International Personal Finance plc

Good morning everyone and welcome. Over the next hour or so, Gary Thompson, our CFO and I will take you through our financial results for 2022. And if you've had a chance to see our R&S we released this morning, you'll know that we're going to be talking about double digit growth in lending and receivables, stable portfolio quality, very strong control of costs and PBT significantly up on the prior year. I'll start by providing an overview of our results and then I'll do a recap of our strategy and highlight just a few examples of how we are successfully transforming our business to deliver for our current customers and ensure that we are making ourselves relevant for the next generation. Gary will then pick up from there and start with an update on our financial model before going on to a detailed review of the financial performance of our three business divisions. Gary will also cover our balance sheet, and you will see that we continue to maintain a very healthy position in terms of both portfolio quality and the structure of our funding. After that, I will provide some insights on our outlook for the business, and we will then have plenty of time for Q&A. Now, just regarding Q&A, you should see at the bottom of your screen a dialogue box, and you can enter your questions into that at any stage during this presentation. And then Rachel will present those questions to us during the Q&A session. You will, of course, be able to ask us ad hoc questions at the end also. So with that, let's get started. Now, we delivered a profit before tax of 77.4 million, up 14% year on year. And on an underlying basis, so that's stripping out the one-off COVID-related releases in 2021, PBT was actually up 117%. What's particularly pleasing is that all nine businesses made a profit, and that includes our digital businesses in Mexico and Australia, making their maiden profits in the year. Despite consumer demand picking up in the second half of the year, we were very disciplined about credit quality, and this fed through positively to our impairment numbers, which Gary will cover in a few minutes' time. As you've come to expect from us, we have a very well-capitalised balance sheet and sufficient funding in place to meet our growth projections into 2024. So based on these very strong results, and with our equity to receivables standing at 51%, the Board is happy to recommend an increase of 15% in the dividend to a full year payout of 9.2 pence per share. These really strong results were delivered through the excellent operational performance of all three business divisions. As you can see from the pie charts on the right, customer lending was up 14% as was closing net receivables. We saw particularly robust growth in Mexico and Australia, and that growth is providing us with the scale benefits which contributed to both businesses being profitable in the year. In Q4, although customer repayments remained consistent and overall portfolio quality very good, we took preemptive action to tighten our scorecards because of the potential negative effects of high inflation impacting our customers. One of the reasons I am particularly pleased with our results is because the backdrop for this set of results was not at all what we had expected at the start of 2022. So by way of context, when we started into 2022, we were anticipating the end of COVID restrictions, a re-ignition of consumer demand, stable markets and low inflation. Well, it has to be said what we actually got was something quite different. To start with, we had a resurgence of COVID outbreaks in a number of our countries in January and February. but we knew how to deal with that, so those weren't such a big hurdle. And then, of course, we had the invasion of Ukraine by Russia. Now, it would be really hard for me to overstate what a shock that was to our European businesses and our colleagues there in particular. We saw a dramatic reduction in consumer demand for loans, particularly in Poland, and that did not ease until the end of the second quarter. In June, the Hungarian government once again extended their moratorium on customer repayments until the end of 2022, and in Poland, the lower TCC cap was announced. Supply chain issues exacerbated by the war in Ukraine were feeding directly into higher inflation, and the speed with which all of this unfolded spooked the capital markets, and refinancing became very difficult for a number of months. Now, notwithstanding all of this, my colleagues throughout the group worked consistently to deliver our strategy, and the output is the very solid set of financials we are discussing here today. Now, before I move on to an overview of our three divisions and how we are executing on our strategy, let me just comment on the picture that you see on the right-hand side. Now, normally these are filler or segue slides, and they're stock pictures, but we've deliberately chosen pictures of our customers. The gentleman you see here is Mr. Texe, and he's one of our customers in Romania. He's a 70-year-old retired doctor who decided that he wanted to start a small business to educate people on how to live healthier lives on a plant-based diet. Although there were EU grants available to him, he needed a bank account and a credit history to be able to access them. His own bank refused to lend to him as he was too old and so he came to us for help. He has a steady pension and we were very happy to provide him with a small loan that enabled him to create the credit history he needed And now he's on his way to starting his business. And that's just one small story out of the thousands of stories that we create every week for our customers. So turning now to our strategy. Let me just start with a reminder of how we fulfill our purpose. We have three distinct divisions. So first of all, you've got European Home Credit, and that's been established now for 25 years. And it is a very profitable cash-generative business operating in four countries. We are increasingly digitizing as much of our processes as possible and expanding our product range to meet the changing preferences of our customers. As you will hear from Gary, the division is already delivering on our target RORE. We provide home credit, hybrid loans, which that one now is a combination of digital and home credit, our new credit card, and of course, multiple value-added services. Now, in the middle, we have Mexico Home Credit. And this provides the services needed by a huge number of consumers. Mexico is a country with a population of about 120 million people, the majority of whom, in fact, about two thirds, I think, are not effectively banked. But these customers do have financial needs. And that's where we come in. The business is more than two decades old and truly has huge opportunities for growth. We're expanding our footprint and improving our customer experience through technology, and I'll cover both of those in a couple of minutes. Now, despite its very strong growth rate, which normally depresses profitability due to the workings of IFRS 9, our Mexico home credit business is already delivering the targeted return levels. The services we offer here are the same as in European Home Credit, obviously with the exception of credit card. And then we have our third division, IPF Digital. This has been established for more than 15 years, and it operates through two primary brands, Creditea and Credit24. We're currently in rebuild mode with IPFT, as we had to close our businesses in Finland and Spain, and so I am doubly delighted to see the very strong growth rates across the division. The digital business is run with a single hub serving all of its countries and the focus now