Trading/Dividend Statement
International Personal Finance Plc
11 September 2007
International Personal Finance plc
Trading update and statement of dividends - six months ended 30 June 2007
International Personal Finance ('IPF' or 'the Group') is a fast-growing
international business offering home credit to 1.9 million customers in six
countries.
IPF was created by the demerger of the international businesses of Provident
Financial plc. Its shares were admitted to the Official List and to trading on
the London Stock Exchange's market for listed securities on 16 July 2007. Its
results as a trading division for the six months to 30 June 2007 form a part of
the consolidated interim results of Provident Financial plc.
This document provides a pro forma trading update for IPF for the first half of
2007. The results include the pro forma adjustments required to present the
results of IPF as if it had operated as a stand alone entity throughout the
first half of 2007 and the comparative periods presented.
Operating and financial highlights
• Profit before tax increased by 31.4% to £15.9 million (2006: £12.1 million)
• Customer numbers up 6.2% to 1.9 million
• Credit quality improved and impairment levels reduced
• Strong performance from established Central European businesses
• EPS increased by 35.4% to 4.32 pence (2006: 3.19 pence)
• Interim dividend of 1.90 pence per share
• Strong balance sheet and substantial headroom on committed bank facilities
sufficient to fund growth through to Spring 2010
Executive Chairman, Christopher Rodrigues, commented:
'Our demerger was successfully completed on 16 July 2007. IPF has a robust
business model with a strong balance sheet and secure sources of medium-term
funding for our growth plans. The business had a most encouraging first half
with strong profit growth and good progress towards our longer-term objectives.
We expect further progress in the second half.'
Christopher Rodrigues
Chairman
11 September 2007
For further information contact:
Finsbury +44 (0)20 7251 3801
James Leviton
Vanessa Neill
Ryan O'Keefe
International Personal Finance plc
Helen Spivey - Investor relations +44 (0)113 285 6876
Victoria Richmond - Media +44 (0)113 285 6873
Summary results
Performance throughout the first half of 2007 has been good and marks another
six months of significant progress. We have seen good growth in customer numbers
which, despite tighter credit controls, increased by 6.2% compared with June
2006 and now stand at 1,876,000. This has contributed to growth in credit issued
of 12.7% and in average receivables of 11.6%. This growth has been coupled with
further significant improvement in credit quality. As a result, the impairment
charge during the period has fallen by 39.9%. Together, these factors have led
to an increase in profit before tax of 31.4% to £15.9 million. Earnings per
share for the six months to June 2007 increased by 35.4% from 3.19 pence to 4.32
pence.
Pro forma Pro forma
30 June 2007 30 June 2006
Change Change
£m £m £m %
Profit before taxation
Central Europe 31.1 24.1 7.0 29.0
Central costs (6.4) (5.9) (0.5) (8.5)
Established businesses 24.7 18.2 6.5 35.7
Mexico (6.9) (5.0) (1.9) (38.0)
Romania (1.9) (1.1) (0.8) (72.7)
Developing markets (8.8) (6.1) (2.7) (44.3)
Profit before taxation* 15.9 12.1 3.8 31.4
Taxation* (4.8) (3.9) (0.9) (23.1)
Profit after taxation* 11.1 8.2 2.9 35.4
Earnings per share (pence)
Established businesses 6.69 4.78 1.91 40.0
Developing markets (2.37) (1.59) (0.78) (49.1)
Total* 4.32 3.19 1.13 35.4
*Stated before exceptional demerger costs of £3.3 million and the related tax
credit of £0.6 million.
During 2006, we tightened our credit controls in Central Europe supported by
significant improvements in credit management systems. Volume growth was slowed
but return on assets was substantially increased. The success of this strategy
is demonstrated by the increase in pre-tax profit from Central Europe of £7.0
million (29.0%) to £31.1 million in the first half of this year. The annualised
impairment charge is now running at 19.9% of revenue compared with 34.8% at June
2006. This represents an excellent performance given our 25 - 30% target
impairment to revenue ratio. This has facilitated a release of surplus
impairment provisions of £6.0 million, an increase in provision release of £2.2
million when compared with the first half of 2006. It is also encouraging that
having laid these strong foundations we are now seeing improved growth in
customers, credit issued and net receivables.
We have set a medium-term target of annual profit before tax from our Central
European businesses of £95 million. We continue to move towards that target with
pro forma pre-tax profit for the 12 months to June 2007 of £71.1 million
compared with £64.1 million for the 12 months to December 2006 and expect to
make further good progress during the second half of the year.
After taking account of central costs, pre-tax profits from our established
markets, before investment in developing new markets, rose by 35.7% in the first
half, increasing by £6.5 million from £18.2 million in 2006 to £24.7 million in
2007.
