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

Hello, everybody, and welcome to our presentation of the 6 months results to the 30th of June 2026. And today, Gary Thompson, our CFO, and I will be very happy to talk to you through the successes and the problems we've encountered over that period. But overall, it's been a really strong performance for us in that 6-month period. Now as usual, I'm going to talk you through at a very high level the results. I'll also cover off how we're doing on our strategy and why that's delivering the results you see today. And then I'll do a brief overview on what we see on the regulatory front. Then Gary is going to pick up from there, and he's going to talk us through those results in a lot more detail division by division and talk about the funding side and the balance sheet as well. At the end, I'm going to pick up then and I'll give you some outlook comments. So -- it should be an interesting presentation, but I should start by saying, for us, it's an unusual presentation. Ordinarily, we would be standing up and doing this in-room format, but circumstances have changed. And so today, this is our last financial presentation as a listed entity on the FTSE. So it's quite a momentous occasion for us. And the reason is that we are being acquired by another entity and that's BasePoint. So I thought I should start by bringing you up to speed on where we are at with that transaction. So if you look at this page here, you can see the time line of the events that have taken us up to where we are today. Now for many of you who know us, you'll know that on the 24th of December, we announced that we had agreed terms with BasePoint. So that was our Board and the Board of BasePoint had agreed terms for a recommended offer for the business. Then we roll on to February 2026. And then we had a revised offer, which was 235p a share plus a special dividend of [indiscernible] 250p in total per share. We then had that approved at the shareholder meeting on the 11th of March. But then the really important piece was to get all of the regulatory approvals in place that we required. And the final one of those came in just recently on the 3rd of July. And so now all of those conditions precedent that were set out in the documents have been met. And so as we sit here today talking to you about these results in a couple of days' time, on the 31st of July, we will have the sanction hearing of the court and hopefully, that all goes to plan. And then after that, on the 4th of August, the transaction should become effective. BasePoint then and their agents have 14 days to make all of the payments due under this transaction. So effectively, our last presentation as a plc, but what's really good for us is that we're going out on a really strong note, and you'll see this as we walk through the results now. So turning now to the results and the strategy just at a very high level. Well, we're going to -- we announced this morning that we delivered GBP 47.4 million of pre-exceptional profit before tax. And what's really encouraging is that net receivables are up by 17% year-on-year. And that's as a result of us seeing really strong demand from our customer segments. So that's underbanked and underserved customers around the globe, but also really good operational execution throughout the business. Now the strategy that we have in place continues to be robust and appropriate going forward, and I'll talk about that in a second. And then the balance sheet, as always with us, we have a really strong balance sheet, and Gary is going to talk about that and the funding position. Unusually for us today, we're not going to talk about an interim dividend, and that's because as a result of the acquisition transaction, there is already a special dividend of 15p that's been agreed. So I'll move on now just to talk a bit about our strategy. Now what you see here on this page is just a pictorial representation of our 3-pillar strategy, and we call it our Next Gen strategy. And just as a reminder, the 3 pillars are Next Gen financial inclusion. That's all about us building the products and services and distribution channels to deliver to our customers the products that they want in the way that they want it and through the channels that they want it. And that's been a big part of our development over the last few years. Next Gen Org is all about us becoming a smarter and more efficient organization. And then finally, Next Gen tech and data is about investing, and I really mean investing large sums of money in tech and data so that we can be relevant in the years ahead, but also that we can be smarter and more effective for our customers. Now all of this is guided by the financial model that Gary has put in place. and also supported by our values, which is being responsible, respectful and straightforward. So none of that has changed. And if you know us at all, you'll have heard us talk about this now over a period of several years. So how are we doing versus that strategy? So let me just give you some brief examples here. On financial inclusion, and again, remember, this is about giving the customers the products and the services they want through the channels they want them. One example would be the credit card in Poland. Now the credit card market for our customers didn't exist in Poland 3.5, 4 years ago. Today, we're approaching close on 0.25 million cards in issue, which is truly phenomenal. We've effectively created that product in the market in Poland. And as a result of that success, we're now in test phase for that card in Romania. And I'd imagine that within a matter of months, the results of that test will prove to be very positive. That's what we see in the early signs. And so we would expect to be rolling that card out in Romania as well. So that feels like a huge success for us. In Mexico, we're continuing our expansion there. And as you know, we're opening approximately 2 branches per year, and the latest branch to be opened will be Chihuahua, and that will be opening in a couple of weeks' time. So feeling very good about the expansion