Responsible
consumer finance
Annual Report
and Financial Statements 2017
Performance highlights – continuing operations
Customers (‘000)
Credit issued (£M)
2,290
(9%)
£1,301.5M
2015
2016
2016
2017
2017
2,663
2,521
2,290
2015
2016
2016
2017
2017
Revenue (£M)
£825.8M
2015
2016
2016
2017
2017
+6%
1,033.3
1,145.0
1,301.5
+1%
731.5
756.8
825.8
Pre-exceptional profit before tax (£M)
EPS (p)
+10%
£105.6M
+10%
20.2p
(37%)
Profit before tax (£M)
£105.6M
2015
2016
2016
2017
2017
105.1
96.0
105.6
2015
2016
2016
2017
2017
Pre-exceptional EPS (p)
Dividend per share (p)
33.7p
+5%
12.4p
2015
2016
2016
2017
2017
39.5
32.2
33.7
2015
2016
2016
2017
2017
2015
2016
2016
2017
2017
29.7
32.2
20.2
121.0
96.0
105.6
12.4
12.4
12.4
Discontinued operations
The sale of our home credit business in Bulgaria in June 2017 resulted in a one-off accounting charge of £5.7 million which, together with
the trading loss of £2.7 million generated in 2017, has been accounted for as a discontinued operation in accordance with IFRS 5.
Alternative Performance Measures
This Annual Report and Financial Statements provides alternative performance measures (APMs) which are not defined or specified
under the requirements of International Financial Reporting Standards. We believe these APMs provide readers with important additional
information on our business. To support this we have included an accounting policy note on APMs on page 101, a reconciliation of the
APMs we use where relevant and a glossary on pages 133 to 136 indicating the APMs that we use, an explanation of how they are
calculated and why we use them.
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 2017 in order to present the underlying performance variance.
Introduction
Our vision is to make a difference in the lives of our 2.3 million customers based in Europe,
Mexico and Australia by providing simple, personalised financial solutions. We specialise in
providing unsecured credit to people with low to middle incomes who want to borrow small
sums and repay in manageable, affordable amounts.
Our two key channel offerings – home credit and digital – allow us to respond to changing
consumer behaviour and ensure we provide responsible credit products that our customers want.
S
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Home credit
Home credit includes
our face-to-face at-home
service provided by over
22,500 agents
Digital
Digital serves customers
who prefer to take out
credit online and repay
remotely
p.6
p.7
View our report online
www.ipfin.co.uk
Contents
Strategic Report
Performance highlights
Introduction
Chairman’s statement
IPF at a glance
Our customers
Our business model
Our stakeholders
Our strategy
Chief Executive Officer’s review
Key performance indicators
Our investment case
Our social purpose
Operational review
Financial review
Principal risks and uncertainties
Corporate Governance
Introduction to corporate governance
Our Board and Committees
Board report
Nomination Committee report
Audit and Risk Committee report
Technology Committee report
Directors’ Remuneration report
Directors’ report
Directors’ statements
Financial Statements
Independent auditor’s report
Consolidated income statement
Statements of comprehensive income
Balance sheets
Statements of charges in equity
Cash flow statements
Accounting policies
Notes to the financial statements
Supplementary Information
Alternative performance measures
Shareholder information
1
2
4
6
8
10
12
14
18
20
22
24
31
36
44
46
48
51
53
58
60
78
88
89
94
94
95
96
98
99
107
133
137
1
Strategic ReportInternational Personal Finance plc Annual Report and Financial Statements 2017
Chairman’s statement
Delivering long-term
growth responsibly
Overview
I am pleased to report that we delivered a solid operational and
financial performance in 2017. This was achieved against the
backdrop of an external environment characterised by regulatory
proposals and changes, tax challenges and intense competition.
We provide much-needed access to regulated credit for people
who might otherwise be financially excluded and, while we
continue to modernise the Group in response to the changing
needs of consumers, our values of being respectful, responsible
and straightforward guide the way we serve our customers and
govern our business. Led by the Board, we continued to take an
active approach to risk management. This, together with product
innovation and our regulatory stakeholder engagement programme,
supports the work we have undertaken to help protect our business
model. I was delighted to see our businesses receive numerous
prestigious awards over the course of the year in recognition of our
responsible lending practices, outstanding corporate culture and
offering a great place to work, all of which are indicative of the high
regard we are held in when serving customers, managing risk and
developing our people.
Our strategy
We understand our consumer segment well and are evolving the
business to ensure our products and services suit customers'
changing needs and circumstances. By offering a broader choice
of more competitively priced products, including longer-term home
credit loans and digital credit offerings, we aim to offer better
customer value and improve credit quality. Our strategy is focused
on delivering sustainable growth, enhancing profitability and making
efficient use of capital. We now segment our businesses into two
broad categories, namely 'growth' focused businesses and 'returns'
focused businesses. Our European home credit businesses are in the
returns category and they are managed to deliver the best possible
level of customer service and to optimise returns. The capital they
generate is used to fund investment in our growth businesses, IPF
Digital and Mexico home credit, as well as delivering progressive
returns to our shareholders. We made more good progress against
our strategy in 2017 and it is particularly pleasing to see the strong
performance delivered by IPF Digital.
Regulatory update
Consumer credit operators serving customers in Europe continued
to face regulatory challenges during 2017, and our business was
no exception. Rate cap proposals, changes to tax law and more
stringent creditworthiness assessment requirements impacted how
we do business.
As I reported in last year’s annual report, the Polish Ministry of Justice
published a proposal at the end of 2016 to tighten the existing rate
cap on consumer loans in Poland. There has been no further update
on this matter and we, together with other consumer lending
operators, continue to serve customers in this uncertain environment.
We are also working with interested parties to encourage an
“We are adapting our business to
capture the opportunity that growing
consumer credit demand offers and
responding to a more challenging
competitive and regulatory
environment.”
Dan O’Connor
Chairman
2
outcome that is good for both consumers and business. As
previously reported, our home credit business in Poland appealed
decisions received in January 2017 from the Polish Tax Chamber
with respect to its 2008 and 2009 financial years. At the time of our
original announcement, we said that we intended to initiate a
process with the UK tax authority aimed at ensuring that the
intra-group arrangement, which is being challenged, is taxed in
accordance with international tax principles. This has now been
initiated and, in response, the Polish court has stayed the hearings
of the 2008 and 2009 appeals pending resolution of this process.
Additionally, a comprehensive set of changes to Polish corporate
income tax came into force on 1 January 2018. The main impact for
our business is a one-off deferred tax charge of £30 million which has
been reflected in the 2017 financial statements. Further detail on both
these matters is included in the financial review on pages 31 to 35.
We also faced regulatory changes in Romania where more stringent
creditworthiness assessment requirements introduced in January
2017 impacted growth. More recent regulatory change means that
our business in Romania is now supervised by the National Bank of
Romania and this is likely to lead to a further tightening of credit
criteria and a reduction in the volume of loans we are allowed to
serve customers. We have a good track record of adapting our
business model to regulatory changes and CEO, Gerard Ryan
covers current regulatory matters on page 15.
2017 financial performance
We delivered profit before taxation from continuing operations of
£105.6 million, an increase of £9.6 million including an £11.3 million
positive FX benefit. We delivered credit issued growth of 6% led by
IPF Digital and our Mexico home credit business. Group portfolio
quality remains good and I am pleased to report that our home
credit business in Mexico made a strong operational recovery
following the disruption caused by two earthquakes in September.
Further details on our 2017 financial performance are covered in
the operational review on pages 24 to 30.
Shareholder returns
Subject to shareholder approval, a final dividend of 7.8 pence per
share will be payable, bringing the full-year dividend to 12.4 pence
per share (2016: 12.4 pence per share). The full-year dividend of
12.4 pence per share represents a total payment equivalent to
approximately 61.3% of post-tax earnings from continuing operations
for 2017. As a percentage of pre-exceptional profit after tax from
continuing operations for 2017, it equates to a pay-out ratio of
approximately 36.8%, which is modestly above our target pay-out
rate of 35%. We aim to run and develop high-return businesses
providing good returns to shareholders while maintaining a strong
financial profile, more of which is detailed in the financial review on
pages 31 to 35.
Our Board and people
As reported in my prior year statement, we appointed Justin
Lockwood to the Board as Chief Financial Officer in February 2017.
Justin’s knowledge of the business and financial expertise have
enabled him to take on the challenges of this role effectively. We
also continue our search for a Senior Independent Director to
replace Tony Hales who has served as a director on our Board for
more than 10 years. I am pleased to report that Tony has agreed to
continue in his role until a suitable replacement is appointed and, as
such, will put himself forward for re-election at our forthcoming AGM.
Jayne Almond will step down as non-executive director of IPF with
effect from the conclusion of our 2018 AGM. The Board would like to
thank Jayne for her service and valuable contribution to the Group.
This year, our Board visited our home credit and digital operations
in Poland where we heard first-hand how these businesses operate
to deliver value to our customers, the opportunities they are seeking
to capture and the risks they face. From my discussions with our
teams, it is clear that my colleagues take pride in the customers they
serve and the values that we uphold. We have strong leaders and
talented people who are delivering on our strategy and, on behalf
of the Board, I would like to thank our team for their contribution
in delivering the results set out in this annual report.
Sustainability and ethics
Making a contribution to society is important to us and our
stakeholder engagement programmes help our businesses play
a positive role in their communities. We are an essential part of
a competitive and well-functioning credit market, providing
underserved consumers with an entry point to mainstream
consumer finance in a transparent and responsible way. On
page 17, CEO Gerard Ryan explains that a sustainable lending
business must have a strong ethical culture embedded throughout
the business, and this is fully endorsed by our Board. This year, we
launched a new code of ethics and 98% of employees and 91%
of agents completed the annual ethics e-learning programme.
Outlook
We will continue to focus on optimising our European home credit
operations to generate further returns, which will support investment
in growing Mexico home credit and IPF Digital, and deliver enhanced
shareholder value. The regulatory and competitive landscape is
likely to remain challenging. In particular, both we and you, as our
shareholders, are keen to hear an update from the Polish Ministry of
Justice on its proposed reduction to the existing non-interest pricing
cap in Poland. We will continue to work to encourage a more positive
outcome on this matter. We have a clear plan and remain confident
that we will continue to manage the business to deliver further
sustainable growth and returns.
Dan O’Connor
Chairman
3
Strategic ReportInternational Personal Finance plc Annual Report and Financial Statements 2017 IPF at a glance
A leading international
provider of consumer credit
We offer a range of unsecured consumer finance channels, products and brands to
meet the specific needs and financial circumstances of our customers. The increase
in mobile technology has led our channel expansion into digital loans and resulted in
a larger target segment of customers that we are now able to serve.
Home credit
Our home credit channel serves
customers who appreciate the
unique qualities of our face-to-
face at-home service provided
by our agents.
Northern Europe: Poland and the Czech Republic
Southern Europe: Hungary and Romania
Mexico
Products
• Home credit cash loans with agent service
• Money transfer loans direct to bank account
• Home, medical and life insurances
• Micro-business loans
• Provident-branded digital loans
• Weekly and monthly repayments
• Loan terms from 12 weeks to around 3 years
• Typical loan value £500
£721.7M
Revenue
2.1M
Customers
Our digital channel serves
customers who prefer to take out
credit online and repay remotely.
Products
• Instalment loans
• Revolving credit facility
• Monthly repayments
Established markets: Finland, Estonia, Lithuania
and Latvia
• Instalment loan terms up to 4 years
• Average customer outstanding balance £800
New markets: Poland, Spain, Mexico
and Australia
• Customers served online and through
selected distribution partners
£104.1M
Revenue
226,000
Customers
IPF Digital
4
Home credit
IPF Digital
Home credit and IPF Digital
IPF plc
head office
Spain
Mexico
Finland
Estonia
Latvia
Lithuania
Poland
Czech
Republic
Hungary
Romania
Australia
Home credit
Northern Europe
737,000
Customers
£508.6M
Credit issued
Southern Europe
499,000
Customers
£288.4M
Credit issued
Mexico
828,000
Customers
£273.7M
Credit issued
Digital
Established markets
141,000
Customers
£138.7M
Credit issued
New markets
85,000
Customers
£92.1M
Credit issued
5
Strategic ReportInternational Personal Finance plc Annual Report and Financial Statements 2017 Our customers
Enhancing the lives
of our customers
quickly and efficiently
We know our customers well and understand their specific needs and financial
circumstances. Our customers want to borrow small amounts to pay for everyday
items and repay in manageable, affordable instalments. This responsible approach
runs parallel with our robust credit policies ensuring our customers are able to
manage their repayments and do not become over-indebted.
Home credit
Home credit customers
Personal relationships with our customers
Many of our home credit customers have low, often fluctuating incomes and a limited credit
history. This means some would not qualify for credit from a mainstream lender or an online loan
and, as such, are suited to home credit. They value the personal service provided by agents as
well as the convenience and speed of our offering. High levels of advocacy for our products and
services show we are a trusted and valued business delivering high levels of customer satisfaction.
Our home credit business model has operated successfully for more than 130 years and remains
a relevant and important component of the consumer finance market.
Typical customer features
• Low, fluctuating income
• Limited credit history
• Prefer agent service
• Need to manage
finances carefully
• Seek flexibility
How customers use their loans
• Unexpected expenses
• Healthcare
• Household goods
• Education
• Family celebrations
“Over the years, Provident
has helped me buy lots of things
for my house including a washing
machine, my bed, a stove and,
most importantly, school books
and uniforms for my children.”
Home credit customer, Mexico
6
Digital
Digital customers
Fast, efficient and personalised service anytime
The increasing use of mobile services means a growing number of consumers in our target
segment are choosing to borrow online. Our target customers earn low to middle incomes
and have high smartphone adoption levels. They already have a credit history that may
allow them to qualify for an online loan. We are able to meet their needs through our digital
offering, which has operated successfully for over ten years and offers a significant strategic
opportunity to grow the number of customers we serve with instalment loans and credit
line facilities.
Typical customer features
• Low to middle income
• Like to shop and borrow online
• High smartphone ownership
• Existing credit history
• Seek flexibility
How customers use
their loans
• Holidays
• Home improvements
• Healthcare
• Household goods
“I want the freedom
of spending money
when I want, where
I want and how
I want.”
IPF Digital customer, Poland
Financial Statements 2017
7
Strategic ReportInternational Personal Finance plc Annual Report and Financial Statements 2017 Our business model
Creating value
responsibly
Our business model offers distinct but
complementary home credit and digital
channels through which we offer a range
of products that meet the everyday needs
of our customers. Our business is an
essential part of a competitive and well-
functioning credit market that promotes
economic and social development by
providing underserved consumers with
consumer finance.
Our business model generates good, sustainable returns for
shareholders. We are focused on serving our customers to a
high standard and, as a leading non-banking financial
institution in many of our markets, we are a respected financial
brand and award-winning employer.
Our values underpin our business model, and we operate and
make decisions consistent with being responsible, respectful
and straightforward. Credit risk is managed responsibly using
robust credit scoring systems and credit bureaux, and in our
home credit businesses these systems are supported by the
critical judgement of agents. 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.
High standards of governance are essential to the sustainability
of our business and we actively identify, manage and aim to
mitigate the principal risks we face.
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 IPF Digital delivers a smaller
contribution currently, we believe it offers a significant future
growth opportunity driven by increased demand for online
lending and the ability to operate within a regulatory
environment where the trend is for lower-cost products.
Key resources
Relationships
Open and straightforward engagement
with our stakeholders is critical, particularly
the relationships with our customers to
ensure they receive the products and
services they want.
People
We resource the business with skilled,
motivated and knowledgeable employees
and agents who implement our strategy
and ensure our customers are well served.
Technology
Technology is fundamental to driving
efficiency through agent mobile
technology, supporting digital lending
growth and making effective
credit decisions.
Financial
We manage financial resources effectively
to sustain our business and generate good
returns for our investors.
Read more about our multi-channel strategy
on pages 12-13
Read more about our principal risks
on pages 36-43
Read more about our stakeholder engagement
on pages 10-11
8
Contributing to the wider economy
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the lives of our customers by
providing straightforward
consumer finance
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Creating value for
our stakeholders
Customers
Employees
and agents
Regulators
and legislators
Communities
Shareholders
and investors
We help social and economic mobility among consumers and make a valuable contribution to the markets
we serve through taxes, employment, and spending on goods and services.
9
Strategic ReportInternational Personal Finance plc Annual Report and Financial Statements 2017
Our stakeholders
Responding to our
stakeholders’ needs
Our key stakeholders are those who impact our strategy materially, or are impacted
by it directly. We listen to our stakeholders regularly to help us define our strategy and
ensure we continue to deliver relevant products that meet our customers’ needs.
Our stakeholders
Why we
engage
Customers
Employees and agents
Understanding our customers and their
changing needs and behaviours
enables us to provide relevant credit
products and services responsibly,
retain quality customers and attract
new ones.
It is important to engage people who
have the skills and knowledge to
implement our strategy and ensure our
customers are served well. Engaged
people are important ambassadors for
our business.
Key areas
of interest
• Affordability and price
• Flexible repayments
• Convenience
• A good customer experience
• Relevant channels and products
• Trusted and responsible provider
• Professional development and career
progression
• Recognition and fair reward
• Transparent and timely communications
• Business ethics
• Responsible lending and a good
reputation
• Safe and productive working environment
How we
engage and
respond
• Responsible, affordable credit
• Annual conferences and business
products, channels and insurance
updates
• Forbearance flexibility
• Regular two-way communication
• Agent-served or online customer
• Recognition and reward programmes
journey
• Training and development including
• Customer websites and social media
ethics training
• Customer service centres
• Customer surveys
Read more about our customers
on pages 6-7
Read more about diversity at IPF
on page 23
10
Sustainability strategy
Our sustainability strategy is
framed around five material
issues – responsible lending,
business ethics, people,
community and environment.
For more on our sustainability strategy
go online to www.ipfin.co.uk
Regulators and legislators
Communities
Shareholders and investors
We engage with regulators to help
influence regulation that delivers a
positive outcome for consumers and
business. Regulation with unintended
consequences can impact our ability
to serve our customer segment.
We engage with, and are keen to
deliver value to, the communities where
our customers, employees and agents
live. We aim to maximise financial
literacy and improve our reputation.
Consumers who are well informed
are able to make more responsible
financial decisions.
As a publicly listed company, we are
required to provide fair, balanced
and understandable information to
enable investors to fully understand
our business so that they may make
an informed investment decision.
• Compliance with EU and
national regulations
• Control and supervision
• Pricing and promotions
• Responsible lending and affordability
• Business ethics
• Taxation
• Employment
• Access to responsible credit
• Strategy and performance
• Employment
• Risk management and corporate
• Financial literacy programmes
• Community support programmes
governance
• Outlook
• Executive remuneration
• Dividend policy
• Access to management
• Ongoing dialogue
• Agent visits to customers
• Ongoing dialogue and meetings
• Membership of sector associations
• Financial literacy programmes and
• Annual General Meeting
• Participation in public consultations
surveys
• Bi-annual reporting and quarterly
• Engagement on draft regulation
• External advisor network
• Partnerships with non-governmental
organisations (NGOs)
• Partnerships with established and
trading updates
credible NGOs
• Financial well-being surveys
• Annual reports
• Investor roadshows and
• Social welfare investment
conferences
• Employee and agent volunteering
• Corporate website
Read more about the regulatory landscape
on page 15
Read more about community investment
on page 86
Read more about our business model
on pages 8-9
11
Strategic ReportInternational Personal Finance plc Annual Report and Financial Statements 2017 Our strategy
Our multi-channel strategy
Our success depends on serving our customers well and retaining their custom.
Everything we do revolves around the relationships we have with our customers – from
the personal relationships our agents have with them in their home, to the service we
provide remotely to our digital customers.
Strategic priorities
2017 performance
We made good progress against our
strategy, which is focused on delivering
sustainable growth, enhancing
profitability and making efficient use of
capital. It has been defined in
response to:
• strong demand from consumers for
unsecured credit, particularly via
digital loans;
• increased competition from digital
lenders and retail banks;
• growing preference for digital options
with the rise of smartphone and
internet penetration; and
• increased regulatory oversight focused
on price and affordability, which is
driving lower margins and restricting
issue values.
Our operations are at different stages of
maturity and our strategy segments them
into ‘growth’ and ‘returns’ focused
businesses. There are significant growth
opportunities in our IPF Digital and Mexico
home credit businesses supported by
investment of capital generated by our
European home credit businesses. To
deliver this strategy, we continue to
modernise the business through
investment in technology and developing
our people and their capabilities.
Read more on our operational highlights
in the CEO review
on pages 14-17
12
IPF Digital
• Deliver profit growth in
established markets
• Focus on growing new
markets in Poland, Spain,
Mexico and Australia
• Invest in head office
capability and IT functionality
• Bring to profitability
Mexico home credit
• Expand geographical
coverage
• Build micro-business loans
channel
• Drive significant operational
leverage
European home credit
• Manage to optimise returns
• Deliver increased efficiency
• Roll out Provident-branded
digital offer
• Generate capital to reinvest
in growth focused businesses
• Deliver good shareholder
returns
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• Strong top-line growth
• Established markets
delivered good profit
growth
• New markets grew
strongly following
increased investment
• Good credit issued
growth
• Strong operational
recovery post-
earthquakes
• Impairment elevated
• Further geographic
expansion
• Micro-business channel
grew well
• Very good portfolio
quality
• Profit broadly flat
• Lower profit in Northern
Europe due to
regulatory and
competitive pressures
• Good operational
performance and debt
sales drove profit
growth in Southern
Europe
• Effective collect-out in
Slovakia and Lithuania
2017 performance
Strategic KPIs
226,000
Customers
44%
Credit
issued growth
41.2%
Impairment %
revenue
62.0%
Cost-income ratio
68%
Revenue growth
(£11.7M)
Loss before tax
2018 focus
• Provide superior customer
experience through
innovation
• Build scale and leverage
data
• Demonstrate ability to make
a return
Deliver
responsible
lending
Sustainability
priorities
Principal
risks
Regulatory
Competition
and product
proposition
Taxation
Technology
and change
management
People
Business
continuity and
information
security
Reputation
World economic
environment
Safety
Credit
Funding,
market and
counterparty
828,000
Customers
13%
Credit
issued growth
34.8%
Impairment %
revenue
40.4%
Cost-income ratio
12%
Revenue growth
£14.7M
Profit before tax
• Expand geographical
footprint
• Build micro-business loans
channel
• Improve operational
efficiency and customer
penetration rates in selected
longer-established branches
Embed code
of ethics
1.2M
Customers
(3%)
Credit
issued growth
18.1%
Impairment %
revenue
40.8%
Cost-income ratio
• Provide a high-quality
service to customers and
optimise operations for
returns
• Protect the business model
• Leverage the Provident
brand for digital
Engage
employees
(8%)
Revenue growth
£114.3M
Profit before tax
Read more on our 2017 operational
performance on pages 24-30
Read more on our sustainability objectives
at www.ipfin.co.uk
Read more on our principal risks and
uncertainties on pages 36-43
13
Strategic ReportInternational Personal Finance plc Annual Report and Financial Statements 2017 Chief Executive Officer’s review
Delivering on our
multi-channel strategy
CEO, Gerard Ryan, discusses the operating
landscape and progress made on
delivering our multi-channel strategy.
“We delivered a solid
operational and financial
performance and
made progress on our
multi-channel strategy.”
Q. International Personal Finance has changed in
the six years you have led the Group. What does the
business stand for today?
In so many ways, our business has changed enormously but in
some very fundamental ways it remains entirely consistent with the
business I joined in 2012. Back then, we were a provider of weekly
cash loans delivered through agents; our competitors were mainly
other home credit operators and the regulatory outlook was
reasonably foreseeable.
Today, we face competition from multiple digital lenders and banks
are taking a keen interest in our best customers. The regulatory
landscape is almost unrecognisable in terms of the volume of new
legislation as well as the fact that the key instigators of regulatory
change are politicians as well as regulators. In response to these
changes, we have adapted our offering so that we continue to give
our customers the best service we can while protecting our business
model. We now offer an array of products (weekly and monthly
instalment cash loans, digital instalment loans, lines of credit,
insurance services and small business loans) through multiple
channels (agents, call centres, digital and distribution partners).
Notwithstanding all of this change, our vision and how we treat our
customers remain true to our values. We aim to make a difference
in the lives of our customers by providing simple and personalised
financial solutions in a responsible, respectful and straightforward way.
14
Q. What are the key drivers of your strategy?
Fundamentally, we have always been in the business of providing
finance to customers who could be deemed to be underbanked
or underserved. We have adapted our strategy to respond primarily
to four external forces: strong demand for unsecured credit;
changing customer behaviour with an increasing preference for
digital delivery; increased competition leading to faster service
from application to loan disbursement; and significant regulatory
intervention leading to lower prices and restricted access to credit
for large numbers of consumers. With the addition of our new
products and channels, we are now broadening our appeal to
customers and offering more access points, longer and larger
loans, and more competitive rates.
Our strategy aims to build a sustainable and growing business
that delivers increasing returns to shareholders. We now segment
our businesses into 'growth' and 'returns' focused operations.
IPF Digital and Mexico home credit are growth businesses and
our European home credit operations are in the returns category.
Our European home credit businesses generate the returns to invest
in our growth businesses as well as delivering progressive returns to
our shareholders.
Q. Recent years have been characterised by
regulatory change. How did it impact IPF in 2017?
We had a difficult start to 2017 from a regulatory and tax perspective.
The publication by the Polish Ministry of Justice in December 2016
of a proposal to further reduce the cap on non-interest charges on
consumer loans unsettled the Polish consumer finance market.
A new cap had been in place for less than a year and appeared
to be working well, so it was a surprise to the market when further
changes were proposed without warning. There has since been no
update from the Ministry of Justice on this matter. Throughout 2017,
we worked with our advisors and other key stakeholders in Poland
to try to arrive at a sensible outcome that provides appropriate
protection for consumers and, at the same time, promotes a vibrant
and competitive marketplace. This work is still ongoing.
As previously reported, our home credit business in Poland appealed
decisions received in January 2017 from the Polish Tax Chamber (the
upper tier of the Polish tax authority) with respect to its 2008 and 2009
financial years. At the time of our original announcement, we said
that we intended to initiate a process with the UK tax authority aimed
at ensuring that the intra-group arrangement, which is being
challenged, is taxed in accordance with international tax principles.
This action resulted in the Polish court staying the hearings of the 2008
and 2009 appeals pending resolution of this process. Also in Poland,
changes to corporate income tax legislation came into force on
1 January 2018 which has resulted in an exceptional one-off deferred
tax charge of £30 million in 2017. Further information on these tax
matters is included in the financial review on pages 31 to 35.
Also in January 2017, more stringent creditworthiness assessment
rules were introduced in Romania which reduced the number of
customers we were allowed to serve. While we were adapting our
business to cope with these changes, new rules were introduced in
the final few months of 2017 which have since resulted in our business
being supervised by the National Bank of Romania for the first time.
“We have the ability to offer choices
from traditional home credit loans
delivered by agents through to a fully
digital line of credit.”
This is likely to lead to a further tightening of credit criteria and a
reduction in the volume of loans we are allowed to provide
to customers in that market.
We operate within price cap environments in all our European
markets with the exception of the Czech Republic, Romania and
Spain, and we expect pricing regulations to be implemented in
these markets at some point in the future. A proposal to implement
an APR cap of 18% for existing and new consumer lending is being
debated in the Romanian Parliament and we are contributing to this
discussion. There have been, and continue to be, numerous
regulatory challenges to our business, but we have a proven track
record of adapting to regulatory change and I believe we will
continue to do so.
Q. In light of these regulatory challenges, how are
you making your business more resilient?
I’d like to emphasise we will always adapt our business to be fully
compliant with local regulation, no matter what regulatory change
is introduced. A key part of our strategy is that our business should
form an essential part of a well-functioning and competitive
consumer finance market. To perform that role effectively, we aim
to ensure regulators better understand the part we play in society
and demonstrate how we protect our customer segment from illegal
lenders and the excesses of the ‘grey’ market, while also providing
many of these customers with their first step towards creating a
positive credit history that will benefit them in the future.
We also recognise it is politicians as well as regulators who are now
likely to instigate regulatory change in many of our markets. As a
result, we have developed a programme of increased engagement
with those who are likely to influence how business is conducted and
we now work more effectively through local trade bodies to help put
the case forward for sensible and well thought through regulation.
Internally, we are also modernising our business to make it more
resilient, and new products and channels play a key role in this. We
are using technology to make customer interaction with our business
easier and more appealing. These investments include handheld
mobile technology for agents through to seamless digital processing
from credit application to loan repayment.
Q. How are you differentiating the business in a
highly competitive landscape?
Our business is unique in that we offer choices from traditional home
credit loans delivered by agents through to a fully digital line of credit
via IPF Digital. For customers who may not have a strong enough
credit profile for a digital offering, we can offer a hybrid solution
whereby they meet an agent for the initial assessment but then
make subsequent repayments via their bank.
15
Strategic ReportInternational Personal Finance plc Annual Report and Financial Statements 2017 Chief Executive Officer's review continued
There are significant differences between our home credit
and digital business models. I am aware that many of our
stakeholders view the latter as having few, if any, barriers to entry,
whereas the home credit business is deemed to be very difficult
to replicate. While there is some truth to this, and we have seen
an explosion in the number of digital providers, to be successful
requires experienced leadership, well-developed scorecards, the
right products, trusted brands and an excellent customer journey.
Our digital business, having been in existence for more than ten
years, meets all of these criteria and its results are a clear
indicator that we are on the right path to build a large and
complementary business to our home credit operation.
Q. What is the global economic outlook for
your business?
We saw reasonably stable macroeconomic conditions in all of
our markets in 2017. In many of our European markets there were
record levels of employment and good GDP growth. While the
Mexican economy had a more difficult time, driven by
uncertainty over its trading relationship with the US and the
impact of relatively subdued oil prices, it still continued to grow.
As we look to 2018 and beyond, current indicators suggest that
we should expect our markets to deliver positive GDP growth,
low but increasing inflation and subdued interest rates.
Q. How would you evaluate performance in 2017?
We delivered a solid financial and operational performance
in 2017 and profit before tax increased to £105.6 million.
We generated an increase in like-for-like profit before tax of
£5.3 million primarily as a result of improved profitability delivered
by IPF Digital’s established markets. Overall, like-for-like profit in
home credit was broadly flat reflecting an £11.4 million reduction
in our ongoing businesses offset largely by an £11.1 million
year-on-year increase in Slovakia and Lithuania arising from lower
costs of closure. Stronger FX rates resulted in an £11.3 million
positive impact which was offset partially by incremental new
business investment in IPF Digital of £7.0 million.
We delivered a 6% increase in credit issued as a result of strong
growth in our Mexico home credit and IPF Digital businesses, and
this resulted in growth in average net receivables and revenue of
7% and 1% respectively. We managed credit quality effectively
and impairment as a percentage of revenue at 24.4% was slightly
below our target range of 25% to 30%. The compression of
revenue yields, and our planned investments in driving growth
and efficiency, resulted in a slight increase in our cost-income
ratio, up 0.5 ppts to 45.8%. Full details of our operational
performance are covered on pages 24 to 30.
“We are an essential
part of a competitive and
well-functioning credit market.”
16
Q. What were the operational highlights in 2017?
European home credit businesses
We are improving the sustainability of our European home credit
businesses by creating more modern, efficient and higher credit
quality operations that provide a good service to customers,
and continue to generate the cash and capital to fund growth
opportunities and progressive returns to shareholders. We have done
this in response to the regulatory and competitive market conditions in
which we operate in Europe by offering customers a broader choice of
more competitively priced products, and improving the efficiency of
our operations through investment in technology. We continued to roll
out our agent mobile technology which will improve the customer
experience and make the role of the agent more efficient. At the end
of 2017, all agents in Hungary and the Czech Republic were using the
technology and the implementation in Poland is expected to be
completed in the first half of 2018. I am pleased to say there has been
no significant operational disruption as a result of these changes and
agent feedback is supportive. To enable us to serve more customers
with digital offerings, we are leveraging our Provident brand with a
Provident digital offering in Poland. This has been well received and
around 15,000 customers are being served through this channel. We
plan to introduce this offering in the Czech Republic in the first half of
2018. To support the changes we are making, we simplified our
business structure and created a Northern Europe region comprising
our Polish and Czech businesses to complement the existing Southern
Europe region of Hungary and Romania. This is enabling our teams to
better share best practice and is expected to support the delivery of
cost efficiencies over the longer-term.
Mexico home credit
Our strategy in Mexico is to expand our geographic footprint, build
our micro-business channel, and improve operational efficiency and
customer penetration rates in selected longer-established branches.
At the start of 2017, we made a commitment to maintain the
momentum we had generated in the second half of 2016. Our
leadership team delivered on this in the first half and it would have
been maintained in Q3 had it not been for the two earthquakes that
hit Mexico in September. Inevitably, this impacted our agents,
employees and customers and, consequently, we saw a reversal of
growth in Q3 and collections deteriorated. In times such as these,
it is important to recognise the human impact of such events and
our focus was on ensuring that we took care of our people and
customers. We activated our business disruption plan and I am
pleased to say that we returned to more normal trading towards the
second half of November.
We opened six branches in the first half of 2017 which, together with
those branches opened in 2016, now serve around 55,000 customers
and we plan to open a similar number of branches in 2018. We also
took the opportunity to review our less profitable branches and
decided to close two branches in Monterrey. Consequently, our
results include a reduction of 16,000 customers and a charge of
£1.9 million for the write down of the associated receivables portfolio
and closure costs. Our micro-business channel, now available in the
majority of our branches in Mexico, is growing well with around
16,000 customers, and we expect further expansion in 2018.
IPF Digital
Our digital business has existed for more than a decade and has
a leadership team that has built up considerable experience in
product and channel development, scorecard building, providing
a great customer experience, and creating brands that resonate
with consumers.
Growing our digital lending business and demonstrating that the
IPF Digital business model can deliver a good financial return are key
strategic priorities for the Group, and we made good progress
against both of these objectives. Focusing on providing a superior
customer experience through product and process innovation
helped deliver strong demand for our credit line product. In many
of our markets this line of credit facility has replaced instalment loans
as our core customer offering. In our new markets of Poland, Spain,
Mexico and Australia, we continued to refine our credit scorecards
and delivered strong receivables growth as well as improved credit
quality and cost efficiency. In our established markets of Finland and
the Baltics, we delivered further credit issued growth through smarter,
risk-based pricing strategies, enhanced customer relationship
management (CRM) activities and increased penetration of our
credit line product.
Q. Would it not make more sense to focus on
growing home credit and not diversify into digital?
For some of our stakeholders there would be a comfort factor in
sticking to what has proved to be a very successful business model
based around the delivery of loans via an agent. The truth, however,
is that neither our customers nor our competitors stand still and we
should not either.
Customer behaviour is changing and there is a growing preference
for digital credit. In addition, we have some customers who have
been with us for several years who would be capable of obtaining a
loan remotely. If consumers have not dealt with us before, they may
choose to obtain a loan from our purely digital brands. Alternatively,
if they are an existing or past customer of Provident, they may
choose to apply for credit through our Provident-branded digital
channel. Either way, we aim to offer them a choice of channel and
product that is most suitable for them.
Q. How does stakeholder engagement impact
your strategy?
Consumer finance is an industry that impacts most people and,
rightly so, attracts scrutiny. It is critical to have a positive dialogue
with, and to listen carefully to, our key stakeholders, principally our
customers, employees, agents, regulators, politicians and
shareholders. Our aim is to ensure we design and provide products
that our customers want, are appropriately priced and that, if
customers find themselves in difficulty with repayments, we are
understanding and accommodating to their changed
circumstances. All of our stakeholders expect us to act in an ethical
and transparent way and this is at the heart of how we conduct
our business.
Q. How do you ensure your people stay engaged
with your ethics programme?
I’m sure that most CEOs would say that ethics are very important for
their business, but, in our case, we would not have a sustainable
business without a very clear and strong ethical culture throughout
the organisation. We have mandatory ethics e-learning programmes
for both employees and agents and I deliver our annual international
ethics week with the assistance of our senior leadership team. Many
of our customers continue to have limited disposable incomes so it is
critically important that the way we incentivise our people does not
promote the provision of credit to consumers who are already over
indebted or who do not have the means to repay the loan. For that
reason, our incentives are weighted to promote the right behaviours
and not simply to generate new loans.
Q. How do you ensure diversity in the workplace?
We value the significant benefits that having a diverse international
team brings. In 2017, we strengthened this further by introducing
global functional and regional leadership structures which will
encourage further focus on diversity in all its forms as people work
more closely together. From a gender diversity perspective, we will
focus upon building our people strategies further to ensure that we
attract, retain and develop people on merit. Our global people,
organisation and planning process ensures that our talent rises in
a fair, diverse and transparent way, and in accordance with our
values and ethics.
Q. What are your aspirations for the Group in 2018?
As far as our core purpose is concerned, I see very little if any
change as we go into 2018. We are a business that provides credit
in a responsible, respectful and straightforward way to those who
are underbanked and underserved, We are an essential part of a
competitive and well-functioning credit market and, by acting in
an ethical and transparent way, we can help to improve how the
overall segment is governed.
In terms of business performance, we are focused on serving
our customers responsibly within a regulatory and competitive
landscape that we expect will remain challenging. We will continue
to improve the sustainability of our European home credit operations
by creating more modern, efficient and higher credit quality
operations that provide a good service to customers, and continue
to generate the cash and capital to fund growth opportunities and
progressive returns to shareholders. We expect IPF Digital to deliver
further strong growth and an improved performance driven by
increased scale and enhancements in financial metrics as our
new markets grow and mature. In Mexico, we expect to return to
customer growth, expand our geographic footprint and micro-
business channel, and deliver improved operational efficiency in
our established branches.
17
Strategic ReportInternational Personal Finance plc Annual Report and Financial Statements 2017 Key performance indicators
Making good progress
on our strategy
Our goals to serve our customers well and deliver shareholder value drive our strategy.
We assess our performance against the following key performance indicators, each of
which is linked to our long-term strategy. We use these KPIs to monitor the performance
of the business to ensure we deliver value for our stakeholders.
For our multi-channel strategy
see pages 12-13
For alternative performance measures
see pages 133-136
Customer numbers ('000)
Customer retention (%)
Employee and agent retention (%)
2,290
2015
2016
2016
2017
2017
59.7%
Home credit
70.6%
IPF Digital
61.7%
Agent
75.2%
Employee
2,663
2,521
2,290
2015
2016
2016
2017
2017
57.1%
59.0%
70.8%
59.7%
70.6%
2015
2015
2016
2016
2017
2017
65.6%
74.5%
65.0%
73.7%
61.7%
75.2%
Performance
The total number of customers across
the Group contracted by 9% in 2017
driven primarily by regulatory and
competitive pressures in our European
home credit markets.
Why we measure it
Customer numbers demonstrate our
scale 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.
Performance
The number of customers who have
three or more loans with our business.
Customer retention in both home credit
and IPF Digital was maintained in 2017.
Why we measure it
Our ability to retain customers is central
to achieving our growth ambitions
and is a key indicator of the quality of
our products and 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.
18
Performance
The proportion of employees and agents
who have worked with us for more than
12 months. Employee retention improved
slightly on 2016. Agent retention reduced
as a result of changes to criteria required
to offer financial services in the Czech
Republic together with contraction in that
business, and new employment
regulations in Romania.