Investment in developing the Mexican and Romanian markets was increased by £2.7
million to £8.8 million, with the aim of bringing these markets into profit in
2009 and 2010 respectively. Performance in Mexico is improving with the
Guadalajara region developing very well and the Puebla region showing
improvement. In June, we implemented in Mexico the improved credit management
systems that have proved so successful in Central Europe. We expect these to
constrain volume growth in the second half but to contribute significantly to
further improvements in performance. The expansion of the branch network in
Romania is progressing to plan following the decision to proceed to national
roll-out announced in June. We expect our investment this year in start-up
losses in Mexico to be approximately £12 million, and in Romania to be £3 - 4
million.
A more detailed review of performance in each business unit is provided in the
operating review.
Dividend
At demerger it was stated that, in the absence of unforeseen circumstances, the
directors of IPF intended to declare aggregate dividends in respect of 2007 of
4.75 pence per share. An interim dividend of 1.90 pence per share has been
declared, payable on 19 October 2007 to shareholders on the register at close of
business on 21 September 2007. The shares will be marked ex-dividend on 19
September 2007.
Our aim is to adopt a progressive dividend policy and to build the level of
dividend cover over the medium-term with a view to then maintaining a dividend
payout ratio of 25% of post-tax profits.
Balance sheet
IPF is strongly capitalised and well positioned to fund its growth strategy. Net
receivables at the end of the period were £355.2 million, which represents
growth of 7.3% since the 2006 year end. At 30 June 2007, IPF had net assets of
£164.7 million, an increase of £14.5 million compared with pro forma net assets
at the end of 2006.
At 30 June 2007, shareholders' equity represented 46.4% of net receivables, a
slight increase when compared with the pro forma balance sheet at the end of
2006.
Since the demerger a further £51 million of committed bank facilities have been
agreed. This brings total committed facilities at the Group's disposal, most of
which extend to March 2010, to £460 million, of which £198 million was
unutilised at 30 June 2007. These facilities are sufficient to support the
planned growth in the business over the next two and a half years.
New countries
Our strategy is to invest approximately 25% of the profits from our profitable
businesses, less central costs, in developing new markets. Our medium-term
targets are Russia, India and Ukraine.
In Russia, due diligence is well advanced on the acquisition of a small bank to
facilitate market entry. If all proceeds to plan we expect to commence
operation in Russia in the first quarter of 2008. As with previous market
entries, this would take the form of a limited pilot over a period of eighteen
months to two years to test the market dynamics and the business environment.
Start-up losses for such a pilot would be approximately £3 - 5 million per annum
and the net receivables book would not exceed £5 million.
Research is also progressing well on India and Ukraine. At this stage, both
represent realistic candidates for a pilot entry in the second half of 2008 or
early 2009.
Regulation and legislation
In Slovakia, and recently in Hungary, there has been discussion about the
development of legislation to introduce a cap on interest rates charged by
lenders. We operate successfully within a rate cap in Poland with a modified
product offering, but will continue to closely monitor the situation in these
countries.
Prospects
We are pleased with performance in the first six months of 2007 and trading
since June has been in line with expectations. We have very strong foundations
for continued progress.
We have a proven, successful business model as demonstrated by the strong
performance of our established Central European businesses. This model is based
on providing small sums of credit over short periods. Most of our lending is
typically over one year and at 30 June 2007, the average receivable per customer
was just over £180. This means that we are able to respond quickly to changes in
the market environment, although the economic trends in each of our markets are
positive.
This is supported by a robust approach to credit management. Key to this is the
personal relationship between the customers and our agents, including weekly
face to face contact, which allows us a close understanding of the financial
circumstances of our customers. We have added to this and improved our credit
management capability through the integration of new systems and processes, such
as application and behavioural scoring as well as call centre based collections.
This has supported the substantial improvement in credit quality and impairment
in 2006 and in the first half of 2007. We have a programme for further enhancing
these systems and processes and extending their scope across more markets in the
second half of 2007 and 2008.
We have a highly motivated team, which is enjoying the opportunity to take IPF
forward as an independent business and which is focused on delivering
shareholder value through a clear strategy of maximising profits in existing
markets as well as entering new markets that present significant opportunities.
Incentives have been put in place to support this which reward management for
the total shareholder return achieved over the three years following demerger.
Payout is subject to the delivery of a minimum return of 30% above the average
share price in the month following demerger, which was 226 pence.
Our research programme is progressing well and we have a good flow of prospects,
including Russia, India and Ukraine, to be carefully tested through small scale
pilots in the years to come.
We also have a strong balance sheet, with equity to receivables of 46.4% at the
half year and a business model that is strongly capital generative. Importantly,
we have committed funding in place to support our business growth over the next
two and a half years and, with finance costs representing only 5 - 6% of
revenues, we are well placed in this time of uncertainty in financial markets.
