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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| International Personal Finance Plc | LSE:IPF | London | Ordinary Share | GB00B1YKG049 | ORD 10P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| -1.50 | -1.46% | 101.00 | 99.40 | 101.50 | 101.50 | 101.00 | 101.50 | 149,630 | 13:52:03 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Personal Credit Institutions | 690.8M | 48M | 0.2155 | 4.69 | 224.98M |
From Apr 2019 to Apr 2024
TIDMIPF
RNS Number : 1898R
International Personal Finance Plc
27 February 2019
International Personal Finance plc
Full-year Financial Report for the year ended 31 December 2018
International Personal Finance plc specialises in providing unsecured consumer credit to more than 2.3 million customers across 11 markets. We operate the world's largest home credit business and a leading fintech business, IPF Digital.
Key highlights
Hot Features
Premium
Ø Significantly improved financial performance and excellent
strategic progress
o Credit issued growth of 6%
o Consistently well-managed credit quality - impairment
to revenue ratio of 26.2%
o GBP15.3 million (16%) growth in Group profit before tax
from ongoing businesses to GBP109.3 million after restating
2017 PBT on an IFRS 9 basis
Ø European home credit - very good operational and financial
performance
o As expected, challenging market landscape drove credit
issued contraction of 5%
o Excellent credit quality - impairment to revenue ratio
of 17.9%
o Profit before tax of GBP113.8 million delivered through
improved collections performance and cost optimisation
Ø Mexico home credit - strategic investment continued to deliver
growth
o 11% growth in customer numbers to reach 917,000
o 12% increase in credit issued driven by investment in
strategic initiatives including geographic expansion
and micro-business lending
o Strong profit growth (22%) to GBP15.7 million
Ø IPF Digital - strong growth and excellent operational performance
o Effective execution delivered strong credit issued growth
of 35%
o Established markets delivered good growth and improved
profitability
o New markets delivered strong growth, improved impairment
and lower start-up losses
o Confident of delivering maiden profit in 2019
Ø Strong funding position and robust balance sheet; dividend
maintained
o Further diversified funding and extended term: GBP177
million matures after Eurobond Q2 2021
o GBP185.5 million of headroom on debt facilities
o Equity to receivables of 43.6% post-IFRS 9 implementation
o Proposed final dividend of 7.8 pence per share
Group key statistics (continuing 2017 reported 2017 2018 YOY change
operations) IFRS 9 IFRS 9 IFRS 9 at
CER
Customers (000s) 2,290 2,290 2,301 0.5%
Credit issued (GBPm) 1,301.5 1,301.5 1,360.6 5.5%
Revenue (GBPm) 825.8 842.6 866.4 4.1%
Impairment % revenue 25.4% 27.9% 26.2% 1.7%
Cost-income ratio 45.2% 44.3% 44.9% (0.6)%
PBT from ongoing businesses
(GBPm) 102.4 94.0 109.3
Statutory PBT (GBPm) 105.6 97.2 109.3
Statutory EPS (pence) 33.7 31.0 33.8
Full-year dividend per share
(pence) 12.4 12.4 12.4
---------------------------------- -------------- -------- -------- -----------
Excluding Slovakia and Lithuania.
Notes
In this financial report, we compare the 2018 actual full-year performance against the 2017 numbers adjusted for IFRS 9 because the Board believes that this provides the most relevant comparison of performance trends. More detail on IFRS 9 can be found in this report, and a full reconciliation of the 2017 profit and loss account between the reported numbers and the IFRS 9 numbers is also set out in this report.
This report has been prepared solely to provide additional information to shareholders to assess the Group's strategies and the potential for those strategies to succeed. The report should not be relied on by any other party or for any other purpose. The report contains certain forward-looking statements. These statements are made by the directors in good faith based on the information available to them up to the time of their approval of this report but such statements should be treated with caution due to the inherent uncertainties, including both economic and business risk factors, like-for-like any such forward-looking information. Percentage change figures for all performance measures, other than profit before taxation and earnings per share, unless otherwise stated, are quoted after restating prior year figures at a constant exchange rate (CER) for 2018 in order to present the like-for-like performance variance.
Chief Executive Officer, Gerard Ryan, commented:
"I am delighted with the excellent progress we made against our strategic objectives which delivered a very strong financial performance in 2018. Profit before tax increased by GBP15.3 million to GBP109.3 million as a result of improving profits across all our businesses. We are particularly pleased with IPF Digital's profit trajectory, with a strong contribution from established markets and reduced start-up losses within new markets, driven by both excellent customer acquisition and strong credit growth. We are confident that our strategy will continue to support growth across the Group by successfully addressing the demands of our core stakeholders: meeting our customers' needs, creating value for our shareholders and contributing to the communities in which we operate."
Strategy update
Our business provides small sum, unsecured personal loans to customers who are either underbanked or underserved by mainstream operators. Our strategy is to provide consumers in this segment with a greater choice of channels, products and price points, and to make their journey with us as seamless as possible. We made very good progress against our strategy in 2018 which segments our operations into 'growth' and 'returns' focused businesses. We are optimising the returns of our European home credit operations to invest in our growth businesses, Mexico home credit and IPF Digital, and deliver returns to our shareholders. We will continue to improve our service and effectiveness by investing in technology in both our home credit and digital businesses.
Our European home credit business is becoming more efficient and technologically enabled, the loan portfolio quality is excellent and it delivered very good operational and financial results this year. Our investments in growth opportunities in IPF Digital and Mexico home credit are now showing clear signs that they will deliver according to our plan, thereby creating a group with three pillars; a modernised European home credit delivering very good returns; a Mexican home credit business that combines ongoing growth potential with improved levels of profitability; and a global digital lending business that grows through constant innovation and delivers good returns.
Market overview
Macroeconomic conditions in all our European markets in 2018 were stable and current indicators suggest these markets will deliver positive GDP growth, low unemployment and moderately increasing inflation in 2019. In Mexico, political change resulted in some uncertainty in 2018 and GDP growth forecasts for 2019 remain positive but have softened slightly in recent months.
In all our markets, we continue to see a growing number of consumers wanting to access finance, although it is clear that a very significant proportion of our target market do not have the credit quality required to be served remotely by mainstream lenders. Competition for the best quality customers in our demographic is intense and our IPF Digital brands and Provident-branded digital offers are targeted directly at consumers in this segment who have the credit profile to qualify for a remote loan.
Based on our experience across several markets, we see home credit co-existing very comfortably with digital credit offerings as the combination of the two can serve the vast majority of the customers in our segments. In particular, our home credit model, with the involvement of an agent at the customer's home, allows us to gain a unique and in-depth understanding of a customer's financial circumstances and propensity to repay. As a result, we are able to lend with more confidence to creditworthy customers where a remote lending business cannot.
Group performance overview
Executing in line with our strategic objectives and remaining committed to strong operational discipline resulted in a GBP15.3 million (16%) increase in profit before tax to GBP109.3 million from ongoing businesses. This comprised an uplift in like-for-like profit before tax of GBP15.2 million, a benefit of GBP1.7 million from lower new business investment and a GBP1.6 million adverse impact from weaker FX rates. The reduced new business investment comprised GBP3.6 million within IPF Digital's new markets and central functions where start-up losses reduced, offset partially by increased new business investment of GBP1.9 million in Mexico home credit.
The table below details the performance of each of our business segments, highlighting the significant like-for-like improvement in profit before tax that has been delivered.
2017 Like-for-like New business Stronger 2018
IFRS profit investment / weaker IFRS 9
9 movement movement FX rates profit
profit
GBPm GBPm GBPm GBPm GBPm
------------------------ -------- -------------- ------------- ---------- --------
European home credit 112.3 2.2 - (0.7) 113.8
Mexico home credit 12.9 5.9 (1.9) (1.2) 15.7
IPF Digital (16.3) 6.8 3.6 0.3 (5.6)
Central costs (14.9) 0.3 - - (14.6)
------------------------ -------- -------------- ------------- ---------- --------
Profit before taxation
ongoing businesses 94.0 15.2 1.7 (1.6) 109.3
Slovakia and Lithuania 3.2 (3.4) - 0.2 -
Profit before taxation
from
continuing operations 97.2 11.8 1.7 (1.4) 109.3
------------------------ -------- -------------- ------------- ---------- --------
The increase in profit comprised GBP15.3 million from our ongoing businesses offset partially by a GBP3.2 million reduction in the contribution from Slovakia and Lithuania, which reported a profit in 2017 when they were being wound down. We are in the process of liquidating the home credit businesses in Slovakia and Lithuania, and this did not result in any profit and loss account charge or credit during 2018. The statutory profit before tax increase, IAS 39 2017 to IFRS 9 2018, is GBP3.7 million.
We delivered a 6% increase in credit issued led by our IPF Digital and Mexico home credit businesses, offset partially by a 5% contraction in European home credit. This growth increased our average net receivables by 6%, and revenue by 4%. We maintained strong credit quality and good collections across the Group and improved impairment as a percentage of revenue by 1.7ppts to 26.2% (2017: 27.9%). Our cost-income ratio increased by 0.6ppts to 44.9%, driven by improved operating leverage in IPF Digital and Mexico home credit offset by a modest increase in the cost-income ratio in European home credit.
Business Division Performance Review
European home credit
Our European home credit businesses are the financial foundation of the Group, providing excellent service to customers and generating the cash and capital needed to fund growth opportunities and returns to shareholders. We continued to improve the sustainability of these businesses by creating more modern, efficient and better credit quality operations which resulted in a very good operational and financial performance in 2018. Together, the European home credit businesses delivered a GBP1.5 million increase in profit before tax to GBP113.8 million driven primarily by stronger-than-originally expected post-field collections. This robust performance reflects an improvement in like-for-like profit of GBP2.2 million with slightly lower net revenue more than offset by lower costs, partially impacted by a GBP0.7 million adverse effect from weaker FX rates.
2017 2018 Change Change Change
IFRS 9 IFRS 9 GBPm % at CER
GBPm GBPm %
------------------------- -------- -------- ------- ------- --------
Customer numbers (000s) 1,236 1,092 (144) (11.7)
Credit issued 797.0 757.8 (39.2) (4.9) (5.1)
Average net receivables 578.0 558.9 (19.1) (3.3) (3.7)
------------------------- -------- -------- ------- ------- --------
Revenue 519.9 493.3 (26.6) (5.1) (5.3)
Impairment (108.3) (88.5) 19.8 18.3 18.4
------------------------- -------- -------- ------- ------- --------
Net revenue 411.6 404.8 (6.8) (1.7) (1.9)
Finance costs (36.6) (35.3) 1.3 3.6 3.8
Agents' commission (56.6) (53.7) 2.9 5.1 5.5
Other costs (206.1) (202.0) 4.1 2.0 2.6
------------------------- -------- -------- ------- ------- --------
Profit before taxation 112.3 113.8 1.5 1.3
------------------------- -------- -------- ------- ------- --------
Competition remained intense in Europe with payday, digital, home credit and bank operators competing to serve credit to our segment of consumers. This, together with new debt-to-income regulations in Romania, resulted in customer numbers contracting by 12%. We responded with campaigns to increase new customer acquisition and improve retention which, as planned, delivered a 3ppt slower rate of contraction in the second half of the year compared to the first. Credit issued contracted by 5%, which led to a reduction in both average net receivables and revenue of 4% and 5% respectively.
The credit quality of the loan portfolio in European home credit is very strong, driven primarily by better than originally expected post-field collections, supported by good agent collections and our focus on serving higher-quality customers. As a result, impairment as a percentage of revenue improved by 2.9ppts to 17.9%.
We are modernising our European home credit businesses to improve efficiency by investing in technology and we completed the roll-out of our agent mobile technology in this region which is now being used by more than 10,000 agents and field managers. As demand for digital loans has increased, we have evolved the business to offer Provident-branded digital loans to customers in Poland and around 22,000 people are using this channel. We delivered a reduction in costs during 2018 of GBP5.4 million (at CER) despite these investments in technology as we focused on delivering a sustainably lower cost base in these businesses. However, revenue contraction was slightly faster than the reduction in costs which resulted in a 1.3ppt increase in the cost-income ratio year on year to 40.9%. As planned, this ratio improved during the second half of the year as result of this optimisation strategy.
We will continue to operate our European home credit businesses in line with our strategy to enhance their sustainability, deliver a high-quality service to our customers and optimise returns. We aim to continue the momentum we achieved in the second half of 2018 and further reduce the rate of customer contraction, become more technically enabled with further functionality being added to the MyProvi mobile app, and improve cost-efficiency.
Mexico home credit
Mexico home credit is one of our two strategic investment areas to drive growth. We are taking advantage of the significant scale opportunity in this market by expanding our geographic footprint, building our micro-business channel and improving profitability in our established branches. We opened five new branches in the second quarter of the year and are now serving over 100,000 customers in the 17 branches opened since the beginning of 2016. With an estimated four million individuals running micro-businesses in Mexico, the potential opportunity to generate growth by providing credit to customers who are underbanked is substantial, and we are now serving around 26,000 customers with this offering.
The Mexico home credit business continued to perform well and delivered a 22% (GBP2.8 million) improvement in profit before tax to GBP15.7 million in 2018. This comprises like-for-like profit growth of GBP5.9 million delivered by our established branches, offset partially by increased investment in future growth of GBP1.9 million through geographical expansion and our micro-business channel, together with a GBP1.2 million adverse impact from weaker FX rates.
2017 2018 Change Change Change
IFRS 9 IFRS 9 GBPm % at CER
GBPm GBPm %
------------------------------ -------- -------- ------- ------- --------
Customer numbers (000s) 828 917 89 10.7
Credit issued 273.7 291.0 17.3 6.3 12.3
Average net receivables 150.6 154.9 4.3 2.9 8.5
------------------------------ -------- -------- ------- ------- --------
Revenue 218.6 226.1 7.5 3.4 9.3
Impairment (79.0) (82.9) (3.9) (4.9) (10.5)
------------------------------ -------- -------- ------- ------- --------
Net revenue 139.6 143.2 3.6 2.6 8.6
Finance costs (10.2) (11.3) (1.1) (10.8) (17.7)
Agents' commission (28.9) (28.8) 0.1 0.3 (5.5)
Other costs (87.6) (87.4) 0.2 0.2 (4.9)
------------------------------ -------- -------- ------- ------- --------
Profit before taxation 12.9 15.7 2.8 21.7
------------------------------ -------- -------- ------- ------- --------
Established branches 17.2 22.4 5.2 30.2
Expansion and micro-business (4.3) (6.7) (2.4) (55.8)
------------------------------ -------- -------- ------- ------- --------
Profit before taxation 12.9 15.7 2.8 21.7
------------------------------ -------- -------- ------- ------- --------
Our strategy to attract new customers through investment in branch expansion and our micro-business loans channel were the key drivers of an 89,000 increase in customers to 917,000. This resulted in credit issued growth of 12% together with a 9% increase in both average net receivables and revenue.
