REG - Amigo Holdings PLC - 3rd Quarter Results
24/02/2022 07:00
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RNS Number : 6380C Amigo Holdings PLC 24 February 2022
24 February 2022
Amigo Holdings PLC
Financial results for the nine months ended 31 December 2021
Amigo Holdings PLC, ("Amigo" or the "Company"), provider of guarantor loans in
the UK, announces results for the nine-month period ended 31 December 2021.
Headlines
· The Amigo Board continues to pursue a Scheme of Arrangement
("Scheme") to deliver the best possible outcome to Scheme creditors as it
addresses Amigo's historic lending complaints liability.
· As part of the Board's pursuit of a new Scheme, and after extensive
negotiations with its Independent Customer Committee ("ICC"), the Board issued
revised Scheme proposals to the ICC on 12 November 2021. The revised offer
incorporated two distinct Schemes; the first, the "New Business Scheme", which
is contingent on lending restarting and Amigo completing a successful equity
raise. The second, a managed wind-down of the Amigo Loans Ltd business under
a Scheme framework ("Wind-Down Scheme").
· On 6 December 2021, Amigo announced the ICC's confirmed preference
for the New Business Scheme. The Practice Statement Letter ("PSL") explaining
both Scheme options was sent to the Scheme creditors in late December 2021.
· For the New Business Scheme, Amigo is proposing initial cash
contributions totalling £97m from internally generated resources, alongside
a further contribution of £15m, being part of the proceeds from a new equity
and capital raise. The equity raise is likely to be undertaken by a
rights issue for existing shareholders, with a placing of unsubscribed shares
to third party investors. In order to secure the best result for Redress
Creditors possible in the circumstances, the New Business Scheme will
include a mechanism for an additional payment to Redress Creditors to be
made in the event that the existing loan book generates a better return than
currently anticipated. The New Business Scheme will also require the
Company to issue at least 19 new shares for every existing share in the
Company.
· The Board intends to ask creditors to vote on both options, and if
both options are approved by creditors, to then submit both options to the
Court for sanction. The Court will be asked to consider the New Business
Scheme for sanction before it considers the Wind-Down Scheme. If the Court
does not sanction the New Business Scheme, the Court will be asked to sanction
the Wind-Down Scheme as a fall-back solution.
· The Court Convening hearing will take place on 8 March 2022 and the
Court Sanction hearing will take place on 23 and 24 May 2022.
· As noted previously, the sanctioning of a new Scheme is critical.
Without an approved Scheme, Amigo expects to have to file for administration
or other insolvency process.
· The FCA's position on Amigo's proposed Schemes remains reserved at
this time.
Financial headlines
The approval of a Scheme remains subject to the Company reaching key
milestones including a second successful creditor vote and approval by the
High Court at a sanction hearing. At this point, the Board does not consider
there to be enough certainty to account for claims redress on the basis that a
Scheme will be sanctioned. In considering the presentation of these results,
the Board has concluded that the amount recognised for complaints redress
should continue to be included on the basis that known and expected future
complaints are settled in full. The Board has concluded there is a material
uncertainty over going concern (see note 1 to the financial statements for
further information). Despite this, the Board considers that it remains
appropriate to prepare these financial statements on a going concern basis, as
the continued pursuit of a Scheme provides a realistic alternative to
insolvency.
Figures in £m, unless otherwise stated 9 Months ended 9 Months ended 31 December 2020 Change %
31 December 2021
Number of customers(1) '000 86.0 156.0 (44.9)
Net loan book(2) 180.7 412.2 (56.2)
Revenue 75.7 137.5 (44.9)
Impairment coverage 22.4 18.0 24.4
Complaints provision (balance sheet) (347.5) (150.9) 130.3
Complaints cost (income statement) (9.9) (116.2) (91.5)
Profit/(loss) before tax 1.6 (81.3) 102.0
Profit/(loss) after tax(3) 2.5 (86.8) 102.9
Adjusted Profit/(loss) after tax(4) 1.1 (77.0) 101.4
Basic EPS Pence 0.5 (18.3) 102.7
EPS (Basic, adjusted)(5) Pence 0.2 (16.2) 101.2
Net debt(6) 52.9 (179.5) 129.5
Net debt/Gross loan book(7) (22.7) 35.7 (163.6)
· Net loan book reduction of 56.2% to £180.7m (Q3 2021: £412.2m) due
to the runoff of the back book and the continued pause in new lending
throughout the period.
· Revenue reduction of 44.9% to £75.7m (Q3 2021: £137.5m).
· Complaints provision broadly unchanged from the full year at £347.5m
(FY 2021: £344.6m; Q3 2021: £150.9m). Application of incremental
compensatory interest accrued in the period is partially offset by an increase
in the estimated portion of known and potential complaint customers charging
off the loan book due to the passage of time. Complaints cost in the period of
£9.9m (H1 2021: £116.2m).
· Underlying collection levels continue to be better than modelled
within the first Scheme projections in December 2020. However, impairment
coverage of 22.4% (Q3 2021: 18.0%), driven by the first half reforecast of
expected credit losses, reflects an increasing trend in the level of arrears.
· Continued strong focus on controlling costs.
· Reported statutory profit before tax for the nine months to 31
December 2021 was £1.6m (Q3 2021: loss of £81.3m).
· £285.5m of unrestricted cash and cash equivalents as at 31 December
2021 (Q3 2021: £164.6m) reflects continued strong cash generation; current
unrestricted cash balance of over £110m, after senior secured note interest
paid and the £184.1m partial redemption of the notes in January 2022.
· Net liabilities of £118.1m as at 31 December 2021 (Q3 2021: net
assets £80.7m).
· Positive net debt of £52.9m at 31 December 2021 (Q3 2021:
(£179.5m)) driven by the continued collection of the back book while
originations remained suspended. This enabled the post period end partial
redemption of the senior secured notes.
· While all Covid-19 payment holidays had concluded by July 2021, we
continue to assist customers experiencing financial difficulty with
alternative payment arrangements.
Post Period End
· On 4 January 2022, Amigo served notice of the early redemption of
£184.1m of the £234.1m outstanding 7.625% senior secured notes due in 2024
with a redemption date of 15 January 2022. The remaining £50.0m gross
principal amount outstanding is due in January 2024. The resulting interest
saving will contribute to Amigo's ability to provide a greater cash amount to
the new Scheme compared with that of the previous Scheme proposal.
· On 24 January 2022, it was announced that Chief Financial Officer
(CFO) Mike Corcoran, would leave the business with immediate effect. Mike
formally stepped down as a director on 19 February 2022. Danny Malone was
appointed Interim CFO and joined the business on 7 February 2022.
*Detailed definitions and calculations of these alternative performance
measures (APMs) can be found in the APM section of these condensed financial
statements
Commenting on the Q3 results, Gary Jennison, CEO of Amigo, said:
"Amigo is committed to addressing liabilities that have arisen from historic
lending practices under previous management. This Amigo Board recognises that
shareholders have suffered greatly as a result. However, we are resolute in
our determination to deliver the maximum value possible to redress creditors.
"As we head into a cost-of-living crisis for many households, with inflation
at a 30-year high and forecast to move higher, the market needs a product that
can service the needs of customers in the non-standard sector. With flexible
products that incorporate incentives, we can help customers through difficult
times and on towards mainstream financial inclusion. I would like to thank all
our employees who continue to support our business during this uncertain
period and who share our vision for the future.
"If we can secure the New Business Scheme and return to lending, then I am
confident we can move forward with a new business model that meets strong
demand in the market. Amigo has the management expertise and is building the
infrastructure, policies and procedures required to be a responsible and
valuable contributor to the non-standard finance space."
Analyst, investor and bondholder conference call and webcast
Amigo will be hosting a live webcast for investors and bondholders today at
09:30 (London time) which will be available at:
https://www.amigoplc.com/investors/results-centre. A conference call is also
available for those unable to join the webcast (Dial in: + 020 3936 2999;
Access code: 442979). A replay will be available on Amigo's website after the
event. The presentation pack for the webcast shows the reconciliation between
the PLC results and Amigo Loans Group Limited (the 'Bond Group').
Investor video
There is an investor video available to view here
(https://www.amigoplc.com/investors/messages-from-our-ceo) , with an update
from Amigo's CEO, Gary Jennison.
Notes to summary financial table:
(1)Number of customers represents the number of accounts with a balance
greater than zero, exclusive of charged off accounts.
(2)Net loan book represents total outstanding loans less provision for
impairment excluding deferred broker costs.
(3)Profit/(Loss) after tax otherwise known as profit/(loss) and total
comprehensive income/(loss) to equity shareholders of the Group as per the
financial statements.
(4 )Adjusted profit/(loss) after tax excludes items due to their exceptional
nature including: senior secured note, RCF fees, securitisation facility fees
write off, tax provision release, tax asset write off, tax refund due and
strategic review and formal sale process costs. None are business-as-usual
transactions. Hence, removing these items is deemed to give a view of
underlying profit/(loss) adjusting for non-business-as-usual items within the
financial year.
(5 )Adjusted basic (loss)/earnings per share is a non-IFRS measure and the
calculation is shown in note 8. Adjustments to (loss)/earnings are described
in footnote 4 above.
(6)Net debt is defined as borrowings less unamortised fees and unrestricted
cash and cash equivalents.
(7)Net debt/gross loan book. Net debt over gross loan book: this measure shows
whether the borrowings' year-on-year movement is in line with loan book
growth.
Contacts:
Amigo
Danny Malone, Interim 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
Amigo's pause in lending, which has continued throughout the nine-month period
to 31 December 2021, led to a 44.9% decline in customer numbers and a 56.2%
reduction in the net loan book. Revenue fell by 44.9% compared to the prior
year period, primarily driven by the reduction in the loan book.
While underlying collection levels have continued to be better than modelled
under our first Scheme projections back in December 2020, an increasing trend
in the level of arrears has persisted in the period. In addition, until we
have more certainty around the sanction of our proposed Scheme of Arrangement,
we continue to calculate the provision for complaints on the basis that known
and expected future complaints are settled in full. The complaints provision
and associated cost as at 31 December 2021 were £347.5m and £9.9m
respectively.
Statutory profit before tax for the nine-month period was £1.6m (Q3 2021:
loss of £81.3m) and statutory profit after tax was £2.5m owing to a £0.9m
tax credit in the period. Net liabilities as at 31 December 2021 were
£118.1m.
Scheme of Arrangement
To address the liabilities for complaints that have arisen from historical
lending practices, the Board has presented two Scheme of Arrangement proposals
to the Court and to its unsecured, Redress Creditors. The option preferred by
both the Board and the ICC is the New Business Scheme in which the Board is
proposing an initial contribution of £97m from internal resources alongside a
further £15m to be raised from the proceeds of a new equity and capital
raise. In order to secure the best result for Redress Creditors possible in
the circumstances, the New Business Scheme will also include a mechanism
for an additional payment to Redress Creditors to be made in the event that
the existing loan book generates a better return than currently
anticipated. The proposed equity raise will require the Company to issue at
least 19 new shares for every existing share in issue.
The fall back and alternative option is a Wind-Down Scheme in which Amigo
Loans Ltd would be wound down and any assets left after operating costs and
repayment of the remaining senior secured notes would be paid to Redress
Creditors. There is no guaranteed cash contribution in the Wind-Down Scheme.
The New Business Scheme is estimated to provide 42 pence in the pound
compared with the Wind-Down Scheme which is estimated to provide 33 pence in
the pound to the Redress Creditors.
There is no doubt that the impact on our shareholders is significant for those
who are not able or decide they do not want to participate in the equity raise
associated with the proposed New Business Scheme. The very difficult fact is
that we have had to address liabilities that arose from historical lending
practices under previous management. To do this, given the legally binding
priority ranking of all creditors over shareholders, we must deliver as much
value as we can to our creditors before retaining any equity value.
If the Court does not sanction the New Business Scheme, then Amigo Loans Ltd
will be wound down or enter administration. In either of these situations,
shareholders would almost certainly receive nothing from Amigo Loans Ltd. We
will defend in Court the position that equity holders should retain some
value, in order not only to raise funds to support future lending but,
importantly, to benefit creditors with an additional £15m Scheme
contribution. If we can secure the New Business Scheme and return to lending,
then we are confident we can move forward with a new business model that meets
strong demand in the market for a competitively priced, mid-cost loan product.
Amigo has the management expertise and is building the infrastructure,
policies and procedures required to be a responsible and valuable contributor
to the non-standard finance sector.
Many hurdles remain. The Scheme will require that over 50% of creditors, by
number of those who vote and over 75% by claim value, vote in favour of the
Scheme. We are making great efforts in our communication with Redress
Creditors to ensure that they are provided with all the information they need
to make an informed decision ahead of casting their votes on the Scheme
proposals. We have published all relevant Scheme documentation on a dedicated
website, hosted a Q&A session on social media, issued explanatory videos
and will be publishing advertisements in national newspapers to encourage
voting.
