REG - Amigo Holdings PLC - 3rd Quarter Results
23/02/2023 07:00
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RNS Number : 7725Q Amigo Holdings PLC 23 February 2023
23 February 2023
Amigo Holdings PLC
Financial Results for the nine months ended 31 December 2022
Amigo Holdings PLC, ("Amigo" or the "Company"), provider of mid-cost credit in
the UK, announces results for the nine-month period ended 31 December 2022.
Danny Malone, Chief Executive Officer commented:
"In recent weeks we have made progress with the capital raise, despite
extremely difficult market conditions, but have yet to secure the equity
funding needed and conversations with potential investors are ongoing.
Positively, Amigo's pilot RewardRate lending programme, launched under
regulatory supervision, is now building momentum in a market where demand is
strong. This is a clear indication of the need for a mid-cost lending solution
for people not served by mainstream lenders and, as Directors, we fully
believe in the considerable growth potential of our business and the role it
can play in greater financial inclusion and mobility. Clearly, we continue to
face uncertainty and we recognise that this is a very challenging time both
for our shareholders and our employees. The Board would like to assure them
that it is leaving no stone unturned as it seeks to secure additional equity
funding and deliver the best outcome possible for all our stakeholders."
Headlines
· Amigo continues to operate according to the terms of a Scheme of
Arrangement ("Scheme"), sanctioned by the High Court in May 2022.
· The Scheme includes a 'Preferred Solution', which is conditional on
the completion of a 19:1 capital raise by 26 May 2023 (the "Capital Raise"),
followed by the contribution of a minimum £15m payment to the Scheme Fund
for creditor redress.
· Conversations with potential investors to underwrite a £45m equity
raise continue. To date non-binding, indicative interest for between £10m to
£15m of equity and £10m of exchangeable notes has been received.
· Under the terms of the Scheme, if the Board expects the Capital
Raise to be unsuccessful, it is legally bound to switch the Scheme to the
'Fllback Solution', which is an orderly wind-down of the business.
· The Scheme closed to new claimants on 26 November 2022. In
total, c210k claims have been submitted.
· Amigo fulfilled a key Scheme condition by returning to lending
before 26 February 2023 with a pilot lending programme in October 2022,
following approval from the Financial Conduct Authority ("FCA").
· The pilot began in late October 2022 for an initial two-month period
and was extended in January 2023. Demand from applicants has been strong.
While initial volumes of written loans were low, they have grown significantly
through January and February. Current run rate indicates monthly originations
of over £1m with further growth expected as the conversion rate improves.
· The FCA Enforcement action concluded on 14 February 2023 with a
fine of £72.9m reduced to £0 by the FCA in order to not threaten Amigo's
ability to meet its commitments to redress creditors identified under the
Scheme.
Financial headlines
Figures in £m, unless otherwise stated 9 months ended 9 months to Change %
31 December 2022 31 December 2021
Number of customers(1) '000 38.0 86.0 (55.8)
Net loan book(2) 61.2 180.7 (66.1)
Revenue 17.8 75.7 (76.5)
Impairment: revenue (13.5)% 40.0% NM*
Complaints provision (balance sheet) (192.8) (347.5) (44.5)
Complaints charge (income statement) (15.9) (9.9) 60.6
(Loss)/profit before tax (21.3) 1.6 NM*
(Loss)/profit after tax(3) (21.4) 2.5 NM*
Adjusted (loss)/profit after tax(4) (5.5) 1.1 NM*
Basic EPS Pence (4.5) 0.5 NM*
EPS (Basic, adjusted)(5) Pence (1.2) 0.2 NM*
Net unrestricted cash(6) 91.1 52.9 72.2
*NM = not meaningful
· Net loan book reduction of 66.1% to £61.2m (Q3 FY2022: £180.7m) and
revenue reduction of 76.5% to £17.8m (Q3 FY2022: £75.7m), due to the ongoing
run-off of the legacy loan book and very limited new lending during the
period.
· Complaints provision year on year reduction of 44.5% to £192.8m (Q3
FY2022: £347.5m), reflecting the sanctioning of the Scheme. This provision
has increased on an underlying basis since the half year number of £191.4m
largely as the result of a higher expected uphold rate, revised in line with
observed third-party decisioning. The increase in the provision substantially
accounts for the income statement charge of £15.9m.
· The reduction in revenue as the book runs off, alongside the increase
in complaints provision, led to a reported loss before tax of £21.3m, (Q3
FY2022: profit of £1.6m). Loss after tax was £21.4m (Q3 FY2022: profit of
£2.5m).
· Overall collections have remained robust despite the increased cost
of living and the continued, but expected, rise in delinquency as the book
runs-off. This has been driven by continued strong post-charge-off recoveries,
while early settlements have slowed.
· £140.9m of unrestricted cash and cash equivalents as at 31 December
2022 (Q3 FY2022: £285.5m), reflects payment of the initial £60m Scheme
contribution and the repayment of a significant portion of the senior secured
notes, offset by continued strong collections. Current unrestricted cash
balance of over £105m, having settled the second Scheme payment of £37m post
period end.
· The Board has approved the early repayment of the remaining £50m of
the Group's outstanding senior secured notes, which is expected to be
completed in the coming weeks. If the Capital Raise is successful, this will
be replaced by longer-term debt facilities. The group has secured term sheets
for debt facilities which it believes are capable of execution following
further discussions with lenders.
· Net unrestricted cash of £91.1m at 31 December 2022 (Q3 FY2022: net
cash of £52.9m) driven by the continued collection of the back book and
limited originations in the period. However, substantially all the Group's net
cash is committed to the Scheme.
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)(Loss)/profit after tax otherwise known as (loss)/profit and total
comprehensive (loss)/income to equity shareholders of the Group as per the
financial statements.
(4) Adjusted (loss)/profit after tax excludes items due to their exceptional
nature including: charge/write-back of complaints provision, senior secured
note buyback, securitisation facility fees write off, tax provision release
and tax refund due. None are business-as-usual transactions. Hence, removing
these items is deemed to give a view of underlying profit adjusting for
non-business-as-usual items within the financial year.
(5) Basic adjusted (loss)/earnings per share is a non-IFRS measure and the
calculation is shown in note 7. Adjustments to (loss)/profit are described in
footnote 4 above.
(6)Net unrestricted cash is defined as unrestricted cash and cash equivalents
less borrowings and unamortised fees.
Detailed definitions and calculations of these alternative performance
measures (APMs) can be found in the APM section of these condensed financial
statements
Analyst, investor and bondholder conference call and webcast
Amigo will be hosting a live webcast for investors and bondholders today at
9.30am (London time) which will be available at:
https://www.amigoplc.com/investors/results-centre. A conference call is also
available for those unable to join the webcast (Dial in: + 020 3936 2999;
Access code: 424490). A replay will be available on Amigo's website after the
event. The presentation pack for the webcast shows the reconciliation between
the PLC results and Amigo Loans Group Limited (the 'Bond Group').
Contacts:
Amigo
Kerry Penfold, Chief Financial Officer
Kate Patrick, Investor Relations Director
investors@amigo.me
Lansons amigoloans@lansons.com
Tom Baldock
07860 101715
Ed Hooper
07783 387713
020 7418 8900
Peel Hunt LLP
James Britton
Oliver Jackson
About Amigo Loans
Amigo is a public limited company registered in England and Wales with
registered number 10024479. The Amigo Shares are listed on the Official List
of the London Stock Exchange. Amigo offers mid-cost personal loans under its
RewardRate brand. The RewardRate products reward customers for on-time
payments with an annual, interest-free, payment holiday and the opportunity to
reduce the effective APR, encouraging better financial management and
facilitating a long-term improvement of customers' credit scores and financial
mobility. Amigo has provided guarantor loans in the UK from 2005, offering
access to mid‐cost credit to those who are unable to borrow from traditional
lenders due to their credit histories. Amigo's back book of loans issued
pre-November 2020 is in the process of being run off with all net proceeds due
to creditors under a Court approved Scheme of Arrangement. 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
The first nine months of this financial year saw us make progress. Our Scheme
of Arrangement ("Scheme") was sanctioned in the High Court in May 2022 and, in
October 2022, the FCA recognised the significant change and progress we have
made in the way in which our business operates, meaning we could launch our
lending pilot with our new RewardRate products, aimed at providing financial
mobility to those not served by mainstream credit providers. After the period
end on 14 February 2023, we welcomed the conclusion of the FCA's Enforcement
action and the reduction of the fine to £0 which will aid our ability to meet
our commitments to redress Scheme creditors. This represents an important
milestone for the Company in bringing its legacy issues to a close.
We are now faced with the challenge of securing equity funding, against a
backdrop of weak equity market conditions, to fulfil the Scheme condition and
provide enough working capital to support ongoing operations. Conversations
with potential investors continue and we will do everything we can to deliver
the best outcome possible for all our stakeholders. With so many companies in
our sector having been forced out of business, there is a significant need for
mid-cost lenders to support the millions of people underserved by mainstream
finance. This has never been more relevant, with the cost-of-living crisis
deepening, and the ever-present, insidious threat of unregulated, illegal
lending.
As Directors, we fully believe in the considerable growth potential of our
business. We have seen strong demand for our new products and, as we apply the
learnings from our lending pilot, the volume of written loans is expected to
continue to grow substantially.