Alongside delivering good growth, we maintained collections at an acceptable level and impairment as a percentage of revenue was 36.7%, which is slightly higher than 2017. In our established branches, where we have a balanced mix of new and repeat customers and stable operational teams, this impairment measure stands at 32.7% of revenue (2017: 34.4%). As newer branches and micro-business lending become more mature, their impairment measure is expected to reach that of the established branches. Our investment in growing Mexico home credit drove a 5% increase in our other costs which was driven by expansion and micro-business lending. Overall, the increase in investment was lower than the revenue growth generated, and together with good cost management, the cost-income ratio improved by 1.4ppts year on year to 38.7%.
Mexico offers significant opportunities for our home credit business and we will continue our successful strategy to expand our geographic footprint and micro-business loans channel to deliver further top-line growth. In addition, we will focus on driving further improvements in returns from our established branches.
IPF Digital
IPF Digital is also a key strategic growth opportunity for the Group serving the increasing demand for digital credit within our target segment of consumers. We delivered another year of very strong growth and made further progress against our strategic priorities of providing a great customer experience through innovation, building scale in our new markets of Poland, Spain, Australia and Mexico, and moving to profitability in 2019. The growing demand for our revolving credit line product, which now accounts for 60% of our digital lending, demonstrates that we are achieving our stated goal of providing customers with the products they want through the channels they wish to use. Clearly this goal is a journey rather than an end point and we will continue to develop and improve our products and processes to make the customer journey as simple, fast and frictionless as possible.
In 2018, we focused on increasing scale in our new markets while improving our credit decisioning, the result of which was a reduction in start-up losses before tax to GBP5.6 million, which is a GBP10.7 million improvement on 2017. This result was driven by reduced losses in our new markets where we delivered strong top-line growth, improved impairment and cost-leverage combined with improved profitability in the established markets.
2017 2018 Change Change Change
IFRS 9 IFRS 9 GBPm % at CER
GBPm GBPm %
------------------------- -------- -------- ------- ------- --------
Customer numbers
(000s) 226 292 66 29.2
Credit issued 230.8 311.8 81.0 35.1 34.7
Average net receivables 148.5 209.6 61.1 41.1 40.7
------------------------- -------- -------- ------- ------- --------
Revenue 104.1 147.0 42.9 41.2 40.9
Impairment (47.5) (55.6) (8.1) (17.1) (16.8)
------------------------- -------- -------- ------- ------- --------
Net revenue 56.6 91.4 34.8 61.5 61.2
Finance costs (8.4) (11.9) (3.5) (41.7) (40.0)
Other costs (64.5) (85.1) (20.6) (31.9) (32.6)
------------------------- -------- -------- ------- ------- --------
Loss before taxation (16.3) (5.6) 10.7 65.6
------------------------- -------- -------- ------- ------- --------
Strong customer demand and effective marketing delivered a 35% increase in credit issued to GBP311.8 million, driven primarily by the strong performance in our new markets, but also good levels of growth in our established markets. This resulted in a 41% increase in both average net receivables and revenue.
Alongside this growth, we continued to improve our credit decisioning capabilities, evidenced by a 7.8ppt improvement in impairment as a percentage of revenue to 37.8%. We maintained good credit quality in our established markets and we made considerable improvements in the new markets by optimising our credit settings via constant testing and refinement of different credit strategies. In addition, increased scale and investment in technology has enabled us to better leverage our infrastructure and improve cost efficiency, delivering a 4.1ppt year-on-year reduction in the cost-income ratio to 57.9%.
The profitability of IPF Digital is segmented as follows:
2017 2018 Change Change
IFRS IFRS 9 GBPm %
9 GBPm
GBPm
--------------------- ------- -------- ------- -------
Established markets 18.6 25.5 6.9 37.1
New markets (25.2) (17.8) 7.4 29.4
Head office costs (9.7) (13.3) (3.6) (37.1)
--------------------- ------- -------- ------- -------
IPF Digital (16.3) (5.6) 10.7 65.6
--------------------- ------- -------- ------- -------
Established markets
2017 2018 Change Change Change
IFRS IFRS 9 GBPm % at CER
9 GBPm %
GBPm
------------------------- ------- -------- ------- ------- --------
Customer numbers (000s) 141 157 16 11.3
Credit issued 138.7 161.3 22.6 16.3 15.4
Average net receivables 105.7 130.9 25.2 23.8 22.9
------------------------- ------- -------- ------- ------- --------
Revenue 63.4 79.5 16.1 25.4 24.4
Impairment (13.1) (16.5) (3.4) (26.0) (24.1)
------------------------- ------- -------- ------- ------- --------
Net revenue 50.3 63.0 12.7 25.2 24.5
Finance costs (5.8) (7.2) (1.4) (24.1) (24.1)
Other costs (25.9) (30.3) (4.4) (17.0) (16.1)
------------------------- ------- -------- ------- ------- --------
Profit before taxation 18.6 25.5 6.9 37.1
------------------------- ------- -------- ------- ------- --------
Our established markets delivered a GBP6.9 million improvement in profit before tax to GBP25.5 million driven by the benefits of scale and cost leverage. Smarter marketing, customer acquisition and CRM, combined with enhanced risk-based pricing strategies, resulted in a 15% increase in credit issued and a 23% increase in average net receivables. Revenue yield was stable at around 60% and, therefore, revenue growth was in-line with the increase in average net receivables.
Impairment as a percentage of revenue in these well-regulated markets was stable at 20.8%. This reflected a modest increase in underlying impairment as these markets continue to grow and serve new customers, offset partially by the benefit of non-recurring debt sale profits totalling GBP3.6 million. We continued to manage our cost base closely to improve efficiency, which resulted in an improvement in the cost-income ratio of around 3ppts to 38.1%.
New markets
2017 2018 Change Change Change
IFRS IFRS 9 GBPm % at CER
9 GBPm %
GBPm
------------------------- ------- -------- ------- ------- --------
Customer numbers (000s) 85 135 50 58.8
Credit issued 92.1 150.5 58.4 63.4 64.1
Average net receivables 42.8 78.7 35.9 83.9 85.2
------------------------- ------- -------- ------- ------- --------
Revenue 40.7 67.5 26.8 65.8 67.1
Impairment (34.4) (39.1) (4.7) (13.7) (14.0)
------------------------- ------- -------- ------- ------- --------
Net revenue 6.3 28.4 22.1 350.8 365.6
Finance costs (2.6) (4.7) (2.1) (80.8) (74.1)
Other costs (28.9) (41.5) (12.6) (43.6) (46.1)
------------------------- ------- -------- ------- ------- --------
Loss before taxation (25.2) (17.8) 7.4 29.4
------------------------- ------- -------- ------- ------- --------
Start-up losses in the new markets reduced by GBP7.4 million, driven by a combination of strong top-line growth together with improved impairment and cost-leverage. We continued to invest in building our digital brands, as well as improving our product and customer experience and enhancing risk-based pricing strategies to appeal to a wider range of customers. These factors delivered a 64% increase in credit issued, an increase in average net receivables of 85% and growth in revenue of 67%, with strong performances from all markets.
Another year of experience in these markets improved our ability to make good credit decisions and enhance our processes to optimise customer repayment behaviours. This delivered a significant 26.6ppt reduction in impairment as a percentage of revenue to 57.9%. Achieving such rapid improvement in credit quality at the same time as strong growth demonstrates our capabilities to continuously improve our credit settings and optimise our use of new technology and data sources. We expect we will continue to deliver positive impairment trends in these markets as they mature. Investment in growing these businesses - both marketing and volume-driven operational costs - resulted in increased costs to GBP41.5 million, however, economies of rapidly increasing scale resulted in a 9.5ppt improvement in the cost-income ratio to 61.5%, and we expect this trend to continue in the coming years.
IPF Digital as a whole represents a significant long-term growth opportunity for the Group and is making excellent progress against our strategy to build a large, profitable digital lending business. We are confident that we will deliver the division's maiden profit in 2019 as we continue to build scale, improve impairment in our new markets, and further leverage our cost base to drive greater efficiency.
Regulatory update
As previously reported, the National Bank of Romania introduced debt-to-income limits that became effective on 1 January 2019. The debate in Romania relating to a proposal for an APR cap of 18% for existing and new consumer lending has now been finalised. Following a full consultation, which included engagement with our trade association and banks to enable regulators and politicians to better understand the potential unintended impacts of the proposal on consumers and businesses, an APR cap of 50% for loans under EUR3,000 and 18% for loans over EUR3,000 was agreed. The vast majority of our Romanian lending will fall under the 50% cap. While aspects of the new cap are the subject of a constitutional court challenge, we nevertheless expect the new regulation to come into effect later in the year. Although the APR cap and new debt-to-income limits will have an effect on sales volumes and profitability in Romania, we do not expect this to be material at Group level.
On Monday 18 February, the Polish Ministry of Justice (MoJ) published a draft bill containing a modified set of proposals for a reduction in the cap on non-interest costs that may be charged by lenders in connection with consumer loan agreements. The level of the current cap is as follows: (i) a flat level of 25% of the loan value; and (ii) an additional cap of 30% per annum; the combined total of both of which may not, in any event, exceed 100% of the loan value. The MoJ had previously published a draft bill in December 2016 under which the flat level cap and the additional per annum cap would have been reduced to 10% and 10% respectively, the combined total being limited to 75% of the loan value. As modified, the new proposal regarding non-interest costs is to reduce the flat level cap to 20% and the additional per annum cap to 25%, the combined total being limited to 75% of loan value. There is no proposal to reduce the current cap on interest charges. The proposals are open to public consultation for two weeks from the date of their publication and if approved in their current form, could be effective during the second calendar quarter of 2019. Once the proposals are finalised, we will update the market with our assessment of the likely financial impact on the Group.
Taxation
The taxation charge on profit for 2018 has been based on an effective tax rate of 31%. The taxation charge for the year on statutory pre-tax profit was GBP33.9 million (2017: GBP30.6 million on a pre-exceptional tax charge basis). As set out in our Q3 trading update on 18 October 2018, a draft law proposing amendments to existing tax legislation in Poland was submitted to Parliament and came into force on 1 January 2019. The main impact for our business is that certain cross-border transactions entered into by our Polish subsidiary are now economically inefficient. As a result of these changes, we expect the effective tax rate for the Group to be around 41% in 2019.
In January 2017, our home credit company in Poland received adverse decisions on tax audits in respect 2008 and 2009 and consequently was required to pay GBP36.1 million (comprising tax and associated interest) in order to lodge an appeal in the Polish courts. The court process was subsequently stayed whilst these decisions became subject to a process involving the UK and Polish tax authorities aimed at ensuring that an intra-group arrangement is taxed in accordance with international tax principles. The tax returns for 2010 to 2012 are currently subject to tax audits and all subsequent years remain open to audit. The total potential liability for all open years (2008 to 2018), if all years were assessed on the same basis as 2008 and 2009, would amount to around GBP169 million including the GBP36.1 million that has already been paid, and this is disclosed in the financial information as a contingent liability. We have received strong external legal advice, and note that during a previous tax audit by the same tax authority, the Company's treatment of these matters was accepted as correct. Therefore the payment of the sum outlined above is not a reflection of our view on the merits of the case, and accordingly the GBP36.1 million already paid has been recognised as a non-current financial asset in these Financial Statements given the uncertainties in relation to the timing of any repayment of such amounts. Further details on this matter are set out in note 21.
Funding and balance sheet
We further strengthened our debt funding position by adding GBP84 million of new funding in 2018.
In June, we issued a Swedish Krona 450 million (GBP40 million) senior unsecured floating rate bond due in 2022 under our existing Euro Medium Term Note Programme. This forms part of our funding strategy to support the long-term growth of the business by diversifying sources of debt funding, and extending the debt maturity profile beyond the main Eurobond maturity in 2021. In addition, we put in place GBP44 million of new bank funding including facilities provided by new banks in Romania, Poland, and Hungary.
At December 2018, we had total debt facilities of GBP886 million (GBP570 million bonds and GBP316 million bank facilities) and borrowings of GBP698 million, with headroom on undrawn debt facilities of GBP185.5 million. Of our committed funding, GBP177 million now extends beyond the Eurobond maturity in 2021, including GBP73 million in 2022/23. We repaid total bonds of GBP65 million which matured in 2018, and have one bond maturity in December 2019 of GBP15 million.
Our balance sheet remains robust, with an equity to receivables capital ratio at December 2018 of 43.6% compared with 42.0% at December 2017.
Dividend
Subject to shareholder approval, a final dividend of 7.8 pence per share will be payable, which will bring the full-year dividend to 12.4 pence per share (2017: 12.4 pence per share). The final dividend will be paid on 10 May 2019 to shareholders on the register at the close of business on 12 April 2019. The shares will be marked ex-dividend on 11 April 2019.
Board changes
Tony Hales, who joined the Board in 2007, will not be seeking re-election at the 2019 AGM in May and will stand down from the Board as a Non-Executive Director at that time. We are pleased to announce that Richard Moat will replace Tony as senior independent director with effect from the conclusion of the 2019 AGM, subject to Richard's re-election as a director. Richard joined the Board in 2012 and was appointed Chairman of the Audit and Risk Committee in 2015.
Dan O'Connor, Chairman said: "Following a rigorous selection process to find the right individual to take over the role of senior independent director, I am pleased that Richard Moat accepted this critical position. His skills, knowledge and experience make him a worthy successor to Tony Hales. Tony has been our senior independent director since 2010. On behalf of the Board, I would like to thank him sincerely for his support, valuable insight and significant contribution throughout his time with IPF. Tony has been a great colleague, providing huge assistance to me in my role, and has added greatly to the quality and richness of discussion around the board table."
Outlook
We remain focused on serving our customers responsibly within a regulatory and competitive landscape that we expect will remain challenging. We will continue to focus on the sustainability of our European home credit businesses by investing to create a more modern, efficient and higher credit quality operation that provides a broader array of services to our customers. These businesses deliver good returns for shareholders and fund growth opportunities in our Mexico home credit and IPF Digital operations. In Mexico we will continue to invest in growing the scale of our operations through geographic expansion and micro-business lending in tandem with delivering progressive improvements in profit. In IPF Digital we will focus on continued portfolio growth, further reductions in impairment and as a result we expect to deliver a maiden profit for the division in 2019.
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 why we use them, and a reconciliation of the APMs we use to a statutory measure, where relevant.
IFRS 9
IFRS 9 is a new accounting standard that became effective on 1 January 2018 and addresses accounting for financial instruments. The main impact on the Group is a change to the methodology used to account for amounts receivable from customers. The key change is a shift from incurred loss to expected loss impairment accounting. Under IFRS 9, we are required to record impairment charges at the inception of a loan based on the losses that are expected to be incurred and this results in negative net revenue at the start of a loan.
Implementation of the standard results in changes in the recognition of revenue and impairment and, as a consequence, the accounting value of the Group's receivables portfolio. The one-time reduction in the accounting value of receivables has been charged to equity in accordance with the transition rules of IFRS 9 and further details on this are set out below and in note 23. The ongoing impact on profit before tax of our reporting segments varies according to the stage of development of a business. If a reporting segment's receivables portfolio is stable in terms of size and credit quality, IFRS 9 will not have a significant impact on net revenue generation. This is because for every new loan issued where impairment is booked on origination, there is another older loan that reports higher net revenue than under the current accounting standard. However, if a reporting segment's receivables portfolio is growing, net revenue and profit will be lower in the earlier months under IFRS 9. This is because impairment booked on originating loans will be larger than the benefit arising from lower impairment on the older loans, due to portfolio growth.
