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Amigo Holdings PLC (AMGO)

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Monday 29 November, 2021

Amigo Holdings PLC

Half-year Report

RNS Number : 8033T
Amigo Holdings PLC
29 November 2021
 

29 November 2021

 

Amigo Holdings PLC

Interim results for the six months ended 30 September 2021

 

Amigo Holdings PLC, (Amigo), announces results for the six-month period ended 30 September 2021.

 

 

Headlines

 

· Following the Court not sanctioning the original proposed Scheme of Arrangement ("Scheme") in May 2021, the Board continues to pursue a new Scheme to address the complaints liability and provide a solution for customers with a valid complaint.

· An independent Customer Committee ("ICC") was set up in response to the recommendations of the judge at Amigo's High Court Scheme sanction hearing to ensure the voice of customers is heard. On 28 September 2021, Amigo submitted a new Scheme proposal, along with its future business plan, to the Financial Conduct Authority ("FCA") and the ICC. A revised offer, which incorporates two Scheme options, was submitted to the ICC on 12 November. The Board's view is that a Scheme that is contingent on a continuing business will provide creditors with more value and a more certain outcome.

· While neither of our proposed Schemes is expected to satisfy the liability owed to redress creditors with valid claims in full, the contribution to the new Scheme will be significantly increased. This is, in large part, due to improved collections relative to the assumptions made for the first Scheme, in December 2020, when the impact of Covid-19 remained highly uncertain, as well as the delayed implementation of balance adjustments on the loan book. Amigo will be proposing an equity raise alongside the Scheme to support the future business. This is likely to result in material dilution which will lead to existing shareholders owning a much smaller proportion of the group if they do not take up their rights. The Board is also considering an early part repayment or repurchase of the senior secured notes.

· The next step will be to issue the Practice Statement Letter ("PSL") to relevant creditors explaining the options for a second Scheme. The Court process will then begin, which is estimated to take at least four months.

· As noted previously, the sanctioning of a new Scheme is increasingly urgent. Without an approved Scheme, Amigo expects to have to file for administration or other insolvency process.

 

Financial headlines

 

Figures in £m, unless otherwise stated

 

H1 2022

H1 2021

Change %

Number of customers1

'000

102.0

176.0

(42.0)

Net loan book2*

 

224.1

485.2

                 (53.8)

Revenue

 

56.5

92.3

(38.8)

Impairment coverage

%

22.5

14.0

60.7

Complaints provision (balance sheet)

 

(344.3)

(159.1)

116.4

Complaints cost (income statement)

 

(5.3)

(93.7)

(94.3)

Profit/(loss) before tax

 

2.1

(62.6)

103.4

Profit/(loss) after tax3

 

3.3

(67.9)

104.9

Adjusted profit/(loss) after tax4*

 

2.0

(58.1)

103.4

Basic EPS

Pence

 0.7

(14.3)

104.9

EPS (Basic, adjusted)5*

Pence

0.4

(12.2)

103.3

Net borrowings6*

 

2.1

(265.5)

(100.8)

Net borrowings/Gross loan book7*

%

(0.7)

47.1

(101.5)

 

 

The approval of an alternative Scheme remains subject to reaching key milestones including a second successful creditor vote and approval by the High Court at a sanction hearing. At this point, the Board does not consider there to be enough certainty to account for claims redress on the basis that a Scheme will be sanctioned. In considering the presentation of the interim results, the Board has concluded that the amount recognised for complaints redress should continue to be included on the basis that known and expected future complaints are settled in full. The Board has concluded there is a material uncertainty over going concern (see note 1 to the financial statements for further information). Despite this, the Board considers that it remains appropriate to prepare these financial statements on a going concern basis, as the continued pursuit of a Scheme provides a realistic alternative to insolvency.

 

· Net loan book reduction of 53.8% to £224.1m (H1 2021: £485.2m) due to the runoff of the back book and the continued pause in new lending throughout the period.

· Revenue reduction of 38.8% to £56.5m (H1 2021: £92.3m).

· Complaints provision broadly unchanged from year end at £344.3m (FY 2021: £344.6m; H1 2021: £159.1m). Application of incremental compensatory interest accrued in the period is partially offset by an increase in the estimated portion of known and potential complaint customers charging off the loan book due to the passage of time. Complaints cost in the period of £5.3m (H1 2021: £93.7m).

· Underlying collection levels continue to be better than modelled within the first Scheme projections in December 2020. However, impairment coverage has increased to 22.5% (H1 2021: 14.0%), driven by a reforecast of expected credit losses to reflect an increasing trend in the level of arrears observed in the period, predominantly but not exclusively, from customers exiting Covid-19 payment holidays.

· Reported statutory profit before tax for the six months to 30 September 2021 was £2.1m (H1 2021: loss of £62.6m).

· £234.5m of unrestricted cash and cash equivalents as at 30 September 2021 (H1 2021: £134.2m) reflects continued strong cash generation; current unrestricted cash balance of over £260m.

· Net liabilities of £117.6m as at 30 September 2021 (H1 2021: net assets £99.6m).

· Net borrowings of £2.1m at 30 September 2021 (HY 2021: (£265.5m)) driven by continued collections while originations remained suspended. This has allowed the repayment of the securitisation facility.

· Final Covid-19 payment holidays were implemented prior to the start of the period, in March 2021 and had all concluded by the end of July 2021. There were therefore no associated modification losses recognised in the period. Alternative forbearance measures continue to be offered to customers experiencing financial difficulty.

 

*Detailed definitions and calculations of Amigo's alternative performance measures (APMs) can be found in the APM section of these condensed financial statements.

 

 

Gary Jennison, CEO of Amigo, said:

"We're pleased to be providing a meaningful update on our progress towards a new Scheme as we recognise it has been a long wait for all stakeholders. Clearly, it has taken much longer than we had hoped but it is critical that we get this right to achieve the fairest outcome for all creditors by ensuring we have listened carefully to their views and fully addressed the concerns raised by the High Court and the regulator last May. We're incredibly grateful for the commitment shown by the Independent Customer Committee over many months alongside the ongoing constructive engagement with the FCA. There's no doubt they have been instrumental in helping us to reach a better position for creditors and we hope to return to the Court with a Scheme they can support next year.

 

 "The creditor committee made it clear they wanted a Scheme that offers the certainty of a cash-based payment, delivered quickly, and this is reflected in the revised offer we are outlining here today. We're pleased the New Business Scheme, contingent on new lending restarting and a successful equity raise, will offer a markedly better cash contribution compared to the original Scheme developed a year ago. Obviously a lot has changed in the last twelve months and the increased contribution is largely driven by the clarity we now have around our future business model and the level of collections and impairments. Fortunately for customers the impact of Covid has been far less severe than we, and the market, thought when forecasts were made in the eye of the storm. Also, a further 12 months of collections on loans makes a considerable difference to the risk of balance adjustments.  The development of a clear future business plan and new product proposition, as well as the better collections performance, has enabled us to consider both an equity raise and an earlier partial repayment or repurchase of our senior secured notes which would reduce the future interest payable."

 

"The likelihood of a potential material dilution for shareholders is a difficult but necessary consequence of our situation. We have noted on many occasions, we are an insolvent business so there are no easy paths if we want to avoid administration and the only other options are for a managed wind-down or insolvency, both of which are worse outcomes for shareholders and customers. The Court was clear that any future Scheme must address the balance between creditor and shareholder outcomes to be successful and the equity raise achieves that and provides the capital to fund a future business that can prosper. We really hope as many existing shareholders as possible will invest in what we believe is a great new lending proposition, which aims to address the growing and pressing need in the market for a mid-cost product that helps customers progress to mainstream financial inclusion."

 

 

 

Analyst, investor and bondholder conference call and webcast

Amigo will be hosting a live webcast for investors and bondholders today at 09:30 (London time) which will be available at: https://www.amigoplc.com/investors/results-centre . A conference call is also available for those unable to join the webcast (Dial in: + 44 20 3936 2999; Access code: 907435). A replay will be available on Amigo's website after the event. The presentation pack for the webcast shows the reconciliation between the PLC results and Amigo Loans Group Limited (the 'Bond Group').

 

Investor video

There is an investor video available to view here , with an update from Amigo's CEO, Gary Jennison.

 

Notes to summary financial table:

1 Number of customers represents the number of accounts with a balance greater than zero, exclusive of charged off accounts. 

2 Net loan book represents total outstanding loans less provision for impairment excluding deferred broker costs. 

3 Profit/(Loss) after tax otherwise known as profit/(loss) and total comprehensive income to equity shareholders of the Group as per the financial statements.

4 Adjusted profit/(loss) after tax excludes items due to their exceptional nature including: senior secured note, RCF fees, securitisation facility fees write off, tax provision release, tax asset write off, tax refund due and strategic review and formal sale process costs. None are business-as-usual transactions. Hence, removing these items is deemed to give a view of underlying profit/(loss) adjusting for non-business-as-usual items within the financial year.

5 Adjusted basic (loss)/earnings per share is a non-IFRS measure and the calculation is shown in note 8. Adjustments to (loss)/earnings are described in footnote 4 above.

6 Net borrowings is defined as borrowings less unamortised fees and unrestricted cash and cash equivalents.

7 Net borrowings/gross loan book. Net borrowings over gross loan book: this measure shows if the borrowings' year-on-year movement is in line with loan book growth. 

 

 

 

Contacts: 

Amigo   

Mike Corcoran, Chief Financial Officer

Kate Patrick, Head Investor Relations                                                           [email protected]

 

Lansons                                                                                                             [email protected]

Tom Baldock   07860 101715

Laura Hastings  07768 790752

 

About Amigo Loans 

Amigo is a public limited company registered in England and Wales with registered number 10024479. The Amigo Shares are listed on the Official List of the London Stock Exchange. Amigo is a 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. 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 provider which currently has only one simple and transparent product ‐ a guarantor loan at a representative APR of 49.9 per cent. Amigo Loans Ltd and Amigo Management Services Ltd are authorised and regulated in the UK by the Financial Conduct Authority.

 

Forward looking statements

This report contains certain forward-looking statements. These include statements regarding Amigo Holdings PLC's intentions, beliefs or current expectations and those of our officers, Directors and employees concerning, amongst other things, our financial condition, results of operations, liquidity, prospects, growth, strategies, and the business we operate. These statements and forecasts involve risk, uncertainty and assumptions because they relate to events and depend upon circumstances that will or may occur in the future. There are a number of factors that could cause actual results or developments to differ materially from those expressed or implied by these forward-looking statements. These forward-looking statements are made only as at the date of this announcement. Nothing in this announcement should be construed as a profit forecast. Except as required by law, Amigo Holdings PLC has no obligation to update the forward-looking statements or to correct any inaccuracies therein.

 

 

 

 

 

This announcement contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) 596/2014. The person responsible for this announcement is Roger Bennett, Company Secretary.

             

 

 

Chief Executive's Statement

Performance

Whilst we remain unable to restart new lending, the demand for mid-cost, non-prime financial products is strong with our brand continuing to attract significant numbers of potential customers to our website despite no promotional activity for over 18 months. Amigo's pause in lending, which has continued throughout the six-month period to 30 September 2021, led to a 42.0% decline in customer numbers and a 53.8% reduction in the net loan book. Revenue fell by 38.8% compared to the prior year period, primarily driven by the reduction in the loan book.

While underlying collection levels have continued to be better than modelled under our first Scheme projections back in December 2020, we have seen an increasing trend in the level of arrears in the period, predominantly but not exclusively from customers exiting Covid-19 payment holidays and have recognised this in the provision for impairment. The complaints provision and associated cost as at 30 September 2021 were £344.3m and £5.3m respectively. This resulted in a statutory profit before tax for the six-month period of £2.1m (H1 2021: loss of £62.6m) and statutory profit after tax of £3.3m owing to a £1.2m tax credit in the period.

I continue to be extremely proud of the extensive support we have been able to provide throughout the Covid-19 pandemic to over 66,000 customers. While the Covid-19 payment holidays have all now concluded, we continue to assist customers experiencing financial difficulty with alternative forbearance measures.

Scheme of Arrangement

Following the Court not sanctioning Amigo's original proposed Scheme of Arrangement in May 2021, the Board continues to pursue a new Scheme to address the complaints liability. We have worked hard to address the concerns highlighted by the Judge at the sanction hearing, including forming an Independent Customer Committee to ensure the voice of the customer is heard and to provide redress creditors with the opportunity to help shape a new Scheme. 

 

Multiple options have been developed and on 28 September 2021, Amigo submitted a draft new Scheme proposal, along with its future business plan, to the FCA and the ICC. On 12 November 2021, Amigo submitted a revised offer to the ICC. The offer incorporates two options which reflect the feedback received from the ICC that their preference is for a cash-based payment rather than one that comprises either a share in future profits or a transfer of equity to creditors. The first, the 'New Business Scheme' is contingent on new lending restarting and Amigo completing a successful equity raise. Any such equity raise is likely to result in material dilution which will lead to existing shareholders owning a much smaller proportion of the group if they do not take up their rights. The second is a managed wind down of the Amigo Loans Ltd business under a Scheme framework. It is the Board's view that the New Business Scheme will provide redress creditors with more value and a more certain outcome. Both options will be submitted to the Court for sanction at the same time. If the judge does not sanction the New Business Scheme, the judge will then be asked to sanction the wind down Scheme at the same hearing.

 

While neither of our proposed Schemes is expected to satisfy the liability owed to redress creditors with valid claims in full, the proposed contribution to the new Scheme will be significantly increased from that of the original Scheme. This is a result of the divergence between what we projected to happen to the business in December 2020, when the first Scheme was proposed, and what is currently the case. The impact of the Covid-19 pandemic has been far less severe than anticipated and we are in a much better position relative to what was projected in terms of impairment and its impact on collections. The delayed implementation of balance adjustments on the loan book has also meant that we have continued to collect on accounts throughout the year, and this is modelled to continue until the Scheme Effective Date. The development of a clear future business plan and new product proposition, as well as the better collections performance, has enabled us to consider both an equity raise and an earlier repayment or repurchase of the senior secured notes ("bonds").  A part redemption of the bonds is expected to deliver significant savings on the future interest payable. The bonds become callable at par in January 2022. An ongoing focus on managing operating costs is a further but less significant contributing factor.

 

Whilst the process has taken considerably longer than we had anticipated, it is critical that we get this right to achieve the fairest outcome for our customers and to satisfy the High Court and our regulator that we have addressed their concerns. The ICC has been fully engaged and I am confident we are doing all that we can to ensure our customers are well informed and have the assistance they need to understand the different options and what each means for them. The FCA has also appointed independent financial advisors to assess the Scheme options and we have provided further information to them. In addition, as time passes, certain financial elements of the Scheme require recalculation.

 

Once the FCA has completed its review and we have final agreement from the ICC, we will issue the PSL to the relevant creditors. The legal process will then begin.

A Court hearing will be required to convene a creditor meeting where creditors will have the opportunity to vote on the proposed Scheme options followed by a second hearing to sanction the elected Scheme to proceed. While timing will largely be dictated by the Court, we expect the Court process to take at least four months.

 

The proposed equity raise will impact our shareholders, most notably through a material dilution of their holding and will lead to existing shareholders owning a much smaller proportion of the group if they do not take up their rights. However, without an approved Scheme to address the significant liability that has arisen from historical lending, Amigo has an insolvent balance sheet and faces administration. Therefore, the Board has concluded that there is a material uncertainty over going concern (see note 1 to the financial statements for further information). Despite reporting a small profit for the period, the Group had net liabilities of £117.6m as at 30 September 2021.

 

Strategy and future business plan

Our purpose is to provide financial inclusion to those who are unable to access credit through mainstream lenders.  We are committed to building a truly customer-centric firm focused on strong conduct rules and strong adherence to conduct risk principles. Our immediate and urgent priority is to secure and implement a new Scheme to provide an equitable resolution for those customers with valid complaints. To help support and further fund the Scheme, it is important that Amigo is able to return to lending as soon as possible.

 

Customer-centric lending proposition

Our new lending proposition is well progressed. The new proposition is designed to address the pressing need in the market for a mid-cost product that can underwrite customers in the non-prime sector and through incentive, flexibility and adaptation be a vital contributor to the customer's progress to mainstream financial inclusion. We plan to offer a revised guarantor loan product and a non-guarantor unsecured loan which will feature both an annual payment holiday and dynamic price reductions over the term. We have been working with a panel of experts to test the product features, customer journeys and content for our target customers and I am very excited about the final result. However, significant hurdles remain before we can return to lending, including the securing of Court approval for the new Scheme and FCA permission as well as further funding to the support the future business.

 

As part of the future business plan, originations are planned to begin shortly after the Scheme is sanctioned and are forecast to increase gradually to reach approximately £300m a year by the beginning of year two, with an annualised rate of growth of 5% targeted from the beginning of year three onwards. Depending on credit losses and early settlement assumptions, a gross loan book of £400m could be achieved by the end of year four. This scale of business will require a combination of debt and equity capital of up to £300m. Monthly collections are expected to be around 5.5% of the gross loan book in the first year, gradually increasing to around 8.5% in year four. With the APR on the new products differing to the current single guarantor product, and including dynamic price reductions, the targeted blended yield is 34%.

