International Personal Finance plc

Hello everyone and welcome to our results presentation for the first six months of 2024. Today, Gary and I will be very happy to talk you through what has been a very successful period for our group, all based on effective and consistent execution of our next-gen strategy. Now, I'll start as usual with an overview of the results and then I'm going to touch on our strategy and a bit on regulation. But truthfully, it only seems like a matter of weeks since I stood up here and did that as well. So it'll be at a reasonable high level and most of the focus today will be on the financials. I'm then going to hand off to Gary and he'll take us through in a lot of detail the divisional performance, how well the balance sheet is performing, the refinancing of the business and our plans on capital utilisation. After that, I'm going to cover off with some closing remarks, and then we'll have plenty of time for Q&A. Now, just on the Q&A, so hopefully somewhere on your screen, I think it's at the bottom of your screen, there should be a dialogue box where you can type in a question that you might have during the presentation, and Rachel will present all of those questions to us at the end. In total, I think the whole thing should take probably about 35 or 40 minutes. So with that, let me start now and talk you through an overview of the financials. As I said, excellent execution of our next-gen strategy has delivered really positive profit before tax for the period. And you can see on your screen that we've actually delivered £47.3 million profit before tax in the first six months. So that's up 25% year on year. Now, there are a couple of exceptionals that we're going to talk about shortly. We're rebuilding scale through our next-gen strategy. What that really means is serving more customers, offering them loans, credit cards, and other products. So rebuilding the receivables that generates the revenue that drives the whole business and pays for everything. What I can tell you is that in rebuilding that portfolio, we are not in any way sacrificing any element of quality. The portfolio quality is truly exceptional in our view anyway. So the financial results are ahead of plan and the other thing that we're going to talk about today is the refinancing of the business. We obviously refinanced the Eurobond just a short while ago and did so very successfully and that has really big implications positively for our group going forward. Now all of this means that we are making greater returns to shareholders today and as we look forward. As we look at the balance sheet, you can see that our equity to receivables now stands at 56% versus our target of 40%. In addition, during the period, our RORE is now in our target range of 15% to 20%. So having considered all of these factors, so a very strong balance sheet, very positive trajectory for growth, the fact that the business is now financed out towards the end of 2025, the board is very happy to reconfirm our progressive dividend policy. And that means a dividend of 3.4 pence per share, the interim dividend, which is up nearly 10%. In addition, having reviewed our capital position and all of the factors regarding the balance sheet, we are also instigating a share buyback of up to £15 million. And Gary's going to talk in detail about how that decision was arrived at and how it will work. But very positive news all around for shareholders. Now, with that, let's turn to the strategy of the group. Now, for those of you who know our business well, you know that we're now talking about next-gen strategy, and it has three core pillars. So first of all, next-gen financial inclusion, which is about supplying our products through existing and new distribution channels to our customer segments in each of our markets. And we've talked often now about filling in the white spaces. So those are the areas where in a particular country or business, We have room to add new products, but those products already exist within the group. So it's a question of transferring those products across. Then we talk about next-gen org, and that's about becoming a smarter and more efficient organization. And finally, you have next-gen tech and data. So that's about making smart decisions as to where we invest our money to improve the customer journey and make ourselves more efficient. So more about that in a second. So let's deal first of all with next-gen financial inclusion. And here we're talking about expanding the product range. Now, most of you, I'm sure, know that sometime last year, probably for the whole of last year, we launched a new credit card product in Poland. And I have to compliment my colleagues in Poland for doing so so successfully. And today we're approaching 150,000 active card holders in the business. So 150,000. And we should remind ourselves that fully two thirds of those customers, for them, this is their first experience ever of using a credit card. And what's really pleasing is that they have continued to experience and benefit from the full functionality of a credit card. And so we see a significant uplift in the volume of transactions that are online and in retailers and on ATMs. So very positive news about the credit card. Now, once I'm talking about Poland, let me just say that About 10 days ago, I was in Warsaw and I met with a couple of our senior colleagues there. We went together and we met the KNF, so our regulator. We met the CEO of the KNF and his three most senior directors. It was, I have to say, a really positive meeting. He explained very transparently about his thoughts on regulation for the NBFI sector. But what was really positive for me was it became very clear But as the largest MBFI in Poland, they look to us to be the standard setter for how the regulation should be interpreted and work. And I was very pleased to see just how positive that working relationship is between our two organizations. Now, as regards the credit card, we currently operate under a small payment institution license in Poland. We have applied for the large one, and following that meeting, there were no promises made, but I have to say I left that meeting feeling very positively about receiving that license in due course. And it is really important to us because Under the smaller payment institution license, there is a limit on the level of volume we can put through those cards. So it's important to us to get that soon, and I'm quite hopeful that that will be the case. Turning now to another one of our expanded activities, here we're talking about Romania and digital in Romania. And in particular, we're talking about a new avenue or distribution for us, which is fully end-to-end digital for our customer segment. So customers can go online, they can do it via their mobile app, whatever it is they want to do. They apply online, they get credit vetted online, approved online, and they get funded online and repay us in