Welcome to the International Personal Finance first quarter trading update hosted by Gerard Ryan, Chief Executive Officer, and Gary Thompson, Chief Financial Officer. Please note this call is being recorded and for the duration of the call, your lines will be on listen only. You will have the opportunity to ask questions, and this can be done by pressing star one on your telephone keypad to register your question. If you require assistance at any point, please press star zero and you'll be connected to an operator. I will now hand you over to Gerard Ryan to begin today's conference. Please go ahead, sir.
Thank you, Priscilla. Good morning, everybody, and welcome to our Q1 trading update call. Today, as usual, I'm joined by Gary Thompson, our CFO, and together we will update you on performance in the first quarter of this year. I'd like to give you some additional color on what we're seeing in each of our divisions. As usual, there will be plenty of time for Q&A at the end. Hopefully you've had a chance to read the statement we issued this morning. In that, you will have seen that we got off to a very positive start to the year. All three divisions, so that's European Home Credit, Mexico Home Credit, and IPF Digital, performed very well, and we are trading ahead of our internal plans.
My colleagues across the group are delivering on our strategy and in meeting the continuing demand of credit from our customer segment. We delivered strong growth in customer lending of 15% year-on-year. European home credit and IPF Digital increased their year-on-year lending by 19% and 17% respectively. It's worth noting that those results were against a relatively weak Q1 last year, when demand in Europe was impacted by outbreaks of COVID and the beginning of the war in Ukraine. In Mexico, we increased customer lending year-on-year by 7%. Truthfully, we're actually very happy with that given that the comparator for Q1 in 2022 was 31%, as Mexico rebounded as the economy opened up post-COVID. The strong growth in customer lending resulted in 15% rise in closing net receivables to GBP 883 million.
I'm particularly pleased that we increased our revenue yield by 1.5 percentage points in the quarter to 53.4%. Now we're within our target range of 53%-56%. As a group, we're always very disciplined in our lending decisions to customers and never more so than in difficult economic times when we seek to protect our customers from over-indebtedness whilst maintaining our portfolio quality. Despite the increased cost of living for our customers, we haven't seen any discernible impact on their repayments behavior and together with our tight credit standards, credit quality remains good and the annualized impairment rate was 10.5% at the end of the quarter. Of course, if we were to see deterioration in performance, we wouldn't hesitate to tighten credit settings to minimize any potential impairment impacts.
Our previous actions in this area demonstrate that we can make required changes very quickly. Equally, when the macroeconomic scene improves, we can turn it back on again. Our strong cost control focus continues to boost our efficiency, and in the quarter I actually delivered a 2.1 percentage point improvement in our cost-income ratio to 68.8%. In the main, it is our investment in technology-driven productivity gains that is now paying off. We're also examining the structural changes in the group might also deliver further benefits. To complete the group picture, we continue to maintain a robust funding position and a well-capitalized balance sheet to support our growth ambitions and deliver on our progressive dividend policy.
We have GBP 92 million available on undrawn facilities and non-operational cash balances, and we expect our current funding capacity and strong cash generation to meet our funding requirements into 2024. That's the group picture. Now let me take you through a high-level overview of each of our divisions. European Home Credit delivered a very good operational performance. We still see good customer demand, and as I mentioned earlier, growth in customer lending was very strong at 19% against Q1 last year. Closing customer receivables have reached just over half a billion pounds, so GBP 503 million. That's up 15% year-on-year, and customer repayments remain strong over the period. A key focus in this division has been the ongoing rollout of our credit card offering in Poland, following the introduction of a tighter rate cap in December of last year.
This is progressing very well, with 20,000 cards now issued and being used by our customers who, as well as taking some of their credit line in cash, are actually using their card in ATMs, online and in stores. Since we introduced credit cards in Q4 last year, we've taken a phased approach to the rollout. Today I'm pleased to confirm that all of our customer representatives and employees are now fully trained and we reached nationwide coverage across Poland in the first week of April. We will continue to take a testing learning approach to ensure we fully understand our customers experience with the card. This will also support the introduction of new functionality as they become more familiar with the product. Although it is still very early days, we are very pleased with how we're progressing to date.
Turning now to our Mexico Home Credit business, which also delivered another very good operational performance. The Italian manager in Mexico with David and his team last week. I spent time in Puebla, Hermosillo, Oaxaca, and I also visited our newest operations in Tampico. Actually, there's great energy and momentum in the business, and Mexico is now at the forefront of our efforts to introduce digital elements into the customer journey, both to improve the customer experience and deliver efficiency. It would come as no surprise that there continues to be very strong demand for credit from our customer segment in Mexico. We delivered a 7% year-on-year increase in customer lending against tighter credit standards and a very strong quarter in Q1 2022.
Customer numbers are also up, increasing 6% to 695,000. Closing net receivables grew by 12% to GBP 169 million. All in all, a very strong quarter. Turning now to IPF Digital. We continue to deliver a very positive growth momentum in all of our markets as we execute our strategy to rebuild receivables, gain scale, and deliver our targeted returns. Customer demand is strong, and we delivered a significant uplift in lending growth to 17% year-on-year against a weaker comparator for the reasons I mentioned earlier in the call. Mexico and Australia continue to outperform in terms of growth in lending. Closing net receivables end of the quarter up 17% at GBP 211 million, while customer numbers are this now excluding Finland and Spain, where our collect actions are progressing very well.
