Half-year Report

1 August 2023

International Personal Finance plc

Half-year financial report for the six months ended 30 June 2023

Principal activity

International Personal Finance plc is helping to build a better world through financial inclusion by providing affordable credit products and insurance services to underserved consumers across nine markets.

FIRST-HALF PERFORMANCE AHEAD OF PLAN

Key highlights

1      Prior to an exceptional tax charge of £4.0m in 2023, and an exceptional tax credit of £10.5m in 2022, see tax section for details.

Gerard Ryan, Chief Executive Officer at IPF commented:

"Our focus on helping more people access affordable credit and excellent execution of our strategy delivered good growth and a strong set of financial results of which we are very proud.  Notwithstanding the negative impacts of high inflation, all three divisions delivered great performances and we increased receivables by 10%, credit quality remained good and profit before tax was up 12% to £37.8m.  We made significant progress with the rollout of our new credit card in Poland and further strong growth in Mexico through both our face-to-face and digital channels. 

Our half-year results reflect the collective efforts of the whole IPF team, and I would like to thank my colleagues for all of their hard work and commitment to our customers and the communities we serve. The Board is pleased to declare an increase in the interim dividend of 15% to 3.1 pence per share, which is fully supported by our strong trading performance and the Group's robust balance sheet."

Alternative performance measures
This half-year financial report provides alternative performance measures (APMs) which are not defined or specified under the requirements of International Financial Reporting Standards. We believe these APMs provide stakeholders with important additional information on our business. To support this, we have included an accounting policy note on APMs in the notes to this half-year financial report, a glossary indicating the APMs that we use, an explanation of how they are calculated and how we use them, and a reconciliation of the APMs we use to a statutory measure, where relevant.

Investor relations and media contact

International Personal Finance will host a webcast of its 2023 half-year results presentation at 09.00hrs (BST) today - Tuesday 1 August 2023, which can be accessed here.

A copy of this statement can be found on our website at www.ipfin.co.uk.

Legal Entity Identifier: 213800II1O44IRKUZB59

Chief Executive Officer's review

Group performance
Our focus on helping more consumers access affordable credit, combined with the excellent operational execution of our strategy delivered good growth and a strong set of financial results in the first half of the year. We increased first-half profit by 12% to £37.8m and there remains strong demand for our broad range of financial products, which supported a 10% increase (at CER) in net customer receivables to £893m. Notwithstanding the negative impacts of high inflation, customer repayment performance remained robust, and we are pleased with the credit quality of our receivables portfolio.

Our financial model underpins our purpose to build a better world through financial inclusion and targets a return on required equity (RORE) for the Group of 15% to 20%, which we consider to be sustainable and balances the needs of all our stakeholders. At the half year, our annualised pre-exceptional RORE strengthened to 14.7% (H1-22: 12.3%) reflecting the very good operational performances by the European and Mexico home credit divisions, both of which delivered ROREs marginally above 20%. There remain excellent growth opportunities for IPF Digital to achieve scale and deliver our target returns.

The Group continues to have a well-capitalised balance sheet and robust funding position with headroom on debt facilities of £84m, which supports our business plans into the third quarter of 2024.

The excellent first-half performance fully supports a 15% increase in the interim dividend to 3.1p (H1-22: 2.7p) per share, in line with our stated dividend policy of paying 33% of the prior year full-year dividend in the first half.

Full details of the Group financial performance are detailed in the financial review section.

Strategic delivery
We play a vital role in society by providing access to affordable credit products and insurance services to people who are often excluded from day-to-day financial services by banks and other lenders. Our aim is to build on our market leadership by deploying a broad range of products, expanding our distribution channels and upgrading customer journeys to attract the next generation of customers.

From our heritage as a dedicated provider of instalment loans delivered face-to-face by our customer representatives, we have successfully diversified our product mix across nine markets which today includes digital instalment loans, credit cards, digital credit lines and mobile wallet as well as insurances and other value-added services. The continued success of our strategy to broaden our product range is particularly well demonstrated in our Polish and Mexican markets as well as through our development of partnership opportunities.

Poland
Over a number of years, we have broadened our product range in Poland in response to changing consumer preferences and the evolving regulatory landscape. We now serve our customers with face-to-face and digitally-delivered instalment loans, a range of value-added products and, more recently, an exciting new credit card.