the same way. It's very new to us in Romania, but I'm delighted to say we already have about 2,500 customers there that are fully digital. What's interesting is we're learning a lot. So first of all, as you know, in home credit, it's predominantly women lending to women. In this digital business in Romania, it's predominantly male customers that we're seeing and fully three quarters of those customers are absolutely new to us, which is really important. It means that we can make ourselves more attractive to a broader array of consumers in that market. So early days, but the signs are really good. The other thing I should say about Romania is that when we last spoke, so probably about three and a half months ago, I would have mentioned that there was pending regulation about a total cost of credit cap coming in there. It had been approved by the local parliament, but it was stuck in the constitutional court for a review. I can tell you that that was since passed by the Constitutional Court and is now law. The impact on our business in our view won't be material. So sticking with growing financial inclusion, but here now talking about distribution. As you know, in Romania, we've mentioned before that we're developing our partnerships model there. And here we've talked about the two retailers that we are currently operating with. Well, I'm pleased to say that now we have 450 stores that are operating with us. In dialogue with those stores, I can tell you that we understand that just under one third of their customer traffic is would like to have finance as a means of making a purchase in their stores. And we finance 18% of that volume at this point in time. Again, really positive for our business. Almost 100% of those customers are new to us. So it tells you that we are able to open up our brand to new customer segments going through these new distribution channels. And talking about distribution, if we look now to... Mexico, we're also going to use this partnership model in Mexico, but it is just starting. In Mexico, what we are doing is expanding the branch network. So you'll have heard us talk about Tijuana and Tampico. Well, I'm delighted to say that we've now opened up Mexicali as well, and all three are operating in accordance with the plan we had set out for them. Later in the year, you'll probably hear us talking about opening in Monterrey as well. And then finally, in this particular area, I just want to mention our digital business. So that's IPF Digital, where we use our mobile wallet. And we've had a bit of a promotion on for the mobile wallet. And as you can see on the screen, we've had real success in getting customers to buy into this. It provides quasi-banking type technology for them on the app. So very successful, creates stickiness and positivity with the customers. So that's the first pillar on strategy. The second pillar is next-gen org. And here we're talking about, in particular, European Home Credit to start with. We have four countries in European Home Credit serving, broadly speaking, the same customer segment and delivering, generally speaking, the same products. But they all do it in different ways, simply because there is a border between each of those countries. Well, what we're looking to do here is, is to redesign our org structure to be able to promote more commonality of processes across those four businesses. And with common processes, we can build common technology. And that leads to efficiency and better service for our customers. So that's well underway. I'm very pleased with the progress we're making there. But there's lots of room for improvement yet. So watch that space. And then finally, just to say on the bottom part of the page, we put in some of the awards that we've won in the last six months, because for us in the segment that we deal with, it's really, really important to do the right thing. But it's also very important that people should know we're doing the right thing. So we put a lot of time and energy into entering these competitions so that we can prove to people that we say what we will do and we do it in the right way. And then the final leg of our strategy is next-gen tech and data. And here are just a couple of examples for you. Over the last three or four years, we've invested in building a customer app in Poland. It's really proven to be very successful. The customers really like it, and they use it a lot. It means they can go onto their mobile app on their phone. They can examine their balance. They can look at when their next payment is due. And they can also see if they have other offers coming down the line from us. At the same time, we've allowed our Mexican business to run a trial and build, I suppose, a competitive app. And the truth is, it turns out to be really, really good. And so as a result, we've compared the two and we have decided to go with the Mexican app. And we've now launched that app in Hungary. And it should be up and running very shortly. And we believe then that will become our app across the whole of the organization. The benefits for the customer are obvious, but the benefits for us of having a new modern app for our customers is very big indeed. And finally, just to mentioning omni-channel service for our customers. I think there was a buzzword some years ago, and perhaps we're a bit late to the party. But here, with our expansion of distribution channels and expanding our product set, we want to be able to talk to our customers in whatever channel they prefer. So they might start out sitting at home on a laptop. They might then need to or want to switch on to their mobile app, or then they might want to phone the call center. And our belief is we should be able to offer them the choice as they go through that process with us. And so we've embarked probably a couple of years ago now on what we call internally Project Xenia, which is rolling out technology across European home credit that will enable us to do that. It's already up and running in Romania. It's been launched in Poland, and the next two countries are clearly Hungary and the Czech Republic, and they will be coming reasonably shortly. So for us, that really will be a major win for the customer, but it will mean that we will be a more modern business for each of our interactions with those customers in future. So a big deal for us and hopefully big benefits for the customers. And the truth is, all of these three strands, these three pillars, are what's delivering the success in the business. So it's effective and consistent execution of the strategy that's driving the numbers that hopefully you saw in the release that we put out this morning. We don't need to change that strategy. It continues to be applicable today as it was the first day we launched it. But to talk to you through what the impact of that is in the financial numbers, let me hand you over now to Gary. He's going to take us through that in a lot more detail.