plans there. Now over the last couple of years, you've heard us talk about our partnership model. And this is where we get together with retail partners i.e., back to this where the customer wants to acquire finance. So providing finance to our customers when they're at the point that they want to purchase something. Now we have over 3,000 retailers on our books at this stage. So feeling really positive about that. But as always, when you open up a completely new distribution channel, what you have to do is build your scorecard. So we're not going as fast as we could go here because we need to make sure that the credit quality is improving all the time. But we're feeling positive about that. And then the final thing on financial inclusion is in Czech Republic. We acquired our largest home credit competitor in the Czech Republic a few months ago. Now in the overall context of IPF, it's a small acquisition, but for our Provident business in Czech Republic, we think this is hugely important. And I'd have to say we're both really delighted with the way that integration is going. It's early days. It's only 2 or 3 months in, but we feel really positive about that. In terms of Next Gen Org, well, here, what we're doing is we're putting a lot of time and effort now into ensuring that customer representatives, so you might call them agents, and we have more than 16,000 of them. We want to make sure that they feel comfortable in their roles with us because versus other businesses, you might think that there's reasonably high turnover. So it could be 30% or more turnover in that population that we have. And so we're putting a huge amount of effort into making sure that we're making the roles as positive and as productive for our agents as they possibly can be because bringing down agent turnover is fantastic. It's great for the agent. They have a longer time with us. They get to earn more money. But also it has spin-off benefits for us. Those agents become more successful at selling, but in particular, their portfolio quality improves the longer they stay with us. So our focus here is all about the clarity of the role, the expectations and making sure our agents are being appropriately rewarded. And then finally, moving on to tech and data. Now here, we've been investing very significant amounts of money in tech and data. And both Gary and I would feel at what stage do we feel we're spending that money. But for now, we're very satisfied that the money we're investing is delivering what we need. And we have a big renewal program going on for all of our base systems, and we are now approaching 70% of the way through that program. At the same time, we're rolling out lots of things that are good for the customer, so our customer app. Now that's been in Mexico for some time in Poland. But within a matter of probably a couple of more months, it will be across all Provident businesses. So all 4 Provident businesses in Europe and clearly, it's already in Mexico. We're also putting money into what we would call more scalable platforms. So one area would be SAP. So we're putting in a completely new SAP system across the whole organization, and that is a mammoth undertaking for us. I feel like we're on target, generally speaking. It's going well. But it's a multiyear, multimillion pound project, that one for us, but we believe it has huge payback down the line. And finally, AI because lots of people ask us about the impact of AI in the business. Now you would have heard me say at the annual results when it is February that actually I'm becoming more and more optimistic about the impact -- the positive impact that AI can have in our business. And we're seeing that in our call centers. In fact, as a team, as a leadership team, we had a 2-hour session this morning, a teach-in for us as senior leaders on how to use AI effectively. So I would say, as we go forward over the coming months, but particularly over probably the next couple of years, we're going to see quite significant changes in how we use AI in the business. And we believe that a lot of the returns are going to come as a result of productivity. So we'll get faster and smarter as a result of using AI, but I think productivity gains will be the key thing. So that's where we're at in terms of our Next Gen strategy, making good progress and really happy with how things are going. I thought now I'd just give you a brief update on regulatory matters. So the key thing that's occupying our minds in terms of regulatory at the moment is the consumer credit directive # 2. So CCD 1 was in place for, I think, 14, 15 years. It's now being replaced by CCD 2. The implementation date for that, I think, is November of this year. And it's been a long time coming. So you would expect that all of the countries would be ready. The truth is it's Hungary that is the one country that is ready, and they have promulgated it in their local law. But there are other countries that are affected by this. Many of those countries aren't there yet, and it does look like they possibly might not be there by the deadline. So what that means for us is that we're currently having ongoing engagement with regulators and politicians about this because it is still open to some extent in some of these countries. We have a really good track record in terms of implementing regulatory change, and I feel positive that, that should be the case here. But whereas we would have expected by now to be done on this and just waiting for implementation. In fact, it feels like that's going to be pushed out further probably to later in 2026, but for some of these countries surely into 2027. So it's in a hand, but probably taking longer than we would have expected, but nothing to do with us, more to do with the environment in each of these individual countries. So that's it for me. The brief update, really strong set of results, strategy being executed well and a regulatory update there on CCD 2. So with that, I'm going to hand you over to Gary now, and Gary is going to take us through much more detail in terms of the financial performance for the 6 months.