is to achieve scale again to deliver the required returns. The core products are all digital and are all based around revolving credit and our mobile wallet. So moving on now to the strategy that our divisions are executing. At its core, our aim is to enhance the services we provide for our current customers whilst evolving our business so that we are equally attractive to the next generation. Our strategy is a multi-year endeavor, so what you see here on this slide should be familiar to you. In summary, we're expanding our product range to meet the customers' needs of today and as those needs are changing. and we're offering more functionality and more flexibility. We're making it easier to become a customer by expanding our distribution. And finally, we're investing in technology to make the whole experience of becoming a customer and remaining a customer as positive a journey as possible. To provide some color on how this strategy is being executed, let me pick one example from each of the three pillars that you see here, starting with expanding our product range. Our new credit card has been specifically designed to meet consumer and regulatory requirements in our Polish market. Whilst most of our customers would ordinarily deal in cash, the rollout of the card offers them very real benefits. The all-important relationship with their agent is maintained, but the card offers them ability to shop online and get better value, It can clearly be used in personal retail outlets, and the customer is able to withdraw cash within their limit from ATMs, all provided that their credit standing is in good order. To protect the customer from persistent debt, all drawdowns on the card need to be fully repaid within 12 months. Now, I have to admit, it is a huge undertaking for us to train all of our staff and all our agents on credit card, and then to roll it out across the whole of Poland whilst protecting our customers and our business at the same time. The rollout has been underway for two months now, and I can honestly say we are very pleased with the early results. The feedback from customers and agents is very positive, and we plan to have cards available across the whole country by the end of May. Now, based on a successful full rollout, I see great potential for the card in other countries across the group in due course. Turning now to investing in technology. I was in Mexico a short while back to do a live webcast with David Parkinson, our country manager for Home Credit. And so I thought it would be useful to use Mexico as a good example of how we are improving our customer experience through technology, as well as how we are expanding the business. Our local team in Mexico set themselves the task of dramatically improving the onboarding experience for our new customers. The initial part of the solution they devised was to use the most commonly installed app in Mexico, and that's WhatsApp. Thousands of prospective customers contact our call centre each week, whereas previously these leads were passed through a laborious process via the branch to the relevant Estrella, and Estrella is our agent, They are now forwarded in near real time to the Estrella's WhatsApp account. The Estrella then makes an appointment to see the customer and through a new web journey on their handheld device, the origination process is performed digitally, including the verification of official documents and the capture of a digital signature. Once the credit has been approved and the document signed electronically, The customer is provided with a payment order or a code which allows them to go to a cash machine or to the bank to get their cash. As a result of this innovation and clever use of technology, our time to yes, and that's the amount of time it takes us to give a credit approval, has been reduced from 50 to 15 minutes and our time to cash from 36 hours down to 16 hours. Now clearly our customer is much more satisfied and we reduce the amount of physical cash in the business and the related costs. And the third of the three pillars, the building blocks in our strategy is all about distribution. Now, as I mentioned earlier, there is a huge need for financial inclusion in Mexico, with fully two-thirds of the population not effectively banked. Today, we have coverage for approximately 27.7 million of these consumers, and we are executing on a strategy to increase this coverage by over 50% to 43.3 million. The first step is what we call near extension, expanding our reach to within 10 kilometres of our existing footprint to the largest towns and cities in these areas. Now that brings in an additional 7.7 million consumers who will need our services. Our secondary step is the 10 to 30 kilometre range with a target population of 2.4 million. And then finally we have branch expansion where we are outside of this range and new branches will be required. The most recent example of this is Tijuana, next to the U.S. border, where we opened a branch in July of last year, and that is now up and running successfully. Our next target is Tampico, which is due to open in the next few weeks. This final geographic segment brings an additional 5.5 million consumers who we aim to provide our services to. Now this strategy is well thought through, it's incremental in nature and it builds on our existing infrastructure and new branches are only required for the larger conurbations that are more than 30 kilometres from our existing base. Post-COVID, we have already rebuilt our Mexico home credit business to be more than 700,000 customers. And our digital business in Mexico will soon be approaching 100,000. So the path to serving 1 million customers in Mexico is pretty clear. Now, those are just a few examples of our strategy in action, and I hope they clearly demonstrate how we're changing the business. If we look at this slide here, and if you look at the timeline, you can see how much the business has evolved in the last few years, and how our product offerings and distribution continually change to meet the changing needs of our customers. We're currently working on the next iteration of our strategy with a view to creating a more data-driven, technology-enabled 21st century provider of financial services for the underbanked and underserved. Our medium-term goal is to serve 2.5 million customers with a full suite of finance and insurance services. Now, obviously our core driver in all of this is the promotion of financial inclusion and demonstrating that we are true to our purpose in how we do business. Although we leave a very small environmental footprint, we do take our obligations seriously. And in our annual report this year, you will see the progress we have made in this respect. Where I believe we can make the biggest impact, however, is in our role in society, both internally and externally. We are committed to providing development opportunities for all of our colleagues, including our customer representatives. And to that end, we have worked with LinkedIn to provide personal development plans for all of our people. Our Global Invisibles programme, which seeks to highlight the difficulties experienced by those marginalised in society, has already won awards and is now supported by NGOs and politicians as a unique way of creating a fairer society. And finally, I just wanted to finish this slide by mentioning that together with our colleagues in Poland, we are very proud to have provided a safe house for mothers and children displaced by the war in Ukraine. And those are just a few examples of what we do every day to help in society. So with that as our backdrop, let me hand you over now to Gary to take us through our results for 2022. Thank you, Gary. Thank you.

