REG - Amigo Holdings PLC - Half-year Report
29/11/2021 07:00
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RNS Number : 8033T Amigo Holdings PLC 29 November 2021
29 November 2021
Amigo Holdings PLC
Interim results for the six months ended 30 September 2021
Amigo Holdings PLC, (Amigo), announces results for the six-month period ended
30 September 2021.
Headlines
· Following the Court not sanctioning the original proposed Scheme of
Arrangement ("Scheme") in May 2021, the Board continues to pursue a new Scheme
to address the complaints liability and provide a solution for customers with
a valid complaint.
· An independent Customer Committee ("ICC") was set up in response to
the recommendations of the judge at Amigo's High Court Scheme sanction
hearing to ensure the voice of customers is heard. On 28 September 2021,
Amigo submitted a new Scheme proposal, along with its future business plan, to
the Financial Conduct Authority ("FCA") and the ICC. A revised offer, which
incorporates two Scheme options, was submitted to the ICC on 12 November. The
Board's view is that a Scheme that is contingent on a continuing business will
provide creditors with more value and a more certain outcome.
· While neither of our proposed Schemes is expected to satisfy the
liability owed to redress creditors with valid claims in full, the
contribution to the new Scheme will be significantly increased. This is, in
large part, due to improved collections relative to the assumptions made for
the first Scheme, in December 2020, when the impact of Covid-19 remained
highly uncertain, as well as the delayed implementation of balance adjustments
on the loan book. Amigo will be proposing an equity raise alongside the Scheme
to support the future business. This is likely to result in material dilution
which will lead to existing shareholders owning a much smaller proportion of
the group if they do not take up their rights. The Board is also considering
an early part repayment or repurchase of the senior secured notes.
· The next step will be to issue the Practice Statement Letter ("PSL")
to relevant creditors explaining the options for a second Scheme. The Court
process will then begin, which is estimated to take at least four months.
· As noted previously, the sanctioning of a new Scheme is increasingly
urgent. Without an approved Scheme, Amigo expects to have to file for
administration or other insolvency process.
Financial headlines
Figures in £m, unless otherwise stated H1 2022 H1 2021 Change %
Number of customers(1) '000 102.0 176.0 (42.0)
Net loan book(2*) 224.1 485.2 (53.8)
Revenue 56.5 92.3 (38.8)
Impairment coverage % 22.5 14.0 60.7
Complaints provision (balance sheet) (344.3) (159.1) 116.4
Complaints cost (income statement) (5.3) (93.7) (94.3)
Profit/(loss) before tax 2.1 (62.6) 103.4
Profit/(loss) after tax(3) 3.3 (67.9) 104.9
Adjusted profit/(loss) after tax(4*) 2.0 (58.1) 103.4
Basic EPS Pence 0.7 (14.3) 104.9
EPS (Basic, adjusted)(5*) Pence 0.4 (12.2) 103.3
Net borrowings(6*) 2.1 (265.5) (100.8)
Net borrowings/Gross loan book(7*) % (0.7) 47.1 (101.5)
The approval of an alternative Scheme remains subject to reaching key
milestones including a second successful creditor vote and approval by the
High Court at a sanction hearing. At this point, the Board does not consider
there to be enough certainty to account for claims redress on the basis that a
Scheme will be sanctioned. In considering the presentation of the interim
results, the Board has concluded that the amount recognised for complaints
redress should continue to be included on the basis that known and expected
future complaints are settled in full. The Board has concluded there is a
material uncertainty over going concern (see note 1 to the financial
statements for further information). Despite this, the Board considers that it
remains appropriate to prepare these financial statements on a going concern
basis, as the continued pursuit of a Scheme provides a realistic alternative
to insolvency.
· Net loan book reduction of 53.8% to £224.1m (H1 2021: £485.2m) due
to the runoff of the back book and the continued pause in new lending
throughout the period.
· Revenue reduction of 38.8% to £56.5m (H1 2021: £92.3m).
· Complaints provision broadly unchanged from year end at £344.3m (FY
2021: £344.6m; H1 2021: £159.1m). Application of incremental compensatory
interest accrued in the period is partially offset by an increase in the
estimated portion of known and potential complaint customers charging off the
loan book due to the passage of time. Complaints cost in the period of £5.3m
(H1 2021: £93.7m).
· Underlying collection levels continue to be better than modelled
within the first Scheme projections in December 2020. However, impairment
coverage has increased to 22.5% (H1 2021: 14.0%), driven by a reforecast of
expected credit losses to reflect an increasing trend in the level of arrears
observed in the period, predominantly but not exclusively, from customers
exiting Covid-19 payment holidays.
· Reported statutory profit before tax for the six months to 30
September 2021 was £2.1m (H1 2021: loss of £62.6m).
· £234.5m of unrestricted cash and cash equivalents as at 30 September
2021 (H1 2021: £134.2m) reflects continued strong cash generation; current
unrestricted cash balance of over £260m.
· Net liabilities of £117.6m as at 30 September 2021 (H1 2021: net
assets £99.6m).
· Net borrowings of £2.1m at 30 September 2021 (HY 2021: (£265.5m))
driven by continued collections while originations remained suspended. This
has allowed the repayment of the securitisation facility.
· Final Covid-19 payment holidays were implemented prior to the start
of the period, in March 2021 and had all concluded by the end of July 2021.
There were therefore no associated modification losses recognised in the
period. Alternative forbearance measures continue to be offered to customers
experiencing financial difficulty.
*Detailed definitions and calculations of Amigo's alternative performance
measures (APMs) can be found in the APM section of these condensed financial
statements.
Gary Jennison, CEO of Amigo, said:
"We're pleased to be providing a meaningful update on our progress towards a
new Scheme as we recognise it has been a long wait for all stakeholders.
Clearly, it has taken much longer than we had hoped but it is critical that we
get this right to achieve the fairest outcome for all creditors by ensuring we
have listened carefully to their views and fully addressed the concerns raised
by the High Court and the regulator last May. We're incredibly grateful for
the commitment shown by the Independent Customer Committee over many months
alongside the ongoing constructive engagement with the FCA. There's no doubt
they have been instrumental in helping us to reach a better position for
creditors and we hope to return to the Court with a Scheme they can support
next year.
"The creditor committee made it clear they wanted a Scheme that offers the
certainty of a cash-based payment, delivered quickly, and this is reflected in
the revised offer we are outlining here today. We're pleased the New Business
Scheme, contingent on new lending restarting and a successful equity raise,
will offer a markedly better cash contribution compared to the original Scheme
developed a year ago. Obviously a lot has changed in the last twelve months
and the increased contribution is largely driven by the clarity we now have
around our future business model and the level of collections and impairments.
Fortunately for customers the impact of Covid has been far less severe than
we, and the market, thought when forecasts were made in the eye of the storm.
Also, a further 12 months of collections on loans makes a considerable
difference to the risk of balance adjustments. The development of a clear
future business plan and new product proposition, as well as the better
collections performance, has enabled us to consider both an equity raise and
an earlier partial repayment or repurchase of our senior secured notes which
would reduce the future interest payable."
"The likelihood of a potential material dilution for shareholders is a
difficult but necessary consequence of our situation. We have noted on many
occasions, we are an insolvent business so there are no easy paths if we want
to avoid administration and the only other options are for a managed wind-down
or insolvency, both of which are worse outcomes for shareholders and
customers. The Court was clear that any future Scheme must address the balance
between creditor and shareholder outcomes to be successful and the equity
raise achieves that and provides the capital to fund a future business that
can prosper. We really hope as many existing shareholders as possible will
invest in what we believe is a great new lending proposition, which aims to
address the growing and pressing need in the market for a mid-cost product
that helps customers progress to mainstream financial inclusion."
Analyst, investor and bondholder conference call and webcast
Amigo will be hosting a live webcast for investors and bondholders today at
09:30 (London time) which will be available at:
https://www.amigoplc.com/investors/results-centre
(https://www.amigoplc.com/investors/results-centre) . A conference call is
also available for those unable to join the webcast (Dial in: + 44 20 3936
2999; Access code: 907435). A replay will be available on Amigo's website
after the event. The presentation pack for the webcast shows the
reconciliation between the PLC results and Amigo Loans Group Limited (the
'Bond Group').
Investor video
There is an investor video available to view here
(https://www.amigoplc.com/investors/messages-from-our-ceo) , with an update
from Amigo's CEO, Gary Jennison.
Notes to summary financial table:
(1)Number of customers represents the number of accounts with a balance
greater than zero, exclusive of charged off accounts.
(2)Net loan book represents total outstanding loans less provision for
impairment excluding deferred broker costs.
(3)Profit/(Loss) after tax otherwise known as profit/(loss) and total
comprehensive income to equity shareholders of the Group as per the financial
statements.
(4 )Adjusted profit/(loss) after tax excludes items due to their exceptional
nature including: senior secured note, RCF fees, securitisation facility fees
write off, tax provision release, tax asset write off, tax refund due and
strategic review and formal sale process costs. None are business-as-usual
transactions. Hence, removing these items is deemed to give a view of
underlying profit/(loss) adjusting for non-business-as-usual items within the
financial year.
(5 )Adjusted basic (loss)/earnings per share is a non-IFRS measure and the
calculation is shown in note 8. Adjustments to (loss)/earnings are described
in footnote 4 above.
(6)Net borrowings is defined as borrowings less unamortised fees and
unrestricted cash and cash equivalents.
(7)Net borrowings/gross loan book. Net borrowings over gross loan book: this
measure shows if the borrowings' year-on-year movement is in line with loan
book growth.
Contacts:
Amigo
Mike Corcoran, Chief Financial Officer
Kate Patrick, Head Investor Relations
investors@amigo.me
(mailto:investors@amigo.me)
Lansons
amigoloans@lansons.com
Tom Baldock
07860 101715
Laura
Hastings
07768 790752
About Amigo Loans
Amigo is a public limited company registered in England and Wales with
registered number 10024479. The Amigo Shares are listed on the Official List
of the London Stock Exchange. Amigo is a leading provider of guarantor loans
in the UK and offers access to mid‐cost credit to those who are unable to
borrow from traditional lenders due to their credit histories. The guarantor
loan concept introduces a second individual to the lending relationship,
typically a family member or friend with a stronger credit profile than the
borrower. This individual acts as guarantor, undertaking to make loan payments
if the borrower does not. Amigo was founded in 2005 and has grown to become
the UK's largest provider of guarantor loans. In the process, Amigo's
guarantor loan product has allowed borrowers to rebuild their credit scores
and improve their ability to access credit from mainstream financial service
providers in the future. Amigo is a mid‐cost provider which currently has
only one simple and transparent product ‐ a guarantor loan at a
representative APR of 49.9 per cent. Amigo Loans Ltd and Amigo Management
Services Ltd are authorised and regulated in the UK by the Financial Conduct
Authority.
Forward looking statements
This report contains certain forward-looking statements. These include
statements regarding Amigo Holdings PLC's intentions, beliefs or current
expectations and those of our officers, Directors and employees concerning,
amongst other things, our financial condition, results of operations,
liquidity, prospects, growth, strategies, and the business we operate. These
statements and forecasts involve risk, uncertainty and assumptions because
they relate to events and depend upon circumstances that will or may occur in
the future. There are a number of factors that could cause actual results or
developments to differ materially from those expressed or implied by these
forward-looking statements. These forward-looking statements are made only as
at the date of this announcement. Nothing in this announcement should be
construed as a profit forecast. Except as required by law, Amigo Holdings PLC
has no obligation to update the forward-looking statements or to correct any
inaccuracies therein.
This announcement contains inside information for the purposes of Article 7 of
the Market Abuse Regulation (EU) 596/2014. The person responsible for this
announcement is Roger Bennett, Company Secretary.
Chief Executive's Statement
Performance
Whilst we remain unable to restart new lending, the demand for mid-cost,
non-prime financial products is strong with our brand continuing to attract
significant numbers of potential customers to our website despite no
promotional activity for over 18 months. Amigo's pause in lending, which has
continued throughout the six-month period to 30 September 2021, led to a 42.0%
decline in customer numbers and a 53.8% reduction in the net loan book.
Revenue fell by 38.8% compared to the prior year period, primarily driven by
the reduction in the loan book.
While underlying collection levels have continued to be better than modelled
under our first Scheme projections back in December 2020, we have seen an
increasing trend in the level of arrears in the period, predominantly but not
exclusively from customers exiting Covid-19 payment holidays and have
recognised this in the provision for impairment. The complaints provision and
associated cost as at 30 September 2021 were £344.3m and £5.3m respectively.
This resulted in a statutory profit before tax for the six-month period of
£2.1m (H1 2021: loss of £62.6m) and statutory profit after tax of £3.3m
owing to a £1.2m tax credit in the period.
I continue to be extremely proud of the extensive support we have been able to
provide throughout the Covid-19 pandemic to over 66,000 customers. While the
Covid-19 payment holidays have all now concluded, we continue to assist
customers experiencing financial difficulty with alternative forbearance
measures.
Scheme of Arrangement
Following the Court not sanctioning Amigo's original proposed Scheme of
Arrangement in May 2021, the Board continues to pursue a new Scheme to address
the complaints liability. We have worked hard to address the concerns
highlighted by the Judge at the sanction hearing, including forming an
Independent Customer Committee to ensure the voice of the customer is heard
and to provide redress creditors with the opportunity to help shape a new
Scheme.
Multiple options have been developed and on 28 September 2021, Amigo
submitted a draft new Scheme proposal, along with its future business plan, to
the FCA and the ICC. On 12 November 2021, Amigo submitted a revised offer to
the ICC. The offer incorporates two options which reflect the feedback
received from the ICC that their preference is for a cash-based payment rather
than one that comprises either a share in future profits or a transfer of
equity to creditors. The first, the 'New Business Scheme' is contingent on new
lending restarting and Amigo completing a successful equity raise. Any such
equity raise is likely to result in material dilution which will lead to
existing shareholders owning a much smaller proportion of the group if they do
not take up their rights. The second is a managed wind down of the Amigo Loans
Ltd business under a Scheme framework. It is the Board's view that the New
Business Scheme will provide redress creditors with more value and a more
certain outcome. Both options will be submitted to the Court for sanction at
the same time. If the judge does not sanction the New Business Scheme, the
judge will then be asked to sanction the wind down Scheme at the same hearing.
While neither of our proposed Schemes is expected to satisfy the liability
owed to redress creditors with valid claims in full, the proposed contribution
to the new Scheme will be significantly increased from that of the original
Scheme. This is a result of the divergence between what we projected to happen
to the business in December 2020, when the first Scheme was proposed, and what
is currently the case. The impact of the Covid-19 pandemic has been far less
severe than anticipated and we are in a much better position relative to what
was projected in terms of impairment and its impact on collections. The
delayed implementation of balance adjustments on the loan book has also meant
that we have continued to collect on accounts throughout the year, and this is
modelled to continue until the Scheme Effective Date. The development of a
clear future business plan and new product proposition, as well as the better
collections performance, has enabled us to consider both an equity raise and
an earlier repayment or repurchase of the senior secured notes ("bonds"). A
part redemption of the bonds is expected to deliver significant savings on the
future interest payable. The bonds become callable at par in January 2022. An
ongoing focus on managing operating costs is a further but less significant
contributing factor.
Whilst the process has taken considerably longer than we had anticipated, it
is critical that we get this right to achieve the fairest outcome for our
customers and to satisfy the High Court and our regulator that we have
addressed their concerns. The ICC has been fully engaged and I am confident we
are doing all that we can to ensure our customers are well informed and have
the assistance they need to understand the different options and what each
means for them. The FCA has also appointed independent financial advisors to
assess the Scheme options and we have provided further information to them. In
addition, as time passes, certain financial elements of the Scheme require
recalculation.
Once the FCA has completed its review and we have final agreement from the
ICC, we will issue the PSL to the relevant creditors. The legal process will
then begin.
A Court hearing will be required to convene a creditor meeting where creditors
will have the opportunity to vote on the proposed Scheme options followed by a
second hearing to sanction the elected Scheme to proceed. While timing will
largely be dictated by the Court, we expect the Court process to take at least
four months.
The proposed equity raise will impact our shareholders, most notably through a
material dilution of their holding and will lead to existing shareholders
owning a much smaller proportion of the group if they do not take up their
rights. However, without an approved Scheme to address the significant
liability that has arisen from historical lending, Amigo has an insolvent
balance sheet and faces administration. Therefore, the Board has concluded
that there is a material uncertainty over going concern (see note 1 to the
financial statements for further information). Despite reporting a small
profit for the period, the Group had net liabilities of £117.6m as at 30
September 2021.
Strategy and future business plan
Our purpose is to provide financial inclusion to those who are unable to
access credit through mainstream lenders. We are committed to building a
truly customer-centric firm focused on strong conduct rules and strong
adherence to conduct risk principles. Our immediate and urgent priority is to
secure and implement a new Scheme to provide an equitable resolution for those
customers with valid complaints. To help support and further fund the Scheme,
it is important that Amigo is able to return to lending as soon as possible.
Customer-centric lending proposition
Our new lending proposition is well progressed. The new proposition is
designed to address the pressing need in the market for a mid-cost product
that can underwrite customers in the non-prime sector and through incentive,
flexibility and adaptation be a vital contributor to the customer's progress
to mainstream financial inclusion. We plan to offer a revised guarantor loan
product and a non-guarantor unsecured loan which will feature both an annual
payment holiday and dynamic price reductions over the term. We have been
working with a panel of experts to test the product features, customer
journeys and content for our target customers and I am very excited about the
final result. However, significant hurdles remain before we can return to
lending, including the securing of Court approval for the new Scheme and FCA
permission as well as further funding to the support the future business.