 

While credit losses on future products cannot be known, run-rate losses may be similar to, or somewhat better than, the historic performance of Amigo's best performing risk segments. Impairment:revenue has been modelled in the low 20% range. With consideration given to stronger governance, deeper underwrites, and a full customer-centric approach, the future business may have a higher cost:income ratio than before, in the low 30% range in steady state, which we will look to offset with better cost management and lower credit losses, among other measures. An average upfront cash payment of acquisition costs has been modelled at around 5% of originations.

 

 

Operational efficiency

We continue to embed Lean Six Sigma throughout our processes to drive productivity and efficiency improvements. This works by removing waste and variation, sharing best practice and empowering teams to continuously raise the bar. Our trained people are driving projects in specific business areas to improve our customer journey and support our teams.

 

Conduct and risk framework

Integral to our strategy is how we consider and act upon risks. We have embedded the FCA's conduct rules in our values and ways of working and have taken many steps to ensure the issues of the past are not repeated. When we return to lending, it will be with enhanced affordability assessments, tightened eligibility criteria and wide-spread use of Open Banking. In addition, we have increased reporting, monitoring and risk identification. We are confident that a robust conduct and risk framework is in place to ensure we meet our regulatory obligations and provide the right care to our customers, focused on individual customer needs and positive customer outcomes.

 

Our people

The first six months of the financial year to 30 September 2021 has been a period in which our people and our business have demonstrated substantial resilience. But the ongoing material uncertainty around Amigo's ability to continue as a going concern is having an impact on our people and, over the six-month period, we have seen some reduction in our workforce in addition to the redundancy programme completed in the first quarter. However, we have worked hard to incentivise and motivate our teams and I continue to be impressed and encouraged by the commitment of our people to rebuild Amigo as a business we can all be proud of. I would like to wholeheartedly thank all our people for their continued hard work and ongoing commitment to always putting our customers first.

 

Regulatory Update

Throughout the Scheme process we have continued to engage openly and productively with the FCA both on our intentions for the Scheme and our future lending proposition. We also continue to assist with the ongoing enforcement investigation into our creditworthiness processes, and governance of those processes, from November 2018 and into complaints handling from May 2020.

The FCA confirmed in July 2021 that it would not expect to authorise a return to lending by Amigo until after the sanctioning of a new Scheme, by the High Court, including on the grounds that Amigo would need to demonstrate its financial viability and ability to meet its regulatory obligations and threshold conditions.

 

Board

On 19 July 2021, Amigo announced that under the senior managers and certification regime, the FCA has approved Mike Corcoran as Chief Financial Officer and Michael Bartholomeusz as Chair of the Risk Committee.

 

Summary and Outlook

The Board remains committed to pursuing a solution that enables Amigo to satisfy its obligations to all stakeholders in the most equitable way possible and to returning to providing the opportunity for financial inclusion to the many in society who are locked out of finance by mainstream providers.

 

Our cash position remained strong at £234.5m as at 30 September 2021 with current unrestricted cash of over £260m. However, Amigo continues to operate within significant financial constraints, with new lending suspended and a substantial complaints liability. As a result, without an approved Scheme, the value of Amigo's assets is less than the amount of its liabilities and material uncertainty remains regarding Amigo's ability to continue as a going concern (see note 1 to the financial statements).

With the Board actively pursuing a new Scheme, the Directors consider that it remains appropriate to prepare the financial statements on a going concern basis. Our future lending proposition represents an innovative new customer offering, focused on customer needs and positive outcomes, underpinned by robust lending policies and processes. However, the continuation of Amigo as a business is dependent on a successful Scheme outcome, satisfactory resolution of the FCA investigations and our ability to raise both debt and equity capital to support the future business.

Financial review

In the first six months to 30 September 2021, the net loan book reduced by 53.8% to £224.1m. Revenue fell by 38.8% year on year to £56.5m, reflecting the pause in lending and loan book reduction. Customer numbers reduced by 42.0% compared to the prior year to 102,000. An uplift in the provision for impairment and a complaints cost of £5.3m in the period led to a statutory profit before tax for the six months to 30 September 2021 of £2.1m (H1 2021: loss of £62.6m) and a statutory profit after tax of £3.3m (H1 2021: loss of £67.9m). Adjusting for non-recurring items defined in note 4 of the summary financial table, adjusted profit after tax was £2.0m (H1 2021 adjusted loss of £58.1m).

 

Impairment

The impairment charge as a percentage of revenue was 45.8% for the first half of the financial year (H1 2021: 21.1%). The coverage ratio (as a percentage of the gross loan book) has increased to 22.5% (H1 2021: 14.0%) which has, in part, contributed to the higher impairment as a percentage of revenue. The increase to the coverage ratio is driven by a reforecast of expected credit losses reflecting an increasing trend in the level of arrears observed in the period, predominantly but not exclusively, from customers exiting Covid-19 payment holidays.

Whilst unemployment trends are favourable, inflationary headwinds may have a significant impact on our customer base. Significant uncertainty remains in respect of future customer behaviour as government support measures are fully withdrawn and as the Amigo Scheme process continues. Further details on the impairment provision and other key judgements and estimates in the IFRS 9 impairment model are set out in note 2 to the financial statements.

Complaints

The Group's original proposal for a Scheme of Arrangement was not sanctioned following the High Court hearing held on 19 May 2021 despite receiving the support of over 95% of creditors who voted. Subsequently, the Board continues to pursue a new Scheme. The approval of an alternative Scheme remains subject to reaching the key milestones of a second successful creditor vote and High Court sanctioning. At this point, the Board does not consider there to be enough certainty to account for claims redress on the basis that a Scheme will be sanctioned.

 

Consequently, claims redress is accounted for on the basis that known and future complaints are settled in full, subject to an applied uphold rate. This has resulted in a complaints provision of £344.3m as at 30 September 2021. A credit to the provision recognised in the period due to the lower number of live loans at 30 September 2021, driven both by settlements and by customer accounts being charged off, was offset by the addition of compensatory interest that has accrued as time has passed. A complaints cost of £5.3m has been recognised in the period as a result. 

 

Tax

Whilst the six months ended 30 September 2021 were profitable, no tax charge has been recognised on profits as the Group has sufficient deferred tax assets in respect of prior year losses. A tax credit of £1.2m was applied in the period reflecting the release of a historic tax liability.

 

Funding

The extension of the securitisation facility performance trigger waiver period, first negotiated in response to the Covid-19 pandemic, expired on 24 September 2021 and the securitisation facility was fully repaid in the period. In light of the Group's immediate funding needs and current unrestricted cash balance, the Board does not expect the need to operate the securitisation facility in the near term. The Board intends to keep the securitisation structure in place to provide more diversity for future funding options. All rights, obligations and liabilities of the Lead Arranger, Facility Agent and Senior Noteholder, as defined in the securitisation Facility Documents, have been assumed by Amigo.

 

Net borrowings were £2.1m at 30 September 2021 (H1 FY 2021: (£265.5m)) as the loan book continued to be collected while originations remained suspended. Consequently, unrestricted cash and cash equivalents as at 30 September 2021 increased to £234.5m (H1 FY 2021: £134.2m).

 

Going concern

The Board has concluded there is a material uncertainty over going concern. In determining the appropriate basis of preparation for these interim financial statements, the Board has assessed the Group and Company's ability to continue as a going concern for a period of at least twelve months from the date of approval of these financial statements. Despite material uncertainties, the financial statements are prepared on a going concern basis which the Directors believe to be appropriate for the reasons set out in the Going Concern statement included in note 1 to the financial statements.

 

Principal risks and uncertainties

Amigo's business performance is subject to a number of risks and uncertainties that could materially impact its success. Amigo puts significant effort into continually improving the way that it monitors and acts on risks to ensure control, enhance performance and deliver better customer outcomes. The Board recognises that opportunities and risks go hand in hand and so it puts time into understanding which risks are the right ones to take or avoid at any given time. This section takes a closer look at the risks that Amigo faces on an ongoing basis.

 

This has been a difficult period for Amigo with its risk profile increasing as a result of internal and external drivers. Whilst controls continue to operate as intended, the survival of our business is dependent upon the approval of a Scheme of Arrangement by the UK Courts, the restart of lending and the resolution of the outstanding FCA enforcement action.

 

The principal risks and uncertainties are consistent with those set out in pages 30 to 38 of the annual report and accounts 2021, which is available on the Company website.

 

All principal risks and uncertainties are summarised below. 

 

Credit risk

The risk that a counterparty fails to meet its debt obligations in full and on time. It includes the calculated risks that Amigo assumes by lending money to a customer and not receiving the owed principal and interest. This includes:

 

• Credit acquisition risk: this risk is inherent to loan origination and is tied to the credit analysis, where the Group verifies the customer's capacity, character, cash flow, collateral (when applies) and conditions to repay the requested loan. A failure in credit acquisition might result in issues such as very high delinquency levels, complaints and regulator fines.

 

• Credit operation risk (collections/fraud): this risk is related to the actions taken after the customer fails to make one or more payments. Our ability and capacity to react to loan delinquency are primarily controlled through customer contact. A failure on collections/fraud actions could lead to unexpected credit losses affecting the Company's profitability.

 

• Concentration risk: credit concentrations are viewed as any exposure where the potential losses are large relative to the Company's capital, its total assets or, where adequate measures exist, the Company's overall risk level. Relatively large losses may reflect not only large exposures, but also the potential for unusually high percentage losses when in potential default.

 

The macroeconomic environment over the last two years has been unprecedented, primarily due to the impact of Covid-19. The low interest rate environment, reduced business productivity and closures as well as employee furloughing and redundancy during the period, have had the effect of increasing demand for credit whilst firms have tightened their lending policies across the financial services sector. This has had a significant impact upon the number of customers requiring forbearance measures and has affected our credit risk profile.

 

Amigo has offered a number of relief measures to customers suffering financial distress, both at the Group's initiative and following regulatory guidance. As customers have now reached the end of payment holidays, we are working with them to identify the appropriate next steps given their personal circumstances. Despite some increase in arrears from customers exiting payment holidays, regular cash collections during the period have been at 82% of pre-Covid-19 projections.

Conduct risk

Conduct risks can arise at each stage of the customer journey within the Amigo proposition, from product design through to sales and post-sales servicing. Inappropriate lending practices and decisions could potentially result in unaffordable debt for Amigo customers and poor conduct post-sale and could potentially lead to vulnerable customers and/or those experiencing financial difficulty not being identified and treated fairly. This includes the risks of unaffordable lending decisions, a lack of clear customer expectations and exacerbating persistent debt.

 

Covid-19 has increased conduct risk as customers have had their finances disrupted and the regulator has deployed many changes at short notice in response. Amigo has mitigated this risk by following regulatory guidance, offering payment holidays where required and seeking to better understand customer circumstances and needs.

 

Amigo has faced a significant volume of complaints and FOS referrals, driven by dissatisfaction with historical lending decisions. This has challenged and inhibited both operational and financial resilience in the period. Whilst all complaints have been individually assessed, the firm took the difficult but necessary decision to propose a Scheme of Arrangement to customers. We believe that this is the best way to ensure that customers receive fair and equitable redress in the circumstances.

 

Regulatory and political risk

The risk that the regulatory or political environment will change in a way adverse to our business. This may be explicit changes in regulation or legislation or changes in interpretation. At a minimum, the impact would be the operational burden of adapting to changing regulation. But where we fail (or have failed) to adapt to changes, the impact can extend to regulatory action, potentially including investigation, fines or even loss of authorisation to operate. It includes regulation or legislation specific to our product, applying to financial services more generally, or not specific to our business at all.

 

There was a lot of regulatory activity during the prior financial year, including an ongoing FCA investigation into whether Amigo's creditworthiness assessment process was compliant with regulatory requirements. The investigation scope was subsequently amended in March 2021 to include aspects of complaint handling through this last year. Amigo continues to support the resolution of this investigation.

 

Amigo entered into two Voluntary Requirements (VReqs) with the FCA in the prior financial year:

 

The first relates to customer complaints. On 27 May 2020, Amigo announced it had agreed to work through a backlog of complaints principally arising in 2020. Subsequently, on 3 July 2020, we announced that an amended version of the VReq, covering a higher volume of complaints, had been agreed. Under the terms of the amended VReq Amigo agreed to reach a position by 30 October 2020 where all complaints are dealt with appropriately within eight weeks.

At 30 October 2020, Amigo had reviewed and reached a decision on all of the complaints included within the VReq but had not issued the final responses to customers on 2,517 of those complaints, primarily for reasons beyond Amigo's control. The intention is to address these complaints within the Scheme framework if sanctioned.

 

The second VReq relates to the transfer of assets and was announced on 19 October 2020. This Asset VReq means that prior approval by the FCA will be required to permit the transfer of assets outside of the Group in certain circumstances, including discretionary cash payments to the Directors of the Company and dividends to shareholders. The Asset VReq does not impact the day-to-day running of Amigo or its ability to continue to pay down debt.

 

The FCA opposed Amigo's proposed Scheme of Arrangement at the previous sanction hearing. As a result of regulatory concerns relating to the investigation, Scheme and Vreq, Amigo maintains close and continuous contact with the FCA.

 

Operational risk

The risk of a loss or negative impact due to inadequate or failed internal policies, processes or systems or from external events. Major examples include data security and cyber risk, system availability, legal risk and failures of process execution. Other examples can include the risk of financial reporting errors, key supplier failure, internal fraud, external fraud, Amigo's product being used for money laundering, or an error in the business' decisioning models.

 

Amigo's operational risk includes the risk that it does not have the human capacity and capability to deliver on its strategy. This may leave the Company unable to properly service its customers, leading to customer harm and loss of profitability. It may also result in the Company being less able to perform key functions.

 

While Amigo has adapted well to the challenges of Covid-19 and remote working, the operational risk environment remains elevated, with reduced in-person interaction and greater reliance on individuals' home internet service. The continuing rapid pace of change in the business, driven both by Covid-19 and business model challenges, also heightens the risk environment, though the business has a long history of rapid adaptation.

 

The continuing uncertainty around Amigo's future has kept risk in this area a key focus for the Board. Despite this, Amigo has continued to improve the breadth and depth of its senior management, adding "bench strength" and improving succession planning.

 

Strategic and competitive risk

The risk that Amigo fails to achieve its objectives, either due to actively poor decisions or a failure to adapt to changes in the competitive environment, leading to reduced revenue, increased expenses or lost opportunities. This includes the risk of new competitors and the risks in entering a new geography.

 

The wider market continues to evolve, with some competitors having left the space and brokers finding their business models disrupted. Socio-economic conditions continue to generate significant demand for responsible consumer credit solutions.

 

Treasury risk

The risk arising from the core actions of the Treasury function. A failure to properly manage liquidity could lead to the Company requiring more expensive funding, reducing profitability, or even being unable to meet its obligations as they fall due.

 

The decision to stop lending has left the business cash generative, but this is significantly offset by Covid-19 and the requirement for extensive forbearance measures and compounded by the requirement to pay cash redress on complaints, necessitating a Scheme of Arrangement. The pause in lending has allowed Amigo to conserve cash, and the liquidity position is good under baseline forecasts assuming a new Scheme progresses. Amigo has no material foreign exchange exposure.

 

 

 

 

 

Responsibility statement of the directors in respect of the half-yearly financial report

 

We confirm that to the best of our knowledge:

· the condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the UK;

· the interim management report includes a fair review of the information required by:

 

a)  DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and

b)  DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so.

 

 

 

 

 

 

 

 

 

Michael Corcoran

Director

29 November 2021

 

 

 

INDEPENDENT REVIEW REPORT TO THE MEMBERS OF AMIGO HOLDINGS PLC 

Conclusion

We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 September 2021 which comprises Condensed Consolidated Statement of Comprehensive Income, Condensed Consolidated Statement of Financial Position, Condensed Consolidated Statement of Changes in Equity and Consolidated Cash flows and the related explanatory notes.

 

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 September 2021 is not prepared, in all material respects, in accordance with IAS 34 Interim Financial Reporting as adopted for use in the UK and the Disclosure Guidance and Transparency ("the DTR") of the UK's Financial Conduct Authority ("the UK FCA").

 

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board for use in the UK. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. We read the other information contained in the half-yearly financial report and consider whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

 

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

 

Material uncertainty related to going concern

We draw attention to note 1 to the interim report which indicates that the ability of the Group to continue as a going concern is significantly impacted by the severity of the complaints position and the possibility of further action by the Financial Conduct Authority. The Board continues to consider a number of options which it considers represent realistic alternatives to liquidation including a new scheme of arrangement which would require positive creditor vote and court approval. These events and conditions, along with the other matters explained in note 1, constitute a material uncertainty that may cast significant doubt on the Group's ability to continue as a going concern. Our opinion is not modified in respect of this matter.

 

Emphasis of matter

We draw attention to notes 2.3.2 and 14 to the interim report concerning the provision for customer complaints. As explained in those notes, the complaints provision of £344m has been estimated assuming that no scheme is implemented, as there is not sufficient objective evidence that the future approval of an alternative Scheme of Arrangement will occur.

 

The total amount that will ultimately be paid by the Group in relation to obligations arising from customer complaints is subject to significant uncertainty and the ultimate cost will be dependent on several factors, including whether the Company can implement a Scheme of Arrangement to limit the overall liability to complainants. Note 2.3.2 discloses the range of reasonably possible outcomes in respect of this uncertainty.

 

Our opinion is not modified in respect of this matter.

 

 

 

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the DTR of the UK FCA.