If the New Business Scheme is sanctioned, Amigo will require FCA consent to
recommence lending within nine months of the Scheme effective date. While
there is currently no requirement on the firm's lending permission, Amigo has
informed and assured the FCA that it will not resume lending without FCA's
prior agreement. The FCA confirmed in July 2021 that it would not expect to
authorise a return to lending by Amigo until after the sanctioning of a new
Scheme by the High Court. Funding will then need to be raised via an equity
raise within 12 months of the Scheme effective date. In addition, Amigo will
require the satisfactory resolution to the ongoing enforcement investigation
into its creditworthiness processes, and governance of those processes, from
November 2018 and into complaints handling from May 2020.
At this time, the FCA's position remains reserved. We continue to speak
regularly with the FCA, both on our intentions for the Scheme and our future
lending proposition and to respond to its information requests.
Future proposition
Our new lending proposition is designed to address the pressing need in the
market for a mid-cost product that can underwrite customers in the non-prime
sector and through incentive, flexibility and adaptation be a vital
contributor to the customer's progress to mainstream financial inclusion. We
plan to offer a revised guarantor loan product and a non-guarantor unsecured
loan which will feature both an annual payment holiday and dynamic price
reductions over the term.
As part of the future business plan, if the New Business Scheme is sanctioned,
and if FCA consent is granted, originations are planned to begin shortly after
the Scheme effective date. Amigo has agreed with the ICC that the total net
new lending under the New Business Scheme will not be more than £35m until
£112m (the initial contribution plus the contribution from the equity raise)
has been paid into the Scheme fund.
Board
On 24 January, Amigo announced that Chief Financial Officer (CFO), Mike
Corcoran, would leave the business with immediate effect. Mike formally
stepped down as a director on 19 February 2022. The Board wishes to thank Mike
for his significant contribution to the development of the Scheme proposals
and for leading the finance team through a challenging period.
Danny Malone, joined Amigo as Interim CFO on 7 February 2022. Danny is a
chartered accountant and has extensive experience across multiple financial
services companies and banks at Board level, mostly operating in the
non-standard consumer finance sector. Danny joins with extensive business and
regulatory experience and will be a valuable addition to the senior management
team at Amigo whilst we all work to deliver the best outcome we can in the
circumstances to our customers, our shareholders and our other stakeholders.
As the appointment is on an interim basis, it is not intended that Danny will
be appointed as a director of the Company.
Summary and Outlook
The Board has made considerable progress in addressing the concerns raised by
the Judge, in May 2021, in the judgment on the first proposed Scheme. It is
now presenting two Schemes to the Court and to Redress Creditors of which the
Board, and the ICC, believe the New Business Scheme provides the better
outcome for Redress Creditors with all effort made to ensure that there is no
room for improvement on the offer.
The Board is committed to satisfying its legal obligations to its creditors
and to providing the most equitable solution for all other stakeholders that
is possible in the circumstances. The Board recognises that this is a very
difficult time for shareholders, who legally rank below the Company's
creditors. It is proposing that some equity value is retained to enable a
further benefit to creditors and to support the future business. The Board is
confident that its future lending proposition meets a strong demand in the
market for a competitively priced, mid-cost, non-standard finance product and
that Amigo can be a responsible and valuable contributor to the sector.
The current cash position remains strong at over £110m, after the January
2022 partial redemption of the bonds. However, significant financial
constraints remain with net liabilities of £118.1m at 31 December 2021. The
continuation of Amigo as a business is dependent on a successful Scheme
outcome, FCA agreement to restart lending, satisfactory resolution of the FCA
investigations and our ability to raise both debt and equity capital to
support the future business.
Financial review
In the first nine months to 31 December 2021, the net loan book reduced by
56.2% to £180.7m. Revenue fell by 44.9% year on year to £75.7m, reflecting
the pause in lending and loan book reduction. Customer numbers reduced by
44.9%% compared to the prior year to 86,000. Despite a complaints cost of
£9.9m in the period, the continued revenue generation of the net loan book
alongside reduced operating and funding costs, has resulted in a statutory
profit before tax for the nine-month period of £1.6m (Q3 2021: loss of
£81.3m) and a statutory profit after tax of £2.5m (Q3 2021: loss of
£86.8m). Adjusting for non-recurring items defined in note 4 of the summary
financial table, adjusted profit after tax was £1.1m (Q3 2021 adjusted loss
of £77.0m). Net liabilities at 31 December 2021 were £118.1m.
Impairment
The impairment charge as a percentage of revenue was 40.0% for the nine months
to 31 December 2021 (Q3 2021: 30.2%) due primarily to the reduction in revenue
with no originations in the period. The coverage ratio, showing the
impairment provision as a percentage of the gross loan book, has increased to
22.4% (Q3 2021: 18.0%). The increase to the coverage ratio is driven by the
reforecast of expected credit losses effected at the half year to reflect the
increasing trend in the level of arrears which has persisted through the
period, notably but not exclusively, from customers exiting Covid-19 payment
holidays.
Whilst unemployment trends are favourable, inflationary headwinds are expected
to have an impact on our customer base. Significant uncertainty remains in
respect of future customer behaviour and collections as the cost of living
increases, the Amigo Scheme process continues, and the loan book diminishes.
Further details on the impairment provision and other key judgements and
estimates in the IFRS 9 impairment model are set out in notes 1 and 2 to the
financial statements.
Complaints
The Board continues to pursue a new Scheme of Arrangement to address the
historical complaints liability. The approval of an alternative Scheme remains
subject to reaching the key milestones of a second successful creditor vote
and High Court sanctioning. At this point, the Board does not consider there
to be enough certainty to account for claims redress on the basis that a
Scheme will be sanctioned.
Consequently, claims redress is accounted for on the basis that known and
future complaints are settled in full, subject to an applied uphold rate. This
has resulted in a complaints provision of £347.5m as at 31 December 2021. A
credit to the provision recognised in the period due to the lower number of
live loans at 31 December 2021, driven both by settlements and by customer
accounts being charged off, was offset by the addition of compensatory
interest that has accrued as time has passed. A complaints cost of £9.9m has
been recognised in the period as a result.
Tax
Whilst the nine months ended 31 December 2021 were profitable, no tax charge
has been recognised on profits as the Group has sufficient losses brought
forward. A tax credit of £0.9m was applied in the period reflecting the
release of a historic tax liability and anticipated tax refund.
Funding
Net debt was positive at £52.9m as at 31 December 2021 (Q3 2021: (£179.5m))
as the back book continued to be collected while originations remained
suspended. Consequently, unrestricted cash and cash equivalents as at 31
December 2021 increased to £285.5m (Q3 2021: £164.6m).
After the period end, Amigo made a partial redemption of £184.1m of the
£234.1m outstanding 7.625% senior secured notes due in 2024 with a redemption
date of 15 January 2022. The remaining £50.0m gross principal amount
outstanding is due in January 2024. Current unrestricted cash, after payment
of the interest due on the senior secured notes and the partial redemption, is
over £110m. Restricted cash is £3.8m and largely relates to estimated
set-off held in escrow for customers with existing complaints.
Going concern
The Board has concluded there is a material uncertainty over going concern. In
determining the appropriate basis of preparation for these interim financial
statements, the Board has assessed the Group and Company's ability to continue
as a going concern for a period of at least twelve months from the date of
approval of these financial statements. Despite material uncertainties, the
financial statements are prepared on a going concern basis which the Directors
believe to be appropriate for the reasons set out in the Going Concern
statement included in note 1 to the financial statements.
Condensed consolidated statement of comprehensive income
for the 9 months to 31 December 2021
9 months ended 9 months ended Year to
31 Dec 21 31 Dec 20 31-Mar-21
Unaudited Unaudited Audited
Notes £m £m £m
Revenue 3 75.7 137.5 170.8
Interest payable and funding facility fees 4 (14.4) (22.1) (27.5)
Interest receivable 0.1 - 0.1
Impairment of amounts receivable from customers1 (41.5)
(30.3) (60.7)
Administrative and other operating expenses (19.6) (35.4) (44.5)
Complaints expense 13 (9.9) (116.2) (318.8)
Total operating expenses (29.5) (151.6) (363.3)
Strategic review, formal sale process and related financing costs 6 - (3.6) (3.0)
Profit/(loss) before tax 1.6 (81.3) (283.6)
Tax credit/(charge) on profit/(loss) 7 0.9 (5.5) (5.5)
Profit/(loss) and total comprehensive income/ (loss) attributable to equity
shareholders of
2.5 (86.8) (289.1)
the Group2
The profit/(loss) is derived from continuing activities.
Profit/(loss) per share
Basic profit/(loss) per share (pence) 8 0.5 (18.3) (60.8)
Diluted profit/(loss) per share (pence) 8 0.5 (18.2) (60.8)
Dividends per share(3) (pence) -
- -
The accompanying notes form part of these financial statements.
1 This line item includes reversals of impairment losses or
impairment gains, determined in accordance with IFRS 9. In the period, £nil
of previously recognised impairment gains were reversed primarily due to the
recognition of the expected cost to repurchase charged off loans previously
sold to a third party (Q3 2020: £2.1m reversal of impairment gains).
2 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.
3 On 19 October 2020 Amigo announced that it had entered into an
Asset Voluntary Requirement with the Financial Conduct Authority (FCA),
meaning prior approval by the FCA is required to permit the transfer of assets
outside of the Group in certain circumstances, including dividends to
shareholders.
Condensed consolidated statement of financial position
as at 31 December 2021
31 Dec 21 31 Dec 20 31 Mar 21
Unaudited Unaudited Audited
Notes £m £m £m
Non-current assets
Customer loans and receivables 9 41.4 175.0 125.5
Property, plant and equipment 0.6 1.3 1.1
Right-of-use lease assets 0.8 1.0 1.0
42.8 177.3 127.6
Current assets
Customer loans and receivables 9 143.8 249.3 225.1
Other receivables 10 1.5 1.2 1.6
Current tax assets 0.4 - -
Derivative asset - - 0.1
Cash and cash equivalents (restricted)(1) 3.8 5.7 6.3
Cash and cash equivalents 285.5 164.6 177.9
435.0 420.8 411.0
Total assets 477.8 598.1 538.6
Current liabilities
Trade and other payables 11 (14.9) (20.4) (15.9)
Borrowings 12 - - (64.4)
Lease liabilities (0.3) (0.3) (0.3)
Complaints provision 13 (347.5) (150.9) (344.6)
Restructuring provision 13 - - (1.0)
Current tax liabilities - (0.8) (0.8)
(362.7) (172.4) (427.0)
Non-current liabilities
Borrowings 12 (232.6) (344.1) (232.1)
Lease liabilities (0.6) (0.9) (0.9)
(233.2) (345.0) (233.0)
Total liabilities (595.9) (517.4) (660.0)
Net (liabilities)/assets (118.1) 80.7 (121.4)
Equity
Share capital 1.2 1.2 1.2
Share premium 207.9 207.9 207.9
Translation reserve 0.1 (0.1) -
Merger reserve (295.2) (295.2) (295.2)
Retained earnings (32.1) 166.9 (35.3)
Shareholder equity (118.1) 80.7 (121.4)
The accompanying notes form part of these financial statements.
(1) Cash and cash equivalents (restricted) of £3.8m materially relates to
restricted cash held in Escrow for ongoing open complaints. Historically,
restricted cash and cash equivalents related to cash held in the AMGO Funding
(No.1) Ltd bank account due to the requirement under the waiver on the
securitisation facility to use collection from securitised assets to reduce
the outstanding facility balance.
The interim financial statements of Amigo Holdings PLC were approved and
authorised for issue by the Board and were signed on its behalf by:
Gary Jennison
Director
24 February 2022
Company no. 10024479
Condensed consolidated statement of changes in equity
for the 9 months to 31 December 2021
Share Share Translation Merger Retained Total
capital premium reserve reserve(1) earnings equity
£m £m £m £m £m £m
At 31 March 2020 (Audited) 1.2 207.9 - (295.2) 253.5 167.4
Total comprehensive loss - - - - (86.8) (86.8)
Share-based payments - - - - 0.2 0.2
Effect of foreign exchange rate changes - - (0.1) - - (0.1)
At 31 December 2020 (Unaudited) 1.2 207.9 (0.1) (295.2) 166.9 80.7
Total comprehensive loss - - - - (202.3) (202.3)
Share-based payments - - - - 0.1 0.1
Effect of foreign exchange rate changes - - 0.1 - - 0.1
At 31 March 2021 (Audited) 1.2 207.9 - (295.2) (35.3) (121.4)
Total comprehensive income - - - - 2.5 2.5
Share-based payments - - - - 0.7 0.7
Effect of foreign exchange rate changes - - 0.1 - - 0.1
At 31 December 2021 (Unaudited) 1.2 207.9 0.1 (295.2) (32.1) (118.1)
The accompanying notes form part of these financial statements.
