11th Sep 2007 07:00
International Personal Finance Plc11 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-growinginternational business offering home credit to 1.9 million customers in sixcountries. IPF was created by the demerger of the international businesses of ProvidentFinancial plc. Its shares were admitted to the Official List and to trading onthe London Stock Exchange's market for listed securities on 16 July 2007. Itsresults as a trading division for the six months to 30 June 2007 form a part ofthe consolidated interim results of Provident Financial plc. This document provides a pro forma trading update for IPF for the first half of2007. The results include the pro forma adjustments required to present theresults of IPF as if it had operated as a stand alone entity throughout thefirst 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 robustbusiness model with a strong balance sheet and secure sources of medium-termfunding for our growth plans. The business had a most encouraging first halfwith strong profit growth and good progress towards our longer-term objectives. We expect further progress in the second half." Christopher RodriguesChairman11 September 2007 For further information contact: Finsbury +44 (0)20 7251 3801James LevitonVanessa NeillRyan 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 anothersix months of significant progress. We have seen good growth in customer numberswhich, despite tighter credit controls, increased by 6.2% compared with June2006 and now stand at 1,876,000. This has contributed to growth in credit issuedof 12.7% and in average receivables of 11.6%. This growth has been coupled withfurther significant improvement in credit quality. As a result, the impairmentcharge during the period has fallen by 39.9%. Together, these factors have ledto an increase in profit before tax of 31.4% to £15.9 million. Earnings pershare for the six months to June 2007 increased by 35.4% from 3.19 pence to 4.32pence. Pro forma Pro forma 30 June 2007 30 June 2006 Change Change £m £m £m %Profit before taxationCentral Europe 31.1 24.1 7.0 29.0Central 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 31.4Taxation* (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 40.0Developing 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 taxcredit of £0.6 million. During 2006, we tightened our credit controls in Central Europe supported bysignificant improvements in credit management systems. Volume growth was slowedbut return on assets was substantially increased. The success of this strategyis demonstrated by the increase in pre-tax profit from Central Europe of £7.0million (29.0%) to £31.1 million in the first half of this year. The annualisedimpairment charge is now running at 19.9% of revenue compared with 34.8% at June2006. This represents an excellent performance given our 25 - 30% targetimpairment to revenue ratio. This has facilitated a release of surplusimpairment provisions of £6.0 million, an increase in provision release of £2.2million when compared with the first half of 2006. It is also encouraging thathaving laid these strong foundations we are now seeing improved growth incustomers, credit issued and net receivables. We have set a medium-term target of annual profit before tax from our CentralEuropean businesses of £95 million. We continue to move towards that target withpro forma pre-tax profit for the 12 months to June 2007 of £71.1 millioncompared with £64.1 million for the 12 months to December 2006 and expect tomake further good progress during the second half of the year. After taking account of central costs, pre-tax profits from our establishedmarkets, before investment in developing new markets, rose by 35.7% in the firsthalf, increasing by £6.5 million from £18.2 million in 2006 to £24.7 million in2007. Investment in developing the Mexican and Romanian markets was increased by £2.7million to £8.8 million, with the aim of bringing these markets into profit in2009 and 2010 respectively. Performance in Mexico is improving with theGuadalajara region developing very well and the Puebla region showingimprovement. In June, we implemented in Mexico the improved credit managementsystems that have proved so successful in Central Europe. We expect these toconstrain volume growth in the second half but to contribute significantly tofurther improvements in performance. The expansion of the branch network inRomania is progressing to plan following the decision to proceed to nationalroll-out announced in June. We expect our investment this year in start-uplosses in Mexico to be approximately £12 million, and in Romania to be £3 - 4million. A more detailed review of performance in each business unit is provided in theoperating review. Dividend At demerger it was stated that, in the absence of unforeseen circumstances, thedirectors of IPF intended to declare aggregate dividends in respect of 2007 of4.75 pence per share. An interim dividend of 1.90 pence per share has beendeclared, payable on 19 October 2007 to shareholders on