International Personal Finance : 2023 full-year results announcement

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Full-year financial report for the year ended 31 December 2023 __________________________________

14 March 2024

International Personal Finance plc

Full-year financial report for the year ended 31 December 2023

Principal activity

International Personal Finance is helping to build a better world through financial inclusion by providing affordable credit products and insurance services to underserved consumers across nine markets.

GOOD GROWTH AND STRONG FINANCIAL PERFORMANCE

Key highlights

• ➢ Strong full-year financial performance and increased final dividend

  • • Reported profit before tax up 8.4% to £83.9m (2022: £77.4m), ahead of our internal plans.

  • • Proposed final dividend of 7.2p per share (2022: 6.5p) results in full-year dividend growth of 12.0% to 10.3p per share (2022: 9.2p), consistent with our progressive dividend policy.

• ➢ Excellent operational execution delivered further growth and continued good credit quality

  • • Strong demand for our broad range of financial products resulted in customer lending, excluding Poland, showing year-on-year growth of 8%.

  • • Closing net receivables of £893m (2022: £869m), demonstrating strong year-on-year growth of 12%, excluding Poland.

  • • Lending and receivables in Poland reduced by 29% and 25% respectively, in line with guidance provided in Q4 2022, as we adapt to new regulation and rollout our new credit card product.

  • • Actions to improve the Group's returns delivering very positive results:

    • - Revenue yield strengthened to 55.3% (2022: 51.9%).

    • - Customer repayment performance remained robust, delivering an impairment rate of 12.2% (2022: 8.6%), in line with expectations.

    • - Rigorous focus on cost control and efficiency delivered a further reduction in the cost- income ratio to 57.0% (2022: 60.9%).

• ➢ Diversified funding sources and significant headroom to fund growth

  • • Successfully raised and extended £146m of debt facilities in 2023, with over £170m of debt funding now maturing beyond 2025.

  • • Substantial headroom on funding facilities of £126m.

  • • We note the improvement in debt market conditions and, together with advisors, are actively exploring options to refinance the Eurobond maturing in November 2025.

• ➢ Significant progress executing strategy to take advantage of substantial and sustainable long-term growth opportunities

  • • Over 130,000 credit cards now issued in Poland.

  • • Continued traction in capturing the significant growth potential in Mexico through both our home credit and digital divisions.

  • • Further new product launches including digital and retail partnership products in Romania and a pay later product in Mexico.

  • • The Group's evolution to a more modern, multi-product, multi-channel and digitally-enabled business is now captured through the rearticulation of the Group's strategy as "Next Gen".

➢

Poland

• • Lenders in Poland, including the Group, recently received a regulatory communication from the Komisja Nadzoru Finansowego (KNF), the Polish Financial Supervision Authority.

• • The communication sets out the KNF's views on how non-interest fees should be interpreted by credit card issuers.

• • Further detail is provided on page 9.

Prior to an exceptional tax charge of £4.0m in 2023, and an exceptional tax credit of £10.5m in 2022, see page 18 for details.

Gerard Ryan, Chief Executive Officer at IPF commented:

"I am pleased to report our relentless focus on meeting our customers' needs combined with strong cost control and good capital management has driven a very positive financial and operational performance in 2023. Our strategy to grow the business is being well executed which, together with excellent operational execution, delivered profit before tax of £83.9m, well ahead of our original plans. All of our businesses delivered good growth, with the exception of Poland where we anticipated a shrinkage as we adapt to new regulation and the rollout of our credit card product. We are now serving more than 130,000 customers with this exciting new offering and we continue to adapt and change our Polish business to customer needs and ongoing changes in regulation.

As a result of our strong performance and confidence in our growth outlook, the Board is proposing a final dividend of 7.2 pence per share, resulting in full-year dividend growth of 12.0%, in line with our commitment to deliver a progressive dividend policy.

Our strong performance in 2023, together with our robust capital and funding position, provides a great foundation for delivering further good quality growth and continuing to successfully execute against our Next Gen strategy in 2024. I would like to say a huge thank you to all my colleagues whose hard work and dedication is the key to increasing financial inclusion for our customers and delivering strong returns for our shareholders."