Why we measure it
Experienced people help us achieve and
sustain strong customer relationships and
deliver a high-quality service. Good
retention also helps reduce recruitment
and training costs, enabling more
investment in people development.
Average net receivables (£M)
Revenue (£M)
£993.9M
£825.8M
Impairment as a percentage of
revenue (%)
24.4%
2015
2016
2016
2017
2017
746.0
864.1
993.9
2015
2016
2016
2017
2017
731.5
756.8
825.8
2015
2016
2017
25.5%
24.4%
24.4%
Performance
The average amounts receivable from
customers translated at the average
monthly actual exchange rate increased
by 7% in 2017 principally as a result of
strong growth in Mexico home credit
and IPF Digital.
Why we measure it
This measure allows stakeholders to
compare changes in amounts receivable
from customers on a consistent basis with
revenue growth because it is a key driver
of revenue growth.
Performance
Revenue, which is income generated
from customer receivables, increased
by 1% driven by our customer retention
strategy to serve customers with longer-
term, lower-yielding products and the
impact of the lower total cost of credit
rate cap in Poland.
Performance
Impairment is the amount charged as a
cost to the income statement as a result
of customers defaulting on contractual
loan payments. Credit quality remains
good and Group impairment as a
percentage of revenue at 24.4% is slightly
below our target range of 25% to 30%.
Why we measure it
Revenue is one of the key drivers of overall
performance outcomes in the
income statement.
Why we measure it
Profitability is maximised by optimising
the balance between growth and
credit quality.
Cost-income ratio (%)
Return on assets (ROA) (%)
45.8%
11.5%
2015
2016
2017
40.8%
45.3%
45.8%
2015
2016
2017
15.6%
12.3%
11.5%1
Performance
The direct expenses of running the
business as a percentage of revenue,
excluding agents’ commission. The
cost-income ratio increased in 2017
reflecting investment in growth and
efficiency together with compression
of revenue yields.
Why we measure it
The cost-income ratio is useful for
comparing performance across markets.
Performance
ROA is measured as profit before interest
and exceptional items, after pre-
exceptional tax, and divided by average
net receivables. Group ROA reduced by
0.8 ppts to 11.5% due to lower profits in
European home credit and a higher
effective tax rate.
Why we measure it
ROA is a good measure of the financial
performance of our businesses, showing
the ongoing return on the total equity and
debt capital invested in the average net
receivables of our operating segments
and the Group.
1. Adjusted for exceptional tax charge
19
Strategic ReportInternational Personal Finance plc Annual Report and Financial Statements 2017 Our investment case
A strong international
business with good returns
and growth opportunities
We are a profitable, well-funded home credit and digital lending business with a good
track record of serving customers profitably and responsibly, while delivering attractive,
sustainable returns to our shareholders. We have achieved this even during periods of
macroeconomic and financial market volatility and periods of competitive and
regulatory challenges. We operate in a dynamic consumer finance market and have
successfully expanded our offering to include digital loans, which has resulted in us
being able to serve a larger target segment of customers.
Responsible consumer finance
Customers
2.3M
Experienced team
Employee and agent retention (%)
61.7%*
agent retention
75.2%
employee retention
* including agents in Hungary and Romania
who are employees to meet local
regulatory requirements
20
Diversified channels, products and brands
to meet customer needs
There is growing demand for unsecured, small-sum
consumer credit and we focus on providing credit
to customers who are largely underserved. We
know our customers well and offer products that
meet their specific needs. Our home credit
business model has operated for over 130 years
and proven resilient to economic downturns. Our
digital lending business has operated successfully
for more than a decade and we are making the
most of future lending opportunities driven by
technology and changing consumer behaviour.
Read more in
our CEO review
on pages 14-17
Broad range of financial services experience
We are committed to supporting the development
and engagement of our people in order to grow
an ethical and sustainable business. We have a
highly experienced Board and management team
with a combination of international home credit
and digital lending expertise. We attract and retain
experienced, high-performing individuals who
understand our customers, our markets and the
products we provide.
Read more on
our board and
committees
on pages 46-47
Effective risk management
Experience of managing key risks including
credit, regulation, competition and liquidity
We are proficient in managing key risks and have
adapted our business and product offering to
comply with consumer credit regulation and
increased competition. Our decision-making is
underpinned by our control framework and the
processes we implement to identify and manage
risks. 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.
Read more on our
principal risks and
uncertainties
on pages 36-43
Strong financial profile
47.0%
equity to receivables
£496.9M
net assets
£189.3M
headroom on undrawn debt facilities
Robust balance sheet and strong
funding position
We are committed to maintaining a strong
financial profile with a robust balance sheet and
competitive 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.
Read more in our
financial review
on pages 31-35
Focused business and financial strategy
11.5%1
return on assets
15.7%1
return on equity
1. Adjusted for exceptional tax charge
High-return businesses and maintain strong
financial profile
Our business and financial strategy supports the
significant future growth and returns opportunities
we see for our businesses. Our European home
credit businesses are highly cash and capital
generative. They are managed to provide a high
level of service to our customers and to optimise
returns, which are used to fund growth in our IPF
Digital and Mexico home credit businesses as well
as provide progressive returns to our shareholders.
Read more on our
financial review
on pages 31-35
21
Strategic ReportInternational Personal Finance plc Annual Report and Financial Statements 2017 Our social purpose
Living our
social purpose
We are an established, regulated
and ethical business that meets
customers’ needs by lending
responsibly, transparently and without
any hidden charges. We provide
customers with an entry point to
access mainstream consumer finance
and we have found that, over the
years, many of our customers entrust
us with their borrowing needs time
after time, demonstrating the
confidence they place in our service.
Grey
m arket
Unregulated
lenders
Banking
institutions
Central
Retail/Commercial
Investment
Non-bank
financial
institutions
Provident
Insurance
Credit Unions
Savings and loans
A dvocating
responsible
lending
Advocating responsible lending
Our loans are granted using robust application and behavioural
scoring systems supported by credit bureaux to ensure our loans
are affordable.
Our commitment to responsible lending also extends to our
corporate responsibility programmes where our focus on financial
literacy helps our customer segment make more informed
borrowing decisions.
59.7%
Home credit
customer retention
70.6%
IPF Digital
customer retention
“My customers think really
carefully before they take
out a loan. I know this
because I speak with every
one of them before they
sign the contract.”
Home credit agent, Poland
22
Protecting consumers
By providing regulated credit products, we protect our
customers from illegal lenders and the unregulated excesses
of the ‘grey’ market. All our lending is unsecured and we don’t
ask our customers to pledge assets, such as a car
or property, as collateral in the event that they default on
their repayments.
Supporting people who are not well served by other
mainstream credit providers or excluded altogether comes
with higher risks and we understand that some of our home
credit customers will take a little bit longer than contractually
obliged or won’t fully repay their loans, and so we price our
loans to take this into account.
98%
employees completed
ethics training
91%
agents completed
ethics training*
“I turn to Provident because
I trust them. My agent clearly
explains the terms of my loan
including the total amount
I have to repay and my right
to cancel.”
Home credit customer, Mexico
Protecting
consu m ers
the wider econo m y
C ontributing to
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 2017
Board
6
110
Senior Management
All other employees*
4,485
7,032
Male
Female
2
36
Contributing to the wider economy
We are an active corporate citizen with more than 28,600
employees and agents contributing to their wider economies
through taxes and spending on goods and services. Total tax
contribution in 2017 was over £220 million, comprising £140 million
of taxes paid (representing a cost to the Group) and £80 million of
taxes collected on behalf of governments such as payroll taxes
and employees’ social security contributions. We are also
committed to investing in our local communities supporting
financial literacy, local development and enterprise initiatives.
£220M
total taxes contribution
in 2017
5,000
hours volunteered by employees
supporting community initiatives
“We have worked with Provident in
Mexico for two years and during
this time they have supported
financial education programmes
that have helped around 50,000
young adults gain a better
understanding of how consumer
finance works.”
NEMI, social development NGO partner, Mexico
* including agents in Hungary and Romania who are employees to meet local regulatory requirements
23
Strategic ReportInternational Personal Finance plc Annual Report and Financial Statements 2017 Operational review
Group performance
overview
We delivered a solid financial and operational performance in 2017 and profit before tax increased to £105.6 million. We generated an
increase in like-for-like profit before tax of £5.3 million primarily as a result of improved profitability delivered by IPF Digital’s established markets.
Overall, like-for-like profit in home credit was broadly flat reflecting an £11.4 million reduction in our ongoing businesses offset largely by an
£11.1 million year-on-year increase in Slovakia and Lithuania. Stronger FX rates resulted in an £11.3 million positive impact which was offset
partially by incremental new business investment in IPF Digital of £7.0 million.
Home credit
Digital
Central costs
Profit before taxation from continuing operations
2016
reported
profit
£M
Like-for-like
profit
movement
£M
New business
investment
£M
Stronger FX
rates
£M
120.2
(9.3)
(14.9)
96.0
0.3
5.6
–
5.3
–
(7.0)
–
(7.0)
12.3
(1.0)
–
11.3
2017
reported
profit
£M
132.2
(11.7)
(14.9)
105.6
We delivered a 6% increase in credit issued as a result of strong growth in our Mexico home credit and IPF Digital businesses, and this resulted
in growth in average net receivables and revenue of 7% and 1% respectively. We managed credit quality effectively and impairment as a
percentage of revenue at 24.4% was slightly below our target range of 25% to 30%. The compression of revenue yields and our planned
investments in driving growth and efficiency resulted in a slight increase in our cost-income ratio, up 0.5 ppts to 45.8%.
Home credit
Our home credit businesses delivered profit before tax of £132.2 million in 2017 which comprised £129.0 million from our ongoing businesses
and £3.2 million from our home credit operations in Slovakia and Lithuania, which are being wound down. The increase in profit delivered by
our ongoing home credit businesses reflects a reduction in like-for-like profit of £11.4 million before a £12.8 million benefit from stronger FX rates.
The like-for-like profit growth in Slovakia and Lithuania was £11.1 million, after a loss in 2016 of £7.4 million, was driven by a strong collections
performance together with a significantly lower cost base following the wind-down of these operations.
Northern Europe
Southern Europe
Mexico
Ongoing home credit
Slovakia and Lithuania
Profit before taxation from continuing operations
2016
reported
profit
£M
Like-for-like
profit
movement
£M
75.6
40.3
11.7
127.6
(7.4)
120.2
(24.9)
11.3
2.2
(11.4)
11.1
(0.3)
FX rates
£M
9.1
2.9
0.8
12.8
(0.5)
12.3
Excluding Slovakia and Lithuania, the results for our ongoing 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
24
2016
£M
2017
£M
2,284
991.3
758.5
2,064
1,070.7
833.9
687.9
(179.4)
508.5
(41.8)
(82.0)
(257.1)
127.6
721.7
(166.7)
555.0
(46.8)
(85.5)
(293.7)
129.0
Change
Change
£M
(220)
79.4
75.4
33.8
12.7
46.5
(5.0)
(3.5)
(36.6)
1.4
%
(9.6)
8.0
9.9
4.9
7.1
9.1
(12.0)
(4.3)
(14.2)
1.1
2017
reported
profit
£M
59.8
54.5
14.7
129.0
3.2
132.2
Change at
CER %
(9.6)
0.6
2.1
(2.4)
13.5
1.5
(4.2)
2.6
(7.3)
Slovakia and Lithuania
The collect-out of our portfolios in Slovakia and Lithuania was
more effective than our original expectations and we reported a
combined profit in 2017 of £3.2 million compared to a loss of
£7.4 million in 2016. The result for 2017 is £2.2 million lower than we
reported at the half year reflecting an increase in the expected costs
of the liquidation of our Slovakia business following a delay in the
surrender of our operating licence to the National Bank.
Discontinued operations
The sale of our home credit business in Bulgaria in June 2017 resulted
in a one-off accounting charge of £5.7 million which, together with
the trading loss of £2.7 million generated in 2017, has been
accounted for as a discontinued operation in accordance with IFRS
5. The 2016 comparatives have been adjusted accordingly.
Reporting segments
In order to further simplify our financial reporting in alignment with
our strategy, we have decided to consolidate all our European home
credit businesses into one reporting segment. Accordingly, in 2018
our segmented reporting will comprise European home credit,
Mexico home credit and IPF Digital.
Outlook
We are focused on serving our customers responsibly within a
regulatory and competitive landscape that we expect will remain
challenging. We will continue to improve the sustainability of our
European home credit businesses by creating more modern, efficient,
higher credit quality operations that provide a good service to
customers, and continue to generate the cash and capital to fund
growth opportunities and returns to shareholders. We expect IPF Digital
to deliver further strong growth and an improved performance driven
by increased scale and further enhancements in financial metrics as
our new markets grow and mature. In Mexico, we expect to return to
customer growth, expand our geographic footprint and micro-
business channel, and deliver improved operational efficiency in
our established branches.
25
Strategic ReportInternational Personal Finance plc Annual Report and Financial Statements 2017 Operational review continued
Northern Europe
Czech
Republic
Poland
“We are managing Northern
Europe to deliver a high
level of service to our
customers and optimise
returns.”
David Parkinson
Regional Manager
Our Northern Europe region delivered profit
before tax of £59.8 million which reflects a
reduction in like-for-like profit of £24.9 million
driven primarily by intense competition in the
Czech Republic and lower pricing introduced
following the price cap on consumer loans
which came into force in Poland in March
2016. In addition, we took the decision to
increase our credit score cut-off threshold in
Poland which resulted in a smaller but higher
quality portfolio. The result for the region was
offset partly by a £9.1 million benefit from
stronger FX rates.
Credit issued for the region reduced by 1% in 2017 with 3% growth in
Poland and a 16% contraction in the Czech Republic, due mainly to
intense competition from banks, and payday and digital lenders.
Average net receivables contracted by 4% reflecting the reduction in
credit issued in the Czech Republic. The smaller receivables portfolio,
together with a reduction in revenue yield from 82% to 77%, resulted in
a 10% contraction in revenue. In Poland, our decision to implement
increased credit score thresholds combined with price cap driven
yield compression led to a reduction in revenue. In the Czech
Republic, reduced revenue arose due to the contraction in the
receivables book and a reduction in yield as a result of our strategy
of serving customers with longer-term loans.
We continued to deliver a good collections performance which
resulted in a 0.3 ppt year-on-year improvement in impairment as a
26
percentage of revenue to 22.7%. The cost-income ratio for the region
increased by 5.0 ppts to 41.8%, which reflected the contraction of
revenue yields together with higher costs. The cost increase was
driven by further investment in our Provident-branded digital offering
in both markets together with higher levels of depreciation and
increased IT spend largely arising from the rollout of our agent mobile
technology.
In the absence of an update from the Polish Ministry of Justice on its
proposal to further tighten existing cost of credit legislation, we will
continue to operate in line with our strategy and manage our
Northern Europe region to deliver a high level of service to our
customers while optimising returns. We also expect to deliver
progressive improvements in the cost-income ratio in 2018 as we
see the benefits of agent mobile technology being used across
the region.
Customer numbers
(000s)
Credit issued
Average net
receivables
Revenue
Impairment
Net revenue
Finance costs
Agents’ commission
Other costs
Profit before taxation
2016
£M
2017
£M
Change
£M
Change
%
Change at
CER %
849
737
468.9 508.6
(112) (13.2)
8.5
39.7
(13.2)
(1.3)
403.3 424.0
20.7
5.1
(4.3)
330.6 327.0
(76.2) (74.1)
254.4 252.9
(21.7) (24.4)
(35.5) (32.1)
(3.6)
(1.1)
2.1
2.8
(0.6)
(1.5)
(2.7) (12.4)
9.6
3.4
(121.6) (136.6) (15.0) (12.3)
(15.8) (20.9)
59.8
75.6
(10.1)
12.2
(9.5)
(2.5)
17.7
(3.5)
Southern Europe
Romania
Hungary
“Regulatory changes in
Romania impacted growth
rates but we delivered a
record profit performance.”
Botond Szirmák
Regional Manager
Southern Europe delivered improved profit
performances in both markets, increasing
total profit before tax for the region to £54.5
million driven by good growth in Hungary
and a significant contribution from debt sale
profit in Romania. This result reflects like-for-like
profit growth of £11.1 million and a
£2.9 million positive impact of FX rates.
Non-banking financial institutions in Romania were required to
operate under tighter creditworthiness assessment legislation from
January 2017, and serving customers under this new framework
resulted, as expected, in a contraction in growth rates in Southern
Europe. For the region as a whole, credit issued reduced by 6%
reflecting growth in Hungary offset by a 20% contraction in Romania.
Average net receivables increased by 9% as a result of our continued
strategy to offer higher value, longer-term loans in response to
customer demand. Revenue contracted by 2% due to the lower
yields earned on this longer-term lending.
We delivered very good collections with a strong, consistent
performance in Hungary throughout the year and a progressive
improvement in Romania following a difficult first quarter as we
transitioned the business to operate under the new regulations.
In the second half of the year, we also executed a number of
significant debt sales, principally in Romania, and this contributed
approximately £11 million to profit growth in the year. We expect
approximately half of this benefit to recur in 2018 as we move to
forward flow agreements in both countries. The good collections
performance together with the debt sale profit delivered an 11.0 ppt
improvement in impairment as a percentage of revenue to 9.6% at
the year end.
The cost-income ratio increased by 3.0 ppts to 39.1% which reflects
higher levels of IT investment to support the digitisation of our
business together with compression in revenue yields.
Like Northern Europe, we will continue to focus on transitioning
our business in Romania to operate within the requirements of the
National Bank of Romania Special Registry framework and improve
the efficiency of our operations.
2016
£M
2017
£M
Change
£M
Change
%
Change at
CER %
Customer numbers
(000s)
Credit issued
Average net receivables
594
499
289.0 288.4
205.5 237.7
(95) (16.0)
(0.2)
(0.6)
15.7
32.2
(16.0)
(5.9)
8.7
Revenue
Impairment
Net revenue
Finance costs
Agents’ commission
Other costs
Profit before taxation
170.8 177.7
(35.2) (17.0)
135.6 160.7
(11.5) (12.2)
(22.2) (24.5)
(61.6) (69.5)
54.5
40.3
4.0
6.9
51.7
18.2
18.5
25.1
(0.7)
(6.1)
(2.3) (10.4)
(7.9) (12.8)
35.2
14.2
(2.4)
55.3
11.5
–
(3.8)
(6.8)
27
Strategic ReportInternational Personal Finance plc Annual Report and Financial Statements 2017 Operational review continued
Mexico
“We delivered good
credit issued growth, and
expanded our geographic
footprint and micro-
business channel despite
disruption caused by two
earthquakes.”
Robert Husband
Country Manager
Our business in Mexico delivered a £3.0 million
improvement in profit before tax to £14.7
million, despite being impacted by two
earthquakes in September. This result includes
a £4.3 million investment in geographic
expansion and building our micro-business
channel (2016: £2.5 million).
Our objective in 2017 was to maintain the growth momentum
achieved in Q4 2016 (8% annualised). We delivered credit issued
growth of 19% in the year to August and, notwithstanding the
disruption caused by the two earthquakes in September (which
resulted in a contraction of 7% rather than growth), our teams worked
hard to react to these events and achieved credit issued growth in
the fourth quarter of 8% and 13% for the year as a whole. We also
executed our programme of investment in our micro-business
channel and geographic expansion, opening six new branches in
the first half of 2017.
This growth delivered an increase in average net receivables of 11%
and, with revenue yields remaining consistent year-on-year, revenue
increased at a similar rate. The growth in credit issued was
accompanied by an improvement in our collections performance
and impairment as a percentage of revenue improved by 1.7 ppts to
34.8%. This is higher than our original guidance for 2017 but in line
with the expectations set out in our Q3 trading update following the
earthquakes. It also includes £1.5 million of impairment arising from
our decision to close two branches in the north of Mexico in order to
focus on improved operational efficiency.
We continued to invest in growth which resulted in an increase in
other costs of £10.9 million at constant exchange rates (actual:
£13.7 million). Around half of this investment supported improved
operating performance in our existing branches with the balance
invested in our expansion programme and micro-business channel.
This led to a small increase of 0.8 ppts in the cost-income ratio to
40.4% for Mexico as a whole.
There are significant growth opportunities for our home credit business
in Mexico and we expect to return to customer growth in 2018. We will
continue to implement our new branch opening programme and
build our micro-business channel to maximise these opportunities,
while simultaneously focusing on managing selected established
branches to deliver improved operational leverage.
2016
£M
2017
£M
Change
£M
Change
%
Change at
CER %
Customer numbers
(000s)
Credit issued
Average net
receivables
841
233.4
828
273.7
(13)
40.3
(1.5)
17.3
(1.5)
12.9
149.7
172.2
22.5
15.0
10.9
Revenue
Impairment
Net revenue
Finance costs
Agents’
commission
Other costs
Profit before
taxation
186.5
(68.0)
118.5
(8.6)
217.0
(75.6)
141.4
(10.2)
30.5
(7.6)
22.9
(1.6)
16.4
(11.2)
19.3
(18.6)
12.0
(7.4)
14.7
(14.6)
(24.3)
(73.9)
(28.9)
(87.6)
(4.6)
(13.7)
(18.9)
(18.5)
(14.7)
(14.2)
11.7
14.7
3.0
25.6
28
IPF Digital
Finland
Estonia
Latvia
Lithuania
Poland
Spain
Mexico
Australia
IPF Digital represents a significant growth
opportunity for the Group and continued to
develop well in 2017. Our established digital
markets delivered a strong increase in credit
issued and good profit growth to £18.5 million,
which was offset by the planned increase in
investment in our new markets and head
office capabilities. IPF Digital as a whole
incurred a loss before tax of £11.7 million.
Customer numbers
(000s)
Credit issued
Average net
receivables
Revenue
Impairment
Net revenue
Finance costs
Other costs
Loss before taxation
2016
£M
2017
£M
Change
£M
Change
%
Change at
CER %
194
226
150.2 230.8
32
80.6
16.5
53.7
16.5
43.6
86.4 159.2
72.8
84.3
72.9
46.0
79.2
58.1 104.1
(17.5) (42.9) (25.4) (145.1)
20.6
40.6
50.7
(4.4) (110.0)
(4.0)
(40.5)
(25.8)
61.2
(8.4)
(45.9) (64.5) (18.6)
(2.4)
(9.3) (11.7)
67.6
(127.0)
41.7
(100.0)
(30.8)
“Our new markets grew
strongly and established
markets delivered improved
profitability to £18.5 million.”
Rami Ryhanen
General Manager
Demand continued to grow for our credit line and digital instalment
loans, which drove a 44% increase in credit issued to £230.8 million.
Average net receivables increased by 73% which resulted in 68%
revenue growth while impairment as a percentage of revenue
increased year-on-year by 11.1 ppts to 41.2%. This reflects an
improved credit performance in our established markets, offset by
the increased weighting of new markets in our portfolio and the
inclusion of the benefit of a one-off debt sale in our established
markets in our 2016 impairment charge.
As previously guided, we invested an additional £7.0 million in
building our new markets of Poland, Spain, Australia and Mexico,
and strengthening our head office capabilities and technology
platform to deliver future growth. The strong increase in revenue offset
these additional costs and resulted in a 17.0 ppt reduction in the
cost-income ratio to 62.0%.
The profitability of IPF Digital is segmented as follows:
Established markets
New markets
Head office costs
IPF Digital
2016
£M
12.4
(15.4)
(6.3)
(9.3)
2017
£M
Change
£M
Change
%
18.5
(20.5)
(9.7)
(11.7)
6.1
(5.1)
(3.4)
(2.4)
49.2
(33.1)
(54.0)
(25.8)
29
Strategic ReportInternational Personal Finance plc Annual Report and Financial Statements 2017 Operational review continued
Established markets
Our established markets of Finland and the Baltics continued to grow
strongly and delivered an excellent financial performance in 2017,
reporting a £6.1 million year-on-year increase in profit before tax to
£18.5 million. This was achieved through smarter risk-based pricing
strategies, strong customer relationship management (CRM)
activities and increased penetration of our credit line product, all of
which delivered credit issued growth of 20%.
2016
£M
2017
£M
Change
£M
Change
%
Change at
CER %
Customer numbers
(000s)
Credit issued
Average net
receivables
137
108.4
141
138.7
4
30.3
2.9
28.0
2.9
19.9
70.9
109.5
38.6
54.4
44.8
Revenue
Impairment
Net revenue
Finance costs
Other costs
Profit before taxation
45.5
(7.6)
37.9
(3.4)
(22.1)
12.4
63.4
(13.2)
50.2
(5.8)
(25.9)
18.5
17.9
(5.6)
12.3
(2.4)
(3.8)
6.1
39.3
(73.7)
32.5
(70.6)
(17.2)
49.2
30.5
(57.2)
24.9
(61.1)
(9.3)
Average net receivables grew by 45% which generated a 31%
increase in revenue. Credit quality remains excellent and impairment
as a percentage of revenue was 20.8%, compared to 16.7% in 2016
which included a £4.4 million benefit from a one-off debt sale. The
cost-income ratio improved by 7.7 ppts to 40.9% demonstrating the
benefits of increased scale and tight cost control, while continuing to
invest in generating growth.
30
New markets
Our new markets delivered another year of strong growth driven by
Poland and Spain. We accelerated our investment in building
consumer awareness of our brand and CRM activities, which resulted
in strong credit issued growth of 105% to £92.1million, and average
net receivables and revenue growth of over 200%.
Impairment as a percentage of revenue in these rapidly growing
markets continues to run at a relatively elevated level reflecting the
greater mix of new customers who have a higher risk profile, and
the normal learning curve for managing credit risk in new markets.
We are continuously refining the credit settings and collections
processes and, as expected, impairment as a percentage of revenue
improved to 73.0% at the 2017 year end representing a 10.7 ppt
improvement since the half year. Other costs increased by 53% to
£28.9M reflecting increased expenditure on brand building and CRM
activities. The cost-income ratio improved from 140% in 2016 to 71%
in 2017, driven by increasing economies of scale.
Customer numbers
(000s)
Credit issued
Average net
receivables
2016
£M
2017
£M
Change
£M
Change
%
Change at
CER %
57
41.8
85
92.1
28
50.3
49.1
120.3
49.1
104.7
15.5
49.7
34.2
220.6
201.2
Revenue
Impairment
Net revenue
Finance costs
Other costs
Loss before taxation
12.6
(9.9)
2.7
(0.6)
(17.5)
(15.4)
40.7
(29.7)
11.0
(2.6)
(28.9)
(20.5)
28.1
223.0
(19.8) (200.0)
8.3
307.4
(2.0) (333.3)
(65.1)
(33.1)
(11.4)
(5.1)
201.5
(182.9)
266.7
(333.3)
(52.9)
Outlook
Looking ahead to 2018 for IPF Digital as a whole, we expect to deliver
continuing strong growth and an improved performance, driven by
increased scale and further enhancements in impairment and
cost-efficiency trends as our new markets grow and mature. Our
previous guidance, based on accounting standard IAS39, was that
we expected IPF Digital to deliver its maiden profit in 2018. Under the
new accounting standard IFRS 9, the timing of impairment and
therefore profit recognition, particularly in our new markets which are
growing strongly, will be negatively impacted. Further information on
IFRS 9 can be read in the financial review on page 33.
Financial review
Good returns and
a strong financial profile
Financial strategy and financial model
We aim to deliver long-term profitable growth and deploy capital
efficiently, in order to develop and run high-return businesses which
provide good returns to shareholders while maintaining a strong
financial profile. We have a good track record of doing this, even
during periods of macroeconomic and financial market volatility,
as well as periods of competitive and regulatory change for
our business.
We adopt a Group financial model which sets key aligned
financial parameters. This focuses on returns and capital; financial
profile; and balancing investment, growth and risk. Over the
medium term, we aim to achieve a good return on the capital
invested in receivables for each of our businesses, recognising their
different stages of development and investment profile, and pay
an appropriate level of dividends to shareholders. We continue to
maintain a strong balance sheet with appropriate capital supporting
receivables, and have a strong debt funding position with good
headroom on debt facilities and on debt covenants. We ensure that
we have adequate equity capital and debt funding to support future
growth and to withstand external shocks if they arise, enabling us to
achieve good returns within the financial parameters.
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 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
at Group level we have always operated within or just below this
range. 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.
For a reconciliation and glossary of the alternative performance
measures that we use see pages 133-136
For our operational review of 2017 performance
see pages 24-30
“We aim to deliver long-term
profitable growth, deploy
capital efficiently, develop and
run high-return businesses providing
good returns to shareholders, and
maintaining a strong financial profile.”
Justin Lockwood
Chief Financial Officer
31
Strategic ReportInternational Personal Finance plc Annual Report and Financial Statements 2017 Financial review continued
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.
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 below 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 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, notwithstanding any other changes, the overall Group ROA will
reflect this dynamic.
Return on assets from continuing operations
European home credit
Mexico home credit
IPF Digital
Slovakia and Lithuania
Group1
1. Adjusted for exceptional tax charge
For further information see page 136
2016
2017
18.2%
10.1%
(4.5%)
(25.1%)
12.3%
16.2%
10.3%
(1.5%)
284.1%
11.5%
In 2017, ROA in our ongoing European home credit business reduced
from 18.2% to 16.2% which reflects a reduction in like-for-like profit in
Northern Europe partially offset by an improvement in Southern
Europe, with the investment in average net receivables remaining
broadly flat. We reported marginally improved returns in Mexico
reflecting an increase in profit that was slightly higher than the
increase in receivables. IPF Digital delivered a negative ROA in both
years due to the investment in new markets and building functional
capability to support growth, and in 2017 we reported a reduction in
the negative return reflecting the improving return dynamics of the
business. In addition, ROA in 2017 in all segments was adversely
impacted by a 3.2% increase in the effective tax rate, excluding
exceptional items (2017: 29.0%; 2016:25.8%). The overall Group ROA
contracted by 0.8 ppts which was driven by the moderation of
returns from European home credit, an increase in the scale of IPF
Digital in the context of the Group and the higher effective tax rate.
Return on equity from continuing operations
Return on equity for the Group is measured as profit after pre-
exceptional tax divided by average equity.
ROE reduced from 18.8% in 2016 to 15.7% in 2017 which reflects the
fact that average equity has increased at a faster rate than pre-
exceptional post tax earnings. The increase in pre-exceptional post
tax earnings was driven by growth in profit before tax partially offset
by the impact of a 3.2% increase in the effective tax rate in 2017
whereas, the increase in equity was driven predominately by the
foreign exchange impact on reserves explained later in this report.
For further information see page 136
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, while maintaining our strong financial profile.
The table below 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
£75.0 million in 2017 increasing from £71.2 million in 2016.
£49.9 million of this was used to invest in receivables growth (at 40%
equity funding for receivables). The European home credit business
generated £63.1 million of capital in 2017 (2016: £56.2 million),
and Mexico home credit generated £9.0 million (2016: £6.2 million).
There was a £38.8 million investment of capital in IPF Digital
(2016: £33.9 million). The other balance comprises the net of
central costs, and Slovakia and Lithuania.
Capital generation from continuing operations
Profit before tax
Pre-exceptional tax
Profit after pre-exceptional tax
Receivables growth funded by equity (40%)
Capital generated
European home credit
Mexico home credit
IPF Digital
Other
Dividends declared
Capital consumed
2016
£M
96.0
(24.8)
71.2
(54.2)
17.0
56.2
6.2
(33.9)
(11.5)
(27.4)
(10.4)
2017
£M
105.6
(30.6)
75.0
(49.9)
25.1
63.1
9.0
(38.8)
(8.2)
(27.6)
(2.5)
32
Earnings per share from continuing operations
Earnings per share based on a pre-exceptional tax charge was
33.7 pence in 2017 compared with 32.2 pence in 2016 reflecting the
increase in profitability, partially offset by the higher effective tax rate.
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 (2016: 12.4 pence per share). The full-year dividend
of 12.4 pence per share represents a total payment equivalent to
approximately 61.3% of post-tax earnings from continuing operations
for 2017. As a percentage of pre-exceptional profit after tax from
continuing operations for 2017, it equates to a pay-out ratio of
approximately 36.8%, which is modestly above our target pay-out rate
of 35%. The final dividend will be paid on 11 May 2018 to shareholders
on the register at the close of business on 13 April 2018. The shares
will be marked ex-dividend on 12 April 2018.
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, while
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 2017, the equity to receivables ratio was 47.0 %
(2016: 45.7%) compared with our target level of 40%, meaning equity
capital was £74 million above the target level. Equity reflects a
£51.3 million positive currency movement and an exceptional tax
charge of £30.0 million in respect of deferred tax. While the capital
ratio is substantially higher than the target level, we are comfortable
with this, to ensure sufficient capital for growth while maintaining the
resilience of the balance sheet given the regulatory and tax
challenges that the Group faces. Gearing was 1.4x at December
2017 (2016: 1.5x), 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 or just below this range since
demerger 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.
Group impairment as a percentage of revenue at 24.4% in 2017 was
slightly below the target range. The average period of receivables
outstanding at December 2017 was 9.1 months (2016: 7.8 months)
with 82.0% of year-end receivables due within one year (2016: 86.0%).
The average period of receivables outstanding has increased as
a result of issuing longer-term loans in our European home credit
and IPF Digital businesses. Closing receivables in 2017 were
£1,056.9 million, which is £61.8 million (6%) higher than 2016 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 IPF Digital
businesses that has the following key attributes, as detailed in the
following table:
Assessment
period
Home credit
Weekly and monthly
Digital
Monthly
Impairment
trigger
Missed payment or part
of a missed payment, even
if the agent fails to visit
the customer.
Segmentation
of receivables
Provisioning
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 probability of default
and loss given default
factors. This calculation
is updated quarterly.
IFRS 9
IFRS 9 is a new accounting standard that addresses accounting for
financial instruments with the main impact on the Group being a
change to the methodology used to account for loans due from
customers. The key change compared to the old accounting
standard is a shift from incurred loss to expected loss impairment
accounting. Under IFRS 9, the Group will be required to record
impairment charges at the inception of a loan based on the losses
that are expected to be incurred and this will result in negative net
revenue at the start of a loan. The new standard became effective
from 1 January 2018.
The overall impact of the new standard will be a reduction in the
carrying value of receivables on the balance sheet and our
preliminary assessment is that it will have an impact of between 11%
and 13%. The day one impact of this adjustment will be charged to
equity. After this adjustment to receivables, IFRS 9 would have no
impact on net revenue generation if a receivables book is stable
both in terms of size and quality. This is because for every new loan
issued where impairment is booked on origination, there is another
older loan where net revenue is higher than under the current
accounting standard. However, if a receivables book is growing, profit
will be lower under IFRS 9 because impairment booked at origination
is larger than the benefit arising from higher net revenue on older
agreements. In contrast, if the receivables book is contracting, profit
will be higher under IFRS 9 because the early impairment booked at
origination is offset by higher net revenue on the older agreements.
33
Strategic ReportInternational Personal Finance plc Annual Report and Financial Statements 2017 Financial review continued
Under IFRS 9, our preliminary assessment is that profit in 2017 would
have been around 6% to 8% lower than under the current
accounting standard which is principally due to lower net revenue
generation in IPF Digital and our Mexican home credit business,
where receivables portfolios are growing.
The financial covenants on our debt funding facilities are based on
the current accounting standard and therefore are not impacted by
this change.
IFRS 9 is an accounting change that has no impact on the business
model, credit quality, cash flows and economic value or returns.
Further information on IFRS 9 can be found in the accounting policies
on pages 99 to 100.
Treasury risk management and funding
There are Board-approved policies to 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 the translational risk of foreign
currency movements on 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 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.
In 2017 we added £53.0 million of new and increased three
year bank funding, including increased commitments in Poland
and Hungary, and two new banks. Also, we issued €12 million
(£10.7) million of new bonds as a tap of our existing 2021 bonds,
and at the same time bought back €11.75 million (£10.5 million)
34
of our 2018 bonds. In addition the funding position in 2017 benefited
from the strong cash collection in Slovakia and Lithuania.
Our debt funding position is summarised in the table below.
At December 2017 we had total debt facilities of £867.0 million
(£593.2 million bonds and £273.8 million bank facilities) and
borrowings of £677.7 million with headroom on undrawn debt
facilities of £189.3 million. In January 2018, we repaid £11.5 million
Hungarian bonds. We have further bond maturities in 2018 of
£25.3 million in May and £28.3 million in November and December.
We have significant long-term funding, with over £500 million of bonds
in place until 2020/21. The vast majority of bank facilities are
extended on a rolling basis annually.
Maturity
April 2021
May 2018
May 2020
November 2018
December 2018
December 2018
December 2019
January 2018
June 2020
2018-2020
Bonds
Euro
Euro
Sterling
Czech
Czech
Romanian
Romanian
Hungarian
Polish
Total bonds
Bank facilities
Total debt facilities
Total borrowings
Headroom
£M
368.4
25.3
101.5
8.8
7.0
12.5
15.2
11.5
43.0
593.2
273.8
867.0
677.7
189.3
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 €412 million (£368.4 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.
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 and other
key metrics
Gearing*
Interest cover
Net worth*
Receivables:
borrowings
EBITDA1
Cash generated from
operating activities
Debt: EBITDA multiple
Max 3.75
Min 2 times
Min £250 million
2016
2017
1.5x
3.2x
1.4x
3.1x
£427.9M £489.2M
Min 1.1:1
1.5x
1.6x
£161.7M £182.5M
£136.2M £143.6M
3.7x
3.9x
* Adjusted for derivative financial instruments and pension liabilities according
to covenant definitions
1. For further information see page 136
Foreign exchange input on reserves
The majority of the Group’s net assets are denominated in our
operating currencies and, therefore, the sterling 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 £51.3 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 from
continuing operations excluding exceptional items was £30.6 million
(2016: £24.8 million) which equates to an effective rate of 29.0%
(2016: 25.8%). This excludes a £30.0 million one-off tax charge arising
in respect of a change of tax law in Poland, which is further explained
below and including this item the tax charge was £60.6 million, which
equates to an adjusted effective tax rate of 57.4%. It also excludes a
£0.5 million tax charge in respect of our Bulgarian operation, which
was disposed of during 2017 and which is reported as a loss on
discontinued operations. The effective tax rate for 2018 is expected to
be in the region of 33% to 35% which assumes the impact of changes
to our business operations in Poland that we are currently evaluating
following the change in tax legislation on 1 January 2018.
As previously reported, our home credit business in Poland appealed
decisions received in January 2017 from the Polish Tax Chamber (the
upper tier of the Polish tax authority) with respect to the 2008 and
2009 financial years. The decisions for both years 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. In order to appeal these decisions, with
which we strongly disagree, it was necessary to pay the amounts
assessed. The payment is not a reflection of our view on the merits of
the case and, accordingly, it has been recognised as a non-current
financial asset of £37 million (comprising tax and associated interest)
in our Group accounts. At the time of our original announcement in
January 2017, we said that we intended to initiate a process with the
UK tax authority aimed at ensuring that the intra-group arrangement
is taxed in accordance with international tax principles. This has now
been initiated and, in response, the Polish court has stayed the
hearings of the 2008 and 2009 appeals pending resolution of this
process. The 2010 and 2011 financial years are being audited by the
tax authorities in Poland currently. In the event that the Polish tax
authority were to issue decisions following the same reasoning as the
decisions for 2008 and 2009 we would need to pay c. £44 million in
order to appeal the cases. All subsequent financial years remain
open to future audit.
