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

Good morning, everyone, and welcome. Over the next hour or so, Gary Thompson, our CFO and I will take you through our 2023 Full Year Financial Results. If you've had an opportunity to look at our RNS, you will, in fact, see 2 stories. One that describes our very strong results for the year across all 3 divisions based on very consistent execution of our agreed strategy. And the second story that explains why we needed to postpone our scheduled results and announcement and what conclusions we have come to regarding the communication we received from the KNF, the regulator of our Polish business. Now the more important story today is all about the strong results we have delivered for 2023 and how we see our business developing through the execution of our Next Gen strategy over the coming years. There's a lot to talk about here, and I will walk you through how we see our products and distribution channels being optimized across the group so we can fulfill our purpose of building a better world through financial inclusion. After that, I will cover off regulatory developments and, in particular, focus on Poland. Gary will pick up from there and start with a reminder of our financial model and how we use that to guide our investment decisions. And he'll then explain our results in detail and show the progress we've made across all of our key performance indicators. Gary will also cover our progress on improving portfolio yields and explain why we are reconfirming the dividend policy we introduced last year before spending some time explaining our funding strategy and how we are adapting our business to achieve our target returns despite increased funding costs. After that, I will provide some insights on our outlook for the businesses, and we'll then have plenty of time for Q&A. Now regarding Q&A, you should be able to see at the bottom of your screen, a dialogue box, at any time during the presentation, please just type in any questions you might have in there, and Rachel will put those to Gary and myself at the end of the session. Now I think it's important to reiterate that the context of our results is how we fulfill our purpose by providing appropriate products and services to consumers who are otherwise excluded from what you and I might think of as mainstream finance. At the half year, I highlighted that demand for the products and services we provide is actually increasing, driven by a combination of the negative impacts of high inflation rates, the reduced risk appetite of banks and the effects of regulation, all of which marginalizes even more consumers. In our view, it is at times like these that our business demonstrates its true value to society, providing assistance to over 1.7 million consumers across multiple countries and nearly 15 million people since we began trading in 1997. So with that as our backdrop, let me take you through a very strong set of results, and we can then focus on where we are taking the business. As we announced earlier this morning, we delivered a profit before tax of GBP 83.9 million, up 8% year-on-year. Now this is ahead of our own expectations and was delivered through excellent operational execution as well as some favorable exchange rate movements. And once again, it's particularly pleasing to note that all 3 business divisions continue to be profitable in the period. As you heard at our half year results, our strategy to rebuild scale, combined with the consistent credit discipline and strong cost management means we are moving ever closer to our target return range. And our return on required equity for the year as a whole was just under 15%. We continue to maintain a very well capitalized balance sheet. And even though our target equity to receivables ratio is 40%, because of our operational outperformance and the positive effects of exchange rate movements, the ratio actually increased in the second half of the year and now stands at 56%. So based on another set of very strong results and with such a solid equity to receivables ratio, the Board is happy to recommend a final dividend of 7.2p per share. And in total, this means we've delivered dividend growth of 12% in 2023. Now Gary is going to take us through the results in a lot more detail. So for the next few minutes, I'd like to focus on the execution of our existing strategy and how we are evolving the articulation of the strategy to better reflect the group as it is today. Now for the past 2 years or more, we've been on a mission to regrow our business. Based on the results we're discussing here today, I think it's evident that the execution of our strategy is progressing really well. We have 3 very substantial business divisions, all of which are delivering profitable growth, and we absolutely have the foundations required to push on from here. Now for a business like ours, those foundations include a very clear target market, strong brands, a wide range of products and distribution channels, a strong balance sheet with available funding and of course, the right mix of leadership capabilities to execute our strategy. Notwithstanding the most recent regulatory developments, our next key milestone is to complete the transition of our Polish business as we have discussed in a lot of detail over the past 12 months. At the same time, we have many other growth opportunities we will focus on, all with a view to be able to serve more than 2.5 million customers in the medium term. So let's look first at some of the components of this growth strategy, starting with credit card. Our credit card launch in Poland has been a great success, and I just want to thank my colleagues in Poland for that. By the end of 2023, we had issued more than 130,000 cards. The average balance on a card is about GBP 500. And because we are operating under a small payments institution license, all of these balances get repaid over a term that is less than 12 months. The most satisfying aspect of our new card portfolio is that our customers have gone from being noncard users in the main. So about 60% never had a card before to being regular transactors on the card, principally online and in-store. From a purpose perspective, we think that is just fantastic, as we all know from experience that we can get much better value for our money when shopping online. And I have to be honest with you here and say, we didn't expect our customers to become transactors so quickly. But what seems clear with the benefit of hindsight is that if you offer good value products with new features that are well explained and easy to use, customers will want to take advantage of these opportunities. In terms of portfolio quality and customer repayment behavior, we continue to be very pleased with the results to date. As we've said before, this is still a very new and immature portfolio, and it will take some time before we can talk consistently about the trends, but all of the early signs continue to be positive. Obviously, whatever we do with the development of the product in Poland will be dependent on the final interpretation and application of the recent letter from the KNF, but I'll cover that off very shortly. If we move on now to Mexico, in terms of context, Mexico continues to have a huge need for financial inclusion, with fully 2/3 of the 120 million population not effectively banked. Now our area of coverage is about 28 million of these consumers. And ultimately, effective execution of our strategy should increase that by about 50% to approximately 43 million. As for the regulatory backdrop and the political backdrop in Mexico, this continues to be consistent and positive. And even though there are multiple elections coming up later this year, the consensus is that there will be a little change in how the government will lead the country. In our home credit business, our newest branches in Tijuana and Tampico are performing according to plan, and we expect to open a new branch in Mexicali coming in a couple of months I think it is. Of course, we also have a growing and profitable digital business provided by a company there called Creditea. We recently launched our mobile app there, and our team has just signed up 21,000 customers in the past few months alone. Now I was in Mexico a couple of weeks ago, and I have to say it continues to be a very exciting growth opportunity for our group. Our combination of home credit and digital businesses, which together have nearly 800,000 customers offers huge potential for us, both independently as well as in the synergies they can create together for us and for our customers. Now another key growth avenue is through building partnerships with retailers. As an example, our existing partnership with the retailer Flanco in Romania is proving very beneficial for them and for us. In their store chain, their staff explain to prospective customers how they can finance a purchase with our help. The store gets to complete a sale that might otherwise not have happened, and we get to enable a new customer's purchase. I should also reiterate that our offering is not a buy now pay later interest-free product. Our loans carry charges from day 1 as we believe that all products must adhere to our financial model on returns. As well as expanding further in Romania, we're also signing up new retailers in Mexico for this new distribution channel. And by the time we get to the half year, we should be able to talk to you in more detail about that particular development. Now from these few examples, I think it's clear that we are changing and modernizing