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9
Annual Report and Financial Statements 2019
Responsible
Sustainable
Innovative
Responsible, Sustainable, Innovative.
Our purpose is to make a difference in the lives of our customers
by offering simple, personalised financial solutions. We lend
responsibly to more than 2 million customers and play an important
role in providing fair and transparent finance to those who might
otherwise be financially excluded. We offer a unique combination of
affordable home credit and innovative digital channels and products
which are tailored to our customers’ financial circumstances.
Find out more at www.ipfin.co.uk
2019 highlights
Customers
(’000)
2,109
3
6
6
,
2
1
2
5
,
2
0
9
2
,
2
1
0
3
,
2
9
0
1
,
2
Credit issued
(£m)
£1,353.0m
6
.
0
6
3
,
1
0
.
3
5
3
,
1
5
.
1
0
3
,
1
0
.
5
4
1
,
1
3
.
3
3
0
,
1
Revenue
(£m)
£889.1m
4
.
6
6
8
1
.
9
8
8
8
.
5
2
8
8
.
6
5
7
5
.
1
3
7
2015
2016
2017
2018
2019
2015
2016
2017
2018
2019
2015
2016
2017
2018
2019
Profit before tax
(£m)
£114.0m
0
.
4
1
1
3
.
9
0
1
6
.
5
0
1
1
.
5
0
1
0
.
6
9
Earnings per share
(p)
8
.
3
3
2
.
2
3
32.2p
2
.
2
3
7
.
9
2
*
7
.
3
3
2
.
0
2
Dividend per share
(p)
12.4p
4
.
2
1
4
.
2
1
4
.
2
1
4
.
2
1
4
.
2
1
2015
2016
2017
2018
2019
2015
2016
2017
2018
2019
2015
2016
2017
2018
2019
* 2017 pre-exceptional EPS
Strategic Report
2019 highlights
IPF at a glance
Chairman’s statement
Delivering our social purpose
Our customers and their journey
Business model
Market review
Our strategy
Chief Executive Officer’s review
Key performance indicators
Operational review
Our stakeholders
Stakeholder review
Financial review
Principal risks and uncertainties
Directors’ Report
Chairman’s introduction
Our Board and Committees
Governance at a glance
Role of the Board and its committees
Nomination Committee Report
Audit and Risk Committee Report
Technology Committee Report
Directors’ Remuneration Report
Directors’ Responsibilities
Financial Statements
Independent Auditor’s report
Consolidated income statement
Statements of comprehensive income
Balance sheets
Statements at changes in equity
Cash flow statements
Accounting policies
Notes to the Financial Statements
Supplementary Information
Alternative performance measures
Shareholder information
2
4
6
8
12
14
16
18
22
24
30
32
39
44
54
56
58
60
74
76
82
84
107
108
116
116
117
118
120
121
128
156
161
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 121,
a reconciliation of the APMs we use where relevant
and a glossary on pages 156 to 157 indicating the
APMs that we use, an explanation of how they are
calculated and why we use them.
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 2019
in order to present the underlying performance variance.
International Personal Finance plc (IPF).
Company number: 6018973.
Follow us on Twitter and Instagram @ipfplc
www.ipfin.co.uk
Annual Report and Financial Statements 2019
1
Strategic ReportDirectors’ ReportFinancial Statements IPF at a glance
A leading international
provider of consumer credit
We serve our customers with small-sum, unsecured consumer loans and lines of credit
via two key channels – home credit and digital. Our customers are often underbanked
or underserved by mainstream credit operators, and we meet their specific borrowing
needs and financial circumstances responsibly.
Finland
Estonia
Latvia
Lithuania
Poland
Czech Republic
Hungary
Romania
Group
head office
Spain
Mexico
Australia
Home
credit
IPF
Digital
Our home credit channel serves customers
who like the face-to-face service provided
in their home by our agents and the support
we provide if they face difficulties
with repayments.
Our digital business serves customers
who want an end-to-end digital service,
choosing to take out credit and
repaying online.
Products and features
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 32 weeks to around three years
• Typical loan value £500
• Credit line – revolving credit facility
• Mobile wallet being tested
• Instalment loans
• Monthly repayments
• Instalment loan terms up to three years
• Average customer outstanding balance c.£1,100
• Customers served online and through selected
sales partners
Europe
Mexico
Established markets
New markets
Poland, Czech Republic,
Hungary and Romania
See pages 8-9
Finland, Estonia, Latvia
and Lithuania
Poland, Spain, Australia
and Mexico
See pages 10-11
2
International Personal Finance plc
Home credit
Europe
Poland, Czech Republic, Hungary and Romania
1m
-8%
Customers
Mexico
£452.2m
-6%
Revenue
795,000
£247.6m
-13%
Customers
+5%
Revenue
IPF Digital
305,000
+4%
Customers
£189.3m
+30%
Revenue
Established markets
Finland, Estonia, Latvia and Lithuania
150,000
£83.1m
-4%
Customers
+5%
Revenue
New markets
Poland, Spain, Australia and Mexico
155,000
£106.2m
+15%
Customers
+59%
Revenue
i
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s
Our investment
case
We are a profitable, well-funded
consumer credit business with
a track record of providing affordable
credit responsibly
Highly-responsible consumer
finance business
We are financially inclusive providing
underbanked and underserved
customers access to credit
in a responsible way
2.1m
customers
See pages 6-7
Focused business and
financial strategy
Developing businesses earning
good returns and maintaining
a strong financial profile
16.5%
return on equity
See pages 16-17
Effective risk management
Long track record of managing
key risks including credit, regulation,
competition and liquidity
27.4%
impairment % revenue
See pages 44-52
Strong financial profile
Robust balance sheet
and strong funding position
£182m
headroom on debt facilities
See pages 39-43
Experienced
management team
Broad range of financial services
and digital lending experience
27,000
Employees and agents
See pages 56-57
Annual Report and Financial Statements 2019
3
Strategic ReportDirectors’ ReportFinancial Statements
Chairman’s statement
Focusing on our strengths to enable
sustainable growth
“Our focus on responsible
lending and continued
innovation of products
and services tailored for
our customers will
deliver sustainable
growth for the business.”
Dan O’Connor
Chairman
Welcome
Welcome to our 2019 Annual Report.
I am pleased to report that
we continue to progress our
multi-channel strategic agenda.
In 2019, European home credit
delivered excellent results,
recovery is underway in Mexico
home credit and IPF Digital delivered
its maiden profit. The regulatory
environment we face continues
to evolve and we are adapting our
business model to meet customer
needs. I wish to congratulate our team
for resolving the long-standing and
significant tax audit challenge we
faced in Poland for the years 2010 to
2017, and we expect this will now allow
more flexibility in the refinancing of our
main Eurobond, which we aim to
complete by the end of 2020.
As I approach the end of my second
term as your Chairman, I am pleased
to announce that Stuart Sinclair will join
our Board from March 2020 and
succeed me as Chairman after the
next AGM, subject to being elected.
Having reflected on the success of
the Group in 2019 in overcoming the
significant tax challenge we faced in
Poland, I believe that this is an ideal
time to hand over the leadership
of a Board that has an excellent mix
of established and new talent.
Stuart brings a wealth of experience
in financial services and is ideally
qualified to lead the Company through
the next stage of its development.
At the core of the business, we are
committed to responsible lending
and making finance accessible to
consumers who are less likely to be
served by mainstream lenders and,
with us, are able to build their credit
history. We are proud of our 20-year
heritage of serving home credit to
millions of customers who value the
face-to-face service provided in their
home by our agents. At the same time,
we are progressing well on building an
innovative, digital future for lending
alongside home credit.
2019 performance
We achieved a good financial
performance in 2019 reporting
a £4.7 million increase in profit before
tax to £114.0 million. Credit issued was
in line with 2018 and portfolio quality
at Group level is good. I’m delighted
to report that our European home
credit businesses delivered a very
strong financial performance driven
by excellent operational execution.
At IPF Digital we have made great
strides in building the scale of the
business over the past five years and,
while there is work to be done to
ensure credit quality is more consistent
in our new markets, it is pleasing
to see the delivery of its maiden profit
in 2019. In Mexico home credit,
we experienced a more challenging
operational performance, however,
I am confident that the improved
discipline and refined growth strategy
under our strengthened leadership
team is setting a solid foundation from
which we can return to growth in 2020.
There were further regulatory changes
in 2019. We adapted our business
models in Finland and Latvia to meet
the requirements of new consumer
credit legislation in these markets.
We also continue to engage with
and monitor the industry-wide review
on rebating practices in Poland.
The Polish Ministry of Justice’s draft bill
to reduce the existing rate cap on
consumer loans in Poland did not
proceed through the legislative
process in 2019 and is no longer
on the current legislative agenda.
However, this risk remains as
a proposal and could be reintroduced
in the most recent or a revised form
and we continue to monitor closely.
Further details on regulation can be
found in the operational review on
page 25.
I am also very pleased to see our
businesses being recognised by
external parties, as they continue
to win awards and accolades for
high-quality customer service,
being a great place to work and
a socially responsible business.
This demonstrates the value of the
services we offer and the contribution
we make to society.
4
International Personal Finance plc
Our purpose
What we do
and why we do it
We make a difference in the lives
of our customers by offering
simple, personalised
financial solutions.
Our strategy
Build long-term sustainable value
for our stakeholders by delivering
great customer service and
strong returns in our European
home credit operations to
reinvest in modernising these
businesses,and growing Mexico
home credit and IPF Digital.
See pages 16 to 17
Our values
Guide our actions and the way
we do business.
We are responsible
Being open and transparent
in everything we do
We are respectful
Treating others as we
would like to be treated
We are straightforward
Taking due care in all our
actions and decisions
Making a
valuable
contribution
to society
See pages 6 to 7
needs. Some of the most pertinent
discussions included regulator
engagement around the Polish
tax audit and the implementation
of a new and more accessible
whistleblowing service, ‘Speak Up’.
Further information on the work that
the Board has undertaken during the
year can be found on pages 65
and 66.
A highlight of my year, as always,
has been meeting colleagues who are
so passionate and enthusiastic about
working for the business and serving
our customers well. I was particularly
impressed with the work our leadership
teams do to develop and promote
local talent, as well as embedding
ethical values throughout the business.
In October, the Board visited Hungary
where we received updates from the
local management team and heard,
first hand, how the teams in Europe
are working together under one
leader to modernise the business
and become even more customer
focused. Understanding the views
and concerns of our shareholders
is also key. While most of the Board
engagement with shareholders is
through the Group Chief Executive
Officer and Chief Financial Officer,
I also spent valuable time with some
of our major investors.
Outlook
I would like to thank the Board and all
our colleagues for their commitment
and hard work during the year,
and welcome those who have joined
the team. We have a unique role to
play in providing both home credit
and digital credit to underserved
customers in a sustainable way.
Looking ahead, while regulatory
and competitive conditions remain
challenging, we will continue to focus
on delivering a positive experience
to our customers and I am confident
about the future of our business,
not just for our customers,
colleagues and shareholders,
but for all our stakeholders.
Dan O’Connor
Chairman
Dividend
Subject to approval by shareholders
at our AGM in April, a final dividend
of 7.8 pence per share will be payable,
bringing the full-year dividend to
12.4 pence per share. As a percentage
of profit after tax from continuing
operations for 2019, it equates to
a pay-out ratio of 38.4%, which is
higher than our target pay-out rate
of 35%.
Our Board
To further strengthen the expertise
of our Board, we will appoint
two independent non-executive
directors, Stuart Sinclair and
Richard Holmes with effect from
March 2020. Stuart, who is an
experienced non-executive director,
committee chair and senior
independent director within the
consumer financial services sector,
will join the Remuneration
and Nomination committees.
As I mentioned in my introduction,
he will succeed me as Chairman,
subject to being elected at the AGM.
Richard will join the Audit and
Risk Committee and brings to our
Board more than 40 years of broad
international financial services
experience.
Board evaluation
During 2019, a Board and committee
evaluation was undertaken. Facilitated
externally, the focus was on strategy,
board composition, corporate culture
and regulatory matters. I am pleased
to report the evaluation concluded
that the Board, its committees and
each of the directors continues to be
effective and that our boardroom
culture is conducive to creating
a positive environment for
participation and challenge
by the non-executive directors.
Our stakeholders
Bronwyn Syiek joined the Board
in 2018 and was appointed to the
role of workforce and stakeholder
engagement director. The Board
has continued to commit its
attention to how we engage
with our stakeholders and we have
undertaken a comprehensive review of
activities. We also invited contribution
and expertise from both internal and
external presenters to enrich and
support our discussions, and build
wider knowledge of stakeholder
Annual Report and Financial Statements 2019
5
Strategic ReportDirectors’ ReportFinancial Statements Delivering our social purpose
Delivering our social
purpose responsibly
Our purpose is to make a difference in the lives of our customers by offering simple, personalised
financial solutions. We are committed to responsible lending, we provide an entry point to access
mainstream consumer finance and we offer customers the opportunity to build a credit profile.
Banking institutions
Central banks •
Investment • Retail and commercial
Non-bank financial institutions
Savings and loans •
Insurance • Credit unions
o m y
n
o
1. Advocatin
g
r
e
s
p
o
n
s
i
b
l
e
l
e
n
d
n
g
i
e wider e c
th
o
t
g
n
i
t
u
b
i
r
t
n
o
C
.
3
Our social
purpose
2. Providing acce s s
g
e
r
t o
u l a t e d credit
We are well-positioned to provide an entry point
to mainstream consumer finance, serving
customers with regulated credit products
Grey market
Unregulated lenders
1. Advocating
responsible lending
Our loans are granted using robust application
and behavioural scoring systems supported by
credit bureaux and, importantly, the evaluation
by agents in our home credit businesses to
ensure our loans are affordable to customers.
Our commitment to responsible lending
extends to our community programmes where
our focus on financial literacy helps consumers
make more informed borrowing decisions.
64.6%
54.3%
Home credit
customer retention
IPF Digital
customer retention
2. Providing access
to regulated credit
As an established, regulated and ethical
business we protect our customers from illegal
lenders and the unregulated excesses of the
‘grey’ market by lending in a transparent and
responsible way. We are committed to
a corporate culture that encourages ethical
behaviour and puts our customers’ interests
at the heart of everything we do.
96%
91%
employees
completed business
ethics training
agents
completed business
ethics training
3. Contributing to the
wider economy
We are an active corporate citizen with more
than 27,000 employees and agents contributing
to their wider economies through taxes and
spending on goods and services. We are
also committed to investing time and other
resources to support education and social
welfare programmes, as well as contributing
to enhance the financial knowledge of people
in the communities in which we operate.
£183m
total taxes paid*
£953,000
invested in our
communities
* Comprising £97 million taxes paid (representing
a cost to the Group) and £86 million taxes collected
on behalf of governments such as payroll taxes and
employees’ social security contributions.
6
International Personal Finance plc
“I have had three loans with
Provident and everything was
provided and explained to me
by the same agent who was
patient and supportive.”
Joanna, customer in Poland
Our responsible
lending principles
IPF is an ethical business and
we engage with our customers
in a responsible way. Responsible
lending is core to the sustainability
of our business model and is
embedded in everything we do,
from strategic decision-making
and product design to the millions
of everyday interactions we have
with customers each year.
“Provident provides loans
quickly to customers who
have a lower income and
very often are not able
to borrow from other
financial companies.
It makes me glad when
I can support people who
nobody else will help.”
Ana-Maria, an agent in Romania
“Our award-winning financial
literacy programme, Cash Crew,
helps young people to manage
their finances. During 2019
we released new videos and
blogs to start the discussion
on financial management,
presenting engaging content
in a straightforward way. So far
we’ve reached 1.2 million people.”
Katerina, external communications and
sustainability specialist, Czech Republic
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
offer a another loan to
a customer if we think it will
be detrimental to them.
Product suitability
We provide customers with
products that are best suited
to their needs. We also offer
a ‘right to withdrawal’ period
in case a customer changes
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
affecting a customer’s credit
history adversely. In the case
of external debt recovery we
only co-operate with
reputable agencies.
Annual Report and Financial Statements 2019
7
Our customers and their journey
Serving our
customers well
We are committed to understanding our customers’ needs,
delivering a positive customer experience and developing
relationships that make a positive difference in people’s
lives – whether they are looking for a loan served in their home
by an agent or credit delivered online to their bank account.
“I like my loans from
Provident as the
process is simple
and the repayments
are collected at my
house, which is
very convenient.”
Janusz, customer
in Poland
“This is my second loan
from Provident. I only
use it when something
unexpected happens
– the last time I
needed a new fridge.”
Weronika, customer
in Poland
Typical customer features
• Low, fluctuating income
• Limited credit history
• Prefer agent service
• Need to manage finances carefully
• Seek flexibility
How customers
use their loans
• Unexpected expenses
• Healthcare
• Household goods
• Education
• Family celebrations
Home credit
Creating personal,
trusted relationships
with our customers
Our customers are looking for simple,
transparent, small-sum loans with
fixed, affordable repayments to help
them manage the ups and downs of
their weekly budget, or to buy one-off
items. Our customers have low,
fluctuating incomes and limited or
no credit history, which means they
are often financially excluded by
mainstream lenders. Our customers
value the personal, face-to-face
service provided by agents as well
as the convenience of being served
in their home. They also like the fact
that they can build a credit profile
and that we work with them to get
back on track if they miss repayments.
The home credit business model has
operated successfully for more than
130 years and remains a relevant and
important component of the consumer
finance market.
8
International Personal Finance plc
The home credit
customer journey
Attracting customers
• Leading, well-recognised brand
• Word of mouth recommendation
• Targeted marketing – tv, radio
and digital
• Repeat lending offers to
existing customers
Loan request
• Simple and straightforward
• Online decision in principle
• Data-driven and face-to-face checks
• Responsible repeat lending offers
to existing good-paying customers
Credit scoring
• Careful affordability and
creditworthiness assessments
• Application and
behavioural scorecards
• Credit bureaux
• Face-to-face meeting with agent
• ‘Low and grow’ approach – new
customers start with small loans
• Help build credit score to access
future credit
Loan issued
• Agent service: cash loan delivered
to customer’s home
• Money transfer: loan delivered
to customer’s bank account
• Agents paid commission primarily
on collections
Repayments and managing
arrears
• Agent-customer relationship supports
regular repayments
• Flexible, forbearance approach –
help customers facing difficulty
• Ongoing contact – face-to-face and
central call centres
• Sale of non-performing loans
to external debt recovery operations
“I trust people more
than the internet
so I talked to
a Provident agent
before I took a loan.”
Robert, home credit
customer in Hungary
“Provident has always
been there when
I needed help.”
Vlad, home credit
customer in Romania
“What I like the most
is the personal service
they give me. A year ago,
I fell behind with my
instalments and we
agreed how I would
get back on track. They
understood the moment
I was going through.”
Martina, home credit
customer in Mexico
Annual Report and Financial Statements 2019
9
Our customers and their journey continued
“I like the mobile
app. It is more
convenient,
and an easy way
to transfer my
money and pay
with my card.”
Sophia, IPF Digital
customer in Finland
“I get a solid
customer service
and good customers
are rewarded by
offering a larger
limit at just the
right time.”
Johannes, IPF Digital
customer in Finland
“Thanks to you
I managed
to cover some
unexpected
expenses.”
Maria, IPF Digital
customer in Mexico
The IPF Digital
customer journey
Attracting customers
• Digital marketing strategies
and traditional media
• Customer relationship management
activities to generate repeat business
Loan request
• Simple, straightforward
application process
• Online or via sales partners including
online brokers and comparison sites
Credit scoring
• Rapid, centralised, credit scoring
• Credit bureaux
• Internal databases and
statistical models
• ‘Low and grow’ approach – new
customers start with small loans
• Affordability checks prior to approval
Credit issued
• Money transferred to customer’s
bank account
• Customer notified by text on transfer
Repayments and managing
arrears
• 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 non-performing loans to
external debt recovery operations
10
International Personal Finance plc
“I like the fact that
I can ask questions
and get help when
I need it.”
Francisco, IPF Digital
customer in Mexico
“I handle all my
financial matters with
my mobile phone so
it’s great they have
developed all these
functionalities.”
Emilia, IPF Digital
customer in Finland
Digital
Fast, efficient and quality
service every time
The rapid digitisation of our day-to-day
lives has resulted in an increasing
number of consumers wanting
to borrow online. Our innovative digital
offering of credit line, mobile wallet
and instalment loans meets the needs
of these consumers precisely with an
end-to-end digital customer journey
and positive customer experience.
Typical customer features
• Low-to-middle income
• Like to shop and borrow online
• High smartphone ownership
• Existing credit history
• Seek flexibility
How customers use
their loans
• Holidays
• Home improvements
• Healthcare
• Household goods
Annual Report and Financial Statements 2019
11
Business model
Creating value
for our stakeholders
By making a difference in the lives of our customers with simple, personalised
finance, we generate further long-term value for all our stakeholders.
What we do
What makes
us different
We provide simple, personalised financial
solutions through a unique combination of
affordable home credit and innovative digital
channels and products which are tailored
to our customers’ financial circumstances.
Being the only business to offer
both home credit and digital
loans, we have a differentiated
proposition from that of other
credit providers.
Key resources
Talented people
Our ability to serve our customers well relies upon
having highly-engaged, skilled, committed and
knowledgeable employees and agents who
adhere to our values and ethics. This allows us
to collaborate fully and earn and maintain the
trust of our stakeholders.
Technology
Stable and scalable technology is fundamental
to driving efficiency through agent mobile
technology, making robust credit decisions
and supporting digital lending growth.
Leveraging data capabilities will also unlock
significant opportunities.
Strong financial position
We manage our financial resources effectively
to sustain the business, fund investment in growth
and modernisation, and to generate good returns
for our investors.
Well-known brands
Our brands are well-known and trusted by our
2.1 million customers in 11 markets.
Home credit
Our home credit business
model is different because
our agents connect us to
our customers by providing
a personal service in our
customers’ homes every
week or month. The home
credit model is very hard
to replicate.
IPF Digital
Our digital business
model meets the needs
of a growing number
of customers in our
consumer segment who
want affordable credit
that can be managed
online. We offer
innovative and flexible
products, with a great
customer service.
For more about our customers and their journey, see pages 8-11
For more about stakeholder engagement, see pages 30-31
1212
International Personal Finance plc
d it
Ho m e cr e
How we deliver
Our profit is generated by lending responsibly
while managing the business efficiently. Our home
credit businesses generate a high proportion
of Group revenue, primarily through the agent
service model, while IPF Digital delivers a smaller
but growing contribution.
d it
Ho m e cr e
a p i t a l
C
Attra
custo
m
ct
ers
Our Purpose
is to make a difference
in the lives of our
customers by offering
straightforward
consumer finance
r
e
L
o
a
n
q
u
e
s
t
e
u
n
e
v
e
R
a
r
R
r
e
e
p
a
r
a
s
y
m
m
e
a
n
n
a
t
s
g
a
e
m
n
e
d
nt
Loan
issued
U
n
R
e
s
p
o
derpinned by o u r
nsible • Respectful • S t
C redit
s c oring
I P F Digital
e s
v a l u
a r d
r a i g h t f o r w
Value created
for stakeholders
We create value by building 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.
Our customers
We enable our customers, who might
otherwise be financially excluded,
to access credit for the things they need.
c.£500
credit issued per home credit customer
Employees and agents
We help our people develop
and have a fulfilling career
in our organisation.
27,000
people across the business
Regulators and legislators
We engage with regulators
to support sustainable
financial markets.
33
sector association memberships
Communities
We enable financial inclusion
and invest in our communities.
£953,000
invested in our communities
Shareholders and investors
We operate a successful
business generating long-term
sustainable returns.
12.4p
Dividend per share
For more about our multi-channel strategy, see pages 16-17
For more about our principal risks, see pages 44-52
Annual Report and Financial Statements 2019
13
Strategic ReportDirectors’ ReportFinancial Statements
Market review
Understanding
our markets
Our strategic priorities are influenced by key market trends. Technical advances and innovation
in everyday life are changing how customers expect to be served. Competition is stabilising and
increased regulatory oversight remains the most influential force on the consumer financial sector.
Steady demand for
unsecured credit
Growing preference
for digital options
Increase in consumer credit demand
Unsecured consumer lending continues to grow
at a steady rate.*
Digital lending driving growth
Demand for digital offerings is the driving force
for steady growth in unsecured consumer credit.
Positive GDP growth
Digital lifestyles increasing customer
experience expectations
Digital lending and mobile banking applications
have raised the bar for speed and convenience
of customer journeys. Consumers expect a frictionless
experience in all channels, including mobile.
Home credit remains very important in
a digital world
Positive GDP growth is forecast in all our markets
in 2020.
Home credit provides people who might otherwise be
financially excluded with access to regulated credit.
* Deloitte, Future of Credit in Europe 2019
GDP growth (%)
Our
European
markets
Mexico
(0.1)
2019
1.0
2020
3.2
2.6
4.1bn
internet users worldwide
c.1.6bn
estimated mobile point of sale
payment users by 2023
Sources: Citibank and European Commission
Source: www.statistica.com
Our response
Our response
Unique, financially inclusive channel offering
Technology driving customer experience
We provide the unique consumer lending channel
combination of home credit loans delivered by
agents and digital credit offerings for those who want
to manage their finances online. We are committed
to improving access to affordable credit to our target
segment of customers.
We are taking advantage of growth opportunities
by investing in IPF Digital and offering Provident-
branded digital loans. We are also using data
analytics to make smarter lending decisions and
improve customer journeys in our home credit
and digital businesses.
Related principal risks
Related principal risks
8
10
11
2
4
6
Read more on our principal risks on pages 44-52
14
International Personal Finance plc
More stable
competitive landscape
Increased
regulatory oversight
Increased regulation has stabilised
competition
Some competitors who also serve our customer
segment are struggling to operate in a tougher
regulatory environment.
Limited direct home credit competitors
Competition is focused on introducing digital
lending offerings.
Regulatory risk will continue
We expect regulators and legislators to remain
focused on the consumer credit sector.
Regulators focused on price and affordability
In some of our markets, new regulations have driven
down prices and restricted loan values that customers
are able to borrow.
Our competitors
Our markets with rate caps
Banks
Pawnbrokers
Home
credit
Credit
unions
Digital
lenders
Payday
lenders
Point of sale
finance
Poland
Hungary
Finland
Estonia
Lithuania
Latvia
Australia
Our response
Our response
Successfully adapting to change
Always compliant with regulation
The consumer finance sector is highly competitive.
We continue to develop new products and
value-added services to gain a competitive edge.
We always adapt our business to be compliant
with new regulations. We engage with regulators to
ensure they better understand the key role we play in
society and demonstrate the consequences of overly
stringent regulation on consumers and the market.
Related principal risks
Related principal risks
2
1
3
7
Annual Report and Financial Statements 2019
15
Strategic ReportDirectors’ ReportFinancial Statements Our strategy
Our multi-channel
strategy
Our strategy centres on providing a positive customer experience and generating strong returns
in our European home credit businesses to reinvest in building a long-term sustainable future for
these operations, growing Mexico home credit and IPF Digital, and delivering progressive returns to
our shareholders. In 2019, we made excellent progress in our European home credit and established
digital businesses, and focused on improving operational execution in Mexico home credit and
managing credit risk in IPF Digital’s new markets.
Strategic
Priorities
2019
Progress
• Provide superior
• Successfully delivered
IPF
Digital
customer
experience
through
innovation
• Build scale and
leverage data
• Demonstrate
ability to make
a return
maiden profit
• Good top-line growth
• Mobile wallet being tested
Mexico
home
credit
European
home
credit
• Expand
geographical
footprint
• Build micro-
business loans
channel
• Improve
operational
efficiency and
customer
penetration rates
in selected
longer-established
branches
• Provide great
customer
experience and
long-term
sustainable future
• Deliver strong
returns
• Protect the
business model
• Leverage the
Provident brand
for digital
• Appointed experienced
country manager
• Strengthened management team
• Improved cost efficiency
• Opened five new branches
• Strong financial performance
• Slowed rate of customer
contraction
• Continued excellent credit quality
• Good growth of Provident-
branded digital offering in Poland
• Invested in agent mobile
technology including roll-out
of new collections functionality
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
2019
Challenges
• Worse-than-
expected credit
quality in new
markets led to
slower growth
• Responded to
new rate caps
in Finland
and Latvia
• Weaker
collections
• Credit issued
contracted as
we prioritised
credit quality
over growth
• Operational
actions
implemented
to improve
credit quality
• Contracting
customer
numbers
Read more on our 2019 key performance indicators on pages 22-23
16
International Personal Finance plc
Strategic KPIs
2020 Focus
305,000
customers
8%
Year-on-year
credit issued
30%
Year-on-year revenue
45.0%
impairment % revenue
45.7%
cost-income ratio
£3.2m
profit before tax
795,000
customers
-12%
Year-on-year
credit issued
5%
Year-on-year revenue
41.3%
impairment % revenue
37.6%
cost-income ratio
£10.5m
profit before tax
1m
customers
1%
Year-on-year
credit issued
-6%
Year-on-year revenue
12.4%
impairment % revenue
42.7%
cost-income ratio
£115.1m
profit before tax
• Continue to provide great
customer experience
through innovation
• Build scale and
leverage data
• Improve new market
credit performance then
reignite growth
• Manage transition to new
rate cap regime in Latvia
and Finland
• Continue to test
mobile wallet
• Continue to provide
a great customer
experience
• Optimise existing
expansion footprint
• Manage longer-
established branches
for returns
• Develop micro-business
loans channel
• Improve portfolio quality
before returning to
growth mode
• Continue to provide
a great customer
experience
• Deliver strong returns
• Protect the business model
• Leverage the Provident
brand for digital
• Stabilise customer
numbers
• Continue agent mobile
technology investment
2019
Challenges
expected credit
quality in new
markets led to
slower growth
• Responded to
new rate caps
in Finland
and Latvia
contracted as
we prioritised
credit quality
over growth
• Operational
actions
implemented
to improve
credit quality
Strategic
Priorities
2019
Progress
Strategic KPIs
2020 Focus
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 great
customer
experience and
long-term
sustainable future
• Deliver strong
returns
• Protect the
business model
• Leverage the
Provident brand
for digital
• Provide superior
• Successfully delivered
• Worse-than-
maiden profit
• Good top-line growth
• Mobile wallet being tested
305,000
customers
8%
Year-on-year
credit issued
30%
Year-on-year revenue
45.0%
impairment % revenue
45.7%
cost-income ratio
£3.2m
profit before tax
• Appointed experienced
country manager
• Weaker
collections
• Strengthened management team
• Credit issued
• Improved cost efficiency
• Opened five new branches
795,000
customers
-12%
Year-on-year
credit issued
5%
Year-on-year revenue
• Strong financial performance
• Contracting
customer
numbers
• Slowed rate of customer
contraction
• Continued excellent credit quality
• Good growth of Provident-
branded digital offering in Poland
• Invested in agent mobile
technology including roll-out
of new collections functionality
41.3%
impairment % revenue
37.6%
cost-income ratio
£10.5m
profit before tax
1m
customers
1%
Year-on-year
credit issued
-6%
Year-on-year revenue
12.4%
impairment % revenue
42.7%
cost-income ratio
£115.1m
profit before tax
Read more in our operational review pages 24-29
• Continue to provide great
customer experience
through innovation
• Build scale and
leverage data
• Improve new market
credit performance then
reignite growth
• Manage transition to new
rate cap regime in Latvia
and Finland
• Continue to test
mobile wallet
• Continue to provide
a great customer
experience
• Optimise existing
expansion footprint
• Manage longer-
established branches
for returns
• Develop micro-business
loans channel
• Improve portfolio quality
before returning to
growth mode
• Continue to provide
a great customer
experience
• Deliver strong returns
• Protect the business model
• Leverage the Provident
brand for digital
• Stabilise customer
numbers
• Continue agent mobile
technology investment
Annual Report and Financial Statements 2019
17
Strategic ReportDirectors’ ReportFinancial Statements Chief Executive Officer’s review
Building a responsible, sustainable
and innovative business
“We delivered a good financial
performance in 2019 driven by
European home credit and our
established digital businesses.
IPF Digital achieved its maiden
profit, and we are addressing the
challenges in Mexico home credit
and our new digital businesses
to improve performance.”
Gerard Ryan
Chief Executive Officer
Q. How do you contribute to
your customers’ lives?
This is a very interesting question and
one I am being asked more and more,
mainly by politicians, regulators and
the financial media. People are
increasingly interested in the role
a business plays in society, not just
how it performs financially. We play
a pivotal role in the consumer finance
sector, making credit accessible
to consumers who are underbanked
or underserved, giving them an
opportunity to manage their financial
needs effectively while building
a credit profile that will help them
to obtain a broader range of financial
services in the future. Ultimately, we do
this by building relationships with our
customers, either through our home
credit agent model with its culture
of forbearance when customers find
repayments difficult, or through our IPF
Digital model where the absolute focus
is on customer service and innovation.
Q. How would you
summarise performance
in 2019?
The Group delivered a good financial
performance, but we got there in
a way that I did not anticipate at the
start of the year. Our European home
credit business exceeded our
expectations and delivered an
excellent operational and financial
performance. As planned, IPF Digital
delivered its maiden profit but
performance in our Mexico home
credit business was challenging
and I would like to have seen more
consistent credit quality in our new
digital markets.
seen some improvements in our
performance indicators as a result
of these changes. This market
continues to present fantastic
opportunities and we are looking
to recommence growth in 2020.
Q. What were 2019’s
highlights and challenges?
On the trading front, the clear highlight
has got to be the performance of
European home credit, a business that
has been in existence for more than
twenty years, has seen many
significant regulatory challenges,
the entry of hundreds of new digital
competitors and yet delivers for its
customers and our shareholders every
year. We delivered growth in credit
issued, credit quality remains excellent
and we slowed the rate of customer
contraction year on year. At the
same time we continued to drive
technological change to improve our
customer experience and make the
business more efficient.
The biggest challenge we faced was
in our Mexico home credit business
where credit quality deteriorated
as a result of poorer collections.
To address this issue, we strengthened
our leadership team, focused on
collections rather than sales, tightened
credit scoring and reorganised part
of our field sales structure. We also
reviewed and refined Mexico’s
strategic framework. I am pleased to
say recovery is underway and we have
In IPF Digital, we had stand-out
performances from our established
markets in the Fenno-Baltic region and
began to test our first mobile wallet
offering in Finland. We experienced
some challenges in our new digital
markets, in particular Poland and
Spain, where we slowed our rate
of credit issued in order to improve
credit quality. And certainly, one of our
biggest highlights has to be IPF Digital
meeting its commitment to deliver
a maiden profit.
My answer would be incomplete
if I did not mention the very positive
settlement of the tax audit issue
for years 2010 to 2017. This resolved
a significant tax risk, which has
cast a cloud over our business for
a considerable period. Further
information on performance in 2019
is included in the operational review
on pages 24 to 29.
Q. How do you manage
regulatory challenges?
We are fully supportive of regulation
that protects consumers and ensures
that only reputable businesses are
permitted to provide them with
financial products and services.
18
International Personal Finance plc
What are your strategic
priorities for 2020 and how
will you drive growth?
Without doubt, our first priority is to get our Mexico home credit
business back in growth mode. Mexico is a huge opportunity
for us because there is such an overwhelming need for
small-sum credit provided in a responsible and transparent
way. To restart growth, we need to improve our portfolio quality
through better collections as well as product profiles that fit
more comfortably with our customers’ repayment needs.
In addition, we are focusing on improved operational efficiency
and I am confident that the strengthened leadership team
in Mexico will deliver this.
In IPF Digital our priority is to improve our scorecard
effectiveness in Poland and Spain in particular so that we can
accelerate their growth. As we achieve this, our new markets,
which are Poland, Spain, Australia and Mexico, will move
towards profitability and offset the reduced returns in the
established markets resulting from changed regulation in 2019.
As for products that deliver an enhanced customer experience,
we plan to roll out our new mobile wallet into more markets
to support our growth plans.
One of our strategic themes that will continue into 2020 is our
investment in technology to drive efficiency and innovation.
This is particularly the case in our European home credit
business where we are improving the customer experience
through our agent mobile technology which, in turn, is driving
down our cost base.
We have a very clear regulatory
stakeholder engagement strategy
and our local leadership teams and
I maintain an active dialogue with
regulators in each of our markets.
Our aim is to help them understand
how our business model works and the
essential role we play in society. When
regulators are preparing changes to
the rules that govern how our markets
work, we actively contribute data
and insights based on our unique
knowledge of the consumers we serve.
Q. Are you concerned
about increased
regulatory risk?
Changes in regulation risk are
a constant, particularly in Europe,
and we are not complacent about
the potential risk. I believe we operate
in a very transparent manner and
provide a valuable service to
a specific consumer segment that
deserves to have access to affordable
credit. Wherever we get an opportunity
to explain this to regulators we get
a fair hearing. My concern increases
where political agendas drive
regulatory change and for that
reason, we have redoubled our efforts
to explain our purpose to politicians in
the communities we serve.
Q. Is there an update on the
proposed Polish rate cap?
The draft proposals were revised and
adopted by the Polish Government
during 2019. However, they were not
passed before the general election in
Poland in November and as such the
proposals are no longer on the current
legislative agenda. It is possible that
the proposals could be reintroduced
and so we continue to engage with all
key stakeholders to demonstrate that
there is a clear value of the services
we offer to consumers in Poland.
Q. What other regulations
should we be aware of?
The Polish competition and consumer
protection authority is conducting
a review of rebating practices by
banks and other consumer credit
providers, and this includes our Polish
home credit and digital lending
businesses. It is likely that new rebating
practices will evolve in Poland and
when we have clarity on the new
emerging standards, we will adapt
Annual Report and Financial Statements 2019
19
Strategic ReportDirectors’ ReportFinancial Statements Chief executive officer’s review continued
Customer
We talk with
one of our home
credit customers,
Blanca, about
her experience of
taking a loan with
us which helped
fund her daughter’s
education.
Tell me about
yourself
I am Blanca and I live in
Agua Azul, Mexico. I have
three children and as an
independent woman I am
happy that I raised them on
my own. I have always
worked hard – helping my
parents’ family business
and, after studying, I became
a technical secretary, then a maid
for a large medical warehouse,
but sometimes you don’t have the
money you need.
Why did you turn to Provident?
My daughter stayed at home when I worked,
then we saw a technical school in the town centre. It was
a lot of money for her to attend but I remembered I’d
heard about Provident personal loans. I didn’t think they
would give me a loan because they didn’t know me,
but I had the courage to apply and Provident said yes.
How did you use your loan?
I used the loan to fund my daughter’s education. I was
so pleased to go to the school with her and be able to
pay. It’s an amazing feeling that someone trusted me,
that someone held my hand.
How important has the loan been to you?
I’m forever thankful for the loan. If you ever need a loan,
it’s going to help you get ahead.
our Polish businesses to conform
their rebating practices accordingly.
Further details on this matter and other
regulatory developments are included
in the operational review on page 25.
Q. Do you believe you are
building a sustainable
business at IPF?
Absolutely, and it is something that
we are committed to fully. We are
approaching it from a number
of different angles, but primarily
through investing resources to better
understand our customer needs,
improving their experience with us,
expanding the products available
and the number of channels through
which they can be accessed. I want
us to get to a point where our brands
are mentioned automatically when
our customers talk about fairness,
transparency and positive
customer experiences.
Q. Can you give some
insight into the IPF culture
and what it means to you?
The development and evolution of our
culture is vital to the delivery of our
strategy and the sustainability of the
business. I have always believed that
for a business to thrive, it must have
a core set of values that is known by
everyone in the business and is the
foundation on which everything is
built. Given the particular customer
segment we serve, it is even more
important that we showcase these
values to everyone we come into
contact with. My colleagues
believe in providing credit responsibly,
treating our customers with respect
in every interaction we have and
always being straightforward in our
dealings with them. We spend a lot
of time and resource internally to
ensure that this is always the case and
feedback from customers reflects this.
We also provide training for all of our
colleagues and agents on the ethics
of building a sustainable business.
20
International Personal Finance plc
Throughout the year, I visited most
of our businesses and I was delighted
to see the amount of personal time
and energy our colleagues invest in
doing good in the communities we
serve. I can see that these personal
initiatives are the most effective way
to build a sustainable business by
always having people whose hearts
are in the right place.
Q. What is the outlook for
IPF?
We are confident that our strategy
will continue to support growth by
successfully addressing the demands
of our core stakeholders. We will
continue to invest in modernising
our European home credit businesses,
enhancing our offering to attract and
retain customers and improving
efficiency. In Mexico home credit
we are focused on driving greater
execution consistency and improving
operational performance before
recommencing growth and delivering
progressive improvements in profit.
In IPF Digital we will continue our
journey of building a profitable fintech
business by focusing on continued
portfolio growth balanced with
improved credit quality, while creating
innovative products and services
to deliver an enhanced customer
experience and so support our
growth plans.
I would like to close my 2019 review by
thanking all my colleagues who have
contributed to this year’s performance,
always displaying great commitment
to our customers and upholding
our values of being responsible,
respectful and straightforward.
It is this approach and our passion
to serve our customers well that we
believe will deliver further sustainable
growth and continued returns into
the future.
I would also like to say thank you to our
Chairman, Dan, for his invaluable
contribution to IPF and for the support
he has given me during his time
leading the Group.
Gerard Ryan
Chief Executive Officer
We spoke to
Maria Jose Garcia,
European Head of
Customer Service
Centres, who
has brought
her customer
experience
and marketing
expertise to Europe
following a career
at Provident
in Mexico.
People
What has been your
career path so far?
I joined Provident in Mexico after
working in the consumer
finance sector in Spain for
a number of leading retail,
online and banking
businesses. I moved to
European home credit in
March 2019 and am now
responsible for our call
centre operations in Poland,
the Czech Republic, Hungary
and Romania.
How does your role
help customers?
I originally began my career
in home credit because the business
genuinely makes a great difference to our customers’
lives – that was the case in Mexico and I see that here
in Europe too. Every day, my teams are speaking to
thousands of customers who are looking to borrow
money and we take great care in how we lend
to these people.
And how does your talent help
the business?
It is a privilege to manage call centres in four countries.
It is a chance to share different approaches from other
countries and this collaboration means we are moving
forward more quickly. I come from a proactive ‘can-do’
culture and we encourage new ideas to improve our
service so our people can help our customers. I know
that our customers are getting a great experience.
Annual Report and Financial Statements 2019
21
Key performance indicators
Progress against
strategy
Each of our KPIs is linked to our multi-channel strategy
and monitored closely to measure how we are progressing.
Customer numbers
(’000)
Customer retention
(%)
Employee and agent
retention (%)
Average net
receivables (£m)
2,109
3
6
6
,
2
1
2
5
,
2
64.6%
54.3%
Home credit
IPF Digital
67.8%
73.2%
Agent
Employee
£986.6m
0
9
2
,
2
1
0
3
,
2
9
0
1
,
2
8
.
0
7
6
.
0
7
0
.
9
5
7
.
9
5
1
.
7
5
5
.
4
6
8
.
1
6
6
.
4
6
3
.
4
5
5
.
4
7
7
.
3
7
2
.
5
7
6
.
5
6
0
.
5
6
7
.
1
6
2
.
6
7
8
.
7
6
2
.
3
7
8
.
7
6
9
.
3
9
9
6
.
6
8
9
4
.
3
2
9
1
.
4
6
8
0
.
6
4
7
2015
2016
2017
2018
2019
2015
2016
2017
2018
2019
2015
2016
2017
2018
2019
2015
2016
2017
2018
2019
Performance
Defined as the total number
of customers across the
Group. In 2019, customer
numbers reduced year on
year by 8% with growth
delivered by IPF Digital more
than offset by reductions
in European and Mexico
home credit.
Why we measure it
Customer numbers
demonstrate our scale in our
markets. While growth of our
customer base is 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,
a return to growth in Mexico
home credit and to stabilise
customer numbers in
European home credit.
Performance
This is defined as the number
of customers who have three
or more loans with our
business. In our home credit
business, customer retention
improved slightly. In IPF Digital,
customer retention reflects the
larger 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 notably by
continuing to evolve our
product offering so that
it remains relevant to the
changing needs
of our customers.
Performance
Defined as the proportion
of employees and agents
who have worked with
us for more than 12 months.
Agent retention was stable
in 2019. We continue to focus
on retention and, despite
a challenging global
employment landscape
we retained critical skills and
people. The change in
employee retention was driven
by territory management
changes in Mexico to optimise
performance and returns.
Why we measure it
Higher and stable retention
of our people correlates with
providing high levels of
customer service and a strong
financial performance.
Looking ahead
We aim to improve employee
and agent retention through
the deployment of people
experience programmes,
and acting upon the
feedback from our Global
People Survey.
Read more about alternative performance measures on pages 156 – 160
Performance
This is defined as the average
amounts receivable from
customers translated at
constant exchange rates.
Average net receivables
increased by 8% in 2019 with
growth driven primarily by
IPF Digital.
Why we measure it
This measure allows
stakeholders to compare
changes in amounts
receivable from customers
on a consistent basis, which is
important because it is a key
driver of revenue growth.
Looking ahead
We expect average net
receivables will continue
to increase as we grow
the business.
