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Edited Transcript of IPF.L earnings conference call or presentation 31-Jul-19 8:00am GMT

Half Year 2019 International Personal Finance PLC Earnings Presentation

Leeds Aug 17, 2019 (Thomson StreetEvents) -- Edited Transcript of International Personal Finance PLC earnings conference call or presentation Wednesday, July 31, 2019 at 8:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Gerard Jude Ryan

International Personal Finance plc - CEO & Executive Director

* Justin Lockwood

International Personal Finance plc - CFO & Executive Director

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Conference Call Participants

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* Portia Anjuli Patel

Canaccord Genuity Corp., Research Division - Analyst

* Stuart Duncan

Peel Hunt LLP, Research Division - Financials Analyst

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Presentation

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Gerard Jude Ryan, International Personal Finance plc - CEO & Executive Director [1]

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Okay. Good morning, everybody, and welcome. And welcome to all of our colleagues on the webcast as well. That sounds very echoey to me, but if it's -- is it okay back there? Just sounds a bit echoey. Yes. So this morning, Justin and I will take you through our results for the first half of the year. And with us this morning, we have David Parkinson, who heads up our Mexico home credit business. And we have Rami Ryhänen, who leads our global digital business, and they'll be available after this session, if you want to have a chat with them.

Now I'll do a -- I'll do the usual format this morning. So I'll take you through the group highlights, then Justin is going to pick up, and he's going to walk us through the business performance on a unit basis, deal with the balance sheet and funding. I'll cover off on regulation and the execution of our strategy in each of those business units. A few comments on outlook, and then we'll have plenty of time for our Q&A at the end.

Now hopefully, you had a chance to have a quick look at the statement we put out this morning. And if you did, you'll see that we issued over GBP 670 million of credits in the first 6 months of the year. So that's 7% up year-on-year. So there's a good push in there from IPF Digital, but also an excellent performance from our European home credit businesses. We continue to serve nearly 2.25 million customers. And we think about the quality of those customers by looking at impairment to revenue. And today, we stand at 27.7%, so bang in the middle of our target range of 25% to 30%. Now that's a tick up from where we were at the year-end and Justin will un-peal that for us and talk about the business unit performance on that.

In terms of PBT, we delivered GBP 56.1 million in the period, so almost the same as this time the last year. And that's having invested even more money into our growth opportunities. When it comes to the strength of the balance sheet, we always look at equity to receivables. And today, we stand at a shade under 45%. Our target is 40%, we're a shade under 45% but we're comfortable at that level. So with a strong balance sheet, a good quality portfolio and good group delivery on the PBT, the Board are happy to recommend interim dividend of 4.6p per share. So the same as this time last year.

So with that, I'll hand over to Justin there, who will take us through the business unit performance. Here you go, Justin.

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Justin Lockwood, International Personal Finance plc - CFO & Executive Director [2]

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Thank you, Gerard, and good morning, everyone. So I'm going to take us through a high-level view of PBT by reporting segments. I'll then go into a lot more detail about the drivers of performance in each of those segments, and I'll close with an update on the strength of our balance sheet and funding position. So this slide analyzes PBT by segments. And I'm pleased to report that our teams in our European home credit businesses have delivered another strong operational execution against our strategy and that results in a profit of GBP 60.2 million, which is in line with 2018. Now within that, we delivered like-for-like profit growth of GBP 1.8 million, but that was offset by the impact of weaker FX rates.

In Mexico, we had a more challenging performance. And that was driven by a softer-than-expected macroeconomic backdrop, alongside a subpar collections performance. And profit reduced by GBP 3.9 million to GBP 3.5 million.

Continued strong demand for our digital products and good management execution resulted in further strong top line growth in IPF Digital. And with the benefits of increased scale and improved efficiency, we delivered a close to breakeven PBT performance. So taking all these business units together, the group delivered a profit of GBP 56.1 million, and that was in line with our internal plans.

