International Personal Finance PLC

LSE:IPF

Earnings Call Transcript 2021-Q1

[Operator]

Good day and welcome to the International Personal Finance First Quarter 2021 Trading Update Call. Today, your host is Gerard Ryan, Chief Executive Officer; and he's also joined by Chief Financial Officer, Justin Lockwood. Today's conference is being recorded. I will now hand over to the call to Gerard. Please go ahead, sir.

[Gerard Jude Ryan, CEO & Executive Director]

Thank you, Leanne, and good morning, everybody, and welcome to our 2021 Q1 trading update call. As always, I'm joined this morning by Justin Lockwood, our CFO. Now hopefully, you've had a chance to read our Q1 trading update, which we published earlier today. And then this morning's call, I'll cover our robust trading performance in the quarter, together with positive news for our financial outlook for 2021 as a whole. [Audio Gap] This year, we are fully focused on rebuilding our business. And I'm happy to say that we're making very good progress in that regard. Rebuilding the business is the third strand of our 4-pillar strategy to return to profitability and long-term growth, following the challenges thrown at us by COVID in 2020. And 1 year on from the first wave of the pandemic and the stringent block down that resulted [indiscernible] I'm very pleased to report that we delivered a robust trading performance in the first quarter of the year with improved credit issued and strong collections. I'm particularly happy with how our teams are coping with the current wave of COVID and how they are adapting their operating rhythm to minimize the impact of the latest lockdowns. And to give you a flavor of the operational landscape, people movement restrictions and physical distancing rules are in place in most of our countries, affecting primarily the catering, hotel and entertainment sectors. Sports facilities and schools are also closed in many countries, and in some instances, we see local, regional or national curfews. Governments continue to encourage many businesses to allow their employees to work flexibly and remotely. But it is important to note that all governments have ensured that the provision of consumer finance is seen as an essential service and therefore, should remain accessible to consumers. Protecting our own people and customers remains our top priority, and we will continue to provide PPE training and guidance to all of our colleagues, so that they are able to serve their customers safely and with confidence. By taking a look at our operational performance. Building on the momentum we generated in the second half of 2020, group collections were stronger-than-anticipated throughout the quarter, and this supported our decision to continue our successful strategy of selectively relapsing credit settings. This was a key contributing factor to our improving sales trend and resulted in the year-on-year contraction of credit issued, moderating from 31% in Q4 to 18% in Q1 '21. All our divisions contributed to this performance, with the significant driver being European home credit, where sales momentum improved significantly despite the challenging trading backdrop of rising COVID cases and increasing freedom of movement restrictions. It is a testament to the results of our European home credit colleagues in serving our customers, but credit issues this quarter was also in line with the same period in 2020, the first 10 weeks of which were unaffected by the pandemic. The improvement in credit issued was more modest in Mexico and IPF digital, but it is pleasing to see that these positive trends continue. The stronger collections performance delivered by our teams also translated into a faster-than-expected improvement in our impairment charge. And as a percentage of revenue, the annualized rate improved by 5 percentage -- 5.2 percentage points since 2020 year-end to 32.2% in Q1. So that's 5.2-percentage-point improvement over the quarter. Again, all our divisions contributed to this positive performance, and it's particularly pleasing to see that the operational improvements in collections and credit quality that we made in Mexico over the last 18 months have resulted in impairment as a percentage of revenue now falling within our target range for the first time in a number of years. As we outlined in today's trading update, it is this faster-than-anticipated improvement in impairment that is expected to result in a stronger rebound in profitability in 2021 than we had originally anticipated. And I should also say that we'd expect sell-side analysts to take this into account when looking at their numbers for the year as a whole. So bringing all of this together before we go to Q&A., 12 months on since the pandemic began to impact our lives, it is now clear to me than ever that our business plays an essential role in society. We're providing credit responsibly to those who are underbanked or underserved, and we are well positioned to meet the significant long-term demand for reportable credit from this group of consumers in our markets.We delivered a robust trading performance in the first quarter. And once again, our business model has proven to be truly resilient. The third wave of the pandemic sweeping Europe in recent weeks has certainly suppressed demand, and this was particularly noticeable around Easter when COVID-19 infection rates increased significantly and the usual family celebrations were curtailed. The good news is that vaccination rates are increasing in our markets. And while there remains a degree of uncertainty, we expect demand to return as COVID restrictions are listed. We have a strong balance sheet and good headroom on our facilities to fund our rebuild strategy, and we will do this by increasing credit issues carefully and growing the receivables portfolio, while remaining firmly focused on maintaining credit quality and managing costs, frankly. So that completes the trading update for the quarter. Of course, if you read the statement this morning, you'll also see that Justin Lockwood, our CFO, is moving on to pastures new. And Justin and I have or together for nearly a decade now, and his contribution to our business has been immense. And he's moved from being a really trusted colleague to a trusted colleague and a very good friend, and we will admit it. Justin will be with us until the end of July, and a search is currently underway for his success. So with that, I'll hand it back to you, Leanne, and we can open it up for questions, please.

