International Personal Finance plc (IPF) Earnings Call Transcript & Summary

Good morning, everybody, and welcome. This morning, Kris Adamski, our Group Treasurer, and I will be happy to talk you through our results for the first 6 months of 2021. Now I'll start with a high-level overview of the group, and I'll talk you through how the pandemic has affected our business. And I'll also look at the results. But I just want to say upfront, it's a very solid set of results, but more about that in a minute. Kris will then pick up and talk us through a segmental analysis of the business, paying particular attention to sales, impairment and costs and how key elements within each of those have delivered such a positive result in the period. Kris will also look at the balance sheet for us. After that, I'll talk us through regulation and how we're feeling about that today before moving on to look at the strategies for each of our 3 business segments, and I'll close with some final remarks on the positive outlook for the group. As always, we'll have plenty of time at the end for Q&A. Now just on Q&A, if you want to ask a question, at the bottom of your screen there should be a smaller dialogue box. If you type any query you have into that, it should go directly to Rachel, and Rachel will refer those questions, and we'll answer them all for you at the end of this session. So with that, let's get started. Now I'm going to start with a somewhat controversial statement that I believe our business is exiting this pandemic, relatively speaking, in a better position than we entered it. And even though we will be a smaller business for a period of time, our conduct throughout the pandemic has allowed us to demonstrate to external stakeholders the key role our business performs in society. We continue to support our customers throughout this difficult period. And although forbearance is a key part of our home credit service, we went much further and offered forbearance right across the group, ensuring that where customers have difficulty meeting their repayments, we provided a revised schedule that suited their current circumstances by offering payment holidays and deferred payments. In addition, we supplied over 4 million pieces of PPE to protect our agents and our colleagues. Because our business was deemed to be an essential service, we continue to provide credit in each of our markets. In many cases, we had to make significant changes to our ways of working to make them work effectively for new and existing customers who were constrained by COVID-related restrictions. And we established new processes for sales and collections wherever required. At the same time, we recognize that our agents were losing income because of the impacts of the restrictions, and we took the decision to support their earnings during the period. As a result of the way we conducted our business during this time, we believe we now have increased loyalty from our customers and our agents as well as having demonstrated publicly that we are a valuable and dependable partner for our customer segment when tough times arrive. During 2020 and the first half of 2021, we saw a number of competitors exit from this space, whilst we are coming through with a more nimble and efficient business. And while there will always be plenty of competition, I'm confident that we are in a very good position to serve our customers well. Turning now to our trading in the period. It would be fair to say that our business rebound has been both significant and swift. The third wave of the pandemic rolled across Europe in Q1 and resulted in significant retightening by governments trying to deal with increased infection rates. From the second half of April onwards, we saw a steady increase in consumer demand as these restrictions were lifted and vaccination programs were successfully rolled out. During the 6 months, our operational performance was excellent and all 3 business segments contributed to our strong return to profitability in the period, and that includes both the established and new market segment in IPF Digital. Our balance sheet, always strong, now has equity to receivables of a shade under 54%. And with this very robust performance, a healthy balance sheet and a positive outlook, the Board is happy to recommend dividend payments with a 2.2p interim dividend. The fact that we're now in growth mode again feels great, but I want to reiterate that it is being driven by excellent operational focus and execution across our businesses. This has generated much stronger collections than we had expected and combined with very tight credit settings on new business has led to significantly lower impairment. Because of this, we have been able to relax our credit settings in a measured way, and this resulted in receivables growing in the second quarter of the year. All of this has been supported by the material cost reductions flowing from the rightsizing operation we conducted in 2020 and continued tight cost control right across the group. These factors now put us in a good position to continue growing further in the second half of the year and build on the momentum that is already driving the business forward. So with that, let me hand you over to Kris, and he will take us through our financial performance in more detail. Kris?

