REG - Amigo Holdings PLC - Half-year Report
29/11/2022 07:00
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RNS Number : 8503H Amigo Holdings PLC 29 November 2022
29 November 2022
Amigo Holdings PLC
Interim Financial Results for the six months ended 30 September 2022
Amigo Holdings PLC, ("Amigo" or the "Company"), provider of mid-cost credit in
the UK, announces results for the six-month period ended 30 September 2022.
Danny Malone, Chief Executive Officer commented:
"Amigo's recovery continues to make good progress. We recently started a pilot
of our new RewardRate product and meetings with potential investors in
relation to a capital raise are now also underway. The last date for making
claims under the Scheme was 26 November 2022. The indication is that the
volume of claims is c.25% ahead of previous expectations. Under the terms of
our Scheme of Arrangement, compensation pay-outs will begin next year to
customers who are owed redress. It has been a long process of renewal but I'm
proud of the journey we have been on. We've built a better company with the
right culture and strong underwriting standards. We're now well positioned to
support people through this cost-of-living crisis with responsible lending."
Headlines
· Amigo continues to make progress following the sanctioning by the
High Court of its Scheme of Arrangement ("the Scheme") in May 2022.
· The Scheme allows for Amigo to pay compensation to customers with a
valid claim for redress for loans which were mis-sold prior to the Company
suspending all lending in November 2020.
· Under the Scheme, all claims were submitted by 26 November 2022. The
final number of claimants is being verified. However, the indication is that
the volumes of claims are c.25% ahead of previous expectations.
· Amigo returned to lending in October 2022, post period end, following
approval from the Financial Conduct Authority ("FCA") for a pilot phase to
proceed, thereby meeting one of two Scheme conditions set by the Court.
· The second condition is the completion of a successful capital raise
including issuing 19 ordinary shares for every one ordinary share in issue at
that time. Work on this is underway and the process must complete by 26 May
2023.
· On 23 September 2022, Chief Financial Officer ("CFO") Danny Malone
succeeded Gary Jennison as Chief Executive Officer ("CEO") and Kerry Penfold
joined the Board as CFO; these management changes reflect the transition from
turnaround to rebuild and future growth.
Financial headlines
Figures in £m, unless otherwise stated Six months to Six months to Change %
30 September 2022 30 September 2021
Number of customers(1) '000 49.0 102.0 (52.0)
Net loan book(2) 80.6 224.1 (64.0)
Revenue 15.8 56.5 (72.0)
Impairment: revenue (1.3)% 45.8% NM*
Complaints provision (balance sheet) (191.4) (344.3) (44.4)
Complaints charge (income statement) (11.3) (5.3) 113.2
(Loss)/profit before tax (12.7) 2.1 NM*
(Loss)/profit after tax(3) (12.7) 3.3 NM*
Adjusted (loss)/profit after tax(4) (12.7) 2.0 NM*
Basic EPS Pence (2.7) 0.7 NM*
EPS (Basic, adjusted)(5) Pence (2.7) 0.4 NM*
Net unrestricted cash(6) 78.6 2.1 NM*
*NM = not meaningful
Financial headlines (cont.)
· Net loan book reduction of 64.0% to £80.6m (H1 FY2022: £224.1m) and
revenue reduction of 72.0% to £15.8m (H1 FY2022: £56.5m), due to the ongoing
run-off of the legacy loan book and no new lending during the period.
· Complaints provision down 44.4% to £191.4m (H1 FY2022: £344.3m).
This provision has increased from the full year number of £179.8m as
assumptions for both the volume of claims under the Scheme and the estimated
uphold rate, have been revised higher in line with observed claims. The
increase in the provision substantially accounts for the income statement
charge of £11.3m.
· The reduction in revenue as the book runs off, alongside the increase
in provision, led to a reported loss before tax of £12.7m, (H1 FY2022: profit
of £2.1m). No tax impact or profit adjustments were made in the period.
· Overall collections, including early repayments and recoveries from
written-off accounts, have remained robust despite the increased cost of
living and notwithstanding the continued, but expected, rise in delinquency as
the book runs-off.
· £128.4m of unrestricted cash and cash equivalents as at 30 September
2022 (H1 FY2022: £234.5m), following the payment of the £60m initial Scheme
contribution and bi-annual senior secured note coupon payment in July 2022,
reflects continued strong cash generation. Current unrestricted cash balance
of over £130.0m.
· Net unrestricted cash of £78.6m at 30 September 2022 (H1 FY2022: net
cash of £2.1m) driven by the continued collection of the back book while
originations remained suspended. Substantially all of the Group's net cash,
excluding c.£8m of working capital, is committed within 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: 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 profit/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
10.00am (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: 597054). 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, Head of
Investor Relations
investors@amigo.me
Lansons
amigoloans@lansons.com
Tony Langham
07979 692287
Tom Baldock
07860 101715
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. Since October 2022, Amigo has offered guarantor
loans and non-guarantor personal loans under its RewardRate brand. Both
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.
The guarantor loan concept introduces a second individual to the lending
relationship, typically a family member or friend with a stronger credit
profile than the borrower. This individual acts as guarantor, undertaking to
make loan payments if the borrower does not. Amigo'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
Amigo has made good progress over the financial year to date. Following the
sanctioning of our Scheme of Arrangement ("Scheme") in May 2022, we fulfilled
the first of two Scheme conditions in October 2022 by returning to lending
with FCA approval. A pilot is now underway and our new products, processes and
systems are being further tested. After such a long period without new
lending, I would like to thank all our employees for their ongoing commitment.
Performance
During the six-month period to 30 September 2022, as expected, Amigo's legacy
book has continued to unwind, resulting in a reduction in revenue of 72.0%
compared to the prior year period and in customer numbers, which were down
52.0%. The net loan book, at 30 September 2022, was £80.6m. Despite the
challenging macroeconomic backdrop and the increased cost of living being felt
across society, collections, which have included early repayments and
recoveries from written-off accounts, have remained robust.
Following the sanctioning of the Scheme, the complaints liability has halved
and the provision reduced accordingly from the prior year (reflecting the
terms of the Scheme which cap the redress amount). However, in the most recent
quarter, we have revised the provision upwards in line with the observed
volume of claims in the Scheme and the projected uphold rate. This increase in
the provision equates to an income statement charge of £11.3m. This,
alongside the reduction in revenue as the book runs-off, has resulted in a
reported loss before tax for the period of £12.7m, (H1 FY2022: profit of
£2.1m). No tax impact or profit adjustments were made in the period.
Our cash position remains strong with unrestricted cash at 30 September 2022
of £128.4m after payment of the initial £60m Scheme contribution in June
2022 and the bi-annual senior secured note coupon payment in July 2022.
Current unrestricted cash is over £130.0m.
FCA Approval to lend
On 13 October 2022, post period-end, Financial Conduct Authority ("FCA")
approval was received for Amigo to return to lending under certain agreed
conditions. The full letter outlining these conditions can be found on the FCA
website here
(https://www.fca.org.uk/news/statements/fca-allows-amigo-start-lending-again-pilot-basis)
. The FCA confirmed that it is satisfied Amigo has met the threshold
conditions required for the Company to return to lending, initially through
the operation of a pilot lending scheme which will limit the level of new
loans issued for at least two months. During the initial pilot phase plus a
required period for assessment, Amigo will undertake further outcomes testing,
led by a third party, to demonstrate that the new systems and controls meet
regulatory expectations and that it can continue to meet threshold conditions
when lending volumes are increased. If the FCA is satisfied with the outcome
of this pilot phase, Amigo's increase in volumes will then be limited, as
agreed within the Scheme, to a maximum of £35m cumulative net originations
until a minimum £15m from the proposed capital raise is paid into the Scheme
fund. Under the terms of the Scheme, this must be completed by 26 May 2023.
Amigo has returned to lending under the new RewardRate brand and product set,
which offers a combination of unsecured and guarantor loan products to a large
and clearly defined addressable market of around 12m adults. Designed in
conjunction with an anti-poverty charity, these products give people who are
underserved by mainstream credit providers the opportunity to achieve
financial mobility. Stronger underwriting standards have underpinned the
development of these products during a period in which borrowers'
affordability is being impacted by the increasing cost of living. RewardRate's
products are specifically aligned to the FCA's upcoming Consumer Duty
regulations, meaning we are now well-positioned for the future regulatory
environment.
As well as designing the new product set, we have invested in new technology
and undergone a cultural reset. As noted in the FCA letter, dated 13 October
2022, the FCA recognises the significant programme of change Amigo has
undertaken and that it continues to progress to deliver improvements to the
way in which its business operates including providing fair outcomes to
consumers. I am confident that Amigo now has the right culture, discipline and
operational processes in place as we rebuild our business and position it for
future growth.
Scheme of Arrangement
Amigo's Scheme of Arrangement was sanctioned by the High Court in May 2022 and
it closed to new claims on 26 November 2022. Under the "preferred" Scheme
solution, Amigo will make an initial cash contribution of £97m to the Scheme
fund, of which £60m was paid in June 2022. £37m is due to be paid to the
Scheme fund by 26 February 2023. Amigo, based on current projections, expects
to meet the initial Scheme contribution. In the event that total net
recoveries from the back book, excluding the liquidity buffer of £8.4m,
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 is expected to be made from the proceeds of the proposed capital raise,
in accordance with the terms of the Scheme.
The FCA's decision to approve a return to lending is an important milestone
for creditors owed redress by Amigo, as it meets one of two Scheme conditions
which must be fulfilled to meet the "preferred" solution. The second condition
is the completion of a capital raise by 26 May 2023. If Amigo fails to meet
this final condition, the Scheme will revert to the "fallback" solution which
is an orderly wind-down of the Amigo Loans Ltd business.