1 The merger reserve was created as a result of a Group
reorganisation in 2017 to create an appropriate holding company structure. The
restructure was within a wholly owned group, constituting a common control
transaction.
Condensed consolidated statement of cash flows
for the 9 months to 31 December 2021
9 months to 9 months to Year to
31 Dec 21 31 Dec 20 31 Mar 21
Unaudited Unaudited Audited
£m £m £m
Profit/(loss) for the period 2.5 (86.8) (289.1)
Adjustments for:
Impairment expense 30.3 41.5 60.7
Complaints expense 9.9 116.2 318.8
Restructuring provision - - 1.0
Tax (credit)/charge (0.9) 5.5 5.5
Interest expense 14.4 22.1 27.5
Interest receivable (0.1) - (0.1)
Interest recognised on loan book (80.1) (146.6) (185.3)
Share-based payment 0.7 0.2 0.3
Depreciation of property, plant and equipment 0.6 0.8 1.1
Operating cash flows before movements in working capital (22.7) (47.1) (59.6)
Decrease/(increase) in receivables 0.2 0.3 (0.9)
(Decrease)/increase in payables (2.0) 2.9 (0.3)
Complaints cash expense (4.9) (58.6) (64.6)
Tax refunds - 23.6 23.6
Interest paid (14.2) (13.1) (22.8)
Net cash (used in) operating activities before loans issued and collections on (43.6) (92.0) (124.6)
loans
Loans issued - (0.4) (0.4)
Collections 209.0 313.8 402.5
Other loan book movements (1.0) (3.7) (0.6)
Decrease in deferred brokers' costs 5.2 8.4 10.8
Net cash from operating activities 169.6 226.1 287.7
Proceeds from sale of property, plant and equipment 0.1 - -
Purchases of property, plant and equipment - (0.4) (0.5)
Net cash from/(used in) investing activities 0.1 (0.4) (0.5)
Financing activities
Lease principal payments (0.2) (0.2) (0.2)
Cash held for repayment of borrowings - (5.7) -
Repayment of external funding (64.4) (119.5) (167.2)
Net cash (used in) financing activities (64.6) (125.4) (167.4)
Net increase in cash and cash equivalents 105.1 100.3 119.8
Effects of movement in foreign exchange - - 0.1
Cash and cash equivalents at beginning of period 184.2 64.3 64.3
Cash and cash equivalents at end of period 289.3(1) 164.6 184.2(1)
The accompanying notes form part of these financial statements.
1 31 December 2021 and 31 March 2021 total cash is inclusive of
£3.8m and £6.3m restricted cash respectively.
Notes to the condensed consolidated financial statements
1. Accounting policies
1.1 Basis of preparation of financial statements
Amigo Holdings PLC is a public company limited by shares (following IPO on 4
July 2018), listed on the London Stock Exchange (LSE: AMGO). The Company is
incorporated and domiciled in England and Wales and its registered office is
Nova Building, 118-128 Commercial Road, Bournemouth, United Kingdom BH2 5LT.
The principal activity of the Company is to act as a holding company for the
Amigo Loans Group of companies. The "principal" activity of the Amigo Loans
Group is to provide individuals with guarantor loans from £2,000 to £10,000
over one to five years.
These consolidated Group and Company financial statements have been prepared
on a going concern basis and approved by the Directors in accordance with
international accounting standards in conformity with the requirements of the
Companies Act 2006 and these Group and Company financial statements were also
in accordance with International Financial Reporting Standards as adopted by
the UK. There has been no departure from the required IFRS standards.
The consolidated financial statements have been prepared under the historical
cost convention, except for financial instruments measured at amortised cost
or fair value.
The presentational currency of the Group is GBP, the functional currency of
the Company is GBP and these financial statements are presented in GBP. All
values are stated in £ million (£m) except where otherwise stated.
These interim financial statements have not been prepared fully in accordance
with IAS 34 Interim Financial Reporting in conformity with the Companies Act
2006. They do not include all the information required for full annual
financial statements and should be read in conjunction with the consolidated
financial statements of Amigo Holdings PLC (the 'Group') as at and for the
year ended 31 March 2021.
The interim financial statements have been prepared applying the accounting
policies and presentation that were applied in the preparation of the
Company's published consolidated annual report for the year ended 31 March
2021. Changes to significant accounting policies are described in notes 1.2
and 2.
The consolidated financial statements of the Group as at and for the year
ended 31 March 2021 are available upon request from the Company's registered
office at Nova Building, 118-128 Commercial Road, Bournemouth, United Kingdom,
BH2 5LT.
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 2021 are not the
Group's statutory accounts for that financial year, but are an extract from
those statutory accounts for interim reporting. Those accounts have been
reported on by the Company's auditor and delivered to the registrar of
companies. The report of the auditor:
i) drew attention to the material uncertainty
related to going concern referenced in the financial statements;
ii) drew attention to the provision for customer
complaints, estimated using the assumption that no Scheme is implemented, by
way of emphasis of matter without qualifying their report (see notes 1 and
13); and
iii) did not contain a statement under section 498 (2)
or (3) of the Companies Act 2006.
These interim financial statements were approved by the board of directors on
24 February 2022.
Going concern
In determining the appropriate basis of preparation for these financial
statements, the Board has assessed the Group and Company's ability to continue
as a going concern for a period of at least twelve months from the date of
approval of these financial statements. The financial statements are prepared
on a going concern basis which the Directors believe to be appropriate for the
following reasons.
Following the ruling on 25 May 2021 in which the High Court did not approve
the proposed Scheme of Arrangement despite the positive creditors vote, the
Board continues to consider all options for the Group. The Board believes that
under all reasonably possible scenarios, without an appropriate Scheme of
Arrangement to deal with the complaints, the expected volumes of complaints
from current and past customers would exhaust, or at least significantly
reduce, the Group's available liquid resources; leaving the Group with
insufficient liquid resources to repay its non-current borrowings as they fall
due in January 2024.
Accounting standards require an entity to prepare financial statements on a
going concern basis unless the Board either intends to liquidate the entity or
to cease trading or has no realistic alternative but to do so.
As part of the Board's pursuit of a new Scheme of Arrangement ("Scheme") to
address Amigo's historic lending complaints liability, and after extensive
negotiations with its Independent Customer Committee ("ICC"), the Board issued
a revised Scheme proposal to the ICC on 12 November 2021. The revised offer
incorporated two distinct Schemes; the first, the 'New Business Scheme', which
is contingent on lending restarting and Amigo completing a successful equity
raise. The second, a managed wind-down of the Amigo Loans Ltd business under
a Scheme framework ("Wind-Down Scheme").
On 6 December 2021, Amigo announced the ICC's confirmed preference for the New
Business Scheme. The Practice Statement Letter ("PSL") explaining both
Scheme options was sent to the Scheme creditors in late December 2021.
For the New Business Scheme, Amigo is proposing initial cash contributions
totalling £97m from internally generated resources, alongside a further
contribution of £15m, being part of the proceeds from a new equity and
capital raise. In order to secure the best result for Redress Creditors
possible in the circumstances, the New Business Scheme will include a
mechanism for an additional payment to Redress Creditors to be made in the
event that the existing loan book generates a better return than currently
anticipated. The New Business Scheme will also require the Company to
issue at least 19 new shares for every existing share in the Company to
raise money to fund the further contribution of £15m and raise sufficient
funds to provide the capital needed for a return to lending. The quantum of
dilution reflects the need to address the concerns of the Court at the
original sanction hearing in May 2021. The New Business Scheme can only
proceed if the FCA grants approval for the Group to recommence lending.
The Board intends to ask creditors to vote on both options, and if both
options are approved by creditors, to then submit both options to the Court
for sanction. The Court will be asked to consider the New Business Scheme for
sanction before it considers the Wind-Down Scheme. If the Court does not
sanction the New Business Scheme, the Court will be asked to sanction the
Wind-Down Scheme as a fall-back solution. The Wind-Down Scheme does not
involve the Group recommencing lending, accordingly it does not require FCA
approval for the same, or require the Company to raise any additional equity
capital.
The Court Convening hearing will take place on 8 March 2022 and the Court
Sanction hearing will take place on 23 and 24 May 2022.
Funding
The going concern assessment considers the Group's projected liquidity
position from existing committed financing facilities throughout the forecast
period. The Group is funded through £234.1m of senior secured notes and held
an unrestricted cash balance of £285.5m as at 31 December 2021. In both the
base and downside scenarios the bond buyback executed in January 2022 of
£184m is reflected, with the remainder of the bonds running to term.
'New Business Scheme' scenario
The New Business Scheme projections prepared for the going concern assessment
period are derived from the Group's 2021/2022 budget as approved by the Board
in March 2021 with certain assumptions refined to reflect more recent
information. The New Business Scheme scenario assumes that:
· an alternative Scheme of Arrangement is approved by the High Court
and the conditions precedent are met. This would limit the cash redress
liability in respect of upheld customer complaints within a Scheme.
· complaints volumes and uphold rates within a Scheme are consistent
with the assumptions that underpin the complaints provision reported in the
financial statements for Q3 December 2021.
· write downs of customer balances in respect of upheld customer
complaints are also consistent with the redress assumptions in the complaints
provision, but adjusted for the passage of time to reflect a scheme effective
date of April 2022 for open and future complaint customers i.e. balance
adjustments on the gross loan book are reduced and applied in the future.
· the FCA grants approval for the Group to recommence lending and
lending recommences within 9 months of the sanction of the New Business
Scheme, albeit at significantly reduced levels compared with pre-Covid-19
originations, and
· credit losses, and therefore customer collections, remain within
moderately stressed levels.
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.
'Wind-Down Scheme' scenario
If the Court does not sanction the New Business Scheme, the Court will be
asked to sanction the Wind-Down Scheme as a fall-back solution.
This means that if the Wind-Down Scheme is approved by the creditors, the
Court will only actually be asked to approve the Wind-Down Scheme if any of
the following three things happen:
· 75% by value or 50% by number of those creditors voting do not
vote in favour of the New Business Scheme;
· prior to the Court sanction hearing and having taken advice of
leading counsel (i.e. a senior lawyer), Amigo considers that the New Business
Scheme is unlikely to be approved by the Court and therefore Amigo chooses not
to ask the Court to sanction the New Business Scheme; or
· The Court does not approve the New Business Scheme.
No Scheme scenario
The Board recognises that an alternative Scheme of Arrangement such as that
considered in the Scheme scenarios requires a second positive creditor vote
and a High Court sanction. All outcomes remain uncertain and outside the
direct control of the Group. In a scenario where this is not achieved and cash
redress to customers is not capped by the terms of a Scheme the Board believes
the expected volume of complaints from current and past customers would either
exhaust, or at least significantly reduce, the Group's available liquid
resources; leaving the Group with insufficient liquid resources to repay its
non-current borrowings as they fall due in January 2024. This is reflected in
the Group's Consolidated Statement of Financial Position, which includes a
complaints provision based on the best estimate of the full settlement of all
current and future complaints. In such circumstances the Board believes that
there would be no realistic alternative other than to enter a formal
insolvency process.
FCA investigation
Additionally, in June 2020, the Financial Conduct Authority (FCA) launched an
investigation into the Group's creditworthiness assessment process, and the
governance and oversight of this process. This investigation will cover the
period from 1 November 2018 to date. The potential impact of the investigation
on the business is extremely difficult to predict and quantify, and hence the
potential adverse impact of the investigation has been considered separately
and not included in the scenarios laid out above. There are a number of
potential outcomes which may result from the FCA investigation, including the
imposition of a significant fine and/or the requirement to perform a mandatory
back-book remediation exercise.
The Directors consider that should they be required to perform a back-book
remediation exercise it could reasonably be expected to exhaust, or at least
significantly reduce, the Group's available liquid resources. Additionally,
other lesser but still significant adverse outcomes could significantly reduce
the Group's available liquidity headroom and thus the Group would need to
source additional financing to maintain adequate liquidity to continue to
operate.
Conclusion
The Board continues to actively pursue options which represent realistic
alternatives to liquidation or the cessation of trade, such as the Scheme of
Arrangement considered in the Scheme scenarios. The long-term viability of the
Group is reliant on the Group receiving permission from the FCA to recommence
lending, either within Amigo Loans Ltd or other entities within the Group, and
originations reaching a level that will sustain a loan book of sufficient size
to allow the Group to meet its liabilities as they fall due, and is dependent
on the Group's ability to raise further capital to support future lending.
However, in each of the Scheme scenarios above the financial projections
indicate that the Group will have sufficient funds to enable it to operate
within its available facilities and settle its liabilities as they fall due
for at least the next twelve months. Accordingly, the Directors believe 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. An alternative Scheme
requires a second positive creditor vote and a High Court sanction which is
outside the control of the Group. Additionally, both the final outcome of the
FCA investigation and FCA approval of new lending remain highly uncertain.