As part of the future business plan, originations are planned to begin shortly
after the Scheme is sanctioned and are forecast to increase gradually to reach
approximately £300m a year by the beginning of year two, with an annualised
rate of growth of 5% targeted from the beginning of year three onwards.
Depending on credit losses and early settlement assumptions, a gross loan book
of £400m could be achieved by the end of year four. This scale of business
will require a combination of debt and equity capital of up to £300m. Monthly
collections are expected to be around 5.5% of the gross loan book in the first
year, gradually increasing to around 8.5% in year four. With the APR on the
new products differing to the current single guarantor product, and including
dynamic price reductions, the targeted blended yield is 34%.
While credit losses on future products cannot be known, run-rate losses may be
similar to, or somewhat better than, the historic performance of Amigo's best
performing risk segments. Impairment:revenue has been modelled in the low 20%
range. With consideration given to stronger governance, deeper underwrites,
and a full customer-centric approach, the future business may have a higher
cost:income ratio than before, in the low 30% range in steady state, which we
will look to offset with better cost management and lower credit losses, among
other measures. An average upfront cash payment of acquisition costs has been
modelled at around 5% of originations.
Operational efficiency
We continue to embed Lean Six Sigma throughout our processes to drive
productivity and efficiency improvements. This works by removing waste and
variation, sharing best practice and empowering teams to continuously raise
the bar. Our trained people are driving projects in specific business areas to
improve our customer journey and support our teams.
Conduct and risk framework
Integral to our strategy is how we consider and act upon risks. We have
embedded the FCA's conduct rules in our values and ways of working and have
taken many steps to ensure the issues of the past are not repeated. When we
return to lending, it will be with enhanced affordability assessments,
tightened eligibility criteria and wide-spread use of Open Banking. In
addition, we have increased reporting, monitoring and risk identification. We
are confident that a robust conduct and risk framework is in place to ensure
we meet our regulatory obligations and provide the right care to our
customers, focused on individual customer needs and positive customer
outcomes.
Our people
The first six months of the financial year to 30 September 2021 has been a
period in which our people and our business have demonstrated substantial
resilience. But the ongoing material uncertainty around Amigo's ability to
continue as a going concern is having an impact on our people and, over the
six-month period, we have seen some reduction in our workforce in addition to
the redundancy programme completed in the first quarter. However, we have
worked hard to incentivise and motivate our teams and I continue to be
impressed and encouraged by the commitment of our people to rebuild Amigo as a
business we can all be proud of. I would like to wholeheartedly thank all our
people for their continued hard work and ongoing commitment to always putting
our customers first.
Regulatory Update
Throughout the Scheme process we have continued to engage openly and
productively with the FCA both on our intentions for the Scheme and our future
lending proposition. We also continue to assist with the ongoing enforcement
investigation into our creditworthiness processes, and governance of those
processes, from November 2018 and into complaints handling from May 2020.
The FCA confirmed in July 2021 that it would not expect to authorise a
return to lending by Amigo until after the sanctioning of a new Scheme, by
the High Court, including on the grounds that Amigo would need to demonstrate
its financial viability and ability to meet its regulatory obligations and
threshold conditions.
Board
On 19 July 2021, Amigo announced that under the senior managers and
certification regime, the FCA has approved Mike Corcoran as Chief Financial
Officer and Michael Bartholomeusz as Chair of the Risk Committee.
Summary and Outlook
The Board remains committed to pursuing a solution that enables Amigo to
satisfy its obligations to all stakeholders in the most equitable way possible
and to returning to providing the opportunity for financial inclusion to the
many in society who are locked out of finance by mainstream providers.
Our cash position remained strong at £234.5m as at 30 September 2021 with
current unrestricted cash of over £260m. However, Amigo continues to operate
within significant financial constraints, with new lending suspended and a
substantial complaints liability. As a result, without an approved Scheme, the
value of Amigo's assets is less than the amount of its liabilities and
material uncertainty remains regarding Amigo's ability to continue as a going
concern (see note 1 to the financial statements).
With the Board actively pursuing a new Scheme, the Directors consider that it
remains appropriate to prepare the financial statements on a going concern
basis. Our future lending proposition represents an innovative new customer
offering, focused on customer needs and positive outcomes, underpinned by
robust lending policies and processes. However, the continuation of Amigo as a
business is dependent on a successful Scheme outcome, satisfactory resolution
of the FCA investigations and our ability to raise both debt and equity
capital to support the future business.
Financial review
In the first six months to 30 September 2021, the net loan book reduced by
53.8% to £224.1m. Revenue fell by 38.8% year on year to £56.5m, reflecting
the pause in lending and loan book reduction. Customer numbers reduced by
42.0% compared to the prior year to 102,000. An uplift in the provision for
impairment and a complaints cost of £5.3m in the period led to a statutory
profit before tax for the six months to 30 September 2021 of £2.1m (H1 2021:
loss of £62.6m) and a statutory profit after tax of £3.3m (H1 2021: loss of
£67.9m). Adjusting for non-recurring items defined in note 4 of the summary
financial table, adjusted profit after tax was £2.0m (H1 2021 adjusted loss
of £58.1m).
Impairment
The impairment charge as a percentage of revenue was 45.8% for the first half
of the financial year (H1 2021: 21.1%). The coverage ratio (as a percentage
of the gross loan book) has increased to 22.5% (H1 2021: 14.0%) which has, in
part, contributed to the higher impairment as a percentage of revenue. The
increase to the coverage ratio is driven by a reforecast of expected credit
losses reflecting an increasing trend in the level of arrears observed in the
period, predominantly but not exclusively, from customers exiting Covid-19
payment holidays.
Whilst unemployment trends are favourable, inflationary headwinds may have a
significant impact on our customer base. Significant uncertainty remains in
respect of future customer behaviour as government support measures are fully
withdrawn and as the Amigo Scheme process continues. Further details on the
impairment provision and other key judgements and estimates in the IFRS 9
impairment model are set out in note 2 to the financial statements.
Complaints
The Group's original proposal for a Scheme of Arrangement was not sanctioned
following the High Court hearing held on 19 May 2021 despite receiving the
support of over 95% of creditors who voted. Subsequently, the Board continues
to pursue a new Scheme. The approval of an alternative Scheme remains subject
to reaching the key milestones of a second successful creditor vote and High
Court sanctioning. At this point, the Board does not consider there to be
enough certainty to account for claims redress on the basis that a Scheme will
be sanctioned.
Consequently, claims redress is accounted for on the basis that known and
future complaints are settled in full, subject to an applied uphold rate. This
has resulted in a complaints provision of £344.3m as at 30 September 2021. A
credit to the provision recognised in the period due to the lower number of
live loans at 30 September 2021, driven both by settlements and by customer
accounts being charged off, was offset by the addition of compensatory
interest that has accrued as time has passed. A complaints cost of £5.3m has
been recognised in the period as a result.
Tax
Whilst the six months ended 30 September 2021 were profitable, no tax charge
has been recognised on profits as the Group has sufficient deferred tax assets
in respect of prior year losses. A tax credit of £1.2m was applied in the
period reflecting the release of a historic tax liability.
Funding
The extension of the securitisation facility performance trigger waiver
period, first negotiated in response to the Covid-19 pandemic, expired on 24
September 2021 and the securitisation facility was fully repaid in the period.
In light of the Group's immediate funding needs and current unrestricted cash
balance, the Board does not expect the need to operate the securitisation
facility in the near term. The Board intends to keep the securitisation
structure in place to provide more diversity for future funding options. All
rights, obligations and liabilities of the Lead Arranger, Facility Agent and
Senior Noteholder, as defined in the securitisation Facility Documents, have
been assumed by Amigo.
Net borrowings were £2.1m at 30 September 2021 (H1 FY 2021: (£265.5m)) as
the loan book continued to be collected while originations remained suspended.
Consequently, unrestricted cash and cash equivalents as at 30 September 2021
increased to £234.5m (H1 FY 2021: £134.2m).
Going concern
The Board has concluded there is a material uncertainty over going concern. In
determining the appropriate basis of preparation for these interim financial
statements, the Board has assessed the Group and Company's ability to continue
as a going concern for a period of at least twelve months from the date of
approval of these financial statements. Despite material uncertainties, the
financial statements are prepared on a going concern basis which the Directors
believe to be appropriate for the reasons set out in the Going Concern
statement included in note 1 to the financial statements.
Principal risks and uncertainties
Amigo's business performance is subject to a number of risks and uncertainties
that could materially impact its success. Amigo puts significant effort into
continually improving the way that it monitors and acts on risks to ensure
control, enhance performance and deliver better customer outcomes. The Board
recognises that opportunities and risks go hand in hand and so it puts time
into understanding which risks are the right ones to take or avoid at any
given time. This section takes a closer look at the risks that Amigo faces on
an ongoing basis.
This has been a difficult period for Amigo with its risk profile increasing as
a result of internal and external drivers. Whilst controls continue to operate
as intended, the survival of our business is dependent upon the approval of a
Scheme of Arrangement by the UK Courts, the restart of lending and the
resolution of the outstanding FCA enforcement action.
The principal risks and uncertainties are consistent with those set out in
pages 30 to 38 of the annual report and accounts 2021, which is available on
the Company website.
All principal risks and uncertainties are summarised below.
Credit risk
The risk that a counterparty fails to meet its debt obligations in full and on
time. It includes the calculated risks that Amigo assumes by lending money to
a customer and not receiving the owed principal and interest. This includes:
• Credit acquisition risk: this risk is inherent to loan origination and is
tied to the credit analysis, where the Group verifies the customer's capacity,
character, cash flow, collateral (when applies) and conditions to repay the
requested loan. A failure in credit acquisition might result in issues such as
very high delinquency levels, complaints and regulator fines.
• Credit operation risk (collections/fraud): this risk is related to the
actions taken after the customer fails to make one or more payments. Our
ability and capacity to react to loan delinquency are primarily controlled
through customer contact. A failure on collections/fraud actions could lead to
unexpected credit losses affecting the Company's profitability.
• Concentration risk: credit concentrations are viewed as any exposure where
the potential losses are large relative to the Company's capital, its total
assets or, where adequate measures exist, the Company's overall risk level.
Relatively large losses may reflect not only large exposures, but also the
potential for unusually high percentage losses when in potential default.
The macroeconomic environment over the last two years has been unprecedented,
primarily due to the impact of Covid-19. The low interest rate environment,
reduced business productivity and closures as well as employee furloughing and
redundancy during the period, have had the effect of increasing demand for
credit whilst firms have tightened their lending policies across the financial
services sector. This has had a significant impact upon the number of
customers requiring forbearance measures and has affected our credit risk
profile.
Amigo has offered a number of relief measures to customers suffering financial
distress, both at the Group's initiative and following regulatory guidance. As
customers have now reached the end of payment holidays, we are working with
them to identify the appropriate next steps given their personal
circumstances. Despite some increase in arrears from customers exiting payment
holidays, regular cash collections during the period have been at 82% of
pre-Covid-19 projections.
Conduct risk
Conduct risks can arise at each stage of the customer journey within the Amigo
proposition, from product design through to sales and post-sales servicing.
Inappropriate lending practices and decisions could potentially result in
unaffordable debt for Amigo customers and poor conduct post-sale and could
potentially lead to vulnerable customers and/or those experiencing financial
difficulty not being identified and treated fairly. This includes the risks of
unaffordable lending decisions, a lack of clear customer expectations and
exacerbating persistent debt.
Covid-19 has increased conduct risk as customers have had their finances
disrupted and the regulator has deployed many changes at short notice in
response. Amigo has mitigated this risk by following regulatory guidance,
offering payment holidays where required and seeking to better understand
customer circumstances and needs.
Amigo has faced a significant volume of complaints and FOS referrals, driven
by dissatisfaction with historical lending decisions. This has challenged and
inhibited both operational and financial resilience in the period. Whilst all
complaints have been individually assessed, the firm took the difficult but
necessary decision to propose a Scheme of Arrangement to customers. We believe
that this is the best way to ensure that customers receive fair and equitable
redress in the circumstances.
Regulatory and political risk
The risk that the regulatory or political environment will change in a way
adverse to our business. This may be explicit changes in regulation or
legislation or changes in interpretation. At a minimum, the impact would be
the operational burden of adapting to changing regulation. But where we fail
(or have failed) to adapt to changes, the impact can extend to regulatory
action, potentially including investigation, fines or even loss of
authorisation to operate. It includes regulation or legislation specific to
our product, applying to financial services more generally, or not specific to
our business at all.
There was a lot of regulatory activity during the prior financial year,
including an ongoing FCA investigation into whether Amigo's creditworthiness
assessment process was compliant with regulatory requirements. The
investigation scope was subsequently amended in March 2021 to include aspects
of complaint handling through this last year. Amigo continues to support the
resolution of this investigation.
Amigo entered into two Voluntary Requirements (VReqs) with the FCA in the
prior financial year:
• The first relates to customer complaints. On 27 May 2020, Amigo
announced it had agreed to work through a backlog of complaints principally
arising in 2020. Subsequently, on 3 July 2020, we announced that an amended
version of the VReq, covering a higher volume of complaints, had been agreed.
Under the terms of the amended VReq Amigo agreed to reach a position by
30 October 2020 where all complaints are dealt with appropriately within
eight weeks.
At 30 October 2020, Amigo had reviewed and reached a decision on all of the
complaints included within the VReq but had not issued the final responses to
customers on 2,517 of those complaints, primarily for reasons beyond
Amigo's control. The intention is to address these complaints within the
Scheme framework if sanctioned.
• The second VReq relates to the transfer of assets and was
announced on 19 October 2020. This Asset VReq means that prior approval by
the FCA will be required to permit the transfer of assets outside of the Group
in certain circumstances, including discretionary cash payments to the
Directors of the Company and dividends to shareholders. The Asset VReq does
not impact the day-to-day running of Amigo or its ability to continue to pay
down debt.
The FCA opposed Amigo's proposed Scheme of Arrangement at the previous
sanction hearing. As a result of regulatory concerns relating to the
investigation, Scheme and Vreq, Amigo maintains close and continuous contact
with the FCA.
Operational risk
The risk of a loss or negative impact due to inadequate or failed internal
policies, processes or systems or from external events. Major examples
include data security and cyber risk, system availability, legal risk and
failures of process execution. Other examples can include the risk of
financial reporting errors, key supplier failure, internal fraud, external
fraud, Amigo's product being used for money laundering, or an error in the
business' decisioning models.
Amigo's operational risk includes the risk that it does not have the human
capacity and capability to deliver on its strategy. This may leave the Company
unable to properly service its customers, leading to customer harm and loss
of profitability. It may also result in the Company being less able to
perform key functions.
While Amigo has adapted well to the challenges of Covid-19 and remote working,
the operational risk environment remains elevated, with reduced in-person
interaction and greater reliance on individuals' home internet service. The
continuing rapid pace of change in the business, driven both by Covid-19 and
business model challenges, also heightens the risk environment, though the
business has a long history of rapid adaptation.
The continuing uncertainty around Amigo's future has kept risk in this area a
key focus for the Board. Despite this, Amigo has continued to improve the
breadth and depth of its senior management, adding "bench strength" and
improving succession planning.
Strategic and competitive risk
The risk that Amigo fails to achieve its objectives, either due to actively
poor decisions or a failure to adapt to changes in the competitive
environment, leading to reduced revenue, increased expenses or lost
opportunities. This includes the risk of new competitors and the risks in
entering a new geography.
The wider market continues to evolve, with some competitors having left the
space and brokers finding their business models disrupted. Socio-economic
conditions continue to generate significant demand for responsible consumer
credit solutions.
Treasury risk
The risk arising from the core actions of the Treasury function. A failure to
properly manage liquidity could lead to the Company requiring more expensive
funding, reducing profitability, or even being unable to meet its obligations
as they fall due.
The decision to stop lending has left the business cash generative, but this
is significantly offset by Covid-19 and the requirement for extensive
forbearance measures and compounded by the requirement to pay cash redress on
complaints, necessitating a Scheme of Arrangement. The pause in lending has
allowed Amigo to conserve cash, and the liquidity position is good under
baseline forecasts assuming a new Scheme progresses. Amigo has no material
foreign exchange exposure.
Responsibility statement of the directors in respect of the half-yearly financial report
We confirm that to the best of our knowledge:
· the condensed set of financial statements has been prepared in
accordance with IAS 34 Interim Financial Reporting as adopted by the UK;
· the interim management report includes a fair review of the
information required by:
a) DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being
an indication of important events that have occurred during the first six
months of the financial year and their impact on the condensed set of
financial statements; and a description of the principal risks and
uncertainties for the remaining six months of the year; and
b) DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being
related party transactions that have taken place in the first six months of
the current financial year and that have materially affected the financial
position or performance of the entity during that period; and any changes in
the related party transactions described in the last annual report that could
do so.
Michael Corcoran
Director
29 November 2021
INDEPENDENT REVIEW REPORT TO THE MEMBERS OF AMIGO HOLDINGS PLC
Conclusion
We have been engaged by the company to review the condensed set of financial
statements in the half-yearly financial report for the six months ended 30
September 2021 which comprises Condensed Consolidated Statement of
Comprehensive Income, Condensed Consolidated Statement of Financial Position,
Condensed Consolidated Statement of Changes in Equity and Consolidated Cash
flows and the related explanatory notes.