As a result, we are confident of the prospects for IPF and expect to continue to
make good progress during the second half of the year.
Operating review
Central Europe
30 June 2007 30 June 2006
Change Change
£m £m £m %
Credit issued 252.6 233.2 19.4 8.3
Customer numbers (000s) 1,542 1,581 (39) (2.5)
Average receivables 316.6 292.9 23.7 8.1
Revenue 173.1 175.8 (2.7) (1.5)
Impairment (34.2) (64.4) 30.2 46.9
Revenue less impairment 138.9 111.4 27.5 24.7
Agents' commission (23.9) (20.9) (3.0) (14.4)
Finance costs (10.1) (8.7) (1.4) (16.1)
Other operating costs (73.8) (57.7) (16.1) (27.9)
Profit before taxation 31.1 24.1 7.0 29.0
Profit before tax in the first half for Central Europe increased by £7.0 million
(29.0%), to £31.1 million. Customer numbers increased by 1.2% in the first half
to 1,542,000 reversing the reduction in customer numbers in 2006 that
accompanied the introduction of tighter credit controls. This, together with
the targeted issue of larger loans to better quality customers, led to an
increase in credit issued of 8.3% compared with the first half of 2006.
The key feature of the first half was the continuation of the improvement in
credit quality, as a result of the introduction of improved credit management
techniques in 2006. The benefits of this exceeded our expectations and, as a
result, the impairment charge reduced by £30.2 million (46.9%) to £34.2 million.
This includes the release of £6.0 million of impairment provisions no longer
required in Poland because of the improvement in credit quality. A similar
release of provisions was made in the first half of 2006 of £3.8 million
primarily in the Czech Republic. The annualised impairment charge as a
percentage of revenue at June 2007 reduced to 19.9% compared with 34.8% at June
2006 and 26.8% at the end of 2006. Impairment is now below our target range of
25-30% of revenue and, although we intend to maintain strong management of
credit quality, this will afford the opportunity to ease our underwriting
criteria a little in the second half of the year to promote faster, profitable
growth in receivables.
Other operating costs increased by £16.1 million to £73.8 million reflecting
£4.2 million of additional costs in Hungary resulting from the employment of
agents and other administrative changes to comply with the requirements of the
regulator, the PSZAF, additional costs of introducing enhanced credit management
processes throughout Central Europe and other increases in costs in line with
the expansion of the operation.
Central Europe comprises our operations in Poland, the Czech Republic, Hungary
and Slovakia. The performance of each country is reviewed in the following
section.
Poland
30 June 2007 30 June 2006
Change Change
£m £m £m %
Credit issued 123.8 118.1 5.7 4.8
Customer numbers (000s) 857 903 (46) (5.1)
Average receivables 169.9 159.3 10.6 6.7
Revenue 84.9 97.0 (12.1) (12.5)
Impairment (9.6) (40.3) 30.7 76.2
Revenue less impairment 75.3 56.7 18.6 32.8
Our Polish business has performed well in the first half with a continued strong
improvement in credit quality, coupled with a resumption of growth in customer
numbers, credit issued and receivables.
Impairment reduced significantly from £40.3 million to £9.6 million. This
reflects the substantial improvements in credit control in 2006 following the
introduction of application and behavioural scoring. Performance in the period
has also benefited from the extension of the centralised collections processes,
from approximately 30% of the Polish operations at the end of 2006 to the whole
country in the first quarter of 2007. As noted above, this improved credit
performance has enabled a release of prior year impairment provisions of £6.0
million in the first half. Annualised impairment, on an underlying basis, as a
percentage of revenue was 17.4% at 30 June 2007, compared with 30.3% at the end
of 2006.
These improvements in credit quality have provided the Polish business with
solid foundations for growth. We are now seeing the fruits of an increase in
marketing spend, with the result that customers have grown from a low of 838,000
customers at the end of February 2007 to 857,000 at the half year. This compares
with 854,000 at the end of 2006. Credit issued in the first half was £123.8
million, which represents growth of 4.8% on last year. Average customer
receivables increased by 6.7% but a change in product mix towards products with
lower effective interest rates led to a reduction in revenue of 12.5%. Revenue
net of impairment increased strongly, up by £18.6 million (32.8%) to £75.3
million.
We expect steady growth in customers and credit issued in the second half
through additional marketing and promotional activities accompanied by a small
increase in the level of impairment following a slight easing of credit
controls.