Customer numbers grew by 4% to 234,000. I should probably mention here that our digital business will be the focus of another of our webinars for investors and analysts on Wednesday, 10th of May, when Paulus and his colleague, Rita, of the digital product design will provide a live webcast from Tallinn in Estonia. Presentation will cover details of the customer research, key market trends, our credit decisioning technology, and how IPF Digital is successfully executing on its strategy to realize future growth and returns. I have to say, this is a great business, and I hope you get the opportunity to join us for that session. It does remind me of the webcast we did recently on Poland Next for a much different start with investors.
Before we move on to Q&A, let me summarize our first quarter performance and what this means for the address for growth. Demand for credit is good, and we are continuing to support our customers with affordable credit and insurances in line with our purpose to build a better world through financial inclusion. All three divisions performed very well in Q1, and each delivered good levels of customer lending growth, which was driven by trends being in line with expectation. This very good start to the year underpins our confidence in our strategy, and we expect to carry this momentum into Q2 and the second half. That should lead us to being somewhat ahead of our original plan for the year as a whole. That then is the brief update on how we got on Q1 of this year.
Like I said, a very positive story. With that, let me send it back to Priscilla to see if we have any questions that we can answer for you. Priscilla, over to you.
All right. Thank you. Ladies and gentlemen, you are... If you would like to ask a question or make a contribution on today's call, please press star one on your telephone keypad. We'll pause just for a moment to allow everyone an opportunity to signal for questions. We'll take our first question from Stuart Duncan from Peel Hunt. Please go ahead. Your line is open.
Thank you. Good morning, all. I've got two questions, if that's okay. First one is on customer repayment behavior, and it's obviously encouraging you've not seen any discernible impact there yet. I just wondered if you could give a little bit more detail or sort of thought around how customers are actually managing the inflationary pressures that we're all seeing. What are they doing differently, or how are they managing that pressure just now? The second question is on the cost-income ratio. You sort of touched or Gerard you sort of touched on the potential for some structural changes. I'm not sure if there's anything else you want to say around that just now, but if there is, that'd be great.
Whether that could potentially have any impact on the 52%-54% target ratio for costs going forward. Thanks.
Good morning, Stuart. Let me take your questions then in reverse order. On the cost, yes, we mentioned structural changes, but to be honest, it's too early. What we're doing is we're looking at how we as a group are organized. We're beginning to think whether or not there's a more optimum structure for us internally. It's very early days on that, but we're looking at every facet of the business to see whether or not we can squeeze more cost out of the business. At this stage, I'd say Gary and I are very pleased with the progress we've made in the quarter. We do have a target range. We're heading in the right direction for that. I'd be too inclined to want to move the target range so early.
I think if we continue on this momentum, we'll be feeling pretty good about it. We will come back in due course about the structural change if it, if it comes to anything. It's just too early to say yes. As for the customers, I have to admit to everybody on the call, it is a surprise to us that we've seen no discernible impact on customer repayments. It is a surprise because as we look at our customer segment, they do spend a disproportionate amount of their available income on what you would call essentials, so power, heat, light, transport, all of the pretty exposed things. All of those things have really been hit with very high double-digit inflation.
We've seen inflation in some of our countries like that basket of north of 13%, and in some cases even north of 50%. Our, our fundamental belief was that it must somehow be impacting customers, and it is. It just hasn't translated into them reducing their repayments to us, which I think is a testament to the strength of the relationship between the customer representatives and our customers. But also the fact that we are very understanding and, you know, our customers in the main, I would say, perform very, very well. I can't guarantee you that it's gonna continue that way because it must be biting. We're now probably six or nine months into this higher inflation period, and things are still going well.
Okay, that's great. Thank you very much.
Thank you. We'll move on to our next participant, Kim Bergoe from Numis. Please go ahead. Your line is open.
Morning. Just one question from me, if I may. I'd like to hear your thoughts on the competitive landscape sort of across geographies. If there's any impact on that from changing macro trends and the banking turmoil, for instance, but also regulation. If you could touch a little bit about how you see that competitive landscape evolving.
Sure. Good morning. Well, on the competitive landscape, what we're seeing is that people's appetite for risk has reduced somewhat, and that's not completely unexpected, I think. The competitors that we deal with in our space. I mean, we're not going head-to-head with the banks, you understand that. We're dealing with some of the smaller players, and many of them, I think, are struggling with higher cost of finance, and matter of fact, some of them are refinancing, whereas, you know, we've got a very strong balance sheet and we're financed well into 2024, so we're comfortable in that respect. What we are seeing is, you know, with some of them struggling, we're seeing that the whole buy now, pay later sector is struggling in particular.
