TIDMAMGO
RNS Number : 2731Q
Amigo Holdings PLC
25 February 2021
25 February 2021
Amigo Holdings PLC
Financial results for the nine months ended 31 December 2020
Amigo Holdings PLC, (Amigo), the leading provider of guarantor
loans in the UK, announces results for the nine-month period ended
31 December 2020.
Figures in GBPm, unless otherwise 9 Months ended 9 Months ended Change
stated 31 December 31 December %
2020 2019
Number of customers(1) '000 156.0 232.1 (32.8)%
Net loan book(2*) 412.2 722.3 (42.9)%
Revenue 137.5 218.0 (36.9)%
Impairment: revenue(*) 30.2% 31.5% (4.1)%
Complaints provision (balance
sheet) 150.9 18.7 707.0%
Complaints cost (income statement) 116.2 26.6 336.8%
(Loss)/Profit before tax (81.3) 53.5 (252.0)%
(Loss)/Profit after tax(3) (86.8) 45.9 (289.1)%
Adjusted (Loss)/Profit after
tax(4*) (77.0) 44.7 (272.3)%
Basic EPS Pence (18.3) 9.7 (288.7)%
EPS (Basic, adjusted)(5*) Pence (16.2) 9.4 (272.3)%
Net borrowings/equity(6*) 2.2x 1.8x 22.2%
--------------------------------------------- --------------- --------------- ---------
-- Covid-19 related payment holidays granted to over 62,000
customers as at 31 December 2020. As at the end of January this was
over 63,000 with over 12, 000 plans still active. Monthly
collections remain robust at 82 % of pre-Covid-19 expectations
-- Revenue reduction of 36.9% to GBP137.5m (Q3 2020: GBP218.0m)
driven by a pause in all new lending and the modification loss
arising from Covid-19-related payment holidays
-- Impairment: revenue ratio at 30.2% (Q3 2020: 31.5%)
reflecting the reduction in originations offset by an increase in
arrears for customers exiting Covid-19 plans
-- Prior to Court sanction of the Scheme of Arrangement
('Scheme') there is not sufficient certainty to account for
complaints on the basis the Scheme proceeds. Accounting for known
and future complaints provisioning has therefore been kept
consistent with prior periods
-- An increase in future volume expectations driven by proactive
promotion of the Scheme, offset by provision utilisation in the
period, resulted in a complaints provision of GBP150.9m as at 31
December 2020 (Q3 2020: GBP18.7m). The associated cost of
complaints for the nine months was GBP116.2m (Q3 2020:
GBP26.6m)
-- The tax charge predominately reflects the H1 write off of a deferred tax asset
-- GBP 164.6 m of cash as at 31 December 2020 (Q3 2020: GBP 30.2
m). Net borrowings of GBP179.5m (Q3 2020: GBP466.6m); cash as at 24
February 2021 of over GBP 165.0 m reflects continued strong cash
generation
-- Despite a material uncertainty surrounding going concern, the
Board considers that it currently has sufficient liquidity and
other resources to continue to fund operations and support its
customers
Scheme of Arrangement
-- Scheme of Arrangement process initiated on 25 January 2021
when the practice statement letter was issued. This is designed to
provide a fair outcome to customers with a valid complaint against
Amigo. There are c700,000 past and c.300,000 present borrowers and
guarantors. If approved, the Scheme is expected to become effective
in May 2021
-- A successful Scheme will provide certainty on the final
complaints liability for all complaints on loans issued to date and
will enable Amigo to focus on building a sustainable business for
the long term, for our customers, employees and our investors,
providing much needed financial inclusion
*Detailed definitions and calculations of these alternative
performance measures (APMs) can be found in the APM section of
these condensed financial statements
Commenting on the Q3 results, Gary Jennison, CEO of Amigo,
said:
"Amigo has made considerable progress over the third quarter of
our financial year with an entirely new Board enabling a fresh and
different approach, focused on customer outcomes. Following the
period end, we initiated our Scheme of Arrangement process.
"When I started as CEO over five months ago, I knew we had to do
something significant to deal with the complaints we were getting.
We're very focused on doing the right thing for all our customers,
including the 700,000 past borrowers and guarantors who no longer
have a loan with us. The Scheme was a difficult decision for us to
make. We had to look at all the options, and we considered every
possibility. We're doing it to treat all our customers and other
stakeholders fairly and we believe it is absolutely the right thing
to do.
"We are paying redress due to customers with final response
letters issued prior to 21 December 2020 and handling all final
decision letters from the Financial Ombudsman Service (FOS) prior
to this date. We are still getting new complaints in, and our team
is dealing with them, responding to them, and we're explaining to
customers how they can benefit via the Scheme of Arrangement.
"We're a small leadership team at Amigo and we will spend the
coming weeks focusing on the Scheme. Once the Scheme has started
going through the Courts and we've agreed the go forward business
model with the FCA, then we can turn our attention to lending.
We've seen our customer base shrink by over 30% over the last 12
months, as they've settled or finished their loans. We want to get
Amigo back to life again.
"Amigo has a valuable role to play in the non-standard lending
sector, when mainstream finance will not lend to people who are
excluded from their lending proposition. We have a real purpose to
help provide financial inclusion to millions of adults in UK
society. The newly formed team of people here have gravitated
towards Amigo to help us to work with regulators to fix the
challenges from the past and to do the right thing for
customers."
Analyst, investor and bondholder conference call and webcast
Amigo will be hosting a live webcast for investors and
bondholders today at 09:30 (London time) which will be available
at: https://www.amigoplc.com/investors/results-centre. A conference
call is also available for those unable to join the webcast (Dial
in: + 020 3936 2999; Access code: 082188). 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) (Loss)/profit after tax otherwise known as (loss)/profit and
total comprehensive income to equity shareholders of the Group as
per the financial statements.
(4) Adjusted (loss)/profit after tax excludes items due to their
exceptional nature including: senior secured note, RCF fees,
securitisation facility fees write off, tax provision release, tax
asset write off 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 (loss)/profit
adjusting for non-business-as-usual items within the financial
year.
(5) Adjusted basic (loss)/earnings per share is a non-lFRS
measure and the calculation is shown in note 8. Adjustments to
(loss)/earnings are described in footnote 4 above.
(6) Net borrowings/equity - net borrowings is defined as
borrowings less cash at bank and in hand. This is divided by
shareholder equity to give the Group's preferred gearing
metric.
Contacts:
Amigo
Mike Corcoran, Chief Financial Officer
Kate Patrick, Head of Investor Relations investors@amigo.me
Hawthorn Advisors amigo@hawthornadvisors.com
Lorna Cobbett Tel: 020 3745 4960
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 with a simple
and transparent product - a guarantor loan at a representative APR
of 49.9 per cent., with no fees, early redemption penalties or any
other charges. Amigo Loans Ltd and Amigo Management Services Ltd
are authorised and regulated in the UK by the Financial Conduct
Authority.
Forward looking statements
This report contains certain forward-looking statements. These
include statements regarding Amigo Holdings PLC's intentions,
beliefs or current expectations and those of our officers,
Directors and employees concerning, amongst other things, our
financial condition, results of operations, liquidity, prospects,
growth, strategies, and the business we operate. These statements
and forecasts involve risk, uncertainty and assumptions because
they relate to events and depend upon circumstances that will or
may occur in the future. There are a number of factors that could
cause actual results or developments to differ materially from
those expressed or implied by these forward-looking statements.
These forward-looking statements are made only as at the date of
this announcement. Nothing in this announcement should be construed
as a profit forecast. Except as required by law, Amigo Holdings PLC
has no obligation to update the forward-looking statements or to
correct any inaccuracies therein.
Chief Executive's Statement
The first nine-months of the financial year, to end December
2020, have been challenging for Amigo and for the wider
non-standard finance sector. Whilst we paused lending in March 2020
following the onset of the Covid-19 pandemic, we remain committed
to our purpose of providing financial inclusion to the growing
adult population in the UK who are unable to access mainstream
finance. This is becoming ever more critical as the economic impact
from the pandemic is realised and prime lenders move further away
from this section of society.
Amigo has made considerable progress over the third quarter. We
have an entirely new Board in place and key additions to our
management team bring with them significant change management and
regulatory expertise. This enables a fresh and different approach
and I am confident we have assembled a strong team to lead the
turnaround of this business.
Forbearance measures that provide our customers with the help
they need
We have continued to support our customers through the Covid-19
pandemic with over 63,000 payment holidays provided and, with the
inclusion of interest holidays for the first three months, have
gone beyond FCA guidance in the relief we have provided. Over
51,000 borrowers have transitioned out of payment holidays as of
end January 2021. While we have seen some increase in arrears as a
result, our overall level of collections has remained robust.
Working with our customers to help them manage their finances is
part of Amigo's cost to serve, as we want to keep people on track
with their finances. This is the best way for them to rehabilitate
their credit score and ultimately get another chance at being able
to access mainstream finance.
Performance
As a result of the pause in lending which has extended
throughout the period, revenue for the nine months to 31 December
2020 has fallen 36.9 % to GBP137.5m. This is also in part due to
the impact of Covid-19 related payment holidays. Until the Court
sanction the Scheme of Arrangement ('Scheme'), which is currently
expected to be on 10 May 2021, there is not sufficient certainty to
account for complaints on the basis the Scheme proceeds. We have
therefore continued to account for known and estimated future
complaints under our existing methodology (see note 13 of the
financial statements) , resulting in a balance sheet provision of
GBP 150.9 m and an associated cost of GBP 116.2 m. This has led to
a reported loss before tax for the nine-month period of GBP 81.3 m
and loss after tax of GBP 86.8 m. Adjusting for exceptional items,
adjusted loss after tax was GBP 77.0 m (see note 4 of the summary
financial table for details of the adjustments).
Amigo's net loan book has reduced by over 40% year to date. This
decline has led to changes in resource requirements across several
areas of the business. The Board has come to the difficult decision
to reduce employee numbers by approximately 70, representing
approximately 17% of the total workforce. This will be focused
primarily in Operations, across Originations and Collections plus
Business Change but will exclude any employee working in complaints
handling, as we continue to review and process all outstanding
customer complaints. The reduction in employees at Amigo is about
rightsizing our business for the future and will not impact the
restart of lending. This is a decision that has not been taken
lightly and throughout the process our priority will be to support
our team members that are affected.
The Scheme of Arrangement provides a fair outcome for our past
and present customers
Amigo issued a practice statement letter to its customers and to
the Financial Ombudsman Service (FOS) dated 25 January 2021 ("the
Letter") in respect of a scheme of arrangement under Part 26 of the
Companies Act 2006 for All Scheme Ltd ("SchemeCo").
Since issuing the Letter, we have been advancing the various
documents and workstreams in preparation for the Scheme. The FCA
have outlined their concerns, in particular, regarding the scheme
claims methodology which is the subject of the on-going section 166
review reported on 25 January 2021 and noted below, and the
outstanding redress offers on complaints, also noted below, which
they consider need addressing for the Scheme to be consistent with
Amigo's regulatory obligations. The FCA has not yet completed its
assessment of the Scheme and its underlying methodology for
assessing claims and accordingly the FCA continues to reserve its
position regarding the Scheme and any action or steps which it
considers appropriate in relation to it or generally. In light of
the progress to date and the ongoing work between Amigo and the
FCA, the Board remains confident that Amigo can continue to work
constructively with the FCA to seek to address the FCA's concerns
in advance of the Scheme convening hearing which is listed for 30
March 2021.
The Board believes that the Scheme is in the best interests of
all our stakeholders. As well as providing a fair outcome for our
customers, a successful Scheme will provide certainty on the final
complaints liability for all complaints on loans issued to date, it
will respect the seniority of our lending facilities (as we are
required to do due to their security and resulting priority status)
and enable us to focus on building a sustainable business for the
long term, for our customers, employees and our investors,
providing much needed financial inclusion to the underserved.
We have faced very serious challenges from the high level of
complaints received about our historical lending, a significant
number driven by claims management companies (CMCs) which have
included many invalid claims. A Scheme will enable, to the extent
possible, equitable treatment for all who have a valid claim. The
principle of treating customers fairly is at the core of our
business and the Board and I believe that the Scheme is the right
route for our customers. If the Scheme does not proceed, the high
level of complaints could mean that Amigo becomes insolvent. It is
expected that there will not be any cash redress payable for past
or present customers if the Scheme does not proceed, as the
repayment of the secured creditors (banks and bondholders) and
administration expenses take priority. A Scheme that is successful
will provide an opportunity for materially more redress to all
customers with valid claims.