our business. So I'd like to turn now to what we are calling our Next Gen strategy. Our business has evolved so much in the past 5 years. We're no longer a single product, single distribution channel business, and we want our vision of the business and the articulation of our strategy to reflect this. We aim to be the leading provider of financial services for underserved communities around the world, data-driven, technology-enabled and always with a human touch. To achieve this vision, we will execute our strategy in 3 core pillars. First, Next Gen financial inclusion, encompassing the deployment of our full product and distribution channel family, as well as the continued expansion of our footprint in Mexico. Next Gen organization, where we will continue to focus on attracting and developing the right talent, as well as structuring ourselves to optimize our skill base and most importantly, our cost structure, and third, Next Gen tech and data. Now most businesses would have tech and data as an enabling function for a strategy. But because of their importance to our growth strategy, we believe it should sit there as a third core pillar. We will be focused here on standardizing our processes across our business to enable the rollout of common technology platforms, and we will be investing in our data capability and AI to leverage the huge volume of customer data that we manage and protect. All 3 pillars link directly to our purpose and to our financial model, and Gary will touch on that shortly. And finally, there is one thing that hasn't changed in our business during the past dozen or more years, and that is our values of being responsible, respectful and straightforward. And finally, during the past 6 weeks, Doug Kleppen, our Group Strategy Director and I visited all of our businesses and talked them through this strategy in a lot of detail. And I have to say the reaction has been hugely positive. In particular, this straightforward depiction of our vision for the business and how we will deliver through our Next Gen strategy and how that links into our purpose and to our values resonated really strongly with our teams. I'd like now to pick on a few examples of how we see elements of these 3 pillars in action. What you have here is a high-level overview of our current product offering in our European home credit markets. As you can see, the products and channels vary significantly by market. But yet, the customer type is broadly the same and the customer needs identical. Given that we have operated successfully in these countries for more than 20 years, we believe we should be able to expand our offering so that we have a near consistent palette across all 4 markets. Whilst we'll need to invest in technology to deliver this strategy, the opportunities are very significant. In the past 12 months, we created a credit card market for our customers in Poland that didn't previously exist. And based on our experience to date, we see no reason why that should not be achievable in other markets. Likewise, we see the retail partnership model we have launched in Romania as being a sensible launch pad for other adjacent markets. And it's also worth noting that to deliver this picture, we don't need to create any new products or channels. We simply replicate and tailor as required. Now obviously, these products available across all of our markets would be a huge step forward for the group. But this is only beneficial to us if we deliver excellent customer service. We believe that our unique combination of fully digital and customer representative home credit models gives us a significant advantage in delivering the type of customer experience other financial institutions can't deliver for our customer segment. This is borne out by our Net Promoter Score and customer satisfaction results on a regular basis. By investing in technology to speed up our response times with credit decisions and time to providing funds to customers, we aim to maintain these exceptional levels as we expand our reach to new customers in our markets. And a very good example of our ability to leverage investments in technology is the way our business in Mexico uses social media platforms to deliver faster and better customer interactions from the moment the customer contacts us to the completion of a loan. Given the huge preference for using WhatsApp for almost all types of communication in Mexico, we now use it extensively to respond and guide customer applications and queries through our business. By leveraging these platforms, we are able to provide 24-hour service and faster responses, whilst at the same time, reducing the traffic load on our call centers. Integrating these systems with these platforms has proven to be very successful for our Mexico businesses. And I see no reason why we shouldn't be able to enhance our customers' experience here in Europe by doing something similar. And these are just a few examples of why we believe our business has evolved to the extent that the re-articulation of our strategy as Next Gen is perfectly appropriate at this time. Well, that's an overview of our solid results for 2023 and the evolution of our strategy. So let's move on now and deal with regulatory matters. Now in Romania, it seems likely that some form of total cost of credit cap will be passed into regulation in the near future. This is something that we've mentioned over the past 3 or so years. And based on our understanding of the current proposals, we're comfortable that our business will adapt relatively easily to this new regulation and that the financial impacts should not be material. The more important regulatory development is, of course, in Poland. Now as you know, just before we were due to release our annual results, we received a letter from the KNF, the Polish financial services regulator. We've been regulated by the KNF for our credit card product since we started issuing cards at the end of 2022. But since the 1st of January of this year, they also became the regulator for all nonbank financial institutions, so NBFIs, which includes the loan products that we provide. The letter was issued to all market participants, and it sets out the KNF's view on how they believe the current regulatory framework and the laws should be applied to lending on credit cards. Now in essence, the letter says that in the view of the KNF, cards issued by NBFIs should be treated as being issued under 1 or 2 rate caps on noninterest charges that currently exist in Polish regulation. Now I could dive into a lot of technicalities here, and believe me, there are a lot. But I think that would be more confusing than it would be helpful. So let me try and summarize where we're at. We have a choice of 2 noninterest caps we can apply, and they broadly arrive at the same charge-out rate. The caps relate to the provision of credit via credit card and they're separate from the interest that can be charged, but they're also separate from other costs associated with the cards such as ATM fees, for instance. The key issue for us is that our current all-in noninterest charge is higher than these caps. So in order to comply with the KNF's interpretations, we would need to reduce our rates from about 4.5% per month to roughly 1.7% per month. Now clearly, that would be very painful for us. So we would look to restructure the product, including unbundling some fees to see how much of that we could offset or recover, as well as reengineering our processes and our cost base to compensate for the lost revenue. Although the letter was positioned as a restatement of current regulatory requirements, and it is not specific as to when any charges would need to be implemented, we will enter into a dialogue with the KNF to understand the details of the letter and how and when any required changes should apply. Now there's no mention of any aspect of the KNF's views being retrospective in any way. And I do want to confirm that prior to launching our credit card product, we had detailed legal advice confirming that noninterest caps did not apply to credit cards, and that continues to be the view of our legal counsel today. But obviously, we will comply with what the regulator wants. And as I said, we're now reviewing how best to amend our product structure to meet this interpretation. And as I'm sure you'll appreciate, we're only just at the beginning of that exercise. So we're not in a position today to be precise on the potential impact. But I can tell you that we've included a GBP 6 million reduction in the value of our credit card receivables number in the year-end numbers. On a look-forward basis, we estimate that if the expectations set out in the KNF letter are implemented in full in their current form, the potential impact could reduce the group's profit before tax by up to GBP 10 million per annum. Now let me finish here by saying that our Polish business and our leadership team there has an excellent track record of adapting to the evolving regulatory environment and have developed a broad range of products and distribution channels to meet the financial needs of underbanked and underserved consumers in this market. We now have another chance to adapt to, but I can confirm that having been through the preliminary numbers with our Polish team, we're confident that the Polish business can evolve to deliver our target returns of between 15% and 20%, but now it will be a couple of years later than previously planned. So with that, let me hand you over now to Gary, who's going to talk us through our performance in 2023 in a lot more detail.

