REG - Amigo Holdings PLC - 1st Quarter Results
25/08/2022 07:00
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RNS Number : 1493X Amigo Holdings PLC 25 August 2022
25 August 2022
Amigo Holdings PLC
First Quarter Financial Results for the three-month period ended 30 June 2022
Amigo Holdings PLC, ("Amigo" or the "Company"), provider of mid-cost credit in
the UK, announces results for the three-month period ended 30 June 2022.
Gary Jennison, Chief Executive Officer commented:
"We continue to engage positively with the FCA around our return to lending.
This is the next step in our recovery, ahead of a proposed capital raise and
would enable a new start for the business having taken on board the learnings
from the past.
"Our new lending proposition, under the RewardRate brand, aims to offer a more
affordable, responsible and flexible option to underserved customers who
currently have very few choices. By allowing customers who make their loan
payments on time to reduce their APR by up to 15 percentage points, we aim to
help customers achieve a better credit rating and move towards cheaper credit.
We believe fair and responsible non-standard lending choices are vital to
creating greater financial inclusion and mobility."
Headlines
· On 26 May 2022, the Board's preferred proposed Scheme of Arrangement
("Scheme"), was sanctioned by the High Court. The Scheme seeks to deliver the
best possible outcome to Scheme creditors to address Amigo's historical
lending complaints liability.
· The "preferred" solution under the Scheme is contingent on lending
restarting by 26 February 2023 and Amigo completing a capital raise by 26 May
2023. If either of the conditions is not met, the Scheme will revert to the
"fallback" solution and the business will be wound down.
· Engagement with the Financial Conduct Authority ("FCA") continues to
be positive with Amigo's new platform, processes and procedures being assessed
to satisfy the FCA that all conditions are being met to enable a return to
lending.
· Volumes of complaints received to date in the Scheme process are
within expectations. A report from Scheme supervisors, PWC, will be published
in early September 2022.
· Subject to FCA consent, Amigo will return to lending with a revised
guarantor loan as well as an unsecured non-guarantor loan product which will
both feature dynamic pricing to encourage and reward on-time payment with
lower rates and penalty-free annual payment holidays. The new products will be
released under the RewardRate brand, representing a new start for the
business.
· The Board expects that the proposed capital raise will require
shareholder approval and that the proceeds will be used both to fund the
minimum £15m Scheme contribution and to support future lending. While the
quantum is yet to be determined, the Board is currently working with advisers
to determine the overall structure of the capital raise in a way that seeks to
facilitate existing shareholders' participation whilst balancing this with the
need to ensure the success of the capital raise for the purposes of, and in
the timeframe required under, the Scheme. Further details are expected to be
announced in due course.
· The FCA investigations, initiated in 2020 and 2021, into Amigo's
creditworthiness assessment and complaints handling respectively, are ongoing.
The Board recognises the importance of a resolution to the investigations in
the context of the capital raise and is working towards obtaining this as soon
as possible.
· On 6 June 2022, Danny Malone was appointed Chief Financial Officer,
having performed the role on an interim basis since February 2022.
· Post period end, the Board appointed Peel Hunt LLP as financial
adviser and sole corporate broker and Ashcombe Advisers LLP as financial
adviser. Both will be instrumental in assisting with the required fund raising
in the coming months.
Financial headlines
Figures in £m, unless otherwise stated First Quarter to First Quarter to Change %
30 June 2022 30 June 2021
Number of customers(1) '000 61.0 118.0 (48.3)
Net loan book(2) 105.9 288.7 (63.3)
Revenue 10.4 32.5 (68.0)
Impairment: revenue 2.9% 23.4% (87.6)
Complaints provision (balance sheet) (176.9) (338.0) (47.7)
Complaints credit (income statement) - 1.7 (100.0)
Profit before tax 2.2 15.0 (85.3)
Profit after tax(3) 2.2 16.0 (86.3)
Adjusted profit after tax(4) 2.2 15.2 (85.5)
Basic EPS Pence 0.5 3.4 (85.3)
EPS (Basic, adjusted)(5) Pence 0.5 3.2 (84.4)
Net unrestricted cash/(debt)(6) 52.6 (56.2) 193.6
Net unrestricted cash/(debt) to gross loan book(7) 36.7% (16.0)% 329.4
· Net loan book reduction of 63.3% to £105.9m (Q1 FY2022: £288.7m,
FY2022: £138.0m) due to the run-off of the legacy loan book and the continued
pause in lending.
· Revenue reduction of 68.0% to £10.4m (Q1 FY2022: £32.5m) due to the
reduction in the loan book and ongoing pause in lending throughout the period.
· Complaints provision down 47.7% to £176.9m (Q1 FY2022: £338.0m,
FY2022: £179.8m). The complaints provision has been replaced with a reduced
provision for Scheme redress. The significant release in complaints provision
occurred at year end and therefore had no impact on the income statement in
this quarter.
· With no additional Scheme provision recognised in the quarter, and a
decline due to the reduction in the size of the loan book, reported statutory
profit before tax for the period was £2.2m (Q1 FY2022: £15.0m). No tax
impact or profit adjustments made in the period.
· Overall collections, including early repayments and recoveries from
written-off accounts, have remained robust despite the continued rise in
delinquency expected from a book in run-off.
· Ongoing focus on controlling costs.
· £102.4m of unrestricted cash and cash equivalents as at 30 June 2022
(Q1 FY2022: £201.2m, FY2022: £133.6m), following the payment of the £60m
initial Scheme contribution, reflects continued strong cash generation.
Current unrestricted cash balance of over £115m, following payment of the
bi-annual senior secured note coupon payment in July 2022.
· Net assets of £50.2m at 30 June 2022 (Q1 FY2022: net liabilities of
£105.2m, FY2022: £47.9m). Substantially all the Group's net assets,
excluding c.£8m of working capital, are committed within the Scheme.
· Net unrestricted cash of £52.6m at 30 June 2022 (Q1 FY2022: net debt
of £56.2m, FY2022: £83.9m) driven by the continued collection of the back
book while originations remained suspended.
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 after tax otherwise known as profit/(loss) and total comprehensive
income/(loss) to equity shareholders of the Group as per the financial
statements.
(4) Adjusted profit 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 and strategic review and
write-back of complaints provision. None are business-as-usual transactions.
Hence, removing these items is deemed to give a view of underlying profit
adjusting for non-business-as-usual items within the financial year.
(5) Basic adjusted profit/earnings per share is a non-IFRS measure and the
calculation is shown in note 7. Adjustments to profit/earnings are described
in footnote 4 above.
(6)Net unrestricted cash/(debt) is defined as borrowings less unamortised fees
and unrestricted cash and cash equivalents.
(7)Net unrestricted cash(debt)/gross loan book: this measure shows whether the
cash and borrowings' year-on-year movement is in line with changes in the loan
book.
*Detailed definitions and calculations of these alternative performance
measures (APMs) can be found in the APM section of these condensed financial
statements
Analyst, investor and bondholder conference call and webcast
Amigo will be hosting a live webcast for investors and bondholders today at
10:30am (London time) which will be available at:
https://www.amigoplc.com/investors/results-centre. A conference call is also
available for those unable to join the webcast (Dial in: + 020 3936 2999;
Access code: 159756). 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').
Contacts:
Amigo
Danny Malone, Chief Financial Officer
Kate Patrick, Head of Investor Relations
investors@amigo.me
Lansons amigoloans@lansons.com
Tom Baldock
07860 101715
Ed Hooper
07783 387713
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. Whilst not currently lending, Amigo has provided
guarantor loans in the UK since 2005, offering 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 grew 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 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.
Chief Executive's Statement
Performance
The three months ended 30 June 2022 have seen considerable progress in
addressing Amigo's historical complaints liability and in re-establishing
Amigo as a provider of responsible finance to meet the needs of a growing
underserved population. The sanctioning of Amigo's Scheme of Arrangement by
the High Court on 26 May 2022 represents a turning point for the business. The
approval of the Scheme will deliver the best possible outcome for creditors
and enable Amigo to continue to play an important role in the mid-cost credit
sector, at a time when the UK is facing an unprecedented rise in the cost of
living and a further tightening of credit availability.