So I'll now talk through the performance of each of our operating segments, starting with European home credit. We have a clear strategy for these businesses to improve the sustainability of the profit stream in the longer term and that involves the creation of more modern, more efficient and better credit-quality operations. And I'm pleased to say that we've delivered very well against that strategy in the first half of the year, delivering a good financial performance, which was ahead of our original expectations.

Now this time last year, we talked about our plans to reduce the rate of customer contraction and I'm pleased to say that those plans have been successful to date. Campaigns to improve acquisition and retention reduced the rate of decline in customer numbers by 6 percentage points to 9%, and that was bang in line with our plans. Credit issued increased by 2%, and that reflects our strategy of issuing slightly larger and slightly longer-term loans to our better credit-quality customers. And the results have impacted us on our portfolio, alongside higher levels of promotional activity, resulted in a 5 percentage point compression in revenue yield, which together with a modest reduction in average net receivables, resulted in a decline in revenue.

At the same time though, our credit quality remains very strong, driven by good agent collections performance, with notable improvements in Romania and the Czech Republic, and that's alongside our focus on higher credit quality customers. And as a result, impairments improved by a couple of percentage points to just under 16%. We've continued our investment program in order to modernize these businesses, and that's through improving efficiency and enhancing the customer experience, and a key part of that has been our investments in further functionality of our agent mobile technology, which is now rolled out across our European businesses. A tight focus on cost control, meanwhile, resulted in a 4% reduction in expenses, and that's despite that investments in technology. However, the cost-to-income ratio decreased by 0.7 percentage points, and that's because the relative contraction in revenue was slightly lower than the rate of reduction in the cost base. So this strong operational execution against our strategy delivered a PBT of GBP 60.2 million. And we're really pleased with that performance. As I turn towards the second half of the year, I expect to see a further solid credit issued performance, alongside the stabilization of average net receivables, and for the full year profit to be ahead of our original expectations.

At the time of our Q1 trading update, we highlighted that our Mexican home credit business had a challenging start to the year, and that continued into the second quarter. It was driven by softer-than-expected macroeconomic backdrop and a collections performance that was below our expectations. And as a result of that, we've chosen to prioritize credit quality and collections over growth until such a time as impairments, which had increased to almost 41%, reduces to a more acceptable level. Under new management, we've implemented a range of plans that are designed to improve performance, deliver execution consistency and support medium-term profitable growth. And in the short term, that means that we've tightened credit set ins in order to improve the quality of the business that we're writing, and implemented a package of measures in order to improve the collections performance, and Gerard will give more color on these a little later. However, the impact of the actions is that customer numbers were flat year-on-year, and we saw a 1% reduction in credit issued.

Average net receivables grew at 10% year-on-year, and that reflects the strong growth in the second half of 2018, and revenue increased at a slightly faster rate of 15%.

Now despite this challenging first half performance, we continue to see significant growth potential in Mexico and, therefore, we've continued our investment plans in order to capture that opportunity. And that includes further expansion in our -- further geographical expansion in our branch network. That results in a 5% increase in the cost base, but through a tight cost control in our existing branch network, costs were flat. And with the benefits of an increase in scale, we saw an improvement in the cost-to-income ratio of 1.6 percentage points to 37.1%.

So taking all of lot together, profits declined in the half year by GBP 3.9 million to GBP 3.5 million, but that includes GBP 1.4 million of incremental investment in micro-business lending and geographical expansion. In the second half of the year, I expect the continued focus on underwriting quality and collections, will result in a modest decline in credit issued, and the full year profit will be below our original expectations. However, the results in credit -- results in receivables portfolio, will be of a much higher credit quality and will form a strong base on which we can resume growth in due course.

IPF Digital represents a significant growth opportunity for the group, as an increasing proportion of customers look to borrow online. And I'm pleased to say that we've executed well in order to capture that opportunity in the first half of the year, delivering a combination of strong top line growth and a close to breakeven PBT performance. Provisional losses narrowed by GBP 3.3 million, and the slide sets out the component parts of that. So profits in our established markets increased by GBP 6 million, but that was partially offset by slightly higher start-up losses in our new markets of GBP 900,000 and a GBP 1.8 million increase in our head office cost. Now that latter spend is essential to ensure that our central functional teams can execute our growth plans in a well-controlled and sustainable manner. And the run rate is very similar to the second half of 2018.

