International Personal Finance plc

Hello, everyone, and welcome to the International Personal Finance Q1 24 Trading Update. My name is Seb, and I'll be the operator for your call today. If you'd like to ask a question during the Q&A session, you can do so by pressing star 1 on your telephone keypad, or if you're listening to the call via the online stream, you can submit a written question using the Q&A function located in the top right-hand corner of the screen. I'll now hand the floor over to Gerard Ryan, CEO, to begin the call. Please go ahead when you're ready.

Thank you, Sam. And good morning, everybody, and welcome to our Q1 trading update call. Today, I'm joined by Gary Thompson, our CFO, and together we'll take you through the highlights of our strong first quarter performance. I'll also give you more details on customer demand for our broadening range of products, explain how we're progressing our next-gen strategy, and cover the actions we're taking to adapt our Polish business to the evolving regulatory landscape. As usual, there'll be plenty of time at the end of the briefing for us to answer any questions you might have. So let me start with an overview of our Q1 performance. If you've had a chance to read today's trading update, you'll have seen that we made a very good start to the year and we're progressing well against our 2024 financial plan. Building on the strong performance we delivered in 23, all three divisions, so that's European Home Credit, Mexico Home Credit and IPS Digital, performed well as we execute against our next strategy. And thanks to the excellent efforts and hard work of all of our loyal colleagues and customer representatives, we are growing the business and increasing financial inclusion. I'm pleased to report that customer demand for our products and services remains consistently strong, and we're meeting this demand with the broad range of credit products and insurance services we now offer, from our weekend home credit loans with an increasingly digital service to our credit card offering in Poland, fully remote digital loans, and value-added services, which include healthcare and life insurances. As a result, and excluding Poland for the moment, we delivered a 5% year-on-year increase in customer lending in quarter one, and I'm happy to let you know that we saw increased momentum in lending in March and through into April. We're also progressing our strategy to regrow the business, evidenced by, and this excludes Poland, the 11% increase in closing net receivables year-on-year to 865 million. Now, for those of you who follow IPS, you'll be aware that we're adapting our business in Poland to the changing regulatory backdrop in this market. And as expected, this has led to a year-on-year reduction in customer lending and receivables of 21% and 32% respectively. And so for the group as a whole, customer lending and closing net receivables both reduced by 3% year-on-year. In the first quarter, customer numbers increased by 2% to 1.7 million, excluding the impact of the transition in Poland, where customer numbers declined by 14%. As I explained with our full year results presentation, one of our longer-term goals linked to our purpose of building a better world through financial inclusion is to serve more than 2.5 million customers, and we are very focused on the growth opportunities available to us in order to achieve this target. We also made good progress towards our medium-term KPI targets, which underpin our financial model, so namely revenue yield, impairment rate, and cost-income ratio. The group annualized revenue yield strengthened by 1.8 percentage points to 55.2% year-on-year and is now close to our target range of 56% to 58%. Alongside the sustainable growth we delivered, Credit quality is excellent across all of our divisions, despite the increased cost of living that our customers continue to face. This is down to our responsible approach to granting credit to our customers, together with our strong operational discipline, which will ensure that very strong customer repayment performance in the first quarter. The group's annualized impairment rate of 11.4% is tracking better than our financial plan, and provides a very strong foundation for increasing lending growth as 2024 progresses. Our rigorous focus on cost control and efficiency delivered a further reduction in the cost income ratio to 58% year on year. The ratio is one percentage point higher than at the year end, due wholly to the reduction in revenue in Poland. And looking forward, we expect the group ratio to improve in 2024 as we increase growth and execute our cost efficiency and technology programs. So now to funding before I take you through the divisional performances. We continue to maintain a very robust funding position and a conservatively capitalized balance sheet, to support our growth ambitions and deliver our progressive dividend policy. At the end of the quarter, we had headroom on undrawn facilities and non-operational cash balances of 174 million, which is sufficient to support our growth plans through to the second quarter of 2025. I'm also very pleased that we've continued to progress our funding strategy, having successfully secured 26 million of debt facilities in the first quarter, which includes 23 million of bank facilities and the issuance of 3 million of retail bonds that we held in Treasury. With our advisors, we're also continuing to explore the range of debt refinancing options open to us as we look to refinance the Eurobond, which is due to mature in November 2025. So on to our divisional performance now, starting with European Home Credit, where our teams delivered another good operational performance in the first quarter. In particular, customer retirement performance has been very strong and ahead of our plans in all four markets. Good demand for borrowing helped to achieve a 6% increase in customer lending in Romania, Hungary, and the Czech Republic combined. And I'd like to note that we saw this demand increase as the quarter progressed and