Thank you Gerard and hello everybody. As Gerard has just set out, we performed very well in 2022 and I'm pleased to say that we've also started 2023 in a similar vein. Before I go into the financials, I'd like to update you on our financial model which underpins both our strategy and our purpose. Our financial model sets out the target returns we need to support our dividend policy, fund our growth and ensure the balance sheet remains secure both in good times and more difficult times too. Following the clarity of the new lower total cost of credit cap in Poland towards the end of last year, we have made three enhancements or clarifications to the model. The first is to make it clear that we measure the returns of each business on the return on required equity or RORE. We define required equity as 40% of receivables rather than the actual equity in each business. This allows us to ensure comparability between divisions and is fully consistent with the financial model which is predicated on a 40% equity to receivables ratio. We will disclose ROE on a group basis as well to show the returns that we would be delivering if our capital base was in line with our target. However, we will also continue to disclose our ROE for the group based on the actual capital base. Our second enhancement is to clarify our returns range. You'll remember that at the interim results, our target was to deliver return on equity of 15% plus. We've extended this range to 15% to 20%, with 15% being a short-term target as we transition Poland to the lower rate cap I just mentioned, and 20% being our medium-term objective. And our third change is to the payout ratio, which we had previously set out as between 35% and 40%. We've now firmed up this payout ratio to be a minimum of 40%, and there are two reasons behind this. Firstly, in the short term, our payout ratio is likely to continue to exceed 40% of our earnings, given that our returns are not yet at the minimum target level of 15% due to the impact of both COVID-19 and the lower Polish TCC cap. And secondly, extending our returns range to between 15% and 20%. fully supports a payout ratio of 40% while still maintaining the growth and balance sheet aspects of the financial model. An ROE of 15% allows a 40% payout to shareholders, growth in receivables of up to 10%, which allows the balance sheet to be maintained in a robust position, which in turn should lead to 10% growth in dividends and so on. It is, in effect, a virtuous circle as shown on the slide. Now, all the investment decisions we make at IPF, whether it be capital expenditure or Changes to products or promotional activity are based on this financial model and must be capable of delivering a return of 20%. We support delivery of the financial model with a rigorous focus on revenue yield, impairment rate and cost-income ratio, which I will cover shortly. And before I leave this slide, We believe that our financial model is wholly consistent with our purpose of creating a better world through financial inclusion, and we are of the view that returns materially higher than 20% would not appropriately balance the needs of all our stakeholders. On to lending. As Gerard highlighted earlier, we are delighted to report that we saw strong customer lending growth in 2022. Customer lending grew by 14% with all three of our divisions showing double digit growth. European Home Credit delivered 10% lending growth in the year despite a weak first quarter due to the combined impact of COVID-19 and the onset of the Ukraine war affecting both customers and also our colleagues. Indeed, you may remember that we actually saw a small contraction of 2% in customer lending in Q1. However, since then, we have seen a steady improvement in demand and lending during the remaining three quarters of 2022 increased by 13% year on year, reflecting an excellent operational performance from all of our colleagues. This growth, importantly, was delivered against tight credit standards. And indeed, as Gerard mentioned, we further tightened credit settings in most of our markets in the fourth quarter as a precautionary measure due to the rising cost of living. And we will continue to monitor performance very carefully and will maintain our cautious approach into 2023. Mexico Home Credit delivered another very impressive performance with customer lending growth of 17% in line with our second half guidance as we continue to expand our customer representative network with the opening of 660 new agencies in the year. Mexico continues to offer us significant potential And as well as launching a new region in the Northwest in 2022, we are also planning to open a new region in Tampico in the first quarter of 2023. We expect lending growth for 2023 to be closer to our financial model, so around 10%, as the business has now recovered from COVID-19 and is operating at a more BAU level of growth. IPS Digital also delivered very strong lending growth of 22% for 2022, a little ahead, actually, of our guidance at the interim. There were outstanding performances all around, with Mexico growing at 67%, Australia 36%, Poland 26%, and the Baltics combined at 22%. The new mobile wallet continues to gain traction and is now available in all three Baltic countries and we will be introducing it to customers in Mexico this year. Similar to Mexico Home Credit, we expect growth for IPF Digital in 2023 to be at the top end of our financial model. Now on to receivables. The growth in lending has resulted in a 14% increase in closing net receivables to 869 million, with all three divisions coincidentally delivering 14% growth. This strong growth has been delivered despite a 12 million reduction from the collect-outs of the Finland and Spain receivables books, both of which are progressing well and ahead of our expectations. Excluding these collect outs, group receivable growth