22
International Personal Finance plc
Revenue (£m)
£889.1m
Impairment as a
percentage of revenue
(%)
27.4%
Cost-income ratio (%)
Return on assets (ROA)
(%)
43.5%
11.3%
1
.
9
8
8
4
.
6
6
8
8
.
5
2
8
5
.
5
2
4
.
4
2
4
.
4
2
4
.
7
2
2
.
6
2
8
.
0
4
3
.
5
4
8
.
5
4
9
.
4
4
6
.
5
1
5
.
3
4
8
.
6
5
7
5
.
1
3
7
3
.
2
1
5
.
1
1
5
.
2
1
3
.
1
1
2015
2016
2017
2018
2019
2015
2016
2017
2018
2019
2015
2016
2017
2018
2019
2015
2016
2017
2018
2019
Performance
Revenue is defined as income
generated from customer
receivables. In 2019, revenue
increased by 3% (at CER)
driven by growth in IPF Digital
and Mexico home credit,
offset partially by European
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 revenue will
continue to increase
as we grow the business.
Performance
The amount charged as
a cost to the income
statement as a result
of customers defaulting on
contractual loan payments.
At Group level, credit quality
remains good and is in the
middle of our target range
of 25% to 30%. We are focused
on improving credit quality in
Mexico home credit and IPF
Digital’s new markets.
Why we measure it
Profitability is maximised
by optimising the balance
between growth and
credit quality.
Looking ahead
We expect Group impairment
as a percentage of revenue to
remain within our target range
of 25% to 30%.
Performance
The cost-income ratio
is defined as the direct
expenses of running the
business (excluding agents’
commission) as a percentage
of revenue. The cost-income
ratio improved reflecting
significantly improved
operating leverage in IPF
Digital and an improvement
in Mexico home credit,
partially offset by
European home credit.
Why we measure it
To ensure that we focus
on running our business
in the most efficient
manner because the
cost-income ratio is a key
driver of profitability.
Looking ahead
We aim to deliver improved
cost-efficiency throughout the
Group’s businesses.
Performance
ROA is defined as profit before
interest after tax, and divided
by average net receivables.
Group ROA reduced as
a result of a 6 ppt increase
in the tax rate.
Why we measure it
ROA is a good measure
of the financial performance
of our businesses, showing the
ongoing return on the total
equity and debt capital
invested in the average net
receivables of our operating
segments and the Group.
Looking ahead
We aim to generate
progressive improvements
in ROA as our growth
businesses mature and
deliver improving returns.
Read more on reconciliation and glossary of the alternative performance measures that we use on pages 156 – 160
Annual Report and Financial Statements 2019
23
Strategic ReportDirectors’ ReportFinancial Statements Operational review
Group performance
overview
We delivered a good financial performance in 2019
increasing profit before tax to £114.0 million, driven by strong
operational execution in European home credit and our
established digital businesses.
Group performance
overview
We delivered a good financial
performance in 2019 reporting
a £4.7 million increase in profit before
tax to £114.0 million. This reflects an
increase in like-for-like profit before
tax of £6.9 million, driven by a strong
performance by European home
credit and a maiden profit in IPF
Digital, offset partially by lower
profit in Mexico home credit.
Weaker FX rates impacted
the overall result by £2.2 million.
The table below details the
performance of each of our business
segments, highlighting the like-for-like
improvement in profit before tax that
has been delivered.
Customer numbers reduced year on
year by 8% with the growth delivered
by IPF Digital more than offset by
reductions in European and Mexico
home credit. Credit issued was in line
with 2018 reflecting growth in IPF Digital
and European home credit, offset by
a contraction in Mexico home credit.
Average net receivables increased
by 8%, and revenue grew by the slower
rate of 3% driven by our focus on lower
yielding, higher quality customers
in European home credit.
At Group level, credit quality remains
good and annualised impairment as
a percentage of revenue at 27.4% is in
the middle of our target range of 25%
to 30%. The cost-income ratio
improved year on year by 1.4ppts to
43.5%, reflecting significantly improved
operating leverage in IPF Digital and
an improvement in Mexico home
credit, partially offset by European
home credit where the impact of lower
revenue yields offset a reduction in the
cost base.
Market overview
The market for consumer credit is
growing steadily driven by increasing
numbers of customers borrowing
from and transacting with financial
services providers online. Customer
expectations have also risen in
terms of their customer journey,
demanding faster, more convenient
and personal offerings.
Macroeconomic conditions in all
our European markets are expected
to deliver positive GDP growth,
low unemployment and moderately
increasing inflation in 2020. While
GDP growth in Mexico is estimated
to have contracted during 2019,
it is forecast to return to modest growth
in 2020.
Increasing regulation in our sector
has resulted in more stable levels
of competition in Europe as some
European home credit
Mexico home credit
IPF Digital
Central costs
Profit before taxation
lenders have found it more difficult to
operate in tougher regulatory
environments. While market dynamics
and customer preferences are
changing, we continue to see home
credit co-existing with digital credit
offerings as the combination of the
two can serve the vast majority
of the customers in our segment. 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 can lend with more confidence
to creditworthy customers where a
remote lending business cannot.
Strategy update
We provide small-sum, unsecured
personal loans to customers who are
either underbanked or underserved
by mainstream operators.
Our strategy is to build a long-term
sustainable future by providing
consumers in our segment with
a wider choice of channels,
products and price points.
Our European home credit businesses
are the financial foundation of the
Group and our strategy centres on
providing a great customer experience
and generating strong returns. We use
these returns to invest in modernising
2018
profit
£m
113.8
15.7
(5.6)
(14.6)
109.3
Like-for-like
profit
movement
£m
Stronger/
weaker FX
rates
£m
4.5
(6.2)
8.8
(0.2)
6.9
(3.2)
1.0
–
–
(2.2)
2019
profit
£m
115.1
10.5
3.2
(14.8)
114.0
24
International Personal Finance plc
the European home credit businesses,
growing Mexico home credit and IPF
Digital, and delivering returns to our
shareholders. We continue to improve
our service and effectiveness by
investing in technology and our
people in both the home credit
and digital businesses.
Our European home credit
business is making excellent
progress in providing a more
modern and affordable service
to its customers, and during the year
we developed further functionality for
our agent mobile technology, and
launched a number of new products
and channel offerings. We also
increased the number of customers
choosing to take our Provident-branded
digital offering in Poland. The business
delivered a very strong operational
and financial performance in 2019,
reporting like-for-like profit growth of
£4.5 million. Credit quality is excellent
and, as planned, we successfully
slowed the rate of customer
contraction year on year.
In Mexico, reflecting the
challenging first-half performance,
we strengthened our leadership team
including the appointment of a new
country manager and refined our
strategy to improve performance,
implementing a range of operational
actions which prioritised credit quality
over growth. There have been some
encouraging signs in key performance
indicators for the newer cohorts
of loans issued and we will continue
to focus on delivering consistency
of execution that will act as a platform
to improve portfolio quality before
recommencing growth in 2020.
Our strategy to grow our IPF Digital
offering reflects increasing demand
from consumers who are looking for
end-to-end digital services. Since the
acquisition of our digital business, we
have focused on building scale and
increased customer numbers more
than three-fold to 305,000. Importantly,
the business also delivered on its
promise to of a maiden profit before
tax in 2019, clearly demonstrating our
ability to build a fintech business that
can serve customers profitably. Earlier
in the year we began testing our
innovative digital mobile wallet
product in Finland. This is a virtual
wallet on a mobile device which gives
customers a transparent, easy and
flexible way to pay for everyday
purchases either on-line or in store.
Using our test and learn approach,
we expect to roll out our mobile wallet
into more countries during 2020,
enhancing the customer experience
and driving growth.
Regulatory update
In December 2016 the Polish Ministry
of Justice published a draft bill which,
amongst other things, proposed
a significant reduction in the cap
on non-interest costs chargeable in
consumer lending. The proposals were
revised by the Ministry in early 2019,
subsequently adopted as Government
proposals in mid-2019, and then
further revised by the Government.
Having failed to proceed through the
legislative process prior to the Polish
general election in November 2019,
the proposals are no longer on the
current legislative agenda.
The reintroduction of the proposals
onto the legislative agenda, in the
most recent or a further revised form,
is a possibility and we continue to
monitor the situation closely.
UOKiK, the Polish competition and
consumer protection authority,
is conducting a comprehensive review
of rebating practices by banks and
other consumer credit providers on
early loan settlement, including those
of the Group’s Polish businesses.
In light of this and a recent European
Court of Justice declaratory judgment
on the matter, we expect new market
standard rebating practices to evolve
in Poland. When we have clarity on the
new emerging standards, our Polish
businesses will conform their rebating
practices accordingly. There is a wide
range of possible outcomes from this
review. Our current expectation is that
the annual financial impact is likely
to be in the range of £5 million to
£15 million and we are working on
a number of mitigating strategies.
In Romania legislation that was
enacted in 2019 applying a price
cap on the cost of consumer
lending was successfully
challenged by political opponents
of the Government as being
unconstitutional, with the result that
the new cap did not take effect.
Revised proposals have been tabled
in the Romanian Parliament, which
include a cap on the total amount
payable, being twice the amount
borrowed for loans below 3,000 EUR,
while defining an APR cap of 15% plus
base rate for the rest of consumer
credit. This proposal is going through
Parliamentary discussions and may
progress to enactment in 2020 or later.
The vast majority of the Group’s
Romanian business’s current portfolio
would be subject to the 100% total cost
of credit limit and not the 15% APR cap,
if enacted in the proposed form.
Outlook
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. Our passion
to serve our customers with products
that meet their needs and provide
a positive customer experience will
deliver further sustainable growth and
attractive future returns.
We will continue to invest in
modernising our European
home credit businesses,
enhancing our offering to attract
and retain customers and improving
efficiency. In Mexico home credit we
are focused on driving greater
execution consistency and improving
operational performance before
recommencing growth and delivering
progressive improvements in profit in
2020. In IPF Digital we will continue our
journey of building a profitable fintech
business by focusing on continued
portfolio growth balanced with
improved credit quality, while creating
innovative products and services
to deliver an enhanced customer
experience and so support our
growth plans.
“We will continue
to evolve the products
and channels we offer
to meet the requirements
of our customers,
enabling us to deliver
enhanced shareholder
value and contribute
to the communities
in which we operate.”
Annual Report and Financial Statements 2019
25
Strategic ReportDirectors’ ReportFinancial Statements Operational review continued
European home credit
We continued to deliver well against
our strategy of providing a great
customer experience and generating
strong returns to invest in building
a more customer-focused business
that offers products that are relevant
and affordable. As part of this strategy,
the business now has fewer customers
than in the past, but our products are
more competitive, our customer
journey more user friendly and our
business more technologically
enabled and efficient.
Excellent operational execution by our
European teams delivered a very
strong financial performance in 2019
and resulted in a £1.3 million increase
in profit before tax to £115.1 million.
This reflects an improvement in
like-for-like profit of £4.5 million driven
by excellent collections, offset partially
by a £3.2 million adverse effect from
weaker FX rates.
One of our key performance objectives
for 2019 was to reduce the rate of
customer contraction in our European
home credit businesses, and it is
pleasing to report that campaigns
implemented to improve customer
acquisition and retention were
successful, with the rate of decline
in customer numbers improving by
4 percentage points year on year to
8%. We also delivered 1% growth in
credit issued reflecting our focus on
extending loan values and term while
managing credit quality, and this
contributed to an increase in average
net receivables of 3%. Revenue,
however, reduced by 6% as a result
of price promotions to support both
customer acquisition and retention
together with the impact of longer
product terms with lower revenue
yields. We believe this price-to-volume
trade-off is sensible for our customers
and our business.
Credit quality of the loan portfolio
is excellent as a result of good agent
collections alongside stable post-field
collections, and year on year this
delivered a 5.5ppt improvement
in impairment as a percentage
of revenue to 12.4%.
To further modernise the business
model and improve the customer
experience we enhanced our
agent mobile technology with
the completion of the roll out
of a collections app to all agents in
Europe. This is being followed by new
sales functionality which will deliver
further administrative efficiencies and
cost savings. We also invested in new
products and channel offerings
to meet the changing demands of our
customers, and our Provident-branded
digital product in Poland continues
to grow and we now serve 32,000
customers alongside our home credit
offering. Costs continue to be very
well controlled and we delivered
a £5.7 million (at CER) reduction in
costs during 2019. The cost-income
ratio increased by 1.8ppts to 42.7%
as a result of the lower revenue yields.
During 2020 we will be focused on
significantly enhancing our customer
journey. We will also enrich our agent
mobile technology by completing the
roll out of the new sales application
during 2020 and plan to further grow
the Provident-branded digital loan
offering in Poland. We unified the
leadership of our European home
credit businesses in 2019 and this
is already helping to improve
collaboration, and drive efficiencies
and the sharing of best practice.
2018
£m
1,092
757.8
558.9
493.3
(88.5)
404.8
(35.3)
(53.7)
(202.0)
113.8
2019
£m
1,009
751.3
562.0
452.2
(56.0)
396.2
(37.1)
(51.1)
(192.9)
115.1
Change
£m
Change
%
Change at
CER %
(83)
(6.5)
3.1
(41.1)
32.5
(8.6)
(1.8)
2.6
9.1
1.3
(7.6)
(0.9)
0.6
(8.3)
36.7
(2.1)
(5.1)
4.8
4.5
1.1
1.4
2.7
(6.3)
35.0
(0.1)
(6.9)
2.7
2.9
Very strong
operational
and financial
performance
Customer numbers (000s)
Credit issued
Average net receivables
Revenue
Impairment
Net revenue
Finance costs
Agents’ commission
Other costs
Profit before taxation
26
International Personal Finance plc
Mexico home credit
The focus on quality across the
business resulted in a 13% reduction
in customer numbers year on year to
795,000 and credit issued contracted
by 12%. Notwithstanding this, average
net receivables increased slightly due
to credit issued growth in 2018 and
this drove 5% growth in revenue year
on year.
We managed costs tightly in 2019
in response to the challenging
collections performance and restricted
the increase in the overall market cost
base to 2.2%, despite incremental
investment in geographic expansion
and other business development
activities. The cost-income ratio
improved by 1.1ppt to 37.6% due to the
benefit of operational leverage.
Looking ahead, our priority is to deliver
a more consistent performance
and embed operational rigour and
collections strategies to improve
credit quality. We expect to see
a continuation of positive early credit
quality indicator trends and to deliver
sufficient improvement in portfolio
quality in the first half of 2020 that will
give us confidence to rebalance our
focus onto growth.
Challenging
performance;
recovery
underway
We are seeing signs of recovery in our
Mexico home credit business following
a challenging first half during which
time a softer macroeconomic
backdrop and deterioration in credit
quality and collections adversely
impacted performance. We took
decisive action on the operational
challenges we faced with the key
focus being to prioritise credit quality
over growth and create an operational
environment that ensures we take
full advantage of the significant,
long-term potential of this market.
To accelerate the changes needed,
we appointed a highly-experienced
country manager, and operationally,
we introduced significantly more
cautious credit settings to improve
the quality of the receivables
portfolio and reduce impairment
to a more acceptable level.
We also implemented a series of
actions to improve agent collections
performance, including revised
territory management, rebalanced
incentivisation and tighter
operational controls.
During the second half of the year,
we continued to execute our
operational improvement plans and
further strengthened the Mexico
management team with the
appointment of a number of senior
leaders. We have also developed
a refined growth strategy that
segments the business between units
generating acceptable returns and
those where we are continuing to
invest or focus on a step change in
operating performance. There is still
more to do before we decide to
rebuild growth momentum, but we
have stabilised impairment as a
percentage of revenue at 41.3%, which
is broadly in line with the half year.
There have been some encouraging
signs in other key performance
indicators with recently issued loans
performing significantly better and
improving collections performance.
We also expect to see the result of our
actions feeding through into improved
levels of impairment during 2020.
These operational changes
to improve quality and consistency
of performance across the business
impacted performance and we
delivered profit before tax of £10.5
million which comprises a £6.2 million
reduction in like-for-like profit and a
£1.0 million benefit from FX movements.
Customer numbers (000s)
Credit issued
Average net receivables
Revenue
Impairment
Net revenue
Finance costs
Agents’ commission
Other costs
Profit before taxation
Annual Report and Financial Statements 2019
2018
£m
917
291.0
154.9
226.1
(82.9)
143.2
(11.3)
(28.8)
(87.4)
15.7
2019
£m
795
268.2
164.4
247.6
(102.3)
145.3
(11.8)
(29.9)
(93.1)
10.5
Change
£m
Change
%
Change at
CER %
(122)
(22.8)
9.5
21.5
(19.4)
2.1
(0.5)
(1.1)
(5.7)
(5.2)
(13.3)
(7.8)
6.1
9.5
(23.4)
1.5
(4.4)
(3.8)
(6.5)
(33.1)
(11.7)
1.6
4.9
(18.4)
(2.9)
–
0.7
(2.2)
27
Strategic ReportDirectors’ ReportFinancial Statements Operational review continued
IPF Digital
Successfully
delivered
maiden profit;
significant
medium-term
growth
opportunity
We are very pleased to report that IPF
Digital delivered its maiden profit
of £3.2 million in 2019, which represents
a year-on-year increase in profit
of £8.8 million.
Against strong year-on-year
comparators, our digital offering
and targeted marketing delivered an
8% increase in credit issued driven
primarily by our new markets. We also
grew customer numbers by 4% to
305,000, with more than half of these
now being served in our new markets.
This top-line growth resulted in a 26%
Customer numbers (000s)
Credit issued
Average net receivables
Revenue
Impairment
Net revenue
Finance costs
Other costs
(Loss) / profit before taxation
The profitability of IPF Digital is segmented as follows:
Established markets
New markets
Head office costs
IPF Digital
28
increase in average net receivables
and growth in revenue of 30%.
increased by 6% which, in turn,
drove a similar increase in revenue.
Annualised impairment as
a percentage of revenue increased
by 7.2ppts year on year to 45.0%.
This was driven by a shift in the mix of
the portfolio away from the established
markets, which operate with lower and
more stable loss rates, together with
higher than planned impairment in the
new markets. Our strategy to increase
scale and invest in technology
alongside robust cost control enabled
us to better leverage our infrastructure
and improve our cost efficiency,
delivering a very strong 12.2ppt
year-on-year reduction in the
cost-income ratio to 45.7%.
Established markets
Our established markets delivered
a strong operational performance
in 2019 and increased profit before tax
by £7.2 million to £32.7 million driven
by the benefits of increased scale,
very good credit quality and improving
cost efficiency. This was ahead of our
original expectations.
As expected, credit issued growth
moderated to 3% in these more mature
markets, where volumes were
adversely impacted by regulatory
changes in Finland in the second half
of the year. Average net receivables
Credit quality in the established
markets continues to be very good.
Impairment as a percentage
of revenue improved by 1.1ppts year
on year to 19.7% reflecting the strength
of our credit strategies and scorecards
in these well-regulated markets. Strong
cost management and the benefits
of increasing scale and efficiency
delivered a 5.8ppt improvement
in the cost-income ratio to 32.3%.
During the year, revised regulations
were introduced in Finland and Latvia
and we adapted our product offering
to comply with the new pricing and
debt-to-income requirements. Whilst
the new rate cap in Latvia is set at
a similar level to Estonia and Lithuania
where we generate good returns,
the new cap in Finland is very low for
the risk profile of our lending. We are
executing a plan to respond to this
challenge and will continue to monitor
the development of the business
model in Finland and the returns that
it generates and apply discipline
to the capital that we deploy to it.
As previously reported, we expect that
the contribution of our established
markets to divisional profitability will
reduce in 2020.
2018
£m
292
311.8
209.6
147.0
(55.6)
91.4
(11.9)
(85.1)
(5.6)
2019
£m
305
333.5
260.2
189.3
(85.2)
104.1
(14.4)
(86.5)
3.2
2018
£m
25.5
(17.8)
(13.3)
(5.6)
Change £m
Change %
Change at
CER %
13
21.7
50.6
42.3
(29.6)
12.7
(2.5)
(1.4)
8.8
2019
£m
32.7
(15.5)
(14.0)
3.2
4.5
7.0
24.1
28.8
(53.2)
13.9
(21.0)
(1.6)
157.1
8.1
25.6
30.2
(54.9)
15.2
(22.0)
(2.7)
Change
£m
Change
%
7.2
2.3
(0.7)
8.8
28.2
12.9
(5.3)
157.1
International Personal Finance plc
New markets
Start-up losses in the new markets
reduced by £2.3 million to £15.5 million,
driven by portfolio and revenue growth
and improved cost leverage, partially
offset by an increase in impairment.
As reported with our half-year results,
impairment as a percentage
of revenue was higher than planned
specifically as a result of higher-than-
expected credit losses in Poland and
Spain. In response, we focused our
efforts on improving credit quality in
these markets by tightening our
lending policies. This resulted in a
13% increase in credit issued year on
year although credit issued contracted
in the second half against strong
comparators. Average net receivables
increased by 58% which delivered
a similar rate of growth in revenue.
We now serve 155,000 customers in
our new markets, a 15% increase year
on year.
Impairment as a percentage
of revenue was 64.8% at the year-end,
which represents a 6.9ppt increase
year on year. We expect the impact
of tighter credit settings will drive an
improvement in impairment during
2020 after which we will progressively
ease credit settings in order to take
further advantage of the significant
digital growth opportunities our new
markets present.
The economies of rapidly increasing
scale in the new markets resulted in
a significant 18.5ppt improvement in
the cost-income ratio to 43.0% year
on year and we expect this trend to
continue as the businesses grow.
Outlook
IPF Digital represents a significant
long-term growth opportunity for
the Group and reaching profitability
demonstrates our ability to build
a successful digital lending business
in the fintech sector. Our short-term
focus will be on improving the credit
performance in our new markets
before accelerating growth and
managing the impact of the new
legislation in Finland and Latvia.
We expect profit growth in 2020
to be relatively modest with a lower
contribution from the established
markets and an improved result
in the new markets. Providing a great
customer experience through
innovative products, including our
mobile wallet offering, will ensure that
we can build on the very solid
foundations of this exciting business.
Established markets
Customer numbers (000s)
Credit issued
Average net receivables
Revenue
Impairment
Net revenue
Finance costs
Other costs
Profit before taxation
New markets
Customer numbers (000s)
Credit issued
Average net receivables
Revenue
Impairment
Net revenue
Finance costs
Other costs
Loss before taxation
Annual Report and Financial Statements 2019
2018
£m
157
161.3
130.9
79.5
(16.5)
63.0
(7.2)
(30.3)
25.5
2018
£m
135
150.5
78.7
67.5
(39.1)
28.4
(4.7)
(41.5)
(17.8)
2019
£m
150
165.5
137.7
83.1
(16.4)
66.7
(7.2)
(26.8)
32.7
2019
£m
155
168.0
122.5
106.2
(68.8)
37.4
(7.2)
(45.7)
(15.5)
Change
£m
(7)
4.2
6.8
3.6
0.1
3.7
–
3.5
7.2
Change
%
(4.5)
2.6
5.2
4.5
0.6
5.9
–
11.6
28.2
Change
at CER
%
3.4
6.2
5.5
1.2
7.2
–
10.7
Change
£m
Change
%
Change
at CER
%
20
17.5
43.8
38.7
(29.7)
9.0
(2.5)
(4.2)
2.3
14.8
11.6
55.7
57.3
(76.0)
31.7
(53.2)
(10.1)
12.9
13.2
58.3
59.5
(79.2)
32.6
(56.5)
(11.2)
29
Strategic ReportDirectors’ ReportFinancial Statements Our stakeholders
Engaging with our
stakeholders
It is vital that we engage with our key stakeholders to maintain relationships that help us generate
and maintain long-term value.
Our stakeholders
Why we engage
Key areas of interest
How we engage and respond
Impact of engagement
Customers
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. This helps us retain quality
customers and attract new ones.
• Affordability and price
• Flexible repayments
• Convenience
• Excellent customer experience
• Trusted and responsible lender
• Customer visits
interfaces
• Personal agent relationship or digital customer
• Customer satisfaction surveys
• Online and social media
• Collaboration on product innovation
63.2%
Group customer retention
We lend responsibly so customers can afford
to buy the things they need.
Employees and
agents
The evolution of our culture, which is
grounded in our values, is vital for our
sustainability. In addition to supporting
knowledge and career development,
we engage with our people in order to serve
our customers well and deliver our strategy.
• Employee and agent engagement
• Development opportunities
• Recognition and fair reward
• Open, straightforward
communications
• Ethical, customer-focused culture
• Responsible lending and
a good reputation
• Safe and productive working
environment
Regulators and
legislators
We engage with regulators and legislators
to build an understanding of the important
role we play in society by 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.
• Regulatory compliance
• Control and supervision
• Fair pricing and promotions
• Responsible lending and
affordability
• Business ethics training
• Tax contributions
• Fair employment contracts
Communities
Building better relationships with our
communities is important for us to attract
customers, employees and agents. Helping
consumers build their confidence in making
financial decisions supports responsible
borrowing and lending. Engaging through
our community programmes is also key
to maintain our social licence to operate.
• Financial literacy
• Social wellbeing
• Employee and agent engagement
• Building trust for our business
• Community support programmes
• A good reputation
Shareholders
and investors
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 understand our
business so that they may make an
informed investment decision.
• Strategy, performance and outlook
• Risk management and corporate
governance
• Leadership capability
• Executive remuneration
• Dividend policy
• Access to management
Read more on our stakeholders on pages 32– 37
30
International Personal Finance plc
• Investing in the development of colleague capabilities
• Engagement and reputational tracking surveys
• Annual conferences and business updates
82%
engagement survey score
We provide engaging employment and
fulfilling careers.
• Regular two-way communication
• Recognition and reward programmes
• Training programmes including ethics and safety
• Intranets, e-communications and agent app
• Interactions with workforce and stakeholder
engagement director
• Sector association membership
• Public consultations
• Engagement on draft regulations
• External advisor network
• Partnerships with non-governmental organisations
9
stakeholder roundtables
We work to provide sustainable financial
services markets that are positive for
consumers and businesses.
• Financial literacy programmes
• Partnerships with non-governmental organisations
18,205
• Financial wellbeing research
• Volunteering
• Supporting causes that are close to colleagues
hours of volunteering during business hours
We contribute to organisations that offer
educational and social support to people
in the communities where we operate.
• Ongoing dialogue and meetings
• Provide access to management
• Annual General Meeting
• Results presentations, trading updates and webcasts
• Annual Report and Financial Statements
• Roadshows and conferences
• Corporate website
• Remuneration Policy engagement
£27.7m
dividends paid in 2019
We pay a dividend which demonstrates IPF
is a successful business generating long-term
sustainable returns.
Section 172(1)
The Directors are fully aware of their responsibilities
to promote the success of the Company in
accordance with s172(1) of the Companies Act.
The content on stakeholder engagement below and
on pages 32 to 37 highlight the key activity undertaken
in this area. Further details on how the Directors’ duties
are discharged and the oversight of these duties
are included in the Governance section on pages 65
and 66.
Our stakeholders
Why we engage
Key areas of interest
How we engage and respond
Impact of engagement
Customers
Engaging with our customers allows us to
• Affordability and price
build a greater understanding of their
changing needs and behaviours so we can
provide relevant credit products and high
levels of service. This helps us retain quality
customers and attract new ones.
• Flexible repayments
• Convenience
• Excellent customer experience
• Trusted and responsible lender
• Customer visits
• Personal agent relationship or digital customer
interfaces
• Customer satisfaction surveys
• Online and social media
• Collaboration on product innovation
63.2%
Group customer retention
We lend responsibly so customers can afford
to buy the things they need.
Employees and
agents
The evolution of our culture, which is
• Employee and agent engagement
grounded in our values, is vital for our
sustainability. In addition to supporting
knowledge and career development,
we engage with our people in order to serve
our customers well and deliver our strategy.
• Development opportunities
• Recognition and fair reward
• Open, straightforward
communications
• Ethical, customer-focused culture
• Responsible lending and
a good reputation
• Safe and productive working
environment
Regulators and
legislators
We engage with regulators and legislators
• Regulatory compliance
to build an understanding of the important
• Control and supervision
role we play in society by 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.
• Fair pricing and promotions
• Responsible lending and
affordability
• Business ethics training
• Tax contributions
• Fair employment contracts
Communities
Building better relationships with our
communities is important for us to attract
customers, employees and agents. Helping
consumers build their confidence in making
financial decisions supports responsible
borrowing and lending. Engaging through
our community programmes is also key
to maintain our social licence to operate.
• Financial literacy
• Social wellbeing
• Employee and agent engagement
• Building trust for our business
• Community support programmes
• A good reputation
Shareholders
and investors
Our investors expect to earn a return on
• Strategy, performance and outlook
their investment. As a publicly-listed
• Risk management and corporate
company, we are required to provide fair,
governance
balanced and understandable information
to enable investors to understand our
business so that they may make an
informed investment decision.
• Leadership capability
• Executive remuneration
• Dividend policy
• Access to management
• Investing in the development of colleague capabilities
• Engagement and reputational tracking surveys
• Annual conferences and business updates
• Regular two-way communication
• Recognition and reward programmes
• Training programmes including ethics and safety
• Intranets, e-communications and agent app
• Interactions with workforce and stakeholder
engagement director
82%
engagement survey score
We provide engaging employment and
fulfilling careers.
• Sector association membership
• Public consultations
• Engagement on draft regulations
• External advisor network
• Partnerships with non-governmental organisations
9
stakeholder roundtables
We work to provide sustainable financial
services markets that are positive for
consumers and businesses.
• Financial literacy programmes
• Partnerships with non-governmental organisations
• Financial wellbeing research
• Volunteering
• Supporting causes that are close to colleagues
18,205
hours of volunteering during business hours
We contribute to organisations that offer
educational and social support to people
in the communities where we operate.
• Ongoing dialogue and meetings
• Provide access to management
• Annual General Meeting
• Results presentations, trading updates and webcasts
• Annual Report and Financial Statements
• Roadshows and conferences
• Corporate website
• Remuneration Policy engagement
£27.7m
dividends paid in 2019
We pay a dividend which demonstrates IPF
is a successful business generating long-term
sustainable returns.
Annual Report and Financial Statements 2019
31
Strategic ReportDirectors’ ReportFinancial Statements Stakeholder review
Responding to our stakeholders’
needs to deliver sustainable value
“Understanding our customers
means we deliver products
and services that work for them.
This is reflected in our culture
which we reinforce through
our ethics programme,
training and leadership.”
Gerard Ryan
Chief Executive Officer
We are committed to living our purpose by meeting our responsibilities towards our stakeholders,
both of which are key to the long-term success of our business. By engaging with our stakeholders
we are able to gain insights into their needs which influence our operating environment and,
ultimately, our strategic thinking. We believe that the best and most sustainable way to create and
grow long-term value for our investors is to create value for our customers, employees and agents,
regulators and communities.
Sustainability Priorities
We aim to integrate our sustainability vision into the long-term strategic business plan.
During 2019 we identified the following priorities in relation to each stakeholder group:
Stakeholder
group
Our
sustainability
priorities
Customers
Treat our
customers
fairly in all our
interactions
Support access
to credit for
underserved and
underbanked
consumers
Employees and
agents
Regulators and
legislators
Inform opinion
leaders on the
importance
of our business
model and
social purpose
Research,
develop and
deploy an
employee value
proposition
dedicated to
retain, develop
and support
our people
at all levels
Communities
Utilise our
community
programmes
to gain
understanding
and empathy
with our
communities
Shareholders
and investors
Ensure the
long-term viability
of the business
model through
sustainable
decision-making
32
International Personal Finance plc
Customers
Our business model and credit
products are financially inclusive,
designed specifically to suit the
needs of our customers who may
have difficulty in accessing credit
from banks and other mainstream
operators. The loans we provide can
make a genuine difference to their
lives when their needs are pressing.
Responsible lending is at the core
of our business model so we start
by lending small amounts to new
customers, and those who repay well
can build a positive credit record that
will help them gain greater access
to financial services in the future.
Our approach to doing business
focuses on providing a positive
customer experience both at the
point we serve credit and the service
thereafter in order to attract and retain
customers. To achieve this we ensure
that customers are treated fairly in all
their interactions with us. During 2019,
we focused on improving the customer
experience by researching and
developing customer profiles, and
mapping their journeys with us to help
deliver the best possible service via
our agents and digital offerings.
In the year ahead, we will build
on this work to help us attract
and retain customers.
We launched a number of new
products in European home credit
and in response to the changing
expectations of consumers looking
to manage their finances online,
we also began testing a digital mobile
wallet product in Finland, which
gives customers a transparent,
easy and flexible way to pay for
everyday purchases.
Our home credit loans are often the helping hand needed
to enable our customers to buy the things they need and
to create a better future.
“ With the support of Provident,
I used my loan to hire more
staff at my taco business in
Naucalpan de Juárez. It has
meant that we can provide
a much better service
to my customers.”
Pascual in Mexico
“ A flower shop was a childhood dream.
After my children had grown up, and with
the support of my husband, I decided to
follow that dream. We didn’t have enough
savings to start the business so applied
for a loan with Provident. We finalised our
business plan and used the loan to help
us open the shop, less than a year after
making our decision to do so. It’s still
early days but we already have loyal
customers, and the number is growing
each month. My dream has come true.”
Krystyna in Poland
Annual Report and Financial Statements 2019
33
Strategic ReportDirectors’ ReportFinancial Statements Stakeholder review continued
Employees and agents
Our employees and agents are vital
to delivering a responsible, respectful and
straightforward service to our customers
and, as such, we dedicate time and
resources to developing our international
workforce. We focus on building an
informed and engaged workforce: people
who understand our purpose and how
their work contributes to the delivery of our
business goals, who are proud to work for
the business, and who are motivated
to give their best efforts to serve
our customers.
In 2019, we continued to focus on
engaging and listening to our people;
through face-to-face employee and
agent conferences and our Global
People Survey, which received an
excellent participation rate and
achieved an overall IPF engagement
score of 82%. The survey provided
feedback on matters as diverse as
work-life balance, leadership and sense
of belonging. This allowed us to empower
people managers to develop action plans
targeted to the specific feedback of their
teams and thereby continue to strengthen
the engagement of our people.
As part of the work we undertake
continually to develop our culture,
we researched, developed and plan
to deploy a global employee value
proposition. This will describe what
we stand for and offer as an employer,
and communicate the attributes and
qualities that our employees and agents
believe make us distinctive. It will also help
us deliver an employee experience that
appeals to those who will thrive and
perform best in our culture and in all our
locations – and ultimately will provide
excellent service to our customers.
We also enhanced our “Speak Up” service,
which allows our people to report,
in confidence, any perceived breaches
of our Code of Ethics.
Diversity
We are committed to having a diverse
workforce and take steps to ensure that
our business processes ensure that
recruitment, selection and reward is
based purely on merit. Collaboration
between our international businesses
is a central dynamic in our culture
and drives a strongly inclusive mindset
which positively impacts and informs
our approach to customers and
other stakeholders.
“One of the biggest values
of the training is sharing
knowledge between home
credit and digital lending,
and trying to collaborate
and find common solutions
suitable for both businesses.”
Ruta Myle, IPF Digital marketing
manager, Lithuania
International Sales Leadership Academy
Developing our people is another key focus and we offer
a number of leadership development programmes to
strengthen the depth of talent across the Group. In 2019,
we launched our International Sales Leadership Academy
to develop the skills, capabilities and behaviours that
are essential for our customer-facing teams so they
may continue to raise the bar with respect to customer
experience and to maintaining sustainable growth in
our business. The programme brings the latest leadership,
customer experience and strategic thinking to our sales
leaders, while offering a dynamic learning space where they
can formulate innovative ideas on how we can continue
to best serve our customers.
Gender split at 31 Dec 2019
9
5
8
,
3
2
2
8
,
5
5
2
1
0
4
5
3
Board
Senior
Management
All other
Male
Female
34
International Personal Finance plc
Communities
We visit the majority of our home
credit customers every week and are
closely connected to the communities
we serve. We focus on leveraging
these personal relationships with
our community programme. As many
of our customers have limited access
to credit we aim to enable social and
financial inclusion through a mix
of financial education, employee
volunteering and grant-giving.
Financial education
Our research into financial wellbeing
suggests many people in our markets
do not receive a formal financial
education and would value the
opportunity to learn more about
financial management. By promoting
financial skills development online
and through face-to-face initiatives
we enable customers and the general
public to engage with the financial
sector with more confidence, and
to make responsible and informed
decisions about their long-term
financial planning.
Our financial literacy programme
in Poland, which is called ‘What about
the money?!’, helps young people
manage their personal finances and
is a good example of our focus on
financial education. The engaging
vlog format allows viewers to learn
about personal finance based on the
experiences of three vloggers. Young
people can also share their insights
and experiences of budget
management.
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 both 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
“You could see immediately,
that our help is in the right
place. There is no better
motivation and satisfaction
than to see utter joy from
your help and it could be
seen and felt at every step
at Ruzinovska school.”
Svatava, Czech Republic
Employee volunteering
Our annual ‘Make a Difference in May’ volunteering event
engages employees, agents and our local communities
in mutually beneficial community-focused projects. 2019
was our most successful event to date, with thousands
of colleagues across all our 11 markets and Group
head office in the UK making a difference in their local
communities. Colleagues took part in hundreds of activities
including conservation, helping disadvantaged young
people, and even supporting colleagues and customers
who have fallen on hard times.
12
countries
3,600
volunteers
97%
enjoyed
volunteering
98%
said we made
a difference in
the community
95%
feel more positive
about working for
the business
Annual Report and Financial Statements 2019
35
Strategic ReportDirectors’ ReportFinancial Statements Stakeholder review continued
Regulators and legislators
We focus on establishing transparent and
engaging relationships with regulators
and legislators as they play the key role
in shaping the consumer finance sector.
Our priority is to ensure that they
understand our business model and the
important contribution we make to the
societies in which we operate by providing
fair and transparent credit products to
those who might otherwise be financially
excluded. We also aim to ensure that any
regulatory changes deliver a sustainable
outcome that is positive for customers and
businesses alike.
Our team of professionals engages with
regulators through one-to-one meetings,
stakeholder roundtables and industry
associations. We are active members
of industry associations in all our home
credit and many of our digital locations,
and contribute to the sector position on
issues such as responsible lending and
financial inclusion. Our twice-yearly
Financial Wellbeing research delivers
thought-leadership which reflects the
views of consumers on a range of
important financial and economic issues.
We use this research to advocate for the
needs of consumers to key groups
of decision-makers and influencers.
Launch of Provident Romania’s economic footprint study
Our role in financial education
In Romania, we continued a
series of stakeholder events to
help inform decision-makers
about our role in the Romanian
economy, society and our
contribution to financial
education and responsible
lending. We also spoke at
conferences and forums
organised by academics and
think tanks to further support our
reputation. In September we
relaunched our economic
footprint study at an event
attended by 20 stakeholders
including representatives of the
Competition Council, National
Bank of Romania, the Prime
Minister’s office and MPs. We also
organised regional events attended
by local authorities and MPs.
In Mexico, our annual stakeholder
roundtable focused on the financial
needs and circumstances of young
Mexican people, many of who face
challenges in accessing a
financially-inclusive future. The
results of our Financial Wellbeing
research formed the core of the
debate and a springboard for
discussions between stakeholders
who included regulators, politicians,
diplomats, business leaders
and employees.
Shareholders and Investors
We finance our operations through a
combination of retained profits,
shareholder equity, and a diversified
debt portfolio comprising wholesale
and retail bonds together with bank
finance. To support our financial
strategy and ensure our shareholders,
providers of debt funding and credit
rating agencies are informed about
the business, we undertake a
proactive investor relations
engagement programme. Regular
dialogue undertaken by key members
of the IPF team, focuses on
communicating our financial
performance, governance, risk
management, ESG matters and the
sustainability of the business. We also
provide opportunities for investors to
discuss particular areas of interest or
concerns, and their feedback informs
management and reporting practices.
Chairman’s and
Senior Independent
Director’s
investor lunch
Annual Report
AGM
Roadshow
programme
Investor
engagement
Results
announcements,
presentations and
webcasts
Investor feedback
Investor
conferences
Corporate website
Read more about the progress made against our sustainability strategy
at www.ipfin.co.uk
36
International Personal Finance plc
Awards
We continue to win awards and
accolades for our customer service,
reputation and being a great place
to work.
Responsible
Sustainable
Innovative
Socially Responsible
Company
Mexico
Financial Brand of the
year 2019
Poland
Best Non-banking
Financial Institution
Romania
Top Employer
Poland, Czech Republic,
Hungary and Romania
MSCI ESG rating* ‘AA’
IPF plc
Great Place to Work
IPF Digital Mexico
Superbrand Status
Hungary
Top Ten Fintech
IPF Digital Spain
Fenix Bronze award for
Social Media and
Content
Czech Republic
“ Our UK ethics panel discussed
our personal reflections on
business ethics, the challenges
we face and our future
considerations. We invited
colleagues to give their views
and it was great to see the level
of interaction and interest in
business ethics.”
Lyndsey Scott,
Chief human resources officer
Code of ethics
Our code of ethics guides our employees, agents and other
partners of the business on how to maintain relationships
with our stakeholders in line with our core values of being
responsible, respectful and straightforward. The code is
communicated to all employees and agents, and is common
across the business regardless of location, function or
employee level. All employees and agents must complete
business ethics training during their induction and at least
once a year thereafter. We focus on bringing the code of
ethics to life through our International Ethics Week and in 2019
we held business ethics panel discussions in several markets.
* The use by IPF of any MSCI ESG Research LLC or its affiliates (“MSCI”) data,
and the use of MSCI logos, trademarks, service marks or index names
herein, do not constitute a sponsorship, endorsement, recommendation,
or promotion of IPF by MSCI. MSCI services and data are the property
of MSCI or its information providers, and are provided ‘as-is’ and without
warranty. MSCI names and logos are trademarks or service marks of MSCI.
Annual Report and Financial Statements 2019
37
Strategic ReportDirectors’ ReportFinancial Statements Stakeholder review continued
Non-financial information statement
The table below sets out where stakeholders can find information in our Annual Report that relates to non-financial
matters detailed under section 414CB of the Companies Act 2006.
Reporting
requirement
Relevant
policies
Relevant section
of our report
Measurements of effectiveness
Business
Model
• Our business model – p12-13
• Delivering our social purpose
responsibly – p6
• Key performance indicators –
p22-23
• Principal risks and
uncertainties – p46-52
• Customer numbers
• Customer retention
• Customer satisfaction
Employees
• Code of ethics
• Group health and
• Stakeholder review: Employees
and agents – p34
• Employee and agent retention
• Risk assessment completion by agents in home
safety policy
• Stakeholder review: Diversity
credit markets
• Wellbeing policy
• Diversity policy
Human Rights
• Code of ethics
• Human rights
and modern
slavery policy
– p34
• Board diversity – p75
• Equal opportunities – p71
• Principal risks: People and
Safety risks – p49 and p51
• Chairman’s Statement and
CEO Review: Our values – p5
and p20
• Stakeholder review: Code of
ethics – p37
• Stakeholder Review: Human
rights – p35
Social Matters
• Code of ethics
• Delivering our social purpose
responsibly – p6
• Principal risks: Reputation
risk – p50
• Stakeholder review:
Communities – p35
• Percentage of relevant employees and agents
completing safety training
• Access to confidential whistleblowing service
• Percentage of relevant employees and agents
completing ethics and modern slavery
awareness training
• Investment in local communities
• Hours of employee volunteering
Anti-bribery
and corruption
• Anti-bribery and
corruption policy
• Stakeholder review: Code of
• Percentage of relevant employees and agents
ethics – p37
completing:
• Gifts and
• Anti-bribery policy – p71
hospitality policy
• Anti-facilitation of
tax evasion policy
• anti-bribery training;
• ethics training; and
• anti-facilitation of tax evasion training
• Coverage of current anti-bribery
risk assessments
• Completion of current anti-facilitation of tax
evasion risk assessment
Environmental
Matters
Principal Risks
Non-financial
KPIs
• Greenhouse gas reporting
• Tonnes of CO2e emissions per customer
– p73
per annum
• Principal risks and
uncertainties – p46-52
• Customers and customer
retention – p22
• Employee and agent retention
– p22
38
International Personal Finance plc
Financial review
Good returns and a
strong financial profile
“Our financial position
improved materially in 2019
with the positive outcome on
Polish tax for years 2010
to 2017.”
Justin Lockwood
Chief Financial Officer
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.
For a reconciliation and glossary
of the alternative performance
measures that we use
see pages 156-160
For our operational review
of 2019 performance
see pages 24-29
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 and delivering
relevant products and services to our
customers. 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
position improved materially in 2019
with the positive outcome on Polish tax
for the years 2010 to 2017, more detail
on which is covered on page 42.
Our financial model
We adopt a Group financial model
which sets out key strategically aligned
financial parameters. The model
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 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. The settlement
of the Polish tax dispute for 2010 to 2017
removes a significant liquidity risk for
IPF. This will allow more flexibility in the
refinancing of our main Eurobond,
which we aim to complete by the
end of 2020.