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half-yearly
financial report for the six months ended 30 September 2021 is not prepared,
in all material respects, in accordance with IAS 34 Interim Financial
Reporting as adopted for use in the UK and the Disclosure Guidance and
Transparency ("the DTR") of the UK's Financial Conduct Authority ("the UK
FCA").
Scope of review
We conducted our review in accordance with International Standard on Review
Engagements (UK and Ireland) 2410 Review of Interim Financial Information
Performed by the Independent Auditor of the Entity issued by the Auditing
Practices Board for use in the UK. A review of interim financial information
consists of making enquiries, primarily of persons responsible for financial
and accounting matters, and applying analytical and other review procedures.
We read the other information contained in the half-yearly financial report
and consider whether it contains any apparent misstatements or material
inconsistencies with the information in the condensed set of financial
statements.
A review is substantially less in scope than an audit conducted in accordance
with International Standards on Auditing (UK) and consequently does not enable
us to obtain assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not express an audit
opinion.
Material uncertainty related to going concern
We draw attention to note 1 to the interim report which indicates that the
ability of the Group to continue as a going concern is significantly impacted
by the severity of the complaints position and the possibility of further
action by the Financial Conduct Authority. The Board continues to consider a
number of options which it considers represent realistic alternatives to
liquidation including a new scheme of arrangement which would require positive
creditor vote and court approval. These events and conditions, along with the
other matters explained in note 1, constitute a material uncertainty that may
cast significant doubt on the Group's ability to continue as a going concern.
Our opinion is not modified in respect of this matter.
Emphasis of matter
We draw attention to notes 2.3.2 and 14 to the interim report concerning the
provision for customer complaints. As explained in those notes, the complaints
provision of £344m has been estimated assuming that no scheme is implemented,
as there is not sufficient objective evidence that the future approval of an
alternative Scheme of Arrangement will occur.
The total amount that will ultimately be paid by the Group in relation to
obligations arising from customer complaints is subject to significant
uncertainty and the ultimate cost will be dependent on several factors,
including whether the Company can implement a Scheme of Arrangement to limit
the overall liability to complainants. Note 2.3.2 discloses the range of
reasonably possible outcomes in respect of this uncertainty.
Our opinion is not modified in respect of this matter.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been
approved by, the directors. The directors are responsible for preparing the
half-yearly financial report in accordance with the DTR of the UK FCA.
As disclosed in note 1, the latest annual financial statements of the Group
were prepared in accordance with International Financial Reporting Standards
as adopted by the UK and in accordance with International Financial Reporting
Standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in
the European Union and in accordance with international accounting standards
in conformity with the requirements of the Companies Act 2006. The directors
are responsible for preparing the condensed set of financial statements
included in the half-yearly financial report in accordance with IAS 34 adopted
pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union.
Our responsibility
Our responsibility is to express to the company a conclusion on the condensed
set of financial statements in the half-yearly financial report based on our
review.
The purpose of our review work and to whom we owe our responsibilities
This report is made solely to the company in accordance with the terms of our
engagement to assist the company in meeting the requirements of the DTR of the
UK FCA. Our review has been undertaken so that we might state to the company
those matters we are required to state to it in this report and for no other
purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the company for our review work, for this
report, or for the conclusions we have reached.
Nicholas Edmonds
for and on behalf of KPMG LLP
Chartered Accountants
15 Canada Square London
E14 5GL
29 November 2021
Condensed consolidated statement of comprehensive income
for the 6 months to 30 September 2021
6 months ended 6 months ended Year to
30 Sep 21 30 Sep 20 31-Mar-21
Unaudited Unaudited Audited
Notes £m £m £m
Revenue 3 56.5 92.3 170.8
Interest payable and funding facility fees 4 (9.8) (15.6) (27.5)
Interest receivable 0.1 - 0.1
Impairment of amounts receivable from customers1 (19.5)
(25.9) (60.7)
Administrative and other operating expenses (13.5) (22.5) (44.5)
Complaints expense 14 (5.3) (93.7) (318.8)
Total operating expenses (18.8) (116.2) (363.3)
Strategic review, formal sale process and related financing costs 6 - (3.6) (3.0)
Profit/(loss) before tax 2.1 (62.6) (283.6)
Tax credit/(charge) on profit/(loss) 7 1.2 (5.3) (5.5)
Profit/(loss) and total comprehensive income/(loss) attributable to equity 3.3 (67.9)
shareholders of the Group2
(289.1)
The profit/(loss) is derived from continuing activities.
Profit/(loss) per share
Basic profit/(loss) per share (pence) 8 0.7 (14.3) (60.8)
Diluted profit/(loss) per share (pence) 8 0.7 (14.2) (60.8)
Dividends per share(3) (pence)
- - -
The accompanying notes form part of these financial statements.
1 This line item includes reversals of impairment losses or
impairment gains, determined in accordance with IFRS 9. In the period, £nil
of previously recognised impairment gains were reversed primarily due to the
recognition of the expected cost to repurchase charged off loans previously
sold to a third party (H1 2021: £0.7m reversal of impairment gains).
2 There was less than £0.1m of other comprehensive income during
this period and any other period, and hence no consolidated statement of other
comprehensive income is presented.
3 On 19 October 2020 Amigo announced that it had entered into an
Asset Voluntary Requirement with the Financial Conduct Authority (FCA),
meaning prior approval by the FCA is required to permit the transfer of assets
outside of the Group in certain circumstances, including dividends to
shareholders.
Condensed consolidated statement of financial position
as at 30 September 2021
30 Sep 21 30 Sep 20 31 Mar 21
Unaudited Unaudited Audited
Notes £m £m £m
Non-current assets
Customer loans and receivables 9 48.6 220.3 125.5
Property, plant and equipment 0.7 1.4 1.1
Right-of-use lease assets 0.9 1.1 1.0
50.2 222.8 127.6
Current assets
Customer loans and receivables 9 181.4 280.5 225.1
Other receivables 11 2.0 1.3 1.6
Current tax assets 0.6 26.7 -
Derivative asset - - 0.1
Cash and cash equivalents (restricted)(1) 2.0 9.5 6.3
Cash and cash equivalents 234.5 134.2 177.9
420.5 452.2 411.0
Total assets 470.7 675.0 538.6
Current liabilities
Trade and other payables 12 (10.6) (15.3) (15.9)
Borrowings 13 - - (64.4)
Lease liabilities (0.3) (0.3) (0.3)
Complaints provision 14 (344.3) (148.1) (344.6)
Restructuring provision 14 - - (1.0)
Current tax liabilities - - (0.8)
(355.2) (163.7) (427.0)
Non-current liabilities
Borrowings 13 (232.4) (399.7) (232.1)
Lease liabilities (0.7) (1.0) (0.9)
Complaints provision 14 - (11.0) -
(233.1) (411.7) (233.0)
Total liabilities (588.3) (575.4) (660.0)
Net (liabilities)/assets (117.6) 99.6 (121.4)
Equity
Share capital 15 1.2 1.2 1.2
Share premium 207.9 207.9 207.9
Merger reserve (295.2) (295.2) (295.2)
Retained earnings (31.5) 185.7 (35.3)
Shareholder equity (117.6) 99.6 (121.4)
The accompanying notes form part of these financial statements.
(1) Cash and cash equivalents (restricted) materially relates to restricted
cash held for settlement of complaints, in HY21 and year end restricted cash
and cash equivalents materially related to cash held in the AMGO Funding
(No.1) Ltd bank account due to the requirement under the waiver on the
securitisation facility to use collection from securitised assets to reduce
the outstanding facility balance.
The interim financial statements of Amigo Holdings PLC were approved and
authorised for issue by the Board and were signed on its behalf by:
Michael Corcoran
Director
29 November 2021
Company no. 10024479
Condensed consolidated statement of changes in equity
for the 6 months to 30 September 2021
Share Share Merger Retained Total
capital premium reserve(1) earnings equity
£m £m £m £m £m
At 31 March 2020 1.2 207.9 (295.2) 253.5 167.4
Total comprehensive loss - - - (67.9) (67.9)
Share-based payments - - - 0.1 0.1
At 30 September 2020 1.2 207.9 (295.2) 185.7 99.6
Total comprehensive loss - - - (221.3) (221.3)
Share-based payments - - - 0.3 0.3
At 31 March 2021 1.2 207.9 (295.2) (35.3) (121.4)
Total comprehensive income - - - 3.3 3.3
Share-based payments - - - 0.5 0.5
At 30 September 2021 1.2 207.9 (295.2) (31.5) (117.6)
The accompanying notes form part of these financial statements.
1 The merger reserve was created as a result of a Group
reorganisation in 2017 to create an appropriate holding company structure. The
restructure was within a wholly owned group, constituting a common control
transaction.
Condensed consolidated statement of cash flows
for the 6 months to 30 September 2021
6 months to 6 months to Year to
30 Sep 21 30 Sep 20 31 Mar 21
Unaudited Unaudited Audited
£m £m £m
Profit/(loss) for the period 3.3 (67.9) (289.1)
Adjustments for:
Impairment expense 25.9 19.5 60.7
Complaints expense 5.3 93.7 318.8
Restructuring provision - - 1.0
Tax (credit)/charge (1.2) 5.3 5.5
Interest expense 9.8 15.6 27.5
Interest receivable (0.1) - (0.1)
Interest recognised on loan book (59.8) (98.6) (185.3)
Share-based payment 0.5 0.1 0.3
Depreciation of property, plant and equipment 0.2 0.5 1.1
Operating cash flows before movements in working capital (16.1) (31.8) (59.6)
(Increase)/decrease in receivables (0.2) 0.1 (0.9)
(Decrease)/increase in payables (6.0) 2.0 (0.3)
Complaints cash expense (4.8) (35.4) (64.6)
Tax refunds/(tax paid) - (3.7) 23.6
Interest paid (9.7) (12.0) (22.8)
Net cash (used in) operating activities before loans issued and collections on (36.8) (80.8) (124.6)
loans
Loans issued - (0.4) (0.4)
Collections 149.9 221.1 402.5
Other loan book movements (0.4) (1.4) (0.6)
Decrease in deferred brokers' costs 3.8 4.9 10.8
Net cash from operating activities 116.5 143.4 287.7
Investing activities
(Disposals)/purchases of property, plant and equipment 0.3 (0.3) (0.5)
Net cash from/(used in) investing activities 0.3 (0.3) (0.5)
Financing activities
Lease principal payments (0.1) (0.1) (0.2)
Cash held for repayment of borrowings - (9.5) -
Repayment of external funding (64.4) (63.6) (167.2)
Net cash (used in) financing activities (64.5) (73.2) (167.4)
Net increase in cash and cash equivalents 52.3 69.9 119.8
Effects of movement in foreign exchange - - 0.1
Cash and cash equivalents at beginning of period 184.2 64.3 64.3
Cash and cash equivalents at end of period 236.5(1) 134.2 184.2(1)
The accompanying notes form part of these financial statements.
1 30 September 2021 and 31 March 2021 total cash is inclusive of
£2.0m and £6.3m restricted cash respectively.
Notes to the condensed consolidated financial statements
1. Accounting policies
1.1 Basis of preparation of financial statements
Amigo Holdings PLC is a public company limited by shares (following IPO on 4
July 2018), listed on the London Stock Exchange
(LSE: AMGO). The Company is incorporated and domiciled in England and Wales
and its registered office is Nova Building, 118-
128 Commercial Road, Bournemouth, United Kingdom BH2 5LT.
The principal activity of the Company is to act as a holding company for the
Amigo Loans Group of companies. The "principal"
activity of the Amigo Loans Group is to provide individuals with guarantor
loans from £2,000 to £10,000 over one to five years.
These interim financial statements have been prepared fully in accordance with
IAS 34 Interim Financial Reporting in
conformity with the requirements of the Companies Act 2006. They do not
include all the information required for full annual
financial statements and should be read in conjunction with the consolidated
financial statements of Amigo Holdings PLC (the
'Group') as at and for the year ended 31 March 2021.
These consolidated Group financial statements have been prepared on a going
concern basis and approved by the Directors in
accordance with international accounting standards in conformity with the
requirements of the Companies Act 2006 and these
Group and Company financial statements were also in accordance with
International Financial Reporting Standards as adopted
by the UK. There has been no departure from the required IFRS standards.
The consolidated financial statements have been prepared under the historical
cost convention, except for financial instruments
measured at amortised cost or fair value.
The presentational currency of the Group is GBP, the functional currency of
the Company is GBP and these financial statements
are presented in GBP. All values are stated in £ million (£m) except where
otherwise stated.
The interim financial statements have been prepared applying the accounting
policies and presentation that were applied in the
preparation of the Company's published consolidated annual report for the year
ended 31 March 2021. Changes to significant
accounting policies are described in notes 1.2 and 2.
The consolidated financial statements of the Group as at and for the year
ended 31 March 2021 are available upon request from
the Company's registered office at Nova Building, 118-128 Commercial Road,
Bournemouth, United Kingdom, BH2 5LT.
The comparative figures for the financial year ended 31 March 2021 are not the
Group's statutory accounts for that financial
year, but are an extract from those statutory accounts for interim reporting.
Those accounts have been reported on by the
Company's auditor and delivered to the registrar of companies. The report of
the auditor:
i) drew attention to the material uncertainty related to going
concern referenced in the financial statements;
ii) drew attention to the provision for customer complaints, estimated
assuming that no Scheme is implemented, by
way of emphasis of matter without qualifying their report (see notes 1 and
14); and
iii) did not contain a statement under section 498 (2) or (3) of the
Companies Act 2006.
These interim financial statements were approved by the Board of Directors on
29 November 2021.
Going concern
In determining the appropriate basis of preparation for these financial
statements, the Board has assessed the Group and Company's ability to continue
as a going concern for a period of at least twelve months from the date of
approval of these financial statements. The financial statements are prepared
on a going concern basis which the directors believe to be appropriate for the
reasons outlined below.
Following the ruling on 25 May 2021 in which the High Court did not approve
the proposed Scheme of Arrangement despite the positive creditors vote, the
Board continues to consider all options for the Group. The Board believes that
under all reasonably possible scenarios, without an appropriate Scheme of
Arrangement to deal with the complaints liability, the expected volumes of
complaints from current and past customers would exhaust the Group's available
liquid resources; leaving the Group with insufficient liquid resources to
repay its non-current borrowings as they fall due in January 2024.
Accounting standards require an entity to prepare financial statements on a
going concern basis unless the Board either intends to liquidate the entity or
to cease trading or has no realistic alternative but to do so.
At the date of approval of these financial statements, the Board continues to
actively pursue options which represent realistic alternatives to liquidation
or the cessation of trade. These options have been thoroughly considered and
on 28 September 2021, Amigo submitted a new Scheme proposal, along with its
future business plan, to the FCA and an independent customer committee
('ICC'). On 12 November 2021, Amigo submitted its final offer to the ICC. The
final offer incorporates two options which reflect the feedback received from
the ICC that their preference is for a cash-based payment rather than one that
comprises either a share in future profits or a transfer of equity to
creditors. The first option, the 'New Business Scheme' is contingent on new
lending restarting and Amigo completing a successful equity raise. The second
is a managed wind down of the Amigo Loans Ltd business under a Scheme
framework, this scenario also includes new lending. It is the Board's view
that the 'New Business Scheme' will provide redress creditors with more value
and a more certain outcome. Both options will be submitted to the Court for
sanction at the same time. If the judge does not sanction the 'New Business
Scheme', the judge will then be asked to sanction the wind down Scheme at the
same hearing. Furthermore, if the conditions precedent are not met for the
'New Business Scheme', i.e. relending and an equity raise, then the managed
wind-down is the fallback solution. As such, a rigorous assessment and
modelling of financial projections have been undertaken based on the range of
possible scenarios;
· a base scenario representing the 'New Business Scheme';
· a severe but plausible downside scenario. Assumptions are
consistent with the base scenario but has liquidity stresses applied to
reflect principle risks;
· a managed wind down of Amigo Loans Ltd within a Scheme framework,
whereby cash redress is made available to creditors from the residual stressed
collections of the existing loan book following repayment of the senior
secured notes; and
· a non-Scheme scenario, in which neither the 'New Business Scheme'
or a managed wind-down is sanctioned by the High Court. As noted above, in
such a scenario, the Directors believe the expected volumes of complaints from
current and past customers would exhaust the Group's available liquid
resources; leaving the Group with insufficient liquid resources to repay its
non-current secured borrowings as they fall due in January 2024.
Funding
The going concern assessment considers the Group's projected liquidity
position from existing committed financing facilities throughout the forecast
period. The Group is funded through £234.1m of senior secured notes and held
an unrestricted cash balance of £234.5m as at 30 September 2021.
Base 'New Business Scheme' scenario
Following the High Court non-sanctioning of Amigo's original proposed Scheme
of Arrangement in May 2021, the Board continues to pursue a new Scheme to
address the complaints liability and to address the concerns highlighted by
the Judge at the original sanction hearing. This included forming an
Independent Customer Committee to ensure the voice of the customer is heard
and to provide redress creditors with the opportunity to help shape a new
Scheme.