Financial Results
During the nine-month period to 31 December 2022, Amigo's legacy book
continued to unwind, resulting in a reduction in revenue of 76.5% compared to
the prior year period and in customer numbers, which were down 55.8%. The net
loan book, at 31 December 2022, was £61.2m. Despite the difficult
macroeconomic backdrop and the increased cost of living being felt across
society, collections have remained resilient, driven in part, by recoveries
achieved on charged off accounts.
Following the sanctioning of the Scheme, the complaints liability has almost
halved, and the provision reduced accordingly from the prior year (reflecting
the terms of the Scheme which cap the cash redress amount). However, in the
most recent quarter, the provision has increased due to the upward revision of
the estimated uphold rate, to c80% from 70%, based on observed decisioning
from Amigo's third-party complaints assessor. This increase in the provision
equates to an income statement charge of £15.9m. This, alongside the
reduction in revenue as the book runs-off, has resulted in a reported loss
before tax for the period of £21.3m, (Q3 FY2022: profit of £1.6m).
Our cash position remains strong with unrestricted cash at 31 December 2022 of
£140.9m. Current unrestricted cash is over £105m after the payment of a
further £37m Scheme contribution to the Scheme Fund. While this strong cash
position can give assurance to our creditors, including senior secured note
holders, substantially all net assets are committed to the Scheme. A Capital
Raise is required to fund the new RewardRate proposition.
Scheme Fund
Amigo's Scheme was sanctioned by the High Court in May 2022, and it closed to
new claims on 26 November 2022. In total, c210k claims have been submitted.
Under the "preferred" Scheme solution, Amigo has made initial cash
contributions of £97m to the Scheme Fund, of which £60m was paid in June
2022 and the remaining £37m was paid to the Scheme Fund on 21 February 2023.
In the event that total net recoveries from the back book, excluding the
liquidity buffer of c£8m, result in an amount greater than the £97m initial
Scheme contribution, the excess will be paid to the Scheme Fund. A further
contribution of at least £15m has been committed from the proceeds of the
proposed Capital Raise. Whilst our current forecasts are that the final
contributions to the Scheme pot will be greater than previously estimated
owing primarily to the better-than-expected collections performance, the pence
in the pound cash redress amount is expected to be reduced as a consequence of
a higher than anticipated number of customers with valid complaints.
Capital Raise
The FCA's decision to approve a return to lending, and the initiation of the
pilot lending programme in October 2022, met one of two Scheme conditions
which must be fulfilled to meet the 'Preferred Solution'. The second condition
is the completion of a 19:1 capital raise by 26 May 2023.
In October 2022, Amigo commenced a marketing process to raise equity and debt
to support its growth plans and meet the Scheme condition. As noted in the
announcement on 16 January 2023, the Board is seeking to raise £45m. The
targeted £45m of equity funding has been calculated based on a need to: (i)
meet the requirement to contribute a minimum £15m cash payment to the Scheme
Fund as required by the Scheme; and (ii) in addition to debt finance also
being raised, provide the group with £30m of working capital to develop and
grow the business to a level where earnings from its loan book are expected to
cover ongoing running costs.
Amigo has secured term sheets for debt facilities which it believes are
capable of execution. Conversations are ongoing with a number of institutional
and high net worth private investors to provide the equity funding required
and to underwrite a pre-emptive offer to our existing shareholders. As
previously announced, Amigo has been unable to secure a commitment from a
cornerstone investor to underwrite the whole of the Capital Raise and is
therefore assessing whether there is sufficient interest for a syndicate of
investors to provide the required funding in aggregate. To date, the Company
has received non-binding indicative interest for between £10m to £15m of
equity and £10m of exchangeable notes.
As outlined previously, if the Capital Raise is not completed, or the Board
determines that it cannot be achieved by 26 May 2023, the Scheme will switch
to the fallback solution outlined in the Scheme (the "Fallback Solution"),
which is an orderly wind-down of the business. Although the deadline for
meeting all the conditions precedent of the Scheme is 26 May 2023, it is
possible, both in the interests of preserving cash resources that are due to
Scheme creditors and factoring in the time needed to execute the capital raise
procedure, that a decision to switch Amigo into the Fallback Solution may be
made much earlier than this date, if investment cannot be secured. In the
event the Fallback Solution is triggered, the senior secured notes would be
repaid within one month. In this scenario, there would be no value attributed
to the Company's ordinary shares.
Lending Pilot
Amigo initiated a pilot lending programme in October 2022, shortly after
receiving approval from the FCA to return to lending, under certain agreed
conditions. We have returned to lending under the new RewardRate brand and
product set, which offers mid-cost loan products designed to enable
financial mobility for the millions underserved by mainstream credit
providers.
While demand from applicants has been strong, initial volumes of completed
loans were below the minimum lending volume required to undertake meaningful
outcomes testing and the pilot was therefore extended beyond the expected
two-month period. This slower timetable was due in part to an initial focus on
testing and refining Amigo's new technology platform and processes. It also
reflects our cautious approach to underwriting given the prevailing market
conditions and, specifically, the impact on affordability for customers of the
increased cost of living. Learnings from the pilot have been continuously
applied and volumes have increased substantially over January and February. On
the current run-rate, monthly originations are over £1m and are expected to
grow further as the conversion rate improves.
If the pilot phase is successful, subsequent originations are expected to
reach approximately £150m a year in year two and grow to over £250m in
year four allowing the loan book to grow to over £350m of net receivables in
FY27. The targeted blended net loan book yield is expected to be 35%,
generating over £100m of revenue and over £60m of EBIT in year four. Amigo's
business model assumes an impairment to revenue ratio in the high 20% range
and a cost to income ratio (before finance costs) in the low 20% range in the
medium term.
Third-party outcomes testing by a 'Skilled Person' to provide further
assurance on systems and controls began in January. It is expected that once
the FCA is satisfied with the outcomes testing on the pilot lending, the
volume limits associated with the pilot that were agreed with the FCA will be
removed.
FCA Enforcement Action
On 14 February 2023, after the period end, Amigo welcomed the conclusion of
the FCA Enforcement investigation into the group's historic lending practices
and complaints' handling between November 2018 and March 2020. This draws a
line under these legacy issues and allows us to continue working to secure the
capital required for the future of the business.
We have an entirely new Board, the members of which all joined between
mid-2020 and 2022, a significantly refreshed management team and a very
different culture and governance structure to that of the past. The new Board
and management cooperated with the FCA's investigation, which has now
concluded, and accept all the FCA's findings, which are set out in detail on
the FCA's website. Although Amigo is not required to pay a financial penalty,
if it were not for its current financial position, the Company would have been
subject to a penalty of £72.9m. We are grateful that, in reaching agreement
on the level of the final penalty, the FCA recognised that any penalty would
cause Amigo serious financial hardship and would have threatened the Company's
ability to meet its commitments to redress creditors identified under the
Scheme.
Amigo has reflected on the past, and learnings have been used in the
development of our new lending proposition, RewardRate. The Board would like
to apologise again to any customers impacted for the past failings in lending
practices. As a new Board and management team, we fully accept the lessons
that needed to be learnt for the future and our focus remains on rebuilding a
business that delivers positive outcomes for customers, backed by stronger
lending controls and a customer-centric culture. Since this investigation
began, Amigo's new Board and executive team have established a new business
plan, improved approach to individual conduct and put in place more robust
lending controls in pursuit of compliant and better customer outcomes.
Summary and Outlook
In summary, while Amigo made progress over the first nine months of the
financial year, it is now focused on securing equity funding, both to fulfil
the remaining Scheme condition and fund the ongoing business. This is a very
challenging time both for our shareholders and our employees and the Board
would like to assure them that it is leaving no stone unturned as it seeks to
deliver the best outcome possible for all our stakeholders.
We are seeing strong demand for our RewardRate products and are confident
that, if funding can be secured, Amigo is well positioned for the future
regulatory environment and to meet the growing demand for mid-cost credit.
Financial Review
In the nine months to 31 December 2022, the net loan book reduced by 66.1% to
£61.2m (Q3 FY2022: £180.7m). Revenue fell by 76.5% year on year to £17.8m
(Q3 FY2022: £75.7m), reflecting the loan book reduction with limited new
lending over the period. Customer numbers reduced by 55.8% compared to the
prior year to 38,000 (Q3 FY2022: 86,000). The reduction in revenue, alongside
an increase in the complaints provision led to a reported statutory loss
before tax for the period of £21.3m (Q3 FY2022: profit of £1.6m) and loss
after tax of £21.4m (Q3 FY2022: profit of £2.5m). Adjusted loss of £5.5m
reflects the write-back of the charge to the income statement associated with
the provision for complaints (Q3 FY2022: adjusted profit of £1.1m).
Net assets at 31 December 2022 were £26.6m (Q3 FY2022: net liabilities of
£118.1m). Although the results show a positive shareholder equity position,
substantially all the existing net assets of the business will be delivered to
the Scheme creditors. After the costs of administering the Scheme and
collecting out the remaining portfolio are paid, only a small amount of
working capital will remain. Future lending is expected to be funded, in part,
by way of the Capital Raise to be completed by 26 May 2023.
Impairment
A credit in the period was recognised of £2.4m (Q3 FY2022: charge of £30.3m)
primarily due to post charge off recoveries and continued robust standard
collections, alongside the gross loan book being increasingly provided for
under lifetime loss assumptions.
The impairment provision decreased to £23.4m (Q3 FY2022: £52.1m), primarily
due to the decline of the loan book, representing 27.7% of the gross loan book
(Q3 FY2022: 22.4%).