Thank you, Gerard, and hello, everybody. As Gerard has mentioned, we have delivered a very strong set of results in the first half, with pre-exceptional profit before tax increasing by 25%. This was ahead of our internal financial plan, mainly due to strong repayments and a favourable impairment performance, with all three divisions performing really well. You can see on the chart on the left, we have consistently improved first-half profits over the last three interim reporting periods. This has been through excellent operational execution of our next-gen strategy, as well as a rigorous focus on applying our financial model which I will come back to later. The PBT in the first half is stated before two exceptional costs totaling £10.8 million. Firstly, we've incurred £5 million of field restructuring costs in Poland, as we've implemented our improved business model there, similar to the structure we have implemented in Hungary, Romania and Czech. And then secondly, we incurred £5.8 million of costs in respect to the successful Eurobond refinancing, comprising tender costs and the write-off of unamortised fees, both in respect to the old bond. And I'll come back to the Eurobond refinancing later. Now, we expect our second half profits to be lower than the first half due to two factors. Firstly, the impact of the recent credit card repricing has a larger impact on the profits of Poland in the second half of the year. And secondly, the improved momentum we are seeing group wide on customer lending is expected to continue in the second half, which, as you know, brings with it the day one impact of IFRS 9 impairment charges. However, notwithstanding this, we expect full-year pre-exceptional PBT to be between £78 million and £82 million, which is ahead of current market consensus of £71 million. Now on to lending growth. At a headline level, however, if you exclude our home credit and digital businesses in Poland, the remaining markets all delivered good lending growth of around 7% as we continue to see strong demand for our broad range of products. In European home credit, excluding Poland, Romania, Hungary and the Czech Republic all delivered 8% growth combined. We saw improving momentum as the half progressed and the second quarter saw 9% growth compared with 6% in the first quarter. This growth was delivered against consistently tight credit standards as we remain mindful of the higher cost of living for our customers. Mexico Home Credit delivered another really solid performance delivering lending growth of 6% up from 4% delivered in the first quarter. The ongoing actions to improve performance in the two underperforming regions of Mexico City and Sereste continue to gain traction, and we expect lending growth for the year as a whole to increase to our target range of between 8% and 10%. Customer lending, again excluding Poland, grew by 7% in IPF Digital, And similar to the other divisions, we are seeing improving momentum and after growth of 4% in the first quarter, we saw an acceleration in growth to 10% in the second quarter. All markets are performing well with improving momentum and we expect full year lending growth of between 10 and 15% for the division as a whole. On to Poland. As expected, our Polish businesses saw a 7% contraction in lending in the first half. However, after a reduction of 21% in first quarter lending, we delivered 10% growth in the second quarter. The growth in the second quarter reflected a much higher proportion of instalment loan lending in home credit as we balance our lending to remain within the limits of the small payment institution line which we currently operate under. And as Gerard mentioned, and as I mentioned last year, these limits remain in place until the full payment institution licence is granted by the KNF. And once granted, there is no limit on the value of credit card transactions, which will then allow credit card receivables to grow at a much faster rate. Now onto receivables. Receivables for the group as a whole ended the half at £864 million, which is broadly in line with last year on a constant exchange rate basis. Clearly, the biggest influence here is again Poland, and when Poland is excluded, the rest of the group delivered an impressive 12% increase in receivables. Now, in European Home Credit, we saw 9% receivable growth, with Romania, again, the standout performer, delivering another double-digit growth performance. And you'll have seen the webinar in June really spotlighted the growth potential in Romania through the broadened product base of Home Credit, retail partnerships, and the more recently launched hybrid digital proposition. In Mexico, home credit receivables grew by 9%, and we continue to maintain a disciplined approach to growth in this market, as it is very important to maintain operational processes and spans of control whilst growing to avoid impairment shocks. This approach continues to be very successful, with Mexico delivering improved impairment and an increase in returns, and I'll come back to talk about those two things later. In IPF Digital, we continue to execute our growth strategy to rebuild receivables, to gain scale and deliver our target returns, which led to receivables growth of 10% to 237 million. Mexico and Australia were the standout performers with growth of 20%, but our Baltic markets also performed really well, delivering 14% growth. And our smaller digital business in the Czech Republic, which was transferred from the management of European Home Credit to IPF Digital at the end of last year, grew its receivables by 50% from 6 million to 9 million. Now looking at Poland receivables in a little bit more detail. You can see on this slide the reduction in Polish receivables since the new total cost of credit cap was introduced in late 2022. This has been followed by enhanced affordability assessments from May 2023, and then the impact of the KNF expectations on credit card pricing in February 