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Straightforward
consumer
finance
Annual Report and
Financial Statements
2016
Introduction
Providing credit responsibly
to our customers
Market review Q&A
Read
more on
P.6
Read
more on
P.8
Contents
Strategic Report
Introduction
Performance highlights
Chairman’s statement
IPF at a glance
Our customers
Market review Q&A
Our strategy
Our business model
Our investment case
Chief Executive Officer’s review
Key performance indicators
Sustainability
Operational review
Financial review
Principal risks and uncertainties
View our report online: www.ipfin.co.uk
1
1
2
4
6
8
10
12
14
16
20
22
24
32
36
Corporate Governance
Introduction to corporate governance 44
45
Corporate governance at a glance
46
Board and committees
48
Board report
50
Nomination Committee report
52
Audit and Risk Committee report
57
Technology Committee report
59
Directors’ report
70
Directors’ statements
71
Directors’ remuneration report
94
Financial Statements
Independent auditor’s report
Consolidated income statement and
Statements of comprehensive income 99
100
Balance sheets
101
Statements of changes in equity
103
Cash flow statements
104
Accounting policies
110
Notes to the Financial Statements
Supplementary Information
136
Shareholder information
Cautionary statement
The purpose of this report is to provide information to the members of the Company. It has been prepared for, and only for, the members of the Company, as a body, and no other
persons. The Company, its directors and employees, agents or advisors do not accept or assume responsibility to any other person to whom this document is shown or into whose hands
it may come and any such responsibility or liability is expressly disclaimed. The Annual Report and Financial Statements contain certain forward-looking statements with respect to the
operations, performance and financial condition of the Group. By their nature, these statements involve uncertainty since future events and circumstances can cause results and
developments to differ materially from those anticipated. The forward-looking statements reflect knowledge and information available at the date of preparation of the Annual Report
and Financial Statements and the Company undertakes no obligation to update these forward-looking statements (other than to the extent required by legislation and the Listing Rules
and the Disclosure and Transparency Rules of the Financial Conduct Authority). Nothing in this year’s Annual Report and Financial Statements should be construed as a profit forecast.
International Personal Finance plc (‘IPF’). Company number: 6018973.
Percentage change figures for all performance measures, other than profit or loss before taxation and earnings per share, unless otherwise stated, are quoted after restating prior year
figures at a constant exchange rate (‘CER’) for 2016 in order to present the underlying performance variance.
Figures for all performance measures, except where noted, are quoted after removing revenue of £7.5 million; impairment credit of £15.1 million; costs of £20.3 million; collecting
commission of £3.3 million and £0.6 million of finance costs generated in the Slovakia.
Introduction
We aim to make a difference in the lives of our 2.5 million customers by
providing straightforward consumer finance. We specialise in providing
unsecured credit responsibly to people with low to middle incomes who
want to borrow small sums and repay in manageable, affordable amounts.
We have two distinct offerings:
Home credit which includes our face-
to-face, at-home service provided by
over 25,600 agents and serviced by
7,000 employees.
Digital credit serving customers
who prefer to take out and repay
loans online.
Performance highlights
2,523 (2%)
Customers (’000)1,2
£1,157.6M +8%
Credit issued (£M)1
£755.9M +1%
Revenue (£M)1
2,418
2,563
2,523
953.0
993.3
1,157.6
735.4
698.8
755.9
2014
2015
2016
2014
2015
2016
2014
2015
2016
£92.6M (20%)
Profit before tax (£M)3
30.2p (19%)
EPS (p)3
12.4p
Dividend per share (p)
123.5
116.1
92.6
38.0
37.1
30.2
12.0
12.4
12.4
2014
2015
2016
2014
2015
2016
2014
2015
2016
1. Excluding Slovakia
2. Adjusted following change to treatment of very slow paying customers in our home credit businesses
3. Excluding exceptional items of £23.3M in 2014 and £15.9M in 2015
International Personal Finance plc Annual Report and Financial Statements 2016
1
Strategic Report Chairman’s statement
“Demand for consumer
credit is growing,
customers are looking to
borrow money in different
ways, competitors are
offering greater choice
and regulatory challenge
has increased.”
Dan O’Connor
Chairman
Operating
in an evolving sector
For our strategy
see pages 10-11
As a leading player in the consumer
credit business, we are operating in
a rapidly evolving sector, one where
regulation and competition have
greatly intensified and where some
of our customers are migrating to
digital offerings.
Without doubt, 2016 was a difficult year for our company.
Whilst great progress was made in IPF Digital, increasing
regulatory challenges in Europe have had a negative
impact on our results and share price. Trading in Mexico
was difficult in the first half of the year, but I am glad to
report an improved performance in the second half and
into the early months of 2017.
Regulation
Let’s start with regulation. During 2016, regulation
remained a top priority for the Board and management
team. Once again, changes to regulations, and
proposals in the pipeline, have impacted how we do
business. Over the years, we have had a good track
record of adapting our product offering to comply with
new regulations and this has enabled us to continue
serving our customers with the credit products they need
and want. However, this was not the case in Slovakia
when early in 2016 we were forced to take the decision to
close our home credit business after new rate cap
legislation was enacted. In Poland, the Board provided
oversight and support to transition our business to
operating under the total cost of credit regulations which
were introduced in March 2016. However, a proposal to
further tighten this rate cap published by the Polish
Ministry of Justice in December 2016 was a disappointing
development which has brought about a high degree of
uncertainty for many credit providers in that market. The
Board has confidence in the Polish team as they
constructively engage with key stakeholders to get the
best outcome for customers, the wider consumer finance
sector and IPF.
Staying with Poland, at the beginning of 2017 we
announced to the market that we had received an
adverse decision from the Polish Tax Chamber with
respect to two financial years, the details of which are
explained in the financial review of this report. The
decision, which we have appealed, was extremely
disappointing especially so as the items in question are
long-standing tax treatments that have previously been
2
confirmed as correct by the Polish tax authority. I will
reiterate what we said at the time of our announcement.
We do not adopt aggressive tax strategies as evidenced
by Provident Polska’s average effective tax rate since 2008
which exceeds the Polish corporate income tax rate of
19%. We have also received very clear advice on the
strength of our case and will defend our position robustly
in court. Our CEO Gerard Ryan comments on these issues
in more detail in his review on page 17.
Our strategy
We are operating in a dynamic business environment and
continue to evolve our strategy to cater for that. We have
a strong history of providing a valued home credit service
to a specific sector of consumers who are not well served
by banks. With the development of mobile technology we
also recognise that many of these people are increasingly
looking to borrow through digital channels. We are
changing our business to adapt to these market
dynamics and take advantage of new lending
opportunities but our ethos to deliver simple consumer
finance remains at the core of what we do. We will
continue to offer home credit and it will be a significant
part of the business but we have moved beyond our
heritage to serve customers with digital offerings, an area
of the business which has strong growth potential. This
represents a very exciting opportunity for our company.
Financial performance
We delivered profit before tax of £92.6 million in 2016. This
was lower than in 2015 reflecting a combination of lower
home credit profit and higher investment in IPF Digital,
offset partially by strengthening FX rates.
We delivered credit issued growth of 8% driven by a
strong performance in our Southern Europe and IPF
Digital businesses, together with a return to higher levels
of growth in Mexico in the second half of the year.
Customer numbers reduced year-on-year by 2% due,
primarily, to competitive pressures in the Czech Republic
and Poland, which was offset by growth in Mexico and IPF
Digital. Credit quality remains good and impairment as a
percentage of revenue at 26.8% remains within our target
range of 25% to 30%.
Shareholder returns
We aim to run and develop high-yielding businesses to
provide good returns to our shareholders. 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 (2015: 12.4 pence per
share). The full year dividend represents a total payment
equivalent to approximately 41% of post-tax earnings for
the full year 2016 which is above our target pay-out rate
of 35%.
following the departure of Adrian Gardner who resigned
in order to pursue an alternative business opportunity.
Justin brings to the Board a wealth of finance experience
and depth of insight into the markets in which we
operate. We are also searching for a new Senior
Independent Director to replace Tony Hales who will have
served almost ten years as a director at the time of our
2017 AGM. The Board asked Tony to continue as a director
until our AGM in 2018 and I am pleased to confirm that
he agreed to this.
The Board undertook market visits to Mexico and Poland
during 2016. During these visits I was pleased to see just
how strong our team’s focus is on serving our customers
well and this is reflected in our recent annual
engagement survey findings.
Commitment to sustainability
We believe that it is important to ensure that we are
acting ethically at all times. We provide a clear template
to our people through our Code of Ethics and this year
99% of employees and 85% of agents undertook our
ethics e-learning test.
We were pleased to be ranked in the top 7% in the
financial services Supersector in the FTSE4Good ESG
Ratings. This score puts IPF amongst the highest scoring
financial services companies in the world for its
responsible approach to business. We also received the
highest possible scores in the Corporate Governance
and Human Rights and Community categories. Our
continuing excellent performance in the FTSE4Good
index reflects our commitment to sustainable growth by
operating in a responsible and ethical manner.
Outlook
Demand for consumer credit is growing but customers
are looking to borrow money in different ways with
competitors offering greater choice while regulatory
oversight has increased. At this time it is not clear how
draft rate cap proposals in Poland will impact our
business but we are working to make sure that key
stakeholders fully understand the potential implications of
change and deliver legislation to better reflect both the
needs of customers and businesses. In the meantime, we
continue to focus on modernising our business to meet
the changing needs of our customers, profitably and
sustainably, in order to continue to deliver returns to you,
our shareholders.
I would like to close by thanking all our team for their
continued efforts and hard work. 2016 was a challenging
year but we have the strategy and means to execute it to
deliver for our customers, shareholders and
other stakeholders.
Board and people
I was delighted to welcome Justin Lockwood to the Board
on his appointment as Chief Financial Officer in February
2017. Justin, previously the Group’s Head of Finance,
assumed the role of Interim CFO in September 2016
Dan O’Connor
Chairman
International Personal Finance plc Annual Report and Financial Statements 2016
3
Strategic Report IPF at a glance
Straightforward
consumer finance…
We offer a range of unsecured consumer finance
products, channels and brands to meet the specific needs
and financial circumstances of our target customers.
Products
• Home credit cash loans
• Weekly and monthly
with agent service
repayments
• Money transfer loans
• Loan terms from 12 weeks
direct to bank account
to around 2 ½ years
• Home, medical and life
• Typical loan value £400
insurances
• Micro-business loans
• Provident-branded
digital loans
£698M
Revenue
2.3M
Customers
Products
• Instalment loans
• Loans up to £3,500
• Revolving credit line
• Customers served online
facility
• Monthly repayments
• Instalment loan terms up
to 3 years
or through selected
distribution partners
£58M
Revenue
194,000
Customers
Poland and
Lithuania
Czech
Republic
713,000
Customers
1,756
Employees
145,000
Customers
494
Employees
Established
markets –
Finland, Estonia,
Latvia and
Lithuania
New markets –
Poland, Spain
Mexico and
Australia
137,000
Customers
57,000
Customers
300
Employees
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4
…across 12 markets
Southern
Europe
Mexico
630,000
Customers
841,000
Customers
1,5971
Employees
2,738
Employees
Finland
Estonia
Latvia
Lithuania2
Poland
Romania
Bulgaria
Home credit
Digital
Both
Czech Republic
Spain
Hungary
Mexico
Australia
1 Excluding agents in Hungary and Romania
2 Lithuania home credit business merged into IPF Digital in December 2016
International Personal Finance plc Annual Report and Financial Statements 2016
5
Strategic Report Our customers
Providing
credit choice responsibly
Our customers want to borrow
smaller amounts to pay for everyday
items which they can repay in
manageable, affordable instalments,
either in their home to an agent or
via their bank account through our
money transfer or digital offerings.
Home credit customers
Our home credit customers have low, often fluctuating
incomes and limited or no previous credit history. This
means that many are far less likely to qualify for a remote
digital loan and, as such, are best suited to our home
credit offering. Our agents visit customers in their home to
arrange loans and to collect repayments. Customers
choosing to take the agent service value its convenience
and repayment discipline, and the fact there are no extra
charges for missed or late repayments during the
contractual term of the loan. Our home credit lending
model has operated successfully for more than 130 years
and remains a relevant and important component of the
consumer finance market.
Home credit
Typical customer features
• Low, fluctuating income
• People with families
• Little or no previous
credit history
• Prefer agent service
• Need to manage
finances carefully
• Seek flexibility
6
Digital customers
The rapid increase in mobile device technology is
enabling a growing number of consumers in our target
segment to borrow online. Our target digital customers
earn low to middle incomes and tend to have high
smartphone adoption levels. They also have a credit
history which may allow them to qualify for a remote
digital loan and some may have taken home credit
loans previously.
Our digital lending model has operated successfully for
over ten years and is a significant strategic opportunity to
grow the number of customers we serve with instalment
loans and credit line facilities.
Digital
Typical customer features
• Low to middle income
• Like to shop and
borrow online
• High smartphone
ownership
• Credit history
• Seek flexibility
International Personal Finance plc Annual Report and Financial Statements 2016
7
Strategic Report Market review Q&A
“Our strategy reflects
the changing dynamics
in our markets.”
Gerard Ryan
Chief Executive Officer
Changing
dynamics in consumer finance
For CEO’s review
see pages 16-19
It is important to note that, despite advances in
technology, many of our home credit customers value
the convenience and flexibility of our agent service and
the forbearance it offers. Additionally, most of our home
credit customers would not currently be accepted for a
digital loan and so we see our home credit model
maintaining its key competitive advantage.
Q. What are the biggest risks to your business?
In a nutshell, regulation and competition. Regulators and
politicians continue to be active in our European markets
and have introduced new legislation around price and
affordability. It is clear that pre-election populist agendas
have also resulted in less market consultation in the
legislative process than would normally be the case.
Regarding competition, preference for digital loans is
driving growth in the unsecured consumer finance
market in Europe and digital lenders are also starting to
launch in Mexico, though this market is significantly less
developed compared with Europe.
Our CEO, Gerard Ryan, discusses
the key market drivers in consumer
finance and how they are influencing
our strategy.
Q. Is demand for consumer credit growing?
Yes, demand is increasing in our markets driven largely by
digital lending specifically short-term payday loans, and
bank consolidation loans. We expect growth to continue
albeit with some slowdown in developed markets over
the medium term. We have identified significant growth
opportunities within our business and our strategy
reflects this.
Q. How is consumer behaviour changing?
Technology is driving changes in consumer behaviour.
The rapid increase in smartphone and internet
penetration is enabling a growing number of the best
credit quality consumers in our target segment to borrow
online. This has brought intense competition in some of
our markets but also presents an exciting opportunity
and, as a result, our digital business is growing strongly in
this space.
8
We are engaging with Polish Government ministries and
interested parties to try to achieve a
more positive solution that is good both for consumers
and businesses.
In Romania, more stringent and restrictive
creditworthiness assessments for non-banking financial
institutions and the requirement for the separation of
duties between sales and credit vetting became effective
at the end of 2016. These changes are expected to
impact growth significantly in this market.
New licensing regulations were introduced in the Czech
Republic in December 2016 with the key changes being
the requirement for agents to have either a secondary
education or at least three years’ of financial service
experience, a clear separation of duties between sales and
credit decisioning teams and modifications to proof of
income processes. We submitted our licence application,
made changes to our business processes and are offering
assistance to agents to become accredited.
We continue to await the outcome of the appeal against
new collections regulations introduced in Mexico in
December 2015 banning weekend and late hour
collections from customers’ homes. Lenders do not have
to comply with the law until the case is closed and we
are working with interested parties to change the
respective elements of the legislation to better reflect
both the needs of customers and businesses.
Q. What is the global economic outlook for
your business?
The results of the Brexit vote and US presidential election
in 2016 have created global market uncertainty and the
general expectation is that there may be longer-term
impacts on global economic growth. Looking ahead,
GDP forecasts for 2017 are for a continuation of recent
moderate growth in our European markets but for a
slowdown in Mexico.
Q. How do these factors feed into your strategy?
We are operating in a dynamic environment which is
being driven increasingly by digital lending, and where
competition and regulation have intensified. Our strategy,
which is described overleaf, reflects these market drivers
in seeking sustainable growth and enhanced profitability.
For our strategy
see pages 10-11
“Demand is increasing in our
markets driven largely by
digital lending.”
Q. How have changes to regulation impacted
your product offering and returns?
Where there are rate caps in markets in which we
operate, we have adapted our business to ensure
compliance. New total cost of credit regulations
introduced in Poland in March 2016 meant we had to
introduce a new product structure and the effect of this
new requirement has, as expected, resulted in a
reduction of profit and returns.
The impact of an amendment to the Civil Code in
Slovakia in December 2015, which meant the charges
for our previously optional agent service would need
to fall within one loan agreement and therefore
become subject to the existing price cap, was hugely
disappointing. Following a detailed review early in
2016, we took the decision to wind down the
Slovakian business.
In terms of our product offering, we have introduced
digital lending which can, typically, operate within
lower rate caps because of the lower cost base. We
have also increased loan sizes and terms for our best
customers and are offering insurance products to drive
incremental profits.
Q. How are you responding to growing competition?
We now operate in a marketplace where payday
operators, digital lenders and, to a lesser extent, banks
are willing to take more risk and compete for our most
creditworthy customers. To compete more effectively, we
have responded by broadening our product offering to
attract and retain a wider range of customers in our
target segment. We now offer shorter and longer-term
loans and micro-business loans for self-employed
customers, preferentially priced loans for loyal customers
and a range of insurance products sourced from
third parties.
We also have a range of digital instalment loan offerings
and a credit line facility available from IPF Digital under
the Credit 24, Hapiloans, Creditea and Sving brands. Our
Provident-branded digital offering in Poland is building
momentum with 8,000 customers and we plan to
introduce this product in the Czech Republic during 2017.
Q. What current regulatory risks are on the horizon?
In December 2016, the Polish Ministry of Justice proposed,
amongst other details, a significant reduction to the
existing cap on non-interest costs that may be charged
by lenders in connection with a consumer loan
agreement. This was an unexpected proposal, particularly
as the existing cap had only been enacted in March
2016. During a 14-day public consultation, many
organisations evaluated and commented on the draft
bill, and we await an update from the Ministry of Justice
on its proposal.
International Personal Finance plc Annual Report and Financial Statements 2016
9
Strategic Report Our strategy
Our multi-channel
approach
Market drivers
We are pursuing our strategy to deliver sustainable
growth, enhance our profitability and make efficient
use of capital.
Our strategy reflects the dynamic markets in which we operate where demand
for unsecured, small sum credit is growing, particularly for digital loans, but
where competition and regulatory oversight has also intensified.
In response to these market drivers, our operations are segmented into ‘Growth’
and ‘Returns’ focused businesses to reflect the fact that they are at different
stages of maturity. We see significant growth opportunities in our IPF Digital and
Mexico home credit businesses supported by investment in capital generated
by our high returns European home credit businesses. To deliver this strategy, we
are also modernising the business by investing in technology innovation and
developing our people and capabilities.
Growth focus – IPF Digital
IPF Digital represents an exciting strategic priority for the Group driven by
increasing demand for digital loans. We are focused on growing this business,
particularly in our four new markets of Poland, Spain, Australia and Mexico, and
IPF Digital is expected to deliver its maiden profit in 2018.
Growth focus – Mexico home credit
While performance in the first half of 2016 was below our original expectations,
we continue to believe that Mexico offers significant growth potential for our
home credit offering and therefore we will continue to invest in controlled
geographical expansion and new product lines.
Returns focus – European home credit
Our European home credit businesses are highly cash and capital generative.
We manage these businesses to provide a good service to our customers and
optimise returns to fund growth in our IPF Digital and Mexico home credit
businesses, and to provide progressive returns to our shareholders.
Strong demand for
unsecured consumer
lending
• Consumer credit growing
• Digital lending driving growth
• Low single digit GDP growth
Increased competition
• Digital lenders and banks taking best
customers from home credit
• No new home credit operators
• Intense competition expected to
remain
Growing consumer
preference for digital
options
• Increased smartphone and internet
penetration
• Home credit remains very important in
our credit sector
Increased regulatory
oversight driving lower
margins and restricting
issue values
• Regulators increasingly active in
consumer finance
• Focus on price and affordability
• Regulatory risk will continue
10
Our strategy and priorities
Our investment case
1. IPF Digital
• Focus on growing new
markets: Poland, Spain,
Australia and Mexico
• Invest in head office
capability and IT
functionality
• Bring to profitability in 2018
2. Mexico
home credit
• Return to strong profitable
growth
• Expand geographical
coverage
• Build micro-business loans
offering
• Drive significant
operational leverage
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3. European
home credit
• Manage to optimise returns
• Deliver efficiency
• Roll out Provident-branded
digital offer
• Generate capital to reinvest
in growth focused businesses
• Deliver shareholder returns
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Operating in a
growing sector
Good returns
for shareholders
Strong
financial profile
Effective risk
management
Experienced
team
For our investment case
See page 14-15
Making a difference with straightforward consumer finance
International Personal Finance plc Annual Report and Financial Statements 2016
11
Strategic Report
Our business model
Delivering
value for our
stakeholders
IPF offers both home credit and digital products.
This business model generates good sustainable
returns for shareholders, while delivering value
for our customers, employees, agents and the
communities in which we operate.
We know our customers well and understand their specific needs and
financial circumstances. Everything we do revolves around the relationships
we have with our customers – from the unique relationships our agents have
with them in their home, to the service we provide remotely to our digital
customers. Our success depends on serving them well and retaining
their custom.
Our business model is underpinned by our values and we operate and make
decisions consistent with being responsible, respectful and straightforward.
High standards of governance are also important to our sustainability and we
actively identify, manage and aim to mitigate the principal risks facing our
business, as described on page 37.
Our profit is generated from lending responsibly while managing the business
efficiently. Our home credit businesses generate a high proportion of Group
revenue primarily through the agent service model. While our digital business
delivers a smaller contribution currently, we believe it offers a significant future
growth opportunity driven by growing demand for online lending and the
ability to operate within a regulatory environment where the trend is for lower
cost products.
12
Resources critical to
our business model
How we deliver value
Home credit
Our home credit business model has
operated for more than 130 years and
generates good returns. We serve
2.3 million customers and the majority
choose the convenience and flexibility of
the weekly or monthly agent service.
Many of our customers have limited or no
previous credit history and their low, often
fluctuating, income means they are less
likely to qualify for a digital loan.
Responsible lending
For both our home credit and digital business
models, credit risk is managed carefully
through robust application scoring systems,
supported by credit bureaux, and for existing
customers we use powerful behavioural
models. We have a ‘low and grow’ strategy,
starting new customers on smaller, shorter-
term loans and only offer more credit once
their creditworthiness is proven.
Creating value for
our stakeholders
For our strategy
See pages 10-11
For principal risks
See pages 36-43
Relationships
People
Technology
Financial
Open and honest engagement
with all stakeholders is critical,
particularly the relationships
with our customers to ensure
they receive the products and
service they need.
We resource the business with
skilled and knowledgeable
employees and agents who
implement our strategy and
ensure our customers are
served well.
Technology is fundamental
to driving efficiency through
agent mobile technology,
supporting digital loans
growth and making
effective credit decisions.
We manage financial
resources effectively to
sustain our business and
generate good returns for
our shareholders.
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Digital
Our digital business model has operated
successfully for over 10 years and is
profitable in our established markets. The
rapid increase in mobile device
technology is enabling some consumers
in our target segment to borrow online
and digital lending is an important
growth opportunity. Our customers have
low to middle incomes and a credit
history that may enable us to offer them
a remote digital loan.
In our home credit business, agents meet
customers in their homes and are critical to
good lending decisions. They are also
rewarded largely on the amount of money
they collect from customers which supports
responsible lending.
Customers
People
Communities
Shareholders
We meet the everyday
needs of our customers
through our home credit
and digital businesses.
We are committed to
supporting the development
and engagement of our
people in line with our
strategic goals.
We are a responsible, ethical
and inclusive lender, bringing
long-term benefits to the
communities we serve.
We have a solid track record
of delivering profit and returns
for our shareholders.
International Personal Finance plc Annual Report and Financial Statements 2016
13
Strategic Report
Our investment case
Our investment case
We are a profitable, well-funded
business with a good track record
of offering products that are valued
by our customers and delivering
sustainable returns to shareholders.
We have long-standing experience of profitably serving
our segment of customers who have higher credit risk
profiles with our home credit offer and our digital business
model offers significant growth potential.
Operating in a growing sector
There is growing demand for unsecured, small sum consumer
credit. Our business model focuses on serving customers with
low to middle incomes who are underserved by mainstream
financial operators. We know these customers better than
most and have responded to their changing needs with
products that meet their specific requirements and financial
circumstances. We see significant growth potential in our IPF
Digital and Mexico home credit businesses.
2.5M
Customers
For more information see market review Q&A on pages 8 to 9
Good returns for shareholders
We are a long-established profitable business with a track
record of providing attractive returns to shareholders and
reinvesting for growth. We have achieved this even during
periods of macroeconomic and financial market volatility,
and periods of competitive and regulatory change for
our business.
11.6%
Return on assets
17.7%
Return on equity
For more information see financial review on pages 32 to 35
14
Our investment case
45.7%
Equity to receivables
capital ratio (target 40%)
£429.5M
Net assets
£152M
Headroom on
debt facilities
Strong financial profile
We are committed to maintaining a strong financial profile
with a robust balance sheet and funding position. The equity
to receivables ratio balances good returns with a resilient
capital position. We have a diversified debt portfolio at
competitive cost with appropriate terms, with a mix of
bonds and bank facilities, and a balanced maturity profile.
For more information see financial review on pages 32 to 35
Effective risk management
We have a good track record of responding to risk, and have
adapted our business and product offering to comply with
consumer credit regulation. Our control framework and the
processes we implement to identify and manage risks underpin
our decision-making. This dynamic, well-developed system is
integrated at all levels of the Group and aligned to our strategic
objectives to deliver long-term growth and protect our people,
assets and reputation.
For more information see principal risks and uncertainties on pages 36 to 43
Experienced team
We are committed to supporting the development and
engagement of our people in order to grow an ethical,
sustainable business. We have a highly experienced Board
and management team with a unique combination of
international home credit and digital expertise. We attract and
retain experienced, high potential individuals who understand
our customers and the products we provide.
65%
Agent retention
74%
Employee retention
For more information on our Board and committees see pages 46 to 47
International Personal Finance plc Annual Report and Financial Statements 2016
15
Strategic Report Chief Executive Officer’s review
“We have seen an
unprecedented level
of regulatory change
which has impacted the
provision of finance to
the customers we serve.”
Gerard Ryan
Chief Executive Officer
Responding
to a changing environment
For operational
review
see pages 24-31
Unfortunately we have seen new regulations, both
proposed and enacted, that have not been thought
through properly and that already do, or ultimately could
in the future, undermine the provision of consumer
finance in a fair and transparent manner. In December
2015, we saw the introduction of legislation in Slovakia
that required the charges for our optional agent service
to be included in a single loan agreement and therefore
subject to the existing price cap. This resulted in many
responsible providers, including our business in Slovakia,
withdrawing from the marketplace.
In December 2016, we saw a proposal from the Ministry of
Justice in Poland that would significantly constrain the
provision of finance to underbanked and underserved
customers in Poland. This proposal was published without
prior consultation with consumers or interested parties
and followed significant changes introduced by the
Ministry of Finance earlier in the year to the way
consumer finance could be provided. At the time of
writing this report, it is unclear what form these proposed
regulations in Poland will take but the current draft could
change the way we do business and, in turn, limit our
ability to invest in the other areas of our Group. We are
engaging with Polish Government ministries and
interested parties to try to achieve a more positive
solution that is good both for consumers and businesses.
We are an international consumer
finance business that provides small
sum loans to underbanked and
underserved consumers and micro-
business owners. Whilst our business
has changed significantly in the
last four years, our ethos remains
consistent; to provide finance in an
ethical and transparent way and to
work with our customers to help them
to repay their loans in a manageable
and timely fashion.
The regulatory landscape
During the past two years we have seen an
unprecedented level of regulatory change which has
impacted the provision of finance to the customers we
serve. Without doubt, our markets need and benefit from
well thought through regulation which enables the
provision of loans to consumers on lower incomes who
are underserved by mainstream financial providers. Our
challenge today is to ensure regulators deliver good
regulation in a way that ensures that the customer has
choice, is provided with unambiguous documentation
and is helped if they find it difficult to make repayments
due to changed circumstances.
16
Notwithstanding the nature of the regulatory landscape
in Europe, we continued to execute our Group strategy,
focusing on ensuring that our European home credit
businesses become more efficient and diverse and using
the returns generated by these operations to invest in our
growth businesses – Mexico home credit and IPF Digital.
Details of our strategy can be found on pages 10 and 11.
“Our businesses in Southern
Europe and IPF Digital closed
the year delivering continued
strong growth.”
A look back at 2016 trading
In summary, Group profit before tax was £92.6 million
in 2016, £23.5 million lower than 2015 reflecting a
combination of lower home credit profit and higher
investment in IPF Digital offset partially by strengthening
FX rates. Our businesses in Southern Europe and IPF
Digital closed the year delivering continued strong
growth. I am pleased to report that the actions taken to
address performance issues in Mexico in the first half of
the year have delivered faster growth and our business in
Poland coped well with adapting to the new total cost of
credit regulations introduced in the first quarter.
As part of my review of the year, it is also important to
note that our portfolio quality remains robust. We measure
our cost of bad debt by looking at impairment as a
percentage of revenue and we aim to stay within a range
of 25% to 30%. For 2016, we recorded impairment as a
percentage of revenue of 26.8%, marginally higher than
2015 but still at the lower end of our range. We continue
to fund our balance sheet in a conservative fashion and
our main source of debt finance remains bonds, the bulk
of which do not need to be refinanced until 2020 or 2021.
European home credit
In Europe, whilst our home credit businesses had to cope
with well-documented regulatory challenges, the
consumer finance markets as a whole were in growth
mode. In Southern Europe, credit issued growth of 17%, a
good collections performance and tight management of
costs supported the delivery of strong profit growth. We
also had to meet new employment regulations in
Romania where 2,800 previously self-employed agents
were made employees during the year.
Changes in regulation have had a dramatic effect on
our business in Poland and Lithuania. In Poland, the new
cap on non-interest costs on consumer loans came into
effect on 11 March 2016 and our leadership team
implemented a new product structure to ensure that we
were compliant with the new regulations. We had earlier
indicated to shareholders that we expected the
unmitigated impact on our profitability could be of the
order of £30 million but that we expected to be able to
mitigate up to half of this. I am pleased to say that the
customer response to these new regulations was broadly
in line with our expectations and we continue to expect
that our Polish business will be able to meet these
financial estimates. The market has not seen any major
competitors depart at this time, but clearly the proposed
new regulations published by the Ministry of Justice in
Poland could change this situation. Following the
clarification of debt-to-income ratios in Lithuania at the
start of 2016, we took the decision to move to a fully
digital business in this market operated by IPF Digital. The
lower cost of distribution of our digital channel means it is
more capable of adapting to these requirements.
Also in Poland at the turn of 2017, we received adverse
decisions from the Polish tax authority in respect of the
2008 and 2009 financial years on two matters that had
been accepted as correct during audits of previous
years. In order to lodge an appeal against the decisions
we were required to pay the assessments totalling
c. £38 million and we plan to robustly defend our position
in court. Further detail on this matter can be found in the
financial review on page 35.
Our business in the Czech Republic continued to
contract, driven by intense competition and a
significantly improved macroeconomic situation that has
meant a reduction in the number of consumers in our
sector who wish to or need to borrow. We are, however,
adapting our product offering and brand to appeal to a
wider pool of potential customers. Our exit from Slovakia
is progressing well and is currently ahead of our original
estimates in terms of the effectiveness of our collections
process as we wind down our home credit infrastructure
in that country.
Mexico home credit
In the second half of 2016 we were successful in delivering
higher levels of growth and improved collections in our
Mexican business following a first half performance which
was below our original expectations. The causes for our
underperformance were, in the main, a combination of
internal operational issues. In response, we slowed the
pace of business change and geographic expansion,
redirected experienced leaders to our established regions
and implemented a ‘back to basics’ programme in our
operations. As a result of these corrective actions we saw
a return to faster levels of growth and improved
collections. Credit issued grew by 13% in the second half
of the year, giving us 8% growth for the year as a whole.
We also delivered a significant improvement in our
collections effectiveness which should translate into a step
down in impairment in the first quarter of 2017. I am
confident we can maintain this momentum and continue
to take advantage of the growth potential in this market.
International Personal Finance plc Annual Report and Financial Statements 2016
17
Strategic Report Chief Executive Officer’s review continued
IPF Digital
IPF Digital continues to go from strength to strength and
delivered strong growth in the value of loans issued of
41% on a proforma basis. Our product and pricing
strategy combined with excellent customer service is
resonating well with our customers and we experienced
growth in all of our markets. In September, we launched
our digital offering in Mexico to appeal to the growing
number of consumers looking for digital loans and where
smartphone, internet and social media penetration is
growing at a rapid pace. We will draw on all of our digital
experience across IPF Digital to help us get this business
established and see the early momentum achieved in
Spain as a positive indicator.
Competitive forces
Five years ago, payday lending was virtually unheard
of in our markets; today it is widespread. With the
introduction of payday lending came offers of “first
loan for free” and significantly shorter credit decisioning
times before customers could access credit. As the year
progressed, we saw the proliferation of payday lenders
in virtually all of our markets. In addition, having repaired
their balance sheets, we saw the risk appetite of banks in
Europe grow and their advertising start to target the most
creditworthy segment of our customers with offers of
instalment and consolidation loans. Whilst remote lending
has certainly taken market share, it is clear that over the
longer term, digital lending will comfortably co-exist with
home credit. The simple reason for this is that through the
participation of an agent, it is possible for a home credit
business to gain a greater understanding of a customer’s
circumstances and can therefore lend responsibility to
that individual where a remote lending business cannot.
I believe that having the expertise to provide both home
credit and digital products will offer significant advantage
over our direct competitors.
Thinking ahead
Our strategy, which we announced early in 2016, set out
a clear vision of a group that would use the uniqueness
of having both home credit and digital business models
within the one family to drive growth. It is clear today that
this combination is more important than ever and that it
will allow us to adapt to changing circumstances. Our
European home credit businesses are producing very
good returns which are being used to fund the growth of
our IPF Digital and Mexico home credit businesses.
We have a major cost reduction programme underway
in our European home credit businesses which delivered
cost savings of around £11 million (annualised
c. £14 million) in 2016 and we will continue to target
further savings in 2017.
These efficiencies are being driven by a well-structured
technology investment programme that will not only take
structural cost out of the business but will also enhance
our customer-facing capabilities, putting mobile
technology in the hands of our agents for the first time.
The initial live test of our MyProvi mobile collections
technology began in Hungary, Poland and the Czech
Republic during the second half of the year and we plan
to roll out the app to all agents in the Czech Republic
and Hungary in the first half of 2017. A second phase roll
out of the app in Poland and Romania is planned later in
the year.
We are building on the technology platform we acquired
through our digital business to enable us to offer loans
to prospective customers who apply but do not
subsequently qualify for one of our digital loans to
get a second opportunity through our agent model.
As we look out to the next three years, we aim to have a
group that has a significantly larger portion of customers
sourced through digital channels while at the same time
the major part of the business will continue to be based
on the provision of home credit through an agent
workforce. The funding of the investments required for this
transformation will come from our European home credit
businesses whilst we leverage the technology from our
digital business to drive the Group forward faster and
more efficiently.
Undoubtedly this strategy is predicated on our ability to
work with any new regulatory changes that arrive in our
markets during this period and we remain committed to
ensuring good regulation prevails. Our focus in Poland at
the moment is on achieving such an outcome; regulatory
changes that provide protection to consumers whilst, at
the same time, encouraging a transparent and robust
consumer lending sector.
Finally, when I visit our markets I see a hugely experienced
and resilient team who are motivated to serve our
customers in the most efficient and responsible way. We
expect the competitive and regulatory landscape to
remain challenging but we will continue to work with all
our stakeholders in order to shape the business to operate
successfully within a changing market environment.
Gerard Ryan
Chief Executive Officer
18
Strategic
priorities
2016 performance
2017 focus
KPIs
growing strongly
quality improvements
Credit issued growth*
• People
• Established markets
• Drive profit growth in
more than doubled
established markets
profit growth to
£12.4 million
• New markets
• Continue to deliver
growth and
progressive credit
194,000
Customers
41%
in new markets
• Position the business
for profitability in 2018
51%
Revenue growth*
* Proforma
• Slower than
• Maintain growth
expected growth
in the first half of
the year
• Improved
momentum
• Further improve
collections
performance to drive
performance in the
down impairment
second half of 2016
and building growth
momentum
• Invest further in
geographical
expansion and
• Impairment elevated
micro-business loan
841,000
Customers
8%
Credit issued growth
10%
Revenue growth
• Investment in
geographical
expansion
• Introduced micro-
business loans
product
• Focus on cost
leverage in
established regions
30.1%
Impairment %
revenue
79.0%
Cost-income ratio
(£9.3M)
Loss before tax
36.5%
Impairment %
revenue
39.6%
Cost-income ratio
£11.7M
Profit before tax
• Strong profit growth
• Respond to
in Southern Europe
any changes in
• Poland-Lithuania
impacted by
regulation and
competition
• Continued
regulatory landscape
in Poland
• Optimise lending
and seek alternative
income streams
1.5M
Customers
3%
contraction in the
• Focus on costs
Czech Republic
• Grow Provident-
• Good credit quality
branded digital
Credit issued growth
(6%)
Revenue growth
22.9%
Impairment %
revenue
38.1%
Cost-income ratio
£106.7M
Profit before tax
Risks
• Regulatory
• Change
management
• Competition
and product
proposition
• Business
continuity
and information
security
• Reputation
• World Economic
environment
• Safety
• Taxation
• Credit
• Funding,
market
and
counterparty
and collections
• Good progress
in Slovakia –
of expectations
collections ahead
• Embed changes
offering in Poland
and launch in the
Czech Republic
required by new
regulations in the
Czech Republic
and Romania
Progress on our strategy
Our success in delivering our strategy depends on the effective execution of our business plans and being able to respond to changing
market conditions, opportunities and threats.
Strategic
priorities
2016 performance
2017 focus
KPIs
• Established markets
more than doubled
profit growth to
£12.4 million
• New markets
growing strongly
* Proforma
• Drive profit growth in
established markets
• Continue to deliver
194,000
Customers
growth and
progressive credit
quality improvements
in new markets
• Position the business
for profitability in 2018
41%
Credit issued growth*
51%
Revenue growth*
s
u
c
o
f
h
t
w
o
r
G
s
u
c
o
f
h
t
w
o
r
G
l
a
t
i
i
g
D
F
P
I
t
i
d
e
r
c
e
m
o
h
o
c
x
e
M
i
t
i
d
e
r
c
e
m
o
h
n
a
e
p
o
r
u
E
s
u
c
o
f
s
n
r
u
t
e
R
• Slower than
• Maintain growth
expected growth
in the first half of
the year
• Improved
performance in the
second half of 2016
and building growth
momentum
• Impairment elevated
• Investment in
geographical
expansion
• Introduced micro-
business loans
momentum
• Further improve
collections
performance to drive
down impairment
• Invest further in
geographical
expansion and
micro-business loan
product
• Focus on cost
leverage in
established regions
• Strong profit growth
in Southern Europe
• Poland-Lithuania
impacted by
regulation and
competition
• Continued
contraction in the
Czech Republic
• Good credit quality
and collections
• Good progress
in Slovakia –
collections ahead
of expectations
• Respond to
any changes in
regulatory landscape
in Poland
• Optimise lending
and seek alternative
income streams
• Focus on costs
• Grow Provident-
branded digital
offering in Poland
and launch in the
Czech Republic
• Embed changes
required by new
regulations in the
Czech Republic
and Romania
International Personal Finance plc Annual Report and Financial Statements 2016
30.1%
Impairment %
revenue
79.0%
Cost-income ratio
(£9.3M)
Loss before tax
36.5%
Impairment %
revenue
39.6%
Cost-income ratio
£11.7M
Profit before tax
841,000
Customers
8%
Credit issued growth
10%
Revenue growth
1.5M
Customers
3%
Credit issued growth
(6%)
Revenue growth
22.9%
Impairment %
revenue
38.1%
Cost-income ratio
£106.7M
Profit before tax
For our KPIs
see pages 20-21
Risks
• Regulatory
• Change
management
• People
• Competition
and product
proposition
• Business
continuity
and information
security
• Reputation
• World Economic
environment
• Safety
• Taxation
• Credit
• Funding,
market
and
counterparty
For our principal
risks and
uncertainties
see pages
36-43
19
Strategic Report
Key performance indicators
Measuring
our performance
We assess our performance against the following
key performance indicators, each of which is linked
to our strategy. We use these KPIs to monitor the
performance of the business to ensure we deliver
value for our stakeholders.
For our strategy
see pages 10-11
Non-financial KPIs
Customers (‘000)1 2
2,523
2014
2015
2016
2,418
2,563
2,523
The total number of customers across
the Group reduced by 2% as a result,
primarily, of competitive pressures in
the Czech Republic and Poland offset
by growth in Mexico and IPF Digital.
Rationale:
Customer numbers demonstrate our
scale and reach in our individual
markets. While growth of our customer
base is critically important to our
continued success, we will reject
potential new customers and not seek
to retain existing customers who
contravene our credit policies or have
a poor repayment record.
Customer retention (%)
Customer service score
Employee and agent retention (%)
59.0
Home Credit
70.8
IPF Digital
51.0
Home Credit
65.0
IPF Digital
2014
2015
2016
2016
58.4%
57.1%
59.0%
70.8%
2014
2015
2016
2016
73.7% 65.0%
Employee
Agent
49.0
48.5
51.0
65.0
2014
2014
2015
2015
2016
2016
81.1%
65.2%
74.5%
65.6%
73.7%
65.0%
The proportion of customers retained
for their third or subsequent loan
increased to 59% in our home credit
business. For the first time we have
included IPF Digital’s score and this
also indicates a high level of retention.
Rationale:
Our ability to retain customers is central
to achieving our growth ambitions and
is a key 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.
A net promoter score based on those
customers who would recommend our
services to a colleague or friend. In
2016, the score for home credit
improved to 51.0. For the first time, we
have included IPF Digital’s score which
is measured using a slightly different
methodology and also indicates a
strong level of recommendation.
Rationale:
Excellent customer service drives
improved and sustained revenue
growth. Existing customers become
advocates of our brand and product.
The proportion of employees and
agents who have been working with
us for more than 12 months was
maintained at similar levels to those
in the prior year.
Rationale:
Experienced people help us achieve
and sustain strong customer
relationships and deliver a high quality
service, both of which are central to
achieving good customer retention.
Good retention also helps reduce costs
of recruitment and training, enabling
more investment to be directed to
people development.
20
Financial KPIs
Credit issued (£M)1
£1,157.6M
Revenue (£M)1
£755.9M
Credit exceptions (%)
3.5%
2014
2014
2015
2015
2016
2016
953.0
993.3
1,157.6
2014
2015
2016
735.4
698.8
755.9
2014
2015
2016
3.0%
3.6%
3.5%
Credit issued, the value of money
loaned to customers measured over
the previous 12 months, increased by
8% driven by strong performances by
Southern Europe and IPF Digital,
together with a return to higher levels of
growth in Mexico in the second half of
the year.
Revenue, which is income generated
from customer receivables, increased
by 1% driven primarily by our customer
retention strategy to serve more
customers with longer-term, lower-
yielding products and the impact of
a lower total cost of credit rate cap
in Poland.
Rationale:
Rationale:
This is a key driver of profit. We adopt a
‘low and grow’ strategy and only issue
more credit to a customer once his or
her creditworthiness is proven.
Most of our business costs are relatively
fixed. As revenues increase in line with
customer numbers and receivables,
new markets move into profitability, and
profits and margins grow rapidly.
Credit exceptions are recorded in
our home credit business in cases
where lending has exceeded one or
more credit parameters defined in the
Group credit rules. The level of credit
exceptions was maintained in 2016
at 3.5%.
Rationale:
Our credit policies set out our basis for
responsible lending. They also set limits
for lending activity that reflect our
credit risk appetite.
Impairment (%)1
26.8%
2014
2015
2016
Cost-income (%)1
43.6%
27.7%
25.6%
26.8%
2014
2015
2016
39.7%
41.2%
43.6%
Impairment is the amount charged as
a cost to the income statement as a
result of customers defaulting on
contractual loan payments.
Impairment as a percentage of
revenue remains within our target
range of 25% to 30%.
Rationale:
Profitability is maximised by optimising
the balance between growth and
credit quality.
The direct expenses of running the
business as a percentage of revenue,
excluding agents’ commission,
increased by 2.4 ppts driven by
investment in IPF Digital and reducing
revenue yield, offset partially by the
initial impact of our cost-
optimisation programme.
Rationale:
The cost-income ratio is useful for
comparing performance
across markets.
International Personal Finance plc Annual Report and Financial Statements 2016
21
1 Excluding Slovakia
2 Adjusted following change to treatment of very
slow paying customers in our home
credit businesses
Strategic Report Sustainability
Managing
sustainability
Sustainability is important for all responsible businesses but for a business
that lends to underbanked consumers who typically have low, often
fluctuating incomes and little or no previous credit history, it is even more
critical. Our sustainability strategy is focused on guiding our business so it
can make the most of future lending opportunities by managing financial,
social and environmental risks and opportunities.
We proactively maintain relationships with all stakeholders. Our Code of Ethics clearly says how we work and
applies to all employees and agents. It highlights our commitment to uphold responsible business practices and
meet or exceed legal requirements.
Sustainability objectives
Our Sustainability strategy is framed around five material issues – responsible lending, ethics, community, environmental and, going forward,
people. Our sustainability objectives, which are set in four-year periods, are aligned with our key material issues and aim to protect our
reputation and deliver long-term sustainable growth. The outcome of the latest reporting period for 2013-2016 is detailed below together
with our 2017-2020 objectives.
2013 – 2016 objectives
2016 result
Promote responsible lending
and financial inclusion throughout
our core business activities
and community investment.
• Product development and marketing teams consider ethical
principles
Support financial literacy programmes to help
customers and the general public make informed
• All markets have access to local credit bureaux to support responsible
financial decisions.
credit risk decisions
• Support for financial literacy programmes targeting our customer
segment and the general public
Embed Code of Ethics throughout
the organisation. Ensure employees
and agents are aware of, and
actively engage with the Code.
• Annual online training for employees and agents
• Ethics part of induction for new employees and agents
• Annual Ethics Week held across all markets
• Ethics Working Groups established in all markets
Continue to embed ethical decision making into our
business at a strategic and operational level.
Renew community investment
programmes to show that
‘Provident nurtures talent’ and
delivers impacts, both for the
business and the communities in
which we operate.
Manage our environmental impact
and reduce our carbon footprint by
7.5% per customer (compared with
2013 levels).
• All markets involved in supporting local communities
• £489,000 invested in community programmes in 2016
• 2,740 employees volunteered in company time in 2016
• 48% of community investment supported education projects
Support the communities in which we operate
through volunteer programmes, donations and other
initiatives.
• Carbon footprint reduced (Scope 1 and 2) per customer by 12.7% in
2016 compared with 2013 levels
• Environmental Management System in place and all markets
contribute to environmental KPIs
Continue to monitor and decrease the
environmental impact of our operations.
Promote employee and agent well-being and
uphold human rights principles in all our business
relationships.
Material
Issues
Responsible
lending
Ethics
Community
Environmental
management
People
22
Human rights
We are committed to human rights and make an annual
communication on progress through our membership of
the United Nations Global Compact Network UK. We are
committed to opposing slavery and human trafficking in
our direct operations and in the indirect operations of our
supply chain. Our statement on the Modern Slavery Act
2015 can be found on our website at www.ipfin.co.uk.
Diversity
We are committed to diversity and take steps to ensure
that our business processes encourage recruitment,
selection and reward based purely on merit.
Gender split at 31 December 2016
Board
5
Senior Management
112
All other employees*
3,510
Male
Female
* Excluding agents in Hungary and Romania.
2
35
3,920
2017 – 2020 objectives
Support financial literacy programmes to help
customers and the general public make informed
financial decisions.
Responsible
Promote responsible lending
• Product development and marketing teams consider ethical
lending
and financial inclusion throughout
principles
our core business activities
and community investment.
• All markets have access to local credit bureaux to support responsible
credit risk decisions
• Support for financial literacy programmes targeting our customer
segment and the general public
Case study: Responsible
lending – ‘what about the
dosh.com’
Across all of our Provident markets we focus on
promoting financial literacy to support responsible
lending. Better educated consumers make better
borrowing decisions. In Poland we reach young
adults through an online blog known as ‘What
about the dosh’. Written by three bloggers, with
guest appearances by other financial experts, they
talk about managing their money through their
everyday experiences. This popular blog is seen as
authentic and relevant to young people. Readers
are also invited to comment and share their
own experiences.
85%
Agents completed
ethics training in 2016
99%
Employees completed
ethics training in 2016
Community
Renew community investment
programmes to show that
‘Provident nurtures talent’ and
delivers impacts, both for the
business and the communities in
which we operate.