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
growth-focused and we will 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 to invest in building
a long-term, sustainable future for
these operations as well as our
IPF Digital and Mexico home credit
businesses, in addition to any
capital generated by the 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
Annual Report and Financial Statements 2019
39
Strategic ReportDirectors’ ReportFinancial Statements Financial review continued
Credit rating from Moody’s
to support funding initiatives
A key element of our funding
plan is to broaden our debt
investor base and continue to
diversify and extend our sources
of debt funding to support the
long-term growth of the business.
We have had a credit rating from
Fitch since 2010, which has
worked well for us, but in 2019
we decided to obtain a second
credit rating from Moody’s to
give further comfort to investors
to support bond issuance. We
obtained a new credit rating of
Ba3 stable outlook from Moody’s
and Fitch reaffirmed the BB rating
and revised its outlook from
negative to stable, meaning that
our overall credit rating position
improved. This was helpful in the
successful refinancing of
a substantial proportion of the
£101.5 million retail-eligible bond
maturing 2020. We completed
a series of investor meetings
involving an extensive roadshow
to explain our corporate strategy,
and the strength of our business
model and financial profile.
As a result, £57.4 million of the
existing bonds were exchanged
and £20.7 million of new bonds
were issued for cash to create
a new £78.1 million 7.75% bond
maturing 2023.
Returns
As a Group, we aim to deliver long-
term profitable growth, good returns
for shareholders, and the efficient
deployment of capital generated
to support growth and pay dividends.
We believe that the return on assets
(ROA) metric is a good measure
of financial performance of our
businesses, showing the ongoing
return on the total equity and debt
capital invested in the receivables
book for those businesses, and for the
Group. In addition, we believe that the
Group return on equity (ROE) metric
is a good measure of overall returns
for shareholders.
The table on the right 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 dynamics, capital generation
and earnings per share metrics,
were impacted in 2019 by the 6 ppt
increase in the effective tax rate for
the Group from 31% to 37% as set out
in the taxation section on page 42.
We expect the effective tax rate to be
approximately 40% in 2020.
ROA in our European home credit
businesses was reduced to 17.1% in
2019, primarily as a result of the
increased tax charge. Returns reduced
in Mexico home credit by 3.5ppts to
8.5% reflecting lower profits combined
with an increase in average net
receivables. IPF Digital delivered an
increase in ROA to 4.3% reflecting the
improving return dynamics of the
business as it delivered its maiden
profit. At Group level, ROA decreased
by 1.2ppts predominantly driven by the
increased tax rate.
Return on equity
ROE for the Group is measured
as profit after tax divided by
average equity.
ROE declined by 1.8ppts in 2019
to 16.5%, driven principally by the
increase in the effective tax rate.
Capital generation
Strong capital generation is a key
feature of our business, providing
capital for the continuing growth
of the business and dividends
to shareholders, while maintaining
our strong financial profile.
The table below shows capital
generated by our home credit
businesses in Europe and Mexico,
and the net capital investment in
IPF Digital, along with dividends
declared. We fund our receivables
book with approximately 40% equity
and 60% debt. Capital generated
is calculated as profit after tax,
after assuming that 60% of the
growth in receivables is funded with
debt and 40% with equity.
Capital generated before investing
in receivables growth was £71.8 million
compared with £75.4 million in 2018 as
a result of increased profit, more than
offset by the 6ppt rise in effective tax
rate. £13.3 million of this capital was
used to invest in receivables growth
Return on assets
European home credit
Mexico home credit
IPF Digital
Group
Capital generation
Profit before tax
Tax
Profit after tax
Receivables growth funded by equity (40%)
Capital generated
European home credit
Mexico home credit
IPF Digital
Other
Dividends declared
Shares acquired by employee trust
Capital generated
2018
18.4%
12.0%
2.1%
12.5%
2019
17.1%
8.5%
4.3%
11.3%
2018
£m
2019
£m
109.3
114.0
(33.9)
(42.2)
75.4
71.8
(27.5)
(13.3)
47.9
88.3
1.2
(31.5)
(10.1)
(27.7)
–
20.2
58.5
56.4
16.1
(4.7)
(9.3)
(27.7)
(2.1)
28.7
40
40
International Personal Finance plc
International Personal Finance plc
(based on 40% equity funding for
receivables growth) and, therefore,
net capital generation was £58.5
million before the declaration of
dividends totalling £27.7 million.
Our European home credit businesses
generated £56.4 million of capital
which reflects their good financial
performance together with an
increase in their investment in
receivables. Mexico home credit
generated £16.1 million of capital as
a result of profits in the year coupled
with a reduction in the receivables
portfolio. IPF Digital consumed £4.7
million of capital driven by the
investment in receivables more than
offsetting the improved profitability in
the year. The other balance of capital
consumption relates to central costs,
which reduced as a result of the
increased tax rate in the year. Total net
capital generation was £28.7 million
compared with £20.2 million in 2018.
Earnings per share
Earnings per share was 32.2 pence
in 2019 compared with 33.8 pence
in 2018, reflecting the increase
in profitability, offset by the higher
effective tax rate.
Dividend
Subject to shareholder approval,
a final dividend of 7.8 pence per share
will be payable, which will bring the
full-year dividend to 12.4 pence per
share (2018: 12.4 pence per share).
The final dividend will be paid on
11 May 2020 to shareholders on the
register at the close of business on
14 April 2020. The shares will be
marked ex-dividend on 9 April 2020.
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% aims
to ensure that we have sufficient
capital to provide a level of resilience
to external shocks including
macroeconomic and regulatory
factors as well as 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 2019, the equity
to receivables ratio was 44.8% (2018:
43.6%) compared with our target level
of 40%, meaning equity capital was
£47 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 ongoing regulatory uncertainty
in Poland. Gearing was 1.5x at
December 2019, broadly in line with
2018, well within the covenant level of
3.75x maximum on our debt facilities.
The settlement of the Polish tax dispute
removes a significant liquidity and
capital risk for IPF by extinguishing
a contingent liability that totalled
£137 million, and this has the overall
impact of materially strengthening our
financial profile.
Group impairment as a percentage
of revenue at 27.4% in 2019 was within
our target range. The average period
of receivables outstanding at
December 2019 was 12.2 months
(2018: 11.5 months) with 74.8% of
year-end receivables due within one
year (2018: 77.0%). 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 2019 were
£973.6 million, which is £31.8 million
(3%) higher than 2018 at CER,
reflecting the growth in the business.
New accounting standards
IFRS 16 Leases
IFRS 16 Leases is a new accounting
standard that became effective from
1 January 2019. It distinguishes leases
and service contracts on the basis
of whether an identified asset is
controlled by a lessee. 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. This change
in the accounting policy affected the
balance sheet at 1 January 2019 by
increasing assets by £21.5 million and
increasing liabilities by £21.5 million for
the right-of-use asset and lease
liability respectively. The net impact
on retained earnings on 1 January
2019 was nil. The impact of the
new standard on the profit and
loss account in 2019 is not material.
More details are set out in note
31 to this Annual Report and
Financial Statements.
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 BBB-rated entities
except as approved, or delegated
for approval, 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.
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 €406 million
(£344 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.
Annual Report and Financial Statements 2019
Annual Report and Financial Statements 2019
41
41
Strategic ReportDirectors’ ReportFinancial Statements Financial review continued
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. 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 funding
position by adding and refinancing
£106 million of debt funding in 2019.
In June, we refinanced a proportion
of the £101.5 million retail-eligible bond
maturing 2020, with £57.4 million of the
existing bonds being exchanged,
and £20.7 million of new bonds issued
for cash, to create a new £78.1 million
7.75% bond maturing 2023.
The remaining £44.1 million bonds not
exchanged will stay in place until
May 2020. In addition we added £28
million of new bank funding in 2019.
Borrowing facilities and borrowings
At December 2019 we had
total debt facilities of £862 million
(£542 million bonds and £320 million
bank facilities) and borrowings
of £679 million, with headroom
on undrawn facilities of £182 million.
We continued to extend debt
facilities during 2019, and now have
£322 million of facilities extending
beyond the Eurobond maturity in 2021.
In the final quarter of 2019, we repaid
£14 million of bonds, and bought back
£5 million of 2021 Eurobonds at an
average price of 97.3. We have two
bonds totalling £84 million maturing
in May/June 2020, and our £344 million
Eurobond matures in April 2021.
The settlement of the Polish tax dispute
for 2010 to 2017 removes a significant
liquidity risk for IPF. This, combined with
the high level of headroom on
undrawn debt facilities, will allow more
flexibility in the refinancing of the
Eurobond, which we aim to complete
by the end of 2020.
The credit rating position improved in
April 2019 following the affirmation of
a BB rating by Fitch and the revision
of the outlook from negative to stable,
together with a new rating from
Moody’s of Ba3 stable outlook.
Our balance sheet remains robust,
with an equity to receivables capital
ratio at December 2019 of 44.8%
compared with 43.6% at December
2018, and compared with our target
level of 40%.
Bonds
Euro
Sterling
Sterling
Swedish
Polish
Total bonds
Bank facilities
Total debt facilities
Total borrowings
Headroom
Maturity
£m
April 2021
343.5
May 2020
December 2023
June 2022
June 2020
2020-2024
44.1
78.1
36.4
39.8
541.9
319.7
861.6
676.4
182.4
Covenant compliance and other key metrics
Gearing*
Interest cover
Max 3.75
Min 2 times
2018
1.3x
3.3x
2019
1.2x
2.9x
* Adjusted for derivative financial instruments and pension liabilities according to banking
covenant definitions
By maintaining a strong financial
profile, we operate with significant
headroom on the key financial
covenants in our debt facilities,
as set out in the table below.
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 a £42.2 million
foreign exchange movement,
which has been debited to the
foreign exchange reserve.
Taxation
The taxation charge on profit for 2019
has been based on an effective tax
rate of 37%. The taxation charge
for the year on statutory pre-tax profit
was £42.2 million (2018: £33.9 million).
The change in effective tax rate
was impacted primarily by new tax
legislation in Poland which came into
force on 1 January 2019 and resulted
in certain cross-border transactions
entered into by our Polish subsidiary
becoming economically inefficient.
We expect the effective tax rate to
be around 40% in 2020.
As announced on 24 October 2019,
the Polish tax audits of 2010 – 2012
were closed and adjustments to the
remaining years up to and including
2017 were agreed with the Polish tax
authority. This resulted in an overall
payment of £3.8 million for 2010
to 2017. The years 2008 and 2009,
for which we paid £34.2 million in
January 2017 in order to lodge the
appeal, remain open. Following expert
advice regarding the strength of our
case both from a procedural and
substantive position, we withdrew our
application for mutual agreement
procedure between the Polish and
UK tax authorities in December 2019
and the cases are expected to be
heard in the Polish courts in the first
half of 2020. Further details on this
matter are set out in note 29.
42
International Personal Finance plc
for the foreseeable future (being
12 months from the date of approval
of the Financial Statements). Taking
these factors into account, together
with the regulatory risk set out on
page 47, 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.
Justin Lockwood
Chief Financial Officer
As previously reported, in late 2017 the
European Commission (EC) opened
a State Aid investigation into the Group
Financing Exemption contained in the
UK controlled foreign company rules,
which were introduced in 2013. In April
2019 the EC announced its finding that
the Group Financing Exemption is
partially incompatible with EU State Aid
rules. In common with other UK-based
international companies whose
intra-group finance arrangements are
in line with current controlled foreign
company rules, the Group is affected
by this decision. The total tax benefit
obtained by the Group in all years as
a result of the structure affected by the
decision is estimated at up to £13.9
million. The amount repayable by the
Group under the decision however
is expected to be lower than this as
the final decision only found the UK tax
regime to be partially incompatible.
HMRC has begun a process of
gathering information from taxpayers,
including IPF, in order to quantify the
amount of alleged State Aid received.
The UK government has announced
that it has filed an annulment
application before the General Court
of the EU. In common with a number
of other affected taxpayers, IPF has
also filed its own annulment
application. Further details on this
matter are set out in note 29.
Going concern
The Board has reviewed the budget
for the year to 31 December 2020
and the forecasts for the two years
to 31 December 2022, 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 46 to 52 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), are sufficient to
fund business requirements
Summary of key financial statistics
Revenue (£m)
Profit before tax (£m)
EBITDA (£m)
Cash generated from operating activities (£m)
Impairment as a percentage of revenue (%)
Receivables (£m)
Equity (net assets) (£m)
Equity to receivables (%)
ROA (%)
ROE(%)
Capital generated (£m)
Dividend paid (£m)
Dividend per share (pence)
Finance costs (£m)
Borrowings (£m)
Gearing (debt: equity multiple)
Debt: EBITDA multiple
2018
866.4
109.3
191.5
141.6
26.2%
992.8
433.0
43.6%
12.5%
18.3%
20.2
27.7
12.4
58.5
2019
889.1
114.0
209.9
188.5
27.4%
973.6
436.4
44.8%
11.3%
16.5%
28.7
27.7
12.4
63.5
698.3
676.4
1.6x
3.6x
1.5x
3.2x
Annual Report and Financial Statements 2019
43
Strategic ReportDirectors’ ReportFinancial Statements Principal risks and uncertainties
Principal risks and
uncertainties
Effective management of risks, uncertainties and opportunities,
which includes automation of our risk management framework,
continues to be critical to our business in the face of uncertainty
in order to deliver long-term shareholder value, and to protect
our people, assets and reputation.
Risk management process
The principal risks to our strategy are
identified, evaluated and managed
at Group level in accordance with our
risk governance and oversight
structure, as presented on page 45.
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 by their
Group-level owners and then validated
to produce an overall assessment
of those risks. Our Board and senior
management group are committed
to continuous improvement and
investment in the risk management
process and have further enhanced
it with the introduction of a customised
automated risk management tool
in 2019.
We continue to manage the same
principal risks as last year, but we have
reviewed the defined scope of each
risk to ensure it accurately reflects our
current risk environment.
We set out our principal risks,
a summary of key controls and
mitigating factors as well as their
movement during the year on pages
46 to 52.
Risk appetite
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 level of the risk
before internal controls or mitigating
actions; and
Regulatory risk continued to centre
on price caps with a number of key
developments in 2019.
Draft proposals to significantly tighten
the existing rate cap in Poland were
revised by the Ministry of Justice and
subsequently adopted by the Polish
Government. There was a further
revision but having failed to proceed
through the legislative process prior
to the Polish general election, the
proposals are no longer on the current
legislative agenda. Also in Poland,
a review of market standard rebating
practices is being undertaken.
Revised regulations were
introduced in Finland and Latvia
and we adapted our product
offering to comply with the new
pricing and debt-to-income
requirements. In Romania an APR cap
enacted during 2019 was declared
unconstitutional and, therefore,
did not come into effect.
Revised proposals in this market have
since been tabled in the Romanian
parliament. Further information on
regulation is included in the Chief
Executive Officer’s review on pages 19
and 20, and the and operational
review on page 25.
• 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. We have placed
more emphasis on the identification,
monitoring and management
of emerging risks this year.
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.
Key areas of focus in 2019
We continued to operate within
a challenging external environment,
with tax and regulatory risks remaining
a priority. The Board monitored
developments relating to the ongoing
tax audits in Poland and, in October
2019, was pleased to report the closure
of the 2010 to 2012 financial years
together with an agreement with
the Polish tax authority regarding
treatment for the remaining years
up to and including 2017. This has
removed a significant contingent
liability thereby materially reducing
the liquidity and capital risks facing
the Group. The court case with respect
to the 2008 and 2009 financial years
is expected to be heard in the first half
of 2020.
44
International Personal Finance plc
Our framework for the identification,
evaluation and management
of our principal and emerging 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 12 to 13), taking account also of the
environment in which the Group operates. The Board approves the
principal and emerging 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 76 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.
See page 78 for activities undertaken
by the Risk Advisory Group.
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.
Risk ownership
Business unit-level risk ownership: business-level
management identifies, assesses and controls risks
principally at market level and also within major
projects and change initiatives. This level
approximates the first line of defence.
Group-level risk ownership: Group-level management risk
owners provide oversight on the effectiveness of the risk
management and internal control systems. This level
approximates to the second line of defence.
Independent-level risk ownership: 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.
Key areas of focus in 2020
We expect regulation, 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, and are included on
pages 46 to 52.
Brexit
We have continued to monitor
Brexit developments and execute the
agreed high-level actions to mitigate
any potential areas where Brexit could
have an impact, using the existing risk
management governance structure.
We note the signing of the Withdrawal
Agreement on 24 January 2020 and
transitional arrangements to the end
of December 2020.
We are monitoring the negotiations
and developments on the future
trading relationship between the UK
and EU during the transition period.
We believe that a no-deal situation
at the end of the transition period will
not cause operational disruption to
our European businesses, as these
are all in the EU and will continue to
trade under existing local and
EU regulations.
Our contingency arrangements
are focused on the areas of people,
data and treasury and tax issues
related to cross-border transactions.
We continue to monitor developments
in these areas, and we have robust
plans in place to address the risks.
“Our risk management
process is designed
to support the
execution of our
strategy, improve
decision-making
and to ensure
the sustainability
of the business.”
Justin Lockwood
Chief Financial Officer
Annual Report and Financial Statements 2019
45
Strategic ReportDirectors’ ReportFinancial Statements Principal risks and uncertainties continued
Link to strategy
D
M
E
Growth focus – IPF Digital
Growth focus – Mexico home credit
Returns focus – European home credit
Commentary
Risk environment improving
Risk environment remains stable
Risk environment worsening
Principal risks and uncertainties
As at the year end, the Board considered that there are 17 principal risks which require ongoing
focus (noted with asterisks in the table below).
The risks facing the business by risk category are:
Risk category
Definition
Market
conditions
The risk that we cannot identify,
respond to, comply with
or take advantage of external
market conditions.
Stakeholder
The risk that key stakeholders
take a negative view of the
business as a direct result of our
actions or our inability to
effectively manage their
perception of the Group.
Risks
Regulatory
• Legal and
Description
• Compliance with existing consumer
regulatory compliance*
credit laws and regulations
• Legal and regulatory
challenges and issues*
• Challenges to interpretation or
application of existing laws and
regulations
• Future legal and
regulatory development*
• Anticipating and responding to
changes to laws and regulations
• Data protection and privacy*
• Compliance with existing data
protection and privacy regulations
Competition and product proposition
• Competition*
• Responding to changes
in market conditions
• Product proposition*
• Meeting customer requirements
Funding, market and counterparty
• Funding, market
and counterparty*
• Funding availability to meet
business needs
• Market volatility impacting
performance and asset values
• Loss of banking partner
World economic environment*
• Adapting to economic conditions
Taxation*
• Changes to, or interpretation of,
tax legislation
• Reputation*
• Reputational damage
• Customer service
• Maintaining customer service
standards
Operational
The risk of unacceptable losses
as a result of inadequacies
or failures in our core internal
processes, systems or
people behaviours.
• Credit*
• Safety*
• People*
• Customers fail to repay
• Harm to our agents/employees
• Lack of people capability
• Business continuity* and
information security*
• Recoverability and security of systems
and processes
• Financial and performance
• Failure of financial reporting systems
reporting
and processes
• Technology*
• Maintenance of effective technology
• Fraud
• Theft or fraud loss
• Change management*
• Delivery of strategic initiatives
• Brand
• Strength of our customer brands
Business
development
The risk that our earnings are
impacted adversely by a
sub-optimal business strategy or
the sub-optimal implementation
of that strategy, due to internal
or external factors.
* Risks currently considered by the Board as the principal risks facing the Group.
46
International Personal Finance plc
Risk
Relevance to strategy
Mitigation
Commentary
1
Regulatory
D
M
E
Impact
Lead responsibility:
Chief Executive Officer
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
data protection and
privacy laws), or due to
a regulator interpreting
these in a different way.
Objective
We aim to ensure that
effective arrangements
are in place to enable
us to comply with
legal and regulatory
obligations and
take assessed
and fully informed
commercial risks.
Changes in regulation,
differences in interpretation
or clarification 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 2019, APR caps were
tightened in Finland and
Latvia and a new APR cap
in Romania was deemed
unconstitutional. We expect
pricing regulations to be
implemented at some point
in the future in those markets
where there are no price
caps currently.
We have highly skilled and
experienced legal and public
affairs teams at Group level
and in each of our markets.
Expert third-party advisors
are used where necessary.
We engage with regulators,
legislators, politicians and
other stakeholders.
Participation of relevant
sector associations contributes
to our monitoring, as well
as influencing capabilities.
Co-ordinated legal and public
affairs teams, at a Group
level and in each market,
monitor political, legislative
and regulatory developments.
Our compliance programme
focuses on key consumer
legislation including in relation
to data privacy.
Oversight of regulatory risks by
the legal leadership team.
Regular reporting to the
Audit and Risk Committee
on key regulatory and
compliance risks.
2
Competition and product proposition
For more information see the CEO’s review
on pages 18-19 and the operational review
on page 25.
In Europe we have seen increased
regulatory focus on consumer protection
legislation. Existing proposals
to significantly tighten the existing rate
cap in Poland are no longer on the current
legislative agenda, though a further
proposal is possible and we continue
to monitor the situation closely. A review
of market standard rebating practices is
underway in Poland. Revised APR caps in
Finland and Latvia were enacted in 2019
and a new APR cap in Romania
was deemed unconstitutional.
Revised proposals are currently tabled
in the Romanian Parliament.
We further enhanced our regulatory
management framework, including
contingency plans to address any
future regulations.
D
M
E
Impact
In an environment where
customer choice is growing,
ensuring our product meets
customers’ needs is critical
to delivering profitable growth.
Likelihood
Competition varies by market.
However, although Europe
is a highly competitive region,
increased regulation has
resulted in a more stable
landscape.
Lead responsibility:
Chief Executive Officer
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.
Regular monitoring of
competitors and their
offerings, advertising and
share of voice in our markets.
Action plans on
competition threats.
Regular surveys of customer
views on our product offerings.
Product development
committees established across
the Group to review the
product development
roadmap, manage product
and introduce new products.
Competition and products are
high on the agenda of the
senior management group.
For more information see the market review
on page 14.
In Europe, the impact of regulation has
stabilised competition.
In European home credit, campaigns
to improve customer acquisition and
retention reduced the rate of decline
in customer numbers.
We have extended our product offering
by serving larger, longer-term loans,
Provident-branded digital loans and
value-added services including insurance.
We are also testing a mobile wallet in
Finland and expect to roll out the offering
into more countries during 2020.
In Mexico, competition is stable and digital
lending remains small scale.
Annual Report and Financial Statements 2019
47
Strategic ReportDirectors’ ReportFinancial Statements Principal risks and uncertainties continued
Link to strategy
D
M
E
Growth focus – IPF Digital
Growth focus – Mexico home credit
Returns focus – European home credit
Commentary
Risk environment improving
Risk environment remains stable
Risk environment worsening
Risk
Relevance to strategy
Mitigation
Commentary
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.
Appropriate oversight
at executive level over
taxation matters.
See the financial review on page 42 and 43
for further detail on taxation.
We have ongoing tax audits in Poland,
Hungary, Mexico, Spain and Finland.
During 2019 audits were closed
in Slovakia and Poland.
In October 2019 the Polish tax audits
of 2010 to 2012 were closed and
adjustments for years 2013 to 2017 were
agreed. The years 2008 and 2009 remain
open and we expect these cases to be
heard in court in the first half of 2020.
We filed an annulment application with
respect to the European Commission’s
Decision on State Aid announced
in April 2019.
3
Taxation
D
M
E
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 audits
and enquiries into
cross-border arrangements.
Our Brexit contingency
planning includes taxation
of transactions.
Lead responsibility:
Chief Financial Officer
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.
4
Technology and change management
Effective oversight of the strategic project
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 key business projects.
We continued to modernise the home
credit business through agent mobile
technology, which is now rolled out across
Europe, and new sales functionality
will be introduced in 2020.
Appropriate methods and
resources used in the delivery
of programmes.
Programmes 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.
A dedicated technology
committee to oversee
technology and change risks.
D
M
E
Impact
Lead responsibility:
Chief Executive Officer
We suffer losses or fail
to optimise profitable
growth due to a failure
to develop and
maintain effective
technology solutions
or manage key
change projects
in an effective manner.
Objective
We aim to effectively
manage the design,
delivery and benefits
realisation of major
technology and
strategic business
projects and deliver
according to
requirements, budgets
and timescales. We look
to maintain systems that
are available to support
the ongoing operations
in the business.
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 project
programme which carries
significant levels of inherent
risk. Failure to deliver projects
or maintain our IT estate
could lead to issues in
benefits realisation
or business disruption.
Likelihood
Our project 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.
48
International Personal Finance plc
Risk
Relevance to strategy
Mitigation
Commentary
In 2019, we began to identify,
assess, monitor and address culture
and behaviour. A specific framework is now
in place and enforced to address this risk
which we intend to mitigate.
We also researched, developed and
will deploy a global employee value
proposition which will describes what
we stand for and offer as an employer.
See page 34 for further details.
We have commenced major programmes
in Mexico and European home credit
to map and build best practice
improvements to our agent and field
manager experience.
Our HR control environment
identifies key people risks and
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
5
People
D
M
E
Lead responsibility:
Chief Executive Officer
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.
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 agent turnover.
Progress has been made this
year in critical areas of the
Group with work still to be
done in others. The focus on
retention will continue for the
foreseeable future.
Likelihood
Our people, organisation and
planning processes ensure
that we develop appropriate
and significant strength and
depth of talent across the
Group and we have the ability
to move people between
countries, which reduces our
exposure to critical roles being
under-resourced. During 2020,
we will continue to develop,
resource, retain and reward
the right people.
Business continuity and information security
6
D
M
E
Impact
Lead responsibility:
Chief Executive Officer
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.
We record, update and
maintain data for each of our
customers on a daily basis.
The availability of this data,
the continued operation
of our systems and processes,
and availability of our critical
suppliers, are essential to the
effective operation of our
business and the security
of our customer information.
Objective
Likelihood
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
reasonably practicable.
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.
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.
Organisation structure in place
with qualified people in role.
A dedicated committee to
oversee business continuity,
information security, and
technology and change risks.
During 2019, we tested our information
security controls by employing an external
company of ethical hackers to identify
any vulnerabilities in the access of our
IT systems and we continue to work
towards further improvement.
We continued to use the enhanced
network monitoring tool introduced in
2018 to identify any security issues
generated by unusual behaviours in the
network across all our markets.
We performed regular tests and rehearsals
of our communication processes and
our plans for alternative worksites, where
applicable. We also continued our rolling
programme of security improvements.
Annual Report and Financial Statements 2019
49
Strategic ReportDirectors’ ReportFinancial Statements Principal risks and uncertainties continued
Link to strategy
D
M
E
Growth focus – IPF Digital
Growth focus – Mexico home credit
Returns focus – European home credit
Commentary
Risk environment improving
Risk environment remains stable
Risk environment worsening
Risk
Relevance to strategy
Mitigation
Commentary
7
Reputation
D
M
E
Impact
Lead responsibility:
Chief Executive Officer
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.
Our reputation and that of the
consumer lending sector can
have an impact 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 reduce
this significantly.
Likelihood
We maintain strong
relationships with key
stakeholders across the Group
in order to develop their
understanding of our business
model and how we deliver
services to our customers.
This helps protect the business
from unforeseen events that
could damage our reputation.
8
World economic environment
D
M
E
Impact
Lead responsibility:
Chief Financial Officer
We suffer financial loss
as a result of a failure
to identify and adapt
to changing economic
conditions adequately.
Objective
We aim to have
business processes that
allow us to respond to
changes in economic
conditions and optimise
business performance.
Changes in economic
conditions may have an
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 in which 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.
We continued to receive 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.
We take a proactive approach to
reputation management and update the
market on material challenges that we are
required to disclose.
Clearly defined corporate
values and ethical standards
are communicated
throughout the organisation
and employees and agents
undertake annual ethics
e-learning training.
Regular monitoring of key
reputation drivers.
Media strategy to support the
key drivers of reputation and
sector reputation strategy.
Strong oversight by the senior
management group on
reputation challenges.
Treasury committees review
economic indicators.
Monitoring of macroeconomic
conditions, geopolitical events
on financial markets and
national news briefings.
Strong, personal customer
relationships inform
us of individual
customer circumstances.
Unsecured consumer lending continues
to grow at a steady rate. Macroeconomic
conditions in all our European markets are
expected to deliver positive GDP growth,
low unemployment and moderately
increasing inflation in 2020. While GDP
growth in Mexico is estimated to contract
during 2019, it is forecast to return
to modest growth in 2020.
With reference to the possibility of
a no-deal Brexit at the end of the transition
period in December 2020, as our European
operations are all within the EU and trade
under locally granted licences,
we continue to believe that there should
not be significant operational disruption.
This assessment will be kept under review
as negotiations between the UK
government and the EU develop.
50
International Personal Finance plc
Risk
Relevance to strategy
Mitigation
Commentary
9
Safety
D
M
E
Lead responsibility:
Chief Executive Officer
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.
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,
it is not possible to remove the
risk entirely with the current
business model involving
20,000 agents. Improvements,
however, 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.
Our home credit businesses either gained
or neared completion of the ISO 45001
Occupational Health and Safety
Management Standard.
We have a safety strategy specifically for
our Mexico home credit business where
inherent risks are greater than those in
Europe both in terms of likelihood and
impact. In 2019, a series of actions were
agreed, and are being implemented
to further mitigate the residual risk.
The Group safety policy was reviewed and
reissued in 2019.
10
Funding, market and counterparty
D
M
E
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.
Lead responsibility:
Chief Financial Officer
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.
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.
Senior management
group oversight.
Strong relationships
maintained with
debt providers.
Further details on funding are in the
financial review on pages 41 and 42.
Our business has a strong 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.
Our credit rating position improved
following the affirmation of a BB rating by
Fitch and the revision of the outlook from
negative to stable, together with a new
rating from Moody’s of Ba3 stable outlook.
Hedging of market risk and limits
on counterparty risk are in line with
Board-approved policies.
We plan to materially refinance our
Eurobond by the end of 2020.
Annual Report and Financial Statements 2019
51
Strategic ReportDirectors’ ReportFinancial Statements Principal risks and uncertainties continued
Link to strategy
D
M
E
Growth focus – IPF Digital
Growth focus – Mexico home credit
Returns focus – European home credit
Commentary
Risk environment improving
Risk environment remains stable
Risk environment worsening
Risk
Relevance to strategy
Mitigation
Commentary
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.
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’.
Scorecard and portfolio
quality monitoring.
Overall, credit quality at Group level
was maintained in the middle of our
target range.
Credit quality in European home
credit is excellent as a result of good
agent collections alongside stable
post-field collections.
In Mexico home credit, portfolio quality
deteriorated in the first half of 2019 due to
poorer agent collections. We implemented
a series of operational actions to improve
performance and there have been some
encouraging signs in early lead key
performance indicators.
Impairment in IPF Digital increased
driven by a shift in the mix of the portfolio
away from the established markets,
which operate with lower and stable loss
rates, together with higher than planned
impairment in the new markets.
Consequently, we took prompt action
to tighten our credit scorecards in Poland
and Spain.
11
Credit
D
M
E
Lead responsibility:
Chief Executive Officer
The risk of the Group
suffering financial loss
if its customers fail to
meet their contracted
obligations or the
Group failing to
optimise profitable
business opportunities
because of its credit
and collection
strategies and
processes.
Objective
We aim to maintain
robust credit and
collections policies and
regularly monitor credit
performance.
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 deliver strong
returns to invest in building
a long-term sustainable future.
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 and a
higher proportion of new
customers than in the
established markets.
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.
52
International Personal Finance plc
Approval of the Strategic Report
This Strategic Report has been
approved by the Board of Directors
and signed on its behalf by:
Gerard Ryan
Chief Executive Officer
26 February 2020
Viability statement
The Directors have assessed the
long-term prospects of the business
and have taken into account:
• 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;
• 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; and
• 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.
Assessment of
continuing operations
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.
Business planning and
stress-testing
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 46 and
52 respectively 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.
In addition, reverse stress-testing
is performed to provide the Board
an understanding of the magnitude
of change required to a number of
stress factors to breach a covenant,
therefore providing context for the
other stress scenarios.
Viability Assessment
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, in particular its
main Eurobond, 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.
For further information on
funding see page 41
Annual Report and Financial Statements 2019
53
Strategic ReportDirectors’ ReportFinancial Statements Directors’ Report
Chairman’s introduction
“The Board has a vital role
to play in defining our
behaviours and how we
grow the business.”
Dan O’Connor
Chairman
Dear Shareholder,
Welcome to the Corporate Governance
Report for the year ended
31 December 2019. Good governance
and control are at the heart of a
well-run business. The recent changes
in the UK Corporate Governance Code
emphasise the important role played
by companies today and I recognise
the key role our Board has in setting
the tone and encouraging broader
stakeholder engagement. We are
committed to the creation of long-term
sustainable value for the benefit of our
shareholders, and wider stakeholders,
particularly our customers, and strong
and robust corporate governance is
integral to supporting this.
Q. Are you satisfied with the
composition of the Board?
The balance of skills and capabilities
of the Board is a key focus when new
appointments are made. We are
committed to supporting diversity and
inclusion in the Boardroom and across
the organisation as a whole.
Perspective, skills and knowledge
combine to contribute towards a high
performing and effective Board and as
a supporter of the Hampton Alexander
Review, we are pleased to report that
the Board currently has 38% female
representation thereby exceeding the
Hampton Alexander Review target.
This year we undertook an externally-
led Board evaluation process and I am
pleased to report that the review
concluded that the Board remains
effective. Further details are on
page 64.
Q. What have been the
main Board changes?
To further strengthen the expertise
of the Board, we will appoint two new
independent non-executive directors,
Stuart Sinclair and Richard Holmes,
with effect from March 2020. I informed
the Board that I intend to retire as
Chairman of the Company at the
close of the AGM and Stuart will,
subject to his election at the AGM,
succeed me as Chairman. Stuart,
who is an experienced non-executive
director, committee chair and senior
independent director within the
consumer financial services sector,
will also join the Remuneration and
Nomination committees. Richard who
has more than 40 years of broad
international financial services
experience, will join the Audit and
Risk Committee.
After 12 years with the IPF Board, Tony
Hales stepped down following the
AGM in May 2019. As I said at the time,
I would like to thank Tony for his
support and excellent contribution
to the Board. Richard Moat,
who replaced Tony as the Senior
Independent Director, has been
a non-executive director since 2012
and Chair of the Audit and Risk
Committee since 2015.
Q. How are you engaging
with stakeholders?
During the year I spent time meeting
investors and employees. In April I held
meetings with both the European home
credit and IPF Digital management
teams in Warsaw. I gained valuable
insight into day-to-day operations,
the challenges being faced, and the
proactive approach of our teams.
In October, the Board held its
meeting in Hungary and, over two
days, received presentations from
the European home credit regional
manager and the Group corporate
affairs director on work being
undertaken to make the European
business more sustainable. In
November, Richard Moat and I met
with key shareholders and discussed,
among other things, the extremely
positive progress made in Poland
relating to tax audits.
It was also the first year for Bronwyn
Syiek as our workforce and stakeholder
engagement director. A case study
of her first year is on page 65 and
on pages 65-66 you will find further
information on how we engaged
with our stakeholders in 2019.
Greater understanding of
stakeholders’ perspectives, allows us
to better meet their needs by providing
relevant products and services to our
customers, retaining and developing
engaged employees, getting the best
from our suppliers, enhancing our
reputation with local communities and
regulators and enabling investors
to fully understand our business.
54
International Personal Finance plc
Q. What example is the
Board setting on culture?
The Board recognises the importance
of its role in setting the tone of the
Group’s culture and embedding
it throughout the business. I am
committed to instilling and upholding
the values we expect to see from all
our employees and agents.
The Group’s cultural climate is
measured through a number of
channels including policy and
compliance processes, the Board
evaluation, internal audit, and formal
and informal channels for employees
to raise concerns. Those channels
were a particular focus in 2019 as we
monitored the implementation and
roll-out of our new and more
accessible whistleblowing programme
‘Speak Up’. This was launched as part
of the Group-wide ethics week initiative
and the Board is being kept informed
of reporting output. The Board also
monitored the success of the mental
health first aider programme and the
mental health awareness week
initiative which was well received
throughout the Group.
For further information,
see pages 20, 34 and 65.
Q. How did the Board
reflect on strategy in 2019?
The Board engaged on the Group’s
strategy at multiple touch points
throughout the year. These included
a two-day strategy retreat to debate
priorities and agree implementation
plans; deep-dive sessions on key areas
including the enhanced use of data
analytics; presentations made by
operational teams at four Board
strategy dinners; and a wide range of
informal interactions with the Group’s
management and operational teams.
Q. What are the key areas
of focus for 2020?
The Board will continue to monitor the
operational and financial
performance of the Group’s businesses
with a particular focus on the
improvement in the consistency
of operational execution and
financial performance in Mexico,
the performance of IPF Digital and the
modernisation of our European home
credit businesses to deliver returns.
Board oversight will continue to
monitor the investment in IT to support
the business strategy, the refinancing
of the Eurobond and the progression
of the 2008 and 2009 tax audit cases
in Poland.
Our strategy retreat
This year’s strategy retreat took place in June 2019 and
was led by the Group’s director of strategy and planning
and attended by the Board. The agenda was set around
several critical questions agreed through collaboration
between the executive and non-executive directors.
These included:
• What are the major external forces changing
our world?
• Is our current strategy working and is it still relevant?
• What steps should we take to improve long-term
sustainability?
• How do we inspire and engage the next generation
of employees and agents?
Debate focused on the key challenges the business
faces, and, in particular, on how the Group was
responding and the level of risk the Board was prepared
to take in pursuit of its objectives.
Throughout the strategy retreat, the interests of all
stakeholders were at the forefront of the Board’s
considerations. The non-executive directors contributed
personal insights and views, based on their own business
experience. The participation of external advisors and
senior managers also provided varied and stimulating
insights which contributed to the Board’s debate.
Key outcomes:
• The existing strategy was fully reviewed in the context
of the changing external environment and confirmed
as appropriate without material change.
• A number of new and enhanced capabilities and
investments were agreed to support our strategic
delivery, particularly in support of our data, customer
experience and technology agendas.
• Work has been commissioned to develop the
Company’s employee value proposition to illuminate
the positive role we play in society and also understand
and develop opportunities to leverage our culture.
The Board values
the opportunity to
discuss in detail the
Company’s strategy
and implementation
of plans at our
annual two-day
strategy retreat.
Annual Report and Financial Statements 2019
55
Strategic ReportDirectors’ ReportFinancial Statements Our board and committees
Dan O’Connor
Chairman
N
R
Length of service: 5 years and 2 months
Responsibilities: Good corporate governance
and best practice, leading an effective Board
and having regular constructive engagement
with shareholders and other stakeholders.
Key skills: Strong, strategic leadership;
30 years international and financial services
sector experience.
Contributions: Encourages active engagement
by all Board members to provide a rigorous and
robust decision-making process with sufficient
independent scrutiny and challenge.
Current directorships: Non-executive director
of Glanbia plc and Activate Capital Ltd.
Former roles: Non-executive director of CRH plc
and Garanti Bank, Chairman of Allied Irish Banks
plc, CEO of GE Consumer Finance Europe,
Senior Vice President of General Electric.
Qualifications: Master’s Degree in Accounting
and a fellow of the Institute of Chartered
Accountants in Ireland.
Gerard Ryan
Executive director and Chief Executive Officer
D
E
N
Length of service: 8 years and 1 month
Responsibilities: Group strategy, operational
management and leadership of the Group
Executive Committee and senior management
group. Ensuring good relations with employees
and agents, regulators and investors.
Key skills: Effective inspirational leadership
with strategy and objective implementation;
over 25 years’ multi-country experience
in consumer financial services.
Contributions: Acute market insight which
provides a real advantage in driving the
implementation of the strategy and identifying
and pursuing growth opportunities.
Former roles: CEO for Citigroup’s consumer finance
businesses in Western Europe, Middle East and Africa
region, a director of Citi International plc, Egg plc
and Morgan Stanley Smith Barney UK, CFO of Garanti
Bank, Turkey and CEO of GE Money Bank, Prague.
Qualifications: Fellow of the Institute of Chartered
Accountants in Ireland.
Justin Lockwood
Executive director and Chief Financial Officer
D
E
Length of service: 3 years
Responsibilities: All aspects of the Group’s
financing, financial performance, and reporting;
Board accountability for internal audit and tax;
the executive relationship with the external auditor;
and leadership of the Group finance team and
other corporate functions.
Key skills: Strong financial leadership; over
15 years’ experience within the Group in a variety
of senior financial management roles and has
a detailed understanding of the Group’s businesses
and its markets.
Contributions: 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.
Former roles: Group Head of Finance for seven
years before being appointed to the Board as
Chief Financial Officer with senior finance roles
at Associated British Ports, Marshalls plc, and PwC
in the UK and Australia.
Qualifications: Degree in Business
Administration and a member of the Institute
of Chartered Accountants.
Deborah Davis
Independent non-executive director
A
N
R
Length of service: 1 year and 4 months
Key skills: Experience in fintech, consumer
and technology businesses undergoing digital
transformation, growth and geographic expansion.
Digital technology expertise including
omni-channel payments; over 25 years’ senior
leadership experience in high growth companies
in international markets.
Contributions: Provides the Board with valuable
strategic and operational insights on growth
and expansion of IPF Digital as well as customer
experience, innovation and governance
throughout the Company.
Current directorships: 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.
Former roles: 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. Member of The Digital Banking Club
Advisory Panel and non-executive director of IE Digital.
Qualifications: Certificate in Company Direction
with Distinction, MSc in Management, BAppSc in
Electronics and a fellow of the Institute of Directors UK.
N
T
56
Nomination Committee
Technology Committee
A
E
Audit and Risk Committee
Executive Committee
R
D
Remuneration Committee
W
Workforce and stakeholder
engagement director
Disclosure Committee
Chair
International Personal Finance plc
Richard Moat
Senior independent non-executive director
A
R
T
Length of service: 7 years and 8 months
Responsibilities: Chair of the Audit and
Risk Committee
Key skills: Skilled executive with extensive financial
and operational acumen, international experience
with leadership of a listed company; more
than 25 years’ telecoms experience in senior
management roles and proven expertise in
corporate governance and best practice.
Contributions: Works closely with the Chairman,
acting as a sounding board and providing
support; has director contact with shareholders
at the Chairman’s lunch to obtain a balanced
understanding of their interests and any issues.
Current directorships: Appointed CEO
of Technicolor plc on 5 November 2019 and
is a non-executive director of Eir Limited.
Former roles: CEO of Eir Limited, Deputy CEO and
CFO of Everything Everywhere Limited, Managing
Director of T-Mobile UK Limited and Chief Executive
of Orange Romania SA, Orange Denmark A/S and
Orange Thailand Limited.
Qualifications: Diploma in Corporate Finance
and Accounting; Master’s (Honours) Degree in
Law and a fellow of the Association of Chartered
Certified Accountants.
John Mangelaars
Independent non-executive director
N
T
Length of service: 4 years and 7 months
Responsibilities: Chair of the
Technology Committee.
Current directorships: CEO of online travel agency
Travix International.
Key skills: Extensive experience in sales,
e-commerce and marketing of online products
such as MSN Messenger, Hotmail and Bing; over
20 years’ experience in an international
technology business.
Contributions: His experience supports the
expansion of our digital lending business and
the Company’s objective to increase its
technology capabilities.
Former roles: Various roles at Microsoft since
1990 including Vice President of Europe for
Advertising & Online and Vice President of
Western Europe for Consumer & Online.
Qualifications: Bachelor in Information and
Communication Technology (BICT).
Cathryn Riley
Independent non-executive director
N
R
T
Length of service: 6 years
Responsibilities: Chair of the
Remuneration Committee.
Key skills: Strong commercial and financial
acumen with proven track record in technology,
large complex operational roles and in leading
change; 20 years’ experience in insurance and
financial services, together with international roles.
Contributions: A wealth of experience in major
IT transformation programmes, implementing new
distribution channels and customer service. An
experienced remuneration committee chair with
strong leadership, people and relationship skills.
Current directorships: Non-executive director
of AA plc and AA Insurance Holdings Limited.
Former roles: 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. General manager of
transformation at BUPA and a principal consultant
in the financial services division at Coopers &
Lybrand, non-executive director of Equitable Life
Assurance Society, Chubb European Group plc
and Reassure Group plc.
Qualifications: MA in Manpower Studies,
completed CeDEP’s general management
programme, was a graduate of the Institute
of Personnel/HR Management.
Bronwyn Syiek
Independent non-executive director
A
W
T
Length of service: 1 year and 4 months
Responsibilities: Workforce and stakeholder
engagement director.
Key skills: 15 years’ leadership experience
in high-growth businesses in Silicon Valley,
responsible for the development of industry-leading
technologies and consumer direct marketing.
She also brings experience as an executive and
a non-executive director gained in a non-profit
scientific research organisation and education;
14 years’ experience as a consultant, focused
on strategy and change in large international
companies; and extensive experience in M&A.
Contributions: Bronwyn’s involvement in
Board discussions is extremely helpful, given her
knowledge of online marketing and technology,
promoting the right balance for the Board between
guidance and oversight. She has a particular
strength in creative problem solving,
and attracting, developing and retaining people.
Current directorships: Trustee of The SETI Institute,
a US-based non-profit scientific research institute
and contractor to NASA, and the examinations
board ABRSM.