Alternative performance measures

This full-year financial report provides alternative performance measures (APMs) which are not defined or specified under the requirements of International Financial Reporting Standards. We believe these APMs provide stakeholders with important additional information on our business. To support this, we have included an accounting policy note on APMs in the notes to this financial report, a glossary indicating the APMs that we use, an explanation of how they are calculated and how we use them, and a reconciliation of the APMs we use to a statutory measure, where relevant.

For further information contact:

Rachel Moran - Investor Relations Georgia Dunn - Deputy Company Secretary

+44 (0)7760 167637 +44 (0)7584 615230

Investor webcast

International Personal Finance will host a webcast of its 2023 full-year results presentation at 09.00hrs (GMT) today - Thursday 14 March 2024, which can be accessedhere.

A copy of this statement can be found on our website atwww.ipfin.co.uk.

Legal Entity Identifier: 213800II1O44IRKUZB59

Chief Executive Officer's review

Group performance

I am delighted with the excellent progress we have made against our strategic objectives in 2023 which has resulted in a very strong operational and financial performance for the year as a whole. We delivered profit before tax of £83.9m, up 8% on last year and surpassing our original plans, with good contributions from all our divisions.

Demand for affordable credit from consumers in our target segment remained strong and, despite continued tight credit standards against the backdrop of rising inflation, we delivered an 8% increase in customer lending, excluding Poland. In line with our expectations, lending in Poland declined by 29% as we move to being a credit card-focused business and adapt both our home credit and digital divisions to operating under new affordability regulations in this market. Closing net receivables of £893m (2022: £869m) showed good year-on-year growth of 12%, excluding Poland which saw an expected year-on-year reduction of 25%.

The rollout of credit cards in Poland has progressed well with the product showing strong customer appeal. Along with all other lenders in Poland, we received a regulatory communication from the KNF in late February 2024, regarding its expectations of the application of non-interest fees to credit cards. We are in the process of reviewing the communication with the assistance of external counsel as well as engaging with the KNF to understand the potential impact on our business. If the expectations set out in the KNF letter are implemented in their current form, we estimate that this could reduce the

Group's profits by up to £10m per annum, after taking account of the strong trading performance in

2023. We will continue to adapt and change our Polish product offerings to meet both customer needs and the evolving regulatory landscape in order to deliver our target financial returns.

We continued to make very good progress against our target KPIs in 2023. The revenue yield strengthened to 55.3% (2022: 51.9%) and is now very close to our target range of 56% to 58%, whilst the cost-income ratio reduced to 57.0% (2022: 60.9%) as we maintained our strict focus on cost control and efficiency. We are continuing to identify areas where we can improve efficiency and deploy technology, and we are making good progress towards our target range of 49% to 51%. The impairment rate increased to 12.2% (2022: 8.6%) and this was in line with our plans and remains below our overall target rate of between 14% to 16%, reflecting the good quality of our receivables portfolios. Tight credit standards coupled with a strong operational rhythm, meant that customer repayment performance remained robust in 2023, despite the challenging macroeconomic landscape for our customers.

Our financial model underpins our purpose to build a better world through financial inclusion and targets a return on required equity (RoRE) for the Group of 15% to 20%, which we consider to be sustainable and balances the needs of all our stakeholders. Our annualised pre-exceptional RoRE showed a modest improvement to 14.8% (2022: 14.6%), which reflects a very good performance from each of our businesses to mitigate the impact of reduced returns in Poland as we transition the business through 2023 and 2024. The European and Mexico home credit divisions both delivered our target returns of around 20% whilst returns in IPF Digital improved as we continue to make good progress in capturing the excellent growth opportunities which will deliver both scale and our target returns.

Our Group continues to have a very well-capitalised balance sheet and robust funding position. Continued success in diversifying our funding base and refinancing our existing facilities resulted in significant headroom of £126m on our debt facilities at the end of 2023.