 

As disclosed in note 1, the latest annual financial statements of the Group were prepared in accordance with International Financial Reporting Standards as adopted by the UK and in accordance with International Financial Reporting Standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union and in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006. The directors are responsible for preparing the condensed set of financial statements included in the half-yearly financial report in accordance with IAS 34 adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union.

 

Our responsibility

Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

 

The purpose of our review work and to whom we owe our responsibilities

This report is made solely to the company in accordance with the terms of our engagement to assist the company in meeting the requirements of the DTR of the UK FCA. Our review has been undertaken so that we might state to the company those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company for our review work, for this report, or for the conclusions we have reached.

 

 

Nicholas Edmonds  

for and on behalf of KPMG LLP 

Chartered Accountants  

15 Canada Square London

E14 5GL 

29 November 2021 

 

 

 

Condensed consolidated statement of comprehensive income

for the 6 months to 30 September 2021

 

 

 

 

6 months ended

6 months ended

Year to

 

 

 

30 Sep 21

30 Sep 20

31-Mar-21

 

 

 

Unaudited

Unaudited

Audited

 

 

Notes

£m

£m

£m

 

Revenue

3

56.5

92.3

170.8

 

Interest payable and funding facility fees

4

(9.8)

(15.6)

(27.5)

 

Interest receivable

 

0.1

-

0.1

 

Impairment of amounts receivable from customers1

 

 

(25.9)

(19.5)

 

(60.7)

 

Administrative and other operating expenses

 

(13.5)

(22.5)

(44.5)

 

Complaints expense

14

(5.3)

(93.7)

(318.8)

 

Total operating expenses

 

(18.8)

(116.2)

(363.3)

 

Strategic review, formal sale process and related financing costs

6

-

(3.6)

(3.0)

 

Profit/(loss) before tax

 

2.1

(62.6)

(283.6)

 

Tax credit/(charge) on profit/(loss)

7

1.2

(5.3)

(5.5)

 

Profit/(loss) and total comprehensive income/(loss) attributable to equity shareholders of the Group 2

 

3.3

(67.9)

 

(289.1)

 

The profit/(loss) is derived from continuing activities.

 

Profit/(loss) per share

 

 

 

 

 

Basic profit/(loss) per share (pence)

8

0.7

(14.3)

(60.8)

 

Diluted profit/(loss) per share (pence)

8

0.7

(14.2)

(60.8)

 

Dividends per share3 (pence)

 

 

-

 

-

 

-

 

 

 

 

 

 

The accompanying notes form part of these financial statements.

1  This line item includes reversals of impairment losses or impairment gains, determined in accordance with IFRS 9. In the period, £nil of previously recognised impairment gains were reversed primarily due to the recognition of the expected cost to repurchase charged off loans previously sold to a third party (H1 2021: £0.7m reversal of impairment gains).

2  There was less than £0.1m of other comprehensive income during this period and any other period, and hence no consolidated statement of other comprehensive income is presented.

3  On 19 October 2020 Amigo announced that it had entered into an Asset Voluntary Requirement with the Financial Conduct Authority (FCA), meaning prior approval by the FCA is required to permit the transfer of assets outside of the Group in certain circumstances, including dividends to shareholders.

 

 

 

Condensed consolidated statement of financial position

as at 30 September 2021

 

 

 

30 Sep 21

30 Sep 20

31 Mar 21

 

 

Unaudited

Unaudited

Audited

 

Notes

£m

£m

£m

Non-current assets

 

 

 

 

Customer loans and receivables

9

48.6

220.3

125.5

Property, plant and equipment

 

0.7

1.4

1.1

Right-of-use lease assets

 

0.9

1.1

1.0

 

 

50.2

222.8

127.6

Current assets

 

 

 

 

Customer loans and receivables

9

181.4

280.5

225.1

Other receivables

11

2.0

1.3

1.6

Current tax assets

 

0.6

26.7

-

Derivative asset

 

-

-

0.1

Cash and cash equivalents (restricted)1

 

2.0

9.5

6.3

Cash and cash equivalents

 

234.5

134.2

177.9

 

 

420.5

452.2

411.0

Total assets

 

470.7

675.0

538.6

Current liabilities

 

 

 

 

Trade and other payables

12

(10.6)

(15.3)

(15.9)

Borrowings

13

-

-

(64.4)

Lease liabilities

 

(0.3)

(0.3)

(0.3)

Complaints provision

14

(344.3)

(148.1)

(344.6)

Restructuring provision

14

-

-

(1.0)

Current tax liabilities

 

-

-

(0.8)

 

 

(355.2)

(163.7)

(427.0)

Non-current liabilities

 

 

 

 

Borrowings

13

(232.4)

(399.7)

(232.1)

Lease liabilities

 

(0.7)

(1.0)

(0.9)

Complaints provision

14

-

(11.0)

-

 

 

(233.1)

(411.7)

(233.0)

Total liabilities

 

(588.3)

(575.4)

(660.0)

Net (liabilities)/assets

 

(117.6)

99.6

(121.4)

Equity

 

 

 

 

Share capital

15

1.2

1.2

1.2

Share premium

 

207.9

207.9

207.9

Merger reserve

 

(295.2)

(295.2)

(295.2)

Retained earnings

 

(31.5)

185.7

(35.3)

Shareholder equity

 

(117.6)

99.6

(121.4)

 

The accompanying notes form part of these financial statements.

1 Cash and cash equivalents (restricted) materially relates to restricted cash held for settlement of complaints, in HY21 and year end restricted cash and cash equivalents materially related to cash held in the AMGO Funding (No.1) Ltd bank account due to the requirement under the waiver on the securitisation facility to use collection from securitised assets to reduce the outstanding facility balance. 

The interim financial statements of Amigo Holdings PLC were approved and authorised for issue by the Board and were signed on its behalf by:

 

 

 

 

Michael Corcoran

Director

29 November 2021

Company no. 10024479

 

 

 

Condensed consolidated statement of changes in equity

for the 6 months to 30 September 2021

 

 

Share

Share

Merger

Retained

Total

 

capital

premium

reserve1

earnings

equity

 

£m

£m

£m

£m

£m

At 31 March 2020

1.2

207.9

(295.2)

253.5

167.4

Total comprehensive loss

-

-

-

(67.9)

(67.9)

Share-based payments

-

-

-

0.1

0.1

At 30 September 2020

1.2

207.9

(295.2)

185.7

99.6

Total comprehensive loss

-

-

-

(221.3)

(221.3)

Share-based payments

-

-

-

0.3

0.3

At 31 March 2021

1.2

207.9

(295.2)

(35.3)

(121.4)

Total comprehensive income

-

-

-

3.3

3.3

Share-based payments

-

-

-

0.5

0.5

At 30 September 2021

1.2

207.9

(295.2)

(31.5)

(117.6)

 

The accompanying notes form part of these financial statements.

1  The merger reserve was created as a result of a Group reorganisation in 2017 to create an appropriate holding company structure. The restructure was within a wholly owned group, constituting a common control transaction.

 

 

 

 

Condensed consolidated statement of cash flows

for the 6 months to 30 September 2021

 

 

6 months to

6 months to

 Year to

 

30 Sep 21

30 Sep 20

31 Mar 21

 

Unaudited

Unaudited

Audited

 

£m

£m

£m

Profit/(loss) for the period

3.3

(67.9)

(289.1)

Adjustments for:

 

 

 

Impairment expense

25.9

19.5

60.7

Complaints expense

5.3

93.7

318.8

Restructuring provision

-

-

1.0

Tax (credit)/charge

(1.2)

5.3

5.5

Interest expense

9.8

15.6

27.5

Interest receivable

(0.1)

-

(0.1)

Interest recognised on loan book

(59.8)

(98.6)

(185.3)

Share-based payment

0.5

0.1

0.3

Depreciation of property, plant and equipment

0.2

0.5

1.1

Operating cash flows before movements in working capital

(16.1)

(31.8)

(59.6)

 

 

 

 

(Increase)/decrease in receivables

(0.2)

0.1

(0.9)

(Decrease)/increase in payables

(6.0)

2.0

(0.3)

Complaints cash expense

(4.8)

(35.4)

(64.6)

Tax refunds/(tax paid)

-

(3.7)

23.6

Interest paid

(9.7)

(12.0)

(22.8)

Net cash (used in) operating activities before loans issued and collections on loans

(36.8)

(80.8)

(124.6)

 

 

 

 

Loans issued

-

(0.4)

(0.4)

Collections

149.9

221.1

402.5

Other loan book movements

(0.4)

(1.4)

(0.6)

Decrease in deferred brokers' costs

3.8

4.9

10.8

Net cash from operating activities

116.5

143.4

287.7

 

 

 

 

Investing activities

 

 

 

(Disposals)/purchases of property, plant and equipment

0.3

(0.3)

(0.5)

Net cash from/(used in) investing activities

0.3

(0.3)

(0.5)

 

 

 

 

Financing activities

 

 

 

Lease principal payments

(0.1)

(0.1)

(0.2)

Cash held for repayment of borrowings

-

(9.5)

-

Repayment of external funding

(64.4)

(63.6)

(167.2)

Net cash (used in) financing activities

(64.5)

(73.2)

(167.4)

Net increase in cash and cash equivalents

52.3

69.9

119.8

Effects of movement in foreign exchange

-

-

0.1

Cash and cash equivalents at beginning of period

184.2

64.3

64.3

Cash and cash equivalents at end of period

236.51

134.2

184.21

 

The accompanying notes form part of these financial statements.

1  30 September 2021 and 31 March 2021 total cash is inclusive of £2.0m and £6.3m restricted cash respectively.

 

 


 

 

Notes to the condensed consolidated financial statements
 

1. Accounting policies

1.1 Basis of preparation of financial statements

Amigo Holdings PLC is a public company limited by shares (following IPO on 4 July 2018), listed on the London Stock Exchange

(LSE: AMGO). The Company is incorporated and domiciled in England and Wales and its registered office is Nova Building, 118-

128 Commercial Road, Bournemouth, United Kingdom BH2 5LT.

 

The principal activity of the Company is to act as a holding company for the Amigo Loans Group of companies. The "principal"

activity of the Amigo Loans Group is to provide individuals with guarantor loans from £2,000 to £10,000 over one to five years.

 

These interim financial statements have been prepared fully in accordance with IAS 34 Interim Financial Reporting in

conformity with the requirements of the Companies Act 2006. They do not include all the information required for full annual

financial statements and should be read in conjunction with the consolidated financial statements of Amigo Holdings PLC (the

'Group') as at and for the year ended 31 March 2021.

 

These consolidated Group financial statements have been prepared on a going concern basis and approved by the Directors in

accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and these

Group and Company financial statements were also in accordance with International Financial Reporting Standards as adopted

by the UK. There has been no departure from the required IFRS standards.

 

The consolidated financial statements have been prepared under the historical cost convention, except for financial instruments

measured at amortised cost or fair value.

 

The presentational currency of the Group is GBP, the functional currency of the Company is GBP and these financial statements

are presented in GBP. All values are stated in £ million (£m) except where otherwise stated.

 

The interim financial statements have been prepared applying the accounting policies and presentation that were applied in the

preparation of the Company's published consolidated annual report for the year ended 31 March 2021. Changes to significant

accounting policies are described in notes 1.2 and 2.

 

The consolidated financial statements of the Group as at and for the year ended 31 March 2021 are available upon request from

the Company's registered office at Nova Building, 118-128 Commercial Road, Bournemouth, United Kingdom, BH2 5LT.

 

The comparative figures for the financial year ended 31 March 2021 are not the Group's statutory accounts for that financial

year, but are an extract from those statutory accounts for interim reporting. Those accounts have been reported on by the

Company's auditor and delivered to the registrar of companies. The report of the auditor:

 

i)  drew attention to the material uncertainty related to going concern referenced in the financial statements;

ii)  drew attention to the provision for customer complaints, estimated assuming that no Scheme is implemented, by

way of emphasis of matter without qualifying their report (see notes 1 and 14); and

iii)  did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

 

These interim financial statements were approved by the Board of Directors on 29 November 2021.

 

Going concern

In determining the appropriate basis of preparation for these financial statements, the Board has assessed the Group and Company's ability to continue as a going concern for a period of at least twelve months from the date of approval of these financial statements. The financial statements are prepared on a going concern basis which the directors believe to be appropriate for the reasons outlined below.

 

Following the ruling on 25 May 2021 in which the High Court did not approve the proposed Scheme of Arrangement despite the positive creditors vote, the Board continues to consider all options for the Group. The Board believes that under all reasonably possible scenarios, without an appropriate Scheme of Arrangement to deal with the complaints liability, the expected volumes of complaints from current and past customers would exhaust the Group's available liquid resources; leaving the Group with insufficient liquid resources to repay its non-current borrowings as they fall due in January 2024.

 

Accounting standards require an entity to prepare financial statements on a going concern basis unless the Board either intends to liquidate the entity or to cease trading or has no realistic alternative but to do so.

 

At the date of approval of these financial statements, the Board continues to actively pursue options which represent realistic alternatives to liquidation or the cessation of trade. These options have been thoroughly considered and on 28 September 2021, Amigo submitted a new Scheme proposal, along with its future business plan, to the FCA and an independent customer committee ('ICC'). On 12 November 2021, Amigo submitted its final offer to the ICC. The final offer incorporates two options which reflect the feedback received from the ICC that their preference is for a cash-based payment rather than one that comprises either a share in future profits or a transfer of equity to creditors. The first option, the 'New Business Scheme' is contingent on new lending restarting and Amigo completing a successful equity raise. The second is a managed wind down of the Amigo Loans Ltd business under a Scheme framework, this scenario also includes new lending. It is the Board's view that the 'New Business Scheme' will provide redress creditors with more value and a more certain outcome. Both options will be submitted to the Court for sanction at the same time. If the judge does not sanction the 'New Business Scheme', the judge will then be asked to sanction the wind down Scheme at the same hearing. Furthermore, if the conditions precedent are not met for the 'New Business Scheme', i.e. relending and an equity raise, then the managed wind-down is the fallback solution. As such, a rigorous assessment and modelling of financial projections have been undertaken based on the range of possible scenarios;

 

· a base scenario representing the 'New Business Scheme';

· a severe but plausible downside scenario. Assumptions are consistent with the base scenario but has liquidity stresses applied to reflect principle risks;

· a managed wind down of Amigo Loans Ltd within a Scheme framework, whereby cash redress is made available to creditors from the residual stressed collections of the existing loan book following repayment of the senior secured notes; and

· a non-Scheme scenario, in which neither the 'New Business Scheme' or a managed wind-down is sanctioned by the High Court. As noted above, in such a scenario, the Directors believe the expected volumes of complaints from current and past customers would exhaust the Group's available liquid resources; leaving the Group with insufficient liquid resources to repay its non-current secured borrowings as they fall due in January 2024.

 

Funding

The going concern assessment considers the Group's projected liquidity position from existing committed financing facilities throughout the forecast period. The Group is funded through £234.1m of senior secured notes and held an unrestricted cash balance of £234.5m as at 30 September 2021.

 

Base 'New Business Scheme' scenario

Following the High Court non-sanctioning of Amigo's original proposed Scheme of Arrangement in May 2021, the Board continues to pursue a new Scheme to address the complaints liability and to address the concerns highlighted by the Judge at the original sanction hearing. This included forming an Independent Customer Committee to ensure the voice of the customer is heard and to provide redress creditors with the opportunity to help shape a new Scheme.

 

The 'New Business Scheme' projections are derived using the Group's business planning tools with key judgements and assumptions applied. These assumptions are listed below:

 

· the 'New business Scheme' is approved by the High Court, contingent on the resumption of new lending and Amigo completing a successful equity raise. This would limit the cash redress liability in respect of upheld customer complaints within a Scheme

· complaints volumes and uphold rates within a Scheme are consistent with the assumptions that underpin the complaints provision reported in the financial statements for half year September 2021

· write downs of customer balances in respect of upheld customer complaints are also consistent with the redress assumptions in the complaints provision, but adjusted to reflect the passage of time

· the FCA grants approval for the Group to recommence lending and lending recommences within the period, albeit at significantly reduced levels compared with pre-Covid-19 originations

· credit losses, and therefore customer collections, remain in line with recent trends

 

 

This scenario indicates that the Group will have sufficient funds to enable it to operate within its available facilities and settle its liabilities as they fall due for at least the next twelve months.

 

Severe but plausible downside 'New Business Scheme' scenario

The Directors have prepared a severe but plausible downside 'New Business Scheme' scenario covering the same forecast period, being at least the next twelve months from the date of approval of these financial statements.  This scenario is consistent with the base scenario with the application of liquidity sensitives that consider the potential impact of:

· An increased uphold rate in respect of all claims within a Scheme. Whilst this sensitivity does not increase the cash liability which is assumed to be capped in the 'New Business Scheme', the number of customers receiving balance write downs will increase, thus impairing the recoverability of the loan book, reducing future collections and stressing the Group's liquidity position; and

· increased credit losses as a result of any deterioration in the macroeconomy due to Covid-19 and the inability of an increased number of the Group's customers to continue to make payments.

 

This severe but plausible downside Scheme scenario indicates that the Group's available liquidity headroom would reduce but it would still have sufficient funds to enable it to operate within its available facilities and settle its liabilities as they fall due for at least the next twelve months.