Former roles: Co-founder and President
of NASDAQ-listed QuinStreet Inc., an online
performance marketing products and
technologies, serving a number of sectors
including financial services. Management
committee member 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.
Qualifications: M.A. in Natural Sciences.
Annual Report and Financial Statements 2019
57
Strategic ReportDirectors’ ReportFinancial Statements
Directors’ Report continued
Governance
at a glance
2019 highlights
Key priorities for 2020
• Greater time devoted to strategy with it being discussed
• Continue to ensure that our strategy is at the forefront
at every Board meeting, a two-day strategy retreat and four
dedicated strategy dinners, see page 55.
of Board discussions.
• Continued to monitor the impact of new regulation and
• Focus on promoting our purpose, values and culture,
mitigation planning for potential new regulation,
see page 47.
and their alignment with our strategy.
• Appointed Richard Moat as senior independent director,
• Further investment in the development and transformation
see page 75.
of IT to support the delivery of the business strategy.
• Enhanced our workforce and stakeholder engagement
• Continue to develop our stakeholder engagement
programme through our designated non-executive director,
see pages 65-66.
programme to assist the Board in its decision-making.
• Consulted with our major shareholders on the proposed
• Review the terms of reference of the Board committees.
new remuneration policy, see page 84.
• Undertook an externally facilitated Board evaluation,
• Implement recommendations arising from the 2019
see page 64.
Board evaluation.
Board experience
Global experience
EMEA
Americas
100%
100%
Asia Pacific
63%
Financial services
100%
Finance
Capital markets
Banking
38%
Operational experience
Governance and
regulatory
Digital technology
Overseas markets
Customer Service
63%
63%
63%
63%
100%
100%
100%
Non-profit
50%
58
International Personal Finance plc
Board attendance 2019
The table below shows the number of meetings held and the directors’ attendance during 2019
Director
Dan O’Connor
Gerard Ryan
Justin Lockwood
Deborah Davis
Tony Hales2
John Mangelaars
Richard Moat
Cathryn Riley
Bronwyn Syiek
Scheduled
meetings1
No. of meetings
attended
% of meetings
attended
8
8
8
8
3
8
8
8
8
8
8
8
8
2
8
8
8
8
100%
100%
100%
100%
67%
100%
100%
100%
100%
Notes
1. The scheduled meetings that each individual was entitled to and had the opportunity to attend.
2. Tony Hales stepped down as a director from the Board at the 2019 AGM. He was unable to attend the February meeting due
to a prior commitment.
Board composition
Board tenure
Board diversity
i
S
t
r
a
t
e
g
c
R
e
p
o
r
t
D
i
r
e
c
t
o
r
s
’
R
e
p
o
r
t
F
i
n
a
n
c
a
i
l
S
t
a
t
e
m
e
n
t
s
Chair
Executive directors
Non-executive directors
12%
25%
63%
Under 3 years
3-6 years
6-9 years
Over 9 years
25%
37.5%
37.5%
0%
Male
Female
62%
38%
Committee compositions
Nomination
Committee
Technology
Committee
Audit and Risk
Committee
Remuneration
Committee
Chair
Executive directors
Non-executive directors
14%
14%
72%
Chair
Executive directors
Non-executive directors
25%
0%
75%
Chair
Executive directors
Non-executive directors
33%
0%
67%
Chair
Executive directors
Non-executive directors
Annual Report and Financial Statements 2019
25%
0%
75%
59
Directors’ Report
Directors’ Report continued
Role of the Board
and its committees
The Board
Role of the Board
The Board is responsible for creating and delivering
long-term sustainable value for the business and is
accountable for balancing the interests of the Group,
including our customers, shareholders, employees and
agents, regulators and the communities we serve. 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 are fully aware of, and comply with,
their responsibilities and duties under section 172
of the Companies Act 2006 (see page 31 for our
s172(1) statement).
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 chair 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
• Approval of new accounting policies or significant
changes to existing ones
• Policy on remuneration of directors
Board committees and their reserved matters
The Board delegates authority to the Board committees which are responsible for maintaining effective governance.
The specific responsibilities of the Board’s committees are set out in their terms of reference
available on our website www.ipfin.co.uk.
Nomination Committee
• Review structure, size and
composition of the Board and
its committees
• Review annually the
succession plan
• Assist in the process of selection
and appointment of new directors
• Evaluate the balance of skills,
knowledge, experience and
diversity of the Board
Audit and Risk Committee
• Monitor integrity of the Financial
Statements and provide advice to
the Board on whether they are fair,
balanced and understandable
• Review effectiveness of internal
controls and review principal
and emerging risks
• Appoint and evaluate the external
auditor and its independence
• Review and monitor effectiveness
of internal audit function
Remuneration Committee
• 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
• Review wider
workforce remuneration
Technology Committee
• Oversee IT strategy and delivery
• Review and oversee key IT risks and
ensure any issues are escalated
to the Board
• Monitor IT deliverables and
cost control
Executive Committee
• 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
Disclosure Committee
• 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
60
International Personal Finance plc
Board objectives
The Board was supported by its committees in progressing its objectives during the year as detailed below:
2019 progress
Key priorities for 2020
• Monitored the operational and financial performance
• Monitor the operational and financial performance
of the Group’s businesses including:
of the Group’s businesses, including:
• continued focus on delivering consistency of execution
• continued improvement in the consistency of operational
in Mexico;
and financial performance in Mexico;
• successful delivery of a maiden profit by IPF Digital in 2019;
and
• continued evolution of the European home credit business
delivering a great customer experience and generate
strong returns to invest in modernising these businesses
and in growing Mexico home credit and IPF Digital.
• continued profitable growth in IPF Digital; and
• investment in the continued modernisation of the European
home credit business to deliver sustainably strong returns
to fund our growth opportunities.
• Continued to monitor the Group’s compliance with existing
• Continue to monitor the Group’s compliance with existing
legislative and regulatory requirements and support
improvement of Company and sector reputation to lower the
risk of adverse regulation.
legislative and regulatory standards, together with mitigation
planning for possible new regulation.
• Supported the development and deployment of technology
• Support the development of technology across the
across the business, with emphasis on the customer
experience including the further development of agent
mobile technology in all our European home credit markets.
business with emphasis on the customer experience,
customer retention and profitability.
• Supported the development of new products and channels,
including IPF Digital’s mobile wallet, whilst ensuring that loans
were granted in a responsible and ethical manner through
the use of robust application and behavioural scoring
systems and application of the Group’s compliance
framework.
• Considered the needs and views of stakeholders to help
generate and maintain long-term value. Monitored our
engagement with Polish tax authorities which resulted
in a satisfactory conclusion regarding 2010 to 2017.
• Continue to monitor the principal and emerging risks facing
the Group, establishing the Group’s risk appetite for each,
and promoting actions to ensure that, so far as possible,
each risk falls within such risk appetite.
• Consistently consider the needs and views of all stakeholders
in the Group’s business.
• Continued to support the Group’s people strategy in respect
• Continue to support the Group’s people strategy
of leadership, development and succession planning,
and approved the employee value proposition for roll-out
across the Group in 2020.
in the furtherance of leadership, development and
succession planning.
• Monitored the strength of the Group’s balance sheet
• Monitor the strength of the Group’s balance sheet and the
and the development of the longer-term funding strategy.
development of longer-term funding strategy, and support the
refinancing of the Eurobond.
• Monitored the Group’s cultural climate.
• Promote the alignment of the Company’s culture with its
purpose, values and strategy, and reinforce its ethical and
safety standards.
Annual Report and Financial Statements 2019
61
Strategic ReportDirectors’ ReportFinancial Statements Directors’ Report continued
Board activities during 2019
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. Our s172(1) statement
is on page 31.
Strategy and management
• Two-day strategy retreat to discuss
and evaluate the focus and risks
for the Group’s strategy and
business plan.
• Four Board strategy dinners enabled
deep dives into particular topics
including how to attract customers
in IPF Digital and initiatives to mitigate
the effects of regulatory change.
• Reviewed KPIs and considered
trading performance against KPIs.
• Received updates and discussed
the ongoing transformation of the
Group’s technology capabilities.
• Received and approved
a presentation on the Group’s
finance strategy.
• Received presentations on the Group’s
HR strategy including talent
management and capabilities,
succession planning and the senior
management gender diversity split.
• Received and reviewed regular
updates on the performance of each
business and considered key strategic
and operational opportunities and
challenges, regulatory and market
developments, stakeholder
considerations and material
business outcomes.
• Increased focus on the delivery
of operational excellence and
consistency of execution.
• Monitored and kept under review
the potential impact of Brexit
on the Group.
Risk management
and internal controls
• Reviewed and approved risk
appetite proposals and the
schedule of principal risks.
• Reviewed the enhanced risk
management reporting provided
by the introduction of a new risk
management control framework tool.
• Considered the framework for
monitoring the Group’s principal
and emerging risks.
• Received regular health and safety
updates including the success of the
mental health first-aider programme.
• Received reports from the Audit and
Risk Committee on the effectiveness
of the Group’s systems of risk
management and internal controls.
• Approved the reappointment
of Deloitte LLP as auditor on the
recommendation of the Audit
and Risk Committee.
• Monitored the implementation
and roll-out of a new and more
accessible business-wide ‘Speak Up’
whistleblowing service and monitored
output from its operation.
• Received regular updates from the
Audit and Risk Committee in respect
of internal and external audit reviews.
Financial reporting
• Received regular updates on
performance against budget
and forecast.
• Approved the 2018 Annual Report
and Financial Statements.
• Reviewed the long-term viability
and going concern statements
in the 2018 Annual Report and
Financial Statements.
• Reviewed and approved
half and full-year results and
announcements, together
with quarterly trading updates.
• Approved interim and final dividends.
• Monitored the Group funding
position including bond issuance
and bank facilities, and approved
the refinancing plan.
• Received updates on the
improvement of the credit
rating position.
• Approved the 2020 Group budget
and business plan, reviewing key
assumptions, inputs and risks,
and monitored performance and
variance against the 2019 plan.
• Received regular updates on the
development of tax risk affecting
the Group including the tax audits
in Poland.
• Annual review and approval
of the Group’s tax strategy.
62
International Personal Finance plc
Board composition
and effectiveness
• Reviewed Board and Board
committee succession plans
and succession plans for senior
management.
• Participated in an externally-facilitated
Board evaluation and agreed actions
following a review of findings.
• Received training on the operation
of Serious Fraud Office investigations,
a refresher on IFRS 9, as well as market
visits, presentations and deep dives
into particular topics at Board
strategy dinners.
Governance
• Considered the Group’s cultural
climate through a number of
channels. Also monitored the
implementation and roll-out of
a new business-wide whistleblowing
programme. See page 34.
• Commenced a review of the
Company’s bid defence strategy.
• Received updates from each Board
committee and reviewed terms
of reference for the Executive
Committee and Risk Advisory Group.
• Reviewed and approved an update
on the matters reserved for the Board.
• Reviewed and considered conflicts
• Agreed Board objectives for 2019
of interest.
Stakeholder engagement
• Communicated with our major
shareholders on the proposed 2020
Remuneration Policy for approval
at the 2020 AGM.
• As a result of feedback from
shareholders in the run up to the 2019
AGM, it was agreed that we would
publish prospective LTIP targets to
increase transparency (see page 106).
• Visited the following local markets,
to meet management and employees
and agents, either individually
or collectively: Czech Republic,
Estonia, Finland, Hungary, Mexico,
Poland, Romania and Spain.
• Reviewed feedback following
investor roadshows.
• Considered initial activity and
feedback from the workforce and
stakeholder engagement director.
• Received updates on the
management of regulatory issues
and updates on our regulatory
engagement strategy.
• Oversaw the 2019 Global People
Survey which provided useful insights
into the opinions of employee
and agents.
Annual Report and Financial Statements 2019
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Strategic ReportDirectors’ ReportFinancial Statements Directors’ Report continued
Board and committee
evaluation
In accordance with the 2018 UK
Corporate Governance Code
and the Board’s three-year cycle,
the 2019 Board and committee
evaluation was facilitated externally
by EquityCommunications Limited
which has no other connection
with the Company or with any of the
directors. EquityCommunications
sent each director and the company
secretary a questionnaire that had
been designed specifically for IPF. The
key areas of focus included strategy,
Board composition, corporate culture
and regulatory matters. The responses
were assessed and evaluated by
EquityCommunications which produced
a comprehensive report of its findings.
Having conducted IPF’s Board evaluation
in 2016, EquityCommunications was
well-placed to assess progress made.
Strategy and succession planning were
two specific areas of focus following the
2016 evaluation and the 2019 evaluation
demonstrated that these have now
been addressed successfully.
No significant concerns were raised
in the 2019 evaluation and the Board
discussed the findings and
recommendations, including succession
planning for committees, before
agreeing actions. The review concluded
that the performance of the Board,
its committees, the Chairman and each
of the directors continues to be effective.
All directors demonstrated commitment
to their roles and the boardroom culture
was deemed effective and conducive
for creating a positive environment for
participation and challenge by the
non-executive directors. The Board also
considered its performance during the
year and was satisfied that the directors
had worked well together, and that the
Board had discharged its duties and
worked effectively with its committees.
The composition of the Board in terms
of its diversity, knowledge and skills base
was evaluated and it was concluded
that it was a balanced and diverse
Board. Further information in terms
of the outcomes and actions taken are
detailed below:
Key findings in 2018
What we did
Board members requested that more time be spent on
strategic priorities in addition to considering near-term
operational issues.
The two-day strategy retreat was valued by the
Board as an opportunity to understand and debate
management’s perspective and recommendations.
Strategy now features regularly at Board meetings and
the introduction of Board strategy dinners has enabled
deep dives into particular strategic issues.
Training requirements in specific areas such as
product development and customer intelligence
were highlighted.
The annual Board programme included regular
presentations from management, market visits and
informal meetings.
Key findings in 2019
What we are doing
Positive feedback on the enhanced focus and time
devoted to strategy.
Board composition and succession planning – the mix
of skills and experience is appropriate and has been
diversified and strengthened by recent appointments
to the Board. Progress has been made on embedding
succession planning into Board discussions.
Continue to develop and enhance the strategy retreat
so that it retains focus. Strategy to continue to be
discussed regularly at Board meetings and Board
strategy dinners to continue.
Continued focus to enhance Board succession
planning, particularly in respect of key roles,
to ensure the correct composition and diversity
of skills and experience to meet the Company’s future
strategic goals.
Committees – the operation of the Board committees
remains effective.
Ensure that committee terms of reference reflect
future focus.
Corporate culture – the Board’s values are aligned
to those of the Group. The culture of the Board is open,
transparent and collaborative with the Chairman
demonstrating leadership and encouraging an open
and transparent style.
Training and development – the Board received training
on IFRS 9 and on the operation of Serious Fraud Office
investigations. In addition, Board strategy dinners provided
an opportunity to develop a deeper understanding of the
markets in which the Group operates with presentations
from country and senior managers on specific topics.
The recently appointed non-executive directors undertook
a successful induction.
Build on the foundations set for a collaborative
and open Board culture.
Continue to encourage non-executive directors
to visit IPF businesses in order to gain insight into
how our culture and values are translated into
day-to-day operations.
Continue to monitor the training needs of the
Board and to provide opportunities for non-executive
directors to gain first-hand insights into the business
by spending more time in our markets outside the
formal Board meeting cycle.
Regulatory matters – the Board has confidence in the
ability of the business to identify and manage future
regulatory challenges.
Continue to build on the progress made on the
regulatory engagement strategy to achieve compliance
and assurance, and to operate with integrity.
64
International Personal Finance plc
Stakeholder engagement
Specific initiatives and progress
The Board maintains a broad-based
awareness of the Group’s engagement
with its stakeholders, through a number
of means including CEO reports at each
Board meeting and regular business
unit and functional reports throughout
the year. The Board’s nominated
workforce and stakeholder engagement
director, Bronwyn Syiek, led the Board
in reviewing stakeholder engagement
reports, two of which were tabled
in 2019, and assisted the Board
in considering and balancing the
interests of stakeholders as the Board
conducted its work.
In response to commentary in the 2018
Board evaluation, significantly more
time was devoted to strategy discussions
in 2019 enabling the Board to
understand a broader range of topics
including customer segmentation, and
the viability of new products potentially
enabling a broader and deeper
engagement with customers.
Considering our
stakeholders
“As the workforce and
stakeholder engagement
director, I took an active role
in understanding the
activities that facilitate our
engagement with various
stakeholders, particularly
with employees. Early in 2019
I took part in a ‘getting to
know you’ talk at the Group
head office and I also held
‘skip a level’ meetings with
employees reporting at
a level below management.
These gave me and other
senior leaders a real insight
as to what colleagues think
and feel about working for IPF,
what they value and
what they would like
to see changed.”
Bronwyn Syiek
Workforce and stakeholder
engagement director
Customers
Employees
and agents
We want informed and engaged
customers, whose credit needs
are being met in an affordable way,
who are delighted with the experience
they have received and who are
advocates for our products and
services. All Board members visit
home credit customers as part of their
induction. In 2019, Bronwyn Syiek and
Deborah Davis joined agents visiting
customers in Hungary and Poland.
The Board spent time during the
strategy retreat focused on customer
advocacy. Discussions on improving
the customer journey were undertaken
to develop a deeper understanding
of our customers and how best to
engage with them, and customer-
related themes were developed and
discussed in detail during the Board’s
strategy dinners. In the context of both
strategy review and reporting by the
CEO and business unit leaders,
the Board considered and discussed
the output of extensive market
research pointing to the development
of new products, including a mobile
wallet offering in IPF Digital.
The Board has placed emphasis
on ensuring that customers buying
insurance products through the
Group are well-informed, receive good
value and are being well-supported.
Accordingly, the Board regularly
monitors a number of insurance
product specific value and
compliance key performance
indicators. In response to Board input,
the range of such KPIs was expanded
during the year, and improvement
actions were undertaken.
Improvement actions identified
through the 2019 Board evaluation
include a decision to cover more
customer-facing matters to
appropriately balance in-depth
financial reporting during 2020.
We need informed and engaged
employees and agents who
understand our purpose and how their
work contributes to our goals. We want
them to be proud of working for the
business and motivated to give their
best in serving our customers.
In addition to receiving reports from
a number of business unit and
functional leaders throughout the
year, the Board has engaged directly
with employees through the
participation of both executive and
non-executive Board members in
employee conferences, ‘town hall’
style meetings and other ad hoc
meetings. These provide an
opportunity to update colleagues on
performance or Group initiatives and
give time for questions and feedback.
Meetings during 2019 have included
the participation of the Chairman and
our nominated workforce and
stakeholder engagement director,
Bronwyn Syiek.
Additionally, the Board holds one of its
scheduled meetings each year in one
of the Group’s markets and takes the
opportunity to discuss business
matters with local business and
function leaders. In 2019, the Board
held its October meeting at the
Hungary home credit head office
in Budapest.
In addition to regular reviews of the
Group’s HR Strategy (including talent
management, succession planning,
wellbeing, health and safety, and
wider workforce remuneration), the
Board took great interest in the Global
People Survey that was conducted in
2019. The emergent collective opinions
of employee and agents were
considered, together with the action
plans being undertaken.
Annual Report and Financial Statements 2019
65
Strategic ReportDirectors’ ReportFinancial Statements Directors’ Report continued
Regulators
and legislators
We want regulators and legislators
to understand the important role our
business plays in extending financial
inclusion in society. We are supportive
of regulation that is well-considered
and thereby effective in protecting
consumer interests while maintaining
our customers’ access to legitimate,
regulated credit.
The Board maintains a close interest
in the Group’s engagement with
regulators and legislative stakeholders
which is conducted primarily by the
Group’s corporate affairs function.
The Board receives regular and
detailed updates on actual and
potential regulatory developments,
and, considers the implications
for the Group’s strategy and purpose.
Findings from the Group’s Financial
Wellbeing report are shared with the
Board twice a year to enable a greater
understanding of the needs of
consumers and how this information
will be communicated to regulators
and other key stakeholders
and influencers.
Suppliers
Our goal is to co-operate with
informed and engaged suppliers who
understand how their products and
services contribute to the delivery of
our business goals, and who also act
according to our values and culture.
That is why we take steps to develop as
a reliable partner for our suppliers and
at the same time to manage our
business objectives properly.
In 2019, we focused on the qualitative
and efficient application of the new
procurement policy across the Group.
The policy governs, among other
things, how to properly engage with
our suppliers, including preserving fair
competition and equal treatment of
suppliers. Our procurement teams
also aim to encourage better social,
ethical and environmental
performance of our supply chain as
part of sustainability practices and
reputational risk management.
This includes adoption of responsible
supply chain management practices.
IPF has effectively implemented
a regular quarterly procurement
committee across European home
credit, governing adherence to
IPF procurement policy. Procurement
teams have been supported in their
efforts by internal audit whose
recommendations have been
implemented.
In 2020, along with implementation of
the quarterly procurement committee
in Mexico home credit and IPF Digital,
we plan to engage with our key
suppliers through a process known as
Voice of the Supplier. This process will
enable a better understanding of how
we are perceived as a customer and
what the other party’s expectations
are. Using this information we aim
to streamline our interface activities,
whilst ensuring effective, responsible
and sustainable partnerships.
Communities
We are committed to making a
positive difference in the communities
in which we serve our customers. Our
international teams support various
local organisations through financial
and volunteer initiatives.
Engagement with communities
is undertaken in each market by
colleagues and in partnership with
community groups. The Board receives
updates on the initiatives that are
undertaken and encourages broad
participation across the Group. In
2019, non-executive director Bronwyn
Syiek and company secretary James
Ormrod took part in the IPF
International Volunteer Month joining
3,600 colleagues across 12 countries
in donating more than 8,200 working
hours to our communities.
The Board, through its Technology
Committee, has supported the digital
transformation of European home
credit with further enhancements to
the Group’s agent mobile technology.
This has achieved a number
of objectives during the year, including
a considerable environmental benefit
through the elimination of the use
of paper in most agent activities.
With the support of the Board, the
promotion of financial literacy has
been a key component of the Group’s
community programmes in
furtherance of our desire to extend
financial inclusion across the
communities we serve.
Shareholders
and investors
We want informed and engaged
investors who, through a good
understanding of our purpose,
business model and operational and
financial strategies, make informed
investment decisions.
The Board’s engagement with investors
is primarily through the CEO and CFO,
regular roadshows, investor updates
and in response to specific requests.
The Chairman and senior independent
director also maintain an open
relationship with our major
shareholders providing the opportunity
to speak or meet directly on request.
The Board seeks to ensure that the
Group keeps equity and debt investors
updated appropriately with regard
to all material matters and
developments, including those in
relation to regulation, tax matters,
funding plans and executive
remuneration. Minutes of all meetings
of the Board’s Disclosure Committee
are tabled at Board meetings.
The Chairman and senior independent
director hosted a lunch for the Group’s
largest shareholders offering an
opportunity to discuss the business
and listen to their views. Additionally,
through the Remuneration Committee
the Board consulted with the
Company’s major shareholders on the
proposed new remuneration policy
to be tabled at the 2020 AGM.
The AGM is attended by the Board
of directors and is open to all
shareholders to attend.
66
International Personal Finance plc
Compliance with the UK
Corporate Governance
Code 2018 (the Code)
The Company complied with the
provisions set out in the 2018 version of
the Code, which applied throughout
the financial year ended 31 December
2019. 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. We set out below how the
Code principles have been applied.
Board leadership and company
purpose
A successful company is led by an
effective and entrepreneurial board,
whose role is to promote the long-term
sustainable success of the company,
generating value for shareholders
and contributing to wider society.
See pages 30 to 37, and 65 to 66.
The board should establish the
company’s purpose, values and
strategy, and satisfy itself that these
and its culture are aligned. All directors
must act with integrity, lead by
example and promote the desired
culture. See pages 4 to 5 and 18 to 21.
The board should ensure that the
necessary resources are in place
for the company to meet its objectives
and measure performance against
them. The board should also establish
a framework of prudent and effective
controls, which enable risk to be
assessed and managed. See pages
39 to 43 and 44 to 52.
In order for the company to meet
its responsibilities to shareholders
and stakeholders, the board should
ensure effective engagement with,
and encourage participation from,
these parties. See pages 65 to 66.
The board should ensure that
workforce policies and practices
are consistent with the company’s
values and support its long-term
sustainable success. The workforce
should be able to raise any matters
of concern. See pages 34, 55 and 63.
Division of responsibilities
The chair leads the board and is
responsible for its overall effectiveness
in directing the company. They should
demonstrate objective judgement
throughout their tenure and promote
a culture of openness and debate.
In addition, the chair facilitates
constructive board relations and
the effective contribution of all non
executive directors, and ensures that
directors receive accurate, timely
and clear information. See page 68.
The board should include an
appropriate combination of executive
and non executive (and, in particular,
independent non executive) directors,
such that no one individual or small
group of individuals dominates the
board’s decision-making. There should
be a clear division of responsibilities
between the leadership of the board
and the executive leadership of the
company’s business. See page 68.
Non executive directors should have
sufficient time to meet their board
responsibilities. They should provide
constructive challenge, strategic
guidance, offer specialist advice
and hold management to account.
See page 68.
The board, supported by the company
secretary, should ensure that it has the
policies, processes, information,
time and resources it needs in order
to function effectively and efficiently.
See page 68.
Composition, succession,
evaluation
Appointments to the board should
be subject to a formal, rigorous and
transparent procedure, and an
effective succession plan should
be maintained for board and senior
management. Both appointments and
succession plans should be based
on merit and objective criteria and,
within this context, should promote
diversity of gender, social and ethnic
backgrounds, cognitive and
personal strengths. See page 75.
The board and its committees
should have a combination of skills,
experience and knowledge.
Consideration should be given
to the length of service of the board
as a whole and membership regularly
refreshed. See pages 56 to 57 and 64.
Annual evaluation of the board should
consider its composition, diversity and
how effectively members work together
to achieve objectives. Individual
evaluation should demonstrate
whether each director continues
to contribute effectively. See page 64.
Audit, risk and internal control
The board should establish formal and
transparent policies and procedures to
ensure the independence and
effectiveness of internal and external
audit functions and satisfy itself as to
the integrity of financial and narrative
statements. See pages 79 to 80.
The board should present a fair,
balanced and understandable
assessment of the company’s position
and prospects. See page 81.
The board should establish procedures
to manage risk, oversee the internal
control framework, and determine the
nature and extent of the principal risks
the company is willing to take in order
to achieve its long-term strategic
objectives. See pages 44 to 52
and 78 to 79.
Remuneration
Remuneration policies and practices
should be designed to support
strategy and promote long-term
sustainable success. Executive
remuneration should be aligned to
company purpose and values, and be
clearly linked to the successful delivery
of the company’s long-term strategy.
See pages 89 to 96.
A formal and transparent procedure
for developing policy on executive
remuneration and determining
director and senior management
remuneration should be established.
No director should be involved in
deciding their own remuneration
outcome. See page 93.
Directors should exercise independent
judgement and discretion when
authorising remuneration outcomes,
taking account of company and
individual performance, and wider
circumstances. See page 106.
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.
Annual Report and Financial Statements 2019
67
Strategic ReportDirectors’ ReportFinancial Statements Directors’ Report continued
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
(see page 43);
• principal risks and uncertainties (see
pages 44 to 52); and
• the future development,
performance and position of the
Group (see page 53).
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.
Division of responsibilities
The roles of the Chairman and Chief
Executive Officer are clearly defined
and the division of responsibilities is
established and set out in writing.
The Chairman is responsible for the
leadership and effectiveness of the
Board. He is also responsible for the
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.
The Chief Executive Officer is
responsible for setting and executing
the strategy effectively, and managing
the Group’s businesses.
Commitment
The Chairman and the non-executive
directors should have sufficient time
to fulfil their duties and directors’ other
commitments are kept under review
to ensure that they have sufficient time
to dedicate to our business.
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
their executive responsibilities
adversely. The executive directors
currently do not hold any external
directorships. A non-executive director
should not hold more than four other
material non-executive directorships.
If they hold an executive role in a FTSE
350 company, they should not hold
more than two other material non-
executive directorships.
In November Richard Moat took on the
role of Chief Executive Officer at
Technicolor plc. The Board considered
and approved him taking on this
appointment and was confident that
he would be able to continue to
devote the appropriate time to his role
as senior independent director and
Chairman of the Audit and Risk
Committee. The external commitments
of the Chairman and the other
non-executive directors have also
been reviewed and the Board is
satisfied that these do not conflict
with their required commitment to
the Company.
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, following recommendation
by the Nomination Committee, for two
further three year periods. The Board
will not normally extend the aggregate
period of service of any independent
non-executive director beyond nine
years. 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. Richard Moat
was appointed as the senior
independent director at the
conclusion of the 2019 AGM. 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.
He will also consider the relationship
between the Chairman and the
Chief Executive Officer.
The external commitments of the
Chairman and the other non-executive
directors have also 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
2019 included presentations to the
Board on subjects including IFRS 9
and the operations of the Serious
Fraud Office. The Board also visited the
home credit business in Hungary and
received presentations from the
management team in this market,
and presentation updates were
received from other market leaders
during other scheduled Board
meetings. Individual directors visited
a number of 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.
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.
Evaluation
In 2019, an externally facilitated
evaluation of the performance of the
Board and its committees was carried
out by EquityCommunications Limited.
Directors completed a questionnaire,
the results of which were collated,
reviewed and presented for discussion
at the December 2019 Board meeting.
Details of the principal outcomes
relating to the Board evaluation
can be found on page 64.
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International Personal Finance plc
Election or re-election
of directors
All directors are subject to election or
re-election at the AGM, in accordance
with the Code. All directors, except for
Dan O’Connor, will seek election or
re-election at our AGM on 30 April
2020. Details of the directors can be
found on pages 56 to 57.
Shares in issue
As at 31 December 2019, 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.
10,562,605 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 26 to the
Financial Statements.
Share class rights
The share class rights, which are
set out in the Company’s Articles,
are summarised as follows. The
ordinary shares are listed on the
London Stock Exchange and
Warsaw Stock Exchange.
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 2019 AGM, we received
shareholder authority to buy back up
to 22,365,526 of the Company’s shares
until the earlier of the conclusion
of the 2020 AGM or 30 June 2020.
Any ordinary shares purchased could
be cancelled or held in treasury. This
authority was not exercised in 2019. A
further authority to purchase our own
shares will be sought at the 2020 AGM.
Interest in voting rights
As at 31 December 2019, 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
Aberforth Partners LLP
Marathon Asset Management LLP
FIL Limited
FMR LLC
Schroders plc
Old Mutual Asset Managers (UK) Ltd
BlackRock, Inc.
Norges Bank
Investec Asset Management Ltd
Oppenheimer Funds Inc/Baring Asset Management Ltd
BNP Paribas Investment Partners
Date notified
% of issued share capital1
03/07/2019
30/07/2019
28/10/2019
04/07/2016
10/01/2018
17/03/2014
12/04/2010
16/07/2009
26/08/2019
03/08/2009
26/06/2009
08/07/2015
12.74
10.07
10.05
6.31
5.28
5.01
4.88
4.54
4.36
3.50
3.02
3.02
As at 26 February 2020, the following shareholder had notified an interest in our issued share capital in accordance with the DTR:
Name
Standard Life Aberdeen plc
Date notified
% of issued share capital1
04/02/2020
11.93
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.
Annual Report and Financial Statements 2019
69
Strategic ReportDirectors’ ReportFinancial Statements Directors’ Report continued
Authority to issue shares
At the 2019 AGM, an ordinary
resolution was passed authorising the
directors to issue new shares up to an
aggregate nominal amount of
£7,445,175, representing approximately
one-third of the issued share capital
of the Company (excluding treasury
shares) and allot further new shares in
the case of a rights issue only up to an
aggregate nominal amount of
£7,455,175, representing approximately
a further one third of the issued share
capital. Further special resolutions
were passed to effect a disapplication
of pre-emption rights in certain
circumstances.
Resolutions to renew these authorities
will be proposed at the 2020 AGM.
Further details can be found in the
separate notice of meeting.
Directors
Details of the current directors can be
found on pages 56 to 57. Tony Hales,
who was a non-executive director,
did not seek re-election at the 2019
AGM and stepped down from
the Board.
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 2019
or at any time up to 26 February 2020.
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 2019 and
up to 26 February 2020.
Powers and proceedings of
directors
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 they have an
interest which they know is material.
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.
Related party transactions
Related party transactions are set
out in note 30 to the Financial
Statements.
Financial instruments
Details of the Group’s financial
instruments are set out in note 21
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
11 May 2020 to shareholders on the
register of members on 14 April 2020.
Employees
Employee engagement and
communication
We want an informed and engaged
workforce who understand the
Company’s purpose and mission,
and how their work contributes
to the delivery of our business goals.
We have a proactive approach to
employee communication which is
at the heart of our commitment to
1. The Euro Medium Term Note programme was established in 2010. The following notes
(listed on the London or Nasdaq Stockholm stock exchanges) have been issued under
the programme and are outstanding as at the date of this report; sterling 44.1 million with
a seven-year term and a 6.125% coupon; euro 294.1 million with a seven-year term and
a 5.75% coupon; euro 100 million ‘tap’ of our existing Eurobond with a six-year term and a
5.75% coupon; euro 12 million ‘tap’ of our existing with a three-and-a-half year term and
a 5.75% coupon; SEK450 million Swedish krona bond with a four-year term and a coupon
of three-month STIBOR plus a margin of 8.75% and a GBP 78.1 million with a four-and-a-half
year term and a coupon of 7.75%.
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.
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International Personal Finance plc
engage effectively and transparently.
Our CEO hosts webcasts 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.
active participation in the sharing of
experiences and the creation of
in-house online news bulletins. In 2019,
we undertook a Global People Survey
to measure employee and agent
engagement as well as identify areas
for improvement. During her first year
as workforce and stakeholder
engagement director, Bronwyn Syiek
participated in a detailed programme
of activities which has facilitated
engagement with a wide range
of employees and other stakeholders.
We increasingly use technology
to create international networks and to
manage virtual teams. We encourage
For more information on stakeholder
engagement please see page 30 to 37
and pages 65 to 66.
Employee benefit trust
We operate an employee benefit trust
with an independent trustee, Apex
Financial Services (Trust Company)
Limited, to hold shares on behalf of
employees pending entitlement to
them under our equity share incentive
plans. In 2019, the trust acquired
1,718,000 shares via market purchase
and, as at 31 December 2019,
the trustees held 1,661,478 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.
Employee equity incentive plans
UK eligible employees are able to participate in our equity share incentive plans, details of which are shown below.
We encourage employees to take part in our Save As You Earn (SAYE) plan which gives them the opportunity to buy shares
in the Company and share in our long-term success.
Awards granted to the executive directors in 2019 are set out in the Directors’ Remuneration report on page 100 to 101.
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
CSOP
DSP
PSP
SAYE
Executive directors and senior managers
Executive directors and senior managers
Executive directors and senior managers
Executive directors and UK employees
Discretionary Award Plan
Employees other than executive directors
Details of outstanding awards are included in note 25 to the Financial Statements.
Employment policies
Equal opportunities
The Group is an equal opportunities
employer. It is our policy that no job
applicant, employee 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. The Group gives full and
fair consideration to applications for
employment from disabled persons,
having regard to their particular
aptitudes and abilities. If an employee
becomes disabled, every effort is
made by the Group to ensure their
employment with the Group continues
and appropriate training and
reasonable adjustments are
arranged where necessary.
Human rights, diversity and
modern slavery
Information relating to diversity and
gender, human rights, and Board
diversity is shown on pages 34 to 35
and 75. Our Modern Slavery Act 2015
statement is available on our website
at www.ipfin.co.uk.
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 completed
anti-bribery and corruption training.
In 2019, the anti-bribery policy was
reviewed and reissued.
Annual Report and Financial Statements 2019
71
Strategic ReportDirectors’ ReportFinancial Statements Directors’ Report continued
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 – licenced by
Czech National Bank
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 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).
Budgetary process and
financial reporting
The Board approves a detailed
budget each year 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
business. When the submissions have
been aggregated and consolidation
adjustments made to remove
intercompany transactions,
the consolidated result is reviewed
by the Group Financial Controller and
the CFO. The results are compared
with the budget and prior year figures,
and any significant variances are
clarified. Checklists are completed by
each statutory entity and by the Group
reporting team to confirm that all
required controls, such as key
reconciliations, have been performed
and reviewed.
The Financial Statements, which are
agreed directly to the consolidation of
the Group results, are prepared by the
Group reporting team and reviewed
by the Group Financial Controller and
the CFO. 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 CFO and they
are signed by the CEO and the CFO.
For further details on our risk and
internal control processes,
see pages 44 to 52.
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 monthly
performance updates. 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 2019. 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 71.
The health and safety of our
employees, agents and other people
who may be affected by our activities
is paramount to us. Our Group-wide
safety management system is
compliant with OHSAS 18001 to ensure
all employees and self-employed
agents are provided with the highest
standards of safety supervision,
training, education and advice.
During 2019, all our European home
credit businesses worked towards
ISO 45001, a new Occupational Health
and Safety Management Standard
that replaced OHSAS 18001.
The process was completed
successfully in January 2020 with
a plan for the Mexico home credit
business to be accredited ISO 45001
during 2020. We operate help lines
and ‘Speak Up’ services, available
to all employees and agents, to ensure
that they have access to appropriate
advice and support for their safety and
wellbeing and can raise concerns
directly with senior management.
Each subsidiary board is responsible
for the implementation of its own
health and safety policy and
a six-monthly Group health and
safety update is presented at
Group Board meetings.
Community investment activity
is focused on the needs of the
communities we serve and we
utilise London Benchmarking
Group methodology to measure
this investment.
72
International Personal Finance plc
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 1.9%.
We attribute the impact on the carbon
footprint of our operations in 2019
primarily to the ongoing replacement
of diesel-powered vehicles with
petrol and hybrid cars, and office
consolidation in some European
home credit markets.
In 2019, 46% of our community
investment focused on education
and 28% on social welfare. Employees
volunteered 18,205 hours in Company
time (2018: 5,611) and a further 11,534
hours in their own time. Employees also
raised a further £49,000 for community
investment purposes. In total, we
invested £953,000 (2018: £729,000) in
supporting local communities in 2019.
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 84 to 106. ESG matters are also
taken into account when providing
training for directors.
Managing our emissions
Climate change is one of the greatest
challenges facing the world today.
We recognise that climate change
has an impact on our business,
our customers and our communities
and as such we are taking action to
reduce our environmental footprint
including carbon emissions. Our direct
operations have an impact on the
climate through car travel and
building emissions. We seek to
minimise these impacts where possible
by regularly reviewing our car fleet and
adopting new technologies to improve
IT energy efficiency. In 2019 all our
European home credit businesses
successfully completed the migration
to e-receipting resulting in a saving
of around 148 tonnes of paper.
We started retrofitting LED lighting
in our Mexico branch network and
digitising paper-intensive processes
such as field risk assessments and
route logging in the Czech Republic.
We encourage our employees
to minimise energy, water and paper
use and offer guidance to our
colleagues who drive cars to conduct
their work to adopt fuel-efficient driving
techniques. We also donated office
furniture, laptops, screens, printers
and mobile phones to our community
partners, diverting these from landfill
while putting them to good use.
A full environmental policy
statement can be found in the
Sustainability section of our website
at www.ipfin.co.uk.
Greenhouse gas (GHG) reporting
We have reported on the most material
carbon emissions sources required
under the Companies Act 2006
(Strategic Report and Directors’
Report) Regulations 2013. We have
applied the Greenhouse Gas (GHG)
Protocol Corporate Accounting and
Reporting Standard to calculate our
emissions data and have used
emissions factors from the UK
government’s GHG conversion factors1
and the current edition of the IEA
Our carbon emissions report has been reviewed by Be Sustainable Limited. 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 by customer
Tonnes CO2e
2019
927
24,273
3,236
28,437
0.013
20182
1,243
24,515
3,244
29,002
0.013
Difference
(25.4)%
(1.0)%
(0.2)%
(1.9)%
1.5%
Note:
Scope 1 carbon emissions do not include leakage from air conditioning systems as it is difficult to collect this data for all the offices we lease.
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 are often part of larger
managed premises, with energy costs included as part of the overall rent. Therefore, accurate gathering of specific energy supply data
for our offices is not possible.
1. https://www.gov.uk/government/publications/greenhouse-gas-reporting-conversion-factors-2019
2. Restated 2018 emissions data to improve the accuracy of reporting, using actual data to replace estimates
Annual Report and Financial Statements 2019
73
Strategic ReportDirectors’ ReportFinancial Statements
Directors’ Report continued
Nomination
Committee Report
“The Nomination Committee
continued its work in evaluating
the skills, experience and
composition of the Board.”
Dan O’Connor
Committee Chairman
Committee members
Dan O’Connor
Chairman
Deborah Davis
Independent non-executive director
John Mangelaars
Independent non-executive director
Cathryn Riley
Independent non-executive director
Gerard Ryan
Executive director and Chief Executive Officer
The table below shows the number of meetings held and
the directors’ attendance during 2019
Committee member
Dan O’Connor
Gerard Ryan
Deborah Davis
Tony Hales2
John Managelaars
Cathryn Riley
Scheduled
meetings1
No. of
meetings
attended
% of
meetings
attended
4
4
4
2
4
4
4
4
4
1
4
4
100%
100%
100%
50%
100%
100%
Notes
1. The scheduled meetings that each individual was entitled
to and had the opportunity to attend.
2. Tony Hales stepped down as a director from the Board at the
2019 AGM. He was unable to attend the February meeting due
to a prior commitment.
Dear Shareholder,
During the year the Nomination Committee continued
to lead succession planning for independent directors
and executive management, as well as considering
Board structure and Board effectiveness. Following their
appointments to the Board in 2018, a comprehensive
programme of induction for Bronwyn Syiek and Deborah
Davis continued into the year.
Role of the Committee
The key role of the Nomination Committee is to ensure
that the Board has the appropriate balance of skills,
knowledge and experience to operate effectively and
deliver the Group’s strategy. The Committee, with the
Board, ensures that plans are in place for orderly
succession to both the Board and senior management
positions, and oversee the development of a diverse
pipeline for succession by considering assessment
profiles for each member of the senior management
group. Succession planning is discussed regularly and
the Committee, with the Board, considers the quality
and development of talent and capabilities of the senior
management group ensuring that appropriate
opportunities are in place for high-performing
individuals and promoting diversity in senior roles across
the Group. As an international business our senior
management group is intrinsically diverse comprising
individuals from a wide range of countries, cultures,
perspectives and backgrounds.
A summary of the length of tenure of the directors
together with a summary of their skills and experience
can be found on page 59. The Committee is confident
that the Board has the necessary mix of skills and
experience to contribute to the Company’s
strategic objectives.
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International Personal Finance plc
Board changes
Stuart Sinclair and Richard Holmes
will be appointed as independent
non-executive directors with effect
from March 2020. Stuart will, subject
to his election at the AGM, succeed
Dan O’Connor as Chairman who
intends to stand down as a director
of the Company at the close of the
AGM. Stuart, who is an experienced
non-executive director, committee
chair and senior independent director,
will also join the Remuneration and
Nomination Committees. Richard
Holmes, who has more than 40 years
of broad international financial
services experience, will join the
Audit and Risk Committee.
Tony Hales, senior independent
director, stepped down following
the AGM and Richard Moat was
appointed to this position.
Board appointments
and diversity
In keeping with the practices of
the Group, the Board through the
Nomination Committee, values
diversity in all its forms and as such
strives to recruit directors from different
backgrounds, with diverse experience,
perspectives, personalities, skills
and knowledge. We believe that this
approach best equips the Board in
developing the Group’s strategy and
overseeing its execution. Our Board
diversity policy enshrines this
commitment and will continue to
guide future appointments. We will
continue to aim to ensure that
candidates are considered from a
wide pool including those with little or
no listed company board experience;
non-executive directors’ long-lists
include 50% women candidates; we
only engage with executive director
search firms which have signed up for
the voluntary code of conduct on
gender diversity; and that the Board
comprises at least two female
directors. The Nomination Committee
and the Group is committed to
increasing diversity across all its
businesses and supporting the
development and promotion
of talented individuals, regardless
of gender, nationality or ethnic
background. As a matter of practice,
whenever the Group engages a
retained recruitment partner, we
stipulate that we require a gender
balanced long-list of candidates. As
reported, we appointed two additional
female non-executive directors in 2018.
In addition to strengthening the skill set
of the Board, their appointment has
also improved the Board’s gender
diversity and we now exceed the
Hampton Alexander target for gender
diversity at Board level.
Board evaluation
The Committee is also responsible
for evaluating the directors’
performance on an annual basis,
and in accordance with the
Corporate Governance Code,
the annual evaluation is facilitated
by an independent third party at least
once every three years. This year the
performance of the Board and
committees was assessed by
EquityCommunications Limited and
I am pleased to report that the review
concluded that the Board and its
committees operated well. Further
details of this year’s review can be
found on page 64.