We have previously communicated our plans to deliver a progressive dividend policy whilst absorbing the financial impact of transitioning our business in Poland. Reflecting our confidence in executing the Group's strategy and realising the long-term growth potential of the business, we are proposing a final dividend of 7.2 pence per share, bringing the full-year dividend to 10.3 pence per share, up 12.0% on 2023.

Full details of the Group financial performance are detailed in the financial review section.

Purpose and strategy

We play a vital role in society by providing access to affordable credit products and insurance services to people who are often excluded from day-to-day financial services by banks and other lenders. We currently serve 1.7 million customers in nine countries, and we have a clear ambition to grow our business to 2.5 million customers as we deliver on our purpose of building a better world through financial inclusion.

In 2023, we made strong progress executing our strategy of broadening our products and distribution channels to serve more customers at the same time as driving improved cost efficiency and delivering increased digital capability across the Group. Some of the key highlights were:

(i)Credit cardsThe rollout of our new credit card in Poland has progressed very well and, at the end of the year, we had issued more than 130,000 cards to customers, up from just over 50,000 at the half year. The new offering is proving very popular with our customers who value the utility provided by a credit card to seamlessly shop online and in store as well as withdraw cash at an ATM as their credit limit allows. The level of these transactions has now grown to represent approximately half of all transactions in December 2023, exceeding our own expectations. It is also very encouraging that the impairment performance of credit card customers is consistent with instalment loans, benefiting from the ongoing discipline provided through cash repayments being collected by our customer representatives.

See the Regulatory update for further information regarding a regulatory communication from the KNF in February 2024 regarding the application of non-interest fees to credit cards.

(ii)

Mexico expansionIn our Mexico home credit business, we continued our successful expansion strategy, launching a new home credit region in Tampico in March 2023 and we will continue to grow our geographic footprint in 2024 with a new branch opening in Mexicali, located in northern Mexico. Building on the success of our digital onboarding process, which was delivered in 2022, we transformed our lead management process in 2023 by integrating WhatsApp instant messaging technology with our Facebook marketing channel, which increased leads by more than 165%. In the fourth quarter of the year, we also launched a new mobile app for customers which is currently being tested in three locations and has received positive feedback to date.

We launched our mobile wallet to our digital customers in Mexico in early 2023. We have been very encouraged by the strong uptake in Mexico and, together with the continued good traction in the Baltics, resulted in our IPF Digital division ending the year with over 53,000 mobile wallet customers, up from 14,000 at the start of the year.

As part of our focus on capturing partnership opportunities, we very recently launched a test of an interest-bearing Pay Later product with retailers in Mexico to enable customers to finance their purchases at point of sale.

(iii)RomaniaOur Romanian business continues to be at the forefront of innovation and a driver for growth within the Group. Having launched a retail partnership with E-Mag in 2022, we launched our second retail partnership in the fourth quarter of 2023 with Flanco, one of the country's largest electrical goods retailers, providing access to finance for consumers at the point at which they make a purchase. In

December, we also launched what we term a digital "hybrid" loan product, which offers end-to-end digital onboarding, disbursement and repayment functionality with the opportunity for a customer representative to work with the customer in the event of any financial difficulty. We are pleased with how these new initiatives have started and will look to expand them during 2024.

(iv)Value-added servicesWe continue to see a very good opportunity to serve our customers with value-added services such as healthcare, life and job insurances as well as access to educational services at great value prices they would not be able to obtain individually. During 2023, we further expanded our value-added services in Poland, and also launched our first insurance product in the Baltics within our IPF Digital division. In total, around 800,000 of our customers are now enjoying the benefit of one of our value-added services.

Our Next Gen strategy

The evolution of the Group over the last five years has been dramatic, as we have navigated through Covid-19, adapted to the changing regulatory landscape and introduced an increasing number of new products and channels to satisfy ever-changing customer needs. IPF is now a more modern, multi-product, multi-channel and digitally enabled business and we have therefore taken the opportunity to rearticulate our strategy to reflect the Group as it is today. Our aim is to be the leading provider of financial services for underserved communities around the world; data driven, technology-enabled and always with a human touch, and we are now well positioned to deliver future growth.