the register at close ofbusiness on 21 September 2007. The shares will be marked ex-dividend on 19September 2007. Our aim is to adopt a progressive dividend policy and to build the level ofdividend cover over the medium-term with a view to then maintaining a dividendpayout ratio of 25% of post-tax profits. Balance sheet IPF is strongly capitalised and well positioned to fund its growth strategy. Netreceivables at the end of the period were £355.2 million, which representsgrowth 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 assetsat the end of 2006. At 30 June 2007, shareholders' equity represented 46.4% of net receivables, aslight increase when compared with the pro forma balance sheet at the end of2006. Since the demerger a further £51 million of committed bank facilities have beenagreed. This brings total committed facilities at the Group's disposal, most ofwhich extend to March 2010, to £460 million, of which £198 million wasunutilised at 30 June 2007. These facilities are sufficient to support theplanned 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 profitablebusinesses, less central costs, in developing new markets. Our medium-termtargets are Russia, India and Ukraine. In Russia, due diligence is well advanced on the acquisition of a small bank tofacilitate market entry. If all proceeds to plan we expect to commenceoperation in Russia in the first quarter of 2008. As with previous marketentries, this would take the form of a limited pilot over a period of eighteenmonths 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 annumand the net receivables book would not exceed £5 million. Research is also progressing well on India and Ukraine. At this stage, bothrepresent realistic candidates for a pilot entry in the second half of 2008 orearly 2009. Regulation and legislation In Slovakia, and recently in Hungary, there has been discussion about thedevelopment of legislation to introduce a cap on interest rates charged bylenders. We operate successfully within a rate cap in Poland with a modifiedproduct offering, but will continue to closely monitor the situation in thesecountries. Prospects We are pleased with performance in the first six months of 2007 and tradingsince June has been in line with expectations. We have very strong foundationsfor continued progress. We have a proven, successful business model as demonstrated by the strongperformance of our established Central European businesses. This model is basedon providing small sums of credit over short periods. Most of our lending istypically over one year and at 30 June 2007, the average receivable per customerwas just over £180. This means that we are able to respond quickly to changes inthe market environment, although the economic trends in each of our markets arepositive. This is supported by a robust approach to credit management. Key to this is thepersonal relationship between the customers and our agents, including weeklyface to face contact, which allows us a close understanding of the financialcircumstances of our customers. We have added to this and improved our creditmanagement capability through the integration of new systems and processes, suchas application and behavioural scoring as well as call centre based collections.This has supported the substantial improvement in credit quality and impairmentin 2006 and in the first half of 2007. We have a programme for further enhancingthese systems and processes and extending their scope across more markets in thesecond half of 2007 and 2008. We have a highly motivated team, which is enjoying the opportunity to take IPFforward as an independent business and which is focused on deliveringshareholder value through a clear strategy of maximising profits in existingmarkets as well as entering new markets that present significant opportunities.Incentives have been put in place to support this which reward management forthe total shareholder return achieved over the three years following demerger.Payout is subject to the delivery of a minimum return of 30% above the averageshare 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 scalepilots in the years to come. We also have a strong balance sheet, with equity to receivables of 46.4% at thehalf year and a business model that is strongly capital generative. Importantly,we have committed funding in place to support our business growth over the nexttwo and a half years and, with finance costs representing only 5 - 6% ofrevenues, 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 tomake 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 8.3Customer 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 46.9Revenue less impairment 138.9 111.4 27.5 24.7Agents' 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 halfto 1,542,000 reversing the reduction in customer numbers in 2006 thataccompanied the introduction of tighter credit controls. This, together withthe targeted issue of larger loans to better quality customers, led to anincrease 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 