So taken together, this resulted in a close to breakeven PBT performance, with a loss of GBP 400,000. And we remain on track to deliver on our promise of a maiden profit in 2019 for the year as a whole. And we'll do that as we continue to focus on serving our customers with the products they want, building scale in the business, improving impairments in the new markets and leveraging the cost base to enhance efficiency.

In the established markets, credit issued growth moderated to 4%, and that was in line with our expectations. And that fed through to growth in average net receivables and revenue of 7% and 10%, respectively. Credit quality in these regulated markets remains very strong and we improved the impairment by a couple of percentage points to 19%. A focus on cost control and the benefits of scale, delivered a 4 percentage point improvement in the cost-income ratio. So taken together, increased scale, improving credit quality, improving efficiency, delivered a GBP 6 million increase in PBT to GBP 16.5 million.

In IPF Digital's new markets, we delivered further strong top line growth. Credit issued grew by a little over 60%, and we saw faster growth in both average net receivables and revenue. Impairment, though, increased by 5 percentage points and that was above our plan, and it reflected a slightly higher-than-expected credit loss experience in Poland and in Spain. Now a key feature of operating in these new markets is that we're continually refining and testing credit set ins in order to optimize performance, and that involves the relaxing or tightening credit scorecards in response to how the receivables portfolio is operating. And as part of that dynamic process, we've chosen to tighten credit set ins in both those new markets in order to reduce impairments. And therefore, we now expect credit issued in the second half of the year in these markets to be broadly similar to the first half. We've continued to invest in the cost base in these businesses through incremental marketing costs and volume-driven operational costs. And that's driven up the overall cost base, however, with the benefits of scale, we see a 10-percentage-points improvement in the cost-to-income ratio. So the benefits of that scale and incremental efficiency in the first half were offset by higher levels of impairment, and therefore, there's a slight increase in start-up losses of GBP 900,000 to GBP 9.2 million.

So turning now to the balance sheet. We've continued to execute our funding strategy of diversifying the source of funds and extending the maturity profile. In the first half of the year, we put in place GBP 86 million of new debt facilities, and that includes refinancing a large part of the 2020 sterling bond with a new bond that matures in the fourth quarter of 2023. Our total debt facilities at the half year were GBP 912 million, and headroom against that was very strong at GBP 192 million. We've also made good progress in extending the maturity profile of those debt facilities, and we now have almost GBP 300 million or about 1/3 of our facilities that mature beyond the 2021 Eurobond.

The chart on the right of the slide sets out the maturity profile of our debt facilities and it illustrates the bond refinances that we have in 2020, and the larger one in 2021. Now the recent announcements on Polish TCC regulations, that Gerard will touch on later, may complicate matters, but we expect the strong headroom position to give us flexibility in order to build our plans to deliver an effective refinancing of those bonds in due course.

The balance sheet at the half year remains very strong, and the equity-to-receivables ratio strengthened in the first half and sat at just below 45% at the half year. And we're happy at that level for now, because the growth opportunities that we see in Mexico in IPF Digital, and also the continued regulatory overhang and tax issues that are outstanding in Poland. So taking all that lot together, the Board were comfortable to maintain the interim dividends at 4.6p per share.

And with that, I'll hand back to Gerard.

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Gerard Jude Ryan, International Personal Finance plc - CEO & Executive Director [3]