As indicated in our statement of 4 October 2017, a comprehensive
set of proposed changes to Polish corporate income tax was
approved by the Polish Government's Council of Ministers. This came
into force on 1 January 2018. The main impact for our business relates
to the tax deductibility of certain expenses linked to intra-group
transactions. Due to the absence of adequate transitional provisions in
the new law, payments made prior to 1 January 2018 under long-
standing arrangements have become tax ineffective. Historically, these
amounts have been treated as giving rise to a deferred tax asset, which
has now been written off. The overall impact of this is a one-off deferred
tax charge of £30 million in 2017, which has been treated as an
exceptional tax expense in the 2017 accounts.
Summary of key financial statistics
Revenue¹ (£M)
Profit before tax¹ (£M)
EBITDA (£M)
Cash generated from operating activities (£M)
Impairment as a percentage of revenue (%)
Receivables (£M)
Equity (net assets) (£M)
Equity to receivables (%)
ROA (%)²
ROE (%)²
Capital consumed (£M)
Dividend paid (£M)
Dividend per share (pence)
Finance costs (£M)
Borrowings (£M)
Gearing (debt: equity multiple)
Headroom on undrawn bank facilities (£M)
1. From continuing operations
2. Adjusted for exceptional tax charge
2016
756.8
96.0
161.7
136.2
24.4%
939.9
429.5
45.7%
12.3%
18.8%
(10.4)
27.4
12.4
46.8
622.8
1.5x
152.4
2017
825.8
105.6
182.5
143.6
24.4%
1,056.9
496.9
47.0%
11.5%
15.7%
(2.5)
27.6
12.4
55.2
677.7
1.4x
189.3
Going concern
The Board has reviewed the budget for the year to 31 December 2018
and the forecasts for the two years to 31 December 2020, 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 macroeconomic
conditions and a changing competitive and regulatory environment)
is sufficient to fund business requirements for the foreseeable future.
Taking these factors into account, together with regulatory and
taxation risks set out on pages 39 and 40, 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.
Justin Lockwood
Chief Financial Officer
35
Strategic ReportInternational Personal Finance plc Annual Report and Financial Statements 2017 Principal risks and uncertainties
CEO Gerard Ryan reviews
risk management
Risk management is integral to the Group’s
strategy and the achievement of our long-
term goals. Our risk management activities
are undertaken within a framework that is
tailored to IPF and ensures we have robust
processes in place to allow management
to identify, evaluate, manage and report on
the principal risks that could affect
the Group.
For our governance and oversight structure
go online to www.ipfin.co.uk
Q. What were the key risk focus areas in 2017?
We continued to operate within a challenging external environment.
During 2017, regulatory risk remained a priority for our Board and
management teams, as did competition, tax and technology.
Changes to consumer lending regulations in Romania impacted
how we serve customers in that market, we await an update on the
Polish Ministry of Justice’s rate cap proposals and we were focused
on the taxation risk in Poland. Details of these matters are outlined in
my CEO review on pages 15.
Q. Did the principal risks change in 2017?
Yes. As the implementation of our strategy relies more on technology
we now consider the development and maintenance of effective
technology solutions as one of our principal risks. During the year,
we also split the review of the Legal and Regulatory risk into three
categories – Legal and Regulatory Compliance, Legal and
Regulatory Challenges and Issues, and Future Legal and Regulatory
Developments. This decision was taken in order to better manage
internally- driven compliance risk separately from the external risk of
potential challenge to our interpretation or application of existing
laws and regulations, or potential changes to laws and regulations.
Q. Looking ahead, what are the key risks in 2018?
We expect regulation, competition, tax and technology to be a key
focus for the Board and senior management team in the year ahead
although all of our principal risks will be monitored and managed
closely. These risks are included on pages 38 to 43.
Q. How are risks identified at IPF? Did this change
in 2017?
We identify emerging risks and manage current issues as part of
day-to-day business management, and this is undertaken through
monitoring the external environment and discussions with internal
management and external agencies. Formal risk management
discussions occur in line with the management framework set out
on page 37.
“Our risk management process is
designed to support the execution
of our strategy, improve decision-
making and deliver on the
commitments made to our key
stakeholders.”
Gerard Ryan
Chief Executive Officer
36
Internally, we are enhancing the risk management process across
our business, maintaining emphasis on the ability to identify and
evaluate emerging risks. This includes the implementation of a new
risk reporting and evaluation tool across the Group. The Internal Audit
function has also continued to monitor the effectiveness of the overall
operational governance and oversight structure.
Q. How is risk evaluated at IPF?
We evaluate each risk that could impact the business at least
quarterly and this is based on the likelihood and potential financial
impact of that risk at both market and Group level. We consider
two aspects:
• inherent risk – the impact of the risk before internal controls or
mitigating actions; and
• residual risk – the risk that remains after the effect of mitigating
actions and controls are considered.
Using this assessment, we identify the principal risks and determine
whether further actions are required to mitigate the risk to within our
agreed risk appetite levels.
This process also identifies risks that have a high reliance on the
effective operation of our internal control system which, in turn, guides
the planning of our internal audit team’s work.
Q. How is risk managed at IPF?
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. The principal risks
to our strategy are identified, evaluated and managed at Group level
in accordance with our operational governance and oversight
structure, which can be viewed at www.ipfin.co.uk. We operate similar
structures in each of our home credit markets and IPF Digital. A
bottom-up assessment of principal risks by our business unit teams
is aggregated for their Group-level owners and then validated to
produce an overall assessment of those risks.
Q. How do you determine risk appetite and did it
change in 2017?
Group risk appetite is proposed by the risk owners, reviewed by the
Risk Advisory Group and approved by the Board on an annual basis.
Action plans are created in cases where residual risk is in excess of
this appetite and progress against these is monitored by the Board
at each meeting.
The setting of appetite includes consideration of the external
environment impacting the risk, driven largely by the markets in
which we operate, and the extent to which this can be managed
or influenced. We accept that the nature of our operating model
and the external environment in the markets in which we operate
generates risk and this needs to be balanced to optimise returns.
Our appetite for risks which can be mitigated largely by our internal
control system is low.
Our risk appetite remained broadly unchanged in 2017.
Our framework for the identification, evaluation and
management of our principal risks
The Board
The Board determines the nature and extent of the principal risks it
is willing to take in achieving our strategic objectives (as described
on pages 12 and 13) and target business model (as described on
pages 8 and 9), taking account also of the environment in which
the Group operates. The Board approves the principal risks as
described in the Group Schedule of Key Risks on a six-monthly
basis and approves risk appetite annually.
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 manage risks to
within risk appetite levels. The Committee undertakes a robust
assessment of the Group Schedule of Key Risks on a six-
monthly basis. See page 53 for Committee membership
and remit.
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.
Management Team
The management team is responsible for day-to-day risk
management and internal control systems. Risk identification,
evaluation and management processes form an integral part
of business processes. Control and oversight activities are
identified for all risks in the Group Schedule of Key Risks.
Three Assurance Lines of Defence
First line:
Business-level management identifies, assesses and controls risks
principally at market 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 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.
37
Strategic ReportInternational Personal Finance plc Annual Report and Financial Statements 2017 Principal risks and uncertainties continued
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.
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
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.
Regulatory
• Legal and
• Compliance with existing laws
regulatory compliance*
and regulations
• Legal and regulatory
challenges and issues*
• Future legal and
regulatory development*
• Challenges to interpretation or
application of existing laws
and regulations
• Anticipating and responding to
changes to laws and regulations
and their interpretation
Competition and product proposition
• Competition*
• Responding to changes in
market conditions
• Product proposition*
• Meeting customer requirements
Funding, market and counterparty
• Funding*
• Funding availability to meet
business needs
• Interest rate and currency
• Market volatility impacting
performance and asset values
• Counterparty
• Loss of banking partner
World economic environment*
• Adapting to economic conditions
Taxation*
• Changes to, or interpretation of,
tax legislation
• Reputation*
• Reputational damage
• Customer service
• Maintenance of customer
service standards
Operational
The risk of unacceptable losses as a
result of inadequacies or failures in our
internal core processes, systems or
people behaviours.
• Credit*
• Safety*
• People*
• Customers fail to repay
• Harm to our agents/employees
• Calibre of people
• Business continuity* and
information security*
• Recoverability and security
of systems and processes
• Financial and
• Failure of financial reporting
performance reporting
systems
• Technology*
• Maintenance of effective
• Fraud
technology
• Theft or fraud loss
• Change management*
• Delivery of strategic initiatives
• Brand
• Strength of our customer brands
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.
* Risks currently considered by the Board as the principal risks facing the Group.
38
As at the year end, the Board considered that there are 16 principal risks which require ongoing focus (noted with asterisks in the table on
page 38).
Risk
Relevance to strategy
Mitigation
Commentary
1. 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 due
to 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 monitor 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 2017, notable
changes occurred in Romania.
We also expect pricing
regulations to be implemented
at some point in the future in
those markets where there are
no price caps currently.
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
established and maintained
with regulators, legislators
and other stakeholders.
The strategy of strengthening
relevant associations
contributes to the monitoring,
as well as to the
influencing capabilities.
Co-ordinated legal and
public affairs teams, at
a Group level and in
each market, monitor
political, legislative and
regulatory developments.
Compliance programme
focused on key
consumer legislation.
2. 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
and is likely to remain at a high
level, particularly in Europe.
Regular monitoring of
competitors and their
offerings, advertising and
share of voice in our markets.
Regular surveys of
customer views on our
product offerings.
Product development
committees established
across the Group to manage
product change and
introduce new products.
Lead responsibility:
Chief Executive Officer
See Chief Executive Officer’s review
and operational review for details of
key regulatory changes in 2017 and
proposals for future regulation.
A number of legislative and
regulatory changes have been
implemented in 2017 and further
potential changes continue to be
proposed and debated, particularly
in Europe. As stated elsewhere in this
report, these have had a significant
impact on our business in Romania
in particular this year, and there
continues to be the potential for a
significant impact on our business
in Poland.
We continued to evolve and
strengthen our approach to
governing this risk focusing on
establishing and maintaining
constructive relationships with
regulators, politicians and other
stakeholders, participating in sector
associations and informing our
stakeholders about the role our
services play in society and
the economy.
Lead responsibility:
Chief Executive Officer
In Europe, competition in 2017
remained intense particularly
from digital lenders, home credit
operators and banks as they
enhanced their customer
propositions. In Mexico
competition is stable and digital
lending remains small-scale.
IPF Digital continued to grow strongly
in 2017 and diversification into digital
lending enables us to offer further
product choices to customers in our
target segment.
In 2017, we launched a number of
pricing promotions in our European
home credit markets to acquire new,
and retain existing, customers.
For more on our strategy see pages
12 and 13.
Growth focus – IPF Digital
Risk environment improving
Growth focus – Mexico home credit
Risk environment remains stable
Returns focus – European home credit
Risk environment worsening
39
Strategic ReportInternational Personal Finance plc Annual Report and Financial Statements 2017
Principal risks and uncertainties continued
Risk
Relevance to strategy
Mitigation
Commentary
3. 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. We
are committed to ensuring
compliance with tax law and
practice in all of the territories in
which we operate.
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.
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.
Lead responsibility:
Chief Financial Officer
Further detail on tax matters is
included in the Chief Executive
Officer's review on pages 14 to
17 and the financial review on
pages 31 to 35.
We have ongoing tax audits in
Poland, Mexico and Slovakia.
In Poland, where we appealed
two adverse decisions made by
the Polish tax authority in respect
of 2008 and 2009, hearings have
been stayed pending resolution
of a process with the UK tax
authority aimed at ensuring
the intra-group arrangement
being challenged is taxed in
accordance with international
tax principles. In order to appeal
these decisions, we had to pay
c. £37 million in tax and interest,
and further payments could
be required in respect of future
years that are still open to audit,
including 2010 and 2011
where audits are ongoing. All
subsequent years remain open
to audit. For further information
see pages 35, 118 and 132.
4. Technology and
change management
We suffer losses or fail to optimise
profitable growth due to a failure
to develop and maintain effective
technology solutions or manage
change in an effective manner.
Objective
We aim to effectively manage the
design, delivery and benefits
realisation of major technology
and change initiatives and
deliver according to requirements,
budgets and timescales.
A core part of our strategy is to
modernise our home credit
operation and invest in digital
developments.
Effective management of the
initiatives within this
programme is essential.
Likelihood
Our change programme is
complex covering numerous
markets. By centralising our
IT resources into an expanded
Group IT structure and
strengthening our programme
management capabilities
we are better placed to
minimise the likelihood of
programme-wide issues.
Executive director and country
manager level prioritisation of
key initiatives.
Standard project
management methodology
principles defined.
Governance structure in place
to oversee ongoing change
at Group and market levels,
and review existing
systems architecture.
Lead responsibility:
Chief Executive Officer
Our change programme
encompasses a broad
technological remit and
we are rolling out mobile
technology applications
to agents.
A revised IT strategy was
launched in 2016 to ensure we
are able to respond effectively
to changing regulatory,
competitor and customer
behaviour dynamics.
40
Risk
Relevance to strategy
Mitigation
Commentary
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.
Focus on HR governance and
maintenance of our employer
value proposition across
the Group.
Plan to introduce specific HR
performance metrics in 2018.
Technology systems and
services are designed for
resilience and tested
before launch.
Periodic ongoing testing and
monitoring of security and
recovery capability for
technology and premises.
5. 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
breadth of capabilities and
depth of personnel to ensure
that we can meet our
strategic objectives.
6. 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, theft or corruption
of information.
Objective
We aim to maintain adequate
arrangements and controls that
reduce the threat of service
and business disruption and
the risk of data loss to as low as
is reasonably
practicable.
Our strategy segments our
operations into 'growth’ focused
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
Our people, organisation and
planning processes ensure that
we develop appropriate and
significant strength and depth
of talent across the Group and
we have the ability to move
people between markets,
which reduces our exposure
to critical roles being under-
resourced. During 2018, we will
continue to develop, resource,
retain and reward the
right people.
Globally, we have 2.3 million
customers and we record,
update and maintain data for
each of them on a regular
basis, often weekly.
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.
Lead responsibility:
Chief Executive Officer
Our people strategy focuses on
building and maintaining a
culture of high engagement
and performance and we
devote significant leadership
time to identifying, developing
and empowering our people.
We made structural changes
in our European home credit
business with the creation of
the Northern Europe region
and introduced a Group-wide
functional matrix structure. These
changes are further facilitating
the sharing of best practice
and collaboration.
We strengthened our Group-
level leadership team with the
appointment of a new Group HR
Director and Chief Legal Officer.
Lead responsibility:
Chief Executive Officer
During 2017, we performed a
number of tests of our
information security and
continue to work towards further
improvement using expert
advice.
In addition to periodic testing of
technology, we perform regular
tests and rehearsals of our
communication processes and
our plans for alternative
worksites, where applicable.
We are working to ensure
compliance in all our European
markets with the new General
Data Protection Regulation,
which will be introduced
25 May 2018.
Growth focus – IPF Digital
Risk environment improving
Growth focus – Mexico home credit
Risk environment remains stable
Returns focus – European home credit
Risk environment worsening
41
Strategic ReportInternational Personal Finance plc Annual Report and Financial Statements 2017
Principal risks and uncertainties continued
Risk
Relevance to strategy
Mitigation
Commentary
Our reputation can have an
impact on both customer
sentiment and the
engagement of key
stakeholders, impacting our
ability to operate and serve our
customer segment.
Likelihood
We maintain strong
relationships with key
stakeholders across the Group
in order to develop their
understanding of our business
model and how we deliver
services to our customers. This
helps protect the business from
unforeseen events that could
damage our reputation.
Changes in economic
conditions have a direct
impact on our customers’
ability to make repayments.
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 business
models.
7. Reputation
We suffer financial or
reputational damage due
to our methods of operation,
ill-informed comment
or malpractice.
Objective
We aim to promote a positive
reputation based on a mutual
understanding of what we do
that will help the Group deliver
its strategic aims.
8. 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.
9. 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.
Group Reputation and
Regulation Committee.
Clearly defined corporate
values and ethical standards
are communicated throughout
the organisation and all
employees and agents are
mandated to undertake
annual ethics e-learning.
Regular monitoring of key
reputation drivers.
Lead responsibility:
Chief Executive Officer
Our home credit and digital
businesses have achieved
industry awards for the way we
conduct our business and we
have been recognised as a top
employer and socially
responsible business. We also
undertake a range of corporate
responsibility programmes. We
take a proactive approach to
reputation management and
update the market on material
challenges that we are required
to disclose.
Treasury and credit committees
review economic indicators.
Monitoring of economic,
political and national
news briefings.
Strong, personal customer
relationships inform us of
individual customer
circumstances.
Lead responsibility:
Chief Financial Officer
There were reasonably stable
macroeconomic conditions in
all our markets in 2017. Current
indicators suggest our markets
will deliver positive GDP growth,
low but increasing inflation and
subdued interest rates in 2018.
We continue to monitor the
impact of Brexit and other
geopolitical events on financial
markets and macroeconomic
conditions.
Lead responsibility:
Chief Executive Officer
We continued to make progress
in our safety management
systems and maintained our
Occupational Health and Safety
Assessment Series (OHSAS)
certification in all home
credit businesses.
Safety continues to be a
significant area of focus for
the Group.
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.
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.
42
Growth focus – IPF Digital
Risk environment improving
Growth focus – Mexico home credit
Risk environment remains stable
Returns focus – European home credit
Risk environment worsening
Risk
Relevance to strategy
Mitigation
Commentary
10. 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.
11. 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 to limit
the impact of interest rate and
currency movements and
exposure to financial
counterparties.
With the expansion of our IPF
Digital and Mexico home credit
businesses, it is important that
we retain control of credit losses
in order to achieve our
intended returns. For the
European home credit
businesses we focus on writing
profitable business to
optimise returns.
Likelihood
Our control environment
means that we will see issues
quickly and the systems in
place mean that we can
change credit settings quickly,
and therefore the likelihood of
suffering large losses is low.
Weekly credit reporting on the
quality of business at time of
issue as well as the 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 Group
management 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’.
Funding at appropriate cost
and on appropriate terms, and
management of financial
market risk, is necessary for the
future growth of the business.
Adherence to Board-approved
policies monitored through the
Treasury Committee, finance
leadership team and regular
Board reporting.
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.
Funding plans presented as
part of budget planning.
Strong relationships maintained
with debt providers.
Lead responsibility:
Chief Executive Officer
Credit risk in our European
home credit markets is stable.
Our Mexico home credit
business delivered improved
growth during the first half of
2017 but there was some
instability from September
following two earthquakes
which hit the country. Improved
performance returned in Q4.
The credit risk environment in our
established IPF Digital markets is
generally stable with very low
loss rates. In our new markets,
there have been rapid changes
and learnings applied to credit
settings resulting in strongly
improving credit quality.
Lead responsibility:
Chief Financial Officer
Our business has a strong
funding position with good
headroom on undrawn bank
facilities and long-term funding
in place.
Hedging of market risk and limits
on counterparty risk in line
with policies.
Further detail on our funding
position is included in the
financial review on pages 31
to 35.
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
39, 40 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 2018
43
Strategic ReportInternational Personal Finance plc Annual Report and Financial Statements 2017
Introduction to corporate governance
Good governance
supports strategic delivery
The Board ensured that, despite a
challenging external environment
throughout 2017, the business remained
true to its purpose and values of providing
straightforward consumer finance
responsibly and respectfully.
Dear shareholder,
The landscape within which the Board and its Committees worked
during 2017 continued to be one of regulatory challenge, robust
competition and evolving customer preferences. These factors
underpinned Board discussions when reviewing and challenging
the formulation and implementation of the Group's strategy.
Q. What was the focus of the Board in 2017?
Regulatory developments in Poland and Romania and corporation
tax matters in Poland have been areas of particular focus. Board
discussions have been informed by regular updates provided
first-hand by David Parkinson and Botond Szirmák, Regional
Managers for our Northern Europe and Southern Europe home
credit businesses respectively.
The Board was assisted in its oversight of regulatory and tax matters
by the Audit and Risk Committee, chaired by Richard Moat, through
the Committee’s review of compliance testing and mitigation
planning under the Group’s compliance and risk
management frameworks.
Our values
Our values have remained constant since we listed on the
London Stock Exchange in 2007 and they are embedded
across our organisation irrespective of role or geographical
location. They are the core principles that guide the way we
build our business and serve our customers. Our values help
differentiate our business and provide reassurance to our
customers that they have made the right decision in choosing
products and services from us.
We are
responsible
Being open and
transparent in
everything we do
We are
straightforward
Taking due care in
all our actions
and decisions
We are
respectful
Treating others as
we would like to
be treated
“Effectively navigating
regulatory challenge remains
a key focus for the Board.”
Dan O’Connor
Chairman
44
Q. How did the Board provide oversight of
operational issues in the business during 2017?
A key area of operational focus in 2017 was the continued growth
momentum in our home credit business in Mexico in the first half of
the year. This built on the improved performance we saw in the
second half of 2016. Unfortunately, progress was understandably
impeded by the earthquakes which hit Mexico in September that
resulted in a contraction in credit issued and a weaker collections
performance. First and foremost, the Board was keen to make
certain that support was in place for all our employees and agents,
and then to see the right actions were taken to enable the business
to return to normal operations as quickly and safely as possible. I am
pleased to say that the business recovered well from the disruption
and trading improved from the second half of November 2017.
Q. How did the Board support the Group’s focus on
efficiency through the use of technology in 2017?
Modernising the business through the use of technology remains key
to delivering our long-term success. Assisted by the Technology
Committee, chaired by John Mangelaars, the Board continued to
support the drive to increase IPF’s technology-based capabilities in
line with its broadening product range and channel choices. On
behalf of the Board, the Committee also oversaw the centralisation
of our IT function, further development of the MyProvi mobile
handheld technology for agents and the appointment of the
Group’s first Chief Data Officer as part of our drive to add value to
the organisation through the use of advanced data and analytics.
Q. How does the Board ensure that IPF has the right
people in place to deliver its strategic objectives?
An integral part of the Board's oversight role is to ensure that effective
succession planning processes are in place together with initiatives
to enhance the Group's leadership team. In February 2017, we were
pleased to invite Justin Lockwood to join the Board as an executive
director, and later in the year saw the strengthening of the senior
executive team with the appointment of a new Group HR Director
and Chief Legal Officer and Company Secretary. We also continued
our search to find the right individual to take over the role of Senior
Independent Director.
However, having the right people in place is not simply about
identifying people with the right skills and experience. It is about
creating a cohesive team with shared values and ethics. To this end,
the Board supported work to embed the Company's ethical
standards across the Group and to support our Aspire programme
aimed at developing our pool of future leaders.
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
April 2016, and which applied throughout the financial year
ended 31 December 2017. The Code is available on the FRC’s
website: www.frc.org.uk. We 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.
For more information on our compliance with the
UK Corporate Governance Code see pages 78-81
Leadership
The Board, led by the Chairman, provides leadership
and strategic direction to the Group, with non-executive
directors providing constructive challenge
to management.
For more information see page 78-79
Effectiveness
The Board comprises individuals with a diverse range
of knowledge, skills, experience and independence to
enable it to effectively oversee the Group’s
strategic direction.
For more information see pages 79-80
Accountability
The Board, with the support of the Audit and Risk
Committee, is responsible for presenting a fair,
balanced and understandable assessment of the
Company’s position and prospects; maintaining sound
internal control systems and risk management
processes; and maintaining an appropriate relationship
with the Company’s auditor.
For more information see page 80
Remuneration
The Board, with the support of the Remuneration
Committee, ensures that executive directors’
remuneration is transparent and designed to promote
the long-term success of the Company, ensuring
performance-related elements are transparent,
stretching and rigorously applied.
For more information see page 80
Relations with shareholders
The Board and its members meet with major
shareholders throughout the year and there is an
active programme of investor engagement to update
investors on the Group’s strategy, results and material
developments, and to receive shareholder feedback.
For more information see pages 80-81
The governance report includes:
Our Board and Committees
Board report
Nomination Committee report
Audit and Risk Committee report
Technology Committee report
Directors’ Remuneration report
Directors’ report
Directors’ statements
46
48
51
53
58
60
78
88
45
International Personal Finance plc Annual Report and Financial Statements 2017Corporate Governance Our Board and Committees
1
2
3
4
1. Dan O’Connor
Chairman, age 58
3. Justin Lockwood
Executive director and Chief Financial Officer, age 48
Length of service: 3 years and 2 months
Length of service: 1 year
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 a 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.
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.
Appointments and qualifications: Justin was the Company’s Group
Head of Finance for seven years before being appointed to the
Board as 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: 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. He provides the Company with strong financial leadership.
2. Gerard Ryan
Executive director and Chief Executive Officer, age 53
4. Tony Hales CBE
Senior independent non-executive director, age 69
Length of service: 6 years and 1 month
Length of service: 10 years and 7 months
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.
Committee membership key
Audit and Risk Committee
Disclosure Committee
Executive Committee
Nomination Committee
Remuneration Committee
Technology Committee
46
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, a board member of the Associated Board of the Royal
Schools of Music (ABRSM) and 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.
5
6
7
8
5. Jayne Almond
Independent non-executive director, age 60
7. John Mangelaars
Independent non-executive director, age 53
Length of service: 2 years and 8 months
Length of service: 2 years 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 also the Chair of 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 63
Length of service: 5 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 25
years’ international telecoms experience in senior management
roles and provides financial and operational expertise along with
international experience.
Appointments and qualifications: John worked 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,
Netherlands, 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 55
Length of service: 4 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 previous
roles included General Manager 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 Chubb European Group Ltd, Chubb Underwriting
Agencies Ltd, The Equitable Life Assurance Society 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 serving as Chair of its Remuneration Committee.
She brings a wealth of experience in major IT transformation
programmes, implementing new distribution channels and
customer service.
47
International Personal Finance plc Annual Report and Financial Statements 2017Corporate Governance
Board report
Dear shareholder,
During the year, the Board provided effective oversight in support
of management’s navigation of tax matters in Poland, regulatory
matters in Poland and Romania, and the improvement in the
performance of our home credit business in Mexico. In addition,
the Board oversaw the delivery of the Group's strategy, which is
to provide a high level of service to customers and optimise
returns generated by our European home credit businesses to
reinvest in our growth businesses and deliver shareholder returns.
As part of this, and following careful consideration, the Board
approved the sale of our Bulgarian home credit business, which
was completed in June. This disposal was undertaken to enable
us to focus on our larger home credit businesses and IPF Digital.
In 2017, the Board and its Committees carried out an internal
evaluation of its performance, facilitated by the Company Secretary.
A summary of the Board evaluation feedback and its action plan is
shown on page 49.
In progressing its 2017 objectives, the Board was supported by its
Committees and I thank my colleagues for their steadfast support
throughout the year. Further details of the work of the Board and
its Committees can be found in the following pages.
Dan O’Connor
Chairman
2017 objectives
• Monitor the impacts of potential new 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.
2017 progress
• Effective oversight of the management of
regulatory and corporation tax matters in Poland,
with good returns being maintained by the business,
consistent with the Group strategy.
• Close monitoring of the implementation of tighter
creditworthiness requirements and preparation for entry
into the Special Registry in Romania.
• Effective oversight and management challenge in
support of the performance recovery in Mexico pre- and
post-earthquakes.
• Effective oversight and support for the managed growth of IPF
Digital, balancing increasing revenue with credit quality
and profitability.
• Review of the Group’s new people strategy to strengthen
leadership, develop talent and ensure succession
management.
• Together with the Technology Committee, oversight of the
implementation of the Group’s technology strategy.
• Support and guidance to executive directors in the
formulation of appropriate and helpful investor
communications on Group strategy.
2018 objectives
• Continue to monitor the impacts of, and mitigation
planning for, potential new regulation.
• Continue to monitor the impacts of tax audits on the Polish
business and any resultant impacts on Group funding.
• Support the development and/or deployment of technology
across the business with emphasis on the customer
experience, customer retention and profitability.
• Support the development, testing and deployment of new
products.
• Monitor continued performance improvement and profitable
growth in Mexico.
• Continue to support the growth of IPF Digital and monitor its
financial and leadership resources through the application of
a robust control framework.
• Support the Group’s new people strategy in the furtherance
of leadership, development and succession planning.
• Continue to monitor the development and returns generated
• Support the executive team to deliver clear and consistent
by our European home credit businesses.
strategic communications to external stakeholders.
• Monitor the strength of the Group’s balance sheet and the
development of our longer-term funding strategy.
Our full Directors’ report can be found
on pages 78-87
“Regulation and performance
monitoring were at the heart of
Board discussions in 2017.”
Dan O’Connor
Chairman
48
Board composition (%)*
12%
63%
25%
Attendance at meetings of the Board
and Board committees in 2017
Chairman
Independent non-executive directors
Executive directors
Director
Board
6/6
Jayne Almond 8/8
Tony Hales
8/8
Justin
Lockwood1
John
Mangelaars
Richard Moat2
Dan O’Connor
Cathryn Riley
Gerard Ryan
8/8
8/8
8/8
8/8
8/8
Audit
and Risk
Committee
6/6
6/6
6/6
Nomination
Committee
Remuneration
Committee
Technology
Committee
4/4
4/4
4/4
4/4
4/4
2/4
4/4
2/2
2/2
2/2
2/2
2/2
1. Justin Lockwood joined the Board on 23 February 2017.
2. Richard Moat did not attend two Technology Committee meetings as
these conflicted with existing business commitments.
Board tenure (%)*
38%
38%
12%
12%
Under 3 yrs
3 – 5 yrs
6 – 9 yrs
Over 10 yrs
Board diversity (%)*
25%
75%
Female
Male
Board meetings 2017
7
1
1
Scheduled meetings
Ad hoc meeting
Strategy retreat
* As at 1 March 2018
Board and Committee evaluation
In 2017, the Board and its Committees carried out an internal evaluation of their performance facilitated by the Company Secretary.
Details of the process followed can be found on page 80.
2017 action
plan themes
Communication
of strategy
Strength of the
leadership team
Update on 2017 action plan areas
2017 evaluation results
• Good communication of strategy both
Positive feedback on:
2018 action plan themes
Key themes are:
internally and externally including:
• successful strategy roadshow across the
markets by the CEO in 2017; and
• successful 'Managing for returns' roadshow
by CFO in 2017.
• Effective strategy update meeting held in
June 2017 and commended in 2017 Board
evaluation feedback.
• Improvement in the communication of
results recognised in the 2017 Board
evaluation feedback.
• Appointments made to the leadership team
in 2017 to support our ambition to grow the
business to its maximum potential and
respond positively to a changing
external environment:
• James Ormrod, Chief Legal Officer and
Company Secretary, a dual-qualified UK
solicitor and US attorney, with experience of
global, divisional and regional general
counsel roles; and
• Lyndsey Hamilton-Scott, Group HR Director,
with extensive experience of large-scale
organisation transformation and senior
executive assessment.
• the robustness of Board discussions;
• the balance between non-executive
• continued increased
focus on strategy;
challenge and support;
• accelerating the pace
• the assessment of risk and
risk appetite; and
• the way emerging issues
have been handled
and communicated.
of business
transformation;
• maintaining the
increased focus on
technology; and
• continued strengthening
of the leadership team.
Areas for development:
• more time to be devoted to strategy;
• the pace of business transformation in
light of challenges to our operating
model; and
• the strategic importance of
technology and the role of
the Technology Committee.
49
International Personal Finance plc Annual Report and Financial Statements 2017Corporate Governance Board report continued
Matters considered by the Board in 2017
January
• Discussed proposed changes to the total cost of
credit cap in Poland.
• Reviewed the Polish Tax Chamber's decision.
• Board evaluation results and action plan for 2017.
• Appointment of interim Company Secretary and amendment
to Committee membership.
February
• Update on Polish tax and regulatory matters.
• 2016 full-year financial results, Annual Report and
Financial Statements, viability statement, and 2017 AGM
notice reviewed and approved.
• Approval of the Audit and Risk Committee’s recommendation
that the 2016 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.
• Final dividend recommendation agreed.
• Approved the update of the Euro Medium Term
Note Programme.
• 2017 budget reviewed and further information requested to
understand the performance of the business in Romania.
• Update on IPF Digital.
June (ad hoc meeting)
• Appointment of Company Secretary.
June
• Board strategy update.
July
• Update on proposed changes to the total cost of
credit cap in Poland.
• Reviewed Romania trading performance and
regulatory matters.
• 2017 half-year financial results 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
Plan approved.
September
• HR functional strategy update.
• Discussed Romania regulatory matters.
• Considered the Group's General Data Protection Regulation
implementation programme.
• Group Schedule of Key Risks and Risk Appetite Statements
• Debated business development opportunities.
reviewed and approved.
• Reappointment of Deloitte as the auditor of the
Company approved.
• Chair Review Survey considered by non-executive directors.
• Appointment of Chief Financial Officer.
May
• Discussed activity to monitor proposed changes to the total
cost of credit cap in Poland.
• Considered senior management team recruitment.
• Discussed cyber security.
• Reviewed Romania trading performance.
• Q1 2017 trading update statement reviewed and approved.
• Shareholder voting guideline reports from IVIS, ISS and
PIRC reviewed.
October
• Reviewed business development opportunities.
• Q3 2017 trading update statement reviewed
and approved.
December
• Approval of the Group tax strategy.
• Business plans and budgets for 2018 reviewed and approved.
• Outcome of the 2017 triennial valuation of The International
Personal Finance plc Pension Scheme noted; actions to
de-risk the Scheme and recovery plan approved.
• Board evaluation results and action plan for 2018.
Standing agenda items were discussed at each scheduled meeting comprising reports from the Chief Executive Officer, Chief Financial Officer and Committee
Chairs; and a review of performance against KPIs. Tax and regulatory matters relating to the Polish market were also discussed at all scheduled meetings.
Details of matters reserved to the Board
can be viewed online at www.ipfin.co.uk
50
Nomination Committee report
Dear shareholder,
During 2017, the Nomination Committee focused on ensuring
that Board membership remained appropriate. In February 2017,
we recommended to the Board the appointment of Justin
Lockwood as an executive director and Chief Financial Officer.
Our search for a new Senior Independent Director to replace
Tony Hales also continued during the year. This is a role which
the Committee considers critical for good governance and we
are committed to finding a candidate with the appropriate
skill-set, qualifications and capabilities to provide the breadth
of experience and depth of insight that we have come to expect
from Tony.
Additionally, Jayne Almond, one of our non-executive directors,
has let us know that she will not be seeking re-election at the
Company's upcoming Annual General Meeting (on 4 May 2018)
and that she will step down with effect from the conclusion of the
AGM. Jayne has served on the Company's Board since June
2015 and in that time has provided valuable and insightful
guidance and challenge. I would like to thank her for her
excellent contribution and support. We have initiated a search
for a new non-executive director to replace Jayne.
For Board statistics
see page 49
Nomination Committee composition (%)
20%
60%
20%
Chairman
Independent non-executive directors
Executive directors
Committee members
Dan O’Connor
Chairman
Member for 3 years and 1 month
Tony Hales
Senior independent non-executive director
Member for 10 years and 7 months
John Mangelaars
Independent non-executive director
Member for 2 years and 5 months
Cathryn Riley
Independent non-executive director
Member for 2 years and 10 months
Gerard Ryan
Executive director and Chief Executive Officer
Member for 5 years and 11 months
2017 objectives
• Appoint a successor for the Senior Independent
Director role.
• Implement the action plan from the 2016 Board evaluation.
2017 progress
• Completed the search for a new Chief Financial
Officer, appointed in February 2017.
• Continued the search for a new
Senior Independent Director.
2018 objectives
• Appoint a new Senior Independent Director.
• Appoint a new non-executive director.
• Review composition of the Board to reflect growth
in IPF Digital.
“The Nomination Committee
recommended the appointment
of a new Chief Financial Officer
in 2017.”
Dan O’Connor
Committee Chairman
51
International Personal Finance plc Annual Report and Financial Statements 2017Corporate Governance Nomination Committee report continued
Overview
Role
The Committee’s terms of reference are available on our website
and some of the key responsibilities include:
Activities in 2017
Meetings
The Committee met twice during the year. Attendance at meetings
can be found on page 49.
• 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. Full biographical details of members,
including qualifications, can be found on pages 46 and 47.
Boardroom diversity
We recognise and embrace the benefits of having a diverse Board,
and see increasing diversity at Board level as an essential element
in achieving our strategy. Our Board diversity policy, sets out our
approach to ensuring we have a diverse Board and was last revised
in June 2015. It 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, gender and other qualities
of directors. These differences are considered in determining the
optimum composition of the Board and, when possible, we believe
should be balanced appropriately. All Board appointments are
made on merit, in the context of the skills and experience the Board
as a whole requires in order to be effective.
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. In addition, we only engage executive search firms,
which have signed up to the voluntary code of conduct on gender
diversity and best practice.
The policy was applied in our recruitment activities in 2017 and
executive search firms asked to provide candidates in line with the
above criteria.
The stated objective of our policy is to ensure that our Board includes
at least two female directors, a diversity commitment we have
continued to meet. However, this commitment will no longer be met
when Jayne Almond steps down from the Board with effect from the
conclusion of our 2018 AGM. It remains our objective to meet this
commitment in the future.
Board changes
As reported in our 2016 Annual Report and Financial Statements,
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 more than 10 years since
Tony Hales was first appointed to the Board as a non-executive
director. He has also served as Senior Independent Director since
May 2010. The Committee continued 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 2018. Egon Zehnder has no other connection with
the Company. In the meantime, the Committee asked Tony to
continue as a director with a view to stepping down when a suitable
replacement is appointed. I am pleased to say that Tony has agreed
and will put himself forward for re-election at our upcoming AGM.
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 election at the
2018 AGM.
Tenure of directors
As noted above, it is more than 10 years since Tony Hales was first
elected to the Board. Consideration was given to his independence
as described on page 78. An analysis of the tenure of all current
directors is shown on page 49 and their individual length of service
is shown in their biographies on pages 46 and 47.
Further activities
In December 2017, the Committee also reviewed and approved
Board and Committee meeting attendance, which can be found on
page 49.
Dan O’Connor
Chairman
52
Audit and Risk Committee report
Dear shareholder,
The Committee focused its attention throughout 2017 on
compliance, regulatory and taxation challenges, and on
information security and business continuity planning. The
Committee also monitored the management of IFRS 9
implementation risk and it closely followed the development of
significant enhancements to the risk management process
across the business, with a continuing emphasis on its ability to
identify and assess emerging risks. During 2018, the Committee
will continue to focus closely on the management of regulatory
risk, particularly in our European markets.
Audit and Risk Committee composition (%)
2017 objectives
• Review the approach to delivering efficiency and
optimising the value generated by our home credit
business through agent mobile technology.
• Monitor developments in respect of 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.
Independent non-executive directors
Committee members
Richard Moat
Chairman and independent non-executive director
Member for 5 years and 5 months
Jayne Almond
Independent non-executive director
Member for 2 years and 5 months
Tony Hales
Senior independent non-executive director
Member for 10 years and 7 months
100%
• Further consideration of the continuing approach to
modernising the business through technology with specific
reference to the implementation of a single digital
loan platform.
• Assess the adequacy of actions taken to deliver sustainable
growth in Mexico.
• Review actions taken to improve cost-efficiency within
the business.
2017 progress
• Monitored developments relating to the ongoing
Polish tax audits.
• Monitored the management of the IFRS 9
implementation risk.
For insights into our risk
management process
see pages 36-43
• Evaluated the cyber security framework of controls over
information technology infrastructure, applications and data
and our ability to act upon indicators of compromise.
• Audited the controls in place to manage the Mycollections
component of the agent mobile technology solution and
made recommendations for improvement.
• Monitored progress to implement a single digital loan
platform across the Group.