The 'New Business Scheme' projections are derived using the Group's business
planning tools with key judgements and assumptions applied. These assumptions
are listed below:
· the 'New business Scheme' is approved by the High Court,
contingent on the resumption of new lending and Amigo completing a successful
equity raise. This would limit the cash redress liability in respect of upheld
customer complaints within a Scheme
· complaints volumes and uphold rates within a Scheme are
consistent with the assumptions that underpin the complaints provision
reported in the financial statements for half year September 2021
· write downs of customer balances in respect of upheld customer
complaints are also consistent with the redress assumptions in the complaints
provision, but adjusted to reflect the passage of time
· the FCA grants approval for the Group to recommence lending and
lending recommences within the period, albeit at significantly reduced levels
compared with pre-Covid-19 originations
· credit losses, and therefore customer collections, remain in line
with recent trends
This scenario indicates that the Group will have sufficient funds to enable it
to operate within its available facilities and settle its liabilities as they
fall due for at least the next twelve months.
Severe but plausible downside 'New Business Scheme' scenario
The Directors have prepared a severe but plausible downside 'New Business
Scheme' scenario covering the same forecast period, being at least the next
twelve months from the date of approval of these financial statements. This
scenario is consistent with the base scenario with the application of
liquidity sensitives that consider the potential impact of:
· An increased uphold rate in respect of all claims within a
Scheme. Whilst this sensitivity does not increase the cash liability which is
assumed to be capped in the 'New Business Scheme', the number of customers
receiving balance write downs will increase, thus impairing the recoverability
of the loan book, reducing future collections and stressing the Group's
liquidity position; and
· increased credit losses as a result of any deterioration in the
macroeconomy due to Covid-19 and the inability of an increased number of the
Group's customers to continue to make payments.
This severe but plausible downside Scheme scenario indicates that the Group's
available liquidity headroom would reduce but it would still have sufficient
funds to enable it to operate within its available facilities and settle its
liabilities as they fall due for at least the next twelve months.
Managed wind-down scenario
The directors have prepared a managed wind-down scenario covering the same
forecast period, being at least the next twelve months from the date of
approval of these financial statements, which assumes the High Court doesn't
sanction the 'New Business Scheme' in the first instance but approves a
managed wind down of the Amigo Loans Ltd business under a Scheme framework. A
Managed wind-down under a Scheme framework would require a positive creditor
vote and High Court sanction, it is not contingent on an equity raise or
relending as the 'New Business Scheme' is. Therefore, it remains the fallback
solution if the conditions precedent in the 'New Business Scheme' are not met.
The key assumptions modelled are explained below:
· a 'Managed wind-down' is approved by the High Court, this is
within a Scheme framework. The cash redress liability in respect of upheld
customer complaints is deferred until the completion of winding down Amigo
Loans LTD. The quantum of redress for creditors is therefore contingent on the
collect-out of the book
· complaints volumes and uphold rates within a Scheme are
consistent with the assumptions that underpin the complaints provision
reported in the financial statements for half year September 2021
· write downs of customer balances in respect of upheld customer
complaints are also consistent with the redress assumptions in the complaints
provision, but adjusted to reflect the passage of time
· although the managed wind-down is not contingent on lending
recommencing, the modelling does assume relending recommences in an entity
outside of Amigo Loans LTD, which would require FCA approval, albeit at
significantly reduced levels compared with pre-Covid-19 originations
· additional stress has been applied to the collections of the
back-back
· no equity raise or additional funding has been modelled
· credit losses, and therefore customer collections, remain in line
with recent trends
· Any creditor dividends from the wind-down of Amigo Loans LTD
occur at the end of the collect out of back-book
This managed wind-down scenario indicates that the Group's available liquidity
headroom would reduce but it would still have sufficient funds to enable it to
operate within its available facilities and settle its liabilities as they
fall due for at least the next twelve months, even if lending does not
recommence in the period.
No scheme scenario
The Board recognises that the proposed Schemes of Arrangement such as those
considered in the modelled scenarios require a second positive creditor vote
and High Court sanction. The 'New business Scheme' is also contingent on
approval of new lending and a sufficient equity raise. All outcomes remain
uncertain and outside the direct control of the Group. In a scenario where
this is not achieved and cash redress to customers is not capped by the terms
of a Scheme the Board believes the expected volume of complaints from current
and past customers would exhaust the Group's available liquid resources;
leaving the Group with insufficient liquid resources to repay its non-current
borrowings as they fall due in January 2024. This is reflected in the Group's
Consolidated Statement of Financial Position, which includes a complaints
provision based on the best estimate of the full settlement of all current and
future complaints. In such circumstances the Board believes that there would
be no realistic alternative other than to enter a formal insolvency process.
FCA investigation
Additionally, in June 2020, the Financial Conduct Authority (FCA) launched an
investigation into the Group's creditworthiness assessment process, and the
governance and oversight of this process. This investigation will cover the
period from 1 November 2018 to date. Such investigations can take up to two
years to finalise, the current investigation is due to hit this milestone in
June 2022 and is still ongoing. The potential impact of the investigation on
the business is extremely difficult to predict and quantify, and hence the
potential adverse impact of the investigation has been considered separately
and not included in the scenarios laid out above. There are several potential
outcomes which may result from the FCA investigation, including the imposition
of a significant fine and/or the requirement to perform a mandatory back-book
remediation exercise.
The Directors consider that should they be required to perform a back-book
remediation exercise it could reasonably be expected to exhaust the Group's
available liquid resources. Additionally, other lesser but still significant
adverse outcomes could significantly reduce the Group's available liquidity
headroom and thus the Group would need to source additional financing to
maintain adequate liquidity and to continue to operate.
Conclusion
The Board continues to actively pursue options which represent realistic
alternatives to liquidation or the cessation of trade. The Board believes that
there is a reasonable basis to conclude that the 'New Business Scheme' will be
able to address concerns raised by the High Court and the FCA. In each of the
modelled scenarios the financial projections indicate that the Group will have
sufficient funds to enable it to operate within its available facilities and
settle its liabilities as they fall due for at least the next twelve months.
Whilst the 'New Business Scheme' remains the Board's preferred option, the
fall back option of a Managed Wind-down Scheme also presents a realistic
alternative to liquidation or cessation of trade for both the Bond Group and
PLC Group. Accordingly, the Directors believe that it remains appropriate to
prepare the financial statements on a going concern basis.
The Board also recognises that at the date of approval of these financial
statements significant uncertainty remains over the potential 'New Business
Scheme' and the Managed Wind-Down Scheme, both of which require a further
positive creditor vote and High Court sanction both of which are outside the
control of the Group, the 'New Business Scheme' is also contingent on approval
of new lending and a successful equity raise. These circumstances represent a
material uncertainty that may cast significant doubt on the Group's ability to
continue as a going concern and, therefore, to continue realising its assets
and discharging its liabilities in the normal course of business. The
financial statements do not include any adjustments that would result from the
basis of preparation not being appropriate.
1.2 Amounts receivable from customers
i) Classification
IFRS 9 requires a classification and measurement approach for financial assets
which reflects how the assets are managed and their cash flow characteristics.
IFRS 9 includes three classification categories for financial assets: measured
at amortised cost, fair value through other comprehensive income (FVOCI) and
fair value through profit and loss (FVTPL). Note, the Group does not hold any
financial assets that are equity investments; hence the below considerations
of classification and measurement only apply to financial assets that are debt
instruments. A financial asset is measured at amortised cost if it meets both
of the following conditions (and is not designated as FVTPL):
· it is held within a business model whose objective is to hold
assets to collect contractual cash flows; and
its contractual terms give rise on specified dates to cash flows that are
solely payments of principal and interest (SPPI) on the principal amount
outstanding.
Business model assessment
In the assessment of the objective of a business model, the information
considered includes:
· the stated policies and objectives for the loan book and the
operation of those policies in practice, in particular whether management's
strategy focuses on earning contractual interest revenue, maintaining a
particular interest rate profile, matching the duration of the financial
assets to the duration of the liabilities that are funding those assets or
realising cash flows through the sale of the assets;
· how the performance of the loan book is evaluated and reported to
the Group's management;
· the risks that affect the performance of the business model (and
the financial assets held within that business model) and its strategy for
how those risks are managed;
· how managers of the business are compensated (e.g. whether
compensation is based on the fair value of the assets managed or the
contractual cash flows collected); and
· the frequency, volume and timing of debt sales in prior periods,
the reasons for such sales and the Group's expectations about future sales
activity. However, information about sales activity is not considered in
isolation, but as part of an overall assessment of how the Group's stated
objective for managing the financial assets is achieved and how cash flows are
realised.
The Group's business comprises primarily loans to customers that are held for
collecting contractual cash flows. Debt sales of charged off assets are not
indicative of the overall business model of the Group. The business model's
main objective is to hold assets to collect contractual cash flows.
Assessment of whether contractual cash flows are solely payments of principal and interest
For the purposes of this assessment, "principal" is defined as the fair value
of the financial asset on initial recognition. "Interest" is defined as
consideration for the time value of money and for the credit risk associated
with the principal amount outstanding during a particular period of time, as
well as profit margin.
In assessing whether the contractual cash flows are solely payments of
principal and interest (SPPI), the Group considers the contractual terms of
the instrument.
This includes assessing whether the financial asset contains a contractual
term that could change the timing or amount of contractual cash flows such
that it would not meet this condition. The Group has deemed that the
contractual cash flows are SPPI and hence, loans to customers are measured at
amortised cost under IFRS 9.
ii) Impairment
IFRS 9 includes a forward-looking "expected credit loss" (ECL) model in
regards to impairment. IFRS 9 requires an impairment provision to be
recognised on origination of a financial asset. Under IFRS 9, a provision is
made against all stage 1 (defined below) financial assets to reflect the
expected credit losses from default events within the next twelve months. The
application of lifetime expected credit losses to assets which have
experienced a significant increase in credit risk results in an uplift to the
impairment provision.
iii) Measurement of ECLs
Under IFRS 9 financial assets fall into one of three categories:
Stage 1 - financial assets which have not experienced a "significant" increase
in credit risk since initial recognition;
Stage 2 - financial assets that are considered to have experienced a
"significant" increase in credit risk since initial recognition; and
Stage 3 - financial assets which are in default or otherwise credit impaired.
Loss allowances for stage 1 financial assets are based on twelve month ECLs;
that is the portion of ECLs that result from default events that are estimated
within twelve months of the reporting date and are recognised from the date of
asset origination. Loss allowances for stage 2 and 3 financial assets are
based on lifetime ECLs, which are the ECLs that result from all default events
over the expected life of a financial instrument.
In substance the borrower and the guarantor of each financial asset have
equivalent responsibilities. Hence for each loan there are two obligors to
which the entity has equal recourse. This dual borrower nature of the product
is a key consideration in determining the staging and the recoverability of an
asset.
The Group performs separate credit and affordability assessments on both the
borrower and guarantor. After having passed an initial credit assessment, most
borrowers and all guarantors are contacted by phone and each is assessed for
their creditworthiness and ability to afford the loan. In addition, the
guarantor's roles and responsibilities are clearly explained and recorded.
This is to ensure that while the borrower is primarily responsible for making
the repayments, both the borrower and the guarantor are clear about their
obligations and are also capable of repaying the loan.
When a borrower misses a payment, both parties are kept informed regarding the
remediation of the arrears. If a missed payment is not remediated within a
certain timeframe, collection efforts are switched to the guarantor and if
arrears are cleared the loan is considered performing.
The Covid-19 pandemic presents significant economic uncertainty. The Group
assessed that its key sensitivity was in relation to expected credit losses on
customer loans and receivables.
Given the significant uncertainty around the duration and severity of the
impact of the pandemic on the macroeconomy the Group modelled a matrix of nine
scenarios consisting of three durations (three, six and twelve months) and
three severities (moderate, high and extremely high) has been modelled. Refer
to note 2.1.1 for further detail on the judgements and estimates used in the
measurement of ECLs and note 2.1.3 for detail on impact of forward-looking
information on the measurement of ECLs.
iv) Assessment of significant increase in credit risk (SICR)
In determining whether the credit risk (i.e. risk of default) of a financial
instrument has increased significantly since initial recognition, the Group
considers reasonable and supportable information that is relevant and
available without undue cost or effort, including both quantitative and
qualitative information and analysis.
The qualitative customer data used in this assessment is payment status flags,
which occur in specific circumstances such as a short-term payment plans,
breathing space or other indicators of a change in a customer's circumstances.
See note 2.1.2 for details of how payment status flags are linked to staging,
and judgements on what signifies a significant increase in credit risk.
The Group has offered payment holidays to customers in response to Covid-19.
These measures were introduced on 31 March 2020, the offering of these payment
holidays concluded in March 2021. The granting of a payment holiday, or the
extension of a payment holiday at the customer's request, does not
automatically trigger a significant increase in credit risk.
Customers granted payment holidays are assessed for other indicators of SICR
and are classified as stage 2 if other indicators of a SICR are present. This
is in line with guidance issued by the International Accounting Standards
Board (IASB) and Prudential Regulation Authority (PRA) which noted that the
extension of government-endorsed payment holidays to all borrowers in
particular classes of financial instruments should not automatically result in
all those instruments being considered to have suffered a significant increase
in credit risk. At the time a customer requests an extension to a payment
holiday, the Group has no additional information available than was present at
the original grant date for which to make an alternative assessment over
whether there has been a significant increase in credit risk; extensions are
granted on request. See note 2.1.2 for further detail on SICR considerations
for Covid-19 payment holidays and note 2.4 for judgements and estimates
applied by the Group on the calculation of a modification loss resulting from
the granting of these payment holidays. As at 30 September 2021, the Group has
been able to analyse the initial data relating to customer behaviour and
payment patterns now these payment holidays have finished.
v) Derecognition
Historically, the Group offered, to certain borrowers, the option to top up
existing loans subject to internal eligibility criteria and customer
affordability. The Group pays out the difference between the customer's
remaining outstanding balance and the new loan amount at the date of top-up.
The Group considers a top-up to be a derecognition event for the purposes of
IFRS 9 on the basis that a new contractual agreement is entered into by the
customer replacing the legacy agreement.
The borrower and guarantor are both fully underwritten at the point of top-up
and the borrower may use a different guarantor from the original agreement
when topping up.
vi) Modification
Aside from top-ups and Covid-19 payment holidays, no formal modifications are
offered to customers. In some instances, forbearance measures are offered to
customers. These are not permanent measures; there are no changes to the
customer's contract and the measures do not meet derecognition or modification
requirements. See policy 1.11.1 in the Group's annual report and accounts 2021
for more details on the Group's accounting policies for modification of
financial assets.
vii) Definition of default
The Group considers an account to be in default if it is more than three
contractual payments past due, i.e. greater than 61 days, which is a more
prudent approach than the rebuttable presumption in IFRS 9 of 90 days and has
been adopted to align with internal operational procedures. The Group
reassesses the status of loans at each month end on a collective basis. When
the arrears status of an asset improves so that it no longer meets the default
criteria for that portfolio, it is immediately cured and transitions back from
stage 3 within the Group's impairment model.
viii) Forbearance
Where the borrower indicates to the Group that they are unable to bring the
account up to date, informal, temporary forbearance measures may be offered.
There are no changes to the customer's contract at any stage. Therefore, with
the exception of Covid-19 payment holidays, these changes are neither
modification nor derecognition events. Depending on the forbearance measure
offered, an operational flag will be added to the customer's account, which
may indicate significant increase in credit risk and trigger movement of this
balance from stage 1 to stage 2 in impairment calculation. See note 2.1.2 for
further details.
Throughout the Covid-19 pandemic, payment holidays have been offered to all
customers who indicated to the Group they were experiencing potential payment
difficulties and concluded March 2021. The granting of these payment holidays
has been treated as non-substantial modification events. See note 2.4.1 for
more details.
2. Critical accounting assumptions and key sources of estimation uncertainty
Preparation of the financial statements requires management to make
significant judgements and estimates.
Judgements
The preparation of the condensed consolidated Group financial statements in
conformity with IFRS requires management to make judgements, estimates and
assumptions that affect the reported amounts of assets and liabilities at the
consolidated statement of financial position date and the reported amounts of
income and expenses during the reporting period. The most significant uses of
judgements and estimates are explained in more detail in the following
sections:
· IFRS 9 - measurement of ECLs:
· Assessing whether the credit risk of an instrument has increased
significantly since initial recognition (note 2.1.2).
· Definition of default is considered by the Group to be when an
account is three contractual payments past due (note 1.2.vii).
· Multiple economic scenarios - the probability weighting of nine
scenarios to the ECL calculation (note 2.1.3).
· IFRS 9 - modification of financial assets:
· Assessment of Covid-19 payment holidays as a non-substantial
modification (note 2.4.1).
· Assessment of whether a modification loss is an indicator of a
significant increase in credit risk (note 2.4.2).
· Complaints provisions:
· Judgement is involved in determining whether a present
constructive obligation exists and in estimating the probability, timing and
amount of any outflows (note 2.3.2).
· Following the ruling on 24 May 2021 in which the High Court did
not approve the proposed Scheme of Arrangement despite the overwhelmingly
positive creditors' vote, the Board continues to consider all options for the
Group, including a potential alternative Scheme of Arrangement. Significant
judgement is applied in determining if there is sufficient certainty over the
potential outcome of the Scheme to estimate the future complaints redress
liabilities on the basis of a successful Scheme outcome (note 2.3.1).
· Going concern:
· Judgement is applied in determining if there is a reasonable
expectation that the Group adopts the going concern basis in preparing these
financial statements (note 1.1).
· IAS 1 requires the preparation of financial statements on a going
concern basis unless the Board either intends to liquidate the entity or to
cease trading or has no realistic alternative but to do so. At the date of
approval of these interim financial statements, the Board continues to
consider a number of options, including a potential other Scheme of
Arrangement, which represent realistic alternatives to liquidation or the
cessation of trade. Hence, it has been deemed there is a reasonable
expectation that the Group is a going concern. However, due to significant
uncertainty around terms of a potential new Scheme and whether it would be
sanctioned by the High Court, there is a material uncertainty that may cast
significant doubt on the Group's ability to continue as a going concern.