Czech Republic
30 June 2007 30 June 2006
Change Change
£m £m £m %
Credit issued 49.3 43.0 6.3 14.7
Customer numbers (000s) 261 247 14 5.7
Average receivables 60.6 55.0 5.6 10.2
Revenue 33.4 30.4 3.0 9.9
Impairment (9.0) (6.5) (2.5) (38.5)
Revenue less impairment 24.4 23.9 0.5 2.1
The Czech Republic also delivered a strong performance in the first half of
2007. Year on year customer growth was 5.7% with the customer count at the end
of June 2007 reaching a record high of 261,000 up from 254,000 at the end of
2006. Credit issued in the first half was £49.3 million, which represents year
on year growth of 14.7%. Revenue has risen strongly by 9.9% to £33.4 million.
Credit quality remains very good with impairment as a percentage of revenue of
18.8% for the 12 months to June 2007. Impairment increased from £6.5 million in
the first half of 2006 to £9.0 million in the first half of 2007, but after
adjusting for the release of £3.5 million of impairment provisions in 2006
actually decreased by £1.0 million on a like for like basis. Revenue net of
impairment increased by 2.1% to £24.4 million.
We expect continued good growth in the Czech Republic during the second half of
the year with stable credit quality.
Hungary
30 June 2007 30 June 2006
Change Change
£m £m £m %
Credit issued 60.1 53.7 6.4 11.9
Customer numbers (000s) 293 305 (12) (3.9)
Average receivables 64.2 59.6 4.6 7.7
Revenue 41.3 37.5 3.8 10.1
Impairment (11.0) (12.5) 1.5 12.0
Revenue less impairment 30.3 25.0 5.3 21.2
Following the interruption of progress in Hungary during the final quarter of
last year as a result of the suspension of lending to meet the administrative
requirements of the PSZAF, the business resumed growth during the first half of
this year. Customer numbers, which reduced from 305,000 at June 2006 to 284,000
at December 2006, increased in the first half of 2007 by 9,000 (3.2%) to
293,000. Credit issued during the period was £60.1 million, which represents
year on year growth of 11.9% and over the same period average net receivables
rose by 7.7% to £64.2 million. Revenue increased by 10.1% to £41.3 million.
Impairment reduced by £1.5 million (12.0%) to £11.0 million and annualised
impairment as a percentage of revenue reduced to 21.3% for the 12 months ended
June 2007. This is 6.4% lower than the prior year and 3.1% lower than the end of
2006. Revenue net of impairment increased by £5.3 million or 21.2% to £30.3
million. However, this has been partly offset by an increase in running costs
of £4.2 million during the first half as a result of the costs of employing the
agency force and new operational processes to meet the requirements of the
PSZAF.
Slovakia
30 June 2007 30 June 2006
Change Change
£m £m £m %
Credit issued 19.4 18.4 1.0 5.4
Customer numbers (000s) 131 126 5 4.0
Average receivables 21.9 19.0 2.9 15.3
Revenue 13.5 10.9 2.6 23.9
Impairment (4.6) (5.1) 0.5 9.8
Revenue less impairment 8.9 5.8 3.1 53.4
The Slovakian operation performed well during the six months to June 2007,
building on its maiden profit reported in 2006. The key focus has been on
improving credit quality and profitability and as a result customer numbers were
held steady at 131,000 at June 2007 compared with 126,000 a year earlier and
131,000 at the end of last year. Similarly credit issued in the first half
reduced by 3%, at constant exchange rates, compared to the prior year at £19.4
million. However, the benefits of this focus on credit quality are seen in the
annualised impairment as a percentage of revenue which reduced to 29.0% by June,
12.9% lower than the prior year and now within our target range of 25 - 30%.
Impairment in the first half reduced by 9.8% from £5.1 million in 2006 to £4.6
million in 2007. Revenue increased by 23.9% to £13.5 million benefiting from an
increase in average receivables of 15.3% and revenue net of impairment increased
by 53.4% to £8.9 million.
Central costs
Central costs for the first half, including listed company costs, were £6.4
million or £0.5 million higher than the prior year due to an increase in new
country research costs, principally in respect of Russia.
Developing markets
Mexico
30 June 2007 30 June 2006
Change Change
£m £m £m %
Credit issued 30.7 20.9 9.8 46.9
Customer numbers (000s) 317 184 133 72.3
Average receivables 21.1 11.4 9.7 85.1
Revenue 17.1 11.4 5.7 50.0
Impairment (7.5) (5.1) (2.4) (47.1)
Revenue less impairment 9.6 6.3 3.3 52.4
Agents' commission (2.0) (1.2) (0.8) (66.7)
Finance costs (1.9) (1.0) (0.9) (90.0)
Other operating costs (12.6) (9.1) (3.5) (38.5)
Loss before taxation (6.9) (5.0) (1.9) (38.0)
Mexico continues to show strong customer growth. The customer count now stands
at 317,000, which represents growth of 65,000 customers or 26% since the start
of the year and growth of 72.3% since June 2006. This has been achieved without
any increase in branch infrastructure, a clear demonstration of the strong
product appeal and significant market opportunity.