Thank you, Gerard, and a very good morning, everybody. I'm going to talk through the group's financial performance for the first half of 2021. As part of this, I'll explain the drivers of each key line in the P&L account and draw out the specific factors that have impacted our reporting segments. I'll then close with an update on the strength of the group's balance sheet and the funding position. This slide sets out a summary of the financial performance reported in the first half of 2021, which shows a rapid rebound in profitability as we've executed our strategy to rebuild the business. We are pleased to see credit issued growing by 25% in the first half of the year, with a significant acceleration in the second quarter, driven by a combination of recovery in demand and ability to ease credit settings. As Gerard explained earlier, it's good to see the closing receivables portfolio back in a growth mode in the first half of 2021, when we delivered a 5% increase since the year-end. This is expected to feed into the average net receivables growth in the second half of the year. Average net receivables contracted by 22% year-on-year due to the reduced credit issued in 2020. Revenue performance was similar to average receivables with a 25% year-on-year contraction, also impacted by slight revenue yield compression in the home credit businesses, reflecting the impact of temporary rate caps that have now expired. The outstanding collections performance led to exceptionally low impairment. It was observed across all our business. And this performance, combined with the expected unwinding of COVID-19 provisions booked in 2020, resulted in faster-than-expected improvement in annualized impairment as a percentage of revenue to 14%. We were delighted to see that those movements translated into a material 45% improvement in net revenue for the period. We also reported cost savings of GBP 13 million arising from the rightsizing exercise implemented in 2020. The reduction in costs, however, was offset by a large movement in revenue. And therefore, the annualized cost/income ratio increased by 6 percentage points from year-end. We expect this ratio to improve going forward as the receivables portfolio and revenues start to grow. All this combined has led to an outstanding GBP 90 million year-on-year rebound in profitability, with profit before tax of GBP 43.3 million at the end of H1 '21. On the next few slides, I'll talk through the key performance drivers, starting with credit issues. As mentioned on the last slide, we returned to strong 25% credit issued growth in the first half of the year. The chart on the right-hand side of the slide illustrates quarterly progression in credit issued. The amount of credit issued has been increasing since Q3 2020, with slight dip in Q1 '21, reflecting our usual business seasonality. With COVID restrictions being lifted in almost all our markets and collection performance exceeding our expectations, we continue to relax our credit settings. And we've seen strong acceleration in credit issued during Q2 2021. It's pleasing to note that in the second quarter all our reporting segments delivered growth against Q1. In Europe, we've seen a substantial acceleration of credit issued towards the end of the second quarter, with business clearly benefiting from increased customer demand. Similarly, in Q2, our Mexican business delivered record levels of credit issued since the onset of pandemic. In IPF Digital, we have also seen good credit issued step up in Q2, driven mainly by our established markets as Baltics started to come out from strict lockdowns. Looking at the reporting segments on a year-on-year basis, we're delighted to see our European and Mexican home credit businesses delivering year-on-year growth of 48% and 30%, respectively. This rapid recovery in performance illustrates the value of our agency force, which is critical in maintaining customer relationship. Digital credit issued contracted, however, by 20% year-on-year, and that was driven by low demand in the Baltics at the beginning of 2021, cessation of lending in Finland at the end of H1 2020 and continued cautious credit settings in Spain. Turning now to net receivables and revenues. Gerard stated earlier that it's great to see strengthened loyalty with our customers and agents during the pandemic, which now starts to turn into receivables growth. We delivered 5% growth since the 2020 year-end and the segmental movements reflected the credit issued trends with European home credit and Mexico delivering growth of 8% and 13%, respectively. In IPF Digital, receivables contracted by 6%, where established markets receivables continue to reduce as strict lockdowns in Baltics were suppressing demand until May, whilst our digital new markets receivables remained relatively unchanged. Looking at the average net receivables, we have seen year-on-year reduction of 22%, which was driven by a lower credit issued and higher impairment provisions booked in response to pandemic in 2020. The reduction was visible in all our business segments. However, home credit businesses were less impacted as they benefited from a more rapid recovery of credit issued in '21. So following on from a year of receivables contraction, we are pleased to see the group average net receivables increasing again in quarter 2, which will flow into the revenue line in the second half of the year. Moving to revenue development. Revenue contracted year-on-year by 25%, and this was driven by the reduction in average receivables and some compression in revenue yields. Average net receivables were reducing until Q1 this year and saw revenue follow that pattern. The revenue started to grow again in Q2, mainly due to great progress in Mexico. The contraction in revenue yield was visible in Poland and Hungary due to temporary COVID-related rate caps, which have now expired, and higher early settlement rebate charges. We are confident that revenue growth will follow the growth in receivables in due course. Let's look at the impairment now, which is the most significant driver of the recovery in profitability in the first half of the year. The chart below sets out the impairment journey between the first half of 2020 and H1 