Final Results
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28 May 2019 |
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Amigo Holdings PLC
("Amigo" or the "Company")
Unaudited financial results for the year ended 31 March 2019
Providing a mid-cost consumer credit product to over 200,000 customers
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Figures in £m, unless otherwise stated |
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Year to |
Year to |
Change % |
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IFRS 9 1 |
IAS 39 1 |
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Number of customers2 |
‘000 |
224.0 |
182.0 |
23.1% |
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Revenue |
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270.7 |
210.8 |
28.4% |
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Net loan book3 |
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707.6 |
602.7 |
17.4% |
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Impairment:revenue ratio |
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23.7% |
21.3% |
14.3% |
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Cost:income ratio |
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17.5% |
21.9% |
18.2% |
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Adjusted profit after tax4 |
|
100.1 |
72.4 |
38.3% |
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Profit after tax |
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88.6 |
50.6 |
75.1% |
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EPS (Basic, adjusted)5 |
pence |
22.0 |
18.1 |
21.5% |
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Basic EPS |
pence |
19.4 |
12.7 |
52.8% |
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Net borrowings/adjusted tangible equity 6 |
1.9x |
2.3x |
17.4% |
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Notes:
1 Please note in the above KPI table, all 2019 figures show the full impact of IFRS 9 implementation. All prior figures are under IAS 39 accounting and have not been restated
2 Number of customers represents accounts with a balance greater than zero
3 Net loan book represents total outstanding loans less provision for impairment excluding deferred broker costs. The opening loan book has been adjusted for the IFRS 9 transitional movement to show true like-for-like growth figures
4 Adjusted profit is a non-IFRS measure. Adjusted profit after tax is adjusted for (a) the IPO related costs, (b) bond buyback-related costs and (c) shareholder loan notes. For the full reconciliation see the alternative performance measures (APMs) appendix
5 This is a non-IFRS measure and the calculation is shown in note 10. Shareholder loan note interest is excluded as the loan notes were converted to equity immediately before admission while IPO costs and bond buyback costs are not underlying in nature. By excluding these items from the adjusted profit and EPS metrics, the Directors are of the opinion that these measures give a better understanding of the underlying performance of the business
6 Net borrowings is defined as borrowings, excluding shareholder loan notes, less cash at bank and in hand. Adjusted tangible equity is defined as shareholder equity less intangible assets plus shareholder loan notes
Financial highlights
§ Net loan book of £707.6m, a 17.4% increase year on year (when the opening loan book is restated with the IFRS 9 transitional adjustment)
§ We continue to monitor potential effects of Brexit
Company highlights
§ Initial public offering completed in July 2018 and joined the FTSE 250 in September 2018
§ Appointment of Hamish Paton as CEO designate in May 2019; Glen Crawford will step down during summer 2019 to undertake urgent medical treatment for a degenerating spinal condition
Industry recognition
§ "Treating Customers Fairly Champion" at the Consumer Credit Awards in July 2018
§ Fairer Finance named Amigo as the highest-rated lender for transparency of information on personal loans during 2019
Commenting on the results, Stephan Wilcke, Chairman of Amigo, said:
"Amigo exists to help provide financial inclusion to those potential borrowers excluded by mainstream lenders. The involvement of a third-party guarantor helps both the borrower and the lender, allowing this service to be delivered as a mid-cost rather than a high-cost solution.
I am pleased to report that the business has been able to deliver on our principal IPO commitments this year and propose a larger than expected full year dividend of 9.32p due to our increased balance sheet flexibility. This was all delivered against a challenging external environment and much internal change.
Arguably, Amigo being a publicly listed company has raised the profile of the guarantor loan product and fuelled some urban myths about us and our customers. In future we will work harder to dispel those myths and take the time to ensure our evolving stakeholder universe fully understands the service we offer."
Commenting on the results, Glen Crawford, CEO of Amigo, said:
"The year to 31 March 2019 has been perhaps the most significant in the history of our business, we have successfully listed Amigo on the London Stock Exchange and gained a place in the FTSE 250 index. No small achievement for a business started from nothing in Bournemouth by our founder in 2005. Amigo continues to lead the provision of the guarantor product, which is a niche offering within the wider mid-cost credit sector, at a time when the demand for guarantor loans, as well as other mid-cost products, is growing.
Amigo retains its beautiful simplicity through a transparent product and business model. It has a clear focus on serving the needs of people excluded from mainstream finance who deserved a second chance. We pride ourselves on doing the right thing by our customers (as for every borrower, there will also be a guarantor) in a compliant manner and ensuring that the right customer outcomes are achieved based on a rigorous affordability and underwriting process, which is then combined with an ethical collections methodology that includes a detailed understanding of individual customer circumstances.
These principles remain at the heart of Amigo's business model and are the foundations of our continued success. Success that has resulted in the financial results announced today. Amigo has a substantial market opportunity and we intend to focus our financial resources on realising our potential in full. We continue to be highly cash generative and the increased balance sheet flexibility due to our securitisation means the Board is recommending a final dividend of 7.45 pence, making a total of 9.32 pence for the year as a whole. As we progress our strategy and our financial performance, we will look to move to increase the dividend in future years.
It has been an honour to lead Amigo and I will continue to be a supportive shareholder of this amazing company. I would like to thank all of the staff at Amigo for their hard work, commitment to the business and constant focus on doing the right thing for our customers."
Analyst, investor and bondholder conference call
Amigo will be hosting a live webcast for investors and bondholders today at 09:30 (GMT) 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: +44 20 3936 2999; Participant access code: 652806). There will be a facility to ask questions via both the webcast and conference call. A replay will be available on Amigo's website shortly after the conclusion of the event.
The presentation pack for the webcast shows the reconciliation between the PLC results and Amigo Loans Group Limited (the 'Bond Group').
Financial calendar
Annual General Meeting 12 July 2019
Q1 FY2020 results (three month period ended 30 June 2019) 29 August 2019
Contacts:
Hawthorn Advisors amigo@hawthornadvisors.com
Lorna Cobbett Tel: 020 3745 4960
Victoria Ainsworth
CHAIRMAN'S STATEMENT
The initial public offering (IPO) and subsequent entry into the FTSE 250 Index were major milestones in Amigo's development. I am pleased to report that the business has been able to deliver on our principal IPO commitments this year, as well as being able to propose to declare a larger than expected full year dividend of 9.32p due to our increased balance sheet flexibility. This was all delivered against a challenging external environment and much internal change.
Amigo exists to help provide financial inclusion to those potential borrowers excluded by mainstream lenders. The involvement of a third-party guarantor helps both the borrower and the lender, allowing this service to be delivered as a mid-cost rather than a high-cost solution.
At the very heart of Amigo is a strong customer-centric culture, which is what first stood out to me when I joined almost four years ago and has remained constant since then.
We continue to evolve from an Office of Fair Trading (OFT) regulated, entrepreneur-led company into a Financial Conduct Authority (FCA) regulated PLC. The great culture and conduct have naturally become more procedurally driven, with embedded risk and management controls. I am a firm believer in the three lines of defence approach to risk management, an approach we have adopted and will continue to develop.
We will continue to strengthen processes around human resources (HR), through the implementation of the Senior Managers and Certification Regime by the year end and the necessary overhaul of our Remuneration Policy at our upcoming Annual General Meeting (AGM).
Amigo provides great service to our customers, currently encapsulated in one very simple product, based on four pillars:
1. Customer-focused culture; delivered by our people who are engaged throughout Amigo, led by capable management and overseen by strong governance from the Board.
2. A conservative approach to risk management which means having diligent regulatory discipline, a solid conduct risk framework and robust credit risk (our impairment:revenue ratio was 23.7% at year end);
3. Efficiency achieved through operating at scale with a simple product; and
4. A strong balance sheet which means low leverage, high liquidity and sound provisioning.
I believe we have strengthened each one of our four pillars during the year.
Our balance sheet and funding flexibility has improved during the year, as a result we are able to propose to pay a dividend at a higher rate than expected at IPO. Our improved funding flexibility has principally been achieved through the completion of the first securitisation of a guarantor consumer credit asset in the UK and repurchase of £80m senior secured notes in the form of high yield bonds in the year, reducing cost of funding.
Our conduct risk framework was further strengthened this year by embedding new affordability check processes for higher risk customers as well as formally embedding culture and conduct into our senior management remuneration policy in line with the UK Corporate Governance Code and FCA guidance. It was also very pleasing that after several years of rising impairment ratios as we trialled new initiatives in pilot lending we were able to, as planned, keep our impairment:revenue ratio within our guidance at IPO. We maintained a cautious attitude to credit risk during the year especially in the latter half due to the uncertainty from Brexit. Unfortunately, there is still no end in sight. Our attitude and outlook remain cautious.
Our efficiency as evidenced by our cost/income ratio remains in line with expectations despite significant investment in people and processes, together with the ongoing costs of being a listed company. By creating an efficient "Amigo in a Box" concept and trialling it via international expansion in the Republic of Ireland, we have started to seek further scalable growth opportunities outside of the UK. Funding costs have also improved due to our successful securitisation and partial buy backs of £80m of our high yield bonds.
We have invested significantly in strengthening our management team in general, with two senior appointments at board level. Nayan Kisnadwala joined the board in January 2019 as our new Chief Financial Officer (CFO) and Clare Salmon joined the board as a Non-Executive Director and new Chair of the Remuneration Committee in November 2018. I am also very pleased with the increase in bench strength in key functions such as Operations and Decision Science (our analytics team).
It was with great sadness that the Board recently received the news that Glen Crawford, our Chief Executive Officer (CEO) since 2015, would be unable to continue for health reasons. Glen has led Amigo through a succession of achievements, from FCA authorisation, to IPO and numerous funding deals. We wish him well and look forward to having him as an engaged shareholder on our register for a long time to come. We welcome Hamish Paton, as CEO designate and we are confident that with him at the helm Amigo will continue to go from strength to strength.
Looking outside Amigo, we saw an increasing level of competitors in our product space, with more new entrants trying to copy our model but our brand and operational strength have enabled us to maintain our leading position. At the same time, our IPO seems to have raised the profile of our product, leading to more critical attention from the press, anti-debt campaigners, and our principal regulator. While we continue to believe that we offer a valuable product to our customers, we have learned this year that we must become more active about telling our story to our evolving stakeholder universe. Finally, as previously mentioned, Brexit-related economic uncertainty remains a challenge.
It was during this financial year that Amigo's founder, James Benamor, left our Board to concentrate on his other private ventures. While the Board appreciates his vote of confidence that Amigo can continue to thrive without him, he is greatly missed. James, you built a great business that you should be very proud of.
Looking forward, we believe the market sentiment will remain receptive to our product and will continue to evolve, our four internal pillars will continue to strengthen and that our strong culture and simple product will continue to set us apart. Therefore we remain cautiously optimistic about the future of your Company.
CHIEF EXECUTIVE'S REPORT
The year in review
The year to 31 March 2019 has been perhaps the most significant in the history of our business. In July 2018, Amigo Holdings PLC was admitted to the Premium List of the London Stock Exchange, and in September gained a place in the FTSE 250 Index. No small achievement for a business started from nothing in Bournemouth in 2005 by our founder, James Benamor.
Stephan Wilcke, our Chairman, and I joined the business at the same time, in October 2015. We were both attracted by the beautiful simplicity and transparency of Amigo's product and business model, with a focus on serving the needs of people excluded from mainstream finance who deserved a second chance, and the opportunity to start to rehabilitate their credit profiles. Displayed by our staff throughout the business at every level was the core value of ownership, treating the money to be lent as if it was your own, and doing the right thing by the customers (borrowers and guarantors) in a compliant manner. This ensured that the right customer outcomes were achieved based on a rigorous affordability and underwriting process, and an ethical collections methodology based on a detailed understanding of individual customer circumstances.
So, in many ways, not much has changed. Those principles remain at the heart of Amigo's business model and are the foundations of our continued success. We continue to lead the provision of the guarantor product, which is a niche offering within the wider mid-cost credit sector, at a time when the demand for guarantor loans, as well as other mid-cost products, is growing. We believe we retain approximately an 88% share of the guarantor loan segment, processing over 1.4 million loan applications in the year and lending to around 13% of those applicants who sign an application with us.
Our proprietary world-class credit risk and analytics capabilities have allowed us to provide loans to more customers while meeting our goal of maintaining a steady impairment level across the loan book (the impairment/income ratio at year end was 23.7% on an IFRS9 basis). At the same time, we have enhanced our affordability assessments. We now have over 224,000 borrowers, having added a net 42,000 new customers during the year, and our aggregate net loan book has grown by 9.4% in the year to £707.6m (2018: £646.9m). When the opening balance sheet is rebased for the transition to IFRS 9, year-on-year growth stands at 17.4%, well within our IPO guidance growth aim of high-teens % in the near term and low-teens % in the medium term.
We continue to benefit from significant operational leverage in the business. Despite having increased overall staff numbers during the year by some 14.8%, and adding considerable bench strength to the senior team, our cost: income ratio stands at 17.5%. This level of embedded efficiency, based on the scale and maturity of our operation, provides Amigo with a material competitive advantage within our product segment. This has not been achieved by cutting back on our level of service. We now have over 200 people (agents and operational managers) helping and supporting customers within a truly customer-centric environment.
Amigo remains the most customer-reviewed guarantor lender in the UK on the independent review site Trustpilot. We are very proud of the feedback we receive and strive for constant improvement in all areas based on what our customers tell us. We are rated as "Excellent", averaging 9.2 out of 10 based on over 21,000 individual customer reviews as at March 2019.
Our team of in-house engineers are constantly developing and refining our bespoke proprietary workflow system with an eye to improving the customer journey. We remain excited about the potential to expand the use of the Amigo app, launched at the beginning of 2018, and anticipate further efficiency improvements flowing through from an increasing level of self-service in the business.
Funding
We completed our inaugural securitisation in November 2018 with a £150m warehouse facility provided by Royal Bank of Canada at a cost of funds some 500 basis points below the coupon payable on our corporate high yield bonds, maturing in 2024. This line was increased by a further £50m to a facility of £200m in December 2018. The additional facility may be used from time to time to opportunistically buyback outstanding high yield bonds. Throughout Q3 and Q4, the business purchased and redeemed £80m of the outstanding high yield bonds at an average price of 101.6% of par, thereby resulting in a material saving in the interest cost incurred by the business going forward. We anticipate increased use of securitisation as a means of further reducing our funding cost in the future and diversifying our investor base.
Strategy
Amigo has the benefit of 14 years of offering a single, simple, transparent guarantor loan product and has established itself as a leading player within the mid-cost segment of the non-standard finance sector. The success of our product is based on the four key pillars which Stephan has referred to already in his opening Chairman's statement; namely our customer focussed culture, our conservative approach to risk management and solid conduct risk framework, efficiency achieved through operating at scale with a simple product and a strong balance sheet.
Our intention is to continue to develop this core strategy, and to provide financial solutions to even more customers, within the group of 8-10 million adults in the UK excluded by mainstream lenders, who could benefit from our service.
Our product is often a first step along the road to financial rehabilitation for our borrowers and we are proud to have been awarded Credit Builder of the Year 2019, an award we have now received for the sixth consecutive year from Moneynet Awards.
Future diversification may come from cautious exploration of other jurisdictions beyond the Republic of Ireland, based on a careful assessment of the model rolled out in Ireland as we get more data.
Regardless of where we deploy our product, the same focus on disciplined underwriting and ethical collections will be maintained as part of Amigo's fundamental customer-centric approach.
Amigo in a box
We have been developing our "Amigo in a box" concept for some time, being a new simplified version of our proprietary systems, which can be used to deliver our guarantor loan product in other jurisdictions. The system was rolled out in the Republic of Ireland on a test basis towards the end of 2018 and we made our first loans in Ireland at the beginning of February 2019, after obtaining the appropriate lending licence from the Central Bank of Ireland.
Our approach to Ireland is one of cautious growth, aimed at building a sufficient book of loans during stage one to enable us to obtain meaningful data to enhance our proprietary scorecards, which have been adapted for use in this new jurisdiction.
We remain confident of the growth opportunity for the guarantor product within the UK, which will remain our core geography and key area of focus. However, the "Amigo in a box" system has been built to be fully customisable for the different legal and regulatory regimes of other jurisdictions we may choose to target.
