IPF Annual Report 2011

7/31/2019 IPF Annual Report 2011

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Annual Report andFinancial Statements 2011

A resilientgrowth busines


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We are a growing international Groupproviding home credit to customers insix markets. Meeting the needs of our

customers with small cash loans liesat the heart of our business. We aim tocontinue to deliver sustainable long-termprot growth by focusing on providingsimple nancial products and expandingour business in our existing territoriesand new markets.

How we report on sustainability

We believe that meeting our broadcorporate and social responsibilities and

satisfying our stakeholders expectationsare essential to maintaining a sustainablebusiness and adding future shareholdervalue. As such, we publish an integratedAnnual Report and Financial Statements,reporting our non-nancial performancealongside our nancial performance.

At www.ipn.co.uk/sustainability you cannd details of activities being undertakento improve our non-nancial performance;

our latest Global Reporting Initiative Index;reporting against the UN Global Compact;and progress towards our sustainabilityobjectives.

Cautionary statementThe purpose o this report is to provide inormation to the members o the Company. The Annual Report and Financial Statements contains certainorward-looking statements with respect to the operations, per ormance and fnancial condition o the Group. By their nature, these statements

involve uncertainty since uture events and circumstances can cause results and developments to dier materially rom those anticipated. Theorward-looking statements reect knowledge and inormation available at the date o preparation o the Annual Report and Financial Statementsand the Company undertakes no obligation to update these orward-looking statements (other than to the extent required by legislation; and theListing Rules and the Disclosure and Transparency Rules o the Financial Services Authority). Nothing in this Annual Report and FinancialStatements should be construed as a proft orecast.

International Personal Finance plc. Company number: 6018973.

Percentage change fgures or all perormance measures, other than proft or loss beore taxation and earnings per share, unless otherwise stated,are quoted ater restating prior year fgures at a constant exchange rate (CER) or 2011 in order to present the underlying perormance variance.

Welcome to International Personal Finance (IPF)

For more information visit

www.ipn.co.uk


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DirectorsReport:BusinessReview 0www.ipn.co.uk/annualreport

Customers

2.4 million, up 8.8%

Creditissued

844.5 million, up 11.5%

Netreceivables

560.4 million, up 10.3%

Revenue

649.5 million, up 7.4%

Protbeforetaxation

100.5 million, up 9.1%*

Earningspershare

28.55 pence, up 9.2%

Dividendpershare

7.1pence, up 13.2%*2010excludinganexceptionalchargeof3.9million.Adjustedtoaconstant28%taxrateandwith2010excludinganexceptionalchargeof3.9million.

Directors Report: Business Review01 Highlights

02 Groupataglance

02 AnintroductiontoInternationalPersonalFinance02 Asustainablebusinessmodel04 Ourinvestmentproposition06 Ouroperations

08 Chairmansstatement

10 ChiefExecutiveOfcersreview

10 Overview10 Reviewof201111 Marketoverview12 Ourstrategy13 Deliveringsustainableperformance18 KeyPerformanceIndicators22 Principalrisks

28 Performancereview

28 Operationalreview34 Financialreview

Directors Report: Governance38 OurBoardandCommittees39 OurSeniorManagementGroup40 Corporategovernancestatement54 Otherinformation

Directors Remuneration Report58 DirectorsRemunerationReport

Independent assurance report

71 Independentassurancereport

Financial Statements72 Independentauditorsreport73 Consolidatedincomestatement74 Statementsofcomprehensiveincome75 Balancesheets76 Statementsofchangesinequity78 Cashowstatements79 Accountingpolicies84 NotestotheFinancialStatements

Supplementary Information111 Shareholderinformation

Highlights Contents


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02 InternationalPersonalFinanceplc AnnualReportandFinancialStatements2011

Financial inclusionWehelpbringcustomersintothenancialmainstreambyprovidinghomecredittothosewhoneedit.

Manyofourcustomersdonothaveacredithistoryandsomaybeexcludedfromothercreditproducts.Somemaybetakingaloanforthersttime,whileothersmayhaveusedretailcreditorborrowedmoneyfromfamilyandfriendsinthepast.Inadditiontothoselivinginurbanareas,weservethosefromruralcommunitieswhomaynothavethemeanstotravellongdistancestoabank.Someofourcustomersuseourloansforeducationortohelpfundasmallbusiness,whichmeansaccesstocreditintheshorttermcanleadtonancialwell-beinginthelongterm.

A sustainable business modelOurapproachtosustainabilitybalancesshort-termresultswithlong-termgrowth.Wearemakingourbusinessmodelmoreeffectiveandefcientandsobetterabletodelivershareholdervalue.

Ourprotcomesfromlendingresponsiblytonewandexistingcustomerswhilemanagingourcostbasetoensureefcientuseofresources.Increasedprotcomes fromcustomergrowthandlendingmoretothosewhohaveshowntheirabilitytorepay.Highlevelsofservicewhichdrivecustomersatisfactionarethereforekeyto

retentionandgrowth.Centraltoourapproachisregularfacetofacecontactwithcustomers.Weeklyhomevisitsbyouragentshelpcustomersstayincontroloftheirrepayments.Ouragentsarealsobestplacedtojudgepotentialnewloanopportunities.

Who we areWearealeadinginternationalhomecreditbusinessserving2.4millioncustomers.WeoperateusingtheProvidentbrandinsixmarkets:Poland,theCzech

Republic,Slovakia,Hungary,MexicoandRomania.Withinthesecountriesthereisincreasingdemandforcreditbutconsumersarerelativelyunderservedbynancialinstitutions,particularlythosepeoplewantingsmallerloans.Wehavemorethan6,300employeesand28,400agents.

What we doWeofferapersonalhomecreditservicetoourcustomerswhowanttoborrowmoneyquicklyandinamanageableandtransparentway.

Ourhomecreditproductcomprisestwocoreelements:

1.asmallsum,short-termunsecuredcashloan,rangingfrom50to1,000repaidoveraperiodofaround

12monthsbymoneytransfertoabankaccount;and

2.anoptionalpersonalhomecollectionserviceprovidedbydedicatedagentswhodelivertheloantoandcollectrepaymentsfromthecustomershomeeachweek.Akeyfeatureofthisoptionisthatcustomerswhochoosetheagentservicebenetfromnoextracharges formissedorlaterepayments.

An introduction to International Personal Finance

Group at a glance

Readmore>www.ipn.co.uk


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04 InternationalPersonalFinanceplcAnnualReportandFinancialStatements2011

Effective riskmanagement systemsEffectiveriskmanagementunderpinsourbusinessand

isembeddedinourapproachtoshortandlong-termdecisiontaking.Thisissupportedbywell-developedsystemsandprocessesthatreachfromthecustomertotheBoardandtouchallofouractivities,fromprovisioningsystems,creditlossesandfundingtoagentsafety.

25.8% impairmentas a % o revenue

2.2% creditexceptions

Ourbusinessgeneratesahealthyreturnonequityandwemaintainawell-

capitalisedbalancesheettosupportourlong-termgrowth.

Growthisfundamentaltofulllingourvisionandachievingourplans.Weareresilientandprotable,focusedonmarketswherewehaveidentiedsignicantgrowthopportunities.

Wehaveaclearandconsistentstrategysupportedbyaleadingbrandpresenceinourmarkets,strongriskmanagementsystemsandacustomercentricapproach.

Resilientbusiness modelTheresilienceofourbusinessmodelcomesfromclose,weekly

contactwithourcustomers,theeffectivenessofourriskandcreditsystemsandtheshort-termnatureofourloanbook.Weareprovingthisresilienceaswemanagethebusinesssuccessfullythroughtheglobaleconomicdownturn.

Evenduringchallengingtimes,thebusinessmodelgeneratesgoodmarginsandreturns.In2011wegeneratedaprotmarginof15.5%andareturnoncapital

employedof22.7%.

100.5 millionproft

15.5% proftmargin

Group at a glance

Our investment proposition

Readmore>Financialreview,page34


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DirectorsReport:BusinessReview 0 www.ipn.co.uk/annualreport

Experienced andmotivated peopleTheengagementofourpeopleandtheleadershipskillsandexpertiseof

ourBoardandseniormanagementarekeytodeliveringsuccess.Ourdevelopmentprogrammesfocusonbuildingtheskillsofourmanagerstocreatethenextgenerationofleaders.

OurBoardhasextensiveexperienceofoperatingpubliclistedcompaniesininternationalmarkets.OurSeniorManagementGrouphasastrongandsuccessfultrackrecordandcombineslong-termhomecreditexpertisewithwidernancial

servicesexperience.

81.1% employeeretention

59.1% agentretention

Strongnancial proleOurhomecreditbusinessmodeliscashandcapitalgenerative.Weare

wellcapitalisedwithshareholdersequityrepresenting58.5%ofreceivables,theequivalentofabanksTier1ratio.In2011,theGroupgenerated144.3millionofcashfromoperationsbeforegrowingreceivablesby61.6million.Wehaveadiversieddebtfundingstructure,withamixofbondandbankfacilitiesandabalancedmaturityprole.Wehavegoodcoveragainstallofourcorefundingcovenants.

58.5% equity toreceivables ratio

0.8x gearing

Good protablegrowth prospectsWeareimprovingandexpandingouroperationsinexistingmarkets

todeliverfurthergrowthandprotability.Wealsoseeopportunitiesinnewmarketsaroundtheworldwheredemandforsmallsumcashloansisincreasing.

Improvingmarketpenetrationinunder-representedregionsinourestablishedmarketswillresultinstrongprotgrowthasitleveragesourexistinginvestmentincountry-widebranchinfrastructure.Inourdevelopingmarketswealsoseethe

opportunityforfurthergeographicexpansion.

8 new branches

9% growthin customers


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Poland Page30

Astrongperformance,excellentgrowth,stablecreditqualityand

controlledcosts.

Czech Republicand Slovakia Page31

Asolidperformancewithincreasedrevenueoffsetbyhigherfundingmarginsandhighercostsofcustomerrebates.

Weoperateinsixcountries.

Thankstothenatureofourbusinessmodel,wherever

wework,ouragentsknowtheircustomerspersonallyandunderstandtheirneedsin2011,theymademorethan100millionhomevisits.

OurinternationaloperationsaresupportedbyacentralteambasedinLeedsintheUK.

Group at a glance

Our operations

Established marketsOurestablishedmarketscomprise Poland,theCzechRepublic,Slovakia

andHungary.