People
Ethics
Embed Code of Ethics throughout
• Annual online training for employees and agents
the organisation. Ensure employees
• Ethics part of induction for new employees and agents
and agents are aware of, and
actively engage with the Code.
• Annual Ethics Week held across all markets
• Ethics Working Groups established in all markets
Continue to embed ethical decision making into our
business at a strategic and operational level.
• All markets involved in supporting local communities
• £489,000 invested in community programmes in 2016
• 2,740 employees volunteered in company time in 2016
• 48% of community investment supported education projects
Support the communities in which we operate
through volunteer programmes, donations and other
initiatives.
Environmental
Manage our environmental impact
• Carbon footprint reduced (Scope 1 and 2) per customer by 12.7% in
management
and reduce our carbon footprint by
2016 compared with 2013 levels
Continue to monitor and decrease the
environmental impact of our operations.
7.5% per customer (compared with
• Environmental Management System in place and all markets
2013 levels).
contribute to environmental KPIs
2,740
Employees volunteered
in company time
Promote employee and agent well-being and
uphold human rights principles in all our business
relationships.
For more information on our sustainability programme, material
issues, business ethics and human rights visit the sustainability
section of our website at www.ipfin.co.uk
International Personal Finance plc Annual Report and Financial Statements 2016
23
Strategic Report Operational review
2016
performance
Group profit before tax in 2016 was £92.6 million, £23.5 million lower than 2015, reflecting a combination of lower
home credit profit and higher investment in IPF Digital offset partially by strengthening FX rates as set out in the
following table.
Home credit
Digital
Central costs
Profit before taxation and exceptional items
2015
reported
profit
£M
134.9
(4.2)
(14.6)
116.1
Underlying
profit
movement
£M
(34.1)
–
(0.3)
(34.4)
IPF Digital
investment
£M
–
(4.7)
–
(4.7)
FX rates
£M
16.0
(0.4)
–
15.6
2016
reported
profit
£M
116.8
(9.3)
(14.9)
92.6
The reduction in underlying profit before tax in our home
credit business was driven primarily by three issues - the
introduction of new total cost of credit legislation in Poland;
higher levels of impairment in Mexico following a first half
performance which was below our expectations; and the
wind down of our Slovakian operation. These issues were
offset partially by strong profit growth in Southern Europe.
Our digital business performed well and we delivered
good profit growth in our established digital markets whilst
continuing to invest in new markets and head office
functional capabilities. Central costs increased by
£0.3 million which reflects the restructuring costs
associated with our UK head office reorganisation in the
first half of the year. During 2016, we benefited from a
strengthening of FX rates against sterling in most markets
which resulted in a positive impact on profit before tax of
£15.6 million.
We delivered credit issued growth of 8% driven by a
strong performance in our Southern Europe and IPF
Digital businesses, together with a return to higher levels
of growth in Mexico in the second half of the year.
Customer numbers reduced year-on-year by 2% as a
result, primarily, of competitive pressures in the Czech
Republic and Poland which was offset by growth in
Mexico and IPF Digital. Impairment as a percentage of
revenue was 26.8% and remains within our target range
of 25% to 30%.
Outlook
We expect the competitive and regulatory environment to
remain challenging. In particular, the outcome of the Polish
Ministry of Justice’s proposals to further reduce the existing
cap on non-interest charges in this market remains a
Poland-Lithuania
Czech Republic
Southern Europe
Mexico
Ongoing home credit
Slovakia
Spain
Profit before taxation and exceptional items
24
major focus for us. Regulatory changes in Romania are
expected to significantly impact growth rates in this market
in 2017.
We see further opportunities to optimise the performance
of our European home credit businesses and will use
technology to deliver efficiencies and returns to invest in
our growth operations and to provide returns to our
shareholders. In Mexico, we plan to maintain the growth
momentum achieved during the second half of 2016 and
deliver effective collection. We are confident of the
outlook for IPF Digital and expect to deliver further strong
growth and are targeting profitability in 2018.
Home credit
Our home credit business delivered profit before tax of
£116.8 million in 2016 which comprised £118.4 million
from our on-going businesses and a loss of £1.6 million in
Slovakia. Underlying profit before tax (excluding Slovakia)
reduced by £28.7 million driven primarily by the
introduction of new total cost of credit legislation in
Poland, higher levels of impairment in Mexico and the
contraction of our business in the Czech Republic. During
the period we benefited from a strengthening of FX rates
against sterling in our ongoing businesses that had a
positive impact of £14.9 million.
The following table shows the performance of each of our
home credit markets highlighting the underlying profit
movement and impact of stronger FX rates against sterling.
2015
reported profit
£M
Underlying
profit movement
£M
FX rates
£M
2016
reported profit
£M
69.0
14.7
26.6
21.9
132.2
4.5
(1.8)
134.9
(20.8)
(3.5)
5.0
(9.4)
(28.7)
(7.2)
1.8
(34.1)
8.0
2.4
5.3
(0.8)
14.9
1.1
–
16.0
56.2
13.6
36.9
11.7
118.4
(1.6)
–
116.8
Excluding Slovakia, the results for our home credit businesses are shown in the table below:
Customer numbers (‘000s)
Credit issued
Average net receivables
Revenue
Impairment
Net revenue
Finance costs
Agents’ commission
Other costs
Profit before taxation and exceptional items
2015
£M
2,429
906.6
677.4
667.7
(170.2)
497.5
(36.5)
(81.0)
(247.8)
132.2
2016
£M
2,329
1,007.4
769.0
697.8
(185.1)
512.7
(42.4)
(83.4)
(268.5)
118.4
Change
£M
(100)
100.8
91.6
30.1
(14.9)
15.2
(5.9)
(2.4)
(20.7)
(13.8)
Change
%
Change at CER
%
(4.1)
11.1
13.5
4.5
(8.8)
3.1
(16.2)
(3.0)
(8.4)
(10.4)
(4.1)
3.7
5.6
(1.9)
(5.1)
(4.2)
(8.2)
2.9
(2.2)
Our home credit businesses delivered a 4% increase in
credit issued with growth of 17% in Southern Europe and
improved rates of growth in Mexico during the second
half of the year. In contrast, credit issued contracted in
Poland and the Czech Republic, the former being driven
by the legislative changes introduced in March 2016.
Customer numbers contracted 4% year-on-year
to 2,329,000.
Average net receivables increased by 6% driven by credit
issued growth during the year. Revenue reduced by 2%
reflecting lower revenue yields which reduced by 7.9 ppts
driven by a combination of the lower price cap in Poland
and our customer retention strategy to serve more
customers with longer-term, lower yielding products.
Credit quality and collections are good overall with
annualised impairment as a percentage of revenue
of 26.5%.
Other costs increased by £5.8 million at CER (Actual:
£20.7 million) which comprised a £3.7 million reduction in
costs in our European home credit businesses offset by a
£9.5 million increase in Mexico where we are investing to
grow the business through geographic and channel
expansion. We continued to focus on improving
efficiencies within our European home credit businesses
and the cost optimisation programme resulted in
underlying savings of around £11million (annualised c.
£14million) and a reduction of 430 roles in 2016. These
were offset partially by regulatory-related cost increases
in Poland and Romania, restructuring costs and
investment in our Provident branded digital offering.
The cost-income ratio increased year-on-year by 0.7ppts
to 38.5%.
Following a review of the most effective collections
processes to apply to very slow paying customers,
historically managed by our field sales and service
teams, we transferred around 120,000 customers to our
central debt recovery teams. This is expected to support
further operating efficiencies and improve our overall net
cash inflows. Given that home credit customer numbers
in this report relate solely to those managed by our field
teams, we have restated 2015 customer numbers to show
underlying trends.
Finance costs increased by 8% reflecting higher average
levels of borrowings in 2016 following the 2015 share
buyback programme.
Slovakia
We announced the wind down of our Slovakian
operation in February 2016 following the introduction of
new rate cap legislation in that market. Following this
difficult decision, we implemented a plan to maximise
collections from the receivables book and reduce the
scope of operations progressively during the year. Our
team in Slovakia has executed these plans successfully
and at the end of 2016 had collected around 120% of
our original expectations. We had expected to complete
the wind down in 2016 through the sale of the remaining
portfolio. However, due to the success of our in-house
collections team, we took the decision in Q4 2016 to
continue to collect through a much reduced field
operation and our central debt recovery team during the
first half of 2017. We now expect to complete our
collections activities and move into the liquidation phase
of this process by the end of the first half of 2017.
During 2016, we collected £53 million of receivables
through a combination of field collections, central debt
recovery activities and debt sales. This compared to a
receivables carrying value of £30.8 million after booking
an exceptional impairment charge of £10.3 million at the
end of 2015. This performance generated net revenue of
£22.6 million against which we incurred £17.3 million in
expenses, collecting commission and financing costs to
collect out the portfolio. Overall, this resulted in profit
before tax of £5.3 million. However, we incurred a further
£6.9 million in closure costs which were recorded in 2016
and, therefore, the overall result was a loss of £1.6 million.
In 2017 we expect to incur further losses to collect out the
remaining portfolio and, therefore, the combined closure
losses in 2016 and 2017 are expected to be £3 million
to £4 million compared to our original guidance of
£5 million to £7 million.
International Personal Finance plc Annual Report and Financial Statements 2016
25
Strategic Report Operational review continued
Poland and
Lithuania
David Parkinson
Country Manager
“We introduced our new product
structure to comply with new
rate cap regulations.”
Poland and Lithuania delivered profit before tax of
£56.2 million in 2016 reflecting a £20.8 million decrease
in underlying profit offset partially by a positive FX
movement of £8.0 million. This performance reflects the
expected impact of new total cost of credit legislation
introduced in Poland in March 2016 together with
reduced profit from debt sales, the introduction of the
new bank tax in Poland and restructuring costs.
Clarification of debt-to-income rules in Lithuania at
the beginning of 2016 impacted business volumes
significantly and following a detailed review we took the
decision to move to a fully digital business in Lithuania
operated by IPF Digital. The lower cost distribution of our
digital operation means it is more capable of adapting to
these requirements and we will therefore focus on serving
the market solely through IPF Digital. Consequently, a
charge of £3.2 million in respect of estimated exit costs
has been included in the 2016 profit and loss account.
Competition from digital and payday lenders in Poland
remained intense over the course of 2016. Following the
introduction of new total cost of credit legislation, no
major competitors departed the market and the on-going
trend towards longer-term instalment lending continued.
We introduced our new product structure to comply
with the new rate cap regulations, but the competitive
environment together with the legislative changes
impacted credit issued growth which contracted by 2%
and customer numbers reduced year-on-year by 11%.
Revenue decreased by 6% reflecting contracting yields
driven by the total cost of credit cap and the impact of
more customers being offered longer-term and larger
loans as part of our mitigation strategy. Our collections
performance and credit quality remains good. As
expected, impairment as a percentage of revenue
26
increased by 3.0 ppts to 25.9% due to a combination of
reduced profit from sales of non-performing receivables
and lower revenue arising from the lower total cost of
credit cap.
We continued to focus on improving the efficiency of our
operation and the cost optimisation programme resulted
in underlying savings of £6.9 million and the removal of
260 roles. Other costs were broadly flat year-on-year with
the underlying savings being offset by the new bank tax,
restructuring costs and investment in our Provident-
branded digital platform. The cost-income ratio increased
year-on-year by 2.1 ppts to 36.3% due to the combination
of higher costs and the contraction of revenue yield.
In line with our strategy, we are focused on optimising our
business in Poland and improving the product offering that
we make to customers. We also plan to grow our Provident-
branded digital offering which had around 8,000
customers at the 2016 year end. As noted in the market
review Q&A section of this report, the Ministry of Justice in
Poland published a draft bill in December 2016 proposing
a further tightening to existing non-interest cost of credit
legislation introduced in March 2016. We await an update
on this matter and will inform the market in due course as
to how our Polish business is likely to be affected by any
changes that may be enacted.
Customer numbers (‘000s)
Credit issued
Average net receivables
Revenue
Impairment
Net revenue
Finance costs
Agents’ commission
Other costs
Profit before taxation
2015
£M
804
353.5
287.5
267.4
(61.3)
206.1
(15.8)
(29.8)
(91.5)
69.0
2016
£M
Change
£M
Change
%
Change at
CER %
713
375.1
321.4
270.7
(70.0)
200.7
(17.8)
(28.4)
(98.3)
56.2
(91)
21.6
33.9
3.3
(8.7)
(5.4)
(2.0)
1.4
(6.8)
(12.8)
(11.3)
6.1
11.8
1.2
(14.2)
(2.6)
(12.7)
4.7
(7.4)
(18.6)
(11.3)
(2.0)
3.2
(6.4)
(9.0)
(10.8)
(4.1)
11.8
0.3
Czech
Republic
Petr Sastinsky
Country Manager
“We plan to broaden our product
offer and target cost-efficiencies.”
Intense competition in the Czech Republic continued
to impact the size of our business and resulted in a
reduction in profit before tax of 8% to £13.6 million which
reflects a £3.5 million reduction in underlying profit and
a £2.4 million positive impact from stronger FX rates.
This challenging landscape resulted in a 15% contraction
in credit issued and 18% reduction in customer numbers
year-on-year. We introduced a new product offering in
Q3 with a broader range of pricing points and product
features to appeal more strongly to a wider range of
customers and their need for higher value, lower-priced
loans. As expected, the new offering has supported an
increase in loan values to higher quality customers and
we have seen good demand for our monthly product.
We are now fine tuning our credit scoring, price points
and enhancing our CRM activities to attract new
customers and increase our retention rate.
Average net receivables declined by 13% due to
continued lower levels of credit issued which resulted
in a reduction in revenue of 20%. Credit quality and
collections were good, which together with profit on
the sale of non-performing receivables, resulted in a
significant improvement in impairment as a percentage
of revenue to 14.7%.
Our cost optimisation programme resulted in an
underlying saving of £1.5 million and a reduction of
around 60 roles. Overall other costs were £0.9 million
lower than 2015 at CER (actual: £2.3 million higher)
which is stated after restructuring costs and initial
investment in developing our Provident-branded digital
channel for this market.
Key priorities for the business in the Czech Republic in
2017 are to ensure compliance with the new licensing
regime as noted in the market review Q&A on pages 8
and 9 of this report and, in particular, manage agent
certification requirements. In addition, we plan to further
broaden our product offer and distribution channel
through the introduction of our Provident-branded digital
offering in this market and will continue to target further
cost efficiencies.
Customer numbers (‘000s)
Credit issued
Average net receivables
Revenue
Impairment
Net revenue
Finance costs
Agents’ commission
Other costs
Profit before taxation and
exceptional items
2015
£M
177
100.7
87.1
69.9
(17.9)
52.0
(4.1)
(7.1)
(26.1)
2016
£M
Change
£M
Change
%
Change at
CER %
145
97.3
85.7
63.2
(9.3)
53.9
(4.2)
(7.7)
(28.4)
(32)
(3.4)
(1.4)
(6.7)
8.6
1.9
(0.1)
(0.6)
(2.3)
(18.1)
(3.4)
(1.6)
(9.6)
48.0
3.7
(2.4)
(8.5)
(8.8)
(18.1)
(14.9)
(13.4)
(20.3)
54.0
(8.8)
10.6
3.8
3.1
14.7
13.6
(1.1)
(7.5)
International Personal Finance plc Annual Report and Financial Statements 2016
27
Strategic Report Operational review continued
Southern
Europe
Botond Szirmak
Country Manager
“We delivered very strong profit
growth in 2016.”
Strong credit issued growth, a good collections performance
and tight management of costs in our Southern Europe
business resulted in a 39% increase in profit in 2016 to
£36.9 million. This reflects underlying profit growth of
£5.0 million and a £5.3 million positive impact of FX rates.
We continued our strategy of increasing sales of longer-
term, larger loans which has supported the delivery of a
17% increase in credit issued. Customer numbers were
broadly flat at 630,000. Average net receivables increased
by 16% and the yield on the portfolio reduced due to a
shift in the mix of products towards longer-term lending,
resulting in slower revenue growth of 2%. Credit quality
and our collections performance remains very good
which together with the benefit of profit from debt sales
resulted in impairment as a percentage of revenue
at 21.3%.
Other costs reduced by £2.5 million at CER (Actual:
increase of £4.5 million) reflecting the results of our
cost-optimisation programme which was driven by the
introduction of a new sales and service organisational
structure in Hungary and Romania. This resulted in around
110 roles being removed during the year. Savings
delivered in 2016 totalled £2.6 million although these
were offset partially by higher costs associated with
employing our agents in Romania to comply with
new legislation and restructuring costs. These actions
resulted in a 2.6 ppt improvement in the cost-income
ratio to 38.3%.
28
As noted in the market review Q&A on pages 8 and 9 of
this report, new creditworthiness assessments for non-
banking financial institutions in Romania are expected to
impact the rates of growth significantly in this market. As
in our other European home credit markets, we will look to
attain further cost-efficiencies particularly through the
rollout of agent mobile technology.
Customer numbers (‘000s)
Credit issued
Average net receivables
Revenue
Impairment
Net revenue
Finance costs
Agents’ commission
Other costs
Profit before taxation
2015
£M
629
227.8
163.4
155.1
(35.0)
120.1
(9.5)
(20.6)
(63.4)
26.6
2016
£M
Change
£M
Change
%
Change at
CER %
630
301.6
212.2
177.4
(37.8)
139.6
(11.8)
(23.0)
(67.9)
36.9
1
73.8
48.8
22.3
(2.8)
19.5
(2.3)
(2.4)
(4.5)
10.3
0.2
32.4
29.9
14.4
(8.0)
16.2
(24.2)
(11.7)
(7.1)
38.7
0.2
16.9
15.6
2.2
(0.3)
2.7
(12.4)
0.4
3.6
Mexico
Robert Husband
Country Manager
“We aim to maintain the growth
momentum achieved in the
second half of 2016 balanced
with further improved collections.”
Growth momentum and an improving collections
performance in the second half of the year contrasted
with a first half performance in Mexico which was
materially below our original expectations. For the year as
a whole, we delivered profit before tax of £11.7 million
which reflects a £6.9 million reduction in underlying profit,
investment of £2.5 million in geographic expansion and
our micro-business loan offering and £0.8 million adverse
impact from FX movements.
As stated in our half-year announcement, we implemented
a number of operational actions to improve the
performance of our business in Mexico. These actions,
together with growth flowing through from six new
branches opened in the first half of the year and the
introduction of a micro-business loan product, delivered
progressive improvements in growth and a reduction in
impairment during the second half of the year as set out
in the following table.
Credit issued growth YOY
Impairment % revenue
YOY variance
Q1
2016
3%
Q2
2016
0%
Q3
Q4
2016
10%
2016
16%
11ppts
4ppts
1ppts
2ppts
We delivered an 8% year-on-year increase in credit issued
and grew customer numbers by 3% to 841,000. Average
net receivables increased by 11% and revenue increased
by 10%. We are focused on balancing growth with
maintaining credit quality and strong arrears
management activities have resulted in an improving
collections performance. Annualised impairment as a
percentage of revenue, however, remains at an elevated
International Personal Finance plc Annual Report and Financial Statements 2016
level and was at 36.5% at the year end. We expect to
see improvements in this key measure in the first quarter
of 2017.
Other costs increased by £9.5 million at CER (Actual:
£7.1 million) due to business growth and a £4.2 million
cost increase from geographical expansion and the
introduction of our micro-business loans offering. As a
result, the cost-income ratio for Mexico increased 1.5 ppts
to 39.6%.
Looking ahead, we aim to maintain the growth
momentum achieved in the second half of 2016,
balanced with further improvement in our collections
performance to reduce impairment as a percentage of
revenue closer to our target range for Mexico. We
continue to see significant growth potential in this market
and will invest in further geographical expansion with the
opening of a small number of new branches together
with continued expansion of our micro-business
loan offering.
Customer numbers (‘000s)
Credit issued
Average net receivables
Revenue
Impairment
Net revenue
Finance costs
Agents’ commission
Other costs
Profit before taxation
2015
£M
819
224.6
139.4
175.3
(56.0)
119.3
(7.1)
(23.5)
(66.8)
21.9
2016
£M
Change
£M
Change
%
Change at
CER %
841
233.4
149.7
186.5
(68.0)
118.5
(8.6)
(24.3)
(73.9)
11.7
22
8.8
10.3
11.2
(12.0)
(0.8)
(1.5)
(0.8)
(7.1)
(10.2)
2.7
3.9
7.4
6.4
(21.4)
(0.7)
(21.1)
(3.4)
(10.6)
(46.6)
2.7
7.9
11.4
10.4
(25.9)
3.0
(24.6)
(7.5)
(14.8)
29
Strategic Report Operational review continued
Digital
Mexico
Australia
Rami Ryhanen
General Manager
“Our digital business continued
to deliver strong growth.”
IPF Digital comprises digital lending operations in eight markets, all at various
stages of development. The profitability of these businesses is segmented
as follows:
Our digital business continued to deliver strong growth
and with the expected increase in investment in our new
markets and head office functional capabilities, we
incurred a loss before tax of £9.3 million compared to a
loss of £4.2 million in 2015. This reflects good underlying
profit growth in our established markets offset by an
increased investment in new markets and head
office capabilities.
The business delivered customer growth of 45% to 194,000
and increased credit issued by 41% to £150.2 million. The
growth in credit issued resulted in an increase in average
net receivables of 74% to £86.4 million which, in turn,
drove a 51% increase in revenue to £58.1 million. Credit
quality is in line with expectations and impairment as a
percentage of revenue was 30.1% compared to 28.6% in
2015. This reflects reduced impairment in our established
markets driven by higher profits from the sale of non-
performing receivables offset by a greater weighting of
new market business where impairment levels are higher
because they are in their development phase.
We continued to build our new markets and delivered our
first loans to customers in Mexico in September 2016. We
also invested an additional £3.9 million in head office
functional capabilities to deliver future growth.
Established markets – Finland and
the Baltics
New markets – Poland, Australia,
Spain and Mexico
Head office costs
IPF Digital
2015
£M
2016
£M
Change
£M
Change
%
4.0
12.4
8.4
210.0
(5.8)
(2.4)
(4.2)
(15.4)
(6.3)
(9.3)
(9.6)
(3.9)
(5.1)
(165.5)
(162.5)
(121.4)
We have performed a review to better allocate head office costs between the
individual businesses which has resulted in more of these costs being borne
in the established and new market numbers with a lower residual cost in the
IPF Digital head office. We have restated the comparatives to allow a
comparison of trends.
IPF Digital
Customer numbers (‘000s)
Credit issued
Average net receivables
Revenue
Impairment
Net revenue
Finance costs
Other costs
Loss before taxation
2015
£M
134
86.7
43.2
31.1
(8.9)
22.2
(3.1)
(23.3)
(4.2)
2016
£M
194
150.2
86.4
58.1
(17.5)
40.6
(4.0)
(45.9)
(9.3)
Change
£M
Change
%
Change at
CER %
60
63.5
43.2
27.0
(8.6)
18.4
(0.9)
(22.6)
(5.1)
44.8
73.2
100.0
86.8
(96.6)
82.9
(29.0)
(97.0)
(121.4)
44.8
51.1
74.2
63.2
(71.6)
59.8
(11.1)
(73.9)
30
2015
£M
122
78.7
40.4
28.7
(6.9)
21.8
(2.9)
(14.9)
4.0
2015
£M
12
8.0
2.8
2.4
(2.0)
0.4
(0.2)
(6.0)
(5.8)
2016
£M
Change
£M
Change
%
Change at
CER %
137
108.4
70.9
45.5
(7.6)
37.9
(3.4)
(22.1)
12.4
2016
£M
57
41.8
15.5
12.6
(9.9)
2.7
(0.6)
(17.5)
(15.4)
15
29.7
30.5
16.8
(0.7)
16.1
(0.5)
(7.2)
8.4
12.3
37.7
75.5
58.5
(10.1)
73.9
(17.2)
(48.3)
210.0
12.3
19.8
52.5
38.3
5.0
52.2
–
(28.5)
Change
£M
Change
%
Change at
CER %
45
33.8
12.7
10.2
(7.9)
2.3
(0.4)
(11.5)
(9.6)
375.0
422.5
453.6
375.0
369.7
400.0
425.0
(395.0)
575.0
(200.0)
(191.7)
(165.5)
366.7
(350.0)
440.0
(200.0)
(165.2)
Established markets
Our established markets delivered good growth, lower
impairment as a percentage of revenue and an increase
in reported profit before tax to £12.4 million from £4.0 million
in 2015.
Established markets
Customer numbers (‘000s)
Credit issued
Average net receivables
Revenue
Impairment
Net revenue
Finance costs
Other costs
Profit before taxation
New markets
Customer numbers (‘000s)
Credit issued
Average net receivables
Revenue
Impairment
Net revenue
Finance costs
Other costs
Loss before taxation
Customer numbers grew 12% to 137,000 and we
delivered credit issued growth of 11%. This increased
average net receivables by 52% to £70.9 million. Revenue
growth was lower at 28% principally reflecting tighter
price caps in Estonia and Lithuania.
Impairment as a percentage of revenue improved by
7ppts to 16.7% which reflects a good underlying credit
performance together with the benefit of a £4.4 million
profit generated on the sale of non-performing
receivables in Finland and Lithuania. These markets
have now moved onto forward flow agreements and
therefore this benefit will not recur and impairment as
a percentage of revenue is expected to return to
normalised levels in 2017.
Costs increased by 28% to £22.1 million which was
driven principally by investment to generate growth
and strengthening our people capabilities to deliver
the right customer service and compliance in this
larger business. Cost leverage resulted in the cost-income
ratio improving by around 3ppts.
New markets
Our new markets grew rapidly in 2016 driven principally
by strong performances in Poland and Spain. This growth
was supported by significant investment in building the
businesses through developing functional capabilities,
investing in customer acquisition activities and
managing impairment as we developed our credit
scorecards. As a result our profit and loss investment in
these markets increased to £15.4 million.
Our new digital businesses in Poland, Australia, Spain and
Mexico are growing strongly and we now serve 57,000
customers in these markets. We increased credit issued
by 370% to £41.8 million which resulted in a similar rate
of growth in revenue. Impairment as a percentage of
revenue at 78.6% was 4.7 ppts lower than 2015 reflecting
the growth in lending to new customers and is in line with
our expectations for the markets at their early stage of
development.
Head office
We continued to invest in our IPF Digital technology
platform and head office functional capabilities
including credit decisioning, finance, marketing and
product to ensure we have the right resource in place to
execute our expansion plan in a well-controlled and
effective manner.
There are significant growth opportunities for our digital
business. The growth and good credit loss trends in our
new markets in 2016 have increased our confidence that
a slightly higher investment to deliver accelerated credit
growth will bring forward the division’s breakeven point.
As a consequence, we plan to invest around £8 million
to £10 million in 2017 and we expect to deliver IPF Digital’s
maiden profit in 2018.
International Personal Finance plc Annual Report and Financial Statements 2016
31
Strategic Report Financial review
“We aim to run and develop
high-return businesses to
provide good returns to our
shareholders and maintain
a strong financial profile.”
Justin Lockwood
Chief Financial Officer
A strong
financial profile
Financial strategy
We aim to run and develop high-return businesses to
provide good returns to our shareholders and
maintain a strong financial profile. We have a good
track record of doing this, even during periods of
macroeconomic and financial market volatility, and
periods of competitive and regulatory change for
our business.
Our businesses are at different stages of development.
The European home credit businesses are cash and
capital generative and provide attractive returns. Our IPF
Digital and Mexico home credit businesses are growing
strongly and we continue to invest in them to further
build returns over the medium term. The strong capital
generation of the European home credit businesses
provides significant capital for our IPF Digital and Mexico
home credit businesses, in addition to any capital
generated by those growth businesses themselves.
We have a strong balance sheet, funding position and
robust financial risk management. We currently
operate with a target equity to receivables capital
ratio of around 40%. To maintain the credit quality of
lending, we target an impairment to revenue range of
25-30% and have always operated within this range at
a Group level. Our debt funding strategy provides a
resilient funding position for the existing business and
for future growth, through a diversified debt portfolio of
bond and bank facilities including significant long-
term funding. By maintaining our strong financial
profile, we are able to operate with significant
headroom on the financial covenants in our debt
facilities. Our strong balance sheet and funding
position also give us significant resilience to counter
external factors including taxation challenges and
regulatory turbulence.
Returns
As a Group we aim to deliver long-term profitable
growth, good returns for shareholders, and the efficient
deployment of capital generated to support growth
and pay dividends.
As our business strategy has evolved to include home
credit and digital businesses at different stages of
development, we have evolved our financial strategy
to better measure the returns on our businesses and
for the overall Group. We believe that the return on
assets (ROA) metric is a good measure of financial
performance of our businesses, showing the ongoing
return on the total equity and debt capital invested in
the receivables book for those businesses, and for the
Group. In addition, we believe that the Group return on
equity (ROE) metric is a good measure of overall
returns for shareholders.
The table opposite shows the ROA for our European
home credit, IPF Digital and Mexico home credit
businesses, and for the Group as a whole. ROA is
measured as profit before exceptional items and
interest, after tax, divided by the average receivables
during the period.
We would expect to earn higher returns on our
European home credit businesses, and lower but
growing returns on the IPF Digital and Mexico home
credit growth businesses. It is expected that these
growth businesses will deliver improved returns over
the medium term and, absent any other changes, the
overall Group ROA will reflect this dynamic.
32
For operational
review
see page 24-31
Our 2016 Group profit before tax reduced in line with expectations to £92.6 million, and the return metrics reflect
this profile.
ROA for European home credit reduced modestly from 18.2% in 2015 to 15.8% in 2016, due to the factors set out in the
operating review for those markets. The ROA for Mexico home credit reduced from 15.2% in 2015 to 9.8% in 2016
reflecting higher impairment, and investment in expansion and micro-business lending. IPF Digital’s negative return
increased from 1.9% in 2015 to 4.4% in 2016 reflecting accelerating investment. Group ROA reduced from 15.1% in 2015
to 11.6% in 2016.
Return on assets (ROA)
Profit before tax1
Interest
Adjusted PBIT
Taxation2
PBIAT
Average receivables
Return on assets
2015
2015
HC Europe
HC Mexico
113.0
31.7
144.7
(38.9)
105.8
581.4
18.2%
21.9
7.1
29.0
(7.8)
21.2
139.4
15.2%
2015
Digital
(4.2)
3.1
(1.1)
0.3
(0.8)
43.2
(1.9%)
2015
Group
116.1
41.6
157.7
(42.4)
115.3
764.0
15.1%
2016
2016
HC Europe
HC Mexico
105.1
34.4
139.5
(39.1)
100.4
634.7
15.8%
11.7
8.6
20.3
(5.7)
14.6
149.7
9.8%
2016
Digital
(9.3)
4.0
(5.3)
1.5
(3.8)
86.4
(4.4%)
2016
Group
92.6
47.1
139.7
(39.1)
100.6
870.8
11.6%
1. Adjusted for any exceptional items.
2. Taxation is applied at the Group’s effective rate before Slovakian losses.
Return on equity
Capital generation
Return on equity (ROE) for the Group is measured as
profit after tax, prior to any exceptional items, divided by
average equity.
ROE reduced from 23.3% in 2015 to 17.7% in 2016
reflecting the general ROA profile, and a higher level of
equity within the Group was driven partially by the foreign
exchange impact on reserves that is explained later in
this report.
Capital generation
Strong capital generation is a key feature of our business,
providing capital for the continuing growth of the business
and dividends to shareholders; whilst maintaining our
strong financial profile.
The table opposite shows capital generated by our home
credit businesses, and the net capital investment in IPF
Digital, along with dividends declared. We fund our
receivables book with approximately 40% equity and 60%
debt. Capital generated is calculated as profit after tax,
after assuming that 60% of the growth in receivables is
funded with debt and 40% with equity.
Capital generated before investing in receivables growth
was £66.9 million in 2016 increasing from £62.5 million in
2015 due to exceptional items recorded in that year.
£55.0 million of this was used to invest in receivables
growth (at 40% equity funding for receivables).
Profit before tax
Tax charge
Profit after tax
Receivables growth funded
by equity (40%)
Capital generated
Home credit Europe
Home credit Mexico
IPF Digital
Other
Dividends declared
Share buyback
Capital consumed
Earnings per share
2015
£M
100.2
(37.7)
62.5
(16.8)
45.7
73.6
7.7
(26.4)
(9.1)
(28.6)
(50.2)
(33.1)
2016
£M
92.6
(25.7)
66.9
(55.0)
11.9
51.1
6.2
(33.9)
(11.4)
(27.4)
–
(15.5)
Earnings per share was 30.2 pence in 2016 compared with
37.1 pence in 2015 reflecting the reduction in profitability.
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 (2015: 12.4 pence
per share). The full year dividend of 12.4 pence per share
represents a total payment equivalent to approximately
41% of post-tax earnings for the full year 2016 which is
above our target pay-out rate of 35%. The final dividend
will be paid on 12 May 2017 to shareholders on the
register at the close of business on 18 April 2017. The
shares will be marked ex-dividend on 13 April 2017.
International Personal Finance plc Annual Report and Financial Statements 2016
33
Strategic Report Financial review continued
Financial profile
We aim to maintain a strong financial profile with a robust
balance sheet and funding position. The target equity to
receivables capital ratio of 40% balances having
sufficient capital to withstand external shocks including
macroeconomic, regulatory, and tax factors, whilst
providing good returns on equity to shareholders. At
times, we may choose to hold equity higher than the
target level to support future growth and to ensure a
continuing strong financial profile. At December 2016, the
equity to receivables ratio was 45.7 % compared with the
target level of 40%, meaning equity capital £54 million
above the target level. Gearing was 1.5x at December
2016 (1.7x December 2015), well within the covenant
level of 3.75x maximum in our debt facilities.
Our target range of impairment to revenue of 25% to 30%
means that we maintain credit quality throughout an
economic cycle, and the Group has always operated
within this range since the demerger of IPF in 2007, even
during the global financial crisis of 2009. Our shorter-term
lending provides significant flexibility to adjust credit
parameters as macroeconomic conditions change.
Impairment at 26.8% in 2016 was towards the bottom end
of the target range. The average period of receivables
outstanding at December 2016 was 7.8 months
(2015: 6.3 months) with 86.0% of year-end receivables
due within one year (2015:89.6%). Closing receivables in
2016 were £939.9 million, which is £44.5 million (5%)
higher than 2015 in constant currency terms reflecting
the growth in the business.
We operate a prudent, objective and centrally controlled
impairment provisioning system in both our home credit
and digital business that has the following key attributes,
as detailed in the table below:
Treasury risk management and funding
Our Board approved policies address the key treasury
risks that the business faces – funding and liquidity risk,
financial market risk (currency and interest rate risk), and
counterparty risk. The policies are designed to provide
robust risk management, even in more volatile financial
markets and economic conditions within our
planning horizon.
Our funding policy requires us to maintain a resilient
funding position for the existing business and for future
growth in each market. We aim to maintain a prudent
level of headroom on undrawn bank facilities. Our
currency policy addresses economic currency exposures
and requires us to fund our currency receivables with
currency borrowings (directly or indirectly) to achieve a
high level of balance sheet hedging. We choose not to
hedge accounting profits and losses. Our interest rate
policy requires us to hedge interest rate risk in each
currency to a relatively high level. Our counterparty policy
requires exposures to financial counterparties to be
limited to single A-rated entities, except as expressly
approved by the Board. In addition to these policies, our
operational procedures and controls ensure that funds
are available in the right currency at the right time to
serve our customers throughout the Group.
Debt funding is provided through a diversified debt
portfolio at competitive cost with appropriate terms and
conditions. We have a range of bonds across a number
of currencies, wholesale and retail, with varying maturities
including significant long-term funding, together with
facilities from a core group of banks with a good strategic
and geographic fit with our business. IPF’s debt is senior
unsecured debt, with all lenders substantially in the same
structural position. We maintain our Euro Medium Term
Note programme as the main platform for bond issuance
across a range of currencies. In addition, a Polish Medium
Term Note programme has been used for bond issuance
in the Polish market. This achieves further diversification
and reinforces our corporate position in that market.
Our debt funding strategy has been successful over a
number of years, and we have a consistent record of
accessing debt markets throughout the economic cycle.
Our debt funding position is summarised in the table
Home credit
Weekly and monthly
Digital
Monthly
Missed payment or part of a missed
payment, even if the agent fails to visit
the customer.
Any missed payment or portion of
payment, even if the agent fails to visit a
customer, with the exception of the first
four weeks for a new customer to allow
repayment patterns to be established.
Provision percentages for each arrears
stage have been derived using statistical
modelling of past customer performance
that estimates the amount and timing of
cash flows.
Default point when the debt is passed
to a third-party collection agency. This
averages around 60 days past due across
IPF Digital. An incurred but not reported
provision is held for receivables pre-
default. This is calculated based on
probability of default factors.
Debt is segmented based on the number
of days past due and provision is based
on expected loss of each segment.
The provision percentage is based on loss
given default factors. This calculation is
updated quarterly.
Assessment period
Impairment
trigger
Segmentation
of receivables
Provisioning
34
below. At December 2016, we had total debt facilities of
£775.2 million, with total borrowings of £622.8 million,
giving headroom of £152.4 million. Drawings on these
bank facilities have been used for total Polish tax
payments in respect of the tax years 2008 and 2009 of
£38 million in January 2017 and maybe partly utilised for
further potential payments to the Polish tax authority in
respect of 2010 and other years to the extent that the tax
authority opens further audits in future.
62% of our facilities mature in 2020/21, with only 7%
maturing in 2017. About 73% of the total debt facilities
come from the bond market, and about 27% from the
bank market. The vast majority of bank facilities are
extended on a rolling basis, annually; ensuring that the
overall level remains broadly consistent.
Maturity
April 2021
May 2018
May 2020
November 2018
December 2018
December 2018
December 2019
January 2018
June 2020
2017-2019
Bonds
Euro
Euro
Sterling
Czech
Czech
Romanian
Romanian
Hungarian
Polish
Total bonds
Bank facilities
Total debt facilities
Total borrowings
Headroom
£M
341.7
34.2
101.5
7.9
6.3
12.3
15.0
11.0
38.8
568.7
206.5
775.2
622.8
152.4
Although the Brexit vote has created some uncertainty
in financial markets, the currency structure of our debt
facilities matches the asset and cash flow profile of our
business. We have local currency bank facilities and
bonds, and our main €400 million (£341.7 million)
Eurobond provides direct funding to our markets using
the Euro currency, and to markets using other currencies
via foreign exchange transactions. Therefore, we do not
expect fluctuations in the value of sterling to have a
major impact on our funding position. We will continue to
monitor the development of Brexit negotiations, including
the impact on financial markets and macroeconomic
conditions, and react as appropriate.
By maintaining a strong financial profile, we operate with
significant headroom on the financial covenants in our
debt facilities, as set out in the table below.
Covenant compliance
Gearing*
Interest cover
Net worth*
Receivables:
borrowings
Max 3.75
Min 2 times
Min £250 million
2015
1.7
3.9
318.7
2016
1.5
3.2
427.9
Min 1.1:1
1.4
1.5
* Adjusted for derivative financial instruments and pension
liabilities according to covenant definitions
Foreign exchange input on reserves
value fluctuates with changes in currency exchange
rates. In accordance with accounting standards, we have
restated the opening foreign currency net assets at the
year-end exchange rate and this resulted in a £65.1 million
foreign exchange movement, which has been credited to
the foreign exchange reserve.
Taxation
The taxation charge for the year on statutory pre-tax profit
was £25.7 million (2015: £37.7 million) which equates to an
effective rate of 27.8% (2015: 37.6%). The 2015 tax charge
included the impact of the Slovakian deferred tax write-off.
In 2015, the underlying tax charge was £31.2 million which
represented an effective tax rate of 26.9%. The effective tax
rate for 2017 is expected to be c.30%.
Our home credit company in Poland, Provident Polska,
appealed the decisions received from the Polish Tax
Chamber (the upper tier of the Polish tax authority) in
early 2017 with respect to its 2008 and 2009 financial
years. The decisions for both years are identical and
involve a transfer pricing challenge relating to an
intra-group arrangement with a UK entity together with
a challenge to the timing of taxation of home collection
fee revenues. As stated in our announcement at the time
of the 2008 decision we strongly disagree with the
interpretation of the tax authority and will defend our
position robustly in court. In order to make the appeals,
we paid the amounts assessed which total £38 million,
comprising tax and associated interest. The payment of this
sum is not a reflection of our view on the merits of the case
and accordingly it will be recognised as a non-current
financial asset in our group accounts. As we believe our
case to be very strong, no provision will be recognised
against this asset and there will be no charge to the
income statement as a result of this decision. The 2010
financial year is currently being audited by the tax
authorities in Poland and a decision is expected in the
coming months. In the event that the decision follows
the same reasoning as the decisions for 2008 and
2009 a further c. £19 million would become payable.
All subsequent financial years remain open to future audit.
Going concern
The Board has reviewed the budget for the year to
31 December 2017 and the forecasts for the two years
to 31 December 2019 which include projected profits, cash
flows, borrowings, headroom against debt facilities, and
funding requirement. 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
macro-economic 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 on pages 38-43, 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 Annual Report.
The majority of the Group’s net assets are denominated
in our operating currencies and, therefore, the sterling
Justin Lockwood
Chief Financial Officer
International Personal Finance plc Annual Report and Financial Statements 2016
35
Strategic Report Principal risks and uncertainties
Managing
our risks
The principal risks to our strategy are identified, evaluated and managed at
Group level in accordance with our operational governance and oversight
structure*. This structure is replicated in each of our home credit markets and in
IPF Digital. The aggregation of a bottom-up assessment of principal risks by our
business unit teams is then validated by a top-down assessment of those risks
by their Group-level owners.
* See www.ipfin.co.uk for our governance and oversight structure.
Our framework for the identification, evaluation and management of our principal risks
The Board
Determines the nature and extent of the principal risks it is willing to take in achieving our strategic objectives
(as described on page 10) and target business model (as described on page 12), taking account also the
environment in which the Group operates. The Board approves the principal risks as described in a Group
Schedule of Key Risks on a six-monthly basis and approves risk appetite annually.
For our strategy
see pages 10-11
For our business
model
see pages 12-13
Management Team
Responsible for day-to-day risk management and internal control systems. Risk identification, evaluation and
management processes form an integral part of business processes, and they have developed in-line with
the development of specific risks – particularly in relation to the changing regulatory environment. Control
activities are identified for all risks in the Group Schedule of Key Risks.
Risk Advisory Group
The Risk Advisory Group comprises the senior leadership team. It supports the Audit and Risk Committee
by reviewing the level of risk exposure facing the Group against risk appetite, to ensure that the Group’s
risk-taking and response are appropriate. It meets four times each year.
Audit and Risk Committee
On behalf of the Board, the Committee reviews the Group’s processes for the management of the principal
risks and its systems of internal control. The Committee receives and challenges the Group Schedule of Key
Risks together with regular reports and presentations on the effectiveness of the control environment. It has
confirmed the adequacy of the actions being taken by management to avoid potential breaches of risk
appetite thresholds. The Committee undertakes a robust assessment of the Group Schedule of Key Risks on a
six-monthly basis. See page 52 to 53 for Committee membership and remit.
Three Assurance Lines of Defence
First line:
Business-level management identify,
assess and control risks principally at
markets level and also within major
projects and change initiatives.
Second line:
Group-level management risk
owners provide oversight on
the effectiveness of
the risk management and
internal control systems.
Third line:
Internal Audit reviews the operation of and
oversight to the systems of internal control,
including risk management. The Head of
Internal Audit reports directly to the
Chairman of the Audit and Risk Committee.
36
The directors have undertaken a robust, systematic
assessment of the Group’s principal risks including those
that threaten its business model, future performance,
solvency or liquidity. These have been considered within
the time frame of three years which aligns with our viability
statement on page 43. Effective management of risks,
uncertainties and opportunities is critical to our business in
order to deliver long-term shareholder value and to protect
our people, assets and reputation. Our risk appetite
remained broadly unchanged in 2016.
During the year, we continued to face a challenging
external environment, particularly from 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.
Risk category
Definition
Risks
Description
Market
conditions
The risk that we cannot identify,
respond to, comply with or take
advantage of external market
conditions.
Stakeholder
Operational
The risk that key stakeholders take
a negative view of the business as
a direct result of our actions or our
inability to effectively manage
their perception of the Group.
The risk of unacceptable losses as
a result of inadequacies or failures
in our internal core processes,
systems or people behaviours.
Business
development
The risk that our earnings are
impacted adversely by a
sub-optimal business strategy or
the sub-optimal implementation
of that strategy, due to internal
or external factors.
Regulatory
• Legal compliance*
• Compliance with existing laws and
regulations
• Future legal and
• Anticipating and responding to
regulatory development*
changes to laws and regulations
and their interpretation
Competition and product proposition
• Competition*
• Responding to changes in market
• Product proposition*
• Meeting customer requirements
conditions
Funding, market and counterparty
• Funding*
• Funding availability to meet
• Interest rate and currency
• Market volatility impacting
business needs
• Counterparty
• Taxation*
• World economic
environment*
performance and asset values
• Loss of banking partner
• Changes to, or interpretation
of, tax legislation
• Adapting to economic conditions
• Reputation*
• Customer service
• Reputational damage
• Maintenance of customer service
standards
• Credit*
• Safety*
• People*
• Business continuity and
information security*
• Financial and
• Customers fail to repay
• Harm to our agents/employees
• Calibre of people
• Recoverability and security
of systems and processes
• Failure of financial reporting
performance reporting
systems
• Technology
• Maintenance of effective
• Fraud
technology
• Theft or fraud loss
• Change management*
• Brand
• Delivery of strategic initiatives
• Strength of our customer brands
* Risks currently considered by the Board as the principal risks facing the Group.
International Personal Finance plc Annual Report and Financial Statements 2016
37
Strategic Report Principal risks and uncertainties continued
As at the year end, the Board considered that there are 14 principal risks which require ongoing focus
(noted with asterisks in the table on page 37).
Risk
Relevance to strategy
Mitigation
Commentary
Regulatory
We suffer losses or fail to
optimise profitable growth
due to a failure to operate in
compliance with, or effectively
anticipate changes in,
all applicable laws and
regulations, or a regulator
interpreting these in a
different way.
Objective
We aim to ensure that effective
arrangements are in place to
enable us to comply with legal
and regulatory obligations
and take assessed and fully
informed commercial risks.
Changes in regulation, differences
in interpretation or clarification/
enforcement of laws not previously
enforced by courts and other
bodies can lead to challenge of
our products/practices.
We must keep up to speed
with legal and regulatory
developments to ensure we
maintain compliance, remain
competitive and provide value
for our customers.
Likelihood
The frequency of legal and
regulatory change and the
likelihood of challenge vary by
market. In 2016, notable changes
occurred in Poland, Lithuania,
the Czech Republic and Romania.
We have highly skilled
and experienced legal
and public affairs teams
at Group level and in
each of our markets.
Expert third-party
advisors are used
where necessary.
Strong relationships
are maintained with
regulators and
other stakeholders.
Co-ordinated legal and
public affairs teams, at
a Group level and in
each market, monitor
political, legislative and
regulatory developments.
Lead responsibility:
Chief Executive Officer
See market review Q&A, Chief
Executive Officer’s review and
operational review for details of key
regulatory changes in 2016
A number of legislative and
regulatory changes continue to be
proposed and debated, particularly
in Europe. As stated elsewhere in this
report, these have had a significant
impact on our businesses in Slovakia,
Poland and Lithuania in particular.
The business is adapting, where
possible, to changes announced in
2016 but the scale of the risk remains
substantial and we must continue to
be vigilant and flexible in
our response.
Further enhancements to our
approach to governing this risk were
implemented during 2016, including
increased level of monitoring of
regulatory matters, strengthened
anticipation and engagement
capabilities in-market and renewed
association and sector
reputation strategy.
Change
management
We suffer losses or fail
to optimise profitable
growth due to a failure
to manage change in
an effective manner.
Objective
We aim to effectively
manage the design,
delivery and benefits
realisation of major
change initiatives and
deliver according to
requirements, budgets
and timescales.
38
A core part of our strategy
is to modernise our home
credit operation and invest
in digital developments
Executive Director
and Country Manager
level prioritisation of
key initiatives.
Effective management of the
initiatives within this programme
is essential.
Likelihood
Our change programme
is complex covering numerous
markets. Recent changes
to the delivery structure
have been designed to
minimise the likelihood
of programme-wide issues.
Standard project
management
methodology
principles defined.
Governance structure
in place to oversee
ongoing change at
Group and market levels.
Lead responsibility:
Chief Executive Officer
We initiated a change programme
encompassing a broader
technological remit and we are
preparing for a rollout of a mobile
application to agents in 2017.
A revised IT strategy was launched to
ensure we can respond effectively to
changing regulatory, competitor and
customer behaviour dynamics.
Risk
Relevance to strategy
Mitigation
Commentary
People
Our strategy is impacted by
not having sufficient depth
and quality of people or
being unable to retain key
people and treat them in
accordance with our values
and ethical standards.