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So moving on now to strategy. And first of all, I'd like to cover off on regulatory developments, and in particular here, I'm talking about Poland. So starting with Poland regulation, I'm sure many of you heard that on the 25th of June, the Polish Council of Ministers announced publicly that they would be supporting a change to the total cost of credit cap. Now this total cost of credit cap excludes interest, that has its own separate cap. And what they announced was that they would be supporting a revised cap of what's called, 10% plus 10%. What was frankly very odd about this is, simply 1 week earlier, they'd also made a public announcement that they would be supporting a revision. But in that announcement they said it would be 20% plus 25%. So what does 10% plus 10% mean for the business? Well, for all new business written, if this becomes enacted, we would be able to charge up to 10% of the loan value plus 10% on a per annum basis. The total together never to be more than 75% of the loan value. And by way of illustration, if you look at the right-hand side of the page here, we have a worked example of a loan, PLN 100 loan for 1 year under the existing cap versus the same loan under the proposed cap. Now what you can see is under the existing cap, we would expect to get back a PLN 163 for that 100 loan. Under the revised proposed cap that would fall to about 126. So a significant reduction. Now the Polish government has referred their proposal to the EU for a comment. And they've also stated that they intend to wait to receive that comment before moving forward with this plan. Our expectation is that there will be parliamentary elections in Poland, probably around early to mid-October. The amount of parliamentary time available before then is actually quite limited but if they want to, the government can push this through. If they don't do it before the election, polls indicate that they'll probably get reelected, they could pick it up after the election and reinvigorate it and push it through that.

There are a couple of things to note about the proposal. The first is that it is only forward looking, there is no retrospective aspect to this, so only business written after this comes into force. The second thing is that there is a 6-month implementation period before it takes effect. So as we stand here today, this is simply a proposal. So what we need to do is to wait to see, a, if it becomes law, and if it does, in what form. And if it does become law, then clearly we will go through that, we will look at the appropriate scenarios to conduct our new business in, and we will come back and update the market accordingly.

Turning now to the overarching strategy for the group. I'll just put this page up as a reminder because I think you'll all be familiar with this, it's consistent with what you've seen before, and that is to say that our strategy is to continue to invest in European home credit, to make that business more efficient, more modern and more

sustainable. That business throws up a lot of earnings, and then we use some of that to reward shareholders and then the balance to invest in our growth opportunities in Mexico and IPF Digital. So if we look now at the execution of the strategy by business units.

First of all, turning to European home credits. Though it's fair to say that these businesses are under increased pressure because of customer focus change, looking for more digital, but also increased regulatory intervention as we've just discussed. But it's also clear from the numbers that Justin took us through, that the executed strategy is actually delivering to the bottom line. So if we look at how that plays out in the individual business, first of all, customer and customer quality, well, we always look at impairment to revenue, and in these businesses now, the impairment to revenue stands at a near all-time record low of 15.7%. So that speaks to the quality of the business we're writing, but also to the improved collections' effectiveness. And so, therefore, we're able to offer a slightly larger and longer-term loans. And to give you some context on that, for the first 6 months of the year, the average term of these loans would be of the order of about 81 weeks. This time last year, that would be 77 weeks. The average loan value would be about GBP 710 and a year ago, that would be about GBP 650 to GBP 660. So a bit of a step-up there but don't forget there's also inflation included in that as well.

Now as well as providing these extra options for customers and a slightly larger, better value loans, we're also trying to improve the additional value we bring to customers through other products. So value-added services. And here I would cite insurance. So we now have insurance products available across all of these markets, and customer takeup is of the order of 35% or more. So a product that resonates really well with our customer base and is good for our business.

If we turn to the second part of the strategy, which is to do with investments in efficiency and customer journey. For the most of the customers in this business, their first interaction with us is through an agent meeting. And now all 10,000 plus of our agents in Europe, carry handheld technology. The feedback from the customers is very positive. They like it, it feels more modern, more 21st century. The feedback from the agents is equally positive because of efficiencies that it brings. From our point of view, it offers a lot of benefits. So on collections now, we can do end-to-end processing with no manual intervention. It's allowed us to remove literally millions of pages of paper every month. And in due course, it will allow us to reduce manual intervention in the back office. So that works really well for us, but I guess the key test is, how does it play for the customer. And for us, there we would look at how many times a customer comes back for an additional loan. And here, what we see is that our customers, 74% of them in these businesses across Europe, come back for both a second and a third loan. So very, very strong commitment there.