The profit before taxation impact that IFRS 9 would have had on our 2017 reporting is summarised below.
2017 reported IFRS 9 2017
profit impact IFRS 9
profit
GBPm GBPm GBPm
------------------------------------------- -------------- --------- --------
European home credit 114.3 (2.0) 112.3
Mexico home credit 14.7 (1.8) 12.9
IPF Digital (11.7) (4.6) (16.3)
Central costs (14.9) - (14.9)
------------------------------------------- -------------- --------- --------
Profit before taxation ongoing businesses 102.4 (8.4) 94.0
Slovakia and Lithuania 3.2 - 3.2
Profit before taxation from continuing
operations 105.6 (8.4) 97.2
------------------------------------------- -------------- --------- --------
The total impact of IFRS 9 on the Group's net assets as at 1 January 2018 is as follows:
Reported Transitional IFRS 9
impact
1 January 1 January
2018 2018
GBPm GBPm GBPm
---------------------- ----------- ------------- -----------
Receivables 1,056.9 (130.5) 926.4
Deferred tax 93.0 23.1 116.1
Other net assets (653.0) - (653.0)
---------------------- ----------- ------------- -----------
Net assets 496.9 (107.4) 389.5
---------------------- ----------- ------------- -----------
Equity % receivables 47.0% 42.0%
---------------------- ----------- ------------- -----------
Opening net assets is stated after the one-time reduction in the accounting value of receivables at the start of the year arising from the implementation of IFRS 9 which totalled GBP130.5 million or 12.3% of the accounting value of the receivables portfolio under the old accounting standard. This impact has been charged to equity in accordance with the transitional rules included in IFRS 9. The impact of this reduction on net assets was mitigated partially by an increase in the deferred tax asset reflecting the fact that, under IFRS 9, net revenue is recorded more slowly in the Financial Statements than under the old accounting standard, and hence the timing difference between the Financial Statements and the tax returns is larger.
In the financial information included within this full-year Financial Report, the Group has elected not to restate comparatives on initial application of IFRS 9 and, as such, 2017 comparatives are as previously reported.
International Personal Finance plc
Consolidated income statement for the year ended 31 December
2018 2017
Notes GBPm GBPm
--------------------------------------- ------ -------- --------
Revenue 4 866.4 825.8
Impairment 4 (227.0) (201.1)
Revenue less impairment 639.4 624.7
-------- --------
Finance costs (58.5) (55.2)
Other operating costs (140.8) (135.2)
Administrative expenses (330.8) (328.7)
Total costs (530.1) (519.1)
-------- --------
Profit before taxation - continuing
operations 4 109.3 105.6
Tax expense - UK (0.8) (0.7)
- Overseas (33.1) (29.9)
--------------------------------------- ------ -------- --------
Total pre-exceptional tax expense 5 (33.9) (30.6)
--------------------------------------- ------ --------
Profit after pre-exceptional taxation
- continuing operations 75.4 75.0
--------------------------------------- ------ -------- --------
Exceptional tax expense 5 - (30.0)
--------------------------------------- ------ -------- --------
Profit after taxation - continuing
operations 75.4 45.0
--------------------------------------- ------ -------- --------
Loss after taxation - discontinued
operations 8 - (8.4)
--------------------------------------- ------ -------- --------
Profit after taxation attributable
to owners of the Company 75.4 36.6
--------------------------------------- ------ -------- --------
Earnings per share - continuing operations pre-exceptional
2018 2017
Notes pence pence
--------- ------ ------ ------
Basic 6 33.8 33.7
Diluted 6 32.2 32.4
--------- ------ ------ ------
Earnings per share - continuing operations
2018 2017
Notes pence pence
--------- ------ ------ ------
Basic 6 33.8 20.2
Diluted 6 32.2 19.5
--------- ------ ------ ------
Earnings per share - including discontinued operations
2018 2017
Notes pence pence
--------- ------ ------ ------
Basic 6 33.8 16.5
Diluted 6 32.2 15.8
--------- ------ ------ ------
The notes to the financial information are an integral part of this consolidated financial information.
Consolidated statement of comprehensive income for the year ended 31 December
2018 2017
GBPm GBPm
------------------------------------------------------ ------ ------
Profit after taxation attributable to owners
of the Company 75.4 36.6
------ ------
Other comprehensive (expense)/income
Items that may subsequently be reclassified
to income statement:
Exchange (losses)/gains on foreign currency
translations (8.7) 51.3
Net fair value gains/(losses) - cash flow
hedges 0.3 (2.5)
Tax credit on items that may be reclassified 0.3 0.2
Items that will not subsequently be reclassified
to income statement:
Actuarial gains on retirement benefit obligation 1.1 10.3
Tax charge on items that will not be reclassified (0.2) (1.9)
------ ------
Other comprehensive (expense)/ income net
of taxation (7.2) 57.4
------------------------------------------------------ ------ ------
Total comprehensive income for the year attributable
to owners of the Company 68.2 94.0
------------------------------------------------------ ------ ------
The notes to the financial information are an integral part of this consolidated financial information.
Balance sheet as at 31 December
2018 2017
Notes GBPm GBPm
-------------------------------------------- -------- --------
Assets
Non-current assets
Goodwill 9 24.5 24.4
Intangible assets 10 38.0 33.1
Property, plant and equipment 11 19.9 23.2
Deferred tax assets 12 138.5 103.1
Non-current tax asset 13 36.1 37.0
Retirement benefit asset 17 4.1 2.1
-------------------------------------- ---- -------- --------
261.1 222.9
-------- --------
Current assets
Amounts receivable from customers
- due within one year 764.2 866.9
- due in more than one year 228.6 190.0
-------- --------
14 992.8 1,056.9
Derivative financial instruments 16 1.6 10.4
Cash and cash equivalents 46.6 27.4
Other receivables 18.9 19.3
Current tax assets 1.5 5.7
-------------------------------------- ---- -------- --------
1,061.4 1,119.7
-------- --------
Total assets 1,322.5 1,342.6
-------- --------
Liabilities
Current liabilities
Borrowings 15 (28.8) (79.6)
Derivative financial instruments 16 (7.3) (4.8)
Trade and other payables (147.7) (145.7)
Current tax liabilities (25.8) (7.4)
-------------------------------------- ---- -------- --------
(209.6) (237.5)
-------- --------
Non-current liabilities
Deferred tax liabilities 12 (10.4) (10.1)
Borrowings 15 (669.5) (598.1)
-------------------------------------- ---- -------- --------
(679.9) (608.2)
-------- --------
Total liabilities (889.5) (845.7)
-------------------------------------- ---- -------- --------
Net assets 433.0 496.9
-------------------------------------- ---- -------- --------
Equity attributable to owners of the
Company
Called-up share capital 23.4 23.4
Other reserve (22.5) (22.5)
Foreign exchange reserve 51.3 60.0
Hedging reserve (0.6) (1.2)
Own shares (45.1) (47.6)
Capital redemption reserve 2.3 2.3
Retained earnings 424.2 482.5
-------------------------------------- ---- -------- --------
Total equity 433.0 496.9
-------------------------------------- ---- -------- --------
The notes to the financial information are an integral part of this consolidated financial information.
Statement of changes in equity
Called-up Other Other Retained Total
share reserve reserves* earnings equity
capital GBPm GBPm GBPm GBPm
GBPm
--------------------------------------- ---------- ---------- ------------ ----------- ---------
At 1 January 2017 23.4 (22.5) (38.7) 467.3 429.5
---------- ---------- ------------ ----------- ---------
Comprehensive income:
Profit after taxation for
the year - - - 36.6 36.6
Other comprehensive income/(expense):
Exchange gains on foreign
currency translation - - 51.3 - 51.3
Net fair value losses - cash
flow hedges - - (2.5) - (2.5)
Actuarial gains on retirement
benefit obligation - - - 10.3 10.3
Tax credit/(charge) on other
comprehensive income - - 0.2 (1.9) (1.7)
---------- ---------- ------------ ----------- ---------
Total other comprehensive
income - 49.0 8.4 57.4
Total comprehensive income
for the year - - 49.0 45.0 94.0
---------- ---------- ------------ ----------- ---------
Transactions with owners:
Share-based payment adjustment
to reserves - - - 1.0 1.0
Shares granted from treasury
and employee trust - - 3.2 (3.2) -
Dividends paid to Company
shareholders - - - (27.6) (27.6)
--------------------------------------- ---------- ---------- ------------ ----------- ---------
At 31 December 2017 23.4 (22.5) 13.5 482.5 496.9
---------- ---------- ------------ ----------- ---------
At 1 January 2018 23.4 (22.5) 13.5 482.5 496.9
Change in accounting policy - - - (107.4) (107.4)
---------- ---------- ------------ ----------- ---------
Restated at 1 January 2018 - - - 375.1 389.5
Comprehensive income:
Profit after taxation for
the year - - - 75.4 75.4
Other comprehensive (expense)/income:
Exchange losses on foreign
currency translation - - (8.7) - (8.7)
Net fair value gains - cash
flow hedges - - 0.3 - 0.3
Actuarial gains on retirement
benefit obligation - - - 1.1 1.1
Tax credit /(charge) on other
comprehensive income - - 0.3 (0.2) 0.1
---------- ---------- ------------ ----------- ---------
Total other comprehensive
(expense)/ income - - (8.1) 0.9 (7.2)
Total comprehensive (expense)/income
for the year - - (8.1) 76.3 68.2
---------- ---------- ------------ ----------- ---------
Transactions with owners:
Share-based payment adjustment
to reserves - - - 3.0 3.0
Shares granted from treasury
and employee trust - - 2.5 (2.5) -
Dividends paid to Company
shareholders - - - (27.7) (27.7)
--------------------------------------- ---------- ---------- ------------ ----------- ---------
At 31 December 2018 23.4 (22.5) 7.9 424.2 433.0
--------------------------------------- ---------- ---------- ------------ ----------- ---------
* Includes foreign exchange reserve, hedging reserve, capital redemption reserve and amounts paid to acquire shares held in treasury and by employee trust.
Cash flow statement for the year ended 31 December
2018 2017
GBPm GBPm
----------------------------------------------- ---------- ---------
Cash flows from operating activities
Continuing operations
Cash generated from operating activities 141.6 143.6
Finance costs paid (59.6) (54.7)
Income tax paid (21.8) (94.0)
Discontinued operations - (2.7)
Net cash generated from/(used in) operating
activities 60.2 (7.8)
---------- ---------
Cash flows from investing activities
Continuing operations
Purchases of intangible assets (19.3) (14.9)
Purchases of property, plant and equipment (6.7) (10.1)
Proceeds from sale of property, plant and
equipment 0.3 0.7
Discontinued operations
Purchases of property, plant and equipment - -
Disposal of subsidiary, net of cash and
cash equivalents - 3.0
Net cash used in investing activities (25.7) (21.3)
---------- ---------
Net cash generated from/(used in) operating
and investing activities 34.5 (29.1)
---------- ---------
Cash flows from financing activities
Continuing operations
Proceeds from borrowings 101.9 92.5
Repayment of borrowings (89.7) (53.2)
Dividends paid to Company shareholders (27.7) (27.6)
Net cash (used in)/generated from financing
activities (15.5) 11.7
---------- ---------
Net increase/(decrease) in cash and cash
equivalents 19.0 (17.4)
Cash and cash equivalents at beginning
of year 27.4 43.4
Exchange gains on cash and cash equivalents 0.2 1.4
----------------------------------------------- ---------- ---------
Cash and cash equivalents at end of year 46.6 27.4
----------------------------------------------- ---------- ---------
Notes to the financial information for the year ended 31 December 2018
1. Basis of preparation
The financial information, which comprises the consolidated income statement, statement of comprehensive income, balance sheet, statement of changes in equity, cash flow statement and related notes, is derived from the full Group Financial Statements for the year ended 31 December 2018, which have been prepared in accordance with European Union endorsed International Financial Reporting Standards ('IFRSs') and those parts of the Companies Act 2006 applicable to companies reporting under IFRS. It does not constitute full Financial Statements within the meaning of section 434 of the Companies Act 2006. This financial information has been agreed with the auditor for release.
Statutory Financial Statements for the year ended 31 December 2017 have been delivered to the Registrar of Companies and those for 2018 will be delivered following the Company's annual general meeting. The auditor has reported on those Financial Statements: its reports were unqualified, did not draw attention to any matters by way of emphasis and did not contain statements under s498 (2) or (3) of the Companies Act 2006.
The directors are satisfied that the Group has sufficient resources to continue in operation for the foreseeable future, a period of not less than 12 months from the date of this report. Accordingly they continue to adopt the going concern basis in preparing this financial information (see note 22 for further details).
The accounting policies used in completing this financial information have been consistently applied in all periods shown. These accounting policies are detailed in the Group's Finance Report for the year ended 31 December 2018 which can be found on the Group's website (www.ipfin.co.uk).
The following amendments to standards are mandatory for the first time for the financial year beginning 1 January 2018 but do not have any material impact on the Group:
-- IFRS 15 'Revenue from contracts with customers (and the related clarifications)'; -- IFRIC 22 'Foreign Currency Transactions and Advance Consideration'; -- Amendments to IAS 40 'Transfers of investment property'; and -- IFRS 2 (amendment) 'Classification and Measurement of Share-based Payment Transactions'.
The following standards, interpretations and amendments to existing standards are not yet effective and have not been early adopted by the Group:
-- Amendments to IAS 19 Employee Benefits - plan amendment, curtailment or settlement; -- IFRS 16 'Leases'; and -- IFRIC 23 'Uncertainty over Income Tax Treatments'.
IFRS 9 Financial Instruments
Classification and measurement
With respect to the classification and measurement of financial assets, the number of categories of financial assets under IFRS 9 has been reduced compared to IAS 39. Under IFRS 9 the classification of financial assets is based both on the business model within which the asset is held and the contractual cash flow characteristics of the asset. There are three principal classification categories for financial assets that are debt instruments: (i) amortised cost, (ii) fair value through other comprehensive income (FVTOCI) and (iii) fair value through profit or loss (FVTPL). Equity instruments in the scope of IFRS 9 are measured at fair value with gains and losses recognised in profit or loss unless an irrevocable election is made to recognise gains or losses in other comprehensive income.
There is no impact on the classification and measurement of the following financial assets held by the Group: derivative financial instruments; cash and cash equivalents; other receivables and current tax assets.
There is no change in the accounting for any financial liabilities.
Hedge accounting
On initial application of IFRS 9, an entity may choose, as its accounting policy, to continue to apply the hedge accounting requirements of IAS 39 instead of the hedge accounting requirements of IFRS 9. The Group has elected to apply the IAS 39 hedge accounting requirements.
Impairment
The impairment model under IFRS 9 reflects expected credit losses, as opposed to only incurred credit losses under IAS 39. Under the impairment approach in IFRS 9, it is not necessary for a credit event to have occurred before credit losses are recognised. Instead, an entity always accounts for expected credit losses and changes in those expected credit losses. The amount of expected credit losses should be updated at each reporting date. The new impairment model will apply to the Group's financial assets that are measured at amortised cost, namely amounts receivable from customers.