Objective
We aim to have sufficient
depth of personnel to
ensure we can meet our
growth objectives.
Our strategy emphasises
segmentation of our operations
into ‘Growth’ and ‘Returns’ focused
businesses to reflect the fact that
they are at different stages of
maturity. In order to achieve our
goals, we must continue to attract,
engage, retain and reward the
right people.
Likelihood
We have developed significant
strength-in-depth of talent across
the Group and there is a strong
history of talent moving between
markets that reduces the likelihood
of key vacancies.
Strategic people review
processes (People and
Organisational Planning)
operate throughout
the Group.
Group-wide personal
development review process
and continuous development
through targeted
leadership programmes.
Periodic employee
and agent engagement
surveys and
improvement plans.
Lead responsibility:
Chief Executive Officer
Our people strategy focuses
on creating a culture of
high engagement, identifying
and nurturing talent and
empowering people.
We made significant changes
to field sales and services
organisational structures during
2016. This was achieved without
any significant impact on
employee and agent stability
and we believe the medium-term
impact will increase the skills,
engagement and stability of
our people.
In 2016, our agents in Romania
were made employees to comply
with new legislation.
Competition
and product
proposition
We suffer losses or fail to
optimise profitable growth
through not responding to
the competitive environment
or failing to ensure our
proposition meets
customer needs.
Objective
We aim to ensure we
understand competitive
threats and deliver customer
focused products to
drive growth.
In an environment of increasing
competition and broadening
customer choice, ensuring our
product meets customers’ needs
is critical to delivering growth.
Likelihood
Competition varies by market. In
2016, the impact of competitive
activity, both from home credit and
digital lenders, was particularly
notable in Poland, the Czech
Republic and Romania.
Regular monitoring of
competitors and their
offerings, advertising and
share of voice in our markets.
Lead responsibility:
Chief Executive Officer
Competition continues
to increase.
Regular surveys of
customer views on
our product offerings.
Product development
committees established
across the Group to manage
product change and
introduce new products.
The growth of IPF Digital continues
to diversify our portfolio. During
2016 we opened new digital
businesses in Spain and Mexico,
and IPF Digital is growing strongly
We launched a number of
product offerings in 2016 within
our home credit markets giving
customers more choice and to
comply with new regulations.
For more on our strategy
see pages 10-11
Growth focus – IPF Digital
Risk environment improving
Growth focus – Mexico home credit
Risk environment remains stable
Returns focus – European home credit
Risk environment worsening
International Personal Finance plc Annual Report and Financial Statements 2016
39
Strategic Report
Principal risks and uncertainties continued
Risk
Relevance to strategy
Mitigation
Commentary
Business continuity
and information
security
We suffer losses or fail to
optimise profitable growth due
to a failure of our systems,
suppliers or processes, or due
to the loss or theft of
sensitive information
Objective
We aim to maintain adequate
arrangements and controls
that reduce the threat of
service disruption and the risk
of data loss to as low as is
reasonably practicable.
Globally, we have 2.5 million
customers and we record, update
and maintain data for each of them
on a regular basis, often weekly.
Executive Director and
Country Manager level
prioritisation of
key initiatives.
The availability of this data, and the
continued operation of our systems
and processes, is essential to the
effective operation of our business
and the security of our
customer information.
Likelihood
While the external threat to our
systems is increasing in the digital
age, the tools in place reduce the
likelihood of a significant failure or
information loss.
Standard project
management
methodology
principles defined.
Governance structure in
place to oversee
ongoing change at
Group and market levels.
Lead responsibility:
Chief Executive Officer
We continue to enhance our
systems and processes to ensure
data is as secure as practicable
and that any disruption to the
business is minimised.
Information security capability
was further enhanced in 2016
including implementation of
technical solutions to prevent and
detect weaknesses.
A disaster recovery assessment
and testing programme was also
undertaken in the year.
Further enhancements to our
protection are planned for 2017.
Reputation
We suffer financial or
reputational damage due to
our methods of operation,
ill-informed comment
or malpractice.
Our reputation can have an impact
on both customer sentiment and the
engagement of key stakeholders,
impacting our ability to grow.
Likelihood
Objective
We aim to promote a positive
reputation that will enable the
Group to achieve its
strategic aims.
We maintain strong relationships with
stakeholders across the Group in
order to minimise the likelihood of an
event leading to unanticipated
reputational impact.
Group Reputation and
Regulation Committee.
Clearly defined
corporate values and
ethical standards which
are communicated
throughout the
organisation.
Regular monitoring of
reputation indicators.
Lead responsibility:
Chief Executive Officer
Our businesses continue to
achieve awards for ethical
and effective operations.
In light of increased regulatory
challenges and potential
legislative changes we face, we
communicated our position to
investors and other
key stakeholders.
Growth focus – IPF Digital
Risk environment improving
Growth focus – Mexico home credit
Risk environment remains stable
Returns focus – European home credit
Risk environment worsening
40
Risk
Relevance to strategy
Mitigation
Commentary
World economic
environment
We suffer financial loss
as a result of a failure
to identify and adapt
to changing economic
conditions adequately.
Objective
We aim to have
business processes
that allow us to respond
to changes in economic
conditions and optimise
business performance.
Changes in economic conditions
have a direct impact on our
customers’ ability to make repayments.
Treasury and credit
committees review
economic indicators.
Daily monitoring of
economic, political and
national news briefings.
Strong, personal
customer relationships
inform us of individual
customer circumstances.
Likelihood
While we operate in numerous
markets, the likelihood of a change
in economic markets that we are
unable to respond to and that
impacts our strategy is minimised by
our short-term lending model.
The results of the Brexit vote and US
presidential election have created
global market uncertainty and there
may be longer-term impacts on
global economic growth.
Lead responsibility:
Chief Financial Officer
There were stable macroeconomic
conditions in our markets in 2016.
GDP forecasts for 2017 are for a
continuation of recent moderate
growth in our European markets
but for a slowdown in Mexico. We
continue to monitor the impact of
political developments including
Brexit and the change of US
President on financial markets
and macroeconomic conditions.
Safety
The risk of personal accident
to, or assault on, our agents
or employees.
Objective
We aim to maintain adequate
arrangements that reduce the
risks to as low as is
reasonably practicable.
A significant element of our business
model involves our agents and
employees interacting with our
customers in their homes or travelling
to numerous locations daily. Their
safety is paramount to us.
Likelihood
The likelihood of an individual
incident depends on many factors,
including the local environment. We
strive to ensure that our agents and
employees can carry out their work
without risk of harm.
Lead responsibility:
Chief Executive Officer
We continued to make progress in
our safety management systems
and maintained our OHSAS
certification in all established
home credit businesses.
Safety continues to be a
significant area of focus for
the Group.
Group and market
committees and annual
safety survey.
Bi-annual risk mapping
for each agency
including mitigation
planning and field
safety training.
Annual self-certification
of safety compliance
by managers.
Quarterly branch
safety meetings.
Role-specific training and
competence matrix.
Safety management
systems based on
internationally
recognised standards.
International Personal Finance plc Annual Report and Financial Statements 2016
41
Strategic Report
Principal risks and uncertainties continued
Risk
Relevance to strategy
Mitigation
Commentary
Lead responsibility:
Chief Financial Officer
We continued to ensure our
interpretation of taxation
legislation is defendable through
maintaining a strong governance
framework, ensuring each mature
market and the Group employs
tax professionals, and taking
external advice where relevant.
We have ongoing tax audits in
Poland, Mexico and Slovakia. In
early 2017 we received an
adverse decision from the Polish
tax authority in respect of 2008
and 2009 on two matters that had
been accepted as correct during
tax audits of previous years. We
have lodged appeals against the
decisions and were required to
pay the assessments totalling
c. £38 million. In addition, possible
further payments could be
required in respect of future years
that are still open to audit,
including 2010 where an audit
has already been opened, and a
decision is awaited.
Lead responsibility:
Chief Financial Officer
For IPF Digital, the risk environment
is generally stable with low
loss rates.
For our Mexico home credit
business, we saw an increase of
loss rates in the second half of
2016 due largely to an
operational factor and this is
now improved.
For our European home credit
markets, the credit risk
background is stable.
Taxation
We suffer additional taxation or
financial penalties associated
with failure to comply with tax
legislation or adopting an
interpretation of the law that
cannot be sustained.
Objective
We aim to generate
shareholder value through
effective management
of tax while acting
as a good corporate citizen.
Against a backdrop of increasing
fiscal challenges for most
economies, many authorities are
turning to corporate taxpayers to
increase revenues, either via taxation
reforms or through changes to
interpretations of existing legislation.
Likelihood
The likelihood of changes or
challenges arising from tax
legislation varies by market. Globally,
OECD and EU-led developments
may lead to an increase in transfer
pricing audits and this was seen in
2016 with the commencement of a
transfer pricing audit in Slovakia.
Binding rulings or
clearances obtained
from authorities
where appropriate.
External advisors used for
all material
tax transactions.
Qualified and
experienced tax teams
at Group level and
in-market.
Credit
The risk of the Group
suffering financial loss if its
customers fail to meet their
contracted obligations.
Objective
We aim to maintain credit
and collections policies
and regularly monitor
credit performance.
With the expansion in IPF Digital
and Mexican home credit
businesses, it is important that we
keep control of credit losses in order
to achieve our intended returns.
For the European home credit
businesses we need to be certain
that we are writing profitable
business to maximise return.
Likelihood
The control environment in place
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.
Weekly credit reporting
on the quality of business
at time of issue as well as
overall portfolio. This
feeds into weekly
performance calls
between each business
and the Group credit
director. In addition, there
are monthly local credit
committees, a monthly
Group credit committee
and monthly
performance calls
between each business
and the senior team.
When a new change
is introduced, the credit
systems allow for a
testing approach that
gives direct comparison
of the current ‘champion’
regime against the
new ‘challenger’.
42
Risk
Relevance to strategy
Mitigation
Commentary
Funding, market
and counterparty
The risk of insufficient availability
of funding, unfavourable
pricing, a breach of debt facility
covenants; or that performance
is significantly impacted by
interest rate or currency
movements, or failure of
a banking counterparty.
Objective
We aim to maintain a robust
funding position, and limit
the impact of interest rate
and currency movements
and exposure to
financial counterparties.
Funding at appropriate cost
and on appropriate terms, and
management of financial market
risk, is necessary for the future
growth of the business.
Likelihood
Board approved policies require
us to maintain a resilient funding
position with good headroom
on undrawn bank facilities;
appropriate hedging of market
risk, and appropriate limits to
counterparty risk.
Adherence to Board
approved policies
monitored through
Treasury Committee,
Finance Leadership
team and regular
Board reporting.
Funding plans
presented as part of
budget planning.
Strong relationships
maintained with
debt providers.
Lead responsibility:
Chief Financial Officer
Our business has a strong funding
position with good headroom on
bank facilities and long-term
funding in place.
Hedging of market risk and limits
on counterparty risk in line
with policies.
Growth focus – IPF Digital
Risk environment improving
Growth focus – Mexico home credit
Risk environment remains stable
Returns focus – European home credit
Risk environment worsening
Viability statement
The Directors confirm that they have a reasonable
expectation that the Group will continue to operate and
meet its liabilities as they fall due for three years from the
date of this report. This assessment has been made with
reference to the Group’s current financial position, its
prospects, its strategy and its principal risks, as set out in
the Strategic Report.
The Group undertakes an annual business planning and
budgeting process that includes an update to strategic
plans together with an assessment of expected
performance, cash flows, funding requirements and
covenant compliance. 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 and funding, market and
counterparty risks as outlined on pages 38, 42 and 43,
respectively and the consequent impact on future
performance, funding requirements and covenant
compliance. Consideration has also been given to the
availability of mitigating actions that could be taken to
reduce the impact of the identified risks.
The Directors have determined that three years is an
appropriate period over which to provide its viability
statement because it aligns with the Group’s business
planning horizon. In making this statement, the Directors
have assumed that both the wholesale funding markets
remain accessible so as to allow the Group’s existing
arrangements to be refinanced and further funding put
in place if necessary, and that the legal, taxation, and
regulatory framework allows for the provision of short-term
credit to the markets in which the Group operates.
Approved by the Board.
Gerard Ryan
Chief Executive Officer
1 March 2017
International Personal Finance plc Annual Report and Financial Statements 2016
43
Strategic Report
Introduction to corporate governance
Dear shareholder
During 2016, the Board and its committees operated against
a backdrop of challenging regulatory change, intensified
competition and a market characterised by changing customer
behaviour where digital delivery became increasingly important
to consumers. All of these featured heavily in Board discussions
and we received regular updates on each, often first hand, from
our Country Managers and their teams in those markets. In
particular, David Parkinson, Country Manager for Poland and
Lithuania, and Robert Husband, Country Manager for Mexico,
were invited several times during 2016 to give direct reports to the
Board: David to discuss plans and progress on addressing the
regulatory changes in Poland, and Robert in respect of the
performance issues and steps to remedy these in Mexico. These
two matters were among our top priorities in 2016. Effective Board
oversight has been crucial in supporting management navigate
an effective path through these challenges.
Regulatory changes in other markets also led to difficult Board
decisions. This was particularly the case at the start of the year
when we decided to close our business in Slovakia. The Board
oversaw the impact of this both financially and on the people
affected. This has been handled professionally by all those
involved and the wind down of the business has progressed
ahead of expectations.
The Board was supported in its focus on regulatory challenges by
Richard Moat and the Audit and Risk Committee, who actively
monitored and challenged management’s response to the
regulatory issues they faced.
The Board also ensured that our evolved strategy was embedded
in the business. It was clear to us, however, that the effective use
of technology would be the key enabler to supporting this
strategy and delivering our long-term success. As a
consequence, our Transformation for Growth Committee, under
the stewardship of John Mangelaars, revised its remit to focus on
technology as a whole and become the Technology Committee.
This led to a revised strategic approach and a focus on
increasing technological capabilities to enable the Group to
move to being a data-led organisation where technology can
create competitive advantage.
In the context of our strategy, Cathryn Riley and the Remuneration
Committee worked hard to review our remuneration
arrangements to ensure that they incentivise and support
44
“The Board and its
committees operated
against a backdrop
of challenging
regulatory change.”
Dan O’Connor
Chairman
For more
information
on our
compliance
with the UK
Corporate
Governance
Code
see pages
59-62
delivery of our strategy in the right way. Cathryn and the
Committee have consulted widely with major shareholders in
developing our new Directors’ Remuneration Policy and this will
be presented for approval at our 2017 AGM.
The Nomination Committee, of which I am the Chairman,
focused during 2016 on the search for a new Chief Financial
Officer and a new Senior Independent Director, recognising that
Tony Hales will have served almost 10 years as a director by the
time of our 2017 AGM. In February 2017, I was delighted to
welcome Justin Lockwood to the Board as our new Chief
Financial Officer. Justin, our previous Head of Finance and Interim
Chief Financial Officer, brings to the Board a wealth of financial
management experience in the markets in which we operate.
The search for a new Senior Independent Director will continue in
2017. In the meantime, the Board asked Tony to continue as a
director until our AGM in 2018 and I am pleased to say that
he agreed.
You will find greater detail on the work of the Board and its
committees in the pages that follow.
Dan O’Connor
Chairman
Compliance with the UK Corporate Governance Code
(the ‘Code’)
International Personal Finance plc applied the main
principles and complied with the provisions set out in the
Code, which was published by the Financial Reporting
Council (‘FRC’) in September 2014, and which applied
throughout the financial year ended 31 December 2016.
The Code is available on the FRC’s website: www.frc.org.uk.
We also have a secondary listing on the Warsaw Stock
Exchange but consider reporting in line with the Code as
our primary obligation in terms of this year’s Annual Report
and Financial Statements.
Corporate governance at a glance
Key progress in 2016
Board composition (%)*
Board
• Effective oversight and support monitoring the
transition to the new regulatory regime introduced
in Poland in March 2016.
• Board oversight and management challenge
supported improved performance in Mexico in the
second half of the year following a performance
materially below our expectations in the first half.
• Evolved strategy embedded in the business.
See pages
48-49
25
12
63
Nomination
Committee
• Search for new Senior Independent
Director commenced.
• Undertook search for a new executive director
(Chief Financial Officer). An appointment was
made in February 2017.
See pages
50-51
Chairman
Independent non-executive directors
Executive directors
Board diversity (%)*
Audit and Risk
Committee
• An early approach to the implementation of IFRS 9
was agreed.
See pages
52-56
25
• The transformation of IPF Digital’s financial control
environment was monitored closely.
• Monitored developments relating to the 2008
and 2009 Polish tax audits.
Technology
Committee
• Remit refocused and a new technology
strategy approved.
See pages
57-58
• Test of agent mobile technology in the
Czech Republic, Hungary and Poland.
Remuneration
Committee
• 2017 Directors’ Remuneration Policy designed
to support our strategic priorities.
See pages
71-93
• Extensive engagement with shareholders during
the remuneration consultation process.
Female
Male
Board tenure (%)*
12
Attendance at meetings of the Board and Board committees in 2016
75
50
Board
Director
Jayne Almond1
7 out of 7
Tony Hales
7 out of 7
John Mangelaars 7 out of 7
Richard Moat1,2
7 out of 7
7 out of 7
Dan O’Connor
7 out of 7
Cathryn Riley
7 out of 7
Gerard Ryan
Former Director
David Broadbent3 2 out of 2
Adrian Gardner4
5 out of 5
Audit and Risk
Committee
Nomination
Committee
Remuneration
Committee
Technology
Committee
6 out of 6
6 out of 6
6 out of 6
4 out of 4
4 out of 4
4 out of 4
4 out of 4
4 out of 4
5 out of 6
6 out of 6
5 out of 6
4 out of 4
3 out of 4
6 out of 6
4 out of 4
38
<3 yrs
3-6 yrs
9+ yrs
Board meetings 2016
1
0 out of 1
1. Jayne Almond and Richard Moat did not attend one ad hoc Remuneration Committee meeting as this conflicted with existing
business arrangements.
2. Richard Moat did not attend one ad hoc Technology Committee meeting as this conflicted with existing business arrangements.
3. David Broadbent resigned from the Board on 23 February 2016 and was a member of the Executive Committee and the
Technology Committee until that date. He did not attend one Technology Committee meeting as this conflicted with an existing
business arrangement.
4. Adrian Gardner resigned from the Board on 21 September 2016 and was a member of the Executive Committee and the
Disclosure Committee until 30 September 2016.
7
Scheduled meetings
Strategy retreat
* As at 1 March 2017
International Personal Finance plc Annual Report and Financial Statements 2016
45
Corporate Governance Board and committees
1. Dan O’Connor
Chairman, age 57
Length of service: 2 years and 2 months
Appointments and qualifications: Dan
was previously a non-executive director of
CRH plc and Chairman of Allied Irish Banks
plc from July 2009 to October 2010. In
addition, Dan spent 10 years as CEO of GE
Consumer Finance Europe and was Senior
Vice President of General Electric. He was
also a non-executive director of one of
Turkey’s largest banks, Garanti Bank. Dan is
a fellow of the Institute of Chartered
Accountants in Ireland and has a Master’s
Degree in Accounting. He is a non-
executive director of Glanbia plc and
Activate Capital Ltd.
3. Justin Lockwood
Chief Financial Officer, age 47
Length of service: appointed to the Board
on 23 February 2017
Appointments and qualifications: Justin
was the Company’s Group Head of
Finance for seven years before being
appointed as a Chief Financial Officer. He
previously held senior finance roles at
Associated British Ports and Marshalls plc
having spent the first 10 years of his career
working for PwC in the UK and Australia. He
is a member of the Institute of Chartered
Accountants and graduated from the
University of Cardiff with a degree in
Business Administration.
Key strengths and contributions: Dan has
over 30 years’ experience in large
international and financial services
businesses and provides strong strategic
leadership in his role as Chairman.
Key strengths and contributions: Justin
has over 15 years’ experience in a variety
of senior financial management roles and
has a detailed understanding of the
Group’s businesses and its markets.
2. Gerard Ryan
Chief Executive Officer, age 52
Length of service: 5 years and 1 month
Appointments and qualifications: Gerard
was previously CEO for Citigroup’s
consumer finance businesses in the
Western Europe, Middle East and Africa
region. He was a director of Citi
International plc, Egg plc and Morgan
Stanley Smith Barney UK. Earlier in his
career, Gerard was CFO of Garanti Bank,
Turkey and CEO of GE Money Bank,
Prague. He is a Fellow of the Institute of
Chartered Accountants in Ireland.
Key strengths and contributions:
Gerard has over 25 years’ multi-country
experience in consumer financial
services and provides the Company
with strong leadership.
4. Tony Hales CBE
Senior independent
non-executive director,
age 68
Length of service: 9 years and 7 months
Appointments and qualifications: Tony
was previously Chairman of Canal & River
Trust, Chief Executive of Allied Domecq plc,
Chairman of Workspace Group plc and
NAAFI, and a non-executive director of
Provident Financial plc, Welsh Water plc,
Aston Villa plc, HSBC Bank plc and
Reliance Security Group plc. He graduated
in Chemistry from the University of Bristol
and is currently Chairman of the
Greenwich Foundation, a non-executive
director of Capital & Regional plc and a
board member of The Services Sound and
Vision Corporation. He is also a director of
Welsh National Opera Limited and chairs
NAAFI Pension Fund Trustees.
Key strengths and contributions: Tony has
strong business expertise, having been a
chairman and non-executive director in
profit and non-profit sectors. He has
extensive knowledge of our business as
well as having chaired and been a
member of various committees
since appointment.
1
2
3
4
Committee membership key
Audit and Risk Committee
Disclosure Committee
Executive Committee
Nomination Committee
Remuneration Committee
Technology Committee
46
5
6
7
8
5. Jayne Almond
Independent non-executive
director, age 59
Length of service: 1 year and 8 months
7. John Mangelaars
Independent non-executive
director, age 52
Length of service: 1 year and 7 months
Appointments and qualifications: Jayne
set up equity release firm Stonehaven and
was CEO and then Executive Chairman
until 2014. She has previously been
Managing Director of Barclays Home
Finance business, Group Marketing
Director and Strategy Director at Lloyds TSB,
Managing Director of Lloyds TSB’s
European Internet banking business and a
senior partner at LEK Consulting. Jayne
graduated in Philosophy, Politics and
Economics from the University of Oxford.
She is currently on the Council of Oxford
University and Chair of its Audit and
Scrutiny Committee. She is also the Chair
of One Family Lifetime Mortgages Ltd and
Butterfield Mortgages Ltd.
Key strengths and contributions: Jayne
has over 20 years’ experience in financial
services and is an experienced non-
executive director. She has a strong
background in consumer finance,
marketing and strategy.
6. Richard Moat
Independent non-executive
director, age 62
Length of service: 4 years and 8 months
Appointments and qualifications: Richard
was previously Deputy CEO and CFO of
Everything Everywhere Limited, the UK’s
largest mobile telecoms company. He was
Managing Director of T-Mobile UK Limited
and Chief Executive of Orange Romania
SA, Orange Denmark A/S and Orange
Thailand Limited. He was previously Chair
of the ACCA Accountants for Business
Global Forum and Trustee of the Peter
Jones Foundation. He holds a Diploma in
Corporate Finance and Accounting from
London Business School and has a
Master’s (Honours) Degree in Law from
St Catharine’s College, Cambridge. He is a
Fellow of the Association of Chartered
Certified Accountants. He is currently Chief
Executive Officer of Eir Limited, and an
advisory board member of Tiaxa, Inc. Chile.
Key strengths and contributions: Richard
has more than 20 years’ international
telecoms experience in senior
management roles and provides financial
and operational expertise along with
international experience.
Appointments and qualifications: John
worked previously for Microsoft for over 20
years specialising, in more recent years,
in the sales and marketing of online
products, MSN Messenger, Hotmail and
Bing. He graduated from the Higher School
of Economics in The Hague with a Bachelor
in Information and Communication
Technology (B ICT) and is currently the CEO
of online travel agency Travix International.
Key strengths and contributions: John
has considerable experience in sales and
e-commerce, which will support expansion
of our digital lending business and the
Company’s objective to increase its
technology capabilities.
8. Cathryn Riley
Independent non-executive
director, age 54
Length of service: 3 years
Appointments and qualifications:
Previously, Cathryn was Group Chief
Operations Officer at Aviva plc. Other
roles with Aviva included Group CIO, UK
Commercial Director, COO and Customer
Experience Director of UK Life, plus she
was chair of Aviva Healthcare UK Ltd, Aviva
Global Services and Hill House Hammond.
Her other roles included GM of
Transformation at BUPA and a principal
consultant in the financial services division
at Coopers & Lybrand. She has an MA in
Manpower Studies, completed CeDEP’s
General Management Programme, was a
graduate of the Institute of Personnel/HR
Management and is currently a non-
executive director of ACE European Group
Ltd, ACE Underwriting Agencies Ltd, The
Equitable Life Assurance Society and
Chubb Insurance Company of Europe SE
as well as Chair of AA Insurance
Services Ltd.
Key strengths and contributions: Cathryn
has over 20 years’ experience in insurance
and financial services, together with
international roles. She is an experienced
non-executive director, having sat on the
board of The Equitable Life Assurance
Society since 2009 and also chairs its
Remuneration Committee. She brings
a wealth of experience in major IT
transformation programmes, implementing
new distribution channels and
customer service.
International Personal Finance plc Annual Report and Financial Statements 2016
47
Corporate Governance
Board report
“Regular themes for the
Board were strategy,
resources, performance,
governance and in
particular risk.”
Dan O’Connor
Chairman
For more about
our Board
members
see pages
46-47
Dear shareholder
During the year regular themes for the Board were strategy,
resources, performance, governance and in particular risk.
The Board reviewed strategy at its strategy retreat and endorsed
the twin focus of driving value from the European home credit
business while growing our Mexico home credit and IPF Digital
businesses, with both elements underpinned by an advancing
technology capability. The Board regularly reviewed the financial
resources of the Group and also held in-depth reviews of
management capability and succession planning. Performance
at Group and Country level is a key agenda item at all Board
meetings with country and functional heads presenting and
being questioned by the Board on their particular areas of
responsibility. The Board seeks to adopt best practice on
governance. In particular as a financial entity, we are very
conscious of operating in an area of high official and public
scrutiny, where the highest standards of governance
underpinned by process and culture are an absolute necessity.
The changing risk map has had high priority not least as
regulation has impacted on the business significantly.
A comprehensive insight into matters considered by the
Board in 2016 can be found on page 49.
Meetings
The Board held seven scheduled meetings in 2016 and one
strategy retreat.
Board members
Dan O’Connor – Chairman
Gerard Ryan – Executive director and Chief Executive Officer
Tony Hales – Senior independent non-executive director
Jayne Almond – Independent non-executive director
Justin Lockwood (from 23 February 2017) – Executive
director and Chief Financial Officer
John Mangelaars – Independent non-executive director
Richard Moat – Independent non-executive director
Cathryn Riley – Independent non-executive director
Former Board members
David Broadbent (until 23 February 2016) – Former
executive director and Chief Commercial Officer
Adrian Gardner (until 30 September 2016) – Former
executive director and Chief Financial Officer
2016 objectives
2016 progress
2017 objectives
• Effective oversight and support
• Monitor the impacts of potential new
• Monitor implementation of new product
proposition in Poland in response to new
pricing restrictions introduced in
March 2016.
monitoring the transition to the new
regulatory regime introduced in Poland
in March 2016.
• Oversee run-off of agent-delivered home
• The wind down of the business in
credit operations in Slovakia.
• Review investment opportunities to
Slovakia progressed ahead
of expectations.
achieve top-line growth in IPF Digital.
• Strong growth delivered in IPF Digital.
• Continued oversight of regulatory and
• Evolved strategy embedded in
competition risk.
the business.
• Oversee growth plans for home credit
business in Mexico, Romania
and Bulgaria.
• Focus on efficiency through:
• use of technology to increase
customer experience and reduce cost
base; and
• strengthening sales and service
organisational structure.
• Continued focus on leadership
and development.
• Board oversight and management
challenge supported improved
performance in Mexico in the second
half of the year following a performance
materially below our expectations in the
first half.
• Efficiency programme implemented.
• Strategic people review processes and
leadership development programmes
operated across the Group.
48
regulation and tax audits on the Polish
business and overall Group trajectory.
• Continue to oversee the turnaround of
performance in Mexico and obtain
evidence that this is sustainable and
maximises growth.
• Support the growth of IPF Digital gaining
assurance that it has the financial and
leadership resources commensurate
with its growth ambitions.
• Continued monitoring of leadership,
development and succession planning
through our People and Organisational
Planning process.
• Focus on efficiency through the use
of technology, reviewing commitment
to expenditure on technology.
• Support the executive team to
deliver clear and consistent
strategic communications to
external stakeholders.
Matters considered by the Board in 2016
January
• Update on Slovakia.
• Update on the Transformation for Growth (‘T4G’) project: costs, responsibilities and timescales.
• Update on IPF Digital compliance.
• Consideration of Board evaluation results.
February
• 2015 Group financial results, Annual Report and Financial Statements and 2016 AGM notice reviewed
and approved.
• Final dividend recommendation agreed.
• Update of the Euro Medium Term Note Programme approved.
• 2016 budget reviewed and approved following further work to understand the impact
of the decision to close the business in Slovakia.
• Product structure in respect to changes to forbearance approach approved.
• Update on regulatory affairs.
• Resourcing of Group compliance function discussed and approved.
• Action plan stemming from Board evaluation agreed.
• Group Schedule of Key Risks and Risk Appetite Statements approved.
• Approval of the Audit and Risk Committee’s recommendation that the 2015 Annual Report and Financial
Statements, taken as a whole, were fair, balanced and understandable and provided the information
necessary for shareholders to assess performance, business model and strategy.
• Recommendation to reappoint Deloitte as the auditor of the Company approved.
May
• Update on new product performance in Poland.
• Update on Mexico trading performance.
• Update on People and Organisational Planning including succession planning for senior positions.
• Update on the Group compliance function.
• Q1 2016 trading update statement reviewed and approved.
• Shareholder voting guideline reports from IVIS, ISS and PIRC reviewed.
June
July
• Board strategy retreat.
• Update on new product performance in Poland.
• Update on insurance framework in Poland.
• Update on Mexico trading performance.
• Third-party presentation on evaluation of strategic options.
• Group half-year financial report reviewed and approved.
• Declaration of interim dividend approved.
• Group Schedule of Key Risks reviewed and approved.
• Issue of invitations to employees under the Save As You Earn scheme approved.
September
• Strategy update.
• Update on new product performance in Poland.
• Update on Mexico trading performance.
• Discussion of third-party strategic review.
October
• Q3 2016 trading update statement reviewed and approved.
• Update on regulatory affairs.
• Update on credit quality.
December
• Business plans and budgets for 2017 discussed.
Standing agenda items were discussed at each scheduled meeting comprising reports from the Chief Executive Officer, Chief Financial Officer/Interim Chief
Financial Officer, Committee Chairs and Company Secretary; and a review of performance against KPIs.
International Personal Finance plc Annual Report and Financial Statements 2016
49
Corporate Governance Nomination Committee report
“The Nomination
Committee has focused
on the search for a new
Chief Financial Officer
and Senior Independent
Director in 2016.”
Dan O’Connor
Committee Chairman
Dear shareholder
There were two departures from our Board in 2016. In the first
quarter, David Broadbent, our Chief Commercial Officer, resigned
from the Board and left the business and in September 2016,
Adrian Gardner, our Chief Financial Officer, resigned from the
Board in order to pursue an alternative business opportunity. We
also needed to consider the succession plan for Tony Hales, our
Senior Independent Director as, by the time of this year’s AGM, it
will be nine years since Tony was first elected as a non-executive
director by shareholders. The Committee has recommended to
the Board that Tony continues as a director through to our AGM in
2018 and Tony has agreed.
The Nomination Committee has focused on identifying a new
Chief Financial Officer and Senior Independent Director who will
bring the appropriate mix of skills and experience to help us
oversee and deliver our strategy. We worked with The Zygos
Partnership to search for a new Chief Financial Officer and with
Egon Zehnder, a global executive search firm, to recruit a future
Senior Independent Director. After an extensive search, the
Committee recommended to the Board that Justin Lockwood,
previously our Head of Finance and Interim Chief Financial
Officer, be appointed to the Board as Chief Financial Officer
based on his experience and depth of insight into our markets.
Looking ahead, we anticipate appointing an experienced Senior
Independent Director in 2017.
For Board
statistics
see page 45
Committee members
Dan O’Connor – Chairman
Tony Hales – Senior independent non-executive director
John Mangelaars – Independent non-executive director
Cathryn Riley – Independent non-executive director
Gerard Ryan – Executive director and Chief Executive Officer
Nomination Committee composition (%)
20
20
60
Chairman
Independent non-executive directors
Executive directors
2016 objectives
2016 progress
2017 objectives
• Identify successor for the Senior
• Search for new Senior Independent
• Appoint a successor for the Senior
Independent Director role.
Director commenced.
Independent Director role.
• Continue to review succession plans for
the Board and key roles across
the business.
• Undertook search for a new executive
director (Chief FInancial Officer). An
appointment was made in
February 2017.
• Externally facilitated Board
evaluation completed.
• Implement the action plan from the
2016 Board evaluation.
50
Overview
Role
The Committee’s terms of reference are available on our
website and some of the key responsibilities include:
• reviewing the size, structure and composition of
the Board;
• assisting the Board in selecting and appointing any
new directors and recommending their appointment to
the Board; and
• succession planning.
Composition
The Committee must have at least three members, the
majority being independent non-executive directors.
Members can also include the Chairman and the Chief
Executive Officer. Three members form a quorum.
Boardroom diversity
The Board diversity policy was reviewed in June 2015 and
is considered to remain appropriate.
In reviewing Board composition, the Committee considers
the benefits of all aspects of diversity, including
differences in skills, regional and industry experience, race
and gender. Currently, we consider non-executive
candidates from a wide pool including those with little or
no listed company board experience and review a long
list of candidates, 50% of whom we aim to ensure
are women.
We only engage executive search firms who have signed
up to the voluntary code of conduct on gender diversity
and best practice. The stated aim included in the policy is
to ensure that our Board comprises at least two female
directors, a diversity commitment we continue to meet.
Activities in 2016
Meetings
The Committee met four times during the year.
Board changes
There were a number of changes in 2016. As reported in
our last Annual Report, David Broadbent, Chief
Commercial Officer, resigned from the Board on
23 February 2016 and left IPF on 7 March 2016. Adrian
Gardner, Chief Financial Officer, stepped down from the
Board on 21 September 2016 in order to pursue an
alternative business opportunity. He left the business on
30 September following a handover to Justin Lockwood,
the Company’s Head of Finance, who became Interim
Chief Financial Officer but was not appointed to the
Board at that time. In February 2017, the Committee
recommended to the Board the appointment of Justin
Lockwood as executive director and Chief
Financial Officer.
Board composition and succession
The Committee keeps under review the size, structure
and composition of the Board and its committees, to
ensure that they comprise individuals with a range of
complementary skills. It also considered Board level
succession planning during the year. This was particularly
relevant recognising that it is nearly nine years since Tony
Hales was first elected to the Board as a non-executive
director by shareholders. He has also served as Senior
Independent Director since May 2010. The Committee
focused, therefore, on the search for a new non-executive
director to fill this role. This is being carried out in
conjunction with recruitment specialist, Egon Zehnder,
and will continue in 2017. In addition, in the latter part
of the year our attention turned to recruiting a new
executive director to replace Adrian Gardner. This was
undertaken in conjunction with The Zygos Partnership.
Neither Egon Zehnder nor The Zygos Partnership have
any other connection with the Company.
Election and re-election of directors
Directors are appointed to the Board following a
robust selection process and on the Committee’s
recommendation. The performance of each director
is assessed on an annual basis as part of the Board
evaluation process. In addition, a review of the
independence of each non-executive director is
undertaken and consideration given to the attendance
of each director at Board and committee meetings.
Based on these reviews, the Board recommends the
re-election of all directors, who are standing for
re-election at the 2017 AGM, as well as the election
of Justin Lockwood.
Tenure of directors
In December 2016, the Committee recommended to
the Board that Cathryn Riley’s appointment as a non-
executive director be extended for a further three years
from the end of her first three-year term in February 2017.
The Board approved this extension.
Subsequent to the year end, in February 2017, the
Committee recommended to the Board that Tony Hales’
appointment as a non-executive director be extended
through to the AGM in 2018. The Board approved this
recommendation. Consideration was given to his
independence as described on page 59.
An analysis of the tenure of all current directors is shown
on page 45 and their individual length of service is
shown in their biographies on pages 46 and 47.
Further activities
At the beginning of 2017, the Committee also reviewed
and approved Board and committee meeting
attendance, which can be found on page 45.
Dan O’Connor
Chairman
International Personal Finance plc Annual Report and Financial Statements 2016
51
Corporate Governance Audit and Risk Committee report
“The Committee closely
monitored the significant
regulatory and taxation
developments, and
promoted improvements
in our management of the
threat of cyber-attack.”
Richard Moat
Committee Chairman
For insights
into our risk
management
process
see pages
36-43
Audit and Risk Committee
composition (%)
100
Committee members
Richard Moat – Chairman
and independent
non-executive director
Jayne Almond – Independent
non-executive director
Tony Hales – Senior independent
non-executive director
Independent non-executive directors
Dear shareholder
The Committee focused its attention
throughout 2016 on regulatory challenges,
information security and business
continuity planning, and the
enhancement of the financial control
environment for IPF Digital. The Committee
encouraged the continuing improvement
of the capabilities and connectivity of the
risk management process across the
business, with emphasis on its ability to
identify and assess emerging risk. 2017 will
see a continuing close focus by us on the
management of regulatory risk particularly
in our European markets.
2016 objectives
2016 progress
2017 objectives
• Review the approach for implementing
• An early approach to the implementation
of IFRS 9 was agreed, progress was
followed closely during the year and will
be reviewed by Internal Audit during 2017.
• Review the approach to delivering
efficiency and optimising the value
generated by our home credit business
through agent mobile technology.
• The transformation of IPF Digital’s
• Monitor developments in respect of
financial control environment was
monitored closely. New market entry
processes were audited internally
and recommendations for
improvement made.
• The approach to managing legal
compliance risk and the evolution of
the compliance framework across the
Group was monitored closely.
• The Operational Governance
Framework extended to include future
legal and regulatory developments.
• Evaluated the drivers of growth within
the Mexico home credit business.
• Audited the systems for managing
customer service and complaints
together with the management of the
broadening product portfolio and
recommendations made.
appeals made against the 2008 and
2009 Polish tax audit decisions and the
status of the open audit of 2010.
• Approve the Group’s technical accounting
approach to the implementation of IFRS 9
and review progress on the broader
implementation plan.
• Evaluate the design of our cyber
security controls which preserve the
confidentiality, integrity and availability
of the Group’s information and
technology assets.
• Further consideration of the continuing
approach to modernising the business
through technology with specific
reference to the implementation of a
unified digital loan platform.
• Assess the adequacy of actions taken
to deliver sustainable growth in Mexico.
• Monitored developments relating to the
• Review actions taken to improve cost
2008 and 2009 Polish tax audits.
efficiency within the business.
IFRS 9 accounting requirements.
• Review progress in enhancing the
control environment for IPF Digital and
the management of new market
entry processes.
• Review systems for customer service
and complaints management.
• Review the organisation’s approach to
implementing new products and sales
delivery channels.
• Continue development of structures in
place to ensure vigilant monitoring of
legal and regulatory developments.
52
Overview
Role
The objective of the Committee is to oversee the
Group’s financial reporting, internal controls and risk
management procedures (as described on pages 36 to
37), together with the work performed by the external
auditor and the internal audit function. The Committee’s
terms of reference are available on our website. Its main
responsibilities are to:
• monitor the Group’s systems of internal control,
including financial, operational and compliance
controls and risk management systems, and to perform
an annual review of their effectiveness;
• monitor the integrity of the Financial Statements of the
Company and the formal announcements relating to
the Company’s financial performance, reviewing
significant financial reporting judgements contained
in them;
• provide advice to the Board on whether the Annual
Report and Financial Statements, taken as a whole, are
fair, balanced and understandable, and provide the
information necessary for shareholders to assess the
Group’s position and performance, business model
and strategy;
• make recommendations to the Board, for the Board to
put to shareholders in general meeting, in relation to
the appointment, reappointment and removal of the
external auditor and to approve its terms
of appointment;
• review and monitor the objectivity and independence
of the external auditor and the effectiveness of the
external audit process, taking into consideration
relevant UK professional and regulatory requirements;
• review and approve the internal audit programme for
the year and monitor the effectiveness of the internal
audit function in the delivery of its plan; and
• keep under review the Group Schedule of Key Risks
and consider the principal risks (which are described
on pages 37 to 43) facing the Group and
their mitigation.
Composition
The Committee comprises three independent non-
executive directors and is chaired by Richard Moat, a
Fellow of the Association of Chartered Certified
Accountants, and who has relevant and recent
experience for the purposes of the UK Corporate
Governance Code (the ‘Code’). The other non-executive
directors are Jayne Almond who has over 20 years
experience in financial services and Tony Hales who has
strong business expertise and extensive knowledge of our
Group. The external auditor, Deloitte LLP, the Chief
Executive Officer, the Chief Financial Officer, the Interim
Chief Financial Officer (from September 2016 to February
2017) and the Head of Internal Audit are invited to attend
all meetings. Periodically, senior management from
across the Group are invited to present on specific
aspects of the business. The Committee also meets from
time to time with the external auditor, without an
executive director or member of the Group’s senior
Case study: Information
security – protecting our
customers’ data
Throughout the year the Committee requested and
received briefings from management on
arrangements relating to information security. The
Committee maintains a strong awareness of cyber
threats and incidents and encourages management
to learn from the experience of other organisations
and partners, and to conduct regular cyber incident
rehearsals to minimise the potential for harm and
service disruption for customers. Supported by an
external partner, a rehearsal was undertaken which
included a simulated cyber-attack with a “hostage”
theme and involved teams across the Group.
Drawing directly on the Audit and Risk Committee’s
experience, the Group also finalised the
implementation of an information security
management framework based on ISOs 27001 and
22301 along with a suite of protective technical
measures that are monitored from head office and
by external partners. The Committee received reports
on the results of this monitoring and sought
additional clarification directly from management
as necessary.
management being present, to discuss the external audit
process. The Head of Internal Audit reports directly to the
Chairman of the Committee, which ensures his
independence from the management and operation of
the business.
Activities in 2016
Meetings
The Committee met six times during the year, twice to
consider risk and four times to consider audit-related
matters. Attendance at meetings can be found
on page 45.
Financial reporting
The Committee reviewed and considered the following
areas in respect of financial reporting and the
preparation of the half-year and full-year
Financial Statements:
• the appropriateness of accounting policies used;
• compliance with external and internal financial
reporting standards and policies;
• significant judgements made by management;
• disclosures and presentations; and
• whether the Annual Report and Financial Statements
are clear, concise, fair, balanced and understandable.
In carrying this out, the Committee considered the work
and recommendations of management. In addition, the
Committee received reports from the external auditor
setting out its view on the accounting treatments and
International Personal Finance plc Annual Report and Financial Statements 2016
53
Corporate Governance Audit and Risk Committee report continued
judgements underpinning the Financial Statements. The
significant judgements considered by the Committee were:
• Impairment of receivables: the key area of judgement
in respect of impairment provisions made against
customer receivables in the home credit division and in
IPF Digital is the predictive accuracy of statistical
models used to estimate future customer default rates
and expected future timing of cash flows in respect of
each portfolio. At both the half-year and full-year results,
the Committee considered a paper prepared by
management summarising the work performed to test
the continued predictive capacity of these statistical
models and to update them where appropriate. The
external auditor performed audit procedures on
impairment provisioning and reported its findings to
the Committee.
• Revenue recognition: the judgement in respect of
revenue recognition is the methodology used to
calculate the effective interest rate. The external auditor
performed procedures to assess management’s
calculations and assumptions used to calculate the
effective interest rate and reported its findings to
the Committee.
• Provision for uncertain tax positions: IPF operates in
multiple jurisdictions where the taxation treatment of
transactions is not always certain and, therefore,
management is required to make judgements, based
on internal expertise and external advice, on the
methodology to be adopted for accounting for
uncertain tax positions (including the adverse decision
received in early 2017 relating to two tax audits in
Poland). The external auditor performed procedures to
assess management’s judgements and reported its
findings to the Committee.
• Deferred tax accounting: the key area of judgement
in respect of IPF’s deferred tax assets, which arise
largely from timing differences between the accounting
and tax treatments of revenue and impairment
transactions, is the extent to which the timing
differences will reverse and a tax deduction will be
obtained in future periods. The external auditor
performed procedures to assess whether the
recognition of the deferred tax asset is appropriate and
reported its findings to the Committee.
• Regulation: the business is subject to regulatory
scrutiny in multiple jurisdictions and at times it is
appropriate to make provision for potentially adverse
rulings by regulatory authorities. The Committee
received reports from the Group Legal Team outlining
the various regulatory and other similar issues and
management’s approach.
Internal control and risk management
While the Board is responsible for the Group’s systems of
internal control, including risk management, the review of
its effectiveness is delegated to the Committee. It is
recognised that any system can provide only reasonable
and not absolute assurance against material
misstatement or loss. The Committee reviews and
approves the Group Schedule of Key Risks which
describes the principal risks facing the business. The
Board then formally considers the Schedule on a six-
monthly basis and approves risk appetite annually. The
internal control environments in place to mitigate the
impact of each risk are monitored by the Committee on a
regular basis, as are the principal actions being taken to
improve them. The Committee requests additional
presentations on key business areas as necessary to
supplement its understanding of control environments in
place. The areas covered by these in 2016 are referred to in
the ‘Training’ section on page 56. The internal controls in
relation to the preparation of consolidated Financial
Statements are outlined on page 67.
In particular, the Committee monitored legal and
regulatory compliance risk and developing tax issues.
Specifically, the Committee focused on the progress of the
Polish tax audits during 2016, and received, reviewed and
challenged regular updates from management including
an assessment of the Group’s position from external
legal advisors.
The Board as a whole monitored developments relating to
the draft bill published by the Polish Ministry of Justice
which amongst other details proposes a significant
reduction to the cap on non-interests costs that may be
charged by lenders in connection with a consumer loan
agreement that became effective in March 2016. The
Committee will make this a focus for 2017.
The Committee also increased its oversight of cyber-risks
and continued to monitor the enhancement of the control
environment at IPF Digital.
The Committee is supported in its work by the Risk Advisory
Group, which in 2016 comprised the Chief Executive Officer,
Chief Financial Officer (to September 2016), the Interim
Chief Financial Officer (from September 2016) and Group
Legal Director, together with other members of the senior
leadership team. The Risk Advisory Group meets four times
a year. It reports to the Audit and Risk Committee and
considers the risk assessments and risk registers produced
in each country, and updates the Group Schedule of Key
Risks. It also considers areas of specific risk and
particular issues.
The Committee has assessed the effectiveness of internal
audit and satisfied itself that the quality, experience and
expertise of the function is appropriate for the business.
The Committee provides oversight and direction to the
internal audit plan to ensure that it provides independent
assurance over the integrity of internal controls and the
operational governance framework. In addition, the
external auditor, communicates to the Committee any
control deficiencies in the internal control environment it
observes as part of its audit procedures. During the year,
Deloitte did not highlight any material control weaknesses.
Internal audit
A firm basis for the opinion on the Group’s system of
internal control was provided by the Head of Internal Audit.
PwC and KPMG were engaged to support specific
thematic audits where specialist technical knowledge
was required.
54
Significant internal audits in 2016 were performed in the following areas:
Basic assurance
Branch level reviews:
(covering one-fifth of branches)
• Management of administration, operational, financial and loss
prevention oversight processes in home credit branches.
Head office audits:
• Management of the branch administration and quality
control processes.
Thematic audits
Group-wide:
• Delivery of growth plans within the Mexico home credit
business and IPF Digital.
• Management of new market entry processes within IPF Digital.
• Legal compliance in all businesses and efforts made to
anticipate legal and regulatory developments.
• Management of financial reporting risk within IPF Digital.
• The development and implementation of our MyProvi agent
• Group’s ability to be aware of and respond to changes in
mobile technology solution.
market conditions.
• Controls in place to manage the increasing complexity of our
• Management of credit and subsequent collections risk.
broadening product range.
• Management oversight of the effectiveness of the framework
to manage taxation-related risk.
• Management of change risk.
• Implementation of a customer relationship management
(‘CRM’) system in the Mexico home credit business.
• Group core controls in respect of customer service and
complaints management.
During 2016, a series of planned internal audits (see table
above) was undertaken in markets and head office
environments. These were split between basic assurance
audits, covering core controls across the business as
defined in the Group Schedule of Key Risks, and thematic
audits providing a deeper review of the mitigation of the
specific principal risks facing the Group.
The Committee tracks the resolution of findings and
recommendations raised in internal audit reports.
The Internal Audit function has continued to monitor the
effectiveness of the overall operational governance and
oversight structure throughout 2016.