Turning to the Provident brand. You'll have heard me speak before about the fact that the Provident brand is absolutely synonymous with an agent calling to a customer's home, but we've been trying to test the elasticity of that. And so I can confirm today that we believe it's sufficiently elastic to absolutely deliver a fully digital product. And we see that now in Poland, where under the full Provident brand, we are serving end-to-end digital, and that business has increased by 20% in the first 6 months of this year and now serves 27,000 customers. So really positive results on that business unit there.

Now one final comment to make here is that all of these business units are now under the single leadership of (inaudible), and (inaudible) has been with this business for nearly 20 years. And our expectation is that (inaudible) will help to drive this business forward to the next level, and he'll also drives standardization. So helping us to reduce the costs of running this business. So recruit -- reduce cost of IT and more standardization across all 4 business units, so we look forward to that.

If we turn now to Mexico home credit. I'd like to start here by just reminding ourselves of what we see as the opportunity. This is a country with 120 million citizens, many, many of whom are under-banked and underserved but where there is a huge demand for small-sum credit, a huge demand. It is very clear that the banks are neither interested or capable of serving these customers, but that we're perfectly positioned to do so.

So if we look at how we've executed against this strategy, first of all, on branch expansion. Now in the first 5 months of the year, we opened our planned 5 branches, so that is done. And all of our new branches together, now account for about a 105,000 customers or about 17% of our portfolio. If we look at the execution in terms of operation then, though, from Justin's numbers, you can see, that we need a step-up in performance. And to make sure that we get that step-up and that it's fully embedded and remains in the business, we've decided on a change of leadership at country level. And so David Parkinson went out there about 4 months ago and is now the Country Manager for Mexico. And I think many of you will know David, because he previously ran Poland, he ran the Czech Republic, and he ran the whole of Northern Europe for us, and he's also a 30-year veteran of this industry. Now David and his team are already working on the changes required to get that step-up in performance, and I'll give you just an idea of some of the things they're working on.

First of all, on territory management. To give you an example here, Mexico City is very important to us, it has a population of 20-plus million people, and we have a number of branches across Mexico City. And up until now, we've had a number of managers managing that, but we've decided what we need is more consistent leadership across the whole piece. So we've appointed our most experienced home credit leader to lead those businesses. We've also -- just now, David and his team are looking at a slightly revised strategy for how we manage large conurbations in general and there are a number of those in our portfolio, and so we'll look to implement that later in the year. But clearly, what we need to do is improve collections performance, and agents are on the frontline in terms of collections. So for all of our agents, so 11,000-plus agents and all of their managers and their managers, we have revised the commission structure to focus very, very strongly on collections activity. And we believe that, that will help us to turn the portfolio to get that collections activity to where it needs to be and get the portfolio back up, so we start to re-serve customers and get back into growth mode again.

On the credit side, we are changing slightly our credit strategies here. So to give you an idea of the kinds of things we're doing, in the second half of 2018, we were really successful in adding customers and issuing loans. And the strongest selling product was our 12-week product. Now obviously, 12 weeks is much shorter than anything we would sell in home credit in Europe and the reason is cultural. In Mexico, customers like to shorten as much as possible the period over which they make installments, and so the 12-week product really resonated with them. However, against the backdrop of a much softer macroeconomic environment, customers are finding it more difficult to make the repayment on that 12-week product. And so we've decided to move away from the 12-week and move out to a 32-week product, and the sole aim here is to reduce the installment from about MXN 300-plus down to less than MXN 200. Now if you do the mental arithmetic here, you'll see that less than MXN 200 is probably about GBP 8. And you might think, well, actually, is that really going to make a difference? It doesn't sound like a lot of money. But I can guarantee you that, that, what looks like a small change will make all the difference in the world to our customers and will make a huge difference to our agents' ability to collect effectively.

The second thing we're doing here is on our low and grow strategy. So for new customers coming through the door, we give them a very small loan. When they pay consistently, the next loan is a step-up from that. And what we've decided to do is, do a more graduated step-up there so that, that increased week installment is more digestible. Okay?