Established

1997Population

38.2mNumberofcustomers

834,000Numberofemployees

2,000Numberofagents

9,400

Numberofbranches

79Averagecreditissuedpercustomer

394Currency

Polish zloty

20112010

49.0

66.0

Profit before tax (m)

CzechRep.established

1997CzechRep.population

10.5mSlovakiaestablished

2001Slovakiapopulation



940Numberofagents

4,400

Numberofbranches


533

CzechRep.currencyCzech crownSlovakiacurrency

Euro

20112010

41.737.8


Poland

Hungary

Slovakia

Czech Republic

Readmore>Operationalreview,page28


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DirectorsReport:BusinessReview 0 www.ipn.co.uk/annualreport

Mexico Page32

Investmentinnewoperatingstructuregeneratedimproved

performance,muchlowerimpairmentandstrongergrowthbutreducedshort-termprot.

Established

2003

Population112.3mNumberofcustomers


1,900Numberofagents

8,300

Numberofbranches

52

Averagecreditissuedpercustomer

196Currency

Mexican peso

20112010

3.5

1.5


Mexico

Hungary Page32

Performedwellanddeliveredgoodgrowthandexcellentcreditquality.

Higherrebateandnancecostsimpactedprot.

Developing marketsMexicoandRomaniaourtwodevelopingmarketswhere

geographicexpansionisstillunderway.

Established

2001Population

10.0mNumberofcustomers252,000Numberofemployees

700Numberofagents

2,800*

Numberofbranches


426Currency

Hungarianforint

20112010

9.18.3


Romania Page33

Marketdevelopmentontrackexcellentresultandstronggrowth.

Established

2006Population



640Numberofagents

3,500

Numberofbranches


385

CurrencyRomanian leu

20112010

1.7

4.1


Romania

*AgentsinHungaryareemployedbytheCompany.


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ThisisthefthtimeInternationalPersonalFinancehasreportedasapubliccompanyanditisanappropriatetimetoputourperformanceintoperspective.Inaperiodofunprecedentedglobaleconomicturmoilanduncertaintymycolleagueshavecontinuedtodeliverimprovednancialperformancedrivenbystronggrowthincustomernumbersandcreditissued.Allourmarketswereprotableintheyear.

Almostveyearsagowebecameapubliccompanyandwesetourselvesfourstrategicgoals:

weplannedtobuildouroperationsinPoland,Hungary,theCzechRepublicandSlovakiaintoabusinessdeliveringover95millioninprots.In2011thesemarketsgeneratedaprotof112.1million.Goalmetbutthereisstillrealpotentialforfurthergrowth;

weplannedtotakeourdevelopingmarketsin

RomaniaandMexicointoprot.Lastyeartheycontributed5.6million.Goalmetbutwestillhavealongwaytogotoachievetheirfullprotpotential;

weplannedtoenternewmarkets.WeboughtasmallbankinRussiainlate2007andbeganamarkettestthefollowingyear.Wewithdrewin2009attheheightofthenancialcrisis.Wecontinuetobelieveinthepotentialfornewmarketsbutwillnotrushintothemuntilwegetbetterlineofsightonnancialmarketstability;and

weplannedtoimprovethecapitalefciencyofthe

businesswhenthecurrentturmoilincreditmarketshaspassed.Ithasnt,butourambitionremainsthesame.Meanwhile,wearegladthatourgrowinglendingbookisfundedinamuchmorediversiedmannerthanitwaswhenweoated.Thisstandsusingoodsteadintheseuncertaintimes.

SinceourdemergerfromProvidentFinancialplcin2007anddespiterecentchallengingeconomicconditions,wehavemorethandoubledourprotbeforetaxandincreasedourdividendstoshareholdersbyalmost50%.

Chairmans statement

Christopher Rodrigues, Chairman


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Finally,IwanttoexpressmyappreciationforthecontributionmadebyourChiefExecutive,JohnHarnett,wholeavesusattheendofMarch.ThestoryofIPFasapubliccompanyisthestoryofhisleadership.Hehas

navigatedourshipsuccessfullythroughthemosttestingofseasandwewillmisshim.NonethelesstheBoardbelievesthatwehavefoundanexcellentnewhelmsmaninGerardRyanwhojoinedusasCEO(Designate)inJanuaryandwillbecomeCEOattheendofMarch.

Despitechallengingglobaleconomicconditions,IPFdeliveredrecordresultsin2011andhasmadeanencouragingstartto2012.Whilsttheeconomicbackgroundcontinuestobeuncertain,wehavegoodprospectsforgrowthandarecondentthatthebusinesswillcontinuetoperformwell.

ChristopherRodriguesChairman

InJuly2007,wesaidweaimedtobealeadinginternationalproviderofsimplenancialproductsandservicestopeopleofmodestmeans.Wesaidwewouldachievethisbybuildingclose,long-termrelationships

withourcustomers,ourpeople,ourbusinesspartnersandthecommunitiesinwhichwework,throughtrustworthyandresponsiblebehaviour.

ThoseambitionsremainunchangedandIbelievewehavemadesomerealprogressinthepastveyears.ClearevidenceofthiscanbefoundinthereportingagainstsustainablebusinessperformancemeasuresinourAnnualReportthisyear.

Wearedoingsomegreatworktoimprovetheserviceweoffercustomers.Wecontinuetocutoutunnecessarybureaucracy.WearegivinglocalemployeesgreaterfreedomtooperateandcontinuetoinvestinlocalcommunityandnancialeducationprojectsacrosstheGroup.

Wealsohaveaproactiveapproachtoestablishingrelationshipswithallourstakeholders.Thesegroupshelpustounderstandtheimpactofourbusiness,productsandservicesonsociety.Byinvestinginimprovinglevelsofnancialliteracyandgivingaccesstocredittothosewhohavebeennanciallyexcluded,wearemakingapositiveimpactinbringingourcustomersintothenancialmainstream.

AnnualReportsnowincludeextensivecoverageon

Governance,RiskManagementandnancialperformance.IdonotproposetocovertheseitemsinmystatementtoyouastheyarecoveredindepthelsewhereinthereportbutIdowanttotakethisopportunitytoextendmythankstoourpeople,particularlyouragents,withoutwhomwewouldnothavesuchasuccessfulbusiness,andtotheBoardforthesupporttheygivetheExecutiveteaminrunningthebusiness.ParticularthanksareduetoCharlesGregsonwholeavesafter17yearsservingontheIPFBoardandthatofourpreviousparent,ProvidentFinancial.


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Ihavebeenaskedwhataspectsofthisperformancepleasememost:itisthematuringofthebusinessasafullyindependentlistedcompany,thedevelopmentofourpeopleandthecreationofaculturethatembracescontinuousimprovement.ThesearestrongfoundationsandIamcondentthatmysuccessor,GerardRyan,willbuildonthesetoleadthebusinesstoevengreatersuccess.

Onapersonalnote,IwishtothankeveryoneatIPFformakingthepastsixyearssofulllingandrewarding.

Review of 2011

Protbeforetaxationwasincreasedby9%toarecord100.5million,drivenbygoodgrowthincustomersandcreditissued,improvedcreditqualityandcontinuedcostcontrol.Thisallowedthebusinesstomakegoodprogressdespitetheexpectedincreaseinfundingcostsfollowing

the2010renancingandhigherearlysettlementrebatesarisingfromtheimplementationoftheEUConsumerCreditDirective,whichtogethertotalled23.6million.

Atthestartof2011ourkeyobjectivewastoaccelerategrowthagainstabackdropofimprovingeconomicconditionsinallourmarkets.Ourplanwastodrivegrowthbyrecruitingmoreagents,increasinginvestmentinmarketingandbytheselectiveeasingofcreditcontrols. Weincreasedagentnumbersby13%andmarketingexpenditureby2.1million,andthishelpedtodelivera9%increaseincustomernumbersandan11%increaseinaveragenetreceivablesforthefullyear.Astheglobal

economicenvironmentdeterioratedinthesecondhalfoftheyearandconsumercondenceinourEuropeanmarketsweakened,increasedcautionamongstEuropeanagentsandcustomersledtoaslowdowningrowthfortheGroup.

IstepdownasChiefExecutiveOfcerattheendofMarch2012,aftersixyearsatthehelm,duringwhichtimewehavedemergedfromProvidentFinancialplcandincreasedpre-taxprotfrom39milliontoover100million.Thistrackrecordofsuccessisduetothecombinedeffortsofateamoftalentedpeoplewhodisplayedgreatskill,dedicationandcommitmenttogrowingthebusinessduringaperiodofunparalleledglobaleconomicturbulence.

Overview

Chief Executive Ofcers review

Whats in this section10 Overview10 Reviewof201111 Marketoverview12 Ourstrategy13 Deliveringsustainableperformance18 KeyPerformanceIndicators22 Principalrisks

John Harnett, Chief Executive Ofcer


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TheEuropeaneconomiesinwhichweoperatearesignicantlyexposedtodevelopedWesternEuropeaneconomies.ItisnotablehoweverthatourlargestmarketPolandhasseenconsistentgrossdomesticproduct

(GDP)growththroughouttheglobaleconomicdownturnandcontinuestoshowitselftohavearesilientdomesticeconomy.OurcentralassumptionisforsloweconomicgrowthacrossourEuropeanmarketsasawholeduring2012.However,amovebackintorecessionisalsoarealpossibility.Wearewellpreparedforsuchanoutcomeandweprovedourabilitytohandleeconomicdownturnsduring2009.

GrowthoftheMexicaneconomy,withitsstrongerlinkstotheUnitedStates,hasnotbeenimpactedtothesameextentasourEuropeanmarkets.Inthismarket,growthissupportedbyincreasingexportsandstronger

domesticdemand.ForecastGDPgrowthoutlook

(%) 2011 201

2.5

1.7

4.2

1.9

Poland

1.7

(0.5)

Czech Republic

3.0

0.0

Slovakia

1.2

0.0

Hungary

3.9

3.0

Mexico Romania

Source:Citigrou

CompetitivelandscapeSincethe2009economicdownturnmanylendersinourEuropeanmarketshavereducedaccesstocreditforconsumersorwithdrawnfromthemarketcompletely.

Inthersthalfof2011wesawincreasedmarketingactivitybybanksandretaillendersinPolandandtheCzechRepublicbutthishassincereduced.

InMexico,grouplendingmodelscompeteinthesmallsumloanenvironmentasdoretailcreditandpawnbroking.Currently,therearenootherhomecreditproviders.

AchievingtherightbalancebetweengrowthandcreditqualitycanbechallengingandwewerepleasedthatalongsidestrongergrowthwewereabletoreducetheGroupimpairmentchargeasapercentageofrevenue

by1.8percentagepointsto25.8%.Asexpected,followinglastyearsrenancingwhichdeliveredlonger-term,diversieddebtfunding,nancecostsincreasedsharply,upby28%to42.9million.Othercostsincreasedinlinewithgrowthinthebusiness,witharoundtwothirdsoftheincreasereectingtheadditionalinvestmentinnewbranchesandeldmanagementtoincreaseourgeographicalpenetrationaswellasadditionalmarketingspend.