External auditor effectiveness and independence
The Committee considered the external auditor’s
assessment of the significant risks in the Group’s Financial
Statements set out in its audit plan and approved the
scope of the external audit that addressed these risks.
The Committee considered these risks and the
associated work undertaken by the external auditor when
forming its judgement on the Financial Statements.
The Committee monitored the effectiveness and conduct
of the external auditor by reviewing the:
• experience and capabilities of the auditor and the
calibre of the audit firm;
• delivery of its audit work in accordance with the
agreed plan; and
• quality of its report and communications to
the Committee.
In order to confirm its independence, the external auditor
issued a formal statement of independence to the
Committee. In addition, the Committee ensured
compliance with the Group’s policy on the use of the
external auditor for non-audit work. The key requirements
of this policy are:
• the external auditor may not undertake certain
prohibited services including internal audit, information
technology, remuneration, recruitment, valuation or
general management consultancy;
• the internal audit function must approve all non-audit
services; and
• the Committee Chairman must approve any individual
non-audit service over a specific fee level.
The Committee believes that the Group receives a
particular benefit from certain non-audit services where a
detailed knowledge of its operations are important or
where the auditor has very specific skills and experience.
However, other large accountancy practices are also
used to provide services where appropriate. During the
year, the non-audit services carried out by Deloitte LLP
were as follows.
Non-audit services carried out by Deloitte in 2016
Taxation compliance services
Other assurance services
Total
Fee
£’000
51
40
91
International Personal Finance plc Annual Report and Financial Statements 2016
55
Corporate Governance Audit and Risk Committee report continued
This training was complemented by a visit to the Group’s
businesses in Mexico and Poland, both of which included
visits to branches and discussions with the
management teams.
Review of the effectiveness of the systems of
internal control
On behalf of the Board, the Committee has monitored
the Group’s systems of internal control and its processes
for managing principal risks throughout 2016 and
performed a formal assessment of their effectiveness. In
addition, the Committee, where appropriate, ensures that
necessary actions have been or are being taken to
remedy identified failings or weaknesses in the internal
controls framework. These processes for identifying,
evaluating and managing the principal risks faced by
the Group were in place throughout 2016 and up to
1 March 2017. The Committee has also undertaken a
review of its own effectiveness among its members,
executive director, management and external advisors
and concluded that it continues to be effective.
Annual Report and Financial Statements
The Committee has reviewed and considered the Annual
Report and Financial Statements, in line with other
information the Committee has considered throughout
the course of the year. It concluded and recommended
to the Board that the Annual Report and Financial
Statements 2016, taken as a whole, are concise, forward-
looking, fair, balanced and understandable and provide
the information necessary for shareholders to assess the
Group’s position and performance, business model
and strategy.
Richard Moat
Chairman
Audit tendering and auditor rotation
The Company’s policy is to undertake a formal tendering
exercise of the audit contract at least once every ten
years. Following a tender process, Deloitte LLP has been
the Group’s auditor since 2011. The Company will be
required to rotate the audit for the financial year ended
2021, and plans to complete a competitive tender
process by this time. In addition the Committee will
continue to consider the auditor’s performance on an
annual basis. Having undertaken its review for this year, in
the opinion of the Audit Committee, the relationship with
the auditor works well and the Committee remains
satisfied with their independence and effectiveness. The
Committee has, therefore, at its February 2017 meeting,
recommended to the Board that Deloitte LLP be
reappointed as auditor at the 2017 Annual
General Meeting.
Deloitte LLP has now been external auditor for over five
years and during this time the audit engagement partner
has been Stephen Williams. The ‘APB Ethical Standard 3
(Revised) Long Association With The Audit Engagement’
requires the audit engagement partner to rotate after five
years, unless the Committee decides that a degree of
flexibility is necessary to safeguard the quality of the audit
and the audit firm agrees, at which point the audit
engagement partner may continue in this position for an
additional period of up to two years. Last year, the
Committee considered the rotation of the audit
engagement partner and requested on the grounds of
audit quality for Stephen Williams to lead the audit for a
sixth time in 2016 before rotating to a suitably
experienced partner at the AGM in 2017. It remains the
intention to rotate the audit engagement partner role
from Stephen Williams to a suitably experienced partner,
Peter Birch, with effect from the 2017 AGM.
The Company has complied during the year ended
31 December 2016, and up to the date of this report, with
the provisions of the Statutory Audit Services for Large
Companies Market Investigation (Mandatory Use of
Competitive Tender Processes and Audit Committee
Responsibilities) Order 2014.
Training
The Committee undertook a significant amount of
training during 2016. This included presentations on the
following key business areas:
• managing credit risk within IPF Digital;
• managing compliance risk;
• fraud prevention and detection measures within
the organisation;
• business continuity including the improvements made
to enhance disaster recovery capabilities;
• implementing IFRS 9;
• information security and the approach to addressing
the ever increasing cyber-security risk; and
• managing financial reporting risk within IPF Digital.
56
Technology Committee report
“A key enabler of
our overall strategy
is the development
of our technology
capabilities.”
John Mangelaars
Committee Chairman
For more on
our investment
in technology
see page 18
Dear shareholder
During my first full year as Committee
Chairman, its remit moved away from
oversight of our Transformation for Growth
programme, which had been mostly
completed, to overseeing the
advancement of the Group’s technology
capabilities. We see technology as
increasingly fundamental to driving
efficiency and supporting growth
opportunities across the Group.
Improvements in our capabilities will
enable agents to serve customers better,
decrease costs, give us deeper insights
into our customers and business, and
underpin the growth of our digital
operation. In May 2016, the Committee
was renamed the Technology Committee
to reflect this revised focus.
In March 2016, to underscore the
importance of technology we appointed
a new Chief Information Officer, Chris
Robinson, who has experience in leading
IT, innovation and technology functions in
multinational companies.
His appointment led to a review of business
IT requirements and saw the development
of a revised strategic approach to IT.
This strategy has four key pillars: creating a
strategic digital platform, restructuring IT into
a centrally managed function, digitising the
home credit business and using data as a
strategic asset. Together, these pillars will
enable technology to serve our businesses
consistently and drive forward
competitive advantage.
Overall, 2016 was a year of refocus and
the start of the implementation of our
revised strategic approach. Developing
our technology capabilities will gain
further momentum in 2017.
Technology Committee
composition (%)
100
Independent non-executive directors
Committee members
John Mangelaars – Chairman and
independent non-executive director
Richard Moat – Independent non-
executive director
Cathryn Riley – Independent non-
executive director
Former Committee member
David Broadbent (until
23 February 2016) – Former executive
director and Chief Commercial Officer
2016 objectives
2016 progress
2017 objectives
• Focus on deliverables that bring
• Remit refocused and a new technology
efficiency benefits.
strategy approved.
• Launch new Strategic Digital Platform
into existing and new digital markets.
• Roll out agent mobile technology.
• Complete roll out of sales and service
organisation design across all home
credit markets.
• Test of agent mobile technology in the
Czech Republic, Hungary and Poland.
• Expand the delivery capabilities of the
new Digital Centre of Excellence.
• Successful integration of IPF Digital
• Complete the full integration of
technology platforms into the Group.
technology staff from across businesses
into the new centralised group.
• Complete implementation of new CRM
• Sales and service organisation design
system in Mexico.
structure rolled out in Poland, the Czech
Republic and Romania.
• Roll out mobile applications to digitise
the home credit business.
• Implementation of CRM system in Mexico
• Implement new Data Strategy into IPF
completed in June.
Digital and our home credit businesses.
International Personal Finance plc Annual Report and Financial Statements 2016
57
Corporate Governance Technology Committee report continued
Overview
Role
The Committee’s terms of reference are available on our
website and some of its key responsibilities include:
• supporting the technology programme and executive
management by providing appropriate challenge,
support, guidance and validation to ensure that the
programme delivers quality outcomes at speed and
within approved budgets;
• briefing the Board on progress and making
recommendations in relation to issues that need to be
escalated to the Board for consideration and approval;
• providing assurance to the Board that benefits are
being delivered, costs are being controlled and that
delivery of the programme is supported effectively by
appropriate, reliable plans and governance; and
• authorising commitments within financial limits
delegated by the Board.
Composition
A quorum is three members.
Activities in 2016
Meetings
The Committee met four times during the year.
Technology – a key enabler of our strategy
During 2016, it was recognised that a key enabler of our
strategy is the development of our technology
capabilities. This led to a reappraisal of the way we view
the role of technology and, as a result, the Committee
supported work to revise our IT strategy.
A revised strategic approach to IT
The objective of our revised strategy is to ensure that our
technology capabilities are fit for an environment where
challenging regulatory environments, changing customer
behaviours and accelerating competitor
growth converge.
By enhancing our capabilities, we will be better
positioned to exploit existing and new disruptive
technologies to ensure we maximise revenue, profitability,
productivity and efficiency, and minimise competitive
risks. The strategy also aims to create a seamless
customer journey across all our product offerings and
platforms whether home credit or digital.
As part of delivering the IT strategy we are looking to:
• become a data-led organisation;
Case study: MyProvi – increasing
efficiency through technology
Our MyProvi programme is modernising our home
credit business by delivering mobile applications to
agents in order to capture sales and collections
information securely and automatically post it into
our core systems. As well as reducing administration
overhead in the business this will bring about
improved compliance and data quality. Numerous
paper forms and significant volumes of paper will be
eliminated from our operation. The initial collections
functionality has been deployed to a small number
of agents in Poland, Hungary and the Czech
Republic and a volume roll out will proceed in the
first half of 2017.
• ensure home credit is digitised and supported
effectively with a dedicated IT structure and effective
delivery team; and
• enhance our programme delivery and
governance capabilities.
Technology in our markets in 2016
2016 has seen the successful introduction of enhanced
technology in a number of our markets. In Hungary, we
deployed mobile credit scoring functionality to our
agents in order to make customer applications more
efficiently from credit scoring to decision point. Credit
scoring has been operating well and was rolled out to all
the target audience. User feedback was very positive, with
85-90% satisfaction levels. In Mexico, the CRM system went
live in the call centre.
Key priorities
To ensure that technology drives our business forward, we
are now focusing on a number of key priorities:
• delivering MyProvi agent mobile technology apps to
our 25,600 agents;
• increasing investment in digital developments, funded
by savings in home credit technology costs;
• continuous improvements to our IPF Digital platform to
ensure it remains cutting edge;
• improving digital options for Provident customers
through the roll out of our Provident-branded
digital offering;
• creating integration between our home credit and
IPF Digital businesses to allow customers to move
seamlessly between models and generate incremental
profit; and
• create a centrally managed IT function with
• increasing investments in data to become a data-
appropriately balanced resourcing across home credit
and IPF Digital businesses;
led organisation.
• leverage Group-wide capabilities across the IPF Digital
technology platform;
• strengthen in-house capability and focus investment
on capabilities that bring competitive advantage;
• adopt an ‘open’ architecture approach in order to
facilitate future system developments and integration
with third parties;
John Mangelaars
Chairman
58
Directors’ report
Compliance
with the UK
Corporate
Governance Code
“The highest standards of
governance underpinned
by process and culture are
an absolute necessity.”
Dan O’Connor
Chairman
For our
statement of
overall
compliance
see page 44
A: Leadership
A.1: The role of the Board
The Board is responsible for the long-term success of
the business and for ensuring that it operates in the
best interests of all its stakeholders. It meets regularly
throughout the year providing leadership and
strategic direction. Our strategy and business model
can be found on pages 10 to 13. There is a formal
schedule of matters reserved specifically for decision
by the Board, published at www.ipfin.co.uk. Other
matters are delegated specifically to six principal
Board committees. The Chairman of each committee
briefs the Board at each meeting on the principal
items that were discussed, decisions made and key
issues. Their terms of reference are also available at
www.ipfin.co.uk and from the Company Secretary.
The day-to-day running of the business is delegated
to the Executive Committee. In 2016, this comprised
the Chief Executive Officer, the Chief Financial Officer
(until 30 September 2016), the Chief Commercial
Officer (until 23 February 2016) and the Interim Chief
Financial Officer (from 30 September 2016). The
Executive Committee met frequently during the year
to process a wide range of matters.
The Disclosure Committee met as required to
consider whether an announcement to the London
and Warsaw Stock Exchanges was required. During
2016, it comprised the Chief Executive Officer, the
Chief Financial Officer (until 30 September 2016), the
Chief Commercial Officer (until 23 February 2016),
the Interim Chief Financial Officer (from
30 September 2016) and the Company Secretary. It
met seven times.
Our governance framework extends to
operational activities, with decision-making
and oversight responsibilities delegated to a series
of Group governance committees, as shown in
‘Our Governance and oversight structure’ at
www.ipfin.co.uk.
A.2: Division of responsibilities
The Board has approved a statement of the
division of responsibilities between the Chairman
(see A.3 below), the Senior Independent Director
(see A.4 below) and the Chief Executive Officer.
The Chief Executive Officer is responsible for
developing and implementing the strategy
agreed by the Board and for all executive matters
(apart from those reserved to the Board and the
Board committees) and delegates accordingly.
A.3: The Chairman
The Chairman is responsible for chairing Board
meetings and monitoring their effectiveness, and
chairing the AGM and Nomination Committee.
The Chairman was independent on appointment.
The ongoing test of independence does not
apply to the Chairman.
A.4: Non-executive directors
The independent non-executive directors have
been appointed for a fixed period of three years,
subject to re-election by shareholders. The initial
period may be extended for a further period. Their
letters of appointment may be inspected at our
registered office and are available from the
Company Secretary. Each of the non-executive
directors has been formally determined by the
Board to be independent for the purposes of the
Code. In the case of Tony Hales, the Board
considered that notwithstanding the duration of
his tenure he continued to be independent in
character and judgement and that his
experience was invaluable to the Company.
International Personal Finance plc Annual Report and Financial Statements 2016
59
Corporate Governance Directors’ report continued
Tony Hales is the Senior Independent Director. He is
available to shareholders should they have concerns
which contact through the normal channels of
Chairman, Chief Executive Officer and Chief Financial
Officer has failed to address or for whom such contact is
inappropriate. The Senior Independent Director will review
the performance of the Chairman on an annual basis. In
carrying out this review, the Senior Independent Director
will consult with other Board members and consider the
relationship between the Chairman and the Chief
Executive Officer.
The Chairman has held a number of sessions with the
non-executive directors without executive directors
present, and the non-executive directors have met
without the Chairman.
Where directors have concerns about the running of the
Company, which cannot be resolved, these are recorded
in the Board minutes. No such concerns have been
raised during the period under review.
B: Effectiveness
B.1: The composition of the Board
At 31 December 2016, the Board comprised five non-
executive directors, one executive director and the
Chairman. A further executive director, Justin Lockwood,
joined the Board on 23 February 2017. Biographical
details and committee membership are shown on pages
46 and 47. Details of our diversity policy can be found in
the Nomination Committee report on page 51.
B.2: Appointments to the Board
There were no new appointments to the Board in 2016.
Further detail relating to the recruitment process
underway to find a new Senior Independent Director and
the appointment in 2017 of a new Chief Financial Officer
can be found in the Nomination Committee Report on
pages 50 and 51.
B.3: Commitment
Our policy is that the Chairman and the non-executive
directors should have sufficient time to fulfil their duties,
including chairing a Board Committee as appropriate. A
non-executive director should not hold more than four
other material non-executive directorships. If he/she holds
an executive role in another FTSE 350 company, he/she
should not hold more than two other material non-
executive directorships.
The Board has approved a policy on other directorships;
any request for an exception to this is considered on its
merits. An executive director will be permitted to hold one
non-executive directorship (and to retain the fees from
that appointment) provided that the Board considers this
will not affect his/her executive responsibilities adversely.
During his tenure as Chief Financial Officer, Adrian
Gardner was also a non-executive director of
Amdocs Limited.
The external commitments of the Chairman, Senior
Independent Director and non-executive directors have
been reviewed and the Board is satisfied that these do
not conflict with the commitment required of them to
the Company.
60
B.4: Development
Our policy is to provide appropriate training to
directors. Training takes into account each individual’s
qualifications and experience and includes
environmental, social and governance training as
appropriate. Training needs are reviewed annually
following the outcome of the Board evaluation process.
Training also covers generic and specific business topics
and in 2016 included presentations to the Board on
subjects including a strategic review of the business and
training on the new Market Abuse Regulation, which
came into effect on 3 July 2016, ensuring the Board is
cognisant of the current rules on disclosure. A
comprehensive, individually tailored induction plan is
prepared for new directors. The Board also visited the
businesses in Mexico and Poland and received updates
from the management teams in these markets.
Case study: The Board in Warsaw
In October, the Board visited our home credit and
digital businesses in Poland. Hosted by Country
Manager, David Parkinson, and his management
team, the Board gained a deeper insight into the
Polish home credit business, its current performance
and outlook for the future. The Board received
updates on the competitive and regulatory
environment in Poland. Discussion focused on the
team’s plans to create further value through the
continued development of Provident Direct and profit
optimisation initiatives. In an energetic three-hour
session in the afternoon, particular attention was
given to dissecting the key drivers of value. The Board
also visited the IPF Digital team based in Warsaw.
During their time with the digital team, the Board
heard presentations on our Hapiloans business, the
wider IPF Digital portfolio performance and strategy.
Non-executive director, Jayne Almond, commented:
“The enthusiasm of the Polish management teams
shone through. Debating issues directly with the
teams on the ground gave me a real feel for the
challenges they face and the opportunities open
to them.”
B.5: Information and support
All directors are able to consult with the Company
Secretary, who also updates the Board on developments
relating to governance on a regular basis. The
appointment and removal of the Company Secretary is a
matter for the Board. Ben Murphy, Group Legal Director
and Company Secretary, was Company Secretary
throughout 2016 and left IPF on 20 January 2017. The
Board is in the process of recruiting his replacement and
the role of Company Secretary is being undertaken by
Trudy Ellis in the interim. The Company Secretary is
secretary to the Board Committees (other than the
Disclosure Committee of which the Assistant Company
Secretary is secretary). Any director may take
independent professional advice at the Company’s
expense relating to the performance of his/her duties.
B.6: Board and committee evaluation
C.2: Risk management and internal control
In January 2016, the Board considered the output of the
2015 Board and committee evaluation. An action plan
was put in place and executed during 2016 to address
the main areas of development highlighted, which
related to: increased focus on longer-term strategic
issues; more concise financial reporting; regular
monitoring of ‘critical’ risks; and consideration of whether
the Board had the appropriate skill mix and level of
diversity and whether these were being leveraged
appropriately. The Board carried out an externally
facilitated evaluation of its performance in late 2016 led
by David Mensley of EquityCommunications Limited. An
external evaluation is required by the Code at least every
three years. Directors completed a questionnaire, the
results of which were collated and assessed by David
Mensley prior to his report being presented to the Board
in January 2017. The 2016 evaluation found no sense of a
board which lacked unity or reluctance to share feelings
or opinions and the Board members supported this
finding and considered it important. Areas for focus
continued to include communication of strategy and the
strength of the leadership team. These will form the basis
of our action plan for 2017.
B.7: Election/re-election
Under our Articles of Association, each director must offer
himself/herself for re-election every three years. After nine
years, a director, other than an executive director, must
offer himself/herself for re-election annually. A director who
is appointed initially by the Board is subject to election at
the next AGM. Consequently, Justin Lockwood will stand for
election at our AGM in 2017. In accordance with best
corporate governance practice, all other directors will offer
themselves for re-election again at our AGM in 2017.
Details of the directors, including their key strengths and
contribution, are shown on pages 46 and 47.
C: Accountability
C.1: Financial and business reporting
A statement of the directors’ responsibilities in relation to
the Financial Statements and the Group’s status as a
going concern is on page 70. The Group’s strategy and
business model, key performance indicators and relevant
risks are on pages 10 to 13, 20 to 21 and 37 to 43.
A statement confirming that the Board considers that the
Annual Report and Financial Statements, taken as a
whole, are fair, balanced and understandable and
provide the information necessary for shareholders to
assess the Company’s position, performance, business
model and strategy is on page 70.
The Board has carried out a robust assessment of the
principal risks facing the Company, including those that
would threaten our business model, future performance,
solvency or liquidity. Details can be found on pages 36 to
43. The Board determines the Company’s risk appetite
and has established risk management and systems of
internal control. On behalf of the Board, the Audit and
Risk Committee has monitored the Group’s systems of
internal control and its processes for managing principal
risks throughout 2016.
C.3: Audit Committee and auditors
The report of the Audit and Risk Committee is set out on
pages 52 to 56. This details its composition, role and
responsibilities, work during 2016, its interactions with the
external auditor and our policy regarding external auditor
tendering and rotation. The Committee’s terms of
reference are available at www.ipfin.co.uk.
D: Remuneration
D.1: The level and components of remuneration
Full details of the Company’s policy on remuneration are
contained in the Directors’ Remuneration Report.
For our
Directors’
Remuneration
Report
see pages
71-93
D.2: Procedure
Development of the policy on executive remuneration is
delegated to the Remuneration Committee. Details are
set out in the Directors’ Remuneration Report. No director
is involved in deciding his/her own remuneration.
E: Relations with shareholders
E.1: Dialogue with shareholders
The executive directors communicate with institutional
shareholders regularly. The Chairman and Senior
Independent Director also meet with shareholders from
time to time. The Chairman is responsible for ensuring
that appropriate channels of communication are
established between the executive directors and
shareholders and for ensuring that the views of
shareholders are made known to the entire Board. A
programme of investor engagement is in place and the
Board is updated on a regular basis. The Board is also
briefed regularly on shareholdings and we seek feedback
from major shareholders twice a year on their views on
strategy, performance and management.
The Board seeks to present IPF’s position and prospects
clearly. The Annual Report and Financial Statements,
circulars and announcements we make to the London
and Warsaw Stock Exchanges are posted on our website:
www.ipfin.co.uk.
Shareholders, whatever the size of their shareholding, are
able to express their views via email or telephone with the
Investor Relations Manager.
The Investors section of our website gives shareholders
and potential investors access to a wealth of Company
information. In 2016, we upgraded our website which is
now device responsive and so allows users easy access
on mobiles, tablets and PCs.
International Personal Finance plc Annual Report and Financial Statements 2016
61
Corporate Governance Directors’ report continued
Case study: Investor engagement
We undertook an active programme of investor
engagement in 2016. 480 connections were made
with current and potential investors through face-to-
face meetings, conference calls, email dialogue,
web casts, roadshows, conferences and results
presentations. Key topics included performance,
regulation, competition, funding and IPF Digital. The
Chairman and Senior Independent Director held a
private lunch for major shareholders in November,
which was attended by seven fund managers and a
constructive discussion covered performance in
Mexico, succession planning and our digital strategy.
In September and October, we sought shareholder
views on our proposed 2017 Directors’ Remuneration
Policy. Subsequently, a number of individual
discussions were held between shareholders and
the Chair of the Remuneration Committee. Initial
feedback focused on deferral levels and proposals
around outperformance. This engagement helped
us refine the proposed policy, which can be found
in the Directors’ Remuneration Report on pages
71 to 93.
E.2: Constructive use of general meetings
We give at least 20 working days’ notice of the AGM.
Our policy is that the Chairman of each of the Board
committees will be available to answer questions from
shareholders and there is an opportunity for shareholders
to ask questions on each resolution proposed. Details of
proxy votes are made available to shareholders and
other interested parties by means of an announcement
to the London Stock Exchange, the Warsaw Stock
Exchange and on our website.
Shareholders are invited each year to the AGM. Our 2017
AGM will be held at 10.30am on Wednesday 3 May 2017
at International Personal Finance plc, Number Three
Leeds City Office Park, Meadow Lane, Leeds LS11 5BD. An
explanation of the items of business will be contained in
the Notice of Annual General Meeting 2017 to be sent to
shareholders and dated 21 March 2017.
Other disclosures
In addition to the Code, we are required to comply with the Companies Act 2006, the Disclosure Guidance and
Transparency Rules and the Listing Rules. Where not covered elsewhere, these requirements are covered in this section.
Listing Rule 9.8.4R disclosures
You can find the disclosures required under the Financial Conduct Authority’s Listing Rule 9.8.4R in the sections of the
Annual Report and Financial Statements shown below:
Listing Rule 9.8.4R
Disclosure required
Cross-reference
(1)
(2)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12) and (13)
(14)
Not applicable
Interest capitalised and related tax relief
Not applicable
Publication of unaudited financial information
Not applicable
Details of long-term incentive schemes
Not applicable
Waiver of emoluments by a director
Not applicable
Waiver of future emoluments by a director
Non-pre-emptive issues of equity for cash
Not applicable
Non-pre-emptive issues of equity for cash by major subsidiary undertakings Not applicable
Not applicable
Parent participation in a placing by a listed subsidiary
Page 67
Contracts of significance
Not applicable
Provision of services by a controlling shareholder
Not applicable
Shareholder waiver of dividends
Not applicable
Statement by the Board
62
Voting
There are no restrictions on voting rights except as set out
in the Articles (in circumstances where the shareholder
has not complied with a statutory notice or paid up what
is due on the shares).
Alteration of share capital and variation of rights
Sub-division: any resolution authorising the Company to
sub-divide its shares, or any of them, may determine that,
as between the shares resulting from the sub-division, any
of them may have any preference or advantage or be
subject to any restriction as compared with the others.
Fractions: whenever as a result of a consolidation,
consolidation and sub-division or sub-division of shares
any holders would become entitled to fractions of a
share, the Board may deal with the fractions as it thinks fit
including by aggregating and selling them or by dealing
with them in some other way.
Variation of rights: subject to the provisions of the
Companies Act, all or any of the rights attached to any
existing class of shares may from time to time be varied
either with the consent in writing of the holders of not less
than three-quarters in nominal value of the issued shares
of that class (excluding any shares of that class held as
treasury shares) or with the sanction of a special
resolution passed at a separate general meeting of the
holders of those shares.
Profit and dividends
Our policy is to adopt a progressive dividend policy,
reflecting the profitability of the Group’s businesses
together with its capital and cash flow requirements, to
target a pay-out ratio of 35% of earnings.
Details of the proposed final dividend for 2016 payable in
2017 can be found on page 33. Details of past dividend
payments can be found on page 136.
Incorporation and constitution
International Personal Finance plc is registered in
England and Wales under Company Number 6018973.
Our Articles of Association (the ‘Articles’) may only be
amended by a special resolution at a general meeting of
shareholders and are available online at www.ipfin.co.uk,
by writing to the Company Secretary or from Companies
House in the UK.
Share capital
Details of our share capital are shown in note 27. On
31 December 2016, there were 234,244,437 ordinary
shares of 10 pence each in issue. No shares were issued
during the year. None were bought back, transferred to
treasury or cancelled.
The ordinary shares can be held in certificated or
uncertificated form.
Shareholders’ rights and obligations
The full rights and obligations attached to the Company’s
ordinary shares, in addition to those conferred on their
holders by law, are set out in our Articles. A summary of
those rights and obligations can be found below.
Restrictions on shareholders’ rights
Subject to any rights attached to existing shares, any
share may be issued with or have attached to it such
rights and restrictions as the Company may decide by
ordinary resolution or, if no such resolution has been
passed or so far as the resolution does not make specific
provision, as the Board may decide. Such rights and
restrictions shall apply to the relevant shares as if the
same were set out in the Articles.
Restrictions on holding securities
No person shall be recognised by the Company
as holding any share upon any trust.
Transfer
There are no restrictions on the transfer (including
requirements for prior approval of any transfers) or
limitations on the holding of ordinary shares subject
to the fact that the Board may refuse to register the
transfer of:
• a partly-paid share;
• an uncertificated share in the circumstances set out in
the Uncertificated Securities Regulations 2001; and
• a certificated share if a duly executed transfer is not
provided together with any necessary document
of authority.
International Personal Finance plc Annual Report and Financial Statements 2016
63
Corporate Governance Directors’ report continued
Interests in voting rights
As at 31 December 2016, we had been notified, pursuant to the Disclosure Guidance and Transparency Rules, of the
following notifiable voting rights in our issued share capital.
Name1
Standard Life Investments (Holdings) Limited
FIL Limited
FMR LLC
Norges Bank
Marathon Asset Management LLP
Franklin Templeton Investments Ltd
Aberforth Partners LLP
Old Mutual Asset Managers (UK) Ltd
Schroders plc
BlackRock, Inc.
Investec Asset Management Ltd
Oppenheimer Funds Inc/Baring Asset Management Ltd
BNP Paribas Investment Partners
Voting rights
24,761,883
14,008,597
11,682,426
11,353,366
12,841,168
12,062,651
11,605,513
12,547,167
12,287,572
11,670,102
8,995,482
7,769,836
7,017,954
% of issued share
capital2
11.13
6.31
5.28
5.10
5.01
5.01
5.01
4.88
4.77
4.54
3.50
3.02
3.02
Nature of holding
Direct/Indirect
Indirect
Indirect
Direct
Indirect
Indirect
Indirect
Direct/Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Between 1 January and 28 February 2017, we were notified pursuant to the Disclosure Guidance and Transparency
Rules of the following notifiable voting rights in our issued share capital.
Name1
Standard Life Investments (Holdings) Limited
Voting rights
26,355,459
% of issued share
capital2
11.85
Nature of holding
Direct/Indirect
1. The holdings set out in the tables above relate only to those institutions which have notified us of an interest in our issued share capital and the information
is based on the last notification received.
2. The percentage of issued share capital in the table above is based on the Company’s issued share capital at the point of notification.
Agreements on change of control
We do not have any agreements with any director or employee that would provide compensation for loss of office or
employment resulting from a takeover.
We are not party to any significant agreements that would take effect, alter or terminate upon a change of control
following a takeover bid, apart from:
• our bank facility agreements, which provide for a negotiation period following a change of control and the ability of
a lender to cancel its commitment and for outstanding amounts to become due and payable;
• our Euro Medium Term Note1 programme, which entitles any holder of a Note to require us to redeem such holder’s
Notes if there is a change of control and, following such change of control, the Notes are downgraded;
• our Polish Medium Term Note2 programme, which entitles any holder of a Note to require the issuer to redeem such
holder’s Notes if there is a change of control and, following such change of control, the Euro Medium Term Notes are
then downgraded (or if no such Notes are then outstanding, in certain other circumstances); and
• provisions in our share incentive plans may cause awards granted to directors and employees to vest on a takeover.
1. The Euro Medium Term Note programme was established in 2010. The following Notes (listed on the London or Irish Stock Exchanges) have been issued
under the programme and are outstanding as at the date of this report: Hungarian forint 4 billion issued in January 2013 with a five-year term and an
11.0% coupon; sterling 101.5 million issued in May 2013 and November 2013 with a seven-year term and a 6.125% coupon; Czech crown 250 million issued
in November 2013 with a five-year term and a 5.25% coupon; euro 300.0 million issued in April 2014 with a seven-year term and a 5.75% coupon; euro
40.0 million issued in May 2014 with a four-year term and a 4.25% coupon; euro 100 million ‘tap’ of our existing Eurobond issued in April 2015 with a six-year
maturity and a 5.75% coupon; Czech crown 200 million issued in December 2015 with a three-year term and a 5.5% coupon; Romanian lei 43.5 million and
22.0 million bonds issued in December 2015 with a three-year term and a 7.0% coupon; and Romanian lei 79.5 million bond issued in December 2016 with
a three-year term and a 8.0% coupon (listed on the Irish Stock Exchange).
2. Under the Polish Medium Term Note programme, a subsidiary company, IPF Investments Polska Sp. z o.o., issued 200 million Polish zloty Notes which are listed
on the Warsaw Stock Exchange; they mature on 3 June 2020 and the coupon is a floating rate of six-month WIBOR plus a margin of 425 basis points.
64
Employees
Employee engagement is key to our People Strategy
and we survey employees across the Group annually to
understand their views. In 2016, we carried this out in
conjunction with Gallup. 78% of employees across the
Group completed the survey. Overall, the results showed
a marginal improvement in overall engagement over the
previous year which was pleasing especially given the
level of change in the business. The area which showed
the highest increase in score was recognition of the work
performed by colleagues. This demonstrated to us that
not only do our teams work hard to support each other,
they are also appreciative of the support they receive.
Results were fed back to all our teams and action plans
developed in conjunction with them as part of our
continued commitment to empower our people.
We update employees on matters that concern them via
staff meetings and our intranet and, where appropriate,
seek feedback on decisions that affect their interests. Our
‘Ask Gerard/Tell Gerard’ process gives employees a direct
communication channel with our CEO. We also update
employees on financial and economic factors impacting
the Company and management promotes a culture
where two-way communication is encouraged.
Employees are able to participate in our equity share
incentive schemes which are shown on page 66.
We encourage employees to take part in our SAYE
Scheme, as a way of involving them in the
Company’s performance.
Information on the Group’s employment policies is given
on page 68, and on the gender split across the Group at
31 December 2016 on page 23.
Appointment and removal of directors
The Board may appoint any person as a director of the
Company to hold office until the next AGM, when they
may stand for re-election by shareholders. Under the
Articles, directors retire by rotation on a three-yearly basis.
However, in line with the Code, all directors of the
Company stand for re-election annually.
Directors’ powers
Authority to purchase shares
At the 2016 AGM, we received shareholder authority to
buy back up to 22,100,898 of our own shares until the
earlier of the conclusion of the 2017 AGM or 30 July 2017.
Any ordinary shares so purchased could be cancelled or
held in treasury. This authority was not exercised in 2016. A
further authority to purchase our own shares will be
sought at the 2017 AGM.
Power to allot securities and pre-emptive rights
As at 31 December 2016, the directors had authority
to allot further securities up to an aggregate nominal
amount of £7,366,000 and, broadly, up to a further
£7,366,000 for a rights issue. Further authorities will be
sought at the 2017 AGM including the disapplication of
pre-emption rights in certain circumstances.
Borrowing powers and other restrictions
The directors are responsible for the management of
the Company and may exercise all the powers of the
Company, subject to the provisions of the relevant
statutes and our Articles. For example, our Articles contain
specific provisions and restrictions regarding IPF’s powers
to borrow money; provisions relating to the appointment
of directors, subject to subsequent shareholder approval;
delegation of powers to a director or committees; and,
subject to certain exceptions, a director shall not vote on
or be counted in a quorum in relation to any resolution of
the Board in respect of any contract in which he/she has
an interest which he/she knows is material.
Directors’ conflicts of interest
To take account of the Companies Act 2006, the directors
adopted a policy on conflicts of interest and established
a register of conflicts. The directors consider that these
procedures have operated effectively in 2016 and up to
1 March 2017.
Directors’ indemnities and insurance
Our Articles permit us to indemnify our directors (or those
of any associated company) in accordance with the
Companies Act 2006. However, no qualifying indemnity
provisions were in force in 2016 or at any time up to
1 March 2017 other than under the International Personal
Finance plc Pension Scheme (the ‘Pension Scheme’).
Under the deed establishing the Pension Scheme, we
grant an indemnity to the trustee and the directors of the
trustee. Two of these directors are directors of subsidiaries
of IPF.
We have appropriate Directors’ and Officers’ liability
insurance in place.
Financial instruments
Information on financial instruments is given on pages
34 and 35 and in notes 20, 21 and 22 to the Financial
Statements on pages 119 to 127.
International Personal Finance plc Annual Report and Financial Statements 2016
65
Corporate Governance Directors’ report continued
Share incentives
Equity incentive schemes
The Company currently operates six equity incentive schemes. Details of individual grants to directors made in 2016 are set out in the
Directors’ Remuneration Report on pages 91 to 92. The schemes are as follows:
Scheme
Abbreviated name
Eligible participants
The International Personal Finance plc
Approved Company Share Option Plan
The International Personal Finance plc
Deferred Share Plan
The International Personal Finance plc
Have Your Share Plan
The International Personal Finance plc
Performance Share Plan
The International Personal Finance plc
Employee Savings-Related Share Option Scheme
The International Personal Finance plc
Discretionary Award Plan
Details of outstanding awards are as follows:
CSOP
Deferred
Share Plan
Have Your
Share Plan
Performance
Share Plan
SAYE Scheme
Discretionary
Award Plan
Executive directors and
senior managers
Executive directors
and senior managers
Overseas employees
Executive directors and
senior managers
Executive directors and
UK employees
Employees other than
executive directors
Scheme
CSOP
Deferred Share
Plan
Have Your Share
Plan
Performance Share
Plan
SAYE Scheme
Discretionary Award
Plan
Awards
outstanding at
31 December
2015
Awards
lapsed
in 2016
Awards
exercised/ vested
in 2016
Awards
outstanding at
31 December
Exercise price
Normal exercise/vesting
Awards
exercised/
vested from
1 January to
2016
(if any)
date
28 February 2017
213,812
(89,973)
(9,783)
390,626
208p – 636p
1,490,878
(161,492)
(448,803)
1,314,751
309,257
(55,478)
–
253,779
4,420,849
(999,869)
(1,071,111)
4,329,193
–
–
–
407,587
(289,017)
(16,214)
433,509
187p – 509p
23 Jul 2013 –
22 Mar 20261
24 Mar 2014 –
22 Mar 2026
2 June 2017 –
2 September 2018
23 Jul 2013 –
22 Mar 20261
01 Oct 2015 –
30 Apr 20222
8 May 2018 –
–
–
–
(5,391)
–
120,000
–
–
320,000
–
5 September 2019
–
1. Half of the awards that vest are not released for a further year.
2. Exercise dates vary depending on whether the employee has chosen a three, five or seven-year savings contract.
66
Budgetary process and
financial reporting
The Board approves a detailed budget each year
(usually in December) for the year ahead. Actual
performance against budget is monitored regularly and
reported monthly for review by the directors. The Board
requires its subsidiaries to operate in accordance with
corporate policies.
The Financial Statements for the Group are prepared by
aggregating submissions from each statutory entity. Prior
to submission to the Group reporting team, each country
submission is reviewed and approved by the Finance
Director of the relevant country. When the submissions
have been aggregated and consolidation adjustments
made to remove intercompany transactions, the
consolidated result is reviewed by the Chief Financial
Officer. The results are compared with the budget and
prior year figures, and any significant variances are
clarified. Checklists are completed by each statutory
entity and by the Group reporting team to confirm that all
required controls, such as key reconciliations, have been
performed and reviewed.
The Financial Statements, which are agreed directly to
the consolidation of the Group results, are prepared by
the Group reporting team and reviewed by the Group
Finance Controller and the Chief Financial Officer. The
supporting notes to the Financial Statements are
prepared by aggregating submission templates from
each market and combining them with central
information where applicable. The Financial Statements
and all supporting notes are reviewed and approved by
the Chief Financial Officer and they are signed by the
Chief Executive Officer and the Chief Financial Officer.
Employee benefit trust
We operate two employee trusts with an independent
trustee, Capita Trustees Limited, to hold shares pending
employees becoming entitled to them under our equity
incentive schemes. On 31 December 2016, the trustees
held 528,160 shares in IPF. The trusts waive their dividend
entitlement and abstain from voting at general meetings.
Shares to be acquired through our share plans rank pari
passu with the shares in issue and have no special rights.
Other external stakeholders
Supplier policy statement
We agree terms and conditions for our business
transactions with suppliers and payment is made in
accordance with them, subject to the terms and
conditions being met by the supplier. IPF acts as a
holding company and had no material trade creditors at
31 December 2016. The average number of days’ credit
taken by the Group during the year was 27 days
(2015: 18 days).
Key contracts and other arrangements
This information is given pursuant to Section 417(5)(c) of
the Companies Act 2006. Our trading subsidiaries have
entered into contracts with their agents, who are self-
employed. The exception to this is Hungary and Romania
where agents are employed for regulatory reasons.
Certain Group companies have entered into agreements
with Fujitsu Services Limited, HCL Great Britain Limited,
Mastek UK Limited, T-Mobile Polska S.A. and KIO Networks
in relation to IT services provided to the Group.
The Group’s activities in the Czech Republic, Poland,
Mexico and Spain are subject to general trade licences
only, as opposed to any licensing or supervision by a
financial authority. In Romania and Lithuania, the
business is included in a register of credit providers
maintained by the respective National Bank and in
Finland by the Regional State Administrative Agency of
South Finland. The Group’s operations in Bulgaria,
Hungary and Slovakia are subject to an operating
licence issued by the respective National Bank and in
Estonia to a licence by the Financial Supervision Authority
and in Latvia to a licence by the Consumer Rights
Protection Centre. The business in Australia holds a credit
licence issued by the Australia Securities and Investment
Commission (Australia). A licensing regime was
introduced in the Czech Republic in 2016 and the
business in the Czech Republic has submitted its
application for a licence to the Czech National Bank.
Whistle-blowing
We have a third-party whistle-blowing service in
operation. This allows employees to raise issues of
concern about possible improprieties in matters of
financial reporting or other matters on a confidential and,
if preferred, anonymous basis. Reports are received on
any matters raised through these services and we
monitor their use throughout the Group.
Anti-bribery policy
The Group is committed to conducting its affairs so as to
combat bribery and corruption. The Group’s trading
activities must be conducted with honesty and integrity
and in accordance with the law, ensuring that the Group
is compliant with anti-bribery and/or anti-corruption
legislation of any jurisdiction applicable from time to time
to any Group company. The Group operates controls and
procedures to ensure that no one acting on its behalf:
• offers, promises or gives a bribe;
• requests, agrees to accept or receives a bribe; nor
• bribes a public official to obtain or retain business or
an advantage.
International Personal Finance plc Annual Report and Financial Statements 2016
67
Corporate Governance Directors’ report continued
All companies, employees and agents are required to
comply with the relevant anti-bribery and corruption
legislation in their markets. In addition, because of the
extra-territorial application of the UK Bribery Act 2010
overseas subsidiaries, their employees and agents are
also required to comply with the provisions of this Act.
Human rights, diversity and modern slavery
Our approach to human rights and diversity is outlined
on page 23. Our statement on the Modern Slavery Act
2015 is available on our website at www.ipfin.co.uk.
Report on environment, social and
governance (‘ESG’) matters
The Board takes regular account of the significance
of ESG matters to the Group and has identified
and assessed the significance of ESG risks to the
Company’s short and long-term value as part of the risk
management process. It recognises that a proactive
programme of reputation management through a range
of progressive, responsible business initiatives adds to
the sustainable long-term value of the Company.
Responsibility for this area rests with the Chief Executive
Officer who sits on the Reputation and Regulation
Committee, which sets guidance, provides direction
and oversees policies and progress in ESG matters. Key
ESG issues that impact our stakeholders are: business
ethics; public perception and ensuring that work with
communities is relevant; social and financial exclusion;
health and safety; and attracting and retaining skilled
and well-motivated people. Corporate affairs activity,
health and safety, people management and business
ethics issues were all discussed at Board meetings in
2016. The Board has received adequate information to
make an assessment against ESG risks.
There is a range of appropriate corporate standards,
policies and governance structures covering all
operations. The Group is an equal opportunities employer.
It is our policy that no job applicant, member of staff or
agent will receive less favourable treatment because of
race, colour, nationality, ethnic or other national origin,
gender, sexual orientation, marital status, age, disability
or religion. The aim of this policy is to ensure recruitment
and progression is based purely on merit and that all
employees have the same access to training and career
development opportunities.
During 2016, we continued to build on the success of our
business ethics programme with a focus on
communications and training around our Code of Ethics.
99% of employees completed business ethics training
and in 2016, this training has been extended to our
agents and 85% of agents completed it successfully.
The training, which utilises ethical dilemmas that
our employees and agents may face, ensures that
employees and agents are fully aware of our business
ethics programme and Code of Ethics. Our Code of
Ethics is available on our website at www.ipfin.co.uk.
We view the health and safety of our employees, agents
and other people who may be affected by our activities
as a key strategic priority. Our arrangements for safety
have been assessed independently against OHSAS
18001 and all home credit markets, including Group
head office, were certified as compliant. The framework is
overseen by the Group Loss Prevention Committee, which
reports annually to the Board by means of a written
report. Each subsidiary board is responsible for the
implementation of its own health and safety policy, and
health and safety is considered regularly at Group Board
meetings. In 2016, we successfully implemented Helplines
in all home credit markets to provide support and
guidance for agents and staff concerned about their
safety or wellbeing.
Community investment activity is focused on the needs
of the communities we serve and we utilise London
Benchmarking Group (LBG) methodology to measure
this investment.
In terms of charitable donations in 2016, we invested
£488,878 in local communities across the Group
(2015: £571,284). This represents 0.53% of our profit before
tax. 48% of our community investment focused on
education and 23% on social welfare. 2,740 employees
volunteered in Company time (2015: 3,408), representing
30% of all employees, and they donated 3,545 hours
(2015:11,301). 2,484 employees also volunteered in their
own time and have raised a further £46,208 for
community investment purposes.
No political donations were made.
When setting incentives, the Remuneration Committee
takes account of all implications, including the need to
avoid inadvertently motivating inappropriate behaviour.
In setting performance targets account is taken of ESG
risks. Details of the bonus scheme are set out in the bonus
section of the statement of the Company’s policy on
directors’ remuneration in the Directors’ Remuneration
Report. ESG matters are taken into account in the training
of directors.
68
Carbon reporting
We have reported on the carbon emissions sources required under the Companies Act 2006 (Strategic Report and
Directors’ Report) Regulations 2013. Our emissions data has been calculated in line with the Greenhouse Gas (‘GHG’)
Protocol Corporate Accounting and Reporting Standard, and we have used emissions factors from the UK
Government’s Greenhouse Gas Conversion Factor Repository and the International Energy Agency (‘IEA’). The
emissions data covers our operations in the UK, Poland, the Czech Republic, Hungary, Slovakia, Mexico, Romania,
Bulgaria and Lithuania. Limited emissions data are available from our digital markets. However, we are working to bring
reporting in line with our Environmental Management System. Where available data is incomplete, we have
extrapolated data.
Carbon emissions sources
Travel & utilities
Scope 1
Scope 2
Gas
Business travel by car
Purchased electricity
Scope 1 and 2
CO2e emissions by customer
2013
624
24,267
5,280
30,171
0.013
2014
918
23,996
5,116
30,030
0.012
Tonnes CO2e
2015
771
25,490
4,040
30,301
0.012
2016
% change
687
27,013
3,466
31,166
0.012
(10.9)%
6.0%
(14.2)%
2.9%
(0.3)%
Total CO2 emissions 2016 (Tonnes CO2e)
2016 carbon reporting outcomes
3,466
687
27,013
Gas
Business travel by car
Purchased electricity
In 2016, our GHG emissions for scope 1 and 2 increased
by 2.9%. When normalised by customer number, our
scope 1 and 2 GHG emissions fell by 0.3% compared with
2015 and 12.7% compared with our base-year 2013.
Business travel by car increased by 6% due largely to the
fact that data now includes car travel of agents in our
Romanian and Hungarian markets where agents are
employees of the business.
Our carbon emissions report has been reviewed by
Ricardo Energy & Environment. We aim to further improve
our environmental data collection and management
system considering recommendations provided by
Ricardo Energy & Environment.
Full information on ESG matters and how these are managed can be found in the sustainability section of our website:
www.ipfin.co.uk.
International Personal Finance plc Annual Report and Financial Statements 2016
69
Corporate Governance Directors’ statements
Annual Report and financial
statements
International Personal Finance plc presents its own
Annual Report and its Consolidated Annual Report
as a single Annual Report.
Directors’ responsibilities in relation to the
Financial Statements
The directors are responsible for preparing the Annual
Report and Financial Statements in accordance with
applicable law and regulations.
Company law requires the directors to prepare Financial
Statements for each financial year. Under that law, the
directors are required to prepare the Group Financial
Statements in accordance with International Financial
Reporting Standards (‘IFRSs’) as adopted by the European
Union and Article 4 of the International Accounting
Standard (‘IAS’) Regulation and have also chosen to
prepare the Parent Company Financial Statements under
IFRSs as adopted by the European Union. Under company
law, the directors must not approve the Financial Statements
unless they are satisfied that they give a true and fair view of
the state of affairs of the Company and of the profit or loss
of the Company for that period. In preparing these
Financial Statements, IAS 1 requires that directors:
• properly select and apply accounting policies;
• present information, including accounting policies,
in a manner that provides relevant, reliable,
comparable and understandable information;
• provide additional disclosures when compliance with the
specific requirements in IFRSs are insufficient to enable
users to understand the impact of particular transactions,
other events and conditions on the entity’s financial
position and financial performance; and
• make an assessment of the Company’s ability to
continue as a going concern.
The directors are responsible for keeping adequate
accounting records that are sufficient to show and explain
the Company’s transactions and disclose with reasonable
accuracy at any time the financial position of the
Company and enable them to ensure that the Financial
Statements comply with the Companies Act 2006. They
are also responsible for safeguarding the assets of the
Company and the Group and hence for taking
reasonable steps for the prevention and detection of
fraud and other irregularities.
The directors are responsible for the maintenance and
integrity of the corporate and financial information included
on the Company’s website. Legislation in the UK governing
the preparation and dissemination of Financial Statements
may differ from legislation in other jurisdictions.
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; Jayne Almond, non-executive director; John
Mangelaars, non-executive director; Richard Moat,
70
non-executive director; and Cathryn Riley, non-
executive director.