Possible implications of Brexit
There has been a significant amount of debate around lending and what the future holds with macroeconomic and political uncertainty as possible implications of Brexit. While we continue to monitor trends, we have not seen any notable effect on our business to date and past recessions have demonstrated the resilient character of our business. Employment in the UK remains at an all-time high and real earnings growth is recovering, albeit slowly. These are factors that bode well for our customer base (approximately 95% of accounts are either up to date or within 31 days overdue). However, our business model has low fixed overheads to provide flexibility and agility to protect against any changes in the macroeconomic environment.
Final dividend
Amigo has a substantial market opportunity and we intend to focus our financial resources on realising our potential in full. However, we continue to be highly cash generative and the increased balance sheet flexibility caused by our securitisation means that having declared a half-year dividend of 1.87p per share in November 2018, the Board is recommending a final dividend of 7.45p per share, making a total of 9.32p for the year as a whole.
If approved at the Annual General Meeting (AGM), the final dividend will be paid to those shareholders on the Company's share register on 19 July 2019, with payment being made on 31 July 2019. As we progress our strategy and our financial performance, we will look to increase the dividend in future years.
CEO succession and the year ahead
As you will be aware from our announcement to the market in April 2019, I will be leaving my role as CEO with Amigo during the summer in order to get medical treatment for a spinal condition which requires an extensive period of rehabilitation.
It was a difficult decision for me to take and one that I did not take lightly. I am grateful to the Board for their understanding and support in this situation.
The decision was made possible, and easier on my conscience, as a result of the success we have had in achieving one of our IPO goals, adding bench strength to the leadership team, reducing key man dependencies within the business and providing for future succession.
Nayan Kisnadwala joined us as Chief Financial Officer (CFO) in December and brings with him extensive experience in financial services within a number of household name lenders. Deborah Green joined us in March in the new role of Chief Operations Officer (COO) having previously been Customer Operations Director at one of the leading UK debt purchase and management groups. I have known Deborah for over 20 years and I am confident that she will play a very big part in the future success of Amigo. We recruited Hamish Paton who agreed to join us as Chief Commercial Officer, to work closely with me to develop the business and ultimately to succeed me as CEO some way in the future. Hamish will step up to his new role sooner than anticipated when I leave in a few months for treatment but I have no doubt that he will be a very capable leader who will bring renewed drive and energy to the role. I intend to remain close to the business as a very interested and supportive shareholder going forward.
We have had a solid start to the year itself, despite the mood of uncertainty around Brexit, and we will continue to move forward prudently and cautiously as we progress through Q1. We remain cautiously optimistic around the prospects for the full year.
Thank you
I would like to thank all of our staff at Amigo for their hard work, commitment to the business and constant focus on doing the right thing for our customers. It was the great work that goes on every day in Bournemouth that provided us with this beautiful unique business that we were able to bring to the market so successfully in July 2018.
I would also like to thank our advisors for their help in achieving our IPO and for their subsequent guidance as we get used to life on the public market.
Finally, a big thank you to our shareholders both new and old. To those that invested at, or subsequent to, the IPO, we thank you for your support and the confidence you have shown in us. To our founder, James Benamor, we will all be forever grateful for your vision, your challenge and insights during the period leading up to the IPO, and for the opportunity you have afforded us to continue where you left off and develop the business going forward.
REGULATORY UPDATE
Amigo's UK business is fully authorised by the Financial Conduct Authority (FCA) and we support the FCA's efforts to ensure that consumers are protected from undue harm, that there is effective competition and that the consumer finance market operates effectively.
A culture of robust regulatory compliance and discipline is embedded within Amigo's end-to-end operations and we have taken appropriate steps to comply with the spirit, as well as the letter, of all the FCA's rules and guidance on an ongoing basis.
The FCA will introduce its Senior Managers and Certification Regime for credit firms in December 2019. We are working with an external advisory firm to ensure that we are fully prepared for the new regime ahead of the deadline.
The FCA recently commented on the growth of the guarantor loans segment within the consumer finance market, the number of payments being made by guarantors, and the work that the FCA will be undertaking to ensure that guarantors are fully aware of their responsibilities before they assume any obligations.
We support this approach by the FCA as Amigo has always gone to significant lengths to obtain the informed consent of every customer. In this regard, we are delighted that Fairer Finance named us the highest-rated lender for transparency of information on personal loans as at 31 March 2019. Other firms alongside Amigo in the assessment included Lloyds Bank, Barclays, First Direct, Tesco Bank and Nationwide.
With Amigo, the proportion of payments made by a guarantor has remained broadly constant during the last year at just under 10%. The number of loans where the guarantor makes one or more payments in a given year also remained broadly constant over the same period.
We are therefore satisfied that we are already in line with the direction of travel suggested by the recent FCA statements but will continue to engage with the FCA to ensure that our overall approach, systems and processes remain compliant.
OUR BUSINESS MODEL
Amigo is a mid-cost lender, defined by the FCA as credit above prime borrowing rates but below the high cost short-term credit (HCSTC) cap level. Our guarantor loan product is distinct from more expensive or less flexible forms of non-standard finance, such as payday loans, in that it offers a significantly lower interest rate, larger loan amounts and longer loan terms.
Our UK business is based at a single site in Bournemouth with a further site in Dublin supporting our fledgling Irish operation. The UK site houses our central services and operational teams. The operational teams are split between underwriting, collections and customer support. These teams are supported by a number of central services such as compliance monitoring, IT, legal, finance and analytics. Amigo's focus on building proprietary systems and processes means we have significant in-house resource across our engineering, marketing and decision science teams.
We have established customer-facing processes that ensure that there is a clear and unambiguous agreement with full understanding between all parties. Our lending decisions are made responsibly. Our bespoke IT and operational platforms have been purpose built to support our guarantor lending activities, enabling consistent operational performance and speed to market, as well as what we believe to be a high level of customer service.
Amigo acquires customers through various different sources, typically via our direct channel or through our third party channel. Direct customers often come to Amigo based on our above the line marketing activity and brand, which is supplemented by a strong digital presence. The third party channel is a mix of more than thirty different partners who are typically credit brokers or credit intermediaries who match prospective customers with Amigo. Amigo's longevity in the sector and overall proposition make us the best solution for many customers who have thin or impaired credit files. The third and final channel is repeat business or top-up lending. This is existing customers that are looking for additional finance and have displayed a good repayment history with Amigo.
Our 14 year presence in the guarantor loan space has enabled us to acquire and develop significant depth in customer data and credit scorecards. We believe we have collected the largest amount of customer data from past loans and applications of any UK guarantor lender. We are able to use this data in our scorecards, loan performance analysis and underwriting decisions.
We have worked to build our brand recognition through targeted advertising and marketing. Since launching the Amigo brand in 2012, we have invested significantly in building our profile through highly visible TV, radio and online advertising campaigns, with the result that we are now one of the most recognised non-standard finance brands in the UK. 98% of UK adults have seen an Amigo TV advert.
Compliance and treating customers fairly are at the heart of our business and our culture is implemented through our customer service processes and our underwriting and collection procedures. Amigo seeks to treat all of our customers fairly and offers customers in financial difficulty a number of payment options tailored to their individual circumstances. For example, our policies include never seeking possession or an order for sale of a customer's home.
We review all of our customer-facing employees at least fortnightly and operate ongoing refresher training to ensure that ethical behaviour and the principles of treating customers fairly are embedded in our culture.
The Group had only 390 cases referred to the Financial Ombudsman Service (FOS) in total during the period 1 April 2018 to 31 March 2019, which is a relatively low number given that the Group had, in total, approximately 448,000 borrowers and guarantors as of 31 March 2019. Of these, as at 20 May 2019 we have so far received an outcome on 124 cases, with the FOS finding in our favour in 88 of the cases.
The Group is authorised by the FCA. Over time, we have invested in a number of areas to build our standing with the FCA, such as enhancing our forbearance policy and increasing the detail of our
affordability checks. We believe that our relationship and ongoing dialogue with the FCA ensures we are well placed to anticipate and adapt to any changes in regulatory requirements. The FCA has announced that it will be reviewing the guarantor loan product following its rapid increase to around
£1bn of lending and HM Treasury are planning to introduce a breathing space for all credit firms to help those who are in financial difficulty. Until the detail of this is published, we cannot be sure of the impact on our business.
FINANCIAL REVIEW
Introduction
Amigo has delivered strong results for the twelve months ended 31 March 2019. These results lay a solid foundation during Amigo's first year as a public company, while meeting or beating all five measures of the guidance set out during the IPO process. We increased our proposed dividend pay-out ratio to 50% of statutory profit, underlining our confidence in the long-term prospects for Amigo.
Profit after tax (PAT) increased 75.1% year on year to £88.6m (2018: £50.6m). When adjusting for items that are not business-as-usual in nature, we achieved adjusted PAT of £100.1m for the financial year ended 31 March 2019, an improvement of 38.3% from the prior year (2018: £72.4m).
The 2019 and 2018 results are not strictly comparable; from 1 April 2018 the Group adopted IFRS 9, a new accounting standard covering financial instruments that replaces IAS 39 Financial Instruments: Recognition and Measurement. Comparatives have not been restated.
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|
Guidance |
20191 |
Achieved? |
20181 |
|
Net loan book |
Target a high-teens loan book annual growth rate in the near term easing to the low-teens in the medium term |
17.4%2 |
YES |
60.8% |
|
Impairment:revenue ratio |
Mid-20% |
23.7% |
YES |
21.3% |
|
Cost:income ratio |
Less than 20% |
17.5% |
YES |
21.9% |
|
Net borrowings/adjusted tangible equity |
Operate in the range of 1.5 to 3.0x |
1.9 |
YES |
2.3 |
|
Dividend |
35% of year-to-date adjusted profit after tax initially, progressive thereafter |
50%3 |
YES |
N/A |
Notes:
1 2019 figures have been calculated under IFRS 9, whereas 2018 figures are calculated under IAS 39.
2 This figure is calculated when taking the IFRS 9 transitional adjustment which occurred on 1 April 2018 into account, to show true like-for-like growth figures.
3 2019 proposed dividend assumes 50% payout ratio of Financial Year 2019 statutory profit after tax for the financial year to 31 March 2019
Top line growth
We delivered revenue of £270.7m for the year which is 28.4% above the previous year (2018: £210.8m). The growth is driven by the increase in the number of customers we serve and the corresponding growth of the loan book.
We ended the year with 224,000 borrowers, each with a unique guarantor. We increased the number of borrowers we serve by a net of 42,000 customers or 23.1% up from the end of prior year (2018: 182,000). We take excellent care of our customers throughout the process powered by our proprietary customer-friendly technology platform, but more importantly by an engaged workforce which takes pride in serving our customers.
49.5% of our customers return to us, we believe, because of our transparent business model and ease of doing business. Our approach to customer care adheres not just the letter of regulation, but also the spirit of regulation. This helps us fulfil our purpose in serving an underserved community of customers in UK.
We originated £426.1m of new loans, a reduction of £44.0m compared to the prior year (2018: £470.1m). This was primarily driven by reduced pilot lending.
Pilot lending in the prior year focused on testing new scorecards to identify new pools of applicants that we could lend to, who previously would not have been accepted. Once a pilot scorecard performs according to our risk appetite standards, it is transferred to "core" lending. We have discontinued a number of trials that did not deliver as we expected. We transferred one "pilot" late in the prior year to the non-homeowner (NHO) segment which was performing in line with the core book. This explains the reduction of pilot lending year on year and the increase in the NHO segment.
We are managing our growth to ensure that our impairment:revenue ratio is within the guidance range of mid-20s as a percentage of revenue. This parameter is based on our Board approved risk appetite.
We ended the year with a gross loan book of £783.0m, an increase of £114.9m or 17.2% from the prior year end (2018: £668.1m), with an average loan size of £4,000, consistent with the prior year. This is calculated as the total outstanding live balance of loans (inclusive of charge off) divided by number of live loans.
Net loan book growth is 9.4% year-on-year moving from £646.9m to £707.6m, demonstrating significant progress notwithstanding annual increases in impairment provisions following IFRS 9 implementation. When the opening loan book is restated with the IFRS 9 transitional adjustment of £44.2m, year on year growth is 17.4%, within IPO guidance of high-teens growth in 2018/19.
Margin management
We have a simple business model with one APR (49.9%) for all customers and no other fees. This translates into an effective interest rate of 41.2% which remains unchanged from the prior year end.
Revenue yield is defined by the Group as annualised revenue over the average gross loan book for the period. Yield was 37.3% compared to 39.1% in the prior period. We believe adjusting for the impact of IFRS 9 accounting, yield is unchanged from the prior year.
Cost of funds is defined as interest payable as a percentage of average loan book over the financial year. Our cost of funds was 6.1%, an improvement of over 350 basis points (bps) from the year before (2018: 9.6%), due to the conversion of the shareholder loan notes, and the introduction of our securitisation funding facility. We have diversified our capital structure to include a senior secured notes, a super senior revolving credit facility (RCF) and securitisation facility, in addition to cash generated from our operations.
We have available undrawn facilities of £195.0m from our current funding sources at 31 March 2019, which, combined with strong cash flows, covers over twelve months of growth capacity. We will continue to have diversified sources of funding from an instrument, counterparty and tenor perspective, while we aim to lower the cost of funds over the next few years. We began this process in Q3 of the last financial year with the bond buyback programme, under which we bought back and cancelled £80.0m of bonds. From time to time the Group may opportunistically continue to buyback outstanding high yield bonds.
We are committed to further optimisation of our funding sources to reduce the cost of funds.
Net interest margin (NIM)
Given that we have a stable gross margin and improving cost of funds, our net interest margin (NIM) was 31.5% for the period under IFRS 9, slightly better than prior year on a like by like basis at 33.2% (2018: 32.9% under IAS 39).
Impairment
We have a Board approved risk appetite for impairment set at the mid-20s as a percentage of revenue. We achieved an impairment:revenue ratio of 23.7% for the financial year (2018: 21.3%), well within our target range. This gives us scope to systematically and carefully increase the size and risk profile of our originations run rate in the near term, should we wish to do so. The impairment numbers include the positive impact of recovery of written-off debt of £1.1m and £2.0m in Q2 and Q4 respectively. We will continue to pursue debt sale arrangements with FCA approved third parties.
When excluding debt sales, the impairment:revenue ratio was broadly stable over the course of the financial year, being 25.4% in Q1 and 25.0% in Q4.
We have an impairment provision balance of £75.4m at year end, which is over two times the balance of receivables which are 60 days past due or more. In fact, our proportion of receivables which are current or less than 31 days past due remains within our expectations at 95% (2018: 97%).
Cost management
Cost:income ratio represents operating costs as a percentage over revenue. Our overall operating costs at £47.4m were almost flat year on year, which gave us a cost:income ratio of 17.5% (2018: 21.9%), an improvement of over 440 bps on prior year. This is within our guidance of less than 20%. We will continue to look for efficiency gains in all our processes which will also allow us to reinvest in improving the tools and processes for our customers and colleagues. We are investing in our people, which will help us achieve the next phase of growth. We are also investing in improving operating resilience and enhancing our technology.
43.3% of our operating costs are in sales and marketing (2018: 51.1%). We source our customers via the internet, both independently or via a network of brokers. We have an ongoing advertising campaign to maintain a high level of brand awareness.
33.3% of our costs are in customer servicing which includes originations, collections and complaints (2018: 30.9%). We are totally focused on customer care through all of our processes and ensure that we adhere to the spirit and not just the letter of regulation. We consistently receive good feedback from our customers.
23.4% of our costs are in overhead/back office functions which include the Executive Committee, Legal and Compliance, Public Affairs, Human Resources (HR), Facilities and Finance (2018: 18.0%).
Our overall average headcount rose from 264 to 303 over the financial year 2018/19.
Overall, our simple business model, our simple online customer journey and our technology allow us to have a very low cost:income ratio, with excellent operating leverage to scale up.
Profitability
Our statutory profit after tax (PAT) was £88.6m or 75.1% higher than the prior year (2018: £50.6m), adjusting our statutory PAT for (a) the IPO-related costs, (b) bond buyback-related costs and (c) shareholder loan notes, which gives us our adjusted PAT of £100.1m, which is 38.3% higher than the prior year (2018: £72.4m).
Our adjusted return on equity (ROE) for the financial year was 45.6%, flat versus the prior year. This is defined as adjusted profit after tax over average adjusted tangible equity. Statutory profit after tax over tangible equity was 36.2% for the financial year.
Our adjusted return on assets (ROA) was 14.0% after tax (compared to 13.1% in the prior year). This is defined as adjusted PAT over average revenue generating assets in the year (being customer loans, other receivables and cash).