Determining an increase in credit risk since initial recognition
IFRS 9 requires the recognition of 12 month expected credit losses (the expected credit losses from default events that are expected within 12 months of the reporting date) if credit risk has not significantly increased since initial recognition (stage 1) and lifetime expected credit losses for financial instruments for which the credit risk has increased significantly since initial recognition (stage 2) or which are credit impaired (stage 3).
When determining whether the risk of default has increased significantly since initial recognition the Group considers both quantitative and qualitative information based on the Group's historical experience.
The approach to identifying significant increases in credit risk is consistent across the Group's products. In addition, as a backstop, the Group considers that a significant increase in credit risk occurs when an asset is more than 30 days past due.
Financial instruments are moved back to stage 1 once they no longer meet the criteria for a significant increase in credit risk.
Definition of default and credit impaired assets
The Group defines a financial instrument as in default, which is fully-aligned with the definition of credit-impaired, when it meets one or more of the following criteria:
-- Quantitative criteria: the customer is more than 90 days past due on their contractual payments in home credit and 60 days past due on their contractual payments in IPF Digital;
-- Qualitative criteria: indication that there is a measurable movement in the estimated future cash flows from a group of financial assets. For example, if prospective legislative changes are considered to impact the collections performance of customers.
The default definition has been applied consistently to model the probability of default (PD), exposure at default (EAD) and loss given default (LGD) throughout the Group's expected credit loss calculations.
An instrument is considered to no longer be in default (i.e. to have cured) when it no longer meets any of the default criteria.
Forward-looking information
Under IFRS 9 macroeconomic overlays are required to include forward-looking information when calculating expected credit losses. The short-term nature of our lending means that the portfolio turns over quickly, and as a result, any changes in the macroeconomic environment will have very little impact on our amounts receivable from customers.
Where extreme macroeconomic scenarios are experienced, we will use management judgement to identify, quantify and apply any required approach.
Modelling techniques
We have calculated PD, EAD, LGD and cash flow projections based on the most recent collections performance, including management overlays where we deem that historic performance is not representative of future collections performance.
In some markets, the most recent impairment parameters are not considered to be representative of expected future performance due to changes in operational performance. Therefore an overlay has been applied to increase certain parameters at both 1 January 2018 and 31 December 2018.
IFRS 16 Leases
IFRS 16, which was endorsed by the EU on 9 November 2017, provides a comprehensive model for the identification of lease arrangements and their treatment in the financial statements for both lessors and lessees. IFRS 16 will supersede the current lease guidance including IAS 17 Leases and the related interpretations when it becomes effective for accounting periods beginning on or after 1 January 2019. The date of initial application of IFRS 16 for the Group will be 1 January 2019.
IFRS 16 distinguishes leases and service contracts on the basis of whether an identified asset is controlled by a customer. Distinctions of operating leases (off balance sheet) and finance leases (on balance sheet) are removed for lessee accounting, and is replaced by a model where a right-of-use asset and a corresponding liability have to be recognised for all leases by lessees (i.e. all on balance sheet) except for short-term leases and leases of low value assets.
The right-of-use asset is measured initially at cost and measured subsequently at cost (subject to certain exceptions) less accumulated depreciation and impairment losses, adjusted for any remeasurement of the lease liability. The lease liability is measured initially at the present value of the lease payments that are not paid at that date. Subsequently, the lease liability is adjusted for interest and lease payments, as well as the impact of lease modifications, amongst others. Furthermore, the classification of cash flows will also be affected because operating leases under IAS 17 are presented as operating cash flows, whereas under the IFRS 16 model, the lease payments will be split into a principal and interest portion, which will be presented as operating and financing cash flows respectively.
Furthermore, extensive disclosures are required by IFRS 16.
The Group has reviewed all of the Group's leasing arrangements in light of the new lease accounting rules in IFRS 16. The standard will affect primarily the accounting for the Group's operating leases. As at the reporting date, the Group has non-cancellable operating lease commitments of GBP29.0 million. The Group's preliminary assessment is that it will recognise right-of-use assets of approximately GBP22 million on 1 January 2019 and lease liabilities of GBP22 million, overall there will be a GBPnil impact on net assets. Net current assets will be approximately GBP7 million lower due to the presentation of a portion of the liability as a current liability. The Group's activities as a lessee are not material and hence the Group does not expect any significant impact on the Financial Statements. The impact of IFRS 16 on the profit and loss account in 2019 is not expected to be significant.
Alternative Performance Measures
In reporting financial information, the Group presents alternative performance measures, 'APMs' which are not defined or specified under the requirements of IFRS.
The Group believes that these APMs, which are not considered to be a substitute for or superior to IFRS measures, provide stakeholders with additional helpful information on the performance of the business. The APMs are consistent with how the business performance is planned and reported within the internal management reporting to the Board. Some of these measures are also used for the purpose of setting remuneration targets.
Each of the APMs, used by the Group are set out below, including explanations of how they are calculated and how they can be reconciled to a statutory measure where relevant.
The Group reports percentage change figures for all performance measures, other than profit or loss before taxation and earnings per share, after restating prior year figures at a constant exchange rate. The constant exchange rate, which is an APM, retranslates the previous year measures at the average actual periodic exchange rates used in the current financial year. These measures are presented as a means of eliminating the effects of exchange rate fluctuations on the year-on-year reported results.
The Group makes certain adjustments to the statutory measures in order to derive APMs where relevant. The Group's policy is to exclude items that are considered to be significant in both nature and/or quantum and where treatment as an adjusted item provides stakeholders with additional useful information to assess the year-on-year trading performance of the Group.
A full reconciliation of the 2017 profit and loss account between the IAS 39 reported numbers and the IFRS 9 numbers is included within these APMs.
2. Principal risks and uncertainties
In accordance with the Companies Act 2006, a description of the principal risks and uncertainties (and the mitigating factors in place in respect of these) is included below. Effective management of risks, uncertainties and opportunities is critical to our business in order to deliver long-term shareholder value and protect our people, assets and reputation. In 2018, we continued to face a challenging external environment, particularly from changing regulation and competition. Internally, our operational governance framework and risk management processes are continually reviewed to ensure that where areas of improvement are identified, a plan of action is put in place and can become a key focus for the Board. The effectiveness of operating these processes is monitored by the Audit and Risk Committee on behalf of the Board.
As at the year end, the Board considered that there are 17 principal risks which require ongoing focus (noted with asterisks in the table below).
The risks facing the business by risk category are:
Risk Definition Risks Description
Category
------------ --------------- ------------------------------------------------------------- ------------------------------------------------------------
MARKET The risk that Regulatory
CONDITIONS we cannot * Legal and regulatory compliance *
identify, * Compliance with existing laws and regulations
respond to,
comply * Legal and regulatory challenges and issues*
with or take * Challenges to interpretation or application of
advantage existing laws and regulations
of external * Future legal and regulatory development*
market
conditions. * Anticipating and responding to changes to laws and
* GDPR* regulations and their interpretation
Competition
and product
proposition
* Competition* * Responding to changes in market conditions
* Product proposition* * Meeting customer requirements
Funding, market
and counterparty
* Funding* * Funding availability to meet business needs
* Interest rate and currency * Market volatility impacting performance and asset
values
* Counterparty
* Loss of banking partner
World economic
environment* * Adapting to economic conditions
Taxation*
* Changes to, or interpretation of, tax legislation
------------ --------------- ------------------------------------------------------------- ------------------------------------------------------------
STAKEHOLDER The risk that
key * Reputation* * Reputational damage
stakeholders
take a
negative * Customer service * Maintenance of customer service standards
view of the
business
as a direct
result
of our actions
or our
inability
to effectively
manage their
perception
of the Group.
------------ --------------- ------------------------------------------------------------- ------------------------------------------------------------
OPERATIONAL The risk of
unacceptable * Credit* * Customers fail to repay
losses as a
result
of * Safety* * Harm to our agents/employees
inadequacies
or failures in
our internal * People* * Lack of people capability
core
processes,
systems * Business continuity* and information security* * Recoverability and security of systems and processes
or people
behaviours.
* Financial and performance reporting * Failure of financial reporting systems
* Technology*
* Maintenance of effective technology
* Fraud
* Theft or fraud loss
------------ --------------- ------------------------------------------------------------- ------------------------------------------------------------
BUSINESS The risk that
DEVELOPMENT our earnings * Change management* * Delivery of strategic initiatives
are
impacted
adversely * Brand * Strength of our customer brands
by a
sub-optimal
business
strategy
or the
sub-optimal
implementation
of that
strategy,
due to
internal
or external
factors.
------------ --------------- ------------------------------------------------------------- ------------------------------------------------------------
*Risks currently considered by the Board as the principal risks facing the Group.
Key: Risk Environment Risk Environment Risk Environment Worsening
Improving Stable
------------------ -------------------- ----------------------------------------------------------- ---------------------------
Risk Relevance to Mitigation Commentary
Strategy
------------------ -------------------- ----------------------------------------------------------- ---------------------------
1. Regulatory Impact
We suffer losses Changes in We have highly Lead responsibility: Chief
or fail to regulation, skilled and Executive Officer
optimise differences in experienced See Chief Executive
profitable interpretation legal and public Officer's
growth or clarification affairs teams review and operational
due to a failure of regulation, at Group level review for more
to operate in or changes in and in each information.
compliance with, the enforcement of our markets.
or of laws by In Romania, new
effectively regulators, Expert third-party debt-to-income
anticipate courts and other advisors are regulations impacted
changes in, bodies can lead used where necessary. performance
all applicable to challenge of in 2018. Further debt-to
laws and our We engage with income regulations were
regulations products/practices. regulators, introduced on 1 January
(including GDPR), We monitor legal legislators 2019 and an APR cap was
or due to a and regulatory and other stakeholders. passed, which is expected
regulator developments to The strategy to come into effect in
interpreting ensure we maintain of strengthening 2019.
these in a compliance, remain relevant sector Although the APR cap and
different competitive and associations new debt-to-income limits
way. provide value contributes will have an effect on
for our customers. to our monitoring, sales volumes and
Objective as well as influencing profitability
We aim to ensure Likelihood capabilities. in Romania, we do not
that The frequency expect
effective of legal and Co-ordinated the impact to be material
arrangements regulatory legal and public at Group level. In
are in place change and the affairs teams, February
to enable us impact of challenge at a Group level 2019, the Polish Ministry
to comply with vary by market. and in each of Justice published a
legal and In 2018, in market, monitor draft bill containing a
regulatory addition political, legislative modified set of proposals
obligations to the and regulatory for a reduction in the
and take assessed implementation developments. cap on non-interest costs
and fully of the GDPR across that may be charged by
informed the EU, notable Compliance programme lenders in connection with
commercial risks. changes occurred focused on key consumer loan agreements.
in Romania in consumer legislation The proposals are open
terms of the including in to public consultation
debt-to-income relation to and if approved in their
regulation and data privacy. current form, could be
Poland's tax effective during the
legislation. second
We also expect quarter of 2019. Once the
pricing regulations proposals are finalised,
to be implemented we will update the market
at some point with our assessment of
in the future the likely financial
in those markets impact
where there are on the Group.
no price caps
currently. Customer contraction in
our European home credit
businesses is due
partially
to regulatory changes.
We continued to engage
with regulators,
politicians
and other stakeholders,
participating in trade
associations and informing
our stakeholders about
the role our services play
in society and the
economy.
------------------ -------------------- ----------------------------------------------------------- ---------------------------
2. Competition Impact
and product In an environment Regular monitoring Lead responsibility: Chief
proposition of increasing of competitors Executive Officer
We suffer losses competition and and their offerings, Customer contraction in
or fail to broadening advertising European home credit was
optimise customer choice, and share of partly due to more intense
profitable ensuring our voice in our competitive pressure,
growth product markets. particularly
through not meets customers' from digital lenders and
responding to needs is critical Regular surveys banks as they enhanced
the competitive to delivering of customer their customer
environment profitable growth. views on our propositions
or failing to product offerings. to meet demand for digital
ensure our Likelihood consumer credit. In
proposition Competition varies Product development response,
meets customer by market and committees established we are offering larger
needs. is likely to remain across the Group loans at more attractive
at a high level, to review the prices to our best quality
Objective particularly in product development home credit customers.
We aim to ensure Europe. roadmap, manage In Mexico,
we product and competition is stable and
understand introduce new digital lending remains
competitive products. small-scale.
threats and
deliver customer Diversification into
focused products digital
to drive lending enables us to
profitable offer
growth. further product choices
to customers in our target
segment.
We intend to introduce
digital propositions in
all our home credit
markets.
------------------ -------------------- ----------------------------------------------------------- ---------------------------
3. Taxation Impact
We suffer Against a backdrop Binding rulings Lead responsibility: Chief
additional of increasing or clearances Financial Officer
taxation or fiscal challenges obtained from We have ongoing tax audits
financial for most economies, authorities in Poland, Mexico and
penalties many authorities where appropriate. Slovakia.
associated with are turning to
failure to comply corporate taxpayers External advisors In January 2017, Poland
with tax to increase used for all received adverse decisions
legislation revenues, material tax on tax audits in respect
or adopting either via taxation transactions. of 2008 and 2009 and was
an interpretation reforms or through required to pay GBP36.1
of the law that changes to Qualified and million (comprising tax
cannot be interpretations experienced and associated interest)
sustained. of existing tax teams at in order to lodge appeals.
legislation. Group level The court process has been
Objective and in-market. stayed pending resolution
We aim to Likelihood of a process involving
generate The likelihood the UK and Polish tax
shareholder of changes or authorities
value through challenges arising aimed at ensuring that
effective from tax an intra-group arrangement
management legislation is taxed in accordance
of tax while varies by market. with international tax
acting as a Globally, OECD principles. The tax
good corporate and EU-led returns
citizen. We developments for 2010 to 2012 are
are committed may lead to an subject
to ensuring increase in to tax audits and all
compliance with transfer subsequent
tax law and pricing audits. years remain open to
practice in audit.
all of the The total potential
territories liability
in which we for all open years (2008
operate. to 2018), if all were
assessed
as 2008 and 2009, would
be around GBP169 million
including the GBP36.1
million
already paid. This is
disclosed
in the Financial
Statements
as a contingent liability.
The payment of the GBP36.1
million is not a
reflection
of our view on the merits
of the case, and
accordingly
has been recognised as
a non-current financial
asset in these Financial
Statements.
Following legislative
change
in Poland, effective from
1 January 2019, we expect
the effective tax rate
for the Group to be around
41% in 2019.
