TIDMIPF
RNS Number : 3986L
International Personal Finance Plc
30 April 2020
International Personal Finance
Q1 2020 and April 2020 trading update
30 April 2020
International Personal Finance plc specialises in providing
unsecured consumer credit to more than two million customers across
11 markets. We operate the world's largest home credit business and
a leading fintech business, IPF Digital .
Q1 2020
-- Rapid steps taken to protect our people, our customers
and the business in response to Covid-19
-- Q1 credit issued contracted by 15% year-on-year
-- Group collections in Q1 at 95% of budget; 87% in March
2020
-- Strong funding position - GBP217 million of cash and
headroom on debt facilities at 31 March 2020. Equity
to receivables of 47.6%
April 2020
-- Estimated collections effectiveness at 76% at Group
level; swift implementation of alternative collection
strategies and agents resuming home service in most
European markets; collections effectiveness is expected
to be at a similar level in May with improvements anticipated
thereafter
-- Lending is now focused on our loyal customers who have
strong credit quality characteristics. We expect to
limit credit issued in April to around 30% of our original
budget
-- Business is actively managing within the new temporary
regulations. In Hungary, we have seen a positive take-up
of customers opting-out of the moratorium and continuing
to repay their loans. In Romania and the Czech Republic,
the moratorium is on an opt-in basis and the levels
of opting-in are currently low
-- New shorter-term lending products introduced in Poland
and Hungary, enabling our agents to continue meeting
the needs of our highest-quality customers under the
temporary rate caps introduced in these markets
-- Mexico is behind Europe in the impact of Covid-19. Using
lessons learned in Europe, greater emphasis being placed
on collections, tightened credit settings and implementing
alternative remote payment processes
-- IPF Digital April collections effectiveness is expected
to be around 82%, with the main driver of the reduction
being fewer customers overpaying their minimum repayment
obligations. We have reduced the amount of credit issued,
and our focus is now on our highest quality customers
-- The Group was net cashflow-positive in April to date
-- Extensive liquidity stress testing analysis undertaken,
which demonstrates that we can actively manage our cash
flows and retain adequate headroom against our funding
facilities
Gerard Ryan, CEO of International Personal Finance plc
commented: "We made a solid start to the year and trading in the
first ten weeks of 2020 was in-line with our expectations. Like
many other organisations, Covid-19 has since impacted our business.
During this unprecedented time, o ur priorities in response to the
virus are to protect the health and wellbeing of our team, to
support our loyal customers and protect our business. IPF is a
resilient, well-capitalised and funded business with a long track
record of generating consistently good returns for our
stakeholders. W e have successfully served our credit products to
millions of customers f or more than two decades, and believe we
are well placed to continue meeting their needs. I would like to
thank all my colleagues for their continuing dedication during
these difficult times. "
Liquidity and balance sheet strength
Our key area of focus in the short-term is to manage liquidity
as restrictions on people movement and debt moratoria in a number
of our markets adversely impact our collections effectiveness. In
response to reduced collections, tighter price caps and the risk of
an economic downturn, we have significantly restricted our lending
across all of our businesses in the short-term.
As reported on 1 April, we have taken a number of actions to
manage costs and preserve cash in the business. These include
immediate reductions in capital expenditure, the deferral of 2020
salary increases across the Group, and eliminating discretionary
expenditure. In addition, the Group's leadership team have
voluntarily opted to cancel the 2020 annual bonus scheme and to
forgo the 2020 PSP awards recently issued to them. In aggregate,
these cost-reduction actions are expected to generate around GBP52
million of savings for the Group. The Board also took the decision
to cancel the proposed final dividend payment for 2019 which
resulted in a cash saving of GBP17 million. The Group was cash flow
positive in April to date as a result of these actions and
generated GBP27 million of cash before the GBP21 million payment of
the annual coupon on the EUR406 million Eurobond.
