesses, we spent a lot of time in digital, focusing on being flexible for our customers during the pandemic. So here specifically, we're talking about the provision of extra payment holidays and more flexible payment terms as customers' personal circumstances changed during the pandemic. We've also flexed our credit settings with a view to offering credit when consumer demand came back. but we were very careful not to encourage over indebtedness during this period. A lot of our time and energy also went into re-platforming for mobile wallet rollout in the Baltics, but also improving the functionality that goes with the wallet that we have available. Now, as for the next generation of customers, what we need to do is invest in our digital brand, Creditea. And here we're specifically linking the brand to the concept of mobile wallets being 24-7 credit availability. So credit available to the consumer where they need it and when they need it. And we think this is a particularly big opportunity for us in our new markets, which would be Mexico, Australia, and Poland. Obviously, we're also going to invest in retailer relationships, and that will come in due course and team up with the more hybrid offers, all of which just goes to expand our reach with this consumer segment. Now, if I look at the three divisions together and think about our strategy for existing loyal customers, ultimately what we need to do is offer more price points and more value-added services, but also more digitization. For the next generation of customers, it's pretty much the same, but added on top of that, we also need to move more towards revolving credit, mobile wallet and more distribution channels. So moving on now, let's talk about capital management strategy. I guess compared to most consumer finance businesses, we have a really strong balance sheet, but we also have a great opportunity to build on the momentum that we created in 2021. And as we heard from Chris earlier, we've extended the tenor of our funding, and we have plenty of room in our facilities for our existing growth projections. Now, with that balance sheet and that extra capacity that we have in our facilities, we have plenty of room for the significant growth targets that we have, but also to invest in the products and channels that we just talked about and have a progressive dividend policy. And I'm pleased to confirm that the board is recommending a full year dividend of eight pence per share. And for future years, a progressive dividend policy based on business performance with the interim dividend to be set at one third of the previous year's payout. In addition, obviously, the board retains the option to make further capital returns based on market circumstances. Let's move on now to the outlook for the group. Clearly, we see a growing demand for affordable credit in our sector. But there's a clear link between the easing of COVID settings and the resurgence of that demand. And we believe we're ideally positioned to fulfill those needs for our customer segment. We're expanding our product and channel options for our customers and providing more value-added services to them. And we're leveraging technology to drive the scale of the business and make ourselves more efficient. Ultimately, underpinning all of this for our group will be our purpose, which is building a better world through financial inclusion. And with that now, I'd like to go to questions. And as I do that, I want to take this opportunity to thank all of my colleagues for your dedication to our customers and to our business. I just want to say thank you. I really appreciate it. So I'm just going to hand over to Rachel now, who's going to moderate the Q&A session for us. Rachel.