Capital Raise
Contact with potential investors began in October 2022, following receipt of
FCA approval to return to lending. Amigo represents a rare opportunity to
invest in an established specialist lending platform with limited legacy risk
which operates in market segments with increasing demand. As set out in
Amigo's AGM statement on 28 September 2022, the Board expects to propose a
capital raise of approximately £40m, which will include the 19:1 ordinary
share issue mandated by the Scheme. In addition, Amigo will raise debt to
support future growth. As noted in Amigo's AGM statement, the Board will seek
to facilitate meaningful participation by its existing shareholders on a
pre-emptive basis, underwritten by one or more institutional investors whom it
expects to account for the majority of the capital raise.
This is a complex transaction, not least because of the May deadline for
satisfaction of the Scheme conditions, and that the anticipated significant
institutional investor underwriting may require FCA consent for a change of
control. The structure remains under consideration and, due to its complexity
and the uncertainties of the market, Amigo reserves the right to make
appropriate amendments to the size and terms of the Capital Raise.
Amigo continues to provide information to the FCA with regard to its
enforcement investigation into affordability of loans and complaints handling
and expects the investigation to be concluded prior to the capital raise.
Corporate Governance
The proper and effective governance of Amigo is fundamental to our future
success, and I'm pleased with the FCA's recognition of the significant change
and progress we have made to deliver improvements to the way in which our
business operates.
Central to this is our enhanced governance and cultural framework and our
focus on customer outcomes and Environmental, Social and Governance ("ESG")
responsibilities.
Amigo's Responsible Business Council ("RBC"), established in the period, has
been working with representatives across the business to support and drive
Amigo's ESG commitments. For example, by partnering with Amigo's internal
charity and employee-event focused committee to support the local community
through volunteer events and food bank drives. It has also collaborated with
the HR function to deliver financial support to Amigo's employees to help
combat the cost-of-living crisis and together they will be undertaking a full
diversity, equity and inclusion review. The RBC is committed to identifying
longer-term goals to benefit our customers, employees and wider community and
to implementing specific metrics and targets to record progress against the
recently adopted priority UN Sustainable Development Goals.
One of these goals is climate action. In line with the roadmap set out in our
Annual Report 2022, we are taking steps towards integrating climate impact
into our business planning. The first of these is a scenario analysis to
identify material climate-related risks and opportunities under different
climate pathways and to quantify the potential business impacts. In the new
year, we will be working to assess a science-based, credible net-zero target.
In summary, we are on track to deliver on this year's disclosure requirements,
as per our defined roadmap, and more importantly, to incorporating climate
impact into our business planning.
Board
On 23 September 2022, I took on the role of CEO. Following the successful
sanctioning of the Scheme and as the business began a transition from
turnaround to rebuild and future growth, Gary Jennison retired from his role
as CEO and as a Director of the Board. At the same time, Kerry Penfold became
CFO, moving from the role of Head of Finance at Amigo. Kerry has 20 years'
experience in financial services, and I am delighted that she agreed to become
CFO. Both appointments are subject to FCA approval under the Senior Managers
Regime.
On 3 October, Jerry Loy joined the Board as a Non-Executive Director and Chair
of the Audit Committee, subject to FCA approval under the Senior Managers
Regime. With over 30 years' experience working in financial services and with
extensive audit and regulatory experience, Jerry is a valuable addition to the
Board.
On behalf of the Board, I would like to thank Gary for his considerable
contribution and welcome both Kerry and Jerry who join at an important turning
point for the business.
Summary and Outlook
In summary, Amigo continues to make significant progress. With the sanction of
the Scheme and its recent closure to new Scheme claims, redress customers are
a step closer to receiving compensation and Amigo is near to having clarity on
its long-term future. Our legacy risk is now minimal, and we have designed new
products during an economic crisis that will stand us in good stead for the
future. Returning to lending for the first time since 2020 has been a great
achievement which has taken considerable effort from our teams, of whom I am
immensely proud. The capital raise process has begun and we look forward to
updating shareholders on progress in due course.
The next six months are critical for Amigo's ongoing survival. If we are
successful in raising capital, we move forward with a very different business
to that of the past and with a business model that is well positioned for the
future regulatory environment and for growth as a responsible and valuable
contributor to the mid-cost specialist credit market.
Financial Review
In the six months to 30 September 2022, the net loan book reduced by 64.0% to
£80.6m (H1 FY2022: £224.1m). Revenue fell by 72.0% year on year to £15.8m
(H1 FY2022: £56.5m), reflecting the loan book reduction with no new lending
over the period. Customer numbers reduced by 52.0% compared to the prior year
to 49,000 (H1 FY2022: 102,000). The reduction in revenue, alongside an
increase in the provision following upward revised volume and uphold
assumptions led to a reported statutory loss before tax for the period of
£12.7m (H1 FY2022: profit of £2.1m). There was no tax impact for the half
year or profit adjustments made in the period.
Net assets at 30 September 2022 were £35.2m (H1 FY2022: net liabilities of
£117.6m). 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 working capital
amount of c.£8m will remain. This will not be sufficient to support future
lending beyond the initial period; future lending is expected to be funded, in
part, by way of the capital raise to be completed by 26 May 2023.
Impairment
The ongoing pause in originations and consequent reduction in the size of the
loan book drove a lower impairment charge, resulting in a credit for the
period of £0.2m (H1 FY2022: charge of £25.9m). This was also partly owing to
the upfront expected credit loss methodology of IFRS 9. As the book runs off,
the gross loan book is increasingly provided for under lifetime loss
assumptions.
The impairment provision decreased to £30.1m (H1 FY2022: £65.1m), primarily
due to the decline of the loan book, representing 27.2% of the gross loan book
(H1 FY2022: 22.5%). The increase in coverage is due to the expected increase
in delinquency, within modelled levels, as the book runs off.
Scheme provision
All components of the provision have been considered with more information
available as the Scheme process has progressed. The deadline for customers to
submit a claim within the Scheme passed on 26 November 2022. While final
numbers are being verified, we now have greater visibility and have revised
our volume assumptions higher accordingly. An extension of this, is that the
fixed pot available to creditors within the Scheme is likely to be spread
amongst a higher number of claimants. The estimated uphold rate within the
provision has also been revised from 65% to 70% following initial work
performed by a third party. While the sample analysed is small, a prudent
uplift has been applied.
The revision of assumptions has resulted in an increase to the provision from
the full year to £191.4m (H1 FY2022: £344.3m, FY2022: £179.8m), and a
corresponding charge to the income statement of £11.3m. 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
No tax charge has been recognised in the period.
Funding and liquidity
Net unrestricted cash was £78.6m at 30 September 2022 (H1 FY2022: £2.1m) as
the back book continued to be collected while originations remained suspended.
Unrestricted cash and cash equivalents at 30 September 2022 was £128.4m (H1
FY2022: £234.5m) following the payment of the £60m initial Scheme
contribution in June 2022 and the bi-annual senior secured note coupon in July
2022. Restricted cash is £70.3m, which includes the £60m Scheme contribution
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 £130.0m.
The group has £50.0m of outstanding 7.625% senior secured notes due in
January 2024. The securitisation structure for the facility paid down in
September 2021 was closed post period end. As disclosed with the full year
results in July 2022, the Board did not consider the structure to be
appropriate for the future needs of the business.
A capital raise process is underway, with equity of c.£40m sought to provide
a minimum £15m to the Scheme and growth capital. The Board will also look to
raise additional debt to support future growth.
Going concern
The Board believes that it remains appropriate to prepare the financial
statements on a going concern basis. However, the Board also recognises that
at the date of approval of these financial statements significant uncertainty
remains. The Scheme requires the meeting of capital raise conditions, and the
business will require a full return to lending, which are at least in part
outside of the control of the Group. Additionally, the final outcome of the
FCA enforcement investigation remains highly uncertain. These matters indicate
the existence of a material uncertainty related to events or conditions that
may cast significant doubt over the Group and Company's ability to continue as
a going concern and, therefore, that the Group and Company may be unable to
realise their assets and discharge their liabilities in the normal course of
business.
Principal risks and uncertainties
Amigo's business performance is subject to a number of risks and uncertainties
that could materially impact its success. Amigo puts significant effort into
continually improving the way that it monitors and acts on risks to ensure
control, enhance performance and deliver better customer outcomes. The Board
recognises that opportunities and risks go hand in hand and so it puts time
into understanding which risks are the right ones to take or avoid at any
given time.
Our principal risks and uncertainties are summarised below.
Credit risk
The risk that a counterparty fails to meet its debt obligations in full and on
time. It includes the calculated risks that Amigo assumes by lending money to
a customer and not receiving the owed principal and interest. This includes:
• Credit acquisition risk: this risk is inherent to loan origination and is
tied to the credit analysis, where the Group verifies the customer's capacity,
character, cash flow, collateral (when applies) and conditions to repay the
requested loan. A failure in credit acquisition might result in issues such as
very high delinquency levels, complaints and regulator fines.
• Credit operation risk (collections/fraud): this risk is related to the
actions taken after the customer fails to make one or more payments. Our
ability and capacity to react to loan delinquency are primarily controlled
through customer contact. A failure on collections/fraud actions could lead to
unexpected credit losses affecting the Company's profitability.
• Concentration risk: credit concentrations are viewed as any exposure where
the potential losses are large relative to the Company's capital, its total
assets or, where adequate measures exist, the Company's overall risk level.
Relatively large losses may reflect not only large exposures, but also the
potential for unusually high percentage losses when in potential default.
Amigo is a mid-cost lender, and we take a degree of credit risk that is
consistent with our pricing. Our lending is to customer segments we understand
well. We may engage on a controlled basis in pilot lending, testing new
segments that we think are appropriate for our product.