The Group has a strong balance sheet with an equity to
receivables capital ratio of 47.6% and a combination of cash and
headroom on undrawn debt facilities of GBP217 million at 31 March
2020. We are closely managing our net cash flow, and have modelled
forecast scenarios for the timing, speed and nature of the recovery
from the Covid-19 shut-down in each market, for collection rates
and customer behaviour patterns, and for the level of new lending
that we set in response to market conditions. These scenarios
included a 75% reduction in collections effectiveness in May
followed by progressive improvements in the months after, and this
analysis demonstrated that we can maintain adequate operational
headroom against our debt facilities for the rest of this year and
into Q1 2021 by managing lending volumes and reducing costs. We are
mindful of the maturity of our EUR406 million Eurobond in April
2021 and are focussing on the need to refinance this as a
priority.
Group Q1 overview
The Group's trading performance in the first ten weeks of 2020
was in-line with our budget. Good operational performances were
delivered by our European home credit and IPF Digital's established
businesses, and we saw further improvements in our Mexico
collections performance as we prioritised credit quality over
growth. Both credit issued and collections were delivered in line
with our financial plan until mid-March.
This good start to the year was, and continues to be, impacted
by the rapidly changing environment caused by Covid-19. W e
immediately took significant steps to protect our teams, customers
and the business. The vast majority of our employed colleagues
(including our call centre teams) are now working remotely, and
protective equipment and personal health and safety guidance has
been provided to all of our operational teams. Towards the end of
the quarter and into April, collections performance in our European
home credit businesses were increasingly affected as tighter
restrictions were imposed on freedom of movement of individuals and
debt moratoria were introduced .
For the quarter as a whole, Group credit issued contracted by
15% year-on-year, largely attributable to the significant
tightening of credit settings implemented across the Group in
March. These tighter credit settings continue to be in place with
lending now focused on our loyal customers who have strong credit
quality characteristics. As a result, we expect to limit credit
issued in April to around 30% of our original budget. Collections
were at 95% of budget for Q1 as a whole and 87% in March as
Covid-19 restrictions were implemented across Europe. Our estimate
for April collections effectiveness is 76% given the swift
implementation of alternative collection strategies and enabling
our agents to resume home service in most European markets .
Collections effectiveness is expected to be at a similar level in
May with improvements anticipated thereafter.
European home credit
Our European businesses performed well for the majority of Q1
prior to the impact of Covid-19. During this fast-changing period,
regulators and governments in our European home credit markets
implemented a range of measures in response to the pandemic,
including temporary price caps on new lending and the introduction
of debt moratoria, and there have been significant restrictions of
non-essential contact imposed in most markets. In March,
collections were 82% of budget, and we responded quickly by
significantly tightening credit settings to protect credit quality
and manage cashflow. This resulted in a 13% year-on-year reduction
in credit issued for the quarter as a whole. Collections
effectiveness in April is expected to be around 71% of normal
levels for these businesses. In Poland and Hungary, we have
developed new products enabling our agents to continue meeting the
needs of our customers under the temporary rate caps introduced in
these markets. These products are shorter-term than our standard
offering, will be served only to our highest quality customers and
are designed to generate a positive economic contribution for the
business.
As previously reported, unless a customer requests otherwise, we
suspended our agent home service in Poland as people movement
restrictions were tightened. A number of alternative collection
processes are now in place to enable customers to repay their loans
remotely and approximately 30% of customers have asked to continue
repaying their agent directly at home. On 1 April, a reduction in
the cap on non-interest costs of credit for new lending was
introduced which reverts automatically to the historic cap on 8
March 2021. The flat level of the cap was reduced from 25% of the
loan value to 15% and the additional variable cap from 30% to 6%
per annum, with the aggregate total of the caps not to exceed 45%
of the loan value.
In Hungary, the government implemented a debt repayment
moratorium until the end of 2020. This is available to all
consumers with the option for borrowers to opt out of the
moratorium if they wish to continue to repay their loans. For the
same period, the maximum APR applicable to new consumer loans has
been temporarily reduced to the national bank base rate plus 5%. We
suspended agent visits to customers for two weeks whilst the
National Bank of Hungary agreed the process by which consumers
could opt-out of the debt moratorium. We resumed our agent home
service in April and, to date, we have seen a positive take-up of
customers choosing to continue to make repayments to their
agent.
In Romania, a debt repayment moratorium has been implemented
until the end of 2020. Consumers who wish to take advantage of this
scheme must apply to opt into the moratorium. To date, the rate of
our customers opting to take advantage of the moratorium has
remained low. For a period of two weeks, we suspended agent visits
to customers in order to enhance protocols to protect the health
and safety of our agents and customers. The agent service resumed
in April and alternative remote collections services have also gone
live.