[Operator]

[Operator Instructions] And we have our first question from Stuart Duncan with Peel Hunt.

[Stuart Duncan, Financials Analyst]

I just wanted to ask about the regulatory backdrop, actually, because it must be the first statement of why you've not actually sort of touched on any aspect of that. Is there anything to update us on?

[Gerard Jude Ryan, CEO & Executive Director]

On the regulatory side, no, really, not a lot, but it's new. Obviously, we have the moratorium in Hungary, and that's been the single biggest impact on our business from a regulatory perspective over the past 15 months. That is due to expire at the end of June. And at this point, there is no formal discussion about extending it. But clearly, it is possible that, that would be extended. Our hope would be that as the vaccine programs roll out and gather pace. More and more governments are going to think that a quick return to normal trading across all industry sectors would be Mantis of the countries in which they operate. So no new news at this stage.

[Justin Lockwood, CFO & Executive Director]

Not only -- so you'll be aware when we updated at the at the year-end about the extension of the temporary cap in Poland, and that's due to run off at the end of June. And again, there are no formal discussions around a further extension of that cap. So our working assumption is that we'll be back to normalized levels from the 1st of July.

[Operator]

And we take our next question from Till Heimlich with Pictet.

[Unknown Analyst]

Yes. I was actually going to ask about the situation in Poland as well. And I just wanted to confirm that when you say your working assumption is that you can charge normal rates again from July onwards that you are already growing the loan book again there in anticipation of that? Or was there any way a little bit of a quite a period, as you mentioned, during lock down and so on. So it didn't really show yet in the numbers that you are starting lending again there, and we should see that pick up really only from Q2 onwards?

[Gerard Jude Ryan, CEO & Executive Director]

Well, in Poland, in common with our other home credit markets, we've been progressively increasing the amount of credit that we issued. As we became increasingly comfortable with our collections performance during -- in 2020. And the way the rate cap is applied in Poland, essentially that the [indiscernible] passes by, the pricing opportunity improves. So the economics of lending improves progressively and essentially, it's almost back to normal towards the back end of June. So we're comfortable that we're making an accessible return on land in Poland, albeit at slightly lower levels than we delivered in the past. And we intend to be continuing to increase the amount of credit that we're issuing in that market throughout the second quarter. And indeed, the comparatives will start to become a lot softer front for the second quarter because of the extent of the restrictions that we put in place last year. And you may recall that the credit issued in April and May of 2020 was running at around about 30% of historic levels. And it picked up a little bit from that in June. So I should give you an indication about what we expect from our portfolio growth perspective.

[Operator]

[Operator Instructions] And it seems we have no further questions today. I would like to turn the call back over to you for any additional or closing remarks, Mr. Ryan. Thank you.

[Gerard Jude Ryan, CEO & Executive Director]

Thank you, Leanne. Well, thank you very much, everybody, for joining us this morning. Obviously, it's a brief update because it's just the initial quarter of the year, but really happy with the performance of our team trends are good. Clearly, there's still the COVID dynamic out there. And I suppose to those of us sitting in the U.K., we shouldn't just translate what we see in the U.K. onto other countries. The circumstances are very different. But those circumstances are improving as the vaccination programs get underway. And as we said in the call, our expectation would be as those programs ramp up and restrictions have removed. Demand for credit will come back from its suppressed level to a more normalized level, and we feel we're particularly well positioned to serve that into the future. So thank you very much for joining the call. And as always, we're available for direct calls, if you want to do that. Leanne, thank you very much for conducting the call for us.

[Justin Lockwood, CFO & Executive Director]

Thank you.

[Operator]

Thank you. That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.