The organisation is subject to risks arising from changes in the cost of
living which may impact the recovery rates of existing loans and the
affordability of loans to new borrowers. Increases in the cost of living will
detrimentally impact both outcomes. Credit risk is managed carefully by
applying a strict set of creditworthiness and affordability rules.
Conduct risk
Conduct risks arise from inappropriate actions taken by individuals or the
Company that could lead to customer detriment. They can arise at each stage
of the customer journey, from product design through to sales and post-sales
servicing, for example:
● Inadequate planning and design may lead to products and servicing
that don't meet the needs of customers or represent fair value.
● Not providing adequate information and customer support could lead
to customers not having a clear understanding of the product or being unable
to make informed decisions.
● Inappropriate lending practices and decisions may result in
unaffordable debt for customers and poor conduct post-sale. It could also
lead to vulnerable customers and/or those experiencing financial difficulty
not being identified and treated fairly.
Amigo recognises that the vulnerability of its target market poses higher than
average conduct risks and is mindful of the impact of increasing inflation and
the cost of living on borrowers which will put additional strain on customer
finances and affordability.
The FCA's Consumer Duty will underpin our customer outcomes. Our new products
are focused on delivering positive customer outcomes - if it's good for our
customer, it's good for us. Integral to our new lending proposition are
enhanced borrower and guarantor credit and affordability assessments in both
current forbearance and our future lending approach.
Regulatory and political risk
The risk that the regulatory environment will change in a way that has adverse
consequences to our business (explicit changes in regulation or legislation or
changes in interpretation), or where Amigo introduces new products or
approaches and does not fully comply with existing regulatory requirements.
At a minimum, the impact would be the operational burden of adapting to
changing regulation. However, where we fail (or have failed) to adapt to
changes, the impact can extend to regulatory action, including investigation,
fines, or loss of authorisation to operate. It includes regulation or
legislation specific to our product, applying to financial services more
generally, or not specific to our business at all.
Amigo aims to identify specific harms that we seek to avoid or consider how
they fit in the achievement of objectives.
We are committed to a high level of compliance with relevant legislation,
regulation as well as internal policies and governance requirements.
Identified breaches will be remedied as soon as possible. Amigo has no
appetite for deliberate or purposeful violations of legislative or regulatory
requirements.
Amigo maintains a constructive and open relationship with the Financial
Conduct Authority and other regulators and agencies. While permission has been
received to pursue pilot lending, the FCA's enforcement investigations remain
open. Amigo still operates under a VREQ and remains on the FCA's watchlist.
Operational risk
This relates to the possibility of business operations failing due to
inefficiencies or breakdown in internal processes, systems, people or from
external events. Major examples include data security and cyber risk, system
availability, legal risk, and failures of process execution. Other examples
can include key supplier failure, fraud, the risk of Amigo's product being
used for money laundering, or the risk of an error in the business's
decisioning models.
Amigo's operational risk includes the risk that it does not have human
capacity or system capacity to deliver on its strategy. This may leave the
Company unable to properly service its customers, leading to customer harm and
loss of profitability. It may also result in the Company being less able to
perform key functions.
Amigo aims to have the quantity and quality of people necessary to meet its
objectives at all times and to maintain its performance in case of unexpected
loss of key personnel. Our operational resilience approach has been designed
to ensure highly available services, infrastructure and lending processes.
Over the last twelve months, operational resilience has been stable with no
significant disruptions to operations. While approval of the Scheme has
increased the certainty of Amigo's future, people risk and potential for
attrition will remain until successful completion of the lending pilot.
Third-party risk has increased given the reliance on new key suppliers
associated with the new lending platform and this has been recognised through
the introduction of risk-based supplier selection and management practices.
The risk of cyber attacks continues to be a threat across all industries.
Strategic and competitive risk
Strategic risk refers to emerging internal and external events that can
disrupt or prevent the organisation from achieving its objectives and
strategic goals. These risks are present within launching new products and
services, or the failure to meet the expectations of customers should they
shift.
There is a risk that Amigo fails to achieve its objectives, either due to poor
decision making or failure to adapt to changes in the competitive environment,
leading to reduced revenue, increased expenses, or lost opportunities. This
could include the risk of new competitors, market or industry changes,
entering a new geography or the effectiveness of changing or introducing a new
product.
Building on our previously established leading position, with tighter
eligibility criteria and robust affordability and credit checks, we will
prioritise long-term growth and controlled scalability over short-term results
as we meet this increasing demand. The Company needs to maintain the ability
to evolve, adapt, and be responsive to changes in the internal and external
operating environment.
Business transformation is focused on delivering a new lending proposition to
market and deploying iterated improvements based on user data and customer
behaviour and feedback.
Treasury risk
The risk arising from the core actions of the Treasury function. A failure to
properly manage liquidity could lead to the organisation requiring more
expensive funding, reducing profitability, failure to manage
assets/liabilities or to obtain value for money from the resources deployed.
The decision to stop lending has left the business cash generative, but this
is significantly offset by the requirement to pay cash redress on complaints,
necessitating a Scheme of Arrangement. The pause in lending has allowed Amigo
to conserve cash, and the liquidity position is good under baseline forecasts
assuming a new Scheme progresses. Amigo has no material foreign exchange
exposure.
The fundamental purpose of our treasury activity is to support business
growth, rather than generate proprietary profit.
Responsibility statement of the Directors in respect of the half-yearly financial report
We confirm that to the best of our knowledge:
· the condensed set of financial statements has been prepared in
accordance with IAS 34 Interim Financial Reporting as adopted by the UK;
· the interim management report includes a fair review of the
information required by:
a) DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being
an indication of important events that have occurred during the first six
months of the financial year and their impact on the condensed set of
financial statements; and a description of the principal risks and
uncertainties for the remaining six months of the year; and
b) DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being
related party transactions that have taken place in the first six months of
the current financial year and that have materially affected the financial
position or performance of the entity during that period; and any changes in
the related party transactions described in the last annual report that could
do so.
Kerry Penfold
Director
29 November 2022
Independent review report to the members of Amigo Holdings PLC
Conclusion
We have been engaged by Amigo Holdings PLC (the "Company") to review the
condensed set of financial statements in the half-yearly financial report for
the six-month period ended 30 September 2022, which comprises the condensed
consolidated statement of comprehensive income, the condensed consolidated
statement of financial position, the condensed consolidated statement of
changes in equity, the condensed consolidated statement of cash flows, and the
related Notes 1 to 19.
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half-yearly
financial report for the six months ended 30 September 2022 is not prepared,
in all material respects, in accordance with International Accounting Standard
('IAS') 34 "Interim Financial Reporting", as adopted for use in the United
Kingdom and the Disclosure Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority ("FCA").
Basis of Conclusion
We conducted our review in accordance with International Standard on Review
Engagements ('ISRE') (UK) 2410, "Review of Interim Financial Information
Performed by the Independent Auditor of the Entity" issued for use in the
United Kingdom. A review of interim financial information consists of making
enquiries, primarily of persons responsible for financial and accounting
matters, and applying analytical and other review procedures. A review is
substantially less in scope than an audit conducted in accordance with
International Standards on Auditing (UK) and consequently does not enable us
to obtain assurance that we would become aware of all significant matters that
might be identified in an audit. Accordingly, we do not express an audit
opinion.
As disclosed in Note 1.1, the annual financial statements of the Group are
prepared in accordance with International Financial Reporting Standards
adopted for use in the United Kingdom ("UK adopted IFRS"). The condensed set
of financial statements included in this half-yearly financial report has been
prepared in accordance with UK adopted International Accounting Standard
('IAS') 34 "Interim Financial Reporting".
Material Uncertainty Relating to Going Concern
We draw your attention to Note 1.1 Basis of preparation on pages 17 to 19,
which indicates that management have assessed the ability of the Group to
continue as a going concern is significantly impacted by:
· the conditions attached to the Scheme of Arrangement (the
"Scheme") which include the requirement to return to full lending by 26
February 2023 and meeting the conditions of raising capital by 26 May 2023.
· the ongoing FCA investigation in relation to historical lending
and complaints management processes of the Group.
The outcome of these matters is, in part, outside the control of the Group.
This indicates that a material uncertainty exists that may cast significant
doubt upon the Group's and Company's ability to continue as a going concern.
Our conclusion is not modified in respect of these matters.
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis of Conclusion section of this report,
nothing has come to our attention to suggest that the Directors have
inappropriately adopted the going concern basis of accounting.
Independent review report to the members of Amigo Holdings PLC
Responsibilities of Directors
The Directors are responsible for preparing the half-yearly financial report
in accordance with the Disclosure Guidance and Transparency Rules of the
United Kingdom's Financial Conduct Authority.
In preparing the half-yearly financial report, the Directors are responsible
for assessing the Company's ability to continue as a going concern,
disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless the Directors either intend to
liquidate the Company or to cease operations, or have no realistic alternative
but to do so.
Auditor's Responsibilities for the review of the financial information
In reviewing the half-yearly report, we are responsible for expressing to the
Company a conclusion on the condensed set of financial statements in the
half-yearly financial report. Our conclusion, including our conclusions
relating to going concern, are based on procedures that are less extensive
than audit procedures, as described in the Basis of Conclusion paragraph of
this report.
This report is made solely to the Company in accordance with guidance
contained in ISRE (UK) 2410 "Review of Interim Financial Information Performed
by the Independent Auditor of the Entity" issued by the Financial Reporting
Council. Our review work has been undertaken so that we might state to the
Company those matters we are required to state to them in a review report and
for no other purposes. To the fullest extent permitted by law, we do not
accept or assume responsibility to anyone other than the Company, for our
work, for this report, or for the conclusions we have formed.