Estimates
Areas which include a degree of estimation uncertainty are:
· IFRS 9 - measurement of ECLs:
· Adopting a collective basis for measurement in calculation of
ECLs in IFRS 9 calculations (note 2.1.1).
· Probability of default (PD), exposure at default (EAD) and loss
given default (LGD) (note 2.1.1).
· Forward-looking information incorporated into the measurement of
ECLs (note 2.1.3).
· Incorporating a probability weighted estimate of external
macroeconomic factors into the measurement of ECLs (note 2.1.3).
· IFRS 9 - modification of financial assets:
· Estimating the change in net present value of the projected
future cashflows arising from Covid-19 payment holidays on a cohort basis
(note 2.4.2).
· Estimating expected Covid-19 payment holiday duration (note
2.4.2).
· Estimating the change in net present value of projected future
cash flows arising upon payment holiday extensions (note 2.4.2).
· Complaints provisions:
· Calculation of provisions involves management's best estimate of
expected future outflows, the calculation of which evaluates current and
historical data, and assumptions and expectations of future outcomes (note
2.3.2).
· Effective interest rate (note 2.2):
· Calculation of the effective interest rate includes estimation of
the average behavioural life of the loans and the profile of the loan payments
over this period (note 2.2).
· Carrying amount of current and deferred taxation assets and
liabilities
· The current uncertainty over the Group's future profitability
means that it is no longer considered probable that future taxable profits
will be available against which to recognise deferred tax assets. No tax
assets have been recognised in respect of losses in the current period (note
7).
2.1 Credit impairment
2.1.1 Measurement of ECLs
The Group has adopted a collective basis of measurement for calculating ECLs.
The loan book is divided into portfolios of assets with shared risk
characteristics including whether the loan is new business, repeat lending or
part of a lending pilot as well as considering if the customer is a homeowner
or not. These portfolios of assets are further divided by contractual term and
monthly origination vintages.
The allowance for ECLs is calculated using three components: a probability of
default (PD), a loss given default (LGD) and the exposure at default (EAD).
The ECL is calculated by multiplying the PD (twelve month or lifetime
depending on the staging of the loan), LGD and EAD. The result of the ECL
calculation is then discounted to reflect the time value of money, the period
discounted involves an estimated time taken to default to the reporting date
which remains uncertain in nature.
The twelve month and lifetime PDs represent the probability of a default
occurring over the next twelve months or the lifetime of the financial
instruments, respectively, based on historical data and assumptions and
expectations of future economic conditions.
EAD represents the expected balance at default, considering the repayment of
principal and interest from the balance sheet date to the default date. LGD is
an estimate of the loss arising in the case where a default occurs at a given
time. It is based on the difference between the contractual cash flows due
and those that the Group expects to receive.
The Group assesses the impact of forward-looking information on its
measurement of ECLs. The Group has analysed the effect of a range of economic
factors and identified the most significant macroeconomic factor that is
likely to impact credit losses as the rate of unemployment.
Given the significant uncertainty around the duration and severity of the
Covid-19 pandemic on the macroeconomy a matrix of nine scenarios consisting of
three durations (three, six and twelve months) and three severities (moderate,
high and extremely high) has been modelled and probability weighted to
determine the ECL provision (see note 2.1.3).
2.1.2 Assessment of significant increase in credit risk (SICR)
To determine whether there has been a significant increase in credit risk the
following two step approach has been taken:
1) The primary indicator of whether a significant increase in credit risk has
occurred for an asset is determined by considering the presence of certain
payment status flags on a customer's account. This is the Group's primary
qualitative criteria considered in the assessment of whether there has been a
significant increase in credit risk.
If a relevant operational flag is deemed a trigger indicating the remaining
lifetime probability of default has increased significantly, the Group
considers the credit risk of an asset to have increased significantly since
initial recognition. Examples of this include operational flags for specific
circumstances such as short-term payment plans and breathing space granted to
customers.
2) As a backstop, the Group considers that a significant increase in credit
risk occurs no later than when an asset is two contractual payments past due
(equivalent to 30 days), in line with the rebuttable presumption in IFRS 9
that credit risk has significantly increased if contractual payments are more
than 30 days past due. This is the primary quantitative information considered
by the Group in a significant increase in credit risk assessments.
The Group reassesses the flag status of all loans at each month end and
remeasures the proportion of the book which has demonstrated a significant
increase in credit risk based on the latest payment flag data. An account
transitions from stage 2 to stage 1 immediately when a payment flag is removed
from the account. Each quarter a flag governance meeting is held, to review
operational changes which may impact the use of operational flags in the
assessment of a significant increase in credit risk.
The Group has offered payment holidays to customers in response to Covid-19;
at the date a payment holiday is granted, the arrears status of the loan is
passed for the duration of the payment holiday up to a maximum of six months.
In normal circumstances, a customer's request for a payment holiday (i.e.
breathing space) would trigger a SICR in line with the Group's payment status
flag approach to staging, however the granting of exceptional payment holidays
in response to Covid-19 does not automatically trigger a significant increase
in credit risk.
2.1.3 Forward-looking information
The Group assesses the impact of forward-looking information on its
measurement of ECLs. The Group has analysed the effect of a range of economic
factors and identified the most significant macroeconomic factor that is
likely to impact credit losses as the rate of unemployment.
The Group has modelled a range of economic shock scenarios to estimate the
impact of a spike in unemployment as a result of the Covid-19 pandemic. In
doing so, consideration has also been given to the potential impact of deep
fiscal and monetary support measures that have been implemented by the
government to support the economy during this time. Given the lack of reliable
external information the range of scenarios include a variety of both
severities and durations which are probability weighted. In response to the
significant uncertainty around the duration and severity of the pandemic on
the macroeconomy a matrix of nine scenarios has been modelled. The
probability weightings allocated to the nine scenarios are included in the
table below. These scenarios are weighted according to management's judgement
of each scenario's likelihood.
The severity of the economic shock has been estimated with reference to
underlying expectations for customer payment behaviour for accounts which are
up to date or one contractual payment past due. The moderate, high and
extremely high severities represent increases of 25%, 50% and 100%
respectively, in the propensity for these accounts to miss payments and fall
into arrears for the full duration of the economic shock.
Moderate (33%) High (33%) Extremely high (33%)
Three month duration Moderately severe impact of an initial three month spike in the rate of High severity of an initial three month spike in the rate of unemployment Extremely high severity of an initial three month spike in the rate of
unemployment unemployment
Six month duration Moderately severe impact of the increase in unemployment but with an extended High severity of the increase in unemployment but with an extended duration of Extremely high severity of the increase in unemployment but with an extended
duration of six months six months duration of six months
Twelve month duration Moderately severe impact of the increase in unemployment and assuming that the High severity of the increase in unemployment and assuming that the Extremely high severity of the increase in unemployment and assuming that the
deterioration in unemployment continues to increase for a full year deterioration in unemployment continues to increase for a full year deterioration in unemployment continues to increase for a full year
The following table details the absolute impact on the current ECL provision
of £65.1m if each of the nine scenarios are given a probability weighting of
100%.
Moderate High Extremely high
Three month duration -£7.9m -£5.9m -£3.7m
Six month duration -£5.7m -£1.7m +£3.1m
Twelve month duration -£1.3m +£6.7m +£16.4m
The table above demonstrates that in the first scenario with a moderate
severity and an impact of an initial three month spike in the unemployment
rate, the ECL provision would decrease by £7.9m. In the worst case scenario
with the greatest severity assuming this deterioration continues for a
duration of twelve months the ECL provision would increase by £16.4m. The
scenarios above demonstrate a range of ECL provisions from £57.2m to £81.5m.
In the financial statements for the 6 months ended 30 September 2021 severity
weightings used were 33% for moderate, high and extremely high scenarios (H1
2021: 33%, 33% and 33%).
As with any economic forecasts, the projections and likelihoods of occurrence
are subject to a high degree of inherent uncertainty and therefore the actual
outcomes may be significantly different to those projected.
2.2 Effective interest rates
Revenue comprises of interest income on amounts receivable from customers.
Loans are initially measured at fair value (which is equal to cost at
inception) plus directly attributable transaction costs and are subsequently
measured at amortised cost using the effective interest rate method. Revenue
is presented net of amortised broker fees which are capitalised and recognised
over the expected behavioural life of the loan as part of the effective
interest rate method. The key judgement applied in the effective interest rate
calculation is the behavioural life of the loan.
The historical settlement profile of loans, which were initially acquired
through third-party brokers, is used to estimate the average behavioural life
of each monthly cohort of loans. Settlements include early settlements and
historically have also included top-ups as they are considered derecognition
events (see note 1.2v). The average behavioural life is then used to estimate
the effective interest on broker originations and thus the amortisation
profile of the deferred costs.
Broker costs are predominantly calculated as a percentage of amounts paid out
and not as a fixed fee per loan. Therefore, in determining the settlement
profile of historical cohorts, settlement rates are pay-out weighted to
accurately match the value of deferred costs with the settlement of loans.
2.3 Complaints provisions
2.3.1 Key judgements - Scheme of Arrangement
On 21 December 2020, the Group announced its intention to agree a Scheme of
Arrangement to address customer redress claims with the aim that all customers
are treated equitably. The vehicle ALL Scheme Ltd ("SchemeCo") was
incorporated on 6 January 2021 and is a wholly owned subsidiary through which
the Group intends to review claims and, where appropriate, pay redress to
customers that have been affected as a result of historical issues in the UK
business. The Group's original proposal for a Scheme of Arrangement was not
sanctioned at the High Court hearing held on 19 May 2021, this judgement was
received on 24 May 2021, despite receiving support from the majority of Scheme
creditors who voted.
Subsequently the Board continues to consider all options including the pursuit
of an alternative Scheme of Arrangement to the one which was not approved. It
is the Board's view, in light of the anticipated alternative - a possible
insolvency - that subject to further regulatory discussions, a successful
alternative Scheme is achievable. However, the Directors acknowledge that the
ultimate success of the Scheme is not wholly within their control not least
because at the reporting date the approval of an alternative Scheme of
Arrangement remains subject to reaching the key milestones of a second
successful creditor vote and a High Court sanction.
IAS 37 - Provisions, Contingent Liabilities and Contingent Assets requires
that the measurement of provisions is not adjusted for future events, such as
the approval of an alternative Scheme of Arrangement, unless there is
sufficient objective evidence that the future event will occur. Each of the
aforementioned factors are ultimately outside of the Group's control and
represent a significant source of uncertainty with regard to the ultimate
success of an alternative Scheme. Hence, in line with IAS 37, it has been
determined that the complaints provision will be measured by calculating a
total redress liability assuming that there is no scheme in place, as there is
not sufficient objective evidence that the future approval of an alternative
Scheme of Arrangement will occur.
2.3.2 Complaints provision - estimation uncertainty
Provisions included in the statement of financial position refers to a
provision recognised for customer complaints. The provision represents an
accounting estimate of the expected future outflows arising from certain
customer-initiated complaints, using information available as at the date of
signing these financial statements and the assumption that there is no Court
approved Scheme of Arrangement (see note 14 for further detail).
Identifying whether a present obligation exists and estimating the
probability, timing, nature and quantum of the redress payments that may arise
from past events requires judgements to be made on the specific facts and
circumstances relating to the individual complaints. Management evaluates on
an ongoing basis whether complaints provisions should be recognised, revising
previous judgements and estimates as appropriate; however, there is a wide
range of possible outcomes.
The key assumptions in these calculations which involve significant, complex
management judgement and estimation relate primarily to the projected costs of
potential future complaints, where it is considered more likely than not that
customer redress will be appropriate. These key assumptions are:
· Future estimated volumes - estimates of future volumes of
complaints.
· Uphold rate (%) - the expected average uphold rate applied to
future estimated volumes where it is considered more likely than not that
customer redress will be appropriate.
· Average redress (£) - the estimated compensation, inclusive of
balance adjustments and cash payments, for future upheld complaints included
in the provision.
These assumptions remain subjective due to the uncertainty associated with
future complaint volumes and the magnitude of redress which may be required.
Complaint volumes may include complaints under review by the Financial
Ombudsman Service, complaints received from claims management companies
("CMCs") or complaints received directly from customers.
Following the announcement of the proposed Scheme of Arrangement on 21
December 2020 these assumptions became more challenging to estimate as
customer and CMC behaviour was temporarily influenced by the proposed Scheme
of Arrangement.
Whilst the proposed Scheme was not sanctioned by the High Court on 19 May
2021, the creditor meeting on 12 May 2021, in which the Group received a total
of 78,732 votes, provides some indication of the potential future propensity
for past and present customers to raise a complaint. Whilst the vote provides
a useful reference point for the potential population of future claims, this
estimate remains highly uncertain. If an alternative Scheme is not
successfully approved, it is unclear to what extent future complaint volumes
would be impacted by increased customer awareness generated by the engagement
with customers as part of the creditor vote process and increased publicity
connected to the unsuccessful outcome of the first proposed Scheme, as well as
any additional publicity relating to any potential future Scheme.
Additionally, throughout Amigo's progress towards a Scheme, substantial work
has gone into reviewing and enhancing our future claims handling
methodologies, aligning with the expectations of our regulator and re-setting
expectations of how claims will be assessed moving forward regardless of
whether a potential new Scheme is successful.
As at 30 September 2020, the complaints provision was £159.1m; the increase
of 116.4% to £344.3m at 30 September 2021 is primarily due to an increase in
both the volume of estimated upheld complaints provided for and the estimated
uphold rate. Also partially contributing to the increase is the rise in FOS
invoice costs from £650 to £750 each.
The following table details the effect on the complaints provision considering
incremental changes on key assumptions, should current estimates prove too
high or too low. Sensitivities are modelled individually and not in
combination.
Assumption used Sensitivity applied Sensitivity
Future complaint volumes(1) 81,562 5% +57.9m -57.9m
Average uphold rate per customer(2) 65% 20 ppts +94.0m -94.0m
Average redress per valid complaint(3) £4,451 £1,000 +56.7m -56.7m
( )
1. Future estimated volumes. Sensitivity analysis shows the
impact of a 5% change in the number of complaints estimated in the provision.
2. Uphold rate. Sensitivity analysis shows the impact of a 20
percentage point change in the applied uphold rate on both the current and
forward-looking elements of the provision.
3. Average redress. Sensitivity analysis shows the impact of a
£1,000 change in average redress on the provision.
The table above shows the increase or decrease in total provision charge
resulting from reasonably possible changes in each of
the key underlying assumptions. The Board considers that this sensitivity
analysis covers the full range of reasonably possible
alternatives assumptions.
It is possible that the eventual outcome may differ materially from the
current estimate and could materially impact the
financial statements as a whole, given the Group's only activity currently is
guarantor-backed consumer credit. This is due to the
risks and inherent uncertainties surrounding the assumptions used in the
provision calculation.
The complaints provision has been estimated assuming that there is no Scheme
in place, as there is not sufficient objective
evidence that the future approval of an alternative Scheme will occur.
However, a potential future Scheme remains a plausible
outcome. In this scenario, it is likely that the total redress liability would
be materially lower than the amount recognised under
IAS 37 because cash redress would be capped at a level approved by the Scheme
creditors, which is expected to be substantially
lower than the total cash liability of £270.0m included in the £344.3m
provision. For example, the cash contribution proposed under the terms of the
original Scheme proposal, which was not sanctioned by the High Court, was
£15.0m. Amigo is still considering all options, of which one option is a
potential alternative Scheme.
The Group has disclosed a contingent liability with respect to the FCA
investigation announced on 29 May 2020. The
investigation is with regards to the Group's creditworthiness assessment
process, the governance and oversight of this, and
compliance with regulatory requirements. The FCA investigation is covering
lending for the period from 1 November 2018 to
date. The Group was informed on 15 March 2021 that the FCA had decided to
extend the scope of its current investigation so
that it can investigate whether the Group appropriately handled complaints
after 20 May 2020 and whether the Group deployed
sufficient resource to address complaints in accordance with the Voluntary
Requirement (VReq) announced on 27 May 2020 and
the subsequent variation announced on 3 July 2020.
The FCA investigation will consider whether those complaints have been handled
appropriately and whether customers have
been treated fairly in accordance with Principle 6 of the FCA's Principles for
Business.
The Group will continue to co-operate fully with the FCA. There is significant
uncertainty around the impact of this investigation on the business, the
assumptions underlying the complaints provision and any future regulatory
intervention. See note 14 for further details.
2.4 Modification of financial assets
2.4.1 Assessment of Covid-19 payment holidays as a non-substantial modification
From 31 March 2020, Covid-19 relief measures were formally introduced; on
request, depending on a customer's individual circumstances, initial payment
holidays with durations of up to three months were offered. At the end of the
payment holiday the customer's monthly instalments reverted to the contractual
instalment with the term of the loan effectively extended by the duration of
the payment holiday. Following the FCA's announcement of the extension to
customer payment holidays for personal loans for up to six months, the Group's
payment holiday policy was revised. If a customer applied for a payment
holiday extension, the payment holiday automatically renewed on a monthly
basis, up to a maximum of six months.