Cash Flows
Free cash flow is defined as collections less non-direct costs (being operating expenses not relating to exceptional items or cost of acquisition). We generated £515.7m in free cash flow in the last financial year (2018: £383.1m), which is equivalent to 1.2 times current year originations of £426.1m and 1.1 times current borrowings at year end.
Gearing
Net borrowings/adjusted tangible equity at 1.9 times (2018: 2.3 times) is on the lower side of our guidance of between 1.5 to 3 times, due to continued generation of cash from operations. As cash flow generation continues to improve, we will look to return more capital to our shareholders (after meeting our investment requirements) while keeping this measure within the guided range.
Dividends and earnings per share
Our adjusted basic EPS for the year was 22.0p up 21.5% year on year whilst basic EPS increased 52.8% year on year to 19.4p.
We paid an interim dividend of 1.87p per share, with an expected final dividend of 7.45p subject to approval at this year's Annual General Meeting (AGM). This will give a final expected annual dividend of 9.32p, equivalent to a 50% payout ratio of statutory profit after tax for the year ended 31 March 2019. Our aim is to progressively increase the value of our dividends.
Summary
We have strong economic fundamentals - good risk adjusted margin, low financial leverage, best in class operating leverage and strong cash flow generation - we are part of the growing non-standard finance sector. Our targets remain largely unchanged, and we will continue to drive the business to deliver on these. Whilst largely unchanged, a few clarifications are necessary:
· As guided before, we will now target low-teen net loan book growth percentages.
· We will target for our dividends to be at least 50% of statutory profits.
We are mindful of the underlying macroeconomic factors that might impact our business, including, for example, a change in unemployment following Brexit. We believe any impact from this will be manageable given our customer base, which is less likely to be impacted by recession. Our agile business model will allow us to quickly adapt our scorecards to reflect any dramatic macroeconomic changes.
We are also mindful of the evolving regulatory environment. We will continue to engage with the FCA to ensure that our overall conduct framework and supporting systems and processes remain compliant.
On balance, we remain cautiously optimistic about the future of your Company.
Consolidated Statement of Comprehensive Income (unaudited)
|
|
|
|
|
|
Year to |
Year to |
|
|
|
|
|
|
31-Mar-191 |
31-Mar-181 |
|
|
|
Notes |
|
£m |
£m |
|
|
Revenue |
|
|
3 |
|
270.7 |
210.8 |
|
Interest payable and funding facility fees |
4 |
|
(38.2) |
(30.4) |
||
|
Shareholder loan note interest |
4 |
|
(6.0) |
(21.2) |
||
|
Total interest payable |
4 |
|
(44.2) |
(51.6) |
||
|
Impairment of amounts receivable from customers |
|
|
(64.2) |
(44.8) |
||
|
Administrative and operating expenses |
|
5 |
|
(47.4) |
(46.2) |
|
|
IPO and related financing costs |
8 |
|
(3.9) |
(2.1) |
||
|
Profit before tax |
|
|
111.0 |
66.1 |
||
|
Tax on profit |
|
|
9 |
|
(22.4) |
(15.5) |
|
Profit and total comprehensive income attributable to equity shareholders of the Group |
|
|
88.6 |
50.6 |
||
The profit is derived from continuing activities.
|
Earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic EPS (pence) |
|
|
10 |
|
19.4 |
12.7 |
|
Diluted EPS (pence) |
|
|
10 |
|
19.4 |
12.7 |
|
Dividend per share 2 (pence) |
|
|
17 |
|
1.87 |
- |
1 - IFRS 9 was adopted on 1 April 2018; comparatives have not been restated.
2 - Total cost of dividends paid in the year was £8.9m (2018: £nil). Dividend per share represents the interim dividend paid and not the final proposed dividend for the year as this is subject for approval at this year's annual general meeting (AGM).
Consolidated Statement of Financial Position as at 31 March 2019 (unaudited)
|
|
|
|
|
31-Mar-191 |
31-Mar-181 |
|
|
|
|
Notes |
£m |
£m |
|
Non-current assets |
|
|
|
|
|
|
Customer loans and receivables |
|
|
12 |
302.5 |
280.0 |
|
Property, plant and equipment |
|
|
|
0.7 |
0.6 |
|
Intangible assets |
|
|
|
0.1 |
0.1 |
|
Deferred tax asset |
|
|
11 |
6.8 |
- |
|
|
|
|
|
310.1 |
280.7 |
|
Current assets |
|
|
|
|
|
|
Customer loans and receivables |
|
12 |
426.0 |
386.3 |
|
|
Other receivables |
|
|
|
1.2 |
2.3 |
|
Derivative asset |
|
|
|
0.1 |
- |
|
Cash at bank and in hand |
|
|
|
15.2 |
12.2 |
|
|
|
|
|
442.5 |
400.8 |
|
|
|
|
|
|
|
|
Total assets |
|
|
|
752.6 |
681.5 |
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
||
|
Trade and other payables |
14 |
(15.4) |
(18.8) |
||
|
Current tax liabilities |
|
(16.0) |
(12.7) |
||
|
|
|
(31.4) |
(31.5) |
||
|
Non-current liabilities |
|
|
|
|
|
|
Borrowings |
|
|
15 |
(476.7) |
(455.0) |
|
Shareholder loan notes |
|
|
16 |
- |
(201.1) |
|
Deferred tax liability |
|
|
|
- |
(0.2) |
|
|
|
|
|
(476.7) |
(656.3) |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
|
(508.1) |
(687.8) |
|
|
|
|
|
|
|
|
Net assets/(liabilities) |
|
|
|
244.5 |
(6.3) |
|
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
|
Share capital |
|
|
17 |
1.2 |
1.0 |
|
Share premium |
|
|
|
207.9 |
0.9 |
|
Merger reserve |
|
|
|
(295.2) |
(295.2) |
|
Retained earnings |
|
|
|
330.6 |
287.0 |
|
Shareholder equity |
|
|
|
244.5 |
(6.3) |
The financial statements of Amigo Holdings PLC were approved and authorised for issue by the Board and were signed on its behalf by:
|
N Kisnadwala |
|
|
28 May 2019 |
|
|
Director |
|
|
||
|
Company no. 10024479 |
|
|
|
|
1 - IFRS 9 was adopted on 1 April 2018; comparatives have not been restated.
Consolidated Statement of Changes in Equity (unaudited)
|
|
|
Share |
Share |
Merger |
Retained |
Total |
|
|
|
capital |
premium |
reserve1 |
earnings |
equity |
|
|
|
£m |
£m |
£m |
£m |
£m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31 March 2017 |
|
1.0 |
0.9 |
(295.2) |
236.4 |
(56.9) |
|
Total comprehensive income |
|
- |
- |
- |
50.6 |
50.6 |
|
|
|
|
|
|
|
|
|
At 31 March 2018 |
|
1.0 |
0.9 |
(295.2) |
287.0 |
(6.3) |
|
|
|
|
|
|
|
|
|
IFRS 9 opening balance sheet adjustment2 |
|
- |
- |
- |
(37.5) |
(37.5) |
|
At 1 April 2018 |
|
1.0 |
0.9 |
(295.2) |
249.5 |
(43.8) |
|
Total comprehensive income |
|
- |
- |
- |
88.6 |
88.6 |
|
Share-based payments |
|
- |
- |
- |
1.4 |
1.4 |
|
IPO3 |
|
0.2 |
207.0 |
- |
- |
207.2 |
|
Dividends paid |
|
- |
- |
- |
(8.9) |
(8.9) |
|
|
|
|
|
|
|
|
|
At 31 March 2019 |
|
1.2 |
207.9 |
(295.2) |
330.6 |
244.5 |
1 - The merger reserve was created as a result of a Group reorganisation in 2017 to create an appropriate holding company structure. The restructure was within a wholly owned group, constituting a common control transaction.
2 - Refer to IFRS 9 note 1.2 - IFRS 9 was adopted on 1 April 2018; comparatives have not been restated.
3 - On 4 July 2018 the shareholder loan notes were converted to equity upon the listing of the Group (see note 16).
Consolidated Statement of Cash Flows (unaudited) |
Year to |
Year to |
|
|
31-Mar-19 |
31-Mar-18 |
|
|
£m |
£m |
|
Profit for the period |
88.6 |
50.6 |
|
Adjustments for: |
|
|
|
Impairment provision |
64.2 |
44.8 |
|
Income tax expense |
22.4 |
15.5 |
|
Shareholder loan note interest accrued |
6.0 |
21.2 |
|
Interest expense |
38.2 |
30.4 |
|
Interest receivable |
(286.3) |
(222.1) |
|
Share-based payment |
1.3 |
- |
|
Depreciation of property, plant and equipment |
0.3 |
0.2 |
|
Operating cash flows before movements in working capital1 |
(65.3) |
(59.4) |
|
Increase in receivables |
(2.8) |
(8.8) |
|
(Decrease)/increase in payables |
(0.4) |
7.5 |
|
Tax paid |
(18.3) |
(7.2) |
|
Interest paid |
(35.8) |
(28.2) |
|
Proceeds from intercompany funding |
0.4 |
3.1 |
|
Repayment of intercompany funding |
(0.6) |
(5.0) |
|
Net cash used in operating activities before loans issued and collections on loans |
(122.8) |
(98.0) |
|
Loans issued |
(426.1) |
(470.1) |
|
Collections |
543.5 |
404.4 |
|
Net cash used in operating activities |
(5.4) |
(163.7) |
|
Investing activities |
|
|
|
Purchases of property, plant, equipment |
(0.4) |
(0.1) |
|
Net cash used in investing activities |
(0.4) |
(0.1) |
|
Financing activities |
|
|
|
Purchase of senior secured notes |
(81.3) |
- |
|
Dividends paid |
(8.9) |
- |
|
Proceeds from bank borrowings |
266.5 |
276.6 |
|
Repayment of bank borrowings |
(167.5) |
(105.0) |
|
Net cash from financing activities |
8.8 |
171.6 |
|
|
|
|
|
Net increase/(decrease) in cash and cash equivalents |
3.0 |
7.8 |
|
Cash and cash equivalents at beginning of period |
12.2 |
4.4 |
|
Cash and cash equivalents at end of period |
15.2 |
12.2 |
1 The IPO is not included in financing activities (as no new capital was raised). IPO and related financing costs are included within operating cash flows; see note 8 for detail. 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. There were no cash transactions involved in this conversion - all related transaction costs are immaterial.
Notes to the condensed consolidated financial statements
1. Accounting policies
1.1 Basis of preparation of financial statements
Amigo Holdings PLC is a public company limited by shares (following IPO on 4 July 2018), listed upon the London Stock Exchange (LSE: AMGO). On listing the Company changed its name from Amigo Holdings Limited to Amigo Holdings PLC and re-registered in the period as a public company. The Company is incorporated and domiciled in the United Kingdom and its registered office is Nova Building, 118-128 Commercial Road, Bournemouth, United Kingdom BH2 5LT.
The consolidated and Company financial statements have been prepared on a going concern basis and approved by the Directors in accordance with International Financial Reporting Standards as adopted by the EU (EU-IFRS) and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS.
The consolidated financial statements are prepared under the historical cost convention except for financial instruments measured at amortised cost or fair value.
The presentation currency of the Group is GBP, the functional currency of the Company is GBP and these financial statements are presented in GBP. All values are stated in £ million (£m) except where otherwise stated.
The Group and Company's principal accounting policies under EU-IFRS, which have been consistently applied to all years presented unless otherwise stated, are set out below.
The financial information included in this preliminary statement does not constitute the company's statutory accounts for the years ended 31 March 2019 or 2018. The financial information for 2018 is derived from the statutory accounts for 2018 which have been delivered to the registrar of companies. The auditor has reported on the 2018 accounts; their report was (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006. The statutory accounts for 2019 will be finalised on the basis of the financial information presented by the directors in this preliminary announcement and will be delivered to the registrar of companies in due course.
Going concern
The Directors have made an assessment in preparing these financial statements as to whether the Group is a going concern.
The Group meets its funding requirements through cash generated from operations, a revolving credit facility which expires in January 2022, senior secured notes which expire in January 2024 and a securitisation facility with a three year tenor to November 2021 and subsequent four year amortisation period to November 2025. The Group's forecasts and projections, which cover a period of more than twelve months from the date of approval of these financial statements, taking into account reasonably possible changes in normal trading performance, show that the Group should be able to operate within its currently available facilities. The Group has sufficient financial resources together with assets that are expected to generate cash flow in the normal course of business. The forecasts and projections contain no material uncertainties that would impact on the going concern basis for the Group.
As at date of signing, the nature and timing of the UK's probable exit from the EU remains uncertain. The potential impact of Brexit on the UK economy may impact arrears and thus impairment levels. However, the dual counterparty aspect of Amigo's product, along with Amigo's scorecard processes implemented to manage arrears risk, is expected to maintain the performance of customer loans. Therefore, management does not expect the impact of Brexit to be significant on the Group, but potential impacts are continually monitored.
We have considered the impact to the Group including conducting scenario analysis of the impact on our ability to refinance in this scenario. Considering the net asset position being reported in the Consolidated Statement of Financial Position as well as the operating cash outflow disclosed within the Consolidated Statement of Cash Flows and after reviewing the Group's forecasts and projections, along with the potential impact of Brexit where relevant and our current funding position, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the next twelve months. The Group therefore adopts the going concern basis in preparing these financial statements.
Basis of consolidation
The accounts have been consolidated using the merger accounting method on the basis that the Company acquired its interest in its subsidiaries from Richmond Group Limited, the Company's ultimate parent, in 2017. The ultimate beneficial owner of the Company, who has control as defined by IFRS 10, and its subsidiaries, did not change as a result of the reorganisation of the Group structure. As a consequence, this transaction was not treated as a business combination and assets were acquired at book value using common control accounting.
Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to, variable returns through its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases.
The Group's inaugural securitisation facility was established in November 2018 and was subsequently upsized to a £200m facility. The entity AMGO Funding (No. 1) Limited was set up in this process; the Group has both power and control over that structured entity, as well as exposure to variable returns from the special purpose vehicle (SPV); hence, this is included in the consolidated financial statements.
The financial statements consolidate the Company and all its subsidiary undertakings. Intra-group sales and profits are eliminated fully on consolidation. The accounting policies of subsidiaries are consistent with the accounting policies of the Group.
1.2 New and amended standards adopted by the Group and Company
During the period a number of new standards and amendments to IFRS became effective and were adopted by the Group.
a) IFRS 9 Financial Instruments
The impact of IFRS 9 is described below; otherwise, none of the other changes between IAS 39 and IFRS 9 had a material impact on the Group's net cash flows, financial position, total comprehensive income or earnings per share.
|
|
31-Mar-18 |
1-Apr-18 |
1-Apr-18 |
|
|
Closing |
IFRS 9 impact |
Opening |
|
|
£m |
£m |
£m |
|
Non-current assets |
|
|
|
|
Property, plant and equipment |
0.6 |
- |
0.6 |
|
Intangibles |
0.1 |
- |
0.1 |
|
Deferred tax |
- |
7.9 |
7.9 |
|
|
0.7 |
7.9 |
8.6 |
|
|
|
|
|
|
Current assets |
|
|
|
|
Gross loan book |
668.1 |
- |
668.1 |
|
Deferred broker fees |
19.4 |
(1.2) |
18.2 |
|
Loss allowance |
(21.2) |
(44.2) |
(65.4) |
|
Customer loans and receivables |
666.3 |
(45.4) |
620.9 |
|
Other receivables |
2.3 |
- |
2.3 |
|
Cash at bank and in hand |
12.2 |
- |
12.2 |
|
|
680.8 |
(45.4) |
635.4 |
|
|
|
|
|
|
Total assets |
681.5 |
(37.5) |
644.0 |
|
|
|
|
|
|
Total liabilities |
(687.8) |
- |
(687.8) |
|
|
|
|
|
|
Net assets/(liabilities) |
(6.3) |
(37.5) |
(43.8) |
|
|
|
|
|
|
Capital and reserves |
|
|
|
|
Called up share capital |
1.0 |
- |
1.0 |
|
Share premium |
0.9 |
- |
0.9 |
|
Merger reserve |
(295.2) |
- |
(295.2) |
|
Retained earnings |
287.0 |
(37.5) |
249.5 |
|
Shareholder equity |
(6.3) |
(37.5) |
(43.8) |
|
Reconciliation of estimate of IFRS 9 impairment provision as at 31 March 2018 to actuals as at 1 April 2018: |
|
||
|
|
Estimated impact of IFRS 9 transition |
Actual impact of IFRS 9 transition |
Difference |
|
Provision |
1-Apr-18 |
1-Apr-18 |
|
|
|
£m |
£m |
£m |
|
Stage 1 |
36.9 |
39.3 |
2.4 |
|
Stage 2 |
14.3 |
11.9 |
(2.4) |
|
Stage 3 |
14.2 |
14.2 |
- |
|
Total |
65.4 |
65.4 |
- |
|
|
|
|
|
|
|
Estimated impact of IFRS 9 transition |
Actual impact of IFRS 9 transition |
Difference |
|
Gross loan book |
1-Apr-18 |
1-Apr-18 |
|
|
|
£m |
£m |
£m |
|
Stage 1 |
584.5 |
607.2 |
22.7 |
|
Stage 2 |
69.1 |
46.4 |
(22.7) |
|
Stage 3 |
14.5 |
14.5 |
- |
|
Total |
668.1 |
668.1 |
- |
Note the above changes between estimated impact and actual impact have occurred due to refinement of application of operational flags in our staging assessments, and further refinements of the IFRS 9 model. The net impact on the opening provision was £nil.