Amigo's pause in lending continued throughout the reporting period to 30 June
2022 and resulted in a 48.3% decline in customer numbers to 61,000 and a 63.3%
reduction in the net loan book to £105.9m. Revenue fell 68.0% to £10.4m,
compared to the prior year period, primarily driven by the reduction in the
loan book. Overall collections, which have included early repayments and
recoveries from written-off accounts, have remained robust despite the
anticipated increase in delinquency associated with a loan book in run-off.
The provision for complaints on the balance sheet at 30 June 2022 is broadly
in line with the full year and reduced significantly, down 47.7%, on the prior
year. This follows the sanctioning of the Scheme and the introduction of a
reduced Scheme provision. The significant release in complaints provision
occurred at year end and therefore had no impact on the income statement in
this quarter. With no additional complaints provision recognised in the
quarter, reported statutory profit before tax for the period was £2.2m (Q1
FY2022: £15.0m). No tax impact or profit adjustments were made in the period.
The reduced provision on the balance sheet has resulted in a net asset
position of £50.2m. However, as we noted at year end, although we have
returned to balance sheet solvency, substantially all the Shareholders' Equity
in the business, excluding a small working capital amount of c.£8m, is
committed to Scheme creditors under the Scheme.
Our cash position remains strong with unrestricted cash at 30 June 2022 of
£102.4m after payment of the initial £60m Scheme contribution and current
cash of over £115m, after payment of the bi-annual coupon on our senior
secured notes.
Scheme of Arrangement Update
The Scheme was sanctioned by the High Court on 26 May 2022. Under the
"preferred" solution of the Scheme, Amigo will make an initial cash
contribution of £97m to the Scheme fund, of which £60m was paid in June
2022. £37m is due to be paid to the Scheme fund by 26 February 2022. A
further contribution of at least £15m is expected to be made from the
proceeds of the proposed capital raise, in accordance with the terms of the
Scheme. In order to secure the best possible result for Scheme creditors in
the circumstances, the Scheme includes a mechanism for additional monies to
be paid to Scheme creditors in the event that the existing loan book generates
a better return than anticipated. The judgment, passed down to Amigo on 30 May
2022, is available on www.amigoscheme.co.uk (http://www.amigoscheme.co.uk/) .
The "preferred" solution under the Scheme is contingent on Amigo returning to
lending, with FCA consent, by 26 February 2023. It is also contingent on Amigo
completing a capital raise by 26 May 2023. If Amigo fails to meet these
conditions, the Scheme will revert to the "fallback" solution which is an
orderly wind-down of the Amigo Loans Ltd business.
Return to lending
We have made significant progress in preparing to return to lend. While the
Scheme condition is that we return to lending by 26 February 2023, we aim to
do so far sooner. Engagement with the FCA has continued to be positive and we
remain grateful for the considerable amount of time that the teams at the FCA
have afforded us as we test our new platform, processes and procedures to
satisfy them that threshold conditions are met and we are ready to return to
lending. We will initiate lending with a limited pilot, building to a maximum
of £35m net originations until the capital raise has been completed. The
initial £35m of planned new lending will be funded by existing resources.
We will not return to lending with our Amigo brand. Our revised guarantor loan
product and new non-guarantor unsecured loan will be released under our new
brand, RewardRate. This represents a new start for our business. We have
designed our RewardRate products to meet the needs of a large underserved
market, offering affordable, responsible, and flexible finance to an eligible
segment of the estimated 12 million adults in the UK who currently have few
options to borrow. Our products aim to help customers achieve a better credit
rating and move towards cheaper credit by enabling those that make their loan
payments on time to reduce the effective APR by up to 15 percentage points.
The personal loan will start at 49.9% APR while the guarantor product will
begin at 39.9% APR, with both products offering the borrower the opportunity
to reduce the interest rate to equivalent 34.9% APR and take an interest free
payment holiday once a year, with no penalties.
This new proposition has been shaped through learnings from Amigo's past and
all new lending is designed to meet the FCA's proposed new Consumer Duty
outcomes. There will be an improved underwriting process with enhanced
affordability checks for customers. We have invested in soft search
application capability enabling targeted and accurate quotes to be presented
to customers who match our target customer profile without impacting their
credit file. When we return to lending, open banking, or an equivalent, will
be used in all affordability assessments. To support our new products, we will
be deploying a new technology environment. The new technologies are
cloud-based and built around market-leading solutions tailored to our products
and customer needs. Working with best-in-class third parties, such as Mambu,
Mulesoft and Salesforce, the platform provides quality system solutions that
are scalable and easily configured to suit our and our customers' needs, now
and as they change. Third-party supporting services are being integrated using
open application programming interfaces ("API") technologies which both speed
up and simplify the build. We continue to build and own several key services
such as our underwriting decision engines and our websites. These will be
fully integrated into the overall architecture alongside our third-party
partners. Alongside this, our new data environment is being purpose-built to
give us more flexibility and scalability for both data storage and reporting.
Capital Raise
Amigo expects to propose a capital raise to fund both the minimum £15m
additional Scheme contribution required under the "preferred" solution of the
Scheme and to support future lending. The Scheme requires Amigo to issue at
least 19 new shares for every existing share in issue. Whilst the final
amount of the capital raise is yet to be determined and will be subject to
market conditions at the time, the Board is currently working with advisers to
determine the overall structure of the capital raise in a way that seeks to
facilitate existing shareholders' participation whilst balancing this with the
need to ensure the success of the capital raise for the purposes of, and in
the timeframe required under, the Scheme. In addition, Amigo plans to raise
additional debt to fulfil total funding requirements. No final decision has
been made on quantum or structure. The Board has appointed Peel Hunt LLP as
financial adviser and sole corporate broker and Ashcombe Advisers LLP as
financial adviser. Both will be instrumental in assisting with the required
fund raising in the coming months. Amigo expects to publish further details on
the capital raise in due course.
The Board recognises the importance of a resolution to the ongoing FCA
investigations into complaints handling and affordability processes in the
context of the capital raise and is working towards obtaining this as soon as
possible. The FCA has stated that the levying of any fine would be considered
in the context of the Scheme and its impact on creditors. In the event that
the investigations have not concluded or that they have concluded with an
adverse outcome, either of which causes the proposed capital raise not to
proceed, the Scheme will revert to the "fallback" solution and the business
will be wound down.
ESG
The proper and effective governance of Amigo is fundamentally important.
During the period, Amigo's Responsible Business Council, was established. The
Council meets monthly and reports quarterly to the Board, advising on key ESG
matters. It acts as a sounding board, challenger, innovator and adviser to the
Board and business leaders responsible for defining, planning and executing
Amigo's ESG strategy. Priority areas include setting Amigo's ESG vision, goals
and targets, driving diversity, equity and inclusion, climate-change related
matters and our strategy for charity and community engagement. It has
undertaken a culture review in partnership with the risk function to identify
how Amigo performs across six key categories - leadership, competency,
governance, decisions, relationships, and ethics. This will help drive the
values, behaviours, and attitudes the Council wants to embed in the business,
which will support the business' future growth as well as its impact on
customers, employees, and the wider community. The Responsible Business
Council is working on defining the core metrics it wants to influence and have
an impact on over the next year. This will guide the solutions it champions
and proposes to the wider business.
Amigo has also recently selected four priority UN Sustainable Development
Goals which align to our strategic pillars, our values and our purpose,
following a materiality assessment and review by the Responsible Business
Council. Over the coming year, we will be setting targets and metrics against
each goal and will report on these in future annual reports.
Board
Danny Malone, who joined Amigo in February as Interim CFO, was appointed to
the Board and as CFO on 6 June 2022, subject to approval under the FCA's
Senior Managers and Certification Regime. Danny is a Chartered Accountant and
has extensive business and regulatory experience gained from working
predominantly in the specialist consumer finance sector and having co-founded
Everyday Loans in 2006.
Maria Darby-Walker, who joined the Board in October 2020, was appointed Senior
Independent Director, subject to approval under the FCA's Senior Managers and
Certification Regime on 6 June 2022.
Summary and Outlook
In summary, the sanctioning of the Scheme represents a turning point for
Amigo. We have made significant progress as we work with the FCA to bring our
new RewardRate products to market. We have appointed advisers who will support
us as we seek to raise capital to fund both the minimum Scheme contribution
and to support future lending and we are working with them to determine the
overall structure of the capital raise. This is critical for the future
survival of the business.
The current cash position remains strong at over £115m after payment of the
initial £60m Scheme contribution and the bi-annual coupon on our senior
secured notes.