Thank you, Gerard, and hello, everybody. As Gerard has mentioned, we have delivered an excellent set of results in 2023 with pre-exceptional earnings per share and our full year dividend both increasing by 12%. Before I go into the financials in more detail, I always like to start by giving a reminder of our financial model, which underpins both our strategy and our purpose. I'm sure you are all now very familiar with this slide. Our financial model sets out the target returns we need to support our dividend policy, fund our growth and ensure the balance sheet remains secure at all times. At the forefront of our financial model is the delivery of a return on required equity or RORE of between 15% and 20%. These returns allow us to pay a minimum of 40% of our earnings to our shareholders, allow us to grow receivables by up to 10%, and it can be higher or lower, but we believe that 10% is sustainable through the cycle and at the same time, maintain a robust balance sheet position with an equity to receivables ratio of at least 40%. Every investment decision we make at IPF, whether it be capital expenditure, changes to products or promotional activity are based on this financial model and must be capable of delivering a return of 20%. In addition, each of our divisions are targeted to deliver an RORE of 20% in order to absorb the group's central cost base and deliver a good return to shareholders. We support delivery of our financial model with a rigorous focus on revenue yield, impairment rate and cost-to-income ratio. As I set out at the half year, we adjusted our targets for each of these metrics to accommodate the increased cost of funding that we are now paying. Our target for revenue yield is a range of 56% to 58%. For the impairment rate, it is 14% to 16%. And for the cost-income ratio, it is 49% to 51%. We are making really good progress towards these target levels, and I will come back to this shortly. We will continue to change these targets as necessary to reflect the change in shape and dynamics of the business, but the key returns targets of 15% to 20% do not change. And finally, I always like to stress that our financial model is wholly consistent with our purpose of creating a better world through financial inclusion, and we are of the view that returns materially higher than 20% would not appropriately balance the needs of all of our stakeholders. Now on to lending growth. At a headline level, group lending showed a 3.5% reduction at constant exchange rates. However, excluding our home credit and digital business in Poland, the remaining markets delivered good lending growth of 8% as we continue to see strong demand for our broad range of products. In European home credit, excluding Poland, Romania delivered 14% growth with Hungary and the Czech both delivering around 8%. Now this growth was delivered against consistently tight credit standards as we remain mindful of the impact of the higher cost of living on customers' disposable incomes. Mexico home credit delivered another solid performance, delivering lending growth of 5%. Whilst this may look a little bit lower than you might expect, we introduced much tighter credit standards towards the end of 2022 in the 3 regions of Mexico City, Norte and Sureste, which represent around 20% of the business. These 3 regions are responding to our actions, and as a result, we expect customer lending growth for Mexico as a whole to increase to between 8% and 10% in 2024. Excluding Poland, IPF Digital delivered 9% growth, with Mexico, Australia and the Baltics all delivering a similar level of growth. We expect growth to accelerate in 2024, bolstered by the investments that we have made in mobile wallet and automation in 2023. And as expected, Poland saw a 29% contraction in lending in the year, which was a little bit better than our original plans. Our Polish home credit business continues to operate under the restrictions of the small payment institution license. Now under the small payment license, the value of monthly credit card transactions in 2024, which is based on a 12-month rolling average is limited to the maximum value achieved in any 1 month in 2023. Now in our case, this was December 2023. This limit remains in place until the full payment institution license is granted by the KNF. And once granted, there is no limit on the value of credit card transactions, which will then allow the Polish business to begin to regrow. Now on to receivables. Receivables for the group as a whole ended the year at GBP 893 million, which is in line with 2022 on a constant exchange rate basis. Clearly, the biggest influence here is again Poland. And when Poland is excluded, the rest of the group delivered an impressive 12% increase in receivables. In European home credit, Romania delivered a strong increase of 23% and continues to be an important driver of receivables group -- growth in the group. The recent launch of a new retail partnership with Flanco and the launch of a hybrid digital product in Romania will further boost the growth opportunity. Hungary delivered 10% growth and continues to perform very well. And the Czech Republic's receivable were broadly flat year-on-year as the management team focused on enhancing field processes, which, together with an improving competitive environment leaves us well placed for growth in 2024. In Mexico home credit, receivables grew by 8%, and we continue to maintain a disciplined approach to growth in this market as it is very important to maintain operational processes and spans of control whilst growing to avoid impairment shocks. Our effective approach is perfectly highlighted by our performance in 2023, where we delivered a 30% increase in profit, whilst also absorbing the slowing down of lending and higher impairment in the 3 regions of Mexico City, Norte and Sureste, which I just mentioned earlier. IPF Digital has delivered a very strong result with 18% growth in receivables, which includes Mexico delivering 27% growth, Australia 18%, and the Baltics combined delivering 14%. At the same time, we have completed the collect-out of the receivables portfolios in Finland and Spain. Now both performed above our expectations during collect-out. And indeed, due to the nuances of IFRS 9 impairment accounting, both were profitable and capital generative, albeit to a lesser extent than 2022. This strong performance during collect-out once again demonstrates the very strong cash and capital generative nature of our business. And in Poland, we have seen a GBP 74 million reduction in receivables for the reasons we have explained today. It is really pleasing to note, however, that this 25% reduction is very