We currently operate in this country from two regional centres; Puebla and
Guadalajara. Guadalajara is performing well but performance in Puebla, whilst
improving, remains below target levels due to unsatisfactory credit quality.
In Puebla, progress is being made and 10 out of 22 branches are now profitable
and making a positive contribution to regional overheads. Further improvement is
needed and to assist with this additional, experienced management resource has
been introduced from Central Europe into the Puebla region. They are heavily
focused on an improvement programme for the underperforming, loss-making
branches. Clear evidence of significant improvement in these branches is
expected in the early months of 2008.
Customer numbers in Puebla have continued to grow, rising over the 12 months to
June by 77,000 and since the year end by 38,000 to 249,000. Throughout the
region, improved credit quality is a key focus of management attention. A
contributor to poor credit quality has been the high level of staff turnover.
This problem was addressed in the second half of last year and is now at a
satisfactory level. As a result, levels of experience and skills are now rising
steadily and this is expected to progressively improve credit performance.
Further improvements in credit quality are expected from a significant
tightening of credit management processes supported by behavioural scoring,
which was introduced across the country during June and from application scoring
and centralised collections, the introduction of which commenced in July and
will take effect during the second half of the year. This is likely to constrain
customer growth in this region in the second half.
Guadalajara continues to perform well and in line with our expectations with 9
out of 10 branches now profitable and making a positive contribution to regional
overheads. Credit quality is at target levels and the customer base has grown
strongly, up by 27,000 or 65.8% from 41,000 at the end of 2006 to 68,000 by June
2007. This good performance gives us further evidence that our home credit
model can be successful in Mexico. We intend to open two further branches in the
Guadalajara region in the second half of this year.
Overall, in Mexico, impairment has now stabilised and annualised impairment as a
percentage of revenue was 46.3% at June 2007, a slight improvement from the
47.3% reported at the end of 2006. Further improvement is expected in the
second half.
Revenue net of impairment increased by £3.3 million (52.4%) to £9.6 million.
Other operating costs increased by £3.5 million (38.5%) reflecting the increased
size of the business compared with the first half of 2006. Start-up losses for
Mexico during the first half were £6.9 million, compared with a loss of £5.0
million last year.
We expect reduced losses for the second half as the levels of impairment
improve. Losses for 2007 are expected to be approximately £12 million.
We continue to target profit from both the Puebla and Guadalajara regions and
for Mexico overall in 2009.
Romania
30 June 2007 30 June 2006
Change
£m £m £m
Credit issued 3.2 0.1 3.1
Customer numbers (000s) 17 1 16
Average receivables 1.9 - 1.9
Revenue 1.4 - 1.4
Impairment (0.1) - (0.1)
Revenue less impairment 1.3 - 1.3
Agents' commission (0.1) - (0.1)
Finance costs (0.2) - (0.2)
Other operating costs (2.9) (1.1) (1.8)
Loss before taxation (1.9) (1.1) (0.8)
Romania continues to perform well and in line with our expectations. At June
2007, it had 17,000 customers, an increase of 11,000 since the end of 2006 and,
as expected, reported a loss of £1.9 million compared with £1.1 million in 2006.
Credit quality remains good, with impairment running at 5.9% of revenue.
Following the decision to proceed to national roll-out in June a new branch in
Pitesti opened in July. It is expected that we will open a further two branches
over the remainder of the year taking our infrastructure to seven branches. As
previously indicated, full year losses for this year are expected to be £3 - 4
million. We continue to target profit from this market in 2010.
Pro forma consolidated income statement
Notes Unaudited Unaudited Unaudited
Pro forma Pro forma Pro forma
Six months to Six months to Year to
30 June 2007 30 June 2006 31 Dec 2006
£m £m £m
Revenue* 2 191.6 187.2 365.3
Impairment (41.8) (69.5) (103.1)
Revenue less impairment 149.8 117.7 262.2
Finance costs (10.2) (7.8) (18.6)
Other operating costs (37.4) (29.1) (58.2)
Administrative expenses (89.6) (68.7) (149.7)
(137.2) (105.6) (226.5)
Profit before taxation 2 12.6 12.1 35.7
Profit before taxation and
exceptional demerger costs
2 15.9 12.1 39.9
Exceptional demerger costs 2 (3.3) - (4.2)
Profit before taxation 2 12.6 12.1 35.7
Total tax expense 3 (4.2) (3.9) (11.9)
Profit after taxation 8.4 8.2 23.8
* All amounts included in revenue are defined as finance income under IFRS 7.