incredit quality, as a result of the introduction of improved credit managementtechniques in 2006. The benefits of this exceeded our expectations and, as aresult, 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 longerrequired in Poland because of the improvement in credit quality. A similarrelease of provisions was made in the first half of 2006 of £3.8 millionprimarily in the Czech Republic. The annualised impairment charge as apercentage of revenue at June 2007 reduced to 19.9% compared with 34.8% at June2006 and 26.8% at the end of 2006. Impairment is now below our target range of25-30% of revenue and, although we intend to maintain strong management ofcredit quality, this will afford the opportunity to ease our underwritingcriteria a little in the second half of the year to promote faster, profitablegrowth 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 ofagents and other administrative changes to comply with the requirements of theregulator, the PSZAF, additional costs of introducing enhanced credit managementprocesses throughout Central Europe and other increases in costs in line withthe expansion of the operation. Central Europe comprises our operations in Poland, the Czech Republic, Hungaryand Slovakia. The performance of each country is reviewed in the followingsection. Poland 30 June 2007 30 June 2006 Change Change £m £m £m %Credit issued 123.8 118.1 5.7 4.8Customer 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 76.2Revenue less impairment 75.3 56.7 18.6 32.8 Our Polish business has performed well in the first half with a continued strongimprovement in credit quality, coupled with a resumption of growth in customernumbers, credit issued and receivables. Impairment reduced significantly from £40.3 million to £9.6 million. Thisreflects the substantial improvements in credit control in 2006 following theintroduction of application and behavioural scoring. Performance in the periodhas also benefited from the extension of the centralised collections processes,from approximately 30% of the Polish operations at the end of 2006 to the wholecountry in the first quarter of 2007. As noted above, this improved creditperformance has enabled a release of prior year impairment provisions of £6.0million in the first half. Annualised impairment, on an underlying basis, as apercentage of revenue was 17.4% at 30 June 2007, compared with 30.3% at the endof 2006. These improvements in credit quality have provided the Polish business withsolid foundations for growth. We are now seeing the fruits of an increase inmarketing spend, with the result that customers have grown from a low of 838,000customers at the end of February 2007 to 857,000 at the half year. This compareswith 854,000 at the end of 2006. Credit issued in the first half was £123.8million, which represents growth of 4.8% on last year. Average customerreceivables increased by 6.7% but a change in product mix towards products withlower effective interest rates led to a reduction in revenue of 12.5%. Revenuenet of impairment increased strongly, up by £18.6 million (32.8%) to £75.3million. We expect steady growth in customers and credit issued in the second halfthrough additional marketing and promotional activities accompanied by a smallincrease in the level of impairment following a slight easing of creditcontrols. Czech Republic 30 June 2007 30 June 2006 Change Change £m £m £m %Credit issued 49.3 43.0 6.3 14.7Customer numbers (000s) 261 247 14 5.7Average receivables 60.6 55.0 5.6 10.2 Revenue 33.4 30.4 3.0 9.9Impairment (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 of2007. Year on year customer growth was 5.7% with the customer count at the endof June 2007 reaching a record high of 261,000 up from 254,000 at the end of2006. Credit issued in the first half was £49.3 million, which represents yearon 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 of18.8% for the 12 months to June 2007. Impairment increased from £6.5 million inthe first half of 2006 to £9.0 million in the first half of 2007, but afteradjusting for the release of £3.5 million of impairment provisions in 2006actually decreased by £1.0 million on a like for like basis. Revenue net ofimpairment increased by 2.1% to £24.4 million. We expect continued good growth in the Czech Republic during the second half ofthe 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 11.9Customer numbers (000s) 293 305 (12) (3.9)Average receivables 64.2 59.6 4.6 7.7 Revenue 41.3 37.5 3.8 10.1Impairment (11.0) (12.5) 1.5 12.0Revenue less impairment 30.3 25.0 5.3 21.2 Following the interruption of progress in Hungary during the final quarter oflast year as a result of the suspension of lending to meet the administrativerequirements of the PSZAF, the business resumed growth during the first half ofthis year. Customer numbers, which reduced from 305,000 at June 2006 to 284,000at December 2006, increased in the first half of 2007 by 9,000 (3.2%) to293,000. Credit issued during the period was £60.1 million, which representsyear on year growth of 