Annual re-election
of directors
As required by the Corporate
Governance Code, all directors will be
subject to election or re-election at the
next AGM. All non-executive directors
are considered independent In
accordance with UK requirements,
and they continue to make effective
contributions, constructively challenge
management and devote sufficient
time to their role. Accordingly all
directors are proposed for election or
re-election. This is with the exception of
Dan O’Connor who will step down from
the Board and will not be seeking
re-election at the AGM. Further details
are contained in the Notice of Meeting
circulated to shareholders.
Responsibilities
of the Committee
The Committee has specific
responsibilities on behalf of the
Board and these are detailed below:
• to regularly review the structure, size,
and composition of the Board to
maintain the balance of skills,
knowledge, independence,
experience and diversity, and to
make recommendations to the
Board in respect of any changes;
• to consider succession planning for
the Board and other senior
executives and to determine the
skills and experience required for
future appointments;
• to identify and nominate, for the
approval of the Board, candidates
to fill Board vacancies as and when
they arise;
• to evaluate the balance of skills,
knowledge, experience and diversity
required prior to making an
appointment to the Board; and
• to keep the leadership needs of the
Company under review, for both
executive and non-executive
directors.
The Committee’s terms of reference
are on the Company’s website
at www.ipfin.co.uk
Key achievements in 2019
Key objectives for 2020
• The appointment of the Company’s new senior
• To continue to embed the changes needed to ensure
independent director
full compliance with the Code
• Board succession planning and identifying potential
• To continue to focus on succession planning across the
new candidates to strengthen Board capability
• The re-election of the directors at the 2019 Annual
General Meeting
Group, including senior management and Board
appointments, to strengthen the diverse talent pipeline
and identify recruitment needs
• Comprehensive induction plans for newly appointed
non-executive directors and effective onboarding
of the new Chairman
Annual Report and Financial Statements 2019
75
Strategic ReportDirectors’ ReportFinancial Statements Directors’ Report continued
Audit and risk Committee report
Audit and Risk
Committee Report
“The Committee has
supported the Board and
played a key oversight role
on a number of significant
matters, relating to
financial reporting,
internal control and
risk management.”
Richard Moat
Committee Chairman
Committee members
Richard Moat
Chairman and senior independent non-executive
director
Bronwyn Syiek
Independent non-executive director
Deborah Davis
Independent non-executive director
For insights into our risk management process
see pages 44 to 46
The table below shows the number of meetings held and
the directors’ attendance during 2019
Committee member
Deborah Davis2
Tony Hales3
Richard Moat
Bronwyn Syiek
Scheduled
meetings1
No. of
meetings
attended
% of
meetings
attended
4
2
6
6
4
1
6
6
100%
50%
100%
100%
Notes
1. The scheduled meetings that each individual was entitled to
and had the opportunity to attend.
2. Deborah Davis was appointed as a member of the Audit and
Risk Committee on 21 February 2019.
3. Tony Hales stepped down as a director from the Board at the
2019 AGM. He was unable to attend the February meeting due
to a prior commitment.
Dear Shareholder,
On behalf of the Board, I am pleased to present the
Audit and Risk Committee’s report for the year ended
31 December 2019.
The year in review
This section of the Annual Report sets out how the
Committee has addressed both routine and
emerging topics during the year. Throughout 2019
we 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, cyber threat and information
security, safety, whistleblowing technology and
operations, and the embedding of IFRS 9, particularly its
impact on the calculation of receivables. After a number
of years of monitoring developments on the Polish tax
audit, the Committee is pleased to note the settlement
for the years 2010 to 2017 inclusive. The Committee also
paid close attention to the changes made to our
operational governance structures across the business,
the progress made in improving the risk management
process and overseeing the continued development
of assurance activities over IPF Digital, as the digital
business continues its growth journey. Time was also
dedicated to considering and then approving the plan
for the 2019 external audit.
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International Personal Finance plc
Role and composition
The Committee consists of
independent non-executive directors
and met six times during the year.
Members and their attendance at
meetings can be found on the
page 76.
Tony Hales stepped down from the
Board and the Committee at the
conclusion of the 2019 AGM.
Deborah Davis joined the Committee
in February 2019. Richard Moat,
the Chair, remained in the role and,
additionally, was appointed senior
independent director.
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 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 and
emerging risks, and consider
the principal risks stated pages
46 to 52 facing the Group and
their mitigation.
Progress against 2019 key objectives
Key objectives for 2020
• Received assurance on the management of ongoing
consumer credit regulatory and taxation issues through
updates on these matters throughout the year.
• Pay close attention to the management of risks posed
by taxation, in particular the Polish tax audits for 2008
and 2009, the refinancing of the Eurobond, and future
legal and regulatory developments.
• Continued to review how the Group anticipates
• Keep under review the Group’s internal control systems,
developments, manages new regulation coming into
effect and achieves ongoing compliance. Reviewed
regulatory anticipation strategy and monitored the
Group’s response to, and preparations for, the potential
introduction of rate cap regulations in Poland and
Romania.
including financial, operational and compliance
controls, to ensure that they continue to manage risks
to the achievement of performance and future
prospects.
• Reviewed and challenged, where necessary, the
effectiveness of an enhanced risk management reporting
tool, which was implemented across the Group in the first
half of the year, enabling the Committee to evaluate its
output in June 2019 and in January 2020.
• Closely monitor the continuing development of the risk
management process to ensure it continues to enable
the identification, assessment and prioritisation of risks
and with a particular focus on emerging risks across
the Group.
• Considered tax risks facing the Group by receiving regular
updates on the development of these risks and
specifically evaluated the relevant output from the
Group’s risk management process.
• Receive assurance on the performance of the policies,
procedures, processes and governance in place to
manage the risk of our customers failing to meet their
contractual obligations.
• Continued to monitor cyber security measures and
• Ensure that sufficient focus continues to be taken to
operational resilience across the Group by reviewing and
challenging an update of the Information Security
Strategy and its execution.
protect the Group’s IT infrastructure, applications and
data, from the continuing threat to the business of
cyber security risks.
Annual Report and Financial Statements 2019
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Strategic ReportDirectors’ ReportFinancial Statements Directors’ Report continued
Activities in 2019
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 how IFRS 9 has been
embedded into business-as-usual
reporting through review and
challenging reports from
management. In addition,
the Committee received reports from
the external auditor setting out its
view on the accounting treatments
and judgements underpinning the
Financial Statements. The Committee
also monitored the adoption of IFRS 16,
which became effective 1 January
2019, in respect of how the Group
accounts for leases.
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 126.
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.
• 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. Key areas
of focus in 2019 were the settlement
of the Polish tax audit for 2010 to 2012
financial years together with the
basis of the judgements taken
relating to accounting for the State
Aid decision and payments made
in respect of the Polish tax audits
of the 2008 and 2009 financial years.
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.
Internal control and risk
management
While the Board is responsible for
overseeing 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
recognises 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 closely monitors
and is supported in its work by the
Risk Advisory Group, which in 2019
comprised the Chief Executive Officer,
Chief Financial Officer and Chief Legal
Officer, together with other members
of the UK Executive and senior
management. 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 and received,
reviewed and challenged regular
updates from management on
these matters.
In December 2016 the Polish Ministry
of Justice published a draft bill which,
amongst other things, proposed
a significant reduction in the cap
of non-interest costs chargeable in
consumer lending. The proposals
were revised by the Ministry in 2019,
subsequently adopted as Government
proposals in mid-2019, and then further
78
International Personal Finance plc
revised by the Government.
Having failed to proceed through
the legislative process prior to Polish
general elections in November 2019,
the proposals are no longer on
the current legislative agenda.
The reintroduction of the proposals
onto the legislative agenda, in the
most recent or a further revised form,
is a possibility. We continue to monitor
the situation closely. Details are
covered in the Operational Review on
pages 24 to 29 and our Principal Risks
and Uncertainties on page 46 to 52.
Additionally, the Committee continued
to monitor the progress of the Polish
tax audits for 2008 to 2012 together
with developments in respect of the
European Commission’s State Aid
challenge. The Board also received
regular updates on associated issues
relating to these issues. Details of the
current status of the tax audits are also
included in the Financial Review on
pages 39 to 43 and our Principal risks
and uncertainties on page 46 to 52.
The Committee has noted that the
Group has continued its strategy
of maintaining diversified sources
of funding and extending the debt
maturity profile. The settlement of the
Polish tax audit for 2010 to 2012,
the improved credit rating position,
and the high level of headroom on
undrawn debt facilities, will allow
more flexibility in the refinancing
of the Eurobond, which the Group
aims to complete by the end of 2020.
The Committee will continue
to assess the impact of these matters
on the business and will monitor
management’s response
throughout 2020.
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 2019 are referred to in the ‘Training’
section on page 81.
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
Group Internal Audit is an independent
assurance function within the Group
providing services to the Committee
and all levels of management. Its remit
is to provide objective assurance over
the design and operating
effectiveness of the system of Internal
control, through a risk-based
approach. It also provides insight,
delivers value, protects and helps the
organisation to achieve its priorities.
Group Internal Audit does this by
bringing a systematic, disciplined
approach to evaluating and improving
the effectiveness of risk management,
control and governance processes.
The function facilitates the Group’s risk
management processes with the
committee and the Board.
Internal audits performed in 2019
Basic assurance
Thematic audits
Branch-level reviews:
• Fraud risk management In field operations
Regulation and compliance:
• Insurance compliance
• Implementation of the Consumer Credit Compliance Framework
• Management of customer complaints
Head office audits:
• Fraud risk management in markets’
head offices
• Business contribution
of marketing expenditure
Core controls to mitigate:
• Credit and collections risk
• Competition risk
• GDPR risk
IT, data and systems:
• Cyber awareness
• IPF Digital cloud security management
• Mexico home credit business transfer to cloud on
Amazon Web Services
• IT asset and licence management
• IPF Digital data storage and structures
• IT resilience and disaster recovery
Credit and collections:
• Post-field collections In the home credit business
• Credit scorecard development at IPF Digital
Strategy, Governance and Risk:
• Group IT governance
• Credit line product governance
• Change management risk governance
Annual Report and Financial Statements 2019
79
Strategic ReportDirectors’ ReportFinancial Statements Directors’ Report continued
The Group Head of Internal Audit
reports into the Chair of the Committee
and, administratively to the Chief
Financial Officer. The function
Is composed of teams across the
markets and at the Group head office
in the UK, and it has a high level of
qualified personnel with a wide range
of professional skills and experience.
Co-sourcing agreements with the
largest professional accountancy
practices ensure access to additional
specialist skills and an advanced
knowledge base.
Group Internal Audit activities are
based on a robust methodology and
subject to ongoing internal quality
assurance reviews to ensure
compliance with the standards
of the Institute of Internal Auditors.
The function has invested in several
initiatives to continuously improve its
effectiveness including a third party
quality assessment at the beginning
of 2019, which concluded positively
on the effectiveness of the function.
Having also invested in the adoption
of new technology, data analytics in
particular will provide deeper audit
testing and will drive increased insight
for Group Internal Audit. The team
follows a continuous improvement
plan and measures its operational
effectiveness via a set of key
performance indicators which are
reported to each meeting of the
Committee and via individual post-
audit quality assessments by auditees,
the results of which are also reported
to the Committee.
The Committee has a permanent
agenda item to cover internal audit
related topics. Prior to the start of each
financial year the Committee reviews
and approves the annual audit plan,
assesses the adequacy of the
resources and reviews the
operational initiatives for the
continuous Improvement of the
function’s effectiveness.
The Committee reviews progress
against the approved audit plan
and the results of audit activities,
with a focus on unsatisfactory audit
results which require attention.
During the year Group Internal
Audit focused on the principal risks
which Include regulatory compliance,
credit risk, cyber threat and
information security, data privacy,
technology resilience and digital
and technological transformations.
Assurance was also provided across
a range of other areas. Details can
be found on page 79.
The Committee 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.
In line with its established practice,
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;
• provision of non-audit services
as set out;
• robustness and perceptiveness
of the external auditor in its handling
of key accounting and audit
judgements;
• the interaction between
management and the external
auditor;
• the delivery of its audit work in
accordance with the agreed plan;
and
• the quality of its report and
communications to the Committee.
This year the effectiveness of the
external audit process was also
evaluated via a questionnaire which
was completed by the Committee,
and by business unit finance directors
across the Group. The results of the
evaluation were reviewed and
considered by the Committee which
concluded that the external audit
process is effective.
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 2019
Other non-audit services
Other assurance services
Total
80
Fee £’000
14
95
109
International Personal Finance plc
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 2019, 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.
The Committee’s responsibilities
are outlined in its terms of reference
which are available on our website
at www.ipfin.co.uk.
This training was complemented
by a visit to the Group’s business
in Hungary, which included
discussions with the home credit
management team.
Committee effectiveness
The Committee’s performance was
reviewed as part of the external Board
evaluation review as discussed on
page 64. Feedback on the frequency
of meetings, volume of business
handled, the conduct of meetings
and the provision of training and
access to external advice 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 and emerging
risks throughout 2019, 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 2019 and up to
26 February 2020.
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 2019, the Committee is
satisfied with the relationship with the
auditor and, in particular, with its
independence, objectivity and
effectiveness. Therefore, at its
February 2020 meeting, the
Committee recommended to the
Board that Deloitte LLP be reappointed
as auditor at the 2020 AGM.
During the year ended 31 December
2019, 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 2019.
This included presentations on the
following key business areas:
• 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;
• overview of the Group’s new risk
assessment tool
• taxation strategy, significant tax risks,
and international taxation regulatory
environment;
• compliance framework
development;
• corporate governance reforms
including Audit and Risk Committee
focus areas and best practices; and
• calculation and oversight of revenue
and impairment under IFRS 9 in the
business-as-usual environment.
Annual Report and Financial Statements 2019
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Strategic ReportDirectors’ ReportFinancial Statements Directors’ Report continued
Technology
Committee Report
“The Technology
Committee supports the
delivery of the business
strategy through
an aligned IT strategy.”
John Mangelaars
Committee Chairman
Committee members
John Mangelaars
Chairman
Richard Moat
Senior independent non-executive director
Cathryn Riley
Independent non-executive director
Bronwyn Syiek
Independent non-executive director
Dear shareholder,
This year the Committee continued to monitor the
delivery of our IT strategy and supported the
advancement of the Group’s technology capabilities
to better leverage infrastructure and improve cost
efficiency. Continued development of our data analytics
capability means that we are better able to understand
our customers and to refine our product offerings
and credit strategies to suit their needs and provide
an enhanced customer experience. Bronwyn Syiek has
settled in well as a member of the Committee bringing
a diversity of experience and breadth of knowledge
to discussions.
The table below shows directors’ attendance during 2019
Role of the committee
Committee member
John Mangelaars
Richard Moat
Cathryn Riley
Bronwyn Syiek2
Scheduled
meetings1
No. of
meetings
attended
% of
meetings
attended
4
4
4
3
4
4
4
3
100%
100%
100%
100%
Notes
1. The scheduled meetings that each individual was entitled to
and had the opportunity to attend.
2. Bronwyn Syiek was appointed as a member of the Technology
Committee on 20 February 2019.
The Committee supports delivery of the business strategy
through an aligned IT strategy, underpinned by solid
commercial and governance frameworks, sound
financial control and a secure and compliant estate.
It also oversees the implementation of our IT strategy and
monitors its progress.
The Committee consists of four independent
non-executive directors and met four times during the
year. The Chief Executive Officer, Chief Financial Officer
and Group Technology Director are invited to attend all
meetings. Periodically, senior management from across
the Group are invited to present on relevant matters.
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International Personal Finance plc
Digitisation of home credit
IPF Digital
Focus for 2020
The Committee will continue
to support the business in the
development of advanced analytics
through the data lake, improved
use of cloud-based tools, continued
modernisation of the home credit
platforms, ongoing development
of our digital capabilities, and the
conclusion of our agent mobile
technology in Europe, whilst
supporting appropriate
organisational transformation
and relevant governance.
The committee’s responsibilities
are outlined in its terms of reference
which are available on our website
www.ipfin.co.uk.
The Committee continued to support
the digital transformation of European
home credit further enhancing the roll
out of our agent mobile technology
with e-receipting and sales
functionality. The implementation of
agent mobile technology was a major
milestone not only in delivering cost
benefits but environmental benefits
too with the elimination of paper from
our collections process.
The focus is now on completing the roll
out of sales functionality whilst
improving our home credit customer
experience with enhanced website
applications.
Data strategy
The committee continued to support
the use of advanced analytics through
delivery of a key technology enabler,
namely a cloud hosted data lake
(a repository of unstructured data)
and the development of new reporting
tools ensuring that maximum benefit
can be leveraged from data as an
asset. The data lake enables the data
scientist team to use predictive
modelling techniques that can have
a measurable impact on our
businesses, for example, improved
credit scoring models, and a new tool
to support customer retention.
The continued focus on the
automation of the customer journey
and further improving customer
service with market-leading
technology has been supported
by the Committee together with
processes for the smarter use of data
to power the business. During 2019,
we launched our Mobile Wallet
product with a ‘test and learn’ phase
in Finland and expect to roll out
into more countries during 2020
enhancing the customer experience
and driving growth.
Security and Governance
The Committee continued to support
the GDPR programme with a number
of changes implemented to
ensure compliance.
People and capabilities
During the year, the Committee
continued to support the development
of our IT personnel and delivery
framework to progress an incremental
approach to delivery and unlock
our ability to better deliver
faster outcomes.
Key achievements in 2019
Key objectives for 2020
• Supported the technology programme by providing
• Ensure the continued alignment of the IT strategy
constructive challenge and guidance on the
implementation of the IT strategy.
with the business strategy to support growth
and efficiencies.
• Kept the Board appraised on the progress of the
• Support investment in IT transformation in line with the
IT strategy delivery.
IT strategy.
• Encouraged IT function’s focus on delivering what the
• Leverage data capabilities to help unlock
business needs.
growth opportunities.
• Supported the move for IT to be embedded as part of
business teams with increased agile working.
• Develop technology to drive efficiency through agent
mobile technology to assist in robust credit decisions
and support digital lending growth.
Annual Report and Financial Statements 2019
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Directors’
Remuneration Report
“Our Policy continues to
focus on aligning pay
with performance as
fairly as possible.”
Cathryn Riley
Chair of the Remuneration
Committee
Committee members
Cathryn Riley
Chair and independent non-executive director
Richard Moat
Senior independent non-executive director
Deborah Davis
Independent non-executive director
Dan O’Connor
Chairman of the Board
The table below shows the number of meetings held and
the directors’ attendance during 2019.
Committee member
Dan O’Connor
Deborah Davis
Tony Hales2
Richard Moat
Cathryn Riley
Scheduled
meetings1
No. of
meetings
attended
% of
meetings
attended
6
6
3
6
6
6
6
2
6
6
100%
100%
67%
100%
100%
1. The scheduled meetings that each individual was entitled
to and had the opportunity to attend.
2. Tony Hales stepped down as a director from the Board
at the 2019 AGM. he was unable to attend the February
meeting due to a prior commitment.
Dear Shareholder,
On behalf of the Board, I am pleased to present the
Directors’ Remuneration Report for the year ended
31 December 2019. The Remuneration Report is split
into two sections:
• our new Directors’ Remuneration Policy (the 2020
Policy); and
• the Annual Remuneration Report, providing detail
of amounts paid during the reporting year
including incentive outcomes.
In addition to maintaining our focus on the effective
implementation of the 2017 Policy in the context
of business performance and long-term strategic
objectives, the Committee also conducted
a detailed review of the 2017 Policy and we present,
on pages 88 to 96, our proposed new 2020 Directors’
Remuneration Policy. The Committee believes that
the current Policy has had a strong pay for
performance relationship and its implementation
has received consistently high levels of support
from our shareholders. Further, most features of best
practice have already been adopted. Consequently,
following a full shareholder consultation exercise
and review of market practice, the Committee
is proposing a modest revision of Policy,
as summarised below.
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International Personal Finance plc
2019 focus and progress
The Committee’s work focused on
three areas in 2019:
1. Effective application of the 2017
Policy, achieved by way of:
• salary, bonus and share awards
for executive directors and senior
management group set and
approved in line with the 2017
Policy;
• the above concluded with clear
alignment to business
performance; and
• ongoing monitoring of the
regulatory landscape to ensure
continued compliance.
2. A thorough review of the Directors’
Remuneration Policy, as summarised
above and detailed on pages 88 to
96 resulting in a proposed 2020
Policy designed to support our
strategic objectives and take
account of shareholder feedback
and evolving market practice.
3. A review of workforce remuneration
and related policies in line with the
Committee’s extended remit under
the Financial Reporting Council’s
updated UK Corporate Governance
Code (July 2018) used in support
of the Committee’s determination of
executive director and senior
management reward outcomes.
2020 focus
• Obtain formal shareholder approval
of the 2020 Policy at the 2020 AGM.
• Implement the 2020 Policy.
• Conduct a review of independent
advisors and appoint/re-appoint
an advisor to the Committee.
• Continue to monitor and respond to
evolving market and best practice.
1. A reduction in the maximum
company pension contribution rate
for new hire executive directors from
15% of base salary to the most
common company contribution rate
for the wider workforce (currently
12%). The Committee is conscious
of the Investment Association’s
position with regard to incumbent
executive directors and has carefully
considered this in the context
of guidance issued by other
agencies, notably ISS, shareholder
feedback and the contractual
position of the CEO and CFO.
The Committee considers that the
gap between the actual company
contribution rates provided to the
CEO and CFO (respectively 17.6%
net and 13.7% net) is not significantly
ahead of the wider workforce rate
and is notably below the 25%
threshold that would understandably
give rise to significant shareholder
concern. However, the Committee
acknowledges the need to take
action and intends to align
executive director pension
contribution rates with those of the
wider workforce by the end of 2022,
consistent with the Investment
Association’s position.
2. The re-balancing of, but no overall
increase to, incentive opportunity
such that from 2021, Performance
Share Plan awards will reduce to
160% of base salary (currently 190%)
and the annual bonus maximum
will be 130% of base salary
(currently 100%).
3. Coupled with the change to
maximum bonus, the target level will
reduce from 65% to 50% of maximum
bonus opportunity.
4. A post-cessation shareholding policy
will be introduced at the level of 1x
current shareholding requirement
(200% of base salary) or the number
of shares actually held at leaving,
whichever is the lower, for 2 years.
These changes are intended to align
with best practice and corporate
governance requirements.
The Committee has also resolved
to publish targets attaching to PSP
awards prospectively from 2020,
reflecting shareholder feedback on
the operation of the Policy; these can
be found on page 106 of this report.
In concluding its review,
the Committee was mindful of striking
an appropriate balance between
meeting corporate governance
expectations and incentivising
executives in challenging markets
and circumstances.
On behalf of the Committee I would
like to thank those shareholders who
provided feedback on the direction
of the proposed 2020 Policy during the
consultation process.
Our remuneration principles were
unchanged in 2019 and will be
retained under the 2020 Policy:
simplicity and transparency; alignment
with business strategy; and a strong
relationship to business performance.
Overview
Role and Composition
The Committee comprises three
independent non-executive directors
and the Chairman. Full biographical
details of members can be found on
pages 56 and 57. Tony Hales stepped
down from the Committee at the
conclusion of the 2019 AGM. The
Committee met six times during the
year. Attendance at meetings can
be found on page 84.
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.
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Strategic ReportDirectors’ ReportFinancial Statements Directors’ Report continued
Business context –
2019 performance
In 2019, we delivered good financial
performance. Profit before tax
increased by £4.7 million to £114.0
million as a result of strong operational
and financial performance in our
European home credit markets and
IPF Digital’s established markets.
In Mexico, a more challenging
performance resulted in a focus on
improving operational performance
to improve profitability and create
a platform to recommence growth
in 2020. IPF Digital also delivered its
maiden profit of £3.2 million.
The operational and financial reviews
for 2019 can be found on pages
24 to 29 and 39 to 43 respectively
and include some of the key financial
metrics that we used to incentivise
executive directors to deliver
our strategy. Performance
headlines include:
• Group profit before tax of £114.0
million, an increase of £4.7 million;
• revenue less impairment of £645.6
million, an increase of £6.2 million
due to a larger receivables balance
and stable credit quality;
• credit issued growth of 8% in
IPF Digital, and a maiden profit
of £3.2 million;
• a 12% contraction in credit issued in
Mexico home credit and reduced
profit of £10.5 million; and
• EPS of 32.2 pence, as a result of the
increase in profit, offset by the higher
effective tax value.
The Committee considered all
aspects of business performance
in detail when determining
remuneration outcomes.
award for 2020. Also, in determining
the bonus outcome stated above the
Committee took into account the
provision made for early settlement
rebates in the Polish market as
explained on page 127 and decided
that it was appropriate to use an
adjusted profit number. More detail
on bonus determination is provided on
pages 97 to 100.
Taking into account
wider workforce pay
and conditions
In agreeing amendments to its terms
of reference in 2018, the Committee
undertook to review wider workforce
remuneration and related policies and
in making its remuneration decisions,
the Committee has considered
in particular:
• feedback from the workforce and
stakeholder engagement director;
• outcomes of the Global People and
Agent Surveys;
• the operation of incentive plans for
employees and agents and their
alignment with incentives for
executive directors and the senior
management group;
• rates of salary increase for
employees; and
• core demographic data, including
but not restricted to employee and
agent turnover.
In conclusion, as Chair of the
Committee I look forward to
maintaining an ongoing dialogue with
you, our shareholders, and to receiving
your support for the 2020 Policy at
the AGM.
Key decisions during 2019
In making decisions on executive
directors’ remuneration the Committee
engaged in robust and thorough
debate and 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:
• no base pay increase in 2020 for our
Chief Executive Officer, with salary
remaining at £533,000;
• a 2020 base pay award of 5%
to £320,250 for our Chief Financial
Officer. This represents the final
stage of a planned progression,
communicated in the 2016 Directors’
Remuneration Report and based on
continuing high performance in the
role coupled with an assessment
of relevant market data and in the
context of the salary (£320,000)
paid to the previous incumbent;
• financial year 2019 bonus awards of
72.3% of maximum, see pages 97 to
100 reflecting performance against
financial metrics and personal
objectives of each executive
director;
• 2019 Performance Share Plan (PSP)
awards of 190% of salary,
the Committee having carefully
considered the shareholder
experience since the 2019 PSP
awards were made, including the
share price decline in the summer
of 2019 and its subsequent strong
recovery; and
• legacy 2017 PSP awards that have
vested at 33% reflecting good EPS
performance over the period
2017-2019, see page 100.
The Committee did not exercise
discretion during the year although
it did duly debate and give serious
consideration to a reduction in the
2020 PSP award level following the fall
in share price immediately after the
announcement in June by the Council
of Ministers in Poland on non-interest
costs. However, taking into account
the recovery of the share price since,
the robust financial performance in
2019 and having noted the significant
shareholding of the CEO (including his
commitment to further invest in shares
during the year) the Committee
decided to maintain the level of PSP
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Remuneration
at a glance
Our current and proposed 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 are structured so that individuals are rewarded only for
the successful delivery of the key strategic priorities of the Company over both the short and long-term.
Strategic priorities
European home credit
• Deliver strong returns to invest
in the Group
• Protect the business model
• Leverage the Provident brand for digital
• Stabilise customer numbers
Mexico home credit
• Optimise existing expansion footprint
• Build micro-business loans channel
• Improve portfolio quality before retuning
to growth mode
• Manage longer-established branches
for returns
IPF Digital
• Continue to provide great customer
experience through innovation
• Build scale and leverage data
• Improve new market credit performance
then reignite growth
2019 performance
Our remuneration outcomes
2019
Change
Profit before tax
£114.0m +£4.7m
Base pay award for our CEO
Mexico credit issued growth
£(22.8)m
IPF Digital average net receivables growth
£50.6m
(12)%
+26%
Base pay award for our CFO
Bonus as % of maximum for CEO
Earnings per share
32.2p
(1.6)p
Bonus as % of maximum for CFO
Revenue less impairment
£645.6m +£6.2m
Performance Share Plan awards for CEO
Performance Share Plan awards for CFO
Legacy 2017 Performance Share Plan vested at
2019
0%
5%
72.3%
72.3%
190%
190%
33%
Our proposed 2020 Remuneration Policy at a glance
Our Remuneration Policy
Links to strategy
Key features
2
0
1
9
2
0
2
0
2
0
2
1
2
0
2
2
2
0
2
3
2
0
2
4
Salary,
pension and
benefits
Annual
bonus
Long-term
incentive
plan
Deferral
of 50%
Malus on
deferral
Clawback
on cash
Vest period
2-year holding
Clawback period
To attract and retain talent
capable of delivering the
Group’s strategy.
Normally reviewed annually. Increases take into
account salary reviews across the Group and
increases paid to UK employees.
To motivate and reward
sustainable Group profit before
tax and the achievement of
specific personal objectives
linked to the Company’s strategy.
On-target performance delivers 50% of maximum
(previously 65%). Maximum opportunity 130% of base
(previously 100%). 50% cash and 50% deferred for three
years. Typically, 80% based on financial measures and
20% on personal objectives linked to strategy.
To motivate and reward
longer-term performance, and
support shareholder alignment
through incentivising absolute
shareholder value creation.
In normal circumstances, award equivalent to 160%
of base salary at time of grant (previously 190%).
Three-year performance period with three weighted
metrics. 25% vesting at threshold; straight line to
maximum. Two-year post-vesting holding period.
Two-year post-cessation shareholding requirement.
TSR Performance vs CEO Single Figure
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
31 Dec 2019
CEO Single Figure £ 000
IPF TSR
FTSE 250 TSR
Annual Report and Financial Statements 2019
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Directors’ Report continued
Directors’ Remuneration Policy 2020
The Committee presents the 2020 Policy, which will be put to shareholders for a binding vote at the AGM to be held on
30 April 2020. The 2020 Policy will apply to awards granted from its approval at the AGM onwards. It is a provision of the
2020 Policy that the Company can honour all pre-existing incentive award obligations and commitments that were
entered into before the 2020 Policy takes effect. These awards remain eligible to vest subject to their original terms.
In addition, where the terms of any remuneration payment (including any payments for loss of office) were agreed before
the 2020 Policy came into effect or at a time when the relevant individual was not a director of the Company, these remain
eligible to be paid based on their original terms.
Subject to shareholder approval, the effective date of the 2020 Policy will be 30 April 2020. The intention of the Committee
is that the 2020 Policy will remain in place for three years from the date of its approval.
Policy changes table
The table below summarises the substantive changes to the 2017 Policy, which was explained in full on pages 74-80 of the
2016 Annual Report and Financial Statements (a copy of which can be found on our website www.ipfin.co.uk).
2017 Policy
2020 Policy Changes
Rationale
Company pension contribution
• 15% for new-hire
executive directors
• New-hire executive directors to be eligible
for the most common contribution rate for
the wider UK workforce (currently 12%)
• Aligns with Corporate Governance Code requirements
(2018)
• 12% represents most common rate for UK employees
Performance Share Plan awards
• Policy 190% of base salary
• Exceptional 250%
of base salary
Annual bonus maximum
• Policy 160% of base salary
• Exceptional 250% of base salary
• 100% of base salary
• 130% of base salary
Annual bonus target level
• 65% of maximum
bonus opportunity
• 50% of maximum bonus opportunity
Post-cessation shareholding policy
• Responds to shareholder feedback and market norms
in reducing on-target bonus potential to 50%
of maximum and PSP Policy to 160%
• Offers greater incentive to achieve stretch targets
• Re-balancing of incentive opportunity intended
to ensure that management remains appropriately
focused on generating profitability and credit growth
• Driven principally by business performance
requirements; also creates better market alignment
with similarly sized companies in terms of balance
between short and long-term opportunity levels
No current policy
• 1x current shareholding requirement (200%
of base salary) or the number of shares
actually held at leaving, whichever is the
lower, for two years
• Aligns management with long-term interests of
shareholders even after leaving and reflects
Corporate Governance Code (2018) and Investment
Association Principles of Remuneration (2019)
requirements
Notes to the policy change table
• In considering executive director pensions, the Committee is conscious of the Investment Association’s position with
regard to incumbent executive directors and has carefully considered this in the context of guidance issued by other
agencies, notably ISS, shareholder feedback and the contractual position of the CEO and CFO. The Committee considers
that the gap between the actual company contribution rates provided to the CEO and CFO (respectively 17.6% net and
13.7% net) is not significantly ahead of the wider workforce rate and is notably below the 25% threshold that would
understandably give rise to significant shareholder concern. However, the Committee acknowledges the need to take
action and intends to align executive director pension contribution rates with those of the wider workforce by the end
of 2022, consistent with the Investment Association’s position.
• Bonus targets will remain weighted 80% on financial and 20% on personal performance, subject to the achievement
of a profit before tax threshold. The requirement to defer 50% of any bonus earned into shares will also remain,
ensuring that short-term incentive outcomes have an appropriate link to long-term value creation.
• PSP award conditions will continue to be: absolute TSR (50% weighting), cumulative EPS (25%) and growth in revenue less
impairment (25%). The Committee recognises that absolute TSR is an uncommon, though not unprecedented,
metric to use; however, identifying suitable comparator companies with a similar shareholder, industry and geographical
profile to the Group remains a challenge. The Committee therefore continues to hold that absolute TSR is the most
appropriate metric for assessing value creation and thereby aligning executive and shareholder interests.
• The Committee has resolved to publish targets attaching to PSP awards prospectively from 2020, reflecting shareholder
feedback on the operation of the Policy. The targets for 2020 PSP awards can be found on page 106.
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• Consideration has also been given to the operation of malus and clawback in respect of incentive plans, and the extent
to which the Committee is able to exercise overarching discretion to ensure that rewards reflect underlying Group
performance. The Committee has agreed that, while current triggers remain valid, an additional specified trigger should
be added, namely the occurrence of a scenario or event resulting in material reputational damage or corporate failure
affecting any member of the Group, where this can reasonably be ascribed, in the Committee’s opinion, to the actions
of a participant.
Other than as stated above, there are no further proposed changes to the Policy.
2020 Policy – executive directors
The remuneration of executive directors is determined by the Committee, considering Group and individual performance
and competitive market practice, the pay and conditions of Group employees and the importance attached to the
retention and attraction of high-calibre individuals. The total annual remuneration of executive directors comprises base
salary, cash bonus and deferred bonus, shares granted under LTIP, pension provision and ancillary benefits.
Purpose and
link to strategy Operation
Base salary
To attract and retain
talent capable of
delivering the
Group’s strategy.
Rewards executive
directors for their
performance in
the role.
Base salary is paid in 12 equal monthly
instalments during the year.
Salaries are normally reviewed annually,
and generally any changes are effective
from 1 April.
Salary levels are set considering role,
experience, responsibility and
performance, of both the individual
and the Company, and also taking
into account market conditions and
the salaries for comparable roles in
similar companies.
Metrics, weightings
and period
None, although overall
performance of the
individual is considered
by the Committee when
setting and reviewing
salaries annually.
Maximum opportunity
Salary increases take into account
salary reviews across the Group and
are usually in line with increases
awarded to UK employees.
By exception, higher awards may be
made at the Committee’s discretion
to reflect individual circumstances.
For example:
• changes to role which increase
scope and/or responsibility;
• development and performance
in the role; and
• responding to competitive
market pressures.
There is no prescribed
maximum increase.
Pension
To provide
retirement funding.
The Company operates a stakeholder
scheme; at the discretion of the
Committee, this may be paid as a cash
allowance.
Company contribution is set at the
most common rate for the wider
workforce, currently 12%, for new-hire
executive directors.
None.
The Company has closed its defined
benefit scheme to new members and
future accrual.
The Company pays the cost of providing
the benefits on a monthly, annual or
one-off basis.
All benefits are non-pensionable.
Benefits
To provide market-
competitive benefits
that support the
executive directors
to undertake
their role.
The standard benefits package
includes:
None.
• life assurance of 4x salary;
• car allowance;
• long-term disability cover;
• private medical cover for executive
director and immediate family;
• annual medical; and
• ability to participate in the IPF Save
As You Earn Plan (SAYE) and any
other all-employee share plans
on the same terms as
other employees.
Additional benefits may also be
provided in certain circumstances,
and may include relocation
expenses, housing allowance and
school fees. Other benefits may be
offered if considered appropriate
and reasonable by the Committee.
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Purpose and
link to strategy Operation
Annual bonus
To motivate and
reward the
generation of
sustainable Group
profit before tax and
the achievement
of specific personal
objectives linked
to the Company’s
strategy.
Deferred Share
Plan (DSP)
To strengthen the
link between
short- and longer-
term incentives and
the creation of
sustainable
long-term value.
Measures and targets are set annually,
and payout levels are determined by the
Committee after the year end, based on
performance against those targets.
The Committee may, in exceptional
circumstances, amend the bonus payout
should this not, in the view of the
Committee, reflect overall business
performance or individual contribution.
50% of the total bonus amount is deferred
for three years in Company shares
through the Deferred Share Plan (DSP).
The remaining 50% is paid in cash.
Payments are made around three months
after the end of the financial year to which
they relate. There are provisions for
clawback adjustments on the occurrence
of certain events.
50% of the total bonus amount is subject
to compulsory deferral for three years in
Company shares without any matching.
Following the vesting of awards, executive
directors receive an amount (in cash or
shares) in respect of the dividends paid or
payable between the date of grant and
the vesting of the award on the number of
shares that have vested.
The DSP has provision for malus and
clawback adjustments on the occurrence
of certain events.
Awards may also be adjusted in the event
of a variation of capital, in accordance
with the plan rules.
Maximum opportunity
On target bonus: 50% of maximum
(reduced from 65%).
Maximum opportunity: 130%
of base salary.
Metrics, weightings
and period
Performance is measured
over the financial year and
is assessed using the
following criteria:
• typically 80% is based on
achievement of financial
and strategic measures;
and
• typically 20% is based on
achievement of personal
objectives linked
to achievement
of Company strategy.
Although each of the annual
bonus metrics could pay
out independently,
the Committee will set
a minimum threshold profit
target before any other
metrics are assessed.
50% of the total bonus amount
received during the year.
None.
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Purpose and
link to strategy Operation
Performance Share
Plan (PSP)
To motivate and
reward longer-term
performance, and
support shareholder
alignment through
incentivising
absolute
shareholder value
creation.
Annual grant of awards, made generally
as nil-cost options over a specific number
of shares subject to meeting specified
performance targets.
The Committee has discretion to decide
whether, and to what extent, targets have
been met, and if an event occurs that
causes the Committee to consider that
the targets are no longer appropriate,
the Committee may adjust them so long
as the adjustment does not make them
materially less difficult to satisfy.
Awards may also be adjusted in the event
of a variation of capital, in accordance
with the plan rules.
Executive directors will be required to hold
any shares acquired on vesting (net of
any shares that may need to be sold to
cover taxes) for a two-year period starting
on the date of vesting.
The PSP has provisions for malus and
clawback adjustments on the occurrence
of certain events.
Maximum opportunity
In normal circumstances, annual
award levels for executive directors
shall be equivalent to 160% of base
salary at the time of grant (reduced
from 190%).
The rules of the PSP permit annual
grants up to an individual limit
of 250%. Although the Committee
shall retain discretion to make awards
up to this level, it would expect to
consult with significant shareholders
if awards were routinely made above
normal levels and would, in all cases,
make a comprehensive retrospective
disclosure outlining the Committee’s
rationale in the annual Directors’
Remuneration Report.
Vesting of PSP awards
is dependent on service and
performance conditions.
25% of the award vests at threshold
performance in respect of the
performance conditions, with
straight-line vesting to maximum.
Metrics, weightings
and period
Service and performance
conditions must be met over
three-year periods.
Performance is assessed
against three independently
measured metrics that are
weighted as follows:
• 1/2 absolute TSR
performance;
• 1/4 cumulative EPS growth;
and
• 1/4 growth in revenue
less impairment.
The Committee will compare
the Company’s absolute
TSR performance with
comparator groups
considered appropriate
at the point of vesting.
The targets are set by the
Committee, and will be set
out in the annual Directors’
Remuneration Report of the
relevant year.
A six-month averaging period
is used for calculating TSR.
Shareholding
requirement
To support
alignment with
shareholder
interests.
Post-cessation
shareholding
To support
alignment with
shareholder
interests.
Executive directors are expected to
acquire a beneficial shareholding
over time.
The current shareholding
requirement for executive directors
is 200% of base salary.
None.
Shares which have vested unconditionally
under the Company’s share plans will be
taken into account with effect from the
date of vesting (but not before).
50% of all share awards vesting under any
of the Company’s share incentive plans
(net of exercise costs, income tax and
social security contributions) must be
retained until the shareholding
requirement is met.
Post-cessation shareholding policy is set
at 1x the shareholding requirement or the
number of shares actually held at leaving,
whichever is lower, for two years.
Requirement applies to any shares held,
including shares acquired from the
executive director’s own funds, and any
vested shares subject to a holding period.
Not applicable.
Two-year post-cessation
holding period.
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2020 Policy – non-executive directors
The Chairman and executive directors review non-executive directors’ fees periodically in the light of fees payable in
comparable companies or to reflect changes in scope of role and/or responsibility, and to attract and retain high-calibre
non-executive directors. Non-executive directors receive no other benefits and take no part in any discussion or decision
concerning their own fees. The Committee reviews the Chairman’s fees. Fees were last increased on 1 October 2013 for the
Chairman and 1 January 2014 for non-executive directors. No increases in fees are proposed in 2020.
Element
Purpose
Operation
Fees
To attract and retain a
high-calibre Chairman and
non-executive directors by
offering market-competitive
fees.
Fees are paid on a per annum basis and are not varied for the number of days worked.
The level of the Chairman’s fee is reviewed periodically by the Committee (in the
absence of the Chairman) and the executive directors.
As approved at the 2014 AGM, the maximum aggregate fee level for all non-executive
directors allowed by the Company’s Articles of Association is £650,000.
The senior independent director and Chairs of the Board committees are paid
an additional fee to reflect their extra responsibilities.
Any non-executive director who performs services which, in the opinion of the
Board, go beyond the ordinary duties of a director, may be paid such additional
remuneration as the Board may authorise.
Fees are paid on a quarterly basis.
Non-executive directors are expected to acquire a beneficial shareholding equivalent
to 100% of their director’s fee within three years of appointment.
Shareholding
requirement
To support shareholder
alignment by encouraging
non-executive directors to align
with shareholder interests.
When determining the 2020 Policy the Committee addressed the requirements of the UK Corporate Governance Code 2018,
as follows:
Factor
Clarity
How the Committee has responded
Performance-based remuneration is intended to support the Company’s strategy centres on providing a positive
customer experience and generating strong returns in our European home credit businesses to reinvest in building
a long-term sustainable future for these operations, growing Mexico home credit and IPF Digital, and delivering
progressive returns to our shareholders. Performance measures are aligned to these goals.
Simplicity
Policy comprises fixed remuneration, annual bonus and a single LTIP only. Annual bonus and LTIP constructs are
clearly and unambiguously aligned to the delivery of short- and long-term goals.
Risk
The 2020 Policy includes risk mitigation in the form of:
• clear limits on maximum awards, with no payment of annual bonus for performance below target;
• requiring the deferral of 50% of annual bonus in shares, for three years;
• aligning performance measures with Company strategy;
• ensuring that the Committee can adjust payments through the exercise of discretion and the operation of malus
and clawback to moderate formulaic outcomes which do not reflect the underlying performance of the Company;
and
• ensuring that post-vesting and post-cessation shareholding requirements apply.
Predictability
Incentive maxima are clearly stated in the 2020 Policy and there is no annual bonus payment for performance below
target performance. Checks and balances summarised in the Risk factor immediately above further support the
predictability of outcomes.
Proportionality
The annual bonus plan is clearly structured to reward the successful delivery of strategy in-year, while PSP measures
ensure reward proportionate to achievement of long-term goals and delivery of shareholder value.
Alignment with
culture
The Committee considers executive director performance not only in terms of what is achieved, but also how it is
achieved. As such, the Committee expects to see strong alignment between performance and the Company’s core
values of being responsible, respectful and straightforward. The Company’s purpose is to make a difference in the
lives of our customers by offering simple, personalised financial solutions in a fair and transparent way, and the 2020
Policy and associated performance measures and oversight are intended to support this goal.
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Notes to the 2020 Policy
Determination, review
and implementation
The 2020 Policy has been set following
an extensive review, considering both
the remuneration elements and overall
balance necessary to support and
recognise the delivery of Group
strategy. Willis Towers Watson provided
independent advice to the Committee
in formulating the 2020 Policy and the
Committee will continue to seek
independent advice on key issues
including, but not limited to, ongoing
implementation of the 2020 Policy.
The Committee is at pains to
ensure that no conflict of interest
can arise in respect of its activities.
Where necessary and appropriate,
input is sought from executive
directors, senior management group
members and the Group Head of
Reward. Attendance at meetings is by
invitation and no individual is present
when matters relating to their own
remuneration are being determined.
The Committee considers all relevant
factors when determining Policy
outcomes, including but not limited to:
• in-year and long-term performance
of the Group and individuals;
• trading conditions;
• Group strategy;
• alignment with the wider workforce;
and
• remuneration trends, shareholder
feedback and corporate
governance frameworks.
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 typically set at
a level that is both stretching and
achievable, considering 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 annual business budget, historical
performance, environment, social and
governance (ESG) risks and incentive
performance ranges at the Company’s
comparators, where disclosed.