It is pleasing to report that the new credit card has been well received by both customers and field colleagues, and at the end of the first half we had issued 53,000 credit cards.  The average balance is around £500 and average utilisation is c.80%. Whilst customers typically draw down around 90% of their credit limit initially through interaction with their customer representative, increasingly they are using their card to shop instore, spend online or access cash at no extra charge through an ATM, as they become more familiar with the benefits and added utility of a credit card. Importantly, customer repayment performance to date is tracking in line with our plans and is very similar to our experience of home credit instalment loans. We will continue to increase functionality and added utility, and expect to be serving between 120,000 and 150,000 customers with credit cards in Poland by the end of the year.

The success of the rollout, which reached nationwide coverage early in April, has proven the economics of the new credit card.  We are therefore confident that our business in Poland is capable of delivering our target returns when it regains scale following the transition to operating under the total cost of credit cap and new affordability requirements, which came into force on 18 December 2022 and 18 May 2023 respectively. As we have previously indicated, we expect this transition to be complete in 2025 when credit cards are expected to represent over half of our Polish receivables book.

Mexico
Capturing the significant growth potential in Mexico is core to our strategy and we expanded both our geographic presence and product offering during the first half of the year. We launched home credit operations in the new region of Tampico in March which has started very well, and continued to expand our operations in Tijuana which opened in 2022. In addition, within our IPF Digital business we launched our mobile wallet to customers, providing them with extra functionality to manage their revolving credit line through their smart phones.

Mexico is a good example of where our traditional home credit business is working very closely with IPF Digital to pass consumers not suitable for managing a remote online credit facility to one of our customer representatives so they may be served through our face-to-face instalment lending channel. This ensures that we can serve more customers and also means that our marketing investment is more efficient. We will look to replicate this model within our other markets.

Partnerships
We see attractive growth opportunities to build more points at which consumers can access credit through retail partnerships. In 2022, we focused on understanding the customer journey and building our capability with the testing of point-of-sale finance for consumers in Romania and Mexico. In 2023, based on our learnings, we have identified a number of additional partnership opportunities to expand our distribution in Romania and Mexico, and we see these as a very important part of our growth plans going forward. The majority of partnership opportunities will be delivered through IPF Digital, where access to a revolving credit line delivered through smart phones is very beneficial to customers.

Marketplace
The global economic downturn and cost-of-living crisis is the largest challenge facing our business both in terms of its impact on our customers as well as increased costs across the Group. Inflation rates have slowed across our markets but are expected to remain elevated in the second half of the year. 

We have continued to see good levels of demand for consumer credit in all our markets. While people within our target consumer segment often have lower incomes, they also budget very carefully and only want to borrow small sums. Their disposable income is under pressure because of increased food, fuel and energy prices but these factors have not had a discernible impact on repayments to date. Our lending criteria always centre on protecting customers from potential over-indebtedness and minimising credit risk to the business, and our responsible and prudent credit settings continue to reflect the uncertain macroeconomic environment for consumers with higher credit risk profiles.  We continue to monitor lending and repayment performance carefully and will adjust credit settings as appropriate.

All our markets continue to be competitive, but we have seen banks tightening their underwriting as the effects of high inflation impact consumers' disposable incomes. In addition, we have seen some signs that competition is being impacted by both caution in capital markets and increasing regulation which continues to present an opportunity for established, well-governed businesses with a strong balance sheet like IPF. We believe that non-bank financial institutions will remain a crucial source of finance for lower-income underserved consumers, and we will continue to focus on serving more customers in this demographic while maintaining lending quality. 

Environment, social and governance (ESG)
We have a very strong social purpose and are committed not only to supporting our customers by providing affordable and transparent credit in a responsible way, but also by striving to create long-term, sustainable value for all IPF stakeholders as we invest in promoting financial inclusion, developing the capabilities of our team who serve millions of customers and implementing our climate change strategy.

