Annual Report and
Financial Statements 2018
PERFORMANCE HIGHLIGHTS
2018 HIGHLIGHTS
Customers (‘000s)
Credit issued (£m)
Revenue (£m)
Profit before tax (£m)
2,301
3
6
6
,
2
1
2
5
,
2
0
9
2
,
2
1
0
3
,
2
£1,360.6m
+6%
£866.4m
+4%
£109.3m
+12%
6
.
0
6
3
,
1
5
.
1
0
3
,
1
0
.
5
4
1
,
1
3
.
3
3
0
,
1
8
.
5
2
8
6
.
2
4
8
4
.
6
6
8
8
.
6
5
7
5
.
1
3
7
9
3
S
A
I
9
3
S
A
I
9
3
S
A
I
9
S
R
F
I
9
S
R
F
I
15
16
17
18
1
.
5
0
1
0
.
6
9
6
.
5
0
1
2
6
.
.
7
5
9
0
1
3
.
9
0
1
9
3
S
A
I
9
3
S
A
I
9
3
S
A
I
9
S
R
F
I
9
S
R
F
I
15
16
17
18
15
16
17
18
15
16
17
18
Earnings per share (p)
Pre-exceptional EPS (p)
Equity to receivables (%)
Dividend per share (p)
33.8p
+82%
2
.
2
3
7
.
9
2
9
3
S
A
I
9
3
S
A
I
6
.
5
0
1
6
.
8
1
9
S
R
F
I
2
.
0
2
9
3
S
A
I
8
.
3
3
9
S
R
F
I
15
16
17
18
33.8p
+9%
5
.
9
3
2
.
2
3
7
.
3
3
0
.
1
3
8
.
3
3
9
3
S
A
I
9
3
S
A
I
9
3
S
A
I
9
S
R
F
I
9
S
R
F
I
15
16
17
18
43.6%
+1.6ppts
%
0
.
7
4
%
7
.
5
4
%
6
.
3
4
%
0
.
2
4
%
8
.
0
4
9
3
S
A
I
9
3
S
A
I
9
3
S
A
I
9
S
R
F
I
9
S
R
F
I
15
16
17
18
12.4p
4
.
2
1
4
.
2
1
4
.
2
1
4
.
2
1
15
16
17
18
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 103, a reconciliation of the
APMs we use where relevant and a glossary on pages 138 to 143 indicating the APMs that we use, an explanation of how they are
calculated and why we use them.
IFRS 9
The performance reporting in this report compares the 2018 actual full-year performance against the 2017 numbers adjusted for IFRS 9
(unless otherwise noted) because the Board believes that this provides the most relevant comparison of performance trends. More detail
on IFRS 9 can be found on page 39, and a full reconciliation of the 2017 profit and loss account between the reported numbers and the
IFRS 9 numbers is set out on pages 139 and 140.
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 contains 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 2018 in order to present the underlying performance variance.
CONTENTS
Strategic Report
2018 highlights
Introduction
Chairman’s statement
IPF at a glance
Our social purpose
Our business model
Our customers and their journey
Our stakeholders
Market review
Our strategy
Chief Executive Officer’s review
Key performance indicators
Operational review
Stakeholders’ review
Financial review
Principal risks and uncertainties
Directors’ Report
Chairman’s introduction to
Directors’ report
Our Board and Committees
Directors’ report
Nomination Committee report
Audit and Risk Committee report
Technology Committee report
Directors’ Remuneration report
Corporate Governance
Other statutory information
Responsibility statements
Financial Statements
Independent auditor’s report
Consolidated income statement
Statements of comprehensive income
Balance sheets
Statements of changes 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
16
20
24
26
32
37
42
51
52
54
58
60
66
67
82
84
90
91
97
97
98
99
101
102
109
138
144
INTRODUCTION
Our purpose is to make
a difference in the lives of
our customers by providing
simple, personalised financial
solutions. We specialise
in providing small sum,
unsecured consumer loans
and lines of credit responsibly
to more than two million
customers in Europe,
Mexico and Australia
who are underbanked or
underserved by mainstream
credit operators.
We reach our customers
through a unique combination
of two channels – home credit
and digital – enabling us to
serve them in a way that
suits their lifestyle and
financial circumstances.
Annual Report and Financial Statements 2018
1
Annual Report and Financial Statements 2018
CHAIRMAN’S STATEMENT
PROGRESSING OUR STRATEGY
than we originally expected for 2018. As planned, Mexico home
credit and IPF Digital grew strongly on the back of good customer
demand and solid operational discipline, and we expect to see
this continue in the year ahead.
As customer needs have changed, we have evolved the business
to continue to attract consumers with products that they want,
and serve them in a way that suits their lifestyle and financial
circumstances. Moving into digital credit four years ago was
vitally important to the long-term future of IPF and we see significant
benefits from offering customers a choice between agent or digital
delivered credit depending on their credit rating and preference.
We are also rolling out handheld technology to our agents to
improve their productivity, and redesigning customer journeys
to make it easier to become a customer and take advantage
of our added-value services.
The Group continues to have a strong financial profile and
robust balance sheet. This enables us to invest in future growth
opportunities while having the strong financial base to provide
a level of resilience to the impact of potential external risks.
The external market
As noted earlier, 2018 was not without its challenges with both
regulation and competition impacting performance, particularly in
Europe. The Board maintains its focus on these matters, not only in
managing these risks but also in monitoring how effective our team’s
work is in mitigating their impact. They undertake this primarily
through engaging with governing and regulatory bodies to build
an understanding of the important role we play in providing fair
and transparent finance to those who might otherwise be financially
excluded, and in developing and marketing our credit offerings
to attract and retain customers in a highly competitive landscape.
We saw rate cap proposals and new affordability assessment
regulations in a number of markets, and further changes to tax
law in Poland. The new Polish tax legislation became effective on
1 January 2019, and will likely give rise to an effective tax rate for
the Group of around 41% for 2019. In February 2019, the Polish
Ministry of Justice published a draft bill containing a modified set
of proposals for a reduction in the cap on non-interest costs that
may be charged by lenders in connection with consumer loan
agreements, details of which are covered in the CEO review
on page 22 and our Principal risks on page 45. In Romania new
debt-to-income limits were introduced and an APR cap was passed,
although the latter is subject to a court challenge. Brexit also formed
part of our agenda in 2018, however, as most of our business is
transacted outside the UK, the impact is expected to be limited.
Dividend
Subject to shareholder approval, a final dividend of 7.8 pence per
share (2017: 7.8 pence per share) will be payable, which will bring
the full-year dividend to 12.4 pence per share.
Our people
IPF is a long-established, responsible and ethical business and, once
again, many awards were received demonstrating that external
stakeholders recognise we are doing the right thing, from serving
our customers in a responsible way to offering a great place to work.
“Our business provides customers with
access to finance, many of who return to
us time and again demonstrating the trust
they place in our products and services.”
I am pleased to report that IPF delivered a significantly improved
financial performance and excellent strategic progress in 2018.
The business has a clear, well-communicated strategy, investing
in significant growth opportunities in Mexico home credit and IPF
Digital while optimising the performance of our European Home
Credit business to deliver the returns that fund our expansion plans
and reward shareholders. We responded well to the continuing
challenges posed by intense competition, increased regulation
and political intervention by introducing new products and more
competitive pricing to improve the appeal of our brands.
Our business provides customers with access to finance, many
of who return to us time and again demonstrating the trust they
place in our products and services. Visiting our operations, meeting
colleagues and seeing the way we serve our customers first hand
is always a highlight of my role. This year I visited our businesses in
Spain, Mexico, Poland and Estonia, and it was great to see the
talent and commitment of our teams in meeting the needs of
our customers who might otherwise be financially excluded.
Our strategy and performance
We made excellent progress against our strategic objectives.
This resulted in a significantly improved financial performance
from our ongoing businesses and we reported profit before
taxation of £109.3 million, an increase of £15.3 million. Credit
issued increased by 6% led by IPF Digital and Mexico home
credit, and Group portfolio quality continues to be very good.
Our European home credit business is the financial foundation of
the Group and while customer numbers reduced as a result of the
intense regulatory and competitive landscape in this region, it was
satisfying to see our team deliver a stronger financial performance
2
International Personal Finance plc OUR VALUES
Our values are embedded across our organisation
irrespective of role or geographical location.
They 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 respectful
Treating others as we would
like to be treated
We are responsible
Being open and transparent
in everything we do
We are
straightforward
Taking due care in all our
actions and decisions
The Board spends considerable time ensuring that IPF has the best
team to respond to the ever-changing environment in which we
operate. Working with the CEO and Group HR Director, we review
by market and function, the strength of the teams and their
successors to ensure we have the skillset required to be successful.
This will be a critical area of focus again in 2019.
Stakeholder engagement
We are an essential part of a competitive credit market and making
a positive contribution to society is important to us. We take our
responsibilities seriously when it comes to providing access to credit
in a responsible and transparent way. Our values and focus on
responsible lending guide our decision-making and product
design, how we govern the business and how we interact with our
stakeholders. Responsible lending is at the core of everything we do.
The Board and senior management have established a clear set of
ethical values which are embedded throughout all our businesses
and, looking ahead, the Board will continue to focus on stakeholder
engagement more widely. Later in the strategic report we highlight
our primary stakeholders and in the Directors’ report I set out the
Board’s work to ensure we uphold the highest standards of
corporate governance in the interests of our shareholders and
other stakeholders.
Our Board
I am pleased to announce that Richard Moat will replace Tony Hales
as the Group’s senior independent director from the conclusion
of this year’s AGM, subject to Richard’s re-election as a director.
Richard has the appropriate skills, qualifications and capabilities for
this critical role. I would like to thank Tony, who has been our senior
independent director since 2010, for his support, valuable insight and
significant contribution throughout his time with IPF. He has been a
great colleague, providing huge assistance to me in my role and
has made an invaluable contribution around the Board table.
We also made great progress in further strengthening our Board
with the appointments of Deborah Davis and Bronwyn Syiek as
independent non-executive directors in October. Already, we are
seeing the benefit of their expertise gained from working in fintech,
consumer, marketing and technology businesses, and I am sure
they will make a significant contribution to achieving our vision of
continuing to be a responsible lender in the digital age. To build on
our stakeholder engagement programme, Bronwyn has also been
appointed as the workforce and stakeholder engagement director.
Outlook
We will remain focused on serving our customers responsibly
while optimising our European home credit operations to generate
returns to invest in growing our Mexico home credit and IPF Digital
businesses, in addition to delivering enhanced shareholder value.
We expect the regulatory and competitive environment to remain
challenging but we are confident that we will deliver further
sustainable growth and returns.
On behalf of the Board I would like to thank all our colleagues and
agents for their contribution. I believe IPF is well positioned to meet
both the challenges and immense opportunities ahead.
Dan O’Connor
Chairman
Annual Report and Financial Statements 2018
3
STRATEGIC REPORTAnnual Report and Financial Statements 2018
IPF AT A GLANCE
A LEADING INTERNATIONAL
PROVIDER OF CONSUMER CREDIT
Our customers want to borrow small sums that they can repay in
manageable, affordable amounts. We offer a range of unsecured consumer
finance channels, products and brands to meet their specific needs and
financial circumstances. Offering both home credit and digital credit
means we are able to serve a larger target segment of consumers.
Home credit
Our home credit channel serves customers who
appreciate the face-to-face at-home service
provided by our 21,000 agents.
Products and features
• Home credit cash loans with agent service
• Money transfer loans direct to bank account
• Micro-business loans
• Home, medical and life insurances
• Provident-branded digital loans
• Weekly and monthly repayments
• Loan terms from 12 weeks to around three years
• Typical loan value £500
Home credit
2m (3%)
Customers
£719.4m (1%)
Revenue
Europe – Poland, Czech Republic, Hungary and Romania
1.1m (12%)
Customers
Mexico
0.9m +11%
Customers
£493.3m (5%)
Revenue
£226.1m +9%
Revenue
Read more about our customers and their journey
on pages 10-11
4
International Personal Finance plc OUR RESPONSIBLE
LENDING PRINCIPLES
IPF is an ethical business and engaging with our customers in
a responsible way is extremely important to us. We have worked
hard to ensure that responsible lending is core to our business
model from strategic decision-making and product design
through to the millions of everyday interactions we have with
customers each year.
Advertising and marketing
We advertise our products in a clear and
appropriate manner.
Affordability
We thoroughly assess a customer’s ability to repay
the loan. We won’t refinance a loan where we think
it will be to a customer’s detriment.
Product suitability
We provide customers with products that are
best suited to their needs. We also offer a ‘right
to withdrawal’ period in case customers change
their mind.
Pricing
We offer customers fair and transparent pricing.
Late payment fees, if used, are designed to
re-engage with customers rather than as a
primary revenue stream.
Customer communication
We communicate with customers in a clear
manner and uphold their right to confidentiality.
We select and train our agents so that they can
serve customers to a high standard.
Collections and debt recovery
We collect loan instalments in a responsible
manner and do what we can to avoid adversely
affecting a customer’s credit history. In the case
of external debt recovery we only co-operate
with reputable agencies.
IPF Digital
Our digital business serves customers who prefer to
take out credit online and repay remotely.
Products and features
• Credit line – revolving credit facility
• Instalment loans
• Monthly repayments
• Average instalment loan term around two years
• Average customer outstanding balance £1,100
• Customers served online and through selected
distribution partners
IPF Digital
292,000 +29%
Customers
£147.0m +41%
Revenue
Established markets – Finland, Estonia, Latvia and Lithuania
157,000 +11%
Customers
£79.5m +24%
Revenue
New markets – Poland, Spain, Australia and Mexico
135,000 +59%
Customers
£67.5m +67%
Revenue
Annual Report and Financial Statements 2018
5
STRATEGIC REPORTAnnual Report and Financial Statements 2018
OUR SOCIAL PURPOSE
LIVING OUR
SOCIAL PURPOSE
We aim to make a difference in the lives of our customers. We are an important part of a
competitive credit market and, as an established, regulated and ethical business, we meet
customers’ needs by lending responsibly, transparently and without 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 trust they place in our products and service.
Non-bank financial
institutions
• Insurance
• Credit unions
• Savings and loans
Banking institutions
• Central banks
• Investment
• Retail and commercial
IPF Digital
Provident
IPF
Advocating
responsible
lending
Protecting
consumers
Contributing
to the wider
economy
Grey market
• Unregulated lenders
6
International Personal Finance plc Advocating responsible lending
“I am proud to work for
a responsible company
which puts customers first.
We check affordability
for each loan carefully
to make sure the
customer will be
able to afford to
pay it back.”
Magdalena,
agent in Poland
Protecting consumers
Our loans are granted using robust application and behavioural
scoring systems supported by credit bureaux and, in our home
credit businesses, the important evaluation of agents, 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.
61.8%
Home credit
customer retention
64.5%
IPF Digital
customer retention
“I have taken a Provident
loan a number of times
because I know I can
trust them. Provident
has helped me buy
new appliances and
is very convenient.”
Anna,
home credit customer
in Poland
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 are
excluded altogether comes with higher risks. 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 we price
these loans to take this into account.
98%
employees
completed
ethics training
90%
agents
completed
ethics training
Contributing to the wider economy
“This year in Romania we
launched a new financial
literacy game, ‘You’re good
with money’, which has
attracted over 6,000 players.
This means that more young
people are getting access to
high-quality content which
helps them to manage their
finances more effectively.”
Elena, external relations
co-ordinator in Romania
We are an active corporate citizen with more than 28,000
employees and agents contributing to their wider economies
through taxes and spending on goods and services. Total tax
contribution in 2018 was over £158 million, comprising £82 million
of taxes paid (representing a cost to the Group) and £76 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.
£158m
total taxes
contribution in 2018
5,600
hours volunteered by
employees in company time
supporting community initiatives
7
STRATEGIC REPORTAnnual Report and Financial Statements 2018
OUR BUSINESS MODEL
CREATING VALUE
RESPONSIBLY
What we do
We specialise in providing small sum, short-term, unsecured loans
and credit lines to consumers who are underbanked or underserved
by mainstream financial operators or who may have no or a limited
credit history. We do this through two lending channels – home
credit and digital.
What makes us different?
Being the only business to offer both home credit and digital
loans, we have a differentiated proposition from that of other credit
providers. Our home credit business is different because our agents
connect us to our customers by providing a personal service in
their customers’ homes every week or month. Our digital business
model meets the needs of a growing number of customers in our
consumer segment who want affordable credit that they can
manage on their mobile phone, tablet or pc.
How we create value
We believe that the best way to create value for our shareholders
and deliver good, sustainable returns is to build close, long-term
relationships with our customers. As a trusted, responsible and
successful business, we also make a valuable contribution to the
communities we serve through spending on goods and services,
employment and career development for our people, and
through taxes.
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 serviced
model while IPF Digital delivers a smaller but growing contribution.
Our 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 served well.
Technology
Technology is fundamental to
driving efficiency through agent mobile
devices, 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.
Well-known brands
Our brands are well known and trusted
by more than 2.3 million customers.
Read more about our stakeholder engagement
on pages 12-13
Read more about our multi-channel strategy
on pages 16-17
Read more about our principal risks
on pages 42-50
8
Living our social purpose
Advocating responsible lending
International Personal Finance plc
How we create value
Value created for our
stakeholders
W e a re respectful
t a l
C a p i
Custo
awaren
m
e
er
s
s
Our
Purpose
r
e
L
o
q
a
u
n
e
s
t
is to make a difference in
the lives of our customers by
providing straightforward
consumer finance
d
r
a
w
htfor
C r e
g
d it scorin
W e a re straig
Loan
Loan
issued
le
nue
e
v
e
R
a
n
d
C
C
o
o
r
l
l
l
l
e
e
e
p
c
c
m
W
e
a
r
e
a
a
t
t
i
i
y
d
o
o
m
n
n
e
e
s
s
n
t
s
r
e
s
p
o
n
si
b
Customers
2.3m
customers served
Employees and agents
28,000
working for IPF
Communities
£729,000
invested in local communities
Shareholders and investors
12.4p
dividend per share
Read more about our customers and their journey
on pages 10-11
Advocating responsible lending
Protecting consumers
Contributing to the wider economy
9
STRATEGIC REPORTAnnual Report and Financial Statements 2018
OUR CUSTOMERS AND THEIR JOURNEY
SERVING OUR CUSTOMERS WELL
We offer a personal, flexible service to all our customers whether they are
looking for a home credit loan served in their home by an agent or credit
delivered online to their bank account.
Our customers
• Low or fluctuating income
• Limited credit history
• Prefer agent service
• Need to manage finances carefully
• Seek flexibility
Customer awareness
• Leading, well-recognised brand
• Targeted marketing
• Word of mouth
recommendation
• Repeat lending offers
to existing customers
Loan request
• Simple and straightforward
• Online decision in principle
• Initial credit vetting – call
centre and/or agent
• Repeat lending offers to existing
good paying customers
Credit scoring
New customers
• Application scorecard
• Credit bureaux
• Agent judgement
• ‘Low and grow’ strategy
Existing customers
• Behavioural scorecard
• Credit bureaux
• Agent judgement
Loan issued
Agent home service
• Cash loan delivered
to customer’s home
Money transfer
• Loan delivered to
customer’s bank account
Incentives
• Agents paid commission
primarily on collections
Less than 48 hours
from application to
receipt of loan with
agent service
Collections and
repayments made
• Agent-customer relationship
supports repayment
• Flexible approach
• Centralised arrears management
• Sale of impaired receivables
to external debt recovery
operations
Home credit
Our home credit customers value the
personal service provided by agents as
well as the convenience of our offering.
We are also on hand to help if they face
difficulties with repayments, working with
them to find a way that they can manage.
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.
10
International Personal Finance plc IPF Digital
The increasing use of mobile services means
a growing number of consumers are choosing
to borrow online. We are able to meet their
needs through our digital offering, which has
operated successfully for nearly 15 years and
offers a significant strategic opportunity to
grow the number of customers we serve with
credit line facilities and instalment loans.
Loan request
• All loans generated
online or via
distribution partners
• Simple, straightforward
application process
Customer awareness
• Digital and above-the-line marketing
and search engine optimisation
• Customer relationship management
activities to generate repeat business
Our customers
• Low to middle income
• Like to shop and
borrow online
• High smartphone
ownership
• Existing credit history
Credit scoring
• Rapid, centralised, digital credit scoring
• Credit bureaux
• Internal databases and statistical models
• ‘Low and grow’ strategy
• Affordability checks prior to approval
Loan issued
• Cash transferred to customer’s
bank account
• Customer notified by text on transfer
Less than 15 minutes
from application to
money transfer/receipt
Collections and repayments made
• Active communications process to remind
and encourage repayment
• No refinancing or extension of delinquent loans
• Final written demand at around 60 days past due
• Sale of impaired receivables to external debt recovery operations
11
STRATEGIC REPORTAnnual Report and Financial Statements 2018
OUR STAKEHOLDERS
RESPONDING TO OUR
STAKEHOLDERS’ NEEDS
We engage and listen to our stakeholders to help us define our strategy
and ensure we continue to deliver the relevant credit products that meet
our customers’ needs.
Our stakeholders
Customers
Employees and agents
Communities
Regulators and legislators
Shareholders and investors
Why we engage
Engaging with our customers allows
us to build a greater understanding of
their changing needs and behaviours
so we can provide relevant credit
products and high levels of service
to retain quality customers and
attract new ones.
We depend on the skills, talent and
commitment of our employees and
agents. It is important to engage
colleagues 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
How we engage and
respond
12
• Affordability and price
• Flexible repayments
• Convenience
• Excellent 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
• Responsible, affordable credit
• Annual conferences and
• Financial literacy programmes
• Ongoing dialogue
• Ongoing dialogue and meetings
products and insurance
• Forbearance flexibility
with home credit
• Agent-served or online
customer journey
• Customer websites and social media
• Customer service centres
• Customer surveys
business updates
• Regular two-way communication
• Recognition and reward
programmes
• Training and development including
ethics training
• Internal reputational tracking survey
• Partnerships with non-governmental
• Sector association membership
• Access to management
organisations (NGOs)
• Financial wellbeing surveys
• Social welfare investment
• Volunteering
• External advisor network
• NGO partnerships
• Participation in public consultations
• Annual General Meeting
• Engagement on draft regulation
• Bi-annual financial results reporting
and quarterly trading updates
• Annual reports
• Investor roadshows and conferences
• Corporate website
We engage with the communities
where our customers, employees
and agents live. Consumers who
We engage with regulators and
Our investors expect to earn a return
legislators, which play a central role
on their investment. As a publicly listed
in shaping the consumer credit sector,
company, we are required to provide
are well informed are able to make
to build an understanding of the
fair, balanced and understandable
more responsible financial decisions.
important role we play in providing
information to enable investors to
We aim to maximise financial literacy
fair and transparent finance to those
fully understand our business so
and improve our reputation.
who might otherwise be financially
that they may make an informed
excluded. Regulation with unintended
investment decision.
consequences can impact our ability
to serve our customer segment.
• Access to responsible credit
• Compliance with regulation
• Strategy, performance and outlook
• Employment
• Control and supervision
• Financial literacy programmes
• Fair pricing and promotions
• Community support programmes
• Responsible lending and affordability
• Reputation
• Promoting business ethics
• Risk management and
corporate governance
• Leadership capability
• Executive remuneration
• Making appropriate tax contributions
• Dividend policy
• Fair employment contracts
• Access to management
International Personal Finance plc
Read more about our stakeholders
on pages 32-36
Our stakeholders
Customers
Employees and agents
Communities
Regulators and legislators
Shareholders and investors
Why we engage
Engaging with our customers allows
We depend on the skills, talent and
us to build a greater understanding of
commitment of our employees and
their changing needs and behaviours
agents. It is important to engage
so we can provide relevant credit
colleagues who have the skills and
products and high levels of service
knowledge to implement our strategy
to retain quality customers and
attract new ones.
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
• Excellent 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
We engage with the communities
where our customers, employees
and agents live. Consumers who
are well informed are able to make
more responsible financial decisions.
We aim to maximise financial literacy
and improve our reputation.
We engage with regulators and
legislators, which play a central role
in shaping the consumer credit sector,
to build an understanding of the
important role we play in providing
fair and transparent finance to those
who might otherwise be financially
excluded. Regulation with unintended
consequences can impact our ability
to serve our customer segment.
Our investors expect to earn a return
on their investment. 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.
• Access to responsible credit
• Employment
• Financial literacy programmes
• Community support programmes
• Reputation
• Compliance with regulation
• Control and supervision
• Fair pricing and promotions
• Responsible lending and affordability
• Promoting business ethics
• Making appropriate tax contributions
• Fair employment contracts
• Strategy, performance and outlook
• Risk management and
corporate governance
• Leadership capability
• Executive remuneration
• Dividend policy
• Access to management
How we engage and
respond
• Responsible, affordable credit
• Annual conferences and
business updates
• Regular two-way communication
• Recognition and reward
programmes
• Training and development including
• Financial literacy programmes
• Partnerships with non-governmental
organisations (NGOs)
• Financial wellbeing surveys
• Social welfare investment
• Volunteering
• Ongoing dialogue
• Sector association membership
• Participation in public consultations
• Engagement on draft regulation
• External advisor network
• NGO partnerships
• Customer websites and social media
ethics training
• Customer service centres
• Internal reputational tracking survey
products and insurance
• Forbearance flexibility
with home credit
• Agent-served or online
customer journey
• Customer surveys
• Ongoing dialogue and meetings
• Access to management
• Annual General Meeting
• Bi-annual financial results reporting
and quarterly trading updates
• Annual reports
• Investor roadshows and conferences
• Corporate website
13
STRATEGIC REPORTAnnual Report and Financial Statements 2018
MARKET REVIEW
UNDERSTANDING
OUR MARKETS
We operate in a rapidly changing landscape. Increasing demand for
unsecured credit, rising digital penetration, intense competition and greater
regulatory scrutiny are changing the way our customers want to access credit.
We are responding to take advantage of the opportunities these factors bring
and manage the challenges facing our business.
Key market drivers
Strong demand for
unsecured credit
Consumer credit growing
Good demand for unsecured lending to consumers continues in our markets.
Digital lending driving growth
Demand for lending via digital platforms continues to increase the overall
scale of the sector.
Positive GDP growth
Relatively stable conditions expected to support growth in demand for consumer credit.
Growing preference
for digital options
Increased smartphone and internet penetration
The rapid increase in mobile device usage and internet penetration means a growing
number of consumers prefer to take out loans online. Mobile phones have taken over
as the primary device for personal loan searches in nearly all our markets.
Home credit very important in credit sector
Home credit continues to provide access to regulated credit to people who might otherwise
be financially excluded.
Increased competition
Digital lenders and banks taking best quality customers from home
credit
Demand for lending via digital platforms has led to an intensely competitive operating
landscape in Europe.
No new home credit operations launched
Competition is focused on introducing digital lending offerings to our consumer segment.
Intense competition to remain
Stable market conditions and good levels of demand for consumer credit will result
in a continued intense competitive environment.
Increased regulatory
oversight
Regulatory scrutiny will continue
We expect regulators and legislators to remain focused on the consumer credit sector.
Focused on price and affordability
New regulations have driven lower margins and restricted issue values in some
of our markets.
14
Principal risks
Our response
Twin-track approach
In the past four years, we have expanded our
product portfolio and now provide the unique
and distinct channel combination of home
credit and digital credit offerings to meet
the changing needs of consumers.
Technology driving customer experience
We are taking advantage of new growth
opportunities to serve a wider range of customers
in our target segment who want to borrow online
by investing in our IPF Digital businesses and
offering Provident-branded digital loans.
We intend to provide digital offerings in
all our home credit markets.
Expanded product offering
We have tackled the growing challenges of
increased competition by expanding our offering.
We are unique in that we offer our customers both
traditional home credit loans delivered by agents
and fully digital lines of credit and instalment loans
via IPF Digital.
Always compliant with regulation
We always adapt our business to be compliant with
new regulations. We engage with regulators to ensure
they better understand our role in society and we
demonstrate the unintended consequences of overly
stringent regulation on consumers and their market.
Our markets with rate caps:
• Poland
• Hungary
• Finland
• Estonia
• Lithuania
• Latvia
• Australia
International Personal Finance plc Key market drivers
Strong demand for
unsecured credit
Consumer credit growing
Good demand for unsecured lending to consumers continues in our markets.
Digital lending driving growth
Demand for lending via digital platforms continues to increase the overall
scale of the sector.
Positive GDP growth
GDP growth
Europe
Mexico
2018
2019
3.7%
3.1%
2.1%
1.7%
Relatively stable conditions expected to support growth in demand for consumer credit.
Source: Citibank and European Commission
Smartphone penetration
Europe
Mexico
76%
71%
We are well positioned
to take advantage of
the growing demand
for credit.
Read more about our customers
on pages 4-5
Read more about our strategy
on page 16-19
Principal risks
Our response
8
10
11
2
4
Twin-track approach
In the past four years, we have expanded our
product portfolio and now provide the unique
and distinct channel combination of home
credit and digital credit offerings to meet
the changing needs of consumers.
Technology driving customer experience
We are taking advantage of new growth
opportunities to serve a wider range of customers
in our target segment who want to borrow online
by investing in our IPF Digital businesses and
offering Provident-branded digital loans.
Source: Google consumer barometer survey 2017
6
We intend to provide digital offerings in
all our home credit markets.
Banks
Pawnbrokers
Digital
lenders
Credit
unions
Home
credit
Payday
lenders
Our markets with rate caps:
• Poland
• Hungary
• Finland
• Estonia
• Lithuania
• Latvia
• Australia
Expanded product offering
We have tackled the growing challenges of
increased competition by expanding our offering.
We are unique in that we offer our customers both
traditional home credit loans delivered by agents
and fully digital lines of credit and instalment loans
via IPF Digital.
Always compliant with regulation
We always adapt our business to be compliant with
new regulations. We engage with regulators to ensure
they better understand our role in society and we
demonstrate the unintended consequences of overly
stringent regulation on consumers and their market.
5
2
9
1
3
7
Read more about our principal risks
on pages 42-50
15
Growing preference
for digital options
Increased smartphone and internet penetration
The rapid increase in mobile device usage and internet penetration means a growing
number of consumers prefer to take out loans online. Mobile phones have taken over
as the primary device for personal loan searches in nearly all our markets.
Home credit very important in credit sector
Home credit continues to provide access to regulated credit to people who might otherwise
be financially excluded.
Increased competition
Digital lenders and banks taking best quality customers from home
credit
landscape in Europe.
Demand for lending via digital platforms has led to an intensely competitive operating
No new home credit operations launched
Competition is focused on introducing digital lending offerings to our consumer segment.
Intense competition to remain
Stable market conditions and good levels of demand for consumer credit will result
in a continued intense competitive environment.
Increased regulatory
Regulatory scrutiny will continue
oversight
We expect regulators and legislators to remain focused on the consumer credit sector.
Focused on price and affordability
New regulations have driven lower margins and restricted issue values in some
of our markets.
STRATEGIC REPORTAnnual Report and Financial Statements 2018
OUR STRATEGY
OUR MULTI-CHANNEL STRATEGY
Our strategy puts our customers at the
centre of everything we do. Our success
depends on serving our customers well with
the credit products and services they want
and, in doing so, retain their custom.
Our strategy is to optimise the returns of
our more mature European home credit
operations so that we can reinvest
in growing our Mexico home credit
and IPF Digital businesses, as well as
delivering returns to our shareholders.
Our strategic priorities are focused
on enabling us to continue to build a
sustainable business which generates long-
term growth and enhanced profitability, and
makes efficient use of capital. Achievement
of this strategy depends on the talent, skills
and commitment of our people, and
investment in technology to deliver the
credit products of today and tomorrow.
2018 strategic priorities
IPF Digital
• Provide superior customer
experience through innovation
• Build scale and leverage data
• Demonstrate ability to make
a return
Mexico home credit
• Expand geographical footprint
• Build micro-business
loans channel
• Improve operational efficiency
and customer penetration rates
in established branch network
European home credit
• Provide high-quality service
to customers and optimise
operations for returns
• Protect the business model
• Leverage the Provident brand
for digital
h
t
w
o
r
g
n
i
g
n
i
t
s
e
v
n
e
R
i
s
n
r
u
t
e
r
g
n
i
t
a
r
e
n
e
G
Read more in the CEO review
on pages 20-23
16
International Personal Finance plc
2018 performance
Strategic KPIs
2019 focus
• Good demand for
credit line product
• Strong top-line growth
• Significantly improved
credit quality in
new markets
• Good credit issued and
customer growth
• Five new branches
• Maintained acceptable
collections
• Good demand for micro-
business loans channel
• Improved cost leverage
• Stronger than originally
expected financial
performance
• Excellent credit quality
• Intense competition and
regulatory pressure drove
customer contraction
• Proactively engaged
with regulators to
protect the model
• Provident-branded
digital offering in
Poland expanded
292,000
Customers
35%
Year-on-year
credit issued
41%
Year-on-year
revenue
0.9m
Customers
12%
Year-on-year
credit issued
9%
Year-on-year
revenue
1.1m
Customers
(5%)
Year-on-year
credit issued
(5%)
Year-on-year
revenue
• Continue to provide superior
customer experience
through innovation
• Designing new products and services
• Build scale and leverage data
• Prepare to enter home credit
markets with digital offering
• Deliver maiden profit
• Expand geographical footprint
• Build micro-business loans channel
• Improve operational efficiency and
customer penetration rates in
established branch network
37.8%
Impairment %
revenue
57.9%
Cost-income ratio
(£5.6m)
Loss before tax
36.7%
Impairment %
revenue
38.7%
Cost-income ratio
£15.7m
Profit before tax
17.9%
Impairment %
revenue
40.9%
Cost-income ratio
£113.8m
Profit before tax
• Provide high-quality service
to customers and optimise
operations for returns
• Invest in technology to improve
customer experience and
business efficiency
• Protect the business model
• Leverage the Provident brand
• Moderate rate of
customer contraction
Read more on our 2018 operational performance
on pages 26-31
Read more on our principal risks and
uncertainties on pages 42-50
17
STRATEGIC REPORTAnnual Report and Financial Statements 2018
OUR STRATEGY CONTINUED
STRATEGY
IN ACTION
We made excellent progress in delivering against our strategy in 2018.
We are focused on our strategic priorities of delivering a high-quality service
to customers so that we can optimise returns in our European home credit
operations to reinvest in growing our Mexico home credit and IPF Digital
businesses. Here we highlight some of the progress made.
European home credit – MyProvi
A core part of the European home credit strategy is to
modernise our operations through MyProvi – our handheld
mobile technology application for agents.
MyProvi at a glance
• Supporting agent sales, collections and weekly balancing
• Facilitating further efficiencies in our field teams
• Reducing paper and administration costs
• 10,000 agents and field managers using MyProvi
• Roll-out in Europe complete – sales functionality
to be added in 2019
• Technology developed in-house over the past three years
• Rolling out in Mexico home credit
• Underpinning future efficiency
“ Using MyProvi, I can see the details of my customers
and their current repayments. Providing receipts on the
customer portal means my customers no longer need
to keep paper copies and completing our records and
transactions using a mobile shows we are much more
modern compared to when we carried a lot of paper.”
Joanna
Meet Joanna
Joanna has
been an agent
in Piaseczno near
Warsaw for five
years and serves
around 100
customers.
18
International Personal Finance plc
Mexico home credit – Negocio
One of the growth pillars of our strategy in Mexico is focused
on tapping into the micro-business loans market, which we
see as a significant opportunity. Our offering is known as
‘Negocio’ and we are generating growth by serving
individuals who run small businesses.
Negocio at a glance
• A great growth opportunity
• Four million micro-businesses in Mexico
• 26,000 Negocio customers
• Customers are underserved and struggle
to get credit to develop their businesses
• Loan value typically 4x larger than a home credit loan
• Loan term is around one year
“ The loan meant I could buy this special printer for plastic
and fabric materials straight away and it helped me to
present a professional service and increase my
customers.”
Elizabeth
Meet Ella
Ella is one of our
IPF Digital credit line
customers in Finland.
Meet Elizabeth
Elizabeth has been running her flower shop micro-business
in Puebla city since 2011. Every day, she delivers fresh flowers,
bouquets, funeral wreaths and casket sprays to local
businesses and customers. Elizabeth turned to Provident
for a Negocio loan to buy a printer enabling her to include
personalised messages on her products. Elizabeth is already
planning her next investment in her business through a
Negocio loan to buy a delivery van, so she can continue
to grow her customer base through home delivery.
IPF Digital – credit line
The key driver of growth in IPF Digital has been the good
demand for our credit line offering, which now accounts for
60% of our digital lending. It provides great flexibility, enabling
customers to draw down a pre-approved line of credit in
minutes, either in part or full, to buy the goods they want,
when they want them. Customers feel in control and like
the fact that they only pay interest on the amount drawn
down for the time they borrow, subject to a minimum
monthly payment. If a customer demonstrates good
repayment behaviour we may offer to increase their
facility to provide more flexibility. This supports customer
retention because the approved credit is continuously
available to customers to use time and again.
Credit Line at a glance
• A great growth opportunity
• 181,000 credit line customers
• Typical credit line outstanding balance: £1,000
• 60% of loan portfolio
• Supports customer retention
“ I wanted to surprise my husband with a weekend away
for our anniversary and, because the hotel’s night club
had a famous Finnish artist performing, I was afraid that
all the rooms would be booked if I waited, so I drew some
money down from my Credit24 credit line account and
reserved the room immediately.”
Ella
19
STRATEGIC REPORTAnnual Report and Financial Statements 2018
CHIEF EXECUTIVE OFFICER’S REVIEW
DELIVERING AGAINST OUR
STRATEGIC OBJECTIVES
£16.3 million in 2017. This resulted in a significantly improved
financial performance for the Group as a whole with a
£15.3 million increase in profit before tax to £109.3 million.
Q. What were the operational highlights in 2018?
The easiest way for me to talk about our 2018 operational
performance is to look at the three business units in the
same way that we manage them internally.
European home credit
Starting with European home credit, the first thing I would say
is that these businesses operate in an intensely competitive
and heavily regulated environment. Recent regulatory change
has restricted our ability to lend to higher risk customer segments
that had previously been an area of expertise for us. In response,
we adapted our business model to cater to slightly lower risk
consumers, which translated into a smaller business in Europe
overall, but one which has a better portfolio risk profile. Competition
for these consumers is intense, and together with new debt-to-
income regulations in Romania, customer numbers contracted
by 12%. We responded with campaigns to increase new customer
acquisition and improve retention which delivered a 3ppt slower
rate of contraction in the second half of the year compared to
the first. We also worked hard to reduce our cost base and passed
on some of that benefit in reduced pricing to our customers.
Mexico home credit
Mexico home credit is one of our two main focus areas for growth.
We delivered an increase in credit issued of 12% and grew customer
numbers by 89,000 to 917,000. Following the earthquakes in the
latter half of 2017, our business recovered well and I would attribute
the speed of recovery to the fact that we prioritised helping our
customers to return to a sense of normality. As part of our multi-year
expansion plan, we added five more branches to our network while
also investing in our micro-business lending channel. Together, our
expanded geographic footprint and micro-business lending unit
combined will continue to drive solid top-line growth.
IPF Digital
Our digital business continued to make great progress in 2018.
Our team delivered strong growth in both our new and established
markets, contributing to a very positive 35% growth in credit issued
in the year. Just as importantly, we delivered significantly improved
portfolio quality in each of our new markets. This improvement
is driven mainly by the enhanced performance of our credit
scorecards as these businesses grow and mature, and we
expect to see further improvements in the year ahead.
Q. How are you delivering against your strategy?
Our strategy recognises that we operate in a heavily regulated
environment, where competition is intense and where customers
are increasingly looking at digital financial services, but at the
same time want to deal with a trusted partner.
With this understanding in place, our teams have worked hard to
ensure that we have clear insights into the changing preferences
of our consumer segment, allowing us to tailor our products and
“ We are focused on delivering for our
customers, and offering them more
tailored choices and digital options for
accessing our products and services.”
CEO Gerard Ryan discusses the operating
landscape and progress made on
delivering our multi-channel strategy.
Q. How would you define IPF’s purpose?
Put simply, our purpose is to provide less affluent consumers
and micro-business owners with a means of obtaining finance
in a transparent and fair way. In doing so, we want to make a
meaningful difference to people’s lives and also provide them
with the opportunity to build a credit record that will help them
in future financial transactions.
Q. How would you view the Group’s performance
in 2018?
Our performance in 2018 is one of our best in a number of years.
Our teams were focused on delivering our strategy of optimising
performance in our more mature European markets and investing
smartly in our growth opportunities, namely Mexico home credit
and IPF Digital. At the same time, we are delivering new technology
to improve the customer experience and make our businesses
more efficient.
This attention to detailed execution enabled our European home
credit businesses to deliver profit before tax of £113.8 million, an
uplift of £1.5 million on the prior year. It also drove an increase in
profit before tax to £15.7 million in Mexico home credit, and set our
IPF Digital business firmly on the path to profitability in 2019 with a
reduction in annual losses to £5.6 million compared with a loss of
20
International Personal Finance plc customer journeys to meet their needs more effectively.
This is a process that will see us provide more digital options to
our customers as well as slightly larger, longer-term loans, and more
additional services such as insurance, all of which will offer benefits
that our customers would not normally be able to procure at a
cost-effective price. During 2018, we made excellent progress
on all of these customer-facing aspects of our strategy.
In order to fulfil our purpose and achieve appropriate returns for
our shareholders, we need to have a strong and well-managed
balance sheet, and I am pleased to say that this is certainly the
case. Our portfolio quality is very good and our funding position
is structured to provide significant headroom with a diversified
debt portfolio of bond and bank facilities.
Q. What are the key risks and challenges facing IPF?
If I read back through our Annual Reports published over the last few
years, the answer to this question would be consistent. Essentially it
comes down to three key themes; changing customer preferences,
increasing regulation and intensifying competition.
More consumers are looking at digital options for their finance
needs. However, it is important to know that this is not incompatible
with the provision of a home credit model. In fact, I believe
this will turn out to be one of the great strengths of our Group.
In our customer segment, around 80% of people will be rejected
when they apply for a digital loan due to their weak credit history.
Generally, these are the customers who are well positioned to be
served a home credit loan, helping them to build a stronger credit
profile over time.
Increasing regulation has been a constant issue and is something
we are now much better able to deal with. We have invested
significant time in building relationships with those key external
stakeholders who ultimately determine the regulatory environment
in our markets. This engagement allow us to explain our purpose
and business model and, in the past 12 months in particular, have
given us the opportunity to provide insights in to what makes new
regulation more likely to work for both consumers and providers of
finance. A good example of this productive dialogue is the activity
we have undertaken in Romania where, through transparent
discussions, we were able to explain how setting appropriate APR
caps would help reduce prices for the least advantaged consumers
while simultaneously ensuring that progress towards full financial
inclusion was not hindered.
As for competition, we expect it to remain intense. In the past
12 months, we have also seen a change in the make up of the
competitive landscape. Payday lenders appear to be reducing
in terms of threat, driven by new regulation that has introduced
lower interest rate caps and constraints on repeat lending that
affect their business model in particular. Competitive pressure,
however, has been maintained principally by banks, which
increased their appetite for our best credit-quality customers.
Ultimately, competition is good as it forces us to continually
re-evaluate how we do business and improve our services
to our customers in order to stay relevant to them.
OUR INVESTMENT CASE
We are a profitable, well-funded
consumer credit business with a track
record of meeting underserved customers’
needs responsibly
Highly responsible
consumer finance
World’s largest home credit business
and a leading fintech operator
2.3m
Customers
Focused business and
financial strategy
Developing businesses earning
good returns and maintaining
a strong financial profile
18.3%
Return on equity
Effective risk management
Long track record of managing key risks
including credit, regulation, competition
and liquidity
26.2%
Impairment
% revenue
Strong financial profile
Robust balance sheet and strong
funding position
186m
Headroom on
bank facilities
Experienced
management team
Broad range of financial
services experience
76.2%
Employee retention
Annual Report and Financial Statements 2018
21
STRATEGIC REPORTAnnual Report and Financial Statements 2018
CHIEF EXECUTIVE OFFICER’S REVIEW CONTINUED
Q. What is the status of the draft proposals to tighten
non-interest costs on consumer loans in Poland?
On 18 February 2019, the Polish Ministry of Justice published a draft
bill containing a modified set of proposals for a reduction to the cap
on non-interest costs that may be charged by lenders in connection
with consumer loan agreements. The level of the current cap is as
follows: first, a flat level of 25% of the loan value; and second, an
additional cap of 30% per annum; the combined total of both of
which may not, in any event, exceed 100% of the loan value. The
Ministry of Justice had previously published a draft bill in December
2016 under which the flat level cap and the additional per annum
cap would have been reduced to 10% and 10% respectively, the
combined total being limited to 75% of the loan value. Under the
most recent modification, the new proposal regarding non-interest
costs is to reduce the flat level cap to 20% and the additional per
annum cap to 25%, the combined total being limited to 75% of loan
value. There is no proposal to reduce the current cap on interest
charges. The proposals are open to public consultation for two
weeks from the date of their publication and if approved in their
current form, could be effective during the second calendar quarter
of 2019. Once the proposals are finalised, we will update the market
with our assessment of the likely financial impact on the Group.