Now that's just a flavor of the things that David and the team are working on, but I just want to reassure everybody that the issues we faced in the first 6 months of the year, and across the whole business, So just to explain that, 67% of all of our branch portfolio has an ROA of 21%. So over 2/3 of the total portfolio has an ROA of 21%. 17% of the portfolio is still in investment mode, and where we need to really see the step-up in performance is in the balance. Okay? So that's just to say that the largest proportion of the portfolio is really delivering, and we need to fix on that smaller element, and that's what we're working on.

If we turn now to Digital. Well, digital continues to be a great growth story for us, and if you look at the bottom right, in corner, the growth rate in the first half was 28%. And as Justin said, on the newer countries, it's over 60%. Now despite that, Rami and his team would tell you that in Digital, if you stand still for a minute and you stop iterating, you are yesterday's news. So Rami and the team are very focused on continually improving the customer journey to make it as seamless as possible. You also heard Justin talk about the fact that we're iterating on the scorecards, in particular for Poland and for Spain. And I just want to say that, that is nothing to be worried about. The way you drive these new businesses on Digital is you push your scorecard to the max and you test it, and if you overstep the market, you come a step back, you revise your scorecard, you test that. If that works, you push forward again. So

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for us. The other place that we're iterating is on the product set. And here, you'll have heard us talk before about revolving credits and in particular, we're talking about credit line. Now this is not an (inaudible) loan, it's a credit facility and is proving extremely popular. So now 65% of all of our digital customers are using credit line, 65%. And the average outstanding balance is over GBP 1,200. And as customers repayments are consistent, we can easily offer to step that up for them. So it's proving very popular with customers, generates great stickiness. And Rami and the team are now working on the functionality around that product set, and in particular, how we deliver it to the customer and how they can use it, and we'll come back and talk about that probably later in the year.

Now the commitment we made in 2018 is that we will deliver our maiden profit this year. And if you look at the investment J-curve here, you see, that as Justin said, we almost broke even in the first half. So that gives us plenty of confidence to say that we will deliver that maiden profitability in 2019.

Now top right-hand side, you can see that the established markets delivered a very strong PBT to help with that result. Now included in there are Finland and Lativia, and as a result of new regulatory changes there, I would expect their contribution in 2020 and 2021 beyond, to reduce, but for that to be more than offset by the growth coming from the new markets. So all in all, a very positive story, and we feel very good about the trajectory in this business.

That's it in terms of the execution of the strategy by business units. So just a few closing remarks now on outlook. First of all, European home credits, businesses, clearly, that are very challenged, in particular, by regulatory change. But the strategy is working, and you just need to look at the portfolio quality and the way it delivers to the bottom line. So we're going to continue to invest in those businesses to improve the offer to the customer and to improve our own efficiency. But clearly, the single biggest potential headwind we have is the proposed regulatory change. So we're going to wait to see what happens there and when we have clarity on that and we understand the proper scenarios for the new business, if that comes into place, we will come back and, obviously, update the market.

On Mexico home credit. Obviously, new leadership there. And that is what we believe we need to drive the changes to improve the performance on that element of the portfolio that needs to be lifted. But we haven't, for one second, changed our aspirations or our belief as to the scale of the opportunity in Mexico.

And then, finally, on IPF Digital, it's more of the same, as Rami would tell you, continued iteration of the business everyday to innovate and make it more interesting and easier for customers to use, deliver the maiden profit in 2019 and then take it on to the next level in 2020 and beyond. So those are our results for the first 6 months of the year, and we'd be very happy now to take any questions that you might have. And while we're waiting for the microphone to come around, just for all of our colleagues who are here this morning, but also for all of our colleagues who are live on the webcast to say, thank you very much for your efforts in delivering the business for our customers and also for our shareholders. It takes a lot of work, and I really appreciate it. Thank you. So, Justin, if you want to come and join me, and we'll answer any questions.

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Questions and Answers

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Portia Anjuli Patel, Canaccord Genuity Corp., Research Division - Analyst [1]

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Portia Patel from Canaccord, I've got 2, please. Firstly, on Mexico, can you just explain a bit more about why the deterioration in the impairment rate has actually happened? So is it an operational issue? Or is it result of previous underwriting decisions or a mixture of both?