Scheme Provision
The Scheme provision has been reassessed reflecting the final volume of
claims, of c210k following the passing of the deadline to submit a claim
within the Scheme on 26 November 2022. While significantly above original
Scheme projections, the final number was marginally lower than the estimate
used at the half year and includes some duplication where both guarantor and
borrower have claimed on the same loan agreement. This has been offset by a
higher, revised estimated uphold rate of c80%, based on observed decisioning
from Amigo's third-party complaints assessor. As a consequence of the
potential for a higher number of customers with valid claims than previously
estimated, the pence in the pound cash redress is expected to be reduced. With
a large number of claims still to be reviewed this can only be an estimate and
the final outcome is subject to change.
The revision of assumptions has resulted in an increase to the provision from
the half year to £192.8m (Q3 FY2022: £347.5m, H1 FY2023: £191.4m), and a
corresponding charge to the income statement of £15.9m. There remains a
significant degree of uncertainty in the final complaints outturn. Sensitivity
analysis of the key assumptions is set out in note 2.2 to these financial
statements.
Tax
A tax charge of £0.1m relates to Amigo's Luxembourg entity.
Funding and Liquidity
Net unrestricted cash was £91.1m at 31 December 2022 (Q3 FY2022: £52.9m) as
the back book continued to be collected and originations were limited.
Unrestricted cash and cash equivalents at 31 December 2022 was £140.9m (Q3
FY2022: £285.5m). Restricted cash is £70.3m, which includes the £60m Scheme
contribution paid to the Scheme Fund as well as estimated set-off held in
escrow for customers with existing complaints who continued to make payments
up to the Scheme Effective Date. Current unrestricted cash is over £105m
after the payment of a further £37m to the Scheme Fund.
Current collections and unrestricted cash also contain a portion that may be
due to be refunded to Scheme claimants via set off. Where cash has been
collected on Scheme accounts since June 2022, post the Scheme being sanctioned
at the High Court, it may be liable for set off if the claims associated with
those accounts are upheld. Interest paid is refunded and set off against the
capital principal amount. If this results in the capital being fully repaid,
the excess of the refund is then due in cash.
The group has £50.0m of outstanding 7.625% senior secured notes due in
January 2024. A semi-annual interest payment was made on the senior secured
notes in January, post period end. The Board has approved the early repayment
of the remaining £50m of outstanding senior secured notes, which is expected
to be completed in the coming weeks following the finalisation of certain
procedural matters. The holders of the senior secured notes will receive
formal notice of the early redemption in accordance with the terms and
conditions of the notes. Under the terms of the indenture for the senior
secured notes, the early redemption will be at par, and will produce a net
interest saving of approximately £0.5m. If the Capital Raise is successful,
this funding will be replaced by longer-term debt facilities. The group has
secured term sheets for debt facilities which it believes are capable of
execution following further discussions with lenders. As the Company does not
require the funding provided by the senior secured notes ahead of the Capital
Raise in May, and it will not be required in the event the Fallback Solution
is triggered, the Board is taking action to repay the senior secured notes
now, which will save interest and operational costs.
A capital raise process is underway, with equity of £45m sought to provide
growth capital and a minimum £15m to the Scheme. The Company is also raising
additional debt to support future growth.
Condensed consolidated statement of comprehensive income
for the 9 months to 31 December 2022
9 months ended 9 months ended Year to
31 Dec 22 31 Dec 21 31-Mar-22
Unaudited Unaudited Audited
Notes £m £m £m
Revenue 3 17.8 75.7 89.5
Interest payable and funding facility fees 4 (2.8) (14.4) (16.7)
Interest receivable 0.7 0.1 0.1
Impairment of amounts receivable from customers 2.4 (30.3) (37.0)
Administrative and other operating expenses (23.5) (19.6) (24.6)
Complaints expense 12 (15.9) (9.9) 156.6
Total operating (expense)/income (39.4) (29.5) 132.0
(Loss)/profit before tax (21.3) 1.6 167.9
Tax (charge)/credit 6 (0.1) 0.9 1.7
(Loss)/profit and total comprehensive (loss)/income attributable to equity
shareholders of the Group(1)
(21.4) 2.5 169.6
The (loss)/profit is derived from continuing activities.
(Loss)/profit per share
Basic (loss)/profit per share (pence) 7 (4.5) 0.5 35.7
Diluted (loss)/profit per share (pence) 7 (4.5) 0.5 35.7
Dividends per share (pence) - - -
The accompanying notes form part of these financial statements.
(1)There was less than £0.1m of other comprehensive income during any other
period, and hence no consolidated statement of other comprehensive income is
presented.
Condensed consolidated statement of financial position
as at 31 December 2022
31 Dec 22 31 Dec 21 31 Mar 22
Unaudited Unaudited Audited
Notes £m £m £m
Non-current assets
Customer loans and receivables 8 9.5 41.4 25.4
Property, plant and equipment 0.3 0.6 0.5
Right-of-use lease assets 0.6 0.8 0.8
10.4 42.8 26.7
Current assets
Customer loans and receivables 8 52.2 143.8 114.8
Other receivables 9 2.5 1.5 1.6
Current tax assets 0.8 0.4 0.7
Cash and cash equivalents (restricted)(1) 70.3 3.8 7.6
Cash and cash equivalents 140.9 285.5 133.6
266.7 435.0 258.3
Total assets 277.1 477.8 285.0
Current liabilities
Trade and other payables 10 (7.2) (14.9) (6.7)
Lease liabilities (0.2) (0.3) (0.3)
Complaints provision 12 (192.8) (347.5) (82.8)
(200.2) (362.7) (89.8)
Non-current liabilities
Borrowings 11 (49.8) (232.6) (49.7)
Complaints provision 12 - - (97.0)
Lease liabilities (0.5) (0.6) (0.6)
(50.3) (233.2) (147.3)
Total liabilities (250.5) (595.9) (237.1)
Net assets/(liabilities) 26.6 (118.1) 47.9
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 112.7 (32.1) 133.9
Shareholder equity 26.6 (118.1) 47.9
The accompanying notes form part of these financial statements.
(1) Cash and cash equivalents (restricted) of £70.3m (Q3 2022: £3.8m)
includes (at 31 December 2022) the £60m initial payment to the Scheme Fund.
This amount will be returned to the Group if the Scheme Fallback situation is
activated and the Group goes into runoff. The remainder materially relates to
restricted cash held in a Trust Account for the benefit of those customers
who opened a complaint prior to the Scheme Effective date, who continued to
make payments on their loan from 1 December 2021 to the Scheme effective date
of 26 May 2022, should those complaints be upheld.
The interim financial statements of Amigo Holdings PLC were approved and
authorised for issue by the Board and were signed on its behalf by:
Kerry Penfold
Director
23 February 2023
Company no. 10024479
Condensed consolidated statement of changes in equity
for the 9 months to 31 December 2022
Share Share Translation Merger Retained Total
capital premium reserve(1) reserve(2) earnings equity
£m £m £m £m £m £m
At 31 March 2021 1.2 207.9 - (295.2) (35.3) (121.4)
Total comprehensive income - - - - 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 1.2 207.9 0.1 (295.2) (32.1) (118.1)
Total comprehensive income - - - - 167.1 167.1
Share-based payments - - - - (1.1) (1.1)
At 31 March 2022 1.2 207.9 0.1 (295.2) 133.9 47.9
Total comprehensive loss - - - - (21.4) (21.4)
Share-based payments - - - - 0.2 0.2
Effect of foreign exchange rate changes - - (0.1) - - (0.1)
At 31 December 2022 1.2 207.9 - (295.2) 112.7 26.6
The accompanying notes form part of these financial statements.
(1) The translation reserve is due to the effect of foreign exchange rate
changes on translation of the financial statements of the Irish entities.
(2) The merger reserve was created as a result of a Group reorganisation in
2017 to create an appropriate holding company structure. The restructure was
within a wholly owned group, constituting a common control transaction.
Condensed consolidated statement of cash flows
for the 9 months to 31 December 2022
9 months to 9 months to Year to
31 Dec 22 31 Dec 21 31 Mar 22
Unaudited Unaudited Audited
£m £m £m
(Loss)/profit for the period (21.4) 2.5 169.6
Adjustments for:
Impairment expense (2.4) 30.3 37.0
Complaints provision 23.2 9.9 (156.6)
Tax charge/(credit) 0.1 (0.9) (1.7)
Interest expense 2.8 14.4 16.7
Interest receivable (0.7) (0.1) (0.1)
Interest recognised on loan book (29.8) (80.1) (97.0)
Share-based payment 0.2 0.7 (0.4)
Depreciation of property, plant and equipment 0.3 0.6 0.5
Operating cash flows before movements in working capital (27.7) (22.7) (32.0)
(Increase)/decrease in receivables (1.0) 0.2 0.1
(Decrease) in payables (0.2) (2.0) (6.3)
Complaints cash expense (10.2) (4.9) (8.1)
Tax (paid)/refunds (0.2) - 0.2
Interest paid (1.2) (14.2) (18.5)
Net cash (used in) operating activities before loans issued and collections on (40.5) (43.6) (64.6)
loans
Loans issued (0.1) - -
Collections 108.1 209.0 263.0
Other loan book movements 1.2 (1.0) (0.4)
Decrease in deferred brokers' costs 1.6 5.2 7.5
Net cash from operating activities 70.3 169.6 205.5
Proceeds from sale of property, plant and equipment - 0.1 0.3
Net cash from investing activities - 0.1 0.3
Financing activities
Lease principal payments (0.2) (0.2) (0.3)
Repayment of external funding - (64.4) (248.5)
Net cash (used in) financing activities (0.2) (64.6) (248.8)
Net increase in cash and cash equivalents 70.1 105.1 (43.0)
Effects of movement in foreign exchange (0.1) - -
Cash and cash equivalents at beginning of period 141.2 184.2 184.2
Cash and cash equivalents at end of period(1)
211.2 289.3 141.2
The accompanying notes form part of these financial statements.