 

Managed wind-down scenario

The directors have prepared a managed wind-down scenario covering the same forecast period, being at least the next twelve months from the date of approval of these financial statements, which assumes the High Court doesn't sanction the 'New Business Scheme' in the first instance but approves a managed wind down of the Amigo Loans Ltd business under a Scheme framework. A Managed wind-down under a Scheme framework would require a positive creditor vote and High Court sanction, it is not contingent on an equity raise or relending as the 'New Business Scheme' is. Therefore, it remains the fallback solution if the conditions precedent in the 'New Business Scheme' are not met. The key assumptions modelled are explained below:

 

· a 'Managed wind-down' is approved by the High Court, this is within a Scheme framework. The cash redress liability in respect of upheld customer complaints is deferred until the completion of winding down Amigo Loans LTD. The quantum of redress for creditors is therefore contingent on the collect-out of the book

· complaints volumes and uphold rates within a Scheme are consistent with the assumptions that underpin the complaints provision reported in the financial statements for half year September 2021

· write downs of customer balances in respect of upheld customer complaints are also consistent with the redress assumptions in the complaints provision, but adjusted to reflect the passage of time

· although the managed wind-down is not contingent on lending recommencing, the modelling does assume relending recommences in an entity outside of Amigo Loans LTD, which would require FCA approval, albeit at significantly reduced levels compared with pre-Covid-19 originations

· additional stress has been applied to the collections of the back-back

· no equity raise or additional funding has been modelled

· credit losses, and therefore customer collections, remain in line with recent trends

· Any creditor dividends from the wind-down of Amigo Loans LTD occur at the end of the collect out of back-book

 

This managed wind-down scenario indicates that the Group's available liquidity headroom would reduce but it would still have sufficient funds to enable it to operate within its available facilities and settle its liabilities as they fall due for at least the next twelve months, even if lending does not recommence in the period.

 

No scheme scenario

The Board recognises that the proposed Schemes of Arrangement such as those considered in the modelled scenarios require a second positive creditor vote and  High Court sanction. The 'New business Scheme' is also contingent on approval of new lending and a sufficient equity raise. All outcomes remain uncertain and outside the direct control of the Group. In a scenario where this is not achieved and cash redress to customers is not capped by the terms of a Scheme the Board believes the expected volume of complaints from current and past customers would exhaust the Group's available liquid resources; leaving the Group with insufficient liquid resources to repay its non-current borrowings as they fall due in January 2024. This is reflected in the Group's Consolidated Statement of Financial Position, which includes a complaints provision based on the best estimate of the full settlement of all current and future complaints. In such circumstances the Board believes that there would be no realistic alternative other than to enter a formal insolvency process.

 

FCA investigation

Additionally, in June 2020, the Financial Conduct Authority (FCA) launched an investigation into the Group's creditworthiness assessment process, and the governance and oversight of this process. This investigation will cover the period from 1 November 2018 to date. Such investigations can take up to two years to finalise, the current investigation is due to hit this milestone in June 2022 and is still ongoing. The potential impact of the investigation on the business is extremely difficult to predict and quantify, and hence the potential adverse impact of the investigation has been considered separately and not included in the scenarios laid out above. There are several potential outcomes which may result from the FCA investigation, including the imposition of a significant fine and/or the requirement to perform a mandatory back-book remediation exercise.

 The Directors consider that should they be required to perform a back-book remediation exercise it could reasonably be expected to exhaust the Group's available liquid resources. Additionally, other lesser but still significant adverse outcomes could significantly reduce the Group's available liquidity headroom and thus the Group would need to source additional financing to maintain adequate liquidity and to continue to operate.

 

Conclusion

The Board continues to actively pursue options which represent realistic alternatives to liquidation or the cessation of trade. The Board believes that there is a reasonable basis to conclude that the 'New Business Scheme' will be able to address concerns raised by the High Court and the FCA. In each of the modelled scenarios the financial projections indicate that the Group will have sufficient funds to enable it to operate within its available facilities and settle its liabilities as they fall due for at least the next twelve months. Whilst the 'New Business Scheme' remains the Board's preferred option, the fall back option of a Managed Wind-down Scheme also presents a realistic alternative to liquidation or cessation of trade for both the Bond Group and PLC Group. Accordingly, the Directors believe that it remains appropriate to prepare the financial statements on a going concern basis.

 

The Board also recognises that at the date of approval of these financial statements significant uncertainty remains over the potential 'New Business Scheme' and the Managed Wind-Down Scheme, both of which require a further positive creditor vote and High Court sanction both of which are outside the control of the Group, the 'New Business Scheme' is also contingent on approval of new lending and a successful equity raise. These circumstances represent a material uncertainty that may cast significant doubt on the Group's ability to continue as a going concern and, therefore, to continue realising its assets and discharging its liabilities in the normal course of business. The financial statements do not include any adjustments that would result from the basis of preparation not being appropriate.

 

1.2 Amounts receivable from customers

i) Classification

IFRS 9 requires a classification and measurement approach for financial assets which reflects how the assets are managed and their cash flow characteristics. IFRS 9 includes three classification categories for financial assets: measured at amortised cost, fair value through other comprehensive income (FVOCI) and fair value through profit and loss (FVTPL). Note, the Group does not hold any financial assets that are equity investments; hence the below considerations of classification and measurement only apply to financial assets that are debt instruments. A financial asset is measured at amortised cost if it meets both of the following conditions (and is not designated as FVTPL):

 

· it is held within a business model whose objective is to hold assets to collect contractual cash flows; and

its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest (SPPI) on the principal amount outstanding.

 

Business model assessment

In the assessment of the objective of a business model, the information considered includes:

· the stated policies and objectives for the loan book and the operation of those policies in practice, in particular whether management's strategy focuses on earning contractual interest revenue, maintaining a particular interest rate profile, matching the duration of the financial assets to the duration of the liabilities that are funding those assets or realising cash flows through the sale of the assets;

· how the performance of the loan book is evaluated and reported to the Group's management;

· the risks that affect the performance of the business model (and the financial assets held within that business model) and its strategy for how those risks are managed;

· how managers of the business are compensated (e.g. whether compensation is based on the fair value of the assets managed or the contractual cash flows collected); and

· the frequency, volume and timing of debt sales in prior periods, the reasons for such sales and the Group's expectations about future sales activity. However, information about sales activity is not considered in isolation, but as part of an overall assessment of how the Group's stated objective for managing the financial assets is achieved and how cash flows are realised.

 

The Group's business comprises primarily loans to customers that are held for collecting contractual cash flows. Debt sales of charged off assets are not indicative of the overall business model of the Group. The business model's main objective is to hold assets to collect contractual cash flows.

 

Assessment of whether contractual cash flows are solely payments of principal and interest

For the purposes of this assessment, "principal" is defined as the fair value of the financial asset on initial recognition. "Interest" is defined as consideration for the time value of money and for the credit risk associated with the principal amount outstanding during a particular period of time, as well as profit margin.

 

In assessing whether the contractual cash flows are solely payments of principal and interest (SPPI), the Group considers the contractual terms of the instrument.

This includes assessing whether the financial asset contains a contractual term that could change the timing or amount of contractual cash flows such that it would not meet this condition. The Group has deemed that the contractual cash flows are SPPI and hence, loans to customers are measured at amortised cost under IFRS 9.

 

ii) Impairment

IFRS 9 includes a forward-looking "expected credit loss" (ECL) model in regards to impairment. IFRS 9 requires an impairment provision to be recognised on origination of a financial asset. Under IFRS 9, a provision is made against all stage 1 (defined below) financial assets to reflect the expected credit losses from default events within the next twelve months. The application of lifetime expected credit losses to assets which have experienced a significant increase in credit risk results in an uplift to the impairment provision.

 

iii) Measurement of ECLs

Under IFRS 9 financial assets fall into one of three categories:

 

Stage 1 - financial assets which have not experienced a "significant" increase in credit risk since initial recognition;

Stage 2 - financial assets that are considered to have experienced a "significant" increase in credit risk since initial recognition; and

Stage 3 - financial assets which are in default or otherwise credit impaired.

 

Loss allowances for stage 1 financial assets are based on twelve month ECLs; that is the portion of ECLs that result from default events that are estimated within twelve months of the reporting date and are recognised from the date of asset origination. Loss allowances for stage 2 and 3 financial assets are based on lifetime ECLs, which are the ECLs that result from all default events over the expected life of a financial instrument.

 

In substance the borrower and the guarantor of each financial asset have equivalent responsibilities. Hence for each loan there are two obligors to which the entity has equal recourse. This dual borrower nature of the product is a key consideration in determining the staging and the recoverability of an asset.

 

The Group performs separate credit and affordability assessments on both the borrower and guarantor. After having passed an initial credit assessment, most borrowers and all guarantors are contacted by phone and each is assessed for their creditworthiness and ability to afford the loan. In addition, the guarantor's roles and responsibilities are clearly explained and recorded. This is to ensure that while the borrower is primarily responsible for making the repayments, both the borrower and the guarantor are clear about their obligations and are also capable of repaying the loan.

 

When a borrower misses a payment, both parties are kept informed regarding the remediation of the arrears. If a missed payment is not remediated within a certain timeframe, collection efforts are switched to the guarantor and if arrears are cleared the loan is considered performing.

 

The Covid-19 pandemic presents significant economic uncertainty. The Group assessed that its key sensitivity was in relation to expected credit losses on customer loans and receivables.

 

Given the significant uncertainty around the duration and severity of the impact of the pandemic on the macroeconomy the Group modelled a matrix of nine scenarios consisting of three durations (three, six and twelve months) and three severities (moderate, high and extremely high) has been modelled. Refer to note 2.1.1 for further detail on the judgements and estimates used in the measurement of ECLs and note 2.1.3 for detail on impact of forward-looking information on the measurement of ECLs.

 

iv) Assessment of significant increase in credit risk (SICR)

In determining whether the credit risk (i.e. risk of default) of a financial instrument has increased significantly since initial recognition, the Group considers reasonable and supportable information that is relevant and available without undue cost or effort, including both quantitative and qualitative information and analysis.

The qualitative customer data used in this assessment is payment status flags, which occur in specific circumstances such as a short-term payment plans, breathing space or other indicators of a change in a customer's circumstances. See note 2.1.2 for details of how payment status flags are linked to staging, and judgements on what signifies a significant increase in credit risk.

 

The Group has offered payment holidays to customers in response to Covid-19. These measures were introduced on 31 March 2020, the offering of these payment holidays concluded in March 2021. The granting of a payment holiday, or the extension of a payment holiday at the customer's request, does not automatically trigger a significant increase in credit risk.

Customers granted payment holidays are assessed for other indicators of SICR and are classified as stage 2 if other indicators of a SICR are present. This is in line with guidance issued by the International Accounting Standards Board (IASB) and Prudential Regulation Authority (PRA) which noted that the extension of government-endorsed payment holidays to all borrowers in particular classes of financial instruments should not automatically result in all those instruments being considered to have suffered a significant increase in credit risk. At the time a customer requests an extension to a payment holiday, the Group has no additional information available than was present at the original grant date for which to make an alternative assessment over whether there has been a significant increase in credit risk; extensions are granted on request. See note 2.1.2 for further detail on SICR considerations for Covid-19 payment holidays and note 2.4 for judgements and estimates applied by the Group on the calculation of a modification loss resulting from the granting of these payment holidays. As at 30 September 2021, the Group has been able to analyse the initial data relating to customer behaviour and payment patterns now these payment holidays have finished.

 

v) Derecognition

Historically, the Group offered, to certain borrowers, the option to top up existing loans subject to internal eligibility criteria and customer affordability. The Group pays out the difference between the customer's remaining outstanding balance and the new loan amount at the date of top-up. The Group considers a top-up to be a derecognition event for the purposes of IFRS 9 on the basis that a new contractual agreement is entered into by the customer replacing the legacy agreement.

 

The borrower and guarantor are both fully underwritten at the point of top-up and the borrower may use a different guarantor from the original agreement when topping up.

 

vi) Modification

Aside from top-ups and Covid-19 payment holidays, no formal modifications are offered to customers. In some instances, forbearance measures are offered to customers. These are not permanent measures; there are no changes to the customer's contract and the measures do not meet derecognition or modification requirements. See policy 1.11.1 in the Group's annual report and accounts 2021 for more details on the Group's accounting policies for modification of financial assets.

 

vii) Definition of default

The Group considers an account to be in default if it is more than three contractual payments past due, i.e. greater than 61 days, which is a more prudent approach than the rebuttable presumption in IFRS 9 of 90 days and has been adopted to align with internal operational procedures. The Group reassesses the status of loans at each month end on a collective basis. When the arrears status of an asset improves so that it no longer meets the default criteria for that portfolio, it is immediately cured and transitions back from stage 3 within the Group's impairment model.

 

viii) Forbearance

Where the borrower indicates to the Group that they are unable to bring the account up to date, informal, temporary forbearance measures may be offered. There are no changes to the customer's contract at any stage. Therefore, with the exception of Covid-19 payment holidays, these changes are neither modification nor derecognition events. Depending on the forbearance measure offered, an operational flag will be added to the customer's account, which may indicate significant increase in credit risk and trigger movement of this balance from stage 1 to stage 2 in impairment calculation. See note 2.1.2 for further details.

 

Throughout the Covid-19 pandemic, payment holidays have been offered to all customers who indicated to the Group they were experiencing potential payment difficulties and concluded March 2021. The granting of these payment holidays has been treated as non-substantial modification events. See note 2.4.1 for more details.

 

2. Critical accounting assumptions and key sources of estimation uncertainty

Preparation of the financial statements requires management to make significant judgements and estimates.

 

Judgements

The preparation of the condensed consolidated Group financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the reported amounts of assets and liabilities at the consolidated statement of financial position date and the reported amounts of income and expenses during the reporting period. The most significant uses of judgements and estimates are explained in more detail in the following sections:

 

· IFRS 9 - measurement of ECLs:

· Assessing whether the credit risk of an instrument has increased significantly since initial recognition (note 2.1.2).

· Definition of default is considered by the Group to be when an account is three contractual payments past due (note 1.2.vii).

· Multiple economic scenarios - the probability weighting of nine scenarios to the ECL calculation (note 2.1.3).

· IFRS 9 - modification of financial assets:

· Assessment of Covid-19 payment holidays as a non-substantial modification (note 2.4.1).

· Assessment of whether a modification loss is an indicator of a significant increase in credit risk (note 2.4.2).

· Complaints provisions:

· Judgement is involved in determining whether a present constructive obligation exists and in estimating the probability, timing and amount of any outflows (note 2.3.2) .

· Following the ruling on 24 May 2021 in which the High Court did not approve the proposed Scheme of Arrangement despite the overwhelmingly positive creditors' vote, the Board continues to consider all options for the Group, including a potential alternative Scheme of Arrangement. Significant judgement is applied in determining if there is sufficient certainty over the potential outcome of the Scheme to estimate the future complaints redress liabilities on the basis of a successful Scheme outcome (note 2.3.1).

· Going concern:

· Judgement is applied in determining if there is a reasonable expectation that the Group adopts the going concern basis in preparing these financial statements (note 1.1).

· IAS 1 requires the preparation of financial statements on a going concern basis unless the Board either intends to liquidate the entity or to cease trading or has no realistic alternative but to do so. At the date of approval of these interim financial statements, the Board continues to consider a number of options, including a potential other Scheme of Arrangement, which represent realistic alternatives to liquidation or the cessation of trade. Hence, it has been deemed there is a reasonable expectation that the Group is a going concern. However, due to significant uncertainty around terms of a potential new Scheme and whether it would be sanctioned by the High Court, there is a material uncertainty that may cast significant doubt on the Group's ability to continue as a going concern.

Estimates

Areas which include a degree of estimation uncertainty are:

· IFRS 9 - measurement of ECLs:

· Adopting a collective basis for measurement in calculation of ECLs in IFRS 9 calculations (note 2.1.1).

· Probability of default (PD), exposure at default (EAD) and loss given default (LGD) (note 2.1.1).

· Forward-looking information incorporated into the measurement of ECLs (note 2.1.3).

· Incorporating a probability weighted estimate of external macroeconomic factors into the measurement of ECLs (note 2.1.3).

· IFRS 9 - modification of financial assets:

· Estimating the change in net present value of the projected future cashflows arising from Covid-19 payment holidays on a cohort basis (note 2.4.2).

· Estimating expected Covid-19 payment holiday duration (note 2.4.2).

· Estimating the change in net present value of projected future cash flows arising upon payment holiday extensions (note 2.4.2).

· Complaints provisions:

· Calculation of provisions involves management's best estimate of expected future outflows, the calculation of which evaluates current and historical data, and assumptions and expectations of future outcomes (note 2.3.2).

· Effective interest rate (note 2.2):

· Calculation of the effective interest rate includes estimation of the average behavioural life of the loans and the profile of the loan payments over this period (note 2.2).

· Carrying amount of current and deferred taxation assets and liabilities

· The current uncertainty over the Group's future profitability means that it is no longer considered probable that future taxable profits will be available against which to recognise deferred tax assets. No tax assets have been recognised in respect of losses in the current period (note 7).

 

2.1 Credit impairment

2.1.1 Measurement of ECLs

The Group has adopted a collective basis of measurement for calculating ECLs. The loan book is divided into portfolios of assets with shared risk characteristics including whether the loan is new business, repeat lending or part of a lending pilot as well as considering if the customer is a homeowner or not. These portfolios of assets are further divided by contractual term and monthly origination vintages.