11.9% and over the same period average net receivablesrose 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 annualisedimpairment as a percentage of revenue reduced to 21.3% for the 12 months endedJune 2007. This is 6.4% lower than the prior year and 3.1% lower than the end of2006. Revenue net of impairment increased by £5.3 million or 21.2% to £30.3million. However, this has been partly offset by an increase in running costsof £4.2 million during the first half as a result of the costs of employing theagency force and new operational processes to meet the requirements of thePSZAF. Slovakia 30 June 2007 30 June 2006 Change Change £m £m £m %Credit issued 19.4 18.4 1.0 5.4Customer numbers (000s) 131 126 5 4.0Average receivables 21.9 19.0 2.9 15.3 Revenue 13.5 10.9 2.6 23.9Impairment (4.6) (5.1) 0.5 9.8Revenue 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 onimproving credit quality and profitability and as a result customer numbers wereheld steady at 131,000 at June 2007 compared with 126,000 a year earlier and131,000 at the end of last year. Similarly credit issued in the first halfreduced by 3%, at constant exchange rates, compared to the prior year at £19.4million. However, the benefits of this focus on credit quality are seen in theannualised 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 £4.6million in 2007. Revenue increased by 23.9% to £13.5 million benefiting from anincrease in average receivables of 15.3% and revenue net of impairment increasedby 53.4% to £8.9 million. Central costs Central costs for the first half, including listed company costs, were £6.4million or £0.5 million higher than the prior year due to an increase in newcountry 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 46.9Customer numbers (000s) 317 184 133 72.3Average receivables 21.1 11.4 9.7 85.1 Revenue 17.1 11.4 5.7 50.0Impairment (7.5) (5.1) (2.4) (47.1)Revenue less impairment 9.6 6.3 3.3 52.4Agents' 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 standsat 317,000, which represents growth of 65,000 customers or 26% since the startof the year and growth of 72.3% since June 2006. This has been achieved withoutany increase in branch infrastructure, a clear demonstration of the strongproduct appeal and significant market opportunity. We currently operate in this country from two regional centres; Puebla andGuadalajara. Guadalajara is performing well but performance in Puebla, whilstimproving, remains below target levels due to unsatisfactory credit quality. In Puebla, progress is being made and 10 out of 22 branches are now profitableand making a positive contribution to regional overheads. Further improvement isneeded and to assist with this additional, experienced management resource hasbeen introduced from Central Europe into the Puebla region. They are heavilyfocused on an improvement programme for the underperforming, loss-makingbranches. Clear evidence of significant improvement in these branches isexpected in the early months of 2008. Customer numbers in Puebla have continued to grow, rising over the 12 months toJune by 77,000 and since the year end by 38,000 to 249,000. Throughout theregion, improved credit quality is a key focus of management attention. Acontributor 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 asatisfactory level. As a result, levels of experience and skills are now risingsteadily and this is expected to progressively improve credit performance.Further improvements in credit quality are expected from a significanttightening of credit management processes supported by behavioural scoring,which was introduced across the country during June and from application scoringand centralised collections, the introduction of which commenced in July andwill take effect during the second half of the year. This is likely to constraincustomer growth in this region in the second half. Guadalajara continues to perform well and in line with our expectations with 9out of 10 branches now profitable and making a positive contribution to regionaloverheads. Credit quality is at target levels and the customer base has grownstrongly, up by 27,000 or 65.8% from 41,000 at the end of 2006 to 68,000 by June2007. This good performance gives us further evidence that our home creditmodel can be successful in Mexico. We intend to open two further branches in theGuadalajara region in the second half of this year. Overall, in Mexico, impairment has now stabilised and annualised impairment as apercentage of revenue was 46.3% at June 2007, a slight improvement from the47.3% reported at the end of 2006. Further improvement is expected in thesecond 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 increasedsize of the business compared with the first half of 2006. Start-up losses forMexico during the first half were £6.9 million, compared with a loss of £5.0million last year. We expect reduced losses for the second half as the levels of impairmentimprove. Losses for 2007 are expected to be approximately £12 million. We continue to target profit from both the Puebla and Guadalajara regions andfor Mexico overall in 2009. Romania 30 June 2007 30 June 2006 Change £m £m £mCredit issued 3.2 0.1 3.1Customer numbers (000s) 17 1 16Average receivables 1.9 - 1.9 Revenue 1.4 - 1.4Impairment (0.1) - (0.1)Revenue less impairment 1.3 - 1.3Agents' 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 June2007, 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 inPitesti opened in July. It is expected that we will open a further two branchesover the remainder of the year taking our infrastructure to seven branches. Aspreviously indicated, full year losses for this year are expected to be £3 - 4million. 