As part of the Scheme, the Financial Conduct Authority (FCA) has
required the appointment of a skilled person under section 166 of
the Financial Services and Markets Act 2000. The skilled person has
been appointed to review the redress methodology, to subsequently
review its implementation, and to comment on the fairness of the
Scheme. The FCA will also continue to review Amigo's threshold
conditions and our proposed approach to future lending. We will
continue to engage with the FCA in a manner that is transparent,
constructive, and cooperative on the Scheme and its detailed terms.
We welcome the opportunity to address any concerns our regulator
might have and will ensure that Amigo has the right governance,
processes, and procedures in place both for the Scheme and for when
we return to lending with our Amigo 2.0 proposition.
Complaints continue to be reviewed ahead of the Scheme of
Arrangement
Given the complaints situation that Amigo continues to face, we
recognise the need for certainty and to be able to treat our
c700,000 past and c300,000 current borrowers and guarantors fairly.
The Scheme is intended to do this. Since the announcement of the
proposed Scheme, we have continued to review and process
complaints. We continue to pay redress to customers whose complaint
was upheld prior to 21 December 2020, the date on which we first
confirmed our intention to progress with the Scheme. However, of
the approximately 3,000 complaints that we are settling outside of
the Scheme, around 1,000 payments to customers have been delayed by
CMCs not accepting the settlement on offer.
Returning to providing financial inclusion
I am very excited about our customer-centric, future lending
proposition, Amigo 2.0. Amigo 2.0 is a product and pricing strategy
focused on customer needs and outcomes. The product
characteristics, incorporating incentives for good financial
behaviour, are designed to encourage financial rehabilitation and
resilience. Our purpose is to provide the opportunity for financial
inclusion to the millions of adults in the UK who are unable to
access mainstream finance. This is a demographic that will need
lenders, like Amigo, even more in 2021 as the economic impact of
the global pandemic continues to be felt and prime lenders retrench
even further. We continue to engage with the FCA and, while we
cannot be precise on timing, our aim is to recommence as soon as
possible.
Outlook
Despite a difficult first nine months, Amigo has made
significant progress over the third quarter of the financial year.
The entirely new Board has built a management team with proven
change and regulatory expertise and taken steps to resolve the
challenges we face with a solution that respects the interests of
all our stakeholders.
A successful Scheme of Arrangement will enable a fair outcome
for our customers, past and present. It will enable the business to
continue to provide vital financial inclusion to future customers,
a need in society made more apparent by the economic impact of
Covid-19. A successful Scheme will enable us to rebuild the
business, respecting our commitments to our funders and creating
value for our investors over the long term which will, in turn,
further benefit our Scheme creditors who share in future
profits.
We are preparing to return to lending on a prudent basis. The
FCA review into our proposed approach to future lending will enable
us to do so with confidence once it is completed, and any changes
requested incorporated into our policies and procedures. While we
are unable to be precise on timing, our aim is to return to
providing financial inclusion as soon as possible. Until we do so,
and until we have more clarity on the financial impact of Covid-19,
the Board considers it too early to issue guidance for the
remainder of this financial year. Our cash position remains strong,
despite paying customer cash redress and related cash payments of
GBP 58.6m and reducing net borrowings by GBP287.1m year on year.
Despite material uncertainties, the Board has adopted the going
concern basis of accounting for the presentation of these
results.
The Board believes that th e Scheme of Arrangement is t he best
solution to protect against a the risk of Amigo going into
administration caused by an ongoing high level of complaints .
However, as of now, Amigo has sufficient liquidity and other
resources to continue to fund operations and support its customers.
As at 24 February 2021, we have over GBP165.0m of cash.
We have a new leadership team in place, dedicated people , a
strong brand and a commitment to our purpose of providing financial
inclusion to those unable to access credit through mainstream
lenders.
Financial review
In the nine months to 31 December 2020, revenue fell by 36.9%
compared to the prior year. This reflects both the ongoing pause in
lending, and the impact of Covid-19 payment holidays. The pause in
lending led to a year on year decline in customer numbers of 32.8%
to 156,000 and a reduction in net loan book of 42.9% to GBP412.2m.
All lending ceased on 3 November 2020. Complaints related balance
adjustments also contributed to the reducing loan book.
Statutory loss before tax was GBP81.3m for the period (Q3 2020:
profit of GBP53.5m) with statutory loss after tax of GBP86.8m (Q3
2020: profit of GBP45.9m) driven by the recognition of a complaints
expense of GBP116.2m over the period versus GBP26.6m in the prior
year. Adjusting for non-recurring items defined in note 8 of the
notes to the summary financial table, adjusted loss after tax was
GBP77.0m (Q3 2020: adjusted profit of GBP44.7m.
Proposed Scheme of Arrangement
Amigo announced on 25 January 2021 the incorporation of a new
wholly owned subsidiary, ALL Scheme Ltd ("SchemeCo"), for the
purpose of applying for a Scheme of Arrangement under Part 26 of
the Companies Act 2006. The Court convening hearing for the Scheme
is listed for 30 March 2021 and if passed by the Scheme creditor
vote, the final Court sanction hearing is expected to be held on 10
May 2021. The creditors under the Scheme are the Financial
Ombudsman Service (FOS) and, subject to limited exclusions, all
current and former customers (both borrowers and guarantors) with
any potential redress claims in relation to historic loans made by
Amigo Loans Ltd before 21 December 2020. If the Scheme creditors
and the Court approve the proposal as required, borrowers,
guarantors and the FOS will then have six months to submit their
claim in the Scheme (i.e. a six month period starting from when the
Scheme becomes effective soon after the Court sanction hearing
which is listed for 10 May 2021).
GBP15.0m in cash will initially be made available for claims
under the Scheme, with up to a potential further GBP20.0m dependent
on the volume of claims received relating to loans with outstanding
balances. Amigo will continue to be responsible for all customer
balance adjustments in full. In addition, Amigo will make an annual
cash contribution to the Scheme based on 15.0% of pre-tax profit
for the next four financial years beginning on 1 April 2021 up to
31 March 2025.
Faced by the on-going serious problems arising from the current
complaints situation, Amigo considers that the Scheme is the best
way to treat its customers, the FOS and all its stakeholders
fairly. Amigo, supported by its independent financial and legal
advisers, believes that failure of the Scheme is likely to result
in the unsecured creditors receiving zero cash payments in the
event of an insolvency, given the secured creditors rank ahead of
the unsecured creditors in the event of an insolvency.
Complaints Provision
Prior to a Court sanction of Amigo's Scheme of Arrangement, the
Board, considers that there is not enough certainty that the Scheme
will receive the permission of the Court to convene a Scheme
creditors' meeting at the initial hearing which is expected to be
on 30 March 2021, to account for future complaints liabilities on
the basis that the Scheme proceeds.. Subsequent approval by the
requisite majority of the Scheme creditors at that meeting, and
sanction by the Court will also be required., Consequently, the
Board considers it appropriate to continue to account for known and
future complaints as per the methodology used in prior periods and
explained in more detail in notes 2.3 and 13.
Our proactive promotion of the Scheme to all customers, past and
present since 2005, has led us to increase our volume expectations
for future complaints. This has resulted in a complaints provision
of GBP150.9m as at 31 December 2020, after utilisation of GBP31.6m
in the quarter. The associated cost of complaints has increased by
GBP22.5m since the half year with a total cost for the nine months
period of GBP116.2m.
The GBP 84.8 m of utilised provision over the nine-month period
to 31 December 2020 (Q3 2020: GBP 7.9 m) primarily represents
redress settlements to customers, of which around 60% was settled
in cash, and the remaining 40% with balance adjustments.
For sensitivity analysis and discussion over significant
judgements and estimates used in the complaints provision
calculation see note 2.3 to these financial statements.
In accordance with IAS 37: Provisions, Contingent Liabilities
and Contingent Assets, the provision relates to both the estimated
costs of customer complaints received up to 31 December 2020 and
the projected costs of potential future complaints where it is
considered more likely than not that customer redress will be
appropriate, based on the available data on the type and volume of
complaints received to date. The provision is not intended to cover
the eventual cost of all future complaints; such cost remains
unknown, but rather it provides for projected future complaints
where it is deemed there is a constructive obligation resulting
from a past event. If the Scheme is not approved, the complaints
liability has the potential to continue to increase.
Covid-19 payment holidays
During the first nine months of the financial year, Amigo
granted Covid-19 related payment holidays of up to six months to
over 62,000 customers. As at 31 December 2020, Amigo had
approximately 13,000 customers on active Covid-19 related payment
holidays with over 42,000 customers plans ending and just under
7,000 settled. As at 31 January 2020, the number of active plans
had reduced to 12,000 with 43,000 plans ending, a further 8,000
either settled or charged off. Following these customer payment
holidays ending, there has been a marked increase in arrears during
the quarter.
For the first three months of the Covid-19 payment holiday no
interest accrued on customer balances; from four to six months
interest accruals are applied. As a result of Amigo's interest cap,
the reintroduction of interest accrual between months four and six
of a payment holiday will not increase the total interest payable
by the customer over the life of the loan. Rolling monthly
extensions have been predominantly granted from 1 July 2020
onwards.
No capital or interest is forgiven as part of the forbearance
despite no interest accruing for plans up to three months in
length; the customer is still expected to repay the loan in
full.
By deferring contractual repayments without increasing the value
of future monthly instalments, the present value of the future cash
flows for customers with Covid-19 payment holidays is reduced. In
accordance with the asset modification and effective interest rate
requirements of IFRS 9, a modification loss has been recognised
based on the estimated change in the present value of contractual
cash flows that arises from the Covid-19 payment plans granted up
to 31 December 2020. An initial modification loss of GBP16.0m was
recognised in Q1 for all payment holidays granted in the quarter,
with GBP12.9m recognised in revenue, and GBP3.1m recognised in
impairment. By the end of Q2, this modification loss had completely
unwound with GBPnil impact on the closing Q2 loan book.
During the second quarter, extensions to Covid-19 payment
holidays granted in Q1 and new payment holidays granted in Q2
represented additional modification events. Hence, a further
modification loss of GBP16.0m was recognised in the second quarter,
with GBP12.0m recognised in revenue and the remainder recognised in
impairment. The modification loss relating to Q1 plans that were
extended in Q2 will amortise over the remaining life of the
loans.
During the third quarter, both extensions to Covid-19 payment
holidays granted in Q2 and new payment holidays granted in Q3 fell
significantly on the prior quarter volumes . Hence, a lower
modification loss of GBP3.0m has been recognised in the third
quarter, with GBP2.5m recognised in revenue and the remainder
recognised in impairment.
See notes 2.4.1 and 2.4.2 to these financial statements for more
details on key management judgements and estimates surrounding
modification loss calculation. The modification losses recognised
in the consolidated income statement are purely accounting
adjustments; the expected timing of future cash flows has altered,
but total interest and principal due from each loan remain
unchanged.
Impairment
The impairment charge as a percentage of revenue was 30.2% (Q3
FY2020: 31.5%) for the first nine months of the financial year
reflecting the limited originations in the period, offset by the
impact of Covid-19. The balance sheet provision has increased by
GBP 11.5 m since the end of H1 to GBP 90.2 m ( 18.0 % of gross loan
book) (Q3 FY2020: GBP90.7m, 11.2 % of gross loan book). The
increase in the provision is primarily driven by increased levels
of arrears from customers exiting Covid-19 payment holidays. The
payment behaviour of those customers who have not requested a
Covid-19 payment holiday remains robust. The provision also
includes a GBP6.2m overlay relating to the anticipated future
payment behaviour of customers who remain on Covid-19 payment
holidays as at 31 December 2020.
Cash and liquidity
Collections remain robust at 82 % of pre-Covid-19 expectations
for the period to 31 December 2020. This includes the early
settlement of some customer loans. The Board considers that Amigo
has sufficient liquidity and other resources to continue to fund
operations and support its customers, with GBP 164.6 m cash held as
at 31 December 2020. Post period end, cash rose to over GBP165.0m
as at 24 February 2021.
Tax
The effective tax rate of the business for the first nine months
is negative 6.8% (Q3 2020: 14.2%), lower than the prevailing UK
corporation tax rate of 19.0%. The Group previously recognised a
deferred tax asset in respect of the transition from IAS 39 to IFRS
9 relating to tax deductions available against future taxable
profits for a period of 10 years from transition. The Group's
current loss-making position and the current uncertainty over the
Group's future profitability means that it is no longer considered
probable that future taxable profits will be available against
which to recognise deferred tax assets. Consequently, no tax assets
have been recognised in respect of losses in the current period and
a tax charge has been recognised in the period primarily relating
to the write-off of the existing deferred tax asset.
Amigo received tax refunds totalling GBP23.6m from HMRC during
the period increasing the cash position and reducing net borrowings
respectively. GBP7.1m of the refund relates to loss relief for
carried back losses, and the remainder relates to repayment of
prior payments on account.