To the best of each director’s knowledge:
a. the Financial Statements, 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;
b. the Strategic 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; and
c. the Annual Report and Financial Statements, taken
as a whole, are fair, balanced and understandable and
provide the information necessary for shareholders to
assess the Company’s position and performance,
business model and strategy.
Statement of the directors in respect of the
Annual Report and Financial Statements
review process
The Board came to this view following a rigorous review
process throughout the production schedule. The
statements are drafted by appropriate members of the
reporting and leadership teams and co-ordinated by the
Investor Relations Manager to ensure consistency. A series
of planned reviews are undertaken by the reporting team,
leadership team and directors. In advance of final
consideration by the Board, they are reviewed by the
Audit and Risk Committee.
Disclosure of information to the auditor
In the case of each person who is a director at the date of this
report, it is confirmed that, so far as the director is aware, there
is no relevant audit information of which the Company’s auditor
is unaware; and he/she has taken all the steps that ought to
have been taken as a director in order to make himself/herself
aware of any relevant audit information and to establish that
the Company’s auditor is aware of that information.
Going concern
The Board statement on its adoption of the going concern
basis in preparing these Financial Statements is given on
page 35.
The Board’s review of the system of internal control
The Board is responsible for the Group’s overall approach to
risk management and internal control and, on the advice of
the Audit and Risk Committee, has reviewed the Group’s risk
management and internal controls systems for the period
1 January 2016 to the date of this Annual Report and Financial
Statements, and is satisfied that they are effective.
By order of the Board
Trudy Ellis
Company Secretary
1 March 2017
Directors’ remuneration report continued
“Our goal has been to
deliver simplification,
fairness and shareholder
alignment.”
Cathryn Riley
Chair of the Remuneration Committee
Remuneration Committee
composition (%)
100
Committee members
Cathryn Riley – Chair and
independent non-executive director
Tony Hales – Senior independent
non-executive director
Jayne Almond – Independent
non-executive director
Richard Moat – Independent
non-executive director
Independent non-executive directors
Dear shareholder
I am pleased to present the Directors’
Remuneration Report for the year ended
31 December 2016 on behalf of the
Board. This remuneration report is split into
two sections:
• Our new Directors’ Remuneration Policy
(‘2017 Policy’) which is preceded by a
table on pages 74 and 75 summarising
changes made from the outgoing
policy; and
• The Annual Remuneration Report
providing detail of amounts paid
during the reporting year including
incentive outcomes.
On behalf of the Committee I would like
to thank those shareholders who took the
time to provide feedback during the
consultation process on the direction of
our 2017 Policy.
2016 objectives
2016 progress
2017 objectives
• Thorough review of Directors’
• 2017 Policy designed to support our
• Obtain formal shareholder approval of
Remuneration Policy ahead of
shareholder vote at the 2017 AGM.
• Review and simplify long-term
incentives in light of expiry of the
Performance Share Plan (‘PSP’)
in 2017.
• Re-tender of independent
remuneration advisors.
strategic priorities, taking into account
shareholder feedback and evolving
best practice.
• Extensive engagement with
shareholders during the remuneration
policy consultation process.
• Simplification of the existing incentive
framework, including a new PSP.
• Appointment of Willis Towers Watson as
independent remuneration advisor to
the Committee.
the 2017 Policy at the 2017 AGM.
• Implement the 2017 Policy.
• Continue to monitor evolving market and
best practice.
International Personal Finance plc Annual Report and Financial Statements 2016
71
Corporate Governance Directors’ remuneration report continued
Overview
Role
The Committee’s terms of reference are available on our
website and some of the key responsibilities include:
• approving the remuneration policy and its application
for the executive directors, the Chairman and senior
management, for recommendation to the Board;
• engaging with major shareholders on matters related
to remuneration; and
• determining appropriate performance targets and
incentive outcomes
Composition
The Committee comprises four independent non-
executive directors and the quorum for decision making
is two members.
Business context – 2016 performance
In 2016 we have faced a number of operational and
regulatory challenges which have impacted the business,
our financial performance and the experience of
shareholders. The Committee has been cognisant of this
during both the policy review process and in considering
the remuneration outcome for our executive directors in
respect of performance in 2016.
Our operational performance and the financial review of
2016 is discussed on pages 24 to 35 and includes some
of the key financial metrics that we use to incentivise
executive directors to deliver our strategy, including profit
before tax, revenue less impairment and earnings per
share (‘EPS’). Headlines include:
• profit before tax of £92.6 million which is lower than
2015 reflecting lower home credit profit and higher
investment in IPF Digital offset partially by a positive
FX impact;
• revenue less impairment of £575.9 million being higher
than 2015 due to the larger receivables balance; and
• EPS decreased to 30.2 pence from 37.1 pence in 2015
as a consequence of the reduction in profit.
Incentive outcomes for 2016
The 2016 incentive outcomes reflect the performance
picture outlined above and the recent erosion of
shareholder value as a consequence of proposed
revisions to consumer credit regulation in Poland.
Consequently the portion of 2014 Deferred Share Plan
(‘DSP’) matching awards and the portion of Performance
share Plan (‘PSP’) awards contingent on total shareholder
return (‘TSR’) performance will lapse in full.
Annual bonus – 50% of total opportunity in 2016 was
subject to the achievement against target of profit before
tax and 50% on the achievement of personal objectives.
The award for achievement of personal objectives being
conditional upon the achievement of the
financial measures.
In line with guidance provided previously, profit was
expected to be below 2015 and targets for 2016 were
calibrated accordingly. Against the agreed target range,
profit before tax of £92.6 million was above threshold but
below the target level. However, taking into account the
aforementioned recent value erosion the Committee
exercised its discretion to limit the pay-out to the threshold
opportunity of 20% of maximum in respect of both
financial and non-financial performance. This resulted in
a total bonus payable of 16% of maximum opportunity,
with 10% achieved in respect of financial measures and
6% achieved in respect of personal performance. Further
narrative regarding performance against personal
objectives set are on page 85. Under the DSP,
two thirds of bonus is payable in shares and deferred for
three years.
Long-term investment plan (‘LTIP’) – the portion of 2014
DSP matching awards and 2014 PSP awards contingent
on TSR performance will lapse in full. The remaining
two-thirds of those awards were contingent on EPS and
revenue less impairment growth in the financial years
2014, 2015 and 2016 as follows:
• 1/3 on cumulative EPS growth performance of 6% to
15% p.a. (actual achieved 6.57% p.a.); and
• 1/3 on growth in revenue less impairment performance
of 5% to 12% p.a. (actual achieved 6.42% p.a.)
As a consequence of EPS and growth in revenue less
impairment being above threshold 23.29% of the 2014
DSP matching share awards and 2014 PSP awards have
vested (see page 86 for details).
Overall this has resulted in a single figure for remuneration
for 2016 which is 36% lower than 2015 which the
Committee feels is appropriate and balances the
Company results and shareholder experience.
Activities in 2016
Treatment of leavers
David Broadbent and Adrian Gardner resigned from the
Board in February 2016 and September 2016 respectively.
In accordance with the Company’s remuneration policy,
the Committee took David Broadbent’s long service and
significant contributions into account and exercised its
discretion to permit him to retain his existing share awards
on a pro rata basis. All existing awards in respect of
Adrian Gardner lapsed in full on cessation of his
employment. Neither of the former executive directors
received any incentive payment in respect of 2016.
Further details including the rationale for the respective
treatment are set out in the Annual Remuneration Report.
Supporting our business needs and strategy with
a revised Directors’ Remuneration Policy
During the year the Board has continued to embed
the Group strategy to deliver growth and returns in a
changing consumer, regulatory and competitive
environment. As described earlier on pages 10 to 11,
we have taken an approach to our strategy which
reflects the fact that our operations are at different
stages of maturity. In the context of this evolved strategy,
we reviewed our remuneration policy to ensure that
we continue to have the right incentives to support
its delivery.
The Committee determined during the course of the
policy review that there was a need to make changes to
the current executive director remuneration framework
to facilitate simplification, to increase its alignment with
shareholder interests and to place more focus on
financial business priorities.
72
Shareholder engagement
Before any changes to the 2017 Policy were finalised,
the Committee consulted with our major shareholders
and their representative bodies regarding our
proposals. Strong support was noted for:
• removal of matching awards;
• extension of the holding period;
• a decrease in the weighting of personal objectives
for the annual bonus; and
• increased simplicity.
We also listened to areas of concern and included in
our final policy changes:
• mandatory annual bonus deferral of 50%; and
• amended annual bonus and PSP opportunity levels
to balance the lost opportunity of the matching
award against sensitivities regarding increases
in opportunity.
Further to these changes, the 2017 Policy being
presented to shareholders for approval reduces
both on target and total incentive opportunity from
the levels under our current policy (‘2014 Policy’)
from 258% to 255% (target) and from 292% to
290% (maximum).
Both the Committee and Board strongly believe
that the final proposals maintain a strong pay-for-
performance relationship and are designed to
best serve the Company’s future ambitions by
incentivising our executive directors and the wider
senior management team to return value to you,
our shareholders.
New remuneration policy – key changes
Annual bonus
• Reduction of target level from 80% to 65% without
any increase in maximum opportunity. Removal
of threshold.
• An increase in the weighting of financial and
strategic metrics versus personal objectives to 80:20
(from 50:50).
• A reduction in the bonus deferral to 1/2 of the
bonus earned (2/3 previously).
Pension
• Contributions will be reduced from 20% to 15% of base
salary in respect of any new appointments to align with
the wider workforce.
Key decisions for 2017
The proposed 2017 Policy applies to awards granted
from its approval at the AGM onwards. Under this policy
the Company can honour all pre-existing incentive
award obligations and commitments that were entered
into before the 2017 Policy takes effect and remain
eligible to vest subject to their original terms.
The salary of the CEO will remain unchanged for 2017
at £505,000 in line with expected market practice and
shareholder expectations. It is intended that the annual
bonus for 2017 will be operated under the 2017 Policy. In
order to facilitate a smooth transition between policies,
the first PSP awards under the 2017 Policy will be made in
2018. The PSP awards in 2017 will be made under the
2014 Policy, prior to the AGM, at the 2014 Policy award
level of 125% of base salary for the executive directors.
This is to avoid any potential double counting in respect
of the withdrawal of the DSP matching award and
introduction of a higher PSP opportunity. The final DSP
matching award will be made to executive directors on
two-thirds of the bonus earned in respect of 2016
performance. Subject to the approval of the 2017 Policy
at the 2017 AGM, no further DSP matching awards will
be granted.
In addition, we are delighted that Justin Lockwood was
appointed as Chief Financial Officer on 23 February 2017,
having been with the business as Head of Finance for the
last seven years and most recently covering as Interim
Chief Financial Officer following Adrian Gardner’s
departure. The Committee approved Justin’s
remuneration package and set his base salary at
£260,000. This is lower than Adrian Gardner’s base salary
(£319,000) and reflects his level of experience and
requirement to develop in the role. As a result and in
accordance with the 2014 and 2017 Policies, the
Committee expect to review his salary in the upcoming
years and may consider increases beyond those typically
granted to the wider workforce to achieve the desired
salary level commensurate with the role, subject
to performance.
Deferred Share Plan – matching award
• Removal of the plan.
Next Steps
Performance Share Plan
• An increase in the annual award level to 190% of
base salary (125% previously) to offset the lost
opportunity from the removal of matching awards.
• Extension of the mandatory holding period of vested
awards to two years (previously 50% was available to
exercise immediately and 50% after a further year).
• Re-weighting of the performance metrics such that
TSR shall now account for 50% (33% previously) with
cumulative EPS and revenue less impairment 25%
respectively (33% each previously).
• An increase in the exceptional opportunity to 250%
(from 150% currently), which will be reserved for
genuinely exceptional circumstances such
as recruitment.
At the 2017 AGM, to be held on 3 May 2017, the 2017
Policy will be put to a binding shareholder vote, the 2014
Policy having received 97.1% approval at the 2014 AGM;
and the Annual Remuneration Report will be put to an
advisory shareholder vote.
I very much hope you will support our 2017 Policy along
with our 2016 Directors’ Annual Remuneration Report at
the AGM. I will be available at the meeting to answer any
questions about the work of the Committee.
Cathryn Riley
Chair of the Remuneration Committee
1 March 2017
International Personal Finance plc Annual Report and Financial Statements 2016
73
Corporate Governance Directors’ remuneration report continued
Directors’ Remuneration Policy
Introduction
The Committee presents the 2017 Policy which will be put to shareholders for a binding vote at the AGM to be held on 3 May 2017. This
2017 Policy applies to awards granted from its approval at the AGM onwards. It is a provision of the 2017 Policy that the Company can
honour all pre-existing incentive award obligations and commitments that were entered into before the 2017 Policy takes effect. These
awards remain eligible to vest subject to their original terms.
In addition, where the terms of any remuneration payment (including any payments for loss of office) were agreed before the 2017 Policy
came into effect or at a time when the relevant individual was not a director of the Company these remain eligible to be paid based on
their original terms.
Subject to shareholder approval, the effective date of the 2017 Policy will be 3 May 2017. The intention of the Committee is that the 2017
Policy will remain in place for three years from the date of its approval.
The table below summarises the substantive changes to our 2014 Policy.
Policy changes table
Current policy
Annual bonus
Proposed changes
Rationale
Opportunity (% base salary)
Opportunity (% base salary)
• Maximum – 100%
• On target – 65%
• Threshold removed
Performance metrics
• 80% balanced scorecard with greater
emphasis on financial metrics
• 20% personal
Deferral
• Increased performance
range requiring greater
stretch for maximum bonus
• A balanced scorecard of
financial metrics better
aligns to business KPIs
• Financial metrics
aid transparency
• Bonus opportunity and
deferral practice more in
line with market practice
• 1/2 in cash and 1/2 in deferred shares
• Deferred shares are released after 3 years
• To better reflect
business KPIs
(subject to clawback)
• Retire the Matching Award
• Aid simplicity and optimise
perceived value of
remaining incentives
• Prevent duplication with the
PSP and enhance pay for
performance relationship
• Better reflect shareholder
preference and
market practice
• Maximum – 100%
• On target – 80%
• Threshold – 20%
Performance metrics
• 50% profit before tax
• 50% personal
Deferral
• 1/3 in cash and 2/3 in deferred shares
• Deferred shares are released after 3 years (subject
to clawback)
Deferred Share Plan (DSP) – Matching Award
Opportunity (% base salary)
• 1:1 match on deferred shares
Performance metrics
• Absolute TSR – 1/3
• Cumulative EPS growth – 1/3
• Growth in revenue less impairment – 1/3
Performance period
• Three years
74
Policy changes table
Current policy
Proposed changes
Rationale
Performance Share Plan (PSP)
Opportunity (% base salary)
Opportunity (% base salary)
• Policy – 125%
• Exceptional – 150%
Performance metrics
• Absolute TSR – 1/3
• Policy – 190%
• Exceptional – 250%
Performance metrics
• Absolute TSR – 1/2
• Cumulative EPS growth – 1/3
• Cumulative EPS growth – 1/4
• Growth in revenue less impairment – 1/3
• Growth in revenue less impairment – 1/4
Performance period
• Three years
Performance period
• Three years
• Additional 12 month holding period for 50% of shares
• Plus additional two year holding period
• Offset removal of DSP
matching opportunity
• Provide more competitive
award levels
• Increase in TSR weighting
provides closer
investor alignment
• Holding period encourages
longer-term behaviours and
an investor mind-set
Pension
• Company contribution
• 20% of base salary
• Company contribution
• 15% of base salary for new appointments
• Align with policy for
other employees
Notes to the policy change table
• Although each of the annual bonus metrics will pay out independently, the Committee will set a threshold profit before tax target that
must be achieved before any other metrics are assessed.
• Although the rules of the new PSP shall permit annual grants up to an individual limit of 250% of base salary this will be reserved for
genuinely exceptional circumstances, as determined at the Committee’s discretion. It would expect to consult with significant
shareholders if awards were routinely made above normal levels and would in all cases make a comprehensive retrospective disclosure
outlining the Committee’s rationale in the Annual Remuneration Report following any such award being made.
• Although the Committee recognise that absolute TSR is an unusual (but not unprecedented) metric to use, identifying comparator
companies with a similar shareholder, industry and geographical profile to the Group remains a challenge. The Committee therefore
continues to believe that an absolute TSR metric is the most appropriate metric for assessing value creation and thereby aligning
executive and shareholder interest. However, the Committee will also compare the Company’s absolute TSR performance to comparator
groups considered appropriate at the point of vesting to ensure that the TSR achievement is truly reflective of business performance.
• A new DSP will be presented to shareholders at the AGM to be held on 3 May 2017, consistent with the terms of the 2017 Policy, which
removes the ability to grant matching awards. A new PSP will also be presented as the existing PSP expires in July.
• Overall, the changes in the policy described above brings a slight reduction to on target and maximum pay opportunity from 258% to
255% for on target and 292% to 290% for maximum.
How pay is aligned to strategy
Our current executive director remuneration framework is intended to strike an appropriate balance between fixed and variable
components and to provide a clear link between pay and our key strategic priorities. Executive director and senior management remuneration
is structured so that they are only rewarded for the successful delivery of the key strategic priorities of the Company over the short and long-term.
Objective
KPI
Financial
Deliver Group profit before tax in line
with expectations
Group profit before tax
Incentive scheme
Annual bonus
Grow revenue
Revenue less impairment
PSP
Manage European markets
to optimise returns
Return as % of capital
Annual bonus
Non-financial
Grow the number of IPF Digital markets
Strategic priority
Annual bonus
Long-term strategic Deliver sustainable growth
Revenue less impairment, Group profit
before tax and EPS
Annual bonus and PSP
Deliver value to shareholders
Absolute TSR
PSP
International Personal Finance plc Annual Report and Financial Statements 2016
75
Corporate Governance Directors’ remuneration report continued
2017 Policy
Executive directors
The remuneration of executive directors is determined by the Committee, taking into account Group performance, individual
performance and competitive market practice as well as the pay and conditions of our employees and the importance attached to the
retention and attraction of high calibre individuals. The total annual remuneration of executive directors comprises base salary, a cash
bonus and deferred bonus shares granted under LTIP pension provisions and other benefits.
2017 Policy table – executive directors
Operation of the element
Maximum potential value
Performance metrics, weighting
and time period
None, although overall
performance of the individual
is considered by the
Committee when setting and
reviewing salaries annually.
Base salary is paid in twelve equal
monthly instalments during
the year.
Salaries are normally reviewed
annually and any changes are
generally effective from 1 April.
Salary levels are set taking into
account role, experience,
responsibility and performance,
both of the individual and the
Company, and also taking into
account market conditions and
the salaries for comparable roles
in similar companies.
Normally, salary increases take into
account salary reviews across the Group
and are usually in line with increases
awarded to UK employees. By exception,
higher awards may be made at the
Committee’s discretion to reflect
individual circumstances. For example:
• changes to role which increase
scope and/or responsibility;
• development and performance
in the role; and
• responding to competitive
market pressures.
There is no prescribed maximum
increase as per the 2017 Policy.
Company contribution is
15% of base salary.
None.
The Company operates a
stakeholder scheme; at the
discretion of the Committee, this
may be paid as a cash allowance.
The Company has closed its
defined benefit scheme to new
members and future accrual.
The Company pays the cost of
providing the benefits on a monthly,
annual or one-off basis.
The standard benefits package includes:
• life assurance of 4x salary;
None.
• car allowance;
All benefits are non-pensionable.
• long-term disability cover;
• private medical cover for executive
director and immediate family;
• annual medical; and
• ability to participate in the
Company’s SAYE Scheme (‘SAYE’)and
any other all-employee share
schemes on the same terms as
other employees.
Additional benefits may also be
provided in certain circumstances,
which may include relocation expenses,
housing allowance and school fees.
Other benefits may be offered if
considered appropriate and
reasonable by the Committee.
How the element supports
our strategic objectives
Base salary
To attract and retain
talent capable of
delivering the
Group’s strategy.
Rewards executive
directors for their
performance in
the role.
Pension
To provide
retirement funding.
Benefits
To provide market-
competitive benefits
that support the
executive directors to
undertake their role.
76
2017 Policy table – executive directors
How the element supports
our strategic objectives
Annual bonus
To motivate and
reward sustainable
Group profit before
tax and the
achievement
of specific personal
objectives linked
to the Company’s
strategy.
Operation of the element
Maximum potential value
Performance metrics, weighting and
time period
Measures and targets are set
annually and pay-out levels are
determined by the Committee after
the year end, based on performance
against those targets.
The Committee may, in exceptional
circumstances, amend the bonus
pay-out should this not,
in the view of the Committee,
reflect overall business performance
or individual contribution.
Half of the total bonus amount is
deferred for three years in Company
shares through the DSP. The
remaining half is paid in cash.
Payments are made around three
months after the end of the financial
year to which they relate.
There are provisions for clawback
adjustments on the occurrence
of certain events (see page 80
for details).
On target opportunity: 65% of
base salary.
Performance is measured over
the financial year.
Maximum opportunity: 100% of
base salary.
Performance is assessed using
the following criteria:
• typically 80% is based on
achievement of financial
and strategic
measures; and
• typically 20% is based on
achievement of personal
objectives linked to
achievement of
Company strategy.
Although each of the annual
bonus metrics could pay out
independently, the Committee
will set a minimum threshold
profit target before any other
metrics are assessed.
Deferred Share Plan (DSP)
To strengthen the link
between short and
longer-term incentives
and the creation of
sustainable long-
term value.
Half of the total bonus amount is
subject to compulsory deferral for
three years in Company shares
without any matching. The matching
element under the 2014 Policy will no
longer be operated.
Half of the total bonus amount
received during the year.
None.
Following the vesting of awards,
executive directors receive an
amount (in cash or shares) in
respect of the dividends paid or
payable between the date of grant
and the vesting of the award on the
number of shares that have vested.
The DSP has provision for malus and
clawback adjustments on the
occurrence of certain events (see
page 80 for details).
Awards may also be adjusted in the
event of a variation of capital, in
accordance with the plan rules.
International Personal Finance plc Annual Report and Financial Statements 2016
77
Corporate Governance Directors’ remuneration report continued
2017 Policy table – executive directors
How the element supports
our strategic objectives
Operation of the element
Maximum potential value
Performance metrics used,
weighting and time period
applicable
Performance Share Plan (PSP)
To motivate and
reward longer-term
performance, and
support shareholder
alignment through
incentivising absolute
shareholder
value creation.
Annual grant of awards, generally
made as nil-cost options over a specific
number of shares subject to meeting
specified performance targets.
In normal circumstances, annual
award levels for executive directors
shall be equivalent to 190% of base
salary at the time of grant.
The Committee has discretion to
decide whether and to what extent
targets have been met, and if an
event occurs that causes the
Committee to consider that the
targets are no longer appropriate,
the Committee may adjust them so
long as the adjustment does not
make them materially less difficult
to satisfy.
Awards may also be adjusted in the
event of a variation of capital, in
accordance with the plan rules.
Executive directors will be required to
hold any shares acquired on vesting
(net of any shares that may need to
be sold to cover taxes) for a two-year
period starting on the date
of vesting.
The PSP has provisions for malus
and clawback adjustments on the
occurrence of certain events (see
page 80 for details).
The rules of the PSP plan permit
annual grants up to an individual
limit of 250%. Although the Committee
shall retain discretion to make awards
up to this level, it would expect to
consult with significant shareholders,
if awards were routinely made above
normal levels and would in all cases
make a comprehensive retrospective
disclosure outlining the Committee’s
rationale in the Annual Remuneration
Report following any such award
being made.
Vesting of PSP awards is dependent on
service and performance conditions.
25% of the award vests at threshold
performance in respect of the
performance conditions, with
straight-line vesting to maximum.
Service and performance
conditions must be met over
three-year periods.
Performance is assessed
against three independently
measured metrics that are
weighted as follows:
• 1/2 absolute
TSR performance;
• 1/4 cumulative EPS
growth; and
• 1/4 growth in revenue
less impairment.
The Committee will compare
the Company’s absolute TSR
performance to comparator
groups considered
appropriate at the point
of vesting.
The targets are set by the
Committee, and targets will be
set out in the Annual
Remuneration Report of the
relevant year.
A six-month averaging period
is used for calculating TSR.
Shareholding requirement
To support alignment
with shareholder
interests.
Executive directors are expected to
acquire a beneficial shareholding
over time.
The current shareholding
requirement for executive directors is
200% of base salary.
None
Shares which have vested
unconditionally under the
Company’s share schemes will be
taken into account with effect from
the date of vesting (but not before).
50% of all share awards vesting
under any of the Company’s share
incentive schemes (net of exercise
costs, income tax and social security
contributions) must be retained until
the shareholding requirement is met.
78
Non-executive directors
The Board reviews non-executive directors’ fees periodically in the light of fees payable in comparable companies and the importance
attached to the retention and attraction of high calibre individuals as non-executive directors. Non-executive directors receive no other
benefits and take no part in any discussion or decision concerning their own fees. The Committee reviews the Chairman’s fees. Fees were
increased last on 1 October 2013 for the Chairman and 1 January 2014 for the non-executive directors. No increases to fees are proposed
for non-executive directors or the Chairman in 2017.
2017 Policy table – non-executive directors
Element
Fees
Purpose
Operation
To attract and retain
a high calibre Chairman
and non-executive
directors by offering market
competitive fees.
Fees are paid on a per annum basis and are not varied for the number of
days worked.
The level of the Chairman’s fee is reviewed periodically by the Committee
(in the absence of the Chairman) and the executive directors.
The Chairman and executive directors review non-executive directors’ fees
periodically in the light of fees payable in comparable companies or to reflect
changes in scope of role and/or responsibility.
As approved at the 2014 AGM, the maximum annual aggregate fee level for all
non-executive directors allowed by the Company’s Articles of Association
is £650,000.
The Senior Independent Director and Chairs of the Board Committees are paid
an additional fee to reflect their extra responsibilities.
Any non-executive director who performs services which, in the opinion of the
Board, go beyond the ordinary duties of a director may be paid such additional
remuneration as the Board may authorise.
Fees are paid on a quarterly basis.
Non-executive directors are expected to acquire a beneficial shareholding
equivalent to 100% of their director’s fee within three years of appointment.
Shareholding
requirement
To support shareholder
alignment by encouraging
our non-executive
directors to align with
shareholder interests.
International Personal Finance plc Annual Report and Financial Statements 2016
79
Corporate Governance Directors’ remuneration report continued
Notes to the 2017 Policy table
Performance measures and targets
The Committee selects annual bonus performance
conditions that are central to the achievement of the
Company’s key strategic priorities for the year and reflect
both financial and non-financial objectives. To balance
this, the performance conditions for the PSP are linked to
long-term value creation: TSR aligns with our focus on
shareholder value creation; EPS provides a measure of
profitability and supports our long-term strategy; and
revenue less impairment supports our focus on
sustainable growth. The performance targets are
determined annually by the Committee and are set
typically at a level that is stretching and achievable,
taking into account our strategic priorities and the
economic environment in which we operate. Targets are
normally set with reference to a range of data points,
including the budget, sell-side analyst forecasts, historical
performance, and incentive performance ranges at the
Company’s comparators, where disclosed.
The Board is of the opinion that the performance
measures and targets for the annual bonus are
commercially sensitive and that it would be detrimental
to the interests of the Company to disclose them during
the financial year. This is particularly so because the
majority of our competitors are unlisted. However, the
Committee commits to making a comprehensive
retrospective disclosure in respect of performance
against the targets set where the disclosure of that
information is no longer deemed commercially sensitive.
Discretions
The Committee will operate the annual bonus plan,
PSP and DSP according to their respective rules and in
accordance with the Listing Rules where relevant. The
Committee retains discretion, consistent with market
practice, in a number of regards relating to the operation
and administration of these plans. These include, but are
not limited to, the following in relation to the PSP and DSP:
• the participants;
• the timing of grant of an award;
• the size of an award;
• the determination of vesting;
• discretion required when dealing with a change of
control or restructuring of the Group;
• determination of the treatment of leavers based on the
rules of the plan and the appropriate
treatment chosen;
• adjustments required in certain circumstances (e.g.
rights issues, corporate restructuring events and special
dividends); and
• the annual review of performance measures and
weighting, and targets for the PSP from year to year.
In relation to the annual bonus plan, the Committee
retains discretion over:
• the participants;
• the timing of grant of an award/payment;
• the determination of the bonus payment;
• dealing with a change of control or restructuring of
Malus and clawback
the Group;
The circumstances when malus and clawback may
apply include (but are not limited to) where:
• the financial statements of the Company or of any
member of the Group are required to be restated due
to discovery of a misstatement in the relevant financial
statements resulting in shares vesting to a greater
degree than would have been the case if that
misstatement had not been made; or
• the discovery that an assessment of performance
connected to the award (including relating to the
original bonus amount for the DSP) was based on
misleading or inaccurate information; or
• there has been fraud or gross misconduct, or
circumstance which, in the opinion of the Committee,
would entitle the Company or any other member of the
Group to summarily dismiss the individual; or
• the Committee decides circumstances exist which
justify the operation of malus or clawback.
The clawback period for the PSP normally runs for two
years from the date of vesting and from the date of
payment in the case of the cash portion of annual bonus
awards. For deferred awards under the DSP, malus will
apply for the duration of the deferral period.
• determination of the treatment of leavers based on the
rules of the plan and the appropriate treatment
chosen; and
• the annual review of performance measures and
weighting, and targets for the annual bonus plan from
year to year.
In relation to both the Company’s PSP and annual bonus
plan, the Committee retains the ability to adjust the
performance targets if events occur which cause it to
determine that the targets are no longer appropriate
(e.g. material acquisition and/or divestment of a Group
business), so long as the amendment will not make the
target materially less difficult to satisfy. Any use of this
discretion would be explained in the Directors’
Remuneration Report and may be the subject of
consultation with the Company’s major shareholders.
The use of discretion in relation to the Company’s SAYE
Scheme will be in line with the governing UK Legislation,
HMRC rules and the Listing Rules.
80
Illustrations of total remuneration opportunity
We have set out an illustration of the 2017 Policy as
outlined in the table on pages 76 to 78.
The chart provides an illustration of the proportion of total
remuneration made up by each component of the
remuneration policy, together with the value of each.
Benefits are calculated as per the single figure of
remuneration and three scenarios have been illustrated:
‘Fixed’, ‘On target’ and ‘Maximum’.
The chart is indicative, as share price movement and
dividend accrual have been excluded. Assumptions
made for each scenario are as follows:
CEO
Fixed
On target
Maximum
0
0.5
1
1.5
2
Base salary
Benefits
Pension
Bonus
PSP
£0.6M
£1.2M
£2.1M
£M
2.5
• Fixed: fixed remuneration only (i.e. latest known salary,
benefits and pension).
• On target: fixed remuneration plus on target annual
bonus (65%) plus threshold (25%) PSP shares. The
vesting assumption for the PSP.
• Maximum: fixed remuneration plus full pay-out of all
incentives (i.e. 100% of salary in annual bonus, 190% of
salary in PSP).
Approach to recruitment remuneration
The Committee’s approach to recruitment remuneration
is to pay no more than is necessary to attract appropriate
candidates to the role. Starting salary will be set in
accordance with the approved remuneration policy,
based on a combination of market information, internal
relativities and individual experience. Thereafter, salary
progression will depend on the initial agreed base salary
and the normal review process.
The maximum level and structure of ongoing variable
remuneration will be in accordance with the approved
remuneration policy, i.e. at an aggregate maximum of up
to 100% in respect of annual bonus and, if necessary,
250% in respect of the PSP and/or cash awards at
equivalent value. For the avoidance of doubt, these limits
shall not apply to any replacement awards which the
Committee may determine it necessary to make in order
to secure the services of a preferred candidate.
For external appointments, it may be necessary to buyout
an individual’s awards from a previous employer. The
Committee will seek to minimise the need for such
arrangements and will aim to recruit executive directors
subject to the policy maximum defined above. However,
to be able to attract the required calibre of talent, we
may offer additional cash and/or share-based elements
when we consider these to be in the best interests of the
Company. In doing so, the Committee would ensure that
any such payments have a fair value no higher than that
of the awards forgone including payments for any
benefits in kind, pension and other similar allowances,
and reflect the delivery mechanism (i.e. cash, shares
and/or options), time horizons and expected value (i.e.
likelihood of meeting any existing performance criteria).
Replacement share awards, if used, will be granted using
existing share plans. Wherever possible, any new
arrangements will be tied into the achievement of Group
targets in either the annual performance bonus or
long-term incentives, or both. Full details will be disclosed
in the next Directors’ Remuneration Report following the
date of recruitment, which will provide explanations in
relation to the amount and delivery structure of the
awards made for the purposes of recruitment.
As shares under the PSP will not normally be released for
up to three years with a further two year holding period
for executive directors, some cash-based interim long-
term arrangement may be provided, but the level will not
be more than would otherwise have been paid.
For internal appointments, any variable pay elements
awarded in respect of the prior role may be allowed to
pay out according to the terms of the scheme, adjusted
as relevant to take account of the new appointment. In
addition, any other ongoing remuneration obligations
existing prior to appointment may continue.
As noted in the 2017 Policy table on pages 76 to 78, any
new executive director will be subject to a new maximum
annual pension contribution from the Company of 15% of
base salary.
For both internal and external appointments, the
Committee may agree that the Company will meet
certain relocation expenses as appropriate.
Directors’ service agreements and letters
of appointment
In 2014, the Committee adopted a policy in relation to
service agreements for newly appointed executive
directors of six months’ notice, although Gerard Ryan
remains an exception to this, having been appointed on
a 12-month rolling contract prior to this change in policy.
Justin Lockwood has been appointed on a 6 month
rolling contract.
All non-executive directors are appointed for three years,
subject to re-election by shareholders. The initial three-
year period may be extended. The Company can
terminate the appointment on three months’ notice.
Our Articles of Association require that all directors retire
from office if they have not retired at either of the
preceding two AGMs. In any event, at the 2017 AGM, all
directors will be standing for re-election in compliance
with the UK Corporate Governance Code. Service
agreements are available for inspection at the
Company’s registered office. Service agreements and
letters of appointment are not reissued when base
salaries or fees are changed.
International Personal Finance plc Annual Report and Financial Statements 2016
81
Corporate Governance Directors’ remuneration report continued
will be met over such period as the Committee
determines appropriate, although the award will normally
be reduced on a pro rata basis. PSP awards that have
vested at the time of leaving will be retained and
exercisable for a limited period following leaving. The
Committee may determine that the holding period will no
longer apply if the director leaves for one of the reasons
specified above. When determining the treatment of
outstanding awards for exiting directors, the Committee
will take into account the executive director’s level of
performance and any contribution to a transition.
For all other leavers, outstanding PSP awards will lapse.
Differences in remuneration policy for all
employees
All employees are entitled to base salary and benefits
appropriate to the market in which they are employed.
The maximum opportunity available is based on the
seniority and responsibility of the role.
PSP awards are only currently available to senior
management and directors.
Consideration of employment conditions
elsewhere in the Company
In making remuneration decisions, the Committee also
considers the general increases in base salaries taking
place within the Group. While the Company does not
consult directly with employees as part of the process of
reviewing executive director pay, the Committee does
receive and take account of employee engagement
results as part of their overall assessment of executive
director performance.
Policy on executive directors holding external
appointments
With the consent of the Board, executive directors may
hold one non-executive directorship in an individual
capacity and will retain any fees earned.
Consideration of shareholder views
When determining remuneration, the Committee also
takes into account the guidelines of investor bodies and
shareholder views. The Committee considers these to be
of great importance and seeks to engage regularly with
our major shareholders prior to making any material
decisions on pay, as it has done during the process of
reviewing our new 2017 Policy.
Directors’ service agreements and letters
of appointment continued
The dates of directors’ service agreements who served as
directors during the year and letters of appointment are:
Executive director
Date of service agreement
Gerard Ryan
Justin Lockwood
Non-executive director
Tony Hales
Cathryn Riley
Dan O’Connor
Jayne Almond
Richard Moat
John Mangelaars
Former directors
Adrian Gardner1
David Broadbent2
January 2012
February 2017
Date of appointment
July 2007
February 2014
January 2015
June 2015
July 2012
July 2015
January 2014
March 2007
1. Adrian Gardner resigned from the role of Chief Financial Officer on
21 September 2016 and left the Company on 30 September 2016.
2. David Broadbent resigned from the role of Chief Commercial Officer on
23 February 2016 and left the Company on 7 March 2016 by reason
of redundancy.
Loss of office payments
Our policy is to limit severance payments on termination
to pre-established contractual arrangements. In the
event that the employment of an executive director
is terminated, any compensation payable will be
determined having regard to the terms of the service
contract between the Company and the employee,
as well as the rules of any incentive plans. Except in
circumstances of gross misconduct or voluntary
termination, the Company retains discretion to make
ex-gratia payments where considered reasonable and
fair in the Committee’s opinion and to cover costs solely
relating to termination of employment by the Company.
Example costs may include legal, tax and outplacement
services subject to such fees being de minimis in nature
and in the best interests of the Company.
Under normal circumstances, good leavers who do not
serve notice are eligible to receive termination payments in
lieu of notice based on base salary and contractual benefits.
Normally, we expect executive directors to mitigate their
loss upon departure. In any specific case that may arise,
the Committee will consider carefully any compensatory
payments, having regard to performance, age, service,
health or other circumstances that may be relevant.
In the event an executive director leaves for reasons of
death, injury, disability, change of control of the Company,
or any other reason which the Committee in its absolute
discretion permits, any unvested PSP awards will normally
vest at the normal time following the end of the
performance period and be pro-rated for time.
Performance conditions would apply. However awards
will vest early on death and the Committee has the
discretion to allow the award to vest early on cessation
of employment. In this event, the Committee will
determine whether the performance conditions are or
82
Annual Remuneration Report
The following report sets out how the Directors’
Remuneration Policy, approved at the 2014 AGM (the
‘2014 Policy’), was applied during the year ended
31 December 2016. The full 2014 Policy can be found in
the Directors’ Remuneration Report on pages 72 to 78 of
the 2015 Annual Report and Financial Statements, which
is available at www.ipfin.co.uk.
The Remuneration Committee reviews the senior
management remuneration framework annually and
considers whether the existing incentive arrangements
remain appropriately challenging in the context of the
business strategy, current external guidelines and a range
of internal factors including the Remuneration Policy and
pay arrangements throughout the rest of the Group. The
table below shows the performance measures used in
current incentive schemes and how these align with
the key performance indicators detailed on pages
20 to 21.
Single figure for total remuneration (audited information)
The following table sets out the single figure for total remuneration for directors for the financial years ended 31 December 2015 and 2016.
Executive directors
Gerard Ryan
Adrian Gardner4
David Broadbent5
Non-executive directors
Dan O’Connor
Tony Hales6
Jayne Almond
John Mangelaars7
Richard Moat8
Cathryn Riley9
Salary/fees
£’000
Benefits
£’000
Bonus1
£’000
LTIP
£’000
Pension
£’000
Total
£’000
2016
2015
2016
2015
2016
2015
20162
20153
2016
2015
2016
2015
505
239
260
200
75
55
65
70
65
504
319
331
152
75
29
25
59
65
25
17
21
–
–
–
–
–
–
25
23
23
–
–
–
–
–
–
81
–
–
–
–
–
–
–
–
227
101
83
–
–
–
–
–
–
62
–
44
–
–
–
–
–
–
352
–
239
–
–
–
–
–
–
89
42
53
–
–
–
–
–
–
89
56
63
–
–
–
–
–
–
762
298
378
200
75
55
65
70
65
1,197
499
739
152
75
29
25
59
65
1. Bonus payable in respect of the financial year including any deferred element at face value at date of award. Further information about how the level of 2016 award was determined
is provided in the additional disclosures section below.
2. The value of awards included in the table for 2016 relates to the DSP matching award and PSP awards granted in 2014, the performance period for which was the three financial
years ended 31 December 2016. This value also includes the anticipated value of dividend equivalents that will be payable in 2017. The awards have been valued according to an
estimate based on expected vesting and the 1-month average share price to 31 January 2017. A different averaging period has been used from the basis for estimate used in the
report for 2015 to give a better reflection of fair value, taking into account the Company’s current share price. These estimated figures will be updated and based on the actual values
of the awards for the relevant dates in next year’s report. Further information about the level of vesting is provided in the additional disclosures section below.
3. The value of awards included in the table for 2015 has been revised to reflect the actual value of awards vesting (as noted in footnote 2, above, an estimate of the value of
these awards based on the 3-month average share price to 31 December 2015 was used in the 2015 report) and any dividend equivalents received in 2016 when the awards
became exercisable.
4. The amounts shown for 2016 reflect that Adrian Gardner resigned from the Board effective from 21 September 2016 and left the Company on 30 September 2016.
5. The amounts shown for 2016 reflect that David Broadbent resigned from the Board on 23 February 2016 and left the Company on 7 March 2016 by reason of redundancy.
The figure quoted for his salary/fees includes £198,473 as compensation for early termination
6. Tony Hales is Senior Independent Director. In addition to his base fee £55,000, he was paid a fee of £20,000 per annum for this additional responsibility.
7. John Mangelaars chaired the Technology Committee during 2016. In addition to his base fee of £55,000, he was paid a fee of £10,000 per annum for this additional responsibility.
8. Richard Moat chaired the Audit and Risk Committee during 2016. In addition to his base fee of £55,000, he was paid a fee of £15,000 per annum for this additional responsibility.
9. Cathryn Riley chaired the Remuneration Committee during 2016. In addition to her base fee, of £55,000 she was paid a fee of £10,000 per annum for this responsibility.
International Personal Finance plc Annual Report and Financial Statements 2016
83
Corporate Governance Directors’ remuneration report continued
Group Profit before tax objectives
Group profit before tax targets were set taking into
account the Company’s operating budget and external
forecasts for the sector. Targets were designed to be
stretching in order to drive desired behaviours and
increase motivation and focus. The Group profit before
tax targets (adjusted for FX) and level of performance
achieved in 2016 were as follows:
Threshold Target Maximum Achievement Bonus pay-out
Target
(£)
£92.3
million
£99.0
million
£105.4
million
£92.6
million
10%
Bonus
outcome
(%)
40%
50%
Between
threshold
and
target
Discretion
downwards
to threshold
10%
Notwithstanding the level of Group profit before tax was
above the threshold target, taking into account the
recent value erosion in the company share price the
Committee exercised its discretion to adjust the bonus
downwards such that the pay-out would be limited to the
threshold opportunity (10% of maximum).
Additional disclosures for single figure for total
remuneration table
Base salary
As reported last year, there were no increases in the base
salaries of executive directors in 2016, in line with a wider
salary freeze for all employees based in the UK. There will
be no increase to the base salary of the Chief Executive
Officer in 2017, in line with expected market practice and
shareholder expectation.
Benefits
The benefits provided to the executive directors in 2016
included: private healthcare, life assurance, annual
medical, long-term disability cover and a cash allowance
in lieu of a company car. None of the executive directors
received total taxable benefits exceeding 8% of salary in
2016, and it is not anticipated that the cost of benefits
provided will exceed this level materially during the
period in which the 2017 Policy shall apply.
Determination of 2016 annual bonus
The maximum opportunity for the Chief Executive Officer
was 100% of salary (80% of salary for on target
performance and 20% of salary for threshold
performance). Both the Chief Commercial Officer and
the Chief Financial Officer left the Board during the
course of the year and neither were eligible for an annual
bonus award in respect of 2016. As a result, details of their
personal objectives and outcomes against these are not
included in this report. During 2016, a balanced
scorecard approach was used for the annual bonus
whereby 50% of the bonus was calculated on profit
before tax and, subject always to a minimum profit
threshold, the remaining 50% calculated against
stretching personal performance objectives. The award
for achievement of personal performance objectives is
conditional upon achievement of the profit before tax
element (i.e. the maximum achievable on the personal
performance objectives cannot exceed the amount
achieved under the profit before tax element).
The bonus outcome in respect of personal performance
is determined by a performance rating assigned by the
Committee having taken into account the stretch
associated with the objectives set and performance
against them. Each rating is assigned a multiplier which
determines the maximum bonus payable as shown in the
table below.
Performance
Rating
Multiplier1 0%
Ineffective
Partially
effective Effective
Extremely
effective
Outstanding
27%
60%
80%
100%
1. Applied to the maximum bonus payable in respect of personal objectives.
84
Personal objectives
As a consequence of the Committee’s exercise of negative discretion, the maximum pay-out under the personal
objectives element is also limited to 10%. The table below shows the objectives that were set for the CEO in 2016
and achievement against them.
Category
Results
Strategy
Objectives
Results
Effective communication of 2015 results
• Communicated 2015 results in line with
Refresh and agree Group strategy and
successfully implement it
expectations
• Strategy evolved to focus on optimising
returns in our European home credit
businesses and grow IPF Digital and Mexico
home credit
• Successful roll out of IPF Digital into Spain
and Mexico
Regulatory
Effective management of regulatory issues
• Successfully delivered a new product
Sales and Service Delivery of agreed strategy
Technology
People
Successful implementation of agreed IT
deliverables
Further embed ethics programme
Delivering engagement survey results
consistent with prior years
offering in Poland to comply with the new
rate cap introduced in March 2016. The
financial impact was within the expected
range
• Operational issues in Mexico, partially as a
consequence of new branch openings in
the first half of the year, had an adverse
impact on results
• Cost efficiency improvements achieved in
European home credit businesses through
the roll out of a new sales and service
organisation structure
• Roll out of MyProvi agent mobile
technology app
• • Continued development and
implementation of ethics programme
across the Group
• • Engagement scores consistent with
previous years despite large organisational
changes
Having reviewed the Chief Executive Officer’s performance against his personal objectives and in the context of the
challenges faced by the business in 2016, the Committee determined an effective performance rating. Consequently
the bonus pay-out in respect of personal objectives is 6% calculated as follows:
• Maximum available (10%)
• Application of effective rating multiplier (60%)
• Bonus pay-out for personal objectives = 6% (10% x 60%)
Bonus outcome for 2016
The Committee awarded a bonus to the Chief Executive Officer of the amount shown below for the year ended
31 December 2016.
Financial objectives
– achievement
as a percentage of
base salary
Personal objectives
– achievement as a
percentage of base
salary
Gerard Ryan
10%
6%
DSP – face value
of shares due to
vest in 2020
£’000
Total
value of
2016 annual
bonus
£’000
Cash and DSP
shares award as a
percentage of
maximum bonus
available
54
81
16%
Cash bonus
£’000
27
The bonus is payable one-third in cash, and two-thirds in deferred shares, which will vest at the end of a three-year
period, subject to the executive director not being dismissed for misconduct. There are also provisions for clawback,
with respect to the cash element of the bonus and malus with respect to the deferred elements of the bonus, as
detailed on page 80.
International Personal Finance plc Annual Report and Financial Statements 2016
85
Corporate Governance Directors’ remuneration report continued
Pension
David Broadbent – final salary
The Company has two pension schemes, the
International Personal Finance plc Pension Scheme (‘the
Pension Scheme’) and the International Personal Finance
Stakeholder Pension Scheme (‘the Stakeholder Scheme’).
New employees are eligible to join the Stakeholder
Scheme. The rate of Company pension contribution for
the Chief Executive Officer is 20% of base salary.
At the discretion of the Committee, this may be paid as a
cash allowance.
The Company’s contributions in respect of Gerard Ryan
during 2016 amounted to £88,752, all of which was paid
as a cash allowance.
The Company’s contributions in respect of Adrian
Gardner during 2016 amounted to £42,047, all of which
was paid as a cash allowance.
David Broadbent was a member of the final salary
section of the Pension Scheme until 1 April 2006 when he
began to accrue benefits as a member of the cash
balance section. He ceased to be a member of the cash
balance section on 31 July 2008 and became a deferred
member of the Pension Scheme. The Company’s
contributions in respect of David Broadbent during 2016
amounted to £53,258, of which £10,000 was paid into
pension arrangements and £43,258 was paid as a
cash allowance. Details of David Broadbent’s entitlements
under both sections of the Pension Scheme are in the
table opposite:
Accrued pension at 31 December 2016
Accrued pension at 31 December 2015
Increase in accrued pension during the
year (net of inflation)
Director’s contributions in 2016
David Broadbent – cash balance
Accrued cash balance lump sum at
31 December 2016
Accrued cash balance lump sum at
31 December 2015
Increase in cash balance lump sum
during the year (net of inflation)
Director’s contributions in 2016
£
14,970
14,985
0
0
£
106,721
106,828
0
0
David Broadbent was aged 48 at the end of the year. He
became a deferred member of the Pension Scheme on
1 August 2008.
Notes:
1. The cash balance entitlement has been calculated in line with our
current understanding of David Broadbent’s accrued benefits.
2. The change in accrued pension and accrued cash balance lump sum,
net of inflation, during the year reflects the fact that the relevant inflation
benefit revaluation for the year uses CPI over the year to September 2015,
which was -0.1% (i.e. a reduction).
3. Normal retirement age is 65 for David Broadbent. Early retirement can be
taken from age 55 and the accrued final salary pension will then be
reduced to take account of its early payment.
4. As David Broadbent did not accrue any benefits within the Pension
Scheme during the year to 31 December 2016, the value of his Pension
Scheme benefits under the disclosure requirements for large and
medium-sized quoted companies is zero.