The key initiatives in the first half of the year included:

• The launch of our global 'Invisibles' community programme in Hungary, Romania and the Baltics highlighting the plight of underprivileged, marginalised and excluded members of society. Our work in this area was recognised through a number of awards in the Czech Republic.
• The Group's sixth annual Volunteer and Financial Inclusion month saw 2,000 volunteers across our markets undertaking projects to support 35,000 people in need.
• Our Global People Survey demonstrated a high level of colleague engagement.
• We have held the ISO 45001 Occupational Health and Safety Management Standard in all European home credit markets since 2020. In the first half of 2023, we achieved this accreditation in Mexico home credit.
• Recognised with Top Employer and Super Ethical Company awards in Poland, and IPF Digital in Mexico was named as the 'Best Place to Work for Women'.

We are very proud of these achievements and our work in this area is fundamental to our purpose of building a better world through financial inclusion. We continued to further develop our ESG strategy, and will be launching a "Responsible Business Framework" in the second half of the year as part of our journey to embed ESG throughout all of our operations.

Dividend
Reflecting the confidence in executing the Group's strategy and realising the long-term growth potential of the business, the Board is pleased to declare a 15% increase in the interim dividend to 3.1 pence per share. This is in line with our progressive dividend policy which sets the interim dividend payment at 33% of the prior year's full dividend payment.  The interim dividend will be paid on 29 September 2023 to shareholders on the register at the close of business on 1 September 2023. The shares will be marked ex-dividend on 31 August 2023.

Regulatory update
There have been no material updates on the EU Commission's review of the Consumer Credit Directive, and we continue to expect that a final compromise proposal will be published later in 2023.

As previously indicated, we were granted a small payment institution licence in Poland last year to enable credit card issuance and payment services. We submitted an application for a full payment institution licence in Q4-22 and are in dialogue with the Polish financial supervision authority, the Komisja Nadzoru Finansowego (KNF), to ensure that we meet the requirements for this licence, a process which typically takes around 12 months.

In response to new affordability regulations that came into force in Poland in May 2023, we successfully deployed new processes and technology to assess customers in line with the new rules, and in IPF Digital introduced systems to comply with the Payment Services Directive Two (PSD2) ensuring customer authentication processes.

Outlook
Our aim is to provide underserved consumers with access to simple, personal and affordable credit and insurance services to help protect them and their families. There is significant demand for affordable credit within our target demographic, and we see substantial and sustainable long-term growth opportunities through meeting the needs of more consumers with an increased choice of products and distribution channels.  

All three of our divisions performed well in the first half of the year, delivering good growth and financial results. Whilst there has been no discernible impact from the rising costs of living on customer demand or repayment performance, we will continue to monitor this closely and maintain a cautious approach to lending given the macroeconomic backdrop. As we have demonstrated previously, we have a strong track record of adjusting credit settings to adapt to market conditions very quickly in order to maintain returns.

Looking ahead and as previously reported, we expect overall Group receivables growth to be more modest for the year as a whole and our returns to moderate as we continue to adapt our Polish business to serving customers under the new pricing and affordability regulations. In European home credit, we will focus on rolling out our new credit card in Poland, whilst continuing to deploy more digital solutions to improve customer experience and cost efficiency in all four markets. In Mexico home credit, our efforts will centre on delivering our expansion strategy to maximise customer reach and, in IPF Digital, we will continue to rebuild scale to deliver our target returns in the medium term, particularly through strong growth in Mexico and Australia. We will also maintain strict control of costs across the Group and see further opportunities to drive operational and structural cost efficiencies.

We have a strong balance sheet which underpins our confidence in continuing to deliver a good set of results for the year as a whole and deliver our progressive dividend policy and to return the Group to its target returns in 2025.

Financial review

Group
We delivered a very good first-half performance and continued to make progress on executing our strategy, despite the challenging macroeconomic environment. We delivered a first-half profit before tax of £37.8m, up by 11.8% (£4.0m) on the first half of last year and ahead of our plans, reflecting a strong operational performance as well as favourable movements in exchange rates compared with our original assumptions. An analysis of profits between our three trading divisions is set out below:

The detailed income statement of the Group, together with associated KPIs is set out below:

¹   Prior to an exceptional tax charge of £4.0m in 2023, and an exceptional tax credit of £10.5m in 2022.

²   Based on required equity to receivables of 40%.