Upon adoption of IFRS 9, classification has changed from loans and receivables to amortised cost.
IFRS 9 Financial Instruments replaces IAS 39 Financial instruments: Recognition and Measurement and was adopted on 1 April 2018. The key changes to the Group's accounting policies resulting from the adoption of IFRS 9 are summarised below.
In applying the accounting policies, management has made appropriate estimates in many areas, and the actual outcome may differ from those calculated, particularly with regard to forward-looking assumptions. Key judgements and estimates in the Group's accounting policies are displayed in section 2.
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 though other comprehensive income (FVOCI) and fair value through profit and loss (FVTPL). A financial asset is measured at amortised cost if it meets both of the following conditions (and is not designated as at FVTPL):
• it is held within a business model whose objective is to hold assets to collect contractual cash flows; and
• its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest (SPPI) on the principal amount outstanding.
The Group does not believe that the new classification requirements have had a significant impact upon the measurement bases for its financial assets. Loans to customers that are classified as loans and receivables and measured at amortised cost under IAS 39 are also measured at amortised cost under IFRS 9.
ii) Impairment
IFRS 9 replaces the "incurred loss" model of IAS 39 with a forward-looking "expected credit loss" (ECL) model. IFRS 9 requires an impairment provision to be recognised on origination of a loan. Under IAS 39, a provision is made where there has been objective evidence of impairment, such as a borrower falling into arrears. Additionally, the IAS 39 methodology included a provision against up-to-date loans for losses where the loss has been incurred but not yet reported and is likely to be reported during a short emergence period. Under IFRS 9, a provision will be made against all stage 1 (defined below) loans to reflect the probability that they will default within the next twelve months, which is longer than the emergence period used under IAS 39, thus accelerating the recognition of impairment charges. The application of lifetime expected credit losses to assets which have experienced a significant increase in credit risk also results in an uplift in impairment versus IAS 39. IFRS 9 only changes the timing of impairment losses with earlier recognition of impairment provisions on a growing loan book; the Group's cash flows are unaffected by the change in accounting standard and the lifetime losses are the same under both IAS 39 and IFRS 9.
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.
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 estimated default events over the expected life of a financial instrument.
In substance the Group treats the borrower and the guarantor as having 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 financial assets. The Group performs separate credit and affordability assessments on both the borrower and guarantor. After having passed an initial credit check, most borrowers and all guarantors are contacted by phone and each is assessed for their creditworthiness and ability to afford the loan. In addition, the guarantor's roles and responsibilities are clearly explained and recorded. This is to ensure that while the borrower is primarily responsible for making the repayments, both the borrower and the guarantor are clear about their obligations and are also capable of repaying the loan. When a borrower misses a payment, both parties are kept informed regarding the remediation of the arrears. If a missed payment is not remediated within a certain timeframe, collection efforts are automatically switched to the guarantor and if arrears are cleared the loan is considered as performing.
iv) Assessment of significant change in risk
In determining whether the credit risk (i.e. risk of default) on 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 available both on an ongoing basis and without undue cost or effort is payment status flags, which occur in specific circumstances such as a short-term payment plan, bankruptcy, deceased 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 with customer arrears, and judgements on what signifies a significant change in risk.
v) Derecognition
The Group offers, to certain borrowers, the option to top-up existing loans subject to internal eligibility criteria. The Group pays out the difference between the customer's remaining outstanding balance and the new loan amount at the date of top-up. The Group considers a top-up to be a derecognition event for the purposes of IFRS 9 on the basis that a new contractual agreement is entered into by the customer replacing the legacy agreement. The borrower and guarantor are both fully underwritten at the point of top-up and the borrower may use a different guarantor from the original agreement when topping-up.
vi) Modification
Aside from top-ups, no formal modifications are offered to customers. In some instances, forbearance measures are offered to customers. These are not permanent measures, meaning there are no changes to the customers contract and so do not meet derecognition or modification requirements.
vii) Definition of default
The Group considers an account 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 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 cured and transitions back from stage 3.
viii) Forbearance
Where the borrower indicates to the Group that they are unable to bring the account up to date, informal, temporary forbearance measures may be offered. There are no changes to the customers' contract at any stage. Hence, these changes are neither modification or derecognition events. Depending on the forbearance measure offered, an operational flag will be added to the account, which may suggest a significant increase in credit risk and trigger movement of this balance from stage 1 to stage 2 in impairment calculations. See note 2.1.2 for further details.
ix) Disclosure
IFRS 9 requires additional disclosures, in particular with regards to credit risk and ECLs. The Group's implementation project included assessing the disclosure requirements, identifying data gaps and implementing the necessary system and control changes to enable the required disclosure.
Whilst IAS 39 is not applicable for the current year, 2018 figures were in accordance with IAS 39 and hence for the Group's policies for IAS 39 are listed below.
Loans were measured initially at fair value less transaction costs. The Group assessed at each reporting date whether there was any objective evidence that a financial asset or a group of financial assets was impaired. A financial asset or a group of financial assets was deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that have occurred after the initial recognition of the asset (an 'incurred loss event') and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated.
Evidence of impairment was triggered by default or delinquency in interest or principal payments. If objective evidence of impairment was found, an impairment loss is recognised in the Statement of Income. Loans that are six or more payments in arrears are charged off the Statement of Financial Position and are no longer included in the loan book.
For financial assets measured at amortised cost, the impairment loss was measured as the difference between an asset's carrying amount and the present value of estimated cash flows discounted at the asset's original effective interest rate. If a financial asset has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract.
b) IFRS 15 Revenue from Contracts with Customers
IFRS 15 Revenue from Contracts with Customers provides a single principles-based model to be applied to all sales contracts. IFRS 15 has not impacted the results of the Group as revenue is derived from interest and is therefore accounted for in accordance with IFRS 9 (see note 1.2).
1.3 Revenue
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 (see note 2.2 for further details).
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 fees or incremental costs that are directly attributable to the instrument, but not future credit losses.
1.4 Operating expenses
Operating expenses include all direct and indirect costs. Where loan origination and acquisition costs can be referenced directly back to individual transactions (e.g. broker commission), they are included in the effective interest rate in revenue and amortised over the behavioural life of the loan rather than recognised in full at the time of acquisition.
1.5 Interest payable and funding facilities
Interest payable and funding facility fees are charged to the Consolidated Statement of Comprehensive Income over the term of the debt using the effective interest rate method so that the amount charged is at a constant rate on the carrying amount. Issue costs are initially recognised as a reduction in the proceeds of the associated capital instrument, and recognised over the behavioural life of the liability. Amortised facility fees are charged to the Consolidated Statement of Comprehensive Income over the term of the facility using the effective interest rate method. Non-utilisation fees are charged to the Consolidated Statement of Comprehensive Income as incurred.
Senior secured note premiums and discounts are part of the instrument's carrying amount and therefore are amortised over the expected life of the notes. Upon Board approval for opportunistic open market note buybacks and thus debt extinguishment, the difference between the carrying amount of the liability extinguished or transferred to another party and the consideration paid, including any non-cash assets transferred or liabilities assumed, is recognised in the Consolidated Statement of Comprehensive Income.
Shareholder loan note interest is charged to the Consolidated Statement of Comprehensive Income as accrued and is shown separately on the face of the Consolidated Statement of Comprehensive Income due to its nature and size. The Directors feel that this presentation gives the user of these financial statements a clearer view of the different interest balances charged to the Consolidated Statement of Comprehensive Income.
1.6 Dividends
Equity dividends payable are recognised when they become legally payable. Interim equity dividends are recognised when paid. Final equity dividends are recognised when approved by the shareholders at an Annual General Meeting.
1.7 Taxation
Tax on the profit or loss for the year comprises current and deferred tax. Tax is recognised in the Consolidated Statement of Comprehensive Income except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.
1.7.1 Current tax
Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the Consolidated Statement of Financial Position date, and any adjustment to tax payable in respect of previous years.
1.7.2 Deferred tax
Deferred tax is provided on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: the initial recognition of goodwill; the initial recognition of assets or liabilities that affect neither accounting nor taxable profit other than in a business combination; and differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the Consolidated Statement of Financial Position date.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the temporary difference can be utilised.
1.8 Property, plant and equipment (PPE)
PPE is stated at cost less accumulated depreciation and accumulated impairment losses. Cost includes expenditure that is directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management. Where parts of an item of PPE have different useful lives, they are accounted for as separate items of property, plant and equipment. Repairs and maintenance are charged to the Consolidated Statement of Comprehensive Income during the period in which they are incurred.
Depreciation is charged to the Consolidated Statement of Comprehensive Income on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment. The estimated useful lives are as follows:
• Leasehold improvements 10% straight line
• Fixtures and fittings 25% straight line
• Computer equipment 50% straight line
Depreciation methods, useful lives and residual values are reviewed at each Consolidated Statement of Financial Position date.
1.9 Intangible assets
Intangible assets are recognised at historical cost less accumulated amortisation and accumulated impairment losses. Intangible assets are amortised from the date they are available for use. Amortisation is charged to the Consolidated Statement of Comprehensive Income.
Acquired software costs incurred are capitalised and amortised on a straight-line basis over the anticipated useful life, which is normally four years.
Amortisation methods, useful lives and residual values are reviewed at each Consolidated Statement of Financial Position date.
1.10 Financial instruments
The Group primarily enters into basic financial instruments transactions that result in the recognition of financial assets and liabilities, the most significant being amounts receivable from customers, senior secured notes in the form of high yield bonds, loans from banks and other third parties and loans to related parties.
1.10.1 Financial assets
a) Other receivables
Other receivables relating to loans and amounts owed by parent and subsidiary undertakings are measured at transaction price, less any impairment. Loans receivable are measured initially at fair value plus transaction costs and are measured subsequently at amortised cost using the effective interest method, less any impairment. Loans and amounts owed by parent and subsidiary undertakings are unsecured, have no fixed repayment date and are repayable on demand and interest on such balances is accrued on an arm's length basis. The impact of ECLs on other receivables has been evaluated and it is immaterial.
b) Cash and cash equivalents
Cash is represented by cash in hand and deposits with financial institutions repayable without penalty on notice of not more than 24 hours. Cash equivalents are highly liquid investments that mature in no more than three months from the date of acquisition and that are readily convertible to known amounts of cash with insignificant risk of change in value. The impact of ECLs on cash has been evaluated and it is immaterial.
c) Derivative assets
Derivative assets held for risk management purposes are recognised on a fair value through profit and loss (FVTPL) basis, with movement in fair value being included under interest expenses in the Consolidated Statement of Comprehensive Income.
d) Derecognition
A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognised when:
• the rights to receive cash flows from the asset have expired; or
• the Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a "pass-through" arrangement and either:
• the Group has transferred substantially all the risks and rewards of the asset; or
• the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.
e) Write off
Loans are written-off the balance sheet when an account is six contractual payments past due, as at this point it is deemed that there is no reasonable expectation of recovery. When there is recovery on written-off debts, when cash is received from the third-party purchaser on the purchase date, recoveries are charged to the income statement and net off the annual impairment charge. When assets are legally transferred to the third-party purchaser, they are removed from our listing of off-balance sheet charged off accounts.
1.10.2 Financial liabilities
Debt instruments (other than those wholly repayable or receivable within one year), i.e. borrowings, are initially measured at fair value less transaction costs and subsequently at amortised cost using the effective interest method.
Debt instruments that are payable within one year, typically trade payables, are measured initially and subsequently at the undiscounted amount of the cash or other consideration expected to be paid or received. However, if the arrangements of a short-term instrument constitute a financing transaction, like the payment of a trade debt deferred beyond normal business terms or financed at a rate of interest that is not a market rate or in case of an outright short-term loan not at market rate, the financial liability is measured, initially, at the present value of the future cash flow discounted at a market rate of interest for a similar debt instrument and subsequently at amortised cost.
Interest-bearing borrowings are recognised initially at fair value less attributable transaction costs. See section 1.5 for details of treatment of premiums/discounts on borrowings.
Short-term payables are measured at the transaction price. Other financial liabilities, including bank loans, are measured initially at fair value, net of transaction costs, and are measured subsequently at amortised cost using the effective interest method.
A financial liability is derecognised when the obligation under the liability is discharged, cancelled or expired. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability. The difference between the carrying value of the original financial liability and the consideration paid is recognised in the Consolidated Statement of Comprehensive Income.
1.11 Shareholder loan notes
Shareholder loan note interest is charged to the Consolidated Statement of Comprehensive Income as accrued and is shown separately on the face of the Consolidated Statement of Comprehensive Income due to it nature and size (see note 1.18).
Shareholder loans notes are initially measured at fair value less attributable transaction costs and subsequently at amortised cost using the effective interest method.
The financial liability of the shareholder loan notes is derecognised when the obligation under the liability is discharged. 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 by 75,333,760 to 475,333,760 ordinary shares and increasing net assets by £207.2m (see note 16).
1.12 Securitisation
The Group securitises its own financial assets via the sale of these assets to a special purpose entity, which in turn issues securities to investors. All financial assets continue to be held on the Group's Consolidated Balance Sheet, together with debt securities in issue recognised for the funding. See note 15 for further details.
1.13 Merger reserve
The merger reserve was created as a result of a Group reorganisation in 2017 to create an appropriate holding company structure. With the merger accounting method, the carrying values of the assets and liabilities of the parties to the combination are not required to be adjusted to fair value, although appropriate adjustments shall be made through equity to achieve uniformity of accounting policies in the combining entities. The restructure was within a wholly owned group, constituting a common control transaction.
1.14 Foreign currency translation
Items included in the financial statements of each of the Group's subsidiaries are measured using the currency of the primary economic environment in which the subsidiary operates (the functional currency). The Group's subsidiaries primarily operate in the UK and Republic of Ireland, with Amigo Loans Ireland Limited's first loans paid out in February 2019. The consolidated and the Company financial statements are presented in Sterling, which is the Group and Company's functional and presentational currency.
Transactions that are not denominated in the Group's functional currency are recorded at average exchange rate for the month. Monetary assets and liabilities denominated in foreign currencies are translated into the relevant functional currency at the exchange rates ruling at the balance sheet date. Differences arising on translation are charged or credited to the income statement.
If a foreign operation were to be disposed of, the cumulative amount of the differences arising on translation recognised in other comprehensive income would be recognised in the income statement when the gain or loss on disposal is recognised.
1.15 Defined contribution pension scheme
The Group operates a defined contribution pension scheme. Contributions payable to the Group's pension scheme are charged to the income statement in the period to which they relate.
1.16 Leases
Rental costs under operating leases are charged to the statement of other comprehensive income on a straight-line basis over the term of the lease.
1.17 Share-based payments
Share-based payment transactions in which the Group receives goods or services as consideration for its own equity instruments are accounted for as equity settled share-based payments. The fair value of the share-based payment is estimated at the grant date. The fair value is recognised as an employee expense, with a corresponding increase in equity, over the period in which the employee becomes unconditionally entitled to the awards. The fair value of the awards granted is measured based on Group-specific observable market data, taking into account the terms and conditions upon which the awards were granted.
1.18 Items presented separately within the Consolidated Statement of Comprehensive Income
Shareholder loan notes and IPO and financing costs are presented separately on the face of the Consolidated Statement of Comprehensive Income. These are items that are unusual because of their size, nature or incidence and which the directors consider should be disclosed separately to enable a full understanding of the Group's results.