So thank you, Gerard, and hello, everybody. So moving on to the first slide, profit before tax. So as you've heard from Gerard, we've delivered another solid set of results in the first half, delivering a profit before tax of GBP 47.4 million. And it's really important to say that's fully in line with our plans this year. And actually, the reduction in profit of 5% on a reported basis, but 13.5% on what we call a constant currency basis. So that's taking out FX is entirely consistent with the guidance we provided at the year-end results last year in terms of accelerating and investing in our growth agenda. And it's important also to note, and as Gerard said, the result was delivered through disciplined execution of our Next Gen strategy and stable credit quality around the group. So before I go on to talk about the results in a little bit more detail, I should flag that there were a couple of exceptional costs in the first half, which totaled GBP 4.6 million, and it's split into 2 parts. The first part is we incurred GBP 3.3 million of costs relating to the reorganization of our businesses in Czechia where we acquired Express Cash, as Gerard mentioned, but we also simultaneously closed our digital business, and that was a small business with around 7,000 customers, but we're now focused on that driving the scale in the home credit business. And then secondly, we incurred a further GBP 1.3 million of transaction-related costs, and that's on top of the GBP 3 million that we incurred in 2025. So now moving on to some more of the detail behind the numbers. And if we start with customer growth. It was really good to see a continuation of the really good momentum we saw in the second half of last year flow through into the first half of this year. And we overall delivered a 5.4% increase in customer numbers, up to 1.743 million in the first half. And there's really good demand both for our core products, but also the new channels and -- the newer channels and the newer products that we have introduced over recent years. Now what I will say as well is the growth in customer numbers included 13,000 customers acquired with Express Cash in May. It was really good to see that all 3 divisions supported the growth in the first half. Provident Europe delivered 3.7% growth with around half of that being delivered organically and the other half being delivered through the acquisition of Express Cash that I just mentioned. Provident Mexico delivered really solid growth of 4.5% and IPF Digital delivered 12.7% growth with the main contributors being Mexico, where our expanded product set, including short-term loans and retail finance, delivered 26% growth and also in Australia, where our increased brand investment delivered 15% growth. So now if we move on to lending growth, we delivered a real acceleration in lending growth in the first half of the year, delivering 18.5% growth at constant exchange rates. And again, all 3 divisions delivered really good growth. So firstly, if we look at Provident Europe, we delivered strong growth of 25%. And there, Poland was the main driver with growth of around 50%. And that is following the launch of a new 2-year credit card product in Poland, which allows us to offer higher credit limits to customers, but also at the same time, maintaining affordable repayments over a longer term for customers. And approximately 50,000 customers were transitioned from the 1-year product onto the new product in the first half. Romania, Hungary and Czech combined delivered really solid growth of 8% during the first half, which backed up the strong performance from Poland. Moving on to Provident Mexico. Provident Mexico delivered 9% lending growth in the first half. And that, again, really carries on the momentum that we built in the second half of last year. So we've always thought that the growth in Mexico in that sort of 9%, 10%, 11% mark is a real sweet spot of growth to keep the operational rhythm working perfectly. And then so Mexico -- Provident Mexico delivered another really solid first half result. In IPF Digital, again, really good growth in both customer numbers, which you've seen, but also in lending. And there's real good demand for those fully remote credit solutions. Lending was overall up 12%. And again, that's really also investing in new products and distribution channels as well as you may remember, investing more in our brands. So in terms of individual countries, Poland delivered 40% growth Australia, 14%; Mexico, 10%; and our more mature Baltic markets, they delivered around 3% growth. So overall, a really, really good growth performance from the IPF Digital division. So moving on to receivables. Overall, group receivables grew by 17% to GBP 1.17 billion, and that was supported by, again, double-digit growth in each division. In Provident Europe, growth was 23%, up to GBP 649 million. And the biggest growth there was in Czech, where we grew by 42% with around GBP 12 million of that growth being attributable to the acquisition of Express Cash. And again, that's broadly half of the growth that we delivered in Czech. Poland, similar to the lending growth grew really strongly at 33% year-on-year. And again, that's supported by good lending growth generally, but also the introduction of the new 2-year product credit card there, which customers really, really appreciate and really like. And then in Romania and Hungary, we also delivered really good growth there with 16% and 14% growth, respectively. So all around really good growth in Provident Europe on a receivables level. If we move to Provident Mexico, again, really good growth, 12% there from Provident Mexico up to GBP 210 million, and that's really supported by the ongoing geographic expansion with 2 new branch openings this year, but also the really strong disciplined operational rhythm that is adopted through David and his team in Provident Mexico. If we move to IPF Digital, receivables growth