Market overview

Weoperateintheconsumercreditsectorofthe

nancialservicesindustry,whichincludescreditcards,unsecuredpersonalloans,retailcredit,overdrafts,homecredit,homeshoppingcataloguesandpawnbrokinglending.AccordingtoEuromonitorthesectorisworthapproximately71billioninthemarketsweoperate.

Demandforcreditinemergingmarketsisonalong-termgrowthtrend.Intheimmediateaftermathoftheglobalrecession,however,increasedcautionhasdampenedgrowthandinsomemarketstherehasbeenareductionintheuseofconsumercredit.Atthesametime,manybankshavecurtailedorclosedtheirconsumercreditoperationsand,intheselesscompetitiveconditions,wehaveseenourcreditissuedincreasingandourmarketsharegrowing.

EconomicenvironmentEconomicconditionsinEuropeareuncertainandeconomicgrowthslowedrapidlyduringthesecondhalfof2011.Consumercondenceinthersthalfof2011wasbroadlystablebutinquarter3,astheeurozonenancialcrisisimpactedmarketsaroundtheworld,condenceinourEuropeanmarketsbegantodecrease.Weexpectthatconsumerswillremaincautiousin2012,butwealsoexpectacceleratedgrowthopportunitiessubsequently

asconsumercondencereturnswhilelevelsofcompetitionremainsubdued.


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Ouraimistodeliversustainablelong-termshareholdervalue.Weconcentrateonachievingthreestrategicobjectiveswhichareaimedatcreating,growingandimprovinglong-termnancialandnon-nancialperformance.

Our strategy



Readmore>Operationalreview,page28

Ourgoal

Sustainablelong-term

shareholdervalue

Our visionMakeadifferencein

everydaylifebyofferingsimplenancialsolutions

Our strategic objectives1.Optimiseprotabilityofestablishedmarkets

2.Realiseprotpotentialofdevelopingmarkets

3.Enternewmarkets

Our valuesWearerespectful

Weareresponsible

Wearestraightforward

Wewillmakeourdecisionsbasedonasetofethicalpolicies.

Wearefocusedanddisciplinedonthedeliveryofourobjectives.

Webelieveinofferingproductsandservicesthat tourcustomersneeds.

Webelieveinmakingdecisionswhichwillhavepositiveimpactsinthelongerterm.


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www.ipn.co.uk/annualreport DirectorsReport:BusinessReview 1

In2011weimplementedaframeworkforastandardorganisationalapproachtowardssuccessionandresourceplanning.Tosupporttalentdevelopmentandbusinessgrowth,wehaveanaccelerateddevelopment

programmeforsenioroperationalmanagerswhichwillproducefutureleaderswithabroadbusinessperspective.

Stakeholder engagement

Stakeholderengagementisanimportantpartofourapproachtosustainability.Ithelpsustounderstandtheimpactofourbusinessonsociety,bettermanageriskandidentifyopportunitiesforgrowth.

In2011weheldstakeholderworkshopsinallourmarketsandaroundtableinBrussels.TheseeventsgiveourstakeholderstheopportunitytoengagedirectlywithIPF.Inmostofourmarketswearetheonlynancial

servicesbusinessengaginginsuchopendialogue.Issuesraisedincludedmobilepaymenttechnology,thesocialimpactofourproductsandservices,nancialeducation,productdiversicationandhowweworkpotentiallywithsocialserviceprovidersandpublicauthoritiestobetteraddresspoverty.

Wereportonstakeholderfeedbackeachyearandourresponsecanbefoundatwww.ipn.co.uk/sustainability.

Customer retention and lifetime value

Repeatbusinesstellsusourcustomerslikeour

serviceanditallowsustotakearesponsible,long-termapproachtolending,ensuringweincreaseloansizegraduallyanddonotoverstretchourcustomers.

Creditriskmanagementisbasedprimarilyaroundtherelationshipbetweenagentsandtheircustomers.Asthefaceofourbusiness,agentsarekeytoassessingacustomerscapacitytorepay,andaresupportedbysophisticatedcreditriskmanagementsystems.

Akeyfocusinhelpingtodeliverourstrategicobjectivesistocreateanorganisationthatencouragesamore

entrepreneurial,localisedapproachtooperationalmanagementandperformance.

Weaimtodeliverthisbyempoweringthoseemployeeswhoareclosesttoourcustomerstocreateandmanagelocalbusinessplans,budgetsandperformancetargets,andtosupportthemingainingtheknowledge,skillsandbehavioursnecessaryfortheircontinuedsuccess.

Delivering sustainable perormance



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Balanced scorecard

Toensurewehaveaclearlinkbetweenourstrategyandroles,andtodriveperformancethroughteamalignment,weareimplementingabalancedscorecardapproach.

Ouraimistoassessandrewardperformanceacrossacoresetofmeasures.Thesenewmeasureswilltargetthecoreperformancedriversthatleadtobusinesssuccess.Thesixkeyareasare:

peoplerecruitandretaintherightpeoplewhoarefullyengaged;

safetyandoperationalexcellenceoperateinasafewayincompliancewithoperationalframework;

customerserviceleadstosatisedcustomerswhostaywithusandrecommendustoothers;

buildingfuturevaluegeneratingmoreselling

opportunitiesandincreasedsalesthroughmorequalitycustomers;

collectionsandarrearsimprovingcollectionsandreducingbaddebtwhich,inturn,providesmoresalesopportunities;and

nancialallleadingtothenancialsuccessofourbusiness,sharedbyallourstakeholders.

Customer satisfaction

Deliveringacreditproductthatourcustomerswanttogetherwithexcellentcustomerserviceisvitaltoachievingourstrategicobjectives.Werealisecustomer

expectationsarerisingandneedtorespondbylisteningandcontinuallyimprovingtheservicethatourpeopleprovide.Thatswhyweinterview30,000customerseachmonth,askingthemtoscoreusonservicelevels.

Branch-based credit strategies

Amajorchangesupportingthesustainablegrowthofourbusinesshasbeenthemovefromacountrywideblanketcreditpolicytoalocalisedbranch-basedapproachoverthepastthreeyears.Thishasenabledustobemorepreciseinourcreditmanagement,respondtolocalconditionsandidentifyopportunitiesandriskswhich

arenotapparentatacountrylevel.

Branchperformanceismonitoredmonthlyandweusethisdatatoadjustcreditrules,marketingspendandincentivesatbranchlevel.Forexample,inabranchwherecreditperformanceisverygood,wecanrelaxcreditsettingsandimplementlocalmarketingspendforgrowthandincentivesfocusedprimarilyonsales.Ifabranchhaspoorercreditperformancethenwecantightencreditsettings,limitmarketingactivityandtheoperationalandincentivefocuswillbeoncollectingarrears.

Thesecontrolsarehighlyexible,allowingmanagement

toadapttothechangingbusinessenvironment.Thisapproachhasbeenkeyinsuccessfullycontrollingcreditqualityduringtheglobaleconomicdownturn.

Delivering sustainable perormancecontinued



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Our sustainabilityprinciples

CustomersAsaresponsible

lender,weprovideasimple,transparentandexibleproduct,offerachoiceofrepaymentmethodsandactonfeedback.

MediaWeissueclearand

transparentcommunicationsandanswerquestions

rapidly,openlyandhonestly.

AgentsWeremunerateagentswithfairincentives;seek

lasting,workingrelationships;andprovideguidancetohelp

themmeetcustomerexpectationsanddevelop

theiragency.

Communitiesand wider societyWeoperatetohigh

ethicalstandardsandmake

apositivecontributiontoourcommunities.

EmployeesWemanageand

motivateourpeopleinawaythatgivesthemeveryopportunitytosucceed.

Businesspartners

Weworkcloselywithourbusinesspartnersinan

environmentofmutualtrustandrespectandwithclearguidance.

EnvironmentWeseektofully

understandtheimpactofouractivitiesontheenvironmentandstrivetoreduceharmful

effects.

ShareholdersWeaimtodeliver

sustainablelong-termshareholdervalue.

Sustainability principles

Everythingwedoisbuiltonthefoundationsofoursustainabilityprinciples.In2011wecarriedoutworktoformalisetheseprinciplesandbuildastrongermanagementframeworktosupporttheiruseineverydaybusinessdecisions.Thesedenehowwetreateachstakeholdergroupandunderpinourvisionofbeinga

sustainablebusiness,ourcorporatebehaviourandourbusinesspractices.


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Weworkwithcharities,non-governmentaland/orconsumerprotectionorganisationsacrossallourmarkets.Ournancialeducationworkisalsopromotedtoourcustomers,agentsandemployees.In2011we

trained200professionalswhohaveinturndisseminatednancialskillstoover20,000people.

Activitiesinvolvepromotingnancialeducationinareaswhereresearchhasshownlowlevelsofawarenessandgapsintheprovisionofnancialeducation.Wedothisthroughcollaborativeworkinggroups,communicationandmediacampaigns,andrunningmoneymanagementworkshopswithpartners.

OurFamilyBudgetProgrammeinRomaniaisfuellingthenancialcapabilitydebatethroughmediaengagementand,asafoundingmemberoftheRomaniaAssociationforFinancialEducation,weinitiatedapublicconsultationontheissuewiththeaimofdevelopinganationalstrategy.WehavealsoinstigatedanancialeducationmediacampaigninPolandreachingsixmillionpeopleandthroughourAcademyofFamilyFinance,wehaverun82educationworkshopssinceitslaunchin2007reaching3,000individuals.

Awards, reporting and benchmarking

In2011wewereincludedintheFTSE4Goodindexforthefourthconsecutiveyear.EachyearwereportagainsttheGlobalReportingInitiativeSustainabilityGuidelinesandforthethirdconsecutiveyearourlevelofdisclosureandqualityofcontenthasbeenratedasA+.WealsoreportannuallyagainsttheUNGlobalCompactPrinciplesandtakepartintheCarbonDisclosureProjectwhichisaninvestorinitiativeseekingcorporatedisclosureoncarbonemissions,risksandmanagement.

Investing in social issues

Wehaveimplementedcommunityinvestmentprogrammes inallourmarkets.Theseprogrammesfocusonbenetingthecommunitiesinwhichweoperate.

In2011,ouroverallGroupcontributiontocharitiesandcommunityorganisationswas1.2million(excluding100,000offundraising),representing1.2%ofpre-taxprot.

Weinvestinourcommunitiesthroughsocialinclusionandnancialeducationprogrammes.Thisincludesgivinggrantstoprojectsthatoffertrainingandskillsdevelopmenttodisadvantagedpeoplelookingforwork;nancialadviceinitiatives;andprojectsthathelptoregenerateourcommunitiesthroughenterprise.