Funding
The Group is financed from a combination of cash generated from
operations, senior secured notes of GBP234.1m with a 7.625% coupon
and a securitisation facility of GBP250m. On 27 November 2020, an
extension to the previously agreed waiver period on asset
performance triggers for the securitisation facility was confirmed
to 25 June 2021, allowing both Amigo and its lenders the
opportunity to fully understand the impact of Covid-19 on the
business whilst maintaining the facility. All cash generation
arising from customer loans held within the securitisation facility
is restricted and will continue to be used during the waiver period
extension to further reduce the outstanding balance. The
outstanding balance of the securitisation facility as at 31
December 2020 was GBP 112.2 m.
The Group's average cost of funds, calculated as interest
payable as a percentage of average gross loan book, has increased
to 4.3 % compared to 4.0 % at the same time last year due to the
reducing gross loan book partially offset by a reduction in finance
costs.
Net borrowings / equity at 2.2x has increased from 1.8x in the
prior year.
Condensed Consolidated Statement of Comprehensive Income
9 months 9 months Year
ended ended ended
31-Dec-20 31-Dec-19 31-Mar-20
Unaudited Unaudited Audited
Notes GBPm GBPm GBPm
Revenue 3 137.5 218.0 294.2
Interest payable and funding facility
fees 4 (22.1) (24.0) (30.7)
Impairment of amounts receivable from
customers(1) (41.5) (68.7) (113.2)
Administrative and other operating
expenses (35.4) (45.2) (59.4)
Complaints expense 13 (116.2) (26.6) (126.8)
----------- ----------- -----------
Total operating expenses (151.6) (71.8) (186.2)
Strategic review, formal sale process
and related financing costs 6 (3.6) - (2.0)
----------- ----------- -----------
(Loss)/profit before tax (81.3) 53.5 (37.9)
Tax (charge)/credit on
(loss)/profit 7 (5.5) (7.6) 10.7
----------- ----------- -----------
(Loss)/profit and total comprehensive
income attributable to equity shareholders
of the Group(2) (86.8) 45.9 (27.2)
=========== =========== ===========
The (loss)/profit is derived from continuing activities.
9 months 9 months Year
ended ended ended
(Loss)/earnings per share and dividends 31-Dec-20 31-Dec-19 31-Mar-20
per share
Basic (loss)/earnings per share
(pence) 8 (18.3) 9.7 (5.7)
Diluted (loss)/earnings per share
(pence) 8 (18.2) 9.6 (5.7)
Dividend per share (pence)(3) - 10.55 10.55
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 GBP2.1m of previously recognised impairment gains were
reversed (Q3 2020: GBP4.7m reversal of impairment losses).
2 There was less than GBP0.1m of other comprehensive income
during any period, and hence no consolidated statement of other
comprehensive income is presented.
3 Total cost of dividends paid in the period was GBPnil (Q3
2020: GBP35.4m). Final dividends are recognised on the earlier of
their approval or their payment. Interim dividends are recognised
on their payment date.
Condensed Consolidated Statement of Financial Position as at 31
December 2020
31-Dec-20 31-Dec-19 31-Mar-20
Unaudited Unaudited Audited
Notes GBPm GBPm GBPm
Non-current assets
Customer loans and receivables 9 175.0 303.0 296.5
Property, plant and equipment 1.3 1.5 1.5
Right-of-use lease asset 1.0 1.1 1.1
Intangible assets - 0.1 0.1
Deferred tax asset - 6.0 6.6
---------- ---------- ----------
177.3 311.7 305.8
Current assets
Customer loans and receivables 9 249.3 441.7 367.1
Other receivables 10 1.2 5.4 1.4
Other financial asset(1) 12 5.7 - -
Current tax assets - 1.1 21.7
Derivative asset - 0.1 0.1
Cash and cash equivalents 164.6 30.2 64.3
---------- ----------
420.8 478.5 454.6
Total assets 598.1 790.2 760.4
---------- ---------- ----------
Current liabilities
Trade and other payables 11 (20.4) (18.7) (13.5)
Lease liability (0.3) (0.2) (0.3)
Provisions 13 (150.9) (13.4) (105.7)
Current tax liabilities (0.8) - -
---------- ---------- ----------
(172.4) (32.3) (119.5)
---------- ---------- ----------
Non-current liabilities
Borrowings 12 (344.1) (496.8) (460.6)
Lease liability (0.9) (1.1) (1.1)
Provisions 13 - (5.3) (11.8)
(345.0) (503.2) (473.5)
Total liabilities (517.4) (535.5) (593.0)
---------- ---------- ----------
Net assets 80.7 254.7 167.4
========== ========== ==========
Equity
Share capital 1.2 1.2 1.2
Share premium 207.9 207.9 207.9
Translation reserve (0.1) - -
Merger reserve (295.2) (295.2) (295.2)
Retained earnings 166.9 340.8 253.5
---------- ---------- ----------
Shareholders equity 80.7 254.7 167.4
========== ========== ==========
The accompanying notes form part of these financial
statements.
(1) Other financial asset of GBP5.7m relates to restricted cash
held in the AMGO Funding (No.1) Ltd bank account due to the
requirement under the waiver to use collections from securitised
assets to reduce the outstanding securitisation facility
balance.
This interim report of Amigo Holdings PLC was approved by the
Board of Directors and authorised for issue.
Michael Corcoran Date: 25 February 2021
Director
Company no. 10024479
Condensed Consolidated Statement of Changes in Equity
Share Share Translation Merger Retained Total
capital premium reserve reserve(1) earnings equity
GBPm GBPm GBPm GBPm GBPm GBPm
At 31 March 2019 (Audited) 1.2 207.9 - (295.2) 330.6 244.5
Total comprehensive income - - - - 45.9 45.9
IFRS 16 opening balance
sheet adjustment(2) - - - - (0.3) (0.3)
Dividends paid - - - - (35.4) (35.4)
At 31 December 2019 (Unaudited) 1.2 207.9 - (295.2) 340.8 254.7
-------- -------- ------------ ----------- --------- -------
Total comprehensive loss - - - - (73.1) (73.1)
Share-based payments - - - - 0.5 0.5
Dividends paid - - - - (14.7) (14.7)
At 31 March 2020 (Audited) 1.2 207.9 - (295.2) 253.5 167.4
-------- -------- ------------ ----------- --------- -------
Total comprehensive loss - - - - (86.8) (86.8)
Share-based payments - - - - 0.2 0.2
Effect of foreign exchange
rate changes - - (0.1) - - (0.1)
At 31 December 2020 (Unaudited) 1.2 207.9 (0.1) (295.2) 166.9 80.7
-------- -------- ------------ ----------- --------- -------
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.
2 On 1 April 2019, the Group adopted IFRS 16. A right-of-use
asset of GBP0.6m and a lease liability of GBP0.9m were recognised
as a result on 1 April 2019, with the balancing amount being taken
to retained earnings.
Condensed Consolidated Statement of Cash Flows
9 months ended 9 months Year ended
ended
31-Dec-20 31-Dec-19 31-Mar-20
Unaudited Unaudited Audited
GBPm GBPm GBPm
(Loss)/profit for the period (86.8) 45.9 (27.2)
Adjustments for:
Impairment expense 41.5 68.7 113.2
Complaints expense 116.2 26.6 126.8
Tax charge/(credit) 5.5 7.6 (10.7)
Interest expense 22.1 24.0 30.7
Interest recognised on loan
book (146.6) (228.1) (304.9)
Profit on senior secured note
buyback - 0.8 0.7
Share-based payment 0.2 0.2 0.5
Depreciation of property, plant
and equipment 0.8 0.4 0.5
---------- ---------- -----------
Operating cash flows before movements in
working capital(1) (47.1) (53.9) (70.4)
Increase/(decrease) in receivables 0.3 (3.5) (0.2)
Increase in payables 2.9 1.5 0.8
Complaints cash expense (58.6) (7.9) (9.3)
Tax refunds/(tax paid) 23.6 (24.0) (26.8)
Interest paid (13.1) (13.8) (28.8)
Net proceeds/repayment of parent - (1.0) -
undertakings
Net cash (used in) operating activities before
loans issued and collections on loans (92.0) (102.6) (134.7)
Loans issued (0.4) (308.5) (347.4)
Collections 313.8 447.4 594.0
Other loan book movements (3.7) 2.8 9.8
Decrease/(increase) in deferred
brokers costs 8.4 (1.6) 0.3
Net cash from operating activities 226.1 37.5 122.0
---------- ---------- -----------
Investing activities
Purchases of property, plant and
equipment (0.4) (1.5) (1.3)
---------- ---------- -----------
Net cash (used in) investing activities (0.4) (1.5) (1.3)
---------- ---------- -----------
Financing activities
Purchases of senior secured notes - (86.8) (85.9)
Dividends paid - (35.4) (50.1)
Lease principal payments (0.2) - (0.1)
Cash held for repayment of borrowings (5.7) - -
Proceeds from external funding - 168.5 174.4
Repayment of external funding (119.5) (67.3) (109.9)
---------- ---------- -----------
Net cash (used in) financing activities (125.4) (21.0) (71.6)
---------- ---------- -----------
Net increase in cash and cash
equivalents 100.3 15.0 49.1
Cash and cash equivalents at beginning
of period 64.3 15.2 15.2
---------- ---------- -----------
Cash and cash equivalents at end
of period 164.6 30.2 64.3
---------- ---------- -----------
The accompanying notes form part of these financial
statements.
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 GBP1,000 to GBP10,000 over one to five
years.
This condensed consolidated set of financial statements has been
prepared in accordance with the recognition and measurement
requirements of international accounting standards in conformity
with the requirements of the Companies Act 2006 that are used for
the annual financial statements.
The condensed 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 condensed consolidated
financial statements are presented in GBP. All values are stated in
GBP million (GBPm) except where otherwise stated.
In preparing the financial statements, the Directors are
required to use certain critical accounting estimates and are
required to exercise judgement in the application of the Group's
accounting policies. See note 2 for further details.
These interim financial statements have not 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 2020.
The condensed consolidated set of financial statements has been
prepared applying the accounting policies and presentation that
were applied in the preparation of the Group's published
consolidated financial statements for the year ended 31 March 2020
which were prepared in accordance with IFRSs as adopted by the EU.
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 2020 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
2020 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) did not include a reference to any other matters to which
the auditor drew attention by way of emphasis without qualifying
their report; and
iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.
These interim financial statements were approved by the Board of
Directors on 25 February 2021.
The annual financial statements of the Group for the year ended
31 March 2021 will be prepared in accordance with international
accounting standards in conformity with the requirements of the
Companies Act 2006.
Going concern
The Directors have made an assessment in preparing these
condensed financial statements as to whether the Group is a going
concern, covering at period of at least 12 months from the date of
approval of these financial statements.
The assessment included consideration of the Group's
announcement on 21 December 2020, of its intention to agree a
Scheme of Arrangement (the "Scheme") to address customer redress
claims, aiming to treat all customers equitably. The vehicle ALL
Scheme Ltd ("SchemeCo") was incorporated on 6 January 2021 and is a
wholly owned subsidiary of the Group. The Group intends to review
claims through this vehicle and, where appropriate, to pay redress
to customers that have been affected by historical issues in the UK
business. As the first formal step for a Scheme of Arrangement, on
25 January 2021, SchemeCo issued a letter to customers (borrowers
and guarantors) and the Financial Ombudsman Service pursuant to
Practice Statement (Companies: Schemes of Arrangement under Part 26
and Part 26A of the Companies Act 2006 dated 26 June 2020). The
Court convening hearing for the Scheme is listed for 30 March 2021.
The Group has a reasonable expectation that it will be able obtain
the requisite approvals needed to be able to implement the Scheme,
however, the Directors acknowledge that a successful Scheme of
Arrangement is not wholly within their control as the Scheme has
not yet been sanctioned by the court and requires the subsequent
approval by a majority of Scheme creditors.
In light of this uncertainty, the Directors have made an
assessment in preparing these condensed financial statements as to
whether the Group is a going concern, considering the Group's
funding position and a number of scenarios explained below:
-- a base case in which it is assumed that the Scheme does not receive the required approval;
-- a severe but plausible downside scenario in which it is
assumed that the Scheme does not receive the required approval;
and
-- a Scheme of Arrangement scenario for which there is a
reasonable expectation of receiving the requisite approvals.
Funding position
The Group is funded through senior secured loan notes and a
securitisation facility. The Group has net assets of GBP80.7m and a
cash balance of GBP164.6m as at 31 December 2020. The Group meets
its funding requirements through:
-- cash generated from the existing loan book, which is expected
to continue to generate cash inflows in the normal course of
business. In March 2020, in response to the Covid-19 pandemic, new
lending (inclusive of top-ups) except to key workers was paused.