much in line with the guidance we've provided in the third quarter of 2022 when it became clear that the new regulation of a lower rate cap and enhancements to affordability would come into force. Now as Gerard mentioned earlier, the Polish credit card receivables book amounts to around GBP 49 million at the year-end, which is around 5% of group receivables and around 25% of Poland's receivables. This receivables balance is stated net of a GBP 6 million downwards valuation in respect of a reduction in expected future cash flows discounted at the original effective interest rate as a result of the potential impact from the recent KNF letter. Taking into account the restrictions of the small payment institution license on credit card values and the potential future impact of the recent KNF letter on noninterest fees is likely that we will see a further contraction in overall Polish receivables in 2024, albeit by a much lower level than in 2023. I'd now like to turn to the great progress we are making against the core KPIs supporting our financial model. Now the group's revenue yield has strengthened by a further 3.4 percentage points over the last 12 months to 55.3%. And this yield is now very close to our new target range of 56% to 58% and reflects the decisive actions we have taken over the last 2 years. So a really, really pleasing result. Now dealing with the individual divisions. The yield in European home credit strengthened by 4.9 percentage points over the last year and now stands at 47.4%. This reflects the implementation of a number of actions to bolster the yield, including some price increases in each of our markets, as well as a concerted reduction in promotional activity. As we've explained before, price increases are only made after stringent consideration of customer affordability, due consideration of rate caps, which are often linked to movements in local base rates, but also the competitive landscape in each of our markets. The revenue yield in Mexico home credit has remained broadly unchanged at 87.4%. The yield in Mexico is higher than you would see in Europe due to the increased level of credit risk we can take, which is also reflected in a higher impairment rate in Mexico. IPF Digital's yield saw a modest reduction of 1.5 percentage points to 43.9%. This reflects a combination of factors, the 2 most significant being the impact of the lower total cost of credit cap in Poland and the growth in Australia's receivables, which are lower yielding. These adverse variances have been partly offset by the growth in Mexico, which has a higher revenue yield. We are always very disciplined and responsible in our lending decisions and never more so than in difficult economic times. The close relationships we have with our customers also encourages a strong repayment ethos. Despite the increased cost of living in all of our markets, we have not seen any discernible impact on customer repayment behavior. And together with tight credit standards, the quality of our loan book continues to be excellent. This means we are perfectly placed as we pivot the growth to focus more on customer growth in 2024. The overall annualized group impairment rate has increased from 8.6% to 12.2%, which is wholly in line with our expectations as impairment rates continue to normalize as we regrow the business. The rate remains below our target range of 14% to 16%, but we expect it to increase towards the range as Mexico grows and represents a larger proportion of receivables. Finally, on impairment, our overall impairment coverage ratio is currently 36.3%, little change from last year-end, but higher than the pre-pandemic level of 33.5% in 2019 despite the tighter credit standards we are using now. And within our overall impairment provision, we have reduced the group's cost of living provision from GBP 21 million to GBP 15 million. And this reflects both the strong credit quality and operational execution we have delivered, as well as the reduction in inflation we have seen in each of our markets. Our cost-to-income ratio continues to show a good trajectory, improving from 60.9% last year to 57% at the end of the year. This is due to the growth in revenue yield, but just as importantly, continued tight cost control around the group. A key focus of our Next Gen strategy is to become a smarter and more efficient organization through process improvement and the deployment of technology as we successfully mitigate both the inflationary environment and an increased cost of funding. Our decisive actions, together with ongoing growth will continue to drive down this ratio as we deliver our target returns. So to summarize on this slide, you can clearly see that we have made really positive progress against all 3 of our KPIs over the last 2 years. Moving on to earnings and dividends. The group delivered reported profit growth of 8% or GBP 6.5 million to GBP 83.9 million in the year. This very good performance was well ahead of our internal plans, benefiting from strong operational execution across the group as well as favorable exchange rate, which contributed around GBP 6 million to the result. Now looking forward, our previous expectation for 2024 was that profit would be relatively flat, which is reflected in the current market consensus. And this was due to a number of factors, including the ongoing transition in Poland and the refinancing of fixed rate maturing debt. However, as Gerard mentioned earlier, if the expectations set out in the KNF letter are implemented in full in their current form, the noninterest fees generated by the group's Polish credit card business could be reduced by approximately 30% to 40%. And on an ongoing basis, after taking account the group's strong performance in '23, this could reduce the group's profit before tax by up to GBP 10 million per annum compared with our previous plans. And finally, whilst I'm on this matter, you will also see in the RNS that we've included a contingent liability in our financial statements in relation to the letter received from the KNF. Our pre-exceptional EPS increased by 12% to 23.2p. This is higher than the 8% growth in profit before tax due to a lower tax rate of 38% this year compared with 40% last year. The reduction in tax rate is due to a number of factors, but the biggest being the beneficial impact of bad debt relief in Poland. That's a timing impact. We expect the effective tax rate to return to around 40% in 2024. Now the EPS calculation you can see on the slide is stated before the impact of an exceptional tax charge of GBP 4 million in respect of the Hungary special profits tax that we also reflected last year. Now this tax has been