Earnings per share
Notes Unaudited Unaudited Unaudited
Pro forma Pro forma Pro forma
Six months to Six months to Year to
30 June 2007 30 June 2006 31 Dec 2006
pence pence pence
Basic earnings per share 4 3.27 3.19 9.25
Pro forma consolidated balance sheet
Notes Unaudited Unaudited Unaudited
Pro forma Pro forma Pro forma
As at As at As at
30 June 2007 30 June 2006 31 Dec 2006
£m £m £m
Assets
Non-current assets
Intangible assets 12.6 1.9 14.0
Property, plant and equipment 34.1 23.6 30.2
Retirement benefit asset 3.5 0.3 0.4
Deferred income tax assets 13.6 8.9 15.6
63.8 34.7 60.2
Current assets
Financial assets:
- Amounts receivable from customers
- due within one year 6 337.3 281.1 312.4
- due in more than one year 6 17.9 13.4 18.6
- Cash and cash equivalents 44.7 46.7 44.6
- Derivative financial instruments 0.8 2.3 0.6
Trade and other receivables 11.2 8.5 6.5
411.9 352.0 382.7
Total assets 475.7 386.7 442.9
Liabilities
Current liabilities
Financial liabilities:
- Bank and other borrowings (94.1) (21.5) (73.1)
- Derivative financial instruments (1.3) (2.3) (2.3)
Trade and other payables (43.3) (29.4) (35.0)
Current income tax liabilities (4.5) (5.2) (12.7)
(143.2) (58.4) (123.1)
Non-current liabilities
Bank and other borrowings (167.8) (201.4) (169.6)
(167.8) (201.4) (169.6)
Total liabilities (311.0) (259.8) (292.7)
Net assets 164.7 126.9 150.2
Pro forma consolidated cash flow statement
Unaudited Unaudited Unaudited
Pro forma Pro forma Pro forma
Six months to Six months to Year to
30 June 2007 30 June 2006 31 Dec 2006
£m £m £m
Cash flows from operating activities
Cash generated from operations 15.3 29.7 55.9
Established businesses 30.6 37.2 74.5
Start-up businesses (15.3) (7.5) (18.6)
15.3 29.7 55.9
Interest paid (11.8) (7.9) (18.7)
Income tax paid (13.8) (12.2) (17.5)
Net cash (used in)/ generated from operating
activities
(10.3) 9.6 19.7
Cash flows from investing activities
Purchases of property, plant and equipment
(9.9) (5.7) (17.4)
Proceeds from sale of property, plant and
equipment
2.2 1.4 3.4
Purchases of intangible assets (0.1) - (12.1)
Net cash used in investing activities (7.8) (4.3) (26.1)
Cash flows from financing activities
Proceeds from/(repayment of) bank borrowings
18.3 (5.2) 3.6
Net cash generated from/(used in) financing
activities
18.3 (5.2) 3.6
Net increase/(decrease) in cash and cash
equivalents
0.2 0.1 (2.8)
Cash and cash equivalents at the start of
the period
44.6 47.2 47.2
Exchange (losses)/gains on cash and cash
equivalents
(0.1) (0.6) 0.2
Cash and cash equivalents at the end of the
period
44.7 46.7 44.6
A regulated company within the Group is required to keep its cash and short-term
deposits strictly segregated from the rest of the Group and these amounts are
therefore not available to repay Group borrowings. At 30 June 2007 the cash and
short-term deposits held by this company amounted to £22.0m (30 June 2006:
£27.2m, 31 December 2006: £21.4m).
Cash generated from operations can be analysed as follows:
Unaudited Unaudited Unaudited
Pro forma Pro forma Pro forma
Six months to Six months to Year to
30 June 2007 30 June 2006 31 Dec 2006
£m £m £m
Changes in amounts receivable from customers
(24.3) 17.8 (7.0)
Changes in trade and other receivables and
payables
8.0 (1.5) 8.6
Other cash generated from operations 31.6 13.4 54.3
Cash generated from operations 15.3 29.7 55.9
Notes to the pro forma financial information for the six months ended 30 June
2007
1 Basis of preparation
International Personal Finance plc (IPF) acquired the international businesses
of the Provident Financial plc group on 16 July 2007 by issuing one IPF share to
the shareholders of Provident Financial plc for each Provident Financial share
held by them. The financial information included in this trading update is
shown on a pro forma basis and has been prepared by aggregating the financial
information for each of the entities now included in the IPF group and making
certain consolidation and pro forma adjustments in order to present a
consolidated income statement and consolidated balance sheet as if the IPF group
had always existed. A reconciliation of the result for the period to the result
included in the Provident Financial interim results is included in note 7.
Full details of the demerger are given in the prospectus which can be found on
the company's website.
The accounting policies used in completing this pro forma financial information
have been consistently applied in all periods shown. The key accounting policies
are as follows:
Revenue recognition
Revenue, which excludes value added tax and intra-group transactions, comprises
revenue earned on amounts receivable from customers.