Long-term incentives
Awards estimated to vest during 2017 (included in 2016 single figure)
The LTIP amount included in the 2016 single figure relates to the DSP matching shares and PSP awards granted in 2014. The performance
achieved against the performance targets is shown below:
DSP matching shares
Performance condition
Absolute TSR growth1
Cumulative EPS growth2
Growth in revenue less impairment2
Total
1. Based on TSR from 1 January 2014 to 31 December 2016.
2. Excludes impact of MCB acquisition.
PSP
Performance condition
Absolute TSR growth1
Cumulative EPS growth2
Growth in revenue less impairment2
Total
1. Based on TSR from 1 August 2014 to 31 December 2016.
2. Excludes impact of MCB acquisition.
Weighting
Threshold
Maximum
1/3
1/3
1/3
30% TSR over 3
years
6% p.a.
5% p.a.
60% TSR over 3
years
15% p.a.
12% p.a.
Achieved
(50%)
7% p.a.
6% p.a.
Weighting
Threshold
Maximum
Achieved
1/3
1/3
1/3
30% TSR over 3 years 60% TSR over 3 years (50%)
6% p.a.
5% p.a.
15% p.a.
12% p.a.
7% p.a.
6% p.a.
Projected
vesting
–%
10%
13%
23%
Projected
vesting
–%
10%
13%
23%
As disclosed in the 2014 Policy, executive directors are expected to acquire a beneficial shareholding over time equivalent to a minimum
of 200% of salary. 50% of all share awards vesting under any of the Company’s equity incentive schemes (net of exercise costs, income tax
and social security contributions) must be retained until the requirement is met. Executive directors’ current holdings against the guideline
are disclosed on page 90.
86
Awards granted during 2016
Awards were made in the financial year ending 31 December 2016 under the LTIP (PSP/CSOP), DSP and the SAYE.
Detail of these awards is provided below:
Number of
PSP nil-cost
options1
Number of
CSOP
options2
Face
value3 £
Percentage
of base
salary
211,153
10,224
631,250
125%
Gerard
Ryan
31 December
2018
End of performance
period
Threshold
vesting
Weighting
Adrian
Gardner4
53,830
–
159,000
50%
31 December
2018
25%
25%
25%
25%
25%
25%
1∕3
1∕3
1∕3
1∕3
1∕3
1∕3
Performance
conditions
Absolute TSR
Cumulative EPS
growth
Growth in revenue
less impairment
Absolute TSR
Cumulative EPS
growth
Growth in revenue
less impairment
1. The awards are nil-cost options to acquire shares for £nil consideration.
2. The awards are options to acquire shares for their market value at the date of grant, being 293 pence per share.
3. Valued using the average share price for the three days before the date of grant (23 March 2016), being 296 pence per share for the PSP options and the
share price at the date of grant for the CSOP options, being 293 pence per shares. For information, for the CSOP options, the fair value was calculated to be
£5,601 for £30,000 of options (being 18.7% of the grant date face value) at the date of grant using the Black-Scholes model.
4. The awards granted to Adrian Gardner have lapsed as a result of him resigning from the Board in order to pursue an alternative business opportunity on
21 September 2016.
LTIP
In line with the 2014 Policy, executive directors were
granted LTIP awards, structured as PSP and CSOP options,
in March 2016. At the time of the 2015 annual report and
financial statements were signed off, the Committee had
yet to confirm the performance targets determined for
the performance measures in respect of the 2016 LTIP
awards. This was due to the uncertainty arising from
significant legislative changes in Slovakia that came into
force on 23 December 2015, and the introduction of a
new cap on non-interest costs of credit in Poland, both of
which were exceptional events on the Company. The
Committee did, however, subsequently provide this
information by way of a supplementary note issued on
the 5 April 2016 and detail of the performance conditions
is included below. The number of LTIP shares granted and
the associated performance conditions are set
out opposite.
Performance conditions
The Committee determined that in respect of 2016 LTIP
awards an absolute pence range for EPS should be used
as opposed to a cumulative annual growth percentage
rate used in previous years. This was because the
expected impact of the legislative changes in Slovakia
and Poland would result in a negative cumulative annual
EPS growth rate target, based on the revised budget.
Therefore, it was considered more appropriate to express
targets for 2016 in absolute terms. Targets are reviewed on
an annual basis, and the Committee may return to
setting growth targets in the future. EPS will be measured
at constant (budget) FX rates. The previous target for EPS
was a cumulative annual growth rate of 6% to 15% per
annum. The new target of 98 to 110 pence is equivalent
to 9% to 15.5% p.a. on reported, post-exceptional 2015
EPS. Awards granted during 2016 will vest as follows, with
straight-line vesting between the points:
Weighting
Vested at threshold
Threshold
Stretch
(100% vesting)
Absolute
TSR
Cumulative
EPS growth
Growth in
revenue less
impairment
1∕3
25%
30% over 3
years
60% over 3
years
1∕3
25%
98 pence
1∕3
25%
5% p.a.
110 pence
12% p.a.
International Personal Finance plc Annual Report and Financial Statements 2016
87
Corporate Governance Directors’ remuneration report continued
DSP
In 2016, two-thirds of the annual bonus earned in respect of 2015 was deferred in shares and attracted performance-based matching
shares on a one-for-one basis. There are no further performance conditions attached to the vesting of the deferred shares.
The matching awards will vest only to the extent that the performance conditions are satisfied, being the same three measures as set out
in the LTIP section above. The following table sets out details of awards of nil-cost options made during the year under the DSP:
Date
of
award
Face
value1
£
Amount vesting
Threshold
performance
Maximum
performance
(% of face value)
(% of face value)
End of
performance
period
Gerard Ryan
23 March 2016
Adrian Gardner 2
23 March 2016
Deferred: 143,831
Matching: 143,831
Deferred: 64,110
Matching: 64,110
25%
25%
100%
31 December 2018
100%
31 December 2018
1. The face value was calculated using the average share price for the three days before the day of grant of 282 pence.
2. The matching awards granted to Adrian Gardner have lapsed as a result of him resigning from the Board in order to pursue an alternative business opportunity on
21 September 2016.
SAYE
As noted in the 2014 Policy, UK-based executive directors
are entitled to participate in the Company’s tax
advantaged all-employee scheme. The executive
directors did not participate in the SAYE with the results
that no options were granted to them under the scheme
in 2016.
Loss of office payments (audited information)
David Broadbent and Adrian Gardner resigned as
directors of the Company during 2016. The arrangements
in respect of their departure are summarised below.
insurance contributions (£4,757) and employer pension
contributions (£58,782) paid monthly in instalments (save
for part of the March 2016 employer pension
contributions which was paid directly into his personal
pension plan). The payment in lieu of notice was subject
to a pound for pound offset after the first six months if
alternative employment (excluding one non-executive
directorship) was secured during that period. As David
did secure alternative employment, his monthly
instalments were reduced from £34,367 to £12,448 from
1 September 2016 onwards. The total amount he was
entitled to receive has reduced from £412,809 to
£280,890.
Adrian Gardner
Adrian Gardner resigned as a director of the Company
with effect from 21 September 2016 and left the
Company on 30 September 2016.
In addition, he received £7,665 in respect of 6 days
accrued but untaken holiday pay; a statutory
redundancy payment of £9,025; and an annual bonus
payment for 2015 of £82,836, paid fully in cash.
He did not receive any bonus in respect of the 2016
financial year and awards made to him under the PSP,
and CSOP and matching awards under the DSP granted
to him during 2014, 2015 and 2016 lapsed in full.
He received £6,748 in respect of 5.5 days’ accrued but
untaken holiday.
Adrian was entitled to retain awards of deferred shares
granted in 2015 and 2016 under the DSP which will vest
on the normal vesting dates. He will be entitled to
payments of dividend equivalent amounts on shares
vesting under the DSP in accordance with the plan rules
and 2014 Policy, under which these awards were made.
Other than the amounts and benefits disclosed above,
Adrian was not eligible for any additional payments for
loss of office.
David Broadbent
David Broadbent resigned from the Board on
23 February 2016 and left the Company on 7 March 2016
by reason of redundancy.
Pursuant to a settlement agreement made on
23 February 2016, he was entitled to receive: a sum of
£412,809, which represented 12 months’ pay in lieu of
notice (salary £332,168) and contractual benefits
including 12 months’ car allowance (£16,000), life
assurance contributions (£1,103), permanent health
In accordance with the discretion reserved to it pursuant
to the 2014 Policy, in light of his long service and
significant contribution, the Committee exercised its
discretion to permit David to retain share awards under
the PSP, CSOP and matching awards under the DSP
granted to him during 2013, 2014 and 2015. The awards
will vest on their respective normal vesting dates, subject
to achievement of the relevant performance conditions.
The number of awards which vest will be reduced on a
time pro rata basis based on the number of complete
months from the date of grant of each award to
7 March 2016. If applicable he will receive a payment to
reflect the value of dividends that would have been paid
on any shares that vest in accordance with the
plan rules.
It was agreed that David would remain in the Company’s
private medical scheme for 12 months from his leave
date and be entitled to his accrued pension and cash
balance under the International Personal Finance plc
Pension Scheme in accordance with the plan rules.
Additionally, £3,000 (plus VAT) was paid to his solicitors for
independent legal advice provided in connection with
his settlement agreement (as it is a legal requirement for
such agreements to be enforceable). Outplacement
assistance was also offered as part of the collective
redundancy exercise.
88
Other than the amounts and benefits disclosed above,
David was not eligible for any additional payments for
loss of office.
country boards (around 80 people) for this comparison,
due to the structure of the remuneration package.
Payments to past directors (audited information)
Other than the arrangements outlined above in respect
of David Broadbent and Adrian Gardner’s loss of office,
no payments to any past directors were made
during 2016.
Salary
Benefits
Bonus*
CEO
All employees
To 31 December
2016 £’000
Percentage
change (2016 vs
2015)
Percentage
change (2016 vs
2015)
505
25
81
–%
–%
(64)%
–%
0.4%
57%
Percentage change in Chief Executive Officer’s
remuneration
The table opposite shows how the percentage change in
the Chief Executive Officer’s salary, benefits and bonus
between 2015 and 2016 compared with the percentage
change in the average of each of those components of
pay for a group of employees. The Committee has
selected the UK senior management population plus the
* Difference due to country boards achieving bonus in 2016 that received
no bonus in 2015.
TSR Performance graph and table
The graph below compares the TSR of the Company with
the companies comprising the FTSE 250 Index for the
eight-year period ended 31 December 2016. This index
was chosen for comparison because the Company is still
a member of this index and has been for almost all the
time since its shares were listed on 16 July 2007.
Total Shareholder Return vs FTSE 250
500
400
300
200
100
0
31 Dec 2008
31 Dec 2009
31 Dec 2010
31 Dec 2011
31 Dec 2012
31 Dec 2013
31 Dec 2014
31 Dec 2015
31 Dec 2016
International Personal Finance
FTSE 250
The table below shows the corresponding Chief Executive Officer remuneration, as well as the annual variable element
award rates and long-term vesting rates against maximum over the same period.
2016
20151
2014
2013
2012
2011
2010
2009
Gerard Ryan
Gerard Ryan
Gerard Ryan
Gerard Ryan
Gerard Ryan2
John Harnett
John Harnett
John Harnett
John Harnett
CEO single figure
of remuneration
£’000
Annual bonus
pay-out
(as % maximum
opportunity)
LTIP vesting (as % of
maximum
opportunity)
762
1,197
2,172
1,037
889
718
943
952
603
16%
45%
74.2%
100%
80%
–
67%
80%
–
23.3%
58.8%
100%
–
–
–
–
–
1. The 2015 single figure has been restated to reflect the actual value of the LTIP on vesting (2015 figure used an estimated share price).
2. Gerard Ryan was appointed Chief Executive Officer on 1 April 2012. John Harnett resigned on 31 March 2012.
International Personal Finance plc Annual Report and Financial Statements 2016
89
Corporate Governance Directors’ remuneration report continued
Relative spend on pay
The table below shows the expenditure and percentage change in overall spend on employee remuneration and dividend plus
share buybacks:
£million unless otherwise stated
Overall expenditure on pay
Dividend paid in the year
Share buyback
1. The percentage increase at constant exchange rates is 11.2%.
Other directorships
2016
177.7
27.4
–
2015
154.3
28.6
50.0
Percentage
change
15.1%1
(4.2)%
–%
Adrian Gardner was a non-executive director of Amdocs Limited during the 2016 financial year and was permitted to retain the fee
received from this position.
Directors’ shareholdings and share interests (audited information)
The interests of each person who has served as a director of the Company during the year as at 31 December 2016 (together with
interests held by his or her persons closely associated) are shown in the table below. A number of non-executive directors are below the
shareholding requirements, which they are expected to build up within three years of appointment to the Board. Dan O’Connor, Jayne
Almond and John Mangelaars are currently within this three year time period. When both Cathryn Riley and Richard Moat bought shares
they bought sufficient to meet the shareholding requirement.
Shares
held
Options
held
Unvested
and subject to
performance
conditions
Unvested
and subject
to deferral
only
Unvested
and subject
to continued
employment
Owned
outright
Vested but
not yet
exercisable
and subject to
continued
employment
681,635
641,349
165,212
7,777
32,079
41,300
75,000
–
15,000
14,795
41,500
–
–
–
–
–
–
–
–
–
–
–
–
15,000
207,989
–
121,638
48,401
77,343
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
15,8585
Vested and
exercisable,
but not yet
exercised
Shareholding
required
(% salary/fee)
Shareholding
(% salary/fee)1
Requirement
met
–
–
–
–
–
–
–
–
–
200
100
100
100
100
100
100
–
–
289
129
235
–
47
46
36
–
–
Yes
Yes
Yes
No
No
No
No
–
–
Executive directors
Gerard Ryan2
Non-executive directors3
Jayne Almond
Tony Hales
John Mangelaars
Richard Moat
Cathryn Riley
Dan O’Connor
Former directors4
Adrian Gardner
David Broadbent
1. Based on a share price of 172.3 pence, being the closing price on 30 December 2016.
2. Executive directors are expected to acquire a beneficial shareholding over time with 50% of all share awards vesting to be retained until the requirement is met.
3. Non-executive directors are expected to acquire a beneficial shareholding equivalent to 100% of their directors’ fee within three years of appointment.
4. The shares owned outright by former directors are as at the date of resignation from the Board.
5. These shares held by David Broadbent are not subject to continued employment.
There were no changes to these interests between 31 December 2016 and 1 March 2017.
No director has notified the Company of an interest in any other shares, transactions or arrangements which requires disclosure.
The current shareholding requirements for executive and non-executive directors are described on page 78.
In addition, the following director had acquired interests in the Sterling Retail Bond as follows:
Director
Cathryn Riley
90
Retail Bond
as at
31 December
2016
£28,800
Executive directors’ interests in the Company share options (audited information)
Awards
held at
31 December
Date of award
2015
Awarded
in 2016
Exercised
in 2016
Lapsed
In 2016*
Awards
held at
31 December
2016
Performance
condition period
Share price
date of
grant (p)
Exercise
price (p)
–
–
–
–
–
–
–
–
–
Gerard Ryan
PSP
2 Mar 2012
135,223
PSP
1 Aug 2013
109,316
4 Mar 2014
110,252
2 Mar 2015
144,508
–
–
–
–
23 Mar 2016
–
211,153
(135,223)
–
–
(32,079)
(45,158)
32,079
CSOP
2 Mar 2012
6,073
–
(6,073)
23 Mar 2016
–
10,224
–
DSP:
Deferred
Matching
DSP:
Deferred
Matching
8 Apr 2013
54,675
8 Apr 2013
54,675
14 Mar 2014
58,096
14 Mar 2014
58,096
Deferred
Matching
2 Mar 2015
2 Mar 2015
56,112
56,112
–
–
–
–
–
–
Deferred
Matching
23 Mar 2016
23 Mar 2016
–
–
51,004
51,004
29 Mar 2012
7,777
–
(54,675)
(32,089) (22,586)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
SAYE
Total
850,915 323,385
(260,139)
(67,744)
846,417
110,252
144,508
211,153
–
10,224
–
–
58,096
58,096
56,112
56,112
51,004
51,004
7,777
Adrian Gardner
PSP
4 Mar 2014
74,111
2 Mar 2015
92,196
–
–
23 Mar 2016
–
53,830
CSOP
4 Mar 2014
5,708
DSP:
Deferred
Matching
2 Mar 2015
25,667
2 Mar 2015
25,667
–
–
–
Deferred
Matching
23 Mar 2016
23 Mar 2016
–
–
22,734
22.734
28 Aug 2014
6,902
–
SAYE
Total
–
–
–
–
–
–
–
–
–
(74,111)
(92,196)
(53,830)
(5,708)
–
–
–
–
–
25,667
(25,667)
–
–
(22,734)
22,734
–
(6,902)
–
2 Mar 2012 –
1 Mar 2015
1 Jan 2013 –
31 Jul 2016
1 Jan 2014 –
31 Dec 2016
1 Jan 2015 –
31 Dec 2017
1 Jan 2016 –
31 Dec 2018
2 Mar 2012 –
1 Mar 2015
1 Jan 2016 –
31 Dec 2018
–
1 Jan 2013 –
31 Dec 2015
–
1 Jan 2014 –
31 Dec 2016
–
1 Jan 2015 –
31 Dec 2017
–
1 Jan 2016 –
31 Dec 2018
–
1 Jan 2014 –
31 Dec 2016
1 Jan 2015 –
31 Dec 2017
1 Jan 2016 –
31 Dec 2018
1 Jan 2014 –
31 Dec 2016
–
1 Jan 2015 –
31 Dec 2017
–
1 Jan 2016 –
31 Dec 2018
–
247
636
525
432
282
–
–
–
–
–
247
247
282
293
422
422
528
528
432
432
282
282
–
–
–
–
–
–
–
–
–
198
525
432
282
–
–
–
525
525
432
432
282
282
–
–
–
–
–
439
Exercise period
2 Mar 2015 –
1 Mar 2022
1 Aug 2016 –
31 Jul 2023
4 Mar 2017 –
3 Mar 2024
2 Mar 2018 –
1 Mar 2025
23 Mar 2019 –
22 Mar 2026
2 Mar 2015 –
1 Mar 2022
23 Mar 2019 –
22 Mar 2026
–
8 Apr 2016 –
7 Apr 2023
–
14 Mar 2017 –
13 Mar 2024
–
2 Mar 2018 –
1 Mar 2025
–
23 Mar 2019 –
22 Mar 2026
1 Jun 2019 –
30 Nov 2019
4 Mar 2017 –
3 Mar 2024
2 Mar 2018 –
1 Mar 2025
23 Mar 2019 –
22 Mar 2026
4 Mar 2017 –
3 Mar 2024
–
2 Mar 2018 –
1 Mar 2025
–
23 Mar 2019 –
22 Mar 2026
1 Nov 2019 –
30 Apr 2020
230,251
99,298
– (281,148)
48,401
* The August PSP 2013 vested at 58.69% and therefore 41.31% lapsed.
* Adrian Gardner’s share options lapsed on cessation of his employment in accordance with the plan rules.
International Personal Finance plc Annual Report and Financial Statements 2016
91
Corporate Governance Directors’ remuneration report continued
Executive directors’ interests in the Company share options (audited information)
Awards
held at
31 December
Date of award
2015
David Broadbent
PSP
8 Aug 2012
52,729
1 Aug 2013
62,755
4 Mar 2014
75,067
2 Mar 2015
94,122
CSOP
4 Mar 2014
2,854
2 Mar 2015
929
DSP:
Deferred
Matching
8 Apr 2013
39,276
8 Apr 2013
39,276
Deferred
Matching
14 Mar 2014
14 Mar 2014
Deferred
Matching
2 Mar 2015
2 Mar 2015
40,022
40,022
37,321
37,321
SAYE
Total
28 Aug 2014
6,902
528,596
Awarded
in 2016
Exercised
in 2016
Lapsed
In 2016*
Awards
held at
31 December
2016
Performance
condition period
Share price
date of
grant (p)
Exercise
price (p)
Exercise period
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(52,729)
–
–
(15,858)
(31,039)
15,858
–
–
–
–
(25,023)
50,044
(62,748)
31,374
(952)
1,902
(620)
309
(39,276)
–
(21,771)
(17,505)
–
–
–
–
–
–
–
–
(14,453)
40,022
25,569
–
(24,881)
37,321
12,440
(6,902)
–
(129,634)
(184,123)
214,839
8 Aug 2012 –
7 Aug 2015
1 Jan 2013 –
31 Jul 2016
1 Jan 2014 –
31 Dec 2016
1 Jan 2015 –
31 Dec 2017
1 Jan 2014 –
31 Dec 2016
1 Jan 2015 –
31 Dec 2017
–
1 Jan 2013 –
31 Dec 2015
–
1 Jan 2014 –
31 Dec 2016
–
1 Jan 2015 –
31 Dec 2017
–
293
636
525
432
–
–
–
–
525
525
432
432
422
422
528
528
432
432
8 Aug 2015 –
7 Aug 2022
1 Aug 2016 –
31 Jul 2023
4 Mar 2017 –
3 Mar 2024
2 Mar 2018 –
1 Mar 2025
4 Mar 2017 –
3 Mar 2024
2 Mar 2018 –
1 Mar 2025
–
–
–
–
–
8 Apr 2016 –
7 Apr 2023
–
–
– 14 Mar 2017 –
13 Mar 2024
–
2 Mar 2018 –
1 Mar 2025
1 Nov 2019 –
30 Apr 2020
–
439
* The August PSP 2013 vested at 58.69% and therefore 41.31% lapsed.
* David Broadbent’s share options were pro-rated and lapsed on cessation of his employment in accordance with the plan rules.
The mid-market closing price of the Company’s shares on 30 December 2016 was 172.3 pence and the range during 2016 was 341.2
pence to 160.6 pence.
The aggregate gains of directors arising from the exercise of options granted under the PSP, CSOP and DSP in the year totalled £1,079,311.
Shareholder context
The table below summarises voting outcomes at the 2014, 2015 and 2016 AGMs (% of total votes cast).
AGM
2014
2015
2016
Directors’ Remuneration Policy
Annual Remuneration Report
Annual Remuneration Report
For
97.10%
98.90%
92.37%
Against
2.90%
1.10%
7.63%
Withheld1
0.20%
5.00%
0.07%
1. Votes withheld are not counted in the votes for or against a resolution but would be considered by the Committee in the event of a significant number of votes being withheld.
92
Statement of implementation
Appointment of the Chief Financial Officer
To enable a smooth transition between the 2014 and 2017
policies, the first PSP awards made under the 2017 policy will
be in 2018.
Justin Lockwood joined the Board as Chief Financial Officer
on 23 February 2017. His remuneration package is set out
below, which follows the policy in place at the time of
appointment (2014 Policy). He will transition to the 2017 Policy
in the same way as the CEO, with first awards expected under
the 2017 policy in 2018.
• Base salary – £260,000. This is lower than Adrian Gardner’s
base salary (£319,000) and reflects his level of experience
and requirement to develop in the role. As a result, the
Committee, in accordance with the 2014 Policy and 2017
Policy, expect to review his salary in the upcoming years
and may consider increases beyond those typically granted
to the wider workforce to achieve the desired salary level
commensurate with the role, subject to performance.
• Annual bonus – 65% of base salary for on target
performance and 100% of base salary for maximum
performance, subject to the approval of the 2017 Policy
• The performance measures for the year will be as per the
2017 Policy for executive directors.
• PSP – he will be eligible to receive a PSP award equal to
125% of base salary in the year in line with our 2014 Policy.
The award will be subject to performance conditions set
at the time of grant and a three-year performance period
and two year holding period.
• Benefits – provided in line with our 2014 Policy (no change
under 2017 Policy).
• Pension – whilst the 2014 Policy provides for a Company
contribution is 20% of base salary, the Committee have
determined that he should be provided with a company
contribution in line with the 2017 Policy, 15% of base salary,
as the 2017 Policy will be put to shareholder approval so
soon after his appointment, and it is in line with his current
Company contribution.
• Shareholding guidelines – all executive directors are required
to hold Company shares equivalent to 200% of their base
salary. Until this requirement is met, directors must retain (net
of any shares sold to meet tax liability) 50% of shares vesting
from deferred bonus, PSP and exercise of options.
Directors’ Remuneration Policy in the following
financial year
The base salary for the Chief Executive Officer will remain
unchanged for 2017 at £505,000.
Pension and benefits are in line with benefits stated in the 2017
Policy table.
The 2017 Policy will apply after the AGM and it is intended that
the annual bonus measured over the 2017 year will operate
under this policy. Under this policy there is no change to
maximum opportunity, which will remain at 100% of base salary
and the on target opportunity will be 65% of base salary. The
performance measures will be 80% on financial and strategic
and 20% on personal objectives, as per the new policy rules.
Targets are not disclosed on a forward-looking basis because
they are considered by the Board to be commercially sensitive,
in particular resulting from the fact that the majority of the
Company’s competitors are unlisted. Targets will continue to
be disclosed retrospectively to ensure transparency.
It is expected that the LTIP (PSP and DSP matching shares)
awards granted to the Chief Executive Officer during 2014
will vest partially in 2017.
The PSP awards granted in 2017 will be made to the executive
directors under the 2014 Policy, existing PSP (prior to the AGM)
and awards of up to a maximum of 125% of base salary are
expected to be made. As in 2016, performance will be assessed
against three equally weighted, independently measured
metrics: one-third absolute TSR; one-third EPS growth; and
one-third growth in revenue less impairment with threshold
vesting of 25% on each. An award will also be made in 2017
under the existing DSP in relation to 2016 bonus achievement.
This will be the last DSP award to receive a match under existing
the scheme before it is retired. The performance ranges for PSP
and DSP matching shares have yet to be confirmed. The
Committee will ensure that these are set to be stretching and
achievable taking into account all relevant data points including
the budget, analysts forecasts, historical performance, and
incentive performance ranges at the Company’s comparators,
and the targets will be disclosed in next year’s report.
Consideration by the directors of matters relating
to directors’ remuneration
The following directors were members of the Remuneration
Committee when matters relating to the directors’ remuneration
for the year were being discussed and are considered to
be independent:
• Cathryn Riley (Chair)
• Tony Hales
• Jayne Almond
• Richard Moat
The Committee received assistance from the Senior
Management Team and Anna Fletcher (Group Senior
Reward Manager). Other members of management, may
attend meetings by invitation except when matters relating
to their own remuneration are being discussed.
Advisor to the Committee
The Committee undertook a competitive selection process
during the year following which Willis Towers Watson was
appointed to provide independent remuneration advice. Since
its appointment in April 2016, Willis Towers Watson has provided
advice on remuneration matters including supporting the
Committee with its wholesale review of remuneration policy in
readiness for its presentation to shareholders for a binding vote at
the 2017 AGM. During 2016 total fees in respect of advice to the
Committee (based on time and materials) totalled £68,638
(excluding VAT). In the period from January to March 2016, Kepler
Associates (“Kepler”) provided advice to the Committee, the
fees paid in respect of which was £15,000 (excluding VAT).
Both Willis Towers Watson and Kepler are founding members
of the Remuneration Consultants Group and signatories
to, and abide by, the Remuneration Consultants Group
Code of Conduct. Further details can be found at
www.remunerationconsultantsgroup.com. The Committee is
satisfied that the advice it receives is objective and independent
and that neither Kepler nor Willis Towers Watson have any
connections with the Company that may impair its independence.
Approved by the Board
Cathryn Riley
Chair
1 March 2017
International Personal Finance plc Annual Report and Financial Statements 2016
93
Corporate Governance Independent auditor’s report
Independent auditor’s report
to the members of International Personal Finance plc
In our opinion:
• the financial statements give a true and fair view of the state of the
Group’s and of the Parent Company’s affairs as at 31 December
2016 and of the Group’s profit for the year then ended;
• the directors’ confirmation on page 43 that they have carried out a
robust assessment of the principal risks facing the Group, including
those that would threaten its business model, future performance,
solvency or liquidity;
• the Group Financial Statements have been properly prepared in
accordance with International Financial Reporting Standards (IFRSs)
as adopted by the European Union;
• the Parent Company Financial Statements have been properly
prepared in accordance with IFRSs as adopted by the European
Union and as applied in accordance with the provisions of the
Companies Act 2006; and
• the Financial Statements have been prepared in accordance with
the requirements of the Companies Act 2006 and, as regards the
Group Financial Statements, Article 4 of the IAS Regulation.
The financial statements that we have audited comprise:
• the Group and Company income statement;
• the Group and Company statement of comprehensive income;
• the Group and Company balance sheets;
• the Group and Company cash flow statements;
• the Group and Company statements of changes in equity;
• the accounting policies; and
• the related notes 1 to 33.
The financial reporting framework that has been applied in their
preparation is applicable law and IFRSs as adopted by the European
Union and, as regards the Parent Company Financial Statements, as
applied in accordance with the provisions of the Companies Act 2006.
Going concern and the directors’ assessment of the principal
risks that would threaten the solvency or liquidity of the Group
As required by the Listing Rules we have reviewed the directors’
statement regarding the appropriateness of the going concern basis
of accounting contained within the Financial Review on page 35 to
the Financial Statements and the directors’ statement on the longer-
term viability of the Group contained within the Strategic Report on
page 43.
We are required to state whether we have anything material to add or
draw attention to in relation to:
• the disclosures on pages 36 to 43 that describe those risks and
explain how they are being managed or mitigated;
• the directors’ statement in the Financial Review on page 35 about
whether they considered it appropriate to adopt the going concern
basis of accounting in preparing them and their identification of any
material uncertainties to the Group’s ability to continue to do so over
a period of at least twelve months from the date of approval of the
Financial Statements; and
• the directors’ explanation on page 43 as to how they have assessed
the prospects of the Group, over what period they have done so
and why they consider that period to be appropriate, and their
statement as to whether they have a reasonable expectation that
the Group will be able to continue in operation and meet its liabilities
as they fall due over the period of their assessment, including any
related disclosures drawing attention to any necessary qualifications
or assumptions.
We confirm that we have nothing material to add or draw attention to
in respect of these matters.
We agreed with the directors’ adoption of the going concern basis of
accounting and we did not identify any such material uncertainties.
However, because not all future events or conditions can be
predicted, this statement is not a guarantee as to the Group’s ability to
continue as a going concern.
Independence
We are required to comply with the Financial Reporting Council’s
Ethical Standards for Auditors and confirm that we are independent of
the Group and we have fulfilled our other ethical responsibilities in
accordance with those standards.
We confirm that we are independent of the Group and we have
fulfilled our other ethical responsibilities in accordance with those
standards. We also confirm we have not provided any of the
prohibited non-audit services referred to in those standards.
Summary of our audit approach
Key risks
The key risks that we have identified in the current year were:
• Impairment of receivables
• Revenue recognition and calculation of the effective interest rate
• Tax provision and deferred tax accounting
• Regulatory and legal risk
Prior year key risks in relation to pension scheme assumptions and the discontinuation of the Slovakian business are not
considered to be key risks in the current year.
Within this report, any new risks are identified with and any risks which are the same as the prior year identified with
The materiality that we used in the current year was £4.6 million (2015: £5.9 million) which was determined on the basis of
profit before tax.
Our Group audit was scoped by obtaining an understanding of the group and its environment, including Group-wide
controls, and assessing the risks of material misstatement at the Group level.
There have been no significant changes in our audit approach from the prior period.
Materiality
Scoping
Significant changes
in our approach
94
94
Our assessment of risks of material misstatement
The assessed risks of material misstatement described below are those that had the greatest effect on our audit strategy, the allocation
of resources in the audit and directing the efforts of the engagement team.
Risk
Impairment of receivables
Determining impairment provisions against customer
receivables is highly judgemental, requiring
estimates to be made of the likely loss within the
lending portfolios. As detailed in note 16, net
customer receivables amounted to £939.9 million
as of 31 December 2016 (2015: £802.4 million).
We have identified the key impairment risks as
being the estimation of future customer default
rates for customers in arrears, and hence expected
future cash flows for each portfolio.
In addition, there is a risk that post model
overlays made to account for emerging risks not
yet observed in historical collection curves
are inappropriate.
The risk is described further by the Audit and Risk
Committee on page 54 and within the key
assumptions and estimates on page 109.
Please also see note 21 for further information.
Revenue recognition and calculation
of the effective interest rate
The recognition of revenue on loans using an
effective interest rate (‘EIR’) method requires
significant judgement by management to
determine key assumptions, in particular the
expected life of each loan and related cash flows.
These cash flows include interest charges, home
collection charges, and early settlement rebates.
We have identified the key risk to be the
completeness and accuracy of the fees and
charges included in the EIR calculations.
The risk is described further by the Audit and Risk
Committee on page 54 and within the key
assumptions and estimates on page 109.
How the scope of our audit responded to the risk
Key observations
We evaluated the design, and tested the operating
effectiveness of controls over the provisioning process,
including using IT specialists within the audit team to test
the key IT controls over the systems in which the source
customer receivable data is maintained, and reviewing
minutes from key management forums.
As a result of our audit
testing we found that the
assumptions used in the
model to value customer
receivables were
appropriately applied.
Where necessary, we also tested the completeness
and accuracy of information used by management to
operate key lending controls, by extraction of source
data from the core lending systems and independent
recalculation of the relevant information. We also
involved credit risk specialists to test the process and
controls for implementing new impairment curves.
We evaluated the appropriateness of management’s key
assumptions used in the impairment calculations for
customer receivables, including the estimation of
customer default rates and expected future cash flows for
each portfolio. This involved assessing management’s
tests of historical forecasting accuracy, and re-performing
a sample of these tests using independent extracts of
customer receivable collections data. We also
challenged the appropriateness of historical data used to
predict future collections performance by reference to
internal and external factors affecting the business.
In addition, we recalculated a sample of portfolio
carrying values in accordance with the approved
impairment provisioning policy and tested the accuracy
of the arrears status of individual loan receivables on a
sample basis to gain comfort over the accuracy of the
impairment provision balance. We also assessed the
implications of the above work on the accuracy and
predictive nature of the cash forecasting curves.
We evaluated the design, and tested the operating
effectiveness of controls in relation to revenue
recognition, and the mechanical accuracy of the models
used to calculate the effective interest rates. This involved
the recalculation of a sample of product and cohort
effective interest rates based upon an independent
extract of source data from the core lending system. We
also tested the completeness and accuracy of cash flow
information included within the models.
We assessed the appropriateness of management’s
key assumptions used to calculate the effective interest
rate by reference to the impact of recently observable
early redemption behaviour on the average lives of
loan receivables.
We also confirmed that the revenue recognition policies
applied to the material loan types offered by the Group
were appropriate in accordance with IAS 18 Revenue.
As a result of our audit
testing, we found that
the methodology used for
the calculation of the EIR
is materially accurate in
the context of the
accounting policies,
and the requirements
of the relevant
accounting standards.
International Personal Finance plc Annual Report and Financial Statements 2016
International Personal Finance plc Annual Report and Financial Statements 2016
95
95
Financial Statements
Independent auditor’s report continued
Independent auditor’s report continued
to the members of International Personal Finance plc
Risk
Tax provision and deferred
tax accounting
The group carries a provision relating to uncertain
tax positions in various jurisdictions. Management
applies significant judgement to calculate these
provisions, based upon internal and external
information and advice. In the current year, the
most material judgements have been applied in
the context of the ongoing Polish tax audits as
detailed in the Financial Review on page 32.
The recognition of deferred tax assets is also
judgemental as it is partly reliant upon the
underlying profit forecasts of the Group. In the
current year a deferred tax asset of £112.0 million
(2015: £82.2 million) has been recognised.
The measurement of the asset varies across the
different markets due to temporary differences
between local tax basis and local GAAP.
The risk is described further by the Audit and Risk
Committee on page 54 and within the key
assumptions and estimates on page 109.
Regulatory and legal risk
As a result of enhanced supervisory powers for
certain regulatory bodies in the markets within
which the Group operates, and an increased focus
upon product design and matters relating to the
fair treatment of customers, there is an increased
risk in relation to the completeness of provisions
against regulatory exposures.
In particular, significant judgement is required in
relation to whether any provisions are required for
customer remediation.
As included in note 15, amounts held as of 31
December 2016 are £1.5 million (2015: £1.5 million).
The risk is described further by the Audit and Risk
Committee on page 54.
How the scope of our audit responded to the risk
Key observations
The judgements applied by
management in the valuation
of the year end tax provision,
and the associated
disclosures in the Financial
Statements are considered
to be a reasonable.
We also considered the
deferred tax asset to be
appropriately measured.
We consider that the
provisions recognised in
relation to regulatory
exposures are reasonable.
Utilising tax specialists within the group and component
audit teams, we have challenged management’s
assessment of the significant uncertain tax positions,
including the Polish tax audits, by reference to available
external advice commissioned by Management, our
knowledge of similar scenarios (where available), and
our independent assessment of the of the exposures in
the context of extant tax law.
This work included considering recent tax authority
announcements, and reviewing correspondence with tax
authorities in the markets within which the Group
operates to identify any potential areas where provisions
could arise.
We also tested the recognition and measurement of the
deferred tax assets. This involved confirming the nature of
the timing differences giving rise to the assets. We also
confirmed that the profit forecasts used to justify the
recognition of the assets were consistent with the Board
approved underlying profit forecasts of the Group, which
we challenged by reference to historical forecasting
accuracy and other internal sources of data.
We considered the completeness of regulatory
provisions required by reference to internal and publically
available external information, determined the key
assumptions, and queried the appropriateness of
management’s judgement on these for a sample
of exposures across jurisdictions.
This work included considering recent regulatory authority
announcements, reviewing correspondence with
regulatory bodies in the markets within which the Group
operates to identify any potential areas where provisions
could arise, reviewing the Group’s complaints logs, and
reviewing any significant ongoing court cases brought to
our attention.
In addition, we reviewed the key regulatory risks of which
we became aware from the procedures we performed,
met with the Group legal department and relevant
management across the Group, and reviewed relevant
Board minutes to assess the completeness of relevant
provisions in place.
This work involved the utilisation of regulatory expertise
within the audit teams in the various countries in which
the Group operates.
The prior year key risk in relation to the discontinuation of the Slovakian
business is not considered to be a key risk in the current year. There
have not been any other changes to the key risks identified since the
prior year.
These matters were addressed in the context of our audit of the
Financial Statements as a whole, and in forming our opinion thereon,
but we do not provide a separate opinion on these matters.
96
96
Our approach to materiality
We define materiality as the magnitude of misstatement in the
Financial Statements that makes it probable that the economic
decisions of a reasonably knowledgeable person would be changed
or influenced. We use materiality both in planning the scope of our
audit work and in evaluating the results of our work.
At the parent entity level we also tested the consolidation process and
carried out analytical procedures to confirm our conclusion that there
were no significant risks of material misstatement of the aggregated
financial information of the remaining components not subject to
audit or audit of specified account balances.
Based on our professional judgement, we determined materiality for
the Financial Statements as a whole as follows:
Group materiality
£4.6 million (2015: £5.9 million)
Basis for determining
materiality
Rationale for the
benchmark applied
5% of profit before tax.
The accumulation of profits is critical to an
investor and in allowing the Group to invest
in the business. We have therefore selected
profit before tax as the benchmark for
determining materiality.
We agreed with the Audit and Risk Committee that we would report to
the Committee all audit differences in excess of £0.1 million (2015: £0.1
million), as well as differences below that threshold that, in our view,
warranted reporting on qualitative grounds. We also report to the Audit
and Risk Committee on disclosure matters that we identified when
assessing the overall presentation of the Financial Statements.
An overview of the scope of our audit
Our Group audit was scoped by obtaining an understanding of the
Group and its environment, including Group-wide controls, and
assessing the risks of material misstatement at the Group level. Based
on that assessment, we focused our Group audit scope primarily on
the audit work at six locations, which were subject to a full audit, and
one location which involved the testing of specified balances. The
locations were based across Central Europe together with Mexico.
Together with the Group functions in the UK, which were also subject to
a full audit, these eight locations represent the principal business units
and account for 96% (2015: 99%) of the Group’s net assets, 99% (2015:
98%) of the Group’s revenue, 96% (2015: 100%) of the Group’s profit
before tax and 64% (2015: 79%) of the losses before tax generated
by components.
They were also selected to provide an appropriate basis for
undertaking audit work to address the risks of material misstatement
identified above. Our audit work at the eight locations was executed
at levels of materiality applicable to each individual entity which were
lower than Group materiality and ranged from £0.2 million to £2.8
million (2015: £0.1 million to £3.0 million).
The Group audit team continued to follow a programme of planned
visits that has been designed so that the Senior Statutory Auditor visit
each of the locations where the Group audit scope was focused at
least once every three years. In years when we do not visit a significant
component we will include the component audit partner and team in
our team briefing, discuss their risk assessment, and review
documentation of the findings from their work. In the current year the
Senior Statutory Auditor visited Poland.
Opinion on other matters prescribed by the Companies
Act 2006
In our opinion:
• the part of the Directors’ Remuneration Report to be audited has
been properly prepared in accordance with the Companies Act
2006; and
• the information given in the Strategic Report and the Directors’
Report for the financial year for which the Financial Statements are
prepared is consistent with the Financial Statements.
In the light of the knowledge and understanding of the company and
its environment obtained in the course of the audit, we have not
identified any material misstatements in the Strategic Report and the
Directors’ Report.
Adequacy of explanations received and accounting
records
Under the Companies Act 2006 we are required to report to you if, in
our opinion:
• we have not received all the information and explanations we
require for our audit; or
• adequate accounting records have not been kept by the Parent
Company, or returns adequate for our audit have not been
received from branches not visited by us; or
• the Parent Company Financial Statements are not in agreement
with the accounting records and returns.
We have nothing to report in respect of these matters.
Directors’ remuneration
Under the Companies Act 2006 we are also required to report if in our
opinion certain disclosures of directors’ remuneration have not been
made or the part of the Directors’ Remuneration Report to be audited
is not in agreement with the accounting records and returns. We have
nothing to report arising from these matters.
Corporate Governance Statement
Under the Listing Rules we are also required to review part of the
Corporate Governance Statement relating to the company’s
compliance with certain provisions of the UK Corporate Governance
Code. We have nothing to report arising from our review.
Our duty to read other information in the Annual Report
Under International Standards on Auditing (UK and Ireland), we are
required to report to you if, in our opinion, information in the Annual
Report is:
• materially inconsistent with the information in the audited Financial
Statements; or
• apparently materially incorrect based on, or materially inconsistent
with, our knowledge of the Group acquired in the course of
performing our audit; or
• otherwise misleading.
In particular, we are required to consider whether we have identified
any inconsistencies between our knowledge acquired during the
audit and the directors’ statement that they consider the Annual
Report is fair, balanced and understandable and whether the Annual
Report appropriately discloses those matters that we communicated
to the Audit and Risk Committee which we consider should have been
disclosed. We confirm that we have not identified any such
inconsistencies or misleading statements.
International Personal Finance plc Annual Report and Financial Statements 2016
International Personal Finance plc Annual Report and Financial Statements 2016
97
97
Financial Statements
Independent auditor’s report continued
Independent auditor’s report continued
to the members of International Personal Finance plc
Respective responsibilities of directors and auditor
As explained more fully in the Directors’ Responsibilities Statement,
the directors are responsible for the preparation of the Financial
Statements and for being satisfied that they give a true and fair view.
Our responsibility is to audit and express an opinion on the Financial
Statements in accordance with applicable law and International
Standards on Auditing (UK and Ireland). We also comply with
International Standard on Quality Control 1 (UK and Ireland). Our
audit methodology and tools aim to ensure that our quality control
procedures are effective, understood and applied. Our quality controls
and systems include our dedicated professional standards review
team and independent partner reviews.
This report is made solely to the Company’s members, as a body,
in accordance with Chapter 3 of Part 16 of the Companies Act 2006.
Our audit work has been undertaken so that we might state to the
Company’s members those matters we are required to state to them
in an auditor’s report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to
anyone other than the Company and the Company’s members
as a body, for our audit work, for this report, or for the opinions we
have formed.
Scope of the audit of the Financial Statements
An audit involves obtaining evidence about the amounts and
disclosures in the Financial Statements sufficient to give reasonable
assurance that the Financial Statements are free from material
misstatement, whether caused by fraud or error. This includes an
assessment of: whether the accounting policies are appropriate to the
Group’s and the Parent Company’s circumstances and have been
consistently applied and adequately disclosed; the reasonableness of
significant accounting estimates made by the directors; and the
overall presentation of the Financial Statements. In addition, we read
all the financial and non-financial information in the Annual Report to
identify material inconsistencies with the audited Financial Statements
and to identify any information that is apparently materially incorrect
based on, or materially inconsistent with, the knowledge acquired by
us in the course of performing the audit. If we become aware of any
apparent material misstatements or inconsistencies we consider the
implications for our report.
Stephen Williams
FCA (Senior statutory auditor)
for and on behalf of Deloitte LLP
Chartered Accountants and Statutory Auditor
Edinburgh, United Kingdom
1 March 2017
98
98
Consolidated income statement
Consolidated income statement
for the year ended 31 December
Group
Revenue
Impairment
Revenue less impairment
Finance costs
Other operating costs
Administrative expenses
Total costs
Profit before taxation
Tax (expense)/income – UK
Tax expense – overseas
Total tax expense
Profit after taxation attributable to owners of the Company
The profit for the year is from continuing operations.
Group
Earnings per share – statutory
Basic
Diluted
Group
Earnings per share – adjusted for exceptional items
Basic
Statements of comprehensive income
for the year ended 31 December
Profit/(loss) after taxation attributable to owners of the Company
Other comprehensive income/(expense)
Items that may subsequently be reclassified to income statement
Exchange gains/(losses) on foreign currency translations
Net fair value gains/(losses) – cash flow hedges
Tax (charge)/ credit on items that may be reclassified
Items that will not subsequently be reclassified to income statement
Actuarial (losses)/gains on retirement benefit obligation
Tax credit/(charge) on items that will not be reclassified
Other comprehensive income/(expense) net of taxation
2015 Pre-
exceptional
items
£M
2016
£M
2015
Exceptional
items
(note 10)
£M
Notes
1
1
2
1
5
763.4
735.4
(187.5)
(188.9)
575.9
(47.1)
(130.7)
(305.5)
546.5
(41.6)
(116.8)
(272.0)
(483.3)
(430.4)
92.6
(3.1)
(22.6)
(25.7)
66.9
116.1
(2.1)
(29.1)
(31.2)
84.9
–
(10.3)
(10.3)
–
–
(5.6)
(5.6)
(15.9)
0.6
(7.1)
(6.5)
(22.4)
2015
£M
735.4
(199.2)
536.2
(41.6)
(116.8)
(277.6)
(436.0)
100.2
(1.5)
(36.2)
(37.7)
62.5
Notes
2016
pence
2015
pence
6
6
30.2
29.4
27.3
26.6
Notes
2016
pence
2015
pence
6
30.2
37.1
Group
Company
Notes
2016
£M
66.9
2015
£M
62.5
65.1
1.5
(0.1)
(10.0)
1.9
58.4
(23.9)
(1.0)
0.3
0.7
(0.1)
(24.0)
5
5
2016
£M
(17.2)
–
0.7
(0.1)
(10.0)
1.9
(7.5)
2015
£M
(8.9)
–
0.3
–
(0.8)
–
(0.5)
Total comprehensive income/(expense) for the year attributable to owners of
the Company
125.3
38.5
(24.7)
(9.4)
The accounting policies and notes 1 to 33 are an integral part of these Financial Statements.
International Personal Finance plc Annual Report and Financial Statements 2016
International Personal Finance plc Annual Report and Financial Statements 2016
99
99
Financial Statements
Balance sheets
Balance sheets
as at 31 December
Assets
Non-current assets
Goodwill
Intangible assets
Investment in subsidiaries
Property, plant and equipment
Deferred tax assets
Current assets
Amounts receivable from customers:
– due within one year
– due in more than one year
Derivative financial instruments
Cash and cash equivalents
Other receivables
Current tax assets
Total assets
Liabilities
Current liabilities
Borrowings
Derivative financial instruments
Trade and other payables
Current tax liabilities
Non-current liabilities
Retirement benefit obligation
Deferred tax liabilities
Borrowings
Total liabilities
Net assets
Equity attributable to owners of the Company
Called-up share capital
Other reserve
Foreign exchange reserve
Hedging reserve
Own shares
Capital redemption reserve
Retained earnings
Total equity
Group
Company
Notes
2016
£M
2015
£M
2016
£M
2015
£M
11
12
13
14
15
16
22
17
18
20
22
19
25
15
20
27
23.3
32.6
–
23.4
112.0
191.3
808.3
131.6
939.9
15.4
43.4
20.8
3.1
20.1
25.6
–
24.3
82.2
152.2
718.9
83.5
802.4
11.5
39.9
14.8
1.3
–
–
699.3
0.1
2.0
701.4
–
–
–
3.3
3.9
627.4
0.1
–
–
697.4
0.1
0.9
698.4
–
–
–
2.5
0.1
552.3
3.9
1,022.6
1,213.9
869.9
1,022.1
634.7
1,336.1
558.8
1,257.2
(22.4)
(4.7)
(123.2)
(16.5)
(22.3)
(2.8)
(95.5)
(30.9)
–
(0.3)
(15.2)
(0.2)
(252.0)
(191.9)
–
–
(166.8)
(151.5)
(252.3)
(207.3)
(9.1)
(8.1)
(0.2)
(8.6)
(9.1)
(0.1)
(600.4)
(534.6)
(526.4)
(617.6)
(543.4)
(535.6)
(784.4)
(694.9)
(787.9)
429.5
327.2
548.2
23.4
(22.5)
8.7
1.1
(50.8)
2.3
467.3
429.5
23.4
(22.5)
(56.4)
(0.3)
(58.9)
2.3
439.6
327.2
23.4
226.3
–
0.6
(50.8)
2.3
346.4
548.2
(0.2)
–
(453.8)
(454.0)
(661.3)
595.9
23.4
226.3
–
0.3
(58.9)
2.3
402.5
595.9
The accounting policies and notes 1 to 33 are an integral part of these Financial Statements.
