International Personal Finance plc

Welcome to the International Personal Finance First Quarter Trading Update hosted by Gerard Ryan, Chief Executive Officer, and Gary Thompson, Chief Financial Officer. Please note this call is being recorded, and for the duration of the call, your lines will be on listen only. However, you will have the opportunity to ask questions, and this can be done by pressing star 1 on your telephone keypad to register your questions. If you require assistance at any point, please press star zero and you'll be connected to an operator. I will now hand it over to Gerard Ryan to begin today's conference. Please go ahead, sir.

Thank you, Priscilla. Good morning, everybody, and welcome to our Q1 trading update call. Today, as usual, I'm joined by Gary Thompson, our CFO, and today we will update you on performance in the first quarter of this year. I'd love to give you some additional color on what we're seeing in each of our divisions. And as you know, there'll be plenty of time for Q&A at the end. Now, hopefully you have a chance to read the statement we issued this morning. And in that, you will have seen that we got off to a very positive start to the year. All three divisions, so that's European Home Post, New Mexico Home Post, IPF Digital Office, performed very well. And we are trading ahead of our in-signal plan. My colleagues across the group are delivering on our strategy, and in meeting the continuing demands of credit from our customer segment, we delivered strong growth in customer lending of 15% year-on-year. European Home Credit and IPS Digital increased their year-on-year lending by 19% from 17% respectively, but it's worth noting that those results were against our relatively weak Q1 last year when demand in Europe was impacted by outbreaks of COVID and the beginning of the war in Ukraine. In Mexico, we increased customer lending year-on-year by 7%. And truthfully, we're actually very happy with that, given that the comparison of the Q1 of 2022 was 31%, that Mexico rebounded and the economy opened up post-COVID. The strong growth in customer lending resulted in 15% rise in closing net receivables to 883 million. And I'm particularly pleased that we increased our revenue yield by 1.5 percentage points in the quarter, 53.4%, so now we're within our target range of 53 to 56%. As a group, we're always very disciplined in our lending decisions to customers, and never more so than in difficult, even hard times, when we seek to protect our customers from over-indebtedness whilst maintaining our portfolio quality. Despite the increased cost of living for our customers, we haven't seen any discernible impact on their repayment behaviour, And together with our tight credit standard, credit quality remains good, and the annualized impairment rate was 10.5% at the end of the quarter. Of course, if we were to see deterioration in performance, we wouldn't hesitate to tighten credit standards to minimize any potential impairment impacts. Our previous actions in this area demonstrate that we can make required changes very quickly, and if we were to see improved, we can turn it back on again. A strong cost control focus continues to boost our efficiency, and in the quarter, I actually delivered a 2.1 percentage point improvement in our cost income ratio to 58.8%. In the mid, it is our investment in technology's drive productivity gains that is now paying off. And we're also examining the structural changes in the group might also deliver certain benefits. To complete the group picture, we continue to maintain a robust funding position and a well-capitalized fund sheet to support our goal conditions and deliver on our progressive dividend policy. We have 92 million headroom on underlying facilities and non-operational cash balances, and we expect our current funding capacity and strong cash generation to meet our funding requirements into 2024. Well, that's the clue picture, so now let me take you through a high-level overview of each of our exhibitions. European Home Credit has had a very good operational performance. We still see good customer demand, and as I mentioned earlier, growth in customer lending was very strong at 19% against Q1 last year. Closing customer receivables have reached just over half a billion pounds, or $503 billion, and that's at 15% year-on-year, and customer repayments remain strong over the period. A key focus in this division has been on the quality of life of our credit card operators and callers, following the introduction of a title rate cap in December of last year. This is progressing very well, with 20,000 cards now on issue and being used by our customers, who, as well as taking some of their credit-landing cash, are actually using their cards in ATMs online and in stores. Since we introduced credit cards in Q4 last year, we've taken a serious approach to the rollout, and today I'm pleased to confirm that all of our customer representatives and employees are now fully trained and we reached nationwide coverage across Poland in the first weeks of April. We will continue to take a test in many ways to ensure we fully understand our customers' experience with the card, and this will also support the introduction of new functionality as they become more familiar with the card. Although it is still very early days, we're very pleased with how the progress is next. Southern Africa and Mexico long-term business is also doing another very good operational performance. The Italian energy in Mexico we see that we've seen last week. And I spent time in Guadalajara, Guadalajara, and I also did a business operation in Pico. Actually, there's green energy and momentum in the business. And Mexico is now at the forefront of our efforts to introduce digital elements into the customer journey to improve the customer experience and their efficiency. And it will come with no surprise that there continues to be very strong demands for credit from our customer segments in Mexico. So we delivered a 7% year-on-year increase in customer lending against practice credit standards and a very strong quarter in Q1 2022. Customer numbers are also up, increasing 6% to $695,000, and closing net receivables grew by 12% to $169 million. So all in all, a very strong quarter. Let me go to ITF Digital. We continue to deliver a very positive growth momentum to gain scale and deliver on time . And we delivered a significant increase in lending growth to 17% year-on-year, against a weaker competitor for the reasons I mentioned earlier in the call. Mexico and Australia continue to outperform in terms of growth in lending, including net receivables and this now is excluding Finland and Spain, where our collectives are progressing very well. Customer numbers grew by 4% to 234,000. I should probably mention here that our digital business will be the focus of another of our webinars for investors and analysts on high stage on 10th of May, when panelists and colleagues of others meet up at the digital health panel and will provide a live webcast on talent in Estonia. Presentation will cover details on the customer research, key market trends, our technology, and how ITS is successfully executing on its strategy to realize future growth and returns. I hope you get the opportunity to join us for that session. It does seem like the webcast we did recently on the next part with the investors. So before we move on to Q&A, let me summarize our first four performance and what this means for the address for Q&A. Demand for credit is good, and we are continuing to support our customers with affordable credit and insurances in line with our purpose to build a better world through financial inclusion. All three divisions performed very well in Q1, and each delivered three levels of customer learning growth, which was particularly good in the case of expectations. This very fifth time of the year underpinned our confidence in our strategy, All right, thank you.

