Operational review
Established markets
Central Europe comprises our operations in Poland, the Czech Republic, Hungary and Slovakia. Central Europe performed well in 2008, with reported pre-tax profits of £106.0 million, up by 31.5% from 2007.
5 year pre-tax profit growth in Central Europe (£m)
Underlying pre-tax profit up
14.5%
(reported profit up 31.5%)
Underlying impairment
21.9%
of revenue
Cost-income ratio improved from 41.5% to
38.8%
Central Europe
A summary table of the results is presented below with a detailed review of each country.
| 2008 £m |
Pro forma 2007 £m |
Change £m |
Change % |
Change at CER % |
|
|---|---|---|---|---|---|
| Customer numbers (000s) | 1,574 | 1,592 | (18) | (1.1) | (1.1) |
| Credit issued | 690.1 | 553.8 | 136.3 | 24.6 | 0.8 |
| Average net receivables | 464.1 | 336.7 | 127.4 | 37.8 | 11.5 |
| Revenue | 493.2 | 367.1 | 126.1 | 34.4 | 8.6 |
| Impairment | (106.0) | (64.3) | (41.7) | (64.9) | (32.7) |
| Revenue less impairment | 387.2 | 302.8 | 84.4 | 27.9 | 3.4 |
| Finance costs | (24.9) | (18.1) | (6.8) | (37.6) | (12.2) |
| Agent commission | (65.0) | (51.7) | (13.3) | (25.7) | (2.5) |
| Other operating costs | (191.3) | (152.4) | (38.9) | (25.5) | (0.7) |
| Profit before taxation | 106.0 | 80.6 | 25.4 | 31.5 | 7.4 |
In October 2008, we significantly tightened our credit controls in expectation of an economic downturn and rising unemployment in our markets during 2009. We also implemented plans to keep costs to a minimum.
As a result of the implementation of stricter lending criteria, year end customer numbers reduced by 1.1% to 1.57 million, having been growing at an annualised rate of 4.8% to the end of the third quarter. This reduction was also partly attributable to the write-off of non-performing customers to accelerate the recovery of the outstanding debt.
Credit issued, which had also been growing well throughout the first three quarters of the year (7.9% higher than the same period of the prior year), decreased by 16.3% in the final quarter of 2008, consequently for the full year credit issued increased by only 0.8% to £690.1 million.
Year end net receivables were 2.6% higher than at 31 December 2007 with a larger increase of 11.5% in average net receivables over the full year reflecting the growth in credit issued in the first three quarters.
Revenue increased by 8.6% to £493.2 million, but was affected by the reduction in credit issued in the fourth quarter. Impairment increased by 32.7% to £106.0 million although as noted above, this includes £2.0 million of provision releases compared with £6.0 million in the prior year. Before provision releases, underlying impairment was 21.9% of revenue, compared with 19.2% for 2007.
The net effect was an increase in pre-tax profits of £25.4 million (31.5%) to £106.0 million. After adjusting for the current and prior year release of impairment provisions, and the impact of foreign exchange, underlying profit growth was 14.5%.