2021. In H1 last year, we reported GBP 182 million impairment charge, and it was materially impacted by GBP 91 million COVID-related impairment charges. In H1 '21, we've seen the opposite movements. We've released GBP 20 million provisions booked in 2020, around GBP 9 million of that was expected reversal of the discounting provisions, whilst the remaining GBP 11 million was a result of exceptional collections performance on our pre-June 2020 portfolio. Another reason for lower impairment charge was the size of our average portfolio that reduced by around GBP 180 million between H1 '20 and H1 '21. It resulted in corresponding impairment charge reduction of around GBP 20 million. Finally, we are delighted to see all 3 segments materially improved collections performance, leading to around GBP 39 million impairment improvement. This is because our portfolio quality is better than pre COVID. As we've operated with restricted credit settings for most of 2020, our customers demonstrated great repayment rigor, and our team's focus was clearly set on collection disciplines. All the above factors led to reporting of record-low GBP 12 million impairment charge. On the next slide, I'm going to show how the impairment movements translated into our impairment-to-revenue ratios. The chart in the top right-hand corner sets our annualized impairment as a percentage of revenue over last reporting periods, while the chart in the bottom right-hand corner provides information about H1 2021 annualized impairment as a percentage of revenue per reporting segment. The material reduction in impairment-to-revenue ratio from 37% at year-end to around 14% at H1 2021 was largely driven by the GBP 91 million COVID provisions dropping out of annualized metric, the GBP 20 million provisions released in H1 as well as the impact of the exceptional collections performance discussed on the previous slide. Looking at each business segment separately, it was great to see that each of them reported material improvements in impairment-to-revenue ratio. Both of our home credit segments materially improved collections performance out -- however, draw out exceptional performance in Mexico that delivered great collection routine on both pre-pandemic and new portfolios. Also, our digital business nearly halved the impairment-to-revenue ratio. Overall, we are delighted to see how collection performance turned into very low impairment charge in H1 2021. We, however, expect impairment to increase towards more normal levels in the second half of the year as the group continues to regrow the portfolio. We expect that '21 impairment-to-revenue ratio to be similar to H1 annualized level and that '22 impairment-to-revenue ratio to move to around 20%. Moving on to cost now. You may recall that we took significant action to reduce the group's cost in 2020 in response to the pandemic and the reduction in the scale of the business. We're now operating the business within the reduced cost base, and this resulted in a 6% reduction in other costs during the first half of the year. The year-on-year cost savings were largely driven by a 10% reduction in headcount costs resulting from last year's restructuring. We've invested around 19% more in marketing, and it has delivered 25% increase in credit issued in H1. As expected, we've also increased investment in technology and communication by around 11%. The chart on the right-hand side of the slide demonstrates that the reduction in other costs varied between the reporting segments and was partially correlated with the rate of growth in credit issued. We've seen a small increase in cost in European home credit being offset by savings in Mexico and IPF Digital. This slide sets out a walk between the loss reported in the first half of 2020 to this year's profit of GBP 43.3 million and, therefore, brings together the P&L components explained on the last few slides. It's an important staging point in the return to full year's profitability. To recap, the key drivers of year-on-year improvement in profitability were a significantly lower impairment charge and cost reductions, partially offset by lower revenues arising from a combination of smaller portfolio and a reduction in revenue yields. Cost reductions were mainly driven by structural cost savings, also partly driven by smaller receivables. It's pleasing to note here that all our reporting segments were profitable in the first half of the year. The better than originally expected full year profitability that was announced on the 15th of June this year is also expected to result in a reduction in effective tax rate to around 47%. And finally, turning to the balance sheet and liquidity. As mentioned earlier, we're pleased that our receivables are again in a growth mode, with closing receivables growing by 5% since 2020 year-end. And the group's balance sheet is well prepared to support significant growth aspirations. We have a shade of GBP 600 million of debt funding, with 2/3 coming from 3 bondholder groups in euro, sterling and Nordic markets and around GBP 190 million bilateral bank facilities granted by 18 banks in 7 jurisdictions. Total headroom against debt facilities and nonoperational cash balances at half year-end was GBP 173 million. In addition, the balance sheet remains well capitalized with equity to receivables ratio of 54%. So the Board has considered the significantly improved financial performance in the first half of the year, expectations for full year outcome and the strength of the balance sheet and funding position. And as Gerard mentioned earlier, we are pleased to confirm the reinstatement of the interim dividend at the rate of 2.2p per share. So to conclude, I'm really impressed with how our operational teams have been able to deliver a combination of better-than-expected collection performance alongside credit issued and receivables portfolio growth. This collection performance resulted in a lower-than-expected impairment charge and more rapid improvement in profitability than our original plan. The portfolio growth lays the foundations for future periods and return to sustainable profitability in the longer term. And with that, I'll hand back to Gerard for the regulatory and strategy update.