Delivering growth responsibly is a core strand of our purpose to increase financial inclusion for people who are unable to access credit from banks and traditional lenders. The strong execution of our strategy to capture growth opportunities and meet consumer demand with our broadening range of financial products drove a 4.8% increase in customer lending year on year. We increased our closing net receivables portfolio by £123.2m (9.7% at CER) to £893.1m at the half year, reflecting double-digit growth in all three divisions, which resulted in strong revenue growth of 17.6%. Customer numbers increased by 1.1% to 1.72m (excluding the collect-outs of our businesses in Spain and Finland).

The Group annualised revenue yield continued to strengthen, up 4.4ppts to 54.2%, as a result of the positive impact of lower levels of promotional activity introduced during the second half of last year and the impact of price increases in some of our markets. Price increases are only made after due consideration of rate caps, which are often linked to movements in local base rates, and stringent consideration of customer affordability. The Group revenue yield is now within our target range of 53% to 56%, and we expect it to increase further in the medium term as: (i) Mexico home credit, which carries a higher yield, grows and represents a larger proportion of the Group's receivables portfolio; and (ii) the impact of price increases and lower promotional activity in the receivables portfolio take greater effect.

We are always very disciplined and responsible in our lending decisions to customers, and never more so than in difficult economic times. The close relationships we have with our customers also encourages a strong repayment ethos. Despite the increased costs of living, we have not seen any discernible impact on customer repayment behaviour and, together with tight credit standards, the quality of our loan portfolio continues to be very good.  The annualised impairment rate at the end of the first half was 11.4% (H1-22: 7.5%), which is in line with our expectations as impairment rates normalise following the pandemic. We expect the Group annualised impairment rate to rise closer to our target range of 14% to 16% as we continue to grow the business and Mexico, which carries a higher impairment rate, represents a larger proportion of receivables. Our balance sheet remains very robust against the impact of cost-of-living increases with an impairment coverage ratio of 36.5% at the end of the first half (H1-22: 37.6%), which is little changed from 36.4% at the end of 2022 and compares with a pre-Covid-19 ratio of 33.5% at the end of 2019.

Maintaining tight control of costs and delivering efficiency improvements through technology to offset inflationary pressures are having a meaningful impact on our returns. These actions, together with the growth in revenue, resulted in a significant 7.6ppt improvement in the annualised cost-income ratio from 65.0% to 57.4% over the last 12 months. Given the momentum in the business, and the initiatives underway, we have increased confidence that we will outperform our medium-term target of 52% to 54% as we continue to achieve greater scale.

Reported pre-exceptional EPS was 10.2p per share (H1-22: 9.1p), up 1.1ppts year on year, and in line with the growth in pre-tax profits. 

The pre-exceptional annualised RORE for the first half of 14.7% was broadly in line with 14.6% at the end of 2022 (H1-22: 12.3%). We continue to operate close to the lower end of our target range of 15% to 20% as we rebuild scale and transition the Polish business to the new regulatory landscape. The Group's annualised pre-exceptional ROE, based on actual equity, was 11.3% at the half year, down from 11.5% at end of 2022 (H1-22: 10.4%) due to favourable exchange rate movements which have increased equity. As previously reported, we anticipate Group returns will moderate for 2023 as a whole because the impact of the new regulations in Poland is more pronounced in the second half, due to new affordability rules which came into force on 18 May 2023. We expect to rebuild returns in 2024 and deliver our target returns in 2025.

Changes to financial model KPIs

Our financial model sets out the target returns we need to support our dividend policy, fund our growth and ensure we retain a strong balance sheet. The most integral part of our financial model is that we must deliver a Group RORE of between 15% and 20%. We target each of our divisions to deliver a return of at least 20% to ensure that we can deliver the Group RORE, after taking account of central costs.  We believe that Group returns materially in excess of our target range would result in us not balancing the needs of all of our stakeholders in delivering our purpose.

Our financial model is underpinned by a stringent focus on revenue yield, impairment rate and cost-income ratio. It is also dictated by the cost of funding and the tax rate.  We set targets for each of these metrics 12 months ago and, in light of strong operational performance over the last year together with the global rise in interest rates due to cost-of-living pressures, we have re-evaluated the targets for each of these metrics as follows:

The revised targets are supported by our financial forecasts and ongoing initiatives that are well progressed. They support the delivery of our target returns of between 15% and 20% after taking account of increasing funding costs and an ongoing tax rate of approximately 40%.