2024. And in total, receivables have reduced by about 100 million, which is pretty much in line with the expectations we set out in the fourth quarter of 2022. In home credit, we saw a 30% contraction in the receivables book to £150 million, but this is now slowing and we expect to return to some growth by the end of the year. In digital, receivables reduced by 17% to £37 million in the first half, but it was really pleasing to see modest growth coming back into the business in the second quarter and we'd expect this momentum to continue through the second half. And overall, taking both businesses together, we'd expect a modest year-on-year reduction in receivables by the end of the year before delivering receivables growth in 2025 and beyond. Now I'd like to turn to the really good progress we're making against the core KPIs supporting our financial model. So starting on revenue yield, you can see here that the group's yield has strengthened by a further 1.2 percentage points over the last 12 months to 55.4%. The yield is close to our target range of 56 to 58% and reflects the continued actions we've taken to bolster the yield over the last two and a half years. And as we've said consistently, we'd expect the yield to continue to improve as Mexico, which is a higher yielding business, represents a higher proportion of our receivables. Now dealing with the divisions individually, the annualised yield in European Home Credit was 47.2% at the end of the first half. However, the yield has seen a modest reduction of 0.2 percentage points since December 2023 due to the repricing of credit cards in Poland, which has been mentioned earlier. The revenue yield in Mexico on credit has reduced to 86.5% as there has been a modest shift in the mix of lending to slightly longer, lower yielding products served to existing customers. As I'm sure you're all aware, the yield in Mexico is higher than in Europe due to the increased level of credit risk we can take, which is also reflected in a higher impairment rate. IPF Digital's yields saw a reduction of 1.9 percentage points to 42.9%. This reflects the impact of a flow-through of reduced rate caps in Latvia and Poland, both of which were lowered at the end of 2022, as well as in Estonia, which is recalculated biannually. These adverse variances have been partly offset by the growth in Mexico, which, as I said earlier, has a higher revenue yield. Now, before I move off revenue yield, I thought it would be really worth highlighting that approximately 20% of our revenues are linked to interest rate caps, which change in line with local base rates, whilst approximately 30% of our debt facilities are linked to variable rates. So you can see that there's a pretty close correlation between revenues and funding costs when interest rates are changing. On to impairment. We are always very disciplined and responsible in our lending decisions. The close relationship we have with our customers also encourages a strong repayment ethos. And despite the higher cost of living being experienced in all of our markets, we have not seen any discernible impact on customer repayment behaviour. And together with our continued tight credit standards, the quality of the loan portfolio continues to be excellent. As a result of our strong performance, we have reduced the cost of living provision by five million in the first half, and the group's overall annualised impairment rate has reduced from 11.4% last year to 10.5%, which was better than our internal plans. Now, this improved credit quality has led to a modest reduction in the group's impairment coverage ratio from 36.3% at December to 34.7% at June, albeit this is still higher than the pre-COVID level of 33.5% at the end of 2019. Now with excellent credit quality across all our divisions, we are really well positioned to accelerate growth through the second half of the year. We continue to maintain a strict focus on efficiency and cost control. The group's cost-income ratio at 59% is 1.6 percentage points higher year-on-year, wholly due to the reduction in revenue in Poland. This is demonstrated by the fact that if we exclude the Polish home credit business, the group's cost-income ratio has reduced from 57.3% in June last year to 54.7% this year. Now, a key focus of our next-gen strategy is to become a smarter, more efficient organisation through process improvement, as Gerard outlined earlier, and the deployment of technology as we mitigate both the inflationary environment and an increased cost of funding. We expect the groups ratio to improve as we deliver increased growth, build scale and continue to execute on our cost efficiency programme, moving to our target range of 49% to 51% in the medium term. So to summarise on this slide, you can see that despite the impact of the recent changes to credit card pricing, we continue to make progress against all our KPIs as we improve shareholder returns. Now moving on to returns as well as earnings and dividends. Our annualised pre-exceptional RORE improved to 16.2% in the first half of the year, up from 14.7% at June last year. This reflects the good growth in returns in both Mexico Home Credit and IPF Digital as we build scale. We expect returns to moderate in the second half of the year as the impact of the repricing, the credit card portfolio in Poland that I talked about earlier, has a larger impact on European home credit returns compared with the first half of the year. The group's annualised pre-exception ROE based on actual equity was 12.1% at the end of the first half, up from 11.3% last June. Our pre-exceptional EPS increased by an impressive 24% to 12.6 pence, pretty much in line with the growth in pre-exceptional PBT. The estimated tax rate for 2024 is 40%, which is in line with the guidance that we provided at the year end. You may also have seen that the extra profit special tax in Hungary has been extended further. We noted last year that the temporary tax had