there was 10%. And again, Poland led the way with growth of 27%. Australia delivered 18% growth and the Baltics delivered really solid growth of 6%. The actual rate of receivables growth in Mexico was actually lower than expected at 5%, and that's really due to the mix of lending in the first half, which was much more weighted to the newer channels such as short-term lending and retail finance where loan sizes are much smaller. Credit quality is a little worse in the early stages as we refine our scorecard, but the actual ticket size of lending is much smaller than when it's balanced towards more existing lending. So that's why you've seen such strong growth in customer numbers in Mexico Digital, but much lower receivables growth. Now the balance will change as we progress, and we should see more existing growth from existing customers. But in the first half, the dynamic you saw was the much bigger growth in the newer channels. Now to turn to our core KPIs supporting the financial model that Gerard mentioned earlier. And as you might know, the key metrics that we use to assess performance are revenue yield, impairment rate, cost to income and then return on required equity. And before I jump to talking about those individual metrics, what you will see again on the slides that follow is us presenting the metrics on a fully consolidated basis, but also excluding Poland. And this is really due to the significant impact of the ongoing transition in Poland that we've experienced over the recent 2 to 3 years, due mainly obviously to regulation and us introducing a credit card, but they have distorted some of our medium-term targets. So we like to present them in both ways really to set out the picture for everyone to see more clearly what's happening. And the trends that I'm about to talk you through are fully in line with our guidance, our expectations. And therefore, when you look at the metrics, the key to getting to the group's medium-term targets is really about rescaling the Polish business through increasing the distribution of the higher-yielding credit card proposition. So if we start with revenue yield, in Provident Europe, there are -- we saw the yield reduced from 1.5% to 44.1%. And this is really down to 2 factors. Firstly, the flow-through of lower rate caps in Poland, albeit we expect the Polish yield to begin to recover as we expand the credit card offering I just mentioned. And then secondly, we also saw a slight moderation in yield in Hungary, again, due to a reduction in interest-linked rate caps. And also because Poland's growth was so strong in the first half, and it is slightly lower yielding than the other 3 countries, that was a contributing factor to why overall, the yield is a bit lower in the first half. In Provident Mexico, we also saw a reduction in the yield from 84.4% to 83.4%. This is due to the increase in mix of good quality existing customers. Clearly, as you get bigger and grow, there's more existing customers in the book. And typically, they're served with slightly longer duration, lower-yielding loans, clearly better quality, but you will see a small reduction in the yield as there's a bigger portion of existing customers in the portfolio. Moving on to IPF Digital. The annualized revenue yield saw, again, a slight reduction to 42.4% due to the strong growth really in Poland and Australia, both of which are slightly lower yielding relative in particular to Mexico. So overall, when we look at the group, the annualized revenue yield has reduced from 53.3% down to 52% over the last 12 months. However, as I started this section with, if you exclude Poland, the revenue yield was actually around 55.7%, which is pretty much at the bottom end of our target range of 56% to 58%. But clearly, improving the revenue yield remains a key feature for us as a business. And we expect the ongoing shift to high-yielding products through credit cards in Poland and the growth in Mexico to help improve the revenue yield over the coming years and firmly get us into that target range of 56% to 58%. Moving on, despite some volatility in macroeconomic conditions in our markets, customer repayment behavior remained really stable, really robust, and we continue to be really happy with the loan portfolio around the group. Now as expected, though, the annualized impairment rate actually increased by 1.7 percentage points to 10%. And that's really all to do with the upfront IFRS 9 impairment charges associated with a strong growth, particularly in our new channels. So that was entirely expected, okay? Now again, if you exclude Poland, which over the last 12 months, because it actually shrunk before it's now started to grow, it's actually had a really favorable impairment position. That's what you get when you shrink with our unfortunate accounting. As you grow, you pick up more impairments because you take it all upfront. So actually, if you exclude Poland, the annualized impairment rate was 13.1% at the end of the first half. And actually, that is nicely below the group's target range of 14% to 16%. So credit quality in really good shape. Now we do expect that impairment rate to trend back towards that target level, albeit probably at the lower end of that over the next 2 years as we continue to regrow and gain scale in Poland, but also as Mexico receivables continue to take a bigger portion of the portfolio because the Mexican businesses, whilst they have a higher yield, also have a higher impairment rate. And then finally, on impairment, the really stable credit quality has meant that our impairment coverage provision ratio has remained broadly unchanged at around 30.9% at the half year. So in a really conservative robust position. Moving on to costs. You'll see that costs increased by 9.3% compared with average receivables growth of 11.4% as we continue to focus on 2 things, clearly, keeping costs under wraps and disciplined cost management, but also continuing to invest