International Personal Finance plc

Good morning, everyone, and thank you for joining us for the International Personal Finance third quarter 2024 trading update. My name's Lydia and I'll be your operator today. After the prayer remarks, there'll be an opportunity for you to ask questions. To join the questions queue, please press star followed by one on your telephone keypad. I'll now hand you over to Gerard Ryan, CEO, to begin. Please go ahead.

Thank you, Lydia, and good morning, everyone, and welcome to our Q3 trading update call. Now, today I'm joined by Gary Thompson, our CFO, and together we'll take you through the highlights of our third quarter performance. As usual, as Lydia has just said, there'll be plenty of time at the end of the briefing for us to answer any questions you might have. Now, I assume most of you will have had a chance to read our trading statement today, and if so, you'll have noticed that it's slightly shorter than our previous quarterly updates. I just wanted to explain why that is the case. After listening to pretty consistent feedback from analysts and investors and reviewing other similar statements, we found that our quarterly updates were far more detailed than basket best practice, and so we made a change to a shorter and more high-level update. We will, of course, continue to report on our divisions in detail in our full year and interim results, but for quarters one and three, we'll move forward with the new, briefer updates. So with that, moving on now to Q3, I'm very happy to report that the second half of this year started on a very strong note. We delivered another strong financial performance in the quarter, building on the momentum of the first half, and we're on course to deliver full-year results in line with our guidance announced with our half-year results in July. However, for us as a team, one of the key highlights of the quarter is the fantastic milestone we reached of serving 15 million customers since we first began operations in 1997. Helping so many people who often struggle to access credit reflects on what IPF is all about. And I'd like to take this opportunity to thank all of my colleagues, both past and present, who have dedicated their work to increasing financial inclusion and making such a positive impact on the people and communities we serve. Turning now to lending, we continue to see strong demand for affordable credit from underserved consumers. And we're meeting this demand with the broad range of credit products and insurance services we now offer. From a single product company at our launch some 26 years ago, not only do we still offer weekly home credit loans, but now more and more digitized. We also offer a credit card in Poland, fully remote digital credit and mobile wallet, retail store credit in Romania, and a range of value-added services, including healthcare and life insurances. As a result of this demand, and excluding Poland, where as many of you know, we're adapting our business to pricing and affordability requirements, we delivered a 7% year-on-year increase in customer lending and 2% growth in customer numbers in Q3. I'm pleased to report that after a period of transitioning to a more credit card-focused operation, our Polish business returned to growth and delivered an increase in lending of 4% year-on-year. also progressing our strategy to regrow the business and i'm pleased to report that group net receivables now stands at 842 million at the end of quarter three showing 11 percent growth excluding poland and their constant exchange rates poland receivables have now stabilized at 180 million broadly in line with the size of the portfolio at the time of our interim results driven by our team's focus on responsible lending and strong operational execution I can confirm once again that customer repayment performance has been excellent in all our markets, a trend we have seen for some time now. This has helped deliver a further 2.8 percentage point improvement in our annualized impairment rate to 9.2%, so it's well below our target of 13% to 16%. And with such excellent quality across the group, this sets us up well for further growth in the quarter 4 and beyond. Now, our annualized yields, so that's the revenue yield, reduced by 0.3 percentage points to 55.1% since the interim results, and the group's annualized cost-income ratio increased by 1.1 percentage points, and both of these are due to the expected reduction in the revenue yield in our Polish business. Excluding Poland, the group's annualized revenue yield jumps to 57.6%, so that's well within our target range of 56 to 58%. and our annualized cost accumulation was 55.1%, so that compares to our target of 49 to 51, so plenty of room for improvement on that one. Moving now to our balance sheet and funding, both of which remain strong and well-positioned to support our growth ambitions and progressive dividend policy. Our equity-to-receivables ratio stood at 53% at the end of the third quarter, so that's down from 50%. This movement reflects the successful completion earlier this month of our 15 million pound share buyback program, as well as the recent depreciation in the Mexican peso. At the end of Q3, we had funding headroom on undrawn facilities and non-operational cash balances of 151 million. And I'm pleased to share with you that we continue to progress our funding strategy, successfully securing 40 million of bank facilities in the quarter. Well, it is a brief statement this time, so that brings me to the end of our Q3 review. And before we check in with any questions, just a very brief recap. We delivered a strong financial performance driven by good customer demand, excellent credit quality, and the successful execution of our next-gen strategy. We also returned to customer lending growth in Poland, and the granting of a full payment institution license, which we expect shortly, we'll enable our Polish home credit business to issue a greater volume of credit in the future. We successfully executed our share buyback program whilst maintaining a very strong balance sheet. And with the progress we're making across our strategic priorities, we're happy to reaffirm our full year results guidance for 2024. So as I said, brief, but hopefully you get all the information you need there. And with that, I'll hand you back to Lydia so we can cover any questions that you might have at this stage. Lydia. Yeah.