Amigo is a very different business to the business of the past. We have a
refreshed culture, focused on delivering positive outcomes for all
stakeholders, as we pursue our purpose of providing those with few options to
borrow the opportunity to achieve financial mobility. The Board is confident
that its future lending proposition meets a strong demand in the market for a
competitively priced, mid-cost, specialist credit product and that Amigo can
be a responsible and valuable contributor to the sector. Amigo is preparing
and looking forward to returning to lending as soon as possible and fulfilling
its obligations under the Scheme.
Financial Review
In the three months to 30 June 2022, the net loan book reduced by 63.3% to
£105.9m (Q1 FY2022: £288.7m, FY2022: £138.0m). Revenue fell by 68.0% year
on year to £10.4m (Q1 FY2022: £32.5m), reflecting the pause in lending and
loan book reduction. Customer numbers reduced by 48.3% compared to the prior
year to 61,000 (Q1 FY2022: 118,000). With no additional complaints provision
recognised in the quarter, reported statutory profit before tax for the period
was £2.2m (Q1 FY2022: £15.0m). There was no tax impact in the quarter or
profit adjustments made in the period.
Net assets at 30 June 2022 were £50.2m (Q1 FY2022: net liabilities of
£105.2m, FY 2022: £47.9m). Although the results show a strong shareholder
equity position, substantially all the existing net assets of the business
will be delivered to the Scheme creditors by way of the Scheme. After the
costs of administering the Scheme and collecting out the remaining portfolio
are paid, only a small working capital amount of c.£8m will remain. This will
not be sufficient to support future lending beyond the initial period; future
lending will be funded, in part, by way of a capital raise to be completed by
26 May 2023.
Impairment
The impairment charge for the period was £0.3m (Q1 FY2022: £7.6m), with the
impairment:revenue ratio decreasing significantly to 2.9%. The ongoing pause
in originations and consequent reduction in the size of the loan book drove
the lower impairment charge, partly owing to the upfront expected credit loss
methodology of IFRS 9. As the book runs off, the gross loan book is
increasingly provided for under lifetime loss assumptions. There were also no
key judgements revisions in the period.
The impairment provision decreased to £37.6m (Q1 FY2022: £62.2m), primarily
due to the decline of the loan book, representing 26.2% of the gross loan book
(Q1 FY2022: 23.4%, FY 2022: 25.6%). The increase in coverage is due to the
expected increase in delinquency, within modelled levels, as the book runs
off.
Scheme provision
At year end, the Board believed there to be sufficient certainty to account
for claims redress on a Scheme basis. This was confirmed following the High
Court decision to sanction the Scheme in May 2022. The provision on the
balance sheet at 30 June 2022 is broadly in line with the year-end provision,
at £176.9m (FY 2022: £179.8m; Q1 FY2022 £338.0), with all material
judgements and assumptions remaining unchanged. The reduction from year end is
primarily due to the payment of Scheme administration costs over the period.
There was no impact on the income statement in the quarter.
A key consideration will be uptake and volumes of complaints in the Scheme.
Volumes of complaints received to date are within Scheme provision
assumptions. Under the terms of the Scheme, customers have until 26 November
2022 to submit a claim.
Sensitivity analysis of the key assumptions, including the volume of claims,
is set out in note 2.2 to these financial statements.
Tax
Whilst the three months ended 30 June 2022 were profitable, no tax charge has
been recognised on profits as the Group has sufficient losses brought forward.
Funding and liquidity
Net cash was £52.6m at 30 June 2022 (Q1 FY2022: net debt of £56.2m) as the
back book continued to be collected while originations remained suspended.
Unrestricted cash and cash equivalents at 30 June 2022 was £102.4m (Q1
FY2022: £201.2m, FY 2022: £133.6m) following the payment of the £60m
initial Scheme contribution in June 2022. Restricted cash is £70.2m which
includes the £60m Scheme contribution as well as estimated set-off held in
escrow for customers with existing complaints who continue to make payments.
Current unrestricted cash, after payment of the interest due on the senior
secured notes, is over £115m.
The group has £50.0m outstanding 7.625% senior secured notes due in January
2024.
Going concern
Despite the sanctioning of the Scheme, the Board has concluded that a material
uncertainty over going concern remains (see note 1 to the financial statements
for further information). However, the Board considers that it is appropriate
to prepare these financial statements on a going concern basis, as the
sanctioning of the Scheme and the potential to successfully meet the
conditions of the "preferred solution" under the Scheme provide a realistic
alternative to a managed wind-down or insolvency.
Condensed consolidated statement of comprehensive income
for the 3 months ended 30 June 2022
3 months ended 3 months ended Year to
30 Jun 22 30 Jun 21 31-Mar-22
Unaudited Unaudited Audited
Notes £m £m £m
Revenue 3 10.4 32.5 89.5
Interest payable and funding facility fees 4 (0.9) (5.1) (16.7)
Interest receivable 0.1 - 0.1
Impairment of amounts receivable from customers (0.3) (7.6) (37.0)
Administrative and other operating expenses (7.1) (6.5) (24.6)
Complaints credit 12 - 1.7 156.6
Total operating (expense)/income (7.1) (4.8) 132.0
Profit before tax 2.2 15.0 167.9
Tax credit on profit 6 - 1.0 1.7
Profit and total comprehensive Income attributable to equity shareholders of 2.2 16.0
the Group1
169.6
The profit is derived from continuing activities.
Earnings per share
Basic earnings per share (pence) 7 0.5 3.4 35.7
Diluted earnings per share (pence) 7 0.5 3.4 35.7
The accompanying notes form part of these financial statements.
1 There was less than £0.1m of other comprehensive income during any other
period, and hence no consolidated statement of other comprehensive income is
presented.
Condensed consolidated statement of financial position
as at 30 June 2022
30 Jun 22 30 Jun 21 31 Mar 22
Unaudited Unaudited Audited
Notes £m £m £m
Non-current assets
Customer loans and receivables 8 19.5 97.7 25.4
Property, plant and equipment 0.4 0.9 0.5
Right-of-use lease assets 0.7 0.9 0.8
20.6 99.5 26.7
Current assets
Customer loans and receivables 8 87.9 198.9 114.8
Other receivables 9 2.2 3.2 1.6
Current tax assets 6 0.8 0.4 0.7
Derivative asset - 0.1 -
Cash and cash equivalents (restricted)(1) 70.2 6.8 7.6
Cash and cash equivalents 102.4 201.2 133.6
263.5 410.6 258.3
Total assets 284.1 510.1 285.0
Current liabilities
Trade and other payables 10 (6.4) (18.8) (6.7)
Borrowings 11 - (25.1) -
Lease liabilities (0.3) (0.3) (0.3)
Complaints provision 12 (79.9) (338.0) (82.8)
(86.6) (382.2) (89.8)
Non-current liabilities
Borrowings 11 (49.8) (232.3) (49.7)
Lease liabilities (0.5) (0.8) (0.6)
Complaints provision 12 (97.0) - (97.0)
(147.3) (233.1) (147.3)
Total liabilities (233.9) (615.3) (237.1)
Net assets/(liabilities) 50.2 (105.2) 47.9
Equity
Share capital 1.2 1.2 1.2
Share premium 207.9 207.9 207.9
Translation reserve - - 0.1
Merger reserve (295.2) (295.2) (295.2)
Retained earnings 136.3 (19.1) 133.9
Shareholder equity 50.2 (105.2) 47.9
The accompanying notes form part of these financial statements.
(1) Cash and cash equivalents (restricted) of £70.2m (Q1 2021: £6.8m)
includes (at 30 June 2022) the £60m initial payment to the Scheme Fund. This
amount will be returned to the Group if the Scheme Fallback solution is
activated and the Group goes into runoff. The remainder materially relates to
restricted cash held in a Trust Account for the benefit of those customers
with an open complaint, who may later have their complaints upheld in the
Scheme, who continued to make payments on their loan from 1 December 2021 to
the Scheme effective date.