Thanks, Kris. Now before I review the strategy for each of our business segments, I'd like first to talk about how we see the regulatory landscape and to look at what has changed because of COVID. I'm sure you will remember from our previous discussions the temporary regulatory changes that came into force over the past 18 months. We had a reduced rate cap in Hungary that expired at the end of last year. We also had a reduced rate cap in Poland, and I'm pleased to say that, in line with the agreed schedule, the cap reverted to the pre-pandemic level on the 1st of July. We also had various form of moratoria across a number of our European markets, all of which have now expired, the only exception being the moratorium in Hungary, where the date has been shifted forward to the end of September. Truthfully, it wouldn't surprise me to find that, that was extended again. But with less than 20% of our customers remaining within the moratorium, this is an issue we are managing effectively, albeit it clearly restricts our desire to re-lend to these customers. I should also note that the moratorium only applies to loans written before March 2020. We have permanent changes in Finland and Latvia. A significantly lower cap was introduced in Finland. But as we explained when we last discussed our business, notwithstanding the fact that this was a very profitable digital business for us, given that the future returns would no longer meet our hurdle rates, we are now effectively collecting out this portfolio. In Latvia, although our profitability will be reduced, we have revised our product and pricing to work within the new cap. The final comment I'd like to make about regulation refers to Poland. As I'm sure most of you will recall, back in December 2016, a proposal was put forward to significantly reduce the total cost of credit cap in Poland. With the exception of the temporary COVID-related reduction that has now expired, this proposal was never enacted, and the government has now made clear that reforms they have introduced in this area have achieved their aims. And while we cannot guarantee that there will not be further change somewhere down the road, we now look forward to rebuilding our business in Poland with a more certain regulatory landscape. Turning now to our individual business segments. Let me start by saying that our strategy to rebuild the business is working well and is fit for purpose. As a very quick reminder, this is the 4-pillar strategy that we adopted last year. Pillars 1 and 2 are complete. Pillar 3, we are discussing the early results of today, and Pillar 4 will flow from that. Moving on now. In our European home credit business, strong execution has led to a rapid return to profitability, and you can see that clearly here on the right-hand chart. In our 4 European markets, because of consistently good collections performance that Kris has talked us through earlier, our leadership teams have relaxed their credit settings at a rate appropriate for their local circumstances. And as a result, we are issuing more credit in each of these businesses and rebuilding our customer numbers and portfolio scale. In Poland, now that the temporary rate cap has expired, the economics of our new lending will return to more normalized levels. As we think about the coming 6 months and into 2022, maintaining robust collections and good credit quality will continue to be the core building blocks of our regrowth story. You will have heard us talking before about offering a hybrid service where rather than reject customers whose digital application has a slightly weak score, we offered to complete the process with them via an agent. Our initial tests have proved successful and we intend to expand this further in Poland and in due course into Hungary and Romania. Our strategy of extending slightly larger and slightly longer-term loans to really good-quality customers is clearly proving a success for us. And we will maintain this strategy in the years ahead. In summary, I'd have to say we are really pleased with our European home credit performance, and we are confident about our prospects in the period ahead. So let's now look at Mexico home credit. The chart on the right tells the story of the rebound in profitability. Whilst the easing of COVID-related restrictions has clearly had a part to play in this recovery, in fact, Mexico's great performance can be traced directly back to the operational improvements made by our local leadership team in 2019. Since then, on the back of much stronger operational rigor, our credit quality has improved significantly. And this has put us in the position to be able to relax credit settings now to recapture growing consumer demand. I have to say, however, that we are very mindful that there could be a third wave of COVID in the coming months as the vaccination rate in Mexico is still relatively low at less than 20% fully vaccinated. So whilst we are relaxing credit settings, we are doing so in a very measured way. We've just completed the rollout of our MyProvi handheld technology and its collections app to our 9,000-plus agents across Mexico, and we expect to be able to drive further efficiencies across the network as a result. To further improve our performance, we are reexamining all elements of our customer journey with a view to speeding up our decisioning time and our time to cash. And we have just started our journey to regrow Negocio, our micro business lending unit, following the pandemic tightening during the past year. Based on our experiences of combining digital and agent services in Europe, we're exploring our options for a similar-type offering in Mexico. All in all, we feel like we're in a good place in Mexico, and our local team are committed to a strong rebuild of the business, without sacrificing any of the gains we made in 2019. If we look now at Digital, I guess, it would be natural to expect that our home credit businesses, being very people-intensive, would be harder hit and take longer to recover than our Digital segment. In fact, this has not been the case. Shortly after delivering our maiden profit as promised in 2019, our digital business got hit with an effective triple whammy. In Spain, there was a very unhelpful court ruling against the bank that has effectively imposed a rate cap across the industry. And as a result, we have had to dramatically curtail our new issue volumes while we restructured our product and our business processes. In Finland, as I mentioned earlier, we decided to withdraw from what was our most profitable business because it could no longer make our required returns. And of course, there was COVID. But as we know, stuff happens in business, and we're successfully managing these issues now. Demand is once again growing in the Baltics following the lifting of strict lockdown measures, and our businesses there are back in growth mode. Having obtained our e-money license in Estonia earlier this year, we have now passported this to Latvia, and this will allow us to roll out our mobile wallet in both countries. The mobile wallet is designed to attract new customer segments, particularly younger customers, allowing us to open up customer relationships before an individual needs to borrow money from us. In our new markets, we are particularly pleased with our progress in Mexico. And if the current restrictions ease in Australia, we believe both businesses should reach breakeven sometime around the end of 2022. Now that the work to combine our 2 digital businesses in Poland is largely complete, we expect to see good growth in this business in the coming months. In addition, we will be looking at product and channel developments to widen our brand appeal further in Poland. Clearly, the extension of our mobile wallet program and proving the viability of our new product structure in Spain are an important element of our growth strategy. As I said a few moments ago, we took a big knock to our digital business last year, but we are back in growth mode and looking forward to executing our strategy for a business that has such large potential. Well, that covers our 3 business segments. So before we go to our Q&A session, let me make a few closing comments. It only takes a cursory glance at our history to see that we have a long-standing successful record of serving our customer segment in a very responsible way. There is no doubt that while the pandemic has been very difficult for our colleagues, our customers and our business, it has certainly been the test that has proved what a valuable role in society our business plays. As of April, we are back in growth mode, and we have the experience and the balance sheet to be able to meet the recovering appetite for credit from our customers. Our strategy is clearly working, and the strong return to sustainable growth and profitability has cleared the way for a return to paying dividends to our shareholders, something we are very happy to do. And as I hand over now to Rachel to see what questions have come in, let me take this opportunity to thank all of my colleagues, both agents and employees, for your dedication to our customers during this very trying period. I really do appreciate it. So Rachel, over to you for our Q&A session, please.