Ouremployeevolunteeringprogrammeisanother

importantwayforustocontributetoourcommunities.Theprogrammeengagesourpeoplebygivingthemthechancetoenhancetheirjob-relatedskillswhilegainingthesatisfactionofhelpingintheirlocalarea.Wesupportprojectsthathavebeeninitiatedbyemployeeswhileseekingtoinvestinthesametypeofprojectsthatwedothroughourgrantgiving.In2011,2,800employeesvolunteered11,500workinghourstohelplocalcommunities.

Financial education

Itisimportanttousthatconsumersarewellinformed;

wewantourcustomerstomaketherightchoices,managetheirhouseholdnancesandunderstandthetermsandconditionsoftheirloans.


Delivering sustainable perormancecontinued


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Wehaveauniquerelationshipwithourcustomers.Thefacetoface,personalnatureofourservicedifferstothatofbanks,givingusanimportantperspectiveonourcustomersaspirationsandneeds.Thisgivesus

aninsightintothelikelyimpactofgovernmentpolicyproposalsthatcouldaffectourcustomerbase.Wetakealeadershiproleinregulatorydebateanddiscussion,andproactivelyreecttheserealitiestopolicymakers,tohelpthemunderstandourbusinessanddeveloppoliciesthatworkforconsumers.

Environment

Wehavearesponsibilitytorunthebusinessinawaythatcreatestheleastpossibleharmtotheenvironment.OurstrategyisbasedonaprecautionaryapproachtoenvironmentalmanagementandisdrivenbytheGroup

environmentalpolicy,amanagementsystemandannualauditstotheinternationalISO14001standard,andannualtargetswhicharesetandmonitoredbyworkinggroupsineachregionaswellasregularcommunicationandtraining.

Duetothenatureofthebusinessmodelinvolvingweeklycustomerhomevisits,ourmostsignicantenvironmentalimpactisfromtheuseofvehicles.Thisconstitutesapproximately74%ofourcarbonfootprint.In2011weappointedaspecialistadvisortosupportourworkinthisarea,tohelpprovidenewsolutionstomeetourtargetofreducingourcarbonfootprintby10%by

theendof2013andtoimprovecostsavingsasaresultofenvironmentalinitiatives.

In2011,ourcarbonfootprintwas11.7kg/CO2percustomer,representinga3.9%decreaseon2010.

OuroperationsacrosstheGroupalsoreceivedexternalrecognitionandanumberofawardsthroughouttheyear:

ourbusinessintheCzechRepublicwasincludedintheIndexofEthicalLendersandnamedasthenon-banking

lenderwiththemostethicalapproachtocustomersrecognisingourcommitmenttotransparency;

wecamethirdinanawardforresponsiblenancialcompaniesfromPolandsleadingeconomicdailynewspaper,DziennikGazetaPrawna;

inHungarywewontwoClientFirstExcellenceinCustomerServiceawardsforoutstandingpersonalcustomerserviceandourcallcentreservice;and

inMexicowewererecognisedforthesixthconsecutiveyearasasociallyresponsiblecompanybytheMexicanCentreofPhilanthropy.OurMexicancallcentrealsoreceivedfourawardsintheNationalAwardinCustomerRelationsfromtheMexicanInstituteofTeleservices.

Regulation

Ourbusinesscomplieswiththelocalregulationsineachmarket.WeworkcloselywithpolicymakersandlegislatorsineachcountryandatEUleveltoensuretheimpactofproposedornewlegislationonconsumersorourbusinessisunderstood.

Public policy

Wewelcomepolicyinitiativesthatcontributetoa

well-functioningmarketinconsumercreditandworkpositivelywithourregulatorsacrosstheGroup.Webelievethatgoodregulationhastobetforpurposeandthataonesizetsallapproachisnoteffective.


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Customers(000s) 2010 2011

Poland Czech Republic& Slovakia

Hungary Mexico Romania

782 834

386 400238 252

598 671

207 249

Group

2,2112,406

ThetotalnumberofcustomersacrosstheGroup.Attheendof

2011wehad2.4millioncustomers,anincreaseof8.8%on2010.

Strategic link

Customernumbersdemonstrateourscaleandreachinour

individualmarkets.Growthinourcustomerbaseiscritically

important.However,wewillrejectpotentialnewcustomers

andnotseektoretaincustomerswhocontraveneourcreditpoliciesorhaveapoorrepaymentrecord.

WeuseKeyPerformanceIndicators(KPIs)tomeasureourperformanceagainstourstrategy.

TheKPIsmarked

havebeenassuredexternally.

Key Perormance Indicators Financial


Net customer receivables(m) 2010 2011



204.9 222.3

138.9 150.7

59.5 68.1 60.0 66.2 44.8 53.1

Group

508.1

560.4

Theamountoutstandingfromcustomersforloansissuedless

impairmentprovisionscalculatedinaccordancewithourIFRS

compliantaccountingpolicies.Attheendof2011netcustomer

receivableswere560.4million,up10.3%on2010atconstant

exchangerates.

Strategic link

Therevenuesweearnarecalculatedbyreferencetothe

effectiveinterestratesoftheloansweissueandthevalue

ofthenetcustomerreceivablesoutstanding.

Prioryearguresarerestatedatconstantexchangerates.

Credit issued per customer() 2010 2011



375394

495533

404 426

197 196

403 385

Group

355 366

Thevalueofmoneyloanedtocustomersnormallymeasuredover

theprevious12months.In2011,creditissuedpercustomerwas

366,anincreaseof3.1%on2010atconstantexchangerates.

Strategic link

Themaindriverofprotpercustomeristheamountofcredit

issuedpercustomer.

Creditissuedpercustomershouldincreaseovertimeandisdrivenpartlybygoodrepaymentbehaviour.Weadoptalow

andgrowstrategyandonlyissuemorecredittoacustomer

oncetheircreditworthinessisproven.



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Impairment(%) 2010 2011



30.6 30.5

19.8 20.9

15.312.1

36.5

30.2

34.7

26.1

Group

27.6 25.8

Theamountchargedasacosttotheincomestatementasaresult

ofcustomersdefaultingoncontractualloanagreementsstatedas

apercentageofrevenueweaccountprudentlyandthusadefault

isclassiedasthefailuretomakeanyweeklypaymentinfull.The

costincludesthevalueofrepaymentswrittenoffasirrecoverableas

wellasprovisionsforexpectedfuturedefaults.In2011impairment

reducedfrom27.6%to25.8%ofrevenue.

Strategic link

Protabilityismaximisedbyoptimisingthebalancebetween

growthandcreditquality.

Impairmentasapercentageofrevenueisagoodmeasure

forcomparingperformanceacrossmarkets.

Revenue(m) 2010 2011



239.8273.2

141.8 144.8

73.7 74.2 98.8102.9

50.7 54.4

Group

604.8649.5

Incomegeneratedfromcustomerreceivables.In2011revenue

was649.5million,anincreaseof7.4%on2010.

Strategic link

Mostofthebusinesscostsarerelativelyxed.

Asrevenuesincreaseinlinewithcustomernumbersand

receivables,developingmarketsmoveintoprotability

andprotsandmarginsgrowrapidly.


Direct expenses as % of revenue(%) 2010 2011

34.2 30.0 35.1

38.3

47.2 47.243.6

49.6

42.646.0

Group

40.5 40.9



Thedirectexpensesofrunningthebusinessexcludingagents

commission.Expressingexpensesasapercentageofrevenue

isusefulforcomparingperformanceacrossmarkets.Thecost:

incomeratioincreasedslightlyto40.9%duetotheimpactthat

higherrebateshadonreportedrevenue.

Strategic link

Thelowerourexpensestorevenueratio,themoreefcient

weareandthemoreprotwemake.

Gross cash loss (GCL)(%) 2010 2011



11.1 11.0 11.3 11.3 10.1 9.912.5 12.5

14.913.6

Group

11.6 11.5

Theexpectedtotalvalueofcontractualcustomerrepaymentsthat

willnotbecollectedandwillultimatelybewrittenoffforanyloan

orgroupofloans.Untilcollectionsforanycohortarecomplete,

theGCLisacompositeofactualandforecastcashcollections.

Strategic link

Aleading-edgemeasureofthequalityofcreditissued.Forecasts

arebasedontheactualperformanceofpreviouslending.

ThehighertheexpectedGCL,thehighertheimpairmentcharge

willbeintheperiodsaftertheloansareissued.

ThegraphshowsforecastGCLforloansissuedin2011andactualGCLforloansin2010.Theforecastsfor2010includedinthe2010AnnualReportandFinancialStatementswerePoland10.9%;CzechRepublicandSlovakia11.1%;Hungary9.9%;Mexico12.4%;Romania12.7%;andGroup11.1%.

TheseKPIshavebeenexternallyassuredbyPwCinaccordancewiththeInternationalStandardonAssuranceEngagements(ISAE3000).Managementsbasisofreportingcanbefoundatwww.ipn.co.uk/sustainability/reporting/basisofreporting.Alsoseetheindependentassurancereportonpage71.


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Key Perormance Indicators Non-fnancial


Agents(000s) 2010 2011



8.3 9.4

4.2 4.42.7 2.8

7.18.3

2.8 3.5

Group

25.1

28.4

Denition

ThenumberofagentsacrosstheGroup.Attheendof2011wehad

28,400agents,anincreaseof13.1%on2010.

Strategic link

Thenumberofagentsdeterminesdirectlythenumberofcustomers

wecanserve.

Wefocusonidentifyinghighperformingagentsandareworkingtoselectandmanagetheagentportfoliofurtheronthebasisof

performance.

Employee and agent retention

79.0% 81.1%2010 2011

Employees

57.0% 59.1%2010 2011

Agents

Denition

Theproportionofemployeesandagentswhohavebeenworking

withusformorethan12months.Bothemployeeandagentretention

improvedslightlyon2010.

Strategic link

Experiencedemployeesandagentshelpusachieveandsustain

strongcustomerrelationshipsandahighqualityofservice,whicharecentraltoachievinggoodcustomerretention.

Goodretentionhelpsreducecostsofrecruitment,trainingand

operatingcosts,enablingmoreinvestmenttobedirectedto

developmentactivity.

Conversion rates

47.9% 46.9%

2010 2011

Denition

Theproportionofpotentialnewcustomersinterestedinhaving

aloan,whoactuallyreceiveone.Ourconversionrateremained

stableduringayearwhereagentandcustomercautiongrew.

Strategic link

Therecruitmentofnewcustomersisakeydriveroftotal

customers.Ahighconversionratemayindicatethatweare

recruitingtoomanyhigh-riskcustomers.Alowratemaymeanthatwearenotprovidinganeffectiveservice.