2. Critical accounting assumptions and key sources of estimation uncertainty
Preparation of the financial statements requires management to make significant judgements and estimates. The items in the financial statements where these judgements and estimates have been made are:
Judgements
Management considers the following areas to be the judgements that have the most significant effect on the amounts recognised in the financial statements. They are explained in more detail in the following sections:
· IFRS 9 - Measurement of ECLs
o Assessing whether the credit risk of an instrument has increased significantly since initial recognition (note 2.1.2)
o Definition of default is considered by the Group to be when an account is three contractual payments past due (note 1.2a.vii)
Estimates
Areas which include a degree of estimation uncertainty are:
· IFRS 9 - Measurement of ECLs
o Adopting a collective basis for measurement in calculation of ECLs in IFRS 9 calculations (note 2.1.1)
o Incorporation of forecast loss curves, prepared on a risk segment basis, in th calculation of ECLs (note 2.1.1)
o Forward-looking information incorporated into the measurement of ECLs (note 2.1.3)
o Incorporating a probability weighted estimate of external macroeconomic factors into the measurement of ECLs (note 2.1.3)
· IFRS 9 - Probability of default
o Probability of default (PD) is an estimate of the likelihood of default over a given time horizon, the calculation of which includes internal historical data, assumptions and expectations of future conditions
· Effective interest rate - determination of the average behavioural life of cohorts of loans acquired via third party brokers (note 2.2)
2.1 Credit impairment
2.1.1 Measurement of ECLs
The Group has adopted a collective basis of measurement for calculating ECLs. The loan book is divided into portfolios of assets with shared risk characteristics and further divided by quarterly origination vintages. ECLs are calculated on a collective asset basis, and hence apply on a combined borrower/guarantor basis (see note 1.2a.iii for further details over the borrower/guarantor relationship). The Group's ECL methodology considers the collective estimated cash shortfalls for each credit risk portfolio based on forecast loss curves. Forecast loss curves are prepared on a risk segment basis for annual vintages and combine the Group's historical trends, current credit loss behaviour and management judgements. Internal Group trends are reviewed over 60 months for equivalent cohorts of assets, being the maximum contractual term for the product. No external information is used, aside from in consideration of economic adjustments (see 2.1.3). Loss curves are reviewed and approved by the Risk Committee and Audit Committee prior to use in IFRS 9 calculations.
2.1.2 Assessment of significant change in credit risk
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 performance of each payment status flag (see note 2.1.1). If the specific operational flag placed on an account 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.
The Group reassesses the flag status of all loans at each month end and remeasures the proportion of the book which has demonstrated a significant increase in credit risk based on the latest payment flag data. An account transitions from stage 2 to stage 1 immediately when a payment flag is removed from the account. Each quarter a Flag Governance meeting is held, to review operational changes which may impact the use of operational flags in the assessment of significant increase in credit risk.
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.
See note 1.2a.iv for further details on the assessment of change in credit risk.
The following table details the movement in the ECL provision for changes in modelling judgements and estimates, being increasing or decreasing underlying data used in loss curves by 10%.
|
|
31-Mar-19 |
|
Group |
£m |
|
+/- 10% relative change in data underlying loss curves |
+/- 3.4 |
2.1.3 Forward-looking information
The Group assesses the impact of forward-looking information on its measurement of ECLs. The Group has analysed the effect of a range of economic factors and identified the most significant macroeconomic factor that is likely to impact credit losses as the rate of unemployment. Forecast unemployment rates have been built into the credit loss forecasts utilising four scenarios based on and independent forecast of future economic conditions and applying a probability weighting to each scenario. Economic assumptions included in IFRS 9 calculations are approved by the Board.
These weighted scenarios include a base (50.0%), an upside (5.1%) and two downside scenarios (26.4% and 18.5%). The forward-looking scenarios have been reviewed regularly and updated where deemed necessary. The scenarios are weighted according to management judgement of each scenario's likelihood. The base case attracts 50% weighting and is driven by unemployment changes, as estimated by the Office of Budget Responsibility. The probability weighting applied to each remaining scenario is calculated based on the period of time that the unemployment rate has been above each threshold since 1971, as management's best estimate of future unemployment scenarios.
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.
|
Scenario |
Derivation |
Weighting |
|
Base case |
Underpinned by external consensus forecasts of unemployment changes, as estimated by the Office of Budget Responsibility, and used in the Group's strategic planning and budgeting processes. Assumes unemployment rises in line with OBR's forecast (4% by 2023) |
50.0% |
|
Upside case |
Assumes unemployment rates continue to decline to 3% by 2023 (1% below the base case) |
5.1% |
|
Stressed case |
Assumes unemployment rises to 6% by 2023 (2% in excess of base case) |
26.4% |
|
Deeper stress |
Assumes unemployment rises to 9% by 2023 (5% in excess of the base case) |
18.5% |
2.2 Effective interest rates
Revenue comprises interest income on amounts receivable from customers. Loans are initially measured at fair value (which is equal to cost at inception) plus directly attributable transaction costs and are subsequently measured at amortised cost using the effective interest rate method. Revenue is presented net of amortised broker fees which are capitalised and spread over the expected behavioural lifetime of the loan as part of the effective interest rate method. The key judgement applied in the effective interest rate calculation is the behavioural life of the loan and, to a lesser extent, the profile of loan payments over this period.
The historical settlement profile of loans acquired from third party brokers is used to estimate the average behavioural life of each monthly cohort of loans. Settlements included both early settlements and top-ups as they are considered derecognition events (see note 1.2 iv). The average behavioural life is then used to estimate the effective interest on broker originations and thus the amortisation profile of the deferred costs. As Amigo has only one APR, once the behavioural life is determined, the amortisation profile is identical for all loan terms and amounts and thus the application is accurate for all assets in each monthly cohort.
Broker commissions are incurred as a percentage of amounts paid out and not as a fixed fee per loan. Therefore, in determining the settlement profile of historical cohorts, settlement rates are payout weighted to accurately match the value of deferred costs with the settlement of loans.
The following table details the movement in the year end EIR asset when sensitivity analysis is performed. In the analysis, it has been assumed that the amortisation rate of the fastest amortising cohort of loans is applicable to all cohorts.
|
|
31-Mar-19 |
|
Group |
£m |
|
Fastest amortisation cohort rate applied to all cohorts |
(0.8) |
3. Revenue (unaudited)
Revenue consists of interest accrued on loans to customers and is derived from a single segment in the UK. This is consistent with the reporting to the chief operating decision maker, which the Group considers is the Board. No segmental analysis is therefore provided.
|
|
|
|
|
Year to 31-Mar-19 |
Year to 31-Mar-18 |
|
|
|
|
|
£m |
£m |
|
|
|
|
|
|
|
|
Interest under amortised cost method |
|
|
|
270.0 |
210.3 |
|
Other revenue |
|
|
0.7 |
0.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
270.7 |
210.8 |
Other income includes refunds and income from courts.
4. Interest payable and funding facility fees (unaudited)
|
|
|
Year to |
Year to |
|
|
|
31-Mar-19 |
31-Mar-18 |
|
|
|
£m |
£m |
|
|
|
|
|
|
Bank interest payable |
|
3.8 |
2.9 |
|
Senior secured notes interest payable |
|
29.1 |
25.0 |
|
Securitisation interest payable |
|
1.8 |
- |
|
Funding facility fees |
|
3.5 |
2.5 |
|
|
|
|
|
|
|
|
38.2 |
30.4 |
|
Shareholder loan note interest |
|
6.0 |
21.2 |
|
|
|
|
|
|
Total interest payable |
|
44.2 |
51.6 |
|
|
|
|
|
Funding facility fees include non-utilisation fees associated with the undrawn portion of the Group's revolving credit facility and securitisation facility, and amortisation of the initial costs of the Group's revolving credit facility, senior secured notes and securitisation facility.
Interest payable represents the total amount of interest expense calculated using the effective interest method for financial liabilities that are not treated as fair value through the profit or loss. Non-utilisation fees within this figure are immaterial. No interest was capitalised by the Group during the period.
5. Operating expenses (unaudited)
|
|
|
|
|
Year to 31-Mar-19 |
Year to 31-Mar-18 |
|
|
|
|
|
£m |
£m |
|
|
|
|
|
|
|
|
Advertising and marketing |
|
|
|
17.3 |
21.1 |
|
Employee costs (note 6) |
|
|
|
13.6 |
9.8 |
|
Print, post and stationery |
|
|
|
4.4 |
4.1 |
|
Credit scoring costs |
|
|
|
2.3 |
2.9 |
|
Communication costs |
|
|
|
2.4 |
2.3 |
|
Other |
|
|
7.4 |
6.0 |
|
|
|
|
|
|
47.4 |
46.2 |
|
|
|
|
|
Year to 31-Mar-19 |
Year to 31-Mar-18 |
|
Other operating expenses include: |
|
|
£m |
£m |
|
|
Fees payable to the Company's auditor and its associates for: |
|
|
|
|
|
|
- audit of these financial statements |
|
|
0.1 |
- |
|
|
- audit of financial statements of subsidiaries |
|
|
0.2 |
0.2 |
|
|
- audit related assurance services1 |
|
|
0.1 |
- |
|
|
- corporate finance transactions2 |
|
|
0.2 |
0.5 |
|
|
Depreciation of PPE |
|
|
0.3 |
0.2 |
|
|
Operating lease expense - property |
|
|
0.3 |
0.2 |
|
|
Defined contribution pension cost
|
|
|
0.2 |
0.2 |
|
1 Other assurance services include interim reviews of quarterly financial statements.
2 Services relating to corporate finance transactions includes fees incurred as part of the IPO process. Note upon review there has been a non-material restatement of £0.2m in the prior year, from £0.7m to £0.5m.
6. Employees (unaudited)
|
|
|
|
|
|
Year to 31-Mar-19 |
|
Year to 31-Mar-18 |
|
|
|
|
|
|
£m |
|
£m |
|
Employee costs |
|
|
|
|
|
|
|
|
Wages and salaries |
|
|
|
|
12.2 |
|
8.7 |
|
Social security costs |
|
|
|
1.2 |
|
0.9 |
|
|
Cost of defined pension contribution scheme |
|
|
|
0.2 |
|
0.2 |
|
|
|
|
|
|
|
13.6 |
|
9.8 |
|
The average monthly number of employees employed by the Group (including the Directors) during the year, analysed by category, was as follows:
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year to 31-Mar-19 |
|
Year to 31-Mar-18 |
|
Employee numbers |
|
|
|
|
|
|
|
|
Sales |
|
|
|
|
206 |
|
156 |
|
Administration |
|
|
|
|
97 |
|
108 |
|
|
|
|
|
|
303 |
|
264 |
7. Key management remuneration (unaudited)
The remuneration of the Executive and Non-Executive Directors, who are the key management personnel of the Group, is set out below in aggregate for each of the categories specified in IAS 24 Related Party Disclosures.
|
|
|
|
|
|
Year to 31-Mar-19 |
|
Year to 31-Mar-18 |
|
|
|
|
|
|
£m |
|
£m |
|
|
|
|
|
|
|
|
|
|
Key management emoluments including social security costs |
|
2.2 |
|
0.9 |
|||
|
Company contributions to defined contribution pension schemes |
- |
|
- |
||||
|
Share-based payments |
1.3 |
|
- |
||||
|
|
|
|
|
|
3.5 |
|
0.9 |
During the year retirement benefits were accruing for three Directors (2018: two) in respect of defined contribution pension schemes.
The highest paid Director received remuneration of £2,457,115 inclusive of national insurance payments (2018: £500,817). Of this, £21,241 was in relation to payment in lieu of notice. £30,000 is in relation to payment for loss of office. This Director was in receipt of an equity settled share-based payment award in the year (2018: nil). In total the award amounted to £1.4m including social security costs and was £1.3m net of social security costs (see note 18).
The value of the Group's contributions paid to a defined contribution pension scheme in respect of the highest paid Director amounted to £nil due to an election being made for payment in lieu of pension (2018: £31,669).
8. IPO and related financing costs (unaudited)
These items are disclosed separately in the financial statements because the Directors consider it necessary to do so to provide further understanding of the financial performance of the Group. They are material items of expense that have been shown separately due to the significance of their nature and amount.
|
|
|
|
|
Year to 31-Mar-19 |
Year to 31-Mar-18 |
|
|
|
|
|
£m |
£m |
|
|
|
|
|
|
|
|
IPO and related financing costs |
|
|
3.9 |
2.1 |
|
|
|
|
|
3.9 |
2.1 |
|
|
|
|
|
|
|
|
IPO and related financing costs relate to advisor, legal fees and financing fees in respect of the listing of the Group in July 2018. Included within these costs are a £1.4m share based payment expense (see note 18 for further details).
9. Taxation (unaudited)
The applicable corporation tax rate for the period to 31 March 2019 was 19% (2018: 19%) and the effective tax rate is 20.2% (2018: 23.4%). The current period effective tax rate is reflective of the applicable corporate tax rate for the year and reconciling items, recognising an element of the IPO and related financing costs as disallowable.
|
|
|
|
|
Year to |
|
Year to |
|
|
|
|
|
31-Mar-19 |
|
31-Mar-18 |
|
|
|
|
|
£m |
|
£m |
|
Corporation tax |
|
|
|
|
|
|
|
Current tax on profits for the year |
|
|
21.4 |
|
15.6 |
|
|
Adjustments in respect of previous periods |
|
|
- |
|
(0.4) |
|
|
|
|
|
|
|
|
|
|
Total current tax |
|
|
|
21.4 |
|
15.2 |
|
|
|
|
|
|
|
|
|
Deferred tax |
|
|
|
|
|
|
|
Origination and reversal of temporary differences |
|
|
1.0 |
|
(0.1) |
|
|
Adjustments in respect of prior periods |
|
|
- |
|
0.4 |
|
|
|
|
|
|
|
|
|
|
Taxation on profit |
|
|
|
22.4 |
|
15.5 |
A reconciliation of the actual tax charge, shown above, and the profit before tax multiplied by the standard rate of tax, is as follows:
|
|
|
|
|
|
|
Year to |
|
Year to |
|
|
|
|
|
|
|
31-Mar-19 |
|
31-Mar-18 |
|
|
|
|
|
|
|
£m |
|
£m |
|
|
|
|
|
|
|
|
|
|
|
Profit before tax |
|
|
|
|
|
111.0 |
|
66.1 |
|
|
|
|
|
|
|
|
|
|
|
Profit before tax multiplied by the standard rate of |
|
|
|
|
|
|
|
|
|
corporation tax in the UK of 19% (2018: 19%) |
|
|
|
|
21.1 |
|
12.5 |
|
|
|
|
|
|
|
|
|
|
|
|
Effects of: |
|
|
|
|
|
|
|
|
|
Expenses not deductible for tax purposes |
|
|
|
|
0.4 |
|
2.9 |
|
|
Transfer pricing adjustments |
|
|
|
0.8 |
|
- |
||
|
Adjustments to tax charge in respect of prior periods |
|
|
|
0.1 |
|
0.1 |
||
|
|
|
|
|
|
|
|
|
|
|
Total tax charge for the year |
|
|
|
|
|
22.4 |
|
15.5 |
A reduction in the UK corporation tax rate from 19% to 17% (effective 1 April 2020) was substantively enacted on 6 September 2016. This will reduce the Group's tax charge accordingly in the future.
10. Earnings per share (unaudited)
|
|
|
|
|
31-Mar-19 |
31-Mar-18 |
|
|
|
|
|
Pence |
Pence |
|
|
|
|
|
|
|
|
Basic and diluted EPS |
|
|
|
19.4 |
12.7 |
|
Adjusted basic EPS1 |
|
|
|
22.0 |
18.1 |
|
|
|
|
|
|
|
1Adjusted basic EPS and earnings for adjusted basic EPS 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. Note figures are presented net of tax:
|
|
|
|
|
31-Mar-19 |
31-Mar-18 |
|
|
|
|
|
£m |
£m |
|
Earnings for basic EPS |
|
|
|
88.6 |
50.6 |
|
Senior secured note buyback |
|
|
|
2.0 |
- |
|
Shareholder loan note interest |
|
|
|
5.6 |
19.7 |
|
IPO and related financing costs |
|
|
|
3.9 |
2.1 |
|
Earnings for adjusted basic EPS1 |
|
|
100.1 |
72.4 |
|
|
|
|
|
|
|
|
|
Weighted average number of shares (m) |
|
455.9 |
400.0 |
||
1Adjusted basic EPS and earnings for adjusted basic EPS are non-GAAP measures.