• Audited efforts to stabilise the ongoing execution of the
growth strategy for Provident Mexico in the early part of the
year and made recommendations.
• Actions taken to improve cost-efficiency within the Provident
Mexico business were initially reviewed and will be further
evaluated in 2018.
• Monitored the Group-wide compliance framework
implementation to increase maturity of compliance controls.
“The Committee continued
to monitor closely significant
regulatory and taxation matters,
particularly in our European markets,
and actively encouraged a further
strengthening of the Group’s
compliance framework.”
Richard Moat
Committee Chairman
53
International Personal Finance plc Annual Report and Financial Statements 2017Corporate Governance Audit and Risk Committee report continued
2018 objectives
• Ensure that the processing of personal data meets
the requirements of the new General Data
Protection Regulation.
• Review effectiveness of contingency plans to respond to
unanticipated legal and regulatory changes.
• Confirm the Group’s financial control framework ensures
reliable financial reporting.
• Monitor developments in field operational processes
following introduction of agent technology.
• Assess the impact and effectiveness of organisational
changes of Group oversight functions.
• Evaluate the effectiveness of assurance mechanisms to
manage People risk.
• Review actions taken to improve cost-efficiency within
the business.
• Evaluate progress made in the implementation of a new
compliance monitoring framework.
• Continue to closely monitor effectiveness of the defences
currently in place to prevent the Group becoming a victim of
cyber crime.
• Ensure that the developing compliance framework identifies
and addresses key areas of risk as they emerge.
Overview
Role
The objective of the Committee is to oversee the Group’s financial
reporting, internal controls and risk management procedures,
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:
Case study: Cyber security
In common with most businesses our assessment was that the
level of threat from the external environment increased this year
and consequently the Audit and Risk Committee monitored the
Company's response closely.
The annual internal audit plan included an in-depth evaluation
of the adequacy of key cyber security controls over IT
infrastructure, applications and data. This was an important
review of the Cyber Security Framework, the state of its
vulnerability management and the Company's ability to act
upon indicators of compromise. We were encouraged with the
results of this internal audit, particularly the validation of
management's cyber security incident response plan.
However, we felt that we needed to go one step further and
consequently we strongly supported management's initiative to
commission an ethical hacking of the Company's physical and
logical infrastructure by a prominent cyber security consultancy.
This was a very successful test which gave us insights into our
network which we had not previously seen and some very clear
guidance as to how we can protect the business better. We will
extend this approach across the business during 2018.
• monitor the Group’s systems of internal control, including financial,
Gerard Ryan (CEO) receives an update on IPF's cyber security defences.
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
judgments 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 (see pages 38 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, 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 of experience in financial services, and Tony
Hales, who has strong business expertise and extensive knowledge
of our Group. Jayne Almond will cease to be a member of the
Committee when she steps down from the Board with effect from the
conclusion of our 2018 AGM. Full biographical details of members,
including qualifications, can be found on pages 46 and 47.
The external auditor, Deloitte LLP, the Chief Executive Officer, the
Chief Financial Officer, and the Head of Internal Audit are invited to
attend all meetings. Periodically, senior management from across
the Group is 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 management being present, to discuss the external
audit process.
Functionally, the Head of Internal Audit reports directly to the
Chairman of the Committee. For routine administrative matters, the
Head of Internal Audit's principal contact is the Chief Financial
Officer. The Head of Internal Audit operates within a clearly defined
remit and has good linkage to the rest of the organisation.
The Committee has monitored the effectiveness of the internal audit
function throughout the year.
54
Activities in 2017
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 49.
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 fair,
balanced and understandable.
In carrying out this review, 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 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. This paper also addressed the use of post-model
overlays in instances where the predictive capacity testing
indicated that they are required. 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. Management therefore is required to make
judgements, based on internal expertise and external advice,
on the methodology to be adopted for accounting for uncertain
tax positions. A key area of focus in 2017 was the basis of the
judgements taken relating to the accounting treatment adopted
for the payments in respect of the Polish tax audits of the 2008 and
2009 financial year. The external auditor performed procedures to
assess management’s judgements 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 function
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 2017 are referred to in the
‘Training’ section on page 57. The internal controls in relation to the
preparation of the Consolidated Financial Statements are outlined
on page 85.
In particular, during 2017 the Committee monitored legal and
regulatory compliance and tax issues. Specifically, the Committee
focused on the progress of the Polish tax audits for 2008, 2009 and
2010 together with the new Polish corporation tax law reform that
became effective on 1 January 2018 and received, reviewed and
challenged regular updates from management.
With regard to the proposals published by the Polish Ministry of
Justice in December 2016 proposing a significant reduction to the
cap on non-interest costs that may be charged on a customer loan
agreement, the Committee received updates on the work being
undertaken with various government ministries and relevant parties
to encourage a solution that is good for both consumers and
business. The Committee will continue to make this a focus
throughout 2018. The Committee continued to monitor the project
to implement IFRS 9, the new financial instruments accounting
standard, which became effective from 1 January 2018, and
received, reviewed and challenged reports from management
on progress.
The Committee also continued to maintain its focus on the
management of risks. The Committee is supported in its work by the
Risk Advisory Group, which in 2017 comprised the Chief Executive
Officer, Chief Financial Officer and Chief Legal Officer, 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 are appropriate for the business.
An annual internal audit plan for 2017 was developed using a
risk-based approach. 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.
55
International Personal Finance plc Annual Report and Financial Statements 2017Corporate Governance Audit and Risk Committee report continued
Internal audit
A firm basis for the opinion on the Group’s system of internal control (see page 57) was provided throughout the year by the Head of Internal
Audit via the execution of the annual internal audit plan. PwC and KPMG were engaged to support specific thematic audits where specialist
technical knowledge was required.
The plan was 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 assessed the
effectiveness of the internal audit function throughout the year. It considered and approved the annual internal audit plan on the basis that it
addressed the principal risks and uncertainties facing the business. The Committee reviewed the reports produced and closely monitored
management's progress in implementing the actions agreed. The Committee is satisfied that the internal audit function has a clear remit
and a good linkage with the organisation.
Significant internal audits in 2017 were performed in the following areas:
Basic assurance
Thematic audits
Branch-level reviews:
• Management of administration, operational, financial and loss
prevention oversight processes in home credit branches in
Mexico where the branch network continues to expand.
Head office audits:
• Implementation of IFRS 9
• Cyber-attack readiness
• Strategy execution
• Regulation and compliance:
• Anticipating regulatory change
• Implementation of a Compliance Framework
• Compliance
– with affordability legislation
– with licensing regimes
– with mis-selling legislation
• General Data Protection Regulation readiness
• IT and Systems:
• Core controls over:
• People risk
• Collections in the home credit markets
• Change management
• Development of IPF Digital core IT system
• Single digital platform development
• IT strategy implementation
• IT key supplier roadmap
• MyCollections mobile app integrity
• Credit and collections:
• Credit and collections at IPF Digital
• Debt sales strategy execution
• Strategic:
• Mexico stabilisation
• Response to proposed changes to total cost of credit
legislation in Poland
The Committee rigorously tracks the resolution of findings and
recommendations raised in internal audit reports.
The internal audit function has also continued to monitor the
effectiveness of the overall operational governance and oversight
structure throughout 2017 and has made recommendations to
ensure it properly reflects recent structural changes in the Group.
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;
• the delivery of its audit work in accordance with the agreed
plan; and
• the quality of its report and communications to the Committee.
In order to confirm its independence and objectivity, 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, IT, remuneration, recruitment, valuation or
general management consultancy; and
• the Committee Chairman must approve any individual non-audit
service over a specific fee level.
The policy of the Committee in respect of non-audit services is that
the external auditor is only appointed to perform a non-audit service
when doing so would be consistent with both the requirements and
overarching principles of the Financial Reporting Council's Revised
Ethical Standard (2016), and when its skills and experience make it
the most suitable supplier.
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
56
Committee effectiveness
The Committee has also undertaken a review of its effectiveness
using an internal questionnaire to its members, executive directors,
management and external advisors. The results were collated by the
Company Secretary and reviewed and discussed by the Board who
concluded that the Committee continues to be effective.
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 2017 and performed an 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 2017 and up to 1 March 2018.
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 2017, 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.
Richard Moat
Chairman
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 2017
Taxation compliance services
Other assurance services
Total
Fee
£’000
9
66
75
During the year, the FRC’s Audit Quality Review team selected to
review the audit of the 2016 International Personal Finance plc
Financial Statements as part of their 2017 annual inspection of audit
firms. The focus of the review and their reporting is on identifying
areas where improvements are required rather than highlighting
areas performed to or above the expected level. We welcome
engagement with the FRC, and the Chairman of the Audit and Risk
Committee received a full copy of the findings of the Audit Quality
Review team and has discussed these with Deloitte. The Audit and
Risk Committee confirms that there were three areas of potential
improvement identified within the report. The Audit and Risk
Committee is also satisfied that there is nothing within the report
which might have a bearing on the audit appointment.
Audit tendering and auditor rotation
The Company’s policy is to undertake a formal tendering exercise
of the audit contract at least once every 10 years. Following a tender
process, Deloitte LLP has been the Group’s auditor since 2011. Peter
Birch is the lead audit partner and has been since May 2017. The
Company will be required to retender 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 and Risk Committee,
the relationship with the auditor works well and the Committee
remains satisfied with its independence, objectivity and effectiveness.
Therefore, at its February 2018 meeting the Committee
recommended to the Board that Deloitte LLP be reappointed
as auditor at the 2018 Annual General Meeting.
During the year ended 31 December 2017, and up to the date of
this report, the Company has complied 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
2017. This included presentations on the following key
business areas:
• Directors' obligations in relation to cyber security and response to
data breach;
• General Data Protection Regulation central principles and
primary requirements;
• the digital consumer lending market and our digital business;
• managing compliance risk;
• corporate governance including viability statement requirements;
• new tax strategy regulations; and
• IFRS 9, and how the Company will apply the new accounting
standard and its impact on our Financial Statements.
This training was complemented by a visit to the Group’s business in
Poland, which included discussions with the management teams at
Provident Polska and IPF Digital (see page 79 for more details).
57
International Personal Finance plc Annual Report and Financial Statements 2017Corporate Governance Technology Committee report
Dear shareholder,
In 2017, our revised strategic approach to IT gained momentum.
The Committee met regularly throughout the year to oversee the
implementation of the revised strategy and to monitor progress
against each of its four key pillars. Particular emphasis was given
to ensuring that appropriate governance structures were in
place to deliver the overall change programme effectively so
that it would maximise cost efficiencies and revenue
generating opportunities.
2017 objectives
• Launch new single digital platform into existing
and new digital markets.
• Expand the delivery capabilities of the new Digital Centre
of Excellence.
• Complete the full integration of technology staff from across
businesses into the new centralised group.
• Roll out mobile applications to digitise processing within the
home credit business.
Technology Committee composition (%)
• Implement a new data strategy into IPF Digital and our home
100%
credit businesses.
Independent non-executive directors
Committee members
John Mangelaars
Chairman and independent non-executive director
Member for 2 years and 5 months
Richard Moat
Independent non-executive director
Member for 3 years and 8 months
Cathryn Riley
Independent non-executive director
Member for 3 years and 8 months
For more on our
investment
in technology
see page 16
2017 progress
• Oversaw continued work on the first step in
delivering a single digital platform; now in testing
for launch into first market in H1 2018.
• IPF Digital and single digital platform teams physically
co-located in Warsaw.
• IT centralisation for home credit completed in Mexico
and Europe.
• Monitored build and roll-out of first two mobile apps for
agents in Hungary and the Czech Republic with 4,000 agents
now using this technology.
• New Chief Data Officer recruited.
• New reporting systems being implemented to support IFRS 9.
2018 objectives
• Complete roll out of single digital platform in first
home credit market.
• Complete deployment of mobile apps in all European home
credit markets.
• Deliver continued IT efficiency savings.
• Continue to build our data science capabilities.
• Provide robust systems and cyber security.
“Our revised strategic approach
to information technology gained
momentum in 2017.”
John Mangelaars
Committee Chairman
58
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 budget;
• 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. Full biographical details of members,
including qualifications, can be found on pages 46 and 47.
Activities in 2017
Meetings
The Committee met four times during the year. Attendance at
meetings can be found on page 49.
Implementing our revised strategic approach to IT
The IT strategy approved by the Board in 2016 had four pillars:
• creating a single digital platform;
• restructuring IT into a centrally managed function;
• digitising the home credit business; and
• using data as a strategic asset.
2017 saw substantial progress on all four of these pillars.
1. Creating a single digital platform
We continued developments to deliver a single stack of technology
components to allow IPF to seamlessly offer digital lending products
across all our Group businesses. This takes a best of breed approach
combining the latest third party products with our proprietary
product and loan engines built in house. We have progressively
brought development in-house, grown our technical capabilities
and are moving towards deployment in our first home credit market
in the first half of 2018.
2. Restructuring IT into a centrally managed function
At the start of 2017, we moved from a federated structure of
in-country IT teams in home credit to a centralised IT organisation in
Europe of over 300 IT professionals managed by a highly
experienced management team. This new structure has allowed us
to drive economies of scale from our IT operations and reinvest these
savings in our new digital and data programmes. Governance has
been improved to allow us to take a Group-wide, strategic view of
technology investment and resource allocation. At the start of 2018,
Mexico was also incorporated into the Group IT function.
3. Digitising the home credit business
Good progress has been made rolling out our mobile handheld
technology for agents, which has been designed to modernise and
digitise much of the processing in our home credit business. We
completed the roll-out of the first two apps, which focus on
collections and team management in Hungary and the Czech
Republic. The collections app securely provides our agents with a list
Case study: MyProvi – Rolling out our mobile
technology applications
An important part of modernising and optimising our home
credit business is the roll-out of our mobile handheld technology
for agents, which is branded as MyProvi. This technology will
support agent sales and collections, reduce administration
costs and facilitate further efficiencies. It will also bring about
improved compliance and data quality. It comprises four
smartphone apps: MyCollections, to allow agents to collect
customers' payments and record the transactions automatically
on our internal system; MySales, to enable agents to credit
score a customer; MyBalancing, which will allow agents to
balance collections and sales and record this automatically
on our internal system; and MyTeam, which will support field
managers day-to-day work with agents and customers. In 2017,
after establishing stability of the technology platform, we
completed the roll-out of the MyCollections and MyTeam
applications to more than 4,000 agents and field managers in
Hungary and the Czech Republic. Our teams have also
delivered training and communications to support our field
teams. Progress made in 2017 is set out further in section
3 below.
Chris Robinson (CIO) and members of his team review the MyProvi apps.
of customers to visit and enables entry of the loan repayments, and
the team management app enables our field managers to delegate
groups of customers to other agents when the main agent is
unavailable. The solution will be deployed to Poland in the first half
of 2018.
4. Using data as a strategic asset
We launched our data strategy in 2017 with the aim of improving
our ability to use data as a strategic asset. We focused on the
development of new reporting systems to support reporting and
analysis under IFRS 9, the new financial instruments accounting
standard that became effective from the start of 2018. In addition
we have appointed a Chief Data Officer who is creating an analytics
centre of excellence to focus on areas where advanced data and
analytics can add value to the organisation.
Key priorities
In 2018, we will focus on completing the roll-out of our single digital
platform into our first market, completing the deployment of the initial
agent mobile handheld technology apps in all our European home
credit markets, leveraging further efficiencies from the centralisation
of IT and delivering value from our analytics centre of excellence.
John Mangelaars
Chairman
59
International Personal Finance plc Annual Report and Financial Statements 2017Corporate Governance Directors’ Remuneration report
Dear shareholder,
I am pleased to present the Directors' Remuneration Report for
the year ended 31 December 2017 on behalf of the Board.
The Remuneration Report is split into two sections:
• our Directors' Remuneration Policy (‘2017 Policy’); and
• the Annual Remuneration Report, providing detail of amounts
paid during the reporting year including incentive outcomes.
Following the successful shareholder vote on the 2017 Policy,
our focus this year has been on the implementation of this Policy
in the context of how the business has been performing and its
long-term strategic objectives. Our remuneration principles going
forward remain unchanged: simplicity and transparency;
alignment with business strategy; and a strong relationship to
business performance. No significant policy changes are
expected in 2018.
Remuneration Committee composition (%)
100
Independent non-executive directors
Committee members
Cathryn Riley
Chair and independent non-executive director
Member for 4 years
Tony Hales
Senior independent non-executive director
Member for 10 years and 7 months
Jayne Almond
Independent non-executive director
Member for 2 years and 5 months
Richard Moat
Independent non-executive director
Member for 4 years and 10 months
2017 objectives
• Obtain formal shareholder approval of the
2017 Policy at the 2017 AGM.
• Implement the 2017 Policy.
2017 progress
• Formal shareholder approval of the 2017 Policy
given at the 2017 AGM.
• 2017 Policy implemented in full.
• Continue to monitor evolving market and best practice.
• A vigilant approach to evolving market and best practice
was maintained throughout 2017.
2018 objectives
Effective application of the 2017 Policy, including:
• set salary, bonus and share awards for executive
directors in line with the 2017 policy;
• approve salary, bonus and share awards for
senior management;
• ensure that executive director and senior management pay
outcomes are sufficiently aligned with business
performance; and
• continue to exercise vigilance on the changing remuneration
regulatory landscape to ensure continued compliance.
“Our remuneration principles
are simplicity and transparency,
alignment with business strategy,
and a strong relationship to business
performance.”
Cathryn Riley
Chair of the Remuneration Committee
60
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 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. Full biographical
details of members can be found on pages 46 and 47.
Meetings
The Committee met four times during the year. Attendance at
meetings can be found on page 49.
Business context – 2017 performance
We delivered a solid financial and operational performance in 2017
and profit before tax increased to £105.6 million against an external
environment characterised by continued regulatory change and
intense competition. The Committee has been robust in considering
the improved performance of the business and in determining
remuneration outcomes. The operational review and financial review
for 2017 can be found on pages 24 to 30 and 31 to 35 respectively.
These reports include 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:
• group profit before tax from continuing operations of
£105.6 million, an increase of £9.6 million including a £11.3 million
positive FX benefit (Bonus targets were adjusted to exclude this
FX benefit);
• revenue less impairment of £624.7 million being higher than 2016
due to the larger receivables balance; and
• pre-exceptional tax EPS increased to 33.7 pence from 32.2 pence
as a result of the increase in profit and partially offset by a higher
effective tax rate.
Outcomes for 2017
In taking decisions on executive directors' remuneration the Committee
has sought to ensure that the recommendations are appropriate
from a 2017 Policy perspective and that they demonstrate clear
alignment between the execution of our strategic priorities and our
business performance over the financial year.
This is reflected in:
£105.6 million against a target of £96.6 million (adjusted to exclude
the positive FX impact), double digit growth in credit issued in
Mexico of 12.9% (against a target of 10%) and IPF Digital of 43.6%
(against a target of 40%). In addition the Executive Directors
successfully executed a number of demanding individual
objectives, details of which can be found on page 70. 50% of
the bonus earned will be deferred into shares for three years;
• 2018 Performance Share Plan ('PSP' award) of 190% of salary,
in line with policy; and
• legacy 2015 awards that have vested at 0% due to none of the
LTIP measures having been met, see page 71.
Careful consideration was given by the Committee to ensuring that
these recommendations were not only appropriate from a ‘policy
and performance’ perspective, but also against a backdrop of
evolving regulation and investor sentiment. This was particularly
evident in the discussions around Chief Financial Officer base
pay, and our intent to align base pay with a level commensurate
with the role. In doing so we carefully considered and discussed
performance in the role, alongside appropriate internal and external
pay benchmarks.
More generally the Committee took into account the recovery
in profitability demonstrated by the business over 2017 when
compared with the regulatory challenges experienced in 2016,
and the work undertaken by the senior management team in
leading this recovery. To that end the Committee was pleased
to approve bonus recommendations that reflected both our
strong performance over the course of 2017, but also the ability
of the annual bonus plan to recognise changes in year-on-year
business performance appropriately. Alongside this the Committee
has reviewed its own ways of working and terms of reference, to
ensure that it continues to provide appropriate and proportionate
oversight on pay, not only for executive directors, but also the wider
IPF workforce.
Shareholder engagement
A full consultation was undertaken in 2016 in support of the
introduction of the 2017 Policy. We have engaged shareholders in
a manner which is consistent with the Committee's level of activity in
a non-review year, but in line with our stated commitment to operate
in an appropriately transparent fashion. To that end we set out the
key decisions taken in a formal letter to major shareholders, and the
supporting rationale behind those decisions.
How we ensure our pay is compliant
The Committee recognises the increasingly important role regulation
has to play in executive remuneration and is committed to ensuring
that our application of remuneration policy is compliant with both
the letter and the spirit of prevailing regulation and legislation to the
greatest extent possible. As a Committee we achieve this through:
• timely dialogue and consultation with our major shareholders on
remuneration policy (in policy review years) and the application
of this policy, as appropriate;
• a base pay award of 3% for our Chief Executive, the first award
• effective use of the support provided to us by our independent
made since 2015, and one that aligns with the award given to the
wider workforce in the UK;
• a base pay award of 7.7% for our Chief Financial Officer, in line
remuneration advisors, Willis Towers Watson, in understanding the
changing regulatory landscape and how this should inform both
our remuneration policy and its application; and
with our intent (communicated in our 2016 Annual Remuneration
Report) to achieve a level of base pay over time that is
commensurate with the role (subject to performance);
• an ongoing commitment (as a Committee) to placing regulatory
and best practice considerations at the heart of the decisions
taken by the Committee on remuneration matters.
• bonus awards of 96.6% of maximum (vs 16% in 2016). These
awards reflect the strong performance delivered against our
strategic priorities, and the alignment between these priorities
and our bonus awards. The Group achieved profit before tax of
61
International Personal Finance plc Annual Report and Financial Statements 2017Corporate Governance Directors’ Remuneration report continued
Directors’ Remuneration Policy
Introduction
The Committee presents the first full application of the 2017 Policy which was approved by shareholders at the 2017 AGM in May 2017
and applies to awards granted from that date. We also committed to honour all appropriate pre-2017 Policy remuneration obligations.
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.
The intention of the Committee is that the 2017 Policy will remain in place for three years.
How pay is aligned to strategy
Our current executive director remuneration framework is intended to strike an appropriate balance between fixed and variable pay
components and to provide a clear link between pay and our key strategic priorities. Executive director and senior management
remuneration is structured so that individuals are only rewarded for the successful delivery of the key strategic priorities of the Company
over the short and long-term.
2017 Policy table – executive directors
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.
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 12 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.
Pension
To provide retirement funding.
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.
62
How the element supports
our strategic objectives
Benefits
To provide market-competitive
benefits that support the
executive directors to undertake
their role.
Operation of the element
Maximum potential value
Performance metrics,
weighting and time period
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;
All benefits are non-pensionable.
• car allowance;
None.
• long-term disability cover;
• private medical cover for
executive director and
immediate family;
• annual medical; and
• ability to participate in The IPF
Save As You Earn Plan (‘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.
Annual bonus
To motivate and reward
sustainable Group profit before
tax and the achievement of
specific personal objectives
linked to the Company’s
strategy.
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.
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.
50% of the total bonus amount is
deferred for three years in
Company shares through the
Deferred Share Plan ('DSP'). The
remaining 50% 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 66 for
details).
63
International Personal Finance plc Annual Report and Financial Statements 2017Corporate Governance Directors’ Remuneration report continued
2017 Policy table – executive directors continued
How the element supports
our strategic objectives
Deferred Share Plan
(DSP)
To strengthen the link between
short and longer-term incentives
and the creation of sustainable
long-term value.
Operation of the element
Maximum potential value
Performance metrics,
weighting and time period
50% of the total bonus amount
received during the year.
None.
50% of the total bonus amount is
subject to compulsory deferral for
three years in Company shares
without any matching. The
matching element will no longer
be operated going forward.
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 66 for details).
Awards may also be adjusted in
the event of a variation of capital,
in accordance with the
plan rules.
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 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.
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.
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 66 for details).
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.
64
How the element supports
our strategic objectives
Shareholding
requirement
To support alignment with
shareholder interests.
Operation of the element
Maximum potential value
Performance metrics,
weighting and time period
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.
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 of the Chairman and 1 January 2014 for the non-executive directors. No increases to fees are
proposed for the Chairman or non-executive directors in 2018.
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 non-executive 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.
65
International Personal Finance plc Annual Report and Financial Statements 2017Corporate 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, environment, social and governance ('ESG') risks 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.
Malus and clawback
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.
66
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 the Group;
• 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 will be in line
with the governing UK Legislation, HMRC rules and the Listing Rules.
Illustrations of total remuneration opportunity
We have set out an illustration of the 2017 Policy as outlined in the
table on pages 62 to 65.
The charts on page 67 provide an illustration of the proportion of
total remuneration made up by each component of the 2017 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 charts are indicative, as share price movement and dividend
accrual have been excluded. Assumptions made for each scenario
are as follows:
• 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.
• Maximum: fixed remuneration plus full pay-out of all incentives
(i.e. 100% of salary in annual bonus, 190% of salary in PSP).
CEO
Fixed
82%
14%
4%
On-target
8%
2%
42%
28%
20%
Maximum
4%
1%
£0.6M
£1.2M
25%
24%
46%
£2.1M
0
0.5
1
1.5
2
2.5
CFO
Fixed
81%
12%
7%
On-target
6%
3%
41%
29%
21%
Maximum
3%
2%
23%
25%
47%
0
0.25
0.5
0.75
1
Base salary
Pension
Benefits
Bonus
PSP
£0.3M
£0.6M
£1M
£M
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.
£M
As noted in the 2017 Policy table on pages 62, 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. 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 2018 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.
The date of service agreements of directors who served during the
year and their letters of appointment are:
Executive director
Gerard Ryan
Justin Lockwood
Non-executive director
Dan O’Connor
Tony Hales
Jayne Almond
John Mangelaars
Richard Moat
Cathryn Riley
Date of service agreement
January 2012
February 2017
Date of appointment
January 2015
July 2007
June 2015
July 2015
July 2012
February 2014
67
International Personal Finance plc Annual Report and Financial Statements 2017Corporate Governance 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 the 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.
Directors’ Remuneration report continued
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, service, health or other circumstances that may
be relevant.
In the event an executive director leaves for reasons of injury,
disability, change of control of the Company, or any other reason
which the Committee in its absolute discretion permits (including
death in service), 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 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.
68
Annual Remuneration Report
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 2017 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 18 to 19.
Single figure of total remuneration (audited information)
The following table sets out the single figure of total remuneration for directors for the financial years ended 31 December 2016 and 2017.
Salary/fees
£’000
Benefits
£’000
Bonus1
£’000
LTIP
£’000
Pension
£’000
Total
£’000
2017
2016
2017
2016
2017
2016
20172
20163
2017
2016
2017
2016
Executive directors
Gerard Ryan
Justin Lockwood4
Non-executive directors
Dan O’Connor
Tony Hales5
Jayne Almond
John Mangelaars6
Richard Moat7
Cathryn Riley8
505
221
200
75
55
65
70
65
505
–
200
75
55
65
70
65
26
18
25
–
488
251
81
–
22
5
138
–
89
31
89
–
1,130
526
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
200
75
55
65
70
65
838
–
200
75
55
65
70
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 2017
award was determined is provided in the additional disclosures section below.
2. The value of awards included in the table for 2017 relates to the DSP matching award, granted in 2015, the performance period for which was the three
financial years ended 31 December 2017. This value also includes the anticipated value of dividend equivalents that will be payable in 2018. The awards have
been valued according to an estimate based on expected vesting and the 1-month average share price to 31 January 2018. 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 2016 has been revised to reflect the actual value of awards vesting (an estimate of the value of these awards
based on the three-month average share price to 31 December 2016 was used in the 2016 Annual Remuneration Report) and any dividend equivalents
received in 2017 when the awards became exercisable.
4. Justin Lockwood was appointed to the Board on 23 February 2017.
5. Tony Hales is Senior independent non-executive director. In addition to his base fee of £55,000, he was paid a fee of £20,000 per annum for this
additional responsibility.
6. John Mangelaars chaired the Technology Committee during 2017. In addition to his base fee of £55,000, he was paid a fee of £10,000 per annum for this
additional responsibility.
7. Richard Moat chaired the Audit and Risk Committee during 2017. In addition to his base fee of £55,000, he was paid a fee of £15,000 per annum for this
additional responsibility.
8. Cathryn Riley chaired the Remuneration Committee during 2017. In addition to her base fee of £55,000, she was paid a fee of £10,000 per annum for this
additional responsibility.
Additional disclosures for single figure of total
remuneration table
Base salary
The base salary for the Chief Executive Officer will be increased by
3% from April 2018, in line with the wider IPF UK base salary award.
This award reflects the continued strong contribution of the Chief
Executive Officer to the performance of the business, coupled with
the need to ensure (following three years without any adjustment)
that appropriate periodic adjustments are made to base salary in
line with inflation and other relevant factors. The base salary for the
Chief Financial Officer will be increased by 7.7% from April 2018,
reflecting the need (as highlighted in the 2016 Annual Remuneration
Report) to review the CFO’s salary in the coming years, and consider
increases beyond those typically granted to the wider workforce to
achieve the desired salary level commensurate with the role, subject
to performance.
Benefits
The benefits provided to the executive directors in 2017 included:
private healthcare, life assurance, annual medical, long-term
disability cover and a cash allowance in lieu of a company car.
Neither of the executive directors received total taxable benefits
exceeding 8% of salary in 2017, 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 2017 annual bonus
The maximum opportunity for both the Chief Executive Officer and
Chief Financial Officer was 100% of salary (65% for on-target
performance with no payout for below target performance). During
2017, a balanced scorecard approach was used to ascertain the
annual bonus where 60% of total bonus opportunity in 2017 was
subject to achieving against the profit before tax target, with a
further 10% contingent on achieving against the credit issued growth
target in Mexico, and a further 10% contingent on achieving against
the IPF Digital credit issued growth target. The remaining 20% of the
69
International Personal Finance plc Annual Report and Financial Statements 2017Corporate Governance Directors’ Remuneration report continued
scheme outcome (from a maximum of 100% of base salary) is
subject to the achievement of personal objectives and is conditional
upon the achievement of these financial measures. 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 acts as a multiplier against
the 20% of the scheme subject to personal performance as follows:
Performance rating
Effective Extremely effective
Outstanding
% multiplier
% of scheme outcome
(20%)
65
13
82.5
16.5
100
20
Group bonus targets
Group bonus 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 bonus targets for 2017
were as follows:
Group profit
before tax
Mexico credit
issued growth
IPF Digital credit
issued growth
Threshold
Target Maximum Achievement Bonus payout
£90.8M £96.6M £102.3M £105.6M
60.0%
–
–
10.0%
14.0%
12.9%
9.0%
40.0%
52.0%
43.6%
7.6%
Bonus targets were adjusted to exclude FX benefit.
Performance against the Group profit before tax targets (adjusted
to exclude the positive FX impact) reflected the strong performance
in 2017. Mexico credit issued grew by 12.9% despite the impact of
two earthquakes that hit Mexico in September. The Committee
considered the impact of these events on the targets set but
decided not to make any adjustment to the targets or exercise
discretion in respect of performance outcomes. Growth in IPF Digital
credit issued of 43.6% reflects the continued momentum of this
business, and the key growth opportunity it offers the Group. 50%
of the bonus earned will be deferred into shares for three years.
Personal objectives
The table below shows the objectives that were set for the Chief Executive Officer in 2017 and achievement against them.
Gerard Ryan – Chief Executive Officer
Category
Objectives
People
Organisation
Balance sheet
strength and
capital
management
Mergers and
acquisitions
Resource and build a high-performance senior
management team with capabilities linked to
delivering our Group strategy.
Re-design and implement a new organisation
structure to optimise delivery of our Group strategy.
Introduce a more effective capital
management strategy.
Successfully exit Slovakia.
Risk management Manage regulation and taxation risks with
Technology
particular focus on Poland.
Invest in technology to enable both the
development of our digital business and Group-
wide productivity.
Results
Key appointments to our leadership team in Finance, Legal and HR
made an immediate impact, bringing to bear their expertise, fresh
thinking, renewed strategic focus and drive across the Group.
Our new simplified structure sees key individuals playing to their
strengths in a structure that clarifies individuals’ responsibilities and
accountability for results across the Group.
In a challenging regulatory and commercial environment the
Group maintained adequate headroom on undrawn bank
facilities, alongside continued successful access to bond markets.
Exit from Slovakia managed successfully with a better-than-
expected profit outcome, and effective mitigation of regulatory
and reputational risk.
Strengthened our approach to governing regulatory risk through
an effective stakeholder relationship programme.
Single digital platform will enable the business to offer digital
lending products across all Group businesses. Roll-out of agent
mobile technology underway.
The table below shows the objectives that were set for the Chief Financial Officer in 2017 and achievement against them.
Justin Lockwood – Chief Financial Officer
Category
Objectives
Capital and
funding
Resource
allocation and
driving returns
Maintain the Group’s capital position in the short
to medium term, and develop a longer-term
funding strategy.
Embed Returns on Assets (‘ROA’) and internal
rates of return (‘IRR’) as key performance
measures, and deploy processes to place these
measures at the heart of our decision making
around the deployment of resources.
Strategy delivery Manage the European home credit businesses for
returns, return Mexico to profitable growth and
deliver on potential for IPF Digital.
Regulatory and
taxation
People
Effective implementation of IFRS 9, and effective
management of significant tax exposures in Poland.
Continue to strengthen and develop the finance
leadership team.
Results
New or extended bank funding lines are in place, and bond
markets have been accessed successfully.
‘Managing for returns’ strategy introduced across the
business with ROA and IRR being used in capital allocation
and decision making.
'Managing for returns' embedded in the European home credit
businesses. Mexico delivered a strong improvement in operational
performance albeit one that was impacted by two earthquakes.
IPF Digital made good progress against strategic objectives.
The implementation of IFRS 9 and the Group’s significant tax
exposures were managed effectively.
Further strengthened the finance leadership team with the
recruitment of a number of senior hires and internal promotions
across the Group.
70
Having reviewed the executive directors' performance against their personal objectives and in the context of the challenges faced by the
business in 2017, the Committee determined that the Executive Directors met their personal objectives. Consequently the bonus pay-out in
respect of personal objectives is 20% calculated as follows:
• Maximum available (20%)
• Application of outstanding rating multiplier (100%)
• Bonus pay-out for personal objectives = 20% (20% x 100%)
Bonus outcome for 2017
The Committee awarded bonuses to the executive directors of the amounts shown below for the year ended 31 December 2017.
Financial objectives –
achievement
as a percentage of
base salary
Personal objectives –
achievement as a
percentage of base
salary
Gerard Ryan
Justin Lockwood
76.6%
76.6%
20.0%
20.0%
Cash bonus
£’000
244.0
125.5
DSP – face value
of shares due to
vest in 2021
£’000
244.0
125.5
Total
value of
2017 annual
bonus
£’000
488.0
251.0
Cash and DSP
shares award as a
percentage of
maximum bonus
available
96.6%
96.6%
The bonus is payable as 50% in cash, and 50% 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 66.
Pension
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 and for the Chief Financial Officer is
15% of base salary.
At the discretion of the Committee, this may be paid wholly or, in part, as a cash allowance.
The Company’s contributions in respect of Gerard Ryan during 2017 amounted to £88,752, all of which was paid as a cash allowance.
The Company’s contributions in respect of Justin Lockwood during 2017 amounted to £31,087, £12,914 of which was paid as a
cash allowance.
Long-term incentives
Awards estimated to vest during 2018 (included in 2017 single figure)
The LTIP amount included in the 2017 single figure relates to the DSP matching shares and PSP awards granted in 2015. The performance
achieved against the performance targets is shown below:
DSP matching shares
Performance condition
Absolute TSR growth1
Cumulative EPS growth
Growth in revenue less impairment
Total
Weighting
Threshold
Maximum
Achieved
Projected vesting
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.
10% p.a.
0%
0%
0%
0%
0%
0%
0%
0%
1. Based on TSR from 1 January 2015 to 31 December 2017.
PSP
Performance condition
Absolute TSR growth1
Cumulative EPS growth
Growth in revenue less impairment
Total
Weighting
Threshold
Maximum
Achieved
Projected vesting
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
10% p.a.
0%
0%
0%
0%
0%
0%
0%
0%
1. Based on TSR from 1 January 2015 to 31 December 2017.
As disclosed in the 2017 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 74.
71
International Personal Finance plc Annual Report and Financial Statements 2017Corporate Governance Directors’ Remuneration report continued
Awards granted during 2017
Awards were made in the financial year ending 31 December 2017 under the LTIP (PSP), DSP and the SAYE.
LTIP
In line with the 2014 Policy, executive directors were granted LTIP awards structured as PSP options in April 2017. The resulting number of LTIP
shares and associated performance conditions are set out below. Awards granted in 2018 will be in line with the 2017 Policy as set out on
page 64.
Gerard Ryan
Number of
PSP nil-cost
options1
370,408
Face
value2
£
Percentage
of base
salary
End of
performance
period Threshold vesting Weighting
631,250
125% 31 December
2019
Justin Lockwood
190,705
325,000
125% 31 December
2019
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 calculated using the average share price for the three days before the day of grant, being 170
pence per share.
Performance conditions
Awards granted during 2017 will vest as follows, with straight-line vesting between the points:
Weighting
Vested at threshold
Threshold
Stretch (100% vesting)
Absolute TSR
1∕3
25%
30% over 3 years
Cumulative EPS
growth
1∕3
25%
86.6 pence
Growth in
revenue less
impairment
1∕3
25%
6.0% p.a.
60% over 3 years 101.0 pence
8.1% p.a.
DSP
In 2017, two-thirds of the annual bonus earned in respect of 2016 was deferred in shares and attracted performance-based matching shares
on a one-for-one or a one-for-three 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:
Gerard Ryan
11 April 2017
Deferred: 53,867
Matching: 53,867
Date
of
award
Face
value1
£
Amount vesting
Threshold
performance
(% of face value)
25%
Maximum
performance
(% of face value)
End of
performance
period
100%
31 December 2019
1. The face value was calculated using the average share price for the three days before the day of grant, being 170 pence per share.
SAYE
As noted in the 2017 Policy, UK-based executive directors are entitled to participate in the Company’s tax advantaged all-employee scheme.
During the year, both Gerard Ryan and Justin Lockwood were granted options (see pages 75 and 76 for details).
Loss of office payments (audited information)
No individuals resigned as directors of the Company during 2017.
Payments to past directors (audited information)
No payments were made to past directors during performance year 2017. David Broadbent will receive (on a time pro-rated basis) any
shares due to him under the 2015 DSP and PSP schemes, in line with the terms of his redundancy, detailed in the Annual Report and Financial
Statements 2016.
72
Percentage change in Chief Executive Officer’s remuneration
The table (below) shows how the percentage change in the Chief Executive Officer’s salary, benefits and bonus between 2016 and 2017
compared with the % change in aggregate pay in each of those components for a selected group of employees. The Country
Management Team ('CMT') is the selected comparator group (currently 11 individuals with complete 2016 and 2017 service as CMT
members, and 13 individuals in total), due to the structure of their remuneration package, and the ability to make a meaningful comparison
between the pay of the Chief Executive Officer and the comparator group.
Salary1
Benefits
Bonus2, 3
To 31 December
2017
£’000
Percentage change
(2017 vs 2016)
Percentage change
(2017 vs 2016)
CEO
CMT
505
26
488
–%
4.0%
502.5%
13.1%
8.9%
75.5%
1. % change in CMT salary levels reflects in part the increase awarded to the Group Head of Finance on his promotion to the role of Chief Financial Officer in
February 2017.