 

The allowance for ECLs is calculated using three components: a probability of default (PD), a loss given default (LGD) and the exposure at default (EAD). The ECL is calculated by multiplying the PD (twelve month or lifetime depending on the staging of the loan), LGD and EAD. The result of the ECL calculation is then discounted to reflect the time value of money, the period discounted involves an estimated time taken to default to the reporting date which remains uncertain in nature.

 

The twelve month and lifetime PDs represent the probability of a default occurring over the next twelve months or the lifetime of the financial instruments, respectively, based on historical data and assumptions and expectations of future economic conditions.

 

EAD represents the expected balance at default, considering the repayment of principal and interest from the balance sheet date to the default date. LGD is an estimate of the loss arising in the case where a default occurs at a given time. It is based on the difference between the contractual cash flows due and those that the Group expects to receive.

 

The Group assesses the impact of forward-looking information on its measurement of ECLs. The Group has analysed the effect of a range of economic factors and identified the most significant macroeconomic factor that is likely to impact credit losses as the rate of unemployment.

 

Given the significant uncertainty around the duration and severity of the Covid-19 pandemic on the macroeconomy a matrix of nine scenarios consisting of three durations (three, six and twelve months) and three severities (moderate, high and extremely high) has been modelled and probability weighted to determine the ECL provision (see note 2.1.3). 

 

2.1.2 Assessment of significant increase in credit risk (SICR)

To determine whether there has been a significant increase in credit risk the following two step approach has been taken:

1) The primary indicator of whether a significant increase in credit risk has occurred for an asset is determined by considering the presence of certain payment status flags on a customer's account. This is the Group's primary qualitative criteria considered in the assessment of whether there has been a significant increase in credit risk.

 

If a relevant operational flag is deemed a trigger indicating the remaining lifetime probability of default has increased significantly, the Group considers the credit risk of an asset to have increased significantly since initial recognition. Examples of this include operational flags for specific circumstances such as short-term payment plans and breathing space granted to customers.

 

2) As a backstop, the Group considers that a significant increase in credit risk occurs no later than when an asset is two contractual payments past due (equivalent to 30 days), in line with the rebuttable presumption in IFRS 9 that credit risk has significantly increased if contractual payments are more than 30 days past due. This is the primary quantitative information considered by the Group in a significant increase in credit risk assessments.

 

The Group reassesses the flag status of all loans at each month end and remeasures the proportion of the book which has demonstrated a significant increase in credit risk based on the latest payment flag data. An account transitions from stage 2 to stage 1 immediately when a payment flag is removed from the account. Each quarter a flag governance meeting is held, to review operational changes which may impact the use of operational flags in the assessment of a significant increase in credit risk.

 

The Group has offered payment holidays to customers in response to Covid-19; at the date a payment holiday is granted, the arrears status of the loan is passed for the duration of the payment holiday up to a maximum of six months. In normal circumstances, a customer's request for a payment holiday (i.e. breathing space) would trigger a SICR in line with the Group's payment status flag approach to staging, however the granting of exceptional payment holidays in response to Covid-19 does not automatically trigger a significant increase in credit risk.

 

2.1.3 Forward-looking information

The Group assesses the impact of forward-looking information on its measurement of ECLs. The Group has analysed the effect of a range of economic factors and identified the most significant macroeconomic factor that is likely to impact credit losses as the rate of unemployment.

 

The Group has modelled a range of economic shock scenarios to estimate the impact of a spike in unemployment as a result of the Covid-19 pandemic. In doing so, consideration has also been given to the potential impact of deep fiscal and monetary support measures that have been implemented by the government to support the economy during this time. Given the lack of reliable external information the range of scenarios include a variety of both severities and durations which are probability weighted. In response to the significant uncertainty around the duration and severity of the pandemic on the macroeconomy a matrix of nine scenarios has been modelled. The probability weightings allocated to the nine scenarios are included in the table below. These scenarios are weighted according to management's judgement of each scenario's likelihood.

 

The severity of the economic shock has been estimated with reference to underlying expectations for customer payment behaviour for accounts which are up to date or one contractual payment past due. The moderate, high and extremely high severities represent increases of 25%, 50% and 100% respectively, in the propensity for these accounts to miss payments and fall into arrears for the full duration of the economic shock.

 

 

Moderate (33%)

High (33%)

Extremely high (33%)

Three month duration

Moderately severe impact of an initial three month spike in the rate of unemployment

High severity of an initial three month spike in the rate of unemployment

Extremely high severity of an initial three month spike in the rate of unemployment

Six month duration

Moderately severe impact of the increase in unemployment but with an extended duration of six months

High severity of the increase in unemployment but with an extended duration of six months

Extremely high severity of the increase in unemployment but with an extended duration of six months

Twelve month duration

Moderately severe impact of the increase in unemployment and assuming that the deterioration in unemployment continues to increase for a full year

High severity of the increase in unemployment and assuming that the deterioration in unemployment continues to increase for a full year

Extremely high severity of the increase in unemployment and assuming that the deterioration in unemployment continues to increase for a full year

         

 

The following table details the absolute impact on the current ECL provision of £65.1m if each of the nine scenarios are given a probability weighting of 100%.

 

Moderate

High

Extremely high

Three month duration

-£7.9m

-£5.9m

-£3.7m

Six month duration

-£5.7m

-£1.7m

+£3.1m

Twelve month duration

-£1.3m

+£6.7m

+£16.4m

 

The table above demonstrates that in the first scenario with a moderate severity and an impact of an initial three month spike in the unemployment rate, the ECL provision would decrease by £7.9m. In the worst case scenario with the greatest severity assuming this deterioration continues for a duration of twelve months the ECL provision would increase by £16.4m. The scenarios above demonstrate a range of ECL provisions from £57.2m to £81.5m.

 

In the financial statements for the 6 months ended 30 September 2021 severity weightings used were 33% for moderate, high and extremely high scenarios (H1 2021: 33%, 33% and 33%).

 

As with any economic forecasts, the projections and likelihoods of occurrence are subject to a high degree of inherent uncertainty and therefore the actual outcomes may be significantly different to those projected.

 

2.2 Effective interest rates

Revenue comprises of interest income on amounts receivable from customers. Loans are initially measured at fair value (which is equal to cost at inception) plus directly attributable transaction costs and are subsequently measured at amortised cost using the effective interest rate method. Revenue is presented net of amortised broker fees which are capitalised and recognised over the expected behavioural life of the loan as part of the effective interest rate method. The key judgement applied in the effective interest rate calculation is the behavioural life of the loan.

 

The historical settlement profile of loans, which were initially acquired through third-party brokers, is used to estimate the average behavioural life of each monthly cohort of loans. Settlements include early settlements and historically have also included top-ups as they are considered derecognition events (see note 1.2v). The average behavioural life is then used to estimate the effective interest on broker originations and thus the amortisation profile of the deferred costs.

Broker costs are predominantly calculated as a percentage of amounts paid out and not as a fixed fee per loan. Therefore, in determining the settlement profile of historical cohorts, settlement rates are pay-out weighted to accurately match the value of deferred costs with the settlement of loans.

 

2.3 Complaints provisions

2.3.1 Key judgements - Scheme of Arrangement

On 21 December 2020, the Group announced its intention to agree a Scheme of Arrangement to address customer redress claims with the aim that all customers are treated equitably. The vehicle ALL Scheme Ltd ("SchemeCo") was incorporated on 6 January 2021 and is a wholly owned subsidiary through which the Group intends to review claims and, where appropriate, pay redress to customers that have been affected as a result of historical issues in the UK business. The Group's original proposal for a Scheme of Arrangement was not sanctioned at the High Court hearing held on 19 May 2021, this judgement was received on 24 May 2021, despite receiving support from the majority of Scheme creditors who voted.

 

Subsequently the Board continues to consider all options including the pursuit of an alternative Scheme of Arrangement to the one which was not approved. It is the Board's view, in light of the anticipated alternative - a possible insolvency  - that subject to further regulatory discussions, a successful alternative Scheme is achievable. However, the Directors acknowledge that the ultimate success of the Scheme is not wholly within their control not least because at the reporting date the approval of an alternative Scheme of Arrangement remains subject to reaching the key milestones of a second successful creditor vote and a High Court sanction.

 

IAS 37 - Provisions, Contingent Liabilities and Contingent Assets requires that the measurement of provisions is not adjusted for future events, such as the approval of an alternative Scheme of Arrangement, unless there is sufficient objective evidence that the future event will occur. Each of the aforementioned factors are ultimately outside of the Group's control and represent a significant source of uncertainty with regard to the ultimate success of an alternative Scheme. Hence, in line with IAS 37, it has been determined that the complaints provision will be measured by calculating a total redress liability assuming that there is no scheme in place, as there is not sufficient objective evidence that the future approval of an alternative Scheme of Arrangement will occur.

 

2.3.2 Complaints provision - estimation uncertainty

Provisions included in the statement of financial position refers to a provision recognised for customer complaints. The provision represents an accounting estimate of the expected future outflows arising from certain customer-initiated complaints, using information available as at the date of signing these financial statements and the assumption that there is no Court approved Scheme of Arrangement (see note 14 for further detail).

 

Identifying whether a present obligation exists and estimating the probability, timing, nature and quantum of the redress payments that may arise from past events requires judgements to be made on the specific facts and circumstances relating to the individual complaints. Management evaluates on an ongoing basis whether complaints provisions should be recognised, revising previous judgements and estimates as appropriate; however, there is a wide range of possible outcomes.

 

The key assumptions in these calculations which involve significant, complex management judgement and estimation relate primarily to the projected costs of potential future complaints, where it is considered more likely than not that customer redress will be appropriate. These key assumptions are:

 

· Future estimated volumes - estimates of future volumes of complaints.

· Uphold rate (%) - the expected average uphold rate applied to future estimated volumes where it is considered more likely than not that customer redress will be appropriate.

· Average redress (£) - the estimated compensation, inclusive of balance adjustments and cash payments, for future upheld complaints included in the provision.

 

These assumptions remain subjective due to the uncertainty associated with future complaint volumes and the magnitude of redress which may be required. Complaint volumes may include complaints under review by the Financial Ombudsman Service, complaints received from claims management companies ("CMCs") or complaints received directly from customers.

Following the announcement of the proposed Scheme of Arrangement on 21 December 2020 these assumptions became more challenging to estimate as customer and CMC behaviour was temporarily influenced by the proposed Scheme of Arrangement.

 

Whilst the proposed Scheme was not sanctioned by the High Court on 19 May 2021, the creditor meeting on 12 May 2021, in which the Group received a total of 78,732 votes, provides some indication of the potential future propensity for past and present customers to raise a complaint. Whilst the vote provides a useful reference point for the potential population of future claims, this estimate remains highly uncertain. If an alternative Scheme is not successfully approved, it is unclear to what extent future complaint volumes would be impacted by increased customer awareness generated by the engagement with customers as part of the creditor vote process and increased publicity connected to the unsuccessful outcome of the first proposed Scheme, as well as any additional publicity relating to any potential future Scheme. Additionally, throughout Amigo's progress towards a Scheme, substantial work has gone into reviewing and enhancing our future claims handling methodologies, aligning with the expectations of our regulator and re-setting expectations of how claims will be assessed moving forward regardless of whether a potential new Scheme is successful.  

 

As at 30 September 2020, the complaints provision was £159.1m; the increase of 116.4% to £344.3m at 30 September 2021 is primarily due to an increase in both the volume of estimated upheld complaints provided for and the estimated uphold rate. Also partially contributing to the increase is the rise in FOS invoice costs from £650 to £750 each.

 

The following table details the effect on the complaints provision considering incremental changes on key assumptions, should current estimates prove too high or too low. Sensitivities are modelled individually and not in combination.

 

 

Assumption used

Sensitivity applied

Sensitivity

Future complaint volumes1

81,562

5%

+57.9m

-57.9m

Average uphold rate per customer2

65%

20 ppts

+94.0m

-94.0m

Average redress per valid complaint3

£4,451

£1,000

+56.7m

-56.7m

 

1.  Future estimated volumes. Sensitivity analysis shows the impact of a 5% change in the number of complaints estimated in the provision.

2.  Uphold rate. Sensitivity analysis shows the impact of a 20 percentage point change in the applied uphold rate on both the current and forward-looking elements of the provision.

3.  Average redress. Sensitivity analysis shows the impact of a £1,000 change in average redress on the provision.

 

The table above shows the increase or decrease in total provision charge resulting from reasonably possible changes in each of

the key underlying assumptions. The Board considers that this sensitivity analysis covers the full range of reasonably possible

alternatives assumptions.

 

It is possible that the eventual outcome may differ materially from the current estimate and could materially impact the

financial statements as a whole, given the Group's only activity currently is guarantor-backed consumer credit. This is due to the

risks and inherent uncertainties surrounding the assumptions used in the provision calculation.

 

The complaints provision has been estimated assuming that there is no Scheme in place, as there is not sufficient objective

evidence that the future approval of an alternative Scheme will occur. However, a potential future Scheme remains a plausible

outcome. In this scenario, it is likely that the total redress liability would be materially lower than the amount recognised under

IAS 37 because cash redress would be capped at a level approved by the Scheme creditors, which is expected to be substantially

lower than the total cash liability of £270.0m included in the £344.3m provision. For example, the cash contribution proposed under the terms of the original Scheme proposal, which was not sanctioned by the High Court, was £15.0m. Amigo is still considering all options, of which one option is a potential alternative Scheme.

 

The Group has disclosed a contingent liability with respect to the FCA investigation announced on 29 May 2020. The

investigation is with regards to the Group's creditworthiness assessment process, the governance and oversight of this, and

compliance with regulatory requirements. The FCA investigation is covering lending for the period from 1 November 2018 to

date. The Group was informed on 15 March 2021 that the FCA had decided to extend the scope of its current investigation so

that it can investigate whether the Group appropriately handled complaints after 20 May 2020 and whether the Group deployed

sufficient resource to address complaints in accordance with the Voluntary Requirement (VReq) announced on 27 May 2020 and

the subsequent variation announced on 3 July 2020.

 

The FCA investigation will consider whether those complaints have been handled appropriately and whether customers have

been treated fairly in accordance with Principle 6 of the FCA's Principles for Business.

The Group will continue to co-operate fully with the FCA. There is significant uncertainty around the impact of this investigation on the business, the assumptions underlying the complaints provision and any future regulatory intervention. See note 14 for further details.

2.4 Modification of financial assets

2.4.1 Assessment of Covid-19 payment holidays as a non-substantial modification

From 31 March 2020, Covid-19 relief measures were formally introduced; on request, depending on a customer's individual circumstances, initial payment holidays with durations of up to three months were offered. At the end of the payment holiday the customer's monthly instalments reverted to the contractual instalment with the term of the loan effectively extended by the duration of the payment holiday. Following the FCA's announcement of the extension to customer payment holidays for personal loans for up to six months, the Group's payment holiday policy was revised. If a customer applied for a payment holiday extension, the payment holiday automatically renewed on a monthly basis, up to a maximum of six months.

The customer had the option to opt out and end the payment holiday at any time. For the first three months of the payment holiday no interest accruals were applied to customer balances; from four to six months interest began to accrue again on the loan. As a result of the Group's interest cap, the reintroduction of interest accruals from months four to month six of a payment holiday does not increase the total interest payable by the customer over the life of the loan. Rolling monthly extensions were predominantly granted from 1 July 2020 onwards. The final payment holidays and extensions were granted in March 2021.

No capital or interest is forgiven as part of the payment holiday despite no interest accruing during the first three months of the payment holiday; the customer is still expected to repay the loan in full.

 

The Group assessed Covid-19 payment holidays from both a qualitative and quantitative perspective; the Group is not originating new assets with substantially different terms and the original asset's contractual cash flows are deferred, leading to what is deemed a non-substantial estimated reduction in loan carrying amounts.

 

Hence, the initial granting of a Covid-19 payment holidays was accounted for as non-substantial modification of financial assets under IFRS 9. When a customer was offered an extension to their original payment holiday up to a total of six months in length, this was considered a second non-substantial modification event. Assets were not derecognised as the modifications were not substantial; instead, modification losses were recognised in the period to 31 March 2021. The impact of Covid-19 payment holiday modifications is discussed in note 5. 

 

2.4.2 Measurement of modification losses

The Group has estimated modification losses arising from Covid-19 payment holidays on a cohort basis. Future contractual cash flows are forecast collectively in cohorts based on the remaining contractual term. The cash flow forecasts are then further segmented by month of modification (being payment holiday start date or date of extension) and payment holiday duration.

 

Following the introduction of automatic rolling extension of payment holidays up to a maximum of six months, a key judgement is the expected payment holiday duration. Customers on payment holidays of one and two month initial durations could first extend to a backstop of a three month payment holiday. Where the customer applied for an extension to their original payment holiday beyond the three month backstop, the payment holiday automatically extended on a monthly basis up to a maximum of six months unless the customer opted out.

 

Forecast cash flows are lagged by the relevant payment holiday duration and discounted using the original effective interest rate to calculate net present value of each cohort. The difference between the net present value of the revised cash flows and the carrying value of the assets is recognised in the consolidated statement of comprehensive income as a modification loss.