The financial statements of Amigo Holdings PLC were approved and authorised
for issue by the Board and were signed on its behalf by:
Danny Malone
Director
25 August 2022
Company no. 10024479
Condensed consolidated statement of changes in equity
for the 3 months to 30 June 2022
Share Share Translation Merger Retained Total
capital premium reserve(1) Reserve(2) earnings equity
£m £m £m £m £m £m
At 31 March 2021 1.2 207.9 - (295.2) (35.3) (121.4)
Total comprehensive income - - - - 16.0 16.0
Share-based payments - - - - 0.2 0.2
At 30 June 2021 1.2 207.9 - (295.2) (19.1) (105.2)
Total comprehensive income - - - - 153.6 153.6
Translation reserve - - 0.1 - - 0.1
Share-based payments - - - - (0.6) (0.6)
At 31 March 2022 1.2 207.9 0.1 (295.2) 133.9 47.9
Total comprehensive income - - - - 2.2 2.2
Translation reserve - - (0.1) - - (0.1)
Share-based payments - - - - 0.2 0.2
At 30 June 2022 1.2 207.9 - (295.2) 136.3 50.2
The accompanying notes form part of these financial statements.
1 The translation reserve is due to the effect of foreign exchange
rate changes on translation of financial statements of the Irish entities.
2 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 3 months to 30 June 2022
3 months ended 3 months ended Year to
30 Jun 22 30 Jun 21 31 Mar 22
Unaudited Unaudited Audited
£m £m £m
Profit for the period 2.2 16.0 169.6
Adjustments for:
Impairment expense 0.3 7.6 37.0
Complaints (credit) - (1.7) (156.6)
Tax (credit) - (1.0) (1.7)
Interest expense 0.9 5.1 16.7
Interest receivable (0.1) - (0.1)
Interest recognised on loan book (12.7) (35.0) (97.0)
Share-based payment 0.2 0.2 (0.4)
Depreciation of property, plant and equipment 0.1 0.2 0.5
Operating cash flows before movements in working capital (9.1) (8.6) (32.0)
(Increase)/decrease in receivables (0.6) (1.5) 0.1
(Decrease) in payables (1.3) (2.5) (6.3)
Complaints cash expense (3.7) (4.0) (8.1)
(Tax paid)/tax refund (0.1) - 0.2
Interest received/(paid) 0.2 (0.5) (18.5)
Net cash (used in) operating activities before loans issued and collections on (14.6) (17.1) (64.6)
loans
Collections 43.5 79.0 263.0
Other loan book movements 2.0 (0.4) (0.4)
Decrease in deferred brokers' costs 0.6 1.7 7.5
Net cash from operating activities 31.5 63.2 205.5
Investing activities
Proceeds from sale of property, plant and equipment - - 0.3
Net cash from investing activities - - 0.3
Financing activities
Lease principal payments (0.1) (0.1) (0.3)
Repayment of external funding - (39.3) (248.5)
Net cash (used in) financing activities (0.1) (39.4) (248.8)
Net increase/(decrease) in cash and cash equivalents 31.4 23.8 (43.0)
Cash and cash equivalents at beginning of period 141.2 184.2 184.2
Cash and cash equivalents at end of period(1) 172.6 208.0 141.2
The accompanying notes form part of these financial statements.
1 Total cash is inclusive of cash and cash equivalents (restricted) of £70.2m
(Q1 2021: £6.8m). Cash and cash equivalents (restricted) includes (at 30 June
2022) the £60m initial payment to the Scheme Fund. This amount will be
returned to the Group if the Scheme Fallback solution is activated and the
Group goes into runoff. The remainder materially relates to restricted cash
held in a Trust Account for the benefit of those customers with an open
complaint, who may later have their complaints upheld in the Scheme, who
continued to make payments on their loan from 1 December 2021 to the Scheme
effective date.
1. Accounting policies
1.1 General information and 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 unaudited condensed consolidated Group financial statements for the
three months ended 30 June 2022 have been prepared on a going concern basis
and approved by the Directors in accordance with UK-adopted International
Financial Reporting Standards ("IFRS"). There has been no departure from the
required IFRS standards. The unaudited condensed interim financial statements
do not constitute the statutory financial statements of the Group within the
meaning of section 434 of the Companies Act 2006.
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 unaudited condensed financial statements are
presented in GBP. All values are stated in £ million (£m) except where
otherwise stated.
These interim financial statements have not been prepared fully in accordance
with IAS 34 Interim Financial Reporting. 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 2022.
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
2022. 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 2022 are available upon request from the Company's registered
office at Nova Building, 118-128 Commercial Road, Bournemouth, United Kingdom,
BH2 5LT.
In preparing the financial statements, the Directors are required to use
certain critical accounting estimates and are required to exercise judgement
in the application of the Group and Company's accounting policies. See note 2
for further details.
The comparative figures for the financial year ended 31 March 2022 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 was not qualified and:
i) drew attention to the material uncertainty
related to going concern referenced in the financial statements; and
ii) did not contain a statement under section 498 (2)
or (3) of the Companies Act 2006.
These condensed interim financial statements for the three months ended 30
June 2022 were approved by the board of directors on 25 August 2022.
Going concern
In determining the appropriate basis of preparation for these financial
statements, the Board has undertaken an assessment of 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. This has taken into
account the Group's business plan and the principal risks and uncertainties
facing the Group, including the success of the Scheme of Arrangement ("the
Scheme"). The financial statements have been prepared on a going concern basis
which the Directors believe to be appropriate for the following reasons.
Following the sanctioning by the High Court on 26 May of the Scheme of
Arrangement ("the Scheme") the Group now has a clear path to returning to
lending over the next twelve months. Failure to meet the conditions of the
Scheme however remains a key risk faced by the Group. The relevant
conditions are:
• approval before 26 February 2023 by the Financial Conduct Authority for
Amigo to resume lending; and
• issuance and sale of at least 19 shares for every 1 share in issue before
26 May 2023
Should either of these conditions remain unsatisfied within the required
timeframes, under the terms of the Scheme the business will revert to a
managed wind-down and neither the Group nor Company will be a going concern.
Projections show the business has sufficient resources for a solvent wind-down
in this context.
However, the Directors have a reasonable expectation that these conditions can
be met and, therefore, have modelled a 'Base scenario' and 'Severe but
plausible downside Scheme scenario' which the Directors believe are realistic
alternatives to the managed wind-down scenario.
Base scenario - business plan assumptions
The Base scenario assumes that:
· the conditions of the Scheme (explained above) are met in the
required timescales, with FCA approval to commence re-lending being received
· balance adjustments resulting from complaints in the Scheme are
consistent with the assumptions that underpin the complaints provision
reported as at 31 March 2022 (see note 2.2.1)
· at least the minimum committed amount of £112m is paid out as
cash redress in the Scheme, being £97m from existing resources and future
collections plus an additional £15m following the capital raise
· new lending originations commence as soon as possible
· collections on the existing loan book continue in line with
recent experience
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 Scheme scenario
The Directors have prepared a severe but plausible downside scenario. This
assumes the conditions of the Scheme are met and also that the Group is able
to successfully obtain new debt financing to enable it to repay its
non-current borrowings as they fall due in January 2024, but considers the
potential impact of:
· an increased number of upheld complaints. Whilst this sensitivity
does not increase the cash liability, which is capped under the Scheme, the
number of customers receiving balance write downs will increase, thus reducing
future collections and adversely impacting the Group's liquidity position.
· increased credit losses as a result of the cost of living crisis
and the inability of an increased number of the Group's customers to continue
to make payments.
· halving of forecast origination volumes, whether arising due to
delays in new product launch or market conditions.
· halving of new capital raised (whilst still meeting the dilution
conditions of the Scheme)
This severe but plausible downside Scheme scenario indicates that the Group's
available liquidity headroom would reduce but would be sufficient to enable
the Group to continue to settle its liabilities as they fall due for at least
the next twelve months.
FCA investigation
The Group is currently under investigation by the FCA in relation to
historical lending and complaints management processes. If the enforcement
process is not completed by then and this prevents the capital raise from
being successful, then Amigo could fail to comply with one of the Scheme
conditions and is likely to revert to the "fallback" solution or some form of
insolvency. There are a number of avenues of sanction open to the FCA should
it deem it appropriate and so the potential impact of the investigation on the
business is extremely difficult to predict and quantify, so has not been
provided for in the financial statements and is not modelled in the business
plan or stress scenario. In mitigation, the FCA has stated that the levying
of any fine would be considered in the context of the Scheme and its impact on
creditors. In the event that the investigations have not concluded or that
they have concluded with an adverse outcome, either of which causes
the capital raise not to proceed, the Scheme will revert to the "fallback"
solution and the business will be wound down.
