Inter. Pers. Regulatory News (IPF)

International Personal Finance plc

Full-year Financial Report for the year ended 31 December 2016

This announcement contains inside information

2016 key messages

* Before exceptional items. †Excluding Slovakia ** Adjusted following change to treatment of very slow paying customers in our home credit businesses - see below.

Chief Executive Officer, Gerard Ryan, commented:

"It has been a difficult year for our Company and its shareholders. We delivered continued strong growth in Southern Europe and IPF Digital but faced further regulatory challenges in Europe, particularly in Poland. Performance in our Mexican home credit business was below our original expectations but actions taken delivered a significantly improved performance in the second half of the year. We expect the competitive and regulatory environment to remain challenging but we continue to see further opportunities to optimise our European home credit operations and will utilise the returns generated by these businesses to invest in growing Mexico home credit and IPF Digital."

Group performance overview

Group profit before tax in 2016 was £92.6M, £23.5M lower than 2015, reflecting a combination of lower home credit profit and higher investment in IPF Digital offset partially by strengthening FX rates as set out in the following table.

The reduction in underlying profit before tax in our home credit business was driven primarily by three issues - the introduction of new total cost of credit legislation in Poland, higher levels of impairment in Mexico following a first half performance which was below our expectations, and the wind down of our Slovakian operation. These issues were offset partially by strong profit growth in Southern Europe. Our digital business performed well and we delivered good profit growth in our established digital markets whilst continuing to invest in new markets and head office functional capabilities. Central costs increased by £0.3M which reflects the restructuring costs associated with our UK head office reorganisation in the first half of the year. During 2016, we benefitted from a strengthening of FX rates against sterling in most markets which resulted in a positive impact on profit before tax of £15.6M.

We delivered credit issued growth of 8% driven by a strong performance in our Southern Europe and IPF Digital businesses, together with a return to higher levels of growth in Mexico in the second half of the year. Customer numbers reduced year-on-year by 2% as a result, primarily, of competitive pressures in the Czech Republic and Poland which was offset by growth in Mexico and IPF Digital. Impairment as a percentage of revenue was 26.8% and remains within our target range of 25% to 30%.

Market update

Demand for consumer credit increased in most of our markets, driven largely by digital lending, and we expect growth to continue albeit with some slowdown in developed markets over the medium term.

The demand for digital loans has led to a rapid increase in online providers and the competitive landscape remains intense, particularly in Europe.  As 2016 progressed, we saw the proliferation of payday lenders in virtually all of our markets. In addition, we saw the risk appetite of banks in Europe grow and their advertising began to target our most creditworthy customers. Whilst digital lending has taken market share, we believe that over the longer term, it will co-exist with home credit. This is because the involvement of an agent at the customer's home allows us to gain a unique and greater understanding of their financial circumstances so we are able to lend where a remote lending business cannot.

The results of the Brexit vote and US presidential election have created global market uncertainty and the general expectation is that there may be longer-term impacts on global economic growth. Looking ahead, GDP forecasts for 2017 are for a continuation of recent moderate growth in our European markets but for a slowdown in Mexico.

Regulatory update

Regulators and politicians continue to be active in our European markets and have introduced new legislation and regulations around price and affordability. It is clear that pre-election populist agendas have also resulted in less consultation in the legislative process than would normally be the case.

In December, the Polish Ministry of Justice published a draft bill which, amongst other details, proposed to reduce the existing cap on non-interest charges on consumer loans that became effective in March 2016. Ordinarily, consumer credit legislation falls within the remit of the Ministry of Finance. The level of the current cap is: (i) a flat level of 25% of the loan value; and (ii) an additional cap of 30% per annum. The combined total of the flat 25% and the time-dependent 30% p.a. may not, in any event, exceed 100% of the loan value. Under the proposal, the flat level cap would be reduced to 10% of the loan value and the additional cap per annum would be reduced to 10%. The combined total of the flat 10% and the time-dependent 10% p.a. would not be able to exceed 75% of the loan value. During a 14-day public consultation, many organisations evaluated and commented on the draft bill, and we await an update from the Ministry of Justice on its proposals.  We are engaging with Polish Government ministries and interested parties to try to achieve a more positive solution for consumers and businesses. Whereas previously it was expected that any new proposals could be implemented as early as January 2017, it now appears more likely that any potential changes would not be enacted until the second half of the year.