extended by a further year and another exceptional tax charge of GBP 2 million is expected to arise in 2024. The Board has declared a final dividend of 7.2p per share, which represents 10.8% growth on last year. And together with the interim dividend of 3.1p per share, this brings the full year dividend to 10.3p per share, showing strong growth of 12%, in line with the growth in pre-exceptional EPS. The dividend is consistent with our plans to deliver a progressive dividend policy whilst absorbing the financial impact of transitioning our business in Poland. As we previously guided, the payout rate of 44% is modestly above our target of 40% but is fully supported by our strong performance in 2023, a strong balance sheet and the Board's confidence on the group's future prospects. And we fully intend to maintain our progressive dividend policy as we go forward. Now on to returns. On this slide, you can see 4 charts showing the development of returns at a group level and for each of our 3 divisions. The main lines to focus on here are the solid green lines showing the return on required equity, i.e., at 40% of receivables. And in addition, the blue line on the group chart, which shows the actual return on equity. For group, you can see that our pre-exceptional RORE at 14.8% is very similar to the level last year and is very close to the lower end of our target threshold. ROE, based on our actual level of capital is 11.1%, marginally lower than last year, but this is wholly due to favorable FX movements increasing equity. We expect our group returns to moderate in 2024 as we continue the transition of our Polish business in the evolving regulatory landscape, refinance the group's fixed rate debt and accelerate receivables growth elsewhere in the group. We would then expect returns to improve in 2025. You can see that both European home credit with an RORE of 20.5% and Mexico home credit with an RORE of 20.7% are both delivering returns around the 20% level we target our divisions to deliver. We expect [ Europe's ] returns to moderate next year due to the ongoing transition in Poland, which we now anticipate will take up to 2 years longer than previously envisaged. And IPF Digital's RORE has improved from 6.9% last year to 7.6% in 2023, reflecting good growth and strong operational discipline despite the adverse impact of the reduction in returns within Poland. Now whilst IPF Digital is not currently delivering our target returns, following COVID-19, but also the closure of Finland and Spain, there are really strong organic growth opportunities in our existing markets, particularly Mexico, Australia and in Poland as we rebuild the business. And we will also continue to consider inorganic opportunities to deliver scale and increase returns to our target levels at a quicker pace. So now on to funding and capital and details of the successes that we achieved in 2023. At the end of the year, we have debt facilities of GBP 629 million, comprising GBP 433 million of bonds and GBP 196 million of bank facilities. I have been delighted with the progress we have made on funding this year. We have successfully raised and extended nearly GBP 150 million of debt facilities in 2023. This is around GBP 50 million more than our original plans. And in addition, the yield on our Eurobond has shown a significant improvement from a high of around 23% in the third quarter of 2022 to just over 11% now, which highlights the improved sentiment in both the market and towards us compared with 12 months ago. Now during the year, we diversified our funding through the issue of a GBP 14 million bond in Poland in November and a GBP 10 million bond in Hungary in December. And we also raised a GBP 26 million retail bond in the U.K. in December and have now placed around GBP 12 million of the retail bonds, which were previously held in treasury. This brings the total amount of our U.K. retail bonds to around GBP 80 million, which is higher than the level that we had pre-COVID. We have also successfully extended GBP 84 million of bank facilities in 2023, and we continue to have very strong relationships with our 18 lending banks. As a result of our funding actions and the group's strong cash generation of GBP 86 million in 2023, we ended the year with significant funding headroom of GBP 126 million. And we now have over GBP 170 million of our debt maturing beyond 2025, and our average period to maturity is 2 years with the next major maturity being the GBP 35 million Scandinavian bond maturing in October this year. We have also developed a number of options with our debt advisers to further extend our debt maturity profile, including engaging with investors to refinance the Eurobond maturing in November 2025. And finally, on funding. Our funding rate in 2023 was 14%, up from 13.3% a year ago. The increase reflects higher interest rates across our markets as governments target inflation, but also as we refinance our fixed rate maturing debt. We anticipate that our overall group cost of funding will rise again in 2024, but purely due to the refinancing of fixed rate debt, which carries a rate lower than current market rates. And I should add that this is clearly subject to the timing of refinancing activity and market sentiment. On to capital. We have a very strong capital position with an equity to receivables ratio of 56%, up from 51% last year and above our target of 40%. The capital base has increased due to 2 main factors. Firstly, the group's strong capital generation on the back of modest group receivables growth as we execute the transition in Poland. And secondly, we have continued to benefit from favorable exchange rate movements in 2023, particularly in Mexico, which has resulted in GBP 23 million of gains on retranslation of opening net assets, which have been taken to reserves. You may well remember that we also benefited from GBP 42 million of such gains last year. And excluding the gains from both years, our equity to receivables ratio would have been around 49%. We anticipate a reduction in the equity to receivables ratio in 2024, subject obviously to foreign exchange movements, as we invest in more growth, continue to deliver our progressive dividend policy and deliver the returns below our target threshold as we continue the transition of our Polish businesses. So to round up, we have delivered a really strong set of results in 2023. '24 has started really well. Credit quality remains excellent. Costs continue to be tightly controlled, and we have a very robust funding and capital position to support our plans. And on that note, I will now hand you back to Gerard to take you through the outlook. Thanks, Gerard.