Thank you, Gerard. We've got 3 questions here from Gary Greenwood, which I'll start with the first one. Can you talk about the relative change in the quality of the loan book versus where you were prior to the pandemic and how you measure this?

Okay. So I think, Kris, I think Gary here is referring to the GBP 39 million benefits in that book. Do you want to mention that?

Absolutely. Absolutely. In terms of the way we measure it, so clearly, pre-pandemic, we've been writing our business healthily in those markets. And our impairment to revenue at that time was, broadly speaking, 27%. That was the last normal year, 2019. What we've done for the purpose of this exercise and to provide you with this walk is we've looked at our normalized performance in 2019 and compared the quality of our collection performance to the 2019. And that gives us a very healthy improvement in our impairment metrics clearly that they're driven by the improved collection performance that translates directly obviously into impairment. So that will be the hypothetical movement, if you like, between those 2 periods. Then on top of that, you obviously have a impairment reversal that we have in the first half of the year, and we've booked a GBP 9 million improvement in our discounting. That was the expected improvement that we've booked as well as the reduction in our ECL charge by about GBP 11 million at the beginning of the year. So the latter -- the other part is related to the comparison of our quality of collection performance between the 2 years, 2019 and '21.

Thanks, Kris. On the second question -- I'm sorry. Gerard, do you want to continue?

Go ahead.

Okay. Sorry. Noting your guidance for the full year 2021 and 2022, do you still think a reversion to the normalized impairment ratio of 25% to 30% in due course is appropriate, given any structural changes in the quality of the loan book?

Okay. So I'll take that as well. So obviously, we do expect impairment to normalize over time. As you've just seen, our business is growing 25% this half year. We expect even faster growth in the second half of the year. As a result, we'd expect that our impairment and quality metrics will normalize over time. However, for the first year, 2021, as a whole, we still expect our impairment to revenue to be at a low double digits levels. It will normalize to around 20% by 2022.

