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.

Thank you. Thanks, Gerard. So first question is from Marek. There are a couple of questions from him. The first being, how do you see the potential conflict in Ukraine impacting your business in the Eastern European region?

Well, clearly this is very fresh news. I think the major impact would be to consumer confidence. Ukraine has borders with some of our countries, specifically Poland, Hungary and Romania. I don't see any direct impact on the businesses, but further down the line, if it destabilises politics or anything like that, it could cause consumer confidence to drop a bit. And so that's where I would see the impact being.

Thank you. And another one from Marek. Would a low vaccination ratio in Eastern Europe negatively impact the business?

Well, I guess the vaccination rates vary by country for us across Europe. The lowest I think we have is Romania, which is around 42-43%. And then the other major home credit countries are just above and below 60%. So I would say we've already experienced the effect of relatively low vaccination rates. And we saw that throughout 2021 because those rates actually came up quite steeply towards the latter part of the year. So to the extent that there is an impact there, I would say it's already baked into the 21 numbers. And as I said in just now a minute ago, You know, we see a direct correlation between the relaxation of COVID restrictions and the resurgence of demand for consumer credit. So the more people that are vaccinated and now doing business as normal, the better.

Thank you. Got a couple of questions about the proposals for a rate cap in Poland. How would you expect it to impact growth in the business in this environment?

Well, I guess, as I said, we're dealing with the same proposal that we came through six years ago. And one of the things that we've proved over time is that we're pretty adept at dealing with rate cap changes. So, first of all, we have to continue in our discussions with all the interested parties, see if we can come out with a positive outcome for everybody concerned. And then we adapt the business, and that means adapting the product structure and how we go to market and things like that. But it's fair to say that we already have rate caps in Europe in every country now, with the exception of the Czech Republic, and we work well within those.

Thank you. We've got a couple of questions regarding the credit card proposition. How costly would that project be? When will it commence? And how will it be distributed?

So the credit card project in Poland is already well underway. We would expect to be testing that credit card in the second half of this year. It would be distributed by the agents because what we're not doing here is talking about cutting the agents out of the process because the agent relationship with the customer is crucial to us and crucial to the customer. So the way we would set this up is that we would test a credit card delivered by an agent to a customer. But what we want to do, first of all, is to understand how our customers would use the functionality of revolving credit. So for us, it would be we take it slowly or cautiously to make sure we get the right learnings before we would do what I would call a full launch of the credit card. But just to reiterate, it would be a card that would effectively be distributed by our existing agent base.

And just linked to that, Mark Williamson has also asked, is he right in thinking that credit cards wouldn't be caught in the proposed rate cap in Poland?

Yes, Mark, that's absolutely right. So the current cap in Poland and even the proposed changes to the cap exclude credit cards. Now, they don't exclude revolving credit. They specifically exclude credit cards, and that continues to be the case. So a credit card type product would sit outside the current or future caps.

Okay, moving on to IPF Digital, a question here from Neville Harris. There are lots of initiatives underway in digital. What is the initiative that you think will have the biggest potential for that division?

Well, I guess the really big one is mobile wallet, and we put a lot of time and energy in 21 to replatforming so we could increase the functionality, roll it out across the Baltics, and then take it on to our other markets. And for us, mobile wallet and revolving credit with availability of credit wherever you need it is the way to go. So I think that will be number one. Number two is probably the hybrid, so the crossover between mobile home credit and digital. So fulfillment where an applicant doesn't have a strong enough credit profile to go through all the way on digital, so it gets fulfilled by the agent. So those would be the two. And then I guess the retailer relationship piece is really interesting for us, but I would say that's embryonic and that's going to take us some time. So I'd wait for that one to come on later.

Okay, that probably covers a question from Marek who's asked, could you describe the retail relationship model?

Okay, so Marek, the way it works is obviously a consumer walks into a store. As I said, we've got two of these relationships in test at the moment, one in Romania and one in Mexico. They walk into a store, they see a product they like, they want to buy it. and the existing store staff are incentivized to offer our credit if that's appropriate. That then goes through our internal processes to vet the customer in terms of their credit standing, and if we're happy, then we provide the credit, the customer buys it on credit, and then the contract is between us and the customer. So standard point of sale finance. But, you know, this is a completely new distribution channel for us. But one that we think is really exciting and has a lot of scope for us. But it's at the very start in those two countries. But I think it's a big opportunity.