Excellent. Thank you, Gary. Thanks to Gary for that. I mean he's provided some excellent insights on our performance for the period and explained how we are managing our businesses to deliver our targeted returns. So let me try and draw all of this together now, and then we can move on to Q&A. As you can tell from everything we've said over the past, I guess, it must be 45 minutes or so, we're very pleased with the execution of our strategy and the results that it's delivering for us. Customer demand for our products and services is consistently strong. Customer repayment behavior is very stable. And as you've just heard from Gary, we have a robust balance sheet and plenty of funding headroom. We're cognizant of the increased funding cost, and we're working to offset that with our own actions to improve portfolio yield and deliver further productivity gains by investing in technology. We're very focused on the rolling out of our new products and channels across the group that I discussed earlier. And our investments in technology are a big hit with our customers as it significantly improves their user experience, but also it's helping us to move towards our cost-income target. Now there's no doubt that the recent regulatory news in Poland is really unhelpful, but we'll work through that as we always do. Our transformation in Poland that's currently underway is a very significant undertaking for us. And just last week, we announced a significant step forward in the restructuring of our field operations that will deliver better customer experience without a significantly reduced cost for the group. Now this will continue to be a major focus for the group for the remainder of 2024 and beyond. For the year ahead, our expectation is that market consensus for profit before tax for 2024, and I think that's currently sitting at around GBP 80 million, but that should show a reduction of about up to GBP 10 million in PBT as we continue to adapt our Polish business, refinance our fixed rate maturing debt and most importantly, pivot the business to accelerate growth across the rest of our markets. Now we intend to maintain our progressive dividend policy, reflecting both the strong funding capital position that Gary took us through, as well as the Board's confidence in the group's future prospects. So with that, let's move on now to the Q&A part of today's presentation. And I'll ask Gary and Rachel to come up and join me here. And while they do that, let me just take the opportunity to thank all of my colleagues for your fantastic work during 2023 that helped to deliver these results today, and they are really fantastic results. Thank you so much guys. Really appreciate it. Okay. Guys, I think that's a bit longer than our normal session. So how are we doing on questions, [ Rach ]?