 

Customers granted Covid-19 payment holidays were assessed for other potential indicators of SICR. This assessment included a historical review of the customer's payment performance and behaviours. Following this review, those customers that were granted a Covid-19 payment holiday and judged to have otherwise experienced a SICR are transitioned to stage 2 within the Group's impairment model (note 1.2.iii). Where the modification loss related to customers that have been transitioned from stage 1 to stage 2 as a result of this assessment, the modification loss has been recognised as an impairment in the consolidated statement of comprehensive income.

 

In the current period, there has been no modification loss recognised in respect of Covid-19 payment holidays. In prior periods if the customer was already in arrears, suggesting a significant increase in credit risk event prior to them being granted a payment holiday; a modification loss relating to these customers has also been recognised in impairment. The remainder of the modification loss has been recognised in revenue (see note 5 for further details).

 

 

 

 

3. Revenue and Segment reporting

Revenue consists of interest income and is derived primarily from a single segment in the UK, but also from Irish entity Amigo

Loans Ireland Limited. The Group has two operating segments based on the geographical location of its operations, being the UK

and Ireland. IFRS 8 requires segment reporting to be based on the internal financial information reported to the chief operating

decision maker. The Group's chief operating decision maker is deemed to be the Group's Executive Committee (ExCo) whose

primary responsibility is to support the Chief Executive Officer (CEO) in managing the Group's day-to-day operations and analyse

trading performance. The table below presents the Group's performance on a segmental basis for the six months to 30 September 2021 in line with reporting to the chief operating decision maker:

6 months to 30 September 2021

Period to

30 Sep 21

£m

UK

Period to

30 Sep 21

£m

Ireland

Period to

30 Sep 21

£m

Total

Revenue

55.9

0.6

56.5

Interest payable and funding facility fees

(9.8)

-

(9.8)

Interest receivable

0.1

-

0.1

Impairment of amounts receivable from customers

(26.1)

0.2

(25.9)

Administrative and other operating expenses

(13.2)

(0.3)

(13.5)

Provision expenses

(5.3)

-

(5.3)

Total operating expenses

(18.5)

(0.3)

(18.8)

Profit before tax

1.6

0.5

2 .1

Tax credit on profit1

1.2

-

1.2

Profit and total comprehensive income attributable to equity shareholders of the Group

2.8

0.5

3.3

 

 

 

30 Sep 21

30 Sep 21

30 Sep 21

 

 

£m

£m

£m

 

 

UK

Ireland

Total

 

Gross loan book2

 

286.8

 

2.4

 

289.2

 

Less impairment provision

(64.6)

(0.5)

(65.1)

 

Net loan book3

 

222.2

 

1.9

 

224.1

 

1.  The tax credit for the UK primarily relates to the release of a historical tax provision no longer required.

2.  Gross loan book represents total outstanding loans and excludes deferred broker costs.

3.  Net loan book represents gross loan book less provision for impairment.

 

The carrying value of property, plant and equipment and intangible assets included in the consolidated interim statement of financial position materially all relates to the UK; hence the split between UK and Ireland has not been presented. The results of each segment have been prepared using accounting policies consistent with those of the Group as a whole.

 

 

Period to

Period to

Period to

 

 

30 Sep 20

30 Sep 20

30 Sep 20

 

 

£m

£m

£m

 

6 months to 30 September 2020

UK

Ireland

Total

 

Revenue

91.0

1.3

92.3

 

Interest payable and funding facility fees

(15.6)

-

(15.6)

 

Impairment of amounts receivable from customers

(19.2)

(0.3)

(19.5)

 

Administrative and other operating expenses

(21.9)

(0.6)

(22.5)

 

Complaints expense

(93.7)

-

(93.7)

 

Total operating expenses

(115.6)

(0.6)

(116.2)

 

IPO, strategic review, formal sale process and related financing costs

(3.6)

-

(3.6)

 

(Loss) before tax

(63.0)

0.4

(62.6)

 

Tax charge on (loss)

(5.2)

(0.1)

(5.3)

 

(Loss) and total comprehensive income attributable to equity shareholders of the Group

(68.2)

0.3

(67.9)

 

 

 

30 Sep 20

30 Sep 20

30 Sep 20

 

 

£m

£m

£m

 

 

UK

Ireland

Total

 

Gross loan book1

 

558.3

 

5.6

 

563.9

 

Less impairment provision

(77.6)

(1.1)

(78.7)

 

Net loan book 2

 

480.7

 

4.5

 

485.2

 

1 Gross loan book represents total outstanding loans and excludes deferred broker costs.

2 Net loan book represents gross loan book less provision for impairment.

4. Interest payable and funding facility fees

 

Period to

Period to

Year to

 

30 Sep 21

30 Sep 20

31 Mar 21

 

Unaudited

Unaudited

Audited

 

£m

£m

£m

Senior secured notes interest payable

9.0

8.4

17.8

Funding facility fees

0.1

0.7

0.4

Securitisation interest payable

0.2

1.8

2.8

Complaints provision discount unwind (note 14) 

-

1.1

2.0

Other finance costs

0.5

3.6

4.5

 

9.8

15.6

27.5

 

No interest was capitalised by the Group during the period. Funding facility fees include non-utilisation fees and amortisation of initial costs of the Group's senior secured notes.

 

Non-utilisation fees of £0.3m relating to the securitisation facility are included in other finance costs. In the prior year, other finance costs also included written off fees totalling £1.9m following cancellation of the Group's revolving credit facility and substantial modification of the securitisation facility.

 

5. Modification of financial assets

Covid-19 payment holidays and any subsequent extensions were assessed as non-substantial financial asset modifications under IFRS 9 (see note 2.4 for further details). The Group stopped granting new payment holidays in March 2021; hence no additional modification losses have been recognised in the period. All payment holidays ended by 31 July 2021.

In the period, £3.7m of modification losses were released in respect of loan agreements that settled or charged off in the six months ended 30 September 2021. The carrying value of historical modification losses at the period end was £9.4m.

 

Period to

Period to

Year to

 

30 Sep 21

30 Sep 20

31 Mar 21

 

Unaudited

Unaudited

Audited

 

£m

£m

£m

Modification (loss) recognised in revenue 

-

(24.9)

(27.2)

Modification (loss) recognised in impairment

-

(7.1)

(8.3)

Total modification (loss)

-

(32.0)

(35.5)

 

6. Strategic review, formal sale process and related financing costs

Strategic review, formal sale process and related financing costs have been disclosed separately in the financial statements because the Directors consider it necessary to do so to provide further understanding of the financial performance of the Group. There has been no strategic review, formal sale process and related financing costs as at 30 September 2021, prior period costs are material items of expense that have been shown separately due to the significance of their nature and amount.

 

Period to

Period to

Year to

 

30 Sep 21

30 Sep 20

31 Mar 21

 

£m

£m

£m

 

Unaudited

Unaudited

Audited

Strategic review and formal sale process costs

-

3.6

3.0

 

-

3.6

3.0

 

The costs above related to advisor and legal fees in respect of the strategic review and formal sale process announced on 27 January 2020 and its termination was announced on 8 June 2020.

 

7. Taxation

The applicable corporation tax rate for the period to 30 September 2021 was 19.0% (H1 2021: 19.0%) and the effective tax rate is 57.1% positive (H1 2021: negative 8.5%). This effective tax rate is primarily due to the release of a historical tax provision and the recognition of an imminent tax refund.

 

In the prior year, the Group's loss-making position and the ongoing uncertainty over the Group's future profitability meant that it was no longer considered probable that future taxable profits would be available against which to recognise deferred tax assets. Consequently, no tax assets were recognised in respect of losses in prior year, which were driven primarily by the recognition of a £344.6m complaints provision as at 31 March 2021. The uncertainty remains in the period to 30 September 2021 as the Group continues to pursue a Scheme of Arrangement.

Whilst the six months ended 30 September 2021 were profitable, no tax charge has been recognised on profits due to the uncertainty around the profitability in the second half of the financial year, whereby revenue will continue to decrease as the loan book declines and the uncertainty surrounding the outcome of a Scheme of Arrangement.

 

8. Profit/(loss) per share

Basic earnings/(loss) per share is calculated by dividing the profit/(loss) for the period attributable to equity shareholders by the

weighted average number of ordinary shares outstanding during the period.

 

Diluted earnings/(loss) per share calculates the effect on profit/(loss) per share assuming conversion of all dilutive potential

ordinary shares. Dilutive potential ordinary shares are calculated as follows:

i)  For share awards outstanding under performance-related share incentive plans such as the Share Incentive Plan (SIP) and the Long Term Incentive Plans (LTIPs), the number of dilutive potential ordinary shares is calculated based on the number of shares which would be issuable if the end of the reporting period is assumed to be the end of each scheme's performance period. An assessment over financial and non-financial performance targets as at the end of the reporting period has therefore been performed to aid calculation of the number of dilutive potential ordinary shares.

ii)  For share options outstanding under non-performance-related schemes such as the two Save As You Earn schemes (SAYE), a calculation is performed to determine the number of shares that could have been acquired at fair value (determined as the average annual market share price of the Company's shares) based on the monetary value of the subscription rights attached to outstanding share options. The number of shares calculated is compared with the number of share options outstanding, with the difference being the dilutive potential ordinary shares.

Potential ordinary shares are treated as dilutive when, and only when, their conversion to ordinary shares would decrease earnings per share or increase earnings/(loss) per share.

 

30 Sep 21

30 Sep 20

31 Mar 21

 

Unaudited

Unaudited

Audited

 

Pence

Pence

Pence

Basic earnings/ profit/(loss) per share

0.7

(14.3)

(60.8)

Diluted earnings/ profit/(loss) per share

0.7

(14.2)

(60.8)

Adjusted basic earnings/ profit/(loss) per share (basic and diluted)2

 

0.4

(12.2)

 

(58.9)

 

1.  Adjusted basic (loss) per share and earnings for adjusted basic (loss) per share are non-GAAP measures.

 

The Directors are of the opinion that the publication of the adjusted profit/(loss) per share is useful as it gives a better indication of ongoing business performance. Reconciliations of the profit/loss used in the calculations are set out below.

 

30 Sep 21

30 Sep 20

31 Mar 21

 

Unaudited

Unaudited

Audited

 

£m

£m

£m

Profit/(loss) for basic EPS

3.3

(67.9)

(289.1)

Strategic review, formal sale process and related financing costs

-

3.6

3.0

Write-off of revolving credit facility (RCF) fees

-

0.7

0.7

Write-off of unamortised securitisation fees

-

1.2

1.2

Tax provision release

(0.8)

(2.5)

(2.5)

Tax refund due

(0.5)

-

-

Tax asset write-off

-

7.8

7.8

Less tax impact

-

(1.0)

(0.9)

Profit/(loss) for adjusted basic EPS 1

 

2.0

 

(58.1)

(279.8)

Basic weighted average number of shares (m)

475.3

475.3

475.3

Dilutive potential ordinary shares (m)2

 

1.1

 

2.6

0.5

Diluted weighted average number of shares (m)

476.4

477.9

475.8

 

1.  Adjusted basic profit/(loss) per share and earnings for adjusted basic profit/(loss) per share are non-GAAP measures.

2.  Although the Group has issued further options under the employee share schemes, upon assessment of the dilutive nature of the options, some options are not considered dilutive as at 30 September 2021 as they would not meet the performance conditions. Those dilutive shares included are in relation to the employee October 2020 SAYE scheme.

 

 

 

 

 

9. Customer loans and receivables

The table shows the gross loan book and deferred broker costs by stage, within the scope of the IFRS 9 ECL framework.

 

30 Sep 21

30 Sep 20

31 Mar 21

 

Unaudited

Unaudited

Audited

 

£m

£m

£m

Stage 1

209.0

451.3

311.5

Stage 2

45.6

91.8

61.4

Stage 3

34.6

20.8

50.0

Gross loan book

289.2

563.9

422.9

Deferred broker costs1 - stage 1

4.3

12.5

7.2

Deferred broker costs1 - stage 2

0.9

2.5

1.4

Deferred broker costs1 - stage 3

 

0.7

 

0.6

1.1

Loan book inclusive of deferred broker costs

295.1

579.5

432.6

Provision2

 

 

(65.1)

 

 

(78.7)

(82.0)

Customer loans and receivables

230.0

500.8

350.6

 

1.  Deferred broker costs are recognised within customer loans and receivables and are amortised over the expected life of those assets using the effective interest rate (EIR) method.

2.  Included within the provision is a judgemental management overlay of £nil for 30 September 2021, 30 September 2020 and £6.0m for 31 March 2021.

As at 30 September 2021, £132.5m of loans to customers had their beneficial interest assigned to the Group's special purpose vehicle (SPV) entity, namely AMGO Funding (No. 1) Ltd, as collateral for securitisation transactions (H1 2021: £255.7m). See note 18 for further details of this structured entity.

Ageing of gross loan book (excluding deferred brokers' fees and provision) by days overdue:

 

30 Sep 21

30 Sep 20

31 Mar 21

 

Unaudited

Unaudited

Audited

 

£m

£m

£m

Current

210.5

454.0

315.5

1-30 days

32.6

78.3

41.4

31-60 days

11.5

10.8

16.0

>60 days

34.6

20.8

50.0

Gross loan book

289.2

563.9

422.9

 

The following table further explains changes in the net carrying amount of loans receivable from customers to explain their

significance to the changes in the loss allowance for the same portfolios.

 

Period ended 30 September 2021

Stage 1

£m

Stage 2

£m

Stage 3

£m

Total

£m

Gross carrying amount as at 31 March 2021

311.5

61.4

50.0

422.9

Deferred brokers fees

7.2

1.4

1.1

9.7

Loan book inclusive of deferred broker costs

318.7

62.8

51.1

432.6

Changes in gross carrying amount attributable to:

 

 

 

 

Transfer to stage 1

22.9

(22.3)

(0.6)

-

Transfer to stage 2

(47.9)

49.0

(1.1)

-

Transfer to stage 3

(10.3)

(19.2)

29.5

-

Passage of time1

(45.6)

(6.6)

0.5

(51.7)

Customer settlements

(25.5)

(5.0)

(1.0)

(31.5)

Loans charged off

(2.3)

(11.4)

(41.2)

(54.9)

Net movement in modification loss relating to Covid-19 payment holidays

6.3

(0.3)

(1.5)

4.5

Net movement in deferred broker fees

(3.0)

(0.5)

(0.4)

(3.9)

Loan book inclusive of deferred broker costs as at 30 September 2021

213.3

46.5

35.3

295.1

 

 

 

 

Period ended 30 September 2020

Stage 1

£m

Stage 2

£m

Stage 3

£m

Total

£m

Gross carrying amount as at 31 March 2020

601.1

106.8

42.0

749.9

Deferred brokers fees

16.5

2.9

1.1

20.5

Loan book inclusive of deferred broker costs

617.6

109.7

43.1

770.4

Changes in gross carrying amount attributable to:

 

 

 

 

Transfer to stage 1

13.7

(13.4)

(0.3)

-

Transfer to stage 2

(26.8)

28.2

(1.4)

-

Transfer to stage 3

(5.1)

(8.4)

13.5

-

Passage of time1

(57.9)

(3.1)

0.1

(60.9)

Customer settlements

(59.3)

(7.3)

(1.7)

(68.3)

Loans charged off

(2.4)

(10.6)

(31.0)

(44.0)

Modification loss relating to Covid-19 payment holidays

(12.4)

(0.4)

(0.4)

(13.2)

Net new receivables originated

0.4

-

-

0.4

Net movement in deferred broker fees

(4.0)

(0.4)

(0.5)

(4.9)

Loan book inclusive of deferred broker costs as at 30 September 2020

463.8

94.3

21.4

579.5

 

1  Passage of time relates to amortisation of loan balances over the course of the financial year, due to cash payments partially offset by interest accruals.

As shown in the table above, the loan book inclusive of deferred broker cost decreased from £579.5m to £295.1m at 30 September 2021. This was primarily driven by the effect of passage of time (loan balances amortising throughout the period), customer settlements and minimal originations in the year.

The following tables explain the changes in the loan loss provision between the beginning and the end of the period:

Period ended 30 September 2021

Stage 1

£m

Stage 2

£m

Stage 3

£m

Total

£m

Loan loss provision as at 31 March 2021

21.0

14.1

46.9

82.0

Changes in loan loss provision attributable to:

 

 

 

 

Transfer to stage 1

1.6

(1.9)

(0.5)

(0.8)

Transfer to stage 2

(3.3)

8.8

(0.9)

4.6

Transfer to stage 3

(0.7)

(4.3)

24.6

19.6

Passage of time1

(3.2)

(0.7)

0.4

(3.5)

Customer settlements

(1.7)

(0.7)

(0.9)

(3.3)

Loans charged off

(0.2)

(4.7)

(34.4)

(39.3)

Net movement in modification loss relating to Covid-19 payment holidays

0.8

-

(0.2)

0.6

Remeasurement of ECLs

11.6

(0.2)

(6.2)

5.2

Loan loss provision as at 30 September 2021

25.9

10.4

28.8

65.1

 

Period ended 30 September 2020

Stage 1

£m

Stage 2

£m

Stage 3

£m

Total

£m

Loan loss provision as at 31 March 2020

55.1

20.1

31.6

106.8

Changes in loan loss provision attributable to:

 

 

 

 

Transfer to stage 1

1.2

(1.9)

(0.2)

(0.9)

Transfer to stage 2

(2.4)

6.2

(1.1)

2.7

Transfer to stage 3

(0.4)

(2.8)

10.1

6.9

Passage of time1

(5.3)

(0.4)

0.1

(5.6)

Customer settlements

(5.5)

(1.5)

(1.3)

(8.3)

Loans charged off

(0.2)

(4.2)

(23.3)

(27.7)

Management overlay

(1.0)

2.5

6.7

8.2

Net movement in modification loss relating to Covid-19 payment holidays

(1.1)

(0.2)

(0.3)

(1.6)

Remeasurement of ECLs

(1.2)

(1.0)

0.4

(1.8)

Loan loss provision as at 30 September 2020

39.2

16.8

22.7

78.7

 

1  Passage of time relates to amortisation of loan balances over the course of the financial year, due to cash payments partially offset by interest accruals.