And secondly, on the APR or on the total cost of credit cap in Poland, is that limited to home delivery only? Or is it -- does it also extend to a digital proposition?

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Gerard Jude Ryan, International Personal Finance plc - CEO & Executive Director [2]

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Sure. Okay. Thanks, Portia. So first of all to deal with Mexico, so we didn't change our scorecards or underwriting stance last year, but the 12-week product that I spoke about earlier, was very successful. But with the softer macroeconomic backdrop, and we could get into a lot more detail on the parts of the country that are affected by that because there are specific geographic regions where it is tougher, customers are finding it harder to hit that MXN 300-plus installment. And so when they don't hit that installment, then they start to go into arrears and under IFRS 9, clearly, we start to provide very, very rapidly against those. Now when customers don't pay and agents find it more difficult to collect, what happens to the portfolio then is that those customers are not eligible for new offers. So they can't get new loans from us until they start to get back and improve their payment performance. And so you see almost like a doubling-up effect because you're not collecting effectively because some of those customers, for the reasons I've discussed, are struggling a bit, and at the same time, you're offering fewer loans out in the market because you've decided to tighten your credit criteria because of what you see. So it's a combination of those things.

In Poland, then, just on the Polish proposed regulatory change, it would apply to all consumer lending in Poland so it would be Digital as well as home credit. So it would be all consumer lending across Poland that it would apply to. However, the exception in Poland is credit card lending. There is a complete carve out in Poland for our credit card lending. The total cost of credit cap does not apply to credit cards.

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Unidentified Analyst, [3]

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Just to take that point further in terms of the Poland exposure then, can you sort of quantify the rates receivables or revenue exposure to the potential price cap?

And also, just on the point in terms of the sort of credit card being not eligible for the price cap. I mean you talked about the sort of revolving credit product, I mean, can you sort of migrate that into being a credit card, and therefore, dodge a bullet?

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Gerard Jude Ryan, International Personal Finance plc - CEO & Executive Director [4]

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Well, let me deal with the second part, and Justin can deal with the first part. So dodging a bullet, interesting phrase, yes. So, yes, we have revolving credit in Poland. The revolving credit isn't a credit card and the carve-out is specifically credit card, albeit the revolving credit is -- credit card is a form of revolving credit. So what you would need to do is, you would need to have a physical card, a credit card that will go with it. Now clearly, as you would expect, we are looking at all potential scenarios if this were to come into force. And obviously, that would be something that we would think about.

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Justin Lockwood, International Personal Finance plc - CFO & Executive Director [5]

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The receivables portfolio is probably the best thing to think about, and across the 2 businesses, it's about GBP 350 million of receivables, the vast majority of that's in home credit, about GBP 300 million in home credit and about GBP 50 million in digital.

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Stuart Duncan, Peel Hunt LLP, Research Division - Financials Analyst [6]

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It's Stuart Duncan from Peel Hunt. I've got a couple of those, okay? First of all, on the Polish tax audit, And there's a comment about a potential GBP 71 million, which become payable, any sort of sense on the timing of that?

Secondly, on Mexico, I think, Justin, you said, should return to growth in due course. So given the general comments you've made, does that imply 2020 or further out?

And then lastly, in European home credit, I think you spoke about agents selling insurance products, just some more detail on that would be helpful.

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Justin Lockwood, International Personal Finance plc - CFO & Executive Director [7]

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Okay, first one. Okay. So in Polish tax audit, so in January 2017, we -- the Polish Tax Authority closed out audits for 2008 and 2009. And as a result of that, we were required to pay the GBP 36 million in order to launch our appeal. So that's all done, no changes there. All subsequent years, so from 2010 onwards remain open to audit. And audits have been opened on 2010, '11 and '12. No real change in that from when we still appear in February. The tax lodger needs to open the audits or they go out of time. So the number that we've pulled out in the statement there is just trying to set out what the liquidity implications would be should the tax authority decide to press forward with that. But that's not our core part -- that isn't our central planning assumption at this stage.