Subsequently on 3 November 2020 all new lending was paused,
coinciding with the second national lockdown.
-- the GBP250m securitisation facility (reduced from GBP300m on
17 August 2020), of which GBP137.8m is undrawn as at 31 December
2020, expires in June 2022, after which the drawn balance will
amortise in line with the repayment of the underlying securitised
assets. On 27 November 2020, the Group announced it had agreed with
its securitisation lenders a further extension of the waiver period
end date from 18 December 2020 to 25 June 2021 to permit time for
both parties to fully understand and assess the impact of Covid-19
on the business, whilst maintaining the facility. The terms of the
waiver amendment remove the obligation of the lender to make any
further advances to the Group and require collections from
securitised assets to be used to repay any outstanding note
balances. Any agreement with an upheld complaint within the
securitisation vehicle is repurchased for cash of equivalent
value.
-- senior secured notes of GBP234.1m which expire in January
2024. The notes have no financial maintenance covenants.
Base case (assuming the Scheme does not go ahead):
The Directors have prepared a base case cash flow forecast which
covers a period of twelve months from the date of approval of these
condensed financial statements. This base case assumes:
-- the current pause in payment of claims to all customers (with
the exception of those claims reviewed and upheld where a Final
Response Letter has been issued to the customer, dated before 21
December 2020; or where the complaint has been referred to the
Financial Ombudsman Service and it has upheld that complaint and
issued a final decision letter to that effect, dated before 21
December 2020) will be lifted as in this scenario the Scheme of
Arrangement is not successfully sanctioned by the court and/or does
not receive the requisite approval from Scheme creditors.
Consequently, complaints redress is projected to be settled in line
with the estimated liabilities included in the 31 December 2020
balance sheet provision;
-- lending recommences within the period, albeit at
significantly reduced levels compared with pre-Covid-19
originations;
-- the securitisation facility enters early amortisation on the
assumption that Group is unable to restructure the facility to the
satisfaction of the lender at the end of the waiver period, being
25 June 2021;
-- credit losses, and therefore customer collections, remain
within modelled moderately stressed levels; and
-- no dividend payments during the forecast period.
This base case 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 scenario (assuming the Scheme does
not go ahead):
The Directors have prepared a severe but plausible downside
scenario covering the same forecast period, being at least the next
twelve months from date of approval of these financial statements,
which includes sensitivities that consider the potential impact
of:
-- increased credit losses as a result of a 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
sensitivity is broadly aligned to the Group's worst case IFRS 9
macroeconomic scenario (see note 2.1.3);
-- a sustained high volume of customer complaints throughout the
forecast period on top of the redress assumptions modelled in the
base case (note, assumptions used in the downside scenario are more
severe than discussed in note 2.3); and
-- lending is not recommenced in the forecast period.
This severe but plausible downside scenario indicates that the
Group's available liquidity headroom would significantly reduce,
and the Group would need to source additional financing to maintain
adequate liquidity and continue to operate.
Severe but plausible downside scenario (assuming the Scheme does
go ahead):
The Directors have prepared a Scheme of Arrangement scenario
covering the same forecast period, being at least the next twelve
months from date of approval of these financial statements, which
includes the following sensitivities and other changes in
assumptions to the base case:
-- the Scheme does receive the required approval;
-- increased credit losses as a result of a 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
sensitivity is broadly aligned to the Group's worst case IFRS 9
macroeconomic scenario (see note 2.1.3);
-- GBP15m Scheme cash contribution;
-- no cash payments in respect of claims to customers with the
exception of those claims reviewed and upheld where a Final
Response Letter has been issued to the customer, dated before 21
December 2020; or where the complaint has been referred to the
Financial Ombudsman Service and it has upheld that complaint and
issued a final decision letter to that effect, dated before 21
December 2020;
-- balance adjustments for the total population of upheld
complaints based the Group's current best estimate of customer
application and claim uphold rates; and
-- estimated costs and fees of executing the Scheme of Arrangement.
This Scheme of Arrangement 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.
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 but could be concluded on within the next twelve months.
The potential impact of the investigation on the business is
extremely difficult to predict and quantify, and hence potential
adverse impact of the investigation has been considered separately
and not included in the scenarios laid out above. There are a
number of potential outcomes which may result from this FCA
investigation, including the imposition of a significant fine
and/or the requirement to perform a mandatory back-book remediation
exercise. The Directors consider a mandatory back-book remediation
exercise to be a possible outcome, but not the most likely outcome.
The Directors consider 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 continue to operate.
Conclusion:
Based on these indications the Directors believe that it remains
appropriate to prepare the financial statements on a going concern
basis. However, 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 being
inappropriate.
1.2 Amounts receivable from customers
i) Classification
IFRS 9 requires a classification and measurement approach for
financial assets which reflects how the assets are managed and
their cash flow characteristics. IFRS 9 includes three
classification categories for financial assets: measured at
amortised cost, fair value through other comprehensive income
(FVOCI) and fair value through profit and loss (FVTPL). Note, the
Group does not hold any financial assets that are equity
investments; hence the below considerations of classification and
measurement only apply to financial assets that are debt
instruments. A financial asset is measured at amortised cost if it
meets both of the following conditions (and is not designated as at
FVTPL):
-- it is held within a business model whose objective is to hold
assets to collect contractual cash flows; and
-- its contractual terms give rise on specified dates to cash
flows that are solely payments of principal and interest (SPPI) on
the principal amount outstanding.
Business model assessment
In the assessment of the objective of a business model, the
information considered includes:
-- the stated policies and objectives for the loan book and the
operation of those policies in practice, in particular whether
management's strategy focuses on earning contractual interest
revenue, maintaining a particular interest rate profile, matching
the duration of the financial assets to the duration of the
liabilities that are funding those assets or realising cash flows
through the sale of the assets;
-- how the performance of the loan book is evaluated and reported to the Group's management;
-- the risks that affect the performance of the business model
(and the financial assets held within that business model) and its
strategy for how those risks are managed;
-- how managers of the business are compensated (e.g. whether
compensation is based on the fair value of the assets managed or
the contractual cash flows collected); and
-- the frequency, volume and timing of debt sales in prior
periods, the reasons for such sales and the Group's expectations
about future sales activity. However, information about sales
activity is not considered in isolation, but as part of an overall
assessment of how the Group's stated objective for managing the
financial assets is achieved and how cash flows are realised.
The Group's business comprises primarily loans to customers that
are held for collecting contractual cash flows. Debt sales of
charged off assets are not indicative of the overall business model
of the Group. The business model's main objective is to hold assets
to collect contractual cash flows.
Assessment of whether contractual cash flows are solely payments
of principle 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 and in particular
unemployment, a matrix of nine scenarios consisting of three
durations (three, six and twelve months) and three severities
(moderate, high and extremely high) has been modelled. Refer to
note 2.1.1 for further detail on the judgements and estimates used
in the measurement of the ECL.
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 plan, 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
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 for which to make an alternative
assessment over whether there has been a significant increase in
credit risk; extensions are granted at request - customers are not
required to give more information. 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.
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.
Where modified payment terms are offered to customers, the Group
evaluates whether the cash flows of the modified financial assets
are substantially different. If the cash flows are deemed
substantially different, then the contractual rights to cash flows
from the original loan are deemed to have expired and the asset is
derecognised (see 1.2.v) and a new asset is recognised at fair
value plus eligible transaction costs.
For non -substantial modifications the Group recalculates the
gross carrying amount of a financial asset based on the revised
cash flows and recognises a modification profit or loss in the
Consolidated Statement of Comprehensive Income . The modified gross
carrying amount is calculated by discounting the modified cash
flows at the original effective interest rate. Where the
modification event is deemed to be a trigger for a significant
increase in credit risk, or occurs on an asset where there were
already indicators of significant increase in credit risk, the
modification loss is presented together with impairment losses. In
other cases, it is presented within revenue.
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 cured and transitions back from
stage 3.
viii) Forbearance
Where the borrower indicates to the Group that they are unable
to bring the account up to date, informal, temporary forbearance
measures may be offered. There are no changes to the 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.
2. Critical accounting assumptions and key sources of estimation
uncertainty
Preparation of the financial statements requires management to
make significant judgements and estimates. The items in the
financial statements where these judgements and estimates have been
made are:
Judgements
The preparation of the 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 balance sheet 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).
-- Application of a management overlay - due to wide scale take
up of Covid-19 payment holidays, the emergence of delinquent assets
(stage 2 and 3) has been temporarily delayed. A judgemental overlay
has been applied to the impairment provision to approximate the
potential short term impact on the ageing of the loan book (note
2.1.4).
-- IFRS 9 - modification of financial assets
-- Assessment of Covid-19 payment holidays as a non-substantial modification (note 2.4.1).
-- Assessment of if a modification loss is an indicator of a
significant increase in credit risk (note 2.4.2).
-- 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).
-- On 21 December 2020, the Group announced its intention to
agree a Scheme of Arrangement to address customer redress claims.
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).
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).
-- A management overlay has been applied to the impairment provision (note 2.1.4).
-- 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).
-- 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).
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 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
and in particular unemployment a matrix of nine scenarios
consisting of three durations (three, six and twelve months) and
three severities (moderate, high and extremely high) has been
modelled 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 customers'
account. This is the Group's primary qualitative criteria
considered in the assessment of whether there has been a
significant increase in credit risk. If a relevant operational flag
is deemed a trigger indicating the remaining lifetime probability
of default has increased significantly, the Group considers the
credit risk of an asset to have increased significantly since
initial recognition. Examples of this include operational flags for
specific circumstances such as short-term payment plans and
breathing space granted to customers.
2) As a backstop, the Group considers that a significant
increase in credit risk occurs no later than when an asset is two
contractual payments past due (equivalent to 30 days), which is
aligned to the rebuttable presumption of more than 30 days past
due. This is the primary quantitative information considered by the
Group in significant increase in credit risk assessments.
The Group reassesses the flag status of all loans at each month
end and remeasures the proportion of the book which has
demonstrated a significant increase in credit risk based on the
latest payment flag data. An account transitions from stage 2 to
stage 1 immediately when a payment flag is removed from the
account. 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. 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.
The granting of exceptional payment holidays in response to
Covid-19 does not automatically trigger a significant increase in
credit risk. As such, these customers are not being automatically
moved to stage 2 and lifetime ECLs. Customers granted Covid-19
payment holidays are assessed for other potential indicators of
SICR, which are incremental to the Group's existing staging flags.
This assessment includes a historical review of the customer's
payment performance and behaviours. Following this review, those
customers that have been granted a Covid-19 payment holiday and are
judged to have otherwise experienced a SICR are transitioned to
stage 2.
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 will include a variety of both
severities and durations which can then be 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 High severity of Extremely high severity
(33%) impact of an initial an initial three of an initial three
three month spike month spike in the month spike in the
in the rate of unemployment rate of unemployment rate of unemployment
---------------------- ----------------------------- ------------------------ ------------------------
Six month duration Moderately severe High severity of Extremely high severity
(33%) impact of the increase the increase in of the increase
in unemployment but unemployment but in unemployment
with an extended with an extended but with an extended
duration of six months duration of six duration of six
months months
---------------------- ----------------------------- ------------------------ ------------------------
Twelve month duration Moderately severe High severity of Extremely high severity
(33%) impact of the increase the increase in of the increase
in unemployment and unemployment and in unemployment
assuming that the assuming that the and assuming that
deterioration in deterioration in the deterioration
unemployment continues unemployment continues in unemployment
to increase for a to increase for continues to increase
full year a full year for a full year
---------------------- ----------------------------- ------------------------ ------------------------
The following table details the absolute impact on the current
ECL provision of GBP90.2m if each of the nine scenarios are given a
probability weighting of 100%.
Moderate High Extremely high
----------------------- --------- ------ ---------------
Three month duration -7.9m -5.6m -1.0m
Six month duration -5.9m -1.4m +7.4m
Twelve month duration -3.7m +2.6m +15.4m
----------------------- --------- ------ ---------------
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 GBP7.9m.
In the worst case scenario with the greatest severity of the
increase in unemployment and assuming this deterioration continues
for a duration of twelve months the ECL provision would increase by
GBP15.4m. The scenarios above demonstrate a range of ECL provisions
from GBP82.3m to GBP105.6m.
In the financial statements for the year-ended 31 March 2020
severity weightings were 75%, 20% and 5% respectively for moderate,
high and extremely high scenarios. At the year-end, scenario
weightings were aligned to the forecast of the Office of Budget
Responsibility (OBR) which forecast a three month lockdown scenario
where economic activity would gradually return to normal over the
subsequent three months.