(1) Total cash is inclusive of cash and cash equivalents (restricted) of
£70.3m (Q3 2022: £3.8m). Cash and cash equivalents (restricted) includes (at
31 December 2022) the £60m initial payment to the Scheme Fund. This amount
will be returned to the Group if the Scheme Fallback situation is activated
and the Group goes into runoff. The remainder materially relates to restricted
cash held in a Trust Account for the benefit of those customers who opened a
complaint prior to the Scheme Effective date, who continued to make payments
on their loan from 1 December 2021 to the Scheme effective date of 26 May
2022, should those complaints be upheld.
Amigo Holdings Plc Registered Number 10024479
Notes to the condensed consolidated financial statements
1. Accounting policies
1.1 Basis of preparation of financial statements
General information
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 (the "Group") of companies. The principal activity of the Amigo Loans
Group is to provide loans to individuals. Previously, its principal activity
was to provide individuals with guarantor loans from £2,000 to £10,000 over
one to five years. No new advances on this lending have been made since
November 2020. Following FCA approval to return to lending, in October 2022,
Amigo has launched, initially on a pilot basis, mid-cost loan products, which
feature dynamic pricing to reward on-time payment with lower rates and
penalty-free annual payment holidays. The new products have been released
under the RewardRate brand.
The condensed interim financial statements do not constitute the statutory
financial statements of the Group within the meaning of section 434 of the
Companies Act 2006. The statutory financial statements for the year ended 31
March 2022 were approved by the board of directors on 8 July 2022 and have
been delivered to the Registrar of Companies. The consolidated financial
statements of the Group as at and for the year ended 31 March 2022 are
available upon request from the Company's registered office at Nova Building,
118-128 Commercial Road, Bournemouth, United Kingdom, BH2 5LT. Those accounts
have been reported on by the Company's previous auditor, KPMG. The report of
the auditor:
i) drew attention to the material uncertainty related to going
concern referenced in the consolidated financial statements of the Group; and
ii) 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
23 February 2023.
Accounting policies
The interim financial statements have been prepared applying the accounting
policies and presentation that were applied in the
preparation of the Company's published consolidated annual report for the year
ended 31 March 2022.
Basis of preparation
The condensed interim financial statements for the nine months ended 31
December 2022 have not been prepared fully in accordance with IAS 34 'Interim
Financial Reporting' as adopted for use in the United Kingdom (UK). The
condensed interim financial statements should be read in conjunction with the
statutory financial statements for the year ended 31 March 2022. The
comparative figures for the financial year ended 31 March 2022 are not the
Group's statutory accounts for that financial year, but are an extract from
those statutory accounts for interim reporting.
These interim financial statements have been prepared on a going concern basis
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.
Going concern
In determining the appropriate basis of preparation for these financial
statements, the Board has undertaken an appropriate review of the Group and
Company's ability to continue as a going concern for a period of at least
twelve months from the date of approval of these financial statements. This
has taken into account the Group's business plan and the principal risks and
uncertainties facing the Group, including the success of the Scheme of
Arrangement (Scheme). The interim financial statements have been prepared on a
going concern basis which the Directors believe to be appropriate for the
following reasons.
On 26 May the High Court sanctioned Amigo's Scheme of Arrangement ("the
Scheme") which allowed the Company to return to solvency. The Preferred
Solution of the Scheme allows Amigo to resume lending, subject to making
agreed payments into a Scheme fund and meeting two New Business Conditions.
Failure to meet these requirements would place Amigo into a managed wind-down.
The New Business Conditions are: FCA approval to return to lending to be
received by 26 February 2023 and issue of 19 new shares in Holdings Plc for
every one ordinary share in issue, to be achieved by 26 May 2023.
The first condition of the Scheme is considered met. On 13 October 2022, FCA
approval for a return to lending was received. Amigo commenced lending on a
pilot basis in October 2022. Following the end of the pilot lending phase, the
FCA will consider the impact on consumers of Amigo returning to lending on a
wider scale, and whether the results of the outcomes testing demonstrate that
Amigo is able to continue to meet FCA expectations. Amigo is limited to a
maximum of £35.0m cumulative net originations until successful completion of
the required dilutory share issue and payment of a further £15.0m into the
Scheme.
In regard to the second condition precedent as outlined above, Amigo issued a
market update on 16 January 2023. While Amigo has secured term sheets for debt
facilities, it has as per the time of collation of these financial statements,
not secured a cornerstone investor to underwrite the Capital Raise. A number
of investors have expressed possible interest for a syndicate to form and
support the required £45m necessary to support the business. As per the
market update on 27 January 2023, Amigo has received a number of expressions
of interest, however it remains below the total targeted £45m equity funding.
Discussions are therefore ongoing and the Board continues to seek the best
possible outcome for creditors, employees, shareholders and other
stakeholders.
Failure to meet the Scheme conditions represent a material uncertainty that
may cast significant doubt on the Company's ability to continue as a going
concern and, therefore, to continue realising its assets and discharging its
liabilities in the normal course of business.
Should these conditions remain unsatisfied within the required timeframes,
under the terms of the Scheme the business will revert to a managed wind-down.
Projections show the business has sufficient resources for a solvent wind-down
in this context.
However, the Directors have a reasonable expectation that these conditions can
be met and, therefore, have modelled a 'Base scenario' and 'Severe but
plausible downside Scheme scenario' which the Directors believe are realistic
alternatives to the managed wind-down scenario.
Base scenario - business plan assumptions
The Base scenario assumes that:
• the conditions of the Scheme (explained above) are met in the required
timescales
• balance adjustments and refunds resulting from complaints in the Scheme
are consistent with the assumptions that underpin the complaints provision
reported as at 31 December 2022 (see note 2.2.1)
• at least the minimum committed amount of £112.0m is paid out as cash
redress in the Scheme, being £97.0m from existing resources and future
collections plus an additional £15.0m following the equity raise
• additional new funding is received beyond the equity raise to facilitate
future growth of the business
• collections on the existing loan book continue in line with expectation
This scenario indicates that the Group will have sufficient funds to enable it
to operate within its available facilities and settle its liabilities as they
fall due for at least the next twelve months.
Severe but plausible downside Scheme scenario
The Directors have prepared a severe but plausible downside scenario. This
assumes the conditions of the Scheme are met but considers the potential
impact of:
• an increased number of upheld complaints. Whilst this sensitivity does not
increase the cash liability, which is capped under the Scheme, the number of
customers receiving balance write downs will increase, thus reducing future
collections and stressing the Group's liquidity position alongside increasing
cash refunds given to customers that are upheld in the Scheme for payments
collected over the Scheme period
• increased credit losses as a result of the cost of living crisis and the
inability of an increased number of the Group's customers to continue to make
payments.
• the failure to realise sale of non-performing loans.
This severe but plausible downside Scheme scenario indicates that the Group's
available liquidity headroom would reduce but would be sufficient to enable
the Group to continue to settle its liabilities as they fall due for at least
the next twelve months. However, in such a significantly stressed scenario,
funding the Scheme contributions becomes at risk as the ultimate realisation
of the legacy business is not sufficient. In this instance, the funding of the
Scheme contributions would have to come, in part, from the new business.
Status of Scheme Conditions
Payment of £60m into Scheme Fund by 31 May 2022 Complete
Payment of £37m into Scheme Fund by 26 February 2023 Complete. The £37m was paid into the Scheme Fund after the period end, on 21
February 2023.
FCA permission to return to lending by 26 February 2023 Complete. The Company continues to work with the FCA toward a full return to
lending
Issue and sell at least 19 ordinary shares in Holdings Plc for every 1 share The Company announced, on 28 September 2022, its intention to raise new
in issue by 26 May 2023 capital in combination of debt and equity with includes this requirement and
is actively marketing to potential investors
Payment of £15m into Scheme Fund within 10 business days of completion of the Contingent on completion of share issue above
share issue
Payment of any further net proceeds from collection of the legacy Amigo loan Contingent on performance of the legacy book over the period
book ("The Turnover Amount") to the Scheme Fund
FCA investigation
The Group has been under investigation by the FCA in relation to historical
lending and complaints management processes. Subsequent to the period end, on
14 February 2023, the FCA concluded their enforcement proceedings. There are
no further investigations. Although Amigo is not required to pay a financial
penalty, it accepts that if it were not for its current financial position,
the Company would have been subject to a penalty of £72.9m.
Conclusion
Accounting standards require an entity to prepare financial statements on a
going concern basis unless the Directors either intend to liquidate the entity
or to cease trading or has no realistic alternative but to do so.
Accordingly, the Directors believes that it remains appropriate to prepare the
financial statements on a going concern basis.
However, the Directors also recognise that, at the date of approval of these
financial statements, significant uncertainty remains. The Scheme requires the
meeting of capital raise conditions. While discussions remain ongoing the
Directors have a reasonable expectation of success, but believe the risk that
insufficient investment can be sourced has increased significantly since the
previous financial statements. This matter indicates 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.
1.2 Amounts receivable from customers
i) Classification
IFRS 9 requires a classification and measurement approach for financial assets
which reflects how the assets are managed and their cash flow characteristics.