The Board believes 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 most 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.
As part of the 2020 Policy review, the
Committee determined to re-balance
long- and short-term incentives,
the rationale for which is explained
on page 85.
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 occurrence of a scenario
or event resulting in material
reputational damage or corporate
failure affecting any member of the
Group, where this can be
reasonably ascribed, in the
Committee’s opinion, to the actions
of a participant; 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;
• determination of the treatment of
leavers based on the rules of the
plan and the appropriate treatment
chosen;
• adjustments required in certain
circumstances (for example: 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:
• 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;
Annual Report and Financial Statements 2019
93
Strategic ReportDirectors’ ReportFinancial Statements Directors’ Report continued
• determination of the treatment
of leavers based on the rules of the
plan and the appropriate treatment
chosen; and
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.
• on-target: fixed remuneration plus
on-target annual bonus (50% of
maximum) plus threshold (25%)
PSP shares.
• 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 (for example:
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.
Illustrations of total remuneration
opportunity
The charts below provide an illustration
of the proportion of total remuneration
made up by each component of the
proposed 2020 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 (other than as
indicated) 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.
Chief Executive Officer
Fixed
81.8%
14.3%
3.9%
On-target
44.0%
7.7%
2.1%
28.6%
17.6%
Maximum
24.3%
4.2%
1.2%
31.5%
38.8%
Maximum with 50% Share Price Increase
20.3%
3.5%
1.0%
26.4%
48.8%
0
0.5
1.0
1.5
2.0
2.5
Chief Financial Officer
Fixed
83.7%
10.6%
5.7%
On-target
44.5%
5.6%
3.0%
29.0%
17.9%
Maximum
24.4%
3.1%
1.7%
31.7%
39.1%
Maximum with 50% Share Price Increase
20.4%
2.6%
1.4%
26.6%
49.0%
0
0.5
1.0
1.5
Base Salary
Pension
Benefits
Bonus
PSP
£0.65m
£1.2m
£2.2m
£2.6m
£0.38m
£0.72m
£1.3m
£1.6m
• maximum: fixed remuneration plus
full payout of all incentives, that is
130% of salary in annual bonus,
160% of salary in PSP.
The maximum remuneration
receivable by each executive director
assuming share price appreciation
of 50% during the performance period
would be £2.6 million in respect of the
Chief Executive Officer and £1.6 million
in respect of the Chief Financial
Officer. The basis of the calculation
of the share price appreciation is that
the share value embedded in the
calculation for the ‘maximum’ bar
chart is assumed to increase by 50%
across the performance period.
Approach to recruitment
remuneration
The Committee’s approach to
recruitment remuneration is to pay
no more than is necessary to attract
appropriate candidates. Starting
salary will be set in accordance with
the approved remuneration policy,
based on a combination of market
information, internal relativities and
individual experience. Thereafter,
salary progression will depend on the
initial agreed base salary and the
normal review process.
The maximum level and structure
of ongoing variable remuneration will
be in accordance with the approved
remuneration policy, i.e. at an
aggregate maximum of up to 130%
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 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.
94
International Personal Finance plc
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
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 proposed 2020 Policy,
any new executive director will be
subject to a new maximum annual
pension contribution from the
Company of 12% of base salary,
in line with the most common rate
for UK employees.
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.
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 2020
AGM, all directors (with the exception
of Dan O’Connor) 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
Date of service
agreement
Duration of
service
agreement
January
No
2012
fixed term
February
No
2017
fixed term
Non-executive director
Date of appointment
Dan O’Connor
Deborah Davis
John Mangelaars
Richard Moat
Cathryn Riley
Bronwyn Syiek
January 2015
October 2018
July 2015
July 2012
February 2014
October 2018
Tony Hales was appointed as a
non-executive director in July 2007
and stepped down from the Board
at the conclusion of the 2019 AGM.
Loss of office payments
Our policy is to limit severance
payments on termination to
pre-established contractual
arrangements. If the employment
of an executive director is terminated,
any compensation payable will be
determined having regard to the terms
of the service contract between the
Company and the employee, as well
as the rules of any incentive plans.
Except in circumstances of gross
misconduct or voluntary termination,
the Company retains discretion to
make ex-gratia payments where
considered reasonable and fair in the
Committee’s opinion, and to cover
costs solely relating to termination
of employment by the Company.
Example costs may include legal,
tax and outplacement services subject
to such fees being de minimis in
nature and in the best interests
of the Company.
Under normal circumstances,
good leavers who do not serve notice
are eligible to receive termination
payments in lieu of notice based on
base salary and contractual benefits.
Normally, we expect executive
directors to mitigate their loss upon
departure. In any specific case that
may arise, the Committee will consider
carefully any compensatory payments,
having regard to performance,
service, health or other circumstances
that may be relevant.
In the event an executive director
leaves for reasons of injury, disability,
change of control of the Company,
or any other reason which the
Committee in its absolute discretion
permits (including death in service),
any unvested PSP awards will normally
vest at the normal time following the
end of the performance period and
be pro-rated for time. Performance
conditions would apply. However,
awards will vest early on death and the
Committee has the discretion to allow
the award to vest early on cessation
of employment. In this event, the
Committee will determine whether the
performance conditions are, or will be,
met over such period as the
Committee determines appropriate,
although the award will normally
be reduced on a pro-rata basis.
PSP awards that have vested at the
time of leaving will be retained and
exercisable for a limited period
following leaving. The Committee may
determine that the holding period will
no longer apply if the director leaves
for one of the reasons specified above.
When determining the treatment
of outstanding awards for exiting
directors, the Committee will consider
the executive director’s level of
performance and any contribution
to a transition. For all other leavers,
outstanding PSP awards will lapse.
Annual Report and Financial Statements 2019
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Strategic ReportDirectors’ ReportFinancial Statements Directors’ Report continued
Approval for payments outside
the Remuneration Policy
Remuneration payments and
payments for loss of office to directors
can only be made if they are
consistent with the approved
Remuneration Policy or if an
amendment to that Policy authorising
the Company to make the payment
has been approved by shareholders.
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 currently available
at the absolute discretion of the
Committee to executive directors,
the senior management group and
other selected employees. 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 retain any
fees earned.
Annual Remuneration
Report 2019
Additional disclosures
for Single Figure of
Total Remuneration table
(as detailed on page 97).
Base salary
The base salary of the Chief Executive
Officer will be unchanged in 2020 at
£533,000, following increases of 2.5%
in 2019 and 3% in 2018. The base salary
of the Chief Financial Officer will be
increased by 5% from April 2020 to
£320,250, representing the final stage
of a planned progression in line with
the Committee’s intent,
communicated in the 2016 Directors’
Remuneration Report, to achieve
a level of base pay over time that is
commensurate with the role (subject
to performance), the Committee
having also considered relevant
market data and the salary (£320,000)
paid to the previous incumbent.
Benefits
The benefits provided to the executive
directors in 2019 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
2019, and it is not anticipated that the
cost of benefits provided will exceed
this level materially during the period
in which the 2020 Policy applies.
Determination of 2019
annual bonus
The maximum opportunity for both
the Chief Executive Officer and Chief
Financial Officer was 100% of salary
(65% for on-target performance with
no payout for below target
performance). During 2019,
a balanced scorecard approach was
again used to ascertain the annual
bonus where:
• 60% of total bonus opportunity was
subject to achieving against the
profit before tax target;
• a further 10% was contingent on
achieving against the credit issued
growth target in Mexico home credit;
and
• a further 10% was contingent on
achieving against the IPF Digital
average net receivables 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 an assessment of
performance versus personal
objectives by the Committee, having
taken into account the stretch
associated with the objectives set and
performance against them.
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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
2018 and 2019.
Salary/Fees £’000
Benefits £’000
Bonus1 £’000
LTIP £’000
Pension £’000
Total £’000
2019
2018
2019
2018
2019
2018
20192
2018
2019
2018
2019
2018
Executive
directors
Gerard Ryan
Justin Lockwood
Non-executive
directors
530
299
516
275
25
22
26
22
383
216
506
270
229
122
19
4
93
41
91
38
1,260
700
1,158
609
Dan O’Connor
200
200
Deborah Davis
Tony Hales3
John Mangelaars4
Richard Moat5
Cathryn Riley6
Bronwyn Syiek
55
26
65
83
65
55
11
75
65
70
65
11
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
200
200
55
26
65
83
65
55
11
75
65
70
65
11
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 2019 award was determined is provided in the additional disclosures section on page 96.
2. The value of awards included in the table for 2019 relates to the DSP matching and PSP awards granted in 2017, the performance period for
which was the three financial years ended 31 December 2019. This value also includes the anticipated value of dividend equivalents that
will be payable in 2020. The awards have been valued according to an estimate based on expected vesting and the 1-month average
share price to 31 January 2020. These estimated figures will be updated and based on the actual values of the awards for the relevant
dates in next year’s report. Further information about the level of vesting is provided in the long-term incentives section on page 100.
3. Tony Hales was senior independent non-executive director until he stepped down from the Board at the 2019 AGM.
4. John Mangelaars chaired the Technology Committee during 2019. In addition to his base fee of £55,000, he was paid a fee of £10,000
per annum for this additional responsibility.
5. Richard Moat was appointed senior independent director from 2 May 2019 and chaired the Audit and Risk Committee during 2019.
In addition to his base fee of £55,000, he received fees of £20,000 (pro-rated) and £15,000 per annum respectively for these
additional responsibilities.
6. Cathryn Riley chaired the Remuneration Committee during 2019. 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 considering the Company’s operating budget. Targets were designed to be stretching to drive
desired behaviours and increase motivation and focus. The Group bonus targets for 2019 were as follows:
Group profit before tax
Mexico credit issued growth
IPF Digital average net receivables growth
Weighting
Threshold
Target
Maximum Achievement
Bonus payout
60%
10%
10%
£108.5m
£113.8m
£119.4m
£114.0m
54.8%
–
–
11.9%
32.7%
13.9%
39.0%
(12.0%)
26.0%
0%
0%
Bonus targets were adjusted for constant exchange rates in line with the actual performance.
The Group delivered a good financial performance in 2019 with an increase in profit before tax of £4.7 million driven by
strong operational delivery in European home credit and established IPF Digital businesses. This was despite unexpected
regulatory headwinds in Poland. As detailed on page 127, a provision of £4 million has been made for early settlement
rebates in the Polish market. In determining the bonus pay-out for Group performance, the Committee took into account the
reason for the provision, the role of management in continuing to mitigate this risk and the fact it was not foreseen at the
time targets were set. Consequently, the Committee decided it appropriate to use an adjusted profit number which resulted
in a bonus pay-out of 54.8% compared to 39.7% had the reported number been used.
In respect of other financial targets, credit issued growth in Mexico home credit was below target reflecting the prioritisation
of credit quality over growth, and IPF Digital’s average net receivables growth, while strong, was below target. Consequently,
the bonus payable in respect of these targets was 0%. 50% of the bonus earned will be deferred into shares for three years.
Annual Report and Financial Statements 2019
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Strategic ReportDirectors’ ReportFinancial Statements Directors’ Report continued
Personal objectives
The table below shows the objectives that were set for the Chief Executive Officer and Chief Financial Officer in 2019 and
achievement against them.
Gerard Ryan – Chief Executive Officer
Criteria met
Criteria partially met
Criteria not met
Category
Funding
Regulation
People and
structure
Innovation
Technology
Objectives
Weighting % Results
Achievement
Ensure that the Group
is positioned to manage its
liquidity so as to cope with the
possible crystallisation of the
extraneous tax risk in Poland.
Ensure an appropriate mix of
funding facilities is available for
all eventualities.
Minimise the risk arising from
regulatory changes across
Europe. Dedicate sufficient time
and energy to build strong
relationships with external
stakeholders in order to influence
a more positive outcome for
the business.
Ensure that the people review
process is fit for purpose and
produces high-calibre
successors for the key roles in the
Group. Review and optimise the
organisation structure of the
Group to optimise the efficiency
of the organisation.
Provide sufficient resource and
direction for the business units to
develop new products that are
appropriate for changed
regulatory circumstances and
that will allow the Group to build
new income streams. Drive the
use of data within the
organisation as a strategic
lever to make the business
more sustainable.
Provide sufficient resources, both
human and capital, to enable
the Group to deliver new
products and services. At the
same time make the required
strategic decisions regarding the
future structure of our technology
platforms to both minimise cost
to serve and enhance resilience.
20% A very strong performance with
clear execution of critical and
complex projects. Notably,
risks relating to longstanding
Polish tax matters have been
significantly reduced and
focused actions have enabled
us to achieve a significantly
improved position from
a refinancing perspective.
Overall, excellent financial
and risk leadership.
20% Assured and highly effective
navigation of a challenging
regulatory landscape has
resulted in minimal business
impact during 2019. The objective
to build positive and sustainable
stakeholder relationships has
been achieved. Outstanding
and experienced team in place
and working well.
20% Significant strengthening of our
home credit organisation
structure to drive our global
strategy was implemented
extremely effectively during 2019.
This was enabled by strong
internal leadership talent and
experience being available to
deploy. Excellent global retention
of critical people and skills.
20% 2019 was a year of step change
in innovation. Very strong
performances were achieved in
the origination and launch of
digital products and the
increasing use of data science
to inform new approaches and
methodologies across IPF.
Innovation will continue to be
a core focus into 2020.
20% The pace of market change has
challenged internal plans and
resources. While the organisation
is well supported by technology,
there is still work to do to increase
and optimise our organisation
capability and speed
of execution.
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International Personal Finance plc
Justin Lockwood – Chief Financial Officer
Category
Funding
Evolve and execute the debt
funding strategy (including
a second credit rating).
Objectives
Weighting % Results
Achievement
25% Debt funding strategy
developed, and execution
commenced in 2019 against
the backdrop of challenging
regulatory matters that have
impacted the Group. This
included obtaining a second
credit rating with Moody’s,
refinancing a substantial
proportion of the sterling retail
bond in June 2019 and extending
the maturity profile of the Group’s
bank facilities.
25% Managed the resolution of the
Polish tax audit dispute for the
years 2010 to 2017, which
removed a liquidity and capital
risk of £137 million. Proactive
management of the 2008 and
2009 cases aimed at the
resolution of these years.
No further significant issues
arising from tax audits.
25% Excellent performance delivered
in European home credit with
active management of revenue
yield, use of predictive modelling
and tight cost control.
Whilst the performance of Mexico
was challenging in 2019,
changes were made to
restructure resources to focus
on delivering returns in different
areas of the business.
Performance stabilised in the
second half benefiting from this
shift in focus.
IPF Digital delivered its maiden
profit aided by improved cost
control. Use of ROA measure
embedded in the business.
Capital structure reviewed and
considered appropriate for now.
25% Finance organisation
strengthened in key
areas through selective
recruitment and development
of existing talent through
structured finance-specific
development programme.
Taxation
Proactively manage open tax
audit positions with particular
reference to issues in Poland.
Business strategy
People
European home credit – deliver
cost reduction plans; drive
finance engagement in data
strategy and deliver value; focus
on yield management.
Mexico home credit – optimise
performance of the existing
branch network; proactively
monitor and shape the
economics of the micro-business
model; proactively monitor
the delivery of returns from
geographical expansion.
IPF Digital – lift profile of return
generation in the medium term;
review capital structure for IPF
Digital taking into account credit
risk profile and average duration
of receivables.
Increase leadership capability
across the finance function with
a focus on business partnering
and commercial finance.
Having reviewed the executive directors’ performance against their personal objectives and in the context of the challenges
faced by the business in 2019, the Committee determined that each executive director met the majority of his objectives in
full. Consequently, the bonus payout in respect of personal objectives is 17.5% for the CEO and 17.5% for the CFO.
Annual Report and Financial Statements 2019
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Directors’ Report continued
Bonus outcome for 2019
The Committee awarded bonuses to the executive directors of the amounts shown below for the year ended
31 December 2019.
Financial objectives
– achievement as a
percentage of base
salary
Personal objectives
– achievement as a
percentage of base
salary
Gerard Ryan
Justin Lockwood
54.8%
54.8%
17.5%
17.5%
Cash bonus
DSP – face value of
shares due to vest in 2023
£’000
191.4
108.0
£’000
191.4
108.0
Total value of 2019
annual bonus
£’000
Cash and DSP shares
award as a percentage
of maximum bonus
available
382.8
216.0
72.3%
72.3%
The bonus is payable 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 and clawback with respect to the deferred elements of the bonus, as detailed on page 93.
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, net of employer’s National Insurance contributions.
The Company’s contributions in respect of Gerard Ryan during 2019 amounted to £93,129, all of which was paid as a cash
allowance. The Company’s contributions in respect of Justin Lockwood during 2019 amounted to £40,591, £30,591 of which
was paid as a cash allowance.
Long-term incentives
Awards estimated to vest during 2020 (included in 2019 Single Figure)
The LTIP amount included in the 2019 single figure relates to the DSP matching shares and PSP awards granted in 2017.
The performance achieved against the performance targets is shown below:
PSP and DSP matching shares
Performance condition
Weighting
Threshold
Maximum
Achieved
Projected vesting
Absolute TSR growth1
Cumulative EPS growth
Growth in revenue less
impairment
Total
1/3
1/3
1/3
30% TSR over 3 years
60% TSR over 3 years
76.6 pence
89.3 pence
5.2% p.a.
7.0% p.a.
(46)%
89.2%
4.3%
0%
33%
0%
33%
1. Based on TSR from 1 January 2017 to 31 December 2019.
The 2017 PSP scheme was put in place using the business plan that was approved by the Board in December 2016 as the
basis for targets. This business plan was prepared using IAS39 as the basis for revenue and impairment accounting and
therefore the targets have been updated to reflect the implementation of IFRS 9 for the 2018 and 2019 financial years
(2017was reported under IAS39 and therefore the original targets remain relevant).
As disclosed in the 2017 Policy (and retained in the 2020 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 103.
Awards granted during 2019
Executive directors were granted long-term incentive plan awards structured as PSP options in April 2019. The resulting
number of PSP shares and associated performance conditions are set out below. Awards granted in 2020 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
Gerard Ryan
502,688
988,285
190%
31 December 2021
25%
25%
25%
1∕2
1∕4
Performance
conditions
Absolute TSR
Cumulative EPS growth
1∕4 Growth in revenue less impairment
100
International Personal Finance plc
Justin
Lockwood
270,600
532,000
190%
31 December 2021
25%
25%
25%
1∕2
1∕4
Absolute TSR
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 196.6 pence per share.
Performance conditions
Awards granted during 2019 will vest as follows, with straight-line vesting between the points:
Weighting
Vested at threshold
Threshold
Stretch (100% vesting)
DSP
Absolute TSR
Cumulative EPS
growth
1∕2
25%
1∕4
25%
30% over 3 years
82.8 pence
60% over 3 years
100.6 pence
Growth in
revenue less
impairment
1∕4
25%
5.7% p.a.
6.9% p.a.
In 2019, half of the annual bonus earned in respect of 2018 was deferred into 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
£
8 March 2019
8 March 2019
253,043
134,793
1. The face value was calculated using the average share price for the three days before the day of grant, being 196.6 pence per share.
SAYE
As noted in the 2017 Policy (and reiterated in the 2020 Policy), UK-based executive directors are entitled to participate in the
Company’s all-employee plan. During the year, both Gerard Ryan and Justin Lockwood were granted options (see pages
104 and 105 for details).
Loss of office payments
No payments were made for loss of office during 2019.
Payments to past directors (audited information)
No payments were made to past directors during the year.
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 2018
and 2019 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 11 individuals with complete
2018 and 2019 service as SMG and 12 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
Senior management
group
To 31 December
2019 £’000
Percentage
change
(2019 vs 2018)
Percentage change
(2019 vs 2018)
530
25
383
2.7%
(3.8)%
(24.3)%
4%
8.1%
(29.2)%
Annual Report and Financial Statements 2019
101
Strategic ReportDirectors’ ReportFinancial Statements Directors’ Report continued
TSR performance
The graph below compares the TSR of the Company with the companies comprising the FTSE 250 Index for the eleven-year
period ended 31 December 2019. 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
31 Dec 2019
CEO Single Figure £ 000
IPF TSR
FTSE 250 TSR
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:
2019
2018
2017
2016
2015
2014
2013
2012
Gerard Ryan
Gerard Ryan
Gerard Ryan
Gerard Ryan
Gerard Ryan
Gerard Ryan
Gerard Ryan
Gerard Ryan1
John Harnett2
2011
2010
John Harnett
John Harnett
CEO single figure
of remuneration
£’000
Annual bonus
payout (as %
maximum
opportunity)
LTIP vesting (as %
of maximum
opportunity)
1,260
1,158
1,130
838
1,197
2,172
1,037
889
718
943
952
72.3
98.0%
96.6%
16%
45%
74.2%
100%
80%
–
67%
80%
33%
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
2019
200.9
27.7
2018
192.9
27.7
Percentage
change
2.4%1
0%
1. The percentage increase at a constant exchange rate is 3.4%.
Other directorships
The executive directors do not currently hold any external directorships or external appointments.
102
International Personal Finance plc
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 2019
(together with interests held by his or her persons closely associated) are shown in the table below. When Cathryn Riley,
Richard Moat and Dan O’Connor bought shares they invested sufficiently to meet the shareholding requirement.
Bronwyn Syiek and Deborah Davis are currently within the three-year period to build their shareholding. Executive directors
are required to retain half of any vested Company share plan options until the shareholding requirement is met.
Shares held
Options held
Unvested and
subject to
performance
conditions
Unvested and
subject to
deferral only
Unvested and
subject to
continued
employment
Owned
outright
Vested but not
yet exercisable
and subject to
continued
employment
Vested and
exercisable,
but not yet
exercised
Shareholding
required
(% salary/fee)
Shareholding
(% salary/fee)1
Requirement
met
Executive directors2
Gerard Ryan
1,256,576
1,312,866
Justin Lockwood
89,922
692,927
262,360
156,817
20,930
20,930
Non-executive directors3
Deborah Davis
John Mangelaars
Richard Moat
Dan O’Connor
Cathryn Riley
Bronwyn Syiek
–
50,000
15,000
41,500
14,795
20,000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
500
–
–
–
–
–
–
200
200
100
100
100
100
100
100
382
48
0
146
44
33
43
59
Yes
No
No
Yes
No
No
No
No
1. Based on a share price of 161 pence, being the closing price on 31 December 2019 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 2019 and 26 February 2020.
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 2019
£28,800
Annual Report and Financial Statements 2019
103
Strategic ReportDirectors’ ReportFinancial Statements Directors’ Report continued
Executive directors’ interests in Company share options (audited information)
Awards held
at 31
December
2018
Date of
award
Awarded in
2019
Exercised in
2019
Lapsed In
20191
Awards held
at 31
December
2019
Performance
condition period
Market
price at
date of
grant (p)
Exercise
price (p)
Exercise period
Gerard Ryan
PSP
23 Mar 2016
211,153
11 Apr 2017
370,408
19 Apr2018
408,162
–
–
–
8 Mar 2019
–
502,688
–
–
–
–
–
–
CSOP
23 Mar 2016
DSP: Deferred 23 Mar 2016
Matching
23 Mar 2016
Deferred
11 Apr 2017
10,224
51,004
51,004
31,608
Matching
11 Apr 2017
31,608
Deferred
Deferred
10 Apr 2018
102,043
8 Mar 2019
–
128,709
SAYE
29 Mar 2012
7,777
23 Aug 2017
19,480
–
–
30 Aug 2019
–
20,930
(10,224)
(51,004)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(211,153)
–
–
–
–
370,408
408,162
502,688
–
–
–
31,608
102,043
128,709
–
–
(51,004)
–
–
–
–
(7,777)
(19,480)
–
20,930
1 Jan 2016 –
31 Dec 2018
1 Jan 2017 –
31 Dec 2019
1 Jan 2018 –
31 Dec 2020
1 Jan 2019 –
31 Dec 2021
1 Jan 2016 –
31 Dec 2018
–
1 Jan 2016 –
31 Dec 2018
1 Jan 2017 –
31 Dec 2019
–
–
–
–
–
31,608
–
282
170
248
191
282
282
282
170
170
246
191
–
–
–
23 Mar 2019 –
22 Mar 2026
11 Apr 2020 –
10 Apr 2027
19 Apr 2021 –
18 Apr 2028
23 Mar 2019 –
22 Mar 2026
–
23 Mar 2019 –
22 Mar 2026
–
11 Apr 2020 –
10 Apr 2027
–
–
–
–
–
–
293
205
–
–
–
–
–
1 Jun 2019 –
30 Nov 2019
1 Nov 2022 –
31 May 2023
1 Nov 2022 –
31 May 2023
198
154
86
Total
1,294,471
652,327
(51,004)
(299,638)
1,596,156
1. The March PSP, CSOP and DSP Matching 2016 all vested at 0%.
104
International Personal Finance plc
Executive directors’ interests in Company share options (audited information)
Awards held
at 31
December
2018
Date of award
Awarded in
2019
Exercised in
2019
Lapsed In
20191
Awards held
at 31
December
2019
Performance
condition period
Market
price at
date of
grant (p)
Exercise
price (p)
Exercise period
Justin
Lockwood
PSP
23 Mar 2016
43,246
11 Apr 2017
190,705
19 Apr 2018
219,716
–
–
–
8 Mar 2019
–
270,600
CSOP
4 Mar 2014
500
23 Mar 2016
DSP: Deferred 23 Mar 2016
Matching
23 Mar 2016
Deferred
11 Apr 2017
Matching
11 Apr 2017
Deferred
Deferred
10 Apr 2018
8 Mar 2019
3,744
11,687
3,895
35,718
11,906
52,537
–
68,562
SAYE
23 Aug 2017
11,688
–
30 Aug 2019
–
20,930
–
–
–
–
–
–
–
–
–
–
–
–
–
(11,687)
–
–
–
–
–
–
–
(43,246)
–
–
–
–
–
(3,744)
–
(3,895)
–
–
–
–
190,705
219,716
270,600
500
–
–
–
35,718
11,906
52,537
68,562
(11,688)
–
–
20,930
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 2016 –
31 Dec 2018
–
1 Jan 2016 –
31 Dec 2018
–
1 Jan 2017 –
31 Dec 2019
–
–
–
–
282
170
248
191
525
282
282
282
170
170
246
191
–
–
23 Mar 2019 –
22 Mar 2026
11 Apr 2020 –
10 Apr 2027
19 Apr 2021 –
18 Apr 2028
4 Mar 2017 –
3 Mar 2024
23 Mar 2019 –
22 Mar 2026
–
23 Mar 2019 –
22 Mar 2026
–
11 Apr 2020 –
10 Apr 2027
–
–
–
–
–
–
525
293
205
–
–
–
–
–
1 Nov 2022 –
31 May 2023
1 Nov 2022 –
31 May 2023
154
86
Total
585,342
360,092
(11,687)
(62,573)
871,174
1. The March PSP, CSOP and DSP Matching 2016 all vested at 0%.
The mid-market closing price of the Company’s shares on 31 December 2019 was 161 pence and the range during 2019 was
87 pence to 222.2 pence. The aggregate gains of directors arising from the exercise of options granted under the DSP in the
year totalled £128,673.
Share dilution
The Company manages dilution rates within the standard guidelines of 10% of issued ordinary share capital in respect of the
all employee share plan and 5% in respect of discretionary plans.
Shareholder voting
The table below summarises voting outcomes at the 2017, 2018 and 2019 AGMs (% of total votes cast):
AGM
2017
2017
2018
2019
Annual Remuneration Report
Directors’ Remuneration Policy
Annual Remuneration Report
Annual Remuneration Report
For
Against
Withheld1
99.20%
99.14%
98.65%
87.64%
0.80%
0.86%
1.35%
12.36%
0.63%
0.01%
0.00%
0.01%
1. Votes withheld are not counted in the votes for or against a resolution but would be considered by the Committee in the event of a
significant number of votes being withheld.
Annual Report and Financial Statements 2019
105
Strategic ReportDirectors’ ReportFinancial Statements Directors’ Report continued
Statement of
Implementation
The base salary for the Chief Executive
Officer will remain unchanged at
£533,000 for 2020.
The base salary of the Chief Financial
officer will be set at £320,250 for 2020,
an increase of 5% as explained in the
Chair’s letter on page 86.
For 2020, the maximum bonus
opportunity will remain at 100% of
base salary (on target 65%), and PSP
awards at 190% of base salary before
rebalancing bonus to a maximum of
130% (on target 50% of the maximum)
and PSP awards to 160% in 2021, after
the 2020 Policy is approved. Other
features of the 2020 Policy such as the
reduction in the pension level for new
executive directors and the post-
cessation shareholding policy will
apply immediately once the 2020
Policy is approved at the AGM.
The performance measures under
the old and new policies will be
80% financial and strategic and
20% personal, also in line with the
2020 Policy. Annual bonus targets are
not disclosed on a forward-looking
basis because they are considered by
the Board to be commercially sensitive
but will continue to be disclosed
retrospectively to ensure transparency.
The Committee expects to make 2020
LTIP awards prior to the 2020 AGM in
accordance with the 2017 Policy.
The 2020 LTIP awards will be measured
against the following targets, each
of which will operate on the basis of
a straight line between threshold,
target and stretch.
Performance condition
Absolute TSR Performance
Cumulative EPS Growth
Net Revenue Growth
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)
• Dan O’Connor
• Richard Moat
• Deborah Davis
• Tony Hales1
1. Tony Hales stepped down from the
Committee and the Board at the
conclusion of the 2019 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.
Advisor to the committee
Willis Towers Watson, which was
appointed in April 2016, provides
independent remuneration advice
to the Committee. During 2019 total
fees in respect of advice to the
Committee (based on time and
materials) totalled £75,180 (excluding
VAT). Willis Towers Watson is a founding
member of the Remuneration
Consultants Group and is a 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 or any
of the directors that may impair its
independence. The Committee has
determined to review the provisions
of its independent advice in 2020 and
appoint/reappoint an advisor
to the Committee.
Approved by the Board
Cathryn Riley
Chair
26 February 2020
Weighting
Threshold
(Vesting 25%)
Maximum
(Vesting 100%)
1∕2
1∕4
1∕4
30% over 3 years
60% over 3 years
83.5 pence
4.3% p.a.
101.4 pence
5.2% p.a.
106
International Personal Finance plc
Directors’
responsibilities
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.
Directors’ responsibilities in
relation to the Financial
Statements
The directors are responsible for
preparing the Annual Report and
Financial Statements in accordance
with applicable law and regulations.
Company law requires the directors
to prepare financial statements for
each financial year. Under that law,
the directors are required to prepare
the Group Financial Statements in
accordance with International
Financial Reporting Standards (IFRSs)
as adopted by the European Union
and Article 4 of the International
Accounting Standard (IAS) Regulation
and have also chosen to prepare the
Parent Company Financial Statements
under IFRSs as adopted by the
European Union. Under company law,
the directors must not approve the
Financial Statements unless they are
satisfied that they give a true and fair
view of the state of affairs of the Group
and the Company and of the profit or
loss of the Group and the Company for
that period. In preparing these
Financial Statements, IAS 1 requires
that directors:
• properly select and apply
accounting policies;
• present information, including
accounting policies, in a manner
that provides relevant, reliable,
comparable and understandable
information;
• provide additional disclosures when
compliance with the specific
requirements in IFRSs are insufficient
to enable users to understand the
impact of particular transactions,
other events and conditions on the
entity’s financial position and
financial performance; and
• make an assessment of the
Company’s ability to continue
as a going concern.
The directors are responsible for
keeping adequate accounting
records that are sufficient to show and
explain the Company’s transactions
and disclose with reasonable
accuracy at any time the financial
position of the Company and enable
them to ensure that the Financial
Statements comply with the
Companies Act 2006. They are also
responsible for safeguarding the assets
of the Company and the Group and
hence for taking reasonable steps for
the prevention and detection of fraud
and other irregularities.
The directors are responsible for the
maintenance and integrity of the
corporate and financial information
included on the Company’s website.
Legislation in the UK governing the
preparation and dissemination of
financial statements may differ from
legislation in other jurisdictions.
Post-balance sheet events
and future developments
There are no post-balance sheet
events. Information on indications of
future developments is provided in the
Strategic Report.
Responsibility statement 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:
• 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;
• 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
• 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 43 and 53.
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 2019 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
26 February 2020
Annual Report and Financial Statements 2019
107
Strategic ReportDirectors’ ReportFinancial Statements Independent Auditor’s Report
to the members of International Personal Finance plc
Report on the audit of the Financial Statements
1. 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 2019 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 consolidated income statement;
• the consolidated and Parent Company statements of comprehensive income;
• the consolidated and Parent Company balance sheets;
• the consolidated and Parent Company statements of changes in equity;
• the consolidated and Parent Company cash flow statements;
• the statement of accounting policies; and
• the related notes 1 to 31.
The financial reporting framework that has been applied in their preparation is applicable law and IFRSs as adopted by the
European Union and, as regards the Parent Company Financial Statements, as applied in accordance with the provisions of the
Companies Act 2006.
2. 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’s (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.
3. 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
• the Polish debt option agreement challenge
Within this report, key audit matters are identified as follows:
Similar level of risk
Decreased level of risk
Materiality
Scoping
Significant changes
in our approach
The materiality that we used for the Group Financial Statements was £5.6 million which was determined on the basis of 5% of
profit before tax.
We focused our Group audit primarily on the key components based in seven locations, six of which were subject to a full
audit, with the remaining subject to testing of specific balances.
There have been no significant changes in our audit approach from the prior period.
108
108
International Personal Finance plc
International Personal Finance plc
4. Conclusions relating to going concern, principal risks and viability statement
4.1. Going concern
Going concern is the basis of preparation of the Financial Statements that assumes an entity will remain in operation for a
period of at least twelve months from the date of approval of the Financial Statements.
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 including where relevant
the impact of Brexit, the requirements of the applicable financial reporting framework and the system of internal control. We
evaluated the directors’ 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.
4.2. Principal risks and viability statement
Viability means the ability of the Group to continue over the time horizon considered appropriate by the directors.
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 46 - 53 that describe the principal risks, procedures to identify emerging risks, and an explanation of
how these are being managed or mitigated;
• the directors' confirmation on page 53 that they have carried out a robust assessment of the principal and emerging risks facing
the Group, including those that would threaten its business model, future performance, solvency or liquidity; or
• the directors’ explanation on page 53 as to how they have assessed the prospects of the Group, over what period they have
done so and why they consider that period to be appropriate, and their statement as to whether they have a reasonable
expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the period of their
assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions.
We are also required to report whether the directors’ statement relating to the prospects of the Group required by Listing Rule
9.8.6R(3) is materially inconsistent with our knowledge obtained in the audit.
We confirm that we have nothing material to report, add or draw attention to in respect of these matters.
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5. 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.
5.1. Revenue recognition
Key audit matter
description
How the scope of our
audit responded to the
key audit matter
The Group recognises revenue on loans using the effective interest rate (“EIR”) method applicable under IFRS 9 Financial
Instruments. This method involves the application of significant management judgement, in particular over ensuring that early
redemptions experience and all contractual terms are reflected in management’s calculation of the EIR for each product
issued. For this reason, we have identified a specific risk of fraud in accordance with ISA (UK) 240.
Specifically, we identified a risk around the accuracy and completeness of cash flows included in management’s calculation of
the ‘EIR’ for each product, in order to ensure that evidence of early settlement behaviour – including early settlement rebates
where applicable - had been appropriately considered.
The key audit matter is described further in the Audit and Risk Committee’s report on page 78 and within the key sources of
estimation uncertainty on page 126. The revenue balance for the period is disclosed in the consolidated income statement, and
note 1 to the Financial Statements.
We tested the key controls relevant to the revenue recognition cycle, including those performed in the component markets, to
ensure that the cash flow data used in management’s calculations is accurate and complete.
We involved IT specialists to re-calculate a sample of product and cohort EIRs, based on an independent extract of source data
from core lending systems, and confirmed the mechanical accuracy of models used by management.
We assessed the appropriateness of management’s key judgements used to calculate the EIR by reference to recently
observable collections phasing and early redemption behaviour of the Group’s loan portfolios.
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.
Key observations
As a result of our audit testing, we found that the methodology used for calculating the EIRs is materially accurate and complete
in the context of the Group’s accounting policies and the requirements of the relevant accounting standards.
5.2. Impairment of receivables
Key audit matter
description
How the scope of our
audit responded to
the key audit matter
Key observations
Determination of impairment provisions against customer receivables is highly judgemental, requiring estimates to be made
regarding the future losses that are expected to accrue on the Group’s loan portfolios. Key judgements applied include
determination of an individual loan’s probability of default, exposure at default and loss given default. These estimates are
based on a combination of historically observable collections performance and post-model overlays made to account for
emerging risks that are not yet fully observable in the Group’s data.
We identified a specific risk over the accuracy and completeness of post-model overlays applied due to their reliance on
management judgement, and therefore the risk of fraud, as well as their materiality to the Financial Statements of the Group.
The key audit matter is described further in the Audit and Risk Committee’s report on page 78 and within the key sources of
estimation uncertainty on page 126. Please also see note 15 for further information.
We obtained an understanding of the controls performed at a Group level in relation to the impairment cycle, and used IT
specialists to test the key automated controls in place. In addition, we tested the key controls performed in the component
markets to ensure that the cash flow data used in management’s calculations is accurate and complete.
Where necessary, we tested the completeness and accuracy of information used in key lending controls, which included
extraction of source data from the core lending systems used and independent re-calculation of the relevant information.
We also used IT specialists to test the key IT controls over the systems in which source customer receivable data is maintained,
and reviewed minutes to confirm the existence of key governance review controls.
We reviewed and challenged management’s approved impairment provisioning methodology against the requirements of IFRS
9, and assessed whether management’s approach was materially consistent with those applied by other similar financial
institutions.
We evaluated the appropriateness of the probability of default, exposure at default and loss given default assumptions used
with reference to our understanding of recently observable collections performance. 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 re-calculated a sample of these assumptions from independent extracts of customer receivable data and reperformed the
year-end impairment calculations on a sample basis to confirm the mechanical accuracy of management’s calculations.
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.
As a result of our audit testing, we found that the impairment methodology applied by management was reasonable and that
the assumptions used in the calculations performed were appropriately applied.
We concluded that the rationale for post-model overlays proposed by management was appropriate, and that the valuation of
the year-end provision was within an acceptable range.
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5.3. Polish debt option agreement challenge
Key audit matter
description
How the scope of our
audit responded to
the key audit matter
IPF Poland remains subject to a corporate tax inspection covering the 2008 and 2009 tax years. In relation to these tax years, the
Group paid £34.2 million of tax and interest in January 2017 to allow an appeal process to begin. The amount is recognised as a
non-current tax asset in line with IAS 12 Income Taxes.
The cases are expected to be heard by the District Administrative Court (“DAC”) in H1 2020, and due to the significance of the
judgement in determining the likely outcome of these challenges we continue to identify a specific risk of fraud in the current
year.
During the current year, corporate tax inspections in relation to the 2010 – 2012 tax years were concluded, with adjustments
agreed and paid relating to the 2010 – 2017 tax years, reducing the level of risk associated with these years.
Our key audit matter is therefore pinpointed to whether management’s judgement on the eventual outcome of the matters
relating to 2008 and 2009 is reasonable, consistent with the conclusions reached in relation to the 2010 – 2012 tax years, and
supports the associated recoverability of the tax payments made.
The key audit matter is described further in the Audit and Risk Committee’s report on page 78 and within the key sources of
estimation uncertainty on page 127.
We obtained an understanding of the relevant controls in place over accounting for the Polish tax 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 challenged management’s assessment of the matter
through review of the Polish tax authority’s conclusions in relation to the 2010 – 2012 tax years, correspondence between IPF
Poland and the relevant tax authorities and external specialist advice commissioned by management in relation to the 2008
and 2009 tax years.
We also performed an independent assessment of the tax challenge with reference to our knowledge of similar scenarios and
understanding of extant tax law. This work included sensitising the key assumptions made by management in the context of the
eventual outcome of the case, and considering the implications in terms of whether provision is required against the non-current
tax asset or not.
Key observations
Following challenge by our UK and Polish tax specialists, we concur with management’s judgements regarding the probable
outcome of the tax case, and consider that management’s treatment is appropriate in line with IAS 12.
6. Our application of materiality
6.1. 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:
Materiality
Group Financial Statements
£5.6 million (2018: £5.4 million)
Parent Company Financial Statements
£2.8 million (2018: £2.7 million)
Basis for determining materiality 5% of forecast profit before tax
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 its subsidiaries and the external loan
balances. We have therefore selected net assets as the
benchmark for determining materiality.
6.2. Performance materiality
PBT £114.0m
We set performance materiality at a level lower than materiality to
reduce the probability that, in aggregate, uncorrected and
undetected misstatements exceed the materiality for the Financial
Statements as a whole. Group performance materiality was set at 70%
of Group materiality for the 2019 audit (2018: 70%). In determining
performance materiality, we considered the following factors:
a. our risk assessment, including our assessment of the Group’s
overall control environment and that we consider it appropriate
to rely on controls over a number of business processes;
b. the high degree of centralisation and common control
standards in place over business processes relating to our key
audit matters; and;
Group Materiality
PBT
25%
5%
37.5%
95%
c. our past experience of the audit, which has indicated a low
number of uncorrected misstatements identified in prior periods
and a willingness on management’s part to investigate and
correct any misstatements identified;
6.3. Error reporting threshold
£3.36m to £5.6m
£2.24m to £3.36m
£0.28m to £2.24m
Group Materiality
Component
materiality
Audit Committee
reporting threshold
We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £0.28 million (2018:
£0.27 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.
Annual Report and Financial Statements 2019
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7. An overview of the scope of our audit
7.1. Identification and scoping of components
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 given locations, which were subject to a full audit, and one location which involved the testing of
specific balances. The locations subject to a full audit were the components in Poland, Romania, Czech Republic, Hungary, Mexico
and the UK, with a further entity in Poland subject to specific balance testing. The scope of our audit was consistent with that from the
prior period, with the exception of an increase in the scope of procedures performed in the Polish entity for testing specific balances,
reflecting an increase in the size of that territory relative to the Group’s operations.
These seven entities represent the principal business units of the Group, and account for 97% (2018: 95%) of the Group’s net
receivables, 98% (2018: 96%) of the Group’s revenue and 96% (2018: 95%) of the Group’s profit before tax.
7.2. Our consideration of the control environment
We engaged internal IT specialists to perform testing of key IT controls over all relevant systems to the financial reporting process, as
well as the lending process, revenue recognition process and impairment process. Our component auditors also engaged local IT
specialists to perform testing of the key IT controls over the data storage platform used in-market to record and administrate customer
lending.
Our IT specialists performed General IT Controls (“GITCs”) testing over each of these key systems, to give assurance over the integrity,
governance and security of each. Sufficient assurance was obtained to place controls reliance over all identified relevant IT systems.
We also obtained an understanding of manually operated controls performed at a Group level in relation to the Polish tax challenge
and impairment of receivables key audit matters, and tested relevant controls in place over the revenue recognition and customer
lending cycles.
As a result of the controls work performed at both a Group and component level, we gained sufficient assurance in order to place
controls reliance over both the revenue and gross carrying amount of the customer receivables.
7.3. Working with other auditors
At the parent entity level we 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
visits each of the locations where the Group’s audit scope is 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.
Revenue
Profit before tax
Net receivables
Full audit scope
Specified audit procedures
Review at Group level
78%
19%
3%
Full audit scope
Specified audit procedures
Review at Group level
82%
14%
4%
Full audit scope
Specified audit procedures
Review at Group level
74%
23%
3%
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8. Other information
The directors are responsible for the other information. The other information comprises the information included in the Annual Report,
other than the Financial Statements and our auditor’s report thereon. This includes 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.
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.
9. 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.
10. 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 and non-compliance with
laws and regulations 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.
Annual Report and Financial Statements 2019
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11. 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.
11.1. 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, we considered the following:
• the nature of the industry and sector, control environment and business performance including the design of the Group’s
remuneration policies, key drivers for directors’ remuneration, bonus levels and performance targets;
• results of our enquiries of management, internal audit, and the audit committee about their own identification and assessment of
the risks of irregularities;
• any matters we identified having obtained and reviewed the Group’s documentation of their 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; or
• the internal controls established to mitigate risks of fraud or non-compliance with laws and regulations.
• the matters discussed among the audit engagement team including significant component audit teams and involving relevant
internal specialists, including tax, pensions and IT specialists regarding how and where fraud might occur in the Financial
Statements and any potential indicators of fraud.
As a result of these procedures, we considered the opportunities and incentives that may exist within the organisation for fraud and
identified the greatest potential for fraud in the following areas: revenue recognition, impairment of receivables and the Polish debt
option agreement challenge, due to the potential for management to manipulate highly judgemental assumptions, and agent cash
balances due to the possibility of misappropriation of assets. In common with all audits under ISAs (UK), we are also required to
perform specific procedures to respond to the risk of management override.
We also obtained an understanding of the legal and regulatory frameworks that the Group operates in, focusing on provisions of
those laws and regulations that had a direct effect on the determination of material amounts and disclosures in the Financial
Statements. The key laws and regulations we considered in this context included UK Companies Act, the London Stock Exchange
Listing Rules and tax laws applicable to the Group’s operations in Poland.