been extended for an additional year and that we expected a further 2 million exceptional tax charge in 2024. However, with the further extension, the extra profit special tax now forms part of our normal tax charge and is included in the estimated full year tax rate of 40%. And finally here, you can see the EPS calculation you see on the slide is stated before the impact of the exceptional items I talked you through earlier. Reported EPS after exceptional costs grew by 4.8% to 8.8 pence. And as Gerard mentioned earlier, the board has declared an interim dividend of 3.4 pence per share, which represents 9.7% growth on last year. The dividend is consistent with our policy of paying 33% of the prior year full year dividend at the interim. And last year's full year dividend was 10.3 pence per share and a third of this represents 3.4 pence. The dividend is fully supported by our excellent performance in the first half, a strong balance sheet and the board's confidence on the group's future prospects. So now on to funding and details of the excellent progress we have made in the first half. We were delighted with the successful refinancing of the Group's €341 million bond, well ahead of its maturity in November 2025. The transaction was structured as a tender offer of the old bond at a price of €1,015 per €1,000 of bonds held and a new issuance of a five and a half year bonds at an issue price of 99.493% and a coupon of 10.75%. Very encouragingly, there was really strong demand for the new bonds, which resulted in them being oversubscribed multiple times during marketing. and over 150 investors participating in the final transaction. This allowed us to tighten the margin of the benchmark German bond from around 1,070 basis points on the old bonds to around 830 basis points on the new bonds. So a big improvement, which reflects the strong execution from the business over recent years. The results of the tender were that we redeemed 274 million of the old notes, with 67 million of the notes remaining outstanding and maturing in November 2025. The successful refinancing resulted in Fitch Ratings upgrading our long-term credit rating to BB from BB-, with the outlook remaining stable, so a great result. In addition to the Eurobond refinancing, we also secured 23 million of bank facilities in the first half of the year and a further 28 million in July, of which 15 million was new or increased facilities. We continue to have a very strong and supportive relationship with 18 lending banks across our businesses and we continue to work on increasing this number. Now at the end of June, we had debt facilities of £629 million in total, comprising £433 million of bonds and £196 million of bank facilities. As a result of our funding actions, strong cash generation of £28 million in the first half, we had significant funding headroom of £179 million at June. Now, this provided us with the opportunity to redeem the 35 million Nordic bonds in July, some three months in advance of their original maturity. The group's current funding and cash generation supports our growth plans right through to the end of 2025. The average maturity profile of our debt facilities now stands at 3.3 years, up from two years at December, and £470 million of our debt funding now matures beyond 2025. And finally on funding, our funding rate in the first half was 13.7%, lower than the 14% in the first half of last year. Now, this was due to a reduction in interest rates across our markets, as well as a lower cost of hedging as interest differentials narrowed. We anticipate that our funding cost for 2024 as a whole will show a small increase due to the refinancing of the euro bond at a headline rate some 100 basis points higher than the old bond. Now on to capital. I'm sure you're all now very familiar with our financial model, which sets out the target returns we need to support our dividend policy, fund our growth, and ensure the balance sheet remains secure at all times. Now, we look at our financial model as a virtual circle. Delivery of a return on required equity, or RORE, of between 15% to 20% is the most fundamental part of our model. These returns allow us to pay a minimum of 40% of earnings to our shareholders, allows us to grow receivables by up to 10%, can be higher, can be lower, but we believe 10% is sustainable through the cycle. And at the same time, we're able to maintain a robust balance sheet position with an equity to receivables ratio of 40%. The growth in receivables leads to an equivalent growth in dividend and so on, providing we continue to deliver our target returns. Now, an important aspect of our financial model is that capital is only allocated where it can deliver appropriate returns to shareholders, whilst also balancing the needs of all our stakeholders. As a result of the group's strong trading and financial performance over the last two years, together with favourable foreign exchange movements over that period, the group's equity to receivables ratio has strengthened to 56% at the end of June, compared with our target, which I just spoke through earlier, of 40%. After assessing the group's current trading performance, cash generation and the future growth plans, the board believes that a share buyback of up to £15 million will deliver a positive return and increase capital efficiency whilst ensuring that the balance sheet remains strong. The remaining capital will enable us to pursue our growth strategy and progressive dividend policy through to the point at which we are delivering our target returns and operating in line with our financial model. And we expect this to be in 2026. So, to sum up, we've delivered another strong set of results in the first half. Credit quality remains excellent. We're seeing improving momentum on lending growth and we have a very robust funding and capital position to support our plans. And on that note, I will now hand back to Gerard to take you through the outlook.