MHA MacIntyre Hudson
Statutory Auditor
London
29 November 2022
Condensed consolidated statement of comprehensive income
for the 6 months to 30 September 2022
6 months ended 6 months ended Year to
30 Sep 22 30 Sep 21 31-Mar-22
Unaudited Unaudited Audited
Notes £m £m £m
Revenue 3 15.8 56.5 89.5
Interest payable and funding facility fees 4 (1.8) (9.8) (16.7)
Interest receivable 0.3 0.1 0.1
Impairment of amounts receivable from customers 0.2 (25.9) (37.0)
Administrative and other operating expenses (15.9) (13.5) (24.6)
Complaints expense 13 (11.3) (5.3) 156.6
Total operating expenses (27.2) (18.8) 132.0
(Loss)/ profit before tax (12.7) 2.1 167.9
Tax credit on (loss)/profit 6 - 1.2 1.7
(Loss)/ profit and total comprehensive (loss)/income attributable to equity (12.7) 3.3
shareholders of the Group1
169.6
The (loss)/profit is derived from continuing activities.
(Loss)/earnings per share
Basic (loss)/earnings per share (pence) 7 (2.7) 0.7 35.7
Diluted (loss)/earnings per share (pence) 7 (2.7) 0.7 35.7
The accompanying notes form part of these financial statements.
1 There was less than £0.1m of other comprehensive income during
this period and any other period, and hence no consolidated statement of other
comprehensive income is presented.
Condensed consolidated statement of financial position
as at 30 September 2022
30 Sep 22 30 Sep 21 31 Mar 22
Unaudited Unaudited Audited
Notes £m £m £m
Non-current assets
Customer loans and receivables 8 15.3 48.6 25.4
Property, plant and equipment 0.4 0.7 0.5
Right-of-use lease assets 0.7 0.9 0.8
16.4 50.2 26.7
Current assets
Customer loans and receivables 8 66.2 181.4 114.8
Other receivables 10 2.0 2.0 1.6
Current tax assets 0.8 0.6 0.7
Cash and cash equivalents (restricted)(1) 70.3 2.0 7.6
Cash and cash equivalents 128.4 234.5 133.6
267.7 420.5 258.3
Total assets 284.1 470.7 285.0
Current liabilities
Trade and other payables 11 (6.9) (10.6) (6.7)
Lease liabilities (0.3) (0.3) (0.3)
Complaints provision 13 (191.4) (344.3) (82.8)
(198.6) (355.2) (89.8)
Non-current liabilities
Borrowings 12 (49.8) (232.4) (49.7)
Lease liabilities (0.5) (0.7) (0.6)
Complaints provision 13 - - (97.0)
(50.3) (233.1) (147.3)
Total liabilities (248.9) (588.3) (237.1)
Net assets/(liabilities) 35.2 (117.6) 47.9
Equity
Share capital 14 1.2 1.2 1.2
Share premium 207.9 207.9 207.9
Translation reserve - - 0.1
Merger reserve (295.2) (295.2) (295.2)
Retained earnings 121.3 (31.5) 133.9
Shareholder equity 35.2 (117.6) 47.9
The accompanying notes form part of these financial statements.
(1) Cash and cash equivalents (restricted) of £70.3m (H1 2022: £2.0m)
includes (at 30 September 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
with an open complaint, who may later have their complaints upheld in the
Scheme, who continued to make payments on their loan from 1 December 2021 to
the Scheme effective date.
The condensed consolidated 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
29 November 2022
Company no. 10024479
Condensed consolidated statement of changes in equity
for the 6 months to 30 September 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 - - - - 3.3 3.3
Share-based payments - - - - 0.5 0.5
At 30 September 2021 1.2 207.9 - (295.2) (31.5) (117.6)
Total comprehensive income - - - - 166.3 166.3
Translation reserve - - 0.1 - - 0.1
Share-based payments - - - (0.9) (0.9)
At 31 March 2022 1.2 207.9 0.1 (295.2) 133.9 47.9
Total comprehensive loss - - - - (12.7) (12.7)
Translation reserve - - (0.1) - - (0.1)
Share-based payments - - - - 0.1 0.1
At 30 September 2022 1.2 207.9 - (295.2) 121.3 35.2
The accompanying notes form part of these financial statements.
1 The translation reserve is due to the effect of foreign exchange
rate changes on translation of financial statements of the Irish entities.
2 The merger reserve was created as a result of a Group
reorganisation in 2017 to create an appropriate holding company structure. The
restructure was within a wholly owned group, constituting a common control
transaction.
Condensed consolidated statement of cash flows
for the 6 months to 30 September 2022
6 months to 6 months to Year to
30 Sep 22 30 Sep 21 31 Mar 22
Unaudited Unaudited Audited
£m £m £m
(Loss)/profit for the period (12.7) 3.3 169.6
Adjustments for:
Impairment expense (0.2) 25.9 37.0
Complaints provision 16.3 5.3 (156.6)
Tax (credit)/charge - (1.2) (1.7)
Interest expense 1.8 9.8 16.7
Interest receivable (0.3) (0.1) (0.1)
Interest recognised on loan book (25.1) (59.8) (97.0)
Share-based payment 0.1 0.5 (0.4)
Depreciation of property, plant and equipment 0.3 0.2 0.5
Operating cash flows before movements in working capital (19.8) (16.1) (32.0)
(Increase)/decrease in receivables (0.3) (0.2) 0.1
Increase/(decrease) in payables 0.3 (6.0) (6.3)
Complaints cash expense (4.7) (4.8) (8.1)
(Tax paid)/tax refunds (0.2) - 0.2
Interest paid (1.6) (9.7) (18.5)
Net cash (used in) operating activities before loans issued and collections on (26.3) (36.8) (64.6)
loans
Collections 79.7 149.9 263.0
Other loan book movements 2.9 (0.4) (0.4)
Decrease in deferred brokers' costs 1.4 3.8 7.5
Net cash from operating activities 57.7 116.5 205.5
Investing activities
Proceeds from sale of property, plant and equipment - 0.3 0.3
Net cash from investing activities - 0.3 0.3
Financing activities
Lease principal payments (0.1) (0.1) (0.3)
Repayment of external funding - (64.4) (248.5)
Net cash (used in) financing activities (0.1) (64.5) (248.8)
Net increase in cash and cash equivalents 57.6 52.3 (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)
198.7 236.5 141.2
The accompanying notes form part of these financial statements.
1 Total cash is inclusive of cash and cash equivalents
(restricted) of £70.3m (H1 2022: £2.0m). Cash and cash equivalents
(restricted) includes (at 30 September 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 with an open complaint, who may later have their complaints
upheld in the Scheme, who continued to make payments on their loan from 1
December 2021 to the Scheme effective date.
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 two-month pilot basis, a new guarantor loan
as well as an unsecured loan product 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.
The condensed interim financial statements for the six months ended 30
September 2022 have been reviewed, not audited, by the incumbent auditor, MHA
Macintyre Hudson, and were approved by the board of directors on 29 November
2022.
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 six months ended 30
September 2022 have been prepared 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.
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. 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, with FCA approval to commence re-lending having been
received, and new lending originations commencing, in October 2022
· balance adjustments and refunds resulting from complaints in the
Scheme are consistent with the assumptions that underpin the complaints
provision reported as at 30 September 2022 (see note 2.2.2)
· 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.
• Halving of forecast origination volumes, whether arising due to
delays in new product launch or market conditions.
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.
Status of Scheme Conditions
Payment of £60m into Scheme Fund by Complete
Payment of £37m into Scheme Fund by 26th February 2023 The Group currently has, and is forecast to continue to have, sufficient cash
to meet this requirement
FCA permission to return to lending by 26th 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 26th 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 is currently under investigation by the FCA in relation to
historical lending and complaints management processes. We are hopeful that
the outcome of these investigations will be known shortly. If the enforcement
process is not completed before the proposed capital raise, then Amigo could
fail to comply with one of the Scheme conditions and is likely to revert to
the fallback solution or some form of insolvency.
There are a number of avenues of sanction open to the FCA should they deem it
appropriate and so the potential impact of the investigation on the business
is extremely difficult to predict and quantify and is not modelled in the
business plan or stress scenario. In mitigation, the FCA has stated that the
levying of any fine would be considered in the context of the Scheme and its
impact on creditors.
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, and the business will require a full
return to lending, which are at least in part outside of the control of the
Group. Additionally, the final outcome of the FCA investigation remains highly
uncertain. These matters indicate the existence of a material uncertainty
related to events or conditions that may cast significant doubt over the Group
and Company's ability to continue as a going concern and, therefore, that the
Group and Company may be unable to realise their assets and discharge their
liabilities in the normal course of business.
1.2 Amounts receivable from customers
i) Classification
IFRS 9 requires a classification and measurement approach for financial assets
which reflects how the assets are managed and their cash flow characteristics.
IFRS 9 includes three classification categories for financial assets: measured
at amortised cost, fair value through other comprehensive income ("FVOCI") and
fair value through profit and loss ("FVTPL"). Note, the Group does not hold
any financial assets that are equity investments; hence the below
considerations of classification and measurement only apply to financial
assets that are debt instruments. A financial asset is measured at amortised
cost if it meets both of the following conditions (and is not designated as
FVTPL):
· it is held within a business model whose objective is to hold
assets to collect contractual cash flows; and
· its contractual terms give rise on specified dates to cash flows
that are solely payments of principal and interest ("SPPI") on the principal
amount outstanding.