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 solely payments of
principal and interest (SPPI), the Group considers the contractual terms of
the instrument.
This includes assessing whether the financial asset contains a contractual
term that could change the timing or amount of contractual cash flows such
that it would not meet this condition. The Group has deemed that the
contractual cash flows are SPPI and hence, loans to customers are measured at
amortised cost under IFRS 9.
ii) Impairment
IFRS 9 includes a forward-looking "expected credit loss" (ECL) model in
regards to impairment. IFRS 9 requires an impairment provision to be
recognised on origination of a financial asset. Under IFRS 9, a provision is
made against all stage 1 (defined below) financial assets to reflect the
expected credit losses from default events within the next twelve months. The
application of lifetime expected credit losses to assets which have
experienced a significant increase in credit risk results in an uplift to the
impairment provision.
iii) Measurement of ECLs
Under IFRS 9 financial assets fall into one of three categories:
Stage 1 - financial assets which have not experienced a "significant" increase
in credit risk since initial recognition;
Stage 2 - financial assets that are considered to have experienced a
"significant" increase in credit risk since initial recognition; and
Stage 3 - financial assets which are in default or otherwise credit impaired.
Loss allowances for stage 1 financial assets are based on twelve month ECLs;
that is the portion of ECLs that result from default events that are estimated
within twelve months of the reporting date and are recognised from the date of
asset origination. Loss allowances for stage 2 and 3 financial assets are
based on lifetime ECLs, which are the ECLs that result from all default events
over the expected life of a financial instrument.
In substance the borrower and the guarantor of each financial asset have
equivalent responsibilities. Hence for each loan there are two obligors to
which the entity has equal recourse. This dual borrower nature of the product
is a key consideration in determining the staging and the recoverability of an
asset.
When a borrower misses a payment, both parties are kept informed regarding the
remediation of the arrears. If a missed payment is not remediated within a
certain timeframe, collection efforts are switched to the guarantor and if
arrears are cleared the loan is considered performing.
The Covid-19 pandemic presents significant economic uncertainty. The Group
assessed that its key sensitivity was in relation to expected credit losses
and its run-off on customer loans and receivables.
Given the significant uncertainty around the duration and severity of the
impact of the pandemic on the macroeconomy and in particular unemployment, a
matrix of nine scenarios consisting of three durations (three, six and twelve
months) and three severities (moderate, high and extremely high) has been
modelled. Refer to note 2.1.1 for further detail on the judgements and
estimates used in the measurement of ECLs and note 2.1.3 for detail on impact
of forward-looking information on the measurement of ECLs.
iv) Assessment of significant increase in credit risk (SICR)
In determining whether the credit risk (i.e. risk of default) of a financial
instrument has increased significantly since initial recognition, the Group
considers reasonable and supportable information that is relevant and
available without undue cost or effort, including both quantitative and
qualitative information and analysis. The qualitative customer data used in
this assessment is payment status flags, which occur in specific circumstances
such as a short-term payment plans, breathing space or other indicators of a
change in a customer's circumstances. See note 2.1.2 for details of how
payment status flags are linked to staging, and judgements on what signifies a
significant increase in credit risk.
The Group has offered payment holidays to customers in response to Covid-19.
These measures were introduced on 31 March 2020, the offering of these payment
holidays concluded in March 2021. The granting of a payment holiday, or the
extension of a payment holiday at the customer's request, does not
automatically trigger a significant increase in credit risk. Customers granted
payment holidays are assessed for other indicators of SICR and are classified
as stage 2 if other indicators of a SICR are present. This is in line with
guidance issued by the International Accounting Standards Board (IASB) and
Prudential Regulation Authority (PRA) which noted that the extension of
government-endorsed payment holidays to all borrowers in particular classes of
financial instruments should not automatically result in all those instruments
being considered to have suffered a significant increase in credit risk. At
the time a customer requests an extension to a payment holiday, the Group has
no additional information available than was present at the original grant
date for which to make an alternative assessment over whether there has been a
significant increase in credit risk; extensions are granted on request. See
note 2.1.2 for further detail on SICR considerations for Covid-19 payment
holidays and note 2.4 for judgements and estimates applied by the Group on the
calculation of a modification loss resulting from the granting of these
payment holidays. As at 31 December 2021, the Group has been able to analyse
the initial data relating to customer behaviour and payment patterns now these
payment holidays have finished.
v) Derecognition
Historically, the Group offered, to certain borrowers, the option to top up
existing loans subject to internal eligibility criteria and customer
affordability. The Group pays out the difference between the customer's
remaining outstanding balance and the new loan amount at the date of top-up.
The Group considers a top-up to be a derecognition event for the purposes of
IFRS 9 on the basis that a new contractual agreement is entered into by the
customer replacing the legacy agreement. The borrower and guarantor are both
fully underwritten at the point of top-up and the borrower may use a different
guarantor from the original agreement when topping up.
vi) Modification
Aside from top-ups and Covid-19 payment holidays, no formal modifications are
offered to customers. In some instances, forbearance measures are offered to
customers. These are not permanent measures; there are no changes to the
customer's contract and the measures do not meet derecognition or modification
requirements. See policy 1.11.1 in the Group's annual report and accounts 2021
for more details on the Group's accounting policies for modification of
financial assets.
vii) Definition of default
The Group considers an account to be in default if it is more than three
contractual payments past due, i.e. greater than 61 days, which is a more
prudent approach than the rebuttable presumption in IFRS 9 of 90 days and has
been adopted to align with internal operational procedures. The Group
reassesses the status of loans at each month end on a collective basis. When
the arrears status of an asset improves so that it no longer meets the default
criteria for that portfolio, it is immediately cured and transitions back from
stage 3 within the Group's impairment model.
viii) Forbearance
Where the borrower indicates to the Group that they are unable to bring the
account up to date, informal, temporary forbearance measures may be offered.
There are no changes to the customer's contract at any stage. Therefore, with
the exception of Covid-19 payment holidays, these changes are neither
modification nor derecognition events. Depending on the forbearance measure
offered, an operational flag will be added to the customer's account, which
may indicate significant increase in credit risk and trigger movement of this
balance from stage 1 to stage 2 in impairment calculation. See note 2.1.2 for
further details.
Throughout the Covid-19 pandemic, payment holidays have been offered to all
customers who indicated to the Group they were experiencing potential payment
difficulties and concluded in March 2021. The granting of these payment
holidays has been treated as non-substantial modification events. See note
2.4.1 for more details.
2. Critical accounting assumptions and key sources of estimation uncertainty
Preparation of the financial statements requires management to make
significant judgements and estimates.
Judgements
The preparation of the condensed consolidated Group financial statements in
conformity with IFRS requires management to make judgements, estimates and
assumptions that affect the reported amounts of assets and liabilities at the
consolidated statement of financial position date and the reported amounts of
income and expenses during the reporting period. The most significant uses of
judgements and estimates are explained in more detail in the following
sections:
· IFRS 9 - measurement of ECLs:
· Assessing whether the credit risk of an instrument has increased
significantly since initial recognition (note 2.1.2).
· Definition of default is considered by the Group to be when an
account is three contractual payments past due (note 1.2.vii).
· Multiple economic scenarios - the probability weighting of nine
scenarios to the ECL calculation (note 2.1.3).
· IFRS 9 - modification of financial assets:
· Assessment of Covid-19 payment holidays as a non-substantial
modification (note 2.4.1).
· Assessment of whether a modification loss is an indicator of a
significant increase in credit risk (note 2.4.2).
· Complaints provisions:
· Judgement is involved in determining whether a present
constructive obligation exists and in estimating the probability, timing and
amount of any outflows (note 2.3.2).
· Following the ruling on 24 May 2021 in which the High Court did
not approve the proposed Scheme of Arrangement despite the overwhelmingly
positive creditors' vote, the Board continues to consider all options for the
Group, including a potential alternative Scheme of Arrangement. Significant
judgement is applied in determining if there is sufficient certainty over the
potential outcome of the Scheme to estimate the future complaints redress
liabilities on the basis of a successful Scheme outcome (note 2.3.1).
· Going concern:
· Judgement is applied in determining if there is a reasonable
expectation that the Group adopts the going concern basis in preparing these
financial statements (note 1.1).
· IAS 1 requires the preparation of financial statements on a going
concern basis unless the Board either intends to liquidate the entity or to
cease trading or has no realistic alternative but to do so. At the date of
approval of these interim financial statements, the Board continues to
consider a number of options, including a potential other Scheme of
Arrangement, which represent realistic alternatives to liquidation or the
cessation of trade. Hence, it has been deemed there is a reasonable
expectation that the Group is a going concern. However, due to significant
uncertainty around terms of a potential new Scheme and whether it would be
sanctioned by the High Court, there is a material uncertainty that may cast
significant doubt on the Group's ability to continue as a going concern.
Estimates
Areas which include a degree of estimation uncertainty are:
· IFRS 9 - measurement of ECLs:
· Adopting a collective basis for measurement in calculation of
ECLs in IFRS 9 calculations (note 2.1.1).
· Probability of default (PD), exposure at default (EAD) and loss
given default (LGD) (note 2.1.1).
· Forward-looking information incorporated into the measurement of
ECLs (note 2.1.3).
· Incorporating a probability weighted estimate of external
macroeconomic factors into the measurement of ECLs (note 2.1.3).
· IFRS 9 - modification of financial assets:
· Estimating the change in net present value of the projected
future cashflows arising from Covid-19 payment holidays on a cohort basis
(note 2.4.2).
· Estimating expected Covid-19 payment holiday duration (note
2.4.2).
· Estimating the change in net present value of projected future
cash flows arising upon payment holiday extensions (note 2.4.2).
· Complaints provisions:
· Calculation of provisions involves management's best estimate of
expected future outflows, the calculation of which evaluates current and
historical data, and assumptions and expectations of future outcomes (note
2.3.2).
· Effective interest rate (note 2.2):
· Calculation of the effective interest rate includes estimation of
the average behavioural life of the loans and the profile of the loan payments
over this period (note 2.2).
· Carrying amount of current and deferred taxation assets and
liabilities
The Group's current loss-making position and the current uncertainty over the
Group's future profitability means that it is no longer considered probable
that future taxable profits will be available against which to recognise
deferred tax assets. No tax assets have been recognised in respect of losses
in the current period (note 7).
2.1 Credit impairment
2.1.1 Measurement of ECLs
The Group has adopted a collective basis of measurement for calculating ECLs.
The loan book is divided into portfolios of assets with shared risk
characteristics including whether the loan is new business, repeat lending or
part of a lending pilot as well as considering if the customer is a homeowner
or not. These portfolios of assets are further divided by contractual term and
monthly origination vintages.
The allowance for ECLs is calculated using three components: a probability of
default (PD), a loss given default (LGD) and the exposure at default (EAD).
The ECL is calculated by multiplying the PD (twelve month or lifetime
depending on the staging of the loan), LGD and EAD. The result of the ECL
calculation is discounted to reflect the time value of money, the period
discounted involves an estimated time taken to default to the reporting date
which remains uncertain in nature.
The twelve month and lifetime PDs represent the probability of a default
occurring over the next twelve months or the lifetime of the financial
instruments, respectively, based on historical data and assumptions and
expectations of future economic conditions.
EAD represents the expected balance at default, considering the repayment of
principal and interest from the balance sheet date to the default date. LGD is
an estimate of the loss arising in the case where a default occurs at a given
time. It is based on the difference between the contractual cash flows due
and those that the Group expects to receive.
The Group assesses the impact of forward-looking information on its
measurement of ECLs. The Group has analysed the effect of a range of economic
factors and identified the most significant macroeconomic factor that is
likely to impact credit losses as the rate of unemployment and the rate of
inflation.
Given the significant uncertainty around the duration and severity of the
Covid-19 pandemic on the macroeconomy a matrix of nine scenarios consisting of
three durations (three, six and twelve months) and three severities (moderate,
high and extremely high) has been modelled and probability weighted to
determine the ECL provision (see note 2.1.3).
2.1.2 Assessment of significant increase in credit risk (SICR)
To determine whether there has been a significant increase in credit risk the
following two step approach has been taken:
1) The primary indicator of whether a significant increase in credit risk has
occurred for an asset is determined by considering the presence of certain
payment status flags on a customer's account. This is the Group's primary
qualitative criteria considered in the assessment of whether there has been a
significant increase in credit risk.
If a relevant operational flag is deemed a trigger indicating the remaining
lifetime probability of default has increased significantly, the Group
considers the credit risk of an asset to have increased significantly since
initial recognition. Examples of this include operational flags for specific
circumstances such as short-term payment plans and breathing space granted to
customers.