The customer had the option to opt out and end the payment holiday at any
time. For the first three months of the payment holiday no interest accruals
were applied to customer balances; from four to six months interest began to
accrue again on the loan. As a result of the Group's interest cap, the
reintroduction of interest accruals from months four to month six of a payment
holiday does not increase the total interest payable by the customer over the
life of the loan. Rolling monthly extensions were predominantly granted from 1
July 2020 onwards. The final payment holidays and extensions were granted in
March 2021.
No capital or interest is forgiven as part of the payment holiday despite no
interest accruing during the first three months of the payment holiday; the
customer is still expected to repay the loan in full.
The Group assessed Covid-19 payment holidays from both a qualitative and
quantitative perspective; the Group is not originating new assets with
substantially different terms and the original asset's contractual cash flows
are deferred, leading to what is deemed a non-substantial estimated reduction
in loan carrying amounts.
Hence, the initial granting of a Covid-19 payment holidays was accounted for
as non-substantial modification of financial assets under IFRS 9. When a
customer was offered an extension to their original payment holiday up to a
total of six months in length, this was considered a second non-substantial
modification event. Assets were not derecognised as the modifications were not
substantial; instead, modification losses were recognised in the period to 31
March 2021. The impact of Covid-19 payment holiday modifications is discussed
in note 5.
2.4.2 Measurement of modification losses
The Group has estimated modification losses arising from Covid-19 payment
holidays on a cohort basis. Future contractual cash flows are forecast
collectively in cohorts based on the remaining contractual term. The cash flow
forecasts are then further segmented by month of modification (being payment
holiday start date or date of extension) and payment holiday duration.
Following the introduction of automatic rolling extension of payment holidays
up to a maximum of six months, a key judgement is the expected payment holiday
duration. Customers on payment holidays of one and two month initial durations
could first extend to a backstop of a three month payment holiday. Where the
customer applied for an extension to their original payment holiday beyond the
three month backstop, the payment holiday automatically extended on a monthly
basis up to a maximum of six months unless the customer opted out.
Forecast cash flows are lagged by the relevant payment holiday duration and
discounted using the original effective interest rate to calculate net present
value of each cohort. The difference between the net present value of the
revised cash flows and the carrying value of the assets is recognised in the
consolidated statement of comprehensive income as a modification loss.
Customers granted Covid-19 payment holidays were assessed for other potential
indicators of SICR. This assessment included a historical review of the
customer's payment performance and behaviours. Following this review, those
customers that were granted a Covid-19 payment holiday and judged to have
otherwise experienced a SICR are transitioned to stage 2 within the Group's
impairment model (note 1.2.iii). Where the modification loss related to
customers that have been transitioned from stage 1 to stage 2 as a result of
this assessment, the modification loss has been recognised as an impairment in
the consolidated statement of comprehensive income.
In the current period, there has been no modification loss recognised in
respect of Covid-19 payment holidays. In prior periods if the customer was
already in arrears, suggesting a significant increase in credit risk event
prior to them being granted a payment holiday; a modification loss relating to
these customers has also been recognised in impairment. The remainder of the
modification loss has been recognised in revenue (see note 5 for further
details).
3. Revenue and Segment reporting
Revenue consists of interest income and is derived primarily from a single
segment in the UK, but also from Irish entity Amigo
Loans Ireland Limited. The Group has two operating segments based on the
geographical location of its operations, being the UK
and Ireland. IFRS 8 requires segment reporting to be based on the internal
financial information reported to the chief operating
decision maker. The Group's chief operating decision maker is deemed to be the
Group's Executive Committee (ExCo) whose
primary responsibility is to support the Chief Executive Officer (CEO) in
managing the Group's day-to-day operations and analyse
trading performance. The table below presents the Group's performance on a
segmental basis for the six months to 30 September 2021 in line with reporting
to the chief operating decision maker:
6 months to 30 September 2021 Period to Period to Period to
30 Sep 21 30 Sep 21 30 Sep 21
£m £m £m
UK Ireland Total
Revenue 55.9 0.6 56.5
Interest payable and funding facility fees (9.8) - (9.8)
Interest receivable 0.1 - 0.1
Impairment of amounts receivable from customers (26.1) 0.2 (25.9)
Administrative and other operating expenses (13.2) (0.3) (13.5)
Provision expenses (5.3) - (5.3)
Total operating expenses (18.5) (0.3) (18.8)
Profit before tax 1.6 0.5 2.1
Tax credit on profit(1) 1.2 - 1.2
Profit and total comprehensive income attributable to equity shareholders of 2.8 0.5 3.3
the Group
30 Sep 21 30 Sep 21 30 Sep 21
£m £m £m
UK Ireland Total
Gross loan book(2)
286.8 2.4 289.2
Less impairment provision (64.6) (0.5) (65.1)
Net loan book(3)
222.2 1.9 224.1
( )
1. The tax credit for the UK primarily relates to the release of a
historical tax provision no longer required.
2. Gross loan book represents total outstanding loans and excludes
deferred broker costs.
3. Net loan book represents gross loan book less provision for
impairment.
The carrying value of property, plant and equipment and intangible assets
included in the consolidated interim statement of financial position
materially all relates to the UK; hence the split between UK and Ireland has
not been presented. The results of each segment have been prepared using
accounting policies consistent with those of the Group as a whole.
Period to Period to Period to
30 Sep 20 30 Sep 20 30 Sep 20
£m £m £m
6 months to 30 September 2020 UK Ireland Total
Revenue 91.0 1.3 92.3
Interest payable and funding facility fees (15.6) - (15.6)
Impairment of amounts receivable from customers (19.2) (0.3) (19.5)
Administrative and other operating expenses (21.9) (0.6) (22.5)
Complaints expense (93.7) - (93.7)
Total operating expenses (115.6) (0.6) (116.2)
IPO, strategic review, formal sale process and related financing costs (3.6) - (3.6)
(Loss) before tax (63.0) 0.4 (62.6)
Tax charge on (loss) (5.2) (0.1) (5.3)
(Loss) and total comprehensive income attributable to equity shareholders of (68.2) 0.3 (67.9)
the Group
30 Sep 20 30 Sep 20 30 Sep 20
£m £m £m
UK Ireland Total
Gross loan book(1)
558.3 5.6 563.9
Less impairment provision (77.6) (1.1) (78.7)
Net loan book(2)
480.7 4.5 485.2
1 Gross loan book represents total outstanding loans and excludes deferred
broker costs.
2 Net loan book represents gross loan book less provision for impairment.
4. Interest payable and funding facility fees
Period to Period to Year to
30 Sep 21 30 Sep 20 31 Mar 21
Unaudited Unaudited Audited
£m £m £m
Senior secured notes interest payable 9.0 8.4 17.8
Funding facility fees 0.1 0.7 0.4
Securitisation interest payable 0.2 1.8 2.8
Complaints provision discount unwind (note 14) - 1.1 2.0
Other finance costs 0.5 3.6 4.5
9.8 15.6 27.5
No interest was capitalised by the Group during the period. Funding facility
fees include non-utilisation fees and amortisation of initial costs of the
Group's senior secured notes.
Non-utilisation fees of £0.3m relating to the securitisation facility are
included in other finance costs. In the prior year, other finance costs also
included written off fees totalling £1.9m following cancellation of the
Group's revolving credit facility and substantial modification of the
securitisation facility.
5. Modification of financial assets
Covid-19 payment holidays and any subsequent extensions were assessed as
non-substantial financial asset modifications under IFRS 9 (see note 2.4 for
further details). The Group stopped granting new payment holidays in March
2021; hence no additional modification losses have been recognised in the
period. All payment holidays ended by 31 July 2021.
In the period, £3.7m of modification losses were released in respect of loan
agreements that settled or charged off in the six months ended 30 September
2021. The carrying value of historical modification losses at the period end
was £9.4m.
Period to Period to Year to
30 Sep 21 30 Sep 20 31 Mar 21
Unaudited Unaudited Audited
£m £m £m
Modification (loss) recognised in revenue - (24.9) (27.2)
Modification (loss) recognised in impairment - (7.1) (8.3)
Total modification (loss) - (32.0) (35.5)
6. Strategic review, formal sale process and related financing costs
Strategic review, formal sale process and related financing costs have been
disclosed separately in the financial statements because the Directors
consider it necessary to do so to provide further understanding of the
financial performance of the Group. There has been no strategic review, formal
sale process and related financing costs as at 30 September 2021, prior period
costs are material items of expense that have been shown separately due to the
significance of their nature and amount.
Period to Period to Year to
30 Sep 21 30 Sep 20 31 Mar 21
£m £m £m
Unaudited Unaudited Audited
Strategic review and formal sale process costs - 3.6 3.0
- 3.6 3.0
The costs above related to advisor and legal fees in respect of the strategic
review and formal sale process announced on 27 January 2020 and its
termination was announced on 8 June 2020.
7. Taxation
The applicable corporation tax rate for the period to 30 September 2021 was
19.0% (H1 2021: 19.0%) and the effective tax rate is 57.1% positive (H1 2021:
negative 8.5%). This effective tax rate is primarily due to the release of a
historical tax provision and the recognition of an imminent tax refund.
In the prior year, the Group's loss-making position and the ongoing
uncertainty over the Group's future profitability meant that it was no longer
considered probable that future taxable profits would be available against
which to recognise deferred tax assets. Consequently, no tax assets were
recognised in respect of losses in prior year, which were driven primarily by
the recognition of a £344.6m complaints provision as at 31 March 2021. The
uncertainty remains in the period to 30 September 2021 as the Group continues
to pursue a Scheme of Arrangement.
Whilst the six months ended 30 September 2021 were profitable, no tax charge
has been recognised on profits due to the uncertainty around the profitability
in the second half of the financial year, whereby revenue will continue to
decrease as the loan book declines and the uncertainty surrounding the outcome
of a Scheme of Arrangement.
8. Profit/(loss) per share
Basic earnings/(loss) per share is calculated by dividing the profit/(loss)
for the period attributable to equity shareholders by the
weighted average number of ordinary shares outstanding during the period.
Diluted earnings/(loss) per share calculates the effect on profit/(loss) per
share assuming conversion of all dilutive potential
ordinary shares. Dilutive potential ordinary shares are calculated as follows:
i) For share awards outstanding under performance-related share
incentive plans such as the Share Incentive Plan (SIP) and the Long Term
Incentive Plans (LTIPs), the number of dilutive potential ordinary shares is
calculated based on the number of shares which would be issuable if the end of
the reporting period is assumed to be the end of each scheme's performance
period. An assessment over financial and non-financial performance targets as
at the end of the reporting period has therefore been performed to aid
calculation of the number of dilutive potential ordinary shares.
ii) For share options outstanding under non-performance-related
schemes such as the two Save As You Earn schemes (SAYE), a calculation is
performed to determine the number of shares that could have been acquired at
fair value (determined as the average annual market share price of the
Company's shares) based on the monetary value of the subscription rights
attached to outstanding share options. The number of shares calculated is
compared with the number of share options outstanding, with the difference
being the dilutive potential ordinary shares.
Potential ordinary shares are treated as dilutive when, and only when, their
conversion to ordinary shares would decrease earnings per share or increase
earnings/(loss) per share.
30 Sep 21 30 Sep 20 31 Mar 21
Unaudited Unaudited Audited
Pence Pence Pence
Basic earnings/ profit/(loss) per share 0.7 (14.3) (60.8)
Diluted earnings/ profit/(loss) per share 0.7 (14.2) (60.8)
Adjusted basic earnings/ profit/(loss) per share (basic and diluted)2 (12.2)
0.4 (58.9)
1. Adjusted basic (loss) per share and earnings for adjusted basic
(loss) per share are non-GAAP measures.
The Directors are of the opinion that the publication of the adjusted
profit/(loss) per share is useful as it gives a better indication of ongoing
business performance. Reconciliations of the profit/loss used in the
calculations are set out below.
30 Sep 21 30 Sep 20 31 Mar 21
Unaudited Unaudited Audited
£m £m £m
Profit/(loss) for basic EPS 3.3 (67.9) (289.1)
Strategic review, formal sale process and related financing costs - 3.6 3.0
Write-off of revolving credit facility (RCF) fees - 0.7 0.7
Write-off of unamortised securitisation fees - 1.2 1.2
Tax provision release (0.8) (2.5) (2.5)
Tax refund due (0.5) - -
Tax asset write-off - 7.8 7.8
Less tax impact - (1.0) (0.9)
Profit/(loss) for adjusted basic EPS1 (279.8)
2.0 (58.1)
Basic weighted average number of shares (m) 475.3 475.3 475.3
Dilutive potential ordinary shares (m)(2) 0.5
1.1 2.6
Diluted weighted average number of shares (m) 476.4 477.9 475.8
1. Adjusted basic profit/(loss) per share and earnings for
adjusted basic profit/(loss) per share are non-GAAP measures.
2. Although the Group has issued further options under the
employee share schemes, upon assessment of the dilutive nature of the options,
some options are not considered dilutive as at 30 September 2021 as they would
not meet the performance conditions. Those dilutive shares included are in
relation to the employee October 2020 SAYE scheme.
9. Customer loans and receivables
The table shows the gross loan book and deferred broker costs by stage, within
the scope of the IFRS 9 ECL framework.
30 Sep 21 30 Sep 20 31 Mar 21
Unaudited Unaudited Audited
£m £m £m
Stage 1 209.0 451.3 311.5
Stage 2 45.6 91.8 61.4
Stage 3 34.6 20.8 50.0
Gross loan book 289.2 563.9 422.9
Deferred broker costs1 - stage 1 4.3 12.5 7.2
Deferred broker costs1 - stage 2 0.9 2.5 1.4
Deferred broker costs1 - stage 3 1.1
0.7 0.6
Loan book inclusive of deferred broker costs 295.1 579.5 432.6
Provision(2) (82.0)
(65.1) (78.7)
Customer loans and receivables 230.0 500.8 350.6
1. Deferred broker costs are recognised within customer loans and
receivables and are amortised over the expected life of those assets using the
effective interest rate (EIR) method.
2. Included within the provision is a judgemental management
overlay of £nil for 30 September 2021, 30 September 2020 and £6.0m for 31
March 2021.
As at 30 September 2021, £132.5m of loans to customers had their beneficial
interest assigned to the Group's special purpose vehicle (SPV) entity, namely
AMGO Funding (No. 1) Ltd, as collateral for securitisation transactions (H1
2021: £255.7m). See note 18 for further details of this structured entity.
Ageing of gross loan book (excluding deferred brokers' fees and provision) by
days overdue:
30 Sep 21 30 Sep 20 31 Mar 21
Unaudited Unaudited Audited
£m £m £m
Current 210.5 454.0 315.5
1-30 days 32.6 78.3 41.4
31-60 days 11.5 10.8 16.0
>60 days 34.6 20.8 50.0
Gross loan book 289.2 563.9 422.9
The following table further explains changes in the net carrying amount of
loans receivable from customers to explain their
significance to the changes in the loss allowance for the same portfolios.
Period ended 30 September 2021 Stage 1 Stage 2 Stage 3 Total
£m £m £m £m
Gross carrying amount as at 31 March 2021 311.5 61.4 50.0 422.9
Deferred brokers fees 7.2 1.4 1.1 9.7
Loan book inclusive of deferred broker costs 318.7 62.8 51.1 432.6
Changes in gross carrying amount attributable to:
Transfer to stage 1 22.9 (22.3) (0.6) -
Transfer to stage 2 (47.9) 49.0 (1.1) -
Transfer to stage 3 (10.3) (19.2) 29.5 -
Passage of time(1) (45.6) (6.6) 0.5 (51.7)
Customer settlements (25.5) (5.0) (1.0) (31.5)
Loans charged off (2.3) (11.4) (41.2) (54.9)
Net movement in modification loss relating to Covid-19 payment holidays 6.3 (0.3) (1.5) 4.5
Net movement in deferred broker fees (3.0) (0.5) (0.4) (3.9)
Loan book inclusive of deferred broker costs as at 30 September 2021 213.3 46.5 35.3 295.1
Period ended 30 September 2020 Stage 1 Stage 2 Stage 3 Total
£m £m £m £m
Gross carrying amount as at 31 March 2020 601.1 106.8 42.0 749.9
Deferred brokers fees 16.5 2.9 1.1 20.5
Loan book inclusive of deferred broker costs 617.6 109.7 43.1 770.4
Changes in gross carrying amount attributable to:
Transfer to stage 1 13.7 (13.4) (0.3) -
Transfer to stage 2 (26.8) 28.2 (1.4) -
Transfer to stage 3 (5.1) (8.4) 13.5 -
Passage of time(1) (57.9) (3.1) 0.1 (60.9)
Customer settlements (59.3) (7.3) (1.7) (68.3)
Loans charged off (2.4) (10.6) (31.0) (44.0)
Modification loss relating to Covid-19 payment holidays (12.4) (0.4) (0.4) (13.2)
Net new receivables originated 0.4 - - 0.4
Net movement in deferred broker fees (4.0) (0.4) (0.5) (4.9)
Loan book inclusive of deferred broker costs as at 30 September 2020 463.8 94.3 21.4 579.5
1 Passage of time relates to amortisation of loan balances
over the course of the financial year, due to cash payments partially offset
by interest accruals.
As shown in the table above, the loan book inclusive of deferred broker cost
decreased from £579.5m to £295.1m at 30 September 2021. This was primarily
driven by the effect of passage of time (loan balances amortising throughout
the period), customer settlements and minimal originations in the year.