We call our rearticulation "Next Gen" and, whilst the fundamentals are unchanged, we now categorise our strategy into three distinct pillars:

• 1. Next Gen financial inclusion: building products, channels and territories to ensure our propositions are attractive to the next generation of customers.

• 2. Next Gen organisation: becoming a smarter and more efficient organisation that makes a positive impact on society.

• 3. Next Gen technology and data: investing in the capabilities required to become a data-driven and technology-enabled partner for our customers.

As we continue to build a better world through financial inclusion and deliver against our ambition to serve 2.5 million customers, we will talk about our strategy and monitor our progress through these three pillars.

Marketplace

Our business offers significant long-term growth opportunities, and our addressable market is very significant with around 70 million adults who are underserved financially in our nine countries alone. Increasingly, consumers are looking for a convenient, fast and personal service enabled by technology innovations, and adoption of digital technology is widespread among our target consumers.

The global economic downturn and cost-of-living crisis continued to be the largest challenge facing our business throughout 2023, both in terms of its impact on our customers as well as increased costs across the Group. Inflation rates are reducing across our markets, but they are expected to remain elevated in 2024. We continued to experience good demand for affordable financial services in our target segment of consumers, and whilst our customers' disposable incomes came under pressure because of increased food, fuel and energy prices, we did not see any discernible signs of deterioration in their repayment performance. This is the result of their careful attitude to credit, our prudent lending decisions to minimise credit risk to the business and our consistent and fair collections practices. We will continue to monitor lending and repayment performance carefully and will adjust credit settings as appropriate.

The rise in inflation has inevitably had a knock-on impact on interest rates around the globe, although it appears that rates have now peaked. We have been heavily focused on managing our revenue yield and cost efficiency to mitigate the rising cost of funding, particularly as we think about our options for refinancing our fixed rate, fixed term funding.

All our markets remain very competitive although we have seen banks tighten their lending criteria in response to the cost-of-living crisis. There have been no major new entrants serving our segment of consumers, but some competitors have been impacted by increased regulation and caution in capital markets. We believe that non-bank financial institutions will remain a crucial source of finance for lower income, underserved consumers, and we will continue to focus on serving more customers in this demographic while maintaining lending quality.

Environment, social and governance (ESG)

As a global lending business, we have the responsibility and opportunity to make a real difference to our customers' financial futures and to contribute to the creation of a lower-carbon, fairer and ethical society. We are committed not only to supporting our customers by providing affordable and transparent credit in a responsible way, but also striving to create long-term, sustainable value for all our stakeholders as we invest in promoting financial inclusion, develop the capabilities of our team who serve millions of customers, and implementing our climate change strategy.

In 2023, the Board approved our Responsible Business Framework, a vision for how we will contribute to a more sustainable world and deliver our purpose of building a better world through financial inclusion. Our journey to embed ESG throughout our operations aims to drive real change across our markets and the key initiatives undertaken in the year included:

• • Our Global People Survey, which measures cultural alignment, had a 95% participation rate and generated a 79% positive response rate - a fantastic result by any measure.

• • We delivered learning academies to 16,000 customer representatives and more than 500 training programmes to colleagues.

• • We invested £893,000 in our communities, assisting 69,000 people through our global

  Invisibles community programme, and providing 3,300 volunteering opportunities for our colleagues.

• • Agreeing our ambition and plan to become net zero by 2050 and becoming a supporter of the

  Task Force on Climate-related Financial Disclosures.

• • Being recognised with Top Employer and Super Ethical Company awards in Poland, and IPF Digital in Mexico was named as the 'Best Place to Work for Women'.

Dividend

Reflecting our confidence in executing the Group's strategy and realising the long-term growth potential of the business, the Board is pleased to declare a 10.8% increase in the final dividend to 7.2p per share (2022: 6.5p). This is in line with our progressive dividend policy and brings the full-year dividend to 10.3p per share (2022: 9.2p), an increase of 12.0% on 2022 and representing a pre-exceptional payout rate of 44% (2022: 44%). As we previously communicated, the payout rate is modestly above our target of 40% as we utilise our strong capital base whilst rebuilding our RoRE to our target level of 15%. Subject to shareholder approval, the final dividend will be paid on 11 May 2024 to shareholders on the register at the close of business on 12 April 2024. The shares will be marked ex-dividend on 11 April 2024.

