International Personal Finance plc

Good morning, everyone, and welcome to our Q3 trading update call. As usual this morning, I'm joined by Gary Thompson, our CFO, and together we'll update you on our third quarter performance. I'd also like to give you some additional color on what we're seeing in each of our divisions, including the transformation of our Polish business and recent successes that we've had on funding. As usual, there'll be plenty of time at the end of the briefing for us to answer any questions you might have. Now, if you've had a chance to read our statements, you'll know that this year's very positive performance has continued into the third quarter across all our divisions, and we are trading ahead of our internal plans. This has been driven by excellent operational execution of our growth strategy, and for that, I'd like to say thank you to all of my colleagues whose hard work and dedication is the key to increasing financial inclusion for our customers, and that in turn delivers these results. There's strong demand for credit across our markets, and we are responsibly providing financial assistance to underbanked and underserved consumers with our broadening range of products, be that a home credit installment loan in Mexico or Romania, a digital credit line in the Baltics, a credit card in Poland, or one of our value added services, such as healthcare insurance or educational packages. Excluding our business in Poland, Servicing this strong demand resulted in the group delivering 11% growth in customer lending in the year to date. Now, the reason I excluded Poland is because we are transitioning our organization there to be a credit card focused business, as well as adapting to new affordability regulations that were introduced in May of this year. Adapting to these changes in Poland led to lending moderating in this market, and as a result, customer lending for the group as a whole reduced by 1% year on year. And I'll come back to Poland in more detail shortly. One of our key strategic objectives is to rebuild our portfolio, and I'm pleased to report another period of growth in closing net receivables, which increased by 24 million year-on-year to 875 million, and that's up 4% at constant exchange rates. This, together with an improving revenue yield, resulted in a very strong 15% increase in revenue. All our divisions contributed to the receivables growth, And excluding the impact of the business transformation in Poland, group receivables showed strong year-on-year growth of 15%. We also made good progress towards our medium-term KPI targets, which underpin our financial model. And, of course, that's revenue yield, impairment rate, and cost-income ratio. The group annualized revenue yields continue to strengthen, increasing by 4 percentage points to 54.8%, and is firmly within our target range. This improvement reflects the actions we've taken to bolster the yield, including lower levels of promotional activity introduced during the second half of 2022 and carefully considered price increases implemented in some of our markets. Alongside strong growth, customer repayments performance and credit quality is very good. Despite the increased cost of living for consumers in our markets, we have not seen any discernible impact from the cost of living crisis And we now believe we can attribute this to the combination of our very disciplined, responsible lending decisions, which are focused on affordability, plus consistent collection processes across both our home credit and digital operations. The group annualized impairment rate of 12% at the end of September is fully in line with our expectations as impairment rates normalize and we expand the business. We continue to maintain a very conservative balance sheet position, with an impairment coverage ratio in excess of 36%. The improving trajectory of our cost-income ratio continued into the third quarter, and our tight control of costs and the strong increase in revenue yield resulted in significant 7.2% improvement in the cost-income ratio to 56.7%. In addition to focusing on costs, we're deploying technology to deliver process improvements which, Together with ongoing growth, we continue to improve this ratio towards our target of around 50% over the course of the next couple of years. And to complete the group picture, we continue to maintain a robust funding position and well-capitalized balance sheet to support our growth ambition and deliver our progressive dividend policy. And at the end of September, we have headroom on undrawn facilities and non-operational cash balances of $100 million, and that's an increase of $16 million. We've also successfully secured 44 million of debt facilities during this third quarter, including 41 million of bank facilities and 3 million of retail bonds held in Treasury. In addition, we are actively pursuing a number of other opportunities to diversify and extend the duration of our funding. And just this week, we announced that we have returned to the Polish debt capital market and successfully acquired 14 million of new bonds, which have a maturity date in November 26th. We're also meeting with a number of sterling fixed income investors tomorrow and on Monday. And depending on market conditions, we may pursue a sterling retailed bond issuance. These very positive outcomes from our treasury activities together with strong business cash generation, mean that we now