Q. When will you know more about the tax audit
issues in Poland?
We are dealing with a significant tax challenge in Poland and
this matter is now the subject of discussion between the Polish tax
authority and the UK HMRC. We remain confident of the strength
of our case but given the complex nature of these matters,
I expect it will take some time before we are able to update
the market with any significant developments. Further details
on this matter are included in the Financial review on
page 41 and Financial Statements.
Q. How will you optimise your more mature markets
in Europe?
I referenced earlier in this interview that Europe is our most
competitive operating environment and it has seen the most intense
regulatory change. It is also where customers’ preference for digital
credit has been most evident, which led to a reduction in customer
numbers in our home credit businesses in this region during 2018.
To deal with this challenging environment, we have a very clear
strategy that has been in place for two years. Our objective is to
use our unrivalled knowledge of our target customer segments to
be able to offer slightly larger, longer-term loans, while increasing
accessibility to consumer finance products for our customers and
improving the overall quality of our portfolio. All of this will be
enabled by smart investments in technology that will offer
our customers more choice and make us more efficient.
Q. Is it possible to deliver value to society and
progressive returns for your shareholders?
Undoubtedly, the answer is yes as one drives the other. Our business
promotes financial inclusion for consumers who find it more difficult
to get finance from banks, and offers them an opportunity to build
their credit profile. The loans we provide can make a genuine
difference to their lives when their needs are pressing. Provided that
we continue to run our business efficiently, the more successful we
are at meeting the needs of our customers then the stronger our
business will become. Ultimately, this will be reflected in a
progressive return for our shareholders.
22
International Personal Finance plc Q. What are your ambitions for 2019?
On the back of a very successful year, I am focused on building
on this progress to ensure we continue to deliver for our customers,
offering them more tailored choices and digital options for
accessing our products and services.
Clearly, I’d like to see positive progress on the regulatory and tax
audit challenges in Poland, as this would provide more certainty for
our investors and our business as a whole. We will continue to invest
time and energy in engaging with regulators and policymakers in all
our markets to represent and advocate the benefits of a responsible
and well-functioning non-banking credit market for both consumers
and business.
I expect to see further good growth in our Mexico home credit
and IPF Digital businesses, with the latter focused on bringing new
products and technology to market, and delivering its maiden profit.
I’d like to complete our discussion by taking this opportunity to thank
all of my colleagues for their dedication to our customers, and
for the energy and enthusiasm they bring to work every day. It is
inspiring to be able to lead a business with such a winning team.
Q. How do you ensure that your businesses lend
responsibly and behave in an ethical way?
With around 28,000 employees and agents working in 12
countries, the most effective way to achieve responsible and
ethical behaviours is to ensure that we have a strong ethical
compass that sets the direction in which we lead the business.
We spend a lot of time and resource ensuring that this is the case,
always reminding our teams that we should only do business in a
way that would make us proud if we saw it being described in the
media. We invest in annual programmes that all colleagues must
complete to ensure we are constantly reminded of the importance
of doing business in the right way. We also ensure that our incentive
schemes are designed to promote the behaviours we want to see
and we offer independently run ‘speak up’ lines that employees
can use, in a confidential manner, to raise any concerns they
might have so that appropriate action can be take.
Q. How do you invest in developing your teams?
I genuinely believe that we have a unique business that provides
great service to our customers, based on years of accumulated
knowledge of our sector and a very strong sense of purpose. Our
markets are changing, driven by new regulation, competition and
changing customer preferences, and in order to be as relevant in
the future as we have been for the past two decades, we need to
invest continually in developing our teams. We make a real effort to
ensure that this investment benefits all colleagues, not just our most
senior leadership.
We have built a ‘learning hub’ offering online training and
development across multiple areas. This is freely available and
promoted throughout the business. Over the past two years, we
have invested significantly to roll out mobile handheld technology
that will make our agents’ roles both easier and more rewarding.
At our senior leadership level, we offer bespoke international
development opportunities, including our Aspire programme,
that seek to identify and train our next cohort of leaders.
Annual Report and Financial Statements 2018
23
STRATEGIC REPORTAnnual Report and Financial Statements 2018
KEY PERFORMANCE INDICATORS
MAKING EXCELLENT PROGRESS
ON OUR STRATEGY
Our goals to serve our customers well and deliver shareholder value drive
our strategy. In order to measure this, we assess our performance against
the following key performance indicators, each of which is linked to our
long-term strategy.
Customer numbers (‘000)
Customer retention (%)
2,301
3
6
6
,
2
1
2
5
,
2
0
9
2
,
2
1
0
3
,
2
15
16
17
18
Performance
The total number of customers across the
Group was stable in 2018. Good levels of
growth were generated in Mexico home
credit and IPF Digital, offset by European
home credit where customer contraction
was driven primarily by regulatory and
competitive pressures.
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, if they
contravene our credit policies or
have a poor repayment record.
Looking ahead
We expect to see further customer growth in
IPF Digital and Mexico home credit, partially
offset by moderate contraction in European
home credit.
60.25
48.20
36.15
24.10
12.05
0.00
61.8%
Home credit
64.5%
IPF Digital
8
.
0
7
0
.
9
5
6
.
0
7
7
.
9
5
5
.
4
6
8
.
1
6
1
.
7
5
15
16
17
18
Home credit
IPF Digital
Performance
The number of customers who have
had three or more loans with our business.
Customer retention in our home credit
businesses improved slightly in 2018.
The change in IPF Digital’s customer
retention reflects the greater proportion
of new customers being served by this
growth business.
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.
Looking ahead
We aim to maintain customer retention
rates supported by continuing to evolve our
product offering so that it remains relevant
to the changing needs of our customers.
Employee and agent retention (%)
Average net receivables (£m)*
67.8%
Agent
76.2%
Employee
5
.
4
7
6
.
5
6
7
.
3
7
0
.
5
6
2
.
6
7
8
.
7
6
2
.
5
7
7
.
1
6
Performance
The proportion of employees and agents
who have worked with us for more than
12 months. Both employee and agent
retention improved across the Group
in 2018.
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.
15
16
17
18
Looking ahead
We aim to improve employee
and agent retention.
£923.4m
9
.
3
9
9
4
.
3
2
9
1
.
7
7
8
1
.
4
6
8
9
3
S
A
I
9
3
S
A
I
9
S
R
F
I
9
S
R
F
I
0
.
6
4
7
9
3
S
A
I
15
16
17
18
Performance
The average amounts receivable from
customers translated at constant exchange
rates increased by 6% in 2018, driven by
our growth businesses, 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
because it is a key driver of revenue growth.
Looking ahead
We expect continued growth in average
net receivables as we expand the business.
Agent
Employee
24
International Personal Finance plc
Revenue (£m)*
£866.4m
8
.
5
2
8
6
.
2
4
8
4
.
6
6
8
8
.
6
5
7
5
.
1
3
7
9
3
S
A
I
9
3
S
A
I
9
3
S
A
I
9
S
R
F
I
9
S
R
F
I
15
16
17
18
Performance
Revenue, which is income generated
from customer receivables, increased
by 4% driven primarily by growth in
IPF Digital and Mexico home credit.
Why we measure it
Revenue is one of the key drivers
of overall performance outcomes
in the income statement.
Looking ahead
We expect continued growth in revenue
as we expand the business.
Impairment as a percentage of revenue (%)*
26.2%
9
.
7
2
2
.
6
2
5
.
5
2
4
.
4
2
4
.
4
2
9
3
S
A
I
9
3
S
A
I
9
3
S
A
I
9
S
R
F
I
9
S
R
F
I
15
16
17
18
Performance
Impairment is the amount charged
as a cost to the income statement
as a result of customers defaulting on
contractual loan payments. Good credit
quality and collections, together with debt
sales, resulted in a 1.7ppt improvement
in impairment as a percentage of
revenue to 26.2%.
Why we measure it
Profitability is maximised by optimising the
balance between growth and credit quality.
Looking ahead
We expect impairment as a percentage
of revenue to remain within our target range
of 25% to 30%.
Cost-income ratio (%)*
Return on assets (ROA) (%)*
44.9%
3
.
5
4
8
.
5
4
3
.
4
4
9
.
4
4
8
.
0
4
9
3
S
A
I
9
3
S
A
I
9
3
S
A
I
9
S
R
F
I
9
S
R
F
I
15
16
17
18
Performance
The direct expenses of running the
business (excluding agents’ commission)
as a percentage of revenue. The cost-
income ratio increased reflecting improved
operating leverage in our growth businesses
offset by European home credit where lower
levels of revenue led to an increase in
this ratio.
Why we measure it
The cost-income ratio is useful for
comparing performance across markets.
Looking ahead
We aim to deliver improved cost-efficiency
throughout the Group’s businesses.
12.5%
6
.
5
1
3
.
2
1
5
.
1
1
3
.
2
1
5
.
2
1
9
3
S
A
I
9
3
S
A
I
9
3
S
A
I
9
S
R
F
I
9
S
R
F
I
15
16
17
18
Performance
ROA is measured as profit before
interest and exceptional items, after tax,
and divided by average net receivables.
Group ROA increased by 0.2ppts to 12.5%
due to the increase in like-for-like profit.
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.
Looking ahead
We aim to deliver progressive improvements
in ROA as the IPF Digital business matures.
* 2018 actual full-year performance against 2017 adjusted for IFRS 9
For a reconciliation and glossary of the alternative performance
measures that we use
see pages 138-143
25
STRATEGIC REPORTAnnual Report and Financial Statements 2018
OPERATIONAL REVIEW
GROUP PERFORMANCE OVERVIEW
Group performance overview
Executing in line with our strategic objectives and remaining
committed to strong operational discipline resulted in a £15.3 million
(16%) increase in profit before tax to £109.3 million from ongoing
businesses. This comprised an uplift in like-for-like profit before tax
of £15.2 million, a benefit of £1.7 million from lower new business
investment and a £1.6 million adverse impact from weaker FX rates.
The reduced new business investment comprised £3.6million within
IPF Digital’s new markets and central functions where start-up losses
reduced, offset partially by increased new business investment of
£1.9 million in Mexico home credit.
The table below details the performance of each of our business
segments, highlighting the significant like-for-like improvement
in profit before tax delivered.
European home credit
Mexico home credit
Digital
Central costs
Profit before taxation from ongoing businesses
Slovakia and Lithuania
Profit before taxation from continuing operations
We made excellent progress against
our strategic objectives which delivered
a very strong financial performance in 2018.
Profit before tax increased by £15.3 million
to £109.3 million as a result of improving
profits across all our businesses.
2017
IFRS 9
profit
£m
Like-for-like
profit
movement
£m
New
business
investment
movement
£m
Stronger/
weaker FX
rates
£m
112.3
12.9
(16.3)
(14.9)
94.0
3.2
97.2
2.2
5.9
6.8
0.3
15.2
(3.4)
11.8
–
(1.9)
3.6
–
1.7
–
1.7
(0.7)
(1.2)
0.3
–
(1.6)
0.2
(1.4)
2018
IFRS 9
profit
£m
113.8
15.7
(5.6)
(14.6)
109.3
–
109.3
The increase in profit comprised £15.3 million from our ongoing businesses offset partially by a £3.2 million reduction in the contribution from
Slovakia and Lithuania, which reported a profit in 2017 when they were being wound down. We are in the process of liquidating the home
credit businesses in Slovakia and Lithuania, and this did not result in any profit and loss account charge or credit during 2018. Statutory profit
before tax increase, IAS 39 2017 to IFRS 9 2018, is £3.7 million.
We delivered a 6% increase in credit issued led by our IPF Digital and Mexico home credit businesses, offset partially by a 5% contraction
in European home credit. This growth increased our average net receivables by 6%, and revenue by 4%. We maintained strong credit
quality and good collections across the Group and improved impairment as a percentage of revenue by 1.7ppts to 26.2% (2017: 27.9%).
Our cost-income ratio increased by 0.6ppts to 44.9%, driven by improved operating leverage in IPF Digital and Mexico home credit offset
by a modest increase in the cost-income ration in European home credit.
Market overview
Macroeconomic conditions in all our European markets in 2018
were stable and current indicators suggest these markets will deliver
positive GDP growth, low unemployment and moderately increasing
inflation in 2019. In Mexico, political change resulted in some
uncertainty in 2018 and GDP growth forecasts for 2019 remain
positive but have softened slightly in recent months.
In all our markets, we continue to see a growing number of
consumers wanting to access finance, although it is clear that
a very significant proportion of our target market do not have the
credit quality required to be served remotely by mainstream lenders.
Competition for the best quality customers in our demographic is
intense and our IPF Digital brands and Provident-branded digital
offers are targeted directly at consumers in this segment who
have the credit profile to qualify for a remote loan.
Based on our experience across several markets, we see home
credit co-existing very comfortably with digital credit offerings
as the combination of the two can serve the vast majority of the
customers in our segments. In particular, our home credit model,
with the involvement of an agent at the customer’s home, allows
us to gain a unique and in-depth understanding of a customer’s
financial circumstances and propensity to repay. As a result,
we are able to lend with more confidence to creditworthy
customers where a remote lending business cannot.
Strategy update
Our business provides small sum, unsecured personal loans
to customers who are either underbanked or underserved by
mainstream operators. Our strategy is to provide consumers in this
segment with a greater choice of channels, products and price
points, and to make their journey with us as seamless as possible.
We made very good progress against our strategy in 2018 which
segments our operations into ‘growth’ and ‘returns’ focused
26
International Personal Finance plc
businesses. We are optimising the returns of our European home
credit operations to invest in our growth businesses, Mexico home
credit and IPF Digital, and deliver returns to our shareholders.
We will continue to improve our service and effectiveness
by investing in technology in both our home credit and
digital businesses.
Our European home credit business is becoming more efficient and
technologically enabled, the loan portfolio quality is excellent and
it delivered very good operational and financial results this year.
Our investments in growth opportunities in IPF Digital and Mexico
home credit are now showing clear signs that they will deliver
according to our plan, thereby creating a group with three pillars;
a modernised European home credit delivering very good returns;
a Mexican home credit business that combines ongoing growth
potential with improved levels of profitability; and a global digital
lending business that grows through constant innovation and
delivers good returns.
Regulatory update
As previously reported, the National Bank of Romania introduced
debt-to-income limits that became effective on 1 January 2019.
The debate in Romania relating to a proposal for an APR cap of
18% for existing and new consumer lending has now been finalised.
Following a full consultation, which included engagement with our
trade association and banks to enable regulators and politicians to
better understand the potential unintended impacts of the proposal
on consumers and businesses, an APR cap of 50% for loans under
€3,000 and 18% for loans over €3,000 was agreed. The vast majority
of our Romanian lending will fall under the 50% cap. While aspects
of the new cap are the subject of a constitutional court challenge,
we nevertheless expect the new regulation to come into effect later
in the year. Although the APR cap and new debt-to-income limits will
have an effect on sales volumes and profitability in Romania, we do
not expect this to be material at Group level.
On Monday 18 February, the Polish Ministry of Justice published a
draft bill containing a modified set of proposals for a reduction in
the cap on non-interest costs that may be charged by lenders in
connection with consumer loan agreements. The level of the current
cap is as follows: (i) a flat level of 25% of the loan value; and (ii)
an additional cap of 30% per annum; the combined total of both
of which may not, in any event, exceed 100% of the loan value.
The Ministry of Justice had previously published a draft bill in
December 2016 under which the flat level cap and the additional
per annum cap would have been reduced to 10% and 10%
respectively, the combined total being limited to 75% of the loan
value. As modified, the new proposal regarding non-interest costs
is to reduce the flat level cap to 20% and the additional per annum
cap to 25%, the combined total being limited to 75% of loan value.
There is no proposal to reduce the current cap on interest charges.
The proposals are open to public consultation for two weeks from
the date of publication and if approved in their current form,
could be effective during the second calendar quarter of 2019.
Once the proposals are finalised, we will update the market
with our assessment of the likely financial impact on the Group.
Outlook
We remain focused on serving our customers responsibly within
a regulatory and competitive landscape that we expect will remain
challenging. We will continue to focus on the sustainability of our
European home credit businesses by investing to create a more
modern, efficient and higher credit quality operation that provides
a broader array of services to our customers. These businesses
deliver good returns for shareholders and fund growth opportunities
in our Mexico home credit and IPF Digital operations. In Mexico we
will continue to invest in growing the scale of our operations through
geographic expansion and micro-business lending in tandem
with delivering progressive improvements in profit. In IPF Digital
we will focus on continued portfolio growth, further reductions in
impairment and as a result we expect to deliver a maiden profit
for the division in 2019.
We are confident that
our strategy will continue
to support growth across
the Group by successfully
addressing the demands of
our core stakeholders: meeting
our customers’ needs, creating
value for our shareholders and
contributing to the communities
in which we operate.
27
STRATEGIC REPORTAnnual Report and Financial Statements 2018
OPERATIONAL REVIEW CONTINUED
EUROPEAN HOME CREDIT
The credit quality of the loan portfolio in European home credit
is very strong, driven primarily by better than originally expected
post-field collections, supported by good agent collections
and our focus on serving higher-quality customers. As a result,
impairment as a percentage of revenue improved by 2.9ppts
to 17.9%.
We are modernising our European home credit businesses to
improve efficiency by investing in technology and we completed
the roll-out of our agent mobile technology in this region which is
now being used by more than 10,000 agents and field managers.
As demand for digital loans has increased, we have evolved the
business to offer Provident-branded digital loans to customers in
Poland and around 22,000 people are using this channel. We
delivered a reduction in costs during 2018 of £5.4 million (at CER)
despite these investments in technology as we focused on delivering
a sustainably lower cost base in these businesses. However, revenue
contraction was slightly faster than the reduction in costs which
resulted in a 1.3ppt increase in the cost-income ratio year on year
to 40.9%. As planned, this ratio improved during the second half
of the year as result of this optimisation strategy.
We will continue to operate our European home credit businesses
in line with our strategy to enhance their sustainability, deliver a
high-quality service to our customers and optimise returns. We aim
to continue the momentum we achieved in the second half of 2018
and further reduce the rate of customer contraction, become more
technically enabled with further functionality being added to the
MyProvi mobile app, and improve cost-efficiency.
2017
IFRS 9
£m
2018
IFRS 9
£m
Change
£m
Change
%
Change at
CER %
Customer numbers
(000s)
Credit issued
Average net
receivables
1,236
797.0
1,092
757.8
(144)
(39.2)
(11.7)
(4.9)
(5.1)
578.0
558.9
(19.1)
(3.3)
(3.7)
Revenue
Impairment
Net revenue
Finance costs
Agents’ commission
Other costs
Profit before taxation 112.3
519.9
493.3
(108.3) (88.5)
411.6
404.8
(36.6) (35.3)
(56.6) (53.7)
(206.1) (202.0)
113.8
(26.6)
19.8
(6.8)
1.3
2.9
4.1
1.5
(5.1)
18.3
(1.7)
3.6
5.1
2.0
1.3
(5.3)
18.4
(1.9)
3.8
5.5
2.6
Our European home credit
businesses are the financial
foundation of the Group
providing excellent service
to customers and generating
the cash and capital needed
to fund growth opportunities
and returns to shareholders.
We continued to improve the sustainability of
these businesses by creating more modern,
efficient and better credit quality operations
which resulted in a very good operational
and financial performance in 2018.
Together, the European home credit businesses delivered a
£1.5 million increase in profit before tax to £113.8 million driven
by stronger-than-orgininally expected post-field collections.
This robust performance reflects an improvement in like-for-like
profit of £2.2 million with slightly lower net revenue more than
offset by lower costs, partially impacted by a £0.7 million
adverse effect from weaker FX rates.
Competition remained intense in Europe with payday, digital, home
credit and bank operators competing to serve credit to our segment
of customers. This, together with new debt-to-income regulations in
Romania, resulted in customer numbers and credit issued growth
contracting year-on-year by 12%. We responded with campaigns to
increase new customer acquisition and improve retention which, as
planned, delivered a 3ppt slower rate of contraction in the second
half of the year compared to the first. Credit issued reduced by 5%,
which led to a reduction in average net receivables and revenue
of 4% and 5% respectively.
28
International Personal Finance plc MEXICO HOME CREDIT
Mexico is one of our two
strategic investment areas
for growth. We are taking
advantage of the significant
scale opportunity in this market
by expanding our geographic
footprint, building our
micro-business channel
and improving profitability
in our established branches.
We opened five new branches in the second quarter of the year
and are now serving over 100,000 customers in the 17 branches
opened since the beginning of 2016. With an estimated four million
individuals running micro-businesses in Mexico, the potential
opportunity to generate growth by providing credit to customers
who are underbanked is substantial, and we are now serving
around 26,000 customers with this offering.
The Mexico home credit business continued to perform well and
delivered a 22% (£2.8 million) improvement in profit before tax to
£15.7 million in 2018. This comprises like-for-like profit growth of
£5.9 million delivered by our established branches, offset partially
by increased investment in future growth of £1.9 million through
geographical expansion and our micro-business channel, together
with a £1.2 million adverse impact from weaker FX rates.
Our strategy to attract new customers through investment in branch
expansion and our micro-business loans channel were the key
drivers of an 89,000 increase in customers to 917,000. This resulted
in credit issued growth of 12% together with a 9% increase in both
average net receivables and revenue.
Alongside delivering good growth, we maintained collections at
an acceptable level and impairment as a percentage of revenue
at 36.7%, which is slightly higher than 2017. In our established
branches, where we have a balanced mix of new and repeat
customers and stable operational teams, this impairment measure
stands at 32.7% of revenue (2017: 34.4%). As newer branches and
micro-business lending become more mature, their impairment
measure is expected to reach that of the established branches.
Our investment in growing Mexico home credit drove a 5%
increase in our other costs which was driven by expansion and
micro-business lending. Overall, the increase in investment was
lower than the revenue growth generated, and together with
good cost management, the cost-income ratio improved by
1.4ppts year on year to 38.7%.
Mexico offers significant opportunities for our home credit
business and we will continue our successful strategy to expand
our geographic footprint and micro-business loans channel to
deliver further top-line growth. In addition, we will focus on driving
further improvements in returns from our established branches.
2017
IFRS 9
£m
2018
IFRS 9
£m
Change
£m
Change
%
Change at
CER %
Customer numbers
(000s)
Credit issued
Average net
receivables
Revenue
Impairment
Net revenue
Finance costs
Agents’ commission
Other costs
Profit before taxation
Established
branches
Expansion and
micro-business
Profit before taxation
828
273.7
917
291.0
89
17.3
10.7
6.3
150.6
154.9
4.3
218.6
226.1
(79.0) (82.9)
143.2
139.6
(10.2) (11.3)
(28.9) (28.8)
(87.6) (87.4)
15.7
12.9
7.5
(3.9)
3.6
(1.1)
0.1
0.2
2.8
2.9
3.4
(4.9)
2.6
(10.8)
0.3
0.2
21.7
17.2
22.4
5.2
30.2
(4.3)
12.9
(6.7)
15.7
(2.4)
2.8
(55.8)
21.7
12.3
8.5
9.3
(10.5)
8.6
(17.7)
(5.5)
(4.9)
29
STRATEGIC REPORTAnnual Report and Financial Statements 2018
OPERATIONAL REVIEW CONTINUED
IPF DIGITAL
IPF Digital is a key strategic
growth opportunity for the Group
serving the increasing demand
for digital credit within our target
segment of consumers.
We delivered another year of very strong
growth and made further progress against
our strategic priorities of providing a great
customer experience through innovation,
building scale in our new markets of
Poland, Spain, Australia and Mexico,
and moving to profitability in 2019.
The growing demand for our revolving credit line product, which
now accounts for 60% of our digital lending, demonstrates that
we are achieving our stated goal of providing customers with the
products they want through the channels they wish to use. Clearly
this goal is a journey rather than an end point and we will continue
to develop and improve our products and processes to make the
customer journey as simple, fast and frictionless as possible.
In 2018, we focused on increasing scale in our new markets while
improving our credit decisioning, the result of which was a reduction
in start-up losses before tax to £5.6 million, which is a £10.7 million
improvement on 2017. This result was driven by reduced losses
30
in our new markets where we delivered strong top-line growth,
improved impairment and cost-leverage combined with
improved profitability in the established markets.
2017
IFRS 9
£m
2018
IFRS 9
£m
Change
£m
Change
%
Change at
CER %
Customer numbers
(000s)
Credit issued
Average net
receivables
226
230.8
292
311.8
66
81.0
29.2
35.1
34.7
148.5
209.6
61.1
41.1
40.7
Revenue
Impairment
Net revenue
Finance costs
Other costs
Profit before
taxation
104.1
(47.5)
56.6
(8.4)
(64.5)
147.0
(55.6)
91.4
(11.9)
(85.1)
42.9
(8.1)
34.8
(3.5)
(20.6)
41.2
(17.1)
61.5
(41.7)
(31.9)
40.9
(16.8)
61.2
(40.0)
(32.6)
(16.3)
(5.6)
10.7
65.6
Strong customer demand and effective marketing delivered a 35%
increase in credit issued to £311.8 million, driven primarily by the
strong performance in our new markets, but also good levels of
growth in our established markets. This resulted in a 41% increase
in both average net receivables and revenue.
Alongside this growth, we continued to improve our credit
decisioning capabilities, evidenced by a 7.8ppt improvement in
impairment as a percentage of revenue to 37.8%. We maintained
good credit quality in our established markets and we made
considerable improvements in the new markets by optimising
our credit settings via constant testing and refinement of different
credit strategies. In addition, increased scale and investment in
technology has enabled us to better leverage our infrastructure
and improve cost efficiency, delivering a 4.1ppt year-on-year
reduction in the cost-income ratio to 57.9%.
The profitability of IPF Digital is segmented as follows:
Established markets
New markets
Head office costs
IPF Digital
2017
IFRS 9
£m
18.6
(25.2)
(9.7)
(16.3)
2018
IFRS 9
£m
25.5
(17.8)
(13.3)
(5.6)
Change
£m
Change
%
6.9
7.4
(3.6)
10.7
37.1
29.4
(37.1)
65.6
International Personal Finance plc Established markets
Our established markets delivered a £6.9 million improvement in
profit before tax to £25.5 million driven by the benefits of scale and
cost leverage. Smarter marketing, customer acquisition and CRM,
combined with enhanced risk-based pricing strategies, resulted in
a 15% increase in credit issued and a 23% increase in average net
receivables. Revenue yield was stable at around 60% and, therefore,
revenue growth was in-line with the increase in average
net receivables.
Impairment as a percentage of revenue in these well-regulated
markets was stable at 20.8%. This reflected a modest increase in
underlying impairment as these markets continue to grow and
serve new customers, offset partially by the benefit of non-recurring
debt sale profits totalling £3.6 million. We continued to manage
our cost base closely to improve efficiency, which resulted in an
improvement in the cost-income ratio of around 3ppts to 38.1%.
2017
IFRS 9
£m
2018
IFRS 9
£m
Change
£m
Change
%
Change at
CER %
Customer numbers
(000s)
Credit issued
Average net
receivables
141
138.7
157
161.3
16
22.6
11.3
16.3
15.4
105.7
130.9
25.2
23.8
22.9
New markets
Start-up losses in the new markets reduced by £7.4 million, driven
by a combination of strong top-line growth together with improved
impairment and cost-leverage. We continued to invest in building
our digital brands, as well as improving our product and customer
experience and enhancing risk-based pricing strategies to appeal
to a wider range of customers. These factors delivered a 64%
increase in credit issued, an increase in average net receivables
of 85% and growth in revenue of 67%, with strong performances
from all markets.
Another year of experience in these markets improved our ability
to make good credit decisions and enhance our processes
to optimise customer repayment behaviours. This delivered
a significant 26.6ppt reduction in impairment as a percentage
of revenue to 57.9%. Achieving such rapid improvement in credit
quality at the same time as strong growth demonstrates our
capabilities to continuously improve our credit settings and optimise
our use of new technology and data sources. We expect we will
continue to deliver positive impairment trends in these markets
as they mature. Investment in growing these businesses – both
marketing and volume-driven operational costs – resulted in
increased costs to £41.5 million, however, economies of
rapidly increasing scale resulted in a 9.5ppt improvement
in the cost-income ratio to 61.5%, and we expect this trend
to continue in the coming years.
Revenue
Impairment
Net revenue
Finance costs
Other costs
Profit before
taxation
63.4
(13.1)
50.3
(5.8)
(25.9)
79.5
(16.5)
63.0
(7.2)
(30.3)
16.1
(3.4)
12.7
(1.4)
(4.4)
25.4
(26.0)
25.2
(24.1)
(17.0)
24.4
(24.1)
24.5
(24.1)
(16.1)
18.6
25.5
6.9
37.1
Customer numbers
(000s)
Credit issued
Average net
receivables
2017
IFRS 9
£m
2018
IFRS 9
£m
Change
£m
Change
%
Change at
CER %
85
92.1
135
150.5
50
58.4
58.8
63.4
64.1
42.8
78.7
35.9
83.9
85.2
Revenue
Impairment
Net revenue
Finance costs
Other costs
Loss before taxation
40.7
(34.4)
6.3
(2.6)
(28.9)
(25.2)
67.5
(39.1)
28.4
(4.7)
(41.5)
(17.8)
26.8
(4.7)
22.1
(2.1)
(12.6)
7.4
65.8
(13.7)
350.8
(80.8)
(43.6)
29.4
67.1
(14.0)
365.6
(74.1)
(46.1)
IPF Digital as a whole represents a significant long-term growth
opportunity for the Group and is making excellent progress against
our strategy to build a large, profitable digital lending business.
We are confident that we will deliver the division’s maiden profit
in 2019 as we continue to build scale, improve impairment in
our new markets, and further leverage our cost base to drive
greater efficiency.
31
STRATEGIC REPORTAnnual Report and Financial Statements 2018
STAKEHOLDERS’ REVIEW
OUR STAKEHOLDERS
Stakeholder engagement is a key
component in our business success.
We seek to establish and maintain
relationships with the stakeholders
that matter most to our business.
We engage with and listen to those who have an interest in our
business in order to understand their needs and take account
of their views. We use this information, where possible, to identify
opportunities to improve our product offering to customers, develop
our strategy, better manage risk and improve our operations.
Our most important stakeholders are our customers, our
investors, our people, regulators and our communities.
“Our priority is to sustain our
business success in the long
term, and meeting the needs
of our stakeholders is an important
part of that. Our relationship with
our customers, in particular,
is absolutely critical.”
Gerard Ryan
Chief Executive Officer
Code of ethics
Our code of ethics provides a road map for responsible, respectful
and straightforward relationships with each of our stakeholder
groups. Maintaining our standard of ethical behaviour and
responsible lending is critical in differentiating our business. Our
code of ethics applies to all employees, agents, contractors and
suppliers – regardless of seniority, geography or culture. It commits
us to uphold responsible business practices and meet or exceed
legal requirements in the way we conduct business. We have a
range of support mechanisms and processes to highlight deviations
from the code and to ensure the ongoing inclusion of ethical
standards in our work. To ensure we all understand the part we
play, we run ethics communications programmes, mandatory
ethics e-learning and tests, ethical checks for key decision-making
such as product development, and this year also launched our
responsible lending principles, details of which are on page 5.
Non-financial information statement
Reporting
requirement
Relevant
policies
Description of our impact and
principal risks
Page
Business
model
Employees
Our business model
Our social purpose
Key performance indicators
Principal risks and uncertainties
Code of ethics
Group health and safety policy
Wellbeing policy
Diversity policy
Our people
Diversity
Equal opportunities
Safety risk
Human rights
Code of ethics
Modern slavery policy
Social matters
Code of ethics
Values and ethics
UN Global Compact Communication on
Progress
Modern slavery statement
Human rights
Our social purpose
Reputation risk
Our communities
Community investment
Environmental matters
Anti-bribery and corruption policy
Group environment policy
Carbon reporting
Anti-bribery
and corruption
Environmental
matters
32
8
6
24
44
34
34
87
49
3
www.ipfin.co.uk
36
36
6
48
36
36 and 88
88
87
89
International Personal Finance plc
OUR CUSTOMERS
Our home credit business model originated more than 130 years ago to
provide affordable finance to underserved consumers, and our purpose
of making a difference in the lives of our customers with straightforward
home credit and digital channels is something we continue today.
We provide credit responsibly to those who may not be able to
access it elsewhere and use credit bureaux as a key part of our
credit decisioning process to enable customers to build a credit
record over time. Lending to micro-businesses in Mexico also
supports entrepreneurship and economic growth. We have close
relationships with our home credit customers, and agents in our
home credit business are in face-to-face contact with around two
million customers each week. We listen to consumer views through
customer surveys and by monitoring market trends, which helps us
respond and improve the customer journey, for example digitising
our home credit business with the MyProvi handheld mobile app
and expanding into digital lending demonstrate how we have
evolved to meet changing customer needs.
2m
home credit customer
visits every week
Customer service
excellence award,
Hungary
Product excellence award,
IPF Digital
Gloria – Mexico
Gloria has been a Provident customer in Cholula, Puebla for seven years and has taken a number
of loans during that time to help her and her husband. Originally, after hearing a Provident Mexico
advert on the radio and telephoning our call centre, Gloria was visited at home by her agent,
Esperanza, who helped complete the application and they have had a good relationship
ever since.
“ The loans have helped us and little by little we have been able to get by. We work hard
and one of our loans helped my husband buy a truck. Then we bought a trailer for his job.
From there, we roofed our little house. Provident is a good company and, most importantly,
the people who attend to us have been very nice, especially our agent. We have never
had any problems and I am very happy with her.”
Małgorzata – Poland
Malgorzata lives in the Praga district of Warsaw and is one of our long-standing customers, having
taken Provident home credit loans for 20 years. Malgorzata has used the loans for a wide variety
of purchases, from renovating her family allotment and repairing the house roof to buying a new
washing machine and sofa.
“ We’ve always been lucky to have fantastic agents. They are very competent and always get
back to us, delivering our loans and reminding us about anything. If it wasn’t for our Provident
loans, we wouldn’t have been able to renovate our allotment or buy new equipment for
our home.”
33
STRATEGIC REPORTAnnual Report and Financial Statements 2018
STAKEHOLDERS’ REVIEW CONTINUED
OUR PEOPLE
We benefit from a diverse agent and employee population of 28,000 people in 12 countries
and depend on their skills, innovation and commitment to deliver an excellent customer
experience. Our people strategy is aligned to our business strategy and we focus our
attention on fundamentals including improving agent retention and delivering
international development programmes.
As we digitise business practices, we are embracing the
opportunities that technology offers to the way we work with our
customers. The MyProvi handheld mobile app is supporting sales
and collections, as well as providing management information to
help us improve. We have also introduced an online learning hub
accessible to all employees to deliver consistent learning and
governance courses. Our Aspire Leadership Programme – a
two-year commercial course to deliver our succession pipeline –
provides an enriching development experience for current and
future leaders. A collaborative global mindset is vital and during
2018 we launched two cultural change programmes which target
process improvement and collaboration. In 2019, we will develop
an IPF employee value proposition and extend our work on diversity,
in all its forms, to ensure that our workforce reflects society.
Diversity
We are committed to diversity in all its forms and take steps to ensure
that our business processes encourage recruitment, selection and
reward based purely on merit.
Gender split at 31 December 2018
Board
3
Senior management
39
All other
Female
Male
6
102
6,202
4,150
Read more about employees
on pages 86 and 87
Aspire leadership programme
Viktoria Ruubel, IPF Digital
Viktoria, IPF Digital’s Global Head of Products, was nominated for the Aspire programme for her
leadership potential and vision for digital lending.
“ Joining Aspire has helped me reflect on myself as a leader. We consistently receive 360 degree
feedback and you get to see a full picture of yourself. You also get to develop a much greater
understanding of the Group, so not only do I have in-depth knowledge of digital lending but also
see the different perspectives of home credit. I think about digital lending every day but I have
a different level of discussion with my mentor, CEO Gerard Ryan – it is extremely helpful and
impactful. I’ve been able to use this development when working with both the home credit
and digital operations. It’s an amazing opportunity and enables me to look at product
design in a very different and exciting way.”
Robert Pawlak, European home credit
Robert joined Provident 19 years ago and is one of the Group’s career success stories, having
progressed from being a development manager in Poland to becoming European Sales and
Service Performance Director and a key leader within the European home credit business.
“ Aspire has given me the confidence to think like an investor and to look at business challenges
and opportunities more widely than through my role alone. It has also made me realise not
to underestimate my impact as a leader on my team. I have an obligation to act as a leader
and role model every day and this development programme has helped me understand my
influence much better. Bringing leaders together across the Group also supports a great deal
of collaboration and best practice sharing not only within European home credit, but seeing
the perspectives of IPF Digital and Mexico home credit is very powerful.”
34
International Personal Finance plc OUR REGULATORS
Regulation with unintended consequences can have an impact on our
ability to serve our customer segment. Our approach is to engage with
regulators and the policy community so that regulatory changes deliver
a sustainable outcome for both consumers and business.
We proactively engage with regulators and the policy community
at EU and individual market level. We undertake this work directly
and also with our trade associations in which we take an active
role. This helps us to represent, and advocate, the benefits of a
responsible and well-functioning non-banking credit market and
to further engage with opinion leaders. We regularly have bilateral
discussions and engage with politicians and regulators around
topics such as responsible lending and financial inclusion. We look
for opportunities to host and take part in events such as stakeholder
roundtables and use thought leadership research, such as our
twice-yearly Financial Wellbeing Report, to establish relationships
with opinion leaders and champion the issues that are important
to consumers in the credit market.
Warsaw Stock
Exchange award
Responsible lending award,
Czech Republic
Read more about our strategy
on pages 16-19
Stakeholder events – Romania
In Romania, where the National Bank of Romania introduced debt-to-income limits in January
2019 and an APR cap has been passed recently, we actively engaged with key decision-makers
to ensure they fully considered the implications of these matters on the consumer finance segment.
We arranged a series of multi-stakeholder events at national and local level to raise awareness of
the role of non-banking financial institutions in a well-functioning credit market. We also presented
an economic footprint study highlighting our contribution to the Romanian economy in the 12 years
we have served customers in this market. The events were attended by representatives from
the most relevant regulatory authorities to our business including the Romanian Parliament, the
Central Bank, the Consumer Protection Authority and the Competition Council. Other events were
organised under the umbrella of the UK Embassy in Romania and the British-Romanian Chamber
of Commerce, leveraging our British heritage and consolidating our position as a key player
in the British business community in Romania. This sustained engagement has been successful
in promoting understanding of our role in accelerating financial inclusion for Romanian society,
communicating our high standards of governance, and positioning Provident as a reliable
dialogue partner for key decision-makers.
Viktor Boczan
Country Manager,
Romania
35
STRATEGIC REPORTAnnual Report and Financial Statements 2018
STAKEHOLDERS’ REVIEW CONTINUED
OUR COMMUNITIES
We are an active corporate citizen and, through our customers, agents
and community investment programmes, we are closely connected to
the communities we serve. We also tackle issues that are important to
our employees, customers and opinion leaders including financial
literacy, local development and enterprise initiatives.
As a financial company, it is important to support financial
education, particularly promoting greater understanding of
financial products and family budgeting. We have financial
literacy programmes in all of our home credit markets and are
starting to establish them in some of our digital markets using
financial workshops, websites, blogs, vlogs and by helping to
influence the school curriculum. We also have extensive
employee volunteering opportunities, supporting local
causes in most need while engaging our people.
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 at www.ipfin.co.uk.
Make a Difference in May – international volunteering event
In May, we held our first volunteering event engaging employees and agents in a global project to
support our communities. More than 2,000 employees and agents volunteered on many different
projects in eight markets from renovating childcare facilities for disadvantaged families and fitting
new furniture and equipment in under-resourced schools, to organising recreational activities for
disabled children and fundraising. Together, we logged over 5,600 volunteering hours – roughly
equivalent to three and a half years of working time.
• Poland: 4,000 books collected to set up hospital libraries
• Czech Republic: events to support social or educational services to disadvantaged children
• Hungary: renovated schools and care facilities and collected 1,000 kg of clothing donations
• Mexico: 480 colleagues provided financial education workshops in local schools
• Australia: ‘Australia’s Biggest Morning Tea’ raised funds for the Cancer Council
• Spain: a digital walkathon raised over €2,500 for humanitarian organisation, Caritas Spain
8
markets
2,000
employees
took part
5,600
volunteer hours donated
to local communities in
company time
98%
of volunteers said
their work made
a difference in
the community
Cash Crew
Our Cash Crew programme in the Czech Republic aims to assist young adults to navigate the adult
world and deal with everyday financial situations, helping them to familiarise themselves with setting
up a bank account, managing income and expenses, or finding a job.
Cash Crew engages with these young people in an accessible, simple and age-appropriate way,
and consists of videos, blogs and online support at www.cashcrew.cz. We have seen a fantastic
response to Cash Crew, reaching 1.2 million people and achieving 900,000 video views. The
programme has been recognised by a number of awards and has received hundreds of positive
comments from young people on social media about their experience with the video blog.
36
International Personal Finance plc FINANCIAL REVIEW
GOOD RETURNS AND
A STRONG FINANCIAL PROFILE
Our businesses are at different stages of development. The
European home credit business is cash and capital generative
and provides 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 business 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.
By maintaining our strong financial profile, we are able to
operate with good headroom on the financial covenants
in our debt facilities.
Investor engagement to
support financial strategy
We have a proactive investor engagement strategy for both
equity and debt providers to support the financial strategy.
A key element of our funding plan is to further diversify and
extend our sources of debt funding to support the long-term
growth of the business. In 2018 we researched a number of
bond opportunities and identified the Nordic market as a way
of accessing capacity from new debt investors. We undertook
an extensive roadshow in Sweden and Norway involving
myself, our IPF Digital General Manager, and our Group
Treasurer, to explain our corporate strategy and the strength
of our business model and financial profile. As a result, we
successfully concluded our inaugural four-year Swedish
Krona 450 million (£40 million) 2022 bond. In addition, we
continued our wide-ranging bank relationship management
programme, and added £44 million of new bank funding
during 2018 including facilities from new banks in Poland,
Hungary and Romania.
For a reconciliation and glossary of the alternative performance
measures that we use
see pages 138-143
For our operational review of 2018 performance
see pages 26-31
37
“We aim to deliver long-term profitable
growth and deploy capital efficiently, in
order to develop and run businesses which
provide good returns to shareholders, while
maintaining a strong financial profile.”
Justin Lockwood
Chief Financial Officer
Our financial strategy
We aim to deliver long-term profitable growth and deploy capital
efficiently, in order to develop and run 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.
Our financial model
We adopt a Group financial model which sets out key strategically-
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.
STRATEGIC REPORTAnnual Report and Financial Statements 2018
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.
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.
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 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.
The table below shows the ROA for our European home credit,
Mexico home credit and IPF Digital 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 business, and lower but growing returns on the Mexico home
credit and IPF Digital 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
European home credit
Mexico home credit
IPF Digital
Group1
2017
reported
16.2%
10.3%
(1.5%)
11.5%
2017
IFRS 9
18.3%
10.9%
(3.8%)
12.3%
2018
IFRS 9
18.4%
12.0%
2.1%
12.5%
1. 2017 adjusted for exceptional tax charge
ROA in our European home credit businesses was broadly flat at
18.4% (on an IFRS 9 basis) in 2018, which reflects the combined
impact of improved profitability and a lower investment in average
net receivables. Returns improved in Mexico home credit by 1.1ppts
to 12.0% (on an IFRS 9 basis) reflecting faster growth in profit than
the increase in investment in average net receivables, despite
increased strategic investment that is ROA dilutive in the short term.
IPF Digital delivered a positive ROA for the first time reflecting
the improving return dynamics of the business as profits in the
established markets increased and start-up losses in the new
markets reduced. The improvement in return was more rapid
than the growth in average net receivables, which resulted in the
improved ROA. ROA in all segments was impacted adversely by a
2ppt increase in the effective tax rate (2018: 31% and 2017: 29%).
At Group level the ROA increased by 0.2ppts with improving
returns from all reporting segments offset partially by an
increased weighting to IPF Digital.
Return on equity
ROE for the Group is measured as profit after pre-exceptional tax
divided by average equity.
ROE declined by 0.7 ppts in 2018 (on an IFRS 9 basis) to 18.3%, this
was principally driven by the 2ppt increase in the pre-exceptional
effective tax rate.
38
Capital generated before investing in receivables growth was
£75.4 million compared to £69.0 million in 2017 (on an IFRS 9 basis)
as a result of increased profit, partially offset by the 2ppt rise in
effective tax rate. £27.5 million of this capital was used to invest
in receivables growth (based on 40% equity funding for receivables
growth) and, therefore, net capital generation was £47.9 million
before the declaration of dividends totalling £27.7 million.
Our European home credit businesses generated £88.3 million
of capital which reflects their good financial performance together
with a modest reduction in their investment in receivables. Mexico
home credit generated only a small amount of capital due to the
growth in the receivables portfolio in 2018. IPF Digital consumed
£31.5 million driven by the significant investment in receivables
alongside lower start-up losses. The other balance of capital
consumption relates to central costs and included Slovakia and
Lithuania in 2017. Total net capital generation was £20.2 million
compared to £23.3 million (on an IFRS 9 basis) in 2017.