Regulatory update

(i)Consumer Credit DirectiveThe EU Commission's review of the second Consumer Credit Directive (CCD II) was published formally in November and entered into force in December. EU Member States have 24 months to comply with CCD II. The key areas of change relevant to the Group include rules on pre-contractual information, creditworthiness assessments and underwriting, documentation training and consumer protection rules.

(ii)PolandFrom 1 January 2024, the Polish financial supervision authority, KNF, began supervising all non-bank financial institutions in Poland, which includes our home credit and digital businesses in this market. We continue to engage with the KNF as they assess our application for a full payment institution licence which will enable our Polish business to issue a greater volume of credit cards in Poland. In the meantime, we continue to operate under a small payment institution licence where the value of monthly credit card transactions, based on a 12-month rolling average, is limited to the maximum value achieved in any one month in 2023 (in our case December 2023) until the full payment institution licence is granted.

In late February 2024, we received a letter from the KNF issued to all regulated lenders operating in the Polish credit card market setting out its current expectations on how charging practices for credit cards should be subject to limits on non-interest costs, the need to differentiate between different costs charged by credit card issuers which are subject to caps and those fees which are not subject to a cap and lastly how issuers should approach more broadly the question of calculating and assessing fees which are not subject to specific legal limits.

The key expectations set out in the KNF's letter are as follows:

• (i) Credit cards should be subject to the limits on non-interest costs as set out in the Law on Consumer Credit and the Civil Code. The Consumer Credit cap operates in a way that allows lenders to charge up to 10% of the total amount of credit issued up front, plus 10% of the total amount of credit per annum, up to a maximum of 45% of the total amount of credit issued (often referred to as "10+10"). The Group's Polish business issues its loan products based on this cap. The Civil Code cap operates in a way allowing lenders to charge up to 20% of the total amount of credit per annum, taking into account the actual repayment period.

• (ii) The KNF differentiates between non-interest caps which are "credit-related" and subject to a cap and "card-related" costs which are not subject to a cap.

• (iii) Card-related costs (e.g. ATM usage fees), which are not covered by either of these caps, should be proportionate, not excessive and should be justifiable.

• (iv) The letter was not specific on when any changes would need to be implemented and did not indicate any retrospective application.

In addition to the above charges, lenders in Poland can also charge interest on all credit products, including credit cards, up to the limit on the interest rate cap which is calculated as: 2 x (National Bank Reference Rate + 3.5%).

Following detailed legal advice, the Group had previously determined that non-interest cost caps did not apply to credit cards and is therefore reviewing, with the assistance of external counsel, what the impact of this communication might be. We are also engaging with the KNF.

At present, the Polish business charges interest on its credit cards in line with the current interest rate cap in Poland plus an all-in 4.5% charge per month. The all-in monthly charge is above the non-interest expectations set out in the KNF's letter.

Our Polish credit card receivables portfolio amounts to £49m at 31 December 2023. This is stated after a £6m impairment charge in respect of a reduction in expected future cashflows discounted at the original effective interest rate as a result of the potential impact from the KNF letter. Polish credit card receivables represent just over 5% of the Group's receivables and approximately 25% of total receivables in Poland. The Group's Polish business has an excellent track record of adapting to the evolving regulatory environment and has developed a broad range of products and distribution channels to meet the financial needs of underbanked and underserved consumers in this market. We will continue to evolve our Polish business in order to ensure it delivers the Group's target returns of between 15% and 20% whilst building financial inclusion in this important market.

The Group estimates that if the expectations set out in the KNF letter are implemented in full in their current form, the non-interest fees generated by the Group's Polish credit card business could be reduced by approximately 30% - 40%. On an ongoing basis, after taking account of the Group's strong trading performance in 2023, this could reduce the Group's profit before tax by up to £10m per annum.

Further information is also set out in note 22.

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IPF - International Personal Finance plc published this content on 25 March 2024 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 26 March 2024 07:05:18 UTC.