As shown in the above tables, the allowance for ECL decreased from £78.7m at 30 September 2020 to £65.1m at 30 September 2021. The overall provision has reduced in line with the amortisation of the loan book in the absence of any meaningful originations.

The following table splits the gross loan book by arrears status, and then by stage respectively for the year ended 30 September 2021.

 

 

Stage 1

£m

Stage 2

£m

Stage 3

£m

Total

£m

Up to date

193.8

16.7

-

210.5

1-30 days

15.2

17.4

-

32.6

31-60 days

-

11.5

-

11.5

> 60 days

-

-

34.6

34.6

 

209.0

45.6

34.6

289.2

 

The following table splits the gross loan book by arrears status, and then by stage respectively for the year ended 30 September 2020:

 

Stage 1

£m

Stage 2

£m

Stage 3

£m

Total

£m

Up to date

411.7

42.3

-

454.0

1-30 days

39.4

38.9

-

78.3

31-60 days

-

10.8

-

10.8

> 60 days

-

-

20.8

20.8

 

451.1

92.0

20.8

563.9

 

The following table further explains changes in the net carrying amount of loans receivable from customers to explain their significance to the changes in the loss allowance for the same portfolios.

 

 

30 Sep 21

30 Sep 20

31 Mar 21

 

Unaudited

Unaudited

Audited

Customer loans and receivables

£m

£m

£m

Due within one year

177.4

270.9

218.9

Due in more than one year

46.7

214.3

122.0

Net loan book

224.1

485.2

340.9

Deferred broker costs 1

 

 

 

Due within one year

4.0

9.6

6.2

Due in more than one year

1.9

6.0

3.5

Customer loans and receivables

230.0

500.8

350.6

 

1.  Deferred broker costs are recognised within customer loans and receivables and are amortised over the expected life of those assets using the effective interest rate (EIR) method.

 

 

 

10. Financial instruments

The below tables show the carrying amounts and fair values of financial assets and financial liabilities, including the levels in the fair value hierarchy. The tables analyse financial instruments into a fair value hierarchy based on the valuation technique used to determine fair value:

a)  Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.

b)  Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).

c)  Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).

 

 

30 Sept 21

 

30 Sep 20

 

31 Mar 21

 

Fair value

hierarchy

Carrying amount

£m

Fair

value

£m

 

Carrying amount

£m

Fair

value

£m

 

Carrying amount

£m

Fair

value

£m

Financial assets not measured at fair value1

 

 

 

 

 

 

 

 

Amounts receivable from customers2

Level 3

230.0

214.4

 

500.8

488.9

 

350.6

340.6

Other receivables

Level 3

2.1

2.1

 

1.3

1.3

 

1.6

1.6

Cash and cash equivalents (restricted)

Level 1

2.0

2.0

 

9.5

9.5

 

6.3

6.3

Cash and cash equivalents

Level 1

234.5

234.5

 

134.2

134.2

 

177.9

177.9

 

 

468.6

453.0

 

645.8

633.9

 

536.4

526.4

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

 

 

 

 

 

 

 

 

 

Other liabilities

Level 3

(10.6)

(10.6)

 

(15.3)

(15.3)

 

(15.9)

(15.9)

Senior secured notes3

Level 1

(232.4)

(224.3)

 

(231.7)

(165.6)

 

(232.1)

(187.6)

Securitisation facility

Level 2

-

-

 

(168.0)

(180.9)

 

(64.4)

(64.5)

 

 

(243.0)

(234.9)

 

(415.0)

(361.8)

 

(312.4)

(268.0)

1.  The Group has disclosed the fair values of financial instruments such as short-term trade receivables and payables at their carrying value because it considers this a reasonable approximation of fair value.

2.  The unobservable inputs in the fair value calculation of amounts receivable from customers are expected credit losses, forecast cash flows and discount rates. As lifetime expected credit losses are embedded in the calculation, this results in a fair value lower than the carrying amount.

3.  Senior secured notes are presented in the financial statements net of unamortised fees. As at 30 September 2021, the gross principal amount outstanding was £234.1m. The fair value reflects the market price of the notes at the balance sheet date.

Financial instruments not measured at fair value

The fair value of amounts receivable from customers has been estimated using a net present value calculation using discount rates derived from the blended effective interest rate of the instruments. As these loans are not traded on an active market and the fair value is therefore determined through future cash flows, they are classed as Level 3 under IFRS 13 Fair Value Measurement. The fair value of senior secured notes has been taken at the Bloomberg Valuation Service (BVAL) market price.

All financial instruments are held at amortised cost, with the exception of the derivative asset which is held at FVTPL.

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.

The Group's activities expose it to a variety of financial risks, which can be categorised as credit risk, liquidity risk, interest rate risk, foreign exchange rate risk and market risk. The objective of the Group's risk management framework is to identify and assess the risks facing the Group and to minimise the potential adverse effects of these risks on the Group's financial performance. Financial risk management is overseen by the Group Risk Committee.

 

 

 

 

30 Sep 21

30 Sep 20

31 Mar 21

 

Unaudited

Unaudited

Audited

 

£m

£m

£m

Maturity analysis of financial liabilities

 

 

 

Analysed as:

 

 

 

- due within one year

 

 

 

Other liabilities

(10.6)

(15.3)

(15.9)

Securitisation facility

-

-

(64.4)

- due in two to three years

 

 

 

Senior secured note liability

(232.4)

-

(232.1)

Securitisation facility

-

(168.0)

-

- due in three to four years

 

 

 

Senior secured note liability

-

(231.7)

-

 

(243.0)

(415.0)

(312.4)

 

 

 

 

 

11. Other receivables

 

30 Sep 21

30 Sep 20

31 Mar 21

 

Unaudited

Unaudited

Audited

 

£m

£m

£m

Current

 

 

 

Other receivables

0.7

0.1

0.5

Prepayments and accrued income

1.3

1.2

1.1

 

2.0

1.3

1.6

 

12. Trade and other payables

 

30 Sep 21

30 Sep 20

31 Mar 21

 

Unaudited

Unaudited

Audited

 

£m

£m

£m

Current

 

 

 

Accrued senior secured note interest

3.7

3.7

3.7

Trade payables

0.2

0.7

0.5

Taxation and social security

0.7

0.7

0.8

Other creditors

0.8

0.9

1.8

Accruals and deferred income

5.2

9.1

 

10.6

15.9

 

13. Bank and other borrowings

 

30 Sep 21

30 Sep 20

31 Mar 21

 

Unaudited

Unaudited

Audited

 

£m

£m

£m

Current and non-current liabilities

 

 

 

Amounts falling due in less than 2 years

 

 

 

Securitisation facility

-

-

64.4

Amounts falling due 2-3 years

 

 

 

Senior secured notes

232.4

-

232.1

Securitisation facility

-

168.0

-

Amounts falling due 3-4 years

 

 

 

Senior secured notes

-

231.7

-

 

232.4

399.7

296.5

 

The Group's facilities are:

· Senior secured notes in the form of £232.4m high yield bonds with a coupon rate of 7.625% which expire in January 2024 (H1 2021: £231.7m). The senior secured notes are presented in the financial statements net of unamortised fees. As at 30 September 2021, the gross principal amount outstanding was £234.1m. On 20 January 2017, £275.0m of notes were issued at an interest rate of 7.625%. The high yield bond was tapped for £50.0m in May 2017 and again for £75.0m in September 2017 at a premium of 3.8%. £165.9m of notes have been repurchased in the open market in prior financial years (2020: £85.9m; 2019: £80.0m).

 

· The securitisation facility was in place during the period; however, the securitisation facility has been fully repaid. Given the current suspension of all new lending activity at Amigo, the size of the securitisation facility was reduced from £250m to £100m, effective 25 June 2021. On 25 June 2021, the Group extended the securitisation facility's performance trigger waiver period from 25 June 2021 to 24 September 2021. The 24 September 2021 extension of the facility's performance trigger waiver period expired on 24 September 2021. In light of the Group's immediate funding needs and current unrestricted cash balance, the Company does not expect the need to operate the securitisation facility in the near term. The Board intends to keep the securitisation structure in place to provide the Company with more diversity for future funding options. With effect from 24 September 2021, all rights, obligations and liabilities of the Lead Arranger, Facility Agent and Senior Noteholder, as defined in the securitisation Facility Documents, were taken over and assumed by Amigo.

 

14. Provisions

Provisions are recognised for present obligations arising as the consequence of past events where it is more likely than not that

a transfer of economic benefit will be necessary to settle the obligation, which can be reliably estimated.

 

 

30 Sep 21

30 Sep 20

31 Mar 2021

 

Complaints

Restructuring

Total

Complaints

Restructuring

Total

Complaints

Restructuring

Total

 

£m

£m

£m

£m

£m

£m

£m

£m

£m

Balance as at 31 March 2021/20

344.6

-

344.6

117.5

-

117.5

117.5

-

117.5

Provisions made during year

5.3

-

5.3

93.7

-

93.7

318.8

1.0

319.8

Discount unwind (note 4)

-

-

-

1.1

-

1.1

2.0

-

2.0

Movement in the provision

(5.6)

-

(5.6)

(53.2)

-

(53.2)

(93.7)

-

(93.7)

Closing provision

344.3

-

344.3

159.1

-

159.1

344.6

1.0

345.6

 

 

 

 

 

 

 

 

 

 

Non-current

-

-

-

11.0

-

11.0

-

-

-

Current

344.3

-

344.3

148.1

-

148.1

344.6

1.0

345.6

 

344.3

-

344.3

159.1

-

159.1

344.6

1.0

345.6

 

Customer complaints redress

As at 30 September 2021, the Group has recognised a complaints provision totalling £344.3m in respect of customer complaints redress and associated costs. Utilisation in the period totalled £5.6m. Our lending practices have been subject to significant shareholder, regulatory and customer attention, which, combined with the pursuit of a Scheme, has resulted in an increase in the number of complaints received.

 

The current provision reflects the estimate of the cost of redress relating to customer-initiated complaints and complaints raised

by CMCs for which it has been concluded that a present constructive obligation exists, based on the latest information available. The provision has two components, firstly a provision for complaints received at the reporting date, and secondly a provision for the projected costs of potential future complaints where it is considered more likely than not that customer redress will be appropriate. The engagement with customers and increased publicity of complaints in connection with the proposed Scheme and the accompanying creditor vote process, as well as ongoing publicity relating to any potential future Scheme. Consequently, in the current period, the complaints provision is classified as a current liability.

 

There is significant uncertainty around the emergence period for complaints, in particular the impact of customer

communications in connection with the unsuccessful Scheme of Arrangement and any potential alternative Scheme of

Arrangement and the activities of claims management companies; both of which could significantly affect complaint volumes,

uphold rates and redress costs. It is possible that the eventual outcome may differ materially from current estimates which

could materially impact the financial statements, given the Group's only activity is guarantor-backed consumer credit. See note

2.3 for details of the key assumptions that involve significant management judgement and estimation in the provision

calculation, and for sensitivity analysis.

 

The Group continues to monitor its policies and processes to ensure that it responds appropriately to customer complaints. The

Group will continue to assess both the underlying assumptions in the calculation and the adequacy of this provision periodically

using actual experience and other relevant evidence to adjust the provisions where appropriate.

 

Restructuring provision

As at 31 March 2021, the Group recognised a restructuring provision totalling £1.0m in respect of the expected cost of staff redundancies. This provision was fully utilised by 30 June 2021 and outstanding balance as at 30 September 2021 is £nil.

 

 

Contingent liability

FCA investigation

On 29 May 2020 the FCA commenced an investigation into whether the Group's creditworthiness assessment process, and the

governance and oversight of this, was compliant with regulatory requirements. The FCA investigation will cover lending for the

period from 1 November 2018 to date. There is significant uncertainty around the impact of this on the business, the

assumptions underlying the complaints provision and any future regulatory intervention.

 

The Group was informed on 15 March 2021 that the FCA has decided to extend the scope of its current investigation so that it

can investigate whether the Group appropriately handled complaints after 20 May 2020 and whether the Group deployed

sufficient resource to address complaints in accordance with the Voluntary Requirement (VReq) announced on 27 May 2020 and

the subsequent variation announced on 3 July 2020. The FCA investigation will consider whether those complaints have been

handled appropriately and whether customers have been treated fairly in accordance with Principle 6 of the FCA's Principles for

Business. The Group will continue to co-operate fully with the FCA.

 

Such investigations take an average of two years to conclude from the commencement date. There are a number of different

outcomes which may result from this FCA investigation, including the imposition of a significant fine and/or the requirement to

perform a back-book remediation exercise in the absence of a successful Scheme of Arrangement. Should the FCA mandate this

review it is possible that the cost of such an exercise will exceed the Group's available resources. The potential impact of the

investigation on the business is unpredictable and unquantifiable.

 

15. Share capital

On 4 July 2018 the Company's shares were admitted to trading on the London Stock Exchange. Immediately prior to admission the shareholder loan notes were converted to equity, increasing the share capital of the business to 475 million ordinary shares and increasing net assets by £207.2m. No additional shares were issued subsequent to conversion of the shareholder loan notes.

 

 

Ordinary Number

  Total Number

At 31 March 2021

475,333,760

475,333,760

At 30 September 2021

475,333,760

475,333,760

 

Ordinary shares

The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at general meetings of the Company. Each ordinary share in the capital of the Company ranks equally in all respects and no shareholder holds shares carrying special rights relating to the control of the Company. The nominal value of shares in issue is shown in share capital, with any additional consideration for those shares shown in share premium.

 

Deferred shares

At the time of the IPO and subdivision the 41,000 ordinary B shares were split into 16,400,000 ordinary shares of 0.25p and 41,000 deferred shares of £0.24.

 

The deferred shares do not carry any rights to receive any profits of the Company or any rights to vote at a general meeting. Prior to the subdivision the ordinary B shares had 1.24 votes per share; all other shares had one vote per share.

 

Dividends

Dividends are recognised through equity, on the earlier of their approval by the Company's shareholders or their payment. Due to the Asset Voluntary Requirement entered into with the FCA, prior approval by the FCA will be required to pay dividends to shareholders. The Board decided that it would not propose a final dividend payment for the year to 31 March 2021 or an interim dividend for the period to 30 September 2021. Total cost of dividends paid in the period is £nil (2020: £nil).

 

16. Immediate and ultimate parent undertaking

The immediate and ultimate parent undertaking is Amigo Holdings PLC, a company incorporated in England and Wales. The consolidated financial statements of the Group as at and for the year ended 31 March 2021 are available upon request from the Company's registered office at Nova Building, 118-128 Commercial Road, Bournemouth, United Kingdom, BH2 5LT.

 

 

17. Share-based payments

The Group issues share options and awards to employees as part of its employee remuneration packages. The Group operates three types of equity settled share scheme: Long Term Incentive Plan (LTIP), employee's savings-related share option schemes referred to as Save As You Earn (SAYE) and the Share Incentive Plan (SIP).

 

During the period a secondary SAYE scheme was launched and additional LTIP awards in the form of nil cost share options were granted.

 

A summary of the new awards at the reporting date is set out below:

Type

Contractual life of options

Performance condition

Method of settlement accounting

Number of instruments

Vesting period

2021 LTIP

August 2021- July 2024

Y

Equity

4,350,000

3 years

 

Granted LTIPs are subject to the following performance conditions.

· 40% of the LTIP Awards vest subject to an absolute total shareholder return (ATSR) performance condition which will be measured over a three year performance period commencing on 27 August 2021. Straight line vesting applies to share price growth between £0.12 and £0.40;

· 30% of the LTIP Awards are subject to the Group meeting an earnings per share (EPS) performance condition which will be measured over a three year performance period commencing 27 August 2021. Straight line vesting applies to EPS growth between £0.01 and £0.04; and

· 30% of the LTIP Awards are subject to non-financial measures, such as internal targets for corporate culture, conduct risk matters, diversity and inclusiveness and other ESG measures.

 

Absolute TSR target

Proportion of LTIP Awards subject to Absolute TSR condition that vest

Below £0.12

£0.40

0%

100%

EPS Target

Proportion of LTIP Awards subject to EPS condition that vest

Below £0.01

£0.04

0%

100%

Non-financial measures

30%

 

 

 

 

 

 

18. Investment in subsidiaries and structed entities

Amigo Loans Group Limited (ALGL) is a wholly owned subsidiary of the Company and a reconciliation to its consolidated results is included in the presentation pack on the Company's website as part of ALGL's senior secured note reporting requirements.

 

The following are subsidiary undertakings of the Company at 30 September 2021 and includes undertakings registered or incorporated up to the date of the Directors' Report as indicated. Unless otherwise indicated all Group owned shares are ordinary. All entities are subsidiaries on the basis of 100% ownership and shareholding, aside from AMGO Funding (No. 1) Limited which is an orphaned structured entity.