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 generated
2017
reported
£m
105.6
(30.6)
2017 IFRS 9
2018 IFRS 9
£m
97.2
(28.2)
£m
109.3
(33.9)
75.0
69.0
75.4
(25.6)
49.4
83.1
6.8
(32.2)
(8.3)
(27.6)
21.8
(18.1)
50.9
88.5
8.0
(37.3)
(8.3)
(27.6)
23.3
(27.5)
47.9
88.3
1.2
(31.5)
(10.1)
(27.7)
20.2
Earnings per share
Pre-exceptional earnings per share was 33.8 pence in 2018
compared with 33.7 pence in 2017 (31.0 pence per share
in 2017 under IFRS 9), reflecting the increase in profitability,
offset partially by the higher effective tax rate.
International Personal Finance plc Dividend
Subject to shareholder approval, a final dividend of 7.8 pence per
share will be payable, which will bring the full-year dividend to 12.4
pence per share (2017: 12.4 pence per share). The final dividend will
be paid on 10 May 2019 to shareholders on the register at the close
of business on 12 April 2019. The shares will be marked ex-dividend
on 11 April 2019.
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 provide a level
of resilience to external shocks including macroeconomic,
regulatory, and tax factors with 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 2018, the equity to receivables ratio was 43.6%
(2017: 47.0% or 42.0% under IFRS 9) compared with our target level
of 40%, meaning equity capital was £36 million above the target
level. While the capital ratio is 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 1.6x at
December 2018, compared to 1.7x in 2017 on an IFRS 9 basis
(2017 IAS 39: 1.4x), well within the covenant level of 3.75x
maximum (on an IAS 39 basis) in our debt facilities.
Group impairment as a percentage of revenue at 26.2% in 2018
was within our target range. The average period of receivables
outstanding at December 2018 was 11.5 months (2017: 9.1 months)
with 77.0% of year-end receivables due within one year
(2017: 82.0%). 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 2018
were £992.8 million, which is £ 69.4 million (8%) higher than 2017 in
constant currency terms, reflecting the growth in the business.
New accounting standards
IFRS 9 Financial Instruments
IFRS 9 is a new accounting standard that became effective on
1 January 2018 and addresses accounting for financial instruments.
The main impact on the Group is a change to the methodology
used to account for amounts receivable from customers. The key
change is a shift from incurred loss to expected loss impairment
accounting. Under IFRS 9, we are required to record impairment
charges at the inception of a loan based on the losses that are
expected to be incurred and this results in negative net revenue
at the start of a loan.
Implementation of the standard results in changes in the
recognition of revenue and impairment and, as a consequence,
the accounting value of the Group’s receivables portfolio. The
one-time reduction in the accounting value of receivables has been
charged to equity in accordance with the transition rules of IFRS 9
and further details on this are set out on page 136 of this report. The
ongoing impact on profit before tax of our reporting segments varies
according to the stage of development of a business. If a reporting
segment’s receivables portfolio is stable in terms of size and credit
quality, IFRS 9 will not have a significant impact on net revenue
generation. This is because for every new loan issued where
impairment is booked on origination, there is another older loan
that reports higher net revenue than under the current accounting
standard. However, if a reporting segment’s receivables portfolio is
growing, net revenue and profit will be lower in the earlier months
under IFRS 9. This is because impairment booked on originating
loans will be larger than the benefit arising from lower impairment
on the older loans, due to portfolio growth.
The profit before taxation impact that IFRS 9 would have had on
our 2017 reporting is summarised below.
European home credit
Mexico home credit
IPF Digital
Central costs
Profit before taxation
ongoing businesses
Slovakia and Lithuania
Profit before taxation
from continuing
operations
2017
reported
profit
£m
114.3
14.7
(11.7)
(14.9)
102.4
3.2
IFRS 9
impact
£m
(2.0)
(1.8)
(4.6)
–
(8.4)
–
2017
IFRS 9
profit
£m
112.3
12.9
(16.3)
(14.9)
94.0
3.2
105.6
(8.4)
97.2
The total impact of IFRS 9 on the Group’s net assets as at
1 January 2018 was as follows:
Receivables
Deferred tax
Other net assets
Net assets
Equity % receivables
Reported
1 January 2018
£m
Transitional
impact
£m
IFRS 9
1 January 2018
£m
1,056.9
93.0
(653.0)
496.9
47.0%
(130.5)
23.1
–
(107.4)
926.4
116.1
(653.0)
389.5
42.0%
Opening net assets is stated after the one-time reduction in the
accounting value of receivables at the start of the year arising from
the implementation of IFRS 9 which totalled £130.5 million or 12.3%
of the accounting value of the receivables portfolio under the old
accounting standard. This impact has been charged to equity in
accordance with the transitional rules included in IFRS 9. The impact
of this reduction on net assets was partially mitigated by an increase
in the deferred tax asset reflecting the fact that, under IFRS 9, net
revenue is recorded more slowly in the Financial Statements than
under the old accounting standard and hence the timing difference
between the Financial Statements and the tax returns is larger.
In the Financial Statements included within this Annual Report,
the Group has elected not to restate comparatives on initial
application of IFRS 9 and, as such, 2017 comparatives are as
previously reported.
For more information on the implementation of IFRS 9
see pages 136-137
39
STRATEGIC REPORTAnnual Report and Financial Statements 2018
FINANCIAL REVIEW CONTINUED
IFRS 16 Leases
IFRS16 Leases is a new accounting standard which became
effective from 1 January 2019. It distinguishes leases and service
contracts on the basis of whether an identified asset is controlled
by a customer. The distinction of operating leases and finance
leases are removed for lessee accounting, and is replaced by
a model where a right-of-use asset and a corresponding liability
has to be recognised for all leases by lessees with some minor
exceptions. The right-of-use asset is measured initially at cost and,
subsequently, measured at cost less accumulated depreciation
and impairment losses. The lease liability is measured initially at the
present value of the lease payments that are not paid at that date.
Subsequently, the lease liability is adjusted for interest and lease
payments. Our preliminary assessment indicates that there will be
an increase in both assets and liabilities of around £22 million on
the date of transition with no impact on net assets. The impact
of the new standard on the profit and loss account in 2019 is not
expected to be significant. More details are set out on page 102.
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, 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.
We further strengthened our debt funding position by adding
£84 million of new funding in 2018. In June, we issued a Swedish
Krona 450 million (£40 million) senior unsecured floating rate bond
due in 2022 under our existing Euro Medium Term Note programme.
This forms part of our funding strategy to support the long-term
growth of the business by diversifying sources of debt funding,
and extending the debt maturity profile beyond the main Eurobond
maturity in 2021. In addition, we put in place £44 million of new bank
funding including facilities provided by new banks in Romania,
Poland, and Hungary.
At December 2018, we had total debt facilities of £886.0 million
(£569.8 million bonds and £316.2 million bank facilities) and
borrowings of £698.3 million, with headroom on undrawn debt
facilities of £185.5 million. Of our committed funding, £177.0 million
now extends beyond the Eurobond maturity in 2021, including
£72.8 million in 2022/23. We repaid total bonds of £65.1 million which
matured in 2018, and have one bond maturity in December 2019
of £15.4 million. Our balance sheet remains robust, with an equity to
receivables capital ratio at December 2018 of 43.6% compared with
42.0% at December 2017.
Bonds
Euro
Sterling
Romanian
Swedish
Polish
Total bonds
Bank facilities
Total debt facilities
Total borrowings
Headroom
Maturity
April 2021
May 2020
December 2019
June 2022
June 2020
2019-2023
£m
370.9
101.5
15.4
40.0
42.0
569.8
316.2
886.0
698.3
185.5
We will continue our funding strategy of diversifying and
extending debt facilities in addressing the material bond
refinancing in 2020/21.
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 (£370.9 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.
40
International Personal Finance plc By maintaining a strong financial profile, we operate with significant
headroom on the key financial covenants (which are prepared on
an IAS39 basis) in our debt facilities, as set out in the table below.
Summary of key financial statistics
2017
reported
Covenant compliance
and other key metrics
Gearing*
Interest cover
Max 3.75
Min 2 times
2017
1.4x
3.1x
2018
1.3x
3.3x
* Adjusted for derivative financial instruments and pension liabilities
according to covenant definitions
Foreign exchange 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 an £8.7 million foreign exchange movement,
which has been debited to the foreign exchange reserve.
Taxation
The taxation charge on profit for 2018 has been based on an
effective tax rate of 31%. The taxation charge for the year on
statutory pre-tax profit was £33.9 million (2017: £30.6 million on
a pre-exceptional tax charge basis). As set out in our Q3 trading
update on 18 October 2018, a draft law proposing amendments
to existing tax legislation in Poland was submitted to Parliament
and came into force on 1 January 2019. The main impact for our
business is that certain cross-border transactions entered into by
our Polish subsidiary are now economically inefficient. As a result
of these changes, we expect the effective tax rate for the Group
to be around 41% in 2019.
In January 2017, the Group’s home credit company in Poland
received adverse decisions on tax audits in respect of 2008
and 2009 and consequently was required to pay £36.1 million
(comprising tax and associated interest) in order to lodge an
appeal in the Polish courts. The court process was subsequently
stayed while these decisions became subject to a process
involving the UK and Polish tax authorities aimed at ensuring
that an intra-group arrangement is taxed in accordance with
international tax principles. The tax returns for 2010 to 2012 are
currently subject to tax audits and all subsequent years remain
open to audit. The total potential liability for all open years (2008
to 2018), if all years were assessed on the same basis as 2008
and 2009, would amount to around £169 million including the
£36.1 million that has already been paid, and this is disclosed in
the Financial Statements as a contingent liability. We have received
strong external legal advice, and note that during a previous tax
audit by the same tax authority, the Company’s treatment of these
matters was accepted as correct. Therefore the payment of the
sum outlined above is not a reflection of our view on the merits
of the case, and accordingly the £36.1 million already paid has
been recognised as a non-current financial asset in these Financial
Statements given the uncertainties in relation to the timing of any
repayment of such amounts. Further details are set out in note 30.
Revenue (£m)
Profit before tax (£m)
EBITDA (£m)
Cash generated from
operating activities (£m)
Impairment as a percentage of
revenue (%)2
Receivables (£m)
Equity (net assets) (£m)
Equity to receivables (%)
ROA1 (%)
ROE1(%)
Capital generated (£m)
Dividend paid (£m)
Dividend per share (pence)
Finance costs (£m)
Borrowings (£m)
Gearing (debt: equity multiple)
Debt:EBITDA multiple
2017
IFRS 9
842.6
97.2
174.1
2018
IFRS 9
866.4
109.3
191.5
825.8
105.6
182.5
143.6
143.6
141.6
24.4%
1,056.9
496.9
47.0%
11.5%
16.2%
21.8
27.6
12.4
55.2
677.7
1.4x
3.7x
27.9%
926.4
389.5
42.0%
12.3%
19.0%
23.3
27.6
12.4
55.2
677.7
1.7x
3.9x
26.2%
992.8
433.0
43.6%
12.5%
18.3%
20.2
27.7
12.4
58.5
698.3
1.6x
3.6x
1. 2017 Adjusted for exceptional tax charge
2. 2017 excluding Slovakia and Lithuania
Going concern
The Board has reviewed the budget for the year to 31 December 2019
and the forecasts for the two years to 31 December 2021, which
include projected profits, cash flows, borrowings, headroom
against debt facilities, and funding requirement.
The plan is stress tested in a variety of downside scenarios that
reflect the crystallisation of the Group’s principal risks with particular
reference to regulatory, taxation, funding, market and counterparty
risks as outlined on pages 45 to 50 and the consequent impact
on future performance, funding requirements and covenant
compliance. Consideration has also been given to multiple risks
materialising concurrently and the availability of mitigating actions
that could be taken to reduce the impact of the identified risks.
The Group’s total debt facilities including a range of bonds
and bank facilities, combined with a successful track record of
accessing debt funding markets over a long period (including
periods of adverse macroeconomic conditions and a changing
competitive and regulatory environment), is sufficient to fund
business requirements for the foreseeable future. Taking these
factors into account, together with regulatory and taxation risks set
out on pages 45 and 46, 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 and
Financial Statements.
41
STRATEGIC REPORTAnnual Report and Financial Statements 2018
PRINCIPAL RISKS AND UNCERTAINTIES
CEO GERARD RYAN REVIEWS
RISK MANAGEMENT
has impacted customer acquisition. Details of these matters are
outlined in my CEO review on pages 20 to 23 and our Principal
risks, later in this section.
Q. Did the principal risks change in 2018?
Yes. With the introduction of GDPR regulation in our European
operations, greater emphasis was given to this matter by treating
it as a specific risk under our risk management framework. This
decision was taken in order to better identify, evaluate and mitigate
any risks related to non-compliance with data privacy regulations.
Q. What are the key risks expected to be in 2019?
We expect regulation, competition, tax and funding to continue to
be key focus areas over the year ahead. All of our principal risks will
be monitored and managed closely, all of which are included on
pages 45 to 50.
Q. How are risks identified at IPF? Did this change
in 2018?
We identify new, developing 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 43.
Internally, we are enhancing the risk management process across
our business, maintaining emphasis on the ability to identify and
evaluate developing risks. This includes periodic review and
adjustment, as necessary, of our risk assessment methodology
across the Group.
Q. How is risk evaluated at IPF?
We evaluate each risk at least quarterly based on the likelihood
and potential financial impact 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 fit within
our Board-approved 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?
The principal risks to our strategy are identified, evaluated and
managed at Group level in accordance with our operational
governance and oversight structure. 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.
“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
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.
Q. What were the key risk focus areas in 2018?
We continued to operate within a challenging external environment
with regulatory risk remaining a priority for our Board, alongside
competition and tax. In Romania, debt-to-income legislation
introduced by the National Bank in Romania came into effect on
1 January 2019 and an APR cap was also passed and is expected
to come into effect in 2019. In February 2019, the Polish Ministry of
Justice published a draft bill containing a modified set of proposals
for a reduction in the cap on non-interest costs that may be
charged by lenders in connection with consumer loan agreements.
The tax audit appeals in Poland are pending a resolution of a
process between the Polish and UK tax authorities. The European
home credit business continues to face intense competition which
42
International Personal Finance plc Q. How do you determine risk appetite and did it
change in 2018?
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 to bring the risks back within our approved
level. Progress against these action plans is monitored by the
Board through the Audit and Risk Committee.
The setting of risk 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 our markets generate 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 and our risk appetite remained broadly
unchanged in 2018.
Q. How are you managing Brexit?
In July 2016, a month after the Brexit referendum, the Audit and Risk
Committee identified areas where Brexit could potentially have a
impact on IPF and agreed high-level actions to monitor and mitigate
those impacts using the existing risk management governance
structure. Following continuing uncertainty regarding the basis upon
which the UK would be leaving the EU and transition arrangements,
the IPF Board decided to set up a full project management structure
to apply a co-ordinated approach to the identified risks in the event
of the UK leaving the EU without a deal, to gain external legal
assurance on the planning work to address those risks, and to
ensure that proper contingency arrangements were being adopted
wherever possible. As IPF’s European operations are all within the EU,
we continue to believe that there will not be significant operational
disruption. Our contingency planning remains focused on the areas
of people, data, and cross-border corporate structures; and we
believe that we have robust plans in place to address the risks.
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 16 to 17) and target business model
(as described on pages 8 to 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 the 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 reviewed 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 60 for Committee membership and remit.
Risk Advisory Group
The Risk Advisory Group comprises members of the Senior
Management Group. 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 of and oversight
to the systems of internal control, including risk management.
The Group Head of Internal Audit reports directly to the
Chairman of the Audit and Risk Committee.
Annual Report and Financial Statements 2018
43
STRATEGIC REPORTAnnual Report and Financial Statements 2018
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 50.
Risks
Regulatory
Description
• Legal and regulatory
• Compliance with existing
compliance*
laws and regulations
• Legal and regulatory
challenges and issues*
• Challenges to interpretation
or application of existing laws
and regulations
• Future legal and regulatory
• Anticipating and responding
development*
• GDPR*
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
• Counterparty
World economic
environment*
Taxation*
• Reputation*
• Customer service
performance and asset values
• Loss of banking partner
• Adapting to economic
conditions
• Changes to, or interpretation
of, tax legislation
• Reputational damage
• Maintenance of customer
service standards
• Credit*
• Safety*
• People*
• Business continuity* and
information security*
• Financial and performance
reporting
• Technology*
• Fraud
• Customers fail to repay
• Harm to our agents/employees
• Lack of people capability
• Recoverability and security
of systems and processes
• Failure of financial
reporting systems
• Maintenance of effective
technology
• Theft or fraud loss
• Change management*
• Brand
• Delivery of strategic initiatives
• Strength of our customer
brands
Risk category
Definition
Market conditions
The risk that we cannot identify,
respond to, comply with or take
advantage of external market
conditions.
Stakeholder
Operational
The risk that key stakeholders take
a negative view of the business as
a direct result of our actions or our
inability to effectively manage
their perception of the Group.
The risk of unacceptable losses as
a result of inadequacies or failures
in our internal core processes,
systems or people behaviours.
Business
development
The risk that our earnings are
impacted adversely by a
sub-optimal business strategy or
the sub-optimal implementation
of that strategy, due to internal
or external factors.
44
International Personal Finance plc As at the year end, the Board considered that there are 17 principal risks which require ongoing focus
(noted with asterisks in the table on page 44).
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
(including GDPR), 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.
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
profitable growth.
Impact
Changes in regulation,
differences in interpretation
or clarification of regulation,
or changes in the
enforcement of laws
by regulators, courts or
other bodies can lead to
challenge of our products
and/or practices. We monitor
legal and regulatory
developments to ensure
we maintain compliance,
remain competitive
and provide value for
our customers.
Likelihood
The likelihood of legal and
regulatory change and the
impact of challenge vary by
market. In 2018, in addition to
the implementation of the
GDPR across the EU, notable
changes occurred in
Romania in terms of the
debt-to-income regulation
and in Poland’s tax
legislation. We also expect
pricing regulations to be
implemented at some point
in the future in those markets
where there are no price
caps currently.
Impact
In an environment of
increasing competition
and broadening customer
choice, ensuring our product
meets customers’ needs
is critical to delivering
profitable growth.
Likelihood
Competition varies by
market and is likely to
remain at a high level,
particularly in Europe.
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.
We engage with regulators,
legislators and other
stakeholders. The strategy
of strengthening relevant
sector associations
contributes to our
monitoring, as well as
influencing capabilities.
See page 35 for details
of a recent stakeholder
event in Romania.
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 including in
relation to data privacy.
Lead responsibility:
Chief Executive Officer
See CEO’s review on pages 20 to 23 for more
information.
In Romania, new debt-to-income regulations
impacted performance in 2018. Further debt-to-
income regulations were introduced on
1 January 2019 and an APR cap was passed,
which is expected to come into effect in 2019.
Although the APR cap and new debt-to-income
limits will have an effect on sales volumes and
profitability in Romania, we do not expect the
impact to be material at Group level. In February
2019, the Polish Ministry of Justice published a
draft bill containing a modified set of proposals
for a reduction in the cap on non-interest costs
that may be charged by lenders in connection
with consumer loan agreements. The proposals
are open to public consultation and if approved
in their current form, could be effective during
the second quarter of 2019. Once the proposals
are finalised, we will update the market with our
assessment of the likely financial impact on
the Group.
Customer contraction in our European
home credit businesses is due partially
to regulatory changes.
We continued to engage with regulators,
politicians and other stakeholders, participating
in trade associations and informing our
stakeholders about the role our services
play in society and the economy.
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 review
the product development
roadmap, manage
product change and
introduce new products.
Lead responsibility:
Chief Executive Officer
Customer contraction in European home credit
was partly due to more intense competitive
pressure, particularly from digital lenders and
banks as they enhanced their customer
propositions to meet demand for digital
consumer credit. In response, we are offering
larger loans at more attractive prices to our
best quality home credit customers. In Mexico,
competition is stable and digital lending
remains small-scale.
Diversification into digital lending enables us to
offer further product choices to customers in
our target segment.
We intend to introduce digital propositions in all
our home credit markets.
Growth focus – IPF Digital
Risk environment improving
Growth focus – Mexico home credit
Risk environment remains stable
Returns focus – European home credit
Risk environment worsening
45
STRATEGIC REPORTAnnual Report and Financial Statements 2018
PRINCIPAL RISKS AND UNCERTAINTIES CONTINUED
Risk
Relevance to strategy
Mitigation
Commentary
Lead responsibility:
Chief Financial Officer
We have ongoing tax audits in Poland, Mexico
and Slovakia.
In January 2017, Poland received adverse
decisions on tax audits in respect of 2008 and
2009 and was required to pay £36.1 million
(comprising tax and associated interest) in
order to lodge appeals. The court process has
been stayed pending resolution of a process
involving the UK and Polish tax authorities
aimed at ensuring that an intra-group
arrangement is taxed in accordance with
international tax principles. The tax returns for
2010 to 2012 are subject to tax audits and all
subsequent years remain open to audit. The
total potential liability for all open years (2008
to 2018), if all were assessed as 2008 and 2009,
would be around £169 million including the
£36.1 million already paid. This is disclosed
in the Financial Statements as a contingent
liability. The payment of the £36.1 million is
not a reflection of our view on the merits
of the case, and accordingly has been
recognised as a non-current financial
asset in these Financial Statements.
Following legislative change in Poland,
effective from 1 January 2019, we expect
the effective tax rate for the Group to be
around 41% in 2019.
Further detail on tax matters is included
in the CEO’s review on page 22 and the
Financial review on page 41.
Lead responsibility:
Chief Executive Officer
Effective oversight of the technology
deliveries within the portfolio is ensured
through the operation of a governance
framework which supports the
achievement of our strategic objectives,
and through a prioritisation process that
objectively identifies the priority technology
and change initiatives.
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.
Impact
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.
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. We
look to maintain systems that
are available to support the
ongoing operations in
the business.
46
Impact
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. The
Group is currently undergoing a
large change agenda which carries
significant levels of inherent risk.
Failure to deliver programmes or
maintain our IT estate could lead
to issues in benefits realisation or
business disruption.
Likelihood
Our change programme is complex,
covering numerous markets. As such
there is a level of risk associated with
its delivery. Unforeseen outages can
happen against key systems as a
result of change or failures in
technology.
Appropriate methods
and resources used
in the delivery of
programs. Programs
are continually
reviewed with strong
governance of all
major delivery activity.
Ongoing reviews
of our services and
relationships with
partners ensure we
maintain effective
service operations.
Annual review
undertaken to
prioritise investment
required in underlying
technology ensures
appropriateness
of the underlying
technology estate.
International Personal Finance plc
Risk
Relevance to strategy
Mitigation
Commentary
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.
Expanding our Mexico home credit
business in 2018 required an increase
in the number of agents and key
employees to meet these
investment plans.
Impact
In order to achieve our strategic goals,
we must continue to attract, engage,
develop, retain and reward the right
people. The very nature of people risk
means that it is often difficult to reduce
the frequency with which risks occur;
however, our controls are aimed at
lowering the impact of any risks.
The Group’s largest people-related
risk relates to turnover in our agent
population. Progress has been made
this year in reducing this closer to our
appetite level, with further work
ongoing throughout 2019.
Likelihood
Our people, organisation and planning
processes ensure that we develop
appropriate and significant strength and
depth of talent across the Group and
that we have the ability to move people
between countries, which reduces
our exposure to critical roles being
underresourced. During 2019, we will
continue to develop, resource, retain
and reward the right people.
The HR control environment
is in place to mitigate the
people risks for the Group.
This identifies the key
people risks and also the
key controls that we have
in place to mitigate them.
The key people risks and
commensurate controls
cover:
• Critical skills shortage
• Lack of succession
to critical roles
• Recruitment risks
• Appropriate distribution
of strategy-aligned
objectives
• Monitoring and action
with regards to key
people risks and issues
• Key people processes
• Appropriate use of
reward and compliance
with delegated authority
from the Remuneration
Committee
Impact
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.
Technology systems and
services are designed for
resilience and tested
before launch.
There is periodic testing
and ongoing monitoring
of security and recovery
capability for technology
and premises.
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
During 2018, we performed a number
of tests of our information security
and continue to work towards
further improvement.
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. In 2018,
we further strengthened our internal
defences with the implementation
of enhanced cyber security tools.
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.
Growth focus – IPF Digital
Risk environment improving
Growth focus – Mexico home credit
Risk environment remains stable
Returns focus – European home credit
Risk environment worsening
47
STRATEGIC REPORTAnnual Report and Financial Statements 2018
PRINCIPAL RISKS AND UNCERTAINTIES CONTINUED
Risk
Relevance to strategy
Mitigation
Commentary
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.
Impact
Our reputation can have an
effect on both customer sentiment
and the engagement of key
stakeholders, impacting our ability
to operate and serve our customer
segment. Elements of this risk relate
to external factors that are beyond
our influence. Controls in place
have reduced residual risk.
There is now limited ability to
further reduce this significantly.
Likelihood
We maintain strong relationships
with key stakeholders across the
Group in order to develop their
understanding of our business
model and how we deliver services
to our customers. This helps
protect the business from
unforeseen events that could
damage our reputation.
Impact
Changes in economic conditions
have a direct impact on our
customers’ ability to make
repayments. This risk is led entirely
by external factors that are not
controllable and is driven by the
business model and in particular
the specifics of the markets where
we operate.
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.
Clearly defined corporate
values and ethical
standards are
communicated
throughout the
organisation and
employees and agents are
mandated to undertake
annual ethics e-learning.
Lead responsibility:
Chief Executive Officer
Our home credit and digital businesses
have received a number of industry
awards for the way we conduct our
business. We have been recognised
for our responsible lending practices,
as a top employer and for being a
socially responsible business.
Regular monitoring of
key reputation drivers.
We take a proactive approach to
reputation management and update
the market on material challenges that
we are required to disclose.
Treasury 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
European markets in 2018. Current
indicators suggest our markets will deliver
positive GDP growth, low unemployment
and moderately increasing inflation in
2019. In Mexico, political change resulted
in some uncertainty in 2018 but positive
GDP growth is forecast in 2019 and 2020.
We have taken a coordinated approach
to the risks identified in the event of the UK
leaving the EU without a deal and robust
plans are in place to address these risks.
As our European operations are all within
the EU, we continue to believe that there
will not be significant operational
disruption. See page 43
for additional detail.
We continue to monitor other geopolitical
events on financial markets and
macroeconomic conditions.
48
International Personal Finance plc
Risk
Relevance to strategy
Mitigation
Commentary
9. Safety
The risk of personal injury
or harm to our agents
or employees.
Objective
We aim to maintain adequate
arrangements and controls
that reduce the risks to as low
as is reasonably practicable.
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.
Impact
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 while performing
their role is paramount to us.
Likelihood
Safety risks typically arise from
the behaviour of individuals
both internal and external to the
business and therefore the ability
to remove the risk entirely is not
possible with the current business
model, working with 21,000 agents,
however, improvements are
constantly sought to reduce
the risk where possible.
Safety management systems
based on internationally
recognised standards.
Market safety committees
and annual safety survey.
Bi-annual risk assessment
for each agency including
mitigation planning and
field safety training.
Annual self-certification
of safety compliance
by managers.
Regular branch safety
meetings and safety
awareness campaigns.
Role-specific training and
competence matrix.
Lead responsibility:
Chief Executive Officer
We continued to make progress in
our safety management systems,
and our home credit businesses either
maintained their Occupational Health
and Safety Assessment Series (OHSAS)
certification or are now working
towards the new standard that
replaced OHSAS in 2018 (ISO 45001
Occupational Health and Safety
Management Standard).
Safety continues to be a significant
area of focus for the Group.
Impact
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. The nature of the
business is such that the financial
impact of credit risk, even at
appetite levels, is substantial.
Reducing credit risk further could
result in reduced revenue and
increased cost ratios. For new
businesses, credit risk is higher
due to the lack of historical
data our credit scorecards rely
upon to make adequate
lending decisions.
Likelihood
Our control environment means
that we will see issues quickly and
the systems in place mean that we
can change credit settings quickly,
and therefore the likelihood of
suffering large losses is low.
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 change is introduced,
the credit systems allow for a
testing approach that gives
direct comparison of the
current ‘champion’ regime
against the new ‘challenger’.
Lead responsibility:
Chief Executive Officer
Overall, credit quality was well
managed and Group impairment
as a percentage of revenue improved.
The credit quality of the European
home credit portfolios was very good
in 2018, driven mainly by good
collections made by agents and
strong post-field collections.
Our Mexico home credit business
maintained adequate collections
while delivering growth, and
impairment as a percentage
of revenue for 2018 was slightly
higher than 2017.
The credit risk environment in our
established IPF Digital markets is
generally stable. In our new markets,
impairment as a percentage of
revenue improved by 26.6ppts as we
delivered improved credit settings and
built scale. This resulted in a significant
improvement in impairment as a
percentage of revenue for IPF
Digital as a whole.
Growth focus – IPF Digital
Risk environment improving
Growth focus – Mexico home credit
Risk environment remains stable
Returns focus – European home credit
Risk environment worsening
49
STRATEGIC REPORTAnnual Report and Financial Statements 2018
PRINCIPAL RISKS AND UNCERTAINTIES CONTINUED
Risk
Relevance to strategy
Mitigation
Commentary
Impact
Funding at appropriate cost and on
appropriate terms, and management
of financial market risk, are necessary
for the future growth of the business.
Likelihood
Board-approved policies require us
to maintain a resilient funding position
with good headroom on undrawn
bank facilities, appropriate hedging
of market risk, and appropriate limits
to counterparty risk.
Adherence to Board-
approved policies
monitored through the
Treasury Committee,
finance leadership
team and regular
Board reporting.
Funding plans
presented as part
of budget planning.
Strong relationships
maintained with
debt providers.
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.
Lead responsibility:
Chief Financial Officer
Our business has a robust funding position
with good headroom on undrawn bank
facilities. We have continued to execute
our strategy of diversifying the sources
of funding and extending the maturity
profile. In 2018, we transacted a four-year
Swedish Krona 450 million (£40 million)
floating rate bond and have added
£44 million of new bank facilities. We will
continue this strategy in addressing the
material bond refinancing in 2020/21. The
good level of headroom on bank facilities
gives us significant flexibility on timing.
Hedging of market risk and limits on
counterparty risk are in line with
Board-approved policies.
Further information on our funding position
is included in the Financial review on
pages 37 to 41.
Viability statement
The Directors have assessed the long-term prospects of the business
and taken into account:
• the historic resilience of the IPF business model over a long
period including times of adverse macroeconomic conditions
and a changing competitive and regulatory environment;
• the beneficial portfolio effect of operating across a number
of different jurisdictions which mitigates concentration risk;
• IPF’s multi-channel strategy and strategic priorities, and
assessment of performance against key performance
indicators each of which is linked to long-term strategy;
• risk appetite, principal risks and risk management processes
as set out in the Principal Risks table on pages 44 to 50; and
• that IPF provides access to regulated credit in a responsible,
transparent and ethical manner, for people who might otherwise
be excluded from mainstream credit operators, acknowledging
that it is possible to regulate away the supply of credit but not
the demand.
A thorough top-down and bottom-up risk assessment process
takes place with risk appetites assigned to each of the risks, and
performance against those appetites monitored on a regular
basis at Country and Board level. This includes a regulatory risk
radar process.
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 and has adequate
long-term prospects. 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, funding, market and counterparty risks as outlined on
pages 45 to 50 and the consequent impact on future performance,
funding requirements and covenant compliance. Consideration
has also been given to multiple risks materialising concurrently and
the availability of mitigating actions that could be taken to reduce
the impact of the identified risks.
The Directors have determined that three years is an appropriate
period over which to provide the viability statement because it aligns
to the key period of the planning process, and reflects the relatively
short term nature of our business and the ability to change products,
adjust credit risk in the receivables book and flex our business
model. 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
27 February 2019
50
International Personal Finance plc
CHAIRMAN’S INTRODUCTION TO DIRECTORS’ REPORT
Q. What were the areas of focus for delivering the
strategy in 2018?
It is our responsibility to provide strategic oversight of management
and their direction of travel, while promoting stability and growth
for our shareholders and other stakeholders. Our Board meeting
agendas are focussed on strategic priorities and monitoring
activities. We held a Board session where we appraised our
performance against our current strategy and discussed
our long-term strategy and opportunities to accelerate our
performance in each of our markets in a sustainable way.
Q. What role does the Board play in business ethics?
Our businesses provide small-sum, unsecured consumer loans
and lines to customers who are underbanked and underserved
by mainstream credit operators and it’s vital we lend responsibly.
We have a strong ethical culture embedded throughout the Group
and it is the Board’s role to ensure this continues to be the case.
We also make sure that our performance management and reward
system help to support and encourage the right behaviours.
Employees and agents are required to complete ethics training.
Q. What are the key focus areas for the
Board in 2019?
Our focus will be on monitoring our operational and financial
performance and our strategic priorities. This includes optimising our
European home credit business to continue to generate high levels
of returns to fund growth in our home credit business in Mexico, and
to deliver a maiden profit for our IPF Digital business. We will also be
increasing our focus on technology development and deployment
to improve the customer experience, customer retention and
profitability. The Board’s 2019 objectives are on page 55.
Q. What engagement has the Board had with its
shareholders and stakeholders?
Our investor relations programme focuses on maintaining good
relationships with our major shareholders, keeping them informed
of progress. Together with my fellow Board members Tony Hales
and Richard Moat, I hosted our annual lunch for investors when we
discussed the progress we are making and explored their priorities
as shareholders. Gerard Ryan and Justin Lockwood, our CEO and
CFO respectively, undertook two investor roadshows, and a series
of investor conferences, and all the presentations, webcasts and
conference calls undertaken are accessible via our website.
I visited Madrid where I spent two days with our digital team and,
together with our CEO, I visited our businesses in Mexico to gain
greater insight into our operations and the customers we serve and
I also visited our IPF Digital team in Estonia. We held a Board meeting
in Poland where we were briefed by the IPF Digital and Poland home
credit management teams on business performance as well as tax
and regulatory issues. We also spent time with the local functional
and operational leadership teams in the markets. Other Board
members regularly visit our operations and receive one-on-one
updates from the teams.
Taking the right decisions and ensuring that we do the right thing
by our stakeholders are already recognised facets of our corporate
culture. We are considering ways in which more meaningful
engagement can take place between the Board, our employees
and wider society and appointed Bronwyn Syiek, as the Board’s
workforce and stakeholder engagement director to help us
succeed in this objective.
I look forward to meeting shareholders at our AGM on 2 May 2019.
51
“The Board has a vital role to play
in defining our behaviours and
how we grow the business.”
Dan O’Connor
Chairman
Dear Shareholder,
We are committed to being a responsible, purpose-driven business
which delivers great service to our customers and creates value
for our stakeholders, notwithstanding challenging market and
regulatory conditions. Good governance is essential to support
our strategic priorities and the Board has a vital role to play
in defining our behaviours and how we grow the business.
We describe how we have complied with the UK
Corporate Governance Code on pages 82 to 83.
Q. How does the Board ensure that it has the right
mix of skills and experience to deliver its strategic
objectives?
As Chairman of the Nomination Committee, I have sought to
expand the experience and diversity of the Board. I am delighted
that Deborah Davis and Bronwyn Syiek accepted our invitation
to join the Board as non-executive directors in October 2018. Their
expertise, experience and perspectives are already valued additions
to the Board. Following a rigorous selection process to find the right
individual to take over the role of senior independent director,
I am pleased that Richard Moat has agreed to take up this position
at the conclusion of the AGM (subject to his re-election). His skills,
knowledge and experience make him a worthy successor to
Tony Hales, whose contribution to the Board and the Group’s
businesses has been invaluable.
We assessed the skills and experience of the Board in
our annual Board evaluation which are summarised on
page 57, and concluded that the Board is operating effectively.
DIRECTORS’ REPORTAnnual Report and Financial Statements 2018
OUR BOARD AND COMMITTEES
1
3
5
7
9
52
1. Dan O’Connor
(Chair)
Chairman
Length of service: 4 years and 2 months
Appointments and qualifications: Dan was previously a
non-executive director of CRH plc and Chairman of Allied Irish
Banks plc. 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, promoting an
effective Board by facilitating open and robust debate. He is
committed to strong corporate governance and has regular
constructive engagement with investors and other stakeholders.
2. Gerard Ryan
Executive director and Chief Executive Officer
Length of service: 7 years and 1 month
Appointments and qualifications: Gerard was previously CEO for
Citigroup’s consumer finance businesses in 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. His acute market
insight provides a real advantage in driving the implementation
of the strategy, and identifying and pursuing growth opportunities
for our business.
3. Justin Lockwood
Executive director and Chief Financial Officer
Length of service: 2 years
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,
which, allied with a broad and deep understanding of the Group’s
operations, enables him to be particularly effective in supporting
the Board and the Executive Committee in driving optimum
financial performance.
2
4
6
8
Key
Audit and Risk Committee
Disclosure Committee
Executive Committee
Nomination Committee
Remuneration Committee
Technology Committee
Workforce and stakeholder
engagement director
International Personal Finance plc
4. Tony Hales CBE
7. John Mangelaars
(Chair)
Senior independent non-executive director
Length of service: 11 years and 7 months
Independent non-executive director
Length of service: 3 years and 7 months
Appointments and qualifications: Tony was Chairman of Canal
& River Trust, Workspace Group plc and NAAFI, Chief Executive of
Allied Domecq plc. He was previously a director of Welsh National
Opera Limited 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
and the Associated Board of the Royal Schools of Music. He is also
a non-executive director of Capital & Regional plc, a board member
of The Services Sound and Vision Corporation 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. Deborah Davis
Independent non-executive director
Length of service: 4 months
Appointments and qualifications: Deborah is currently a non-
executive director of The Institute of Directors and Which? Limited
in the UK, IDEX Biometrics in Norway, and is a Trustee of Southern
African Conservation Trust in South Africa. Deborah was previously
Vice President of Global Partnerships, and Vice President of Global
Risk Operations at PayPal based in London and Vice President of
European Operations for eBay Marketplaces based in Germany.
Key strengths and contributions: Deborah has wide ranging
non-executive director experience in fintech, consumer and
technology businesses undergoing digital transformation, growth
and geographic expansion. Her experience provides the Board
with valuable strategic and operational insights on growth and
expansion of the digital business as well as customer experience
and innovation throughout the Company.
6. Richard Moat
(Chair)
Independent non-executive director
Length of service: 6 years and 8 months
Appointments and qualifications: Richard is a non-executive
director of Eir Limited, having previously served as Chief Executive
Officer until April 2018. He was 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 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.
Key strengths and contributions: Richard has more than
25 years’ 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 (BICT) 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
(Chair)
Independent non-executive director
Length of service: 5 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, and 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 a non-executive director of
Chubb European Group SE, Chubb European Group plc, AA plc,
Chubb Underwriting Agencies Ltd, The Equitable Life Assurance
Society and AA Insurance Holdings Limited.
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.
9. Bronwyn Syiek
Independent non-executive director
Length of service: 4 months
Appointments and qualifications: Bronwyn is currently a Trustee
of The SETI Institute, a US-based non-profit scientific research institute
and significant contractor to NASA. Bronwyn was previously the
executive president and a board member of QuinStreet Inc.,
having been its Chief Operating Officer. A NASDAQ-listed company,
QuinStreet is a leader in online performance marketing products
and technologies, serving a number of sectors including financial
services. Bronwyn also served on the management committee of
De La Rue, a major European provider of online and offline security
products and services, and before that was a consultant with
McKinsey & Company, Inc.
Key strengths and contributions: Bronwyn has 15 years’
general management experience in high growth businesses in
Silicon Valley, including executive director experience in online
consumer marketing and technology development. She also brings
experience as a non-executive director gained in non-profit scientific
research organisation and education, and 14 years’ experience as
a banker, consultant, focused on strategy and change in large
international companies. Her contribution to Board discussions
is extremely helpful, particularly given her knowledge of online
marketing and technology, promoting the right balance for
the Board between guidance and oversight.
53
DIRECTORS’ REPORTAnnual Report and Financial Statements 2018
DIRECTORS’ REPORT
The Board
Role of the Board
The Board is ultimately responsible to its stakeholders for the
direction, management, performance and long-term success
of the Company. It sets the Group’s strategy and objectives,
and oversees and monitors internal controls, risk management,
principal risks, governance and the viability of the Company.
In doing so, the directors comply with their duties under
section 172 of the Companies Act 2006.
The Board has established certain principal committees to assist
it in fulfilling its oversight responsibilities, providing dedicated
focus on particular areas, as set out below. Each committee
chairman reports to the Board on the committee’s activities
after each meeting.
Key matters reserved to the Board
• Group strategy and determining the nature and extent
of the significant risks it is willing to take in achieving its
strategic objectives
• Overall corporate governance arrangements including
Board and committee composition, terms of reference of
committees, director independence and conflicts of interest
• Approval of the Annual Report and Financial Statements
and regulatory announcements
• Approval of annual budgets and significant
project expenditure
• New accounting policies or significant
changes to existing ones
• Policy on remuneration of directors
• Tax planning proposals relating to the corporate structure
Nomination Committee
Audit and Risk Committee
Remuneration Committee
Board committees and their reserved matters
• Review structure, size and composition
• Monitor integrity of the Financial
of the Board and its committees
• Review annually the succession plan
• Assist in the process of selection and
appointment of a new director
Statements and provide advice to
the Board on whether they are fair,
balanced and understandable
• Review effectiveness of internal controls
and review principal risks
• Appoint and evaluate the external
auditor and their independence
• Review and monitor effectiveness
of internal audit function
• Approve all aspects of remuneration
policy and make recommendations
to the Board
• Determine the remuneration packages
of the executive directors, the Chairman,
the Company Secretary and the Senior
Management Group
• Agree and review policy
for authorisation of expenses
claimed by executive directors
Technology Committee
Executive Committee
Disclosure Committee
• Oversee IT strategy and delivery
• Oversee key IT risks and ensure any
issues are escalated to the Board
• Assure IT deliverables and cost control
• Manage the Group generally,
other than on matters reserved
to the Board and its committees
• Set and communicate the strategy
and ensure that the financial plan
supports this strategy
• Monitor operational and financial
performance
• Assist in design and evaluation of
disclosure controls and procedures
• Review requirement for, and content
of, regulatory announcements
• Monitor compliance with disclosure
controls and procedures
54
International Personal Finance plc
Board and committee members’ attendance at meetings in 2018
Director
Jayne Almond1
Deborah Davis
(appointed 18 October 2018)
Tony Hales2
Justin Lockwood
John Mangelaars3
Richard Moat
Dan O’Connor
Cathryn Riley
Gerard Ryan
Bronwyn Syiek
(appointed 18 October 2018)
Board
2/3
1/1
7/8
8/8
7/8
8/8
8/8
8/8
8/8
1/1
Audit and Risk
Committee
Nomination
Committee
Remuneration
Committee
Technology
Committee
Board composition (%)
2/3
7/7
7/7
4/4
4/4
4/4
4/4
2/4
6/6
6/6
6/6
11%
22%
67%
Chairman
Executive directors
Non-executive directors
4/4
4/4
4/4
Board tenure (%)
34%
33%
22% 11%
Under 3 yrs
3-6 yrs
6-9 yrs
Over 9 yrs
Board diversity (%)
33%
67%
Female
Male
1. Jayne Almond stepped down as a director from the Board at the 2018 AGM. She was unable to attend the Audit and Risk Committee and Remuneration
Committee in February and the Board and Remuneration Committee meetings in May due to prior commitments.
2. Tony Hales was unable to attend the unscheduled meeting in July due to a prior commitment and because the meeting was arranged at short notice.
3. John Mangelaars was unable to attend the Board meeting in January due to a prior commitment.
The Board was supported by its committees in progressing its objectives during the year.
2018 objectives
2018 progress
• Continue to monitor the impacts of, and mitigation planning for,
• Monitored progress of the management of regulatory matters
potential new regulation
• Continue to monitor the impacts of tax audits on the Polish
• Provided effective oversight of tax matters in Poland
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
• Monitored the implementation of the Group’s technology
strategy with the assistance of the Technology Committee.
Completed roll-out of MyProvi agent technology app across our
European home credit markets in 2018. IPF’s Digital platform was
adopted as the strategic digital platform for the Group
• Support the development, testing and deployment
• New products under development
of new products
• Monitor continued performance improvement and profitable
• Effective monitoring and management challenge promoting
growth in Mexico
credit growth and improving profitability
• 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 respect
of leadership, development and succession planning
• Continued development of the control framework and its
monitoring with assistance from the Audit and Risk Committee
• Supported management with the new people strategy, changes
having been made to leadership in some of our markets to
improve performance
• Continue to monitor the development of, and returns generated
• Financial performance in 2018 was ahead of our original
by, our European home credit businesses
expectations and good returns were generated
• Monitor the strength of the Group’s balance sheet and
the development of our longer-term funding strategy
• Further strengthened the funding position with good headroom
on debt facilities
2019 objectives
• Support the development of new products and channels to meet
• Monitor the strength of the Group’s balance sheet and the
customer needs in a responsible and ethical manner
• Monitor the operational and financial performance of the Group’s
businesses, including:
• continued performance improvement and profitable
growth in Mexico;
• delivering a maiden profit in IPF Digital in 2019; and
• continued evolution of our European home credit business,
generating high levels of returns to fund our growth opportunities
• Continue to monitor the Group’s compliance with existing
legislative and regulatory standards, and its mitigation planning for
possible new regulation and consideration of the potential impact
development of our longer-term funding strategy, incorporating
the potential impacts of tax audits on the Polish business
• Continue to support the Group’s people strategy in respect
of leadership, development and succession planning
• Support the development and/or deployment of technology
across the business with emphasis on the customer experience,
customer retention and profitability
• Consider the needs and views of all stakeholders in the Group’s
businesses, including, in addition to the Company’s shareholders,
our employees and agents, customers and suppliers
• Support the Group’s purpose, culture and values and reinforce
its ethical and safety standards
55
DIRECTORS’ REPORTAnnual Report and Financial Statements 2018
DIRECTORS’ REPORT CONTINUED
Board activities during 2018
The Board is responsible for promoting the long-term success of the Company while ensuring that it has an appropriate risk and control
framework, adequate resources and core values to deliver its strategy. The table below summarises the Board’s activities over the year
and the discussions that took place to discharge its duties to the Company.