was 16% as we executed well on the strategy to regrow the business post pandemic. The strong growth in receivables during 2022 is higher than our target financial model growth of up to 10% and is being funded through our capital resources, which are above target levels. And I will come back to this later. You can see on the chart that our current receivable book has recovered significantly since the impacts of the pandemic and is now around 100 million less than the 1 billion book we reported at the end of 2019. In fact, we added nearly 100 million of receivables in the second half of 2022 alone. It's also worth noting that part of the shortfall compared with 2019 is due to our overall higher provision coverage ratio of 36.4% at the end of December, compared with the pre-pandemic level of 33.5% in 2019. This roughly equates to 40 million of additional provisions, despite the tighter credit standards we are using now. So a really robust position. And finally, on receivables, we communicated that we expect Polish receivables of around 280 million at the end of 2022. to reduce by approximately 25% in 2023, as we transition the Polish home credit and digital businesses to the new lower TCC cap before substantially recovering through 2024. As a result, we expect overall group receivable growth in 2023 to be relatively modest. So on to the key KPIs. The group's revenue yield increased from 48.1% to 51.9% in 2022. The revenue yield in Mexico Home Credit increased from 82% to 88%, and it has now returned to a more normalised level. This follows an artificially low yield during the COVID-19 period due to more customers missing payments, which resulted in more aged accounts on which revenue was no longer being recognised. The yield in European home credit also strengthened from 40.2% to 42.5%. This in part reflects the wash through of COVID-19 impacts similar to Mexico, but also the implementation of a number of actions to bolster the yield, including some small price increases, where permitted, as well as a reduction in promotional activity. These beneficial impacts of the yield were partly offset by the impact of changes in rebates in Poland announced in 2020. This means that we refund more of the service charge back to customers when they repay their loans early. And this impacted revenue by around £12 million in 2022. IPF digital yields saw a modest reduction from 46.4% to 45.4%. This is due to a combination of factors, including a tighter rate cap in Latvia, the reduction in higher yield in Finland receivables during the collect-out, and increased competition leading to yield pressure in Lithuania. These adverse impacts have been partly offset by the growth in Mexico, which has a higher revenue yield. We expect the group's revenue yield to increase to within our target range of 53% to 56% in the medium term, as Mexico Home Credit grows to represent a larger proportion of the group's receivable book and yields continue to stabilise post-COVID-19. Now on to impairment. You will recall that the group's 2021 results benefited by 32 million from the release of COVID-19 impairment provisions. Excluding these releases, the impairment rate in 2021 would have been 7.7 compared with a reported rate of 4.9%. As a result, on an underlying basis, the overall annualised group impairment rate has only modestly increased from 7.7% to 8.6%, notwithstanding the very strong level of receivables growth, which typically increases impairment. Credit quality and the rate of customer repayments have been very strong in all markets. In addition, in 2022, we've also seen a benefit of approximately £15 million from an uplift in debt sale activity to more normal levels following lower activity during the pandemic, as well as a strong performance from our centralised post-charge-off recovery activities. In very broad terms, the benefit from this activity has offset the additional cost of rebates in Poland I just talked about. And finally, we expect the impairment rate to rise to between 14% and 16% over time as we serve more new customers and Mexico, which has a higher impairment rate, becomes a larger proportion of the group. Our cost to income ratio has shown a significant improvement from 67.6% to 60.9%. This is due to both growth in lending and continued tight cost control. We have a stringent focus on costs as we mitigate both the inflationary environment and an increased cost of funding. We're delivering process improvements through the deployment of technology And we will also seek to identify structural savings to make the group more cost efficient. As a result of our actions, and as the loan book continues to grow, we expect our cost income ratio to move into a range of between 52% and 54%, similar to the level in 2019. And indeed, we want to reduce the cost income ratio below this level in due course. The group delivered reported profit growth of 14% to 77.4 million. However, after excluding the COVID-19 provision releases of 32 million that I just spoke about, underlying profit growth was an impressive 117%. The very good performance reflects strong operational execution, robust customer repayments and a strong focus on cost efficiency, despite the macroeconomic backdrop and a 10 million increase in our funding costs from a higher funding rate. Our pre-exception EPS increased by 10.6% to 20.8 pence. The EPS calculation in 2022 is stated before the impact of an exceptional tax credit of 11 million, as I explained in some detail at the interim results. The underlying tax rate in 2022, excluding the credit, was 40%, up from 38% last year, and the increase is mainly due to more normalised levels of impairment in Poland, where we only get a very small bad debt deduction. As Gerard mentioned earlier, the Board has proposed a final dividend of 6.5 pence per share. Together with the interim dividend of 2.7 pence, this