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* 2 191.6 187.2 365.3Impairment (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 35.7Profit before taxation andexceptional demerger costs 2 15.9 12.1 39.9Exceptional 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 £mAssetsNon-current assetsIntangible assets 12.6 1.9 14.0Property, plant and equipment 34.1 23.6 30.2Retirement benefit asset 3.5 0.3 0.4Deferred income tax assets 13.6 8.9 15.6 63.8 34.7 60.2Current assetsFinancial 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 0.6Trade and other receivables 11.2 8.5 6.5 411.9 352.0 382.7Total assets 475.7 386.7 442.9 LiabilitiesCurrent liabilitiesFinancial 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 liabilitiesBank 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 activitiesCash generated from operations 15.3 29.7 55.9Established businesses 30.6 37.2 74.5Start-up businesses (15.3) (7.5) (18.6) 15.3 29.7 55.9Interest paid (11.8) (7.9) (18.7)Income tax paid (13.8) (12.2) (17.5)Net cash (used in)/ generated from operatingactivities (10.3) 9.6 19.7Cash flows from investing activitiesPurchases of property, plant and equipment (9.9) (5.7) (17.4)Proceeds from sale of property, plant andequipment 2.2 1.4 3.4Purchases of intangible assets (0.1) - (12.1)Net cash used in investing activities (7.8) (4.3) (26.1)Cash flows from financing activitiesProceeds from/(repayment of) bank borrowings 18.3 (5.2) 3.6Net cash generated from/(used in) financingactivities 18.3 (5.2) 3.6Net increase/(decrease) in cash and cashequivalents 0.2 0.1 (2.8)Cash and cash equivalents at the start ofthe period 44.6 47.2 47.2Exchange (losses)/gains on cash and cashequivalents (0.1) (0.6) 0.2Cash and cash equivalents at the end of theperiod 44.7 46.7 44.6 A regulated company within the Group is required to keep its cash and short-termdeposits strictly segregated from the rest of the Group and these amounts aretherefore not available to repay Group borrowings. At 30 June 2007 the cash andshort-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 £mChanges in amounts receivable from customers (24.3) 17.8 (7.0)Changes in trade and other receivables andpayables 8.0 (1.5) 8.6Other cash generated from operations 31.6 13.4 54.3Cash generated from operations 15.3 29.7 55.9 Notes to the pro forma financial information for the six months ended 30 June2007 1 Basis of preparation International Personal Finance plc (IPF) acquired the international businessesof the Provident Financial plc group on 16 July 2007 by issuing one IPF share tothe shareholders of Provident Financial plc for each Provident Financial shareheld by them. The financial information included in this trading update isshown on a pro forma basis and has been prepared by aggregating the financialinformation for each of the entities now included in the IPF group and makingcertain consolidation and pro forma adjustments in order to present aconsolidated income statement and consolidated balance sheet as if the IPF grouphad always existed. A reconciliation of the result for the period to the resultincluded 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 onthe company's website. The accounting policies used in completing this pro forma financial informationhave been consistently applied in all periods shown. The key accounting policiesare as follows: Revenue recognition Revenue, which excludes value added tax and intra-group transactions, comprisesrevenue earned on amounts receivable from customers. The service charge on a home credit loan is fixed. The charge does not increaseif customers take longer than the contracted period to repay the loan. Themajority of loans do not carry penalties or default interest charges. Inaccordance with IAS 39 'Financial instruments: Recognition and measurement' theservice 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 contractualpayments adjusted for the impact of customers repaying early but excluding theanticipated impact of customers paying late or not paying at all. Directly attributable incremental issue costs are also taken into account incalculating the EIR. Interest income continues to be accrued on impairedreceivables 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 thecustomer plus directly attributable incremental issue costs. After initialrecognition, customer receivables are subsequently measured at amortised cost.Amortised cost is the