2) As a backstop, the Group considers that a significant increase in credit
risk occurs no later than when an asset is two contractual payments past due
(equivalent to 30 days), in line with the rebuttable presumption in IFRS 9
that credit risk has significantly increased if contractual payments are more
than 30 days past due. This is the primary quantitative information considered
by the Group in a significant increase in credit risk assessments.
The Group reassesses the flag status of all loans at each month end and
remeasures the proportion of the book which has demonstrated a significant
increase in credit risk based on the latest payment flag data. An account
transitions from stage 2 to stage 1 immediately when a payment flag is removed
from the account. Each quarter a flag governance meeting is held, to review
operational changes which may impact the use of operational flags in the
assessment of a significant increase in credit risk.
The Group has offered payment holidays to customers in response to Covid-19;
at this date a payment holiday is granted, the arrears status of the loan is
passed for the duration of the payment holiday up to a maximum of six months.
In normal circumstances, a customer's request for a payment holiday (i.e.
breathing space) would trigger a SICR in line with the Group's payment status
flag approach to staging. However, the granting of exceptional payment
holidays in response to Covid-19 does not automatically trigger a significant
increase in credit risk.
2.1.3 Forward-looking information
The Group assesses the impact of forward-looking information on its
measurement of ECLs. The Group has analysed the effect of a range of economic
factors and identified the most significant macroeconomic factor that is
likely to impact credit losses as the rate of unemployment and the rate of
inflation.
The Group has modelled a range of economic shock scenarios to estimate the
impact of a spike in unemployment as a result of the Covid-19 pandemic. In
doing so, consideration has also been given to the potential impact of deep
fiscal and monetary support measures that have been implemented by the
government to support the economy during this time. Given the lack of reliable
external information the range of scenarios include a variety of both
severities and durations which are probability weighted. In response to the
significant uncertainty around the duration and severity of the pandemic on
the macroeconomy a matrix of nine scenarios has been modelled. The
probability weightings allocated to the nine scenarios are included in the
table below. These scenarios are weighted according to management's judgement
of each scenario's likelihood.
The severity of the economic shock has been estimated with reference to
underlying expectations for customer payment behaviour for accounts which are
up to date or one contractual payment past due. The moderate, high and
extremely high severities represent increases of 25%, 50% and 100%
respectively, in the propensity for these accounts to miss payments and fall
into arrears for the full duration of the economic shock.
Moderate (33%) High (33%) Extremely high (33%)
Three-month duration Moderately severe impact of an initial three month spike in the rate of High severity of an initial three month spike in the rate of unemployment Extremely high severity of an initial three month spike in the rate of
unemployment unemployment
Six-month duration Moderately severe impact of the increase in unemployment but with an extended High severity of the increase in unemployment but with an extended duration Extremely high severity of the increase in unemployment but with an extended
duration of six months of six months duration of six months
Twelve-month duration Moderately severe impact of the increase in unemployment and assuming that the High severity of the increase in unemployment and assuming that the Extremely high severity of the increase in unemployment and assuming that the
deterioration in unemployment continues to increase for a full year deterioration in unemployment continues to increase for a full year deterioration in unemployment continues to increase for a full year
The following table details the absolute impact on the current ECL provision
of £52.1m if each of the nine scenarios are given a probability weighting of
100%.
Moderate High Extremely high
Three month duration -6.2m -4.7m -2.9m
Six month duration -4.5m -1.3m +2.5m
Twelve month duration -1.1m +5.3m +12.9m
The table above demonstrates that in the first scenario with a moderate
severity and an impact of an initial three month spike in the unemployment
rate, the ECL provision would decrease by £6.2m. In the worst case scenario
with the greatest severity assuming this deterioration continues for a
duration of twelve months the ECL provision would increase by £12.9m. The
scenarios above demonstrate a range of ECL provisions from £45.9m to £65.0m.
In the financial statements for the 9 months ended 31 December 2021 severity
weightings used were 33% for moderate, high and extremely high scenarios (Q3
2020: 33%, 33% and 33%).
As with any economic forecasts, the projections and likelihoods of occurrence
are subject to a high degree of inherent uncertainty and therefore the actual
outcomes may be significantly different to those projected.
2.2 Effective interest rates
Revenue comprises interest income on amounts receivable from customers. Loans
are initially measured at fair value (which is equal to cost at inception)
plus directly attributable transaction costs and are subsequently measured at
amortised cost using the effective interest rate method. Revenue is presented
net of amortised broker fees which are capitalised and recognised over the
expected behavioural life of the loan as part of the effective interest rate
method. The key judgement applied in the effective interest rate calculation
is the behavioural life of the loan.
The historical settlement profile of loans, which were initially acquired
through third-party brokers, is used to estimate the average behavioural life
of each monthly cohort of loans. Settlements include early settlements and
historically have also included top-ups as they are considered derecognition
events (see note 1.2v). The average behavioural life is then used to estimate
the effective interest on broker originations and thus the amortisation
profile of the deferred costs.
Broker costs are predominantly calculated as a percentage of amounts paid out
and not as a fixed fee per loan. Therefore, in determining the settlement
profile of historical cohorts, settlement rates are pay-out weighted to
accurately match the value of deferred costs with the settlement of loans.
2.3 Complaints provisions
2.3.1 Key judgements - Scheme of Arrangement
On 21 December 2020, the Group announced its intention to agree a Scheme of
Arrangement to address customer redress claims with the aim that all customers
are treated equitably. The vehicle ALL Scheme Ltd ("SchemeCo") was
incorporated on 6 January 2021 and is a wholly owned subsidiary through which
the Group intends to review claims and, where appropriate, pay redress to
customers that have been affected as a result of historical issues in the UK
business. The Group's original proposal for a Scheme of Arrangement was not
sanctioned at the High Court hearing held on 19 May 2021, this judgement was
received on 24 May 2021, despite receiving overwhelming support from the
majority of Scheme creditors who voted.
Subsequently the Board is pursuing an alternative Scheme of Arrangement to the
one which was not approved. It is the Board's view, in light of the
anticipated alternative - a possible insolvency - that subject to further
regulatory discussions, a successful alternative Scheme is achievable.
However, the Directors acknowledge that the ultimate success of the Scheme is
not wholly within their control not least because at the reporting date the
approval of an alternative Scheme of Arrangement remains subject to reaching
the key milestones of a second successful creditor vote and a High Court
sanction.
IAS 37 - Provisions, Contingent Liabilities and Contingent Assets requires
that the measurement of provisions is not adjusted for future events, such as
the approval of an alternative Scheme of Arrangement, unless there is
sufficient objective evidence that the future event will occur. Each of the
aforementioned factors are ultimately outside of the Group's control and
represent a significant source of uncertainty with regard to the ultimate
success of an alternative Scheme. Hence, in line with IAS 37, it has been
determined that the complaints provision will be measured by calculating a
total redress liability assuming that there is no scheme in place, as there is
not sufficient objective evidence that the future approval of an alternative
Scheme of Arrangement will occur.
2.3.2 Complaints provision - estimation uncertainty
Provisions included in the statement of financial position refers to a
provision recognised for customer complaints. The provision represents an
accounting estimate of the expected future outflows arising from certain
customer-initiated complaints, using information available as at the date of
signing these financial statements and the assumption that there is no Court
approved Scheme of Arrangement (see note 13 for further detail).
Identifying whether a present obligation exists and estimating the
probability, timing, nature and quantum of the redress payments that may arise
from past events requires judgements to be made on the specific facts and
circumstances relating to the individual complaints. Management evaluates on
an ongoing basis whether complaints provisions should be recognised, revising
previous judgements and estimates as appropriate; however, there is a wide
range of possible outcomes.
The key assumptions in these calculations which involve significant, complex
management judgement and estimation relate primarily to the projected costs of
potential future complaints, where it is considered more likely than not that
customer redress will be appropriate. These key assumptions are:
· Future estimated volumes - estimates of future volumes of
complaints.
· Uphold rate (%) - the expected average uphold rate applied to
future estimated volumes where it is considered more likely than not that
customer redress will be appropriate.
· Average redress (£) - the estimated compensation, inclusive of
balance adjustments and cash payments, for future upheld complaints included
in the provision.
These assumptions remain subjective due to the uncertainty associated with
future complaint volumes and the magnitude of redress which may be required.
Complaint volumes may include complaints under review by the Financial
Ombudsman Service, complaints received from claims management companies (CMCs)
or complaints received directly from customers.
Following the announcement of the proposed Scheme of Arrangement on 21
December 2020 these assumptions became more challenging to estimate as
customer and CMC behaviour was temporarily influenced by the proposed Scheme
of Arrangement.
Whilst the proposed Scheme was not sanctioned by the High Court on 19 May
2021, the creditor meeting on 12 May 2021, in which the Group received a total
of 78,732 votes, provides some indication of the potential future propensity
for past and present customers to raise a complaint. Whilst the vote provides
a useful reference point for the potential population of future claims, this
estimate remains highly uncertain. If an alternative Scheme is not
successfully approved, it is unclear to what extent future complaint volumes
would be impacted by increased customer awareness generated by the engagement
with customers as part of the creditor vote process and increased publicity
connected to the unsuccessful outcome of the first proposed Scheme, as well as
any additional publicity relating to any potential future Scheme.
Additionally, throughout Amigo's progress towards a Scheme, substantial work
has gone into reviewing and enhancing our future claims handling
methodologies, aligning with the expectations of our regulator and re-setting
expectations of how claims will be assessed moving forward regardless of
whether a potential new Scheme is successful.
As at 31 December 2020, the complaints provision was £150.9m; the increase of
130.3% to £347.5m at 31 December 2021 is primarily due to an increase in both
the volume of estimated uphold complaints provided for and the estimated
uphold rate. Also partially contributing is the increase in FOS invoice costs
from £650 to £750 each.
The following table details the effect on the complaints provision considering
incremental changes on key assumptions, should current estimates prove too
high or too low. Sensitivities are modelled individually and not in
combination.
Assumption used Sensitivity applied Sensitivity
Future complaint volumes(1) 76,984 5% +58.9m -58.9m
Average uphold rate per customer(2) 65% 20 ppts +94.1m -94.1m
Average redress per valid complaint(3) £4,451 £1,000 +59.9m -59.9m
( )
1. Future estimated volumes. Sensitivity analysis shows the
impact of a 5% change in the number of complaints estimated in the provision.
2. Uphold rate. Sensitivity analysis shows the impact of a 20
percentage point change in the applied uphold rate on both the current and
forward-looking elements of the provision.
3. Average redress. Sensitivity analysis shows the impact of a
£1,000 change in average redress on the provision.
The table above shows the increase or decrease in total provision charge
resulting from reasonably possible changes in each of the key underlying
assumptions. The Board considers that this sensitivity analysis covers the
full range of reasonably possible alternative assumptions.
It is possible that the eventual outcome may differ materially from the
current estimate and could materially impact the financial statements as a
whole, given the Group's only activity currently is guarantor-backed consumer
credit. This is due to the risks and inherent uncertainties surrounding the
assumptions used in the provision calculation.
The complaints provision has been estimated assuming that there is no Scheme
in place, as there is not sufficient objective evidence that the future
approval of an alternative Scheme will occur. However, a potential future
Scheme remains a plausible outcome. In this scenario, it is likely that the
total redress liability would be materially lower than the amount recognised
under IAS 37 because cash redress would be capped at a level approved by the
Scheme creditors, which is expected to be substantially lower than the total
cash liability of £285.8m included in the £347.5m provision. For example,
the cash element contribution proposed under the terms of the original Scheme
proposal, which was not sanctioned by the High Court, was £15.0m. As part of
the Board's pursuit of a new Scheme of Arrangement ("Scheme") to address
Amigo's historic lending complaints liability, and after extensive
negotiations with the Independent Customer Committee ("ICC"), the Board issued
a revised Scheme proposal to the ICC on 12 November 2021. The revised offer
incorporated two distinct Schemes; the first, the 'New Business Scheme', which
is contingent on new lending restarting and Amigo completing a successful
equity raise. The second, a managed wind-down of Amigo Loans Ltd business
under a Scheme framework ("Wind-Down Scheme").
The Group has disclosed a contingent liability with respect to the FCA
investigation announced on 29 May 2020. The investigation is with regards to
the Group's creditworthiness assessment process, the governance and oversight
of this, and compliance with regulatory requirements. The FCA investigation is
covering lending for the period from 1 November 2018 to date. The Group was
informed on 15 March 2021 that the FCA had decided to extend the scope of
its current investigation so that it can investigate whether the Group
appropriately handled complaints after 20 May 2020 and whether the Group
deployed sufficient resource to address complaints in accordance with the
Voluntary Requirement (VReq) announced on 27 May 2020 and the subsequent
variation announced on 3 July 2020.