There were 1,000,000 ordinary shares in issue at 31 March 2018. As a result of the IPO, on 28 June 2018 the 1,000,000 ordinary shares in issue were sub-divided, with each existing ordinary share split into 400 ordinary shares. The weighted average number of shares has been retrospectively adjusted for 31 March 2018 and 30 September 2017 as a result of the change in the number of shares without a corresponding change in resources.
11. Deferred tax (unaudited)
|
|
31-Mar-19 |
31-Mar-18 |
|
|
£m |
£m |
|
|
|
|
|
At 1 April 2018 / 1 April 2017 |
(0.2) |
0.1 |
|
Charge / (Credit) to Equity re IFRS 9 transitional adjustment1 |
7.9 |
- |
|
Restated opening at 1 April 2018 |
7.7 |
0.1 |
|
Charge to the Consolidated Statement of Comprehensive Income |
(0.9) |
(0.3) |
|
At 31 March 2019 / 31 March 2018 |
6.8 |
(0.2) |
|
|
|
|
|
The deferred tax (liability)/asset is made up as follows: |
|
|
|
|
31-Mar-19 |
31-Mar-18 |
|
|
£m |
£m |
|
|
|
|
|
Accelerated capital allowances |
- |
- |
|
Previous FRS 102 transitional adjustments |
(0.3) |
- |
|
Unpaid remuneration |
- |
0.1 |
|
IFRS 9 transitional adjustments |
7.1 |
- |
|
Other temporary differences |
- |
(0.3) |
|
|
6.8 |
(0.2) |
1The deferred tax asset arises from balance sheet adjustments to restate the IAS 39 balance sheet onto an IFRS 9 basis, for which tax deductions are available over ten years.
12. Customer loans and receivables (unaudited)
The below table is prepared on an IFRS 9 basis, in accordance with the transitional provisions of the standard.
|
|
31-Mar-19 |
1-Apr-18 |
|
Customer loans and receivables |
£m |
£m |
|
Stage 1 |
683.4 |
607.2 |
|
Stage 2 |
70.0 |
46.4 |
|
Stage 3 |
29.6 |
14.5 |
|
Gross loan book |
783.0 |
668.1 |
|
Deferred broker costs1 - stage 1 |
18.2 |
16.4 |
|
Deferred broker costs1 - stage 2 |
1.9 |
1.3 |
|
Deferred broker costs1 - stage 3 |
0.8 |
0.3 |
|
Loan book inclusive of deferred broker costs |
803.9 |
686.1 |
|
Provision |
(75.4) |
(65.4) |
|
Customer loans and receivables |
728.5 |
620.7 |
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 31 March 2019, £197.0m of the loans to customers had their beneficial interest assigned to the Group's special purpose vehicle (SPV) entity, namely AMGO Funding (No. 1) Limited, as collateral for securitisation transactions (2018: £nil).
Ageing of gross loan book by days overdue:
|
|
31-Mar-19 |
31-Mar-18 |
|
|
£m |
£m |
|
Current |
680.7 |
605.6 |
|
1-30 days |
59.8 |
40.3 |
|
31-60 days |
12.7 |
7.7 |
|
>61 days |
29.8 |
14.5 |
|
Gross loan book |
783.0 |
668.1 |
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.
|
|
Stage 1 |
Stage 2 |
Stage 3 |
Total |
|
|
£m |
£m |
£m |
£m |
|
Gross carrying amount as at 1 April 2018 |
607.2 |
46.4 |
14.5 |
668.1 |
|
Deferred broker fees |
16.4 |
1.3 |
0.3 |
18.0 |
|
Loan book inclusive of deferred broker costs at 1 April 2018 |
623.6 |
47.7 |
14.8 |
686.1 |
|
Changes in gross carrying amount attributable to: |
|
|
|
|
|
Transfer to Stage 1 |
5.6 |
(5.5) |
(0.1) |
- |
|
Transfer to Stage 2 |
(32.7) |
32.9 |
(0.2) |
- |
|
Transfer to Stage 3 |
(15.5) |
(2.3) |
17.8 |
- |
|
Passage of time |
(60.6) |
(7.4) |
0.1 |
(67.9) |
|
Customer settlements |
(87.6) |
(7.0) |
(1.0) |
(95.6) |
|
Loans charged off |
(28.6) |
(14.8) |
(12.8) |
(56.2) |
|
Net new receivables originated |
295.6 |
27.7 |
11.3 |
334.6 |
|
Net movement in deferred broker fees |
1.8 |
0.6 |
0.5 |
2.9 |
|
Loan book inclusive of deferred broker costs at 31 March 2019 |
701.6 |
71.9 |
30.4 |
803.9 |
The following tables explain the changes in the loan loss provision between the beginning and the end of the period:
|
|
Stage 1 |
Stage 2 |
Stage 3 |
Total |
|
|
£m |
£m |
£m |
£m |
|
IAS 39 gross provision as at 31 March 2018 |
|
|
|
21.2 |
|
Adjustment on initial application of IFRS 9 |
|
|
|
44.2 |
|
Loan loss provision as at 1 April 2018 |
39.3 |
11.9 |
14.2 |
65.4 |
|
Changes in loan loss provision attributable to: |
|
|
|
|
|
Transfer to Stage 1 |
0.4 |
(1.4) |
(0.1) |
(1.1) |
|
Transfer to Stage 2 |
(2.1) |
8.4 |
(0.2) |
6.1 |
|
Transfer to Stage 3 |
(1.0) |
(0.6) |
17.3 |
15.7 |
|
Passage of time |
(3.9) |
(1.9) |
0.1 |
(5.7) |
|
Customer settlements |
(5.6) |
(1.8) |
(1.0) |
(8.4) |
|
Loans charged off |
(1.8) |
(3.8) |
(12.5) |
(18.1) |
|
Net new receivables originated |
9.6 |
6.9 |
11.0 |
27.5 |
|
Re-measurement of ECLs |
(5.6) |
(0.3) |
(0.1) |
(6.0) |
|
Loan loss provision as at 31 March 2019 |
29.3 |
17.4 |
28.7 |
75.4 |
The following table splits the gross loan book by arrears status, and then by stage respectively.
|
|
Stage 1 |
Stage 2 |
Stage 3 |
Total |
|
|
£m |
£m |
£m |
£m |
|
Up to date |
650.1 |
30.8 |
- |
680.9 |
|
1-30 days |
33.3 |
26.5 |
- |
59.8 |
|
31-60 days |
- |
12.7 |
- |
12.7 |
|
60 days + |
- |
- |
29.6 |
29.6 |
|
|
683.4 |
70.0 |
29.6 |
783.0 |
A reconciliation of the 1 April 2018 opening amounts receivable from customers is presented in note 1.2.
|
|
|
|
31-Mar-19 |
31-Mar-18 |
|
Customer loans and receivables |
|
£m |
£m |
|
|
Due within one year |
|
|
412.9 |
373.6 |
|
Due in more than one year |
|
|
294.7 |
273.3 |
|
|
|
|
|
|
|
Net loan book |
|
|
707.6 |
646.9 |
|
Deferred broker costs1 |
|
|
|
|
|
Due within one year |
|
13.1 |
12.7 |
|
|
Due in more than one year |
|
7.8 |
6.7 |
|
|
Customer loans and receivables |
|
728.5 |
666.3 |
|
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.
13. Financial instruments (unaudited)
The below tables show the carrying amounts and fair values of financial assets and financial liabilities, including the levels in the fair value hierarchy. All financial assets fall within the IFRS 9 category of amortised cost. The tables analyses 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).
|
|
|
31-Mar-19 |
31-Mar-18 |
||
|
|
|
Carrying amount |
|
Carrying amount |
|
|
Fair value hierarchy |
Fair Value |
Fair Value |
|||
|
|
|
£m |
£m |
£m |
£m |
|
Financial assets not measured at fair value1 |
|
|
|
|
|
|
Amounts receivable from customers2 |
Level 3 |
728.5 |
758.2 |
666.3 |
685.9 |
|
Other receivables |
Level 3 |
1.2 |
1.2 |
2.3 |
2.3 |
|
Cash and cash equivalents |
Level 1 |
15.2 |
15.2 |
12.2 |
12.2 |
|
|
|
|
|
|
|
|
|
|
744.9 |
774.6 |
680.8 |
700.4 |
|
|
|
|
|
|
|
|
Financial assets measured at fair value |
|
|
|
|
|
|
Derivative asset |
Level 2 |
0.1 |
0.1 |
- |
- |
|
|
|
0.1 |
0.1 |
- |
- |
|
|
|
|
|
|
|
|
Financial liabilities not measured at fair value1 |
|
31-Mar-19 |
31-Mar-18 |
||
|
Amounts owed to Group entities |
Level 3 |
(0.2) |
(0.2) |
(0.4) |
(0.4) |
|
Other liabilities |
Level 3 |
(15.2) |
(15.2) |
(18.4) |
(18.4) |
|
Senior secured notes |
Level 1 |
(315.3) |
(316.8) |
(392.8) |
(410.5) |
|
Shareholder loan notes |
Level 2 |
- |
- |
(201.1) |
(201.1) |
|
Securitisation facility |
Level 2 |
(158.6) |
(160.5) |
- |
- |
|
Bank loans |
Level 2 |
(2.8) |
(2.8) |
(62.2) |
(62.2) |
|
|
|
|
|
|
|
|
|
|
(492.1) |
(495.5) |
(674.9) |
(692.6) |
1 The Group has disclosed the fair values of financial instruments such as short-term trade receivables and payables at their carrying value because they consider 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.
Derivative asset valuation at year end is obtained directly from the issuer of the instrument.
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 contractual interest rates less acquisition and financing costs. As these loans are not traded on an active market and the fair value is therefore determined through future cash flows, they are classed as Level 3 under IFRS 13 Fair Value Measurement. The fair value of senior secured notes has been taken at the Bloomberg Valuation Service (BVAL) market price.
All financial instruments are held at amortised cost, with the exception of the derivative asset which is held at FVTPL.
There are nil shareholder loan notes at year end, hence nil value. The fair value of the securitisation facility is estimated using a net present value calculation using discount rates derived from contractual interest rates, with cash flows assuming no principal repayments until maturity date.
Credit risk
a) Amounts receivable from customers
There is a limited concentration of risk to individual customers with an average customer balance outstanding of £4,035 (2018: £3,992) and a maximum of £13,335 at 31 March 2019, excluding charged off accounts (2018: £13,278). The carrying amount of the loans represents the Group's maximum exposure to credit risk.
The group carries out an affordability assessment on both borrower and guarantor before a loan (or top-up) can be paid out. As a separate exercise, using the knowledge and data from its 14 year presence in the guarantor loan sector each potential loan undergoes a creditworthiness assessment based on the applicants' and guarantors' credit history. No formal collateral or guarantees are held against loans on the basis that the borrower and guarantor are technically and in substance joint borrowers.
The Group manages credit risk by actively managing the blend of risk in its portfolio to achieve the desired impairment rates in the long term. The Group aims to achieve the desired risk in the portfolio by managing its scorecards and the maximum amount borrowers are able to borrow depending on their circumstance and credit history. Factors we consider in monitoring the overall impairment rates include the total value of the loan, the homeowner status of the guarantor, whether loans are new or repeat loans and whether these are lending pilot loans. Using the data and expected loss curves for the different scorecards, the business can vary its origination levels to target an expected loss rate, impairment level and manage the Consolidated Statement of Financial Position risk.
Credit risk is also managed post origination via ongoing monitoring and collection activities. When payments are missed, regular communication with both the borrower and guarantor commences. After three days, a collection agent will engage with the borrower. After fourteen days the guarantor is given the opportunity to pay. Following this, payment plan options are considered prior to the account being passed to the Group's litigation team. Throughout this whole process, operational flags will be added to the account to allow monitoring of the status of the account. Operational flags are used within the Group's impairment model in the assessment of whether there has been a significant increase in credit risk on an account (see note 2.1.2 for further details).
Lending pilots are designed to test new criteria and relationships that allow the Group to lend to applicants who would have been rejected under the core scorecards. By their nature credit loss history for each lending pilot is not limited. The Group monitors performance to determine which pilots perform at an acceptable risk level over time, with a view to integrating successful pilots into core lending or alternatively rejecting where performance of lending pilots is below the level required for the Group to meet its internal risk appetite.
The business monitors the proportion of the Consolidated Statement of Financial Position within the homeowner guarantor, non-homeowner guarantor and lending pilot categories. At 31 March 2019 and 31 March 2018, the mix of business within the categories was as follows:
|
Consolidated Statement of Financial Position |
31-Mar-19 |
31-Mar-18 |
|
|
£m |
£m |
|
|
|
|
|
Gross book value arising from originations with homeowner guarantor |
348.7 |
332.2 |
|
Gross book value arising from originations with non-homeowner guarantor |
330.2 |
224.5 |
|
Gross book value arising from originations from lending pilots |
104.1 |
111.4 |
|
|
|
|
|
|
783.0 |
668.1 |
In assessing the level of impairment, the business makes provision for a percentage of loans that are currently up to date. The Group expects that at any time there will be an element of loans that are currently up to date but where the customer may have an unreported difficulty in repaying the loan and therefore the Group makes provision for the estimated effect.
In addition, should a customer enter into a repayment plan the Group does not reschedule the terms for its internal reporting. Instead the business calculates the arrears level with reference to the original terms. At 31 March 2019, on a volume basis 0.19%, 3.95% and 0.74% of the gross loan book were on breathing space, long term and short term payment plans respectively (2018: 0.29%, 4.56%, 0.97%).
Originations relating to the circumstances monitored are as follows:
|
Lending originations |
31-Mar-19 |
31-Mar-18 |
|
|
£m |
£m |
|
|
|
|
|
New origination with homeowner guarantor |
99.0 |
109.0 |
|
New origination with non-homeowner guarantor |
80.0 |
117.4 |
|
Repeat origination with homeowner guarantor |
64.0 |
80.3 |
|
Repeat origination with non-homeowner guarantor |
145.1 |
64.4 |
|
Lending pilots |
38.0 |
99.0 |
|
|
426.1 |
470.1 |
b) Bank counterparties
Counterparty credit risk arises as a result of cash deposits placed with banks and the use of derivative financial instruments with banks and other financial institutions which are used to hedge against interest rate risk. 4.53
This risk is managed by the Group's key management personnel. The Group is continually looking to diversify its sources of funding and obtains funding from high quality sources such as tier 1 bank institutions. Funding diversification has been demonstrated by the inaugural securitisation undertaken in the financial year. Funding is from a variety of sources, so exposure to credit risk on bank counterparties is deemed to be low.
Securitisation vehicles
In the ordinary course of business, the Group enters into transactions that result in the transfer of the right to receive repayments in respect of loans and advances to customers to securitisation vehicles. In accordance with the accounting policy set out in note 1.11, the transferred loans and advances to customers continue to be recognised in their entirety.
The Group transfers loans and advances to customers to a securitisation vehicle but retains substantially all the risks and rewards of ownership. The Group benefits to the extent that the surplus income generated by the transferred assets exceeds the administration costs of the special purpose vehicle (SPV), the cost of funding the assets and the cost of any losses associated with the assets and the administration costs of servicing the assets.
The Group controls an entity when it is exposed to, or has rights to, variable returns through its involvement with the entity and has the ability to affect those returns through its power over the entity. The entity is an orphaned securitisation vehicle under full control of the Group - returns are impacted by Group funding decisions, and variable returns are impacted by changes in the amount of receivables transferred to the orphaned entity, the amount borrowed etc. Hence control is held over the entity and the results are consolidated into the Group in full.
|
As at 31 March 2019 |
Carrying value of transferred assets not derecognised |
Carrying value of associated liabilities |
Fair value of transferred assets not derecognised |
Fair value of associated liabilities |
Net fair value |
|
£m |
£m |
£m |
£m |
£m |
|
|
Amigo Funding (No. 1) Limited |
197.0 |
160.0 |
197.4 |
160.5 |
36.9 |
The following table shows the carrying value and fair value of the assets transferred to securitisation vehicles and the related carrying value and fair value of the associated liability. The difference between the value of assets and associated liabilities is due to subordinated funding provided to the SPV, increasing the value of assets. The collateral is not able to be sold or repurposed by the SPV; it can only be utilised to offset losses.
Market risk
Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises three types of risk - interest rate risk, currency risk and other prices risk. The Group's exposure is primarily to the risk of changes in interest rates.
Interest rate risk
The senior secured loan note liability is set at a fixed interest rate of 7.625%.