The following tables explain the changes in the loan loss provision between
the beginning and the end of the period:
Period ended 30 September 2021 Stage 1 Stage 2 Stage 3 Total
£m £m £m £m
Loan loss provision as at 31 March 2021 21.0 14.1 46.9 82.0
Changes in loan loss provision attributable to:
Transfer to stage 1 1.6 (1.9) (0.5) (0.8)
Transfer to stage 2 (3.3) 8.8 (0.9) 4.6
Transfer to stage 3 (0.7) (4.3) 24.6 19.6
Passage of time(1) (3.2) (0.7) 0.4 (3.5)
Customer settlements (1.7) (0.7) (0.9) (3.3)
Loans charged off (0.2) (4.7) (34.4) (39.3)
Net movement in modification loss relating to Covid-19 payment holidays 0.8 - (0.2) 0.6
Remeasurement of ECLs 11.6 (0.2) (6.2) 5.2
Loan loss provision as at 30 September 2021 25.9 10.4 28.8 65.1
Period ended 30 September 2020 Stage 1 Stage 2 Stage 3 Total
£m £m £m £m
Loan loss provision as at 31 March 2020 55.1 20.1 31.6 106.8
Changes in loan loss provision attributable to:
Transfer to stage 1 1.2 (1.9) (0.2) (0.9)
Transfer to stage 2 (2.4) 6.2 (1.1) 2.7
Transfer to stage 3 (0.4) (2.8) 10.1 6.9
Passage of time(1) (5.3) (0.4) 0.1 (5.6)
Customer settlements (5.5) (1.5) (1.3) (8.3)
Loans charged off (0.2) (4.2) (23.3) (27.7)
Management overlay (1.0) 2.5 6.7 8.2
Net movement in modification loss relating to Covid-19 payment holidays (1.1) (0.2) (0.3) (1.6)
Remeasurement of ECLs (1.2) (1.0) 0.4 (1.8)
Loan loss provision as at 30 September 2020 39.2 16.8 22.7 78.7
1 Passage of time relates to amortisation of loan balances
over the course of the financial year, due to cash payments partially offset
by interest accruals.
As shown in the above tables, the allowance for ECL decreased from £78.7m at
30 September 2020 to £65.1m at 30 September 2021. The overall provision has
reduced in line with the amortisation of the loan book in the absence of any
meaningful originations.
The following table splits the gross loan book by arrears status, and then by
stage respectively for the year ended 30 September 2021.
Stage 1 Stage 2 Stage 3 Total
£m £m £m £m
Up to date 193.8 16.7 - 210.5
1-30 days 15.2 17.4 - 32.6
31-60 days - 11.5 - 11.5
> 60 days - - 34.6 34.6
209.0 45.6 34.6 289.2
The following table splits the gross loan book by arrears status, and then by
stage respectively for the year ended 30 September 2020:
Stage 1 Stage 2 Stage 3 Total
£m £m £m £m
Up to date 411.7 42.3 - 454.0
1-30 days 39.4 38.9 - 78.3
31-60 days - 10.8 - 10.8
> 60 days - - 20.8 20.8
451.1 92.0 20.8 563.9
The following table further explains changes in the net carrying amount of
loans receivable from customers to explain their significance to the changes
in the loss allowance for the same portfolios.
30 Sep 21 30 Sep 20 31 Mar 21
Unaudited Unaudited Audited
Customer loans and receivables £m £m £m
Due within one year 177.4 270.9 218.9
Due in more than one year 46.7 214.3 122.0
Net loan book 224.1 485.2 340.9
Deferred broker costs1
Due within one year 4.0 9.6 6.2
Due in more than one year 1.9 6.0 3.5
Customer loans and receivables 230.0 500.8 350.6
1. Deferred broker costs are recognised within customer loans and
receivables and are amortised over the expected life of those assets using the
effective interest rate (EIR) method.
10. Financial instruments
The below tables show the carrying amounts and fair values of financial assets
and financial liabilities, including the levels in the fair value hierarchy.
The tables analyse financial instruments into a fair value hierarchy based on
the valuation technique used to determine fair value:
a) Level 1: quoted prices (unadjusted) in active markets for identical
assets or liabilities.
b) Level 2: inputs other than quoted prices included within Level 1 that
are observable for the asset or liability, either directly (i.e. as prices) or
indirectly (i.e. derived from prices).
c) Level 3: inputs for the asset or liability that are not based on
observable market data (unobservable inputs).
30 Sept 21 30 Sep 20 31 Mar 21
Fair value Carrying amount Fair Carrying amount Fair Carrying amount Fair
hierarchy £m value £m value £m value
£m £m £m
Financial assets not measured at fair value(1)
Amounts receivable from customers(2) Level 3 230.0 214.4 500.8 488.9 350.6 340.6
Other receivables Level 3 2.1 2.1 1.3 1.3 1.6 1.6
Cash and cash equivalents (restricted) Level 1 2.0 2.0 9.5 9.5 6.3 6.3
Cash and cash equivalents Level 1 234.5 234.5 134.2 134.2 177.9 177.9
468.6 453.0 645.8 633.9 536.4 526.4
Financial assets measured at fair value
Derivative asset Level 2 - - - - 0.1 0.1
- - - - 0.1 0.1
Financial liabilities not measured at fair value(1)
Other liabilities Level 3 (10.6) (10.6) (15.3) (15.3) (15.9) (15.9)
Senior secured notes(3) Level 1 (232.4) (224.3) (231.7) (165.6) (232.1) (187.6)
Securitisation facility Level 2 - - (168.0) (180.9) (64.4) (64.5)
(243.0) (234.9) (415.0) (361.8) (312.4) (268.0)
1. The Group has disclosed the fair values of financial
instruments such as short-term trade receivables and payables at their
carrying value because it considers this a reasonable approximation of fair
value.
2. The unobservable inputs in the fair value calculation of
amounts receivable from customers are expected credit losses, forecast cash
flows and discount rates. As lifetime expected credit losses are embedded in
the calculation, this results in a fair value lower than the carrying amount.
3. Senior secured notes are presented in the financial statements
net of unamortised fees. As at 30 September 2021, the gross principal amount
outstanding was £234.1m. The fair value reflects the market price of the
notes at the balance sheet date.
Financial instruments not measured at fair value
The fair value of amounts receivable from customers has been estimated using a
net present value calculation using discount rates derived from the blended
effective interest rate of the instruments. As these loans are not traded on
an active market and the fair value is therefore determined through future
cash flows, they are classed as Level 3 under IFRS 13 Fair Value Measurement.
The fair value of senior secured notes has been taken at the Bloomberg
Valuation Service (BVAL) market price.
All financial instruments are held at amortised cost, with the exception of
the derivative asset which is held at FVTPL.
The fair value of the securitisation facility is estimated using a net present
value calculation using discount rates derived from contractual interest
rates, with cash flows assuming no principal repayments until maturity date.
The Group's activities expose it to a variety of financial risks, which can be
categorised as credit risk, liquidity risk, interest rate risk, foreign
exchange rate risk and market risk. The objective of the Group's risk
management framework is to identify and assess the risks facing the Group and
to minimise the potential adverse effects of these risks on the Group's
financial performance. Financial risk management is overseen by the Group Risk
Committee.
30 Sep 21 30 Sep 20 31 Mar 21
Unaudited Unaudited Audited
£m £m £m
Maturity analysis of financial liabilities
Analysed as:
- due within one year
Other liabilities (10.6) (15.3) (15.9)
Securitisation facility - - (64.4)
- due in two to three years
Senior secured note liability (232.4) - (232.1)
Securitisation facility - (168.0) -
- due in three to four years
Senior secured note liability - (231.7) -
(243.0) (415.0) (312.4)
11. Other receivables
30 Sep 21 30 Sep 20 31 Mar 21
Unaudited Unaudited Audited
£m £m £m
Current
Other receivables 0.7 0.1 0.5
Prepayments and accrued income 1.3 1.2 1.1
2.0 1.3 1.6
12. Trade and other payables
30 Sep 21 30 Sep 20 31 Mar 21
Unaudited Unaudited Audited
£m £m £m
Current
Accrued senior secured note interest 3.7 3.7 3.7
Trade payables 0.2 0.7 0.5
Taxation and social security 0.7 0.7 0.8
Other creditors 0.8 0.9 1.8
Accruals and deferred income 5.2 9.3 9.1
10.6 15.3 15.9
13. Bank and other borrowings
30 Sep 21 30 Sep 20 31 Mar 21
Unaudited Unaudited Audited
£m £m £m
Current and non-current liabilities
Amounts falling due in less than 2 years
Securitisation facility - - 64.4
Amounts falling due 2-3 years
Senior secured notes 232.4 - 232.1
Securitisation facility - 168.0 -
Amounts falling due 3-4 years
Senior secured notes - 231.7 -
232.4 399.7 296.5
The Group's facilities are:
· Senior secured notes in the form of £232.4m high yield bonds
with a coupon rate of 7.625% which expire in January 2024 (H1 2021: £231.7m).
The senior secured notes are presented in the financial statements net of
unamortised fees. As at 30 September 2021, the gross principal amount
outstanding was £234.1m. On 20 January 2017, £275.0m of notes were issued at
an interest rate of 7.625%. The high yield bond was tapped for £50.0m in May
2017 and again for £75.0m in September 2017 at a premium of 3.8%. £165.9m of
notes have been repurchased in the open market in prior financial years (2020:
£85.9m; 2019: £80.0m).
· The securitisation facility was in place during the period;
however, the securitisation facility has been fully repaid. Given the current
suspension of all new lending activity at Amigo, the size of the
securitisation facility was reduced from £250m to £100m, effective 25 June
2021. On 25 June 2021, the Group extended the securitisation facility's
performance trigger waiver period from 25 June 2021 to 24 September 2021. The
24 September 2021 extension of the facility's performance trigger waiver
period expired on 24 September 2021. In light of the Group's immediate
funding needs and current unrestricted cash balance, the Company does not
expect the need to operate the securitisation facility in the near term. The
Board intends to keep the securitisation structure in place to provide the
Company with more diversity for future funding options. With effect from 24
September 2021, all rights, obligations and liabilities of the Lead Arranger,
Facility Agent and Senior Noteholder, as defined in the securitisation
Facility Documents, were taken over and assumed by Amigo.
14. Provisions
Provisions are recognised for present obligations arising as the consequence
of past events where it is more likely than not that
a transfer of economic benefit will be necessary to settle the obligation,
which can be reliably estimated.
30 Sep 21 30 Sep 20 31 Mar 2021
Complaints Restructuring Total Complaints Restructuring Total Complaints Restructuring Total
£m £m £m £m £m £m £m £m £m
Balance as at 31 March 2021/20 344.6 - 344.6 117.5 - 117.5 117.5 - 117.5
Provisions made during year 5.3 - 5.3 93.7 - 93.7 318.8 1.0 319.8
Discount unwind (note 4) - - - 1.1 - 1.1 2.0 - 2.0
Movement in the provision (5.6) - (5.6) (53.2) - (53.2) (93.7) - (93.7)
Closing provision 344.3 - 344.3 159.1 - 159.1 344.6 1.0 345.6
Non-current - - - 11.0 - 11.0 - - -
Current 344.3 - 344.3 148.1 - 148.1 344.6 1.0 345.6
344.3 - 344.3 159.1 - 159.1 344.6 1.0 345.6
Customer complaints redress
As at 30 September 2021, the Group has recognised a complaints provision
totalling £344.3m in respect of customer complaints redress and associated
costs. Utilisation in the period totalled £5.6m. Our lending practices have
been subject to significant shareholder, regulatory and customer attention,
which, combined with the pursuit of a Scheme, has resulted in an increase in
the number of complaints received.
The current provision reflects the estimate of the cost of redress relating to
customer-initiated complaints and complaints raised
by CMCs for which it has been concluded that a present constructive obligation
exists, based on the latest information available. The provision has two
components, firstly a provision for complaints received at the reporting date,
and secondly a provision for the projected costs of potential future
complaints where it is considered more likely than not that customer redress
will be appropriate. The engagement with customers and increased publicity of
complaints in connection with the proposed Scheme and the accompanying
creditor vote process, as well as ongoing publicity relating to any potential
future Scheme. Consequently, in the current period, the complaints provision
is classified as a current liability.
There is significant uncertainty around the emergence period for complaints,
in particular the impact of customer
communications in connection with the unsuccessful Scheme of Arrangement and
any potential alternative Scheme of
Arrangement and the activities of claims management companies; both of which
could significantly affect complaint volumes,
uphold rates and redress costs. It is possible that the eventual outcome may
differ materially from current estimates which
could materially impact the financial statements, given the Group's only
activity is guarantor-backed consumer credit. See note
2.3 for details of the key assumptions that involve significant management
judgement and estimation in the provision
calculation, and for sensitivity analysis.
The Group continues to monitor its policies and processes to ensure that it
responds appropriately to customer complaints. The
Group will continue to assess both the underlying assumptions in the
calculation and the adequacy of this provision periodically
using actual experience and other relevant evidence to adjust the provisions
where appropriate.
Restructuring provision
As at 31 March 2021, the Group recognised a restructuring provision totalling
£1.0m in respect of the expected cost of staff redundancies. This provision
was fully utilised by 30 June 2021 and outstanding balance as at 30 September
2021 is £nil.
Contingent liability
FCA investigation
On 29 May 2020 the FCA commenced an investigation into whether the Group's
creditworthiness assessment process, and the
governance and oversight of this, was compliant with regulatory requirements.
The FCA investigation will cover lending for the
period from 1 November 2018 to date. There is significant uncertainty around
the impact of this on the business, the
assumptions underlying the complaints provision and any future regulatory
intervention.
The Group was informed on 15 March 2021 that the FCA has decided to extend the
scope of its current investigation so that it
can investigate whether the Group appropriately handled complaints after 20
May 2020 and whether the Group deployed
sufficient resource to address complaints in accordance with the Voluntary
Requirement (VReq) announced on 27 May 2020 and
the subsequent variation announced on 3 July 2020. The FCA investigation will
consider whether those complaints have been
handled appropriately and whether customers have been treated fairly in
accordance with Principle 6 of the FCA's Principles for
Business. The Group will continue to co-operate fully with the FCA.
Such investigations take an average of two years to conclude from the
commencement date. There are a number of different
outcomes which may result from this FCA investigation, including the
imposition of a significant fine and/or the requirement to
perform a back-book remediation exercise in the absence of a successful Scheme
of Arrangement. Should the FCA mandate this
review it is possible that the cost of such an exercise will exceed the
Group's available resources. The potential impact of the
investigation on the business is unpredictable and unquantifiable.
15. Share capital
On 4 July 2018 the Company's shares were admitted to trading on the London
Stock Exchange. Immediately prior to admission the shareholder loan notes were
converted to equity, increasing the share capital of the business to 475
million ordinary shares and increasing net assets by £207.2m. No additional
shares were issued subsequent to conversion of the shareholder loan notes.
Ordinary Number Total Number
At 31 March 2021 475,333,760 475,333,760
At 30 September 2021 475,333,760 475,333,760
Ordinary shares
The holders of ordinary shares are entitled to receive dividends as declared
from time to time and are entitled to one vote per share at general meetings
of the Company. Each ordinary share in the capital of the Company ranks
equally in all respects and no shareholder holds shares carrying special
rights relating to the control of the Company. The nominal value of shares in
issue is shown in share capital, with any additional consideration for those
shares shown in share premium.
Deferred shares
At the time of the IPO and subdivision the 41,000 ordinary B shares were split
into 16,400,000 ordinary shares of 0.25p and 41,000 deferred shares of
£0.24.
The deferred shares do not carry any rights to receive any profits of the
Company or any rights to vote at a general meeting. Prior to the subdivision
the ordinary B shares had 1.24 votes per share; all other shares had one vote
per share.
Dividends
Dividends are recognised through equity, on the earlier of their approval by
the Company's shareholders or their payment. Due to the Asset Voluntary
Requirement entered into with the FCA, prior approval by the FCA will be
required to pay dividends to shareholders. The Board decided that it would not
propose a final dividend payment for the year to 31 March 2021 or an interim
dividend for the period to 30 September 2021. Total cost of dividends paid in
the period is £nil (2020: £nil).
16. Immediate and ultimate parent undertaking
The immediate and ultimate parent undertaking is Amigo Holdings PLC, a company
incorporated in England and Wales. The consolidated financial statements of
the Group as at and for the year ended 31 March 2021 are available upon
request from the Company's registered office at Nova Building, 118-128
Commercial Road, Bournemouth, United Kingdom, BH2 5LT.
17. Share-based payments
The Group issues share options and awards to employees as part of its employee
remuneration packages. The Group operates three types of equity settled share
scheme: Long Term Incentive Plan (LTIP), employee's savings-related share
option schemes referred to as Save As You Earn (SAYE) and the Share Incentive
Plan (SIP).
During the period a secondary SAYE scheme was launched and additional LTIP
awards in the form of nil cost share options were granted.
A summary of the new awards at the reporting date is set out below:
Type Contractual life of options Performance condition Method of settlement accounting Number of instruments Vesting period
2021 LTIP August 2021- July 2024 Y Equity 4,350,000 3 years
Granted LTIPs are subject to the following performance conditions.
· 40% of the LTIP Awards vest subject to an absolute total
shareholder return (ATSR) performance condition which will be measured over a
three year performance period commencing on 27 August 2021. Straight line
vesting applies to share price growth between £0.12 and £0.40;
· 30% of the LTIP Awards are subject to the Group meeting an
earnings per share (EPS) performance condition which will be measured over a
three year performance period commencing 27 August 2021. Straight line vesting
applies to EPS growth between £0.01 and £0.04; and
· 30% of the LTIP Awards are subject to non-financial measures,
such as internal targets for corporate culture, conduct risk matters,
diversity and inclusiveness and other ESG measures.