------------------ -------------------- ----------------------------------------------------------- ---------------------------
4. Technology Impact
and A core part of Appropriate Lead responsibility: Chief
change management our strategy is methods and Executive Officer
We suffer losses to modernise our resources used Effective oversight of
or fail to home credit in the delivery the technology deliveries
optimise operation of within the portfolio is
profitable growth and invest in programs. Programs ensured through the
due to a failure digital are continually operation
to develop and developments. reviewed with of a governance framework
maintain Effective strong which supports the
effective management governance of achievement
technology of the initiatives all major delivery of our strategic
solutions within this activity. objectives,
or manage change programme Ongoing reviews and through a
in an effective is essential. of prioritisation
manner. The Group is our services process that objectively
currently and relationships identifies the priority
Objective undergoing a large with partners technology and change
We aim to change agenda ensure we maintain initiatives.
effectively which carries effective service
manage the significant levels operations.
design, of inherent risk. Annual review
delivery and Failure to deliver undertaken to
benefits programmes or prioritise investment
realisation maintain our IT required in
of major estate could lead underlying technology
technology to issues in ensures appropriateness
and change benefits of the underlying
initiatives realisation or technology estate.
and deliver business
according to disruption.
requirements,
budgets and Likelihood
timescales. Our change
We look to programme
maintain is complex,
systems that covering
are available numerous markets.
to support the As such there
ongoing is a level of
operations risk associated
in the business. with its delivery.
Unforeseen outages
can happen against
key systems as
a result of change
or failures in
technology.
------------------ -------------------- ----------------------------------------------------------- ---------------------------
5. People Impact
Our strategy In order to achieve The HR control Lead Responsibility: Chief
is impacted our strategic environment Executive Officer
by not having goals, is in place Our people strategy focuses
sufficient depth we must continue to mitigate on building and maintaining
and quality to attract, engage, the people risks a
of people or develop, retain for the Group. culture of high engagement
being unable and reward the This identifies and performance and we devote
to retain key right the key people significant leadership time
people and treat people. The very risks and also to identifying, developing
them in nature of people the key controls and empowering our people.
accordance risk that we have
with our values means that it in place to Expanding our Mexico home
and ethical is often difficult mitigate them. credit business in 2018
standards. to reduce the The key people required an increase in
frequency with risks and commensurate the number of agents and
Objective which risks occur; controls key employees to meet these
We aim to have however, our cover: investment plans.
sufficient controls
breadth of are aimed at * Critical skills shortage
capabilities lowering
and the impact of
depth of any risks. The * Lack of succession to critical roles
personnel Group's largest
to ensure that people-related
we can meet risk relates to * Recruitment risks
our strategic turnover in our
objectives. agent population.
Progress has been * Appropriate distribution of strategy-aligned
made this year objectives
in reducing this
closer to our
appetite level, * Monitoring and action with regards to key people
with further work risks and issues
ongoing throughout
2019.
* Key people processes
Likelihood
Our People,
organisation * Appropriate use of reward and compliance with
and planning delegated authority from the Remuneration Committee
processes
ensure that we
develop appropriate
and significant
strength and depth
of talent across
the Group and
we have the ability
to move people
between countries,
which reduces
our exposure to
critical roles
being under
resourced.
During 2019, we
will continue
to develop,
resource,
retain and reward
the right people.
------------------ -------------------- ----------------------------------------------------------- ------------------------------
6. Business Impact
continuity and Globally, we have Technology systems Lead responsibility: Chief
information 2.3 million and services Executive Officer
security customers are designed During 2018, we performed
We suffer losses and we record, for resilience a number of tests of our
or fail to update and maintain and tested before information security and
optimise data for each launch. continue to work towards
profitable of them on a further improvement.
growth due to regular There is periodic
a failure of basis, often testing and In addition to periodic
our systems, weekly. ongoing monitoring testing of technology, we
suppliers or The availability of security perform regular tests and
processes or of this data, and recovery rehearsals of our
due to the loss, and the continued capability for communication
theft or operation of our technology and processes and our plans
corruption systems and premises. for alternative worksites,
of information. processes, where applicable. In 2018,
is essential to we further strengthened
Objective the effective our internal defences with
We aim to operation of our the implementation of
maintain business and the enhanced
adequate security of our cyber security tools.
arrangements customer
and controls information.
that reduce
the threat of Likelihood
service and While the external
business threat to our
disruption systems is
and the increasing
risk of data in the digital
loss to as low age, the tools
as is reasonably in place reduce
practicable. the likelihood
of a significant
failure or
information
loss.
------------------ -------------------- ----------------------------------------------------------- ------------------------------
7. Reputation Impact
We suffer Our reputation Clearly defined Lead responsibility: Chief
financial can have an impact corporate Executive Officer
or reputational on both customer values and ethical Our home credit and digital
damage due to sentiment and standards businesses have received
our methods the engagement are communicated a number of industry awards
of operation, of key throughout the for the way we conduct our
ill-informed stakeholders, organisation business. We have been
comment or impacting our and all employees recognised
malpractice. ability to operate and agents are for our responsible lending
and serve our mandated to practices, as a top employer
Objective customer segment. undertake annual and for being a socially
We aim to promote Elements of this ethics e-learning. responsible business.
a positive risk relate to
reputation external factors Regular monitoring We take a proactive approach
based on a mutual that are beyond of key reputation to reputation management
understanding our influence. drivers. and update the market on
of what we do Controls in place material challenges that
that will help have reduced we are required to disclose.
the Group deliver residual
its strategic risk. There is
aims. now limited ability
to further reduce
this significantly.
Likelihood
We maintain strong
relationships
with key
stakeholders
across the Group
in order to develop
their understanding
of our business
model and how
we deliver services
to our customers.
This helps protect
the business from
unforeseen events
that could damage
our reputation.
------------------ -------------------- ----------------------------------------------------------- ------------------------------
8. World economic Impact
environment Changes in economic Treasury committees Lead responsibility: Chief
We suffer conditions have review economic Financial Officer
financial a direct impact indicators. There were reasonably stable
loss as a result on our customers' macroeconomic conditions
of a failure ability to make Monitoring of in all our European markets
to identify repayments. This economic, political in 2018. Current indicators
and adapt to risk is led and national suggest our markets will
changing economic entirely news briefings. deliver positive GDP growth,
conditions by external factors low unemployment and
adequately. that are not Strong, personal moderately
controllable customer relationships increasing inflation in
Objective and is driven inform us of 2019. In Mexico, political
We aim to have by the business individual customer change resulted in some
business model and in circumstances. uncertainty in 2018 but
processes particular positive GDP growth is
that allow us the specifics forecast
to respond to of the markets in 2019 and 2020.
changes in where we operate.
economic We have taken a coordinated
conditions and Likelihood approach to the risks
optimise business While we operate identified
performance. in numerous in the event of the UK
markets, leaving
the likelihood the EU without a deal and
of a change in robust plans are in place
economic markets to address these risks.
that we are unable As our European operations
to respond to, are all within the EU, we
and that impacts continue to believe that
our strategy, there will be significant
is minimised by operational disruption.
our short-term
lending business We continue to monitor other
models. geopolitical events on
financial
markets and macroeconomic
conditions.
------------------ -------------------- ----------------------------------------------------------- ------------------------------
9. Safety Impact
The risk of A significant Safety management Lead responsibility: Chief
personal injury element of our systems based Executive Officer
or harm to our business model on internationally We continued to make progress
agents or involves our agents recognised standards. in our safety management
employees. and employees systems, and our home credit
interacting with Market safety businesses either maintained
Objective our customers committees and their Occupational Health
We aim to in their homes annual safety and Safety Assessment Series
maintain or travelling survey. (OHSAS) certification or
adequate to numerous are now working towards
arrangements locations Bi-annual risk the new standard that
and controls daily. Their safety assessment for replaced
that reduce while performing each agency OHSAS in 2018 (ISO 45001
the risks to their role is including mitigation Occupational Health and
as low as is paramount to us. planning and Safety Management Standard).
reasonably field safety
practicable. Likelihood training. Safety continues to be a
Safety risks significant area of focus
typically Annual self-certification for the Group.
arise from the of safety compliance
behaviour of by managers.
individuals
both internal Regular branch
and external to safety meetings
the business and and safety awareness
therefore the campaigns.
ability to remove
the risk entirely Role-specific
is not possible training and
with the current competence matrix.
business model,
working with 21,000
agents, however,
improvements are
constantly sought
to reduce the
risk where
possible.
------------------ -------------------- ----------------------------------------------------------- ------------------------------
10. Credit Impact
The risk of With the expansion Weekly credit Lead responsibility: Chief
the Group of our IPF Digital reporting on Executive Officer
suffering and Mexico home the quality Overall, credit quality
financial loss credit businesses, of business was well managed and Group
if its customers it is important at time of issue impairment as a percentage
fail to meet that we retain as well as the of revenue improved.
their contracted control of credit overall portfolio.
obligations. losses in order This feeds into The credit quality of the
to achieve our weekly performance European home credit
Objective intended returns. calls between portfolios
We aim to For the European each business was very good in 2018, driven
maintain home credit and the Group mainly by good collections
credit and businesses, credit director. made by agents and strong
collections we focus on writing In addition, post-field collections.
policies and profitable business there are monthly
regularly monitor to optimise local credit Our Mexico home credit
credit returns. committees, business
performance. The nature of a monthly Group maintained adequate
the business is credit committee collections
such that the and monthly while delivering growth,
financial impact performance and impairment as a
of credit risk, calls between percentage
even at appetite each business of revenue for 2018 was
levels, is and the Group slightly higher than 2017.
substantial. management team.
Reducing credit The credit risk environment
risk further could When a change in our established IPF
result in reduced is introduced, Digital
revenue and the credit systems markets is generally stable.
increased allow for a In our new markets,
cost ratios. For testing approach impairment
new businesses, that gives direct as a percentage of revenue
credit risk is comparison of improved by 26.6ppts as
higher due to the current we delivered improved credit
the lack of 'champion' regime settings and built scale.
historical against the This resulted in a
data our credit new 'challenger'. significant
scorecards rely improvement in impairment
upon to make as a percentage of revenue
adequate for IPF Digital as a whole.
lending decisions.
Likelihood
Our control
environment
means that we
will see issues
quickly and the
systems in place
mean that we can
change credit
settings quickly,
and therefore
the likelihood
of suffering large
losses is low.
------------------ -------------------- ----------------------------------------------------------- ------------------------------
11. Funding, Impact
market Funding at Adherence to Lead responsibility:
and counterparty appropriate Board-approved Chief
The risk of cost and on policies monitored Financial Officer
insufficient appropriate through the Our business has a
availability terms, and Treasury Committee, robust
of funding, management finance funding position with
unfavourable of financial market leadership team good headroom on
pricing, a risk, are necessary and regular undrawn
breach of for the future Board reporting. bank facilities. We
debt facility growth of the have
covenants, business. Funding plans continued to execute
or that presented as our
performance Likelihood part of budget strategy of
is significantly Board-approved planning. diversifying
impacted by policies require the sources of funding
interest rate us to maintain Strong relationships and extending the
or currency a resilient funding maintained with maturity
movements, position with debt providers. profile. In 2018, we
or failure good headroom transacted
of a banking on undrawn bank a four-year Swedish
counterparty. facilities, Krona
appropriate 450 million (ted
Objective hedging of market aillion)
We aim to risk, and floating rate bond and
maintain a appropriate have added GBP44
robust funding limits to million
position, counterparty of new bank facilities.
and to limit risk. We will continue this
the impact strategy in addressing
of interest the material bond
rate and currency refinancing
movements in 2020/21. The good
and exposure level
to financial of headroom on bank
counterparties. facilities
gives us significant
flexibility
on timing.
Hedging of market risk
and limits on
counterparty
risk are in line with
Board-approved
policies.
------------------ -------------------- ----------------------------------------------------------- ------------------------
3. Related parties
The Group has not entered into any material transactions with related parties during the year ended 31 December 2018.
4. Segmental analysis
Geographical segments
2018 2017
GBPm GBPm
------------------------------------ ------ ------
Revenue
Home credit
Europe 493.3 504.7
Mexico 226.1 217.0
719.4 721.7
Digital 147.0 104.1
------------------------------------ ------ ------
Revenue - continuing operations 866.4 825.8
Discontinued operations - 3.7
------------------------------------ ------ ------
Revenue 866.4 829.5
------------------------------------ ------ ------
Impairment
Home credit
Europe 88.5 91.1
Mexico 82.9 75.6
Slovakia and Lithuania - (8.5)
171.4 158.2
Digital 55.6 42.9
------------------------------------ ------ ------
Impairment - continuing operations 227.0 201.1
Discontinued operations - 2.6
------------------------------------ ------ ------
Impairment 227.0 203.7
------------------------------------ ------ ------
Profit before taxation
Home credit
Europe 113.8 114.3
Mexico 15.7 14.7
Slovakia and Lithuania - 3.2
129.5 132.2
Digital (5.6) (11.7)
Central costs* (14.6) (14.9)
-------------------------------------------------- -------- --------
Profit before taxation - continuing operations 109.3 105.6
Discontinued operations - (2.7)
-------------------------------------------------- -------- --------
Profit before taxation 109.3 102.9
-------------------------------------------------- -------- --------
*Although central costs are not classified as a separate segment
in accordance with IFRS 8 'Operating segments', they are shown
separately above in order to provide reconciliation to profit
before taxation.
2018 2017
GBPm GBPm
-------------------------------------------------- -------- --------
Segment assets
Home credit
Europe 699.8 822.3
Mexico 241.7 220.3
Slovakia and Lithuania 0.3 0.9
941.8 1,043.5
Digital 310.2 231.9
UK 70.5 67.2
-------------------------------------------------- -------- --------
Total 1,322.5 1,342.6
-------- --------
Segment liabilities
Home credit
Europe 327.7 332.0
Mexico 144.8 145.2
Slovakia and Lithuania 5.3 7.7
477.8 484.9
Digital 224.7 157.0
UK 187.0 203.8
------------------------------- ------ ------
Total - continuing operations 889.5 845.7
------ ------
Capital expenditure
Home credit
Europe 4.1 6.7
Mexico 1.7 2.7
5.8 9.4
Digital 0.9 0.6
UK - 0.1
------------------------------- ---- -----
Total - continuing operations 6.7 10.1
------------------------------- ---- -----
2018 2017
GBPm GBPm
-------------- ----- -----
Depreciation
Home Credit
Europe 5.0 5.1
Mexico 2.2 2.4
7.2 7.5
Digital 0.6 0.4
UK 1.4 2.4
-------------- ----- -----
Total 9.2 10.3
-------------- ----- -----
2018 2017
GBPm GBPm
---------------------------------- ----- -----
Expenditure on intangible assets
Home Credit
Europe - -
Mexico - -
- -
Digital 10.5 5.9
UK 8.8 9.0
---------------------------------- ----- -----
Total 19.3 14.9
---------------------------------- ----- -----
2018 2017
GBPm GBPm
-------------- ----- -----
Amortisation
Home Credit
Europe - -
Mexico - -
- -
Digital 4.6 2.9
UK 9.9 8.5
-------------- ----- -----
Total 14.5 11.4
-------------- ----- -----
5. Tax expense
The pre-exceptional taxation charge for the year on statutory profit before taxation was GBP33.9 million (2017: GBP30.6 million) which equates to an effective rate of 31.0% (2017: 29.0.%).
The exceptional tax charge of GBP30.0 million in 2017 relates to the write off of a deferred tax asset due to a change in Polish tax legislation effective from 1 January 2018.
The effective tax rate for 2019 is expected to be c.41%.
The Group is currently subject to a tax audit with respect to Provident Polska for the years 2008 - 2012. Audits of 2010 to 2012 are ongoing, whilst for 2008 and 2009; decisions were received in January 2017 and have been appealed. The Group is also subject to audits in Mexico (regarding 2017) and Slovakia (regarding 2015). The Mexican audit is still at the information gathering stage, and the Slovak audit is nearing conclusion.