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Gerard Jude Ryan, International Personal Finance plc - CEO & Executive Director [8]

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And it's worth saying that the -- always in 9 years are obviously subject to the MAP process so that's the intergovernmental piece. And the other years, obviously, ardent at this point in time, but just to reiterate that even though they're going through that process, it doesn't preclude us from having bilateral discussions with the relevant authorities in Poland.

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Justin Lockwood, International Personal Finance plc - CFO & Executive Director [9]

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In terms of Mexico, so as I said, I expect credit issued to contract moderately in the second half of the year as we continue to focus on improving the quality of the portfolio. But I expect it back to -- jump back on the growth path in 2020.

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Gerard Jude Ryan, International Personal Finance plc - CEO & Executive Director [10]

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And in the second half of last year, obviously, growth in Mexico was very strong. So the comparisons are strong. The other thing to say here is that I would say that we've reached the conclusion that the natural rate of growth for Mexico is probably of the order of 10%. And just to explain what I mean by that, our experience now is that if you push much beyond the 10% and the opportunity is there, what you tend to see is that agents earn a lot more through selling and so they become a little less careful about their existing portfolio. Now David would tell you that we have a different experience in Europe because in Europe, it's so hard to get new customers that every time our agents win customers, they are very careful with their portfolio, really, very, very diligent, which is why you see the credit quality that we have. But because there are so many opportunities in Mexico, what we need now is more diligence on the existing portfolios by agent. And so I think the conclusion we're reaching is that getting to 10% is perfectly achievable but we shouldn't try to push really beyond that so that we get our agents to focus as much on their existing book of credit as anything new that they're doing.

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Justin Lockwood, International Personal Finance plc - CFO & Executive Director [11]

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Insurance in Europe?

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Gerard Jude Ryan, International Personal Finance plc - CEO & Executive Director [12]

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Oh, I'm sorry. Insurance in Europe, yes. So insurance across Europe, we sell many different products but I guess, most of them are around personal accident, hospitalization, the loss of earnings, those types of insurance. And they are small-sum insurances, but we have the purchasing power to buy them much more effectively than any individual consumer could do. And so we're now providing these insurances across these 4 businesses. And the customers really appreciate it because generally, they probably wouldn't have thought they could get it or they might not even have thought that it would be appropriate for them. But once we explain the product and the price, they feel very comfortable with it. So for us, this has become a win-win strategy. The customer likes us and feels it's very good value for money, and for us, it's proving to the customer, that there's more to us than just providing a loan, we can bring other benefits to them.

Other questions? Okay.

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Unidentified Analyst, [13]

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One follow-up, you mentioned some regulatory pressure, I think, in Finland and Latvia, can you just expand on that a bit?

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Gerard Jude Ryan, International Personal Finance plc - CEO & Executive Director [14]

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Yes. So the -- there -- APR caps in those countries, effectively, are coming down. And there are new thresholds coming in terms of debt to income, and we can talk you through the detail, but essentially, it's to make cost of credit cheaper for the consumers there. So I suppose, pretty much like the drive we've seen across a lot of Central, Eastern Europe and now in the Nordics as well. But the great thing is what Rami's business has demonstrated is that a Digital business can actually fit within those caps, even if the caps are pretty tight and so you see that playing out. For instance, in Latvia, where the regulations were tightened earlier in the year, but actually, the business is performing really well against that. Clearly, there's a point at which it becomes too tight and we don't want that but we'll work our way through these things, and what we're really keen on doing is making sure that to the extent that we come off on the contribution from, let's say, Finland or Latvia that, that it is more than compensated for by the new markets of Poland, Spain, Australia and Mexico.

Okay. Thank you very much, everybody, for coming this morning. Obviously, we're going to wait around here, and we'll be happy to have conversations after this. And as I said, David and Rami will be here also. So thank you very much for attending. Thank you.

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Justin Lockwood, International Personal Finance plc - CFO & Executive Director [15]

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Thank you.