Absolute TSR target Proportion of LTIP Awards subject to Absolute TSR condition that vest
Below £0.12 0%
£0.40 100%
EPS Target Proportion of LTIP Awards subject to EPS condition that vest
Below £0.01 0%
£0.04 100%
Non-financial measures 30%
18. Investment in subsidiaries and structed entities
Amigo Loans Group Limited (ALGL) is a wholly owned subsidiary of the Company
and a reconciliation to its consolidated results is included in the
presentation pack on the Company's website as part of ALGL's senior secured
note reporting requirements.
The following are subsidiary undertakings of the Company at 30 September 2021
and includes undertakings registered or incorporated up to the date of the
Directors' Report as indicated. Unless otherwise indicated all Group owned
shares are ordinary. All entities are subsidiaries on the basis of 100%
ownership and shareholding, aside from AMGO Funding (No. 1) Limited which is
an orphaned structured entity.
Name Country of incorporation Class of Ownership 2021 Ownership 2020 Principal activity
Shares held
Direct holding
Amigo Loans Group Ltd1 United Kingdom Ordinary 100% 100% Holding company
ALL Scheme Ltd1* United Kingdom Ordinary 100% - Special purpose vehicle
Indirect holdings
Amigo Loans Holdings Ltd1 United Kingdom Ordinary 100% 100% Holding company
Amigo Loans Ltd1 United Kingdom Ordinary 100% 100% Trading company
Amigo Management Services Ltd1 United Kingdom Ordinary 100% 100% Trading company
Amigo Canteen Limited1** United Kingdom Ordinary 100% 100% In liquidation
Amigo Luxembourg S.A.2 Luxembourg Ordinary 100% 100% Financing company
AMGO Funding (No.1) Ltd4 United Kingdom n/a "SE" "SE" Special purpose vehicle
Amigo Car Loans Limited1 United Kingdom Ordinary 100% 100% Dormant company
Amigo Motor Finance Limited1 United Kingdom Ordinary 100% 100% Dormant company
Amigo Car Finance Limited1 United Kingdom Ordinary 100% 100% Dormant company
Amigo Store Limited1 United Kingdom Ordinary 100% 100% Dormant company
Amigo Group Limited1 United Kingdom Ordinary 100% 100% Dormant company
Amigo Finance Limited1 United Kingdom Ordinary 100% 100% Dormant company
Amigo Loans International Limited3 Ireland Ordinary 100% 100% Holding company
Amigo Loans Ireland Limited3 Ireland Ordinary 100% 100% Trading company
1 Registered at Nova Building, 118-128 Commercial Road,
Bournemouth BH2 5LT, England.
2 Registered at 19, Rue de Bitbourg, L-1273 Luxembourg.
3 Registered at Suite 3, One Earlsfort Centre, Lower Hatch Street,
Dublin 2.
4 Registered at Level 37, 25 Canada Square, London E14 5LQ.
* Incorporated on 6 January 2021.
** Previously RG Catering Services Limited.
19. Related party transactions
The Group had no related party transactions during the six month period to 30
September 2021 that would materially affect the performance of the Group.
Details of the transactions for the year ended 31 March 2021 can be found in
note 24 of the Amigo Holdings PLC financial statements.
Appendix: alternative performance measures (unaudited)
This financial report provides alternative performance measures (APMs) which
are not defined or specified under the requirements of International Financial
Reporting Standards. The Board believes these APMs provide readers with
important additional information on the Group. To support this, details of the
APMs used, how they are calculated and why they are used are set out below.
Key performance indicators
Other financial data
6 months to 6 months to Year to
Figures in £m, unless otherwise stated 30 Sep 21 30 Sep 20 31 Mar 21
Average gross loan book 356.1 656.9 586.4
Gross loan book 289.2 563.9 422.9
Percentage of book <31 days past due 84.1% 94.4% 84.4%
Net loan book 224.1 485.2 340.9
Net borrowings 2.1 (265.5) (118.6)
Net borrowings/gross loan book (0.7)% 47.1% 28.0%
Net borrowings/equity 0.0X 2.7x (1.0)x
Revenue yield 31.7% 28.1% 29.1%
Risk adjusted revenue 30.6 72.8 110.1
Risk adjusted margin 17.2% 22.2% 18.8%
Net interest margin 16.6% 20.3% 20.3%
Adjusted net interest margin 26.3% 23.4% 24.5%
Cost of funds percentage 5.5% 4.7% 4.3%
Impairment:revenue ratio 45.8% 21.1% 35.5%
Impairment charge as a percentage of loan book 17.9% 6.9% 14.4%
Cost:income ratio 33.3% 125.9% 212.7%
Operating cost:income ratio (ex. complaints) 23.9% 24.4% 26.1%
Adjusted profit/(loss) after tax 2.0 (58.1) (279.8)
Return on assets 1.3% (19.1)% (44.9)%
Adjusted return on average assets 0.8% (16.3)% (43.5)%
Return on equity (5.5)% (101.7)% (1257.0)%
Adjusted return on average equity (3.3)% (87.0)% (1216.5)%
1. Average gross loan book
30 Sep 21 30 Sep 20 31 Mar 21
£m £m £m
Opening gross loan book 422.9 749.9 749.9
Closing gross loan book 289.2 563.9 422.9
Average gross loan book(1) 656.9 586.4
356.1
1. Gross loan book represents total outstanding loans and
excludes deferred broker costs.
2. The percentage of balances up to date or less than 31 days overdue is
presented as this is useful in reviewing the quality of the loan book.
30 Sep 21 30 Sep 20 31 Mar 21
Ageing of gross loan book by days overdue: £m £m £m
Current 210.5 454.0 315.5
1-30 days 32.6 78.3 41.4
31-60 days 11.5 10.8 16.0
>61 days 34.6 20.8 50.0
Gross loan book 289.2 563.9 422.9
Percentage of book <31 days past due 84.1% 94.4% 84.4%
3. "Net loan book" is a subset of customer loans and receivables and
represents the interest yielding loan book when the IFRS 9 impairment
provision is accounted for, comprised of:
30 Sep 21 30 Sep 20 31 Mar 21
£m £m £m
Gross loan book1 (see APM number 2) 289.2 563.9 422.9
Provision2 (78.7) (82.0)
(65.1)
Net loan book3 485.2 340.9
224.1
(1) Gross loan book represents total outstanding loans and excludes deferred
broker costs.
(2) Provision for impairment represents the Group's estimate of the portion of
loan accounts that are not in arrears or are up to five payments in arrears
for which the Group will not ultimately be able to collect payment. Provision
for impairment excludes loans that are six or more payments in arrears, which
are charged off of the statement of financial position and are therefore no
longer included in the loan book.
(3) Net loan book represents gross loan book less provision for impairment.
4. "Net borrowings" is comprised of:
30 Sep 21 30 Sep 20 31 Mar 21
£m £m £m
Borrowings(1) (232.4) (399.7) (296.5)
Cash and cash equivalents 234.5 134.2 177.9
Net borrowings 2.1 (265.5) (118.6)
1. Total borrowings is net of unamortised fees.
This is deemed useful to show total borrowings if unrestricted cash available
at the period end was used to repay borrowings.
5. The Group defines loan to value (LTV) as net borrowings divided by gross
loan book. This measure shows if the borrowings' year-on-year movement is in
line with loan book growth.
30 Sep 21 30 Sep 20 31 Mar 21
£m £m £m
Net borrowings (see APM number 4) 2.1 (265.5) (118.6)
Gross loan book (see APM number 2) 289.2 563.9 422.9
Net borrowings/gross loan book (0.7)% 47.1% 28.0%
6. Net borrowings/equity
30 Sep 21 30 Sep 20 31 Mar 21
£m £m £m
Shareholder equity (117.6) 99.6 (121.4)
Net borrowings (see APM number 4) 2.1 (265.5) (118.6)
Net borrowings/equity 0.0x 2.7x (1.0)x
This is one of the Group's metrics to assess gearing.
7. The Group defines "revenue yield" as annualised revenue over the average of
the opening and closing gross loan book for the period.
30 Sep 21 30 Sep 20 31 Mar 21
Revenue yield £m £m £m
Revenue 56.5 92.3 170.8
Opening loan book 422.9 749.9 749.9
Closing loan book 289.2 563.9 422.9
Average loan book (see APM number 1) 356.1 656.9 586.4
Revenue yield (annualised) 31.7% 28.1% 29.1%
This is deemed useful in assessing the gross return on the Group's loan book.
8. The Group defines "risk adjusted revenue" as revenue less impairment
charge.
30 Sep 21 30 Sep 20 31 Mar 21
£m £m £m
Revenue 56.5 92.3 170.8
Impairment of amounts receivable from customers (25.9) (19.5) (60.7)
Risk adjusted revenue 30.6 72.8 110.1
Risk adjusted revenue is not a measurement of performance under IFRS and is
not an alternative to profit/(loss) before tax as a measure of the Group's
operating performance, as a measure of the Group's ability to meet its cash
needs or as any other measure of performance under IFRS.
9. The Group defines "risk adjusted margin" as risk adjusted revenue divided
by the average of gross loan book.
30 Sep 21 30 Sep 20 31 Mar 21
£m £m £m
Risk adjusted revenue (see APM number 8) 30.6 72.8 110.1
Average gross loan book (see APM number 1) 356.1 656.9 586.4
Risk adjusted margin (annualised) 17.2% 22.2% 18.8%
This measure is used internally to review an adjusted return on the Group's
loan book.
10. The Group defines "net interest margin" as annualised net interest income
divided by average interest-bearing assets (being both gross loan book and
cash) at the beginning of the period and end of the period.
30 Sep 21 30 Sep 20 31 Mar 21
£m £m £m
Revenue 56.5 92.3 170.8
Interest payable, receivable and funding facility fees (9.7) (15.6) (27.4)
Net interest income 46.8 76.7 143.4
Opening interest-bearing assets (gross loan book plus unrestricted cash) 600.8 814.2 814.2
Closing interest-bearing assets (gross loan book plus unrestricted cash) 523.7 698.1 600.8
Average interest-bearing assets (customer loans and receivables plus 562.3 756.2 707.5
unrestricted cash)
Net interest margin (annualised) 16.6% 20.3% 20.3%
Adjusted net interest margin, being net interest income divided by average
gross loan book, is also presented below:
30 Sep 21 30 Sep 20 31 Mar 21
£m £m £m
Net interest income 46.8 76.7 143.4
Average gross loan book (see APM number 1) 356.1 656.9 586.4
Adjusted net interest margin (annualised) 26.3% 23.4% 24.5%
11. The Group defines "cost of funds" as annualised interest payable divided
by the average of gross loan book at the beginning and end of the period.
30 Sep 21 30 Sep 20 31 Mar 21
£m £m £m
Cost of funds 9.8 15.6 27.5
Less complaints discount unwind expense (notes 4 and 14) - (1.1) (2.0)
Adjusted cost of funds 9.8 14.5 25.5
Average gross loan book (see APM number 1) 356.1 656.9 586.4
Cost of funds percentage (annualised) 5.5% 4.4% 4.3%
This measure is used by the Group to monitor the cost of funds and impact of
diversification of funding. The measure has been amended to reflect on true
interest expenses related to borrowings, accounting related adjustments have
been removed to provide a better understanding for users.
12. Impairment charge as a percentage of revenue "impairment:revenue ratio"
represents the Group's impairment charge for the period divided by revenue for
the period.
30 Sep 21 30 Sep 20 31 Mar 21
£m £m £m
Revenue 56.5 92.3 170.8
Impairment of amounts receivable from customers 25.9 19.5 60.7
Impairment charge as a percentage of revenue 45.8% 21.1% 35.5%
This is a key measure for the Group in monitoring risk within the business.
13. Impairment charge as a percentage of loan book represents the Group's
impairment charge for the period divided by closing gross loan book.
30 Sep 21 30 Sep 20 31 Mar 21
£m £m £m
Impairment of amounts receivable from customers 25.9 19.5 60.7
Closing gross loan book (see APM number 1) 289.2 563.9 422.9
Impairment charge as a percentage of loan book (annualised) 17.9% 6.9% 14.4%
This allows review of the impairment charge relative to the size of the
Group's gross loan book.
14. The Group defines "cost:income ratio" as operating expenses excluding
strategic review, formal sale process and related financing costs divided by
revenue.
30 Sep 21 30 Sep 20 31 Mar 21
£m £m £m
Revenue 56.5 92.3 170.8
Total operating expenses 18.8 116.2 363.3
Cost:income ratio 33.3% 125.9% 212.7%
This measure allows review of cost management.
15. Operating cost:income ratio, defined as the cost:income ratio excluding
the complaints provision, is:
30 Sep 21 30 Sep 20 31 Mar 21
£m £m £m
Revenue 56.5 92.3 170.8
Administrative and other operating expenses 13.5 22.5 44.5
Operating cost:income ratio 23.9% 24.4% 26.1%
16. The following table sets forth a reconciliation of profit/(loss) after tax
to "adjusted (loss)/profit after tax" for the 6 months to 30 September 2021,
2020 and year to 31 March 2020.
30 Sep 21 30 Sep 20 31 Mar 21
£m £m £m
Reported profit/(loss) after tax 3.3 (67.9) (289.1)
Revolving credit facility (RCF) fees - 0.7 0.7
Securitisation fees - 1.2 1.2
Strategic review and formal sale process costs - 3.6 3.0
Tax provision release (0.8) (2.5) (2.5)
Tax refund due (0.5) - -
Tax asset write-off - 7.8 7.8
Less tax impact - (1.0) (0.9)
Adjusted profit/(loss) after tax 2.0 (58.1) (279.8)
The above items were all excluded due to their exceptional nature. The
Directors believe that adjusting for these items is useful in making
year-on-year comparisons.
· Senior secured note buybacks are not underlying business-as-usual
transactions.
· RCF fees relate to fees written-off following the modification
and extension of the revolving credit facility in FY20, and in FY21 relates to
fees written-off following cancellation of the facility. Modification,
extension and cancellation of the facility were all deemed substantial
modifications of the financial instrument leading to the derecognition of
previously capitalised fees. The facility was cancelled in May 2020 and hence
these amounts have been excluded.
· Following the renegotiation of the securitisation facility on 14
August 2020 a substantial modification of the facility occurred; as such all
previous capitalised fees relating to the facility have been written off. This
has been adjusted for above as it was a one-off event in the period.
· Due to inherent uncertainty surrounding future profitability,
current and deferred tax assets were written off and charged to the
consolidated statement of comprehensive income in the year. The tax provision
release refers to the release of a tax provision no longer required. These
adjustments result in a tax charge for the year despite the large loss making
position as at 31 March 2021 and hence have been adjusted for in the
calculation.
· Strategic review and formal sale process costs relate to the
strategic review and formal sale processes both announced in January 2020.
They are one off costs and hence have been adjusted.
· Tax provision release is a prior year adjustment due to the
release of the 2017 uncertain tax provision relating to the potential thin
capitalisation adjustment in Amigo Holdings.
None are business-as-usual transactions. Hence, removing these items is deemed
to give a view of underlying profit/(loss) adjusting for non-business-as-usual
items within the financial year.
17. Return on assets (ROA) refers to annualised profit/(loss) over tax as a
percentage of average assets.
Return on assets 30 Sep 21 30 Sep 20 31 Mar 21
Profit/(loss) after tax 3.3 (67.9) (289.1)
Customer loans and receivables at period and year end 229.9 500.8 350.6
Other receivables and current assets at period and year end 4.7 37.5 8.0
Cash and cash equivalents at period and year end 234.5 134.2 177.9
Total 469.1 672.5 536.5
Average assets 502.8 711.8 643.8
Return on assets (annualised) 1.3% (19.1)% (44.9)%
18. Adjusted return on assets refers to annualised adjusted
profit/(loss) over tax as a percentage of average assets
Adjusted return on assets 30 Sep 21 30 Sep 20 31 Mar 21
Adjusted (loss)/profit after tax (see APM number 16) 2.0 (58.1) (279.8)
Customer loans and receivables at period and year end 229.9 500.8 350.6
Other receivables and current assets at period and year end 4.7 37.5 8.0
Cash and cash equivalents at period and year end 234.5 134.2 177.9
Total 469.1 672.5 536.5
Average assets 502.8 711.8 643.8
Adjusted return on assets (annualised) 0.8% (16.3)% (43.5)%
19. "Return on equity" (ROE) is calculated as annualised profit/(loss) after
tax divided by the average of equity at the beginning of the period and the
end of the period.
30 Sep 21 30 Sep 20 31 Mar 21
£m £m £m
Profit/(loss) after tax 3.3 (67.9) (289.1)
Shareholder equity (117.6) 99.6 (121.4)
Average equity (119.5) 133.5 23.0
Return on average equity (annualised) (5.5)% (101.7)% (1257.0)%
20. "Adjusted return on equity" is calculated as annualised adjusted
profit/(loss) after tax divided by the average of equity at the beginning of
the period and the end of the period.
30 Sep 21 30 Sep 20 31 Mar 21
£m £m £m
Adjusted profit/(loss) after tax (see APM number 16) 2.0 (58.1) (279.8)
Shareholder equity (117.6) 99.6 (121.4)
Average equity (119.5) 133.5 23.0
Adjusted return on average equity (annualised) (3.3)% (87.0)% (1216.5)%
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