represents a full-year dividend of 9.2 pence per share and shows year-on-year growth of 15%. The dividend is fully supported by our strong performance in 2022, the positive start to 2023 a strong balance sheet and the board's confidence on the group's future prospects. The dividend represents payout ratio 44% on pre-exception earnings, which is above our minimum target of 40%. As I mentioned earlier, we expect to maintain a progressive dividend and pay above our target level over the next two years as we transition the Polish business to the new lower TCC cap and rebuild the group's returns above 15%. Now on to returns. On this slide, you can see four charts showing the development of returns at a group level and for each of our three divisions. The solid green lines are the return on required equity, i.e. at 40% of receivables. The dotted lines are ROE, excluding the benefit of COVID-19 provision releases in 2021. And you can see on the blue line on the group chart is showing the return on actual equity, so ROE. For group, you can see that our pre-exceptional RORE at 14.6% in 2022 is very close to the lower end of our target threshold. And excluding 2021 COVID-19 provision releases has increased from actually 8% last year. Our ROE, based on our current level of capital, is 11.5% in 2022, slightly up from 11.4% last year, which did benefit, as we've just said, from COVID-19 provision releases. We expect our group returns to moderate in 2023 as we transition the Polish business to the new lower TCC. And as you may recall, in our Q3 trading update, we indicated that we expect group profit in 2023 and 2024 to be up to 20 million lower than market expectations at that time. So we expect profit and therefore returns to reduce this year before rebuilding in 2024 with the aim of reaching our target returns in 2025 for the group as a whole. You can see that both European Home Credit with an RORE of 21.3% and Mexico Home Credit with an RORE of 19.2% are both delivering returns around the 20% level that we target our divisions to deliver. We expect Europe's returns to moderate a little in 2023 due to the lower rate cap I've just mentioned, whilst we would expect Mexico's to strengthen as we continue to build more scale. Very importantly, in Mexico, we are delivering strong growth whilst delivering our target returns, reflecting the relatively shallow J curve of opening new territories. IPF Digital's RORE in 2022 was 6.9%, up from 4.3% after adjusting for the release of the COVID-19 provisions in 2021. The impacts of COVID-19, the IFRS 9 drag of strong growth and the closures of Finland and Spain mean that IPF Digital is not currently delivering our target returns. However, we see continued strong organic growth opportunities in our existing markets, particularly Mexico and Australia, to deliver further scale and increase returns to our target levels in the medium term. And we will also continue to consider inorganic opportunities to reach our target returns in a shorter timeframe. So now on to funding and capital. At the end of the year, we have debt facilities of £611 million, comprising £490 million of bonds and £192 million of bank facilities. I am very pleased to say that we have successfully extended £169 million of bank facilities during 2022, despite the difficult market backdrop. In addition, in December, we refinanced part of the 78 million sterling retail bonds maturing in December 2023, one year in advance of maturity, which is consistent with our normal renewal practice. The new bonds have a maturity of December 2027 and carry a coupon of 12%. This coupon compares with the existing sterling bond, which carries a rate of 7.75%. The increase in rate being reflected of the rise in UK gilt prices and the ITRAX crossover rate. In total, we issued 40 million of new bonds with a further 10 million returned in Treasury. And we have started to issue the retained bonds to the market with the first tranche being issued in January and a second tranche being issued in February. So very pleasing. Our strong in-country bank relationships and our access to debt capital markets remain the bedrock of our plans but we continue to seek to further opportunities to diversify our funding. Our average period of maturity is two and a half years with the next major maturity being the residual 38 million retail bond maturing in December 2023. Our additional funding requirement in 2023 is not significant due to the expected contraction in Polish receivables. As a result, our current funding headroom of £76 million is sufficient to fund our business plans into 2024. Our funding rate in 2022 was 13.3%, up from 11.3% last year. And as I'm sure you're aware, the increase reflects increased interest rates across our markets, as well as the cost of hedging due to interest rate differentials between sterling, the euro and the foreign currencies of each of our countries. We have a strong capital position, as I mentioned early, with an equity to receivables ratio of 51%, above our target of 40%, and also in line with last year. The capital base has not reduced as expected during 2022 due to a £42 million gain on retranslation of opening net assets, which has been taken to reserves. Excluding this gain, our equity to receivables ratio would have reduced 48%. Now we are holding the additional capital above our target in order to firstly fund the rebuilding of the receivables book following COVID-19. Secondly, build our group returns up to the minimum target level of 15%. And thirdly, maintain our progressive dividend policy. So to round up, we've delivered strong lending and receivables growth in 2022. Credit quality remains very good. Costs continue to be tightly controlled and we have a robust funding and capital position to support our business plans. On that note, I will now hand back to Gerard to take you through the outlook.