6. Earnings per share
2018 2017
pence pence
----------------------------------------------------- ------ ------
Basic EPS - continuing operations pre-exceptional
tax 33.8 33.7
Dilutive effect of awards (1.6) (1.3)
------
Diluted EPS - continuing operations pre-exceptional
tax 32.2 32.4
----------------------------------------------------- ------ ------
2018 2017
pence pence
------------------------------------- ------ ------
Basic EPS - continuing operations 33.8 20.2
Dilutive effect of awards (1.6) (0.7)
------
Diluted EPS - continuing operations 32.2 19.5
------------------------------------- ------ ------
2018 2017
pence pence
------------------------------------------------- ------ ------
Basic EPS - including discontinued operations 33.8 16.5
Dilutive effect of awards (1.6) (0.7)
------
Diluted EPS - including discontinued operations 32.2 15.8
------------------------------------------------- ------ ------
Basic earnings per share ('EPS') from pre-exceptional continuing operations is calculated by dividing the earnings attributable to shareholders of GBP75.4 million (31 December 2017: GBP75.0 million) by the weighted average number of shares in issue during the period of 223.0 million which has been adjusted to exclude the weighted average number of shares held in treasury and by the employee trust (31 December 2017: 222.4 million).
Basic earnings per share ('EPS') from continuing operations is calculated by dividing the earnings attributable to shareholders of GBP75.4 million (31 December 2017: GBP45.0 million) by the weighted average number of shares in issue during the period of 223.0 million which has been adjusted to exclude the weighted average number of shares held in treasury and by the employee trust (31 December 2017: 222.4 million).
Basic earnings per share ('EPS') including discontinued operations is calculated by dividing the earnings attributable to shareholders of GBP75.4 million (31 December 2017: GBP36.6 million) by the weighted average number of shares in issue during the period of 223.0 million which has been adjusted to exclude the weighted average number of shares held in treasury and by the employee trust (31 December 2017: 224.4 million).
For diluted EPS the weighted average number of shares has been adjusted to 234.1 million (31 December 2017: 231.4 million) to assume conversion of all dilutive potential ordinary share options relating to employees of the Group.
7. Dividends
Dividend per share
2018 2017
pence pence
-------------------------- ------ ------
Interim dividend 4.6 4.6
Final proposed dividend 7.8 7.8
-------------------------- ------ ------
Total dividend 12.4 12.4
-------------------------- ------ ------
Dividends paid
2018 2017
GBPm GBPm
------------------------------------------ ------ ------
Interim dividend of 4.6 pence per share
(2017: interim dividend of 4.6 pence
per share) 10.3 10.2
Final 2017 dividend of 7.8 pence per
share (2017: final 2016 dividend of
7.8 pence per share) 17.4 17.4
------------------------------------------ ------ ------
Total dividends paid 27.7 27.6
------------------------------------------ ------ ------
The directors are recommending a final dividend in respect of the financial year ended 31 December 2018 of 7.8 pence per share which will amount to a full year dividend payment of GBP27.7 million. If approved by the shareholders at the annual general meeting, this dividend will be paid on 10 May 2019 to shareholders who are on the register of members at 12 April 2019. This dividend is not reflected as a liability in the balance sheet as at 31 December 2018 as it is subject to shareholder approval.
8. Discontinued operations
On 28 June 2017, we announced the completion of the sale of the home credit business in Bulgaria in order to focus our resources on our larger home credit and rapidly-growing digital businesses. Losses of GBP8.4 million are included in the income statement in respect of Bulgaria for the year-end 2017. These costs can be analysed as follows:
2018 2017
GBPm GBPm
-------------------------------- ------ ------
Revenue - 3.7
Impairment - (2.6)
-------------------------------- ------ ------
Revenue less impairment - 1.1
Finance costs - (0.2)
Other operating costs - (0.7)
Administrative expenses - (2.9)
-------------------------------- ------ ------
Trading losses - (2.7)
Write-off of assets - (5.2)
-------------------------------- ------ ------
Loss before taxation - (7.9)
Taxation charge - (0.5)
Loss - discontinued operations - (8.4)
-------------------------------- ------ ------
9. Goodwill
2018 2017
GBPm GBPm
------------------------------- ----- -----
Net book value at 1 January 24.4 23.3
Exchange adjustments 0.1 1.1
Net book value at 31 December 24.5 24.4
------------------------------- ----- -----
Goodwill is tested annually for impairment or more frequently if there are indications that goodwill might be impaired. The recoverable amount is determined from a value in use calculation. The key assumptions used in the value in use calculation relate to the discount rates and growth rates adopted. We adopt discount rates which reflect the time value of money and the risks specific to the legacy MCB business. The cash flow forecasts are based on the most recent financial budgets approved by the Group Board for the next three years. The rate used to discount the forecast cash flows is 10% (2017: 10%). No reasonably foreseeable reduction in the assumptions would give rise to impairment, and therefore no further sensitivity analysis has been presented.
10. Intangible assets
2018 2017
GBPm GBPm
------------------------------- ------- -------
Net book value at 1 January 33.1 32.6
Additions 19.3 14.9
Impairment - (3.3)
Amortisation (14.5) (11.4)
Exchange adjustments 0.1 0.5
Disposal of subsidiary - (0.2)
------------------------------- ------- -------
Net book value at 31 December 38.0 33.1
------------------------------- ------- -------
Intangible assets comprise computer software (2018: GBP38.0 million; 2017: GBP31.5 million) and customer relationships on the acquisition of MCB Finance (2018: GBPnil; 2017: GBP1.6 million).
11. Property, plant and equipment
2018 2017
GBPm GBPm
------------------------------- ------ -------
Net book value at 1 January 23.2 23.4
Exchange adjustments - 0.9
Additions 6.7 10.1
Disposals (0.8) (0.7)
Depreciation (9.2) (10.3)
Disposal of subsidiary - (0.2)
Net book value at 31 December 19.9 23.2
------------------------------- ------ -------
As at 31 December 2018 the Group had GBP4.9 million of capital expenditure commitments contracted with third parties that were not provided for (2017: GBP8.4 million).
12. Deferred tax assets
Deferred tax assets have been recognised in respect of tax losses and other temporary timing differences (principally relating to recognition of revenue and impairment) to the extent that it is probable that these assets will be utilised against future taxable profits.
13. Non-current tax asset
Non-current tax asset includes an amount of GBP36.1 million in respect of the tax paid to the Polish Tax Authority, see note 21 for further details.
14. Amounts receivable from customers
All lending is in the local currency of the country in which the loan is issued.
2018 2017
GBPm GBPm
------------------- ------ --------
Polish zloty 353.0 393.3
Czech crown 66.0 83.3
Euro 179.1 148.4
Hungarian forint 128.3 162.7
Mexican peso 176.4 165.1
Romanian leu 74.4 93.4
Australian Dollar 15.6 10.7
------------------- ------ --------
Total receivables 992.8 1,056.9
------------------- ------ --------
Amounts receivable from customers are held at amortised cost and are equal to the expected future cash flows receivable discounted at the average effective interest rate of 109% (2017: 99%). All amounts receivable from customers are at fixed interest rates. The average period to maturity of the amounts receivable from customers is 11.5 months (2017: 9.1 months).
The breakdown of receivables by stage is as follows:
Stage 1 Stage 2 Stage 3 Total net
GBPm GBPm GBPm receivables
GBPm
------------- -------- -------- -------- -------------
Home credit 460.6 90.0 192.2 742.8
IPF Digital 227.0 18.3 4.7 250.0
------------- -------- -------- -------- -------------
Group 687.6 108.3 196.9 992.8
------------- -------- -------- -------- -------------
The Group has one class of loan receivable and no collateral is held in respect of any customer receivables.
15. Borrowing facilities and borrowings
The maturity of the Group's external bond and external bank borrowings and facilities is as follows:
2018 2017
Borrowings Facilities Borrowings Facilities
GBPm GBPm GBPm GBPm
------------------------ ----------- ----------- ----------- -----------
Repayable:
- in less than one
year 28.8 86.6 79.6 133.4
----------- ----------- ----------- -----------
- between one and two
years 172.1 226.6 15.2 68.1
- between two and five
years 497.4 572.8 582.9 665.5
669.5 799.4 598.1 733.6
----------- ----------- ----------- -----------
Total borrowings 698.3 886.0 677.7 867.0
------------------------ ----------- ----------- ----------- -----------
Total undrawn facilities as at 31 December 2018 were GBP185.5 million (2017: GBP186.1 million), excluding GBP2.2 million unamortised arrangement fees (2017: GBP3.2 million).
As outlined previously, the Group's home credit company in Poland, Provident Polska, has been subject to tax audits in respect of the Company's 2008 and 2009 financial years. The 2010 to 2012 financial years are currently being audited by the tax authorities in Poland, and all subsequent years up to and including 2018 remain open to future audit. Provident Polska has appealed the decisions made by the Polish Tax Chamber, to the District Administrative Court, for the 2008 and 2009 financial years and has paid the amounts assessed of GBP36.1 million (comprising tax and associated interest) which was necessary in order to make the appeals. The 2008 and 2009 tax audit decisions are the subject of a process involving the UK and Polish tax authorities aimed at ensuring that the intra-group arrangement is taxed in accordance with international tax principles and as a result the court hearings have been stayed. In order to appeal any potential future decisions for 2010 and subsequent years, further payments may be required. There are significant uncertainties in relation to whether future amounts will become due, and if so, the amount and timing of such cash outflows. However, in the event that audits are opened, and similar decisions are issued for each of these subsequent financial years, further amounts of up to c. GBP133 million may be required to be funded (including approximately GBP69 million for the 2010 to 2012 years in respect of which audits have commenced). See note 21 for further information.
16. Derivative financial instruments
At 31 December 2018 the Group had an asset of GBP1.6 million and a liability of GBP7.3 million (2017: GBP10.4 million asset and GBP4.8 million liability) in respect of foreign currency contracts and interest rate swaps. Foreign currency contracts are in place to hedge foreign currency cash flows. Interest rate swaps are used to cover a proportion of current borrowings relating to the floating rate Polish bond and a proportion of floating rate bank borrowings. Where these cash flow hedges are effective, in accordance with IFRS, movements in their fair value are taken directly to reserves.
17. Retirement benefit asset
The amounts recognised in the balance sheet in respect of the retirement benefit obligation are as follows:
2018 2017
GBPm GBPm
------------------------------------------- ------- -------
Equities 10.8 11.7
Debt instruments 17.5 18.7
Diversified growth funds 11.2 11.7
Other 1.9 0.1
------- -------
Total fair value of scheme assets 41.4 42.2
Present value of funded defined benefit
obligations (37.3) (40.1)
------------------------------------------- ------- -------
Net asset recognised in the balance sheet 4.1 2.1
------------------------------------------- ------- -------
The charge recognised in the income statement in respect of defined benefit pension costs is GBPnil (2017: GBP0.2 million).
18. Fair values of financial assets and liabilities
IFRS 7 requires disclosure of fair value measurements of derivative financial instruments by level of the following fair value measurement hierarchy:
-- quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1);
-- inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (level 2); and
-- inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level 3).
All of the Group's financial instruments held at fair value fall into hierarchy level 2 (2017: all of the Group's financial instruments held at fair value fell into hierarchy level 2). The fair value of derivative financial instruments has been calculated by discounting expected future cash flows using interest rate yield curves and forward foreign exchange rates prevailing at the relevant period end.
Except as detailed in the following table, the carrying value of financial assets and liabilities recorded at amortised cost, which are all short-term in nature, are a reasonable approximation of their fair value:
2018 2017
Fair value Carrying Fair value Carrying
value value
GBPm GBPm GBPm GBPm
----------------------- ----------- --------- ----------- ---------
Financial assets
Amounts receivable
from customers 1,371.9 992.8 1,433.0 1,056.9
----------- --------- ----------- ---------
1,371.9 992.8 1,433.0 1,056.9
----------- --------- ----------- ---------
Financial liabilities
Bonds 529.6 567.6 567.8 590.0
Bank borrowings 130.7 130.7 87.7 87.7
----------- --------- ----------- ---------
660.3 698.3 655.5 677.7
----------------------- ----------- --------- ----------- ---------
The fair value of amounts receivable from customers has been derived by discounting expected future cash flows (as used to calculate the carrying value of amounts due from customers), net of collection costs, at the Group's weighted average cost of capital.
Under IFRS 13 'Fair value measurement', receivables are classed as level 3 as their fair value is calculated using future cash flows that are unobservable inputs.
The fair value of the bonds has been calculated by reference to their market value.
The carrying value of bank borrowings is deemed to be a good approximation of their fair value. Bank borrowings can be repaid within six months if the Group decides not to roll over for further periods up to the contractual repayment date. The impact of discounting would, therefore, be negligible.
19. Reconciliation of profit after taxation to cash generated from operating activities
2018 2017
GBPm GBPm
-------------------------------------------------- ------- -------
Profit after taxation from continuing operations 75.4 45.0
Adjusted for:
Tax charge 33.9 60.6
Finance costs 58.5 55.2
Share-based payment charge/(charge) 1.1 (0.2)
Depreciation of property, plant and equipment
(note 11) 9.2 10.3
Loss on disposal of property, plant and 0.5 -
equipment
Amortisation of intangible assets (note
10) 14.5 11.4
Impairment of intangible assets (note 10) - 3.3
Changes in operating assets and liabilities:
Amounts receivable from customers (65.9) (65.9)
Other receivables - 2.0
Trade and other payables 3.7 20.2
Retirement benefit obligation (0.9) (0.9)
Derivative financial instruments 11.6 2.6
-------------------------------------------------- ------- -------
Cash generated from continuing operating
activities 141.6 143.6
-------------------------------------------------- ------- -------
20. Average and closing foreign exchange rates
The table below shows the average exchange rates for the relevant reporting periods and closing exchange rates at the relevant period ends.
Average Closing Average Closing
2018 2018 2017 2017
------------------- -------- -------- -------- --------
Polish zloty 4.8 4.8 4.8 4.7
Czech crown 28.9 28.5 30.3 28.4
Euro 1.1 1.1 1.1 1.1
Hungarian forint 359.9 357.0 351.4 346.9
Mexican peso 25.9 25.0 24.5 26.3
Romanian leu 5.3 5.2 5.2 5.2
Australian dollar 1.8 1.8 1.7 1.7
-------------------- -------- -------- -------- --------
The GBP8.7 million exchange loss (2017: gain of GBP51.3 million) on foreign currency translations shown within the statement of comprehensive income arises on retranslation of net assets denominated in currencies other than sterling, due to the change in foreign exchange rates against sterling between December 2017 and December 2018 shown in the table above.
21. Contingent Liability Note
Polish tax audit
The Group's home credit company in Poland, Provident Polska, has been subject to tax audits in respect of the company's 2008 and 2009 financial years. During these audits the Polish tax authorities have challenged an intra-group arrangement with a UK entity, and the timing of the taxation of home collection fee revenues.