Following the Group's year-end scenario weighting assessment,
OBR published a Fiscal Sustainability Report consistent with the
three-scenario approach already adopted by the Group, but concluded
there was no strong basis for forming a basis for each scenario's
relative likelihood. Since the Group's year-end results
announcement, macroeconomic uncertainty has increased. For the
periods from 30 June 2020 onwards these weightings have been
revised to 33% for each severity.
As with any economic forecasts, the projections and likelihoods
of occurrence are subject to a high degree of inherent uncertainty
and therefore the actual outcomes may be significantly different to
those projected.
2.1.4 Application of a management overlay to the impairment
provision calculation
Covid-19 payment holidays were granted to certain customers from
31 March 2020 onwards; at the date a plan is granted, the arrears
status of the loan is paused for the duration of the payment
holiday, up to a maximum of six months. The total population of
stage 1 assets for which a Covid-19 payment holiday has been
granted has been assessed from a staging perspective to determine
whether there has been an indication of a significant increase in
credit risk (see note 2.1.2). Where it is determined that customers
applying for Covid-19 payment holidays have experienced a
significant increase in credit risk the assets have been
transitioned from stage 1 to stage 2 via a staging overlay.
A significant proportion of customers have taken up Covid-19
payment holidays, many of them for the maximum duration of six
months. Notwithstanding the staging overlay, the effective pause in
payments and arrears status for a material cohort of customers for
this duration resulted in a short-term reduction in the ageing of
the loan book with fewer assets hitting the stage 2 backstop (two
contractual payments past due) and stage 3 status. At 31 December
2020, the majority of payment plans granted had concluded and, as
expected, this cohort of customers has driven a material increase
in the number of loans hitting the stage 2 backstop and stage 3
status. The cohorts of customers that have exited Covid-19 payment
holidays to date have demonstrated a higher propensity to hit the
stage 2 backstop than the cohorts of customers that have not
applied for a Covid-19 payment holiday. At 31 December 2020 there
remains a material cohort of customers with active Covid-19 payment
holidays, for which there remains a short-term reduction in the
ageing of the loan book. To address this temporary shortfall in the
ageing a management overlay has been applied to the to uplift the
stage 2 and 3 components of the provision. The management overlay
estimates the possible incremental provision which would have been
required had the remaining population of active Covid-19 payment
holidays demonstrated the same arrears levels as the cohort of
customers that have exited payment holidays at the reporting date.
As at 31 December 2020, the management overlay increased the
impairment provision by GBP6.2m.
2.2 Effective interest rates
Revenue comprises interest income on amounts receivable from
customers. Loans are initially measured at fair value (which is
equal to cost at inception) plus directly attributable transaction
costs and are subsequently measured at amortised cost using the
effective interest rate method. Revenue is presented net of
amortised broker fees which are capitalised and recognised over the
expected behavioural life of the loan as part of the effective
interest rate method. The key judgement applied in the effective
interest rate calculation is the behavioural life of the loan.
The historical settlement profile of loans, which were initially
acquired through third-party brokers, is used to estimate the
average behavioural life of each monthly cohort of loans.
Settlements include both early settlements and 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 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.
On 25 January 2021, SchemeCo issued a letter to customers
(borrowers and guarantors) and the Financial Ombudsman Service
pursuant to Practice Statement (Companies: Schemes of Arrangement
under Part 26 and Part 26A of the Companies Act 2006 dated 26 June
2020) as a first formal step towards the Scheme.
The Board views the Scheme as the best outcome for all
stakeholders to resolve the current complaints situation and is
working closely with the FCA and external advisors to ensure that a
successful outcome is achieved. It is the Board's view that, in
light of the anticipated alternative - a possible insolvency in
which customers due redress are likely to receive no cash - that
subject to further regulatory discussions and the conclusion of the
ongoing skilled persons review, that a successful Scheme is
achievable. However, the directors acknowledge that the ultimate
success of the Scheme is not wholly within their control due the
following to the following factors:
-- The FCA has not completed its assessment of the Scheme and
its underlying methodology for assessing claims while the Group and
SchemeCo continue to develop its terms and underlying methodology
at the reporting date. The underlying methodology for determining
claims is a critical component of the Scheme as it is this that
will be used to determine whether a claim is valid for the purposes
of the Scheme and its amount. Amigo, as an authorised firm, had
initially sought from the FCA a "letter of non-objection" to the
terms of the Scheme, as has conventionally been the case, in order
to demonstrate to a court that the proposed Scheme has not raised
regulatory concerns that might undermine the Group's and, in turn,
SchemeCo's ability to implement the Scheme. The FCA has informed
Amigo that it cannot provide a "letter of non-objection" without
having completed its assessment and that the FCA reserves the right
to take such action as it may consider appropriate once the terms
of the Scheme and its methodology have been finalised, or
otherwise. Amigo has now withdrawn its request for a "letter of
non-objection" but believes it will be able to implement the Scheme
because it proposes to use the time prior to the Court convening
hearing listed for 30 March 2021 to work constructively with the
FCA to resolve any concerns which the FCA has;
-- SchemeCo will ask the Court at the hearing to call a meeting
of creditors who are affected by the Scheme. The meeting will allow
creditors to consider, and vote on, the Scheme. The first court
hearing is expected to be held online on 30 March 2021, which even
with an FCA non-objection remains an uncertain outcome at the
reporting date; and
-- The majority in number, and 75% in claims value, of Scheme
creditors must subsequently vote to approve the Scheme. If the
creditors vote in favour of the Scheme, SchemeCo will ask the Court
to approve the Scheme at the Second Court Hearing scheduled to take
place on 10 May 2021, the outcome of this hearing also remains
uncertain at the reporting date.
IAS 37 - Provisions, Contingent Liabilities and Contingent
Assets requires that provisions for one-off events, such as the
proposed Scheme of Arrangement, are measured at the most likely
amount. Each of the aforementioned factors are ultimately outside
of the Group's control and represent a significant source of
uncertainty with regards to the ultimate success of the Scheme
which, on balance, after due consideration, leads the Directors to
conclude that for the purposes of determining the most likely
amount as required by IAS 37, that there is too much uncertainty at
the reporting date to estimate future complaints redress
liabilities on the basis of a successful Scheme of Arrangement.
Notwithstanding this assessment, the Board has a reasonable
expectation that it will be able to implement the Scheme because it
proposes to use the time prior to the Court convening hearing
listed for 30 March 2021 to work constructively with the FCA to
resolve any concerns.
2.3.2 Basis of assessment
Provisions included in the statement of financial position
refers to a provision recognised for customer complaints. The
provision represents an accounting estimate of the expected future
outflows arising from certain customer-initiated complaints, using
information available as at the date of signing these financial
statements and the assumption that there is no court approved
Scheme of Arrangement (see note 13 for further detail).
Identifying whether a present obligation exists and estimating
the probability, timing, nature and quantum of the redress payments
that may arise from past events requires judgements to be made on
the specific facts and circumstances relating to the individual
complaints. Management evaluates on an ongoing basis whether
complaints provisions should be recognised, revising previous
judgements and estimates as appropriate; however, there is a wide
range of possible outcomes.
The key assumptions in these calculations which involve
significant, complex management judgement and estimation relate
primarily to the projected costs of potential future complaints,
where it is considered more likely than not that customer redress
will be appropriate. These key assumptions are:
-- Future estimated volumes - estimates of future volumes of
customer-initiated and claims management company (CMC) raised
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 (GBP) - 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 CMCs or complaints received directly from
customers.
Following the announcement of the proposed Scheme of Arrangement
on 21 December 2020 these assumptions have become more challenging
to estimate as customer and CMC behaviour is temporarily being
influenced by the proposed Scheme of Arrangement. If the Scheme is
not successfully approved at both court hearing dates, it is
unclear to what extent future complaint volumes would be impacted
by increased customer awareness generated by the issuance of the
practise statement letter and increased publicity connected to a
Scheme.
The selection of the key assumptions is a significant estimate.
Sensitivity analysis has therefore been performed on the complaints
provision considering incremental changes in the key assumptions,
should current estimates prove too high or too low. Sensitivities
are modelled individually and not in combination.
Sensitivity
Assumption GBPm
---------------------------------------- ------------
Complaint volumes(1) +/-13.4
Average uphold rate per complaint(2) +/- 16.7
Average redress per valid complaint(3) +/- 7.5
----------------------------------------- ------------
1 Future estimated volumes. Sensitivity analysis shows the
impact of a 20% change in the future number of complaints estimated
in the provision.
2 Uphold rate. Sensitivity analysis shows the impact of a 10
percentage point change in the applied uphold rate on the
forward-looking provision.
3 Average redress. Sensitivity analysis shows the impact of a
GBP500 change in average redress on the forward-looking
provision.
It is possible that the eventual outcome may differ materially
from the current estimate (and the sensitivities provided above)
and this could materially impact the financial statements as a
whole, given the Group's only activity is guarantor-backed consumer
credit. This is due to the risks and inherent uncertainties
surrounding the assumptions used in the provision calculation.
In particular, in the current estimate there is significant
uncertainty around the impact of both the timing and volume of
future complaints that will be received in a scenario where the
Scheme of Arrangement is not approved by the court, which may have
a material impact on the eventual volume and outcome of complaints.
Therefore, although the directors believe the sensitivities
presented above, both positive and negative, represent reasonably
possible changes; there is a greater risk of a less favourable
outcome to the Group.
The Group has disclosed a contingent liability with respect to
the FCA investigation announced on the 29 May 2020. The
investigation is with regards to the Groups'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. There
is significant uncertainty around the impact of this on the
business, the assumptions underlying the complaints provision and
any future regulatory intervention. See note 13 for further
details.
2.4 Modification of financial assets
2.4.1 Assessment of Covid-19 payment holidays as a
non-substantial modification
From 31 March 2020, Covid-19 relief measures were formally
introduced; for customers that request it, depending on their
individual circumstances, initial payment holidays with durations
of one, two or 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.
During the period, 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 plan 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 between months four and 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.
No capital or interest is forgiven as part of the forbearance
despite no interest accruing during the first three months of the
payment holiday; the customer is still expected to repay the loan
in full.
2. Critical accounting assumptions and key sources of estimation
uncertainty continued
The Group has assessed the payment holidays from both a
qualitative and quantitative perspective and has concluded that the
modifications are non-substantial; the Group is not originating new
assets with substantially different terms, the original asset's
contractual cashflows are deferred. Hence, Covid-19 payment
holidays are accounted for as non-substantial modification of
financial assets under IFRS 9. The Group considers the granting of
a payment holiday to be a non-substantial modification event; when
a customer is offered an extension to their original plan this is
considered a second non-substantial modification event. Assets have
not been derecognised as the modifications are not substantial;
instead, modification losses have been recognised in Q1, Q2 and Q3
respectively. 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 plan extension) and payment holiday
duration.
Following the introduction of automatic rolling extension of
payment plans up to a maximum of six months, a key judgement is the
expected payment plan duration. Customers on plans of one and two
month initial durations can first extend to a backstop of a three
month payment plan. Should the customer apply for an extension to
their original payment holiday beyond the three month backstop, the
payment holiday will automatically extend on a monthly basis up to
a maximum of six months unless the customer opts out. For all
payment holidays with durations of three months and over offered in
Q1 of the financial year ended 31 March 2021, if the customer has
not already opted out or the payment holiday ended, it has been
assumed that plans will continue to extend up to a maximum of six
months. For new payment holidays granted in Q3 where customers have
not opted out, it has been assumed that one and two month plans
will extend to the three month backstop and all customers plans
three months and over as at 31 December will continue to extend to
six months.
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 income statement
as a modification loss.
