Hello and welcome to the International Personal Finance 2025 Q1 Trading Update Briefing, hosted by Chief Executive Officer Gerard Ryan. My name is Seb, and I'll be the operator for your call today. If you would like to ask a question, you can do so by pressing star one on your telephone keypad or press star two to withdraw your question. If you're listening to the call online, you can submit a question by text using the Q&A chat box in the top right-hand corner of the screen. I will now hand over to Gerard to begin today's conference.
Thank you, Seb. Good morning, everyone, and thank you for joining us for our Q1 Trading Update call this morning. I am here today with Gary, our CFO, and together we will take you through the strong performance we delivered in the first quarter. We will also share some color on what we are seeing across our divisions and update you on our funding position and progress against our strategy. As always, we will have plenty of time at the end for Q&A. If you have had the opportunity to read today's trading update, you will have seen that we have made an excellent start to 2025 and delivered good growth across all three of our divisions. We saw continued strong demand for credit from our customer segment, and I am happy to report that we delivered an increase in customer lending of 12% year-on-year at constant exchange rates.
Now, in that, we had particularly robust performances in Poland and Romania home credit, and our digital businesses in Mexico and Australia continued their very strong momentum. In addition, I'm really pleased to report that Creditea, and that's our Mexico digital business, is now serving over 100,000 customers. And truthfully, I'd have to say I think that's only the beginning of their journey to becoming a very substantial part of our overall group. As a result of our strong growth, closing net receivables increased by 10% to reach GBP 885 million at the end of March. As we look forward, we'd expect the pace of receivable growth to pick up as the year progresses.
Now, in the main, this will be driven by continued strong lending momentum as well as more favorable year-on-year comparatives, especially in Poland, where our business is back in growth mode, supported by the full payment institution license, but also, and this is really important, increased growth coming from Mexico home credit. Now, moving on to the portfolio, we're very pleased with customer repayment behavior, and credit quality continues to be excellent, driving the group annualized impairment rate down to just below 9%. Now, as you know, this is clearly below our target range of 14%-16%, and this puts us in a strong position to accelerate lending growth as we progress through the remainder of the year. Our annualized revenue yield edged down slightly from 54.7% at the year end to just over 54% at the end of the quarter.
As expected, this was mainly driven by the lower yield coming from Poland. Now, if we exclude Poland, our annualized revenue yield actually strengthened to 57%, which is right in the middle of our target range of 56%-58%. Our cost-income ratio held steady at 61% for the quarter, and we do expect to see this ratio start to improve as we continue to grow revenue and, most importantly, deliver on our investments in technology to improve cost efficiency, streamline the customer journey, and standardize our internal processes. Touching now on our balance sheet and funding position, both of which I'm pleased to say are in great shape and ready to support our goals for growth for the rest of the year, plus our progressive dividend policy. We saw a slight increase in our equity-to-receivables ratio from 54%- 55%, reflecting capital generation and favorable FX movements.
We also successfully secured GBP 36 million of new bank funding in the first quarter, and we ended Q1 with GBP 122 million of headroom. Now, for those of you who follow us regularly, you'll have seen that we took advantage of our balance sheet strength and repaid the remaining GBP 66.7 million of our 2020 Eurobond at par, demonstrating our proactive approach to capital management. Our 2029 Eurobond and 2027 retail bonds continue to trade very positively, positioning us well to access the capital markets at the appropriate time, given the growth that we're expecting this year. As we announced with our full year results, we intend to undertake a further GBP 15 million share buyback to be completed by the end of Q3 of this year. Now, as it's just quarter one, I guess this is quite brief. That brings me to the end of the current update.
We're focused on delivering growth to enhance returns to our shareholders. Our balance sheet is very strong with excellent portfolio quality. We have a solid funding base, and the execution of our next-gen strategy is progressing very well. Looking ahead, our Q1 performance continues our excellent momentum and gives us confidence to accelerate our pace of growth and change, increase in financial inclusion, and perform successfully against our own financial plans for 2025, which I think most of you are well versed in. All of the details of our trading statement are available on our website, and a recording of this call will be uploaded later this morning. With that, I'm going to hand you back to Seb, and hopefully we have some questions from you that we can answer here today. Seb, over to you.