Thanks Gerard. Thank you Gary. Well, there you have it. A very good summary from Gary. about those financial results, which are really very, very strong. I think it'd be difficult to dispute that. We're very pleased. There are lots of things we still want to improve on. So let me talk about the outlook. So first of all, we're going to continue focusing on executing consistently our next-gen strategy. So that's all about building financial inclusion for our customer segment. So expanded product distribution through new products such as credit card going into other markets, or opening up new distribution channels such as partnerships. Then it's about next-gen orgs, so building a better and more efficient organization so that we deliver better for customers but also make ourselves more efficiently. And finally, doing a lot of that through investing in smart technology, all of which we're doing at this point in time. So in terms of other things that I should mention, clearly the transformation of the Polish business is well underway. You've heard from Gary just now that we're seeing a slowdown in that reduction in the receivables, which is very good. In fact, a bit of a lift on the digital side. So I'm really looking forward to seeing that hit the bottom and then start to re-go towards the end of this year. And to some extent, you know, we do want that large payment institutional license to make that a reality. But I feel quite positive about that. We have our strict focus on cost control, which will continue. So lots of good stuff in there. If there were any other things that I'd like to see, probably a touch more growth in Mexico. And then, as I said, when Poland comes back on track, more growth there. And making sure that we take all of those products and roll them out across those white spaces that we've talked about previously. The balance sheet is in great health and in some ways I do question whether or not we're leaving good risk on the table because that impairment rate is low for our organisation. So we are looking quite closely at that. And then finally, just to say that, you know, the profit before tax that we're now expecting, the pre-acceptable profit for the year, we're giving a target range of 78 to 82 million, which is significantly up on current consensus of just over 70, 71 million. But that's based on this consistent execution of the existing strategy. So with that now we're going to go to questions and as Rachel and Gary come up let me just say a really sincere thank you to all of my colleagues because everything you've heard about from Gary and myself this morning is all down to the hard work of my colleagues and to the work that they put in every day of the year servicing our customers around the globe. We have plenty of competition for those customers. There is strong demand out there but there is also strong competition so it's a credit to to our colleagues right across the organization that we can deliver these results here today. So with that, let us go to our Q&A session now. So Rachel and Gary, if you'd like to come up.