Thanks Gerard. Thank you Gary. Okay, so we just heard from Gary there all about what I would say is a really solid set of results and the strength of our balance sheet. So time now to go and look forward, if we can, to the outlook. Now, the first thing is to say that for those of you who know our business and the consumers that we serve, you will know that there is always significant demand for credit out there. It's our job to decide who we should provide that credit to based on our consumers and our customers' ability to repay. So we do that very sensibly, and that's obviously reflected in the portfolio quality and customer repayment behavior. As for 2023, we're actually off to a very good start. So we've got January and February under our belt now, and I can tell you that all three business divisions have had a good start to the year. The other thing to say is that we have seen no change in customer repayment behaviour, despite the known impacts of high inflation on their disposable incomes. So portfolio quality continues to be very good and customer repayment behaviour very strong. So where do we go from here? What should you expect from us as we look to 2023? Well, the first thing is Poland and the credit card. Now, clearly, and I referenced this earlier, it is a huge undertaking for us to transition our business from fully installment loan lending to a big credit card operation and to do so through an agent population that themselves probably haven't used credit cards in the main and equally to a customer population who haven't used credit cards that much either. But early indications, I can tell you, are very positive. So as of the day before yesterday, we reached the 10,000 card milestone. Now, out of our total population, it doesn't sound very much. But if you know us well, you'll know that we do things in a very measured way. And I can tell you against all of the metrics that we've planned, we're feeling quite positive about the initial stages of the rollout. So a lot of work yet to do there in Poland, but feeling good about the start that we're off to. Then the next part is about expansion in Mexico, and I'm due to go out there again to see David and his team in a few weeks' time, and I'll be going to, I think, Tampico and some of the new areas that we've opened up. Really, this is a country with a huge opportunity for us. There are just so many consumers there who desperately need credit for whom the banks have no interest, but that's where we play, and we play very, very well. So big, big opportunities for us, and we will continue that expansion at a measured rate in 2023. So you're not really going to see very much impact in the P&L in terms of the cost of that, because it should be offset by the incremental portfolio that we're building and the income that comes off of that. Then our third division, IPF Digital. Well, clearly, we think this is an outstanding business with great opportunities. It's clearly built around revolving credit and our mobile wallet. But we do need to rebuild scale because we've taken two very good businesses, Finland and Spain, and we're collecting those out. So our focus in IPF Digital is about getting back to scale. And finally, on costs, and Gary mentioned that just before he finished, I think Gary described it as a stringent control of costs. And that's what we're about. And as we go through 23, we will be looking at all of our processes, where we invest our money, our organization structure, with a view to saying, can we be more efficient? Because this is a very competitive environment that we're working in. Clearly, our cost of funds have gone up. We have in many countries caps that we are limited by. And so in order to enhance the return to our shareholders, we need to become more efficient internally. And we are very, very focused on that. Now, for the receivables portfolio for 23, as Gary said, you should expect more modest growth because of what's happening in Poland. So, you know, the installment book is going to run off and the credit card book is going to build up. But we're going to do it at a pace that we feel comfortable with, given that this is such a new product. So portfolio growth, modest, but equally requirements for additional financing then also modest. And then finally, as we get through 23 into 24, we will be very focused on building back the returns of the business. We know what we expect the hit to be in Poland in 23 and in 24, and our view is to get back to full returns, so our targeted returns by 2025. So in all, a very good set of results for 22, a really solid start to 23, and plenty of opportunities for us to continue and build out this business, a business that has such a positive purpose about it. So with that now, we're going to go to questions. And as I advise Gary and Rachel to come up here to join me for that session, let me just say a huge thank you to all of my colleagues around the organization. We have an employee population of about five and a half thousand and we have about 17,000 agents. And to all of you, I would just like to say a huge thank you for your dedication to our business and to our customers. The work you do every day is absolutely outstanding. Thank you. So with that now, let me go to questions. So guys, if you want to come up and join me and we'll do that.