Thank you. As a reminder, please press star one if you would like to ask a question. You can also submit a written question using the Q&A chat box in the top right-hand corner of the screen if you're listening to the call online. Our first question on the phone lines is from Stephen Payne at Peel Hunt. Please go ahead.
Good morning. Thanks for the questions. First of all, I'm looking at the impairment rate. I mean, clearly, very strong performance down at 9%, which is a long way below the sort of 14%-16% guided range. I appreciate that as the lending growth accelerates, that will move up. But will it actually get to the 14%-16% range, and what will drive that?
Morning, Steven, and morning, everybody. Yeah, I mean, clearly, as you can see, I mean, we're very pleased with the impairment performance. It's probably tracking a little bit ahead of our plans. I think in the first quarter, in terms of growth, we've obviously grown strongly, probably a touch behind where we were looking to be. That was a really slow start in January, but really momentum's really picked up through the quarter. March was strong. April's looking strong as well. That contributed to the impairment being a bit ahead. To be honest, one of the main factors was the teams out in each of the markets, our field teams, the agents or customer reps, and the whole team collection performance has been very strong. That's why we're a touch ahead.
I think as we go further forward, and as Gerard said, we're looking to accelerate growth because there's really strong demand. The businesses are performing well. And as you know, that will come with increased impairment. It naturally does. I think when you then factor in the fact that both Mexico digital is growing really strongly and its impairment rate is more around 20%, and equally, Mexico home credit after the IT upgrade is now really starting to perform and grow again, and they'll come up against pretty weak comparatives at the back end of next year, and the impairment rate there is more around your 30%, you'll see the impairment rate naturally rise as we put through that growth. But are we on the right side of impairment in terms of our target range? Yes, we are.
Okay, great. I mean, specifically on Mexico, just wondering if you've seen any impact on the ground there from the sort of U.S. tariffs and impacting on the Mexican economy?
No, clearly, there's a lot of nervousness, as you'd expect, given how closely the Mexican economy is tied into the U.S. That is a two-way relationship, and I think that's something that the Americans are probably waking up to a bit more now. If they go ahead with those tariffs in full, clearly, it would be damaging to the overall economy. It has to be said that our customer segment is a long way down the value chain. There is nothing that we see today. Truthfully, if the tariffs were to go ahead in full, it would be some time I would expect before we would see anything really impacting our customer segment. It is clearly something we hope will be avoided. I do think Sheinbaum is playing a clever game in trying to appease Trump. Let's see where that gets to.
I think the big exposures are for specific industries, so cement manufacturing, auto, stuff like that, a lot of agricultural stuff. It tends not to be where our customers are, but hopefully something to be avoided.
Okay, great. Thank you.
Thank you. Our next question is from Rae Maile at Panmure Liberum. Please go ahead.
Morning, all. I wonder whether we could just touch on Poland and the credit card. Obviously, this is one of the key routes for growth this year. How's everything bedding down now to the 1st of May?
Morning, Ray. I'm sorry for missing you yesterday. Going well, actually. Obviously, the big thing for us was getting that large payment institution license and not to rehash all things, but it's important to context here, which is that with the smaller license, we were put in the invidious position that we had to choose between looking for new customers and encouraging existing customers with cards to actively use their cards, which is the lifeblood of a card portfolio. Now that we have the large license, we can ignore those constraints, and it takes a little time just to warm up your existing portfolio. In terms of new customers, all good. In terms of the existing portfolio and ensuring the customers understand how they can actively use the card, it just takes a little time. Overall, I'd have to say we're very pleased with the portfolio.
We're incredibly pleased, and in some ways, still very surprised at how actively a large cohort of the customers are actively using that card every week of the month. That bodes well for having a live portfolio as we go forward. In terms of the quality of the portfolio, I'd have to say really very, very good. To all intents and purposes, mimicking the quality of an installment loan portfolio, not surprising, given that the card is designed to act like an installment loan, i.e., you make a drawdown, and then you have to repay that drawdown in 11 equal installments. It is not like the evergreen that you and I might be used to. Overall, I'd say we're very pleased.
I think as we go through the year, we will see an acceleration of activity as we, I suppose, fire up the existing portfolio as well as bring on new customers.
That's great. Thank you.
Thank you. Our next question comes from Gary Greenwood at Shore Capital. Please go ahead.