Strategy and management
Detailed strategy session held
to develop future strategy
Risk management and
internal controls
Financial reporting
Reviewed and approved risk appetite
proposals and the schedule of
principal risks
Received regular updates on
performance against budget
and forecast
Discussed future business development
opportunities
Management of issues associated with
the tax audit in Poland
Approved the 2017 Annual Report and
Financial Statements and assessed that it
was fair, balanced and understandable
Received regular updates from the
Group’s markets and reviewed trading
performance against KPIs
Received regular updates throughout
the year on the implementation of the
Group’s GDPR compliance programme
Reviewed long-term viability statement
and going concern statement in the 2017
Annual Report and Financial Statements
Received updates and discussed the
ongoing transformation of our
technology capabilities
Reviewed personal safety for home
credit agents and reviewed the Group’s
safety management plan
Reviewed and approved half- and
full-year results and announcements,
together with quarterly trading updates
Received a presentation on the Group’s
finance strategy
Received presentations on functional
strategies for HR and Legal
Reviewed risks relating specifically
to a ‘no deal’ Brexit and the associated
contingency planning
Received reports from the Audit and Risk
Committee on the effectiveness of the
systems of risk management and
internal controls
Approved interim and final dividends
Approved the updated Euro Medium Term
Note Programme
Received regular updates on credit
performance across the Group with
particular emphasis on IPF Digital
Approved the reappointment of Deloitte
LLP as auditor on recommendation of
the Audit and Risk Committee
Reviewed and approved the 2019
business plan and budget
Considered business development
opportunities
Received regular updates from the Audit
and Risk Committee in respect of
internal and external audit reviews
Updates provided during the year, giving
the Board oversight of progress on the
implementation and impact of IFRS 9
56
International Personal Finance plc Board composition
and effectiveness
Considered and approved the
appointment of two non-executive
directors and the succession of the senior
independent director, following
recommendations from the
Nomination Committee
Governance
Stakeholder engagement
Received updates on changes and
potential changes in regulations, and
assessed their impact, including the revised
2018 UK Corporate Governance Code
Communicated with our major institutional
investors on the 2019 remuneration proposals
for the executive directors
Reviewed and considered
conflicts of interest
Reviewed and approved matters reserved
to the Board
Visited various market operations
Undertook an internal evaluation of Board
performance and that of its committees
Reviewed succession plans
Received updates from each Board
committee and reviewed terms of
reference for the Executive Committee
and Technology Committee
Reviewed and approved changes to the
Treasury Policy
Board members met institutional investors
during the year
Approved the appointment of a workforce
and stakeholder engagement director
following recommendation from the
Nomination Committee
Board and committee evaluation
In 2018, the Board and its committees carried out an internal evaluation of their performance facilitated by the Company Secretary.
The Board completed a questionnaire on the following subjects and the process is described on page 83:
• strategy
• training needs
• board agendas
• culture
• mix of skills, experience and diversity
• value creation versus risk
• risk appetite and risk management
• effective board meetings
Areas of focus
2018 evaluation results
2019 action plan
Strategy
Training
Progress has been made on setting a clear
strategic direction and having the right senior
management in place. Board members
requested that more time be spent on
strategic priorities in addition to considering
near-term operational issues
Induction training for new directors was considered
good. Additionally, training in specific areas such
as product development and customer
intelligence as well as governance
changes was requested.
Strategy to be a standing item on the Board meeting
agendas throughout 2019
Responsibility: Chairman/Company Secretary
The Company Secretary to co-ordinate training
needs for each of the Board members
Responsibility: Company Secretary
57
DIRECTORS’ REPORTAnnual Report and Financial Statements 2018
NOMINATION COMMITTEE REPORT
“We focused on ensuring the Board
membership remained appropriate,
with a particular emphasis on diversity.”
Dan O’Connor
Committee Chairman
Nomination Committee composition (%)
17%
66%
17%
Chairman
Non-executive directors
Executive directors
Committee members
Dan O’Connor
Chairman
Deborah Davis
Independent non-executive director
Tony Hales
Senior independent non-executive director
John Mangelaars
Independent non-executive director
Cathryn Riley
Independent non-executive director
Gerard Ryan
Executive director and Chief Executive Officer
For Board statistics
see page 55
58
Dear Shareholder,
During 2018, the Nomination Committee focused on ensuring that
Board membership remained appropriate, with an emphasis on
diversity, as the business reacts to ongoing changes in consumer
needs, particularly in respect of digital credit. We engaged Russell
Reynolds, a search consultant which has no other connection to
the Group, to search for two non-executives following the decision
by Jayne Almond not to stand for re-election at the 2018 AGM.
Working to our brief, including an emphasis on digital marketing
experience, Russell Reynolds drew up a shortlist of high-calibre
candidates. Deborah Davis and Bronwyn Syiek were selected and
we took up detailed references before inviting them to join the
Board. I am delighted that Deborah and Bronwyn accepted our
invitation in October 2018 and in the short time they have been on
the Board are making a valuable contribution to Board discussions.
Our search for a new senior independent director to replace Tony
Hales continued during the year. Following a rigorous selection
process, we were happy to agree on the appointment of Richard
Moat with effect from the conclusion of the 2019 AGM (subject
to Richard’s re-election as a director). This is a role which is
critical for good governance and we are confident that Richard
has the appropriate skills, qualifications and capabilities to prove
a worthy successor to Tony Hales. Tony, who has been our senior
independent director since 2010, will be stepping down from the
Board at the conclusion of the AGM. The breadth of experience
that he has brought to bear and the depth of insight he has
demonstrated have been invaluable to the Board, and I would
like to offer my sincere thanks for his support and excellent
contribution to the Group.
As previously mentioned, we have been considering how best to
engage effectively with our employees and wider society. I am
therefore pleased that Bronwyn Syiek has agreed to take up the
role as the Board’s workforce and stakeholder engagement director.
We will report on her role and activities in our 2019 Annual Report
and Financial Statements.
Role and composition
The Committee reviews the size, structure and composition of the
Board, including current skills and tenure, and succession plans.
When reviewing non-executive directors’ appointments, the
Committee considers the current skills and experience of the Board
and assesses future needs against longer-term succession planning
and the Company’s strategy.
The Committee consists of a majority of independent non-executive
directors, as well as the Chairman and Chief Executive Officer, and
met four times during the year. Members and their attendance at
meetings can be found on page 55.The Committee’s terms of
reference, which we review periodically, are available on our
website at www.ipfin.co.uk.
Board diversity
Diversity and inclusion continue to be an area of focus for the
Committee. We recognise the benefits of having a diverse Board
and see increasing diversity at Board level as an essential element
in achieving our strategy.
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
International Personal Finance plc 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.
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 who we aim to ensure are women.
In addition, we only engage executive search firms which have signed
up to the voluntary code of conduct for executive search firms.
The policy was applied in our recruitment activities in 2018 and
executive search firms were asked to provide candidates in line
with the above criteria.
Our objective was to appoint a new non-executive director
and in October 2018 we appointed two additional female
non-executive directors.
Board induction and development
The Company Secretary is responsible for ensuring that new
directors have a thorough and appropriate induction. All newly
appointed director have structured and comprehensive induction
programmes and data packs providing detailed information on
the Group. Deborah Davis has visited operations in Estonia, Poland,
Hungary, Australia and our UK head office, and Bronwyn Syiek has
visited Estonia, Poland, Hungary and our UK head office, as part of
their induction programmes to gain knowledge and insight of our
businesses and to meet the management teams. There are plans
for them to visit other markets during 2019 to deepen their
knowledge of the Group.
Election and re-election of directors
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 Nomination
Committee recommends the election and re-election of all directors
who are standing for election or re-election at our 2019 AGM.
Looking forward
We have made good progress in relation to our Board Diversity
Policy and we will continue to keep under review the composition
of the Board.
“ I was able to hit the ground running
thanks to a comprehensive induction
programme including country visits,
access to management and to
external consultants, and a thorough
multi-month induction plan.
The Board and management have
been welcoming and supportive.
I have been consistently impressed
by the quality and depth of the
team, the quality of thinking and the
management information and reports.
I’m delighted to have joined such a
well-run, collaborative business.”
Bronwyn Syiek
Non-executive director
Board Diversity Policy
Objective
Progress in 2018
• All Board appointments will be made in the context of skills and
experience that are needed for the Board to be effective
• The Committee regularly reviewed the composition of the Board
and appointed two non-executive directors and a new senior
independent director
• Long lists of potential non-executive directors include 50%
• Recruitment long lists for non-executive director appointments
female candidates
made In 2018 included 50% female candidates
• At least two female directors on the Board
• A third of our Board is now female
59
DIRECTORS’ REPORTAnnual Report and Financial Statements 2018
AUDIT AND RISK COMMITTEE REPORT
“The Committee closely monitored the
management of regulatory matters,
including how the Group anticipates and
engages with regulatory developments,
adapts its activities to such developments
when they are implemented, and achieves
ongoing compliance.”
Richard Moat
Committee Chairman
Audit and Risk Committee composition (%)
Independent non-executive directors
100%
Committee members
Richard Moat
Chairman and independent non-executive director
Tony Hales
Senior independent non-executive director
Bronwyn Syiek
Independent non-executive director
(Appointed with effect from 12 December 2018)
Deborah Davis
Independent non-executive director
(Appointed with effect from 21 February 2019)
For insights into our risk management process
see pages 42 to 50
Dear Shareholder,
In 2018, the Committee closely monitored the management
of regulatory matters, including how the Group anticipates and
engages with regulatory developments, adapts its activities to
such developments when they are implemented, and achieves
ongoing compliance. In addition,the Committee focused on Brexit
contingency planning, information security, the developments in the
ongoing tax cases (including accounting treatment and disclosure)
and the implementation of IFRS 9, particularly its impact on the
60
calculation of receivables. The Committee also monitored the
changes made to our operational governance structures across
the business, the progress made in improving the risk management
process (notably the monitoring of risks against appetite) and
overseeing assurance activities over IPF Digital, as the digital
business continues its growth journey.
During 2019, the Committee will focus closely on the management
of taxation risks, regulatory contingency planning, the management
of regulatory risks and the management of risks to strategy
execution, in particular technology risk. In addition the Committee
will closely monitor the continuing adoption of IFRS 9, the
introduction of IFRS 16, and the continuing effectiveness
of the control framework within IPF Digital.
Role and composition
The Committee consists of independent non-executive directors and
met seven times during the year. Members and their attendance at
meetings can be found on page 55.
Bronwyn Syiek joined the Committee in December 2018 and
Deborah Davis joined in February 2019. Jayne Almond stepped
down from the Board and the Committee at the conclusion of
the 2018 AGM.
The external auditor, Deloitte LLP, the Chief Executive Officer, the
Chief Financial Officer, and the Group Head of Internal Audit are
invited to attend all meetings. Periodically, senior management from
across the Group are invited to present on specific aspects of the
business. The Committee also meets from time to time with the
external auditor, without an executive director or another member
of the Group’s Senior Management Group being present.
Functionally, the Group Head of Internal Audit reports directly to
the Chairman of the Committee. For routine administrative matters,
the Group Head of Internal Audit’s principal contact is the Chief
Financial Officer. The Group Head of Internal Audit operates within
a clearly defined remit and has good linkage to the Chief Executive
Officer and to the rest of the organisation.
The Committee’s responsibilities are outlined in its terms of reference
which are available on our website. Its main responsibilities are to:
• monitor the Group’s systems of internal control, including
financial, operational and compliance controls and risk
management systems, and to perform an annual review
of their effectiveness;
• monitor the integrity of the Financial Statements of the Company
and the formal announcements relating to the Company’s
financial performance, reviewing the significant financial
reporting judgements contained in them;
• provide advice to the Board on whether the Annual Report and
Financial Statements, taken as a whole, are fair, balanced and
understandable, and provide the information necessary for
shareholders to assess the Group’s position and performance,
business model and strategy;
• make recommendations to the Board, for the Board to put to
shareholders in general meeting, relating 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 work of the Risk Advisory Group,
in particular the Group schedule of key risks, and consider
the principal risks see pages 42 to 50 facing the Group and
their mitigation.
International Personal Finance plc 2018 objectives
2018 progress
• Ensure processing of personal data meets the requirements
• Monitored progress of GDPR project implementation and
of General Data Protection Regulation (GDPR)
its transition to the business-as-usual environment
• Review effectiveness of contingency plans
to respond to unanticipated legal and
regulatory changes
• Reviewed selection, evaluation and completeness of
contingency plans to respond to unanticipated legal
and regulatory changes
• Confirm the Group’s financial control framework ensures reliable
• Reviewed application of the Group’s financial control framework
financial reporting
and monitored the effectiveness of IFRS 9 related processes
• Monitor developments in field operational processes following
• Reviewed field operational processes supporting the introduction
introduction of agent technology
of agent handheld mobile technology in Europe
• Assess the impact and effectiveness of organisational changes
• Reviewed and assessed impact of organisational changes
to Group oversight functions
on the Group oversight functions
• Evaluate the effectiveness of assurance mechanisms
• Reviewed assurance mechanisms to
to manage people risk
manage people risk
• Review actions taken to improve cost-efficiency within
• Reviewed actions taken to improve cost management
the business
within the home credit business in Mexico
• Evaluate progress made in the implementation of a new
• Monitored progress made to increase the maturity of the
compliance monitoring framework
compliance monitoring framework and the implementation
of previous internal audit recommendations in this area
• Continue to closely monitor effectiveness of the defences
currently in place to prevent the Group becoming a victim
of cyber-crime
• Monitored implementation of actions to improve protection
of our corporate network and reviewed controls over mobile
device solutions
2019 objectives
• Monitor the management of ongoing regulatory and taxation
matters
• Continue to review of how the Group anticipates developments,
managing new regulation coming into effect and achieving
ongoing compliance
• Continue monitoring of Brexit contingency planning
• Evaluate the effectiveness of the internal financial controls
• Monitor the adoption of IFRS 9 and the coming adoption of IFRS 16
• Monitor effectiveness of an enhanced risk management
reporting tool
• Monitor of tax risks facing the Group
• Monitor the continued effectiveness of the governance and
control framework within IPF Digital
• Assess assurance mechanisms in the management of credit risk
• Review the ongoing development of credit scorecards,
specifically in IPF Digital
• Continue to monitor cyber security measures and operational
resilience across the Group
• Review the quality and effectiveness of the internal audit function
and the external auditor
Contingency planning
Against the background of continuing regulatory challenges, a key element of the Group’s strategy is to protect the home credit
business model. The management of future legal and regulatory risks is a critical element of the internal control framework, together
with the establishment of viable contingency plans in response to currently unanticipated but potential regulatory change scenarios.
The 2018 annual internal audit plan included an in-depth evaluation of the selection of regulatory change scenarios to be included
within the 2018 regulatory contingency planning process. The Committee took comfort from the result of the internal audit report,
which recognised the improvements made to the regulatory management framework to ensure appropriate identification,
assessment and selection of future regulatory developments requiring a contingency plan. The internal audit report confirmed
that the framework continues to achieve its required objectives and also identified an opportunity to further align the contingency
planning process with the risk management framework.
In addition, the Audit and Risk Committee invited the Group corporate affairs director to give a presentation during the June 2018
and January 2019 Committee meetings covering progress with the internal audit actions and the selected contingency plans for
the European home credit businesses.
61
DIRECTORS’ REPORTAnnual Report and Financial Statements 2018
AUDIT AND RISK COMMITTEE REPORT CONTINUED
Activities in 2018
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. The Committee also continued
to monitor the implementation of IFRS 9, the financial instruments
accounting standard, which became effective from 1 January 2018,
and received, reviewed and challenged reports from management
on how it was embedded into business-as-usual reporting.
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 areas of judgement in respect
of impairment provisions made against amounts receivable from
customers are the parameters used in the expected loss models,
the expected timing of future cash flows and post-model overlays.
The expected loss models are driven by historic data in respect
of probability of default and exposure at default together with
loss given default for each portfolio. At both the half-year and
full-year results, the Committee considered a paper prepared
by management summarising the work performed to update
parameters used in the expected loss and the cash flow timing
models. This paper also addressed the use of post-model overlays
in instances where the most recent trends in the data are felt
to be more relevant than some of the more historic information.
Further detail on the post-model overlays considered is given in
the key sources of estimation uncertainty section of this Annual
Report on page 108. The external auditor performed audit
procedures on impairment provisioning and reported its
findings to the Committee. The Committee concluded
that the receivables impairment provisioning in the
Financial Statements was appropriate.
• Revenue recognition: the judgement in respect of revenue
recognition is the methodology used to calculate the
effective interest rate. The calculation takes into account
all the contractual terms together with the extent and timing
of customer early settlement behaviour. 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. The Committee
concluded that revenue recognition in the Financial
Statements was appropriate.
• 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 2018, was the basis of the
judgements taken relating to accounting for payments made
relating to the Polish tax audits of the 2008 and 2009 financial
years, the ongoing Polish tax audits in respect of the 2010 to 2012
financial years and the associated contingent liability and liquidity
disclosures. The external auditor performed procedures to assess
management’s judgements and reported its findings to the
Committee. The Committee concluded that the provision for
uncertain tax provisions included in the Financial Statements
was appropriate.
• Regulation: the business is subject to regulatory scrutiny in
multiple jurisdictions and at times it is appropriate to make
provisions 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. The Committee concluded that the
provisions for potentially adverse rulings by regulatory authorities
included in the Financial Statements were appropriate.
Review of the 2016 Annual Report and Financial
Statements
The Financial Reporting Council (FRC) undertook a review of
the Company’s 2016 Annual Report and Financial Statements
to assess compliance with reporting requirements rather than
providing assurance that the document was correct in all material
respects. The review resulted in an exchange of correspondence
with the FRC in respect of the presentation of alternative
performance measures, the presentation of exceptional items
in respect of the wind-down of the Group’s Slovakia operation
and the disclosure of significant accounting judgements and
sources of estimation uncertainty. Consequently, a number of
enhancements were made to disclosures in the 2017 Annual
Report and Financial Statements and the FRC closed its inquiry.
The Company’s response to the inquiry and correspondence
with the FRC was overseen by the Committee.
62
International Personal Finance plc 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. The Group recognises the importance
of strong systems of internal control in the achievement of its strategy
and objectives. It is also 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 and uncertainties facing the
business. The Board formally considers the schedule on a six-monthly
basis and approves risk appetite annually. The Committee is
supported in its work by the Risk Advisory Group, which in 2018
comprised the Chief Executive Officer, Chief Financial Officer and
Chief Legal Officer, together with other members of the Senior
Management Group. 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 focused on monitoring the continuing evolution of
regulation in our territories The Committee received, reviewed and
challenged regular updates from management on these matters.
Following the proposals published by the Polish Ministry of Justice in
December 2016 for a significant reduction to the cap on non-interest
costs charged on consumer loans, the Committee received regular
updates on management’s actions. On 18 February 2019, the
Ministry published a draft bill containing a modified set of proposals
for a reduction in the cap on non-interest costs, details of which
are covered in the CEO review on page 22 and our Principal
risks on page 45. The Committee will continue to monitor the
matter closely.
Additionally, the Committee continued to monitor the progress
of the Polish tax audits for 2008, 2009, 2010 and 2011 together
with the Polish corporation tax law reform that became effective
on 1 January 2018. The Board also received regular updates
on associated issues relating to the tax audits.
The Committee has noted that IPF continued with its strategy of
diversifying the sources of funding, has a strong funding position
with a good level of headroom on undrawn bank facilities which
gives resilience on funding requirements and flexibility on timing.
The Committee will continue to assess the impact of these matters
on the business and in monitoring management’s response
throughout 2019.
The internal control environments in place to manage the impact
of each risk are monitored by the Committee on a regular basis,
as are the principal actions being taken to mitigate 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 2018 are referred to in the ‘Training’ section on page 65.
The internal controls in relation to the preparation of the
Consolidated Financial Statements are outlined on page 88.
Through the Committee, the Group internal audit function
provides independent assurance to the Board on the
effectiveness of the systems of internal control. The Committee
provides oversight and direction to the internal audit plan, which
was developed using a risk-based approach, 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. Deloitte LLP did not highlight any material
control weaknesses.
Internal audit
A firm basis for the opinion on the Group’s systems of internal control
(see page 65) was provided throughout the year by the Group
Head of Internal Audit via the execution of the annual internal audit
plan. KPMG and EY 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 considered and approved the annual internal
audit plan on the basis that it addressed the principal risks and
uncertainties facing the business. The Committee is satisfied that
the internal audit function has a clear remit and a good linkage
with the organisation.
63
DIRECTORS’ REPORTAnnual Report and Financial Statements 2018
AUDIT AND RISK COMMITTEE REPORT CONTINUED
Internal audits performed in 2018:
Basic assurance
Thematic audits
Branch-level reviews:
• Management of credit, collections and loss prevention controls
in home credit branches in Romania where the local regulatory
requirements direct internal audit to perform such work
• Branch processes in support of MyProvi, our mobile handheld
technology collections application for agents
Head office audits:
• Calculation and disbursement of agent pay
• Taxable revenue and impairment calculations
• Procurement framework
• Core controls over:
• People risk
• Treasury risk
• Financial reporting risk
• Health and safety risk
• Regulation and compliance:
• Regulatory contingency planning process
• Implementation of the Compliance Framework
• Implementation of the GDPR requirements
• IT and systems:
• Global IT resource and capability
• Mobile device cyber security
• Cloud adoption project
• Technology investment and integration at IPF Digital
• Credit and collections:
• Lead conversion at IPF Digital
• Reminder and collection partners management at IPF Digital
• Strategic:
• Micro-business loans (Negocio) by Mexico home credit
• European home credit strategy execution
The Committee reviewed the audit reports produced and, together with internal audit, rigorously tracked the resolution of findings and
recommendations raised in the reports.
The Committee assessed the effectiveness of internal audit by monitoring the delivery of the audit plan and by reviewing its staffing and
functional model with the aim of enhancing technology auditing capabilities. It is satisfied that the quality, experience and expertise of the
function are appropriate for the business.
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 services.
The key requirements of this policy are:
• the external auditor is prohibited from providing certain services
which include: tax services; payroll services; designing and
implementing internal controls or risk management procedures;
legal services; internal audit services; human resource services;
valuation services; 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 FRC’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 is important or where the auditor has very specific skills
and experience. However, other large accountancy practices are
also used to provide services where appropriate. During the year,
the non-audit services carried out by Deloitte LLP were as follows.
Non-audit services carried out by Deloitte
LLP in 2018
Other non-audit services
Other assurance services
Total
Fee £’000
7
81
88
64
International Personal Finance plc During the year, the Committee continued to monitor the quality
of the external auditor, in particular, how the auditor applies the
improvements identified by FRC’s Audit Quality Review Team from
its audit of the 2016 Financial Statements. The Committee reviewed
and was satisfied with the specific actions taken by Deloitte LLP to
address the three areas of potential improvement that were
recommended by the FRC’s review.
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. 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
2018, the Audit and Risk Committee is satisfied with the relationship
with the auditor and, in particular, with its independence, objectivity
and effectiveness. Therefore, at its February 2019 meeting, the
Committee recommended to the Board that Deloitte LLP be
reappointed as auditor at the 2019 Annual General Meeting.
During the year ended 31 December 2018, 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 2018. This included presentations on the following
key business areas:
• cyber security assurance in an evolving landscape;
• continued development of the information security framework;
• overview of the political and regulatory environments in our
markets, regulatory trends and the potential of new legislation
coming into effect;
• integrated assurance mapping across the Group’s schedule
of key risks;
• taxation strategy, significant tax risks and issues;
• compliance framework development;
• corporate governance reforms including Audit and
Risk Committee focus areas and best practices;
• developments in the international taxation regulatory
environment, including Brexit negotiations and their
potential impact on the Group; and
• calculation and oversight of revenue and impairment under
IFRS 9 in the business-as-usual environment.
This training was complemented by a visit to the Group’s business
in Poland, which included discussions with the home credit and
IPF Digital management teams.
Committee effectiveness
The Committee’s performance was reviewed as part of the internal
Board evaluation review as discussed on pages 82 and 83.
Feedback on the breadth of oversight, level of challenge and
quality of Board updates provided by the Committee was positive.
The Committee is considered to function well, with structured
meetings and good engagement and challenge provided across
its remit by all its members. It continues to be regarded as thorough
and effective, and to provide the Board with a high level of
assurance that audit matters are dealt with appropriately.
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 2018 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 were in place throughout 2018 and
up to 27 February 2019.
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 2018, 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.
65
DIRECTORS’ REPORTAnnual Report and Financial Statements 2018
TECHNOLOGY COMMITTEE REPORT
“We made good progress in digitising the
home credit businesses with MyProvi, our
mobile handheld technology application,
which is being used by more than
10,000 agents and field managers.”
John Mangelaars
Committee Chairman
Technology Committee composition (%)
Independent non-executive directors
100%
Committee members
John Mangelaars
Chairman and independent non-executive director
Richard Moat
Independent non-executive director
Cathryn Riley
Independent non-executive director
Bronwyn Syiek
Independent non-executive director
(Appointed with effect from 21 February 2019)
Dear Shareholder,
The Committee oversees the implementation of the IT strategy and
monitors progress against its delivery. During 2018, the Committee
received regular updates on the implementation of the IT strategy,
where a number of goals were reached and we provided input,
challenge and approval on the evolution of our IT strategy and
underpinning organisational structures. The Committee will
monitor the delivery of the four pillars of our IT strategy
through 2019 and beyond.
Digitising the home credit businesses
We received reports on the progress made in digitising the home
credit businesses with MyProvi, our mobile handheld technology
application for agents. The roll-out of MyProvi was completed
successfully across our European home credit markets in 2018.
66
This project has enabled the removal of paper and manual
processes in Poland and the Czech Republic, and will also benefit
our other European markets in 2019. The focus will be on enriching
the functionality of MyProvi in Europe to remove further manual back
office processes and the roll-out of the MyProvi application in
Mexico. In addition, we will focus on overseeing and monitoring
the progressive move to cloud-based solutions to drive efficiencies
as the infrastructure provision is standardised across the home
credit businesses.
Single digital platform
During 2018, the Committee approved an evolution in our single
digital platform strategy for all our digital offerings. The programme
has now been reset by utilising existing, proven technologies and
teams from our IPF Digital business with all digital capability now
centralised in support of this. During 2019, we will monitor investment
in the scalability and robustness of our single digital platform and
the start of its deployment to our European home credit markets.
Data strategy
The Committee was updated on progress made with the data
strategy, delivering the first phase of a strategic data lake for the
Group. This has enabled our data science team to access a broad
range of data sets from across the Group which, in turn, supports
our ability to deliver predictive analytical models and insight,
driving tangible value for the business. The analytics and data
management teams, and their capabilities, are being developed
and strengthened to deliver this important element of the IT strategy.
We will continue to monitor the progress made on this important
pillar of the IT strategy where data analytics has the potential to
add value to the Group.
People and capabilities
The Committee was engaged on changes made to the IT structure
and oversaw an evolution in IT strategy in 2018. The Group has
strengthened capabilities to provide greater oversight and direction
for IT globally. A broader IT structure was implemented in which
delivery teams were aligned to the divisional structure of the
businesses, resulting in improved service capability, while
embedding stronger central and Group capabilities.
Role and composition
The Committee consists of independent non-executive directors
and met three times during the year. Bronwyn Syiek, joined the
Committee in February 2019. Members’ and their attendance at
meetings can be found on page 55. The Chief Executive Officer,
Chief Financial Officer and Chief Technology Officer are invited
to attend all meetings. Periodically, senior management from
across the Group are invited to present on matters pertinent
to the Committee’s remit.
The Committee’s responsibilities are outlined in its terms of reference
which are available on our website at www.ipfin.co.uk.
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 delivery of the
programme is supported effectively by appropriate, reliable
plans and governance; and
• authorising commitments within financial limits delegated by
the Board.
International Personal Finance plc DIRECTORS’ REMUNERATION REPORT
“ Our goal is to achieve fair outcomes
clearly linked to business performance
and strategy.”
Cathryn Riley
Chair of the Remuneration Committee
Committee members
Cathryn Riley
Chair and independent non-executive director
Tony Hales
Senior independent non-executive director
Richard Moat
Independent non-executive director
Deborah Davis
Independent non-executive director
Dan O’Connor
Chairman of the Board
Dear Shareholder,
I am pleased to present the Directors’ Remuneration Report
for the year ended 31 December 2018 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.
Our focus this year has continued to be the effective implementation
of the 2017 Policy in the context of business performance and
long-term strategic objectives. Our remuneration principles are
unchanged: simplicity and transparency; alignment with business
strategy; and a strong relationship to business performance.
No significant policy changes are expected in 2019.
Overview
Role and composition
The Committee comprises four independent non-executive
directors and the Chairman. Full biographical details of members
can be found on pages 52 and 53. Jayne Almond stepped down
from the Committee at the conclusion of the 2018 AGM. Deborah
Davis and Dan O’Connor were appointed to the Committee on
12 December 2018.
The Committee met six times during the year. Attendance at
meetings can be found on page 55.
The Committee’s responsibilities include:
• approving the remuneration policy for executive directors, the
Chairman and the Senior Management Group and making
recommendations to the Board. The Committee takes account of
the remuneration of the wider workforce when setting
remuneration policy for, and making remuneration decisions in
respect of, the directors;
• determining appropriate performance targets and incentive
outcomes; and
• engaging with shareholders on matters relating to remuneration.
The Committee’s terms of reference are available on our website at
www.ipfin.co.uk.
2018 focus and progress
The Committee’s primary focus for 2018 was the effective
application of the 2017 Policy. This was achieved by way
of the following:
• salary, bonus and share awards set for executive directors
in line with the 2017 Policy;
• salary, bonus and share awards approved for senior
management;
• the above concluded with clear alignment to business
performance; and
• ongoing monitoring of the regulatory landscape to ensure
continued compliance.
The Committee reviewed its terms of reference during the
year to align with latest governance recommendations.
The Committee also requested Deloitte to perform a review of
the conversion of the IAS 39 budget to IFRS 9, in order to ensure
that sufficient diligence was shown when setting targets for 2018.
Following completion of this review, the Committee drew comfort
from assurances from Deloitte that the process to bring targets into
line with IFRS 9 was diligent and sound.
2019 focus
• Effective application of the 2017 Policy;
• thorough review of Directors’ Remuneration Policy
ahead of the shareholder vote at the 2020 AGM; and
• review of workforce remuneration and related policies,
in line with the Committee’s extended remit resulting
from the Financial Reporting Council’s updated
UK Corporate Governance Code (July 2018).
67
DIRECTORS’ REPORTAnnual Report and Financial Statements 2018
DIRECTORS’ REMUNERATION REPORT CONTINUED
Shareholder and employee engagement
A full consultation was undertaken in 2016 in support of the
introduction of the 2017 Policy, since when we have maintained
an ongoing dialogue with major investors in line with our stated
commitment to operate in an appropriately transparent fashion.
The Committee’s key decisions and rationale were again set
out in a formal letter to major shareholders in January 2019.
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 available employee engagement
results as part of the overall assessment of executive director
performance.
In agreeing amendments to its terms of reference in 2018, the
Committee has undertaken to review wider workforce remuneration
and related policies including pension arrangements for each
executive director and members of the Senior Management Group
and their alignment with those available for the wider workforce.
Further, the Committee considers the alignment of incentives and
rewards with the Company’s strategy and desired culture, taking
these into account when setting the policy for executive director
and Senior Management Group remuneration.
The Committee notes the requirements of the Investment
Association Principles of Remuneration (November 2018) and the
Financial Reporting Council’s updated UK Corporate Governance
Code (July 2018), particularly with regard to pension policy and
post-employment shareholding requirements, and will take account
of these requirements when reviewing the Remuneration Policy
ahead of the shareholder vote at the 2020 AGM.
How we ensure our pay is compliant
The Committee remains determined to ensure that our application
of the 2017 Policy is compliant with both the letter and the spirit of
prevailing regulation and legislation to the greatest extent possible.
As a Committee we continue to achieve this through:
• timely dialogue and consultation with our major shareholders
on remuneration policy and the application of this policy, as
appropriate;
• effective use of the support provided to us by our independent
remuneration advisors, Willis Towers Watson, in understanding
the changing regulatory landscape and how this should inform
both our remuneration policy and its application; and
• 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.
Business context – 2018 performance
We made excellent progress against our strategic objectives
which delivered a very strong financial performance in 2018.
Profit before tax increased by £12.1 million to £109.3 million
as a result of improving profits across all our businesses.
Excellent progress was made against strategic objectives, notably
in Mexico home credit and IPF Digital, and our European home
credit businesses continued to generate cash and capital to fund
growth opportunities and returns to shareholders despite intensifying
competition and contracting customer numbers. The operational
review and financial review for 2018 can be found on pages
26 to 31 and 37 to 41 respectively and include some of the
key financial metrics that we use to incentivise executive
directors to deliver our strategy. Headlines include:
• Group profit before tax from continuing operations of
£109.3 million, an increase of £12.1 million after restating
2017 profit before tax on an IFRS 9 basis;
• revenue less impairment of £639.4 million being higher than 2017
due to a larger receivables balance and stable credit quality;
• strong credit issued growth of 35% in IPF Digital;
• 12% growth in credit issued in Mexico, delivered by strategic
initiatives including geographic expansion and micro-business
loan growth;
• EPS of 33.8 pence, increased from 31.0 pence after restating
2017 profit before tax on an IFRS 9 basis, as a result of the
increase in profit partially offset by a higher effective tax rate.
The Committee considered all aspects of business performance
in detail when determining remuneration outcomes.
Outcomes for 2018
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:
• a 2019 base pay award of 2.5% for our Chief Executive Officer,
which aligns with the award given to the wider workforce in the
UK. In taking this decision, the Committee was mindful that this
is the second year in succession of workforce-aligned award.
The increase was debated fully and deemed fair and reasonable
given the performance of the business outlined above and his
continuing strong leadership of the Company;
• a 2019 base pay award of 8.93% for our Chief Financial Officer,
in line 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);
• financial year 2018 bonus awards of 98.0% of maximum.
These awards reflect the strong financial performance of the
business as outlined in the business context section of this report
26 to 31 and 37 to 41 respectively, coupled with the outstanding
individual performance of each executive director in delivering
their personal objectives as explained on pages 74 to 75;
• 2018 Performance Share Plan (PSP award) of 190% of salary,
in line with policy; and
• legacy 2016 awards that have vested at 0% due to none
of the LTIP measures having been met, see page 76.
In making these decisions, the Committee engaged in
robust and thorough debate, taking into account the
strong performance of the business in approving bonus
recommendations and in its oversight of wider remuneration.
68
International Personal Finance plc REMUNERATION AT A GLANCE
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.
Strategic Priorities
IPF Digital
Mexico home credit
European home credit
• Provide superior customer
experience through innovation
• Build scale and leverage data
• Demonstrate ability to make a return
• Expand geographical footprint
• Build micro-business loans channel
• Improve operational efficiency and
customer penetration rates in selected
longer-established branches
• Provide high-quality service to customers
and optimise operations for returns
• Protect the business model
• Leverage the Provident brand for digital
Our Remuneration Policy
Links to strategy
Key features
2
0
1
8
2
0
1
9
2
0
2
0
2
0
2
1
2
0
2
2
2
0
2
3
Salary,
pension
and
benefits
Annual
bonus
Long-term
incentive
plan
Deferral of 50%
Malus on deferral
Clawback on
cash
Vest
2-year holding
Clawback period
Attract and retain talent capable of delivering
the Group’s strategy
Motivate and reward sustainable Group profit
before tax and the achievement of specific
personal objectives in year linked to the
Company’s strategy
Motivate and reward longer-term performance,
and support shareholder alignment through
incentivising absolute shareholder value creation
Normally reviewed annually
Salary increases take into account salary reviews
across the Group and increases awarded to
UK employees
Maximum opportunity 100% of base (65% on
target); 50% delivered as cash; 50% deferred for
3 years. Typically 80% based on financial and
strategic measures; 20% personal objectives
linked to delivery of strategy
In normal circumstances, award equivalent
to 190% of base salary at time of grant. 3-year
performance period with 3 weighted metrics.
25% vesting at threshold; straight line to maximum.
2-year post-vesting holding period
Our performance in 2018
Our remuneration outcomes
£12.1m increase
Profit before tax
£109.3m
Revenue less impairment
£639.4m
EPS
33.8p
IPF Digital credit
issued growth
35%
Mexico credit issued growth
12%
Base pay award for our CEO
2.5%
Base pay award for our
CFO in line with previously
declared intent
8.93%
Bonus award % of
maximum award
98%
98%
Chief Financial Officer
Chief Executive Officer
Performance Share Plan
awards of salary in line with
policy
190%
Legacy 2016 Performance
Share Plan vested at
0%
TSR Performance vs CEO Single Figure
450
£’000
2,500
400
350
300
250
200
150
100
50
0
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
31 Dec 2018
International Personal Finance
FTSE 250
CEO Single Figure
2,000
1,500
1,000
500
0
69
DIRECTORS’ REPORTAnnual Report and Financial Statements 2018
DIRECTORS’ REMUNERATION REPORT CONTINUED
Directors’ remuneration policy
The remuneration policy, which was explained in detail on pages
74-80 of the 2016 Annual Report and Financial Statements (a copy
of which can be found on our corporate website www.ipfin.co.uk)
was approved by shareholders at the AGM in 2017 and took effect
from 3 May 2017. The Committee believes that the Policy remains
appropriate but has committed to review its structure and operation
in 2019 ahead of a proposal for shareholder approval at the
AGM in 2020.
Key aspects of the Policy are summarised below.
Item
Rationale
Base salary
• Set taking into account the role,
experience, responsibility and performance
of both the individual and the company
• Salaries are normally reviewed annually,
with any change effective April 1
• Any salary increases for Executive Directors
should normally align with those awarded
to UK employees.
Annual bonus Opportunity (% of base salary)
• Maximum opportunity – 100%
• On target opportunity – 65%
• No threshold opportunity
• Overall Group PBT threshold must
be met for the scheme to operate
Performance metrics
• 80% balanced scorecard financials
• 20% personal performance
• Awards are made 50% in cash and 50%
in deferred shares subject to clawback
and released after 3 years
Opportunity (% of base salary)
• Policy – 190%
• Exceptional – 250%
Performance Metrics
• Absolute TSR – 50%
• Cumulative EPS growth – 25%
• Growth in revenue less impairment – 25%
Performance period
• 3 years plus 2 years additional holding
• Company contribution of 15% for new
appointments
Standard benefits package includes:
• Life cover at 4 x salary
• Car allowance
• Long term disability cover
• Private Medical cover and Annual medical
• Participation in SAYE
• Additional benefits (relocation etc.)
provided only where necessary
in the circumstances
Performance
Share Plan
(PSP)
Pension
Benefits
70
Notes to the 2017 Policy
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 circumstances
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.
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;
International Personal Finance plc • 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 dividend equivalents); 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:
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 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
The charts below 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.
0
0.5
1
1.5
2
CEO
Fixed
82%
On-target
47%
Maximum
24%
14%
8%
4%
4%
2%
31%
1%
24%
12%
47%
CFO
Fixed
84%
10%
6%
On-target
48%
31%
Maximum
24%
24%
6%
12%
3%
47%
0
0.5
1
3%
2%
1.5
67%
£0.65m
£1.1m
£2.2m
2.5
£0.36m
£0.64m
£1.25m
2
2.5
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 buy out 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 Group.
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 plan, adjusted as relevant to take account of the new
appointment. In addition, any other ongoing remuneration
obligations existing prior to appointment may continue.
As noted in the 2017 Policy, 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 was appointed on a six-month
rolling contract.
Base salary
Pension
Benefits
Bonus
PSP
71
DIRECTORS’ REPORTAnnual Report and Financial Statements 2018
DIRECTORS’ REMUNERATION REPORT CONTINUED
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.
At the 2019 AGM, all directors (with the exception of Tony Hales)
will be standing for election or 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
Deborah Davis
Tony Hales
John Mangelaars
Richard Moat
Cathryn Riley
Bronwyn Syiek
Date of service agreement
January 2012
February 2017
Date of appointment
January 2015
October 2018
July 2007
July 2015
July 2012
February 2014
October 2018
Jayne Almond was appointed as a non-executive director in
June 2015 and stepped down from the Board at the conclusion
of the 2018 AGM.
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
72
normally be reduced on a pro-rata basis. PSP awards that have
vested at the time of leaving will be retained and exercisable for
a limited period following leaving. The Committee may determine
that the holding period will no longer apply if the director leaves
for one of the reasons specified above. When determining the
treatment of outstanding awards for exiting directors, the
Committee will take into account the executive director’s
level of performance and any contribution to a transition.
For all other leavers, outstanding PSP awards will lapse.
Differences in remuneration policy for all employees
All employees are entitled to base salary and benefits appropriate
to the market in which they are employed. The maximum
opportunity available is based on the seniority and
responsibility of the role.
PSP awards are only currently available to senior management
and directors. The SAYE is available to all UK employees.
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.
Additional disclosures for single figure of total
remuneration table
Base salary
The base salary for the Chief Executive Officer will be increased by
2.5% from April 2019 in line with the wider UK base salary award. The
base salary for the Chief Financial Officer will be increased by 8.93%
from April 2019 in line with the Committee’s intent, as highlighted in
the 2016 Annual Remuneration Report, to achieve the desired salary
level commensurate with the role, subject to performance.
Benefits
The benefits provided to the executive directors in 2018 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 2018, and it is not anticipated that the
cost of benefits provided will exceed this level materially during
the period in which the 2017 Policy applies.
Determination of 2018 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 pay-out for below target performance).
During 2018, a balanced scorecard approach was again used to
ascertain the annual bonus where 60% of total bonus opportunity
in 2018 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 plan outcome (from a maximum of 100% of base salary) was
subject to the achievement of personal objectives and 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 plan subject to personal performance as follows:
Performance rating
% multiplier
% of plan outcome (20%)
Effective
Extremely
effective Outstanding
65
13
82.5
16.5
100
20
International Personal Finance plc 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 2017 and 2018.
Salary/fees £’000
Benefits £’000
Bonus1 £’000
LTIP £’000
Pension £’000
Total £’000
2018
2017
2018
2017
2018
2017
20182
20173
2018
2017
2018
2017
Executive
directors
Gerard Ryan
Justin Lockwood4
Non-executive
directors
Dan O’Connor
Jayne Almond5
Deborah Davis6
Tony Hales7
John
Mangelaars8
Richard Moat9
Cathryn Riley10
Bronwyn Syiek6
516
275
200
14
11
75
65
70
65
11
505
221
200
55
–
75
65
70
65
–
26
22
26
18
506
270
488
251
19
4
22
5
91
38
89
31
1,158
609
1,130
526
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
200
14
11
75
65
70
65
11
200
55
–
75
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 2018
award was determined is provided in the additional disclosures section on page 72.
2. The value of awards included in the table for 2018 relates to the DSP matching award, granted in 2016, the performance period for which was the three
financial years ended 31 December 2018 and did not vest. This value also includes the anticipated value of dividend equivalents that will be payable in 2019.
3. The value of awards included in the table for 2017 has been revised to reflect the actual value of awards vesting and any dividend equivalents received in
2018 when the awards became exercisable.
4. Justin Lockwood was appointed to the Board on 23 February 2017. His salary on appointment was £260,000 per annum (£221,000 pro rata), increasing to
£280,000 with effect from April 2018.
5. Jayne Almond stepped down from the Board at the conclusion of the AGM on 4 May 2018.
6. Deborah Davis and Bronwyn Syiek were appointed to the Board on 18 October 2018.
7. 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.
8. John Mangelaars chaired the Technology Committee during 2018. In addition to his base fee of £55,000, he was paid a fee of £10,000 per annum for this
additional responsibility.
9. Richard Moat chaired the Audit and Risk Committee during 2018. In addition to his base fee of £55,000, he was paid a fee of £15,000 per annum for this
additional responsibility.
10. Cathryn Riley chaired the Remuneration Committee during 2018. In addition to her base fee of £55,000, she was paid a fee of £10,000 per annum for this
additional responsibility.
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 2018 were as follows:
Group profit before tax
Mexico credit issued growth
IPF Digital credit issued growth
Bonus targets were adjusted to exclude FX benefit.