Yes, we've got quite a few in. So I'll start with one. One was about why were the results delayed? Why was it longer than the around about a week that you mentioned that it would be?

Yes. Okay. Well, first of all, I want to apologize to everybody for the delay. We did say a week. It took a bit longer than expected. And there were 2 primary reasons. One is that, clearly, it's in Poland, so there are a separate set of auditors there, and they have their own sign-offs that they need to go through. And we prepared a dozen scenarios for them so they could check everything they wanted to check before they would sign off and then they had to get their European sign-off and everything. So that just took time. And then secondly, quite surprisingly, in the midst of it, we received another letter and this letter was from UOKiK. So where the first letter was from KNF, the regulator, and it said, in effect, we've consulted with UOKiK and the Ministry of Justice, we then received, as did every participant in the market, a letter from UOKiK saying, and by the way, we disagree with some of what's been said in the letter. So that was unhelpful. So we're working our way through it, but we eventually arrived at a position where we're all happy, everybody is comfortable with the numbers, and we feel we've been prudent in the way we've made the adjustments.

Yes. Okay. So the next one is about impairments in Mexico. It seems to rise year-on-year. Are you expecting to improve the portfolio quality in this market? And how would you achieve it?

Shall I take that?

Yes.

Yes. Well, correct. I mean the impairment rate in Mexico has been higher than our target, [ 30% ] and the target is still [ 30% ]. The reason it was a touch higher, as I set out, was really 3 specific regions where we tightened credit quite markedly at the back end of 2022. And then we had the flow-through of the write-offs through 2023. David and his team have taken some really good action there, and we're starting to see the benefit of that. So we're actually seeing write-offs come down quite significantly from where they've been. So we're confident that we'll now move back towards our target range through 2024.

Great. Okay. So as you'd expect, we've got quite a number of questions about Poland. So I'll -- we'll run through those now. Is there any link between the KNF granting a large payment institution license and the letter that they sent recharges?

No, in short, absolutely not. They're different departments, and the 2 are entirely independent of one another. So categorically, no connection.

Okay. This one here, does the Polish regulator actually want you to be operating in that market?

Yes, in short, because I think there's a recognition generally in the market that our consumers need to be provided with finance, those who are creditworthy and [ kind of forged ] to borrow and repay the finance. And there's an acceptance that those people should not be excluded from finance. So yes, but clearly, the regulator wants the market to behave. And I think that's what this is about. It's not they don't want you there, they just want people to behave for want of a better description.

Okay. We've got one about our value-added services. Will they still be offered or modified after the KNF's comments about whether these services are being used to circumvent the provisions on the noninterest loans costs?

Well, I can say for sure that in our case, we won't be modifying them because we absolutely follow the regulations here. And that is to say that these value-added services need to be entirely independent of the loan that you're offering. Now we are aware that there are participants in the market who try to get around the system by saying, yes, you can have a loan, but you have to take this value-added service, and they tie it in, in a way that is really going against the regulation. Ours are very clearly separate. You can take the value-added service if you want. But if you don't take the value-added service and then you still qualify in terms of affordability and credit quality, you will get the loan. So the short answer is no, we won't be amending ours because ours are perfectly in line with the regulation.