We reported the following regulatory matters in our half-year report and Q3 trading update. In Romania, more stringent and restrictive creditworthiness assessments for non-banking financial institutions and the requirement for the separation of duties between sales and credit vetting became effective at the end of 2016. These changes are expected to impact growth significantly in this market during 2017.

New licensing regulations were introduced in the Czech Republic in December 2016 with the key changes being the requirement for agents to have either a secondary education or at least three years' of financial service experience, a clear separation of duties between sales and credit decisioning teams and modifications to proof of income processes. We submitted our licence application, made changes to our business processes and are offering assistance to agents to become accredited. We continue to await the outcome of the appeal against new collections regulations introduced in Mexico in December 2015 banning weekend and late hour collections from customers' homes. Lenders do not have to comply with the law until the case is closed and we are working with interested parties to change the respective elements of the legislation to better reflect both the needs of customers and the businesses.  

Strategy update

We provide credit responsibly to customers who want to borrow small amounts which they can repay in affordable instalments, either in their home to an agent or via their bank account through our money transfer or digital offerings. Whilst remote lending is growing, home credit will remain a relevant and important component of the consumer finance market for customers who value the convenience and flexibility of our agent service and the forbearance it offers.

We continue to operate in a dynamic environment and our strategy is focused on maximising our opportunities in an increasingly digital world, and one in which regulation and competition have intensified. We see significant growth opportunities in our Mexico home credit and IPF Digital businesses supported by the investment of capital generated by our European home credit businesses.

Growth businesses - IPF Digital and Mexico home credit

IPF Digital represents a strategic opportunity driven by increasing demand for digital loans, particularly among the best quality underserved consumers in our segment. We are focused on expanding this business, particularly in our four new markets of Poland, Spain, Australia and Mexico whilst optimising profitability in our established digital markets. We entered Mexico with a digital offering in September and together our four new markets are now serving 57,000 customers and growing strongly.

The strategic focus in our home credit business in Mexico is to expand our geographic footprint and develop new acquisition channels. While performance in the first half of 2016 was below our original expectation, the actions we implemented in response to this have delivered an improved performance in the second half which is described in the performance overview of this report. The six new branches opened in the first half of 2016 are delivering good customer and credit issued growth. We continue to believe that Mexico offers significant growth potential and intend to open a small number of branches in 2017 to further increase our geographic reach and expand our micro-business loans offering.

Established businesses - European home credit

Our European home credit businesses are highly cash and capital generative. We are managing these businesses to optimise cash flow to grow our IPF Digital and Mexico home credit businesses and fund returns to our shareholders.

Our cost optimisation programme in our European home credit businesses delivered cost savings of around £11M (annualised £14M) and a reduction of 430 roles during 2016, achieved principally through the introduction of our new sales and service organisation structure and right sizing our head offices. These savings mean that we were able both to absorb an increase in regulatory costs and investment in our Provident digital offering as well as reduce overall expenditure.

A core part of our strategy is to modernise our home credit operation through 'MyProvi' - our agent mobile technology programme which will support agent sales and collections, facilitate further efficiencies in our field teams and reduce administration costs. The live test of the collections app in Hungary, Poland and the Czech Republic began during the second half of the year and we plan to roll out the app to all agents in the Czech Republic and Hungary in the first half of 2017. A second phase roll out in Poland and Romania is planned later in the year.

We took the decision to cease lending to certain higher risk segments of customers following a review of customer profitability in Poland in Q4 2016 and expect this to positively impact on impairment going forward.