These audits culminated with decisions being received from the Polish Tax Chamber (the upper tier of the Polish tax authority) in January in relation to both the 2008 and 2009 financial years. Provident Polska appealed these decisions to the District Administrative Court, but had to pay the amounts assessed totalling approximately GBP36.1 million (comprising tax and associated interest) in order to make the appeals. As noted on page 12, the 2008 and 2009 tax audit decisions are the subject of a process involving the UK and Polish tax authorities aimed at ensuring that the intra-group arrangement is taxed in accordance with international tax principles and as a result the court hearings have been stayed.
The directors have received strong external legal advice, and note that during a previous tax audit by the same tax authority, the Company's treatment of these matters was accepted as correct. Therefore the payments of the sums outlined above are not a reflection of the directors' view on the merits of the case, and accordingly the payments made in January 2017 have been recognised as a non-current financial asset in these Financial Statements given the uncertainties in relation to the timing of any repayment of such amounts.
The 2010 to 2012 financial years are currently being audited by the tax authorities in Poland. In the event that the Polish tax authorities were to issue decisions, and those decisions were to follow the same reasoning as for 2008 and 2009, around a further GBP69 million would become payable. In addition, all subsequent years remain open to future audit, meaning that there are further significant uncertainties in relation to whether future amounts will become due, and if so, the amount and timing of such additional future payments in relation to these periods. In the event that audits are opened in respect of some or all of these open periods, and similar decisions are reached, further amounts may be required to be paid, the timing of which would be dependent upon the timing of decisions made by the Polish tax authorities for these later periods. The total potential liability for all open years 2008-2018, if all years were assessed on the same basis as 2008 and 2009, would amount to around GBP169 million, including the GBP36.1 million that was paid in January 2017. Further information is set out in note 15.
State aid investigation
In late 2017 the European Commission opened a state aid investigation into the Group Financing Exemption contained in the UK controlled foreign company rules, which were introduced in 2013. The UK authorities do not accept that the rules constitute state aid. In common with other UK-based international companies whose arrangements are in line with current controlled foreign company rules, the Group may be affected by the outcome of this investigation. The tax benefit obtained by the Group in all years since 2013 is estimated at up to GBP13.5 million. We do not believe that any provision is required in respect of this item and we are monitoring developments.
22. Going concern
The Board has reviewed the budget for the year to 31 December 2019 and the forecasts for the two years to 31 December 2021 which include projected profits, cash flows, borrowings, headroom against debt facilities, and funding requirement. The plan is stress tested in a variety of downside scenarios that reflect the crystallisation of the Group's principal risks with particular reference to regulatory, taxation, funding, market and counterparty risks as outlined in note 2 to this financial information and the consequent impact on future performance, funding requirements and covenant compliance. Consideration has also been given to multiple risks materialising concurrently and the availability of mitigating actions that could be taken to reduce the impact of the identified risks. The Group's total debt facilities including a range of bonds and bank facilities, combined with a successful track record of accessing debt funding markets over a long period (including periods of adverse macroeconomic conditions and a changing competitive and regulatory environment), is sufficient to fund business requirements for the foreseeable future. Taking these factors into account, together with regulatory and taxation risks set out in note 2 to this financial information, the Board has a reasonable expectation that the Group has adequate resources to continue in operation for the foreseeable future. For this reason, the Board has adopted the going concern basis in preparing this financial information.
23. Change in Accounting Policies - IFRS 9 'Financial Instruments'
This note explains the impact of the adoption of IFRS 9 Financial Instruments on the Group's financial statements and also discloses the new accounting policies that have been applied from 1 January 2018, where they are different to those applied in prior periods.
Audited IFRS 9 impact Restated
1 January 1 January 1 January
2018 2018 2018
GBPm GBPm GBPm
----------------------------------- ---------- -------------- ----------
Assets
Non-current assets
Goodwill 24.4 - 24.4
Intangible assets 33.1 - 33.1
Property, plant and equipment 23.2 - 23.2
Deferred tax assets 103.1 23.1 126.2
Non-current tax asset 37.0 - 37.0
Retirement benefit asset 2.1 - 2.1
222.9 23.1 246.0
---------- -------------- ----------
Current assets
Amounts receivable from customers
- due within one year 866.9 (107.0) 759.9
- due in more than one year 190.0 (23.5) 166.5
---------- -------------- ----------
1,056.9 (130.5) 926.4
Derivative financial instruments 10.4 - 10.4
Cash and cash equivalents 27.4 - 27.4
Other receivables 19.3 - 19.3
Current tax assets 5.7 - 5.7
------------------------------------ ---------- -------------- ----------
1,119.7 (130.5) 989.2
---------- -------------- ----------
Total assets 1,342.6 (107.4) 1,235.2
---------- -------------- ----------
Liabilities
Current liabilities
Borrowings (79.6) - (79.6)
Derivative financial instruments (4.8) - (4.8)
Trade and other payables (145.7) - (145.7)
Current tax liabilities (7.4) - (7.4)
------------------------------------ ---------- -------------- ----------
(237.5) - (237.5)
---------- -------------- ----------
Non-current liabilities
Deferred tax liabilities (10.1) - (10.1)
Borrowings (598.1) - (598.1)
------------------------------------ ---------- -------------- ----------
(608.2) - (608.2)
---------- -------------- ----------
Total liabilities (845.7) - (845.7)
------------------------------------ ---------- -------------- ----------
Net assets 496.9 (107.4) 389.5
------------------------------------ ---------- -------------- ----------
Equity attributable to owners
of the Company
Called-up share capital 23.4 - 23.4
Other reserve (22.5) - (22.5)
Foreign exchange reserve 60.0 - 60.0
Hedging reserve (1.2) - (1.2)
Own shares (47.6) - (47.6)
Capital redemption reserve 2.3 - 2.3
Retained earnings 482.5 (107.4) 375.1
------------------------------------ ---------- -------------- ----------
Total equity 496.9 (107.4) 389.5
------------------------------------ ---------- -------------- ----------
IFRS 9 replaces the provisions of IAS 39 that relate to the recognition, classification and measurement of financial assets and financial liabilities, impairment of financial assets and hedge accounting.
The adoption of IFRS 9 Financial Instruments from 1 January 2018 resulted in changes in accounting policies and adjustments to the amounts recognised in the financial statements. The new accounting policies are set out within this note. In accordance with the transitional provisions of IFRS 9 (7.2.15) and (7.2.26), comparative figures have not been restated.
The total impact on the Group's retained earnings as at 1 January 2018 is as follows:
1 January
2018
GBPm
Closing retained earnings 31 December - IAS 39 482.5
---------------------------------------------------------- ----------
Increase in impairment provisions for amounts receivable
from customers (130.5)
Increase in deferred tax asset relating to impairment
provisions 23.1
---------------------------------------------------------- ----------
Adjustment to retained earnings from adoption of
IFRS 9 on 1 January 2018 (107.4)
---------------------------------------------------------- ----------
Opening retained earnings 1 January - IFRS 9 375.1
---------------------------------------------------------- ----------
Responsibility statement
This statement is given pursuant to Rule 4 of the Disclosure Guidance and Transparency Rules.
It is given by each of the directors as at the date of this report, namely: Dan O'Connor, Chairman; Gerard Ryan, Chief Executive Officer; Justin Lockwood, Chief Financial Officer; Tony Hales, Senior independent non-executive director; Deborah Davis, non-executive director; John Mangelaars, non-executive director; Richard Moat, non-executive director; Cathryn Riley, non-executive director, and Bronwyn Syiek, non-executive director.
To the best of each director's knowledge:
a) the financial information, prepared in accordance with the IFRSs, give a true and fair view of the assets, liabilities, financial position and profit of the Company and the undertakings included in the consolidation taken as a whole; and
b) the management report contained in this report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.
Alternative performance measures
This 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 readers with important additional information on our business. To support this we have included a reconciliation of the APMs we use, where relevant, and a glossary indicating the APMs that we use, an explanation of how they are calculated and why we use them.
APM Closest equivalent Reconciling Definition and purpose
statutory items to
measure statutory
measure
----------------------- --------------------- --------------- ------------------------------------------
Income statement measures
---------------------------------------------- --------------- ------------------------------------------
IFRS 9 2017 IAS 39 2017 Not applicable The performance reporting
comparative comparative in this report compares
the 2018 actual performance
against the 2017 numbers
adjusted for IFRS 9 because
the Board believes that
this provides the most relevant
performance trends. A full
reconciliation of the IFRS
9 numbers is set out on
pages 51 and 52.
----------------------- --------------------- --------------- ------------------------------------------
Credit issued None Not applicable Credit issued is the principal
growth (%) value of loans advanced
to customers and is an important
measure of the level of
lending in the business.
Credit issued growth is
the period-on-period change
in this metric which is
calculated by retranslating
the previous year's credit
issued at the average actual
exchange rates used in the
current financial year.
This ensures that the measure
is presented having eliminated
the effects of exchange
rate fluctuations on the
period-on-period reported
results.
----------------------- --------------------- --------------- ------------------------------------------
Average net None Not applicable Average net receivables
receivables are the average amounts
(GBPm) receivable from customers
translated at the average
monthly actual exchange
rate. This measure is presented
to illustrate the change
in amounts receivable from
customers on a consistent
basis with revenue growth.
----------------------- --------------------- --------------- ------------------------------------------
Average net None Not applicable Average net receivables
receivables growth is the period-on-period
growth at constant change in average net receivables
exchange rates which is calculated by retranslating
(%) the previous year's average
net receivables at the average
actual exchange rates used
in the current financial
year. This ensures that
the measure is presented
having eliminated the effects
of exchange rate fluctuations
on the period-on-period
reported results.
----------------------- --------------------- --------------- ------------------------------------------
Revenue growth None Not applicable The period-on-period change
at in revenue which is calculated
constant exchange by retranslating the previous
rates (%) year's revenue at the average
actual exchange rates used
in the current financial
year. This measure is presented
as a means of eliminating
the effects of exchange
rate fluctuations on the
period-on-period reported
results.
Revenue yield None Not applicable Revenue yield is reported
(%) revenue divided by average
net receivables and is an
indicator of the gross return
being generated from average
net receivables.
Impairment None Not applicable Impairment as a percentage
as a of revenue is reported impairment
percentage divided by reported revenue
of and represents a measure
revenue (%) of credit quality that is
used across the business.
This measure is reported
on a rolling annual basis
(annualised).
Cost-income None Not applicable The cost-income ratio is
ratio (%) other costs divided by reported
revenue. Other costs represent
all operating costs with
the exception of amounts
paid to agents as collecting
commission. This measure
is reported on a rolling
annual basis
(annualised). This is useful
for comparing performance
across markets.
Pre-exceptional Profit before Exceptional Profit before tax and exceptional
profit before tax items items. This is considered
tax (GBPm) to be an important measure
where exceptional items
distort the operating performance
of the business.
Effective tax Effective Exceptional Total tax expense for the
rate tax items and Group excluding exceptional
before exceptional rate their tax items divided by profit
items (%) tax impact before tax and exceptional
items. This measure is an
indicator of the ongoing
tax rate for the Group.
----------------------- ----------------- ------------------- ------------------------------------------
Pre-exceptional Earnings Items identified Earnings per share before
earnings per per as exceptional the impact of exceptional
share share items items. This is considered
(pence) to be an important measure
where exceptional items
distort the operating
performance of the business.
Like-for-like None Not applicable The period-on-period change
profit in profit adjusted for
growth or contraction the impact of exchange
(GBPm) rates and, where appropriate,
investment in new business
development opportunities.
The impact of exchange
rates is calculated by
retranslating the previous
period's profit at the
current year's average
exchange rate. This measure
is presented as a means
of reporting like-for-like
profit movements.
----------------------- ----------------- ------------------- ----------------------------------- -----
Balance sheet and returns measures
-----------------------------------------------------------------------------------------------------------
Return on assets None Not applicable Calculated as profit before
('ROA') (%) interest and exceptional
items less tax at the effective
tax rate before exceptional
items divided by average
net receivables. We believe
that ROA is a good measure
of the financial performance
of our businesses, showing
the ongoing return on the
total equity and debt capital
invested in average net
receivables of our operating
segments and the Group.
---
Return on equity None Not applicable Calculated as profit after
('ROE') (%) tax (adjusted for exceptional
items) divided by average
opening and closing equity.
It is used as a measure
of overall shareholder returns
adjusted for exceptional
items.
Equity to receivables None Not applicable Total equity divided by
ratio amounts receivable from
(%) customers. This is a measure
of balance sheet strength
and the Group targets a
ratio of around 40%.
Headroom (GBPm) Undrawn None Headroom is an alternative
external term for undrawn external
bank bank facilities.
facilities
----------------------- --------------------- --------------- ------------------------------------------
Other measures
----------------------- --------------------- --------------- ------------------------------------------
Customers None Not applicable Customers that are being
served by our agents or
through our money transfer
product in the home credit
business and customers that
are not in default in our
digital business.
----------------------- --------------------- --------------- ------------------------------------------
Customer retention None Not applicable The proportion of customers
(%) that are retained for their
third or subsequent loan.
Our ability to retain customers
is central to achieving
our strategy and is an indicator
of the quality of our customer
service. We do not retain
customers who have a poor
payment history as it can
create a continuing impairment
risk and runs counter to
our responsible lending
commitments.
----------------------- --------------------- --------------- ------------------------------------------
Employees and Employee Agents are self-employed
Agents information individuals who represent
the Group's subsidiaries
and are engaged under civil
contracts with the exception
of Hungary and Romania where
they are employees engaged
under employment contracts
due to local regulatory
reasons.
----------------------- --------------------- --------------- ------------------------------------------
Agent and employee None Not applicable This measure represents
retention (%) the proportion of our employees
and agents that have been
working for or representing
the Group for more than
12 months. Experienced people
help us to achieve and sustain
strong customer relationships
and a high quality service,
both of which are central
to achieving good customer
retention. Good agent and
employee retention also
helps reduce costs of recruitment
and training, enabling more
investment in people development.