Yes.

I mean they offer great value and really importantly, they're used.

Yes.

Yes.

That's really, really important to us that to Gerard's point, a, they're unbundled, but that really good value for customers and they're heavily used, which is good.

And just more generally, value-added services for the group. For us, we believe it's a really, really good thing to do because we use our purchasing power to provide our customers with something that they either can't get themselves or they couldn't get at nearly the price that we can provide it. And for the group as a whole, we now nearly have 800,000 customers who have value-added services. So it proves that it's a product that customers want and they use. So we're very happy with this.

And customers who just have value-added services as well, so shows the value of them.

Okay. Just sticking with Poland, how do you think it may impact the competitive landscape, if at all?

Well, I think that those players who are, let's just say, operating outside the rules, I think they're clearly going to get targeted, and they're going to have to amend their ways. And if they amend their ways, some of them might not survive. And from my point of view, that wouldn't be a bad thing because you obey the rules and you decide if you can trade. So we might see some fall-out from that.

Okay. Moving on to the impact of the KNF letter. What is the impact of future profits of the letter to you when credit card receivables are only 5 -- sorry, why is the impact of future profits, GBP 10 million when receivables of credit card is only 5% of the group receivables?

Okay. Yes. Yes. I think what you have to do, I mean, the GBP 10 million is forward-looking. So if you think about the credit card receivables, as it says there, there are only GBP 50 million at the moment at a net level, but at a gross level, they're around GBP 70 million, okay? We always thought that credit cards would be at least half of Polish receivables going forward. So if you think at scale, Poland somewhere around GBP 300 million of gross receivables, Poland would be about half of those, so GBP 150 million. The reduction in revenue yield from this letter is about 10%. So your revenue yield goes from about 60% on credit cards now to something high 40s to [ 50% ]. So if you think about a 10% differential on GBP 150 million of receivables, that's [ GBP 15 million ] of revenue that obviously we won't generate. If you then think about, well, there'll be a bit of impairment because it will be a touch tighter in credit and some cost savings, that's where you get to the GBP 10 million. So it's a future looking view of the Polish business in that the revenue yield overall will be lower than we previously envisaged.

Okay. Great. I think I've covered most of the questions that have come through on Poland. This one is about Next Gen strategy and the cost-income ratio. Are there any specific areas where you think there's more you can do particularly if you invest in tech?

Short answer, yes. And we are very focused on this. So if I took as an example, European home credit, so we have 4 markets there. Each of those 4 markets sell the same product to broadly speaking, the same consumers, same types of consumers across those 4 countries. But they've all over time adapted different processes. But because they have different processes, we've built different technologies to cope with that. So one of the things we're going to do is we're going to strive for and we've already started commonality of processes across those 4 businesses. And when you get commonality of processes, you can have single platforms and single systems. And so we think there's a huge amount of payback in that for us. So we'll adapt our processes for regulation, but we want to damp them for preference. We'll have a common process and common platform. So yes, the technology will be a big winner for us, we believe.

Okay. We've had one through regarding refinancing the Eurobond. Would that be sooner rather than later? You're talking to investors...

Yes. I mean, as we set out in the statement and I think people know, we always look to refinance about a year before maturity. And clearly, the Eurobond matures in November 2025, a year in advance is November 2024. So clearly, that's something we're discussing intensively with our advisers, talking to investors, and we're looking at a number of different options. But the really positive thing is that we're doing that from a position of strength in terms of where our funding capital position is and also importantly, how the business is trading as well. So yes, that's something obviously we're actively looking at. So watch this space on that one.

Okay. We've had a number of questions looking at growth, actually, the statement highlights a series of areas where there is potential for growth, but which ones or do you think are most important for delivering growth in 2024 specifically?

Okay. Well, it is correct. There are quite a few opportunities for growth there. If I had to pick one, I clearly say Mexico, both our Creditea, which is our digital business and our home credit business there, between them have about 800,000 customers, and we see that growing significantly over the coming years. If you were to look at Europe, you'd have to say Romania is growing great guns. And we shouldn't forget Poland, because once we sort out this issue in Poland, currently, it's shrinking, but it's going to plateau and then we'll be back into growth mode there. So I think there are lots of opportunities all around the group.

Okay. That's it. Just looking through the ones, we've finished our questions.

Okay. Thank you, Rach. So very briefly, thank you so much for joining us. I do apologize for the delay in the results, but somewhat outside of our control. But hopefully, what you've seen this morning is that it's a really, really solid set of results. And I think Gary and I can stand here and say that we're happy that, that momentum that we saw in '23 is carried forward into 2024. So we're really pleased with the start to 2024 as well. Now although we've delayed the results, we are going to be available for all the investor meetings. So we're trying to line all those up now to give people more color if they want that. So thank you very much, guys. Thank you for joining online. Thanks very much.