Our Provident-branded digital offering which leverages the strength of our leading brand is building momentum in Poland and at the end of 2016 we had around 8,000 customers that are served through this channel. We intend to extend this product offering to the Czech Republic in 2017.

Performance overview

Home credit

Our home credit business delivered profit before tax of £116.8M in 2016 which comprised £118.4M from our on-going businesses and a loss of £1.6M in Slovakia. Underlying profit before tax (excluding Slovakia) reduced by £28.7M driven primarily by the introduction of new total cost of credit legislation in Poland, higher levels of impairment in Mexico and the contraction of our business in the Czech Republic. During the period we benefitted from a strengthening of FX rates against sterling in our on-going businesses that had a positive impact of £14.9M.

The following table shows the performance of each of our home credit markets highlighting the underlying profit movement and impact of stronger FX rates against sterling:

Excluding Slovakia, the results for our home credit businesses are shown in the table below:

Our home credit businesses delivered a 4% increase in credit issued with growth of 17% in Southern Europe and improved rates of growth in Mexico during the second half of the year. In contrast, credit issued contracted in Poland and the Czech Republic, the former being driven by the legislative changes introduced in March 2016. Customer numbers contracted 4% year-on-year to 2,329,000.

Average net receivables increased by 6% driven by credit issued growth during the year. Revenue reduced by 2% reflecting lower revenue yields which reduced by 7.9ppts driven by a combination of the lower price cap in Poland and our customer retention strategy to serve more customers with longer-term, lower yielding products. Credit quality and collections are good overall with annualised impairment as a percentage of revenue of 26.5%.

Other costs increased by £5.8M at CER (Actual: £20.7M) which comprised a £3.7M reduction in costs in our European home credit businesses offset by a £9.5M increase in Mexico where we are investing to grow the business through geographic and channel expansion. We continued to focus on improving efficiencies within our European home credit businesses and the cost optimisation programme resulted in underlying savings of around £11M (annualised c.£14M) and a reduction of 430 roles in 2016. These were offset partially by regulatory-related cost increases in Poland and Romania, restructuring costs and investment in our Provident branded digital offering. The cost-income ratio increased year-on-year by 0.7ppts to 38.5%.

Following a review of the most effective collections processes to apply to very slow paying customers, historically managed by our field sales and service teams, we transferred around 120,000 customers to our central debt recovery teams. This is expected to support further operating efficiencies and improve our overall net cash inflows. Given that home credit customer numbers in this report relate solely to those managed by our field teams, we have restated 2015 customer numbers to show underlying trends.

Finance costs increased by 8% reflecting higher average levels of borrowings in 2016 following the 2015 share buyback programme.

Poland-Lithuania

Poland-Lithuania delivered profit before tax of £56.2M in 2016 reflecting a £20.8M decrease in underlying profit offset partially by a positive FX movement of £8.0M. This performance reflects the expected impact of new total cost of credit legislation introduced in Poland in March 2016 together with reduced profit from debt sales, the introduction of the new bank tax in Poland and restructuring costs. Clarification of debt-to-income rules in Lithuania at the beginning of 2016 impacted business volumes significantly and following a detailed review we took the decision to move to a fully digital business in Lithuania operated by IPF Digital. The lower cost distribution of our digital operation means it is more capable of adapting to these requirements and we will therefore focus on serving the market solely through IPF Digital. Consequently, a charge of £3.2M in respect of estimated exit costs has been included in the 2016 profit and loss account.

Competition from digital and payday lenders in Poland remained intense over the course of 2016. Following the introduction of new total cost of credit legislation, no major competitors departed the market and the on-going trend towards longer-term installment lending continued.  We introduced our new product structure to comply with the new rate cap regulations, but the competitive environment together with the legislative changes impacted credit issued growth which contracted by 2% and customer numbers reduced year-on-year by 11%.