In addition, we considered provisions of other laws and regulations that do not have a direct effect on the Financial Statements but
compliance with which may be fundamental to the Group’s ability to operate or to avoid a material penalty. These included the
Group’s compliance with tax and consumer credit regulatory regimes applicable in each of its significant territories.
11.2. Audit response to risks identified
As a result of performing the above, we identified revenue recognition and impairment of receivables and the Polish debt option
agreement challenge as key audit matters related to the potential risk of fraud or non-compliance with laws and regulations. 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 provisions of
relevant laws and regulations described as having a direct effect on the Financial Statements;
• 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; and
• 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.
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Report on other legal and regulatory requirements
12. Opinions on other matters prescribed by the Companies Act 2006
In our opinion the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the
Companies Act 2006.
In our opinion, based on the work undertaken in the course of the audit:
• the information given in the Strategic Report and the Directors’ Report for the financial year for which the Financial Statements
are prepared is consistent with the Financial Statements; and
• the Strategic Report and the Directors’ Report have been prepared in accordance with applicable legal requirements.
In the light of the knowledge and understanding of the Group and the Parent Company and their environment obtained in the
course of the audit, we have not identified any material misstatements in the Strategic Report or the Directors’ Report.
13. Matters on which we are required to report by exception
13.1. 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.
13.2. 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.
14. Other matters
14.1. 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 nine years, covering the years
ending 31 December 2011 to 31 December 2019.
14.2. 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).
15. 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)
For and on behalf of Deloitte LLP
Statutory Auditor
Leeds, United Kingdom
26 February 2020
Annual Report and Financial Statements 2019
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Consolidated income statement
for the year ended 31 December
Group
Revenue
Impairment
Revenue less impairment
Finance costs
Other operating costs
Administrative expenses
Total costs
Profit before taxation
Tax income/(expense) – UK
Tax expense – overseas
Total tax expense
Profit after taxation attributable to owners of the Company
Group
Earnings per share
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 on foreign currency translations
Net fair value gains/(losses) – cash flow hedges
Tax (charge)/credit on items that may be reclassified
Items that will not subsequently be reclassified to income statement
Actuarial (losses)/gains on retirement benefit obligation
Tax credit/(charge) on items that will not be reclassified
Other comprehensive (expense)/income net of taxation
Total comprehensive income/(expense)
for the year attributable to owners of the Company
Notes
1
1
2
1
5
2019
£m
889.1
(243.5)
645.6
(63.5)
(137.3)
(330.8)
(531.6)
114.0
2.2
(44.4)
(42.2)
71.8
2018
£m
866.4
(227.0)
639.4
(58.5)
(140.8)
(330.8)
(530.1)
109.3
(0.8)
(33.1)
(33.9)
75.4
Notes
2019
pence
2018
pence
6
6
32.2
30.3
33.8
32.2
Group
Company
2019
£m
71.8
(42.2)
0.6
(0.1)
(1.7)
0.2
(43.2)
2018
£m
75.4
2019
£m
(33.9)
2018
£m
(32.3)
(8.7)
0.3
0.3
1.1
(0.2)
(7.2)
–
(0.1)
–
(1.7)
0.2
(1.6)
–
1.0
(0.1)
1.1
(0.2)
1.8
28.6
68.2
(35.5)
(30.5)
5
24
5
The accounting policies and notes 1 to 31 are an integral part of these Financial Statements.
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Balance sheets
as at 31 December
Assets
Non-current assets
Goodwill
Intangible assets
Investment in subsidiaries
Property, plant and equipment
Right-of-use assets
Amounts receivable from customers
Deferred tax assets
Non-current tax assets
Retirement benefit asset
Current assets
Amounts receivable from customers
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
Lease liabilities
Current tax liabilities
Non-current liabilities
Deferred tax liabilities
Borrowings
Lease liabilities
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
2019
£m
2018
£m
2019
£m
2018
£m
10
11
12
13
31
15
14
29
24
15
21
16
17
19
21
18
31
14
19
31
26
23.1
43.2
–
20.0
18.8
245.3
151.7
34.2
3.4
539.7
24.5
38.0
–
–
–
–
–
729.9
728.1
19.9
–
228.6
138.5
36.1
4.1
–
–
–
1.3
–
3.4
489.7
734.6
728.3
764.2
0.3
37.4
16.9
0.1
1.6
46.6
18.9
1.5
783.0
832.8
–
–
0.2
635.6
0.4
636.2
1,322.7
1,322.5
1,370.8
–
–
–
–
–
4.1
732.2
–
–
0.1
667.4
–
667.5
1,399.7
(112.7)
(16.2)
(123.9)
(8.7)
(30.3)
(28.8)
(7.3)
(48.6)
–
(18.9)
(0.1)
(147.7)
(474.9)
(418.4)
–
(25.8)
–
–
–
–
(291.8)
(209.6)
(523.5)
(437.4)
(20.0)
(563.7)
(10.8)
(594.5)
(886.3)
436.4
23.4
(22.5)
9.1
(0.1)
(46.1)
2.3
470.3
436.4
(10.4)
(0.7)
(0.1)
(669.5)
(455.4)
(510.3)
–
(679.9)
(889.5)
433.0
–
(456.1)
(979.6)
391.2
–
(510.4)
(947.8)
451.9
23.4
(22.5)
51.3
(0.6)
(45.1)
2.3
424.2
433.0
23.4
226.3
–
–
23.4
226.3
–
0.1
(46.1)
(45.1)
2.3
185.3
391.2
2.3
244.9
451.9
The accounting policies and notes 1 to 31 are an integral part of these Financial Statements.
The loss after taxation of the Parent Company for the period was £33.9 million (2018: loss of £32.3 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 31 were approved by the Board on 26 February 2020 and were signed on its behalf by:
Gerard Ryan
Chief Executive Officer
Justin Lockwood
Chief Financial Officer
Annual Report and Financial Statements 2019
Annual Report and Financial Statements 2019
117
117
Strategic ReportDirectors’ ReportFinancial Statements
Statements of changes in equity
Group – Attributable to owners
of the Company
At 1 January 2018 as originally presented
Change in accounting policy
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
Tax credit/(charge) on other comprehensive
income
Total other comprehensive
(expense)/income
Total comprehensive (expense)/income for
the year
Transactions with owners
Share-based payment adjustment to reserves
Shares granted from treasury and employee
trust
24
5
At 1 January 2019
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 loss on retirement benefit obligation
24
Tax (charge)/credit 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 acquired by employee trust
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
Notes
23.4
–
23.4
(22.5)
–
(22.5)
60.0
–
60.0
(1.2)
(47.6)
–
–
(1.2)
(47.6)
2.3
–
2.3
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(8.7)
–
–
–
(8.7)
(8.7)
–
–
–
–
0.3
–
0.3
0.6
0.6
–
–
–
–
–
–
–
–
–
–
–
2.5
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(42.2)
–
–
–
(42.2)
(42.2)
–
–
–
–
–
–
0.6
–
(0.1)
0.5
0.5
–
–
–
–
–
–
–
–
–
–
–
–
(2.1)
1.1
–
–
–
–
–
–
–
–
–
–
–
–
Retained
earnings
£m
482.5
Total
equity
£m
496.9
(107.4)
(107.4)
375.1
389.5
75.4
75.4
–
–
1.1
(0.2)
(8.7)
0.3
1.1
0.1
0.9
(7.2)
76.3
68.2
3.0
(2.5)
(27.7)
424.2
3.0
–
(27.7)
433.0
71.8
71.8
–
–
(1.7)
(42.2)
0.6
(1.7)
0.2
0.1
(1.5)
(43.2)
70.3
28.6
4.6
–
(1.1)
(27.7)
470.3
4.6
(2.1)
–
(27.7)
436.4
Dividends paid to Company shareholders
7
At 31 December 2018
23.4
(22.5)
51.3
(0.6)
(45.1)
2.3
23.4
(22.5)
51.3
(0.6)
(45.1)
2.3
424.2
433.0
At 31 December 2019
23.4
(22.5)
9.1
(0.1)
(46.1)
2.3
118
118
International Personal Finance plc
International Personal Finance plc
Company – Attributable to owners of the Company
Notes
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
24
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
At 1 January 2019
Comprehensive income
Loss after taxation for the year
Other comprehensive (expense)/income
Net fair value losses – cash flow hedges
Actuarial loss on retirement benefit obligation
24
Tax credit on other comprehensive income
Total other comprehensive expense
Total comprehensive expense for the year
Transactions with owners
Share-based payment adjustment to reserves
Shares acquired by employee trust
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
(0.8)
(47.6)
2.3
303.5
Total
equity
£m
507.1
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1.0
–
(0.1)
0.9
0.9
–
–
–
–
–
–
–
–
–
–
2.5
–
–
–
–
–
–
–
–
–
–
(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)
244.9
3.0
–
(27.7)
451.9
23.4
226.3
0.1
(45.1)
2.3
244.9
451.9
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(0.1)
–
–
(0.1)
(0.1)
–
–
–
–
–
–
–
–
–
–
–
–
(2.1)
1.1
–
–
–
–
–
–
–
–
–
–
–
(46.1)
2.3
(33.9)
(33.9)
–
(1.7)
0.2
(1.5)
(0.1)
(1.7)
0.2
(1.6)
(35.4)
(35.5)
4.6
–
(1.1)
(27.7)
185.3
4.6
(2.1)
–
(27.7)
391.2
At 31 December 2018
23.4
226.3
0.1
(45.1)
2.3
At 31 December 2019
23.4
226.3
The other reserve represents the difference between the nominal value of the shares issued when the Company became listed on
16 July 2007 and the fair value of the subsidiary companies acquired in exchange for this share capital.
The Company has elected to take the exemption under section 408 of the Companies Act 2006 not to present the Parent Company
income statement.
The accounting policies and notes 1 to 31 are an integral part of these Financial Statements.
Annual Report and Financial Statements 2019
Annual Report and Financial Statements 2019
119
119
Strategic ReportDirectors’ ReportFinancial Statements
Cash flow statements
for the year ended 31 December
Cash flows from operating activities
Cash generated from operating activities
Finance costs paid
Finance income received
Income tax paid
Net cash generated from operating activities
Cash flows from investing activities
Purchases of property, plant and equipment
Proceeds from sale of property, plant and equipment
Purchases of intangible assets
Net cash used in investing activities
Net cash generated from operating and investing activities
Cash flows from financing activities
Proceeds from borrowings
Repayment of borrowings
Principal elements of lease payments
Dividends paid to Company shareholders
Shares acquired by employee trust
Net cash used in financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Exchange (losses)/gains on cash and cash equivalents
Cash and cash equivalents at end of year
Cash and cash equivalents at end of year comprise:
Cash at bank and in hand
Group
Company
2019
£m
2018
£m
2019
£m
Notes
27
13
11
7
16
169.2
(64.0)
–
(41.0)
64.2
(10.2)
0.2
(21.2)
(31.2)
33.0
119.9
(120.3)
(9.9)
(27.7)
(2.1)
(40.1)
(7.1)
46.6
(2.1)
37.4
141.6
(59.6)
–
(21.8)
60.2
(6.7)
0.3
(19.3)
(25.7)
34.5
101.9
(89.7)
–
(27.7)
–
(15.5)
19.0
27.4
0.2
46.6
2018
£m
97.7
(58.4)
37.9
(1.6)
75.6
–
–
–
–
81.1
(59.9)
34.9
(1.7)
54.4
–
–
–
–
54.4
75.6
79.2
(103.7)
–
(27.7)
(2.1)
(54.3)
0.1
0.1
–
0.2
32.3
(80.1)
–
(27.7)
–
(75.5)
0.1
–
–
0.1
16
37.4
46.6
0.2
0.1
The accounting policies and notes 1 to 31 are an integral part of these Financial Statements.
120
120
International Personal Finance plc
International Personal Finance plc
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 on the back cover of this
Annual Report and Financial Statements.
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 2.
These Financial Statements are presented in 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 125.
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 amendment to standards is mandatory for the first time for the financial year beginning 1 January 2019 but does not
have any material impact on the Group:
• Amendments to IAS19 Employee Benefits – ‘Plan amendment, curtailment or settlement’;
• IFRS 10 and IAS 28 (amendments) ‘Sale or Contribution of Assets between an Investor and its Associate or Joint Venture’.
The following standards, interpretations and amendments to existing standards are not yet effective and have not been early
adopted by the Group:
• IFRS 17 ‘Insurance contracts’;
• Amendments to IFRS 3 ‘Definition of a Business’;
• Amendments to IAS 1 and IAS 8 ‘Definition of Material’;
• Amendments to IAS 39 ‘Pre-replacement issues in the context of the IBOR reform’; and
• Conceptual framework ‘Amendments to References to the Conceptual Framework in IFRS Standards’.
IFRS 16 ‘Leases’
The Group has adopted IFRS 16 for the first time in 2019, for more information see note 31.
IFRIC 23 ‘Uncertainty over Income Tax Treatments’
The Group has adopted IFRIC 23 for the first time in 2019. IFRIC 23 sets out how to determine the accounting tax position when there is
uncertainty over income tax treatments. The interpretation requires the Group to determine whether uncertain tax positions are
assessed separately or as a group; and to assess whether it is probable that a tax authority will accept an uncertain tax treatment
used/proposed by the entity in its income tax filings. If this is deemed to be the case, the Group should determine its accounting tax
position with the treatment used/proposed in its income tax filings. If this is not deemed to be the case, the Group should reflect the
effect of uncertainty in determining its accounting tax position using either the most likely amount or the expected value method.
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 156-160 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.
Basis of preparation
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 43.
121
Annual Report and Financial Statements 2019
International Personal Finance plc
121
Strategic ReportDirectors’ ReportFinancial Statements Accounting policies continued
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. Finance costs also include interest expenses on lease liabilities as
required under IFRS 16.
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 fees charged.
Commissions in respect of insurance products intermediated by the Group are recognised when the underlying insurance is sold
(alongside a loan agreement) if no further service obligations are identified. These commission amounts do not make up a
significant part of the revenue of the Group. The insurance premium payable by the customer is capitalised alongside the customer
loan receivable and both are accounted for on an amortised cost basis.
The accounting for amounts receivable from customers is considered further below.
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 at the grant date,
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.
122
122
International Personal Finance plc
International Personal Finance plc
Financial instruments
Classification and measurement
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
Amounts receivable from customers are measured at amortised cost under IFRS 9.
Impairment
The impairment model under IFRS 9 reflects expected credit losses. 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.
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 31
December 2018 and 31 December 2019.
Other receivables
Every year we will assess other receivables, including amounts due from Group undertakings, for any evidence of impairment.
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 and we do not expect there to be any sources of hedge ineffectiveness.
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 through profit or loss (EVTPL) 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.
Annual Report and Financial Statements 2019
Annual Report and Financial Statements 2019
123
123
Strategic ReportDirectors’ ReportFinancial Statements
Accounting policies continued
Borrowings
Borrowings are recognised initially at fair value, being their issue proceeds net of any transaction costs incurred. Borrowings are stated
subsequently at amortised cost; any difference between proceeds net of transaction costs and the redemption value is recognised in
the income statement over the expected life of the borrowings using the EIR. Borrowings are classified as current liabilities unless the
Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date.
Trade payables
Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest
method.
Provisions
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable
that the Group will be required to settle that obligation and a reliable estimate can be made of the amount of the obligation.
The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the
balance sheet date, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using
the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows.
Goodwill
Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the identifiable net assets of the
acquired subsidiary at the date of acquisition.
Goodwill is 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 and whenever there is an indication that the asset may be
impaired. 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. 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.
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
Motor vehicles
Depreciation rate
10%
20% to 33.3%
Method
Straight–line
Straight–line
25%
Reducing balance
The residual value and useful economic life of all assets are reviewed, and adjusted if appropriate, at each balance sheet date. All
items of property, plant and equipment are tested for impairment whenever events or changes in circumstances indicate that the
carrying value may not be recoverable. An impairment loss is recognised through the income statement for the amount by which the
asset’s carrying value exceeds the higher of the asset’s value in use or its fair value less costs to sell.
Share capital
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.
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International Personal Finance plc
International Personal Finance plc
Foreign currency translation
Items included in the Financial Statements of each of the Group’s subsidiaries are measured using the currency of the primary
economic environment in which the subsidiary operates (‘the functional currency’). The Group’s financial information is presented in
sterling.
Transactions that are not denominated in an entity’s functional currency are recorded at the rate of exchange ruling at the date of
the transaction.
Monetary assets and liabilities denominated in foreign currencies are translated into the relevant functional currency at the rates of
exchange ruling at the balance sheet date. Differences arising on translation are charged or credited to the income statement,
except when deferred in other comprehensive income as qualifying cash flow hedges.
The income statements of the Group’s subsidiaries (none of which has the currency of a hyperinflationary economy) that have a
functional currency different from sterling are translated into sterling at the average exchange rate and the balance sheets are
translated at the exchange rates ruling at each balance sheet date.
Upon consolidation, exchange differences arising from the translation of the net investment in foreign subsidiaries, and of borrowings
and other currency instruments designated as hedges of such investments, are taken to other comprehensive income.
Taxation
The tax expense represents the sum of the tax currently payable and deferred tax.
Current tax
The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income
statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items
that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or
substantively enacted by the balance sheet date.
Deferred tax
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in
the Financial Statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the
balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax
assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary
differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from the initial recognition
of goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that
affects neither the taxable profit nor the accounting profit.
Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, and
interests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the
temporary difference will not reverse in the foreseeable future.
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 assets and liabilities 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 offset 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.
Annual Report and Financial Statements 2019
Annual Report and Financial Statements 2019
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Strategic ReportDirectors’ ReportFinancial Statements
Accounting policies continued
Employee benefits
Defined benefit pension scheme
The charge or credit in the income statement in respect of the defined benefit pension scheme comprises the actuarially assessed
current service cost of working employees together with the interest charge on pension liabilities offset by the expected return on
pension scheme assets. As there are no working employees that are members of the defined benefit pension scheme, there are no
current service costs. All charges or credits are allocated to administrative expenses.
The asset or obligation recognised in the balance sheet in respect of the defined benefit pension scheme is the fair value of the
scheme’s assets less the present value of the defined benefit obligation at the balance sheet date.
The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The present
value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high-
quality corporate bonds that have terms to maturity approximating to the terms of the related pension liability.
Cumulative actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are recognised
immediately in other comprehensive income.
The Parent Company share of the defined benefit retirement obligation is based on the proportion of total Group contributions made
by the Parent Company.
Defined contribution schemes
Contributions to defined contribution pension schemes are charged to the income statement on an accruals basis.
Critical accounting judgements and key sources of estimation uncertainty
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 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 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 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 estimate 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 (2018: £12.1 million). This sensitivity is based on historic fluctuations
in EIRs.
Amounts receivable from customers
The Group reviews its portfolio of customer loans and receivables for impairment on a weekly or monthly basis. The Group reviews the
most recent collections performance 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.
126
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International Personal Finance plc
International Personal Finance plc
The table below shows the estimated variation to the amounts receivable from customers in the event that loss given default
parameters could vary by +/- 2%:
European home credit
Mexico home credit
Digital
Group
Receivables
impact
£m
4.1
1.4
1.2
6.7
Amounts
receivable
from
customers
£m
571.2
150.2
252.2
973.6
Based on historic movements in probability of default parameters, variation in 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.
Polish early settlement rebates
The Chief Executive Officer’s review on page 19 sets out details of a comprehensive review being conducted by UOKiK, the Polish
competition and consumer protection authority, of rebating practices by banks and other consumer credit providers on early loan
settlement, including those of the Group’s Polish businesses. We reviewed the likelihood of the resolution of this matter resulting in
higher early settlement rebates being payable to customers that settled their agreements early before the balance sheet date. The
total amount provided of £4 million (included in other payables) represents the Group’s best estimate of the likely future cost of
increasing historic customer rebates, based on its current strategy to achieve resolution. However, a number of risks and uncertainties
remain in particular with respect to future claims volumes relating to historic rebates paid, the nature of any customer contact
exercise required and the methodology used to calculate any additional early settlement rebates. The volumes could differ from the
Group’s estimates (which are calculated with reference to Group’s previous experience of claims relating to one-off regulatory
matters), resulting in a further charge or release being required. If the volume of claims were double the level that represents the
Group’s estimate of future volumes, the Group would expect an additional charge of approximately £4 million. Based on past
experience, the Group’s expectation at this stage is that claims rates are unlikely to be more than double the assumed rate.
Investment in subsidiaries
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 entails comparing the investments value to the net present value of latest forecast cash flows from the
operating businesses. This review confirmed that no impairment of the investment is required.
Tax
Estimations 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 estimation with regards to the ongoing Polish tax audits and the EU State Aid investigation, which are
disclosed in note 29, 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, estimations 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.
Annual Report and Financial Statements 2019
Annual Report and Financial Statements 2019
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Notes to the financial statements
1. Segment analysis
Group
European home credit
Mexico home credit
Digital
UK costs*
Total
Revenue
Impairment
Profit before taxation
2019
£m
452.2
247.6
189.3
–
889.1
2018
£m
493.3
226.1
147.0
–
866.4
2019
£m
56.0
102.3
85.2
–
2018
£m
88.5
82.9
55.6
–
243.5
227.0
2019
£m
115.1
10.5
3.2
(14.8)
114.0
2018
£m
113.8
15.7
(5.6)
(14.6)
109.3
* 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
Group
European home credit
Mexico home credit
Digital
UK
Total
Group
European home credit
Mexico home credit
Digital
UK
Total
Segment assets
Segment liabilities
2019
£m
710.0
230.3
314.9
–
67.5
2018
£m
699.8
241.7
310.2
0.3
70.5
1,322.7
1,322.5
2019
£m
297.2
147.0
225.8
–
216.3
886.3
2018
£m
327.7
144.8
224.7
5.3
187.0
889.5
Capital expenditure
Depreciation
2018
£m
2019
£m
2018
£m
2019
£m
7.5
1.8
0.9
–
10.2
4.1
1.7
0.9
–
6.7
5.4
2.1
0.4
0.6
8.5
Expenditure on intangible
assets
Amortisation
2019
£m
–
–
12.8
8.4
21.2
2018
£m
–
–
10.5
8.8
19.3
2019
£m
–
–
5.7
9.1
14.8
5.0
2.2
0.6
1.4
9.2
2018
£m
–
–
4.6
9.9
14.5
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 £889.1 million
(2018: £866.4 million) and the breakdown by segment 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 total of non-current assets other than financial instruments and deferred tax assets located in the UK is £27.1 million (2018:
£27.3 million), and the total of non-current assets located in other countries is £360.9 million (2018: £323.9 million).
There is no single external customer from which significant revenue is generated.
The segments shown above are the segments for which management information is presented to the Board, which is deemed to be
the Group’s chief operating decision maker.
2. Finance costs
Group
Interest payable on borrowings and lease liabilities
2019
£m
63.5
2018
£m
58.5
128
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International Personal Finance plc
International Personal Finance plc
3. Profit before taxation
Profit before taxation is stated after charging:
Group
Depreciation of property, plant and equipment (note 13)
Depreciation of right-of-use assets (note 31)
Loss on disposal of property, plant and equipment
Amortisation of intangible assets (note 11)
Employee costs (note 9)
4. Auditor’s remuneration
During the year, the Group incurred the following costs in respect of services provided by the Group auditor:
Group
Fees payable to the Company auditor for the audit of the Parent Company and Consolidated Financial Statements
Fees payable to the Company auditor and its associates for other services:
– audit of Company’s subsidiaries pursuant to legislation
– other assurance services
Further details on auditor remuneration can be found in the Audit and Risk Committee Report on page 80.
5. Tax expense
Group
Current tax expense
Deferred tax (income)/expense (note 14)
– current year
– prior year
Tax expense
2019
£m
8.5
9.1
0.5
14.8
200.9
2019
£m
0.1
0.8
0.1
2019
£m
49.7
(4.7)
(2.8)
(7.5)
42.2
2018
£m
9.2
–
0.5
14.5
192.9
2018
£m
0.1
0.6
0.1
2018
£m
44.3
(12.0)
1.6
(10.4)
33.9
Further information regarding the deferred tax (income)/expense is shown in note 14, and primarily relates to timing differences in
respect of revenue and impairment.
Group
Tax (charge)/credit on other comprehensive income
Deferred tax (charge)/credit on net fair value gains/losses – cash flow hedges
Deferred tax credit/(charge) on actuarial losses/gains on retirement benefit asset
2019
£m
(0.1)
0.2
0.1
2018
£m
0.3
(0.2)
0.1
The rate of tax expense on the profit before taxation for the year ended 31 December 2019 is higher than (2018: higher than) the
standard rate of corporation tax in the UK of 19.0% (2018: 19.0%). 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% (2018: 19.0%)
Effects of:
– adjustment in respect of prior years
– adjustment in respect of foreign tax rates
– non-deductible bad debt expense
– other expenses not deductible for tax purposes
– change in unrecognised deferred tax assets
Total tax expense
2019
£m
114.0
21.7
2.8
1.0
16.6
0.2
(0.1)
42.2
2018
£m
109.3
20.8
1.6
1.4
7.5
2.8
(0.2)
33.9
The Group is currently subject to a tax audit with respect to Provident Polska for the years 2008 and 2009. Decisions were received in
January 2017 and have been appealed. Audits of years 2010 – 2012 were closed during the year. Further details are set out in note
29.
The Group is also subject to audits in Mexico (regarding 2017), Finland (2018 – 2019), Spain (2015 – 2017) and Hungary (2017 –
2018). An audit of Slovakia (2015) was closed during the year.
Annual Report and Financial Statements 2019
Annual Report and Financial Statements 2019
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Strategic ReportDirectors’ ReportFinancial Statements
Notes to the financial statements continued
6. Earnings per share
Basic earnings per share (‘EPS’) is calculated by dividing the earnings attributable to shareholders of £71.8 million (2018: £75.4 million)
by the weighted average number of shares in issue during the period of 223.1 million (2018: 223.0 million) which has been adjusted
to exclude the weighted average number of shares held in treasury and by the employee trust.
For diluted EPS, the weighted average number of IPF plc ordinary shares in issue is adjusted to assume conversion of all dilutive
potential ordinary share options relating to employees of the Group.
The weighted average number of shares used in the basic and diluted EPS calculations can be reconciled as follows:
Group
Used in basic EPS calculation
Dilutive effect of awards
Used in diluted EPS calculation
Basic and diluted EPS are presented below:
Group
Basic EPS
Dilutive effect of awards
Diluted EPS
7. Dividends
Group and Company
Interim dividend of 4.6 pence per share (2018: interim dividend of 4.6 pence per share)
Final 2018 dividend of 7.8 pence per share (2018: final 2017 dividend of 7.8 pence per share)
2019
£m
223.1
14.0
237.1
2018
£m
223.0
11.1
234.1
2019
pence
2018
pence
32.2
(1.9)
30.3
2019
£m
10.3
17.4
27.7
33.8
(1.6)
32.2
2018
£m
10.3
17.4
27.7
The directors are recommending a final dividend in respect of the financial year ended 31 December 2019 of 7.8 pence per share
which will amount to a full-year dividend payment of £27.6 million. If approved by the shareholders at the annual general meeting
(‘AGM’), this dividend will be paid on 11 May 2020 to shareholders who are on the register of members at 14 April 2020. This dividend
is not reflected as a liability in the balance sheet as at 31 December 2019 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
2019
£m
2018
£m
4.3
0.1
0.2
4.6
4.4
0.1
0.1
4.6
Short-term employee benefits comprise salary/fees 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 105.
Disclosures in respect of the Group’s directors are included in the Directors’ Remuneration Report.
130
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International Personal Finance plc
International Personal Finance plc
9. Employee information
The average full-time equivalent of people employed by the Group (including executive directors) was as follows:
Group
Full-time*
Part-time**
2019
Number
2018
Number
7,246
1,726
8,972
7,127
1,894
9,021
* Includes 667 agents in Hungary and Romania (2018: includes 716 agents in Hungary and Romania).
** Includes 1,416 agents in Hungary and Romania (2018: includes 1,595 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 loss prevention
Group employment costs for all employees (including executive directors) were as follows:
Group
Gross wages and salaries
Social security costs
Pension charge – defined contribution schemes (note 24)
Share-based payment charge (note 25)
Total
10. Goodwill
Group
Net book value
At 1 January
Exchange adjustments
At 31 December
2019
Number
2018
Number
5,183
743
3,046
8,972
2019
£m
167.4
30.2
0.9
2.4
5,365
831
2,825
9,021
2018
£m
161.5
29.5
0.8
1.1
200.9
192.9
2019
£m
24.5
(1.4)
23.1
2018
£m
24.4
0.1
24.5
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 Board. The rate
used to discount the forecast cash flows is 9% (2018: 10%). No reasonably foreseeable reduction in the assumptions would give rise to
impairment, and therefore no further sensitivity analysis has been presented.
11. Intangible assets
Group
Net book value
At 1 January
Additions
Amortisation
Exchange adjustments
At 31 December
Analysed as:
– cost
– amortisation
At 31 December
Intangible assets comprise computer software.
The Company has no intangible assets.
2019
£m
38.0
21.2
(14.8)
(1.2)
43.2
2018
£m
33.1
19.3
(14.5)
0.1
38.0
124.3
(81.1)
43.2
105.0
(67.0)
38.0
Annual Report and Financial Statements 2019
Annual Report and Financial Statements 2019
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Strategic ReportDirectors’ ReportFinancial Statements
Notes to the financial statements continued
12. Investment in subsidiaries
Company
Investment in subsidiaries
Share-based payment adjustment
2019
£m
712.3
17.6
729.9
2018
£m
712.3
15.8
728.1
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. 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. Subsequent to this, during 2017, a further £25.5m investment was made in these acquired
businesses.
A further £17.6 million (2018: £15.8 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.
During the year, as a result of the Group net asset position and the market capitalisation of the Company being lower than the
carrying value of the investment in subsidiaries, we carried out a review of the recoverable amount of the carrying value of the
investment. This review confirmed that no impairment of the investment is required.
The subsidiary companies of IPF plc, which are 100% owned by the Group and included in these Consolidated Financial Statements,
are detailed below:
Subsidiary company
Country of incorporation and operation
Principal activity
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.
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.
Guernsey
Spain
United Kingdom
Czech Republic
United Kingdom
Estonia
Australia
Estonia
Finland
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
Netherlands
Romania
Romania
Czech Republic
Hungary
Mexico
Poland
Poland
Mexico
Mexico
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
Provision of services
Dormant
Home credit
Home credit
Home credit
Home credit
Home credit
Non-trading
Provision of services
Provision of services
All UK subsidiaries are registered at the same registered office as the Company, and this address is shown on the back cover of this
Annual Report and Financial Statements.
132
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International Personal Finance plc
International Personal Finance plc
13. Property, plant and equipment
Group
Cost
At 1 January 2019
Exchange adjustments
Additions
Disposals
At 31 December 2019
Depreciation
At 1 January 2019
Exchange adjustments
Charge to the income statement
Disposals
At 31 December 2019
Net book value at 31 December 2019
Net book value at 31 December 2018
Computer
equipment
£m
Fixtures
and fittings
£m
Motor
vehicles
£m
78.1
(2.2)
6.8
(1.9)
80.8
25.8
(0.9)
3.4
(2.1)
26.2
(66.2)
(19.4)
1.6
(5.9)
1.5
0.7
(2.3)
1.8
(69.0)
(19.2)
11.8
11.9
7.0
6.4
3.3
(0.3)
–
(0.4)
2.6
(1.7)
0.2
(0.3)
0.4
(1.4)
1.2
1.6
Total
£m
107.2
(3.4)
10.2
(4.4)
109.6
(87.3)
2.5
(8.5)
3.7
(89.6)
20.0
19.9
The Company has property, plant and equipment with a cost of £1.0 million (2018: £1.0 million); depreciation of £1.0 million
(2018: £1.0 million); and a net book value of £nil (2018: £nil). All of these assets are computer equipment.
14. 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
Restated at 1 January
Exchange adjustments
Tax credit to the income statement
Tax credit/(charge) on other comprehensive income
At 31 December
Group
Company
2019
£m
128.1
–
128.1
(4.0)
7.5
0.1
2018
£m
93.0
23.1
116.1
1.5
10.4
0.1
131.7
128.1
2019
£m
(0.1)
–
(0.1)
–
0.5
0.2
0.6
2018
£m
0.1
–
0.1
–
0.1
(0.3)
(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 reflected in the calculation of UK
deferred tax assets and liabilities at 31 December 2019.
Deferred tax assets and liabilities are offset where the Group has a legally enforceable right to do so.
An analysis of the deferred tax assets and liabilities is set out below:
Deferred tax assets
Deferred tax liabilities
At 31 December
Group
Company
2019
£m
151.7
(20.0)
131.7
2018
£m
138.5
(10.4)
128.1
2019
£m
1.3
(0.7)
0.6
2018
£m
–
(0.1)
(0.1)
Annual Report and Financial Statements 2019
Annual Report and Financial Statements 2019
133
133
Strategic ReportDirectors’ ReportFinancial Statements
Notes to the financial statements continued
14. Deferred tax continued
At 1 January 2018 as originally presented
Change in accounting policy
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
At 1 January 2019
Exchange adjustments
Tax credit/(charge) to the income statement
Tax credit on items taken directly to equity
At 31 December 2019
Group
Company
Revenue
and
impairment
differences
£m
Other
temporary
differences
£m
Losses
£m
7.8
–
7.8
–
1.6
–
9.4
9.4
(0.4)
1.7
–
10.7
77.2
23.1
100.3
1.0
17.2
–
118.5
118.5
(3.9)
6.0
–
120.6
8.0
–
8.0
0.5
(8.4)
0.1
0.2
0.2
0.3
(0.2)
0.1
0.4
Retirement
benefit
obligations
£m
Other
temporary
differences
£m
(0.4)
–
(0.4)
–
(0.3)
(0.1)
(0.8)
(0.8)
–
(0.1)
0.2
(0.7)
0.5
–
0.5
–
0.4
(0.2)
0.7
0.7
–
0.6
–
1.3
Total
£m
93.0
23.1
116.1
1.5
10.4
0.1
128.1
128.1
(4.0)
7.5
0.1
131.7
Total
£m
0.1
–
0.1
–
0.1
(0.3)
(0.1)
(0.1)
–
0.5
0.2
0.6
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 2019, the Group has unused tax losses of £59.2 million (2018: £52.7 million) available for offset against future profits.
A deferred tax asset has been recognised in respect of £37.3 million (2018: £35.0 million) of these losses where profit projections
indicate the existence of sufficient taxable profits to support the recognition of the asset. No deferred tax has been recognised in
respect of the remaining £21.9 million (2018: £17.7 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 2019, there is £nil (2018: £nil) amount of temporary differences associated with investments in subsidiaries for which
deferred tax liabilities have not been recognised.
15. Amounts receivable from customers
Group
Amounts receivable from customers comprise:
– amounts due within one year
– amounts due in more than one year
2019
£m
2018
£m
728.3
245.3
973.6
764.2
228.6
992.8
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
2019
£m
339.7
68.6
178.2
135.6
158.1
70.3
23.1
973.6
2018
£m
353.0
66.0
179.1
128.3
176.4
74.4
15.6
992.8
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.
Determining an increase in credit risk since initial recognition
IFRS 9 requires the recognition of 12 month expected credit losses (the expected credit losses from default events that are expected
within 12 months of the reporting date) if credit risk has not significantly increased since initial recognition (stage 1) and lifetime
expected credit losses for financial instruments for which the credit risk has increased significantly since initial recognition (stage 2)
or which are credit impaired (stage 3).
When determining whether the risk of default has increased significantly since initial recognition the Group considers both
quantitative and qualitative information based on the Group’s historical experience.
The approach to identifying significant increases in credit risk is consistent across the Group’s products. In addition, as a backstop,
the Group considers that a significant increase in credit risk occurs when an asset is more than 30 days past due.
Financial instruments are moved back to stage 1 once they no longer meet the criteria for a significant increase in credit risk.
134
134
International Personal Finance plc
International Personal Finance plc
15. Amounts receivable from customers continued
Definition of default and credit impaired assets
The Group defines a financial instrument as in default, which is fully aligned with the definition of credit-impaired, when it meets one or
more of the following criteria:
• Quantitative criteria: the customer is more than 90 days past due on their contractual payments in home credit and 60 days past
due on their contractual payments in IPF Digital; and
• 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.
Write-offs
A financial instrument is written off (in full or in part) when the Group judges there to be no reasonable expectation that the
instrument can be recovered (in full or in part). This is typically the case when the Group determines that the customer is not able to
generate sufficient cash flows to repay the amounts subject to the write-off. This assessment is performed at the individual instrument
level. The related impairment loss allowance is also written off once all the necessary procedures have been completed and the loss
amount has crystallised. Financial instruments that are written off could still be subject to recovery activities and subsequent
recoveries of amounts previously written off decrease the amount of impairment losses recorded in the income statement.
The table below shows the amount of the net receivables in each stage at 31 December:
Home credit
IPF Digital
Group
2019
2018
Stage 1
£m
Stage 2
£m
448.8
232.5
681.3
85.7
18.8
104.5
Stage 3
£m
Total Net
Receivables
£m
186.9
0.9
187.8
721.4
252.2
973.6
Stage 1
£m
Stage 2
£m
Stage 3
£m
Total Net
Receivables
£m
460.6
227.0
687.6
90.0
18.3
108.3
192.2
4.7
196.9
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.
2019
2018
Stage 1
£m
Stage 2
£m
815.6
(134.3)
681.3
188.9
(84.4)
104.5
Stage 3
£m
Total Net
Receivables
£m
459.9
1,464.4
(272.1)
(490.8)
187.8
973.6
Stage 1
£m
Stage 2
£m
Stage 3
£m
Total Net
Receivables
£m
824.2
(136.6)
687.6
192.5
(84.2)
108.3
486.1
(289.2)
196.9
1,502.8
(510.0)
992.8
Gross carrying amount
Loss allowance
Net receivables
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;
• Recoveries from receivables; and
• Other movements to gross carrying amount 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 field write-off collections.
• Recoveries from receivables not included within impairment; and
• Other movements to the loss allowance and foreign exchange retranslations.
Annual Report and Financial Statements 2019
Annual Report and Financial Statements 2019
135
135
Strategic ReportDirectors’ ReportFinancial Statements
Notes to the financial statements continued
15. Amounts receivable from customers continued
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
2019
Stage 1
£m
Stage 2
£m
Stage 3
£m
Total
£m
Opening gross carrying amount at 1 January
571.8
164.4
448.6
1,184.8
1,019.5
(360.6)
(377.8)
7.5
9.7
411.7
–
59.9
146.6
(87.6)
0.9
90.2
300.7
231.2
80.1
(10.6)
197.9
–
1,019.5
–
–
–
–
699.8
418.1
Stage 1
£m
575.1
1,048.8
(414.0)
(426.7)
5.9
6.8
2018
Stage 2
£m
Stage 3
£m
157.7
434.4
–
71.5
159.0
(88.4)
0.9
87.8
–
342.5
267.7
82.5
(7.7)
213.5
Total
£m
1,167.2
1,048.8
–
–
–
–
719.4
Credit issued
Transfers between stages:
From stage 1
From stage 2
From stage 3
Revenue
Recoveries
Other movements
(24.3)
0.6
(4.6)
(28.3)
88.0
13.2
(5.0)
96.2
Closing gross carrying amount at
31 December
555.2
156.5
430.7
1,142.4
571.8
164.4
448.6
1,184.8
(1,062.9)
(158.6)
(511.9)
(1,733.4)
(1,144.2)
(165.8)
(536.8)
(1,846.8)
Loss allowance – home credit
Opening loss allowance at 1 January
Loss allowance on credit issued
Transfers between stages:
From stage 1
From stage 2
From stage 3
Change in risk parameters
Other impairment
Total impairment
Recoveries
Other movements
2019
2018
Stage 1
£m
Stage 2
£m
Stage 3
£m
Total
£m
Stage 1
£m
Stage 2
£m
Stage 3
£m
(111.2)
(111.1)
113.0
120.8
(2.6)
(5.2)
(0.7)
(67.6)
(66.4)
63.0
8.2
(74.4)
(256.4)
(442.0)
–
(12.0)
(45.6)
33.9
(0.3)
(0.2)
(21.2)
(33.4)
35.9
1.1
–
(111.1)
(101.0)
(75.2)
(31.3)
5.5
(2.3)
44.8
–
–
–
–
(3.2)
(44.0)
(58.5)
(158.3)
61.9
9.2
160.8
18.5
(108.8)
(120.6)
135.0
139.2
(1.9)
(2.3)
0.7
(79.8)
(64.7)
58.0
4.3
(70.3)
(242.1)
–
(117.4)
(88.9)
(31.0)
2.5
(2.2)
47.8
–
(17.6)
(50.3)
32.9
(0.2)
(0.5)
(16.8)
(34.9)
30.0
0.8
Total
£m
(421.2)
(120.6)
–
–
–
–
(2.0)
(48.8)
(71.8)
(171.4)
55.9
1.6
143.9
6.7
Closing loss allowance at 31 December
(106.4)
(70.8)
(243.8)
(421.0)
(111.2)
(74.4)
(256.4)
(442.0)
Net receivables – home credit
Opening net receivables at 1 January
Credit issued
Transfers between stages:
From stage 1
From stage 2
From stage 3
Revenue
Impairment
Recoveries
Other movements
Closing net receivables at 31 December
Stage 1
£m
460.6
1,019.5
(360.6)
(377.8)
7.5
9.7
411.7
(66.4)
2019
Stage 2
£m
90.0
–
59.9
146.6
(87.6)
0.9
90.2
(33.4)
Stage 3
£m
192.2
Total
£m
742.8
–
1,019.5
300.7
231.2
80.1
(10.6)
197.9
(58.5)
–
–
–
–
699.8
(158.3)
Stage 1
£m
466.3
1,048.8
(414.0)
(426.7)
5.9
6.8
418.1
(64.7)
2018
Stage 2
£m
87.4
–
71.5
159.0
(88.4)
0.9
87.8
(34.9)
Stage 3
£m
192.3
Total
£m
746.0
–
1,048.8
342.5
267.7
82.5
(7.7)
213.5
(71.8)
–
–
–
–
719.4
(171.4)
(999.9)
(122.7)
(450.0)
(1,572.6)
(1,086.2)
(135.8)
(480.9)
(1,702.9)
(16.1)
448.8
1.7
85.7
4.6
186.9
(9.8)
721.4
92.3
460.6
14.0
90.0
(3.4)
192.2
102.9
742.8
136
136
International Personal Finance plc
International Personal Finance plc
15. Amounts receivable from customers continued
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:
2019
2018
Stage 1
£m
Stage 2
£m
Stage 3
£m
Gross carrying amount – IPF Digital
Opening gross carrying amount at 1 January
Credit issued
Transfers between stages:
From stage 1
From stage 2
From stage 3
Revenue
Recoveries
Other movements
252.4
333.5
(101.1)
(181.2)
78.2
1.9
161.8
(371.9)
(14.3)
28.1
–
(3.5)
179.4
(185.1)
2.2
17.9
(8.5)
(1.6)
Total
£m
318.0
333.5
–
–
–
–
189.3
37.5
–
104.6
1.8
106.9
(4.1)
9.6
(120.1)
(500.5)
(2.4)
(18.3)
Stage 1
£m
Stage 2
£m
Stage 3
£m
178.2
311.8
(80.1)
(134.1)
52.5
1.5
128.3
(285.5)
(0.3)
20.9
–
3.9
127.1
(124.1)
0.9
11.9
(8.5)
(0.1)
36.9
–
76.2
7.0
71.6
(2.4)
6.8
(82.3)
(0.1)
Total
£m
236.0
311.8
–
–
–
–
147.0
(376.3)
(0.5)
Closing gross carrying amount at 31
December
260.4
32.4
29.2
322.0
252.4
28.1
37.5
318.0
Loss allowance – IPF Digital
Opening loss allowance at 1 January
Loss allowance on credit issued
Transfers between stages:
From stage 1
From stage 2
From stage 3
Change in risk parameters
Other impairment
Total impairment
Recoveries
Other movements
Closing loss allowance at 31 December
Net receivables – IPF Digital
Opening net receivables at 1 January
Credit issued
Transfers between stages:
From stage 1
From stage 2
From stage 3
Revenue
Impairment
Recoveries
Other movements
Closing net receivables at 31 December
2019
2018
Stage 1
£m
Stage 2
£m
Stage 3
£m
(25.4)
(32.9)
(1.2)
25.0
(25.0)
(1.2)
(1.1)
33.5
(1.7)
–
(0.8)
(27.9)
(9.8)
(32.8)
–
55.2
(24.7)
81.0
(1.1)
(0.2)
(58.1)
(3.1)
–
(0.7)
(13.6)
–
(54.0)
(0.3)
(56.0)
2.3
(1.3)
(25.1)
(80.4)
93.1
(8.2)
(28.3)
Total
£m
(68.0)
(32.9)
–
–
–
–
(2.6)
(49.7)
(85.2)
93.1
(9.7)
(69.8)
Stage 1
£m
Stage 2
£m
Stage 3
£m
(17.0)
(37.0)
0.3
17.2
(15.7)
(1.2)
2.5
25.9
(8.3)
–
(0.1)
(25.4)
(6.9)
–
34.2
(15.8)
50.6
(0.6)
0.4
(37.4)
(2.8)
–
(0.1)
(9.8)
(31.7)
–
(34.5)
(1.4)
(34.9)
1.8
1.6
(11.6)
(44.5)
43.5
(0.1)
(32.8)
2019
2018
Stage 1
£m
Stage 2
£m
Stage 3
£m
227.0
333.5
(101.1)
(181.2)
78.2
1.9
161.8
(1.7)
(371.9)
(15.1)
232.5
18.3
–
(3.5)
179.4
(185.1)
2.2
17.9
(3.1)
(8.5)
(2.3)
18.8
4.7
–
104.6
1.8
106.9
(4.1)
9.6
(80.4)
(27.0)
(10.6)
0.9
Total
£m
250.0
333.5
–
–
–
–
189.3
(85.2)
(407.4)
(28.0)
252.2
Stage 1
£m
Stage 2
£m
Stage 3
£m
161.2
311.8
(80.1)
(134.1)
52.5
1.5
128.3
(8.3)
(285.5)
(0.4)
227.0
14.0
–
3.9
127.1
(124.1)
0.9
11.9
(2.8)
(8.5)
(0.2)
18.3
5.2
–
76.2
7.0
71.6
(2.4)
6.8
(44.5)
(38.8)
(0.2)
4.7
Total
£m
(55.6)
(37.0)
–
–
–
–
4.5
(23.1)
(55.6)
43.5
(0.3)
(68.0)
Total
£m
180.4
311.8
–
–
–
–
147.0
(55.6)
(332.8)
(0.8)
250.0
Annual Report and Financial Statements 2019
Annual Report and Financial Statements 2019
137
137
Strategic ReportDirectors’ ReportFinancial Statements
Notes to the financial statements continued
15. Amounts receivable from customers continued
Impairment as a percentage of revenue for each geographical segment is shown below:
Group
European home credit
Mexico home credit
Digital
2019
%
12.4
41.3
45.0
2018
%
17.9
36.7
37.8
The carrying value of amounts receivable from customers that would have been impaired had their terms not been renegotiated is
£nil (2018: £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 105% (2018: 109%). All amounts receivable from customers are at fixed interest rates. The average
period to maturity of the amounts receivable from customers is 12.2 months (2018: 11.5 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.