Aided brand awareness(%) 2010 2011

Poland Czech Republic Slovakia Hungary Mexico

68 6572 74 71 70

93 92

36*44

Romania

61 64

Denition

Theproportionoftheadultpopulationwhorecogniseourbrand

whenpromptedwithourlogoorcompanyname.Awarenessin

ourestablishedmarketsisrelativelyhighandstable.InMexico

andRomania,whereweareexpandinggeographicallybrand

awarenessisgrowing.

Strategic link

Thehigherthelevelofawareness,thehigherthepotentialcustomerbasebecomes.

Thebrandalsoplaysakeyroleinattractingagentsandemployees.

*December2009.


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Customer service score(%) 2010 2011



22.0

12.0

20.923.9

27.4

46.952.4

68.7

42.1

57.8

Group

36.143.2

Denition

Thecustomerservicescoreisabranchlevelmeasurethatenables

progresstobeassessedandidentieswhereimprovementsshould

bemade.Thescoreisbasedonthosecustomerswhomakeaclear

statementintheirsurveyresponsethattheywouldrecommendour

servicetoacolleagueorfriend.

Strategic link Excellentcustomerservicedrivesimprovedandsustained

revenuegrowththroughexistingcustomersandthroughthem

becomingcustomeradvocatesofourbrandandourproduct.

Akeymeasureofourdeliveryoftreatingcustomersfairly.

Prioryearnumbershavebeenrestatedtoreectchangestosampleselectioncriteriaandweightingbynumberofcustomersbybranch.

Customer retention

52.7% 52.5%

2010 2011

Denition

Ourabilitytoretaincustomersiscentraltoachievingournancial

targetsandgrowthambitions.Customerretentionin2011remained

stableat52.5%.

Strategic link

Wedonotretaincustomerswhohaveapoorpaymenthistory

asitcancreateacontinuingimpairmentriskandpotentiallycontravenesourcommitmenttoresponsiblelending.

Retentionisthekeyindicatorofthequalityofourcustomer

serviceaswellasthequalityofcustomers.

Credit exceptions

3.2% 2.2%

2010 2011

Denition

Creditexceptionsarerecordedinthosecaseswherelendinghas

exceededoneormorecreditparametersdenedintheGroupcredit

rules.Exceptionsimprovedto2.2%in2011.

Strategic link

Ourcreditpoliciessetoutourbasisforresponsiblelending.

Theyalsosetlimitsforlendingactivitywhichreectourcredit

riskappetite.

Percentage of servable population reached(%) 2010 2011

100 100 100 100 100 100

31* 33

70

78



Denition

Theproportionofthecountrypopulationthatwecanservethrough

ourbranchnetworkandagentforce.Ourgrowingbranchandagent

networksinMexicoandRomaniahaveenabledacontinuedincrease

inthepercentageofservablepopulation.

Strategic link

Thehighertheproportionofthepopulationthatcanbereached,

themorecustomerswhocanbeserved.

*Thepercentageofservablepopulationreachedhasbeenrestatedfor2010toreectchangesinthemethodofcalculation.

TheseKPIshavebeenexternallyassuredbyPwCinaccordancewiththeInternationalStandardonAssuranceEngagements(ISAE3000).Managementsbasisofreportingcanbefoundatwww.ipn.co.uk/sustainability/reporting/basisofreporting.Alsoseetheindependentassurancereportonpage71.


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Effectiveriskmanagementiscriticaltoourbusinessinordertodeliverlong-termshareholdervalueandprotectourpeople,

assetsandreputation.Likeanybusiness,wefaceriskanduncertaintiesinallourbusinessactivities.Ourchallengeistoidentifyourprincipalrisksanddevelopstrategiesandcontrolstomitigatetheseriskseffectively.

Principal risks


1. GrowthStrategic risk

Ouraimistodelivervaluetoshareholdersthroughlong-term,

sustainablegrowth.Thereisariskthatwefailtodelivertargetedlevelsofgrowthorthatwegrowtoorapidly,creatingunacceptablyhighlevelsofcredit,operatingorfundingrisk.

Risk appetite statement

Wewilloptimisesustainablegrowthinshareholdervaluewithoutbreachingourstatedlevelsofcredit,operatingandfundingrisks.

Mitigation

Wecomplywithpoliciesandcontrolsinthefollowingareastoensurethisriskiskeptwithinappetite:

creditrisk;

operatingrisk;

fundingrisk;and creditexceptions.

2. Concentration riskStrategic risk

Wehaveacompetitiveadvantageintheprovisionofhomecreditand,accordingly,ourstrategyistoconcentrateonexpansionthroughthissingleproduct.Thisconcentrationincreasesexposuretoadverseregulatoryorcompetitivethreats.


Weaccepttheheightenedriskofasingleproductstrategybecauseofthesuperiorreturnsthisaffords.

Mitigation

Weperiodicallyreviewoptionstoenhancethecustomerofferingthroughtheprovisionofotherproductsandserviceswhichmayappealtoourcustomersandarecomplementarytoourhome

creditoffer.

3. Reputation and regulation riskStrategic risk

Weoperateinemergingmarketsinwhichthelegalandregulatoryregimescanbesubjecttorapidandsignicant

change.Thispresentsapotentialrisktotheoperationofthebusiness,potentiallyresultinginreductionsinprot,nesorthewithdrawalofoperatinglicences.Specicrisksinclude:

changestotheregulationofcreditorthesaleofcreditbyintermediariesorotherlawsthatmayimpacttheoperationofthebusinessand/orresultinhighercosts;and

controlsonthelevelorstructureofchargesforinterest,agentserviceorotherservicesthatmayimpacttheoperationofthebusinessoritslevelofprot.

Inaddition,ourreputationmaybeadverselyaffectedbyill-informedcommentormalpracticewhichinturnmaydamageourbrandandreducecustomerdemand.


Wewillalwaysaimtocomplywithallrelevantregulationsbutacceptthattheregulatoryenvironmentwithinwhichweoperateisbeyondourdirectcontrolandthatchangesinregulationmayhaveamaterialimpactonthebusinessanditsprotability.Itispossiblethatregulationofconsumerlendingcouldleadtotheremovalofalicencetotradeinoneormoremarkets.

Mitigation

WeactivelyoperateTreatingCustomersFairlyprinciplesinallmarketstoprotectourbrandandreputation.

WeoperatealegalandregulatorygovernanceregimewhichmonitorscompliancewithallrelevantregulationsandescalatestotheBoard,foraction,anyareasofconcern.

Wefosteropenrelationshipswithregulatorybodiesandmonitorcloselydevelopmentsinallourmarkets,andinrespectoftheEUasawhole.Wehavewellestablishedandexperiencedcorporateaffairsteamsinallourmarkets.

Weworkproactivelywithopinionformerstoensurethebusinessiswellunderstood.ThisisfacilitatedbymembershipoftheBritishChamberofCommerceand/orrelevantlocaltradebodies,andEuronasinBrussels.

WehaveaninternationallegalcommitteetooverseelegalrisksacrosstheGroup.

Wehaveaneffectivecorporateresponsibilityprogrammeinplace.

Wehaveclearoperatingguidelinesandpoliciestoensure

consistencyandcompliancewithourvalues.

WepursueanactivecommunicationsprogrammethataimstofosteragoodunderstandingoftheCompany.


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4. Economic riskStrategic risk

Theconditionoftheeconomiesinwhichweoperateandtheimplicationsofthisforourcustomerswillhaveanimpacton

ourbusinessperformance.

Customersabilitytorepayloanswillbeaffectedbyevents,suchasunemploymentorunder-employmentwhichimpacthouseholdincomes.Reduceddemand,reducedrevenueandincreasedimpairmentmayresult.


Weaccepttheriskthateconomicconditionsinthemarketsinwhichweoperatemaychangeandthiswillimpactourperformance.

Mitigation

Wehavearesilientbusinessmodelbecauseourloanbookisshortterm;onaveragejustvemonthsrepaymentsareoutstanding,whichmeanswecanquicklychangetherisk-return

proleofourlending.Inaddition,ourcreditmanagementandimpairmentsystems,togetherwithclosecustomerrelationshipsallowustodetectandrespondrapidlytochangesincustomercircumstancesandpaymentperformance.

5. Competition riskStrategic risk

Increasedcompetitionmayreduceourmarketshare,leadingtoincreasedcostsofcustomeracquisitionandretentionandreducedcreditissued,lowerrevenueandlowerprotability.


Weaccepttheriskthatincreasedcompetitionmayreduceourmarketshare.

Innewmarketsweconductdetailedresearchtoidentifythosesegmentsinaparticularmarketwewouldlooktoserve,thecurrentlevelofcompetitionandtheextentofourpotentialcompetitiveadvantage.

Mitigation

Ourdistinctiveoperatingmodelandhighlevelsofpersonalserviceengenderhighlevelsofcustomersatisfactionandretention.Marketresearchisregularlyundertakentomonitorsatisfactionlevels,identifyusageofothernancialproducts

andmonitorcompetitoractivity.Welooktocontinuouslyimprovetheserviceweoffertocustomers.

6. Credit riskStrategic risk

Creditriskisintrinsicinconsumerlendingandrepresentstheriskthatcustomersfailtorepaypartorallofaloanas

repaymentsfalldue,leadingtolevelsofimpairmentthataretoohighinrelationtothechargesmade.

Thereisalwaysatrade-offbetweensalesgrowthandcreditriskandthereisabusinessriskthatcreditcontrolsareinappropriatelypositionedleadingtoasub-optimallevelofprotability.Insettingcreditcontrolsandestablishingthistrade-off,webelievethatanimpairmentlevelofover30%destroyscustomerlifetimevalueasaresultofhighercustomerturnoverand,inturn,leadstohighstaffandagentturnoverasaresultofthelevelofarrearsworkrequired.Conversely,webelievethatanimpairmentlevelbelow25%indicatesthatwearerejectingprotablelendingopportunitiesthatwouldincreaselifetimevalue.

Risk appetite statementWewilltargetannualGroupimpairmentasapercentageofrevenueofbetween25%and30%.

Mitigation

Wehaveeffectivecreditmanagementsystemsandrulesinplaceforevaluatingandcontrollingtheriskfromlendingtonewandexistingcustomerswhicharemanagedatbranchlevel.Thisissupplementedbytheweeklycontactbetweenouragentsandcustomersallowingaregularassessmentofcreditrisk.Performanceismonitoredagainstbenchmarkssetforeachproducttermandloansequence.

Ouragentsareincentivisedprimarilytocollectratherthanlend,therebyensuringtheyfocusonresponsiblelending.

Wehavecreditexceptionreportinginplacetoreportandfollowuponallloansissuedoutsidethecriteriadenedwithinourapplicationandbehaviouralscoringsystems.