Revenue decreased by 6% reflecting contracting yields driven by the reduced total cost of credit cap and the impact of more customers being offered longer-term and larger loans as part of our mitigation strategy. Our collections performance and credit quality remains good. As expected, impairment as a percentage of revenue increased by 3.0ppts to 25.9% due to a combination of reduced profit from sales of non-performing receivables and lower revenue arising from the lower total cost of credit cap.

We continued to focus on improving the efficiency of our operation and the cost optimisation programme resulted in underlying savings of £6.9M and the removal of 260 roles. Other costs were broadly flat year-on-year with the underlying savings being offset by the new bank tax, restructuring costs and investment in our Provident-branded digital platform. The cost-income ratio increased year-on-year by 2.1ppts to 36.3% due to the combination of higher costs and the contraction of revenue yield.

In line with our strategy, we are focused on optimising our business in Poland and improving the product offering that we make to customers. We also plan to grow our Provident-branded digital offering which had around 8,000 customers at the 2016 year end. As noted in the regulatory update of this announcement, the Ministry of Justice in Poland published a draft bill in December 2016 proposing a further tightening to existing non-interest cost of credit legislation introduced in March 2016. We await an update on this matter and will inform the market in due course as to how our Polish business is likely to be affected by any changes that may be enacted.

Czech Republic

Intense competition in the Czech Republic continued to impact the size of our business and resulted in a reduction in profit before tax of 8% to £13.6M which reflects a £3.5M reduction in underlying profit and a £2.4M positive impact from stronger FX rates.

This challenging landscape resulted in a 15% contraction in credit issued and 18% reduction in customer numbers year-on-year. We introduced a new product offering in Q3 with a broader range of pricing points and product features to appeal more strongly to a wider range of customers and their need for higher value, lower-priced loans. As expected, the new offering has supported an increase in loan values to higher quality customers and we have seen good demand for our monthly product. We are now fine tuning our credit scoring, price points and enhancing our CRM activities to attract new customers and increase our retention rate.

Average net receivables declined by 13% due to continued lower levels of credit issued which resulted in a reduction in revenue of 20%. Credit quality and collections were good, which together with profit on the sale of non-performing receivables, resulted in a significant improvement in impairment as a percentage of revenue to 14.7%. 

Our cost optimisation programme resulted in an underlying saving of £1.5M and a reduction of around 60 roles. Overall other costs were £0.9M lower than 2015 at CER (Actual: £2.3M higher) which is stated after restructuring costs and initial investment in developing our Provident-branded digital channel for this market.

Key priorities for the business in the Czech Republic in 2017 are to ensure compliance with the new licencing regime as noted in the regulatory update section of this report and, in particular, manage agent certification requirements. In addition, we plan to further broaden our product offer and distribution channel through the introduction of our Provident-branded digital offering in this market and will continue to target further cost efficiencies.

Southern Europe 

Strong credit issued growth, a good collections performance and tight management of costs in our Southern Europe business resulted in a 39% increase in profit in 2016 to £36.9M. This reflects underlying profit growth of £5.0M and a £5.3M positive impact of FX rates.

We continued our strategy of increasing sales of longer-term, larger loans which has supported the delivery of a 17% increase in credit issued. Customer numbers were broadly flat at 630,000. Average net receivables increased by 16% and the yield on the portfolio reduced due to a shift in the mix of products towards longer-term lending, resulting in slower revenue growth of 2%. Credit quality and our collections performance remains very good which together with the benefit of profit from debt sales resulted in impairment as a percentage of revenue at 21.3%.

Other costs reduced by £2.5M at CER (Actual: increase of £4.5M) reflecting the results of our cost-optimisation programme which was driven by the introduction of a new sales and service organisational structure in Hungary and Romania. This resulted in around 110 roles being removed during the year. Savings delivered in 2016 totalled £2.6M although these were offset partially by higher costs associated with employing our agents in Romania to comply with new legislation and restructuring costs. These actions resulted in a 2.6ppt improvement in the cost-income ratio to 38.3%.