Good morning, everybody. So we've got quite a few questions this morning. I'll start with one around competition in Poland. Gerard, have the competitors changed their product offering in Poland since the change in regulations?

Yes is the short answer, but it varies by scale of business. So what we're seeing in particular is that the smaller competitors are really struggling because it takes a huge amount of work to do what we've done. It takes a very strong balance sheet, but actually it takes a fantastic leadership team, which is what we have in Poland. So a lot of the smaller players are having difficulties. And even this week, when I was talking to our leadership team over there in Poland, they were telling me about a larger digital player that's just announced that they're leaving the market. Now, at the very top end of the market, the biggest players, I think they will continue to play there. So it will be a competitive market. But I think we'll see fewer people participating as we go forward.

Okay, and now on to IPF Digital. Given the scalability inherent in the business, what is the appropriate growth rate for that division?

Probably, as I mentioned earlier, probably around top end of our financial model. So you're looking at double digits, 10%, that sort of growth. The business has got into more BAU now, post-COVID, and like Mexico, that's the sort of growth rate we'd expect from those two businesses.

Okay, and the final question from Stuart Duncan at Peelhunt. At what point would you expect impairments in European home credit to revert back to something more normal?

Yeah, we probably expect to be more 2024 onwards. I think next year, obviously at the moment we're seeing quite low impairment rates as we, A, credit quality is excellent, but B, as we come out of Covid. So I think for next year, given that we'll see some shrinkage in the Polish receivables book, as we all know, that sort of releases a little bit of provision. And then you get the opposite when you start to grow. So through 2024 into 2025, we would expect Europe to be, you know, we're looking at something high single digits to 10, 11. That would be the range we'd be looking for for Europe. But that will be 2024.

Okay, thank you. We've had a number of investors asking about refinancing plans, so specifically refinancing plans for the Eurobond 2025. And also, can you remind investors about how often you meet rating agents?

We look to refinance a year in advance, so it's not something we'll look to do until 2024 in reality. So that's on the Eurobond, and as I mentioned earlier, the refinancing that we've got to do this year, just the normal routine bank facilities, and obviously the retail bond, the stub of it, which is due in December. And actually, we've refinanced some bank facilities even yesterday, so that's going really well. In terms of rating agencies, Fitch reaffirmed their rate in October. Moody's was November. We regularly talk to the rating agencies, as you may imagine. We're actually meeting them after the results. I think from our perspective, you know, what's important in that is our strong cash generation. And you've seen that, you know, with the three very good examples of how this business generates cash. Firstly, in COVID, where receivables, we reduced receivables by 300 million. That we paid 190 million of borrowings and generated 80 million of cash. So extremely strong cash generation. Secondly, Finland, which we're actually collecting out, as we said. I think the receivables book was 30 million when we closed it. We've collected net of cost 30 million of cash. So from a debt perspective, which we fund 60%, you've more than paid off the debt. And the same with Slovakia, when the home credit business, when we closed that business back in 2015-16, again, we pretty much collected the whole of the receivables book net of cost. So From our perspective, this business generates cash, which is a very strong position to be in.

And the other thing is that people are very focused on the refi of the bonds. But actually, we have a whole string of really fantastic relationships with banks in each of our countries. And I think we extended 160 or 170 million in 2022. So people shouldn't forget that we actually have multiple other sources of funding as well.

Okay, a couple of questions around new markets, probably one for you Gerard. Do you plan to enter any new markets and one here specifically around the UK market?

Well let me deal with the UK. I think the UK is a difficult market for any player in our sector at the moment and has been for a number of years and the outcome of that now is that most of those players are exiting. The really unfortunate thing is that the demand from the consumers for credit will continue to exist. The question is how are they going to avail of facilities when most of the key players are exiting. So would I want to go into that market? As attractive as it sounds to get into a market that doesn't have many competitors, actually I don't believe that the regulatory setup is conducive to having a business that can be robust, transparent and still make a return for its shareholders because unfortunately I think regulators in the UK are very apt to rethink policy and then apply it retrospectively and we don't see that in our market. I'd be quite reluctant to get into a market like that, albeit that there is a genuine demand for that credit here. As for our other markets, well, you know, our focus in 22 and 23 and into 24 with Poland and the credit card is to rebuild the scale of the business post-government. I think we're doing that really well. ...to any big M&A or new countries in 23. Although we did say in the statement that, you know, where digital is concerned, we think there may be some inorganic opportunities, as I think we described it. And that's because, as I said earlier, a reference to Poland, we see a number of players exiting these markets. And to the extent that we were to see a player exiting a market where it was complimentary for us and give us... either new distribution, new product or new technology that we didn't already have. And if it fitted with our ethos in terms of how we do business, we would certainly look at that. So in the short term, people shouldn't be expecting new countries, but we are open to opportunities.