 

 

 

 

 

 

 

Name

Country of incorporation

Class of

Shares held

Ownership  2021

Ownership 2020

Principal activity

Direct holding

 

 

 

 

 

Amigo Loans Group Ltd1

United Kingdom

Ordinary

100%

100%

Holding company

ALL Scheme Ltd1*

United Kingdom

Ordinary

100%

-

Special purpose vehicle

Indirect holdings

 

 

 

 

 

Amigo Loans Holdings Ltd1

United Kingdom

Ordinary

100%

100%

Holding company

Amigo Loans Ltd1

United Kingdom

Ordinary

100%

100%

Trading company

Amigo Management Services Ltd1

United Kingdom

Ordinary

100%

100%

Trading company

Amigo Canteen Limited1**

United Kingdom

Ordinary

100%

100%

In liquidation

Amigo Luxembourg S.A.2

Luxembourg

Ordinary

100%

100%

Financing company

AMGO Funding (No.1) Ltd4

United Kingdom

n/a

"SE"

"SE"

Special purpose vehicle

Amigo Car Loans Limited1

United Kingdom

Ordinary

100%

100%

Dormant company

Amigo Motor Finance Limited1

United Kingdom

Ordinary

100%

100%

Dormant company

Amigo Car Finance Limited1

United Kingdom

Ordinary

100%

100%

Dormant company

Amigo Store Limited1

United Kingdom

Ordinary

100%

100%

Dormant company

Amigo Group Limited1

United Kingdom

Ordinary

100%

100%

Dormant company

Amigo Finance Limited1

United Kingdom

Ordinary

100%

100%

Dormant company

Amigo Loans International Limited3

Ireland

Ordinary

100%

100%

Holding company

Amigo Loans Ireland Limited3

Ireland

Ordinary

100%

100%

Trading company

               

 

1  Registered at Nova Building, 118-128 Commercial Road, Bournemouth BH2 5LT, England.

2  Registered at 19, Rue de Bitbourg, L-1273 Luxembourg.

3  Registered at Suite 3, One Earlsfort Centre, Lower Hatch Street, Dublin 2.

4  Registered at Level 37, 25 Canada Square, London E14 5LQ.

*  Incorporated on 6 January 2021.

**  Previously RG Catering Services Limited.

 

 

19. Related party transactions

The Group had no related party transactions during the six month period to 30 September 2021 that would materially affect the performance of the Group. Details of the transactions for the year ended 31 March 2021 can be found in note 24 of the Amigo Holdings PLC financial statements.

 

 

 

 

 

          Appendix: alternative performance measures (unaudited)

This financial report provides alternative performance measures (APMs) which are not defined or specified under the requirements of International Financial Reporting Standards. The Board believes these APMs provide readers with important additional information on the Group. To support this, details of the APMs used, how they are calculated and why they are used are set out below.

 

Key performance indicators

Other financial data

 

 

 

 

 

6 months to

6 months to

Year to

Figures in £m, unless otherwise stated

30 Sep 21

30 Sep 20

31 Mar 21

Average gross loan book

356.1

656.9

586.4

Gross loan book

289.2

563.9

422.9

Percentage of book <31 days past due

84.1%

94.4%

84.4%

Net loan book

224.1

485.2

340.9

Net borrowings

2.1

(265.5)

(118.6)

Net borrowings/gross loan book

(0.7)%

47.1%

28.0%

Net borrowings/equity

0.0X

2.7x

(1.0)x

Revenue yield

31.7%

28.1%

29.1%

Risk adjusted revenue

30.6

72.8

110.1

Risk adjusted margin

17.2%

22.2%

18.8%

Net interest margin

16.6%

20.3%

20.3%

Adjusted net interest margin

26.3%

23.4%

24.5%

Cost of funds percentage

5.5%

4.7%

4.3%

Impairment:revenue ratio

45.8%

21.1%

35.5%

Impairment charge as a percentage of loan book

17.9%

6.9%

14.4%

Cost:income ratio

33.3%

125.9%

212.7%

Operating cost:income ratio (ex. complaints)

23.9%

24.4%

26.1%

Adjusted profit/(loss) after tax

2.0

(58.1)

(279.8)

Return on assets

1.3%

(19.1)%

(44.9)%

Adjusted return on average assets

0.8%

(16.3)%

(43.5)%

Return on equity

(5.5)%

(101.7)%

(1257.0)%

Adjusted return on average equity

(3.3)%

(87.0)%

(1216.5)%

 

1. Average gross loan book

 

30 Sep 21

30 Sep 20

31 Mar 21

 

£m

£m

£m

Opening gross loan book

422.9

749.9

749.9

Closing gross loan book

289.2

563.9

422.9

Average gross loan book1

 

356.1

656.9

586.4

 

1.  Gross loan book represents total outstanding loans and excludes deferred broker costs.

2. The percentage of balances up to date or less than 31 days overdue is presented as this is useful in reviewing the quality of the loan book.

 

30 Sep 21

30 Sep 20

31 Mar 21

Ageing of gross loan book by days overdue:

£m

£m

£m

Current

210.5

454.0

315.5

1-30 days

32.6

78.3

41.4

31-60 days

11.5

10.8

16.0

>61 days

34.6

20.8

50.0

Gross loan book

289.2

563.9

422.9

Percentage of book <31 days past due

84.1%

94.4%

84.4%

 

3. "Net loan book" is a subset of customer loans and receivables and represents the interest yielding loan book when the IFRS 9 impairment provision is accounted for, comprised of:

 

 

30 Sep 21

30 Sep 20

31 Mar 21

 

£m

£m

£m

Gross loan book1 (see APM number 2)

289.2

563.9

422.9

Provision2

 

(65.1)

(78.7)

(82.0)

Net loan book 3

 

224.1

485.2

340.9

1 Gross loan book represents total outstanding loans and excludes deferred broker costs.

2 Provision for impairment represents the Group's estimate of the portion of loan accounts that are not in arrears or are up to five payments in arrears for which the Group will not ultimately be able to collect payment. Provision for impairment excludes loans that are six or more payments in arrears, which are charged off of the statement of financial position and are therefore no longer included in the loan book.

3 Net loan book represents gross loan book less provision for impairment.

 

4. "Net borrowings" is comprised of:

 

30 Sep 21

30 Sep 20

31 Mar 21

 

£m

£m

£m

Borrowings1

(232.4)

(399.7)

(296.5)

Cash and cash equivalents

234.5

134.2

177.9

Net borrowings

2.1

(265.5)

(118.6)

1.  Total borrowings is net of unamortised fees.

 

This is deemed useful to show total borrowings if unrestricted cash available at the period end was used to repay borrowings.

5. The Group defines loan to value (LTV) as net borrowings divided by gross loan book. This measure shows if the borrowings' year-on-year movement is in line with loan book growth.

 

30 Sep 21

30 Sep 20

31 Mar 21

 

£m

£m

£m

Net borrowings (see APM number 4)

2.1

(265.5)

(118.6)

Gross loan book (see APM number 2)

289.2

563.9

422.9

Net borrowings/gross loan book

(0.7)%

47.1%

28.0%

 

6. Net borrowings/equity

 

30 Sep 21

30 Sep 20

31 Mar 21

 

£m

£m

£m

Shareholder equity

(117.6)

99.6

(121.4)

Net borrowings (see APM number 4)

2.1

(265.5)

(118.6)

Net borrowings/equity

0.0x

2.7x

(1.0)x

 

This is one of the Group's metrics to assess gearing.

7. The Group defines "revenue yield" as annualised revenue over the average of the opening and closing gross loan book for the period.

 

30 Sep 21

30 Sep 20

31 Mar 21

Revenue yield

£m

£m

£m

Revenue

56.5

92.3

170.8

Opening loan book

422.9

749.9

749.9

Closing loan book

289.2

563.9

422.9

Average loan book (see APM number 1)

356.1

656.9

586.4

Revenue yield (annualised)

31.7%

28.1%

29.1%

 

This is deemed useful in assessing the gross return on the Group's loan book.

 

8. The Group defines "risk adjusted revenue" as revenue less impairment charge.

 

30 Sep 21

30 Sep 20

31 Mar 21

 

£m

£m

£m

Revenue

56.5

92.3

170.8

Impairment of amounts receivable from customers

(25.9)

(19.5)

(60.7)

Risk adjusted revenue

30.6

72.8

110.1

 

Risk adjusted revenue is not a measurement of performance under IFRS and is not an alternative to profit/(loss) before tax as a measure of the Group's operating performance, as a measure of the Group's ability to meet its cash needs or as any other measure of performance under IFRS.

9. The Group defines "risk adjusted margin" as risk adjusted revenue divided by the average of gross loan book.

 

30 Sep 21

30 Sep 20

31 Mar 21

 

£m

£m

£m

Risk adjusted revenue (see APM number 8)

30.6

72.8

110.1

Average gross loan book (see APM number 1)

356.1

656.9

586.4

Risk adjusted margin (annualised)

17.2%

22.2%

18.8%

 

This measure is used internally to review an adjusted return on the Group's loan book.

 

 

10. The Group defines "net interest margin" as annualised net interest income divided by average interest-bearing assets (being both gross loan book and cash) at the beginning of the period and end of the period.

 

30 Sep 21

30 Sep 20

31 Mar 21

 

£m

£m

£m

Revenue

56.5

92.3

170.8

Interest payable, receivable and funding facility fees

(9.7)

(15.6)

(27.4)

Net interest income

46.8

76.7

143.4

Opening interest-bearing assets (gross loan book plus unrestricted cash)

600.8

814.2

814.2

Closing interest-bearing assets (gross loan book plus unrestricted cash)

523.7

698.1

600.8

Average interest-bearing assets (customer loans and receivables plus unrestricted cash)

562.3

756.2

707.5

Net interest margin (annualised)

16.6%

20.3%

20.3%

 

Adjusted net interest margin, being net interest income divided by average gross loan book, is also presented below:

 

30 Sep 21

30 Sep 20

31 Mar 21

 

£m

£m

£m

Net interest income

46.8

76.7

143.4

Average gross loan book (see APM number 1)

356.1

656.9

586.4

Adjusted net interest margin (annualised)

26.3%

23.4%

24.5%

 

11. The Group defines "cost of funds" as annualised interest payable divided by the average of gross loan book at the beginning and end of the period.

 

30 Sep 21

30 Sep 20

31 Mar 21

 

£m

£m

£m

Cost of funds

9.8

15.6

27.5

Less complaints discount unwind expense (notes 4 and 14)

-

(1.1)

(2.0)

Adjusted cost of funds

9.8

14.5

25.5

Average gross loan book (see APM number 1)

356.1

656.9

586.4

Cost of funds percentage (annualised)

5.5%

4.4%

4.3%

 

This measure is used by the Group to monitor the cost of funds and impact of diversification of funding. The measure has been amended to reflect on true interest expenses related to borrowings, accounting related adjustments have been removed to provide a better understanding for users.

12. Impairment charge as a percentage of revenue "impairment:revenue ratio" represents the Group's impairment charge for the period divided by revenue for the period.

 

30 Sep 21

30 Sep 20

31 Mar 21

 

£m

£m

£m

Revenue

56.5

92.3

170.8

Impairment of amounts receivable from customers

25.9

19.5

60.7

Impairment charge as a percentage of revenue

45.8%

21.1%

35.5%

 

This is a key measure for the Group in monitoring risk within the business.

13 . Impairment charge as a percentage of loan book represents the Group's impairment charge for the period divided by closing gross loan book.

 

30 Sep 21

30 Sep 20

31 Mar 21

 

£m

£m

£m

Impairment of amounts receivable from customers

25.9

19.5

60.7

Closing gross loan book (see APM number 1)

289.2

563.9

422.9

Impairment charge as a percentage of loan book (annualised)

17.9%

6.9%

14.4%

 

This allows review of the impairment charge relative to the size of the Group's gross loan book.

14. The Group defines "cost:income ratio" as operating expenses excluding strategic review, formal sale process and related financing costs divided by revenue.

 

30 Sep 21

30 Sep 20

31 Mar 21

 

£m

£m

£m

Revenue

56.5

92.3

170.8

Total operating expenses

18.8

116.2

363.3

Cost:income ratio

33.3%

125.9%

212.7%

 

This measure allows review of cost management.

 

15. Operating cost:income ratio, defined as the cost:income ratio excluding the complaints provision, is:

 

30 Sep 21

30 Sep 20

31 Mar 21

 

£m

£m

£m

Revenue

56.5

92.3

170.8

Administrative and other operating expenses

13.5

22.5

44.5

Operating cost:income ratio

23.9%

24.4%

26.1%

 

16. The following table sets forth a reconciliation of profit/(loss) after tax to "adjusted (loss)/profit after tax" for the 6 months to 30 September 2021, 2020 and year to 31 March 2020.

 

30 Sep 21

30 Sep 20

31 Mar 21

 

£m

£m

£m

Reported profit/(loss) after tax

3.3

(67.9)

(289.1)

Revolving credit facility (RCF) fees

-

0.7

0.7

Securitisation fees

-

1.2

1.2

Strategic review and formal sale process costs

-

3.6

3.0

Tax provision release

(0.8)

(2.5)

(2.5)

Tax refund due

(0.5)

-

-

Tax asset write-off

-

7.8

7.8

Less tax impact

-

(1.0)

(0.9)

Adjusted profit/(loss) after tax

2.0

(58.1)

(279.8)

 

 

The above items were all excluded due to their exceptional nature. The Directors believe that adjusting for these items is useful in making year-on-year comparisons.

· Senior secured note buybacks are not underlying business-as-usual transactions.

· RCF fees relate to fees written-off following the modification and extension of the revolving credit facility in FY20, and in FY21 relates to fees written-off following cancellation of the facility. Modification, extension and cancellation of the facility were all deemed substantial modifications of the financial instrument leading to the derecognition of previously capitalised fees. The facility was cancelled in May 2020 and hence these amounts have been excluded.

· Following the renegotiation of the securitisation facility on 14 August 2020 a substantial modification of the facility occurred; as such all previous capitalised fees relating to the facility have been written off. This has been adjusted for above as it was a one-off event in the period.

· Due to inherent uncertainty surrounding future profitability, current and deferred tax assets were written off and charged to the consolidated statement of comprehensive income in the year. The tax provision release refers to the release of a tax provision no longer required. These adjustments result in a tax charge for the year despite the large loss making position as at 31 March 2021 and hence have been adjusted for in the calculation.

· Strategic review and formal sale process costs relate to the strategic review and formal sale processes both announced in January 2020. They are one off costs and hence have been adjusted.

· Tax provision release is a prior year adjustment due to the release of the 2017 uncertain tax provision relating to the potential thin capitalisation adjustment in Amigo Holdings.

None are business-as-usual transactions. Hence, removing these items is deemed to give a view of underlying profit/(loss) adjusting for non-business-as-usual items within the financial year.

17. Return on assets (ROA) refers to annualised profit/(loss) over tax as a percentage of average assets.

Return on assets

30 Sep 21

30 Sep 20

31 Mar 21

Profit/(loss) after tax

3.3

(67.9)

(289.1)

Customer loans and receivables at period and year end

229.9

500.8

350.6

Other receivables and current assets at period and year end

4.7

37.5

8.0

Cash and cash equivalents at period and year end

234.5

134.2

177.9

Total

469.1

672.5

536.5

Average assets

502.8

711.8

643.8

Return on assets (annualised)

1.3%

(19.1)%

(44.9)%

 

 

 

 

 

 

18. Adjusted return on assets  refers to annualised adjusted profit/(loss) over tax as a percentage of average assets

Adjusted return on assets

30 Sep 21

30 Sep 20

31 Mar 21

Adjusted (loss)/profit after tax (see APM number 16)

2.0

(58.1)

(279.8)

Customer loans and receivables at period and year end

229.9

500.8

350.6

Other receivables and current assets at period and year end

4.7

37.5

8.0

Cash and cash equivalents at period and year end

234.5

134.2

177.9

Total

469.1

672.5

536.5

Average assets

502.8

711.8

643.8

Adjusted return on assets (annualised)

0.8%

(16.3)%

(43.5)%

 

19. "Return on equity" (ROE) is calculated as annualised profit/(loss) after tax divided by the average of equity at the beginning of the period and the end of the period.

 

30 Sep 21

30 Sep 20

31 Mar 21

 

£m

£m

£m

Profit/(loss) after tax

3.3

(67.9)

(289.1)

 

 

 

 

Shareholder equity

(117.6)

99.6

(121.4)

Average equity

(119.5)

133.5

23.0

Return on average equity (annualised)

(5.5)%

(101.7)% 

(1257.0)%

 

 

20. "Adjusted return on equity" is calculated as annualised adjusted profit/(loss) after tax divided by the average of equity at the beginning of the period and the end of the period.

 

30 Sep 21

30 Sep 20

31 Mar 21

 

£m

£m

£m

Adjusted profit/(loss) after tax (see APM number 16)

2.0

(58.1)

(279.8)

 

 

 

 

Shareholder equity

(117.6)

99.6

(121.4)

Average equity

(119.5)

133.5

23.0

Adjusted return on average equity (annualised)

(3.3)%

(87.0)% 

(1216.5)%

 

 

 

 

 

 

 

 

 

 

 

 

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