As noted in the regulatory section of this announcement, new creditworthiness assessments for non-banking financial institutions in Romania are expected to impact rates of growth significantly in this market. As in our other European home credit markets, we will look to attain further cost-efficiencies particularly through the rollout of agent mobile technology.

Mexico

Growth momentum and improving collections in the second half of the year contrasted with a first half performance in Mexico which was materially below our original expectations. For the year as a whole, we delivered profit before tax of £11.7M which reflects a £6.9M reduction in underlying profit, investment of £2.5M in geographic expansion and our micro-business loan offering and £0.8M adverse impact from FX movements.

As stated in our half-year announcement, we implemented a number of operational actions to improve the performance of our business in Mexico. These actions, together with growth flowing through from six new branches opened in the first half of the year and the introduction of a micro-business loan product, delivered progressive improvements in growth and a reduction in impairment during the second half of the year as set out in the following table.

We delivered an 8% year-on-year increase in credit issued and grew customer numbers by 3% to 841,000. Average net receivables increased by 11% and revenue increased by 10%. We are focused on balancing growth with maintaining credit quality and strong arrears management activities have resulted in an improving collections performance. Annualised impairment as a percentage of revenue, however, remains at an elevated level and was at 36.5% at the year end. We expect to see improvements in this key measure in the first quarter of 2017.

Other costs increased by £9.5M at CER (Actual: £7.1M) due to business growth and a £4.2M cost increase from geographical expansion and the introduction of our micro-business loans offering. As a result, the cost-income ratio for Mexico increased 1.5ppts to 39.6%.

Looking ahead, we aim to maintain the growth momentum achieved in the second half of 2016 balanced with further improvement in our collections performance to reduce impairment as a percentage of revenue closer to our target range for Mexico. We continue to see significant growth potential in this market and will invest in further geographical expansion with the opening of a small number of new branches together with continued expansion of our micro-business loan offering.

Slovakia

We announced the wind down of our Slovakian operation in February 2016 following the introduction of new rate cap legislation in that market. Following this difficult decision, we implemented a plan to maximise collections from the receivables book and reduce the scope of operations progressively during the year. Our team in Slovakia has executed these plans successfully and at the end of 2016 had collected around 120% of our original expectations. We had expected to complete the wind down in 2016 through the sale of the remaining portfolio. However, due to the success of our in-house collections team, we took the decision in Q4 2016 to continue to collect through a much reduced field operation and our central debt recovery team during the first half of 2017. We now expect to complete our collections activities and move into the liquidation phase of this process by the end of the first half of 2017.

During 2016, we collected £53M of receivables through a combination of field collections, central debt recovery activities and debt sales. This compared to a receivables carrying value of £30.8M after booking an exceptional impairment charge of £10.3M at the end of 2015. This performance generated net revenue of £22.6M against which we incurred £17.3M in expenses, collecting commission and financing costs to collect out the portfolio. Overall, this resulted in profit before tax of £5.3M. However, we incurred a further £6.9M in closure costs which were recorded in 2016 and, therefore, the overall result was a loss of £1.6M. In 2017 we expect to incur further losses to collect out the remaining portfolio and, therefore, the combined closure losses in 2016 and 2017 are expected to be £3M to £4M compared to our original guidance of £5M to £7M.

IPF Digital

Our digital business continued to deliver strong growth and with the expected increase in investment in our new markets and head office functional capabilities, we incurred a loss before tax of £9.3M compared to a loss of £4.2M in 2015. This reflects good underlying profit growth in our established markets offset by an increased investment in new markets and head office capabilities.

The 2015 P&L includes ten and a half months of trading of MCB Finance businesses following IPF's acquisition of that business in February 2015. Year-on-year growth measures of performance in the commentary have been restated to illustrate growth on a like-for-like basis.