The bank facility interest rate is set at a margin of 3.5% for utilised funds plus LIBOR and a total charge of 1.4% for non-utilised funds. A 1% movement in LIBOR based on the funds utilised at the year end (£5m gross of amortised fees) equates to an annual charge of £50,000. The securitisation facility interest rate is 1.6% over LIBOR. A 1% increase in LIBOR based on the funds utilised at the year end (£156.8m) equates to an annual charge of £1,568,000.
In aggregate, a 1% increase in LIBOR would equate to an annual charge of £1,618,000 based on year end borrowings.
Whilst variable rates are subject to change without notice, the Group has managed this risk through used of a derivative asset which caps the interest at 4.222%. This remains significantly below the remainder of the Group's borrowings which are at a fixed interest rate. Therefore the Group considers there is no significant risk to the Group at 31 March 2019.
Amounts receivable from customers are charged at 49.9% APR over a period of one to five years.
Foreign exchange risk
There is no significant foreign exchange risk to the Group. The Group does incur some operating costs in USD and Euro, which it does not hedge as there would be minimal impact on reported profits and equity. Amigo Luxembourg S.A. is a GBP functional currency entity and gives no foreign exchange exposure upon consolidation. Amigo Ireland first lent to customers in February 2019; whilst its functional currency is Euro, operations are not material to the Group and so foreign exchange risk is deemed minimal.
Liquidity risk
Liquidity risk is the risk that the Group will have insufficient liquid resources to fulfil its operational plans and/or meet its financial obligations as they fall due. Liquidity risk is managed by the Group's central finance department through daily monitoring of expected cash flows and ensuring sufficient funds are drawn against the Group's finance facilities to meet obligations as they fall due.
The Group's forecasts and projections, which cover a period of more than twelve months from the approval of these financial statements, take into account expected originations, collections, and payments and allow the Group to plan for future liquidity needs.
|
Maturity analysis of financial liabilities |
|
|
|
|
|
|
|
|
|
31-Mar-19 |
31-Mar-18 |
|
|
Analysed as: |
|
|
|
£m |
£m |
|
- due within one year |
|
|
|
|
|
|
Amounts owed to Group entities |
|
|
|
(0.2) |
(0.4) |
|
Other liabilities |
|
|
|
(15.2) |
(18.4) |
|
- due in three to four years |
|
|
|
|
|
|
Securitisation facility |
|
|
|
(158.6) |
- |
|
Bank loans |
|
|
|
(2.8) |
(62.2) |
|
- due in five or more years |
|
|
|
|
|
|
Senior secured notes |
|
|
|
(315.3) |
(392.8) |
|
Shareholder loan notes |
|
|
|
- |
(201.1) |
|
|
|
|
|
(492.1) |
(674.9) |
|
Maturity analysis of contractual cash flows of financial liabilities |
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
As at 31 March 2019 |
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
0-1 year |
2-5 years |
Greater than 5 years |
Total |
Carrying amount |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
£m
|
£m
|
£m
|
£m |
£m |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Amounts owed to Group entities |
0.2 |
- |
- |
0.2 |
0.2 |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Other liabilities |
15.2 |
- |
- |
15.2 |
15.2 |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Bank loans |
- |
5.0 |
- |
5.0 |
2.8 |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Senior secured notes |
24.4 |
73.2 |
344.4 |
442.0 |
315.3 |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Securitisation facility |
- |
160.0 |
- |
160.0 |
158.6 |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Shareholder loan notes |
- |
- |
- |
- |
- |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
39.8 |
238.2 |
344.4 |
622.4 |
492.1 |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Maturity analysis of contractual cash flows of financial liabilities |
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
As at 31 March 2018 |
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Capital management
The Board seeks to maintain a strong capital base in order to maintain investor, customer and creditor confidence and to sustain future development of the business whilst satisfying the Group's senior secured note and banking covenants. The Group has no minimum capital requirements imposed on it by regulation.
See note 16 for further information on movement in shareholder loan notes in the year.
14. Trade and other payables (unaudited)
|
|
|
|
|
31-Mar-19 |
31-Mar-18 |
|
|
|
|
|
£m |
£m |
|
Current |
|
|
|
|
|
|
Accrued senior secured note interest |
|
|
|
5.0 |
6.3 |
|
Trade payables |
|
|
|
1.2 |
0.8 |
|
Amounts owed to Group undertakings |
|
0.2 |
0.4 |
||
|
Taxation and social security |
|
|
|
0.6 |
0.2 |
|
Accruals and deferred income |
|
|
|
8.4 |
11.1 |
|
|
|
|
|
|
|
|
|
|
|
|
15.4 |
18.8 |
15. Bank and other borrowings (unaudited)
|
|
|
|
|
31-Mar-19 |
31-Mar-18 |
|
|
|
|
|
£m |
£m |
|
Non-current liabilities |
|
|
|
|
|
|
Amounts falling due 3-4 years |
|
|
|
|
|
|
Securitisation facility |
|
|
|
158.6 |
- |
|
Bank loan |
|
|
|
2.8 |
62.2 |
|
Amounts falling due >5 years |
|
|
|
|
|
|
Senior secured notes |
|
|
|
315.3 |
392.8 |
|
|
|
|
|
476.7 |
455.0 |
The Group's facilities are:
• A £200m revolving securitisation facility, of which £158.6m was drawn down (net of amortised fees) at 31 March 2019 (2018: £nil). The facility has margin of 1.6% over LIBOR, matures in November 2021 and has a 0.7% charge on non-utilised funds. It is a three year revolving term with a four year amortisation period to 2025. The relevant floating interest rate is LIBOR, which was 0.84% at 31 March 2019 (2018: 0.47%).
• A £159.5m bank loan (Sterling revolving credit facility), of which £2.8m had been drawn down (net of amortised fees) at 31 March 2019 (2018: £62.2m). The facility matures in January 2022. The bank facility interest rate is set at a margin of 3.5% for utilised funds plus LIBOR and a total charge of 1.4% for non-utilised funds. The relevant floating interest rate is LIBOR, which at year-end was 0.84% (2018: 0.47%).
• Senior secured notes in the form of £320m high yield bonds with a coupon rate of 7.625% which mature in January 2024. It is presented in the financial statements net of amortised fees. On 20 January 2017, £275m of notes were issued at an interest rate of 7.625%. The high yield bond was tapped for £50m in May 2017 and again for £75m in September 2017 at a premium of 3.8%. £80m of notes have been repurchased opportunistically in the open market in the financial year - this debt was extinguished in line with the accounting policy set out in note 1.5.
The bank facility and the senior secured notes are secured by a charge over the Group's assets and a cross guarantee given by other subsidiaries.
16. Shareholder loan notes (unaudited)
|
|
31-Mar-19 |
31-Mar-18 |
|
|
£m |
£m |
|
|
|
|
|
Amounts falling due >5 years |
|
|
|
Shareholder loan notes |
- |
201.1 |
|
|
|
|
|
The shareholder loan notes were split into three classes as follows: |
|
|||
|
|
|
|
|
|
|
|
Class A |
Class B |
Class C |
Total |
|
|
£m |
£m |
£m |
£m |
|
Cost or valuation |
|
|
|
|
|
Initial amount |
151.0 |
145.0 |
0.6 |
296.6 |
|
Interest accrued |
6.5 |
16.8 |
- |
23.3 |
|
Amounts repaid |
(140.0) |
- |
- |
(140.0) |
|
|
|
|
|
|
|
At 31 March 2017 |
17.5 |
161.8 |
0.6 |
179.9 |
|
Interest accrued |
1.7 |
19.4 |
0.1 |
21.2 |
|
|
|
|
|
|
|
At 31 March 2018 |
19.2 |
181.2 |
0.7 |
201.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on the shareholder loan notes was accrued but not paid. The loan notes were repayable in 2031. Interest was charged on the Class A loan notes at an annual rate of 8%, until October 2017 at which time it increased to 12%. Interest was charged on the Class B and C loan notes at an annual rate of 12%. |
||||
|
|
|
|
|
|
|
£0.7m of the Class C loan note balance as at 31 March 2018 is due to management of the Company. On 4 July 2018 the shareholder loan notes were converted to equity upon the listing of the Group.
|
||||
17. Share capital (unaudited)
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.
|
Allotted and called up shares at par value |
31-Mar-19 |
31-Mar-19 |
31-Mar-19 |
|
|
£'000 |
£'000 |
£'000 |
|
|
Paid |
Unpaid |
Total |
|
41,000 deferred ordinary shares of £0.24 each |
10 |
-
|
10 |
|
475,333,760 ordinary shares of 0.25p each |
1,188 |
- |
1,188 |
|
|
1,198 |
- |
1,198 |
|
Allotted and called up shares at par value |
31-Mar-18 |
31-Mar-18 |
31-Mar-18 |
|
|
£'000 |
£'000 |
£'000 |
|
|
Paid |
Unpaid |
Total |
|
803,574 Ordinary A shares of £1 each |
804 |
- |
804 |
|
41,000 Ordinary B shares of £1.24 each |
51 |
- |
51 |
|
97,500 Ordinary C shares of £1 each |
80 |
18 |
98 |
|
57,926 Ordinary D shares of £1 each |
29 |
28 |
57 |
|
|
964 |
46 |
1,010 |
|
|
Ordinary A |
Ordinary B |
Ordinary C |
Ordinary D |
Ordinary |
Total |
|
|
Number |
Number |
Number |
Number |
Number |
Number |
|
|
|
|
|
|
|
|
|
At 31 March 2016 |
1 |
- |
- |
- |
- |
1 |
|
Shares issued |
800,999 |
41,000 |
100,000 |
58,000 |
- |
999,999 |
|
At 31 March 2017 |
801,000 |
41,000 |
100,000 |
58,000 |
- |
1,000,000 |
|
Share reclassifications |
2,574 |
- |
(2,500) |
(74) |
- |
- |
|
At 31 March 2018 |
803,574 |
41,000 |
97,500 |
57,926 |
- |
1,000,000 |
|
Subdivision |
(803,574) |
(41,000) |
(97,500) |
(57,926) |
400,000,000 |
399,000,000 |
|
SLN Conversion |
- |
- |
- |
- |
75,333,760 |
75,333,760 |
|
At 31 March 2019 |
- |
- |
- |
- |
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 £0.25 and 41,000 deferred shares of £0.24.
The deferred shares do not carry any rights to receive any profits of the company or any rights to vote at a general meeting. Prior to the subdivision the ordinary B shares had 1.24 votes per share; all other shares had one vote per share.
Dividends
Dividends are recognised through equity on the earlier of their approval by the Company's shareholders or their payment.
|
|
|
|
|
|
31-Mar-19 |
|
31-Mar-18 |
|
|
|
|
|
|
£m |
|
£m |
|
|
|
|
|
|
|
|
|
|
Interim dividend for twelve months ended 31 March 2019 of 1.87p per share |
|
8.9 |
|
- |
|||
|
Total dividends paid |
|
|
|
|
8.9 |
|
- |
The Directors of the Company propose a final dividend of 7.45p per share for the year ended 31 March 2019 (2018: £nil) amounting to £35.4m (2018: £nil). The total dividend for the current year will be 9.32p per share (2018: £nil) subject to approval. If approved by the shareholders at the Annual General Meeting on 12th July 2019, this dividend will be paid on 31st July 2019 to shareholders who are on the register of members at 19th July 2019. This dividend is not reflected in the balance sheet as at 31 March 2019 as it is subject to shareholder approval.
18. Share-based payment (unaudited)
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 as an employee expense, with a corresponding increase in equity, over the period in which the employee becomes unconditionally entitled to the awards. The fair value of the awards granted is measured based on Company-specific observable market data, taking into account the terms and conditions upon which the awards were granted.
The charge to the income statement in 2019 for equity settled schemes was £1.4m (2018: £nil), as was the corresponding increase in equity. No share-based payments were outstanding at year end. The share-based payment relates to a call-option agreement being exercised following the IPO in June 2018.
Analysis of awards
|
|
Date of grant |
Exercise date |
Exercise price |
Number of shares 20191 |
Number of shares 2018 |
|
|
|
|
£ |
|
|
|
At 31 March 2019 |
13 June 2018 |
4 July 2018 |
£0.83 |
666,800 |
- |
The weighted average exercise prices (WAEP) over the year were as follows:
|
At 1 April 2018 |
|
|
Number of shares1 |
WAEP (£) |
|
Granted during the year |
|
|
666,800 |
0.83 |
|
Forfeited during the year |
|
|
- |
- |
|
Exercised during the year |
|
|
(666,800) |
0.83 |
|
Lapsed during the year |
|
|
- |
- |
|
Expired during the year |
|
|
- |
- |
|
At 31 March 2019 |
|
|
- |
0.83 |
The fair value per award, calculated based on initial price of shares at the IPO in June 2018, in the year was as follows:
|
Date of grant |
Exercise price |
Nominal value |
Fair value per award |
|
|
£ |
£ |
£ |
|
13-Jun-18 |
0.83 |
0.25 |
2.75 |
1 The number of shares disclosed assumes ordinary share conversion, discussed in note 17, was in place since the start of the period. This is equivalent to an exercise price of £330 for 1,667 shares prior to conversion.
The total value of the option at exercise was £1,833,700, being the fair value of the award at exercise date multiplied by number of shares held. The cost of this option exercise to the individual was £550,110. Hence, the total share based payment equalled £1,283,590 net of national insurance payments (see note 7).
In the prior year, an arrangement existed between certain management and the Richmond Group, that in the case of an initial public offering (IPO), shares in the Company would vest. A put option existed whereby, in the event of no IPO, or transaction by which any person has acquired more than 50% of the equity share capital in the Company, has taken place within five years of the date of the Investment Agreement, each of the members of the Group's management party thereto had the right to require the Richmond Group to acquire that member of management's holding of shares, and Shareholder Loan Notes if held, for the agreed fair value of those shares or Shareholder Loan Notes, as further provided in the Investment Agreement. Due to the expectation that IPO would be successful, the arrangement was accounted for as an equity share based payment. The arrangement was settled in the period through the issue of shares. The put option was not exercised as the IPO was successful.
19. Related party transactions (unaudited)
Other than transfer of shareholder loan notes to equity in the period (see note 16), the Group had no related party transactions during the twelve month period to 31 March 2019 that would materially affect the performance of the Group. Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation.
During the year the Group traded with the ultimate parent company, Richmond Group Limited, and its subsidiaries.
The Group receives charges from and makes charges to these related parties in relation to catering services, shared costs, staff costs and other costs incurred on their behalf. Balances related to corporation tax and VAT in relation to Group-wide registrations and payment arrangements are also passed through these related party balances. The charges and the outstanding balances at the year end are as below:
|
|
Charged to |
Charged from |
Balance outstanding |
|
|
£m |
£m |
£m |
|
Year to 31 March 2018 |
|
|
|
|
Richmond Group Limited |
0.5 |
(0.3) |
(0.4) |
|
Year to 31 March 2019 |
|
|
|
|
Richmond Group Limited |
0.4 |
- |
- |
Intra-group transactions between the Company and the fully consolidated subsidiaries or between fully consolidated subsidiaries are eliminated on consolidation.
Key management of the Group, being the Executive and Non-Executive Directors of the Board, the members of the Executive Committee and their immediate relatives, control 8.59% of the voting shares of the Company (2018: nil).
20. Immediate and ultimate parent undertaking (unaudited)
The immediate and ultimate parent undertaking and controlling party of the Company is Richmond Group Limited, a company incorporated in the UK.
The Company and Group are included in the consolidated financial statements of Richmond Group Limited. The consolidated financial statements of Richmond Group Limited are available to the public and may be obtained from the registered office: Walton House, 56-58 Richmond Hill, Bournemouth BH2 6EX.
21. Post balance sheet events (unaudited)
As at 28 May 2019, the Group repurchased an additional £25.0m of senior secured notes, reducing the nominal value of the notes from £320.0m to £295.0m. At this date, this is the Group's best estimate of the total amount of notes which will be repurchased in the open market.
On 17 May 2019 the available size of the revolving credit facility was reduced from £159.5m to £109.5m. The term has also been extended by five years to May 2024, the margin reduced to 2.9% and the number of banks in the syndicate has been reduced from four to three.
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. We believe these APMs provide readers with important additional information on our business. To support this, we have included a reconciliation of the APMs we use, how they are calculated and why we use them.