Ladies and gentlemen, If you would like to ask a question or make a contribution on today's call, please press star one on your telephone keypad. We'll pause just for a moment to allow everyone an opportunity to signal for questions. We'll take our first question from Stuart Duncan from Peel Hunt. Please go ahead. Your line is open.

Thank you. Good morning, all. I've got two questions, if that's okay. First one is on customer repayment behavior, and it's obviously encouraging. You've not seen any discernible impact there yet. I just wondered if you could give a little bit more detail or sort of thought around how customers are actually managing the inflationary pressures that we're all seeing. What are they doing differently or how are they managing that pressure just now? And the second question is on the cost to income ratio. And you sort of touched, or Gerard, you sort of touched on the potential for some structural changes. I'm not sure if there's anything else you want to say around that just now, but if there is, that'd be great. And whether that could potentially have any impact on the 52 to 54% target ratio for costs going forward. Thanks.

Good point, Gerard. So let me take your question and then move on. On the cost, yes, we mentioned structural changes, but too early. What we're doing is we're looking at how we as a group are organized. We need to see whether or not there's a more optimal structure for that internally. There's very early days on that, but we're looking at every facet of the business to see whether or not we can squeeze more cost out of the business. At this stage, I'd say Gary and I are very pleased with the progress we've made in the quarter. We do have a target range. We're heading in the right direction for that. So I do comply to want to move the target range so early. I think if we continue on this momentum, we'll be feeling pretty good about it. But we will come back in due course about this structural change if it comes to anything. It's just too early to say yes. As for the customers, I have to admit to everybody on the call, it is a surprise to us. but we've seen no impact on customers. It is a surprise because when you look at our customer segments, they do spend a disproportionate amount of their available income on what you would call essentials, so power, heat, light, transport, all of the things. And all of those things have really engaged with very high double-digit inflation. And we've seen inflation in some of our countries even north of 50%. So our fundamental reason was that it must somehow be impacting customers, and it just hasn't translated into them reducing their repayment to us, which I think is a testament to the sense of the relationship between the customer representative and our customers, but also the fact that we are very understanding, you know, our customers I would say performed very, very well. Now, I can't guarantee that it's going to continue that way because it must be . But we're now probably six or nine months into this higher and stationary period, and things are still going well.

Okay. That's great. Thank you very much.

Thank you. We'll move on to our next participant, Kim Borgoa from . Please go ahead. Your line is open.

Morning. Just one question for me, if I may. I'd like to hear your thoughts on the competitive landscape that across geographies. What sort of, if there's any impact on that from changing macro trends and the banking turmoil, for instance, but also regulation. So if you could touch a little bit about how you see that competitive landscape evolving.