IFRS 9 includes three classification categories for financial assets: measured
at amortised cost, fair value through other comprehensive income ("FVOCI") and
fair value through profit and loss ("FVTPL"). Note, the Group does not hold
any financial assets that are equity investments; hence the below
considerations of classification and measurement only apply to financial
assets that are debt instruments. A financial asset is measured at amortised
cost if it meets both of the following conditions (and is not designated as at
"FVTPL"):
· it is held within a business model whose objective is to hold
assets to collect contractual cash flows; and
· its contractual terms give rise on specified dates to cash flows
that are solely payments of principal and interest ("SPPI") on the principal
amount outstanding.
Business model assessment
In the assessment of the objective of a business model, the information
considered includes:
· the stated policies and objectives for the loan book and the
operation of those policies in practice, in particular whether management's
strategy focuses on earning contractual interest revenue, maintaining a
particular interest rate profile, matching the duration of the financial
assets to the duration of the liabilities that are funding those assets or
realising cash flows through the sale of the assets;
· how the performance of the loan book is evaluated and reported to
the Group's management;
· the risks that affect the performance of the business model (and
the financial assets held within that business model) and its strategy for
how those risks are managed;
· how managers of the business are compensated (e.g. whether
compensation is based on the fair value of the assets managed or the
contractual cash flows collected); and
· the frequency, volume and timing of debt sales in prior periods,
the reasons for such sales and the Group's expectations about future sales
activity. However, information about sales activity is not considered in
isolation, but as part of an overall assessment of how the Group's stated
objective for managing the financial assets is achieved and how cash flows are
realised.
The Group's business comprises primarily loans to customers that are held for
collecting contractual cash flows. Debt sales of charged off assets are not
indicative of the overall business model of the Group. The business model's
main objective is to hold assets to collect contractual cash flows.
Assessment of whether contractual cash flows are solely payments of principal and interest
For the purposes of this assessment, "principal" is defined as the fair value
of the financial asset on initial recognition. "Interest" is defined as
consideration for the time value of money and for the credit risk associated
with the principal amount outstanding during a particular period of time, as
well as profit margin.
In assessing whether the contractual cash flows are SPPI, the Group considers
the contractual terms of the instrument.
This includes assessing whether the financial asset contains a contractual
term that could change the timing or amount of contractual cash flows such
that it would not meet this condition. The Group has deemed that the
contractual cash flows are SPPI and hence, loans to customers are measured at
amortised cost under IFRS 9.
ii) Impairment
IFRS 9 includes a forward-looking expected credit loss ("ECL") model with
regards to impairment. IFRS 9 requires an impairment provision to be
recognised on origination of a financial asset. Under IFRS 9, a provision is
made against all stage 1 (defined below) financial assets to reflect the
expected credit losses from default events within the next twelve months. The
application of lifetime expected credit losses to assets which have
experienced a significant increase in credit risk results in an uplift to the
impairment provision.
iii) Measurement of ECLs
Under IFRS 9 financial assets fall into one of three categories:
Stage 1 - financial assets which have not experienced a "significant" increase
in credit risk since initial recognition;
Stage 2 - financial assets that are considered to have experienced a
"significant" increase in credit risk since initial recognition; and
Stage 3 - financial assets which are in default or otherwise credit impaired.
Loss allowances for stage 1 financial assets are based on twelve month ECLs;
that is the portion of ECLs that result from default events that are estimated
within twelve months of the reporting date and are recognised from the date of
asset origination. Loss allowances for stage 2 and 3 financial assets are
based on lifetime ECLs, which are the ECLs that result from all default events
over the expected life of a financial instrument.
At the reporting date, the Group held both guarantor and personal loans on
balance sheet. In relation to the guarantor loans, 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 this product is a key consideration in
determining the staging and the recoverability of an asset. The new guarantor
and unsecured loan products under the Reward Rate brand were deemed to be
immaterial to the overall financial statements and hence no IFRS 9 adjustments
have been made in this quarter.
The Group assessed that its key sensitivity was in relation to expected credit
losses on customer loans and receivables. The matrix of nine scenarios used in
December 2021 for calculating the ECL provision has been simplified into base,
downside and severe downside scenarios. In prior years nine macroeconomic
scenarios were applied and weighted (see note 2.1.3).
iv) Assessment of significant increase in credit risk (SICR)
In determining whether the credit risk (i.e. risk of default) of a financial
instrument has increased significantly since initial recognition, the Group
considers reasonable and supportable information that is relevant and
available without undue cost or effort, including both quantitative and
qualitative information and analysis. The qualitative customer data used in
this assessment is payment status flags, which occur in specific circumstances
such as a short-term payment plans, breathing space or other indicators of a
change in a customer's circumstances. See note 2.1.2 for details of how
payment status flags are linked to staging, and judgements on what signifies a
significant increase in credit risk.
v) Derecognition
Receivable from customers are derecognised when the entity's contractual
rights to the financial asset's cash flows have expired.
vi) 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.
vii) Forbearance
Where the borrower indicates to the Group that they are unable to bring the
account up to date, informal, temporary forbearance measures may be offered.
There are no changes to the customer's contract at any stage. Depending on the
forbearance measure offered, an operational flag will be added to the
customer's account, which may indicate significant increase in credit risk and
trigger movement of this balance from stage 1 to stage 2 in impairment
calculation. See note 2.1.2 for further details.
2. Critical accounting assumptions and key sources of estimation uncertainty
Preparation of the financial statements requires management to make
significant judgements and estimates.
Judgements
The preparation of the 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.vi).
· Multiple economic scenarios - the probability weighting of base,
downside and severe downside scenarios to the ECL calculation (note 2.1.3).
These scenarios replaced the nine different economic scenarios used in the
prior year.
· Complaints provisions:
· Judgement is involved in estimating the probability, timing and
amount of any outflows (note 2.2.1).
· 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).
· Accounts receivable from customers:
· Judgement is applied in assessing whether the contractual cash
flows are SPPI, the Group considers the contractual terms of the instrument.
This includes assessing whether the financial asset contains a contractual
term that could change the timing or amount of contractual cash flows such
that it would not meet this condition.
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).
· Complaints provisions:
· Calculation of uphold rate. This calculation evaluates current
and historical data, and assumptions and expectations of future outcomes (note
2.2.1).
· Carrying amount of current and deferred taxation assets and
liabilities
· The current uncertainty over the Group's future profitability
means that it is no longer considered probable that future taxable profits
will be available against which to recognise deferred tax assets.
2.1 Credit impairment
2.1.1 Measurement of ECLs
The Group has adopted a collective basis of measurement for calculating ECLs.
In the current year the loan book is bifurcated into those customers who have
had a Covid-19 forbearance plan and those who have not. In the prior year, the
loan book was divided into portfolios of assets with shared risk
characteristics including whether the loan is new business, repeat lending or
part of a lending pilot as well as considering if the customer was a homeowner
or not. These portfolios of assets were further divided by contractual term
and monthly origination vintages. These portfolios are no longer considered to
have discernible credit risk profiles due to the impact of Covid-19.
The allowance for ECLs is calculated using three components: PD, LGD and EAD.
The ECL is calculated by multiplying the PD (twelve month or lifetime
depending on the staging of the loan), LGD and EAD and the result is
discounted to the reporting date at the original EIR.
The twelve month and lifetime PDs represent the probability of a default
occurring over the next twelve months or the lifetime of the financial
instruments, respectively, based on historical data and assumptions and
expectations of future economic conditions.
EAD represents the expected balance at default, considering the repayment of
principal and interest from the balance sheet date to the default date. LGD is
an estimate of the loss arising in the case where a default occurs at a given
time. It is based on the difference between the contractual cash flows due
and those that the Group expects to receive.
The Group assesses the impact of forward-looking information on its
measurement of ECLs. The Group has analysed the effect of a range of economic
factors and identified the most significant macroeconomic factors that are
likely to impact credit losses as the rate of unemployment and the rate of
inflation.
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), which is aligned to the rebuttable presumption of
more than 30 days past due. This is the primary quantitative information
considered by the Group in significant increase in credit risk assessments.
The existence of a complaint may also be an indicator of SICR, but this is
ignored in the IFRS9 calculation since a separate complaints provision exists.
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.
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 factors that are
likely to impact credit losses as the rate of unemployment and the rate of
inflation.
The Group has modelled and weighted three different macroeconomic scenarios -
a base, a downside and a severe downside scenario. Macroeconomic variables are
not explicitly used to drive the scenario modelling in IFRS 9 but proxy macro
factors are used through a stress on collections.
· The base scenario broadly represents probability of defaults
whereby there is no significant deviation of delinquency beyond the current
run-rate. The base scenario captures an element of stress to reflect current
inflationary pressures. A weighting of 25% has been applied to reflect the
Group's assumption that the current macroeconomic environment is more likely
than not due to worsen, given the inflationary pressures facing the Group's
customer base. Historical trends of prior inflationary increases showed no
statistical relationship to the Group's customers propensity to make payments,
so the base scenario appears reasonable.
· The downside scenario uplifts the base scenario probability of
default by approximately 50%. Based on recent Office for Budgetary Reporting
(OBR) forecasts, inflation rates, which are already at 40-year highs, are
expected to remain high in the short-term. Although there are no historical
indications of a statistical relationship between inflationary rises and
customers' propensity to make payments, a weighting of 50% has been applied to
reflect the expectation that customers will be, in some form, adversely
impacted.