The business delivered customer growth of 45% to 194,000 and increased credit issued by 41% to £150.2M. The growth in credit issued resulted in an increase in average net receivables of 74% to £86.4M which, in turn, drove a 51% increase in revenue to £58.1M. Credit quality is in line with expectations and impairment as a percentage of revenue was 30.1% compared to 28.6% in 2015. This reflects reduced impairment in our established markets driven by higher profit from the sale of non-performing receivables offset by a greater weighting of new market business where impairment levels are higher because they are in their development phase.

We continued to build our new markets and delivered our first loans to customers in Mexico in September 2016. We also invested an additional £3.9M in head office functional capabilities to deliver future growth.

IPF Digital comprises digital lending operations in eight markets, all at various stages of development. The profitability of these businesses is segmented as follows:

We have performed a review to better allocate head office costs between the individual businesses which has resulted in more of these costs being borne in the established and new market numbers with a lower residual cost in the IPF Digital head office. We have restated the comparatives to allow a comparison of trends.

Established markets

Our established markets delivered good growth, lower impairment as a percentage of revenue and an increase in reported profit before tax to £12.4M from £4.0M in 2015.

Customer numbers grew 12% to 137,000 and we delivered credit issued growth of 11%. This increased average net receivables by 52% to £70.9M. Revenue growth was lower at 28% principally reflecting tighter price caps in Estonia and Lithuania.

Impairment as a percentage of revenue improved by 7ppts to 16.7% which reflects a good underlying credit performance together with the benefit of a £4.4M profit generated on the sale of non-performing receivables in Finland and Lithuania. These markets have now moved onto forward flow agreements and therefore this benefit will not recur and impairment as a percentage of revenue is expected to return to normalised levels in 2017.

Costs increased by 28% to £22.1M which was driven principally by investment to generate growth and strengthening our people capabilities to deliver the right customer service and compliance in this larger business. Cost leverage resulted in the cost-income ratio improving by around 3ppts.

New markets

Our new markets grew rapidly in 2016 driven principally by strong performances in Poland and Spain. This growth was supported by significant investment in building the businesses through developing functional capabilities, investing in customer acquisition activities and managing impairment as we developed our credit scorecards. As a result our profit and loss investment in these markets increased to £15.4M.

Our new digital businesses in Poland, Australia, Spain and Mexico are growing strongly and we now serve 57,000 customers in these markets. We increased credit issued by 370% to £41.8M which resulted in a similar rate of growth in revenue. Impairment as a percentage of revenue at 78.6% was 4.7ppts lower than 2015 reflecting the growth in lending to new customers and is in line with our expectations for the markets at their early stage of development.

Head office

We continued to invest in our IPF Digital technology platform and head office functional capabilities including credit decisioning, finance, marketing and product to ensure we have the right resource in place to execute our expansion plan in a well-controlled and effective manner.

There are significant growth opportunities for our digital business. The growth and good credit loss trends in our new markets in 2016 have increased our confidence that a slightly higher investment to deliver accelerated credit growth will bring forward the division's breakeven point. As a consequence, we plan to invest around £8M to £10M in 2017 and we expect to deliver IPF Digital's maiden profit in 2018.

Taxation  

The taxation charge for the year on statutory pre-tax profit was £25.7M (2015: £37.7M) which equates to an effective rate of 27.8% (2015: 37.6%). The 2015 tax charge included the impact of the Slovakian deferred tax write-off. In 2015, the underlying tax charge was £31.2M which represented an effective tax rate of 26.9%. The effective tax rate for 2017 is expected to be c.30%.

In early 2017, our home credit company in Poland, Provident Polska, appealed decisions received from the Polish Tax Chamber (the upper tier of the Polish tax authority) with respect to its 2008 and 2009 financial years. The decisions for both years are identical and involve a transfer pricing challenge relating to an intra-group arrangement with a UK entity together with a challenge to the timing of taxation of home collection fee revenues. As stated in our announcement at the time of the 2008 decision we strongly disagree with the interpretation of the tax authority and will defend our position robustly in court. In order to make the appeals, we paid the amounts assessed which total £38M comprising tax and associated interest. The payment of this sum is not a reflection of our view on the merits of the case and accordingly it will be recognised as a non-current financial asset in our group accounts. As we believe our case to be very strong, no provision will be recognised against this asset and there will be no charge to the income statement as a result of this decision. The 2010 financial year is currently being audited by the tax authorities in Poland and a decision is expected in the coming months. In the event that the decision follows the same reasoning as the decisions for 2008 and 2009 a further c.£19M would become payable. All subsequent financial years remain open to future audit.