2. % change in CEO’s bonus outcome reflects pay-out at 16% of maximum in respect of performance year 2016, and 96.6% of target in respect of 2017, with the
change in bonus outcome reflecting the upturn in Company performance, following the regulatory and external challenges faced by the business in 2016.
3. % change in CMT bonus (75% increase in 2017 pay-out Vs 2016) driven (as with the CEO) by the upturn in Company performance, following the regulatory
and external challenges faced by the business in 2016.
TSR performance
The graph below compares the TSR of the Company with the companies comprising the FTSE 250 Index for the nine-year period ended
31 December 2017. This index was chosen for comparison because the Company has been a member of this index for the majority of the
time since its shares were listed on 16 July 2007.
IPF TSR 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
31 Dec 2017
International Personal Finance
FTSE 250
TSR is sourced from Thomson Reuters Datastream. Data represents spot figures at the end of each year and has been rebased on 31 December 2008.
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:
CEO single figure
of remuneration
£’000
Annual bonus
pay-out
(as % maximum
opportunity)
LTIP vesting (as % of
maximum
opportunity)
2017
2016
2015
2014
2013
2012
2011
2010
2009
Gerard Ryan
Gerard Ryan
Gerard Ryan
Gerard Ryan
Gerard Ryan
Gerard Ryan1
John Harnett2
John Harnett
John Harnett
John Harnett
1. Gerard Ryan was appointed Chief Executive Officer on 1 April 2012.
2. John Harnett resigned on 31 March 2012.
1,130
838
1,197
2,172
1,037
889
718
943
952
603
96.6%
16%
45%
74.2%
100%
80%
–
67%
80%
–
0%
23.3%
58.8%
100%
–
–
–
–
–
–
73
International Personal Finance plc Annual Report and Financial Statements 2017Corporate 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:
£million unless otherwise stated
Overall expenditure on pay
Dividend paid in the year
1. The percentage increase at constant exchange rates is 7.1%.
Other directorships
The executive directors currently hold no other directorships or external appointments.
2017
193.0
27.6
2016
175.5
27.4
Percentage
change
10.0%1
0.7%
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 2017 (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
requirement, which they are expected to build up within three years of appointment to the Board. 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. Executive directors are required to retain half of any vested Company share scheme options until the
shareholding requirement is met.
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
Vested and
exercisable,
but not yet
exercised
Shareholding
required
(% salary/fee)
Shareholding
(% salary/fee)1
Requirement
met
Executive directors2
Gerard Ryan
Justin Lockwood
Non-executive directors3
Jayne Almond
Tony Hales
John Mangelaars
Richard Moat
Cathryn Riley
Dan O’Connor
743,195
56,460
875,017
287,243
138,724
59,239
27,257
11,688
12,839
2,255
–
250
41,300
75,000
10.000
15,000
14,795
41,500
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
200
200
100
100
100
100
100
100
291
48
148
269
36
54
53
41
Yes
No
Yes
Yes
No
No
No
No
1. Based on a share price of 197.5 pence, being the closing price on 29 December 2017 and using the non-executive directors base fee.
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 director fee within three years of appointment.
There were no changes to these interests between 31 December 2017 and 1 March 2018.
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 65.
In addition, the following director had acquired interests in the Sterling Retail Bond as follows:
Retail bond
as at
31 December
2017
£28,800
Director
Cathryn Riley
74
Executive directors’ interests in the Company share options (audited information)
Awards
held at
31 December
Date of award
2016
Awarded
in 2017
Exercised
in 2017
Lapsed
In 20171
Awards
held at
31 December
2017
Performance
condition period
Share price
date of
grant (p)
Exercise
price (p)
Exercise period
Gerard Ryan
PSP
1 Aug 2013
32,079
4 Mar 2014
110,252
2 Mar 2015
144,508
23 Mar 2016
211,153
–
–
–
–
11 Apr 2017
–
370,408
CSOP
23 Mar 2016
10,224
DSP: Deferred 14 Mar 2014
14 Mar 2014
Matching
Deferred
Matching
2 Mar 2015
2 Mar 2015
Deferred
Matching
23 Mar 2016
23 Mar 2016
58,096
58,096
56,112
56,112
51,004
51,004
–
–
–
–
–
–
–
Deferred
Matching
11 Apr 2017
11 Apr 2017
–
–
31,608
31,608
SAYE
29 Mar 2012
7,777
–
23 Aug 2017
–
19,480
(32,079)
–
(12,839)
(84,574)
12,839
–
–
–
–
–
–
144,508
211,153
370,408
10,224
(58,096)
(13,531)
–
(44,565)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
56,112
56,112
51,004
51,004
31,608
31,608
7,777
19,480
1 Jan 2013 –
31 Jul 2016
1 Jan 2014 –
31 Dec 2016
1 Jan 2015 –
31 Dec 2017
1 Jan 2016 –
31 Dec 2018
1 Jan 2017 –
31 Dec 2019
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 2017 –
31 Dec 2019
–
–
636
525
432
282
170
282
528
528
432
432
282
282
170
170
–
–
Total
846,417
453,104
(116,545) (129,139) 1,053,837
1. The March PSP and March DSP Matching 2014 both vested at 23.29% for Gerard Ryan, the rest of the share options lapsed.
–
–
–
–
–
1 Aug 2016 –
31 Jul 2023
4 Mar 2017 –
3 Mar 2024
2 Mar 2018 –
1 Mar 2025
– 23 Mar 2019 –
–
22 Mar 2026
11 Apr2020 –
10 Apr 2027
293 23 Mar 2019 –
22 Mar 2026
–
–
– 14 Mar 2017 –
13 Mar 2024
–
2 Mar 2018 –
1 Mar 2025
–
–
– 23 Mar 2019 –
22 Mar 2026
–
– 11 Apr 2020 –
10 Apr 2027
1 Jun 2019 –
30 Nov 2019
1 Nov 2022 –
31 May 2023
198
154
75
International Personal Finance plc Annual Report and Financial Statements 2017Corporate Governance Directors’ Remuneration report continued
Executive directors' interests in the Company share options
Awarded
in 2017
Exercised
in 2017
Lapsed
In 20171
Awards
held at
31 December
2017
Performance
condition period
Share price
date of
grant (p)
Exercise
price (p)
Exercise period
Awards
held at
31 December
Date of award
2016
Justin Lockwood2
PSP
1 Aug 2013
3,860
4 Mar 2014
22,930
2 Mar 2015
28,874
23 Mar 2016
43,246
–
–
–
–
11 Apr 2017
–
190,705
CSOP
4 Mar 2014
2,854
2 Mar 2015
929
23 Mar 2016
3,744
DSP:
Deferred
Matching
14 Mar 2014
15,058
14 Mar 2014
5,019
Deferred
Matching
2 Mar 2015
2 Mar 2015
Deferred
Matching
23 Mar 2016
23 Mar 2016
11,834
3,944
11,687
3,895
–
–
–
–
–
–
–
–
–
Deferred
Matching
11 Apr 2017
11 Apr 2017
–
–
35,718
11,906
SAYE
26 Aug 2016
8,372
–
23 Aug 2017
–
11,688
(3,860)
–
–
(2,005)
(18,920)
2,005
–
–
–
28,874
43,246
190,705
(2,354)
–
–
–
–
–
–
–
–
–
500
929
3,744
–
–
11,834
3,944
11,687
3,895
35,718
11,906
–
–
–
–
–
–
(15,058)
–
–
–
–
–
–
–
–
(878)
(4,141)
1 Jan 2013 –
31 Jul 2016
1 Jan 2014 –
31 Dec 2016
1 Jan 2015 –
31 Dec 2017
1 Jan 2016 –
31 Dec 2018
1 Jan 2017 –
31 Dec 2019
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 2017–
31 Dec 2019
–
(8,372)
–
–
11,688
–
636
525
432
282
170
528
528
432
432
282
282
170
170
–
–
525
525
432
432
282
293 23 Mar 2019 –
–
–
1 Aug 2016 –
31 Jul 2023
4 Mar 2017 –
3 Mar 2024
2 Mar 2018 –
1 Mar 2025
– 23 Mar 2019 –
–
22 Mar 2026
11 Apr 2020
– 10 Apr 2027
4 Mar 2017 –
3 Mar 2024
2 Mar 2018 –
1 Mar 2025
22 Mar 2026
–
14 Mar 2017 –
13 Mar 2024
–
–
–
–
–
2 Mar 2018 –
1 Mar 2025
–
–
– 23 Mar 2019 –
–
–
215
154
22 Mar 2026
–
11 Apr 2020
– 10 Apr 2027
1 Nov 2019 –
30 Apr 2020
1 Nov 2022 –
31 May 2023
Total
166,246
250,017
(21,801)
(33,787)
360,675
1. The March PSP, CSOP and DSP Matching 2014 all vested at 17.48% for Justin Lockwood, the rest of the share options lapsed.
2. Justin Lockwood's share options are reported as at 31 December 2016, even though they were not reported in the Annual Report and Financial Statements
2016 to ensure accurate reporting.
The mid-market closing price of the Company’s shares on 29 December 2017 was 197.5 pence and the range during 2017 was 222.0 pence
to 157.5 pence.
The aggregate gains of directors arising from the exercise of options granted under the PSP and DSP in the year totalled £233,064.
Share dilution
The Company manages dilution rates within the standard guidelines of 10% of issued ordinary share capital in respect of all employee share
scheme and 5% in respect of discretionary schemes.
LTIP and DSP awards are satisfied through the release of shares held in the Company's treasury account.
Shareholder voting
The table below summarises voting outcomes at the 2015, 2016 and 2017 AGMs (% of total votes cast):
AGM
2015
2016
2017
2017
Annual Remuneration Report
Annual Remuneration Report
Annual Remuneration Report
Directors' Remuneration Policy
For
Against
Withheld1
98.90%
92.37%
99.20%
99.14%
1.10%
7.63%
0.80%
0.86%
5.00%
0.31%
0.63%
0.01%
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.
76
Statement of implementation
Directors’ remuneration policy in the following
financial year
The base salary for the Chief Executive Officer will be set at £520,000
for 2018.
The base salary for the Chief Financial Officer will be set at £280,000
for 2018.
Pension and benefits are in line with benefits stated in the 2017
Policy table.
Under the 2017 Policy the maximum opportunity is 100% of base
salary and the on-target opportunity is 65% of base salary. The
performance measures are 80% on financial and strategic
objectives and 20% on personal objectives, as per the 2017 Policy
rules. Targets are not disclosed on a forward-looking basis because
they are considered by the Board to be commercially sensitive and
will continue to be disclosed retrospectively to ensure transparency.
The Committee expects to make 2018 LTIP awards in accordance
with the 2017 Policy, but at the time of publishing the Annual Report
and Financial Statements the awards and associated targets had
not yet been tabled at the Committee for approval. The 2018 LTIP
awards made, and the associated targets, will be disclosed at the
latest in next year's Directors' Remuneration report.
It is expected that the LTIP (PSP and DSP matching shares) awards
granted to the executive directors during 2015 will not vest in 2018.
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)
• Jayne Almond
• Tony Hales
• Richard Moat
The Committee received assistance from the senior management
team and Neil Robson (Group Head of Reward). Other members of
management may attend meetings by invitation except when
matters relating to their own remuneration are being discussed.
Advisor to the Committee
Willis Towers Watson, which was appointed in April 2016, provides
independent remuneration advice to the Committee. During 2017
total fees in respect of advice to the Committee (based on time and
materials) totalled £70,000 (excluding VAT). Willis Towers Watson is a
founding member of the Remuneration Consultants Group
and signatory to, and abides 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
Willis Towers Watson does not have any connections with the
Company that may impair its independence.
Approved by the Board
Cathryn Riley
Chair
1 March 2018
77
International Personal Finance plc Annual Report and Financial Statements 2017Corporate Governance Directors’ report
Compliance with
the UK Corporate
Governance Code
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 the business operates in the best interests
of all its stakeholders. The Board report on pages 48 to 50 gives
details of the Board's role and work in 2017 and forms part of this
Directors' report. The Board meets regularly throughout the year
providing leadership and strategic direction. Our strategy can be
found on pages 12 and 13 and our business model on pages 8
and 9. 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 2017, this comprised the Chief Executive
Officer, the Interim Chief Financial Officer (until 23 February 2017)
and the Chief Financial Officer (from 23 February 2017). The
Executive Committee met frequently during the year to consider
a wide range of matters.
The Disclosure Committee met as required to consider
announcement obligations to the London and Warsaw Stock
Exchanges. During 2017, it comprised the Chief Executive Officer,
the Interim Chief Financial Officer (until 23 February 2017) and the
Chief Financial Officer thereafter, and the Company Secretary.
It met 10 times.
For our statement of overall compliance
see page 45
“Faced with a challenging
external environment, we
remain resolutely steadfast in
maintaining our high standards
of internal governance.”
Dan O'Connor
Chairman
78
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. Jayne Almond, a
non-executive director, has advised the Board that she will not be
seeking re-election at the Company's 2018 AGM.
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 is cognisant of the fact that he will
have served than 10 years as a director at the time of the next AGM.
The Board has considered his position carefully in light of his tenure,
and is of the view that he continues to be fully independent in
character and judgment, and that his experience remains
invaluable to the Company.
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 which 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 2017, the Board comprised five non-executive
directors, two executive directors and the Chairman. 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 52.
B.2: Appointments to the Board
Justin Lockwood, our Chief Financial Officer, was appointed to the
Board on 23 February 2017. Further detail relating to the recruitment
process under way to find a new Senior Independent Director can
be found in the Nomination Committee report on pages 51 and 52.
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 a 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.
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.
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 2017 included
presentations to the Board on subjects including cyber security
and the General Data Protection Regulation. A comprehensive,
individually tailored induction plan is prepared for new directors.
The Board also visited Poland and received updates from the home
credit and IPF Digital management teams in this market.
Case study: Meeting our teams in Poland –
a personal perspective
"As a long-standing member of the Board, I have regularly
visited our markets over the years and benefited greatly from the
time spent discussing the business directly with our teams and
visiting customers in their homes with our agents. Understanding
at first-hand from those on the ground has never been more
important than in 2017 when, together with the rest of the Board,
I visited Poland and spent two full days both being briefed and
in turn constructively challenging the management teams from
our home credit and IPF Digital businesses.
In our discussions with the home credit team, we focused
particularly on tax and other regulatory matters. I was
particularly impressed by the energy, enthusiasm and sheer
resilience displayed by the team as they navigate the
complexities these bring. Their detailed understanding of the
issues they face and determination to find solutions was great to
see. It was also good to be able to convey face to face the level
of support they have from myself and the rest of the Board in
addressing these additional business complexities.
I was similarly impressed with the drive shown by our IPF Digital
team as they develop and grow this increasingly important part
of the business. I saw an agile and creative group of people,
committed to opening up new channels and product
opportunities to both new and existing customers where
balancing growth with appropriate risk management is critical."
Tony Hales
Senior Independent Director
The team in Poland present to the Board during their two day visit.
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 as
appropriate. The appointment and removal of the Company
Secretary is a matter for the Board. Ben Murphy, the former Group
Legal Director and Company Secretary, was Company Secretary
until he left IPF on 20 January 2017. The role of Company Secretary
was then undertaken on an interim basis by Trudy Ellis until the
appointment of James Ormrod as Chief Legal Officer and Company
Secretary on 7 June 2017. The Company Secretary is secretary to the
Board Committees. Any director may take independent professional
advice at the Company’s expense relating to the performance of
his/her duties.
79
International Personal Finance plc Annual Report and Financial Statements 2017Corporate Governance Directors’ report continued
B.6: Board and Committee evaluation
In 2017, the Board and its Committees carried out an internal
evaluation of their performance facilitated by the Company
Secretary. Directors and Committee members completed a
questionnaire, the results of which were collated and presented for
discussion at the December 2017 Board meeting. Details of the
principal outcomes relating to the Board can be found on page 49.
An external evaluation is required by the Code at least every three
years. Externally facilitated evaluation was last undertaken in late
2016, led by David Mensley of EquityCommunications Limited, who
has no other connection with IPF. We intend to carry out our next
externally facilitated evaluation in 2019.
B.7: Election/re-election
Under our Articles of Association, each director must offer himself/
herself for re-election every three years. Jayne Almond, a
non-executive director, has advised the Board that she will not be
seeking re-election at the Company's 2018 AGM. 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, the
Chief Financial Officer, Justin Lockwood, stood for election at our
AGM in 2017. In accordance with best corporate governance
practice, all directors will offer themselves for re-election again at
our AGM on 4 May 2018. Details of the directors, including their
key strengths and contributions, 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 35. The Group’s strategy and business model, key
performance indicators and relevant risks are on pages 8 and 9,
12 and 13, 18 and 19 and 38 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 88.
C.2: Risk management and internal control
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 procedures 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 2017.
C.3: Audit Committee and auditors
The report of the Audit and Risk Committee is set out on pages 53 to
57. This details its composition, role and responsibilities, work during
2017, 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 on pages 60 to 77.
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 major shareholders are made known
to the 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, twice a year, we seek feedback
from major shareholders 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 made 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 to the Investor
Relations Manager.
The Investors section of our website gives shareholders and potential
investors access to a wealth of Company information.
Case study: Investor engagement
As a publicly listed company, we are required to provide fair,
balanced and understandable information to enable investors
to understand our business fully so that they may make an
informed investment decision. In 2017, we continued our
investor engagement programme undertaking a range of
meetings, conference calls, webcasts, roadshows, a
Chairman’s lunch and results presentations. The main areas of
interest were performance, regulation, the potential impact of
tax matters, funding and our digital lending strategy. One of the
key communication challenges of the year was to educate
investors, analysts and debt providers on the impact of the new
accounting standard IFRS 9, which became effective on
1 January 2018. Around 30 investor relations stakeholders
attended a technical briefing hosted by CFO Justin Lockwood
and Sue Taylor, (Group Financial Controller) in November 2017
and we continue to support investors and analysts with
guidance as they redevelop their IPF financial models to take
into account the new standard. Further information on IFRS 9
can be found in the Financial review on pages 33 and 34.
80
Around 30 people attended our IFRS 9 technical briefing.
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 2018 AGM will
be held at 10.30am on Friday 4 May 2018 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 2018 to be sent
to shareholders and dated 20 March 2018.
Case study: An opportunity to meet
shareholders at our 2017 AGM
Our last AGM took place on 3 May 2017 at our UK head office in
Leeds. This gave shareholders the opportunity to meet our Board
face to face and to ask questions. Twenty-two resolutions were
put to shareholders and all were passed. One of the main items
of business was a resolution to approve our new Directors’
Remuneration Policy, the previous policy having reached its
renewal point. Over 99% of shareholders who registered their
vote voted in favour of the new policy. The approved policy,
which is set out on pages 62 to 68, was revised to align our
executive reward structure with our evolved strategy, taking into
account investor feedback received during a consultation
process. It is important for us to have the right incentives in place
to motivate everyone to deliver our strategy. It was, therefore,
pleasing that shareholders also overwhelmingly approved new
rules for equity incentive schemes, which cover a broad range
of employees in the organisation. Details of these can be found
on page 84, We look forward to meeting shareholders again at
our 2018 AGM and hope that you will be able to join us in Leeds
on Friday 4 May 2018.
Dan O’Connor addresses our 2017 Annual General Meeting in Leeds.
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 included 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
(1)
(2)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12) and (13)
(14)
Interest capitalised and related tax relief
Publication of unaudited financial information
Details of long-term incentive schemes
Waiver of emoluments by a director
Waiver of future emoluments by a director
Non-pre-emptive issues of equity for cash
Non-pre-emptive issues of equity for cash by major subsidiary undertakings
Parent participation in a placing by a listed subsidiary
Contracts of significance
Provision of services by a controlling shareholder
Shareholder waiver of dividends
Statement by the Board
Cross-reference
Not applicable
Not applicable
Not applicable
Not applicable
Not applicable
Not applicable
Not applicable
Not applicable
Not applicable
Not applicable
Not applicable
Not applicable
81
International Personal Finance plc Annual Report and Financial Statements 2017Corporate Governance Directors’ report continued
Constitution
Registration
International Personal Finance plc is registered in England and Wales
under Company Number 6018973.
Articles
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 2017, 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.
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 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 2017 AGM, we received shareholder authority to buy back up
to 22,258,133 of our own shares until the earlier of the conclusion of
the 2018 AGM or 2 August 2018. Any ordinary shares so purchased
could be cancelled or held in treasury. This authority was not
exercised in 2017. A further authority to purchase our own shares will
be sought at the 2018 AGM.
Power to allot securities and pre-emptive rights
As at 31 December 2017, the directors had authority to allot further
securities up to an aggregate nominal amount of £7,419,000 and,
broadly, up to a further £7,419,000 for a rights issue. Further
authorities will be sought at the 2018 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 2017 and up to 1 March 2018.
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 2017 or
at any time up to 1 March 2018 other than under the International
Personal Finance plc Pension Scheme (the ‘Pension Scheme’).
82
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.
Shareholders
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 save 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.
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 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.
• 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 28.25 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; 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); and euro 12 million ‘tap’
of our existing Eurobond issued in December 2017 with a three-and-a-half
year maturity and a 5.75% coupon.
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.
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 117
to 124.
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 2017 payable in 2018 can
be found on page 33. Details of past dividend payments can be
found on page 137.
Employees
Employee engagement and communication
Employee engagement is key to our people strategy. In 2017, a
number of markets surveyed their employees locally to understand
their views and measure engagement. Engagement continues to be
a strong focus and it is planned that we conduct a Group-wide
survey in 2018.
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.
Interests in voting rights
As at 31 December 2017, 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 Aberdeen plc
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
26,443,813
14,008,597
11,682,426
11,026,874
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
11.86
6.31
5.28
4.94
5.01
5.01
5.01
4.88
4.77
4.54
3.50
3.02
3.02
Nature of
holding
Indirect
Indirect
Indirect
Direct
Indirect
Indirect
Indirect
Direct/
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Between 1 January and 28 February 2018, we were notified pursuant
to the Disclosure Guidance and Transparency Rules of the following
notifiable voting rights in our issued share capital.
Name1
Norges Bank
FMR LLC
Voting rights
11,190,871
11,123,966
% of issued
share
capital2
5.02
4.98
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 Note 1 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 Note 2 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
83
International Personal Finance plc Annual Report and Financial Statements 2017Corporate Governance Directors’ report continued
Employee equity incentive schemes
Employees are able to participate in our equity share incentive schemes, which are shown below. We encourage employees to take part in
our SAYE, as a way of involving them in the Company’s performance.
The Company currently operates six equity incentive schemes. Details of individual grants to directors made in 2017 are set out in the
Directors’ Remuneration report on pages 75 and 76. The schemes are as follows:
Scheme
Abbreviated name
Eligible participants
The International Personal Finance plc
Approved Company Share Option Plan
The IPF Deferred Share Plan
The International Personal Finance plc
Have Your Share Plan
The IPF Performance Share Plan
The IPF Save As You Earn Plan
The International Personal Finance plc
Discretionary Award Plan
Details of outstanding awards are as follows:
CSOP
DSP
Have Your Share Plan
PSP
SAYE
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
Awards
outstanding at
31 December
2016
Awards
lapsed in
2017
Awards
exercised/vested in
2017
Awards
outstanding at
31 December
Exercise price
Normal
Awards
exercised/
vested from
1 January to
2017
(if any)
exercise/vesting date
28 February 2018
390,626
(89,766)
–
300,860 293p – 636p
Scheme
CSOP
DSP
1,314,751
(128,380)
(304,746)
1,820,921
Have Your Share Plan
PSP
253,779
(163,663)
4,329,193 (1,290,668)
(10,152)
(311,088)
79,964
6,633,574
SAYE
433,509
(351,263)
(7,368)
529,880 154p – 509p
Discretionary Award Plan
320,000
–
–
320,000
–
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.
–
–
–
23 Jul 2013 –
22 Mar 2026¹
24 Mar 2014 –
10 Apr 2027
2 Sept 2018
23 Jul 2013 –
10 Apr 2027¹
1 Nov 2017 –
30 Apr 2023²
8 May 2018 –
5 Sept 2019
–
10,754
–
34,849
–
–
Employee benefit trust
We operate an employee trust with an independent trustee, Link
Trustees (Jersey) Limited, to hold shares pending employees
becoming entitled to them under our equity incentive schemes. On
31 December 2017, the trustees held 518,008 shares in International
Personal Finance plc. The trust waives its dividend entitlement and
abstains 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. In addition, initial shares purchased by
overseas employees in The International Personal Finance plc Have
Your Share Plan are held in an employee trust operated by Link
Market Services Trustees (Nominees) Limited pending maturity of
the plan.
Employment policies
Equal opportunities
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 that recruitment
and progression opportunities are open to all and are based purely
on merit,with all employees having the same access to training and
career development.
84
Human rights, diversity and modern slavery
Our approach to human rights and diversity is outlined on page 23.
Information on the gender split across the Group at 31 December 2017
is shown on page 23. Our Board diversity policy is described on page
52. Our statement on the Modern Slavery Act 2015 is available on
our website at www.ipfin.co.uk.
Whistle-blowing service
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 otherwise 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 the 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.
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 Head of Finance 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.
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 to overseas subsidiaries, all employees and agents are also
required to comply with the provisions of this Act.
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. International
Personal Finance plc acts as a holding company and had no
material trade creditors at 31 December 2017. The average number
of days’ credit taken by the Group during the year was 33 days
(2016: 27 days).
External oversight
The Group’s activities in Mexico and Spain are subject to general
trade licences only, as opposed to any licensing or supervision by a
financial authority. A licensing regime was introduced in the Czech
Republic in 2016 and the business there was granted a licence by
the Czech National Bank in February 2018. In Poland, the Group’s
home credit business, Provident Polska s.a,, and the Group’s digital
business, IPF Polska sp. z o.o., are registered in the special register
of the Komisja Nadzoru Finansowego (‘KNF’) (the Polish Financial
Supervision Authority). In Lithuania, the business is included in a
register of credit providers maintained by the National Bank and in
Finland by the Regional State Administrative Agency of South
Finland. As reported in our Q3 2017 trading update, there were
further regulatory changes in Romania, which will mean that from
early March 2018 we expect our business there to be supervised
by the National Bank of Romania for the first time. The Group’s
operation in Hungary is subject to an operating licence issued by
the National Bank, in Estonia to a licence issued by the Financial
Supervision Authority, and in Latvia to a licence from the Consumer
Rights Protection Centre. The business in Australia holds a credit
licence issued by the Australia Securities and Investment
Commission (Australia). Following the wind-down of the business in
Slovakia, its operating licence was surrendered in January 2018.
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International Personal Finance plc Annual Report and Financial Statements 2017Corporate Governance Directors’ report continued
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 on ESG matters. There is a range of
appropriate corporate standards, policies and governance
structures covering all operations.
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.
Community investment
Corporate affairs activity, health and safety, people management,
responsible lending and business ethics issues were all discussed at
Board meetings in 2017. The Board has received adequate
information to make an assessment against ESG risks.
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 independently
assessed against OHSAS 18001 and our home credit markets,
including Group head office, were certified as compliant. An update
on the framework is reported annually to the Board. 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. We provide helplines in all home credit markets to
provide support and guidance for agents and staff concerned
about their safety or wellbeing.
No political donations were made.
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.
Community donations invested
8%
8%
46%
32%
6%
£680,000
invested in local communities across the Group (2016: £488,878)
3,056
hours volunteered by employees in Company time (2016: 3,545)
and a further 1,935 hours in their own time
Education
Health
Arts and culture
Social welfare
Other
£114,000
raised by employees for community investment purposes
When setting incentives, the Remuneration Committee takes
account of all implications, including the need to avoid motivating
inappropriate behaviour inadvertently. 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 on pages 63 and 71. ESG matters are also taken into account
in the training of directors.
Full information on specific ESG matters, and how these are
managed, can be found in the sustainability section of the
Company’s website (www.ipfin.co.uk).
Case study: Business ethics –
finding the right way
During 2017, we continued to strengthen our business ethics
programme. We introduced an ethics board game which is
tailored to our business and allows home credit employees in the
field to discuss and explore our Code of Ethics within the context
of their everyday roles. The game encourages interactive ethical
reflection and helps to empower employees with the skills and
tools they need to make ethical decisions and to challenge any
behaviour they believe to be unethical. Overall, 98% of employees
and 91% of agents completed business ethics training successfully
in 2017.
Once again, we ran a business-wide ethics event in 2017, which
included a live webcast with Gerard Ryan and other senior
business leaders. During the event, employees had the chance to
ask questions and give their opinions through a smartphone app.
86
Employees in the Czech Republic debate ethical issues using the IPF ethics
board game.
Carbon reporting
We have reported on all of 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. The
emissions data covers:
• our UK head office;
• home credit operations in Poland, the Czech Republic, Hungary, Mexico and Romania; and
• IPF Digital operations in Finland, Estonia, Lithuania, Latvia, Poland, Spain, Mexico and Australia.
These sources fall within our Consolidated Financial Statements. Where available data is incomplete we have extrapolated data.
In 2017, our GHG emissions for scope 1 and 2 decreased by 5.6%. When normalised by customer number our Scope 1 and 2 GHG emissions
increased by 5.0%. In 2017, we have reported a greater proportion of gas data due to being able to obtain this data from landlords in Poland
and Hungary for the first time. We have used this data to make an approximation of the full extent of data for 2013-2016 and are restating this
data from previous reporting.
The decrease in business travel by car can be explained by a reduction in car fleet in some of our European established businesses as well
as the closure of our operations in Slovakia, Lithuania and Bulgaria.
We aim to reduce our environmental impact where possible and our MyProvi programme is set to deliver resource efficiencies for the
business. During 2018, we hope to realise paper savings through the reduction of administrative paper use in the field. By the end of the year,
we expect to see digital collecting lists and receipting across our home credit operations in Europe. A full environmental policy statement
can be found in the sustainability section of the Company’s website (www.ipfin.co.uk).
Carbon emissions
sources
Scope 1
Scope 2
Travel and utilities
Gas
Business travel by car
Purchased electricity
Scope 1 and 2
CO2e emissions by customer
2013
2014
2015
1,987
24,267
5,280
31,534
0.013
2,266
23,996
5,116
31,378
0.012
1,634
25,490
4,040
31,164
0.012
2016
1,126
27,013
3,466
31,605
0.012
2017
Difference
1,283
24,984
3,564
29,831
0.013
13.9%
(7.5%)
2.8%
(5.6%)
5.0%
Tonnes CO2e
Total CO2 emissions 2017 (Tonnes CO2e)
3,564
1,283
24,984
Gas
Business travel by car
Purchased electricity
87
International Personal Finance plc Annual Report and Financial Statements 2017Corporate 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 Group and the
Company and of the profit or loss of the Group and 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.
Post-balance sheet events and future developments
There are no post-balance sheet events. Information on indications
of future developments is provided in the strategic report.
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,
non-executive director; and Cathryn Riley, non-executive director.
88
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 executive 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 2017 to the
date of this Annual Report and Financial Statements, and is satisfied
that they are effective.
By order of the Board
James Ormrod
Company Secretary
1 March 2018
Independent auditor’s report
to the members of International Personal Finance plc
Report on the audit of the financial statements
Opinion
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 2017 and of the Group’s profit for the year then ended;
• 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.
We have audited the Financial Statements of International Personal
Finance plc (the ‘Parent Company’) and its subsidiaries (the
‘Group’) which 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 Statement of accounting policies; and
• the related notes 1 to 31.
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.
Basis for opinion
We conducted our audit in accordance with International Standards
on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities
under those standards are further described in the auditor’s
responsibilities for the audit of the Financial Statements section of
our report.
We are independent of the Group and the Parent Company in
accordance with the ethical requirements that are relevant to our
audit of the Financial Statements in the UK, including the FRC’s
Ethical Standard as applied to listed public interest entities, and we
have fulfilled our other ethical responsibilities in accordance with
these requirements. We confirm that the non-audit services
prohibited by the FRC’s Ethical Standard were not provided to the
Group or the Parent Company.
We believe that the audit evidence we have obtained is sufficient
and appropriate to provide a basis for our opinion.
Conclusions relating to principal risks, going
concern and viability statement
Going concern
We have reviewed the directors’ statement on page 35 of the
Financial Statements 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
and company’s ability to continue to do so over a period of at least
12 months from the date of approval of the Financial Statements.
We are required to state whether we have anything material to add
or draw attention to in relation to that statement required by Listing
Rule 9.8.6R(3) and report if the statement is materially inconsistent
with our knowledge obtained in the audit.
We confirm that we have nothing material to report, add or draw
attention to in respect of these matters.
Summary of our audit approach
Key audit matters
The key audit matters that we identified in the current year were:
• impairment of receivables
• revenue recognition and calculation of the effective interest rate
• accounting for the Polish tax audit challenge
Materiality
Scoping
Within this report, any new key audit matters are identified with and any key audit matters which are the same as
the prior year identified with
The materiality that we used in the current year was £5.0 million which was determined on the basis of 5% of profit
before tax. The Parent Company materiality that we used in the current year was £2.5 million which was determined
on the basis of 3% of net assets and capped at 50% of Group materiality.
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.
Significant changes
in our approach
There have been no significant changes in our audit approach from the prior period other than the changes in key
audit matters explained on page 90.
International Personal Finance plc Annual Report and Financial Statements 2017
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89
International Personal Finance plc Annual Report and Financial Statements 2017Financial Statements
Independent auditor’s report continued
to the members of International Personal Finance plc
Principal risks and viability statement
Based solely on reading the directors’ statements and considering
whether they were consistent with the knowledge we obtained in the
course of the audit, including the knowledge obtained in the
evaluation of the directors’ assessment of the Group’s and the
Company’s ability to continue as a going concern, we are required
to state whether we have anything material to add or draw attention
to in relation to:
• the disclosures on pages 36-43 that describe the principal risks
and explain how they are being managed or mitigated;
• the directors’ confirmation on page 36 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; or
• 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 are also required to report whether the directors’ statement
relating to the prospects of the Group required by Listing Rule 9.8.6R
(3) is materially inconsistent with our knowledge obtained in
the audit.
We confirm that we have nothing material to report, add or draw
attention to in respect of these matters.
Key audit matters
Key audit matters are those matters that, in our professional
judgement, were of most significance in our audit of the Financial
Statements of the current period and include the most significant
assessed risks of material misstatement (whether or not due to fraud)
that we identified. These matters included those which had the
greatest effect on: the overall audit strategy, the allocation of
resources in the audit; and directing the efforts of the
engagement team.
These matters were addressed in the context of our audit of the
Financial Statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on
these matters.
In 2016, regulatory and legal risk was included as a key audit matter
which was focused on the judgement required in relation to whether
any provisions are required for customer remediation. The level of
provisioning relating to legal and regulatory matters has not been
material in recent years, however continued regulatory volatility may
impact the future profitability of individual components. As such we
consider the impact of regulatory changes within our going concern
assessment. In addition going concern is not a key audit matter, and
has therefore been considered above.
Key audit matter description
How the scope of our audit responded to the key audit matter
Key observations
As a result of our audit
testing we found that the
assumptions used in the
model to value customer
receivables were
appropriately applied,
and that the impairment
provision is considered to
be reasonable.
The rationale for the post-
model overlay proposed by
Management is appropriate
and the valuation is within an
acceptable range.
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
£1,056.9 million as of 31 December 2017
(2016: £939.9 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, with
a specific focus on the impact of the
Mexican earthquake and hurricanes in
the current year.
There is a potential risk of fraud inherent in
the application of the post model overlay
due to its judgemental nature and
material impact on the final impairment
figure and therefore profit for the year.
The key audit matter is described further
by the Audit and Risk Committee on
page 55 and within the key assumptions
and estimates on page 106. Please also
see note 21 for further information.
We evaluated the design, and tested the operating
effectiveness of controls over the provisioning process, including
the use of 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.
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.
To test mechanical accuracy of provisioning 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 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.
Finally we reviewed and challenged the completeness and
accuracy of management’s provisioning overlays, by reference
to analysis of recent collections performance, other identified
potential impairment risks and analysis of internal and
external data.
90
90
Key audit matter description
How the scope of our audit responded to the key audit matter
Key observations
Revenue recognition and the
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.
There is a risk around the accuracy and
completeness of the cash flows that are included in
Management’s calculation of the “EIR” for products
issued, whilst additionally ensuring any evidence of
early settlement behaviour has been considered.
The key audit matter is described further by the
Audit and Risk Committee on page 55 and within
the key assumptions and estimates on page 106.
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 and applicable accounting standards.
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.
Accounting for the Polish tax audit
challenge
IPF Poland is subject to a corporation tax inspection
covering the 2008, 2009, 2010 and 2011 tax years.
In relation to the 2008 and 2009 tax years, the
Group paid £37 million of tax and interest in
January 2017, to allow an appeal process to begin.
This amount is recognised as a debtor in line with
IAS 12 Income Taxes. The case was listed to be
heard by the District Administrative Court (“DAC”)
on 22 November 2017 but following the instigation
of Mutual Agreement Proceedings (“MAP”), the
DAC stayed the hearings. The cases are not now
expected to be heard until after the MAP process
is concluded.
Our key audit matter is focused on the recoverability
of the tax debtor, the likelihood of any outflow of
economic benefit in relation to 2010 and beyond,
and hence the need for contingent liability
disclosure or provision recognition requirements.
The key audit matter is described further by the
Audit and Risk Committee on page 55 and within
the key assumptions and estimates on page 106.
We evaluated the design, and tested the
implementation of internal controls over accounting
for the Polish tax audit challenge. This included
reviewing minutes from key management review
forums, and evaluating the process by which
management commissioned and evaluated reports
received from external tax advisers.
Our independent analysis of
the potential outcomes of the
Polish tax audits indicated
that management’s
assumptions applied in
assessing the exposure were
reasonable and supportable.
Utilising tax specialists within the group and
component audit teams, we have challenged
management’s assessment of the ultimate exposure
under the Polish tax enquiry by reference to
correspondence with the relevant tax authorities,
external specialist advice commissioned by
management, our independent assessment of the
exposures in the context of extant tax law, and our
knowledge of similar scenarios. This work included
sensitising the key assumptions made by
management in the context of the eventual outcome
of the case, and considering the implications in terms
of whether provision was required against the tax
debtor, or the potential exposure on subsequent
tax years.
International Personal Finance plc Annual Report and Financial Statements 2017
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International Personal Finance plc Annual Report and Financial Statements 2017Financial Statements
Independent auditor’s report continued
to the members of International Personal Finance plc
Our application of 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.
Based on our professional judgement, we determined materiality for
the Financial Statements as a whole as follows:
Group Financial
Statements
Parent Company Financial
Statements
Materiality £5.0 million (2016: £4.6
million)
£2.5 million (2016: £2.8
million)
Basis for
determining
materiality
Rationale
for the
benchmark
applied
5% (2016: 5%) of forecast
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.