Divisional performance

European home credit
Our European home credit division delivered a very good operational performance in the first half of the year, reporting an increase in profit before tax to £30.3m (H1-22: £29.6m), despite operating under new pricing and affordability requirements in Poland as described above. 

Despite the ongoing challenges in Europe's trading environment driven by the impacts of the war in Ukraine, consumer demand remained robust, and we delivered 5.6% growth in customer lending year on year. The robust operational execution of our strategy resulted in a 9.3% increase (at CER) in closing net receivables to £505m with Hungary and Romania both delivering growth in excess of 20% and the Czech Republic delivering 9%. These increases were offset partially by a 4% reduction in Poland where we expected growth to slow. Excluding Poland, customer lending and closing net receivables both increased by 21%. Customer numbers ended the first half at 785,000, broadly in line with H1-22.

The annualised revenue yield has strengthened significantly over the last 12 months from 40.7% to 45.6%. This reflects the strong management actions to bolster this metric, including reduced promotional activity and modest price in June last year, some of which relate to local rate caps which are linked to base rate movements.

Customer repayment performance remained robust in all our European home credit markets which, together with tight credit standards, delivered an impairment rate of 3.9%, up from 1.1% as rates began to normalise post-pandemic. We expect the medium-term impairment rate to rise to between 8% and 10%.

The good growth in lending and tight management of costs delivered a further significant improvement in the cost-income ratio, reducing 7.9ppts year on year to 59.8% (H1-22: 67.7%).  We continue to drive more efficient processes and deliver greater synergies across our four countries, including through the deployment of technology and sharing of best practice and resource.

The annualised pre-exceptional RORE in European home credit improved to 21.0% (H1-22:17.7%) which is in line with our divisional target returns.  As we indicated last year, we expect European home credit returns to reduce in the second half of 2023 and through 2024 as we transition our Polish business to the new regulatory landscape in which we now operate before returning to delivering target returns in 2025. 

European home credit is the bedrock of the Group. It serves nearly 800,000 customers, has good growth prospects and is delivering our target returns. Our focus remains on increasing the number of customers using our credit card offering in Poland, expanding our remote digital offering in the Czech Republic, broadening our product range to serve more customers, including leveraging from our IPF Digital business, as well as continuing to deploy more technology to improve customer experience and cost efficiency.

Mexico home credit
Mexico home credit delivered further good growth and another strong operational performance in the first half. Profit before tax increased by 54% (£4.0m) to £11.4m (H1-22: £7.4m).

Mexico home credit continued to deliver strong returns in a market with high demand for credit and significant growth potential. Our continued expansion, which included the launch of home credit operations in Tampico in March, together with good consumer demand, delivered a 4.5% increase in customer lending year on year, against tighter credit settings introduced towards the end of 2022. This compares with a very strong first-half performance in 2022 when we saw a resurgence in demand as Mexico recovered from the pandemic. We expect customer lending growth to increase to between 8% and 10% in H2-23, against a more normal growth rate achieved in the second half of last year.  Customer numbers grew by 3.6% in the first half to 700,000.

Closing net receivables increased by 9.7% (at CER) to £176.1m which flowed into strong revenue growth of 14.8% year on year. The annualised revenue yield improved from 86.5% in June last year to a more normalised level post-pandemic of 88.5%. We expect this ratio to remain close to this level going forward. 

Customer repayment performance remained consistent during the first six months of the year. The annualised impairment rate increased to 32.2% (H1-22: 27.9%), which is higher than our target rate for Mexico of 30%. This predominantly reflects a modest deterioration in credit quality towards the end of 2022 prior to credit tightening. Repayment performance is now back in line with our plan, and we anticipate the impairment rate moving towards our target level by the year end.

In line with our growth strategy, we continued to invest in expanding our infrastructure and customer reach in Mexico which resulted in costs increasing year on year by 9.0% (at CER). However, the cost-income ratio has now improved by 3.8 ppts to 50% over the last 12 months (H1-22: 53.8%), demonstrating the benefit of operational leverage in this growing business as well as good cost control. Mexico is the benchmark home credit operation for cost efficiency.