Thank you, Gerard. Again, it's star followed by the number one if you'd like to ask a question. And please ensure your device is unmuted locally when it's your turn to speak. To remove yourself from the queue, it's star followed by two. And if you joined us online, you can submit written questions in the text box. Our first question today comes from Gary Greenwood with Shaw Capital. Please go ahead, Gary. Your line is open.

Oh, hi, Gerard. I've got a couple of questions, if I can. So The first one was just on the impairment performance. I was just wondering whether that was sort of broad-based across the group or whether there were any sort of specific areas that performed particularly well. And then the second question was just in terms of sort of lending growth. And I guess the question really there is sort of how do you encourage the agents that you have to be more active and to sort of lean into that sort of favorable credit risk environment that you've got at the moment and grow the loan book a little bit faster. Thank you.

Yeah. Good morning, Gary, and thanks for the questions. And actually, one of your questions crosses over with a question we've had from Stuart Duncan online as well about the impairment rate. So, Gary, do you want to pick that up?

Yeah. Hi, Gary. Just adding to that, I mean, one of the questions Stuart asked was because of how good credit quality is and our low impairment rate, do we still think the 14 to 16 range target is still valid or is it actually a lower amount than that? I think, as you can see, the repayment performance credit quality has been and customer representative out there who have been working with customers. And that's certainly been probably better than we expected it to be. I think going forward, I mean, clearly as a group this year, whilst excluding Poland, we've grown by 11% receivables. Poland's now stabilized, which is great news. But obviously year on year, Poland has reduced. As a group as a whole, receivables are circa 2% up at this point, if you take into account positive growth elsewhere and the reduction in Poland. So the growth hasn't been significant this year. We definitely see it changing next year as Poland regrows and we've got momentum in each of our businesses. And as you know, when you grow your receivables, that's when you pick up all of your early IFRS 9 impairments. And clearly where exactly that growth come from has an influence on our overall rate because we know Mexico is as a higher impairment rate, whereas Europe and IPF Digital have a lower rate. But no, from our perspective, we still expect to hit that range. We're not looking to change the financial model, particularly in terms of yields, cost income, impairment ranges. Could we do better than that? Yeah, we could. But I think as we bring more growth back into the business and some of the opportunities we see, We see it rising again naturally. And that's not credit quality is poor or different. It's just a natural accounting phenomenon that we encounter. I think in terms of your direct question as well, Gary, in terms of is it widespread? Yes, it is. Each of the businesses have done really well from an impairment perspective. So Europe, Mexico is now in line with its range, having been previously not. And IPF Digital is growing really nicely and maintaining good credit quality as well. So it is throughout the whole group.

And then just in terms of how you encourage the agents to sort of lean into that risk and grow faster.

Yes. So I was on a call with one of our brokers after it was a business yesterday explaining the results announcement. And we got this question. And so what I was expecting, that the way we run the business is that, obviously, before each year end, we set out the budget for the following year and a couple of years after that. And clearly, top line is sales. What we do is we agree with each of our individual businesses, the targets. But they put forward their proposals. We have a bit of negotiation. We agree a target. And then they go ahead and execute it. And as we go through the year, if we're a little bit off target and we feel comfortable with where we are on impairment, we will be encouraging each individual business to go out there and do more. And this is what the message I was trying to explain yesterday. We never, ever instruct our businesses to issue more credit. We are firmly of the belief that people who are in the best position to determine the level of credit and credit quality are the people on the ground in each of our countries. So our view is, to answer your question, Gary, how do we get the agency into it? We will be encouraging each of our businesses to go further, and particularly in quarter four, we believe the demand is there, and clearly our portfolio credit quality is, I would say, exceptional. So we'll be encouraging them to go further, and they're getting that message. But just to be clear, we would never instruct the individual businesses to write more credit. We believe that they have to take that decision locally so that they treat their customers fairly. and we do the right thing.