Good morning. Okay, let's start. We've got a question here from Lucy. With the introduction of digital products, can this lead to a movement to serving new higher income customers?

I don't think it will take us up into what most people would call prime, but clearly it is opening up new markets for us in terms of, I've said already in the presentation, that most of the customers we're seeing are new to us, and it tends to be skewed more towards male than female, which is the unusual thing for us. But I don't see us moving into prime because I don't think we have something special to offer there. Our expertise is in the underserved area, and I think that's where we're going to stick.

Okay. This is probably one for you, Gary, actually. Talking about the remaining outstanding November 2025 Eurobond notes, do you intend to call them if the call price steps down to 100?

We've no plans specifically around the remaining stub of the Eurobond. I mean, clearly, we're always looking at funding options and continuing to diversify funding. We're in great shape at the moment. You know, we take all these things to account in terms of growth and things like that. But we don't have any specific plans in terms of redeeming that bond at this moment.

Okay. One here from Ray Mayall at Panmure Liberum. You highlight the strength of customer repayments in the first half. Do you think this is a sustainable position or are there signs of cost of living pressures continuing to grow amongst your customers?

Well, the cost of living pressures are certainly out there because we talk to our customers on a daily basis. We know what they're experiencing. But the truth is this is probably the fourth results presentation where we've stood up and said customer repayment behavior is fantastic. And it remains consistently so. And there isn't anything that we're seeing in the marketplace or from our conversations with customers that would lead us to believe that that is changing. So for now, I would say it's set to continue as is.

Okay, and a second one from Ray. Now that you've been in Poland a little longer with the credit card, are you seeing any changes as to how Polish customers are using their cards?

Not really changes so much as more activity. But it's more activity in the same thing. So it's ATM machines, it's retail, it's online. So more and more the customers are treating it as you and I would treat a credit card and doing... transactions on a daily or weekly basis, whatever it might be. So I would say it's more about the volume of transactions as the maturity of the book continues, but nothing unusual in it.

Okay, thank you. One now relating to the buyback. Is this going to be an annual element of capital management or is £15 million the limit?

Well, certainly 15 million as we sit today is what we see as excess capital in terms of if you look at our financial model and you look at our growth plans, progressive dividend, we see that we've got 15 million excess and so it's right. that we return that. Going forward, we'll continually look at our plans, we'll look at the capital base and we'll make a decision as and when whether we can deploy that capital best in the business or if we think it's excess, then we'd return it. I think everybody knows that we operate to a strict financial model. We do everything by that and so clearly no plans at the moment because we've said 15 million as we sit today but if more capital comes free in the future then yes we would distribute it or return it back to shareholders.

Okay. So we've got a question here about our customer app that you covered today, Gerard. Could you make payments on it? And if not, do you think there'll be a plan to be able to allow customers to do so in the future?

You can't make payments on it at the moment, but our view is we should build out the functionality of that app progressively. So it wouldn't surprise me that in the not-too-distant future, that functionality would be there, and it would... allow a customer to do almost anything in relation to their account on the app. That would be the plan ultimately.

Do you have any plans to enter any new countries as you expand the business?

No, I mean Gary and I talk about this a lot and the truth is we still have huge opportunities to grow in our existing markets because of how the business shrunk during the 2021 period and we are growing very successfully so I don't feel we need to rush back into a new market But it is on our horizon, I suppose. So not in the next six months or so. But beyond that, I think we would think actively about what the next market might be.

Okay. And this one's talking about customer growth. What's our plan for the second half of the year?

To grow customers, clearly. Obviously, in the first half, our customer numbers overall year-on-year declined. That was really a story about Poland, as we know. And as we explained, what we're seeing now is the Polish businesses stabilising. So we'd expect the business to grow customer numbers in the second half. So overall for the year to show small single digits growth in customer numbers year on year, that would be our aim for the second half.

Okay, lovely. Questions here from Stuart Duncan at PL Hunt. What's the likely timing of the receipt of the full payment institution licence in Poland?

There is no fixed timeline. And as I mentioned in the presentation there, I did meet with the CEO of the KNF who will grant the license about 10 days ago. There were no promises, but it was very clear from the conversation that we've answered all the questions that they have. So now it's a matter of them going through and finalizing their process. So my expectation or hope would be in the next few months, certainly before the year ends.

Thank you. On to retail partnerships. What have you learnt about how to make these relationships successful with customers? And is there any difference in repayment behaviour compared to the traditional home credit lending model?

Well, the thing about the retail partnerships is that there are two relationships. There's a relationship with the retailer and then there's the relationship with the customer. And I would describe the relationship with the customer as being our normal relationship. warm relationship that we do have with our existing customer base. What's more interesting probably is developing the relationship with the retailer themselves because you need to get them to understand what looks like a good credit quality customer because clearly we can't finance everybody and we don't want to reject too many customers. So for us, we put a lot of time and effort into building the relationship with the retailer so that we enable their sales but do so in a way that's efficient for them and works out well for us and the customer as well. In terms of repayment behaviour, Obviously, when you open up a new distribution channel like this or like the new digital one in Romania, you obviously see an increased level of credit losses to start with because you've effectively skewed the population of customers that are coming through you because it's now a defined channel rather than just being out there as an open offer. And so it takes a while to calibrate a scorecard for that. So in terms of repayment behaviour, you tend to see in the early stages poorer repayment behaviour until you calibrate the scorecard and then you start to see the kind of traffic that you want and then it normalises.