The FCA investigation will consider whether those complaints have been
handled appropriately and whether customers have been treated fairly in
accordance with Principle 6 of the FCA's Principles for Business.
The Group will continue to co-operate fully with the FCA. There is
significant uncertainty around the impact of this investigation on the
business, the assumptions underlying the complaints provision and any future
regulatory intervention. See note 13 for further details.
2.4 Modification of financial assets
2.4.1 Assessment of Covid-19 payment holidays as a non-substantial modification
From 31 March 2020, Covid-19 relief measures were formally introduced; on
request, depending on a customer's individual circumstances, initial payment
holidays with durations of up to three months were offered. At the end of the
payment holiday the customer's monthly instalments revert to the contractual
instalment with the term of the loan effectively extended by the duration of
the payment holiday. Following the FCA's announcement of the extension to
customer payment holidays for personal loans for up to six months, the Group's
payment holiday policy was revised. If a customer applied for a payment
holiday extension, the payment holiday automatically renewed on a monthly
basis, up to a maximum of six months.
The customer had the option to opt out and end the payment holiday at any
time. For the first three months of the payment holiday no interest accruals
were applied to customer balances; from four to six months interest began to
accrue again on the loan.
As a result of the Group's interest cap, the reintroduction of interest
accruals from month four to month six of a payment holiday does not increase
the total interest payable by the customer over the life of the loan. Rolling
monthly extensions were predominantly granted from 1 July 2020 onwards. The
final payment holidays and extensions were granted in March 2021.
No capital or interest is forgiven as part of the payment holiday despite no
interest accruing during the first three months of the payment holiday; the
customer is still expected to repay the loan in full.
The Group has assessed Covid-19 payment holidays from both a qualitative and
quantitative perspective; the Group is not originating new assets with
substantially different terms and the original asset's contractual cash flows
is deferred, leading to what is deemed a non-substantial estimated reduction
in loan carrying amounts.
Hence, the initial granting of Covid-19 payment holidays was accounted for as
non-substantial modification of financial assets under IFRS 9. When a customer
was offered an extension to their original payment holiday up to a total of
six months in length, this was considered a second non-substantial
modification event. Assets were not derecognised as the modifications were not
substantial; instead, modification losses were recognised in the period to 31
March 2021. The impact of Covid-19 payment holiday modifications is discussed
in note 5.
2.4.2 Measurement of modification losses
The Group has estimated modification losses arising from Covid-19 payment
holidays on a cohort basis. Future contractual cash flows are forecast
collectively in cohorts based on the remaining contractual term. The cash flow
forecasts are then further segmented by month of modification (being payment
holiday start date or date of extension) and payment holiday duration.
Following the introduction of automatic rolling extension of payment holidays
up to a maximum of six months, a key judgement is the expected payment holiday
duration. Customers on payment holidays of one and two month initial durations
can first extend to a backstop of a three month payment holiday. Where the
customer applied for an extension to their original payment holiday beyond the
three month backstop, the payment holiday will automatically extend on a
monthly basis up to a maximum of six months unless the customer opted out.
Forecast cash flows are lagged by the relevant payment holiday duration and
discounted using the original effective interest rate to calculate net present
value of each cohort. The difference between the net present value of the
revised cash flows and the carrying value of the assets is recognised in the
consolidated statement of comprehensive income as a modification loss.
Customers granted Covid-19 payment holidays were assessed for other potential
indicators of SICR. This assessment included a historical review of the
customer's payment performance and behaviours. Following this review, those
customers that were granted a Covid-19 payment holiday and are judged to have
otherwise experienced a SICR are transitioned to stage 2 within the Group's
impairment model (note 1.2.iii). Where the modification loss related to
customers that have been transitioned from stage 1 to stage 2 as a result of
this assessment, the modification loss has been recognised as an impairment in
the consolidated statement of comprehensive income.
In the current period, there has been no modification loss recognised in
respect of Covid-19 payment holidays. In prior periods if the customer was
already in arrears, suggesting a significant increase in credit risk event
prior to them being granted a payment holiday; a modification loss relating to
these customers has also been recognised in impairment. The remainder of the
modification loss has been recognised in revenue (see note 5 for further
details).
3. Revenue and Segment reporting
Revenue consists of interest income and is derived primarily from a single
segment in the UK, but also from Irish entity Amigo Loans Ireland Limited. The
Group has two operating segments based on the geographical location of its
operations, being the UK and Ireland. IFRS 8 requires segment reporting to be
based on the internal financial information reported to the chief operating
decision maker. The Group's chief operating decision maker is deemed to be the
Group's Executive Committee (ExCo) whose primary responsibility is to support
the Chief Executive Officer (CEO) in managing the Group's day-to-day
operations and analyse trading performance. The table below presents the
Group's performance on a segmental basis for the nine months to 31 December
2021 in line with reporting to the chief operating decision maker:
9 months to 31 December 2021 Period to Period to Period to
31 Dec 21 31 Dec 21 31 Dec 21
£m £m £m
UK Ireland Total
Revenue 74.9 0.8 75.7
Interest payable and funding facility fees (14.3) (0.1) (14.4)
Interest receivable 0.1 - 0.1
Impairment of amounts receivable from customers (30.6) 0.3 (30.3)
Administrative and other operating expenses (19.1) (0.5) (19.6)
Provision expenses (9.9) - (9.9)
Total operating expenses (29.0) (0.5) (29.5)
Profit before tax 1.1 0.5 1.6
Tax credit on profit(1) 0.9 - 0.9
Profit and total comprehensive income attributable to equity shareholders of 2.0 0.5 2.5
the Group
31 Dec 21 31 Dec 21 31 Dec 21
£m £m £m
UK Ireland Total
Gross loan book(2)
231.0 1.8 232.8
Less impairment provision (51.7) (0.4) (52.1)
Net loan book(3)
179.3 1.4 180.7
(1)The tax credit for the UK primarily relates to the release of a return to
provision adjustment for prior years. .
(2) Gross loan book represents total outstanding loans and excludes deferred
broker costs.
(3) Net loan book represents gross loan book less provision for impairment.
The carrying value of property, plant and equipment and intangible assets
included in the consolidated statement of financial position materially all
relates to the UK; hence the split between UK and Ireland has not been
presented. The results of each segment have been prepared using accounting
policies consistent with those of the Group as a whole.
Period to Period to Period to
31 Dec 20 31 Dec 20 31 Dec 20
£m £m £m
9 months to 31 December 2020 UK Ireland Total
Revenue 135.7 1.8 137.5
Interest payable and funding facility fees (22.1) - (22.1)
Impairment of amounts receivable from customers (41.1) (0.4) (41.5)
Administrative and other operating expenses (34.4) (1.0) (35.4)
Complaints expense (116.2) - (116.2)
Total operating expenses (150.6) (1.0) (151.6)
Strategic review, formal sale process and related financing costs (3.6) - (3.6)
(Loss)/ profit before tax (81.7) 0.4 (81.3)
Tax (charge)(1)
(5.2) (0.3) (5.5)
(Loss)/ profit and total comprehensive income attributable to equity (86.9) 0.1 (86.8)
shareholders of the Group
31 Dec 20 31 Dec 20 31 Dec 20
£m £m £m
UK Ireland Total
Gross loan book(2)
497.7 4.7 502.4
Less impairment provision (89.1) (1.1) (90.2)
Net loan book(3)
408.6 3.6 412.2
1 The tax charge for Ireland is primarily reflective of the write-off of a
£0.3m corporation tax asset in the period.
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
Period to Period to Year to
31 Dec 21 31 Dec 20 31 Mar 21
Unaudited Unaudited Audited
£m £m £m
Senior secured notes interest payable 13.4 12.6 17.8
Funding facility fees 0.3 0.9 0.4
Securitisation interest payable 0.2 2.4 2.8
Complaints provision discount unwind (note 13) - 2.0 2.0
Other finance costs 0.5 4.2 4.5
14.4 22.1 27.5
No interest was capitalised by the Group during the period. Funding facility
fees include non-utilisation fees and amortisation of initial costs of the
Group's senior secured notes.
Other finance costs represent non-utilisation fees of £0.5m relating to the
securitisation facility.
In the prior year, other finance costs also included written off fees
totalling £1.9m following cancellation of the Group's revolving credit
facility and substantial modification of the securitisation facility.
5. Modification of financial assets
Covid-19 payment holidays and any subsequent extensions have been assessed as
non-substantial financial asset modifications under IFRS 9 (see note 2.4 for
further details). The Group stopped granting payment holidays in March 2021;
hence no additional modification losses have been recognised in the period.
All payment holidays ended by 31 July 2021.
In the period, £nil of modification losses were released in respect of loan
agreements that settled or charged off in the 9 months to 31 December 2021.
The carrying value of historical modification losses at the period end was
£7.6m.
Period to Period to Year to
31 Dec 21 31 Dec 20 31 Mar 21
Unaudited Unaudited Audited
£m £m £m
Modification (loss) recognised in revenue - (26.2) (27.2)
Modification (loss) recognised in impairment - (7.7) (8.3)
Total modification (loss) - (33.9) (35.5)
6. Strategic review, formal sale process and related financing costs
Strategic review, formal sale process and related financing costs are
disclosed separately in the financial statements because the Directors
consider it necessary to do so to provide further understanding of the
financial performance of the Group. There has been no strategic review, formal
sale process and related financing costs as at 31 December 2021. Prior period
costs are material items of expense that have been shown separately due to the
significance of their nature and amount.
Period to Period to Year to
31 Dec 21 31 Dec 20 31 Mar 21
£m £m £m
Unaudited Unaudited Audited
Strategic review and formal sale process costs - 3.6 3.0
- 3.6 3.0
The costs above relate to advisor and legal fees in respect of the strategic
review and formal sale process announced on 27 January 2020 and its
termination was announced on 8 June 2020.
7. Taxation
The applicable corporation tax rate for the period to 31 December 2021 was
19.0% (Q3 2020: 19.0%) and the effective tax rate is positive 56.3% (Q3 2020:
negative 6.8%). The effective tax rate is primarily due to the release of a
return to provision adjustment for prior years and the recognition of an
imminent tax refund.
In the prior year, the Group's loss-making position and the ongoing
uncertainty over the Group's future profitability meant that it was no longer
considered probable that future taxable profits would be available against
which to recognise deferred tax assets. Consequently, no tax assets were
recognised in respect of losses in the prior year, which were primarily driven
by the recognition of a £344.6m complaints provision as at 31 March 2021. The
uncertainty remains in the period to 31 December 2021 as the Group continues
to pursue a Scheme of Arrangement.
Whilst the nine months ended 31 December 2021 were profitable, no tax charge
has been recognised on profits due to the uncertainty around the profitability
for the remainder of the year, whereby revenue will continue to decrease as
the loan book declines and the uncertainty surrounding the outcome of the
Scheme of Arrangement.
8. Profit/(loss) per share
Basic earnings/(loss) per share is calculated by dividing the profit/(loss)
for the period attributable to equity shareholders by the weighted average
number of ordinary shares outstanding during the period.
Diluted earnings/(loss) per share calculates the effect on profit/(loss) per
share assuming conversion of all dilutive potential ordinary shares. Dilutive
potential ordinary shares are calculated as follows:
i) For share awards outstanding under performance-related share
incentive plans such as the Share Incentive Plan (SIP) and the Long Term
Incentive Plans (LTIPs), the number of dilutive potential ordinary shares is
calculated based on the number of shares which would be issuable if the end of
the reporting period is assumed to be the end of each 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/(loss) per share.
31 Dec 21 31 Dec 20 31 Mar 21
Unaudited Unaudited Audited
Pence Pence Pence
Basic earnings/ profit/(loss) per share 0.5 (18.3) (60.8)
Diluted earnings/ profit/(loss) per share 0.5 (18.2) (60.8)
Adjusted basic earnings/ profit/(loss) per share (basic and diluted)2 (16.2)
0.2 (58.9)
1. Adjusted basic (loss) per share and
earnings for adjusted basic (loss) per share are non-GAAP measures.
The Directors are of the opinion that the publication of the adjusted
profit/(loss) per share is useful as it gives a better indication of ongoing
business performance. Reconciliations of the profit/(loss) used in the
calculations are set out below.
31 Dec 21 31 Dec 20 31 Mar 21
Unaudited Unaudited Audited
£m £m £m
Profit/(loss) for basic EPS 2.5 (86.8) (289.1)
Strategic review, formal sale process and related financing costs - 3.6 3.0
Write-off of revolving credit facility (RCF) fees - 0.7 0.7
Write-off of unamortised securitisation fees - 1.2 1.2
Tax provision release (0.8) (2.5) (2.5)
Tax refund due (0.6) - -
Tax asset write-off - 7.8 7.8
Less tax impact - (1.0) (0.9)
Profit/(loss) for adjusted basic EPS1 (279.8)
1.1 (77.0)
Basic weighted average number of shares (m) 475.3 475.3 475.3
Dilutive potential ordinary shares (m)(2) 0.5
0.8 2.7
Diluted weighted average number of shares (m) 476.1 478.0 475.8
1. Adjusted basic (loss) per share and earnings for adjusted
basic (loss) per share are non-GAAP measures.