Thank you, Kris. And the third question relates to revenue yield. How will changes in the quality of the loan book impact revenue yield? And how should we think of yield evolution in the context of the reversal of temporary price caps?

Thank you...

Sorry. Go ahead, Kris. Yes.

Absolutely. So there are 2 components here. So clearly, revenue yield is driven by the charges that customers pay, really. And those have changed over COVID as a result of those temporary rate caps in Poland and Hungary. We've also reduced our revenue yields in Mexico, and that was by introducing the longer-term products for repeat businesses. Over time, we'd expect some of the revenue yields will normalize, especially in Mexico, as we've got a right mix of new customers and repeat customers back in our portfolio. In terms of Poland and Hungary, they do normalize over time. And you can see that -- you would see that Polish business in reality is already nearly at the level where it was pre cap. That's how this cap work.

And a couple of things to add to that then, Kris. In Poland, for a time, because of those temporarily reduced rate caps, so I wouldn't expect us to go back immediately as an organized to full pricing. I think what we'll do is run some campaigns to get customers back into the mode of slightly higher pricing. And clearly, we'll make the product attractive to them. And then I'd expect us to get back to, let's call it, regularized pricing after that. And the other thing I'd say is that you've seen over a number of years that we continually improved the overall quality of the portfolio. And you see some of the outputs of that in terms of slightly larger, slightly longer-term loans. And in conjunction with that, you get a slight decrease in the yield. Now from my point of view, that has paid handsomely. So both in terms of the quality of the business we're writing, the infrastructure needed to support that, but also in terms of the, let's call it, the acceptability of the business. Because when we're out there and we're explaining to external stakeholders about our business and how we serve customers in our segment and how we do this in a very transparent way, clearly, they ask us about pricing. So to the extent that we're talking about bringing our pricing down and improving our own portfolio quality, that's always received in a very positive way.

Thanks for the questions, Gary. Moving on to a couple of questions from Stuart Duncan at Peel Hunt. The first one being, as the business returns to growth, what equity-to-receivables ratio do you think will be appropriate going forward?

Well, we've always said that we were targeting 40%. And clearly, we are significantly over that at the moment at closer to 54%, but for, I think, very obvious reasons. And I don't think the market should expect that we're certainly going to start doing share buybacks or special dividends or anything like that. Our view is that, yes, it is a very conservatively set balance sheet, but we believe there's lots of opportunities for growth out there. And so we want to grow our way back to a lower equity-to-receivables ratio. So we'll maintain the target at 40% for now, and we'll work our way towards it by expanding the portfolio with good-quality business.

Thank you. And the second question is, do you have any details on the product restructure in Latvia to meet the new rate cap?

It was mostly a price change that we did there, obviously needing to maintain a price that was commensurate with the reduced rate cap. And so the profitability of our Latvia digital business will be impacted. So we didn't make any exceptional changes to the product structure. It was more about how we marketed it and how we brought down the price to make sure that it complied with any regulations.

Thank you. A couple more questions here from [ Freddie Bruce ]. Please can you give an outlook for credit issue growth in H2 over H1 and, therefore, growth in receivables by the end of the second half?

Yes. I'll take that. I think, from a credit issued perspective, second half is going to be stronger than the first half. That's our expectation. We expect that the growth in the second half will be around between 30% to 40%, closer to 40%. And for the full year, we still expect around 30% growth year-on-year in credit issued. Sorry. The other part was receivables, right?

Correct.

Okay. So on the receivables, from a receivables perspective, we do expect to grow receivables alongside the credit issued. The second half growth would be in the region of GBP 40 million to GBP 50 million.

Thanks, Kris. And also from [ Freddie ], can you provide an update on the status of the search for a new CFO?

Yes, it's underway. It's been underway for a number of months. Clearly, these things do take time at the senior level. We're using a very reputable professional firm that we've used on many occasions before, and they have sourced us some really good finance people. So we've produced a long list. We're into a short list. So we're making progress, but these things take time because we want to land the right candidate. And we'll come back to the market as soon as we have concrete news on that.

We have a question here from Eric. How are you preparing for a potential fourth wave of coronavirus in Europe in terms of potential extensions to moratorium in Hungary, perhaps a cap in Poland?