Conclusion
Approval by the High Court of the Scheme provides the Group with a clear path
to return to lending under a business plan which has been the subject of
extensive external scrutiny as a result of the Court process. Based on the
severe but plausible scenario the Directors have a reasonable expectation that
the Group and Company have adequate resources to continue in operation for at
least the next twelve months. 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. Accordingly, the Board believes that it remains
appropriate to prepare the financial statements on a going concern basis.
However, the Board also recognises that at the date of approval of these
financial statements significant uncertainty remains. The Scheme requires the
meeting of conditions, being approval for a return to lending before 26
February 2023 and issuance and sale of at least 19 shares for every 1 share in
issue before 26 May 2023. Additionally, the successful delivery of the
Group's business plan depends on raising sufficient equity and/or debt funding
and the final outcome of the FCA investigations remains highly uncertain.
These conditions are outside of the control of the Group. These matters
indicate the existence of a material uncertainty related to events or
conditions that may cast significant doubt over the Group and Company's
ability to continue as a going concern and, therefore, that the Group and
Company may be unable to realise their assets and discharge their liabilities
in the normal course of business. The financial statements do not include any
adjustments that would result from the basis of preparation being
inappropriate.
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 at
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 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 with
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 Group assessed that its key sensitivity was in relation to expected credit
losses on customer loans and receivables. The matrix of nine scenarios used in
the prior year for calculating the ECL provision has been simplified into
base, downside and severe downside scenarios. In prior years nine
macroeconomic scenarios were applied and weighted. However, given the impact
of the Covid-19 pandemic is better known and already to an extent has been
realised, this methodology was reviewed and simplified down to three scenarios
- a base, downside and severe downside scenario, to determine the ECL
provision (see note 2.1.3).
Previously the IFRS 9 provision was segmented into the Group's seven legacy
risk segments. Due to the impact of Covid-19 these segments no longer have
discernible credit risk profiles. Instead, and in line with information used
by management in internal decision making and review, the book is bifurcated
into customers who have had a Covid-19 forbearance plan and those who have
not. Refer to note 2.1.1 for further detail of 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.
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.
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. 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.
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 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:
o Assessing whether the credit risk of an instrument has increased
significantly since initial recognition (note 2.1.2).
o Definition of default is considered by the Group to be when an account is
three contractual payments past due (note 1.2.vii).
o Multiple economic scenarios - the probability weighting of base, downside
and severe downside scenarios to the ECL calculation (note 2.1.3). These
scenarios replaced the nine different economic scenarios used in the prior
year.
o Application of a management overlay - A judgemental overlay has been
applied to the impairment provision to approximate the potential short-term
impact on the ageing of the loan book (note 2.1.4).
· Complaints provisions:
o Judgement is involved in determining whether a present constructive
obligation exists and in estimating the probability, timing and amount of any
outflows (note 2.2.1).
· Going concern:
o 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).
Estimates
Areas which include a degree of estimation uncertainty are:
· IFRS 9 - measurement of ECLs:
o Adopting a collective basis for measurement in calculation of ECLs in IFRS
9 calculations (note 2.1.1).
o Probability of default ("PD"), exposure at default ("EAD") and loss given
default ("LGD") (note 2.1.1).
o Forward-looking information incorporated into the measurement of ECLs
(note 2.1.3).
o Incorporating a probability weighted estimate of external macroeconomic
factors into the measurement of ECLs (note 2.1.3).
o Calculation of the management overlay which has been applied to the
impairment provision (note 2.1.4).
· Complaints provisions:
o Calculation of balance adjustments involve management's best estimate of
Scheme uptake, uphold rate and average redress. The calculation of these
evaluates current and historical data, and assumptions and expectations of
future outcomes (note 2.2.1).
· Valuation of the investment in subsidiaries held by parent
company Amigo Holdings PLC.
· Carrying amount of current and deferred taxation assets and
liabilities
o 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.
2.1 Credit impairment
2.1.1 Measurement of ECLs
The Group has adopted a collective basis of measurement for calculating ECLs.
In the current year the loan book is bifurcated into those customers who have
had a Covid-19 forbearance plan and those who have not. In the prior year, the
loan book was divided into portfolios of assets with shared risk
characteristics including whether the loan was new business, repeat lending or
part of a lending pilot as well as considering if the customer was a homeowner
or not. These portfolios of assets were further divided by contractual term
and monthly origination vintages. These portfolios are no longer considered to
have discernible credit risk profiles due to the impact of Covid-19.
The allowance for ECLs is calculated using three components: PD, LGD and EAD.
The ECL is calculated by multiplying the PD (twelve month or lifetime
depending on the staging of the loan), LGD and EAD and the result is
discounted to the reporting date at the original EIR.
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 and the rate of
inflation.
In prior years nine macroeconomic scenarios were applied and weighted.
However, given the impact of the Covid-19 pandemic is better known and already
to an extent has been realised, this methodology was reviewed and simplified
down to three scenarios - a base, downside and severe downside scenario, 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 customers' 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), which is aligned to the rebuttable presumption of
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.
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 and weighted three different macroeconomic scenarios -
a base, a downside and a severe downside scenario.
· The base scenario broadly represents probability of defaults
whereby there is no significant deviation of delinquency beyond the current
run-rate. The base scenario captures an element of stress to reflect current
inflationary pressures. A weighting of 25% has been applied to reflect the
Group's assumption that the current macroeconomic environment is more likely
than not due to worsen, given the inflationary pressures facing the Group's
customer base. Historical trends of prior inflationary increases showed no
statistical relationship to the Group's customers propensity to make payments,
so the base scenario appears reasonable.
· The downside scenario uplifts the base scenario probability of
default by approximately 50%. Based on recent Office for Budgetary Reporting
(OBR) forecasts, inflation rates , which are already at 40-year highs, are
expected to rise further in the short-term. Although there are no historical
indications of a statistical relationship between inflationary rises and
customers' propensity to make payments, a weighting of 50% has been applied to
reflect a prudent approach and expectation that customers will be, in some
form, adversely impacted.
· The severe downside applies a further uplift of 25% to the
probability of default in the downside scenario, reflecting a significant
impact from macroeconomic factors. Whilst the economic outlook is not set to
return to more normal levels in the near term, the Group's loan book does not
have significant time left to run off. Judgement has been made to weight this
scenario at 25%. Given the lack of statistical relationship and level of
uncertainty around the impact on customers' payment behaviour, the Group
believes this weighting is fair and reasonable, but will evolve over time as
the cost of living crisis plays out.
The following table details the absolute impact on the current ECL provision
of £37.6m if each of the three scenarios are given a probability weighting of
100%.
Impact
Base -2.1m
Downside +0.5m
Severe downside +1.1m
The scenarios above demonstrate a range of ECL provisions from £35.5m to
£38.7m.
In prior years nine macroeconomic scenarios were applied and weighted.
However, given the impact of the Covid-19 pandemic is better known and already
to an extent has been realised, this methodology was reviewed and simplified
down to three scenarios - a base, downside and severe downside scenario, to
determine the ECL provision.
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.
2.1.4 Application of a management overlay to the impairment provision calculation
In the prior year management overlay was used to enhance the modelled outcome
to take account of increasing credit risk indicators that were potentially
masked by payment holidays granted due to Covid-19. This is no longer
relevant as all impacted accounts have reverted to a tailored collections
approach captured by status flag.
As noted in 2.1.3, the Board notes that forward looking information carries a
degree of uncertainty, particularly in relation to the impact of the forecast
cost of living crisis. However, in the view of the Board, the use of a
sufficiently severe downside scenario in the modelled approach negates the
requirement for further management overlay in the impairment estimation.
2.2 Complaints provisions
2.2.1 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.
Identifying whether a present obligation exists and estimating the
probability, timing, nature and quantum of the redress payments that may arise
from past events require 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 balance adjustments (£) - the estimated balance
adjustments for future upheld complaints included in the provision; and
· portion of complaints on gross loan book (%) - whether these are
customers on the existing loan book remediated via balance adjustment or
whether redress is achieved via the Scheme cash pot.
The calculation of the complaints provision as at 30 June 2022 is based on
Amigo's best estimate of the future obligation at the Scheme effective date.
The revised complaints cash redress provision will be £97m post-Scheme. A
further contribution of £15m is expected to be made from the proceeds of the
proposed capital raise, plus a top-up if net collections exceed those forecast
in the Scheme scenarios.