Okay, so we're moving on to Stuart Duncan. He's got a few questions here. Given the stronger position the business is in today, is there a possibility of refinancing the more expensive bonds taken out in late 2020? Does the Swedish bond that we took out in 2021 give some sense on what costs could move to?

Chris, do you want to pick that one up?

Yes, sure. So we're obviously very happy with the recent transaction in the Nordics and a 7% coupon bond that was issued in the autumn 2021. Clearly, our intention would be to replace the existing Euro bond with a kind of coupon, really, over time. As and when it happens, it very much depends on the macroeconomics and why the markets, which are relatively unstable as of today, although our pricing has improved and the yields have improved compared to where we were in 2020. It's hard to say at the moment whether we can do that this year or next year, but that would be our intention.

Thank you. Another one from Stuart. Mexico is obviously performing well, some interesting developments. Can you set out some longer-term aspirations for the region, such as where profits might be within three to five years?

Well, what we're going to do, we'll talk to people offline about 23 and beyond. Obviously, we're saying that we're comfortable with the consensus that's in the market for 2022. As regards Mexico specifically, our view is that what we should do is build out the footprint, as we've talked about during the presentation there. Also, we're investing in the hybrid opportunity with Creditea, which is our digital operation, and establishing this first retailer relationship there. So what we want to do is continue to invest, but my view is we should expect to see profits continue to move forward, but they won't move forward as quickly as you saw just in the past 12 months. Obviously, that was an exception. But what I really like about Mexico now is that the leadership team there have a nice – well, they've got a fantastic operating rhythm. It's really very good. I was out there in December and did a lot of branch visits with the team there, and I was so impressed with how they're running the business. And really, Mexico has enormous opportunity for us. Where we've fallen down in the past is that our operating rhythm was a little bit patchy. Today, I have no concerns about that. So that gives me a lot of confidence as to how the business will build in the future and the profits will obviously flow from that.

Okay, coming back to Poland, why has the rate cap proposal gone to the EU first? And can you give some sense as to what proportion of the group could be impacted by any potential changes?

So obviously Poland is our largest market in terms of profitability and it's our longest established market. So very important to us, it has to be said. In terms of why it's gone to the European Commission for review, that's the standard process. When you have a proposed change like this, it should go there and be reviewed. Now the European Union, European Council, as I said, can come back and say nothing. They can actually propose amendments or they can actually defer it even further. So the proper process has been followed there. You know, what we have to do now is wait to see what comes out of their review, followed by what comes out, if anything, of the committee and subcommittee reviews that will take place. But this is politics rather than regulation. So as you'd imagine, we're working closely behind the scenes with all of the interested parties. and then we'll take appropriate action when we have something more concrete to look at. But at the moment, it's very much up in the air, even to the extent that the author of the proposal has gone public after he proposed it and said he's very willing to discuss the rates that are included in the proposal. So there's not a lot more we can say until we see something more concrete. But obviously, we're getting prepared in case there is a change, and we'll deal with it if there is.

Okay, and the last question from Stuart. On the progressive dividend policy, should we be thinking about dividend growth being linked to profit growth? What other forms of capital return would you consider?

So I guess what we'd be thinking about is that we're setting the base now as 8p. If you look at the profit for the year, it was 67, 68 million, which is roughly two-thirds of where we were before. The dividend at 8p is roughly two-thirds of the previous dividend, which was 12.4p. And I think what people should expect is that with a progressive and clearly it's based on our performance in the future. We've already set out what we think we will do in 2022. And we believe with good reason that, you know, the years after that should be positive as well. So I think people should think about AP and then incremental improvement based on business performance in terms of. Other options. Well, I guess there are two other options that are clear. One is a special dividend and the other is a share buyback. But we've been very careful about the wording here. We've just said that, you know, if the circumstances were appropriate, then the board would think about that. And the board has those options that it could exercise if it wished to do so.

Okay, thank you. Moving on to Gary Greenwood's questions, a couple we've probably touched on, but let's go through them. Regarding your ESG strategy, so this is a new question, do you think you can reward your most loyal and profitable customers without damaging margins and profit?