16. 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
17. Other receivables
Other receivables
Prepayments
Amounts due from Group undertakings
Total
No balance within other receivables is impaired.
Group
Company
2019
£m
37.4
2018
£m
46.6
2019
£m
0.2
2018
£m
0.1
Group
Company
2019
£m
18.4
2.2
5.6
1.6
6.5
2.3
0.8
2018
£m
23.6
3.4
7.2
2.0
6.7
3.1
0.6
2019
£m
–
–
0.2
–
–
–
–
2018
£m
–
–
0.1
–
–
–
–
37.4
46.6
0.2
0.1
Group
Company
2019
£m
4.2
12.7
–
16.9
2018
£m
9.8
9.1
–
18.9
2019
£m
0.6
0.3
634.7
635.6
2018
£m
0.1
0.7
666.6
667.4
Amounts due from Group undertakings are unsecured and due for repayment in less than one year.
138
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International Personal Finance plc
International Personal Finance plc
18. Trade and other payables
Trade payables
Other payables including taxation and social security
Accruals
Amounts due to Group undertakings
Total
Group
Company
2019
£m
9.9
49.8
64.2
–
2018
£m
16.8
50.7
80.2
–
123.9
147.7
2019
£m
0.6
0.1
20.8
453.4
474.9
2018
£m
–
0.5
23.5
394.4
418.4
Amounts due to Group undertakings are unsecured and due for repayment in less than one year.
19. Borrowing facilities and borrowings
The Group and Company’s borrowings are as follows:
Borrowings
Bank borrowings
Bonds
Total
The Group’s external bonds comprise the following:
Bond
€406.1 million EMTN
£44.1 million retail bond
£78.1 million retail bond
Polish zloty 200.0 million PMTN
Swedish krona 450.0 million EMTN
Less: unamortised arrangement fees
Group
Company
2019
£m
2018
£m
2019
£m
2018
£m
137.3
539.1
676.4
130.7
567.6
698.3
4.6
499.4
504.0
3.5
525.7
529.2
Coupon %
Maturity
date
5.750
6.125
7.750
Six–month WIBOR plus 425 basis points
Three–month STIBOR plus 875 basis points
2021
2020
2023
2020
2022
2019
£m
343.5
44.1
78.1
39.8
36.4
541.9
(2.8)
539.1
The Polish zloty 200 million (£39.8 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 (£36.4 million) bond is a floating rate bond, although derivative
contracts have been used to cap the borrowing costs up to September 2020. The Eurobond €406.1 million (£343.5 million) was
originally €412.0 million (£348.5 million) but the Group bought back €5.9 million (£5.0 million) of bonds in Q4 2019. The external bank
borrowings of the Group are at a combination of floating and fixed 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
2019
£m
2018
£m
2019
£m
2018
£m
112.7
366.7
197.0
676.4
28.8
172.1
497.4
698.3
48.6
342.5
112.9
504.0
18.9
101.2
409.1
529.2
The average period to maturity of the Group’s external bonds and committed external borrowing facilities is 1.7 years (2018:
2.1 years).
Annual Report and Financial Statements 2019
Annual Report and Financial Statements 2019
139
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Strategic ReportDirectors’ ReportFinancial Statements
Notes to the financial statements continued
19. 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
Group
Company
2019
£m
125.1
63.7
21.5
342.5
75.9
5.8
5.5
36.4
676.4
2018
£m
2019
£m
104.7
125.1
99.6
15.5
–
–
2018
£m
104.7
–
–
369.1
342.5
369.1
44.6
4.3
20.5
40.0
698.3
–
–
–
36.4
504.0
–
–
15.4
40.0
529.2
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
2019
£m
2018
£m
2019
£m
2018
£m
23.7
171.5
424.9
241.5
861.6
20.9
65.7
226.6
572.8
886.0
9.7
66.4
380.5
126.7
583.3
Group
Company
2019
£m
82.3
57.1
43.0
2018
£m
57.8
54.1
73.6
182.4
185.5
2019
£m
27.4
49.2
–
76.6
10.0
15.4
118.5
452.2
596.1
2018
£m
6.5
17.0
41.3
64.8
Undrawn external facilities above does not include unamortised arrangement fees.
20. Risks arising from financial instruments
Risk management
Treasury related risks
The Board approves treasury policies and the treasury function manages the day-to-day operations. The Board delegates certain
responsibilities to the Treasury Committee. The Treasury Committee is empowered to take decisions within that delegated authority.
Treasury activities and compliance with treasury policies are reported to the Board on a regular basis and are subject to periodic
independent reviews and audits, both internal and external. Treasury policies are designed to manage the main financial risks faced
by the Group in relation to funding and liquidity risk; interest rate risk; currency risk; and counterparty risk. This is to ensure that the
Group is properly funded; that interest rate and currency risk are managed within set limits; and that financial counterparties are of
appropriate credit quality. Policies also set out the specific instruments that can be used for risk management.
The treasury function enters into derivative transactions, principally interest rate swaps, currency swaps and forward currency
contracts. The purpose of these transactions is to manage the interest rate and currency risks arising from the Group’s underlying
business operations. No transactions of a speculative nature are undertaken and written options may only be used when matched
by purchased options.
Liquidity risk
The Group is subject to the risk that it will not have sufficient borrowing facilities to fund its existing business and its future plans for
growth. The short-term nature of the Group’s business means that the majority of amounts receivable from customers are receivable
within twelve months with an average period to maturity of around twelve 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 2019, the Group’s bonds and committed borrowing facilities
had an average period to maturity of 1.7 years (2018: 2.1 years).
As shown in note 19, total undrawn facilities as at 31 December 2019 were £182.4 million (2018: £185.5 million).
140
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International Personal Finance plc
International Personal Finance plc
20. Risks arising from financial instruments continued
A maturity analysis of gross borrowings included in the balance sheet is presented in note 19. 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
2019
£m
113.1
36.3
387.2
217.8
754.4
2018
£m
20.5
49.5
205.6
515.0
790.6
2019
£m
60.1
287.3
358.0
297.0
1,002.4
2018
£m
15.8
306.0
128.3
544.8
994.9
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.
In line with paragraph 39(a) of IFRS 7, the maturity table for the Company also includes amounts payable to Group companies of
£437.9 million (2018: £394.4 million).
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
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
Group
Company
Outflow
£m
149.8
142.9
96.7
38.3
427.7
Inflow
£m
151.3
146.2
92.1
34.3
423.9
Outflow
£m
156.1
76.3
106.8
48.4
387.6
Inflow
£m
155.5
73.5
104.9
44.1
378.0
2019
2018
Outflow
£m
Inflow
£m
Outflow
£m
Inflow
£m
0.6
0.9
0.5
2.0
0.5
0.9
0.5
1.9
13.7
1.0
0.7
15.4
14.0
1.0
0.6
15.6
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.
Annual Report and Financial Statements 2019
Annual Report and Financial Statements 2019
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Strategic ReportDirectors’ ReportFinancial Statements
Notes to the financial statements continued
20. Risks arising from financial instruments continued
A maturity analysis of the Group’s receivables and borrowing facilities as at 31 December is presented below:
Group
2018
Less than one year
Later than one year
2019
Less than one year
Later than one year
Receivables
£m
Percentage
of total
%
Borrowing
facilities
£m
Percentage
of total
%
764.2
228.6
992.8
728.3
245.3
973.6
77.0
23.0
100.0
74.8
25.2
100.0
86.6
799.4
886.0
195.2
666.4
861.6
9.8
90.2
100.0
22.7
77.3
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 15.
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 (7.1% in 2019; 6.8% in 2018) 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:
2019
£m
–
1.3
2018
£m
0.8
1.9
• the change in the market interest rate occurs in all countries where the Group has borrowings and/or derivative financial
instruments;
• where financial liabilities are subject to fixed interest rates or have their interest rate fixed by hedging instruments it is assumed that
there is no impact from a change in interest rates; and
• changes in market interest rate affect the fair value of derivative financial instruments.
Currency risk
The Group is subject to three types of currency risk: net asset exposure; cash flow exposure; and income statement exposure.
Net asset exposure
The majority of the Group’s net assets are denominated in currencies other than sterling. The balance sheet is reported in sterling and
this means that there is a risk that a fluctuation in foreign exchange rates will have a material impact on the net assets of the Group.
The impact in 2019 is a reduction in net assets of £42.2 million (2018: reduction of £8.7 million). The Group aims to minimise the value
of net assets denominated in each foreign currency by funding overseas receivables with borrowings in local currency, where
possible.
Cash flow exposure
The Group is subject to currency risk in respect of future cash flows which are denominated in foreign currency. The policy of the
Group is to hedge a large proportion of this currency risk in respect of cash flows which are expected to arise in the following 12
months. Where forward foreign exchange contracts have been entered into, they are designated as cash flow hedges on specific
future transactions.
Income statement exposure
As with net assets, the majority of the Group’s profit is denominated in currencies other than sterling but translated into sterling for
reporting purposes. The result for the period is translated into sterling at the average exchange rate. A risk therefore arises that a
fluctuation in the exchange rates in the countries in which the Group operates will have a material impact on the consolidated result
for the period.
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International Personal Finance plc
20. Risks arising from financial instruments continued
The following sensitivity analysis demonstrates the impact on equity of a 5% strengthening or weakening of sterling against all
exchange rates for the countries in which the Group operates:
Group
Change in reserves
Change in profit before taxation
2019
£m
4.9
7.8
2018
£m
5.7
8.3
This sensitivity analysis is based on the following assumptions:
• 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 as
approved, or delegated for approval, by the Board.
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
2019
£m
37.4
0.3
37.7
2018
£m
46.6
1.6
48.2
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 16.
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
2019
£m
973.6
2018
£m
992.8
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 15.
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.
Annual Report and Financial Statements 2019
Annual Report and Financial Statements 2019
143
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Strategic ReportDirectors’ ReportFinancial Statements
Notes to the financial statements continued
20. Risks arising from financial instruments continued
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
2019
£m
973.6
(676.4)
139.2
436.4
44.8%
1.5
2018
£m
992.8
(698.3)
138.5
433.0
43.6%
1.6
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), further details are
included within the Financial review on page 42.
21. Derivative financial instruments
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
Company
Liabilities
Foreign currency contracts
Total
2019
£m
2018
£m
0.3
0.3
1.6
1.6
2019
£m
2018
£m
0.2
16.0
16.2
0.6
6.7
7.3
2019
£m
2018
£m
–
–
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 £0.6 million has been credited to equity for the Group in the period in respect of cash flow hedges (2018: £0.3
million credited to equity), Company: £0.1 million charge (2018: £1.0 million credit).
The following table shows the notional maturity profile of outstanding cash flow hedges:
Group
As at 31 December 2018
Foreign currency contracts
Interest rate swaps
Cash flow hedges
As at 31 December 2019
Foreign currency contracts
Interest rate swaps
Cash flow hedges
In more
than one
year but
less than
two years
£m
Repayable
up to one
year
£m
474.0
–
474.0
191.6
39.8
231.4
–
42.0
42.0
228.3
–
228.3
Total
£m
474.0
42.0
516.0
419.9
39.8
459.7
144
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International Personal Finance plc
International Personal Finance plc
21. Derivative financial instruments continued
Company
As at 31 December 2018
Foreign currency contracts
Cash flow hedges
As at 31 December 2019
Foreign currency contracts
Cash flow hedges
In more
than one
year but
less than
two years
£m
Repayable
up to one
year
£m
15.4
15.4
1.9
1.9
–
–
–
–
Total
£m
15.4
15.4
1.9
1.9
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 (2018: £nil) has been made to the income
statement in the year representing the movement in the fair value of the ineffective portion of the interest rate swaps and the income
statement charge relating to the closure of interest rate swaps.
The weighted average interest rate and period to maturity of the Group interest rate swaps were as follows:
Group
Polish zloty
2019
2018
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
0.4
2.7
2.7–2.8
1.4
The Company did not hold any interest rate swaps at 31 December 2019 (31 December 2018: £nil).
A derivative contract has been used to cap the floating rate borrowing costs on the Swedish Krona 450 million (£36.4m) bond at 0.5%
plus margin up to September 2020.
22. 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
Financial liabilities
An analysis of Group financial liabilities is presented below:
Group
Bonds
Bank borrowings
Derivative financial instruments
Trade and other payables
Annual Report and Financial Statements 2019
Annual Report and Financial Statements 2019
2019
2018
Financial
assets at
amortised
cost
£m
Derivatives
used for
hedging
£m
Financial
assets at
amortised
cost
£m
Derivatives
used for
hedging
£m
Total
£m
973.6
–
37.4
16.9
–
0.3
–
–
973.6
992.8
0.3
37.4
16.9
–
46.6
18.9
–
1.6
–
–
Total
£m
992.8
1.6
46.6
18.9
1,027.9
0.3
1,028.2
1,058.3
1.6
1,059.9
2019
2018
Financial
liabilities at
amortised
cost
£m
Derivatives
used for
hedging
£m
539.1
137.3
–
123.9
800.3
–
–
16.2
–
16.2
Financial
liabilities at
amortised
cost
£m
Derivatives
used for
hedging
£m
567.6
130.7
–
147.7
846.0
–
–
7.3
–
7.3
Total
£m
539.1
137.3
16.2
123.9
816.5
Total
£m
567.6
130.7
7.3
147.7
853.3
145
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Strategic ReportDirectors’ ReportFinancial Statements
Notes to the financial statements continued
23. Fair values of financial assets and liabilities
IFRS 13 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 and 2,
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 below, along with the fair value of other Group assets
and liabilities.
The fair value and carrying value of the financial assets and liabilities of the Group are set out below:
At 31 December 2018
Financial assets
Amounts receivable from customers
Derivative financial instruments
Cash and cash equivalents
Other receivables
Financial liabilities
Bonds
Bank borrowings
Derivative financial instruments
Trade and other payables
At 31 December 2019
Financial assets
Amounts receivable from customers
Derivative financial instruments
Cash and cash equivalents
Other receivables
Financial liabilities
Bonds
Bank borrowings
Derivative financial instruments
Trade and other payables
Carrying
value
£m
992.8
1.6
46.6
18.9
1,059.9
567.6
130.7
7.3
147.7
853.3
Carrying
value
£m
973.6
0.3
37.4
16.9
1,028.2
Fair values
Level 1
£m
Level 2
£m
Level 3
£m
Total fair
value
£m
–
–
–
–
–
529.6
–
–
–
529.6
–
1,371.9
1,371.9
1.6
46.6
18.9
67.1
–
130.7
7.3
147.7
285.7
–
–
–
1.6
46.6
18.9
1,371.9
1,439.0
–
–
–
–
–
529.6
130.7
7.3
147.7
815.3
Fair values
Level 1
£m
Level 2
£m
Level 3
£m
Total fair
value
£m
–
–
–
–
–
–
1,345.6
1,345.6
0.3
37.4
16.9
54.6
–
137.3
16.2
123.9
277.4
–
–
–
0.3
37.4
16.9
1,345.6
1,400.2
–
–
–
–
–
533.4
137.3
16.2
123.9
810.8
539.1
137.3
16.2
123.9
816.5
533.4
–
–
–
533.4
146
146
International Personal Finance plc
International Personal Finance plc
23. Fair values of financial assets and liabilities continued
The fair value and carrying value of the financial assets and liabilities of the Company are set out below:
At 31 December 2018
Financial assets
Cash and cash equivalents
Other receivables
Financial liabilities
Bonds
Bank borrowings
Derivative financial instruments
Trade and other payables
At 31 December 2019
Financial assets
Cash and cash equivalents
Other receivables
Financial liabilities
Bonds
Bank borrowings
Fair values
Level 1
£m
Level 2
£m
Level 3
£m
Total fair
value
£m
Carrying
value
£m
0.1
667.4
667.5
–
–
–
525.7
489.8
3.5
0.1
418.4
947.7
–
–
–
489.8
0.1
667.4
667.5
–
3.5
0.1
418.4
422.0
–
–
–
–
–
–
–
-
0.1
667.4
667.5
489.8
3.5
0.1
418.4
911.8
Carrying
value
£m
Fair values
Level 1
£m
Level 2
£m
Level 3
£m
Total fair
value
£m
0.2
635.6
635.8
499.4
4.6
474.9
978.9
–
–
–
494.8
–
–
494.8
0.2
635.6
635.8
–
4.6
474.9
479.5
–
–
–
–
–
–
–
0.2
635.6
635.8
494.8
4.6
474.9
974.3
Trade and other payables
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 9% (2018: 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.
Annual Report and Financial Statements 2019
Annual Report and Financial Statements 2019
147
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Strategic ReportDirectors’ ReportFinancial Statements
Notes to the financial statements continued
24. 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 2019. The major assumptions used by the actuary were:
Group and Company
Price inflation (‘CPI’)
Rate of increase to pensions in payment
Discount rate
2019
%
1.9
2.6
2.1
2018
%
2.1
3.0
3.0
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
£1.9 million.
If the discount rate was 25 basis points higher/(lower), the defined benefit asset would increase by £2.4 million/(decrease by
£2.5 million).
If the price inflation rate was 25 basis points higher/(lower), the defined benefit asset would decrease by £1.2 million/(increase by
£1.2 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
Diversified growth funds
Corporate bonds
Liability driven investments
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 credit recognised in the income statement
The net credit is included within administrative expenses.
Movements in the fair value of scheme assets were as follows:
Group and Company
Fair value of scheme assets at 1 January
Expected return on scheme assets
Actuarial gain/(loss) on scheme assets
Contributions by the Group
Net benefits paid out
Fair value of scheme assets at 31 December
2019
£m
–
6.9
18.3
18.7
1.9
45.8
(42.4)
3.4
2019
£m
1.1
–
(1.2)
(0.1)
2019
£m
41.4
1.2
4.4
0.9
(2.1)
45.8
2018
£m
10.8
11.2
10.1
7.4
1.9
41.4
(37.3)
4.1
2018
£m
1.0
0.1
(1.1)
–
2018
£m
42.2
1.1
(2.2)
0.9
(0.6)
41.4
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 2020. 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.
148
148
International Personal Finance plc
International Personal Finance plc
24. Retirement benefit asset/obligation continued
Movements in the present value of the defined benefit obligation were as follows:
Group and Company
Defined benefit obligation at 1 January
Interest cost
Actuarial (loss)/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 23.3 years (2018: 22.4 years).
The actual return on scheme assets compared to the expected return is as follows:
Group and Company
Expected return on scheme assets
Actuarial gain/(loss) on scheme assets
Actual return/(loss) on scheme assets
2019
£m
(37.3)
(1.1)
(6.1)
–
2.1
2018
£m
(40.1)
(1.0)
3.3
(0.1)
0.6
(42.4)
(37.3)
2019
£m
1.2
4.4
5.6
2018
£m
1.1
(2.2)
(1.1)
Actuarial gains and losses have been recognised through the statement of comprehensive income (‘SOCI’) in the period in which
they occur.
An analysis of the amounts recognised in the SOCI is as follows:
Group and Company
Actuarial gain/(loss) on scheme assets
Actuarial (loss)/gain on scheme liabilities
Total (loss)/gain recognised in the SOCI in the year
Cumulative amount of losses recognised in the SOCI
The history of experience adjustments are as follows:
Group and Company
Experience gains/(losses) on scheme assets:
• amount (£m)
• percentage of scheme assets (%)
Experience gains on scheme liabilities:
• amount (£m)
• percentage of scheme liabilities (%)
* As required under IAS 19.
Pension schemes – defined contribution
2019
£m
4.4
(6.1)
(1.7)
2018
£m
(2.2)
3.3
1.1
(15.8)
(14.1)
2019
2018
2017*
2016*
2015*
4.4
9.6
–
–
(2.2)
(5.3)
–
–
3.9
9.2
2.9
7.1
3.4
8.5
–
–
(0.9)
(2.5)
–
–
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 £0.9 million for the
year ended 31 December 2019 (2018: £0.8 million). £nil contributions were payable to the scheme at the year end (2018: £nil).
Annual Report and Financial Statements 2019
Annual Report and Financial Statements 2019
149
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Notes to the financial statements continued
25. 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 2019.
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.
The total income statement charge in respect of these share-based payments is £2.4 million (2018: charge of £1.1 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
2019
0.88
n/a
0.86
3 and 5
2019
1.91
2.07
Nil
3
51.1%-52.1%
52.8%-54.7%
Up to 5
Up to 5
0.48%
14.04%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
3
3
1.19%
6.50%
50.0%
30.0%
60.0%
82.8p
100.6p
5.7%
6.9%
0.17-0.19
0.83-0.84
2019
1.91
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 any awards made under the Performance Share Plan, HYS Plan, Discretionary Award 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 Corporate Governance Report.
150
150
International Personal Finance plc
International Personal Finance plc
25. Share-based payments continued
The movements in awards during the year for the Group are outlined in the table below:
SAYE
schemes
CSOPs
Deferred
Share Plans
Performance
Share Plans
Weighted
average
exercise
Group
Number
price Number
Weighted
average
exercise
price
Weighted
average
exercise
price
Number
Weighted
average
exercise
HYS Plans
Weighted
average
exercise
Discretionary
Award Plan
Weighted
average
exercise
price
Number
price Number
price Number
Outstanding at
1 January 2018
Granted
537,248
103,836
Expired/lapsed
(60,787)
Exercised
(2,921)
1.74
1.92
2.24
1.54
300,860
3.14
1,820,921
–
–
806,714
(64,768)
3.70
(112,175)
–
–
(360,873)
–
–
6,633,574
3,243,898
– (1,522,638)
–
(177,362)
Outstanding at
31 December
2018
577,376
1.72
236,092
2.99
2,154,587
–
8,177,472
Outstanding at
1 January 2019
577,376
Granted
1,087,937
1.72
0.86
236,092
2.99 2,154,587
–
– 1,101,832
Expired/lapsed (471,943)
1.70 (202,094)
2.96
(104,172)
Exercised
–
–
–
–
(233,916)
Outstanding at
31 December
2019
1,193,370
0.94
33,998
3.1 2,918,331
– 8,177,472
– 3,820,391
(1,815,112
)
(38,729)
10,144,02
2
–
–
–
–
–
–
–
–
–
–
–
–
–
90,280
–
(84,744)
– 320,000
– 412,704
–
–
–
–
(120,000)
5,536
– 612,704
5,536
–
(5,536)
–
–
– 612,704
–
8,345
– (38,428)
– (200,000)
– 382,621
–
–
–
–
–
–
–
–
–
–
Share awards outstanding at 31 December 2019 had exercise prices of £0.86 - £6.36 (2018: £1.54 - £6.36) and a weighted average
remaining contractual life of 8.4 years (2018: 8.4 years).
The movements in awards during the year for the Company are outlined in the table below:
SAYE
schemes
CSOPs
Deferred
Share Plans
Performance
Share Plans
Company
Outstanding at 1 January 2018
Granted
Transferred
Expired/lapsed
Exercised
Outstanding at 31 December 2018
Outstanding at 1 January 2019
Granted
Transferred
Expired/lapsed
Exercised
Number
245,845
48,716
149,646
(45,937)
(2,272)
395,998
395,998
702,897
–
(362,465)
–
Outstanding at 31 December 2019
736,430
Weighted
average
exercise
price
1.83
1.92
1.52
2.20
1.54
1.68
1.68
0.86
–
1.66
–
0.91
Weighted
average
exercise
price
3.13
–
–
3.51
–
2.68
Number
158,792
–
–
(32,803)
–
125,989
125,989
2.68
–
–
–
–
Number
800,494
312,041
–
(90,024)
(213,278)
809,233
809,233
420,251
–
(98,256)
2.98
(66,766)
–
–
(139,827)
Weighted
average
exercise
price
–
–
–
–
–
–
Number
2,583,915
1,316,576
–
(686,122)
(56,115)
3,158,254
– 3,158,254
– 1,584,765
–
–
–
–
(590,581)
(10,408)
27,733
2.96
1,022,891
– 4,142,030
Weighted
average
exercise
price
–
–
–
–
–
–
–
–
–
–
–
–
The Company does not have any awards under the HYS Plan or Discretionary Award Plan.
Share awards outstanding at 31 December 2019 had exercise prices of £0.86 - £5.26 (2018: £1.54 - £6.36) and a weighted average
remaining contractual life of 8.5 years (2018: 8.4 years).
26. Share capital
Company
234,244,437 fully paid up shares at a nominal value of 10 pence
2019
£m
23.4
2018
£m
23.4
The Company has one class of ordinary shares which carry no right to fixed income.
The own share reserve represents the cost of shares in International Personal Finance purchased from the market, which can be used
to satisfy options under the Group’s share options schemes (see note 25). The number of ordinary shares held in treasury and by the
employee trust at 31 December 2019 was 12,224,083 (2018: 10,991,381). During 2019 the employee trust acquired 1,718,000 shares at
an average price of £1.22.
Annual Report and Financial Statements 2019
Annual Report and Financial Statements 2019
151
151
Strategic ReportDirectors’ ReportFinancial Statements
Notes to the financial statements continued
27. Reconciliation of profit/(loss) after taxation to cash generated from operating
activities
Profit/(loss) after taxation from operations
Adjusted for:
• tax charge
• finance costs
• finance income
• share-based payment charge (note 25)
• depreciation of property, plant and equipment (note 13)
• loss on disposal of property, plant and equipment (note 13)
• amortisation of intangible assets (note 11)
• depreciation of right-of-use assets (note 31)
• short term and low value lease costs
Changes in operating assets and liabilities:
• increase in amounts receivable from customers
• (increase)/decrease in other receivables
• (decrease)/increase in trade and other payables
• change in retirement benefit asset
• increase/(decrease) in derivative financial instrument liabilities
Cash generated from operating activities
28. Capital commitments
Group
Capital expenditure commitments contracted with third parties but not provided for at 31 December
The Company has no commitments as at 31 December 2019 (2018: £nil).
Group
Company
2019
£m
71.8
42.2
63.5
–
2.4
8.5
0.5
14.8
9.1
2.9
(34.3)
(3.7)
(18.3)
(1.0)
10.8
169.2
2018
£m
75.4
33.9
58.5
–
1.1
9.2
0.5
14.5
–
–
(65.9)
–
3.7
(0.9)
11.6
141.6
2019
£m
(33.9)
0.8
58.4
(34.9)
1.4
–
–
–
–
–
–
31.1
59.4
(1.0)
(0.2)
81.1
2018
£m
(32.3)
1.5
56.8
(37.8)
0.3
–
–
–
–
–
–
29.0
76.6
(0.9)
4.5
97.7
2019
£m
2.7
2018
£m
4.9
152
152
International Personal Finance plc
International Personal Finance plc
29. Contingent liabilities
The Company has a contingent liability for guarantees given in respect of the borrowings of certain other Group companies to a
maximum of £264.1 million (2018: £264.2 million). At 31 December 2019, the fixed and floating rate borrowings under these facilities
amounted to £131.4 million (2018: £151.8 million). The directors do not expect any loss to arise. These guarantees are defined as
financial guarantees under IFRS 9 and their fair value at 31 December 2019 was £nil (2018: £nil).
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 2017 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 £34.2 million (comprising tax and associated
interest) in order to make the appeals. Subsequently an application was made to initiate a process (“mutual agreement procedure”)
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 were stayed. Tax audits were also opened in Poland in respect of
2010 – 2012.
As announced on 24 October 2019, the Polish tax audits of 2010 – 2012 were closed and adjustments to the remaining years up to
and including 2017 were agreed with the Polish tax authority. This resulted in an overall payment of £3.8 million for 2010 to 2017. The
years 2008 and 2009 remain open. Following expert advice regarding the strength of the case both from a procedural and
substantive position, we withdrew our application for mutual agreement procedure between the Polish and UK tax authorities in
December 2019 and the cases are expected to be heard in the Polish courts in the first half of 2020.
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; and as noted above, in recent months the same tax authority has
accepted the Company’s treatment for years 2010 onwards with only small adjustments. 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 tax asset in these Financial Statements given the uncertainties in relation to the timing
of any repayment of such amounts.
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. On 2 April 2019 the EU announced its finding that the Group
Financing Exemption is partially incompatible with EU State Aid rules. In common with other UK-based international companies whose
intra-group finance arrangements are in line with current controlled foreign company rules, the Group is affected by this decision. The
total tax benefit obtained by the Group in all years as a result of the structure affected by the decision is estimated at up to £13.9
million. The amount repayable by the Group under the decision however is expected to be lower than this as the final decision only
found the UK tax regime to be partially incompatible. HMRC has begun a process of gathering information from taxpayers, including
IPF, in order to quantify the amount of alleged State Aid received.
The UK government has announced that it has filed an annulment application before the General Court of the European Union. In
common with a number of other affected taxpayers, IPF has also filed its own annulment application. Nevertheless, the amount of
finally agreed State Aid will need to be paid by the Group to HMRC in accordance with the State Aid rules pending the hearing of the
applications. Based on legal advice received by management regarding the strength of the technical position set out in the
annulment applications, it is expected to be more likely than not that any payment that the Group makes to HMRC as a result of the
State Aid decision will ultimately be repaid. HMRC has stated that it does not consider that the timing and form of the UK's exit from
the EU will have any practical impact on this matter.
30. 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
2019
2018
Recharge
of costs
£m
Interest
charge
£m
Outstanding
balance
£m
Recharge
of costs
£m
Interest
charge
£m
Outstanding
balance
£m
(0.1)
–
4.8
4.7
–
9.1
3.5
12.6
0.1
–
80.6
80.7
0.1
–
2.6
2.7
–
10.5
7.2
17.7
(0.6)
0.6
98.4
98.4
The outstanding balance represents the gross intercompany balance receivable by the Company. This balance has decreased
during 2019 due to the repayment of a proportion of these intercompany loans.
The Group’s only related party transactions are remuneration of key management personnel as disclosed in note 8.
Annual Report and Financial Statements 2019
Annual Report and Financial Statements 2019
153
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Strategic ReportDirectors’ ReportFinancial Statements
Notes to the financial statements continued
31. Changes in Accounting Policies – IFRS 16 ‘Leases’
This note explains the impact of the adoption of IFRS 16 Leases on the Group’s Financial Statements.
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 supersedes the current lease
guidance including IAS 17 Leases and the related interpretations and became effective for accounting periods beginning on or
after 1 January 2019. The date of initial application of IFRS 16 for the Group is 1 January 2019.
IFRS 16 distinguishes leases and service contracts on the basis of whether an identified asset is controlled by the lessee. Distinctions of
operating leases (off balance sheet) and finance leases (on balance sheet) are removed for lessee accounting, and are 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 is also affected because operating leases under IAS 17 are presented as operating cash flows, whereas
under the IFRS 16 model, the lease payments are split into a principal and interest portion, which are both presented as financing
cash flows.
All of the Group’s leasing arrangements have been reviewed in light of the new rules in IFRS 16 and they will primarily affect
the accounting for the Group’s operating leases. The Group has adopted IFRS 16 from 1 January 2019, but has not restated
comparatives for the 2018 reporting period, as permitted under the specific transitional provisions in the standard. The
reclassifications and the adjustments arising from the new leasing rules are therefore recognised in the opening balance sheet
on 1 January 2019.
On adoption of IFRS 16, the Group recognised lease liabilities in relation to leases which had previously been classified as ‘operating
leases’ under the principles of IAS 17 Leases. These liabilities were measured at the present value of the remaining lease payments,
discounted using the interest rate implicit in the lease, or if that rate cannot be readily determined, at the lessee’s incremental
borrowing rate. The weighted average lessee’s incremental borrowing rate applied to the lease liabilities on 1 January 2019 was 8%.
Furthermore, the Group has applied exemptions available under the standard relating to low value assets and short-term leases.
As at 1 January 2019, the Group had non-cancellable operating lease commitments of £29.0 million. The Group recognised
right-of-use assets of £21.5 million on 1 January 2019 and lease liabilities of £21.5 million, overall there was a £nil impact on net assets.
Operating lease commitments as at 1 January 2019
Operating lease commitments as at 1 January 2019 restated net of VAT
Discounted using the lessee’s incremental borrowing rate at the date of initial application
Less: short-term leases recognised on a straight-line basis as expense
Less: low-value leases recognised on a straight-line basis as expense
Add: adjustments as a result of a different treatment of extension and termination options
Lease liability recognised as at 1 January 2019
The movement in the lease liability in the period is as follows:
Lease liability at 1 January 2019
Exchange adjustments
Additions
Interest
Lease payments
Lease liability at 31 December 2019
Current liabilities
Non-current liabilities:
- between one and five years
- greater than five years
Lease liability at 31 December 2019
Group
£m
29.0
27.6
25.1
(5.0)
(0.4)
1.8
21.5
Group
£m
21.5
(0.7)
7.1
1.5
(9.9)
19.5
8.7
10.6
0.2
10.8
19.5
154
154
International Personal Finance plc
International Personal Finance plc
31. Changes in Accounting Policies – IFRS 16 ‘Leases’ continued
The movement in the right-of-use assets in the year is as follows:
Net book value at 1 January 2019
Exchange adjustments
Additions
Disposals
Depreciation
Net book value at 31 December 2019
Motor
vehicles
£m
Properties
£m
Group
£m
5.5
(0.2)
4.1
–
(3.0)
6.4
16.0
(0.5)
3.0
–
(6.1)
12.4
21.5
(0.7)
7.1
–
(9.1)
18.8
The change in accounting policy affected the balance sheet on 1 January 2019 by increasing segmental assets by £21.5 million and
increasing segmental liabilities by £21.5 million for the right-of-use assets and lease liability respectively. The net impact on retained
earnings on 1 January 2019 was £nil.
At 31 December 2019 segmental assets were affected by an increase of £18.8 million and segmental liabilities by an increase of
£19.5 million.
Amounts recognised in income statement:
Depreciation on right-of-use assets
Interest expense on lease liabilities
Expenses relating to short-term leases
Expenses relating to leases of low value assets
The total cash outflow in the year in respect of lease contracts is £13.1m.
The Company has no leases as at 31 December 2019 (2018: £nil).
2019
£m
9.1
1.5
2.5
0.4
13.5
Annual Report and Financial Statements 2019
Annual Report and Financial Statements 2019
155
155
Strategic ReportDirectors’ ReportFinancial Statements
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
Credit issued
growth (%)
None
Average net
receivables (£m)
None
Average net
receivables growth at
constant exchange
rates (%)
None
Revenue growth at
constant exchange
rates (%)
None
Revenue yield (%)
None
Impairment as a
percentage of
revenue (%)
None
Cost-income ratio (%) None
Like-for-like profit
growth or contraction
(£m)
None
Not applicable
Not applicable
Not applicable
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 (constant exchange rates).
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.
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 period-on-period reported results
(constant exchange rates).
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 (constant
exchange rates).
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 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).
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.
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.
Not applicable
Not applicable
Not applicable
Not applicable
156
156
International Personal Finance plc
International Personal Finance plc
APM
Balance sheet and
returns measures
Return on assets
('ROA')(%)
Closest
equivalent
statutory measure
Reconciling items
to statutory
measure
Definition and
purpose
None
Not applicable
Return on equity
(‘ROE’) (%)
Equity to receivables
ratio (%)
None
None
Not applicable
Not applicable
Headroom (£m)
Undrawn
external bank
facilities
None
Other measures
Customers
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 less tax at the effective tax rate
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 divided by average opening and closing
equity. It is used as a measure of overall shareholder returns.
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.
Annual Report and Financial Statements 2019
Annual Report and Financial Statements 2019
157
157
Strategic ReportDirectors’ ReportFinancial Statements
Alternative performance measures continued
Constant exchange rate reconciliations
The year-on-year change in profit and loss accounts is calculated by retranslating the 2018 profit and loss account at the average
actual exchange rates used in the current year.
2019
£m
Customers (000)
Credit issued
Average net receivables
Revenue
Impairment
Net revenue
Finance costs
Agents’ commission
Other costs
Profit/(loss) before tax
European home
credit
Mexico home
credit
IPF Digital
Central costs
1,009
751.3
562.0
452.2
(56.0)
396.2
(37.1)
(51.1)
(192.9)
115.1
795
268.2
164.4
247.6
(102.3)
145.3
(11.8)
(29.9)
(93.1)
10.5
305
333.5
260.2
189.3
(85.2)
104.1
(14.4)
-
(86.5)
3.2
-
-
-
-
-
-
(0.2)
-
(14.6)
(14.8)
2018 performance at 2018 average foreign exchange rates
£m
Customers (000)
Credit issued
Average net receivables
Revenue
Impairment
Net revenue
Finance costs
Agents’ commission
Other costs
Profit/(loss) before tax
Foreign exchange movements
£m
Credit issued
Average net receivables
Revenue
Impairment
Net revenue
Finance costs
Agents’ commission
Other costs
Profit/(loss) before tax
European home
credit
Mexico home
credit
IPF Digital
Central costs
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)
-
-
-
-
-
-
-
-
(14.6)
(14.6)
European home
credit
Mexico home
credit
IPF Digital
Central costs
Group
(17.2)
(11.6)
(10.8)
2.4
(8.4)
0.6
1.2
3.4
(3.2)
12.7
6.9
10.0
(3.5)
6.5
(0.5)
(1.3)
(3.7)
1.0
(3.4)
(2.5)
(1.6)
0.6
(1.0)
0.1
-
0.9
-
-
-
-
-
-
-
-
-
-
2018 performance at 2019 average exchange rates
£m
Credit issued
Average net receivables
Revenue
Impairment
Net revenue
Finance costs
Agents’ commission
Other costs
Profit/(loss) before tax
European home
credit
Mexico home
credit
IPF Digital
Central costs
740.6
547.3
482.5
(86.1)
396.4
(34.7)
(52.5)
(198.6)
110.6
303.7
161.8
236.1
(86.4)
149.7
(11.8)
(30.1)
(91.1)
16.7
308.4
207.1
145.4
(55.0)
90.4
(11.8)
-
(84.2)
(5.6)
-
-
-
-
-
-
-
(14.6)
(14.6)
Group
2,109
1,353.0
986.6
889.1
(243.5)
645.6
(63.5)
(81.0)
(387.1)
114.0
Group
2,301
1,360.6
923.4
866.4
(227.0)
639.4
(58.5)
(82.5)
(389.1)
109.3
(7.9)
(7.2)
(2.4)
(0.5)
(2.9)
0.2
(0.1)
0.6
(2.2)
Group
1,352.7
916.2
864.0
(227.5)
636.5
(58.3)
(82.6)
(388.5)
107.1
158
158
International Personal Finance plc
International Personal Finance plc
Year-on-year movement at constant exchange rates
£m
Credit issued
Average net receivables
Revenue
Impairment
Net revenue
Finance costs
Agents’ commission
Other costs
Return on assets (ROA)
European home
credit
Mexico home
credit
IPF Digital
Central costs
1.4%
2.7%
(6.3%)
35.0%
(0.1%)
(6.9%)
2.7%
2.9%
(11.7%)
1.6%
4.9%
(18.4%)
(2.9%)
-
0.7%
(2.2%)
8.1%
25.6%
30.2%
(54.9%)
15.2%
(22.0%)
-
(2.7%)
-
-
-
-
-
(100.0%)
-
-
ROA is calculated as profit before interest after tax divided by average receivables
2019
Profit before tax (£m)
Interest (£m)
Profit before interest and tax (£m)
Taxation (£m)
Profit before interest after tax (£m)
Average net receivables (£m)
Return on assets (ROA)
2018
Profit before tax (£m)
Interest (£m)
Profit before interest and tax (£m)
Taxation (£m)
Profit before interest after tax (£m)
Average net receivables (£m)
Return on assets (ROA)
Return on equity (ROE)
European home
credit
Mexico home
credit
IPF Digital
Central costs
115.1
37.1
152.2
(56.3)
95.9
562.0
17.1%
10.5
11.8
22.3
(8.3)
14.0
164.4
8.5%
3.2
14.4
17.6
(6.5)
11.1
260.2
4.3%
(14.8)
0.2
(14.6)
5.4
(9.2)
-
-
European home
credit
Mexico home
credit
IPF Digital
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%
ROE is calculated as profit after tax divided by average net assets
Equity (net assets)
Average equity
Profit after tax
Return on equity
2019
£m
436.4
434.7
71.8
16.5%
(14.6)
-
(14.6)
4.5
(10.1)
-
-
2018
£m
433.0
411.3
75.4
18.3%
Group
-
7.7%
2.9%
(7.0%)
1.4%
(8.9%)
1.9%
0.4%
Group
114.0
63.5
177.5
(65.7)
111.8
986.6
11.3%
Group
109.3
58.5
167.8
(52.1)
115.7
923.4
12.5%
2017
£m
389.5
Annual Report and Financial Statements 2019
Annual Report and Financial Statements 2019
159
159
Strategic ReportDirectors’ ReportFinancial Statements
Alternative performance measures continued
Earnings before interest, tax, depreciation and amortisation (EBITDA)
Profit before tax
Add back:
Interest
Depreciation
Right-of-use assets 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
2019
£m
114.0
63.5
8.5
9.1
14.8
209.9
2019
IFRS 9
2019
conversion
973.6
131.7
(676.4)
7.5
436.4
126.6
(22.4)
-
-
104.2
2019
IFRS 9
114.0
-
63.5
2019
conversion
(8.1)
-
(1.5)
2018
£m
109.3
58.5
9.2
-
14.5
191.5
2019
IAS 39
1,100.2
109.3
(676.4)
(7.5)
540.6
2019
IAS 39
540.6
(3.4)
15.9
553.1
553.1
(676.4)
1.2
2019
IAS 39
105.9
14.8
62.0
182.7
2019
IAS39
182.7
62.0
2.9
160
160
International Personal Finance plc
International Personal Finance plc
Shareholder Information
Financial calendar for 2020
26 February
9 April
14 April
21 April
30 April
11 May
29 July
3 September
4 September
11 September
2 October
Dividend history
Year
2019
Announcement of 2019 full-year results
Ex-dividend date for final dividend
Record date for final dividend
DRIP cut-off date
AGM
Payment of 2019 final dividend
Announcement of 2020 half-year results
Ex-dividend date for interim dividend
Record date for interim dividend
DRIP cut-off date
Payment of 2020 interim dividend
Payment date
10 May 2019
Final dividend
(p)
Payment date
7.80
4 October 2019
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
Monday to Friday, excluding public
holidays in England and Wales.
Email:
enquiries@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.
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:
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.
Link Asset Services
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU
Telephone:
0871 664 0300 (calls are charged at
the standard geographic rate and will
vary by provider). 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,
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.
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.
Annual Report and Financial Statements 2019
161
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
This report is printed on paper certified in accordance
with the FSC® (Forest Stewardship Council®)
and is recyclable and acid-free.
Pureprint Ltd is FSC certified and ISO 14001 certified
showing that it is committed to all round excellence
and improving environmental performance is an important
part of this strategy.
Pureprint Ltd aims to reduce at source the effect its
operations have on the environment and is committed
to continual improvement, prevention of pollution and
compliance with any legislation of industry standards.
Pureprint Ltd is a Carbon / Neutral® Printing Company.
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