amount of the customer receivable at initial recognitionplus revenue earned calculated using the EIR, less customer repayments and anydeduction for impairment. All customer receivables are assessed for impairment every week and at eachbalance sheet date. Customer accounts that are in arrears are deemed to havedemonstrated evidence of impairment and are subject to a detailed impairmentreview. Impairment is calculated using actuarial models which use historicalpayment performance to generate the estimated amount and timing of future cashflows from each arrears stage. These estimated future cash flows from eachportfolio of similar loans are discounted to a present value using the originalEIR and this figure is compared with the balance sheet value. All suchimpairments 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 £mRevenueCentral Europe 173.1 175.8 338.6Mexico 17.1 11.4 26.4Romania 1.4 - 0.3 191.6 187.2 365.3Profit before taxationCentral Europe 31.1 24.1 64.1UK - central costs (6.4) (5.9) (11.9)Established businesses 24.7 18.2 52.2Mexico (6.9) (5.0) (9.9)Romania (1.9) (1.1) (2.4)Profit before exceptional demerger costs 15.9 12.1 39.9Exceptional 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 thedemerger of the international businesses from the Provident Financial Group. The company operates in one business segment and therefore no segmentinformation is provided for business activities. 3 Tax expense Tax expense on profit before the exceptional demerger costs is recognised basedon management's best estimate of the tax rate expected for the full financialyear 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 earningsattributable 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 theexceptional 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 9.25Demerger costs, net of tax credit 1.05 - 1.29EPS 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 16.91UK central costs (1.75) (1.56) (3.15)Established businesses 6.69 4.78 13.76Mexico (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 toshareholders who are on the register at the close of business on 21 September2007. This interim dividend amounting to £4.9m has not been recognised as aliability in this pro forma financial information as it will be paid after thebalance 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 328.2 280.8 311.9Mexico 24.0 13.7 18.1Romania 3.0 - 1.0 355.2 294.5 331.0 The impairment charge in respect of amounts receivable from customers can beanalysed 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 90.6Mexico 7.5 5.1 12.5Romania 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 2007to the result reported within the Provident Financial interim report is shownbelow: Interest Reduced Listed Pro Reported* margin borrowing plc costs forma** £m £m £m £m £m Revenue 191.6 - - - 191.6Impairment (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) 15.9Analysed as:Central Europe 31.9 (0.8) - - 31.1Central costs (5.0) - 1.9 (3.3) (6.4)Established businesses 26.9 (0.8) 1.9 (3.3) 24.7Mexico (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 ended30 June 2007. ** Pro forma before exceptional costs. The exceptional demerger costs of £3.3mcomprise a cost of £3.4m included within administrative expenses and a credit inrespect of derivatives of £0.1m which is included within finance costs. Appendix - Key statistics 30 June 2007 30 June 2006 31 Dec 2006PolandAgents 13,571 12,008 13,564Customers (000s) 857 903 854Credit issued (£m) 123.8 118.1 235.6Revenue (£m) 84.9 97.0 185.0Impairment (£m) (9.6) (40.3) (56.0)Revenue less impairment(£m) 75.3 56.7 129.0 HungaryAgents 4,226 4,370 4,253Customers (000s) 293 305 284Credit issued (£m) 60.1 53.7 102.7Revenue (£m) 41.3 37.5 70.6Impairment (£m) (11.0) (12.5) (17.2)Revenue less impairment(£m) 30.3 25.0 53.4 CzechAgents 3,208 3,146 3,370Customers (000s) 261 247 254Credit issued (£m) 49.3 43.0 97.4Revenue (£m) 33.4 30.4 60.7Impairment (£m) (9.0) (6.5) (9.6)Revenue less impairment(£m) 24.4 23.9 51.1 SlovakiaAgents 1,812 1,723 1,809Customers (000s) 131 126 131Credit issued (£m) 19.4 18.4 39.2Revenue (£m) 13.5 10.9 22.3Impairment (£m) (4.6) (5.1) (7.8)Revenue less impairment(£m) 8.9 5.8 14.5 Central EuropeAgents 22,817 21,247 22,996Customers (000s) 1,542 1,581 1,523Credit issued (£m) 252.6 233.2 474.9Revenue (£m) 173.1 175.8 338.6Impairment (£m) (34.2) (64.4) (90.6)Revenue less impairment(£m) 138.9 111.4 248.0 MexicoAgents 5,082 3,507 5,238Customers (000s) 317 184 252Credit issued (£m) 30.7 20.9 48.1Revenue (£m) 17.1 11.4 26.4Impairment (£m) (7.5) (5.1) (12.5)Revenue less impairment(£m) 9.6 6.3 13.9 RomaniaAgents 438 85 181Customers (000s) 17 1 6Credit issued (£m) 3.2 0.1 1.3Revenue (£m) 1.4 - 0.3Impairment (£m) (0.1) - -Revenue less impairment(£m) 1.3 - 0.3 TotalAgents 28,337 24,839 28,415Customers (000s) 1,876 1,766 1,781Credit issued (£m) 286.5 254.2 524.3Revenue (£m) 191.6 187.2 365.3Impairment (£m) (41.8) (69.5) (103.1)Revenue less impairment(£m) 149.8 117.7 262.2 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Inter. Pers.