also into April. In contrast, but as expected, we saw a reduction of 21% in lending in Poland. Receivables ended the first quarter at 440 million, which overall is a reduction of 11% year-on-year, but comprised good growth of 9% in Romania, Hungary, and Czech Republic combined, offset as expected by a 32% reduction in Poland. Now, before I close out on European Home Credit, let me update you on our credit card rollout in Poland. At the end of Q1, we had issued more than 140,000 cards, And customers are continuing to react very positively, especially as they can now benefit from being able to shop online and in stores, as well as withdraw cash from ATMs. We're very pleased with the portfolio quality and customer repayment behavior. The impairment performance is consistent with our installment loans, as customers enjoy the convenience of making repayments through their customer representatives. we introduced a new pricing structure for our credit card offering in March in response to the letter we received in February from Poland's Financial Supervision Authority, which set out its expectations on non-interest caps for credit cards. Our leadership team in Poland has an excellent track record of adapting the Polish business to regulatory change, and together we are working to ensure it delivers our target returns whilst building financial inclusion in this important market. In Q1, this included the difficult decision to restructure our field force as part of our cost efficiency program, which resulted in an exceptional redundancy cost of £5 million. So overall, we're very pleased with the Q1 performance of our European home credit businesses, which is a bedrock of our group returns and continue to offer good growth opportunities. Turning now to Mexico home credit business, which delivered another good financial performance and growth momentum in the first quarter of the year. Customer lending and closing net receivables increased by 4% and 8%, respectively, in the quarter. As you know, Mexico is a significant growth market for us, and we expect the rate of customer lending to increase to our target range of 8% to 10% for the year as a whole, as we complete the actions we've taken to improve performance in Mexico City and Terrestre, which account for around 20% of our business in Mexico. And as we also see the benefits of our ongoing expansion strategy continues to build. Our 2024 plans to extend our geographic footprint include new branch openings in Mexicali, which is located in Northern Mexico and another branch in the Norte region. The plans for these exciting developments are progressing very well. Customer repayment performance and write-up volumes in Mexico improved in the first quarter. And we were pleased to see the impairment rate improved by one percentage point since the year end to 31.3%. Looking ahead, we expect this to continue to improve towards our target level of 30% for the year as a whole. Moving on now to IPS Digital, which also performed well in the quarter. Customer demand remains robust in all of our markets, and excluding Poland, customer lending increased by 4% against a strong prior year comparator. We also delivered strong growth in receivables of 17%, again, excluding Poland. And as we saw in our other divisions, customer repayments and credit quality are very good indeed. We're gaining good lending traction, particularly in Mexico, Australia, and the Czech Republic. And excluding Poland, we expected to deliver lending growth of around 15% to 20% for the year as a whole. Looking specifically at our digital business in Poland, the impact of lower non-interest cap for installment loans and the new affordability regulations that came into force in 22 and 23 resulted in a 27% year-on-year reduction in both lending and receivables during the quarter. This contraction is now slowing as demonstrated by the modest 2 million reduction in receivables since the 2023 year end, and we expect to return to growth as the year progresses. Taking IPS Digital as a whole, its receivables grew by 7% to $232 million in Q1, and with the excellent portfolio quality we have achieved, this provides a very good foundation for accelerating growth through the remainder of the year. We're very focused on executing our next-gen growth strategy to rebuild the scale of IPS Digital and deliver our target returns over the next two years. Well, that brings me to the end of our Q1 review. So before we begin our Q&A section, let me just summarize here. We made a very good start to the year and we're progressing well against our 2024 financial plan. With the exception of Poland, we delivered good growth in all of our marks and credit quality is excellent across the group. We're executing well against our next-gen strategy, which includes deploying our full product and distribution channel family, expanding our reach in Mexico, developing our people's capabilities whilst all the time remaining fully focused on cost efficiency and the rollout of smart technology. Our balance sheet and funding position are in good shape and we are well positioned to deliver further growth and attractive returns to our shareholders in 24 and beyond. Now, all the details of today's Q1 announcement together with a host of ESG-related information and on-demand investor videos about our business, can be found on our website. That's www.ipfin.co.uk. So with that, let me hand you back to Seb, and we can cover off any questions that you might have. Seb, over to you.

Thank you. If you'd like to ask a question, please press star 1 on your telephone keypad. If you've joined the call via the online stream, you can submit a written question using the Q&A box in the top right-hand corner of the screen. Okay, our first question comes from James Lowen from J.O. Hanbury Capital Management. This says, can you provide an update on the Polish situation? Has it been codified by the regulator? Is the direction settled? How much offsets for fees or for other services have you been able to do, and how much does the cost reduction save PA in Poland?