The capital raise is a critical component of the preferred solution under the
Scheme succeeding, and while the provision is being accounted for on the basis
that the Scheme is successful, it is currently determined that the capital
raise contribution component cannot be accrued as it cannot be justified as
more likely than not to occur at today's date.
As at 30 June 2022, the Group has recognised a complaints provision totalling
£176.9m in respect of customer complaints redress and associated costs.
Utilisation in the period totalled £2.9m. The liability has decreased by
£161.1m compared to Q1 in the prior year. £128.8m of the decrease is due to
the cash redress liability being reduced to the £97.0m contribution as per
the Scheme. The other main component of the reduction is a decrease in the
balance adjustments on the loan book of £36.7m. The level of balance
adjustments has declined due to customers paying down their loan and customers
charging off the loan book. This has been partly offset by an increase in the
assumed volume of customers coming forward in the Scheme.
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 volumes1 115,321 +/- 5% +6.6 -6.6
Average uphold rate per customer2 65% +/- 20 ppts +15.6 -15.6
Average balance adjustment per valid complaint3 £2,600 +/- £500 +8.8 -8.8
Portion of complaints on gross loan book4 21% +/- 10 ppts +21.3 -21.3
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 balance adjustment. Sensitivity analysis shows the
impact of a £500 change in average balance adjustment on the provision. In
prior years, average redress was used as a key assumption, but average balance
adjustment is now considered more appropriate with the provision being
calculated on a Scheme basis.
4. Portion of complaints on gross loan book. Sensitivity
analysis shows the impact of a 10 percentage point change in the portion of
total current and future upheld complaints on the Gross Loan Book.
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 is guarantor-backed consumer credit.
This is due to the risks and inherent uncertainties surrounding the
assumptions used in the provision calculation.
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 3 months to 30 June 2022 in
line with reporting to the chief operating decision maker:
3 months ended 30 June 2022 3 months ended 3 months ended 3 months ended
30 Jun 22 30 Jun 22 30 Jun 22
£m £m £m
UK Ireland Total
Revenue 10.4 - 10.4
Interest payable and funding facility fees (0.9) - (0.9)
Interest receivable 0.1 - 0.1
Impairment of amounts receivable from customers (0.3) - (0.3)
Administrative and other operating expenses (6.9) (0.2) (7.1)
Profit/(loss) and total comprehensive income/(expense) attributable to equity 2.4 (0.2) 2.2
shareholders of the Group
30 Jun 22 30 Jun 22 30 Jun 22
£m £m £m
UK Ireland Total
Gross loan book(1) 142.8 0.7 143.5
Less impairment provision (37.4) (0.2) (37.6)
Net loan book 105.4 0.5 105.9
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.
The carrying value of property, plant and equipment and intangible assets
included in the consolidated 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.
3 months ended 3 months ended 3 months ended
30 Jun 21 30 Jun 21 30 Jun 21
£m £m £m
3 months ended 30 June 2021 UK Ireland Total
Revenue 32.2 0.3 32.5
Interest payable and funding facility fees (5.1) - (5.1)
Impairment of amounts receivable from customers (7.7) 0.1 (7.6)
Administrative and other operating expenses (6.4) (0.1) (6.5)
Complaints credit 1.7 - 1.7
Total operating expenses (4.7) (0.1) (4.8)
Profit before tax 14.7 0.3 15.0
Tax credit on profit(1) 1.0 - 1.0
Profit and total comprehensive income attributable to equity shareholders of 15.7 0.3 16.0
the Group
30 Jun 21 30 Jun 21 30 Jun 21
£m £m £m
UK Ireland Total
Gross loan book(2) 347.8 3.1 350.9
Less impairment provision (61.4) (0.8) (62.2)
Net loan book(3) 286.4 2.3 288.7
1. The tax credit for the UK primarily relates to the
recognition of a £0.4m tax asset and the impact of the release of a 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.
4. Interest payable and funding facility fees
3 months ended 3 months ended Year to
30 Jun 22 30 Jun 21 31 Mar 22
Unaudited Unaudited Audited
£m £m £m
Senior secured notes interest payable 0.9 4.5 14.9
Funding facility fees - 0.1 1.0
Securitisation interest payable - 0.2 0.2
Other finance costs - 0.3 0.6
0.9 5.1 16.7
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.
5. Modification of financial assets
Covid-19 payment holidays and any subsequent extensions were assessed as
non-substantial financial asset modifications under IFRS 9.
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.
The carrying value of historical modification losses at the period end was
£4.3m (Q1 2021: £11.1m).
3 months ended 3 months ended Year to
30 Jun 22 30 Jun 21 31 Mar 22
Unaudited Unaudited Audited
£m £m £m
Modification release recognised in revenue 0.1 - 1.2
Modification release recognised in impairment 0.2 - 4.1
Total modification release 0.3 - 5.3
6. Taxation
The applicable corporation tax rate for the period to 30 June 2022 was 19.0%
(Q1 2021: 19.0%) and the effective tax rate is 0.0% (Q1 2021: negative 6.7%).
7. Earnings per share
Basic earnings per share is calculated by dividing the profit for the period
attributable to equity shareholders by the weighted average number of ordinary
shares outstanding during the period.
Diluted earnings per share calculates the effect on profit 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 the schemes' 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 per share.
30 Jun 22 30 Jun 21 31 Mar 22
Unaudited Unaudited Audited
Pence Pence Pence
Basic earnings per share 0.5 3.4 35.7
Diluted earnings) per share 0.5 3.4 35.7
Basic adjusted earnings per share (basic and diluted)1 0.5 3.2 2.8
1. Basic adjusted earnings per share and earnings for basic
adjusted profit/(loss) per share are non-GAAP measures.
The Directors are of the opinion that the publication of the adjusted earnings
per share is useful as it gives a better indication of ongoing business
performance. Reconciliations of the earnings used in the calculations are set
out below.
30 Jun 22 30 Jun 21 31 Mar 22
Unaudited Unaudited Audited
£m £m £m
Profit for basic EPS 2.2 16.0 169.6
Release of complaints provision - - (156.6)
Senior secured notes redemption - - 0.7
Write-off of unamortised securitisation fees - - 0.5
Tax provision release - (0.8) (0.8)
Less tax impact - - (0.1)
Profit for basic adjusted EPS1 2.2 15.2 13.3
Basic weighted average number of shares (m) 475.3 475.3 475.3
Dilutive potential ordinary shares (m) - 2.0(2) -
Diluted weighted average number of shares (m) 475.3 477.3 475.3
1. Basic adjusted earnings per share and earnings for basic
adjusted earnings 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 June 2021 as they would not meet
the performance conditions. Those dilutive shares included are in relation to
the employee October 2020 SAYE scheme.
8. 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 Jun 22 30 Jun 21 31 Mar 22
Unaudited Unaudited Audited
£m £m £m
Stage 1 98.0 258.6 128.8
Stage 2 25.6 54.7 32.4
Stage 3 19.9 37.6 24.2
Gross loan book 143.5 350.9 185.4
Deferred broker costs1 - stage 1 1.0 5.9 1.5
Deferred broker costs1 - stage 2 0.3 1.2 0.4
Deferred broker costs1 - stage 3 0.2 0.8 0.3
Loan book inclusive of deferred broker costs 145.0 358.8 187.6
Provision (37.6) (62.2) (47.4)
Customer loans and receivables 107.4 296.6 140.2
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.
As at 30 June 2022, £66.2m 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 (Q1
2021: £153.3m).
Ageing of gross loan book (excluding deferred brokers' fees and provision) by
days overdue:
30 Jun 22 30 Jun 21 31 Mar 22
Unaudited Unaudited Audited
£m £m £m
Current 99.2 261.5 132.1
1-30 days 18.1 40.2 21.1
31-60 days 6.4 13.3 8.0
>60 days 19.8 35.9 24.2
Gross loan book 143.5 350.9 185.4
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 Jun 22 30 Jun 21 31 Mar 22
Unaudited Unaudited Audited
£m £m £m
Due within one year 86.7 193.9 113.0
Due in more than one year 19.2 94.8 25.0
Net loan book 105.9 288.7 138.0
Deferred broker costs1
Due within one year 1.2 5.0 1.8
Due in more than one year 0.3 2.9 0.4
Customer loans and receivables 107.4 296.6 140.2
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.