· The severe downside applies a further uplift of 25% to the
probability of default in the downside scenario, reflecting a significant
impact from macroeconomic factors. Whilst the economic outlook is not set to
return to more normal levels in the near term, the Group's loan book does not
have significant time left to run off. Judgement has been made to weight this
scenario at 25%. Given the lack of statistical relationship and level of
uncertainty around the impact on customers' payment behaviour, the Group
believes this weighting is fair and reasonable, but will evolve over time as
the cost of living crisis plays out.
The following table details the absolute impact on the current ECL provision
of £23.4m if each of the three scenarios are given a probability weighting of
100%.
Impact
Base -1.3m
Downside +0.3m
Severe downside +0.7m
The scenarios above demonstrate a range of ECL provisions from £22.1m to
£24.1m.
In prior years nine macroeconomic scenarios were applied and weighted.
However, given the impact of the Covid-19 pandemic is better known and already
to an extent has been realised, this methodology was reviewed and simplified
down to three scenarios - a base, downside and severe downside scenario, to
determine the ECL provision.
As with any economic forecasts, the projections and likelihoods of occurrence
are subject to a high degree of inherent uncertainty and therefore the actual
outcomes may be significantly different to those projected.
2.1.4 Application of a management overlay to the impairment provision calculation
In the prior year management overlay was used to enhance the modelled outcome
to take account of increasing credit risk indicators that were potentially
masked by payment holidays granted due to Covid-19. This is no longer
relevant as all impacted accounts have reverted to a tailored collections
approach captured by status flag.
As noted in 2.1.3, the Board notes that forward looking information carries a
degree of uncertainty, particularly in relation to the impact of the forecast
cost of living crisis. However, in the view of the Board, the use of a
sufficiently severe downside scenario in the modelled approach negates the
requirement for further management overlay in the impairment estimation.
2.2 Complaints provisions
2.2.1 Complaints provision - estimation uncertainty
Provisions included in the statement of financial position refers to a
provision recognised for customer complaints. The provision represents an
accounting estimate of the expected future outflows arising from
customer-initiated complaints within the Scheme, using information available
as at the date of signing these financial statements.
Identifying whether a present obligation exists and estimating the
probability, timing, nature and quantum of the redress payments that may arise
from past events require judgements to be made on the specific facts and
circumstances relating to the individual complaints. Management evaluates on
an ongoing basis whether complaints provisions should be recognised, revising
previous judgements and estimates as appropriate; however, there is a wide
range of possible outcomes.
These calculations involve significant, complex management judgement and
estimation. The key assumption with the most potential for variability is the
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.
The calculation of the complaints provision as at 31 December 2022 is based on
Amigo's best estimate of the future obligation. The complaints cash redress
provision is £97.0m post-Scheme. A further contribution of at least £15.0m
is expected to be made from the proceeds of the proposed capital raise, plus a
top-up if net collections exceed those forecast in the Scheme scenarios.
The capital raise is a critical component of the preferred solution under the
Scheme succeeding, and while the provision is being accounted for on the basis
that the Scheme is successful, it is currently determined that the capital
raise contribution and top-up component cannot be accrued as it cannot be
justified as more likely than not to occur at today's date.
As at 31 December 2022, the Group has recognised a complaints provision
totalling £192.8m in respect of customer complaints redress and associated
costs. Net utilisation in the period totalled £10.2m. The liability has
increased by £13.0m compared to 31 March 2022. The closing provision is
comprised of the balance adjustments which have increased due to higher
expected uphold rates and increased volumes following extensive communication
campaigns. The increase in uphold rate has increased the Set Off Cash refund
component on an underlying basis as well as the compensatory interest increase
with the passage of time.
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 (£m)
Average uphold rate per customer(1) 80% +/- 10 ppts +9.5m -9.5m
1. Uphold rate. Sensitivity analysis shows the impact of a 10
percentage point change in the applied uphold rate on both the current and
forward-looking elements of the provision.
The table above shows the increase or decrease in total provision charge
resulting from reasonably possible changes in the key uphold rate assumption.
The Board considers that this sensitivity analysis covers the full range of
average balance adjustments.
It is possible that the eventual outcome may differ materially from the
current estimate and could materially impact the financial statements as a
whole. This is due to the risks and inherent uncertainties surrounding the
assumptions used in the provision calculation.
3. Revenue and Segment reporting
Revenue comprises of interest income on amounts receivable from customers.
Loans are initially measured at fair value (which is equal to cost at
inception) plus directly attributable transaction costs and are subsequently
measured at amortised cost using the effective interest rate method. Revenue
is presented net of amortised broker fees, which are spread over the expected
behavioural lifetime of the loan as part of the effective interest rate
method.
The effective interest rate ("EIR") is the rate that discounts estimated
future cash payments or receipts through the expected life of the financial
instrument (or a shorter period where appropriate) to the net carrying value
of the financial asset or financial liability. The calculation takes into
account all contractual terms of the financial instrument and includes any
incremental costs that are directly attributable to the instrument, but not
future credit losses.
Revenue is derived primarily from a single segment. The Group has one
operating segment based on the geographical location of its operations, being
the UK. 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.
Amigo Loans Ireland Limited, registered in Ireland, is not a reportable
operating segment, as it is not separately included in the reports provided to
the strategic steering committee. The results of these operations are included
in the 'other segments' column. Amigo Loans Ireland Limited, was, in prior
years, reported as a separate segment but it no longer meets the criteria for
separate segment reporting.
The table below presents the Group's performance on a segmental basis for the
nine months to 31 December 2022 in line with reporting to the chief operating
decision maker:
9 months to 31 December 2022 Period to Period to Period to
31 Dec 22 31 Dec 22 31 Dec 22
£m £m £m
UK Other Total
Revenue 17.7 0.1 17.8
Interest payable and funding facility fees (2.8) - (2.8)
Interest receivable 0.7 - 0.7
Impairment of amounts receivable from customers 2.3 0.1 2.4
Administrative and other operating expenses (22.9) (0.6) (23.5)
Complaints expenses (15.9) - (15.9)
Total operating expenses (38.8) (0.6) (39.4)
Loss before tax (20.9) (0.4) (21.3)
Tax charge(1) (0.1) - (0.1)
Total comprehensive loss attributable to equity shareholders of the Group (21.0) (0.4) (21.4)
31 Dec 22 31 Dec 22 31 Dec 22
£m £m £m
UK Other Total
Gross loan book(2)
84.4 0.2 84.6
Less impairment provision (23.3) (0.1) (23.4)
Net loan book(3)
61.1 0.1 61.2
(1) The tax charge relates to entity Amigo Luxembourg S.A.
(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. The results of each segment have been prepared using
accounting policies consistent with those of the Group as a whole.
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 Other 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
4. Interest payable and funding facility fees
Period to Period to Year to
31 Dec 22 31 Dec 21 31 Mar 22
Unaudited Unaudited Audited
£m £m £m
Senior secured notes interest payable 2.8 13.4 14.9
Funding facility fees - 0.3 1.0
Securitisation interest payable - 0.2 0.2
Other finance costs - 0.5 0.6
2.8 14.4 16.7
No interest was capitalised by the Group during the period. Funding facility
fees include non-utilisation fees and amortisation of initial costs of the
Group's senior secured notes.
5. Modification of financial assets
Covid-19 payment holidays and any subsequent extensions have been assessed as
non-substantial financial asset modifications under IFRS 9. The carrying value
of historical modification losses at the period end was £1.0m (Q3 2022:
£7.6m).
Period to Period to Year to
31 Dec 22 31 Dec 21 31 Mar 22
Unaudited Unaudited Audited
£m £m £m
Modification release recognised in revenue 0.1 - 1.2
Modification release recognised in impairment 0.3 - 4.1
Total modification release 0.4 - 5.3
6. Taxation
The applicable corporation tax rate for the period to 31 December 2022 was
19.0% (Q3 2022: 19.0%) and the effective tax rate is positive 0.5% (Q3 2022:
positive 56.3%).
The Finance Act 2021 increased the UK corporation tax rate from 19% to 25%
with effect from 1 April 2023. While this change does not affect the current
tax position for the year, it will affect future periods.
The Group's loss-making position and the ongoing uncertainty over the Group's
future profitability meant that it is 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 year, which are driven primarily by the recognition of complaints
provision as of 31 December 2022.
7. (Loss)/earnings per share
Basic (loss)/ earnings per share is calculated by dividing the(loss)/profit
for the period attributable to equity shareholders by the weighted average
number of ordinary shares outstanding during the period.
Diluted (loss)/earnings per share calculates the effect on (loss)/profit per
share assuming conversion of all dilutive potential ordinary shares. Dilutive
potential ordinary shares are calculated as follows:
i) For share awards outstanding under performance-related share
incentive plans such as the Share Incentive Plan ("SIP") and the Long Term
Incentive Plans ("LTIPs"), the number of dilutive potential ordinary shares is
calculated based on the number of shares which would be issuable if the end of
the reporting period is assumed to be the end of 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 Save As You Earn scheme ("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 22 31 Dec 21 31 Mar 22
Unaudited Unaudited Audited
Pence Pence Pence
Basic (loss)/earnings per share (4.5) 0.5 35.7
Diluted (loss)/earnings per share (4.5) 0.5 35.7
Adjusted basic (loss)/earnings per share (basic and diluted)1 (1.2) 0.2 2.8
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
(loss)/earnings per share is useful as it gives a better indication of ongoing
business performance. Reconciliations of the (loss)/earnings used in the
calculations are set out below.