The Financial Statements of International Personal Finance Plc. Registration number 6018973 comprising the consolidated income statement,
statements of comprehensive income, balance sheets, statements of changes in equity, cash flow statements, accounting policies and notes 1
to 33 were approved by the Board on 1 March 2017 and were signed on its behalf by:
Gerard Ryan
Chief Executive Officer
Justin Lockwood
Chief Financial Officer
100
100
Statements of changes in equity
Statements of changes in equity
Group – Attributable to owners of the Company
At 1 January 2015
Comprehensive income
Profit after taxation for the year
Other comprehensive (expense)/income
Exchange losses on foreign currency translation
Net fair value losses – cash flow hedges
Actuarial gain on retirement benefit obligation
Tax credit/(charge) on other comprehensive income
Total other comprehensive (expense)/income
Total comprehensive (expense)/income for the year
Transactions with owners
Share-based payment adjustment to reserves
Deferred tax on share-based payment transactions
Own shares acquired
Shares granted from treasury and employee trust
Dividends paid to Company shareholders
At 1 January 2016
Comprehensive income
Profit after taxation for the year
Other comprehensive income/(expense)
Exchange gains on foreign currency translation
Net fair value gains – cash flow hedges
Actuarial loss on retirement benefit obligation
Tax (charge)/credit on other comprehensive income
Total other comprehensive income/(expense)
Total comprehensive income
for the year
Transactions with owners
Share-based payment adjustment to reserves
Shares granted from treasury and employee trust
Dividends paid to Company shareholders
Called-up
share
capital
£M
Other
reserve
£M
Foreign
exchange
reserve
£M
Hedging
reserve
£M
Own shares
£M
Capital
redemption
reserve
£M
Retained
earnings
£M
Total
equity
£M
24.0
(22.5)
(32.5)
0.4
(43.1)
1.7
433.6
361.6
–
–
–
–
–
–
–
–
–
(0.6)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(23.9)
–
–
–
(23.9)
(23.9)
–
–
–
–
–
–
–
(1.0)
–
0.3
(0.7)
(0.7)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(28.9)
13.1
–
–
–
–
–
–
–
–
–
–
0.6
–
–
2.3
62.5
62.5
–
–
0.7
(0.1)
0.6
63.1
6.2
(0.3)
(21.3)
(13.1)
(28.6)
439.6
(23.9)
(1.0)
0.7
0.2
(24.0)
38.5
6.2
(0.3)
(50.2)
–
(28.6)
327.2
23.4
(22.5)
(56.4)
(0.3)
(58.9)
2.3
439.6
327.2
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
65.1
–
–
–
65.1
–
–
1.5
–
(0.1)
1.4
65.1
1.4
–
–
–
–
–
–
–
–
–
–
–
–
–
–
8.1
–
–
–
–
–
–
–
–
–
–
–
66.9
66.9
–
–
65.1
1.5
(10.0)
(10.0)
1.9
(8.1)
58.8
4.4
(8.1)
(27.4)
467.3
1.8
i
F
58.4
n
a
n
c
a
125.3
i
l
t
S
t
a
e
m
e
n
t
s
4.4
–
(27.4)
429.5
At 31 December 2016
23.4
(22.5)
8.7
1.1
(50.8)
2.3
At 31 December 2015
23.4
(22.5)
(56.4)
(0.3)
(58.9)
International Personal Finance plc Annual Report and Financial Statements 2016
International Personal Finance plc Annual Report and Financial Statements 2016
101
101
Financial Statements
Statements of changes in equity continued
Statements of changes in equity continued
Company – Attributable to owners of the Company
At 1 January 2015
Comprehensive income
Loss after taxation for the year
Other comprehensive income/(expense)
Net fair value gains – cash flow hedges
Actuarial loss on retirement benefit obligation
Total other comprehensive income/(expense)
Total comprehensive income/(expense) for the year
Transactions with owners
Share-based payment adjustment to reserves
Deferred tax on share-based payment transactions
Own shares acquired
Shares granted from employee trust
Dividends paid to Company shareholders
At 31 December 2015
At 1 January 2016
Comprehensive income
Loss after taxation for the year
Other comprehensive income/(expense)
Net fair value gains – cash flow hedges
Actuarial losses on retirement benefit obligation
Tax (charge)/credit on other comprehensive income
Total other comprehensive income/(expense)
Total comprehensive income/(expense) for the year
Transactions with owners
Share-based payment adjustment to reserves
Shares granted from treasury and employee trust
Dividends paid to Company shareholders
Hedging
reserve
£M
Own shares
£M
Capital
redemption
reserve
£M
Retained
earnings
£M
Total
equity
£M
(43.1)
1.7
469.3
678.2
Called-up
share
capital
£M
24.0
Other
reserve
£M
226.3
–
–
–
–
–
–
–
(0.6)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0.3
–
0.3
0.3
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(28.9)
13.1
–
0.6
–
–
23.4
226.3
0.3
(58.9)
2.3
402.5
23.4
226.3
0.3
(58.9)
2.3
402.5
595.9
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0.4
–
(0.1)
0.3
0.3
–
–
–
–
–
–
–
–
–
–
8.1
–
–
–
–
–
–
–
–
–
–
(8.9)
(8.9)
–
(0.8)
(0.8)
(9.7)
6.2
(0.3)
(21.3)
(13.1)
(28.6)
0.3
(0.8)
(0.5)
(9.4)
6.2
(0.3)
(50.2)
–
(28.6)
595.9
(17.2)
(17.2)
0.3
0.7
(10.0)
(10.0)
1.9
(7.8)
1.8
(7.5)
(25.0)
(24.7)
4.4
(8.1)
(27.4)
4.4
–
(27.4)
548.2
At 31 December 2016
23.4
226.3
0.6
(50.8)
2.3
346.4
The other reserve represents the difference between the nominal value of the shares issued when the Company became listed on 16 July 2007
and the fair value of the subsidiary companies acquired in exchange for this share capital.
The Company has elected to take the exemption under section 408 of the Companies Act 2006 not to present the Parent Company income
statement. The loss after taxation of the Parent Company for the period was £17.2 million (2015: loss of £8.9 million).
The accounting policies and notes 1 to 33 are an integral part of these Financial Statements.
102
102
Cash flow statements
Cash flow statements
for the year ended 31 December
Cash flows from operating activities
Cash generated from/(used in) operating activities
Finance costs paid
Finance income received
Income tax (paid)/received
Net cash generated from/(used in) operating activities
Cash flows from investing activities
Acquisition of subsidiary, net of cash and cash equivalents
Purchases of property, plant and equipment
Proceeds from sale of property, plant and equipment
Purchases of intangible assets
Net cash used in investing activities
Net cash (used in)/generated from operating and investing activities
Cash flows from financing activities
Proceeds from borrowings
Repayment of borrowings
Dividends paid to Company shareholders
Acquisition of own shares
Cash received on share options exercised
Net cash generated from/(used in) financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Exchange gains/(losses) on cash and cash equivalents
Cash and cash equivalents at end of year
Cash and cash equivalents at end of year comprise:
Cash at bank and in hand
Group
Company
2016
£M
2015
£M
2016
£M
2015
£M
132.5
(44.6)
–
100.3
(40.9)
–
(66.1)
(37.0)
21.8
22.4
(21.1)
(31.6)
27.8
(0.5)
(25.4)
51.4
(35.5)
34.2
3.9
54.0
–
(21.0)
–
(21.0)
(8.3)
–
(15.8)
(24.1)
(2.3)
69.9
(41.7)
(27.4)
–
–
0.8
(8.2)
0.4
(18.9)
(47.7)
(25.3)
214.9
(138.2)
(28.6)
(50.2)
0.7
(1.4)
(1.5)
(26.7)
39.9
5.0
43.4
68.8
(2.2)
39.9
(0.1)
–
–
(0.1)
(25.5)
71.7
(15.0)
(27.4)
–
–
29.3
3.8
0.1
–
3.9
–
–
–
(21.0)
33.0
122.9
(112.1)
(28.6)
(50.2)
0.7
(67.3)
(34.3)
34.4
–
0.1
Notes
28
30
14
12
7
17
17
43.4
39.9
3.9
0.1
The accounting policies and notes 1 to 33 are an integral part of these Financial Statements.
International Personal Finance plc Annual Report and Financial Statements 2016
International Personal Finance plc Annual Report and Financial Statements 2016
103
103
Financial Statements
Accounting policies
Accounting policies
Basis of preparation
The Consolidated Group and Parent Company Financial Statements of International Personal Finance plc and its subsidiaries
(‘IPF’ or the ‘Group’) have been prepared in accordance with European Union endorsed International Financial Reporting Standards (‘IFRSs’),
International Financial Reporting Interpretations Committee (‘IFRIC’) interpretations and the Companies Act 2006 applicable to companies
reporting under IFRS.
The following amendments to standards are mandatory for the first time for the financial year beginning 1 January 2016 but do not have any
impact on the Group:
• IFRS 10 (amendment) ‘Consolidated financial statements’;
• Amendments to IFRS 10 and IAS 28 ‘Sale or contribution of assets between an investor and its associate or joint venture’;
• IFRS 11 (amendment) ‘Accounting for acquisitions of interests in joint operations’;
• IFRS 14 ‘Regulatory deferral accounts’;
• Amendments to IAS 16 and IAS 38 ‘Clarification of acceptable methods of depreciation and amortisation’;
• IAS 27 ‘Equity method in separate Financial Statements;
• Annual improvements to IFRSs: 2012-2014 cycle; and
• Amendments to IAS 1 ‘Disclosure initiative’.
The following standards, interpretations and amendments to existing standards are not yet effective and have not been early adopted by
the Group:
• IFRS 9 ‘Financial instruments’. This standard replaces IAS 39, ‘Financial instruments: recognition and measurement’. IFRS 9 introduces new
requirements for classifying and measuring financial assets and will affect the Group’s accounting for its financial assets. The mandatory
implementation date for this standard is 1 January 2018 however it has not yet been endorsed by the European Union. The Group is in the
process of assessing IFRS 9’s full impact;
• IFRS 15 ‘Revenue from contracts with customers’;
• IFRS 15 (amendment) ‘Clarifications to IFRS 15 Revenue from Contracts with Customers’;
• Amendments to IAS 12 ‘Recognition of deferred tax assets for unrealised losses’;
• IFRS 16 ‘Leases’;
• Annual Improvements to IFRSs: 2014-2016 cycle;
• IFRIC 22 ‘Foreign Currency Transactions and Advance Consideration’;
• Amendments to IAS 40 ‘Transfers of investment property’;
• IFRS 2 (amendment)’Classification and Measurement of Share-based Payment Transactions’;
• IAS 7 (amendment) ‘Disclosure initiative’; and
• IAS 12 (amendment) ‘Recognition of Deferred Tax Assets for Unrealised Losses’.
Accounting convention
The Consolidated Financial Statements have been prepared under the historical cost convention, as modified by the revaluation of
derivative financial instruments at fair value. The principal accounting policies, which have been applied consistently, are set out in the
following paragraphs.
Going concern
The directors have, at the time of approving the Financial Statements, a reasonable expectation that the Group and Company have adequate
resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in
the Financial Statements. Further detail is contained in the Financial Review on page 32.
Consolidation
These Consolidated Financial Statements include the financial results of all companies which are controlled by the Group. Control exists where
the Group has the power to govern the financial and operating policies of the entity so as to obtain benefits from its activities. All companies are
100% owned by IPF Group companies. A list of all subsidiaries in the Group is included in note 13.
Finance costs
Finance costs comprise the interest on external borrowings which are recognised on an effective interest rate (‘EIR’) basis, and gains or losses on
derivative contracts taken to the income statement.
104
104
Segment reporting
The Group’s operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker.
The chief operating decision maker, who is responsible for allocating resources and assessing performance of operating segments, has been
identified as the Board. This information is by business line – Home credit and Digital; and by geographic region within the home credit business.
A business line is a component of the Group that operates within a particular economic environment and that is subject to risks and returns that
are different from those of components operating in other economic environments.
Revenue
Revenue, which excludes value added tax and intra-Group transactions, comprises revenue earned on amounts receivable from customers.
Revenue on customer receivables is calculated using an effective interest rate (‘EIR’). The EIR is calculated using estimated cash flows, being
contractual payments adjusted for the impact of customers paying early but excluding the anticipated impact of customers paying late or not
paying at all.
Directly attributable issue costs are also taken into account in calculating the EIR. Interest income continues to be accrued on impaired
receivables using the original EIR applied to the loan’s carrying value.
Commissions in respect of insurance products intermediated by the Group are recognised when the underlying insurance goes on-risk if no
further service obligations are identified. Insurance premiums payable by the customer are capitalised as part of the customer loan receivable
and accounted for on an amortised cost basis.
The accounting for amounts receivable from customers is considered further below.
Leases
The leases entered into by the Group are solely operating leases. Costs in respect of operating leases are charged to the income statement on
a straight-line basis over the lease term.
Leases are classified as operating leases whenever the terms of the lease do not transfer substantially all the risks and rewards of ownership
to the Group.
Other operating costs
Other operating costs include agents’ commission, marketing costs and foreign exchange gains and losses. All other costs are included in
administrative expenses.
Share-based payments
The cost of providing share-based payments to employees is charged to the income statement over the vesting period of the award. The
corresponding credit is made to retained earnings. The cost is based on the fair value of awards granted, which is determined using both
a Monte Carlo simulation and Black-Scholes option pricing model.
At each balance sheet date, the Group revises its estimate of the number of equity instruments expected to vest as a result of the effect of
non market-based vesting conditions. The impact of the revision of the original estimates, if any, is recognised in the income statement such
that the cumulative expense reflects the revised estimate, with a corresponding adjustment to equity reserves.
In the Parent Company Financial Statements, in accordance with IFRIC 11 ‘IFRS 2 Group and treasury share transactions’, the fair value
of providing share-based payments to employees of subsidiary companies is treated as an increase in the investment in subsidiaries.
Exceptional items
The Group classifies as exceptional those significant items that are one-off in nature and do not reflect the underlying performance of the Group.
International Personal Finance plc Annual Report and Financial Statements 2016
International Personal Finance plc Annual Report and Financial Statements 2016
105
105
Financial Statements
Accounting policies continued
Accounting policies continued
Financial instruments
Amounts receivable from customers
All customer receivables are recognised initially at the amount loaned to the customer plus directly attributable incremental issue costs. After
initial recognition, customer receivables are measured subsequently at amortised cost. Amortised cost is the amount of the customer receivable
at initial recognition less customer repayments, plus revenue earned calculated using the EIR, less any deduction for impairment. Customer
receivables are classified as loans and receivables in accordance with IAS 39 ‘Financial instruments: recognition and measurement’.
In Home Credit customer receivables are assessed for impairment each week. Customer accounts that are in arrears are deemed to have
demonstrated evidence of impairment and are subject to an impairment review. Impairment is calculated using actuarial models which use
historical payment performance to generate the estimated amount and timing of future cash flows from each arrears stage. These estimated
future cash flows are discounted to a present value using the original EIR and this figure is compared with the balance sheet value.
In IPF Digital receivables are assessed for impairment on a monthly basis to reflect the repayment frequency. Evidence of default is deemed to
have been demonstrated when accounts are passed to an external debt collection agency although an incurred but not reported provision is
created before this based on probability of default and loss given default factors. Impairment provisions reflect the amount and timing of cash
flows through loss given default factors.
Impairment charges in respect of customer receivables are charged to the income statement.
Cash and cash equivalents
Cash and cash equivalents comprise cash at bank and in hand. Cash also includes those balances held by agents for operational purposes.
Bank overdrafts are presented in current liabilities to the extent that there is no right of offset with cash balances.
Derivative financial instruments
The Group uses derivative financial instruments, principally interest rate swaps, currency swaps and forward currency contracts, to manage the
interest rate and currency risks arising from the Group’s underlying business operations. No transactions of a speculative nature are undertaken.
All derivative financial instruments are assessed against the hedge accounting criteria set out in IAS 39. The majority of the Group’s derivatives
are cash flow hedges of highly probable forecast transactions and meet the hedge accounting requirements of IAS 39. Derivatives are
recognised initially at the fair value on the date a derivative contract is entered into and are remeasured subsequently at each reporting date at
their fair value. Where derivatives do not qualify for hedge accounting, movements in their fair value are recognised immediately within the
income statement.
For derivatives that are designated as cash flow hedges and where the hedge accounting criteria are met, the effective portion of changes in
the fair value is recognised in other comprehensive income. The gain or loss relating to the ineffective portion is recognised immediately in the
income statement as part of finance costs. Amounts accumulated in equity are recognised in the income statement when the income or
expense on the hedged item is recognised in the income statement.
The Group discontinues hedge accounting when:
• it is evident from testing that a derivative is not, or has ceased to be, highly effective as a hedge;
• the derivative expires, or is sold, terminated or exercised; or
• the underlying hedged item matures or is sold or repaid.
Borrowings
Borrowings are recognised initially at fair value, being their issue proceeds net of any transaction costs incurred. Borrowings are stated
subsequently at amortised cost; any difference between proceeds net of transaction costs and the redemption value is recognised in the
income statement over the expected life of the borrowings using the EIR. Borrowings are classified as current liabilities unless the Group has an
unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date.
Trade payables
Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.
Provisions
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that the
Group will be required to settle that obligation and a reliable estimate can be made of the amount of the obligation.
The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the balance sheet
date, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated
to settle the present obligation, its carrying amount is the present value of those cash flows.
106
106
Goodwill
Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the identifiable net assets of the acquired
subsidiary at the date of acquisition.
Goodwill is initially recognised as an asset at cost and is subsequently measured at cost less any accumulated impairment losses. Goodwill is
held in the currency of the acquired entity and revalued to the closing rate at each end of reporting period date.
Goodwill is tested for impairment at least annually. This is tested by comparing the carrying value of goodwill to the net present value of latest
forecast cashflows from the Digital cash generating unit. Any impairment is recognised immediately in the income statement. Subsequent
reversals of impairment losses for goodwill are not recognised.
Intangible assets
Intangible assets comprise computer software and customer relationships acquired on the acquisition of MCB Finance. Computer software is
capitalised as an intangible asset on the basis of the costs incurred to acquire or develop the specific software and bring it into use. Customer
relationships are stated at fair value less accumulated amortisation.
Intangible assets are amortised (within administrative expenses) on a straight-line basis over their estimated useful economic lives which are
generally estimated to be five years. The residual values and economic lives are reviewed by management at each balance sheet date, and
any shortfall recognised as impairment.
Investments in subsidiaries
Investments in subsidiaries are stated at cost, where cost is equal to the fair value of the consideration used to acquire the asset. Investments are
tested for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. An impairment
loss is recognised for the amount by which the investment carrying value exceeds the higher of the asset’s value in use or its fair value less
costs to sell.
Property, plant and equipment
Property, plant and equipment is shown at cost less subsequent depreciation and impairment. Cost represents invoiced cost plus any other
costs that are directly attributable to the acquisition of the items. Repair and maintenance costs are expensed as incurred.
Depreciation is calculated to write down assets to their estimated realisable value over their useful economic lives. The following are the principal
bases used:
Category
Fixtures and fittings
Equipment (including computer hardware)
Motor vehicles
Depreciation rate
10%
20% to 33.3%
Method
Straight-line
Straight-line
25%
Reducing balance
The residual value and useful economic life of all assets are reviewed, and adjusted if appropriate, at each balance sheet date. All items of
property, plant and equipment are tested for impairment whenever events or changes in circumstances indicate that the carrying value may
not be recoverable. An impairment loss is recognised through the income statement for the amount by which the asset’s carrying value exceeds
the higher of the asset’s value in use or its fair value less costs to sell.
Share capital
IPF plc has only ordinary share capital. These shares, with a nominal value of 10 pence per share, are classified as equity.
Shares held in treasury and by employee trust
The net amount paid to acquire shares is held in a separate reserve and shown as a reduction in equity.
International Personal Finance plc Annual Report and Financial Statements 2016
International Personal Finance plc Annual Report and Financial Statements 2016
107
107
Financial Statements
Accounting policies continued
Accounting policies continued
Foreign currency translation
Items included in the Financial Statements of each of the Group’s subsidiaries are measured using the currency of the primary economic
environment in which the subsidiary operates (‘the functional currency’). The Group’s financial information is presented in sterling.
Transactions that are not denominated in an entity’s functional currency are recorded at the rate of exchange ruling at the date of
the transaction.
Monetary assets and liabilities denominated in foreign currencies are translated into the relevant functional currency at the rates of exchange
ruling at the balance sheet date. Differences arising on translation are charged or credited to the income statement, except when deferred in
other comprehensive income as qualifying cash flow hedges.
The income statements of the Group’s subsidiaries (none of which has the currency of a hyperinflationary economy) that have a functional
currency different from sterling are translated into sterling at the average exchange rate and the balance sheets are translated at the exchange
rates ruling at each balance sheet date.
Upon consolidation, exchange differences arising from the translation of the net investment in foreign subsidiaries, and of borrowings and other
currency instruments designated as hedges of such investments, are taken to other comprehensive income.
Taxation
The tax expense represents the sum of the tax currently payable and deferred tax.
Current tax
The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement
because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable
or deductible. The group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance
sheet date.
Deferred tax
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the
Financial Statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet
liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to
the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets
and liabilities are not recognised if the temporary difference arises from the initial recognition of goodwill or from the initial recognition (other than
in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.
Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, and interests in joint
ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will
not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments and
interests are only recognised to the extent that it is probable that there will be sufficient taxable profits against which to utilise the benefits of the
temporary differences and they are expected to reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that
sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised based on tax
laws and rates that have been enacted or substantively enacted at the balance sheet date.
The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group
expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and
when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a
net basis.
Current tax and deferred tax for the year
Current and deferred tax are recognised in profit or loss, except when they relate to items that are recognised in other comprehensive income or
directly in equity, in which case, the current and deferred tax are also recognised in other comprehensive income or directly in equity
respectively. Where current tax or deferred tax arises from the initial accounting for a business combination, the tax effect is included in the
accounting for the business combination.
108
108
Employee benefits
Defined benefit pension scheme
The charge or credit in the income statement in respect of the defined benefit pension scheme comprises the actuarially assessed current
service cost of working employees together with the interest charge on pension liabilities offset by the expected return on pension scheme assets.
All charges or credits are allocated to administrative expenses.
The asset or obligation recognised in the balance sheet in respect of the defined benefit pension scheme is the fair value of the scheme’s assets
less the present value of the defined benefit obligation at the balance sheet date.
The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The present value of the
defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high-quality corporate bonds
that have terms to maturity approximating to the terms of the related pension liability.
Cumulative actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are recognised immediately
in other comprehensive income.
Past service costs are recognised immediately in the income statement unless the changes to the pension scheme are conditional on the
employees remaining in service for a specified period of time (‘the vesting period’). In this case, the past service costs are amortised on a
straight-line basis over the vesting period.
The Parent Company share of the defined benefit retirement obligation is based on the proportion of total Group contributions made by
the Parent Company.
Defined contribution schemes
Contributions to defined contribution pension schemes are charged to the income statement on an accruals basis.
Key assumptions and estimates
In applying the accounting policies set out above, the Group makes judgements, estimates and assumptions that affect the reported amounts
of assets and liabilities as follows:
Revenue recognition
The judgement in respect of revenue recognition is the methodology used to calculate the EIR. In order to determine the EIR applicable to loans
an estimate must be made of the expected life of each loan and hence the cash flows relating thereto. These estimates are based on historical
data and are reviewed regularly.
Amounts receivable from customers
The Group reviews its portfolio of customer loans and receivables for impairment on a weekly or monthly basis. The Group makes judgements
to determine whether there is objective evidence which indicates that there has been an adverse effect on expected future cash flows.
In home credit, for the purposes of assessing the impairment of customer loans and receivables, customers are categorised into arrears stages
as this is considered to be the most reliable predictor of future payment performance. The level of impairment is calculated using actuarial
models which use historical payment performance to generate the estimated amount and timing of future cash flows from each arrears stage
of each product.
In IPF Digital, the default trigger occurs when customers are passed to collections, which averages at 59 days past due, although an
incurred but not recorded provision is created before this based on probability of default and loss given default factors that are based on
historical performance.
The impairment models are reviewed regularly to take account of the current economic environment and recent customer payment
performance. However, on the basis that the payment performance of customers could be different from the assumptions used in estimating
future cash flows, an adjustment to the carrying value of amounts receivable from customers may be required. To the extent that the net present
value of estimated cash flows differs by +/– 5%, it is estimated that amounts receivable from customers would be £47.0 million higher/lower
(2015: £40.1 million).
IAS 39 requires that all of the cash flows directly associated with financial instruments held at amortised cost must be recognised in the income
statement using the EIR method. When this approach is applied to a customer loan portfolio, judgements must be made to estimate the
average life of that portfolio. These judgements are applied, taking into account factors including the terms of the particular products and
historical repayment data. These estimates are considered and updated as required in each reporting period to reflect the customer loan
portfolio’s expected performance.
Tax
The Group is subject to tax in a number of international jurisdictions as well as the UK. In some cases, due to the unusual features of home credit,
the tax treatment of certain items cannot be determined with certainty until the operation has been subject to a tax audit. In some instances,
this can be a number of years after the item has first been reflected in the Financial Statements. The Group recognises liabilities for anticipated
tax audit and enquiry issues based on an assessment of whether it is probable that a liability will crystallise. If the outcome of such audits is that
the final liability is different to the amount estimated originally, such differences will be recognised in the period in which the audit or enquiry is
determined. Any differences may necessitate a material adjustment to the level of tax balances held in the balance sheet.
In respect of deferred tax assets, which arise largely from timing differences between the accounting and tax treatments of revenue and
impairment transactions, judgements must be made regarding the extent to which the timing differences will reverse and a tax deduction will be
obtained in future periods.
International Personal Finance plc Annual Report and Financial Statements 2016
International Personal Finance plc Annual Report and Financial Statements 2016
109
109
Financial Statements
Notes to the financial statements
Notes to the financial statements
1. Segment analysis
Geographical segments
Group
Home credit
Poland-Lithuania
Czech-Slovakia
Southern Europe
Mexico
Spain
Digital
UK costs*
Total – pre-exceptional items
Exceptional items
Total
Revenue
Impairment
Profit before taxation
2016
£M
2015
£M
2016
£M
2015
£M
2016
£M
2015
£M
270.7
70.7
177.4
186.5
–
705.3
58.1
–
267.4
106.5
155.1
175.3
–
704.3
31.1
–
70.0
(5.8)
37.8
68.0
–
170.0
17.5
–
763.4
735.4
187.5
–
–
–
763.4
735.4
187.5
61.3
27.7
35.0
56.0
–
180.0
8.9
–
188.9
10.3
199.2
56.2
12.0
36.9
11.7
–
116.8
(9.3)
(14.9)
92.6
–
92.6
69.0
19.2
26.6
21.9
(1.8)
134.9
(4.2)
(14.6)
116.1
(15.9)
100.2
* Although UK costs are not classified as a separate segment in accordance with IFRS 8 ‘Operating segments’, they are shown separately above in order to provide
a reconciliation to profit before taxation.
Group
Home credit
Poland-Lithuania
Czech-Slovakia
Southern Europe
Mexico
Spain
Digital
UK
Total
Group
Home credit
Poland-Lithuania
Czech-Slovakia
Southern Europe
Mexico
Spain
Digital
UK
Total
Segment assets
Segment liabilities
2016
£M
2015
£M
2016
£M
2015
£M
397.6
106.6
265.2
223.1
–
992.5
148.7
72.7
356.3
135.4
200.8
200.5
–
893.0
91.6
37.5
1,213.9
1,022.1
147.1
87.5
147.5
170.0
–
552.1
120.7
111.6
784.4
155.0
113.6
117.9
146.1
–
532.6
59.1
103.2
694.9
Capital expenditure
Depreciation
2016
£M
2015
£M
2016
£M
2015
£M
1.5
0.6
1.6
2.9
–
6.6
0.4
1.3
8.3
1.9
0.9
2.6
2.1
0.1
7.6
0.3
0.3
8.2
1.8
1.0
1.9
1.8
–
6.5
0.1
3.5
1.4
1.7
1.6
1.5
–
6.2
0.1
4.3
10.1
10.6
All revenue comprises amounts earned on amounts receivable from customers.
The Group is domiciled in the UK and no revenue is generated in the UK. Total revenue from external customers is £763.4 million
(2015: £735.4 million) and the breakdown by geographical area is disclosed above.
The total of non-current assets other than financial instruments and deferred tax assets located in the UK is £30.5 million (2015: £27.3 million),
and the total of non-current assets located in other countries is £48.8 million (2015: £42.7 million).
There is no single external customer from which significant revenue is generated.
Expenditure on intangible assets of £12.2 million (2015: £17.4 million) and amortisation of £6.8 million (2015: £3.3 million) relates to the UK,
and expenditure of £3.6 million (2015: £1.2 million) and amortisation of £2.2 million (2015: £1.5 million) relates to IPF Digital.
110
110
1. Segment analysis continued
The segments shown above are the segments for which management information is presented to the Board which is deemed to be the Group’s
chief operating decision maker.
2. Finance costs
Group
Interest payable on borrowings
3. Profit before taxation
Profit before taxation is stated after charging:
Group
Depreciation of property, plant and equipment (note 14)
Loss on disposal of property, plant and equipment
Impairment of intangible assets (note 12)
Amortisation of intangible assets (note 12)
Operating lease rentals:
– property
– equipment
Employee costs (note 9)
4. Auditor’s remuneration
During the year, the Group incurred the following costs in respect of services provided by the Group auditor:
Group
Fees payable to the Company auditor for the audit of the Parent Company and Consolidated Financial Statements
Fees payable to the Company auditor and its associates for other services:
– audit of Company’s subsidiaries pursuant to legislation
– other assurance services
Further details on auditor remuneration can be found in the Audit and Risk Committee Report on page 52.
5. Tax expense
Group
Current tax expense/(income)
– current year
– prior year
Deferred tax (income)/expense (note 15)
– current year
– prior year
Tax expense
2016
£M
47.1
2015
£M
41.6
2016
£M
10.1
0.8
0.7
9.0
13.2
9.0
177.7
2016
£M
0.1
0.5
0.1
2015
£M
10.6
–
4.6
4.8
12.1
8.7
154.3
2015
£M
0.1
0.5
0.1
2016
£M
2015
£M
49.7
(0.4)
49.3
(23.1)
(0.5)
(23.6)
25.7
49.6
(4.7)
44.9
(9.6)
2.4
(7.2)
37.7
International Personal Finance plc Annual Report and Financial Statements 2016
International Personal Finance plc Annual Report and Financial Statements 2016
111
111
Financial Statements
Notes to the financial statements continued
Notes to the financial statements continued
5. Tax expense continued
Group
Tax credit/(charge) on other comprehensive income
Deferred tax charge on net fair value losses/gains – cash flow hedges
Deferred tax credit on actuarial gains/losses on retirement benefit obligation
Current tax credit on net fair value losses/gains – cash flow hedges
2016
£M
2015
£M
(0.1)
(0.4)
1.9
–
1.8
0.1
0.1
(0.2)
The rate of tax expense on the profit before taxation for the year ended 31 December 2016 is higher than (2015: higher than) the standard rate
of corporation tax in the UK of 20% (2015: 20.25%). The differences are explained as follows:
Group
Profit before taxation
Profit before taxation multiplied by the standard rate of corporation tax in the UK of 20% (2015: 20.25%)
Effects of:
– adjustment in respect of prior years
– adjustment in respect of foreign tax rates
– expenses not deductible for tax purposes
– change in unrecognised deferred tax assets
– impact of rate change on deferred tax asset/liability
Total tax expense
2016
£M
92.6
18.5
2015
£M
100.2
20.3
(0.9)
(2.2)
3.3
3.7
0.7
0.4
25.7
3.7
6.4
10.3
(0.8)
37.7
The Group is currently subject to a tax audit with respect to Provident Polska s.a. for the years 2008-2010. The 2010 audit commenced during 2016
and a decision is awaited. For 2008 and 2009, decisions were received in January 2017 and have been appealed. Further details regarding
these decisions are set out in the Financial Review on page 32. The Group is also subject to audits in Mexico (regarding 2011) and Slovakia
(regarding 2014-2015), all of which are still at the information gathering stage.
6. Earnings per share
Basic earnings per share (‘EPS’) from continuing operations is calculated by dividing the earnings attributable to shareholders of £66.9 million
(2015: £62.5 million) by the weighted average number of shares in issue during the period of 221.2 million (2015: 229.1 million) which has been
adjusted to exclude the weighted average number of shares held in treasury and by the employee trust.
For diluted EPS, the weighted average number of IPF plc ordinary shares in issue is adjusted to assume conversion of all dilutive potential ordinary
share options relating to employees of the Group.
The weighted average number of shares used in the basic and diluted EPS calculations can be reconciled as follows:
Group
Used in basic EPS calculation
Dilutive effect of awards
Used in diluted EPS calculation
Basic and diluted EPS are presented below:
Group
Basic EPS
Dilutive effect of awards
Diluted EPS
2016
M
221.2
6.3
227.5
2016
pence
30.2
(0.8)
29.4
2015
M
229.1
6.3
235.4
2015
pence
27.3
(0.7)
26.6
The 2015 adjusted earnings per share, of 37.1 pence, shown in the performance highlights of this report has been presented before exceptional
items, in order to better present the underlying performance of the Group.
112
112
7. Dividends
Group and Company
Interim dividend of 4.6 pence per share (2015: interim dividend of 4.6 pence per share)
Final 2015 dividend of 7.8 pence per share (2015: final 2014 dividend of 7.8 pence per share)
2016
£M
10.2
17.2
27.4
2015
£M
10.6
18.0
28.6
The directors are recommending a final dividend in respect of the financial year ended 31 December 2016 of 7.8 pence per share which will
amount to a full year dividend payment of £27.5 million. If approved by the shareholders at the annual general meeting (‘AGM’), this dividend
will be paid on 12 May 2017 to shareholders who are on the register of members at 18 April 2017. This dividend is not reflected as a liability in the
balance sheet as at 31 December 2016 as it is subject to shareholder approval.
8. Remuneration of key management personnel
The key management personnel (as defined by IAS 24 ‘Related party disclosures’) of the Group are deemed to be the executive and
non-executive directors of IPF and the members of the Senior Management Group.
Short-term employee benefits
Post-employment benefits
Share-based payments
Total
2016
£M
4.4
0.1
1.1
5.6
2015
£M
4.1
0.1
2.7
6.9
Short-term employee benefits comprise salary/fees, bonus and benefits earned in the year.
Post-employment benefits represent the sum of (i) the increase in the transfer value of the accrued pension benefits (less contributions);
(ii) Group contributions into personal pension arrangements; and (iii) contributions into the Group’s stakeholder scheme.
For gains arising on executive directors’ share options see page 92.
Disclosures in respect of the Group’s directors are included in the Directors’ Remuneration Report.
9. Employee information
The average number of persons employed by the Group (including directors) was as follows:
Group
Full-time*
Part-time**
2016
Number
2015
Number
7,598
3,607
7,284
3,003
11,205
10,287
* Includes 694 agents in Hungary and Romania (2015: includes 283 agents in Hungary).
** Includes 3,169 agents in Hungary and Romania (2015: includes 2,324 agents in Hungary).
Agents are self-employed other than in Hungary where they are required by legislation to be employed. To comply with legislation, our agent
force in Romania became employees from the end of 2015 – these agents are included within the average employee number for 2016.
The average number of employees by category was as follows:
Group
Operations
Administration
Head office and security
Group employment costs for all employees (including directors) were as follows:
Group
Gross wages and salaries
Social security costs
Pension charge – defined contribution schemes (note 25)
Share-based payment charge (note 26)
Total
2016
Number
2015
Number
7,164
1,004
3,037
5,952
1,071
3,264
11,205
10,287
2016
£M
146.8
26.6
0.8
3.5
2015
£M
125.0
24.1
1.1
4.1
177.7
154.3
International Personal Finance plc Annual Report and Financial Statements 2016
International Personal Finance plc Annual Report and Financial Statements 2016
113
113
Financial Statements
Notes to the financial statements continued
Notes to the financial statements continued
10. Exceptional items
Group
Exceptional charge
Tax charge
Post-tax exceptional charge
2016
£M
–
–
–
2015
£M
(15.9)
(6.5)
(22.4)
The 2015 income statement includes an exceptional loss of £22.4 million which comprises pre-tax exceptional loss of £15.9 million and an
exceptional tax charge of £6.5 million.
The exceptional loss includes £18.6 million in respect of the change in Slovak rate cap legislation in December 2015, following which a decision
was made to wind-down our home credit operations in Slovakia. It comprises an £11.2 million charge against profit before tax and the write-off
of a deferred tax asset of £7.4 million that we no longer expect to be realised. The pre-tax loss comprises a provision taken against the carrying
value of the receivables book based on our best estimate of the value and timing of collections of £10.3 million and £0.9 million from the write
down of fixed assets.
We also reported an exceptional cost of £4.7 million in our 2015 half year results, which comprised £2.5 million in respect of MCB Finance
integration costs (principally a write-down of IT assets) and Spain home credit closure costs of £2.2 million (principally contractual obligations
and IT write-offs). There is a corresponding tax credit of £0.9 million relating to these two items.
2016
£M
2015
£M
20.1
–
3.2
23.3
–
20.4
(0.3)
20.1
2016
£M
2015
£M
25.6
–
15.8
(0.7)
(9.0)
0.9
32.6
10.1
6.0
18.9
(4.6)
(4.8)
–
25.6
73.3
(40.7)
32.6
56.9
(31.3)
25.6
11. Goodwill
Group
Net book value
At 1 January
Acquisition of subsidiary
Exchange adjustments
At 31 December
12. Intangible assets
Group
Net book value
At 1 January
Acquisition of subsidiary
Additions
Impairment
Amortisation
Exchange adjustments
At 31 December
Analysed as:
– cost
– amortisation
At 31 December
Intangible assets comprise computer software and customer relationships acquired on the acquisition of MCB Finance.
The Company has no intangible assets.
114
114
13. Investment in subsidiaries
Company
Investment in subsidiaries
Share-based payment adjustment
Investment in MCB Finance
2016
£M
663.6
12.5
23.2
699.3
2015
£M
663.6
10.6
23.2
697.4
IPF plc acquired the international businesses of the Provident Financial plc Group on 16 July 2007 by issuing one IPF plc share to the shareholders
of Provident Financial plc for each Provident Financial plc share held by them. The fair value of the consideration issued in exchange for the
investment in these international businesses was £663.6 million and this amount was therefore capitalised as a cost of investment. £12.5 million
(2015: £10.6 million) has been added to the cost of investment representing the fair value of the share-based payment awards over IPF plc
shares made to employees of subsidiary companies of IPF plc. The corresponding credit has been taken to reserves.
On 6 February 2015 the Group acquired 100% of the issued share capital of MCB Finance Group plc (‘MCB’), a profitable digital consumer
finance provider established in 2006, for a cash consideration of £23.2 million.
The subsidiary companies of IPF plc, which are 100% owned by the Group, are detailed below:
Subsidiary company
Country of incorporation and operation
Principal activity
International Personal Finance Digital Spain S.A.U.
Spain
International Personal Finance Investments Limited
United Kingdom
IPF Ceská republica s.r.o
IPF Development (2003) Limited
IPF Digital AS
IPF Digital Australia Pty Limited
IPF Digital Estonia OÜ
IPF Digital Finland Oy
IPF Digital Latvia, SIA
IPF Digital Lietuva, UAB
IPF Digital Mexico S.A de C.V
IPF Financial Services Limited
IPF Financing Limited
IPF Guernsey (2) Limited
IPF Guernsey Limited
IPF Holdings Limited
IPF International Limited
IPF Investments Polska Sp. z o.o.
IPF Management
IPF Polska SP. Z o.o.
IPF Slovensko s.r.o.
MCB Finance Group Limited
MCB Treasury AB
OOO IPF Bank
PF (Netherlands) B.V.
Provident Financial Bulgaria OOD
Provident Financial Romania IFN S.A.
Provident Financial s.r.o.
Provident Financial s.r.o.
Provident Financial Zrt.
Provident Mexico S.A. de C.V.
Provident Personal Loans (Thailand) Limited
Provident Polska S.A.
Provident Polska Sp. Z o.o.
Provident Servicios de Agencia S.A. de C.V.
Provident Servicios S.A. de C.V.
Sving Finance, UAB
Czech Republic
United Kingdom
Estonia
Australia
Estonia
Finland
Latvia
Lithuania
Mexico
United Kingdom
United Kingdom
Guernsey
Guernsey
United Kingdom
United Kingdom
Poland
Ireland
Poland
Slovakia
United Kingdom
Sweden
Russian Federation
Netherlands
Bulgaria
Romania
Czech Republic
Slovakia
Hungary
Mexico
Thailand
Poland
Poland
Mexico
Mexico
Lithuania
Digital credit
Holding company
Non-trading
Provision of services
Provision of services
Digital credit
Digital credit
Digital credit
Digital credit
Digital credit
Digital credit
Provision of services
Provision of services
Dormant
Dormant
Holding company
Provision of services
Provision of services
Provision of services
Digital credit
Non-trading
Holding company
Former intragroup financing company
In Liquidation
Provision of services
Home credit
Home credit
Home credit
Home credit
Home credit
Home credit
Non-trading
Home credit
Non-trading
Provision of services
Provision of services
Digital credit
International Personal Finance plc Annual Report and Financial Statements 2016
International Personal Finance plc Annual Report and Financial Statements 2016
115
115
Financial Statements
Notes to the financial statements continued
Notes to the financial statements continued
13. Investment in subsidiaries continued
The trading operation of our Lithuanian home credit business was carried out through a branch of Provident Polska S.A. and consequently there
is no separate subsidiary company for these operations.
14. Property, plant and equipment
Equipment and vehicles, fixtures and fittings:
Cost
At 1 January
Exchange adjustments
Acquisition of subsidiary
Additions
Disposals
At 31 December
Depreciation
At 1 January
Exchange adjustments
Acquisition of subsidiary
Charge to the income statement
Disposals
At 31 December
Net book value at 31 December
Group
Company
2016
£M
2015
£M
2016
£M
87.0
6.1
–
8.3
(4.0)
97.4
62.7
4.4
–
10.1
(3.2)
74.0
23.4
85.6
(2.9)
0.2
8.2
(4.1)
87.0
57.4
(1.7)
0.1
10.6
(3.7)
62.7
24.3
0.9
–
–
0.1
–
1.0
0.8
–
–
0.1
–
0.9
0.1
2015
£M
0.9
–
–
–
–
0.9
0.7
–
–
0.1
–
0.8
0.1
15. Deferred tax
Deferred tax is calculated in full on temporary differences under the balance sheet liability method using the appropriate tax rate for the
jurisdiction in which the temporary difference arises. The movement in the deferred tax balance during the year can be analysed as follows:
At 1 January
Exchange adjustments
Acquisition of subsidiary
Tax credit/(charge) to the income statement
Tax credit on other comprehensive income
Tax charge on items taken directly to equity
At 31 December
Group
Company
2016
£M
73.6
4.8
–
23.6
1.9
–
103.9
2015
£M
73.7
(5.7)
(1.6)
7.2
0.3
(0.3)
73.6
2016
£M
0.9
–
–
(0.8)
1.8
–
1.9
2015
£M
1.6
–
–
(0.4)
–
(0.3)
0.9
The Finance (No. 2) Act 2015, which was substantively enacted on 26 October 2015, included provisions to reduce the UK corporation tax rate to
19% with effect from 1 April 2017 and to 18% with effect from 1 April 2020. The Finance Act 2016, which was substantively enacted on 6 September
2016, included an amending provision to further reduce the UK corporation tax rate to 17% with effect from 1 April 2020. The impact of these rate
changes have been applied to the calculation of deferred tax assets and liabilities at 31 December 2016.
116
116
15. Deferred tax continued
Deferred tax assets and liabilities are offset where the Group has a legally enforceable right to do so.
An analysis of the deferred tax assets and liabilities is set out below:
Deferred tax assets
Deferred tax liabilities
At 31 December
At 1 January 2015
Exchange adjustments
Acquisition of subsidiary
Tax credit/(charge) to the income statement
Tax credit on other comprehensive income
Tax charge on items taken directly to equity
At 31 December 2015
At 1 January 2016
Exchange adjustments
Tax (charge)/ credit to the income statement
Tax credit/(charge) on items taken directly to equity
At 31 December 2016
Group
Company
2016
£M
112.0
(8.1)
103.9
2015
£M
82.2
(8.6)
73.6
2016
£M
2.0
(0.1)
1.9
Group
Company
Revenue
and
impairment
differences
£M
Other
temporary
differences
£M
56.7
(4.9)
0.4
8.6
–
–
60.8
60.8
3.6
21.2
–
85.6
8.4
(0.3)
(2.6)
(2.0)
0.3
(0.3)
3.5
3.5
(0.3)
5.6
1.9
10.7
Losses
£M
8.6
(0.5)
0.6
0.6
–
–
9.3
9.3
1.5
(3.2)
–
7.6
Retirement
benefit
obligations
£M
Other
temporary
differences
£M
0.1
–
–
(0.1)
–
–
–
–
–
(0.2)
1.9
1.7
1.5
–
–
(0.3)
–
(0.3)
0.9
0.9
–
(0.6)
(0.1)
0.2
Total
£M
73.7
(5.7)
(1.6)
7.2
0.3
(0.3)
73.6
73.6
4.8
23.6
1.9
103.9
2015
£M
0.9
–
0.9
Total
£M
1.6
–
–
(0.4)
–
(0.3)
0.9
0.9
–
(0.8)
1.8
1.9
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.
At 31 December 2016, the Group has unused tax losses of £76.0 million (2015: £59.9 million) available for offset against future profits. A deferred
tax asset has been recognised in respect of £45.7 million (2015: £50.4 million) of these losses. No deferred tax has been recognised in respect
of the remaining £30.3 million (2015: £9.5 million) as it is not considered probable that there will be future taxable profits available against which
these losses can be offset.
In 2015, the write-off of the £7.4 million Slovak deferred tax balance was charged to the income statement within the £7.2 million credit in
the above table.
16. Amounts receivable from customers
Group
Amounts receivable from customers comprise:
– amounts due within one year
– amounts due in more than one year
2016
£M
2015
£M
808.3
131.6
939.9
718.9
83.5
802.4
International Personal Finance plc Annual Report and Financial Statements 2016
International Personal Finance plc Annual Report and Financial Statements 2016
117
117
Financial Statements
Notes to the financial statements continued
Notes to the financial statements continued
16. Amounts receivable from customers continued
All lending is in the local currency of the country in which the loan is issued. The currency profile of amounts receivable from customers
is as follows:
Group
Polish zloty
Czech crown
Euro
Hungarian forint
Mexican peso
Romanian leu
Bulgarian lev
Australian dollar
2016
£M
345.7
84.2
96.3
139.6
161.2
98.6
7.8
6.5
2015
£M
300.1
85.0
87.6
107.5
147.4
67.3
5.7
1.8
939.9
802.4
Amounts receivable from customers are held at amortised cost and are equal to the expected future cash flows receivable discounted at
the average EIR of 105% (2015: 115%). All amounts receivable from customers are at fixed interest rates. The average period to maturity of
the amounts receivable from customers is 7.8 months (2015: 6.3 months).
No collateral is held in respect of any customer receivables. Home credit does not use an impairment provision account for recording
impairment losses and, therefore, no analysis of gross customer receivables less provision for impairment is presented. Digital holds an impaired
but not reported provision for receivables which have not yet been passed to a third-party collection agency.
Revenue recognised on amounts receivable from customers which have been impaired was £437.0 million (2015: £425.8 million).
Management monitor credit quality using two key metrics: impairment as a percentage of revenue and gross cash loss (‘GCL’) development.
Commentary on impairment as a percentage of revenue is set out in the operational review at both Group and market level. GCL represents the
expected total value of contractual cash flows that will not be collected and will ultimately be written off for any loan or group of loans. Until
collections on any group of receivables are complete, the GCL forecast is a composite of actual and expected cash flows. This represents a
leading edge measure of credit quality with forecasts based on the actual performance of previous lending. At 31 December 2016 our
preliminary GCL forecast for home credit for 2017 was 14.2%; the outturn for 2015 lending as at 31 December 2016 was 15.2%. At 31 December
2016 our preliminary loss rate forecast for digital established markets was 6% and for digital new markets was 13% of receivables.