Weighting
60%
10%
10%
Threshold
£96.0m
–
–
Target
Maximum
Achievement
Bonus payout
£101.3m
11.6%
23.4%
£106.0m
13.2%
26.8%
£109.3m
12.3%
34.7%
60.0%
8.0%
10.0%
Performance against the Group profit before tax target (adjusted to exclude FX impact) reflected the strong performance of the business in
2018 and our strategic focus on managing the European home credit markets for returns. Mexico credit issued grew by 12.3% and IPF Digital
improved credit issued by 34.7%, also reflecting the strategic focus on, and investment in, these areas. 50% of the bonus earned will be
deferred into shares for three years (plus two year post-vesting holding period).
73
DIRECTORS’ REPORTAnnual Report and Financial Statements 2018
DIRECTORS’ REMUNERATION REPORT CONTINUED
Personal objectives
The table below shows the objectives that were set for the Chief Executive Officer in 2018 and achievement against them.
Gerard Ryan – Chief Executive Officer
Category
Objectives
Weighting %
Results
Achievement
Balance sheet
Work with the CFO to
optimise the portfolio quality
so that refinancing of the
balance sheet is delivered
in an orderly and effective
manner.
Enabling growth
Invest more time with
growth businesses: Mexico
home credit and IPF Digital.
Risk management
Manage regulation and
taxation risks with a
particular focus on
Poland and Romania.
Ensure that the strategic
technology investments
for the Group are executed
in accordance with
the plan agreed
with the Board.
Structure the IT organisation
to better align it to the
business and to provide
greater synergy between
digital and home
credit businesses.
Provide the Board with
a detailed review of key
leadership positions
and planned actions.
Technology
People
74
10%
25%
25%
15%
25%
Very effective execution of our growth
and quality strategy has enabled us
to deliver positive top line growth and
improved portfolio quality. Bi-lateral
bank line funding has been increased
in both tenor and amount and
overall funding headroom has
been increased prior to the
commencement of our major
bond refinancing events.
Significant time spent in both
businesses, nurturing the key
leadership and helping them to
maintain focus on the critical growth
opportunities. Both businesses
have delivered very strong top
line growth and maintained or
improved portfolio quality.
Our engagement with external
stakeholders who control the
regulatory agenda has been
transformed. We have established
communication channels that were
not previously open to us and use
both influential local resource as well
as British trade resource to achieve
the desired results. Where new
regulations are implemented,
we now ensure that our voice
is heard prior to final approval.
Our strategy calls for significant
investment in technology to improve
our customer journey and to make
our business more efficient. The Board
are fully engaged in the strategic
direction and oversee the execution
and the major components (agent
technology and a single digital
platform) are progressing smoothly.
The IT organisation has been
fully realigned to better meet the
strategic and operational needs
of our businesses. The implementation
was well executed and has the full
support of the business leaders and
is providing better flexibility and
execution certainty.
A complete People and Organisation
Planning review process is now
in place and builds from business
division up to the full Group and
is then discussed and debated
with the Board. The key focus is on
delivering the right capabilities to
execute our strategy and ensuring
that we have a pipeline of successors
for our most senior positions.
International Personal Finance plc
The table below shows the objectives that were set for the Chief Financial Officer in 2018 and achievement against them.
Justin Lockwood – Chief Financial Officer
Category
Objectives
Digital and home credit Allocate capital in order to
deliver shareholder returns.
Enable funding of growth
plans at reasonable cost.
Manage response to tax
challenges to protect
shareholder capital.
Clearly communicate IPF’s
investment proposition.
Ensure that changes
arising from IFRS 9 are well
communicated to investors
with no negative impact
on share price.
Embed ‘Managing for
Returns’ across all business
units. Provide finance
support to key
strategic projects.
Business strategy
Weighting %
Results
Achievement
25%
Investment decisions
taken by reference to
the Group’s investment
appraisal framework.
SEK bonds issued in Q2
2018 at reasonable cost.
Proactive management
of tax challenges in Poland.
Successful implementation of
IFRS 9 and the changes it has on
the Group’s reported financial
performance. Changes reflected
in IPF’s investment proposition.
No negative impact from
providers of finance.
25%
‘Managing for Returns’ and the
focus on return on assets embedded
across all business units. Proactive
finance support for all strategic
projects delivered.
Functional development Deliver clear regional
25%
functional strategies to
support business strategy
and deliver cost reduction/
capability upgrades.
Assess finance resource
and skills to support key
strategic projects.
Increase leadership
capability and develop
succession pipeline across
the function.
People
Regional functional strategy
developed and executed in all
business units to support delivery
of business strategy.
Finance resource, including
specialist resource, secured
to support strategic projects.
25%
Structured finance-specific leadership
programme and use of Aspire
programme to develop leadership
capability and succession within
the function. Targeted recruitment
to strengthen the finance team.
Having reviewed the executive directors’ performance against their personal objectives and in the context of the challenges faced
by the business in 2018, the Committee determined that both executive directors met their personal objectives in full. Consequently
the bonus pay-out in respect of personal objectives is 20% for the CEO and CFO calculated as follows:
• Maximum available (20%)
• Application of outstanding rating multiplier to each objective (100%)
• Bonus pay-out for personal objectives = 20% (20% x 100%)
Criteria met
Criteria partially met
Criteria not met
75
DIRECTORS’ REPORTAnnual Report and Financial Statements 2018
DIRECTORS’ REMUNERATION REPORT CONTINUED
Bonus outcome for 2018
The Committee awarded bonuses to the executive directors of the amounts shown below for the year ended 31 December 2018.
Financial objectives –
achievement as a
percentage of base salary
Personal objectives –
achievement as a
percentage of base salary
Gerard Ryan
Justin Lockwood
78.0%
78.0%
20.0%
20.0%
Cash bonus
DSP – face value of
shares due to vest in 2022
Total value of 2018
annual bonus
£’000
253.0
134.8
£’000
253.0
134.8
£’000
506.0
269.6
Cash and DSP shares
award as a percentage of
maximum bonus available
98.0%
98.0%
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 70.
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 2018 amounted to £90,749, all of which was paid as a cash allowance.
The Company’s contributions in respect of Justin Lockwood during 2018 amounted to £37,671, £25,932 of which was paid as a
cash allowance.
Long-term incentives
Awards estimated to vest during 2019 (included in 2018 single figure)
The LTIP amount included in the 2018 single figure relates to the DSP matching shares and PSP awards granted in 2016. The performance
achieved against the performance targets is shown below:
PSP and 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 30% TSR over 3 years 60% TSR over 3 years
1/3
1/3
98 pence
110 pence
5% p.a.
12% p.a.
0%
0%
0%
0%
0%
0%
0%
0%
1. Based on TSR from 1 January 2016 to 31 December 2018.
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 plans (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 79-80.
Awards granted during 2018
Awards were made in the financial year ending 31 December 2018 under the PSP (long term incentive plan), DSP and the SAYE.
PSP
Executive directors were granted long term incentive plan awards structured as PSP options in April 2018. The resulting number of PSP shares
and associated performance conditions are set out below. Awards granted in 2019 will be in line with the 2017 Policy.
Number of PSP
nil-cost options1
Face value2
£
Percentage of
base salary
End of performance
period
Threshold
vesting Weighting
Performance
conditions
Gerard Ryan
408,162
988,285
190% 31 December 2020
Justin Lockwood
219,716
532,000
190% 31 December 2020
25%
25%
25%
25%
25%
25%
Absolute TSR
1∕2
1∕4
Cumulative EPS growth
1∕4 Growth in revenue less impairment
Absolute TSR
1∕2
1∕4
Cumulative EPS growth
1∕4 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 242 pence per share.
76
International Personal Finance plc Performance conditions
Awards granted during 2018 will vest as follows, with straight-line vesting between the points:
Weighting
Vested at threshold
Threshold
Stretch (100% vesting)
Absolute TSR
Cumulative EPS
growth
1∕4
1∕2
25%
25%
30% over 3 years
91.5 pence
60% over 3 years 106.7 pence
Growth in
revenue less
impairment
1∕4
25%
4.6% p.a.
6.7% p.a.
DSP
In 2018, half of the annual bonus earned in respect of 2017 was deferred in shares. There are no further performance conditions attached
to the vesting of the deferred shares.
The following table sets out details of awards of nil-cost options made during the year under the DSP:
Gerard Ryan
Justin Lockwood
Date of
award
Face value1
£
10 April 2018
10 April 2018
243,883
125,564
1. The face value was calculated using the share price for the preceding day of grant, being 239 pence per share.
SAYE
As noted in the 2017 Policy, UK-based executive directors are entitled to participate in the Company’s all-employee plan.
The executive directors did not participate in the SAYE, therefore no options were granted to them under the plan in 2018.
Loss of office payments (audited information)
No individual received payment for loss of office during 2018.
Payments to past directors (audited information)
No payments were made to past directors during the year. Adrian Gardner will receive (on a time pro-rated basis) any shares due to him
under the 2016 DSP plan, as detailed in the Annual Report and Financial Statements 2016.
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 2017 and 2018
compared with the percentage change in aggregate pay in each of those components for a selected group of employees. The Senior
Management Group (SMG) is the selected comparator group (currently 10 individuals with complete 2017 and 2018 service as SMG
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.
Salary
Benefits
Bonus
CEO
SMG
To 31
December
2018
£’000
516
26
506
Percentage
change
Percentage
change
(2018 vs 2017)
(2018 vs 2017)
2.2%
0%
3.7%
3.6%
6.6%
2.7%
77
DIRECTORS’ REPORTAnnual Report and Financial Statements 2018
DIRECTORS’ REMUNERATION REPORT CONTINUED
TSR performance
The graph below compares the TSR of the Company with the companies comprising the FTSE 250 Index for the ten-year period ended
31 December 2018. 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. TSR data is presented in tandem with CEO single figure total remuneration for
the same period to highlight the relationship between remuneration and shareholder returns.
IPF TSR vs FTSE 250 vs CEO single figure total remuneration
TSR
450
400
350
300
250
200
150
100
50
0
CEO Single Figure
£’000
2,500
2,000
1,500
1,000
500
0
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
31 Dec 2018
International Personal Finance
FTSE 250
CEO Single Figure
Total Shareholder Return 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:
2018 Gerard Ryan
2017 Gerard Ryan
2016 Gerard Ryan
2015 Gerard Ryan
2014 Gerard Ryan
2013 Gerard Ryan
2012 Gerard Ryan1
John Harnett2
2011 John Harnett
2010 John Harnett
2009 John Harnett
CEO single figure
of remuneration
£’000
Annual bonus
pay-out (as %
maximum
opportunity)
LTIP vesting
(as % of
maximum
opportunity)
1,158
1,130
838
1,197
2,172
1,037
889
718
943
952
603
98.0%
96.6%
16%
45%
74.2%
100%
80%
–
67%
80%
–
0%
0%
23.3%
58.8%
100%
–
–
–
–
–
–
1. Gerard Ryan was appointed Chief Executive Officer on 1 April 2012.
2. John Harnett resigned on 31 March 2012.
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
2018
192.9
27.7
2017
193.0
27.6
Percentage
change
0.0%1
0.4%
1. The percentage increase at a constant exchange rate is 2.5%
Other directorships
The executive directors do not currently hold any other external directorships or external appointments.
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 2018 (together with interests
held by his or her persons closely associated) are shown in the table overleaf. When Cathryn Riley, Richard Moat and Dan O’Connor bought
shares they bought sufficient to meet the shareholding requirement. Bronwyn Syiek and Deborah Davis are currently within the three year
time period to build up their shareholding. Executive directors are required to retain half of any vested Company share plan options until
the shareholding requirement is met.
78
International Personal Finance plc Shares held
Options held
Unvested and
subject to
performance
conditions
Unvested and
subject to
deferral only
Unvested and
subject to
continued
employment
Vested but not yet
exercisable and
subject to continued
employment
Vested and
exercisable,
but not yet
exercised
Shareholding
required (%
salary/fee)
Owned
outright
Shareholding
(% salary/fee)1
Requirement
met
Executive directors2
Gerard Ryan
Justin Lockwood
Non-executive directors3
Deborah Davis
Tony Hales
John Mangelaars
Richard Moat
Cathryn Riley
Dan O’Connor
Bronwyn Syiek
799,625 1,082,559
473,212
63,754
184,655
99,942
27,257
11,688
–
75,000
35,000
15,000
14,795
41,500
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
500
–
–
–
–
–
–
–
200
200
100
100
100
100
100
100
100
318
48
0
280
131
56
55
43
0
Yes
No
No
Yes
Yes
No
No
No
No
1. Based on a share price of 205.6 pence, being the closing price on 31 December 2018 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 2018 and 27 February 2019.
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 the Company website www.ipfin.co.uk.
In addition, the following director had acquired interests in the Sterling Retail Bond as follows:
Director
Cathryn Riley
Retail bond as at
31 December 2018
£28,800
Executive directors’ interests in the Company share options (audited information)
Awards held
at 31
December
2017
Date of
award
Awarded in
2018
Exercised in
2018
Lapsed In
20181
Awards held
at 31
December
2018
Performance
condition period
Market
price at
date of
grant (p)
Exercise price
(p)
Exercise period
Gerard Ryan
PSP
4 Mar 2014
12,839
2 Mar 2015
144,508
23 Mar 2016
211,153
11 Apr 2017
370,408
–
–
–
–
19 April 2018
–
408,162
CSOP
23 Mar 2016
DSP: Deferred 2 Mar 2015
10,224
56,112
Matching
Deferred
2 Mar 2015
23 Mar 2016
56,112
51,004
Matching
Deferred
23 Mar 2016
11 Apr 2017
51,004
31,608
–
–
–
–
–
–
Matching
Deferred
11 Apr 2017
10 Apr 2018
31,608
–
–
102,043
SAYE
29 Mar 2012
7,777
–
Total
23 Aug 2017
19,480
1,053,837
–
510,205
(12,839)
–
(144,508)
–
–
–
–
–
–
–
(56,112)
–
–
–
–
–
211,153
370,408
408,162
10,224
–
–
–
–
–
–
–
–
(56,112)
–
–
51,004
–
–
–
–
–
51,004
31,608
31,608
102,043
7,777
–
19,480
(68,951) (200,620) 1,294,471
–
1. The March PSP, CSOP and DSP Matching 2015 all vested at 0%.
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 2018 –
31 Dec 2020
1 Jan 2016 –
31 Dec 2018
–
1 Jan 2015 –
31 Dec 2017
–
1 Jan 2016 –
31 Dec 2018
–
1 Jan 2017 –
31 Dec 2019
–
–
–
525
432
282
170
248
282
432
432
282
282
170
170
246
–
–
4 Mar 2017 –
3 Mar 2024
2 Mar 2018 –
1 Mar 2025
23 Mar 2019 –
22 Mar 2026
11 Apr2020 –
10 Apr 2027
19 Apr 2021 –
18 Apr 2028
23 Mar 2019 –
22 Mar 2026
–
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
233.5
–
–
–
–
293
233.5
–
–
–
–
–
–
198
154
79
DIRECTORS’ REPORTAnnual Report and Financial Statements 2018
DIRECTORS’ REMUNERATION REPORT CONTINUED
Executive directors’ interests in the Company share options
Date of award
Awards held at
31 December
2017
Awarded
in 2018
Exercised in
2018
Lapsed In
20181
Awards held
at 31
December
2018
Performance
condition period
Market
price date
of grant (p)
Exercise
price (p)
Exercise period
Justin
Lockwood
PSP
4 Mar 2014
2,005
2 Mar 2015
28,874
23 Mar 2016
43,246
11 Apr 2017
190,705
–
–
–
–
19 April 2018
– 219,716
CSOP
4 Mar 2014
2 Mar 2015
23 Mar 2016
2 Mar 2015
DSP: Deferred
Matching
Deferred
2 Mar 2015
23 Mar 2016
Matching
Deferred
23 Mar 2016
11 Apr 2017
500
929
3,744
11,834
3,944
11,687
3,895
35,718
–
–
–
–
–
–
–
–
Matching
Deferred
11 Apr 2017
10 Apr 2018
11,906
–
–
52,537
(2,005)
–
–
–
–
–
–
–
(28,874)
–
–
–
–
(929)
–
(11,834)
–
–
–
–
–
–
–
–
(3,944)
–
–
–
–
–
–
–
43,246
190,705
219,716
500
–
3,744
–
–
11,687
3,895
35,718
11,906
52,537
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 2018 –
31 Dec 2020
1 Jan 2014 –
31 Dec 2016
1 Jan 2015 –
31 Dec 2017
1 Jan 2016 –
31 Dec 2018
–
1 Jan 2015 –
31 Dec 2017
–
1 Jan 2016 –
31 Dec 2018
–
1 Jan 2017 –
31 Dec 2019
–
525
233.5
432
282
170
248
–
–
–
–
525
525
432
432
282
432
432
282
282
170
170
246
293
233.5
–
–
–
–
–
–
SAYE
Total
23 Aug 2017
11,688
–
360,675 272,253
–
–
(13,839) (33,747)
11,688
585,342
–
–
154
4 Mar 2017 –
3 Mar 2024
2 Mar 2018 –
1 Mar 2025
23 Mar 2019 –
22 Mar 2026
11 Apr 2020 –
10 Apr 2027
19 Apr 2021 –
18 Apr 2028
4 Mar 2017 –
3 Mar 2024
2 Mar 2018 –
1 Mar 2025
23 Mar 2019 –
22 Mar 2026
–
2 Mar 2018 –
1 Mar 2025
–
23 Mar 2019 –
22 Mar 2026
–
11 Apr 2020 –
10 Apr 2027
–
1 Nov 2022 –
31 May 2023
1. The March PSP, CSOP and DSP Matching 2015 all vested at 0%.
The mid-market closing price of the Company’s shares on 31 December 2018 was 205.6 pence and the range during 2018 was 171.6 pence
to 254.8 pence. The aggregate gains of directors arising from the exercise of options granted under the PSP and DSP in the year totalled
£193,315.
Share dilution
The Company manages dilution rates within the standard guidelines of 10% of issued ordinary share capital in respect of all employee
share plan and 5% in respect of discretionary plans.
LTIP and DSP awards are satisfied through the release of shares held in the Company’s treasury account, details of which are shown
on page 84.
Shareholder voting
The table below summarises voting outcomes at the 2016, 2017 and 2018 AGMs (% of total votes cast):
AGM
2016 Annual Remuneration Report
2017 Annual Remuneration Report
2017 Directors’ Remuneration Policy
2018 Annual Remuneration Report
For
92.37%
99.20%
99.14%
98.65%
Against
7.63%
0.80%
0.86%
1.35%
Withheld1
0.31%
0.63%
0.01%
0.00%
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.
80
International Personal Finance plc Advisor to the Committee
Willis Towers Watson, which was appointed in April 2016, provides
independent remuneration advice to the Committee. During 2018
total fees in respect of advice to the Committee (based on time
and materials) totalled £45,530 (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
27 February 2019
Statement of implementation
Directors’ remuneration policy in the following
financial year
The base salary for the Chief Executive Officer will be set at
£533,000 for 2019.
The base salary for the Chief Financial Officer will be set at
£305,000 for 2019.
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 2019 LTIP awards in accordance
with the 2017 Policy. The 2019 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 2016 will not vest in 2019.
Consideration by the directors of matters relating to
directors’ remuneration
The following directors were members of the Remuneration
Committee when matters relating to the directors’ remuneration
for the year were being discussed and are considered to be
independent:
• Cathryn Riley (Chair)
• Tony Hales
• Jayne Almond1
• Richard Moat
1. Jayne Almond stepped down from the Committee and the Board
at the conclusion of the 2018 AGM
The Committee received assistance from the Senior Management
Group and Group Head of Reward. Other members of
management may attend meetings by invitation except when
matters relating to their own remuneration are being discussed.
81
DIRECTORS’ REPORTAnnual Report and Financial Statements 2018
CORPORATE GOVERNANCE
COMPLIANCE WITH THE UK CORPORATE
GOVERNANCE CODE 2016
Compliance with the UK Corporate
Governance Code (the Code)
The Company complied with the provisions set out in the 2016
version of the Code, which applied throughout the financial year
ended 31 December 2018. 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. The FRC released a revised 2018 Code in July
2018 which was applicable from 1 January 2019. At the heart of the
2018 Code is an updated set of principles that emphasise the value
of good corporate governance to long-term sustainable success.
We will report on how we have complied with the 2018 Code in
our 2019 Annual Report and Financial Statements.
Leadership
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’s role and work in 2018 can be found
on pages 54 and 56. The Board met eight times during the year
providing leadership and strategic direction. Our strategy can be
found on pages 16 to 19 and our business model on pages 8 and 9.
There is a formal schedule of matters reserved specifically for
decision by the Board which was reviewed and updated during the
year. Other matters are delegated specifically to the 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. The committees’ terms of reference are
available on our website www.ipfin.co.uk.
The management of the business is delegated to the Executive
Committee which comprises the Chief Executive Officer and the
Chief Financial Officer. The Executive Committee met frequently
during the year to consider matters relating to the day-to-day
running of the business, where specific matters required approval.
The Disclosure Committee met several times during the year to
consider announcement obligations to the London and Warsaw
Stock Exchanges. During 2018, it comprised the Chief Executive
Officer, the Chief Financial Officer and the Company Secretary.
Our governance framework extends to operational activities,
with decision-making and oversight responsibilities delegated
to Group governance committees.
Division of responsibilities
The roles of the Chairman and Chief Executive Officer are
clearly defined and the division of responsibilities is established.
The Chairman is responsible for the leadership and effectiveness
of the Board.
He is also responsible for effective running of the Board and its
committees in accordance with corporate governance standards.
He is responsible for ensuring that consideration is given to the main
challenges and opportunities facing the Company, and facilitates
open and constructive discussion during meetings. The Chairman
was independent on his appointment.
82
The Chief Executive Officer is responsible for setting and executing
the strategy effectively, and managing the Group’s businesses.
Non-executive directors
The independent non-executive directors are appointed for
an initial period of three years, subject to annual re-election
by shareholders at the AGM. The initial period may be extended
for a further three-year period following recommendation by
the Nomination Committee. Their letters of appointment may
be inspected at our registered office and copies are available
from the Company Secretary.
Each of the non-executive directors has been formally determined
by the Board to be independent for the purposes of the Code. In the
case of Tony Hales, the Board is conscious that he will have served
more than 11 years as a director at the time of the 2019 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 judgement, and that his experience remains invaluable to the
Company. As previously announced, Tony will be stepping down
from the Board and will not be seeking re-election at the 2019 AGM.
Richard Moat will succeed Tony Hales as the senior independent
director at the conclusion of the 2019 AGM, subject to Richard
being re-elected. He will be 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 and will consult with other Board
members, as part of the review, and will 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.
If directors have concerns about the running of the Company,
which cannot be resolved, their concerns are recorded in the
Board minutes. There have been no concerns raised during
the period under review.
Effectiveness
The composition of the Board
The Board believes it operates effectively with the appropriate
balance of independent non-executive and executive directors who
have the right mix of skills, experience and knowledge of the Group.
The Nomination Committee is responsible for regularly reviewing the
composition of the Board. Details of the Board can be found on
pages 52 and 53.
Deborah Davis and Bronwyn Syiek were appointed as
non-executive directors on 18 October 2018. Further detail
relating to the recruitment process for them and the selection
of the prospective new senior independent director can be
found in the Nomination Committee report on page 58.
Commitment
Our policy is that the Chairman and the non-executive directors
should have sufficient time to fulfil their duties. A non-executive
director should not hold more than four other material non-executive
International Personal Finance plc directorships. If they hold an executive role in a FTSE 350
company, they 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 or her
executive responsibilities adversely. The executive directors
currently do not hold any external directorships.
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 their required
commitment to the Company.
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 as part of the
Board evaluation process. Training also covers generic and specific
business topics and in 2018 included presentations to the Board
on subjects including the UK Corporate Governance Code,
Fintech regulation, cyber security and the General Data Protection
Regulation. A comprehensive, individually tailored induction plan
is prepared for new directors and was undertaken by Deborah Davis
and Bronwyn Syiek following their appointments, including market
visits. The Board also visited Poland and received updates from the
home credit and IPF Digital management teams in this market,
and updates were received from other market leaders in
scheduled Board meetings. Individual directors have
visited other markets and businesses during the year.
All directors are able to consult with the Company Secretary,
who also updates the Board on governance developments.
The appointment and removal of the Company Secretary is
a matter for the Board. The Company Secretary acts as secretary
to the Board and its committees. Any director may take
independent professional advice at the Company’s
expense relating to the performance of their duties.
Evaluation
In 2018, 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 January 2019 Board meeting. Details of
the principal outcomes relating to the Board can be found
on page 57.
An external evaluation is required by the Code at least every three
years and was last undertaken in 2016. We intend to carry out
our next externally facilitated evaluation during 2019.
Election or re-election of directors
All directors are subject to election or re-election at the AGM,
in accordance with the Code. Deborah Davis and Bronwyn Syiek
will seek election and all other directors, with the exception of
Tony Hales, re-election at our AGM on 2 May 2019. Details of
the directors can be found on pages 52 and 53.
Accountability
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 90. The Group’s business model and strategy, key
performance indicators and relevant risks are on pages 8 and 9,
16 and 19, 24 and 25, and 42 to 50. 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
Group’s position, performance, business model and strategy is
on page 90.
Risk management and internal control
The Board has carried out a robust assessment of the principal risks
facing the Group, including those that would threaten our business
model, future performance, solvency or liquidity. Details can be
found on pages 42 to 50. The Board determines the Group’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 t
hroughout 2018.
Audit and Risk Committee and auditors
The Audit and Risk Committee report is on pages 60 to 65 and
sets out how the Committee discharges its duties, its activities
during the year, and its interactions with the external auditor.
The Board is satisfied that Richard Moat, chairman of the
Committee, has recent and relevant financial experience.
Remuneration
Remuneration policy
Development of the policy on executive remuneration is delegated
to the Remuneration Committee. Details of the Company’s policy
on remuneration are contained in the Directors’ Remuneration
report on pages 67 to 81. No director is involved in deciding his
or her own remuneration. The remuneration policy is available
on our website at www.ipfin.co.uk.
Relations with shareholders
Dialogue with shareholders
The executive directors communicate regularly with institutional
shareholders. 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 Board 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 major 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 at www.ipfin.co.uk.
Shareholders 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.
The AGM provides a key opportunity for the Board to meet and
communicate with shareholders. Shareholders can ask questions
of the Board on matters put to the meeting, including the
Annual Report and the running of the Company.
In January 2019, the Company communicated with our major
institutional investors, in relation to proposed remuneration of
our executive directors for 2019, as part of our commitment
to build and maintain an effective dialogue on pay.
83
DIRECTORS’ REPORTAnnual Report and Financial Statements 2018
OTHER STATUTORY INFORMATION
In addition to the Code, we are required to comply with the
Companies Act 2006 (the Act), the Disclosure Guidance and
Transparency Rules (DTR) and the Listing Rules (LR). Where not
covered elsewhere, these requirements are included in
this section.
In accordance with DTR 4.1.5R, the Strategic Report and
the Directors’ Report together are the management report
for the purposes of DTR 4.1.8R.
There are no disclosures to be made under LR 9.8.4R.
The Board has taken advantage of section 414C(11) of the
Act to include disclosures in the Strategic Report including:
• the financial position of the Group;
• principal risks and uncertainties; and
• the future development, performance and position of the Group.
Articles of Association (Articles)
The Articles may only be amended by a special resolution at a
general meeting of the shareholders. The Articles are available on
our website at www.ipfin.co.uk or direct from Companies House, UK.
Shares in issue
As at 31 December 2018, the issued share capital was 234,244,437
ordinary shares of 10 pence each. No ordinary shares were issued
during the year. No shares were purchased by the Company,
transferred to treasury or cancelled. The ordinary shares can
be held in certificated or uncertificated form.
10,601,830 shares are held as treasury shares for the purpose
of satisfying options under the Group’s share option plans.
Details of share capital are shown in note 27 to the Financial
Statements. The ordinary shares are listed on the London
Stock Exchange and Warsaw Stock Exchange.
Share class rights
The share class rights, which are set out in the Company’s Articles,
are summarised below.
Restrictions on shareholders’ rights
Any share may have rights attached to it as the Company may
decide by ordinary resolution or the Board may decide, if no such
resolution has been passed. Such rights and restrictions shall apply
to the relevant shares as if the same were set out in the Articles.
Restrictions on transfer of shares and limitations
on holdings
There are no restrictions on the transfer or limitations on the holding
of ordinary shares other than under the Articles or under restrictions
imposed by law or regulation. The Articles set out the directors’
rights of refusal to effect a transfer of any share.
Voting rights
There are no restrictions on voting rights except as set out in the
Articles. Electronic and paper proxy appointments, and voting
instructions, must be received by the Company’s registrar not
less than 48 hours before a general meeting.
Variation of rights
This covers the rights attached to any class of shares that from time
to time may be varied either with the written consent of the holders
of not less than three-quarters in nominal value of the issued shares
of that class or with the sanction of a special resolution passed at
a separate general meeting of the holders of those shares.
Authority to purchase own shares
At the 2018 AGM, we received shareholder authority to buy back
up to 22,335,937 of the Company’s shares until the earlier of the
conclusion of the 2019 AGM or 30 June 2019. Any ordinary shares
purchased could be cancelled or held in treasury. This authority was
not exercised in 2018. A further authority to purchase our own shares
will be sought at the 2019 AGM.
Authority to issue shares
At the 2018 AGM, an ordinary resolution was passed authorising the
directors to issue new shares up to a nominal value of £7,445,000,
equivalent to one-third of the issued share capital of the Company.
A further special resolution was passed to effect a disapplication of
pre-emption rights in certain circumstances.
Resolutions to renew these authorities will be proposed at the
2019 AGM.
84
International Personal Finance plc Interests in voting rights
As at 31 December 2018, we had been notified, pursuant to DTR 5.1.2, of the following interests in voting rights in our issued share capital.
The information provided below was correct at the date of notification, however, the date of receipt may not have been within the current
financial year. It should be noted that these holdings are likely to have changed since the Company was notified. A notification of any
change is not required until the next notifiable threshold is crossed.
Name
Standard Life Aberdeen plc
FIL Limited
FMR LLC
Norges Bank
Marathon Asset Management LLP
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
Date notified
13/12/2018
04/07/2016
10/01/2018
23/10/2018
14/05/2009
03/08/2015
12/04/2010
17/03/2014
16/07/2009
03/08/2009
26/06/2009
08/07/2015
% of issued share
capital1
12.01
6.31
5.28
4.36
5.01
5.01
4.88
5.01
4.54
3.50
3.02
3.02
As at 27 February 2019, the following shareholder had notified an interest in our issued share capital in accordance with the DTR.
Name
Standard Life Aberdeen plc
Date notified
19/02/2019
% of issued share
capital1
12.38
1. The percentage of issued share capital in the table above is based on the Company’s issued share capital at the point of notification.
Directors
Details of the current directors can be found on pages 52 and 53.
Jayne Almond, who was a non-executive director, did not seek
re-election at the 2018 AGM and stepped down from the Board.
Deborah Davis and Bronwyn Syiek were appointed as non-executive
directors on 18 October 2018. Tony Hales will be stepping down from
the Board and will not be seeking re-election at the 2019 AGM.
Indemnities
Our Articles permit us to indemnify our directors (or those of any
associated company) in accordance with the Act. However, no
qualifying indemnity provisions were in force in 2018 or at any time
up to 27 February 2019. We have appropriate directors’ and officers’
liability insurance and this was in force when the Directors’ Report
was approved.
Directors’ conflicts of interest
To take account of the Act, 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 2018 and up to 27 February 2019.
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 the Articles. The Articles
contain specific provisions and restrictions regarding the following:
the Company’s powers to borrow money; provisions relating to the
appointment of directors (subject to subsequent shareholder
approval); and delegation of powers to a director or committees.
They also provide that, 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.
85
DIRECTORS’ REPORTAnnual Report and Financial Statements 2018
OTHER STATUTORY INFORMATION CONTINUED
Agreements on change of control
We do not have any agreements with any director or employee
that would provide compensation for loss of office or employment
resulting from a takeover.
We are not party to any significant agreements that would
take effect, alter or terminate upon a change of control
following a takeover bid, apart from:
• our bank facility agreements, which provide for a negotiation
period following a change of control and the ability of a lender
to cancel its commitment and for outstanding amounts to
become due and payable;
• our Euro Medium Term Note1 programme, which entitles
any holder of a note to require us to redeem such holder’s
notes if there is a change of control and, following such
change of control, the notes are downgraded;
• our Polish Medium Term Note2 programme, which entitles any
holder of a note to require the issuer to redeem such holder’s
notes if there is a change of control and, following such change
of control, the Euro Medium Term Notes are then downgraded
(or if no such notes are then outstanding, in certain other
circumstances); and
• provisions in our equity 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 or Nasdaq Stockholm
stock exchanges) have been issued under the programme and are
outstanding as at the date of this report; sterling 101.5 million issued
in May 2013 and November 2013 with a seven-year term and a 6.125%
coupon; euro 300 million issued in April 2014 with a seven-year term and
a 5.75% coupon; euro 100 million ‘tap’ of our existing Eurobond issued
in April 2015 with a six-year maturity and a 5.75% coupon; Romanian lei
79.5 million bond issued in December 2016 with a three-year term and
an 8.0% coupon (listed on the Irish Stock Exchange); 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, and a SEK450 million Swedish krona
bond issued in June 2018 with a four-year term and a coupon of
three-month STIBOR plus a margin of 8.75%.
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.
Related party transactions
Related party transactions are set out in note 31 to the
Financial Statements.
Financial instruments
Details of the Group’s financial instruments are set out
in note 22 to the Financial Statements.
Dividends
A final dividend of 7.8 pence per share has been proposed bringing
the full year dividend to 12.4 pence per share. The final dividend will
be payable on 10 May 2019 to shareholders on the register of
members on 12 April 2019.
Employees
Employee engagement and communication
We have a proactive approach to employee communication
which is at the heart of our commitment to engage effectively
and transparently. Our CEO hosts webinars and ‘town hall’
meetings to inform, educate and engage employees and includes
presentations on the full- and half-year results. Local focus groups
and ‘skip a level’ meetings are held to aid communication of key
messages and obtain views and ideas. Collaboration is one of
our most important capabilities and we encourage open and
supportive communications at all levels.
We increasingly use technology to create international networks
and to manage virtual teams. We encourage active participation
in the sharing of experiences and the creation of in-house online
news bulletins. Local employee surveys are conducted in each
of our markets.
In 2019, we will commence a Group-wide employee survey to
help measure our employee engagement activities as well as
identify areas for improvement. The Board will continue to focus
on stakeholder engagement more widely over the next year,
following the appointment of Bronwyn Syiek as the Board’s
workforce and stakeholder engagement director, in order
to build on our stakeholder engagement activities.
Employee equity incentive plans
Eligible employees are able to participate in our equity share incentive plans, which are shown below. We encourage employees to
take part in our Save As You Earn (SAYE) plan which gives employees the opportunity to buy shares in the Company and share in our
long-term success.
Awards granted to the executive directors in 2018 are set out in the Directors’ Remuneration report on pages 76 and 77.
Plan
Abbreviated name
Eligible participants
The International Personal Finance plc Approved Company
Share Option Plan
The IPF Deferred Share Plan
The IPF Performance Share Plan
The IPF Save As You Earn Plan
The International Personal Finance plc Discretionary Award Plan Discretionary Award Plan Employees other than executive directors
Executive directors and senior managers
Executive directors and senior managers
Executive directors and UK employees
Executive directors and senior managers
DSP
PSP
SAYE
CSOP
Details of outstanding awards are included in note 26 to the Financial Statements.
86
International Personal Finance plc Other external stakeholders
External oversight
The Group’s activities in Mexico and Spain are subject to general
trade licences only. Our operations in Europe and Australia are
subject to certain licensing provisions or supervision by a financial
authority as detailed below.
European home credit
• Czech Republic – granted a licence by Czech National Bank
in February 2018
• Hungary – subject to an operating licence issued by the
Hungarian National Bank
• Poland – registered in special registry of the Komisja Nadzoru
Finansowego (the Polish Financial Supervision Authority)
• Romania – under the supervision of the National Bank of Romania
following its registration in early 2018 in the Special Registry of
credit providers
IPF Digital
• Australia – holds a credit licence issued by the Australia Securities
and Investment Commission
• Estonia – licence issued by the Estonian Financial
Supervision Authority
• Finland – in a register of credit providers maintained by
the Regional State Administrative Agency of South Finland
• Latvia – operates under a licence from the
Consumer Rights Protection Centre
• Lithuania – in a register of credit providers maintained
by the Bank of Lithuania
• Poland – registered in the special register of the Komisja Nadzoru
Finansowego (the Polish Financial Supervision Authority).
Employee benefit trust
We operate an employee benefit trust with an independent trustee,
Link Trustees (Jersey) Limited, to hold shares on behalf of employees
pending entitlement to them under our equity incentive plans.
On 31 December 2018, the trustees held 389,551 shares in
International Personal Finance plc. The trust waives its dividend
entitlement and abstains from voting at general meetings.
Any shares to be acquired through our share plans do not have
special rights and rank pari passu with the shares already in issue.
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.
Human rights, diversity and modern slavery
Information relating to diversity and gender, human rights,
and Board diversity is shown on pages 34, 36 and 58.
Our Modern Slavery Act 2015 statement is available
on our website at www.ipfin.co.uk.
Whistle-blowing service
We have a whistle-blowing service that is operated by a third party.
Employees are able to raise concerns about possible improprieties
in matters relating to financial reporting or otherwise, on a
confidential and, if preferred, anonymous basis. The use of this
service is monitored throughout the Group and we receive reports
on any matters raised. The reports are reviewed and acted on
independently to the parties involved, to the point of resolution.
The service was revised during the year and is being enhanced.
Anti-bribery policy
The Group is committed to conducting its affairs in an ethical
manner and to ensuring that its trading activities are conducted
with honesty and integrity, while ensuring compliance with relevant
anti-bribery and corruption legislation, in any jurisdiction where the
Group operates. Internal controls and procedures are in place to
ensure that no one acting on our behalf:
• offers, promises or gives a bribe;
• requests, agrees to accept or receives a bribe; or
• bribes a public official to obtain or retain business or an
advantage.
All employees must complete anti-bribery and corruption training.
87
DIRECTORS’ REPORTAnnual Report and Financial Statements 2018
OTHER STATUTORY INFORMATION CONTINUED
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 Chief Financial Officer and
Group Financial Controller. 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.
Report on environmental, 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 Group’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 contributes to the
sustainable long-term value of the Group. ESG issues are handled
through a number of forums and reporting processes across the
business which include the Risk Advisory Group, the Senior
Management Group and performance calls. Key ESG issues that
have an impact on our stakeholders include: business ethics; public
perception and ensuring that work with communities is relevant;
social and financial inclusion; health and safety; and attracting
and retaining skilled and well-motivated people.
Corporate affairs activity, health and safety, people management,
responsible lending and business ethics issues were all discussed
at Board meetings in 2018. The Board has received adequate
information to make an assessment against ESG risks.
There is a range of appropriate corporate standards, policies and
governance structures covering all operations. The Group’s policy
regarding equal opportunities is on page 87.
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 all home credit markets,
together with Group head office, were certified as compliant.
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.
Community investment activity is focused on the needs of the
communities we serve and we utilise London Benchmarking Group
methodology to measure this investment.
Sixty-two per cent of our community investment focused on
education and 23% on social welfare. Employees volunteered 5,611
hours in Company time (2017: 3,056) and a further 8,732 hours in
their own time. Employees also raised a further £76,000 for
community investment purposes. In total, we invested £729,000
(2017: £680,000) in supporting local communities in 2018.
The Group policy is that we do not make political donations and,
as such, no political donations were made during the year.
The Remuneration Committee takes account of ESG risks that could
inadvertently cause unethical business practices, when setting
short- and long-term incentives and when setting performance
targets in relation to remuneration packages. Details of our incentive
arrangements are set out in the Directors’ Remuneration Report on
page 67 to 81. ESG matters are also taken into account when
providing training for directors.
Full information on specific ESG matters, and how these are
managed, can be found in the Sustainability section of our
website at www.ipfin.co.uk.
88
International Personal Finance plc Managing our emissions
We recognise that the consequences of climate change are
significant and are being felt globally. We aim to reduce our
environmental impact where possible. Our fleet strategy and our
MyProvi collections application are instrumental in helping us to
achieve this. Our fleet vehicles, which play an integral role in serving
our home credit customers, are under regular review to achieve
incremental reductions in fuel consumption and CO2 emissions.
In 2018, we continued offering driver training and introducing
in-car technologies where possible to promote the adoption
of fuel-efficient driving techniques among our drivers.
Furthermore, with the rollout of e-receipting in Czech Republic
and Poland, we reduced paper consumption in both countries.
During 2019, we expect to see even greater paper savings and
less printing with the implementation of digital receipting in
Hungary and Romania.
A full environmental policy statement and information on specific
ESG matters can be found in the Sustainability section of our website
at www.ipfin.co.uk.
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 GHG conversion factors1 and
the current edition of the IEA emission factors for non-UK electricity.
The emissions data covers all our offices. These sources fall within
our Consolidated Financial Statements. Where available data
is incomplete we have extrapolated data.
This year, our GHG emissions for scope 1 and 2 decreased by 2%.
This is attributable to a decrease in business travel by car, due to
a reduction in car fleet, and lower electricity consumption following
office consolidations in some of our European businesses.
Our 2017 Annual Report included some estimates for 2017 carbon
emissions data. These estimates have been updated for the 2018
Annual Report.
Our carbon emissions report has been reviewed by Ricardo Energy
& Environment. We aim to further improve our environmental data
collection and management system by considering
recommendations from this review.
Carbon emissions sources
Travel and utilities
Scope 1
Scope 2
Scope 1 & 2
Gas
Business travel by car
Purchased electricity and district heating
CO2e emissions per customer
Tonnes CO2e
2017
1,135
24,969
3,357
29,461
0.012
2018
Difference
%
1,175
24,515
3,194
28,884
0.013
3.5
(1.8)
(4.9)
(2.0)
2.9
Note: Scope 2 carbon emissions have been calculated using location-based methodology. IEA electricity emission factors have been used
for non-UK countries for more precise accounting. Note that the IEA electricity factors are for CO2 and not CO2 equivalent (CO2e).
Scope 2 carbon emissions have not been calculated using market-based methodology because our offices tend to be a small part of larger
managed premises, with energy costs included as part of the overall rent. Therefore, IPF gathering details of the specific energy supply for its
offices accurately would not be possible.
1. https://www.gov.uk/government/publications/greenhouse-gas-reporting-conversion-factors-2018
Total CO2 emissions 2018 (Tonnes CO2e)
3,194
1,175
24,515
Gas
Business travel by car
Purchased electricity and district heating
89
DIRECTORS’ REPORTAnnual Report and Financial Statements 2018
RESPONSIBILITY STATEMENTS
Annual Report and Financial Statements
International Personal Finance plc presents its Annual Report
and Financial Statements and its consolidated Annual Report
and Financial Statements as a single Annual Report.
Responsibility statement under the Disclosure and
Transparency Rules
Each of the persons who is a director at the date of approval
of this report confirms to the best of his/her knowledge that:
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.
a. the Financial Statements, prepared in accordance with 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 and Directors’ 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, taken as a whole, is fair, balanced and
understandable and provides the information necessary
for shareholders to assess the Company’s position and
performance, business model and strategy.
Report review process for Annual Report
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 is 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 and viability statement
The Board statement on its adoption of the going concern basis
in preparing these Financial Statements and the viability statement
concerning the assessment of the Company’s long-term prospects
is given on pages 41 and 50.
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 2018 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
27 February 2019
90
International Personal Finance plc 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 of International Personal Finance plc
(the ‘Parent Company’) and its subsidiaries (the ‘Group’) give
a true and fair view of the state of the Group’s and of the Parent
Company’s affairs as at 31 December 2018 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 which comprise:
• the Group 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 32.
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 Financial
Reporting Council (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 going concern
• We have reviewed the directors’ statement within the statement of
accounting policies 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 twelve months from the date of approval of the
Financial Statements.
• We considered as part of our risk assessment the nature of the
Group, its business model and related risks included where
relevant the impact of Brexit, the requirements of the applicable
financial reporting framework and the system of internal control.
We evaluated the director’s assessment of the Group’s ability
to continue as a going concern, including challenging the
underlying data and key assumptions used to make the
assessment, and evaluated the directors’ plans for future actions
in relation to their going concern assessment.
• 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:
• revenue recognition;
• impairment of receivables; and
• the Polish Debt Option Agreement Challenge.
Within this report, any new key audit matters are identified with
the prior year identified with
.
and any key audit matters which are the same as
Materiality
Scoping
The materiality that we used for the Group Financial Statements was £5.4 million which was determined on the basis of
5% of profit before tax.
We focused our Group audit primarily on the audit work at seven locations, six of which were subject to a full audit
and the remaining one was subject to testing of specific balances.
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 92.
91
FINANCIAL STATEMENTSAnnual Report and Financial Statements 2018
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 42-50 that describe the principal risks
and explain how they are being managed or mitigated;
• the directors’ confirmation on page 50 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 50 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 consistent 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.