Thanks, Gerard. Yeah, and Gary, I would just add to that as well. In terms of our plans for next year, obviously, as I said before, if you look at what's happened in Poland this year, receivable growth has only been 2%. You should be expecting more double-digit growth next year as we pivot the business to growth, Poland starts regrowing, and the other initiatives that we've got in place.

Understood. That's great. Thanks for taking my questions.

Okay. Our next question today comes from Ray Maley with Panmure Liberum. Please go ahead.

Thanks. Morning. Can we just pick up on those comments about Poland, please, a little bit more? And can you tell us a bit more about how the experience has been with credit cards over the last quarter?

Well, it's been very consistent, Greg. It's been very, very consistent. And by that, I mean it's continued the positive trends that we've seen in terms of credit quality. And probably six months ago, when we were really issuing a lot of cards, we explained that the credit card in terms of credit performance was performing... like an installment loan. Now, it has to be said that shouldn't be a surprise because we've specifically structured the product so it behaves like an installment loan. That is to say, just as a reminder, that when a customer draws down a balance on their credit card, they need to pay that off over 11 to 12 installments. So it needs to be paid down within a 12-month period. So we probably shouldn't be surprised that it's mimicking the performance of an installment loan. And that's good from our perspective. And then in terms of cards issued, we've obviously blown through more than 200,000 at this stage, which makes us quite a big card player in Poland now. But clearly we are waiting for the large payment institution license because having a small license does impede our ability to offer more credit through the existing cards portfolio. We are hopeful that we should get that license shortly. And that would then allow the Polish business to start actively managing that cars portfolio. But overall, we're very pleased with cars portfolio.

Great, thank you.

Our next question is a written question from Marek Talaga with Santander, which reads, when do you expect improvement in customer growth in Poland? And what percentage of growth do you estimate next year? And does a small license for credit cards hold a growth in business in Poland?

Yeah. Hi, Marek. I'll answer the second question first or the second part of that one in terms of the small payment institution license. Yeah, I mean, I think we've said previously in terms of That license, it basically restricts the amount of credit card activity we can do. So clearly, you know, that has been something that's to some extent impacted Poland, you know, probably more so over the last four or five months as we've come start to come up towards the limit that's set there. And clearly, you know, we said in the statement, we're ongoing with those discussions with KNF and we're hopeful of something coming through shortly. And that will then allow the business to grow its credit card portfolio. And in particular, grow the amount of lending we do to existing customers as well because that has been restricted and clearly one of the benefits of a credit card is that it's something that customers can use when they want it they want to be able to use the line you know we've been quite cautious with a lot of the activity around growing it so yeah that full payment license when it comes through will allow us to grow we're fully planning for that into next year And we, you know, we'd expect a pretty strong bounce back in receivables growth and customer growth next year in Poland as a result. Certainly well into the double digits. I'm saying well into the double digits because that's what we'd expect it to do. You know, the business has shrunk from around 300 million to just under 200. Our aim is to get it back up to that 300 million receivables over a period of one, two, three years. And at that point, that's when we'll be delivering our target returns. So, you know, the real focus in Poland will be the license coming through, great management team, drive the business forward in terms of growth.

Thank you. We have no further questions, so I'll hand you back over to Gerard Ryan for any closing comments.

Thank you, Lydia, and thank you, everybody, for joining. I just want to reiterate that one point I made about the milestone in Q3. It really is, in our view, a fabulous achievement to have served 15 million individual consumers over the period of our history. Our purpose is financial inclusion. We're executing on it. I have to say that the results for the quarter were very positive, and we reaffirm our guidance for the year as a whole. Look forward to catching up with you again shortly. Thank you for joining our call. Goodbye.

This concludes our call this morning. Thank you for your participation. You may now disconnect your lines.