Well, you know, that is the really interesting question for us. That's the one that we're talking about internally a lot because ESG, In wanting to show more loyalty to our loyal customers and our best quality customers, clearly if you give better price points, then you're giving away some profitability. But ultimately, our belief is that over the longer term, by rewarding these customers more effectively, it will open up more customers for us. So the brand will be positively impacted and our standing in the community would be positively impacted. Now, it's very hard to put together a spreadsheet that says one side equals the other side. But our view is that this is the right way to go over the long term. And if we do it correctly, it will pay us back. So we believe it's the right thing to do. We just have to figure out how to make it effective both for the customer and for us. Was there a second part to that?

There is, actually. Well, a separate question, and we touched on the EU Consumer Credit Directive. What do you think the most likely outcome might be?

Well, they've already published a draft, so if you want to know what they're thinking in terms of the review of the credit directive, it's available on their website, and you can have a look. And essentially, they're talking about having some form of rate cap in every country. That particularly doesn't worry me because, as I said, we've only got one country left in Europe that doesn't have a rate cap. And then there are various other things in the current missive that they've sent out that talk about advertising, not misleading customers, clear contractual terms, right to terminate, affordability checks. The more I go through the list, the more I sort of tick boxes that we do all of these things in the right way. But, you know, it's a fairly hefty document. It would take you some time to read it, but it's out there and it's available. But there are no shocks in it, let's put it that way.

Okay, moving on to Portia Patel. Please can you explain what factors are meant by the impairment rate being expected to remain below the 20 to 25 range in 2022?

Chris, do you want to pick that up?

Yes, sure. Thanks, Portia. So, as you know, our impairment to revenue for 2021 was 10% and was largely impacted by two factors. One was our performance of our pre-COVID portfolio, and that was materially stronger than we've anticipated. And we've also had an unwinding of some of the discounting there. So that was one factor impacting our impairment to revenue. And then the second factor, and probably more important one, is that the new lending we did during COVID, so from June 2020 onwards, had a materially better collection performance and was actually lent with a more restricted credit settings. Those two components mean that all the new portfolio, which currently is about 80% of the entire balance at the moment, that portfolio is cleaner and we collect really well from it. So when you compare the 10% that we reported just now, even if you take out the one of components that are related to our back book or the book from pre-COVID, you would expect that this would generate teens to 20% impairment, really. And this is why we're guiding our markets now that 2022 should be at the level of 18% to 21% impairment of revenue, because the majority will be driven by this new book that we've issued. Clearly, as and when the business grows, and we expect to grow at around about 8% to 10% this year, similar rate next year really at 2023 we'll be adding another 100 million pounds worth of credit issued to the book really and as and when we do it we will be opening up a bit more and and it's likely that it will then trend towards the 25 to 30 percent range uh but whether we're going to get that that will be determined probably in the next 12 to 18 months

And one of the questions I think we'll ask ourselves later this year will be whether or not the 25 to 30 range continues to be the right range for us. Because if you look at our results over the last four or five years, there is a notable improvement in the quality of the business that we're writing. And as we move more towards revolving credit and we add more and more digital into the business, clearly that's obviously better quality business as well. So we'll be asking ourselves, is the 25 to 30 range the right range? And we'll do that sometime later on this year.

We've got another question from Portia. We've touched on retail relationships. She's asked what kind of retailers would we be working with?

Well, clearly we've just started two so far, Portia, so I can tell you that the one in Romania is a group called eMag, and they have stores across southern Europe, and effectively they're a distribution chain and outlet for technology, so laptops and the like. And we think that's a perfect sort of product for us to be financing. And then in Mexico, it's with a group called MCI, who are a reseller. And effectively, we've set up our own website there, which in Spanish, it's translated as Provishop.com. And what this group is doing is they effectively load products onto our website, and then our finance is available there for the customer to click on the product and attach the finance. And clearly, obviously, that's all subject then to credit vetting and so on. But that can be anything from kitchen goods and so on, so things like that. They tend to be items that are within what I would call our price range. And if you think about it, in Mexico, Our average loan in home credit is about £250, and in Europe it's probably £750, £850, give or take. So things that fit within that range are the kind of retailers that we'd be looking at.

Okay, and a final one from Portia. How likely do you think the total cost of credit cap in Poland is at this point?

Well, truthfully... Portia, I don't know. We've been dealing with this for six years. Six years ago, the same guy came out. He had the very same proposal. He ran it up the flagpole and discovered that it was immensely unpopular and then shelved it. Now he's put it forward again because he's trying to damage the Prime Minister, even though they're in the same government. They're in separate coalition parties within the government. He's trying to get one over on the Prime Minister by forcing through something that the Prime Minister clearly doesn't support himself. So I'd be a fool to try and guess whether or not it's going to happen because it's politics. What we have to do is be prepared for it and that's what we're working on. But also at the same time to work with all the stakeholders who are involved. And believe me, there are a lot of them who have opinions on this. To work with them to try to influence it to come out with a good result for all parties concerned.