Groupandcountrylevelcreditcommitteesreviewcreditcontrolsatcountryandbranchleveleachmonthallowingrapidresponsetothechangingmarketconditions.


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Principal riskscontinued


7. Funding and liquidity riskStrategic risk

Wefundouractivitiesandgrowththroughacombinationofequitycapital,retainedearningsandbankandbonddebt

funding.Thereisariskthatsufcientfundingmaynotbeavailabletosupportourbusinessplan,andthattheremaybeinsufcientfundinginthecurrenciesinwhichwelendorthatitisnotavailableataneconomicprice.

Thisisparticularlyrelevantfollowingthesignicantreductioninthegeneralavailabilityofbankandcapitalmarketsfunding.

Aspecicriskisthatabreachofbankingcovenantmaytriggerawithdrawalofpartorallofourdebtfacilitiesand,atextremes,thismayleadtothegoingconcernstatusofthebusinessbeingcalledintoquestion.


Wewillaimtomaintainacapitalstructure(equityanddebt)

thatprovides,underastressedscenario,sufcientcommittedfundingfacilitiestocoverforecastborrowingsplusoperationalheadroomforthenext18monthsonarollingbasis,andensuresthereisnoreasonablelikelihoodofacovenantbreachorratingdowngrade.

Mitigation

Thebusinessiswellcapitalisedwithequitytoreceivablesof58.5%.At31December2011therewasheadroomof171.4millionon447.9millionofbonds,andsyndicatedandbilateralbankingfacilities.

OurmainbankingfacilitiesarecommitteduntilNovember2013andbondfundingmatureslargelyin2015.

Wehavecommittedfundingsufcientforourbusinessplan

untilNovember2013.

AGroupTreasuryGovernanceStructureisinplacetoensurethatadherencetoGrouppoliciesismeasured,monitoredandmanagedonamonthlybasis.

9. Operating risk accuracy andappropriate reportingStrategic risk

Theintegrityofourcontrolandinformationsystemsrequires

thatthenancialpositionofthebusinessisknownaccuratelyandinatimelyfashion.Thereisariskthatwedonothavesystems,controlsandprocesseswhichensurethiscanbedelivered.


Weaimtodesignandoperateperformancereportingandnancialcontrolsystemswherethereisnomaterialriskfromfailuresofinternalsystemsandcontrols.

Mitigation

Wewillonlyimplementsignicantchangestocontrolsorprocessesfollowingaprovenandapprovedbusinesscaseandpilot.

Wehaveaninternalcontrolframeworkandassociated

assurancemechanismstoensuretheongoingsystems,controlsandprocessesareoperatingasrequired.

Allchangestoproducts,pricingandtheaccountingpolicesforreceivablesaremattersreservedtotheBoard.

8. Operating risk generalStrategic risk

Ourambitionistoachievelong-termgrowthandtoexpandourbusinessintonewmarkets.Thereisariskthatourbusiness

modelwouldnotbescalableifwefailedtoapplyitconsistentlyor iftherewasasystematicbreakdownoftheoperatingprocedures, processes,systemsorcontrolsthatunderpinthemodel.


Weacceptthatexpandingourbusinesscreatesadditionalriskofoperatingunderperformance.

Wewillnotacceptanypersistentorsignicantvariationstoourstandardoperatingmodelforfactorsotherthanlocallegalrequirements.

Mitigation

Weonlyimplementsignicantbusinesschangeinitiativesfollowingaprovenandapprovedchampion/challenger

businesscaseandpilot.Weensurethatnewbranchopeningsaremadeusingstaffwithaminimumofsixmonthsrelevantexperience.

Weoperatearisk-basedinternalauditprogramme.

WeoperateaRiskManagementFrameworktoensurekeyrisksareidentied,measured,monitoredandmitigated.


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10. Operating risk people(i) SafetyStrategic risk

Weoperateamodelwhichinvolvesahighdegreeofcustomer

contactatthehomesofourcustomers.Incommonwithothergroupsofloneworkerstherearerisksofpersonalaccidentorassaultassociatedwithsuchhomecontact.


Wewilltakeallreasonablypracticablestepstomitigateriskstoallemployeesandagentsintheoperationoftheirduties.WewillnottolerateanymaterialbreachesofrelevantHealthandSafetylegislation.

Mitigation

Weseektocontinuallyimproveourprocessestoensurehighstandardsofsafety.OurHealthandSafetyGovernanceStructureensuresthatpoliciesandproceduresareinplacetofostercompliancewithallrelevantlegislationandensurethat

allreasonablypracticablestepsaretakentomitigateriskstoallemployeesandagentsintheoperationoftheirduties.

(ii) AvailabilityStrategic risk

Weoperatewithinasectorofthemarketinwhichtherearefewotherplayersofasignicantsize,limitingthesizeoftherecruitmentmarketforkeystaff.Inaddition,weareseekinghighlevelsofgrowthinexistingandnewmarkets.ThesefactorscombinetopresenttheriskofashortageofpersonnelofappropriateskillsandknowledgetoimplementtheGroupstrategysuccessfully.


Wewillaimtohavesufcientdepthofpersonnelableto

implementthestrategyoftheGroupbutwillonlygrowthebusinessatarateconsistentwiththeskillsavailabilityandexperienceofpersonnel.

Mitigation

Wehaveaformaltalentdevelopmentprogrammeaimedatdeliveringsufcienthigh-qualitymanagerstomeetfutureplans.Alearninganddevelopmentframeworkhasalsobeenimplemented.

Weaimtohaveapprovedsuccessionplansforallseniormanagementpositions.

WeaimtohaveaminimumoftwonamedCountryManagersandOperationsDirectorsinwaiting.

11. Operating risk service disruptionStrategic risk

WeoperateabusinesswhichishighlydependentuponitsITsystemsandbusinessprocessesinthedeliveryofanexcellent

service.Thereisariskthatthefailureofthesesystemsandprocessesmayimpacttheoverallcustomerexperienceresultinginlostbusinessopportunities,specically:

day-to-dayoperationsdisruptedintheeventofdamageto,orinterruptionorfailureof,information,creditappraisalandcommunicationsystems;

failuretoprovidequalityservicetocustomersandlossofdata;and

disruptionofactivitiesincreasingcostsorreducingpotentialnetrevenues.


Wewillnotacceptanymaterialriskofthepermanentdestructionorlossofthebooksandrecords(including

customerdata)ofthebusiness.

Wewillaimtomanagethelossesarisingfromtheriskofdisruptiontobusinessactivitiestobenomorethan10%oftheexpectedpre-taxprotforanyyear.

Mitigation

Robustbusinesscontinuityprocesses,proceduresandareportingframeworkareinplaceinallmarketstoenableustocontinuetradingandtorecoverfullfunctionalityassoonaspracticableintheeventofsuchanoccurrence.Theseareregularlytestedandreviewed.Strategiesarerevisedwherenecessary.

WeperformaBusinessImpactAssessmenteverytwo

yearsineachofourmarkets.

ThereiscontinuousinvestmentinthedevelopmentofITplatforms.


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Principal riskscontinued


14. Currency and matching risk(i) Currency riskStrategic risk

Weoperateinmarketswhichusedifferentcurrenciesfrom

thatinwhichwereportourresults,presentingaforeignexchangerisk.


Allourearningsaredenominatedinforeigncurrency.Wefullyaccepttheriskthatoverthelongtermthetranslatedvalueoftheseearningsmayriseorfallandsochangethereportedvalueofthefutureprospectsofthebusinessanditsmarketcapitalisation.

Themajorityofnetassetsunderpinningthenominalvalueofourequityaredenominatedinforeigncurrency.Wefullyaccepttheriskthatthetranslatedvalueofthesemayriseorfallleadingtochangesinthenominalvalueofourequity.

Wewillnotacceptanymaterialportionofourreceivablesbooktobedebtfundedinanycurrencyotherthanthelocalcurrencywithoutfullhedginginplace.

Wewillnotenterintoanyspeculativederivativecontracts.

Mitigation

Intheshortterm,wemanagetheriskthatchangesinexchangeratescouldhaveamaterialimpactonmarketexpectationsbyhedgingatleasttwo-thirdsofforecastprotswithineachcurrentnancialyear.

WehaveaGroupTreasuryGovernanceStructureinplacetoensurethatadherencetoGrouppoliciesismeasured,monitoredandmanagedonamonthlybasis.

Noloansareissuedinacurrencyotherthanthefunctionalcurrencyoftherelevantmarket.

Fundsareborrowedin,orswappedinto,thesamelocalcurrenciesasnetcustomerreceivablessofaraspossible.

(ii) Interest rate riskStrategic risk

Typically,theservicechargeonourlendingisxedatthetimealoanisgrantedandthereisariskthatduringthelifeofaloanthecostsofprovidingandmanagingitincreaseand,therefore,impactprotmargins.


Wexinterestcostssothatthecostismatchedwiththerevenuegeneratedontherelatedreceivablesbook.

Mitigation

Wewillhedgeatleast75%ofknowninterestcostsonborrowings ineachcurrencytobeincurredinthenext12months.

12. Business development risk change managementStrategic risk

Weaimtocontinuouslyimproveourbusinessperformance.

Thisinvolveschangetosystems,processes,rewardsystemsandpeople.Throughimplementingchangethereisariskthatplannedbenetsarenotrealisedorthereareunintendedconsequences.


Weacceptthatcontinuouschangeandimprovementcarriesriskandacceptthisriskbutonlytotheextentthatchangesaretestedandevaluatedonapilotbasisbeforedeployment.

Mitigation

Wehaveatestandlearnapproachandallsignicantchangeissubjecttouseracceptancetestingandpilotevaluationbeforedeployment.WehaveaclearstrategyforthedevelopmentofrevisionstoITsystemsandoperatingprocesses.

StandardprojectmanagementmethodologyisappliedacrosstheGroup.

13. New markets riskStrategic risk

Ourstrategyincludesentryintonewmarketsthatoffergood,protablegrowthpotential.Thereisariskthatwechoosethewrongmarketorenteritatthewrongtime.


Weacceptthatnewmarketentrycarriestheriskoffailurethatcannotbefullymitigatedbyresearchandcarefulpreparation.Wewilllimittheimpactoffailureontheincomestatementsuchthattheannualoperatingcostsofnewmarketpilots,togetherwiththeestimatedcostoftheclosureandwrite-downofallnewmarketpilots,willbenomorethan20%ofannualpre-taxprot.

Mitigation

AreportismadeforBoardapprovalinrespectofallpotentialnewcountriesbasedonournewmarketentrycriteria.

Weassessthepotentialtoenteranewcountryinaccordancewithoursevenentrytests.