Key audit matter description
How the scope of our audit responded to the key audit matter
Key observations
Revenue Recognition
The recognition of revenue on loans using an
effective interest rate (‘EIR’) method requires
significant judgement by management to determine
key assumptions, in particular over reflecting early
redemptions experience and all contractual terms
of the loan in the calculation of the EIRs. We have
identified this as a specific risk of fraud in accordance
with ISA (UK) 240.
We evaluated the design and implementation, and tested
operating effectiveness, of controls relevant to the revenue
recognition cycle, as well as the mechanical accuracy of
the models used by management to calculate the effective
interest rates. This involved using IT specialists to recalculate
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.
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, particularly following the first-time adoption of
IFRS 9 during the period, 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 62 and within the key
sources of estimation uncertainty on page 108.
We assessed the appropriateness of management’s key
judgements used to calculate the effective interest rate by
reference to the impact of recently observable collections
phasing and early redemption behaviour on the
behavioural lives of loan receivables.
We also assessed whether the revenue recognition policies
applied to all material loan types offered by the Group were
appropriate and in accordance with IFRS 9 and other
applicable accounting standards.
As a result of our audit
testing, we found that
the methodology
used for calculating
the EIR is materially
accurate and
complete in the
context of the Group’s
accounting policies
and the requirements
of the relevant
accounting
standards.
92
International Personal Finance plc
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 42-50 that describe the principal risks
and explain how they are being managed or mitigated;
• the directors’ confirmation on page 50 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
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 consistent 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
• the directors’ explanation on page 50 as to how they have
of the engagement team.
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.
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.
Key audit matter description
How the scope of our audit responded to the key audit matter
Key observations
Revenue Recognition
The recognition of revenue on loans using an
effective interest rate (‘EIR’) method requires
significant judgement by management to determine
key assumptions, in particular over reflecting early
redemptions experience and all contractual terms
of the loan in the calculation of the EIRs. We have
identified this as a specific risk of fraud in accordance
with ISA (UK) 240.
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, particularly following the first-time adoption of
IFRS 9 during the period, 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 62 and within the key
sources of estimation uncertainty on page 108.
We evaluated the design and implementation, and tested
operating effectiveness, of controls relevant to the revenue
recognition cycle, as well as the mechanical accuracy of
the models used by management to calculate the effective
interest rates. This involved using IT specialists to recalculate
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
judgements used to calculate the effective interest rate by
reference to the impact of recently observable collections
phasing and early redemption behaviour on the
behavioural lives of loan receivables.
We also assessed whether the revenue recognition policies
applied to all material loan types offered by the Group were
appropriate and in accordance with IFRS 9 and other
applicable accounting standards.
As a result of our audit
testing, we found that
the methodology
used for calculating
the EIR is materially
accurate and
complete in the
context of the Group’s
accounting policies
and the requirements
of the relevant
accounting
standards.
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.
Key audit matter description
How the scope of our audit responded to the key audit matter
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. In addition, the first-time adoption of IFRS 9
during the period, which requires the application of
an expected loss model, resulted in the application
of a parameter-based methodology that resulted
in a day one reduction in equity of £107.4 million.
As detailed in note 16, net customer receivables
amounts to £992.8 million as of 31 December 2018
(2017: £1,056.9 million).
Key judgements include probabilities of – and
exposures at - defaults, loss given defaults and
post-model overlays. We have identified the key
risk around impairment of receivables as being the
completeness and accuracy of the post-model
overlays made to account for emerging risks not
yet fully observed in the data.
There is a potential risk of fraud inherent in the
application of the post model overlay due to its
judgemental nature and material quantum of
the amount of post model-overlays held in the
balance sheet.
The key audit matter is described further by the Audit
and Risk Committee on page 62 and within the key
sources of estimation uncertainty on page 108.
Please also see note 16 for further information.
We evaluated the design, and tested the operating
effectiveness, of controls relevant to the impairment
provisioning process, including the use of IT specialists to
test the key IT controls over the systems in which the source
customer receivable data is maintained, and reviewing
minutes from key governance forums.
Where necessary, we also tested the completeness and
accuracy of information used in key lending controls,
which included extraction of source data from the core
lending systems and independent recalculation of the
relevant information.
We have reviewed and challenged management’s
approved impairment provisioning policy against the
requirements of IFRS 9, and assessed whether
management’s approach is consistent with those
applied by other similar financial institutions.
We evaluated the appropriateness of management’s key
assumptions used in the impairment calculations, including
probability of default, exposure at default and loss given
default. This involved us re-calculating a sample of these
assumptions using independent extracts of customer
receivable collections data. We also challenged the
appropriateness of using historical data to predict future
collections performance, with reference to our
understanding of internal and external factors affecting
the Group’s businesses. We subsequently tested the
mechanical accuracy of the provisioning approach
on a sample of portfolio carrying values.
Finally, we reviewed and challenged the completeness
and accuracy of management’s provisioning overlays, with
reference to analysis of recent collections performance,
other identified impairment risks and analysis of internal and
external data for each of the Group’s material markets.
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.
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, including
the impact of Brexit on the MAP process, and considering
the implications in terms of whether provision was required
against the tax debtor, or the potential exposure on
subsequent tax years.
The Polish Debt Option
Agreement Challenge
IPF Poland is subject to a corporation tax inspection
covering the 2008 to 2012 tax years. In relation to the
2008 and 2009 tax years, the Group paid £36.1 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’) on 25 October 2017, 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 under
IAS 37 Provisions, Contingent Liabilities and
Contingent Assets.
The key audit matter is described further by the Audit
and Risk Committee on page 62 and within the key
assumptions and estimates, and contingent liabilities
notes on pages 108 and 135.
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.
93
FINANCIAL STATEMENTSAnnual Report and Financial Statements 2018
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 £5.4 million (2017: £5.0
million)
£2.7 million (2017: £2.5
million)
Basis for
determining
materiality
5% (2017: 5%) of
forecast profit before
tax.
3% (2017: 3%) of net assets,
capped at 50% of Group
materiality.
Rationale
for the
benchmark
applied
The accumulation of
profit 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.
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 £0.27 million
(2017: £0.25 million), as well as differences below that threshold
that, in our view, warranted reporting on qualitative grounds.
We also report to the Audit 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 specific balances.
The locations were based across Central Europe with the exception
of Mexico. The scope of our audit is consistent with that from the
previous period, due to there being no significant changes in the
Group’s international business.
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 95% (2017: 96%) of the Group’s net assets,
96% (2017: 95%) of the Group’s revenue and 95% (2017: 99%) of the
Group’s profit before tax.
They were also selected to provide an appropriate basis for
undertaking audit work to address the risks of material misstatement
identified as key audit matters 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 £2.2 million to £3.0 million (2017: £2.0 million to
£2.9 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 Mexico and 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 position and 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.
We have nothing to report in respect of these matters.
94
International Personal Finance plc
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 £5.4 million (2017: £5.0
£2.7 million (2017: £2.5
million)
million)
Basis for
5% (2017: 5%) of
3% (2017: 3%) of net assets,
determining
forecast profit before
capped at 50% of Group
materiality
tax.
materiality.
Rationale
The accumulation of
The main operations of the
for the
profit is critical to an
Parent Company are to
benchmark
investor and in allowing
obtain external finance, with
applied
the Group to invest in
the main balances being the
the business. We have
investments held in the
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 Mexico and 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
therefore selected
subsidiaries and the external
report thereon.
profit before tax as
loan balances. We have
the benchmark for
therefore selected net assets
determining materiality.
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 £0.27 million
(2017: £0.25 million), as well as differences below that threshold
that, in our view, warranted reporting on qualitative grounds.
We also report to the Audit 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 specific balances.
The locations were based across Central Europe with the exception
of Mexico. The scope of our audit is consistent with that from the
previous period, due to there being no significant changes in the
Group’s international business.
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 95% (2017: 96%) of the Group’s net assets,
96% (2017: 95%) of the Group’s revenue and 95% (2017: 99%) of the
Group’s profit before tax.
They were also selected to provide an appropriate basis for
undertaking audit work to address the risks of material misstatement
identified as key audit matters 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 £2.2 million to £3.0 million (2017: £2.0 million to
£2.9 million).
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 position and 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.
We have nothing to report in respect of these matters.
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.
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.
Details of the extent to which the audit was considered capable
of detecting irregularities, including fraud are set out below.
A further description of our responsibilities for the audit of the
financial statements is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part
of our auditor’s report.
Extent to which the audit was considered
capable of detecting irregularities,
including fraud
We identify and assess the risks of material misstatement of the
Financial Statements, whether due to fraud or error, and then design
and perform audit procedures responsive to those risks, including
obtaining audit evidence that is sufficient and appropriate to
provide a basis for our opinion.
Identifying and assessing potential risks related
to irregularities
In identifying and assessing risks of material misstatement in respect
of irregularities, including fraud and non-compliance with laws and
regulations, our procedures included the following:
• enquiring of management, internal audit and the audit
committee, including obtaining and reviewing supporting
documentation, concerning the group’s policies and procedures
relating to:
• identifying, evaluating and complying with laws and
regulations and whether they were aware of any instances
of non-compliance;
• detecting and responding to the risks of fraud and whether they
have knowledge of any actual, suspected or alleged fraud;
• the internal controls established to mitigate risks related to fraud
or non-compliance with laws and regulations;
• discussing among the engagement team including component
audit teams and involving relevant internal specialists, including
tax and IT specialists regarding how and where fraud might occur
in the Financial Statements and any potential indicators of fraud.
As part of this discussion, we identified potential for fraud in the
following areas: loan impairment and revenue recognition
assumptions, due to the potential for management to manipulate
highly judgemental assumptions; and agent cash balances,
due to the possibility of misappropriation of assets; and
• obtaining an understanding of the legal and regulatory
frameworks that the group operates in, focusing on those laws
and regulations that had a direct effect on the financial
statements or that had a fundamental effect on the operations
of the Group. The key laws and regulations we considered in this
context included the UK Companies Act 2006, the London Stock
Exchange Listing Rules and the various regulatory regimes the
Group operates under across the territories in which it operates.
Audit response to risks identified
As a result of performing the above, we identified revenue
recognition, impairment of receivables and the Polish DOA
Challenge as key audit matters. The key audit matters section of
our report explains the matters in more detail and also describes
the specific procedures we performed in response to those key
audit matters.
In addition to the above, our procedures to respond to risks
identified included the following:
• reviewing the Financial Statement disclosures and testing to
supporting documentation to assess compliance with relevant
laws and regulations discussed above;
• enquiring of management, the audit committee and in-house
legal counsel concerning actual and potential litigation
and claims;
• performing analytical procedures to identify any unusual or
unexpected relationships that may indicate risks of material
misstatement due to fraud;
• reading minutes of meetings of those charged with governance,
reviewing internal audit reports and reviewing correspondence
with the Group’s regulators in each of its significant territories;
• in addressing the risk of fraud through management override of
controls, testing the appropriateness of journal entries and other
adjustments; assessing whether the judgements made in making
accounting estimates are indicative of a potential bias; and
evaluating the business rationale of any significant transactions
that are unusual or outside the normal course of business.
We also communicated relevant identified laws and regulations
and potential fraud risks to all engagement team members,
including internal specialists and significant component audit
teams, and remained alert to any indications of fraud or non-
compliance with laws and regulations throughout the audit.
95
FINANCIAL STATEMENTSAnnual Report and Financial Statements 2018
Other matters
Auditor tenure
Following the recommendation of the audit committee, we were
appointed by the members of International Personal Finance plc 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 eight years, covering the years ending
31 December 2011 to 31 December 2018.
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).
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.
Peter Birch
FCA (Senior statutory auditor)
Statutory Auditor
Leeds, United Kingdom
27 February 2019
INDEPENDENT AUDITOR’S REPORT CONTINUED
to the members of International Personal Finance plc
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 of 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.
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.
We have nothing to report in respect of these matters.
Directors’ remuneration
Under the Companies Act 2006 we are also required to report if
in our opinion certain disclosures of directors’ remuneration have
not been made or the part of the directors’ remuneration report
to be audited is not in agreement with the accounting records
and returns.
We have nothing to report in respect of these matters.
96
International Personal Finance plc
Following the recommendation of the audit committee, we were
appointed by the members of International Personal Finance plc 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 eight years, covering the years ending
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).
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.
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.
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 of 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.
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
received from branches not visited by us; or
• the Parent Company Financial Statements are not in agreement
with the accounting records and returns.
We have nothing to report in respect of these matters.
Directors’ remuneration
Under the Companies Act 2006 we are also required to report if
in our opinion certain disclosures of directors’ remuneration have
not been made or the part of the directors’ remuneration report
to be audited is not in agreement with the accounting records
and returns.
We have nothing to report in respect of these matters.
• adequate accounting records have not been kept by the Parent
Company, or returns adequate for our audit have not been
27 February 2019
Peter Birch
FCA (Senior statutory auditor)
Statutory Auditor
Leeds, United Kingdom
INDEPENDENT AUDITOR’S REPORT CONTINUED
to the members of International Personal Finance plc
Report on other legal and regulatory
requirements
Other matters
Auditor tenure
In our opinion, based on the work undertaken in the course
31 December 2011 to 31 December 2018.
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
1
109.3
Notes
2018
£m
2017
£m
866.4
825.8
(227.0)
(201.1)
1
1
2
639.4
(58.5)
(140.8)
(330.8)
(530.1)
(0.8)
(33.1)
(33.9)
75.4
–
75.4
–
75.4
5
5
10
624.7
(55.2)
(135.2)
(328.7)
(519.1)
105.6
(0.7)
(29.9)
(30.6)
75.0
(30.0)
45.0
(8.4)
36.6
Notes
2018
pence
2017
pence
6
6
33.8
32.2
20.2
19.5
Notes
2018
pence
2017
pence
6
6
33.8
32.2
16.5
15.8
Group
Company
Notes
2018
£m
75.4
2017
£m
2018
£m
2017
£m
36.6
(32.3)
(21.5)
5
25
5
(8.7)
0.3
0.3
1.1
(0.2)
(7.2)
51.3
(2.5)
0.2
10.3
(1.9)
57.4
–
1.0
(0.1)
1.1
(0.2)
1.8
–
(1.5)
0.1
10.3
(1.9)
7.0
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
Profit/(loss) after taxation attributable to owners of the Company
Other comprehensive (expense)/income
Items that may subsequently be reclassified to income statement
Exchange (losses)/gains on foreign currency translations
Net fair value gains/(losses) – cash flow hedges
Tax credit/(charge) on items that may be reclassified
Items that will not subsequently be reclassified to income statement
Actuarial gains on retirement benefit obligation
Tax charge on items that will not be reclassified
Other comprehensive (expense)/income net of taxation
Total comprehensive income/(expense) for the year attributable to owners of
the Company
68.2
94.0
(30.5)
(14.5)
The accounting policies and notes 1 to 32 are an integral part of these Financial Statements.
97
FINANCIAL STATEMENTSAnnual Report and Financial Statements 2018
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
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
2018
£m
2017
£m
2018
£m
2017
£m
11
12
13
14
15
30
25
16
22
17
18
20
22
19
15
20
27
24.5
38.0
–
19.9
138.5
36.1
4.1
261.1
764.2
228.6
992.8
1.6
46.6
18.9
1.5
1,061.4
1,322.5
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
–
–
728.1
–
–
–
4.1
732.2
–
–
–
–
0.1
667.4
–
–
–
725.5
–
0.1
–
2.1
727.7
–
–
–
3.5
–
695.5
–
667.5
1,399.7
699.0
1,426.7
(28.8)
(7.3)
(79.6)
(4.8)
(18.9)
(0.1)
(67.5)
(0.1)
(147.7)
(145.7)
(418.4)
(343.5)
(25.8)
(7.4)
–
–
(209.6)
(237.5)
(437.4)
(411.1)
(10.4)
(10.1)
(0.1)
–
(669.5)
(598.1)
(510.3)
(508.5)
(679.9)
(608.2)
(510.4)
(508.5)
(889.5)
(845.7)
(947.8)
(919.6)
433.0
496.9
451.9
507.1
23.4
(22.5)
51.3
(0.6)
(45.1)
2.3
424.2
433.0
23.4
(22.5)
60.0
(1.2)
(47.6)
2.3
482.5
496.9
23.4
226.3
–
0.1
(45.1)
2.3
244.9
451.9
23.4
226.3
–
(0.8)
(47.6)
2.3
303.5
507.1
The accounting policies and notes 1 to 32 are an integral part of these Financial Statements.
The loss after taxation of the Parent Company for the period was £32.3 million (2017: loss of £21.5 million).
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 32 were approved by the Board on 27 February 2019 and were signed on its behalf by:
Gerard Ryan
Chief Executive Officer
Justin Lockwood
Chief Financial Officer
98
International Personal Finance plc
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
Deferred tax liabilities
Borrowings
Total liabilities
Net assets
Called-up share capital
Other reserve
Foreign exchange reserve
Hedging reserve
Own shares
Capital redemption reserve
Retained earnings
Total equity
Equity attributable to owners of the Company
Group
Company
Notes
2018
£m
2017
£m
2018
£m
2017
£m
11
12
13
14
15
30
25
16
22
17
18
20
22
19
15
20
27
–
–
–
–
0.1
2.1
3.5
–
–
–
–
–
–
–
–
728.1
725.5
261.1
222.9
732.2
727.7
24.5
38.0
–
19.9
138.5
36.1
4.1
764.2
228.6
992.8
1.6
46.6
18.9
1.5
24.4
33.1
23.2
103.1
37.0
2.1
866.9
190.0
1,056.9
10.4
27.4
19.3
5.7
4.1
–
–
–
–
–
–
–
–
–
–
0.1
667.4
695.5
1,061.4
1,119.7
667.5
699.0
1,322.5
1,342.6
1,399.7
1,426.7
(28.8)
(7.3)
(79.6)
(4.8)
(18.9)
(0.1)
(67.5)
(0.1)
(147.7)
(145.7)
(418.4)
(343.5)
(25.8)
(7.4)
–
(209.6)
(237.5)
(437.4)
(411.1)
(10.4)
(10.1)
(0.1)
(669.5)
(598.1)
(510.3)
(508.5)
(679.9)
(608.2)
(510.4)
(508.5)
(889.5)
(845.7)
(947.8)
(919.6)
433.0
496.9
451.9
507.1
23.4
(22.5)
51.3
(0.6)
2.3
424.2
433.0
23.4
(22.5)
60.0
(1.2)
2.3
482.5
496.9
23.4
226.3
–
0.1
2.3
244.9
451.9
(45.1)
(47.6)
(45.1)
23.4
226.3
–
(0.8)
(47.6)
2.3
303.5
507.1
The accounting policies and notes 1 to 32 are an integral part of these Financial Statements.
The loss after taxation of the Parent Company for the period was £32.3 million (2017: loss of £21.5 million).
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 32 were approved by the Board on 27 February 2019 and were signed on its behalf by:
Gerard Ryan
Chief Executive Officer
Justin Lockwood
Chief Financial Officer
STATEMENTS OF CHANGES IN EQUITY
Group – Attributable to owners of the Company
Notes
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
25
Tax credit/(charge) on other comprehensive
income
5
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
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)
8.7
1.1
(50.8)
2.3
467.3
429.5
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
51.3
–
–
–
51.3
–
–
(2.5)
–
0.2
(2.3)
51.3
(2.3)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
3.2
–
–
–
–
–
–
–
–
–
–
–
36.6
36.6
–
–
10.3
(1.9)
8.4
51.3
(2.5)
10.3
(1.7)
57.4
45.0
94.0
1.0
1.0
(3.2)
(27.6)
482.5
–
(27.6)
496.9
At 31 December 2017
23.4
(22.5)
60.0
(1.2)
(47.6)
2.3
At 1 January 2018 as originally presented
23.4
(22.5)
60.0
(1.2)
(47.6)
2.3
482.5
496.9
Change in accounting policy (see note 32)
–
–
–
–
–
–
(107.4)
(107.4)
Restated at 1 January 2018
Comprehensive income
Profit after taxation for the year
Other comprehensive (expense)/income
Exchange losses on foreign currency
translation
Net fair value gains – cash flow hedges
Actuarial gain on retirement benefit obligation
25
Tax credit/(charge) on other comprehensive
income
5
Total other comprehensive (expense)/income
Total comprehensive (expense)/income for
the year
Transactions with owners
Share-based payment adjustment to reserves
Shares granted from treasury and employee
trust
Dividends paid to Company shareholders
7
23.4
(22.5)
60.0
(1.2)
(47.6)
2.3
375.1
389.5
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(8.7)
–
–
–
(8.7)
–
0.3
–
0.3
0.6
(8.7)
0.6
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2.5
–
–
–
–
–
–
–
–
–
–
–
75.4
75.4
–
–
1.1
(0.2)
0.9
(8.7)
0.3
1.1
0.1
(7.2)
76.3
68.2
3.0
3.0
(2.5)
–
(27.7)
(27.7)
At 31 December 2018
23.4
(22.5)
51.3
(0.6)
(45.1)
2.3
424.2
433.0
99
FINANCIAL STATEMENTSAnnual Report and Financial Statements 2018
STATEMENTS OF CHANGES IN EQUITY CONTINUED
Company – Attributable to owners of the Company
Notes
At 1 January 2017
Comprehensive income
Loss after taxation for the year
Other comprehensive (expense)/income
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 1 January 2018
Comprehensive income
Loss after taxation for the year
Other comprehensive income/(expense)
Net fair value gains – cash flow hedges
Actuarial gains on retirement benefit obligation
25
Tax charge on other comprehensive income
Total other comprehensive income
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
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
Total
equity
£m
0.6
(50.8)
2.3
346.4
548.2
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(1.5)
–
0.1
(1.4)
(1.4)
–
–
–
–
–
–
–
–
–
–
3.2
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1.0
–
(0.1)
0.9
0.9
–
–
–
–
–
–
–
–
–
–
2.5
–
–
–
–
–
–
–
–
–
–
(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
(32.3)
(32.3)
–
1.1
(0.2)
0.9
1.0
1.1
(0.3)
1.8
(31.4)
(30.5)
3.0
(2.5)
(27.7)
3.0
–
(27.7)
451.9
23.4
226.3
(0.8)
(47.6)
2.3
303.5
507.1
At 31 December 2017
23.4
226.3
(0.8)
(47.6)
2.3
At 31 December 2018
23.4
226.3
0.1
(45.1)
2.3
244.9
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 32 are an integral part of these Financial Statements.
100
International Personal Finance plc
Called-up
share
capital
£m
23.4
Other
reserve
£m
226.3
Hedging
reserve
Own shares
reserve
Capital
redemption
£m
(50.8)
£m
2.3
Retained
earnings
£m
Total
equity
£m
346.4
548.2
Company – Attributable to owners of the Company
Notes
At 1 January 2017
Comprehensive income
Loss after taxation for the year
Other comprehensive (expense)/income
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 1 January 2018
Comprehensive income
Loss after taxation for the year
Other comprehensive income/(expense)
Net fair value gains – cash flow hedges
Actuarial gains on retirement benefit obligation
25
Tax charge on other comprehensive income
Total other comprehensive income
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
£m
0.6
–
(1.5)
–
0.1
(1.4)
(1.4)
–
–
–
–
–
–
–
1.0
–
(0.1)
0.9
0.9
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
3.2
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2.5
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(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
(32.3)
(32.3)
–
1.1
(0.2)
0.9
1.0
1.1
(0.3)
1.8
(31.4)
(30.5)
3.0
(2.5)
(27.7)
3.0
–
(27.7)
451.9
At 31 December 2017
23.4
226.3
(0.8)
(47.6)
2.3
23.4
226.3
(0.8)
(47.6)
2.3
303.5
507.1
At 31 December 2018
23.4
226.3
0.1
(45.1)
2.3
244.9
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 32 are an integral part of these Financial Statements.
STATEMENTS OF CHANGES IN EQUITY CONTINUED
CASH FLOW STATEMENTS
for the year ended 31 December
Group
Company
Notes
2018
£m
2017
£m
2018
£m
2017
£m
Cash flows from operating activities
Continuing operations
Cash generated from operating activities
Finance costs paid
Finance income received
Income tax paid
Discontinued operations
Net cash generated from/(used in) 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
Disposal of subsidiary, net of cash and cash equivalents
Net cash used in investing activities
Net cash generated from/(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 (used in)/generated from financing activities
Net increase/(decrease) 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
28
141.6
(59.6)
–
143.6
(54.7)
–
(21.8)
(94.0)
–
60.2
(2.7)
(7.8)
97.7
(58.4)
37.9
(1.6)
–
75.6
14
(6.7)
0.3
(10.1)
0.7
12
(19.3)
(14.9)
–
–
(25.7)
34.5
101.9
(89.7)
(27.7)
(15.5)
19.0
27.4
0.2
46.6
–
3.0
(21.3)
(29.1)
92.5
(53.2)
(27.6)
11.7
(17.4)
43.4
1.4
27.4
7
17
–
–
–
–
–
–
75.6
32.3
(80.1)
(27.7)
(75.5)
0.1
–
–
0.1
17
46.6
27.4
0.1
The accounting policies and notes 1 to 32 are an integral part of these Financial Statements.
9.2
(46.9)
39.0
(1.3)
–
–
–
–
–
(25.5)
–
(25.5)
(25.5)
58.1
(8.9)
(27.6)
21.6
(3.9)
3.9
–
–
–
101
FINANCIAL STATEMENTSAnnual Report and Financial Statements 2018
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 144.
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 106.
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 2018 but do not have any
material impact on the Group:
• IFRS 15 ‘Revenue from contracts with customers (and the related clarifications)’;
• IFRIC 22 ‘Foreign Currency Transactions and Advance Consideration’;
• Amendments to IAS 40 ‘Transfers of investment property’; and
• IFRS 2 (amendment)’Classification and Measurement of Share-based Payment Transactions’.
The following standards, interpretations and amendments to existing standards are not yet effective and have not been early adopted by
the Group:
• Amendments to IAS19 Employee Benefits – plan amendment, curtailment or settlement;
• IFRS 16 ‘Leases’ (for more detail see below); and
• IFRIC23 ‘Uncertainty over Income Tax Treatments’.
IFRS16 Leases
IFRS 16, which was endorsed by the EU on 9 November 2017, provides a comprehensive model for the identification of lease arrangements
and their treatment in the financial statements for both lessors and lessees. IFRS 16 will supersede the current lease guidance including
IAS 17 Leases and the related Interpretations when it becomes effective for accounting periods beginning on or after 1 January 2019.
The date of initial application of IFRS 16 for the Group will be 1 January 2019.
IFRS 16 distinguishes leases and service contracts on the basis of whether an identified asset is controlled by a customer. Distinctions of
operating leases (off balance sheet) and finance leases (on balance sheet) are removed for lessee accounting, and is replaced by a
model where a right-of-use asset and a corresponding liability have to be recognised for all leases by lessees (i.e. all on balance sheet)
except for short-term leases and leases of low value assets.
The right-of-use asset is measured initially at cost and measured subsequently at cost (subject to certain exceptions) less accumulated
depreciation and impairment losses, adjusted for any remeasurement of the lease liability. The lease liability is measured initially at the
present value of the lease payments that are not paid at that date. Subsequently, the lease liability is adjusted for interest and lease
payments, as well as the impact of lease modifications, amongst others. Furthermore, the classification of cash flows will also be affected
because operating leases under IAS 17 are presented as operating cash flows, whereas under the IFRS 16 model, the lease payments will
be split into a principal and interest portion, which will be presented as operating and financing cash flows respectively.
Furthermore, extensive disclosures are required by IFRS 16.
The Group has reviewed all of the Group’s leasing arrangements in light of the new lease accounting rules in IFRS 16. The standard will
affect primarily the accounting for the Group’s operating leases. As at the reporting date, the Group has non-cancellable operating lease
commitments of £29.0 million, see note 29. The Group’s preliminary assessment is that it will recognise right-of-use assets of approximately
£22 million on 1 January 2019 and lease liabilities of £22 million, overall there will be a £nil impact on net assets. Net current assets will be
approximately £7 million lower due to the presentation of a portion of the liability as a current liability. The Group’s activities as a lessee are
not material and hence the Group does not expect any significant impact on the Financial Statements. The impact of IFRS 16 on the profit
and loss account in 2019 is not expected to be significant.
102
International Personal Finance plc
ACCOUNTING POLICIES
General information
page 144.
Report on page 4.
Basis of preparation
companies reporting under IFRS.
material impact on the Group:
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
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
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 106.
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
The following amendments to standards are mandatory for the first time for the financial year beginning 1 January 2018 but do not have any
• IFRS 15 ‘Revenue from contracts with customers (and the related clarifications)’;
• IFRIC 22 ‘Foreign Currency Transactions and Advance Consideration’;
• Amendments to IAS 40 ‘Transfers of investment property’; and
• IFRS 2 (amendment)’Classification and Measurement of Share-based Payment Transactions’.
The following standards, interpretations and amendments to existing standards are not yet effective and have not been early adopted by
the Group:
• Amendments to IAS19 Employee Benefits – plan amendment, curtailment or settlement;
• IFRS 16 ‘Leases’ (for more detail see below); and
• IFRIC23 ‘Uncertainty over Income Tax Treatments’.
IFRS16 Leases
IFRS 16, which was endorsed by the EU on 9 November 2017, provides a comprehensive model for the identification of lease arrangements
and their treatment in the financial statements for both lessors and lessees. IFRS 16 will supersede the current lease guidance including
IAS 17 Leases and the related Interpretations when it becomes effective for accounting periods beginning on or after 1 January 2019.
The date of initial application of IFRS 16 for the Group will be 1 January 2019.
IFRS 16 distinguishes leases and service contracts on the basis of whether an identified asset is controlled by a customer. Distinctions of
operating leases (off balance sheet) and finance leases (on balance sheet) are removed for lessee accounting, and is replaced by a
model where a right-of-use asset and a corresponding liability have to be recognised for all leases by lessees (i.e. all on balance sheet)
except for short-term leases and leases of low value assets.
The right-of-use asset is measured initially at cost and measured subsequently at cost (subject to certain exceptions) less accumulated
depreciation and impairment losses, adjusted for any remeasurement of the lease liability. The lease liability is measured initially at the
present value of the lease payments that are not paid at that date. Subsequently, the lease liability is adjusted for interest and lease
payments, as well as the impact of lease modifications, amongst others. Furthermore, the classification of cash flows will also be affected
because operating leases under IAS 17 are presented as operating cash flows, whereas under the IFRS 16 model, the lease payments will
be split into a principal and interest portion, which will be presented as operating and financing cash flows respectively.
Furthermore, extensive disclosures are required by IFRS 16.
The Group has reviewed all of the Group’s leasing arrangements in light of the new lease accounting rules in IFRS 16. The standard will
affect primarily the accounting for the Group’s operating leases. As at the reporting date, the Group has non-cancellable operating lease
commitments of £29.0 million, see note 29. The Group’s preliminary assessment is that it will recognise right-of-use assets of approximately
£22 million on 1 January 2019 and lease liabilities of £22 million, overall there will be a £nil impact on net assets. Net current assets will be
approximately £7 million lower due to the presentation of a portion of the liability as a current liability. The Group’s activities as a lessee are
not material and hence the Group does not expect any significant impact on the Financial Statements. The impact of IFRS 16 on the profit
and loss account in 2019 is not expected to be significant.
Alternative Performance Measures
In reporting financial information, the Group presents alternative performance measures, ‘APMs’ which are not defined or specified under
the requirements of IFRS.
The Group believes that these APMs, which are not considered to be a substitute for or superior to IFRS measures, provide stakeholders with
additional helpful information on the performance of the business. The APMs are consistent with how the business performance is planned
and reported within the internal management reporting to the Board. Some of these measures are also used for the purpose of setting
remuneration targets.
Each of the APMs, used by the Group are set out on pages 138-143 including explanations of how they are calculated and how they can be
reconciled to a statutory measure where relevant.
The Group reports percentage change figures for all performance measures, other than profit or loss before taxation and earnings per share,
after restating prior year figures at a constant exchange rate. The constant exchange rate, which is an APM, retranslates the previous year
measures at the average actual periodic exchange rates used in the current financial year. These measures are presented as a means of
eliminating the effects of exchange rate fluctuations on the year-on-year reported results.
The Group makes certain adjustments to the statutory measures in order to derive APMs where relevant. The Group’s policy is to exclude
items that are considered to be significant in both nature and/or quantum and where treatment as an adjusted item provides stakeholders
with additional useful information to assess the year-on-year trading performance of the Group.
A full reconciliation of the 2017 profit and loss account between the IAS 39 reported numbers and the IFRS 9 numbers is included within
these APMs.
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 41.
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 – European home credit, Mexico home credit 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 reflecting all contractual terms using estimated cash flows, being contractual
payments adjusted for the impact of customers paying early.
Directly attributable issue costs are also taken into account in calculating the EIR. Interest income is accrued on all receivables using the
original EIR applied to the loan’s carrying value. Revenue is calculated using the EIR on the gross receivable balance for loans in stages 1
and 2. For loans in stage 3, the calculation is applied to the net receivable from the start of the next reporting period after the loan entered
stage 3. Revenue is capped at the amount of interest income charged.
103
FINANCIAL STATEMENTSAnnual Report and Financial Statements 2018
ACCOUNTING POLICIES 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
Classification and measurement
With respect to the classification and measurement of financial assets, the number of categories of financial assets under IFRS 9 has been
reduced compared to IAS 39. Under IFRS 9 the classification of financial assets is based both on the business model within which the asset is
held and the contractual cash flow characteristics of the asset. There are three principal classification categories for financial assets that are
debt instruments: (i) amortised cost, (ii) fair value through other comprehensive income (FVTOCI) and (iii) fair value through profit or loss
(FVTPL). Equity instruments in the scope of IFRS 9 are measured at fair value with gains and losses recognised in profit or loss unless an
irrevocable election is made to recognise gains or losses in other comprehensive income.
There is no impact on the classification and measurement of the following financial assets held by the Group: derivative financial instruments;
cash and cash equivalents; other receivables and current tax assets.
There is no change in the accounting for any financial liabilities.
Hedge accounting
On initial application of IFRS 9, an entity may choose, as its accounting policy, to continue to apply the hedge accounting requirements of
IAS 39 instead of the hedge accounting requirements of IFRS 9. The Group has elected to apply the IAS 39 hedge accounting requirements.
Amounts receivable from customers
Impairment
The impairment model under IFRS 9 reflects expected credit losses, as opposed to only incurred credit losses under IAS 39. Under the
impairment approach in IFRS 9, it is not necessary for a credit event to have occurred before credit losses are recognised. Instead, an entity
always accounts for expected credit losses and changes in those expected credit losses. The amount of expected credit losses should be
updated at each reporting date. The new impairment model will apply to the Group’s financial assets that are measured at amortised cost,
namely amounts receivable from customers.
Determining an increase in credit risk since initial recognition
IFRS 9 requires the recognition of 12 month expected credit losses (the expected credit losses from default events that are expected within 12
months of the reporting date) if credit risk has not significantly increased since initial recognition (stage 1) and lifetime expected credit losses
for financial instruments for which the credit risk has increased significantly since initial recognition (stage 2) or which are credit impaired
(stage 3).
When determining whether the risk of default has increased significantly since initial recognition the Group considers both quantitative and
qualitative information based on the Group’s historical experience.
The approach to identifying significant increases in credit risk is consistent across the Group’s products. In addition, as a backstop, the Group
considers that a significant increase in credit risk occurs when an asset is more than 30 days past due.
104
International Personal Finance plc ACCOUNTING POLICIES CONTINUED
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
on a straight-line basis over the lease term.
to the Group.
Other operating costs
administrative expenses.
Share-based payments
Leases are classified as operating leases whenever the terms of the lease do not transfer substantially all the risks and rewards of ownership
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
The Group classifies as exceptional those significant items that are one-off in nature and do not reflect the underlying performance
treated as an increase in the investment in subsidiaries.
Exceptional items
of the Group.
Financial instruments
Classification and measurement
With respect to the classification and measurement of financial assets, the number of categories of financial assets under IFRS 9 has been
reduced compared to IAS 39. Under IFRS 9 the classification of financial assets is based both on the business model within which the asset is
held and the contractual cash flow characteristics of the asset. There are three principal classification categories for financial assets that are
debt instruments: (i) amortised cost, (ii) fair value through other comprehensive income (FVTOCI) and (iii) fair value through profit or loss
(FVTPL). Equity instruments in the scope of IFRS 9 are measured at fair value with gains and losses recognised in profit or loss unless an
irrevocable election is made to recognise gains or losses in other comprehensive income.
There is no impact on the classification and measurement of the following financial assets held by the Group: derivative financial instruments;
cash and cash equivalents; other receivables and current tax assets.
There is no change in the accounting for any financial liabilities.
Hedge accounting
Amounts receivable from customers
Impairment
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.
The impairment model under IFRS 9 reflects expected credit losses, as opposed to only incurred credit losses under IAS 39. Under the
impairment approach in IFRS 9, it is not necessary for a credit event to have occurred before credit losses are recognised. Instead, an entity
always accounts for expected credit losses and changes in those expected credit losses. The amount of expected credit losses should be
updated at each reporting date. The new impairment model will apply to the Group’s financial assets that are measured at amortised cost,
namely amounts receivable from customers.
Determining an increase in credit risk since initial recognition
IFRS 9 requires the recognition of 12 month expected credit losses (the expected credit losses from default events that are expected within 12
months of the reporting date) if credit risk has not significantly increased since initial recognition (stage 1) and lifetime expected credit losses
for financial instruments for which the credit risk has increased significantly since initial recognition (stage 2) or which are credit impaired
(stage 3).
When determining whether the risk of default has increased significantly since initial recognition the Group considers both quantitative and
qualitative information based on the Group’s historical experience.
The approach to identifying significant increases in credit risk is consistent across the Group’s products. In addition, as a backstop, the Group
considers that a significant increase in credit risk occurs when an asset is more than 30 days past due.
Commissions in respect of insurance products intermediated by the Group are recognised when the underlying insurance goes on-risk if
Financial instruments are moved back to stage 1 once they no longer meet the criteria for a significant increase in credit risk.
The leases entered into by the Group are solely operating leases. Costs in respect of operating leases are charged to the income statement
their contractual payments in IPF Digital;
Definition of default and credit impaired assets
The Group defines a financial instrument as in default, which is fully-aligned with the definition of credit-impaired, when it meets one or more
of the following criteria:
• Quantitative criteria: the customer is more than 90 days past due on their contractual payments in home credit and 60 days past due on
• 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 calculated PD, EAD, LGD and cash flow projections based on the most recent collections performance, including management
overlays where we deem that historic performance is not representative of future collections performance.
In some markets, the most recent impairment parameters are not considered to be representative of expected future performance due to
changes in operational performance. Therefore an overlay has been applied to increase certain parameters at both 1 January 2018 and
31 December 2018.
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.
105
FINANCIAL STATEMENTSAnnual Report and Financial Statements 2018
ACCOUNTING POLICIES CONTINUED
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 recognised initially as an asset at cost and is measured subsequently 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 cash flows from the legacy MCB Finance 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.
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 attributable directly 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.
106
International Personal Finance plc ACCOUNTING POLICIES CONTINUED
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.
Taxation
The tax expense represents the sum of the tax currently payable and deferred tax.
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 recognised initially as an asset at cost and is measured subsequently 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 cash flows from the legacy MCB Finance 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,
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
Property, plant and equipment is shown at cost less subsequent depreciation and impairment. Cost represents invoiced cost plus any other
costs that are attributable directly 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
and any shortfall recognised as impairment.
Investments in subsidiaries
value less costs to sell.
Property, plant and equipment
principal bases used:
Category
Fixtures and fittings
Motor vehicles
Equipment (including computer hardware)
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.
Current tax
The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement
because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never
taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by
the balance sheet date.
Deferred tax
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the Financial
Statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability
method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent
that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are
not recognised if the temporary difference arises from the initial recognition of goodwill or from the initial recognition (other than in a business
combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.
Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, and interests in joint
ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not
reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments and interests
are only recognised to the extent that it is probable that there will be sufficient taxable profits against which to utilise the benefits of the temporary
differences and they are expected to reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that
sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised based on tax
laws and rates that have been enacted or substantively enacted at the balance sheet date.
The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group
expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities
and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities
on a net basis.
Current tax and deferred tax for the year
Current and deferred tax are recognised in profit or loss, except when they relate to items that are recognised in other comprehensive
income or directly in equity, in which case, the current and deferred tax are also recognised in other comprehensive income or directly in
equity respectively. Where current tax or deferred tax arises from the initial accounting for a business combination, the tax effect is included
in the accounting for the business combination.
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 sources of estimation uncertainty
The preparation of Consolidated Financial Statements requires the Group to make estimates and judgements that affect the application of
policies and reported accounts.
Critical judgements represent key decisions made by management in the application of the Group accounting policies. Where a significant risk
of materially different outcomes exists due to management assumptions or sources of estimation uncertainty, this will represent a critical
107
FINANCIAL STATEMENTSAnnual Report and Financial Statements 2018
ACCOUNTING POLICIES CONTINUED
accounting estimate. Estimates and judgements are continually evaluated and are based on historical experience and other factors, including
expectations of future events that are believed to be reasonable under the circumstances. Actual results may differ from these estimates.
The estimates and judgements which have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities are
discussed below.
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.
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
on historical data and are reviewed regularly. Based on a 3% variation in the EIR, it is estimated that the amounts receivable from customers
would be higher/lower by £12.1 million (2017: Based on a 1% variation in the EIR, £3.1 million). This sensitivity is based on historic fluctuations in
EIRs. EIRs are subject to more fluctuations under IFRS 9 than under IAS 39 due to all contractual terms being included in the EIR calculation.
(2018 fluctuations based on IFRS 9; 2017 fluctuations based on IAS 39).
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.
For the purposes of assessing the impairment of customer loans and receivables, customers are categorised into stages based on days past
due as this is considered to be the most reliable predictor of future payment performance. The level of impairment is calculated using
historical payment performance to generate both the estimated expected loss and also the timing of future cash flows for each agreement.
The expected loss is calculated using probability of default and loss given default parameters.
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, at least twice per year. However, on the basis that the
payment performance of customers could be different from the assumptions used in estimating expected losses and the future cash flows,
an adjustment to the amounts receivable from customers may be required.
The table below shows the estimated variation to the amounts receivable from customers in the event that loss given default parameters
could be vary by +/- 2%:
Home credit
IPF Digital
Group
Receivables
impact
£m
5.5
1.3
6.8
Movements in probability of default parameters are not material to amounts receivable from customers.
This level of estimated impact is based on historic fluctuations in performance compared to the models and is subject to impairment
overlay provisions.
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 in note 30 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.
Critical accounting judgements
Accounting judgements have been made over which tax risks require provisions and which require disclosure as a contingent liability, see
above for further details.
108
International Personal Finance plc
ACCOUNTING POLICIES CONTINUED
NOTES TO THE FINANCIAL STATEMENTS
accounting estimate. Estimates and judgements are continually evaluated and are based on historical experience and other factors, including
expectations of future events that are believed to be reasonable under the circumstances. Actual results may differ from these estimates.
The estimates and judgements which have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities are
discussed below.
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.
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
on historical data and are reviewed regularly. Based on a 3% variation in the EIR, it is estimated that the amounts receivable from customers
would be higher/lower by £12.1 million (2017: Based on a 1% variation in the EIR, £3.1 million). This sensitivity is based on historic fluctuations in
EIRs. EIRs are subject to more fluctuations under IFRS 9 than under IAS 39 due to all contractual terms being included in the EIR calculation.
(2018 fluctuations based on IFRS 9; 2017 fluctuations based on IAS 39).
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.
For the purposes of assessing the impairment of customer loans and receivables, customers are categorised into stages based on days past
due as this is considered to be the most reliable predictor of future payment performance. The level of impairment is calculated using
historical payment performance to generate both the estimated expected loss and also the timing of future cash flows for each agreement.
The expected loss is calculated using probability of default and loss given default parameters.
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, at least twice per year. However, on the basis that the
payment performance of customers could be different from the assumptions used in estimating expected losses and the future cash flows,
an adjustment to the amounts receivable from customers may be required.
The table below shows the estimated variation to the amounts receivable from customers in the event that loss given default parameters
could be vary by +/- 2%:
Receivables
impact
£m
5.5
1.3
6.8
Home credit
IPF Digital
Group
overlay provisions.
Tax
Movements in probability of default parameters are not material to amounts receivable from customers.
This level of estimated impact is based on historic fluctuations in performance compared to the models and is subject to impairment
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 in note 30 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.
Critical accounting judgements
above for further details.