Customers granted Covid-19 payment holidays are assessed for
other potential indicators of SICR. This assessment includes a
historical review of the customer's payment performance and
behaviours. Following this review, those customers that have been
granted a Covid-19 payment holiday and are judged to have otherwise
experienced a SICR are transitioned to stage 2. Where the
modification loss relates 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. If the customer was
already in arrears, suggesting a significant increase in credit
risk event prior to them being granted a payment plan, the
modification loss relating to these customers is also 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
At the beginning of 2019, the Group set up an operation in
Ireland in order to lend to Irish customers. Prior to this, the
Group did not have more than one operating segment. The Group now
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 Group's segments
comprise Ireland (Amigo Loans Ireland Limited) and UK businesses
(the rest of the Group). The table below illustrates the segments
reported in the Group's management accounts used by ExCo as the
primary means for analysing trading performance. ExCo assesses net
loan book and revenue performance. The table below presents the
Group's performance on a segmental basis for 9 months to 31
December 2020 in line with reporting to the chief operating
decision maker:
9 months 9 months 9 months
ended ended ended
31-Dec-20 31-Dec-20 31-Dec-20
GBPm GBPm GBPm
Unaudited Unaudited Unaudited
UK Ireland Total
Revenue 135.7 1.8 137.5
Interest payable and funding facility fees (22.1) - (22.1)
Impairment of amounts receivable from customer (41.1) (0.4) (41.5)
----------- ----------- -----------
Administrative and other operating expenses (34.4) (1.0) (35.4)
Complaints expense (116.2) - (116.2)
----------- ----------- -----------
Total operating expenses (150.6) (1.0) (151.6)
Strategic review, formal sales process and
related financing costs (3.6) - (3.6)
----------- ----------- -----------
(Loss)/profit before tax (81.7) 0.4 (81.3)
Tax (charge)(1) (5.2) (0.3) (5.5)
----------- ----------- -----------
(Loss)/profit and total comprehensive income
attributable to equity shareholders of the
Group (86.9) 0.1 (86.8)
----------- ----------- -----------
31-Dec-20 31-Dec-20 31-Dec-20
GBPm GBPm GBPm
Unaudited Unaudited Unaudited
UK Ireland Total
Gross loan book 497.7 4.7 502.4
Less impairment provision (89.1) (1.1) (90.2)
----------- ----------- -----------
Net loan book 408.6 3.6 412.2
----------- ----------- -----------
(1) The tax charge for Ireland is primarily reflective of the
write-off of a GBP0.3m corporation tax asset in the period.
The carrying value of property, plant and equipment and
intangible assets included in the statement of financial position
materially all relates to the UK. The results of each segment have
been prepared using accounting policies consistent with those of
the Group as a whole.
4. Interest payable and funding facility
9 months ended 9 months ended Year ended
31-Dec-20 31-Dec-19 31-Mar-20
Unaudited Unaudited Audited
GBPm GBPm GBPm
Senior secured notes interest
payable 12.6 13.9 18.2
Funding facility fees 0.9 1.0 1.3
Securitisation interest payable 2.4 4.8 6.1
Complaints provision discount 2.0
unwind - -
Other finance costs 4.2 4.3 5.1
--------------- --------------- -----------
Total interest payable 22.1 24.0 30.7
=============== =============== ===========
Interest payable represents the total amount of interest expense
calculated using the effective interest method for financial
liabilities that are not treated as fair value through the profit
or loss. Non-utilisation fees within this figure are immaterial. No
interest was capitalised by the Group during the period.
Funding facility fees include non-utilisation fees and
amortisation of initial costs of the Group's senior secured
notes.
Included within other finance costs for the period is GBP0.7m of
written-off fees in relation to the Group's revolving credit
facility (RCF) (31 December 2019: GBP2.2m). These were previously
capitalised and were being spread over the expected life of the
Group's RCF. The facility was cancelled in May 2020. Also included
are GBP2.6m of fees relating to the Group's securitisation
facility; following renegotiation of the waiver period in place
over the facility on 14 August 2020 it was deemed a substantial
modification of the terms of the facility occurred. Hence, all
previously capitalised fees relating to the prior facility have
been written off, and subsequent fees have been charged to the
statement of comprehensive income. Non-utilisation fees of the
securitisation facility are also included in other finance
costs.
5. Modification of financial assets
Covid-19 payment holidays have been assessed as a
non-substantial financial asset modification under IFRS 9 (see note
2.4 for further details).
The amortised cost of loan balances pre-modification for all
payment holidays granted in the nine month period to 31 December
2020 was GBP265.2m of which GBP31.9m relates to loan balances that
have undergone a non-substantial modification in the third quarter
of the financial year (via plan extension or the granting of a new
plan). Total modification losses of GBP33.9m have been recognised
in the period, of which GBP3.0m was recognised in the third
quarter. In the quarter, GBP1.1m of previously recognised
modification losses were written-off for assets with
pre-modification loan balances totalling GBP14.2m. The modification
losses represent the change in the gross carrying amounts (i.e.
before impairment allowance) of the financial assets. The net
impact of modification on the ECL allowances associated with these
assets as at 31 December 2020 was a charge of GBP6.1m being
modification losses of GBP7.7m offset with a GBP1.6m decrease in
impairment caused by reduced post-modification carrying
amounts.
Of the GBP31.9m amortised cost of loan balances that were
non-substantially modified in the third quarter of the year, the
gross carrying amount for which 12 month ECLs were applied and
calculated was GBP25.9m whilst the carrying amount where lifetime
ECLs were applied was GBP6.0m. Where the modification losses relate
to customers that have been transitioned from stage 1 to stage 2,
the modification losses have been recognised as an impairment in
the Consolidated Statement of Comprehensive Income. The remainder
of the modification losses have been recognised in revenue.
9 months ended
31-Dec-20
Unaudited
Modification (loss) recognised in revenue (26.2)
Modification (loss) recognised in impairment (7.7)
---------------
Total modification (loss) (33.9)
---------------
6. Strategic review, formal sale process and related financing costs
Strategic review, formal sale process and related financing
costs are disclosed separately in the financial statements because
the Directors consider it necessary to do so to provide further
understanding of the financial performance of the Group. They are
material items of expense that have been shown separately due to
the significance of their nature and amount.
9 months 9 months
ended ended Year ended
31-Dec-20 31-Dec-19 31-Mar-20
Unaudited Unaudited Audited
GBPm GBPm GBPm
Strategic review and formal sale process
costs 3.6 - 2.0
----------- ----------- -----------
3.6 - 2.0
=========== =========== ===========
The costs above relate to advisor and legal fees in respect of
the strategic review and formal sale process announced on 27
January 2020.
7. Taxation
The effective tax rate of the business for the first nine months
is negative 6.8% (Q3 2020: 14.2%), lower than the prevailing UK
corporation tax rate of 19.0%. The Group previously recognised a
deferred tax asset in respect of the transition from IAS 39 to IFRS
9 relating to tax deductions available against future taxable
profits for a period of 10 years from transition. The Group's
current loss-making position and the current uncertainty over the
Group's future profitability means that it is no longer considered
probable that future taxable profits will be available against
which to recognise deferred tax assets. Consequently, no tax assets
have been recognised in respect of losses in the current period and
a tax charge has been recognised in the period primarily relating
to the write-off of the existing deferred tax asset.
Amigo received tax refunds totalling GBP23.6m from HMRC during
the period increasing the cash position and reducing net borrowings
respectively. GBP7.1m of the refund relates to loss relief for
carried back losses, and the remainder relates to repayment of
prior payments on account.
8. (Loss)/earnings per share
Basic loss/earnings per share is calculated by dividing the
loss/profit for the period attributable to equity shareholders by
the weighted average number of ordinary shares outstanding during
the period.
Diluted loss/profit per share calculates the effect on
loss/profit per share assuming conversion of all dilutive potential
ordinary shares. Dilutive potential ordinary shares are calculated
as follows:
i) For share awards outstanding under performance-related share
incentive plans such as the Share Incentive Plan (SIP) and the Long
Term Incentive Plans (LTIPs), the number of dilutive potential
ordinary shares is calculated based on the number of shares which
would be issuable if: (i) the end of the reporting period is
assumed to be the end of the schemes' performance period; and (ii)
the performance targets have been met as at that date.
ii) For share options outstanding under non-performance-related
schemes such as the Save As You Earn scheme (SAYE), a calculation
is performed to determine the number of shares that could have been
acquired at fair value (determined as the average annual market
share price of the Company's shares) based on the monetary value of
the subscription rights attached to outstanding share options. The
number of shares calculated is compared with the number of share
options outstanding, with the difference being the dilutive
potential ordinary shares.
Potential ordinary shares are treated as dilutive when, and only
when, their conversion to ordinary shares would decrease earnings
per share or increase loss per share.
9 months 9 months
ended ended Year ended
31-Dec-20 31-Dec-19 31-Mar-20
Unaudited Unaudited Audited
Pence Pence Pence
Basic EPS (18.3) 9.7 (5.7)
Diluted EPS (18.2) 9.6 (5.7)
Adjusted Basic EPS(1) (16.2) 9.4 (5.7)
========== ========== ===========
(1) Adjusted basic (loss)/earnings per share and earnings for
adjusted basic (loss)/earnings per share are non-GAAP measures.
The Directors are of the opinion that the publication of the
adjusted (loss)/earnings per share is useful as it gives a better
indication of ongoing business performance. Reconciliations of the
loss/earnings used in the calculations are set out below. Note
figures are presented net of tax:
9 months 9 months
ended ended Year ended
31-Dec-20 31-Dec-19 31-Mar-20
Unaudited Unaudited Audited
GBPm GBPm GBPm
(Loss)/earnings for basic EPS (86.8) 45.9 (27.2)
Senior secured note buyback - (0.1) (0.3)
Strategic review, formal sale process and
related financing costs 3.6 - 2.0
Write-off of revolving credit facility (RCF)
fees 0.7 2.2 2.2
Write-off of unamortised securitisation 1.2 - -
fees
Tax provision release (2.5) (2.9) (2.9)
Tax asset write-off 7.8 - -
Less tax impact (1.0) (0.4) (0.7)
---------- ---------- -----------
(Loss)/earnings for adjusted basic EPS(1) (77.0) 44.7 (26.9)
---------- ---------- -----------
Basic weighted average number of shares
(m) 475.3 475.3 475.3
Dilutive potential ordinary shares (m)(2) 2.7 1.2 2.2
---------- ---------- -----------
Diluted weighted average number of shares
(m) 478.0 476.5 477.5
---------- ---------- -----------
(1) Adjusted basic (loss)/earnings per share and earnings for
adjusted basic (loss)/earnings per share are non-GAAP measures.
(2) Dilutive potential ordinary shares increased from 2.6m at Q2
to 2.7m at Q3 as a result of the issuance of a new Long Term
Incentive Plan (LTIP) net of the impact of share scheme forfeiture
in respect of the former Chief Financial Officer.
9. Customer loans and receivables
The table shows the gross loan book and deferred broker costs by
stage, within the scope of the IFRS 9 ECL framework.
31-Dec-20 31-Dec-19 31-Mar-20
Unaudited Unaudited Audited
Customer loans and receivables GBPm GBPm GBPm
Stage 1 364.9 691.6 601.1
Stage 2 93.5 79.7 106.8
Stage 3 44.0 41.7 42.0
---------- ---------- ----------
Gross Loan Book 502.4 813.0 749.9
Deferred broker costs(1) - Stage 1 8.7 19.1 16.5
Deferred broker costs(1) - Stage 2 2.3 2.2 2.9
Deferred broker costs(1) - Stage 3 1.1 1.1 1.1
---------- ---------- ----------
Loan book inclusive of deferred broker
costs 514.5 835.4 770.4
Provision(2) (90.2) (90.7) (106.8)
---------- ---------- ----------
Customer loans and receivables 424.3 744.7 663.6
---------- ---------- ----------
(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 GBP6.2m (see note 2.1.4 for further details).
As at 31 December 2020, GBP211.7m of the loans to customers had
their beneficial interest assigned to the Group's special purpose
vehicle (SPV) entity, namely AMGO Funding (No. 1) Limited, as
collateral for securitisation transactions (Q3 FY20:
GBP341.0m).
Ageing of gross loan book (excluding deferred brokers fees and
provision) by days overdue.
31-Dec-20 31-Dec-19 31-Mar-20
Unaudited Unaudited Audited
GBPm GBPm GBPm
Current 376.2 668.8 606.8
1 - 30 days 57.7 84.7 83.5
31 to 60 days 24.5 17.7 17.6
>61 days 44.0 41.8 42.0
---------- ---------- ----------
Gross Loan Book 502.4 813.0 749.9
---------- ---------- ----------
The following table further explains changes in the gross
carrying amount of loans receivable from customers to explain their
significance to the changes in the loss allowance for the same
portfolios.
31-Dec-20 31-Dec-19 31-Mar-20
Unaudited Unaudited Audited
Customer loans and receivables GBPm GBPm GBPm
Due within one year 241.8 421.8 353.8
Due in more than one year 170.4 300.5 289.3
Net Loan book 412.2 722.3 643.1
Deferred broker costs (1)
Due within one year 7.5 19.9 13.3
Due in more than one year 4.6 2.5 7.2
---------- ---------- ----------
Customer loans and receivables 424.3 744.7 663.6
---------- ---------- ----------
(1) Deferred broker costs are recognised within customer loans
and receivables and are amortised over the expected life of those
assets using the effective interest rate ("EIR") method.