Okay. And the last one from Stuart, I think it's probably over to you, Gary. Given recent repayment patterns, is the £10 million cost of living provision overly prudent?

I wouldn't say overly prudent, but I mean, clearly, I think, Stuart, you know, we were pretty conservative around the balance sheet. We like to hold a robust balance sheet at all times. You know, as Gerard explained, you know, the cost of living is higher out there. And, you know, whilst we haven't seen any impact yet. you know, there's always that potential. So, you know, we'd like to be on the right side of it, clearly, you know, and hopefully that will be the case because, you know, as we've already explained, the repayment performance has been excellent so far this year.

Okay, another one probably for you, Gary. What are your thoughts on further funding diversification? For example, would you ever consider acquiring a bank licence to allow you to fund some of your lending with cheaper retail deposits?

Yeah, certainly that's what we're looking to do, diversify funding further. We're doing a great job and our Treasury team do a fantastic job with the local banks that we fund and there's more of that coming through. The Eurobond was very successful. Whilst we've repaid the Nordic bond, that would be a market where we've built a relationship with investors so we could go back there. But we are looking at other things. In terms of the bank, I think we've said previously that that could be a good thing for the group. and so you know we from a regulatory point of view a lot of our standards are pretty much getting towards the bank you know you've got the payment institution license in poland we've got an e-money license in estonia so you're being held to quite high governance standards yet you've not got the benefit of you know the lower cost retail deposits so that's something we are you know considering

And another one from Gary Greenwood at Shore Capital. How should we think about the difference between the reported ROE and the RORE evolving over time?

Narrowing, getting closer, that's our complete aim. I think last year, or prior to last year, we were talking about getting to our financial model around 2025, but clearly the changes in the rate cap on credit cards changed that, and we said it's going to be a year to 18 months longer. So we'd expect to move to our financial model such that around 2026, where hitting the target returns, you know, we're paying in line with the minimum of 40%. Clearly, we're going to maintain a progressive dividend policy to that, growing at around that 10%. And then the balance sheet, that equity to receivables ratio being around the 40%. And that's, you know, in terms of coming up with the share buyback, we've fully factored that into the plans of regaining scale, paying a progressive dividend policy, and getting to that nearer to the 40% by 2026.

Okay, and we've had one related to a comment that had been made about good risk being left on the table. Can you just expand a little bit on that, please?

So what we mean by that is that we said, as Gary said, we have the financial model, and in there there's an impairment range that we're targeting. If we're below that range, it means that we believe that there are more customers out there who we could serve and if we did serve them, we would move up towards the target range. But the thing is you need to be very careful in these kinds of businesses because around the edge, the margin of the scorecard, you can flip from good to bad very quickly. So when you're tweaking the scorecard to bring on more risk, you have to be careful not to go too far because the risk level would increase quite significantly. So when I say we're leaving potentially good risk on the table, it means we think we can tweak the scorecard a bit further to serve more customers. Ultimately, then, the impairment rate would move up, but it would be paid for by a greater level of revenue.

Okay. And another one from Gary Greenwood. Given that the lower profit is expected in half to this year versus the first half that we've just announced, are you confident you can grow profits in 25 and 26 as implied by the current consensus?

Yes, we are. It's fair. We've indicated that second-half profits will reduce. That is really, again, the Poland dynamic. Also a little bit more growth coming into the business against a slightly – well, against a weaker comparative last year as well. So that's what's driving the second-half profits. You know, we fully expect next year Poland to be on growing and its revenues growing. We're clearly deploying the next gen organization. So we're very focused on cost efficiency. And, you know, we've got to also bear in mind the other businesses are continuing to gain more scale, better returns. So, yes, we're repairing Poland. The other business keep going ahead and we're deploying, as I say, the next gen orgs. we're comfortable with obviously what market consensus is and we're confident as well.

Great. Thank you. That's it for today's questions. Thanks.

Great. Thank you, Rach. Well, thank you very much, everybody, for tuning in this morning. You'll have learned over the last probably 50 minutes or so that we're really pleased with the results. We still have lots of other things to do in the second half. I'd like to see some more growth coming from Mexico. I'd like to see Poland reach the bottom in terms of portfolio shrinkage and start to regrow. And our new distribution channels and filling in the white spaces with our products, making progress on those. But from where we stand today, we're pleased with the first six months and we feel confident about the second six months. So with that, we'll sign off for now and look forward to catching up with you again shortly. Thank you.