Accounting judgements have been made over which tax risks require provisions and which require disclosure as a contingent liability, see
1. Segment analysis
Geographical segments
Group
European home credit
Mexico home credit
Digital
Slovakia and Lithuania
UK costs*
Total – continuing operations
Discontinued operations
Total
Revenue
Impairment
Profit before taxation
2018
£m
493.3
226.1
147.0
–
–
2017
£m
504.7
217.0
104.1
–
–
2018
£m
88.5
82.9
55.6
–
–
2017
£m
91.1
75.6
42.9
(8.5)
–
866.4
825.8
227.0
201.1
–
3.7
–
2.6
2018
£m
113.8
15.7
(5.6)
–
(14.6)
109.3
–
866.4
829.5
227.0
203.7
109.3
2017
£m
114.3
14.7
(11.7)
3.2
(14.9)
105.6
(7.9)
97.7
* 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
European home credit
Mexico home credit
Digital
Slovakia and Lithuania
UK
Total – continuing operations
Group
European home credit
Mexico home credit
Digital
UK
Total – continuing operations
Group
European home credit
Mexico home credit
Digital
UK
Total – continuing operations
Segment assets
Segment liabilities
2018
£m
699.8
241.7
310.2
0.3
70.5
2017
£m
822.3
220.3
231.9
0.9
67.2
1,322.5
1,342.6
2018
£m
327.7
144.8
224.7
5.3
187.0
889.5
2017
£m
332.0
145.2
157.0
7.7
203.8
845.7
Capital expenditure
Depreciation
2018
£m
4.1
1.7
0.9
–
6.7
2017
£m
6.7
2.7
0.6
0.1
10.1
2018
£m
5.0
2.2
0.6
1.4
9.2
Expenditure on intangible
assets
Amortisation
2018
£m
–
–
10.5
8.8
19.3
2017
£m
–
–
5.9
9.0
14.9
2018
£m
–
–
4.6
9.9
14.5
2017
£m
5.1
2.4
0.4
2.4
10.3
2017
£m
–
–
2.9
8.5
11.4
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 £866.4 million
(2017: £829.5 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 2017 in Slovakia / Lithuania is principally driven by the 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 £27.3 million (2017: £27.7 million),
and the total of non-current assets located in other countries is £95.3 million (2017: £92.1 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.
109
FINANCIAL STATEMENTSAnnual Report and Financial Statements 2018
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
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 64.
5. Tax expense
Group
Current tax expense
Deferred tax (income)/expense (note 15)
– current year
– prior year
Pre-exceptional tax expense
Exceptional tax charge
Tax expense
2018
£m
58.5
2017
£m
55.2
2018
£m
9.2
0.5
–
14.5
12.1
6.4
2017
£m
10.3
–
3.3
11.4
12.9
6.9
192.9
193.0
2018
£m
0.1
0.6
0.1
2017
£m
0.1
0.7
0.1
2018
£m
44.3
2017
£m
47.0
(12.0)
1.6
(10.4)
33.9
–
33.9
(18.9)
2.5
(16.4)
30.6
30.0
60.6
The exceptional tax charge in 2017 of £30.0 million related to the write off of a deferred tax asset due to a change on Polish tax legislation
effective from 1 January 2018.
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.
Group
Tax credit/(charge) on other comprehensive income
Deferred tax credit on net fair value losses/gains – cash flow hedges
Deferred tax charge on actuarial gains on retirement benefit asset
2018
£m
0.3
(0.2)
0.1
2017
£m
0.2
(1.9)
(1.7)
110
International Personal Finance plc
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
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 64.
5. Tax expense
Group
Current tax expense
Deferred tax (income)/expense (note 15)
– current year
– prior year
Pre-exceptional tax expense
Exceptional tax charge
Tax expense
effective from 1 January 2018.
revenue and impairment.
Group
Tax credit/(charge) on other comprehensive income
Deferred tax credit on net fair value losses/gains – cash flow hedges
Deferred tax charge on actuarial gains on retirement benefit asset
2018
£m
58.5
2017
£m
55.2
2018
£m
9.2
0.5
–
14.5
12.1
6.4
2018
£m
0.1
0.6
0.1
2017
£m
10.3
–
3.3
11.4
12.9
6.9
2017
£m
0.1
0.7
0.1
2018
£m
44.3
2017
£m
47.0
(12.0)
1.6
(10.4)
33.9
–
33.9
(18.9)
2.5
(16.4)
30.6
30.0
60.6
2018
£m
0.3
(0.2)
0.1
2017
£m
0.2
(1.9)
(1.7)
The exceptional tax charge in 2017 of £30.0 million related to the write off of a deferred tax asset due to a change on Polish tax legislation
Further information regarding the deferred tax (income)/expense is shown in note 15, and primarily relates to timing differences in respect of
5. Tax expense continued
The rate of tax expense on the profit before taxation for the year ended 31 December 2018 is higher than (2017: higher than) the standard
rate of corporation tax in the UK of 19.0% (2017: 19.25%). The differences are explained as follows:
Group
Profit before taxation
Profit before taxation multiplied by the standard rate of corporation tax in the UK of 19.0% (2017: 19.25%)
Effects of:
– adjustment in respect of prior years
– adjustment in respect of foreign tax rates
– expenses not deductible for tax purposes
– change in unrecognised deferred tax assets
Pre-exceptional tax expense
Exceptional tax charge
Total tax expense
2018
£m
109.3
20.8
2017
£m
105.6
20.3
1.6
1.4
10.3
(0.2)
33.9
–
33.9
2.5
2.1
5.6
0.1
30.6
30.0
60.6
192.9
193.0
The Group is currently subject to a tax audit with respect to Provident Polska for the years 2008-2012. Audits of 2010 to 2012 are ongoing, whilst
for 2008 and 2009, decisions were received in January 2017 and have been appealed. Further details are set out in note 30.
The Group is also subject to audits in Mexico (regarding 2017) and Slovakia (regarding 2015). The Mexican audit is still at the information
gathering stage, and the Slovak audit is nearing conclusion.
6. Earnings per share
Basic earnings per share (‘EPS’) from continuing operations is calculated by dividing the earnings attributable to shareholders of £75.4 million
(2017: £45.0 million) by the weighted average number of shares in issue during the period of 223.0 million (2017: 222.4 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 £75.4 million (2017: £75.0 million) by the weighted average number of shares in issue during the period of
223.0 million (2017: 222.4 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
£75.4 million (2017: £36.6 million) by the weighted average number of shares in issue during the period of 223.0 million (2017: 222.4 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
2018
£M
223.0
11.1
234.1
2018
pence
33.8
(1.6)
32.2
2018
pence
33.8
(1.6)
32.2
2018
pence
33.8
(1.6)
32.2
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
111
FINANCIAL STATEMENTSAnnual Report and Financial Statements 2018
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
7. Dividends
Group and Company
Interim dividend of 4.6 pence per share (2017: interim dividend of 4.6 pence per share)
Final 2017 dividend of 7.8 pence per share (2017: final 2016 dividend of 7.8 pence per share)
2018
£m
10.3
17.4
27.7
2017
£m
10.2
17.4
27.6
The directors are recommending a final dividend in respect of the financial year ended 31 December 2018 of 7.8 pence per share which will
amount to a full year dividend payment of £27.7 million. If approved by the shareholders at the annual general meeting (‘AGM’), this
dividend will be paid on 10 May 2019 to shareholders who are on the register of members at 12 April 2019. This dividend is not reflected as a
liability in the balance sheet as at 31 December 2018 as it is subject to shareholder approval.
8. 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
2018
£m
4.4
0.1
0.1
4.6
2017
£m
4.4
0.1
0.4
4.9
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 80.
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 716 agents in Hungary and Romania (2017: includes 718 agents in Hungary and Romania).
** Includes 1,595 agents in Hungary and Romania (2017: includes 1,954 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/(credit) (note 26)
Total
112
2018
Number
2017
Number
7,127
1,894
9,021
7,225
2,266
9,491
2018
Number
2017
Number
5,365
831
2,825
9,021
2018
£m
161.5
29.5
0.8
1.1
5,680
887
2,924
9,491
2017
£m
162.0
30.4
0.8
(0.2)
192.9
193.0
International Personal Finance plc
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
7. Dividends
Group and Company
Interim dividend of 4.6 pence per share (2017: interim dividend of 4.6 pence per share)
Final 2017 dividend of 7.8 pence per share (2017: final 2016 dividend of 7.8 pence per share)
The directors are recommending a final dividend in respect of the financial year ended 31 December 2018 of 7.8 pence per share which will
amount to a full year dividend payment of £27.7 million. If approved by the shareholders at the annual general meeting (‘AGM’), this
dividend will be paid on 10 May 2019 to shareholders who are on the register of members at 12 April 2019. This dividend is not reflected as a
liability in the balance sheet as at 31 December 2018 as it is subject to shareholder approval.
8. 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 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 80.
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:
* Includes 716 agents in Hungary and Romania (2017: includes 718 agents in Hungary and Romania).
** Includes 1,595 agents in Hungary and Romania (2017: includes 1,954 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:
Short-term employee benefits
Post-employment benefits
Share-based payments
Total
Group
Full-time*
Part-time**
Group
Operations
Administration
Head office and security
2018
£m
10.3
17.4
27.7
2017
£m
10.2
17.4
27.6
2018
£m
4.4
0.1
0.1
4.6
2017
£m
4.4
0.1
0.4
4.9
2018
Number
2017
Number
7,127
1,894
9,021
7,225
2,266
9,491
2018
Number
2017
Number
5,365
831
2,825
9,021
2018
£m
161.5
29.5
0.8
1.1
5,680
887
2,924
9,491
2017
£m
162.0
30.4
0.8
(0.2)
192.9
193.0
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/(credit) (note 26)
Total
10. Discontinued operations
On 28 June 2017, we announced the completion of the sale of the home credit business in Bulgaria in order to focus our resources on our
larger home credit and rapidly growing digital businesses. Losses of £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
2018
£m
–
–
–
–
–
–
–
–
–
–
–
2017
£m
3.7
(2.6)
1.1
(0.2)
(0.7)
(2.9)
(2.7)
(5.2)
(7.9)
(0.5)
(8.4)
2018
£m
2017
£m
24.4
0.1
24.5
23.3
1.1
24.4
Goodwill is tested annually for impairment or more frequently if there are indications that goodwill might be impaired. The recoverable
amount is determined from a value in use calculation. The key assumptions used in the value in use calculation relate to the discount rates
and growth rates adopted. We adopt discount rates which reflect the time value of money and the risks specific to the legacy MCB business.
The cash flow forecasts are based on the most recent financial budgets approved by the Group Board for the next three years. The rate used
to discount the forecast cash flows is 10% (2017: 10%). No reasonably foreseeable reduction in the assumptions would give rise to
impairment, and therefore no further sensitivity analysis has been presented.
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
2018
£m
2017
£m
33.1
19.3
–
32.6
14.9
(3.3)
(14.5)
(11.4)
0.1
–
38.0
0.5
(0.2)
33.1
105.0
(67.0)
38.0
85.5
(52.4)
33.1
Intangible assets comprise computer software (2018: £38.0 million; 2017: £31.5 million) and customer relationships acquired on the
acquisition of MCB Finance (2018: £nil; 2017: £1.6 million).
The Company has no intangible assets.
113
FINANCIAL STATEMENTSAnnual Report and Financial Statements 2018
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
13. Investment in subsidiaries
Company
Investment in subsidiaries
Purchase of shares in subsidiary
Share-based payment adjustment
2018
£m
2017
£m
686.8
686.8
25.5
15.8
25.5
13.2
728.1
725.5
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 £15.8 million (2017: £13.2 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’) 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.
114
International Personal Finance plc
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
13. Investment in subsidiaries
Company
Investment in subsidiaries
Purchase of shares in subsidiary
Share-based payment adjustment
2018
£m
2017
£m
686.8
686.8
25.5
15.8
25.5
13.2
728.1
725.5
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 £15.8 million (2017: £13.2 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.
£23.2 million.
On 6 February 2015 the Group acquired 100% of the issued share capital of MCB Finance Group plc (‘MCB’) for a cash consideration of
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.
13. Investment in subsidiaries continued
The subsidiary companies of IPF plc, which are 100% owned by the Group, are detailed below:
Subsidiary company
Endepro, sro in liquidation
International Credit Insurance Limited
International Personal Finance Digital Spain S.A.U.
International Personal Finance Investments Limited
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 Group Limited
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 Holdings Limited
IPF International Limited
IPF Investments Polska sp. z o.o.
IPF Management
IPF Nordic Limited
IPF Polska sp. z o.o.
IPF Slovensko s.r.o.
PF (Netherlands) B.V.
Provident Agent De Asigurae srl
Provident Financial Romania IFN S.A.
Provident Financial s.r.o.
Provident Financial Zrt.
Provident Mexico S.A. de C.V.
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
Country of incorporation and operation
Principal activity
Slovakia
Guernsey
Spain
United Kingdom
Czech Republic
United Kingdom
Estonia
Australia
Estonia
Finland
In liquidation
Provision of services
Digital credit
Holding company
Non-trading
Provision of services
Provision of services
Digital credit
Digital credit
Digital credit
United Kingdom
Holding company
Latvia
Lithuania
Mexico
United Kingdom
United Kingdom
Guernsey
United Kingdom
United Kingdom
Poland
Ireland
United Kingdom
Poland
Slovakia
Netherlands
Romania
Romania
Czech Republic
Hungary
Mexico
Poland
Poland
Mexico
Mexico
Lithuania
Digital credit
Digital credit
Digital credit
Provision of services
Provision of services
Dormant
Holding company
Provision of services
Provision of services
Provision of services
Provision of services
Digital credit
In liquidation
Provision of services
Dormant
Home credit
Home credit
Home credit
Home credit
Home credit
Non-trading
Provision of services
Provision of services
In liquidation
All UK subsidiaries are registered at the same registered office as the Company, and this address is shown within Shareholder information on
page 144.
115
FINANCIAL STATEMENTSAnnual Report and Financial Statements 2018
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
14. Property, plant and equipment
Group
Cost
At 1 January 2018
Exchange adjustments
Additions
Disposals
At 31 December 2018
Depreciation
At 1 January 2018
Exchange adjustments
Charge to the income statement
Disposals
At 31 December 2018
Net book value at 31 December 2018
Net book value at 31 December 2017
Computer
equipment
£m
Fixtures and
fittings
£m
Motor
vehicles
£m
Total
£m
76.1
–
4.9
(2.9)
78.1
24.8
0.2
1.8
(1.0)
25.8
4.1
(0.1)
–
105.0
0.1
6.7
(0.7)
(4.6)
3.3
107.2
(62.8)
(17.4)
(1.6)
(81.8)
–
(6.0)
2.6
(0.1)
(2.6)
0.7
–
(0.6)
0.5
(0.1)
(9.2)
3.8
(66.2)
(19.4)
(1.7)
(87.3)
11.9
13.3
6.4
7.4
1.6
2.5
19.9
23.2
The Company has property, plant and equipment with a cost of £1.0 million (2017: £1.0 million); depreciation of £1.0 million (2017: £1.0
million); and a net book value of £nil (2017: £nil). 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 as originally presented
Change in accounting policy (see note 32)
Restated at 1 January
Exchange adjustments
Tax credit/(charge) to the income statement
Tax credit/(charge) on other comprehensive income
At 31 December
Group
Company
2018
£m
93.0
23.1
2017
£m
103.9
–
116.1
103.9
1.5
10.4
0.1
128.1
5.0
(14.2)
(1.7)
93.0
2018
£m
0.1
–
0.1
–
0.1
(0.3)
(0.1)
2017
£m
1.9
–
1.9
–
(0.1)
(1.7)
0.1
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 2018.
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:
Group
Company
2018
£m
138.5
(10.4)
128.1
2017
£m
103.1
(10.1)
93.0
2018
£m
–
(0.1)
(0.1)
2017
£m
0.1
–
0.1
Deferred tax assets
Deferred tax liabilities
At 31 December
116
International Personal Finance plc
Group
Cost
At 1 January 2018
Exchange adjustments
Additions
Disposals
At 31 December 2018
Depreciation
At 1 January 2018
Exchange adjustments
Charge to the income statement
Disposals
At 31 December 2018
Net book value at 31 December 2018
Net book value at 31 December 2017
15. Deferred tax
At 1 January as originally presented
Change in accounting policy (see note 32)
Restated at 1 January
Exchange adjustments
Tax credit/(charge) to the income statement
Tax credit/(charge) on other comprehensive income
At 31 December
Deferred tax assets
Deferred tax liabilities
At 31 December
The Company has property, plant and equipment with a cost of £1.0 million (2017: £1.0 million); depreciation of £1.0 million (2017: £1.0
million); and a net book value of £nil (2017: £nil). All of these assets are computer equipment.
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:
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 2018.
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:
Computer
Fixtures and
equipment
£m
fittings
£m
Motor
vehicles
£m
Total
£m
76.1
–
4.9
(2.9)
78.1
–
(6.0)
2.6
11.9
13.3
24.8
0.2
1.8
(1.0)
25.8
(0.1)
(2.6)
0.7
6.4
7.4
4.1
(0.1)
–
105.0
0.1
6.7
(0.7)
(4.6)
3.3
107.2
–
(0.6)
0.5
1.6
2.5
(0.1)
(9.2)
3.8
19.9
23.2
(66.2)
(19.4)
(1.7)
(87.3)
Group
Company
116.1
103.9
2018
£m
93.0
23.1
1.5
10.4
0.1
128.1
2017
£m
103.9
–
5.0
(14.2)
(1.7)
93.0
2018
£m
0.1
0.1
–
–
0.1
(0.3)
(0.1)
2017
£m
1.9
1.9
–
–
(0.1)
(1.7)
0.1
Group
Company
2018
£m
138.5
(10.4)
128.1
2017
£m
103.1
(10.1)
93.0
2018
£m
–
(0.1)
(0.1)
2017
£m
0.1
–
0.1
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
14. Property, plant and equipment
15. Deferred tax continued
(62.8)
(17.4)
(1.6)
(81.8)
At 31 December 2017
At 1 January 2017
Exchange adjustments
Tax credit/(charge) to the income statement
Exceptional tax charge
Tax charge relating to discontinued operation
Tax (charge)/credit on items taken directly to equity
At 1 January 2018 as originally presented
Change in accounting policy (see note 32)
Restated 1 January 2018
Exchange adjustments
Tax credit/(charge) to the income statement
Tax credit/(charge) on items taken directly to equity
At 31 December 2018
Group
Company
Revenue
and
impairment
differences
£m
Other
temporary
differences
£m
85.6
4.8
16.8
(30.0)
–
–
77.2
77.2
23.1
100.3
1.0
17.2
–
118.5
10.7
–
(0.9)
–
(0.1)
(1.7)
8.0
8.0
–
8.0
0.5
(8.4)
0.1
0.2
Losses
£m
7.6
0.2
0.5
–
(0.5)
–
7.8
7.8
–
7.8
–
1.6
–
9.4
Retirement
benefit
obligations
£m
Other
temporary
differences
£m
1.7
–
(0.2)
–
–
(1.9)
(0.4)
(0.4)
–
(0.4)
–
(0.3)
(0.1)
(0.8)
0.2
–
0.1
–
–
0.2
0.5
0.5
–
0.5
–
0.4
(0.2)
0.7
Total
£m
103.9
5.0
16.4
(30.0)
(0.6)
(1.7)
93.0
93.0
23.1
116.1
1.5
10.4
0.1
128.1
Total
£m
1.9
–
(0.1)
–
–
(1.7)
0.1
0.1
–
0.1
–
0.1
(0.3)
(0.1)
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 2018, the Group has unused tax losses of £52.7 million (2017: £47.6 million) available for offset against future profits.
A deferred tax asset has been recognised in respect of £35.0 million (2017: £28.9 million) of these losses. No deferred tax has been
recognised in respect of the remaining £17.7 million (2017: £18.7 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 2018, there is £nil (2017: £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
Amounts receivable from customers comprise:
– amounts due within one year
– amounts due in more than one year
2018
£m
2017
£m
764.2
228.6
992.8
866.9
190.0
1,056.9
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:
Group
Polish zloty
Czech crown
Euro
Hungarian forint
Mexican peso
Romanian leu
Australian dollar
2018
£m
353.0
66.0
179.1
128.3
176.4
74.4
15.6
2017
£m
393.3
83.3
148.4
162.7
165.1
93.4
10.7
992.8
1,056.9
The comparative numbers for 2017 are based on the old accounting standard for revenue and impairment (IAS39). 2017 amounts
receivable from customers were £130.5 million lower under IFRS 9 (£926.4 million). This impact has been charged to equity on 1 January 2018
in accordance with the transitional rules included in IFRS 9. Further details on the impact of implementing IFRS 9 are included in the Financial
review and in note 32.
117
FINANCIAL STATEMENTSAnnual Report and Financial Statements 2018
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
16. Amounts receivable from customers continued
Amounts receivable from customers are stated at amortised cost and calculated in accordance with the Group’s accounting policies.
Depending on the risks associated with each loan, they are categorised into three stages where stage 3 is the highest risk. A description of
the stages is included within the accounting policies on page 104. The table below shows the amount of the net receivables in each stage
at 31 December 2018.
2018
Home credit
IPF Digital
Group
Stage 1
£m
460.6
227.0
687.6
Stage 2
£m
90.0
18.3
Stage 3
£m
192.2
4.7
108.3
196.9
Total Net
Receivables
£m
742.8
250.0
992.8
Gross carrying amount and loss allowance
The amounts receivable from customers includes a provision for the loss allowance, which relates to the expected credit losses on each
agreement. The gross carrying amount is the present value of the portfolio before the loss allowance provision is deducted. The gross
carrying amount less the loss allowance is equal to the net receivables.
Group – 31 December 2018
Gross carrying amount
Loss allowance
Net receivables
Stage 1
Stage 2
Stage 3
£m
£m
£m
Total
£m
821.0
191.8
487.6
1,500.4
(133.4)
(83.5)
(290.7)
(507.6)
687.6
108.3
196.9
992.8
Gross carrying amount
The changes in gross carrying amount recognised for the period is impacted by a variety of factors:
• Credit issued in the period;
• Transfers between the three stages due to changes in the risk associated with each loan;
• Revenue recognised within the period; and
• Other changes to gross carrying amount including collections, write-offs and foreign exchange retranslations.
Loss allowance
The changes to the loss allowance recognised for the period is impacted by a variety of factors:
• Total impairment charge for the period, which comprises the following:
• Loss allowance on credit issued;
• Transfers between the three stages due to changes in the risk associated with each loan;
• Changes in risk parameters (PDs, EADs, and LGDs) in the period arising from the regular refresh of the inputs into the expected loss
model; and
• Other impairment impact including the impact of movements in days past due within each stage, impairment impact of write-offs and
post write-off field collections;
• Other changes to the loss allowance including collections, write-offs and foreign exchange retranslations.
The following tables explain the changes for home credit in the gross carrying amount, the loss allowance and net receivables between the
beginning of the year and the end of the year:
Gross carrying amount – home credit
Opening gross carrying amount at 1 January 2018
Credit issued
Transfers between stages
Revenue
Other changes
Closing gross carrying amount at 31 December 2018
Stage 1
Stage 2
Stage 3
£m
£m
£m
Total
£m
575.1
157.7
434.4
1,167.2
1,048.8
(483.8)
418.1
–
71.5
87.8
–
1,048.8
412.3
213.5
–
719.4
(986.4)
(152.6)
(611.6) (1,750.6)
571.8
164.4
448.6
1,184.8
118
International Personal Finance plc
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
Amounts receivable from customers are stated at amortised cost and calculated in accordance with the Group’s accounting policies.
Depending on the risks associated with each loan, they are categorised into three stages where stage 3 is the highest risk. A description of
the stages is included within the accounting policies on page 104. The table below shows the amount of the net receivables in each stage
Gross carrying amount and loss allowance
The amounts receivable from customers includes a provision for the loss allowance, which relates to the expected credit losses on each
agreement. The gross carrying amount is the present value of the portfolio before the loss allowance provision is deducted. The gross
carrying amount less the loss allowance is equal to the net receivables.
at 31 December 2018.
2018
Home credit
IPF Digital
Group
Group – 31 December 2018
Gross carrying amount
Loss allowance
Net receivables
Gross carrying amount
• Credit issued in the period;
The changes in gross carrying amount recognised for the period is impacted by a variety of factors:
• Transfers between the three stages due to changes in the risk associated with each loan;
• Revenue recognised within the period; and
• Other changes to gross carrying amount including collections, write-offs and foreign exchange retranslations.
Loss allowance
The changes to the loss allowance recognised for the period is impacted by a variety of factors:
• Total impairment charge for the period, which comprises the following:
• Loss allowance on credit issued;
• Transfers between the three stages due to changes in the risk associated with each loan;
• Changes in risk parameters (PDs, EADs, and LGDs) in the period arising from the regular refresh of the inputs into the expected loss
• Other changes to the loss allowance including collections, write-offs and foreign exchange retranslations.
The following tables explain the changes for home credit in the gross carrying amount, the loss allowance and net receivables between the
model; and
post write-off field collections;
beginning of the year and the end of the year:
Gross carrying amount – home credit
Opening gross carrying amount at 1 January 2018
Credit issued
Transfers between stages
Revenue
Other changes
Closing gross carrying amount at 31 December 2018
Stage 1
Stage 2
Stage 3
£m
£m
£m
Total
£m
575.1
157.7
434.4
1,167.2
1,048.8
(483.8)
418.1
–
71.5
87.8
–
1,048.8
412.3
213.5
–
719.4
(986.4)
(152.6)
(611.6) (1,750.6)
571.8
164.4
448.6
1,184.8
16. Amounts receivable from customers continued
16. Amounts receivable from customers continued
Stage 1
£m
460.6
227.0
687.6
Stage 2
£m
Stage 3
Receivables
£m
£m
Total Net
90.0
18.3
192.2
4.7
108.3
196.9
742.8
250.0
992.8
Stage 1
Stage 2
Stage 3
£m
£m
£m
Total
£m
821.0
191.8
487.6
1,500.4
(133.4)
(83.5)
(290.7)
(507.6)
687.6
108.3
196.9
992.8
Loss allowance – home credit
Opening loss allowance at 1 January 2018
Loss allowance on credit issued
Transfers between stages
Change in risk parameters
Other impairment
Total impairment
Other changes
Closing loss allowance at 31 December 2018
Net receivables – home credit
Opening net receivables at 1 January 2018
Credit issued
Transfers between stages
Revenue
Impairment
Other changes
Closing net receivables at 31 December 2018
Stage 1
Stage 2
Stage 3
£m
£m
£m
Total
£m
(108.8)
(243.2)
210.6
0.7
(8.0)
(39.9)
37.5
(70.3)
(242.1)
(421.2)
–
–
(243.2)
(17.6)
(193.0)
(0.5)
(6.6)
(2.2)
88.4
–
(2.0)
73.8
(24.7)
(106.8)
(171.4)
20.6
92.5
150.6
(111.2)
(74.4)
(256.4)
(442.0)
Stage 1
Stage 2
Stage 3
£m
£m
£m
Total
£m
466.3
87.4
192.3
746.0
1,048.8
(483.8)
418.1
(39.9)
–
71.5
87.8
–
1,048.8
412.3
213.5
–
719.4
(24.7)
(106.8)
(171.4)
(948.9)
(132.0)
(519.1) (1,600.0)
460.6
90.0
192.2
742.8
The following tables explain the changes for IPF Digital in the gross carrying amount, the loss allowance and net receivables between the
beginning of the year and the end of the year:
Gross carrying amount – IPF Digital
Opening gross carrying amount at 1 January 2018
Credit issued
Transfers between stages
Revenue
Other changes
Closing gross carrying amount at 31 December 2018
£m
178.2
311.8
(80.1)
128.3
(285.8)
252.4
£m
20.9
–
3.9
11.9
(8.6)
28.1
£m
36.9
–
76.2
6.8
Total
£m
236.0
311.8
–
147.0
(82.4)
(376.8)
37.5
318.0
Stage 1
Stage 2
Stage 3
• Other impairment impact including the impact of movements in days past due within each stage, impairment impact of write-offs and
Loss allowance – IPF Digital
Opening loss allowance at 1 January 2018
Loss allowance on credit issued
Transfers between stages
Change in risk parameters
Other impairment
Total impairment
Other changes
Closing loss allowance at 31 December 2018
Net receivables – IPF Digital
Opening net receivables at 1 January 2018
Credit issued
Transfers between stages
Revenue
Impairment
Other changes
Closing net receivables at 31 December 2018
Stage 1
Stage 2
Stage 3
£m
£m
£m
(17.0)
(37.0)
0.3
2.5
25.9
(8.3)
(0.1)
(25.4)
(6.9)
(31.7)
–
34.2
0.4
(37.4)
(2.8)
(0.1)
(9.8)
–
(34.5)
1.6
(11.6)
(44.5)
43.4
(32.8)
Stage 1
Stage 2
Stage 3
£m
161.2
311.8
(80.1)
128.3
(8.3)
(285.9)
227.0
£m
14.0
–
3.9
11.9
(2.8)
(8.7)
18.3
£m
5.2
–
76.2
6.8
(44.5)
(39.0)
Total
£m
(55.6)
(37.0)
–
4.5
(23.1)
(55.6)
43.2
(68.0)
Total
£m
180.4
311.8
–
147.0
(55.6)
(333.6)
4.7
250.0
119
FINANCIAL STATEMENTSAnnual Report and Financial Statements 2018
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
16. Amounts receivable from customers continued
Impairment as a percentage of revenue for each geographical segment is shown below:
Group
Europe
Mexico
Digital
2018
%
17.9
36.7
37.8
2017
%
18.1
34.8
41.2
The comparative numbers for 2017 are based on the old accounting standard (IAS 39). Further details of the impact of implementing IFRS 9
are included within the Financial review and in note 32.
The carrying value of amounts receivable from customers that would have been impaired had their terms not been renegotiated
is £nil (2017: £nil).
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 109% (2017 IAS 39: 99%). All amounts receivable from customers are at fixed interest rates. The average period to maturity
of the amounts receivable from customers is 11.5 months (2017: 9.1 months).
No collateral is held in respect of any customer receivables.
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.
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:
Polish zloty
Czech crown
Euro
Hungarian forint
Mexican peso
Romanian leu
Australian dollar
Total
18. Other receivables
Other receivables
Prepayments
Amounts due from Group undertakings
Total
No balance within other receivables is impaired.
Group
Company
2018
£m
46.6
2017
£m
27.4
2018
£m
0.1
2017
£m
–
Group
Company
2018
£m
23.6
3.4
7.2
2.0
6.7
3.1
0.6
2017
£m
9.9
3.3
6.1
2.3
2.8
2.5
0.5
2018
£m
–
–
0.1
–
–
–
–
46.6
27.4
0.1
2017
£m
–
–
–
–
–
–
–
–
Group
Company
2018
£m
9.8
9.1
–
18.9
2017
£m
10.3
9.0
–
19.3
2018
£m
0.1
0.7
666.6
667.4
2017
£m
0.5
1.5
693.5
695.5
Amounts due from Group undertakings are unsecured and due for repayment in less than one year.
120
International Personal Finance plc
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
16. Amounts receivable from customers continued
Impairment as a percentage of revenue for each geographical segment is shown below:
Group
Europe
Mexico
Digital
The comparative numbers for 2017 are based on the old accounting standard (IAS 39). Further details of the impact of implementing IFRS 9
are included within the Financial review and in note 32.
The carrying value of amounts receivable from customers that would have been impaired had their terms not been renegotiated
is £nil (2017: £nil).
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 109% (2017 IAS 39: 99%). All amounts receivable from customers are at fixed interest rates. The average period to maturity
of the amounts receivable from customers is 11.5 months (2017: 9.1 months).
No collateral is held in respect of any customer receivables.
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.
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:
Polish zloty
Czech crown
Euro
Hungarian forint
Mexican peso
Romanian leu
Australian dollar
Total
18. Other receivables
Other receivables
Prepayments
Total
Amounts due from Group undertakings
No balance within other receivables is impaired.
Amounts due from Group undertakings are unsecured and due for repayment in less than one year.
Group
Company
2018
£m
46.6
2017
£m
27.4
2018
£m
0.1
2017
£m
–
Group
Company
2017
£m
2018
£m
2017
£m
9.9
3.3
6.1
2.3
2.8
2.5
0.5
0.1
–
–
–
–
–
–
–
–
–
–
–
–
–
–
46.6
27.4
0.1
Group
Company
2017
£m
10.3
9.0
–
19.3
2018
£m
0.1
0.7
666.6
667.4
2017
£m
0.5
1.5
693.5
695.5
2018
£m
23.6
3.4
7.2
2.0
6.7
3.1
0.6
2018
£m
9.8
9.1
–
18.9
2018
%
17.9
36.7
37.8
2017
%
18.1
34.8
41.2
19. Trade and other payables
Trade payables
Other payables including taxation and social security
Accruals
Amounts due to Group undertakings
Total
Amounts due to Group undertakings are unsecured and due for repayment in less than one year.
20. Borrowing facilities and borrowings
The Group and Company’s borrowings are as follows:
Group
Company
2018
£m
16.8
50.7
80.2
–
2017
£m
14.6
41.3
89.8
–
147.7
145.7
2018
£m
–
0.5
23.5
394.4
418.4
2017
£m
0.4
0.4
24.7
318.0
343.5
Group
Company
2018
£m
2017
£m
2018
£m
2017
£m
130.7
567.6
698.3
87.7
590.0
677.7
3.5
525.7
529.2
28.8
547.2
576.0
Coupon %
5.750
6.125
Six–month WIBOR plus 425 basis points
8.000
Three–month STIBOR plus 875 basis points
Maturity
date
2021
2020
2020
2019
2022
2018
£m
370.9
101.5
42.0
15.4
40.0
569.8
(2.2)
567.6
Borrowings
Bank borrowings
Bonds
Total
The Group’s external bonds comprise the following:
Bond
€412 million EMTN
£101.5 million retail bond
Polish zloty 200.0 million PMTN
Romanian lei 79.5 million EMTN
Swedish krona 450.0 million EMTN
Less: unamortised arrangement fees
The Polish zloty 200 million (£42.0 million) bonds are floating rate bonds, although derivative contracts have been used to fix borrowing costs
up to June 2020. The Swedish Krona 450 million (£40.0 million) bond is a floating rate bond, although derivative contracts have been used to
cap the borrowing costs up to September 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
2018
£m
2017
£m
2018
£m
2017
£m
28.8
172.1
497.4
698.3
79.6
15.2
582.9
677.7
18.9
101.2
409.1
529.2
67.5
15.2
493.3
576.0
The average period to maturity of the Group’s external bonds and committed external borrowing facilities is 2.1 years (2017: 2.6 years).
121
FINANCIAL STATEMENTSAnnual Report and Financial Statements 2018
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
20. Borrowing facilities and borrowings continued
The currency exposure on external borrowings is as follows:
Sterling
Polish zloty
Czech crown
Euro
Hungarian forint
Mexican peso
Romanian leu
Swedish krona
Total
The maturity of the Group and Company’s external bond and external bank facilities is as follows:
Bond and bank facilities available
Repayable:
– on demand
– in less than one year
– between one and two years
– between two and five years
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
2018
£m
2017
£m
2018
£m
2017
£m
104.7
119.1
104.7
129.8
99.6
15.5
62.4
28.8
–
–
369.1
402.0
369.1
44.6
4.3
20.5
40.0
37.2
0.2
28.0
–
–
–
15.4
40.0
–
15.7
391.3
11.5
–
27.7
–
698.3
677.7
529.2
576.0
Group
Company
2018
£m
2017
£m
2018
£m
2017
£m
20.9
65.7
226.6
572.8
886.0
19.9
113.5
68.1
665.5
867.0
10.0
15.4
118.5
452.2
596.1
10.0
65.1
45.9
511.6
632.6
Group
Company
2018
£m
57.8
54.1
73.6
2017
£m
53.7
52.9
79.5
185.5
186.1
2018
£m
6.5
17.0
41.3
64.8
2017
£m
7.0
30.7
15.9
53.6
Undrawn external facilities above does not include unamortised arrangement fees.
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.
122
International Personal Finance plc
The maturity of the Group and Company’s external bond and external bank facilities is as follows:
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
20. Borrowing facilities and borrowings continued
The currency exposure on external borrowings is as follows:
Sterling
Polish zloty
Czech crown
Euro
Hungarian forint
Mexican peso
Romanian leu
Swedish krona
Total
Bond and bank facilities available
Repayable:
– on demand
– in less than one year
– between one and two years
– between two and five years
Total
Expiring within one year
Expiring between one and two years
Expiring in more than two years
Total
The undrawn external bank facilities at 31 December were as follows:
Group
Company
2018
£m
2017
£m
2018
£m
2017
£m
104.7
119.1
104.7
129.8
369.1
402.0
369.1
99.6
15.5
44.6
4.3
20.5
40.0
62.4
28.8
37.2
0.2
28.0
–
–
–
–
–
15.4
40.0
–
15.7
391.3
11.5
27.7
–
–
698.3
677.7
529.2
576.0
Group
Company
2018
£m
2017
£m
2018
£m
2017
£m
20.9
65.7
226.6
572.8
886.0
19.9
113.5
68.1
665.5
867.0
10.0
15.4
118.5
452.2
596.1
10.0
65.1
45.9
511.6
632.6
Group
Company
2018
£m
57.8
54.1
73.6
2017
£m
53.7
52.9
79.5
185.5
186.1
2018
£m
6.5
17.0
41.3
64.8
2017
£m
7.0
30.7
15.9
53.6
Undrawn external facilities above does not include unamortised arrangement fees.
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.
21. Risks arising from financial instruments continued
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 eleven 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; 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
2018, the Group’s bonds and committed borrowing facilities had an average period to maturity of 2.1 years (2017: 2.6 years).
As shown in note 20, total undrawn facilities as at 31 December 2018 were £185.5 million (2017: £186.1 million).
As outlined in the Financial review on page 41, the Group’s home credit company in Poland, Provident Polska, has been subject to tax audits
in respect of the Company’s 2008 and 2009 financial years. The 2010 to 2012 financial years are currently being audited by the tax authorities
in Poland, and all subsequent years up to and including 2018 remain open to future audit. Provident Polska has appealed the decisions
made by the Polish Tax Chamber, to the District Administrative Court, for the 2008 and 2009 financial years and has paid the amounts
assessed of £36.1 million (comprising tax and associated interest) which was necessary in order to make the appeals. The 2008 and 2009 tax
audit decisions are the subject of a process involving the UK and Polish tax authorities aimed at ensuring that the intra-group arrangement is
taxed in accordance with international tax principles and as a result the court hearings have been stayed. In order to appeal any potential
future decisions for 2010 and subsequent years, further payments may be required. There are significant uncertainties in relation to whether
future amounts will become due, and if so, the amount and timing of such cash outflows. However, in the event that audits are opened,
and similar decisions are issued for each of these subsequent financial years, further amounts of up to c. £133 million may be required to
be funded (including approximately £69 million for the 2010 to 2012 years in respect of which audits have commenced). See note 30 for
further information.
As at 31 December 2018, in the IPF Digital business there are £81.2 million (2017: £46.4 million) of undrawn credit lines.
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
2018
£m
20.5
49.5
205.6
515.0
790.6
2017
£m
65.4
71.6
49.3
618.8
805.1
2018
£m
15.8
34.9
128.3
421.5
600.5
2017
£m
52.7
47.0
44.6
525.4
669.7
The analysis above includes the contractual cash flow for borrowings and the total amount of interest payable over the life of the loan. Where
borrowings are subject to a floating interest rate, an estimate of interest payable is taken. The rate is derived from interest rate yield curves at
the balance sheet date.
The following analysis shows the gross non-discounted contractual cash flows in respect of foreign currency contract derivative assets and
liabilities, and interest rate swap derivative liabilities which are all designated as cash flow hedges:
Group
Not later than one month
Later than one month and not later than six months
Later than six months and not later than one year
Later than one year and not later than two years
Later than two years and not later than five years
2018
2017
Outflow
£m
156.1
76.3
106.8
48.4
–
Inflow
£m
155.5
73.5
104.9
44.1
–
Outflow
£m
189.3
188.4
52.9
24.9
12.0
Inflow
£m
189.7
189.0
53.8
24.3
11.4
387.6
378.0
467.5
468.2
123
FINANCIAL STATEMENTSAnnual Report and Financial Statements 2018
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
21. Risks arising from financial instruments continued
Company
Not later than one month
Later than one month and not later than six months
Later than six months and not later than one year
2018
Outflow
£m
13.7
1.0
0.7
15.4
Inflow
£m
14.0
1.0
0.6
15.6
2017
Outflow
£m
45.0
1.6
12.7
59.3
Inflow
£m
45.5
1.4
15.1
62.0
When the amount payable or receivable is not fixed, the amount disclosed has been determined with reference to the projected interest
rates as illustrated by the interest rate yield curves existing at the balance sheet date.
A maturity analysis of the Group’s receivables and borrowing facilities as at 31 December is presented below:
Group
2017
Less than one year
Later than one year
2018
Less than one year
Later than one year
Receivables
£m
Percentage
of total
%
Borrowing
facilities
£m
Percentage
of total
%
866.9
190.0
82.0
18.0
1,056.9
100.0
764.2
228.6
992.8
77.0
23.0
100.0
133.4
733.6
867.0
86.6
799.4
886.0
15.4
84.6
100.0
9.8
90.2
100.0
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.
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, and in
note 16.
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 (6.8% in 2018; 6.7% in 2017) 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:
2018
£m
0.8
1.9
2017
£m
0.3
1.7
• 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 2018 is a reduction in net assets of £8.7 million (2017: increase of £51.3 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.
124
International Personal Finance plc
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
21. Risks arising from financial instruments continued
Company
Not later than one month
Later than one month and not later than six months
Later than six months and not later than one year
A maturity analysis of the Group’s receivables and borrowing facilities as at 31 December is presented below:
2018
Outflow
£m
13.7
1.0
0.7
15.4
Inflow
£m
14.0
1.0
0.6
15.6
2017
Outflow
£m
45.0
1.6
12.7
59.3
Inflow
£m
45.5
1.4
15.1
62.0
Percentage
Borrowing
Percentage
Receivables
of total
facilities
of total
£m
%
£m
%
866.9
190.0
82.0
18.0
1,056.9
100.0
764.2
228.6
992.8
77.0
23.0
100.0
133.4
733.6
867.0
86.6
799.4
886.0
15.4
84.6
100.0
9.8
90.2
100.0
Group
2017
Less than one year
Later than one year
2018
Less than one year
Later than one year
Digital businesses.
The average period of receivables outstanding has increased as a result of issuing longer-term loans in our European home credit and IPF
This demonstrates the short-term nature of the amounts receivable from customers which contrasts with the longer-term nature of the Group’s
Risk management policies in respect of amounts receivable from customers are discussed in the credit risk section within this note, and in
committed funding facilities.
Amounts receivable from customers
note 16.
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 (6.8% in 2018; 6.7% in 2017) 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:
2018
£m
0.8
1.9
2017
£m
0.3
1.7
• 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
Net asset exposure
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 2018 is a reduction in net assets of £8.7 million (2017: increase of £51.3 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.
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.
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:
21. Risks arising from financial instruments continued
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.
Group
Change in reserves
Change in profit before taxation
This sensitivity analysis is based on the following assumptions:
2018
£m
5.7
8.3
2017
£m
6.8
8.6
• 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).
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
2018
£m
46.6
1.6
48.2
2017
£m
27.4
10.4
37.8
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.
Group
Amounts receivable from customers
2018
£m
2017
£m
992.8
1,056.9
The table above represents the maximum exposure to credit risk of the Group at the year end. Further analysis of the amounts receivable
from customers is presented in note 16. The comparative numbers for 2017 are based on the old accounting standard (IAS 39). Further
details of the impact of implementing IFRS 9 are included within the Financial review and in note 32.
125
FINANCIAL STATEMENTSAnnual Report and Financial Statements 2018
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
21. Risks arising from financial instruments continued
Capital risk
The Group is subject to the risk that its capital structure will not be sufficient to support the growth of the business. The Group is not required to
hold regulatory capital.
The Group aims to maintain appropriate capital to ensure that it has a strong balance sheet but at the same time is providing a good return
on equity to its shareholders. The Group’s long-term aim is to ensure that the capital structure results in an optimal ratio of debt and equity
finance.
Capital is monitored by considering the ratio of equity to receivables and the gearing ratio. The equity of the Group and these ratios are
shown below:
Group
Receivables
Borrowings
Other net assets
Equity
Equity as % of receivables
Gearing
2018
£m
2017
£m
992.8
1,056.9
(698.3)
(677.7)
138.5
433.0
43.6%
1.6
117.7
496.9
47.0%
1.4
The comparative numbers for 2017 are based on the old accounting standard (IAS 39). Further details of the impact of implementing IFRS 9
are included within the Financial review and in note 32.
Equity as a percentage of receivables was above the Group’s internally-set target.
We operate with significant headroom on the key financial covenants (which are prepared on an IAS 39 basis), for further details are
included within the Financial review on page 41.
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
Foreign currency contracts
Total
Group
Liabilities
Interest rate swaps
Foreign currency contracts
Total
126
2018
£m
2017
£m
1.6
1.6
10.4
10.4
2018
£m
2017
£m
0.6
6.7
7.3
0.6
4.2
4.8
International Personal Finance plc
Capital risk
hold regulatory capital.
finance.
shown below:
Group
Receivables
Borrowings
Other net assets
Equity
Equity as % of receivables
Gearing
Group
Assets
Total
Group
Liabilities
Total
Foreign currency contracts
Interest rate swaps
Foreign currency contracts
The comparative numbers for 2017 are based on the old accounting standard (IAS 39). Further details of the impact of implementing IFRS 9
are included within the Financial review and in note 32.