The service charge on a home credit loan is fixed. The charge does not increase
if customers take longer than the contracted period to repay the loan. The
majority of loans do not carry penalties or default interest charges. In
accordance with IAS 39 'Financial instruments: Recognition and measurement' the
service charge is accounted for as interest income.
Revenue on customer receivables is recognised using an effective interest rate
(EIR). The EIR is calculated using estimated cash flows being contractual
payments adjusted for the impact of customers repaying early but excluding the
anticipated impact of customers paying late or not paying at all.
Directly attributable incremental issue costs are also taken into account in
calculating the EIR. Interest income continues to be accrued on impaired
receivables using the original EIR applied to the loan's carrying value.
Amounts receivable from customers
All customer receivables are initially recognised at the amount loaned to the
customer plus directly attributable incremental issue costs. After initial
recognition, customer receivables are subsequently measured at amortised cost.
Amortised cost is the amount of the customer receivable at initial recognition
plus revenue earned calculated using the EIR, less customer repayments and any
deduction for impairment.
All customer receivables are assessed for impairment every week and at each
balance sheet date. Customer accounts that are in arrears are deemed to have
demonstrated evidence of impairment and are subject to a detailed impairment
review. Impairment is calculated using actuarial models which use historical
payment performance to generate the estimated amount and timing of future cash
flows from each arrears stage. These estimated future cash flows from each
portfolio of similar loans are discounted to a present value using the original
EIR and this figure is compared with the balance sheet value. All such
impairments are charged to the income statement.
2 Segment information
Geographical segments
Unaudited Unaudited Unaudited
Pro forma Pro forma Pro forma
Six months to Six months to Year to
30 June 2007 30 June 2006 31 Dec 2006
£m £m £m
Revenue
Central Europe 173.1 175.8 338.6
Mexico 17.1 11.4 26.4
Romania 1.4 - 0.3
191.6 187.2 365.3
Profit before taxation
Central Europe 31.1 24.1 64.1
UK - central costs (6.4) (5.9) (11.9)
Established businesses 24.7 18.2 52.2
Mexico (6.9) (5.0) (9.9)
Romania (1.9) (1.1) (2.4)
Profit before exceptional demerger costs
15.9 12.1 39.9
Exceptional demerger costs (3.3) - (4.2)
Profit before taxation 12.6 12.1 35.7
The exceptional demerger costs represent costs incurred in preparing for the
demerger of the international businesses from the Provident Financial Group.
The company operates in one business segment and therefore no segment
information is provided for business activities.
3 Tax expense
Tax expense on profit before the exceptional demerger costs is recognised based
on management's best estimate of the tax rate expected for the full financial
year of 30% (30 June 2006: 32.2%, 31 December 2006: 32.2%).
The tax credit on the exceptional demerger costs of £3.3m (30 June 2006: £nil,
31 December 2006: £4.2m) is £0.6m, (30 June 2006: £nil, 31 December 2006:
£0.9m).
4 Earnings per share
Basic earnings per share (EPS) is calculated by dividing the earnings
attributable to shareholders of £8.4m (30 June 2006: £8.2m, 31 December 2006:
£23.8m) by the number of shares issued on the date of demerger of 257.2 million.
The directors have elected to show an adjusted EPS excluding the impact of the
exceptional demerger costs. Demerger costs, net of the related tax credit are
£2.7m, (30 June 2006: £nil, 31 December 2006: £3.3m).
Unaudited Unaudited Unaudited
Pro forma Pro forma Pro forma
Six months to Six months to Year to
30 June 2007 30 June 2006 31 Dec 2006
pence pence pence
Basic EPS 3.27 3.19 9.25
Demerger costs, net of tax credit 1.05 - 1.29
EPS from ongoing operations 4.32 3.19 10.54
This is attributable to the following defined business units:
Unaudited Unaudited Unaudited
Pro forma Pro forma Pro forma
Six months to Six months to Year to
30 June 2007 30 June 2006 31 Dec 2006
pence pence pence
Central Europe 8.44 6.34 16.91
UK central costs (1.75) (1.56) (3.15)
Established businesses 6.69 4.78 13.76
Mexico (1.86) (1.32) (2.60)
Romania (0.51) (0.27) (0.62)
EPS from ongoing operations 4.32 3.19 10.54
5 Dividends
An interim dividend of 1.90 pence per share will be paid on 19 October 2007 to
shareholders who are on the register at the close of business on 21 September
2007. This interim dividend amounting to £4.9m has not been recognised as a
liability in this pro forma financial information as it will be paid after the
balance sheet date.