9. Other receivables
30 Jun 22 30 Jun 21 31 Mar 22
Unaudited Unaudited Audited
£m £m £m
Current
Other receivables 0.6 2.0 0.6
Prepayments and accrued income 1.6 1.2 1.0
2.2 3.2 1.6
10. Trade and other payables
30 Jun 22 30 Jun 21 31 Mar 22
Unaudited Unaudited Audited
£m £m £m
Current
Accrued senior secured note interest 1.7 8.2 0.8
Trade payables 0.3 0.4 0.4
Taxation and social security - 0.6 0.4
Other creditors 1.0 1.2 1.1
Accruals and deferred income 3.4 8.4 4.0
6.4 18.8 6.7
11. Bank and other borrowings
30 Jun 22 30 Jun 21 31 Mar 22
Unaudited Unaudited Audited
£m £m £m
Current and non-current liabilities
Amounts falling due in less than 1 year
Securitisation facility - 25.1 -
Amounts falling due in less than 2 years
Senior secured notes 49.8 - 49.7
Amounts falling due 2-3 years
Senior secured notes - 232.3 -
49.8 257.4 49.7
The Group's facilities are:
· Senior secured notes in the form of £49.8m high yield bonds with
a coupon rate of 7.625% which expires in January 2024 (Q1 2021: £232.3m). The
senior secured notes are presented in the financial statements net of
unamortised fees. As at 30 June 2022, the gross principal amount outstanding
was £50m. On 20 January 2017, £275m of notes were issued at an interest rate
of 7.625%. The high yield bond was tapped for £50m in May 2017 and again for
£75m in September 2017 at a premium of 3.8%. £350.0m of notes have been
repurchased in the open market in prior financial years (2022: £184.1m; 2020:
£85.9m; 2019: £80.0m). The remaining £50.0m gross principal amount
outstanding is due in January 2024.
· During the year ended 31 March 2022 the Group fully repaid the
securitisation facility, although at the period end the structure remained in
place. With effect from 24 September 2021, all rights, obligations and
securitisation liabilities of the Lead Arranger, Facility Agent and Senior
Noteholder, as defined in the securitisation facility documents, were taken
over and assumed by Amigo.
12. 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 Jun 22 30 Jun 21 31 Mar 2022
Unaudited Unaudited Audited
Complaints Restructuring Total Complaints Restructuring Total Complaints Restructuring Total
£m £m £m £m £m £m £m £m £m
Opening provision 179.8 - 179.8 344.6 1.0 345.6 344.6 1.0 345.6
Provisions (released) during the period - - - (1.7) - (1.7) (156.6) - (156.6)
Utilised during the period (2.9) - (2.9) (4.9) (1.0) (5.9) (8.2) (1.0) (9.2)
Closing provision 176.9 - 176.9 338.0 - 338.0 179.8 - 179.8
Non-current 97.0 - 97.0 - - - 97.0 - 97.0
Current 79.9 - 79.9 338.0 - 338.0 82.8 - 82.8
176.9 - 176.9 338.0 - 338.0 179.8 - 179.8
Customer complaints redress
As at 30 June 2022, the Group recognised a complaints provision totalling
£176.9m (Q1 2021:£338.0m) in respect of customer complaints redress and
associated costs. Utilisation in the period totalled £2.9m. The liability has
decreased by £161.1m compared to prior year. £128.8m of the decrease is
due to the cash redress liability being reduced to the £97.0m contribution as
per the Scheme. The other main component of the reduction is a decrease in the
balance adjustments on the loan book of £36.7m. The level of balance
adjustments has declined due to customers paying down their loan and customers
charging off the loan book. This has been partly offset by an increase in the
assumed volume of customers coming forward in the Scheme.
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 the outstanding balance at 30 June 2022
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.
If the enforcement process is not completed and prevents the capital raise
from being successful, then Amigo could fail to comply with one of the Scheme
conditions and is likely to revert to the "fallback" solution or some form of
insolvency. There are a number of avenues of sanction open to the FCA should
it deem it appropriate and so the potential impact of the investigation on the
business is extremely difficult to predict and quantify, so has not been
provided for in the financial statements and is not modelled in the business
plan or stress scenario. In mitigation, the FCA has stated that the levying
of any fine would be considered in the context of the Scheme and its impact on
creditors. In the event that the investigations have not concluded or that
they have concluded with an adverse outcome, either of which causes
the capital raise not to proceed, the Scheme will revert to the "fallback"
solution and the business will be wound down.
Following the Court sanction of the Scheme the Company is obliged in the next
twelve months to enter into a capital raise for the purposes of recapitalising
the business for future lending. If this capital raise is successful a further
£15.0m cash contribution must be made to the Scheme. The successful raising
of sufficient capital relies on a number of uncertain events, not least market
appetite which may be influenced by a number of external factors beyond the
Company's control.
13. 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 2022 are available upon
request from the Company's registered office at Nova Building, 118-128
Commercial Road, Bournemouth, United Kingdom, BH2 5LT.
14. Share-based payments
Share-based payment transactions in which the Group receives goods or services
as consideration for its own equity instruments are accounted for as equity
settled share-based payments. At the grant date, the fair value of the share
based payment is recognised by the Group as an expense, with a corresponding
entry in equity, over the period in which the employee becomes unconditionally
entitled to the awards. The fair value of the awards granted is measured based
on Company specific observable market data, considering the terms and
conditions upon which the awards were granted. The Group recognised an expense
of £0.2m in the three months to 30 June 2022 (Q1 2021: £0.2m).
15. Related party transactions
The Group had no related party transactions during the three month period to
30 June 2022 that would materially affect the performance of the Group.
Details of the transactions for the year ended 31 March 2022 can be found in
note 24 of the Amigo Holdings PLC financial statements.
16. Post balance sheet events
Post period end, the Board appointed Peel Hunt LLP as financial adviser and
sole corporate broker and Ashcombe Advisers LLP as financial adviser. Both
will be instrumental in assisting with the required fund raising in the coming
months.
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
3 months ended 3 months ended Year to
Figures in £m, unless otherwise stated 30 Jun 22 30 Jun 21 31 Mar 22
Average gross loan book 164.5 386.9 304.2
Gross loan book 143.5 350.9 185.4
Percentage of book <31 days past due 81.7% 86.0% 82.6%
Net loan book 105.9 288.7 138.0
Net unrestricted cash/(debt)(1) 52.6 (56.2) 83.9
Net (unrestricted cash)/debt over gross loan book(1) (36.7)% 16.0% (45.3)%
Net (unrestricted cash)/debt over equity(1) (1.0)x (0.5)x (1.8)x
Revenue yield 25.3% 33.6% 29.4%
Risk adjusted revenue 10.1 24.9 52.5
Risk adjusted margin 24.6% 25.7% 17.3%
Net interest margin 13.6% 19.0% 15.9%
Adjusted net interest margin 23.3% 28.3% 24.0%
Cost of funds percentage 2.2% 5.3% 5.5%
Impairment:revenue ratio 2.9% 23.4% 41.3%
Impairment charge as a percentage of loan book 0.8% 8.7% 20.0%
Cost:income ratio 68.3% 14.8% (147.5)%
Operating cost:income ratio (ex. complaints) 68.3% 20.0% 27.5%
Adjusted profit after tax 2.2 15.2 13.3
Return on assets 3.1% 12.3% 41.4%
Adjusted return on average assets 3.1% 11.6% 3.2%
Return on equity 17.9% (56.5)% 460.9%
Adjusted return on average equity 17.9% (53.7)% 36.1%
Amendments to alterative performance measures
(1)Net unrestricted cash/(debt), net (unrestricted cash)/debt over gross loan
book and net (unrestricted cash)/debt over equity - the definitions of these
alternative performance measures (APMs) have been amended from net
cash/(debt), net (cash)/debt over gross loan book and net (cash)/debt over
equity to highlight that restricted cash is excluded from these definitions.