2. Although the Group has issued further options under the
employee share schemes, upon assessment of the dilutive nature of the options,
some options are not considered dilutive as at 31 December 2021 as they would
not meet the performance conditions. Those dilutive shares included are in
relation to the employee October 2020 SAYE scheme.
9. Customer loans and receivables
The table shows the gross loan book and deferred broker costs by stage, within
the scope of the IFRS 9 ECL framework.
31 Dec 21 31 Dec 20 31 Mar 21
Unaudited Unaudited Audited
£m £m £m
Stage 1 165.5 364.9 311.5
Stage 2 40.1 93.5 61.4
Stage 3 27.2 44.0 50.0
Gross loan book 232.8 502.4 422.9
Deferred broker costs1 - stage 1 3.2 8.7 7.2
Deferred broker costs1 - stage 2 0.8 2.3 1.4
Deferred broker costs1 - stage 3 1.1
0.5 1.1
Loan book inclusive of deferred broker costs 237.3 514.5 432.6
Provision(2) (82.0)
(52.1) (90.2)
Customer loans and receivables 185.2 424.3 350.6
1. Deferred broker costs are recognised within customer loans
and receivables and are amortised over the expected life of those assets using
the effective interest rate (EIR) method.
2. Included within the provision is a judgemental management
overlay of £nil for 31 December 2021, £6.2m for 31 December 2020 and £6.0m
for 31 March 2021.
As at 31 December 2021, £106.2m 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 (Q3
2020: £211.7m).
Ageing of gross loan book (excluding deferred brokers' fees and provision) by
days overdue:
31 Dec 21 31 Dec 20 31 Mar 21
Unaudited Unaudited Audited
£m £m £m
Current 165.1 376.2 315.5
1-30 days 29.8 57.7 41.4
31-60 days 10.6 24.5 16.0
>60 days 27.3 44.0 50.0
Gross loan book 232.8 502.4 422.9
The following table further explains changes in the net carrying amount of
loans receivable from customers to explain their significance to the changes
in the loss allowance for the same portfolios.
31 Dec 21 31 Dec 20 31 Mar 21
Unaudited Unaudited Audited
Customer loans and receivables £m £m £m
Due within one year 140.6 241.8 218.9
Due in more than one year 40.1 170.4 122.0
Net loan book 180.7 412.2 340.9
Deferred broker costs1
Due within one year 3.2 7.5 6.2
Due in more than one year 1.3 4.6 3.5
Customer loans and receivables 185.2 424.3 350.6
1. Deferred broker costs are recognised within customer loans
and receivables and are amortised over the expected life of those assets using
the effective interest rate (EIR) method.
10. Other receivables
31 Dec 21 31 Dec 20 31 Mar 21
Unaudited Unaudited Audited
£m £m £m
Current
Other receivables 0.6 0.2 0.5
Prepayments and accrued income 0.9 1.0 1.1
1.5 1.2 1.6
11. Trade and other payables
31 Dec 21 31 Dec 20 31 Mar 21
Unaudited Unaudited Audited
£m £m £m
Current
Accrued senior secured note interest 8.2 8.1 3.7
Trade payables 0.3 0.4 0.5
Taxation and social security 0.4 0.9 0.8
Other creditors 0.9 2.9 1.8
Accruals and deferred income 5.1 8.1 9.1
14.9 20.4 15.9
12. Bank and other borrowings
31 Dec 21 31 Dec 20 31 Mar 21
Unaudited Unaudited Audited
£m £m £m
Current and non-current liabilities
Amounts falling due in less than 2 years
Securitisation facility - - 64.4
Amounts falling due 2-3 years
Senior secured notes 232.6 - 232.1
Securitisation facility - 112.2 -
Amounts falling due 3-4 years
Senior secured notes - 231.9 -
232.6 344.1 296.5
The Group's facilities are:
• Senior secured notes in the form of £232.6m high yield bonds with a
coupon rate of 7.625% which expire in January 2024 (Q3 2020: £231.9m). The
senior secured notes are presented in the financial statements net of
unamortised fees. As at 31 December 2021, the gross principal amount
outstanding was £234.1m. On 20 January 2017, £275.0m of notes were issued at
an interest rate of 7.625%. The high yield bond was tapped for £50.0m in May
2017 and again for £75.0m in September 2017 at a premium of 3.8%. £165.9m of
notes have been repurchased in the open market in prior financial years (2020:
£85.9m; 2019: £80.0m). After the Balance Sheet date, Amigo served notice of
the early redemption, at par, of £184.1m of the outstanding senior secured
notes (see note 17).
· The securitisation facility was in place during the period; however,
the securitisation facility has been fully repaid. Given the current
suspension of all new lending activity at Amigo, the size of the
securitisation facility was reduced from £250m to £100m, effective 25 June
2021. On 25 June 2021, the Group extended the securitisation facility's
performance trigger waiver period from 25 June 2021 to 24 September 2021. The
24 September 2021 extension period of the facility's performance trigger
waiver expired on 24 September 2021. In light of the Group's immediate
financing needs and current unrestricted cash balance, the Company does not
expect the need to operate the securitisation facility in the near term. The
Board intends to keep the securitisation structure in place to provide the
Company with more diversity for future funding options. With effect from 24
September 2021, all rights, obligations and liabilities of the Lead Arranger,
Facility Agent and Senior Noteholder, as defined in the securitisation
Facility Documents, were taken over and assumed by Amigo.
13. 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.
31 Dec 21 31 Dec 20 31 Mar 2021
Complaints Restructuring Total Complaints Restructuring Total Complaints Restructuring Total
£m £m £m £m £m £m £m £m £m
Balance as at 31 March 2021/20 344.6 - 344.6 117.5 - 117.5 117.5 - 117.5
Provisions made during period 9.9 - 9.9 116.2 - 116.2 318.8 1.0 319.8
Discount unwind (note 4) - - - 2.0 - 2.0 2.0 - 2.0
Movement in the provision (7.0) - (7.0) (84.8) - (84.8) (93.7) - (93.7)
Closing provision 347.5 - 347.5 150.9 - 150.9 344.6 1.0 345.6
Non-current - - - - - - - - -
Current 347.5 - 347.5 150.9 - 150.9 344.6 1.0 345.6
347.5 - 347.5 150.9 - 150.9 344.6 1.0 345.6
Customer complaints redress
As at 31 December 2021, the Group has recognised a complaints provision
totalling £347.5m in respect of customer complaints redress and associated
costs. Utilisation in the period totalled £7.0m. Our lending practices have
been subject to significant shareholder, regulatory and customer attention,
which, combined with the pursuit of a Scheme, has resulted in an increase in
the number of complaints received.
The current provision reflects the estimate of the cost of redress relating to
customer-initiated complaints and complaints raised by CMCs for which it has
been concluded that a present constructive obligation exists, based on the
latest information available.
The provision has two components, firstly a provision for complaints received
at the reporting date, and secondly a provision for the projected costs of
potential future complaints where it is considered more likely than not that
customer redress will be appropriate.
The engagement with customers and increased publicity of complaints in
connection the proposed Scheme and the accompanying creditor vote process, as
well as ongoing publicity relating to any potential future Scheme, is expected
to result in an acceleration in the timing of claims versus our prior year
assumptions. Consequently, in the current period, the complaints provision is
classified as a current liability.
There is significant uncertainty around the emergence period for complaints,
in particular the impact of customer communications in connection with the
unsuccessful Scheme of Arrangement and any potential alternative Scheme of
Arrangement and the activities of claims management companies; both of which
could significantly affect complaint volumes, uphold rates and redress costs.
It is possible that the eventual outcome may differ materially from current
estimates which could materially impact the financial statements as a whole,
given the Group's only activity is guarantor-backed consumer credit. See note
2.3 for details of the key assumptions that involve significant management
judgement and estimation in the provision calculation, and for sensitivity
analysis.
The Group continues to monitor its policies and processes to ensure that it
responds appropriately to customer complaints.
The Group will continue to assess both the underlying assumptions in the
calculation and the adequacy of this provision periodically using actual
experience and other relevant evidence to adjust the provisions where
appropriate.
Restructuring provision
As at 31 March 2021, the Group recognised a restructuring provision totalling
£1.0m in respect of the expected cost of staff redundancies. This provision
was fully utilised by 30 June 2021 and outstanding balance at 31 December 2021
is £nil.
Contingent liability
FCA investigation
On 29 May 2020 the FCA commenced an investigation into whether the Group's
creditworthiness assessment process, and the governance and oversight of this,
was compliant with regulatory requirements. The FCA investigation will cover
lending for the period from 1 November 2018 to date. There is significant
uncertainty around the impact of this on the business, the assumptions
underlying the complaints provision and any future regulatory intervention.
The Group was informed on 15 March 2021 that the FCA has decided to extend
the scope of its current investigation so that it can investigate whether the
Group appropriately handled complaints after 20 May 2020 and whether the
Group deployed sufficient resource to address complaints in accordance with
the Voluntary Requirement (VReq) announced on 27 May 2020 and the subsequent
variation announced on 3 July 2020.
The FCA investigation will consider whether those complaints have been
handled appropriately and whether customers have been treated fairly in
accordance with Principle 6 of the FCA's Principles for Business. The Group
will continue to co-operate fully with the FCA.
Such investigations take an average of two years to conclude from the
commencement date. There are a number of different outcomes which may result
from this FCA investigation, including the imposition of a significant fine
and/or the requirement to perform a back-book remediation exercise in the
absence of a successful Scheme of Arrangement. Should the FCA mandate this
review it is possible that the cost of such an exercise will exceed the
Group's available resources. The potential impact of the investigation on the
business is unpredictable and unquantifiable.
14. Immediate and ultimate parent undertaking
The immediate and ultimate parent undertaking is Amigo Holdings PLC, a company
incorporated in England and Wales. The consolidated financial statements of
the Group as at and for the year ended 31 March 2021 are available upon
request from the Company's registered office at Nova Building, 118-128
Commercial Road, Bournemouth, United Kingdom, BH2 5LT.
15. 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 increase 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 £0.7m in the nine months to 31 December 2021.
16. Related party transactions
The Group had no related party transactions during the nine-month period to 31
December 2021 that would materially affect the performance of the Group.
Details of the transactions for the year ended 31 March 2021 can be found in
note 24 of the Amigo Holdings PLC financial statements.
17. Post balance sheet events
Senior secured notes partial redemption
On 4 January 2022, Amigo served notice of the early redemption, at par, of
£184.1m of the £234.1m outstanding 7.625% senior secured notes due in 2024
with a redemption date of 15 January 2022. The remaining £50.0m gross
principal amount outstanding is due in January 2024.
Board changes
On 24 January 2022 Amigo announced that the Chief Financial Officer (CFO) Mike
Corcoran, would leave the business with immediate effect. Mike formally
stepped down as a Director on 19 February 2022. Danny Malone was appointed
interim CFO, and joined the business on 7 February 2022.
Scheme of Arrangement and Equity issue update
On 24 January 2022 Amigo announced a Scheme of Arrangement and Equity issue
update. For the New Business Scheme Amigo is proposing initial cash
contributions totalling £97 million from internally generated resource,
alongside a further contribution of £15m, being part of the proceeds of a new
equity raise. The equity raise is likely to be undertaken by a rights
issue for existing shareholders, with a placing of unsubscribed shares to
third party investors. In order to secure the best result for Redress
Creditors possible in the circumstances, the New Business Scheme will
include a mechanism for an additional payment to Redress Creditors to be
made in the event that the existing loan book generates a better return than
currently anticipated. The New Business Scheme will also require the
Company to issue at least 19 new shares for every existing share in the
Company.
Appendix: alternative performance measures (unaudited)
This financial report provides alternative performance measures (APMs) which
are not defined or specified under the requirements of International Financial
Reporting Standards. The Board believes these APMs provide readers with
important additional information on the Group. To support this, details of the
APMs used, how they are calculated and why they are used are set out below.