3% (2016: 3%) of net assets,
capped at 50% of Group
materiality
The main operations of the
Parent Company are to
obtain external finance,
with the main balances
being the investments held
in the subsidiaries and the
external loan balances. We
have therefore selected net
assets 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 £0.25
million (2016: £0.1 million) for the Group and £0.1 million (2016: £0.05
million) for the Parent Company, as well as differences below that
threshold that, in our view, warranted reporting on qualitative
grounds. The increase to our reporting threshold is due to a Deloitte
methodology change from 2% to 5% of materiality. 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 five 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 with the exception
of Mexico. Together with the Group functions in the UK, which were
also subject to a full audit, these seven locations represent the
principal business units and account for 96% (2016: 96%) of the
Group’s net assets, 95% (2016: 99%) of the Group’s revenue, 99%
(2016: 96%) of the Group’s profit before tax and 95% (2016: 64%)
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 seven locations was
executed at levels of materiality applicable to each individual entity
which were lower than Group materiality and ranged from £2.0
million to £2.9 million (2016: £0.2 million to £2.8 million).
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.
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.
Other information
The directors are responsible for the other information. The other
information comprises the information included in the annual report
including the Chairman’s Statement, the Chief Executive Officer’s
Review, the Strategic Report, Principal Risks and Uncertainties, the
Directors’ Report, the Corporate Governance Report, the Audit and
Risk Committee Report and the Directors’ Remuneration Report,
other than the Financial Statements and our auditor’s report thereon.
Our opinion on the Financial Statements does not cover the
other information and, except to the extent otherwise explicitly
stated in our report, we do not express any form of assurance
conclusion thereon.
In connection with our audit of the Financial Statements, our
responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent with
the Financial Statements or our knowledge obtained in the audit or
otherwise appears to be materially misstated.
If we identify such material inconsistencies or apparent material
misstatements, we are required to determine whether there is a
material misstatement in the Financial Statements or a material
misstatement of the other information. If, based on the work we have
performed, we conclude that there is a material misstatement of this
other information, we are required to report that fact.
In this context, matters that we are specifically required to report to
you as uncorrected material misstatements of the other information
include where we conclude that:
• Fair, balanced and understandable – the statement given by the
directors that they consider the Annual Report and Financial
Statements taken as a whole is fair, balanced and
understandable and provides the information necessary for
shareholders to assess the Group’s performance, business model
and strategy, is materially inconsistent with our knowledge
obtained in the audit; or
• Audit committee reporting – the section describing the work of the
audit committee does not appropriately address matters
communicated by us to the audit committee; or
• Directors’ statement of compliance with the UK Corporate
Governance Code – the parts of the directors’ statement required
under the Listing Rules relating to the Company’s compliance with
the UK Corporate Governance Code containing provisions
specified for review by the auditor in accordance with Listing Rule
9.8.10R (2) do not properly disclose a departure from a relevant
provision of the UK Corporate Governance Code.
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92
Responsibilities of directors
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,
and for such internal control as the directors determine is necessary
to enable the preparation of financial statements that are free from
material misstatement, whether due to fraud or error.
Matters on which we are required to report by
exception
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.
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.
Other matters
Auditor tenure
Following the recommendation of the Board, we were appointed by
the members of International Personal Finance on 11 May 2011 to
audit the Financial Statements for the year ending 31 December
2011 and subsequent financial periods. The period of total
uninterrupted engagement including previous renewals and
reappointments of the firm is seven years, covering the years ending
31 December 2011 to 31 December 2017.
Consistency of the audit report with the additional
report to the audit committee
Our audit opinion is consistent with the additional report to the audit
committee we are required to provide in accordance with ISAs (UK).
Peter Birch
FCA (Senior statutory auditor)
for and on behalf of Deloitte LLP
Chartered Accountants and Statutory Auditor
Leeds, United Kingdom
1 March 2018
In preparing the Financial Statements, the directors are responsible
for assessing the Group’s and the Parent Company’s ability to
continue as a going concern, disclosing as applicable, matters
related to going concern and using the going concern basis of
accounting unless the directors either intend to liquidate the Group
or the Parent Company or to cease operations, or have no realistic
alternative but to do so.
Auditor’s responsibilities for the audit of the Financial
Statements
Our objectives are to obtain reasonable assurance about whether
the Financial Statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an
auditor’s report that includes our opinion. Reasonable assurance is
a high level of assurance, but is not a guarantee that an audit
conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise from
fraud or error and are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these
Financial Statements.
A further description of our responsibilities for the audit of the
Financial Statements is located on the Financial Reporting Council’s
website at: www.frc.org.uk/auditorsresponsibilities. This description
forms part of our auditor’s report.
Use of our report
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.
Report on other legal and regulatory requirements
Opinions 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.
In our opinion, based on the work undertaken in the course of
the audit:
• 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; and
• the Strategic Report and the Directors’ report have been prepared
in accordance with applicable legal requirements.
In the light of the knowledge and understanding of the Group and
the Parent Company and their environment obtained in the course
of the audit, we have not identified any material misstatements in the
strategic report or the directors’ report.
International Personal Finance plc Annual Report and Financial Statements 2017
93
93
International Personal Finance plc Annual Report and Financial Statements 2017Financial Statements
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 – continuing operations
Tax expense – UK
Tax expense – overseas
Total pre-exceptional tax expense
Profit after pre-exceptional taxation – continuing operations
Exceptional tax expense
Profit after taxation – continuing operations
Loss after taxation – discontinued operations
Profit after taxation attributable to owners of the Company
Group
Earnings per share – continuing operations
Basic
Diluted
Group
Earnings per share – including discontinued operations
Basic
Diluted
See note 6 for further information on Earnings per share.
Statements of comprehensive income
for the year ended 31 December
Notes
2017
£M
2016
£M
825.8
756.8
(201.1)
(184.9)
1
1
2
624.7
(55.2)
(135.2)
(328.7)
(519.1)
1
105.6
(0.7)
(29.9)
(30.6)
75.0
5
5
(30.0)
10
45.0
(8.4)
36.6
571.9
(46.8)
(129.1)
(300.0)
(475.9)
96.0
(3.1)
(21.7)
(24.8)
71.2
–
71.2
(4.3)
66.9
Notes
2017
pence
2016
pence
6
6
20.2
19.5
32.2
31.3
Notes
2017
pence
2016
pence
6
6
16.5
15.8
30.2
29.4
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 on foreign currency translations
Net fair value (losses)/gains – cash flow hedges
Tax credit/(charge) on items that may be reclassified
Items that will not subsequently be reclassified to income statement
Actuarial gains/(losses) on retirement benefit obligation
Tax (charge)/credit on items that will not be reclassified
Other comprehensive income/(expense) net of taxation
Total comprehensive income/(expense) for the year attributable to owners of
the Company
Group
Company
Notes
2017
£M
36.6
2016
£M
2017
£M
2016
£M
66.9
(21.5)
(17.2)
5
25
5
51.3
(2.5)
0.2
10.3
(1.9)
57.4
65.1
1.5
(0.1)
(10.0)
1.9
58.4
–
(1.5)
0.1
10.3
(1.9)
7.0
–
0.7
(0.1)
(10.0)
1.9
(7.5)
94.0
125.3
(14.5)
(24.7)
The accounting policies and notes 1 to 31 are an integral part of these Financial Statements.
94
94
Profit before taxation – continuing operations
1
105.6
Consolidated income statement
for the year ended 31 December
Group
Revenue
Impairment
Revenue less impairment
Finance costs
Other operating costs
Administrative expenses
Total costs
Tax expense – UK
Tax expense – overseas
Total pre-exceptional tax expense
Profit after pre-exceptional taxation – continuing operations
Exceptional tax expense
Profit after taxation – continuing operations
Loss after taxation – discontinued operations
Profit after taxation attributable to owners of the Company
Earnings per share – continuing operations
Earnings per share – including discontinued operations
See note 6 for further information on Earnings per share.
Statements of comprehensive income
for the year ended 31 December
Group
Basic
Diluted
Group
Basic
Diluted
94
Notes
2017
£M
2016
£M
825.8
756.8
(201.1)
(184.9)
1
1
2
5
10
624.7
(55.2)
(135.2)
(328.7)
(519.1)
(0.7)
(29.9)
(30.6)
75.0
45.0
(8.4)
36.6
571.9
(46.8)
(129.1)
(300.0)
(475.9)
96.0
(3.1)
(21.7)
(24.8)
71.2
–
71.2
(4.3)
66.9
5
(30.0)
Notes
2017
pence
2016
pence
6
6
20.2
19.5
32.2
31.3
Notes
2017
pence
2016
pence
6
6
16.5
15.8
30.2
29.4
Balance sheets
as at 31 December
Assets
Non-current assets
Goodwill
Intangible assets
Investment in subsidiaries
Property, plant and equipment
Deferred tax assets
Non-current tax assets
Retirement benefit asset
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
2017
£M
2016
£M
2017
£M
2016
£M
11
12
13
14
15
25
16
22
17
18
20
22
19
25
15
20
27
24.4
33.1
–
23.2
103.1
37.0
2.1
222.9
866.9
190.0
1,056.9
10.4
27.4
19.3
5.7
1,119.7
1,342.6
23.3
32.6
–
23.4
112.0
–
–
191.3
808.3
131.6
939.9
15.4
43.4
20.8
3.1
–
–
725.5
–
0.1
–
2.1
727.7
–
–
–
3.5
–
695.5
–
–
–
699.3
0.1
2.0
–
–
701.4
–
–
–
3.3
3.9
627.4
0.1
1,022.6
1,213.9
699.0
1,426.7
634.7
1,336.1
(79.6)
(4.8)
(22.4)
(4.7)
(67.5)
(0.1)
–
(0.3)
(145.7)
(123.2)
(343.5)
(252.0)
(7.4)
(16.5)
–
–
(237.5)
(166.8)
(411.1)
(252.3)
–
(10.1)
(9.1)
(8.1)
(598.1)
(600.4)
(608.2)
(617.6)
(845.7)
(784.4)
496.9
429.5
23.4
(22.5)
60.0
(1.2)
(47.6)
2.3
482.5
496.9
23.4
(22.5)
8.7
1.1
(50.8)
2.3
467.3
429.5
–
–
(508.5)
(508.5)
(919.6)
507.1
23.4
226.3
–
(0.8)
(47.6)
2.3
303.5
507.1
(9.1)
(0.1)
(526.4)
(535.6)
(787.9)
548.2
23.4
226.3
–
0.6
(50.8)
2.3
346.4
548.2
94.0
125.3
(14.5)
(24.7)
The loss after taxation of the Parent Company for the period was £21.5 million (2016: loss of £17.2 million).
The accounting policies and notes 1 to 31 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 31 were approved by the Board on 1 March 2018 and were signed on its behalf by:
Gerard Ryan
Chief Executive Officer
Justin Lockwood
Chief Financial Officer
International Personal Finance plc Annual Report and Financial Statements 2017
95
95
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 on foreign currency translations
Net fair value (losses)/gains – cash flow hedges
Tax credit/(charge) on items that may be reclassified
Items that will not subsequently be reclassified to income statement
Actuarial gains/(losses) on retirement benefit obligation
Tax (charge)/credit on items that will not be reclassified
Other comprehensive income/(expense) net of taxation
Total comprehensive income/(expense) for the year attributable to owners of
the Company
The accounting policies and notes 1 to 31 are an integral part of these Financial Statements.
Group
Company
Notes
2017
£M
36.6
2016
£M
2017
£M
2016
£M
66.9
(21.5)
(17.2)
5
25
5
51.3
(2.5)
0.2
10.3
(1.9)
57.4
65.1
1.5
(0.1)
(10.0)
1.9
58.4
–
(1.5)
0.1
10.3
(1.9)
7.0
–
0.7
(0.1)
(10.0)
1.9
(7.5)
International Personal Finance plc Annual Report and Financial Statements 2017Financial Statements
Statements of changes in equity
Group – Attributable to owners of the Company
Notes
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
25
5
Dividends paid to Company shareholders
7
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
23.4
(22.5)
(56.4)
(0.3)
(58.9)
2.3
439.6
327.2
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
65.1
–
–
–
65.1
65.1
–
–
–
–
1.5
–
(0.1)
1.4
1.4
–
–
–
–
–
–
–
–
–
–
–
8.1
–
–
–
–
–
–
–
–
–
–
–
66.9
66.9
–
–
65.1
1.5
(10.0)
(10.0)
1.9
1.8
(8.1)
58.8
58.4
125.3
4.4
(8.1)
(27.4)
467.3
4.4
–
(27.4)
429.5
At 31 December 2016
23.4
(22.5)
8.7
1.1
(50.8)
2.3
At 1 January 2017
Comprehensive income
Profit after taxation for the year
Other comprehensive income/(expense)
Exchange gains 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
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
25
5
Dividends paid to Company shareholders
7
23.4
(22.5)
8.7
1.1
(50.8)
2.3
467.3
429.5
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
51.3
–
–
–
–
–
(2.5)
–
0.2
51.3
(2.3)
51.3
(2.3)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
3.2
–
–
–
–
–
–
–
–
–
–
–
36.6
36.6
–
–
51.3
(2.5)
10.3
10.3
(1.9)
(1.7)
8.4
57.4
45.0
94.0
1.0
1.0
(3.2)
–
(27.6)
(27.6)
At 31 December 2017
23.4
(22.5)
60.0
(1.2)
(47.6)
2.3
482.5
496.9
96
96
Statements of changes in equity
Statements of changes in equity continued
At 31 December 2016
23.4
226.3
0.6
(50.8)
2.3
Group – Attributable to owners of the Company
Notes
£M
£M
£M
£M
Company – Attributable to owners of the Company
Notes
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
25
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
7
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
At 1 January 2017
Comprehensive income
Profit after taxation for the year
Other comprehensive income/(expense)
Exchange gains 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
income/(expense)
Total comprehensive income/(expense) for
the year
reserves
Transactions with owners
Share-based payment adjustment to
Shares granted from treasury and
employee trust
25
5
25
5
Called-up
share
capital
£M
Foreign
Other
exchange
Hedging
Capital
redemption
reserve
reserve
reserve
Own shares
reserve
23.4
(22.5)
(56.4)
(0.3)
(58.9)
Retained
earnings
£M
Total
equity
£M
439.6
327.2
£M
2.3
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
65.1
65.1
65.1
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1.5
–
(0.1)
1.4
1.4
–
–
–
–
–
–
–
–
–
51.3
(2.5)
0.2
8.1
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
66.9
66.9
–
–
65.1
1.5
(10.0)
(10.0)
1.9
1.8
(8.1)
58.8
58.4
125.3
4.4
(8.1)
(27.4)
467.3
4.4
–
(27.4)
429.5
–
36.6
36.6
–
–
51.3
(2.5)
10.3
10.3
(1.9)
(1.7)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
51.3
(2.3)
8.4
57.4
51.3
(2.3)
45.0
94.0
3.2
–
1.0
1.0
(3.2)
–
(27.6)
(27.6)
Dividends paid to Company shareholders
7
At 31 December 2016
23.4
(22.5)
8.7
1.1
(50.8)
2.3
23.4
(22.5)
8.7
1.1
(50.8)
2.3
467.3
429.5
Dividends paid to Company shareholders
7
At 31 December 2017
23.4
(22.5)
60.0
(1.2)
(47.6)
2.3
482.5
496.9
At 1 January 2017
Comprehensive income
Loss after taxation for the year
Other comprehensive income/(expense)
Net fair value losses – cash flow hedges
Actuarial gains on retirement benefit obligation
25
Tax credit/(charge) on other comprehensive
income
Total other comprehensive (expense)/income
Total comprehensive 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
7
At 31 December 2017
23.4
226.3
(0.8)
(47.6)
2.3
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 accounting policies and notes 1 to 31 are an integral part of these Financial Statements.
96
International Personal Finance plc Annual Report and Financial Statements 2017
97
97
Called-up
share
capital
£M
23.4
Other
reserve
£M
226.3
Hedging
reserve
£M
Own shares
£M
Capital
redemption
reserve
£M
Retained
earnings
£M
0.3
(58.9)
2.3
402.5
Total
equity
£M
595.9
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0.4
–
(0.1)
0.3
0.3
–
–
–
–
–
–
–
–
–
–
8.1
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(1.5)
–
0.1
(1.4)
(1.4)
–
–
–
–
–
–
–
–
–
–
3.2
–
–
–
–
–
–
–
–
–
–
(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)
346.4
4.4
–
(27.4)
548.2
(21.5)
(21.5)
–
10.3
(1.9)
8.4
(1.5)
10.3
(1.8)
7.0
(13.1)
(14.5)
1.0
(3.2)
(27.6)
303.5
1.0
–
(27.6)
507.1
23.4
226.3
0.6
(50.8)
2.3
346.4
548.2
International Personal Finance plc Annual Report and Financial Statements 2017Financial Statements
Cash flow statements
for the year ended 31 December
Group
Company
Notes
2017
£M
2016
£M
2017
£M
2016
£M
Cash flows from operating activities
Continuing operations
Cash generated from/(used in) operating activities
28
Finance costs paid
Finance income received
Income tax paid
Discontinued operations
Net cash (used in)/generated from operating activities
Cash flows from investing activities
Continuing operations
Purchases of property, plant and equipment
Proceeds from sale of property, plant and equipment
Purchases of intangible assets
Purchases of shares in subsidiary
Discontinued operations
Purchases of property, plant and equipment
Disposal of subsidiary, net of cash and cash equivalents
Net cash used in investing activities
Net cash used in operating and investing activities
Cash flows from financing activities
Continuing operations
Proceeds from borrowings
Repayment of borrowings
Dividends paid to Company shareholders
Net cash generated from financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Exchange gains 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
143.6
(54.7)
–
136.2
(44.3)
–
(94.0)
(68.4)
(2.7)
(7.8)
(1.7)
21.8
9.2
(46.9)
39.0
(1.3)
–
–
–
–
–
–
–
(21.1)
(31.6)
27.8
(0.5)
–
(25.4)
(0.1)
–
–
–
–
–
(25.5)
(25.5)
(0.1)
(25.5)
58.1
(8.9)
(27.6)
21.6
(3.9)
3.9
–
–
–
71.7
(15.0)
(27.4)
29.3
3.8
0.1
–
3.9
3.9
14
(10.1)
0.7
(8.2)
–
12
(14.9)
(15.8)
–
(25.5)
–
–
3.0
(21.3)
(29.1)
92.5
(53.2)
(27.6)
11.7
(17.4)
43.4
1.4
27.4
7
17
(0.1)
–
(24.1)
(2.3)
69.9
(41.7)
(27.4)
0.8
(1.5)
39.9
5.0
43.4
17
27.4
43.4
The accounting policies and notes 1 to 31 are an integral part of these Financial Statements.
98
98
Cash generated from/(used in) operating activities
28
Cash flow statements
for the year ended 31 December
Cash flows from operating activities
Continuing operations
Finance costs paid
Finance income received
Income tax paid
Discontinued operations
Net cash (used in)/generated from operating activities
Cash flows from investing activities
Continuing operations
Purchases of property, plant and equipment
Proceeds from sale of property, plant and equipment
Purchases of intangible assets
Purchases of shares in subsidiary
Discontinued operations
Purchases of property, plant and equipment
Disposal of subsidiary, net of cash and cash equivalents
Net cash used in investing activities
Net cash used in operating and investing activities
Cash flows from financing activities
Continuing operations
Proceeds from borrowings
Repayment of borrowings
Dividends paid to Company shareholders
Net cash generated from financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Exchange gains 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
Notes
2017
£M
2016
£M
2017
£M
2016
£M
143.6
(54.7)
–
136.2
(44.3)
–
(94.0)
(68.4)
(2.7)
(7.8)
(1.7)
21.8
9.2
(46.9)
39.0
(1.3)
(21.1)
(31.6)
27.8
(0.5)
(25.4)
(0.1)
–
–
–
–
–
–
71.7
(15.0)
(27.4)
29.3
3.8
0.1
–
3.9
3.9
–
–
–
–
–
–
–
–
–
–
58.1
(8.9)
(27.6)
21.6
(3.9)
3.9
(25.5)
(25.5)
(0.1)
(25.5)
14
(10.1)
(8.2)
–
12
(14.9)
(15.8)
0.7
–
–
3.0
(21.3)
(29.1)
92.5
(53.2)
(27.6)
11.7
(17.4)
43.4
1.4
27.4
(0.1)
–
(24.1)
(2.3)
69.9
(41.7)
(27.4)
0.8
(1.5)
39.9
5.0
43.4
7
17
17
27.4
43.4
The accounting policies and notes 1 to 31 are an integral part of these Financial Statements.
Accounting policies
General information
International Personal Finance plc (the Company) is a public company limited by shares incorporated in the United Kingdom under the
Companies Act and is registered in England and Wales. The address of the registered office is shown within shareholder information on
page 137.
The principal activities of the Company and its subsidiaries (the Group) and the nature of the Group’s operations are set out in the Strategic
Report on page 4.
These Financial Statements are presented in pounds sterling because that is the currency of the primary economic environment in which the
Group operates. Foreign operations are set out in accordance with the policies set out on page 104.
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 2017 but do not have any
impact on the Group:
–
(25.5)
• Amendments to IAS 12 ‘Recognition of deferred tax assets for unrealised losses’;
• Annual Improvements to IFRSs: 2014-2016 cycle; and
• IAS 7 (amendment) ‘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’ (for more detail see below);
• IFRS 15 ‘Revenue from contracts with customers (and the related clarifications)’;
• IFRS 16 ‘Leases’ (for more detail see page 100);
• 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’; and
• IFRIC23 ‘Uncertainty over Income Tax Treatments’.
IFRS 9 Financial Instruments
The Group will apply IFRS 9 from 1 January 2018. The Group has elected not to restate comparatives on initial application of IFRS 9. The full
impact of adopting IFRS 9 on the Group’s Consolidated Financial Statements will depend on the financial instruments that the Group has
during 2018 as well as on economic conditions and judgements made as at the year end. The Group has performed a preliminary
assessment of the potential impact of adopting IFRS 9 based on the financial instruments and hedging relationships as at the date of initial
application of IFRS 9 (1 January 2018).
Classification and measurement
With respect to the classification and measurement of financial assets, the number of categories of financial assets under IFRS 9 has been
reduced compared to IAS 39. Under IFRS 9 the classification of financial assets is based both on the business model within which the asset is
held and the contractual cash flow characteristics of the asset. There are three principal classification categories for financial assets that are
debt instruments: (i) amortised cost, (ii) fair value through other comprehensive income (FVTOCI) and (iii) fair value through profit or loss
(FVTPL). Equity instruments in the scope of IFRS 9 are measured at fair value with gains and losses recognised in profit or loss unless an
irrevocable election is made to recognise gains or losses in other comprehensive income.
There will be no impact on the classification and measurement of the following financial assets held by the Group: derivative financial
instruments; cash and cash equivalents; other receivables and current tax assets.
There will be no change in the accounting for any financial liabilities.
Impairment
The impairment model under IFRS 9 reflects expected credit losses, as opposed to only incurred credit losses under IAS 39. Under the
impairment approach in IFRS 9, it is not necessary for a credit event to have occurred before credit losses are recognised. Instead, an entity
always accounts for expected credit losses and changes in those expected credit losses. The amount of expected credit losses should be
updated at each reporting date. The new impairment model will apply to the Group’s financial assets that are measured at amortised costs.
The Group expects to apply the simplified approach to recognise lifetime expected credit losses for amounts receivable from customers as
required or permitted for IFRS 9. The Group’s preliminary calculation of the loss allowance for these assets as at 1 January 2018 is around 11 -
13% million greater compared to IAS
Determining an increase in credit risk since initial recognition
IFRS 9 requires the recognition of 12 month expected credit losses (the expected credit losses from default events that are expected within
12 months of the reporting date) if credit risk has not significantly increased since initial recognition (stage 1) and lifetime expected credit
98
International Personal Finance plc Annual Report and Financial Statements 2017
99
99
International Personal Finance plc Annual Report and Financial Statements 2017Financial Statements
Accounting policies continued
losses for financial instruments for which the credit risk has increased significantly since initial recognition (stage 2) or which are credit
impaired (stage 3).
When determining whether the risk of default has increased significantly since initial recognition the Group considers both quantitative and
qualitative information based on the Group’s historical experience.
The approach to identifying significant increases in credit risk is consistent across the Group’s products. In addition, as a backstop, the Group
considers that a significant increase in credit risk occurs when an asset is more than 30 days past due.
Financial instruments are moved back to stage 1 once they no longer meet the criteria for a significant increase in credit risk.
Definition of default and credit impaired assets
The Group defines a financial instrument as in default, which is fully-aligned with the definition of credit-impaired, when it meets one or more
of the following criteria:
• Quantitative criteria: the customer is more than 90 days past due on their contractual payments;
• Qualitative criteria: indication that there is a measurable movement in the estimated future cash flows from a group of financial assets.
For example, if prospective legislative changes are considered to impact the collections performance of customers.
The default definition has been applied consistently to model the probability of default (PD), exposure at default (EAD) and loss given default
(LGD) throughout the Group’s expected credit loss calculations.
An instrument is considered to no longer be in default (i.e. to have cured) when it no longer meets any of the default criteria.
Forward-looking information
Under IFRS 9 macroeconomic overlays are required to include forward-looking information when calculating expected credit losses.
The short-term nature of our lending means that the portfolio turns over quickly, and as a result, any changes in the macroeconomic
environment will have very little impact on our amounts receivable from customers.
Where extreme macroeconomic scenarios are experienced, we will use management judgement to identify, quantify and apply any
required approach. We have not applied any overlays in the calculation of the loss allowance at 1 January 2018.
Modelling techniques
We have calculated PD, EAD, LGD and cash flow projections based on the most recent collections performance, including management
overlays where we deem that historic performance is not representative of future collections performance.
The most recent LGD performance is not deemed to be representative of future collections performance due to operational changes
implemented in 2017. As such, an overlay has been applied to the LGD parameters resulting in an increase in LGDs.
Hedge accounting
On initial application of IFRS 9, an entity may choose, as its accounting policy, to continue to apply the hedge accounting requirements of
IAS 39 instead of the hedge accounting requirements of IFRS 9. The Group has elected to apply the IAS 39 hedge accounting requirements.
IFRS16 Leases
IFRS16, which has not yet been endorsed by the EU, introduces a comprehensive model for the identification of lease arrangements and
accounting treatments for both lessors and lessees. IFRS 16 will supersede the current lease guidance including IAS 17 Leases and the related
interpretations when it becomes effective for accounting periods beginning on or after 1 January 2019. The Group expects to adopt IFRS 16
for the year ending 31 December 2019. No decision has been made about whether to use any of the transitional options in IFRS 16.
IFRS 16 distinguishes leases and service contracts on the basis of whether an identified asset is controlled by a customer. Distinctions of
operating leases (off balance sheet) and finance leases (on balance sheet) are removed for lessee accounting, and is replaced by a
model where a right-of-use asset and a corresponding liability have to be recognised for all leases by lessees (i.e. all on balance sheet)
except for short-term leases and leases of low value assets.
The right-of-use asset is initially measured at cost and subsequently measured at cost (subject to certain exceptions) less accumulated
depreciation and impairment losses, adjusted for any remeasurement of the lease liability. The lease liability is initially measured at the
present value of the lease payments that are not paid at that date. Subsequently, the lease liability is adjusted for interest and lease
payments, as well as the impact of lease modifications, amongst others. Furthermore, the classification of cash flows will also be affected
because operating leases under IAS 17 are presented as operating cash flows, whereas under the IFRS 16 model, the lease payments will be
split into a principal and interest portion which will be presented as operating and financing cash flows respectively.
Furthermore, extensive disclosures are required by IFRS 16.
As at 31 December 2017, the Group has non-cancellable operating lease commitments of £33.0 million. IAS 17 does not require the
recognition of any right-of-use asset or liability for future payments for these leases; instead, certain information is disclosed as operating lease
commitments in note 29. A preliminary assessment indicates that these arrangements will meet the definition of a lease under IFRS 16,
although some of them will qualify as low value or short-term leases upon the application of IFRS 16. The Group is in the process of assessing
the impact of recognising a right-of-use asset and a related lease liability in the Group Financial Statements. It is not practicable to provide a
reasonable estimate of the financial effect until this review has been completed.
100
100
Accounting policies continued
losses for financial instruments for which the credit risk has increased significantly since initial recognition (stage 2) or which are credit
impaired (stage 3).
When determining whether the risk of default has increased significantly since initial recognition the Group considers both quantitative and
qualitative information based on the Group’s historical experience.
The approach to identifying significant increases in credit risk is consistent across the Group’s products. In addition, as a backstop, the Group
considers that a significant increase in credit risk occurs when an asset is more than 30 days past due.
Financial instruments are moved back to stage 1 once they no longer meet the criteria for a significant increase in credit risk.
Definition of default and credit impaired assets
of the following criteria:
The Group defines a financial instrument as in default, which is fully-aligned with the definition of credit-impaired, when it meets one or more
• Quantitative criteria: the customer is more than 90 days past due on their contractual payments;
• Qualitative criteria: indication that there is a measurable movement in the estimated future cash flows from a group of financial assets.
For example, if prospective legislative changes are considered to impact the collections performance of customers.
The default definition has been applied consistently to model the probability of default (PD), exposure at default (EAD) and loss given default
(LGD) throughout the Group’s expected credit loss calculations.
An instrument is considered to no longer be in default (i.e. to have cured) when it no longer meets any of the default criteria.
Forward-looking information
Under IFRS 9 macroeconomic overlays are required to include forward-looking information when calculating expected credit losses.
The short-term nature of our lending means that the portfolio turns over quickly, and as a result, any changes in the macroeconomic
environment will have very little impact on our amounts receivable from customers.
Where extreme macroeconomic scenarios are experienced, we will use management judgement to identify, quantify and apply any
required approach. We have not applied any overlays in the calculation of the loss allowance at 1 January 2018.
Modelling techniques
We have calculated PD, EAD, LGD and cash flow projections based on the most recent collections performance, including management
overlays where we deem that historic performance is not representative of future collections performance.
The most recent LGD performance is not deemed to be representative of future collections performance due to operational changes
implemented in 2017. As such, an overlay has been applied to the LGD parameters resulting in an increase in LGDs.
On initial application of IFRS 9, an entity may choose, as its accounting policy, to continue to apply the hedge accounting requirements of
IAS 39 instead of the hedge accounting requirements of IFRS 9. The Group has elected to apply the IAS 39 hedge accounting requirements.
Hedge accounting
IFRS16 Leases
IFRS16, which has not yet been endorsed by the EU, introduces a comprehensive model for the identification of lease arrangements and
accounting treatments for both lessors and lessees. IFRS 16 will supersede the current lease guidance including IAS 17 Leases and the related
interpretations when it becomes effective for accounting periods beginning on or after 1 January 2019. The Group expects to adopt IFRS 16
for the year ending 31 December 2019. No decision has been made about whether to use any of the transitional options in IFRS 16.
IFRS 16 distinguishes leases and service contracts on the basis of whether an identified asset is controlled by a customer. Distinctions of
operating leases (off balance sheet) and finance leases (on balance sheet) are removed for lessee accounting, and is replaced by a
model where a right-of-use asset and a corresponding liability have to be recognised for all leases by lessees (i.e. all on balance sheet)
except for short-term leases and leases of low value assets.
The right-of-use asset is initially measured at cost and subsequently measured at cost (subject to certain exceptions) less accumulated
depreciation and impairment losses, adjusted for any remeasurement of the lease liability. The lease liability is initially measured at the
present value of the lease payments that are not paid at that date. Subsequently, the lease liability is adjusted for interest and lease
payments, as well as the impact of lease modifications, amongst others. Furthermore, the classification of cash flows will also be affected
because operating leases under IAS 17 are presented as operating cash flows, whereas under the IFRS 16 model, the lease payments will be
split into a principal and interest portion which will be presented as operating and financing cash flows respectively.
Furthermore, extensive disclosures are required by IFRS 16.
As at 31 December 2017, the Group has non-cancellable operating lease commitments of £33.0 million. IAS 17 does not require the
recognition of any right-of-use asset or liability for future payments for these leases; instead, certain information is disclosed as operating lease
commitments in note 29. A preliminary assessment indicates that these arrangements will meet the definition of a lease under IFRS 16,
although some of them will qualify as low value or short-term leases upon the application of IFRS 16. The Group is in the process of assessing
the impact of recognising a right-of-use asset and a related lease liability in the Group Financial Statements. It is not practicable to provide a
reasonable estimate of the financial effect until this review has been completed.
Alternative Performance Measures
In reporting financial information, the Group presents alternative performance measures, ‘APMs’ which are not defined or specified under
the requirements of IFRS.
The Group believes that these APMs, which are not considered to be a substitute for or superior to IFRS measures, provide stakeholders with
additional helpful information on the performance of the business. The APMs are consistent with how the business performance is planned
and reported within the internal management reporting to the Board. Some of these measures are also used for the purpose of setting
remuneration targets.
Each of the APMs, used by the Group are set out on pages 133-136 including explanations of how they are calculated and how they can be
reconciled to a statutory measure where relevant.
The Group reports percentage change figures for all performance measures, other than profit or loss before taxation and earnings per share,
after restating prior year figures at a constant exchange rate. The constant exchange rate, which is an APM, retranslates the previous year
measures at the average actual periodic exchange rates used in the current financial year. These measures are presented as a means of
eliminating the effects of exchange rate fluctuations on the year-on-year reported results.
The Group makes certain adjustments to the statutory measures in order to derive APMs where relevant. The Group’s policy is to exclude
items that are considered to be significant in both nature and/or quantum and where treatment as an adjusted item provides stakeholders
with additional useful information to assess the year-on-year trading performance of the Group.
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 35.
Basis of consolidation
The Consolidated Financial Statements incorporate the Financial Statements of the Company and the entities controlled by the Company
(its subsidiaries) made up to 31 December each year. Control is achieved when the Company:
• has the power over the investee;
• is exposed, or has rights, to variable return from its involvement with the investee; and
• has the ability to use its power to affects its returns.
All intra-Group assets and liabilities, equity, income, expenses and cash flows relating to transactions between Group companies are
eliminated on consolidation.
The accounting policies of the subsidiaries are consistent with the accounting policies of the Group.
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.
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. In order to further simplify our financial reporting in alignment with our strategy, we have decided to consolidate all European
home credit businesses into one reporting segment. Accordingly, in 2018 our segmented reporting will comprise European home credit,
Mexico and IPF Digital. 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’). All fees, being interest and non-interest fees are
included within the EIR calculation. 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.
100
International Personal Finance plc Annual Report and Financial Statements 2017
101
101
International Personal Finance plc Annual Report and Financial Statements 2017Financial Statements
Accounting policies continued
Revenue continued
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. These amounts do not make up a significant part of the revenue of the Group.
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, 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.
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.
102
102
Accounting policies continued
Revenue continued
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. These amounts do not make up a significant part of the revenue of the Group.
The accounting for amounts receivable from customers is considered further below.
The leases entered into by the Group are solely operating leases. Costs in respect of operating leases are charged to the income statement
Leases are classified as operating leases whenever the terms of the lease do not transfer substantially all the risks and rewards of ownership
Leases
on a straight-line basis over the lease term.
to the Group.
Other operating costs
administrative expenses.
Share-based payments
Other operating costs include agents’ commission, marketing costs and foreign exchange gains and losses. All other costs are included in
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, the fair value of providing share-based payments to employees of subsidiary companies is
treated as an increase in the investment in subsidiaries.
The Group classifies as exceptional those significant items that are one-off in nature and do not reflect the underlying performance
Exceptional items
of the Group.
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.
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 not amortised but is tested for impairment at least annually. Impairment is tested by comparing the carrying value of goodwill to
the net present value of latest forecast cashflows from the legacy MCB business 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.
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International Personal Finance plc Annual Report and Financial Statements 2017
103
103
International Personal Finance plc Annual Report and Financial Statements 2017Financial Statements
Accounting policies continued
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
Method
10%
20% to 33.3%
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
International Personal Finance 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.
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.
104
104
Accounting policies continued
Property, plant and equipment
principal bases used:
Category
Fixtures and fittings
Motor vehicles
Equipment (including computer hardware)
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
Depreciation rate
Method
10%
20% to 33.3%
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
as equity.
International Personal Finance plc has only ordinary share capital. These shares, with a nominal value of 10 pence per share, are classified
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.
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.
The tax expense represents the sum of the tax currently payable and deferred 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
Taxation
Current tax
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.
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. As there are no working employees that are members of the defined benefit pension scheme, there are no current service costs. 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.
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.
Critical accounting judgements and key sources of estimation uncertainty
In the application of the Group’s accounting policies, the directors are required to make judgements (other than those involving estimations)
that have a significant impact on the amounts recognised and to make estimates and assumptions about the carrying amounts of assets
and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical
experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the
period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision
affects both current and future periods.
The following are the critical judgements, apart from those involving estimations, that the directors have made in the process of applying the
Group’s accounting policies and that have the most significant effect on the amounts recognised in the Financial Statements.
104
International Personal Finance plc Annual Report and Financial Statements 2017
105
105
International Personal Finance plc Annual Report and Financial Statements 2017Financial Statements
Accounting policies continued
Revenue recognition
The judgement used 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
in historical data and are reviewed regularly. Based on a 1% variation in the EIR, it is estimated that the amounts receivable from customers
would be higher/lower by £3.1 million (2016: £3.1 million). This sensitivity is based on historic fluctuations in EIRs.
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 around 60 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.
In home credit, the impairment models are monitored regularly to test their continued capability to predict the timing and quantum of
customer repayments in the context of the current economic environment and recent customer payment performance. The models used
typically have a strong predictive capability reflecting the relatively stable nature of the business and therefore the actual performance does
not usually vary significantly from the estimated performance. The models are updated periodically if they cease to have a strong predictive
capability. However, on the basis that the payment performance of customers could be different from the assumptions used in estimating
the future cash flows, an adjustment to the amounts receivable from customers may be required. To the extent the estimated cash flows
differ by +/-2%, it is estimated that amounts receivable from home credit customers would be £17.3 million higher/lower (2016: £16.5 million
higher/lower). This level of estimated impact is based on historic fluctuations in performance compared to the models and is subject to
impairment overlay provisions.
In IPF Digital, probability of default and loss given default parameters are updated on a regular basis using recent customer repayment
information, which is considered to be a good indicator of future performance. In the event that loss rates could be different from these
assumptions by +/- 10%, it is estimated that the amounts receivable from IPF Digital customers would be £1.2 million higher/lower (2016: £0.6
million higher/lower). The levels of estimated impacts are based on typical customer loss rate fluctuations.
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
Judgement must be exercised in the calculation of the Group’s tax provision, in particular with regard to the existence and extent of tax risks.
This exercise of judgement with regards to the ongoing Polish tax audits which are disclosed on page 35 could have a significant effect on
the Financial Statements, as there are significant uncertainties in relation to the amount and timing of associated cash flows.
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.
106
106
Accounting policies continued
Notes to the financial statements
Revenue recognition
The judgement used 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
in historical data and are reviewed regularly. Based on a 1% variation in the EIR, it is estimated that the amounts receivable from customers
would be higher/lower by £3.1 million (2016: £3.1 million). This sensitivity is based on historic fluctuations in EIRs.
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.
historical performance.
In IPF Digital, the default trigger occurs when customers are passed to collections, which averages at around 60 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
In home credit, the impairment models are monitored regularly to test their continued capability to predict the timing and quantum of
customer repayments in the context of the current economic environment and recent customer payment performance. The models used
typically have a strong predictive capability reflecting the relatively stable nature of the business and therefore the actual performance does
not usually vary significantly from the estimated performance. The models are updated periodically if they cease to have a strong predictive
capability. However, on the basis that the payment performance of customers could be different from the assumptions used in estimating
the future cash flows, an adjustment to the amounts receivable from customers may be required. To the extent the estimated cash flows
differ by +/-2%, it is estimated that amounts receivable from home credit customers would be £17.3 million higher/lower (2016: £16.5 million
higher/lower). This level of estimated impact is based on historic fluctuations in performance compared to the models and is subject to
impairment overlay provisions.