31 Dec 22 31 Dec 21 31 Mar 22
Unaudited Unaudited Audited
£m £m £m
(Loss)/profit for basic EPS (21.4) 2.5 169.6
Movement in complaints provision 15.9 - (156.6)
Senior secured notes redemption - - 0.7
Write-off of unamortised securitisation fees - - 0.5
Tax provision release - (0.8) (0.8)
Tax refund due - (0.6) -
Less tax impact - - (0.1)
(Loss)/profit for adjusted basic EPS1 13.3
(5.5) 1.1
Basic weighted average number of shares (m) 475.3 475.3 475.3
Dilutive potential ordinary shares (m)(2) -
- 0.8
Diluted weighted average number of shares (m) 475.3 476.1 475.3
1. Adjusted basic (loss)/earnings per share and earnings for
adjusted basic (loss)/earnings per share are non-GAAP measures.
2. Although the Group has issued further options under the
employee share schemes, upon assessment of the dilutive nature of the options,
some options are not considered dilutive as at 31 December 2022 as they would
not meet the performance conditions. Those dilutive shares included are in
relation to the employee October 2020 SAYE scheme.
8. Customer loans and receivables
The table shows the gross loan book and deferred broker costs by stage, within
the scope of the IFRS 9 ECL framework.
31 Dec 22 31 Dec 21 31 Mar 22
Unaudited Unaudited Audited
£m £m £m
Stage 1 56.3 165.5 128.8
Stage 2 15.7 40.1 32.4
Stage 3 12.6 27.2 24.2
Gross loan book 84.6 232.8 185.4
Deferred broker costs1 - stage 1 0.3 3.2 1.5
Deferred broker costs1 - stage 2 0.1 0.8 0.4
Deferred broker costs1 - stage 3 0.3
0.1 0.5
Loan book inclusive of deferred broker costs 85.1 237.3 187.6
Provision (23.4) (52.1) (47.4)
Customer loans and receivables 61.7 185.2 140.2
1. Deferred broker costs are recognised within customer loans
and receivables and are amortised over the expected life of those assets using
the effective interest rate (EIR) method.
Ageing of gross loan book (excluding deferred brokers' fees and provision) by
days overdue:
31 Dec 22 31 Dec 21 31 Mar 22
Unaudited Unaudited Audited
£m £m £m
Current 57.6 165.1 132.1
1-30 days 10.4 29.8 21.1
31-60 days 4.0 10.6 8.0
>60 days 12.6 27.3 24.2
Gross loan book 84.6 232.8 185.4
The following table further explains changes in the net carrying amount of
loans receivable from customers to explain their significance to the changes
in the loss allowance for the same portfolios.
31 Dec 22 31 Dec 21 31 Mar 22
Unaudited Unaudited Audited
Customer loans and receivables £m £m £m
Due within one year 51.8 140.6 113.0
Due in more than one year 9.4 40.1 25.0
Net loan book 61.2 180.7 138.0
Deferred broker costs1
Due within one year 0.4 3.2 1.8
Due in more than one year 0.1 1.3 0.4
Customer loans and receivables 61.7 185.2 140.2
1. Deferred broker costs are recognised within customer loans
and receivables and are amortised over the expected life of those assets using
the effective interest rate (EIR) method.
9. Other receivables
31 Dec 22 31 Dec 21 31 Mar 22
Unaudited Unaudited Audited
£m £m £m
Current
Other receivables 0.6 0.6 0.6
Prepayments and accrued income 1.9 0.9 1.0
2.5 1.5 1.6
10. Trade and other payables
31 Dec 22 31 Dec 21 31 Mar 22
Unaudited Unaudited Audited
£m £m £m
Current
Accrued senior secured note interest 1.8 8.2 0.8
Trade payables 0.2 0.3 0.4
Taxation and social security 0.4 0.4 0.4
Other creditors 0.8 0.9 1.1
Accruals and deferred income 4.0 5.1 4.0
7.2 14.9 6.7
11. Bank and other borrowings
31 Dec 22 31 Dec 21 31 Mar 22
Unaudited Unaudited Audited
£m £m £m
Current and non-current liabilities
Amounts falling due in one to two years
Senior secured notes 49.8 - 49.7
Amounts falling due in two to three years
Senior secured notes - 232.6 -
49.8 232.6 49.7
The Group's facilities are:
• Senior secured notes in the form of £49.8m high yield bonds with a coupon
rate of 7.625% which expire in January 2024 (Q3 2022: £232.6m). The senior
secured notes are presented in the financial statements net of unamortised
fees. As at 31 December 2022, the gross principal amount outstanding was
£50.0m which is due in January 2024. 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%. £350.0m of notes have been repurchased in the open market/redeemed in
prior financial years (2022: £184.1m; 2020: £85.9m; 2019: £80.0m).
12. Provisions
Provisions are recognised for present obligations arising as the consequence
of past events where it is more likely than not that a transfer of economic
benefit will be necessary to settle the obligation, which can be reliably
estimated.
31 Dec 22 31 Dec 21 31 Mar 2022
Complaints Restructuring Total Complaints Restructuring Total Complaints Restructuring Total
£m £m £m £m £m £m £m £m £m
Opening provision 179.8 - 179.8 344.6 - 344.6 344.6 1.0 345.6
Provision made/(released) during period 23.2 - 23.2 9.9 - 9.9 (156.6) - (156.6)
Net utilisation of the provision (10.2) - (10.2) (7.0) - (7.0) (8.2) (1.0) (9.2)
Closing provision 192.8 - 192.8 347.5 - 347.5 179.8 - 179.8
Non-current -1- - - - - - 97.0 - 97.0
Current 192.8.7 - 192.8 347.5 - 347.5 82.8 - 82.8
192.8.7 - 192.8 347.5 - 347.5 179.8 - 179.8
Customer complaints redress
As at 31 December 2022, the Group has recognised a complaints provision
totalling £192.8m in respect of customer complaints redress and associated
costs. Net utilisation in the period totalled £10.2m. The liability has
increased by £13.0m compared to 31 March 2022. The closing provision is
comprised of the balance adjustments which have increased due to higher
expected uphold rates and increased volumes following extensive communication
campaigns. The increase in uphold rate has increased the Set Off Cash refund
component on an underlying basis as well as the compensatory interest increase
with the passage of time.
Contingent liability
Following the Court sanction of the Scheme the Company is obliged to enter
into a capital raise for the purposes of recapitalising the business for
future lending by 26 May 2023. If this capital raise is successful at least a
further £15.0m cash contribution must be made to the Scheme. The successful
raising of sufficient capital relies on a number of uncertain events, not
least market appetite which may be influenced by a number of external factors
beyond the Company's control.
13. Immediate and ultimate parent undertaking
Amigo Holdings PLC is the ultimate parent undertaking and is incorporated in
England and Wales. The consolidated financial statements of the Group as at
and for the year ended 31 March 2022 are available upon request from the
Company's registered office at Nova Building, 118-128 Commercial Road,
Bournemouth, United Kingdom, BH2 5LT.
14. Share-based payments
The Group issues share options and awards to employees as part of its employee
remuneration packages. The Group operates three types of equity settled share
scheme: Long Term Incentive Plan ("LTIP"), employee's savings-related share
option schemes referred to as Save As You Earn ("SAYE") and the Share
Incentive Plan ("SIP").
The number of LTIP instruments has been reduced since the prior year, with the
tranche of LTIP's that matured in September 2022 having lapsed.
Share-based payment transactions in which the Group receives goods or services
as consideration for its own equity instruments are accounted for as equity
settled share-based payments. At the grant date, the fair value of the
share-based payment is recognised by the Group as an expense, with a
corresponding entry in equity, over the period in which the employee becomes
unconditionally entitled to the awards. The fair value of the awards granted
is measured based on Company specific observable market data, considering the
terms and conditions upon which the awards were granted. The charge to the
consolidated statement of comprehensive income was £0.2m in the nine months
to 31 December 2022 (Q3 2022: charge of £0.7m).
15. Related party transactions
The Group had no related party transactions during the nine-month period to 31
December 2022 that would materially affect the performance of the Group.
Details of the transactions for the year ended 31 March 2022 can be found in
note 24 of the Amigo Holdings PLC financial statements.
16. Post balance sheet events
Update on Capital Raise and Pilot Lending
Capital Raise
The Company has received a number of expressions of interest to support the
Capital Raise. However, this remains below the targeted £45m of equity
funding that the business requires and discussions are therefore ongoing. The
Board continues to seek the best possible outcome for creditors, employees,
shareholders, and other stakeholders. As outlined previously, if the Capital
Raise is not completed, or the Board determines that it cannot be achieved,
by 26 May 2023, the Scheme will revert to the fallback solution outlined in
the Scheme (the "Fallback Solution"), which is an orderly wind-down of the
business. Amigo's cash position remains strong and, in the event the Fallback
Solution is invoked, the seniority of the secured notes will be
respected. The Fallback Solution would result in no value being attributed
to the Company's ordinary shares.
Pilot lending
The pilot lending volumes have increased substantially during January and
February 2023. On the current run-rate, monthly originations are over
£1m and expected to continue to grow as the conversion rate improves through
the application of the learnings from the pilot lending period. Amigo retains
its cautious approach to underwriting as it assesses the impact on customer
affordability from the cost-of-living crisis. The volume of completed loans
has now reached a level such that the 'Skilled Person' testing of lending
outcomes has commenced.
FCA investigation
Subsequent to the period end, on 14 February 2023, the FCA concluded their
enforcement proceedings into the Group's historic lending and complaints
handling processes.
Amigo's new Board and management have cooperated with
the FCA's investigation which has now concluded. The Company accepts the
findings of the enforcement proceedings which are set out in detail within
the FCA's Final Notice published on its website.