I just had one question around Romania, which I think you called out as having delivered strong growth in the first quarter. I presume that's largely reflective of the retail partnerships that you've got there. Maybe if you could just talk a little bit about how those are going and then also sort of plans to expand that into other markets, given how well it seems to be going in Romania. Thank you.
Yeah, hi, Gary. Yeah, there are a number of things going on there. The home credit business, as you would know it, is performing very well. We're really pleased with that. In addition to that, you have two new businesses, one of which you referred to, which is the retail partnerships. The second is the digital business because our belief is that wherever we have home credit, we should have an embedded digital business to give our customers a broader range of options to access us. Both the digital and the partnerships, partnerships being retail, are doing very nicely in terms of bringing through the volume. As we've discussed before, when you open up a new distribution channel, you automatically skew the customers that you bring through that channel. You have to calibrate a new scorecard first.
Now, in terms of partnerships, we're doing very nicely on that, and digital is coming up the track as well. I would say versus our internal plans, we're really pleased with where we've got to. At the end of 2024, we did some tightenings on one of those channels just to make sure the quality was right. We're now seeing that quality improve, and we're pleased to open it up again to more volume, I suppose. All in all, I'd say we're really happy with the performance of that business. In terms of where do we go next with retail, we're already in Mexico, and we've signed up over 50 retailers in Mexico, and there's a lot more to come. The issue in Mexico is that you can get absolutely inundated with applications. The trick there is to sift for the good quality ones.
That's what we're doing at the moment. Again, it's back to the same thing, building your scorecard that's appropriate for the channel through which you're acquiring the customers. In Romania, now in Mexico and building from there. My view is that it's a perfectly appropriate channel, a retail channel, it's a perfectly appropriate channel for practically all countries where we have home credit. Maybe Hungary might be a little bit more difficult because of rate caps. Other than that, I would see it being in all the other home credit countries.
Thank you very much.
Thank you. We will now move on to questions we have received via text. First here from James Lowen at J O Hambro Capital Management. How much will we push lending growth versus where you were at the start of the year, given impairment trends? Poland seems very positive. Can you reconcile that to the guided [V] in profit at the time of the changes?
Morning, James. Yeah, in terms of growth, as we said, we've started the quarter really well, momentum's really positive, and as you say, the impairment's in really good shape. With demand as it is and with the momentum we've got in the business, we want to make sure we capture that opportunity. I think we guided to pretty strong growth, anything GBP 130-150 million receivables growth this year, which is still firmly our aim. In effect, we want to invest a little bit of that impairment upside into making sure we do capture the opportunity. If it's a question around the numbers in the market or consensus, we're still very comfortable with where the market is, both in terms of growth and the net profit line as well. All really happy.
As Gerard mentioned, clearly, the first quarter for Poland was reestablishing itself post getting the full payment license, and we fully expect now the business to start picking up growth as well.
Thank you. Moving on to our next question here. Can you please provide more color on revenue yield and a sense as to what extent the runoff of the backbook in Poland is dragging down the yield? How big is the backbook in Poland, and how much of it ran off in Q1?
Yeah, quite a number of things in there. I mean, I would say in terms of Poland now, I would say there really isn't a backbook anymore. It's pretty much all a frontbook that's being written post the changes in the rate cap that we saw both on loans and credit cards. From our perspective, I think we're seeing the end of the revenue yield degradation that we've seen in Poland. In terms of the group as a whole, as you move forward, we'd fully expect to be, obviously, the Polish revenue yield, probably something more in the mid 40s. You might say that would bring the group down a little bit as we go forward. More than compensating for that, you've got the growth that we're delivering in Mexico digital, where the yield is more near a 60%.
You have got Mexico home credit, where the yield is more in the mid 80%- 90%. Net net, we expect the yield to move to about between the group's target as we regrow, particularly the Mexican businesses.
Thank you. Next question is from Penelope Fitzherbert at Guy Butler. Should we assume headroom reduced by the amount of the bond redemption just after the quarter end?