Business model assessment
In the assessment of the objective of a business model, the information
considered includes:
· the stated policies and objectives for the loan book and the
operation of those policies in practice, in particular whether management's
strategy focuses on earning contractual interest revenue, maintaining a
particular interest rate profile, matching the duration of the financial
assets to the duration of the liabilities that are funding those assets or
realising cash flows through the sale of the assets;
· how the performance of the loan book is evaluated and reported to
the Group's management;
· the risks that affect the performance of the business model (and
the financial assets held within that business model) and its strategy for
how those risks are managed;
· how managers of the business are compensated (e.g. whether
compensation is based on the fair value of the assets managed or the
contractual cash flows collected); and
· the frequency, volume and timing of debt sales in prior periods,
the reasons for such sales and the Group's expectations about future sales
activity. However, information about sales activity is not considered in
isolation, but as part of an overall assessment of how the Group's stated
objective for managing the financial assets is achieved and how cash flows are
realised.
The Group's business comprises primarily loans to customers that are held for
collecting contractual cash flows. Debt sales of charged off assets are not
indicative of the overall business model of the Group. The business model's
main objective is to hold assets to collect contractual cash flows.
Assessment of whether contractual cash flows are solely payments of principal and interest
For the purposes of this assessment, "principal" is defined as the fair value
of the financial asset on initial recognition. "Interest" is defined as
consideration for the time value of money and for the credit risk associated
with the principal amount outstanding during a particular period of time, as
well as profit margin.
In assessing whether the contractual cash flows are 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 only held guarantor loans on balance sheet.
In substance the borrower and the guarantor of each financial asset have
equivalent responsibilities. Hence for each loan there are two obligors to
which the entity has equal recourse. This dual borrower nature of the product
is a key consideration in determining the staging and the recoverability of an
asset.
The Group assessed that its key sensitivity was in relation to expected credit
losses on customer loans and receivables. The matrix of nine scenarios used in
September 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 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.
· 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 £30.1m if each of the three scenarios are given a probability weighting of
100%.
Impact
Base -1.7m
Downside +0.4m
Severe downside +1.0m
The scenarios above demonstrate a range of ECL provisions from £28.4m to
£31.1m.
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 certain
customer-initiated complaints, using information available as at the date of
signing these financial statements.
Identifying whether a present obligation exists and estimating the
probability, timing, nature and quantum of the redress payments that may arise
from past events require judgements to be made on the specific facts and
circumstances relating to the individual complaints. Management evaluates on
an ongoing basis whether complaints provisions should be recognised, revising
previous judgements and estimates as appropriate; however, there is a wide
range of possible outcomes.
These calculations involve significant, complex management judgement and
estimation. As the Scheme closing date draws near, however, 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 30 September 2022 is based
on Amigo's best estimate of the future obligation at the Scheme effective
date. The revised complaints cash redress provision will be £97.0m
post-Scheme. A further contribution of £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 component cannot be accrued as it cannot be justified as
more likely than not to occur at today's date.
As at 30 September 2022, the Group has recognised a complaints provision
totalling £191.4m in respect of customer complaints redress and associated
costs. Utilisation in the period totalled £4.7m. The liability has decreased
by £152.9m compared to 30 September 2021. £141.1m of the decrease is due to
the cash redress liability being reduced to the £97.0m contribution as per
the Scheme. The other main component of the reduction is a decrease in the
balance adjustments on the loan book of £25.7m. The level of balance
adjustments has declined due to customers paying down their loan and customers
charging off the loan book. This has been partly offset by an increase in the
assumed volume of customers coming forward in the Scheme.
The following table details the effect on the complaints provision considering
incremental changes on key assumptions, should current estimates prove too
high or too low. Sensitivities are modelled individually and not in
combination.
Assumption used Sensitivity applied Sensitivity (£m)
Average uphold rate per customer(1) 70% +/- 20 ppts +18.9m -18.9m
1. Uphold rate. Sensitivity analysis shows the impact of a 20
percentage point change in the applied uphold rate on both the current and
forward-looking elements of the provision.
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
reasonably possible alternative assumptions.
It is possible that the eventual outcome may differ materially from the
current estimate and could materially impact the financial statements as a
whole, given the Group's only activity is guarantor-backed consumer credit.
This is due to the risks and inherent uncertainties surrounding the
assumptions used in the provision calculation.
3. Revenue and segment reporting
Revenue comprises interest income on amounts receivable from customers. Loans
are initially measured at fair value (which is equal to cost at inception)
plus directly attributable transaction costs and are subsequently measured at
amortised cost using the effective interest rate method. Revenue is presented
net of amortised broker fees, which are 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 they are 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
six months to 30 September 2022 in line with reporting to the chief operating
decision maker:
6 months to 30 September 2022 Period to Period to Period to
30 Sep 22 30 Sep 22 30 Sep 22
£m £m £m
UK Other segments Total
Revenue 15.7 0.1 15.8
Interest payable and funding facility fees (1.8) - (1.8)
Interest receivable 0.3 - 0.3
Impairment of amounts receivable from customers 0.1 0.1 0.2
Administrative and other operating expenses (15.6) (0.3) (15.9)
Provision expenses (11.3) - (11.3)
Total operating expenses (26.9) (0.3) (27.2)
Loss before tax (12.6) (0.1) (12.7)
Tax credit on loss - - -
Loss and total comprehensive loss attributable to equity shareholders of the (12.6) (0.1) (12.7)
Group
30 Sep 22 30 Sep 22 30 Sep 22
£m £m £m
UK Other segments Total
Gross loan book(1)
110.3 0.4 110.7
Less impairment provision (30.0) (0.1) (30.1)
Net loan book(2)
80.3 0.3 80.6
1. Gross loan book represents total outstanding loans and
excludes deferred broker costs.
2. Net loan book represents gross loan book less provision for
impairment.
The carrying value of property, plant and equipment and intangible assets
included in the consolidated interim statement of financial position
materially all relates to the UK; hence the split between UK and Ireland has
not been presented. The results of each segment have been prepared using
accounting policies consistent with those of the Group as a whole.
6 months to 30 September 2021 Period to Period to Period to
30 Sep 21 30 Sep 21 30 Sep 21
£m £m £m
UK Ireland Total
Revenue 55.9 0.6 56.5
Interest payable and funding facility fees (9.8) - (9.8)
Interest receivable 0.1 - 0.1
Impairment of amounts receivable from customers (26.1) 0.2 (25.9)
Administrative and other operating expenses (13.2) (0.3) (13.5)
Provision expenses (5.3) - (5.3)
Total operating expenses (18.5) (0.3) (18.8)
Profit before tax 1.6 0.5 2.1
Tax credit on profit(1) - 1.2
1.2
Profit and total comprehensive income attributable to equity shareholders of 2.8 0.5 3.3
the Group
30 Sep 21 30 Sep 21 30 Sep 21
£m £m £m
UK Ireland Total
Gross loan book(2)
286.8 2.4 289.2
Less impairment provision (64.6) (0.5) (65.1)
Net loan book(3)
222.2 1.9 224.1
1. The tax credit for the UK primarily relates to the
recognition of a £0.4m tax asset and the impact of the release of a tax
provision no longer required.
2. Gross loan book represents total outstanding loans and
excludes deferred broker costs.
3. Net loan book represents gross loan book less provision for
impairment.
4. Interest payable and funding facility fees
Period to Period to Year to
30 Sep 22 30 Sep 21 31 Mar 22
Unaudited Unaudited Audited
£m £m £m
Senior secured notes interest payable 1.9 9.0 14.9
Funding facility fees (0.1) 0.1 1.0
Securitisation interest payable - 0.2 0.2
Other finance costs - 0.5 0.6
1.8 9.8 16.7
No interest was capitalised by the Group during the period. Funding facility
fees include non-utilisation fees and amortisation of initial costs of the
Group's senior secured notes.
5. Modification of financial assets
Covid-19 payment holidays and any subsequent extensions were assessed as
non-substantial financial asset modifications under IFRS 9.
The carrying value of historical modification losses at the period end was
£1.7m (H1 2022: £9.4m).
Period to Period to Year to
30 Sep 22 30 Sep 21 31 Mar 22
Unaudited Unaudited Audited
£m £m £m
Modification release recognised in revenue 0.2 - 1.2
Modification release recognised in impairment 0.3 - 4.1
Total modification release 0.5 - 5.3
6. Taxation
The applicable corporation tax rate for the period to 30 September 2022 was
19.0% (H1 2022: 19.0%) and the effective tax rate is 0.0% (H1 2022: 57.1%
positive).
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 at 30 September 2022.
7. Earnings per share
Basic earnings per share is calculated by dividing the profit for the period
attributable to equity shareholders by the
weighted average number of ordinary shares outstanding during the period.
Diluted earnings per share calculates the effect on profit per share assuming
conversion of all dilutive potential
ordinary shares. Dilutive potential ordinary shares are calculated as follows:
i) For share awards outstanding under performance-related share
incentive plans such as the Share Incentive Plan ("SIP") and the Long Term
Incentive Plans ("LTIPs"), the number of dilutive potential ordinary shares is
calculated based on the number of shares which would be issuable if the end of
the reporting period is assumed to be the end of the scheme's performance
period. An assessment over financial and non-financial performance targets as
at the end of the reporting period has therefore been performed to aid
calculation of the number of dilutive potential ordinary shares.
ii) For share options outstanding under non-performance-related
schemes such as the two Save As You Earn schemes ("SAYE"), a calculation is
performed to determine the number of shares that could have been acquired at
fair value (determined as the average annual market share price of the
Company's shares) based on the monetary value of the subscription rights
attached to outstanding share options. The number of shares calculated is
compared with the number of share options outstanding, with the difference
being the dilutive potential ordinary shares.
Potential ordinary shares are treated as dilutive when, and only when, their
conversion to ordinary shares would decrease earnings per share or increase
earnings per share.
30 Sep 22 30 Sep 21 31 Mar 22
Unaudited Unaudited Audited
Pence Pence Pence
Basic (loss)/earnings per share (2.7) 0.7 35.7
Diluted (loss)/earnings per share (2.7) 0.7 35.7
Basic adjusted (loss)/earnings per share (basic and diluted)1 0.4
(2.7) 2.8
1. Adjusted basic (loss)/earnings per share and earnings for
adjusted basic (loss)/earnings per share are non-GAAP measures.