Key performance indicators
Other financial data
9 months ended 9 months ended Year to
31 December 31 December 31 March
Figures in £m, unless otherwise stated 2021 2020 2021
Average gross loan book 327.9 626.2 586.4
Gross loan book 232.8 502.4 422.9
Percentage of book <31 days past due 83.7% 86.4% 84.4%
Net loan book 180.7 412.2 340.9
Net debt 52.9 (179.5) (118.6)
Net debt/gross loan book (22.7)% 35.7% 28.0%
Net debt/equity 0.4x 2.2x (1.0)x
Revenue yield 30.8% 29.3% 29.1%
Risk adjusted revenue 45.4 96.0 110.1
Risk adjusted margin 18.5% 20.4% 18.8%
Net interest margin 14.6% 20.8% 20.3%
Adjusted net interest margin 25.0% 24.6% 24.5%
Cost of funds percentage 5.9% 4.3% 4.3%
Impairment:revenue ratio 40.0% 30.2% 35.5%
Impairment charge as a percentage of loan book 17.4% 11.0% 14.4%
Cost:income ratio 39.0% 110.3% 212.7%
Operating cost:income ratio (ex. complaints) 25.9% 25.7% 26.1%
Adjusted profit/(loss) after tax 1.1 (77.0) (279.8)
Return on assets 0.6% (17.3)% (44.9)%
Adjusted return on average assets 0.3% (15.3)% (43.5)%
Return on equity (2.8)% (93.3)% (1257.0)%
Adjusted return on average equity (1.2)% (82.7)% (1216.5)%
1. Average gross loan book
31 Dec 21 31 Dec 20 31 Mar 21
£m £m £m
Opening gross loan book 422.9 749.9 749.9
Closing gross loan book 232.8 502.4 422.9
Average gross loan book(1) 626.2 586.4
327.9
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.
31 Dec 21 31 Dec 20 31 Mar 21
Ageing of gross loan book by days overdue: £m £m £m
Current 165.1 376.2 315.5
1-30 days 29.8 57.7 41.4
31-60 days 10.6 24.5 16.0
>61 days 27.3 44.0 50.0
Gross loan book 232.8 502.4 422.9
Percentage of book <31 days past due 83.7% 86.4% 84.4%
3. "Net loan book" is a subset of customer loans and receivables and
represents the interest yielding loan book when the IFRS 9 impairment
provision is accounted for, comprised of:
31 Dec 21 31 Dec 20 31 Mar 21
£m £m £m
Gross loan book1 (see APM number 2) 232.8 502.4 422.9
Provision2 (90.2) (82.0)
(52.1)
Net loan book3 412.2 340.9
180.7
(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 debts" is comprised of:
31 Dec 21 31 Dec 20 31 Mar 21
£m £m £m
Borrowings(1) (232.6) (344.1) (296.5)
Cash and cash equivalents 285.5 164.6 177.9
Net debt 52.9 (179.5) (118.6)
1 Total borrowing is net of unamortised fees.
This is deemed useful to show total debt if unrestricted cash available at the
period end was used to repay borrowings.
5. The Group defines loan to value (LTV) as net debt divided by gross loan
book. This measure shows if the debt year-on-year movement is in line with
loan book growth.
31 Dec 21 31 Dec 20 31 Mar 21
£m £m £m
Net debt (see APM number 4) 52.9 (179.5) (118.6)
Gross loan book (see APM number 2) 232.8 502.4 422.9
Net debt/gross loan book (22.7)% 35.7% 28.0%
6. Net borrowings/equity
31 Dec 21 31 Dec 20 31 Mar 21
£m £m £m
Shareholder equity 118.1 80.7 (121.4)
Net debt (see APM number 4) 52.9 (179.5) (118.6)
Net debt/equity 0.4x 2.2x (1.0)x
This is one of the Group's metrics to assess gearing.
7. The Group defines "revenue yield" as annualised revenue over the average of
the opening and closing gross loan book for the period.
31 Dec 21 31 Dec20 31 Mar 21
Revenue yield £m £m £m
Revenue 75.7 137.5 170.8
Opening loan book 422.9 749.9 749.9
Closing loan book 232.8 502.4 422.9
Average loan book (see APM number 1) 327.9 626.2 586.4
Revenue yield (annualised) 30.8% 29.3% 29.1%
This is deemed useful in assessing the gross return on the Group's loan book.
8. The Group defines "risk adjusted revenue" as revenue less impairment
charge.
31 Dec 21 31 Dec 20 31 Mar 21
£m £m £m
Revenue 75.7 137.5 170.8
Impairment of amounts receivable from customers (30.3) (41.5) (60.7)
Risk adjusted revenue 45.4 96.0 110.1
Risk adjusted revenue is not a measurement of performance under IFRS and is
not an alternative to profit/(loss) before tax as a measure of the Group's
operating performance, as a measure of the Group's ability to meet its cash
needs or as any other measure of performance under IFRS.
9. The Group defines "risk adjusted margin" as risk adjusted revenue divided
by the average of gross loan book.
31 Dec 21 31 Dec 20 31 Mar 21
£m £m £m
Risk adjusted revenue (see APM number 8) 45.4 96.0 110.1
Average gross loan book (see APM number 1) 327.9 626.2 586.4
Risk adjusted margin (annualised) 18.5% 20.4% 18.8%
This measure is used internally to review an adjusted return on the Group's
loan book.
10. The Group defines "net interest margin" as annualised net interest income
divided by average interest-bearing assets (being both gross loan book and
cash) at the beginning of the period and end of the period.
31 Dec 21 31 Dec 20 31 Mar 21
£m £m £m
Revenue 75.7 137.5 170.8
Interest payable, receivable and funding facility fees (14.3) (22.1) (27.4)
Net interest income 61.4 115.4 143.4
Opening interest-bearing assets (gross loan book plus unrestricted cash) 600.8 814.2 814.2
Closing interest-bearing assets (gross loan book plus unrestricted cash) 518.3 667.0 600.8
Average interest-bearing assets (customer loans and receivables plus 559.6 740.6 707.5
unrestricted cash)
Net interest margin (annualised) 14.6% 20.8% 20.3%
Adjusted net interest margin, being net interest income divided by average
gross loan book, is also presented below:
31 Dec 21 31 Dec 20 31 Mar 21
£m £m £m
Net interest income 61.4 115.4 143.4
Average gross loan book (see APM number 1) 327.9 626.2 586.4
Adjusted net interest margin (annualised) 25.0% 24.6% 24.5%
11. The Group defines "cost of funds" as annualised interest payable divided
by the average of gross loan book at the beginning and end of the period.
31 Dec 21 31 Dec 20 31 Mar 21
£m £m £m
Cost of funds 14.4 22.1 27.5
Less complaints discount unwind expense (notes 4 and 13) - (2.0) (2.0)
Adjusted cost of funds 14.4 20.1 25.5
Average gross loan book (see APM number 1) 327.9 626.2 586.4
Cost of funds percentage (annualised) 5.9% 4.3% 4.3%
This measure is used by the Group to monitor the cost of funds and impact of
diversification of funding. The measure has been amended to reflect on true
interest expenses related to borrowings, accounting related adjustments have
been removed to provide a better understanding for users.
12. Impairment charge as a percentage of revenue "impairment:revenue ratio"
represents the Group's impairment charge for the period divided by revenue for
the period.
31 Dec 21 31 Dec 20 31 Mar 21
£m £m £m
Revenue 75.7 137.5 170.8
Impairment of amounts receivable from customers 30.3 41.5 60.7
Impairment charge as a percentage of revenue 40.0% 30.2% 35.5%
This is a key measure for the Group in monitoring risk within the business.
13. Impairment charge as a percentage of loan book represents the Group's
impairment charge for the period divided by closing gross loan book.
31 Dec 21 31 Dec 20 31 Mar 21
£m £m £m
Impairment of amounts receivable from customers 30.3 41.5 60.7
Closing gross loan book (see APM number 1) 232.8 502.4 422.9
Impairment charge as a percentage of loan book (annualised) 17.4% 11.0% 14.4%
This allows review of the impairment charge relative to the size of the
Group's gross loan book.
14. The Group defines "cost:income ratio" as operating expenses excluding
strategic review, formal sale process and related financing costs divided by
revenue.
31 Dec 21 31 Dec 20 31 Mar 21
£m £m £m
Revenue 75.7 137.5 170.8
Total operating expenses 29.5 151.6 363.3
Cost:income ratio 39.0% 110.3% 212.7%
This measure allows review of cost management.
15. Operating cost:income ratio, defined as the cost:income ratio excluding
the complaints provision, is:
31 Dec 21 31 Dec 20 31 Mar 21
£m £m £m
Revenue 75.7 137.5 170.8
Administrative and other operating expenses 19.6 35.4 44.5
Operating cost:income ratio 25.9% 25.7% 26.1%
16. The following table sets forth a reconciliation of profit/(loss)after tax
to "adjusted profit/(loss) after tax" for the 9 months to 31 December 2021,
2020 and year to 31 March 2021.
31 Dec 21 31 Dec 20 31 Mar 21
£m £m £m
Reported profit/(loss) after tax 2.5 (86.8) (289.1)
Revolving credit facility (RCF) fees - 0.7 0.7
Securitisation fees - 1.2 1.2
Strategic review and formal sale process costs - 3.6 3.0
Tax provision release (0.8) (2.5) (2.5)
Tax refund due (0.6) - -
Tax asset write-off - 7.8 7.8
Less tax impact - (1.0) (0.9)
Adjusted profit/(loss) after tax 1.1 (77.0) (279.8)
The above items were all excluded due to their exceptional nature. The
Directors' believe that adjusting for these items is useful in making
year-on-year comparisons.
· Senior secured note buybacks are not underlying business-as-usual
transactions.
· RCF fees relate to fees written-off following the modification
and extension of the revolving credit facility in FY20, and in FY21 relates to
fees written-off following cancellation of the facility. Modification,
extension and cancellation of the facility were all deemed substantial
modifications of the financial instrument leading to the derecognition of
previously capitalised fees. The facility was cancelled in May 2020 and hence
these amounts have been excluded.
· Following the renegotiation of the securitisation facility on 14
August 2020 a substantial modification of the facility occurred; as such all
previous capitalised fees relating to the facility have been written off. This
has been adjusted for above as it was a one-off event in the period.
· Due to inherent uncertainty surrounding future profitability,
current and deferred tax assets were written off and charged to the
consolidated statement of comprehensive income in the year. The tax provision
release refers to the release of a tax provision no longer required. These
adjustments result in a tax charge for the year despite the large loss making
position as at 31 March 2021 and hence have been adjusted for in the
calculation.
· Strategic review and formal sale process costs relate to the
strategic review and formal sale processes both announced in January 2020.
They are one off costs and hence have been adjusted.
· Tax provision release is a prior year adjustment due to the
release of the 2017 uncertain tax provision relating to potential thin
capitalisation adjustment in Amigo Holdings.
· Tax refund due reflects the release of a historic tax liability.
None are business-as-usual transactions. Hence, removing these items is deemed
to give a view of underlying profit/(loss) adjusting for non-business-as-usual
items within the financial year.
17. Return on assets (ROA) refers to annualised profit/(loss) over tax as a
percentage of average assets.
Adjusted return on assets 31 Dec 21 31 Dec 20 31 Mar 21
Profit/(loss) after tax 2.5 (86.8) (289.1)
Customer loans and receivables at period and year end 185.2 424.3 350.6
Other receivables and current assets at period and year end 5.7 1.2 8.0
Cash and cash equivalents at period and year end 285.5 164.6 177.9
Total 476.4 590.1 536.5
Average assets 533.3 670.6 643.8
Return on assets (annualised) 0.6% (17.3)% (44.9)%
18. Adjusted return on assets refers to annualised adjusted
profit/(loss) over tax as a percentage of average assets
Adjusted return on assets 31 Dec 21 31 Dec 20 31 Mar 21
Adjusted profit/(loss) after tax (see APM number 16) 1.1 (77.0) (279.8)
Customer loans and receivables at period and year end 185.2 424.3 350.6
Other receivables and current assets at period and year end 5.7 1.2 8.0
Cash and cash equivalents at period and year end 285.5 164.6 177.9
Total 476.4 590.1 536.5
Average assets 533.3 670.6 643.8
Adjusted return on assets (annualised) 0.3% (15.3)% (43.5)%
19. "Return on equity" (ROE) is calculated as annualised profit/(loss) after
tax divided by the average of equity at the beginning of the period and the
end of the period.
31 Dec 21 31 Dec 20 31 Mar 21
£m £m £m
Profit/(loss) after tax 2.5 (86.8) (289.1)
Shareholder equity (118.1) 80.7 (121.4)
Average equity (119.8) 124.1 23.0
Return on average equity (annualised) (2.8)% (93.3)% (1257.0)%
20. "Adjusted return on equity" is calculated as annualised adjusted
profit/(loss) after tax divided by the average of equity at the beginning of
the period and the end of the period.
31 Dec 21 31 Dec 20 31 Mar 21
£m £m £m
Adjusted profit/(loss) after tax (see APM number 16) 1.1 (77.0) (279.8)
Shareholder equity (118.1) 80.7 (121.4)
Average equity (119.8) 124.1 23.0
Adjusted return on average equity (annualised) (1.2)% (82.7)% (1216.5)%
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AnnouncementREG - Amigo Holdings PLC - Letter from Craig Ransley, Executive Chair
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