We've had a number of approaches from buy now, pay later competitors, I would say, let's put it that way, asking us if we'd be willing to finance some of their kind of white label bases. We haven't done that, but it's been interesting to hear the conversation. I would say there's plenty of competition in our space, but certainly some people are showing signs of finding it more difficult than it might have been in the past. On regulation is relatively quiet at the moment. You know, we have the new regulation in Poland. We rolled out our credit card there. We have the affordability rules that come in on the 18th of May in Poland, and that will then have a significant impact for us in Poland, so we're preparing for that.
On the credit card, and I'll come back to regulation. On the credit card, you know, we've issued 20,000 cards, probably more like 24,000-25,000 by this stage. We're actually very comfortable with that pace because this is a very significant change for us, for our customer representatives and for our, for our customers. We are incredibly concerned to be selling in the right way. Not rushing, putting it out there at a pace that's appropriate for us to make sure that we can demonstrate that we're selling effectively and in control of the regulation. Also in a way that it aligns well with the customer, so they get a chance to understand the product. You will see those numbers ramp up as we go forward. That, that's the main piece of regulation in Poland.
Obviously, we're waiting for the new CCD, the updated CCD, Consumer Credit Directive, to come through. We don't think there's gonna really be surprises in that. Potentially, we might see a bit of regulation in Romania, but it's the one that we've trailed now for probably two and a half years, so we're ready for that. Regulation in the main, I would say, is reasonably quiet at this point.
Great. Thank you very much.
Thank you. Once again, ladies and gentlemen, if you would like to ask a question, please press star one. We'll move on to our next participant, Dave Storms from Stonegate Capital Markets. Please go ahead. Your line is open.
Thank you, good morning. As you're expanding into the new regions in Mexico, what has been kind of the historic pace of market penetration there, and how does that pace inform the expansion strategy?
Yeah. Good morning, Dave. Do you mind just repeating that question, please?
Yeah, absolutely. With the new regions in Mexico, what's kind of been the pace of market penetration there, specifically in, like, Tijuana? How does that pacing inform expansion into, you know, the new region of Tampico and beyond?
Okay. What we do when we open new branches in Mexico is that before we ever get to opening the physical branch, we do a lot of research, as you would expect, in terms of our target customer segment. If there are competitors there, and if there are they being successful? Whether we think we'll be able to recruit the right staff. We did open up in Tijuana last year, and Gary was with me that week, and Gary went to Tijuana and saw the business there. What we do is we go in, we open up a branch. We obviously have management ready to go in there. We start recruiting at what you would expect would be our agents level, so we call them uncertain, and we recruit our managers.
We do it on a very paced basis because the thing about opening a new region is you have to be sure that the people you bring in, so the first cohort of employees and agents you bring in, you absolutely have to drill. I mean drill. You have to drill the process as to how we do business. How we sell correctly, how we go out and we collect fairly from the customer and all that. The initial stages of opening up a new branch are actually quite slow. Because once you establish the correct process, you can then let that process grow.
If you get off to the wrong foot on that initial stage, you can be in trouble. When you look at let's say Tijuana now, we probably have 1,500 customers or something like that. People might look at that and go, "Gosh, that's quite slow." That's very deliberate. Once we're comfortable then that we've established all those baseline processes, we have the right people in place, then we start to grow much more rapidly. It would be the same in Tampico. When I went to Tampico, we literally would have a few hundred customers. What I was really interested in doing was meeting our initial cohort of employees and administrators and just testing and seeing that we're comfortable we're getting the right caliber of people into the business.
The other thing we do is we always look at, like I said, the target customer segment. How many customers we think we can eventually have, and then we set ourselves a plan for achieving that target. It's a multi-year target, so it's very paced. John?
Yeah. Hi, Dave. I'll probably add into that. I mean, what's important to us and exactly as Gerard said, is the measured pace of that growth. And what that actually brings is a relatively shallow J- curve. Whenever we go into a new territory, the losses in those territories are relatively low. You know, you're talking small single digits, very small single digits. That's really important in terms of, you know, whilst Mexico is a growth business and growing really nicely, it is still delivering our target return. You know, we ensure that those that, you know, as I say, that J- curve is relatively shallow. It takes about three years for the region to be profitable.
The losses that we're taking there because of that very phased approach, because it's measured, are relatively low, which is obviously important in delivering our target return.
Very helpful. Thank you.
Thank you. Once again, if you would like to ask a question, please press star one. Dear speakers, it appears there is no further questions at this time. I'd like to turn the conference back to you for any additional or closing remarks. Thank you.
Thank you, Priscilla. You know, on behalf of Gary and myself, I can say that we're very pleased with the first quarter. Good top line growth momentum. Nice to see the improvement in the yield on the portfolio 'cause we've been working hard on that. Very good work on taking cost out of the business, as you would expect, that should lead to an improved P&L. Feeling good about customer demand. Feeling very good about the rollout of the credit card in Poland. As I said, it's very early days, and we want to make sure that we're learning everything we should be learning about how the customers use the card and what they want from it. All in all, feeling good about the first quarter and carrying good momentum into quarter two and hopefully the second half.
As always, thank you very much for joining. If you have further questions, you can always contact the dealer directly or through Will Wade- Gery in investor relations. We're happy to have bilateral calls if anybody would like to do that. Thank you very much, everybody. Have a good day.
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