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 £1,000 to £10,000 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 £ million (£m) 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 £80.7m and a cash balance of £164.6m 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 £250m securitisation facility (reduced from £300m on 17 August 2020), of which £137.8m 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 £234.1m 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);

•     £15m 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 (33%)	Moderately severe impact of an initial three month spike in the rate of unemployment	High severity of an initial three month spike in the rate of unemployment	Extremely high severity of an initial three month spike in the rate of unemployment
Six month duration  (33%)	Moderately severe impact of the increase in unemployment but with an extended duration of six months	High severity of the increase in unemployment but with an extended duration of six months	Extremely high severity of the increase in unemployment but with an extended duration of six months
Twelve month duration (33%)	Moderately severe impact of the increase in unemployment and assuming that the deterioration in unemployment continues to increase for a full year	High severity of the increase in unemployment and assuming that the deterioration in unemployment continues to increase for a full year	Extremely high severity of the increase in unemployment and assuming that the deterioration in unemployment continues to increase for a full year

 

The following table details the absolute impact on the current ECL provision of £90.2m 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 £7.9m. 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 £15.4m. The scenarios above demonstrate a range of ECL provisions from £82.3m to £105.6m.

 

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 £6.2m.

 

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 (£) - 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.

 

Assumption		Sensitivity £m
Complaint volumes1		+/-13.4
Average uphold rate per complaint2		+/- 16.7
Average redress per valid complaint3		+/- 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 £500 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 ended 31-Dec-20 £m Unaudited UK	9 months ended 31-Dec-20 £m Unaudited Ireland	9 months ended 31-Dec-20 £m Unaudited 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 £m Unaudited UK	31-Dec-20 £m Unaudited Ireland	31-Dec-20 £m Unaudited 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

 

¹The tax charge for Ireland is primarily reflective of the write-off of a £0.3m 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
			£m	£m	£m
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 unwind			2.0	-	-
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 £0.7m of written-off fees in relation to the Group's revolving credit facility (RCF) (31 December 2019: £2.2m). 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 £2.6m 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 £265.2m of which £31.9m 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 £33.9m have been recognised in the period, of which £3.0m was recognised in the third quarter. In the quarter, £1.1m of previously recognised modification losses were written-off for assets with pre-modification loan balances totalling £14.2m. 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 £6.1m being modification losses of £7.7m offset with a £1.6m decrease in impairment caused by reduced post-modification carrying amounts.

 

Of the £31.9m 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 £25.9m whilst the carrying amount where lifetime ECLs were applied was £6.0m. 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 ended 31-Dec-20	9 months ended 31-Dec-19	Year ended 31-Mar-20
					Unaudited	Unaudited	Audited
					£m	£m	£m
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 £23.6m from HMRC during the period increasing the cash position and reducing net borrowings respectively. £7.1m 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 ended	9 months 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 EPS1						(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 ended		9 months ended	Year ended
				31-Dec-20		31-Dec-19	31-Mar-20
				Unaudited		Unaudited	Audited
				£m		£m	£m
(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 fees				1.2		-	-
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 EPS1				(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	£m	£m	£m
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 costs1- Stage 1	8.7	19.1	16.5
Deferred broker costs1- Stage 2	2.3	2.2	2.9
Deferred broker costs1- Stage 3	1.1	1.1	1.1
Loan book inclusive of deferred broker costs	514.5	835.4	770.4
Provision2	(90.2)	(90.7)	(106.8)
Customer loans and receivables	424.3	744.7	663.6

 

¹Deferred 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.

²Included within the provision is a judgemental management overlay of £6.2m (see note 2.1.4 for further details).

 

As at 31 December 2020, £211.7m 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: £341.0m).

 

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
	£m	£m	£m
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			£m	£m	£m
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 costs1
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
				£m	£m	£m
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 £3.3m, 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
						£m	£m	£m
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 £2.7m 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
				£m	£m	£m
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 £234.1m, £231.9m net of unamortised fees (Q3 FY20: £231.2m). 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 £250m securitisation facility, of which £112.2m was drawn down as at 31 December 2020. The facility size reduced from £300m to £250m on 14 August 2020. The facility renegotiations were deemed to cause a substantial modification of the facility, meaning £1.2m 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 £5.7m 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 £0.7m 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
	£m	£m	£m
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 £150.9m in respect of customer complaints redress and associated costs. Utilisation in the period totalled £84.8m. 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 £116.2m 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 £1.0m 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 options	Performance condition	Method of settlement accounting	Number of instruments	Vesting period	Exercise price
2020 LTIP	December 2020 - November 2023	Y	Equity	14,250,000	3 years	£-
2020 SAYE	September 2020	N	Equity	4,966,866	3.3 years	£0.111

 

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 £0.12 and £0.40;

-    30% of the LTIP Awards are subject to the Group meeting an earnings per share (EPS) performance condition which will be measured over a three year performance period commencing 1 October 2020. Straight line vesting applies to EPS growth between £0.01 and £0.04; and

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

 

Absolute TSR target	Proportion of LTIP Awards subject to Absolute TSR condition that vest
Below £0.12	0%
£0.40	100%
EPS Target	Proportion of LTIP Awards subject to EPS condition that vest
Below £0.01	0%
£0.04	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.