Funding and balance sheet

We have a strong funding position with a balanced debt portfolio including a range of bonds at competitive cost across a number of currencies, wholesale and retail, with varying maturities; and a range of bank facilities from a core group of banks. At 31 December 2016 we had total debt facilities of £775M (£569M bonds and £206M bank facilities) and borrowings of £623M, with headroom on undrawn bank facilities of £152M. We have significant long-term funding in place, with £482M of bonds maturing in 2020/21, and no bond maturities in 2017. Drawings on the bank facilities have been used for total Polish tax payments in respect of the tax years 2008 and 2009 of £38M in January 2017. Our balance sheet remains robust, with an equity to receivables capital ratio at 31 December 2016 of 45.7% against our target of around 40%.

Dividend

Subject to shareholder approval, a final dividend of 7.8 pence per share will be payable which will bring the full year dividend to 12.4 pence per share (2015: 12.4 pence per share). The full year dividend of 12.4 pence per share represents a total payment equivalent to approximately 41% of post-tax earnings for the full year 2016 which is above our target pay-out rate of 35%. The final dividend will be paid on 12 May 2017 to shareholders on the register at the close of business on 18 April 2017. The shares will be marked ex-dividend on 13 April 2017.

Outlook

We expect the competitive and regulatory environment to remain challenging. In particular, the outcome of the Polish Ministry of Justice's proposals to further reduce the existing cap on non-interest charges in this market remains a major focus for us. Regulatory changes in Romania are expected to significantly impact growth rates in this market in 2017.

We see further opportunities to optimise the performance of our European home credit businesses and will use technology to deliver efficiencies and returns to invest in our growth operations and to provide returns to our shareholders. In Mexico, we plan to maintain the growth momentum achieved during the second half of 2016 and deliver effective collections performance. We are confident of the outlook for IPF Digital and expect to deliver further strong growth and are targeting profitability in 2018.

Note

This report has been prepared solely to provide additional information to shareholders to assess the Group's strategies and the potential for those strategies to succeed. The report should not be relied on by any other party or for any other purpose. The report contains certain forward-looking statements. These statements are made by the directors in good faith based on the information available to them up to the time of their approval of this report but such statements should be treated with caution due to the inherent uncertainties, including both economic and business risk factors, underlying any such forward-looking information. Percentage change figures for all performance measures, other than profit before taxation and earnings per share, unless otherwise stated, are quoted after restating prior year figures at a constant exchange rate (CER) for 2016 in order to present the underlying performance variance.

International Personal Finance plc

Consolidated income statement for the year ended 31 December 2016

Consolidated income statement for the year ended 31 December 2015

The profit for the period is from continuing operations.

The notes to the financial information are an integral part of this consolidated financial information.

Earnings per share - statutory

Earnings per share - adjusted for exceptional items

Statement of comprehensive income for the year ended 31 December

The notes to the financial information are an integral part of this consolidated financial information.

Balance sheet as at 31 December

The notes to the financial information are an integral part of this consolidated financial information.

Statement of changes in equity

* Includes foreign exchange reserve, hedging reserve, capital redemption reserve and amounts paid to acquire shares held in treasury and by employee trust.

Cash flow statement for the year ended 31 December

Notes to the financial information for the year ended 31 December 2016

1. Basis of preparation

The financial information, which comprises the consolidated income statement, statement of comprehensive income, balance sheet, statement of changes in equity, cash flow statement and related notes, is derived from the full Group Financial Statements for the year ended 31 December 2016, which have been prepared in accordance with European Union endorsed International Financial Reporting Standards ('IFRSs') and those parts of the Companies Act 2006 applicable to companies reporting under IFRS. It does not constitute full Financial Statements within the meaning of section 434 of the Companies Act 2006. This financial information has been agreed with the auditor for release.