In IPF Digital, probability of default and loss given default parameters are updated on a regular basis using recent customer repayment
information, which is considered to be a good indicator of future performance. In the event that loss rates could be different from these
assumptions by +/- 10%, it is estimated that the amounts receivable from IPF Digital customers would be £1.2 million higher/lower (2016: £0.6
million higher/lower). The levels of estimated impacts are based on typical customer loss rate fluctuations.
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
Judgement must be exercised in the calculation of the Group’s tax provision, in particular with regard to the existence and extent of tax risks.
This exercise of judgement with regards to the ongoing Polish tax audits which are disclosed on page 35 could have a significant effect on
the Financial Statements, as there are significant uncertainties in relation to the amount and timing of associated cash flows.
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.
1. Segment analysis
Geographical segments
Group
Home credit
Northern Europe
Southern Europe
Mexico
Slovakia and Lithuania
Digital
UK costs*
Total – continuing operations
Discontinued operations
Total
Revenue
Impairment
Profit before taxation
2017
£M
2016
£M
2017
£M
2016
£M
2017
£M
2016
£M
327.0
177.7
217.0
–
721.7
104.1
–
825.8
3.7
829.5
330.6
170.8
186.5
10.8
698.7
58.1
–
756.8
6.6
763.4
74.1
17.0
75.6
76.2
35.2
68.0
(8.5)
(12.0)
158.2
42.9
–
201.1
2.6
203.7
167.4
17.5
–
184.9
2.6
187.5
59.8
54.5
14.7
3.2
132.2
(11.7)
(14.9)
105.6
(7.9)
97.7
75.6
40.3
11.7
(7.4)
120.2
(9.3)
(14.9)
96.0
(3.4)
92.6
* 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
Northern Europe
Southern Europe
Mexico
Slovakia and Lithuania
Digital
UK
Total – continuing operations
Discontinued operations
Total
Group
Home credit
Northern Europe
Southern Europe
Mexico
Slovakia and Lithuania
Digital
UK
Total – continuing operations
Discontinued operations
Total
Segment assets
Segment liabilities
2017
£M
2016
£M
2017
£M
2016
£M
550.0
272.3
220.3
0.9
1,043.5
231.9
67.2
494.6
255.0
223.1
9.6
982.3
148.7
72.7
1,342.6
1,203.7
–
10.2
213.0
119.0
145.2
7.7
484.9
157.0
203.8
845.7
–
1,342.6
1,213.9
845.7
196.8
138.9
170.0
37.8
543.5
120.7
111.6
775.8
8.6
784.4
Capital expenditure
Depreciation
2017
£M
2016
£M
2017
£M
2016
£M
3.9
2.8
2.7
–
9.4
0.6
0.1
10.1
–
10.1
2.1
1.5
2.9
–
6.5
0.4
1.3
8.2
0.1
8.3
3.2
1.9
2.4
–
7.5
0.4
2.4
10.3
–
10.3
2.4
1.7
1.8
0.4
6.3
0.1
3.5
9.9
0.2
10.1
106
International Personal Finance plc Annual Report and Financial Statements 2017
107
107
International Personal Finance plc Annual Report and Financial Statements 2017Financial Statements
Notes to the financial statements continued
1. Segment analysis continued
Group
Home credit
Northern Europe
Southern Europe
Mexico
Slovakia and Lithuania
Digital
UK
Total – continuing operations
Discontinued operations
Total
Expenditure on intangible
assets
Amortisation
2017
£M
2016
£M
2017
£M
2016
£M
–
–
–
–
–
–
5.9
9.0
14.9
–
14.9
–
–
–
–
–
–
3.6
12.2
15.8
–
15.8
–
–
–
–
–
–
2.9
8.5
11.4
–
11.4
–
–
–
–
–
–
2.2
6.8
9.0
–
9.0
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 £829.5 million
(2016: £763.4 million) and the breakdown by geographical area is disclosed above.
As set out in the accounting policy note, the receivables portfolio is valued based on expected cash flows discounted at the effective interest
rate. The impairment credit in Slovakia / Lithuania is principally driven by impact of unwinding the discount on the receivables portfolio via
the effective interest rate.
The total of non-current assets other than financial instruments and deferred tax assets located in the UK is £27.7 million (2016: £30.5 million),
and the total of non-current assets located in other countries is £92.1 million (2016: £48.8 million).
There is no single external customer from which significant revenue is generated.
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
Audit of company’s subsidiaries pursuant to legislation includes accounting advice on the implementation of IFRS 9.
Further details on auditor remuneration can be found in the Audit and Risk Committee Report on page 57.
108
108
2017
£M
55.2
2016
£M
46.8
2017
£M
10.3
–
3.3
11.4
12.9
6.9
193.0
2017
£M
0.1
0.7
0.1
2016
£M
9.9
0.8
0.7
9.0
13.8
8.1
175.5
2016
£M
0.1
0.5
0.1
Notes to the financial statements continued
1. Segment analysis continued
Group
Home credit
Northern Europe
Southern Europe
Mexico
Slovakia and Lithuania
Digital
UK
Total
Total – continuing operations
Discontinued operations
Expenditure on intangible
assets
Amortisation
2017
£M
2016
£M
2017
£M
2016
£M
–
–
–
–
–
–
5.9
9.0
14.9
–
14.9
–
–
–
–
–
–
3.6
12.2
15.8
–
15.8
–
–
–
–
–
–
–
2.9
8.5
11.4
11.4
–
–
–
–
–
–
2.2
6.8
9.0
–
9.0
and the total of non-current assets located in other countries is £92.1 million (2016: £48.8 million).
There is no single external customer from which significant revenue is generated.
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:
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
Audit of company’s subsidiaries pursuant to legislation includes accounting advice on the implementation of IFRS 9.
Further details on auditor remuneration can be found in the Audit and Risk Committee Report on page 57.
Group
108
2017
£M
55.2
2016
£M
46.8
2017
£M
10.3
–
3.3
11.4
12.9
6.9
193.0
2017
£M
0.1
0.7
0.1
2016
£M
9.9
0.8
0.7
9.0
13.8
8.1
175.5
2016
£M
0.1
0.5
0.1
5. Tax expense
Group
Current tax expense/(income)
– current year
– prior year
Deferred tax (income)/expense (note 15)
– current year
– prior year
Pre-exceptional tax expense
Exceptional tax charge
Tax expense
2017
£M
2016
£M
47.0
–
47.0
(18.9)
2.5
(16.4)
30.6
30.0
60.6
49.7
(0.4)
49.3
(22.8)
(1.7)
(24.5)
24.8
–
24.8
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 £829.5 million
(2016: £763.4 million) and the breakdown by geographical area is disclosed above.
The exceptional tax charge of £30.0 million (2016: £nil) relates to the write off of a deferred tax asset due to a change on Polish tax legislation
effective from 1 January 2018. For more information see financial review on page 35.
Further information regarding the deferred tax (income)/expense is shown in note 15, and primarily relates to timing differences in respect of
revenue and impairment.
As set out in the accounting policy note, the receivables portfolio is valued based on expected cash flows discounted at the effective interest
Group
rate. The impairment credit in Slovakia / Lithuania is principally driven by impact of unwinding the discount on the receivables portfolio via
the effective interest rate.
Tax credit/(charge) on other comprehensive income
Deferred tax credit/(charge) on net fair value losses/gains – cash flow hedges
The total of non-current assets other than financial instruments and deferred tax assets located in the UK is £27.7 million (2016: £30.5 million),
Deferred tax (charge)/credit on actuarial gains/losses on retirement benefit asset/obligation
2017
£M
0.2
(1.9)
(1.7)
2016
£M
(0.1)
1.9
1.8
The rate of tax expense on the profit before taxation for the year ended 31 December 2017 is higher than (2016: higher than) the standard
rate of corporation tax in the UK of 19.25% (2016: 20%). 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 19.25% (2016: 20%)
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
Pre-exceptional tax expense
Exceptional tax charge
Total tax expense
2017
£M
105.6
20.3
2.5
2.1
5.6
0.1
–
30.6
30.0
60.6
2016
£M
96.0
19.2
(2.0)
2.8
3.9
0.5
0.4
24.8
–
24.8
The Group is currently subject to a tax audit with respect to Provident Polska for the years 2008-2011. Audits of 2010 and 2011 are ongoing,
whilst 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 35. The Group is also subject to audits in Mexico (regarding 2015) and Slovakia (regarding 2014-2015),
all of which are still at the information gathering stage.
In late 2017 the European Commission opened a state aid investigation into the Group Financing Exemption contained in the UK controlled
foreign currency rules, which was introduced in 2013. The UK authorities do not accept that the rules constitute state aid. In common with
other UK-based international companies whose arrangements are in line with current controlled foreign company rules, the Group may be
affected by the outcome of this investigation. The Group is monitoring developments.
International Personal Finance plc Annual Report and Financial Statements 2017
109
109
International Personal Finance plc Annual Report and Financial Statements 2017Financial Statements
Notes to the financial statements continued
6. Earnings per share
Basic earnings per share (‘EPS’) from continuing operations is calculated by dividing the earnings attributable to shareholders of £45.0 million
(2016: £71.2 million) by the weighted average number of shares in issue during the period of 222.4 million (2016: 221.2 million) which has
been adjusted to exclude the weighted average number of shares held in treasury and by the employee trust.
Adjusted earnings per share (‘EPS’) from continuing operations excluding the exceptional tax charge is calculated by dividing the earnings
attributable to shareholders of £75.0 million (2016: £71.2 million) by the weighted average number of shares in issue during the period of
222.4 million (2016: 221.2 million) which has been adjusted to exclude the weighted average number of shares held in treasury and by the
employee trust.
Basic earnings per share (‘EPS’) including discontinued operations is calculated by dividing the earnings attributable to shareholders of
£36.6 million (2016: £66.9 million) by the weighted average number of shares in issue during the period of 222.4 million (2016: 221.2 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 – continuing operations
Dilutive effect of awards
Diluted EPS – continuing operations
Group
Basic EPS – continuing operations adjusted for exceptional tax
Dilutive effect of awards
Diluted EPS – continuing operations adjusted for exceptional tax
Group
Basic EPS – including discontinued operations
Dilutive effect of awards
Diluted EPS – including discontinued operations
2017
£M
222.4
9.0
231.4
2017
pence
20.2
(0.7)
19.5
2017
pence
33.7
(1.3)
32.4
2017
pence
16.5
(0.7)
15.8
2016
£M
221.2
6.3
227.5
2016
pence
32.2
(0.9)
31.3
2016
pence
32.2
(0.9)
31.3
2016
pence
30.2
(0.8)
29.4
110
110
Notes to the financial statements continued
6. Earnings per share
Basic earnings per share (‘EPS’) from continuing operations is calculated by dividing the earnings attributable to shareholders of £45.0 million
(2016: £71.2 million) by the weighted average number of shares in issue during the period of 222.4 million (2016: 221.2 million) which has
been adjusted to exclude the weighted average number of shares held in treasury and by the employee trust.
Adjusted earnings per share (‘EPS’) from continuing operations excluding the exceptional tax charge is calculated by dividing the earnings
attributable to shareholders of £75.0 million (2016: £71.2 million) by the weighted average number of shares in issue during the period of
222.4 million (2016: 221.2 million) which has been adjusted to exclude the weighted average number of shares held in treasury and by the
employee trust.
Basic earnings per share (‘EPS’) including discontinued operations is calculated by dividing the earnings attributable to shareholders of
£36.6 million (2016: £66.9 million) by the weighted average number of shares in issue during the period of 222.4 million (2016: 221.2 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:
Basic EPS – continuing operations
Dilutive effect of awards
Diluted EPS – continuing operations
Basic EPS – continuing operations adjusted for exceptional tax
Dilutive effect of awards
Diluted EPS – continuing operations adjusted for exceptional tax
Basic EPS – including discontinued operations
Dilutive effect of awards
Diluted EPS – including discontinued operations
Group
Group
Group
110
2017
£M
222.4
9.0
231.4
2017
pence
20.2
(0.7)
19.5
2017
pence
33.7
(1.3)
32.4
2017
pence
16.5
(0.7)
15.8
2016
£M
221.2
6.3
227.5
2016
pence
32.2
(0.9)
31.3
2016
pence
32.2
(0.9)
31.3
2016
pence
30.2
(0.8)
29.4
7. Dividends
Group and Company
Interim dividend of 4.6 pence per share (2016: interim dividend of 4.6 pence per share)
Final 2016 dividend of 7.8 pence per share (2016: final 2015 dividend of 7.8 pence per share)
2017
£M
10.2
17.4
27.6
2016
£M
10.2
17.2
27.4
The directors are recommending a final dividend in respect of the financial year ended 31 December 2017 of 7.8 pence per share which will
amount to a full year dividend payment of £27.6 million. If approved by the shareholders at the annual general meeting (‘AGM’), this
dividend will be paid on 11 May 2018 to shareholders who are on the register of members at 13 April 2018. This dividend is not reflected as a
liability in the balance sheet as at 31 December 2017 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
2017
£M
4.4
0.1
0.4
4.9
2016
£M
4.4
0.1
1.1
5.6
Short-term employee benefits comprise salary/fees, bonus and benefits earned in the year.
Post-employment benefits represent the sum of (i) Group contributions into personal pension arrangements; and (ii) contributions into the
Group’s stakeholder scheme.
For gains arising on executive directors’ share options see page 76.
Disclosures in respect of the Group’s directors are included in the Directors’ Remuneration Report.
9. Employee information
The average full-time equivalent of people employed by the Group (including directors) was as follows:
Group
Full-time*
Part-time**
* Includes 718 agents in Hungary and Romania (2016: includes 694 agents in Hungary and Romania).
** Includes 1,954 agents in Hungary and Romania (2016: includes 2,174 agents in Hungary and Romania).
Agents are self-employed other than in Hungary and Romania where they are required by legislation to be employed.
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
2017
Number
2016
Number
7,225
2,266
9,491
7,434
2,565
9,999
2017
Number
2016
Number
5,680
887
2,924
9,491
2017
£M
162.0
30.4
0.8
(0.2)
6,089
969
2,941
9,999
2016
£M
144.9
26.3
0.8
3.5
193.0
175.5
International Personal Finance plc Annual Report and Financial Statements 2017
111
111
International Personal Finance plc Annual Report and Financial Statements 2017Financial Statements
Notes to the financial statements continued
10. Discontinued operations
On 28 June 2017, we announced completion of the sale of the home credit business in Bulgaria in order to focus our resources on our larger
home credit and rapidly growing digital businesses. Losses of £8.4 million are included in the income statement in respect of Bulgaria for the
year ended 31 December 2017. These costs can be analysed as follows:
Group
Revenue
Impairment
Revenue less impairment
Finance costs
Other operating costs
Administrative expenses
Trading losses
Write-off of assets
Loss before taxation
Taxation charge
Loss – discontinued operations
11. Goodwill
Group
Net book value
At 1 January
Exchange adjustments
At 31 December
2017
£M
3.7
(2.6)
1.1
(0.2)
(0.7)
(2.9)
(2.7)
(5.2)
(7.9)
(0.5)
(8.4)
2016
£M
6.6
(2.6)
4.0
(0.3)
(1.6)
(5.5)
(3.4)
–
(3.4)
(0.9)
(4.3)
2017
£M
2016
£M
23.3
1.1
24.4
20.1
3.2
23.3
Goodwill is tested annually for impairment or more frequently if there are indications that goodwill might be impaired. The recoverable
amount is determined from a value in use calculation. The key assumptions used in the value in use calculation relate to the discount rates
and growth rates adopted. We adopt discount rates which reflect the time value of money and the risks specific to the legacy MCB business.
The cash flow forecasts are based on the most recent financial budgets approved by the Group Board for the next three years. The rate used
to discount the forecast cash flows is 10% (2016: 10%). No reasonably foreseeable reduction in the assumptions would give rise to
impairment, and therefore no further sensitivity analysis has been presented.
12. Intangible assets
Group
Net book value
At 1 January
Additions
Impairment
Amortisation
Exchange adjustments
Disposal of subsidiary
At 31 December
Analysed as:
– cost
– amortisation
At 31 December
2017
£M
2016
£M
32.6
14.9
(3.3)
(11.4)
0.5
(0.2)
33.1
25.6
15.8
(0.7)
(9.0)
0.9
–
32.6
85.5
(52.4)
33.1
73.3
(40.7)
32.6
Intangible assets comprise computer software (2017: £31.5 million; 2016: £30.0 million) and customer relationships acquired on the
acquisition of MCB Finance (2017: £1.6 million; 2016: £2.6 million).
The Company has no intangible assets.
112
112
Notes to the financial statements continued
10. Discontinued operations
On 28 June 2017, we announced completion of the sale of the home credit business in Bulgaria in order to focus our resources on our larger
home credit and rapidly growing digital businesses. Losses of £8.4 million are included in the income statement in respect of Bulgaria for the
year ended 31 December 2017. These costs can be analysed as follows:
Group
Revenue
Impairment
Revenue less impairment
Finance costs
Other operating costs
Administrative expenses
Trading losses
Write-off of assets
Loss before taxation
Taxation charge
11. Goodwill
Group
Net book value
At 1 January
Exchange adjustments
At 31 December
Loss – discontinued operations
12. Intangible assets
Group
Net book value
At 1 January
Additions
Impairment
Amortisation
Exchange adjustments
Disposal of subsidiary
At 31 December
Analysed as:
– cost
– amortisation
At 31 December
Goodwill is tested annually for impairment or more frequently if there are indications that goodwill might be impaired. The recoverable
amount is determined from a value in use calculation. The key assumptions used in the value in use calculation relate to the discount rates
and growth rates adopted. We adopt discount rates which reflect the time value of money and the risks specific to the legacy MCB business.
The cash flow forecasts are based on the most recent financial budgets approved by the Group Board for the next three years. The rate used
to discount the forecast cash flows is 10% (2016: 10%). No reasonably foreseeable reduction in the assumptions would give rise to
impairment, and therefore no further sensitivity analysis has been presented.
Intangible assets comprise computer software (2017: £31.5 million; 2016: £30.0 million) and customer relationships acquired on the
acquisition of MCB Finance (2017: £1.6 million; 2016: £2.6 million).
The Company has no intangible assets.
2017
£M
3.7
(2.6)
1.1
(0.2)
(0.7)
(2.9)
(2.7)
(5.2)
(7.9)
(0.5)
(8.4)
2016
£M
6.6
(2.6)
4.0
(0.3)
(1.6)
(5.5)
(3.4)
–
(3.4)
(0.9)
(4.3)
2017
£M
2016
£M
23.3
1.1
24.4
20.1
3.2
23.3
2017
£M
2016
£M
32.6
14.9
(3.3)
(11.4)
0.5
(0.2)
33.1
25.6
15.8
(0.7)
(9.0)
0.9
–
32.6
85.5
(52.4)
33.1
73.3
(40.7)
32.6
13. Investment in subsidiaries
Company
Investment in subsidiaries
Purchase of shares in subsidiary
Share-based payment adjustment
2017
£M
2016
£M
686.8
686.8
25.5
13.2
725.5
–
12.5
699.3
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. A further £13.2 million (2016: £12.5 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.
During the year, as a result of the Group net asset position and the market capitalisation of the Company being lower than the carrying
value of the investment in subsidiaries, we carried out a review of the recoverable amount of the carrying value of the investment. This review
confirmed that no impairment of the investment is required.
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 Credit 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
PF (Netherlands) B.V.
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
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
In liquidation
United Kingdom
Holding company
Sweden
Netherlands
Romania
Czech Republic
Slovakia
Hungary
Mexico
Thailand
Poland
Poland
Mexico
Mexico
Lithuania
Former intra-group financing company
Provision of services
Home credit
Home credit
In liquidation
Home credit
Home credit
Non-trading
Home credit
Non-trading
Provision of services
Provision of services
Digital credit
112
International Personal Finance plc Annual Report and Financial Statements 2017
113
113
International Personal Finance plc Annual Report and Financial Statements 2017Financial Statements
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.
All UK subsidiaries are registered at the same registered office as the Company, and this address is shown within Shareholder information on
page 137.
14. Property, plant and equipment
Group
Cost
At 1 January 2017
Exchange adjustments
Additions
Disposals
Disposal of a subsidiary
At 31 December 2017
Depreciation
At 1 January 2017
Exchange adjustments
Charge to the income statement
Disposals
Disposal of a subsidiary
At 31 December 2017
Net book value at 31 December 2017
Net book value at 31 December 2016
Computer
equipment
£M
Fixtures and
fittings
£M
Motor
vehicles
£M
70.4
2.2
5.4
(1.9)
–
76.1
22.7
0.6
3.5
(1.7)
(0.3)
24.8
(55.9)
(16.2)
(1.5)
(7.2)
1.8
–
(0.5)
(2.5)
1.7
0.1
4.3
0.2
1.2
(1.6)
–
4.1
(1.9)
(0.1)
(0.6)
1.0
–
Total
£M
97.4
3.0
10.1
(5.2)
(0.3)
105.0
(74.0)
(2.1)
(10.3)
4.5
0.1
(62.8)
(17.4)
(1.6)
(81.8)
13.3
14.5
7.4
6.5
2.5
2.4
23.2
23.4
The Company has property, plant and equipment with a cost of £1.0 million (2016: £1.0 million); depreciation of £1.0 million (2016: £0.9
million); and a net book value of £nil (2016: £0.1 million). All of these assets are computer equipment.
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
Tax (charge)/credit to the income statement
Tax (charge)/credit on other comprehensive income
At 31 December
Group
Company
2017
£M
103.9
5.0
(14.2)
(1.7)
93.0
2016
£M
73.6
4.8
23.6
1.9
103.9
2017
£M
1.9
–
(0.1)
(1.7)
0.1
2016
£M
0.9
–
(0.8)
1.8
1.9
The Finance Act 2016, which was substantively enacted on 6 September 2016, included an amending provision to reduce the UK
corporation tax rate to 17% with effect from 1 April 2020. The impact of this rate change has been applied to the calculation of deferred tax
assets and liabilities at 31 December 2017.
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
114
114
Group
Company
2017
£M
103.1
(10.1)
93.0
2016
£M
112.0
(8.1)
103.9
2017
£M
0.1
–
0.1
2016
£M
2.0
(0.1)
1.9
Notes to the financial statements continued
13. Investment in subsidiaries continued
15. Deferred tax 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.
All UK subsidiaries are registered at the same registered office as the Company, and this address is shown within Shareholder information on
At 1 January 2016
Exchange adjustments
Tax (charge)/ credit to the income statement
Tax charge relating to discontinued operation
Tax credit/(charge) on items taken directly to equity
At 31 December 2016
At 1 January 2017
Exchange adjustments
Pre-exceptional tax (charge)/credit to the income
statement
Exceptional tax charge
Tax charge relating to discontinued operation
Tax (charge)/credit on items taken directly to equity
At 31 December 2017
Group
Company
Revenue
and
impairment
differences
£M
Other
temporary
differences
£M
60.8
3.6
21.2
–
–
3.5
(0.3)
5.6
–
1.9
Total
£M
73.6
4.8
24.5
(0.9)
1.9
85.6
10.7
103.9
85.6
4.8
16.8
(30.0)
–
–
77.2
10.7
103.9
–
5.0
0.3
–
(0.1)
(1.7)
9.2
16.4
(30.0)
(0.6)
(1.7)
93.0
Losses
£M
9.3
1.5
(2.3)
(0.9)
–
7.6
7.6
0.2
(0.7)
–
(0.5)
–
6.6
Retirement
benefit
obligations
£M
Other
temporary
differences
£M
–
–
(0.2)
–
1.9
1.7
1.7
–
(0.2)
–
–
(1.9)
(0.4)
0.9
–
(0.6)
–
(0.1)
0.2
0.2
–
0.1
–
–
0.2
0.5
Total
£M
0.9
–
(0.8)
–
1.8
1.9
1.9
–
(0.1)
–
–
(1.7)
0.1
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:
Group
Amounts receivable from customers comprise:
– amounts due within one year
– amounts due in more than one year
2017
£M
2016
£M
866.9
190.0
1,056.9
808.3
131.6
939.9
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:
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 2017, the Group has unused tax losses of £47.6 million (2016: £76.0 million) available for offset against future profits. A
deferred tax asset has been recognised in respect of £28.9 million (2016: £45.7 million) of these losses. No deferred tax has been recognised
in respect of the remaining £18.7 million (2016: £30.3 million) as it is not considered probable that there will be future taxable profits available
against which these losses can be offset. None of the unrecognised losses are subject to an expiry date.
At 31 December 2017, there is £nil (2016: £nil) amount of temporary differences associated with investments in subsidiaries for which deferred
tax liabilities have not been recognised.
16. Amounts receivable from customers
Group
Polish zloty
Czech crown
Euro
Hungarian forint
Mexican peso
Romanian leu
Bulgarian lev
Australian dollar
2017
£M
393.3
83.3
148.4
162.7
165.1
93.4
–
10.7
2016
£M
345.7
84.2
96.3
139.6
161.2
98.6
7.8
6.5
1,056.9
939.9
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 99% (2016: 105%). All amounts receivable from customers are at fixed interest rates. The average period to maturity of
the amounts receivable from customers is 9.1 months (2016: 7.8 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.
International Personal Finance plc Annual Report and Financial Statements 2017
115
115
Computer
Fixtures and
equipment
£M
fittings
£M
Motor
vehicles
£M
70.4
2.2
5.4
(1.9)
–
76.1
(1.5)
(7.2)
1.8
–
13.3
14.5
22.7
0.6
3.5
(1.7)
(0.3)
24.8
(0.5)
(2.5)
1.7
0.1
7.4
6.5
(55.9)
(16.2)
(62.8)
(17.4)
(1.6)
(81.8)
Total
£M
97.4
3.0
10.1
(5.2)
(0.3)
105.0
(74.0)
(2.1)
(10.3)
4.5
0.1
23.2
23.4
2016
£M
0.9
–
(0.8)
1.8
1.9
4.3
0.2
1.2
–
4.1
(1.6)
(1.9)
(0.1)
(0.6)
1.0
–
2.5
2.4
2017
£M
1.9
–
(0.1)
(1.7)
0.1
Group
Company
2017
£M
103.9
5.0
(14.2)
(1.7)
93.0
2016
£M
73.6
4.8
23.6
1.9
103.9
Group
Company
2017
£M
103.1
(10.1)
93.0
2016
£M
112.0
(8.1)
103.9
2017
£M
0.1
–
0.1
2016
£M
2.0
(0.1)
1.9
The Company has property, plant and equipment with a cost of £1.0 million (2016: £1.0 million); depreciation of £1.0 million (2016: £0.9
million); and a net book value of £nil (2016: £0.1 million). All of these assets are computer equipment.
At 1 January
Exchange adjustments
Tax (charge)/credit to the income statement
Tax (charge)/credit on other comprehensive income
At 31 December
The Finance Act 2016, which was substantively enacted on 6 September 2016, included an amending provision to reduce the UK
corporation tax rate to 17% with effect from 1 April 2020. The impact of this rate change has been applied to the calculation of deferred tax
assets and liabilities at 31 December 2017.
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:
page 137.
14. Property, plant and equipment
Group
Cost
At 1 January 2017
Exchange adjustments
Additions
Disposals
Disposal of a subsidiary
At 31 December 2017
Depreciation
At 1 January 2017
Exchange adjustments
Charge to the income statement
Disposals
Disposal of a subsidiary
At 31 December 2017
Net book value at 31 December 2017
Net book value at 31 December 2016
15. Deferred tax
Deferred tax assets
Deferred tax liabilities
At 31 December
114
International Personal Finance plc Annual Report and Financial Statements 2017Financial Statements
Notes to the financial statements continued
16. Amounts receivable from customers continued
Revenue recognised on amounts receivable from customers which have been impaired was £429.6 million (2016: £437.0 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 segment
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 2017 our preliminary GCL forecast for home credit for 2018 was 14.5% of total amount payable; the outturn for 2016 lending as at
31 December 2017 was 15.2% of total amount payable. At 31 December 2017 our preliminary loss rate forecast for 2018 for digital established
markets was 2.7% and for digital new markets was 11.0% of receivables (2016: digital established markets was 6% and 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
18. Other receivables
Other receivables
Prepayments
Amounts due from Group undertakings
Total
No balance within other receivables is impaired.
Group
Company
2017
£M
27.4
2016
£M
43.4
2017
£M
–
Group
Company
2017
£M
–
9.9
3.3
6.1
2.3
2.8
2.5
–
0.5
2016
£M
3.4
10.3
3.9
13.2
2.8
5.6
2.2
1.3
0.7
27.4
43.4
2017
£M
–
–
–
–
–
–
–
–
–
–
2016
£M
3.9
2016
£M
3.4
–
0.2
0.1
0.2
–
–
–
–
3.9
Group
Company
2017
£M
10.3
9.0
–
19.3
2016
£M
9.9
10.9
–
20.8
2017
£M
0.5
1.5
693.5
695.5
2016
£M
–
0.9
626.5
627.4
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.
Group
Company
2017
£M
14.6
41.3
89.8
–
2016
£M
11.4
42.6
69.2
–
145.7
123.2
2017
£M
0.4
0.4
24.7
318.0
343.5
2016
£M
0.1
0.6
22.1
229.2
252.0
116
116
Notes to the financial statements continued
16. Amounts receivable from customers continued
Revenue recognised on amounts receivable from customers which have been impaired was £429.6 million (2016: £437.0 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 segment
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 2017 our preliminary GCL forecast for home credit for 2018 was 14.5% of total amount payable; the outturn for 2016 lending as at
31 December 2017 was 15.2% of total amount payable. At 31 December 2017 our preliminary loss rate forecast for 2018 for digital established
markets was 2.7% and for digital new markets was 11.0% of receivables (2016: digital established markets was 6% and 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
18. Other receivables
Other receivables
Prepayments
Total
Amounts due from Group undertakings
No balance within other receivables is impaired.
19. Trade and other payables
Other payables including taxation and social security
Trade payables
Accruals
Total
Amounts due to Group undertakings
Amounts due from Group undertakings are unsecured and due for repayment in less than one year.
Amounts due to Group undertakings are unsecured and due for repayment in less than one year.
Group
Company
2017
£M
27.4
2016
£M
43.4
Group
Company
2017
£M
–
2017
£M
–
–
–
–
–
–
–
–
–
–
2016
£M
3.9
2016
£M
3.4
–
0.2
0.1
0.2
–
–
–
–
3.9
2016
£M
3.4
10.3
3.9
13.2
2.8
5.6
2.2
1.3
0.7
27.4
43.4
2017
£M
–
9.9
3.3
6.1
2.3
2.8
2.5
–
0.5
2017
£M
10.3
9.0
–
19.3
2017
£M
14.6
41.3
89.8
–
Group
Company
2016
£M
9.9
10.9
–
20.8
2017
£M
0.5
1.5
693.5
695.5
2016
£M
–
0.9
626.5
627.4
Group
Company
2016
£M
11.4
42.6
69.2
–
2017
£M
0.4
0.4
24.7
318.0
343.5
2016
£M
0.1
0.6
22.1
229.2
252.0
145.7
123.2
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
€412 million EMTN
€28.25 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
2017
£M
2016
£M
2017
£M
2016
£M
87.7
590.0
677.7
57.8
565.0
622.8
28.8
547.2
576.0
–
526.4
526.4
Coupon %
Maturity
date
5.750
4.250
6.125
Six–month WIBOR plus 425 basis points
8.000
7.000
11.000
5.500
5.250
2021
2018
2020
2020
2019
2018
2018
2018
2018
2017
£M
368.4
25.3
101.5
43.0
15.2
12.5
11.5
7.0
8.8
593.2
(3.2)
590.0
The Polish zloty 200 million (£43.0 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.
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
Total
Group
Company
2017
£M
2016
£M
2017
£M
2016
£M
79.6
15.2
582.9
677.7
22.4
73.2
527.2
622.8
67.5
15.2
493.3
576.0
–
71.4
455.0
526.4
The average period to maturity of the Group’s external bonds and committed external borrowing facilities is 2.6 years (2016: 3.3 years).
The currency exposure on external borrowings is as follows:
Sterling
Polish zloty
Czech crown
Euro
Hungarian forint
Mexican peso
Romanian leu
Total
Group
Company
2017
£M
2016
£M
2017
£M
2016
£M
119.1
100.8
129.8
100.8
62.4
28.8
48.4
16.3
402.0
373.4
37.2
0.2
28.0
18.9
37.7
27.3
677.7
622.8
–
15.7
391.3
11.5
–
27.7
576.0
–
14.0
373.4
10.9
–
27.3
526.4
116
International Personal Finance plc Annual Report and Financial Statements 2017
117
117
International Personal Finance plc Annual Report and Financial Statements 2017Financial Statements
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 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
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
2017
£M
2016
£M
2017
£M
2016
£M
19.9
113.5
68.1
665.5
867.0
14.6
42.2
85.3
633.1
775.2
10.0
65.1
45.9
511.6
632.6
Group
Company
2017
£M
53.8
52.9
82.6
189.3
2016
£M
34.4
12.1
105.9
152.4
2017
£M
7.6
30.7
18.3
56.6
5.0
–
71.8
498.7
575.5
2016
£M
5.0
0.4
43.7
49.1
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 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 are 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 nine 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 2017, the Group’s bonds and committed borrowing facilities had an average period to maturity of 2.6 years
(2016: 3.3 years).
As shown in note 20, total undrawn facilities as at 31 December 2017 were £189.3 million (2016: £152.4 million).
As outlined in the Financial Review on page 35, 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 and 2011 financial years are currently being audited by the tax
authorities in Poland, and all subsequent years up to and including 2017 remain open to future audit. Provident Polska has appealed the
decisions made by the Polish Tax Chamber, to the District Administrative Court, for the 2008 and 2009 financial years and has paid the
amounts assessed of approximately £37 million (comprising tax and associated interest) which was necessary in order to make the appeals.
As noted on page 35, the 2008 and 2009 tax audit decisions are the subject of a process involving the UK tax authority aimed at ensuring
that the intra-group arrangement is taxed in accordance with international tax principles and as a result the court hearings have been
stayed. In order to appeal any potential future decisions for 2010 and subsequent years, further payments may be required. There are
significant uncertainties in relation to 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. £123 million may be required to be funded
(including approximately £44 million for the 2010 and 2011 years on which audits have commenced).
As at 31 December 2017, in the IPF Digital business there are £46.4 million (2016: £21.3 million) of undrawn credit lines.
118
118
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 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
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
21. Risks arising from financial instruments
Risk management
Treasury related risks
Group
Company
2017
£M
2016
£M
2017
£M
2016
£M
19.9
113.5
68.1
665.5
867.0
2017
£M
53.8
52.9
82.6
189.3
14.6
42.2
85.3
633.1
775.2
2016
£M
34.4
12.1
105.9
152.4
10.0
65.1
45.9
511.6
632.6
2017
£M
7.6
30.7
18.3
56.6
Group
Company
5.0
–
71.8
498.7
575.5
2016
£M
5.0
0.4
43.7
49.1
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 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 are 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 nine 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 2017, the Group’s bonds and committed borrowing facilities had an average period to maturity of 2.6 years
(2016: 3.3 years).
As shown in note 20, total undrawn facilities as at 31 December 2017 were £189.3 million (2016: £152.4 million).
As outlined in the Financial Review on page 35, 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 and 2011 financial years are currently being audited by the tax
authorities in Poland, and all subsequent years up to and including 2017 remain open to future audit. Provident Polska has appealed the
decisions made by the Polish Tax Chamber, to the District Administrative Court, for the 2008 and 2009 financial years and has paid the
amounts assessed of approximately £37 million (comprising tax and associated interest) which was necessary in order to make the appeals.
As noted on page 35, the 2008 and 2009 tax audit decisions are the subject of a process involving the UK tax authority aimed at ensuring
that the intra-group arrangement is taxed in accordance with international tax principles and as a result the court hearings have been
stayed. In order to appeal any potential future decisions for 2010 and subsequent years, further payments may be required. There are
significant uncertainties in relation to 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. £123 million may be required to be funded
(including approximately £44 million for the 2010 and 2011 years on which audits have commenced).
As at 31 December 2017, in the IPF Digital business there are £46.4 million (2016: £21.3 million) of undrawn credit lines.
21. Risks arising from financial instruments continued
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
Group
Company
2017
£M
65.4
71.6
49.3
618.8
805.1
2016
£M
46.1
61.1
107.7
589.8
804.7
2017
£M
52.7
47.0
44.6
525.4
669.7
2016
£M
15.4
15.6
100.6
511.6
643.2
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
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
2017
2016
Outflow
£M
189.3
188.4
52.9
24.9
12.0
Inflow
£M
189.7
189.0
53.8
24.3
11.4
Outflow
£M
166.9
122.1
59.1
73.2
11.8
Inflow
£M
169.7
126.2
57.3
72.9
11.8
467.5
468.2
433.1
437.9
2017
Outflow
£M
45.0
1.6
12.7
–
59.3
Inflow
£M
45.5
1.4
15.1
–
62.0
2016
Outflow
£M
11.5
10.5
1.6
13.0
36.6
Inflow
£M
11.7
10.1
1.5
15.0
38.3
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
2016
Less than one year
Later than one year
2017
Less than one year
Later than one year
Receivables
£M
Percentage
of total
%
Borrowing
facilities
£M
Percentage
of total
%
808.3
131.6
939.9
866.9
190.0
86.0
14.0
100.0
82.0
18.0
1,056.9
100.0
56.8
718.4
775.2
133.4
733.6
867.0
7.3
92.7
100.0
15.4
84.6
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.
118
International Personal Finance plc Annual Report and Financial Statements 2017
119
119
International Personal Finance plc Annual Report and Financial Statements 2017Financial Statements
Notes to the financial statements continued
21. Risks arising from financial instruments continued
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 (6.7% in 2017; 6.2% in 2016) 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, net of existing hedging arrangements.
Group
Increase in fair value of derivatives taken to equity
Reduction in profit before taxation
This sensitivity analysis is based on the following assumptions:
2017
£M
0.3
1.7
2016
£M
2.7
0.9
• 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.
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 2017 is an increase in net assets of £51.3 million (2016: increase of £65.1 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:
2017
£M
6.8
8.6
2016
£M
4.7
6.4
• 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, and Australian dollar); 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).
120
120
Notes to the financial statements continued
21. Risks arising from financial instruments continued
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 (6.7% in 2017; 6.2% in 2016) 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, net of existing hedging arrangements.
Group
Increase in fair value of derivatives taken to equity
Reduction in profit before taxation
This sensitivity analysis is based on the following assumptions:
2017
£M
0.3
1.7
2016
£M
2.7
0.9
• 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.
The Group is subject to three types of currency risk: net asset exposure; cash flow exposure; and income statement 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 2017 is an increase in net assets of £51.3 million (2016: increase of £65.1 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.
Currency risk
Net asset exposure
Cash flow exposure
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:
2017
£M
6.8
8.6
2016
£M
4.7
6.4
• 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, and Australian dollar); 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).
21. Risks arising from financial instruments continued
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
2017
£M
27.4
10.4
37.8
2016
£M
43.4
15.4
58.8
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.
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.
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.