Although Amigo is not required to pay a financial penalty, it accepts that if
it were not for its current financial position, the Company would have been
subject to a penalty of £72.9m. In reaching agreement on the level of the
final penalty, the FCA recognised that any penalty would cause Amigo serious
financial hardship and would have threatened the Company's ability to meet its
commitments to redress creditors identified under Amigo's Scheme of
Arrangement, which was sanctioned by the High Court in May 2022 (the
"Scheme").
The final conclusion of the enforcement proceedings represents an important
milestone for the Company in bringing the legacy issues to a close. In
reaching this milestone, the Company acknowledges the time and resource
allocated by the FCA to review the historic business and to identify
previous customer harm.
At a wider level the outcome from the investigations and the contents of the
Final Notice will, we believe, provide useful guidance to both Amigo and all
firms which provide credit to customers who are not readily able to access the
services of the mainstream credit providers.
Since the enforcement action commenced in 2020 the Board of the Company has
completely changed, and the senior management team substantially refreshed by
the engagement of subject matter experts. This approach has allowed Amigo to
reflect on the past behaviours and to develop its new business proposition,
RewardRate, which fully incorporates the lessons learned. Since this
investigation began, Amigo's new Board and executive team have established
a strong business plan, improved approach to individual conduct and put in
place more robust lending controls in pursuit of compliant and better customer
outcomes.
Scheme Fund payment
On 21 February 2023, £37.0m was paid to the Scheme Fund, in accordance with
the conditions of the Scheme. This reduces the unrestricted cash balance
reported at 31 December 2022.
Amigo Holdings Plc Registered Number 10024479
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.
Management uses these financial measures, along with the most directly
comparable GAAP financial measures, in evaluating the operating performance
and value creation. Non-GAAP financial measures should not be considered in
isolation from, or as a substitute for, financial information presented in
compliance with GAAP. Wherever appropriate and practical, we provide
reconciliations to relevant GAAP measures.
To ensure these APMs remain relevant to the Group and its current
circumstances, the Board has taken the decision to reduce the number of APMs
presented in these financial statements.
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 2022 2021 2022
Net loan book 61.2 180.7 138.0
Net unrestricted cash/(debt)(1) 91.1 52.9 83.9
Revenue yield 17.6% 30.8% 29.4%
Risk adjusted revenue 20.2 45.4 52.5
Net interest margin 7.7% 14.6% 15.9%
Impairment:revenue ratio (13.5)% 40.0% 41.3%
Impairment coverage as a percentage of loan book(2) 27.7% 22.4% 25.6%
Cost:income ratio 221.3% 39.0% (147.5)%
Operating cost:income ratio (ex. complaints) 132.0% 25.9% 27.5%
Adjusted (loss)/profit after tax (5.5) 1.1 13.3
Return on assets (10.2)% 0.6% 41.4%
Amendments to alterative performance measures
(1) Net unrestricted cash/(debt) - the definition of this alternative
performance measure (APM) has been amended from net cash/(debt), to highlight
that restricted cash is excluded from these definitions.
(2) Impairment coverage as a percentage of loan book - the definition of this
alternative performance measure (APM) has been amended from impairment charge
as a percentage of loan book, as this was considered a more relevant measure.
1. "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 22 31 Dec 21 31 Mar 22
£m £m £m
Gross loan book1 84.6 232.8 185.4
Provision2 (47.4)
(23.4) (52.1)
Net loan book3 138.0
61.2 180.7
(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.
2. "Net unrestricted cash/(debt)" is comprised of:
31 Dec 22 31 Dec 21 31 Mar 22
£m £m £m
Borrowings1 (49.8) (232.6) (49.7)
Cash and cash equivalents 140.9 285.5 133.6
Net unrestricted cash(2) 83.9
91.1 52.9
(1) Total borrowing is net of unamortised fees.
(2) In accordance with the conditions of the Scheme, payment of £37.0m was
made to the Scheme Fund in February 2023, reducing the net unrestricted cash
balance reported at 31 December 2022.
This is deemed useful to show total cash/(debt) if sufficient unrestricted
cash is available at the period end to repay borrowings.
3. The Group defines "revenue yield" as annualised revenue over the average of
the opening and closing gross loan book for the period.
31 Dec 22 31 Dec21 31 Mar 22
Revenue yield £m £m £m
Revenue 17.8 75.7 89.5
Opening loan book 185.4 422.9 422.9
Closing loan book 84.6 232.8 185.4
Average loan book 135.0 327.9 304.2
Revenue yield (annualised) 17.6% 30.8% 29.4%
This is deemed useful in assessing the gross return on the Group's loan book.
4. The Group defines "risk adjusted revenue" as revenue less impairment
charge. "Risk adjusted revenue" is a useful indicator of profitability.
31 Dec 22 31 Dec 21 31 Mar 22
£m £m £m
Revenue 17.8 75.7 89.5
Impairment of amounts receivable from customers 2.4 (30.3) (37.0)
Risk adjusted revenue 20.2 45.4 52.5
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, Group's ability to meet its cash needs or as any other
measure of performance under IFRS.
5. 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.
Net interest margin is a measure of profitability. It refers to the difference
between interest received and interest paid. Interest rates in the economy can
significantly affect the financial net interest margin. A positive net
interest margin suggests that an entity operates profitably.
31 Dec 22 31 Dec 21 31 Mar 22
£m £m £m
Revenue 17.8 75.7 89.5
Interest payable, receivable and funding facility fees (2.1) (14.3) (16.6)
Net interest income 15.7 61.4 72.9
Opening interest-bearing assets (gross loan book plus unrestricted cash) 319.0 600.8 600.8
Closing interest-bearing assets (gross loan book plus unrestricted cash) 225.5 518.3 319.0
Average interest-bearing assets (customer loans and receivables plus 272.3 559.6 459.9
unrestricted cash)
Net interest margin (annualised) 7.7% 14.6% 15.9%
6. 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 22 31 Dec 21 31 Mar 22
£m £m £m
Revenue 17.8 75.7 89.5
Impairment of amounts receivable from customers (2.4) 30.3 37.0
Impairment charge as a percentage of revenue (13.5)% 40.0% 41.3%
This is a key measure for the Group in monitoring risk within the business.
7. "Impairment coverage as a percentage of loan book" represents the Group's
impairment coverage divided by closing gross loan book.
31 Dec 22 31 Dec 21 31 Mar 22
£m £m £m
Provision for impairment 23.4 52.1 47.4
Closing gross loan book 84.6 232.8 185.4
Impairment coverage as a percentage of loan book 27.7% 22.4% 25.6%
This allows review of the impairment coverage relative to the size of the
Group's gross loan book.
8. The Group defines "cost:income ratio" as operating expenses divided by
revenue.
31 Dec 22 31 Dec 21 31 Mar 22
£m £m £m
Revenue 17.8 75.7 89.5
Total operating expenses 39.4 29.5 (132.0)
Cost:income ratio 221.3% 39.0% (147.5)%
9. Operating cost:income ratio, defined as the cost:income ratio excluding the
complaints provision, is:
31 Dec 22 31 Dec 21 31 Mar 22
£m £m £m
Revenue 17.8 75.7 89.5
Administrative and other operating expenses 23.5 19.6 24.6
Operating cost:income ratio 132.0% 25.9% 27.5%
This measure allows review of cost management.
10. The following table sets forth a reconciliation of (loss)/profit after tax
to "adjusted (loss)/profit after tax" for the 9 months to 31 December 2022,
2021 and year to 31 March 2022.
31 Dec 22 31 Dec 21 31 Mar 22
£m £m £m
Reported (loss)/profit after tax (21.4) 2.5 169.6
Movement in complaints provision 15.9 - (156.6)
Senior secured note buyback - - 0.7
Securitisation fees - - 0.5
Tax provision release - (0.8) (0.8)
Tax refund due - (0.6) -
Less tax impact - - (0.1)
Adjusted (loss)/profit after tax (5.5) 1.1 13.3
The above items were all excluded due to their exceptional nature. The
Directors believe that adjusting for these items is useful in making
year-on-year comparisons.
· movements in the complaints provision, which are not indicative
of underlying business performance.
· Senior secured note redemption adjustments relate to the
accelerated bond cost and premium write off triggered by the early bond
redemption in January 2022. Senior secured note buybacks are not underlying
business-as-usual transactions.
· Following the renegotiation of the securitisation facility on 14
August 2020 a substantial modification of the facility occurred; as such all
previous capitalised fees relating to the facility have been written off. This
has been adjusted for above as it was a one-off event in the period.
· The tax provision release in prior year refers to the release of
a tax provision no longer required.
None are business-as-usual transactions. Hence, removing these items is deemed
to give a view of underlying (loss)/profit adjusting for non-business-as-usual
items within the financial year.
11. Return on assets (ROA) refers to annualised (loss)/profit over tax as a
percentage of average assets. Return on assets (ROA) measures how efficiently
the Company is earning profit from their economic resources or assets on their
balance sheet.
Adjusted return on assets 31 Dec 22 31 Dec 21 31 Mar 22
(Loss)/profit after tax (21.4) 2.5 169.6
Customer loans and receivables at period and year end 61.7 185.2 140.2
Other receivables and current assets at period and year end 73.6 5.7 9.9
Cash and cash equivalents at period and year end 140.9 285.5 133.6
Total 276.2 476.4 283.7
Average assets 279.9 533.3 410.1
Return on assets (annualised) (10.2)% 0.6% 41.4%
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