Progressionfromapilottoaroll-outphasewillonlybeauthorisedbytheBoardfollowingaperiodofasuccessfulpilotandformalreview.


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15. Tax riskStrategic risk

Weoperateinemergingmarketsinwhichthetaxationregimescanbesubjecttosignicantandrapidchange.Thispresentsthe

riskthatthetaxationchargeintheFinancialStatementsdoesnotreecttheultimatetaxcostincurredbytheGroup.


Weaimtocomplywithallrelevanttaxregulations.Nonetheless,weaccepttheriskthatthepositiontakenbytheGroupinrelationtothetaxationtreatmentofcertaintransactionsmaybesubjecttoachallengeandthatadecisionagainsttheGroupmaymateriallyimpactthetaxationchargeintheFinancialStatementsinanyoneyear.However,wewillaimtocarrysufcientprovisionstoreectthereasonableprobabilityofanyadverseoutcomesand,additionally,toprovidecomfortthatsuchadverseoutcomeswouldnottriggerabreachofbankcovenants.

MitigationATaxCommitteeisinplacetomonitortaxrisksacrosstheGroup.

Externalprofessionaladviceforallmaterialtransactionsistakenandsupportedbystronginternaltaxexpertsbothin-countryandintheUK.

Wherepossible,taxtreatmentsareagreedinadvancewithrelevantauthorities.

Wemaintainataxprovisionreectingtheexpectedrisk-weightedimpactofsignicantopenordisputedtaxitems.TaxrisksarereviewedeverysixmonthsbytheAuditandRiskCommittee.

Wedonotrecogniseadeferredtaxassetforstart-uplossesonapilotoperationunlessanduntilthepilotmovestothe

roll-outphase.

Astresstestanalysisisperformedtoensurethatanypotentialtaxrisks,forwhichthereisnoprovision,willnotresultinacovenantbreach.

16. Counterparty failure banksStrategic risk

Wehavecashbalancesintheaccountsofbanksinallofourcountriesofoperation,toensuresufcientcashavailabilityto

fundtheshort-termoperationofthebusiness.Thispresentsacounterpartyriskintermsoftheinstitutionsused.


Wehavepoliciesaimedatavoidingexposuretoanycounterpartywherethefailureofthatcounterpartywouldimpactpre-taxprotby10%ormore.

Mitigation

WehaveaGroupTreasuryGovernanceStructureinplacetoensurethatadherencetoGrouppoliciesismeasured,monitoredandmanagedonamonthlybasis.

CashisheldgenerallywithsingleAorhigherratednancialinstitutions.Institutionswithlowercreditratingscanonly

beusedwithfullBoardapproval.

17. Counterparty failure otherStrategic risk

Weenterintoarrangementswithorganisationsoveramediumtermtoprovideservicesforcertaincoreelementsofthebusiness,presentingacounterpartyriskintermsofthefailureoftheorganisationused.

Thereistheriskthatbusinessfailureofacounterparty,suchasanITservicesprovider,couldcausesignicantdisruptionorimpactonourabilitytooperate.


Wehaveproceduresaimedatpreventingusfromenteringintoanylong-termormaterialcontractwherethefailureofthecounterpartywouldimpactpre-taxprotby10%ormore,unlessthereisnoreasonablealternative.

Mitigation

WeensurethereisBoardapprovalofmaterialmedium-termcontracts.


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28 InternationalPersonalFinanceplc Annual Report and Financial Statements 2011

markets weakened, increased caution amongstEuropean agents and customers led to a slowdown

in growth for the Group, as shown in the table below: Full

Q1 Q2 Q3 Q4 year

Growth in credit issued 8.6% 19.7% 12.9% 5.6% 11.5%

Achieving the right balance between growth and creditquality can be challenging and we were pleased thatalongside stronger growth we were able to reduce theGroup impairment charge as a percentage of revenueby 1.8 percentage points to 25.8%.

As expected, following last years renancing whichdelivered longer-term, diversied debt funding, nancecosts increased sharply, up by 28% to 42.9 million.

Other costs increased in line with growth in thebusiness, with around two thirds of the increasereecting the additional investment in new branchesand eld management to increase our geographicalpenetration as well as additional marketing spend.

Allofourmarketsperformedwellin2011,growingcustomersandcreditissuedwhilstmaintainingorimprovingcreditquality.

GroupThis report has been prepared solely to provide additional information to shareholders to assess the Groups strategies and the potential for those strategiesto succeed. The report should not be relied on by any other party or for any other purpose. The report contains certain forward-looking statements. Thesestatements 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-lookinginformation. Percentage change figures for all performance measures, other than profit or loss before taxation and earnings per share, unless otherwisestated, are quoted after restating prior year figures at a constant exchange rate (CER) for 2011 in order to present the underlying performance variance.

Prot before taxation 2011 2010 Change Change Change atGroup m m m % CER %

Customer numbers (000s) 2,406 2,211 195 8.8 8.8

Credit issued 844.5 764.5 80.0 10.5 11.5

Average net receivables 575.5 522.0 53.5 10.2 10.7

Revenue (net of ESRs) 649.5 608.7 40.8 6.7 7.4

Impairment (167.7) (168.1) 0.4 0.2 (0.7)

481.8 440.6 41.2 9.4 9.9

Finance costs (42.9) (33.9) (9.0) (26.5) (28.1)

Agents commission (72.9) (68.0) (4.9) (7.2) (6.7)

Other costs (265.5) (246.6) (18.9) (7.7) (8.8)

Prot before taxation* 100.5 92.1 8.4 9.1

*2010 stated before an exceptional charge of 3.9 million.

Operational review

Performance review

Prot before taxation was increased by 9% to a record100.5 million, driven by good growth in customers and

credit issued, improved credit quality and continued costcontrol. This allowed the business to make good progressdespite the expected increase in funding costs followingthe 2010 renancing and higher early settlement rebates(ESRs) arising from the implementation of the EUConsumer Credit Directive (CCD), which togethertotalled 23.6 million.

At the start of 2011 our key objective was to accelerategrowth against a backdrop of improving economicconditions in all our markets. Our plan was to drive growthby recruiting more agents, increasing investment inmarketing and by the selective easing of credit controls.

We increased agent numbers by 13% and marketingexpenditure by 2.1 million, and this helped to deliver a9% increase in customer numbers and an 11% increasein average net receivables for the full year. As the globaleconomic environment deteriorated in the second halfof the year and consumer condence in our European


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adjustment, ESR costs were 13.3 million more than in2010. In 2012, Poland enters these new arrangementsand we estimate an additional year-on-year ESR cost in

the range of 10 million to 15 million, although the naloutcome is uncertain, depending on customer behaviourand also on the outcome of a long-standing case with thePolish Ofce of Competition and Consumer Protectionon our pre-CCD early settlement practices.

Early settlement rebates

As previously disclosed, the CCD was adopted by theEuropean Council in May 2008 and has subsequentlybeen implemented in each of our European markets.

Poland was the last country to do so, in December 2011.The primary impact of the legislation on our businesshas been to require that we grant more generous ESRsto customers who choose to settle their loans beforethe end of the contractual term. In 2011, net of a price

Segmental split of results

The table below shows the performance of each of our markets. We have shown the impacts of the higher ESRand funding costs and other non-recurring items to provide a better understanding of underlying performance:

2011 Additional Additional Other non- Underlying 2010 Change onreported ESR nance recurring prot reported reported

prot costs costs items increase prot prot

m m m m m m %

Poland 66.0 3.6 (3.9) 4.11 13.2 49.0 34.7

Czech-Slovakia 37.8 (6.3) (2.3) 4.7 41.7 (9.4

Hungary 8.3 (7.0) (2.5) 8.7 9.1 (8.8

Mexico 1.5 (0.9) (1.1) 3.5 (57.1

Romania 4.1 (3.6) (0.7) 6.7 1.7 141.2

Central (17.2) (3.2)2 (1.1) (12.9) (33.3

Total 100.5 (13.3) (10.3) 0.9 31.1 92.13 9.1

1. Repayment of VAT from prior periods.2. Write-down of IT assets.3. Stated before an exceptional charge of 3.9 million.

Poland was the key driver of increased Group prot in 2011, reporting growth of 35% to 66.0 million. Its performancereects good growth, stable credit quality and tightcost control, which resulted in strong underlying protgrowth. This result also included a one-off credit to theincome statement of 4.1 million, as a result of a refundof VAT overpaid in previous periods and a 3.6 millionbenet from a price rise implemented to offset higherESR costs, the introduction of which was unexpectedlydelayed by the Polish government until December 2011.

The Czech-Slovakia business delivered a solidperformance, although customer growth at 4% was

less than we had targeted. Reported prot reduced by3.9 million to 37.8 million due to signicant increasesin interest and ESR costs amounting to 8.6 million.

Hungary delivered both good growth and maintainedexcellent credit quality. However, after additional interestand ESR costs totalling 9.5 million, the business reporteda prot of 8.3 million, which was 0.8 million lowerthan 2010.

In Mexico our key task in 2011 was to carry through theunderlying improvements in operating and collectionseffectiveness we started in 2010. In the rst half of theyear a number of changes were made, in particular weembedded a new eld management structure designedto reduce spans of control in the eld and improve thesupervision and support of our development managersand agents. Mexicos rst half prot reduced as a resultof the additional costs from these changes. The benetsbegan to ow in the second half and we were ableto combine accelerated growth with much improvedcredit quality with the result that second half prot was29% above that for the same period of 2010. In addition,the changes made were instrumental in reducingimpairment which, when stated as a percentage ofrevenue, improved by 6.3 percentage points to 30.2%for 2011 as a whole.


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Performance review

Operational review continued

As previously announced, on 9 November 2011 theHungarian parliament approved legislation to lowerthe maximum APR cap for loans. Although originallyscheduled to become effective for loans issued on or

after 1 January 2012, an amendment was approved inlate December 2011, postponing the effective date to1 April 2012. We have completed amendments to ourproduct pricing and structure to meet the requirementsof the new, lower APR cap. Whilst we cannot be certainas to the impact this may have on the future performanceof our business, based on similar changes we have madein the past in other countries we do not expect a materialimpact on the prospects of our Hungarian business.

Strategy

New country entry remains a key element of our

long-term strategy. Our detailed research of potentialnew markets is ongoing but given the current uncertaineconomic climate we do not intend at this time to committo launch a new market pilot.

Outlook

The outlook for the global economy remains uncertainand we have prepared for this by maintaining tight controlover costs. We also have the ability to tighten credit rulesrapidly in the event that conditions deteriorate.

Notwithstanding the general economic uncertainty, therst two months of 2012 have been encouraging for IPF,

with good sales growth and stable credit quality. Futuregrowth prospects are good and we have a strong balancesheet. We are condent the business will continue toperform well.