Mexico home credit delivered an annualised RORE of 20.5% (H1-22: 20.8%), in line with our divisional target returns. As we have indicated previously, investing in sustainable growth with a relatively shallow "j-curve" is key to maintaining target returns in this strong growth business.

Our Mexico home credit business offers very exciting and significant long-term growth prospects. By successfully delivering on our strategy, we will continue to deliver sustainable growth to ensure consistent returns. We will enhance territory management to maximise customer reach within the current geographic footprint and selectively digitise the customer journey. We will also continue to build on the synergies developed with IPF Digital, which is helping us financially include more people in Mexico. Together, Mexico home credit and IPF Digital in Mexico already serve nearly 800,000 customers, and there is good potential to grow to over one million customers in the medium term.

IPF Digital
IPF Digital delivered good growth in all our ongoing markets and reported a profit before tax of £4.1m (H1-22: £4.5m). Whilst this is a reduction year on year, this reflects: (i) the "j-curve" impact of strong receivables growth; (ii) the impact of transitioning the Polish business to the new lower total cost of credit cap and affordability rules; and (iii) the collect-out markets of Spain and Finland contributing lower profits as they near closure.

Good demand for IPF Digital's revolving credit offering together with a strong operational performance supported a 2.8% increase in customer lending in the first half of the year. The growth rate was heavily distorted by Poland, where changes to the regulatory landscape resulted in a decline in lending of approximately 30%. Elsewhere, there were impressive performances in Mexico and Australia, which both delivered growth of 24% and in the Baltics combined, customer lending increased by 13%.

Customer numbers ended the first half at 233,000.  Mexico, Australia and the Baltics delivered good growth and, together, increased customer numbers by 7%. As expected, customer numbers reduced in Poland by 20%.

We are successfully increasing receivables to gain scale and deliver our target returns which resulted in an 11.0% increase (at CER) in closing net receivables. Again, this was driven by Mexico, Australia and the Baltics which delivered combined growth of 23% whereas Poland saw a decline of 14%. The collect-out portfolios in Finland and Spain have reduced from approximately £4m a year ago to less than £1m at the end of June as the collect-outs continue to progress well.

The annualised revenue yield has reduced by 1.7 ppts to 45.0% over the last year. This reflects the impact of a combination of factors including: (i) the flow through of a tighter rate cap in Latvia in 2022; (ii) the reduction in higher yielding Finland and Spain receivables during the collect-outs; (iii) the impact of the lower total cost of credit cap in Poland; and (iv) the growth in Australia, which is relatively lower yielding. These adverse variances have been offset partly by the growth in Mexico which has a higher revenue yield.

Customer repayments remained robust and the annualised impairment rate increased from 9.3% last June to 11.9%. This is mainly due to the growth in lending in Mexico which carries a higher impairment rate as well as the rundown of the Finland and Spain receivables portfolios which incur minimal impairment as it has already been accounted for up front under IFRS 9. 

Although we continued to invest in developing our product offering and marketing to attract new customers and build scale, tight control on expenditure delivered a 7.5% (at CER) reduction in costs year on year and this was reflected in the cost-income ratio which decreased significantly by 9.7 ppts to 53.1% (H1-22: 62.8%). We expect the cost-income ratio to further improve as we continue to rebuild the business and benefit from economies of scale. As a fully digital business, we are targeting a cost-income ratio of around 45% in the medium term.

IPF Digital's RORE in the first half of 2023 was 6.3%, broadly unchanged from H1-22 and the 2022 year end, reflecting the investment in growth in Australia and Mexico, the transition of the Polish business to operating under the new regulatory environment and the diminishing profit contribution from Finland and Spain.  Although IPF Digital has lower scale than we would wish following Covid-19 and the closure of Finland and Spain, there are strong organic growth opportunities in our existing markets, particularly Mexico and Australia, and we will continue to consider inorganic opportunities to deliver scale and increase returns to our target levels. Our aim is for IPF Digital to deliver returns at the lower end of the Group's target range in 2025.