The Directors are of the opinion that the publication of the adjusted earnings
per share is useful as it gives a better indication of ongoing business
performance. Reconciliations of the earnings used in the calculations are set
out below.
30 Sep 22 30 Sep 21 31 Mar 22
Unaudited Unaudited Audited
£m £m £m
(Loss)/profit for basic EPS (12.7) 3.3 169.6
Release of complaints provision - - (156.6)
Senior secured notes redemption - - 0.7
Write-off of unamortised securitisation fees - - 0.5
Tax provision release - (0.8) (0.8)
Tax refund due - (0.5) -
Less tax impact - - (0.1)
(Loss)/profit for basic adjusted EPS1 13.3
(12.7) 2.0
Basic weighted average number of shares (m) 475.3 475.3 475.3
Dilutive potential ordinary shares (m)(2) -
- 1.1
Diluted weighted average number of shares (m) 475.3 476.4 475.3
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 30 September 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.
30 Sep 22 30 Sep 21 31 Mar 22
Unaudited Unaudited Audited
£m £m £m
Stage 1 74.8 209.0 128.8
Stage 2 20.0 45.6 32.4
Stage 3 15.9 34.6 24.2
Gross loan book 110.7 289.2 185.4
Deferred broker costs1 - stage 1 1.5
0.6 4.3
Deferred broker costs1 - stage 2 0.4
0.2 0.9
Deferred broker costs1 - stage 3 0.3
0.1 0.7
Loan book inclusive of deferred broker costs 111.6 295.1 187.6
Provision (30.1) (65.1) (47.4)
Customer loans and receivables 81.5 230.0 140.2
1. Deferred broker costs are recognised within customer loans and
receivables and are amortised over the expected life of those assets using the
effective interest rate ("EIR") method.
As at 30 September 2022, £50.5m of loans to customers had their beneficial
interest assigned to the Group's special purpose vehicle ("SPV") entity,
namely AMGO Funding (No. 1) Ltd, as collateral for securitisation transactions
(H1 2022: £132.5m). See note 17 for further details of this structured
entity.
Ageing of gross loan book (excluding deferred brokers' fees and provision) by
days overdue:
30 Sep 22 30 Sep 21 31 Mar 22
Unaudited Unaudited Audited
£m £m £m
Current 76.8 210.5 132.1
1-30 days 12.9 32.6 21.1
31-60 days 5.1 11.5 8.0
>60 days 15.9 34.6 24.2
Gross loan book 110.7 289.2 185.4
The following table further explains changes in the gross carrying amount of
loans receivable from customers to explain their
significance to the changes in the loss allowance for the same portfolios.
Period ended 30 September 2022 Stage 1 Stage 2 Stage 3 Total
£m £m £m £m
Gross carrying amount as at 31 March 2022 128.8 32.4 24.2 185.4
Deferred brokers fees 1.5 0.4 0.3 2.2
Loan book inclusive of deferred broker costs 130.3 32.8 24.5 187.6
Changes in gross carrying amount attributable to:
Transfer to stage 1 4.4 (4.3) (0.1) -
Transfer to stage 2 (11.6) 12.3 (0.7) -
Transfer to stage 3 (6.6) (5.8) 12.4 -
Passage of time(1) (26.3) (6.2) (1.4) (33.9)
Customer settlements (14.9) (2.4) (0.6) (17.9)
Loans charged off (2.0) (6.2) (18.8) (27.0)
Net movement in modification loss relating to Covid-19 payment holidays 3.0 0.2 0.9 4.1
Net movement in deferred broker fees (0.9) (0.2) (0.2) (1.3)
Loan book inclusive of deferred broker costs as at 30 September 2022 75.4 20.2 16.0 111.6
Period ended 30 September 2021 Stage 1 Stage 2 Stage 3 Total
£m £m £m £m
Gross carrying amount as at 31 March 2021 311.5 61.4 50.0 422.9
Deferred brokers fees 7.2 1.4 1.1 9.7
Loan book inclusive of deferred broker costs 318.7 62.8 51.1 432.6
Changes in gross carrying amount attributable to:
Transfer to stage 1 22.9 (22.3) (0.6) -
Transfer to stage 2 (47.9) 49.0 (1.1) -
Transfer to stage 3 (10.3) (19.2) 29.5 -
Passage of time(1)
(45.6) (6.6) 0.5 (51.7)
Customer settlements
(25.5) (5.0) (1.0) (31.5)
Loans charged off (2.3) (11.4) (41.2) (54.9)
Net movement in modification loss relating to Covid-19 payment holidays 6.3 (0.3) (1.5) 4.5
Net movement in deferred broker fees (3.0) (0.5) (0.4) (3.9)
Loan book inclusive of deferred broker costs as at 30 September 2021 213.3 46.5 35.3 295.1
1 Passage of time relates to amortisation of loan balances
over the course of the financial year, due to cash payments partially offset
by interest accruals.
As shown in the table above, the loan book inclusive of deferred broker cost
decreased from £295.1m to £111.6m at 30 September 2022. This was primarily
driven by the effect of passage of time (loan balances amortising throughout
the period), customer settlements and no originations in the year.
The following tables explain the changes in the loan loss provision between
the beginning and the end of the period:
Period ended 30 September 2022 Stage 1 Stage 2 Stage 3 Total
£m £m £m £m
Loan loss provision as at 31 March 2022 18.1 8.9 20.4 47.4
Changes in loan loss provision attributable to:
Transfer to stage 1 0.6 (0.9) (0.1) (0.4)
Transfer to stage 2 (1.6) 3.7 (0.6) 1.5
Transfer to stage 3 (0.9) (1.7) 10.2 7.6
Passage of time(1) (3.7) (1.5) (1.1) (6.3)
Customer settlements (2.0) (0.6) (0.5) (3.1)
Loans charged off (0.3) (2.5) (15.4) (18.2)
Management 0.1 0.1 0.5 0.7
overlay
Net movement in modification loss relating to Covid-19 payment holidays 0.4 - 0.1 0.5
Remeasurement of ECLs 0.8 (0.5) 0.1 0.4
Loan loss provision as at 30 September 2022 11.5 5.0 13.6 30.1
Period ended 30 September 2021 Stage 1 Stage 2 Stage 3 Total
£m £m £m £m
Loan loss provision as at 31 March 2021 21.0 14.1 46.9 82.0
Changes in loan loss provision attributable to:
Transfer to stage 1 1.6 (1.9) (0.5) (0.8)
Transfer to stage 2 (3.3) 8.8 (0.9) 4.6
Transfer to stage 3 (0.7) (4.3) 24.6 19.6
Passage of time(1)
(3.2) (0.7) 0.4 (3.5)
Customer settlements
(1.7) (0.7) (0.9) (3.3)
Loans charged off (0.2) (4.7) (34.4) (39.3)
Net movement in modification loss relating to Covid-19 payment holidays 0.8 - (0.2) 0.6
Remeasurement of ECLs 11.6 (0.2) (6.2) 5.2
Loan loss provision as at 30 September 2021 25.9 10.4 28.8 65.1
1 Passage of time relates to amortisation of loan balances
over the course of the financial year, due to cash payments partially offset
by interest accruals.
As shown in the above tables, the allowance for ECL decreased from £65.1m at
30 September 2021 to £30.1m at 30 September 2022. The overall provision has
reduced in line with the amortisation of the loan book in the absence of any
originations.
The following table splits the gross loan book by arrears status, and then by
stage respectively for the year ended 30 September 2022.
Stage 1 Stage 2 Stage 3 Total
£m £m £m £m
Up to date 69.6 7.2 - 76.8
1-30 days 5.2 7.7 - 12.9
31-60 days - 5.1 - 5.1
> 60 days - - 15.9 15.9
74.8 20.0 15.9 110.7
The following table splits the gross loan book by arrears status, and then by
stage respectively for the year ended 30 September 2021:
Stage 1 Stage 2 Stage 3 Total
£m £m £m £m
Up to date 193.8 16.7 - 210.5
1-30 days 15.2 17.4 - 32.6
31-60 days - 11.5 - 11.5
> 60 days - - 34.6 34.6
209.0 45.6 34.6 289.2
The following table further explains changes in the net carrying amount of
loans receivable from customers to explain their significance to the changes
in the loss allowance for the same portfolios.
30 Sep 22 30 Sep 21 31 Mar 22
Unaudited Unaudited Audited
Customer loans and receivables £m £m £m
Due within one year 65.5 177.4 113.0
Due in more than one year 15.1 46.7 25.0
Net loan book 80.6 224.1 138.0
Deferred broker costs1
Due within one year 0.7 4.0 1.8
Due in more than one year 0.2 1.9 0.4
Customer loans and receivables 81.5 230.0 140.2
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. Financial instruments
The below tables show the carrying amounts and fair values of financial assets
and financial liabilities, including the levels in the fair value hierarchy.
The tables analyse financial instruments into a fair value hierarchy based on
the valuation technique used to determine fair value:
a) Level 1: quoted prices (unadjusted) in active markets for identical
assets or liabilities.
b) Level 2: inputs other than quoted prices included within Level 1 that
are observable for the asset or liability, either directly (i.e. as prices) or
indirectly (i.e. derived from prices).
c) Level 3: inputs for the asset or liability that are not based on
observable market data (unobservable inputs).