1. Average gross loan book
30 Jun 22 30 Jun 21 31 Mar 22
£m £m £m
Opening gross loan book 185.4 422.9 422.9
Closing gross loan book 143.5 350.9 185.4
Average gross loan book(1) 164.5 386.9 304.2
(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 Jun 22 30 Jun 21 31 Mar 22
Ageing of gross loan book by days overdue: £m £m £m
Current 99.2 261.5 132.1
1-30 days 18.1 40.2 21.1
31-60 days 6.4 13.3 8.0
>61 days 19.8 35.9 24.2
Gross loan book 143.5 350.9 185.4
Percentage of book <31 days past due 81.7% 86.0% 82.6%
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 Jun 22 30 Jun 21 31 Mar 22
£m £m £m
Gross loan book1 (see APM number 2) 143.5 350.9 185.4
Provision2 (37.6) (62.2) (47.4)
Net loan book3 105.9 288.7 138.0
(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 unrestricted cash/(debt)" is comprised of:
30 Jun 22 30 Jun 21 31 Mar 22
£m £m £m
Borrowings (49.8) (257.4) (49.7)
Cash and cash equivalents 102.4 201.2 133.6
Net unrestricted cash/(debt) 52.6 (56.2) 83.9
This is deemed useful to show total cash/(debt) if unrestricted cash available
at the period end was used to repay borrowings.
5. The Group defines "loan to value" ("LTV") as net (unrestricted cash)/debt
divided by gross loan book. This measure shows if the borrowings' year-on-year
movement is in line with loan book growth.
30 Jun 22 30 Jun 21 31 Mar 22
£m £m £m
Net unrestricted cash/(debt) (see APM number 4) 52.6 (56.2) 83.9
Gross loan book (see APM number 2) 143.5 350.9 185.4
Net (unrestricted cash)/debt over gross loan book (36.7)% 16.0% (45.3)%
6. Net (unrestricted cash)/debt over equity
30 Jun 22 30 Jun 21 31 Mar 22
£m £m £m
Shareholder equity 50.2 (105.2) 47.9
Net unrestricted cash/(debt) (see APM number 4) 52.6 (56.2) 83.9
Net (unrestricted cash)/debt over equity (1.0)x (0.5)x (1.8)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 Jun 22 30 Jun 21 31 Mar 22
£m £m £m
Revenue 10.4 32.5 89.5
Opening loan book 185.4 422.9 422.9
Closing loan book 143.5 350.9 185.4
Average loan book (see APM number 1) 164.5 386.9 304.2
Revenue yield 25.3% 33.6% 29.4%
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 Jun 22 30 Jun 21 31 Mar 22
£m £m £m
Revenue 10.4 32.5 89.5
Impairment of amounts receivable from customers (0.3) (7.6) (37.0)
Risk adjusted revenue 10.1 24.9 52.5
Risk adjusted revenue is not a measurement of performance under IFRS, and is
not an alternative to profit before tax as a measure of the Group's operating
performance, 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 Jun 22 30 Jun 21 31 Mar 22
£m £m £m
Risk adjusted revenue (see APM number 8) 10.1 24.9 52.5
Average gross loan book (see APM number 1) 164.5 386.9 304.2
Risk adjusted margin 24.6% 25.7% 17.3%
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 Jun 22 30 Jun 21 31 Mar 22
£m £m £m
Revenue 10.4 32.5 89.5
Interest payable, receivable and funding facility fees (0.8) (5.1) (16.6)
Net interest income 9.6 27.4 72.9
Opening interest-bearing assets (gross loan book plus unrestricted cash) 319.0 600.8 600.8
Closing interest-bearing assets (gross loan book plus unrestricted cash) 245.9 552.1 319.0
Average interest-bearing assets (customer loans and receivables plus 282.5 576.5 459.9
unrestricted cash)
Net interest margin 13.6% 19.0% 15.9%
Adjusted net interest margin, being net interest income divided by average
gross loan book, is also presented below:
30 Jun 22 30 Jun 21 31 Mar 22
£m £m £m
Net interest income 9.6 27.4 72.9
Average gross loan book (see APM number 1) 164.5 386.9 304.2
Adjusted net interest margin 23.3% 28.3% 24.0%
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 Jun 22 30 Jun 21 31 Mar 22
£m £m £m
Cost of funds 0.9 5.1 16.7
Average gross loan book (see APM number 1) 164.5 386.9 304.2
Cost of funds percentage 2.2% 5.3% 5.5%
This measure is used by the Group to monitor the cost of funds and impact of
diversification of funding.
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 Jun 22 30 Jun 21 31 Mar 22
£m £m £m
Revenue 10.4 32.5 89.5
Impairment of amounts receivable from customers 0.3 7.6 37.0
Impairment charge as a percentage of revenue 2.9% 23.4% 41.3%
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 Jun 22 30 Jun 21 31 Mar 22
£m £m £m
Impairment of amounts receivable from customers 0.3 7.6 37.0
Closing gross loan book (see APM number 1) 143.5 350.9 185.4
Impairment charge as a percentage of loan book 0.8% 8.7% 20.0%
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 Jun 22 30 Jun 21 31 Mar 22
£m £m £m
Revenue 10.4 32.5 89.5
Total operating expenses 7.1 4.8 (132.0)
Cost:income ratio 68.3% 14.8% (147.5)%
This measure allows review of cost management.
15. Operating cost:income ratio, defined as the cost:income ratio excluding
the complaints provision, is:
30 Jun 22 30 Jun 21 31 Mar 22
£m £m £m
Revenue 10.4 32.5 89.5
Administrative and other operating expenses 7.1 6.5 24.6
Operating cost:income ratio 68.3% 20.0% 27.5%
16. The following table sets forth a reconciliation of profit after tax to
"adjusted profit after tax" for the 3 months to 30 June 2022, 2021 and year to
31 March 2022.
30 Jun 22 30 Jun 21 31 Mar 22
£m £m £m
Reported profit after tax 2.2 16.0 169.6
Write back of complaints provision - - (156.6)
Senior secured note buyback - - 0.7
Securitisation fees - - 0.5
Tax provision release - (0.8) (0.8)
Less tax impact - - (0.1)
Adjusted profit after tax 2.2 15.2 13.3
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.
· Write back of the complaints provision is due to cash redress
liability being reduced to the £97.0m contribution as per the Scheme.
· Senior secured note redemption adjustments relate to the
accelerated bond cost and premium write off triggered by the early bond
redemption in January 2022. Senior secured note buybacks are not underlying
business-as-usual transactions.
· 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.
· 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.
None are business-as-usual transactions. Hence, removing these items is deemed
to give a view of underlying profit adjusting for non-business-as-usual items
within the financial year.
17. "Return on assets" ("ROA") refers to annualised profit after tax as a
percentage of average assets.
30 Jun 22 30 Jun 21 31 Mar 22
Return on assets £m £m £m
Profit after tax 2.2 16.0 169.6
Customer loans and receivables at period and year end 107.4 296.6 140.2
Other receivables and current assets at period and year end 73.2 10.5 9.9
Cash and cash equivalents at period and year end 102.4 201.2 133.6
Total 283.0 508.3 283.7
Average assets 283.3 522.4 410.1
Return on assets 3.1% 12.3% 41.4%
18. "Adjusted return on assets" refers to annualised adjusted profit
after tax as a percentage of average assets
30 Jun 22 30 Jun 21 31 Mar 22
Adjusted return on assets £m £m £m
Adjusted profit after tax (see APM number 16) 2.2 15.2 13.3
Customer loans and receivables at period and year end 107.4 296.6 140.2
Other receivables and current assets at period and year end 73.2 10.5 9.9
Cash and cash equivalents at period and year end 102.4 201.2 133.6
Total 283.0 508.3 283.7
Average assets 283.3 522.4 410.1
Adjusted return on assets 3.1% 11.6% 3.2%
19. "Return on equity" ("ROE") is calculated as annualised profit after tax
divided by the average of equity at the beginning of the period and the end of
the period.
30 Jun 22 30 Jun 21 31 Mar 22
£m £m £m
Profit after tax 2.2 16.0 169.6
Shareholder equity 50.2 (105.2) 47.9
Average equity 49.1 (113.3) (36.8)
Return on average equity 17.9% (56.5)% 460.9%
20. "Adjusted return on equity" is calculated as annualised adjusted profit
after tax divided by the average of equity at the beginning of the period and
the end of the period.
30 Jun 22 30 Jun 21 31 Mar 22
£m £m £m
Adjusted profit after tax (see APM number 16) 2.2 15.2 13.3
Shareholder equity 50.2 (105.2) 47.9
Average equity 49.1 (113.3) (36.8)
Adjusted return on average equity 17.9% (53.7)% 36.1%
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