Well, it is really quite interesting. We have a lot of colleagues across Europe and their view of the pandemic, I have to say, is quite different to the view that we would have here in the U.K. I can tell you that a lot of them are on holidays, crossing borders. And they feel that, with their vaccination programs up and running and approaching nearly 50% vaccination rates in most of these countries, they're feeling quite positive. Now clearly, that doesn't preclude a fourth wave of the pandemic sometime in the winter season and if it happens, we'll deal with it. We've already demonstrated that we can get up all kinds of processes in place to deal with customer requirements. And what we've done is we've maintained those processes, so we haven't stood them down. They are still available to us to effectively switch on at any point in time. As regards to specific moratorium in Hungary that has been extended again to the end of September. And as I said just a few minutes ago, it wouldn't surprise me if that was pushed out even further. But we have 18% of the customers in there. It's only related to lending pre mid-March 2020. So it's a little bit painful because we can't re-serve those customers when they want to borrow money, but we're dealing with it. As for another reduction in the rate count, I have to say we're not expecting that. We don't hear any talk about that. I think many governments now are in the position that what they're looking to do is to get all industries back on their feet. And so they're looking to avoid making changes like the ones that we've just come through over the past 18 months.

Thank you. And the second question from Eric. What momentum of demand you're expecting in the coming autumn/winter period?

I think perhaps, Kris, you've answered that, but just repeat what you said is the growth rate.

Absolutely. So when we compare those growth rates, clearly, most of the European markets come up from strict lockdowns in -- at the end of the first half. So we expect that momentum to continue into the second half of the year. When we think about the comparatives, obviously, those comparatives are kinder to us against 2020 when we've restricted our credit last year. So effectively, our growth rate in the second half is going to be greater than in the first half. And that will come from, a, increasing demand, increase in our sales, but also better comparatives. So the growth expected in the second half of the year is around 40%.

And just to reiterate, and I think Kris and I tried to emphasize this through our presentation earlier. This is all on the back of superb operational execution. That's what's driven these results. That's what's allowed us to relax our credit settings. That's what's allowed us to issue more credit and build the receivables. And so long as we continue to maintain that executional excellence, then I think we can reliably deliver that growth in the second half and then into 2022 as well.

Thank you. A couple of people-related questions from Eva. What was the full-time equivalent movement during the rightsizing exercise? And what is agent turnover and the trends around that?

In terms of people movement, from memory now, Eva, I'm just trying to remember this, but I think we reduced our workforce by approximately 1,200 to 1,300 people. I think that's the number.

That's right.

Yes. So we're down now at around 5,500, give or take, in terms of employee, colleagues, as we would call them. And then on the agent turnover, I don't have that number in front of me, but I can say that it's stable and we don't have any issues there. In fact, we are adding agents, which is something we wanted to do for some time. So as we look to further growth in the home credit business, our view would be that, by the end of the year, we will have more agents on our books than we do have today. And I think, today, we're at a shade under 17,000 in total.

Thank you. And the last question that I have at the moment is, do you have any plans for market expansion?

Well, this is a question that comes up all the time, and I think it's very relevant. From where we stand today, our view is that we have plenty of room for continued growth over the next, let's call it, 12-plus months. And the reason I say that is Mexico continues to offer us an outstanding opportunity, and that is both for home credit and for digital. Then we have our business in Australia, where we believe we can be significantly larger in due course. And having combined our 2 digital business in Poland, we're looking to significant growth there. Obviously, we still have to make sure that our business -- our digital business in Spain, that, that product structure we put in there works. But our view is, when we take all of those new markets together, plus the Mexico home credit market, we've got plenty of room to grow. On top of that, and this is obviously circumstantial because of the impacts of COVID last year where our business scale was reduced, we feel we can make up ground, obviously, in the European home credit markets and that those markets will grow as well. So for now, let's say, for the next 12 months, we wouldn't see ourselves entering into what I would call new J curves to expand into new geographies. But beyond that, that would certainly be something that we would be thinking about.

[ Andrew Freestone ]. In Mexico, some of your competitors seem to be struggling to determine the appropriate impairment rate. How comfortable are you that your business metrics there are stable and will be attractive going forward?