In the Czech Republic, a temporary debt repayment moratorium has
been introduced. Like Romania, this is an opt-in regime and offers
customers a choice of two periods in which they can use the
moratorium, either until the end of July or October 2020, and also
features a 9% cap on interest charges. Our agents have continued to
visit customers throughout the Covid-19 period in this market and
have been issued with protective equipment and guidance to
undertake this service safely.
Mexico home credit
A s previously reported, in order to improve our financial
performance in Mexico home credit, we prioritised credit quality
over growth. During Q1 the solid signs of recovery continued and
the operational actions implemented to improve collections and
credit quality delivered a year-on-year improvement in collections
performance. The focus on quality across the business resulted in a
15% reduction in credit issued; this was in line with budget until
the last week of the quarter when we implemented significantly
tighter credit settings.
The Q1 impact of Covid-19 in Mexico home credit was much less
significant than in Europe. Collections performance was in line
with our budget until the last two weeks of March when we reported
some deterioration in collections. Using lessons learned in Europe,
we took pre-emptive actions to protect our people, customers and
the business in anticipation of this market being affected further
by Covid-19. We have also responded by placing even greater
emphasis on collections, tightened credit settings and are
implementing alternative remote payment processes. As a result of
these measures, together with various restrictions on people
movement introduced on a state by state basis, we expect
collections effectiveness in April to be around 81% of budget.
IPF Digital
IPF Digital operates an end-to-end remote lending model and Q1
performance was not materially impacted by Covid-19; nonetheless we
significantly tightened credit settings in the second half of March
to protect credit quality and manage cashflow . Credit issued
contracted year-on-year by 21%, driven by the March impact of
Covid-19 together with tighter credit settings already in place in
our new markets. Total collections in March were 93% of budget.
In the short-term, we have reduced the amount of credit issued,
and our focus for new lending is now on our highest quality
customers. We have introduced payment holiday options across all
our markets to increase repayment flexibility for customers that
have been impacted by Covid-19. April collections effectiveness is
expected to be around 82%, with the main driver of the reduction
being fewer customers overpaying their minimum repayment
obligations. Our Polish digital business is operating under the
temporary rate cap described in the European home credit section of
this trading update and in Finland, a tightening of the interest
rate cap from 20% to 10% has been implemented as a temporary
measure until the end of the year for all new lending.
Taxation
Our appeal against the Polish Tax Chamber's decisions for 2008
and 2009 was heard in the Warsaw District Administrative Court in
March and the court found in our favour. The court's decision
however remains subject to the Tax Chamber's right to appeal when
the written judgement is issued by the court.
Board changes
As previously reported, Dan O'Connor intends to retire as
Chairman of IPF plc at the close of the Annual General Meeting
later today (30 April 2020). Subject to his election as a director
at the AGM, Stuart Sinclair will succeed Dan as Chairman of the
Company.
Outlook
We entered the Covid-19 period with a strong balance sheet and
funding position. We are focused on liquidity management actions so
we are able to recommence growth when the time is right. The
tightened rate caps and moratoria introduced in a number of our
markets are all temporary and demand for credit is unlikely to
reduce beyond this uncertain period, but we believe that the supply
of credit will reduce. The lack of certainty around the timing of
easing people movement restrictions makes it difficult to provide
guidance at this stage on the Group's financial performance for
2020. IPF is a well-capitalised and funded business and we have
successfully served millions of customers for more than twenty
years. We have a long track record of generating consistently good
returns for our stakeholders and believe we are well placed to
continue serving our customer base after the impact of Covid-19
subsides.
Investor and analyst conference call
International Personal Finance will host a conference call for
investors and analysts at 09.00hrs (BST) today, Thursday 30 April.
Due to expected high demand, please dial-in 10 minutes before the
start of the call.
Dial-in (UK) +44 (0)330 336 Confirmation code: 8318990
9105
A copy of this statement can be found on our website -
www.ipfin.co.uk
Investor relations and media contacts:
International Personal Finance Rachel Moran
+44 (0)7760 167637 / +44 (0)113
285 6798
Legal Entity Identifier: 213800II1O44IRKUZB59
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END
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