Statutory Financial Statements for the year ended 31 December 2015 have been delivered to the Registrar of Companies and those for 2016 will be delivered following the Company's annual general meeting. The auditor has reported on those Financial Statements: its reports were unqualified, did not draw attention to any matters by way of emphasis and did not contain statements under s498 (2) or (3) of the Companies Act 2006.

The directors are satisfied that the Group has sufficient resources to continue in operation for the foreseeable future, a period of not less than 12 months from the date of this report. Accordingly they continue to adopt the going concern basis in preparing this financial information (see note 23 for further details).

The accounting policies used in completing this financial information have been consistently applied in all periods shown. These accounting policies are detailed in the Group's Financial Statements for the year ended 31 December 2016 which can be found on the Group's website (www.ipfin.co.uk).

The following amendments to standards are mandatory for the first time for the financial year beginning 1 January 2016 but do not have any impact on the Group:

· IFRS 10 (amendment) 'Consolidated financial statements';

· Amendments to IFRS 10 and IAS 28 'Sale or contribution of assets between an investor and its associate or joint venture';

· IFRS 11 (amendment) 'Accounting for acquisitions of interests in joint operations';

· IFRS 14 'Regulatory deferral accounts';

· Amendments to IAS 16 and IAS 38 'Clarification of acceptable methods of depreciation and amortisation';

· IAS 27 'Equity method in separate Financial Statements;

· Annual improvements to IFRSs: 2012-2014 cycle; and

· Amendments to IAS 1 'Disclosure initiative'.

The following standards, interpretations and amendments to existing standards are not yet effective and have not been early adopted by the Group:

· IFRS 9 'Financial instruments'. This standard replaces IAS 39, 'Financial instruments: recognition and measurement'. IFRS 9 introduces new requirements for classifying and measuring financial assets and will affect the Group's accounting for its financial assets. The mandatory implementation date for this standard is 1 January 2018 however it has not yet been endorsed by the European Union. The Group is inthe process of assessing IFRS 9's full impact;

· IFRS 15 'Revenue from contracts with customers';

· IFRS 15 (amendment) 'Clarifications to IFRS 15 Revenue from Contracts with Customers';

· Amendments to IAS 12 'Recognition of deferred tax assets for unrealised losses';

· IFRS 16 'Leases';

· Annual Improvements to IFRSs: 2014-2016 cycle;

· IFRIC 22 'Foreign Currency Transactions and Advance Consideration';

· Amendments to IAS 40 'Transfers of investment property';

· IFRS 2 (amendment)'Classification and Measurement of Share-based Payment Transactions';

· IAS 7 (amendment) 'Disclosure initiative'; and

· IAS 12 (amendment) 'Recognition of Deferred Tax Assets for Unrealised Losses'.

2. Principal risks and uncertainties

In accordance with the Companies Act 2006, a description of the principal risks and uncertainties (and the mitigating factors in place in respect of these) is included below. Effective management of risks, uncertainties and opportunities is critical to our business in order to deliver long-term shareholder value and protect our people, assets and reputation. In 2016, we continued to face a challenging external environment, particularly from changing regulation and competition. Internally, our operational governance framework and risk management processes are continually reviewed to ensure that where areas of improvement are identified, a plan of action is put in place and can become a key focus for the Board. The effectiveness of operating these processes is monitored by the Audit and Risk Committee on behalf of the Board.

As at the year end, the Board considered that there are 14 key risks which require ongoing focus (noted with asterisks in the table below).

The risks facing the business by risk category are:

*Risks currently considered as the principal risks facing the Group.

3. Related parties

The Group has not entered into any material transactions with related parties during the year ended 31 December 2016.

4. Segmental analysis

Geographical segments