Okay. So a couple of questions here from Gary Greenwood at Shore Capital. Your surplus equity position is significant when compared to the 40% equity to receivables target. If financial markets improve and you can raise more debt funding at a sensible price, would you be minded to retire a larger chunk of equity in one go via a special dividend or a buyback, or would you look to accelerate growth in the business or through M&A? Yeah.

It would really depend on the returns we could deliver. As we've said today, we target 20% for anything we do and it would be guided simply by that 20%. If it was growth, we'd do that. If it may be an acquisition, we'd do that. But equally, if we didn't feel we could deliver 20% through growth and buying back shares and the return on buying back shares was the optimum thing to do, we'd do that.

Okay. And Gary, second question, what tax rates should we assume going forward so we can work out forecast RORE?

Yeah, pretty much 40% is a good guide. It can vary up and down, but 40 is what I would assume going forward.

OK. And sticking with returns, when you're talking about hitting target returns in 2025, are you referring to return on required equity or ROE?

Both. So what we expect to see is obviously the jaws between our required equity and actual equity start to close. I mean, we'd expect to still be holding additional capital above 40 before we hit our target returns. But our target or our aim is to get both ROE on a group basis and then RORE for each of our divisions and the group as a whole in our target range in 2025.

And then when we do that, even then by anybody's measure to have 40% equity to receivables is still a very conservatively set balance sheet. So I think we'd be very comfortable with that.

Okay. One on the new credit card offering in Poland. You talked about the fact that some customers haven't used credit cards before. So what steps are you taking to educate customers and your agents on credit versus installment loans?

So this one now is really interesting because if you imagine you have a business that's been established for a quarter of a century and it's sold to product A and then you come along and you say, well, I'd now like to sell product B and I'd like product B to be a really big part of my offering. And that's what we're having to do. So the first thing we've had to do, well, our team in Poland have done an excellent job of is to train our agents. So basically take them through all the facets of the credit card and how it works. And in particular, why it's good for the customer. Because our agents ask us, why should I sell this to my customer? If they're used to dealing with an installment loan, why is a credit card better for them? So a good part of that education is about the facets of a credit card that are helpful to a customer. So, you know, protection when you shop. So if the goods aren't fit for purpose, you can claim on the card, you know, the ability to get better prices on the card. So a lot of it is about that education. And then having done that, the agents now seem to be doing a really good job of actually being out there and explaining all of that to our customers. And so I was talking to somebody yesterday and explaining that we've been particularly pleased and I know this is only two months old now, but we've been particularly pleased. with the fact that a lot of our customers who are taking up the card are actually transacting on it. Because to some extent we thought, well, perhaps what they'll do is they'll take the balance on the card, they'll use the cash, and then they won't use the card again. In fact, what we're finding is they're really interested to understand how this card works, and they've started to transact both online, but in particular in retail outlets, which we think is fantastic. And then the other thing, and this is particularly important for our customers, is we are explaining to them that we are very, very minded that they don't get themselves into perennial debt, so that the balance is always outstanding, because that is quite unnerving for people. So our stipulation is that every time you draw down on the card, that effectively needs to be repaid over the next 12 months. So you don't have a debt that's outstanding for five years to forever. Actually, each time you use the card, you know that that will be repaid over the following 12 months at a maximum. So a lot of work gone into it and I have to give loads of praise to my team in Poland for this. Really fantastic process in terms of educating the agents so that they can sell effectively to the customers. And early results, really pleasing.

Great. I think we just have one final question. And actually, it's just to quantify the amount of the sterling retail bond that we secured late last year.

Well, we raised 40 million last year. We held 10 million in Treasury. Really pleased to see that we've actually placed around 3 million, 3.3 million of that bond. this year, pretty much at par. And as I mentioned earlier, we've started our normal routine bank refinancing pretty early in the year. And as we talked about today, the refinancing or the funding requirement of the group through 2023 is pretty low given what's happening in Poland. And so the balance sheet's in really good shape. We've got good headroom that lasts us right through to the second quarter of 24. But clearly, we're still active. We're still looking to diversify funding based on the strong characteristics of this business.

Great. And I hope we can close the questions. We've had nothing through the last couple of seconds.

Thank you. Thank you to everybody for joining the call. This was obviously going to be up on the website after this webcast. So if your colleagues haven't managed to catch it live, it's going to be up there soon.

Yeah, within a couple of hours.

Within a couple of hours. Great. So from us, thank you to everybody who joined. A really solid set of results. At our end, we are really happy with the businesses progressing. We've had a good start to 23 and look forward to catching up with you again shortly. After this, Rachel, Gary and I get on the results roadshow. And if any of you are watching, if you're interested in catching up with us face-to-face, we're back in face-to-face mode, so we'd be happy to see you. But for now, thank you very much for joining. Thank you. Thank you.