Okay, moving on to Miklos. How would IPF Digital provide more payment holiday options compared to your core home credit business measures?

How would it provide? Yes. Maybe it's a question of relativity between the two?

Yes, I think what kind of payment holidays are. All right.

So I suppose they work quite differently because in the home credit business, the agent will be visiting the customer every week. And if the customer says, like, I'm having a really difficult time because of the pandemic or whatever it might be, and I can't afford to pay. Can you pop back next week or in two weeks time? That's the way the business works in home credits. And it's very much based on the relationship. Now, during the pandemic, we also proactively called people when we saw they were having difficulties. On the digital side, we actually have, as part of our product setup, payment holidays structured into the product, and a customer can avail of these during the contract term. Now, because it's a revolving credit, clearly the contract term goes on and is effectively evergreen, subject to performance, I suppose. But what we did do is we proactively offered more of these payment holidays to customers. I don't have a number to give you one versus the other, but there are two different processes, but ultimately the aim is the same, which is to help the customer with changed circumstances, always thinking that at some stage we need to get them back on track. But in our view, it's better to help them through that difficult period and give them some respite so that later on they come back and they're able to get back into repayment mode, even if it extends the contract by a number of weeks or a couple of months or whatever.

Okay, thank you. A question now from Frank Lehman. Another question from Mexico. One of our competitors, I'm not sure how to pronounce it, Creel, went into receivership restructuring. How would you evaluate it? Would it be an opportunity? Could you consider buying full books?

You know, we're a very specialist lender. You know, the home credit business is a particular entity that very few people do, and we are the largest in the world, and I'd have to say the best in the world at doing it now. So that's what we're specialist in, is our consumer segment and providing credit in Mexico in that way. We're always willing to look at opportunities to grow the business. You know, we bought MCB Finance back in 2015. That's the single... acquisition we've done in the last five or six years, I guess. But I'm not averse to thinking about buying portfolios. But clearly, there's a reason why this business went bust. And I won't talk about it on camera, but there's a reason why they went under. And so when you think about looking at a portfolio like that, you have to think about the damage that's already been done to the brand and effectively to the legacy. and consider whether or not what you're actually buying is a business that you can revive, or simply you're doing a collect out and hoping to convert some of the customers into your own business. So the answer is we wouldn't say no to looking at things like that, but we're not actively out there trying to build a business by buying up people who've had a difficult time.

Okay. This is the last question so far from Lucy. What is the reason for the quality of credit, for the improvement in credit quality? Do you have different policy strategies or different types of customers and how do you deal with them?

Yes. So good morning, Lucy. Good to hear from you. Clearly, like I've explained on the impairment to revenue question, we have two different books, the way we look at it. The one that we've issued pre-pandemia, so pre-June, let's say, 2020. and post-June 2020. And like you suggest, clearly the new book, i.e. the one that we've issued during the pandemic and over the last months, really, that's been of a greater quality. And this is because with restricted credit, and we started to gradually relax it over the last 12 months period, really, but it's of a greater quality compared to what it was pre-COVID. In addition to the credit quality, our collection processes have improved as well throughout that period, and we became more advanced in how we can manage the customer portfolios as well. So all that together means that our current portfolio, the one that we run with the majority of the portfolio at the moment, is of a greater quality than it was in the past.

Thank you. And that's all the questions that we've had for this morning. Thank you.

Okay. Well, thank you very much, everybody, for joining. Thank you for all those questions. You know, we're really happy with the set of results that the team delivered last year. It's taken a lot of work, and we have a lot of really dedicated people in all of our businesses taking care of our customers and the business itself. We feel like we've got really good momentum coming out of 2021. I can tell you straight up that we had a slow start in January because Omicron rolled across Europe. And, you know, it goes back to what I said earlier in the presentation, that there is a direct correlation between COVID restrictions and consumer demand for credit. But clearly we expect that to hopefully roll off pretty soon. But we feel good about where the business is at. I think the results are a reflection of that, as is the dividend and the new dividend policy. So thank you for joining, and I look forward to catching up with a lot of you in our bilateral calls after this.