10. Other receivables
31-Dec-20 31-Dec-19 31-Mar-20
Unaudited Unaudited Audited
GBPm GBPm GBPm
Current
Other receivables 0.2 3.4 0.1
Prepayments and accrued income 1.0 1.0 1.3
Amounts owed by parent undertakings - 1.0 -
1.2 5.4 1.4
========== ========== ==========
Other receivables as at 31 December 2019 included the
recognition of an asset worth GBP3.3m, which related to the net
present value of expected future cash inflows from charged off
loans; this asset has subsequently been written-off.
11. Trade and other payables
31-Dec-20 31-Dec -19 31-Mar-20
Unaudited Unaudited Audited
GBPm GBPm GBPm
Current
Accrued senior secured note interest 8.1 8.1 3.7
Trade payables 0.4 0.8 0.8
Taxation and social security 0.9 0.8 0.7
Other creditors 2.9 - 0.8
Accruals and deferred income 8.1 9.0 7.5
---------- ----------- ----------
20.4 18.7 13.5
---------- ----------- ----------
The increase in other creditors year-on-year is primarily
attributable to the recognition of expected cost to re-purchase
charged off loans previously sold to a third party, where a lending
decision complaint has been upheld in the customers favour.
Accruals and deferred income as at 31 December 2020 include GBP2.7m
of accruals relating to costs associated with the proposed Scheme
of Arrangement.
12. Bank and other borrowings
31-Dec-20 31-Dec-19 31-Mar-20
Unaudited Unaudited Audited
GBPm GBPm GBPm
Non-current liabilities
Amounts falling due 2-3
years
Securitisation facility 112.2 - 230.0
Amounts falling due 3-4
years
Senior secured notes 231.9 - 231.3
Securitisation facility - 266.3 -
Bank loan - (0.7) -
Amounts falling due 4-5
years
Bank loan - - (0.7)
Amounts falling due > 5
years
Senior secured notes - 231.2 -
---------- ---------- ----------
344.1 496.8 460.6
---------- ---------- ----------
Borrowings include senior secured notes with a principal value
of GBP234.1m, GBP231.9m net of unamortised fees (Q3 FY20:
GBP231.2m). The senior secured notes are secured by a charge over
the Group's assets and a cross-guarantee given by other
subsidiaries.
The Group also has a GBP250m securitisation facility, of which
GBP112.2m was drawn down as at 31 December 2020. The facility size
reduced from GBP300m to GBP250m on 14 August 2020. The facility
renegotiations were deemed to cause a substantial modification of
the facility, meaning GBP1.2m of previously capitalised fees have
been charged to the income statement (see note 4). On 27 November
2020 the Group announced an agreement had been reached to extend
the securitisation facilities performance trigger waiver period to
25 June 2021. All cash generation in relation to the facility is
restricted and will continue to be used to reduce the outstanding
balance; at the period end, a financial asset of GBP5.7m represents
restricted cash which will subsequently be used to reduce the drawn
down balance. Any agreement with an upheld complaint within the
securitisation vehicle is repurchased for cash of equivalent
value.
The bank loan relates to the Group's prior revolving credit
facility, which was cancelled on 27 May 2020; this resulted in
GBP0.7m of capitalised fees being charged to the income statement
(see note 4).
12. Provisions
Provisions are recognised for present obligations arising as the
consequence of past events where it is more likely than not that a
transfer of economic benefit will be necessary to settle the
obligation, which can be reliably estimated.
31-Dec-20 31-Dec-19 31-Mar-20
Unaudited Unaudited Audited
GBPm GBPm GBPm
Opening provision 117.5 - -
Provisions made during the period 116.2 26.6 126.8
Discount unwind (note 4) 2.0 - -
Utilised during the period (84.8) (7.9) (9.3)
---------- ---------- ----------
Closing provision 150.9 18.7 117.5
---------- ---------- ----------
2020
Non-current - 5.3 11.8
Current 150.9 13.4 105.7
---------- ---------- ----------
150.9 18.7 117.5
---------- ---------- ----------
Customer complaints redress
As at 31 December 2020, the Group has recognised a complaints
provision totalling GBP150.9m in respect of customer complaints
redress and associated costs. Utilisation in the period totalled
GBP84.8m. Our lending practices have been subject to significant
shareholder, regulatory and customer attention, which combined with
FOS's evolving interpretation of appropriate lending decisions
during the period, has resulted in an increase in the number of
complaints received. A charge of GBP116.2m was recognised in the 9
months to 31 December 2020.
The current provision reflects the estimate of the cost of
redress relating to customer-initiated complaints and complaints
raised by claims management companies (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 provision is not intended
to cover the eventual cost of all future complaints; such cost
remains unquantifiable and unpredictable.
There is significant uncertainty around: the potential success
of the proposed Scheme of Arrangement; the emergence period for
complaints, in particular the impact of customer communications in
connection with the proposed Scheme of Arrangement in the event the
Scheme does not received court approval; the activities of claims
management companies; and the developing view of the FOS on
individual affordability complaints, all of which could
significantly affect complaint volumes, uphold rates and redress
costs. It is possible that the eventual outcome may differ
materially from current estimates which could materially impact the
financial statements as a whole, given the Group's only activity is
guarantor-backed consumer credit. This is due to the risks and
inherent uncertainties surrounding the assumptions used in the
provision calculation. In particular there is significant
uncertainty around the potential success of the proposed Scheme of
Arrangement, the impact of Financial Ombudsman actions and
potential changes to remediation arising from continuous
improvement of the Group's operational practices, which may have a
material impact on the eventual volume and outcome of
complaints.
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.
See note 2.3 for details of the key assumptions that involve
significant management judgement and estimation in the provision
calculation, and also for sensitivity analysis.
Contingent liability
FCA Investigation
On 29 May 2020 the FCA commenced an investigation into whether
or not 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.
Such investigations take an average of two years to conclude but
the investigation could be concluded within the next twelve months.
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.
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.
13. Immediate and ultimate parent undertaking
During the period the immediate and ultimate parent undertaking
changed. As at 31 March 2020, the immediate and ultimate parent
undertaking was Richmond Group Limited. Following the year end,
Richmond Group Limited sold holdings in Amigo and therefore there
has been a change in immediate and ultimate parent undertakings in
the period. There has been no declaration of holding from Richmond
Group since the sale. The immediate and ultimate parent undertaking
as at 31 December 2020 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 2020 are available upon request from the
Company's registered office at Nova Building, 118-128 Commercial
Road, Bournemouth, United Kingdom, BH2 5LT.
14. Related Party Transactions
The Group had no related party transactions during the nine
month period to 31 December 2020 that would materially affect the
performance of the Group. Details of the transactions for the year
ended 31 March 2020 can be found in note 23 of the Amigo Holdings
PLC financial year ended 31 March 2020 financial statements.
As at 31 December 2019 the Group had a balance of GBP1.0m
charged to the previous ultimate parent company, Richmond Group
Limited; all outstanding balances have subsequently been
settled.
All Intra-group transactions between the Company and the fully
consolidated subsidiaries or between fully consolidated
subsidiaries are eliminated on consolidation.
15. 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 Performance Method of settlement Number Vesting Exercise
options condition accounting of instruments period price
------ ------------------------- ------------ --------------------- ---------------- ---------- ---------
2020 December 2020 - November Y Equity 14,250,000 3 years GBP-
LTIP 2023
------ ------------------------- ------------ --------------------- ---------------- ---------- ---------
2020 September 2020 N Equity 4,966,866 3.3 years GBP0.111
SAYE
------ ------------------------- ------------ --------------------- ---------------- ---------- ---------
Granted LTIPs are subject to the following performance
conditions.
- 40% of the LTIP Awards vest subject to an absolute total
shareholder return (TSR) performance condition which will be
measured over a three year performance period commencing on 1
December 2020. Straight line vesting applies to share price growth
between GBP0.12 and GBP0.40;
- 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 1 October
2020. Straight line vesting applies to EPS growth between GBP0.01
and GBP0.04; 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 GBP0.12 0%
GBP0.40 100%
EPS Target Proportion of LTIP Awards subject
to EPS condition that vest
------------------------ -------------------------------------
Below GBP0.01 0%
GBP0.04 100%
Non-financial measures 30%
------------------------ -------------------------------------
16. Post balance sheet events
Scheme of Arrangement update
Amigo announced on 25 January 2021 the Company has incorporated
a new wholly owned subsidiary, ALL Scheme Ltd "SchemeCo", for the
purpose of applying for a Scheme of Arrangement under Part 26 of
the Companies Act 2006. The Company will seek to contact all known
Scheme Creditors and there will be advertisements in certain
national newspapers to ensure all contact details are fully up to
date. Amigo wants to ensure that all relevant customers are able to
participate in the Scheme.
The Court convening hearing for the Scheme is listed for 30
March 2021. The creditors under the Scheme are, subject to limited
exclusions, all current and former customers (both borrowers and
guarantors) with any potential redress claims in relation to
historic loans made by Amigo Loans Ltd before 21 December 2020.
These redress claims are primarily related to affordability but
also include all claims arising out of or in relation to those
historic loans and certain related liabilities owed to the FOS.
The FCA has informed Amigo that it cannot provide a "letter of
non-objection" without having completed its assessment and that the
FCA reserves the right to take such action as it may consider
appropriate once the terms of the Scheme and its methodology have
been finalised, or otherwise.
Amigo has now withdrawn its request for a "letter of
non-objection" but believes it will be able to implement the Scheme
because it proposes to use the time prior to the Court convening
hearing listed for 30 March 2021 to work constructively with the
FCA to resolve any concerns which the FCA has. Amigo continues
discussions with the Financial Conduct Authority and the FOS, to
keep them informed of the Scheme as it has progressed.
Amigo Holdings PLC's shareholders and all the other creditors of
Amigo are not party to the Scheme and their rights are unaffected
by it. The Company will not be seeking prior authority from
shareholders and bondholders to proceed with the Scheme.
The FCA required the appointment of a skilled person under
section 166 of the Financial Services and Markets Act 2000, to
review the redress methodology, to subsequently review its
implementation, and to comment on the fairness of the Scheme. The
skilled person will also assess the extent to which Amigo is
meeting threshold conditions. The underlying methodology for
determining claims is a critical component of the Scheme as it is
this that will be used to determine whether a claim is valid for
the purposes of the Scheme and its amount.
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.
9 months ended 9 months Year ended
31 December ended 31 March
Figures in GBPm, unless otherwise 2020 31 December 2020
stated(7) 2019
-------------------------------------- --------------- ------------- -----------
Average gross loan book 626.2 798.0 766.5
Gross loan book 502.4 813.0 749.9
Percentage of book <31 days past
due 86.4% 92.7% 92.1%
Net loan book 412.2 722.3 643.1
Net borrowings (179.5) (466.6) (396.3)
Net borrowings/gross loan book 35.7% 57.4% 52.8%
Net borrowings/equity(1) 2.2x 1.8x 2.4x
Revenue yield(2) 29.3% 36.4% 38.4%
Risk adjusted revenue 96.0 149.3 181.0
Risk adjusted margin 20.4% 24.9% 23.6%
Net interest margin 20.8% 31.5% 32.7%
Adjusted net interest margin(3) 24.6% 32.4% 34.4%
Cost of funds percentage 4.3% 4.0% 4.0%
Impairment:revenue ratio 30.2% 31.5% 38.5%
Impairment charge as a percentage
of loan book 11.0% 11.3% 15.1%
Cost:income ratio 110.3% 32.9% 63.3%
Operating cost:income ratio (ex.
complaints) 25.7% 20.7% 20.2%
Adjusted profit/(loss) after tax (77.0) 44.7 (26.9)
Return on assets(6) (17.3)% 8.0% (3.6)%
Adjusted return on average assets(4) (15.3)% 7.8% (3.6)%
Return on equity(6) (93.3)% 24.5% (13.2)%
Adjusted return on average equity(5) (82.7)% 23.9% (13.1)%
-------------------------------------- --------------- ------------- -----------
Amendments to alternative performance measures
(1) Net borrowings/equity - The definition of this alternative
performance measure (APM) has been amended from net
borrowings/adjusted tangible equity to net borrowings/equity with
all comparatives restated accordingly. Adjusted tangible equity was
relevant historically due to the Group's intangible assets and
shareholder loans at the time; the Group no longer holds
shareholder loan notes or material intangible assets, so the
definition has been updated.
(2) Adjusted revenue yield - Adjusted revenue yield was
historically presented to remove the IFRS 9 stage 3 revenue
adjustment enabling meaningful comparisons between periods using
IAS 39 and IFRS 9 upon transition to IFRS 9. Now, all periods
disclosed are under IFRS 9 and hence not deemed relevant to
disclose this metric going forward. Hence, only revenue yield is
now disclosed; adjusted revenue yield has been removed.
(3) Adjusted net interest margin - this metric has been added in
the period, showing net interest income over gross loan book as an
alternative to the metric net interest margin which shows net
interest income over interest bearing assets.