Group
Amounts receivable from customers
2017
£M
2016
£M
1,056.9
939.9
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 £3.5 million that is past due but not impaired (2016: £4.6 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
Northern Europe
Southern Europe
Slovakia and Lithuania
Mexico
Digital
Bulgaria
Not impaired
Impaired
2017
£M
149.1
93.5
–
25.2
184.5
–
452.3
2016
£M
118.2
87.7
0.2
47.0
109.9
2.5
365.5
2017
£M
293.6
162.6
–
139.5
8.9
–
2016
£M
294.5
150.5
2.6
114.2
7.3
5.3
604.6
574.4
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 segment 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.
120
International Personal Finance plc Annual Report and Financial Statements 2017
121
121
International Personal Finance plc Annual Report and Financial Statements 2017Financial Statements
Notes to the financial statements continued
21. Risks arising from financial instruments continued
Impairment as a percentage of revenue for each geographical segment is shown below:
Group
Northern Europe
Southern Europe
Mexico
Digital
2017
%
22.7
9.6
34.8
41.2
2016
%
23.0
20.6
36.5
30.1
The carrying value of amounts receivable from customers that would have been impaired had their terms not been renegotiated
is £nil (2016: £nil).
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
2017
£M
2016
£M
1,056.9
939.9
(677.7)
(622.8)
117.7
496.9
47.0%
1.4
112.4
429.5
45.7%
1.5
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 1.4 times (2016: 1.5 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
122
122
2017
£M
2016
£M
–
10.4
10.4
0.3
15.1
15.4
2017
£M
2016
£M
0.6
4.2
4.8
0.8
3.9
4.7
Notes to the financial statements continued
21. Risks arising from financial instruments continued
Impairment as a percentage of revenue for each geographical segment is shown below:
The carrying value of amounts receivable from customers that would have been impaired had their terms not been renegotiated
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
Capital is monitored by considering the ratio of equity to receivables and the gearing ratio. The equity of the Group and these ratios are
Equity as % of receivables
Gearing
22. Derivative financial instruments
Fair value estimation
hierarchy:
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 1.4 times (2016: 1.5 times), is well within covenant limits of 3.75 times.
IFRS 7 requires disclosure of fair value measurements of derivative financial instruments by level of the following fair value measurement
• 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
Northern Europe
Southern Europe
Mexico
Digital
is £nil (2016: £nil).
Capital risk
finance.
shown below:
Group
Receivables
Borrowings
Other net assets
Equity
Interest rate swaps
Foreign currency contracts
Interest rate swaps
Foreign currency contracts
Group
Assets
Total
Group
Liabilities
Total
122
2017
%
22.7
9.6
34.8
41.2
2016
%
23.0
20.6
36.5
30.1
2017
£M
2016
£M
1,056.9
939.9
(677.7)
(622.8)
117.7
496.9
47.0%
1.4
112.4
429.5
45.7%
1.5
2017
£M
2016
£M
–
10.4
10.4
0.3
15.1
15.4
2017
£M
2016
£M
0.6
4.2
4.8
0.8
3.9
4.7
22. Derivative financial instruments continued
Company
Assets
Foreign currency contracts
Total
Company
Liabilities
Foreign currency contracts
Total
2017
£M
2016
£M
3.5
3.5
3.3
3.3
2017
£M
2016
£M
0.1
0.1
0.3
0.3
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 £2.5 million has been charged to equity for the Group in the period in respect of cash flow hedges (2016: £1.5 million credited to
equity), Company: £1.5 million charge (2016: £0.4 million credit).
Foreign currency contracts
The total notional amount of outstanding foreign currency contracts that the Group is committed to at 31 December 2017 is £462.5 million
(2016: £427.2 million). These comprise:
• foreign currency contracts to buy or sell operational currencies against the euro for a total notional amount of £173.0 million (2016: £223.4
million). These contracts have various maturity dates up to October 2020 (2016: 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; and
• foreign currency contracts to buy or sell sterling for a total notional amount of £289.5 million (2016: £203.8 million). These contracts have
various maturity dates up to December 2018 (2016: December 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.
£0.3 million credit (2016: £nil) has been made to the income statement in the year representing the movement in the fair value of the
Mexican cross currency swap.
The total notional amount of outstanding foreign currency contracts that the Company is committed to at 31 December 2017 is £57.1 million
(2016: £34.2 million). These comprise:
• foreign currency contracts to buy or sell operational currencies against the euro for a total notional amount of £2.3 million (2016: £3.3
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 £54.8 million (2016: £30.9 million). These contracts have
various maturity dates up to November 2018 (2016: 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 £43.0 million (2016: £62.2 million). In 2017,
these interest rate swaps cover the current borrowings relating to the floating rate Polish bond.
International Personal Finance plc Annual Report and Financial Statements 2017
123
123
International Personal Finance plc Annual Report and Financial Statements 2017Financial Statements
Notes to the financial statements continued
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 (2016: £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
2017
Range of
interest
rates
%
2.7–2.8
–
Weighted
average
interest rate
%
2.7
–
Weighted
average
period to
maturity
Years
Weighted
average
interest rate
%
2.4
–
2.7
4.2
2016
Range of
interest
rates
%
2.7–2.8
4.0–4.5
Weighted
average
period to
maturity
Years
3.4
0.5
The Company did not hold any interest rate swaps at 31 December 2017 (31 December 2016: £nil).
23. Analysis of financial assets and financial liabilities
Financial assets
An analysis of Group financial assets is presented below:
2017
Loans,
receivables
and cash
£M
Derivatives
used for
hedging
£M
Total
£M
Loans and
receivables
£M
1,056.9
–
1,056.9
939.9
–
27.4
19.3
5.7
10.4
–
–
–
10.4
27.4
19.3
5.7
–
43.4
20.8
3.1
2016
Derivatives
used for
hedging
£M
–
15.4
–
–
–
Total
£M
939.9
15.4
43.4
20.8
3.1
1,109.3
10.4
1,119.7
1,007.2
15.4
1,022.6
2017
2016
Financial
liabilities at
amortised
cost
£M
Derivatives
used for
hedging
£M
Total
£M
590.0
87.7
4.8
145.7
7.4
–
–
4.8
–
–
4.8
835.6
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
590.0
87.7
–
145.7
7.4
830.8
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
124
124
Notes to the financial statements continued
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 (2016: £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:
2017
Range of
interest
rates
%
2.7
2.7–2.8
Weighted
average
interest rate
%
–
2016
maturity
interest rate
Weighted
average
period to
Years
2.4
–
Weighted
average
Range of
interest
%
2.7
4.2
rates
%
2.7–2.8
4.0–4.5
Weighted
average
period to
maturity
Years
3.4
0.5
Group
Polish zloty
Mexican peso
The Company did not hold any interest rate swaps at 31 December 2017 (31 December 2016: £nil).
23. Analysis of financial assets and financial liabilities
Financial assets
An analysis of Group financial assets is presented below:
–
–
–
–
–
Loans,
Derivatives
2017
used for
hedging
£M
10.4
receivables
and cash
£M
1,056.9
–
27.4
19.3
5.7
Total
£M
Loans and
receivables
£M
1,056.9
939.9
10.4
27.4
19.3
5.7
–
43.4
20.8
3.1
liabilities at
Derivatives
2017
used for
hedging
£M
4.8
–
–
–
–
Financial
amortised
cost
£M
590.0
87.7
–
145.7
7.4
830.8
Total
£M
590.0
87.7
4.8
145.7
7.4
Financial
liabilities at
amortised
cost
£M
565.0
57.8
–
123.2
16.5
762.5
4.8
835.6
2016
Derivatives
used for
hedging
£M
15.4
–
–
–
–
2016
Derivatives
used for
hedging
£M
4.7
–
–
–
–
4.7
Total
£M
939.9
15.4
43.4
20.8
3.1
Total
£M
565.0
57.8
4.7
123.2
16.5
767.2
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
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
2017
2016
Fair value
£M
Carrying
value
£M
Fair value
£M
Carrying
value
£M
1,433.0
1,056.9
1,206.1
939.9
10.4
27.4
19.3
5.7
10.4
27.4
19.3
5.7
15.4
43.4
20.8
3.1
15.4
43.4
20.8
3.1
1,495.8
1,119.7
1,288.8
1,022.6
567.8
590.0
87.7
4.8
87.7
4.8
145.7
145.7
7.4
7.4
813.4
835.6
480.8
57.8
4.7
123.2
16.5
683.0
565.0
57.8
4.7
123.2
16.5
767.2
1,109.3
10.4
1,119.7
1,007.2
15.4
1,022.6
The fair value of the bonds has been calculated by reference to their market value where market prices are available.
The fair value of amounts receivable from customers has been derived by discounting expected future cash flows (as used to calculate
the carrying value of amounts due from customers), net of collection costs, at the Group’s weighted average cost of capital which we
estimate to be 10% (2016: 10%) which is assumed to be a proxy for the discount rate that a market participant would use to price the asset.
Under IFRS 13 ‘Fair value measurement’, receivables are classed as level 3 as their fair value is calculated using future cash flows that are
unobservable inputs.
The 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 asset/obligation
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 2017. The major assumptions used by the actuary were:
Group and Company
Price inflation (‘CPI’)
Rate of increase to pensions in payment
Discount rate
2017
%
2.1
2.9
2.6
2016
%
2.4
3.2
2.7
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.
124
International Personal Finance plc Annual Report and Financial Statements 2017
125
125
International Personal Finance plc Annual Report and Financial Statements 2017Financial Statements
Notes to the financial statements continued
25. Retirement benefit asset/obligation 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 25 years. On average, we expect a female retiring in the future at age 65 to live for a further 26 years. If life expectancies had been
assumed to be one year greater for all members, the defined benefit obligation would increase by approximately £1.6 million.
If the discount rate was 25 basis points higher/(lower), the defined benefit asset would decrease by £2.3 million/(increase by £2.4 million).
If the price inflation rate was 25 basis points higher/(lower), the defined benefit asset would increase by £1.2 million/(decrease by
£1.1 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 changes in assumptions would occur in isolation of one another as some of the assumptions may be correlated.
The amounts recognised in the balance sheet are as follows:
Group and Company
Equities
Bonds
Index-linked gilts
Diversified growth funds
Other
Total fair value of scheme assets
Present value of funded defined benefit obligations
Net asset/(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 on scheme assets
Contributions by the Group
Net benefits paid out
Fair value of scheme assets at 31 December
2017
£M
11.7
10.2
8.5
11.7
0.2
42.3
(40.2)
2.1
2017
£M
1.3
(1.1)
0.2
2017
£M
40.2
1.1
3.9
1.1
(4.0)
42.3
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
The Group expects to make a contribution of £0.9 million (2017: £1.1 million) to the deferred benefit pension scheme in the year ending 31
December 2018. The Group is committed to paying £0.9 million per annum into the scheme until 2022 pursuant to a recovery plan agreed
with the scheme Trustee.
126
126
Notes to the financial statements continued
25. Retirement benefit asset/obligation 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 25 years. On average, we expect a female retiring in the future at age 65 to live for a further 26 years. If life expectancies had been
assumed to be one year greater for all members, the defined benefit obligation would increase by approximately £1.6 million.
If the discount rate was 25 basis points higher/(lower), the defined benefit asset would decrease by £2.3 million/(increase by £2.4 million).
If the price inflation rate was 25 basis points higher/(lower), the defined benefit asset would increase by £1.2 million/(decrease by
£1.1 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 changes in assumptions would occur in isolation of one another as some of the assumptions may be correlated.
The amounts recognised in the balance sheet are as follows:
Group and Company
Equities
Bonds
Index-linked gilts
Diversified growth funds
Other
Total fair value of scheme assets
Present value of funded defined benefit obligations
Net asset/(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 on scheme assets
Contributions by the Group
Net benefits paid out
Fair value of scheme assets at 31 December
2017
£M
11.7
10.2
8.5
11.7
0.2
42.3
(40.2)
2.1
2017
£M
1.3
(1.1)
0.2
2017
£M
40.2
1.1
3.9
1.1
(4.0)
42.3
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
The Group expects to make a contribution of £0.9 million (2017: £1.1 million) to the deferred benefit pension scheme in the year ending 31
December 2018. The Group is committed to paying £0.9 million per annum into the scheme until 2022 pursuant to a recovery plan agreed
with the scheme Trustee.
25. Retirement benefit asset/obligation 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 gain/(loss) on scheme liabilities
Net benefits paid out
Defined benefit obligation at 31 December
The weighted average duration of the defined benefit asset/obligation is 23.6 years (2016: 26.0 years).
The actual return on scheme assets compared to the expected return is as follows:
Group and Company
Expected return on scheme assets
Actuarial gain on scheme assets
Actual return on scheme assets
2017
£M
(49.3)
(1.3)
6.4
4.0
2016
£M
(36.3)
(1.4)
(13.4)
1.8
(40.2)
(49.3)
2017
£M
1.1
3.9
5.0
2016
£M
1.4
3.4
4.8
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 on scheme assets
Actuarial gain/(loss) on scheme liabilities
Total gain/(loss) recognised in the SOCI in the year
Cumulative amount of losses recognised in the SOCI
The history of experience adjustments are as follows:
Group and Company
Experience gains/(losses) on scheme assets:
– amount (£M)
– percentage of scheme assets (%)
Experience gains on scheme liabilities:
– amount (£M)
– percentage of scheme liabilities (%)
* As required under IAS 19.
2017
£M
3.9
6.4
10.3
(15.2)
2016
£M
3.4
(13.4)
(10.0)
(25.5)
2017
2016
2015*
2014*
2013*
3.9
9.2
2.9
7.1
3.4
8.5
–
–
(0.9)
(2.5)
–
–
2.2
6.0
1.2
3.1
2.1
6.3
–
–
126
International Personal Finance plc Annual Report and Financial Statements 2017
127
127
International Personal Finance plc Annual Report and Financial Statements 2017Financial Statements
Notes to the financial statements continued
25. Retirement benefit asset/obligation 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 £0.8 million for the year ended 31 December 2017
(2016: £0.8 million). £nil contributions were payable to the scheme at the year-end (2016: £nil).
In addition, an amount of £nil (2016: £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 CSOP, the Discretionary Award Plan, or the HYS Plan
in 2017.
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 credit in respect of these share-based payments is £0.2 million (2016: charge of £3.5 million).
128
128
Notes to the financial statements continued
25. Retirement benefit asset/obligation 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 £0.8 million for the year ended 31 December 2017
(2016: £0.8 million). £nil contributions were payable to the scheme at the year-end (2016: £nil).
In addition, an amount of £nil (2016: £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 CSOP, the Discretionary Award Plan, or the HYS Plan
in 2017.
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 credit in respect of these share-based payments is £0.2 million (2016: charge of £3.5 million).
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 (£)
SAYE schemes
Deferred
Share Plans
2017
1.90
n/a
1.54
3 and 5
2017
1.70
n/a
n/a
3
Performance
Share Plans
2017
1.60–1.70
3.00
Nil
3
50.5%–56.7%
56.3%
53.3%–56.5%
Up to 5
Up to 5
1.06%
6.32%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
3
3
1.05%
7.29%
n/a
30.0%
60.0%
n/a
n/a
n/a
n/a
3
3
1.05%–1.31%
7.29%–7.75%
50.0%
30.0%
60.0%
86.6p
101p
6.0%
8.1%
0.40–0.61
0.63–1.37
0.63–1.37
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, SAYE schemes, 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
Group
Number
price
Number
Weighted
average
exercise
Weighted
average
exercise
price
Weighted
average
exercise
price
Number
Weighted
average
exercise
price
Weighted
average
exercise
price
Number
Number
Outstanding at
1 January 2016 407,587
3.32 213,812
4.30 1,490,878
Granted
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)
–
–
–
4,420,849
1,979,324
(999,869)
– (1,071,111)
Outstanding at
31 December
2016
433,509
2.39 390,626
3.39 1,314,751
–
4,329,193
Outstanding at
1 January 2017 433,509
2.39 390,626
3.39 1,314,751
Granted
455,002
1.54
–
–
939,296
– 4,329,193
– 3,906,137
–
–
–
–
–
–
–
309,257
–
(55,478)
–
253,779
253,779
–
Expired/lapsed (351,263)
2.28 (89,766)
4.22 (128,380)
– (1,290,668)
– (163,499)
Exercised
Outstanding at
31 December
2017
–
–
–
–
(304,746)
–
(311,088)
537,248
1.74 300,860
3.14 1,820,921
– 6,633,574
–
–
–
90,280
–
–
–
–
–
–
–
–
–
–
Weighted
average
exercise
price
–
–
–
–
–
–
–
–
–
–
Number
120,000
200,000
–
–
320,000
320,000
–
–
–
320,000
Share awards outstanding at 31 December 2017 had exercise prices of £1.54 - £6.36 (2016: £1.87 - £6.36) and a weighted average remaining
contractual life of 7.8 years (2016: 8.2 years).
128
International Personal Finance plc Annual Report and Financial Statements 2017
129
129
International Personal Finance plc Annual Report and Financial Statements 2017Financial Statements
Notes to the financial statements continued
26. Share-based payments continued
The movements in awards during the year for the Company are outlined in the table below:
SAYE
schemes
CSOPs
Deferred
Share Plans
Performance
Share Plans
Company
Outstanding at 1 January 2016
Granted
Transferred
Expired/lapsed
Exercised
Outstanding at 31 December 2016
Outstanding at 1 January 2017
Granted
Transferred
Expired/lapsed
Exercised
Weighted
average
exercise
price
3.24
2.15
–
3.42
2.41
2.39
2.39
1.54
–
Weighted
average
exercise
price
4.40
2.93
–
4.47
2.47
3.55
Number
138,490
128,605
–
(49,972)
(6,747)
210,376
Number
976,773
247,778
–
(151,984)
(271,925)
800,642
210,376
3.55
800,642
–
–
–
–
294,447
7,144
Number
258,430
202,149
–
(166,489)
(9,380)
284,710
284,710
169,082
–
(207,947)
2.36
(51,584)
4.86
(105,675)
–
–
–
–
(196,064)
Outstanding at 31 December 2017
245,845
1.83
158,792
3.13
800,494
The Company does not have any awards under the HYS Plan or Discretionary Award Plan.
Weighted
average
exercise
price
Weighted
average
exercise
price
Number
– 2,169,945
–
–
–
–
781,028
–
(609,746)
(619,376)
– 1,721,851
– 1,721,851
– 1,606,429
–
41,589
– (633,102)
– (152,852)
– 2,583,915
–
–
–
–
–
–
–
–
–
–
–
–
Share awards outstanding at 31 December 2017 had exercise prices of £1.54 - £6.36 (2016: £1.87 - £6.36) and a weighted average remaining
contractual life of 8.0 years (2016: 7.7 years).
27. Share capital
Company
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.
2017
£M
23.4
2016
£M
23.4
The own share reserve represents the cost of shares in International Personal Finance 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 2017 was 11,645,420 (2016: 12,271,406).
130
130
Notes to the financial statements continued
26. Share-based payments continued
The movements in awards during the year for the Company are outlined in the table below:
SAYE
schemes
CSOPs
Deferred
Share Plans
Performance
Share Plans
Weighted
average
exercise
price
Weighted
average
exercise
price
Weighted
average
exercise
Number
price
Number
Weighted
average
exercise
price
Company
Outstanding at 1 January 2016
Outstanding at 31 December 2016
Granted
Transferred
Expired/lapsed
Exercised
Granted
Transferred
Expired/lapsed
Exercised
Number
258,430
202,149
–
(166,489)
(9,380)
284,710
284,710
169,082
–
–
Number
138,490
128,605
(49,972)
(6,747)
210,376
–
–
–
–
3.24
2.15
–
3.42
2.41
2.39
2.39
1.54
–
–
4.40
2.93
–
4.47
2.47
3.55
976,773
247,778
–
(151,984)
(271,925)
800,642
–
–
–
294,447
7,144
(196,064)
(207,947)
2.36
(51,584)
4.86
(105,675)
Outstanding at 1 January 2017
210,376
3.55
800,642
– 2,169,945
–
–
–
–
781,028
–
(609,746)
(619,376)
– 1,721,851
– 1,721,851
– 1,606,429
–
41,589
– (633,102)
– (152,852)
– 2,583,915
–
–
–
–
–
–
–
–
–
–
–
–
Outstanding at 31 December 2017
245,845
1.83
158,792
3.13
800,494
The Company does not have any awards under the HYS Plan or Discretionary Award Plan.
Share awards outstanding at 31 December 2017 had exercise prices of £1.54 - £6.36 (2016: £1.87 - £6.36) and a weighted average remaining
contractual life of 8.0 years (2016: 7.7 years).
27. Share capital
Company
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 International Personal Finance 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 2017 was 11,645,420 (2016: 12,271,406).
28. Reconciliation of profit/(loss) after taxation to cash generated from continuing operating activities
Profit/(loss) after taxation from continuing operations
Adjusted for:
– tax charge
– finance costs
– finance income
– share-based payment (credit)/charge (note 26)
– depreciation of property, plant and equipment (note 14)
– loss on disposal of property, plant and equipment (note 14)
– amortisation of intangible assets (note 12)
– impairment of intangible assets (note 12)
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/(used in) continuing operating activities
Group
Company
2017
£M
45.0
60.6
55.2
–
(0.2)
10.3
–
11.4
3.3
2016
£M
71.2
24.8
46.8
–
3.5
9.9
0.8
9.0
0.7
(65.9)
(41.5)
2.0
20.2
(0.9)
2.6
(6.6)
18.9
(1.1)
(0.2)
143.6
136.2
2017
£M
2016
£M
(21.5)
(17.2)
1.4
47.5
2.3
33.9
(39.0)
(27.8)
0.3
0.1
–
–
–
–
2.5
0.1
–
–
–
–
(67.7)
(71.6)
90.9
(0.9)
(1.9)
9.2
57.8
(1.1)
–
(21.1)
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:
2017
£M
23.4
2016
£M
23.4
Group
In less than one year
In more than one year but not later 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 2017 (2016: £nil).
2017
£M
14.7
18.3
33.0
2017
£M
8.4
2016
£M
15.6
19.9
35.5
2016
£M
6.1
130
International Personal Finance plc Annual Report and Financial Statements 2017
131
131
International Personal Finance plc Annual Report and Financial Statements 2017Financial Statements
Notes to the financial statements continued
30. 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 the amounts assessed totalling approximately £37 million (comprising tax
and associated interest) in order to make the appeals. As noted on page 35, the 2008 and 2009 tax audit decisions are the subject of a
process involving the UK tax authority aimed at ensuring that the intra-group arrangement is taxed in accordance with international tax
principles and as a result the court hearings have been stayed.
The directors have received strong external legal advice, and note that during a previous tax audit by the same tax authority, the Company’s
treatment of these matters was accepted as correct.
Therefore the payments of the sums outlined above are not a reflection of the directors’ view on the merits of the case, and accordingly the
payments made in January 2017 have been recognised as a non-current financial asset in these Financial Statements given the
uncertainties in relation to the timing of any repayment of such amounts.
The 2010 and 2011 financial years are currently being audited by the tax authorities in Poland. In the event that the Polish tax authorities were
to issue decisions following the same reasoning as for 2008 and 2009 around a further £44 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. Further details on this are set out in note 21.
The Company has a contingent liability for guarantees given in respect of the borrowings of certain other Group companies to a maximum
of £243.3 million (2016: £211.5 million). At 31 December 2017, the fixed and floating rate borrowings under these facilities amounted to £99.9
million (2016: £96.5 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 2017 was £nil (2016: £nil).
At 31 December 2017, in the IPF Digital business there are £46.4 million (2016: £21.3 million) of undrawn credit lines.
31. Related party transactions
International Personal Finance plc has various transactions with other companies in the Group. Details of these transactions along with any
balances outstanding are shown below:
Company
Northern Europe
Southern Europe
Mexico
Digital
Other UK companies
2017
2016
Recharge
of costs
£M
Interest
charge
£M
Outstanding
balance
£M
Recharge
of costs
£M
Interest
charge
£M
Outstanding
balance
£M
0.1
–
–
–
3.9
4.0
–
–
10.3
–
14.8
25.1
0.5
(0.2)
0.4
–
118.4
119.1
0.1
–
–
–
8.0
8.1
–
–
9.5
–
16.5
26.0
0.7
–
0.2
–
99.8
100.7
The Group’s only related party transactions are remuneration of key management personnel as disclosed in note 8.
132
132
Alternative performance measures
This Annual Report and Financial Statements provides alternative performance measures (APMs) which are not defined or specified under
the requirements of International Financial Reporting Standards. We believe these APMs provide readers with important additional
information on our business. To support this we have included a reconciliation of the APMs we use, where relevant, and a glossary indicating
the APMs that we use, an explanation of how they are calculated and why we use them.
APM
Income statement
measures
Credit issued growth
(%)
Average net
receivables (£M)
Average net
receivables growth at
constant exchange
rates (%)
Revenue growth at
constant exchange
rates (%)
Closest equivalent
statutory measure
Reconciling items
to statutory
measure
Definition and
purpose
None
Not applicable Credit issued is the principal value of loans advanced to customers and is an
important measure of the level of lending in the business. Credit issued
growth is the period-on-period change in this metric which is calculated by
retranslating the previous year’s credit issued at the average actual
exchange rates used in the current financial year. This ensures that the
measure is presented having eliminated the effects of exchange rate
fluctuations on the period-on-period reported results.
None
Not applicable Average net receivables are the average amounts receivable from customers
translated at the average monthly actual exchange rate. This measure is
presented to illustrate the change in amounts receivable from customers on
a consistent basis with revenue growth.
None
Not applicable Average net receivables growth is the period-on-period change in average
net receivables which is calculated by retranslating the previous year’s
average net receivables at the average actual exchange rates used in the
current financial year. This ensures that the measure is presented having
eliminated the effects of exchange rate fluctuations on the period-on-period
reported results.
None
Not applicable The period-on-period change in revenue which is calculated by retranslating
the previous year’s revenue at the average actual exchange rates used in
the current financial year. This measure is presented as a means of
eliminating the effects of exchange rate fluctuations on the period-on-period
reported results.
Revenue yield (%)
None
Not applicable Revenue yield is reported revenue divided by average net receivables and is
Impairment as a
percentage of
revenue (%)
None
Not applicable Impairment as a percentage of revenue is reported impairment divided by
an indicator of the gross return being generated from average net
receivables.
reported revenue and represents a measure of credit quality that is used
across the business. This measure is reported on a rolling annual basis
(annualised).
Cost-income ratio (%) None
Not applicable The cost-income ratio is other costs divided by reported revenue. Other costs
represent all operating costs with the exception of amounts paid to agents as
collecting commission. This measure is reported on a rolling annual basis
(annualised).This is useful for comparing performance across markets.
Profit before tax and exceptional items. This is considered to be an important
measure where exceptional items distort the operating performance of the
business.
Total tax expense for the Group excluding exceptional tax items divided by
profit before tax and exceptional items. This measure is an indicator of the
ongoing tax rate for the Group.
Exceptional
items and their
tax impact
Items
identified as
exceptional
items
Not applicable The period-on-period change in profit adjusted for the impact of exchange
Earnings per share before the impact of exceptional items. This is considered
to be an important measure where exceptional items distort the operating
performance of the business.
Pre-exceptional profit
before tax (£M)
Profit before
tax
Exceptional
items
Effective tax rate
before exceptional
items (%)
Pre-exceptional
earnings per share
(pence)
Effective tax
rate
Earnings per
share
Like-for-like profit
growth or contraction
(£M)
None
rates and, where appropriate, investment in new business development
opportunities. The impact of exchange rates is calculated by retranslating the
previous period’s profit at the current year’s average exchange rate. This
measure is presented as a means of reporting like-for-like profit movements.
133
International Personal Finance plc Annual Report and Financial Statements 2017Supplementary Information Alternative performance measures continued
APM
Closest equivalent
statutory measure
Reconciling items
to statutory
measure
Definition and
purpose
Balance sheet and returns
measures
Return on assets ('ROA')
(%)
None
Not applicable
Return on equity (‘ROE’)
(%)
None
Not applicable
Equity to receivables ratio
(%)
None
Not applicable
Headroom (£M)
Other measures
Customers
Undrawn
external bank
facilities
None
None
Not applicable
Customer retention (%)
None
Not applicable
Employees and Agents
Employee
information
Not applicable
Agent and employee
retention (%)
None
Not applicable
Calculated as profit before interest and exceptional items less tax at
the effective tax rate before exceptional items divided by average
net receivables. We believe that ROA is a good measure of the
financial performance of our businesses, showing the ongoing return
on the total equity and debt capital invested in average net
receivables of our operating segments and the Group.
Calculated as profit after tax (adjusted for exceptional items) divided
by average opening and closing equity. It is used as a measure of
overall shareholder returns adjusted for exceptional items.
Total equity divided by amounts receivable from customers. This is a
measure of balance sheet strength and the Group targets a ratio of
around 40%.
Headroom is an alternative term for undrawn external bank facilities.
Customers that are being served by our agents or through our
money transfer product in the home credit business and customers
that are not in default in our digital business.
The proportion of customers that are retained for their third or
subsequent loan. Our ability to retain customers is central to
achieving our strategy and is an indicator of the quality of our
customer service. We do not retain customers who have a poor
payment history as it can create a continuing impairment risk and
runs counter to our responsible lending commitments.
Agents are self-employed individuals who represent the Group’s
subsidiaries and are engaged under civil contracts with the
exception of Hungary and Romania where they are employees
engaged under employment contracts due to local regulatory
reasons.
This measure represents the proportion of our employees and agents
that have been working for or representing the Group for more than
12 months. Experienced people help us to achieve and sustain
strong customer relationships and a high quality service, both of
which are central to achieving good customer retention. Good
agent and employee retention also helps reduce costs of
recruitment and training, enabling more investment in people
development.
134
Constant exchange rate reconciliations
2017
£M
Ongoing home credit
IPF Digital
Ongoing Group Lithuania and Slovakia
Central costs
Customers
Credit issued
Average net receivables
Revenue
Impairment
Net revenue
Finance costs
Agents’ commission
Other costs
Profit/(loss) before tax
2,064.2
1,070.7
833.9
721.7
(166.7)
555.0
(46.8)
(85.5)
(293.7)
129.0
226.0
230.8
159.2
104.1
(42.9)
61.2
(8.4)
0.0
(64.5)
(11.7)
2,290.2
1,301.5
993.1
825.8
(209.6)
616.2
(55.2)
(85.5)
(358.2)
117.3
–
–
0.8
–
8.5
8.5
–
(0.4)
(4.9)
3.2
2016 performance, as reported in our 2016 financial statements
£M
Ongoing home credit
IPF Digital
Ongoing Group Lithuania and Slovakia
Customers
Credit issued
Average net receivables
Revenue
Impairment
Net revenue
Finance costs
Agents’ commission
Other costs
Profit/(loss) before tax
2,284.0
991.3
758.5
687.9
(179.4)
508.5
(41.8)
(82.0)
(257.1)
127.6
194.0
150.2
86.4
58.1
(17.5)
40.6
(4.0)
–
(45.9)
(9.3)
2,478.0
1,141.5
844.9
746.0
(196.9)
549.1
(45.8)
(82.0)
(303.0)
118.3
43.0
3.5
19.2
10.8
12.0
22.8
(0.9)
(3.9)
(25.4)
(7.4)
–
–
–
–
–
–
–
–
(14.9)
(14.9)
Central costs
–
–
–
–
–
–
(0.1)
–
(14.8)
(14.9)
Foreign exchange movements
£M
Ongoing home credit
IPF Digital
Ongoing Group Lithuania and Slovakia
Central costs
Credit issued
Average net receivables
Revenue
Impairment
Net revenue
Finance costs
Agents’ commission
Other costs
Profit/(loss) before tax
72.7
58.5
51.8
(13.4)
38.4
(3.1)
(5.8)
(16.7)
12.8
10.5
5.7
4.0
(1.4)
2.6
(0.2)
–
(3.4)
(1.0)
83.2
64.2
55.8
(14.8)
41.0
(3.3)
(5.8)
(20.1)
11.8
0.3
1.6
1.0
0.5
1.5
(0.2)
(0.3)
(1.5)
(0.5)
2016 performance, restated at 2017 average exchange rates
£M
Ongoing home credit
IPF Digital
Ongoing Group Lithuania and Slovakia
Credit issued
Average net receivables
Revenue
Impairment
Net revenue
Finance costs
Agents’ commission
Other costs
1,064.0
817.0
739.7
(192.8)
546.9
(44.9)
(87.8)
(273.8)
160.7
92.1
62.1
(18.9)
43.2
(4.2)
–
(49.3)
1,224.7
909.1
801.8
(211.7)
590.1
(49.1)
(87.8)
(323.1)
3.8
20.8
11.8
12.5
24.3
(1.1)
(4.2)
(26.9)
–
–
–
–
–
–
–
–
-
Central costs
–
–
–
–
–
(0.1)
–
(14.8)
Year-on-year movement at constant exchange rates
£M
Ongoing home credit
IPF Digital
Ongoing Group Lithuania and Slovakia
Central costs
Credit issued
Average net receivables
Revenue
Impairment
Net revenue
Finance costs
Agents’ commission
Other costs
0.6%
2.1%
(2.4%)
13.5%
1.5%
(4.2%)
2.6%
(7.3%)
43.6%
72.9%
67.6%
(127.0%)
41.7%
(100.0%)
–
(30.8%)
6.3%
9.2%
3.0%
1.0%
4.4%
(12.4%)
(2.6%)
(10.9%)
(100.0%)
(96.2%)
–
(32.0%)
(65.0%)
–
(90.5%)
(81.8%)
–
–
–
–
–
(100.0%)
–
(0.7%)
Group
2,290.2
1,301.5
993.9
825.8
(201.1)
624.7
(55.2)
(85.9)
(378.0)
105.6
Group
2,521.0
1,145.0
864.1
756.8
(184.9)
571.9
(46.8)
(85.9)
(343.2)
96.0
Group
83.5
65.8
56.8
(14.3)
42.5
(3.5)
(6.1)
(21.6)
11.3
Group
1,228.5
929.9
813.6
(199.2)
614.4
(50.3)
(92.0)
(364.8)
Group
5.9%
6.9%
1.5%
(1.0%)
1.7%
(9.7%)
6.6%
(3.6%)
135
International Personal Finance plc Annual Report and Financial Statements 2017Supplementary Information Alternative performance measures continued
Return on assets (ROA) for ongoing home credit
ROA is calculated as profit before interest after tax divided by average receivables
Northern
Europe
Southern
Europe
Europe
Mexico
Ongoing
home
credit
Northern
Europe
Southern
Europe
Europe
Mexico
Ongoing
home
credit
Profit before tax (£M)
Interest (£M)
Profit before interest and tax (PBIT) (£M)
Taxation1 (£M)
Profit before interest after tax (PBIAT) (£M)
Average receivables (£M)
Return on assets (ROA)
75.6
21.7
97.3
(25.1)
72.2
403.3
17.9%
1. Adjusted for exceptional tax charge
Return on assets from continuing operations
127.6
40.3
41.8
11.5
169.4
51.8
(43.8)
(13.4)
125.6
38.4
758.5
205.5
18.7% 18.2% 10.1% 16.6%
115.9
33.2
149.1
(38.5)
110.6
608.8
11.7
8.6
20.3
(5.2)
15.1
149.7
129.0
114.3
59.8
46.8
36.6
24.4
175.8
150.9
84.2
(50.9)
(43.7)
(24.4)
124.9
107.2
59.8
833.9
661.7
424.0
14.1% 19.9% 16.2% 10.3% 15.0%
14.7
10.2
24.9
(7.2)
17.7
172.2
54.5
12.2
66.7
(19.3)
47.4
237.7
2016
2016
2016
HC Europe
HC Mexico
IPF Digital
2016
Central
costs
2016
Slovakia/
Lithuania
2016
Group
2017
HC Europe
2017
HC Mexico
2017
IPF Digital
Profit before tax (£M)
Interest (£M)
PBIT (£M)
Taxation1 (£M)
PBIAT (£M)
Average receivables (£M)
Return on assets
115.9
33.2
149.1
(38.5)
110.6
608.8
18.2%
(9.3)
11.7
4.0
8.6
(5.3)
20.3
1.4
(5.2)
(3.9)
15.1
86.4
149.7
10.1% (4.5%)
(14.9)
0.1
(14.8)
3.8
(11.0)
–
–
96.0
(7.4)
0.9
46.8
(6.5) 142.8
1.7
(36.9)
(4.8) 105.9
19.2 864.1
(25.1%) 12.3%
114.3
36.6
150.9
(43.7)
107.2
661.7
16.2%
(11.7)
14.7
8.4
10.2
(3.3)
24.9
1.0
(7.2)
(2.3)
17.7
159.2
172.2
10.3% (1.5%)
2017
Central
costs
2017
Slovakia/
Lithuania
2017
Group
105.6
(14.9)
55.2
–
160.8
(14.9)
(46.6)
4.3
114.2
(10.6)
–
993.9
– 284.1% 11.5%
3.2
–
3.2
(0.9)
2.3
0.8
1. Adjusted for exceptional tax charge
Return on equity (ROE)
ROE is calculated as profit after pre-exceptional tax divided by average net assets (after adding back exceptional tax charge)
Equity (net assets)
Add back exceptional tax charge
Adjusted equity
Average adjusted equity
Profit after pre-exceptional tax
Return on equity
Earnings before interest, tax, depreciation and amortisation (EBITDA)
Profit before tax from continuing operations
Add back:
Interest
Depreciation
Amortisation
EBITDA
2015
£M
2016
£M
327.2
429.5
327.2
429.5
378.4
71.2
18.8%
2016
£M
96.0
46.8
9.9
9.0
161.7
2017
£M
496.9
30.0
526.9
478.2
75.0
15.7%
2017
£M
105.6
55.2
10.3
11.4
182.5
136
Shareholder Information
Financial calendar for 2018
1 March
12 April
13 April
4 May
11 May
25 July
6 September
7 September
5 October
Dividends and dividend history
Announcement of 2017 full-year results
Ex-dividend date for final dividend
Record date for final dividend
AGM
Payment of 2017 final dividend
Announcement of 2018 half-year report
Ex-dividend date for interim dividend
Record date for interim dividend
Payment of 2018 interim dividend
Year
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Interim dividend
Final dividend
Total dividend
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
6 October 2017
(p)
1.90
2.30
2.30
2.53
3.00
3.23
3.80
4.20
4.60
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
11 May 2018
(p)
2.85
3.40
3.40
3.74
4.10
4.51
5.50
7.80
7.80
7.80
7.801
(p)
4.75
5.70
5.70
6.27
7.10
7.74
9.30
12.00
12.40
12.40
12.402
1. Subject to shareholder approval on 4 May 2018
2. Includes final dividend, subject to shareholder approval on 4 May 2018.
Payment of dividends
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 Link’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, Link
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, details of which are below.
Link 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@linkgroup.co.uk
Website:
www.linkassetservices.com
Go paperless
Shareholders can register for electronic communications by
visiting the website www.myipfshares.com.
Why receive information this way?
• Online access to personal shareholding information
• 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 Link. This service will
require a user ID and password to be provided on registration.
ShareGift
If you have a small shareholding in International Personal
Finance plc, which it is not economic to sell, you may
wish to donate the shares to the share donation charity,
ShareGift (registered charity no. 1052686).
ShareGift can amalgamate small holdings in order to sell the shares and
pass the proceeds on to other charities. Since 1996, ShareGift has given
over £25 million to more than 2,500 different 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
Company number: 6018973
Registered in England and Wales
137
International Personal Finance plc
Number Three
Leeds City Office Park
Meadow Lane
Leeds LS11 5BD
Telephone: +44 (0)113 285 6700
investors@ipfin.co.uk
Email:
www.ipfin.co.uk
Website:
Company number 6018973
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