Our focus in IPF Digital is to continue gaining scale and extend the reach of our mobile wallet in the Baltics, Mexico and, in due course, Australia. We will also continue to expand the new hybrid lending opportunities that our digital and home credit businesses are partnering on in Mexico and we are exploring the potential of extending this to our other home credit markets. In addition, we also see very strong growth potential from working with partners to provide point-of-sale revolving credit facilities, and we are currently working on a number of attractive opportunities.

Taxation
The pre-exceptional taxation charge on the profit for the first half has been based on an expected tax rate for the full year of approximately 40% (H1-22: 40%).

The first half results reflect an exceptional tax charge of £4m relating to a new "extra profit special tax" implemented by the Hungarian government in 2022 and chargeable on the financial sector including non-bank financial institutions.  As originally enacted, the tax was due in respect of 2022 and 2023 only with an exceptional tax charge of £5m being reflected in the 2022 Group financial statements and a further exceptional charge of £6m had been expected to be reflected in 2023. However, following changes made to this regulation during the first half of 2023, the expected impact on the Group for 2023 is a reduced exceptional tax charge of £4m but as the tax has been extended by one further year, a further tax charge of £2m is expected to arise in 2024.

Funding and balance sheet  
We continue to maintain a very conservatively capitalised balance sheet and robust funding position. At the end of June, the Group's equity to receivables ratio was 51.8% (H1-22: 52.4%) and this compares with our target of 40%. The ratio has remained unchanged despite: (i) receivables growth being in line with our financial model over the last 12 months; (ii) returns being below the lower target threshold of 15%; and (iii) a dividend pay-out ratio in excess of 40%. The absorption of capital from these factors has been offset directly by £55m of foreign exchange gains being credited to reserves over the last 18 months (£13m in H1-23). Excluding the benefit of these exchange gains, the equity to receivables ratio would have been around 46% at the end of June. We intend to reduce the equity to receivables ratio progressively over the next two years as we invest in growth, deliver our progressive dividend policy and build returns to our target level of 15% to 20%.

The gearing ratio was 1.2 times (H1-22: 1.3 times) at the end of the first half, comfortably within of our covenant limit of 3.75 times, and our interest cover covenant was 2.2 times (H1-22: 2.4 times), compared with our covenant of 2.0 times.

At the end of June, the Group had total debt facilities of £609m, comprising £413m of bonds and £196m of bank facilities. We have borrowings of £523m and, together with undrawn facilities and non-operational cash balances, headroom is £84m. The Group's current funding capacity together with strong business cash generation, is expected to meet our funding requirements to the third quarter of 2024. Our additional funding requirement in 2023 is not expected to be significant due to the anticipated contraction in Polish receivables as we transition the business to operate under new rate cap and affordability regulations.

We successfully extended £39m of debt facilities in the first half of the year, including £32m of bank facilities and the issue of £7m of retail bonds held in treasury. The debt maturity profile of the Group stands at 2.1 years. Together with our advisors, we are actively exploring a number of options to extend our debt maturity profile and refinance the Eurobond.

Our blended cost of funding in H1-23 was 14.0%, up from 12.2% in H1-22. This is due to a significant step-up in interest rates across our markets which resulted in higher costs of bank funding and the cost of hedging. Our hedging policy is to match our local currency receivables with borrowings in the same denomination to provide certainty of cashflows and avoid significant volatility in the income statement from movements in exchange rates. Accordingly, our borrowings denominated in sterling and euros are swapped through forward contracts into local currency when we onward lend to our markets. As a result, the margin on the sterling/euro bond is effectively added to the local base rate for determining the cost of funding for that market. For countries such as Hungary and Mexico, where base rates are currently 13.0% and 11.25% compared with base rates in the UK and Eurozone of 5.0% and 4.0% respectively, this has resulted in an increased cost of hedging. We anticipate a modest increase in the overall Group cost of funding in 2024 as we refinance maturing fixed interest rate funding.

Our credit ratings remained unchanged. We have a long-term credit rating of BB- (Outlook Stable) from Fitch Ratings and Ba3 (Outlook Stable) from Moody's Investors Services.

Financial statements

Consolidated income statement

The notes to the financial information are an integral part of these condensed consolidated interim financial statements.

Earnings per share - statutory

Earnings per share - pre-exceptional items

Dividend per share

Dividends paid

Consolidated statement of comprehensive income

Consolidated balance sheet

Consolidated statement of changes in equity