No, it was actually part of the number. Our headroom of GBP 122 million is after that. I mean, clearly, we'll be funding the share buyback. You can assume GBP 15 million of the GBP 122 million will be going to that. The other GBP 100 million will be funding growth. We've got some pretty strong growth targets for the remainder of the year. That funding will support that. Clearly, as you know, we always look ahead. We will look to be active in the market again. As Gerard mentioned in the summary, our bonds are trading really positively, and that puts us in really good stead to return to the market, sort of Q2, Q3, to make sure that we're funding 2026.
Thank you. Moving on to the next question from Gary Stockdale at Vesta Wealth. What is the revenue yield target for the Polish business moving forward?
Yeah, I think I actually answered that one previously. Something more in the mid 40s for Poland, Poland home credit. I think, as we talked about earlier, the credit quality is very good in Poland. Its impairment rate will be sort of high single digits to go with that. Yeah, somewhere in the mid 40s is probably about right. Mid to late 40s would be the target for Poland going forward.
Thank you. Last question we have here is from David Butler at Alliance. Could you please say something about the drivers of the strong demand you mentioned, e.g., new customers coming on board versus existing customers increasing their balances or sustaining higher balances?
Sure. Good morning, David. It's a combination, as you'd expect, in a business like ours. We did mention at the top of the call just how pleased we are with performances in certain businesses. I'd have to say Romania and Poland, really strong growth, and it's a combination of new and existing customers. On the existing customers, we need to bear in mind that practically in all our countries now, there are regulations around debt to income, so thresholds that you can't breach. Despite customers might want more money, if their income doesn't support them, we won't lend them more money. We do need to actively generate new customers, and that's proving very successful for us. You have on the digital businesses, Australia and Mexico, two powerhouses, and I have to say, absolutely delighted with their performance.
The fact that Mexico Creditea, that's our digital business there, has just ticked over 100,000 customers, whereas it's not that long ago we were talking about 60,000 customers, feels really, really positive to us. The other thing is that with the channels we spoke about a minute ago with Gary from Shore, on the retail side, what we're finding on retail and digital in Romania is that upwards of 90% of the customers coming to us from those channels are new to us customers, never seen before. That's really encouraging because what we find is that once customers come to us one time, actually a good proportion of them, fully probably 2/3, come back for a second or further loan.
Very encouraging news all around, and I'm really positive about the impact that the new distribution channels can have for the business in acquiring new customers.
Thank you. We just had a follow-up here. On cost-income ratio, are there any drivers in Q1 that drove the high number?
I mean, the cost-income ratio was flat, which is in Q1, which is cost being the revenue yield coming off a little bit of Poland, as we described, and cost being pretty flattish year-on-year. That is why the number is 61%. If you look on a go-forward basis, clearly, with the shrinkage we had in Poland over the last two years, which is circa GBP 100 million of receivables, we need to regrow those. We have always said that. That is why some of our capital is set aside to get the business back to where it was. As we deliver the strong growth this year and next year, we keep the revenue yield in our target range, particularly through the growth in the Mexican businesses. We would expect that cost-income ratio to obviously reduce to our target.
You obviously overlay to that, and we've talked quite extensively about a lot of the efficiencies that we're looking at driving through the business, some of it through technology, others through ensuring that we share best practice well throughout the group. That is all on track. The cost-income ratio is in line with where we expect it to be. Is it where we want it to be ultimately? No. That is why we're looking at growing the business and maintaining our tight focus on cost. We fully expect that over the next two years, we'll be getting back down to our target range.
Thank you. At this time, we have no further questions in the call. I'll just hand back to Gerard for any closing remarks.
Thank you very much. Thank you, everybody, for joining us this morning. Obviously, all of these details will be up on our website, including this call, very shortly. Just to round out, we've had a really good quarter, really good momentum, and the momentum built as we went through the quarter. I am particularly optimistic as we face into the rest of the year. The great thing about this business is we have a very clear purpose. Our people love working in this business. We have a lot of people who served 10, 20 plus years, and they love it like the day they walked into the business. I have been out in both Poland and Hungary earlier this week, and it is great to see the interaction between our people and our customers.
It bodes well for the future of this business, and hopefully, you can see that coming through in the results today. Thank you very much for joining us. If you have any further detailed questions, you can obviously contact us directly, and the details are at the bottom of the release we put out this morning. Thank you very much. Enjoy your week.
Thank you.
This concludes today's conference call. Thank you all very much for joining, and you may now disconnect.