The Company has no amounts receivable from customers.
17. Cash and cash equivalents
Cash at bank and in hand
The currency profile of cash and cash equivalents is as follows:
Sterling
Polish zloty
Czech crown
Euro
Hungarian forint
Mexican peso
Romanian leu
Bulgarian lev
Australian dollar
Total
118
118
Group
Company
2016
£M
43.4
2015
£M
39.9
2016
£M
3.9
Group
Company
2016
£M
3.4
10.3
3.9
13.2
2.8
5.6
2.2
1.3
0.7
2015
£M
–
9.0
6.4
9.7
3.7
7.0
3.0
1.1
–
2016
£M
3.4
–
0.2
0.1
0.2
–
–
–
–
2015
£M
0.1
2015
£M
–
–
–
0.1
–
–
–
–
–
43.4
39.9
3.9
0.1
18. Other receivables
Other receivables
Prepayments
Amounts due from Group undertakings
Total
No balance within other receivables is impaired.
Amounts due from Group undertakings are unsecured and due for repayment in less than one year.
19. Trade and other payables
Trade payables
Other payables including taxation and social security
Accruals
Amounts due to Group undertakings
Total
Amounts due to Group undertakings are unsecured and due for repayment in less than one year.
20. Borrowing facilities and borrowings
The Group and Company’s borrowings are as follows:
Borrowings
Bank borrowings
Bonds
Total
The Group’s external bonds comprise the following:
Bond
€300 million EMTN
€100 million EMTN
€40 million EMTN
£101.5 million retail bond
Polish zloty 200.0 million PMTN
Romanian lei 79.5 million EMTN
Romanian lei 65.5 million EMTN
Hungarian forint 4.0 billion EMTN
Czech crown 200.0 million EMTN
Czech crown 250.0 million EMTN
Less: unamortised arrangement fees
Group
Company
2016
£M
9.9
10.9
–
20.8
2015
£M
6.3
8.5
–
14.8
2016
£M
–
0.9
626.5
627.4
2015
£M
0.1
1.1
551.1
552.3
Group
Company
2016
£M
11.4
42.6
69.2
–
123.2
2015
£M
7.8
34.4
53.3
–
95.5
2016
£M
0.1
0.6
22.1
229.2
252.0
2015
£M
–
0.7
19.7
171.5
191.9
Group
Company
2016
£M
2015
£M
2016
£M
2015
£M
57.8
565.0
622.8
56.1
500.8
556.9
–
526.4
526.4
2.6
466.4
469.0
Coupon %
Maturity
date
5.750
5.750
4.250
6.125
Six month WIBOR plus 425 basis points
8.000
7.000
11.000
5.500
5.250
2021
2021
2018
2020
2020
2019
2018
2018
2018
2018
2016
£M
256.3
85.4
34.2
101.5
38.8
15.0
12.3
11.0
6.3
7.9
568.7
(3.7)
565.0
The Polish zloty 200 million (£38.8 million) bonds are floating rate bonds, although derivative contracts have been used to fix borrowing costs up
to June 2020. All of the external bank borrowings of the Group are at floating rates.
International Personal Finance plc Annual Report and Financial Statements 2016
International Personal Finance plc Annual Report and Financial Statements 2016
119
119
Financial Statements
Notes to the financial statements continued
Notes to the financial statements continued
20. Borrowing facilities and borrowings continued
The maturity of the Group and Company’s external bond and external bank borrowings is as follows:
Borrowings
Repayable:
– in less than one year
– between one and two years
– between two and five years
– greater than five years
Total
Group
Company
2016
£M
2015
£M
2016
£M
2015
£M
22.4
73.2
527.2
–
622.8
22.3
28.7
214.0
291.9
556.9
–
71.4
455.0
–
526.4
15.2
–
161.9
291.9
469.0
The average period to maturity of the Group’s external bonds and committed external borrowing facilities is 3.3 years (2015: 4.0 years).
The currency exposure on external borrowings is as follows:
Sterling
Polish zloty
Czech crown
Euro
Hungarian forint
Mexican peso
Romanian leu
Total
The maturity of the Group and Company’s external bond and external bank facilities is as follows:
Bond and bank facilities available
Repayable:
– on demand
– in less than one year
– between one and two years
– between two and five years
– greater than five years
Total
The undrawn external bank facilities at 31 December were as follows:
Expiring within one year
Expiring between one and two years
Expiring in more than two years
Total
Group
Company
2016
£M
2015
£M
2016
£M
2015
£M
100.8
103.2
100.8
103.2
48.4
16.3
38.2
17.5
373.4
329.5
18.9
37.7
27.3
16.7
31.2
20.6
622.8
556.9
–
14.0
373.4
10.9
–
27.3
526.4
–
14.8
321.3
9.1
–
20.6
469.0
Group
Company
2016
£M
2015
£M
2016
£M
2015
£M
14.6
42.2
85.3
633.1
–
775.2
13.6
32.0
60.7
288.7
294.9
689.9
5.0
–
71.8
498.7
–
575.5
Group
Company
2016
£M
34.4
12.1
105.9
152.4
2015
£M
23.3
32.0
77.7
133.0
2016
£M
5.0
0.4
43.7
49.1
5.0
12.6
–
174.2
294.9
486.7
2015
£M
2.4
–
15.3
17.7
120
120
21. Risks arising from financial instruments
Risk management
Treasury related risks
The Board approves treasury policies and the treasury function manages the day-to-day operations. The Board delegates certain responsibilities
to the Treasury Committee. The Treasury Committee is empowered to take decisions within that delegated authority. Treasury activities and
compliance with the treasury policies are reported to the Board on a regular basis and are subject to periodic independent reviews and audits,
both internal and external. Treasury policies are designed to manage the main financial risks faced by the Group in relation to funding and
liquidity risk; interest rate risk; currency risk; and counterparty risk. This is to ensure that the Group is properly funded; that interest rate and
currency risk is managed within set limits; and that financial counterparties are of appropriate credit quality. Policies also set out the specific
instruments that can be used for risk management.
The treasury function enters into derivative transactions, principally interest rate swaps, currency swaps and forward currency contracts.
The purpose of these transactions is to manage the interest rate and currency risks arising from the Group’s underlying business operations.
No transactions of a speculative nature are undertaken and written options may only be used when matched by purchased options.
Liquidity risk
The Group is subject to the risk that it will not have sufficient borrowing facilities to fund its existing business and its future plans for growth.
The short-term nature of the Group’s business means that the majority of amounts receivable from customers are receivable within 12 months with
an average period to maturity of around eight months. The risk of not having sufficient liquid resources is therefore low. The treasury policy adopted
by the Group serves to reduce this risk further by setting a specific policy parameter that there are sufficient committed debt facilities to cover
forecast borrowings plus an appropriate level of operational headroom on a rolling basis. Further, the aim is to ensure that there is a balanced
refinancing profile with phased maturity dates; that there is diversification of debt funding sources; that there is no over-reliance on a single or small
group of lenders; and that debt facilities and hedging capacity are sufficient for the currency requirements of each country. At 31 December 2016,
the Group’s bonds and committed borrowing facilities had an average period to maturity of 3.3 years (2015: 4.0 years).
As shown in note 20, total undrawn facilities as at 31 December 2016 were £152.4 million (2015: £133.0 million).
As outlined in the Financial Review on page 32, 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 financial year is currently being audited by the tax authorities in Poland, and
all subsequent years until 2016 remain open to future audit. Since the year end 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 approximately £38
million (comprising tax and associated interest) which was necessary in order to make the appeals. 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 the amount and
timing of such cash outflows. However, in the event that audits are opened, and similar decisions are reached for each of these subsequent
financial years, further amounts of up to c. £95 million may be required to be funded. In relation to these matters, the directors have stated in
note 32 that they do not consider that there will be any probable ultimate loss.
A maturity analysis of gross borrowings included in the balance sheet is presented in note 20. A maturity analysis of bonds, bank borrowings
and overdrafts outstanding at the balance sheet date by non-discounted contractual cash flow, including expected interest payments, is
shown below:
Not later than six months
Later than six months and not later than one year
Later than one year and not later than two years
Later than two years and not later than five years
Later than five years
Group
Company
2016
£M
46.1
61.1
107.7
589.8
–
804.7
2015
£M
16.2
38.3
59.4
288.0
299.4
701.3
2016
£M
15.4
15.6
100.6
511.6
–
643.2
2015
£M
13.8
28.9
26.6
230.0
299.4
598.7
The analysis above includes the contractual cash flow for borrowings and the total amount of interest payable over the life of the loan. Where
borrowings are subject to a floating interest rate, an estimate of interest payable is taken. The rate is derived from interest rate yield curves at the
balance sheet date.
The following analysis shows the gross non-discounted contractual cash flows in respect of foreign currency contract derivative assets and
liabilities, and interest rate swap derivative liabilities which are all designated as cash flow hedges:
Group
Not later than one month
Later than one month and not later than six months
Later than six months and not later than one year
Later than one year and not later than two years
Later than two years and not later than five years
2016
2015
Outflow
£M
166.9
122.1
59.1
73.2
11.8
Inflow
£M
169.7
126.2
57.3
72.9
11.8
Outflow
£M
104.8
132.3
81.4
56.9
24.3
Inflow
£M
106.2
134.4
80.3
56.6
25.8
433.1
437.9
399.7
403.3
International Personal Finance plc Annual Report and Financial Statements 2016
International Personal Finance plc Annual Report and Financial Statements 2016
121
121
Financial Statements
Notes to the financial statements continued
Notes to the financial statements continued
21. Risks arising from financial instruments continued
Company
Not later than one month
Later than one month and not later than six months
Later than six months and not later than one year
Later than one year and not later than two years
Later than two years and not later than five years
2016
2015
Outflow
£M
Inflow
£M
Outflow
£M
11.5
10.5
1.6
13.0
–
36.6
11.7
10.1
1.5
15.0
–
38.3
2.1
26.2
1.3
1.3
13.1
44.0
Inflow
£M
1.8
26.1
1.2
0.9
15.0
45.0
When the amount payable or receivable is not fixed, the amount disclosed has been determined with reference to the projected interest rates
as illustrated by the interest rate yield curves existing at the balance sheet date.
A maturity analysis of the Group’s receivables and borrowing facilities as at 31 December is presented below:
Group
2015
Less than one year
Later than one year
2016
Less than one year
Later than one year
Receivables
£M
Percentage
of total
%
Borrowing
facilities
£M
Percentage
of total
%
718.9
83.5
802.4
808.3
131.6
939.9
89.6
10.4
100.0
86.0
14.0
100.0
45.6
644.3
689.9
56.8
718.4
775.2
6.6
93.4
100.0
7.3
92.7
100.0
This demonstrates the short-term nature of the amounts receivable from customers which contrasts with the longer-term nature of the Group’s
committed funding facilities.
Amounts receivable from customers
Risk management policies in respect of amounts receivable from customers are discussed in the credit risk section within this note.
Interest rate risk
The Group has an exposure to interest rate risk arising on changes in interest rates in each of its countries of operation and, therefore, seeks
to limit this net exposure. This is achieved by the use of techniques to fix interest costs, including fixed rate funding (predominantly longer-term
bond funding); forward currency contracts used for non-functional currency funding; bank borrowing loan draw-down periods; and interest rate
hedging instruments. These techniques are used to hedge the interest costs on a proportion of borrowings over a certain period of time, up to
five years, although most hedging is for up to two years.
Interest costs are a relatively low proportion of the Group’s revenue (6.2% in 2016; 5.7% in 2015) and therefore the risk of a material impact on
profitability arising from a change in interest rates is low. If interest rates across all markets increased by 200 basis points this would have the
following impact:
Group
Increase in fair value of derivatives taken to equity
Reduction in profit before taxation
This sensitivity analysis is based on the following assumptions:
2016
£M
2.7
0.9
2015
£M
3.2
0.6
• the change in the market interest rate occurs in all countries where the Group has borrowings and/or derivative financial instruments;
• where financial liabilities are subject to fixed interest rates or have their interest rate fixed by hedging instruments it is assumed that there is
no impact from a change in interest rates; and
• changes in market interest rate affect the fair value of derivative financial instruments.
Currency risk
The Group is subject to three types of currency risk: net asset exposure; cash flow exposure; and income statement exposure.
122
122
21. Risks arising from financial instruments continued
Net asset exposure
The majority of the Group’s net assets are denominated in currencies other than sterling. The balance sheet is reported in sterling and this means
that there is a risk that a fluctuation in foreign exchange rates will have a material impact on the net assets of the Group. The impact in 2016 is an
increase in net assets of £65.1 million (2015: decrease of £23.9 million). The Group aims to minimise the value of net assets denominated in each
foreign currency by funding overseas receivables with borrowings in local currency, where possible.
Cash flow exposure
The Group is subject to currency risk in respect of future cash flows which are denominated in foreign currency. The policy of the Group is to
hedge a large proportion of this currency risk in respect of cash flows which are expected to arise in the following 12 months. Where forward
foreign exchange contracts have been entered into, they are designated as cash flow hedges on specific future transactions.
Income statement exposure
As with net assets, the majority of the Group’s profit is denominated in currencies other than sterling but translated into sterling for reporting
purposes. The result for the period is translated into sterling at the average exchange rate. A risk therefore arises that a fluctuation in the
exchange rates in the countries in which the Group operates will have a material impact on the consolidated result for the period.
The following sensitivity analysis demonstrates the impact on equity of a 5% strengthening or weakening of sterling against all exchange rates
for the countries in which the Group operates:
Group
Change in reserves
Change in profit before taxation
This sensitivity analysis is based on the following assumptions:
2016
£M
6.4
4.7
2015
£M
6.1
8.1
• there is a 5% strengthening/weakening of sterling against all currencies in which the Group operates (Polish zloty, Czech crown, euro,
Hungarian forint, Mexican peso, Romanian leu, Australian dollar and Bulgarian lev); and
• there is no impact on retained earnings or equity arising from those items which are naturally hedged (where the currency asset is exactly
equal to the currency liability).
Counterparty risk
The Group is subject to counterparty risk in respect of the cash and cash equivalents held on deposit with banks; and foreign currency and
derivative financial instruments.
The Group only deposits cash, and only undertakes currency and derivative transactions, generally with highly rated banks and sets strict
limits in respect of the amount of exposure to any one institution. Institutions with lower credit ratings can only be used with Board approval.
No collateral or credit enhancements are held in respect of any financial assets. The maximum exposure to counterparty risk is as follows:
Group
Cash and cash equivalents
Derivative financial assets
Total
2016
£M
43.4
15.4
58.8
2015
£M
39.9
11.5
51.4
The table above represents a worst case scenario of the counterparty risk that the Group is exposed to at the year end. An analysis of the cash
and cash equivalents by geographical segment is presented in note 17.
Cash and cash equivalents and derivative financial instruments are neither past due nor impaired. Credit quality of these assets is good and
the cash and cash equivalents are spread over a number of banks, each of which meets the criteria set out in our treasury policies, to ensure
the risk of loss is minimised.
International Personal Finance plc Annual Report and Financial Statements 2016
International Personal Finance plc Annual Report and Financial Statements 2016
123
123
Financial Statements
Notes to the financial statements continued
Notes to the financial statements continued
21. Risks arising from financial instruments continued
Credit risk
The Group is subject to credit risk in respect of amounts receivable from customers.
Amounts receivable from customers
The Group lends small amounts over short-term periods to a large and diverse group of customers across the countries in which it operates.
Nevertheless, the Group is subject to a risk of material unexpected credit losses in respect of amounts receivable from customers. This risk is
minimised by the use of credit scoring techniques which are designed to ensure the Group lends only to those customers who we believe can
afford the repayments. The amount loaned to each customer and the repayment period agreed are dependent upon the risk category the
customer is assigned to as part of the credit scoring process. The level of expected future losses is generated on a weekly or monthly basis by
business line and geographical segment. These outputs are reviewed by management to ensure that appropriate action can be taken if results
differ from management expectations.
Group
Amounts receivable from customers
2016
£M
2015
£M
939.9
802.4
The table above represents the maximum exposure to credit risk of the Group at the year end. An analysis of the amounts receivable from
customers by geographical segment is presented in note 16.
Amounts receivable from customers are stated at amortised cost and calculated in accordance with the Group’s accounting policies.
Those amounts receivable from customers that are neither past due nor impaired represent loans where no customer payments have
been missed and there is, therefore, no evidence to suggest that the credit quality is anything other than adequate.
Amounts receivable from customers include £4.6 million that is past due but not impaired (2015: £5.8 million). This is in relation to the first four
weeks of loans for home credit new customers, and allows a repayment pattern to be established.
An analysis of the amounts receivable from customers that are individually determined to be impaired is set out by geographical
segment below:
Group
Poland-Lithuania
Czech-Slovakia
Southern Europe
Mexico
Digital
Not impaired
Impaired
2016
£M
92.1
26.3
90.2
47.0
109.9
365.5
2015
£M
79.9
32.4
65.8
28.6
53.1
259.8
2016
£M
236.8
60.3
155.8
114.2
7.3
574.4
2015
£M
223.1
83.4
114.7
118.8
2.6
542.6
This analysis includes all loans that have been subject to impairment. The impairment charge is based on the average expected loss for each
arrears stage of customer receivables and this average expected loss is applied to the entire arrears stage. This results in a significant proportion
of the amounts receivable from customers attracting an impairment charge. For each market the amount by which an asset is impaired
depends on the type of product, the recent payment performance and the number of weeks since the loan was issued. There will, therefore, be
a large amount of receivables which are classed as impaired but where the carrying value is still a large proportion of the contractual amount
recoverable. In IPF Digital the default trigger occurs when customers are passed to collections, however an incurred but not reported provision is
held in respect of these balances.
Annualised impairment as a percentage of revenue for each geographical segment is shown below:
Group
Poland-Lithuania
Czech-Slovakia
Southern Europe
Mexico
Digital
2016
%
25.9
(8.2)
21.3
36.5
30.1
2015
%
22.9
26.0
22.6
31.9
28.6
The carrying value of amounts receivable from customers that would have been impaired had their terms not been renegotiated is £nil (2015: £nil).
124
124
21. Risks arising from financial instruments continued
Capital risk
The Group is subject to the risk that its capital structure will not be sufficient to support the growth of the business. The Group is not required
to hold regulatory capital.
The Group aims to maintain appropriate capital to ensure that it has a strong balance sheet but at the same time is providing a good return on
equity to its shareholders. The Group’s long-term aim is to ensure that the capital structure results in an optimal ratio of debt and equity finance.
Capital is monitored by considering the ratio of equity to receivables and the gearing ratio. The equity of the Group and these ratios are
shown below:
Group
Receivables
Borrowings
Other net assets
Equity
Equity as % of receivables
Gearing
2016
£M
2015
£M
939.9
802.4
(622.8)
(556.9)
112.4
429.5
45.7%
1.5
81.7
327.2
40.8%
1.7
Equity as a percentage of receivables was above the Group’s internally-set target.
Gearing, which is equal to borrowings divided by equity, at a ratio of 1.5 times (2015: 1.7 times), is well within covenant limits of 3.75 times.
22. Derivative financial instruments
Fair value estimation
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).
Where fair values are disclosed for financial assets and liabilities not carried at fair value, all such assets are classed as level 1, with the exception
of disclosures relating to amounts receivable from customers which are classed as level 3. Details of the significant assumptions in relation to
amounts receivable from customers are included in note 24 along with the fair value of other Group assets and liabilities. All of the Group’s
financial instruments fall into hierarchy level 2.
The Group’s derivative assets and liabilities that were measured at fair value at 31 December are as follows:
Group
Assets
Interest rate swaps
Foreign currency contracts
Total
Group
Liabilities
Interest rate swaps
Foreign currency contracts
Total
2016
£M
2015
£M
0.3
15.1
15.4
–
11.5
11.5
2016
£M
2015
£M
0.8
3.9
4.7
1.2
1.6
2.8
International Personal Finance plc Annual Report and Financial Statements 2016
International Personal Finance plc Annual Report and Financial Statements 2016
125
125
Financial Statements
Notes to the financial statements continued
Notes to the financial statements continued
22. Derivative financial instruments continued
Company
Assets
Foreign currency contracts
Total
Company
Liabilities
Foreign currency contracts
Total
2016
£M
2015
£M
3.3
3.3
2.5
2.5
2016
£M
2015
£M
0.3
0.3
0.2
0.2
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 31 December.
Cash flow hedges
The Group uses foreign currency contracts (‘cash flow hedges’) to hedge those foreign currency cash flows that are highly probable to occur
within 12 months of the balance sheet date and interest rate swaps (‘cash flow hedges’) to hedge those interest cash flows that are expected to
occur within two years of the balance sheet date. The effect on the income statement will also be within these periods. An amount of £1.5 million
has been credited to equity for the Group in the period in respect of cash flow hedges (2015: £1.0 million charged to equity), Company: £0.4
million credit (2015: £0.3 million credit).
Foreign currency contracts
The total notional amount of outstanding foreign currency contracts that the Group is committed to at 31 December 2016 is £427.2 million
(2015: £389.0 million). These comprise:
• foreign currency contracts to buy or sell operational currencies against the euro for a total notional amount of £223.4 million (2015: £203.4
million). These contracts have various maturity dates up to October 2020 (2015: October 2020). These contracts have been designated and
are effective as cash flow hedges under IAS 39 and, accordingly, the fair value thereof has been deferred in equity;
• foreign currency contracts to buy or sell various currencies for a total notional amount of £nil million (2015: £0.3 million).
• foreign currency contracts to buy or sell sterling for a total notional amount of £203.8 million (2015: £185.3 million). These contracts have
various maturity dates up to December 2018 (2015: November 2018). These contracts have been designated and are effective as cash
flow hedges under IAS 39 and, accordingly, the fair value thereof has been deferred in equity.
£nil (2015: £0.3 million credit) has been made to the income statement in the year representing the movement in the fair value of the ineffective
portion of the Mexican cross currency swap.
The total notional amount of outstanding foreign currency contracts that the Company is committed to at 31 December 2016 is £34.2 million
(2015: £39.0 million). These comprise:
• foreign currency contracts to buy or sell operational currencies against the euro for a total notional amount of £3.3 million (2015: £2.8 million).
All of these contracts are held with external providers to buy and sell currency and have equal and offsetting contracts with other Group
companies to buy and sell the same amounts of currency. This leaves the Company with no residual risk and ensures the relevant
subsidiary company has an effective foreign currency contract in its books; and
• foreign currency contracts to buy or sell sterling for a total notional amount of £30.9 million (2015: £36.2 million). These contracts have various
maturity dates up to November 2018 (2015: November 2018). These contracts have been designated and are effective as cash flow hedges
under IAS 39 and, accordingly, the fair value thereof has been deferred in equity.
Interest rate swaps
The total notional principal of outstanding interest rate swaps that the Group is committed to is £62.2 million (2015: £58.3 million). In 2016,
these interest rate swaps cover the current borrowings relating to the floating rate Polish bond and a proportion of floating rate bank borrowings
in Mexico.
126
126
22. Derivative financial instruments continued
Interest rate swaps in place at the balance sheet date are designated, and are effective under IAS 39, as cash flow hedges, and the fair value
thereof has been deferred in equity within the hedging reserve. A charge of £nil (2015: £nil) has been made to the income statement in the year
representing the movement in the fair value of the ineffective portion of the interest rate swaps and the income statement charge relating to the
closure of interest rate swaps.
The weighted average interest rate and period to maturity of the Group interest rate swaps were as follows:
Group
Polish zloty
Mexican peso
2016
Range of
interest
rates
%
2.7-2.8
4.0-4.5
Weighted
average
interest rate
%
2.7
4.2
Weighted
average
period to
maturity
Years
Weighted
average
interest rate
%
3.4
0.5
2.7
4.2
2015
Range of
interest
rates
%
2.7-2.8
4.0-4.5
Weighted
average
period to
maturity
Years
4.4
1.5
The Company did not hold any interest rate swaps at 31 December 2016 (31 December 2015: £nil).
23. Analysis of financial assets and financial liabilities
Financial assets
An analysis of Group financial assets is presented below:
Group
Amounts receivable from customers
Derivative financial instruments
Cash and cash equivalents
Other receivables
Current tax assets
Financial liabilities
An analysis of Group financial liabilities is presented below:
Group
Bonds
Bank borrowings
Derivative financial instruments
Trade and other payables
Current tax liabilities
2016
Derivatives
used for
hedging
£M
Loans and
receivables
£M
939.9
–
43.4
20.8
3.1
–
15.4
–
–
–
2015
Derivatives
used for
hedging
£M
Loans and
receivables
£M
802.4
–
39.9
14.8
1.3
–
11.5
–
–
–
Total
£M
939.9
15.4
43.4
20.8
3.1
Total
£M
802.4
11.5
39.9
14.8
1.3
1,007.2
15.4
1,022.6
858.4
11.5
869.9
2016
Financial
liabilities at
amortised
cost
£M
Derivatives
used for
hedging
£M
565.0
57.8
–
123.2
16.5
762.5
–
–
4.7
–
–
4.7
Total
£M
565.0
57.8
4.7
123.2
16.5
767.2
Financial
liabilities at
amortised
cost
£M
2015
Derivatives
used for
hedging
£M
Total
£M
500.8
56.1
2.8
95.5
30.9
–
–
2.8
–
–
2.8
686.1
500.8
56.1
–
95.5
30.9
683.3
International Personal Finance plc Annual Report and Financial Statements 2016
International Personal Finance plc Annual Report and Financial Statements 2016
127
127
Financial Statements
Notes to the financial statements continued
Notes to the financial statements continued
24. Fair values of financial assets and liabilities
The fair value and carrying value of the financial assets and liabilities of the Group are set out below:
Group
Financial assets
Amounts receivable from customers
Derivative financial instruments
Cash and cash equivalents
Other receivables
Current tax assets
Financial liabilities
Bonds
Bank borrowings
Derivative financial instruments
Trade and other payables
Current tax liabilities
2016
2015
Fair value
£M
Carrying
value
£M
Fair value
£M
Carrying
value
£M
1,335.5
15.4
43.4
20.8
3.1
939.9
15.4
43.4
20.8
3.1
1,140.0
802.4
11.5
39.9
14.8
1.3
11.5
39.9
14.8
1.3
1,418.2
1,022.6
1,207.5
869.9
480.8
57.8
4.7
123.2
16.5
683.0
565.0
57.8
4.7
123.2
16.5
767.2
459.9
500.8
56.1
2.8
95.5
30.9
56.1
2.8
95.5
30.9
645.2
686.1
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 agent collection costs, at the Group’s weighted average cost of capital.
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.
Derivative financial instruments are held at fair value which is equal to the expected future cash flows arising as a result of the
derivative transaction.
For other financial assets and liabilities, which are all short-term in nature, the carrying value is a reasonable approximation of their fair value.
25. Retirement benefit obligations
Pension schemes – defined benefit
With effect from 1 March 2010, the Group’s defined benefit pension scheme was closed to further accrual of defined benefit obligations.
Scheme assets are stated at fair value as at 31 December 2016. The major assumptions used by the actuary were:
Group and Company
Price inflation (‘CPI’)
Rate of increase to pensions in payment
Discount rate
2016
%
2.4
3.2
2.7
2015
%
2.2
3.0
3.9
The expected return on scheme assets is determined by considering the expected returns available on the assets underlying the current
investment policy. Expected yields on fixed interest investments are based on gross redemption yields as at the balance sheet date. Expected
returns on equity investments reflect long-term real rates of return experienced in the respective markets.
128
128
25. Retirement benefit obligations continued
The mortality assumptions are based on standard tables which allow for future mortality improvements. Different assumptions are used for
different groups of members. Most members have not yet retired. On average, we expect a male retiring in the future at age 65 to live for a
further 27 years. On average, we expect a female retiring in the future at age 65 to live for a further 28 years. If life expectancies had been
assumed to be one year greater for all members, the defined benefit obligation would increase by approximately £1.8 million.
If the discount rate was 250 basis points higher/(lower), the defined benefit obligation would decrease by £3.0 million/(increase by £3.2 million).
If the price inflation rate was 250 basis points higher/(lower), the defined benefit obligation would increase by £1.6 million/(decrease by
£1.6 million).
The sensitivity analysis presented above may not be representative of the actual change in the defined benefit obligation as it is unlikely that the
change in assumptions would occur in isolation of one another as some of the assumptions may be correlated.
During the year, the Directors of the Company determined that the defined benefit pension liability, which had previously been only partially
allocated to the Company balance sheet, should be fully recognised. This determination was on the basis of the underlying funding
agreements. The full defined benefit pension liability has always previously been disclosed on the Group balance sheet. No prior year
restatement has been recognised on the basis of immateriality, and the increase in the Company’s obligation to the defined benefit liability has
been recognised through the statement of other comprehensive income.
The amounts recognised in the balance sheet are as follows:
Group and Company
Equities
Bonds
Index-linked gilts
Other
Total fair value of scheme assets
Present value of funded defined benefit obligations
Net obligation recognised in the balance sheet
The amounts recognised in the income statement are as follows:
Group and Company
Interest cost
Expected return on scheme assets
Net cost recognised in the income statement
The net cost is included within administrative expenses.
Movements in the fair value of scheme assets were as follows:
Group and Company
Fair value of scheme assets at 1 January
Expected return on scheme assets
Actuarial gain/(loss) on scheme assets
Contributions by the Group
Net benefits paid out
Fair value of scheme assets at 31 December
2016
£M
22.1
9.6
8.3
0.2
40.2
(49.3)
(9.1)
2016
£M
1.4
(1.4)
–
2016
£M
36.1
1.4
3.4
1.1
(1.8)
40.2
2015
£M
19.8
8.9
7.2
0.2
36.1
(36.3)
(0.2)
2015
£M
1.4
(1.4)
–
2015
£M
36.9
1.4
(0.9)
1.1
(2.4)
36.1
International Personal Finance plc Annual Report and Financial Statements 2016
International Personal Finance plc Annual Report and Financial Statements 2016
129
129
Financial Statements
Notes to the financial statements continued
Notes to the financial statements continued
25. Retirement benefit obligations continued
Movements in the present value of the defined benefit obligation were as follows:
Group and Company
Defined benefit obligation at 1 January
Interest cost
Actuarial (loss)/gain on scheme liabilities
Net benefits paid out
Defined benefit obligation at 31 December
The actual return on scheme assets compared to the expected return is as follows:
Group and Company
Expected return on scheme assets
Actuarial gain/(loss) on scheme assets
Actual return on scheme assets
2016
£M
(36.3)
(1.4)
(13.4)
1.8
2015
£M
(38.9)
(1.4)
1.6
2.4
(49.3)
(36.3)
2016
£M
1.4
3.4
4.8
2015
£M
1.4
(0.9)
0.5
Actuarial gains and losses have been recognised through the statement of comprehensive income (‘SOCI’) in the period in which they occur.
An analysis of the amounts recognised in the SOCI is as follows:
Group and Company
Actuarial gain/(loss) on scheme assets
Actuarial (loss)/gain on scheme liabilities
Total (loss)/gain recognised in the SOCI in the year
Cumulative amount of losses recognised in the SOCI
The history of experience adjustments is as follows:
Group and Company
Experience gains/(losses) on scheme assets:
– amount (£M)
– percentage of scheme assets (%)
Experience losses on scheme liabilities:
– amount (£M)
– percentage of scheme liabilities (%)
* As required under IAS 19.
2016
£M
3.4
(13.4)
(10.0)
(25.5)
2015
£M
(0.9)
1.6
0.7
(15.5)
2016
2015
2014
2013*
2012*
3.4
8.5
–
–
(0.9)
(2.5)
–
–
2.2
6.0
(1.2)
(3.1)
2.1
6.3
–
–
1.8
6.0
–
–
130
130
25. Retirement benefit obligations continued
Pension schemes – defined contribution
The defined benefit pension scheme is no longer open to further accrual. All eligible UK employees are invited to join stakeholder pension
schemes into which the Group contributes between 8% and 20% of members’ pensionable earnings, provided the employee contributes a
minimum of 5%. The assets of the scheme are held separately from those of the Group. The pension charge in the income statement represents
contributions payable by the Group in respect of the scheme and amounted to £1.1 million for the year ended 31 December 2016 (2015: £1.1
million). £nil contributions were payable to the scheme at the year-end (2015: £nil).
In addition, an amount of £nil (2015: £nil) has been charged to the income statement in respect of contributions into personal pension
arrangements for certain directors and employees.
26. Share-based payments
The Group currently operates six categories of share schemes: The International Personal Finance plc Performance Share Plan (‘the Performance
Share Plan’); The International Personal Finance plc Approved Company Share Option Plan (‘the CSOP’); The International Personal Finance plc
Employee Savings-Related Share Option Scheme (‘the SAYE scheme’); The International Personal Finance plc Deferred Share Plan (‘the Deferred
Share Plan’); The International Personal Finance plc Have Your Share Plan (‘the HYS plan’); and The International Personal Finance plc
Discretionary Award Plan (‘the Discretionary Award Plan’). A number of awards have been granted under these schemes during the period
under review. No awards have been granted under the HYS plan in 2016.
Options granted under the Performance Share Plans and CSOPs may be subject to a total shareholder return (‘TSR’) performance target and/or
earnings per share (‘EPS’) growth; net revenue growth; customer numbers growth; agent turnover; and earnings before interest and tax (‘EBIT’)
performance targets. The income statement charge in respect of the Performance Share Plan and the CSOP has been calculated using both a
Monte Carlo simulation (for TSR) and Black-Scholes model (for the other non-market related conditions) as these schemes include performance
targets. There are no performance conditions associated with the HYS plan; if an employee purchases a number of shares (subject to a
maximum), the Company grants a nil cost option over four times the number of shares initially purchased. The only criterion associated with this
option is that the employee must remain in employment for three years following the initial grant date. The income statement charge in respect
of this scheme is calculated using the share price at the date of grant. There are no performance conditions associated with the Discretionary
Award Plan, the income statement charge in respect of this scheme is calculated using the share price at the date of grant.
The income statement charge in respect of the SAYE scheme is calculated using a Monte Carlo simulation model, however, no TSR targets are
assigned. The Deferred Share Plan comprises deferred awards with matching awards. There are no additional performance criteria attached to
the deferred awards, therefore, the income statement charge is calculated using the actual share price at the date the award is granted. The
matching awards are subject to the same criteria as the Performance Share Plan.
The total income statement charge in respect of these share-based payments is £3.5 million (2015: £4.1 million).
International Personal Finance plc Annual Report and Financial Statements 2016
International Personal Finance plc Annual Report and Financial Statements 2016
131
131
Financial Statements
Notes to the financial statements continued
Notes to the financial statements continued
26. Share-based payments continued
The fair value per award granted and the assumptions used in the calculation of the share-based payment charge are as follows:
Group and Company
Grant date
Share price at award date
Base price for TSR
Exercise price
Vesting period (years)
Expected volatility
Award life (years)
Expected life (years)
Risk-free rate
Expected dividends expressed as a dividend yield
Deferred portion
TSR threshold
TSR maximum target
EPS threshold
EPS maximum target
Net revenue threshold
Net revenue maximum target
Fair value per award (£)
Deferred
Share Plans
Performance
Share Plans
Discretionary
Award Plan
SAYE schemes
2016
2.15
n/a
2.96
3 and 5
CSOPs
2016
2.82
n/a
2.93
3-4
2016
2.82
n/a
n/a
3
2016
2.82
n/a
nil
3-4
46.2%-46.8%
41.3%-41.4%
41.4%
41.3-41.4%
Up to 5
Up to 5
0.56%
5.77%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
3
3
1.45%
4.40%
50.0%
30.0%
60.0%
98p
110p
n/a and 5.0%
n/a and 12.0%
3
3
1.45%
4.40%
n/a
30.0%
60.0%
n/a
n/a
n/a
3
3
1.45%
4.40%
50.0%
30.0%
60.0%
98p
110p
n/a and 5.0%
n/a n/a and 12.0%
0.40-0.61
0.50-0.64
1.07-2.47
1.07-2.47
2016
2.77
n/a
n/a
3
n/a
3
3
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
No exercise price is payable in respect of awards made under the Performance Share Plan or the Deferred Share Plan. The risk-free rate of return
is the yield on zero coupon UK government bonds with a remaining term equal to the expected life of the award.
Further detail in respect of the Performance Share Plans, CSOPs, Deferred Share Plans, SAYEs, HYS plans and Discretionary Award Plan is given
in the Directors’ Remuneration Report.
The movements in awards during the year for the Group are outlined in the table below:
SAYE schemes
CSOPs
Deferred Share Plans
Performance Share Plans
HYS plans
Discretionary Award Plan
Weighted
average
exercise
Group
Number
price
Number
Outstanding at
1 January 2015
Granted
400,428
243,417
3.10
332,269
3.20
29,814
Expired/lapsed
(93,334)
4.28
(27,864)
Exercised
(142,924)
1.90 (120,407)
Weighted
average
exercise
price
Weighted
average
exercise
price
Number
3.57
4.32
3.67
2.45
1,621,277
482,216
(1,963)
(610,652)
Outstanding at
31 December 2015
Outstanding at
1 January 2016
Granted
407,587
3.32
213,812
4.30
1,490,878
407,587
3.32 213,812
4.30
1,490,878
331,153
2.15 276,570
Expired/lapsed
(292,814)
3.43
(89,973)
Exercised
(12,417)
2.40
(9,783)
2.93
4.25
2.47
434,168
(161,492)
(448,803)
Outstanding at
31 December 2016 433,509
2.39 390,626
3.39
1,314,751
Weighted
average
exercise
price
Weighted
average
exercise
price
Number
–
–
–
–
–
–
–
–
–
–
217,021
113,132
(20,896)
–
309,257
309,257
–
(55,478)
–
253,779
–
–
–
–
–
–
–
–
–
–
Number
4,680,926
1,467,558
(302,466)
(1,425,169)
4,420,849
4,420,849
1,979,324
(999,869)
(1,071,111)
4,329,193
Weighted
average
exercise
price
–
–
–
–
–
–
–
–
–
–
Number
–
120,000
–
–
120,000
120,000
200,000
–
–
320,000
–
–
–
–
–
–
–
–
–
–
The weighted average share price at the date of exercise for the share options exercised during the year was £2.77.
132
132
26. Share-based payments continued
The movements in awards during the year for the Company are outlined in the table below:
Company
Outstanding at 1 January 2015
Granted
Transferred
Expired/lapsed
Exercised
Outstanding at 31 December 2015
Outstanding at 1 January 2016
Granted
Transferred
Expired/lapsed
Exercised
Outstanding at 31 December 2016
SAYE schemes
CSOPs
Deferred Share Plans
Performance Share Plans
Weighted
average
exercise
price
3.16
3.20
2.06
4.29
1.91
3.24
3.24
2.15
–
3.42
2.41
2.39
Weighted
average
exercise
price
3.58
4.32
5.26
5.09
2.31
4.40
4.40
2.93
–
4.47
2.47
3.55
Number
1,043,109
331,415
–
–
(397,751)
976,773
976,773
247,778
–
(151,984)
(271,925)
800,642
Number
198,588
13,588
5,708
(2,244)
(77,150)
138,490
138,490
128,605
–
(49,972)
(6,747)
210,376
Number
245,129
139,398
3,940
(59,436)
(70,601)
258,430
258,430
202,149
–
(166,489)
(9,380)
284,710
Weighted
average
exercise
price
–
–
–
–
–
–
Number
2,159,047
652,418
2,889
(13,625)
(630,784)
2,169,945
– 2,169,945
–
–
–
–
781,028
–
(609,746)
(619,376)
– 1,721,851
Weighted
average
exercise
price
–
–
–
–
–
–
–
–
–
–
–
–
The Company does not have any awards under the HYS plan or Discretionary Award Plan.
The weighted average share price at the date of exercise for the share options exercised during the year was £2.75.
27. Share capital
Company
At 1 January
Own shares acquired
At 31 December
2016
£M
23.4
–
23.4
2015
£M
24.0
(0.6)
23.4
Share capital consists of 234,244,437 fully paid up shares (2015: 234,244,437 fully paid up shares) at a nominal value of 10 pence.
The Company has one class of ordinary shares which carry no right to fixed income.
The own share reserve represents the cost of shares in IPF purchased from the market, which can be used to satisfy options under the Group’s
share options schemes (see note 26). The number of ordinary shares held in treasury and by the employee trust at 31 December 2016 was
12,271,406 (2015: 13,806,124).
International Personal Finance plc Annual Report and Financial Statements 2016
International Personal Finance plc Annual Report and Financial Statements 2016
133
133
Financial Statements
Notes to the financial statements continued
Notes to the financial statements continued
28. Reconciliation of profit/(loss) after taxation to cash generated from operating activities
Group
Company
Profit/(loss) after taxation
Adjusted for:
– tax charge/(credit)
– finance costs
– finance income
– share-based payment charge (note 26)
– depreciation of property, plant and equipment (note 14)
– loss on disposal of property, plant and equipment (note 3)
– amortisation of intangible assets (note 12)
– impairment of intangible assets (note 3)
Changes in operating assets and liabilities:
– amounts receivable from customers
– other receivables
– trade and other payables
– retirement benefit obligation
– derivative financial instruments
Cash generated from operating activities
2016
£M
66.9
25.7
47.1
–
3.5
10.1
0.8
9.0
0.7
2015
£M
2016
£M
62.5
(17.2)
37.7
41.6
2.3
33.9
2015
£M
(8.9)
(1.0)
36.3
–
(27.8)
(34.2)
4.1
10.6
–
4.8
4.6
(42.6)
(58.5)
(6.6)
19.2
(1.1)
(0.2)
(1.1)
1.5
(1.1)
(6.4)
132.5
100.3
2.5
0.1
–
–
–
–
(71.6)
57.8
(1.1)
–
21.1
2.0
0.1
–
–
–
–
(42.1)
101.3
(1.0)
(1.1)
51.4
29. Commitments
At the balance sheet date, the Group had outstanding commitments for future minimum lease payments under non-cancellable operating
leases, which fall due as follows:
Group
In less than one year
In more than one year but not later than five years
In more than five years
Other commitments are as follows:
Group
Capital expenditure commitments contracted with third parties but not provided for at 31 December
The Company has no commitments as at 31 December 2016 (2015: £nil).
2016
£M
15.6
19.9
–
35.5
2016
£M
6.1
2015
£M
13.8
21.6
7.2
42.6
2015
£M
7.8
134
134
30. Acquisition of subsidiary
On 6 February 2015, the Group acquired 100% of the issued share capital of MCB Finance Group plc.
No hindsight adjustments have been made in the year in respect of this acquisition.
31. Post balance sheet events
In January 2017, the Group’s Polish home credit subsidiary received adverse decisions from the Polish tax authority in respect of audits for 2008
and 2009. In order to lodge appeals against the decisions it was necessary to pay the amounts assessed. Accordingly, tax payments totalling
£38 million were made in January 2017.
32. Contingent liabilities
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) on 5 January 2017
in relation to the 2008 financial year, and on 23 January 2017 in respect of the 2009 financial year. Provident Polska has appealed these
decisions to the District Administrative Court, but has had to pay, since the Group’s year end, the amounts assessed totalling approximately £38
million (comprising tax and associated interest) which was necessary in order to make the appeals. The Company strongly disagrees with the
interpretation of the tax authority having received legal opinions from leading advisors as to the strength of our case.
The 2010 financial year is currently being audited by the tax authorities in Poland and a decision is awaited. In the event that the decision follows
the same reasoning as for 2008 and 2009 a further c. £19 million would become payable. In addition, all subsequent years remain open to future
audit, meaning that there are further significant uncertainties in relation to the amount and timing of potential 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.
In relation to these matters, no expense or provision has been made in these Financial Statements in relation to either the cash paid to the Polish
tax authorities for the 2008 and 2009 financial years, or in relation to future decisions that may be received for later financial periods, as the
directors do not consider that there will be any probable loss. This is on the basis of both the legal advice received, and the fact 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 will be 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 Company has a contingent liability for guarantees given in respect of the borrowings of certain other Group companies to a maximum of
£211.5 million (2015: £203.7 million). At 31 December 2016, the fixed and floating rate borrowings under these facilities amounted to £96.5million
(2015: £88.0 million). The directors do not expect any loss to arise. These guarantees are defined as financial guarantees under IAS 39 and their
fair value at 31 December 2016 was £nil (2015: £nil).
33. Related party transactions
IPF plc has various transactions with other companies in the Group. Details of these transactions along with any balances outstanding are
shown below:
Company
Poland-Lithuania
Czech-Slovakia
Southern Europe
Mexico
Digital
Other UK companies
Recharge
of costs
£M
0.1
–
–
–
–
8.0
8.1
2016
2015
Interest
charge
£M
Outstanding
balance
£M
Recharge
of costs
£M
Interest
charge
£M
Outstanding
balance
£M
–
–
–
9.5
–
16.5
26.0
0.4
0.3
–
0.2
–
99.8
100.7
0.1
–
–
–
–
8.7
8.8
–
–
–
10.3
–
17.3
27.6
0.7
0.2
0.3
0.1
–
88.7
90.0
The Group’s only related party transactions are remuneration of key management personnel as disclosed in note 8.
International Personal Finance plc Annual Report and Financial Statements 2016
International Personal Finance plc Annual Report and Financial Statements 2016
135
135
Financial Statements
Shareholder information
Financial calendar for 2017
1 March
13 April
18 April
3 May
12 May
26 July
7 September
8 September
6 October
Dividends and dividend history
Announcement of 2016 full year results
Ex-dividend date for final dividend
Record date for final dividend
AGM
Payment of 2016 final dividend
Announcement of 2016 half year report
Ex-dividend date for interim dividend
Record date for interim dividend
Payment of 2017 interim dividend
Year
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Payment date
19 October 2007
3 October 2008
2 October 2009
8 October 2010
7 October 2011
5 October 2012
4 October 2013
3 October 2014
2 October 2015
7 October 2016
Interim dividend
(p)
1.90
2.30
2.30
2.53
3.00
3.23
3.80
4.20
4.60
4.60
Payment date
23 May 2008
22 May 2009
21 May 2010
20 May 2011
1 June 2012
3 May 2013
9 May 2014
8 May 2015
13 May 2016
12 May 2017
Final dividend
(p)
Total dividend
(p)
2.85
3.40
3.40
3.74
4.10
4.51
5.50
7.80
7.80
7.801
4.75
5.70
5.70
6.27
7.10
7.74
9.30
12.00
12.40
12.402
1. Subject to shareholder approval on 3 May 2017.
2. Includes final dividend, subject to shareholder approval on 3 May 2017.
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We can pay dividends directly into a shareholder’s bank
account. This ensures secure delivery and means that
cleared funds are received on the payment date. For
shareholders resident outside the UK, we offer dividend
payments via Capita’s International Payment Service to a
number of countries which are paid in local currency. To
receive more information or to change your preferred
dividend payment method, please contact the Company’s
Registrar, Capita Asset Services.
Registrar
All administrative enquiries relating to shareholdings
including transfers, dividend payments/reinvestments, lost
share certificates, duplicate accounts and amending
personal details should be addressed to the Company’s
Registrar whose details are below.
Capita Asset Services
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU
Telephone: 0871 664 0300 (calls cost 12p per minute plus
your phone company’s access charge. Calls outside the
United Kingdom will be charged at the applicable
international rate. Lines are open between 09:00 and
17:30, Monday to Friday, excluding public holidays in
England and Wales).
Email: shareholder.services@capita.co.uk
www.capitaassetservices.com
Company number 6018973
Registered in England and Wales
136
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• Ability to manage shareholding and personal details proactively
• Receive documents faster
• Helps save paper
• Savings on printing and delivery costs.
To register, shareholders will need their investor code, which is printed on
correspondence received from Capita. This service will require a user ID and
password to be provided on registration.
Shareholder information online
For online information such as share price and capital gains tax
information, please visit the Company’s website at www.ipfin.co.uk.
ShareGift
If a shareholder has a shareholding which it is not economic to sell,
he/she may wish to donate the shares to ShareGift, a registered charity
(no. 1052686), which can amalgamate small holdings in order to sell the
shares and pass the proceeds on to other charities. More information is
available at www.sharegift.org or telephone 020 7930 3737.
Company registered office:
International Personal Finance plc
Number Three
Leeds City Office Park
Meadow Lane, Leeds
West Yorkshire LS11 5BD
Telephone
+44 (0)113 285 6700
Website
www.ipfin.co.uk
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International Personal Finance plc
Production of this report
Number Three
Leeds City Office Park
Meadow Lane
Leeds LS11 5BD
Telephone: +44 (0)113 285 6700
enquiries@ipfin.co.uk
Email:
www.ipfin.co.uk
Website:
Company number 6018973
This report is printed by an EMAS-certified Carbon Neutral®
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certified to ISO 14001. 100 per cent of the inks used are
vegetable-based, 95 per cent of press chemicals are
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waste associated with this production will be recycled.
The papers used are FSC® certified. The pulp for each is
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