Sure. Good morning, John. Well, on the competitive landscape, what we see is that people's appetite for risk has reduced somewhat, and that's not pretty unexpected, I think. The concerns that we deal with in our space, and we're not going head-to-head with the facts, so you understand that, so we're dealing with some of the smaller players, and many of them, I think, are struggling with high costs of finance, and in fact, some of them are refinancing. you know, we've got a very strong balance sheet and we're financed well into 2024, so we're comfortable in that respect. What we are seeing is, you know, with some of them struggling, the thing that the whole finance pay later sector is struggling in particular, and we've had a number of approaches from finance pay later competitors, I would say, but for example, asking us if we'd be willing to finance some of their kind of white label basis. We haven't done that, but it's been interesting to hear the conversation. And so I would say there's plenty of competition in our space, and certainly some people are showing signs of finding it more difficult than it might have been in the past. On regulation, regulation is relatively quiet at the moment. You know, we have the new regulation in Poland. We all have our credit cards there. We have the affordability rules that come in on the 18th of May in Poland, and that's the thing that's the biggest impact for us in Poland, so we're preparing for that. On the credit cards, on the productive regulation, on the credit cards, you know, we've issued 20,000 cards, probably more than 24,000, 25,000 by this stage. And we're actually very comfortable with that pace because this is really, it's a very significant change for us. for our customer residences and for our customers. And so we are incredibly concerned to be selling in the right way. So not rushing, putting it out there at the pace that's appropriate for us to make sure that we can demonstrate that we're selling effectively and in the context of all the regulations. But also in a way that it aligns well with the customers and they get a chance to understand the product. So you will see those numbers ramp up as we go That's the main piece of regulation in court. Obviously, we're waiting for the new CCB, the updated CCB consumer credit director to come through. We don't think they're going to really be surprised in advance. Potentially, we might see a bit of regulation in Romania, but it's not on the trails now for probably two and a half years, and we're waiting for that. So, regulation in the name, I would say, needs to be quietened.

Great. Thank you very much.

Thank you. Once again, ladies and gentlemen, if you would like to ask a question, please press star one. We'll move on to our next participant, Dave Stoms from Stonegate Capital Markets. Please go ahead. Your line is open.

Thank you, and good morning. As you're expanding into new regions in Mexico, what has been kind of a historic pace of market penetration there, and How does that pace inform the expansion strategy?

Do you mind just repeating that question, please?

Yeah, absolutely. With the new regions in Mexico, what's kind of been the pace of market penetration there, specifically in, like, Tijuana? And then how does that pacing inform expansion into, you know, the new region of Tampico and beyond?

Okay. So what we do when we open new branches in Mexico is that before we ever get to opening the physical branch, we do a lot of research, as you would expect, in terms of our target customer segment, if there are competitors there, and if there are either being successful, whether we think we'll be able to recruit the right staff. So we did open up in Tijuana last year, and Gary was with me last week, and Gary went to And so what we do is we go in, we open up a branch. We obviously have management ready to go in there. We start recruiting at what you would expect would be our agents level, so we call them Australia's, and we recruit our managers. But we do it on a very paced basis because the thing about opening a new region is you have to be sure that the people you bring in, so the first cohort of employees and agents you bring in, you absolutely have to drill, and I mean drill, you have to drill the process as to how we do business, how we sell correctly, how we go out and we collect fairly from the customer and all that. And so the initial stages of opening up a new branch are actually quite slow because once you establish the correct process, you can then let that process grow. But if you get up to the wrong foot on that initial stage, you can be in trouble. So when you look at, let's say, Tijuana now, we probably have 1,000 and a half, 1,500 customers or something like that. And people might look at it and go, gosh, that's quite slow. But that's very deliberate. Once we're comfortable then that we've established all those baseline processes, we have the right people in place, then we start to grow much more rapidly. And it would be the same in Tampico. So when I went to Tampico, we literally would have a few hundred customers. But what I was really interested in doing was meeting our initial cohort of employees in Australia and just testing and seeing that we're comfortable with getting the right caliber of people into the business. And the other thing we do is we always look at, like I said, the target customer segment, how many customers we think we can eventually have, and then we set ourselves a plan for achieving that target. But it's a multi-year target. So, it's very close. Yeah.

Hi, Dave. I'll probably add into that. I mean, what's important to us, exactly as Gerard said, is the measured pace of that growth. And what that actually brings is a relatively shallow J-curve. So whenever we go into a new territory, the losses in those territories are relatively low. You know, you're talking small single digits, very small single digits. And that's really important in terms of, you know, whilst Mexico is a growth bid, they can grow really nicely, it is still delivering our target returns. You know, we ensure that those that, you know, as I said, that J curve is relatively shallow. It takes about three years for the region to be profitable, but the losses that were taken there because of that very phased approach, because it measured a relatively low, which is obviously important in delivering our target return.

Very helpful. Thank you.

Thank you. Once again, if you would like to ask a question, please press star 1. Dear speakers, it appears there is no further questions at this time. I'd like to turn the conference back to you for any additional or closing remarks. Thank you.

Thank you, Priscilla. So, you know, on behalf of Gary and myself, I can say that we're very pleased with the first quarter. Good top line growth momentum. Nice to see the improvement in the yield on the portfolio because we've been working hard on that. Very good work on taking costs out of the business. And so, as you would expect, that should lead to an improved P&L. feeling good about customer demand, feeling very good about the rule out of the credit card in Poland. But as I said, it's very early days, and we want to make sure that we're learning everything we should be learning about how the customers use the card and what they want from it. But all in all, feeling good about the first quarter and carrying good momentum into quarter two and hopefully the second half. As always, thank you very much for joining. If you have further questions, you can always contact the dealer directly or through ways to go in investor relations. And we're happy to have bilateral calls if anybody would like to do that. So thank you very much, everybody. Have a good day.

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