(4) Adjusted return on average assets - The definition of
average assets has been amended to include all other receivables as
these were previously excluded and this is felt to be more useful
to users of the financial statements.
(5) Adjusted return on average equity - This definition has been
amended from adjusted return on average adjusted tangible equity to
adjusted return on average equity.
(6) Return on assets and return on equity are new APMs disclosed
this period as statutory alternatives to adjusted return on assets
and adjusted return on equity respectively.
(7) Deleted alternative performance measures include: gross
borrowings/gross loan book, adjusted free cash flow, adjusted
tangible equity, adjusted revenue yield, profit and adjusted profit
after tax excluding complaints costs. These APMs have been removed
as part of an exercise to simplify APM disclosures and align those
disclosed with measures used internally by management when
reviewing business performance.
1. Average gross loan book
31-Dec-20 31-Dec-19 31-Mar-20
GBPm GBPm GBPm
Opening gross loan book 749.9 783.0 783.0
Closing gross loan book 502.4 813.0 749.9
---------- ---------- ----------
Average gross loan book (1) 626.2 798.0 766.5
---------- ---------- ----------
(1) Gross loan book represents total outstanding loans and
excludes deferred broker costs.
2. The percentage of balances fully up to date or within 31 days
overdue is presented as this is useful in reviewing the quality of
the loan book.
31-Dec-20 31-Dec-19 31-Mar-20
GBPm GBPm GBPm
Current 376.2 668.8 606.8
1-30 days 57.7 84.7 83.5
31-60 days 24.5 17.7 17.6
>61 days 44.0 41.8 42.0
---------- ---------- ----------
Gross loan book 502.4 813.0 749.9
---------- ---------- ----------
Percentage of book <31 days past due 86.4% 92.7% 92.1%
---------- ---------- ----------
3. "Net loan book" is a subset of customer loans and receivables
and represents the interest yielding loan book when the IFRS 9
impairment provision is accounted for, comprised of:
31-Dec-20 31-Dec-19 31-Mar-20
GBPm GBPm GBPm
Gross loan book(1) 502.4 813.0 749.9
Provision(2) (90.2) (90.7) (106.8)
---------- ---------- ----------
Net loan book(3) 412.2 722.3 643.1
---------- ---------- ----------
(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:
31-Dec-20 31-Dec-19 31-Mar-20
GBPm GBPm GBPm
Borrowings (344.1) (496.8) (460.6)
Cash at bank and in hand 164.6 30.2 64.3
---------- ---------- ----------
Net borrowings (179.5) (466.6) (396.3)
---------- ---------- ----------
This is deemed useful to show total borrowings if cash available
at year 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.
31-Dec-20 31-Dec-19 31-Mar-20
GBPm GBPm GBPm
Net borrowings (GBPm) (179.5) (466.6) (396.3)
Gross loan book (GBPm) 502.4 813.0 749.9
---------- ---------- ----------
Net borrowings/gross loan book 35.7% 57.4% 52.8%
---------- ---------- ----------
6. Net borrowings/equity
31-Dec-20 31-Dec-19 31-Mar-20
GBPm GBPm GBPm
Shareholder equity 80.7 254.7 167.4
Net borrowings (179.5) (466.6) (396.3)
Net borrowings/equity 2.2x 1.8x 2.4x
---------- ---------- ----------
This is the Group's preferred metric used to assess gearing.
7. The Group defines "revenue yield" as annualised revenue over
the average of the opening and closing gross loan book for the
period.
31-Dec-20 31-Dec-19 31-Mar-20
GBPm GBPm GBPm
Revenue 137.5 218.0 294.2
Opening loan book 749.9 783.0 783.0
Closing loan book 502.4 813.0 749.9
Average loan book 626.2 798.0 766.5
---------- ---------- ----------
Revenue yield (annualised) 29.3% 36.4% 38.4%
---------- ---------- ----------
This is deemed useful in assessing the gross return on the
Group's loan book.
8. The Group defines "risk adjusted revenue" as revenue less
impairment charge.
31-Dec-20 31-Dec-19 31-Mar-20
GBPm GBPm GBPm
Revenue 137.5 218.0 294.2
Impairment charge (41.5) (68.7) (113.2)
---------- ---------- ----------
Risk adjusted revenue 96.0 149.3 181.0
---------- ---------- ----------
Risk adjusted revenue is not a measurement of performance under
IFRS, and you should not consider risk adjusted revenue as an
alternative to loss/profit before tax as a measure of the Group's
operating performance, as a measure of the Group's ability to meet
its cash needs or as any other measure of performance under
IFRS.
9. The Group defines "risk adjusted margin" as annualised risk
adjusted revenue divided by the average of gross loan book.
31-Dec-20 31-Dec-19 31-Mar-20
GBPm GBPm GBPm
Risk adjusted revenue 96.0 149.3 181.0
Average gross loan book 626.2 798.0 766.5
---------- ---------- ----------
Risk adjusted margin (annualised) 20.4% 24.9% 23.6%
---------- ---------- ----------
This measure is used internally to review an adjusted return on
the Group's primary key assets.
10. The Group defines "net interest margin" as annualised net
interest income divided by average interest-bearing assets (being
both gross loan book and cash) at the beginning of the period and
end of the period.
31-Dec-20 31-Dec-19 31-Mar-20
GBPm GBPm GBPm
Revenue 137.5 218.0 294.2
Interest payable and funding facility fees (22.1) (24.0) (30.7)
---------- ---------- ----------
Net interest income 115.4 194.0 263.5
---------- ---------- ----------
Opening interest bearing assets (gross loan
book plus cash) 814.2 798.2 798.2
Closing interest bearing assets (gross loan
book plus cash) 667.0 843.2 814.2
Average interest-bearing assets (customer
loans and receivables plus cash) 740.6 820.7 806.2
---------- ---------- ----------
Net interest margin (annualised) 20.8% 31.5% 32.7%
---------- ---------- ----------
Adjusted net interest margin, being net interest income divided
by average gross loan book is also presented below:
31-Dec-20 31-Dec-19 31-Mar-20
GBPm GBPm GBPm
Net interest income 115.4 194.0 263.5
Average gross loan book (see APM number 1) 626.2 798.0 766.5
---------- ---------- ----------
Adjusted net interest margin (annualised) 24.6% 32.4% 34.4%
---------- ---------- ----------
11. The Group defines "cost of funds" as annualised interest
payable divided by the average of gross loan book at the beginning
and end of the period.
31-Dec-20 31-Dec-19 31-Mar-20
GBPm GBPm GBPm
Cost of funds 22.1 24.0 30.7
Less complaints discount unwind expense (2.0) - -
Adjusted cost of funds 20.1 24.0 30.7
Average gross loan book (see APM number 1) 626.2 798.0 766.5
---------- ---------- ----------
Cost of funds percentage (annualised) 4.3% 4.0% 4.0%
---------- ---------- ----------
This measure is used by the Group to monitor the cost of funds
and impact of diversification of funding.
12. Impairment charge as a percentage of revenue
"impairment:revenue ratio" represents the Group's impairment charge
for the period divided by revenue for the period.
31-Dec-20 31-Dec-19 31-Mar-20
GBPm GBPm GBPm
Revenue 137.5 218.0 294.2
Impairment of amounts receivable from customers 41.5 68.7 113.2
---------- ---------- ----------
Impairment charge as a percentage of revenue 30.2% 31.5% 38.5%
---------- ---------- ----------
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 annualised impairment charge for the period divided by
closing gross loan book.
31-Dec-20 31-Dec-19 31-Mar-20
GBPm GBPm GBPm
Impairment charge 41.5 68.7 113.2
Closing gross loan book 502.4 813.0 749.9
---------- ---------- ----------
Impairment charge as a percentage of loan
book (annualised) 11.0% 11.3% 15.1%
---------- ---------- ----------
This allows review of impairment level movements over the
period.
14. The Group defines "cost:income ratio" as operating expenses
excluding strategic review, formal sale process and related
financing costs divided by revenue.
31-Dec-20 31-Dec-19 31-Mar-20
GBPm GBPm GBPm
Revenue 137.5 218.0 294.2
Operating expenses 151.6 71.8 186.2
---------- ---------- ----------
Cost:income ratio 110.3% 32.9% 63.3%
---------- ---------- ----------
This measure allows review of cost management.
15. Operating cost:income ratio, defined as the cost:income
ratio excluding the complaints provision, is:
31-Dec-20 31-Dec-19 31-Mar-20
GBPm GBPm GBPm
Revenue 137.5 218.0 294.2
Operating expenses excluding complaints expense 35.4 45.2 59.4
---------- ---------- ----------
Operating cost:income ratio 25.7% 20.7% 20.2%
---------- ---------- ----------
16. The following table sets forth a reconciliation of
profit/loss after tax to "adjusted (loss)/profit after tax" for the
9 months to 31 December 2020, 2019 and year to 31 March 2020.
31-Dec-20 31-Dec-19 31-Mar-20
GBPm GBPm GBPm
Reported (loss)/profit after tax (86.8) 45.9 (27.2)
Senior secured note buyback - (0.1) (0.3)
RCF fees 0.7 2.2 2.2
Securitisation fees 1.2 - -
Strategic review and formal sale process
costs 3.6 - 2.0
Tax provision release (2.5) (2.9) (2.9)
Deferred tax asset write-off 7.8 - -
Less tax impact (1.0) (0.4) (0.7)
---------- ---------- ----------
Adjusted (loss)/profit after tax (77.0) 44.7 (26.9)
---------- ---------- ----------
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.
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 prior facility
have been written off. A deferred tax asset of GBP6.6m has been
written off and charged to the consolidated statement of
comprehensive income; this was recognised upon adoption of IFRS 9
following transition from IAS 39. Due to inherent uncertainty
surrounding future profitability, this asset has been written
off.
Additional tax assets totalling GBP1.7m have also been charged
to the consolidated statement of comprehensive income in the period
due to this uncertainty. These are one-off events and hence should
be excluded when reviewing underlying business performance. The tax
provision release refers to the release of a tax provision no
longer required. Strategic review and formal sale process costs
relate to the strategic review and formal sale processes both
announced in January 2020.
None are business-as-usual transactions. Hence, removing these
items is deemed to give a view of underlying (loss)/profit
adjusting for non-business-as-usual items within the financial
year.
17. Return on assets (ROA) refers to annualised loss/profit over
tax as a percentage of average assets.
31-Dec-20 31-Dec-19 31-Mar-20
GBPm GBPm GBPm
(Loss)/profit after tax (86.8) 45.9 (27.2)
Customer loans and receivables 424.3 744.7 663.6
Other receivables and current assets 1.2 6.6 23.2
Cash 164.6 30.2 64.3
---------- ---------- ----------
Total 590.1 781.5 751.1
---------- ---------- ----------
Average assets 670.6 763.3 748.1
---------- ---------- ----------
Return on assets (annualised) (17.3)% 8.0% (3.6)%
---------- ---------- ----------
18. Adjusted return on assets refers to annualised adjusted
loss/profit over tax as a percentage of average assets.
31-Dec-20 31-Dec-19 31-Mar-20
GBPm GBPm GBPm
Adjusted (loss)/profit after tax (77.0) 44.7 (26.9)
Customer loans and receivables 424.3 744.7 643.1
Other receivables and current assets 1.2 6.6 21.9
Cash 164.6 30.2 64.3
---------- ---------- ----------
Total 590.1 781.5 729.3
---------- ---------- ----------
Average assets 670.6 763.3 737.1
---------- ---------- ----------
Adjusted return on assets (annualised) (15.3)% 7.8% (3.6)%
---------- ---------- ----------
19. "Return on equity" (ROE) is calculated as annualised
loss/profit after tax divided by the average of equity at the
beginning of the period and the end of the period.
31-Dec-20 31-Dec-19 31-Mar-20
GBPm GBPm GBPm
(Loss)/profit after tax (86.8) 45.9 (27.2)
Shareholder equity 80.7 254.7 167.4
Average equity 124.1 249.6 206.0
---------- ---------- ----------
Adjusted return on average equity (annualised) (93.3)% 24.5% (13.2)%
---------- ---------- ----------
20. "Adjusted return on equity" is calculated as annualised
adjusted loss/profit after tax divided by the average of equity at
the beginning of the period and the end of the period.
31-Dec-20 31-Dec-19 31-Mar-20
GBPm GBPm GBPm
Adjusted (loss)/profit after tax (77.0) 44.7 (26.9)
Shareholder equity 80.7 254.7 167.4
Average equity 124.1 249.6 206.0
---------- ---------- ----------
Adjusted return on average equity (annualised) (82.7)% 23.9% (13.1)%
---------- ---------- ----------
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