----------------------- --------------------- --------------- ------------------------------------------
Reconciliation of 2017 reported numbers under IAS39 restated under IFRS 9
The performance reporting in this report compares the 2018 actual performance against the 2017 numbers adjusted for IFRS 9 because the Board believes that this provides the most relevant comparison of performance trends. A full reconciliation of the 2017 profit and loss account between the reported numbers and the IFRS 9 numbers is set out below:
Group
2017 IFRS 9 2017
IAS39 Impact IFRS 9
GBPm GBPm GBPm
------------------------- -------- -------- --------
Average net receivables 993.1 (116.0) 877.1
------------------------- -------- -------- --------
Revenue 825.8 16.8 842.6
Impairment (201.1) (25.2) (226.3)
------------------------- -------- -------- --------
Net revenue 624.7 (8.4) 616.3
Finance costs (55.2) - (55.2)
Agents' commission (85.9) - (85.9)
Other costs (378.0) - (378.0)
------------------------- -------- -------- --------
Profit before tax 105.6 (8.4) 97.2
------------------------- -------- -------- --------
Home credit
2017 IFRS 9 2017
IAS39 Impact IFRS 9
GBPm GBPm GBPm
------------------------- -------- -------- --------
Average net receivables 833.9 (105.3) 728.6
------------------------- -------- -------- --------
Revenue 721.7 16.8 738.5
Impairment (166.7) (20.6) (187.3)
------------------------- -------- -------- --------
Net revenue 555.0 (3.8) 551.2
Finance costs (46.8) - (46.8)
Agents' commission (85.5) - (85.5)
Other costs (293.7) - (293.7)
------------------------- -------- -------- --------
Profit before tax 129.0 (3.8) 125.2
------------------------- -------- -------- --------
European home credit
2017 IFRS 9 2017
IAS39 Impact IFRS 9
GBPm GBPm GBPm
------------------------- -------- -------- --------
Average net receivables 661.7 (83.7) 578.0
------------------------- -------- -------- --------
Revenue 504.7 15.2 519.9
Impairment (91.1) (17.2) (108.3)
------------------------- -------- -------- --------
Net revenue 413.6 (2.0) 411.6
Finance costs (36.6) - (36.6)
Agents' commission (56.6) - (56.6)
Other costs (206.1) - (206.1)
------------------------- -------- -------- --------
Profit before tax 114.3 (2.0) 112.3
------------------------- -------- -------- --------
Mexico home credit
2017 IFRS 9 2017
IAS39 Impact IFRS 9
GBPm GBPm GBPm
------------------------- ------- -------- --------
Average net receivables 172.2 (21.6) 150.6
------------------------- ------- -------- --------
Revenue 217.0 1.6 218.6
Impairment (75.6) (3.4) (79.0)
------------------------- ------- -------- --------
Net revenue 141.4 (1.8) 139.6
Finance costs (10.2) - (10.2)
Agents' commission (28.9) - (28.9)
Other costs (87.6) - (87.6)
------------------------- ------- -------- --------
Profit before tax 14.7 (1.8) 12.9
------------------------- ------- -------- --------
IPF Digital
2017 IFRS 9 2017
IAS39 Impact IFRS 9
GBPm GBPm GBPm
------------------------- ------- -------- --------
Average net receivables 159.2 (10.7) 148.5
------------------------- ------- -------- --------
Revenue 104.1 - 104.1
Impairment (42.9) (4.6) (47.5)
------------------------- ------- -------- --------
Net revenue 61.2 (4.6) 56.6
Finance costs (8.4) - (8.4)
Other costs (64.5) - (64.5)
------------------------- ------- -------- --------
Loss before tax (11.7) (4.6) (16.3)
------------------------- ------- -------- --------
IPF Digital - Established markets
2017 IFRS 9 2017
IAS39 Impact IFRS 9
GBPm GBPm GBPm
------------------------- ------- -------- --------
Average net receivables 109.5 (3.8) 105.7
------------------------- ------- -------- --------
Revenue 63.4 - 63.4
Impairment (13.2) 0.1 (13.1)
------------------------- ------- -------- --------
Net revenue 50.2 0.1 50.3
Finance costs (5.8) - (5.8)
Other costs (25.9) - (25.9)
------------------------- ------- -------- --------
Profit before tax 18.5 0.1 18.6
------------------------- ------- -------- --------
IPF Digital - New markets
2017 IFRS 9 2017
IAS39 Impact IFRS 9
GBPm GBPm GBPm
------------------------- ------- -------- --------
Average net receivables 49.7 (6.9) 42.8
------------------------- ------- -------- --------
Revenue 40.7 - 40.7
Impairment (29.7) (4.7) (34.4)
------------------------- ------- -------- --------
Net revenue 11.0 (4.7) 6.3
Finance costs (2.6) - (2.6)
Other costs (28.9) - (28.9)
------------------------- ------- -------- --------
Loss before tax (20.5) (4.7) (25.2)
------------------------- ------- -------- --------
Constant exchange rate reconciliations
The year-on-year change in IFRS 9 profit and loss accounts is calculated by retranslating the 2017 IFRS 9 profit and loss account at the average actual exchange rates used in the current year.
2018
GBPm European Mexico IPF Digital Lithuania Central Group
home credit home and Slovakia costs
credit
------------------------- ------------- -------- ------------ -------------- -------- --------
Customers 1,092.0 917.0 292.0 - - 2,301.0
Credit issued 757.8 291.0 311.8 - - 1,360.6
Average net receivables 558.9 154.9 209.6 - - 923.4
Revenue 493.3 226.1 147.0 - - 866.4
Impairment (88.5) (82.9) (55.6) - - (227.0)
Net revenue 404.8 143.2 91.4 - - 639.4
Finance costs (35.3) (11.3) (11.9) - - (58.5)
Agents' commission (53.7) (28.8) - - - (82.5)
Other costs (202.0) (87.4) (85.1) - (14.6) (389.1)
------------------------- ------------- -------- ------------ -------------- -------- --------
Profit/(loss) before
tax 113.8 15.7 (5.6) - (14.6) 109.3
------------------------- ------------- -------- ------------ -------------- -------- --------
2017 performance, restated for IFRS 9, at 2017 average foreign
exchange rates
GBPm European Mexico IPF Digital Lithuania Central Group
home credit home credit and Slovakia costs
------------------------- ------------- ------------- ------------ -------------- -------- --------
Customers 1,236.2 828.0 226.0 - - 2,290.2
Credit issued 797.0 273.7 230.8 - - 1,301.5
Average net receivables 578.0 150.6 148.5 - - 877.1
Revenue 519.9 218.6 104.1 - - 842.6
Impairment (108.3) (79.0) (47.5) 8.5 - (226.3)
Net revenue 411.6 139.6 56.6 8.5 - 616.3
Finance costs (36.6) (10.2) (8.4) - - (55.2)
Agents' commission (56.6) (28.9) - (0.4) - (85.9)
Other costs (206.1) (87.6) (64.5) (4.9) (14.9) (378.0)
------------------------- ------------- ------------- ------------ -------------- -------- --------
Profit/(loss) before
tax 112.3 12.9 (16.3) 3.2 (14.9) 97.2
------------------------- ------------- ------------- ------------ -------------- -------- --------
Foreign exchange movements
GBPm European Mexico IPF Digital Lithuania Central Group
home credit home credit and Slovakia costs
------------------------- ------------- ------------- ------------ -------------- -------- -------
Credit issued 1.9 (14.6) 0.7 - - (12.0)
Average net receivables 2.4 (7.8) 0.5 - - (4.9)
Revenue 1.0 (11.7) 0.2 - - (10.5)
Impairment (0.1) 4.0 (0.1) 0.3 - 4.1
Net revenue 0.9 (7.7) 0.1 0.3 - (6.4)
Finance costs (0.1) 0.6 (0.1) - - 0.4
Agents' commission (0.2) 1.6 - - - 1.4
Other costs (1.3) 4.3 0.3 (0.1) - 3.2
------------------------- ------------- ------------- ------------ -------------- -------- -------
Profit/(loss) before
tax (0.7) (1.2) 0.3 0.2 - (1.4)
------------------------- ------------- ------------- ------------ -------------- -------- -------
2017 performance, restated for IFRS 9 at 2018 average foreign
exchange rates
GBPm European Mexico IPF Digital Lithuania Central Group
home credit Home and Slovakia costs
credit
------------------------- ------------- -------- ------------ -------------- -------- --------
Credit issued 798.9 259.1 231.5 - - 1,289.5
Average net receivables 580.4 142.8 149.0 - - 872.2
Revenue 520.9 206.9 104.3 - - 832.1
Impairment (108.4) (75.0) (47.6) 8.8 - (222.2)
Net revenue 412.5 131.9 56.7 8.8 - 609.9
Finance costs (36.7) (9.6) (8.5) - - (54.8)
Agents' commission (56.8) (27.3) - (0.4) - (84.5)
Other costs (207.4) (83.3) (64.2) (5.0) (14.9) (374.8)
------------------------- ------------- -------- ------------ -------------- -------- --------
Year-on-year movement at constant exchange rates
European Mexico IPF Digital Lithuania Central Group
home credit Home and Slovakia costs
credit
------------------------- ------------- -------- ------------ -------------- -------- --------
Credit issued (5.1%) 12.3% 34.7% - - 5.5%
Average net receivables (3.7%) 8.5% 40.7% - - 5.9%
Revenue (5.3%) 9.3% 40.9% - - 4.1%
Impairment 18.4% (10.5%) (16.8%) (100.0) - (2.2%)
Net revenue (1.9%) 8.6% 61.2% (100.0) - 4.8%
Finance costs 3.8% (17.7%) (40.0%) - - (6.8%)
Agents' commission 5.5% (5.5%) - 100.0% - 2.4%
Other costs 2.6% (4.9%) (32.6%) 100.0% 2.0% (3.8%)
------------------------- ------------- -------- ------------ -------------- -------- --------
Return on assets (ROA)
ROA is calculated as profit before interest after tax divided by average receivables.
2018 European Mexico IPF Lithuania Central Group
home home Digital and Slovakia Costs
credit credit
Profit before
tax (GBPm) 113.8 15.7 (5.6) - (14.6) 109.3
Interest (GBPm) 35.3 11.3 11.9 - - 58.5
PBIT (GBPm) 149.1 27.0 6.3 - (14.6) 167.8
Taxation (GBPm) (46.2) (8.4) (2.0) - 4.5 (52.1)
PBIAT (GBPm) 102.9 18.6 4.3 - (10.1) 115.7
Average receivables
(GBPm) 558.9 154.9 209.6 - - 923.4
--------------------- --------- -------- --------- -------------- -------- -------
Return on assets 18.4% 12.0% 2.1% - - 12.5%
--------------------- --------- -------- --------- -------------- -------- -------
2017 IFRS 9 European Mexico IPF Lithuania Central Group
home home Digital and Slovakia Costs
credit credit
--------------------- --------- -------- --------- -------------- -------- -------
Profit before
tax (GBPm) 112.3 12.9 (16.3) 3.2 (14.9) 97.2
Interest (GBPm) 36.6 10.2 8.4 - - 55.2
PBIT (GBPm) 148.9 23.1 (7.9) 3.2 (14.9) 152.4
Taxation(1) (GBPm) (43.2) (6.7) 2.3 (0.9) 4.3 (44.2)
PBIAT (GBPm) 105.7 16.4 (5.6) 2.3 (10.6) 108.2
Average receivables
(GBPm) 578.0 150.6 148.5 - - 877.1
--------------------- --------- -------- --------- -------------- -------- -------
Return on assets 18.3% 10.9% (3.8%) - - 12.3%
--------------------- --------- -------- --------- -------------- -------- -------
(1) Adjusted for exceptional tax charge
2017 IAS 39 European Mexico IPF Lithuania Central Group
home home Digital and Slovakia Costs
credit credit
--------------------- --------- -------- --------- -------------- -------- -------
Profit before
tax (GBPm) 114.3 14.7 (11.7) 3.2 (14.9) 105.6
Interest (GBPm) 36.6 10.2 8.4 - - 55.2
PBIT (GBPm) 150.9 24.9 (3.3) 3.2 (14.9) 160.8
Taxation(1) (GBPm) (43.7) (7.2) 1.0 (0.9) 4.3 (46.5)
PBIAT (GBPm) 107.2 17.7 (2.3) 2.3 (10.6) 114.3
Average receivables
(GBPm) 661.7 172.2 159.2 - - 993.1
--------------------- --------- -------- --------- -------------- -------- -------
Return on assets 16.2% 10.3% (1.5%) - - 11.5%
--------------------- --------- -------- --------- -------------- -------- -------
(1) Adjusted for exceptional tax charge
Return on equity (ROE)
ROE is calculated as profit after pre-exceptional tax divided by average net assets
2018 2017 2016 2017 2016
IFRS 9 IFRS 9 IFRS 9 IAS39 IAS39
GBPm GBPm GBPm GBPm GBPm
------------------------------ -------- -------- -------- ------- -------
Equity (net assets) 433.0 389.5 336.7 496.9 429.5
Average equity 411.3 363.1 463.2
Profit after pre-exceptional
tax 75.4 69.0 75.0
------------------------------ -------- -------- -------- ------- -------
Return on equity 18.3% 19.0% 16.2%
------------------------------ -------- -------- -------- ------- -------
Earnings before interest, tax, depreciation and amortisation (EBITDA)
2018 2017 2017
IFRS 9 IFRS 9 IAS39
GBPm GBPm GBPm
---------------------------------------------- -------- -------- -------
Profit before tax from continuing operations 109.3 97.2 105.6
Add back:
Interest 58.5 55.2 55.2
Depreciation 9.2 10.3 10.3
Amortisation 14.5 11.4 11.4
---------------------------------------------- -------- -------- -------
EBITDA 191.5 174.1 182.5
---------------------------------------------- -------- -------- -------
Information for shareholders
1. The shares will be marked ex-dividend on 11 April 2019.
2. The final dividend, which is subject to shareholder approval, will be paid on 10 May 2019 to shareholders on the register at the close of business on 12 April 2019.
3. A dividend reinvestment scheme is operated by our Registrar, Link Asset Services. For further information contact The Registrar, 34 Beckenham Road, Beckenham, Kent, BR3 4TU (telephone 0871 664 0300. Calls cost 12 pence per minute plus your phone company's access charge, or +44 (0)371 664 0300 (from outside the UK charged at the applicable international rate). Lines are open 9.00am to 5.30pm Monday to Friday excluding bank holidays).
4. The Annual Report and Financial Statements 2018 and the notice of the annual general meeting will be posted on 20 March 2019 to shareholders who have elected to continue receiving documents from the Company in hard copy form. All other shareholders will be sent a letter explaining how to access the documents on the Company's website from 21 March 2019 or an email with the equivalent information. Paper proxy forms can be requested from the Registrar by phoning the number above.
5. The annual general meeting will be held at 10.30am on 2 May 2019 at the Company's registered office, Number Three, Leeds City Office Park, Meadow Lane, Leeds, LS11 5BD.
This report has been prepared solely to provide additional information to shareholders to assess the Group's strategies and the potential for those strategies to succeed. The report should not be relied on by any other party or for any other purpose. The report contains certain forward-looking statements. These statements are made by the directors in good faith based on the information available to them up to the time of their approval of this report but such statements should be treated with caution due to the inherent uncertainties, including both economic and business risk factors, underlying any such forward-looking information. Percentage change figures for all performance measures, other than profit before taxation and earnings per share, unless otherwise stated, are quoted after restating prior year figures at a constant exchange rate (CER) for 2018 in order to present the underlying performance variance.
Investor relations and media contacts
International Personal Finance Rachel Moran - Investor Relations
plc +44 (0)7760 167637 / +44 (0)113
285 6798
Gergely Mikola - Media
+36 20 339 02 25
FTI Consulting Neil Doyle
+44 (0)20 3727 1141 / +44 (0)7771
978 220
Laura Ewart
+44 (0)20 3727 1160 / +44 (0)7711
387085
International Personal Finance will host a live webcast of its full-year results presentation at 08:30hrs (GMT) today - Wednesday 27 February 2019, which can be accessed in the Investors section of our website at www.ipfin.co.uk. A copy of this statement can also be found on our website at www.ipfin.co.uk.
Legal Entity Identifier: 213800II1O44IRKUZB59
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
END
FR UNUNRKSAUUAR
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February 27, 2019 02:00 ET (07:00 GMT)
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