Poland

Poland is our largest market and has performedvery strongly, reporting an increase in prot of 35%to 66.0 million. The key drivers of this performancewere a steady increase in customer numbers (up by 7%to 834,000), stronger growth in credit issued (up 10%)together with stable credit quality and good control of

costs. This result also includes a one-off credit to theincome statement of 4.1 million, as a result of refundsof VAT overpaid in previous periods and a benet of3.6 million from a price rise implemented in 2009to offset the impact of higher ESR costs.

Our Romanian business, opened in 2006, continues tobe on track with our original plan despite challenginglocal economic conditions. It reported an excellent resultin 2011 with a 2.4 million increase in reported prot to

4.1 million, despite the impact of 4.3 million in higherESR and interest costs. The main features of the resultwere continued strong customer growth together withimproved credit quality.

Central costs increased by 4.3 million, including aone-off charge of 3.2 million to reduce the carryingvalue of our investment in handheld technology for agentsand eld staff. We successfully completed the trial ofthis technology in Hungary which proved the benetsof modernising the business in this way. Accordingly,we have decided to develop the technology in 2012 and todesign revised working practices for subsequent roll-out

across the business. Since the pilot commenced, moreexible and effective technology platforms have becomeavailable and we have therefore decided to write-downthe carrying value of the technology deployed in the trial.

Regulation and legislation

The CCD has now been implemented in all of our European markets. As expected, ESR costs have increased as aresult of more favourable early settlement rules forcustomers.

Following a review of practices in respect of customerearly settlement rebates by the Ofce of Competitionand Consumer Protection in Poland, the practices ofthe Groups Polish business were challenged in 2009and subsequently, in April 2011, our rebate practiceswere found to be unfair. We disagree with the verdictand our appeal is in progress and a date for an appealhearing is awaited. In the meantime, the revised rebatemethodology we introduced in December 2011 to conformto the Polish CCD legislation has addressed the concernsraised for loans issued after this date. If our appeal fails,more generous rebates will also be payable on loansoutstanding at the date of the appeal decision, some ofwhich may pre-date the implementation of the CCD.


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Czech Republic and Slovakia

Our business in Czech-Slovakia delivered a solidperformance in 2011 although the reported prot reducedby 3.9 million due to the 8.6 million combined impact

of higher nance and ESR costs.Change

2011 2010 Change Change at CERm m m % %

Customer numbers (000s) 400 386 14 3.6 3.6

Credit issued 209.5 185.4 24.1 13.0 10.2


Revenue 144.8 137.7 7.1 5.2 2.1

Impairment (30.2) (27.3) (2.9) (10.6) (6.7

114.6 110.4 4.2 3.8 1.0

Finance costs (6.2) (5.7) (0.5) (8.8) (6.9

Agents commission (15.2) (14.7) (0.5) (3.4) (0.7

Other costs (55.4) (48.3) (7.1) (14.7) (9.9

Prot before taxation 37.8 41.7 (3.9) (9.4)

Agent numbers grew by 7% and customer numbersincreased by 4%, which was a little slower than planned.We continue to believe there is the potential for strongercustomer growth in this market and in 2012 we plan tointensify our efforts to realise this.

Credit issued increased by 10%, a stronger rate thancustomer growth, reecting increased sales to existingquality customers and this resulted in average net

receivables growth of 9%. Revenue grew at a slower ratedue to higher ESR costs following the implementation ofthe CCD in Slovakia and the Czech Republic in July 2010and January 2011 respectively.

Collections performance remained robust and impairmenas a percentage of revenue, at 20.9%, was broadly in linewith 2010. Finance costs increased by 7% due to the fullyear impact of higher funding costs partially offset bylower levels of borrowing. Agents commission costsincreased in line with growth in the business. Other costsgrew by 10% driven primarily by increased marketingand related expenditure to stimulate growth.

Change2011 2010 Change Change at CER

m m m % %


Credit issued 318.6 296.4 22.2 7.5 10.4


Revenue 273.2 245.3 27.9 11.4 13.9

Impairment (83.2) (75.1) (8.1) (10.8) (13.5)

190.0 170.2 19.8 11.6 14.1

Finance costs (14.8) (12.5) (2.3) (18.4) (21.3)


Other costs (81.9) (83.8) 1.9 2.3 (1.1)

Prot before taxation 66.0 49.0 17.0 34.7

We continue to believe that there are signicantopportunities for further growth in the Polish market

and we increased our agent numbers by 13% in orderto provide a platform to achieve this.

Credit issued was increased by 10% which was faster thancustomer growth and reects higher sales to existingquality customers. This growth resulted in an increasein average net receivables of 9% at constant exchangerates. Revenue grew at a slightly faster rate due to thepositive, year-on-year, impact of the 2009 price increaseand a shift in mix of the receivables book away from loweryielding longer-term products.

Credit quality remained stable, with impairment as a

percentage of revenue at 30.5%, which was marginallylower than 2010.

Finance costs were 2.3 million higher than 2010 dueto a combination of the higher funding costs arising fromthe 2010 renancing partly offset by a lower borrowingrequirement reecting strong cash generation. Agentscommission costs, which are variable in nature, increasedin line with growth in the business and represented 10%of revenue.

Other costs were tightly controlled and, excluding the4.1 million VAT refund noted above, increased by 6%

which is signicantly lower than revenue growth.


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line with the growth in the business. Other costs andthe cost-income ratio were in line with 2010 reectingvery tight cost control.

The economic situation in Hungary is uncertain and

is likely to remain so until there is a conclusion to thefunding discussions between the Hungarian government,the EU and the IMF. Nonetheless, our Hungarian businesshas made good progress and we believe there are furtheropportunities to grow.

Mexico

During the second half of 2010 we reduced growthand suspended geographic expansion whilst we madeimprovements to our eld operations so as to improvethe consistency and regularity of agent collections andthereby credit quality. Our key task in 2011 in Mexico

was to carry through these underlying improvements.In the rst half of the year a number of changes werecompleted, in particular we embedded a new eldmanagement structure designed to reduce spans ofcontrol in the eld and improve the supervision of ourdevelopment managers and agents. This investment,together with the opening of seven new branches,increased our cost base and consequently, in therst half, prot reduced.

In the second half the expected benets started toow and we were able to combine accelerated growthwith much improved credit quality. Consequently, whilstprot for the year reduced by 2.0 million to 1.5 million,second half prot was 29% above that for the sameperiod of 2010. In addition, the changes made have beeninstrumental in substantially reducing impairment as apercentage of revenue for 2011 by 6.3 percentage pointsto 30.2% and it is now at our target level for this market.


m m m % %


Credit issued 124.4 113.0 11.4 10.1 12.8


Revenue 102.9 101.2 1.7 1.7 4.1

Impairment (31.1) (36.9) 5.8 15.7 14.3

71.8 64.3 7.5 11.7 14.9

Finance costs (7.7) (5.9) (1.8) (30.5) (40.0)


Other costs (51.0) (44.1) (6.9) (15.6) (21.7)


Hungary

Hungary performed well delivering good growth incustomer numbers, strong growth in credit issued andexcellent credit quality. Reported prot was 0.8 million

lower than 2010 due to 9.5 million of higher ESR andinterest costs.


m m m % %


Credit issued 104.3 95.1 9.2 9.7 11.0


Revenue 74.2 74.0 0.2 0.3 0.7

Impairment (9.0) (11.3) 2.3 20.4 19.6

65.2 62.7 2.5 4.0 4.3

Finance costs (8.6) (6.0) (2.6) (43.3) (45.8)

Agents commission (13.3) (12.7) (0.6) (4.7) (5.6)Other costs (35.0) (34.9) (0.1) (0.3) (0.6)


A focus on improving customer service, more effectiveinternal communications, improved marketing and agencygrowth of 4% allowed the business to make good progressin growing its customer base towards the previous levelof over 300,000. Customer growth, together with improvedcredit quality which increased the number of customerseligible for larger loans, resulted in stronger credit issuedgrowth of 11%. Average net receivables grew at an even

faster rate of 15% due to the progressive accelerationin credit issued growth since mid-2010.

Revenue grew by less than 1% reecting higher ESRcosts, which are netted-off revenue. The impact inHungary is relatively high compared to other marketsdue to the higher incidence of early settlement. Thisreects the very high quality of our customer portfolioand we would expect the incidence to reduce as thebusiness grows and credit quality normalises.

Credit quality remains excellent and impairment as apercentage of revenue is 12.1% (2010: 15.3%), which is

well below our target range of 25% to 30%. We wouldhave eased our credit settings further in the secondhalf of the year but chose to maintain a more cautiouspositioning given the macro economic issues facingthe country.

Financing costs were 2.6 million higher than 2010due to the increased cost of debt funding and higherborrowings. Agents commission costs increased in

Operational review continued

Performance review


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Romania

Our business in Romania reported excellent resultsin 2011. Prot increased by 2.4 million to 4.1 milliondespite 4.3 million of higher ESR and nance costs.


m m m % %


Credit issued 87.7 74.6 13.1 17.6 17.2


Revenue 54.4 50.5 3.9 7.7 7.3

Impairment (14.2) (17.5) 3.3 18.9 18.9

40.2 33.0 7.2 21.8 21.1

Finance costs (5.6) (4.9) (0.7) (14.3) (7.7

Agents commission (5.5) (4.9) (0.6) (12.2) (12.2

Other costs (25.0) (21.5) (3.5) (16.3) (13.6Prot before taxation 4.1 1.7 2.4 141.2

The key ingredients of growth were a 23% increase inagent numbers which facilitated customer growth of20% to almost 250,000 customers. Credit issued grew17% and average net receivables increased by 23% to51.1 million. Revenue grew at a slower rate of 7% dueto the impact of increased ESR costs.

Improvements in operational effectiveness alongsidethe natural maturing of the business drove a substantialimprovement in collections performance and credit

quality, and as a result, impairment as a percentageof revenue was reduced substantially, by 8.6 percentagepoints, to 26.1%.

Finance costs increased by 0.7 million due to higherfunding costs following the 2010 renancing. Agentscommission costs increased in line with the growth inthe business. Other costs increased by 14% to supportthe expansion of the business.

Further geographic expansion is planned.

JohnHarnett

Chief Executive Ofcer

As a result of improved operating performance, growthwas accelerated from May 2011 and we increased theemphasis of our internal communications and incentiveschemes towards expanding our business. This was

successful and so for the year agent numbers increasedby 17%, customer numbers grew by 12% to 671,000 andcredit issued increased by 13%. Growth in average netreceivables and revenue was less and lagged the growthin credit issued.

Finance costs increased by 40% to 7.7 million due to thehigher cost of debt following the 2010 renancing togetherwith a larger borr

IPF Annual Report 2011

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