Key performance indicators
The Group incurred costs on the initial public offering (IPO) in July 2018. These costs, included as IPO and related financing costs, are not considered to be part of the underlying operating expenses of the Group as they relate to a specific one-off activity. As a result, KPIs exclude these costs.
|
Other financial data |
Year to |
Year to |
Year to |
|
Figures in £m, unless otherwise stated |
31 March 2019 |
31 March 2018 |
31 March 2017 |
|
Adjusted profit after tax as a percentage of revenue |
37.0% |
34.3% |
42.2% |
|
Risk adjusted revenue |
206.5 |
166.0 |
119.8 |
|
Risk adjusted margin |
37.9% |
30.8% |
35.0% |
|
Net interest margin |
31.4% |
32.9% |
33.1% |
|
Cost:income ratio |
17.5% |
21.9% |
29.7% |
|
Impairment charge as a percentage of loan book |
8.2% |
6.7% |
2.1% |
|
Adjusted return on average assets |
14.0% |
13.1% |
15.3% |
|
Adjusted return on average adjusted tangible equity |
45.6% |
45.6% |
33.2% |
|
Adjusted free cash flow excluding loan originations |
515.7 |
383.1 |
247.2 |
|
Gross loan book |
783.0 |
668.1 |
410.4 |
|
Originations |
426.1 |
470.1 |
276.8 |
|
Adjusted tangible equity |
244.4 |
194.7 |
122.9 |
|
Net borrowings/adjusted tangible equity |
1.9x |
2.3x |
2.3x |
|
Net borrowings/gross loan book |
58.9% |
66.3% |
68.0% |
|
Borrowings/loan book |
60.9% |
68.1% |
69.1% |
|
Adjusted tangible equity/total assets |
0.33x |
0.29x |
0.29x |
1. "Net loan book" is a subset of customer loans and receivables and represents true loan book when the IFRS 9 impairment provision is accounted for, comprised of:
|
|
31-Mar-19 |
31-Mar-18 |
31-Mar-17 |
|
|
£m |
£m |
£m |
|
Gross loan book(a) |
783.0 |
668.1 |
410.4 |
|
Provision(b) |
(75.4) |
(21.2) |
(8.2) |
|
Net loan book(c) |
707.6 |
646.9 |
402.2 |
|
On 1 April 18, IFRS 9 transitional adjustment |
|
(44.2) |
|
|
1 April 18 net loan book, rebased under IFRS 9 |
|
602.7 |
|
(a) Gross loan book represents total outstanding loans and excludes deferred broker costs.
(b) 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.
(c) Net loan book represents gross loan book less provision for impairment.
2. "Net borrowings" is comprised of:
|
|
31-Mar-19 |
31-Mar-18 |
31-Mar-17 |
|
|
|
£m |
£m |
£m |
|
|
Borrowings |
(476.7) |
(455.0) |
(283.4) |
|
|
Cash at bank and in hand |
15.2 |
12.2 |
4.4 |
|
|
Net borrowings |
(461.5) |
(442.8) |
(279.0) |
|
|
This is deemed useful to show total borrowings if cash available at year end was used to repay borrowing liabilities.
|
||||
3.
i) The Group defines loan to value (LTV) as net borrowings divided by gross loan book. This measure shows if borrowings year on year movement is in line with loan book growth.
|
|
31-Mar-19 |
31-Mar-18 |
31-Mar-17 |
|
|
£m |
£m |
£m |
|
Net borrowings (£m) |
(461.5) |
(442.8) |
(279.0) |
|
Gross loan book (£m) |
783.0 |
668.1 |
410.4 |
|
Net borrowings/gross loan book |
58.9% |
66.3% |
68.0% |
ii) The Group defines "borrowings/loan book" as borrowings (excluding cash) divided by gross loan book.
|
|
31-Mar-19 |
31-Mar-18 |
31-Mar-17 |
|
|
£m |
£m |
£m |
|
Borrowings (£m) |
(476.7) |
(455.0) |
(283.4) |
|
Gross loan book (£m) |
783.0 |
668.1 |
410.4 |
|
Borrowings/gross loan book |
60.9% |
68.1% |
69.1% |
This is shown as a statutory alternative to net borrowings/gross loan book above.
4. The Group defines "adjusted tangible equity" as shareholder equity less intangible assets plus shareholder loan notes. The following table sets forth a reconciliation of adjusted tangible equity to shareholder equity at 31 March 2019, 2018 and 2017.
|
|
31-Mar-19 |
31-Mar-18 |
31-Mar-17 |
|
|
£m |
£m |
£m |
|
Shareholder equity 1 |
244.5 |
(6.3) |
(56.9) |
|
Intangible assets |
(0.1) |
(0.1) |
(0.1) |
|
Shareholder loan notes |
- |
201.1 |
179.9 |
|
Adjusted tangible equity |
244.4 |
194.7 |
122.9 |
|
Net borrowings/adjusted tangible equity |
1.9 |
2.3 |
2.8 |
|
|
|
|
|
|
Opening balance adjustment on IFRS 9 adoption* |
31-Mar-18 |
Adjustment |
1-Apr-18 |
|
|
|
|
£m |
|
Shareholder equity |
(6.3) |
(37.5) |
(43.8) |
|
Intangible assets |
(0.1) |
- |
(0.1) |
|
Shareholder loan notes |
201.1 |
- |
201.1 |
|
Adjusted tangible equity |
194.7 |
(37.5) |
157.2 |
|
Net borrowings/adjusted tangible equity |
2.3 |
0.5 |
2.8 |
1See note 1.2 for impact of IFRS 9 adoption on 1 April 2018.
Adjusted tangible equity is not a measurement of performance under IFRS, and you should not consider adjusted tangible equity as an alternative to shareholder equity as a measure of the Group's equity or any other measures of performance under IFRS.
This measure is used to monitor gearing of the Group.
5. The Group defines "risk adjusted revenue" as revenue less impairment charge. The following table sets forth a reconciliation of risk adjusted revenue to revenue for the year to 31 March 2019, 2018 and 2017.
|
|
31-Mar-19 |
31-Mar-18 |
31-Mar-17 |
|
|
£m |
£m |
£m |
|
Revenue |
270.7 |
210.8 |
128.6 |
|
Impairment charge |
(64.2) |
(44.8) |
(8.8) |
|
Risk adjusted revenue |
206.5 |
166.0 |
119.8 |
Risk adjusted revenue is not a measurement of performance under IFRS, and you should not consider risk adjusted revenue as an alternative to profit before tax as a measure of the Group's operating performance, as a measure of the Group's ability to meet its cash needs or any other measures of performance under IFRS.
6. The Group defines "risk adjusted margin" as risk adjusted revenue divided by the average of gross loan book.
|
|
31-Mar-19 |
31-Mar-18 |
31-Mar-17 |
|
|
£m |
£m |
£m |
|
Risk adjusted revenue |
206.5 |
166.0 |
119.8 |
|
Average gross loan book1 |
725.5 |
539.3 |
342.0 |
|
Risk adjusted margin |
28.5% |
30.8% |
35.0% |
|
1Average gross loan book
|
|
|
|
|
Opening gross loan book |
668.1 |
410.4 |
273.6 |
|
Closing gross loan book |
783.0 |
668.1 |
410.4 |
|
Average gross loan book |
725.5 |
539.3 |
342.0 |
This measure is used internally to review an adjusted return on the Group's primary key assets.
7. The Group defines "net interest margin" as net interest income divided by average interest-bearing assets (being both gross loan book and cash) at the beginning of the period and end of the period.
|
|
31-Mar-19 |
31-Mar-18 |
31-Mar-17 |
|
|
£m |
£m |
£m |
|
Revenue |
270.7 |
210.8 |
128.6 |
|
Interest payable and funding facility fees |
(38.2) |
(30.4) |
(12.6) |
|
Net interest income |
232.5 |
180.4 |
116.0 |
|
|
|
|
|
|
Net interest margin |
31.5% |
32.9% |
33.1% |
|
IFRS9 stage 3 revenue adjustment |
12.7 |
|
|
|
Adjusted net interest margin |
33.2% |
|
|
8. The Group defines "cost:income ratio" as operating expenses excluding IPO costs and related financing divided by revenue.
|
|
31-Mar-19 |
31-Mar-18 |
31-Mar-17 |
|
|
£m |
£m |
£m |
|
Revenue |
270.7 |
210.8 |
128.6 |
|
Operating expenses |
47.4 |
46.2 |
38.2 |
|
Cost:income ratio |
17.5% |
21.9% |
29.7% |
This measure allows review of cost management.
9. Impairment charge as a percentage of revenue (impairment:revenue ratio) represents the Group's impairment charge for the period divided by revenue for the period.
|
|
31-Mar-19 |
31-Mar-18 |
31-Mar-17 |
|
|
£m |
£m |
£m |
|
Revenue |
270.7 |
210.8 |
128.6 |
|
Impairment of amounts receivable from customers |
64.2 |
44.8 |
8.8 |
|
Impairment charge as a percentage of revenue |
23.7% |
21.3% |
6.8% |
A key measure for the Group in monitoring risk within the business.
10. Impairment charge as a percentage of loan book represents the Group's impairment charge for the period divided by closing gross loan book.
|
|
31-Mar-19 |
31-Mar-18 |
31-Mar-17 |
|
|
£m |
£m |
£m |
|
Impairment charge |
64.2 |
44.8 |
8.8 |
|
Closing gross loan book |
783.0 |
668.1 |
410.4 |
|
Impairment charge as a percentage of loan book |
8.2% |
6.7% |
2.1% |
Allows review of impairment level movements year on year.
11. The Group defines "Cost of funds" as interest payable divided by the average of gross loan book.
|
|
31-Mar-19 |
31-Mar-18 |
31-Mar-17 |
|
|
£m |
£m |
£m |
|
Interest payable |
44.2 |
51.6 |
36.0 |
|
Average book |
725.5 |
539.3 |
342.0 |
|
Cost of funds percentage |
6.1% |
9.6% |
10.5% |
This measure is used by the Group to monitor cost of funds and impact of diversification of funding.
12. Adjusted return on equity is calculated as adjusted profit after tax divided by the average of adjusted tangible equity at the beginning of the period and the end of the period.
|
|
31-Mar-19 |
31-Mar-18 |
31-Mar-17 |
|
|
£m |
£m |
£m |
|
Adjusted profit after tax |
100.1 |
72.4 |
54.3 |
|
Adjusted tangible equity |
244.4 |
194.7 |
122.9 |
|
Average adjusted tangible equity |
219.6 |
158.8 |
163.3 |
|
Adjusted return on average adjusted tangible equity |
45.6% |
45.6% |
33.2% |
Deemed to give a useful representation of statutory return on equity by using average tangible equity.
13. The Group defines "free cash flow" as cash collections less non-direct costs (expenses excluding advertising and credit score costs). The following table sets forth the calculation of adjusted free cash flow excluding loan originations for the years ended 31 March 2017, 2018 and 2019.
|
|
31-Mar-19 |
31-Mar-18 |
31-Mar-17 |
|
|
£m |
£m |
£m |
|
Collections |
543.5 |
404.4 |
265.5 |
|
Non-direct costs |
(27.8) |
(21.3) |
(18.3) |
|
Adjusted free cash flow excluding loan originations |
515.7 |
383.1 |
247.2 |
Used internally to review cash generation.
14. The Group defines "adjusted profit after tax" as profit after tax plus shareholder loan note interest and IPO costs and related financing and senior secured note buyback related costs, less incremental tax expense. The following table sets forth a reconciliation of adjusted profit after tax to profit after tax for the years ended 31 March 2018 and 2019.
|
|
|
31-March-19 |
31-March-18 |
|
|
|
£m |
£m |
|
Reported PAT |
|
88.6 |
50.6 |
|
Senior secured note buyback |
|
2.0 |
- |
|
Shareholder loan note interest |
|
5.6 |
19.7 |
|
IPO and related financing costs |
|
3.9 |
2.1 |
|
Adjusted PAT |
|
100.1 |
72.4 |
The above items where all excluded due to them being non business-as-usual transactions. IPO and related financing costs are one off and related to the Group becoming a public listed company. Shareholder loan note interest will not continue in future years as this has all been converted to equity. Senior secured note buybacks are not underlying business-as-usual transactions. Hence, removing these items is deemed to give a fairer representation of profit within the financial year.
15. The Group defines "revenue yield" as annualised revenue over the average of the opening and closing gross loan book for the period.
|
Revenue yield |
31-Mar-19 |
31-Mar-18 |
31-Mar-17 |
|
|
£m |
£m |
£m |
|
Revenue |
270.7 |
210.8 |
128.6 |
|
Opening Loan Book |
668.1 |
410.4 |
273.6 |
|
Closing Loan Book |
783.0 |
668.1 |
410.4 |
|
Average Loan Book |
725.5 |
539.3 |
342.0 |
|
Revenue yield |
37.3% |
39.1% |
37.6% |
|
IFRS 9 stage 3 revenue adjustment |
12.7 |
|
|
|
Adjusted revenue yield |
39.1% |
|
|
Deemed useful in assessing the gross return on the Group's loan book.
16. The percentage of balances fully up to date or within 31 days overdue is presented as this is 6useful in reviewing the quality of the loan book.
|
Ageing of gross loan book by days overdue: |
31-Mar-19 |
31-Mar-18 |
|
|
£m |
£m |
|
|
IFRS 9 |
IAS 39 |
|
Current |
680.7 |
605.6 |
|
1-30 days |
59.8 |
40.3 |
|
31 - 60 days |
12.7 |
7.7 |
|
> 61 days |
29.8 |
14.5 |
|
Gross Loan Book |
783.0 |
668.1 |
|
|
|
|
|
Percentage of book <31 days past due |
94.6% |
96.7% |
17. Adjusted return on assets (ROA)
|
Adjusted return on assets |
31-Mar-19 |
31-Mar-18 |
31-Mar-17 |
|
Adjusted profit after tax |
100.1 |
72.4 |
54.3 |
|
Customer loans |
707.5 |
646.9 |
402.2 |
|
Other receivables |
22.7 |
21.7 |
14.6 |
|
Cash |
15.2 |
12.2 |
4.4 |
|
Total Assets |
745.4 |
680.8 |
421.2 |
|
Average Assets |
713.1 |
551.0 |
353.4 |
|
Adjusted return on assets |
14.0% |
13.1% |
15.3% |
Additional Information
This announcement is not intended to, and does not, constitute or form part of any offer, invitation or the solicitation of an offer to purchase, otherwise acquire, subscribe for, sell or otherwise dispose of, any securities, or the solicitation of any vote or approval in any jurisdiction, pursuant to this announcement or otherwise.
This announcement constitutes notice by Amigo Luxembourg S.A. (the "Issuer") to the holders of the Issuer's 7.625% Senior Secured Notes due 2024 (for the notes issued pursuant to Rule 144A of the United States Securities Act of 1933, ISIN: XS1533928468 and Common Code: 153392846; for the notes issued pursuant to Regulation S of the United States Securities Act of 1933, ISIN: XS1533928625 and Common Code: 153392862) (the "Notes") issued pursuant to pursuant to Section 4.03(a)(3) of an indenture dated January 20, 2017 among, inter alia, the Issuer, the guarantors named therein and U.S. Bank Trustees Limited, as trustee and security agent. Amigo Holdings PLC is the indirect parent company of the Issuer. This announcement shall constitute a "Report" to holders of the Notes.
-ENDS-
Contacts:
Hawthorn Advisors amigo@hawthornadvisors.com
Lorna Cobbett Tel: 020 3745 4960
Victoria Ainsworth
Notes to Editors:
About Amigo Loans
Amigo Holdings PLC ("Amigo" or the "Company") is listed on the main market of the London Stock Exchange (ticker: AMGO). Amigo is the leading provider of guarantor loans in the UK and offers access to mid-cost credit to those who are unable to borrow from traditional lenders due to their credit histories.
The guarantor loan concept introduces a second individual to the lending relationship, typically a family member or friend with a stronger credit profile than the borrower. This individual acts as guarantor, undertaking to make loan payments if the borrower does not.
Amigo was founded in 2005 and has grown to become the UK's largest provider of guarantor loans, with approximately 88% UK product share as of 31 March 2018. In the process, Amigo's guarantor loan product has allowed borrowers to rebuild their credit scores and improve their ability to access credit from mainstream financial service providers in the future.
Amigo is a mid-cost credit provider with one simple and transparent product - a guarantor loan at an APR of 49.9%, with no fees, early redemption penalties or any other charges.
Amigo Loans Ltd and Amigo Management Services Ltd are authorised and regulated in the UK by the Financial Conduct Authority (FCA).
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
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