Very comfortable. And I say that with confidence. The reason being that we have an absolutely ace team in our businesses there. And obviously, there are 2 businesses. So if we look at them individually, in the home credit business, we've been there for close on and we're heading for 2 decades now. So we have an unrivaled amount of data in terms of our consumers and our portfolio, and we are able to assess credit quality very, very quickly. The other thing not to underestimate is that, broadly speaking, we are still quite at the short end in terms of lending. So if you look at the loans that we issue in Mexico home credit, they would be of a duration of somewhere between probably 40 and 45 weeks. So if we make a bad lending decision, we know about it very, very quickly. It's not like we're doing a 3-year or 5-year loan or a mortgage and we have to wait to see what happens. We know very quickly if our decisions are poor. So we have a huge amount of confidence in terms of our ability to judge impairment in Mexico home credit. Now the digital business is different because it's a newer business. And clearly, it operates in a different format. But notwithstanding that, we've been there now for a number of years, and we've built up very good scorecards. So when you go into a new market, clearly, one of your biggest expenses is your impairment level because, effectively, to build your scorecard and localize it you have to make enough bad decisions to know what a good decision looks like. We feel that we've come through that period in Mexico digital, and we've come out the other side. And we're comfortable now with the scorecards we have in there. So again, on the digital business, even though those loans would be slightly larger -- sorry, slightly longer, in fact, they are still relatively small, and we know when we've made a bad decision very quickly. So in short, we feel very comfortable. I have no concerns in respect of the accuracy, let's put it that way, of the impairment charges there.

And if I could add one sentence, data-driven really. So we've got an evidence in our data these days in Mexico, how strong this business is. So if you think about the 2 parts of our portfolio there, we had a portfolio that we've obviously sold before COVID. And the new portfolio that was more restricted, but sold from June onwards last year. Both of those parts of our portfolio performed materially better than we've ever seen. So effectively, when you think about the impairment to revenue levels of about 40% plus that we've experienced in Mexico in the past, those are not coming through our portfolio anymore. And both the back book and front book is performing really well.

Thank you. We've got another question from Gary Greenwood of Shore Capital. How would you contrast the regulatory situation in your markets to that in the U.K., where affordability testing has been a big issue and CMCs have driven high levels of complaints?

Okay. And obviously, for those who might know, CMCs are claims management companies, which is quite an industry in the U.K. Well, the way I would contrast it, Gary, is I wouldn't swap what I've got for what's in the U.K. Let's put it that way. And I know that's pretty blunt. We deal with, give or take, 10, 11 different regulators around the world, and I'm happy to deal with those regulators. And why do I say that? In the main, what we find is that the regulators we deal with doing the right thing by the consumer. So they are to protect the consumer. And when they make those decisions, when they change their view of how something should be handled, again, in the mean, it's forward-looking. And so we don't often see retrospective thinking or today's thinking retroactively applied. Now there are some exceptions to that, but they tend not to be that big. So from that point of view, I feel comfortable dealing with the regulators we have, and we spend a lot of time and put in a lot of effort to make sure those relationships are very good. Now in terms of the claims management companies, we don't have the U.K. experience in any of our other countries. And I genuinely believe there is a -- well, there's one major reason for that. If you look at the way this business -- well, basically, the way this structure works in the U.K., you have an ombudsman or ombudsperson. And when you go to that ombudsperson to have a case tested as it were, I think, from memory, the charge -- the minimum charge is something like GBP 600-odd. I could be wrong now, but I think it's part of that nature. So what that actually means is that for a lot of financial institutions, when they get down to lending small amounts of money or when they are -- when a customer or a claims management company, in particular, disputes a small amount of money, it is cheaper and more efficient for the financial institutions simply to settle the claim, even if they believe it has no merit. Because to test the claim, they have to have a call center. They have to invest time and resource to prove the case is wrong. And then if it still goes to the ombudsperson, they still, as far as I understand it, get charged there, GBP 600-plus. So if your claim is for GBP 500, as bad as it stands, easier to settle it given the zero merit. Now a lot of the cases have merit, but I'm just saying why these claims management companies have become a real industry, and we don't see any of that, nor do we see any indication that, that is likely to arise. So in short, I'm comfortable dealing with the regulators we have. We've got very good relationships with them as a result of the time and effort that we put into those relationships. And yes, we're happy dealing with our regulators.

Thank you, Gerard. That's the last of the questions that we've received this morning. I'll hand back to you.

Okay. Thank you, Rachel, and thank you, everybody, for joining this morning. Hopefully, you found our presentation interesting. And thank you to everybody for those questions. We're always available for one-to-one calls or other discussions if people feel they prefer to have that level of discussion with us. We always make ourselves available for that. So in summary, a very good set of results, lots of work for us to do going forward, but feeling good about the very positive momentum in the business and the work that our colleagues are doing on behalf of our customers and our business. Thanks very much for joining this morning. Kris, thank you.

Thank you.