in growth and our strategic capabilities to support that growth in the future. The annualized cost-income ratio improved by about 1.5 percentage points to 60.4%, which clearly is supported by revenue growth, but also scale benefits as we start to regrow Poland. And actually, if we exclude the Polish business, the group's annualized cost-income ratio was around 55.9%. So that is above our longer-term target of 49% to 51%. But as we continue to gain scale, not only in Poland, but in our digital businesses, we expect to come down to our target range over the medium term. And then if we move on to return on required equity, consistent with the guidance we have -- we gave at the end of last year, the pre-exceptional return on required equity has reduced from 15.4% to 12.9% over the last 12 months. And that really, again, is all to do with the acceleration in growth and is entirely consistent with both our guidance and our own plans. The effective tax rate behind this is 38%, which is consistent with last year. And we expect our returns to remain below our target level of 15% to 20% through 2026 and actually through 2027 as we continue to invest in growth and increase our scale before returning to target levels in 2028. And I should also say, if you look at our returns based on statutory earnings and actual equity, our ROE was 9.1% at the end of June, down from 14.7% at June last year, which is really a combination of the reduction in profit after tax, but also the exceptional charges that we've incurred over the last 12 months. And before I hand back to Gerard, I'd like to talk you through our strong funding and capital position, which really underpins our growth ambitions. So at the end of June, we had total debt facilities of GBP 820 million, which comprised GBP 552 million in bonds and GBP 268 million in bank funding. Net borrowings at the end of June totaled GBP 713 million, which basically meant that the group funding headroom at a really nice comfortable level of GBP 107 million. Now for me, the highlight of the first half was the strengthening of our funding position with the successful pricing of SEK 950 million bonds, and that's about GBP 75 million. And the really positive thing about this transaction was there was excellent demand and the margin on that borrowing was 5.75% and that's the lowest margin we've achieved for a number of years. And it's really pleasing to see the market really understanding and also reflecting the strength of this business, the strong cash flow position. So that was really pleasing for us. And then sticking with debt capital markets. Our credit ratings remain unchanged with both Moody's and Fitch, and they both continue to have a stable outlook for the group. Now our blending cost of funding has reduced from 12.5% in the first half last year to 12% in the first half of this year. And that's benefiting from lower interest rates, but also reduced hedging costs. And our gearing and interest cover covenants at 1.3x and 2.5x, respectively, they're both comfortably within the covenant limits of 3.75x and 2x at the end of June. And then finally, equity to receivables ratio stands at 48% at the end of the first half. Now that's down from 53% 12 months ago, but that reduction really reflects the acceleration in receivables growth over the last 12 months. That's been partly offset by foreign exchange gains of around GBP 36 million over the 12-month period, which has been taken to reserve mainly through the Mexican peso and Hungarian foreign strengthened against sterling over that period. Now that capital position supports the group's growth plans through to the point at which we're delivering our target returns and operating much closer to our 40% equity to receivables target, and we expect that to be in 2028. So to sum up, another really good solid set of results in the first half of 2026. Credit quality is stable in really good shape, and there's really good momentum on lending growth. And obviously, we've got a very strong funding and capital position to support that growth. So on that note, I'll hand back to Gerard.

Thank you. So if we turn now to the outlook page. And really, this is just a summation of what Gary has really talked you through in detail. We've got really good demand in the 6-month period. But on the back of that, we saw good credit quality and excellent operational execution. And that's really what keeps this business driving forward is the operational execution day in, day out. The balance sheet, as Gary said, is really strong, robust funding position, lots of funds in place to continue to build the organization. And then in terms of investments, clearly, we're investing more in technology, but we're also investing in growth. And we did indicate last year that we would be spending approximately GBP 5 million more per annum for the next 3 years on both technology and the opportunities to grow. And I think we're still well within that envelope and feeling good about those investments. From a regulatory perspective, obviously, CCD 2 is the focus, not there yet because of countries not really being ready. But when they are ready, we will be ready. And finally, we feel confident about delivering on the strategy because the strategy is applicable today as it was the day we created it, and we are building financial inclusion. So finally, just to wrap up this last session of ours as a listed entity. I just want to say a huge thank you to all of our colleagues because if you're watching, you are this business. You deliver every day for our customers, and it's through your hard work that we deliver this success. So a huge personal thank you from Gary and from me for that. And with that, we're going to sign off. If you have any questions for us, you'll find our contact numbers and details on the website, and we're always available to talk to. So from Gary and from me, thank you very much. We will take the business forward from here.