6 Amounts receivable from customers
Unaudited Unaudited Unaudited
Pro forma Pro forma Pro forma
As at As at As at
30 June 2007 30 June 2006 31 Dec 2006
£m £m £m
Central Europe 328.2 280.8 311.9
Mexico 24.0 13.7 18.1
Romania 3.0 - 1.0
355.2 294.5 331.0
The impairment charge in respect of amounts receivable from customers can be
analysed as follows:
Unaudited Unaudited Unaudited
Pro forma Pro forma Pro forma
Six months to Six months to Year to
30 June 2007 30 June 2006 31 Dec 2006
£m £m £m
Central Europe 34.2 64.4 90.6
Mexico 7.5 5.1 12.5
Romania 0.1 - -
41.8 69.5 103.1
7 Pro forma adjustments
A reconciliation of the pro forma result for the six months ended 30 June 2007
to the result reported within the Provident Financial interim report is shown
below:
Interest Reduced Listed Pro
Reported* margin borrowing plc costs forma**
£m £m £m £m £m
Revenue 191.6 - - - 191.6
Impairment (41.8) - - - (41.8)
Revenue less impairment 149.8 - - - 149.8
Finance costs (11.4) (0.8) 1.9 - (10.3)
Other operating costs (37.4) - - - (37.4)
Administrative expenses (82.9) - - (3.3) (86.2)
(131.7) (0.8) 1.9 (3.3) (133.9)
Profit before taxation 18.1 (0.8) 1.9 (3.3) 15.9
Analysed as:
Central Europe 31.9 (0.8) - - 31.1
Central costs (5.0) - 1.9 (3.3) (6.4)
Established businesses 26.9 (0.8) 1.9 (3.3) 24.7
Mexico (6.9) - - - (6.9)
Romania (1.9) - - - (1.9)
18.1 (0.8) 1.9 (3.3) 15.9
* Reported in Provident Financial plc's interim report for the six months ended
30 June 2007.
** Pro forma before exceptional costs. The exceptional demerger costs of £3.3m
comprise a cost of £3.4m included within administrative expenses and a credit in
respect of derivatives of £0.1m which is included within finance costs.
Appendix - Key statistics
30 June 2007 30 June 2006 31 Dec 2006
Poland
Agents 13,571 12,008 13,564
Customers (000s) 857 903 854
Credit issued (£m) 123.8 118.1 235.6
Revenue (£m) 84.9 97.0 185.0
Impairment (£m) (9.6) (40.3) (56.0)
Revenue less impairment
(£m)
75.3 56.7 129.0
Hungary
Agents 4,226 4,370 4,253
Customers (000s) 293 305 284
Credit issued (£m) 60.1 53.7 102.7
Revenue (£m) 41.3 37.5 70.6
Impairment (£m) (11.0) (12.5) (17.2)
Revenue less impairment
(£m)
30.3 25.0 53.4
Czech
Agents 3,208 3,146 3,370
Customers (000s) 261 247 254
Credit issued (£m) 49.3 43.0 97.4
Revenue (£m) 33.4 30.4 60.7
Impairment (£m) (9.0) (6.5) (9.6)
Revenue less impairment
(£m)
24.4 23.9 51.1
Slovakia
Agents 1,812 1,723 1,809
Customers (000s) 131 126 131
Credit issued (£m) 19.4 18.4 39.2
Revenue (£m) 13.5 10.9 22.3
Impairment (£m) (4.6) (5.1) (7.8)
Revenue less impairment
(£m)
8.9 5.8 14.5
Central Europe
Agents 22,817 21,247 22,996
Customers (000s) 1,542 1,581 1,523
Credit issued (£m) 252.6 233.2 474.9
Revenue (£m) 173.1 175.8 338.6
Impairment (£m) (34.2) (64.4) (90.6)
Revenue less impairment
(£m)
138.9 111.4 248.0
Mexico
Agents 5,082 3,507 5,238
Customers (000s) 317 184 252
Credit issued (£m) 30.7 20.9 48.1
Revenue (£m) 17.1 11.4 26.4
Impairment (£m) (7.5) (5.1) (12.5)
Revenue less impairment
(£m)
9.6 6.3 13.9
Romania
Agents 438 85 181
Customers (000s) 17 1 6
Credit issued (£m) 3.2 0.1 1.3
Revenue (£m) 1.4 - 0.3
Impairment (£m) (0.1) - -
Revenue less impairment
(£m)
1.3 - 0.3
Total
Agents 28,337 24,839 28,415
Customers (000s) 1,876 1,766 1,781
Credit issued (£m) 286.5 254.2 524.3
Revenue (£m) 191.6 187.2 365.3
Impairment (£m) (41.8) (69.5) (103.1)
Revenue less impairment
(£m)
149.8 117.7 262.2
This information is provided by RNS
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