30 Sept 22 30 Sep 21 31 Mar 22
Fair value Carrying amount Fair Carrying amount Fair Carrying amount Fair
hierarchy £m value £m value £m value
£m £m £m
Financial assets not measured at fair value(1)
Amounts receivable from customers(2) Level 3 81.5 75.1 230.0 214.4 140.2 125.0
Other receivables Level 3 2.0 2.0 2.1 2.1 1.6 1.6
Cash and cash equivalents (restricted) Level 1 70.3 70.3 2.0 2.0 7.6 7.6
Cash and cash equivalents Level 1 128.4 128.4 234.5 234.5 133.6 133.6
282.2 275.8 468.6 453.0 283.0 267.8
Financial liabilities not measured at fair value(1)
Other liabilities Level 3 (6.9) (6.9) (10.6) (10.6) (6.7) (6.7)
Senior secured notes(3) (49.7)
Level 1 (49.8) (47.3) (232.4) (224.3) (48.7)
(56.7) (54.2) (243.0) (234.9) (56.4) (55.4)
1. The Group has disclosed the fair values of financial
instruments such as short-term trade receivables and payables at their
carrying value because it considers this a reasonable approximation of fair
value.
2. The unobservable inputs in the fair value calculation of
amounts receivable from customers are expected credit losses, forecast cash
flows and discount rates. As lifetime expected credit losses are embedded in
the calculation, this results in a fair value lower than the carrying amount.
3. Senior secured notes are presented in the financial statements
net of unamortised fees. As at 30 September 2022, the gross principal amount
outstanding was £50.0m (H1 2021: £234.1m). The fair value reflects the
market price of the notes at the financial year end.
Financial instruments not measured at fair value
The fair value of amounts receivable from customers has been estimated using a
net present value calculation using discount rates derived from the blended
effective interest rate of the instruments. As these loans are not traded on
an active market and the fair value is therefore determined through future
cash flows, they are classed as Level 3 under IFRS 13 Fair Value Measurement.
The fair value of senior secured notes has been taken at the Bloomberg
Valuation Service ("BVAL") market price.
All financial instruments are held at amortised cost. There are no derivative
assets in the current or prior period.
The Group's activities expose it to a variety of financial risks, which can be
categorised under credit risk and treasury risk. The objective of the Group's
risk management framework is to identify and assess the risks facing the Group
and to minimise the potential adverse effects of these risks on the Group's
performance. Financial risk management is overseen by the Group Risk Committee
alongside other principal risks: operational, regulatory, strategic and
conduct risks.
30 Sep 22 30 Sep 21 31 Mar 22
Unaudited Unaudited Audited
£m £m £m
Maturity analysis of financial liabilities
Analysed as:
- due within one year
Other liabilities (6.9) (10.6) (6.7)
- due in one to two years
Senior secured note liability (49.8) - -
- due in two to three years
Senior secured note liability - (232.4) (49.7)
(56.7) (243.0) (56.4)
10. Other receivables
30 Sep 22 30 Sep 21 31 Mar 22
Unaudited Unaudited Audited
£m £m £m
Current
Other receivables 0.6 0.7 0.6
Prepayments and accrued income 1.4 1.3 1.0
2.0 2.0 1.6
11. Trade and other payables
30 Sep 22 30 Sep 21 31 Mar 22
Unaudited Unaudited Audited
£m £m £m
Current
Accrued senior secured note interest 0.8 3.7 0.8
Trade payables 0.4 0.2 0.4
Taxation and social security 0.4 0.7 0.4
Other creditors 0.9 0.8 1.1
Accruals and deferred income 4.4 5.2 4.0
6.9 10.6 6.7
12. Bank and other borrowings
30 Sep 22 30 Sep 21 31 Mar 22
Unaudited Unaudited Audited
£m £m £m
Current and non-current liabilities
Amounts falling due in 1-2 years
Senior secured notes 49.8 - 49.7
Amounts falling due 2-3 years
Senior secured notes - 232.4 -
49.8 232.4 49.7
The Group's facilities are:
· Senior secured notes in the form of £49.8m high yield bonds with
a coupon rate of 7.625% which expire in January 2024 (H1 2022: £232.4m). The
senior secured notes are presented in the financial statements net of
unamortised fees. As at 30 September 2022, the gross principal amount
outstanding was £50.0m. 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). The remaining £50.0m
gross principal amount outstanding is due in January 2024.
13. Provisions
Provisions are recognised for present obligations arising as the consequence
of past events where it is more likely than not that
a transfer of economic benefit will be necessary to settle the obligation,
which can be reliably estimated.
30 Sep 22 30 Sep 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
Provisions made during period 16.3 - 16.3 5.3 - 5.3 (156.6) - (156.6)
Net utilisation of the provision (4.7) - (4.7) (5.6) - (5.6) (8.2) (1.0) (9.2)
Closing provision 191.4 - 191.4 344.3 - 344.3 179.8 - 179.8
Non-current - - - - - - 97.0 - 97.0
Current 191.4 - 191.4 344.3 - 344.3 82.8 - 82.8
191.4 - 191.4 344.3 - 344.3 179.8 - 179.8
Customer complaints redress
As at 30 September 2022, the Group has recognised a complaints provision
totalling £191.4m in respect of customer complaints redress and associated
costs. Utilisation in the period totalled £4.7m. The liability has decreased
by £152.9m compared to 30 September 2021. £141.1m of the decrease is due to
the cash redress liability being reduced to the £97.0m contribution as per
the Scheme. The other main component of the reduction is a decrease in the
balance adjustments on the loan book of £25.7m. The level of balance
adjustments has declined due to customers paying down their loan and customers
charging off the loan book. This has been partly offset by an increase in the
assumed volume of customers coming forward in the Scheme
Contingent liability
FCA investigation
On 29 May 2020 the FCA commenced an investigation into whether the Group's
creditworthiness assessment process, and the governance and oversight of this,
was compliant with regulatory requirements. The FCA investigation will cover
lending for the period from 1 November 2018 to date. There is significant
uncertainty around the impact of this on the business, the assumptions
underlying the complaints provision and any future regulatory intervention.
The Group was informed on 15 March 2021 that the FCA has decided to extend
the scope of its current investigation so that it can investigate whether the
Group appropriately handled complaints after 20 May 2020 and whether the
Group deployed sufficient resource to address complaints in accordance with
the Voluntary Requirement ("VReq") announced on 27 May 2020 and the
subsequent variation announced on 3 July 2020.
The FCA investigation will consider whether those complaints have been
handled appropriately and whether customers have been treated fairly in
accordance with Principle 6 of the FCA's Principles for Business. The Group
will continue to co-operate fully with the FCA.
If the enforcement process is not completed and prevents the capital raise
from being successful, then Amigo could fail to comply with one of the Scheme
conditions and is likely to revert to the "fallback" solution or some form of
insolvency. There are a number of avenues of sanction open to the FCA should
it deem it appropriate and so the potential impact of the investigation on the
business is extremely difficult to predict and quantify, so has not been
provided for in the financial statements and is not modelled in the business
plan or stress scenario. In mitigation, the FCA has stated that the levying
of any fine would be considered in the context of the Scheme and its impact on
creditors. In the event that the investigations have not concluded or that
they have concluded with an adverse outcome, either of which causes
the capital raise not to proceed, the Scheme will revert to the "fallback"
solution and the business will be wound down.
Following the Court sanction of the Scheme the Company is obliged 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 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.
14. Share capital
On 4 July 2018 the Company's shares were admitted to trading on the London
Stock Exchange. Immediately prior to admission the shareholder loan notes were
converted to equity, increasing the share capital of the business to 475
million ordinary shares and increasing net assets by £207.2m. No additional
shares were issued subsequent to conversion of the shareholder loan notes.
Ordinary Number Total Number
At 31 March 2022 475,333,760 475,333,760
At 30 September 2022 475,333,760 475,333,760
Ordinary shares
The holders of ordinary shares are entitled to receive dividends as declared
from time to time and are entitled to one vote per share at general meetings
of the Company. Each ordinary share in the capital of the Company ranks
equally in all respects and no shareholder holds shares carrying special
rights relating to the control of the Company. The nominal value of shares in
issue is shown in share capital, with any additional consideration for those
shares shown in share premium.
Deferred shares
At the time of the IPO and subdivision the 41,000 ordinary B shares were split
into 16,400,000 ordinary shares of 0.25p and 41,000 deferred shares of
£0.24.
The deferred shares do not carry any rights to receive any profits of the
Company or any rights to vote at a general meeting. Prior to the subdivision
the ordinary B shares had 1.24 votes per share; all other shares had one vote
per share. The Group plans to cancel these deferred shares in due course.
Dividends
Dividends are recognised through equity, on the earlier of their approval by
the Company's shareholders or their payment.
Due to the Asset Voluntary Requirement entered into with the FCA, prior
approval by the FCA will be required to pay dividends to shareholders. The
Board decided that it would not propose a final dividend payment for the year
to 31 March 2022 or an interim dividend for the period to 30 September 2022.
Total cost of dividends paid in the period is £nil (2021: £nil).
15. Immediate and ultimate parent undertaking
The immediate and ultimate parent undertaking is Amigo Holdings PLC, a company
incorporated in England and Wales. The consolidated financial statements of
the Group as at and for the year ended 31 March 2022 are available upon
request from the Company's registered office at Nova Building, 118-128
Commercial Road, Bournemouth, United Kingdom, BH2 5LT.
16. 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 £0.1m in the six months to
30 September 2022 (H1 2022: charge of £0.5m).
17. Investment in subsidiaries and structured entities
Amigo Loans Group Limited (ALGL) is a wholly owned subsidiary of the Company
and a reconciliation to its consolidated results is included in the
presentation pack on the Company's website as part of ALGL's senior secured
note reporting requirements.
The following are subsidiary undertakings of the Company at 30 September 2022
and includes undertakings registered or incorporated up to the date of the
Directors' Report as indicated. Unless otherwise indicated all Group owned
shares are ordinary. All entities are subsidiaries on the basis of 100%
ownership and shareholding, aside from AMGO Funding (No. 1) Limited which is
an orphaned structured entity.