Equity as a percentage of receivables was above the Group’s internally-set target.
We operate with significant headroom on the key financial covenants (which are prepared on an IAS 39 basis), for further details are
included within the Financial review on page 41.
22. Derivative financial instruments
Fair value estimation
hierarchy:
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:
2018
£m
2017
£m
992.8
1,056.9
(698.3)
(677.7)
138.5
433.0
43.6%
1.6
117.7
496.9
47.0%
1.4
2018
£m
2017
£m
1.6
1.6
10.4
10.4
2018
£m
2017
£m
0.6
6.7
7.3
0.6
4.2
4.8
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
21. Risks arising from financial instruments continued
22. Derivative financial instruments continued
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
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
Company
Assets
Foreign currency contracts
Total
Company
Liabilities
Foreign currency contracts
Total
2018
£m
2017
£m
–
–
3.5
3.5
2018
£m
2017
£m
0.1
0.1
0.1
0.1
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 £0.3 million has been credited to equity for the Group in the period in respect of cash flow hedges (2017: £2.5 million charged to
equity), Company: £1.0 million credit (2017: £1.5 million charge).
Foreign currency contracts
The total notional amount of outstanding foreign currency contracts that the Group is committed to at 31 December 2018 is £474.0 million
(2017: £462.5 million). These comprise:
• foreign currency contracts to buy or sell operational currencies against the euro for a total notional amount of £240.6 million (2017: £173.0
million). These contracts have various maturity dates up to October 2020 (2017: 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 £233.4 million (2017: £289.5 million). These contracts have
various maturity dates up to February 2020 (2017: 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.
£nil (2017: £0.3 million credit) 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 2018 is £15.4 million
(2017: £57.1 million). These comprise:
• foreign currency contracts to buy or sell operational currencies against the euro for a total notional amount of £2.1 million (2017: £2.3
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 £13.3 million (2017: £54.8 million). These contracts have
various maturity dates up to January 2019 (2017: 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 £42.0 million (2017: £43.0 million). In 2018,
these interest rate swaps cover the current borrowings relating to the floating rate Polish bond.
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 (2017: £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.
127
FINANCIAL STATEMENTSAnnual Report and Financial Statements 2018
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
22. Derivative financial instruments continued
The weighted average interest rate and period to maturity of the Group interest rate swaps were as follows:
Group
Polish zloty
2018
2017
Weighted
average
interest rate
%
Range of
interest
rates
%
Weighted
average
period to
maturity
Years
Weighted
average
interest rate
%
Range of
interest
rates
%
Weighted
average
period to
maturity
Years
2.7
2.7–2.8
1.4
2.7
2.7–2.8
2.4
The Company did not hold any interest rate swaps at 31 December 2018 (31 December 2017: £nil).
23. Analysis of financial assets and financial liabilities
Financial assets
An analysis of Group financial assets is presented below:
2018
Loans,
receivables
and cash
£m
Derivatives
used for
hedging
£m
Total
£m
Loans and
receivables
£m
2017
Derivatives
used for
hedging
£m
Total
£m
992.8
–
46.6
18.9
1.5
–
1.6
–
–
–
992.8
1,056.9
–
1,056.9
1.6
46.6
18.9
1.5
–
27.4
19.3
5.7
10.4
–
–
–
10.4
27.4
19.3
5.7
1,059.8
1.6
1,061.4
1,109.3
10.4
1,119.7
2018
2017
Financial
liabilities at
amortised
cost
£m
Derivatives
used for
hedging
£m
Total
£m
567.6
130.7
7.3
147.7
25.8
–
–
7.3
–
–
7.3
879.1
Financial
liabilities at
amortised
cost
£m
Derivatives
used for
hedging
£m
590.0
87.7
–
145.7
7.4
830.8
–
–
4.8
–
–
4.8
Total
£m
590.0
87.7
4.8
145.7
7.4
835.6
567.6
130.7
–
147.7
25.8
871.8
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
128
International Personal Finance plc
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
2018
Weighted
average
interest rate
%
Range of
interest
rates
%
2.7
2.7–2.8
Weighted
average
period to
Weighted
average
maturity
interest rate
Years
1.4
%
2.7
2017
Range of
interest
rates
%
2.7–2.8
Weighted
average
period to
maturity
Years
2.4
Group
Polish zloty
The Company did not hold any interest rate swaps at 31 December 2018 (31 December 2017: £nil).
23. Analysis of financial assets and financial liabilities
Financial assets
An analysis of Group financial assets is presented below:
Group
Amounts receivable from customers
Derivative financial instruments
Cash and cash equivalents
Other receivables
Current tax assets
Financial liabilities
An analysis of Group financial liabilities is presented below:
Group
Bonds
Bank borrowings
Derivative financial instruments
Trade and other payables
Current tax liabilities
Loans,
Derivatives
receivables
and cash
2018
used for
hedging
£m
£m
992.8
–
46.6
18.9
1.5
Total
£m
Loans and
receivables
£m
992.8
1,056.9
1.6
46.6
18.9
1.5
–
27.4
19.3
5.7
1.6
–
–
–
–
2017
Derivatives
used for
hedging
£m
10.4
–
–
–
–
Total
£m
1,056.9
10.4
27.4
19.3
5.7
1,059.8
1.6
1,061.4
1,109.3
10.4
1,119.7
liabilities at
Derivatives
2018
used for
hedging
£m
–
–
–
–
–
7.3
Financial
amortised
cost
£m
567.6
130.7
147.7
25.8
871.8
Financial
liabilities at
amortised
cost
£m
590.0
87.7
–
145.7
7.4
830.8
2017
Derivatives
used for
hedging
£m
4.8
–
–
–
–
4.8
Total
£m
567.6
130.7
7.3
147.7
25.8
7.3
879.1
Total
£m
590.0
87.7
4.8
145.7
7.4
835.6
22. Derivative financial instruments continued
The weighted average interest rate and period to maturity of the Group interest rate swaps were as follows:
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
2018
2017
Fair value
£m
Carrying
value
£m
Fair value
£m
Carrying
value
£m
1,371.9
992.8
1,433.0
1,056.9
1.6
46.6
18.9
1.5
1.6
46.6
18.9
1.5
10.4
27.4
19.3
5.7
10.4
27.4
19.3
5.7
1,440.5
1,061.4
1,495.8
1,119.7
529.6
130.7
7.3
147.7
25.8
841.1
567.6
130.7
7.3
147.7
25.8
879.1
567.8
590.0
87.7
4.8
145.7
7.4
813.4
87.7
4.8
145.7
7.4
835.6
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% (2017: 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 fair value of the bonds has been calculated by reference to their market value where market prices are available.
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 2018. The major assumptions used by the actuary were:
Group and Company
Price inflation (‘CPI’)
Rate of increase to pensions in payment
Discount rate
2018
%
2.1
3.0
3.0
2017
%
2.1
2.9
2.6
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.
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 asset would reduce by approximately £1.3 million.
129
FINANCIAL STATEMENTSAnnual Report and Financial Statements 2018
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
25. Retirement benefit asset/obligation continued
If the discount rate was 25 basis points higher/(lower), the defined benefit asset would increase by £2.0 million/(decrease by £2.2 million).
If the price inflation rate was 25 basis points higher/(lower), the defined benefit asset would decrease by £1.2 million/(increase by £1.1 million).
The sensitivity analysis presented above may not be representative of the actual change in the defined benefit asset, 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
Debt instruments
Diversified growth funds
Other
Total fair value of scheme assets
Present value of funded defined benefit obligations
Net asset recognised in the balance sheet
The amounts recognised in the income statement are as follows:
Group and Company
Interest cost
Past service 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 (loss)/gain on scheme assets
Contributions by the Group
Net benefits paid out
Fair value of scheme assets at 31 December
2018
£m
10.8
17.5
11.2
1.9
41.4
2017
£m
11.7
18.7
11.7
0.1
42.2
(37.3)
(40.1)
4.1
2.1
2018
£m
1.0
0.1
(1.1)
–
2018
£m
42.2
1.1
(2.2)
0.9
(0.6)
41.4
2017
£m
1.3
–
(1.1)
0.2
2017
£m
40.2
1.1
3.9
1.1
(4.1)
42.2
The Group expects to make a contribution of £0.9 million (2018: £0.9 million) to the deferred benefit pension scheme in the year ending 31
December 2019. 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.
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 on scheme liabilities
Past service cost
Net benefits paid out
Defined benefit obligation at 31 December
The weighted average duration of the defined benefit asset is 22.4 years (2017: 23.6 years).
2018
£m
2017
£m
(40.1)
(49.3)
(1.0)
3.3
(0.1)
0.6
(1.3)
6.4
–
4.1
(37.3)
(40.1)
130
International Personal Finance plc
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
25. Retirement benefit asset/obligation continued
If the discount rate was 25 basis points higher/(lower), the defined benefit asset would increase by £2.0 million/(decrease by £2.2 million).
If the price inflation rate was 25 basis points higher/(lower), the defined benefit asset would decrease by £1.2 million/(increase by £1.1 million).
25. Retirement benefit asset/obligation continued
The actual return on scheme assets compared to the expected return is as follows:
The sensitivity analysis presented above may not be representative of the actual change in the defined benefit asset, as it is unlikely that the
Group and Company
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:
Expected return on scheme assets
Actuarial (loss)/gain on scheme assets
Actual (loss)/return on scheme assets
2018
£m
1.1
(2.2)
(1.1)
2017
£m
1.1
3.9
5.0
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 (loss)/gain on scheme assets
Actuarial gain on scheme liabilities
Total gain 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 (losses)/gains 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.
2018
£m
(2.2)
3.3
1.1
(14.1)
2017
£m
3.9
6.4
10.3
(15.2)
2018
2017
2016*
2015*
2014*
(2.2)
(5.3)
–
–
3.9
9.2
2.9
7.1
3.4
8.5
–
–
(0.9)
(2.5)
–
–
2.2
6.0
1.2
3.1
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 2018
(2017: £0.8 million). £nil contributions were payable to the scheme at the year-end (2017: £nil).
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, or the HYS Plan in 2018.
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. From the 2018 scheme onwards, the Deferred
Share Plan does not have 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.
131
Group and Company
Equities
Debt instruments
Diversified growth funds
Other
Total fair value of scheme assets
Present value of funded defined benefit obligations
Net asset recognised in the balance sheet
The amounts recognised in the income statement are as follows:
Group and Company
Interest cost
Past service 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 (loss)/gain on scheme assets
Contributions by the Group
Net benefits paid out
Fair value of scheme assets at 31 December
The Group expects to make a contribution of £0.9 million (2018: £0.9 million) to the deferred benefit pension scheme in the year ending 31
December 2019. 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.
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 on scheme liabilities
Past service cost
Net benefits paid out
Defined benefit obligation at 31 December
The weighted average duration of the defined benefit asset is 22.4 years (2017: 23.6 years).
(37.3)
(40.1)
4.1
2.1
2018
£m
10.8
17.5
11.2
1.9
41.4
2018
£m
1.0
0.1
(1.1)
–
2018
£m
42.2
1.1
(2.2)
0.9
(0.6)
41.4
2018
£m
(1.0)
3.3
(0.1)
0.6
2017
£m
11.7
18.7
11.7
0.1
42.2
2017
£m
1.3
–
(1.1)
0.2
2017
£m
40.2
1.1
3.9
1.1
(4.1)
42.2
2017
£m
(1.3)
6.4
–
4.1
(40.1)
(49.3)
(37.3)
(40.1)
FINANCIAL STATEMENTSAnnual Report and Financial Statements 2018
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
26. Share-based payments continued
The total income statement charge in respect of these share-based payments is £1.1 million (2017: credit of £0.2 million).
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
Performance
Share Plans
Discretionary Award
Plan
2018
2.40
n/a
1.92
3 and 5
2018
2.48
3.00
Nil
3
49.6%–55.2%
51.9%–57.4%
Up to 5
Up to 5
1.28%
5.16%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
3
3
1.52%
5.04%
50.0%
30.0%
60.0%
86.6p
101p
6.0%
8.1%
0.92–0.97
1.36-2.11
2018
1.93
n/a
n/a
3
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
No exercise price is payable in respect of awards made under the Performance Share Plan or the Deferred Share Plan. The risk-free rate of
return is the yield on zero coupon UK government bonds with a remaining term equal to the expected life of the award.
Further detail in respect of the Performance Share Plans, CSOPs, Deferred Share Plans, 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
Weighted
average
exercise
CSOPs
Weighted
average
exercise
Deferred
Share Plans
Performance
Share Plans
Weighted
average
exercise
Weighted
average
exercise
HYS Plans
Weighted
average
exercise
Discretionary
Award Plan
Group
Number
price
Number
price
Number
price
Number
price
Number
price
Number
Outstanding at
1 January 2017
Granted
433,509
455,002
2.39 390,626
3.39 1,314,751
1.54
–
–
939,296
– 4,329,193
– 3,906,137
– 253,779
–
–
Expired/lapsed
(351,263)
2.28 (89,766)
4.22
(128,380)
– (1,290,668)
– (163,499)
Exercised
–
–
–
–
(304,746)
–
(311,088)
–
–
–
–
–
–
320,000
–
–
–
Outstanding at
31 December 2017 537,248
1.74 300,860
3.14 1,820,921
– 6,633,574
–
90,280
–
320,000
Outstanding at
1 January 2018
537,248
1.74 300,860
3.14 1,820,921
Granted
103,836
1.92
–
– 806,714
– 6,633,574
– 3,243,898
– 90,280
–
–
– 320,000
– 412,704
Expired/lapsed
(60,787)
2.24 (64,768)
3.70 (112,175)
– (1,522,638)
– (84,744)
–
–
Exercised
(2,921)
1.54
–
– (360,873)
–
(177,362)
–
–
– (120,000)
Outstanding at
31 December 2018 577,376
1.72 236,092
2.99 2,154,587
– 8,177,472
–
5,536
– 612,704
Weighted
average
exercise
price
–
–
–
–
–
–
–
–
–
–
Share awards outstanding at 31 December 2018 had exercise prices of £1.54 - £6.36 (2017: £1.54 - £6.36) and a weighted average remaining
contractual life of 8.4 years (2017: 7.8 years).
132
International Personal Finance plc
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
26. Share-based payments continued
The total income statement charge in respect of these share-based payments is £1.1 million (2017: credit of £0.2 million).
The fair value per award granted and the assumptions used in the calculation of the share-based payment charge are as follows:
SAYE schemes
Share Plans
Performance
Discretionary Award
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
Deferred portion
TSR threshold
TSR maximum target
EPS threshold
EPS maximum target
Net revenue threshold
Net revenue maximum target
Fair value per award (£)
Expected dividends expressed as a dividend yield
49.6%–55.2%
51.9%–57.4%
2018
2.40
n/a
1.92
3 and 5
Up to 5
Up to 5
1.28%
5.16%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
2018
2.48
3.00
Nil
3
3
3
1.52%
5.04%
50.0%
30.0%
60.0%
86.6p
101p
6.0%
8.1%
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
Weighted
average
exercise
CSOPs
Weighted
average
exercise
Deferred
Share Plans
Performance
Share Plans
Weighted
average
exercise
Weighted
average
exercise
HYS Plans
Weighted
average
exercise
Discretionary
Award Plan
Weighted
average
exercise
Group
Number
price
Number
price
Number
price
Number
price
Number
price
Number
price
433,509
455,002
2.39 390,626
3.39 1,314,751
1.54
–
939,296
– 4,329,193
– 3,906,137
– 253,779
320,000
Expired/lapsed
(351,263)
2.28 (89,766)
4.22
(128,380)
– (1,290,668)
– (163,499)
–
–
–
(304,746)
–
(311,088)
–
–
–
–
–
–
–
31 December 2017 537,248
1.74 300,860
3.14 1,820,921
– 6,633,574
–
90,280
–
320,000
Granted
103,836
1.92
– 806,714
537,248
1.74 300,860
3.14 1,820,921
– 90,280
– 6,633,574
– 3,243,898
– 320,000
– 412,704
Expired/lapsed
(60,787)
2.24 (64,768)
3.70 (112,175)
– (1,522,638)
– (84,744)
–
–
Exercised
(2,921)
1.54
– (360,873)
–
(177,362)
– (120,000)
31 December 2018 577,376
1.72 236,092
2.99 2,154,587
– 8,177,472
–
5,536
– 612,704
Share awards outstanding at 31 December 2018 had exercise prices of £1.54 - £6.36 (2017: £1.54 - £6.36) and a weighted average remaining
contractual life of 8.4 years (2017: 7.8 years).
Outstanding at
1 January 2017
Granted
Exercised
Outstanding at
Outstanding at
1 January 2018
Outstanding at
–
–
–
–
–
–
–
–
–
–
–
–
Plan
2018
1.93
n/a
n/a
3
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
–
–
–
–
–
–
–
–
–
–
26. Share-based payments continued
The movements in awards during the year for the Company are outlined in the table below:
Company
Outstanding at 1 January 2017
Granted
Transferred
Expired/lapsed
Exercised
CSOPs
Weighted
average
exercise
price
Number
Deferred
Share Plans
Performance
Share Plans
Weighted
average
exercise
price
Weighted
average
exercise
price
Number
Number
SAYE
schemes
Weighted
average
exercise
price
2.39
1.54
–
Number
284,710
169,082
–
210,376
3.55
800,642
–
–
–
–
294,447
7,144
(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
Outstanding at 1 January 2018
Granted
Transferred
Expired/lapsed
Exercised
245,845
48,716
149,646
(45,937)
1.83 158,792
3.13 800,494
1.92
1.52
–
–
– 312,041
–
–
2.20
(32,803)
3.51
(90,024)
(2,272)
1.54
–
– (213,278)
Outstanding at 31 December 2018
395,998
1.68 125,989
2.68 809,233
The Company does not have any awards under the HYS Plan or Discretionary Award Plan.
– 1,721,851
– 1,606,429
–
–
–
41,589
(633,102)
(152,852)
– 2,583,915
– 2,583,915
– 1,316,576
–
–
– (686,122)
–
(56,115)
– 3,158,254
–
–
–
–
–
–
–
–
–
–
–
–
0.92–0.97
1.36-2.11
Share awards outstanding at 31 December 2018 had exercise prices of £1.54 - £6.36 (2017: £1.54 - £6.36) and a weighted average remaining
contractual life of 8.4 years (2017: 8.0 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.
2018
£m
23.4
2017
£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 2018 was 10,991,381 (2017: 11,645,420).
133
FINANCIAL STATEMENTSAnnual Report and Financial Statements 2018
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
28. Reconciliation of profit/(loss) after taxation to cash generated from continuing
operating activities
Group
Company
Profit/(loss) after taxation from continuing operations
Adjusted for:
• tax charge
• finance costs
• finance income
• share-based payment charge/(credit) (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 continuing operating activities
2018
£m
75.4
33.9
58.5
–
1.1
9.2
0.5
14.5
–
(0.2)
10.3
–
11.4
3.3
(65.9)
(65.9)
–
3.7
(0.9)
11.6
2.0
20.2
(0.9)
2.6
141.6
143.6
2017
£m
2018
£m
2017
£m
45.0
(32.3)
(21.5)
60.6
55.2
1.5
56.8
1.4
47.5
–
(37.8)
(39.0)
0.3
–
–
–
–
–
29.0
76.6
(0.9)
4.5
97.7
0.3
0.1
–
–
–
–
(67.7)
90.9
(0.9)
(1.9)
9.2
29. Commitments
At the balance sheet date, the Group had outstanding commitments for future minimum lease payments under non-cancellable operating
leases, which fall due as follows:
Group
In less than one year
In more than one year but not later than five years
In more than five years
Other commitments are as follows:
Group
Capital expenditure commitments contracted with third parties but not provided for at 31 December
The Company has no commitments as at 31 December 2018 (2017: £nil).
2018
£m
13.5
15.2
0.3
29.0
2018
£m
4.9
2017
£m
14.7
18.3
–
33.0
2017
£m
8.4
134
International Personal Finance plc
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
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 charge/(credit) (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
29. Commitments
leases, which fall due as follows:
Group
In less than one year
In more than five years
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 2018 (2017: £nil).
Group
Company
2017
£m
2018
£m
2017
£m
45.0
(32.3)
(21.5)
–
(37.8)
(39.0)
2018
£m
75.4
33.9
58.5
–
1.1
9.2
0.5
14.5
–
–
3.7
(0.9)
11.6
60.6
55.2
(0.2)
10.3
–
11.4
3.3
2.0
20.2
(0.9)
2.6
(65.9)
(65.9)
1.5
56.8
0.3
–
–
–
–
–
29.0
76.6
(0.9)
4.5
97.7
2018
£m
13.5
15.2
0.3
29.0
2018
£m
4.9
1.4
47.5
0.3
0.1
–
–
–
–
(67.7)
90.9
(0.9)
(1.9)
9.2
2017
£m
14.7
18.3
–
33.0
2017
£m
8.4
Cash generated from continuing operating activities
141.6
143.6
At the balance sheet date, the Group had outstanding commitments for future minimum lease payments under non-cancellable operating
30. Contingent liabilities
Polish tax audit
The Group’s home credit company in Poland, Provident Polska, has been subject to tax audits in respect of the company’s 2008 and 2009
financial years. During these audits the Polish tax authorities have challenged an intra-group arrangement with a UK entity, and the timing
of the taxation of home collection fee revenues.
These audits culminated with decisions being received from the Polish Tax Chamber (the upper tier of the Polish tax authority) in January in
relation to both the 2008 and 2009 financial years. Provident Polska appealed these decisions to the District Administrative Court, but had to
pay the amounts assessed totalling approximately £36.1 million (comprising tax and associated interest) in order to make the appeals. As
noted on page 41, the 2008 and 2009 tax audit decisions are the subject of a process involving the UK and Polish tax authorities aimed at
ensuring that the intra-group arrangement is taxed in accordance with international tax principles and as a result the court hearings have
been stayed.
The directors have received strong external legal advice, and note that during a previous tax audit by the same tax authority, the Company’s
treatment of these matters was accepted as correct. Therefore the payments of the sums outlined above are not a reflection of the directors’
view on the merits of the case, and accordingly the payments made in January 2017 have been recognised as a non-current financial asset
in these Financial Statements given the uncertainties in relation to the timing of any repayment of such amounts.
The 2010 to 2012 financial years are currently being audited by the tax authorities in Poland. In the event that the Polish tax authorities were
to issue decisions, and those decisions were to follow the same reasoning as for 2008 and 2009, around a further £69 million would become
payable. In addition, all subsequent years remain open to future audit, meaning that there are further significant uncertainties in relation to
whether future amounts will become due, and if so, the amount and timing of such additional future payments in relation to these periods. In
the event that audits are opened in respect of some or all of these open periods, and similar decisions are reached, further amounts may be
required to be paid, the timing of which would be dependent upon the timing of decisions made by the Polish tax authorities for these later
periods. The total potential liability for all open years 2008-2018, if all years were assessed on the same basis as 2008 and 2009, would amount
to around £169 million, including the £36.1 million that was paid in January 2017. Further information is set out in note 21.
State aid investigation
In late 2017 the European Commission opened a state aid investigation into the Group Financing Exemption contained in the UK controlled
foreign company rules, which were introduced in 2013. The UK authorities do not accept that the rules constitute state aid. In common with
other UK-based international companies whose arrangements are in line with current controlled foreign company rules, the Group may be
affected by the outcome of this investigation. The tax benefit obtained by the Group in all years since 2013 is estimated at up to £13.5 million.
We do not believe that any provision is required in respect of this item and we are monitoring developments.
The Company has a contingent liability for guarantees given in respect of the borrowings of certain other Group companies to a maximum
of £264.2 million (2017: £243.3 million). At 31 December 2018, the fixed and floating rate borrowings under these facilities amounted to £151.8
million (2017: £99.9 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 2018 was £nil (2017: £nil).
At 31 December 2018, in the IPF Digital business there are £81.2 million (2017: £46.4 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
Europe
Mexico
Other UK companies
2018
2017
Recharge
of costs
£m
Interest
charge
£m
Outstanding
balance
£m
Recharge
of costs
£m
Interest
charge
£m
Outstanding
balance
£m
0.1
–
2.6
2.7
–
10.5
7.2
17.7
(0.6)
0.6
98.4
98.4
0.1
–
3.9
4.0
–
10.3
14.8
25.1
0.3
0.4
118.4
119.1
The Group’s only related party transactions are remuneration of key management personnel as disclosed in note 8.
135
FINANCIAL STATEMENTSAnnual Report and Financial Statements 2018
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
32. Changes in Accounting Policies – IFRS 9 ‘Financial Instruments’
This note explains the impact of the adoption of IFRS 9 Financial Instruments on the Group’s Financial Statements.
IFRS 9 was adopted without restating comparative information. The reclassifications and the adjustments arising from the new impairment rules
are therefore not reflected in the balance sheet as at 31 December 2017, but are recognised in the opening balance sheet on 1 January 2018.
The following table shows the adjustments recognised for each individual line item. The adjustments are explained in more detail below.
Assets
Non-current assets
Goodwill
Intangible assets
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
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
136
Audited 1
January
2018
£m
IFRS 9
impact 1
January
2018
£m
Restated 1
January
2018
£m
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
(79.6)
(4.8)
(145.7)
(7.4)
(237.5)
(10.1)
(598.1)
(608.2)
(845.7)
–
–
–
23.1
–
–
23.1
(107.0)
(23.5)
(130.5)
–
–
–
–
(130.5)
(107.4)
24.4
33.1
23.2
126.2
37.0
2.1
246.0
759.9
166.5
926.4
10.4
27.4
19.3
5.7
989.2
1,235.2
–
–
–
–
–
–
–
–
–
(79.6)
(4.8)
(145.7)
(7.4)
(237.5)
(10.1)
(598.1)
(608.2)
(845.7)
496.9
(107.4)
389.5
23.4
(22.5)
60.0
(1.2)
(47.6)
2.3
482.5
–
–
–
–
–
–
(107.4)
496.9
(107.4)
23.4
(22.5)
60.0
(1.2)
(47.6)
2.3
375.1
389.5
International Personal Finance plc
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
32. Changes in Accounting Policies – IFRS 9 ‘Financial Instruments’
This note explains the impact of the adoption of IFRS 9 Financial Instruments on the Group’s Financial Statements.
IFRS 9 was adopted without restating comparative information. The reclassifications and the adjustments arising from the new impairment rules
are therefore not reflected in the balance sheet as at 31 December 2017, but are recognised in the opening balance sheet on 1 January 2018.
The following table shows the adjustments recognised for each individual line item. The adjustments are explained in more detail below.
32. Changes in Accounting Policies – IFRS 9 ‘Financial Instruments’ continued
IFRS 9 replaces the provisions of IAS 39 that relate to the recognition, classification and measurement of financial assets and financial
liabilities, impairment of financial assets and hedge accounting.
The adoption of IFRS 9 Financial Instruments from 1 January 2018 resulted in changes in accounting policies and adjustments to the amounts
recognised in the financial statements. The new accounting policies are set out within this note. In accordance with the transitional provisions
of IFRS 9 (7.2.15) and (7.2.26), comparative figures have not been restated.
The total impact on the Group’s retained earnings as at 1 January 2018 is as follows:
Closing retained earnings 31 December 2017 – IAS 39
Increase in impairment provisions for amounts receivable from customers
Increase in deferred tax asset relating to impairment provisions
Adjustment to retained earnings from adoption of IFRS 9 on 1 January 2018
Opening retained earnings 1 January 2018 – IFRS 9
1 January
2018
£m
482.5
(130.5)
23.1
(107.4)
375.1
137
Assets
Non-current assets
Goodwill
Intangible assets
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
Deferred tax liabilities
Borrowings
Total liabilities
Net assets
Called-up share capital
Other reserve
Foreign exchange reserve
Hedging reserve
Own shares
Capital redemption reserve
Retained earnings
Total equity
Equity attributable to owners of the Company
Audited 1
January
2018
£m
IFRS 9
impact 1
January
2018
£m
Restated 1
January
2018
£m
23.1
126.2
23.1
246.0
866.9
190.0
(107.0)
(23.5)
1,056.9
(130.5)
1,119.7
1,342.6
(130.5)
989.2
(107.4)
1,235.2
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
24.4
33.1
23.2
37.0
2.1
759.9
166.5
926.4
10.4
27.4
19.3
5.7
(79.6)
(4.8)
(145.7)
(7.4)
(237.5)
(10.1)
(598.1)
(608.2)
(845.7)
23.4
(22.5)
60.0
(1.2)
(47.6)
2.3
375.1
389.5
24.4
33.1
23.2
103.1
37.0
2.1
222.9
10.4
27.4
19.3
5.7
(79.6)
(4.8)
(145.7)
(7.4)
(237.5)
(10.1)
(598.1)
(608.2)
(845.7)
23.4
(22.5)
60.0
(1.2)
(47.6)
2.3
482.5
496.9
496.9
(107.4)
389.5
(107.4)
(107.4)
FINANCIAL STATEMENTSAnnual Report and Financial Statements 2018
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.
Closest
equivalent
statutory measure
Reconciling items
to statutory
measure
Definition and
purpose
APM
Income statement
measures
IFRS 9 2017
comparative
IAS 39
comparative
Credit issued growth
(%)
None
n/a
The performance reporting in this Annual Report compares the 2018
performance against the 2017 numbers adjusted for IFRS 9 because the Board
believes that this provides the most relevant comparison of performance
trends. A full reconciliation of the 2017 profit and loss account between
the reported numbers and the IFRS 9 numbers included within these APMs.
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.
Average net
receivables (£m)
Average net
receivables growth at
constant exchange
rates (%)
Revenue growth at
constant exchange
rates (%)
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 an indicator of the gross return being generated from average
net receivables.
Impairment as a
percentage of
revenue (%)
None
Not applicable Impairment as a percentage of revenue is reported impairment divided by
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.
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.
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
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.
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
138
International Personal Finance plc 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.
Reconciliation of 2017 reported numbers under IAS 39 restated under IFRS 9
The performance reporting in this report compares the 2018 actual performance against the 2017 numbers adjusted for IFRS 9 because the
Board believes that this provides the most relevant comparison of performance trends. A full reconciliation of the 2017 profit and loss account
between the reported numbers and the IFRS 9 numbers is set out below.
Group
Average net receivables
Revenue
Impairment
Net revenue
Finance costs
Agents’ commission
Other costs
Profit before taxation
2017
IAS 39
£m
993.1
825.8
(201.1)
624.7
(55.2)
(85.9)
(378.0)
105.6
IFRS 9
Impact
£m
(116.0)
16.8
(25.2)
(8.4)
–
–
–
(8.4)
2017
IFRS 9
£m
877.1
842.6
(226.3)
616.3
(55.2)
(85.9)
(378.0)
97.2
Home credit
Average net receivables
Revenue
Impairment
Net revenue
Finance costs
Agents’ commission
Other costs
Profit before taxation
2017
IAS 39
£m
833.9
721.7
(166.7)
555.0
(46.8)
(85.5)
(293.7)
129.0
IFRS 9
Impact
£m
(105.3)
16.8
(20.6)
(3.8)
–
–
–
(3.8)
2017
IFRS 9
£m
728.6
738.5
(187.3)
551.2
(46.8)
(85.5)
(293.7)
125.2
139
Annual Report and Financial Statements 2018SUPPLEMENTARY INFORMATION
ALTERNATIVE PERFORMANCE MEASURES CONTINUED
Reconciliation of 2017 reported numbers under IAS 39 restated under IFRS 9 continued
European home credit
Average net receivables
Revenue
Impairment
Net revenue
Finance costs
Agents’ commission
Other costs
Profit before taxation
Mexico home credit
Average net receivables
Revenue
Impairment
Net revenue
Finance costs
Agents’ commission
Other costs
Profit before taxation
Digital
Average net receivables
Revenue
Impairment
Net revenue
Finance costs
Other costs
Profit before taxation
Digital Established markets
Average net receivables
Revenue
Impairment
Net revenue
Finance costs
Other costs
Profit before taxation
Digital New markets
Average net receivables
Revenue
Impairment
Net revenue
Finance costs
Other costs
Profit before taxation
140
2017
IAS 39
£m
661.7
504.7
(91.1)
413.6
(36.6)
(56.6)
(206.1)
114.3
2017
IAS 39
£m
172.2
217.0
(75.6)
141.4
(10.2)
(28.9)
(87.6)
14.7
2017
IAS39
£m
159.2
104.1
(42.9)
61.2
(8.4)
(64.5)
(11.7)
2017
IAS 39
£m
109.5
63.4
(13.2)
50.2
(5.8)
(25.9)
18.5
2017
IAS 39
£m
49.7
40.7
(29.7)
11.0
(2.6)
(28.9)
(20.5)
IFRS 9
Impact
£m
(83.7)
15.2
(17.2)
(2.0)
–
–
–
(2.0)
IFRS 9
Impact
£m
(21.6)
1.6
(3.4)
(1.8)
–
–
–
(1.8)
IFRS 9
Impact
£m
(10.7)
–
(4.6)
(4.6)
–
–
(4.6)
IFRS 9
Impact
£m
(3.8)
–
0.1
0.1
–
–
0.1
IFRS 9
Impact
£m
(6.9)
–
(4.7)
(4.7)
–
–
(4.7)
2017
IFRS 9
£m
578.0
519.9
(108.3)
411.6
(36.6)
(56.6)
(206.1)
112.3
2017
IFRS 9
£m
150.6
218.6
(79.0)
139.6
(10.2)
(28.9)
(87.6)
12.9
2017
IFR S9
£m
148.5
104.1
(47.5)
56.6
(8.4)
(64.5)
(16.3)
2017
IFRS 9
£m
105.7
63.4
(13.1)
50.3
(5.8)
(25.9)
18.6
2017
IFRS 9
£m
42.8
40.7
(34.4)
6.3
(2.6)
(28.9)
(25.2)
International Personal Finance plc Constant exchange rate reconciliations
The year-on-year change in IFRS 9 profit and loss accounts is calculated by retranslating the 2017 IFRS 9 profit and loss account
at the average actual exchange rates used in the current year.
2017
£m
European home credit Mexico home credit
IPF Digital Lithuania and Slovakia
Central costs
Customers (000)
Credit issued
Average net receivables
Revenue
Impairment
Net revenue
Finance costs
Agents’ commission
Other costs
Profit/(loss) before tax
1,092
757.8
558.9
493.3
(88.5)
404.8
(35.3)
(53.7)
(202.0)
113.8
917
291.0
154.9
226.1
(82.9)
143.2
(11.3)
(28.8)
(87.4)
15.7
292
311.8
209.6
147.0
(55.6)
91.4
(11.9)
–
(85.1)
(5.6)
–
–
–
–
–
–
–
–
–
–
2017 performance, restated for IFRS 9, at 2017 average foreign exchange rates
£m
Lithuania and Slovakia
European home credit
Mexico home credit
IPF Digital
Customers (000)
Credit issued
Average net receivables
Revenue
Impairment
Net revenue
Finance costs
Agents’ commission
Other costs
Profit/(loss) before tax
1,236
797.0
578.0
519.9
(108.3)
411.6
(36.6)
(56.6)
(206.1)
112.3
828
273.7
150.6
218.6
(79.0)
139.6
(10.2)
(28.9)
(87.6)
12.9
226
230.8
148.5
104.1
(47.5)
56.6
(8.4)
–
(64.5)
(16.3)
–
–
–
–
8.5
8.5
–
(0.4)
(4.9)
3.2
–
–
–
–
–
–
–
–
(14.6)
(14.6)
Central costs
–
–
–
–
–
–
–
–
(14.9)
(14.9)
Foreign exchange movements
£m
European home credit
Mexico home credit
IPF Digital
Lithuania and Slovakia
Central costs
Credit issued
Average net receivables
Revenue
Impairment
Net revenue
Finance costs
Agents’ commission
Other costs
Profit/(loss) before tax
1.9
2.4
1.0
(0.1)
0.9
(0.1)
(0.2)
(1.3)
(0.7)
(14.6)
(7.8)
(11.7)
4.0
(7.7)
0.6
1.6
4.3
(1.2)
0.7
0.5
0.2
(0.1)
0.1
(0.1)
–
0.3
0.3
–
–
–
0.3
0.3
–
–
(0.1)
0.2
2017 performance, restated for IFRS 9, at 2018 average exchange rates
£m
European home credit
Mexico home credit
IPF Digital
Lithuania and Slovakia
Credit issued
Average net receivables
Revenue
Impairment
Net revenue
Finance costs
Agents’ commission
Other costs
798.9
580.4
520.9
(108.4)
412.5
(36.7)
(56.8)
(207.4)
259.1
142.8
206.9
(75.0)
131.9
(9.6)
(27.3)
(83.3)
231.5
149.0
104.3
(47.6)
56.7
(8.5)
–
(64.2)
–
–
–
8.8
8.8
–
(0.4)
(5.0)
–
–
–
–
–
–
–
–
–
Central costs
–
–
–
–
–
–
–
(14.9)
Group
2,301
1,360.6
923.4
866.4
(227.0)
639.4
(58.5)
(82.5)
(389.1)
109.3
Group
2,290
1,301.5
877.1
842.6
(226.3)
616.3
(55.2)
(85.9)
(378.0)
97.2
Group
(12.0)
(4.9)
(10.5)
4.1
(6.4)
0.4
1.4
3.2
(1.4)
Group
1,289.5
872.2
832.1
(222.2)
609.9
(54.8)
(84.5)
(374.8)
141
Annual Report and Financial Statements 2018SUPPLEMENTARY INFORMATION
ALTERNATIVE PERFORMANCE MEASURES CONTINUED
Year-on-year movement at constant exchange rates
Credit issued
Average net receivables
Revenue
Impairment
Net revenue
Finance costs
Agents’ commission
Other costs
European home
credit
Mexico home
credit
(5.1%)
(3.7%)
(5.3%)
18.4%
(1.9%)
3.8%
5.5%
2.6%
12.3%
8.5%
9.3%
(10.5%)
8.6%
(17.7%)
(5.5%)
(4.9%)
IPF Digital
34.7%
40.7%
40.9%
(16.8%)
61.2%
(40.0%)
–
(32.6%)
Lithuania and
Slovakia
Central costs
–
–
–
(100.0%)
(100.0%)
–
100.0%
100.0%
–
–
–
–
–
–
–
2.0%
Return on assets (ROA)
ROA is calculated as profit before interest after tax divided by average receivables
2018
Profit before tax (£m)
Interest (£m)
Profit before interest and tax (£m)
Taxation (£m)
Profit before interest after tax (£m)
Average receivables (£m)
Return on assets (ROA)
2017 IFRS 9
Profit before tax (£m)
Interest (£m)
Profit before interest and tax (£m)
Taxation¹ (£m)
Profit before interest after tax (£m)
Average receivables (£m)
Return on assets (ROA)
1. Adjusted for exceptional tax charge
2017 IAS 39
Profit before tax (£m)
Interest (£m)
Profit before interest and tax (£m)
Taxation¹ (£m)
Profit before interest after tax (£m)
Average receivables (£m)
Return on assets (ROA)
1. Adjusted for exceptional tax charge
European home
credit
Mexico home
credit
IPF Digital
Lithuania and
Slovakia
Central costs
113.8
35.3
149.1
(46.2)
102.9
558.9
18.4%
15.7
11.3
27.0
(8.4)
18.6
154.9
12.0%
(5.6)
11.9
6.3
(2.0)
4.3
209.6
2.1%
–
–
–
–
–
–
–
(14.6)
–
(14.6)
4.5
(10.1)
–
–
European home
credit
Mexico home
credit
IPF Digital
Lithuania and
Slovakia
Central costs
112.3
36.6
148.9
(43.2)
105.7
578.0
18.3%
12.9
10.2
23.1
(6.7)
16.4
150.6
10.9%
(16.3)
8.4
(7.9)
2.3
(5.6)
148.5
(3.8%)
3.2
–
3.2
(0.9)
2.3
–
–
(14.9)
–
(14.9)
4.3
(10.6)
–
–
European home
credit
Mexico home
credit
IPF Digital
Lithuania and
Slovakia
Central costs
114.3
36.6
150.9
(43.7)
107.2
661.7
16.2%
14.7
10.2
24.9
(7.2)
17.7
172.2
10.3%
(11.7)
8.4
(3.3)
1.0
(2.3)
159.2
(1.5%)
3.2
–
3.2
(0.9)
2.3
–
–
(14.9)
–
(14.9)
4.3
(10.6)
–
–
Return on equity (ROE)
ROE is calculated as profit after pre-exceptional tax divided by average net assets (after adding back exceptional tax charge)
2018
IFRS 9
£m
433.0
411.3
75.4
18.3%
2017
IFRS 9
£m
389.5
363.1
69.0
19.0%
2016
IFRS 9
£m
336.7
2017
IAS 39
£m
496.9
463.2
75.0
16.2%
Equity (net assets)
Average equity
Profit after pre-exceptional tax
Return on equity
142
Group
5.5%
5.9%
4.1%
(2.2%)
4.8%
(6.8%)
2.4%
(3.8%)
Group
109.3
58.5
167.8
(52.1)
115.7
923.4
12.5%
Group
97.2
55.2
152.4
(44.2)
108.2
877.1
12.3%
Group
105.6
55.2
160.8
(46.5)
114.3
993.1
11.5%
2016
IAS 39
£m
429.5
International Personal Finance plc Earnings before interest, tax, depreciation and amortisation (EBITDA)
Profit before tax from continuing operations
Add back:
Interest
Depreciation
Amortisation
EBITDA
IAS39 Gearing
IAS39 Net worth
£m
Receivables
Deferred tax
Borrowings
Other net assets
Net assets
£m
Net assets
Pension asset
Derivative asset / liability
Net worth
Net worth
Borrowings
Gearing
IAS39 Interest cover
IAS39 Interest cover £m
Profit before tax
Amortisation of intangible assets
Interest
Profit before tax, amortisation and interest
£m
Profit before tax, amortisation and interest
Interest
2018
IFRS 9
£m
109.3
58.5
9.2
14.5
191.5
2017
IFRS 9
£m
97.2
55.2
10.3
11.4
174.1
2018
IFRS 9
2018
conversion
992.8
128.1
(698.3)
10.4
433.0
142.6
(25.3)
117.3
2018
IFRS 9
109.3
2018
conversion
11.7
2017
IAS 39
£m
105.6
55.2
10.3
11.4
182.5
2018
IAS 39
1,135.4
102.8
(698.3)
10.4
550.3
2018
IAS 39
550.3
(4.1)
5.7
551.9
551.9
(698.3)
1.3
2018
IAS 39
121.0
14.5
58.5
194.0
2018
IAS 39
194.0
58.5
3.3
143
Annual Report and Financial Statements 2018SUPPLEMENTARY INFORMATION
SHAREHOLDER INFORMATION
Financial calendar for 2019
27 February
11 April
12 April
18 April
2 May
10 May
31 July
5 September
6 September
13 September
4 October
Dividend history
Year
2018
Announcement of 2018 full-year results
Ex-dividend date for final dividend
Record date for final dividend
DRIP cut-off date
AGM
Payment of 2018 final dividend
Announcement of 2019 half-year results
Ex-dividend date for interim dividend
Record date for interim dividend
DRIP cut-off date
Payment of 2019 interim dividend
Payment date
11 May 2018
Final dividend
(p)
7.80
Payment date
5 October 2018
Interim dividend
(p)
4.60
Details of previous dividend payments can be found on our website at www.ipfin.co.uk.
Dividends
Dividends can be paid directly into a shareholder’s bank or building
society account. This ensures secure delivery and means that
cleared funds are received on the payment date. For shareholders
that are resident outside the UK, dividend payments are made by
Link’s International Payment Service and are paid in local currency.
The Company offers a dividend reinvestment plan (DRIP). A DRIP is
a convenient and easy way to build a shareholding by using cash
dividends to buy additional shares rather than receiving a cheque
or having your bank account credited with cash. To receive more
information, change your preferred dividend payment method,
or if you would like to participate in the DRIP, please contact the
Company’s registrar, Link Asset Services.
Registrar
Queries relating to your shareholdings including transfers, dividend
payments/reinvestments, lost share certificates, duplicate accounts
and amending personal details should be addressed to the
Company’s registrar:
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). If you are calling from outside the
UK please call +44 (0)371 644 0300 (calls outside the UK 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:
shareholderenquiries@linkgroup.co.uk
Website:
www.linkassetservices.com
Go paperless
Shareholders can register for electronic communications by visiting
the website at 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 and it would be uneconomical
to sell the shares, you may wish to donate your shares
to ShareGift (registered charity no. 1052686), which is
an independent charity.
ShareGift can amalgamate small shareholdings in order to
sell the shares and pass the proceeds on to other charities.
More information is available at www.sharegift.org or
telephone 020 7930 3737.
Company registered office
International Personal Finance plc
Number Three, Leeds City Office Park
Meadow Lane, Leeds
West Yorkshire LS11 5BD
Telephone:
+44 (0)113 285 6700
Website:
www.ipfin.co.uk
Company number: 6018973
Registered in England and Wales
Annual Report and Financial Statements 2018
144
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International Personal Finance plc
Number Three
Leeds City Office Park
Meadow Lane
Leeds LS11 5BD
Telephone: +44 (0)113 285 6700
Email: investors@ipfin.co.uk
Website: www.ipfin.co.uk
Company number 6018973
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