expect to meet our funding requirements after the fourth quarter of 2024. So with that as a backdrop, let me take you through a high-level overview of each of our divisions in turn. Our European Home Credit Division continued to execute well in the third quarter. Consumer demand in our markets remains good. And together, the Czech Republic, Hungary, and Romania delivered 15% lending growth year-to-date. offsetting the expected reduction of 23% we saw in Poland, and this resulted in European home credit lending being 2% down year on year. Closing net receivables increased by 2% to 474 million, with 18% combined growth in the Czech Republic, Hungary, and Romania, offset by a 17% reduction in Poland. Customer repayment performance has remained robust in all of our European home credit markets. Moving on now to Poland, I have to say how pleased I am with our business transformation and the implementation of our credit card offering. We now have issued over 100,000 cards, and that's up from 50,000 at the half year. Our customers have shown that they value the new credit card, and in addition to their initial drawdown, a significant and growing proportion are using the credit cards to buy goods online, in stores, and to take cash at ATMs. Let me give you a few figures to illustrate how the card is working. The average line on the card is around 670 pounds and the average initial draw on the card is 85% of that. So that gives you an average balance of around 475 pounds. Since the beginning of the year, we've had more than 140,000 ATM transactions and over 300,000 retail transactions. And these volumes are growing rapidly month on month. We're also pleased with portfolio quality and customer repayment behavior, both of which are tracking in line with our expectations. And we'll continue to monitor the performance very closely as this huge transformation progresses. And we're certainly on track to meet the 120,000 to 150,000 cars in issue by the end of this year. Now, the other thing I should mention is that earlier this week, Gary and I were with the whole of the board in Warsaw, and we spent two days there talking to the team and understanding how everything is working. And I have to say the board came back really very well assured as to how the transformation is progressing. Turning now to our Mexico home credit business. Our team there delivered another solid operational performance. Consumer demand is strong, and despite a slightly cautious stance on credit settings, customer lending is up 5% year on year. Customer numbers increased to 710,000, and closing receivables grew by 8% to 185 million. Customer repayment behavior has improved from the first half and credit quality is now in line with our plan, which is testament to our disciplined approach to growth. As you know, the growth potential in Mexico is significant and our expansion strategy is progressing well. Our teams in our two new regions of Tijuana and Tampico are well-established and are now attracting new customers to choose our home credit and value-added service offerings. Although these two are in their infancy, we believe that both regions will become important contributors to our overall growth in Mexico. I'll move now to IPF Digital, which also delivered another good performance in the third quarter. Excluding Poland, customer lending year-to-date grew strongly by 12%, with the Baltics, Mexico, and Australia all performing very well. This contrasts with lending in Poland, which reduced by 36% as we transitioned to the new rate cap and affordability rules in that market. Our growth strategy is key to rebuilding receivables to scale and deliver our target returns. And our actions drove a 7% increase in closing net receivables to $260 million at the end of the quarter. Stripping out Poland and the collect-out markets of Spain and Finland, receivables growth was very strong at 20%. Alongside the progress we've made growing our digital operations, customer repayment performance is robust and portfolio quality continues to be very good. So that brings me to the end of our Q3 review. As a number of the tests, we delivered a strong performance through the first three quarters of the year, and we are confident of increasing financial inclusion for consumers in our markets and delivering a good performance for the year as a whole. Now, all the details of our Q3 announcement can be found on our website at www.ipfin.co.uk. So that's I-P-F-I-N.co.uk. And just before we move to Q&A, I'd also like to highlight that we plan to host our next investor analyst webinar on Thursday, the 7th of December. This time, I'll be chatting with our Chief Marketing Officer, Tom Alder, and we will focus on customers, products, and the actions we're taking to capture demand enhance customer loyalty, and grow the customer base. And further details of those and the invitations will be sent out shortly. So with that, let me hand it back to you, Jordan, to see if we have any questions for Gary and myself.

Thank you. As a reminder to those on the phone lines, if you'd like to register an audio question, please press star followed by one on your telephone keypad. If you change your mind, please press star followed by two. And please ensure you're unmuted when speaking. For those of you connecting online, you can type any questions into the Q&A chat box. Our first question comes from Dave Storms of Stonegate Capital. Dave, the line is yours.

Morning.