Name Country of incorporation Class of Ownership 2022 Ownership 2021 Principal activity
Shares held
Direct holding
Amigo Loans Group Ltd1 United Kingdom Ordinary 100% 100% Holding company
ALL Scheme Ltd1 United Kingdom Ordinary 100% 100% Special purpose vehicle
Indirect holdings
Amigo Loans Holdings Ltd1 United Kingdom Ordinary 100% 100% Holding company
Amigo Loans Ltd1 United Kingdom Ordinary 100% 100% Trading company
Amigo Management Services Ltd1 United Kingdom Ordinary 100% 100% Trading company
Amigo Luxembourg S.A.2 Luxembourg Ordinary 100% 100% Financing company
AMGO Funding (No.1) Ltd4 United Kingdom n/a "SE" "SE" Special purpose vehicle
Amigo Car Loans Limited1 United Kingdom Ordinary 100% 100% Dormant company
Vanir Financial Limited1 United Kingdom Ordinary 100% 100% Dormant company
Vanir Business Financial Limited1 United Kingdom Ordinary 100% 100% Dormant company
Amigo Store Limited1 United Kingdom Ordinary 100% 100% Dormant company
Amigo Group Limited1 United Kingdom Ordinary 100% 100% Dormant company
Amigo Finance Limited1 United Kingdom Ordinary 100% 100% Dormant company
Amigo Loans International Limited3 Ireland Ordinary 100% 100% Holding company
Amigo Loans Ireland Limited3 Ireland Ordinary 100% 100% Trading company
1 Registered at Nova Building, 118-128 Commercial Road,
Bournemouth BH2 5LT, England.
2 Registered at 19, Rue de Bitbourg, L-1273 Luxembourg.
3 Registered at Suite 3, One Earlsfort Centre, Lower Hatch Street,
Dublin 2.
4 Registered at Level 37, 25 Canada Square, London E14 5LQ.
18. Related party transactions
The Group had no related party transactions during the six-month period to 30
September 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.
19. Post Balance Sheet events
FCA approval for pilot lending - In a letter to the Company from the FCA,
dated 13 October 2022, the FCA has confirmed that it is satisfied that Amigo
has met the threshold conditions required for Amigo to return to lending,
initially through the operation of a pilot lending scheme, which would limit
the level of new loans issued for at least two months. Under the terms of the
FCA's notice, Amigo will undertake further customer outcomes' testing, led by
a third party, during the initial two-month pilot lending phase and a required
period for assessment. If the FCA is satisfied with the outcome of this pilot
phase, Amigo will still be limited to a maximum of £35.0m cumulative net
originations until a further minimum £15.0m Scheme contribution from the
proposed capital raise is paid into the Scheme fund, by no later than 26 May
2023.
Under its new RewardRate brand, Amigo will offer a revised guarantor loan
product and a non-guarantor unsecured loan, both of which have been
specifically designed for its target market.
Securitisation structure - The securitisation structure for the facility paid
down in September 2021 was closed in November 2022.
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
6 months to 6 months to Year to
Figures in £m, unless otherwise stated 30 Sep 22 30 Sep 21 31 Mar 22
Net loan book 80.6 224.1 138.0
Net unrestricted cash/(debt)(1) 83.9
78.6 2.1
Revenue yield 29.4%
21.3% 31.7%
Risk adjusted revenue 16.0 30.6 52.5
Net interest margin 10.2% 16.6% 15.9%
Impairment:revenue ratio (1.3)% 45.8% 41.3%
Impairment coverage as a percentage of loan book(2) 27.2% 22.5% 25.6%
Cost:income ratio 172.2% 33.3% (147.5)%
Operating cost:income ratio (ex. complaints) 100.6% 23.9% 27.5%
Adjusted (loss)/ profit after tax (12.7) 2.0 13.3
Return on assets (9.0)% 1.3% 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:
30 Sep 22 30 Sep 21 31 Mar 22
£m £m £m
Gross loan book1 110.7 289.2 185.4
Provision2 (30.1) (65.1) (47.4)
Net loan book3 80.6 224.1 138.0
(1) Gross loan book represents total outstanding loans and excludes deferred
broker costs.
(2) Provision for impairment represents the Group's estimate of the portion of
loan accounts that are not in arrears or are up to five payments in arrears
for which the Group will not ultimately be able to collect payment. Provision
for impairment excludes loans that are six or more payments in arrears, which
are charged off of the statement of financial position and are therefore no
longer included in the loan book.
(3) Net loan book represents gross loan book less provision for impairment.
2. "Net unrestricted cash/(debt)" is comprised of:
30 Sep 22 30 Sep 21 31 Mar 22
£m £m £m
Borrowings (49.8) (232.4) (49.7)
Cash and cash equivalents 128.4 234.5 133.6
Net unrestricted cash/(debt) 78.6 2.1 83.9
This is deemed useful to show total cash/(debt) if unrestricted cash available
at the period end was used 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.
30 Sep 22 30 Sep 21 31 Mar 22
Revenue yield £m £m £m
Revenue 15.8 56.5 89.5
Opening loan book 185.4 422.9 422.9
Closing loan book 110.7 289.2 185.4
Average loan book 148.1 356.1 304.2
Revenue yield (annualised) 21.3% 31.7% 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
(https://www.lawinsider.com/dictionary/risk-adjusted-revenue) " is a useful
indicator of profitability.
30 Sep 22 30 Sep 21 31 Mar 22
£m £m £m
Revenue 15.8 56.5 89.5
Impairment of amounts receivable from customers 0.2 (25.9) (37.0)
Risk adjusted revenue 16.0 30.6 52.5
Risk adjusted revenue is not a measurement of performance under IFRS and is
not an alternative to profit before tax as a measure of the Group's operating
performance, Group's ability to meet its cash needs or as any other measure of
performance under IFRS.
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.
30 Sep 22 30 Sep 21 31 Mar 22
£m £m £m
Revenue 15.8 56.5 89.5
Interest payable, receivable and funding facility fees (1.5) (9.7) (16.6)
Net interest income 14.3 46.8 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) 239.1 523.7 319.0
Average interest-bearing assets (customer loans and receivables plus 279.1 562.3 459.9
unrestricted cash)
Net interest margin (annualised) 10.2% 16.6% 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.
30 Sep 22 30 Sep 21 31 Mar 22
£m £m £m
Revenue 15.8 56.5 89.5
Impairment of amounts receivable from customers (0.2) 25.9 37.0
Impairment charge as a percentage of revenue (1.3)% 45.8% 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.
30 Sep 22 30 Sep 21 31 Mar 22
£m £m £m
Provision for impairment 30.1 65.1 47.4
Closing gross loan book 110.7 289.2 185.4
Impairment coverage as a percentage of loan book 27.2% 22.5% 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 costs divided
by revenue.
30 Sep 22 30 Sep 21 31 Mar 22
£m £m £m
Revenue 15.8 56.5 89.5
Total operating expenses 27.2 18.8 (132.0)
Cost:income ratio 172.2% 33.3% (147.5)%
This measure allows review of cost management.
9. "Operating cost:income ratio", defined as the cost:income ratio excluding
the complaints provision, is:
30 Sep 22 30 Sep 21 31 Mar 22
£m £m £m
Revenue 15.8 56.5 89.5
Administrative and other operating expenses 15.9 13.5 24.6
Operating cost:income ratio 100.6% 23.9% 27.5%
10. The following table sets forth a reconciliation of profit after tax to
"adjusted profit after tax" for the 6 months to 30 September 2022, 2021 and
year to 31 March 2022. Underlying operating profit mean operating profit
before the impact of non-underlying items within operating profit.
The reconciliation of operating profit to underlying operating profit is as
follows:
30 Sep 22 30 Sep 21 31 Mar 22
£m £m £m
Reported (loss)/profit after tax (12.7) 3.3 169.6
Write back of complaints provision - - (156.6)
Senior secured note buyback - - 0.7
Securitisation fees - - 0.5
Tax provision release - (0.8) (0.8)
Tax refund due - (0.5) -
Less tax impact - - (0.1)
Adjusted (loss)/profit after tax (12.7) 2.0 13.3
The above items were all excluded due to their exceptional nature. The
Directors believe that adjusting for these items is useful in making
year-on-year comparisons.
· Write back of the complaints provision is due to cash redress
liability being reduced to the £97.0m contribution as per the Scheme.
· Senior secured note redemption adjustments relate to the
accelerated bond cost and premium write off triggered by the early bond
redemption in January 2022. Senior secured note buybacks are not underlying
business-as-usual transactions.
· Following the renegotiation of the securitisation facility on 14
August 2020 a substantial modification of the facility occurred; as such all
previous capitalised fees relating to the facility have been written off. This
has been adjusted for above as it was a one-off event in the period.
· The tax provision release refers to the release of a tax
provision no longer required. These adjustments result in a tax charge for the
year despite the large loss-making position as at 31 March 2021 and hence have
been adjusted for in the calculation.
None of the above 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. In the six months ended
30 Sep 2022, there are no adjustments to the profit after tax figure as no one
off transaction existed, hence reported PAT is the same as Adjusted PAT.
11." Return on assets" ("ROA") refers to annualised profit after 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.
Return on assets 30 Sep 22 30 Sep 21 31 Mar 22
£m £m £m
(Loss)/profit after tax (12.7) 3.3 169.6
Customer loans and receivables at period and year end 81.5 229.9 140.2
Other receivables and current assets at period and year end 73.1 4.7 9.9
Cash and cash equivalents at period and year end 128.4 234.5 133.6
Total 283.0 469.1 283.7
Average assets 283.3 502.8 410.1
Return on assets (annualised) (9.0)% 1.3% 41.4%
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